Second Quarter 2009 Earnings Call
Supplemental Slides
Exhibit 99.2
The information contained in this presentation includes certain estimates, projections and other forward-
looking information that reflect our current views with respect to future events and financial performance.
These estimates, projections and other forward-looking information are based on assumptions that
HealthSouth 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.
HealthSouth undertakes no duty to publicly update or revise the information contained herein.
You are cautioned not to place undue reliance on the estimates, projections and other forward-looking
information in this presentation as they are based on current expectations and general assumptions and
are subject to various risks, uncertainties and other factors, including those set forth in our Form 10-K for
the fiscal year ended December 31, 2008, the Form 10-Q for quarters ended March 31, 2009 and June 30,
2009, when filed, and in other documents we previously filed with the SEC, many of which are beyond our
control, that may cause actual results to differ materially from the views, beliefs and estimates expressed
herein.
Note Regarding Presentation of Non-GAAP Financial Measures
The following presentation includes certain “non-GAAP financial measures” as defined in Regulation G
under the Securities Exchange Act of 1934. A schedule is attached that reconciles the non-GAAP financial
measures included in the following presentation to the most directly comparable financial measures
calculated and presented in accordance with Generally Accepted Accounting Principles in the United
States. Our Form 8-K, dated August 4, 2009, to which the following supplemental slides are attached as
Exhibit 99.2, provides further explanation and disclosure regarding our use of non-GAAP financial
measures and should be read in conjunction with these supplemental slides.
Forward-Looking Statements
Table of Contents
Highlights (Q2 2009)
Achieved 5.6% quarter-over-quarter discharge growth.
Same store discharge growth was 4.7%.
Revenue growth of 5.9%.
Driven by higher discharge volume which more than offset lower outpatient
revenue.
High-quality, cost-effective, patient care.
Driven by effective management of hospital expenses and improved labor
productivity.
Reduced debt by $26 million during the quarter.
Moody’s credit upgrade during the quarter.
S & P changed outlook to positive.
Leverage ratio reduced to 4.7x(1) from 5.3x at year end.
(1) Based on trailing four quarter Adjusted Consolidated EBITDA of $359.6 million; reconciliation to GAAP provided on slides 30 through 33.
Revenues (Q2 2009 vs. Q2 2008)
Inpatient revenue growth was driven by strong discharge volumes.
Volume growth was driven by the sustained TeamWorks effort and disciplined development.
Same store discharge growth was 4.7%.
Net patient revenue / discharge was higher in Q209 due to an increasing trend within our
patient mix towards higher acuity neurological patients.
Outpatient revenue declined as a result of 15 fewer outpatient satellites quarter over quarter.
Favorable
(Unfavorable)
(Millions)
2nd Qtr. 2009
2nd Qtr. 2008
Change
Inpatient
439.0
$
410.4
$
7.0%
Outpatient and other
44.7
46.2
(3.2%)
Consolidated net operating
483.7
$
456.6
$
5.9%
(Actual Amounts)
Discharges
28,494
26,990
5.6%
Net patient revenue / discharge
15,407
$
15,206
$
1.3%
Expenses (Q2 2009 vs. Q2 2008)
Continued progress on labor productivity demonstrated by lower EPOB.
Hospital related expenses:
Comparison for Q2 affected by a reduction of self-insurance costs resulting from revised
actuarial estimates in Q208.
Increased provision for doubtful accounts to reflect aging of pending Medicare appeals.
(Millions)
2nd Qtr. 2009
2nd Qtr. 2008
Change
Salaries and benefits
239.1
$
234.1
$
(2.1%)
Percent of net operating revenues
49.4%
51.3%
190bps
EPOB (employees per occupied bed)
3.52
3.65
3.6%
Hospital-related expenses
118.1
$
109.6
$
(7.8%)
(other operating, supplies, occupancy, bad debts)
Percent of net operating revenues
24.4%
24.0%
(40)bps
General and administrative
22.0
$
22.5
$
2.2%
(excludes 123(R) compensation)
Percent of net operating revenues
4.5%
4.9%
40bps
Adjusted Consolidated EBITDA(1)(2Q 2009)
(Millions)
(1) Reconciliation to GAAP provided on slides 30 through 33.
