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): November 3, 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
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63-0860407
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(Commission File Number)
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(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:
o
Written communication 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)
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o
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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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o
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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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 November 3, 2009, HealthSouth Corporation (the “Company”) issued a press release reporting the financial results of the Company for the three and nine months ended September 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, November 4, 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
As of January 1, 2009, 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 September 30, 2009, when filed, (5) stock based compensation expense recorded for employees, (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 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 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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Nine Months Ended
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Year Ended
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September 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
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$ | 362.1 | $ | 149.3 | $ | 227.2 | ||||||
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Provision for doubtful accounts
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(25.5 | ) | (20.5 | ) | (27.4 | ) | ||||||
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Professional fees-accounting, tax, and legal
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5.0 | 12.9 | 44.4 | |||||||||
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Interest expense and amortization of debt
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discounts and fees
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95.0 | 131.1 | 159.5 | |||||||||
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UBS Settlement proceeds, gross
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(100.0 | ) | - | - | ||||||||
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Equity in net income of nonconsolidated affiliates
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2.8 | 7.8 | 10.6 | |||||||||
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Net income attributable to noncontrolling interests
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(25.7 | ) | (21.1 | ) | (29.4 | ) | ||||||
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Amortization of debt discounts and fees
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(4.8 | ) | (4.9 | ) | (6.5 | ) | ||||||
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Distributions from nonconsolidated affiliates
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(6.5 | ) | (7.6 | ) | (10.9 | ) | ||||||
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Current portion of income tax benefit
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(3.2 | ) | (23.7 | ) | (73.8 | ) | ||||||
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Change in assets and liabilities
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(31.8 | ) | 22.5 | 48.6 | ||||||||
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Change in government, class action, and
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related settlements liability
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11.0 | 7.4 | 7.4 | |||||||||
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Other operating cash used in (provided by)
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discontinued operations
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9.6 | 1.6 | (6.6 | ) | ||||||||
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Other
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1.1 | (0.6 | ) | (1.4 | ) | |||||||
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Adjusted Consolidated EBITDA
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$ | 289.1 | $ | 254.2 | $ | 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 Ended
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Three Months Ended
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Nine Months Ended
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Nine Months Ended
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September 30,
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September 30,
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September 30,
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September 30,
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2009
(1)
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2008
(1)
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2009
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2008
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Net cash provided by operating activities
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$ | 132.9 | $ | 82.3 | $ | 362.1 | $ | 149.3 | ||||||||
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Impact of discontinued operations
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2.6 | (4.9 | ) | 9.6 | 1.6 | |||||||||||
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Net cash provided by operating activities
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of continuing operations
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135.5 | 77.4 | 371.7 | 150.9 | ||||||||||||
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Incremental income tax expense
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(3.0 | ) | (1.3 | ) | (4.7 | ) | (3.1 | ) | ||||||||
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Capital expenditures for maintenance
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(9.5 | ) | (8.1 | ) | (24.5 | ) | (25.2 | ) | ||||||||
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Net settlements on interest rate swaps
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(11.2 | ) | (7.3 | ) | (30.3 | ) | (13.9 | ) | ||||||||
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Dividends paid on convertible perpetual preferred
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stock
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(6.5 | ) | (6.5 | ) | (19.5 | ) | (19.5 | ) | ||||||||
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Distributions paid to noncontrolling interests
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of consolidated affiliates
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(7.0 | ) | (9.8 | ) | (22.8 | ) | (26.3 | ) | ||||||||
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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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- | - | (73.8 | ) | - | |||||||||||
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Income tax refunds
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(5.5 | ) | (8.8 | ) | (59.5 | ) | (27.8 | ) | ||||||||
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Cash paid for:
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Professional fees - accounting, tax, and legal
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3.5 | 4.0 | 11.5 | 12.9 | ||||||||||||
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Government, class action, and related
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settlements
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2.3 | - | 11.0 | 7.4 | ||||||||||||
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Adjusted free cash flow
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$ | 98.6 | $ | 39.6 | $ | 159.1 | $ | 55.4 | ||||||||
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(1)
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Net cash provided by operating activities for the nine months ended September 30, 2009 and 2008 was $362.1 million and $149.3 million, respectively. Net cash provided by operating activities for the six months ended June 30, 2009 and 2008 was $229.2 million and $67.0 million, respectively, as reported in the Company’s Form 10-Q for the quarterly period ended June 30, 2009. The difference is the $132.9 million
and $82.3 million of net cash provided by operating activities for the three months ended September 30, 2009 and 2008, respectively.
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For the three months ended September 30, 2009, net cash used in investing activities was $46.6 million and resulted primarily from capital expenditures, an increase in restricted cash, and net settlement payments related to interest rate swaps. Net cash used in financing activities during the three months ended September 30, 2009 was $18.8
million and resulted primarily from distributions paid to noncontrolling interests of consolidated affiliates and dividends paid on the Company’s convertible perpetual preferred stock.
For the three months ended September 30, 2008, net cash used in investing activities was $51.5 million and resulted primarily from capital expenditures, including expenditures associated with development activities, and net settlement payments related to an interest rate swap. Net cash used in financing activities during the three months
ended September 30, 2008 was $73.0 million and resulted primarily from net debt payments made during the period, as well as distributions paid to noncontrolling interests of consolidated affiliates and dividends paid on the Company’s perpetual preferred stock.
