HealthSouth widens first-quarter loss to $435.1 million, revenue drops to $792 million

(AP) Rehabilitation chain HealthSouth Corp. on Monday reported its first regular quarterly earnings statement since a $2.7 billion accounting fraud was uncovered three years ago, revealing that its first-quarter loss widened and revenue fell.

The company posted a loss of $435.1 million, or $1.09 per share, compared with a loss a year ago of $258.2 million, or 65 cents per share. Its loss from continuing operations totaled $1.06 per share compared with 61 cents per share in the previous first quarter. Performance from previous periods was figured as the company reconstructed its finances.

Revenue dropped to $792 million from $848.6 million.

Chief Executive Jay Grinney said the results were in line with management expectations. HealthSouth's largest two divisions, its inpatient and surgery operations, made money, he said.

"We did see softness in our outpatient division, but have taken steps to mitigate the issues facing that division, and we expect that their facility rationalization and marketing initiatives will begin to improve operating results in 2006," he said in a statement.

The new head of the diagnostic division is trying to increase scanning volumes, improve efficiency and evaluate underperforming facilities, he said.

Finance chief John Workman said HealthSouth hopes to reduce its debt by $1 billion, a move that would help the company move past the fraud. Grinney, who has been CEO two years, said a name change also would be considered because of the company's tarnished reputation.

Shares of HealthSouth, which trade over the counter, fell 15 cents, or about 3 percent, to $4.60. A conference call for investors was held after the market closed, but Grinney said future briefings would be held during the trading day.

Analyst Derrick C. Dagnan said the decline in revenue wasn't surprising given a corporate reorganization, changes in government reimbursement rules and changes in HealthSouth's portfolio.

"I don't think anyone should be concerned that their revenues declined from year to year," said Dagnan, of Avondale Partners in Nashville, Tenn. "In my opinion the company is making progress. It's definitely a long-term recovery."

Plagued by an accounting fraud that drove it to the edge of bankruptcy, HealthSouth last made a quarterly earnings report to the Securities and Exchange Commission in September 2002.

Federal agents raided HealthSouth's Birmingham headquarters the following spring, leading to charges against 15 former executives who pleaded guilty in a massive fraud.

HealthSouth founder and longtime Chief Executive Richard Scrushy was removed, but a federal court jury found him not guilty on all charges in the scam last year.

Scrushy is now on trial in Montgomery in an unrelated bribery case he blames on government retaliation for his acquittal.