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Select Medical Corporation Announces Results for Fourth Quarter and Year Ended December 31, 2007
Date:3/24/2008

MECHANICSBURG, Pa., March 24 /PRNewswire/ -- Select Medical Corporation ("Select") today announced results for its fourth quarter and year ended December 31, 2007.

For the fourth quarter ended December 31, 2007, net operating revenues increased 16.2% to $518.0 million compared to $445.7 million for the same quarter, prior year. Income from operations decreased 29.5% to $41.7 million compared to $59.1 million for the same quarter, prior year. Net income decreased 65.8% to $11.2 million compared to $32.8 million for the same quarter, prior year. Additionally, net income before interest, income taxes, depreciation and amortization, income from discontinued operations, stock compensation expense, other income/expense and minority interest ("Adjusted EBITDA") for the fourth quarter decreased 19.4% to $57.9 million compared to $71.8 million for the same quarter, prior year. A reconciliation of net income to Adjusted EBITDA is attached to this release.

For the year ended December 31, 2007, net operating revenues increased 7.6% to $1,991.7 million compared to $1,851.5 million for the prior year. Income from operations decreased 24.8% to $193.9 million compared to $257.9 million for the prior year. Net income decreased 53.4% to $55.1 million compared to $118.2 million for the prior year. Additionally, Adjusted EBITDA for the year ended December 31, 2007 decreased 17.3% to $254.9 million compared to $308.3 million for the prior year.

Specialty Hospitals

At December 31, 2007, Select operated 83 long-term acute care hospitals and four acute medical rehabilitation hospitals. This compares to 92 long-term acute care hospitals and four acute medical rehabilitation hospitals operated at December 31, 2006. For the fourth quarter of 2007, net operating revenues for all of Select's hospitals increased 7.3% to $352.9 million compared to $328.8 million for the same quarter, prior year. Total patient days for the fourth quarter of 2007 were 245,665, adm Rehabilitation

Number of clinics - end of period 544 999 83.6%

Net operating revenues (,000) $116,365 $165,057 41.8%

Number of visits 711,163 1,145,063 61.0%

Revenue per visit (d) $98 $101 3.1%

Adjusted EBITDA (,000) $15,903 $15,167 (4.6)%

Adjusted EBITDA margin 13.7% 9.2% (32.8)%

(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 patient service revenue 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,

2006 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.

V. Key Statistics

(unaudited)

For the Year Ended December 31, 2006 and 2007

%

2006 2007 Change

Specialty Hospitals (a)

Number of hospitals - end of period 96 87 (9.4)%

Net operating revenues (,000) $1,378,543 $1,386,410 0.6%

Number of patient days 969,590 987,624 1.9%

Number of admissions 39,668 40,008 0.9%

Net revenue per patient day (b) $1,392 $1,378 (1.0)%

Adjusted EBITDA (,000) $283,270 $217,175 (23.3)%

Adjusted EBITDA margin - all hospitals 20.5% 15.7% (23.4)%

Adjusted EBITDA margin - same store

hospitals (c) 21.8% 17.7% (18.8)%

Outpatient Rehabilitation

Number of clinics - end of period 544 999 83.6%

Net operating revenues (,000) $470,339 $603,413 28.3%

Number of visits 2,972,243 4,032,197 35.7%

Revenue per visit (d) $94 $100 6.4%

Adjusted EBITDA (,000) $64,823 $75,437 16.4%

Adjusted EBITDA margin 13.8% 12.5% (9.4)%

(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 patient service revenue 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,

2006 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.

VI. Net Income to Adjusted EBITDA Reconciliation

(In thousands)

(unaudited)

For the Three Months and Year Ended December 31, 2006 and 2007

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,

income from discontinued operations, stock compensation expense, other

expense (income) 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

December 31, Year Ended December 31,

2006 2007 2006 2007

Net income $32,777 $11,201 $118,220 $55,145

Income from discontinued

operations, net of tax (2,460) - (12,478) -

Income tax expense 4,811 829 56,089 29,315

Minority interest 319 164 1,414 1,537

Interest expense, net 24,118 27,552 95,995 103,394

Other (income) expense (448) 1,946 (1,366) 4,494

Stock compensation expense

Included in general and

administrative 888 890 3,551 3,555

Included in cost of services 57 47 231 191

Depreciation and amortization 11,713 15,255 46,668 57,297

Adjusted EBITDA $71,775 $57,884 $308,324 $254,928

Specialty hospitals $65,067 $48,808 $283,270 $217,175

Outpatient rehabilitation 15,903 15,167 64,823 75,437

Other (1) (9,195) (6,091) (39,769) (37,684)

Adjusted EBITDA $71,775 $57,884 $308,324 $254,928

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

The following tables reconcile specialty hospital same store information.

