Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries under the Company's 6.375% Senior Notes

6 Months Ended

12 Months Ended

Jun. 30, 2013

Dec. 31, 2012

Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries under the Company's Senior Notes

Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries under the Company's Senior Notes

8. Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries under the Company's 6.375% Senior Notes

        The Company's 6.375% senior notes are fully and unconditionally guaranteed, except for customary limitations, on a senior basis by all of the Company's wholly-owned subsidiaries (the "Subsidiary Guarantors") which is defined as a subsidiary where the Company or a subsidiary of the Company holds all of the outstanding ownership interests. Certain of the Company's subsidiaries did not guarantee the 6.375% senior notes (the "Non-Guarantor Subsidiaries").

        The Company conducts a significant portion of its business through its subsidiaries. Presented below is condensed consolidating financial information for the Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at December 31, 2012 and June 30, 2013 and for the three and six months ended June 30, 2012 and 2013.

        The equity method has been used by the Company 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

Consolidating Balance Sheet

June 30, 2013

(unaudited)

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors		Non-Guarantor Subsidiaries		Eliminations			Consolidated
	(in thousands)
Assets
Current Assets:
Cash and cash equivalents	$	5,053		$	2,501	$	1,214	$	—		$	8,768
Accounts receivable, net		—			363,430		63,761		—			427,191
Current deferred tax asset		8,844			1,701		4,305		—			14,850
Prepaid income taxes		12,219			—		—		—			12,219
Intercompany receivables		—			995,840		106,493		(1,102,333)	(a)		—
Other current assets		7,910			25,425		4,742		—			38,077
Total Current Assets		34,026			1,388,897		180,515		(1,102,333	)		501,105
Property and equipment, net		15,417			424,392		58,999		—			498,808
Investment in affiliates		3,001,006			87,070		—		(3,088,076)	(b)(c)		—
Goodwill		—			1,641,796		—		—			1,641,796
Other identifiable intangibles		—			71,713		—		—			71,713
Non-current deferred tax asset		7,129			—		—		(7,129)	(d)		—
Other assets		34,220			96,805		608		—			131,633
Total Assets	$	3,091,798		$	3,710,673	$	240,122	$	(4,197,538	)	$	2,845,055
Liabilities and Equity
Current Liabilities:
Bank overdrafts	$	19,461		$	—	$	—	$	—		$	19,461
Current portion of long-term debt and notes payable		9,050			2,195		1,985		—			13,230
Accounts payable		6,531			68,785		11,598		—			86,914
Intercompany payables		1,102,333			—		—		(1,102,333)	(a)		—
Accrued payroll		573			75,542		174		—			76,289
Accrued vacation		4,634			47,909		7,761		—			60,304
Accrued interest		7,927			1,130		—		—			9,057
Accrued other		48,367			36,500		9,260		—			94,127
Due to third party payors		—			2,745		3,550		—			6,295
Total Current Liabilities		1,198,876			234,806		34,328		(1,102,333	)		365,677
Long-term debt, net of current portion		1,085,867			367,718		64,143		—			1,517,728
Non-current deferred tax liability		—			87,637		9,168		(7,129)	(d)		89,676
Other non-current liabilities		48,756			21,688		203		—			70,647
Total Liabilities		2,333,499			711,849		107,842		(1,109,462	)		2,043,728
Redeemable non-controlling interests		—			—		12,520		—			12,520
Stockholder's Equity:
Common stock		0			—		—		—			0
Capital in excess of par		864,557			—		—		—			864,557
Retained earnings (accumulated deficit)		(106,258	)		861,889		25,223		(887,112)	(c)		(106,258	)
Subsidiary investment		—			2,136,935		64,029		(2,200,964)	(b)		—
Total Select Medical Corporation Stockholder's Equity		758,299			2,998,824		89,252		(3,088,076	)		758,299
Non-controlling interests		—			—		30,508		—			30,508
Total Equity		758,299			2,998,824		119,760		(3,088,076	)		788,807
Total Liabilities and Equity	$	3,091,798		$	3,710,673	$	240,122	$	(4,197,538	)	$	2,845,055

(a)

Elimination of intercompany.

(b)

Elimination of investments in consolidated subsidiaries.

(c)

Elimination of investments in consolidated subsidiaries' earnings.

(d)

Reclass of non-current deferred tax asset to report net non-current deferred tax liability in consolidation.

Select Medical Corporation

Consolidating Statement of Operations

For the Three Months Ended June 30, 2013

(unaudited)

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Net operating revenues	$	207		$	652,745		$	103,721		$	—		$	756,673
Costs and expenses:
Cost of services		557			537,048			88,125			—			625,730
General and administrative		17,853			74			—			—			17,927
Bad debt expense		—			7,099			1,747			—			8,846
Depreciation and amortization		975			12,522			2,410			—			15,907
Total costs and expenses		19,385			556,743			92,282			—			668,410
Income (loss) from operations		(19,178	)		96,002			11,439			—			88,263
Other income and expense:
Intercompany interest and royalty fees		(361	)		355			6			—			—
Intercompany management fees		62,247			(57,217	)		(5,030	)		—			—
Equity in earnings of unconsolidated subsidiaries		—			546			22			—			568
Loss on early retirement of debt		(17,280	)		—			—			—			(17,280	)
Interest expense		(15,427	)		(5,447	)		(1,030	)		—			(21,904	)
Income from operations before income taxes		10,001			34,239			5,407			—			49,647
Income tax expense		6,555			13,018			196			—			19,769
Equity in earnings of subsidiaries		24,334			3,439			—			(27,773)	(a)		—
Net income		27,780			24,660			5,211			(27,773	)		29,878
Less: Net income attributable to non-controlling interests		—			—			2,098			—			2,098
Net income attributable to Select Medical Corporation	$	27,780		$	24,660		$	3,113		$	(27,773	)	$	27,780

(a)

Elimination of equity in earnings of subsidiaries.

