|        |
|--------|
|        |  |
| ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 |

|   |
|---|
|   |  |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 |

|                                                               |
|---------------------------------------------------------------|
|                                                               |  |
| Delaware                                                      | 63-0860407 |
| (State or Other Jurisdiction ofIncorporation or Organization) | (I.R.S. EmployerIdentification No.) |
|                                                          |   |
| 3660 Grandview Parkway, Suite 200Birmingham, Alabama          | 35243 |
| (Address of Principal Executive Offices)                      | (Zip Code) |
|                                                          |   |
| (205) 967-7116                                                |
| (Registrant’s telephone number)                         |

----

|              |
|--------------|
|              |  |  |
|         |   | Page |
| PART I  | Financial Information |   |
|         |   |   |
| Item 1. | Financial Statements (Unaudited) | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 31 |
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 50 |
| Item 4. | Controls and Procedures | 50 |
|         |   |     |
| PART II | Other Information |   |
|         |   |   |
| Item 1. | Legal Proceedings | 51 |
| Item 1A.     | Risk Factors | 51 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 51 |
| Item 6. | Exhibits | 52 |

|         |                                                                                                                                                                                                                                                                                                                                                                 |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | each of the factors discussed in Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2015, as well as uncertainties and factors discussed in Part II, Item 1A, Risk Factors, and elsewhere in this Form 10-Q, in our other filings from time to time with the SEC, or in materials incorporated therein by reference; |

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | changes in the rules and regulations of the healthcare industry at either or both of the federal and state levels, including those contemplated now and in the future as part of national healthcare reform and deficit reduction such as the reinstatement of the “75% Rule” or the introduction of site neutral payments with skilled nursing facilities for certain conditions, and related increases in the costs of complying with such changes; |

|         |                                                                                                                                                                                                         |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | reductions or delays in, or suspension of, reimbursement for our services by governmental or private payors, including our ability to obtain and retain favorable arrangements with third-party payors; |

----

|         |                                                                                                                                                                                                                                                                                     |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | delays in the administrative appeals process associated with denied Medicare reimbursement claims, including from various Medicare audit programs, and our exposure to the related delay or reduction in the receipt of the reimbursement amounts for services previously provided; |

|         |                                                                                                                                       |
|---------|---------------------------------------------------------------------------------------------------------------------------------------|
| • | the ongoing evolution of the healthcare delivery system, including alternative payment models and value-based purchasing initiatives; |

|         |                                                                                                                                                                                                                                                                                        |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | our ability to comply with extensive and changing healthcare regulations as well as the increased costs of regulatory compliance and compliance monitoring in the healthcare industry, including the costs of investigating and defending asserted claims, whether meritorious or not; |

|         |                                                                                                                                                                                                                                                                              |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | our 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 our labor expenses from potential union activity and staffing recruitment and retention; |

|         |                                                                                       |
|---------|---------------------------------------------------------------------------------------|
| • | competitive pressures in the healthcare industry and our response to those pressures; |

|         |                                                         |
|---------|---------------------------------------------------------|
| • | changes in our payor mix or the acuity of our patients; |

|         |                                                                                                                                                                                                                                                                                             |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | our ability to successfully complete and integrate de novo developments, acquisitions, investments, and joint ventures consistent with our growth strategy, including realization of anticipated revenues, cost savings, and productivity improvements arising from the related operations; |

|         |                                                                                                                                                                                                                            |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | any adverse outcome of various lawsuits, claims, and legal or regulatory proceedings, including the ongoing investigations initiated by the U.S. Department of Health and Human Services, Office of the Inspector General; |

|         |                                                                                                                                                                |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | increased costs of defending and insuring against alleged professional liability and other claims and the ability to predict the costs related to such claims; |

|         |                                                                                                           |
|---------|-----------------------------------------------------------------------------------------------------------|
| • | potential incidents affecting the proper operation, availability, or security of our information systems; |

|         |                                                                                                           |
|---------|-----------------------------------------------------------------------------------------------------------|
| • | new or changing quality reporting requirements impacting operational costs or our Medicare reimbursement; |

|         |                                                                                                                                                           |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | the price of our common stock as it affects our willingness and ability to repurchase shares and the financial and accounting effects of any repurchases; |

|         |                                                                                           |
|---------|-------------------------------------------------------------------------------------------|
| • | our ability and willingness to continue to declare and pay dividends on our common stock; |

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | our ability to successfully integrate Encompass Home Health and Hospice, the inpatient rehabilitation hospitals acquired from Reliant Hospital Partners, LLC, and the home health agency operations of CareSouth Health System, Inc., including the realization of anticipated benefits from those acquisitions and avoidance of unanticipated difficulties, costs or liabilities that could arise from the acquisitions or integrations; |

|         |                                                                                                              |
|---------|--------------------------------------------------------------------------------------------------------------|
| • | our ability to maintain proper local, state and federal licensing where we and our subsidiaries do business; |

|         |                                                                                                                                  |
|---------|----------------------------------------------------------------------------------------------------------------------------------|
| • | our ability to attract and retain key management personnel, including as a part of executive management succession planning; and |

|         |                                                                                                                                                                                                                                                                |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | general conditions in the economy and capital markets, including any instability or uncertainty related to governmental impasse over approval of the United States federal budget, an increase to the debt ceiling, or an international sovereign debt crisis. |

----

|         |                                  |
|---------|----------------------------------|
| Item 1. | Financial Statements (Unaudited) |

|                                                              |
|--------------------------------------------------------------|
|                                                              |  |  |  |  |  |  |  |
|                                                         | Three Months Ended March 31, |
|                                                         | 2016 |   | 2015 |
|                                                         | (In Millions) |
| Net operating revenues                                       | $ | 909.8 |  |   | $ | 740.6 |  |
| Less: Provision for doubtful accounts                        | (16.5 | ) |   | (11.6 | ) |
| Net operating revenues less provision for doubtful accounts  | 893.3 |  |   | 729.0 |  |
| Operating expenses:                                          |   |  |   |   |  |
| Salaries and benefits                                        | 486.1 |  |   | 385.1 |  |
| Other operating expenses                                     | 119.2 |  |   | 103.2 |  |
| Occupancy costs                                              | 18.0 |  |   | 12.1 |  |
| Supplies                                                     | 35.0 |  |   | 31.4 |  |
| General and administrative expenses                          | 31.9 |  |   | 34.6 |  |
| Depreciation and amortization                                | 42.4 |  |   | 31.9 |  |
| Government, class action, and related settlements            | — |  |   | 8.0 |  |
| Professional fees—accounting, tax, and legal           | 0.2 |  |   | 2.2 |  |
| Total operating expenses                                     | 732.8 |  |   | 608.5 |  |
| Loss on early extinguishment of debt                         | 2.4 |  |   | 1.2 |  |
| Interest expense and amortization of debt discounts and fees | 44.6 |  |   | 31.8 |  |
| Other income                                                 | (0.6 | ) |   | (0.5 | ) |
| Equity in net income of nonconsolidated affiliates           | (2.4 | ) |   | (1.6 | ) |
| Income from continuing operations before income tax expense  | 116.5 |  |   | 89.6 |  |
| Provision for income tax expense                             | 39.7 |  |   | 30.3 |  |
| Income from continuing operations                            | 76.8 |  |   | 59.3 |  |
| Loss from discontinued operations, net of tax                | (0.1 | ) |   | (0.3 | ) |
| Net income                                                   | 76.7 |  |   | 59.0 |  |
| Less: Net income attributable to noncontrolling interests    | (18.7 | ) |   | (16.5 | ) |
| Net income attributable to HealthSouth                       | 58.0 |  |   | 42.5 |  |
| Less: Convertible perpetual preferred stock dividends        | — |  |   | (1.6 | ) |
| Net income attributable to HealthSouth common shareholders   | $ | 58.0 |  |   | $ | 40.9 |  |

----

|                                                                             |
|-----------------------------------------------------------------------------|
|                                                                             |  |  |  |  |  |  |  |
|                                                                        | Three Months Ended March 31, |
|                                                                        | 2016 |   | 2015 |
|                                                                        | (In Millions, Except Per Share Data) |
| Weighted average common shares outstanding:                                 |   |  |   |   |  |
| Basic                                                                       | 89.5 |  |   | 87.1 |  |
| Diluted                                                                     | 99.4 |  |   | 101.1 |  |
|                                                                        |   |   |   |
| Earnings per common share:                                                  |   |   |   |
| Basic earnings per share attributable to HealthSouth common shareholders:   |   |   |   |  |
| Continuing operations                                                       | $ | 0.65 |  |   | $ | 0.47 |  |
| Discontinued operations                                                     | — |  |   | — |  |
| Net income                                                                  | $ | 0.65 |  |   | $ | 0.47 |  |
| Diluted earnings per share attributable to HealthSouth common shareholders: |   |   |   |
| Continuing operations                                                       | $ | 0.61 |  |   | $ | 0.44 |  |
| Discontinued operations                                                     | — |  |   | — |  |
| Net income                                                                  | $ | 0.61 |  |   | $ | 0.44 |  |
|                                                                        |   |   |   |
| Cash dividends per common share                                             | $ | 0.23 |  |   | $ | 0.21 |  |
|                                                                        |   |   |   |
| Amounts attributable to HealthSouth common shareholders:                    |   |   |   |  |
| Income from continuing operations                                           | $ | 58.1 |  |   | $ | 42.8 |  |
| Loss from discontinued operations, net of tax                               | (0.1 | ) |   | (0.3 | ) |
| Net income attributable to HealthSouth                                      | $ | 58.0 |  |   | $ | 42.5 |  |

----

|                                                                              |
|------------------------------------------------------------------------------|
|                                                                              |  |  |  |  |  |  |  |
|                                                                         | Three Months Ended March 31, |
|                                                                         | 2016 |   | 2015 |
|                                                                         | (In Millions) |
| COMPREHENSIVE INCOME                                                         |   |   |   |
| Net income                                                                   | $ | 76.7 |  |   | $ | 59.0 |  |
| Other comprehensive income, net of tax:                                      |   |  |   |   |  |
| Net change in unrealized gain on available-for-sale securities:              |   |  |   |   |  |
| Unrealized net holding gain arising during the period                        | 0.2 |  |   | 0.1 |  |
| Other comprehensive income before income taxes                               | 0.2 |  |   | 0.1 |  |
| Provision for income tax expense related to other comprehensive income items | (0.1 | ) |   | — |  |
| Other comprehensive income, net of tax                                       | 0.1 |  |   | 0.1 |  |
| Comprehensive income                                                         | 76.8 |  |   | 59.1 |  |
| Comprehensive income attributable to noncontrolling interests                | (18.7 | ) |   | (16.5 | ) |
| Comprehensive income attributable to HealthSouth                             | $ | 58.1 |  |   | $ | 42.6 |  |

----

|                                                                                             |
|---------------------------------------------------------------------------------------------|
|                                                                                             |  |  |  |  |  |  |  |
|                                                                                        | March 31, 2016 |   | December 31, 2015 |
|                                                                                        | (In Millions) |
| Assets                                                                                      |   |   |   |
| Current assets:                                                                             |   |   |   |
| Cash and cash equivalents                                                                   | $ | 73.2 |  |   | $ | 61.6 |  |
| Accounts receivable, net of allowance for doubtful accounts of $44.7 in 2016; $39.3 in 2015 | 431.9 |  |   | 410.5 |  |
| Other current assets                                                                        | 127.0 |  |   | 126.6 |  |
| Total current assets                                                                        | 632.1 |  |   | 598.7 |  |
| Property and equipment, net                                                                 | 1,317.7 |  |   | 1,310.1 |  |
| Goodwill                                                                                    | 1,891.9 |  |   | 1,890.1 |  |
| Intangible assets, net                                                                      | 415.8 |  |   | 419.4 |  |
| Deferred income tax assets                                                                  | 145.0 |  |   | 190.8 |  |
| Other long-term assets                                                                      | 205.8 |  |   | 197.0 |  |
| Total assets(1)                                                                             | $ | 4,608.3 |  |   | $ | 4,606.1 |  |
| Liabilities and Shareholders’ Equity                                                  |   |   |   |
| Current liabilities:                                                                        |   |   |   |
| Current portion of long-term debt                                                           | $ | 36.6 |  |   | $ | 36.8 |  |
| Accounts payable                                                                            | 62.7 |  |   | 61.6 |  |
| Accrued expenses and other current liabilities                                              | 364.5 |  |   | 328.0 |  |
| Total current liabilities                                                                   | 463.8 |  |   | 426.4 |  |
| Long-term debt, net of current portion                                                      | 3,079.6 |  |   | 3,134.7 |  |
| Other long-term liabilities                                                                 | 144.8 |  |   | 144.6 |  |
|                                                                                        | 3,688.2 |  |   | 3,705.7 |  |
| Commitments and contingencies                                                               |   |   |   |
| Redeemable noncontrolling interests                                                         | 96.2 |  |   | 121.1 |  |
| Shareholders’ equity:                                                                 |   |  |   |   |  |
| HealthSouth shareholders’ equity                                                      | 649.5 |  |   | 611.4 |  |
| Noncontrolling interests                                                                    | 174.4 |  |   | 167.9 |  |
| Total shareholders’ equity                                                            | 823.9 |  |   | 779.3 |  |
| Total liabilities(1) and shareholders’ equity                                         | $ | 4,608.3 |  |   | $ | 4,606.1 |  |

|           |                                                                                                                                                                                                                                                                                                                                                                    |
|-----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)  | Our consolidated assets as of March 31, 2016 include total assets of variable interest entities of $247.3 million, which cannot be used by us to settle the obligations of other entities. Our consolidated liabilities as of March 31, 2016 include total liabilities of the variable interest entities of $54.0 million. See Note 3, Variable Interest Entities. |