Improvements driven by:
Increased volumes.
Improved labor productivity.
Lower G&A.
Improvements offset by:
Higher operating expense related to a self-insurance reduction in Q208 offset by lower
TeamWorks expenses.
2nd Qtr. 2009
2nd Qtr. 2008
$
%
94.0
$
85.9
$
8.1
$
9.4%
Change
Adjusted Consolidated EBITDA(1) (6 months)
(Millions)
(1) Reconciliation to GAAP provided on slides 30 through 33.
Improvements driven by:
Increased volumes.
Improved labor productivity.
Lower G&A.
Improvements offset by:
Higher operating expense related to a self-insurance reduction in Q208 offset by lower
TeamWorks expenses.
Strong volume growth YTD helped offset the Medicare price roll-back.
Medicare market basket update: $7-8 million benefit in Q108.
6 Months 2009
6 Months 2008
$
%
192.7
$
174.8
$
17.9
$
10.2%
Change
Adjusted Income per Diluted Share (2Q 2009)
(2) Reconciliation to GAAP provided on slides 30 through 33.
Major drivers were:
Increased Adjusted Consolidated EBITDA.
Lower floating-rate interest expense (results in higher cash payments on swap).
Lower interest expense as a result of lower debt balances.
Increase in income was offset by:
Higher operating expense related to a self-insurance reduction in Q208 offset by lower
TeamWorks expenses.
2nd Qtr.
2nd Qtr.
(Millions, except per share data)
2009
2008
$
%
(Loss) income from continuing operations
attributable to HealthSouth
(6.7)
$
(1)
48.3
$
(1)
(55.0)
$
(113.9%)
Adjusted income from continuing
operations
(2)
39.8
$
16.1
$
23.7
$
147.2%
Adjusted income from continuing
operations per diluted share
(2)
0.39
$
0.17
$
0.22
$
129.4%
Per Share
Change
(1)
Includes a charge of $48.7 million and a gain of $8.6 million, respectively, for "government, class action, and related settlements
expense" primarily relecting the change in value of our common stock.
Adjusted Income per Diluted Share (6 Months)
(2) Reconciliation to GAAP provided on slides 30 through 33.
Major drivers were:
Increased Adjusted Consolidated EBITDA.
Lower floating-rate interest expense (results in higher cash payments on swap).
Lower interest expense as a result of lower debt balances.
Increase offset by:
Higher pricing in Q108.
Higher operating expense related to a self-insurance reduction in Q208, offset by lower
TeamWorks expenses.
6 Months
6 Months
(Millions, except per share data)
2009
2008
$
%
Income from continuing operations
attributable to HealthSouth
41.3
$
(1)
52.9
$
(1)
(11.6)
$
(21.9%)
operations
(2)
79.6
$
33.1
$
46.5
$
140.5%
Adjusted income from continuing
operations per diluted share
(2)
0.79
$
0.36
$
0.43
$
119.4%
Change
Adjusted income from continuing
(1)
Includes a charge of $32.8 million and a gain of $45.0 million, respectively, for "government, class action, and related
settlements expense" primarily reflecting the change in value of our common stock.
Per Share
Free Cash Flow
(1) Includes capital expenditures for the hospital refresh program.
3 Months Ended
6 Months Ended
Year Ended
(Millions)
June 30, 2009
June 30, 2009
December 31, 2008
46.1
$
229.2
$
227.2
$
6.8
7.0
(6.6)
52.9
236.2
220.6
Incremental income tax expense
(1.4)
(1.7)
(5.0)
Capital expenditures for maintenance
(1)
(7.5)
(15.0)
(37.3)
Net settlements on interest rate swap
(10.6)
(19.1)
(20.7)
Dividends paid on convertible perpetual
preferred stock
(6.5)
(13.0)
(26.0)
Distributions paid to noncontrolling interests
of consolidated affiliates
(7.3)
(15.8)
(33.4)
Non-recurring items:
UBS Settlement proceeds,
less fees to derivative plaintiffs' attorneys
-
(73.8)
-
Federal income tax refunds
-
(41.6)
(47.6)
Cash paid for professional fees - accounting,
3.2
8.0
18.2
tax, and legal
Cash paid for government, class action, and
related settlements
7.0
8.7
7.4
Adjusted free cash flow
29.8
$
72.9
$
76.2
$
Adjusted Free Cash Flow
activities of continuing operations
Net cash provided by operating
Impact of discontinued operations
Net cash provided by operating activities
No near-term refinancing
Revolver = 2012
Term Loan = 2013
Bonds = 2014 & 2016
Future deleveraging
Excess cash from operations
Derivative proceeds
E&Y arbitration
Scrushy asset recovery
(1) Credit Agreement limits debt pay down on non–term loan balances. We have the right to buy back non-term loan debt with the discretionary cash
available to the Company.
