2017 Q2 Form 10-Q Financial Statement

#000078516117000048 Filed on August 02, 2017

View on sec.gov

Income Statement

Concept 2017 Q2 2016 Q2
Revenue $966.4M $920.7M
YoY Change 4.96% 20.45%
Cost Of Revenue $37.10M $34.40M
YoY Change 7.85% 8.52%
Gross Profit $930.5M $870.9M
YoY Change 6.84% 20.66%
Gross Profit Margin 96.29% 94.59%
Selling, General & Admin $598.5M $540.1M
YoY Change 10.81% 20.96%
% of Gross Profit 64.32% 62.02%
Research & Development
YoY Change
% of Gross Profit
Depreciation & Amortization $45.80M $42.90M
YoY Change 6.76% 31.19%
% of Gross Profit 4.92% 4.93%
Operating Expenses $774.8M $704.5M
YoY Change 9.98% 20.76%
Operating Profit $141.3M $150.2M
YoY Change -5.93% 21.72%
Interest Expense $40.40M $43.40M
YoY Change -6.91% -251.75%
% of Operating Profit 28.59% 28.89%
Other Income/Expense, Net $900.0K $700.0K
YoY Change 28.57% -76.67%
Pretax Income $107.8M $123.7M
YoY Change -12.85% 31.6%
Income Tax $28.60M $42.40M
% Of Pretax Income 26.53% 34.28%
Net Earnings $63.00M $62.60M
YoY Change 0.64% 45.92%
Net Earnings / Revenue 6.52% 6.8%
Basic Earnings Per Share $0.70 $0.70
Diluted Earnings Per Share $0.70 $0.65
COMMON SHARES
Basic Shares Outstanding 90.30M shares 89.30M shares
Diluted Shares Outstanding 98.90M shares 99.40M shares

Balance Sheet

Concept 2017 Q2 2016 Q2
SHORT-TERM ASSETS
Cash & Short-Term Investments $71.10M $70.30M
YoY Change 1.14% 54.51%
Cash & Equivalents $71.10M $70.30M
Short-Term Investments
Other Short-Term Assets $195.9M $168.6M
YoY Change 16.19% 33.07%
Inventory
Prepaid Expenses
Receivables $426.5M $420.6M
Other Receivables $0.00 $0.00
Total Short-Term Assets $693.5M $659.5M
YoY Change 5.16% -7.43%
LONG-TERM ASSETS
Property, Plant & Equipment $1.452B $1.337B
YoY Change 8.62% 25.79%
Goodwill $1.950B $1.900B
YoY Change 2.63% 73.09%
Intangibles $404.8M $414.2M
YoY Change -2.27% 27.25%
Long-Term Investments
YoY Change
Other Assets $237.9M $206.8M
YoY Change 15.04% 7.93%
Total Long-Term Assets $4.147B $3.973B
YoY Change 4.36% 44.1%
TOTAL ASSETS
Total Short-Term Assets $693.5M $659.5M
Total Long-Term Assets $4.147B $3.973B
Total Assets $4.840B $4.633B
YoY Change 4.48% 33.52%
SHORT-TERM LIABILITIES
YoY Change
Accounts Payable $77.50M $67.10M
YoY Change 15.5% 11.83%
Accrued Expenses $377.5M $355.5M
YoY Change 6.19% 25.53%
Deferred Revenue
YoY Change
Short-Term Debt $0.00 $0.00
YoY Change
Long-Term Debt Due $38.30M $36.50M
YoY Change 4.93% 70.56%
Total Short-Term Liabilities $493.3M $459.1M
YoY Change 7.45% 25.92%
LONG-TERM LIABILITIES
Long-Term Debt $2.625B $3.050B
YoY Change -13.93% 44.93%
Other Long-Term Liabilities $182.6M $154.1M
YoY Change 18.49% 12.24%
Total Long-Term Liabilities $182.6M $154.1M
YoY Change 18.49% 12.24%
TOTAL LIABILITIES
Total Short-Term Liabilities $493.3M $459.1M
Total Long-Term Liabilities $182.6M $154.1M
Total Liabilities $3.301B $3.663B
YoY Change -9.89% 40.55%
SHAREHOLDERS EQUITY
Retained Earnings
YoY Change
Common Stock
YoY Change
Preferred Stock
YoY Change
Treasury Stock (at cost)
YoY Change
Treasury Stock Shares
Shareholders Equity $1.104B $672.7M
YoY Change
Total Liabilities & Shareholders Equity $4.840B $4.633B
YoY Change 4.48% 33.52%

Cashflow Statement

Concept 2017 Q2 2016 Q2
OPERATING ACTIVITIES
Net Income $63.00M $62.60M
YoY Change 0.64% 45.92%
Depreciation, Depletion And Amortization $45.80M $42.90M
YoY Change 6.76% 31.19%
Cash From Operating Activities $151.2M $152.2M
YoY Change -0.66% 47.91%
INVESTING ACTIVITIES
Capital Expenditures -$64.80M -$47.50M
YoY Change 36.42% 36.1%
Acquisitions
YoY Change
Other Investing Activities -$13.00M -$18.50M
YoY Change -29.73% -59.87%
Cash From Investing Activities -$77.80M -$66.00M
YoY Change 17.88% -18.52%
FINANCING ACTIVITIES
Cash Dividend Paid
YoY Change
Common Stock Issuance & Retirement, Net
YoY Change
Debt Paid & Issued, Net
YoY Change
Cash From Financing Activities -63.50M -89.10M
YoY Change -28.73% -51.76%
NET CHANGE
Cash From Operating Activities 151.2M 152.2M
Cash From Investing Activities -77.80M -66.00M
Cash From Financing Activities -63.50M -89.10M
Net Change In Cash 9.900M -2.900M
YoY Change -441.38% -98.22%
FREE CASH FLOW
Cash From Operating Activities $151.2M $152.2M
Capital Expenditures -$64.80M -$47.50M
Free Cash Flow $216.0M $199.7M
YoY Change 8.16% 44.92%

Facts In Submission

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CY2017Q2 us-gaap Health Care Organization Revenue
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981300000 USD
us-gaap Health Care Organization Revenue
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1956100000 USD
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905300000 USD
us-gaap Health Care Organization Revenue Net Of Patient Service Revenue Provisions
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1798600000 USD
CY2017Q2 us-gaap Health Care Organization Revenue Net Of Patient Service Revenue Provisions
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967600000 USD
us-gaap Health Care Organization Revenue Net Of Patient Service Revenue Provisions
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1926000000 USD
CY2016Q2 us-gaap Income Loss From Continuing Operations
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62700000 USD
us-gaap Income Loss From Continuing Operations
