Current Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): August 4, 2009
HealthSouth Corporation
(Exact name of Registrant as specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
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001-10315 |
63-0860407 |
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(Commission File Number) |
(IRS Employer Identification No.) |
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3660 Grandview Parkway, Suite 200, Birmingham, Alabama 35243
(Address of Principal Executive Offices, Including Zip Code)
(205) 967-7116
(Registrant’s Telephone Number, Including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
ITEM 2.02. Results of Operations and Financial Condition.
The information contained herein is being furnished pursuant to Item 2.02 of Form 8-K, “Results of Operations and Financial Condition,” and Item 7.01 of Form 8-K, “Regulation FD Disclosure.” This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
On August 4, 2009, HealthSouth Corporation (the “Company”) issued a press release reporting the financial results of the Company for the three and six months ended June 30, 2009. A copy of the press release is attached to this report as Exhibit 99.1 and incorporated herein by reference.
In addition, a copy of the supplemental slides which will be discussed during the Company’s earnings call at 9:30 a.m. Eastern Time on Wednesday, August 5, 2009 is attached to this report as Exhibit 99.2 and incorporated herein by reference.
ITEM 7.01. Regulation FD Disclosure.
See Item 2.02, “Results of Operations and Financial Condition,” above.
Note Regarding Adoption of New Accounting Pronouncement
On January 1, 2009, we adopted Financial Accounting Standards Board (“FASB”) Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 . As a result, we have reclassified our noncontrolling interests (formerly known as “minority interests”) as a component of equity and now report net income and comprehensive income attributable to our noncontrolling interests separately from net income and comprehensive income attributable to HealthSouth.
Note Regarding Presentation of Non-GAAP Financial Measures
The financial data contained in the press release and supplemental slides includes non-GAAP financial measures, including the Company’s leverage ratio and Adjusted Consolidated EBITDA. The Company’s leverage ratio is defined in its Credit Agreement as the ratio of consolidated total debt to Adjusted Consolidated EBITDA for the trailing four quarters. The Company continues to believe both its leverage ratio and Adjusted Consolidated EBITDA as defined in its Credit Agreement are measures of leverage capacity, its ability to service its debt, and its ability to make capital expenditures.
The Company uses Adjusted Consolidated EBITDA on a consolidated basis as a liquidity measure. The Company believes this financial measure on a consolidated basis is important in analyzing its liquidity because it is the key component of certain material covenants contained within the Company’s Credit Agreement, which is discussed in more detail in Note 8, Long-term Debt , to the consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2008 (the “2008 Form 10-K”). These covenants are material terms of the Credit Agreement, and the Credit Agreement represents a substantial portion of the Company’s capitalization. Non-compliance with these financial covenants under the Credit Agreement – its interest coverage ratio and its leverage ratio – could result in the Company’s lenders requiring the Company to immediately repay all amounts borrowed. If the Company anticipated a potential covenant violation, it would seek relief from its lenders, which would have some cost to the Company, and such relief might not be on terms as favorable to those in the Company’s existing Credit Agreement. In addition, if the Company cannot satisfy these financial covenants, it would be prohibited under the Credit Agreement from engaging in certain activities, such as incurring additional indebtedness, making certain payments, and acquiring and disposing of assets. Consequently, Adjusted Consolidated EBITDA is critical to the Company’s assessment of its liquidity.
In general terms, the definition of Adjusted Consolidated EBITDA, per the Credit Agreement, allows the Company to add back to consolidated net income unusual non-cash or non-recurring items. These items include, but may not be limited to, (1) amounts associated with government, class action, and related settlements, (2) fees, costs, and expenses related to the Company’s recapitalization transactions, (3) any losses from discontinued operations and closed locations, (4) charges in respect of professional fees for reconstruction and restatement of financial
statements, including fees paid to outside professional firms for matters related to internal controls and legal fees for continued litigation defense and support matters discussed in Note 11, Settlements , and Note 12, Contingencies , to the condensed consolidated financial statements included in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, when filed, (5) compensation expense recorded in accordance with FASB Statement No. 123(R), Share-Based Payment , (6) investment and other income (including interest income), and (7) fees associated with the Company’s divestiture activities.
However, Adjusted Consolidated EBITDA is not a measure of financial performance under generally accepted accounting principles in the United States of America (“GAAP”), and the items excluded from Adjusted Consolidated EBITDA are significant components in understanding and assessing financial performance. Therefore, Adjusted Consolidated EBITDA should not be considered a substitute for net income or cash flows from operating, investing, or financing activities. The Company reconciles Adjusted Consolidated EBITDA to net income, which reconciliation is set forth in the press release attached as Exhibit 99.1, and to net cash provided by operating activities, which reconciliation is set forth below. Because Adjusted Consolidated EBITDA is not a measurement determined in accordance with GAAP and is thus susceptible to varying calculations, Adjusted Consolidated EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. Revenues and expenses are measured in accordance with the policies and procedures described in the 2008 Form 10-K.
The Company also uses adjusted income from continuing operations and the related per share amounts as analytical indicators to assess its performance. Management believes the presentation of adjusted income from continuing operations and the related per share amounts provides useful information to management and investors about the Company’s operating business before taking into account certain items that are non-operational or infrequent in nature. These measures are not defined measures of financial performance under GAAP and should not be considered as alternatives to net income and net (loss) income per share attributable to HealthSouth common shareholders. Because these measures are not measures determined in accordance with GAAP and are susceptible to varying calculations, they may not be comparable to other similarly titled measures presented by other companies. See the condensed consolidated statements of operations included in the press release attached as Exhibit 99.1 for the GAAP measures of net income, income from continuing operations, and basic and diluted (loss) earnings per common share. A reconciliation of net income to adjusted income from continuing operations, and the related per share amounts, is included in the earnings release attached as Exhibit 99.1 and the supplemental slides attached as Exhibit 99.2.
The Company also uses adjusted free cash flow as an analytical indicator to assess its performance. Management believes the presentation of adjusted free cash flow provides investors an efficient means by which they can evaluate the Company’s capacity to reduce debt and pursue development activities. The calculation of adjusted free cash flow is included in the supplemental slides attached as Exhibit 99.2. This measure is not a defined measure of financial performance under GAAP and should not be considered as an alternative to net cash provided by operating activities. Our definition of adjusted free cash flow is limited and does not represent residual cash flows available for discretionary spending. Because this measure is not determined in accordance with GAAP and is susceptible to varying calculations, it may not be comparable to other similarly titled measures presented by other companies. See the condensed consolidated statements of cash flows included in the press release attached as Exhibit 99.1 for the GAAP measures of cash flows from operating, investing, and financing activities. A reconciliation of net cash provided by operating activities to adjusted free cash flow is presented below.
Reconciliation of Net Cash Provided by Operating Activities to Adjusted Consolidated EBITDA
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Six Months Ended |
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Year Ended |
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June 30, |
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December 31, |
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2009 |
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2008 |
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2008 |
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(As Adjusted) |
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(As Adjusted) |
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Net cash provided by operating activities |
$ 229.2 |
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$ 67.0 |
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$ 227.2 |
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Provision for doubtful accounts |
(17.6) |
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(13.9) |
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(27.4) |
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Professional fees-accounting, tax, and legal |
1.5 |
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8.9 |
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44.4 |
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Interest expense and amortization of debt |
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discounts and fees |
65.5 |
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90.8 |
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159.5 |
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UBS Settlement proceeds, gross |
(100.0) |
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– |
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– |
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Equity in net (loss) income of nonconsolidated |
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affiliates |
(0.2) |
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5.1 |
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10.6 |
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Net income attributable to noncontrolling interests |
(17.7) |
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(14.9) |
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(29.4) |
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Amortization of debt discounts and fees |
(3.2) |
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(3.3) |
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(6.5) |
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Distributions from nonconsolidated affiliates |
(3.9) |
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(6.0) |
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(10.9) |
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Current portion of income tax benefit |
(1.0) |
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(0.6) |
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(73.8) |
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Change in assets and liabilities |
23.7 |
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28.0 |
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48.6 |
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Change in government, class action, and |
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related settlements liability |
8.7 |
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7.4 |
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7.4 |
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Other operating cash used in (provided by) |
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discontinued operations |
7.0 |
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6.5 |
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(6.6) |
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Other |
0.7 |
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(0.2) |
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(1.4) |
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Adjusted Consolidated EBITDA |
$ 192.7 |
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$ 174.8 |
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$ 341.7 |
In accordance with the Credit Agreement, the Company is allowed to add certain other items to the calculation of Adjusted Consolidated EBITDA, and there may also be certain other deductions required. As these adjustments may not be indicative of the Company’s ongoing performance, they have been excluded from the above table.
Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow
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Three Months |
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Three Months |
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Six Months |
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Year Ended |
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Ended June 30, |
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Ended June 30, |
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Ended June 30, |
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December 31, |
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2009 (1) |
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2008 |
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2009 |
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2008 |
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Net cash provided by operating activities |
$ 46.1 |
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$ 25.2 |
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$ 229.2 |
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$ 227.2 |
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Impact of discontinued operations |
6.8 |
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5.0 |
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7.0 |
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(6.6) |
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Net cash provided by operating activities |
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of continuing operations |
52.9 |
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30.2 |
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236.2 |
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220.6 |
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Incremental income tax expense |
(1.4) |
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(0.4) |
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(1.7) |
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(5.0) |
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Capital expenditures for maintenance |
(7.5) |
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(8.4) |
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(15.0) |
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(37.3) |
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Net settlements on interest rate swap |
(10.6) |
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(6.4) |
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(19.1) |
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(20.7) |
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Dividends paid on convertible perpetual preferred |
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stock |
(6.5) |
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(6.5) |
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(13.0) |
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(26.0) |
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Distributions paid to noncontrolling interests |
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of consolidated affiliates |
(7.3) |
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(6.4) |
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(15.8) |
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(33.4) |
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Non-recurring items: |
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UBS Settlement proceeds, less fees |
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to derivative plaintiffs' attorneys |
– |
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– |
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(73.8) |
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– |
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Federal income tax refunds |
– |
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– |
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(41.6) |
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(47.6) |
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Cash paid for: |
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Professional fees - accounting, tax, and legal |
3.2 |
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5.3 |
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8.0 |
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18.2 |
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Government, class action, and related |
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settlements |
7.0 |
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0.1 |
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8.7 |
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7.4 |
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Adjusted free cash flow |
$ 29.8 |
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$ 7.5 |
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$ 72.9 |
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$ 76.2 |
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(1) |
Net cash provided by operating activities for the six months ended June 30, 2009 was $229.2 million. Net cash provided by operating activities for the three months ended March 31, 2009 was $183.1 million, as reported in the Company’s Form 10-Q for the quarterly period ended March 31, 2009. The difference is the $46.1 million of net cash provided by operating activities for the three months ended June 30, 2009. |
For the three months ended June 30, 2008, net cash provided by investing activities was $6.5 million and resulted primarily from a decrease in restricted cash offset by capital expenditures and net settlement payments related to an interest rate swap. Net cash used in financing activities during the three months ended June 30, 2008 was $26.0 million and resulted primarily from net debt payments made during the period. Net cash used in financing activities during the second quarter of 2008 included $150.2 million of proceeds related to the issuance of common stock, virtually all of which was used to reduce debt.
For the six months ended June 30, 2009, net cash used in investing activities was $77.8 million and resulted primarily from capital expenditures and net settlement payments related to an interest rate swap. Net cash used in financing activities during the six months ended June 30, 2009 was $133.8 million and resulted primarily from net debt payments made during the period.
Forward-Looking Statements
The information contained in the earnings release and supplemental slides includes certain estimates, projections, and other forward-looking information that reflect the Company’s current views with respect to future events and financial performance. These estimates, projections, and other forward-looking information are based on assumptions the Company believes, as of the date hereof, are reasonable. Inevitably, there will be differences between such estimates and actual results, and those differences may be material.
There can be no assurance that any estimates, projections, or forward-looking information will be realized.
All such estimates, projections, and forward-looking information speak only as of the date hereof. The Company undertakes no duty to publicly update or revise the information contained herein.
You are cautioned not to place undue reliance on the estimates, projections, and other forward-looking information in the earnings release and supplemental slides as they are based on current expectations and general assumptions and are subject to various risks, uncertainties, and other factors, including those set forth in the 2008 Form 10-K, our quarterly report on Form 10-Q for the quarterly periods ended June 30, 2009, when filed, and March 31, 2009, and in other documents the Company previously filed with the SEC, many of which are beyond the Company’s control. These factors may cause actual results to differ materially from the views, beliefs, and estimates expressed herein.
ITEM 9.01. Financial Statements and Exhibits.
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Exhibits. |
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Exhibit Number |
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Description |
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99.1 |
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Press release of HealthSouth Corporation, dated August 4, 2009. |
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99.2 |
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Supplemental slides provided in connection with the second quarter 2009 earnings call of HealthSouth Corporation. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.
HEALTHSOUTH CORPORATION
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By: |
/ S / J OHN P. W HITTINGTON |
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Name: John P. Whittington |
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Title: Executive Vice President, General Counsel and Corporate Secretary |
Dated: August 4, 2009
Exhibit 99.1
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Media Contact |
August 4, 2009 |
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Andy Brimmer, 205-410-2777 |
For Immediate Release |
Investor Relations Contact
Mary Ann Arico, 205-969-6175
maryann.arico@healthsouth.com
HealthSouth Reports Results for Second Quarter 2009 and Increases 2009 Guidance
Strong Same Store Discharge Growth and Effective Expense Management
Continued Debt Reduction
BIRMINGHAM, Ala. – HealthSouth Corporation (NYSE: HLS) today reported its results of operations for the second quarter ended June 30, 2009. The results showed consolidated net operating revenues of $483.7 million for the second quarter of 2009 compared to $456.6 million for the second quarter of 2008, or an increase of 5.9%. This increase was primarily driven by a 5.6% quarter-over-quarter increase in patient discharges. On a same store basis, discharges increased 4.7% quarter over quarter.
Reported net (loss) income per diluted share was ($0.14) per share for the second quarter of 2009 compared to $0.47 per diluted share for the second quarter of 2008. The as reported per share amounts for the second quarter of 2009 included a non-cash charge of $48.7 million related to amounts recorded as government, class action, and related settlements, compared to an $8.6 million gain recorded for similar amounts during the second quarter of 2008. Similarly, during the second quarter of 2009, we recorded a $3.8 million loss associated with interest rate swaps that are not designated as hedges, compared to a $28.5 million gain recorded for such swaps during the second quarter of 2008.
Substantially all of the amounts recorded as government, class action, and related settlements in each period resulted from changes in the fair value of our common stock and the associated common stock warrants underlying our securities litigation settlement. The price of our common stock increased significantly from March 31, 2009 to June 30, 2009 resulting in a $48.6 million non-cash charge included in government, class action, and related settlements for the second quarter of 2009.
On an adjusted basis, income from continuing operations was $0.39 per diluted share for the second quarter of 2009, which represents a 129.4%, or $0.22 per share, improvement over the $0.17 per diluted share for the second quarter of 2008. The quarter-over-quarter increase was primarily attributable to revenue growth, lower interest expense, and effective expense management. Adjusted income from continuing operations excludes amounts associated with government, class action, and related settlements, our loss or gain on interest rate swaps, and other non-recurring items, as outlined in the attached supplemental information.
“The second quarter of 2009 was another strong quarter for HealthSouth. We achieved solid results through both continued volume growth and disciplined expense management,” said Jay Grinney, President and Chief Executive Officer of HealthSouth. “We believe the high-quality care provided by our dedicated employees continues to be the primary reason we are seeing sustained increases in the number of patients admitted to our hospitals. As a result of the strong first half and our positive outlook for the remainder of the year, we are increasing our Adjusted Consolidated EBITDA and adjusted diluted EPS guidance for 2009.”
The Company continued to deleverage its balance sheet during the second quarter of 2009. As of June 30, 2009, total debt outstanding approximated $1.7 billion, no amounts were drawn on the Company’s $400 million revolving credit facility, and total cash and cash equivalents approximated $49.8 million.
“Our debt reduction, coupled with increased Adjusted Consolidated EBITDA, is improving our capital structure by reducing our leverage ratio on both a total and senior secured basis,” said John Workman, Executive Vice
President and Chief Financial Officer of HealthSouth. “We believe the improvement in our corporate credit rating by Moody’s and the change in outlook to positive by Standard & Poor’s are confirmation of our improved condition and the success of our strategic deleveraging initiatives.”
The Company continues to believe its higher Adjusted Consolidated EBITDA (see attached supplemental information), coupled with its strong cash flows from operating activities, will allow it to achieve a leverage ratio of 4.5x or below before its stated timeframe of year-end 2010. The Company also continues to believe its longer term leverage ratio goal of 3.5x to 4.0x by the end of 2012 is progressively more achievable.
