HealthSouth Corporation
On an adjusted basis, income from continuing operations was $0.39 per diluted share for the first quarter of 2009, which represents an 116.7%, or $0.21 per share, improvement over the $0.18 per diluted share for the first quarter of 2008. Adjusted income from continuing operations excludes amounts associated with government, class action, and related settlements, our loss on interest rate swap, and other non-recurring items, as outlined in the attached supplemental information.
“The strategy we put in place in 2007 – focusing on deleveraging, growth, and expense management – yielded solid results in 2008 and continued to generate solid results in the first quarter of 2009,” said Jay Grinney, President and Chief Executive Officer of HealthSouth. “We believe these results demonstrate the strength and sustainability of HealthSouth’s business model. Our ongoing emphasis on providing high quality, cost-effective patient care and enhancing our balance sheet through continued debt repayment will position HealthSouth to produce significant EPS growth in 2009.”
The Company continued to deleverage its balance sheet during the first quarter of 2009. Total debt outstanding approximated $1.7 billion as of March 31, 2009. As of March 31, 2009, no amounts were drawn on our revolving credit facility and total cash and cash equivalents approximated $90.7 million.
“Our strong cash flow from operating activities allowed us to reduce our debt by an additional $85 million during the first quarter of 2009,” said John Workman, Executive Vice President and Chief Financial Officer of HealthSouth. “The increase in Adjusted Consolidated EBITDA and our lower debt balance brought our leverage ratio to 4.9x as of March 31, 2009, based on the trailing four quarters of Adjusted Consolidated EBITDA. We now expect to be at the 4.5x level earlier than the end of 2010 and believe our longer term goal of 3.5x to 4.0x by the end of 2012 is progressively more achievable.”
2009 Guidance
In our Current Report on Form 8-K dated February 23, 2009 and related earnings release, we provided 2009 guidance which consisted of adjusted diluted earnings per share in the range of $0.85 to $0.90 per share and Adjusted Consolidated EBITDA in the range of $342.0 million to $352.0 million. Based on our results for the first quarter of 2009, we expect our 2009 full-year results to be at the higher end of this guidance range.
Other Information
On January 1, 2009, we adopted Financial Accounting Standards Board Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51. As a result, we have reclassified our noncontrolling interests (formerly known as “minority interests”) as a component of equity and now report net income and comprehensive income attributable to our noncontrolling interests separately from net income and comprehensive income attributable to HealthSouth.
The information in this press release is summarized and should be read in conjunction with the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 (the “March 2009 Form 10-Q”), when filed, as well as the Company’s Current Report on Form 8-K filed on May 4, 2009. In addition, the Company will post supplemental slides today on its website at http://investor.healthsouth.com/ for reference during its May 4, 2009 earnings call.
The Company expects to file its first 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.
HealthSouth Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended March 31,
-----------------------------
2009 2008
------------- -------------
(As Adjusted)
(In Millions, Except Per Share Data)
Net operating revenues $475.1 $464.2
------------- -------------
Operating expenses:
Salaries and benefits 234.7 230.4
Other operating expenses 67.2 68.8
General and administrative
expenses 25.5 28.1
Supplies 27.5 27.2
Depreciation and
amortization 17.6 29.6
Occupancy costs 12.0 12.0
Provision for doubtful
accounts 7.9 7.8
Loss (gain) on disposal of assets 1.0 (0.4)
Government, class action, and
related settlements expense (15.9) (36.4)
Professional fees- accounting,
tax, and legal 4.8 3.6
------------- -------------
Total operating expenses 382.3 370.7
(Gain) loss on early extinguishment
of debt (1.8) 0.3
Interest expense and amortization
of debt discounts and fees 34.4 47.4
Other expense (income) 0.2 (0.7)
Loss on interest rate swap 5.0 36.6
Equity in net income of
nonconsolidated affiliates (2.5) (2.4)
------------- -------------
Income from continuing operations
before income tax expense 57.5 12.3
Provision for income tax expense 1.2 0.1
------------- -------------
Income from continuing operations 56.3 12.2
(Loss) income from discontinued
operations, net of income tax benefit (2.8) 14.2
------------- -------------
Net income 53.5 26.4
Less: Net income attributable to
noncontrolling interests (8.6) (6.6)
------------- -------------
Net income attributable
to HealthSouth 44.9 19.8
Less: Convertible perpetual preferred
stock dividends (6.5) (6.5)
------------- -------------
Net income available to common
shareholders $38.4 $13.3
============= =============
Weighted average common shares
outstanding:
Basic 87.5 78.9
============= =============
Diluted 100.9 92.3
============= =============
Basic and diluted earnings per common
