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Select Medical Corporation Announces Results for Second Quarter and Six Months Ended June 30, 2006

Posted on: Friday, 11 August 2006, 15:00 CDT

MECHANICSBURG, Pa., Aug. 11 /PRNewswire/ -- Select Medical Corporation today announced results for its second quarter and six months ended June 30, 2006.

On February 24, 2005, Select Medical Corporation ("Select") consummated a merger with a wholly-owned subsidiary of Select Medical Holdings Corporation ("Holdings") pursuant to which Select became a wholly-owned subsidiary of Holdings. Holdings is owned by an investor group that includes Welsh, Carson, Anderson & Stowe IX, LP ("Welsh Carson"), Thoma Cressey Equity Partners, Inc. ("Thoma Cressey") and members of Select's senior management. As a result of the merger, Select's assets and liabilities have been adjusted to their fair value as of the closing. Select also experienced an increase in aggregate outstanding indebtedness as a result of financing transactions associated with the merger. Accordingly, amortization expense and interest expense are higher in periods following the merger. Additionally, certain costs associated with the merger are reflected in the 2005 income statement periods. As a result, the financial statements for the periods before and after the merger are not comparable in certain respects.

For the second quarter ended June 30, 2006, net operating revenues increased 1.8% to $482.1 million compared to $473.7 million for the same quarter, prior year. Income from operations was $78.0 million compared to $71.6 million for the same quarter, prior year. Net income was $33.9 million compared to $29.4 million for the same quarter, prior year. Net income before interest, income taxes, depreciation and amortization, income from discontinued operations, loss on early retirement of debt, merger related charges, stock compensation expense, other income and minority interest ("Adjusted EBITDA") for the second quarter ended June 30, 2006 increased 5.9% to $90.6 million compared to $85.6 million for the same quarter, prior year. A reconciliation of net income to Adjusted EBITDA is attached to this release.

For the six months ended June 30, 2006, net operating revenues increased 2.3% to $961.9 million compared to $939.8 million for the same period, prior year. Income from operations was $144.4 million compared to $0.5 million for the same period, prior year. Net income was $69.3 million compared to a loss of $57.8 million for the same period, prior year. As a result of the merger, Select incurred substantial costs related to stock compensation expense, loss on early retirement of debt and merger related charges that contributed to the lower income from operations and net loss experienced for the combined six months ended June 30, 2005. Adjusted EBITDA for the six months ended June 30, 2006 declined 1.3% to $168.9 million compared to $171.1 million for the same period, prior year. A reconciliation of net income to Adjusted EBITDA is attached to this release.

On March 1, 2006, a subsidiary of Select sold all the issued and outstanding shares of Canadian Back Institute Limited ("CBIL") for approximately C$89.8 million in cash (US $79.0 million). CBIL comprised Select's entire Canadian operations. As a result of the sale, the operating results of CBIL have been reclassified and reported as discontinued operations for all reported periods, and its assets and liabilities have been reclassified as held for sale on Select's December 31, 2005 balance sheet.

Specialty Hospitals

At June 30, 2006, Select operated 96 long-term acute care hospitals and four acute medical rehabilitation hospitals. This compares to 98 long-term acute care hospitals and four acute medical rehabilitation hospitals operated at June 30, 2005. For the second quarter of 2006, net operating revenues for all of Select's hospitals increased 3.8% to $360.8 million compared to $347.5 million for the same quarter, prior year. Total patient days for the second quarter of 2006 were 246,275, admissions were 10,154 and net revenue per patient day was $1,435. This compares to 246,171 days, 9,995 admissions and net revenue per patient day of $1,375 for the same quarter, prior year. For the hospitals opened or acquired as of January 1, 2005 and operated by Select throughout both periods, patient days in the second quarter of 2006 were 245,484 and admissions were 10,113, compared to 241,687 days and 9,833 admissions in the same quarter, prior year. Adjusted EBITDA for the segment increased 5.2% to $82.7 million compared to $78.6 million for the same quarter, prior year. The Adjusted EBITDA margin for the segment was 22.9% for the second quarter of 2006, compared to 22.6% for the same quarter, prior year. The Adjusted EBITDA margin for the hospitals opened or acquired as of January 1, 2005 and operated by Select throughout both periods was 23.5% for the second quarter of 2006, compared to 22.8% for the same quarter, prior year.

