2015 Q4 Form 10-Q Financial Statement

#000078516115000089 Filed on October 29, 2015

View on sec.gov

Income Statement

Concept 2015 Q4 2015 Q3 2014 Q4
Revenue $879.3M $778.6M $613.4M
YoY Change 43.35% 30.44% 7.22%
Cost Of Revenue $34.60M $31.00M $29.90M
YoY Change 15.72% 16.54% 10.33%
Gross Profit $830.7M $736.9M $576.9M
YoY Change 43.99% 31.1% 6.56%
Gross Profit Margin 94.47% 94.64% 94.05%
Selling, General & Admin $519.9M $460.6M $348.9M
YoY Change 49.01% 38.82% 10.59%
% of Gross Profit 62.59% 62.51% 60.48%
Research & Development
YoY Change
% of Gross Profit
Depreciation & Amortization $41.40M $33.70M $27.50M
YoY Change 50.55% 22.99% 9.13%
% of Gross Profit 4.98% 4.57% 4.77%
Operating Expenses $679.3M $601.0M $467.8M
YoY Change 45.21% 33.97% 10.75%
Operating Profit $135.5M $121.2M $109.1M
YoY Change 24.2% 6.78% -8.32%
Interest Expense -$42.20M $35.60M -$23.80M
YoY Change 77.31% -237.45% 1.28%
% of Operating Profit -31.14% 29.37% -21.81%
Other Income/Expense, Net $1.300M $700.0K $1.100M
YoY Change 18.18% 250.0% -15.38%
Pretax Income $108.6M $103.4M $74.10M
YoY Change 46.56% 17.77% -21.67%
Income Tax $43.50M $35.90M $19.30M
% Of Pretax Income 40.06% 34.72% 26.05%
Net Earnings $47.00M $50.70M $42.10M
YoY Change 11.64% 1.2% -13.91%
Net Earnings / Revenue 5.35% 6.51% 6.86%
Basic Earnings Per Share $0.52 $0.56 $0.46
Diluted Earnings Per Share $0.49 $0.52 $0.44
COMMON SHARES
Basic Shares Outstanding 91.44M shares 90.60M shares 87.75M shares
Diluted Shares Outstanding 101.5M shares