share:
Income (loss) from continuing
operations attributable to
HealthSouth common shareholders $0.47 $(0.02)
(Loss) income from discontinued
operations, net of tax,
attributable to HealthSouth
common shareholders (0.03) 0.19
------------- -------------
Net income per share available
to HealthSouth common
shareholders $0.44 $0.17
============= =============
Amounts attributable to HealthSouth
common shareholders:
Income from continuing operations,
net of tax $48.0 $4.6
(Loss) income from discontinued
operations, net of tax (3.1) 15.2
------------- -------------
Net income attributable
to HealthSouth $44.9 $19.8
============= =============
HealthSouth Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, December 31
2009 2008
------------- -------------
(As Adjusted)
(In Millions)
Assets
Current assets:
Cash and cash equivalents $90.7 $32.2
Restricted cash 59.5 154.0
Restricted marketable securities 20.0 20.3
Accounts receivable, net of allowance for
doubtful accounts of $31.3 in 2009;
$31.1 in 2008 241.4 235.8
Insurance recoveries receivable 181.8 182.8
Other current assets 61.1 57.6
------------- -------------
Total current
assets 654.5 682.7
Property and equipment, net 670.5 673.9
Goodwill 414.7 414.7
Intangible assets, net 41.0 42.8
Investments in and advances to nonconsolidated
affiliates 37.6 36.7
Income tax refund receivable 8.3 55.9
Other long-term assets 95.1 91.5
------------- -------------
Total assets $1,921.7 $1,998.2
============= =============
Liabilities and Shareholders' Deficit
Current liabilities:
Current portion of long-term debt $21.7 $23.6
Accounts payable 44.0 45.6
Accrued expenses and other current
liabilities 389.7 408.5
Government, class action, and related
settlements 252.6 268.5
------------- -------------
Total current liabilities 708.0 746.2
Long-term debt, net of current portion 1,706.4 1,789.6
Other long-term liabilities 163.9 162.2
------------- -------------
2,578.3 2,698.0
------------- -------------
Commitments and contingencies
Convertible perpetual preferred stock 387.4 387.4
------------- -------------
Shareholders' deficit:
HealthSouth shareholders' deficit (1,128.4) (1,169.4)
Noncontrolling interests 84.4 82.2
------------- -------------
Total shareholders' deficit (1,044.0) (1,087.2)
------------- -------------
Total liabilities and
shareholders' deficit $1,921.7 $1,998.2
============= =============
HealthSouth Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
----------------------------
2009 2008
------------- -------------
(As Adjusted)
(In Millions)
Cash flows from operating activities:
Net income $53.5 $26.4
------------- -------------
Loss (income) from discontinued
operations 2.8 (14.2)
------------- -------------
Adjustments to reconcile net income to net
cash provided by operating activities-
Provision for doubtful accounts 7.9 7.8
Provision for government, class action,
and related settlements (15.9) (36.4)
UBS Settlement proceeds, gross 100.0 -
Depreciation and amortization 17.6 29.6
Loss on interest rate swap 5.0 36.6
Equity in net income of nonconsolidated
affiliates (2.5) (2.4)
Distributions from nonconsolidated
affiliates 1.5 2.2
Stock-based compensation 3.7 3.3
Deferred tax provision 1.5 0.8
Other 1.4 1.5
(Increase) decrease in assets-
Accounts receivable (13.5) (27.9)
Other assets (6.6) (3.2)
Income tax refund receivable 47.8 3.8
(Decrease) increase in liabilities-
Accounts payable (1.6) (3.2)
Accrued fees and expenses for
derivative plaintiffs' attorneys
in UBS Settlement (26.2) -
Other liabilities 8.6 25.9
Government, class action, and related
settlements (1.7) (7.3)
Net cash used in operating activities of
discontinued operations (0.2) (1.5)
------------- -------------
Total adjustments 126.8 29.6
------------- -------------
Net cash provided by operating activities 183.1 41.8
------------- -------------
HealthSouth Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
Three Months Ended March 31,
----------------------------
2009 2008
------------- -------------
(As Adjusted)
(In Millions)
Cash flows from investing activities:
Capital expenditures (17.2) (8.7)
Proceeds from disposal of assets 0.8 43.9
Net change in restricted cash (3.5) (0.9)
Net settlements on interest rate swap (8.5) (0.2)
Other (0.5) (0.8)
Net cash used in investing activities of
discontinued operations (1.3) (0.2)
------------- -------------
Net cash (used in) provided
by investing activities (30.2) 33.1
------------- -------------
Cash flows from financing activities:
Checks in excess of bank balance 4.1 (11.4)
Principal payments on debt,
including pre-payments (39.6) (17.0)
Borrowings on revolving credit facility 10.0 15.0
Payments on revolving credit facility (50.0) -
Principal payments under capital lease
obligations (3.2) (3.0)
Dividends paid on convertible perpetual
preferred stock (6.5) (6.5)
Distributions paid to noncontrolling
interests of consolidated affiliates (8.5) (10.1)
Other 0.5 (0.1)
Net cash used in financing activities of
discontinued operations (1.2) (1.3)
------------- ------------
Net cash used in financing activities (94.4) (34.4)
------------- -------------
Increase in cash and cash equivalents 58.5 40.5
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 - (0.3)
