MECHANICSBURG, Pa., March 28 /PRNewswire/ -- Select Medical Corporation ("Select") today announced results for its fourth quarter and year ended December 31, 2006.
On February 24, 2005, 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 Bravo ("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 ease of comparison, the 2005 financial data presented represents the combination of the period before the Merger, January 1, 2005 through February 24, 2005 with the period subsequent to the Merger, February 25, 2005 through December 31, 2005.
For the fourth quarter ended December 31, 2006, net operating revenues decreased 2.7% to $445.7 million compared to $458.0 million for the same quarter, prior year. Income from operations decreased 8.8% to $59.1 million compared to $64.8 million for the same quarter, prior year. Net income increased 29.7% to $32.8 million compared to $25.3 million for the same quarter, prior year. Additionally, 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, long-term incentive compensation, other income and minority interest ("Adjusted EBITDA") for the fourth quarter decreased 7.3% to $71.8 million compared to $77.4 million for the same quarter, prior year. A reconciliation of net income to Adjusted EBITDA is attached to this release.
For the year ended December 31, 2006, net operating revenues decreased 0.4% to $1,851.5 million compared to $1,858.4 million for the prior year. Income from operations increased 116.5% to $257.9 million compared to $119.1 million for the prior year. Net income was $118.2 million compared to a net loss of $14.7 million for the prior year. Additionally, Adjusted EBITDA for the year ended December 31, 2006 decreased 6.5% to $308.3 million compared to $329.9 million for the prior year.
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 December 31, 2006, Select operated 92 long-term acute care hospitals and four acute medical rehabilitation hospitals. This compares to 97 long- term acute care hospitals and four acute medical rehabilitation hospitals operated at December 31, 2005. For the fourth quarter of 2006, net operating revenues for all of Select's hospitals decreased 3.6% to $328.8 million compared to $341.1 million for the same quarter, prior year. Total patient days for the fourth quarter 2006 were 235,520, admissions were 9,546 and net revenue per patient day was $1,366. This compares to 245,165 days, 9,907 admissions and net revenue per patient day of $1,367 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 fourth quarter of 2006 were 233,852 and admissions were 9,487, compared to 238,068 days and 9,662 admissions in the same quarter, prior year. Adjusted EBITDA for the segment decreased 10.7% to $65.1 million compared to $72.8 million for the same quarter, prior year. The Adjusted EBITDA margin for the segment was 19.8% for the fourth quarter of 2006, compared to 21.4% 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 21.0% for the fourth quarter of 2006, compared to 21.5% for the same quarter, prior year.
For the year ended December 31, 2006, net operating revenues for all of Select's hospitals increased 0.4% to $1,378.5 million compared to $1,372.5 million for the prior year. Total patient days for the year ended December 31, 2006 were 969,590, admissions were 39,668 and net revenue per patient day was $1,392. This compares to 985,025 days, 39,963 admissions and net revenue per patient day of $1,370 for the prior year. For the hospitals opened or acquired as of January 1, 2005 and operated by Select throughout both periods, patient days for the year ended December 31, 2006 were 951,872 and admissions were 39,026, compared to 948,916 days and 38,707 admissions in the prior year. Adjusted EBITDA for the segment for the year ended December 31, 2006 decreased 8.1% to $283.3 million compared to $308.1 million for the prior year. The Adjusted EBITDA margin for the segment for the year ended December 31, 2006 was 20.5%, compared to 22.5% for the 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 21.6% for the year ended December 31, 2006, compared to 22.9% for the prior year.
Outpatient Rehabilitation
At December 31, 2006, Select operated 544 outpatient clinics. This compares to 608 outpatient clinics at December 31, 2005. For the fourth quarter of 2006, net operating revenues were $116.4 million compared to $116.3 million for the same quarter, prior year. Adjusted EBITDA for the fourth quarter increased 17.4% to $15.9 million compared to $13.5 million for the same quarter, prior year. The Adjusted EBITDA margin for the quarter was 13.7% compared to 11.6% in the same quarter, prior year. Patient visits for the quarter were 711,163 compared to 776,463 for the same quarter, prior year. Net revenue per visit was $98 for the fourth quarter of 2006 compared to $90 for the same quarter, prior year.
