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HealthSouth Reports Solid Results for First Quarter 2010
Strong Cash Flow from Operations Increased Net Operating Revenues and Disciplined Expense Management
PRNewswire-FirstCall
BIRMINGHAM, Ala.

HealthSouth Corporation , the nation's largest provider of inpatient rehabilitative healthcare services, today reported its results of operations for the first quarter ended March 31, 2010.

"The first quarter was another solid quarter for HealthSouth," said Jay Grinney, president and chief executive officer of HealthSouth. "Despite weather-related disruptions in several markets, we saw an overall increase in the number of patients treated and, through better pricing and disciplined expense management, achieved strong growth across all key, financial metrics. Additionally, our development pipeline remains strong, as evidenced by the recent announcement that we've signed a definitive agreement to purchase a 50-bed rehabilitation hospital in Las Vegas. We are exploring additional development projects and are on track to achieve our growth objectives for the year."

  First Quarter Results

  --  Consolidated net operating revenues were $491.0 million for the first
      quarter of 2010 compared to $472.9 million for the first quarter of
      2009, or an increase of 3.8%. This increase was attributable to higher
      net patient revenue per discharge and a 1.1% increase in patient
      discharges. Net patient revenue per discharge increased 3.6% quarter
      over quarter due primarily to the Medicare pricing changes that became
      effective October 1, 2009, as well as a shift in our payor mix to more
      Medicare patients and a slight increase in the acuity of the patients
      we served. Volumes were below expectations primarily as a result of a
      steep ramp-up in January 2010 and heavy snow falls in February 2010
      which affected many of our markets. Discharge growth returned to
      expected levels in March 2010.
  --  Reported net income per diluted share for the first quarter of 2010
      was $0.37 per share compared to $0.44 per diluted share for the first
      quarter of 2009, which included a net gain of $15.9 million, or $0.16
      per diluted share, associated with government, class action, and
      related settlements. Furthermore, there was a 7% quarter-over-quarter
      increase in diluted weighted average common shares outstanding in the
      first quarter of 2010 due primarily to the five million shares issued
      on September 30, 2009 in full satisfaction of the Company's obligation
      to do so under the securities litigation settlement.
  --  Adjusted net income from continuing operations (see attached
      supplemental information) grew 23.1% from $0.39 per diluted share for
      the first quarter of 2009 to $0.48 per diluted share for the first
      quarter of 2010. The Company experienced quarter-over-quarter growth
      due primarily to increased revenues, lower interest expense, and
      effective expense management offset partially by the increased share
      count discussed above.
  --  Cash flows provided by operating activities were $84.8 million for the
      first quarter of 2010 compared to $183.1 million for the first quarter
      of 2009, which included approximately $123 million related to the
      Company's settlement with UBS and the receipt of income tax refunds
      related to prior periods. Cash flows provided by operating activities
      for the first quarter of 2010 included $6.6 million of state income
      tax refunds associated with prior periods.
  --  Adjusted Consolidated EBITDA (see attached supplemental information)
      for the first quarter of 2010 was $106.4 million compared to $98.4
      million in the first quarter of 2009, or an increase of 8.1%.

"The first quarter's strong Adjusted Consolidated EBITDA growth reduced the Company's leverage ratio and contributed to the $36 million of growth in cash and cash equivalents on our balance sheet," said Ed Fay, senior vice president and treasurer of HealthSouth. "Based on the trailing four quarters' Adjusted Consolidated EBITDA, the Company reduced its leverage ratio from 4.3x at the end of 2009 to 4.2x at the end of the first quarter of 2010. Looking ahead, our strong cash flows will allow us to continue to improve our capital structure and take advantage of new growth opportunities."

2010 Guidance

In the Company's Current Report on Form 8-K dated February 22, 2010 and related earnings release, the Company provided 2010 guidance which consisted of adjusted income from continuing operations in the range of $1.60 to $1.70 per diluted share and Adjusted Consolidated EBITDA in the range of $397 million to $407 million. Based on its results for the first quarter of 2010, the Company expects its 2010 full-year results to be at the higher end of these guidance ranges.

