Segment Information

9 Months Ended

Sep. 30, 2018

The Company identifies its operating segments according to how the chief operating decision maker evaluates financial performance and allocates resources. During the year ended December 31, 2017, the Company changed its internal segment reporting structure which is reflective of how the Company now manages its business operations, reviews operating performance, and allocates resources. The Company’s reportable segments include the critical illness recovery hospital segment (previously referred to as the long term acute care segment), rehabilitation hospital segment (previously referred to as the inpatient rehabilitation segment), outpatient rehabilitation segment, and Concentra segment. Prior year results for the three and nine months ended September 30, 2017, presented herein have been recast to conform to the current presentation. The Company previously disclosed financial information for the following reportable segments: specialty hospitals, outpatient rehabilitation, and Concentra.

Other activities include the Company’s corporate shared services and certain other non-consolidating joint ventures and minority investments in other healthcare related businesses. The Company evaluates performance of the segments based on Adjusted EBITDA. Adjusted EBITDA is defined as earnings excluding interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, acquisition costs associated with U.S. HealthWorks, non-operating gain (loss), and equity in earnings (losses) of unconsolidated subsidiaries. The Company has provided additional information regarding its reportable segments, such as total assets, which contributes to the understanding of the Company and provides useful information to the users of the consolidated financial statements.

The following tables summarize selected financial data for the Company’s reportable segments. The segment results of Holdings are identical to those of Select.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2018			2017			2018
	(in thousands)
Net operating revenues:⁽¹⁾
Critical illness recovery hospital⁽²⁾	$	416,934		$	420,108		$	1,301,251		$	1,327,236
Rehabilitation hospital⁽²⁾	157,499			176,885			453,702			525,428
Outpatient rehabilitation	246,644			265,927			751,999			790,491
Concentra	255,881			404,481			763,357			1,173,420
Other	56			—			687			—
Total Company	$	1,077,014		$	1,267,401		$	3,270,996		$	3,816,575
Adjusted EBITDA:
Critical illness recovery hospital⁽²⁾	$	46,873		$	53,292		$	194,253		$	186,989
Rehabilitation hospital⁽²⁾	22,581			25,343			62,038			80,314
Outpatient rehabilitation	29,298			34,531			102,575			107,003
Concentra	40,003			68,754			125,656			199,119
Other	(22,928		)	(25,292		)	(71,125		)	(75,337		)
Total Company	$	115,827		$	156,628		$	413,397		$	498,088
Total assets:
Critical illness recovery hospital⁽²⁾	$	2,008,485		$	1,785,336		$	2,008,485		$	1,785,336
Rehabilitation hospital⁽²⁾	740,276			888,342			740,276			888,342
Outpatient rehabilitation	945,765			991,105			945,765			991,105
Concentra	1,332,012			2,201,869			1,332,012			2,201,869
Other	97,269			113,529			97,269			113,529
Total Company	$	5,123,807		$	5,980,181		$	5,123,807		$	5,980,181
Purchases of property and equipment, net:
Critical illness recovery hospital⁽²⁾	$	8,003		$	8,134		$	28,717		$	31,455
Rehabilitation hospital⁽²⁾	29,373			8,769			77,707			29,766
Outpatient rehabilitation	6,496			7,209			19,370			22,565
Concentra	5,369			12,539			21,656			29,281
Other	19,257			2,740			26,350			7,972
Total Company	$	68,498		$	39,391		$	173,800		$	121,039

A reconciliation of Adjusted EBITDA to income before income taxes is as follows:



	Three Months Ended September 30, 2017
	Critical Illness Recovery Hospital⁽²⁾			Rehabilitation Hospital⁽²⁾			Outpatient Rehabilitation			Concentra			Other			Total
	(in thousands)
Adjusted EBITDA	$	46,873		$	22,581		$	29,298		$	40,003		$	(22,928	)
Depreciation and amortization	(10,932		)	(4,505		)	(5,964		)	(15,014		)	(2,357		)
Stock compensation expense	—			—			—			(212		)	(4,745		)
Income (loss) from operations	$	35,941		$	18,076		$	23,334		$	24,777		$	(30,030	)	$	72,098
Equity in earnings of unconsolidated subsidiaries																4,431
Interest expense																(37,688		)
Income before income taxes																$	38,841



	Three Months Ended September 30, 2018
	Critical Illness Recovery Hospital⁽²⁾			Rehabilitation Hospital⁽²⁾			Outpatient Rehabilitation			Concentra			Other			Total
	(in thousands)
Adjusted EBITDA	$	53,292		$	25,343		$	34,531		$	68,754		$	(25,292	)
Depreciation and amortization	(11,136		)	(6,079		)	(6,597		)	(24,488		)	(2,227		)
Stock compensation expense	—			—			—			(767		)	(5,497		)
Income (loss) from operations	$	42,156		$	19,264		$	27,934		$	43,499		$	(33,016	)	$	99,837
Equity in earnings of unconsolidated subsidiaries																5,432
Non-operating gain																2,139
Interest expense																(50,669		)
Income before income taxes																$	56,739



	Nine Months Ended September 30, 2017
	Critical Illness Recovery Hospital⁽²⁾			Rehabilitation Hospital⁽²⁾			Outpatient Rehabilitation			Concentra			Other			Total
	(in thousands)
Adjusted EBITDA	$	194,253		$	62,038		$	102,575		$	125,656		$	(71,125	)
Depreciation and amortization	(34,891		)	(14,500		)	(18,182		)	(46,566		)	(5,505		)
Stock compensation expense	—			—			—			(782		)	(13,445		)
Income (loss) from operations	$	159,362		$	47,538		$	84,393		$	78,308		$	(90,075	)	$	279,526
Loss on early retirement of debt																(19,719		)
Equity in earnings of unconsolidated subsidiaries																15,618
Non-operating loss																(49		)
Interest expense																(116,196		)
Income before income taxes																$	159,180



	Nine Months Ended September 30, 2018
	Critical Illness Recovery Hospital⁽²⁾			Rehabilitation Hospital⁽²⁾			Outpatient Rehabilitation			Concentra			Other			Total
	(in thousands)
Adjusted EBITDA	$	186,989		$	80,314		$	107,003		$	199,119		$	(75,337	)
Depreciation and amortization	(34,146		)	(17,816		)	(19,938		)	(70,332		)	(6,790		)
Stock compensation expense	—			—			—			(2,116		)	(15,059		)
U.S. HealthWorks acquisition costs	—			—			—			(2,895		)	—
Income (loss) from operations	$	152,843		$	62,498		$	87,065		$	123,776		$	(97,186	)	$	328,996
Loss on early retirement of debt																(10,255		)
Equity in earnings of unconsolidated subsidiaries																14,914
Non-operating gain																9,016
Interest expense																(147,991		)
Income before income taxes																$	194,680

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(1)	Net operating revenues were retrospectively conformed to reflect the adoption Topic 606, Revenue from Contracts with Customers.

(2)

The critical illness recovery hospital segment was previously referred to as the long term acute care segment. The rehabilitation hospital segment was previously referred to as the inpatient rehabilitation segment.