2009 Guidance
As a result of its strong operating results for the first six months of 2009, the Company is increasing its previously provided guidance for 2009. Adjusted Consolidated EBITDA guidance for 2009 has been increased from a range of $342 million to $352 million to a range of $354 million to $362 million. Adjusted diluted earnings per share have been increased from a range of $0.85 to $0.90 per share to a range of $1.15 to $1.25 per share.
Other Information
The Company’s leverage ratio that is referenced in this release and elsewhere from time to time is defined in the Company’s Credit Agreement as the ratio of consolidated total debt to Adjusted Consolidated EBITDA for the trailing four quarters. Reconciliations of net income to Adjusted Consolidated EBITDA can be found in the following schedules.
On January 1, 2009, we adopted Financial Accounting Standards Board Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 . As a result, we have reclassified our noncontrolling interests (formerly known as “minority interests”) as a component of equity and now report net income and comprehensive income attributable to our noncontrolling interests separately from net income and comprehensive income attributable to HealthSouth.
The information in this press release is summarized and should be read in conjunction with the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 (the “June 2009 Form 10-Q”), when filed, as well as the Company’s Current Report on Form 8-K filed on August 4, 2009. In addition, the Company will post supplemental slides today on its website at http://investor.healthsouth.com for reference during its August 5, 2009 earnings call.
The Company expects to file its second quarter 2009 Form 10-Q this week. When filed, the report can be found on the Company’s website at http://investor.healthsouth.com and the SEC’s website at www.sec.gov.
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HealthSouth Corporation and Subsidiaries |
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Condensed Consolidated Statements of Operations |
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(Unaudited) |
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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(As Adjusted) |
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(As Adjusted) |
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(In Millions, Except Per Share Data) |
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Net operating revenues |
$ 483.7 |
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$ 456.6 |
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$ 958.8 |
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$ 920.8 |
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Operating expenses: |
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Salaries and benefits |
239.1 |
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234.1 |
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473.8 |
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464.5 |
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Other operating expenses |
67.6 |
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63.6 |
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134.8 |
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132.4 |
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General and administrative expenses |
24.9 |
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25.2 |
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50.4 |
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53.3 |
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Supplies |
28.7 |
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27.7 |
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56.2 |
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54.9 |
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Depreciation and amortization |
17.7 |
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17.8 |
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35.3 |
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47.4 |
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Impairment of long-lived assets |
– |
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0.6 |
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– |
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0.6 |
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Occupancy costs |
12.1 |
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12.2 |
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24.1 |
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24.2 |
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Provision for doubtful accounts |
9.7 |
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6.1 |
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17.6 |
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13.9 |
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Loss on disposal of assets |
1.3 |
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0.8 |
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2.3 |
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0.4 |
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Government, class action, and related settlements expense |
48.7 |
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(8.6) |
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32.8 |
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(45.0) |
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Professional fees—accounting, tax, and legal |
(3.3) |
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5.3 |
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1.5 |
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8.9 |
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Total operating expenses |
446.5 |
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384.8 |
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828.8 |
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755.5 |
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(Gain) loss on early extinguishment of debt |
(1.3) |
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3.4 |
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(3.1) |
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3.7 |
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Interest expense and amortization of debt discounts and fees |
31.1 |
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43.4 |
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65.5 |
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90.8 |
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Other income |
(1.0) |
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(1.0) |
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(0.8) |
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(1.7) |
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Loss (gain) on interest rate swaps |
3.8 |
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(28.5) |
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8.8 |
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8.1 |
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Equity in net loss (income) of nonconsolidated affiliates |
2.7 |
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(2.7) |
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0.2 |
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(5.1) |
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Income from continuing operations before income tax |
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(benefit) expense |
1.9 |
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57.2 |
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59.4 |
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69.5 |
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Provision for income tax (benefit) expense |
(0.3) |
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0.7 |
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0.9 |
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0.8 |
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Income from continuing operations |
2.2 |
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56.5 |
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58.5 |
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68.7 |
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Income (loss) from discontinued operations, net of tax |
1.4 |
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(4.1) |
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(1.4) |
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10.1 |
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Net income |
3.6 |
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52.4 |
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57.1 |
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78.8 |
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Less: Net income attributable to noncontrolling interests |
(9.1) |
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(8.3) |
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(17.7) |
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(14.9) |
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Net (loss) income attributable to HealthSouth |
(5.5) |
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44.1 |
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39.4 |
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63.9 |
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Less: Convertible perpetual preferred stock dividends |
(6.5) |
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(6.5) |
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(13.0) |
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(13.0) |
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Net (loss) income attributable to common shareholders |
$ (12.0) |
