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HEALTHSOUTH Reports Third Quarter Results
PRNewswire-FirstCall
BIRMINGHAM, Ala.

HEALTHSOUTH Corporation announced operating results for the quarter and nine months ended September 30, 2002. For the third quarter, HEALTHSOUTH's revenues were $1.094 billion, an increase of 2% as compared to $1.076 billion for the second quarter of 2001 and an increase of 3% after adjusting for divestitures in 2001. Net income for the quarter was $53.6 million, a decrease of 32% compared to net income of $79.1 million in the 2001 quarter. Earnings per share (assuming dilution) were $0.13 for the 2002 quarter, a decrease of 35% as compared to earnings per share (assuming dilution) of $0.20 in the 2001 quarter. Earnings per share for the 2002 quarter include the effects of a one-time pretax gain of approximately $25 million on the early extinguishment of debt, relating to HEALTHSOUTH's repurchase of over $440 million of its public debt in the quarter. Operating earnings for the quarter, excluding this one-time gain, were $38.3 million, or $0.10 per share (assuming dilution)

For the nine months ended September 30, 2002, HEALTHSOUTH's revenues were $3.387 billion, compared to $3.265 billion for the 2001 period. Net income for the 2002 period was $135.7 million, compared to net income of $134.5 million for the 2001 period. Earnings per share (assuming dilution) were $0.34 for the 2002 period, compared to $0.34 for the 2001 period. Operating earnings for the 2002 period were $259.7 million, compared to operating earnings of $237.5 million for the 2001 period. Operating earnings per share (assuming dilution) were $0.65 for the 2002 period, compared to $0.60 for the 2001 period.

Operating earnings exclude the effects of certain items that are included in net income, including unusual and non-recurring items of gain or loss and changes in accounting principles. Operating earnings for the third quarter of 2002 exclude the effects of the $25 million gain on early extinguishment of debt described above. Operating earnings for the nine months ended September 30, 2002 exclude the effects of such gain as well as the effects of a loss on the sale of assets, a loss on the early extinguishment of debt and the cumulative effect of a change in accounting principle relating to the impairment of assets under the requirements of Financial Accounting Standards Board Statement No. 142, all of which were incurred in the second quarter of 2002 and described in HEALTHSOUTH's second quarter earnings release. A reconciliation of operating earnings to net income as determined under generally accepted accounting principles is provided in the accompanying financial information. Management believes that operating earnings and operating earnings per share excluding such unusual and non-recurring gains or losses and non-cash impairment charges provide a clearer picture of the Company's operational performance than net income and earnings per share standing alone.

"The third quarter was a challenging one, and we are glad to have it behind us," said Richard M. Scrushy, Chairman of the Board of HEALTHSOUTH. "However, in the midst of all the difficulties, there were positive things happening. While our outpatient rehabilitation business showed a 17% decrease in revenue and a decline in volumes, we saw higher revenues in each of our other lines of business, including a 12% increase in inpatient rehabilitation revenue over the third quarter of 2001. We also saw same-store volume growth in our inpatient rehabilitation, diagnostic and surgery center businesses, including a 10% same-store increase in inpatient rehabilitation discharges. In addition, we added 52 new physician partners in our surgery centers during the quarter, resulting in our ninth consecutive quarter of same-store growth in that division."

William T. Owens, President and Chief Executive Officer of HEALTHSOUTH, said, "Our revenue decline in the third quarter was driven by a decrease in reimbursement in our outpatient rehabilitation business of approximately $23 million as compared to the second quarter, primarily related to the impact of Medicare Program Transmittal 1753 and its policies regarding the use of the group therapy billing code, and a decline in volumes in our outpatient rehabilitation business that resulted in approximately a $34 million decrease in revenue. This decline in volumes related to several factors. First, we closed or consolidated outpatient facilities in some markets to eliminate duplication and enhance efficiency, so we operated fewer facilities during the quarter. In addition, our number of referrals and visits per referral were both down. Finally, the demands on management resources in the quarter, combined with confusion among our therapists on scheduling and staffing requirements under the new Medicare policy, negatively affected our ability to restore lost volumes during the quarter. All of these factors contributed to a decline of about two patient visits per outpatient facility per day as compared to the second quarter of 2002. In addition, we saw increases of approximately $39 million in operating unit expenses as compared to the second quarter of 2002, primarily attributable to field training for therapists in the new policies, increased recruiting and labor costs, higher insurance premiums and new marketing initiatives, and an approximately $12 million increase in corporate general and administrative expenses from the second quarter. This increase in corporate-level expenses resulted primarily from increased legal, accounting and other professional fees related both to pending litigation and the proposed tax-free separation of our surgery center division and corporate-level marketing initiatives aimed at restoring patient volumes."

