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Select Medical Holdings Corporation Announces Results for Third Quarter Ended September 30, 2009
Date:11/5/2009

MECHANICSBURG, Pa., Nov. 5 /PRNewswire-FirstCall/ -- Select Medical Holdings Corporation ("Select") (NYSE: SEM), the parent of Select Medical Corporation, today announced results for its third quarter ended September 30, 2009.

For the third quarter ended September 30, 2009, net operating revenues increased 5.1% to $545.6 million compared to $519.2 million for the same quarter, prior year. Income from operations decreased 9.0% to $32.9 million compared to $36.2 million for the same quarter, prior year. Income from operations for the third quarter ended September 30, 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 $0.6 million compared to a loss of $0.8 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, long term incentive compensation and non-controlling interest ("Adjusted EBITDA") for the third quarter increased 34.0% to $73.0 million compared to $54.5 million for the same quarter, prior year. A reconciliation of net income to Adjusted EBITDA is attached to this release. Loss per common share was $0.09 on a fully diluted basis compared to a loss of $0.11 per common share for the same quarter prior year.

For the nine months ended September 30, 2009, net operating revenues increased 3.7% to $1,666.3 million compared to $1,606.3 million for the same period, prior year. Income from operations increased 19.4% to $165.9 million compared to $138.9 million for the same period, prior year. Income from operations for the nine months ended September 30, 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 $45.4 million compared to $13.6 million for the same period, prior year. Additionally, Adjusted EBITDA for the nine months ended September 30, 2009 increased 25.0% to $242.3 million compared to $193.8 million for the same period, prior year. Earnings per share were $0.37 on a fully diluted basis compared to a loss of $0.07 per common share for the same period, prior year.

On an adjusted basis, income available to common stockholders was $0.09 per diluted share for the third quarter ended September 30, 2009 and $0.42 per diluted share for the nine months ended September 30, 2009. Adjusted income available to common stockholders excludes non-recurring items relating to Select's initial public offering such as long term incentive compensation and stock compensation expense related to the grant of restricted stock; and gains related to the early retirement of debt. A reconciliation of net income per share to adjusted net income per share is attached to this release.

Specialty Hospitals

At September 30, 2009, Select operated 89 long term acute care hospitals and five acute medical rehabilitation hospitals. This compares to 88 long term acute care hospitals and four acute medical rehabilitation hospitals operated at September 30, 2008. For the third quarter of 2009, net operating revenues for all of Select's hospitals increased 5.0% to $376.9 million compared to $358.8 million for the same quarter, prior year. Total patient days for the third quarter of 2009 were 248,504, admissions were 10,466 and net revenue per patient day was $1,489. This compares to 243,807 days, 9,977 admissions and net revenue per patient day of $1,446 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 third quarter of 2009 were 231,509 and admissions were 9,710, compared to 234,112 days and 9,614 admissions in the same quarter, prior year. Adjusted EBITDA for the segment increased 31.0% to $64.4 million compared to $49.1 million for the same quarter, prior year. The Adjusted EBITDA margin for the segment was 17.1% for the third quarter of 2009, compared to 13.7% 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 18.1% for the third quarter of 2009, compared to 16.0% for the same quarter, prior year.

For the nine months ended September 30, 2009, net operating revenues for all of Select's hospitals increased 4.7% to $1,156.4 million compared to $1,104.7 million for the same period, prior year. Total patient days for the nine months ended September 30, 2009 were 757,487, admissions were 31,775 and net revenue per patient day was $1,500. This compares to 756,093 days, 30,891 admissions and net revenue per patient day of $1,434 for the same period, prior year. For the hospitals opened or acquired as of January 1, 2008 and operated by Select throughout both periods, patient days for the nine months ended September 30, 2009 were 705,692 and admissions were 29,570, compared to 728,733 days and 29,794 admissions in the same period, prior year. Adjusted EBITDA for the segment for the nine months ended September 30, 2009 increased 26.6% to $212.1 million compared to $167.6 million for the same period, prior year. The Adjusted EBITDA margin for the segment for the nine months ended September 30, 2009 was 18.3%, compared to 15.2% for the same period, 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 19.8% for the nine months ended September 30, 2009, compared to 17.3% for the same period, prior year.

