form8k-investor011110.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 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): January 11, 2010
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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(I.R.S.
Employer
Identification
No.)
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3660
Grandview Parkway, Suite 200, Birmingham, Alabama 35243
(Address
of Principal Executive Officers, Including Zip Code)
(205) 967-7116
(Registrant’s
telephone number)
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:
¨ Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
¨ Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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¨
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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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|
¨
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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 (“HealthSouth” or the “Company”) will participate in the 28th
Annual J.P. Morgan Healthcare Conference on January 11 – 14, 2010 in San
Francisco, California. As part of this conference, representatives of
HealthSouth will make a presentation on January 11, 2010 at 11:30 a.m. PST using
the slides attached to this Current Report on Form 8-K as Exhibit 99.1. The
presentation will address, among other things, the Company’s strategy,
objectives, and financial performance and discuss industry trends and dynamics.
The presentation will be webcast live and will be available at
http://investor.healthsouth.com by clicking on an available link.
While the
format of certain slides may have changed, the slide presentation attached to
this Current Report on Form 8-K as Exhibit 99.1 contains substantially the same
information as previously provided in a Current Report on Form 8-K dated
November 16, 2009.
While the
Company has not closed its books for the quarter or year ended December 31,
2009, the Company will share its initial observations on the quarter and year
ended December 31, 2009 in the slide presentation attached to this Current
Report on Form 8-K as Exhibit 99.1. These initial observations are:
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·
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Volume: The Company
continued to experience positive discharge growth and expects to report
4+% discharge growth.
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·
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Pricing: The Company
received a 2.5% Medicare market basket increase on October 1,
2009.
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·
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Expenses: The Company
continued to show improvement in productivity and its ability to manage
labor costs. As it is routine to provide merit increases to its
non-management employees on October 1 of each year, which normally
coincides with the annual Medicare pricing adjustment, the Company
provided an average 2.3% merit increase to its non-management employees
effective October 1, 2009.
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·
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Earnings per share: As
a reminder, on September 30, 2009, the Company issued 5 million shares to
satisfy its obligation under its class action securities litigation
settlement. Also, the results of operations of the Company's Baton Rouge,
Louisiana hospital are expected to move to discontinued operations in the
fourth quarter of 2009 as a result of an agreement related to its
potential sale. In addition, earnings per share will include an
approximate $15 million charge for loss on early extinguishment of debt in
the fourth quarter of 2009.
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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
results for the quarter and year ended December 31, 2009, as well as guidance
for 2010, will be provided during the Company’s earnings conference call
scheduled for 9:30 a.m. EST on February 23, 2010.
The
information in this Current Report on Form 8-K, including the information set
forth in Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall
it be 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. The furnishing of this report is not
intended to constitute a determination by the Company that the information is
material or that the dissemination of the information is required by Regulation
FD.
Note
Regarding Presentation of Non-GAAP Financial Measures
The
financial data contained in the presentation includes non-GAAP financial
measures, including “Adjusted Consolidated EBITDA.” The Company continues to
believe Adjusted Consolidated EBITDA as defined in its Credit Agreement is a
measure of leverage capacity, its ability to service its debt, and its ability
to make capital expenditures.
The
Company uses Adjusted Consolidated 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, 2008 (the “2008 Form 10-K”) and the financial
statements included in the Current Report on Form 8-K filed on November 16,
2009. These covenants are material terms of the Credit Agreement, and the Credit
Agreement represents a substantial portion of the Company’s capitalization.
Non-compliance with the 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 as 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 Consolidated
EBITDA is critical to the Company’s assessment of its liquidity.
In
general terms, the definition of Adjusted Consolidated EBITDA, per the Credit
Agreement, allows the Company to add back to Adjusted Consolidated EBITDA
unusual non-cash or non-recurring items. These items include, but may not be
limited to, (1) amounts associated with government, class action, and
related settlements, (2) fees, costs, and expenses related to the Company’s
recapitalization transactions, (3) any losses from discontinued operations
and closed locations, (4) 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 defense and support matters discussed in Note 11,
Settlements, and Note
12, Contingencies, to the condensed
consolidated financial statements included in the September 2009 Form 10-Q,
(5) stock-based compensation expense recorded for eligible employees,
(6) investment and other income (including interest income), and (7) fees
associated with the Company’s divestiture activities.
However,
Adjusted Consolidated 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 Consolidated EBITDA are
significant components in understanding and assessing financial performance.
Therefore, Adjusted Consolidated EBITDA should not be considered a substitute
for net income or
cash flows from operating, investing, or financing activities. The Company
reconciles Adjusted Consolidated EBITDA to net income, which reconciliation is
set forth in the slide presentation attached as Exhibit 99.1, and to net cash
provided by operating activities, which reconciliation is set forth below.
Because Adjusted Consolidated EBITDA is not a measurement determined in
accordance with GAAP and is thus susceptible to varying calculations, Adjusted
Consolidated 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 2008 Form 10-K
and the financial statements included in the Current Report on Form 8-K filed on
November 16, 2009.
