Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — J.P. Morgan Global High Yield & Leveraged Finance Conference 2009
33 slides from Encompass Health's conference presentation, Feb 2, 2009
Slide 1: HealthSouth
Exhibit 99.1 HealthSouth J.P. Morgan Global High Yield & Leveraged Finance Conference Miami, Florida February 3, 2009 1
Slide 2: Cautionary Statements
Cautionary Statements Note Regarding Forward-Looking Statements 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, proje
Slide 3: HealthSouth Today
HealthSouth Today Largest Provider of Inpatient Rehabilitative Healthcare Services in the U.S. Operational Components 93 Rehabilitation Hospitals and Outpatient Departments 6 LTCH Hospitals 55 Outpatient Satellites 25 Hospital-Based Home Health Agencies Major Services IRH LTCH Development Sites Reha
Slide 4: Post-Acute Industry
Post-Acute Industry 2007 Medicare Spending = $45.1 Billion Total Inpatient Rehabilitation Sector: ~ $9 Billion (1) Source: MedPAC, A Data Book: Healthcare Spending and the Medicare Program, June 2008 (Section 9). (2) These percents are Medicare spending only and do not include beneficiary copayments
Slide 5: Inpatient Rehabilitation: Aging Demographics = Increased Demand
Inpatient Rehabilitation: Aging Demographics = Increased Demand Projected Medicare Compliant Projected percentage of US population Case Growth(2) 65 years or older through 2050(1) +22% “Compliant Cases” are expected to grow Demand for post-acute services will ~ 2% per year for the foreseeable future
Slide 6: Inpatient Rehabilitation: Fragmented Sector
Inpatient Rehabilitation: Fragmented Sector Total Inpatient Rehabilitation Facilities (IRF): 1,201 Freestanding No. of Providers IRFs Ernest (Private) 6 Hospital-Based Other RehabCare (Public) 6 983 (82%) 125 (10%) Select (Private) 5 Freestanding Vibra (Private) 5 Centerre (Private) 4 HealthSouth 93
Slide 7: Strong Organic Growth
Strong Organic Growth % Discharges of HLS vs. Non-HLS UDS Sites(1) HealthSouth’s volume growth continues to outpace competitors’ growth Same store discharges were +8.1% for HLS in Q308 Projected sustainable discharge growth: 4+% annual same store . (1) Data provided by UDS MR, a data gathering and a
Slide 8: Nine Months 2008 Statistics
Nine Months 2008 Statistics (YTD Q307 vs. YTD Q308) Volume Revenue EBITDA + 5.8% +5.8% +8.2% Volume and revenue reflect strong growth. Improving productivity (EPOB) helps offset increase in salaries and benefits (SWB) per employee. Actions taken to mitigate labor costs. Employees per Occupied Bed (E
Slide 9: Q408 Initial Observations
Q408 Initial Observations Volume: Continued solid same-store discharge growth Reminder: Q407 had hospitals limiting admissions due to phase-in to 65% threshold which will favorably impact quarter-over-quarter comparisons. Pricing: No significant sequential change in pricing vs. Q308 Reminder: Quarte
Slide 10: Year-End Initial Observations
Year-End Initial Observations Previous Guidance for Full-Year 2008 Year-over-year growth in inpatient discharges 5% to 6% Consolidated net operating revenues $1.825 billion to $1.875 billion Net income per diluted share $0.23 per share to $0.25 per share Adjusted income from continuing (1) operation
Slide 11: Strategy
Strategy: To create shareholder value as the preeminent provider of rehabilitative care in the U.S. by: Creating a strong balance sheet through deleveraging; Driving organic growth through operational excellence; and Pursuing disciplined, opportunistic growth. Target: 5-8% annual Adjusted Consolidat
Slide 12: Free Cash Flow Year-to-Date
Free Cash Flow Year-to-Date Strong Normalized Free Cash Flow (1) Reconciliation to GAAP provided on slides 30 through 32 (2) Includes capital expenditures for the refresh program 12
Slide 13: Non-Operating Cash / Tax Position Update
Non-Operating Cash / Tax Position Update Cash Refunds Future Cash Tax Payments $63 million on balance sheet at September Due to $2.5 billion in federal and state NOLs 30, 2008 and tax deductions, we do not expect to pay Relates to years 2003 or earlier significant federal income tax for the next 10-
Slide 14: Non-Operating Cash / Derivative Proceeds
Non-Operating Cash / Derivative Proceeds UBS Settlement Net proceeds of ~ $60 million Expect cash to be received in first half of 2009 E&Y Arbitration(1) Expect arbitration to be completed in 2009 11% fee cap for the derivative plaintiffs’ attorneys Claims Against Scrushy(1) Trial scheduled for May
Slide 15: Disciplined Use of Cash
Disciplined Use of Cash Adjusted Free Cash Flow(1) Debt Reduction (Major Focus) Acquisitions/ Non-Operating Cash Consolidations (Opportunistic) Bed Tax refunds Expansions ($15-20 million) Derivative proceeds De novo’s Digital Hospital (3rd-party financed) proceeds (1) After maintenance CAPEX of ~ $3
Slide 16: Debt Reduction
Debt Reduction No near-term refinancing ($ Billions) Future debt reduction: Additional income tax recoveries $24 million federal tax refund Debt Reduction Since 12/31/07 (+ interest) approved 12/30/08; $223.2M(2) cash expected Q109(3) Other recoveries being pursued at state level Derivative proceeds
Slide 17: Debt Schedule
