Current Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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): September 14, 2009

HealthSouth Corporation

(Exact Name of Registrant as Specified in its Charter)

Delaware

(State or Other Jurisdiction of Incorporation)

001-10315	63-0860407
(Commission File Number)	(I.R.S. Employer Identification No.)

3660 Grandview Parkway, Suite 200, Birmingham, Alabama 35243

(Address of Principal Executive Officers, Including Zip Code)

(205) 967-7116

(Registrant’s telephone number)

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:

o	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 7.01. Regulation FD Disclosure .

HealthSouth Corporation (“HealthSouth” or the “Company”) will attend the Stifel Nicolaus / John Hopkins Health Policy Symposium in Baltimore on September 15, 2009. As part of this symposium, representatives of HealthSouth will meet with third parties and distribute the handout attached to this Current Report on Form 8-K as Exhibit 99.1. The handout will address, among other things, the Company’s strategy, objectives, and financial performance and discuss industry trends and dynamics. The handout will be available at http://investor.healthsouth.com by clicking on an available link.

The Company made a presentation at the Jefferies 3 ^rd Annual Healthcare Conference on June 17-18, 2009 in New York, and the related slide presentation was furnished as an exhibit to the Current Report on Form 8-K dated June 17, 2009. Since that time, the Company has issued a press release reporting the financial results of the Company for the three months and six months ended June 30, 2009 and has filed its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009 (the “June 2009 Form 10-Q”). The press release was furnished as an exhibit to the Current Report on Form 8-K dated August 4, 2009 and included certain supplemental slides the Company discussed during its earnings conference call held on August 5, 2009. While the format of certain slides may have changed, the handout attached to this Current Report on Form 8-K as Exhibit 99.1 contains substantially the same information as previously provided with the above referenced reports.

In the handout attached to this Current Report on Form 8-K as Exhibit 99.1, the Company will share its initial observations on the third quarter of 2009. These observations are:

•

Volume : Through August 2009, the Company has continued to experience positive discharge growth and remains on track to achieve 4+% discharge growth in the second half of 2009.

•

Pricing : Quarter-over-quarter comparables are similar.

•

Expenses : The Company has continued to focus on high-quality, cost-effective patient care, and it continues to monitor pending Medicare appeals.

In addition, the handout includes data published through the Uniform Data System for Medical Rehabilitation (the “UDS”) for the second quarter of 2009. This data shows that the Company continued to grow its market share during the second quarter of 2009. This industry information, as reported through the UDS under the presumptive method on a quarter lag, showed an average 1.3% increase in discharges for UDS industry sites (including 90 HealthSouth sites) compared to same store discharge growth of 4.7% for HealthSouth during the second quarter of 2009.

The Company uses “same store” comparisons to explain the changes in certain performance metrics and line items within its financial statements. Same store comparisons are calculated based on hospitals open throughout both the full current periods and throughout the full prior periods presented. These comparisons include the financial results of market consolidation transactions in existing markets, as it is difficult to determine, with precision, the incremental impact of these transactions on the Company’s results of operations.

The Company also reiterated its guidance for 2009.

The information in this Current Report on Form 8-K, including the information set forth in Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall it be 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. The furnishing of this report is not intended to constitute a determination by the Company that the information is material or that the dissemination of the information is required by Regulation FD.

Note Regarding Adoption of New Accounting Pronouncement

Effective January 1, 2009, the Company reclassified its noncontrolling interests (formerly known as “minority interests”) as a component of equity and now reports net income and comprehensive income attributable to its 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 handout includes non-GAAP financial measures, including “Adjusted Consolidated EBITDA.” The Company continues to believe Adjusted Consolidated EBITDA as defined in its Credit Agreement is a measure 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 the 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 Adjusted Consolidated EBITDA 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 June 30, 2009 Form 10-Q, (5) compensation expense related to share-based payments, (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 handout 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 June 2009 Form 10-Q and the consolidated statements of operations included in the 2008 Form 10-K 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 handout attached as Exhibit 99.1.

