HealthSouth's debt rises $124 million in Q1; results strong, says CEO

By Lisa Kerner

Charlotte, N.C., April 26 - HealthSouth Corp.'s first quarter indicates "a strong start to 2013," with quarter-over-quarter growth in discharges, revenues, adjusted EBITDA, earnings per share and adjusted free cash flow, president and chief executive officer Jay Grinney said during the company's earnings conference call on Friday.

"We ended Q1 with total debt of approximately $1.378 billion, up roughly $124 million from 2012 year-end with the increase attributable primarily to a $122 million draw on our revolver to fund a portion of the common stock tender and the acquisition of Walton Rehabilitation Hospital. As a result, our leverage ratio increased modestly to 2.7 times but remains well within out target range," executive vice president and chief financial officer Doug Coltharp said on the call.

Walton Rehabilitation Hospital is a 58-bed inpatient rehabilitation hospital in Augusta, Ga.

During the first quarter, HealthSouth launched and completed a tender offer for its common shares resulting in the repurchase of about 9.5% of its outstanding shares at a price of $25.50 per share.

"The tender offer was funded with approximately $152 million of cash on hand and an $82 million draw from our revolving credit facility," Coltharp said.

IRS settlement

According to Coltharp, on Wednesday the company entered into closing agreements with the Internal Revenue Service that settle federal income tax matters related to the previous restatement of its financial statements, as well as certain other tax matters, through Dec. 31, 2008. As a result of these closing agreements, HealthSouth expects to increase its deferred tax assets, primarily its federal net operating loss, and record a net federal income tax benefit of at least $91 million in the second quarter of 2013.

Financial highlights

For the quarter ended March 31, HealthSouth reported consolidated net operating revenues of $572.6 million, a 6.3% increase from the prior-year period.

Cash flows from operating activities were $121.4 million for the period, compared with $81.0 million for the same period of 2012.

Adjusted EBITDA rose 9.7% to $139.3 million from the year-ago quarter.

HealthSouth is a Birmingham, Ala.-based provider of inpatient rehabilitation health services.

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