------------- -------------
Cash and cash equivalents at end of period $90.7 $60.4
============= =============
HealthSouth Corporation and Subsidiaries
Supplemental Non-GAAP Disclosures
Reconciliation of Net Income to Adjusted Income from Continuing Operations
and Adjusted Consolidated EBITDA (1) (4)
Three Months Ended March 31,
----------------------------
2009 Per Share (2) 2008 Per Share(2)
---- ------------- ---- ------------
(As Adjusted)
(In Millions, Except per Share Data)
Net income $53.5 $0.61 $26.4 $0.33
Loss (income) from
discontinued operations,
net of tax, attributable
to HealthSouth 3.1 0.04 (15.2) (0.19)
Net income attributable to
noncontrolling interests (8.6) (0.10) (6.6) (0.08)
---- ----- ---- -----
Income from continuing
operations attributable
to HealthSouth 48.0 0.55 4.6 0.06
Government, class action,
and related settlements (15.9) (0.18) (36.4) (0.46)
Professional fees -
accounting, tax, and legal 4.8 0.05 3.6 0.05
Gain on early extinguishment
of debt (1.8) (0.02) - -
Loss on interest rate swap 5.0 0.06 36.6 0.46
Accelerated depreciation of
corporate campus (3) - - 10.0 0.13
Provision for income tax
expense 1.2 0.01 0.1 0.00
Estimated income tax expense (1.5) (0.02) (1.5) (0.02)
---- ----- ---- -----
Adjusted income from continuing
operations (1) (4) 39.8 0.45 17.0 0.22
Adjustment for dilution (2) (0.06) (0.04)
----- -----
Adjusted income from continuing
operations per diluted
share (2) (4) $0.39 $0.18
===== =====
Estimated income tax expense 1.5 1.5
Interest expense and
amortization of debt discounts
and fees 34.4 47.4
Depreciation and amortization,
excluding accelerated
depreciation of corporate
campus (3) 17.6 19.6
---- ----
93.3 85.5
Other adjustments per the
Company's Credit Agreement:
Impairment charges related to
investments 0.7 -
Net noncash loss on disposal
of assets 1.0 0.1
Loss on early extinguishment
of debt - 0.3
Compensation expense under
FASB Statement No. 123(R) 3.7 3.3
--- ---
Adjusted Consolidated
EBITDA (1) (4) (5) $98.7 $89.2
===== =====
Weighted average common
shares outstanding:
Basic 87.5 78.9
==== ====
Diluted 100.9 92.3
===== ====
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. Management and some members of the investment community utilize adjusted income from continuing operations as a financial measure and Adjusted Consolidated EBITDA as a liquidity measure 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 shares outstanding. The diluted share counts contain approximately 13.1 million shares related to the potential dilution of the Company’s convertible perpetual preferred stock. Per share amounts do not include 5.0 million shares of common stock or warrants to purchase approximately 8.2 million shares of common stock not yet issued under the securities litigation settlement. The increase in the Company’s basic and diluted weighted average common shares outstanding for the three months ended March 31, 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, and in accordance with Financial Accounting Standards Board Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company accelerated the depreciation of its corporate campus so that the net book value of the campus equaled the estimated net proceeds the Company expected to receive on the sale transaction’s closing date. The year-over-year impact of this acceleration of depreciation approximated $10 million. No similar charges are expected in 2009.
(4) Adjusted income from continuing operations per diluted share and Adjusted Consolidated EBITDA are two components of the Company’s guidance.
(5) The Company’s Credit Agreement allows unusual non-cash or non-recurring items to be added to arrive at Adjusted Consolidated EBITDA. In addition, certain other deductions may be required. Such amounts have not been included in the above calculation as it would not be indicative of the Company’s Adjusted Consolidated EBITDA for future periods.
(6) Interest expense and amortization of debt discounts and fees in the Company’s consolidated statement of operations for the year ended December 31, 2008 included the reversal of approximately $9.4 million of accrued interest related to the loan guarantee for which the Company received a release as part of the UBS Settlement.
The Company will host an investor conference call at 9:00 a.m. Eastern Time on Tuesday, May 5, 2009 to discuss its results for the first 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 8664065369 and giving the pass code 91485741. International callers should dial 9735822847 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 May 5 until May 19, 2009. To access the replay, please dial 8006421687. International callers should dial 7066459291. 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, 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 10K for the year ended December 31, 2008 and Form 10-Q for the quarterly period ended March 31, 2009, which is expected to be filed later this week.
Media Contact Andy Brimmer, 205-410-2777 Investor Relations Contact Mary Ann Arico, 205-969-6175maryann.arico@healthsouth.com
First Call Analyst: McVay, Tadd
FCMN Contact:
SOURCE: HealthSouth Corporation
CONTACT: Media: Andy Brimmer, +1-205-410-2777, or Investor Relations:
Mary Ann Arico, +1-205-969-6175,