----

|                                                                           |
|---------------------------------------------------------------------------|
|                                                                           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                                      | Three Months Ended March 31, 2016 |
|                                                                      | (In Millions) |
|                                                                      | HealthSouth Common Shareholders |   |   |   |   |
|                                                                      | Number of Common Shares Outstanding |   | Common Stock |   | Capital in Excess of Par Value |   | Accumulated Deficit |   | Accumulated Other Comprehensive Loss |   | Treasury Stock |   | Noncontrolling Interests |   | Total |
| Balance at beginning of period                                            | 90.1 |  |   | $ | 1.1 |  |   | $ | 2,834.9 |  |   | $ | (1,696.0 | ) |   | $ | (1.2 | ) |   | $ | (527.4 | ) |   | $ | 167.9 |  |   | $ | 779.3 |  |
| Net income                                                                | — |  |   | — |  |   | — |  |   | 58.0 |  |   | — |  |   | — |  |   | 14.8 |  |   | 72.8 |  |
| Receipt of treasury stock                                                 | (0.4 | ) |   | — |  |   | — |  |   | — |  |   | — |  |   | (9.9 | ) |   | — |  |   | (9.9 | ) |
| Dividends declared on common stock                                        | — |  |   | — |  |   | (20.8 | ) |   | — |  |   | — |  |   | — |  |   | — |  |   | (20.8 | ) |
| Stock-based compensation                                                  | — |  |   | — |  |   | 5.9 |  |   | — |  |   | — |  |   | — |  |   | — |  |   | 5.9 |  |
| Stock options exercised                                                   | 0.2 |  |   | — |  |   | 5.0 |  |   | — |  |   | — |  |   | (4.6 | ) |   | — |  |   | 0.4 |  |
| Distributions declared                                                    | — |  |   | — |  |   | — |  |   | — |  |   | — |  |   | — |  |   | (17.1 | ) |   | (17.1 | ) |
| Capital contributions from consolidated affiliates                        | — |  |   | — |  |   | — |  |   | — |  |   | — |  |   | — |  |   | 7.4 |  |   | 7.4 |  |
| Fair value adjustments to redeemable noncontrolling interests, net of tax | — |  |   | — |  |   | 16.3 |  |   | — |  |   | — |  |   | — |  |   | — |  |   | 16.3 |  |
| Repurchases of common stock in open market                                | (0.4 | ) |   | — |  |   | — |  |   | — |  |   | — |  |   | (12.9 | ) |   | — |  |   | (12.9 | ) |
| Other                                                                     | 0.5 |  |   | — |  |   | 1.2 |  |   | — |  |   | 0.1 |  |   | (0.2 | ) |   | 1.4 |  |   | 2.5 |  |
| Balance at end of period                                                  | 90.0 |  |   | $ | 1.1 |  |   | $ | 2,842.5 |  |   | $ | (1,638.0 | ) |   | $ | (1.1 | ) |   | $ | (555.0 | ) |   | $ | 174.4 |  |   | $ | 823.9 |  |

|                                                             |
|-------------------------------------------------------------|
|                                                             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                        | Three Months Ended March 31, 2015 |
|                                                        | (In Millions) |
|                                                        | HealthSouth Common Shareholders |   |   |   |   |
|                                                        | Number of Common Shares Outstanding |   | Common Stock |   | Capital in Excess of Par Value |   | Accumulated Deficit |   | Accumulated Other Comprehensive Loss |   | Treasury Stock |   | Noncontrolling Interests |   | Total |
| Balance at beginning of period                              | 87.8 |  |   | $ | 1.0 |  |   | $ | 2,810.5 |  |   | $ | (1,879.1 | ) |   | $ | (0.5 | ) |   | $ | (458.7 | ) |   | $ | 146.3 |  |   | $ | 619.5 |  |
| Net income                                                  | — |  |   | — |  |   | — |  |   | 42.5 |  |   | — |  |   | — |  |   | 13.6 |  |   | 56.1 |  |
| Receipt of treasury stock                                   | (0.5 | ) |   | — |  |   | — |  |   | — |  |   | — |  |   | (14.9 | ) |   | — |  |   | (14.9 | ) |
| Dividends declared on common stock                          | — |  |   | — |  |   | (18.7 | ) |   | — |  |   | — |  |   | — |  |   | — |  |   | (18.7 | ) |
| Dividends declared on convertible perpetual preferred stock | — |  |   | — |  |   | (1.6 | ) |   | — |  |   | — |  |   | — |  |   | — |  |   | (1.6 | ) |
| Stock-based compensation                                    | — |  |   | — |  |   | 9.1 |  |   | — |  |   | — |  |   | — |  |   | — |  |   | 9.1 |  |
| Stock options exercised                                     | 0.2 |  |   | — |  |   | 5.5 |  |   | — |  |   | — |  |   | (3.6 | ) |   | — |  |   | 1.9 |  |
| Distributions declared                                      | — |  |   | — |  |   | — |  |   | — |  |   | — |  |   | — |  |   | (12.4 | ) |   | (12.4 | ) |
| Other                                                       | 0.7 |  |   | — |  |   | 0.8 |  |   | — |  |   | 0.1 |  |   | (0.1 | ) |   | 0.6 |  |   | 1.4 |  |
| Balance at end of period                                    | 88.2 |  |   | $ | 1.0 |  |   | $ | 2,805.6 |  |   | $ | (1,836.6 | ) |   | $ | (0.4 | ) |   | $ | (477.3 | ) |   | $ | 148.1 |  |   | $ | 640.4 |  |

----

|                                                                                         |
|-----------------------------------------------------------------------------------------|
|                                                                                         |  |  |  |  |  |  |  |
|                                                                                    | Three Months Ended March 31, |
|                                                                                    | 2016 |   | 2015 |
|                                                                                    | (In Millions) |
| Cash flows from operating activities:                                                   |   |   |   |
| Net income                                                                              | $ | 76.7 |  |   | $ | 59.0 |  |
| Loss from discontinued operations, net of tax                                           | 0.1 |  |   | 0.3 |  |
| Adjustments to reconcile net income to net cash provided by operating activities— |   |  |   |   |  |
| Provision for doubtful accounts                                                         | 16.5 |  |   | 11.6 |  |
| Depreciation and amortization                                                           | 42.4 |  |   | 31.9 |  |
| Equity in net income of nonconsolidated affiliates                                      | (2.4 | ) |   | (1.6 | ) |
| Distributions from nonconsolidated affiliates                                           | 1.7 |  |   | 1.9 |  |
| Stock-based compensation                                                                | 4.5 |  |   | 9.4 |  |
| Deferred tax expense                                                                    | 34.7 |  |   | 26.8 |  |
| Other                                                                                   | 5.9 |  |   | 10.8 |  |
| Change in assets and liabilities—                                                 |   |   |   |  |
| Accounts receivable                                                                     | (45.7 | ) |   | (37.3 | ) |
| Other assets                                                                            | 1.8 |  |   | (2.9 | ) |
| Accounts payable                                                                        | 0.6 |  |   | 2.1 |  |
| Accrued payroll                                                                         | 20.9 |  |   | (23.3 | ) |
| Other liabilities                                                                       | 4.1 |  |   | 5.4 |  |
| Premium received on bond issuance                                                       | — |  |   | 8.0 |  |
| Premium paid on redemption of bonds                                                     | (1.9 | ) |   | — |  |
| Net cash used in operating activities of discontinued operations                        | (0.2 | ) |   | (0.1 | ) |
| Total adjustments                                                                       | 82.9 |  |   | 42.7 |  |
| Net cash provided by operating activities                                               | 159.7 |  |   | 102.0 |  |
|                                                                                    |   |   |   |

----

|                                                                           |
|---------------------------------------------------------------------------|
|                                                                           |  |  |  |  |  |  |  |
|                                                                      | Three Months Ended March 31, |
|                                                                      | 2016 |   | 2015 |
|                                                                      | (In Millions) |
| Cash flows from investing activities:                                     |   |   |   |
| Purchases of property and equipment                                       | (31.4 | ) |   | (17.7 | ) |
| Capitalized software costs                                                | (7.7 | ) |   | (8.9 | ) |
| Acquisitions of businesses, net of cash acquired                          | — |  |   | (7.3 | ) |
| Net change in restricted cash                                             | (3.2 | ) |   | (15.0 | ) |
| Other                                                                     | 2.8 |  |   | 3.2 |  |
| Net cash used in investing activities                                     | (39.5 | ) |   | (45.7 | ) |
| Cash flows from financing activities:                                     |   |   |   |
| Proceeds from bond issuance                                               | — |  |   | 700.0 |  |
| Principal payments on debt, including pre-payments                        | (56.3 | ) |   | (252.9 | ) |
| Borrowings on revolving credit facility                                   | 60.0 |  |  | 35.0 |  |
| Payments on revolving credit facility                                     | (60.0 | ) |  | (350.0 | ) |
| Debt amendment and issuance costs                                         | — |  |   | (13.7 | ) |
| Repurchases of common stock, including fees and expenses                  | (12.9 | ) |   | — |  |
| Dividends paid on common stock                                            | (21.3 | ) |   | (18.6 | ) |
| Dividends paid on convertible perpetual preferred stock                   | — |  |   | (1.6 | ) |
| Distributions paid to noncontrolling interests of consolidated affiliates | (15.6 | ) |   | (13.2 | ) |
| Other                                                                     | (2.5 | ) |   | 0.3 |  |
| Net cash (used in) provided by financing activities                       | (108.6 | ) |   | 85.3 |  |
| Increase in cash and cash equivalents                                     | 11.6 |  |   | 141.6 |  |
| Cash and cash equivalents at beginning of period                          | 61.6 |  |   | 66.7 |  |
| Cash and cash equivalents at end of period                                | $ | 73.2 |  |   | $ | 208.3 |  |
|                                                                      |   |   |   |

----

|    |                       |
|----|-----------------------|
| 1. | Basis of Presentation |

|                             |
|-----------------------------|
|                             |  |  |  |  |  |
|                        | Three Months Ended March 31, |
|                        | 2016 |   | 2015 |
| Medicare                    | 75.4 | % |   | 74.9 | % |
| Medicare Advantage          | 7.8 | % |   | 8.2 | % |
| Managed care                | 9.5 | % |   | 10.0 | % |
| Medicaid                    | 3.4 | % |   | 2.6 | % |
| Other third-party payors    | 1.4 | % |   | 1.5 | % |
| Workers’ compensation | 0.9 | % |   | 0.9 | % |
| Patients                    | 0.5 | % |   | 0.7 | % |
| Other income                | 1.1 | % |   | 1.2 | % |
| Total                       | 100.0 | % |   | 100.0 | % |

----

|                             |
|-----------------------------|
|                             |  |  |  |  |  |
|                        | Three Months Ended March 31, |
|                        | 2016 |   | 2015 |
| Medicare                    | 73.8 | % |   | 73.5 | % |
| Medicare Advantage          | 7.6 | % |   | 8.3 | % |
| Managed care                | 11.0 | % |   | 11.2 | % |
| Medicaid                    | 3.0 | % |   | 2.0 | % |
| Other third-party payors    | 1.6 | % |   | 1.7 | % |
| Workers’ compensation | 1.1 | % |   | 1.1 | % |
| Patients                    | 0.6 | % |   | 0.8 | % |
| Other income                | 1.3 | % |   | 1.4 | % |
| Total                       | 100.0 | % |   | 100.0 | % |

|                          |
|--------------------------|
|                          |  |  |  |  |  |
|                     | Three Months Ended March 31, |
|                     | 2016 |   | 2015 |
| Medicare                 | 83.5 | % |   | 83.8 | % |
| Medicare Advantage       | 8.7 | % |   | 7.3 | % |
| Managed care             | 2.7 | % |   | 3.1 | % |
| Medicaid                 | 4.9 | % |   | 5.6 | % |
| Other third-party payors | — | % |   | 0.1 | % |
| Patients                 | 0.1 | % |   | 0.1 | % |
| Other income             | 0.1 | % |   | — | % |
| Total                    | 100.0 | % |   | 100.0 | % |

----

|    |                       |
|----|-----------------------|
| 2. | Business Combinations |