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$ 37.6 |
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$ 26.4 |
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$ 50.9 |
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Weighted average common shares outstanding: |
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Basic |
87.6 |
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79.5 |
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87.5 |
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79.2 |
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Diluted |
101.5 |
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93.0 |
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101.2 |
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92.6 |
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Basic and diluted (loss) earnings per common share: |
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(Loss) income from continuing operations |
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attributable to HealthSouth common shareholders |
$ (0.15) |
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$ 0.52 |
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$ 0.32 |
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$ 0.50 |
|
|
Income (loss) from discontinued operations, net of tax, |
|
|
|
|
|
|
|
|
|
attributable to HealthSouth common shareholders |
.01 |
|
(0.05) |
|
(0.02) |
|
0.14 |
|
|
Net (loss) income per share attributable to HealthSouth common |
|
|
|
|
|
|
|
|
|
shareholders |
$ (0.14) |
|
$ 0.47 |
|
$ 0.30 |
|
$ 0.64 |
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to HealthSouth: |
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
$ (6.7) |
|
$ 48.3 |
|
$ 41.3 |
|
$ 52.9 |
|
|
Income (loss) from discontinued operations, net of tax |
1.2 |
|
(4.2) |
|
(1.9) |
|
11.0 |
|
|
Net (loss) income attributable to HealthSouth |
$ (5.5) |
|
$ 44.1 |
|
$ 39.4 |
|
$ 63.9 |
|
|
HealthSouth Corporation and Subsidiaries |
|||
|
Condensed Consolidated Statements of Cash Flows |
|||
|
(Unaudited) |
|||
|
|
|
|
|
|
|
Six Months Ended June 30, |
||
|
|
2009 |
|
2008 |
|
|
|
|
(As Adjusted) |
|
|
(In Millions) |
||
|
Cash flows from operating activities: |
|
|
|
|
Net income |
$ 57.1 |
|
$ 78.8 |
|
Loss (income) from discontinued operations |
1.4 |
|
(10.1) |
|
Adjustments to reconcile net income to net cash provided by |
|
|
|
|
operating activities— |
|
|
|
|
Provision for doubtful accounts |
17.6 |
|
13.9 |
|
Provision for government, class action, and related settlements |
32.8 |
|
(45.0) |
|
UBS Settlement proceeds, gross |
100.0 |
|
– |
|
Depreciation and amortization |
35.3 |
|
47.4 |
|
Amortization of debt issue costs, debt discounts, and fees |
3.2 |
|
3.3 |
|
Loss on disposal of assets |
2.3 |
|
0.4 |
|
(Gain) loss on early extinguishment of debt |
(3.1) |
|
3.7 |
|
Loss on interest rate swaps |
8.8 |
|
8.1 |
|
Equity in net loss (income) of nonconsolidated affiliates |
0.2 |
|
(5.1) |
|
Distributions from nonconsolidated affiliates |
3.9 |
|
6.0 |
|
Stock-based compensation |
6.6 |
|
6.0 |
|
Deferred tax provision |
1.9 |
|
1.4 |
|
Other |
0.6 |
|
0.1 |
|
(Increase) decrease in assets— |
|
|
|
|
Accounts receivable |
(26.2) |
|
(33.9) |
|
Other assets |
(0.7) |
|
6.2 |
|
Income tax refund receivable |
45.4 |
|
9.4 |
|
Increase (decrease) in liabilities— |
|
|
|
|
Accounts payable |
2.2 |
|
(1.4) |
|
Accrued fees and expenses for derivative plaintiffs' attorneys |
|
|
|
|
in UBS Settlement |
(26.2) |
|
– |
|
Other liabilities |
(18.2) |
|
(8.3) |
|
Government, class action, and related settlements |
(8.7) |
|
(7.4) |
|
Net cash used in operating activities of discontinued operations |
(7.0) |
|
(6.5) |
|
Total adjustments |
170.7 |
|
(1.7) |
|
Net cash provided by operating activities |
229.2 |
|
67.0 |
|
HealthSouth Corporation and Subsidiaries |
|||
|
Condensed Consolidated Statements of Cash Flows (Continued) |
|||
|
(Unaudited) |
|||
|
|
Six Months Ended June 30, |
||
|
|
2009 |
|
2008 |
|
|
|
|
(As Adjusted) |
|
|
(In Millions) |
||
|
Cash flows from investing activities: |
|
|
|
|
Capital expenditures |
(34.8) |
|
(18.3) |
|
Proceeds from disposal of assets |
0.8 |
|
47.2 |
|
Net change in restricted cash |
(15.7) |
|
17.0 |
|
Net settlements on interest rate swap |
(19.1) |
|
(6.6) |
|
Net investment in interest rate swap |
(6.4) |
|
– |
|
Other |
(1.5) |
|
(0.4) |
|
Net cash (used in) provided by investing activities of discontinued operations |
(1.1) |
|
0.7 |
|
Net cash (used in) provided by investing activities |
(77.8) |
|
39.6 |
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
Checks in excess of bank balance |
– |
|
(5.5) |
|
Principal payments on debt, including pre-payments |
(60.9) |
|
(92.4) |
|
Borrowings on revolving credit facility |
10.0 |
|
75.0 |
|
Payments on revolving credit facility |
(50.0) |
|
(150.0) |
|
Principal payments under capital lease obligations |
(6.6) |
|
(6.1) |
|
Issuance of common stock |
– |
|
150.2 |
|
Dividends paid on convertible perpetual preferred stock |
(13.0) |
|
(13.0) |
|
Distributions paid to noncontrolling interests of consolidated affiliates |
(15.8) |
|
(16.5) |
|
Other |
0.7 |
|
– |
|
Net cash provided by (used in) financing activities of discontinued operations |
1.8 |
|
(2.1) |
|
Net cash used in financing activities |
(133.8) |
|
(60.4) |
|
Effect of exchange rate changes on cash and cash equivalents |
– |
|
0.8 |
|
Increase in cash and cash equivalents |
17.6 |
|
47.0 |
|
Cash and cash equivalents at beginning of period |
32.2 |
|
19.8 |
|
Cash and cash equivalents of divisions and facilities held for sale at |
|
|
|
|
beginning of period |
– |
|
0.4 |
|
Less: Cash and cash equivalents of divisions and facilities held for sale |
|
|
|
|
at end of period |
– |
|
– |
|
Cash and cash equivalents at end of period |
$ 49.8 |
|
$ 67.2 |
HealthSouth Corporation and Subsidiaries
Supplemental Non-GAAP Disclosures
Reconciliation of Net Income to Adjusted Income from Continuing Operations
and Adjusted Consolidated EBITDA (1) (4)
|
|
Three Months Ended June 30, |
||||||
|
|
2009 |
|
Per Share (2) |
|
2008 |
|
Per Share (2) |
|
|
|
|
|
|
(As Adjusted) |
||
|
|
(In Millions, Except per Share Data) |
||||||
|
Net income |
$ 3.6 |
|
$ 0.04 |
|
$ 52.4 |
|
$ 0.66 |
|
(Income) loss from discontinued operations, net of tax, |
|
|
|
|
|
|
|
|
attributable to HealthSouth |
(1.2) |
|
(0.01) |
|
4.2 |
|
0.05 |
|
Net income attributable to noncontrolling interests |
(9.1) |
|
(0.10) |
|
(8.3) |
|
(0.10) |
|
(Loss) income from continuing operations |
|
|
|
|
|
|
|
|
attributable to HealthSouth |
(6.7) |
|
(0.08) |
|
48.3 |
|
0.61 |
|
|
|
|
|
|
|
|
|
|
Government, class action, and related settlements |
48.7 |
|
0.56 |
|
(8.6) |
|
(0.11) |
|
Professional fees – accounting, tax, and legal |
(3.3) |
|
(0.04) |
|
5.3 |
|
0.07 |
|
Gain on early extinguishment of debt |
(1.3) |
|
(0.01) |
|
– |
|
– |
|
Loss (gain) on interest rate swaps |
3.8 |
|
0.04 |
|
(28.5) |
|
(0.36) |
|
Provision for income tax (benefit) expense |
(0.3) |
|
(0.00) |
|
0.7 |
|
0.01 |
|
Estimated income tax expense |
(1.1) |
|
(0.01) |
|
(1.1) |
|
(0.01) |
|
Adjusted income from continuing operations (1) (4) |
39.8 |
|
0.45 |
|
16.1 |
|
0.20 |
|
Adjustment for dilution (2) |
|
|
(0.06) |
|
|
|
(0.03) |
|
Adjusted income from continuing operations |
|
|
|
|
|
|
|
|
per diluted share (2) (4) |
|
|
$ 0.39 |
|
|
|
$ 0.17 |
|
|
|
|
|
|
|
|
|
|
Estimated income tax expense |
1.1 |
|
|
|
1.1 |
|
|
|
Interest expense and amortization of debt discounts |
|
|
|
|
|
|
|
|
and fees |
31.1 |
|
|
|
43.4 |
|
|
|
Depreciation and amortization |
17.7 |
|
|
|
17.8 |
|
|
|
|
89.7 |
|
|
|
78.4 |
|
|
|
Other adjustments per the Company's |
|
|
|
|
|
|
|
|
Credit Agreement: |
|
|
|
|
|
|
|
|
Impairment charges, including investments |
0.1 |
|
|
|
0.6 |
|
|
|
Net noncash loss on disposal of assets |
1.3 |
|
|
|
0.8 |
|
|
|
Loss on early extinguishment of debt |
– |
|
|
|
3.4 |
|
|
|
Compensation expense under FASB Statement |
|
|
|
|
|
|
|
|
No. 123(R) |
2.9 |
|
|
|
2.7 |
|
|
|
Adjusted Consolidated EBITDA (1) (4) (5) |
$ 94.0 |
|
|
|
$ 85.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
87.6 |
|
|
|
79.5 |
|
Diluted |
|
|
101.5 |
|
|
|
93.0 |
HealthSouth Corporation and Subsidiaries
Supplemental Non-GAAP Disclosures
Reconciliation of Net Income to Adjusted Income from Continuing Operations
and Adjusted Consolidated EBITDA (1) (4)
|
|
Six Months Ended June 30, |
||||||
|
|
2009 |
|
Per Share (2) |
|
2008 |
|
Per Share (2) |
|
|
|
|
|
|
(As Adjusted) |
||
|
|
(In Millions, Except per Share Data) |
||||||
|
Net income |
$ 57.1 |
|
$ 0.65 |
|
$ 78.8 |
|
$ 0.99 |
|
Loss (income) from discontinued operations, net of tax, |
|
|
|
|
|
|
|
|
attributable to HealthSouth |
1.9 |
|
0.02 |
|
(11.0) |
|
(0.14) |
|
Net income attributable to noncontrolling interests |
(17.7) |
|
(0.20) |
|
(14.9) |
|
(0.19) |
|
Income from continuing operations attributable |
|
|
|
|
|
|
|
|
to HealthSouth |
41.3 |
|
0.47 |
|
52.9 |
|
0.67 |
|
|
|
|
|
|
|
|
|
|
Government, class action, and related settlements |
32.8 |
|
0.37 |
|
(45.0) |
|
(0.57) |
|
Professional fees – accounting, tax, and legal |
1.5 |
|
0.02 |
|
8.9 |
|
0.11 |
|
Gain on early extinguishment of debt |
(3.1) |
|
(0.04) |
|
– |
|
– |
|
Loss on interest rate swaps |
8.8 |
|
0.10 |
|
8.1 |
|
0.10 |
|
Accelerated depreciation of corporate campus (3) |
– |
|
– |
|
10.0 |
|
0.13 |
|
Provision for income tax expense |
0.9 |
|
0.01 |
|
0.8 |
|
0.01 |
|
Estimated income tax expense |
(2.6) |
|
(0.03) |
|
(2.6) |
|
(0.03) |
|
Adjusted income from continuing operations (1) (4) |
79.6 |
|
0.91 |
|
33.1 |
|
0.42 |
|
Adjustment for dilution (2) |
|
|
(0.12) |
|
|
|
(0.06) |
|
Adjusted income from continuing operations |
|
|
|
|
|
|
|
|
per diluted share (2) (4) |
|
|
$ 0.79 |
|
|
|
$ 0.36 |
|
|
|
|
|
|
|
|
|
|
Estimated income tax expense |
2.6 |
|
|
|
2.6 |
|
|
|
Interest expense and amortization of debt discounts |
