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| EX-99.1 - EXHIBIT 99.1 - Encompass Health Corp | exhibit99_1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): December 14, 2011
HealthSouth Corporation
(Exact name of Registrant as specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
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001-10315
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63-0860407
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(Commission File Number)
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(IRS Employer Identification No.)
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3660 Grandview Parkway, Suite 200, Birmingham, Alabama 35243
(Address of Principal Executive Offices, Including Zip Code)
(205) 967-7116
(Registrant’s Telephone Number, Including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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ITEM 7.01. Regulation FD Disclosure.
HealthSouth Corporation (the “Company”) will be making informational presentations to current and potential investors, not related to any specific transaction, in Dallas and Houston, Texas on December 15-16, 2011. The Company will distribute to attendees a copy of the post-third quarter 2011 Investor Reference Book that was filed in a Current Report on Form 8-K dated November 15, 2011, and a supplemental slide attached to this Current Report on Form 8-K as Exhibit 99.1 (the “Update Slide”). The Investor Reference Book and the Update Slide address, among other things, an overview of the Company and its industry, a historical perspective of the Company, the Company’s business
outlook, the Company’s financial and operational metrics and initiatives, and the Company’s value proposition. The Investor Reference Book and Update Slide are available at http://investor.healthsouth.com by clicking on an available link.
In the Update Slide, the Company will also provide its initial observations and considerations for the fourth quarter of 2011. These observations and considerations are:
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Volume. The Company expects to achieve 1.0% to 2.0% discharge growth in the fourth quarter of 2011, which would bring full-year discharge growth to between 4.9% and 5.2%. This growth is against a strong volume comparison of 5.9% in the fourth quarter of 2010.
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Adjusted EBITDA. The Company expects full-year Adjusted EBITDA to be in the range of $450 million to $455 million.
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Income from Continuing Operations per Basic Share. The Company expects full-year earnings per basic share to be in the range of $1.18 to $1.23.
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Adjusted Free Cash Flow. The Company expects full-year adjusted free cash flow to be at least $210 million.
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This represents a reiteration of Adjusted EBITDA and earnings per basic share guidance for 2011, which guidance was previously reported in the press release furnished as an exhibit to the Current Report on Form 8-K, dated October 27, 2011, and during the Company’s earnings conference call held on October 28, 2011.
The Company uses “same-store” comparisons to explain the changes in certain performance metrics and line items within its financial statements. Same-store comparisons are calculated based on hospitals open throughout both the full current periods and throughout the full prior periods presented. These comparisons include the financial results of market consolidation transactions in existing markets, as it is difficult to determine, with precision, the incremental impact of these transactions on the Company’s results of operations.
The information contained herein is being furnished pursuant to Item 7.01 of Form 8-K, “Regulation FD Disclosure.” This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Note Regarding Presentation of Non-GAAP Financial Measures
The financial data contained in the Investor Reference Book and the Update Slide attached as Exhibit 99.1 includes non-GAAP financial measures, including the Company’s leverage ratio and Adjusted EBITDA. The leverage ratio referenced therein is defined as the ratio of consolidated total debt to Adjusted EBITDA for the trailing four quarters. The Company believes its leverage ratio and Adjusted EBITDA are measures of its ability to service its debt and its ability to make capital expenditures. Additionally, the leverage ratio is a standard measurement used by investors to gauge the creditworthiness of an institution. The Company’s credit agreement also includes a maximum leverage ratio financial covenant
which allows the Company to deduct up to $75 million of cash on hand from consolidated total debt.