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 handout attached as Exhibit 99.1. 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 June 2009 Form 10-Q and the consolidated statements of cash flows included in the 2008 Form 10-K for the GAAP measures of cash flows from operating, investing, and financing activities. A reconciliation of net cash provided by operating activities to Adjusted Consolidated EBITDA and adjusted free cash flow is presented below.

Reconciliation of Net Cash Provided by Operating Activities to Adjusted Consolidated EBITDA

	Six Months Ended		Year Ended
	June 30,		December 31,
	2009	2008	2008
		(As Adjusted)	(As Adjusted)
Net cash provided by operating activities	$ 229.2	$ 67.0	$ 227.2
Provision for doubtful accounts	(17.6)	(13.9)	(27.4)
Professional fees-accounting, tax, and legal	1.5	8.9	44.4
Interest expense and amortization of debt
discounts and fees	65.5	90.8	159.5
UBS Settlement proceeds, gross	(100.0)	0.0	0.0
Equity in net (loss) income of nonconsolidated
affiliates	(0.2)	5.1	10.6
Net income attributable to noncontrolling interests	(17.7)	(14.9)	(29.4)
Amortization of debt discounts and fees	(3.2)	(3.3)	(6.5)
Distributions from nonconsolidated affiliates	(3.9)	(6.0)	(10.9)
Current portion of income tax benefit	(1.0)	(0.6)	(73.8)
Change in assets and liabilities	23.7	28.0	48.6
Change in government, class action, and
related settlements liability	8.7	7.4	7.4
Other operating cash used in (provided by)
discontinued operations	7.0	6.5	(6.6)
Other	0.7	(0.2)	(1.4)
Adjusted Consolidated EBITDA	$ 192.7	$ 174.8	$ 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

	Three Months	Three Months	Six Months	Year Ended
	Ended June 30,	Ended June 30,	Ended June 30,	December 31,
	2009 ⁽¹⁾	2008	2009	2008
Net cash provided by operating activities	$ 46.1	$ 25.2	$ 229.2	$ 227.2
Impact of discontinued operations	6.8	5.0	7.0	(6.6)
Net cash provided by operating activities
of continuing operations	52.9	30.2	236.2	220.6
Incremental income tax expense	(1.4)	(0.4)	(1.7)	(5.0)
Capital expenditures for maintenance	(7.5)	(8.4)	(15.0)	(37.3)
Net settlements on interest rate swap	(10.6)	(6.4)	(19.1)	(20.7)
Dividends paid on convertible perpetual preferred
stock	(6.5)	(6.5)	(13.0)	(26.0)
Distributions paid to noncontrolling interests
of consolidated affiliates	(7.3)	(6.4)	(15.8)	(33.4)
Non-recurring items:
UBS Settlement proceeds, less fees
to derivative plaintiffs' attorneys	0.0	0.0	(73.8)	0.0
Federal income tax refunds	0.0	0.0	(41.6)	(47.6)
Cash paid for:
Professional fees-accounting, tax, and legal	3.2	5.3	8.0	18.2
Government, class action, and related
settlements	7.0	0.1	8.7	7.4
Adjusted free cash flow	$ 29.8	$ 7.5	$ 72.9	$ 76.2

⁽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 this Current Report on Form 8-K and the handout attached as Exhibit 99.1 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 or in the handout.

The handout also includes estimates and projections published by the Centers for Medicare and Medicaid Services (“CMS”). HealthSouth is not able to verify those estimates or projections or the detailed calculations thereof by CMS which are not made public. Any changes or errors in those calculations, among other uncertainties such as those referred to below and changes in CMS’s own rules and policies, could cause actual results to differ materially from CMS’s projections. Furthermore, the Company does not believe that CMS’s numbers are consistent with financial reporting results. CMS data and projections should not be used as an indication of financial performance.

You are cautioned not to place undue reliance on the estimates, projections, and other forward-looking information in the slide handout as it is based on current expectations and general assumptions and is subject to various risks, uncertainties, and other factors, including those set forth in the 2008 Form 10-K, the June 2009 Form 10-Q, the Company’s Form 10-Q for the quarterly period ended 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

(d)

Exhibits

99.1

Handout of HealthSouth Corporation used in connection with the Stifel Nicolaus / John Hopkins Health Policy Symposium.

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.

