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Select Medical Holdings Corporation Announces Results for Fourth Quarter and Year Ended December 31, 2009
Date:2/18/2010

MECHANICSBURG, Pa., Feb. 18 /PRNewswire-FirstCall/ -- Select Medical Holdings Corporation ("Select") (NYSE: SEM), today announced results for its fourth quarter and year ended December 31, 2009.

For the fourth quarter ended December 31, 2009, net operating revenues increased 4.8% to $573.5 million compared to $547.1 million for the same quarter, prior year.  Income from operations increased 21.6% to $69.9 million compared to $57.5 million for the same quarter, prior year.  Net income attributable to Select increased to $29.9 million compared to $8.8 million for the same quarter, prior year.   Additionally, net income before interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, other expense, long-term incentive compensation and non-controlling interest ("Adjusted EBITDA") for the fourth quarter increased 14.9% to $87.9 million compared to $76.5 million for the same quarter, prior year.  A reconciliation of net income to Adjusted EBITDA is attached to this release.  Income per common share was $0.19 on a fully diluted basis compared to $0.04 for the same quarter prior year.

For the year ended December 31, 2009, net operating revenues increased 4.0% to $2,239.9 million compared to $2,153.4 million for the prior year. Income from operations increased 20.1% to $235.8 million compared to $196.4 million for the prior year. Income from operations for the year ended December 31, 2009 includes compensation costs of $22.0 million Select incurred associated with its initial public offering of common stock.  Net income attributable to Select increased to $75.3 million compared to $22.4 million for the prior year. Additionally, Adjusted EBITDA for the year ended December 31, 2009 increased 22.2% to $330.2 million compared to $270.3 million for the prior year. Earnings per share were $0.61 on a fully diluted basis compared to a loss of $0.04 per common share for the prior year.

Select's income per common share for the quarter and year ended December 31, 2009 includes certain non-recurring items, such as long-term incentive compensation, stock expense related to the grant of restricted stock upon Select's initial public offering and gains and losses related to the early retirement of debt.  Other than the gains on early retirement of debt, the non-recurring items relate to Select's initial public offering of common stock.  Excluding these items, on an adjusted basis income available to common stockholders was $0.20 per diluted share for the fourth quarter ended December 31, 2009 compared to $0.03 for the same quarter prior year and $0.67 per diluted share for the year ended December 31, 2009 compared to a loss per common share of $0.04 for the prior year.  A reconciliation of net income per share to adjusted net income per share is attached to this release.

Specialty Hospitals

At December 31, 2009, Select operated 89 long term acute care hospitals and six acute medical rehabilitation hospitals.  This compares to 88 long term acute care hospitals and five acute medical rehabilitation hospitals operated at December 31, 2008.  For the fourth quarter of 2009, net operating revenues for all of Select's hospitals increased 4.6% to $401.4 million compared to $383.7 million for the same quarter, prior year. Total patient days for the fourth quarter of 2009 were 258,013, admissions were 10,899 and net revenue per patient day was $1,528.  This compares to 249,626 days, 10,286 admissions and net revenue per patient day of $1,509 for the same quarter, prior year.  For the hospitals opened or acquired as of January 1, 2008 and operated by Select throughout both periods, patient days in the fourth quarter of 2009 were 238,583 and admissions were 10,096, compared to 235,381 days and 9,720 admissions in the same quarter, prior year.  Adjusted EBITDA for the Specialty Hospital segment increased 13.8% to $78.2 million compared to $68.8 million for the same quarter, prior year.  The Adjusted EBITDA margin for the segment was 19.5% for the fourth quarter of 2009, compared to 17.9% for the same quarter, prior year.  The Adjusted EBITDA margin for the hospitals opened or acquired as of January 1, 2008 and operated by Select throughout both periods was 21.1% for the fourth quarter of 2009, compared to 20.8% for the same quarter, prior year.  

