HealthSouth said it expects an upcoming restatement of its financials to produce a cut in its shareholders’ equity of $3.8 billion to $4.6 billion.
The embattled health services company, whose founder, Richard Scrushy, is currently on trial for the company’s $2.7 billion fraud, warned that it’s currently unable to prepare balance sheets for completed periods or projected ones for future periods.
For that reason, reconciliation of non-GAAP financial measures with those calculated in accordance with Generally Accepted Accounting Principles is currently impossible. “In addition, once our reconstruction and restatement process is completed, it could cause changes in the results indicated,” the company added in a filing with the Securities and Exchange Commission.
The SEC and the U.S, Department of Justice are investigating the company’s financial reporting. The last balance sheet that HealthSouth issued was for the December 2001 calendar year. The company reported a shareholders’ equity of $3.8 billion at that time.
But those figures will be restated. The company said in the SEC filing that a draft of its 2000 through 2003 “comprehensive” 10-K is being finalized. HealthSouth will probably release those statements sometime in the second quarter, according to published reports.
The HealthSouth fraud “was extremely complicated,” the company pointed out in the regulatory filing. Among the resulting complications in performing the restatement have been that 1.4 million accounts had to be analyzed and 92 percent of the accounts required adjustment. Further, more than 750 acquisitions had to be analyzed and redone, including 19 large acquisitions.
“The fact that HealthSouth has many partnerships added to the complexity of the restatement process,” the company reported in the filing. “As many of the former financial employees were indicted or left the company and since the prior auditor work papers could not be reviewed, knowledge of historical accounting further complicated the restatement.”
Finding documentation for long-lived assets that were acquired more than 10 years ago “has been a challenge,” according to the company.