The
Company also uses adjusted income (loss) from continuing operations and the
related per share amounts as analytical indicators to assess its performance.
Management believes the presentation of adjusted income (loss) from continuing
operations and the related per share amounts provides useful information to
management and investors about the Company’s operating business before taking
into account certain items that are non-operational or infrequent in nature.
These measures are not defined measures of financial performance under GAAP and
should not be considered as alternatives to net income and net income per share
available to HealthSouth common shareholders. Because these measures are not
measures determined in accordance with GAAP and are susceptible to varying
calculations, they may not be comparable to other similarly titled measures
presented by other companies. See the condensed consolidated statements of
operations included in the September 2009 Form 10-Q and the consolidated
statements of operations included in the financial statements included in the
Current Report on Form 8-K filed on November 16, 2009 for the GAAP measures of
net income, income from continuing operations, and basic and diluted earnings
per common share. A reconciliation of net income to adjusted income (loss) from
continuing operations, and the related per share amounts, is included in the
slide presentation attached as Exhibit 99.1.
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 slide presentation attached as
Exhibit 99.1. 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 2009 Form 10-Q and the
consolidated statements of cash flows included in the financial statements
included in the Current Report on Form 8-K filed on November 16, 2009 for the
GAAP measures of cash flows from operating, investing, and financing activities.
A reconciliation of net cash provided by operating activities to Adjusted
Consolidated EBITDA and adjusted free cash flow is presented below.
Reconciliation
of Net Cash Provided by Operating Activities to Adjusted Consolidated
EBITDA
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Nine
Months Ended
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Year
Ended
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September
30,
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December
31,
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2009
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2008
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2008
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2007
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(In
Millions)
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(As
Adjusted)
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(As
Adjusted)
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(As
Adjusted)
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Net
cash provided by operating activities
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$ |
362.1 |
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$ |
149.3 |
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$ |
227.2 |
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$ |
230.6 |
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Provision
for doubtful accounts
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(25.5 |
) |
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(20.5 |
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(27.4 |
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(33.4 |
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Professional
fees-accounting, tax, and legal
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5.0 |
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12.9 |
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44.4 |
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51.6 |
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Interest
expense and amortization of debt
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discounts
and fees
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95.0 |
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131.1 |
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159.5 |
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229.4 |
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UBS
Settlement proceeds, gross
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(100.0 |
) |
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- |
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- |
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- |
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Equity
in net income of nonconsolidated affiliates
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2.8 |
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7.8 |
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10.6 |
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10.3 |
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Net
income attributable to noncontrolling interests
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in
continuing operations
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(25.2 |
) |
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(21.7 |
) |
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(29.8 |
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(31.4 |
) |
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Amortization
of debt discounts and fees
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(4.8 |
) |
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(4.9 |
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(6.5 |
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(7.8 |
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Distributions
from nonconsolidated affiliates
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(6.5 |
) |
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(7.6 |
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(10.9 |
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(5.3 |
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(Loss)
gain on sale of investments
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- |
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- |
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(1.4 |
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12.3 |
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Current
portion of income tax benefit
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(3.2 |
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(23.7 |
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(73.8 |
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(330.4 |
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Change
in assets and liabilities
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(31.8 |
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22.5 |
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52.3 |
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7.9 |
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Change
in government, class action, and
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related
settlements liability
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11.0 |
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7.4 |
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7.4 |
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171.4 |
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Other
operating cash used in (provided by)
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discontinued
operations
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9.6 |
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1.6 |
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(9.9 |
) |
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13.1 |
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Other
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0.6 |
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- |
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- |
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2.3 |
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Adjusted
Consolidated EBITDA
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$ |
289.1 |
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$ |
254.2 |
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$ |
341.7 |
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$ |
320.6 |
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Reconciliation
of Net Cash Provided by Operating Activities to Adjusted Free Cash
Flow
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Three
Months Ended
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Three
Months Ended
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Nine
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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September
30,
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September
30,
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2009
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2008
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2009
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2008
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(In
Millions)
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Net
cash provided by operating activities
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$ |
132.9 |
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$ |
82.3 |
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$ |
362.1 |
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$ |
149.3 |
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Impact
of discontinued operations
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2.6 |
