HealthSouth Reports Strong Results for First Quarter 2013

          HealthSouth Reports Strong Results for First Quarter 2013

Revenue Growth of 6.3%

Discharge Growth of 4.1%

Cash Provided by Operating Activities of $121.4 million

Adjusted EBITDA Increased by 9.7%

HealthSouth Also Announces Agreements with IRS Resulting in Increase to
Federal NOL

PR Newswire

BIRMINGHAM, Ala., April 25, 2013

BIRMINGHAM, Ala., April 25, 2013 /PRNewswire/ --HealthSouth Corporation
(NYSE: HLS), the nation's largest owner and operator of inpatient
rehabilitation hospitals, today reported its results of operations for the
first quarter ended March31, 2013.

"We are very pleased with our first quarter's results," said Jay Grinney,
President and Chief Executive Officer of HealthSouth. "All of the Company's
key operating and financial metrics — discharges, revenues, Adjusted EBITDA,
earnings per share, and adjusted free cash flow — demonstrated strong
quarter-over-quarter growth. We also continued to invest a portion of our free
cash flow towards future growth with the on-going construction of three new
hospitals and the purchase of the 58-bed Walton Rehabilitation Hospital in
Augusta, Georgia. Walton is the 101^st hospital in HealthSouth's national
network, and this acquisition marks HealthSouth's entry into the Georgia
market."

First Quarter Results

  oConsolidated net operating revenues were $572.6 million for the first
    quarter of 2013 compared to $538.6 million for the first quarter of 2012,
    or an increase of 6.3%. This increase was attributable to a 4.1% increase
    in patient discharges and a 3.1% increase in net patient revenue per
    discharge. Discharge growth included a 2.2% increase in same-store
    discharges. Same-store discharges in the first quarter of 2013 were
    negatively impacted by leap year in 2012 and by the closure of 41 skilled
    nursing facility beds at two of the Company's hospitals. Approximately 120
    basis points of discharge growth from new stores resulted from the
    consolidation of St. Vincent Rehabilitation Hospital beginning in the
    third quarter of 2012. Net patient revenue per discharge increased
    primarily due to pricing adjustments from Medicare and managed care
    payors, higher patient acuity, and a higher percentage of Medicare
    patients. Net operating revenues also include the effect of sequestration
    for Medicare patients admitted but not discharged in the first quarter of
    2013.
  oIncome from continuing operations attributable to HealthSouth per share
    for the first quarter of 2013 was $0.48 per share compared to $0.40 per
    share for the same period of 2012. Earnings per share for the first
    quarter of 2013 reflected strong operating results and higher depreciation
    and amortization related to increased capital investment in 2012.
  oCash flows provided by operating activities were $121.4 million for the
    three months ended March31, 2013, compared to $81.0 million for the same
    period of 2012. This increase was primarily due to increased net operating
    revenues and continued disciplined expense management. During the three
    months ended March 31, 2012, working capital was negatively impacted by
    higher payroll-related liabilities and the timing of interest payments.
  oAdjusted EBITDA (see attached supplemental information) for the three
    months ended March31, 2013 was $139.3 million compared to $127.0 million
    for the three months ended March31, 2012, or an increase of 9.7%. This
    improvement was due primarily to continued revenue growth and disciplined
    expense management offset by higher expense associated with the ongoing
    implementation of the Company's electronic clinical information system and
    higher noncontrolling interests expense. Noncontrolling interests expense
    increased during the first quarter of 2013 compared to the first quarter
    of 2012 due primarily to the consolidation of St. Vincent Rehabilitation
    hospital beginning in the third quarter of 2012, changes at two joint
    venture hospitals, and improved financial performance at the Company's
    joint venture hospitals.
  oAdjusted free cash flow (see attached supplemental information) for the
    three months ended March31, 2013 was $85.7 million compared to $45.2
    million for the same period of 2012. Increases to adjusted free cash flow
    resulted from continued Adjusted EBITDA growth and a decrease in working
    capital, as discussed above.