The Company uses Adjusted EBITDA on a consolidated basis as a liquidity measure. The Company believes this financial measure on a consolidated basis is important in analyzing its liquidity because it is the key
component of certain material covenants contained within the Company’s credit agreement, which is discussed in more detail in Note 8, Long-term Debt, to the consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2010 (the “2010 Form 10-K”), and Note 3, Long-term Debt, to the condensed consolidated financial statements included in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011 (the “September 2011 Form 10-Q”). These covenants are material terms of the credit
agreement, and the credit agreement represents a substantial portion of the Company’s liquidity. Non-compliance with these financial covenants under the credit agreement – its interest coverage ratio and its leverage ratio – could result in the Company’s lenders requiring the Company to immediately repay all amounts borrowed. If the Company anticipated a potential covenant violation, it would seek relief from its lenders, which would have some cost to the Company, and such relief might not be on terms favorable to those in the Company’s existing credit agreement. In addition, if the Company cannot satisfy these financial covenants, it would be prohibited under the credit agreement from engaging in certain activities, such as incurring additional indebtedness, making certain payments, and acquiring and disposing of assets. Consequently, Adjusted EBITDA is
critical to the Company’s assessment of its liquidity.
In general terms, the credit agreement definition of Adjusted EBITDA, referred to as “Adjusted Consolidated EBITDA” there, allows the Company to add back to consolidated net income interest expense, income taxes, and depreciation and amortization and then add back to or subtract from consolidated net income unusual non-cash or non-recurring items. These items have included, but may not be limited to, (1) amounts associated with government, class action, and related settlements, (2) amounts related to discontinued operations and closed locations, (3) charges in respect of professional fees for reconstruction and restatement of financial statements, including fees paid to outside
professional firms for matters related to internal controls and legal fees for continued litigation and support matters discussed in Note 21, Settlements, and Note 22, Contingencies and Other Commitments, to the consolidated financial statements included in the 2010 Form 10-K, and Note 10, Settlements, and Note 11, Contingencies, to the condensed consolidated financial statements included in the September 2011 Form 10-Q, (4) stock-based compensation expense, (5) net investment and other income (including interest income), and (6) fees associated with the Company’s divestiture activities.
In accordance with the credit agreement, the Company has been allowed to add certain other items to the calculation of Adjusted EBITDA, and there may also be certain other deductions required. This includes net income attributable to noncontrolling interests and interest income associated with income tax recoveries, as discussed in Note 19, Income Taxes, to the consolidated financial statements included in the 2010 Form 10-K. In addition, the Company has been allowed to add non-recurring cash gains, such as the cash proceeds from the UBS Settlement (see Note 21, Settlements, to the consolidated financial
statements included in the 2010 Form 10-K) to the calculation of Adjusted EBITDA. As these adjustments may not be indicative of the Company’s ongoing performance, they have been excluded from Adjusted EBITDA presented herein and in the Investor Reference Book and Update Slide attached as Exhibit 99.1.
However, Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles in the United States of America (“GAAP”), and the items excluded from Adjusted EBITDA are significant components in understanding and assessing financial performance. Therefore, Adjusted EBITDA should not be considered a substitute for net income or cash flows from operating, investing, or financing activities. The Company reconciles Adjusted EBITDA to net income, which reconciliation is set forth in the Investor Reference Book, and to net cash provided by operating activities, which reconciliation is set forth below. Because Adjusted EBITDA is not a measurement determined in accordance with
GAAP and is thus susceptible to varying calculations, Adjusted EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. Revenues and expenses are measured in accordance with the policies and procedures described in the 2010 Form 10-K.
The Company also uses adjusted free cash flow as an analytical indicator to assess its performance. Management believes the presentation of adjusted free cash flow provides investors an efficient means by which they can evaluate the Company’s capacity to reduce debt and pursue development activities. The calculation of adjusted free cash flow is included in the Investor Reference Book. This measure is not a defined measure of financial performance under GAAP and should not be considered as an alternative to net cash provided by operating activities. Our definition of adjusted free cash flow is limited and does not represent residual cash flows available for discretionary spending. Because this measure is not
determined in accordance with GAAP and is susceptible to
varying calculations, it may not be comparable to other similarly titled measures presented by other companies. See the condensed consolidated statements of cash flows included in the September 2011 Form 10-Q for the GAAP measures of cash flows from operating, investing, and financing activities. A reconciliation of net cash provided by operating activities to adjusted free cash flow is included in the Investor Reference Book.
Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA
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Three Months Ended
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Nine Months Ended
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September 30,
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September 30,
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For the Year Ended December 31,
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| 2011 | 2010 | 2011 | 2010 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||||||||||
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(In Millions)
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Net cash provided by operating activities
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$ | 53.9 | $ | 90.8 | $ | 210.8 | $ | 263.9 | $ | 331.0 | $ | 406.1 | $ | 227.2 | $ | 230.6 | ||||||||||||||||
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Provision for doubtful accounts
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(5.1 | ) | (3.7 | ) | (14.9 | ) | (14.8 | ) | (16.4 | ) | (30.7 | ) | (23.0 | ) | (28.5 | ) | ||||||||||||||||
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Professional fees—accounting, tax, and legal
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4.0 | 5.2 | 16.2 | 13.8 | 17.2 | 8.8 | 44.4 | 51.6 | ||||||||||||||||||||||||
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Interest expense and amortization of debt
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discounts and fees
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26.3 | 30.8 | 96.3 | 91.4 | 125.6 | 125.7 | 159.3 | 229.2 | ||||||||||||||||||||||||
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UBS Settlement proceeds, gross
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- | - | - | - | - | (100.0 | ) | - | - | |||||||||||||||||||||||
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Equity in net income of nonconsolidated
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affiliates
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3.1 | 2.3 | 8.8 | 7.5 | 10.1 | 4.6 | 10.6 | 10.3 | ||||||||||||||||||||||||
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Net income attributable to noncontrolling interests
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in continuing operations
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(11.4 | ) | (10.3 | ) | (34.5 | ) | (30.3 | ) | (40.9 | ) | (33.3 | ) | (29.8 | ) | (31.1 | ) | ||||||||||||||||
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Amortization of debt discounts and fees
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(1.0 | ) | (1.7 | ) | (3.3 | ) | (5.1 | ) | (6.3 | ) | (6.6 | ) | (6.5 | ) | (7.8 | ) | ||||||||||||||||
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Distributions from nonconsolidated affiliates
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(4.2 | ) | (1.4 | ) | (9.7 | ) | (4.7 | ) | (8.1 | ) | (8.6 | ) | (10.9 | ) | (5.3 | ) | ||||||||||||||||
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Current portion of income tax (benefit) expense
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(0.1 | ) | (0.7 | ) | (1.5 | ) | (1.7 | ) | 2.9 | (7.0 | ) | (72.8 | ) | (330.4 | ) | |||||||||||||||||
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Change in assets and liabilities
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38.6 | (12.6 | ) | 68.1 | (14.1 | ) | 2.7 | (2.0 | ) | 50.6 | 5.5 | |||||||||||||||||||||
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Net premium paid (received) on bond
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issuance/redemption
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8.9 | - | 22.8 | - | - | - | - | - | ||||||||||||||||||||||||
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Change in government, class action,
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and related settlements
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- | - | (6.5 | ) | 0.8 | 2.9 | 11.2 | 7.4 | 171.4 | |||||||||||||||||||||||
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Cash provided by operating activities of
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discontinued operations
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(2.2 | ) | (3.1 | ) | (9.4 | ) | (10.4 | ) | (13.2 | ) | (5.7 | ) | (32.5 | ) | (3.3 | ) | ||||||||||||||||
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Other, including realized (gains) losses on sales
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of investments
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(0.3 | ) | 0.3 | 0.1 | 1.2 | 2.1 | 1.2 | (1.4 | ) | 14.5 | ||||||||||||||||||||||
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Adjusted EBITDA
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$ | 110.5 | $ | 95.9 | $ | 343.3 | $ | 297.5 | $ | 409.6 | $ | 363.7 | $ | 322.6 | $ | 306.7 | ||||||||||||||||
For the three months ended September 30, 2011, net cash provided by investing activities was $81.9 million and resulted primarily from the proceeds from the sale of five long-term acute care hospitals in August 2011. Net cash used in financing activities during the three months ended September 30, 2011 was $148.4 million and resulted primarily from net debt payments, including the September 2011 optional redemption of $165.6 million of the Company’s 10.75% Senior Notes due 2016.
