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Select Medical Corporation Announces Results for Fourth Quarter and Year Ended December 31, 2008
Date:3/23/2009

MECHANICSBURG, Pa., March 23 /PRNewswire/ -- Select Medical Corporation ("Select") today announced results for its fourth quarter and year ended December 31, 2008.

For the fourth quarter ended December 31, 2008, net operating revenues increased 5.6% to $547.1 million compared to $518.0 million for the same quarter, prior year. Income from operations increased 37.9% to $57.5 million compared to $41.7 million for the same quarter, prior year. Net income increased 20.5% to $13.5 million compared to $11.2 million for the same quarter, prior year. Additionally, net income before interest, income taxes, depreciation and amortization, gain on early retirement of debt, stock compensation expense, other expense and minority interest ("Adjusted EBITDA") for the fourth quarter increased 32.1% to $76.5 million compared to $57.9 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, 2008, net operating revenues increased 8.1% to $2,153.4 million compared to $1,991.7 million for the prior year. Income from operations increased 1.3% to $196.4 million compared to $193.9 million for the prior year. Net income decreased 21.3% to $43.4 million compared to $55.1 million for the prior year. Additionally, Adjusted EBITDA for the year ended December 31, 2008 increased 6.0% to $270.3 million compared to $254.9 million for the prior year.

Specialty Hospitals

At December 31, 2008, Select operated 88 long term acute care hospitals and five acute medical rehabilitation hospitals. This compares to 83 long term acute care hospitals and four acute medical rehabilitation hospitals operated at December 31, 2007. For the fourth quarter of 2008, net operating revenues for all of Select's hospitals increased 8.7% to $383.7 million compared to $352.9 million for the same quarter, prior year. Total patient days for the fourth quarter of 2008 were 249,626, admissions were 10,286 and net revenue per patient day was $1,509. This compares to 245,665 days, 9,913 admissions and net revenue per patient day of $1,410 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 fourth quarter of 2008 were 229,366 and admissions were 9,448, compared to 234,781 days and 9,456 admissions in the same quarter, prior year. Adjusted EBITDA for the segment increased 40.9% to $68.8 million compared to $48.8 million for the same quarter, prior year. The Adjusted EBITDA margin for the segment was 17.9% for the fourth quarter of 2008, compared to 13.8% 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 20.9% for the fourth quarter of 2008, compared to 16.3% for the same quarter, prior year.

For the year ended December 31, 2008, net operating revenues for all of Select's hospitals increased 7.4% to $1,488.4 million compared to $1,386.4 million for the prior year. Total patient days for the year ended December 31, 2008 were 1,005,719, admissions were 41,177 and net revenue per patient day was $1,453. This compares to 987,624 days, 40,008 admissions and net revenue per patient day of $1,378 for the prior year. For the hospitals opened or acquired as of January 1, 2007 and operated by Select throughout both periods, patient days for the year ended December 31, 2008 were 944,367 and admissions were 38,545, compared to 924,506 days and 37,533 admissions in the prior year. Adjusted EBITDA for the segment for the year ended December 31, 2008 increased 8.8% to $236.4 million compared to $217.2 million for the prior year. The Adjusted EBITDA margin for the segment for the year ended December 31, 2008 was 15.9%, compared to 15.7% for the 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 18.4% for the year ended December 31, 2008, compared to 17.5% for the prior year.

Outpatient Rehabilitation

At December 31, 2008, Select operated 956 outpatient clinics. This compares to 999 outpatient clinics at December 31, 2007. For the fourth quarter of 2008, net operating revenues for the segment decreased 1.0% to $163.4 million compared to $165.1 million for the same quarter, prior year. Adjusted EBITDA for the segment for the fourth quarter increased 12.3% to $17.0 million compared to $15.2 million for the same quarter, prior year. The Adjusted EBITDA margin for the segment for the quarter was 10.4% compared to 9.2% in the same quarter, prior year. Patient visits for the quarter were 1,103,589 compared to 1,145,063 for the same quarter, prior year. Net revenue per visit was $101 for both the fourth quarter of 2008 and for the same quarter, prior year.

For the year ended December 31, 2008, net operating revenues for the segment increased 10.2% to $664.8 million compared to $603.4 million for the prior year. Adjusted EBITDA for the segment for the year ended December 31, 2008 increased 2.4% to $77.3 million compared to $75.4 million for the prior year. The Adjusted EBITDA margin for the segment for the year ended December 31, 2008 was 11.6% compared to 12.5% in the prior year. Patient visits for the year ended December 31, 2008 were 4,533,727 compared to 4,032,197 for the prior year. Net revenue per visit was $102 for the year ended December 31, 2008 compared to $100 for the prior year.

