Introduction
Financial failure occurs when entrepreneurs make bad decisions that lead to economic downturns. All companies in the world strive to overcome financial crises. However, there are good examples of companies that have overcome financial failure and restored their financial health. This essay discusses how HealthSouth Corporation's got into a financial failure and how it overcame the failure. HealthSouth Corporation is at Alabama, and it is the biggest corporation that owns and operates inpatient rehabilitative hospitals in The USA. The corporation operates in approximately 33 states in The USA. The Corporation has rehabilitative services, rehabilitation clinics, hospice agencies and home health agencies. The corporation caters for the patients that are in the process of recovering from diseases such as amputations, neurological disorders, orthopedic conditions, cardiac conditions, brain injuries, spinal injuries and pulmonary conditions among others. The corporation experienced a financial challenge in 203 when Richard M.Scrushy, who was the CEO (Chief Executive Officer), Chairman and founder, directed the company’s employees to exaggerate the corporation’s earnings in a bid to meet the shareholders’ expectations. The causes of the financial crises are provided in the first part of the essay and the second part of the essay describes how the corporation recovered from the financial challenge.
Causes of the Financial Failure
The corporation's financial issues commenced in late 2002 when the CEO sold stock worth $100 million on a daily basis and after that the corporation experienced a large amount of loss. The SEC (USA Securities and Exchange Commission) accused HealthSouth of an accounting scandal because it had inflated its earnings by $1.4 billion. It was alleged that the CEO had instructed the employees to falsify the corporation's earnings. The fraud had been orchestrated for seven years. The company had failed to disclose the negative trends in the financial transactions and as such it had misrepresented its financial information. The financial misrepresentation caused cash flow problems at the company. The CEO was charged with financial fraud in March 2003.SEC commenced investigations in a bid to establish whether the sale of stock was related to the company’s huge losses.
HealthSouth’s Recovery
The first action that was undertaken after the financial issue was the dismissal of Richard Scushy who was the CEO; Bill Owens, who was the CFO, was also terminated. The New CEO that was appointed was Robert P. May, and Joel C. Gordon was elected as the chairman. The second step that aimed at rectifying the situation was obtaining cash that helped in paying for interests that were due to the senior bonds and the principal bond amounts that amounted to $344 million. The corporation hired Alvarez and Marsal, a restructuring firm with the aim of solving its cash flow issues. Luckily, the corporation managed to reorganize its finances before the end of 2003.Accordingly, the company. Another action that helped in resolving the financial issues was the sale of the corporate eleven corporate jets, and this was instrumental in saving the company’s money. Further, the corporation stopped the construction of the Digital Hospital because by then the building costs were double the initial budget. After, Jay Grinney was selected as the permanent a CEO, he restated the corporation’s earnings from the year 2000 to 2003.Underperforming facilities such as the medical center section was closed down, and this helped the corporation to return to its profitability. The company attained its aim of being a current filer at Sec after filing the results for 2006’s first quarter. The corporation introduced a restructuring plan on 14th August 2006, and it included either the spin-off or the sale of three divisions namely surgery, diagnostic and the outpatient divisions. Further, there were reverse stock splits of 1 for every five shares held, and it coincide with the company's relisting on the NYSE (New York Stock Exchange).The relisting on the NYSE was a great milestone towards reviving the company’s finance position. The Corporation sold approximately 600 outpatient servers for $245 million to the Select Medical Corporation in 2007.The surgery division was sold to TPG International on March 2007 at a fee of $920 million in cash and the a remaining amount was in the form of shares whose worth ranged from $25 to 30 million. After the sale, the company introduced new surgical care facilities. The sale of the diagnostic division in April 2007 to GORES group raised $47.5 million for the company.
Conclusion
This essay has discussed how HealthSouth Corporation's got into a financial failure and the measure it took to rectify the problem. The corporation is located in, Alabama, and it owns and operates inpatient rehabilitative hospitals in The USA. The company experienced financial issues after CEO had instructed the employees to falsify the corporation's earnings. The company obtained loans to clear amounts that were outstanding for the convertible bonds. The company was restructured, and its corporate jets were sold to solve the cash flow issues. The company focused on reducing expense by stopping the construction of the digital hospital, and it worked hard to be a current filer under the SEC, and it was listed on the NYSE. The corporation sold off three divisions namely surgery, diagnostic and the outpatient divisions.
References
HealthSouth Completes Acquisition Of Encompass Home Health And Hospice". January 2, 2015. Retrieved on July 25, 2015.
"HealthSouth Corporation: Stockholder and Bondholder Litigation." Retrieved Jul 25, 2015.
HealthSouth and CEO charged". March 19, 2003. Retrieved Jul 25 July 2015.
http://www.healthsouth.com/who_we_are/press_releases.asp.
