Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Corporate Update (April 2005)
35 slides from Encompass Health's corporate update, Apr 27, 2005
Slide 1: Business Update
Business Update April 27, 2005
Slide 2: Cautionary Statements Regarding Presentation
Cautionary Statements Regarding Presentation This presentation contains certain estimates and other forward-looking information which are based on assumptions that HealthSouth believes, as of the date hereof, are reasonable. Inevitably, there will be differences between such estimates and actual res
Slide 3: Cautionary Statements Regarding Presentation
Cautionary Statements Regarding Presentation You are cautioned not to place undue reliance on the estimates and results in this presentation. This presentation was prepared on a basis consistent with methodologies used in prior presentations: In prior presentations, no adjustments were made for retr
Slide 4: Considerations Involving Our Current Situation
Considerations Involving Our Current Situation The Securities and Exchange Commission (“SEC”) and the United States Department of Justice (“DOJ”) are investigating HealthSouth’s financial reporting and related activities and significant litigation exists regarding these matters. HealthSouth, as well
Slide 5: Forward-Looking Statements
Forward-Looking Statements Certain matters discussed herein constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such information is based on numerous assumptions and involve a number of risks an
Slide 6: Notes Regarding Presentation of Non-GAAP Financial Measures
Notes Regarding Presentation of Non-GAAP Financial Measures The financial data contained herein includes non-GAAP financial measures, including “EBITDA”, to assist in assessing projected and actual operating performance and to facilitate quantification of planned business activities. As used by Heal
Slide 7: Notes Regarding Presentation of Non-GAAP Financial Measures
Notes Regarding Presentation of Non-GAAP Financial Measures Financial information has been presented after consideration of accounting for consolidation of joint ventures and partnership interests. Actual results may vary after our reconstruction and restatement efforts are completed. EBITDA may be
Slide 8: Agenda
Agenda I. 2004 Results Jay Grinney, Mike Snow II. 2005 Budget John Workman III. 75% Rule Mike Snow, Jay Grinney IV. Liquidity and Bank Facility Update John Workman V. Restructuring Costs John Workman VI. 2000 - 2003 10-K Status John Workman VII. Litigation Update Greg Doody VIII. Summary Comments Ja
Slide 9: I. 2004 Results – Total Company
I. 2004 Results – Total Company Presentation on December 2, 2004 indicated trended EBITDA* of $630.4 (Dollars in Millions) % 2004 Actual 2004 Budget Variance Net Revenue $3,826.2 $3,952.8 -3.2% Salaries, Wages and Benefits 1,742.2 1,778.6 -2.0% Cost of Sales 380.0 380.9 -0.3% Other 951.5 1,034.6 -8.
Slide 10: I. 2004 Results – Inpatient & Surgery
I. 2004 Results – Inpatient & Surgery Inpatient Division –2004 Financial Overview Key Accomplishments/Initiatives Discharges 123,701 New Division President Net Revenue (in millions) $2,054 Operational improvement / productivity EBITDA* (in millions) $512 Develop mitigation strategies: 75% Rule Targe
Slide 11: I. 2004 Results – Outpatient & Diagnostic
I. 2004 Results – Outpatient & Diagnostic Outpatient Division –2004 Financial Overview Key Accomplishments/Initiatives Visits 5,166,694 Portfolio dispositions Net Revenue (in millions) $485 Operational improvement / productivity EBITDA* (in millions) $60 Focus sales / marketing to workers comp / emp
Slide 12: Agenda