----

|                                      |
|--------------------------------------|
|                                      |  |  |  |
| Property and equipment               | $ | 5.1 |  |
| Identifiable intangible asset:       |   |  |
| Trade name (useful life of 20 years) | 0.2 |  |
| Goodwill                             | 1.8 |  |
| Total assets acquired                | $ | 7.1 |  |

|                                                                      |
|----------------------------------------------------------------------|
|                                                                      |  |  |  |
|                                                                 | Three Months Ended March 31, 2016 |
| Fair value of assets acquired                                        | $ | 5.3 |  |
| Goodwill                                                             | 1.8 |  |
| Fair value of noncontrolling interest owned by joint venture partner | (7.1 | ) |
| Net cash paid for acquisition                                        | $ | — |  |

|                                                                        |
|------------------------------------------------------------------------|
|                                                                        |  |  |  |  |  |  |  |
|                                                                   | Net Operating Revenues |   | Net Income Attributable to HealthSouth |
| Acquired entities only: Actual from acquisition date to March 31, 2016 | $ | 0.3 |  |   | $ | (0.7 | ) |
| Combined entity: Supplemental pro forma from 01/01/2016-03/31/2016     | 910.1 |  |   | 58.0 |  |
| Combined entity: Supplemental pro forma from 01/01/2015-03/31/2015     | 741.6 |  |   | 42.6 |  |

|    |                            |
|----|----------------------------|
| 3. | Variable Interest Entities |

----

|                                                             |
|-------------------------------------------------------------|
|                                                             |  |  |  |
|                                                        | March 31, 2016 |
| Assets                                                      |   |
| Current assets:                                             |   |
| Cash and cash equivalents                                   | $ | 1.6 |  |
| Accounts receivable, net of allowance for doubtful accounts | 28.9 |  |
| Other current assets                                        | 6.4 |  |
| Total current assets                                        | 36.9 |  |
| Property and equipment, net                                 | 126.8 |  |
| Goodwill                                                    | 73.5 |  |
| Intangible assets, net                                      | 9.2 |  |
| Other long-term assets                                      | 0.9 |  |
| Total assets                                                | $ | 247.3 |  |
| Liabilities                                                 |   |
| Current liabilities:                                        |   |
| Current portion of long-term debt                           | $ | 1.4 |  |
| Accounts payable                                            | 7.5 |  |
| Accrued expenses and other current liabilities              | 14.2 |  |
| Total current liabilities                                   | 23.1 |  |
| Long-term debt, net of current portion                      | 30.9 |  |
| Total liabilities                                           | $ | 54.0 |  |

|    |                                                           |
|----|-----------------------------------------------------------|
| 4. | Investments in and Advances to Nonconsolidated Affiliates |

|                                               |
|-----------------------------------------------|
|                                               |  |  |  |  |  |  |  |
|                                          | Three Months Ended March 31, |
|                                          | 2016 |   | 2015 |
| Net operating revenues                        | $ | 11.2 |  |   | $ | 8.2 |  |
| Operating expenses                            | (3.2 | ) |   | (3.9 | ) |
| Income from continuing operations, net of tax | 5.0 |  |   | 3.9 |  |
| Net income                                    | 5.0 |  |   | 3.9 |  |

----

|    |                |
|----|----------------|
| 5. | Long-term Debt |

|                                                      |
|------------------------------------------------------|
|                                                      |  |  |  |  |  |  |  |
|                                                 | March 31, 2016 |   | December 31, 2015 |
| Credit Agreement—                              |   |   |   |
| Advances under revolving credit facility             | $ | 130.0 |  |   | $ | 130.0 |  |
| Term loan facilities                                 | 437.8 |  |   | 443.3 |  |
| Bonds payable—                                 |   |   |   |
| 7.75% Senior Notes due 2022                          | 124.8 |  |   | 174.3 |  |
| 5.125% Senior Notes due 2023                         | 294.8 |  |   | 294.6 |  |
| 5.75% Senior Notes due 2024                          | 1,192.7 |  |   | 1,192.6 |  |
| 5.75% Senior Notes due 2025                          | 343.5 |  |   | 343.4 |  |
| 2.00% Convertible Senior Subordinated Notes due 2043 | 268.3 |  |   | 265.9 |  |
| Other notes payable                                  | 38.4 |  |   | 39.2 |  |
| Capital lease obligations                            | 285.9 |  |   | 288.2 |  |
|                                                 | 3,116.2 |  |   | 3,171.5 |  |
| Less: Current portion                                | (36.6 | ) |   | (36.8 | ) |
| Long-term debt, net of current portion               | $ | 3,079.6 |  |   | $ | 3,134.7 |  |

|                                   |
|-----------------------------------|
|                                   |  |  |  |  |  |  |  |
|                              | Face Amount |   | Net Amount |
| April 1 through December 31, 2016 | $ | 27.8 |  |   | $ | 27.8 |  |
| 2017                              | 36.5 |  |   | 36.5 |  |
| 2018                              | 36.6 |  |   | 36.6 |  |
| 2019                              | 39.6 |  |   | 39.6 |  |
| 2020                              | 813.7 |  |   | 760.4 |  |
| 2021                              | 10.1 |  |   | 10.1 |  |
| Thereafter                        | 2,225.4 |  |   | 2,205.2 |  |
| Total                             | $ | 3,189.7 |  |   | $ | 3,116.2 |  |

----

|    |                                     |
|----|-------------------------------------|
| 6. | Redeemable Noncontrolling Interests |

|                                                     |
|-----------------------------------------------------|
|                                                     |  |  |  |  |  |  |  |
|                                                | Three Months Ended March 31, |
|                                                | 2016 |   | 2015 |
| Balance at beginning of period                      | $ | 121.1 |  |   | $ | 84.7 |  |
| Net income attributable to noncontrolling interests | 3.9 |  |   | 2.9 |  |
| Distributions declared                              | (2.1 | ) |   | (1.7 | ) |
| Change in fair value                                | (26.7 | ) |   | (1.2 | ) |
| Balance at end of period                            | $ | 96.2 |  |   | $ | 84.7 |  |

|                                                                   |
|-------------------------------------------------------------------|
|                                                                   |  |  |  |  |  |  |  |
|                                                              | Three Months Ended March 31, |
|                                                              |
|                                                              | 2016 |   | 2015 |
| Net income attributable to nonredeemable noncontrolling interests | $ | 14.8 |  |   | $ | 13.6 |  |
| Net income attributable to redeemable noncontrolling interests    | 3.9 |  |   | 2.9 |  |
| Net income attributable to noncontrolling interests               | $ | 18.7 |  |   | $ | 16.5 |  |

----

|    |                         |
|----|-------------------------|
| 7. | Fair Value Measurements |

|                                                     |
|-----------------------------------------------------|
|                                                     |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                |   |   | Fair Value Measurements at Reporting Date Using |
| As of March 31, 2016                                | Fair Value |   | Quoted Prices in Active Markets for Identical Assets(Level 1) |   | Significant Other Observable Inputs(Level 2) |   | Significant Unobservable Inputs(Level 3) |   | Valuation Technique (1) |
| Other current assets:                               |   |   |   |   |   |   |   |   |   |
| Current portion of restricted marketable securities | $ | 16.0 |  |   | $ | — |  |   | $ | 16.0 |  |   | $ | — |  |   | M |
| Other long-term assets:                             |   |   |   |   |   |   |   |   |   |
| Restricted marketable securities                    | 40.7 |  |   | — |  |   | 40.7 |  |   | — |  |   | M |
| Redeemable noncontrolling interests                 | 96.2 |  |   | — |  |   | — |  |   | 96.2 |  |   | I |
| As of December 31, 2015                             |   |   |   |   |   |   |   |   |   |
| Other current assets:                               |   |   |   |   |   |   |   |   |   |
| Current portion of restricted marketable securities | $ | 16.1 |  |   | $ | — |  |   | $ | 16.1 |  |   | $ | — |  |   | M |
| Other long-term assets:                             |   |   |   |   |   |   |   |   |   |
| Restricted marketable securities                    | 40.1 |  |   | — |  |   | 40.1 |  |   | — |  |   | M |
| Redeemable noncontrolling interests                 | 121.1 |  |   | — |  |   | — |  |   | 121.1 |  |   | I |

|         |                                                                                                                                                                                                                                                                                                                                      |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | Restricted marketable securities - The fair values of our available-for-sale restricted marketable securities are determined based on quoted market prices in active markets or quoted prices, dealer quotations, or alternative pricing sources supported by observable inputs in markets that are not considered to be active. |

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | Redeemable noncontrolling interests - The fair value of the Redeemable noncontrolling interest related to our home health segment is determined using the product of a twelve-month specified performance measure and a specified median market price multiple based on a basket of public health companies. To determine the fair value of the Redeemable noncontrolling interests in our joint venture hospitals, we use the applicable hospitals’ projected operating results and cash flows discounted using a rate that reflects market participant assumptions for the applicable facilities. The projected operating results use management’s best estimates of economic and market conditions over the forecasted periods including assumptions for pricing and volume, operating expenses, and capital expenditures. See also Note 6, Redeemable Noncontrolling Interests. |

----

|                                                      |
|------------------------------------------------------|
|                                                      |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                 | As of March 31, 2016 |   | As of December 31, 2015 |
|                                                 | Carrying Amount |   | Estimated Fair Value |   | Carrying Amount |   | Estimated Fair Value |
| Long-term debt:                                      |   |  |   |   |  |   |   |  |   |   |  |
| Advances under revolving credit facility             | $ | 130.0 |  |   | $ | 130.0 |  |   | $ | 130.0 |  |   | $ | 130.0 |  |
| Term loan facilities                                 | 437.8 |  |   | 439.4 |  |   | 443.3 |  |   | 445.0 |  |
| 7.75% Senior Notes due 2022                          | 124.8 |  |   | 131.5 |  |   | 174.3 |  |   | 183.7 |  |
| 5.125% Senior Notes due 2023                         | 294.8 |  |   | 298.9 |  |   | 294.6 |  |   | 288.0 |  |
| 5.75% Senior Notes due 2024                          | 1,192.7 |  |   | 1,218.0 |  |   | 1,192.6 |  |   | 1,146.0 |  |
| 5.75% Senior Notes due 2025                          | 343.5 |  |   | 351.8 |  |   | 343.4 |  |   | 332.5 |  |
| 2.00% Convertible Senior Subordinated Notes due 2043 | 268.3 |  |   | 358.2 |  |   | 265.9 |  |   | 345.0 |  |
| Other notes payable                                  | 38.4 |  |   | 38.4 |  |   | 39.2 |  |   | 39.2 |  |
| Financial commitments:                               |   |   |   |   |   |   |   |
| Letters of credit                                    | — |  |   | 35.0 |  |   | — |  |   | 34.2 |  |

|    |                      |
|----|----------------------|
| 8. | Share-Based Payments |

|    |              |
|----|--------------|
| 9. | Income Taxes |

----

|                                                                                   |
|-----------------------------------------------------------------------------------|
|                                                                                   |  |  |  |
|                                                                              | Gross Unrecognized Income Tax Benefits |
| Balance at December 31, 2015                                                      | $ | 2.9 |  |
| Gross amount of increases in unrecognized tax benefits related to current periods | 0.1 |  |
| Balance at March 31, 2016                                                         | $ | 3.0 |  |

----

|                                                                                                |
|------------------------------------------------------------------------------------------------|
|                                                                                                |  |  |  |  |  |  |  |
|                                                                                           | Three Months Ended March 31, |
|                                                                                           | 2016 |   | 2015 |
| Basic:                                                                                         |   |   |   |
| Numerator:                                                                                     |   |   |   |
| Income from continuing operations                                                              | $ | 76.8 |  |   | $ | 59.3 |  |
| Less: Net income attributable to noncontrolling interests included in continuing operations    | (18.7 | ) |   | (16.5 | ) |
| Less: Income allocated to participating securities                                             | (0.2 | ) |   | (0.3 | ) |
| Less: Convertible perpetual preferred stock dividends                                          | — |  |   | (1.6 | ) |
| Income from continuing operations attributable to HealthSouth common shareholders              | 57.9 |  |   | 40.9 |  |
| Loss from discontinued operations, net of tax, attributable to HealthSouth common shareholders | (0.1 | ) |   | (0.3 | ) |
| Net income attributable to HealthSouth common shareholders                                     | $ | 57.8 |  |   | $ | 40.6 |  |
| Denominator:                                                                                   |   |   |   |
| Basic weighted average common shares outstanding                                               | 89.5 |  |   | 87.1 |  |
| Basic earnings per share attributable to HealthSouth common shareholders:                      |   |   |   |
| Continuing operations                                                                          | $ | 0.65 |  |   | $ | 0.47 |  |
| Discontinued operations                                                                        | — |  |   | — |  |
| Net income                                                                                     | $ | 0.65 |  |   | $ | 0.47 |  |
|                                                                                           |   |   |   |
| Diluted:                                                                                       |   |   |   |
| Numerator:                                                                                     |   |   |   |
| Income from continuing operations                                                              | $ | 76.8 |  |   | $ | 59.3 |  |
| Less: Net income attributable to noncontrolling interests included in continuing operations    | (18.7 | ) |   | (16.5 | ) |
| Add: Interest on convertible debt, net of tax                                                  | 2.4 |  |   | 2.3 |  |
| Income from continuing operations attributable to HealthSouth common shareholders              | 60.5 |  |   | 45.1 |  |
| Loss from discontinued operations, net of tax, attributable to HealthSouth common shareholders | (0.1 | ) |   | (0.3 | ) |
| Net income attributable to HealthSouth common shareholders                                     | $ | 60.4 |  |   | $ | 44.8 |  |
| Denominator:                                                                                   |   |   |   |
| Diluted weighted average common shares outstanding                                             | 99.4 |  |   | 101.1 |  |
| Diluted earnings per share attributable to HealthSouth common shareholders:                    |   |   |   |
| Continuing operations                                                                          | $ | 0.61 |  |   | $ | 0.44 |  |
| Discontinued operations                                                                        | — |  |   | — |  |
| Net income                                                                                     | $ | 0.61 |  |   | $ | 0.44 |  |

