2014

Select Medical Holdings Corporation Announces Results for Third Quarter Ended September 30, 2013 and Quarterly Cash Dividend

MECHANICSBURG, Pa., Oct. 31, 2013 /PRNewswire/ -- Select Medical Holdings Corporation ("Select Medical") (NYSE: SEM) today announced results for its third quarter ended September 30, 2013 and the declaration of its quarterly cash dividend.

For the third quarter ended September 30, 2013, net operating revenues increased 1.3% to $722.8 million compared to $713.7 million for the same quarter, prior year.  The results for the third quarter ended September 30, 2013 reflect Medicare changes that became effective on April 1, 2013, including (i) a 2% reduction in Medicare payments that was implemented as part of the automatic reduction in federal spending mandated under the Budget Control Act of 2011 (the "Sequestration Reduction"), and (ii) an increase from 25% to 50% in the multiple procedure payment reduction for therapy services as mandated by the American Taxpayer Relief Act of 2012 (the "MPPR Reduction").  For the third quarter ended September 30, 2013, these changes collectively reduced both net operating revenues and income from operations by approximately $7.2 million and $1.9 million, respectively.  Income from operations decreased to $62.4 million compared to $70.8 million for the same quarter, prior year.  Net income attributable to Select Medical decreased to $23.3 million compared to $24.1 million for the same quarter, prior year.  Net income attributable to Select Medical for the third quarter ended September 30, 2012 includes a loss on early retirement of debt, net of tax, of $3.7 million associated with the September 12, 2012 redemption of $275.0 million of Select Medical Corporation's 7 5/8% senior subordinated notes.  Net income before interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, equity in earnings (losses) of unconsolidated subsidiaries and other income (expense) ("Adjusted EBITDA") for the third quarter decreased 8.3% to $80.4 million compared to $87.7 million for the same quarter, prior year.  A reconciliation of net income to Adjusted EBITDA is presented in table VIII of this release.  Income per common share for both the third quarter ended September 30, 2013 and 2012 was $0.17 on a fully diluted basis.  Excluding the loss related to the early retirement of debt for the third quarter ended September 30, 2012 and its related tax effects, adjusted income per common share was $0.20 per diluted share for the third quarter ended September 30, 2012.  A reconciliation of income per common share to adjusted income per common share for the third quarter ended September 30, 2013 and 2012 is presented in table IX of this release. 

For the nine months ended September 30, 2013, net operating revenues increased 1.0% to $2,229.5 million compared to $2,207.9 million for the same period, prior year.  The results for the nine months ended September 30, 2013 include the Sequestration Reduction and MPPR Reduction which collectively reduced both net operating revenues and income from operations by approximately $16.6 million and $3.6 million, respectively.  Income from operations decreased to $233.2 million compared to $255.9 million for the same period, prior year.  Net income attributable to Select Medical decreased to $85.5 million compared to $108.8 million for the same period, prior year.  Net income attributable to Select Medical for the nine months ended September 30, 2013 and 2012 include losses on early retirement of debt, net of tax, of $11.5 million and $3.7 million, respectively.  Net income attributable to Select Medical for the nine months ended September 30, 2012 includes a loss on early retirement of debt, net of tax, of $3.7 million associated with the September 12, 2012 redemption of $275.0 million of Select Medical Corporation's 7 5/8% senior subordinated notes.  Adjusted EBITDA for the nine months ended September 30, 2013 decreased 6.7% to $286.5 million compared to $307.1 million for the same period, prior year.  A reconciliation of net income to Adjusted EBITDA is presented in table VIII of this release.  Income per common share for the nine months ended September 30, 2013 was $0.61 on a fully diluted basis compared to income per common share of $0.77 for the nine months ended September 30, 2012.  Excluding the loss related to the early retirement of debt in each period and their related tax effects, adjusted income per common share was $0.69 and $0.79 per diluted share for the nine months ended September 30, 2013 and 2012, respectively.  A reconciliation of net income per share to adjusted net income per share for the nine months ended September 30, 2013 and 2012 is presented in table X of this release.