Balance Sheet

Concept 2015 Q4 2015 Q3 2014 Q4
SHORT-TERM ASSETS
Cash & Short-Term Investments $61.60M $801.6M $66.70M
YoY Change -7.65% 194.38% 3.41%
Cash & Equivalents $61.60M $801.6M $66.70M
Short-Term Investments
Other Short-Term Assets $126.6M $124.6M $108.3M
YoY Change 16.9% 13.07% -5.91%
Inventory
Prepaid Expenses
Receivables $403.3M $350.9M $323.2M
Other Receivables $7.200M $0.00 $13.90M
Total Short-Term Assets $598.7M $1.463B $686.6M
YoY Change -12.8% 86.85% 18.3%
LONG-TERM ASSETS
Property, Plant & Equipment $1.310B $1.079B $1.020B
YoY Change 28.48% 8.5% 11.99%
Goodwill $1.890B $1.105B $1.084B
YoY Change 74.36% 124.73% 137.25%
Intangibles $419.4M $324.7M $306.1M
YoY Change 37.01% 225.03% 247.05%
Long-Term Investments $11.40M $8.200M
YoY Change 39.02% -56.61%
Other Assets $197.0M $222.1M $162.5M
YoY Change 21.23% 31.03% 12.77%
Total Long-Term Assets $4.007B $2.786B $2.702B
YoY Change 48.33% 38.55% 38.27%
TOTAL ASSETS
Total Short-Term Assets $598.7M $1.463B $686.6M
Total Long-Term Assets $4.007B $2.786B $2.702B
Total Assets $4.606B $4.249B $3.388B
YoY Change 35.94% 52.09% 33.69%
SHORT-TERM LIABILITIES
YoY Change
Accounts Payable $61.60M $65.60M $53.40M
YoY Change 15.36% 19.71% -13.73%
Accrued Expenses $155.9M $314.4M $144.5M
YoY Change 7.89% 25.06% 26.09%
Deferred Revenue
YoY Change
Short-Term Debt $0.00 $0.00 $0.00
YoY Change
Long-Term Debt Due $36.80M $23.60M $20.80M
YoY Change 76.92% -88.68% 69.11%
Total Short-Term Liabilities $426.4M $403.6M $364.3M
YoY Change 17.05% -21.59% 16.91%
LONG-TERM LIABILITIES
Long-Term Debt $3.135B $2.801B $2.090B
YoY Change 49.96% 94.3% 38.88%
Other Long-Term Liabilities $43.00M $140.7M $37.50M
YoY Change 14.67% 0.72% -14.77%
Total Long-Term Liabilities $43.00M $140.7M $37.50M
YoY Change 14.67% 0.72% -14.77%
TOTAL LIABILITIES
Total Short-Term Liabilities $426.4M $403.6M $364.3M
Total Long-Term Liabilities $43.00M $140.7M $37.50M
Total Liabilities $3.706B $3.345B $2.591B
YoY Change 43.03% 59.6% 32.26%
SHAREHOLDERS EQUITY
Retained Earnings -$1.696B -$1.879B
YoY Change -9.74% -10.57%
Common Stock $1.100M $1.000M
YoY Change 10.0% 0.0%
Preferred Stock
YoY Change
Treasury Stock (at cost) $527.4M $458.7M
YoY Change 14.98% 13.37%
Treasury Stock Shares 18.15M shares 16.27M shares
Shareholders Equity $611.4M $630.4M $473.2M
YoY Change
Total Liabilities & Shareholders Equity $4.606B $4.249B $3.388B
YoY Change 35.94% 52.09% 33.69%

Cashflow Statement

Concept 2015 Q4 2015 Q3 2014 Q4
OPERATING ACTIVITIES
Net Income $47.00M $50.70M $42.10M
YoY Change 11.64% 1.2% -13.91%
Depreciation, Depletion And Amortization $41.40M $33.70M $27.50M
YoY Change 50.55% 22.99% 9.13%
Cash From Operating Activities $133.8M $163.3M $70.20M
YoY Change 90.6% 16.98% -30.43%
INVESTING ACTIVITIES
Capital Expenditures -$50.60M -$44.40M -$41.40M
YoY Change 22.22% -3.48% 21.41%
Acquisitions
YoY Change
Other Investing Activities -$899.8M -$8.300M -$673.2M
YoY Change 33.66% -10.75% -13300.0%
Cash From Investing Activities -$950.4M -$52.70M -$714.6M
YoY Change 33.0% -4.7% 2364.14%
FINANCING ACTIVITIES
Cash Dividend Paid
YoY Change
Common Stock Issuance & Retirement, Net
YoY Change
Debt Paid & Issued, Net
YoY Change
Cash From Financing Activities 76.60M 645.5M 438.8M
YoY Change -82.54% 428.23% -706.08%
NET CHANGE
Cash From Operating Activities 133.8M 163.3M 70.20M
Cash From Investing Activities -950.4M -52.70M -714.6M
Cash From Financing Activities 76.60M 645.5M 438.8M
Net Change In Cash -740.0M 756.1M -205.6M
YoY Change 259.92% 266.15% 41020.0%
FREE CASH FLOW
Cash From Operating Activities $133.8M $163.3M $70.20M
Capital Expenditures -$50.60M -$44.40M -$41.40M
Free Cash Flow $184.4M $207.7M $111.6M
YoY Change 65.23% 11.91% -17.33%