----

|                                                                                                    |
|----------------------------------------------------------------------------------------------------|
|                                                                                                    |  |  |  |  |  |
|                                                                                               | Three Months Ended March 31, |
|                                                                                               | 2016 |   | 2015 |
| Basic weighted average common shares outstanding                                                   | 89.5 |  |   | 87.1 |  |
| Convertible perpetual preferred stock                                                              | — |  |   | 3.2 |  |
| Convertible senior subordinated notes                                                              | 8.4 |  |   | 8.2 |  |
| Restricted stock awards, dilutive stock options, restricted stock units, and common stock warrants | 1.5 |  |   | 2.6 |  |
| Diluted weighted average common shares outstanding                                                 | 99.4 |  |   | 101.1 |  |

|     |                                     |
|-----|-------------------------------------|
| 11. | Contingencies and Other Commitments |

----

----

|     |                   |
|-----|-------------------|
| 12. | Segment Reporting |

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | Inpatient Rehabilitation - Our national network of inpatient rehabilitation hospitals stretches across 29 states and Puerto Rico, with a concentration of hospitals in the eastern half of the United States and Texas. As of March 31, 2016, we operate 122 inpatient rehabilitation hospitals, including one hospital that operates as a joint venture which we account for using the equity method of accounting. In addition, we manage four inpatient rehabilitation units through management contracts. We provide specialized rehabilitative treatment on both an inpatient and outpatient basis. Our inpatient rehabilitation hospitals provide a higher level of rehabilitative care to patients who are recovering from conditions such as stroke and other neurological disorders, cardiac and pulmonary conditions, brain and spinal cord injuries, complex orthopedic conditions, and amputations. |

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | Home Health and Hospice - As of March 31, 2016, we provide home health and hospice services in 213 locations across 24 states. Two of these agencies operate as joint ventures which we account for using the equity method of accounting. Our home health services include a comprehensive range of Medicare-certified home nursing services to adult patients in need of care. These services include, among others, skilled nursing, physical, occupational, and speech therapy, medical social work, and home health aide services. We also provide specialized home care services in Texas and Kansas for pediatric patients with severe medical conditions. Our hospice services primarily include in-home services to terminally ill patients and their families to address patients’ physical needs, including pain control and symptom management, and to provide emotional and spiritual support. |

----

|                                                                 |
|-----------------------------------------------------------------|
|                                                                 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                            | Inpatient Rehabilitation |   | Home Health and Hospice |
|                                                            | Three Months Ended March 31, |   | Three Months Ended March 31, |
|                                                            | 2016 |   | 2015 |   | 2016 |   | 2015 |
| Net operating revenues                                          | $ | 749.2 |  |   | $ | 630.3 |  |   | $ | 160.6 |  |   | $ | 110.3 |  |
| Less: Provision for doubtful accounts                           | (15.6 | ) |   | (11.0 | ) |   | (0.9 | ) |   | (0.6 | ) |
| Net operating revenues less provision for doubtful accounts     | 733.6 |  |   | 619.3 |  |   | 159.7 |  |   | 109.7 |  |
| Operating expenses:                                             |   |   |   |   |   |   |   |
| Inpatient rehabilitation:                                       |   |   |   |   |   |   |   |
| Salaries and benefits                                           | 369.9 |  |   | 306.4 |  |   | — |  |   | — |  |
| Other operating expenses                                        | 104.8 |  |   | 95.2 |  |   | — |  |   | — |  |
| Supplies                                                        | 32.4 |  |   | 29.8 |  |   | — |  |   | — |  |
| Occupancy costs                                                 | 15.6 |  |   | 10.4 |  |   | — |  |   | — |  |
| Home health and hospice:                                        |   |   |   |   |   |   |   |
| Cost of services sold (excluding depreciation and amortization) | — |  |   | — |  |   | 78.4 |  |   | 53.4 |  |
| Support and overhead costs                                      | — |  |   | — |  |   | 57.0 |  |   | 38.1 |  |
|                                                            | 522.7 |  |   | 441.8 |  |   | 135.4 |  |   | 91.5 |  |
| Other income                                                    | (0.6 | ) |   | (0.5 | ) |   | — |  |   | — |  |
| Equity in net income of nonconsolidated affiliates              | (2.2 | ) |   | (1.6 | ) |   | (0.2 | ) |   | — |  |
| Noncontrolling interests                                        | 16.8 |  |   | 15.2 |  |   | 1.9 |  |   | 1.3 |  |
| Segment Adjusted EBITDA                                         | $ | 196.9 |  |   | $ | 164.4 |  |   | $ | 22.6 |  |   | $ | 16.9 |  |
|                                                            |   |   |   |   |   |   |   |
| Capital expenditures                                            | $ | 38.7 |  |   | $ | 26.3 |  |   | $ | 0.4 |  |   | $ | 0.3 |  |

|                                                           |
|-----------------------------------------------------------|
|                                                           |  |  |  |  |  |  |  |  |  |  |  |
|                                                      | Inpatient Rehabilitation |   | Home Health and Hospice |   | HealthSouth Consolidated |
| As of March 31, 2016                                      |   |   |   |   |   |
| Total assets                                              | $ | 3,583.1 |  |   | $ | 1,096.5 |  |   | $ | 4,608.3 |  |
| Investments in and advances to nonconsolidated affiliates | 9.9 |  |   | 2.6 |  |   | 12.5 |  |
| As of December 31, 2015                                   |   |   |   |   |   |
| Total assets                                              | $ | 3,589.0 |  |   | $ | 1,088.4 |  |   | $ | 4,606.1 |  |
| Investments in and advances to nonconsolidated affiliates | 9.3 |  |   | 2.4 |  |   | 11.7 |  |

----

|                                                              |
|--------------------------------------------------------------|
|                                                              |  |  |  |  |  |  |  |
|                                                         | Three Months Ended March 31, |
|                                                         | 2016 |   | 2015 |
| Total segment Adjusted EBITDA                                | $ | 219.5 |  |   | $ | 181.3 |  |
| General and administrative expenses                          | (31.9 | ) |   | (34.6 | ) |
| Depreciation and amortization                                | (42.4 | ) |   | (31.9 | ) |
| (Loss) gain on disposal or impairment of assets              | (0.2 | ) |   | 1.5 |  |
| Government, class action, and related settlements            | — |  |   | (8.0 | ) |
| Professional fees - accounting, tax, and legal               | (0.2 | ) |   | (2.2 | ) |
| Loss on early extinguishment of debt                         | (2.4 | ) |   | (1.2 | ) |
| Interest expense and amortization of debt discounts and fees | (44.6 | ) |   | (31.8 | ) |
| Net income attributable to noncontrolling interests          | 18.7 |  |   | 16.5 |  |
| Income from continuing operations before income tax expense  | $ | 116.5 |  |   | $ | 89.6 |  |

|                                                                                       |
|---------------------------------------------------------------------------------------|
|                                                                                       |  |  |  |  |  |  |  |
|                                                                                  | March 31, 2016 |   | December 31, 2015 |
| Total assets for reportable segments                                                  | $ | 4,679.6 |  |   | $ | 4,677.4 |  |
| Reclassification of deferred income tax liabilities to net deferred income tax assets | (71.3 | ) |   | (71.3 | ) |
| Total consolidated assets                                                             | $ | 4,608.3 |  |   | $ | 4,606.1 |  |

|                                |
|--------------------------------|
|                                |  |  |  |  |  |  |  |
|                           | Three Months Ended March 31, |
|                           | 2016 |   | 2015 |
| Inpatient rehabilitation:      |   |   |   |
| Inpatient                      | $ | 719.4 |  |   | $ | 606.6 |  |
| Outpatient and other           | 29.8 |  |   | 23.7 |  |
| Total inpatient rehabilitation | 749.2 |  |   | 630.3 |  |
| Home health and hospice:       |   |   |   |
| Home health                    | 150.9 |  |   | 103.9 |  |
| Hospice                        | 9.7 |  |   | 6.4 |  |
| Total home health and hospice  | 160.6 |  |   | 110.3 |  |
| Total net operating revenues   | $ | 909.8 |  |   | $ | 740.6 |  |

|     |                                               |
|-----|-----------------------------------------------|
| 13. | Condensed Consolidating Financial Information |

----

----

|                                                                       |
|-----------------------------------------------------------------------|
|                                                                       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                                  | Three Months Ended March 31, 2016 |
|                                                                  | HealthSouth Corporation |   | Guarantor Subsidiaries |   | Nonguarantor Subsidiaries |   | Eliminating Entries |   | HealthSouth Consolidated |
|                                                                  | (In Millions) |
| Net operating revenues                                                | $ | 4.9 |  |   | $ | 550.7 |  |   | $ | 383.2 |  |   | $ | (29.0 | ) |   | $ | 909.8 |  |
| Less: Provision for doubtful accounts                                 | — |  |   | (11.9 | ) |   | (4.6 | ) |   | — |  |   | (16.5 | ) |
| Net operating revenues less provision for doubtful accounts           | 4.9 |  |   | 538.8 |  |   | 378.6 |  |   | (29.0 | ) |   | 893.3 |  |
| Operating expenses:                                                   |   |  |   |   |  |   |   |  |   |   |  |   |   |
| Salaries and benefits                                                 | 11.3 |  |   | 255.0 |  |   | 224.4 |  |   | (4.6 | ) |   | 486.1 |  |
| Other operating expenses                                              | 5.4 |  |   | 77.1 |  |   | 47.8 |  |   | (11.1 | ) |   | 119.2 |  |
| Occupancy costs                                                       | 0.9 |  |   | 23.0 |  |   | 7.4 |  |   | (13.3 | ) |   | 18.0 |  |
| Supplies                                                              | — |  |   | 23.2 |  |   | 11.8 |  |   | — |  |   | 35.0 |  |
| General and administrative expenses                                   | 33.2 |  |   | — |  |   | (1.3 | ) |   | — |  |   | 31.9 |  |
| Depreciation and amortization                                         | 2.4 |  |   | 25.7 |  |   | 14.3 |  |   | — |  |   | 42.4 |  |
| Professional fees—accounting, tax, and legal                    | 0.2 |  |   | — |  |   | — |  |   | — |  |   | 0.2 |  |
| Total operating expenses                                              | 53.4 |  |   | 404.0 |  |   | 304.4 |  |   | (29.0 | ) |   | 732.8 |  |
| Loss on early extinguishment of debt                                  | 2.4 |  |   | — |  |   | — |  |   | — |  |   | 2.4 |  |
| Interest expense and amortization of debt discounts and fees          | 38.9 |  |   | 5.2 |  |   | 5.3 |  |   | (4.8 | ) |   | 44.6 |  |
| Other income                                                          | (4.7 | ) |   | (0.1 | ) |   | (0.6 | ) |   | 4.8 |  |   | (0.6 | ) |
| Equity in net income of nonconsolidated affiliates                    | — |  |   | (2.1 | ) |   | (0.3 | ) |   | — |  |   | (2.4 | ) |
| Equity in net income of consolidated affiliates                       | (86.2 | ) |   | (8.2 | ) |   | — |  |   | 94.4 |  |   | — |  |
| Management fees                                                       | (34.2 | ) |   | 26.2 |  |   | 8.0 |  |   | — |  |   | — |  |
| Income from continuing operations before income tax (benefit) expense | 35.3 |  |   | 113.8 |  |   | 61.8 |  |   | (94.4 | ) |   | 116.5 |  |
| Provision for income tax (benefit) expense                            | (22.8 | ) |   | 45.4 |  |   | 17.1 |  |   | — |  |   | 39.7 |  |
| Income from continuing operations                                     | 58.1 |  |   | 68.4 |  |   | 44.7 |  |   | (94.4 | ) |   | 76.8 |  |
| Loss from discontinued operations, net of tax                         | (0.1 | ) |   | — |  |   | — |  |   | — |  |   | (0.1 | ) |
| Net income                                                            | 58.0 |  |   | 68.4 |  |   | 44.7 |  |   | (94.4 | ) |   | 76.7 |  |
| Less: Net income attributable to noncontrolling interests             | — |  |   | — |  |   | (18.7 | ) |   | — |  |   | (18.7 | ) |
| Net income attributable to HealthSouth                                | $ | 58.0 |  |   | $ | 68.4 |  |   | $ | 26.0 |  |   | $ | (94.4 | ) |   | $ | 58.0 |  |
| Comprehensive income                                                  | $ | 58.1 |  |   | $ | 68.4 |  |   | $ | 44.7 |  |   | $ | (94.4 | ) |   | $ | 76.8 |  |
| Comprehensive income attributable to HealthSouth                      | $ | 58.1 |  |   | $ | 68.4 |  |   | $ | 26.0 |  |   | $ | (94.4 | ) |   | $ | 58.1 |  |