Specialty Hospitals

For the third quarter of 2013, net operating revenues for the specialty hospital segment increased 0.2% to $532.6 million compared to $531.4 million for the same quarter, prior year.  The Sequestration Reduction reduced net operating revenues and income from operations for the segment by approximately $6.8 million for the third quarter of 2013.  Adjusted EBITDA for the specialty hospital segment decreased 10.0% to $75.3 million compared to $83.7 million for the same quarter, prior year.  The Adjusted EBITDA margin for the segment was 14.1% for the third quarter of 2013, compared to 15.7% for the same quarter, prior year.  Certain specialty hospital key statistics for the third quarter ended September 30, 2013 and 2012 are presented in table VI of this release.

For the nine months ended September 30, 2013, net operating revenues for the specialty hospital segment increased 0.5% to $1,649.7 million compared to $1,641.6 million for the same period, prior year.  The Sequestration Reduction reduced both net operating revenues and income from operations for the segment by approximately $15.9 million for the nine months ended September 30, 2013.  Adjusted EBITDA for the specialty hospital segment for the nine months ended September 30, 2013 decreased 7.3% to $265.0 million compared to $285.8 million for the same period, prior year.  The Adjusted EBITDA margin for the segment was 16.1% for the nine months ended September 30, 2013, compared to 17.4% for the same period, prior year.  Certain specialty hospital key statistics for the nine months ended September 30, 2013 and 2012 are presented in table VII of this release.

Outpatient Rehabilitation

For the third quarter of 2013, net operating revenues for the outpatient rehabilitation segment increased 4.4% to $190.2 million compared to $182.2 million for the same quarter, prior year.  The Sequestration Reduction and MPPR Reduction collectively reduced both net operating revenues and income from operations for the segment by approximately $0.4 million and $1.9 million, respectively, for the third quarter of 2013.  Adjusted EBITDA for the segment for the third quarter increased 6.2% to $21.6 million compared to $20.4 million for the same quarter, prior year.  The Adjusted EBITDA margin for the segment was 11.4% for the third quarter of 2013, compared to 11.2% for the same quarter, prior year.  Certain outpatient rehabilitation key statistics for the third quarter ended September 30, 2013 and 2012 are presented in table VI of this release.

For the nine months ended September 30, 2013, net operating revenues for the outpatient rehabilitation segment increased 2.3% to $579.4 million compared to $566.2 million for the same period, prior year.  The Sequestration Reduction and MPPR Reduction collectively reduced both net operating revenues and income from operations for the segment by approximately $0.7 million and $3.6 million, respectively, for the nine months ended September 30, 2013.  Adjusted EBITDA for the segment for the nine months ended September 30, 2013 increased 2.7% to $70.5 million compared to $68.7 million for the same period, prior year.  The Adjusted EBITDA margin for the segment was 12.2% for the nine months ended September 30, 2013, compared to 12.1% for the same period, prior year.  Certain outpatient rehabilitation key statistics for the nine months ended September 30, 2013 and 2012 are presented in table VII of this release. 

Stock Repurchase Program

Select Medical's board of directors has authorized a $350.0 million stock repurchase program that will remain in effect until March 31, 2014, unless further extended by the board of directors.  Stock repurchases under this program may be made in the open market or through privately negotiated transactions, and at times and in such amounts as Select Medical deems appropriate.  The timing of purchases of stock will be based upon market conditions and other factors.  Select Medical is funding this program with cash on hand or borrowings under its revolving credit facility.  Select Medical did not repurchase shares during the three months ended September 30, 2013.  During the nine months ended September 30, 2013, Select Medical repurchased 1,115,691 shares at a cost of approximately $10.0 million, an average cost per share of $8.95, which includes transaction costs.  Since the inception of the program through September 30, 2013, Select Medical has repurchased 23,606,080 shares at a cost of approximately $173.6 million, an average cost per share of $7.36, which includes transaction costs.

Quarterly Dividend

On August 7, 2013, Select Medical's board of directors declared a quarterly cash dividend of $0.10 per share, totaling $14.0 million.  The dividend was paid on August 30, 2013 to stockholders of record as of the close of business on August 20, 2013.

On October 30, 2013, Select Medical's board of directors declared a quarterly dividend of $0.10 per share.  The dividend will be payable on or about November 22, 2013 to stockholders of record as of the close of business on November 12, 2013.