Three Months Ended

December 31, 2006 December 31, 2007

Specialty hospitals net operating

revenue $328,775 $352,877

Less: Specialty hospitals in

development, opened or closed after

1/1/06 21,366 17,241

Specialty hospitals same store net

operating revenue $307,409 $335,636

Specialty hospitals Adjusted EBITDA $65,067 $48,808

Less: Specialty hospitals in

development, opened or closed after

1/1/06 (641) (5,303)

Specialty hospitals same store

Adjusted EBITDA $65,708 $54,111

All specialty hospitals Adjusted

EBITDA margin 19.8% 13.8%

Specialty hospitals same store

Adjusted EBITDA margin 21.4% 16.1%

Year Ended

December 31, 2006 December 31, 2007

Specialty hospitals net operating

revenue $1,378,543 $1,386,410

Less: Specialty hospitals in

development, opened or closed after

1/1/06 106,940 81,514

Specialty hospitals same store net

operating revenue $1,271,603 $1,304,896

Specialty hospitals Adjusted EBITDA $283,270 $217,175

Less: Specialty hospitals in

development, opened or closed after

1/1/06 5,867 (13,524)

Specialty hospitals same store

Adjusted EBITDA $277,403 $230,699

All specialty hospitals Adjusted

EBITDA margin 20.5% 15.7%

Specialty hospitals same store

Adjusted EBITDA margin 21.8% 17.7%

issions were 9,913 and net revenue per patient day was $1,410. This compares to 235,520 days, 9,546 admissions and net revenue per patient day of $1,366 for the same quarter, prior year. For the hospitals opened or acquired as of January 1, 2006 and operated by Select throughout both periods, patient days in the fourth quarter of 2007 were 233,761 and admissions were 9,448, compared to 219,162 days and 8,940 admissions in the same quarter, prior year. Adjusted EBITDA for the segment decreased 25.0% to $48.8 million compared to $65.1 million for the same quarter, prior year. The Adjusted EBITDA margin for the segment was 13.8% for the fourth quarter of 2007, compared to 19.8% for the same quarter, prior year. The Adjusted EBITDA margin for the hospitals opened or acquired as of January 1, 2006 and operated by Select throughout both periods was 16.1% for the fourth quarter of 2007, compared to 21.4% for the same quarter, prior year.

For the year ended December 31, 2007, net operating revenues for all of Select's hospitals increased 0.6% to $1,386.4 million compared to $1,378.5 million for the prior year. Total patient days for the year ended December 31, 2007 were 987,624, admissions were 40,008 and net revenue per patient day was $1,378. This compares to 969,590 days, 39,668 admissions and net revenue per patient day of $1,392 for the prior year. For the hospitals opened or acquired as of January 1, 2006 and operated by Select throughout both periods, patient days for the year ended December 31, 2007 were 927,405 and admissions were 37,710, compared to 892,130 days and 36,721 admissions in the prior year. Adjusted EBITDA for the segment for the year ended December 31, 2007 decreased 23.3% to $217.2 million compared to $283.3 million for the prior year. The Adjusted EBITDA margin for the segment for the year ended December 31, 2007 was 15.7%, compared to 20.5% for the prior year. The Adjusted EBITDA margin for the hospitals opened or acquired as of January 1, 2006 and operated by Select throughout both periods was 17.7% for the year ended December 31, 2007, compared to 21.8% for the prior year.

Outpatient Rehabilitation

At December 31, 2007, Select operated 999 outpatient clinics. This compares to 544 outpatient clinics at December 31, 2006. 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, as described below. For the fourth quarter of 2007, net operating revenues increased 41.8% to $165.1 million compared to $116.4 million for the same quarter, prior year. Adjusted EBITDA for the fourth quarter decreased 4.6% to $15.2 million compared to $15.9 million for the same quarter, prior year. The Adjusted EBITDA margin for the quarter was 9.2% compared to 13.7% in the same quarter, prior year. Patient visits for the quarter were 1,145,063 compared to 711,163 for the same quarter, prior year. Net revenue per visit was $101 for the fourth quarter of 2007 compared to $98 for the same quarter, prior year.

For the year ended December 31, 2007, net operating revenues increased 28.3% to $603.4 million compared to $470.3 million for the prior year. Adjusted EBITDA for the year ended December 31, 2007 increased 16.4% to $75.4 million compared to $64.8 million for the prior year. The Adjusted EBITDA margin for the year ended December 31, 2007 was 12.5% compared to 13.8% in the prior year. Patient visits for the year ended December 31, 2007 were 4,032,197 compared to 2,972,243 for the prior year. Net revenue per visit was $100 for the year ended December 31, 2007 compared to $94 for the prior year.

Acquisition of HealthSouth Corporation's Outpatient Rehabilitation Division

On May 1, 2007, Select completed the acquisition of substantially all of the outpatient rehabilitation division of HealthSouth Corporation. At the closing, Select acquired 540 outpatient rehabilitation clinics. The closing of the purchase of 29 additional outpatient rehabilitation clinics that was deferred pending certain state regulatory approvals was completed as of October 31, 2007 and resulted in the release of an additional $23.4 million of the purchase price. The aggregate purchase price of $245.0 million was reduced by approximately $7.0 million at the closing for assumed indebtedness and other matters.