Owens added, "We are in the midst of our 2003 budget process, and we are intensely focused on both corporate and field expenses as well as on efforts to rebuild our outpatient volumes. We will also be evaluating some of our facilities for any necessary impairment charges under FASB Statement No. 142, and we expect the results of that evaluation to be complete in the fourth quarter. While the overall results of the third quarter were below what we had expected due to the impact of the factors we have described, it is important to note that we had an $8.4 million sequential-quarter increase in revenues in our inpatient rehabilitation operations due to our successful response to the inpatient rehabilitation prospective payment system and strong same-store growth, despite the impact of Transmittal 1753 on outpatient services provided in our inpatient division. We also repurchased over $440 million in public debt, including approximately $214 million of our $567.7 million in convertible subordinated debentures that mature in April 2003. Outside of those debentures, we have no significant debt maturities until 2005, and we had over $1 billion in availability under our revolving credit facility at the end of the quarter. We have ample liquidity to meet our foreseeable needs at this time."

At September 30, 2002, the Company's balance sheet reflected total debt of $3.212 billion and cash and cash equivalents of $390.4 million, resulting in net debt of $2.822 billion, a decline of $111.3 million from June 30, 2002. Accounts receivable days increased 7.5 days, to 86.5 days, from the second quarter of 2002, primarily as a result of decreased revenues in the third quarter.

Cash flow from operations totaled approximately $141 million, compared to $170 million in the 2001 quarter. Capital spending was approximately $75.0 million in the quarter.

In conclusion, Scrushy noted, "During the third quarter, we have taken a number of steps to respond to issues that are important to our investors. We added two new independent members to our Board of Directors, and formed a special corporate governance committee to review our governance policies and recommend changes to ensure that we are responsive to all of our constituencies. We have also undertaken an extensive review, led by highly respected outside counsel, of concerns that have been raised in the press and elsewhere, and we have fully cooperated with the Securities and Exchange Commission in their previously announced investigation, volunteering to provide the Commission with information even before we had been advised of any investigation. We have devoted a great deal of time to meeting with our stockholders and bondholders, and we have responded to their concerns. This quarter has been difficult, and the difficulties will not go away overnight. However, our Board of Directors and our management team are fully committed to overcoming the challenges that face us and to continuing to act in the best interests of our stockholders, our dedicated employees and the other constituencies that we serve."

HEALTHSOUTH is the nation's largest provider of outpatient surgery, diagnostic imaging and rehabilitative healthcare services, with approximately 1,800 locations in all 50 states, the United Kingdom, Australia, Puerto Rico, Saudi Arabia and Canada. HEALTHSOUTH can be found on the Web at http://www.healthsouth.com/.

HEALTHSOUTH will hold a conference call to discuss its third quarter results at 9:00 a.m. Central Standard Time on Tuesday, November 5, 2002. Simultaneously with the conference call, a webcast of the call will be available to interested parties at http://www.healthsouth.com/ via an Internet link under the "Investor Relations" section. A replay of the call will be available at the same Internet site address for 15 days following the call.

Statements contained in this press release which are not historical facts are forward-looking statements. Without limiting the generality of the preceding statement, all statements in this press release concerning or relating to estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results are forward-looking statements. In addition, HEALTHSOUTH, through its senior management, may from time to time make forward-looking public statements concerning the matters described herein. Such forward-looking statements are necessarily estimates based upon current information, involve a number of risks and uncertainties and are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. HEALTHSOUTH's actual results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors, including those identified in this press release and in the public filings made by HEALTHSOUTH with the Securities and Exchange Commission, including HEALTHSOUTH's Annual Report on Form 10-K for the year ended December 31, 2001 and its Quarterly Reports on Form 10-Q, and forward-looking statements contained in this press release or in other public statements of HEALTHSOUTH or its senior management should be considered in light of those factors. There can be no assurance that such factors or other factors will not affect the accuracy of such forward-looking statements.