Business Outlook

Select Medical is reaffirming its prior business outlook provided in its August 8, 2013 earnings press release for net operating revenues, Adjusted EBITDA and adjusted income per common share. Select Medical continues to expect consolidated net operating revenues for the full year 2013 to be in the range of $2.925 billion to $3.025 billion, Adjusted EBITDA for the full year 2013 to be in the range of $375.0 million to $390.0 million and adjusted income per common share, which excludes the losses on early retirement of debt and their related tax effects in the first and second quarters, for the full year 2013 to be in the range of $0.87 to $0.94. Select Medical continues to expect fully diluted income per common share for the full year 2013 to be in the range of $0.78 to $0.85.

The above business outlook includes the estimated financial impact from the automatic Medicare reductions mandated under the Budget Control Act of 2011. Select Medical estimates this negative impact to both net operating revenues and Adjusted EBITDA for the fourth quarter of 2013 to be between $8.0 million and $9.0 million. The above business outlook also includes the expected financial impact to outpatient therapy payments related to the MPPR Reduction. Select Medical estimates this negative impact to both net operating revenues and Adjusted EBITDA for the fourth quarter of 2013 to be between $1.5 million and $2.0 million for its outpatient rehabilitation segment. Select Medical assumed a 40.0% effective tax rate for the remainder of 2013 when preparing the above business outlook for the full year 2013.

Conference Call

Select Medical will host a conference call regarding its third quarter results and its business outlook on Friday, November 1, 2013, at 9:00am EDT. The domestic dial-in number for the call is 1-866-700-6067. The international dial-in number is 1-617-213-8834. The passcode for the call is 69642856. The conference call will be webcast simultaneously and can be accessed at Select Medical's website, www.selectmedicalholdings.com.

For those unable to participate in the conference call, a replay will be available until 11:59pm EST, November 8, 2013. The replay number is 1-888-286-8010 (domestic) or 1-617-801-6888 (international). The passcode for the replay will be 77254976. The replay can also be accessed at Select Medical's website, www.selectmedicalholdings.com.

*   *   *   *   *

Select Medical is a leading operator of specialty hospitals and outpatient rehabilitation clinics in the United States. As of September 30, 2013, Select Medical operated 108 long term acute care hospitals and 15 acute medical rehabilitation hospitals in 28 states and 997 outpatient rehabilitation clinics in 32 states and the District of Columbia. Select Medical also provides medical rehabilitation services on a contracted basis to nursing homes, hospitals, assisted living and senior care centers, schools and work sites. Information about Select Medical is available at www.selectmedical.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:

  • changes in government reimbursement for our services due to the implementation of healthcare reform legislation, deficit reduction measures, and/or new payment policies may result in a reduction in net operating revenues, an increase in costs and a reduction in profitability;
  • the failure of our specialty hospitals to maintain their Medicare certifications may cause our net operating revenues and profitability to decline;
  • the failure of our facilities operated as "hospitals within hospitals" to qualify as hospitals separate from their host hospitals may cause our net operating revenues and profitability to decline;
  • a government investigation or assertion that we have violated applicable regulations may result in sanctions or reputational harm and increased costs;
  • 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 the areas we serve 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 could subject us to substantial uninsured liabilities; and other factors discussed from time to time in our filings with the Securities and Exchange Commission (the "SEC"), including factors discussed under the heading "Risk Factors" for the year ended December 31, 2012 contained in our annual report on Form 10-K filed with the SEC on February 26, 2013 and our quarterly report on Form 10-Q for the three months ended March 31, 2013, filed with the SEC on May 2, 2013.