For the nine months ended September 30, 2009, net cash used in investing activities was $124.4 million and resulted primarily from capital expenditures, an increase in restricted cash, and net settlement payments related to interest rate swaps. Net cash used in financing activities during the nine months ended September 30, 2009 was $152.6
million and resulted primarily from net debt payments made during the period, as well as distributions paid to noncontrolling interests of consolidated affiliates and dividends paid on the Company’s perpetual preferred stock.
For the nine months ended September 30, 2008, net cash used in investing activities was $11.9 million and resulted primarily from capital expenditures, including expenditures associated with development activities, and net settlement payments related to an interest rate swap offset by proceeds from asset disposals, including our corporate
campus. Net cash used in financing activities during the nine months ended September 30, 2008 was $133.4 million and resulted primarily from net debt payments made during the period, as well as distributions paid to noncontrolling interests of consolidated affiliates and dividends paid on the Company’s perpetual preferred stock.
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 September 30, 2009 (when filed), June 30, 2009, 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.
(d) 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 November 3, 2009.
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99.2
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Supplemental slides provided in connection with the third quarter 2009 earnings call of HealthSouth Corporation.
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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:
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/
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
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Dated: November 3, 2009
Media Contact
November
3, 2009
Andy Brimmer, 205-410-2777
For
Immediate Release
Investor Relations Contact
Mary Ann Arico, 205-969-6175
maryann.arico@healthsouth.com
HealthSouth Reports Strong Results for Third Quarter 2009 and Increases 2009 Guidance
Continued Strong Discharge Growth and Effective Expense Management
Continued Strong Cash Flows from Operations
BIRMINGHAM, Ala. – HealthSouth Corporation (NYSE: HLS) today reported its results of operations for the third quarter ended September 30, 2009. The results showed consolidated net operating revenues of $472.7 million for the third quarter of 2009 compared to $455.5 million for the third quarter of 2008, or an increase of 3.8%. This
increase was primarily driven by a 5.3% quarter-over-quarter increase in patient discharges on both a consolidated and same store basis.
Reported net income per diluted share was $0.12 per share for the third quarter of 2009 compared to $0.00 per diluted share for the third quarter of 2008. On an adjusted basis, income from continuing operations was $0.38 per diluted share for the third quarter of 2009, which represents a 153.3%, or $0.23 per share, improvement over the $0.15
per diluted share for the third 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, losses on interest rate swaps, and other non-recurring items, as outlined in the attached supplemental information.
“The results of another solid quarter reinforce the strength and sustainability of HealthSouth’s business model,” said Jay Grinney, President and Chief Executive Officer of HealthSouth. “Discharges increased by 5.3% compared to the third quarter of 2008, and we continued to manage our hospitals in a high-quality, cost-effective
manner. As a result of these efforts, we were able to generate $132.9 million in cash flows from operating activities during the quarter and saw our Adjusted Consolidated EBITDA grow by $17.0 million, or just over 21%, compared to the third quarter of last year. Based on these solid results and the Company’s positive outlook for the fourth quarter, we are raising our full-year Adjusted Consolidated EBITDA and adjusted diluted EPS guidance.”
As of September 30, 2009, total debt outstanding approximated $1.7 billion, with no amounts drawn on the Company’s $400 million revolving credit facility. Total cash and cash equivalents were $117.3 million. Cash flows from operating activities were $362.1 million for the nine months ended September 30, 2009 compared to $149.3 million
for the same period of 2008. Cash flows from operating activities for the nine months ended September 30, 2009 included $73.8 million in net cash proceeds related to the Company’s settlement with UBS and the receipt of an approximate $42 million additional federal income tax refund for tax years 1995 through 1999.
Due to the Company’s debt reduction efforts and its higher Adjusted Consolidated EBITDA (see attached supplemental information), the Company’s leverage ratio was 4.5x as of September 30, 2009, using the trailing four quarters. With the Company’s higher Adjusted Consolidated EBITDA and its strong cash flows from operating
activities, and since the Company has already achieved its near-term leverage goal of 4.5x, the Company is more confident its goal of 3.5x to 4.0 x by the end of 2012, or earlier, is achievable.
As previously reported, on October 23, 2009, the Company entered into an agreement with the lenders in its Credit Agreement to extend the maturity of a portion of its Term Loan Facility and to provide additional flexibility around the issuance of senior secured and unsecured notes, acquisitions, and selected debt repurchases. For additional
information, see the Current Report on Form 8-K dated October 26, 2009.
“As a result of our strong cash flows from operations, the Company increased cash and cash equivalents by approximately $68 million during the quarter,” said Ed Fay, Senior Vice President of Finance and Treasurer of HealthSouth. “The amendment and extension of the Credit Agreement and the strong cash generation will allow
the Company greater flexibility to manage its overall capital structure and liquidity, and provide it with greater ability to increase shareholder value.”
2009 Guidance
As a result of its continued strong operating results through the third quarter 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 $354 million to $362 million to a range of $375 million to $380 million. Adjusted diluted earnings per
share have been increased from a range of $1.15 to $1.25 per share to a range of $1.45 to $1.50 per share.