For the six months ended June 30, 2006, net operating revenues for all of Select's hospitals increased 4.5% to $720.4 million compared to $689.6 million for the same period, prior year. Total patient days for the six months ended June 30, 2006 were 497,976, admissions were 20,637 and net revenue per patient day was $1,419. This compares to 497,010 days, 20,331 admissions and net revenue per patient day of $1,352 for the same period, prior year. For the hospitals opened or acquired as of January 1, 2005 and operated by Select throughout both periods, patient days for the six months ended June 30, 2006 were 495,892 and admissions were 20,534, compared to 487,032 days and 19,942 admissions in the same period, prior year. Adjusted EBITDA for the segment was constant at $157.4 million compared to $157.7 million for the same period, prior year. The Adjusted EBITDA margin for the segment was 21.8% for the six months ended June 30, 2006, compared to 22.9% for the same period, prior year. The Adjusted EBITDA margin for the hospitals opened or acquired as of January 1, 2005 and operated by Select throughout both periods was 22.2% for the six months ended June 30, 2006, compared to 23.0% for the same period, prior year.

Outpatient Rehabilitation

At June 30, 2006, Select operated 610 outpatient clinics. This compares to 632 outpatient clinics at June 30, 2005. Patient visits for the quarter were 762,177 compared to 863,966 for the same quarter, prior year. For the second quarter of 2006, net operating revenues declined 3.2% to $120.6 million compared to $124.6 million for the same quarter, prior year. The decline in net operating revenues and patient visits was principally related to a decline in the number of clinics we own and operate and a decline in the volume of visits per clinic. We are continuing to experience declines in our patient visits in a number of markets that result from physicians opening competing physical therapy practices. Adjusted EBITDA for the second quarter of 2006 remained constant at $18.4 million compared to $18.5 million for the same quarter, prior year. The Adjusted EBITDA margin for the quarter was 15.3% compared to 14.9% in the same quarter, prior year. Net revenue per visit was $94 for the second quarter of 2006 compared to $89 for the same quarter, prior year.

Patient visits for the six months ended June 30, 2006 were 1,547,016 compared to 1,727,139 for the same period, prior year. For the six months ended June 30, 2006, net operating revenues declined 2.5% to $239.9 million compared to $246.1 million for the same period, prior year. Adjusted EBITDA for the six months ended June 30, 2006 declined 10.6% to $33.2 million compared to $37.1 million for the same period, prior year. The Adjusted EBITDA margin for the six months ended June 30, 2006 was 13.8% compared to 15.1% in the same period, prior year. Net revenue per visit was $93 for the six months ended June 30, 2006 compared to $90 for the same period, prior year.

LTACH Regulations

On May 2, 2006, CMS released its final annual payment rate updates for the 2007 LTCH-PPS rate year (affecting discharges and cost reporting periods beginning on or after July 1, 2006 and before July 1, 2007). The May 2006 final rule makes several changes to LTCH-PPS payment methodologies and amounts.

