8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (date of earliest event reported): May 4, 2009

HealthSouth Corporation

(Exact name of Registrant as specified in its Charter)

Delaware

(State or Other Jurisdiction of Incorporation)

001-10315	63-0860407
(Commission File Number)	(IRS Employer Identification No.)

3660 Grandview Parkway, Suite 200, Birmingham, Alabama 35243

(Address of Principal Executive Offices, Including Zip Code)

(205)967-7116

(Registrant’s Telephone Number, Including Area Code)

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:

o Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 2.02. Results of Operations and Financial Condition.

The information contained herein is being furnished pursuant to Item 2.02 of Form 8-K, “Results of Operations and Financial Condition,” and Item 7.01 of Form 8-K, “Regulation FD Disclosure.” This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

On May 4, 2009, HealthSouth Corporation (the “Company”) issued a press release reporting the financial results of the Company for the three months ended March 31, 2009. A copy of the press release is attached to this report as Exhibit 99.1 and incorporated herein by reference.

In addition, a copy of the supplemental slides which will be discussed during the Company’s earnings call at 9:00 a.m. Eastern Time on Tuesday, May 5, 2009 is attached to this report as Exhibit 99.2 and incorporated herein by reference.

ITEM 7.01. Regulation FD Disclosure.

See Item 2.02, “Results of Operations and Financial Condition,” above.

Note Regarding Adoption of New Accounting Pronouncement

On January 1, 2009, we adopted Financial Accounting Standards Board (“FASB”) Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51. As a result, we have reclassified our noncontrolling interests (formerly known as “minority interests”) as a component of equity and now report net income and comprehensive income attributable to our noncontrolling interests separately from net income and comprehensive income attributable to HealthSouth.

Note Regarding Presentation of Non-GAAP Financial Measures

The financial data contained in the press release and supplemental slides includes non-GAAP financial measures, including “Adjusted Consolidated EBITDA.” The Company continues to believe Adjusted Consolidated EBITDA as defined in its Credit Agreement is a measure of 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 Credit Agreement, which is discussed in more detail in Note 8, Long-term Debt, to the consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2008 (the “2008 Form 10-K”). These covenants are material terms of the Credit Agreement, and the Credit Agreement represents a substantial portion of the Company’s capitalization. Non-compliance with these financial covenants under the 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. If the Company anticipated a potential covenant violation, it would seek relief from its lenders, which would have some cost to the Company, and such relief might not be on terms as favorable to those in the Company’s existing Credit Agreement. In addition, if the Company cannot satisfy these financial covenants, it would be prohibited under the 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 Company’s assessment of its liquidity.

In general terms, the definition of Adjusted Consolidated EBITDA, per the Credit Agreement, allows the Company to add back to Adjusted Consolidated EBITDA unusual non-cash or non-recurring items. These items include, but may not be limited to, (1) amounts 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 Note 11, Settlements, and Note 12,

Contingencies, to the condensed consolidated financial statements included in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009, when filed, (5) compensation expense recorded in accordance with FASB Statement No. 123(R), Share-Based Payment, (6) investment and other income (including interest income), and (7) fees associated with the Company’s divestiture activities.

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 income or cash flows from operating, investing, or financing activities. The Company reconciles Adjusted Consolidated EBITDA to net income, which reconciliation is set forth in the press release attached as Exhibit 99.1, and to net cash provided by 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 2008 Form 10-K.

The Company also uses adjusted income from continuing operations and the related per share amounts as analytical indicators to assess its performance. Management believes the presentation of adjusted income from continuing operations and the related per share amounts provides useful information to management and investors about the Company’s operating business before taking into account certain items that are non-operational or infrequent in nature. These measures are not defined measures of financial performance under GAAP and should not be considered as alternatives to net income and net income per share available to HealthSouth common shareholders. Because these measures are not measures determined in accordance with GAAP and are susceptible to varying calculations, they may not be comparable to other similarly titled measures presented by other companies. See the condensed consolidated statements of operations included in the press release attached as Exhibit 99.1 for the GAAP measures of net income, income from continuing operations, and basic and diluted earnings per common share. A reconciliation of net income to adjusted income from continuing operations, and the related per share amounts, is included in the earnings release attached as Exhibit 99.1 and the supplemental slides attached as Exhibit 99.2.

The Company also uses adjusted free cash flow as an analytical indicator to assess its performance. Management believes the presentation of adjusted free cash flow provides investors an efficient means by which they can evaluate the Company’s capacity to reduce debt and pursue development activities. The calculation of adjusted free cash flow is included in the supplemental slides attached as Exhibit 99.2. This measure is not a defined measure of financial performance under GAAP and should not be considered as an alternative to net cash provided by operating activities. Our definition of adjusted free cash flow is limited and does not represent residual cash flows available for discretionary spending. Because this measure is not determined in accordance with GAAP and is susceptible to varying calculations, it may not be comparable to other similarly titled measures presented by other companies. See the condensed consolidated statements of cash flows included in the press release attached as Exhibit 99.1 for the GAAP measures of cash flows from operating, investing, and financing activities. A reconciliation of net cash provided by operating activities to adjusted free cash flow is presented below.

