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HealthSouth Corporation (NYSE:HLS) Files An 8-K Regulation FD Disclosure

HealthSouth Corporation (NYSE:HLS) Files An 8-K Regulation FD Disclosure

ITEM 7.01. Regulation FD Disclosure.

HealthSouth Corporation (the Company or HealthSouth) will
participate in the 35th>Annual
J.P. Morgan Healthcare Conference in San Francisco, California on
January 9-12, 2017. HealthSouth President and Chief Executive
Officer, Mark Tarr, will make a presentation on Tuesday, January
10th,
at 2:00 p.m. ET/11:00 a.m. PT using the slides attached to this
Current Report on Form 8-K as Exhibit 99.1 (the Conference Slides)
and incorporated herein by reference. The presentation will
address, among other things, the Company’s strategy 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.
The Company also has assembled an Investor Reference Book, which is
attached to this Current Report on Form 8K as Exhibit 99.2 (the
Investor Reference Book). The Investor Reference Book addresses,
among other things, an overview of the Company and its industry,
its business outlook, its financial and operational metrics and
initiatives, and its value proposition. The Investor Reference Book
is available at http://investor.healthsouth.com>by clicking on
an available link.
While the Company has not closed its books for the year ended
December 31, 2016, the Company shares its preliminary estimate of
adjusted free cash flow, common stock repurchases, and debt
reduction for the year ended December 31, 2016 in the Conference
Slides and Investor Reference Book. Additionally, the Company
anticipates discussing certain observations regarding fourth
quarter 2016 operating performance at the J.P. Morgan Healthcare
Conference as noted below. The Company expects to report inpatient
rehabilitation segment volumes in the fourth quarter below the
year-to-date trend on both a total and same-store basis. Total
discharge growth in the quarter of approximately 1.4% was impacted
by the anniversary of the Reliant Hospital Partners, LLC
acquisition, which closed on October 1, 2015. Same-store discharge
growth in the quarter of approximately 0.1% was impacted by certain
market specific situations which the Company believes are temporary
in nature. The Company notes that relative to expectations, volumes
were softest in the month of October 2016, with the trend improving
in the final two months of the quarter. Further, the Company
believes that volumes for the early part of January are indicative
of volume growth consistent with recent historical trends. As a
reminder, due to the holidays and on certain occasions inclement
weather, fourth quarter volumes have been historically more
volatile. The Company expects to report home health and hospice
segment volumes for the fourth quarter of 2016 to be in line with
its expectations.
The Company also expects to report inpatient segment pricing for
the fourth quarter of 2016 to be in excess of the year-to-date
trend primarily owing to patient mix (a higher incidence of stroke
and neurological patients).
The Company reiterates as of the date hereof its net operating
revenues and Adjusted EBITDA guidance ranges for 2016, as
previously reported in the Current Report on Form 8-K, dated
October 27, 2016, and during the Companys earnings conference call
held on October 28, 2016. The Company is revising its previously
provided adjusted earnings per share from continuing operations
attributable to HealthSouth guidance for 2016 from a range of $2.50
to $2.56 per share to a range of $2.54 to $2.60 per share.
The Company is also providing the following preliminary guidance
ranges for 2017:
Net operating revenues of $3,850 million to $3,950 million;
Adjusted EBITDA of $800 million to $820 million; and
Adjusted earnings per share from continuing operations attributable
to HealthSouth of $2.61 to $2.73.
In addition, the Company shares its 2017 guidance considerations,
preliminary assumptions around adjusted free cash flow, and
opportunities for deploying its free cash flow in the Conference
Slides and Investor Reference Book. While the Company’s deployment
priorities may shift based on prevailing market conditions, it
continues to focus primarily on growth, debt reduction, and
shareholder distributions. The Company also provides its business
outlook for 2017 through 2019 related to its business model,
revenue assumptions, and certain expense assumptions in the
Conference Slides and Investor Reference Book.
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 and agencies open throughout both the full current and
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 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 Conference Slides attached
hereto as Exhibit 99.1 and the Investor Reference Book attached
hereto as Exhibit 99.2 includes non-GAAP financial measures,
including the Companys adjusted earnings per share, leverage ratio,
Adjusted EBITDA, and adjusted free cash flow.
Excluding net operating revenues, the Company does not provide
guidance on a GAAP basis because it is unable to predict, with
reasonable certainty, the future impact of items that are deemed to
be non-indicative of its ongoing operations. Such items include
government, class action, and related settlements, professional
fees-accounting, tax, and legal, mark-to-market adjustments for
stock appreciation rights, gains or losses related to hedging
instruments, loss on early extinguishment of debt, adjustments to
its income tax provision (such as valuation allowance adjustments
and settlements of income tax claims), items related to corporate
and facility restructurings, and certain other items the Company
believes to be non-indicative of its ongoing operations. These
items are uncertain and will depend on several factors, including
industry and market conditions, and could be material to the
Company’s results computed in accordance with GAAP.
However, the following reasonably estimable GAAP measures for 2016
and 2017 would be included in the reconciliation for Adjusted
EBITDA:
Guidance
Preliminary Guidance
Provision for doubtful accounts as a percentage of net
operating revenues
1.8% to 2.0%
1.8% to 2.0%