|
|
|
|
|
|
|
|
and fees |
65.5 |
|
|
|
90.8 |
|
|
|
Depreciation and amortization, excluding accelerated |
|
|
|
|
|
|
|
|
depreciation of corporate campus (3) |
35.3 |
|
|
|
37.4 |
|
|
|
|
183.0 |
|
|
|
163.9 |
|
|
|
Other adjustments per the Company's |
|
|
|
|
|
|
|
|
Credit Agreement: |
|
|
|
|
|
|
|
|
Impairment charges, including investments |
0.8 |
|
|
|
0.6 |
|
|
|
Net noncash loss on disposal of assets |
2.3 |
|
|
|
0.6 |
|
|
|
Loss on early extinguishment of debt |
– |
|
|
|
3.7 |
|
|
|
Compensation expense under FASB Statement |
|
|
|
|
|
|
|
|
No. 123(R) |
6.6 |
|
|
|
6.0 |
|
|
|
Adjusted Consolidated EBITDA (1) (4) (5) |
$ 192.7 |
|
|
|
$ 174.8 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
|
|
87.5 |
|
|
|
79.2 |
|
Diluted |
|
|
101.2 |
|
|
|
92.6 |
HealthSouth Corporation and Subsidiaries
Supplemental Non-GAAP Disclosures
Reconciliation of Net Income to Adjusted Income from Continuing Operations
and Adjusted Consolidated EBITDA (1) (4)
|
|
Year Ended December 31, |
||
|
|
2008 |
|
Per Share (2) |
|
|
(As Adjusted) |
||
|
|
(In Millions, Except per Share Data) |
||
|
Net income |
$ 281.8 |
|
$ 3.40 |
|
Income from discontinued operations, net of tax, |
|
|
|
|
attributable to HealthSouth |
(16.9) |
|
(0.20) |
|
Net income attributable to noncontrolling interests |
(29.4) |
|
(0.35) |
|
Income from continuing operations attributable |
|
|
|
|
to HealthSouth |
235.5 |
|
2.84 |
|
|
|
|
|
|
Gain on UBS Settlement |
(121.3) |
|
(1.46) |
|
Government, class action, and related settlements |
(67.2) |
|
(0.81) |
|
Professional fees – accounting, tax, and legal |
44.4 |
|
0.53 |
|
Loss on interest rate swap |
55.7 |
|
0.67 |
|
Accelerated depreciation of corporate campus (3) |
10.0 |
|
0.12 |
|
Interest associated with UBS Settlement (6) |
(9.4) |
|
(0.11) |
|
Provision for income tax benefit |
(70.1) |
|
(0.84) |
|
Estimated income tax expense |
(5.0) |
|
(0.06) |
|
Adjusted income from continuing operations (1) (4) |
72.6 |
|
0.87 |
|
Adjustment for dilution (2) |
|
|
(0.12) |
|
Adjusted income from continuing operations |
|
|
|
|
per diluted share (2) (4) |
|
|
$ 0.75 |
|
|
|
|
|
|
Estimated income tax expense |
5.0 |
|
|
|
Interest expense and amortization of debt discounts and fees, |
|
|
|
|
excluding interest associated with UBS Settlement |
168.9 |
|
|
|
Depreciation and amortization, excluding accelerated |
|
|
|
|
depreciation of corporate campus (3) |
73.2 |
|
|
|
|
319.7 |
|
|
|
Other adjustments per the Company's |
|
|
|
|
Credit Agreement: |
|
|
|
|
Impairment charges, including investments |
2.4 |
|
|
|
Net noncash loss on disposal of assets |
2.0 |
|
|
|
Loss on early extinguishment of debt |
5.9 |
|
|
|
Compensation expense under FASB Statement No. 123(R) |
11.7 |
|
|
|
Adjusted Consolidated EBITDA (1) (4) (5) |
$ 341.7 |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
Basic |
|
|
83.0 |
|
Diluted |
|
|
96.4 |
HealthSouth Corporation and Subsidiaries
Supplemental Non-GAAP Disclosures
Notes to Reconciliations
(1) Adjusted income from continuing operations and Adjusted Consolidated EBITDA are non-GAAP financial measures. The Company’s leverage ratio (consolidated total debt to Adjusted Consolidated EBITDA for the trailing four quarters) is likewise a non-GAAP financial measure. Management and some members of the investment community utilize adjusted income from continuing operations as a financial measure and Adjusted Consolidated EBITDA and the leverage ratio as liquidity measures on an ongoing basis. These measures are not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance or liquidity. In evaluating these adjusted measures, the reader should be aware that in the future HealthSouth may incur expenses similar to the adjustments set forth above.
( 2) Per share amounts for each period presented are based on basic weighted average common shares outstanding for all amounts except adjusted income from continuing operations per diluted share, which is based on diluted weighted average common shares outstanding. The diluted share counts contain approximately 13.1 million shares related to the potential dilution of the Company’s convertible perpetual preferred stock. Per share amounts do not include 5.0 million shares of common stock or warrants to purchase approximately 8.2 million shares of common stock not yet issued under the securities litigation settlement. The increase in the Company’s basic and diluted weighted average common shares outstanding for the three and six months ended June 30, 2009 compared to the same periods of 2008 was primarily the result of its equity offering of 8.8 million shares that was completed on June 27, 2008.
(3) In the first quarter of 2008, and in accordance with Financial Accounting Standards Board Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets , the Company accelerated the depreciation of its corporate campus so that the net book value of the campus equaled the estimated net proceeds the Company expected to receive on the sale transaction’s closing date. The year-over-year impact of this acceleration of depreciation approximated $10 million. No similar charges are expected in 2009.
(4) Adjusted income from continuing operations per diluted share and Adjusted Consolidated EBITDA are two components of the Company’s guidance.
(5) The Company’s Credit Agreement allows unusual non-cash or non-recurring items to be added to arrive at Adjusted Consolidated EBITDA. In addition, certain other deductions may be required. Such amounts have not been included in the above calculation as it would not be indicative of the Company’s Adjusted Consolidated EBITDA for future periods.
(6) Interest expense and amortization of debt discounts and fees in the Company’s consolidated statement of operations for the year ended December 31, 2008 included the reversal of approximately $9.4 million of accrued interest related to the loan guarantee for which the Company received a release as part of the UBS Settlement.
HealthSouth Corporation and Subsidiaries
Earnings Conference Call
The Company will host an investor conference call at 9:30 a.m. Eastern Time on Wednesday, August 5, 2009 to discuss its results for the second quarter of 2009. For reference during the call, the Company will post certain supplemental slides at http://investor.healthsouth.com.
The conference call may be accessed by dialing 866-406-5369 and giving the pass code 14033624. International callers should dial 973-582-2847 and give the same pass code. Please call approximately ten minutes before the start of the call to ensure you are connected.The conference call will also be webcast live and will be available at http://investor.healthsouth.com by clicking on an available link.
A replay of the conference call will be available, beginning approximately two hours after the completion of the conference call, from August 5 until August 19, 2009. To access the replay, please dial 800-642-1687. International callers should dial 706-645-9291. The webcast will also be archived for replay purposes after the live broadcast at http://investor.healthsouth.com.
About HealthSouth
HealthSouth is the nation’s largest provider of inpatient rehabilitative healthcare services. Operating in 26 states across the country and in Puerto Rico, HealthSouth serves patients through its network of inpatient rehabilitation hospitals, long-term acute care hospitals, outpatient rehabilitation satellites, and home health agencies. HealthSouth strives to be the nation’s preeminent provider of inpatient rehabilitative healthcare services and can be found on the Web at www.healthsouth.com.
Statements contained in this press release which are not historical facts are forward-looking statements. In addition, HealthSouth, through its senior management, may from time to time make forward-looking public statements concerning the matters described herein. All such estimates, projections, and forward-looking information speak only as of the date hereof, and HealthSouth undertakes no duty to publicly update or revise such forward-looking information, whether as a result of new information, future events, or otherwise. Such forward-looking statements are necessarily estimates based upon current information and involve a number of risks and uncertainties. HealthSouth’s actual results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors which could cause actual results to differ materially from those estimated by HealthSouth include, but are not limited to, any adverse outcome of various lawsuits, claims, and legal or regulatory proceedings that may be brought against the Company; significant changes in HealthSouth’s management team; HealthSouth’s ability to continue to operate in the ordinary course and manage its relationships with its creditors, including its lenders, bondholders, vendors and suppliers, employees, and customers; changes, delays in (including in connection with resolution of Medicare payment reviews or appeals), or suspension of reimbursement for HealthSouth’s services by governmental or private payors; changes in the regulation of the healthcare industry at either or both of the federal and state levels; competitive pressures in the healthcare industry and HealthSouth’s response thereto; HealthSouth’s ability to obtain and retain favorable arrangements with third-party payors; HealthSouth’s ability to attract and retain nurses, therapists, and other healthcare professionals in a highly competitive environment with often severe staffing shortages and the impact on HealthSouth’s labor expenses from potential union activity and staffing shortages; general conditions in the economy and capital markets; and other factors which may be identified from time to time in HealthSouth’s SEC filings and other public announcements, including HealthSouth’s Form 10-K for the year ended December 31, 2008 and Form 10-Q for the quarters ended June 30, 2009 and March 31, 2009.