Reconciliation of Net Cash Provided by Operating Activities to Adjusted Consolidated EBITDA

	Three Months Ended		Year Ended
	March 31,		December 31,
	2009	2008	2008
		(As Adjusted)	(As Adjusted)
Net cash provided by operating activities	$             183.1	$               41.8	$             227.2
Provision for doubtful accounts	(7.9)	(7.8)	(27.4)
Professional fees-accounting, tax, and legal	4.8	3.6	44.4
Interest expense and amortization of debt
discounts and fees	34.4	47.4	159.5
UBS Settlement proceeds, gross	(100.0)	–	–
Equity in net income of nonconsolidated affiliates	2.5	2.4	10.6
Net income attributable to noncontrolling interests	(8.6)	(6.6)	(29.4)
Amortization of debt discounts and fees	(1.6)	(1.6)	(6.5)
Distributions from nonconsolidated affiliates	(1.5)	(2.2)	(10.9)
Current portion of income tax benefit	(0.3)	(0.7)	(73.8)
Change in assets and liabilities	(8.5)	4.6	48.6
Change in government, class action, and
related settlements liability	1.7	7.3	7.4
Other operating cash used in (provided by)
discontinued operations	0.2	1.5	(6.6)
Other	0.4	(0.5)	(1.4)
Adjusted Consolidated EBITDA	$               98.7	$               89.2	$             341.7

Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow

	Three Months Ended
	March 31,
	2009	2008
Net cash provided by operating activities	$             183.1	$               41.8
Incremental income tax expense	(0.3)	(1.4)
Capital expenditures for maintenance	(7.5)	(8.7)
Net settlements on interest rate swap	(8.5)	(0.2)
Dividends paid on convertible perpetual preferred stock	(6.5)	(6.5)
Non-recurring items:
UBS Settlement proceeds, less fees to derivative plaintiffs' attorneys	(73.8)	–
Income tax refund receivable	(47.8)	(3.8)
Adjusted free cash flow	$               38.7	$               21.2

For the three months ended March 31, 2009 and 2008, net cash (used in) provided by investing activities was ($30.2) million and $33.1 million, respectively. Net cash provided by investing activities for the three months ended March 31, 2008 included $43.9 million in proceeds from asset disposals, including the sale of our corporate campus in March 2008.

For the three months ended March 31, 2009 and 2008, net cash used in financing activities was ($94.4) million and ($34.4) million, respectively. Net cash used in financing activities for the three months ended March 31, 2009 included $82.8 million of net debt payments compared to $5.0 million of net debt payments during the three months ended March 31, 2008.

Forward-Looking Statements

The information contained in the earnings release and supplemental slides includes certain estimates, projections, and other forward-looking information that reflect the Company’s current views with respect to future events and financial performance. These estimates, projections, and other forward-looking information are based on assumptions the Company believes, as of the date hereof, are reasonable. Inevitably, there will be differences between such estimates and actual results, and those differences may be material.

There can be no assurance that any estimates, projections, or forward-looking information will be realized.

All such estimates, projections, and forward-looking information speak only as of the date hereof. The Company undertakes no duty to publicly update or revise the information contained herein.

You are cautioned not to place undue reliance on the estimates, projections, and other forward-looking information in the earnings release and supplemental slides as they are based on current expectations and general assumptions and are subject to various risks, uncertainties, and other factors, including those set forth in the 2008 Form 10-K, our quarterly report on Form 10-Q for the quarterly period ended March 31, 2009, when filed, and in other documents the Company previously filed with the SEC, many of which are beyond the Company’s control. These factors may cause actual results to differ materially from the views, beliefs, and estimates expressed herein.

ITEM 9.01. Financial Statements and Exhibits.

(d) Exhibits.

Exhibit Number	Description
99.1	Press release of HealthSouth Corporation, dated May 4, 2009.
99.2	Supplemental slides provided in connection with the first quarter 2009 earnings call of HealthSouth Corporation.

SIGNATURES

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.

HEALTHSOUTH CORPORATION

By:	/S/   JOHN P. WHITTINGTON
	Name:    John P. Whittington
	Title:     Executive Vice President, General Counsel and Corporate Secretary

Dated: May 4, 2009

EX-99

Exhibit 99.1

Media Contact May 4, 2009

Andy Brimmer, 205-410-2777 For Immediate Release

Investor Relations Contact

Mary Ann Arico, 205-969-6175

maryann.arico@healthsouth.com

HealthSouth Reports Strong EPS Results for First Quarter Ended March 31, 2009

Strong Same Store Discharge Growth and Effective Expense Management

Continued Progress on Debt Reduction

BIRMINGHAM, Ala. – HealthSouth Corporation (NYSE: HLS) today reported its results of operations for the first quarter ended March 31, 2009. The results showed consolidated net operating revenues of $475.1 million for the first quarter of 2009 compared to $464.2 million for the first quarter of 2008, or an increase of 2.3%. This increase was driven by a 5.7% quarter-over-quarter increase in patient discharges offset by lower pricing. The first quarter of 2008 contained a Medicare market basket update that became effective October 1, 2007 but was “rolled-back” from our Medicare reimbursement on April 1, 2008, thus lowering our pricing quarter over quarter. On a same store basis, discharges increased 4.8% quarter over quarter. Diluted net income per share was $0.44 per share for the first quarter of 2009 compared to $0.17 per share for the first quarter of 2008. This increase was primarily attributable to revenue growth, lower interest expense, and effective expense management.

On an adjusted basis, income from continuing operations was $0.39 per diluted share for the first quarter of 2009, which represents an 116.7%, or $0.21 per share, improvement over the $0.18 per diluted share for the first quarter of 2008. Adjusted income from continuing operations excludes amounts associated with government, class action, and related settlements, our loss on interest rate swap, and other non-recurring items, as outlined in the attached supplemental information.

“The strategy we put in place in 2007 – focusing on deleveraging, growth, and expense management – yielded solid results in 2008 and continued to generate solid results in the first quarter of 2009,” said Jay Grinney, President and Chief Executive Officer of HealthSouth. “We believe these results demonstrate the strength and sustainability of HealthSouth’s business model. Our ongoing emphasis on providing high quality, cost-effective patient care and enhancing our balance sheet through continued debt repayment will position HealthSouth to produce significant EPS growth in 2009.”

