Published: February 17, 2011
HealthSouth Reports Results for the Fourth Quarter and Full Year 2010
BIRMINGHAM, Ala., Feb. 17, 2011 /PRNewswire/ -- HealthSouth Corporation (NYSE: HLS), the nation's largest provider of inpatient rehabilitative healthcare services, today reported its results of operations for the fourth quarter and year ended December 31, 2010.
"The fourth quarter of 2010 was a strong finish to another excellent year for HealthSouth," said Jay Grinney, President and Chief Executive Officer of HealthSouth. "Discharges, net operating revenues, pre-tax income from continuing operations, and cash flows from operations all grew impressively in the quarter compared to the fourth quarter of 2009 as our hospitals maintained their focus on providing outstanding patient care. We also strengthened our balance sheet by issuing two new senior notes that, along with existing cash on hand and a draw on our revolver, allowed us to repay our term loan facility and reduce our net long-term debt by $144 million during the quarter. We believe these actions, together with the solid fundamentals of our business model, position HealthSouth for another year of growth in 2011."
The fourth quarter and 2010 results included a significant benefit related to income taxes and the release of a substantial portion of the Company's valuation allowance against deferred tax assets.
Fourth Quarter Results
-- Consolidated net operating revenues were $520.7 million for the fourth
quarter of 2010 compared to $486.2 million for the fourth quarter of
2009, or an increase of 7.1%. This increase was attributable to a 5.3%
increase in patient discharges and a 2.5% increase in net patient
revenue per discharge. The growth in inpatient discharges primarily
resulted from continued market share gains, including new hospitals.
Same-store discharges were 2.9% higher in the fourth quarter of 2010
compared to the fourth quarter of 2009. Net patient revenue per
discharge increased in the fourth quarter of 2010 compared to the same
period of 2009 primarily due to improved pricing from Medicare and
managed care payors.
-- Reported net income per diluted share for the three months ended
December 31, 2010 was $7.16 per share compared to $0.35 per diluted
share for the three months ended December 31, 2009. Reported net income
per diluted share for the three months ended December 31, 2010 included
a $736.2 million, or $6.77 per diluted share, benefit related to income
taxes and the aforementioned release of a substantial portion of the
Company's valuation allowance against deferred tax assets.
-- Adjusted income from continuing operations (see attached supplemental
information) per diluted share grew 68.2% from $0.22 per diluted share
for the three months ended December 31, 2009 to $0.37 per diluted share
for the three months ended December 31, 2010. The growth was due
primarily to increased revenues, disciplined expense management, and a
favorable bad debt trend offset by increased interest expense resulting
from the Company's previously reported refinancing transactions
completed in October 2010 and higher self-insurance costs associated
with professional and general liability risks in 2010.
-- Cash flows provided by operating activities were $67.1 million for the
three months ended December 31, 2010 compared to $44.0 million for the
same period of 2009.
-- Adjusted EBITDA (see attached supplemental information) for the three
months ended December 31, 2010 was $116.8 million compared to $94.7
million for the three months ended December 31, 2009, or an increase of
23.3%. This improvement was driven by higher revenue, improved
productivity, and lower bad debt expense offset by an increase in
self-insurance costs associated with professional and general liability
risks.
-- Adjusted free cash flow for the three months ended December 31, 2010 was
$31.1 million compared to $10.0 million for the same period of 2009. The
increase in adjusted free cash flow primarily resulted from the growth
in Adjusted EBITDA, as discussed above, and the timing of interest
payments offset by the $6.9 million unwind fee related to the
termination of the Company's two forward-starting interest rate swaps.
The refinancing transactions completed by the Company in October 2010
adjusted the timing of interest payments resulting in an approximate $15
million benefit to adjusted free cash flow in the fourth quarter of 2010
compared to the same period of 2009.