Outpatient Rehabilitation

At September 30, 2009, Select operated 947 outpatient clinics. This compares to 965 outpatient clinics at September 30, 2008. For the third quarter of 2009, net operating revenues for the segment increased 5.3% to $168.8 million compared to $160.3 million for the same quarter, prior year. Adjusted EBITDA for the segment for the third quarter increased 27.4% to $20.9 million compared to $16.4 million for the same quarter, prior year. The Adjusted EBITDA margin for the segment for the quarter was 12.4% compared to 10.2% in the same quarter, prior year. Patient visits for the quarter were 1,126,096 compared to 1,106,529 for the same quarter, prior year. Net revenue per visit was $101 for both the quarter ended September 30, 2009 and the same quarter, prior year.

For the nine months ended September 30, 2009, net operating revenues for the segment increased 1.7% to $509.8 million compared to $501.4 million for the same period, prior year. Adjusted EBITDA for the nine months ended September 30, 2009 increased 12.0% to $67.5 million compared to $60.2 million for the same period, prior year. The Adjusted EBITDA margin for the nine months ended September 30, 2009 was 13.2% compared to 12.0% in the same period, prior year. Patient visits for the nine months ended September 30, 2009 were 3,385,733 compared to 3,430,138 for the same period, prior year. Net revenue per visit was $102 for both the nine months ended September 30, 2009 and the same period, prior year.

Initial Public Offering of Common Stock

On September 30, 2009, Select completed its initial public offering of common stock at a price to the public of $10.00 per share. Select sold 30,000,000 shares in the offering. The total net proceeds to Select from the offering after deducting underwriting discounts and commissions and offering expenses were approximately $279.1 million. A portion of the net proceeds from the offering were used to repay indebtedness and to make payments to executive officers under the Long Term Cash Incentive Plan, and any remaining proceeds will be used to repay additional indebtedness or for general corporate purposes. Because the closing and receipt of cash occurred on September 30, 2009, the repayments of indebtedness and payment under the Long Term Cash Incentive Plan were not made until October. As a result, we have reported a significant amount of cash on our September 30, 2009 balance sheet and we have reflected the mandatory repayment due under our credit facility as a current portion of long term debt.

On October 28, 2009, the underwriters purchased an additional 3,602,700 shares pursuant to their over-allotment option at a price to the public of $10.00 per share. The total net proceeds to Select from the exercise of the over-allotment option were approximately $33.9 million. A portion of the net proceeds from the exercise of the over-allotment option were used to repay indebtedness, and any remaining proceeds will be used to repay additional indebtedness or for general corporate purposes.

Conference Call

Select will host a conference call regarding its third quarter results on Friday, November 6, 2009, at 11:00 am EST. The domestic dial in number for the call is 1-866-783-2146. The international dial in number is 1-857-350-1605. The passcode for the call is 78893390. The conference call will be webcast simultaneously and can be accessed at Select Medical Holdings Corporation's website http://www.selectmedicalcorp.com.

For those unable to participate in the conference call, a replay will be available until 2:00pm EST, November 13, 2009. The replay number is 1-888-286-8010 (domestic) or 1-617-801-6888 (international). The passcode for the replay will be 54139669. The replay can also 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 September 30, 2009, Select operated 89 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 947 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 September 30, 2008 and 2009

                                                                   %
                                          2008         2009      Change
                                          ----         ----      ------
    Net operating revenues              $519,179     $545,621       5.1%

    Costs and expenses:
     Cost of services                    441,395      448,702       1.7%
     General and administrative (a)       11,538       34,618     200.0%
     Bad debt expense                     12,240       11,720      (4.2)%
     Depreciation and amortization        17,848       17,676      (1.0)%
                                          ------       ------     -----