For the year ended December 31, 2009, net operating revenues for all of Select's hospitals increased 4.7% to $1,557.8 million compared to $1,488.4 million for the prior year. Total patient days for the year ended December 31, 2009 were 1,015,500, admissions were 42,674 and net revenue per patient day was $1,507. This compares to 1,005,719 days, 41,177 admissions and net revenue per patient day of $1,453 for the prior year. For the hospitals opened or acquired as of January 1, 2008 and operated by Select throughout both periods, patient days for the year ended December 31, 2009 were 944,275 and admissions were 39,666, compared to 964,114 days and 39,514 admissions in the prior year. Adjusted EBITDA for the Specialty Hospital segment for the year ended December 31, 2009 increased 22.8% to $290.4 million compared to $236.4 million for the prior year. The Adjusted EBITDA margin for the segment for the year ended December 31, 2009 was 18.6%, compared to 15.9% for the prior year. The Adjusted EBITDA margin for the hospitals opened or acquired as of January 1, 2008 and operated by Select throughout both periods was 20.1% for the year ended December 31, 2009, compared to 18.2% for the prior year.

Outpatient Rehabilitation

At December 31, 2009, Select operated 961 outpatient clinics.  This compares to 956 outpatient clinics at December 31, 2008.  For the fourth quarter of 2009, net operating revenues for the segment increased 5.4% to $172.1 million compared to $163.4 million for the same quarter, prior year.  Adjusted EBITDA for the Outpatient Rehabilitation segment for the fourth quarter increased 26.8% to $21.6 million compared to $17.0 million for the same quarter, prior year.  The Adjusted EBITDA margin for the segment for the quarter was 12.5% compared to 10.4% in the same quarter, prior year.  Patient visits for the quarter were 1,116,316 compared to 1,103,589 for the same quarter, prior year.   Net revenue per visit for the quarter ended December 31, 2009 was $102 compared to $101 for the same quarter, prior year.  

For the year ended December 31, 2009, net operating revenues for the segment increased 2.6% to $681.9 million compared to $664.8 million for the prior year. Adjusted EBITDA for the Outpatient Rehabilitation segment for the year ended December 31, 2009 increased 15.3% to $89.1 million compared to $77.3 million for the prior year. The Adjusted EBITDA margin for the year ended December 31, 2009 was 13.1% compared to 11.6% in the prior year. Patient visits for the year ended December 31, 2009 were 4,502,049 compared to 4,533,727 for the prior year. Net revenue per visit was $102 for both the year ended December 31, 2009 and the prior year.

Initial Public Offering of Common Stock

On September 30, 2009 Select completed an initial public offering of 30,000,000 shares at a price to the public of $10.00 per share, and on October 28, 2009, the underwriters exercised their over-allotment option to purchase an additional 3,602,700 shares at the same price.  The total net proceeds to Select after deducting underwriting discounts and commissions and offering expenses was approximately $312.5 million.  Select used the proceeds from the offering to repay $258.4 million of revolving and term loans outstanding under its senior secured credit facility and to make payments to executive officers under the Long Term Cash Incentive Plan of $18.0 million.  The remaining proceeds were used for general corporate purposes.

Business Outlook

Select reaffirms its financial guidance for 2010 as disclosed in the presentation attached as an exhibit to Select's Form 8-K filed with the SEC on January 11, 2010.

Conference Call

Select will host a conference call regarding its fourth quarter and full year results and its business outlook on Friday, February 19, 2010, at 11:00 am EST. The domestic dial in number for the call is 1-800-291-5365. The international dial in number is 1-617-614-3922.  The passcode for the call is 45516325.  The conference call will be webcast simultaneously and can be accessed at Select Medical Holdings Corporation's website http://www.selectmedicalcorp.com.