The Company continued to deleverage its balance sheet during the first quarter of 2009. Total debt outstanding approximated $1.7 billion as of March 31, 2009. As of March 31, 2009, no amounts were drawn on our revolving credit facility and total cash and cash equivalents approximated $90.7 million.

“Our strong cash flow from operating activities allowed us to reduce our debt by an additional $85 million during the first quarter of 2009,” said John Workman, Executive Vice President and Chief Financial Officer of HealthSouth. “The increase in Adjusted Consolidated EBITDA and our lower debt balance brought our leverage ratio to 4.9x as of March 31, 2009, based on the trailing four quarters of Adjusted Consolidated EBITDA. We now expect to be at the 4.5x level earlier than the end of 2010 and believe our longer term goal of 3.5x to 4.0x by the end of 2012 is progressively more achievable.”

2009 Guidance

In our Current Report on Form 8-K dated February 23, 2009 and related earnings release, we provided 2009 guidance which consisted of adjusted diluted earnings per share in the range of $0.85 to $0.90 per share and Adjusted Consolidated EBITDA in the range of $342.0 million to $352.0 million. Based on our results for the first quarter of 2009, we expect our 2009 full-year results to be at the higher end of this guidance range.

Other Information

On January 1, 2009, we adopted Financial Accounting Standards Board Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51. As a result, we have reclassified our noncontrolling interests (formerly known as “minority interests”) as a component of equity and now report net income and comprehensive income attributable to our noncontrolling interests separately from net income and comprehensive income attributable to HealthSouth.

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, 2009 (the “March 2009 Form 10-Q”), when filed, as well as the Company’s Current Report on Form 8-K filed on May 4, 2009. In addition, the Company will post supplemental slides today on its website at http://investor.healthsouth.com for reference during its May 4, 2009 earnings call.

The Company expects to file its first quarter 2009 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,
	2009	2008
		(As Adjusted)
	(In Millions, Except Per Share Data)
Net operating revenues	$                  475.1	$                  464.2
Operating expenses:
Salaries and benefits	234.7	230.4
Other operating expenses	67.2	68.8
General and administrative expenses	25.5	28.1
Supplies	27.5	27.2
Depreciation and amortization	17.6	29.6
Occupancy costs	12.0	12.0
Provision for doubtful accounts	7.9	7.8
Loss (gain) on disposal of assets	1.0	(0.4)
Government, class action, and related settlements expense	(15.9)	(36.4)
Professional fees—accounting, tax, and legal	4.8	3.6
Total operating expenses	382.3	370.7
(Gain) loss on early extinguishment of debt	(1.8)	0.3
Interest expense and amortization of debt discounts and fees	34.4	47.4
Other expense (income)	0.2	(0.7)
Loss on interest rate swap	5.0	36.6
Equity in net income of nonconsolidated affiliates	(2.5)	(2.4)
Income from continuing operations before income tax expense	57.5	12.3
Provision for income tax expense	1.2	0.1
Income from continuing operations	56.3	12.2
(Loss) income from discontinued operations, net of income tax benefit	(2.8)	14.2
Net income	53.5	26.4
Less: Net income attributable to noncontrolling interests	(8.6)	(6.6)
Net income attributable to HealthSouth	44.9	19.8
Less: Convertible perpetual preferred stock dividends	(6.5)	(6.5)
Net income available to common shareholders	$                   38.4	$                   13.3
Weighted average common shares outstanding:
Basic	87.5	78.9
Diluted	100.9	92.3
Basic and diluted earnings per common share:
Income (loss) from continuing operations
attributable to HealthSouth common shareholders	$                    0.47	$                   (0.02)
(Loss) income from discontinued operations, net of tax,
attributable to HealthSouth common shareholders	(0.03)	0.19
Net income per share available to HealthSouth common shareholders	$                    0.44	$                    0.17
Amounts attributable to HealthSouth common shareholders:
Income from continuing operations, net of tax	$                   48.0	$                     4.6
(Loss) income from discontinued operations, net of tax	(3.1)	15.2
Net income attributable to HealthSouth	$                   44.9	$                   19.8

3

HealthSouth Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
	March 31, 2009	December 31, 2008
		(As Adjusted)
	(In Millions)
Assets
Current assets:
Cash and cash equivalents	$                 90.7	$                 32.2
Restricted cash	59.5	154.0
Restricted marketable securities	20.0	20.3
Accounts receivable, net of allowance for doubtful accounts of $31.3 in 2009;
$31.1 in 2008	241.4	235.8
Insurance recoveries receivable	181.8	182.8
Other current assets	61.1	57.6
Total current assets	654.5	682.7
Property and equipment, net	670.5	673.9
Goodwill	414.7	414.7
Intangible assets, net	41.0	42.8
Investments in and advances to nonconsolidated affiliates	37.6	36.7
Income tax refund receivable	8.3	55.9
Other long-term assets	95.1	91.5
Total assets	$             1,921.7	$             1,998.2
Liabilities and Shareholders’ Deficit
Current liabilities:
Current portion of long-term debt	$                 21.7	$                 23.6
Accounts payable	44.0	45.6
Accrued expenses and other current liabilities	389.7	408.5
Government, class action, and related settlements	252.6	268.5
Total current liabilities	708.0	746.2
Long-term debt, net of current portion	1,706.4	1,789.6
Other long-term liabilities	163.9	162.2
	2,578.3	2,698.0
Commitments and contingencies
Convertible perpetual preferred stock	387.4	387.4
Shareholders’ deficit:
HealthSouth shareholders' deficit	(1,128.4)	(1,169.4)
Noncontrolling interests	84.4	82.2
Total shareholders' deficit	(1,044.0)	(1,087.2)
Total liabilities and shareholders’ deficit	$             1,921.7	$             1,998.2