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120800000 USD
CY2017Q2 us-gaap Income Loss From Continuing Operations
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62800000 USD
us-gaap Income Loss From Continuing Operations
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129900000 USD
CY2016Q2 us-gaap Income Loss From Continuing Operations Attributable To Noncontrolling Entity
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18600000 USD
us-gaap Income Loss From Continuing Operations Attributable To Noncontrolling Entity
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37300000 USD
CY2017Q2 us-gaap Income Loss From Continuing Operations Attributable To Noncontrolling Entity
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16400000 USD
us-gaap Income Loss From Continuing Operations Attributable To Noncontrolling Entity
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34000000 USD
CY2016Q2 us-gaap Income Loss From Continuing Operations Before Income Taxes Extraordinary Items Noncontrolling Interest
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123700000 USD
us-gaap Income Loss From Continuing Operations Before Income Taxes Extraordinary Items Noncontrolling Interest
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240200000 USD
CY2017Q2 us-gaap Income Loss From Continuing Operations Before Income Taxes Extraordinary Items Noncontrolling Interest
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107800000 USD
us-gaap Income Loss From Continuing Operations Before Income Taxes Extraordinary Items Noncontrolling Interest
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232200000 USD
CY2016Q2 us-gaap Income Loss From Continuing Operations Including Portion Attributable To Noncontrolling Interest
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81300000 USD
us-gaap Income Loss From Continuing Operations Including Portion Attributable To Noncontrolling Interest
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158100000 USD
CY2017Q2 us-gaap Income Loss From Continuing Operations Including Portion Attributable To Noncontrolling Interest
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79200000 USD
us-gaap Income Loss From Continuing Operations Including Portion Attributable To Noncontrolling Interest
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163900000 USD
CY2016Q2 us-gaap Income Loss From Continuing Operations Per Basic Share
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0.70
us-gaap Income Loss From Continuing Operations Per Basic Share
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1.34
CY2017Q2 us-gaap Income Loss From Continuing Operations Per Basic Share
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0.70
us-gaap Income Loss From Continuing Operations Per Basic Share
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1.45
CY2016Q2 us-gaap Income Loss From Continuing Operations Per Diluted Share
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0.65
us-gaap Income Loss From Continuing Operations Per Diluted Share
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1.26
CY2017Q2 us-gaap Income Loss From Continuing Operations Per Diluted Share
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0.70
CY2016Q2 us-gaap Income Loss From Discontinued Operations Net Of Tax
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us-gaap Income Loss From Discontinued Operations Net Of Tax
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1200000 USD
us-gaap Increase Decrease In Accounts Payable
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CY2017Q2 us-gaap Income Loss From Discontinued Operations Net Of Tax
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200000 USD
us-gaap Income Loss From Discontinued Operations Net Of Tax
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-100000 USD
us-gaap Income Loss From Discontinued Operations Net Of Tax Attributable To Reporting Entity
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-200000 USD
CY2017Q2 us-gaap Income Loss From Discontinued Operations Net Of Tax Attributable To Reporting Entity
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200000 USD
us-gaap Income Loss From Discontinued Operations Net Of Tax Attributable To Reporting Entity
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-100000 USD
CY2016Q2 us-gaap Income Loss From Discontinued Operations Net Of Tax Per Basic Share
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0.00
us-gaap Income Loss From Discontinued Operations Net Of Tax Per Basic Share
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0.00
CY2017Q2 us-gaap Income Loss From Discontinued Operations Net Of Tax Per Basic Share
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0.00
us-gaap Income Loss From Discontinued Operations Net Of Tax Per Basic Share
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0.00
CY2016Q2 us-gaap Income Loss From Discontinued Operations Net Of Tax Per Diluted Share
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0.00
us-gaap Income Loss From Discontinued Operations Net Of Tax Per Diluted Share
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0.00
CY2017Q2 us-gaap Income Loss From Discontinued Operations Net Of Tax Per Diluted Share