Investor inquiries:

Joel T. Veit
Senior Vice President and Treasurer
717-972-1100
ir@selectmedical.com

 

I.   Condensed Consolidated Statements of Operations

For the Three Months Ended September 30, 2012 and 2013

(In thousands, except per share amounts, unaudited)

 










2012


2013


% Change








Net operating revenues


$   713,669


$   722,845


1.3%








Costs and expenses:







Cost of services


598,984


617,281


3.1%

General and administrative


17,130


17,740


3.6%

Bad debt expense


11,199


9,262


(17.3)%

Depreciation and amortization


15,537


16,163


4.0%








Income from operations


70,819


62,399


(11.9)%








Loss on early retirement of debt


(6,064)


-


N/M

Equity in earnings (losses) of unconsolidated

   subsidiaries


1,167


(179)


N/M

Interest expense


(24,575)


(21,252)


(13.5)%








Income before income taxes


41,347


40,968


(0.9)%








Income tax expense


16,189


15,761


(2.6)%








Net income


25,158


25,207


0.2%








Less:  Net income attributable to non-

     controlling interests


1,048


1,935


84.6%








Net income attributable to Select Medical

      Holdings Corporation


$   24,110


$   23,272


(3.5)%








Income per common share:







     Basic


$0.17


$0.17



     Diluted


$0.17


$0.17










Weighted average shares outstanding:







     Basic


137,551


136,646



     Diluted


137,888


136,793










N/M = Not Meaningful

 







 


II.   Condensed Consolidated Statements of Operations

For the Nine Months Ended September 30, 2012 and 2013

(In thousands, except per share amounts, unaudited)

 










2012


2013


% Change








Net operating revenues


$   2,207,883


$   2,229,473


1.0%








Costs and expenses:







Cost of services


1,823,272


1,867,915


2.4%

General and administrative


49,908


53,065


6.3%

Bad debt expense


31,603


27,429


(13.2)%

Depreciation and amortization


47,164


47,872


1.5%








Income from operations


255,936


233,192


(8.9)%








Loss on early retirement of debt


(6,064)


(18,747)


N/M

Equity in earnings of unconsolidated

   subsidiaries


6,384


1,447


(77.3)%

Interest expense


(72,295)


(66,614)


(7.9)%








Income before income taxes


183,961


149,278


(18.9)%








Income tax expense


71,415


57,391


(19.6)%








Net income


112,546


91,887


(18.4)%








Less:  Net income attributable to non-

     controlling interests


3,722


6,417


72.4%








Net income attributable to Select Medical

      Holdings Corporation


$   108,824


$   85,470


(21.5)%








Income per common share:







     Basic


$0.77


$0.61



     Diluted


$0.77


$0.61










Weighted average shares outstanding:







     Basic


139,138


136,879



     Diluted


139,404


137,040










N/M = Not Meaningful

 







 

III.  Condensed Consolidated Balance Sheets

(In thousands, unaudited)

 



December 31,

2012


September 30,

2013

Assets










Cash


$         40,144


$         9,293






Accounts receivable, net


359,929


423,334






Current deferred tax asset


17,877


15,372






Prepaid income taxes


3,895


4,044






Other current assets


31,818


39,968






Total Current Assets


453,663


492,011






Property and equipment, net


501,552


499,531






Goodwill


1,640,534


1,641,836






Other identifiable intangibles


71,745


71,831






Other assets


93,867


137,215






Total Assets


$  2,761,361


$  2,842,424






Liabilities and Equity










Payables and accruals


$     376,817


$     371,324






Current portion of long-term debt


11,646


13,966






Total Current Liabilities


388,463


385,290






Long-term debt, net of current portion


1,458,597


1,474,915






Non-current deferred tax liability


89,510


90,859






Other non-current liabilities


68,502


80,077






Total Liabilities


2,005,072


2,031,141






Redeemable non-controlling interests


10,811


11,623






Total equity


745,478


799,660






Total Liabilities and Equity


$  2,761,361


$  2,842,424
















 

IV.  Consolidated Statement of Cash Flows


For the Three Months Ended September 30, 2012 and 2013

(In thousands, unaudited)




2012


2013

Operating Activities





Net Income


$        25,158


$      25,207

Adjustments to reconcile net income to net cash provided by operating

activities:





     Depreciation and amortization


15,537


16,163

     Provision for bad debts


11,199


9,262

Equity in losses (earnings) of unconsolidated subsidiaries


(1,167)


179

     Loss (gain) from disposal or sale of assets


120


(174)

     Loss on early retirement of debt


6,064


-

     Non-cash stock compensation expense


1,391


1,866

     Amortization of debt discount and issuance costs


1,983


1,919

     Changes in operating assets and liabilities, net of effects from

     acquisition of businesses:





          Accounts receivable


20,013


(5,405)

          Other current assets


(237)


(1,748)

          Other assets


(405)


(3,355)

          Accounts payable


1,388


9,463

          Due to third-party payors


(1,378)


(2,327)

          Accrued expenses


(6,075)


32,991

Income and deferred taxes


1,680


9,041

Net cash provided by operating activities


75,271


93,082






Investing activities





Purchases of property and equipment


(17,254)


(17,369)

Proceeds from sale of assets


-


518

Investment in businesses, net of distributions


115


(3,714)

Acquisition of businesses, net of cash acquired


(1,341)


(677)

Net cash used in investing activities


(18,480)


(21,242)






Financing activities





Borrowings on revolving credit facility


25,000


125,000

Payments on revolving credit facility


(25,000)


(165,000)

Borrowings on credit facility term loans, net of discount


266,750


-

Payments on credit facility term loans


(2,813)


(2,053)

Repurchase of 7 5/8% senior subordinated notes, net of premium


(278,495)


-

Borrowings of other debt


-


2,329

Principal payments on other debt


(2,332)


(2,794)

Repayment of bank overdrafts


(6,750)


(12,026)

Debt issuance costs


(4,236)


(237)

Dividends paid to common stockholders


-


(13,966)

Repurchase of common stock


-


(963)

Proceeds from issuance of common stock


557


-

Distributions to non-controlling interests


(1,316)


(1,605)

Net cash used in financing activities


(28,635)


(71,315)






Net increase in cash and cash equivalents


28,156


525






Cash and cash equivalents at beginning of period


21,520


8,768

Cash and cash equivalents at end of period


$        49,676


$       9,293






Supplemental Cash Flow Information





     Cash paid for interest


$         35,744


$     6,525

     Cash paid for taxes


$         14,506


$     6,145







 


V.  Consolidated Statement of Cash Flows


For the Nine Months Ended September 30, 2012 and 2013

(In thousands, unaudited)




2012


2013

Operating Activities





Net Income


$      112,546


$      91,887

Adjustments to reconcile net income to net cash provided by operating

activities:





     Depreciation and amortization


47,164


47,872

     Provision for bad debts


31,603


27,429

Equity in earnings of unconsolidated subsidiaries


(6,384)


(1,447)

     Gain from disposal or sale of assets


(3,484)


(93)

     Loss on early retirement of debt


6,064


18,747

     Non-cash stock compensation expense


3,990


5,403

     Amortization of debt discount and issuance costs


5,494


6,507

     Changes in operating assets and liabilities, net of effects from

     acquisition of businesses:





          Accounts receivable


(10,507)


(89,237)

          Other current assets


(1,849)


(7,642)

          Other assets


1,270


(3,211)

          Accounts payable


(4,098)


6,798

          Due to third-party payors


360


2,890

          Accrued expenses


348


4,788

Income and deferred taxes


11,559


4,414

Net cash provided by operating activities


194,076


115,105






Investing activities





Purchases of property and equipment


(45,188)


(45,331)

Proceeds from sale of assets


16,511


518

Investment in businesses, net of distributions


(9,899)


(32,430)

Acquisition of businesses, net of cash acquired


(1,547)


(848)

Net cash used in investing activities


(40,123)


(78,091)






Financing activities





Borrowings on revolving credit facility


365,000


580,000

Payments on revolving credit facility


(405,000)


(645,000)

Borrowings on credit facility term loans, net of discount


266,750


298,500

Payments on credit facility term loans


(7,063)


(594,668)

Issuance of 6.375% senior notes


-


600,000

Repurchase of senior floating rate notes


-


(167,300)

Repurchase of 7 5/8% senior subordinated notes


(278,495)


(70,000)

Borrowings of other debt


5,835


9,238

Principal payments on other debt


(7,417)


(7,467)

Repayment of bank overdrafts


(3,011)


(10,401)

Debt issuance costs


(4,236)


(18,820)

Dividends paid to common stockholders


-


(27,929)

Repurchase of common stock


(46,790)


(10,946)

Proceeds from issuance of common stock


1,104


-

Distributions to non-controlling interests


(2,997)


(3,072)