Distribution of Common Stock and Common Stock Warrants Associated with Securities Litigation Settlement
On September 30, 2009, following the lapse of the applicable appeal period for the court’s decision related to the Company’s securities litigation settlement, the Company issued approximately 5.0 million shares of common stock and approximately 8.2 million warrants to purchase its common stock in full satisfaction of its obligation
to do so under the settlement. The warrants have a strike price of $41.40; consequently, they are not included in the Company’s diluted share count.
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 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 September 30, 2009, when filed, as well as the Company’s Current Report on Form 8-K filed on November 3, 2009. In addition, the Company will post supplemental slides today
on its website at http://investor.healthsouth.com for reference during its November 4, 2009 earnings call.
The Company expects to file its third 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
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Nine Months Ended
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September 30,
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September 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
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$ | 472.7 | $ | 455.5 | $ | 1,431.5 | $ | 1,376.3 | ||||||||
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Operating expenses:
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Salaries and benefits
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235.4 | 236.3 | 709.2 | 700.8 | ||||||||||||
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Other operating expenses
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66.8 | 68.6 | 201.6 | 201.0 | ||||||||||||
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General and administrative expenses
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26.0 | 25.5 | 76.4 | 78.8 | ||||||||||||
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Supplies
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27.7 | 26.2 | 83.9 | 81.1 | ||||||||||||
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Depreciation and amortization
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18.1 | 17.9 | 53.4 | 65.3 | ||||||||||||
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Impairment of long-lived assets
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4.0 | - | 4.0 | 0.6 | ||||||||||||
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Occupancy costs
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11.8 | 12.6 | 35.9 | 36.8 | ||||||||||||
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Provision for doubtful accounts
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7.9 | 6.6 | 25.5 | 20.5 | ||||||||||||
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Loss on disposal of assets
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0.7 | 0.2 | 3.0 | 0.6 | ||||||||||||
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Government, class action, and related settlements expense
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8.5 | 17.1 | 41.3 | (27.9 | ) | |||||||||||
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Professional fees—accounting, tax, and legal
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3.5 | 4.0 | 5.0 | 12.9 | ||||||||||||
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Total operating expenses
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410.4 | 415.0 | 1,239.2 | 1,170.5 | ||||||||||||
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Loss (gain) on early extinguishment of debt
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- | 2.1 | (3.1 | ) | 5.8 | |||||||||||
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Interest expense and amortization of debt discounts and fees
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29.5 | 40.3 | 95.0 | 131.1 | ||||||||||||
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Other income
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(0.6 | ) | (0.4 | ) | (1.4 | ) | (2.1 | ) | ||||||||
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Loss on interest rate swaps
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7.9 | 8.0 | 16.7 | 16.1 | ||||||||||||
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Equity in net income of nonconsolidated affiliates
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(3.0 | ) | (2.7 | ) | (2.8 | ) | (7.8 | ) | ||||||||
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Income (loss) from continuing operations before income tax
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benefit
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28.5 | (6.8 | ) | 87.9 | 62.7 | |||||||||||
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Provision for income tax benefit
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(1.7 | ) | (22.5 | ) | (0.8 | ) | (21.7 | ) | ||||||||
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Income from continuing operations
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30.2 | 15.7 | 88.7 | 84.4 | ||||||||||||
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(Loss) income from discontinued operations, net of tax