Select Medical Holdings Corporation is a leading operator of specialty hospitals in the United States.  As of December 31, 2009, Select operated 89 long term acute care hospitals and six acute medical rehabilitation hospitals in 25 states.  Select is also a leading operator of outpatient rehabilitation clinics in the United States, with approximately 961 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;
  • future acquisitions or joint ventures 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, except per share amounts)
    (unaudited)
    For the Three Months Ended December 31, 2008 and 2009
    
                                                                         %
                                                    2008      2009     Change
                                                    ----      ----     ------
    Net operating revenues                      $547,099  $573,543       4.8%
    
    Costs and expenses:
      Cost of services                           448,819   466,664       4.0%
      General and administrative                   9,680    12,131      25.3%
      Bad debt expense                            12,504     7,194    (42.5)%
      Depreciation and amortization               18,611    17,635     (5.2)%
                                                  ------    ------     -----
    
    Income from operations                        57,485    69,919      21.6%
    
    Gain (loss) on early retirement of debt          912    (2,870)      N/M
    Other expense                                             (632)      N/M
    Interest income                                  196        10    (94.9)%
    Interest expense                             (36,291) (30,688)    (15.4)%
                                                 -------   -------    ------
    
    Income from operations before income taxes    22,302    35,739      60.3%
    
    Income tax expense                            12,201     4,440    (63.6)%
                                                  ------     -----    ------
    
    Net income                                    10,101    31,299     209.9%
    
    Less:  Net income attributable to non-
     controlling interests                         1,290     1,388       7.6%
                                                   -----     -----       ---
    
    Net income attributable to Select Medical
     Holdings Corporation                          8,811    29,911     239.5%
    
    Less: Preferred dividends                      6,403         -       N/M
                                                   -----       ---       ---
    
    Net income available to common stockholders
     and participating securities                 $2,408   $29,911       N/M
                                                  ======   =======       ===
    
    Income per common share:
         Basic                                     $0.04     $0.19     375.0%
         Diluted                                   $0.04     $0.19     375.0%
    
    
    N/M = Not Meaningful
    
    
    
    
    
    II. Condensed Consolidated Statements of Operations
    (In thousands, except per share amounts)
    (unaudited)
    For the Year Ended December 31, 2008 and 2009
    
                                                                   %
                                            2008        2009     Change
                                            ----        ----     ------
    Net operating revenues            $2,153,362  $2,239,871       4.0%
    
    Costs and expenses:
      Cost of services                 1,791,841   1,819,771       1.6%
      General and administrative          45,523      72,409      59.1%
      Bad debt expense                    47,804      40,872    (14.5)%
      Depreciation and amortization       71,786      70,981     (1.1)%
                                          ------      ------     -----
    
    Income from operations               196,408     235,838      20.1%
    
    Gain on early retirement of debt         912      13,575       N/M
    Other expense                              -        (632)      N/M
    Interest income                          471          92    (80.5)%
    Interest expense                    (145,894)   (132,469)    (9.2)%
                                        --------    --------     -----
    
    Income from operations before
     income taxes                         51,897     116,404     124.3%
    
    Income tax expense                    26,063      37,516      43.9%
                                          ------      ------      ----
    
    Net income                            25,834      78,888     205.4%
    
    Less:  Net income attributable to
     non-controlling interests             3,393       3,606       6.3%
                                           -----       -----       ---
    
    Net income attributable to Select
     Medical Holdings Corporation         22,441      75,282     235.5%
    
    Less: Preferred dividends             24,972      19,537    (21.8)%
                                          ------      ------    ------
    
    Net income available to common
     stockholders and participating
     securities                          $(2,531)    $55,745       N/M
                                         =======     =======       ===
    
    Income per common share:
         Basic                            ($0.04)      $0.61       N/M
         Diluted                          ($0.04)      $0.61       N/M
    
    
    N/M = Not Meaningful
    
    
    
    
    III. Condensed Consolidated Balance Sheets
    (In thousands)
    (unaudited)
    
                                         December 31,           December 31,
                                            2008                   2009
                                        ------------           ------------
    ASSETS
    
