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Select Medical Corporation Announces Results for First Quarter Ended March 31, 2008
Date:5/15/2008

MECHANICSBURG, Pa., May 15 /PRNewswire/ -- Select Medical Corporation ("Select") today announced results for its first quarter ended March 31, 2008.

For the first quarter ended March 31, 2008, net operating revenues increased 17.4% to $548.3 million compared to $466.8 million for the same quarter, prior year. Income from operations decreased 9.9% to $54.3 million compared to $60.3 million for the same quarter, prior year. Net income decreased 47.9% to $11.6 million compared to $22.2 million for the same quarter, prior year. Additionally, net income before interest, income taxes, depreciation and amortization, stock compensation expense, other expense and minority interest ("Adjusted EBITDA") for the first quarter decreased 0.6% to $72.5 million compared to $73.0 million for the same quarter, prior year. A reconciliation of net income to Adjusted EBITDA is attached to this release.

Specialty Hospitals

At March 31, 2008, Select operated 88 long-term acute care hospitals and four acute medical rehabilitation hospitals. This compares to 89 long-term acute care hospitals and three acute medical rehabilitation hospitals operated at March 31, 2007. For the first quarter of 2008, net operating revenues for all of Select's hospitals increased 6.9% to $378.6 million compared to $354.2 million for the same quarter, prior year. Total patient days for the first quarter of 2008 were 259,559, admissions were 10,736 and net revenue per patient day was $1,432. This compares to 252,476 days, 10,416 admissions and net revenue per patient day of $1,378 for the same quarter, prior year. For the hospitals opened or acquired as of January 1, 2007 and operated by Select throughout both periods, patient days in the first quarter of 2008 were 252,807 and admissions were 10,388, compared to 239,211 days and 9,892 admissions in the same quarter, prior year. Adjusted EBITDA for the segment decreased 4.2% to $63.2 million compared to $66.0 million for the same quarter, prior year. The Adjusted EBITDA margin for the segment was 16.7% for the first quarter of 2008, compared to 18.6% for the same quarter, prior year. The Adjusted EBITDA margin for the hospitals opened or acquired as of January 1, 2007 and operated by Select throughout both periods was 18.7% for the first quarter of 2008, compared to 19.4% for the same quarter, prior year.

Outpatient Rehabilitation

At March 31, 2008, Select operated 985 outpatient clinics. This compares to 545 outpatient clinics at March 31, 2007. The increase in the number of clinics is primarily due to Select's acquisition, in the second quarter of 2007, of substantially all of the outpatient rehabilitation division of HealthSouth Corporation. For the first quarter of 2008, net operating revenues increased 50.9% to $169.6 million compared to $112.4 million for the same quarter, prior year. Adjusted EBITDA for the first quarter increased 14.1% to $20.1 million compared to $17.6 million for the same quarter, prior year. The Adjusted EBITDA margin for the quarter was 11.9% compared to 15.7% in the same quarter, prior year. Patient visits for the quarter were 1,155,907 compared to 646,651 for the same quarter, prior year. Net revenue per visit was $103 for the first quarter of 2008 compared to $101 for the same quarter, prior year.

Conference Call

Select will host a conference call regarding its first quarter results on Wednesday, May 21, 2008, at 11:00 am EDT. The domestic dial in number for the call is 1-888-452-0455. The international dial in number is 1-210-839-8503. The passcode for the call is 6165104.

Select Medical Corporation is a leading operator of specialty hospitals in the United States. Select operates 88 long-term acute care hospitals and four acute medical rehabilitation hospitals in 25 states. Select is also a leading operator of outpatient rehabilitation clinics in the United States, with approximately 985 locations in 37 states and the District of Columbia. Select also provides medical rehabilitation services on a contract basis at nursing homes, hospitals, assisted living and senior care centers, schools and worksites. Information about Select is available at http://www.selectmedicalcorp.com/

Certain statements contained herein that are not descriptions of historical facts are "forward-looking" statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements due to factors including the following:

-- additional changes in government reimbursement for our services may

result in a reduction in net operating revenues, an increase in costs

and a reduction in profitability;