Earnings Conference Call and Webcast

The Company will host an investor conference call at 9:30 a.m. Eastern Time on Wednesday, May 5, 2010 to discuss its results for the first quarter of 2010. For reference during the call, the Company will post certain supplemental slides at http://investor.healthsouth.com/.

The conference call may be accessed by dialing (866) 406-5369 and giving the pass code 66222877. International callers should dial (973) 582-2847 and give the same pass code. Please call approximately ten minutes before the start of the call to ensure you are connected. The conference call will also be webcast live and will be available at http://investor.healthsouth.com/ by clicking on an available link.

A replay of the conference call will be available, beginning approximately two hours after the completion of the conference call, from May 5 until May 19, 2010. To access the replay, please dial 800-642-1687. International callers should dial (706) 645-9291. The webcast will also be archived for replay purposes after the live broadcast at http://investor.healthsouth.com/.

About HealthSouth

HealthSouth is the nation's largest provider of inpatient rehabilitative healthcare services. Operating in 26 states across the country and in Puerto Rico, HealthSouth serves patients through its network of inpatient rehabilitation hospitals, long-term acute care hospitals, outpatient rehabilitation satellite clinics, and home health agencies. HealthSouth strives to be the nation's preeminent provider of inpatient rehabilitative healthcare services and can be found on the Web at www.healthsouth.com.

Other Information

The Company's leverage ratio that is referenced in this release and elsewhere from time to time is defined in the Company's credit agreement as the ratio of consolidated total debt to Adjusted Consolidated EBITDA for the trailing four quarters. Reconciliations of net income to Adjusted Consolidated EBITDA can be found in the following schedules.

The information in this press release is summarized and should be read in conjunction with the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, when filed, as well as the Company's Current Report on Form 8-K filed on May 4, 2010. In addition, the Company will post supplemental slides today on its website at http://investor.healthsouth.com/ for reference during its May 5, 2010 earnings call.

The Company expects to file its first quarter 2010 Form 10-Q this week. When filed, the report can be found on the Company's website at http://investor.healthsouth.com/ and the SEC's website at www.sec.gov.

                   HealthSouth Corporation and Subsidiaries
               Condensed Consolidated Statements of Operations
                                 (Unaudited)

                                            Three Months Ended March
                                                       31,
                                                2010             2009
                                                ----             ----
                                            (In Millions, Except Per
                                                   Share Data)
  Net operating revenues                      $491.0           $472.9
                                              ------           ------
  Operating expenses:
      Salaries and benefits                    241.9            233.3
      Other operating expenses                  66.9             66.9
      General and administrative expenses       26.3             25.5
      Supplies                                  28.3             27.4
      Depreciation and amortization             18.3             17.4
      Occupancy costs                           11.6             12.0
      Provision for doubtful accounts            6.9              7.8
      Loss on disposal of assets                   -              1.0
      Government, class action, and related
       settlements                                 -            (15.9)
      Professional fees-accounting, tax,
       and legal                                 2.9              4.8
                                                 ---              ---
         Total operating expenses              403.1            380.2
  Loss (gain) on early extinguishment
   of debt                                       0.3             (1.8)
  Interest expense and amortization of
   debt discounts and fees                      30.5             34.4
  Other (income) expense                        (0.7)             0.2
  Loss on interest rate swaps                    4.3              5.0
  Equity in net income of
   nonconsolidated affiliates                   (2.6)            (2.5)
                                                ----             ----
      Income from continuing operations
       before income tax expense                56.1             57.4
  Provision for income tax expense               2.5              1.2
                                                 ---              ---
      Income from continuing operations         53.6             56.2
  Loss from discontinued operations,
   net of tax                                   (3.1)            (2.7)
                                                ----             ----
      Net income                                50.5             53.5
  Less: Net income attributable to
   noncontrolling interests                     (9.8)            (8.6)
                                                ----             ----
      Net income attributable to
       HealthSouth                              40.7             44.9
  Less: Convertible perpetual preferred
   stock dividends                              (6.5)            (6.5)
      Net income available to common
       shareholders                            $34.2            $38.4
                                               =====            =====