4

HealthSouth Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
	Three Months Ended March 31,
	2009	2008
		(As Adjusted)
	(In Millions)
Cash flows from operating activities:
Net income	$                 53.5	$                 26.4
Loss (income) from discontinued operations	2.8	(14.2)
Adjustments to reconcile net income to net cash provided by
operating activities—
Provision for doubtful accounts	7.9	7.8
Provision for government, class action, and related settlements	(15.9)	(36.4)
UBS Settlement proceeds, gross	100.0	–
Depreciation and amortization	17.6	29.6
Loss on interest rate swap	5.0	36.6
Equity in net income of nonconsolidated affiliates	(2.5)	(2.4)
Distributions from nonconsolidated affiliates	1.5	2.2
Stock-based compensation	3.7	3.3
Deferred tax provision	1.5	0.8
Other	1.4	1.5
(Increase) decrease in assets—
Accounts receivable	(13.5)	(27.9)
Other assets	(6.6)	(3.2)
Income tax refund receivable	47.8	3.8
(Decrease) increase in liabilities—
Accounts payable	(1.6)	(3.2)
Accrued fees and expenses for derivative plaintiffs' attorneys
in UBS Settlement	(26.2)	–
Other liabilities	8.6	25.9
Government, class action, and related settlements	(1.7)	(7.3)
Net cash used in operating activities of discontinued operations	(0.2)	(1.5)
Total adjustments	126.8	29.6
Net cash provided by operating activities	183.1	41.8

5

HealthSouth Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
	Three Months Ended March 31,
	2009	2008
		(As Adjusted)
	(In Millions)
Cash flows from investing activities:
Capital expenditures	(17.2)	(8.7)
Proceeds from disposal of assets	0.8	43.9
Net change in restricted cash	(3.5)	(0.9)
Net settlements on interest rate swap	(8.5)	(0.2)
Other	(0.5)	(0.8)
Net cash used in investing activities of discontinued operations	(1.3)	(0.2)
Net cash (used in) provided by investing activities	(30.2)	33.1
Cash flows from financing activities:
Checks in excess of bank balance	4.1	(11.4)
Principal payments on debt, including pre-payments	(39.6)	(17.0)
Borrowings on revolving credit facility	10.0	15.0
Payments on revolving credit facility	(50.0)	–
Principal payments under capital lease obligations	(3.2)	(3.0)
Dividends paid on convertible perpetual preferred stock	(6.5)	(6.5)
Distributions paid to noncontrolling interests of consolidated affiliates	(8.5)	(10.1)
Other	0.5	(0.1)
Net cash used in financing activities of discontinued operations	(1.2)	(1.3)
Net cash used in financing activities	(94.4)	(34.4)
Increase in cash and cash equivalents	58.5	40.5
Cash and cash equivalents at beginning of period	32.2	19.8
Cash and cash equivalents of divisions and facilities held for sale at
beginning of period	–	0.4
Less: Cash and cash equivalents of divisions and facilities held for sale
at end of period	–	(0.3)
Cash and cash equivalents at end of period	$                90.7	$                60.4

6

HealthSouth Corporation and Subsidiaries

Supplemental Non-GAAP Disclosures

Reconciliation of Net Income to Adjusted Income from Continuing Operations

and Adjusted Consolidated EBITDA ^{(1) (4)}

	Three Months Ended March 31,
	2009	Per Share (2)	2008	Per Share(2)
			(As Adjusted)
	(In Millions, Except per Share Data)
Net income	$            53.5	$            0.61	$            26.4	$             0.33
Loss (income) from discontinued operations, net of tax,
attributable to HealthSouth	3.1	0.04	(15.2)	(0.19)
Net income attributable to noncontrolling interests	(8.6)	(0.10)	(6.6)	(0.08)
Income from continuing operations attributable
to HealthSouth	48.0	0.55	4.6	0.06
Government, class action, and related settlements	(15.9)	(0.18)	(36.4)	(0.46)
Professional fees – accounting, tax, and legal	4.8	0.05	3.6	0.05
Gain on early extinguishment of debt	(1.8)	(0.02)	–	–
Loss on interest rate swap	5.0	0.06	36.6	0.46
Accelerated depreciation of corporate campus (3)	–	–	10.0	0.13
Provision for income tax expense	1.2	0.01	0.1	0.00
Estimated income tax expense	(1.5)	(0.02)	(1.5)	(0.02)
Adjusted income from continuing operations (1) (4)	39.8	0.45	17.0	0.22
Adjustment for dilution (2)		(0.06)		(0.04)
Adjusted income from continuing operations
per diluted share (2) (4)		$            0.39		$             0.18
Estimated income tax expense	1.5		1.5
Interest expense and amortization of debt discounts
and fees	34.4		47.4
Depreciation and amortization, excluding accelerated
depreciation of corporate campus (3)	17.6		19.6
	93.3		85.5
Other adjustments per the Company's
Credit Agreement:
Impairment charges related to investments	0.7		–
Net noncash loss on disposal of assets	1.0		0.1
Loss on early extinguishment of debt	–		0.3
Compensation expense under FASB Statement
No. 123(R)	3.7		3.3
Adjusted Consolidated EBITDA (1) (4) (5)	$            98.7		$            89.2
Weighted average common shares outstanding:
Basic		87.5		78.9
Diluted		100.9		92.3

