Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Investor Presentation (June 2005)
59 slides from Encompass Health's investor presentation, Jun 29, 2005
Slide 1: Business Update
Exhibit 99.1 Business June 29, 2005 Update
Slide 2: Forward-Looking Statements
Forward-Looking The These HealthSouth There All You subject 2 such information are can estimates to cautioned estimates various be believes, no and assurance contained risks, Statements not and other to as forward-looking uncertainties place offorward-looking that inthethis undue any date presentati
Slide 3: Forward-Looking Statements (cont.)
Forward-Looking Some Regulatory Resolution Our States 3 ability factors Department of to changes, that successfully outstanding may Statements ofincluding Justice affect litigation, refinance Competitive the (cont.) theaccuracy implementation including our existing pressures of such certain public f
Slide 4: Cautionary Statements Regarding Presentation
Cautionary Our the No statements This The Actual 4 filing financial information recently presentation results made Statements statements filed may for relating contains comprehensive the differ period Regarding filed to materially information periods prior endedForm Presentation toafter up from Sept
Slide 5: Cautionary Statements Regarding Presentation (cont'd)
Cautionary Amounts Include Exclude Do reconstruction May 5 not notinclude differ “Restructuring the reflect shown materially Statements results process charges the forof appropriate periods from the may Regarding Charges” relating discontinued the not after results accounting be tounless December Pr
Slide 6: Considerations Involving Our Current Situation
Considerations The HealthSouth, violation We fourth 6 are DOJ quarter inof continues thefederal as process ofInvolving well 2005 securities itsas ofinvestigation certain reconstructing Ourlaws Current of itsinto past Situation our HealthSouth’s and accounting present officers records formerand for f
Slide 7: Notes Regarding Presentation of Non-GAAP Financial Measures
Notes The planned January the Costs accounting 2003 with 7 definition financial the and which Regarding 16, business class-action related reconstruction, 2004. we data of classify restructuring to Presentation activities In contained the general and company’s as shareholder audit As “Restructuring h
Slide 8: Notes Regarding Presentation of Non-GAAP Financial Measures (cont'd)
Notesperiods EBITDA capacity Because financial such 8 Regarding and HealthSouth measure maydebt be Presentation useful service calculated currently toability stakeholders inofaccordance does EBITDA Non-GAAP notbecause have should with Financial a balance it GAAP. not is commonly beMeasures sheet In
Slide 9: Agenda
I. Overview Agenda II. Jay 9 75% Grinney RuleGreg III. Legal DoodyUpdate John Workman IV. Restatement John Workman Update V.John Comprehensive Workman Mike Form Snow 10-KJay VI.Grinney Liquidity & Refinancing VII. Operations Update VIII. Strategic Plan IX. Questions & Answers
Slide 10: Overview: 1Q 2005 Results
I. Overview (dollars 1Q Actual Net Personnel Expenses: Cost Other Depreciation Minority Operating Adjusted (a) 10 Amounts 2005 Revenue of239.0 Budget Sales in1Q Results(a) Interest EBITDA Costs Earnings millions) 233.3 2005 are and $925.2 91.8 409.3 unaudited, Amortization 24.6 87.2 $160.5 Margin $1
Slide 11: Agenda
I. Overview Agenda II. III. Jay Greg 11 75% Legal Grinney Doody Rule Update John IV. Workman Restatement John Workman Update V. John Comprehensive Workman Mike FormSnow 10-KJay VI. Grinney Liquidity & Refinancing VII. Operations Update VIII. Strategic Plan IX. Questions & Answers
Slide 12: 75% Rule Reminder
II.3.Amputation Old Reminder… 2. 3. 4. 5. 6. 7. 8. 9. New 1. 11. 12. Age Bilateral Body 1 + After 12 Stroke Brain Spinal Fracture Neurological Multiple Congenital Burns – 75% Rheumatoid Joint Systemic “HCFA-10” 9. ³85 CMS-13 less Mass Same Rule Injury 10.Polyarthritis Replacement Cord intensive of T