    Income from operations                36,158       32,905      (9.0)%

    Gain on early retirement of debt           -        1,129       N/M
    Interest income                           93            2     (97.8)%
    Interest expense                     (36,153)     (33,451)     (7.5)%
                                         -------     --------     -----

    Income from operations before
     income taxes                             98          585     496.9%

    Income tax benefit                      (111)        (804)    624.3%
                                            ----         ----     -----

    Net income                               209        1,389     564.6%

    Less:  Net income attributable to
     non-controlling interests             1,032          806     (21.9)%
                                           -----          ---    ------

    Net income (loss) attributable to
     Select Medical Holdings Corporation    (823)         583       N/M


    Less: Preferred dividends              6,290        6,667       6.0%
                                           -----        -----       ---

    Net loss available to
     common stockholders                 $(7,113)     $(6,084)     14.5%
                                          =======     ========      ====

    Loss per common share:
         Basic                            ($0.11)      ($0.09)     18.2%
         Diluted                          ($0.11)      ($0.09)     18.2%


    N/M = Not Meaningful
     (a)  Includes non-recurring charges related to Select's initial public
          offering  of $18.3 million in long term incentive compensation and
          $3.7 million in stock compensation expense related to the grant of
          restricted stock that vested in connection with the Company's
          initial public offering.



    II.   Condensed Consolidated Statements of Operations
    (In thousands, except per share amounts)
    (unaudited)
    For the Nine Months Ended September 30, 2008 and 2009

                                                                        %
                                         2008           2009         Change
                                         ----           ----          ------
    Net operating revenues            $1,606,263     $1,666,328          3.7%

    Costs and expenses:
     Cost of services                  1,343,022      1,353,107          0.8%
     General and administrative (a)       35,843         60,278         68.2%
     Bad debt expense                     35,300         33,678         (4.6)%
     Depreciation and amortization        53,175         53,346          0.3%
                                          ------         ------          ---

    Income from operations               138,923        165,919         19.4%

    Gain on early retirement of debt           -         16,445          N/M

    Interest income                          275             82        (70.2)%
    Interest expense                    (109,603)      (101,781)        (7.1)%
                                       ---------       --------         -----

    Income from operations before
     income taxes                         29,595         80,665        172.6%

    Income tax expense                    13,862         33,076        138.6%
                                          ------         ------        -----

    Net income                            15,733         47,589        202.5%

    Less:  Net income attributable to
     non-controlling interests             2,103          2,218          5.5%
                                           -----          -----          ---

    Net income attributable to
     Select Medical Holdings Corporation  13,630         45,371        232.9%

    Less: Preferred dividends             18,569         19,537          5.2%
                                          ------         ------          ---

    Net income (loss) available to
     common stockholders                 $(4,939)       $25,834          N/M
                                         =======        =======          ===

    Income (loss) per common share:
         Basic                            ($0.07)         $0.38          N/M
         Diluted                          ($0.07)         $0.37          N/M


    N/M = Not Meaningful
     (a)  Includes non-recurring charges related to Select's initial public
          offering  of $18.3 million in long term incentive compensation and
          $3.7 million in stock compensation expense related to the grant of
          restricted stock that vested in connection with the Company's
          initial public offering.



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

                                               December 31,  September 30,
                                                    2008        2009
                                                    ----        ----
    ASSETS

    Cash                                          $64,260    $280,492

    Accounts receivable, net                      312,418     310,855

    Current deferred tax asset                     61,925      51,426

    Prepaid income taxes                            7,362      13,338

    Other current assets                           20,897      22,152
                                                   ------      ------

    Total Current Assets                          466,862     678,263

    Property and equipment, net                   471,065     458,897

    Goodwill                                    1,506,661   1,507,223

    Other identifiable intangibles                 74,078      67,473

    Assets held for sale                           12,542      11,342

    Other assets                                   48,261      41,544
                                                   ------      ------