(2) Based on four quarter trailing Adjusted Consolidated EBITDA of $359.6 million; see related debt schedule on slide 27, and reconciliation to GAAP
on slides 30 through 33.
Debt to EBITDA 6.3x 6.3x 5.3x 4.7x (2)
($ Billions)
Year-End 2012 Goal: 3.5x to 4.0x
Debt Reduction
Liquidity
(Millions)
June 30, 2009
December 31, 2008
Cash
Available
49.8
$
32.2
$
Revolver
Total line
400.0
$
400.0
$
Less:
– Draws
-
(40.0)
– Letters of credit
-
(52.7)
Available
400.0
$
307.3
$
Total Liquidity
(available cash and revolver)
449.8
$
339.5
$
2009 Guidance - Adjusted Consolidated EBITDA(1)
(1) Reconciliation to GAAP provided on slides 30 through 33.
Key Drivers:
Sustainable discharge growth
Bed expansions
New hospitals
High-quality, cost-effective patient care
Unknown:
Market basket update
Previous
$342 to $352
million
Revised
$354 to $362
million
2009 Guidance - Adjusted Earnings per Diluted Share(1)
(1) Adjusted income from continuing operations per diluted share.
Key Drivers:
Increased Adjusted Consolidated EBITDA
Deleveraging
Lower floating-rate interest expense (results in higher cash
payment on the swap)
Unknown:
Market basket update
Previous
$0.85 to $90
per share
Revised
$1.15 to $1.25
per share
Appendix
FIM Gain
LOS Efficiency
Source: UDSmr Database – On Demand
Reports 2008 Year End Report
** Benchmark = Expected, Risk Adjusted LOS Efficiency
Operational Excellence = “High-Quality” Care
*Benchmark = Expected Risk Adjusted FIM Change Avg.
Operational Excellence = “Cost-Effective” Care
CMS Fiscal Year 2010 IRF Rate Setting File Analysis(1)
Notes:
(1) All data provided was filtered and compiled from the Centers for Medicare and Medicaid Services (CMS) Fiscal Year 2010 IRF rate setting
proposed rule file found at http://www.cms.hhs.gov/InpatientRehabFacPPS/07_DataFiles.asp#TopOfPage. The data presented was developed
entirely by CMS and is based on its definitions which are different in form and substance from the criteria HealthSouth uses for external reporting
purposes. Because CMS does not provide its detailed methodology, HealthSouth is not able to reconstruct the CMS projections or the calculation.
(2) The CMS file contains data for each of the 1,205 inpatient rehabilitation facilities used to estimate the proposed policy updates for the FY 2010
proposed IRF-PPS rule. Most of the data represents historical information from the CMS fiscal year 2007 period and does not reflect the same
HealthSouth hospitals in operation today. The data presented was separated into three categories: Freestanding, Units, and HealthSouth.
HealthSouth is a subset of Freestanding and the Total.