For discharges occurring on or after July 1, 2006, the rule changes the payment methodology for Medicare patients with a length of stay less than or equal to five-sixths of the geometric average length of stay for each LTC-DRG (referred to as "short-stay outlier" or "SSO" cases). Previously, payment for these patients was based on the lesser of (1) 120 percent of the cost of the case; (2) 120 percent of the LTC-DRG specific per diem amount multiplied by the patient's length of stay; or (3) the full LTC-DRG payment. The final rule modifies the limitation in clause (1) above to reduce payment for SSO cases to 100 percent (rather than 120 percent) of the cost of the case. The final rule also adds a fourth limitation, capping payment for SSO cases at a per diem rate derived from blending 120 percent of the LTC-DRG specific per diem amount with a per diem rate based on the general acute care hospital inpatient prospective payment system ("IPPS"). Under this methodology, as a patient's length of stay increases, the percentage of the per diem amount based upon the IPPS component will decrease and the percentage based on the LTC-DRG component will increase. The final rule reflects a moderation of the fourth limitation of the SSO payment policy that CMS had proposed in January 2006, which would have limited SSO payments solely to an amount based on the IPPS.

In addition, for discharges occurring on or after July 1, 2006, the final rule provides for (i) a zero-percent update for the 2007 LTCH-PPS rate year to the LTCH-PPS standard federal rate used as a basis for LTCH-PPS payments; (ii) the elimination of the surgical case exception to the three-day or less interruption of stay policy, under which surgical exception Medicare reimburses a general acute care hospital directly for surgical services furnished to a long-term acute care hospital patient during a brief interruption of stay from the long-term acute care hospital, rather than requiring the long-term acute care hospital to bear responsibility for such surgical services; and (iii) increasing the costs that a long-term acute care hospital must bear before Medicare will make additional payments for a case under its high-cost outlier policy for the 2007 LTCH-PPS rate year.

CMS estimates that the changes in the May 2006 final rule will result in an approximately 3.7 percent decrease in LTCH Medicare payments-per-discharge as compared to the 2006 rate year, largely attributable to the revised SSO payment methodology. Based upon Select's historical Medicare patient volumes and revenues, Select expects that the May 2006 final rule will reduce Medicare revenues associated with SSO cases and high-cost outlier cases to its long- term acute care hospitals by approximately $30.0 million on an annual basis. Additionally, had CMS updated the LTCH-PPS standard federal rate by the 2007 estimated market basket index of 3.4 percent rather than applying the zero- percent update, Select estimates that it would have received approximately $31.0 million in additional annual Medicare revenues, based on Select's historical Medicare patient volumes and revenues (such revenues would have been paid to Select's hospitals for discharges beginning on or after July 1, 2006).

Conference Call

Select will host a conference call regarding its second quarter results on Monday, August 14, 2006, at 10:30 a.m. EDT. The domestic dial-in number for the call is 1-866-238-0638. The international dial-in number is 1-703-639-1157.

Select Medical Corporation is a leading operator of specialty hospitals in the United States. Select currently operates 96 long-term acute care hospitals in 27 states. Select operates four acute medical rehabilitation hospitals in New Jersey. Select is also a leading operator of outpatient rehabilitation clinics in the United States, with approximately 610 locations. 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. Factors that could cause results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to those discussed in filings made by Select with the Securities and Exchange Commission. Many of the factors that will determine Select's future results are beyond the ability of management to control or predict. Readers should not place undue reliance on forward-looking statements, which reflect management's views only as of the date hereof. Select undertakes no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