    Total Assets                               $2,579,469  $2,764,742
                                               ==========  ==========

    LIABILITIES AND EQUITY

    Payables and accruals                       $339,446    $305,234

    Current portion of long-term debt              9,046     141,667
                                                   -----     -------

    Total Current Liabilities                    348,492     446,901

    Long-term debt, net of current portion     1,770,879   1,521,394

    Non-current deferred tax liability            42,918      54,733

    Other non-current liabilities                 67,709      60,648

    Preferred stock                              515,872           -

    Total equity                                (166,401)    681,066
                                               ---------     -------

     Total Liabilities and Equity             $2,579,469  $2,764,742
                                              ==========  ==========



    IV.  Condensed Consolidated Statements of Cash Flows
    (In thousands)
    (unaudited)
    For the Nine Months Ended September 30, 2008 and 2009

                                                            2008      2009
                                                            ----      ----
    Operating activities
    Net income                                           $15,733   $47,589
    Adjustments to reconcile net income to net cash
        provided by operating activities:
            Depreciation and amortization                 53,175    53,346
            Provision for bad debts                       35,300    33,678
            Gain on early retirement of debt                   -   (16,445)
            Loss (gain) from disposal of assets             (316)      550
            Non-cash stock compensation expense            1,697     4,795
            Amortization of debt discount                  1,101     1,239
            Changes in operating assets and
             liabilities, net of
                effects from acquisition of businesses:
                    Accounts receivable                  (74,975)  (32,033)
                    Other current assets                   5,465      (982)
                    Other assets                          11,375     4,018
                    Accounts payable                      (4,917)   (8,366)
                    Due to third-party payors             (9,328)   (3,530)
                    Accrued expenses                      (9,541)   (1,024)
                    Income and deferred taxes              9,204    10,612
                                                           -----    ------
    Net cash provided by operating activities             33,973    93,447
                                                          ------    ------

    Investing activities
    Purchases of property and equipment                  (35,770)  (35,250)
    Proceeds from sale of business units                   1,851         -
    Proceeds from sale of property                           743     1,341
    Acquisition of businesses, net of cash
     acquired                                             (7,402)     (381)
                                                          ------      ----
    Net cash used in investing activities                (40,578)  (34,290)
                                                         -------   -------

    Financing activities
    Proceeds from initial public offering,
     net of fees                                               -   282,000
    Payment of initial public offering costs                   -      (584)
    Borrowings on revolving credit facility              387,000   193,000
    Payments on revolving credit facility               (357,000) (253,000)
    Payment on credit facility term loan                  (5,100)   (5,033)
    Repurchase of 7 5/8% senior subordinated
     notes                                                     -   (30,114)
    Repurchase of senior floating rate notes                   -    (6,468)
    Borrowings of other debt                                   -     5,184
    Principal payments on seller and other
     debt                                                 (4,015)   (5,738)
    Repurchase of common and preferred stock                (612)      (80)
    Exercise of stock options                                 90        24
    Repayment of bank overdrafts                          (7,217)  (21,130)
    Equity contribution and loans from
     non-controlling interests                                 -     1,500
    Distributions to non-controlling
     interests                                            (1,703)   (2,486)
                                                          ------    ------
    Net cash provided by financing activities             11,443   157,075
                                                          ------   -------

    Net increase in cash and cash equivalents              4,838   216,232

    Cash and cash equivalents at beginning of
     period                                                4,529    64,260
                                                           -----    ------
    Cash and cash equivalents at end of
     period                                               $9,367  $280,492
                                                          ======  ========

    Supplemental Cash Flow Information
     Cash paid for interest                             $123,285  $115,901
     Cash paid for taxes                                  $4,704   $22,441



    V.  Key Statistics
    (unaudited)
    For the Three Months Ended September 30, 2008 and 2009
                                                                       %
                                                    2008       2009  Change
                                                    ----       ----  ------
    Specialty Hospitals (a)