Conference Call

Select will host a conference call regarding its fourth quarter results on Wednesday, March 26, 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 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 1,000 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 increased costs and have an adverse effect on our future net

operating revenues and profitability, such as the regulations released

by the Centers for Medicare & Medicaid Services, or CMS, on May 2, 2006

and May 1, 2007;

-- 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 December 31, 2006 and 2007

%

2006 2007 Change

Net operating revenues $445,742 $517,968 16.2%

Costs and expenses:

Cost of services 364,865 441,639 21.0%

General and administrative 10,003 7,016 (29.9)%

Bad debt expense 44 12,366 N/M

Depreciation and amortization 11,713 15,255 30.2%

Income from operations 59,117 41,692 (29.5)%

Other income (expense) 448 (1,946) N/M

Interest income 555 147 (73.5)%

Interest expense (24,673) (27,699) 12.3%

Income from continuing operations before

minority interests and income taxes 35,447 12,194 (65.6)%

Minority interests 319 164 (48.6)%

Income from continuing operations

before income taxes 35,128 12,030 (65.8)%

Income tax expense 4,811 829 (82.8)%

Income from continuing operations 30,317 11,201 (63.1)%

Income from discontinued operations,

net of tax 2,460 - N/M

Net income $32,777 $11,201 (65.8)%

(a) On March 1, 2006, we sold our wholly-owned subsidiary, Canadian Back

Institute Limited ("CBIL"), for approximately C$89.8 million in cash

(US$79.0 million). We conducted all of our Canadian operations through

CBIL. The financial results of CBIL have been classified as

discontinued operations for the three months ended December 31, 2006.

II. Condensed Consolidated Statements of Operations

(In thousands)

(unaudited)

For the Year Ended December 31, 2006 and 2007

%

2006 2007 Change

Net operating revenues $1,851,498 $1,991,666 7.6%

Costs and expenses:

Cost of services 1,484,632 1,660,049 11.8%

General and administrative 43,514 42,863 (1.5)%

Bad debt expense 18,810 37,572 99.7%

Depreciation and amortization 46,668 57,297 22.8%

Income from operations 257,874 193,885 (24.8)%

Other income (expense) 1,366 (4,494) N/M

Interest income 1,293 2,103 62.6%

Interest expense (97,288) (105,497) 8.4%

Income from continuing operations before

minority interests and income taxes 163,245 85,997 (47.3)%

Minority interests 1,414 1,537 8.7%

Income from continuing operations

before income taxes 161,831 84,460 (47.8)%

Income tax expense 56,089 29,315 (47.7)%

Income from continuing operations 105,742 55,145 (47.8)%

Income from discontinued operations,

net of tax (includes pretax gain of

$13,950 in 2006) (a) 12,478 - N/M

Net income $118,220 $55,145 (53.4)%

(a) On March 1, 2006, we sold our wholly-owned subsidiary, Canadian Back

Institute Limited ("CBIL"), for approximately C$89.8 million in cash

(US$79.0 million). We conducted all of our Canadian operations through

CBIL. The financial results of CBIL have been classified as

discontinued operations for the year ended December 31, 2006. We

recognized a gain on sale (net of tax) of $9.1 million in the first

quarter ended March 31, 2006.

III. Condensed Consolidated Balance Sheets

(In thousands)

(unaudited)

December 31, December 31,

2006 2007

Assets

Cash $81,600 $4,529

Restricted cash 4,335 -

Accounts receivable, net 199,927 271,406

Current deferred tax asset 42,613 48,988

Prepaid income taxes - 8,162

Other current assets 16,762 22,507

Total Current Assets 345,237 355,592

Property and equipment, net 356,336 487,026

Goodwill 1,323,572 1,499,485

Other identifiable intangibles 79,230 79,172

Other assets held for sale 4,855 14,607

Other assets 68,412 54,895

Total Assets $2,177,642 $2,490,777

Liabilities and Stockholder's Equity

Payables and accruals $266,134 $338,674

Income taxes payable 1,937 -

Current portion of long term debt 6,209 7,749

Total Current Liabilities 274,280 346,423

Long term debt, net of current portion 1,224,509 1,438,776

Non-current deferred tax liability 30,721 23,380

Other non-current liabilities 31,564 52,266

Minority interests 2,566 5,761

Stockholder's equity 614,002 624,171

Total Liabilities and Stockholder's Equity $2,177,642 $2,490,777

IV. Key Statistics

(unaudited)

For the Three Months Ended December 31, 2006 and 2007

%

2006 2007 Change

Specialty Hospitals (a)

Number of hospitals - end of period 96 87 (9.4)%

Net operating revenues (,000) $328,775 $352,877 7.3%

Number of patient days 235,520 245,665 4.3%

Number of admissions 9,546 9,913 3.8%

Net revenue per patient day (b) $1,366 $1,410 3.2%

Adjusted EBITDA (,000) $65,067 $48,808 (25.0)%

Adjusted EBITDA margin - all hospitals 19.8% 13.8% (30.3)%

Adjusted EBITDA margin - same store

hospitals (c) 21.4% 16.1% (24.8)%

Outpatient
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SOURCE Select Medical Corporation
Copyright©2008 PR Newswire.
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