Full Year Results
-- Consolidated net operating revenues were $1,999.3 million for the year
ended December 31, 2010 compared to $1,911.1 million for the year ended
December 31, 2009, or an increase of 4.6%. This increase was
attributable to a 2.8% increase in patient discharges and a 2.7%
increase in net patient revenue per discharge. The year-over-year growth
resulted from the same factors discussed above for the
quarter-over-quarter change. Same store discharges were 1.2% higher year
over year.
-- Reported net income per diluted share for the year ended December 31,
2010 was $8.28 per share compared to $0.77 per diluted share for the
year ended December 31, 2009. Reported net income per diluted share for
the year ended December 31, 2010 included a $736.6 million, or $6.79 per
diluted share, benefit related to income taxes and the aforementioned
release of a substantial portion of the Company's valuation allowance
against deferred tax assets. Diluted weighted average common shares
outstanding increased by 5.0% year over year due primarily to the five
million shares issued on September 30, 2009 in full satisfaction of the
Company's obligation to do so under the 2006 securities litigation
settlement.
-- Adjusted income from continuing operations (see attached supplemental
information) per diluted share grew 18.6% from $1.45 per diluted share
for the year ended December 31, 2009 to $1.72 per diluted share for the
year ended December 31, 2010. The growth was due primarily to increased
revenues, disciplined expense management, and a favorable bad debt trend
offset by the increased share count discussed above and higher
self-insurance costs associated with professional and general liability
risks in 2010.
-- Cash flows provided by operating activities were $331.0 million for the
year ended December 31, 2010 compared to $406.1 million for the same
period of 2009, which included $73.8 million related to the Company's
settlement with UBS and $63.7 million of income tax refunds related to
prior periods. Cash flows provided by operating activities for the year
ended December 31, 2010 included $13.5 million of state income tax
refunds associated with prior periods.
-- Adjusted EBITDA (see attached supplemental information) for the year
ended December 31, 2010 was $427.4 million compared to $383.0 million
for the year ended December 31, 2009, or an increase of 11.6%. This
improvement was driven by the same factors discussed above for the
quarter-over-quarter change.
-- Adjusted free cash flow for the year ended December 31, 2010 was $197.7
million compared to $173.6 million for the same period of 2009. This
improvement primarily resulted from the same factors discussed above for
the quarter-over-quarter change.
As of December 31, 2010, total debt outstanding approximated $1.5 billion. In addition to $48.4 million of cash and cash equivalents, the Company also had $376.4 million available to it under its revolving credit facility, resulting in total liquidity of $424.8 million as of December 31, 2010. The Company's leverage ratio was 3.5x as of December 31, 2010 compared to 4.3x as of December 31, 2009.
"2010 marked another year of significant balance sheet strengthening for HealthSouth," said Doug Coltharp, Executive Vice President and Chief Financial Officer of HealthSouth. "We reduced our leverage ratio to 3.5x, achieving an objective previously targeted for the end of 2011, and substantially improved the composition of our debt capital. Posting our third consecutive year of profitability facilitated the reversal of a substantial portion of the valuation allowance against deferred tax assets associated with our net operating loss carryforwards, resulting in a large reduction in our shareholders' deficit. Further enhancements to the balance sheet remain a key focus for our company in 2011."
2011 Guidance and Introduction of New Earnings Per Share Measure
"We anticipate 2011 will be another year of sustained growth for HealthSouth," said Mr. Grinney. "The foundation for the Company's success will continue to be our proven strategy of deleveraging, growing organically, acquiring competitors opportunistically, and building new hospitals in new markets."
Adjusted EBITDA for 2011 is expected to be in the range of $440 million to $450 million, compared to $427.4 million for 2010. Among other things, the 2011 estimate assumes bad debt expense will approximate 1.5% of net operating revenues. See the attached supplemental information, as well as the Current Report on Form 8-K furnished with this press release on February 17, 2011, for additional information related to our use of and the definition of Adjusted EBITDA.