    Number of hospitals - end of period               92         94      2.2%

    Net operating revenues   (,000)             $358,838   $376,859      5.0%

    Number of patient days                       243,807    248,504      1.9%

    Number of admissions                           9,977     10,466      4.9%

    Net revenue per patient day (b)               $1,446     $1,489      3.0%

    Adjusted EBITDA   (,000)                     $49,137    $64,381     31.0%

    Adjusted EBITDA margin - all hospitals          13.7%      17.1%    24.8%
    Adjusted EBITDA margin - same store
     hospitals (c)                                  16.0%      18.1%    13.1%

    Outpatient Rehabilitation

    Number of clinics - end of period                965        947    (1.9)%

    Net operating revenues   (,000)             $160,303   $168,751      5.3%

    Number of visits                           1,106,529  1,126,096      1.8%

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

    Adjusted EBITDA  (,000)                      $16,405    $20,898     27.4%

    Adjusted EBITDA margin                          10.2%      12.4%    21.6%

    (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 Nine Months Ended September 30, 2008 and 2009
                                                                        %
                                                   2008        2009   Change
                                                   ----        ----   ------
    Specialty Hospitals (a)

    Number of hospitals - end of period             92          94      2.2%

    Net operating revenues (,000)           $1,104,731  $1,156,422      4.7%

    Number of patient days                     756,093     757,487      0.2%

    Number of admissions                        30,891      31,775      2.9%

    Net revenue per patient day (b)             $1,434      $1,500      4.6%

    Adjusted EBITDA   (,000)                  $167,617    $212,122     26.6%

    Adjusted EBITDA margin - all hospitals        15.2%       18.3%    20.4%
    Adjusted EBITDA margin - same
     store hospitals (c)                          17.3%       19.8%    14.5%

    Outpatient Rehabilitation

    Number of clinics - end of period              965         947     (1.9)%

    Net operating revenues (,000)             $501,375    $509,760      1.7%

    Number of visits                         3,430,138   3,385,733     (1.3)%

    Revenue per visit (d)                         $102        $102      0.0%

    Adjusted EBITDA  (,000)                    $60,248     $67,476     12.0%

    Adjusted EBITDA margin                        12.0%       13.2%    10.0%

     (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, 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 and Nine Months Ended September 30, 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, long term
     incentive compensation, gain 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            Nine Months Ended
                                 September 30,                September 30,
                               2008         2009            2008         2009
                               ----         ----            ----         ----
    Net income (loss)         $(823)        $583         $13,630      $45,371
    Non-controlling interest  1,032          806           2,103        2,218
    Income tax expense
     (benefit)                 (111)        (804)         13,862       33,076
    Interest expense, net    36,060       33,449         109,328      101,699
    Gain on early retirement
     of debt                      -       (1,129)              -      (16,445)
    Long term incentive
     compensation                 -       18,261               -       18,261
    Stock compensation expense
     Included in general and
      administrative            469        4,111           1,616        4,594
     Included in cost
      of services                36           90              81          201
    Depreciation and
     amortization            17,848       17,676          53,175       53,346
                             ------       ------          ------       ------
    Adjusted EBITDA         $54,511      $73,043        $193,795     $242,321
                            =======      =======        ========     ========

    Specialty hospitals     $49,137      $64,381        $167,617     $212,122
    Outpatient
     rehabilitation          16,405       20,898          60,248       67,476
    Other (1)               (11,031)     (12,236)        (34,070)     (37,277)
                            -------      -------         -------      -------
    Adjusted EBITDA         $54,511      $73,043        $193,795     $242,321
                            =======      =======        ========     ========


     (1)  Other primarily includes general and administrative costs.



    The following tables reconcile specialty hospital same store information.