Revenue (6 months)
Favorable
6 Months
6 Months
(Unfavorable)
(Millions)
2009
2008
Change
Inpatient
872.1
$
829.6
$
5.1%
Outpatient and other
86.7
91.2
(4.9%)
Consolidated net operating
958.8
$
920.8
$
4.1%
(Actual Amounts)
Discharges
56,301
53,299
5.6%
Net patient revenue / discharge
15,490
$
15,565
$
(0.5%)
Expenses (6 months)
Favorable/
6 Months
6 Months
(Unfavorable)
(Millions, except percent)
2009
2008
Change
Salaries and benefits
473.8
$
464.5
$
(2.0%)
Percent of net operating revenues
49.4%
50.4%
100 bps
EPOB (employees per occupied bed)
3.50
3.59
2.5%
Hospital related expenses
232.7
$
225.4
$
(3.2%)
(other operating, supplies, occupancy, bad debts)
Percent of net operating revenues
24.3%
24.5%
20 bps
General and administrative
43.8
$
47.3
$
7.4%
(excludes 123(R) compensation)
Percent of net operating revenues
4.6%
5.1%
50 bps
Revenues (Sequential)
Inpatient revenue growth was driven by strong discharge growth offset by lower
revenue/discharge.
Lower revenue/discharge is related to seasonal discharge flow.
Favorable
(Unfavorable)
(Millions, except percent)
2nd Qtr. 2009
1st Qtr. 2009
Change
Inpatient
439.0
$
433.1
$
1.4%
Outpatient and other
44.7
42.0
6.4%
Consolidated net operating
483.7
$
475.1
$
1.8%
(Actual Amounts)
Discharges
28,494
27,807
2.5%
Net patient revenue / discharge
15,407
$
15,575
$
(1.1%)
Expenses (Sequential)
Higher expenses were driven by 2.5% greater volume discharges.
Favorable
(Unfavorable)
(Millions, except percent)
2nd Qtr. 2009
1st Qtr. 2009
Change
Salaries and benefits
239.1
$
234.7
$
(1.9%)
Percent of net operating revenues
49.4%
49.4%
0 bps
EPOB (employees per occupied bed)
3.52
3.47
(1.4%)
Hospital related expenses
118.1
$
114.6
$
(3.1%)
(other operating, supplies, occupancy, bad debts)
Percent of net operating revenues
24.4%
24.1%
(30) bps
General and administrative
22.0
$
21.8
$
(0.9%)
(excludes 123(R) compensation)
Percent of net operating revenues
4.5%
4.6%
10 bps
Operational and Labor Metrics
(1) Represents discharges from HealthSouth’s 90 consolidated hospitals.
(2) Excludes 388 and 399 full-time equivalents for the three months ended June 30, 2009 and 2008, respectively, and 392 and 422 full-time equivalents for the six
months ended June 30, 2009 and 2008, respectively, who are considered part of corporate overhead with their salaries and benefits included in general and
administrative expenses in the Company’s condensed consolidated statements of operations. Full-time equivalents included in the above table represent
HealthSouth employees who participate in or support the operations of the Company’s hospitals.
(3) Employees per occupied bed, or “EPOB,” is calculated by dividing the number of full-time equivalents, including an estimate of full-time equivalents from the
utilization of contract labor, by the number of occupied beds during each period. The number of occupied beds is determined by multiplying the number of licensed
beds by the Company’s occupancy percentage.
2009
2008
2009
2008
Net patient revenue-inpatient
439.0
$
410.4
$
872.1
$
829.6
$
Net patient revenue-outpatient
and other revenues
44.7
46.2
86.7
91.2
Net operating revenues
483.7
$
456.6
$
958.8
$
920.8
$
Discharges
(1)
28,494
26,990
56,301
53,299
Outpatient visits
293,264
319,728
578,365
625,873
Average length of stay
14.4
14.7
14.5
15.0
Occupancy %
68.8%
66.9%
69.0%
67.2%
# of licensed beds
6,534
6,521
6,534
6,521
Occupied beds
4,495
4,363
4,508
4,382
Full-time equivalents (FTEs)
(2)
15,688
15,706
15,627
15,513
Contract labor
120
218
132
210
Total FTE and contract labor
15,808
15,924
15,759
15,723
EPOB
(3)
3.52
3.65
3.50
3.59
Three Months Ended
June 30,
(In Millions)
(Actual Amounts)
(In Millions)
(Actual Amounts)
Six Months Ended
June 30,
Payment Sources
(1) Managed Medicare revenues are included in “Managed care and other discount plans.”