During 2010, the Company reviewed the components of its guidance and compared its components to those of other publicly traded healthcare companies. As a result of this review, the Company has determined it will maintain its current definition of Adjusted EBITDA, but it will no longer utilize a company-specific, non-GAAP measure of earnings per share as part of its guidance or periodic reporting. Rather, the Company will simplify its earnings per share guidance by utilizing income from continuing operations attributable to HealthSouth per diluted share, which is a GAAP measure of earnings per share from continuing operations. To assist shareholders and others in understanding the Company's operating results and analyzing period-to-period changes in earnings per share, each reporting period, the Company will highlight any unusual or otherwise significant items and their impact to earnings per share from continuing operations.
In 2011, this new guidance measure of income from continuing operations attributable to HealthSouth per diluted share is expected to be in the range of $1.01 to $1.06 per diluted share (see attached supplemental information). This range includes estimated non-cash income taxes of $0.61 to $0.65 per diluted share, as well as professional fees of $0.13 per diluted share, both of which would have been excluded from our historic guidance measure of adjusted income from continuing operations per diluted share. The Company will discuss this in more detail during its fourth quarter earnings conference call.
"Our 2011 guidance does not include any estimate of the impact from repaying or refinancing our 10.75% senior notes," said Mr. Coltharp. "These notes become callable in June of this year and are our highest priority with regard to further capital structure activities. We believe we will have several viable sources of funds for repaying or refinancing these notes, including but not limited to cash flows from operations, capacity under our revolving credit facility, and an incremental issuance of senior notes. Any repayment of the 10.75% senior notes would result in lower interest expense and would also trigger a loss on early extinguishment of debt. Because we do not know the specific magnitude, timing, or source of funds related to any action on the 10.75% senior notes today, we have elected not to include the impact of these activities in our 2011 guidance."
Earnings Conference Call and Webcast
The Company will host an investor conference call at 9:30 a.m. Eastern Time on Friday, February 18, 2011 to discuss its results for the fourth quarter of 2010. 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 34030420. 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 February 18 until March 4, 2011. 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 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 injury, and amputations. HealthSouth can be found on the Web at www.healthsouth.com.
Other Information
The Company's leverage ratio that is referenced in this release is defined as the ratio of consolidated total debt to Adjusted EBITDA for the trailing four quarters. Reconciliations of net income to Adjusted EBITDA can be found in the following schedules.
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, 2010 (the "2010 Form 10-K"), when filed, as well as the Company's Current Report on Form 8-K filed on February 17, 2011. In addition, the Company will post supplemental slides today on its website at http://investor.healthsouth.com for reference during its February 18, 2011 earnings call.
The Company expects to file its 2010 Form 10-K next 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