  Weighted average common shares
   outstanding:
      Basic                                     92.7             87.5
                                                ====             ====
      Diluted                                  108.0            100.9
                                               =====            =====

  Basic and diluted earnings per common
   share:
      Income from continuing operations
       attributable to HealthSouth common
        shareholders                           $0.40            $0.47
      Loss from discontinued operations,
       net of tax,
       attributable to HealthSouth common
        shareholders                           (0.03)           (0.03)
                                               -----            -----
      Net income per share attributable to
       HealthSouth common shareholders         $0.37            $0.44
                                               =====            =====

  Amounts attributable to HealthSouth
   common shareholders:
      Income from continuing operations        $43.8            $47.9
      Loss from discontinued operations,
       net of tax                               (3.1)            (3.0)
                                                ----             ----
      Net income attributable to
       HealthSouth                             $40.7            $44.9
                                               =====            =====





                  HealthSouth Corporation and Subsidiaries
                    Condensed Consolidated Balance Sheets
                                 (Unaudited)

                                                                December
                                                March 31,       31, 2009
                                                ---------        --------
                                                     2010
                                                      ---
                                                    (In Millions, Except
                                                         Share Data)
                        Assets
  Current assets:
      Cash and cash equivalents                    $116.8           $80.9
      Restricted cash                                76.3            67.8
     Accounts receivable, net of allowance
      for doubtful accounts of $33.5
               in 2010; $33.1 in 2009
                                                    234.1           219.7
      Other current assets                           56.2            57.6
                                                     ----            ----
         Total current assets                       483.4           426.0
  Property and equipment, net                       662.0           664.8
  Goodwill                                          416.4           416.4
  Intangible assets, net                             35.7            37.4
  Investments in and advances to
   nonconsolidated affiliates                        33.4            29.3
  Other long-term assets                             85.2           107.6
         Total assets                            $1,716.1        $1,681.5
                                                 ========        ========
         Liabilities and Shareholders' Deficit
  Current liabilities:
      Current portion of long-term debt             $21.5           $21.5
      Accounts payable                               47.2            50.2
      Accrued expenses and other current
       liabilities                                  324.1           319.5
                                                    -----           -----
         Total current liabilities                  392.8           391.2
  Long-term debt, net of current portion          1,635.8         1,641.0
  Other long-term liabilities                       162.0           159.5
                                                  2,190.6         2,191.7
                                                  -------         -------
  Commitments and contingencies
  Convertible perpetual preferred stock,
   $.10 par value; 1,500,000 shares                 387.4           387.4
    authorized; 400,000 shares issued;
     liquidation preference of $1,000 per
     share                                          -----           -----

  Shareholders' deficit:
      HealthSouth shareholders' deficit            (939.9)         (974.0)
      Noncontrolling interests                       78.0            76.4
                                                     ----            ----
         Total shareholders' deficit               (861.9)         (897.6)
                                                   ------          ------
            Total liabilities and shareholders'
             deficit                             $1,716.1        $1,681.5
                                                 ========        ========





                            HealthSouth Corporation
                Condensed Consolidated Statements of Cash Flows
                                  (Unaudited)