-- the failure of our long-term acute care hospitals, or LTCHs, to

maintain their status as such may cause our net operating revenues and

profitability to decline;

-- the failure of our facilities operated as "hospitals within hospitals,"

or HIHs, to qualify as hospitals separate from their host hospitals may

cause our net operating revenues and profitability to decline;

-- implementation of modifications to the admissions policies for our

inpatient rehabilitation facilities, as required to achieve compliance

with Medicare guidelines, may result in a loss of patient volume at

these hospitals and, as a result, may reduce our future net operating

revenues and profitability;

-- a government investigation or assertion that we have violated

applicable regulations may result in sanctions or reputational harm and

increased costs;

-- integration of recently acquired operations (such as the outpatient

rehabilitation division of HealthSouth Corporation) and future

acquisitions may prove difficult or unsuccessful, use significant

resources or expose us to unforeseen liabilities;

-- private third-party payors for our services may undertake future cost

containment initiatives that limit our future net operating revenues

and profitability;

-- the failure to maintain established relationships with the physicians

in our markets could reduce our net operating revenues and

profitability;

-- shortages in qualified nurses or therapists could increase our

operating costs significantly;

-- competition may limit our ability to grow and result in a decrease in

our net operating revenues and profitability;

-- the loss of key members of our management team could significantly

disrupt our operations;

-- the effect of claims asserted against us or lack of adequate available

insurance could subject us to substantial uninsured liabilities; and

-- the ability to obtain any necessary or desired waiver or amendment from

our existing lenders may be difficult due to the current uncertainty in

the credit markets.

I. Condensed Consolidated Statements of Operations

(In thousands)

(unaudited)

For the Three Months Ended March 31, 2007 and 2008

%

2007 2008 Change

Net operating revenues $466,829 $548,278 17.4%

Costs and expenses:

Cost of services 377,627 452,271 19.8%

General and administrative 11,584 11,651 0.6%

Bad debt expense 5,589 12,615 125.7%

Depreciation and amortization 11,704 17,397 48.6%

Income from operations 60,325 54,344 (9.9)%

Other expense (143) (4,293) N/M

Interest income 929 126 (86.4)%

Interest expense (23,638) (28,235) 19.4%

Income from operations before minority

interests and income taxes 37,473 21,942 (41.4)%

Minority interests 323 309 (4.3)%

Income from operations before income

taxes 37,150 21,633 (41.8)%

Income tax expense 14,967 10,079 (32.7)%

Net income $22,183 $11,554 (47.9)%

N/M - Not Meaningful

II. Condensed Consolidated Balance Sheets

(In thousands)

(unaudited)

December 31, March 31

2007 2008

Assets

Cash $4,529 $8,180

Accounts receivable, net 271,406 330,637

Current deferred tax asset 48,988 43,296

Prepaid income taxes 8,162 7,093

Other current assets 22,507 28,864

Total Current Assets 355,592 418,070

Property and equipment, net 487,026 486,337

Goodwill 1,499,485 1,503,263

Other identifiable intangibles 79,172 78,435

Assets held for sale 14,607 13,696

Other assets 54,895 50,486

Total Assets $2,490,777 $2,550,287

Liabilities and Stockholder's Equity

Payables and accruals $338,674 $299,756

Current portion of long-term debt 7,749 9,795

Total Current Liabilities 346,423 309,551

Long-term debt, net of current portion 1,438,776 1,507,104

Non-current deferred tax liability 23,380 17,065

Other non-current liabilities 52,266 82,144

Minority interests 5,761 5,195

Stockholder's equity 624,171 629,228

Total Liabilities and Stockholder's

Equity $2,490,777 $2,550,287

III. Key Statistics

(unaudited)

For the Three Months Ended March 31, 2007 and 2008

%

2007 2008 Change

Specialty Hospitals (a)