Agenda I. 2004 Results Jay Grinney, Mike Snow II. 2005 Budget John Workman III. 75% Rule Mike Snow, Jay Grinney IV. Liquidity and Bank Facility Update John Workman V. Restructuring Costs John Workman VI. 2000 - 2003 10-K Status John Workman VII. Litigation Update Greg Doody VIII. Summary Comments Ja
Slide 13: II. 2005 Budget
II. 2005 Budget The 2005 budget includes non-comparables to the 2004 results: As a result of the restatement (and as previously disclosed), the composition of the entities that are consolidated has changed For 2005, this change has a negative EBITDA impact of $11.7 million Certain costs previously c
Slide 14: II. 2005 Budget (cont’d)
II. 2005 Budget (cont’d) The bridge from the 2004 Results to the 2005 Budget is as follows: (Dollars in Millions) 2004 EBITDA $643.6 Consolidation Impact (11.7) "Restructuring" to Operations (15.0) 2004 EBITDA on Proforma Basis $616.9 75% Rule Impact, incremental (17.0) Operational Improvements, net
Slide 15: II. 2005 Budget (cont’d)
II. 2005 Budget (cont’d) (Dollars in Millions) 2005 2004 Budget Proforma ** Net Revenue $3,711.3 $3,741.9 Salaries, Wages and Benefits 1,704.0 1,722.9 Cost of Sales 348.8 363.3 Other 931.2 945.1 EBITDA before Minority Interest $727.3 $710.6 Minority Interest 96.8 93.7 EBITDA* after Minority Interest
Slide 16: II. 2005 Budget (cont’d)
II. 2005 Budget (cont’d) (Dollars in Millions) EBITDA* 2005 2004 Breakdown by Division: Budget Proforma ** Inpatient $515.3 $503.8 Surgery 146.0 139.7 Outpatient 60.1 59.8 Diagnostic 36.3 27.8 Corporate & Other (127.2) (114.2) Total EBITDA $630.5 $616.9 * EBITDA by Division is presented after Corpor
Slide 17: Agenda
Agenda I. 2004 Results Jay Grinney, Mike Snow II. 2005 Budget John Workman III. 75% Rule Mike Snow, Jay Grinney IV. Liquidity and Bank Facility Update John Workman V. Restructuring Costs John Workman VI. 2000 - 2003 10-K Status John Workman VII. Litigation Update Greg Doody VIII. Summary Comments Ja
Slide 18: II. 75% Rule
II. 75% Rule Discharges Net Revenue EBITDA December Update (8,200) ($53 million) ~ ($22 million) Assumption Changes Exclude polyneuropathy and some comorbid conditions in the list of “qualified” diagnoses pursuant to Transmittal 347 Enforcement rules for migration to 60% threshold changed pursuant t
Slide 19: II. 75% Rule (cont’d)
II. 75% Rule (cont’d) -5.4% IRF Uniform Data System Discharges Quarterly Discharge Comparison 2002 - 2004 76,000 (Medicare Only) 75,060 75,064 75,000 74,718 74,775 74,184 74,000 73,414 73,329 73,000 72,441 72,000 71,563 71,341 71,000 71,025 70,544 70,000 69,000 68,000 1st Qtr 02 2nd Qtr 02 3rd Qtr 0
Slide 20: III. 75% Rule (cont’d)
III. 75% Rule (cont’d) Projected Medicare Savings FY2005 IRF Cases Net Medicare Reduced Savings Original CMS estimate ($ only) ~ 1,7501 $ 10 million Q42004 industry results annualized (UDSmr data) ~ 24,8002 $ 142 million AMRPA estimates of annual impact ~ 39,0003 not provided Government substantiall
Slide 21: II. 75% Rule (cont’d)
II. 75% Rule (cont’d) GAO Report Directives Findings Whether the current list of patient Agreement that patient condition conditions in the Rule represents a alone is insufficient to identify clinically appropriate standard for patients for IRF services. Other IRF services factors, e.g. functional s
Slide 22: II. 75% Rule (cont’d)
II. 75% Rule (cont’d) HealthSouth Position Continue to work with industry representatives (Federation of American Hospitals, AMRPA, American Hospital Association, AAPMR) to communicate that: We agree with the goal for patients to be cared for in the most appropriate clinical setting The early impact
Slide 23: Agenda
Agenda I. 2004 Results Jay Grinney, Mike Snow II. 2005 Budget John Workman III. 75% Rule Mike Snow, Jay Grinney IV. Liquidity and Bank Facility Update John Workman V. Restructuring Costs John Workman VI. 2000 - 2003 10-K Status John Workman VII. Litigation Update Greg Doody VIII. Summary Comments Ja