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2010 2009 2010 2009
---- ---- ---- ----
(In Millions, Except Per Share Data)
Net operating
revenues $520.7 $486.2 $1,999.3 $1,911.1
------ ------ -------- --------
Operating
expenses:
Salaries and
benefits 252.4 243.7 982.3 948.8
Other operating
expenses 78.1 70.8 292.8 271.4
General and
administrative
expenses 28.3 28.1 106.2 104.5
Supplies 30.0 28.8 114.9 112.4
Depreciation and
amortization 20.1 18.1 76.4 70.9
Occupancy costs 12.6 11.8 47.7 47.6
Provision for
doubtful
accounts 1.4 7.8 18.5 33.1
Loss on disposal
of assets 1.0 0.5 1.5 3.5
Government, class
action, and
related
settlements 0.3 (4.6) 1.1 36.7
Professional
fees-accounting,
tax, and legal 3.4 3.8 17.2 8.8
Total operating
expenses 427.6 408.8 1,658.6 1,637.7
Loss on early
extinguishment
of debt 11.9 15.6 12.3 12.5
Interest expense
and amortization
of debt
discounts and
fees 34.5 30.8 125.9 125.8
Other income (1.8) (2.0) (4.6) (3.4)
Loss on interest
rate swaps 0.3 2.9 13.3 19.6
Equity in net
income of
nonconsolidated
affiliates (2.6) (1.8) (10.1) (4.6)
---- ---- ----- ----
Income from
continuing
operations
before income
tax
benefit 50.8 31.9 203.9 123.5
Provision for
income tax
benefit (736.2) (2.4) (736.6) (3.2)
------ ---- ------ ----
Income from
continuing
operations 787.0 34.3 940.5 126.7
Income (loss)
from
discontinued
operations, net
of tax 2.9 12.6 (0.7) 2.1
--- ---- ---- ---
Net income 789.9 46.9 939.8 128.8
Less: Net income
attributable to
noncontrolling
interests (10.7) (8.3) (40.8) (34.0)
----- ---- ----- -----
Net income
attributable to
HealthSouth 779.2 38.6 899.0 94.8
Less: Convertible
perpetual
preferred stock
dividends (6.5) (6.5) (26.0) (26.0)
---- ---- ----- -----
Net income
attributable to
HealthSouth
common
shareholders $772.7 $32.1 $873.0 $68.8
====== ===== ====== =====
Weighted average
common shares
outstanding:
Basic 92.8 92.6 92.8 88.8
==== ==== ==== ====
Diluted 108.8 107.8 108.5 103.3
===== ===== ===== =====
Earnings per
common share:
Basic:
Income from
continuing
operations
attributable to
HealthSouth
common
shareholders $8.30 $0.22 $9.42 $0.76
Income (loss)
from
discontinued
operations, net
of tax,
attributable to
HealthSouth
common
shareholders 0.03 0.13 (0.01) 0.01
---- ---- ----- ----
Net income
attributable to
HealthSouth
common
shareholders $8.33 $0.35 $9.41 $0.77
===== ===== ===== =====
Diluted:
Income from
continuing
operations
attributable to
HealthSouth
common
shareholders $7.13 $0.22 $8.29 $0.76
Income (loss)
from
discontinued
operations, net
of tax,
attributable to
HealthSouth
common
shareholders 0.03 0.13 (0.01) 0.01
---- ---- ----- ----
Net income
attributable to
HealthSouth
common
shareholders $7.16 $0.35 $8.28 $0.77
===== ===== ===== =====
Amounts
attributable to
HealthSouth:
Income from
continuing
operations $776.3 $26.1 $899.7 $93.3
Income (loss)
from
discontinued
operations, net
of tax 2.9 12.5 (0.7) 1.5
--- ---- ---- ---
Net income
attributable to
HealthSouth $779.2 $38.6 $899.0 $94.8
====== ===== ====== =====
HealthSouth Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
As of December 31,
------------------
2010 2009
---- ----
(In Millions)
Assets
Current assets:
Cash and cash equivalents $48.4 $80.9
Restricted cash 36.5 67.8
Current portion of restricted
marketable securities 18.2 2.7
Accounts receivable, net of
allowance for doubtful
accounts of
$25.9 in 2010; $33.1 in 2009 224.9 219.7
Deferred income tax assets 28.1 0.5
Prepaid expenses and other
current assets 50.1 54.4
---- ----
Total current assets 406.2 426.0
Property and equipment, net 685.4 664.8
Goodwill 431.3 418.7
Intangible assets, net 48.8 43.7