    Cash                                   $64,260                $83,680
    
    Accounts receivable, net               312,418                307,079
    
    Current deferred tax asset              61,925                 48,535
    
    Prepaid income taxes                     7,362                 11,179
    
    Other current assets                    20,897                 24,240
                                            ------                 ------
    
    Total Current Assets                   466,862                474,713
    
    Property and equipment, net            471,065                466,131
    
    Goodwill                             1,506,661              1,548,269
    
    Other identifiable intangibles          74,078                 65,297
    
    Assets held for sale                    12,542                 11,342
    
    Other assets                            48,261                 36,481
                                            ------                 ------
    
    Total Assets                        $2,579,469             $2,602,233
                                        ==========             ==========
    
    LIABILITIES AND EQUITY
    
    Payables and accruals                 $339,446               $299,796
    
    Current portion of long-term debt        9,046                  4,145
                                             -----                  -----
    
    Total Current Liabilities              348,492                303,941
    
    Long-term debt, net of current
     portion                             1,770,879              1,401,426
    
    Non-current deferred tax
     liability                              42,918                 66,768
    
    Other non-current liabilities           67,709                 60,543
    
    Preferred stock                        515,872                      -
    
    Total equity                          (166,401)               769,555
                                          --------                -------
    
    Total Liabilities and Equity        $2,579,469             $2,602,233
                                        ==========             ==========
    
    
    
    
    IV. Condensed Consolidated Statements of Cash Flows
    (In thousands)
    (unaudited)
    For the Year Ended December 31, 2008 and 2009
                                                             2008      2009
                                                             ----      ----
    Operating activities
    Net income                                            $25,834   $78,888
    Adjustments to reconcile net income to
     net cash provided by operating activities:
            Depreciation and amortization                  71,786    70,981
            Provision for bad debts                        47,804    40,872
            Gain on early retirement of debt                 (912)  (13,575)
            Loss (gain) from disposal of assets               546      (122)
            Non-cash loss from interest rate swaps              -       632
            Non-cash stock compensation expense             2,093     5,147
            Amortization of debt discount                   1,492     1,681
            Changes in operating assets and
             liabilities, net of effects from
             acquisition of businesses:
                    Accounts receivable                   (88,545)  (35,455)
                    Other current assets                    8,230    (1,117)
                    Other assets                           16,913     6,114
                    Accounts payable                       (1,351)      963
                    Due to third-party payors              (9,363)   (3,804)
                    Accrued expenses and deferred income
                     taxes                                 32,911    14,434
                                                           ------    ------
    Net cash provided by operating activities             107,438   165,639
    
    
    Investing activities
    Purchases of property and equipment                   (56,504)  (57,877)
    Proceeds from sale of business units                    2,666         -
    Proceeds from sale of property                            743     1,341
    Insurance proceeds                                        281         -
    Acquisition of businesses, net of cash
     acquired                                              (7,624)  (21,381)
                                                           ------   -------
    Net cash used in investing activities                 (60,438)  (77,917)
                                                          -------   -------
    
    Financing activities
    Proceeds from initial public offering,
     net of fees                                                -   315,866
    Payment of initial public offering costs               (1,326)   (1,737)
    Borrowings on revolving credit facility               407,000   193,000
    Payments on revolving credit facility                (377,000) (343,000)
    Payment on credit facility term loan                   (6,800) (173,433)
    Repurchase of 7 5/8% senior subordinated
     notes                                                 (1,040)  (30,114)
    Repurchase of senior floating rate notes                    -    (6,468)
    Borrowings of other debt                                    -     7,189
    Principal payments on seller and other
     debt                                                  (5,630)   (7,275)
    Repurchase of common and preferred stock                 (612)      (80)
    Proceeds from exercise of stock options                    90       146
    Proceeds from (repayment of) bank
     overdrafts                                                 6   (21,130)
    Equity contribution and loans from non-
     controlling interests                                      -     1,500
    Distributions to non-controlling
     interests                                             (1,957)   (2,766)
                                                           ------    ------
    Net cash provided by (used in) financing
     activities                                            12,731   (68,302)
                                                           ------   -------
    
