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HealthSouth Reports Strong Results for Fourth Quarter and Full Year 2013



   HealthSouth Reports Strong Results for Fourth Quarter and Full Year 2013

Discharge Growth of 3.8% (Full Year of 5.0%)

Revenue Growth of 3.5% (Full Year of 5.1%)

Cash Provided by Operating Activities of $100.9 million (Full Year of $470.3
million)

Adjusted EBITDA of $142.3 million (Full Year of $551.6 million)

PR Newswire

BIRMINGHAM, Ala., Feb. 19, 2014

BIRMINGHAM, Ala., Feb. 19, 2014 /PRNewswire/ -- HealthSouth Corporation (NYSE:
HLS), the nation's largest owner and operator of inpatient rehabilitation
hospitals, today reported its results of operations for the fourth quarter and
year ended December 31, 2013.

"The fourth quarter was a solid finish to another strong year for
HealthSouth," said Jay Grinney, President and Chief Executive Officer of
HealthSouth. "Most importantly, our business fundamentals remain compelling as
we begin 2014. The quality of care provided by our dedicated employees remains
a competitive advantage as we serve the needs of a growing number of patients
requiring inpatient rehabilitative care and provide this care on a
cost-effective basis. We also continue to invest in future growth through the
development of new hospitals in new markets while adding bed capacity to
hospitals in existing markets."

Fourth Quarter Results

  o Consolidated net operating revenues were $572.1 million for the fourth
    quarter of 2013 compared to $552.9 million for the fourth quarter of 2012,
    or an increase of 3.5%. This increase was attributable to a 3.8% increase
    in patient discharges offset by a 0.1% decrease in net patient revenue per
    discharge. Discharge growth included a 1.3% increase in same-store
    discharges. Same-store discharges in the fourth quarter of 2013 were
    negatively impacted by the divestiture of 41 skilled nursing facility beds
    in the first quarter of 2013. Net patient revenue per discharge was
    negatively impacted in the fourth quarter of 2013 by approximately $9
    million for sequestration and approximately $8 million for contractual
    allowances related to Recovery Audit Contractor ("RAC") audits. As
    disclosed previously, and in connection with CMS approved and announced
    RAC audits related to inpatient rehabilitation facilities, the Company
    received requests in 2013 to review certain patient files for discharges
    occurring from 2010 to 2013. To date, the Medicare payments that are
    subject to these audit requests represent less than 1% of the Company's
    Medicare patient discharges during those years, and not all of these
    patient file requests have resulted in payment denial determinations by
    the RACs. In the fourth quarter of 2013, the Company reduced its net
    operating revenues by approximately $8 million to establish reserves for
    post-payment claims that are part of RAC audits. Concurrently, the Company
    reversed approximately $4 million in bad debt reserves established during
    2013 related to RAC audits. Excluding the negative impact of sequestration
    and reserves related to RAC audits, net patient revenue per discharge
    would have increased by 3.2%.

 

  o Income from continuing operations attributable to HealthSouth per basic
    share for the fourth quarter of 2013 was $(0.31) compared to $0.41 for the
    same period of 2012. Earnings per share for the fourth quarter of 2013
    benefited from solid operating results offset by the $71.6 million, or
    $(0.83) per share, repurchase premium associated with the exchange
    transactions involving the Company's convertible perpetual preferred
    stock. In November 2013, the Company exchanged $320 million in aggregate
    principal amount of newly issued 2.00% Convertible Senior Subordinated
    Notes due 2043 for 257,110 shares of the Company's outstanding 6.50%
    Series A Convertible Perpetual Preferred Stock. The excess of the
    consideration exchanged for the preferred stock over its carrying value
    was treated like a dividend and subtracted from income from continuing
    operations attributable to HealthSouth when calculating earnings per
    share. The Company's basic and diluted (loss) earnings per share were the
    same for the fourth quarters of 2013 and 2012.

 

  o Cash flows provided by operating activities were $100.9 million for the
    fourth quarter of 2013 compared to $109.3 million for the fourth quarter
    of 2012. This decrease primarily resulted from an increase in working
    capital.

