Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries under Select's 7 5/8% Senior Subordinated Notes

6 Months Ended

Jun. 30, 2012

Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries under Select's 7 5/8% Senior Subordinated Notes

Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries under Select's 7 5/8% Senior Subordinated Notes

9.Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries under Select’s 7 5/8% Senior Subordinated Notes

Select’s 7 5/8% senior subordinated notes are fully and unconditionally guaranteed, except for customary limitations, on a senior subordinated basis by all of Select’s wholly-owned subsidiaries (the “Subsidiary Guarantors”). Certain of Select’s subsidiaries did not guarantee the 7 5/8% senior subordinated notes (the “Non-Guarantor Subsidiaries”).

Select conducts a significant portion of its business through its subsidiaries. Presented below is condensed consolidating financial information for Select, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at December 31, 2011 and June 30, 2012 and for the three and six months ended June 30, 2011 and 2012.

The equity method has been used by Select with respect to investments in subsidiaries. The equity method has been used by Subsidiary Guarantors with respect to investments in Non-Guarantor Subsidiaries. Separate financial statements for Subsidiary Guarantors are not presented.

	Select Medical Corporation
	Condensed Consolidating Balance Sheet
	June 30, 2012
	(unaudited)
	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Assets
Current Assets:
Cash and cash equivalents	$	18,100		$	2,798		$	622		$	—		$	21,520
Accounts receivable, net	—			367,585			56,274			—			423,859
Current deferred tax asset	8,774			3,262			3,497			—			15,533
Prepaid income taxes	4,061			—			—			—			4,061
Other current assets	7,654			20,339			3,390			—			31,383
Total Current Assets	38,589			393,984			63,783			—			496,356
Property and equipment, net	14,754			422,031			55,996			—			492,781
Investment in affiliates	2,861,419			78,736			—			(2,940,155		)(a)(b)	—
Goodwill	—			1,631,461			—			—			1,631,461
Other identifiable intangibles	—			71,783			—			—			71,783
Assets held for sale	2,742			—			—			—			2,742
Other assets	24,335			58,224			732			—			83,291
Total Assets	$	2,941,839		$	2,656,219		$	120,511		$	(2,940,155	)	$	2,778,414
Liabilities and Equity
Current Liabilities:
Bank overdrafts	$	20,348		$	—		$	—		$	—		$	20,348
Current portion of long-term debt and notes payable	10,236			370			1,179			—			11,785
Accounts payable	6,679			72,709			10,744			—			90,132
Intercompany accounts	1,036,057			(944,178		)	(91,879		)	—			—
Accrued payroll	13			73,528			171			—			73,712
Accrued vacation	4,319			44,964			6,925			—			56,208
Accrued interest	22,920			826			—			—			23,746
Accrued restructuring	—			3,038			—			—			3,038
Accrued other	45,069			52,856			6,898			—			104,823
Due to third party payors	—			4,106			3,158			—			7,264
Total Current Liabilities	1,145,641			(691,781		)	(62,804		)	—			391,056
Long-term debt, net of current portion	723,251			392,423			59,160			—			1,174,834
Non-current deferred tax liability	(3,960		)	78,164			8,707			—			82,911
Other non-current liabilities	49,360			18,909			380			—			68,649
Total Liabilities	1,914,292			(202,285		)	5,443			—			1,717,450
Stockholder’s Equity:
Common stock	0			—			—			—			0
Capital in excess of par	853,506			—			—			—			853,506
Retained earnings	174,041			724,340			22,366			(746,706		)(b)	174,041
Subsidiary investment	—			2,134,164			59,285			(2,193,449		)(a)	—
Total Select Medical Corporation Stockholder’s Equity	1,027,547			2,858,504			81,651			(2,940,155		)	1,027,547
Non-controlling interest	—			—			33,417			—			33,417
Total Equity	1,027,547			2,858,504			115,068			(2,940,155		)	1,060,964
Total Liabilities and Equity	$	2,941,839		$	2,656,219		$	120,511		$	(2,940,155	)	$	2,778,414

(a)  Elimination of investments in consolidated subsidiaries.