2009
2008
2009
2008
Medicare
67.6%
67.5%
67.9%
67.3%
Medicaid
2.2%
2.1%
2.2%
2.2%
Workers' compensation
1.5%
2.2%
1.6%
2.2%
Managed care and other discount plans
(1)
23.7%
22.7%
23.0%
22.5%
Other third-party payors
2.8%
3.5%
3.0%
3.7%
Patients
0.7%
0.4%
0.8%
0.4%
Other income
1.5%
1.6%
1.5%
1.7%
Total
100.0%
100.0%
100.0%
100.0%
Three Months
Ended June 30,
Six Months
Ended June 30,
Debt Maturities
(Millions)
$400.0
Current undrawn revolver
matures in 2012
Minimal amortization and no near-term financing risk.
As of June 30, 2009, we were in compliance with the covenants under our Credit Agreement.
Interest Rate Swaps
(Millions)
(1) We have the flexibility to peg 1,2,3 or 6 month Libor, or Prime.
(2) Lower interest rate on term loan as a result of the Moody’s upgrade.
(3) In June 2009, we entered into a received-fixed rate swap as a mirror offset to $100.0 million of the $1,056 million interest rate swap.
(4) Forward-starting interest rate swaps (designated as cash flow hedges).
Floating
Floating Rate Debt Balances
June 30, 2009
Interest Rate
Advances under $400 million revolving credit facility
-
$
Libor plus 325
(1)
Term Loan facility
755.1
Libor plus 225
(1) (2)
Floating Rate Senior Notes due 2014
329.6
6 month Libor
Total
1,084.7
$
Swap Settlement
June 2009
March 2010
March 2011
Net notional amount of interest rate swaps
(3)
956.0
$
884.0
$
-
$
Received 3 month Libor and pay 5.22% fixed
Notional amount of the interest rate swap
100.0
(4)
Receive 3 month Libor and pay 2.6% fixed
Notional amount of the interest rate swap
100.0
(4)
Receive 3 month Libor and pay 2.9% fixed
Debt Schedule
(Millions)
(1) The Company had $49.8 million in cash and cash equivalents as of June 30, 2009.
(2) Credit Agreement limits debt pay down on non–term loan balances. We have the ability to buy back non-term loan debt with the discretionary
cash available to the Company.
Q209 YTD Debt
Reduction
(1) (2)
March 2012
$ -
$ 40.0
$ (40.0)
Term loan facility - March 2013
755.1
783.6
(28.5)
Bonds Payable:
8.375%
Senior Notes due 2011
0.3
0.3
-
7.625%
Senior Notes due 2012
1.5
1.5
-
Floating Rate Senior Notes due 2014
329.6
366.0
(36.4)
(6 month Libor plus 600)
10.75%
Senior Notes due 2016
494.6
494.3
0.3
from 8.1% to 12.9%
12.5
12.8
(0.3)
Capital lease obligations
108.3
114.7
(6.4)
Total
1,701.9
$
1,813.2
$
(111.3)
$
Year-to-date debt reduction
(1) (2)
111.3
$
Debt Balances
December 31,
2008
Other notes payable at interest rates
Advances under $400 million revolving credit facility,
June 30,
2009
Non-Operating Cash/Tax Position
Cash Refunds as of June 30, 2009
Federal tax recoveries virtually complete.
Approx. $42 million received.
State tax refunds in progress.
Approx. $11 million received.
Approx. $10.5 million net receivable on
the balance sheet.
Future Cash Tax Payments
Expect to pay about $5-7 million per year of
income tax.
State income tax.
Alternative Minimum Tax (AMT).
With over $2.5 billion in NOLs and tax
deductions, we do not expect to pay significant
federal income taxes for approximately the next
10-12 years.
At this time, we do not believe the use of
NOLs will be limited before they expire,
however, no assurances can be provided.
HealthSouth is not currently subject to an
annual use limitation (AUL) under the Internal
Revenue Code section 382.
If we experienced a “change of ownership” as
defined by the Internal Revenue Code section
382, we would be subject to an AUL, which is
equal to the value of the company at the time of
the “change of ownership” multiplied by the
long-term tax exempt rate.
