Raymond James Form 8-K_03.05.12
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): March 5, 2012
HealthSouth Corporation
(Exact name of Registrant as specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
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001-10315 | 63-0860407 |
(Commission File Number) | (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:
¨ Written communication 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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¨ | 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)) |
ITEM 7.01. Regulation FD Disclosure.
HealthSouth Corporation (the “Company”) will participate in the Raymond James 33rdAnnual Institutional Investors Conference in Orlando, Florida on March 5-7, 2012. HealthSouth President and Chief Executive Officer, Jay Grinney, will make a presentation on Tuesday, March 6th at 7:30 a.m. ET using selected slides (the "Conference Slides") previously included in the Investor Reference Book attached as Exhibit 99.1 (the "Investor Reference Book") to the Current Report on Form 8‑K dated February 28, 2012.
The Company will also participate in the Barclays Capital Global Healthcare Conference in Miami, Florida on March 13, 2012. HealthSouth Executive Vice President and Chief Financial Officer, Doug Coltharp, and Executive Vice President and Chief Operating Officer, Mark Tarr, will participate in a fireside chat on Tuesday, March 13th at 11:15 a.m. ET using the Conference Slides.
The presentation and fireside chat will address, among other things, the Company's strategy and financial performance and discuss industry trends and dynamics. The presentation and fireside chat 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 Conference Slides used in the presentation and fireside chat contain much of the same information as previously included in the Investor Reference Book. The Company will also provide its initial observations for the first quarter of 2012. These initial observations are:
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• | Volume: Discharge growth in January and February 2012 was on track against a tough volume comparison of 7.8% in the first quarter of 2011. Discharge growth for the year ended December 31, 2012 is expected to be between 2.5% and 3.5%. |
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• | Adjusted EBITDA: In the first quarter of 2011, Adjusted EBITDA benefited by approximately $1.5 million for nonrecurring net state provider taxes. These taxes consisted of approximately $3.4 million of outpatient and other revenue offset by approximately $1.9 million of expense. The installation of a new clinical information system is expected to increase operating expenses by approximately $1.4 million in the first quarter of 2012. |
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• | Other: Due to leap year, the first quarter of 2012 contains one more day than the first quarter of 2011. Additionally, beginning in the first quarter of 2012, the Company will be required to reclassify its provision for doubtful accounts from operating expense to a component of net operating revenues, with retrospective application required. The reclassification for the first quarter of 2011 is as follows: |
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| | Three Months Ended |
| | March 31, 2011 |
| | (In Millions) |
Net operating revenues | | $ | 506.0 |
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Less: Provision for doubtful accounts | | (4.8 | ) |
Net operating revenues less provision for doubtful accounts | | $ | 501.2 |
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The Company reiterates as of the date hereof its guidance for 2012, as previously reported in the press release furnished as Exhibit 99.1 to the Current Report on Form 8-K dated February 23, 2012 and during the Company's earnings conference call held on February 24, 2012.
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 Conference Slides and the Investor Reference Book 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 Item 7, Management's 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 10‑K for the year ended December 31, 2011 (the “2011 Form 10‑K”). 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 2011 Form 10‑K, (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 2011 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 2011 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, in the Conference Slides, and in the Investor Reference Book.
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 Conference Slides and 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 2011 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 Conference Slides and 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 consolidated statements of cash flows included in the 2011 Form 10-K 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 Conference Slides and the Investor Reference Book.
Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA
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| Three Months Ended | | | | | | | | | | |
| December 31, | | Year Ended December 31, |
| 2011 | | 2010 | | 2011 | | 2010 | | 2009 | | 2008 | | 2007 |
| (In Millions) |
Net cash provided by operating activities | $ | 129.6 |
| | $ | 67.1 |
| | $ | 342.7 |
| | $ | 331.0 |
| | $ | 406.1 |
| | $ | 227.2 |
| | $ | 230.6 |
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Provision for doubtful accounts | (6.1 | ) | | (1.6 | ) | | (21.0 | ) | | (16.4 | ) | | (30.7 | ) | | (23.0 | ) | | (28.5 | ) |
Professional fees—accounting, tax, and legal | 4.8 |
| | 3.4 |
| | 21.0 |
| | 17.2 |
| | 8.8 |
| | 44.4 |
| | 51.6 |
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Interest expense and amortization of debt | | | | | | | | | | | | | |
discounts and fees | 23.1 |
| | 34.2 |
| | 119.4 |
| | 125.6 |
| | 125.7 |
| | 159.3 |
| | 229.2 |
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UBS Settlement proceeds, gross | — |
| | — |
| | — |
| | — |
| | (100.0 | ) | | — |
| | — |
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Equity in net income of nonconsolidated | | | | | | | | | | | | | |
affiliates | 3.2 |
| | 2.6 |
| | 12.0 |
| | 10.1 |
| | 4.6 |
| | 10.6 |
| | 10.3 |