H EALTH S OUTH C ORPORATION


By:	/s/ John P. Whittington
	Name: John P. Whittington
	Title: Executive Vice President, General Counsel, and Corporate Secretary

Dated: September 14, 2009

HealthSouth Corporation

Stifel Nicolaus / Johns Hopkins

Health Policy Symposium

Handout

Baltimore

September 15, 2009

Exhibit 99.1

Table of Contents

Note Regarding Forward-Looking Statements
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.

This presentation also includes estimates and projections published by the Centers for Medicare and Medicaid Services (“CMS”).
We are not able to verify those estimates or projections or the detailed calculations thereof by CMS which are not made public.
Any changes or errors in those calculations, among other uncertainties such as those referred to below and changes in CMS’s
own rules and policies, could cause actual results to differ materially from CMS’s projections. Furthermore, we do not believe
that CMS numbers are consistent with financial reporting results. CMS data and projections should not be used as an indication
of financial performance.

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 year ended December 31, 2008, the Form 10-Q for the
quarters ended March 31, 2009, and June 30, 2009, 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. The Appendix at the end of this presentation includes reconciliations of the non-GAAP financial measures
found 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 September 14, 2009, to which the
following presentation slides are attached, provides further explanation and disclosure regarding our use of non-GAAP financial
measures and should be read in conjunction with these presentation slides.

Cautionary Statements

HealthSouth

IRH

LTCH

94 Rehabilitation Hospitals

44 Outpatient Satellites

6 Long-Term Acute Care Hospitals

25 Hospital-Based Home
Health Agencies

Operational Components

ü Rehabilitation Nursing

ü Physical Therapy

ü Occupational Therapy

ü Speech-Language Therapy

ü Case Management

ü Specialized Technology

Major Services

Largest Provider of Inpatient Rehabilitative Healthcare Services in the U.S.
Provider of Additional Post-Acute Services

Development Sites

Employees : ~ 22,000

Corporate Office : Birmingham, AL

Exchange (Symbol) : NYSE (HLS)

+ 5.6%

Discharge Volume

Consolidated Net Operating Revenues

($ Millions)

+ 5.9%

+ 9.4%

Adjusted Consolidated EBITDA (1)

($ Millions)

+ 129.4%

Adjusted Income from Continuing Operations per
Diluted Share (1)

Q2 2009 Recap (cont’d)

(1) Includes capital expenditures for the hospital refresh program.

Near term

To create shareholder value as the preeminent provider of
rehabilitative care in the U.S. by:

– Driving organic growth through operational excellence ;

– Creating a strong balance sheet through deleveraging ; and

– Pursuing disciplined, opportunistic growth .

Longer Term

We will pursue acquisitions of complementary, post-acute services
provided they are accretive to HealthSouth. to HealthSouth

Strategy :

FIM Gain

LOS Efficiency

LOS Efficiency = Functional gain
divided by length of stay

Source: UDSmr Database - On Demand
Reports 2008 Year End Report

FIM Gain = Change in Functional
Independent Measurement (based on
an 18 point assessment) from
Admission to Discharge

** 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)

	Freestanding (2)	Units (2)	Total	HealthSouth
	Freestanding (2)	Units (2)	Total	Hospitals (2)
Number of IRFs	228	953	1,181	94
Average # of Discharges per IRF	649	237	316	822
Outlier Payments as % of Total Payments	1.32%	4.08%	3.00%	0.43%
Average Estimated Total Payment per Discharge for FY 2010	$16,452	$16,741	$16,626	$15,996
Average Estimated Cost per Discharge for FY 2010	$14,021	$17,207	$15,945	$12,633

Notes:

(1) All data provided was filtered and compiled from the Centers for Medicare and Medicaid Services (CMS) Fiscal Year 2010 IRF rate setting final
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 1,181 inpatient rehabilitation facilities used to estimate the policy updates for the FY 2010 Final IRF-
PPS Rule. Most of the data represents historical information from the CMS fiscal year 2008 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.

($ Billions)

Deleveraging

Debt to
EBITDA

Current undrawn revolver

matures in 2012

$400.0

Goal: 3.5x to 4.0x - No later than YE 2012

Debt Maturities (3)
(Millions)

• No Near-Term Financing

• S & P from B “Stable” to B “Positive”

• Moody’s Upgrade to B2 “Stable”

(1)

Disciplined Growth

(1) Pending state license survey.