For the year ended December 31, 2006, net operating revenues declined 2.2% to $470.3 million compared to $480.7 million for the prior year. Adjusted EBITDA for the year ended December 31, 2006 declined 1.7% to $64.8 million compared to $66.0 million for the prior year. The Adjusted EBITDA margin for the year ended December 31, 2006 was 13.8% compared to 13.7% in the prior year. Patient visits for the year ended December 31, 2006 were 2,972,243 compared to 3,308,620 for the prior year. Net revenue per visit was $94 for the year ended December 31, 2006 compared $89 for the prior year.
Agreement to Purchase HealthSouth Corporation Outpatient Rehabilitation Division
On January 27, 2007, Select and HealthSouth Corporation ("HealthSouth") entered into a Stock Purchase Agreement, pursuant to which Select agreed to acquire the outpatient rehabilitation division of HealthSouth for approximately $245.0 million. The purchase price is subject to adjustment based on the division's net working capital on the closing date.
The HealthSouth transaction, which is expected to close in the second quarter of 2007, is subject to a number of closing conditions, including receipt of regulatory approvals.
Agreement to Purchase Nexus Health Systems, Inc.
On March 26, 2007, Select entered into a Stock Purchase Agreement with Nexus Health Systems, Inc. ("Nexus"), Neurobehavioral Management Services L.L.C., Nexus Health Inc. and the stockholders of Nexus Health Systems, Inc. to acquire substantially all of the assets of Nexus for approximately $49.0 million in cash plus the assumption of a capital lease. The purchase price is subject to adjustment based on Nexus's net working capital, cash and indebtedness on the closing date.
The Nexus transaction, which is expected to close in the second quarter of 2007, is subject to a number of closing conditions, including receipt of regulatory approvals.
Conference Call
Select will host a conference call regarding its fourth quarter and full year results on Thursday, March 29, 2007, at 11:00 am EDT. The domestic dial in number for the call is 1-866-793-1343. The international dial in number is 1-703-639-1314.
Select Medical Corporation is a leading operator of specialty hospitals in the United States. Select operates 89 long-term acute care hospitals in 26 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 544 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 December 31, 2005 and 2006 % 2005 2006 Change Net operating revenues $457,958 $445,742 (2.7)% Costs and expenses: Cost of services 368,795 364,865 (1.1)% General and administrative 10,534 10,003 (5.0)% Bad debt expense 3,969 44 (98.9)% Depreciation and amortization 9,812 11,713 19.4% Income from operations 64,848 59,117 (8.8)% Other income 2,360 448 (81.0)% Interest income 256 555 116.8% Interest expense (23,631) (24,673) 4.4% Income from continuing operations before minority interests and income taxes 43,833 35,447 (19.1)% Minority interests 426 319 (25.1)% Income from continuing operations before income taxes 43,407 35,128 (19.1)% Income tax expense 17,847 4,811 (73.0)% Income from continuing operations 25,560 30,317 18.6% Income (loss) from discontinued operations, net of tax (295) 2,460 N/M Net income $25,265 $32,777 29.7% II. Condensed Consolidated Statements of Operations (in thousands) (unaudited) For the Years Ended December 31, 2005 and 2006 Predecessor Successor Combined (2) Successor (1) (1) (1) Period from Period from January 1 February 25 through through Year Ended Year Ended February December December December 24, 2005 31, 2005 31, 2005 31, 2006 % Change Net operating revenues $277,736 $1,580,706 $1,858,442 $1,851,498 (0.4)% Costs and expenses: Cost of services 244,321 1,244,361 1,488,682 1,484,632 (0.3)% General and administrative 122,509 59,494 182,003 43,514 (76.1)% Bad debt expense 6,588 18,213 24,801 18,810 (24.2)% Depreciation and amortization 5,933 37,922 43,855 46,668 6.4% Income (loss) from operations (101,615) 220,716 119,101 257,874 116.5% Loss on early retirement of debt (42,736) - (42,736) - N/M Merger related charges (12,025) - (12,025) - N/M Other income 267 3,018 3,285 1,366 (58.4)% Interest income 523 767 1,290 1,293 0.2% Interest expense (4,651) (83,752) (88,403) (97,288) 10.1% Income (loss) from continuing operations before minority interests and income taxes (160,237) 140,749 (19,488) 163,245 N/M Minority interests 330 1,776 2,106 1,414 (32.9)% Income (loss) from continuing operations before income taxes (160,567) 138,973 (21,594) 161,831 N/M Income tax expense (benefit) (59,794) 56,470 (3,324) 56,089 N/M Income (loss) from continuing operations (100,773) 82,503 (18,270) 105,742 N/M Income from discontinued operations, net of tax (includes pretax gain of $13,950 in 2006) 522 3,072 3,594 12,478 247.2% Net income (loss) $(100,251) $85,575 $(14,676) $118,220 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 December 31, 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 year ended December 31, 2005. As a result of the Merger, interest expense, loss on early retirement of debt, merger related charges, stock compensation expense, long-term incentive compensation, depreciation and amortization have been impacted. III. Condensed Consolidated Balance Sheets (In thousands) (unaudited) December 31, December 31, 2005 2006 Assets Cash $35,861 $81,600 Restricted cash 6,345 4,335 Accounts receivable, net 256,798 199,927 Current deferred tax asset 59,135 42,613 Prepaid taxes 4,110 - Current assets held for sale 13,876 - Other current assets 19,725 16,762 Total Current Assets 395,850 345,237 Property and equipment, net 248,541 356,336 Goodwill 1,305,210 1,323,572 Other identifiable intangibles 86,789 79,230 Other assets held for sale 61,388 4,855 Other assets 65,591 68,412 Total Assets $2,163,369 $2,177,642 Liabilities and Stockholder's Equity Payables and accruals $296,765 $297,698 Income taxes payable - 1,937 Current liabilities held for sale 4,215 - Current portion of long term debt 6,516 6,209 Total Current Liabilities 307,496 305,844 Long term debt, net of current portion 1,315,764 1,224,509 Non-current deferred tax liability 25,771 30,721 Non-current liabilities held for sale 3,817 - Minority interests 4,356 2,566 Stockholder's equity 506,165 614,002 Total Liabilities and Stockholder's Equity $2,163,369 $2,177,642 IV. Key Statistics (unaudited) For the Three Months Ended December 31, 2005 and 2006 % 2005 2006 Change Specialty Hospitals (a) Number of hospitals - end of period 101 96 (5.0)% Net operating revenues (,000) $341,096 $328,775 (3.6)% Number of patient days 245,165 235,520 (3.9)% Number of admissions 9,907 9,546 (3.6)% Net revenue per patient day (b) $1,367 $1,366 (0.1)% Adjusted EBITDA (,000) $72,833 $65,067 (10.7)% Adjusted EBITDA margin - all hospitals 21.4% 19.8% (7.5)% Adjusted EBITDA margin - same store hospitals (c) 21.5% 21.0% (2.3)% Outpatient Rehabilitation (d) Number of clinics - end of period 608 544 (10.5)% Net operating revenues (,000) $116,348 $116,365 0.0% Number of visits 776,463 711,163 (8.4)% Revenue per visit (e) $90 $98 8.9% Adjusted EBITDA (,000) $13,543 $15,903 17.4% Adjusted EBITDA margin 11.6% 13.7% 18.1% (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 and sold on March 1, 2006, 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 Years Ended December 31, 2005 and 2006 % 2005 2006 Change Specialty Hospitals (a) Number of hospitals - end of period 101 96 (5.0)% Net operating revenues (,000) $1,372,483 $1,378,543 0.4% Number of