(b)  Elimination of investments in consolidated subsidiaries’ earnings.

	Select Medical Corporation
	Condensed Consolidating Statement of Operations
	For the Three Months Ended June 30, 2012
	(unaudited)
	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Net operating revenues	$	13		$	649,628		$	100,552		$	—		$	750,193
Costs and expenses:
Cost of services	521			527,479			84,669			—			612,669
General and administrative	19,345			(791		)	—			—			18,554
Bad debt expense	—			8,832			1,197			—			10,029
Depreciation and amortization	718			12,410			2,300			—			15,428
Total costs and expenses	20,584			547,930			88,166			—			656,680
Income (loss) from operations	(20,571		)	101,698			12,386			—			93,513
Other income and expense:
Intercompany interest and royalty fees	(763		)	754			9			—			—
Intercompany management fees	27,755			(23,159		)	(4,596		)	—			—
Equity in earnings of unconsolidated subsidiaries	—			2,739			13			—			2,752
Interest expense	(13,173		)	(6,712		)	(1,072		)	—			(20,957		)
Income (loss) from operations before income taxes	(6,752		)	75,320			6,740			—			75,308
Income tax expense	2,211			26,377			58			—			28,646
Equity in earnings of subsidiaries	53,981			5,612			—			(59,593		)(a)	—
Net income	45,018			54,555			6,682			(59,593		)	46,662
Less: Net income attributable to non-controlling interests	—			—			1,644			—			1,644
Net income attributable to Select Medical Corporation	$	45,018		$	54,555		$	5,038		$	(59,593	)	$	45,018

(a) Elimination of equity in earnings of subsidiaries.

	Select Medical Corporation
	Condensed Consolidating Statement of Operations
	For the Six Months Ended June 30, 2012
	(unaudited)
	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Net operating revenues	$	97		$	1,293,953		$	200,164		$	—		$	1,494,214
Costs and expenses:
Cost of services	1,010			1,052,944			170,334			—			1,224,288
General and administrative	33,455			(677		)	—			—			32,778
Bad debt expense	—			17,674			2,730			—			20,404
Depreciation and amortization	1,423			25,580			4,624			—			31,627
Total costs and expenses	35,888			1,095,521			177,688			—			1,309,097
Income (loss) from operations	(35,791		)	198,432			22,476			—			185,117
Other income and expense:
Intercompany interest and royalty fees	(1,556		)	1,539			17			—			—
Intercompany management fees	57,129			(48,242		)	(8,887		)	—			—
Equity in earnings of unconsolidated subsidiaries	—			5,194			23			—			5,217
Interest expense	(26,147		)	(13,910		)	(2,150		)	—			(42,207		)
Income (loss) from operations before income taxes	(6,365		)	143,013			11,479			—			148,127
Income tax expense	1,976			54,904			276			—			57,156
Equity in earnings of subsidiaries	96,638			9,111			—			(105,749		)(a)	—
Net income	88,297			97,220			11,203			(105,749		)	90,971
Less: Net income attributable to non-controlling interests	—			—			2,674			—			2,674
Net income attributable to Select Medical Corporation	$	88,297		$	97,220		$	8,529		$	(105,749	)	$	88,297

(a) Elimination of equity in earnings of subsidiaries.