Slide 13: The 75% Rule Overview
II. 75% The Overview HealthSouth’s Steeper 75% 13 company Rule declines Rule with (cont’d) isQ1 regulators, disappointed are volumes evidentlegislators, are inby Q2 somewhat CMS’ as facilities and decision better relevant approach than to resume constituents those their enforcement of date theThe in
Slide 14: 75% Rule Impact on IRF Discharges
II.st75% Impact IRF 72,000 74,000 Uniform Quarterly -9.8% 65,893 69,211 69,345 72,769 73,016 73,052 71,191 72,639 71,376 72,028 69,525 70,347 68,579 -3.9% Q1 Suspension 1 0 Percentages Data This 14 Qtr 2005 Discharges summary derived Q1 70,000 02 on Rule Data Discharge 2004 2002 2nd the of reflect f
Slide 15: Projected IRF Savings
II. 75% Projected IRF Reduced Original FY AMRPA (a) results 15 CMS 2005 Cases from Rule CMS estimates estimate, industry Savings Medicare Net UDSmr (cont’d) estimate Medicare projection $10 ofSavings database annual million, ($ only) FY (UDSmr impact for divided 2005 ~the 1,750 ~first -data) 39,000
Slide 16: Regulatory/Legislative Initiatives
II. 75% Regulatory/Legislative Continue Federation American Met Industry additional 16 withRule coalition CMS to Medical year; ofcollaborate (cont’d) American Administrator conduct secured Rehabilitation Initiatives with Hospitals required a letter industry Markresearch of & McClellan, Physiatry sup
Slide 17: Research Initiatives: GAO Report
II. 75% Research GAO Washington Focus: Study Analyze National Goals: Document Determine 17 Report utilization Determine Arthritis, Rule severity Rehabilitation Initiatives interventions/processes whether relative University (cont’d) recommended Stroke, of and whether cost-effectiveness severity post
Slide 18: Agenda
I. Overview Agenda III. IV. Jay Greg John 18 Restatement Legal Grinney Workman DoodyUpdate II. Jay75% John Update Grinney Rule Workman V. Comprehensive John Workman Form Mike 10-K Snow VI. Liquidity Jay Grinney & Refinancing VII. Operations Update VIII. Strategic Plan IX. Questions & Answers
Slide 19: Legal Update
III. Terms Securities Settlement Department Cooperation Continue Class Dialogue (a) 19 Legal action continues to Update of and announced fully of and settlement recognized Exchange Justice other cooperate -June litigation on Criminal by Commission following United 8, 2005 Division States (a) slide (
Slide 20: Legal Update (cont'd)
III. Legal $100 SEC Governance Continue 20 Settlement staff million to Update will cooperate consultant, civil request (cont’d) penalty that fully accounting to the with bepenalty paid theconsultant, SEC inbe five used and installments the to Inspector create DOJ an over General investor two and yea
Slide 21: Agenda
I. Overview Agenda IV. V. Jay John 21 Comprehensive Restatement Grinney WorkmanII. Jay75% John Update Grinney Form Rule Workman 10-K Greg III. Legal VI. Doody MikeLiquidity Update Snow Jay& Refinancing Grinney VII. Operations Update VIII. Strategic Plan IX. Questions & Answers
Slide 22: Restatement Update: Costs
IV. Restatement (dollars 2005 Reconstruction 2000 Audit 2004 Sarbanes-Oxley Crisis All Total Note: associated 22 Other Budget -15.0 11.4 $79.4 These Management 2003 in--millions) with 19.2 $194.8 $16.0 19.0 costs 2004 /the Update Related Restatement 31.4 include $95.2 Results restatement, - 27.018.0
Slide 23: Restatement Update: Some Decisions
IV. Restatement Some Decisions The 23 company costs locations of to such close continues lose Update decisions, locations money (cont’d) to evaluate on or if any, reduce an EBITDA have facilities thenot organization basis been and the reflected organizational will in bethe based 2005 structure onbud
Slide 24: Target Plan for Comprehensive Form 10-K