 

  o Adjusted EBITDA (see attached supplemental information) for the fourth
    quarter of 2013 was $142.3 million compared to $128.6 million for the
    fourth quarter of 2012, or an increase of 10.7%. This improvement was
    primarily due to continued revenue growth, disciplined expense management,
    and a reduction in self-insurance reserves. As a result of enhancements in
    the way the Company manages its risks, the accumulation of additional
    historical data, and continued favorable trends in self-insured claims,
    the Company lowered the statistical confidence level used to determine its
    self-insurance reserves in the fourth quarter of 2013. This change in
    estimate increased Adjusted EBITDA by $6.7 million. Adjusted EBITDA in the
    fourth quarter of 2013 was negatively impacted by approximately $8 million
    due to sequestration and approximately $4 million, on a net basis, for
    reserves related to RAC audits.

 

  o Adjusted free cash flow (see attached supplemental information) for the
    fourth quarter of 2013 was $66.3 million compared to $81.2 million for the
    fourth quarter of 2012. Adjusted free cash flow in the fourth quarter of
    2013 benefited from higher Adjusted EBITDA offset by increased maintenance
    capital expenditures and an increase in working capital.

Full Year Results

  o Consolidated net operating revenues were $2,273.2 million for 2013
    compared to $2,161.9 million for 2012, or an increase of 5.1%. This
    increase was attributable to a 5.0% increase in patient discharges and a
    0.9% increase in net patient revenue per discharge. Discharge growth
    included a 2.5% increase in same-store discharges. Same-store discharges
    were negatively impacted by the divestiture of 41 skilled nursing facility
    beds in the first quarter of 2013. Approximately 60 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 was negatively impacted in 2013 by
    sequestration, the impact of reserves related to RAC audits, and the
    ramping up of three new hospitals. As discussed above, the Company reduced
    its net operating revenues by approximately $8 million to establish
    reserves for RAC audits in 2013.

 

  o Income from continuing operations attributable to HealthSouth per basic
    share for 2013 was $2.59 compared to $1.62 for 2012. Earnings per share in
    2013 was impacted by four items having a net, favorable after-tax impact
    of $0.84 per share:

       o Positively impacted by:

            o An approximate $115 million settlement with the Internal Revenue
              Service in the second quarter of 2013
            o The repurchase of approximately 9.1 million shares through a
              common stock tender offer in the first quarter of 2013
            o A reduction in certain nonrecurring expenses primarily related
              to government, class action, and related settlements (see
              attached supplemental information)

       o Negatively impacted by:

            o The $71.6 million repurchase premium on the preferred stock
              included in the November 2013 exchange transactions, as
              discussed above

  The Company's basic and diluted earnings per share were the same in 2013 and
  2012.

 

  o Cash flows provided by operating activities were $470.3 million for 2013
    compared to $411.5 million for 2012. This increase was due primarily to
    increased net operating revenues and continued disciplined expense
    management.

 

  o Adjusted EBITDA (see attached supplemental information) for 2013 was
    $551.6 million compared to $505.9 million for 2012, or an increase of
    9.0%. Growth in Adjusted EBITDA was due primarily to revenue growth and
    disciplined expense management. Adjusted EBITDA for 2013 benefited from
    $6.7 million of adjustments to self-insurance reserves resulting from the
    lowering of the statistical confidence level, as discussed above.
    Sequestration and reserves related to RAC audits negatively impacted
    Adjusted EBITDA by approximately $25 million and $8 million, respectively,
    during 2013.

 

  o Adjusted free cash flow (see attached supplemental information) for 2013
    was $330.9 million compared to $268.0 million for 2012, or an increase of
    23.5%. This increase primarily resulted from higher Adjusted EBITDA offset
    by increased cash interest expense. Adjusted free cash flow in 2013 also
    benefited from the timing of maintenance capital expenditures related to
    approximately $12 million of equipment purchased at the end of 2013 and
    for which payment was not required until January 2014. As such, these
    items were not included in the Company's cash flows for 2013 but will
    increase its projected capital expenditures for 2014.

2014 Guidance

As discussed above, Adjusted EBITDA in 2013 benefited from continued favorable
trends in self-insured claims, including a one-time $6.7 million benefit from
the lowering of the Company's statistical confidence level used to determine
its self-insurance reserves. The Company currently estimates sequestration
will result in a net year-over-year reduction of 2014 Adjusted EBITDA of
approximately $7 million. This reduction will anniversary for purposes of
year-over-year Adjusted EBITDA comparisons beginning with payments received
after April 1, 2014.

After taking these factors into consideration, the Company has established the
following guidance ranges for 2014:

Initial 2014 Adjusted EBITDA Guidance: $555 million to $565 million

Initial 2014 Earnings per Share Guidance: $1.86 to $1.91 per diluted share

Earnings per share guidance for 2014 assumes an effective income tax rate of
approximately 40% (using pre-tax income from continuing operations
attributable to HealthSouth).