                 HEALTHSOUTH Corporation and Subsidiaries
                    CONSOLIDATED STATEMENTS OF INCOME
           (UNAUDITED - In thousands, except per share amounts)

                                                    Three Months Ended
                                                          Sept 30,
                                                  2002             2001

  Revenues                                  $  1,093,785      $  1,075,874

  Operating unit expenses                        786,947           714,750
  Corporate general and administrative
   expenses                                       55,125            38,958
  Provision for doubtful accounts                 23,898            23,980
  Depreciation and amortization                   79,505            95,790
  Early extinguishment of debt                   (25,078)                0
  Loss on sale of assets                               0                 0
  Interest expense                                57,972            50,914
  Interest income                                 (1,938)           (1,430)
                                                 976,431           922,962
     Income before income taxes
       and minority interests                    117,354           152,912

  Provision for income taxes                      33,919            51,659
     Income before minority interests             83,435           101,253
  Minority interests                             (29,821)          (22,127)

  Income before cumulative effect of
     accounting change                            53,614            79,126
  Cumulative effect of accounting change              --                --
     Net income                             $     53,614      $     79,126

  Weighted average common shares outstanding     397,237           390,455

  Income per common share before
   cumulative effect of accounting change           0.14              0.20
  Cumulative effect of accounting change              --                --
  Net income per common share               $       0.14      $       0.20

  Weighted average common shares
     outstanding -- assuming dilution            399,352           401,074

  Income per common share before
   cumulative effect of accounting
   change -- assuming dilution                      0.13              0.20
  Cumulative effect of accounting change              --                --
  Net income per common share --
     assuming dilution                      $       0.13      $       0.20

  Add-back to income for diluted
   earnings per share:  Interest and
   amortization on convertible debt.        $         --      $         --

                                                       *                 *
  * The effect of these securities was
     antidilutive.

  Income per common share before
   cumulative effect of accounting change   $     53,614      $     79,126
  Add back non-recurring items
     Non-recurring items                         (25,078)               --
     Tax benefit (provision)                       9,718                --

  Operating income                          $     38,254      $     79,126

  Weighted average common shares outstanding     397,237           390,455

  Weighted average common shares
     outstanding -- assuming dilution            399,352           401,074


  Operating income per common share         $       0.10      $       0.20

  Operating income per common share --
     assuming dilution                      $       0.10      $       0.20

  Add-back to income for diluted
   earnings per share:  Interest and
   amortization on convertible debt.        $         --      $         --
                                                       *                 *
   *  The effect of these securities was antidilutive.


                 HEALTHSOUTH Corporation and Subsidiaries
                    CONSOLIDATED STATEMENTS OF INCOME
           (UNAUDITED - In thousands, except per share amounts)

                                                    Nine Months Ended
                                                 Sept 30,       Sept 30,
                                                 2002               2001

  Revenues                                  $  3,387,243      $  3,265,324

  Operating unit expenses                      2,270,760         2,173,500
  Corporate general and administrative
   expenses                                      138,382           122,827
  Provision for doubtful accounts                 74,534            83,221
  Depreciation and amortization                  242,428           280,231
  Early extinguishment of debt                   (25,078)            6,475
  Loss on sale of assets                          76,690           139,883
  Interest expense                               158,907           165,580
  Interest income                                 (4,205)           (5,742)
                                               2,932,418         2,965,975
     Income before income taxes
        and minority interests                   454,825           299,349

  Provision for income taxes                     147,869            93,193
     Income before minority interests            306,956           206,156
  Minority interests                             (88,087)          (71,667)

  Income before cumulative effect of
     accounting change                           218,869           134,489
  Cumulative effect of accounting change         (83,165)               --
     Net income                             $    135,704      $    134,489

  Weighted average common shares outstanding     394,867           389,135

  Income per common share before
   cumulative effect of accounting change           0.55              0.35
  Cumulative effect of accounting change           (0.21)               --
  Net income per common share               $       0.34      $       0.35

  Weighted average common shares
     outstanding -- assuming dilution            400,334           399,077

  Income per common share before
   cumulative effect of accounting change --
   assuming dilution                                0.55              0.34
  Cumulative effect of accounting change           (0.21)               --
  Net income per common share --
     assuming dilution                      $       0.34      $       0.34

  Add-back to income for diluted
   earnings per share:  Interest and
   amortization on convertible debt.        $         --      $         --

                                                       *                 *
  *  The effect of these securities was
      antidilutive.