                                                   Three Months Ended
                                                   ------------------
                                            September 30,    September 30,
                                                 2008             2009
                                            -------------    -------------
    Specialty hospitals net operating
     revenue                                     $358,838         $376,859
    Less:   Specialty hospitals in
       development, opened or closed after
       1/1/08                                      13,386           27,995
                                                   ------           ------
    Specialty hospitals same store net
     operating revenue                           $345,452         $348,864
                                                 ========         ========

    Specialty hospitals Adjusted EBITDA           $49,137          $64,381
    Less:   Specialty hospitals in
       development, opened or closed after
       1/1/08                                      (6,161)           1,265
                                                   ------            -----
    Specialty hospitals same store
     Adjusted EBITDA                              $55,298          $63,116
                                                  =======          =======

    All specialty hospitals Adjusted
     EBITDA margin                                   13.7%            17.1%
    Specialty hospitals same store
     Adjusted EBITDA margin                          16.0%            18.1%


                                                    Nine Months Ended
                                                    -----------------
                                            September 30,    September 30,
                                                 2008             2009
                                            -------------    -------------
    Specialty hospitals net operating
     revenue                                   $1,104,731       $1,156,422
    Less:   Specialty hospitals in
       development, opened or closed after
       1/1/08                                      36,456           79,885
                                                   ------           ------
    Specialty hospitals same store net
     operating revenue                         $1,068,275       $1,076,537
                                               ==========       ==========

    Specialty hospitals Adjusted EBITDA          $167,617         $212,122
    Less:   Specialty hospitals in
       development, opened or closed after
       1/1/08                                     (17,587)            (992)
                                                  -------             ----
    Specialty hospitals same store
     Adjusted EBITDA                             $185,204         $213,114
                                                 ========         ========

    All specialty hospitals Adjusted
     EBITDA margin                                   15.2%            18.3%
    Specialty hospitals same store
     Adjusted EBITDA margin                          17.3%            19.8%



      VIII.   Reconciliation of Net Income Per Share to Adjusted Net Income
              Per Share
    (In thousands, except share and per share amounts)
    (unaudited)
     For the Three and Nine Months Ended September 30, 2008 and 2009

                               Three Months Ended          Nine Months Ended
                                  September 30,              September 30,
                                2009    Per Share (a)   2009     Per Share (a)
                                ----    ---------         ----    ---------
    Net income                 $1,389       $0.02       $47,589       $0.78
    Net income attributable to
     non-controlling interests    806        0.01         2,218        0.04
                                  ---        ----         -----        ----
    Net income attributable to
     Select Medical
     Holdings Corporation         583        0.01        45,371        0.74
    Less:  Preferred dividends  6,667        0.11        19,537        0.32
                                -----        ----        ------        ----
    Net income (loss)
     available to common
     stockholders              (6,084)      (0.10)       25,834        0.42

    Long term incentive
     compensation related
     to initial public
     offering                  18,261        0.29        18,261        0.30
    Stock compensation
     related to initial
     public offering            3,689        0.06         3,689        0.06
    Gain on early
     retirement of debt        (1,129)      (0.02)      (16,445)      (0.27)
    Estimated income tax
     expense                   (8,778)      (0.14)       (2,321)      (0.03)
                               ------       -----        ------       -----
                                5,959        0.09        29,018        0.48

    Less:  Earnings allocated to
     preferred stockholders       566        0.00         2,815        0.05
    Less:  Earnings allocated to
     unvested restricted
     stockholders                  51        0.00           254        0.00
                                   --        ----           ---        ----

    Adjusted net income
     available to common
     stockholders               $5,342       $0.09      $25,949       $0.43
                                ======                  =======
    Adjustment for dilution                   0.00                    (0.01)
                                              ----                    -----
    Adjusted net income
     available to common
     stockholders -
     diluted shares                          $0.09                    $0.42
                                             =====                    =====

    Weighted average
     common shares outstanding:
     Basic                                  62,078                   61,030
     Diluted                                62,547                   61,500

     (a)  Per share amounts for each period presented are based on basic
          weighted average common shares outstanding for all amounts except
          adjusted income from continuing operations per diluted share, which
          is based on diluted shares outstanding.


SOURCE Select Medical Holdings Corporation


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SOURCE Select Medical Holdings Corporation
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