I. Condensed Consolidated Statements of Operations (In thousands) (unaudited) For the Three Months Ended June 30, 2005 and 2006 % 2005 2006 Change Net operating revenues $473,704 $482,141 1.8% Costs and expenses: Cost of services 371,559 372,500 0.3% General and administrative 13,075 11,549 (11.7)% Bad debt expense 5,308 8,433 58.9% Depreciation and amortization 12,156 11,666 (4.0)% Income from operations 71,606 77,993 8.9% Other income 308 1,608 422.1% Interest income 193 197 2.1% Interest expense (25,054) (23,995) (4.2)% Income from continuing operations before minority interests and income taxes 47,053 55,803 18.6% Minority interests 554 335 (39.5)% Income from continuing operations before income taxes 46,499 55,468 19.3% Income tax expense 18,712 21,531 15.1% Income from continuing operations 27,787 33,937 22.1% Income from discontinued operations, net of tax 1,634 - N/M Net income $29,421 $33,937 15.3% II. Condensed Consolidated Statements of Operations (in thousands) (unaudited) For the Six Months Ended June 30, 2005 and 2006 Predecessor Successor Combined Successor (1) (1) (2) (1) Period Period from from Six Six January 1 February 25 Months Months through through Ended Ended February 24, June 30, June 30, June 30, 2005 2005 2005 2006 % Change Net operating revenues $277,736 $662,090 $939,826 $961,884 2.3% Costs and expenses: Cost of services 244,321 512,086 756,407 757,697 0.2% General and administrative 122,509 21,739 144,248 23,749 (83.5)% Bad debt expense 6,588 9,866 16,454 13,433 (18.4)% Depreciation and amortization 5,933 16,282 22,215 22,561 1.6% Income (loss) from operations (101,615) 102,117 502 144,444 N/M Loss on early retirement of debt (42,736) - (42,736) - N/M Merger related charges (12,025) - (12,025) - N/M Other income 267 411 678 4,042 496.2% Interest income 523 270 793 419 (47.2)% Interest expense (4,651) (34,654) (39,305) (48,267) 22.8% Income (loss) from continuing operations before minority interests, and income taxes (160,237) 68,144 (92,093) 100,638 N/M Minority interests 330 856 1,186 726 (38.8)% Income (loss) from continuing operations before income taxes (160,567) 67,288 (93,279) 99,912 N/M Income tax expense (benefit) (59,794) 27,100 (32,694) 40,626 N/M Income (loss) from continuing operations (100,773) 40,188 (60,585) 59,286 N/M Income from discontinued operations, net of tax (includes pretax gain of $13,950 in 2006) 522 2,306 2,828 10,018 254.2% Net income (loss) $(100,251) $42,494 $(57,757) $69,304 N/M (1) On February 24, 2005, Select Medical Corporation ("Select") merged with a subsidiary of Select Medical Holdings Corporation ("Holdings") and became a wholly-owned subsidiary of Holdings. Select's financial position and results of operations prior to the Merger are presented separately in the consolidated financial statements as "Predecessor" financial statements, while the financial position and results of operations following the merger are presented as "Successor" financial statements. Due to the revaluation of assets as a result of purchase accounting associated with the Merger, the pre-merger financial statements are not comparable with those after the Merger in certain respects. (2) Although the Predecessor and Successor results are not comparable by definition in certain respects due to the merger and the resulting revaluation, for ease of comparison, the financial data for the period after the merger, February 25, 2005 through June 30, 2005 (Successor period), has been added to the financial data for the period from January 1, 2005 through February 24, 2005 (Predecessor period), to arrive at the combined six months ended June 30, 2005. As a result of the merger, interest expense, loss on early retirement of debt, merger related charges, stock compensation expense, depreciation and amortization have been impacted. III. Condensed Consolidated Balance Sheets (In thousands) (unaudited) December 31, June 30, 2005 2006 Assets Cash $35,861 $12,140 Restricted cash 6,345 5,548 