Interest expense and amortization of debt discounts and
fees
~ $173 million
$165 million to $175 million
Amortization of debt-related items
~ $13 million
~ $15 million
The Company is providing adjusted earnings per share from
continuing operations attributable to HealthSouth (adjusted
earnings per share). The Company believes the presentation of
adjusted earnings per share provides useful additional information
to investors because it provides better comparability of ongoing
performance to prior periods given that it excludes the impact of
government, class action, and related settlements, professional
feesaccounting, tax, and legal, mark-to-market adjustments for
stock appreciation rights, gains or losses related to hedging
instruments, loss on early extinguishment of debt, adjustments to
its income tax provision (such as valuation allowance adjustments
and settlements of income tax claims), items related to corporate
and facility restructurings, and certain other items the Company
believes to be non-indicative of its ongoing operations. It is
reasonable to expect that one or more of these excluded items will
occur in future periods, but the amounts recognized can vary
significantly from period to period and may not directly relate to
the Companys ongoing operations. Accordingly, they can complicate
comparisons of the Companys results of operations across periods
and comparisons of the Companys results to those of other
healthcare companies. Adjusted earnings per share should not be
considered as a measure of financial performance under generally
accepted accounting principles in the United States (GAAP) as the
items excluded from it are significant components in understanding
and assessing financial performance. Because adjusted earnings per
share is not a measurement determined in accordance with GAAP and
is thus susceptible to varying calculations, it may not be
comparable as presented to other similarly titled measures of other
companies. The Company reconciles adjusted earnings per share to
earnings per share in the Investor Reference Book attached hereto
as Exhibit 99.2.
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 Companys 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 reconciles Adjusted EBITDA to
net income and to net cash provided by operating activities in the
Investor Reference Book attached hereto as Exhibit 99.2. Adjusted
EBITDA for the Companys reportable segments is reconciled to net
income from continuing operations before income tax expense in the
Investor Reference Book attached hereto as Exhibit 99.2.
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 Companys credit agreement, which is discussed in more
detail in Item 7,
Managements Discussion and Analysis of Financial Condition and
Results of Operations, Liquidity and Capital Resources, and Note 8,
Long-term Debt, to the consolidated financial statements included
in its Annual Report on Form 10K for the year ended December 31,
2015 (the 2015 Form 10K). These covenants are material terms of the
credit agreement. Noncompliance with these financial covenants
under the credit agreementits interest coverage ratio and its
leverage ratiocould result in the Companys 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 be on terms less favorable to those in the
Companys 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, paying common stock
dividends, making certain payments, and acquiring and disposing of
assets. Consequently, Adjusted EBITDA is critical to the Companys
assessment of its liquidity.
In general terms, the credit agreement definition of Adjusted
EBITDA, therein referred to as Adjusted Consolidated EBITDA, allows
the Company to add back to consolidated net income interest
expense, income taxes, and depreciation and amortization and then
add back to consolidated net income (1) all unusual or nonrecurring
items reducing consolidated net income (of which only up to $10
million in a year may be cash expenditures), (2) any losses from
discontinued operations and closed locations, (3) costs and
expenses, including legal fees and expert witness fees, incurred
with respect to litigation associated with stockholder derivative
litigation, and (4) share-based compensation expense. The Company
also subtracts from consolidated net income all unusual or
nonrecurring items to the extent they increase consolidated net
income.
Under the credit agreement, the Adjusted EBITDA calculation does
not include net income attributable to noncontrolling interests and
includes (1) gain or loss on disposal of assets, (2) professional
fees unrelated to the stockholder derivative litigation, and (3)
unusual or nonrecurring cash expenditures in excess of $10 million,
and (4) pro forma adjustments resulting from debt transactions and
development activities. Items falling within the credit agreements
unusual or nonrecurring classification may occur in future periods,
but these items and amounts recognized can vary significantly from
period to period and may not directly relate to the Companys
ongoing operations. Accordingly, these items may not be indicative
of the Companys ongoing performance, so the Adjusted EBITDA
calculation presented here includes adjustments for them.
Adjusted EBITDA is not a measure of financial performance under
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. 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 Note 1, Summary of Significant
Accounting Policies, to the consolidated financial statements
accompanying the 2015 Form 10K.
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 Companys capacity to
reduce debt, pursue development activities, and return capital to
its common stockholders. The calculation of adjusted free cash flow
and a reconciliation of net cash provided by operating activities
to adjusted free cash flow are included in the Conference Slides
and the Investor Reference Book attached hereto as Exhibit 99.1 and
Exhibit 99.2, respectively. 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. The
Companys 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 consolidated statements of cash flows included
in the 2015 Form 10-K and the condensed consolidated statements of
cash flows included in the Company’s quarterly report on Form 10-Q