Earnings Conference Call and Webcast

The Company will host an investor conference call at 9:00 a.m. Eastern Time on
Thursday, February 20, 2014 to discuss its results for the fourth 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 30139380. 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 February 20, 2014
until March 6, 2014. 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, cardiac and pulmonary
conditions, brain and spinal cord injuries, complex orthopedic conditions, 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 Annual Report on Form 10-K for the year ended
December 31, 2013 (the "2013 Form 10-K"), when filed, as well as the Company's
Current Report on Form 8-K expected to be filed on February 19, 2014. In
addition, the Company will post supplemental slides on its website on
February 19, 2014 at http://investor.healthsouth.com for reference during its
February 20, 2014 earnings call.

When filed, the 2013 Form 10-K 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
Consolidated Statements of Operations
(Unaudited)
                            For the Three Months Ended  For the Year Ended
                            December 31,                December 31,
                            2013           2012         2013        2012
                            (In Millions)
Net operating revenues      $  572.1       $  552.9     $ 2,273.2   $ 2,161.9
Less:  Provision for        (3.6)          (7.2)        (26.0)      (27.0)
doubtful accounts
Net operating revenues less
provision for doubtful      568.5          545.7        2,247.2     2,134.9
accounts
Operating expenses:
Salaries and benefits       272.0          269.5        1,089.7     1,050.2
Other operating expenses    81.7           78.0         323.0       303.8
Occupancy costs             11.2           12.0         47.0        48.6
Supplies                    27.1           26.2         105.4       102.4
General and administrative  30.6           30.6         119.1       117.9
expenses
Depreciation and            25.2           21.7         94.7        82.5
amortization
Government, class action,   (0.2)          —            (23.5)      (3.5)
and related settlements
Professional
fees—accounting, tax, and   1.7            2.9          9.5         16.1
legal
Total operating expenses    449.3          440.9        1,764.9     1,718.0
Loss on early               2.4            2.7          2.4         4.0
extinguishment of debt
Interest expense and
amortization of debt        26.5           24.3         100.4       94.1
discounts and fees
Other income                (1.3)          (1.1)        (4.5)       (8.5)
Equity in net income of     (3.0)          (3.0)        (11.2)      (12.7)
nonconsolidated affiliates
Income from continuing
operations before income    94.6           81.9         395.2       340.0
tax expense
Provision for income tax    30.5           24.5         12.7        108.6
expense
Income from continuing      64.1           57.4         382.5       231.4
operations
Income (loss) from
discontinued operations,    0.1            1.9          (1.1)       4.5
net of tax
Net income                  64.2           59.3         381.4       235.9
Less: Net income
attributable to             (15.3)         (12.3)       (57.8)      (50.9)
noncontrolling interests
Net income attributable to  48.9           47.0         323.6       185.0
HealthSouth
Less: Convertible perpetual (3.8)          (5.8)        (21.0)      (23.9)
preferred stock dividends
Less: Repurchase of
convertible perpetual       (71.6)         —            (71.6)      (0.8)
preferred stock
Net (loss) income
attributable to HealthSouth $  (26.5)      $  41.2      $ 231.0     $ 160.3
common shareholders

 

HealthSouth Corporation and Subsidiaries
Consolidated Statements of Operations (Continued)
(Unaudited)
                                For the Three Months Ended  For the Year Ended
                                December 31,                December 31,
                                2013            2012        2013      2012
                                (In Millions, Except per Share Data)
Weighted average common shares
outstanding:
Basic                           86.4            94.7        88.1      94.6
Diluted                         100.8           108.0       102.1     108.1
Basic and diluted (loss)
earnings per share attributable
to HealthSouth common
shareholders:
Continuing operations           $   (0.31)      $  0.41     $ 2.59    $ 1.62
Discontinued operations         —               0.02        (0.01)    0.05
Net income                      $   (0.31)      $  0.43     $ 2.58    $ 1.67
Cash dividends per common share $   0.18        $  —        $ 0.36    $ —
Amounts attributable to
HealthSouth:
Income from continuing          $   48.8        $  45.1     $ 324.7   $ 180.5
operations
Income (loss) from discontinued 0.1             1.9         (1.1)     4.5
operations, net of tax
Net income attributable to      $   48.9        $  47.0     $ 323.6   $ 185.0
HealthSouth

 