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<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">Contingencies and Other Commitments</font></div><div style="line-height:120%;padding-bottom:13px;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">We operate in a highly regulated and litigious industry. As a result, various lawsuits, claims, and legal and regulatory proceedings have been and can be expected to be instituted or asserted against us. The resolution of any such lawsuits, claims, or legal and regulatory proceedings could materially and adversely affect our financial position, results of operations, and cash flows in a given period. </font></div><div style="line-height:120%;padding-bottom:13px;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">General Medicine Action&#8212;</font></div><div style="line-height:120%;padding-bottom:13px;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On August&#160;16, 2004, General Medicine, P.C. filed a lawsuit in the Circuit Court of Jefferson County, Alabama (the &#8220;Alabama Action&#8221;) against us captioned </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">General Medicine, P.C. v. HealthSouth Corp.</font><font style="font-family:inherit;font-size:10pt;"> seeking the recovery of allegedly fraudulent transfers involving assets of Horizon/CMS Healthcare Corporation, a former subsidiary of HealthSouth. </font></div><div style="line-height:120%;padding-bottom:13px;padding-top:13px;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">General Medicine&#8217;s underlying claim against Horizon/CMS originates from a services contract entered into in 1995 between General Medicine and Horizon/CMS whereby General Medicine agreed to provide medical director services to skilled nursing facilities owned by Horizon/CMS for a term of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">three years</font><font style="font-family:inherit;font-size:10pt;">. Horizon/CMS terminated the agreement for cause six months after it was executed, and General Medicine then initiated a lawsuit against Horizon/CMS in the United States District Court for the Eastern District of Michigan in 1996 (the &#8220;Michigan Action&#8221;). General Medicine&#8217;s complaint in the Michigan Action alleged that Horizon/CMS breached the services contract by wrongfully terminating General Medicine. We acquired Horizon/CMS in 1997 and sold it to Meadowbrook Healthcare, Inc. in 2001 pursuant to a stock purchase agreement. In 2004, Meadowbrook, without the knowledge of HealthSouth, consented to the entry of a final judgment in the Michigan Action in favor of General Medicine against Horizon/CMS for the alleged wrongful termination of the contract with General Medicine in the amount of </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$376 million</font><font style="font-family:inherit;font-size:10pt;"> (the &#8220;Consent Judgment&#8221;). The </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$376 million</font><font style="font-family:inherit;font-size:10pt;"> damages figure was unilaterally selected by General Medicine and was not tested or opposed by Meadowbrook. Additionally, the settlement agreement (the &#8220;Settlement&#8221;) used as the basis for the Consent Judgment provided that Meadowbrook would pay only </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">$300,000</font><font style="font-family:inherit;font-size:10pt;"> to General Medicine to settle the Michigan Action and that General Medicine would seek to recover the remaining balance of the Consent Judgment solely from us. We were not a party to the Michigan Action, the Settlement negotiated by Meadowbrook, or the Consent Judgment. </font></div><div style="line-height:120%;padding-bottom:13px;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The complaint filed by General Medicine against us in the Alabama Action alleged that while Horizon/CMS was our wholly owned subsidiary, General Medicine was an existing creditor of Horizon/CMS by virtue of the breach of contract claim underlying the Settlement. The complaint also alleged we caused Horizon/CMS to transfer its assets to us for less than a reasonably equivalent value or, in the alternative, with the actual intent to defraud creditors of Horizon/CMS, including General Medicine, in violation of the Alabama Uniform Fraudulent Transfer Act. General Medicine further alleged in its amended complaint that we were liable for the Consent Judgment despite not being a party to it because as Horizon/CMS&#8217;s parent we failed to observe corporate formalities in our operation and ownership of Horizon/CMS, misused our control of Horizon/CMS, stripped assets from Horizon/CMS, and engaged in other conduct which amounted to a fraud on Horizon/CMS&#8217;s creditors. General Medicine requested relief including recovery of the unpaid amount of the Consent Judgment, the avoidance of the subject transfers of assets, attachment of the assets transferred to us, appointment of a receiver over the transferred properties, and a monetary judgment for the value of properties transferred. </font></div><div style="line-height:120%;padding-bottom:13px;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">We denied liability to General Medicine and asserted defenses and a counterclaim against General Medicine that the Consent Judgment was the product of collusion by General Medicine and Meadowbrook. Consequently, we asserted that the Consent Judgment was not evidence of a legitimate debt owed by Horizon/CMS to General Medicine that was collectible from HealthSouth under any theory of liability.