"During the first quarter of 2013, we launched and completed a tender offer
for our common shares resulting in the repurchase of approximately 9.5% of our
outstanding shares at a price of $25.50 per share," said Doug Coltharp,
Executive Vice President and Chief Financial Officer of HealthSouth. "The
tender offer was funded with approximately $152 million of cash on hand and an
$82 million borrowing under our $600 million revolving credit facility. This
action is consistent with our strategy of utilizing our substantial free cash
flow generation and balance sheet capacity to enhance shareholder value via an
array of investment and capital return alternatives."

Subsequent Event — Agreements with IRS

On April 25, 2013, the Company entered into closing agreements with the IRS
that settle federal income tax matters related to the previous restatement of
its financial statements, as well as certain other tax matters, through
December 31, 2008. As a result of these closing agreements, the Company
expects to increase its deferred tax assets, primarily its federal NOL, and
record a net federal income tax benefit of at least $91 million in the second
quarter of 2013. Using an estimated basic common share count of 88.0 million
shares, this income tax benefit would increase the Company's expected earnings
per share by at least $1.03 per share in the second quarter of 2013. This
federal income tax benefit is expected to result in at least a $260 million
increase to the Company's federal NOL on a gross basis.

2013 Guidance

In the Company's Current Report on Form 8-K dated February 19, 2013 and
related earnings release, the Company provided 2013 guidance which consisted
of Adjusted EBITDA in the range of $506 million to $516 million and income
from continuing operations attributable to HealthSouth per share in the range
of $1.50 to $1.56 per share.

As a result of the common stock tender offer completed by the Company in the
first quarter of 2013, the Company is updating its earnings per share guidance
range to $1.61 to $1.68 solely to reflect a lower share count and higher
interest expense resulting from the repurchase of approximately 9.1 million
common shares in March 2013.

Based on its results for the first quarter of 2013, the Company expects its
2013 full-year Adjusted EBITDA and earnings per share to be at the high end
of, or higher than, these guidance ranges. In addition, the impact of the
income tax benefit discussed above for the second quarter of 2013 is not
included in this range. As the Company has done in the past, it will re-visit
full-year guidance after closing the second quarter.

Earnings Conference Call and Webcast

The Company will host an investor conference call at 9:00 a.m. Eastern Time on
Friday, April26, 2013 to discuss its results for the first quarter of 2013.
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 877-587-6761 and giving the
pass code 29682250. International callers should dial 706-679-1635 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 April 26, 2013 until
May 10, 2013. To access the replay, please dial 800-585-8367. International
callers should dial 404-537-3406. 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 owner and operator of inpatient
rehabilitation hospitals in terms of patients treated and discharged,
revenues, and number of hospitals. Operating in 28 states across the country
and in Puerto Rico, HealthSouth serves patients through its network of
inpatient rehabilitation hospitals, outpatient rehabilitation satellite
clinics, and home health agencies. HealthSouth's hospitals provide a higher
level of rehabilitative care to patients who are recovering from conditions
such as stroke and other neurological disorders, orthopedic, cardiac and
pulmonary conditions, brain and spinal cord injuries, and amputations.
HealthSouth can be found on the Web at www.healthsouth.com.

Other Information

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 March31, 2013 (the "March 2013 Form 10-Q"), when filed, as well as the
Company's Current Report on Form 8-K filed on April25, 2013. In addition, the
Company will post supplemental slides today on its website at
http://investor.healthsouth.com for reference during its April26, 2013
earnings call.