----

|                                                                       |
|-----------------------------------------------------------------------|
|                                                                       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                                  | Three Months Ended March 31, 2015 |
|                                                                  | HealthSouth Corporation |   | Guarantor Subsidiaries |   | Nonguarantor Subsidiaries |   | Eliminating Entries |   | HealthSouth Consolidated |
|                                                                  | (In Millions) |
| Net operating revenues                                                | $ | 5.3 |  |   | $ | 456.8 |  |   | $ | 303.2 |  |   | $ | (24.7 | ) |   | $ | 740.6 |  |
| Less: Provision for doubtful accounts                                 | — |  |   | (9.0 | ) |   | (2.6 | ) |   | — |  |   | (11.6 | ) |
| Net operating revenues less provision for doubtful accounts           | 5.3 |  |   | 447.8 |  |   | 300.6 |  |   | (24.7 | ) |   | 729.0 |  |
| Operating expenses:                                                   |   |  |   |   |  |   |   |  |   |   |  |   |   |
| Salaries and benefits                                                 | 8.1 |  |   | 211.1 |  |   | 170.0 |  |   | (4.1 | ) |   | 385.1 |  |
| Other operating expenses                                              | 9.5 |  |   | 63.1 |  |   | 41.0 |  |   | (10.4 | ) |   | 103.2 |  |
| Occupancy costs                                                       | 1.1 |  |   | 15.3 |  |   | 5.9 |  |   | (10.2 | ) |   | 12.1 |  |
| Supplies                                                              | — |  |   | 20.8 |  |   | 10.6 |  |   | — |  |   | 31.4 |  |
| General and administrative expenses                                   | 34.3 |  |   | — |  |   | 0.3 |  |   | — |  |   | 34.6 |  |
| Depreciation and amortization                                         | 2.3 |  |   | 19.1 |  |   | 10.5 |  |   | — |  |   | 31.9 |  |
| Government, class action, and related settlements                     | 8.0 |  |   | — |  |   | — |  |   | — |  |   | 8.0 |  |
| Professional fees—accounting, tax, and legal                    | 2.2 |  |   | — |  |   | — |  |   | — |  |   | 2.2 |  |
| Total operating expenses                                              | 65.5 |  |   | 329.4 |  |   | 238.3 |  |   | (24.7 | ) |   | 608.5 |  |
| Loss on early extinguishment of debt                                  | 1.2 |  |   | — |  |   | — |  |   | — |  |   | 1.2 |  |
| Interest expense and amortization of debt discounts and fees          | 29.2 |  |   | 2.3 |  |   | 2.7 |  |   | (2.4 | ) |   | 31.8 |  |
| Other income                                                          | (2.3 | ) |   | — |  |   | (0.6 | ) |   | 2.4 |  |   | (0.5 | ) |
| Equity in net income of nonconsolidated affiliates                    | — |  |   | (1.6 | ) |   | — |  |   | — |  |   | (1.6 | ) |
| Equity in net income of consolidated affiliates                       | (78.6 | ) |   | (8.1 | ) |   | — |  |   | 86.7 |  |   | — |  |
| Management fees                                                       | (28.5 | ) |   | 21.7 |  |   | 6.8 |  |   | — |  |   | — |  |
| Income from continuing operations before income tax (benefit) expense | 18.8 |  |   | 104.1 |  |   | 53.4 |  |   | (86.7 | ) |   | 89.6 |  |
| Provision for income tax (benefit) expense                            | (24.0 | ) |   | 39.6 |  |   | 14.7 |  |   | — |  |   | 30.3 |  |
| Income from continuing operations                                     | 42.8 |  |   | 64.5 |  |   | 38.7 |  |   | (86.7 | ) |   | 59.3 |  |
| Loss from discontinued operations, net of tax                         | (0.3 | ) |   | — |  |   | — |  |   | — |  |   | (0.3 | ) |
| Net income                                                            | 42.5 |  |   | 64.5 |  |   | 38.7 |  |   | (86.7 | ) |   | 59.0 |  |
| Less: Net income attributable to noncontrolling interests             | — |  |   | — |  |   | (16.5 | ) |   | — |  |   | (16.5 | ) |
| Net income attributable to HealthSouth                                | $ | 42.5 |  |   | $ | 64.5 |  |   | $ | 22.2 |  |   | $ | (86.7 | ) |   | $ | 42.5 |  |
| Comprehensive income                                                  | $ | 42.6 |  |   | $ | 64.5 |  |   | $ | 38.7 |  |   | $ | (86.7 | ) |   | $ | 59.1 |  |
| Comprehensive income attributable to HealthSouth                      | $ | 42.6 |  |   | $ | 64.5 |  |   | $ | 22.2 |  |   | $ | (86.7 | ) |   | $ | 42.6 |  |

----

|                                                                    |
|--------------------------------------------------------------------|
|                                                                    |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                               | As of March 31, 2016 |
|                                                               | HealthSouth Corporation |   | Guarantor Subsidiaries |   | Nonguarantor Subsidiaries |   | Eliminating Entries |   | HealthSouth Consolidated |
|                                                               | (In Millions) |
| Assets                                                             |   |   |   |   |   |   |   |   |   |
| Current assets:                                                    |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                                          | $ | 47.8 |  |   | $ | 2.7 |  |   | $ | 22.7 |  |   | $ | — |  |   | $ | 73.2 |  |
| Accounts receivable, net                                           | — |  |   | 277.7 |  |   | 154.2 |  |   | — |  |   | 431.9 |  |
| Other current assets                                               | 59.1 |  |   | 21.6 |  |   | 127.5 |  |   | (81.2 | ) |   | 127.0 |  |
| Total current assets                                               | 106.9 |  |   | 302.0 |  |   | 304.4 |  |   | (81.2 | ) |   | 632.1 |  |
| Property and equipment, net                                        | 15.8 |  |   | 960.5 |  |   | 341.4 |  |   | — |  |   | 1,317.7 |  |
| Goodwill                                                           | — |  |   | 863.2 |  |   | 1,028.7 |  |   | — |  |   | 1,891.9 |  |
| Intangible assets, net                                             | 11.2 |  |   | 122.0 |  |   | 282.6 |  |   | — |  |   | 415.8 |  |
| Deferred income tax assets                                         | 131.3 |  |   | 63.2 |  |   | — |  |   | (49.5 | ) |   | 145.0 |  |
| Other long-term assets                                             | 48.2 |  |   | 81.0 |  |   | 76.6 |  |   | — |  |   | 205.8 |  |
| Intercompany notes receivable                                      | 541.3 |  |   | — |  |   | — |  |   | (541.3 | ) |   | — |  |
| Intercompany receivable and investments in consolidated affiliates | 2,802.0 |  |   | — |  |   | — |  |   | (2,802.0 | ) |   | — |  |
| Total assets                                                       | $ | 3,656.7 |  |   | $ | 2,391.9 |  |   | $ | 2,033.7 |  |   | $ | (3,474.0 | ) |   | $ | 4,608.3 |  |
| Liabilities and Shareholders’ Equity                         |   |  |   |   |  |   |   |  |   |   |  |   |  |  |
| Current liabilities:                                               |   |  |   |   |  |   |   |  |   |   |  |   |  |  |
| Current portion of long-term debt                                  | $ | 40.1 |  |   | $ | 6.6 |  |   | $ | 7.4 |  |   | $ | (17.5 | ) |   | $ | 36.6 |  |
| Accounts payable                                                   | 6.0 |  |   | 38.2 |  |   | 18.5 |  |   | — |  |   | 62.7 |  |
| Accrued expenses and other current liabilities                     | 151.3 |  |   | 90.4 |  |   | 186.5 |  |   | (63.7 | ) |   | 364.5 |  |
| Total current liabilities                                          | 197.4 |  |   | 135.2 |  |   | 212.4 |  |   | (81.2 | ) |   | 463.8 |  |
| Long-term debt, net of current portion                             | 2,769.7 |  |   | 254.0 |  |   | 55.9 |  |   | — |  |   | 3,079.6 |  |
| Intercompany notes payable                                         | — |  |   | — |  |   | 541.3 |  |   | (541.3 | ) |   | — |  |
| Other long-term liabilities                                        | 40.1 |  |   | 14.3 |  |   | 139.6 |  |   | (49.2 | ) |   | 144.8 |  |
| Intercompany payable                                               | — |  |   | 42.5 |  |   | 176.9 |  |   | (219.4 | ) |   | — |  |
|                                                               | 3,007.2 |  |   | 446.0 |  |   | 1,126.1 |  |   | (891.1 | ) |   | 3,688.2 |  |
| Commitments and contingencies                                      |  |  |   |  |  |   |  |  |   |  |  |   |  |  |
| Redeemable noncontrolling interests                                | — |  |   | — |  |   | 96.2 |  |   | — |  |   | 96.2 |  |
| Shareholders’ equity:                                        |   |  |   |   |  |   |   |  |   |   |  |   |  |  |
| HealthSouth shareholders’ equity                             | 649.5 |  |   | 1,945.9 |  |   | 637.0 |  |   | (2,582.9 | ) |   | 649.5 |  |
| Noncontrolling interests                                           | — |  |   | — |  |   | 174.4 |  |   | — |  |   | 174.4 |  |
| Total shareholders’ equity                                   | 649.5 |  |   | 1,945.9 |  |   | 811.4 |  |   | (2,582.9 | ) |   | 823.9 |  |
| Total liabilities and shareholders’ equity              | $ | 3,656.7 |  |   | $ | 2,391.9 |  |   | $ | 2,033.7 |  |   | $ | (3,474.0 | ) |   | $ | 4,608.3 |  |

----

|                                                                    |
|--------------------------------------------------------------------|
|                                                                    |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                               | As of December 31, 2015 |
|                                                               | HealthSouth Corporation |   | Guarantor Subsidiaries |   | Nonguarantor Subsidiaries |   | Eliminating Entries |   | HealthSouth Consolidated |
|                                                               | (In Millions) |
| Assets                                                             |   |   |   |   |   |   |   |   |   |
| Current assets:                                                    |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                                          | $ | 41.2 |  |   | $ | 1.3 |  |   | $ | 19.1 |  |   | $ | — |  |   | $ | 61.6 |  |
| Accounts receivable, net                                           | — |  |   | 267.2 |  |   | 143.3 |  |   | — |  |   | 410.5 |  |
| Other current assets                                               | 29.3 |  |   | 22.7 |  |   | 93.4 |  |   | (18.8 | ) |   | 126.6 |  |
| Total current assets                                               | 70.5 |  |   | 291.2 |  |   | 255.8 |  |   | (18.8 | ) |   | 598.7 |  |
| Property and equipment, net                                        | 14.5 |  |   | 965.7 |  |   | 329.9 |  |   | — |  |   | 1,310.1 |  |
| Goodwill                                                           | — |  |   | 863.2 |  |   | 1,026.9 |  |   | — |  |   | 1,890.1 |  |
| Intangible assets, net                                             | 8.8 |  |   | 123.2 |  |   | 287.4 |  |   | — |  |   | 419.4 |  |
| Deferred income tax assets                                         | 176.2 |  |   | 64.1 |  |   | — |  |   | (49.5 | ) |   | 190.8 |  |
| Other long-term assets                                             | 48.6 |  |   | 75.3 |  |   | 73.1 |  |   | — |  |   | 197.0 |  |
| Intercompany notes receivable                                      | 546.6 |  |   | — |  |   | — |  |   | (546.6 | ) |   | — |  |
| Intercompany receivable and investments in consolidated affiliates | 2,779.7 |  |   | — |  |   | — |  |   | (2,779.7 | ) |   | — |  |
| Total assets                                                       | $ | 3,644.9 |  |   | $ | 2,382.7 |  |   | $ | 1,973.1 |  |   | $ | (3,394.6 | ) |   | $ | 4,606.1 |  |
| Liabilities and Shareholders’ Equity                         |   |  |   |   |  |   |   |  |   |   |  |   |  |  |
| Current liabilities:                                               |   |  |   |   |  |   |   |  |   |   |  |   |  |  |
| Current portion of long-term debt                                  | $ | 40.0 |  |   | $ | 6.8 |  |   | $ | 7.5 |  |   | $ | (17.5 | ) |   | $ | 36.8 |  |
| Accounts payable                                                   | 5.8 |  |   | 35.2 |  |   | 20.6 |  |   | — |  |   | 61.6 |  |
| Accrued expenses and other current liabilities                     | 122.2 |  |   | 72.6 |  |   | 134.5 |  |   | (1.3 | ) |   | 328.0 |  |
| Total current liabilities                                          | 168.0 |  |   | 114.6 |  |  | 162.6 |  |  | (18.8 | ) |   | 426.4 |  |
| Long-term debt, net of current portion                             | 2,821.9 |  |   | 255.6 |  |   | 57.2 |  |   | — |  |   | 3,134.7 |  |
| Intercompany notes payable                                         | — |  |   | — |  |   | 546.6 |  |   | (546.6 | ) |   | — |  |
| Other long-term liabilities                                        | 43.6 |  |   | 12.4 |  |   | 137.7 |  |   | (49.1 | ) |   | 144.6 |  |
| Intercompany payable                                               | — |  |   | 141.7 |  |   | 179.1 |  |   | (320.8 | ) |   | — |  |
|                                                               | 3,033.5 |  |   | 524.3 |  |  | 1,083.2 |  |  | (935.3 | ) |   | 3,705.7 |  |
| Commitments and contingencies                                      |  |  |   |  |  |   |  |  |   |  |  |   |  |  |
| Redeemable noncontrolling interests                                | — |  |   | — |  |   | 121.1 |  |   | — |  |   | 121.1 |  |
| Shareholders’ equity:                                        |   |  |   |   |  |   |   |  |   |   |  |   |  |  |
| HealthSouth shareholders’ equity                             | 611.4 |  |   | 1,858.4 |  |   | 600.9 |  |   | (2,459.3 | ) |   | 611.4 |  |
| Noncontrolling interests                                           | — |  |   | — |  |   | 167.9 |  |   | — |  |   | 167.9 |  |
| Total shareholders’ equity                                   | 611.4 |  |   | 1,858.4 |  |  | 768.8 |  |  | (2,459.3 | ) |   | 779.3 |  |
| Total liabilities and shareholders’ equity              | $ | 3,644.9 |  |   | $ | 2,382.7 |  |  | $ | 1,973.1 |  |  | $ | (3,394.6 | ) |   | $ | 4,606.1 |  |