(2) CON is being appealed; operational date may change.

Bed expansions :

• Approximately 100 beds being added in 2009 and a similar amount
in 2010.

• Average investment per bed:

– Internal renovation = $15 - 45K

– New construction = $100 - 250K

• Cash pay-back: 2 - 3 years

New hospitals :

Q309 Initial Observations

Volume :

ü Through August, continued positive discharge growth trend.

ü Remain on track for 4+% growth in second half of 2009.

Pricing :

ü Comparable quarter over quarter.

Expenses :

ü Continued focus on high-quality, cost-effective patient care.

ü Continue to monitor pending Medicare appeals.

2009 Guidance

(1) Reconciliation to GAAP provided on slides 30 through 33.

(2) Adjusted income from continuing operations per diluted share.

Adjusted Consolidated EBITDA (1)

• 2009 Range: $354 million to $362 million

• 6 Month 2009 actual (1) : $192.7 million

Adjusted Earnings per Share (1)(2)

• 2009 Range: $1.15 to $1.25 per share

• 6 Month 2009 actual (1) : $0.79 per share

Key Drivers :

ü Sustainable discharge growth

• Bed expansions

• New hospitals

ü Cost-effective, high-quality patient care

ü Deleveraging

Investment Considerations

ü Industry Leader : Attractive industry with good demographics.

ü Strong Cash Flows : Flexibility in use of FCF.

ü Continued Deleveraging : Reduce leverage to between 3.5x and 4.0x
no later than YE 2012.

ü Solid Organic Growth : Volume growth + expense management.

ü Opportunistic, Disciplined Expansion : Bed expansions and new
hospitals coming online over next three years.

ü Well Positioned : High-quality + cost-effective provider ; proven track
record of adapting to regulatory changes.

Appendix and Reconciliations

(1) Includes 90 consolidated HealthSouth inpatient rehab hospitals and six long-term acute-care hospitals.

(1)

(1) Data provided by UDS MR , a data gathering and analysis organization for the rehabilitation industry; represents ~ 65-70% of industry, including 90 HealthSouth sites.

(2) Includes all 90 HealthSouth inpatient rehab hospitals and six long-term acute care hospitals.

Continued Market Share Gains

Projected sustainable discharge growth: 4+% annual

(1)

(2)

ü HealthSouth’s volume
growth outpaced
competitors.

ü Bed expansions will help
facilitate organic growth:

• ~ 100 new beds in
2009; another ~ 100
in 2010

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.

Expenses (Q2 2009 vs. Q2 2008)

– 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.

Revenues (6 months)

Expenses (6 months)

Operational and Labor Metrics

(1) Includes all 90 HealthSouth inpatient rehab hospitals and six long-term acute care 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.

Payment Sources

(1) Managed Medicare revenues are included in “Managed care and other discount plans.”

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).

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.

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.

“Bundling”
Policy Objective: Reduce Readmission Rates

Note: Use of home healthcare and hospice is based on care that starts within three days of discharge. Other PAC care starts within one day of
discharge. Home health use includes episodes that overlap an inpatient stay.

Source: Medicare Payment Advisory Commission, “A Data Book: Healthcare spending and the Medicare program,” Chart 9-3 (June 2008).

“Bundling” - Can it Work?

1. Physicians must remain ultimately responsible for deciding patients’ post-acute
needs.

2. Patients must maintain their right to choose where they receive care.

3. Payments for post-acute care must be appropriate to ensure quality.

4. Payments for post-acute care must “flow” to actual providers of the care.

5. Access to post-acute care, especially in rural areas, must be ensured.

6. Existing laws, regulations, and policies that preclude continuity of
post-acute care must be changed or eliminated.

Six core principles must serve as the foundation for any bundling
payment system :

ü Transitioning to a “bundled payment system” will be extremely complex.

ü “Bundling,” as a concept, has merit, but it needs to be tested to determine if

it can achieve desired results.

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.

Three & Six Months Reconciliations 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

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.