When filed, the March 2013 Form 10-Q 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,
                                          2013                   2012
                                          (In Millions, Except Per Share Data)
Net operating revenues                    $     572.6            $    538.6
Less: Provision for doubtful accounts     (7.4)                  (6.3)
Net operating revenues less provision for 565.2                  532.3
doubtful accounts
Operating expenses:
Salaries and benefits                     274.6                  261.0
Other operating expenses                  78.1                   73.8
Occupancy costs                           12.2                   12.5
Supplies                                  26.2                   26.5
General and administrative expenses       30.2                   30.0
Depreciation and amortization             22.1                   19.5
Professional fees—accounting, tax, and    1.4                    3.6
legal
Total operating expenses                  444.8                  426.9
Interest expense and amortization of debt 24.2                   23.3
discounts and fees
Other income                              (0.7)                  (0.9)
Equity in net income of nonconsolidated   (2.9)                  (3.3)
affiliates
Income from continuing operations before  99.8                   86.3
income tax expense
Provision for income tax expense          33.5                   29.1
Income from continuing operations         66.3                   57.2
Loss from discontinued operations, net of (0.4)                  (0.4)
tax
Net income                                65.9                   56.8
Less: Net income attributable to          (14.6)                 (12.6)
noncontrolling interests
Net income attributable to HealthSouth    51.3                   44.2
Less: Convertible perpetual preferred     (5.7)                  (6.4)
stock dividends
Less: Repurchase of convertible perpetual —                      (0.5)
preferred stock
Net income attributable to HealthSouth    $     45.6             $    37.3
common shareholders
Weighted average common shares
outstanding:
Basic                                     94.0                   94.5
Diluted                                   107.1                  108.7
Earnings per common share:
Basic earnings per share attributable to
HealthSouth common shareholders:
Continuing operations                     $     0.49             $    0.40
Discontinued operations                   —                      (0.01)
Net income                                $     0.49             $    0.39
Diluted earnings per share attributable
to HealthSouth common shareholders:
Continuing operations                     $     0.48             $    0.40
Discontinued operations                   —                      (0.01)
Net income                                $     0.48             $    0.39
Amounts attributable to HealthSouth
common shareholders:
Income from continuing operations         $     51.7             $    44.6
Loss from discontinued operations, net of (0.4)                  (0.4)
tax
Net income attributable to HealthSouth    $     51.3             $    44.2

HealthSouth Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
                                                       March31,  December31,
                                                       2013       2012
                                                       (In Millions)
Assets
Current assets:
Cash and cash equivalents                              $ 80.1     $  132.8
Accounts receivable, net of allowance for doubtful     266.3      249.3
accounts of $30.2 in 2013; $28.7 in 2012
Deferred income tax assets                             137.5      137.5
Other current assets                                   113.4      117.2
Total current assets                                   597.3      636.8
Property and equipment, net                            764.2      748.0
Goodwill                                               443.4      437.3
Intangible assets, net                                 82.7       73.2
Deferred income tax assets                             359.8      393.5
Other long-term assets                                 144.9      135.4
Total assets                                           $ 2,392.3  $  2,424.2
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable                                       $ 61.2     $  45.3
Accrued expenses and other current liabilities         255.8      255.6
Total current liabilities                              317.0      300.9
Long-term debt, net of current portion                 1,365.3    1,239.9
Other long-term liabilities                            130.5      130.5
                                                       1,812.8    1,671.3
Commitments and contingencies
Convertible perpetual preferred stock                  342.2      342.2
Redeemable noncontrolling interests                    13.8       7.2
Shareholders' equity:
HealthSouth shareholders' equity                       108.3      291.0
Noncontrolling interests                               115.2      112.5
Total shareholders' equity                             223.5      403.5
Total liabilities and shareholders' equity             $ 2,392.3  $  2,424.2