7

HealthSouth Corporation and Subsidiaries

Supplemental Non-GAAP Disclosures

Reconciliation of Net Income to Adjusted Income from Continuing Operations

and Adjusted Consolidated EBITDA ^{(1) (4)}

	Year Ended December 31,
	2008	Per Share (2)
	(As Adjusted)
	(In Millions, Except per Share Data)
Net income	$                           281.8	$                        3.40
Income from discontinued operations, net of tax,
attributable to HealthSouth	(16.9)	(0.20)
Net income attributable to noncontrolling interests	(29.4)	(0.35)
Income from continuing operations attributable
to HealthSouth	235.5	2.84
Gain on UBS Settlement	(121.3)	(1.46)
Government, class action, and related settlements	(67.2)	(0.81)
Professional fees – accounting, tax, and legal	44.4	0.53
Loss on interest rate swap	55.7	0.67
Accelerated depreciation of corporate campus (3)	10.0	0.12
Interest associated with UBS Settlement (6)	(9.4)	(0.11)
Provision for income tax benefit	(70.1)	(0.84)
Estimated income tax expense	(5.0)	(0.06)
Adjusted income from continuing operations (1) (4)	72.6	0.87
Adjustment for dilution (2)		(0.12)
Adjusted income from continuing operations
per diluted share (2) (4)		$                        0.75
Estimated income tax expense	5.0
Interest expense and amortization of debt discounts and fees,
excluding interest associated with UBS Settlement	168.9
Depreciation and amortization, excluding accelerated
depreciation of corporate campus (3)	73.2
	319.7
Other adjustments per the Company's
Credit Agreement:
Impairment charges, including investments	2.4
Net noncash loss on disposal of assets	2.0
Loss on early extinguishment of debt	5.9
Compensation expense under FASB Statement No. 123(R)	11.7
Adjusted Consolidated EBITDA (1) (4) (5)	$                           341.7
Weighted average common shares outstanding:
Basic		83.0
Diluted		96.4

8

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. Management and some members of the investment community utilize adjusted income from continuing operations as a financial measure and Adjusted Consolidated EBITDA as a liquidity measure 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 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. Per share amounts do not include 5.0 million shares of common stock or warrants to purchase approximately 8.2 million shares of common stock not yet issued under the securities litigation settlement. The increase in the Company’s basic and diluted weighted average common shares outstanding for the three months ended March 31, 2009 compared to the same period of 2008 was primarily the result of its equity offering of 8.8 million shares that was completed on June 27, 2008.

⁽³⁾ In the first quarter of 2008, and in accordance with Financial Accounting Standards Board Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company accelerated the depreciation of its corporate campus so that the net book value of the campus equaled the estimated net proceeds the Company expected to receive on the sale transaction’s closing date. The year-over-year impact of this acceleration of depreciation approximated $10 million. No similar charges are expected in 2009.

⁽⁴⁾ Adjusted income from continuing operations per diluted share and Adjusted Consolidated EBITDA are two components of the Company’s guidance.

⁽⁵⁾ 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.

⁽⁶⁾ Interest expense and amortization of debt discounts and fees in the Company’s consolidated statement of operations for the year ended December 31, 2008 included the reversal of approximately $9.4 million of accrued interest related to the loan guarantee for which the Company received a release as part of the UBS Settlement.

9

HealthSouth Corporation and Subsidiaries

Earnings Conference Call

The Company will host an investor conference call at 9:00 a.m. Eastern Time on Tuesday, May 5, 2009 to discuss its results for the first quarter of 2009. 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 91485741. 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, 2009. 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 satellites, 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.

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, 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 10-K for the year ended December 31, 2008 and Form 10-Q for the quarterly period ended March 31, 2009, which is expected to be filed later this week.

10

EX-99

First Quarter 2009 Earnings Call
Supplemental Slides

Exhibit 99.2

1

The information contained in this presentation includes certain estimates, projections and other forward-
looking information that reflect our current views with respect to future events and financial performance.
These estimates, projections and other forward-looking information are based on assumptions that
HealthSouth believes, as of the date hereof, are reasonable. Inevitably, there will be differences between
such estimates and actual results, and those differences may be material.

There can be no assurance that any estimates, projections or forward-looking information will be realized.

All such estimates, projections and forward-looking information speak only as of the date hereof.
HealthSouth undertakes no duty to publicly update or revise the information contained herein.

You are cautioned not to place undue reliance on the estimates, projections and other forward-looking
information in this presentation as they are based on current expectations and general assumptions and
are subject to various risks, uncertainties and other factors, including those set forth in our Form 10-K for
the fiscal year ended December 31, 2008, the Form 10-Q for quarter ended March 31, 2009, when filed,
and in other documents we previously filed with the SEC, many of which are beyond our control, that may
cause actual results to differ materially from the views, beliefs and estimates expressed herein.

Note Regarding Presentation of Non-GAAP Financial Measures
The following presentation includes certain “non-GAAP financial measures” as defined in Regulation G
under the Securities Exchange Act of 1934. A schedule is attached that reconciles the non-GAAP financial
measures included in the following presentation to the most directly comparable financial measures
calculated and presented in accordance with Generally Accepted Accounting Principles in the United
States. Our Form 8-K, dated May 4, 2009, to which the following supplemental slides are attached as
Exhibit 99.2, provides further explanation and disclosure regarding our use of non-GAAP financial
measures and should be read in conjunction with these supplemental slides.

Forward-Looking Statements

2

Table of Contents

Highlights……………………………………………………………………………………………..

Revenues …………………………………………………………………………………………....

Expenses …………………………………………………………………………………………….

Adjusted Consolidated EBITDA …….……………………………….…………………………....