                                            Three Months Ended March 31,
                                                  2010               2009
                                                  ----               ----
                                                    (In Millions)
  Cash flows from operating
   activities:
  Net income                                     $50.5              $53.5
                                                 -----              -----
  Loss from discontinued operations                3.1                2.7
                                                   ---                ---
  Adjustments to reconcile net income
   to net cash provided by operating
    activities-
      Provision for doubtful accounts              6.9                7.8
      Provision for government, class
       action, and related settlements               -              (15.9)
      UBS Settlement proceeds, gross                 -              100.0
      Depreciation and amortization               18.3               17.4
      Loss on interest rate swaps                  4.3                5.0
      Equity in net income of
       nonconsolidated affiliates                 (2.6)              (2.5)
      Distributions from nonconsolidated
       affiliates                                  2.1                1.5
      Stock-based compensation                     3.8                3.7
      Deferred tax provision                       0.4                1.5
      Other                                        1.7                1.6
      (Increase) decrease in assets-
         Accounts receivable                     (21.3)             (13.0)
         Other assets                             (2.1)              (6.6)
         Income tax refund receivable              9.0               47.6
      (Decrease) increase in liabilities-
         Accounts payable                         (2.9)              (1.5)
         Accrued fees and expenses for
          derivative plaintiffs' attorneys           -              (26.2)
                          in UBS Settlement
         Other liabilities                        16.6                8.7
         Government, class action, and
          related settlements                     (0.8)              (1.7)
      Net cash used in operating
       activities of discontinued
       operations                                 (2.2)              (0.5)
         Total adjustments                        31.2              126.9
                                                  ----              -----
      Net cash provided by operating
       activities                                 84.8              183.1
                                                  ----              -----





                  HealthSouth Corporation and Subsidiaries
        Condensed Consolidated Statements of Cash Flows (Continued)
                                (Unaudited)

                                             Three Months Ended March
                                                        31,
                                                 2010             2009
                                                 ----             ----
                                                  (In Millions)
  Cash flows from investing activities:
      Capital expenditures                      (14.0)           (17.1)
      Proceeds from sale of restricted
       marketable securities                      3.2              0.4
      Net change in restricted cash             (11.4)            (3.5)
      Net settlements on interest rate swaps    (11.9)            (8.5)
      Other                                         -             (0.1)
      Net cash provided by (used in)
       investing activities of discontinued
       operations                                 7.9             (1.4)
      Net cash used in investing activities     (26.2)           (30.2)
                                                -----            -----

  Cash flows from financing activities:
      Checks in excess of bank balance              -              4.1
      Principal payments on debt, including
       pre-payments                              (1.9)           (39.6)
      Borrowings on revolving credit
       facility                                     -             10.0
      Payments on revolving credit facility         -            (50.0)
      Principal payments under capital lease
       obligations                               (3.5)            (3.2)
      Dividends paid on convertible
       perpetual preferred stock                 (6.5)            (6.5)
      Distributions paid to noncontrolling
       interests of consolidated                (11.1)            (8.5)
                  affiliates
      Other                                       0.3              0.5
      Net cash used in financing activities
       of discontinued
       operations                                   -             (1.2)
      Net cash used in financing activities     (22.7)           (94.4)
                                                -----            -----

      Increase in cash and cash equivalents      35.9             58.5
      Cash and cash equivalents at beginning
       of period                                 80.9             32.1
      Cash and cash equivalents of
       facilities held for sale
       at beginning of period                     0.1              0.1
      Less: Cash and cash equivalents of
       facilities held for
       sale at end of period                     (0.1)               -
      Cash and cash equivalents at end of
       period                                  $116.8            $90.7
                                               ======            =====





                     HealthSouth Corporation and Subsidiaries
                        Supplemental Non-GAAP Disclosures
         Reconciliation of Net Income to Adjusted Income from Continuing
                                    Operations
                     and Adjusted Consolidated EBITDA (1) (3)


                               Three Months Ended March 31,
                                         Per                      Per
                           2010        Share(2)          2009   Share(2)
                       ----             --------        ----    --------
                           (In Millions, Except per Share Data)
  Net income              $50.5            $0.54        $53.5      $0.61
  Loss from
   discontinued
   operations, net
   of tax,
    attributable to
     HealthSouth            3.1             0.03          3.0       0.03
  Net income
   attributable to
   noncontrolling
   interests               (9.8)           (0.11)        (8.6)     (0.10)
                           ----            -----         ----      -----
  Income from
   continuing
   operations
    attributable to
     HealthSouth           43.8             0.47         47.9       0.55