Accounts receivable, net 256,798 268,024 Current deferred tax asset 59,135 57,182 Prepaid taxes 4,110 - Other assets held for sale 13,876 - Other current assets 19,725 17,803 Total current assets 395,850 360,697 Property and equipment, net 248,541 301,366 Goodwill 1,305,210 1,319,011 Other identifiable intangibles 86,789 83,409 Other assets held for sale 61,388 - Other assets 65,591 70,889 Total assets $2,163,369 $2,135,372 Liabilities and Stockholders' Equity Payables and accruals $296,765 $264,984 Income taxes payable - 33,589 Current liabilities held for sale 4,215 - Current portion of long term debt 6,516 6,350 Total current liabilities 307,496 304,923 Long term debt, net of current portion 1,315,764 1,227,463 Non-current deferred tax liability 25,771 37,684 Non-current liabilities held for sale 3,817 - Minority interests 4,356 2,507 Stockholders' equity 506,165 562,795 Total liabilities and stockholders' equity $2,163,369 $2,135,372 IV. Key Statistics (unaudited) For the Three Months Ended June 30, 2005 and 2006 % 2005 2006 Change Specialty Hospitals (a) Number of hospitals - end of period 102 100 (2.0)% Net operating revenues (,000) $347,508 $360,772 3.8% Number of patient days 246,171 246,275 0.0% Number of admissions 9,995 10,154 1.6% Net revenue per patient day (b) $1,375 $1,435 4.4% Adjusted EBITDA (,000) $78,613 $82,673 5.2% Adjusted EBITDA margin - all hospitals 22.6% 22.9% 1.3% Adjusted EBITDA margin - same store hospitals (c) 22.8% 23.5% 3.1% Outpatient Rehabilitation (d) Number of clinics - end of period 632 610 (3.5)% Net operating revenues (,000) $124,645 $120,641 (3.2)% Number of visits 863,966 762,177 (11.8)% Revenue per visit (e) $89 $94 5.6% Adjusted EBITDA (,000) $18,548 $18,423 (0.7)% Adjusted EBITDA margin 14.9% 15.3% 2.7% (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 on or before January 1, 2005 and operated throughout both periods. (d) Outpatient rehabilitation information for 2005 has been restated to remove the clinics operated by CBIL, which is being reported as discontinued operations. Occupational health clinics have been reclassified as managed clinics. (e) Net revenue per visit is calculated by dividing outpatient rehabilitation clinic revenue by the total number of visits. For purposes of this computation, outpatient rehabilitation clinic revenue does not include managed clinics or contract services revenue. V. Key Statistics (unaudited) For the Six Months Ended June 30, 2005 and 2006 % 2005 2006 Change Specialty Hospitals (a) Number of hospitals - end of period 102 100 (2.0)% Net operating revenues (,000) $689,552 $720,444 4.5% Number of patient days 497,010 497,976 0.2% Number of admissions 20,331 20,637 1.5% Net revenue per patient day (b) $1,352 $1,419 5.0% Adjusted EBITDA (,000) $157,740 $157,391 (0.2)% Adjusted EBITDA margin - all hospitals 22.9% 21.8% (4.8)% Adjusted EBITDA margin - same store hospitals (c) 23.0% 22.2% (3.5)% Outpatient Rehabilitation (d) Number of clinics - end of period 632 610 (3.5)% Net operating revenues (,000) $246,100 $239,931 (2.5)% Number of visits 1,727,139 1,547,016 (10.4)% Revenue per visit (e) $90 $93 3.3% Adjusted EBITDA (,000) $37,112 $33,183 (10.6)% Adjusted EBITDA margin 15.1% 13.8% (8.6)% (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 on or before January 1, 2005 and operated throughout both periods. (d) Outpatient rehabilitation information for 2005 has been restated to remove the clinics operated by CBIL, which is being reported as discontinued operations. Occupational health clinics have been reclassified as managed clinics. (e) Net revenue per visit is calculated by dividing outpatient rehabilitation clinic revenue by the total number of visits. For purposes of this computation, outpatient rehabilitation clinic revenue does not include managed clinics or contract services revenue. VI. Net Income to Adjusted EBITDA Reconciliation (In thousands) (unaudited) For the Three and Six Months Ended June 30, 2005 and 2006