Investments in and advances to
nonconsolidated affiliates 30.7 29.3
Deferred income tax assets 679.3 -
Other long-term assets 90.4 99.0
---- ----
Total assets $2,372.1 $1,681.5
======== ========
Liabilities and Shareholders'
Deficit
Current liabilities
Current portion of long-term
debt $14.5 $21.5
Accounts payable 48.9 50.2
Accrued payroll 80.0 77.9
Accrued interest payable 21.5 6.8
Refunds due patients and other
third-party payors 49.8 53.0
Other current liabilities 144.6 181.8
----- -----
Total current liabilities 359.3 391.2
Long-term debt, net of
current portion 1,496.8 1,641.0
Self-insured risks 102.5 100.0
Other long-term liabilities 28.3 59.5
---- ----
1,986.9 2,191.7
------- -------
Commitments and contingencies
Convertible perpetual
preferred stock 387.4 387.4
----- -----
Shareholders' deficit:
HealthSouth shareholders'
deficit (85.2) (974.0)
Noncontrolling interests 83.0 76.4
---- ----
Total shareholders' deficit (2.2) (897.6)
---- ------
Total liabilities and
shareholders' deficit $2,372.1 $1,681.5
======== ========
HealthSouth Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For the Year Ended December
31,
----------------------------
2010 2009
---- ----
(In Millions)
Cash flows from operating
activities:
Net income $939.8 $128.8
------ ------
Loss (income) from discontinued
operations 0.7 (2.1)
--- ----
Adjustments to reconcile net
income to net cash provided by
operating activities-
Provision for doubtful accounts 18.5 33.1
Provision for government, class
action, and related settlements 1.1 36.7
UBS Settlement proceeds, gross - 100.0
Depreciation and amortization 76.4 70.9
Amortization of debt issue
costs, debt discounts, and fees 6.3 6.6
Loss on disposal of assets 1.5 3.5
Loss on early extinguishment of
debt 12.3 12.5
Loss on interest rate swaps 13.3 19.6
Equity in net income of
nonconsolidated affiliates (10.1) (4.6)
Distributions from
nonconsolidated affiliates 8.1 8.6
Stock-based compensation 16.4 13.4
Deferred tax (benefit) provision (738.5) 4.1
Other (1.8) 0.5
(Increase) decrease in assets-
Accounts receivable (23.7) (17.8)
Prepaid expenses and other
assets (8.1) 3.7
Income tax refund receivable 7.5 45.9
(Decrease) increase in
liabilities-
Accounts payable (1.3) 4.8
Accrued payroll 0.3 (12.4)
Accrued interest payable 14.7 (0.8)
Accrued fees and expenses for
derivative plaintiffs'
attorneys
in UBS Settlement - (26.2)
Refunds due patients and other
third-party payors (3.2) 4.2
Other liabilities 8.0 (0.6)
Termination of forward-starting
interest rate swaps
designated as cash flow hedges (6.9) -
Self-insured risks 7.3 (1.6)
Government, class action, and
related settlements (2.9) (11.2)
Net cash used in operating
activities of discontinued
operations (4.7) (13.5)
---- -----
Total adjustments (609.5) 279.4
------ -----
Net cash provided by operating
activities 331.0 406.1
----- -----
HealthSouth Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the Year Ended
December 31,
------------------
2010 2009
---- ----
(In Millions)
Cash flows from investing activities:
Capital expenditures (70.9) (72.2)
Acquisition of business, net of cash acquired (34.1) -
Acquisition of intangible assets - (0.4)
Proceeds from disposal of assets 0.2 3.9
Proceeds from sale of restricted investments 10.4 5.0
Purchase of restricted investments (26.0) (3.8)
Net change in restricted cash 31.3 (11.7)
Net settlements on interest rate swaps not
designated as hedges (44.7) (42.2)
Net investment in interest rate swap not
designated as a hedge - (6.4)
Other (0.6) (4.7)
Net cash provided by (used in) investing
activities of
discontinued operations 8.5 (0.5)
Net cash used in investing activities (125.9) (133.0)
------ ------