  Income per common share before
   cumulative effect of accounting change   $    218,869      $    134,489
  Add back non-recurring items
     Non-recurring items                          57,146           164,906
     Tax benefit (provision)                     (16,331)          (61,880)

  Operating income                          $    259,684      $    237,515

  Weighted average common shares outstanding     394,867           389,135

  Weighted average common shares
     outstanding -- assuming dilution            415,836           397,993


  Operating income per common share         $       0.66      $       0.61

  Operating income per common share --
     assuming dilution                      $       0.65      $       0.60

  Add-back to income for diluted
   earnings per share:  Interest and
   amortization on convertible debt.        $      9,459      $         --
                                                                         *
   *  The effect of these securities was antidilutive.


                 HEALTHSOUTH Corporation and Subsidiaries
                    Consolidated Statements of Income
                   Nine Months Ended September 30,2002
           (UNAUDITED - In thousands, except per share amounts)

                                                                Nine Months
                                                                   Ended
                                                                 September
                                                     Less        30, 2002
                                                    Unusual       Before
                                      Nine Months     and       Unusual and
                                         Ended        Non-          Non-
                                       September    Recurring     Recurring
                                       30, 2002      Items         Items


  Revenues                          $  3,387,243               $  3,387,243
  Operating unit expenses              2,270,760                  2,270,760
  Corporate general and
   administrative expenses               138,382                    138,382
  Provision for doubtful accounts         74,534                     74,534
  Depreciation and amortization          242,428      5,534  (1)    236,894
  Early extinguishment of debt           (25,078)   (25,078) (1)        -
  Loss on sale of assets                  76,690     76,690  (2)        -
  Interest expense                       158,907                    158,907
  Interest income                         (4,205)                    (4,205)
                                       2,932,418     57,146       2,875,272
  Income before income taxes,
   minority interests and
   cumulative effect of accounting
   change                                454,825    (57,146)        511,971
  Provision for income taxes             147,869    (16,331)        164,200
  Income before minority interests
   and cumulative effect of
   accounting change                     306,956    (40,815)        347,771

  Minority interests                     (88,087)                   (88,087)
  Income before cumulative effect of
     accounting change                   218,869    (40,815)        259,684
  Cumulative effect of accounting
   change                                (83,165)   (83,165)             --
  Net income                        $    135,704 $ (123,980)   $    259,684

  Weighted average common shares
     outstanding                         394,867                    394,867

  Income per common share before
   cumulative effect of accounting
   change                                   0.55                       0.66
  Cumulative effect of accounting
   change                                  (0.21)                        --
  Net income per common share       $       0.34               $       0.66

  Weighted average common shares
     outstanding -- assuming dilution    400,334                    415,836

  Income per common share before
   cumulative effect of accounting
   change -- assuming dilution              0.55                       0.65
  Cumulative effect of accounting
   change                                  (0.21)                        --
  Net income per common share --
   assuming dilution                $       0.34               $       0.65


  Add-back to income for diluted
   earnings per share:
     Interest and amortization on
       convertible debt *                                      $      9,459
                                               *


   *  The effect of these securities was antidilutive.

   (1) Effect of early extinguishment of debt.
   (2) Loss related to the sale of certain facilities.


                 HEALTHSOUTH Corporation and Subsidiaries
                    Consolidated Statements of Income
                  Three Months Ended September 30, 2002
           (UNAUDITED - In thousands, except per share amounts)

                                                                   Three
                                                                Months Ended
                                                                  September
                                                    Less          30, 2002
                                                   Unusual         Before
                                    Three           and         Unusual and
                                  Months Ended      Non-             Non-
                                   September      Recurring       Recurring
                                   30, 2002         Items           Items