Adjusted Income per Share ……….……………………………………………………………....

Free Cash Flow……………………………………………………………………………………...

Debt Reduction…………………………………………………………………………..................

Liquidity……………………………………………………………………………………………….

2009 Guidance……………………………………………………………………………………....

Appendix……………………………………………………………………………………………..

Revenues (Sequential)……………………………………………………………………………..

Expenses (Sequential)……………………………………………………………………………...

Operational and Labor Metrics……………………………………………………………………..

Payment Sources………..…………………………………………………………………………..

Debt Maturities……………………………………………………………………………………….

Interest Rate Swaps……………………...………………………………………………………….

Debt Schedule………………………………………………………………………………………..

Non-Operating Cash/Tax Position..………………………………………………………………..

Outstanding Share Summary……………………………………………………………………....

US GAAP Reconciliations…………………………………………………………………………..

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23-26

3

Highlights:  Q1 2009

Achieved 5.7% quarter-over-quarter discharge growth.

Same store discharge growth was 4.8%.

Revenue growth of 2.3%.

Driven by higher discharge volume which more than offset the Medicare price
roll-back and lower outpatient revenue.

Cost-effective, high-quality patient care.

Driven by effective management of hospital expenses and improved labor
productivity.

Reduced debt by $85.1 million since year end.

Leverage ratio reduced to 4.9x⁽¹⁾ from 5.3x at year end.

Received UBS Settlement net proceeds of approximately $60 million.

⁽¹⁾ Based on trailing four quarter Adjusted Consolidated EBITDA of $351.2 million; reconciliation to GAAP provided on slides 23 through 26.

4

Revenues (Q1 2009 vs. Q1 2008)  

Inpatient revenue growth was driven by strong discharge volumes, offset by the Medicare price
roll-back.

Volume growth was driven by the sustained TeamWorks effort and disciplined development.

Same store discharge growth was 4.8%.

Net patient revenue / discharge was lower in Q109 due to the Medicare price roll-back, offset by
higher non-Medicare pricing.

Outpatient revenue declined as a result of 12 fewer outpatient satellites quarter over quarter.

Favorable/

(Unfavorable)

(Millions)

1st Qtr. 2009

1st Qtr. 2008

Change

Inpatient

433.1

$            

419.1

$            

3.3%

Outpatient and other

42.0

45.1

(6.9%)

Consolidated net operating

475.1

$            

464.2

$            

2.3%

(Actual Amounts)

Discharges

27,807

26,309

5.7%

Net patient revenue / discharge

15,575

$           

15,930

$           

(2.2%)

5

Expenses (Q1 2009 vs. Q1 2008)

Adjustments made to benefit plans are reflected in Q109 results.

Continued progress on labor productivity demonstrated by lower EPOB.

Reduced hospital related expenses as a result of lower costs for TeamWorks.

Lower general and administrative as a result of right sizing the corporate office.

Favorable/

(Unfavorable)

(Millions, except percent)

1st Qtr. 2009

1st Qtr. 2008

Change

Salaries and benefits

234.7

$            

230.4

$            

(1.9%)   

Percent of net operating revenues

49.4%

49.6%

20 bps

EPOB (employee per occupied bed)

3.47

3.53

1.7%     

Hospital related expenses

114.6

$            

115.8

$            

1.0%     

(other operating, supplies, occupancy, bad debts)

Percent of net operating revenues

24.1%

24.9%

80 bps

General and administrative

21.8

$               

24.8

$               

12.1%     

(excludes 123(R) compensation)

Percent of net operating revenues

4.6%

5.3%

70 bps

6

Adjusted Consolidated EBITDA⁽¹⁾(Millions)

⁽¹⁾ Reconciliation to GAAP provided on slides 23 through 26.

Strong volume growth in Q109 helped offset the Medicare price roll-back.

Medicare market basket update:  $7-8 million benefit in Q108.

Quarter-over-quarter improvement driven by:

Increased volumes

Lower G&A

Effective management of hospital related expenses

Improved labor productivity

1st Qtr.

1st Qtr.

2009

2008

$

%

98.7

$      

89.2

$     

9.5

$        

10.7%

Change

7

Adjusted Income per Share

⁽¹⁾ Reconciliation to GAAP provided on slides 23 through 26.

Quarter-over-quarter adjusted income from continuing operations per diluted
share improved by $0.21 per share.  Major drivers were:

Higher revenue driven by discharge growth

Lower interest expense

Lower G&A expense

Effective management of hospital related expenses

Improved labor productivity

1st Qtr.  

1st Qtr.   

(Millions, except per share data)

2009

2008

$

%

Income from continuing operations

attributable to HealthSouth

48.0

$   

4.6

$     

43.4

$   

943.5%

Adjusted income from continuing

operations

(1)

39.8

$   

17.0

$   

22.8

$   

134.1%

Adjusted income from continuing

operations per diluted share   

(1)

0.39

$   

0.18

$   

0.21

$     

116.7%

Per Share

Change

8

Free Cash Flow

⁽¹⁾Includes capital expenditures for the hospital refresh program.

(Millions)

183.1

$   

41.8

$      

Incremental income tax expense

(0.3)

(1.4)

Capital expenditures for maintenance

(1)

(7.5)

(8.7)

Net settlements on interest rate swap

(8.5)

(0.2)

Dividends paid on convertible perpetual

preferred stock

(6.5)

(6.5)

Non-recurring items:

UBS Settlement proceeds,

less fees to derivative plaintiffs' attorneys

(73.8)

-

Income tax refund receivable

(47.8)

(3.8)

Adjusted free cash flow

38.7

$      

21.2

$      

Net cash provided by operating activities

2008

2009

Three Months Ended March 31,

9

No near-term refinancing

Revolver = 2012

Term Loan = 2013

Bonds = 2014 & 2016

Future deleveraging:

Excess cash from operations

Derivative proceeds

UBS Settlement; net recovery
of ~ $60 million in cash

E&Y and Scrushy litigation
on-going

⁽¹⁾ Credit Agreement limits debt pay down on non–term loan balances. We have the right to buy back non-term loan debt with the discretionary
cash available to the Company.