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0.00
us-gaap Income Loss From Discontinued Operations Net Of Tax Per Diluted Share
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0.00
CY2016Q2 us-gaap Income Loss From Equity Method Investments
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2400000 USD
us-gaap Income Loss From Equity Method Investments
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4800000 USD
CY2017Q2 us-gaap Income Loss From Equity Method Investments
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2000000 USD
us-gaap Income Loss From Equity Method Investments
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4100000 USD
CY2016Q2 us-gaap Income Loss From Subsidiaries Before Tax
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0 USD
us-gaap Income Loss From Subsidiaries Before Tax
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0 USD
CY2017Q2 us-gaap Income Loss From Subsidiaries Before Tax
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0 USD
us-gaap Income Loss From Subsidiaries Before Tax
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0 USD
CY2016Q2 us-gaap Income Tax Expense Benefit
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42400000 USD
us-gaap Income Tax Expense Benefit
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82100000 USD
CY2017Q2 us-gaap Income Tax Expense Benefit
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28600000 USD
us-gaap Income Tax Expense Benefit
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68300000 USD
us-gaap Increase Decrease In Accounts Receivable
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59500000 USD
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26500000 USD
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19200000 USD
us-gaap Increase Decrease In Accrued Salaries
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-500000 USD
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4300000 USD
us-gaap Increase Decrease In Other Operating Assets
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22000000 USD
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-1900000 USD
us-gaap Increase Decrease In Other Operating Liabilities
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7000000 USD
us-gaap Increase Decrease In Restricted Cash
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11500000 USD
us-gaap Increase Decrease In Restricted Cash
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12100000 USD
CY2016Q2 us-gaap Incremental Common Shares Attributable To Conversion Of Debt Securities
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8500000 shares
us-gaap Incremental Common Shares Attributable To Conversion Of Debt Securities
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8500000 shares
CY2017Q1 us-gaap Incremental Common Shares Attributable To Conversion Of Debt Securities
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8600000 shares
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7500000 shares
us-gaap Incremental Common Shares Attributable To Conversion Of Debt Securities
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8100000 shares
CY2016Q2 us-gaap Incremental Common Shares Attributable To Share Based Payment Arrangements
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1600000 shares
us-gaap Incremental Common Shares Attributable To Share Based Payment Arrangements
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1500000 shares
CY2017Q2 us-gaap Incremental Common Shares Attributable To Share Based Payment Arrangements
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1100000 shares
us-gaap Incremental Common Shares Attributable To Share Based Payment Arrangements
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1400000 shares
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404800000 USD
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43400000 USD
us-gaap Interest Expense
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88000000 USD
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40400000 USD
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81700000 USD
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2400000 USD
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4800000 USD
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2100000 USD
us-gaap Interest On Convertible Debt Net Of Tax
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4600000 USD
CY2016Q4 us-gaap Investments In Affiliates Subsidiaries Associates And Joint Ventures
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13000000 USD
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12600000 USD
CY2016Q2 us-gaap Labor And Related Expense
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486100000 USD
us-gaap Labor And Related Expense
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972200000 USD
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527800000 USD
us-gaap Labor And Related Expense
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CY2017Q2 us-gaap Liabilities
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4840000000 USD
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493300000 USD