Conference Call

Select Medical Holdings Corporation ("Holdings"), the Parent of Select, has filed a registration statement on Form S-1 with the U.S. Securities and Exchange Commission ("SEC") in connection with the proposed initial public offering of its common stock. Holdings and certain of its stockholders are expected to sell shares of its common stock in the offering. Based on advice of counsel, Select's regular quarterly earnings conference calls will be suspended while Holdings' registration statement is under review by the SEC.

Select Medical Corporation is a leading operator of specialty hospitals in the United States. Select operates 88 long term acute care hospitals and five acute medical rehabilitation hospitals in 25 states. Select is also a leading operator of outpatient rehabilitation clinics in the United States, with approximately 956 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 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;
  • 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; and
  • the inability to draw funds under our senior secured credit facility because of lender defaults.

    I.   Condensed Consolidated Statements of Operations
         (In thousands)
         (unaudited)
          For the Three Months Ended December 31, 2007 and 2008

                                                                      %
                                                  2007      2008    Change
    Net operating revenues                    $517,968  $547,099       5.6%

    Costs and expenses:

     Cost of services                          441,639   448,819       1.6%

     General and administrative                  7,016     9,680      38.0%

     Bad debt expense                           12,366    12,504       1.1%

     Depreciation and amortization              15,255    18,611      22.0%

    Income from operations                      41,692    57,485      37.9%

    Gain on early retirement of debt                 -       912       N/M
    Other expense                               (1,946)   (1,622)   (16.6)%
    Interest income                                147       196     33.3%
    Interest expense                           (27,699)  (27,461)    (0.9)%

    Income from operations before minority
     interests and income taxes                 12,194    29,510     142.0%

    Minority interests                             164     1,290       N/M

    Income from operations before income
     taxes                                      12,030    28,220     134.6%

    Income tax expense                             829    14,724       N/M

    Net income                                 $11,201   $13,496      20.5%

    N/M = Not Meaningful


    II.  Condensed Consolidated Statements of Operations
         (In thousands)
         (unaudited)
          For the Year Ended December 31, 2007 and 2008

                                                                     %
                                               2007        2008    Change
    Net operating revenues               $1,991,666  $2,153,362       8.1%

    Costs and expenses:

     Cost of services                     1,660,049   1,791,841       7.9%

     General and administrative              42,863      45,523       6.2%

     Bad debt expense                        37,572      47,804      27.2%

     Depreciation and amortization           57,297      71,786      25.3%

    Income from operations                  193,885     196,408       1.3%

    Gain on early retirement of debt              -         912       N/M
    Other expense                            (4,494)     (2,802)   (37.7)%
    Interest income                           2,103         471    (77.6)%
    Interest expense                       (105,497)   (110,889)     5.1%

    Income from operations before
     minority interests and income taxes     85,997      84,100     (2.2)%

    Minority interests                        1,537       3,393    120.8%

    Income from operations before income
     taxes                                   84,460      80,707     (4.4)%

    Income tax expense                       29,315      37,334     27.4%

    Net income                              $55,145     $43,373    (21.3)%

     III. Condensed Consolidated Balance Sheets
          (In thousands)
          (unaudited)

                                       December    December
                                          31,         31,
                                         2007        2008
                 ASSETS

    Cash                                  $4,529     $64,260

    Accounts receivable, net             271,406     312,418

    Current deferred tax asset            48,988      48,594

    Prepaid income taxes                   8,162       7,362

    Other current assets                  22,507      20,897

    Total Current Assets                 355,592     453,531

    Property and equipment, net          487,026     471,065

    Goodwill                           1,499,485   1,506,661

    Other identifiable intangibles        79,172      74,078

    Assets held for sale                  14,607      12,542

    Other assets                          54,895      44,548

    Total Assets                      $2,490,777  $2,562,425

    LIABILITIES AND STOCKHOLDER'S
     EQUITY

    Payables and accruals               $338,674    $344,358

    Current portion of long term
     debt                                  7,749       9,046

    Total Current Liabilities            346,423     353,404

    Long term debt, net of current
     portion                           1,438,776   1,460,276

    Non-current deferred tax
     liability                            23,380      42,918

    Other non-current liabilities         52,266      67,709

    Minority interests                     5,761       7,803

    Stockholder's equity                 624,171     630,315

    Total Liabilities and
     Stockholder's Equity             $2,490,777  $2,562,425



    IV.  Key Statistics
         (unaudited)
         For the Three Months Ended December 31, 2007 and 2008
                                                                      %
                                                   2007       2008  Change

    Specialty Hospitals (a)

    Number of hospitals - end of period             87         93    6.9%

    Net operating revenues (,000)             $352,877   $383,681    8.7%

    Number of patient days                     245,665    249,626    1.6%

    Number of admissions                         9,913     10,286    3.8%

    Net revenue per patient day (b)             $1,410     $1,509    7.0%

    Adjusted EBITDA (,000)                     $48,808    $68,771   40.9%

    Adjusted EBITDA margin - all
     hospitals                                    13.8%      17.9%  29.7%
    Adjusted EBITDA margin -
     same store hospitals (c)                     16.3%      20.9%  28.2%

    Outpatient Rehabilitation

    Number of clinics - end of period              999        956   (4.3)%

    Net operating revenues (,000)             $165,057   $163,385   (1.0)%

    Number of visits                         1,145,063  1,103,589   (3.6)%

    Revenue per visit (d)                         $101       $101    0.0%

    Adjusted EBITDA (,000)                     $15,167    $17,031   12.3%

    Adjusted EBITDA margin                         9.2%      10.4%  13.0%

    (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, 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.