HealthSouth Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
                                                  Three Months Ended March 31,
                                                  2013              2012
                                                  (In Millions)
Cash flows from operating activities:
Net income                                        $     65.9        $   56.8
Loss from discontinued operations                 0.4               0.4
Adjustments to reconcile net income to net cash
provided by operating activities—
Provision for doubtful accounts                   7.4               6.3
Depreciation and amortization                     22.1              19.5
Equity in net income of nonconsolidated           (2.9)             (3.3)
affiliates
Distributions from nonconsolidated affiliates     3.4               3.3
Stock-based compensation                          6.3               6.1
Deferred tax expense                              31.7              27.0
Other                                             0.8               1.4
(Increase) decrease in assets—
Accounts receivable                               (24.3)            (27.5)
Other assets                                      1.4               (4.0)
Increase (decrease) in liabilities—
Accounts payable                                  12.1              6.0
Other liabilities                                 (2.2)             (11.4)
Net cash (used in) provided by operating          (0.7)             0.4
activities of discontinued operations
Total adjustments                                 55.1              23.8
Net cash provided by operating activities         121.4             81.0
Cash flows from investing activities:
Purchases of property and equipment               (30.1)            (27.2)
Capitalized software costs                        (8.1)             (6.9)
Prepaid acquisition of business                   (11.0)            —
Other                                             1.3               1.2
Net cash used in investing activities             (47.9)            (32.9)
Cash flows from financing activities:
Borrowings on revolving credit facility           122.0             25.0
Payments on revolving credit facility             —                 (10.0)
Repurchase of common stock, including fees and    (232.6)           —
expenses
Repurchase of convertible perpetual preferred     —                 (24.7)
stock
Dividends paid on convertible perpetual preferred (5.7)             (6.8)
stock
Distributions paid to noncontrolling interests of (13.2)            (13.1)
consolidated affiliates
Other                                             3.3               (4.3)
Net cash used in financing activities             (126.2)           (33.9)
(Decrease) increase in cash and cash equivalents  (52.7)            14.2
Cash and cash equivalents at beginning of period  132.8             30.1
Cash and cash equivalents at end of period        $     80.1        $   44.3

HealthSouth Corporation and Subsidiaries
Supplemental Information
Earnings Per Share
                                     Q1 2013              Q1 2012
                                     (In Millions, Except Per Share Data)
Adjusted EBITDA                      $    139.3           $    127.0
Interest expense and amortization of (24.2)               (23.3)
debt discounts and fees
Depreciation and amortization        (22.1)               (19.5)
Stock-based compensation expense     (6.3)                (6.1)
Noncash loss on disposal of assets   (0.1)                (0.8)
                                     86.6                 77.3
Certain nonrecurring expenses:
Professional fees—accounting, tax,   (1.4)                (3.6)
and legal
Pre-tax income                       85.2                 73.7
Income tax expense ^(1)              (33.5)               (29.1)
Income from continuing operations    $    51.7            $    44.6
^(2)
Basic shares                         94.0                 94.5
Diluted shares                       107.1                108.7
Basic earnings per share ^(2)        $    0.49            $    0.40
Diluted earnings per share ^(2)      $    0.48            $    0.40       ^(3)



^(1) Cash income tax expense for the three months ended March 31, 2013 and
2012 was $1.8 million and $2.1 million, respectively.
^(2) Income from continuing operations attributable to HealthSouth
^(3) For the first quarter of 2012, adding back the dividends for the
Company's convertible perpetual preferred stock to income from continuing
operations causes a per share increase when calculating diluted earnings per
share resulting in an antidilutive per share amount. Therefore, basic and
diluted earnings per share are the same. A computation of basic and diluted
earnings per share can be found in Note 8, Earnings per Common Share, to the
condensed consolidated financial statements included in Part I, Item 1,
Financial Statements (Unaudited), of the Form 10-Q for the quarterly period
ended March 31, 2013, when filed.



