HealthSouth Corp., which is accused by federal regulators of accounting fraud, said Monday that a director resigned after serving on the board less than a month and also warned its past financial statements should not be relied upon.
Betsy Atkins, president of venture capital firm Baja and co-founder of Ascend Communications, resigned from HealthSouth's board. She had been recruited to give the board credibility with investors.
HealthSouth, a provider of physical therapy, diagnostic imaging and outpatient surgery at 1,700 locations, also said it hired consultants to fix the company after the fraud allegations and bankruptcy fears.
Banks froze the company's $1.25-billion credit facility last week after the Securities and Exchange Commission accused HealthSouth founder Richard Scrushy and the Birmingham, Ala.-based company of inflating earnings by $1.4 billion since 1999 and overstating $800 million in assets. A spokesman for HealthSouth said the company drew about $400 million from the credit facility.
Analysts have raised the possibility that the company could go into bankruptcy protection without new financing to repay about $350 million of debt due April 1, and the fraud allegations make it difficult for bankers to value the assets.
HealthSouth said it had retained the forensic auditing team at PricewaterhouseCoopers to review the company's financial situation and turnaround specialists Alvarez & Marsal Inc. to stabilize operations and address liquidity concerns. HealthSouth also hired Skadden, Arps, Slate, Meagher & Flom as lead coordinating counsel on both corporate and litigation affairs.
HealthSouth is facing irate investors after the company's share price fell 70% since the company gave an earnings warning in late August. The stock, which has been halted for trading on the New York Stock Exchange since March 18, last traded at $3.91, giving it $1.55 billion of market value.
Before the company gave an earnings warning on Aug. 27, the stock was trading as high as $12.04 a share and the company secured a $1.25-billion credit line from banks in June 2002.
The earnings warning came after Scrushy sold 5.3 million shares in May related to an options exercise and his sale of an additional 2.5 million shares to repay a company loan in July. The stock sales sparked a Securities and Exchange Commission investigation.
Last week, Scrushy was placed on administrative leave from his position as chairman and chief executive.