    Net increase in cash and cash equivalents              59,731    19,420
    
    Cash and cash equivalents at beginning of
     period                                                 4,529    64,260
                                                            -----    ------
    Cash and cash equivalents at end of
     period                                               $64,260   $83,680
                                                          =======   =======
    
    Supplemental Cash Flow Information
        Cash paid for interest                           $135,838  $126,695
        Cash paid for taxes                                $5,313   $18,084
    
    
    
    
    V. Key Statistics
    (unaudited)
    For the Three Months Ended December 31, 2008 and 2009
    
                                                                    %
                                             2008       2009     Change
                                             ----       ----     ------
    
    Specialty Hospitals (a)
    
    Number of hospitals - end of period        93         95      2.2%
    
    Net operating revenues (,000)        $383,681   $401,399      4.6%
    
    Number of patient days                249,626    258,013      3.4%
    
    Number of admissions                   10,286     10,899      6.0%
    
    Net revenue per patient day (b)        $1,509     $1,528      1.3%
    
    Adjusted EBITDA (,000)                $68,771    $78,248     13.8%
    
    Adjusted EBITDA margin – all
     hospitals                               17.9%      19.5%     8.9%
    Adjusted EBITDA margin – same store
     hospitals (c)                           20.8%      21.1%     1.4%
    
    Outpatient Rehabilitation
    
    Number of clinics - end of period         956        961      0.5%
    
    Net operating revenues (,000)        $163,385   $172,132      5.4%
    
    Number of visits                    1,103,589  1,116,316      1.2%
    
    Revenue per visit (d)                    $101       $102      1.0%
    
    Adjusted EBITDA (,000)                $17,031    $21,596     26.8%
    
    Adjusted EBITDA margin                   10.4%      12.5%    20.2%
    
    
    (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 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, 2008 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. Key Statistics
    (unaudited)
    For the Year Ended December 31, 2008 and 2009
                                                                         %
                                                 2008        2009     Change
                                                 ----        ----     ------
    
    Specialty Hospitals (a)
    
    Number of hospitals - end of period            93          95      2.2%
    
    Net operating revenues (,000)          $1,488,412  $1,557,821      4.7%
    
    Number of patient days                  1,005,719   1,015,500      1.0%
    
    Number of admissions                       41,177      42,674      3.6%
    
    Net revenue per patient day (b)            $1,453      $1,507      3.7%
    
    Adjusted EBITDA (,000)                   $236,388    $290,370     22.8%
    
    Adjusted EBITDA margin – all hospitals       15.9%       18.6%    17.0%
    Adjusted EBITDA margin – same store
     hospitals (c)                               18.2%       20.1%    10.4%
    
    Outpatient Rehabilitation
    
    Number of clinics - end of period             956         961      0.5%
    
    Net operating revenues (,000)            $664,760    $681,892      2.6%
    
    Number of visits                        4,533,727   4,502,049    (0.7)%
    
    Revenue per visit (d)                        $102        $102      0.0%
    
    Adjusted EBITDA (,000)                    $77,279     $89,072     15.3%
    
    Adjusted EBITDA margin                       11.6%       13.1%    12.9%
    
    
    (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, 2008 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.
    
    
    
    
    VII. Net Income to Adjusted EBITDA Reconciliation
    (In thousands)
    (unaudited)
    For the Three Months and Year Ended December 31, 2008 and 2009
    