The following table reconciles net income (loss) to Adjusted EBITDA for Select. Adjusted EBITDA is used by Select to report its segment performance in accordance with SFAS No. 131. Adjusted EBITDA is defined as net income (loss) before interest, income taxes, depreciation and amortization, income from discontinued operations, loss on early retirement of debt, merger related charges, stock compensation expense, other income and minority interest. We believe that the presentation of Adjusted EBITDA is important to investors because Adjusted EBITDA is used by management to evaluate financial performance and determine resource allocation for each of our operating units.

Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles. Items excluded from Adjusted EBITDA are significant components in understanding and assessing financial performance. Adjusted EBITDA should not be considered in isolation or as an alternative to, or substitute for, net income, cash flows generated by operations, investing or financing activities, or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity. Because Adjusted EBITDA is not a measurement determined in accordance with generally accepted accounting principles and is thus susceptible to varying calculations, Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies.

Successor (1) Three Months Ended Predecessor June 30, (1) Period from January 1 through February 24, 2005 2006 2005 Net income (loss) $29,421 $33,937 $(100,251) Income from discontinued operations, net of tax (1,634) - (522) Income tax expense (benefit) 18,712 21,531 (59,794) Minority interest 554 335 330 Interest expense, net 24,861 23,798 4,128 Other income (308) (1,608) (267) Loss on early retirement of debt - - 42,736 Merger related charges - - 12,025 Stock compensation expense (3) 1,817 945 142,213 Depreciation and amortization 12,156 11,666 5,933 Adjusted EBITDA $85,579 $90,604 $46,531 Specialty hospitals $78,613 $82,673 $44,384 Outpatient rehabilitation 18,548 18,423 9,848 Other (4) (11,582) (10,492) (7,701) Adjusted EBITDA $85,579 $90,604 $46,531 Successor Successor (1) Combined (2) (1) Period from For the Six For the Six February 25 Months Ended Months Ended through June 30, June 30, June 30, 2005 2006 2005 Net income (loss) $42,494 $(57,757) $69,304 Income from discontinued operations, net of tax (2,306) (2,828) (10,018) Income tax expense (benefit) 27,100 (32,694) 40,626 Minority interest 856 1,186 726 Interest expense, net 34,384 38,512 47,848 Other income (411) (678) (4,042) Loss on early retirement of debt - 42,736 - Merger related charges - 12,025 - Stock compensation expense (3) 6,143 148,356 1,891 Depreciation and amortization 16,282 22,215 22,561 Adjusted EBITDA $124,542 $171,073 $168,896 Specialty hospitals $113,356 $157,740 $157,391 Outpatient rehabilitation 27,264 37,112 33,183 Other (4) (16,078) (23,779) (21,678) Adjusted EBITDA $124,542 $171,073 $168,896 (1) On February 24, 2005, Select Medical Corporation ("Select") merged with a subsidiary of Select Medical Holdings Corporation ("Holdings") and became a wholly owned subsidiary of Holdings. Select's financial position and results of operations prior to the merger are presented separately in the consolidated financial statements as "Predecessor" financial statements, while the financial position and results of operations following the merger are presented as "Successor" financial statements. Due to the revaluation of assets as a result of purchase accounting associated with the merger, the pre-merger financial statements are not comparable with those after the merger in certain respects. (2) Although the Predecessor and Successor results are not comparable by definition in certain respects due to the merger and the resulting revaluation, for ease of comparison, the financial data for the period after the merger, February 25, 2005 through June 30, 2005 (Successor period), has been added to the financial data for the period from January 1, 2005 through February 24, 2005 (Predecessor period), to arrive at the combined six months ended June 30, 2005. As a result of the merger, interest expense, loss on early retirement of debt, merger related charges, stock compensation expense, depreciation and amortization have been impacted. (3) For the three months ended June 30, 2005 and 2006, for the period from January 1 through February 24, 2005, the period from February 25 through June 30, 2005, and for the six months ended June 30, 2006, $1.8 million, $0.9 million, $115.0 million, $6.1 million and $1.9 million, respectively, of stock compensation expense was included in general administrative expense on Select's consolidated statement of operations. For the period from January 1 through February 24, 2005, $27.2 million of stock compensation expense was included in cost of services on Select's consolidated statement of operations. (4) Other primarily includes Select's general and administrative costs. The following tables reconcile specialty hospital same store information. Three Months Ended June 30, 2005 June 30, 2006 Specialty hospitals net operating revenue $347,508 $360,772 Less: Specialty hospitals in development or closed after 1/1/05 4,240 770 Specialty hospitals same store net operating revenue $343,268 $360,002 Specialty hospitals Adjusted EBITDA $78,613 $82,673 Less: Specialty hospitals in development or closed after 1/1/05 505 (1,970) Specialty hospitals same store Adjusted EBITDA $78,108 $84,643 All specialty hospitals Adjusted EBITDA margin 22.6% 22.9% Specialty hospitals same store Adjusted EBITDA margin 22.8% 23.5% Six Months Ended June 30, 2005 June 30, 2006 Specialty hospitals net operating revenue $689,552 $720,444 Less: Specialty hospitals in development or closed after 1/1/05 10,268 974 Specialty hospitals same store net operating revenue $679,284 $719,470 Specialty hospitals Adjusted EBITDA $157,740 $157,391 Less: Specialty hospitals in development or closed after 1/1/05 1,839 (2,347) Specialty hospitals same store Adjusted EBITDA $155,901 $159,738 All specialty hospitals Adjusted EBITDA margin 22.9% 21.8% Specialty hospitals same store Adjusted EBITDA margin 23.0% 22.2% VII. Discontinued Operations Income Statement (In thousands) (unaudited) For the Three and Six Months Ended June 30, 2005 and the Two Months Ended February 28 2006 The following table summarizes the income statement information relating to our discontinued operations of CBIL sold on March 1, 2006 Successor Predecessor Successor Combined Successor (1) (1) (1) (2) (1) For the Period Period Three from from Six For the Months January 1 February 25 Months Two Months Ended through through Ended Ended June 30, February 24, June 30, June 30, February 28, 2005 2005 2005 2005 2006 Net operating revenues $17,936 $10,051 $24,662 $34,713 $12,902 Costs and expenses: Cost of services 13,911 8,295 19,010 27,305 10,733 Bad debt expense 107 73 158 231 87 Depreciation and amortization 333 244 455 699 176 Income from discontinued operations 3,585 1,439 5,039 6,478 1,906 Other expense 308 267 411 678 - Gain on sale - - - - (13,950) Interest expense (income) 101 83 137 220 (31) Income from discontinued operations before minority interests and income taxes 3,176 1,089 4,491 5,580 15,887 Minority interests 476 139 636 775 340 Income from discontinued operations before income taxes 2,700 950 3,855 4,805 15,547 Income tax expense 1,066 428 1,549 1,977 5,529 Income from discontinued operations, net of tax $1,634 $522 $2,306 $2,828 $10,018 (1) On February 24, 2005, Select Medical Corporation (Select) merged with a subsidiary of Select Medical Holdings Corporation ("Holdings") and became a wholly-owned subsidiary of Holdings. Select's financial position and results of operations prior to the Merger are presented separately in the consolidated financial statements as "Predecessor" financial statements, while the financial position and results of operations following the merger are presented as "Successor" financial statements. Due to the revaluation of assets as a result of purchase accounting associated with the Merger, the pre-merger financial statements are not comparable with those after the Merger in certain respects. (2) Although the Predecessor and Successor results are not comparable by definition in certain respects due to the merger and the resulting revaluation, for ease of comparison, the financial data for the period after the merger, February 25, 2005 through June 30, 2005 (Successor period), has been added to the financial data for the period from January 1, 2005 through February 24, 2005 (Predecessor period), to arrive at the combined six months ended June 30, 2005. As a result of the merger, interest expense, loss on early retirement of debt, merger related charges, stock compensation expense, depreciation and amortization have been impacted.

Select Medical Corporation

CONTACT: Investor inquiries: Joel Veit, Select Medical Corporation,+1-717-972-1100

Web site: http://www.selectmedicalcorp.com/

Source: PRNewswire

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