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Net income attributable to noncontrolling interests | | | | | | | | | | | | | |
in continuing operations | (12.5 | ) | | (10.6 | ) | | (47.0 | ) | | (40.9 | ) | | (33.3 | ) | | (29.8 | ) | | (31.1 | ) |
Amortization of debt discounts and fees | (0.9 | ) | | (1.2 | ) | | (4.2 | ) | | (6.3 | ) | | (6.6 | ) | | (6.5 | ) | | (7.8 | ) |
Distributions from nonconsolidated affiliates | (3.3 | ) | | (3.4 | ) | | (13.0 | ) | | (8.1 | ) | | (8.6 | ) | | (10.9 | ) | | (5.3 | ) |
Current portion of income tax expense (benefit) | 2.1 |
| | 4.6 |
| | 0.6 |
| | 2.9 |
| | (7.0 | ) | | (72.8 | ) | | (330.4 | ) |
Change in assets and liabilities | (15.9 | ) | | 16.9 |
| | 49.9 |
| | 2.8 |
| | (2.1 | ) | | 50.6 |
| | 5.5 |
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Net premium paid on bond issuance/redemption | — |
| | — |
| | 22.8 |
| | — |
| | — |
| | — |
| | — |
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Change in government, class action, | | | | | | | | | | | | | |
and related settlements liability | (2.0 | ) | | 2.1 |
| | (8.5 | ) | | 2.9 |
| | 11.2 |
| | 7.4 |
| | 171.4 |
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Cash used in (provided by) operating activities of | | | | | | | | | | | | | |
discontinued operations | 0.3 |
| | (2.8 | ) | | (9.1 | ) | | (13.2 | ) | | (5.7 | ) | | (32.5 | ) | | (3.3 | ) |
Other, including realized losses (gains) on sales | | | | | | | | | | | | | |
of investments | 0.5 |
| | 0.8 |
| | 0.6 |
| | 2.0 |
| | 1.3 |
| | (1.4 | ) | | 14.5 |
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Adjusted EBITDA | $ | 122.9 |
| | $ | 112.1 |
| | $ | 466.2 |
| | $ | 409.6 |
| | $ | 363.7 |
| | $ | 322.6 |
| | $ | 306.7 |
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For the three months ended December 31, 2011, net cash used in investing activities was $57.3 million and resulted primarily from capital expenditures, the acquisition of a business, and the net change in restricted cash. Net cash used in financing activities during the three months ended December 31, 2011 was $89.8 million and resulted primarily from net debt payments, distributions paid to noncontrolling interests of consolidated affiliates, and dividends paid on the Company's convertible perpetual preferred stock.
For the three months ended December 31, 2010, net cash used in investing activities was $35.1 million and resulted primarily from capital expenditures and net settlement payments related to interest rate swaps. Net cash used in financing activities during the three months ended December 31, 2010 was $174.1 million and resulted primarily from net debt payments, debt amendment and issuance costs, distributions paid to noncontrolling interests of consolidated affiliates, and dividends paid on the Company's convertible perpetual preferred stock.
For the year ended December 31, 2011, net cash used in investing activities was $24.6 million and resulted primarily from capital expenditures, net settlement payments related to interest rate swaps, and purchases of restricted investments offset by proceeds from the sale of five long-term acute care hospitals in August 2011. Net cash used in financing activities during the year ended December 31, 2011 was $336.4 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 year ended December 31, 2010, net cash used in investing activities was $125.9 million and resulted primarily from capital expenditures, net settlement payments related to interest rate swaps, acquisitions of businesses, and net purchases of restricted investments offset by a decrease in restricted cash and proceeds from the sale of our hospital in Baton Rouge. Net cash used in financing activities during the year ended December 31, 2010 was $237.7 million and resulted primarily from net debt payments, distributions paid to noncontrolling interests of consolidated affiliates, dividends paid on the Company's convertible perpetual preferred stock, and debt amendment and issuance costs.
For the year ended December 31, 2009, net cash used in investing activities was $133.0 million and resulted primarily from capital expenditures and net settlement payments related to interest rate swaps. Net cash used in financing activities during the year ended December 31, 2009 was $224.3 million and resulted primarily from net debt payments, distributions paid to noncontrolling interests of consolidated affiliates, dividends paid on the Company's convertible perpetual preferred stock, and debt amendment and issuance costs.
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, the Conference Slides, and the Investor Reference Book which are not historical facts are forward-looking statements. In addition, the Company, 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 the Company 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, the Company's plan to repurchase shares of its common stock, its dividend strategies, its effective income tax rates, its 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 the Company include, but are not limited to, any adverse outcome of various lawsuits, claims, and legal or regulatory proceedings involving the Company, including the Houston HHS-OIG investigation; significant changes in the Company's management team; the Company'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 the Company'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 the Company's response thereto; the Company's ability to obtain and retain favorable arrangements with third-party payors; potential disruptions or incidents affecting the proper operation, availability, or security of the Company's information systems; the Company'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 the Company'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 the Company's ability to predict the estimated costs related to such claims; and other factors which may be identified from time to time in the Company's SEC filings and other public announcements, including the Company's Form 10-K for the year ended December 31, 2011.
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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By: | /S/ John P. Whittington |
| Name: John P. Whittington |
| Title: Executive Vice President and Chief Financial Officer |
Dated: March 5, 2012