GAAP Considerations
HealthSouth’s balance sheet currently reflects
a valuation allowance for the potential value
of NOLs and future deductions. The valuation
allowance is approximately $1.0 billion.
GAAP tax rate will net to small amount for
foreseeable future as there will be a reduction
in the valuation allowance when NOLs are
utilized.
Outstanding Share Summary
(Millions)
Notes:
(1) Completed an equity offering for 8.8 million shares on June 27, 2008.
(2) Does not include 2.0 million warrants issued in connection with a January 2004 loan repaid to Credit Suisse First Boston.
In connection with this transaction, we issued warrants to the lender to purchase two million shares of our common stock.
Each warrant has a term of ten years from the date of issuance and an exercise price of $32.50 per share. The warrants
were not assumed exercised for dilutive shares outstanding because they were antidilutive in the periods presented.
(3) Does not include approximately 5.0 million shares of common stock and warrants to purchase approximately 8.2 million
shares of common stock at a strike price of $41.40 to settle our class action securities litigation. This agreement received
final court approval in January 2007. As of June 30, 2009, these shares of common stock and warrants have not been
issued and are not included in our basic or diluted common shares outstanding. Absent a petition for certiorari, we expect
the shares to be distributed in September 2009.
(4) The difference between the basic and diluted shares outstanding is primarily related to our convertible perpetual preferred
stock.
2nd Qtr.
(1)
2nd Qtr.
6 Months
6 Months
Year-End
(1)
2009
2008
2009
2008
2008
Basic Shares outstanding
(2) (3)
87.6
79.5
87.5
79.2
83.0
Diluted Shares outstanding
(2) (3) (4)
101.5
93.0
101.2
92.6
96.4
Basic Shares outstanding
(2) (3)
87.6
87.4
87.6
87.4
87.4
Diluted Shares outstanding
(2) (3) (4)
101.5
100.9
101.3
100.8
100.8
Weighted Average for the Period
End of Period
Three & Six Months Reconciliation of Net Income to Adjusted Income from
Continuing Operations and Adjusted Consolidated EBITDA(1) (3)
2008 Year-End Reconciliation of Net Income to Adjusted Income from
Continuing Operations and Adjusted Consolidated EBITDA(1) (3)
YTD Reconciliation of Adjusted Consolidated EBITDA(1) to Net Cash Provided
by Operating Activities
(Millions)
2009
2008
Adjusted Consolidated EBITDA
192.7
$
174.8
$
Provision for doubtful accounts
17.6
13.9
Professional fees - accounting, tax, and legal
(1.5)
(8.9)
Interest expense and amortization of debt discounts and fees
(65.5)
(90.8)
UBS settlement proceeds, gross
100.0
-
Equity in net loss (income) of nonconsolidated affiliates
0.2
(5.1)
Net income attributable to noncontrolling interests
17.7
14.9
Amortization of debt discounts and fees
3.2
3.3
Distributions from nonconsolidated affiliates
3.9
6.0
Current portion of income tax benefit
1.0
0.6
Change in assets and liabilities
(23.7)
(28.0)
Change in government, class action, and related settlements
(8.7)
(7.4)
Other operating cash used in discontinued operations
(7.0)
(6.5)
Other
(0.7)
0.2
Net cash provided by operating activities
229.2
$
67.0
$
Six Months Ended June 30,
Reconciliation Notes
1.
Adjusted income from continuing operations and Adjusted Consolidated EBITDA are non-
GAAP financial measures. The Company’s leverage ratio (Total Consolidated Debt to
Adjusted Consolidated 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
Consolidated EBITDA and 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 shares outstanding. The difference
in shares between the basic and diluted shares outstanding is primarily related to our
convertible perpetual preferred stock. Per share amounts do not include 5.0 million shares not
yet issued under the securities litigation settlement.
3.
Adjusted income from continuing operations per diluted share and Adjusted Consolidated
EBITDA are two components of our guidance.
4.
The Company’s Credit Agreement allows certain other items to be added to arrive at
Adjusted Consolidated EBITDA, and there may be certain other deductions required.