HealthSouth Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
                                                        As of December 31,
                                                        2013        2012
                                                        (In Millions)
Assets
Current assets:
Cash and cash equivalents                               $ 64.5      $ 132.8
Restricted cash                                         52.4        49.3
Accounts receivable, net of allowance for doubtful      261.8       249.3
accounts of $23.1 in 2013; $28.7 in 2012
Deferred income tax assets                              139.0       137.5
Prepaid expenses and other current assets               62.7        67.9
Total current assets                                    580.4       636.8
Property and equipment, net                             910.5       748.0
Goodwill                                                456.9       437.3
Intangible assets, net                                  88.2        73.2
Deferred income tax assets                              354.3       393.5
Other long-term assets                                  144.1       135.4
Total assets                                            $ 2,534.4   $ 2,424.2
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt                       $ 12.3      $ 13.6
Accounts payable                                        61.9        45.3
Accrued payroll                                         90.8        85.7
Accrued interest payable                                23.8        25.9
Other current liabilities                               122.8       130.4
Total current liabilities                               311.6       300.9
Long-term debt, net of current portion                  1,505.2     1,239.9
Self-insured risks                                      98.2        106.5
Other long-term liabilities                             44.0        24.0
                                                        1,959.0     1,671.3
Commitments and contingencies
Convertible perpetual preferred stock                   93.2        342.2
Redeemable noncontrolling interests                     13.5        7.2
Shareholders' equity:
HealthSouth shareholders' equity                        344.6       291.0
Noncontrolling interests                                124.1       112.5
Total shareholders' equity                              468.7       403.5
Total liabilities and shareholders' equity              $ 2,534.4   $ 2,424.2

 

HealthSouth Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
                                               For the Year Ended December 31,
                                               2013              2012
                                               (In Millions)
Cash flows from operating activities:
Net income                                     $   381.4         $   235.9
Loss (income) from discontinued operations,    1.1               (4.5)
net of tax
Adjustments to reconcile net income to net
cash provided by operating activities —
Provision for doubtful accounts                26.0              27.0
Provision for government, class action, and    (23.5)            (3.5)
related settlements
Depreciation and amortization                  94.7              82.5
Loss on early extinguishment of debt           2.4               4.0
Equity in net income of nonconsolidated        (11.2)            (12.7)
affiliates
Distributions from nonconsolidated affiliates  11.4              11.0
Stock-based compensation                       24.8              24.1
Deferred tax expense                           6.4               102.7
Other                                          9.3               3.0
(Increase) decrease in assets—
Accounts receivable                            (55.1)            (51.3)
Prepaid expenses and other assets              (4.8)             0.6
Increase (decrease) in liabilities—
Accounts payable                               6.4               (4.4)
Refunds due patients and other third-party     (0.4)             2.7
payors
Other liabilities                              5.0               (5.7)
Premium paid on redemption of bonds            (1.7)             (1.9)
Net cash (used in) provided by operating       (1.9)             2.0
activities of discontinued operations
Total adjustments                              87.8              180.1
Net cash provided by operating activities      470.3             411.5

 

HealthSouth Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
                                               For the Year Ended December 31,
                                               2013              2012
                                               (In Millions)
Cash flows from investing activities:
Purchases of property and equipment            (195.2)           (140.8)
Capitalized software costs                     (21.3)            (18.9)
Acquisition of businesses, net of cash         (28.9)            (3.1)
acquired
Proceeds from sale of restricted investments   16.9              0.3
Proceeds from sale of Digital Hospital         10.8              —
Purchases of restricted investments            (9.2)             (9.1)
Net change in restricted cash                  (3.1)             (14.0)
Other                                          0.5               (0.9)
Net cash provided by investing activities of   3.3               7.7
discontinued operations
Net cash used in investing activities          (226.2)           (178.8)
Cash flows from financing activities:
Proceeds from bond issuance                    —                 275.0
Principal payments on debt, including          (62.5)            (166.2)
pre-payments
Principal borrowings on notes                  15.2              —
Borrowings on revolving credit facility        197.0             135.0
Payments on revolving credit facility          (152.0)           (245.0)
Principal payments under capital lease         (10.1)            (12.1)
obligations
Repurchase of common stock, including fees and
expenses                                       (234.1)           —