Reconciliation of Net Income to Adjusted EBITDA
                                                  Three Months Ended March 31,
                                                  2013             2012
                                                  (In Millions)
Net income                                        $   65.9         $   56.8
Loss from discontinued operations, net of tax,    0.4              0.4
attributable to HealthSouth
Provision for income tax expense                  33.5             29.1
Interest expense and amortization of debt         24.2             23.3
discounts and fees
Professional fees-accounting, tax, and legal      1.4              3.6
Net noncash loss on disposal of assets            0.1              0.8
Depreciation and amortization                     22.1             19.5
Stock-based compensation expense                  6.3              6.1
Net income attributable to noncontrolling         (14.6)           (12.6)
interests
Adjusted EBITDA                                   $   139.3        $   127.0

HealthSouth Corporation and Subsidiaries
Supplemental Information
Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free
Cash Flow
                                              Three Months Ended  Year Ended
                                              March 31,           December31,
                                              2013        2012    2012
                                              (In Millions)
Net cash provided by operating activities     $  121.4    $ 81.0  $   411.5
Impact of discontinued operations             0.7         (0.4)   (2.0)
Net cash provided by operating activities of  122.1       80.6    409.5
continuing operations
Capital expenditures for maintenance          (18.9)      (19.1)  (83.0)
Dividends paid on convertible perpetual       (5.7)       (6.8)   (24.6)
preferred stock
Distributions paid to noncontrolling          (13.2)      (13.1)  (49.3)
interests of consolidated affiliates
Nonrecurring items:
Premium paid on redemption of bonds           —           —       1.9
Cash paid for:
Professional fees—accounting, tax, and legal  1.4         3.6     16.1
Government, class action, and related
settlements,                                  —           —       (2.6)
 including certain settlements
related to unclaimed property
Adjusted free cash flow                       $  85.7     $ 45.2  $   268.0

For the three months ended March31, 2013, net cash used in investing
activities was $47.9 million and resulted primarily from capital expenditures
and acquisition activity. Net cash used in financing activities during the
three months ended March31, 2013 was $126.2 million and resulted primarily
from repurchases of common stock as part of the tender offer completed in the
first quarter of 2013.

For the three months ended March31, 2012, net cash used in investing
activities was $32.9 million and resulted primarily from capital expenditures.
Net cash used in financing activities during the three months ended March31,
2012 was $33.9 million and resulted primarily from net debt borrowings, the
repurchase of 25,000 shares of the Company's convertible perpetual preferred
stock, distributions paid to noncontrolling interests of consolidated
affiliates, and dividends paid on the Company's convertible perpetual
preferred stock.

For the year ended December31, 2012, net cash used in investing activities
was $178.8 million and resulted primarily from capital expenditures. Net cash
used in financing activities during the year ended December31, 2012 was
$130.0 million and resulted primarily from distributions paid to
noncontrolling interests of consolidated affiliates, repurchases of 46,645
shares of the Company's convertible perpetual preferred stock, dividends paid
on the Company's convertible perpetual preferred stock, and net principal
payments on debt offset by capital contributions from consolidated affiliates.

HealthSouth Corporation and Subsidiaries
Forward-Looking Statements

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, involve a number of risks and uncertainties, and
relate to, among other things, future events, HealthSouth's plan to repurchase
its debt or equity securities, dividend strategies, effective income tax
rates, HealthSouth's business strategy, its financial plans, its future
financial performance, or its projected business results or model, or its
projected capital expenditures, or its leverage ratio. Actual events or
results may differ materially from those 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 events or 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 involving the HealthSouth, including its pending
HHS-OIG investigations; potential disruptions, breaches, or other incidents
affecting the proper operation, availability, or security of HealthSouth's
information systems; significant changes in HealthSouth's management team;
HealthSouth's ability to successfully complete and integrate de novo
developments, acquisitions, investments, and joint ventures consistent with
its growth strategy; 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, including as part of national healthcare reform and
deficit reduction; 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; the
increase in the costs of defending and insuring against alleged professional
liability claims and HealthSouth's ability to predict the estimated costs
related to such claims; 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 December31, 2012 and Form 10-Q for
the quarter ended March31, 2013, when filed.

Media Contact
Casey Lassiter, 205-410-2777
casey.lassiter@healthsouth.com
Investor Relations Contact
Mary Ann Arico, 205-969-6175
maryann.arico@healthsouth.com

SOURCE HealthSouth Corporation

Website: http://www.healthsouth.com
 
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