us-gaap Loans And Leases Receivable Related Parties Proceeds
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CY2016Q4 us-gaap Long Term Debt And Capital Lease Obligations
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2625100000 USD
CY2016Q4 us-gaap Long Term Debt And Capital Lease Obligations Current
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37100000 USD
CY2017Q2 us-gaap Long Term Debt And Capital Lease Obligations Current
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38300000 USD
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0 USD
us-gaap Management Fees Revenue
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CY2017Q2 us-gaap Management Fees Revenue
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0 USD
us-gaap Management Fees Revenue
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CY2017Q2 us-gaap Minority Interest
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219300000 USD
us-gaap Minority Interest Change In Redemption Value
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2800000 USD
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29900000 USD
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22900000 USD
us-gaap Net Cash Provided By Used In Financing Activities
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us-gaap Net Cash Provided By Used In Financing Activities
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us-gaap Net Cash Provided By Used In Investing Activities
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us-gaap Net Cash Provided By Used In Operating Activities
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321800000 USD
us-gaap Net Cash Provided By Used In Operating Activities
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332000000 USD
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62600000 USD
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120600000 USD
CY2017Q2 us-gaap Net Income Loss
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63000000 USD
us-gaap Net Income Loss
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129800000 USD
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18600000 USD
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37300000 USD
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16400000 USD
us-gaap Net Income Loss Attributable To Noncontrolling Interest
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34000000 USD
CY2016Q2 us-gaap Net Income Loss Attributable To Nonredeemable Noncontrolling Interest
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15000000 USD
us-gaap Net Income Loss Attributable To Nonredeemable Noncontrolling Interest
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29800000 USD
CY2017Q2 us-gaap Net Income Loss Attributable To Nonredeemable Noncontrolling Interest
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13800000 USD
us-gaap Net Income Loss Attributable To Nonredeemable Noncontrolling Interest
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28300000 USD
CY2016Q2 us-gaap Net Income Loss Attributable To Redeemable Noncontrolling Interest
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3600000 USD
us-gaap Net Income Loss Attributable To Redeemable Noncontrolling Interest
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7500000 USD
CY2017Q2 us-gaap Net Income Loss Attributable To Redeemable Noncontrolling Interest
NetIncomeLossAttributableToRedeemableNoncontrollingInterest
2600000 USD
us-gaap Net Income Loss Attributable To Redeemable Noncontrolling Interest
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5700000 USD
CY2016Q2 us-gaap Net Income Loss Available To Common Stockholders Diluted
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65000000 USD
us-gaap Net Income Loss Available To Common Stockholders Diluted
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125400000 USD
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71300000 USD
us-gaap Net Income Loss Available To Common Stockholders Diluted
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140600000 USD
us-gaap Net Income Loss Including Portion Attributable To Nonredeemable Noncontrolling Interest
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150400000 USD
us-gaap Net Income Loss Including Portion Attributable To Nonredeemable Noncontrolling Interest
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158100000 USD
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0 USD
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0 USD
us-gaap Number Of Operating Segments
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2 segment
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36 state
us-gaap Origination Of Notes Receivable From Related Parties
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CY2017Q2 us-gaap Other Assets Current
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237900000 USD
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400000 USD
us-gaap Other Comprehensive Income Loss Before Tax
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us-gaap Other Comprehensive Income Loss Before Tax
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400000 USD
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200000 USD