  Government, class
   action, and
   related
   settlements                -                -       (15.9)      (0.18)
  Professional fees
   - accounting,
   tax, and legal           2.9             0.03          4.8       0.05
  Gain on early
   extinguishment of
   debt                       -                -         (1.8)     (0.02)
  Loss on interest
   rate swaps               4.3             0.05          5.0       0.06
  Adjustment for
   prior period
   amounts in tax
   provision                0.9             0.01         (0.3)     (0.00)
                            ---             ----         ----      -----
  Adjusted income
   from continuing
   operations (1)          51.9             0.56         39.7       0.45
           (3)
  Adjustment for
   dilution (2)                            (0.08)                  (0.06)
                                           -----                   -----
  Adjusted income
   from continuing
   operations
    per diluted share
     (2) (3)                               $0.48                   $0.39
                                           =====                   =====

  Current period
   amounts in tax
   provision                1.6                           1.5
  Interest expense
   and amortization
   of debt discounts       30.5                          34.4
          and fees
  Depreciation and
   amortization            18.3                          17.4
                           ----                          ----
                          102.3                          93.0
  Other adjustments
   per the Company's
    Credit Agreement:
    Impairment
     charges,
     including
     investments              -                           0.7
    Net noncash loss
     on disposal of
     assets                   -                           1.0
    Loss on early
     extinguishment of
     debt                   0.3                             -
    Stock-based
     compensation
     expense                3.8                           3.7
                                                          ---
  Adjusted
   Consolidated
   EBITDA (1) (3)
   (4)                   $106.4                         $98.4
                         ======                         =====

  Weighted average
   common shares
   outstanding:
  Basic                                     92.7                    87.5
                                            ====                    ====
  Diluted                                  108.0                   100.9
                                           =====                   =====





                HealthSouth Corporation and Subsidiaries
                    Supplemental Non-GAAP Disclosures
     Reconciliation of Net Income to Adjusted Income from Continuing
                               Operations
                and Adjusted Consolidated EBITDA (1) (3)

                                           Year Ended December 31,
                                           -----------------------
                                              2009      Per Share(2)
                                              ----      ------------
                                           (In Millions, Except per
                                                 Share Data)
  Net income                                $128.8              $1.45
  Income from discontinued operations,
   net of tax,
    attributable to HealthSouth               (1.5)             (0.02)
  Net income attributable to
   noncontrolling interests                  (34.0)             (0.38)
                                             -----              -----
  Income from continuing operations
   attributable
    to HealthSouth                            93.3               1.05

  Government, class action, and related
   settlements                                36.7               0.41
  Professional fees - accounting, tax,
   and legal                                   8.8               0.10
  Loss on interest rate swaps                 19.6               0.22
  Adjustment for prior period amounts in
   tax provision                              (8.8)             (0.10)
                                              ----              -----
  Adjusted income from continuing
   operations(1) (3)                         149.6               1.68
  Adjustment for dilution (2)                                   (0.23)
                                                                -----
  Adjusted income from continuing
   operations
    per diluted share (2) (3)                                   $1.45
                                                                =====

  Estimated income tax expense                 5.6
  Interest expense and amortization of
   debt discounts                            125.8
           and fees
  Depreciation and amortization               70.9
                                              ----
                                             351.9
  Other adjustments per the Company's
    Credit Agreement:
    Impairment charges, including
     investments                               1.4
    Net noncash loss on disposal of assets     3.5
    Loss on early extinguishment of debt      12.5
    Stock-based compensation expense          13.4
    Other                                      0.3
  Adjusted Consolidated EBITDA (1) (3)
   (4)                                      $383.0
                                            ======

  Weighted average common shares
   outstanding:
  Basic                                                          88.8
                                                                 ====
  Diluted                                                       103.3
                                                                =====





                   HealthSouth Corporation and Subsidiaries
                       Supplemental Non-GAAP Disclosures
                           Notes to Reconciliations