For the three months ended September 30, 2010, net cash used in investing activities was $50.7 million and resulted primarily from capital expenditures, including the acquisition of an inpatient rehabilitation hospital, net settlement payments related to interest rate swaps, and net purchases of restricted investments offset by a decrease in restricted cash. Net cash used in financing activities during the three months ended September 30, 2010 was $22.2 million and resulted primarily from distributions paid to noncontrolling interests of consolidated affiliates, dividends paid on the Company’s convertible perpetual preferred stock, and net debt payments.
For the nine months ended September 30, 2011, net cash provided by investing activities was $32.7 million and resulted primarily from the proceeds from the sale of five long-term acute care hospitals in August 2011 offset by capital expenditures, net settlement payments related to interest rate swaps, and purchases of restricted investments. Net cash used in financing activities during the nine months ended September 30, 2011 was $244.2 million and resulted primarily from net debt payments, including the optional redemption of the Company’s 10.75% Senior Notes due 2016, distributions paid to noncontrolling interests of consolidated affiliates, and dividends paid on the Company’s convertible perpetual
preferred stock.
For the nine months ended September 30, 2010, net cash used in investing activities was $90.8 million and resulted primarily from capital expenditures, acquisitions of two inpatient rehabilitation hospitals, and net settlement payments related to interest rate swaps offset by a decrease in restricted cash and proceeds from the sale of our hospital in Baton Rouge, Louisiana. Net cash used in financing activities during the nine months ended September 30, 2010 was $63.6 million and resulted primarily from distributions paid to noncontrolling interests of consolidated affiliates, dividends paid on the Company’s convertible perpetual preferred stock, and net debt payments.
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 the Company’s 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.
For the year ended December 31, 2008, net cash used in investing activities was $40.0 million and resulted primarily from capital expenditures, including expenditures associated with development activities, and net settlement payments related to an interest rate swap offset by proceeds from asset disposals, including our corporate campus. Net cash used in financing activities during the year ended December 31, 2008 was $176.0 million and resulted primarily from net debt payments made during the period, as well as distributions paid to noncontrolling interests of consolidated affiliates and dividends paid on the Company’s perpetual preferred stock, offset by proceeds from the issuance of common
stock.
For the year ended December 31, 2007, net cash provided by investing activities was $1,184.5 million and resulted primarily from the proceeds from the divestitures of the Company’s surgery centers, outpatient, and diagnostic divisions. Net cash used in financing activities during the year ended December 31, 2007 was $1,436.6 million and resulted primarily from net debt payments primarily using the net proceeds from the divestitures discussed above.
Forward-Looking Statements
Statements contained in this document and the Update Slide attached as Exhibit 99.1 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 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 shares of its common stock, the timing or outcome of the HHS-OIG Houston investigation, HealthSouth’s business strategy, its financial plans, its future financial performance, or its projected business results or model, 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 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 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 10-K for the year ended December 31, 2010 and Form 10-Q for the quarters ended September 30, 2011, June 30, 2011 and March 31, 2011.
ITEM 9.01. Financial Statements and Exhibits.
(d) Exhibits
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99.1
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Supplemental slide used in connection with the December 15-16, 2011 meetings with investors.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.
| HEALTHSOUTH CORPORATION | ||||
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Date
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By:
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/s/ John P. Whittington | ||
| Name: | John P. Whittington | |||
| Title: | Executive Vice President, General | |||
| Counsel, and Corporate Secretary | ||||
Dated: December 14, 2011