IV. Restatement Target Comprehensive 2004 2005 Completed 24 Form Plan 4Q 10-K for 2005 Filing 2000-2003 Update Filed 1Q Audited (cont’d) 2006 Form Financial 10-K Filed Statements
Slide 25: Agenda
I. Overview Agenda V. VI. Jay John 25 Comprehensive Liquidity Grinney WorkmanII. Jay &75% Mike Refinancing Grinney Form Rule Snow 10-K Greg III.Jay VII. Legal Doody Grinney Operations Update John Workman IV. Update Restatement VIII. Strategic Update Plan IX. Questions & Answers
Slide 26: Comprehensive Form 10-K Effort
V. Comprehensive The 1,000,000 Approximately Majority Huge Drained Over transactions Numerous 26 Restatement 500 distraction resources of business hours transactions costs required $250 (500 for inthat Form combinations 2004/2005 the million complete years) could involved company 10-Kof to have (con
Slide 27: Significant Restatement Items
V. Comprehensive Significant litigation restatement. 27 with investigation Audit CMS/DOJ-Civil conducted Form 10-K to unwind by (cont’d) and PricewaterhouseCoopers fraudulent SEC were reflected entries and in reflect the financial properstatements Financial Statement in the related classifications p
Slide 28: Restated Results vs. Last Filed Financial Statements
V.continuing The (dollars Revenue* Pretax Shareholders As Variance * 28 Comprehensive previously restated Results Income in($3,909) ($827) ($533) millions) $3,553 ($191) ($112) Last operations Equity reported (loss)* ($696) ($898) Filed ($3,490) $36 Form ($438) $3,499 2001 (deficit) Financial $4,380
Slide 29: Income Statement Highlights
V. Comprehensive Income (dollars 2003 Revenue Personnel Expenses: Supplies Bad Depreciation Other Minority All Operating (a) 29 Includes Other(a) Debts 2002 Operating Statement in400 $3,958 Interest Costs Earnings millions; 134 2001 impairment, 697 &362 137 Amortization 1,804 $3,960 Expense 552 84 3
Slide 30: Key Expenses as Percent of Net Operating Revenue
V. Comprehensive Key (continuing For 2003 Personnel Supplies Other Bad 30 the Debt Expenses 2002 Operating year 10.1% 3.4% Costs 2001 operations) ended as3.5% 9.1% 45.6% Expense a Form December Percent 2.8% 9.4% 46.7% 10-K 21.8% of Net 31 48.0% (cont’d) 23.1% Operating 24.3% Revenue
Slide 31: Balance Sheet Highlights
V. Comprehensive Balance (dollars 2003 Working Cash, Property Debt Consolidated 31 $3,522 2002 Unrestricted in Sheet Plant Capital, millions) 2001 $3,508 Tangible Highlights & Equipment Net Form $473 $3,559 $165 Assets $91 10-K ($493) $1,467 $63 $3,211 (cont’d) ($95) $1,715 $3,201$1,768 $3,179
Slide 32: Total Company Results
V. Comprehensive Total (dollars 2004(a) Revenue unaudited Operating Percentage Impairment, Memo: (Gain) (a) 32 2004 Company Loss in 2003 amounts $3,832 Earnings millions; 6.7% on $455 2002 Asset $3,958 (5.7%) are $205 Form 2001 (Loss) continuing Sales before $36 $3,960 (4.3%) 10-K $255 impairment (c
Slide 33: Inpatient Division
V. Comprehensive (dollars Inpatient 2004(a) Revenue unaudited Operating Percentage Impairment, Memo: (Gain) Earnings (a) 33 2004Loss in 2003 amounts $2,021 level Earnings millions; 22.6% on ( 2002 $22) increased Asset $2,016 are 22.0% Form $49 2001 (Loss)(b) continuing Sales before $41 $1,907 in 10-
Slide 34: Surgery Division
V. Comprehensive (dollars Surgery 2004(a) Revenue unaudited Operating Percentage Impairment, Memo: (Gain) Growth (a) 34 2004Loss in 2003 amounts $860 Earnings millions; 2001 11.3% on $182 2002 $920 Asset – are 2002 $52 (6.9%) Form 2001 (Loss)(b) continuing $926 Sales before $9 but 10-K 10.8% $867 de
Slide 35: Outpatient Division
V. Comprehensive (dollars Outpatient 2004(a) Revenue unaudited Operating Percentage Impairment, Memo: (Gain) Performance (a) 35 2004Loss in 2003 amounts $512 Earnings millions; 8.4% on $138 suffering 2002 $587 Asset (8.7%) are $22 Form 2001 (Loss)(b) continuing $663 Sales before $6 since 2.9% 10-K $
Slide 36: Diagnostic Division