	Select Medical Corporation
	Condensed Consolidating Statement of Cash Flows
	For the Six Months Ended June 30, 2012
	(unaudited)
	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Operating activities
Net income	$	88,297		$	97,220		$	11,203		$	(105,749	)(a)	$	90,971
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,423			25,580			4,624			—			31,627
Provision for bad debts	—			17,674			2,730			—			20,404
Loss (gain) from disposal of assets	—			(3,606		)	2			—			(3,604		)
Non-cash stock compensation expense	2,599			—			—			—			2,599
Amortization of debt discount	622			—			—			—			622
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Equity in earnings of subsidiaries	(96,638		)	(9,111		)	—			105,749		(a)	—
Intercompany	46,380			(40,086		)	(6,294		)	—			—
Accounts receivable	—			(15,938		)	(14,582		)	—			(30,520		)
Other current assets	(1,314		)	(983		)	685			—			(1,612		)
Other assets	4,051			(5,011		)	121			—			(839		)
Accounts payable	(674		)	(3,498		)	(1,314		)	—			(5,486		)
Due to third-party payors	—			(9,527		)	11,265			—			1,738
Accrued expenses	8,717			(2,587		)	210			—			6,340
Income and deferred taxes	11,809			—			—			—			11,809
Net cash provided by operating activities	65,272			50,127			8,650			—			124,049
Investing activities
Purchases of property and equipment	(1,536		)	(20,684		)	(5,714		)	—			(27,934		)
Proceeds from sale of assets	—			16,511			—			—			16,511
Investment in businesses	—			(10,014		)	—			—			(10,014		)
Acquisition of businesses, net of cash acquired	—			(206		)	—			—			(206		)
Net cash used in investing activities	(1,536		)	(14,393		)	(5,714		)	—			(21,643		)
Financing activities
Borrowings on revolving credit facility	340,000			—			—			—			340,000
Payments on revolving credit facility	(380,000		)	—			—			—			(380,000		)
Payments on 2011 credit facility term loan	(4,250		)	—			—			—			(4,250		)
Borrowings of other debt	5,557			—			278			—			5,835
Principal payments on other debt	(4,179		)	(220		)	(686		)	—			(5,085		)
Dividends paid to Holdings	(52,034		)	—			—			—			(52,034		)
Equity investment by Holdings	547			—			—			—			547
Proceeds from bank overdrafts	3,739			—			—			—			3,739
Intercompany debt reallocation	33,557			(32,716		)	(841		)	—			—
Distributions to non-controlling interests	—			—			(1,681		)	—			(1,681		)
Net cash used in financing activities	(57,063		)	(32,936		)	(2,930		)	—			(92,929		)
Net increase in cash and cash equivalents	6,673			2,798			6			—			9,477
Cash and cash equivalents at beginning of period	11,427			—			616			—			12,043
Cash and cash equivalents at end of period	$	18,100		$	2,798		$	622		$	—		$	21,520

(a)  Elimination of equity in earnings of consolidated subsidiaries.

	Select Medical Corporation
	Condensed Consolidating Balance Sheet
	December 31, 2011
	(unaudited)
	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Assets
Current Assets:
Cash and cash equivalents	$	11,427		$	—		$	616		$	—		$	12,043
Accounts receivable, net	—			369,321			44,422			—			413,743
Current deferred tax asset	11,415			3,221			3,669			—			18,305
Prepaid income taxes	9,497			—			—			—			9,497
Other current assets	6,340			19,407			4,075			—			29,822
Total Current Assets	38,679			391,949			52,782			—			483,410
Property and equipment, net	14,641			440,736			54,651			—			510,028
Investment in affiliates	2,751,776			83,772			—			(2,835,548		)(a)(b)	—
Goodwill	—			1,631,716			—			—			1,631,716
Other identifiable intangibles	—			72,123			—			—			72,123
Assets held for sale	2,742			—			—			—			2,742
Other assets	28,386			41,480			853			—			70,719
Total Assets	$	2,836,224		$	2,661,776		$	108,286		$	(2,835,548	)	$	2,770,738
Liabilities and Equity
Current Liabilities:
Bank overdrafts	$	16,609		$	—		$	—		$	—		$	16,609
Current portion of long-term debt and notes payable	8,853			390			1,605			—			10,848
Accounts payable	7,353			76,207			12,058			—			95,618
Intercompany accounts	975,809			(880,537		)	(95,272		)	—			—
Accrued payroll	229			82,518			141			—			82,888
Accrued vacation	3,703			41,305			6,242			—			51,250
Accrued interest	11,843			137			—			—			11,980
Accrued restructuring	—			5,027			—			—			5,027
Accrued other	47,829			51,086			7,401			—			106,316
Due to third party payors	—			13,633			(8,107		)	—			5,526
Total Current Liabilities	1,072,228			(610,234		)	(75,932		)	—			386,062
Long-term debt, net of current portion	733,328			425,315			60,007			—			1,218,650
Non-current deferred tax liability	(2,509		)	75,750			8,787			—			82,028
Other non-current liabilities	46,555			17,970			380			—			64,905
Total Liabilities	1,849,602			(91,199		)	(6,758		)	—			1,751,645
Stockholder’s Equity:
Common stock	0			—			—			—			0
Capital in excess of par	848,844			—			—			—			848,844
Retained earnings	137,778			627,120			23,154			(650,274		)(b)	137,778
Subsidiary investment	—			2,125,855			59,419			(2,185,274		)(a)	—
Total Select Medical Corporation Stockholder’s Equity	986,622			2,752,975			82,573			(2,835,548		)	986,622
Non-controlling interest	—			—			32,471			—			32,471
Total Equity	986,622			2,752,975			115,044			(2,835,548		)	1,019,093
Total Liabilities and Equity	$	2,836,224		$	2,661,776		$	108,286		$	(2,835,548	)	$	2,770,738