⁽²⁾ Based on four quarter trailing Adjusted Consolidated EBITDA of $351.2 million; see related debt schedule on slide 20, and reconciliation to
GAAP on slides 23 through 26.

  Debt to EBITDA      6.3x           6.3x            5.3x          4.9x⁽²⁾

($ Billions)

Year-End  2012  Goal:  3.5x to 4.0x

Debt Reduction

10

Liquidity
(Millions)

March 31, 2009

December 31, 2008

Cash

Available

90.7

$                     

32.2

$                    

Revolver

Total line

400.0

$                    

400.0

$                  

Less:

– Draws

-

(40.0)

– Letters of credit

-

(52.7)

Available

400.0

$                    

307.3

$                  

Total Liquidity                                   

(available cash and revolver)

490.7

$                    

339.5

$                  

11

2009 Guidance

⁽¹⁾ Reconciliation to GAAP provided on slides 23 through 26.

⁽²⁾ Adjusted income from continuing operations per diluted share.

Adjusted Consolidated EBITDA⁽¹⁾

2009 Range:  $342.0 million to $352.0 million

Expect to be at the higher end of the range

Adjusted Earnings per Share⁽¹⁾⁽²⁾

2009 Range:  $0.85 to $0.90 per share

Expect to be at the higher end of the range

Key Drivers:

Sustainable discharge growth

Bed expansions

New hospitals

Cost-effective, high-quality patient care

Deleveraging

12

Appendix

13

Revenues (Sequential)

Inpatient revenue growth was driven by strong discharge growth and higher
revenue / discharge.

Favorable

(Unfavorable)

(Millions, except percent)

1st Qtr. 2009

4th Qtr. 2008

Change

Inpatient

433.1

$            

418.4

$            

3.5%

Outpatient and other

42.0

44.6

(5.8%)

Consolidated net operating

475.1

$            

463.0

$            

2.6%

(Actual Amounts)

Discharges

27,807

27,654

0.6%

Net patient revenue / discharge

15,575

$           

15,130

$           

2.9%

14

Expenses (Sequential)

Cost-effective, high-quality patient care.

Adjustments made to benefit plans are reflected in Q109 results.

Continued progress on labor productivity demonstrated by lower EPOB.

Favorable

(Unfavorable)

(Millions, except percent)

1st Qtr. 2009

4th Qtr. 2008

Change

Salaries and benefits

234.7

$            

233.7

$            

(0.4%)   

Percent of net operating revenues

49.4%

50.5%

110 bps

EPOB (employee per occupied bed)

3.47

3.64

4.7%     

Hospital related expenses

114.6

$            

112.7

$            

(1.7%)   

(other operating, supplies, occupancy, bad debts)

Percent of net operating revenues

24.1%

24.3%

20 bps

General and administrative

21.8

$              

23.5

$              

7.2%   

(excludes 123(R) compensation)

Percent of net operating revenues

4.6%

5.1%

50 bps

15

Operational and Labor Metrics

⁽¹⁾ Represents discharges from HealthSouth’s 90 consolidated hospitals.

⁽²⁾ Excludes 395 and 444 full-time equivalents for the three months ended March 31, 2009 and 2008, respectively, who are considered part of
corporate overhead with their salaries and benefits included in general and administrative expenses in the Company’s condensed
consolidated statements of operations. Full-time equivalents included in the above table represent HealthSouth employees who participate in
or support the operations of the Company’s hospitals.

⁽³⁾ Employees per occupied bed, or “EPOB,” is calculated by dividing the number of full-time equivalents, including an estimate of full-time
equivalents from the utilization of contract labor, by the number of occupied beds during each period. The number of occupied beds is
determined by multiplying the number of licensed beds by the Company’s occupancy percentage.

2009

2008

Net patient revenue-inpatient

433.1

$         

419.1

$         

Net patient revenue-outpatient and

other revenues

42.0

45.1

Net operating revenues

475.1

$         

464.2

$         

Discharges

(1)

27,807

26,309

Outpatient visits

285,101

306,145

Average length of stay

14.6 days

15.2 days

Occupancy %

69.4%

67.0%

# of licensed beds

6,523

6,565

Occupied beds

4,527

4,399

Full-time equivalents (FTEs)

(2)

15,566

15,319

Contract labor

144

202

Total FTE and contract labor

15,710

15,521

EPOB

(3)

3.47

3.53

Three Months Ended

March 31,

(In Millions)

(Actual Amounts)

16

Payment Sources

⁽¹⁾ Medicare Advantage revenues are included in “Managed care and other discount plans.”

2009

2008

Medicare

68.6%

68.2%

Medicaid

2.1%

2.3%

Workers' compensation

1.7%

2.2%

Managed care and other discount plans

(1)

22.2%

21.3%

Other third-party payors

3.2%

3.5%

Patients

0.8%

0.8%

Other income

1.4%

1.7%

Total

100.0%

100.0%

Three Months Ended March 31,

17

Debt Maturities
(Millions)

$400.0

Undrawn revolver

goes away in 2012

Minimal amortization and no near-term financing risk.

As of March 31, 2009, we were in compliance with the covenants under
our Credit Agreement.