patient days 985,025 969,590 (1.6)% Number of admissions 39,963 39,668 (0.7)% Net revenue per patient day (b) $1,370 $1,392 1.6% Adjusted EBITDA (,000) $308,144 $283,270 (8.1)% Adjusted EBITDA margin - all hospitals 22.5% 20.5% (8.9)% Adjusted EBITDA margin - same store hospitals (c) 22.9% 21.6% (5.7)% Outpatient Rehabilitation (d) Number of clinics - end of period 608 544 (10.5)% Net operating revenues (,000) $480,711 $470,339 (2.2)% Number of visits 3,308,620 2,972,243 (10.2)% Revenue per visit (e) $89 $94 5.6% Adjusted EBITDA (,000) $65,957 $64,823 (1.7)% Adjusted EBITDA margin 13.7% 13.8% 0.7% (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 and sold on March 1, 2006, 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 Months and Years Ended December 31, 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, long-term incentive compensation, 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 December 31, (1) Period from January 1 through February 24, 2005 2006 2005 Net income (loss) $25,265 $32,777 $(100,251) Income (loss) from discontinued operations, net of tax 295 (2,460) (522) Income tax expense (benefit) 17,847 4,811 (59,794) Minority interest 426 319 330 Interest expense, net 23,375 24,118 4,128 Other income (2,360) (448) (267) Loss on early retirement of debt - - 42,736 Merger related charges - - 12,025 Stock compensation expense Included in general and administrative 2,696 888 115,025 Included in cost of services 49 57 27,188 Long-term incentive compensation (3) - - - Depreciation and amortization 9,812 11,713 5,933 Adjusted EBITDA $77,405 $71,775 $46,531 Specialty hospitals $72,833 $65,067 $44,384 Outpatient rehabilitation 13,543 15,903 9,848 Other (4) (8,971) (9,195) (7,701) Adjusted EBITDA $77,405 $71,775 $46,531 Successor Successor (1) Combined (2) (1) Period from February 25 For the For the through Year Ended Year Ended December 31, December 31, December 31, 2005 2005 2006 Net income (loss) $85,575 $(14,676) $118,220 Income (loss) from discontinued operations, net of tax (3,072) (3,594) (12,478) Income tax expense (benefit) 56,470 (3,324) 56,089 Minority interest 1,776 2,106 1,414 Interest expense, net 82,985 87,113 95,995 Other income (3,018) (3,285) (1,366) Loss on early retirement of debt - 42,736 - Merger related charges - 12,025 - Stock compensation expense Included in general and administrative 10,134 125,159 3,551 Included in cost of services 178 27,366 231 Long-term incentive compensation (3) 14,453 14,453 - Depreciation and amortization 37,922 43,855 46,668 Adjusted EBITDA $283,403 $329,934 $308,324 Specialty hospitals $263,760 $308,144 $283,270 Outpatient rehabilitation 56,109 65,957 64,823 Other (4) (36,466) (44,167) (39,769) Adjusted EBITDA $283,403 $329,934 $308,324 (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 December 31, 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 year ended December 31, 2005. As a result of the Merger, interest expense, loss on early retirement of debt, merger related charges, stock compensation expense, long-term incentive compensation, and depreciation and amortization have been impacted. (3) For the period from February 25 through December 31, 2005, $14.5 million of long-term compensation expense was included in general administrative expense 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 December 31, 2005 December 31, 2006 Specialty hospitals net operating revenue $341,096 $328,775 Less: Specialty hospitals in development, opened or closed after 1/1/05 9,982 1,817 Specialty hospitals same store net operating revenue $331,114 $326,958 Specialty hospitals Adjusted EBITDA $72,833 $65,067 Less: Specialty hospitals in development, opened or closed after 1/1/05 1,496 (3,673) Specialty hospitals same store A