Cash flows from financing activities:
Principal borrowings on notes - 15.5
Proceeds from bond issuance 525.0 290.0
Principal payments on debt, including pre-
payments (751.3) (409.2)
Borrowings on revolving credit facility 100.0 10.0
Payments on revolving credit facility (22.0) (50.0)
Principal payments under capital lease
obligations (14.9) (13.4)
Dividends paid on convertible perpetual
preferred stock (26.0) (26.0)
Debt amendment and issuance costs (19.3) (10.6)
Distributions paid to noncontrolling
interests of
consolidated affiliates (34.4) (32.7)
Other 5.2 0.8
Net cash provided by financing activities of
discontinued
operations - 1.3
--- ---
Net cash used in financing activities (237.7) (224.3)
------ ------
(Decrease) increase in cash and cash
equivalents (32.6) 48.8
Cash and cash equivalents at beginning of
year 80.9 32.1
Cash and cash equivalents of facilities held
for sale at
beginning of year 0.1 0.1
Less: Cash and cash equivalents of facilities
held for sale
at end of year - (0.1)
--- ----
Cash and cash equivalents at end of year $48.4 $80.9
===== =====
HealthSouth Corporation and Subsidiaries
Supplemental Non-GAAP Disclosures
Reconciliation of Net Income to Adjusted Income from Continuing
Operations
and Adjusted EBITDA (1)(3)
Three Months Ended December 31,
-------------------------------
Per
Share Per
2010 (2) 2009 Share(2)
---- ------ ---- ---------
(In Millions, Except per Share Data)
Net income $789.9 $8.51 $46.9 $0.51
Income from
discontinued
operations, net of
tax,
attributable to
HealthSouth (2.9) (0.03) (12.5) (0.14)
Net income
attributable to
noncontrolling
interests (10.7) (0.12) (8.3) (0.09)
----- ----- ---- -----
Income from
continuing
operations
attributable to
HealthSouth 776.3 8.37 26.1 0.28
Government, class
action, and related
settlements 0.3 - (4.6) (0.05)
Professional
fees-accounting,
tax, and legal 3.4 0.04 3.8 0.04
Loss on interest
rate swaps 0.3 - 2.9 0.03
Adjustment for prior
period amounts in
tax provision (739.9) (7.97) (4.1) (0.04)
------ ----- ---- -----
Adjusted income from
continuing
operations (1) (3) 40.4 0.44 24.1 0.26
Adjustment for
dilution (2) (0.07) (0.04)
----- -----
Adjusted income from
continuing
operations
per diluted share
(2) (3) $0.37 $0.22
===== =====
Current period
amounts in tax
provision 3.7 1.7
Interest expense and
amortization of
debt discounts
and fees 34.5 30.8
Depreciation and
amortization 20.1 18.1
---- ----
98.7 74.7
Other adjustments
per the Company's
Credit Agreement:
Impairment charges,
including
investments - 0.2
Net noncash loss on
disposal of assets 1.0 0.5
Loss on early
extinguishment of
debt 11.9 15.6
Stock-based
compensation
expense 5.2 3.4
Other - 0.3
Adjusted EBITDA (1)
(3) (4) $116.8 $94.7
====== =====
Weighted average
common shares
outstanding:
Basic 92.8 92.6
==== ====
Diluted 108.8 107.8
===== =====
HealthSouth Corporation and Subsidiaries
Supplemental Non-GAAP Disclosures
Reconciliation of Net Income to Adjusted Income from Continuing
Operations
and Adjusted EBITDA (1)(3)
Year Ended December 31,
-----------------------
Per Share Per
2010 (2) 2009 Share(2)
---- ---------- ---- ---------
(In Millions, Except per Share Data)
Net income $939.8 $10.13 $128.8 $1.45
Loss (income) from
discontinued
operations, net of
tax,
attributable to
HealthSouth 0.7 0.01 (1.5) (0.02)
Net income
attributable to
noncontrolling
interests (40.8) (0.44) (34.0) (0.38)
----- ----- ----- -----
Income from continuing
operations
attributable
to HealthSouth 899.7 9.70 93.3 1.05
Government, class
action, and related
settlements 1.1 0.01 36.7 0.41
Professional
fees-accounting, tax,
and legal 17.2 0.19 8.8 0.10
Loss on interest rate
swaps 13.3 0.14 19.6 0.22