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(5.4 | ) | (2.9 | ) | (6.8 | ) | 7.2 | |||||||||
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Net income
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24.8 | 12.8 | 81.9 | 91.6 | ||||||||||||
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Less: Net income attributable to noncontrolling interests
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(8.0 | ) | (6.2 | ) | (25.7 | ) | (21.1 | ) | ||||||||
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Net income attributable to HealthSouth
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16.8 | 6.6 | 56.2 | 70.5 | ||||||||||||
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Less: Convertible perpetual preferred stock dividends
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(6.5 | ) | (6.5 | ) | (19.5 | ) | (19.5 | ) | ||||||||
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Net income attributable to HealthSouth
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common shareholders
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$ | 10.3 | $ | 0.1 | $ | 36.7 | $ | 51.0 | ||||||||
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Weighted average common shares outstanding:
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Basic
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87.6 | 87.4 | 87.6 | 81.6 | ||||||||||||
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Diluted
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102.2 | 101.0 | 101.6 | 95.1 | ||||||||||||
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Basic and diluted earnings per common share:
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Income from continuing operations
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attributable to HealthSouth common shareholders
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$ | 0.18 | $ | 0.04 | $ | 0.50 | $ | 0.53 | ||||||||
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(Loss) income from discontinued operations, net of tax,
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attributable to HealthSouth common shareholders
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(0.06 | ) | (0.04 | ) | (0.08 | ) | 0.10 | |||||||||
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Net income per share attributable to HealthSouth common
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||||||||||||||||
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shareholders
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$ | 0.12 | $ | - | $ | 0.42 | $ | 0.63 | ||||||||
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Amounts attributable to HealthSouth:
|
||||||||||||||||
|
Income from continuing operations
|
$ | 22.2 | $ | 9.8 | $ | 63.5 | $ | 62.7 | ||||||||
|
(Loss) income from discontinued operations, net of tax
|
(5.4 | ) | (3.2 | ) | (7.3 | ) | 7.8 | |||||||||
|
Net income attributable to HealthSouth
|
$ | 16.8 | $ | 6.6 | $ | 56.2 | $ | 70.5 | ||||||||
|
HealthSouth Corporation and Subsidiaries
|
||||||||
|
Condensed Consolidated Balance Sheets
|
||||||||
|
(Unaudited)
|
||||||||
|
September 30,
2009
|
December 31, 2008
|
|||||||
|
(As Adjusted)
|
||||||||
|
(In Millions)
|
||||||||
|
Assets
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 117.3 | $ | 32.2 | ||||
|
Restricted cash
|
88.1 | 154.0 | ||||||
|
Current portion of restricted marketable securities
|
7.7 | 20.3 | ||||||
|
Accounts receivable, net of allowance for doubtful accounts of $33.6 in 2009; $31.1 in 2008
|
216.2 | 235.8 | ||||||
|
Insurance recoveries receivable
|
- | 182.8 | ||||||
|
Other current assets
|
55.0 | 57.6 | ||||||
|
Total current assets
|
484.3 | 682.7 | ||||||
|
Property and equipment, net
|
671.5 | 673.9 | ||||||
|
Goodwill
|
414.7 | 414.7 | ||||||
|
Intangible assets, net
|
37.7 | 42.8 | ||||||
|
Investments in and advances to nonconsolidated affiliates
|
27.6 | 36.7 | ||||||
|
Income tax refund receivable
|
8.6 | 55.9 | ||||||
|
Other long-term assets
|
110.0 | 91.5 | ||||||
|
Total assets
|
$ | 1,754.4 | $ | 1,998.2 | ||||
|
Liabilities and Shareholders’ Deficit
|
||||||||
|
Current liabilities:
|
||||||||
|
Current portion of long-term debt
|
$ | 21.9 | $ | 23.6 | ||||
|
Accounts payable
|
50.6 | 45.6 | ||||||
|
Accrued expenses and other current liabilities
|
369.8 | 408.5 | ||||||
|
Government, class action, and related settlements
|
6.1 | 268.5 | ||||||
|
Total current liabilities
|
448.4 | 746.2 | ||||||
|
Long-term debt, net of current portion
|
1,674.8 | 1,789.6 | ||||||
|
Other long-term liabilities
|
165.7 | 162.2 | ||||||
| 2,288.9 | 2,698.0 | |||||||
|
Commitments and contingencies
|
||||||||
|
Convertible perpetual preferred stock
|
387.4 | 387.4 | ||||||
|
Shareholders’ deficit:
|
||||||||
|
HealthSouth shareholders' deficit:
|
(1,002.7 | ) | (1,169.4 | ) | ||||
|
Noncontrolling interests
|
80.8 | 82.2 | ||||||
|
Total shareholders' deficit
|
(921.9 | ) | (1,087.2 | ) | ||||
|
Total liabilities and shareholders’ deficit
|
$ | 1,754.4 | $ | 1,998.2 | ||||
|
HealthSouth Corporation and Subsidiaries
|
||||||||
|
Condensed Consolidated Statements of Cash Flows
|
||||||||
|
(Unaudited)
|
||||||||
|
Nine Months Ended
|
||||||||
|
September 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
(As Adjusted)
|
||||||||
|
(In Millions)