us-gaap Other Comprehensive Income Loss Net Of Tax
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300000 USD
CY2017Q2 us-gaap Other Comprehensive Income Loss Net Of Tax
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0 USD
us-gaap Other Comprehensive Income Loss Net Of Tax
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300000 USD
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200000 USD
us-gaap Other Comprehensive Income Loss Tax
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300000 USD
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0 USD
us-gaap Other Comprehensive Income Loss Tax
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100000 USD
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400000 USD
us-gaap Other Comprehensive Income Unrealized Holding Gain Loss On Securities Arising During Period Before Tax
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600000 USD
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0 USD
us-gaap Other Comprehensive Income Unrealized Holding Gain Loss On Securities Arising During Period Before Tax
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400000 USD
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240700000 USD
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160000000 USD
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us-gaap Payments For Repurchase Of Common Stock
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us-gaap Payments For Repurchase Of Common Stock
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43500000 USD
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us-gaap Payments Related To Tax Withholding For Share Based Compensation
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us-gaap Payments To Acquire Businesses Net Of Cash Acquired
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9400000 USD
us-gaap Payments To Acquire Businesses Net Of Cash Acquired
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20900000 USD
us-gaap Payments To Acquire Property Plant And Equipment
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71400000 USD
us-gaap Payments To Acquire Property Plant And Equipment
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99900000 USD
us-gaap Payments To Minority Shareholders
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33600000 USD
us-gaap Payments To Minority Shareholders
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24100000 USD
CY2013Q4 us-gaap Preferred Stock Dividend Rate Percentage
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us-gaap Proceeds From Payments For Other Financing Activities
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4500000 USD
CY2017Q1 us-gaap Proceeds From Warrant Exercises
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us-gaap Proceeds From Warrant Exercises
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us-gaap Proceeds From Warrant Exercises
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26600000 USD
CY2016Q2 us-gaap Professional Fees
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us-gaap Professional Fees
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us-gaap Professional Fees
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CY2016Q2 us-gaap Profit Loss
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157900000 USD
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us-gaap Provision For Doubtful Accounts
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31900000 USD
us-gaap Provision For Doubtful Accounts
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30100000 USD
CY2016Q4 us-gaap Redeemable Noncontrolling Interest Equity Carrying Amount
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138300000 USD
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216000000 USD
us-gaap Repayment Of Notes Receivable From Related Parties
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0 USD
us-gaap Repayment Of Notes Receivable From Related Parties
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0 USD
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600000 USD
us-gaap Repayments Of Long Term Lines Of Credit
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145000000 USD
us-gaap Repayments Of Long Term Lines Of Credit
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187000000 USD
us-gaap Repayments Of Related Party Debt
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0 USD
us-gaap Repayments Of Related Party Debt
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us-gaap Repayments Of Senior Debt
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112800000 USD
us-gaap Repayments Of Senior Debt
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13400000 USD
us-gaap Share Based Compensation
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13100000 USD
us-gaap Share Based Compensation