Adjustment for prior
period amounts in tax
provision (744.9) (8.03) (8.8) (0.10)
------ ----- ---- -----
Adjusted income from
continuing operations
(1) (3) 186.4 2.01 149.6 1.68
Adjustment for
dilution (2) (0.29) (0.23)
----- -----
Adjusted income from
continuing operations
per diluted share (2)
(3) $1.72 $1.45
===== =====
Current period amounts
in tax provision 8.3 5.6
Interest expense and
amortization of debt
discounts
and fees 125.9 125.8
Depreciation and
amortization 76.4 70.9
---- ----
397.0 351.9
Other adjustments per
the Company's
Credit Agreement:
Impairment charges,
including investments - 1.4
Net noncash loss on
disposal of assets 1.5 3.5
Loss on early
extinguishment of
debt 12.3 12.5
Stock-based
compensation expense 16.4 13.4
Other 0.2 0.3
Adjusted EBITDA (1)
(3) (4) $427.4 $383.0
====== ======
Weighted average
common shares
outstanding:
Basic 92.8 88.8
==== ====
Diluted 108.5 103.3
===== =====
HealthSouth Corporation and Subsidiaries
Supplemental Non-GAAP Disclosures
Notes to Reconciliation
(1) Adjusted income from continuing operations and Adjusted EBITDA are non-GAAP financial measures. The Company's leverage ratio, the denominator of which is Adjusted 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 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 in 2010 compared to 2009 was primarily the result of the issuance of 5.0 million shares of common stock on September 30, 2009 in full satisfaction of its obligation to do so under the Company's 2006 securities litigation settlement.
(3) Adjusted income from continuing operations per diluted share and Adjusted EBITDA are two components of the Company's 2010 guidance.
(4) The Company's credit agreement allows unusual non-cash or non-recurring items to be added to arrive at Adjusted 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 EBITDA for future periods.
HealthSouth Corporation and Subsidiaries
Supplemental Non-GAAP Disclosures
Reconciliation of Net Cash Provided by Operating Activities
to Adjusted Free Cash Flow
Three Three
Months Months Year Year
Ended Ended Ended Ended
December December December December
31, 31, 31, 31,
2010 2009 2010 2009
---- ---- ---- ----
(In Millions)
Net cash provided by
operating
activities $67.1 $44.0 $331.0 $406.1
Impact of
discontinued
operations (0.8) 4.1 4.7 13.5
---- --- --- ----
Net cash provided by
operating
activities of
continuing
operations 66.3 48.1 335.7 419.6
Capital expenditures
for maintenance (13.5) (9.6) (39.5) (34.1)
Net settlements on
interest rate swaps (11.0) (11.9) (44.7) (42.2)
Dividends paid on
convertible
perpetual
preferred stock (6.5) (6.5) (26.0) (26.0)
Distributions paid
to noncontrolling
interests
of consolidated
affiliates (8.1) (9.9) (34.4) (32.7)
Non-recurring items:
UBS Settlement
proceeds, less fees
to derivative
plaintiffs'
attorneys - - - (73.8)
Income tax refunds
related to prior
periods (1.6) (4.2) (13.5) (63.7)
Cash paid for:
Professional fees -
accounting, tax,
and legal 3.4 3.8 17.2 15.3
Government, class
action, and related
settlements 2.1 0.2 2.9 11.2
Adjusted free cash
flow $31.1 $10.0 $197.7 $173.6
===== ===== ====== ======
For the three months ended December 31, 2010, net cash used in investing activities was $35.1 million and resulted primarily from capital expenditures and net settlement payments related to interest rate swaps. Net cash used in financing activities during the three months ended December 31, 2010 was $174.1 million and resulted primarily from net debt payments, debt amendment and issuance costs, distributions paid to noncontrolling interests of consolidated affiliates, and dividends paid on the Company's convertible perpetual preferred stock.