18

Interest Rate Swaps
(Millions)

⁽¹⁾ We have the flexibility to peg 1,2,3 or 6 month Libor, or Prime.

⁽²⁾ Forward-starting interest rate swaps (designated as cash flow hedges).

19

Debt Schedule

⁽¹⁾ The Company had $90.7 million in cash and cash equivalents as of March 31, 2009.

⁽²⁾ Credit Agreement limits debt pay down on non–term loan balances.  We have the ability to buy back non-term loan debt with the discretionary
cash available to the Company.

(Millions)

Q109 Debt

Reduction

(1)(2)

March 2012

$              -   

$           40.0

$              (40.0)

Term loan facility - March 2013

757.1

783.6

(26.5)

Bonds Payable:

8.375%

Senior Notes due 2011

0.3

0.3

-

7.625%

Senior Notes due 2012

1.5

1.5

-

Floating Rate Senior Notes due 2014                     

350.6

366.0

(15.4)

     (6 month Libor plus 600)

10.75%

Senior Notes due 2016

494.5

494.3

0.2

from 7.9% to 12.9%

12.6

12.8

(0.2)

Capital lease obligations

111.5

114.7

(3.2)

Total

1,728.1

$      

1,813.2

$      

(85.1)

$              

Year-to-date debt reduction

(1)(2)

85.1

$           

Debt Balances

December 31,   

2008

Notes payable to banks and others at interest rates

Advances under $400 million revolving credit facility,

March 31,

2009

20

Non-Operating Cash/Tax Position

Cash Refunds

Federal tax recoveries virtually complete.

Approx. $42 million received in Q109.

State tax refunds in progress.

Approx. $6 million received in Q109.

Approx. $8 million net receivable on the
balance sheet March 31, 2009.

Future Cash Tax Payments

Expect to pay about $5-7 million per year of
income tax.

State income tax

Alternative Minimum Tax (AMT)

With over $2.5 billion in NOLs and tax
deductions, we do not expect to pay significant
federal income taxes for approximately the next
10-12 years.

At this time, we do not believe the use of
NOLs will be limited before they expire,
however, no assurances can be
provided.

HealthSouth is not currently subject to an
annual use limitation (AUL) under the Internal
Revenue Service section 382.

If we experienced a “change of ownership” as
defined by the Internal Revenue Service section
382, we would be subject to an AUL which is
equal to the value of the company at the time of
the “change of ownership” multiplied by the
long-term tax exempt rate.

GAAP Considerations

HealthSouth’s balance sheet currently reflects
a valuation allowance for the potential value
of NOLs and future deductions. The valuation
allowance is approximately $1.0 billion.

GAAP tax rate will net to small amount for
foreseeable future as there will be a reduction
in the valuation allowance when NOLs are
utilized.

21

Outstanding Share Summary

(Millions)

1st Qtr.⁽⁴⁾

2009

1st Qtr.

2008

Year-End⁽⁴⁾

2008

Year-End

2007

Basic shares  outstanding

(2)(3)

87.5

78.9

83.0

78.7

Diluted shares outstanding

(1)(2)(3)

100.9

92.3

96.4

92.0

Basic shares  outstanding

(2)(3)

88.3

79.1

88.0

78.7

Diluted shares outstanding

(1)(2)(3)

101.7

92.5

101.4

92.0

Notes:

Average for the Period

End of Period

⁽¹⁾ The difference between the basic and diluted shares outstanding is primarily related to our convertible perpetual preferred
stock.

⁽²⁾ Does not include warrants issued in connection with a January 2004 loan repaid to Credit Suisse First Boston. In
connection with this transaction, we issued warrants to the lender to purchase two million shares of our common stock.
Each warrant has a term of ten years from the date of issuance and an exercise price of $32.50 per share. The warrants
were not assumed exercised for dilutive shares outstanding because they were antidilutive in the periods presented.

⁽³⁾ Does not include approximately 5.0 million shares of common stock and warrants to purchase approximately 8.2 million
shares of common stock at a strike price of $41.40 to settle our class action securities litigation. This agreement received
final court approval on January 11, 2007. As of March 31, 2009, these shares of common stock and warrants have not
been issued and are not included in our basic or diluted common shares outstanding. We expect a ruling before the end
of third quarter. If the judgment is affirmed, the distribution would occur in 2009.

⁽⁴⁾ Completed an equity offering for 8.8 million shares on June 27, 2008.

22

First Quarter Reconciliation of Net Income to Adjusted Income from Continuing
Operations and Adjusted Consolidated EBITDA ⁽¹⁾⁽³⁾

23

2008 Year-End Reconciliation of Net Income to Adjusted Income from
Continuing Operations and Adjusted Consolidated EBITDA⁽¹⁾⁽³⁾

24

First Quarter Reconciliation of Adjusted Consolidated EBITDA⁽¹⁾ to Net Cash
Provided by Operating Activities

25

Reconciliation Notes

1.

Adjusted income from continuing operations and Adjusted Consolidated EBITDA are
non-GAAP financial measures. Management and some members of the investment
community utilize adjusted income from continuing operations as a financial measure
and Adjusted Consolidated EBITDA as a liquidity measure 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 the three months ended March 31, 2009 and 2008 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 shares outstanding. The difference in shares between the basic and diluted
shares outstanding is primarily related to our convertible perpetual preferred stock. Per
share amounts do not include 5.0 million shares not yet issued under the securities
litigation settlement.

3.

Adjusted income from continuing operations per diluted share and Adjusted
Consolidated EBITDA are two components of our guidance.

4.

The Company’s Credit Agreement allows certain other items to be added to arrive at  
Adjusted Consolidated EBITDA, and there may be certain other deductions required.

26