|
||||||||
|
Cash flows from operating activities:
|
||||||||
|
Net income
|
$ | 81.9 | $ | 91.6 | ||||
|
Loss (income) from discontinued operations
|
6.8 | (7.2 | ) | |||||
|
Adjustments to reconcile net income to net cash provided by
|
||||||||
|
operating activities—
|
||||||||
|
Provision for doubtful accounts
|
25.5 | 20.5 | ||||||
|
Provision for government, class action, and related settlements
|
41.3 | (27.9 | ) | |||||
|
UBS Settlement proceeds, gross
|
100.0 | - | ||||||
|
Depreciation and amortization
|
53.4 | 65.3 | ||||||
|
Amortization of debt issue costs, debt discounts, and fees
|
4.8 | 4.9 | ||||||
|
Impairment of long-lived assets
|
4.0 | 0.6 | ||||||
|
Loss on disposal of assets
|
3.0 | 0.6 | ||||||
|
(Gain) loss on early extinguishment of debt
|
(3.1 | ) | 5.8 | |||||
|
Loss on interest rate swaps
|
16.7 | 16.1 | ||||||
|
Equity in net income of nonconsolidated affiliates
|
(2.8 | ) | (7.8 | ) | ||||
|
Distributions from nonconsolidated affiliates
|
6.5 | 7.6 | ||||||
|
Stock-based compensation
|
9.9 | 8.5 | ||||||
|
Deferred tax provision
|
2.4 | 2.0 | ||||||
|
Other
|
0.6 | 0.2 | ||||||
|
(Increase) decrease in assets—
|
||||||||
|
Accounts receivable
|
(5.9 | ) | (27.4 | ) | ||||
|
Other assets
|
1.3 | 6.4 | ||||||
|
Income tax refund receivable
|
47.3 | (10.4 | ) | |||||
|
Increase (decrease) in liabilities—
|
||||||||
|
Accounts payable
|
5.0 | (9.3 | ) | |||||
|
Accrued fees and expenses for derivative plaintiffs' attorneys
|
||||||||
|
in UBS Settlement
|
(26.2 | ) | - | |||||
|
Other liabilities
|
10.3 | 18.2 | ||||||
|
Government, class action, and related settlements
|
(11.0 | ) | (7.4 | ) | ||||
|
Net cash used in operating activities of discontinued operations
|
(9.6 | ) | (1.6 | ) | ||||
|
Total adjustments
|
273.4 | 64.9 | ||||||
|
Net cash provided by operating activities
|
362.1 | 149.3 | ||||||
|
HealthSouth Corporation and Subsidiaries
|
||||||||
|
Condensed Consolidated Statements of Cash Flows (Continued)
|
||||||||
|
(Unaudited)
|
||||||||
|
Nine Months Ended
|
||||||||
|
September 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
(As Adjusted)
|
||||||||
|
(In Millions)
|
||||||||
|
Cash flows from investing activities:
|
||||||||
|
Capital expenditures
|
(54.7 | ) | (39.4 | ) | ||||
|
Acquisition of business, net of cash acquired
|
- | (14.6 | ) | |||||
|
Acquisition of intangible assets
|
(0.4 | ) | (18.2 | ) | ||||
|
Proceeds from disposal of assets
|
0.9 | 53.8 | ||||||
|
Net change in restricted cash
|
(32.0 | ) | 20.5 | |||||
|
Net settlements on interest rate swap
|
(30.3 | ) | (13.9 | ) | ||||
|
Net investment in interest rate swap
|
(6.4 | ) | - | |||||
|
Other
|
(1.7 | ) | (0.3 | ) | ||||
|
Net cash provided by investing activities of discontinued operations
|
0.2 | 0.2 | ||||||
|
Net cash used in investing activities
|
(124.4 | ) | (11.9 | ) | ||||
|
Cash flows from financing activities:
|
||||||||
|
Checks in excess of bank balance
|
- | (11.4 | ) | |||||
|
Change in restricted cash for amounts in escrow related to debt
|
- | (30.3 | ) | |||||
|
Principal payments on debt, including pre-payments
|
(62.9 | ) | (121.5 | ) | ||||
|
Borrowings on revolving credit facility
|
10.0 | 88.0 | ||||||
|
Payments on revolving credit facility
|
(50.0 | ) | (150.0 | ) | ||||
|
Principal payments under capital lease obligations
|
(9.9 | ) | (9.3 | ) | ||||
|
Issuance of common stock
|
- | 150.2 | ||||||
|
Dividends paid on convertible perpetual preferred stock
|
(19.5 | ) | (19.5 | ) | ||||
|
Distributions paid to noncontrolling interests of consolidated affiliates
|
(22.8 | ) | (26.3 | ) | ||||
|
Other
|
1.1 | (0.3 | ) | |||||
|
Net cash provided by (used in) financing activities of discontinued operations
|
1.4 | (3.0 | ) | |||||
|
Net cash used in financing activities
|
(152.6 | ) | (133.4 | ) | ||||
|
Effect of exchange rate changes on cash and cash equivalents
|
- | 0.8 | ||||||
|
Increase in cash and cash equivalents
|
85.1 | 4.8 | ||||||
|
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
|
- | (0.1 | ) | |||||
|
Cash and cash equivalents at end of period
|
$ | 117.3 | $ | 24.9 | ||||
|
Supplemental schedule of noncash financing activities:
|
||||||||
|
Securities Litigation Settlement
|
$ | 299.3 | $ | - | ||||
|
Three Months Ended September 30,
|
||||||||||||||||
|
2009
|
Per Share
(2)
|
2008
|
Per Share
(2)
|
|||||||||||||
|
(As Adjusted)
|
||||||||||||||||
|
(In Millions, Except per Share Data)
|
||||||||||||||||
|
Net income
|
$ | 24.8 | $ | 0.28 | $ | 12.8 | $ | 0.15 | ||||||||
|
Loss from discontinued operations, net of tax,
|
||||||||||||||||
|
attributable to HealthSouth
|
5.4 | 0.06 | 3.2 | 0.04 | ||||||||||||
|
Net income attributable to noncontrolling interests
|
(8.0 | ) | (0.09 | ) | (6.2 | ) | (0.07 | ) | ||||||||
|
Income from continuing operations
|
||||||||||||||||
|
attributable to HealthSouth
|
22.2 | 0.25 | 9.8 | 0.11 | ||||||||||||
|
Government, class action, and related settlements
|
8.5 | 0.10 | 17.1 | 0.20 | ||||||||||||
|
Professional fees – accounting, tax, and legal
|
3.5 | 0.04 | 4.0 | 0.05 | ||||||||||||
|
Loss on interest rate swaps
|
7.9 | 0.09 | 8.0 | 0.09 | ||||||||||||
|
Provision for income tax benefit
|
(1.7 | ) | (0.02 | ) | (22.5 | ) | (0.26 | ) | ||||||||
|
Estimated income tax expense
|
(1.3 | ) | (0.01 | ) | (1.3 | ) | (0.01 | ) | ||||||||