----

|                                                                           |
|---------------------------------------------------------------------------|
|                                                                           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                                      | Three Months Ended March 31, 2016 |
|                                                                      | HealthSouth Corporation |   | Guarantor Subsidiaries |   | Nonguarantor Subsidiaries |   | Eliminating Entries |   | HealthSouth Consolidated |
|                                                                      | (In Millions) |
| Net cash provided by operating activities                                 | $ | 4.0 |  |   | $ | 93.4 |  |   | $ | 62.4 |  |   | $ | (0.1 | ) |   | $ | 159.7 |  |
| Cash flows from investing activities:                                     |   |  |   |   |  |   |   |  |   |   |  |   |   |  |
| Purchases of property and equipment                                       | (3.2 | ) |   | (13.4 | ) |   | (14.8 | ) |   | — |  |   | (31.4 | ) |
| Capitalized software costs                                                | (7.7 | ) |   | — |  |   | — |  |   | — |  |   | (7.7 | ) |
| Net change in restricted cash                                             | — |  |   | — |  |   | (3.2 | ) |   | — |  |   | (3.2 | ) |
| Proceeds from repayment of intercompany notes receivable                  | 5.0 |  |   | — |  |   | — |  |   | (5.0 | ) |   | — |  |
| Other                                                                     | — |  |   | (0.3 | ) |   | 3.1 |  |   | — |  |   | 2.8 |  |
| Net cash used in investing activities                                     | (5.9 | ) |   | (13.7 | ) |  | (14.9 | ) |  | (5.0 | ) |   | (39.5 | ) |
| Cash flows from financing activities:                                     |   |  |   |   |  |   |   |  |   |   |  |   |  |  |
| Principal payments on debt, including pre-payments                        | (55.6 | ) |   | (0.4 | ) |   | (0.3 | ) |   | — |  |   | (56.3 | ) |
| Principal payments on intercompany notes payable                          | — |  |   | — |  |   | (5.0 | ) |   | 5.0 |  |   | — |  |
| Borrowings on revolving credit facility                                   | 60.0 |  |   | — |  |   | — |  |   | — |  |   | 60.0 |  |
| Payments on revolving credit facility                                     | (60.0 | ) |   | — |  |   | — |  |   | — |  |   | (60.0 | ) |
| Repurchases of common stock, including fees and expenses                  | (12.9 | ) |   | — |  |   | — |  |   | — |  |   | (12.9 | ) |
| Dividends paid on common stock                                            | (21.3 | ) |   | — |  |   | — |  |   | — |  |   | (21.3 | ) |
| Distributions paid to noncontrolling interests of consolidated affiliates | — |  |   | — |  |   | (15.6 | ) |   | — |  |   | (15.6 | ) |
| Other                                                                     | 0.3 |  |   | (1.4 | ) |   | (1.4 | ) |   | — |  |   | (2.5 | ) |
| Change in intercompany advances                                           | 98.0 |  |   | (76.5 | ) |   | (21.6 | ) |   | 0.1 |  |   | — |  |
| Net cash provided by (used in) financing activities                       | 8.5 |  |   | (78.3 | ) |  | (43.9 | ) |  | 5.1 |  |   | (108.6 | ) |
| Increase in cash and cash equivalents                                     | 6.6 |  |   | 1.4 |  |  | 3.6 |  |  | — |  |   | 11.6 |  |
| Cash and cash equivalents at beginning of period                          | 41.2 |  |   | 1.3 |  |   | 19.1 |  |   | — |  |   | 61.6 |  |
| Cash and cash equivalents at end of period                                | $ | 47.8 |  |   | $ | 2.7 |  |  | $ | 22.7 |  |  | $ | — |  |   | $ | 73.2 |  |

----

|                                                                           |
|---------------------------------------------------------------------------|
|                                                                           |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                                      | Three Months Ended March 31, 2015 |
|                                                                      | HealthSouth Corporation |   | Guarantor Subsidiaries |   | Nonguarantor Subsidiaries |   | Eliminating Entries |   | HealthSouth Consolidated |
|                                                                      | (In Millions) |
| Net cash provided by operating activities                                 | $ | 6.6 |  |   | $ | 53.0 |  |   | $ | 42.4 |  |   | $ | — |  |   | $ | 102.0 |  |
| Cash flows from investing activities:                                     |   |  |   |   |  |   |   |  |   |   |  |   |   |  |
| Purchases of property and equipment                                       | (2.4 | ) |   | (8.2 | ) |   | (7.1 | ) |   | — |  |   | (17.7 | ) |
| Capitalized software costs                                                | (8.8 | ) |   | — |  |   | (0.1 | ) |   | — |  |   | (8.9 | ) |
| Acquisitions of businesses, net of cash acquired                          | — |  |   | — |  |   | (7.3 | ) |   | — |  |   | (7.3 | ) |
| Net change in restricted cash                                             | — |  |   | — |  |   | (15.0 | ) |   | — |  |   | (15.0 | ) |
| Other                                                                     | — |  |   | 3.5 |  |   | (0.3 | ) |   | — |  |   | 3.2 |  |
| Net cash used in investing activities                                     | (11.2 | ) |   | (4.7 | ) |   | (29.8 | ) |   | — |  |   | (45.7 | ) |
| Cash flows from financing activities:                                     |   |  |   |   |  |   |   |  |   |   |  |   |  |  |
| Proceeds from bond issuance                                               | 700.0 |  |   | — |  |   | — |  |   | — |  |   | 700.0 |  |
| Principal payments on debt, including pre-payments                        | (252.5 | ) |   | (0.4 | ) |   | — |  |   | — |  |   | (252.9 | ) |
| Borrowings on revolving credit facility                                   | 35.0 |  |   | — |  |   | — |  |   | — |  |   | 35.0 |  |
| Payments on revolving credit facility                                     | (350.0 | ) |   | — |  |   | — |  |   | — |  |   | (350.0 | ) |
| Debt amendment and issuance costs                                         | (13.7 | ) |   | — |  |   | — |  |   | — |  |   | (13.7 | ) |
| Dividends paid on common stock                                            | (18.6 | ) |   | — |  |   | — |  |   | — |  |   | (18.6 | ) |
| Dividends paid on convertible perpetual preferred stock                   | (1.6 | ) |   | — |  |   | — |  |   | — |  |   | (1.6 | ) |
| Distributions paid to noncontrolling interests of consolidated affiliates | — |  |   | — |  |   | (13.2 | ) |   | — |  |   | (13.2 | ) |
| Other                                                                     | 1.7 |  |   | (0.6 | ) |   | (0.8 | ) |   | — |  |   | 0.3 |  |
| Change in intercompany advances                                           | 52.0 |  |   | (47.8 | ) |   | (4.2 | ) |   | — |  |   | — |  |
| Net cash provided by (used in) financing activities                       | 152.3 |  |   | (48.8 | ) |   | (18.2 | ) |   | — |  |   | 85.3 |  |
| Increase (decrease) in cash and cash equivalents                          | 147.7 |  |   | (0.5 | ) |   | (5.6 | ) |   | — |  |   | 141.6 |  |
| Cash and cash equivalents at beginning of period                          | 41.9 |  |   | 1.5 |  |   | 23.3 |  |   | — |  |   | 66.7 |  |
| Cash and cash equivalents at end of period                                | $ | 189.6 |  |   | $ | 1.0 |  |   | $ | 17.7 |  |   | $ | — |  |   | $ | 208.3 |  |

----

|         |                                                                                             |
|---------|---------------------------------------------------------------------------------------------|
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |

|         |                                                                                              |
|---------|----------------------------------------------------------------------------------------------|
| • | continuing to provide high-quality, cost-effective care to patients in our existing markets; |

|         |                                                                                                 |
|---------|-------------------------------------------------------------------------------------------------|
| • | achieving organic growth at our existing hospitals, home health agencies, and hospice agencies; |

----

|         |                                                                                                                                                                                                              |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | expanding our services to more patients who require post-acute healthcare services by constructing and acquiring new hospitals in new markets and acquiring home health and hospice agencies in new markets; |

|         |                                                                                                                               |
|---------|-------------------------------------------------------------------------------------------------------------------------------|
| • | continuing our shareholder value-enhancing strategies such as common stock dividends and repurchases of our common stock; and |

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | positioning the Company for continued success in the evolving healthcare delivery system. This preparation includes continuing the installation of our electronic clinical information system in our hospitals which allows for interfaces with all major acute care electronic medical record systems and health information exchanges and participating in bundling projects and Accountable Care Organizations (“ACOs”). |

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | began operating the 27-bed inpatient rehabilitation hospital at CHI St. Vincent Hot Springs, a Catholic Health Initiatives’ hospital, in Hot Springs, Arkansas with our joint venture partner, St. Vincent Community Health Services, Inc, in February 2016. The joint venture began construction of a new 40-bed hospital in the fourth quarter of 2015, with construction expected to be completed in the third quarter of 2016; |

|         |                                                                                                            |
|---------|------------------------------------------------------------------------------------------------------------|
| • | began accepting patients at our new home health location in Lee’s Summit, Missouri in February 2016; |

|         |                                                                                    |
|---------|------------------------------------------------------------------------------------|
| • | continued our capacity expansions by adding 50 new beds to existing hospitals; and |

|         |                                                           |
|---------|-----------------------------------------------------------|
| • | continued development of the following de novo hospitals: |

|                        |
|------------------------|
|                        |  |  |  |
| Location               | # of Beds | Actual / Expected Construction Start Date | Expected Operational Date |
| Modesto, California    | 50 | Q1 2015 | Q2 2016 |
| Pearland, Texas*       | 40 | Q3 2016 | Q4 2017 |
| Murrieta, California** | 50 | First half of 2017 | 2018 |

----

----

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | Operating in a Highly Regulated Industry. We are required to comply with extensive and complex laws and regulations at the federal, state, and local government levels. These rules and regulations have affected, or could in the future affect, our business activities by having an impact on the reimbursement we receive for services provided or the costs of compliance, mandating new documentation standards, requiring additional licensure or certification, regulating our relationships with physicians and other referral sources, regulating the use of our properties, and limiting our ability to enter new markets or add new capacity to existing hospitals and agencies. Ensuring continuous compliance with extensive laws and regulations is an operating requirement for all healthcare providers. |

----

|                             |
|-----------------------------|
|                             |  |
| Market basket update        | 2.7% |
| Healthcare reform reduction | 75 basis points |
| Productivity adjustment     | 50 basis points |

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | Changes to Our Operating Environment Resulting from Healthcare Reform. Our challenges related to healthcare reform are discussed in Item 1, Business, “Sources of Revenues,” Item 1A, Risk Factors, and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Executive Overview—Key Challenges,” to the 2015 Form 10-K. Many provisions within the 2010 Healthcare Reform Laws have impacted, or could in the future impact, our business. Most notably for us are the reductions to our hospitals’ annual market basket updates, including productivity adjustments, mandated reductions to home health and hospice Medicare reimbursements, and future payment reforms such as ACOs and bundled payments. |

----

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | Maintaining Strong Volume Growth. Various factors, including competition and increasing regulatory and administrative burdens, may impact our ability to maintain and grow our hospital, home health, and hospice volumes. In any particular market, we may encounter competition from local or national entities with longer operating histories or other competitive advantages, such as acute care hospitals who provide post-acute services similar to ours or other post-acute providers with relationships with referring acute care hospitals or physicians. Aggressive payment review practices by Medicare contractors, aggressive enforcement of regulatory policies by government agencies, and restrictive or burdensome rules, regulations or statutes governing admissions practices may lead us to not accept patients who would be appropriate for and would benefit from the services we provide. In addition, from time to time, we must get regulatory approval to expand our services and locations in states with certificate of need laws. This approval may be withheld or take longer than expected. In the case of new-store volume growth, the addition of hospitals, home health agencies, and hospice agencies to our portfolio also may be difficult and take longer than expected. |

|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | Recruiting and Retaining High-Quality Personnel. See Item 1A, Risk Factors, to the 2015 Form 10-K for a discussion of competition for staffing, shortages of qualified personnel, and other factors that may increase our labor costs. Recruiting and retaining qualified personnel for our inpatient hospitals and home health and hospice agencies remain a high priority for us. We attempt to maintain a comprehensive compensation and benefits package that allows us to remain competitive in this challenging staffing environment while remaining consistent with our goal of being a high-quality, cost-effective provider of post-acute services. |