Net cash used in financing activities


(116,320)


(67,865)






Net increase (decrease) in cash and cash equivalents


37,633


(30,851)






Cash and cash equivalents at beginning of period


12,043


40,144

Cash and cash equivalents at end of period


$        49,676


$       9,293






Supplemental Cash Flow Information





     Cash paid for interest


$        68,122


$     60,439

     Cash paid for taxes


$        59,850


$     52,977







 


VI.  Key Statistics

For the Three Months Ended September 30, 2012 and 2013




 (unaudited)






2012


2013


% Change

Specialty Hospitals







Number of hospitals – end of period:







Long term acute care hospitals (a)


111


108



Rehabilitation hospitals (a)


12


15



Total specialty hospitals


123


123










Net operating revenues (,000)


$531,409


$  532,610


0.2%








Number of patient days (b)


328,871


336,120


2.2%








Number of admissions (b)


13,477


13,778


2.2%








Net revenue per patient day (b)(c)


$    1,517


$      1,471


(3.0)%








Adjusted EBITDA (,000)


$  83,659


$    75,280


(10.0)%








Adjusted EBITDA margin


15.7%


14.1%










Outpatient Rehabilitation

 







Number of clinics – end of period


965


997










Net operating revenues (,000)


$182,246


$  190,223


4.4%








Number of visits (d)


1,129,015


1,196,893


6.0%








Revenue per visit (d)(e)


$       103


$         103


0.0%








Adjusted EBITDA (,000)


$  20,354


$    21,619


6.2%








Adjusted EBITDA margin


11.2%


11.4%











(a)     Includes managed hospitals.

(b)     Excludes managed hospitals.

(c)     Net revenue per patient day is calculated by dividing specialty hospital direct patient service revenue by the

          total number of patient days.

(d)     Excludes managed clinics.

(e)     Net revenue per visit is calculated by dividing outpatient rehabilitation clinic direct patient service revenue

          by the total number of visits.  For purposes of this computation, outpatient rehabilitation clinic direct

          patient service revenue does not include managed clinics or contract services revenue.









 


VII.  Key Statistics

For the Nine Months Ended September 30, 2012 and 2013




 (unaudited)






2012


2013


% Change

Specialty Hospitals







Number of hospitals – end of period:







Long term acute care hospitals (a)


111


108



Rehabilitation hospitals (a)


12


15



Total specialty hospitals


123


123










Net operating revenues (,000)


$1,641,577


$1,649,747


0.5%








Number of patient days (b)


1,007,908


1,017,157


0.9%








Number of admissions (b)


41,404


41,740


0.8%








Net revenue per patient day (b)(c)


$       1,532


$       1,516


(1.0)%








Adjusted EBITDA (,000)


$   285,779


$   265,020


(7.3)%








Adjusted EBITDA margin


17.4%


16.1%










Outpatient Rehabilitation

 







Number of clinics – end of period


965


997










Net operating revenues (,000)


$   566,195


$   579,404


2.3%








Number of visits (d)


3,447,774


3,577,114


3.8%








Revenue per visit (d)(e)


$           103


$          104


1.0%








Adjusted EBITDA (,000)


$      68,669


$     70,506


2.7%








Adjusted EBITDA margin


12.1%


12.2%











(a)     Includes managed hospitals.

(b)     Excludes managed hospitals.

(c)     Net revenue per patient day is calculated by dividing specialty hospital direct patient service revenue by the

          total number of patient days.

(d)     Excludes managed clinics.

(e)     Net revenue per visit is calculated by dividing outpatient rehabilitation clinic direct patient service revenue

          by the total number of visits.  For purposes of this computation, outpatient rehabilitation clinic direct

          patient service revenue does not include managed clinics or contract services revenue.