(a)  Elimination of investments in consolidated subsidiaries.

(b)  Elimination of investments in consolidated subsidiaries’ earnings.

	Select Medical Corporation
	Condensed Consolidating Statement of Operations
	For the Three Months Ended June 30, 2011
	(unaudited)
	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Net operating revenues	$	15		$	605,562		$	93,172		$	—		$	698,749
Costs and expenses:
Cost of services	194			493,059			76,413			—			569,666
General and administrative	16,039			76			—			—			16,115
Bad debt expense	—			11,908			2,035			—			13,943
Depreciation and amortization	654			15,099			2,246			—			17,999
Total costs and expenses	16,887			520,142			80,694			—			617,723
Income (loss) from operations	(16,872		)	85,420			12,478			—			81,026
Other income and expense:
Intercompany interest and royalty fees	(1,000		)	994			6			—			—
Intercompany management fees	44,391			(39,901		)	(4,490		)	—			—
Loss on early retirement of debt	(20,385		)	—			—			—			(20,385		)
Equity in earnings (losses) of unconsolidated subsidiaries	—			(260		)	9			—			(251		)
Interest income	34			77			—			—			111
Interest expense	(9,011		)	(9,370		)	(1,313		)	—			(19,694		)
Income (loss) from operations before income taxes	(2,843		)	36,960			6,690			—			40,807
Income tax expense	362			16,224			11			—			16,597
Equity in earnings of subsidiaries	25,477			4,784			—			(30,261		)(a)	—
Net income	22,272			25,520			6,679			(30,261		)	24,210
Less: Net income attributable to non-controlling interests	—			—			1,938			—			1,938
Net income attributable to Select Medical Corporation	$	22,272		$	25,520		$	4,741		$	(30,261	)	$	22,272

(a) Elimination of equity in earnings of subsidiaries.

	Select Medical Corporation
	Condensed Consolidating Statement of Operations
	For the Six Months Ended June 30, 2011
	(unaudited)
	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Net operating revenues	$	86		$	1,205,815		$	186,034		$	—		$	1,391,935
Costs and expenses:
Cost of services	832			974,281			151,969			—			1,127,082
General and administrative	32,494			187			—			—			32,681
Bad debt expense	—			24,909			3,384			—			28,293
Depreciation and amortization	1,300			29,455			4,466			—			35,221
Total costs and expenses	34,626			1,028,832			159,819			—			1,223,277
Income (loss) from operations	(34,540		)	176,983			26,215			—			168,658
Other income and expense:
Intercompany interest and royalty fees	(1,995		)	1,980			15			—			—
Intercompany management fees	67,863			(59,131		)	(8,732		)	—			—
Loss on early retirement of debt	(20,385		)	—			—			—			(20,385		)
Equity in earnings (losses) of unconsolidated subsidiaries	—			(348		)	24			—			(324		)
Interest income	65			101			1			—			167
Interest expense	(16,376		)	(19,319		)	(2,661		)	—			(38,356		)
Income (loss) from operations before income taxes	(5,368		)	100,266			14,862			—			109,760
Income tax expense	1,288			44,044			279			—			45,611
Equity in earnings of subsidiaries	67,152			10,581			—			(77,733		)(a)	—
Net income	60,496			66,803			14,583			(77,733		)	64,149
Less: Net income attributable to non-controlling interests	—			—			3,653			—			3,653
Net income attributable to Select Medical Corporation	$	60,496		$	66,803		$	10,930		$	(77,733	)	$	60,496