</font></div><div style="line-height:120%;padding-bottom:13px;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The trial in the Alabama Action began on March 9, 2015. On March 22, 2015, we entered into an agreement with General Medicine to settle the Alabama Action</font><font style="font-family:inherit;font-size:10pt;font-style:italic;">. </font><font style="font-family:inherit;font-size:10pt;">Although the specific terms of this settlement agreement are confidential, both parties agreed to dismiss with prejudice the lawsuit pending in the Circuit Court of Jefferson County, Alabama and to release all claims between the parties. In exchange for General Medicine&#8217;s release, we agreed to pay an amount of cash that is not material.</font></div><div style="line-height:120%;padding-bottom:13px;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">Other Litigation&#8212;</font></div><div style="line-height:120%;padding-bottom:13px;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">We have been named as a defendant in a lawsuit filed March 28, 2003 by several individual stockholders in the Circuit Court of Jefferson County, Alabama, captioned </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Nichols v. HealthSouth Corp</font><font style="font-family:inherit;font-size:10pt;">. The plaintiffs allege that we, some of our former officers, and our former investment bank engaged in a scheme to overstate and misrepresent our earnings and financial position. The plaintiffs are seeking compensatory and punitive damages. This case was consolidated with the </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Tucker</font><font style="font-family:inherit;font-size:10pt;"> case for discovery and other pretrial purposes and was stayed in the Circuit Court on August&#160;8, 2005. The plaintiffs filed an amended complaint on November 9, 2010 to which we responded with a motion to dismiss filed on December 22, 2010. During a hearing on February&#160;24, 2012, plaintiffs&#8217; counsel indicated his intent to dismiss certain claims against us. Instead, on March 9, 2012, the plaintiffs amended their complaint to include additional securities fraud claims against HealthSouth and add several former officers to the lawsuit. On September 12, 2012, the plaintiffs further amended their complaint to request certification as a class action. One of those named officers has repeatedly attempted to remove the case to federal district court, most recently on December 11, 2012. We filed our latest motion to remand the case back to state court on January 10, 2013. On September 27, 2013, the federal court remanded the case back to state court. On November 25, 2014, the plaintiffs filed another amended complaint to assert new allegations relating to the time period of 1997 to 2002. On December 10, 2014, we filed a motion to dismiss on the grounds the plaintiffs lack standing because their claims are derivative in nature, and the claims are time-barred by the statute of limitations. A hearing on our motion has not yet been set.</font></div><div style="line-height:120%;padding-bottom:13px;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">We intend to vigorously defend ourselves in this case. Based on the stage of litigation, review of the current facts and circumstances as we understand them, the nature of the underlying claim, the results of the proceedings to date, and the nature and scope of the defense we continue to mount, we do not believe an adverse judgment or settlement is probable in this matter, and it is also not possible to estimate the amount of loss, if any, or range of possible loss that might result from an adverse judgment or settlement of this case.</font></div><div style="line-height:120%;padding-bottom:13px;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">Governmental Inquiries and Investigations&#8212;</font></div><div style="line-height:120%;padding-bottom:13px;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On June 24, 2011, we received a document subpoena addressed to HealthSouth Hospital of Houston, a long-term acute care hospital (&#8220;LTCH&#8221;) we closed in August 2011, and issued from the Dallas, Texas office of the HHS-OIG. The subpoena stated it was in connection with an investigation of possible false or otherwise improper claims submitted to Medicare and Medicaid and requested documents and materials relating to patient admissions, length of stay, and discharge matters at this closed LTCH. We furnished the documents requested and have heard nothing from the HHS-OIG since December 2012.