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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;">Nichols 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 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 the former officers named as a defendant 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&#160;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. On May 26, 2016, the court granted our motion to dismiss. The plaintiffs appealed the dismissal of the case to the Supreme Court of Alabama on June 28, 2016. The Supreme Court has not yet scheduled a hearing on the appeal.</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 an 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;">Other Litigation&#8212;</font></div><div style="line-height:120%;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">One</font><font style="font-family:inherit;font-size:10pt;"> of our hospital subsidiaries was named as a defendant in a lawsuit filed August 12, 2013 by an individual in the Circuit Court of Etowah County, Alabama, captioned </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Honts</font><font style="font-family:inherit;font-size:10pt;">&#160;</font><font style="font-family:inherit;font-size:10pt;font-style:italic;">v. HealthSouth Rehabilitation Hospital of Gadsden, LLC.</font><font style="font-family:inherit;font-size:10pt;">&#160;The plaintiff alleged that her mother, who died more than three months after being discharged from our hospital, received an unprescribed opiate medication at the hospital. We deny the patient received any such medication, accounted for all the opiates at the hospital and argued the plaintiff established no causal liability between the actions of our staff and her mother&#8217;s death. The plaintiff sought recovery for punitive damages. On May 18, 2016, the jury in this case returned a verdict in favor of the plaintiff for </font><font style="font-family:inherit;font-size:10pt;">$20.0 million</font><font style="font-family:inherit;font-size:10pt;">. On June 17, 2016, we filed a renewed motion for judgment as a matter of law or, in the alternative, a motion for new trial or, in the further alternative, a motion seeking reduction of the damages awarded (collectively, the &#8220;post-judgment motions&#8221;).&#160;The trial court denied the post-judgment motions. We appealed the verdict as well as the rulings on the post-judgment motions to the Supreme Court of Alabama on October 12, 2016. The Supreme Court has not yet scheduled a hearing on the appeal. We posted a bond in the amount of the judgment pending resolution of our appeal. We intend to vigorously defend ourselves in this case. Although we continue to believe in the merit of our defenses and counterarguments, we recorded a net charge of </font><font style="font-family:inherit;font-size:10pt;">$5.7 million</font><font style="font-family:inherit;font-size:10pt;"> to </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Other operating expenses</font><font style="font-family:inherit;font-size:10pt;"> in our consolidated statements of operations for the year ended December 31, 2016. As of June 30, 2017, we maintained a liability of </font><font style="font-family:inherit;font-size:10pt;">$20.4 million</font><font style="font-family:inherit;font-size:10pt;"> in&#160;</font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Accrued expenses and other liabilities</font><font style="font-family:inherit;font-size:10pt;">&#160;in our condensed consolidated balance sheet with a corresponding receivable of </font><font style="font-family:inherit;font-size:10pt;">$15.5 million</font><font style="font-family:inherit;font-size:10pt;"> in&#160;</font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Other current assets</font><font style="font-family:inherit;font-size:10pt;">&#160;for the portion of the liability we would expect to be covered through our excess insurance coverages. The portion of this liability that would be a covered claim through our captive insurance subsidiary, HCS, Ltd. is </font><font style="font-family:inherit;font-size:10pt;">$6.0 million</font><font style="font-family:inherit;font-size:10pt;">.</font></div><div style="line-height:120%;text-align:left;text-indent:48px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></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 United States Department of Health and Human Services Office of Inspector General (&#8220;HHS-OIG&#8221;). 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. We have not received any subsequent requests for medical records from the DOJ.</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 this investigation and are currently unable to predict the timing or outcome of it. We intend to vigorously defend ourselves in this matter. Based on discussions with the DOJ, review of the current facts and circumstances as we understand them, and the nature of the investigation, it is not possible to estimate an amount of loss, if any, or range of possible loss that might result from it.</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 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 sealed by the court at the time of filing. Prior to the release of the seal by the presiding court, the only parties typically privy to the information contained in the complaint are the relator, the federal government, and the 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, or court order 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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