----

|                             |
|-----------------------------|
|                             |  |  |  |  |  |
|                        | Three Months Ended March 31, |
|                        | 2016 |   | 2015 |
| Medicare                    | 75.4 | % |   | 74.9 | % |
| Medicare Advantage          | 7.8 | % |   | 8.2 | % |
| Managed care                | 9.5 | % |   | 10.0 | % |
| Medicaid                    | 3.4 | % |   | 2.6 | % |
| Other third-party payors    | 1.4 | % |   | 1.5 | % |
| Workers’ compensation | 0.9 | % |   | 0.9 | % |
| Patients                    | 0.5 | % |   | 0.7 | % |
| Other income                | 1.1 | % |   | 1.2 | % |
| Total                       | 100.0 | % |   | 100.0 | % |

----

|                                                              |
|--------------------------------------------------------------|
|                                                              |  |  |  |  |  |  |  |  |  |  |
|                                                         | Three Months Ended March 31, |   | Percentage Change |
|                                                         | 2016 |   | 2015 |   | 2016 vs. 2015 |
|                                                         | (In Millions, Except Percentage Change) |
| Net operating revenues                                       | $ | 909.8 |  |   | $ | 740.6 |  |   | 22.8 |  % |
| Less: Provision for doubtful accounts                        | (16.5 | ) |   | (11.6 | ) |   | 42.2 |  % |
| Net operating revenues less provision for doubtful accounts  | 893.3 |  |   | 729.0 |  |   | 22.5 |  % |
| Operating expenses:                                          |   |  |   |   |  |   |   |  |
| Salaries and benefits                                        | 486.1 |  |   | 385.1 |  |   | 26.2 |  % |
| Other operating expenses                                     | 119.2 |  |   | 103.2 |  |   | 15.5 |  % |
| Occupancy costs                                              | 18.0 |  |   | 12.1 |  |   | 48.8 |  % |
| Supplies                                                     | 35.0 |  |   | 31.4 |  |   | 11.5 |  % |
| General and administrative expenses                          | 31.9 |  |   | 34.6 |  |   | (7.8 | )% |
| Depreciation and amortization                                | 42.4 |  |   | 31.9 |  |   | 32.9 |  % |
| Government, class action, and related settlements            | — |  |   | 8.0 |  |   | (100.0 | )% |
| Professional fees—accounting, tax, and legal           | 0.2 |  |   | 2.2 |  |   | (90.9 | )% |
| Total operating expenses                                     | 732.8 |  |   | 608.5 |  |   | 20.4 |  % |
| Loss on early extinguishment of debt                         | 2.4 |  |   | 1.2 |  |   | 100.0 |  % |
| Interest expense and amortization of debt discounts and fees | 44.6 |  |   | 31.8 |  |   | 40.3 |  % |
| Other income                                                 | (0.6 | ) |   | (0.5 | ) |   | 20.0 |  % |
| Equity in net income of nonconsolidated affiliates           | (2.4 | ) |   | (1.6 | ) |   | 50.0 |  % |
| Income from continuing operations before income tax expense  | 116.5 |  |   | 89.6 |  |   | 30.0 |  % |
| Provision for income tax expense                             | 39.7 |  |   | 30.3 |  |   | 31.0 |  % |
| Income from continuing operations                            | 76.8 |  |   | 59.3 |  |   | 29.5 |  % |
| Loss from discontinued operations, net of tax                | (0.1 | ) |   | (0.3 | ) |   | (66.7 | )% |
| Net income                                                   | 76.7 |  |   | 59.0 |  |   | 30.0 |  % |
| Less: Net income attributable to noncontrolling interests    | (18.7 | ) |   | (16.5 | ) |   | 13.3 |  % |
| Net income attributable to HealthSouth                       | $ | 58.0 |  |   | $ | 42.5 |  |   | 36.5 |  % |

|                                                    |
|----------------------------------------------------|
|                                                    |  |  |  |  |  |
|                                               | Three Months Ended March 31, |
|                                               | 2016 |   | 2015 |
| Provision for doubtful accounts                    | 1.8 | % |   | 1.6 | % |
| Operating expenses:                                |   |   |   |
| Salaries and benefits                              | 53.4 | % |   | 52.0 | % |
| Other operating expenses                           | 13.1 | % |   | 13.9 | % |
| Occupancy costs                                    | 2.0 | % |   | 1.6 | % |
| Supplies                                           | 3.8 | % |   | 4.2 | % |
| General and administrative expenses                | 3.5 | % |   | 4.7 | % |
| Depreciation and amortization                      | 4.7 | % |   | 4.3 | % |
| Government, class action, and related settlements  | — | % |   | 1.1 | % |
| Professional fees—accounting, tax, and legal | — | % |   | 0.3 | % |
| Total operating expenses                           | 80.5 | % |   | 82.2 | % |

----

----

----

|                             |
|-----------------------------|
|                             |  |  |  |  |  |
|                        | Three Months Ended March 31, |
|                        | 2016 |   | 2015 |
| Medicare                    | 73.8 | % |   | 73.5 | % |
| Medicare Advantage          | 7.6 | % |   | 8.3 | % |
| Managed care                | 11.0 | % |   | 11.2 | % |
| Medicaid                    | 3.0 | % |   | 2.0 | % |
| Other third-party payors    | 1.6 | % |   | 1.7 | % |
| Workers’ compensation | 1.1 | % |   | 1.1 | % |
| Patients                    | 0.6 | % |   | 0.8 | % |
| Other income                | 1.3 | % |   | 1.4 | % |
| Total                       | 100.0 | % |   | 100.0 | % |

----

|                                                             |
|-------------------------------------------------------------|
|                                                             |  |  |  |  |  |  |  |  |  |  |
|                                                        | Three Months Ended March 31, |   | Percentage Change |
|                                                        | 2016 |   | 2015 |   | 2016 vs. 2015 |
|                                                        | (In Millions, Except Percentage Change) |
| Net operating revenues:                                     |   |   |   |   |  |
| Inpatient                                                   | $ | 719.4 |  |   | $ | 606.6 |  |   | 18.6 |  % |
| Outpatient and other                                        | 29.8 |  |   | 23.7 |  |   | 25.7 |  % |
| Inpatient rehabilitation segment revenues                   | 749.2 |  |   | 630.3 |  |   | 18.9 |  % |
| Less: Provision for doubtful accounts                       | (15.6 | ) |   | (11.0 | ) |   | 41.8 |  % |
| Net operating revenues less provision for doubtful accounts | 733.6 |  |   | 619.3 |  |   | 18.5 |  % |
| Operating expenses:                                         |   |   |   |   |   |
| Salaries and benefits                                       | 369.9 |  |   | 306.4 |  |   | 20.7 |  % |
| Other operating expenses                                    | 104.8 |  |   | 95.2 |  |   | 10.1 |  % |
| Supplies                                                    | 32.4 |  |   | 29.8 |  |   | 8.7 |  % |
| Occupancy costs                                             | 15.6 |  |   | 10.4 |  |   | 50.0 |  % |
| Other income                                                | (0.6 | ) |   | (0.5 | ) |   | 20.0 |  % |
| Equity in net income of nonconsolidated affiliates          | (2.2 | ) |   | (1.6 | ) |   | 37.5 |  % |
| Noncontrolling interests                                    | 16.8 |  |   | 15.2 |  |   | 10.5 |  % |
| Segment Adjusted EBITDA                                     | $ | 196.9 |  |   | $ | 164.4 |  |   | 19.8 |  % |
|                                                        |   |   |   |   |   |
|                                                        | (Actual Amounts) |
| Discharges                                                  | 41,098 |  |   | 35,116 |  |   | 17.0 |  % |
| Net patient revenue per discharge                           | $ | 17,505 |  |   | $ | 17,274 |  |   | 1.3 |  % |
| Outpatient visits                                           | 162,649 |  |   | 131,353 |  |   | 23.8 |  % |
| Average length of stay (days)                               | 12.9 |  |   | 13.3 |  |   | (3.0 | )% |
| Occupancy %                                                 | 68.9 | % |   | 72.8 | % |   | (5.4 | )% |
| # of licensed beds                                          | 8,481 |  |   | 7,100 |  |   | 19.5 |  % |
| Full-time equivalents*                                      | 19,352 |  |   | 17,002 |  |   | 13.8 |  % |
| Employees per occupied bed                                  | 3.35 |  |   | 3.31 |  |   | 1.2 |  % |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| * | Excludes approximately 430 and 400 full-time equivalents for the three months ended March 31, 2016 and 2015, respectively, who are considered part of corporate overhead with their salaries and benefits included in General and administrative expenses in our consolidated statements of operations. Full-time equivalents included in the above table represent HealthSouth employees who participate in or support the operations of our hospitals and exclude an estimate of full-time equivalents related to contract labor. |

----

|                          |
|--------------------------|
|                          |  |  |  |  |  |
|                     | Three Months Ended March 31, |
|                     | 2016 |   | 2015 |
| Medicare                 | 83.5 | % |   | 83.8 | % |
| Medicare Advantage       | 8.7 | % |   | 7.3 | % |
| Managed care             | 2.7 | % |   | 3.1 | % |
| Medicaid                 | 4.9 | % |   | 5.6 | % |
| Other third-party payors | — | % |   | 0.1 | % |
| Patients                 | 0.1 | % |   | 0.1 | % |
| Other income             | 0.1 | % |   | — | % |
| Total                    | 100.0 | % |   | 100.0 | % |

----

|                                                                 |
|-----------------------------------------------------------------|
|                                                                 |  |  |  |  |  |  |  |  |  |  |
|                                                            | Three Months Ended March 31, |   | Percentage Change |
|                                                            | 2016 |   | 2015 |   | 2016 vs. 2015 |
|                                                            | (In Millions, Except Percentage Change) |
| Net operating revenues:                                         |   |   |   |   |   |
| Home health                                                     | $ | 150.9 |  |   | $ | 103.9 |  |   | 45.2 |  % |
| Hospice                                                         | 9.7 |  |   | 6.4 |  |   | 51.6 |  % |
| Home health and hospice segment revenues                        | 160.6 |  |   | 110.3 |  |   | 45.6 |  % |
| Less: Provision for doubtful accounts                           | (0.9 | ) |   | (0.6 | ) |   | 50.0 |  % |
| Net operating revenues less provision for doubtful accounts     | 159.7 |  |   | 109.7 |  |   | 45.6 |  % |
| Operating expenses:                                             |   |   |   |   |   |
| Cost of services sold (excluding depreciation and amortization) | 78.4 |  |   | 53.4 |  |   | 46.8 |  % |
| Support and overhead costs                                      | 57.0 |  |   | 38.1 |  |   | 49.6 |  % |
| Equity in net income of nonconsolidated affiliates              | (0.2 | ) |   | — |  |   | N/A |  |
| Noncontrolling interests                                        | 1.9 |  |   | 1.3 |  |   | 46.2 |  % |
| Segment Adjusted EBITDA                                         | $ | 22.6 |  |   | $ | 16.9 |  |   | 33.7 |  % |
|                                                            |   |   |   |   |   |
|                                                            | (Actual Amounts) |
| Home health:                                                    |   |   |   |   |   |
| Admissions                                                      | 25,763 |  |   | 16,499 |  |   | 56.1 |  % |
| Recertifications                                                | 19,453 |  |   | 14,485 |  |   | 34.3 |  % |
| Episodes                                                        | 43,844 |  |   | 29,512 |  |   | 48.6 |  % |
| Average revenue per episode                                     | $ | 3,035 |  |   | $ | 3,102 |  |   | (2.2 | )% |
| Episodic visits per episode                                     | 19.1 |  |   | 19.6 |  |   | (2.6 | )% |
| Total visits                                                    | 949,387 |  |   | 630,999 |  |   | 50.5 |  % |
| Cost per visit                                                  | $ | 72 |  |   | $ | 71 |  |   | 1.4 |  % |
| Hospice:                                                        |   |   |   |   |  |
| Admissions                                                      | 724 |  |   | 624 |  |   | 16.0 |  % |
| Patient days                                                    | 63,431 |  |   | 40,898 |  |   | 55.1 |  % |
| Revenue per day                                                 | $ | 153 |  |   | $ | 156 |  |   | (1.9 | )% |

----

----

|                                                     |
|-----------------------------------------------------|
|                                                     |  |  |  |  |  |  |  |
|                                                | Three Months Ended March 31, |
|                                                | 2016 |   | 2015 |
| Net cash provided by operating activities           | $ | 159.7 |  |   | $ | 102.0 |  |
| Net cash used in investing activities               | (39.5 | ) |   | (45.7 | ) |
| Net cash (used in) provided by financing activities | (108.6 | ) |   | 85.3 |  |
| Increase in cash and cash equivalents               | $ | 11.6 |  |   | $ | 141.6 |  |