for the quarterly period ended September 30, 2016 for the GAAP
measures of cash flows from operating, investing, and financing
activities.
Forward-Looking Statements
Statements contained in this document, the Conference Slides
attached hereto as Exhibit 99.1, and the Investor Reference Book
attached hereto as Exhibit 99.2, which are not historical facts,
such as those relating to the financial performance, guidance and
assumptions, anticipated acquisitions, dispositions and other
development activities, business strategy, legislative and
regulatory developments and their related impacts on HealthSouth,
capital expenditures, cyber security, dividend strategies,
repurchases of securities, effective tax rates, business model, and
the positioning of services for the system of healthcare delivery
in the future 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, HealthSouths plan
to repurchase its debt or equity securities, dividend strategies,
effective income tax rates, HealthSouths business strategy, its
financial plans, its future financial performance, its projected
business results or model, its ability to return value to
shareholders, its projected capital expenditures, its leverage
ratio, its acquisition opportunities, and the impact of legislation
or regulation. Actual events or results may differ materially from
those anticipated in these forward-looking statements as a result
of a variety of factors. While it is impossible to identify all
such factors, factors which could cause actual events or results to
differ materially from those estimated by HealthSouth include, but
are not limited to, the price of HealthSouths common stock as it
affects the Companys willingness and ability to repurchase shares
and the financial and accounting effects of any repurchases; any
adverse outcome of various lawsuits, claims, and legal or
regulatory proceedings involving HealthSouth, including its pending
DOJ and HHS-OIG investigations and any matters related to yet
undiscovered issues, if any, at acquired companies; any adverse
effects on operating performance of HealthSouths stock price
resulting from the integration of those acquisitions; potential
disruptions, breaches, or other incidents affecting the proper
operation, availability, or security of HealthSouths information
systems, including unauthorized access to or theft of patient,
business associate, or other sensitive information or inability to
provide patient care because of system unavailability as well as
unforeseen issues, if any, related to integration of systems of any
acquired companies; the ability to successfully integrate acquired
companies, including realization of anticipated tax benefits,
revenues, and cost savings, minimizing the negative impact on
margins arising from the changes in staffing and other operating
practices, and avoidance of unforeseen exposure to liabilities;
significant changes in HealthSouths management team; HealthSouths
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 HealthSouths 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
HealthSouths response thereto; HealthSouths ability to obtain and
retain favorable arrangements with third-party payors;
HealthSouth’s ability to control costs, particularly labor and
employee benefit costs, including group medical expenses; adverse
effects resulting from coverage determinations made by Medicare
Administrative Contractors regarding its Medicare reimbursement
claims and lengthening delays in HealthSouth’s ability to recover
improperly denied claims through the administrative appeals process
on a timely basis; HealthSouth’s ability to adapt to changes in
the healthcare delivery system, including involvement in
coordinated care initiatives or programs that may arise with its
referral sources and related impacts on volume or pricing and any
significant changes that may result from the change in the
executive branch of the U.S. government; HealthSouths 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 HealthSouths labor expenses
from potential union activity and staffing shortages; general
conditions in the economy and capital markets, including any crisis
resulting from uncertainty in the sovereign debt market; the
increase in the costs of defending and insuring against alleged
professional liability claims and HealthSouths ability to predict
the estimated costs related to such claims; and other factors which
may be identified from time to time in HealthSouths SEC filings and
other public announcements, including HealthSouths Form 10K for the
year ended December 31, 2015 and Form 10-Q for the quarters ended
March 31, 2016, June 30, 2016 and September 30, 2016.
ITEM 9.01. Financial Statements and Exhibits.
(d) Exhibits
99.1
Conference Slides of HealthSouth Corporation used in
connection with its January 10, 2017 presentation at the 35th
Annual J.P. Morgan Healthcare Conference in San Francisco.
99.2
HealthSouth Corporation Investor Reference Book.

About HealthSouth Corporation (NYSE:HLS)
HealthSouth Corporation (HealthSouth) is a provider of post-acute healthcare services, offering both facility-based and home-based post-acute services in over 30 states and Puerto Rico through its network of inpatient rehabilitation hospitals, home health agencies and hospice agencies. The Company’s segments include inpatient rehabilitation, and home health and hospice. The Company is an owner and operator of inpatient rehabilitation hospitals and provides specialized rehabilitative treatment on both an inpatient and outpatient basis. It provides specialized rehabilitative treatment on both an inpatient and outpatient basis. In addition to hospitals, the Company manages over three inpatient rehabilitation units through management contracts. The Company offers its home health and hospice services through Encompass Home Health and Hospice business (Encompass). Encompass is a provider of Medicare-certified skilled home health services. HealthSouth Corporation (NYSE:HLS) Recent Trading Information
HealthSouth Corporation (NYSE:HLS) closed its last trading session down -0.27 at 40.99 with 1,152,705 shares trading hands.

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