Debt Schedule Debt Balances (Millions) Nov. 30, 2008 Advances under $400 million revolving credit facility, March 2012 $ 40.0 Term loan facility - March 2013 785.7 Bonds Payable: 8.375% Senior Notes due 2011 0.3 7.625% Senior Notes due 2012 1.5 Floating Rate Senior Notes due 2014 (6 month Libor plus
Slide 18: Debt Maturities
Debt Maturities (Millions) Undrawn revolver goes away in 2012 $400.0 Minimal Amortization and No Near-Term Financing Risk 18
Slide 19: Credit Ratings
Credit Ratings S&P Moody's Corporate Credit Rating B B3 Outlook Stable Positive Prices Bank Debt Jan 28, 2009 Term loan facility - March 2013 BB- Ba3 $85-$87 Bonds Floating Rate Senior Notes due 2014 CCC+ Caa1 $83-$84 10.75% Senior Notes due 2016 CCC+ Caa1 $98-$99 19
Slide 20: Disciplined Use of Cash
Disciplined Use of Cash Adjusted Free Cash Flow(1) Debt Reduction (Major Focus) Acquisitions/ Non-Operating Cash Consolidations (Opportunistic) Bed Tax refunds Expansions ($15-20 million) Derivative proceeds De novo’s Digital Hospital (3rd-party financed) proceeds (1) After maintenance CAPEX of ~ $3
Slide 21: Organic Growth Enhanced Through Bed Expansions
Organic Growth Enhanced Through Bed Expansions Number of HLS Hospitals Occupancy Q4 2007 Q1 2008 Q2 2008 Q3 2008 High (85% or greater) 10 22 17 16 Medium (60% to 85%) 42 37 42 43 Low (Less than 60%) 41 34 34 34 (1) Total 93 93 93 93 Hospitals with greater than 85% occupancy are candidates for bed ex
Slide 22: Disciplined Development
Disciplined Development Operational Location Announced Type of Investment Installed Beds Date Vineland, NJ Aug-08 Acquisition 34 Beds Q3 2008 Arlington, TX Aug-08 Consolidation n/a Q3 2008 (1) (2) Ocala, FL Aug-08 De novo 40 Beds 3Q 2010 Loudoun County, VA Aug-08 De novo 40 Beds 2Q 2010 Midland, TX
Slide 23: Liquidity
Liquidity (Millions) September 30, 2008 Cash Available $ 24.9 Revolver Total line $ 400.0 Less: – Draws (13.0) (1) – Letters of credit (38.4) Available $ 348.6 Total Liquidity (available cash and revolver) $ 373.5 (1) Letters of credit will be reduced by $33.6 million in connection with implementing
Slide 24: Interest Expense and Swap Settlements
Interest Expense and Swap Settlements (Millions) As of September 30, 2008, we were in compliance with the covenants under our Credit Agreement. (1) We have the flexibility to peg 1,2,3 or 6 month Libor, or prime 24
Slide 25: Government, Class Action, and Related Settlements
Government, Class Action, and Related Settlements The class action Securities Litigation Settlement included 5.0 million shares of common stock and 8.2 million warrants at a strike price of $41.40. Today As Settled Under appeal Shareholders equity (paid-in- Shares are not issued capital) goes up Cha
Slide 26: Convertible Perpetual Preferred Stock
Convertible Perpetual Preferred Stock 400,000 shares 6.5% Series A preferred stock is convertible, at the option of the holder At initial conversion price of $30.50 per share If converted represents 13.1 million shares On or after July 20, 2011, we may cause conversion, if; Closing price of our comm
Slide 27: Investment Considerations
Investment Considerations Turnaround Complete: management focused on operations and growth Industry Leader in Attractive Industry Strong Cash Flows: flexibility in the use of FCF Deleveraging as Priority: reduce leverage to 4.5x or less by YE 2010 Solid Organic Growth: TeamWorks initiative will help
Slide 28: Appendix and Reconciliations
Appendix and Reconciliations 28
Slide 29: Debt Schedule
Debt Schedule Debt Balances 2008 November 30, September 30, December 31, Debt (Millions) 2008 2008 2007 Reduction Advances under $400 million revolving credit facility, March 2012 $ 40.0 $ 13.0 $ 75.0 $ 35.0 Term loan facility - March 2013 785.7 818.7 862.8 77.1 Bonds Payable: 7.000% Senior Notes du
Slide 30: 9 Months 2008 Reconciliation of Net Income to Adjusted Income from Continuing Operations
9 Months 2008 Reconciliation of Net Income to Adjusted Income (Loss) from Continuing Operations and Adjusted Consolidated EBITDA(1)(3) – (Notes on following page) Nine Months Ended Nine Months Ended (In Millions, Except Per Share Data) September 30, 2008 September 30, 2007 (2) (2) Per Share Per Shar
Slide 31: Reconciliation Notes
9 Months 2008 Reconciliation of Net Income to Adjusted Income (Loss) from Continuing Operations and Adjusted Consolidated EBITDA – Notes 1) Adjusted income (loss) and Adjusted Consolidated EBITDA are non-GAAP financial measures. Management and some members of the investment community utilize adjuste
Slide 32: 9 Months 2008 Reconciliation of Adjusted Consolidated EBITDA to Net Cash Provided by Operating Activities
9 Months 2008 Reconciliation of Adjusted Consolidated EBITDA(1) to Net Cash Provided by Operating Activities 32
Slide 33: 2008 Full Year Guidance Notes
2008 Full Year Guidance Notes 1) As previously reported, the Company’s earnings per share guidance does not incorporate any assumptions related to actual amounts incurred in 2008 for: (1) government, class action, and related settlement amounts, including the fair value adjustments to the liability
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