The information contained in this presentation includes certain estimates, projections and other forward-
looking information that reflect our current views with respect to future events and financial performance.
These estimates, projections and other forward-looking information are based on assumptions that
HealthSouth believes, as of the date hereof, are reasonable. Inevitably, there will be differences between
such estimates and actual results, and those differences may be material.
There can be no assurance that any estimates, projections or forward-looking information will be realized.
All such estimates, projections and forward-looking information speak only as of the date hereof.
HealthSouth undertakes no duty to publicly update or revise the information contained herein.
You are cautioned not to place undue reliance on the estimates, projections and other forward-looking
information in this presentation as they are based on current expectations and general assumptions and
are subject to various risks, uncertainties and other factors, including those set forth in our Form 10-K for
the fiscal year ended December 31, 2008, the Form 10-Q for quarters ended March 31, 2009 and June 30,
2009, when filed, and in other documents we previously filed with the SEC, many of which are beyond our
control, that may cause actual results to differ materially from the views, beliefs and estimates expressed
herein.
Note Regarding Presentation of Non-GAAP Financial Measures
The following presentation includes certain “non-GAAP financial measures” as defined in Regulation G
under the Securities Exchange Act of 1934. A schedule is attached that reconciles the non-GAAP financial
measures included in the following presentation to the most directly comparable financial measures
calculated and presented in accordance with Generally Accepted Accounting Principles in the United
States. Our Form 8-K, dated August 4, 2009, to which the following supplemental slides are attached as
Exhibit 99.2, provides further explanation and disclosure regarding our use of non-GAAP financial
measures and should be read in conjunction with these supplemental slides.
Forward-Looking Statements
Highlights (Q2 2009)
Achieved 5.6% quarter-over-quarter discharge growth.
Same store discharge growth was 4.7%.
Revenue growth of 5.9%.
Driven by higher discharge volume which more than offset lower outpatient
revenue.
High-quality, cost-effective, patient care.
Driven by effective management of hospital expenses and improved labor
productivity.
Reduced debt by $26 million during the quarter.
Moody’s credit upgrade during the quarter.
S & P changed outlook to positive.
Leverage ratio reduced to 4.7x (1) from 5.3x at year end.
(1) Based on trailing four quarter Adjusted Consolidated EBITDA of $359.6 million; reconciliation to GAAP provided on slides 30 through 33 .
Revenues (Q2 2009 vs. Q2 2008)
Inpatient revenue growth was driven by strong discharge volumes.
Volume growth was driven by the sustained TeamWorks effort and disciplined development.
Same store discharge growth was 4.7%.
Net patient revenue / discharge was higher in Q209 due to an increasing trend within our
patient mix towards higher acuity neurological patients.
Outpatient revenue declined as a result of 15 fewer outpatient satellites quarter over quarter.
Favorable
(Unfavorable)
(Millions)
2nd Qtr. 2009
2nd Qtr. 2008
Change
Inpatient
439.0
$
410.4
$
7.0%
Outpatient and other
44.7
46.2
(3.2%)
Consolidated net operating
483.7
$
456.6
$
5.9%
(Actual Amounts)
Discharges
28,494
26,990
5.6%
Net patient revenue / discharge
15,407
$
15,206
$
1.3%
Expenses (Q2 2009 vs. Q2 2008)
Continued progress on labor productivity demonstrated by lower EPOB.
Hospital related expenses:
Comparison for Q2 affected by a reduction of self-insurance costs resulting from revised
actuarial estimates in Q208.
Increased provision for doubtful accounts to reflect aging of pending Medicare appeals.
(Millions)
2nd Qtr. 2009
2nd Qtr. 2008
Change
Salaries and benefits
239.1
$
234.1
$
(2.1%)
Percent of net operating revenues
49.4%
51.3%
190bps
EPOB (employees per occupied bed)
3.52
3.65
3.6%
Hospital-related expenses
118.1
$
109.6
$
(7.8%)
(other operating, supplies, occupancy, bad debts)
Percent of net operating revenues
24.4%
24.0%
(40)bps
General and administrative
22.0
$
22.5
$
2.2%
(excludes 123(R) compensation)
Percent of net operating revenues
4.5%
4.9%
40bps
Adjusted Consolidated EBITDA
(1)
(2Q 2009)
(Millions)
(1) Reconciliation to GAAP provided on slides 30 through 33.
Improvements driven by:
Increased volumes.
Improved labor productivity.
Lower G&A.
Improvements offset by:
Higher operating expense related to a self-insurance reduction in Q208 offset by lower
TeamWorks expenses.
2nd Qtr. 2009
2nd Qtr. 2008
$
%
94.0
$
85.9
$
8.1
$
9.4%
Change
Adjusted Consolidated EBITDA
(1)
(6 months)
(Millions)
(1) Reconciliation to GAAP provided on slides 30 through 33.
Improvements driven by:
Increased volumes.
Improved labor productivity.
Lower G&A.
Improvements offset by:
Higher operating expense related to a self-insurance reduction in Q208 offset by lower
TeamWorks expenses.
Strong volume growth YTD helped offset the Medicare price roll-back.
Medicare market basket update: $7-8 million benefit in Q108.
6 Months 2009
6 Months 2008
$
%
192.7
$
174.8
$
17.9
$
10.2%
Change
Adjusted Income per Diluted Share (2Q 2009)
(2) Reconciliation to GAAP provided on slides 30 through 33.
Major drivers were:
Increased Adjusted Consolidated EBITDA.
Lower floating-rate interest expense (results in higher cash payments on swap).
Lower interest expense as a result of lower debt balances.
Increase in income was offset by:
Higher operating expense related to a self-insurance reduction in Q208 offset by lower
TeamWorks expenses.
2nd Qtr.
2nd Qtr.
(Millions, except per share data)
2009
2008
$
%
(Loss) income from continuing operations
attributable to HealthSouth
(6.7)
$
(1)
48.3
$
(1)
(55.0)
$
(113.9%)
Adjusted income from continuing
operations
(2)
39.8
$
16.1
$
23.7
$
147.2%
Adjusted income from continuing
operations per diluted share
(2)
0.39
$
0.17
$
0.22
$
129.4%
Per Share
Change
(1)
Includes a charge of $48.7 million and a gain of $8.6 million, respectively, for "government, class action, and related settlements
expense" primarily relecting the change in value of our common stock.
Adjusted Income per Diluted Share (6 Months)
(2) Reconciliation to GAAP provided on slides 30 through 33.
Major drivers were:
Increased Adjusted Consolidated EBITDA.
Lower floating-rate interest expense (results in higher cash payments on swap).
Lower interest expense as a result of lower debt balances.
Increase offset by:
Higher pricing in Q108.
Higher operating expense related to a self-insurance reduction in Q208, offset by lower
TeamWorks expenses.
6 Months
6 Months
(Millions, except per share data)
2009
2008
$
%
Income from continuing operations
attributable to HealthSouth
41.3
$
(1)
52.9
$
(1)
(11.6)
$
(21.9%)
operations
(2)
79.6
$
33.1
$
46.5
$
140.5%
Adjusted income from continuing
operations per diluted share
(2)
0.79
$
0.36
$
0.43
$
119.4%
Change
Adjusted income from continuing
(1)
Includes a charge of $32.8 million and a gain of $45.0 million, respectively, for "government, class action, and related
settlements expense" primarily reflecting the change in value of our common stock.
Per Share
Free Cash Flow
(1) Includes capital expenditures for the hospital refresh program.
