HealthSouth Reports Results for Fourth Quarter Ended Decembe...(in 2006 as well as the standardiza...),Health

well as the standardization of certain business office practices in our

hospitals.

-- General and administrative expenses decreased due primarily to the

divestitures of our surgery centers, outpatient, and diagnostic

divisions in the second and third quarters of 2007.

Our ability to reduce these expenses allowed us to invest in our workforce: salaries and benefits were 51.7% of net operating revenues in the fourth quarter of 2007 compared to 50.2% of net operating revenues in the fourth quarter of 2006. This increase was primarily attributable to merit increases for our employees and targeted salary range adjustments in markets where we determined we were not competitive with our base salaries, both of which were effective October 1, 2007. Merit increases for all of our employees except 21 senior officers are implemented in October of each year. Senior officers receive their merit increases in the first quarter of each year.

The following items also were included in total operating expenses in the fourth quarters of 2007 and 2006:
-- In the fourth quarter of 2007, we recorded a $31.0 million increase in

the liability associated with our securities litigation settlement

based on the value of our common stock and warrants underlying the

settlement as of December 31, 2007. During the fourth quarter of 2006,

we reduced this liability by approximately $31.2 million based on the

value of the common stock and warrants underlying the settlement as of

December 31, 2006. These changes are non-cash in nature. There are

approximately 5.0 million shares of common stock and warrants to

purchase approximately 8.2 million shares of common stock (with a

strike price of $41.40 per share) underlying this settlement. As of

December 31, 2007, these shares of common stock and warrants have not

been issued and are
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