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(4.9 |
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9.6 |
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1.6 |
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Net
cash provided by operating activities
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|
|
|
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|
|
|
|
|
|
|
|
|
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of
continuing operations
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135.5 |
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77.4 |
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371.7 |
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150.9 |
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Incremental
income tax expense
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(3.0 |
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(1.3 |
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(4.7 |
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(3.1 |
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Capital
expenditures for maintenance
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(9.5 |
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(8.1 |
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(24.5 |
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(25.2 |
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Net
settlements on interest rate swaps
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(11.2 |
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(7.3 |
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(30.3 |
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(13.9 |
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Dividends
paid on convertible perpetual preferred
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|
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stock
|
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(6.5 |
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(6.5 |
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(19.5 |
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(19.5 |
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Distributions
paid to noncontrolling interests
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|
|
|
|
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of
consolidated affiliates
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(7.0 |
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(9.8 |
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(22.8 |
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(26.3 |
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Non-recurring
items:
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UBS
Settlement proceeds, less fees
|
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to
derivative plaintiffs' attorneys
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- |
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- |
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(73.8 |
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- |
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Income
tax refunds
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(5.5 |
) |
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(8.8 |
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(59.5 |
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(27.8 |
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Cash
paid for:
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|
|
|
|
|
|
|
|
|
|
|
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Professional
fees - accounting, tax, and legal
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3.5 |
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4.0 |
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11.5 |
|
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12.9 |
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Government,
class action, and related
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
settlements
|
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2.3 |
|
|
|
- |
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|
11.0 |
|
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|
7.4 |
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Adjusted
free cash flow
|
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$ |
98.6 |
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$ |
39.6 |
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$ |
159.1 |
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$ |
55.4 |
|
Net cash
provided by operating activities for the nine months ended September 30, 2009
and 2008 was $362.1 million and $149.3 million, respectively. Net cash provided
by operating activities for the six months ended June 30, 2009 and 2008 was
$229.2 million and $67.0 million, respectively, as reported in the Company’s
Form 10-Q for the quarterly period ended June 30, 2009. The difference is
the $132.9 million and $82.3 million of net cash provided by operating
activities for the three months ended September 30, 2009 and 2008,
respectively.
For the
three months ended September 30, 2009, net cash used in investing activities was
$46.6 million and resulted primarily from capital expenditures, an increase in
restricted cash, and net settlement payments related to interest rate swaps. Net
cash used in financing activities during the three months ended September 30,
2009 was $18.8 million and resulted primarily from distributions paid to
noncontrolling interests of consolidated affiliates and dividends paid on the
Company’s convertible perpetual preferred stock.
For the
three months ended September 30, 2008, net cash used in investing activities was
$51.5 million and resulted primarily from capital expenditures, including
expenditures associated with development activities, and net settlement payments
related to an interest rate swap. Net cash used in financing activities during
the three months ended September 30, 2008 was $73.0 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.
For the
nine months ended September 30, 2009, net cash used in investing activities was
$124.4 million and resulted primarily from capital expenditures, an increase in
restricted cash, and net settlement payments related to interest rate swaps. Net
cash used in financing activities during the nine months ended September 30,
2009 was $152.6 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.
For the
nine months ended September 30, 2008, net cash used in investing activities was
$11.9 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
nine months ended September 30, 2008 was $133.4 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.
Forward-Looking
Statements
The
information contained in this Current Report on Form 8-K and the slide
presentation attached as Exhibit 99.1 includes certain estimates, projections,
and other forward-looking information that reflect the Company’s current views
with respect to future events and financial performance. These estimates,
projections, and other forward-looking information are based on assumptions the
Company believes, as of the date hereof, are reasonable. Inevitably, there will
be differences between such estimates and actual results, and those differences
may be material.
There can
be no assurance that any estimates, projections, or forward-looking information
will be realized. All such estimates, projections, and forward-looking
information speak only as of the date hereof. The Company undertakes no duty to
publicly update or revise the information contained herein or in the slide
presentation.
The slide
presentation also includes estimates and projections published by the Centers
for Medicare and Medicaid Services (“CMS”). HealthSouth is not able to verify
those estimates or projections or the detailed calculations thereof by CMS which
are not made public. Any changes or errors in those calculations, among other
uncertainties such as those referred to below and changes in CMS’s own rules and
policies, could cause actual results to differ materially from CMS’s
projections. Furthermore, the Company does not believe that CMS’s numbers are
consistent with financial reporting results. CMS data and projections should not
be used as an indication of financial performance.
You are
cautioned not to place undue reliance on the estimates, projections, and other
forward-looking information in the slide presentation as it is based on current
expectations and general assumptions and is subject to various risks,
uncertainties, and other factors, including those set forth in the 2008 Form
10-K, our reports on Form 10-Q for the quarterly periods ended September 30,
2009, June 30, 2009, and March 31,2009, and in other documents the Company
previously filed with the SEC, many of which are beyond the Company’s control.
These factors may cause actual results to differ materially from the views,
beliefs and estimates expressed herein.
ITEM
9.01. Financial Statements and
Exhibits
(d) Exhibits
|
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99.1
|
Slide
presentation of HealthSouth Corporation used in connection with the
Company’s January 11, 2010 presentation at the 28th
Annual J.P. Morgan Healthcare
Conference.
|
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.
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HealthSouth
Corporation |
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By:
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/s/ John
P. Whittington |
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Name: John P.
Whittington |
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Title:
Executive Vice President, General Counsel, and Corporate
Secretary |
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Dated:
January 11, 2010