V. Comprehensive (dollars Diagnostic 2004 Revenue unaudited Operating Percentage Impairment, Memo: (Gain) Business (a) 36 2004 (a) Loss inamounts 2003 $227 declining Earnings millions; (0.4%) on $22 2002 $280 Asset $62 are Form (14.6%) as (Loss)(b) 2001 continuing $306 $13 Sales before industry 10-K
Slide 37: Adjusted EBITDA Reconciliation
V. Comprehensive 2004(a) Operating Impairment Government Professional Restructuring (Gain) Depreciation Adjusted Restated (a) 37 2004Loss 2003 amounts results EBITDA Earnings Charges on Fees and and 2002 and Disposal are Class Amortization are Restatement Form Reconciliation $639 2001 consistent (Lo
Slide 38: Internal Control Findings
V. Comprehensive Multiple Internal Accounting First Primary Revenue Resources Next Installing 38 priority: priority: Control control drivers material involves mitigating being policies remediation corporate environment of Findings strained weaknesses two operating Form and controls new cycles proced
Slide 39: Agenda
I. Overview Agenda VI. VII. Jay John Mike 39 Liquidity Grinney Operations Workman Snow Jay II. Jay &75% Grinney Update Refinancing Grinney Rule VIII. Greg III. Strategic Legal DoodyUpdate John Plan Workman IV. IX.Restatement Questions John&Workman Update Answers V. Comprehensive Form 10-K
Slide 40: Liquidity Update
VI. Restricted (dollars Liquidity Dec Available Restricted Consolidated Interest CMS/DOJ (a) 40 Liquidity 31, payments in 2004 Cash Cash(a) millions) - Civil and Cash March cash $355.6 Financing settlement were $232.3 includes $587.9 31,$256.0 $29.0 2005 $248.6 $504.6 non-consolidated Update payment
Slide 41: New Financing Terms
VI. Terms Paid New Facility Continue (a) 41 Liquidity off $200 increased with to of million evaluate loan combination and facility Financing from Senior long $150 on Unsecured term offollowing Update million new strategy $200 (cont’d) due facility(a) slide million for to available strong $245 senior
Slide 42: Key Terms of Senior Unsecured Notes and Credit Facility
VI.year Facility Maturity Rate Call in Closing Key Maximum Minimum Other 42 Liquidity Terms Covenants Protection - 2.5% LIBOR 3,$200 Facility -par Interest 5Capital Unsecured Underwriting year call and million +-Maximum closed 500 Non-call term thereafter Financing Incurrence Expenditures bp Senior
Slide 43: Agenda
I. Overview Agenda VII. VIII. Mike Jay 43 Grinney Operations Strategic Snow II. JayPlan 75% Update Grinney IX. Rule Questions Greg III. Legal Doody &Update Answers John Workman IV. Restatement John Workman Update V.John Comprehensive Workman Form 10-K VI. Liquidity & Refinancing
Slide 44: Inpatient Division Financial Overview
VII. Division Financial 1Q Actual Net Personnel Cost Other Total 357.7 Depreciation expenses 12.6 Minority amortization Operating 1 % OP IP Medicare Volume with (a) 44Q05 Discharges Rev/ 2005 2005 Visits Revenue Operations 11.1 focus of operating 1Q04 370.6 91.3 (a) sales Discharge decline amounts P
Slide 45: Proposed IRF-PPS Update
VII. reports Proposed Proposes Analysis HealthSouth Baseline cost 45 Operations used of 3.1% Update the 2002-2003) comments toincrease proposed Update establish – IRF-PPS on (cont’d) to and, update new market thetherefore, proposed payment concludes basket. understates rate update: Also that wasincl
Slide 46: LTCH Final Rule
VII. ~ LTCH Final 46$ 3.6 Operations decision Final final proposed million rule and by annualized Update published rule Proposed CMS published expected (cont’d) Rule in May inby May provides August would3.4% adjust increase the relative to market weights basket; of LTC-DRG’s, primarily reducing thos
Slide 47: Surgery Division Financial Overview
VII. Division Financial 1Q Actual Net Personnel Cost Other 168.5 Depreciation expenses 10.4 Minority amortization Operating 1 % Total Same Rev/ Op. New Highlights Re-syndications Still Facilities Particular (a) 47Q05 2005 2005 Revenue Exp./ Operations expect 9.4 of leadership Case operating Cases St