</font></div><div style="line-height:120%;padding-bottom:13px;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">On March 4, 2013, we received document subpoenas from an office of the HHS-OIG addressed to </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">four</font><font style="font-family:inherit;font-size:10pt;"> of our hospitals. Those subpoenas also requested complete copies of medical records for </font><font style="font-family:inherit;font-size:10pt;">100</font><font style="font-family:inherit;font-size:10pt;"> patients treated at each of those hospitals between September 2008 and June 2012. The investigation is being conducted by the United States Department of Justice (the &#8220;DOJ&#8221;). On April 24, 2014, we received document subpoenas relating to an additional </font><font style="font-family:inherit;font-size:10pt;">seven</font><font style="font-family:inherit;font-size:10pt;"> of our hospitals. The new subpoenas reference substantially similar investigation subject matter as the original subpoenas and request materials from the period January 2008 through December 2013. </font><font style="font-family:inherit;font-size:10pt;">Two</font><font style="font-family:inherit;font-size:10pt;"> of the four hospitals addressed in the original set of subpoenas have received supplemental subpoenas to cover this new time period. The most recent subpoenas do not include requests for specific patient files. However, in February 2015, the DOJ requested the voluntary production of the medical records of an additional </font><font style="font-family:inherit;font-size:10pt;">70</font><font style="font-family:inherit;font-size:10pt;"> patients, some of whom were treated in hospitals not subject to the subpoenas, and we provided these records. </font></div><div style="line-height:120%;padding-bottom:13px;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">All of the subpoenas are in connection with an investigation of alleged improper or fraudulent claims submitted to Medicare and Medicaid and request documents and materials relating to practices, procedures, protocols and policies, of certain pre- and post-admissions activities at these hospitals including, among other things, marketing functions, pre-admission screening, post-admission physician evaluations, patient assessment instruments, individualized patient plans of care, and compliance with the Medicare </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">60%</font><font style="font-family:inherit;font-size:10pt;"> rule. Under the Medicare rule commonly referred to as the &#8220;</font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">60%</font><font style="font-family:inherit;font-size:10pt;"> rule,&#8221; an inpatient rehabilitation hospital must treat </font><font style="font-family:inherit;font-size:10pt;color:#000000;text-decoration:none;">60%</font><font style="font-family:inherit;font-size:10pt;"> or more of its patients from at least one of a specified list of medical conditions in order to be reimbursed at the inpatient rehabilitation hospital payment rates, rather than at the lower acute care hospital payment rates. </font></div><div style="line-height:120%;padding-bottom:13px;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">We are cooperating fully with the DOJ in connection with these subpoenas and are currently unable to predict the timing or outcome of the related investigations. </font></div><div style="line-height:120%;padding-bottom:13px;text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;">Other Matters&#8212;</font></div><div style="line-height:120%;padding-bottom:13px;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The False Claims Act, 18 U.S.C. &#167; 287, allows private citizens, called &#8220;relators,&#8221; to institute civil proceedings alleging violations of the False Claims Act. These </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">qui tam</font><font style="font-family:inherit;font-size:10pt;"> cases are generally sealed by the court at the time of filing. The only parties typically privy to the information contained in the complaint are the relator, the federal government, and the presiding court. It is possible that </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">qui tam</font><font style="font-family:inherit;font-size:10pt;"> lawsuits have been filed against us and that those suits remain under seal or that we are unaware of such filings or prevented by existing law, court order, or agreement with the government from discussing or disclosing the filing of such suits. We may be subject to liability under one or more undisclosed </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">qui tam</font><font style="font-family:inherit;font-size:10pt;"> cases brought pursuant to the False Claims Act.</font></div><div style="line-height:120%;padding-bottom:13px;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">It is our obligation as a participant in Medicare and other federal healthcare programs to routinely conduct audits and reviews of the accuracy of our billing systems and other regulatory compliance matters. As a result of these reviews, we have made, and will continue to make, disclosures to the HHS-OIG and the United States Centers for Medicare and Medicaid Services relating to amounts we suspect represent over-payments from these programs, whether due to inaccurate billing or otherwise. Some of these disclosures have resulted in, or may result in, HealthSouth refunding amounts to Medicare or other federal healthcare programs.</font></div></div>

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