|
Adjusted income from continuing operations
(1) (4)
|
39.1 | 0.45 | 15.1 | 0.17 | ||||||||||||
|
Adjustment for dilution
(2)
|
(0.07 | ) | (0.02 | ) | ||||||||||||
|
Adjusted income from continuing operations
|
||||||||||||||||
|
per diluted share
(2) (4)
|
$ | 0.38 | $ | 0.15 | ||||||||||||
|
Estimated income tax expense
|
1.3 | 1.3 | ||||||||||||||
|
Interest expense and amortization of debt discounts
|
||||||||||||||||
|
and fees
|
29.5 | 40.3 | ||||||||||||||
|
Depreciation and amortization
|
18.1 | 17.9 | ||||||||||||||
| 88.0 | 74.6 | |||||||||||||||
|
Other adjustments per the Company's
|
||||||||||||||||
|
Credit Agreement:
|
||||||||||||||||
|
Impairment charges, including investments
|
4.3 | - | ||||||||||||||
|
Net noncash loss on disposal of assets
|
0.7 | 0.2 | ||||||||||||||
|
Loss on early extinguishment of debt
|
- | 2.1 | ||||||||||||||
|
Compensation expense under FASB Statement
|
||||||||||||||||
|
No. 123(R)
|
3.4 | 2.5 | ||||||||||||||
|
Adjusted Consolidated EBITDA
(1) (4) (5)
|
$ | 96.4 | $ | 79.4 | ||||||||||||
|
Weighted average common shares outstanding:
|
||||||||||||||||
|
Basic
|
87.6 | 87.4 | ||||||||||||||
|
Diluted
|
102.2 | 101.0 | ||||||||||||||
|
Nine Months Ended September 30,
|
||||||||||||||||
|
2009
|
Per Share
(2)
|
2008
|
Per Share
(2)
|
|||||||||||||
|
(As Adjusted)
|
||||||||||||||||
|
(In Millions, Except per Share Data)
|
||||||||||||||||
|
Net income
|
$ | 81.9 | $ | 0.93 | $ | 91.6 | $ | 1.12 | ||||||||
|
Loss (income) from discontinued operations, net of tax,
|
||||||||||||||||
|
attributable to HealthSouth
|
7.3 | 0.08 | (7.8 | ) | (0.10 | ) | ||||||||||
|
Net income attributable to noncontrolling interests
|
(25.7 | ) | (0.29 | ) | (21.1 | ) | (0.26 | ) | ||||||||
|
Income from continuing operations attributable
|
||||||||||||||||
|
to HealthSouth
|
63.5 | 0.72 | 62.7 | 0.77 | ||||||||||||
|
Government, class action, and related settlements
|
41.3 | 0.47 | (27.9 | ) | (0.34 | ) | ||||||||||
|
Professional fees – accounting, tax, and legal
|
5.0 | 0.06 | 12.9 | 0.16 | ||||||||||||
|
Gain on early extinguishment of debt
|
(3.1 | ) | (0.04 | ) | - | - | ||||||||||
|
Loss on interest rate swaps
|
16.7 | 0.19 | 16.1 | 0.20 | ||||||||||||
|
Accelerated depreciation of corporate campus
(3)
|
- | - | 10.0 | 0.12 | ||||||||||||
|
Provision for income tax benefit
|
(0.8 | ) | (0.01 | ) | (21.7 | ) | (0.27 | ) | ||||||||
|
Estimated income tax expense
|
(3.9 | ) | (0.04 | ) | (3.9 | ) | (0.05 | ) | ||||||||
|
Adjusted income from continuing operations
(1) (4)
|
118.7 | 1.36 | 48.2 | 0.59 | ||||||||||||
|
Adjustment for dilution
(2)
|
(0.19 | ) | (0.08 | ) | ||||||||||||
|
Adjusted income from continuing operations
|
||||||||||||||||
|
per diluted share
(2) (4)
|
$ | 1.17 | $ | 0.51 | ||||||||||||
|
Estimated income tax expense
|
3.9 | 3.9 | ||||||||||||||
|
Interest expense and amortization of debt discounts
|
||||||||||||||||
|
and fees
|
95.0 | 131.1 | ||||||||||||||
|
Depreciation and amortization, excluding accelerated
|
||||||||||||||||
|
depreciation of corporate campus
(3)
|
53.4 | 55.3 | ||||||||||||||
| 271.0 | 238.5 | |||||||||||||||
|
Other adjustments per the Company's
|
||||||||||||||||
|
Credit Agreement:
|
||||||||||||||||
|
Impairment charges, including investments
|
5.2 | 0.6 | ||||||||||||||
|
Net noncash loss on disposal of assets
|
3.0 | 0.8 | ||||||||||||||
|
Loss on early extinguishment of debt
|
- | 5.8 | ||||||||||||||
|
Compensation expense under FASB Statement
|
||||||||||||||||
|
No. 123(R)
|
9.9 | 8.5 | ||||||||||||||
|
Adjusted Consolidated EBITDA
(1) (4) (5)
|
$ | 289.1 | $ | 254.2 | ||||||||||||
|
Weighted average common shares outstanding:
|
||||||||||||||||
|
Basic
|
87.6 | 81.6 | ||||||||||||||
|
Diluted
|
101.6 | 95.1 | ||||||||||||||
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 | |||||||
(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. The increase in the Company’s basic and diluted weighted average common shares outstanding for the nine months ended September 30, 2009 compared to the same period 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, 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.
The Company will host an investor conference call at 9:30 a.m. Eastern Time on Wednesday, November 4, 2009 to discuss its results for the third 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 30082093. 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 November 4 until November 18, 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 September 30, 2009, June 30, 2009, and March 31, 2009.
1
Third Quarter 2009 Earnings Call
Supplemental Slides
Supplemental Slides
Exhibit 99.2
2
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.
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.
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, June 30,
2009, and September 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.
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, June 30,
2009, and September 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 November 3, 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.
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 November 3, 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
3
Table of Contents
4
Highlights (Q3 2009)
ü
Achieved 5.3% quarter-over-quarter
discharge growth.