3 Months Ended
6 Months Ended
Year Ended
(Millions)
June 30, 2009
June 30, 2009
December 31, 2008
46.1
$
229.2
$
227.2
$
6.8
7.0
(6.6)
52.9
236.2
220.6
Incremental income tax expense
(1.4)
(1.7)
(5.0)
Capital expenditures for maintenance
(1)
(7.5)
(15.0)
(37.3)
Net settlements on interest rate swap
(10.6)
(19.1)
(20.7)
Dividends paid on convertible perpetual
preferred stock
(6.5)
(13.0)
(26.0)
Distributions paid to noncontrolling interests
of consolidated affiliates
(7.3)
(15.8)
(33.4)
Non-recurring items:
UBS Settlement proceeds,
less fees to derivative plaintiffs' attorneys
-
(73.8)
-
Federal income tax refunds
-
(41.6)
(47.6)
Cash paid for professional fees - accounting,
3.2
8.0
18.2
tax, and legal
Cash paid for government, class action, and
related settlements
7.0
8.7
7.4
Adjusted free cash flow
29.8
$
72.9
$
76.2
$
Adjusted Free Cash Flow
activities of continuing operations
Net cash provided by operating
Impact of discontinued operations
Net cash provided by operating activities
No near-term refinancing
Revolver = 2012
Term Loan = 2013
Bonds = 2014 & 2016
Future deleveraging
Excess cash from operations
Derivative proceeds
E&Y arbitration
Scrushy asset recovery
(1)
Credit Agreement limits debt pay down on non–term loan balances. We have the right to buy back non-term loan debt with the discretionary cash
available to the Company.
(2)
Based on four quarter trailing Adjusted Consolidated EBITDA of $359.6 million; see related debt schedule on slide 27, and reconciliation to GAAP
on slides 30 through 33.
Debt to EBITDA 6.3x 6.3x 5.3x 4.7x (2)
($ Billions)
Year-End 2012 Goal: 3.5x to 4.0x
Debt Reduction
Liquidity
(Millions)
June 30, 2009
December 31, 2008
Cash
Available
49.8
$
32.2
$
Revolver
Total line
400.0
$
400.0
$
Less:
– Draws
-
(40.0)
– Letters of credit
-
(52.7)
Available
400.0
$
307.3
$
Total Liquidity
(available cash and revolver)
449.8
$
339.5
$
2009 Guidance - Adjusted Consolidated EBITDA
(1)
(1) Reconciliation to GAAP provided on slides 30 through 33.
Key Drivers:
Sustainable discharge growth
Bed expansions
New hospitals
High-quality, cost-effective patient care
Unknown:
Market basket update
Previous
$342 to $352
million
Revised
$354 to $362
million
2009 Guidance - Adjusted Earnings per Diluted Share
(1)
(1) Adjusted income from continuing operations per diluted share.
Key Drivers :
Increased Adjusted Consolidated EBITDA
Deleveraging
Lower floating-rate interest expense (results in higher cash
payment on the swap)
Unknown:
Market basket update
Previous
$0.85 to $90
per share
Revised
$1.15 to $1.25
per share
FIM Gain
LOS Efficiency
Source: UDSmr Database – On Demand
Reports 2008 Year End Report
** Benchmark = Expected, Risk Adjusted LOS Efficiency
Operational Excellence = “High-Quality” Care
*Benchmark = Expected Risk Adjusted FIM Change Avg.
Operational Excellence = “Cost-Effective” Care
CMS Fiscal Year 2010 IRF Rate Setting File Analysis (1)
Notes:
(1)
All data provided was filtered and compiled from the Centers for Medicare and Medicaid Services (CMS) Fiscal Year 2010 IRF rate setting
proposed rule file found at
http://www.cms.hhs.gov/InpatientRehabFacPPS/07_DataFiles.asp#TopOfPage
. The data presented was developed
entirely by CMS and is based on its definitions which are different in form and substance from the criteria HealthSouth uses for external reporting
purposes. Because CMS does not provide its detailed methodology, HealthSouth is not able to reconstruct the CMS projections or the calculation.
(2)
The CMS file contains data for each of the 1,205 inpatient rehabilitation facilities used to estimate the proposed policy updates for the FY 2010
proposed IRF-PPS rule. Most of the data represents historical information from the CMS fiscal year 2007 period and does not reflect the same
HealthSouth hospitals in operation today. The data presented was separated into three categories: Freestanding, Units, and HealthSouth.
HealthSouth is a subset of Freestanding and the Total.
Revenue (6 months)
Favorable
6 Months
6 Months
(Unfavorable)
(Millions)
2009
2008
Change
Inpatient
872.1
$
829.6
$
5.1%
Outpatient and other
86.7
91.2
(4.9%)
Consolidated net operating
958.8
$
920.8
$
4.1%
(Actual Amounts)
Discharges
56,301
53,299
5.6%
Net patient revenue / discharge
15,490
$
15,565
$
(0.5%)
Expenses (6 months)
Favorable/
6 Months
6 Months
(Unfavorable)
(Millions, except percent)
2009
2008
Change
Salaries and benefits
473.8
$
464.5
$
(2.0%)
Percent of net operating revenues
49.4%
50.4%
100 bps
EPOB (employees per occupied bed)
3.50
3.59
2.5%
Hospital related expenses
232.7
$
225.4
$
(3.2%)
(other operating, supplies, occupancy, bad debts)
Percent of net operating revenues
24.3%
24.5%
20 bps
General and administrative
43.8
$
47.3
$
7.4%
(excludes 123(R) compensation)
Percent of net operating revenues
4.6%
5.1%
50 bps
Revenues (Sequential)
Inpatient revenue growth was driven by strong discharge growth offset by lower
revenue/discharge.
Lower revenue/discharge is related to seasonal discharge flow.
Favorable
(Unfavorable)
(Millions, except percent)
2nd Qtr. 2009
1st Qtr. 2009
Change
Inpatient
439.0
$
433.1
$
1.4%
Outpatient and other
44.7
42.0
6.4%
Consolidated net operating
483.7
$
475.1
$
1.8%
(Actual Amounts)
Discharges
28,494
27,807
2.5%
Net patient revenue / discharge
15,407
$
15,575
$
(1.1%)
Expenses (Sequential)
Higher expenses were driven by 2.5% greater volume discharges.
Favorable
(Unfavorable)
(Millions, except percent)
2nd Qtr. 2009
1st Qtr. 2009
Change
Salaries and benefits
239.1
$
234.7
$
(1.9%)
Percent of net operating revenues
49.4%
49.4%
0 bps
EPOB (employees per occupied bed)
3.52
3.47
(1.4%)
Hospital related expenses
118.1
$
114.6
$
(3.1%)
(other operating, supplies, occupancy, bad debts)
Percent of net operating revenues
24.4%
24.1%
(30) bps
General and administrative
22.0
$
21.8
$
(0.9%)
(excludes 123(R) compensation)
Percent of net operating revenues
4.5%
4.6%
10 bps
Operational and Labor Metrics
(1) Represents discharges from HealthSouth’s 90 consolidated hospitals.
(2)
Excludes 388 and 399 full-time equivalents for the three months ended June 30, 2009 and 2008, respectively, and 392 and 422 full-time equivalents for the six
months ended June 30, 2009 and 2008, respectively, who are considered part of corporate overhead with their salaries and benefits included in general and
administrative expenses in the Company’s condensed consolidated statements of operations. Full-time equivalents included in the above table represent
HealthSouth employees who participate in or support the operations of the Company’s hospitals.
(3)
Employees per occupied bed, or “EPOB,” is calculated by dividing the number of full-time equivalents, including an estimate of full-time equivalents from the
utilization of contract labor, by the number of occupied beds during each period. The number of occupied beds is determined by multiplying the number of licensed
beds by the Company’s occupancy percentage.
2009
2008
2009
2008
Net patient revenue-inpatient
439.0
$
410.4
$
872.1
$
829.6
$
Net patient revenue-outpatient
and other revenues
44.7
46.2
86.7
91.2
Net operating revenues
483.7
$
456.6
$
958.8
$
920.8
$
Discharges
(1)
28,494
26,990
56,301
53,299
Outpatient visits
293,264
319,728
578,365
625,873
Average length of stay
14.4
14.7
14.5
15.0
Occupancy %
68.8%
66.9%
69.0%
67.2%
# of licensed beds
6,534
6,521
6,534
6,521
Occupied beds
4,495
4,363
4,508
4,382
Full-time equivalents (FTEs)
(2)
15,688
15,706
15,627
15,513
Contract labor
120
218
132
210
Total FTE and contract labor
15,808
15,924
15,759
15,723
EPOB
(3)
3.52
3.65
3.50
3.59
Three Months Ended
June 30,
(In Millions)
(Actual Amounts)
(In Millions)
(Actual Amounts)
Six Months Ended
June 30,
Payment Sources
(1) Managed Medicare revenues are included in “Managed care and other discount plans.”
