Encompass Health Corp 8-K 2007
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
On March 1, 2007, HealthSouth Corporation (the Company) issued a press release, a copy of which is attached as Exhibit 99, announcing that it had filed its annual report on Form 10-K for the year ended December 31, 2006 (the "2006 Form 10-K"), and that it will hold a conference call, which will also be webcast live, to review its 2006 Form 10-K. The release also provides an overview of certain information contained in the 2006 Form 10-K, including certain financial results for the quarter ended December 31, 2006.
Note Regarding Presentation of Non-GAAP Financial Measures
The financial data contained in the press release includes non-GAAP financial measures, including "Adjusted Consolidated EBITDA". The Company continues to believe Adjusted Consolidated EBITDA under its 2006 Credit Agreement is a measure of operating performance, leverage capacity, its ability to service its debt, and its ability to make capital expenditures.
The Company uses Adjusted Consolidated EBITDA on a consolidated basis as a liquidity measure. The Company believes this financial measure on a consolidated basis is important in analyzing its liquidity because it is the key component of certain material covenants contained within the Company's 2006 Credit Agreement, which is discussed in more detail in the 2006 Form 10-K. These covenants are material terms of the 2006 Credit Agreement, and the 2006 Credit Agreement represents a substantial portion of the Company's capitalization. Non-compliance with these financial covenants under the 2006 Credit Agreement its interest coverage ratio and its leverage ratio could result in the Company's lenders requiring the Company to immediately repay all amounts borrowed. In addition, if the Company cannot satisfy these financial covenants, it would be prohibited under the 2006 Credit Agreement from engaging in certain activities, such as incurring additional indebtedness, making certain payments, and acquiring and disposing of assets. Consequently, Adjusted Consolidated EBITDA is critical to the companys assessment of its liquidity.
The Company also uses Adjusted Consolidated EBITDA to assess its operating performance. The Company believes it is meaningful because it provides investors with a measure used by its internal decision makers for evaluating its business. The Company's internal decision makers believe Adjusted Consolidated EBITDA is a meaningful measure, because it represents a view of the Company's recurring operating performance and allows the Companys management to readily view operating trends, perform analytical comparisons, and perform benchmarking between segments. Additionally, the Company's management believes the inclusion of professional fees associated with litigation, financial restructuring, government investigations, forensic accounting, creditor advisors, accounting reconstruction, audit and tax work associated with the reconstruction process, and non-ordinary course charges incurred after March 19, 2003 (the date the United States Securities and Exchange Commission filed a lawsuit against the Company and its former chairman and chief executive officer alleging that it historically overstated earnings) and related to its overall corporate restructuring (including matters related to internal controls) distort, within
EBITDA, their ability to efficiently assess and view the core operating trends on a consolidated basis and within segments.
In general terms, the definition of Adjusted Consolidated EBITDA, per the 2006 Credit Agreement, allows the Company to add back to Adjusted Consolidated EBITDA all unusual non-cash items or non-recurring items. These items include, but may not be limited to, (1) expenses associated with government, class action, and related settlements, (2) fees, costs, and expenses related to the Company's recapitalization transactions, (3) any losses from discontinued operations and closed locations, (4) charges in respect of professional fees for reconstruction and restatement of financial statements, including fees paid to outside professional firms for matters related to internal controls and legal fees for continued litigation defense and support matters discussed in the 2006 Form 10-K, and (5) compensation expenses recorded in accordance with FASB Statement No. 123(R), Share-Based Payment.
However, Adjusted Consolidated EBITDA is not a measure of financial performance under generally accepted accounting principles in the United States of America ("GAAP"), and the items excluded from Adjusted Consolidated EBITDA are significant components in understanding and assessing financial performance. Therefore, Adjusted Consolidated EBITDA should not be considered a substitute for Net loss or cash flows from operating, investing, or financing activities. The Company reconciles Adjusted Consolidated EBITDA to Net loss, which reconciliation is set forth in the press release attached as Exhibit 99, and to Net cash used in operating activities, which reconciliation is set forth below. Because Adjusted Consolidated EBITDA is not a measurement determined in accordance with GAAP and is thus susceptible to varying calculations, Adjusted Consolidated EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. Revenues and expenses are measured in accordance with the policies and procedures described in the Company's 2006 Form 10-K.
Reconciliation of Adjusted Consolidated EBITDA to Net Cash Used In Operating Activities
ITEM 9.01. Financial Statements and Exhibits.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.