  (1) Adjusted income from continuing operations and Adjusted Consolidated
   EBITDA are non-GAAP financial measures. The Company's leverage ratio
   (consolidated total debt to Adjusted Consolidated EBITDA for the trailing
   four quarters) is likewise a non-GAAP financial measure. Management and
   some members of the investment community utilize adjusted income from
   continuing operations as a financial measure and Adjusted Consolidated
   EBITDA and the leverage ratio as liquidity measures on an ongoing basis.
   These measures are not recognized in accordance with GAAP and should not
   be viewed as an alternative to GAAP measures of performance or liquidity.
   In evaluating these adjusted measures, the reader should be aware that in
   the future HealthSouth may incur expenses similar to the adjustments set
   forth above.

  (2) Per share amounts for each period presented are based on basic
   weighted average common shares outstanding for all amounts except
   adjusted income from continuing operations per diluted share, which is
   based on diluted weighted average common shares outstanding. The diluted
   share counts contain approximately 13.1 million shares related to the
   potential dilution of the Company's convertible perpetual preferred
   stock. The increase in the Company's basic and diluted weighted average
   common shares outstanding in 2010 compared to 2009 was primarily the
   result of the issuance of 5.0 million shares of common stock on September
   30, 2009 in full satisfaction of its obligation to do so under the
   Company's securities litigation settlement.

  (3) Adjusted income from continuing operations per diluted share and
   Adjusted Consolidated EBITDA are two components of the Company's
   guidance.

  (4) The Company's credit agreement allows unusual non-cash or non-
   recurring items to be added to arrive at Adjusted Consolidated EBITDA. In
   addition, certain other deductions may be required. Such amounts have not
   been included in the above calculation as it would not be indicative of
   the Company's Adjusted Consolidated EBITDA for future periods.



                     HealthSouth Corporation and Subsidiaries
                            Forward-Looking Statements

Statements contained in this press release which are not historical facts 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. All such estimates, projections, and forward-looking information speak only as of the date hereof, and HealthSouth undertakes no duty to publicly update or revise such forward-looking information, whether as a result of new information, future events, or otherwise. Such forward-looking statements are necessarily estimates based upon current information and involve a number of risks and uncertainties. HealthSouth's actual results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors which could cause actual results to differ materially from those estimated by HealthSouth include, but are not limited to, any adverse outcome of various lawsuits, claims, and legal or regulatory proceedings that may be brought against the Company; significant changes in HealthSouth's management team; HealthSouth's ability to continue to operate in the ordinary course and manage its relationships with its creditors, including its lenders, bondholders, vendors and suppliers, employees, and customers; changes, delays in (including in connection with resolution of Medicare payment reviews or appeals), or suspension of reimbursement for HealthSouth's services by governmental or private payors; changes in the regulation of the healthcare industry at either or both of the federal and state levels; competitive pressures in the healthcare industry and HealthSouth's response thereto; HealthSouth's ability to obtain and retain favorable arrangements with third-party payors; HealthSouth's ability to attract and retain nurses, therapists, and other healthcare professionals in a highly competitive environment with often severe staffing shortages and the impact on HealthSouth's labor expenses from potential union activity and staffing shortages; general conditions in the economy and capital markets; and other factors which may be identified from time to time in HealthSouth's SEC filings and other public announcements, including HealthSouth's Form 10K for the year ended December 31, 2009 and Form 10-Q for the quarterly period ended March 31, 2010, which is expected to be filed later this week.

  Media Contact
  -------------
  Andy Brimmer, 205-410-2777
  Helen Todd, 205-969-5608
  helen.todd@healthsouth.com

  Investor Relations Contact
  --------------------------
  Mary Ann Arico, 205-969-6175
  maryann.arico@healthsouth.com

First Call Analyst: McVay, Tadd
FCMN Contact:

SOURCE: HealthSouth Corporation

CONTACT: Media: Andy Brimmer, +1-205-410-2777, or Helen Todd,
+1-205-969-5608, helen.todd@healthsouth.com; Investor Relations: Mary Ann
Arico, +1-205-969-6175, maryann.arico@healthsouth.com