2009
2008
2009
2008
Medicare
67.6%
67.5%
67.9%
67.3%
Medicaid
2.2%
2.1%
2.2%
2.2%
Workers' compensation
1.5%
2.2%
1.6%
2.2%
Managed care and other discount plans
(1)
23.7%
22.7%
23.0%
22.5%
Other third-party payors
2.8%
3.5%
3.0%
3.7%
Patients
0.7%
0.4%
0.8%
0.4%
Other income
1.5%
1.6%
1.5%
1.7%
Total
100.0%
100.0%
100.0%
100.0%
Three Months
Ended June 30,
Six Months
Ended June 30,
Debt Maturities
(Millions)
$400.0
Current undrawn revolver
matures in 2012
Minimal amortization and no near-term financing risk.
As of June 30, 2009, we were in compliance with the covenants under our Credit Agreement.
Interest Rate Swaps
(Millions)
(1) We have the flexibility to peg 1,2,3 or 6 month Libor, or Prime.
(2) Lower interest rate on term loan as a result of the Moody’s upgrade.
(3) In June 2009, we entered into a received-fixed rate swap as a mirror offset to $100.0 million of the $1,056 million interest rate swap.
(4) Forward-starting interest rate swaps (designated as cash flow hedges).
Floating
Floating Rate Debt Balances
June 30, 2009
Interest Rate
Advances under $400 million revolving credit facility
-
$
Libor plus 325
(1)
Term Loan facility
755.1
Libor plus 225
(1) (2)
Floating Rate Senior Notes due 2014
329.6
6 month Libor
Total
1,084.7
$
Swap Settlement
June 2009
March 2010
March 2011
Net notional amount of interest rate swaps
(3)
956.0
$
884.0
$
-
$
Received 3 month Libor and pay 5.22% fixed
Notional amount of the interest rate swap
100.0
(4)
Receive 3 month Libor and pay 2.6% fixed
Notional amount of the interest rate swap
100.0
(4)
Receive 3 month Libor and pay 2.9% fixed
Debt Schedule
(Millions)
(1) The Company had $49.8 million in cash and cash equivalents as of June 30, 2009.
(2)
Credit Agreement limits debt pay down on non–term loan balances. We have the ability to buy back non-term loan debt with the discretionary
cash available to the Company.
Q209 YTD Debt
Reduction
(1) (2)
March 2012
$ -
$ 40.0
$ (40.0)
Term loan facility - March 2013
755.1
783.6
(28.5)
Bonds Payable:
8.375%
Senior Notes due 2011
0.3
0.3
-
7.625%
Senior Notes due 2012
1.5
1.5
-
Floating Rate Senior Notes due 2014
329.6
366.0
(36.4)
(6 month Libor plus 600)
10.75%
Senior Notes due 2016
494.6
494.3
0.3
from 8.1% to 12.9%
12.5
12.8
(0.3)
Capital lease obligations
108.3
114.7
(6.4)
Total
1,701.9
$
1,813.2
$
(111.3)
$
Year-to-date debt reduction
(1) (2)
111.3
$
Debt Balances
December 31,
2008
Other notes payable at interest rates
Advances under $400 million revolving credit facility,
June 30,
2009
Non-Operating Cash/Tax Position
Cash Refunds as of June 30, 2009
Federal tax recoveries virtually complete.
Approx. $42 million received.
State tax refunds in progress.
Approx. $11 million received.
Approx. $10.5 million net receivable on
the balance sheet.
Future Cash Tax Payments
Expect to pay about $5-7 million per year of
income tax.
State income tax.
Alternative Minimum Tax (AMT).
With over $2.5 billion in NOLs and tax
deductions, we do not expect to pay significant
federal income taxes for approximately the next
10-12 years.
At this time, we do not believe the use of
NOLs will be limited before they expire,
however, no assurances can be provided.
HealthSouth is not currently subject to an
annual use limitation (AUL) under the Internal
Revenue Code section 382.
If we experienced a “change of ownership” as
defined by the Internal Revenue Code section
382, we would be subject to an AUL, which is
equal to the value of the company at the time of
the “change of ownership” multiplied by the
long-term tax exempt rate.
GAAP Considerations
HealthSouth’s balance sheet currently reflects
a valuation allowance for the potential value
of NOLs and future deductions. The valuation
allowance is approximately $1.0 billion.
GAAP tax rate will net to small amount for
foreseeable future as there will be a reduction
in the valuation allowance when NOLs are
utilized.
Outstanding Share Summary
(Millions)
Notes:
(1) Completed an equity offering for 8.8 million shares on June 27, 2008.
(2)
Does not include 2.0 million warrants issued in connection with a January 2004 loan repaid to Credit Suisse First Boston.
In connection with this transaction, we issued warrants to the lender to purchase two million shares of our common stock.
Each warrant has a term of ten years from the date of issuance and an exercise price of $32.50 per share. The warrants
were not assumed exercised for dilutive shares outstanding because they were antidilutive in the periods presented.
(3)
Does not include approximately 5.0 million shares of common stock and warrants to purchase approximately 8.2 million
shares of common stock at a strike price of $41.40 to settle our class action securities litigation. This agreement received
final court approval in January 2007. As of June 30, 2009, these shares of common stock and warrants have not been
issued and are not included in our basic or diluted common shares outstanding. Absent a petition for certiorari, we expect
the shares to be distributed in September 2009.
(4)
The difference between the basic and diluted shares outstanding is primarily related to our convertible perpetual preferred
stock.
2nd Qtr.
(1)
2nd Qtr.
6 Months
6 Months
Year-End
(1)
2009
2008
2009
2008
2008
Basic Shares outstanding
(2) (3)
87.6
79.5
87.5
79.2
83.0
Diluted Shares outstanding
(2) (3) (4)
101.5
93.0
101.2
92.6
96.4
Basic Shares outstanding
(2) (3)
87.6
87.4
87.6
87.4
87.4
Diluted Shares outstanding
(2) (3) (4)
101.5
100.9
101.3
100.8
100.8
Weighted Average for the Period
End of Period
Three & Six Months Reconciliation of Net Income to Adjusted Income from
Continuing Operations and Adjusted Consolidated EBITDA
(1) (3)
2008 Year-End Reconciliation of
Net Income to Adjusted Income from
Continuing Operations
and Adjusted Consolidated EBITDA
(1) (3)
YTD Reconciliation of Adjusted Consolidated EBITDA
(1)
to Net Cash Provided
by Operating Activities
(Millions)
2009
2008
Adjusted Consolidated EBITDA
192.7
$
174.8
$
Provision for doubtful accounts
17.6
13.9
Professional fees - accounting, tax, and legal
(1.5)
(8.9)
Interest expense and amortization of debt discounts and fees
(65.5)
(90.8)
UBS settlement proceeds, gross
100.0
-
Equity in net loss (income) of nonconsolidated affiliates
0.2
(5.1)
Net income attributable to noncontrolling interests
17.7
14.9
Amortization of debt discounts and fees
3.2
3.3
Distributions from nonconsolidated affiliates
3.9
6.0
Current portion of income tax benefit
1.0
0.6
Change in assets and liabilities
(23.7)
(28.0)
Change in government, class action, and related settlements
(8.7)
(7.4)
Other operating cash used in discontinued operations
(7.0)
(6.5)
Other
(0.7)
0.2
Net cash provided by operating activities
229.2
$
67.0
$
Six Months Ended June 30,
Reconciliation Notes
1.
Adjusted income from continuing operations and Adjusted Consolidated EBITDA are non-
GAAP financial measures. The Company’s leverage ratio (Total Consolidated Debt to
Adjusted Consolidated EBITDA for the trailing four quarters) is, likewise, a non-GAAP
financial measure. Management and some members of the investment community utilize
adjusted income from continuing operations as a financial measure and Adjusted
Consolidated EBITDA and leverage ratio as liquidity measures on an ongoing basis. These
measures are not recognized in accordance with GAAP and should not be viewed as an
alternative to GAAP measures of performance or liquidity. In evaluating these adjusted
measures, the reader should be aware that in the future HealthSouth may incur expenses
similar to the adjustments set forth above.
2.
Per share amounts for each period presented are based on basic weighted average common
shares outstanding for all amounts except adjusted income from continuing operations per
diluted share, which is based on diluted weighted average shares outstanding. The difference
in shares between the basic and diluted shares outstanding is primarily related to our
convertible perpetual preferred stock. Per share amounts do not include 5.0 million shares not
yet issued under the securities litigation settlement.
3.
Adjusted income from continuing operations per diluted share and Adjusted Consolidated
EBITDA are two components of our guidance.
4.
The Company’s Credit Agreement allows certain other items to be added to arrive at
Adjusted Consolidated EBITDA, and there may be certain other deductions required.