Number of hospitals - end of period 92 92 0.0%

Net operating revenues (,000) $354,228 $378,604 6.9%

Number of patient days 252,476 259,559 2.8%

Number of admissions 10,416 10,736 3.1%

Net revenue per patient day (b) $1,378 $1,432 3.9%

Adjusted EBITDA (,000) $66,031 $63,243 (4.2)%

Adjusted EBITDA margin - all hospitals 18.6% 16.7% (10.2)%

Adjusted EBITDA margin - same store

hospitals ( c ) 19.4% 18.7% (3.6)%

Outpatient Rehabilitation

Number of clinics - end of period 545 985 80.7%

Net operating revenues (,000) $112,380 $169,577 50.9%

Number of visits 646,651 1,155,907 78.8%

Revenue per visit (d) $101 $103 2.0%

Adjusted EBITDA (,000) $17,618 $20,097 14.1%

Adjusted EBITDA margin 15.7% 11.9% (24.2)%

(a) Specialty hospitals consist of long-term acute care hospitals and

acute medical rehabilitation hospitals.

(b) Net revenue per patient day is calculated by dividing specialty

hospital inpatient service revenues by the total number of patient

days.

( c ) Adjusted EBITDA margin - same store hospitals represents the

Adjusted EBITDA margin for those hospitals opened or acquired before

January 1, 2007 and operated throughout both periods.

(d) Net revenue per visit is calculated by dividing outpatient

rehabilitation clinic revenue by the total number of visits. For

purposes of this computation, outpatient rehabilitation clinic

revenue does not include managed clinics or contract services

revenue.

IV. Net Income to Adjusted EBITDA Reconciliation

(In thousands)

(unaudited)

For the Three Months Ended March 31, 2007 and 2008

The following table reconciles net income to Adjusted EBITDA for Select.

Adjusted EBITDA is used by Select to report its segment performance in

accordance with SFAS No. 131. Adjusted EBITDA is defined as net income

before interest, income taxes, depreciation and amortization, stock

compensation expense, other expense and minority interest. We believe that

the presentation of Adjusted EBITDA is important to investors because

Adjusted EBITDA is used by management to evaluate financial performance

and determine resource allocation for each of our operating units.

Adjusted EBITDA is not a measure of financial performance under

generally accepted accounting principles. Items excluded from

Adjusted EBITDA are significant components in understanding and assessing

financial performance. Adjusted EBITDA should not be considered in

isolation or as an alternative to, or substitute for, net income, cash

flows generated by operations, investing or financing activities, or other

financial statement data presented in the consolidated financial

statements as indicators of financial performance or liquidity. Because

Adjusted EBITDA is not a measurement determined in accordance with

generally accepted accounting principles and is thus susceptible to

varying calculations, Adjusted EBITDA as presented may not be comparable

to other similarly titled measures of other companies.

Three Months Ended March 31,

2007 2008

Net income $22,183 $11,554

Income tax expense 14,967 10,079

Minority interest 323 309

Interest expense, net 22,709 28,109

Other expense 143 4,293

Depreciation and amortization 11,704 17,397

Stock compensation expense

Included in general and administrative 888 709

Included in cost of services 39 45

Adjusted EBITDA $72,956 $72,495

Specialty hospitals $66,031 $63,243

Outpatient rehabilitation 17,618 20,097

Other (1) (10,693) (10,845)

Adjusted EBITDA $72,956 $72,495

(1) Other primarily includes Select's general and administrative costs.

The following tables reconcile specialty hospital same store information.

Three Months Ended

March 31, 2007 March 31, 2008

Specialty hospitals net operating

revenue $354,228 $378,604

Less: Specialty hospitals in development,

opened or closed after 1/1/07 18,442 8,928

Specialty hospitals same store net

operating revenue $335,786 $369,676

Specialty hospitals Adjusted EBITDA $66,031 $63,243

Less: Specialty hospitals in development,

opened or closed after 1/1/07 911 (6,036)

Specialty hospitals same store

Adjusted EBITDA $65,120 $69,279

All specialty hospitals Adjusted

EBITDA margin 18.6% 16.7%

Specialty hospitals same store

Adjusted EBITDA margin 19.4% 18.7%


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SOURCE Select Medical Corporation
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