 
Repurchases of convertible perpetual preferred (2.8)             (46.0)
stock, including fees
Dividends paid on common stock                 (15.7)            —
Dividends paid on convertible perpetual        (23.0)            (24.6)
preferred stock
Distributions paid to noncontrolling interests (46.3)            (49.3)
of consolidated affiliates
Contributions from consolidated affiliates     1.6               10.5
Proceeds from exercising stock warrants        15.3              —
Other                                          5.0               (7.3)
Net cash used in financing activities          (312.4)           (130.0)
(Decrease) increase in cash and cash           (68.3)            102.7
equivalents
Cash and cash equivalents at beginning of year 132.8             30.1
Cash and cash equivalents at end of year       $    64.5         $   132.8

 

HealthSouth Corporation and Subsidiaries
Supplemental Information
Earnings Per Share
                                     QTD
                                     Q4 2013                Q4 2012
                                     (In Millions, Except Per Share Data)
Adjusted EBITDA                      $   142.3              $   128.6
Interest expense and amortization of (26.5)                 (24.3)
debt discounts and fees
Depreciation and amortization        (25.2)                 (21.7)
Stock-based compensation expense     (5.8)                  (6.0)
Noncash loss on disposal of assets   (1.6)                  (1.4)
                                     83.2                   75.2
Certain nonrecurring expenses:
Government, class action, and        0.2                    —
related settlements
Professional fees—accounting, tax,   (1.7)                  (2.9)
and legal
Loss on early extinguishment of debt (2.4)                  (2.7)
Pre-tax income                       79.3                   69.6
Income tax expense ^(1)              (30.5)                 (24.5)
Income from continuing operations    $   48.8               $   45.1
^(2)
Basic shares                         86.4                   94.7
Diluted shares                       100.8                  108.0
Basic (loss) earnings per share      $   (0.31)      ^(4)   $   0.41      ^(5)
^(2)(3)
Diluted (loss) earnings per share    $   (0.31)      ^(4)   $   0.41      ^(5)
^(2)(3)

^(1)    Current income tax expense for the three months ended December 31,
        2013 and 2012 was $3.3 million and $2.2 million, respectively.
^(2)    Income from continuing operations attributable to HealthSouth
^(3)    Diluted (loss) earnings per share are the same as basic (loss)
        earnings per share due to antidilution.
        Includes an approximate $71.6 million, or $0.83 per basic share,
^(4)    negative impact resulting from the repurchase premium on the preferred
        stock in the November 2013 exchange transactions.
        In conjunction with the initiation of quarterly cash dividends in the
        third quarter of 2013, the Company revised its calculation to present
        earnings per share using the two-class method, which takes into
        consideration the impact of participating securities. Additional
^(5)    information regarding this revision and a computation of basic and
        diluted earnings per share can be found in Note 9, 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 September 30, 2013.

 

HealthSouth Corporation and Subsidiaries
Supplemental Information
Earnings Per Share
                                     YTD
                                     2013                  2012
                                     (In Millions, Except Per Share Data)
Adjusted EBITDA                      $   551.6             $   505.9
Interest expense and amortization of (100.4)               (94.1)
debt discounts and fees
Depreciation and amortization        (94.7)                (82.5)
Stock-based compensation expense     (24.8)                (24.1)
Noncash loss on disposal of assets   (5.9)                 (4.4)
                                     325.8                 300.8
Certain nonrecurring expenses:
Government, class action, and        23.5                  3.5
related settlements
Professional fees—accounting, tax,   (9.5)                 (16.1)
and legal
Loss on early extinguishment of debt (2.4)                 (4.0)
Gain on consolidation of St. Vincent —                     4.9
Rehabilitation Hospital
Pre-tax income                       337.4                 289.1
Income tax expense ^(1)              (12.7)         ^(2)   (108.6)
Income from continuing operations    $   324.7             $   180.5
^(3)
Basic shares                         88.1                  94.6
Diluted shares                       102.1                 108.1
Basic earnings per share ^(3)(4)     $   2.59       ^(2)   $   1.62       ^(5)
Diluted earnings per share ^(3)(4)   $   2.59       ^(2)   $   1.62       ^(5)

^(1) Current income tax expense for the year ended December 31, 2013 and 2012
     was $6.3 million and $5.9 million, respectively.
     Includes an approximate $115 million, or $1.31 per basic share, benefit
     related to the Company's settlement with the IRS related to the previous
     restatement of its 2000 and 2001 financial statements, as well as certain
^(2) other tax matters, through December 31, 2008. This earnings per share
     benefit was offset by a $71.6 million, or $0.81 per basic share, negative
     impact resulting from the repurchase premium on the preferred stock in
     the exchange transactions.
^(3) Income from continuing operations attributable to HealthSouth
^(4) Diluted earnings per share are the same as basic earnings per share due
     to antidilution.
     In conjunction with the initiation of quarterly cash dividends in the
     third quarter of 2013, the Company revised its calculation to present
     earnings per share using the two-class method, which takes into
     consideration the impact of participating securities. Additional
^(5) information regarding this revision and a computation of basic and
     diluted earnings per share can be found in Note 9, 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 September 30, 2013.