----

|                                                                                       |
|---------------------------------------------------------------------------------------|
|                                                                                       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                                                  | Total |   | April 1 through December 31, 2016 |   | 2017 - 2018 |   | 2019 - 2020 |   | 2021 and thereafter |
| Long-term debt obligations:                                                           |   |   |   |   |   |  |   |   |  |   |   |
| Long-term debt, excluding revolving credit facility and capital lease obligations (a) | $ | 2,700.3 |  |   | $ | 18.8 |  |   | $ | 47.1 |  |   | $ | 650.7 |  |   | $ | 1,983.7 |  |
| Revolving credit facility                                                             | 130.0 |  |   | — |  |   | — |  |   | 130.0 |  |   | — |  |
| Interest on long-term debt (b)                                                        | 1,209.1 |  |   | 103.5 |  |   | 274.1 |  |   | 266.5 |  |   | 565.0 |  |
| Capital lease obligations (c)                                                         | 535.3 |  |   | 24.2 |  |   | 68.0 |  |   | 58.2 |  |   | 384.9 |  |
| Operating lease obligations (d)(e)                                                    | 405.5 |  |   | 45.2 |  |   | 102.7 |  |   | 78.2 |  |   | 179.4 |  |
| Purchase obligations (e)(f)                                                           | 102.4 |  |   | 22.6 |  |   | 49.2 |  |   | 23.7 |  |   | 6.9 |  |
| Other long-term liabilities (g)(h)                                                    | 3.6 |  |   | 0.2 |  |   | 0.4 |  |   | 0.4 |  |   | 2.6 |  |
| Total                                                                                 | $ | 5,086.2 |  |   | $ | 214.5 |  |   | $ | 541.5 |  |   | $ | 1,207.7 |  |   | $ | 3,122.5 |  |

|           |                                                                                                                                                                                                                                                                                                                                                                                                                      |
|-----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (a)  | Included in long-term debt are amounts owed on our bonds payable and other notes payable. These borrowings are further explained in Note 5, Long-term Debt, to the condensed consolidated financial statements included in Part I, Item 1, Financial Statements (Unaudited), of this report and Note 8, Long-term Debt, to the consolidated financial statements accompanying the 2015 Form 10-K. |

|           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|-----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b)  | Interest on our fixed rate debt is presented using the stated interest rate. Interest expense on our variable rate debt is estimated using the rate in effect as of March 31, 2016. Interest pertaining to our credit agreement and bonds is included to their respective ultimate maturity dates. Interest related to capital lease obligations is excluded from this line. Future minimum payments, which are accounted for as interest, related to sale/leaseback transactions involving real estate accounted for as financings are included in this line (see Note 5, Property and Equipment, and Note 8, Long-term Debt, to the consolidated financial statements accompanying the 2015 Form 10-K). Amounts exclude amortization of debt discounts, amortization of loan fees, or fees for lines of credit that would be included in interest expense in our consolidated statements of operations. |

|           |                                                                            |
|-----------|----------------------------------------------------------------------------|
| (c)  | Amounts include interest portion of future minimum capital lease payments. |

|           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|-----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (d)  | Our inpatient rehabilitation segment leases approximately 18% of its hospitals as well as other property and equipment under operating leases in the normal course of business. Our home health and hospice segment leases relatively small office spaces in the localities it serves, space for its corporate office, and other equipment under operating leases in the normal course of business. Some of our hospital leases contain escalation clauses based on changes in the Consumer Price Index while others have fixed escalation terms. The minimum lease payments do not include contingent rental expense. Some lease agreements provide us with the option to renew the lease or purchase the leased property. Our future operating lease obligations would change if we exercised these renewal options and if we entered into additional operating lease agreements. For more information, see Note 5, Property and Equipment, to the consolidated financial statements accompanying the 2015 Form 10-K. |

|           |                                                                                                                             |
|-----------|-----------------------------------------------------------------------------------------------------------------------------|
| (e)  | Future operating lease obligations and purchase obligations are not recognized in our condensed consolidated balance sheet. |

|           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|-----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (f)  | Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on HealthSouth and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable without penalty. Our purchase obligations primarily relate to software licensing and support. |

|           |                                                                                                                                                                                                                                                                                                                                                                    |
|-----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (g)  | Because their future cash outflows are uncertain, the following noncurrent liabilities are excluded from the table above: general liability, professional liability, and workers' compensation risks, noncurrent amounts related to third-party billing audits, and deferred income taxes. Also, as of March 31, 2016, we had $3.0 million of total gross |

----

|           |                                                                                                                                                                                           |
|-----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (h)  | The table above does not include Redeemable noncontrolling interests of $96.2 million because of the uncertainty surrounding the timing and amounts of any related cash outflows. |

----

|                                                                            |
|----------------------------------------------------------------------------|
|                                                                            |  |  |  |  |  |  |  |
|                                                                       | Three Months Ended March 31, |
|                                                                       | 2016 |   | 2015 |
| Net income                                                                 | $ | 76.7 |  |   | $ | 59.0 |  |
| Loss from discontinued operations, net of tax, attributable to HealthSouth | 0.1 |  |   | 0.3 |  |
| Provision for income tax expense                                           | 39.7 |  |   | 30.3 |  |
| Interest expense and amortization of debt discounts and fees               | 44.6 |  |   | 31.8 |  |
| Professional fees—accounting, tax, and legal                         | 0.2 |  |   | 2.2 |  |
| Government, class action, and related settlements                          | — |  |   | 8.0 |  |
| Net noncash loss (gain) on disposal or impairment of assets                | 0.2 |  |   | (1.5 | ) |
| Depreciation and amortization                                              | 42.4 |  |   | 31.9 |  |
| Loss on early extinguishment of debt                                       | 2.4 |  |   | 1.2 |  |
| Stock-based compensation expense                                           | 4.5 |  |   | 9.4 |  |
| Net income attributable to noncontrolling interests                        | (18.7 | ) |   | (16.5 | ) |
| Adjusted EBITDA                                                            | $ | 192.1 |  |   | $ | 156.1 |  |

----

|                                                                              |
|------------------------------------------------------------------------------|
|                                                                              |  |  |  |  |  |  |  |
|                                                                         | Three Months Ended March 31, |
|                                                                         | 2016 |   | 2015 |
| Net cash provided by operating activities                                    | $ | 159.7 |  |   | $ | 102.0 |  |
| Provision for doubtful accounts                                              | (16.5 | ) |   | (11.6 | ) |
| Professional fees—accounting, tax, and legal                           | 0.2 |  |   | 2.2 |  |
| Interest expense and amortization of debt discounts and fees                 | 44.6 |  |   | 31.8 |  |
| Equity in net income of nonconsolidated affiliates                           | 2.4 |  |   | 1.6 |  |
| Net income attributable to noncontrolling interests in continuing operations | (18.7 | ) |   | (16.5 | ) |
| Amortization of debt-related items                                           | (3.4 | ) |   | (3.3 | ) |
| Distributions from nonconsolidated affiliates                                | (1.7 | ) |   | (1.9 | ) |
| Current portion of income tax expense                                        | 5.0 |  |   | 3.5 |  |
| Change in assets and liabilities                                             | 18.3 |  |   | 56.0 |  |
| Premium received on bond issuance                                            | — |  |   | (8.0 | ) |
| Premium paid on bond redemption                                              | 1.9 |  |   | — |  |
| Net cash used in operating activities of discontinued operations             | 0.2 |  |   | 0.1 |  |
| Other                                                                        | 0.1 |  |   | 0.2 |  |
| Adjusted EBITDA                                                              | $ | 192.1 |  |   | $ | 156.1 |  |

|         |                                                            |
|---------|------------------------------------------------------------|
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk |

|         |                         |
|---------|-------------------------|
| Item 4. | Controls and Procedures |

----

|         |                   |
|---------|-------------------|
| Item 1. | Legal Proceedings |

|          |              |
|----------|--------------|
| Item 1A. | Risk Factors |

|         |                                                             |
|---------|-------------------------------------------------------------|
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |

|                                         |
|-----------------------------------------|
|                                         |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Period                                  |   | Total Number of Shares (or Units) Purchased(1) |   | Average Price Paid per Share (or Unit) ($) |   | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |   | Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs(2) |
| January 1 through January 31, 2016 |   | 420,504 |  |   | $ | 35.06 |  |   | 82,434 |  |   | $ | 156,944,692 |  |
| February 1 through February 29, 2016    |   | 161,021 |  |   | 33.40 |  |   | 77,053 |  |   | 154,235,610 |  |
| March 1 through March 31, 2016          |   | 155,045 |  |  | 35.27 |  |   | 155,045 |  |   | 148,767,256 |  |
| Total                                   |   | 736,570 |  |   | 34.74 |  |   | 314,532 |  |   |  |  |

|           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|-----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)  | Except as noted in the following sentence, the number of shares reported in this column includes the shares purchased under the plan or program as reported in the third column of this table and the shares tendered by employees as payments of the tax liabilities incident to the vesting of previously awarded shares of restricted stock and the exercise price and tax liability incident to the net settlement of an option exercise. In January, 1,159 shares were purchased pursuant to our Directors’ Deferred Stock Investment Plan. This plan is a nonqualified deferral plan allowing non-employee directors to make advance elections to defer a fixed percentage of their director fees. The plan administrator acquires the shares in the open market which are then held in a rabbi trust. The plan provides that dividends paid on the shares held for the accounts of the directors will be reinvested in shares of our common stock which will also be held in the trust. The directors’ rights to all shares in the trust are nonforfeitable, but the shares are only released to the directors after departure from our board. |

|           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|-----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)  | On October 28, 2013, we announced our board of directors authorized the repurchase of up to $200 million of our common stock. On February 14, 2014, our board of directors approved an increase in this common stock repurchase authorization from $200 million to $250 million. The repurchase authorization does not require the repurchase of a specific number of shares, has an indefinite term, and is subject to termination at any time by our board of directors. Subject to certain terms and conditions, including a maximum price per share and compliance with federal and state securities and other laws, the repurchases may be made from time to time in open market transactions, privately negotiated transactions, or other transactions, including trades under a plan established in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. |

----

|         |          |
|---------|----------|
| Item 6. | Exhibits |

----

|        |
|--------|
|        |  |  |
|   | HEALTHSOUTH CORPORATION |
|   |   |   |
|   | By: | /s/ Douglas E. Coltharp |
|   |   | Douglas E. Coltharp |
|   |   | Executive Vice President and Chief Financial Officer |
|   |   |   |
|   | Date: | April 27, 2016 |

----

|        |
|--------|
|        |  |  |  |  |
| No.    |   | Description |
|   |   |   |   |   |
| 3.1    |   | Restated Certificate of Incorporation of HealthSouth Corporation, as filed in the Office of the Secretary of State of the State of Delaware on May 21, 1998 (incorporated by reference to HealthSouth’s Annual Report on Form 10-K filed with the SEC on June 27, 2005). |
|   |   |   |   |   |
| 3.2    |   | Certificate of Amendment to the Restated Certificate of Incorporation of HealthSouth Corporation, as filed in the Office of the Secretary of State of the State of Delaware on October 25, 2006 (incorporated by reference to Exhibit 3.1 to HealthSouth’s Current Report on Form 8-K filed on October 31, 2006). |
|   |   |   |   |   |
| 3.3    |   | Amended and Restated Bylaws of HealthSouth Corporation, effective as of May 7, 2015 (incorporated by reference to Exhibit 3.1 to HealthSouth’s Current Report on Form 8-K filed on May 11, 2015). |
|   |   |   |   |   |
| 3.4    |   | Certificate of Designations of 6.50% Series A Convertible Perpetual Preferred Stock, as filed with the Secretary of State of the State of Delaware on March 7, 2006 (incorporated by reference to Exhibit 3.1 to HealthSouth’s Current Report on Form 8-K filed on March 9, 2006). |
|   |   |   |
| 31.1   |   | Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|   |   |   |
| 31.2   |   | Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|   |   |   |
| 32.1   |   | Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|   |   |   |
| 32.2   |   | Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|   |   |   |
| 101    |   | Sections of the HealthSouth Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, formatted in XBRL (eXtensible Business Reporting Language), submitted in the following files: |
|   |   |   |   |   |
|   |   | 101.INS |   | XBRL Instance Document |
|   |   |   |   |   |
|   |   | 101.SCH |   | XBRL Taxonomy Extension Schema Document |
|   |   |   |   |   |
|   |   | 101.CAL |   | XBRL Taxonomy Extension Calculation Linkbase Document |
|   |   |   |   |   |
|   |   | 101.DEF |   | XBRL Taxonomy Extension Definition Linkbase Document |
|   |   |   |   |   |
|   |   | 101.LAB |   | XBRL Taxonomy Extension Label Linkbase Document |
|   |   |   |   |   |
|   |   | 101.PRE |   | XBRL Taxonomy Extension Presentation Linkbase Document |
|   |   |   |   |   |