Slide 24: IV. Liquidity and Bank Facility Update
IV. Liquidity and Bank Facility Update Liquidity (Dollars in Millions) Sept 30, 2004 Dec 31, 2004 Available Cash $406.0 $355.6 Restricted Cash* $233.7 $232.3 Consolidated Cash $639.7 $587.9 Interest payments were $105.3 and $29.0 for 4Q04 and 1Q05, respectively CMS settlement payments in 1Q05 were $
Slide 25: IV. Liquidity and Bank Facility Update (cont’d)
IV. Liquidity and Bank Facility Update (cont’d) Bank Facility Update (Dollars in Millions) Facility $315 term loan B & $85 synthetic L/C @ LIBOR +250 bp $250 revolver & $65 L/C @ LIBOR +275 bp Note: Borrowing rates can go down based on achieving certain agency ratings (term) and Leverage Ratio metri
Slide 26: Agenda
Agenda I. 2004 Results Jay Grinney, Mike Snow II. 2005 Budget John Workman III. 75% Rule Mike Snow, Jay Grinney IV. Liquidity and Bank Facility Update John Workman V. Restructuring Costs John Workman VI. 2000 - 2003 10-K Status John Workman VII. Litigation Update Greg Doody VIII. Summary Comments Ja
Slide 27: V. Restructuring Costs
V. Restructuring Costs (Dollars in Millions) 2005 Budget 2004 Results Reconstruction / Restatement 2000 - 2003 $16.0 $95.2 2004 15.0 - Audit 2000 - 2003 19.0 31.4 2004 11.4 - Sarbanes-Oxley Related 18.0 22.0 Crisis Management - 27.0 All Other - 19.2 Total $79.4 $194.8 Note: These costs include (i) p
Slide 28: V. Other Potential Restructuring Costs
V. Other Potential Restructuring Costs The company continues to evaluate facilities and the organizational structure of each Division Some locations lose money on an EBITDA basis Decisions to close locations or reduce the organization will be based on gaining a positive return for such decisions The
Slide 29: Agenda
Agenda I. 2004 Results Jay Grinney, Mike Snow II. 2005 Budget John Workman III. 75% Rule Mike Snow, Jay Grinney IV. Liquidity and Bank Facility Update John Workman V. Restructuring Costs John Workman VI. 2000 - 2003 10-K Status John Workman VII. Litigation Update Greg Doody VIII. Summary Comments Ja
Slide 30: VI. 2000 - 2003 10-K Status
VI. 2000 - 2003 10-K Status A draft of the 2000-2003 comprehensive 10-K exists and is being finalized HealthSouth fraud was extremely complicated 1.4 million accounts had to be analyzed and 92% of the accounts required adjustment There were more than 750 acquisitions that had to be analyzed and redo
Slide 31: Agenda
Agenda I. 2004 Results Jay Grinney, Mike Snow II. 2005 Budget John Workman III. 75% Rule Mike Snow, Jay Grinney IV. Liquidity and Bank Facility Update John Workman V. Restructuring Costs John Workman VI. 2000 - 2003 10-K Status John Workman VII. Litigation Update Greg Doody VIII. Summary Comments Ja
Slide 32: VII. Litigation Update
VII. Litigation Update CMS/DOJ (Civil) The company has reached a global settlement with CMS/DOJ Civil Division Terms of payment are $325 million total; $75 million upfront with the remainder over the next three years payable quarterly with interest CMS/DOJ (Criminal) Cooperation recognized by United
Slide 33: Agenda
Agenda I. 2004 Results Jay Grinney, Mike Snow II. 2005 Budget John Workman III. 75% Rule Mike Snow, Jay Grinney IV. Liquidity and Bank Facility Update John Workman V. Restructuring Costs John Workman VI. 2000 - 2003 10-K Status John Workman VII. Litigation Update Greg Doody VIII. Summary Comments Ja
Slide 34: Multi-year Operational Program
Multi-year Operational Program Revenue Cost 75% Rule mitigation Standardized labor management Organic growth metrics and performance Standardized market assessment expectations Monitoring mechanisms Benchmarking Centralized managed care support, Productivity improvement decentralized decision-making
Slide 35: Questions and Answers
Questions and Answers