    V.  Key Statistics
        (unaudited)
        For the Year Ended December 31, 2007 and 2008
                                                                        %
                                                   2007        2008  Change

    Specialty Hospitals (a)

    Number of hospitals - end of period              87          93     6.9%

    Net operating revenues (,000)            $1,386,410  $1,488,412     7.4%

    Number of patient days                      987,624   1,005,719     1.8%

    Number of admissions                         40,008      41,177     2.9%

    Net revenue per patient day (b)              $1,378      $1,453     5.4%

    Adjusted EBITDA (,000)                     $217,175    $236,388     8.8%

    Adjusted EBITDA margin - all
     hospitals                                     15.7%       15.9%    1.3%
    Adjusted EBITDA margin -
     same store hospitals (c)                      17.5%       18.4%    5.1%

    Outpatient Rehabilitation

    Number of clinics - end of period               999         956    (4.3)%

    Net operating revenues (,000)              $603,413    $664,760    10.2%

    Number of visits                          4,032,197   4,533,727    12.4%

    Revenue per visit (d)                          $100        $102     2.0%

    Adjusted EBITDA (,000)                      $75,437     $77,279     2.4%

    Adjusted EBITDA margin                         12.5%       11.6%   (7.2)%


    (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 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, 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.



    VI.   Net Income to Adjusted EBITDA Reconciliation
          (In thousands)
          (unaudited)
           For the Three Months and Year Ended December 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, gain on early retirement of debt 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      Year Ended
                                   December 31,        December 31,

                                 2007      2008       2007      2008

    Net income                $11,201    $13,496    $55,145   $43,373
    Income tax expense            829     14,724     29,315    37,334
    Minority interest             164      1,290      1,537     3,393
    Interest expense, net      27,552     27,265    103,394   110,418
    Other expense               1,946      1,622      4,494     2,802
    Gain on early retirement
     of debt                        -       (912)         -      (912)
    Stock compensation expense
     Included in general and
      administrative              890        337      3,555     1,953
     Included in cost of
      services                     47         59        191       140
    Depreciation and
     amortization              15,255     18,611     57,297    71,786
    Adjusted EBITDA           $57,884    $76,492   $254,928  $270,287

    Specialty hospitals       $48,808    $68,771   $217,175  $236,388
    Outpatient rehabilitation  15,167     17,031     75,437    77,279
    Other (1)                  (6,091)    (9,310)   (37,684)  (43,380)
    Adjusted EBITDA           $57,884    $76,492   $254,928  $270,287

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

    The following tables reconcile specialty hospital
    same store information.

                                                  Three Months Ended
                                           December 31,      December 31,
                                               2007             2008
    Specialty hospitals net operating
     revenue                                 $352,877         $383,681
    Less: Specialty hospitals in
     development, opened or closed after
     1/1/07                                    12,348           29,264
    Specialty hospitals same store net
     operating revenue                       $340,529         $354,417

    Specialty hospitals Adjusted EBITDA       $48,808          $68,771
    Less: Specialty hospitals in
     development, opened or closed after
     1/1/07                                    (6,863)          (5,287)
    Specialty hospitals same store
     Adjusted EBITDA                          $55,671          $74,058

    All specialty hospitals Adjusted
     EBITDA margin                               13.8%            17.9%
    Specialty hospitals same store
     Adjusted EBITDA margin                      16.3%            20.9%


                                                      Year Ended
                                             December 31,      December 31,
                                                 2007             2008
    Specialty hospitals net operating
     revenue                                  $1,386,410       $1,488,412
    Less: Specialty hospitals in
     development, opened or closed after
     1/1/07                                       79,500           85,709
    Specialty hospitals same store net
     operating revenue                        $1,306,910       $1,402,703

    Specialty hospitals Adjusted EBITDA         $217,175         $236,388
    Less: Specialty hospitals in
     development, opened or closed after
     1/1/07                                      (10,928)         (21,339)
    Specialty hospitals same store
     Adjusted EBITDA                            $228,103         $257,727

    All specialty hospitals Adjusted
     EBITDA margin                                  15.7%            15.9%
    Specialty hospitals same store
     Adjusted EBITDA margin                         17.5%            18.4%



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