 

HealthSouth Corporation and Subsidiaries
Supplemental Information
Reconciliation of Net Income to Adjusted EBITDA
                                For the Three Months Ended  For the Year Ended
                                December 31,                December 31,
                                2013           2012         2013      2012
                                (In Millions)
Net income                      $   64.2       $  59.3      $ 381.4   $ 235.9
(Income) loss from
discontinued operations, net    (0.1)          (1.9)        1.1       (4.5)
of tax, attributable to
HealthSouth
Provision for income tax        30.5           24.5         12.7      108.6
expense
Interest expense and
amortization of debt discounts  26.5           24.3         100.4     94.1
and fees
Loss on early extinguishment    2.4            2.7          2.4       4.0
of debt
Professional fees—accounting,   1.7            2.9          9.5       16.1
tax, and legal
Government, class action, and   (0.2)          —            (23.5)    (3.5)
related settlements
Net noncash loss on disposal    1.6            1.4          5.9       4.4
or impairment of assets
Depreciation and amortization   25.2           21.7         94.7      82.5
Stock-based compensation        5.8            6.0          24.8      24.1
expense
Net income attributable to      (15.3)         (12.3)       (57.8)    (50.9)
noncontrolling interests
Gain on consolidation of St.
Vincent Rehabilitation          —              —            —         (4.9)
Hospital
Adjusted EBITDA                 $   142.3      $  128.6     $ 551.6   $ 505.9

 

HealthSouth Corporation and Subsidiaries
Supplemental Information
Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free
Cash Flow
                                For the Three Months Ended  For the Year Ended
                                December 31,                December 31,
                                2013           2012         2013      2012
                                (In Millions)
Net cash provided by operating  $   100.9      $  109.3     $ 470.3   $ 411.5
activities
Impact of discontinued          0.5            (0.5)        1.9       (2.0)
operations
Net cash provided by operating
activities of continuing        101.4          108.8        472.2     409.5
operations
Capital expenditures for        (20.5)         (15.0)       (74.8)    (83.0)
maintenance
Dividends paid on convertible   (5.8)          (5.7)        (23.0)    (24.6)
perpetual preferred stock
Distributions paid to
noncontrolling interests of     (12.2)         (11.7)       (46.3)    (49.3)
consolidated affiliates
Nonrecurring items:
Premium paid on redemption of   1.7            1.9          1.7       1.9
bonds
Cash paid for:
Professional fees—accounting,   1.7            2.9          7.0       16.1
tax, and legal
Government, class action, and   —              —            (5.9)     (2.6)
related settlements
Adjusted free cash flow         $   66.3       $  81.2      $ 330.9   $ 268.0

For the three months ended December 31, 2013, net cash used in investing
activities was $29.0 million and resulted primarily from capital expenditures.
Net cash used in financing activities during the three months ended
December 31, 2013 was $72.4 million and resulted primarily from net debt
payments, dividends paid on the Company's common stock and convertible
perpetual preferred stock, and distributions paid to noncontrolling interests
of consolidated affiliates.

For the three months ended December 31, 2012, net cash used in investing
activities was $54.5 million and resulted primarily from capital expenditures
and the net change in restricted cash. Net cash used in financing activities
during the three months ended December 31, 2012 was $85.2 million and resulted
primarily from net debt payments, distributions paid to noncontrolling
interests of consolidated affiliates, and dividends paid on the Company's
convertible perpetual preferred stock.

For the year ended December 31, 2013, net cash used in investing activities
was $226.2 million and resulted primarily from increased capital expenditures
and the acquisition of Walton Rehabilitation Hospital. Net cash used in
financing activities during the year ended December 31, 2013 was $312.4
million and resulted primarily from repurchases of common stock as part of the
tender offer completed in the first quarter of 2013.

For the year ended December 31, 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 December 31, 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,
such as the financial guidance, 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, its projected business
results or model, 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, the price of HealthSouth's common or
preferred stock as it affects the Company's willingness and ability to
repurchase shares and the financial and accounting effects of any repurchases;
any adverse outcome of various lawsuits, claims, and legal or regulatory
proceedings involving 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 December 31, 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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