–
Same store discharge growth was 5.3%.
ü
Revenue
growth of 3.8%.
–
Driven by higher discharge volume which more
than offset lower outpatient revenue.
ü
High-quality,
cost-effective, patient care.
–
Driven by effective management of hospital
expenses and improved labor productivity
.
ü
Amended
and extended a portion of the term loan up to 2.5 years to September
2015.
2015.
ü
Increased
cash on the balance sheet by $68 million during the quarter.
ü
Leverage
ratio reduced to 4.5x
(1)
from 5.3x at year end.
–
Beat previous goal of 4.5x by year-end 2010.
ü
Distributed
the securities litigation shares and warrants.
(1)
Based on trailing four quarter Adjusted Consolidated EBITDA of $376.6 million; reconciliation to GAAP provided on slides 33 through 36.
5
Revenues (Q3 2009 vs. Q3 2008)
•
Inpatient revenue growth was driven by strong discharge volumes.
–
Volume growth was driven by the sustained sales
and marketing effort.
–
Same store discharge growth was 5.3%.
–
Pricing essentially flat for the quarter.
Q3
2009 marks the end of the Medicare pricing roll-
back.
back.
•
Outpatient revenue declined as a result of 11 fewer outpatient satellites
quarter over quarter.
6
•
Continued improvement on labor productivity demonstrated by lower EPOB.
•
Hospital-related expenses:
–
Despite increased volume, hospital expenses
remained essentially flat producing strong
operating leverage.
operating leverage.
–
Increased provision for doubtful accounts to
reflect aging of pending Medicare appeals.
7
Adjusted Consolidated EBITDA
(1)
(3Q
2009)
(Millions)
(Millions)
(1)
Reconciliation to GAAP provided on slides 33 through 36.
•
Improvements driven by:
–
Increased volumes
–
Improved labor productivity
–
Disciplined expense management
8
Adjusted Consolidated EBITDA
(1)
(9
months)
(Millions)
(Millions)
(1)
Reconciliation to GAAP provided on slides 33 through 36.
•
Improvements driven by:
–
Increased volumes
–
Improved labor productivity
–
Disciplined expense management
•
Improvements offset by:
–
Increased provision for doubtful accounts to
reflect aging of pending Medicare appeals.
•
Strong volume growth YTD helped offset the Medicare price roll-back.
–
Medicare market basket update: $7-8 million benefit
in Q108.
9
Adjusted Income per Diluted Share (3Q 2009)
(1)
Includes a charge of $8.5 million and $17.1 million, respectively, for government, class action, and
related settlements expense primarily
reflecting the change in value of our common stock.
reflecting the change in value of our common stock.
(2)
Reconciliation to GAAP provided on slides 33 through 36.
•
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:
–
Increased provision for doubtful accounts to
reflect aging of pending Medicare appeals.
10
(1)
Includes a charge of $41.3 million and a gain of $27.9 million, respectively, for government, class action, and related settlements expense
primarily reflecting the change in value of our common stock .
primarily reflecting the change in value of our common stock .
(2)
Reconciliation to GAAP provided on slides 33 through 36.
•
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.
11
Free Cash Flow
(1)
Includes capital expenditures for the hospital refresh program.
(2)
Benefited by approximately $19 million for the seasonal effect on working capital related to the interest payment accrual.
12
•
No near-term refinancing
–
Revolver = 2012
–
Term Loan = 2013 & 2014
–
Bonds = 2014 & 2016
•
Previous goal of 4.5x by year-end
2010, achieved in Q3 2009.
2010, achieved in Q3 2009.
•
Future deleveraging
–
Excess cash from operations
–
Derivative proceeds
Ø
E&Y arbitration
(1)
October 2009, amendment to the credit agreement increases debt repayment flexibility of non-term loan balances.
(2)
Based on four quarter trailing Adjusted Consolidated EBITDA of $376.6 million; see related debt schedule on slide 30, and reconciliation to
GAAP on slides 33 through 36.
GAAP on slides 33 through 36.
Debt to EBITDA
6.3x
6.3x
5.3x
4.5x
(2)
($ Billions)
Year-End
2012
Goal:
3.5x to 4.0x
Debt Reduction
13
Liquidity
(Millions)
(Millions)
14
2009 Guidance - Adjusted Consolidated EBITDA
(1)
(1)
(1)
Reconciliation to GAAP provided on slides 33 through 36.
Key Drivers:
ü
Sustainable discharge growth
ü
High-quality, cost-effective patient care
ü
Market basket update in Q4 2009.
15
2009 Guidance - Adjusted Earnings per Diluted Share
(1)
(1)
(1)
Adjusted income from continuing operations per diluted share.
Key Drivers
:
ü
Increased Adjusted Consolidated EBITDA
ü
Deleveraging
ü
Lower floating-rate interest expense (results
in higher cash payment
on the swap)
on the swap)
ü
Market basket update in Q4 2009.
16
Business Outlook
(1)
For reconciliation to GAAP, see slides 33 - 36.
These ranges are based on current assumptions
of external drivers (e.g., healthcare reform,
interest rates) and are subject to change.
interest rates) and are subject to change.
(2)
Based on adjusted income from continuing operations per diluted share.