For the three months ended December 31, 2009, net cash used in investing activities was $8.6 million and resulted primarily from capital expenditures and net settlement payments related to interest rate swaps offset by a decrease in restricted cash. Net cash used in financing activities during the three months ended December 31, 2009 was $71.7 million and resulted primarily from net debt payments, debt amendment and issuance costs, 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, 2010, net cash used in investing activities was $125.9 million and resulted primarily from capital expenditures, net settlement payments related to interest rate swaps, acquisitions of businesses, and net purchases of restricted investments offset by a decrease in restricted cash and proceeds from the sale of our hospital in Baton Rouge. Net cash used in financing activities during the year ended December 31, 2010 was $237.7 million and resulted primarily from net debt payments, distributions paid to noncontrolling interests of consolidated affiliates, dividends paid on the Company's convertible perpetual preferred stock, and debt amendment and issuance costs.
For the year ended December 31, 2009, net cash used in investing activities was $133.0 million and resulted primarily from capital expenditures and net settlement payments related to interest rate swaps. Net cash used in financing activities during the year ended December 31, 2009 was $224.3 million and resulted primarily from net debt payments, distributions paid to noncontrolling interests of consolidated affiliates, dividends paid on the Company's convertible perpetual preferred stock, and debt amendment and issuance costs.
HealthSouth Corporation and Subsidiaries
Earnings Per Share Guidance Transition
EPS Guidance Transition
-----------------------
Prior
EPS
Measure GAAP EPS Measure(1)
------- -------------------
Actual Actual Low High
--- ----
2010 2010 2011
---- ---- ----
(In Millions, Except Per Share Data)
Adjusted
EBITDA $427.4 $427.4 $440 $450
Interest
expense
and
amortization
of debt
discounts
and
fees 125.9) (125.9) (138)
Depreciation
and
amortization (76.4) (76.4) (82)
Stock-
based
compensation
expense (16.4) (16.4) (18)
Other,
including
non-
cash
loss on
disposal
of
assets (1.7) (1.7) (4)
---- ---- ---
207.0 207.0 198 208
Certain
nonrecurring
expenses:
Government,
class
action
and
related
settlements - (1.1) TBD
Professional
fees?accounting,
tax
and
legal - (17.2) (14)
Loss on
interest
rate
swaps - (13.3) -
Loss on
early
extinguishment
of debt (12.3) (12.3) TBD
----- ----- ---
Pre-tax
income 194.7 163.1 184 194
Income
tax
(assumes
40% in
2011) (8.3) (2) 736.6 (3) (74) (78)
---- ----- --- ---
Income
from
continuing
operations $186.4 (4) $899.7 (1) $110 (1) $116 (1)
====== ====== ==== ====
Diluted
shares 108.5 108.5 109.4 109.4
===== ===== ===== =====
Earnings
per
share $1.72 (4) $8.29 (1) $1.01 (1) $1.06 (1)
===== ===== ===== =====
(1) Income from continuing operations attributable to HealthSouth per diluted share.
(2) Current period amounts in income tax provision; see Supplemental Non-GAAP Disclosures Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted EBITA Year Ended December 31 table.
(3) Total income tax provision for the year ended December 31, 2010, including the reversal of a substantial portion of the Company's valuation allowance against deferred tax assets.
(4) Adjusted income from continuing operations; see Supplemental Non-GAAP Disclosures Reconciliation of Net Income to Adjusted Income from Continuing Operations and Adjusted EBITA Year Ended December 31 table.
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 business strategy, its financial plans, its future financial performance, or its projected business results, or its projected capital expenditures. 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 Company; significant changes in HealthSouth's management team; HealthSouth's ability to successfully complete and integrate 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; 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 our 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 10K for the year ended December 31, 2010, which is expected to be filed next week.
Media Contact
-------------
Andy Brimmer, 205-410-2777
Helen Todd, 205-969-5608
helen.todd@healthsouth.com
Investor Relations Contact
--------------------------
Mary Ann Arico, 205-969-6175
maryann.arico@healthsouth.com
SOURCE HealthSouth Corporation
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