 

VIII. Net Income to Adjusted EBITDA Reconciliation
For the Three and Nine Months Ended September 30, 2012 and 2013
(In thousands, unaudited)

The following table reconciles net income to Adjusted EBITDA for Select Medical.  Adjusted EBITDA is used by Select Medical to report its segment performance.  Adjusted EBITDA is defined as net income before interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, equity in earnings (losses) of unconsolidated subsidiaries and other income (expense).  The Company believes that the presentation of Adjusted EBITDA is important to investors because Adjusted EBITDA is commonly used as an analytical indicator of performance by investors within the healthcare industry.  Adjusted EBITDA is used by management to evaluate financial performance and determine resource allocation for each of its 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

September 30,


Nine Months Ended

September 30,



2012


2013


2012


2013

Net income


$     25,158


$     25,207


$     112,546


$     91,887

Income tax expense


16,189


15,761


71,415


57,391

Loss on early retirement of debt


6,064


-


6,064


18,747

Interest expense


24,575


21,252


72,295


66,614

Equity in losses (earnings) of unconsolidated

   subsidiaries


(1,167)


179


(6,384)


(1,447)

Stock compensation expense:









   Included in general and administrative


847


1,258


2,436


3,685

   Included in cost of services


544


608


1,554


1,718

Depreciation and amortization


15,537


16,163


47,164


47,872

Adjusted EBITDA


$    87,747


$    80,428


$    307,090


$    286,467










Specialty hospitals


$    83,659


$      75,280


$   285,779


$    265,020

Outpatient rehabilitation


20,354


21,619


68,669


70,506

Other (a)


(16,266)


(16,471)


(47,358)


(49,059)

Adjusted EBITDA


$    87,747


$    80,428


$    307,090


$    286,467










(a)     Other primarily includes general and administrative costs.




 

IX.   Reconciliation of Income Per Common Share to Adjusted Income Per Common Share




For the Three Months Ended September 30, 2012 and 2013






(In thousands, except per share amounts, unaudited)



















2012

Per Share (a)


2013

Per Share (a)

Net income attributable to Select Medical Holdings Corporation

$   24,110

$   0.18


$   23,272

$     0.17

Earnings allocated to unvested restricted stockholders

(407)

(0.01)


(497)

(0.00)

Net income available to common stockholders

23,703

0.17


22,775

0.17







Adjustment for early retirement of debt:






Loss on early retirement of debt

6,064

0.05


-

-

Estimated income tax benefit (b)

(2,363)

(0.02)


-

-

Earnings allocated to unvested restricted stockholders

(63)

(0.00)


-

-







Adjusted net income available to common stockholders

$   27,341

$   0.20


$   22,775

$     0.17

Adjustment for dilution


(0.00)



(0.00)

Adjusted income per common share - diluted shares


$   0.20



$     0.17







Weighted average common shares outstanding:






Basic


137,551



136,646

Diluted


137,888



136,793







(a) Per share amounts for each period presented are basic weighted average common shares outstanding for all amounts except adjusted 

      income per common share - diluted shares, which is based on diluted shares outstanding.

(b) Represents the estimated tax benefit on the adjustments to net income.

 

X.   Reconciliation of Income Per Common Share to Adjusted Income Per Common Share




For the Nine Months Ended September 30, 2012 and 2013






(In thousands, except per share amounts, unaudited)



















2012

Per Share (a)


2013

Per Share (a)

Net income attributable to Select Medical Holdings Corporation

$   108,824

$   0.78


$   85,470

$     0.62

Earnings allocated to unvested restricted stockholders

(1,759)

(0.01)


(1,802)

(0.01)

Net income available to common stockholders

107,065

0.77


83,668

0.61







Adjustment for early retirement of debt:






Loss on early retirement of debt

6,064

0.05


18,747

0.13

Estimated income tax benefit (b)

(2,352)

(0.02)


(7,248)

(0.05)

Earnings allocated to unvested restricted stockholders

(60)

(0.00)


(243)

(0.00)







Adjusted net income available to common stockholders

$   110,717

$    0.80


$   94,924

$     0.69

Adjustment for dilution


(0.01)



(0.00)

Adjusted income per common share - diluted shares


$    0.79



$     0.69







Weighted average common shares outstanding:






Basic


139,138



136,879

Diluted


139,404



137,040







(a) Per share amounts for each period presented are basic weighted average common shares outstanding for all amounts except adjusted 

      income per common share - diluted shares, which is based on diluted shares outstanding.

(b) Represents the estimated tax benefit on the adjustments to net income.

 

SOURCE Select Medical Holdings Corporation



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http://www.selectmedicalholdings.com

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