         The following table reconciles net income to Adjusted EBITDA for 
    Select.  Adjusted EBITDA is used by Select to report its segment 
    performance.  Adjusted EBITDA is defined as net income before interest, 
    income taxes, depreciation and amortization, stock compensation expense, 
    other expense, long-term incentive compensation, gain (loss) on early 
    retirement of debt and non-controlling 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,
                                      2008        2009      2008      2009
                                      ----        ----      ----      ----
    Net income                      $8,811     $29,911   $22,441   $75,282
    Non-controlling interest         1,290       1,388     3,393     3,606
    Income tax expense              12,201       4,440    26,063    37,516
    Other expense                        -         632         -       632
    Interest expense, net           36,095      30,678   145,423   132,377
    Loss (gain) on early
     retirement of debt               (912)      2,870      (912)  (13,575)
    Long-term incentive
     compensation                        -           -         -    18,261
    Stock compensation expense
      Included in general and
       administrative                  337         181     1,953     4,775
      Included in cost of services      59         171       140       372
    Depreciation and amortization   18,611      17,635    71,786    70,981
                                    ------      ------    ------    ------
    Adjusted EBITDA                $76,492     $87,906  $270,287  $330,227
                                   =======     =======  ========  ========
    
    Specialty hospitals            $68,771     $78,248  $236,388  $290,370
    Outpatient rehabilitation       17,031      21,596    77,279    89,072
    Other (1)                       (9,310)    (11,938)  (43,380)  (49,215)
                                    ------     -------   -------   -------
    Adjusted EBITDA                $76,492     $87,906  $270,287  $330,227
                                   =======     =======  ========  ========
    
    (1) Other primarily includes general and administrative costs.
    
    
    
    
    The following tables reconcile specialty hospital same store information.
    
    
                                                   Three Months Ended
                                                  ------------------
                                             December 31,        December 31,
                                                 2008               2009
                                             -----------         ----------
    Specialty hospitals net
     operating revenue                       $383,681           $401,399
    Less:   Specialty hospitals
     in development, opened or
     closed after 1/1/08                       19,907             28,921
                                               ------             ------
    Specialty hospitals same
     store net operating
     revenue                                 $363,774           $372,478
                                             ========           ========
    
    Specialty hospitals
     Adjusted EBITDA                          $68,771            $78,248
    Less:   Specialty hospitals
     in development, opened or
     closed after 1/1/08                       (6,716)              (460)
                                               ------               ----
    Specialty hospitals same
     store Adjusted EBITDA                    $75,487            $78,708
                                              =======            =======
    
    All specialty hospitals
     Adjusted EBITDA margin                      17.9%              19.5%
    Specialty hospitals same
     store Adjusted EBITDA
     margin                                      20.8%              21.1%
    
    
                                                             Year Ended
                                                             ----------
                                                    December 31, December 31,
                                                         2008        2009
                                                      ----------   ---------
    Specialty hospitals net operating
     revenue                                           $1,488,412  $1,557,821
    Less:   Specialty hospitals in
     development, opened or closed after
     1/1/08                                                56,363     108,806
                                                           ------     -------
    Specialty hospitals same store net
     operating revenue                                 $1,432,049  $1,449,015
                                                       ==========  ==========
    
    Specialty hospitals Adjusted EBITDA                  $236,388    $290,370
    Less:   Specialty hospitals in
     development, opened or closed after
     1/1/08                                               (24,303)     (1,452)
                                                          -------      ------
    Specialty hospitals same store Adjusted
     EBITDA                                              $260,691    $291,822
                                                         ========    ========
    
    All specialty hospitals Adjusted EBITDA
     margin                                                  15.9%       18.6%
    Specialty hospitals same store Adjusted
     EBITDA margin                                           18.2%       20.1%
    
    
    
    
    VIII. Reconciliation of Net Income Per Share to Adjusted Net 
     Income Per Share
    (In thousands, except per share amounts)
    (unaudited)
    For the Three Months Ended December 31, 2008 and 2009
    
                                       
                                                   Per                 Per
                                       2008      Share (a)  2009     Share (a)
                                       ----       -------   ----     -------
    Net income                       $10,101       $0.17  $31,299       $0.20
    Net income attributable to
     non-controlling interests         1,290        0.02    1,388        0.01
    Net income attributable to
     Select Medical Holdings
     Corporation                       8,811        0.15   29,911        0.19
    Less:  Preferred dividends         6,403        0.11        -        0.00
    