17
Appendix
18
FIM Gain
LOS Efficiency
LOS Efficiency
= Functional gain
divided by length of stay
divided by length of stay
Source:
UDSmr Database - On Demand
Reports 2008 Year End Report
Reports 2008 Year End Report
FIM Gain
= Change in Functional
Independent Measurement (based on
an 18 point assessment) from
Admission to Discharge
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.
19
Operational Excellence = “Cost-Effective” Care
CMS Fiscal Year 2010 IRF Rate Setting File Analysis
(1)
|
|
Freestanding
(2) |
Units
(2)
|
Total
|
|
HealthSouth
|
|
|
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.
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.
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.
20
Disciplined Growth
(1)
All surveys complete, awaiting final CMS approval.
(2)
CON is being appealed; operational date may change.
Bed expansions
:
•
Approximately 100 beds being added in 2009 and
a similar amount
in 2010.
in 2010.
•
Average investment per bed:
–
Internal renovation = $15 - 45K
–
New construction = $100 - 250K
New hospitals
:
•
Cash pay-back:
2 - 3 years
21
De novo:
40-Bed Proforma Example
(1)
Does
not
include estimated corporate overhead of ~4.75%
of net operating revenues.
(2) Assumes state income taxes only for first five years, then federal and state income taxes.
(2) Assumes state income taxes only for first five years, then federal and state income taxes.
De novo’s attractive for future growth.
We evaluate based on commitment (cash or leased).
22
Revenue (9 months)
23
Expenses (9 months)
24
Revenues (Sequential)
25
Expenses (Sequential)
26
Operational and Labor Metrics
(1)
Numbers have been reclassified to reflect current continuing operations.
(2)
Represents discharges from HealthSouth’s 91 consolidated hospitals, which includes Mesa, Arizona starting in Q3 2009.
(3)
Excludes approx. 400 full-time equivalents, 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.
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.
(4)
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.
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.
27
Payment Sources
(1)
Managed Medicare revenues represent ~ 8% of total revenues and are included in “Managed care and other discount plans.”
28
Debt Maturities
(Millions)
(Millions)
$400.0
Current undrawn revolver
matures in 2012.
•
Minimal amortization and no near-term financing risk.
•
As of Sept. 30, 2009, we were in compliance with the covenants under our Credit Agreement.
$623.3
Term loan extendable to Sept. 2015
contingent on the floating rates notes
being refinanced prior to March 2014.
29
Interest Rate Swaps
(Millions)
(Millions)
(1)
In October 2009, the credit agreement was amended. The maturity for $300 million of the term-loan
was extended to 2014, and is
extendable to September 2015, contingent on the floating rate note being refinanced prior to March 2014. The extended portion of the
term loan will bear an interest rate of Libor plus 375.
extendable to September 2015, contingent on the floating rate note being refinanced prior to March 2014. The extended portion of the
term loan will bear an interest rate of Libor plus 375.
(2)
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.
(3)
Forward-starting interest rate swaps (designated as cash flow hedges).
30
Debt Schedule
(Millions)
(Millions)
(1)
October 2009, amendment to the credit agreement increases debt repayment flexibility of non-term loan balances.
(2)
The Company had $117.3 million in cash and cash equivalents as of September 30, 2009.
31
Non-Operating Cash/Tax Position
Cash Refunds as of Sept. 30, 2009
•
Federal tax recoveries virtually complete.
–
Approx. $43 million received.
•
State tax refunds in progress.
–
Approx. $17 million received.
–
Approx. $9 million net receivable on
the balance sheet.
Future Cash Tax Payments
•
Expect to pay about $5-7 million per year of
income tax.
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.
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.
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.
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.
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.
foreseeable future as there will be a reduction
in the valuation allowance when NOLs are
utilized.
32
Outstanding Share Summary
(Millions)
(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.
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)
The agreement to settle our class action securities litigation received final court approval in January 2007. These shares of common stock and
warrants were issued on September 30, 2009. The 5.0 million of common shares are now included in the outstanding shares. The warrants at a
strike price of $41.40 were not assumed exercised for the dilutive shares outstanding because they are anti-dilutive in the periods presented.
warrants were issued on September 30, 2009. The 5.0 million of common shares are now included in the outstanding shares. The warrants at a
strike price of $41.40 were not assumed exercised for the dilutive shares outstanding because they are anti-dilutive in the periods presented.
(4)
The difference between the basic and diluted shares outstanding is primarily related to our convertible perpetual preferred stock.
33
Three & Nine Months Reconciliation of Net Income to Adjusted Income from
Continuing Operations and Adjusted Consolidated EBITDA (1) (3)
Continuing Operations and Adjusted Consolidated EBITDA (1) (3)
(1) (2) (3) (4)
-
Notes on page 36.
34
2008 Year-End Reconciliation of Net Income to Adjusted Income from
Continuing Operations and Adjusted Consolidated EBITDA (1) (3)
Continuing Operations and Adjusted Consolidated EBITDA (1) (3)
(1) (2) (3) (4)
-
Notes on page 36.
35
YTD Reconciliation of Adjusted Consolidated EBITDA
(1)
to Net Cash Provided
by Operating Activities
by Operating Activities
(1)
-
Notes on page 36.
36
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.
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.
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.
3.
Adjusted income from continuing operations per diluted share and Adjusted
Consolidated EBITDA are two components of our guidance.
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.
Adjusted Consolidated EBITDA, and there may be certain other deductions required.