  Revenues                       $ 1,093,785                   $ 1,093,785
  Operating unit expenses            786,947                       786,947
  Corporate general and
   administrative expenses            55,125                        55,125
                                                                --
  Provision for doubtful accounts     23,898                        23,898
  Depreciation and amortization       79,505                        79,505
  Early extinguishment of debt       (25,078)      (25,078) (1)         --
  Interest expense                    57,972                        57,972
  Interest income                     (1,938)                       (1,938)
                                     976,431       (25,078)      1,001,509
  Income before income taxes and
    minority interests               117,354        25,078          92,276
  Provision for income taxes          33,919         9,718          24,201
  Income before minority interests    83,435        15,360          68,075
  Minority interests                 (29,821)                      (29,821)
  Net income                     $    53,614      $ 15,360     $    38,254

  Weighted average common shares
    outstanding                      397,237                       397,237

  Net income per common share    $      0.14                   $      0.10

  Weighted average common shares
    outstanding -- assuming
     dilution                        399,352                       399,352

  Net income per common share -
    assuming dilution            $      0.13                   $      0.10

  Add-back to income for
   diluted earnings per share:
    Interest and amortization
     on convertible debt *       $        --                   $        --
                                           *                             *


   *  The effect of these securities was antidilutive

   (1) Effect of early extinguishment of debt.


                 HEALTHSOUTH Corporation and Subsidiaries
                   Summary Consolidated Balance Sheets
                        (UNAUDITED - In Thousands)

                                             September 30,      December 31,
                                                  2002              2001
                                              (Unaudited)
  ASSETS

     Cash and cash equivalents             $     390,441     $     278,456
     Accounts receivable -- net                1,028,562           940,414
     Other current assets                        465,448           517,585
        Total Current Assets                   1,884,451         1,736,455

  Net Property and Equipment                   3,067,666         2,774,736
  Net Intangibles                              2,651,614         2,725,103
  Other                                          326,734           342,943

  Total Assets                             $   7,930,465     $   7,579,237

  LIABILITIES AND STOCKHOLDERS' EQUITY

     Accounts payable                            $30,738           $37,085
     Other current liabilities                   300,828           299,999
     Current portion of long-term debt           376,112            21,912
        Total Current Liabilities                707,678           358,996

  Long-Term Debt                               2,835,699         3,005,035
  Other                                          261,661           263,741
  Minority Interests                             161,579           154,541

  Stockholders' Equity                         3,963,848         3,796,924

  Total Liabilities and Stockholders'
   Equity                                  $   7,930,465     $   7,579,237


                         HEALTHSOUTH Corporation
                     Quarterly Statistics (Unaudited)
                   For Period Ending September 30, 2002

                                            3Q 2002              3Q 2001
  Outpatient Rehab

  Total Visits:                            2,058,005             2,243,112
  Total Volume Growth (Y/Y):                 -8.3 %
  Same Store Volume Growth (Y/Y):            -3.8 %
  Average Revenue per Visit:                  $89                   $98
  Facility Count:                           1,331                  1,435

  Surgery Centers

  Total Cases:                              220,120                211,570
  Total Volume Growth (Y/Y):                  4.0 %
  Same Store Volume Growth (Y/Y):             5.8 %
  Average Revenue per Case:                 $1,146                  $1,104
  Facility Count:                             206                     217

  Diagnostic Imaging

  Total Scans:                              275,791                275,908
  Total Volume Growth (Y/Y):                  0.0 %
  Same Store Volume Growth (Y/Y):             5.3 %
  Average Revenue per Scan:                  $300                    $300
  Facility Count:                             136                     137

  Inpatient Division
  Total Discharges:                          30,231                 27,519
  Total Volume Growth (Y/Y):                  9.9 %
  Same Store Volume Growth (Y/Y):            10.0 %
  Average Revenue per                       $16,34
  Discharge:                                   2                   $16,025
  Facility Count:                             118                     122

  Medical Centers
  Total Days:                                25,129                 24,238
  Total Volume Growth (Y/Y):                  3.7 %
  Same Store Volume Growth (Y/Y):             3.7 %
  Average Revenue per Day:                  $2,851                  $2,857
  Facility Count:                              4                        4

   For more information, contact:

   Investor Relations:  Jason Brown, (205) 968-4429
   Media:  HEALTHSOUTH Public Relations, (205) 969-7584

SOURCE: HEALTHSOUTH Corporation

CONTACT: Media - HEALTHSOUTH Public Relations, +1-205-969-7584;
Investor Relations - Jason Brown, +1-205-968-4429, of HEALTHSOUTH Corporation