(a) Elimination of equity in earnings of subsidiaries.

	Select Medical Corporation
	Condensed Consolidating Statement of Cash Flows
	For the Six Months Ended June 30, 2011
	(unaudited)
	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Operating activities
Net income	$	60,496		$	66,803		$	14,583		$	(77,733	)(a)	$	64,149
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,300			29,455			4,466			—			35,221
Provision for bad debts	—			24,909			3,384			—			28,293
Loss on early retirement of debt	20,385			—			—			—			20,385
Loss (gain) from disposal of assets	10			(5,225		)	14			—			(5,201		)
Non-cash stock compensation expense	1,780			—			—			—			1,780
Amortization of debt discount	103			—			—			—			103
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Equity in earnings of subsidiaries	(67,152		)	(10,581		)	—			77,733		(a)	—
Intercompany	53,735			(46,683		)	(7,052		)	—			—
Accounts receivable	—			(73,715		)	(7,525		)	—			(81,240		)
Other current assets	(2,096		)	245			340			—			(1,511		)
Other assets	(4,203		)	6,564			108			—			2,469
Accounts payable	2,758			4,531			818			—			8,107
Due to third-party payors	—			6,599			(7,063		)	—			(464		)
Accrued expenses	9,410			4,606			(1,008		)	—			13,008
Income and deferred taxes	16,151			—			—			—			16,151
Net cash provided by operating activities	92,677			7,508			1,065			—			101,250
Investing activities
Purchases of property and equipment	(1,178		)	(18,898		)	(3,620		)	—			(23,696		)
Investment in business	—			(13,514		)	—			—			(13,514		)
Acquisition of businesses, net of cash acquired	—			1,921			—			—			1,921
Proceeds from sale of assets	—			7,879			—			—			7,879
Net cash used in investing activities	(1,178		)	(22,612		)	(3,620		)	—			(27,410		)
Financing activities
Borrowings on revolving credit facilities	435,000			—			—			—			435,000
Payments on revolving credit facilities	(395,000		)	—			—			—			(395,000		)
Borrowings on 2011 credit facility term loan, net of discount	841,500			—			—			—			841,500
Payments on 2005 credit facility term loans, net of call premium	(484,633		)	—			—			—			(484,633		)
Repurchase of 7 5/8% senior subordinated notes, net of tender premium	(273,941		)	—			—			—			(273,941		)
Borrowings of other debt	5,496			—			—			—			5,496
Principal payments on other debt	(2,581		)	(899		)	—			—			(3,480		)
Debt issuance costs	(18,556		)	—			—			—			(18,556		)
Proceeds from bank overdrafts	2,102			—			—			—			2,102
Equity investment by Holdings	169			—			—			—			169
Dividends paid to Holdings	(171,008		)	—			—			—			(171,008		)
Intercompany debt reallocation	(20,061		)	15,372			4,689			—			—
Distributions to non-controlling interests	—			—			(2,270		)	—			(2,270		)
Net cash provided by (used in) financing activities	(81,513		)	14,473			2,419			—			(64,621		)
Net increase (decrease) in cash and cash equivalents	9,986			(631		)	(136		)	—			9,219
Cash and cash equivalents at beginning of period	149			3,567			649			—			4,365
Cash and cash equivalents at end of period	$	10,135		$	2,936		$	513		$	—		$	13,584

(a)  Elimination of equity in earnings of consolidated subsidiaries.