Slide 48: Outpatient Division Financial Overview
VII. Division Financial 1Q05 Net Personnel Cost Other 100.7 Depreciation expenses 3.7 Minority amortization Operating 1 % Total Same Rev/ OP Closed/consolidated Highlights organization (a) 48Q05 2005 Exp/ 3.6 Revenue Operations of Visit Visits operating Actual Store 1Q04 100.2 35.4 sales amounts Vis
Slide 49: Diagnostic Division Financial Overview
VII.2005 Division Financial Net Personnel Cost Other 44.7 Depreciation expenses 8.4 Minority amortization Operating 1Q05 Total Same Rev/ Op. Closed/sold Highlights meeting (a) 49 7.1 Revenue Exp./ Operations 46.3 of Scan operating Scans Actual Store 1Q04 26.1 sales expectations amounts President: In
Slide 50: Corporate/Other Financial Overview
VII. Financial 1Q05 Net Personnel Cost Other Total 68.6 Depreciation expenses 15.7 Minority amortization Operating 1 % Discharges Avg. Outpatient Cases LOI Highlights Subject Interim (a) 50Q05 2005 Revenue Operations signed 59.2 12.3 of Daily operating Actual 1Q04 37.9 2,871 sales management toamoun
Slide 51: Operations Reorganization Plan
VII. Operations Reorganization Portfolio (dots (prepared Corporate Division supported Structure resources) Accountability “Who “Work (teams 51 on you out co-located) aRoles More and for map) by and Know” of dedicated growth) Home” Convoluted, “Field and than (strategic Plan than Update “How diffuse
Slide 52: Reorganization Plan Highlights
VII. Operations Reorganization Created Operations Corporate 52 Division Chief Sales/Marketing support executives Medical Plan—Highlights Update CFO staffphysically positions Officer to (cont’d) SVP be physically in positions to Inpatient co-located enhance located forDivision operational Inpatient b
Slide 53: Agenda
I. Overview Agenda VIII. IX. Jay 53 Questions Grinney Strategic II. Jay&Plan 75% Grinney Answers Rule Greg III. Legal DoodyUpdate John Workman IV. Restatement John Workman Update V.John Comprehensive Workman Mike FormSnow 10-K VI. Liquidity & Refinancing VII. Operations Update
Slide 54: Strategic Plan: What We Considered
VIII. group Core Non-performing Portfolio Peer Areas Appropriate Operations required improvements Growth opportunities) Where Sequencing growth Financial Options New Value Capabilities 54 facility services vs. Strategic of(urban “runway” contained resources) non-core options focus constraints compar
Slide 55: Strategic Plan: Attractive Market Segments
VIII. We’re Historic Market 2004 Inpatient Percent 9.3 Ambulatory 22 5.1 Outpatient Diagnostic 16.4 (a) corporate 55 Expected 5117Strategic Market 5HealthSouth in 9imaging 16 growth EBITDA Percent 17 Projected attractive rehabilitation costs 9413 rehabilitation growth 15 size surgery Plan (assumed c
Slide 56: Strategic Plan: Key Priorities
VIII.will Key Free Significant Ability We 56 priority: cash Strategic toexpand flow mitigate operational restore Plan isinto strong, 75% –new financial What improvement Rule but post-acute Wenear-term impact strength Concluded services will opportunities and will be(cont’d) pursue be key devoted Dev
Slide 57: Strategic Plan Summary by Phase
VIII.down Metrics Strategic Phase Operational Operational, Pay Mitigate EBITDA Drive Bring Ramp-up LTCH appropriate Expand Potential Acquire Time 57 Strategic operational O/P 1: 32: Home Volume into 24 or 075% 12 Horizons M&A business debt divisions to build to internal to and focus other developmen
Slide 58: Agenda
I. Overview Agenda II. III. IV. V. VI. VII. VIII. IX. 58 Comprehensive 75% Restatement Legal Liquidity Questions Operations Strategic Rule Update Jay Jay &&Plan Update Refinancing Grinney Answers Grinney Greg Form JayDoody Grinney Mike John 10-KJohn Workman Snow JohnWorkman Workman
Slide 59: Questions and Answers
Questions and Answers 59