    Net income available to
     common stockholders and
     participating securities          2,408        0.04   29,911        0.19
    
    Long-term incentive
     compensation related to
     initial public offering               -        0.00        -        0.00
    Stock compensation related
     to initial public offering            -        0.00        -        0.00
    Loss (gain) on early
     retirement of debt                 (912)      (0.01)   2,870        0.02
    Estimated income tax
     expense (benefit) (b)               490        0.00     (955)      (0.01)
    
                                       1,986        0.03   31,826        0.20
    Allocation to participating
     securities:
      Less:  Earnings allocated
       to preferred stockholders         194        0.00        -        0.00
      Less:  Earnings allocated
       to unvested restricted
       stockholders                       39        0.00       62        0.00
    
    Adjusted net income
     available to common
     stockholders                     $1,753       $0.03  $31,764       $0.20
                                      ======              =======
    Adjustment for dilution                         0.00                 0.00
    Adjusted net income
     available to common
     stockholders - diluted
     shares                                        $0.03                $0.20
                                                   =====                =====
    
    Weighted average common
     shares outstanding:
      Basic                                       60,125              158,457
      Diluted                                     60,609              158,889
    
    
    (a) Per share amounts for each period presented are based on basic
        weighted average common shares outstanding for all amounts except
        adjusted net income available to common stockholders - diluted
        shares, which is based on diluted shares outstanding.
    
    (b) Represents the tax expense (benefit) on the adjustments to net income.
    
    
    
    
    IX. Reconciliation of Net Income Per Share to Adjusted Net Income Per 
     Share
    (In thousands, except per share amounts)
    (unaudited)
    For the Year Ended December 31, 2008 and 2009
    
                                                 Per                 Per
                                     2008       Share (a)  2009     Share (a)
                                     ----       -------    ----     -------
    Net income                     $25,834       $0.44   $78,888      $0.92
    Net income attributable
     to non-controlling
     interests                       3,393        0.07     3,606       0.04
    
    Net income attributable
     to Select Medical
     Holdings Corporation           22,441        0.37    75,282       0.88
    Less:  Preferred
     dividends                      24,972        0.41    19,537       0.23
    
    Net income (loss)
     available to common
     stockholders and
     participating
     securities                     (2,531)      (0.04)   55,745       0.65
    
    Long-term incentive
     compensation related
     to initial public
     offering                            -        0.00    18,261       0.21
    Stock compensation
     related to initial
     public offering                     -        0.00     3,689       0.04
    Gain on early
     retirement of debt               (912)      (0.02)  (13,575)     (0.16)
    Estimated income tax
     expense (benefit) (b)             490        0.01    (2,786)     (0.03)
    
                                    (2,953)      (0.05)   61,334       0.71
    Allocation to
     participating
     securities:
      Less:  Earnings (loss)
       allocated to preferred
       stockholders                   (296)      (0.01)    3,328       0.03
      Less:  Earnings
       allocated to unvested
       restricted
       stockholders                      -        0.00       472       0.01
    
    
    Adjusted net income
     (loss) available to
     common stockholders           $(2,657)     $(0.04)  $57,534      $0.67
                                   =======               =======
    Adjustment for dilution                       0.00                 0.00
                                                                       
    Adjusted net income
     (loss) available to
     common stockholders -
     diluted shares                             $(0.04)               $0.67
                                                ======                =====
    
    Weighted average common
     shares outstanding:
      Basic                                     59,566               85,587
      Diluted                                   59,566               86,045
    
    
    (a)  Per share amounts for each period presented are based on basic
         weighted average common shares outstanding for all amounts except
         adjusted net income (loss) available to common stockholders - diluted
         shares, which is based on diluted shares outstanding.
    
    (b) Represents the tax expense (benefit) on the adjustments to net income.
    

SOURCE Select Medical Holdings Corporation

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