Select Medical Corporation

Consolidating Statement of Operations

For the Six Months Ended June 30, 2013

(unaudited)

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Net operating revenues	$	310		$	1,296,182		$	210,136		$	—		$	1,506,628
Costs and expenses:
Cost of services		1,110			1,073,295			176,229			—			1,250,634
General and administrative		35,219			106			—			—			35,325
Bad debt expense		—			14,922			3,245			—			18,167
Depreciation and amortization		1,945			25,025			4,739			—			31,709
Total costs and expenses		38,274			1,113,348			184,213			—			1,335,835
Income (loss) from operations		(37,964	)		182,834			25,923			—			170,793
Other income and expense:
Intercompany interest and royalty fees		(755	)		741			14			—			—
Intercompany management fees		81,976			(72,619	)		(9,357	)		—			—
Equity in earnings of unconsolidated subsidiaries		—			1,571			55			—			1,626
Loss on early retirement of debt		(17,788	)		—			—			—			(17,788	)
Interest expense		(30,153	)		(10,769	)		(2,030	)		—			(42,952	)
Income (loss) from operations before income taxes		(4,684	)		101,758			14,605			—			111,679
Income tax expense		1,912			40,682			215			—			42,809
Equity in earnings of subsidiaries		70,984			10,121			—			(81,105)	(a)		—
Net income		64,388			71,197			14,390			(81,105	)		68,870
Less: Net income attributable to non-controlling interests		—			—			4,482			—			4,482
Net income attributable to Select Medical Corporation	$	64,388		$	71,197		$	9,908		$	(81,105	)	$	64,388

(a)

Elimination of equity in earnings of subsidiaries.

Select Medical Corporation

Consolidating Statement of Cash Flows

For the Six Months Ended June 30, 2013

(unaudited)

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Operating activities
Net income	$	64,388		$	71,197		$	14,390		$	(81,105)	(a)	$	68,870
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		1,945			25,025			4,739			—			31,709
Provision for bad debts		—			14,922			3,245			—			18,167
Equity in earnings of unconsolidated subsidiaires		—			(1,571	)		(55	)		—			(1,626	)
Loss on early retirement of debt		17,788			—			—			—			17,788
Loss from disposal or sale of assets		—			74			7			—			81
Non-cash stock compensation expense		3,537			—			—			—			3,537
Amortization of debt discount and issuance costs		4,499			—			—			—			4,499
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Equity in earnings of subsidiaries		(70,984	)		(10,121	)		—			81,105	(a)		—
Accounts receivable		—			(70,357	)		(13,475	)		—			(83,832	)
Other current assets		(2,310	)		(5,405	)		1,821			—			(5,894	)
Other assets		(5,540	)		5,600			84			—			144
Accounts payable		1,857			(3,460	)		(1,062	)		—			(2,665	)
Due to third-party payors		—			4,390			827			—			5,217
Accrued expenses		(19,539	)		(6,586	)		1,180			—			(24,945	)
Income and deferred taxes		(3,448	)		—			—			—			(3,448	)
Net cash provided by (used in) operating activities		(7,807	)		23,708			11,701			—			27,602
Investing activities
Purchases of property and equipment		(1,071	)		(23,802	)		(3,089	)		—			(27,962	)
Investment in businesses, net of distributions		—			(28,716	)		—			—			(28,716	)
Acquisition of businesses, net of cash acquired		—			(171	)		—			—			(171	)
Net cash used in investing activities		(1,071	)		(52,689	)		(3,089	)		—			(56,849	)
Financing activities
Borrowings on revolving credit facility		455,000			—			—			—			455,000
Payments on revolving credit facility		(480,000	)		—			—			—			(480,000	)
Borrowings on credit facility term loans, net of discount		298,500			—			—			—			298,500
Payments on credit facility term loans		(592,615	)		—			—			—			(592,615	)
Issuance of 6.375% senior notes		600,000			—			—			—			600,000
Repurchase of 75/8% senior subordinated notes, net of premiums		(70,000	)		—			—			—			(70,000	)
Borrowings of other debt		5,826			—			1,083			—			6,909
Principal payments on other debt		(4,057	)		(223	)		(393	)		—			(4,673	)
Debt issuance costs		(18,583	)		—			—			—			(18,583	)
Dividends paid to Holdings		(196,825	)		—			—			—			(196,825	)
Proceeds from bank overdrafts		1,625			—			—			—			1,625
Intercompany		(20,010	)		27,971			(7,961	)		—			—
Distributions to non-controlling interests		—			—			(1,467	)		—			(1,467	)
Net cash provided by (used in) financing activities		(21,139	)		27,748			(8,738	)		—			(2,129	)
Net decrease in cash and cash equivalents		(30,017	)		(1,233	)		(126	)		—			(31,376	)
Cash and cash equivalents at beginning of period		35,070			3,734			1,340			—			40,144
Cash and cash equivalents at end of period	$	5,053		$	2,501		$	1,214		$	—		$	8,768

(a)

Elimination of equity in earnings of consolidated subsidiaries.

Select Medical Corporation

Consolidating Balance Sheet

December 31, 2012

(unaudited)

	Select Medical Corporation (Parent Company Only)		Subsidiary Guarantors		Non-Guarantor Subsidiaries		Eliminations			Consolidated
	(in thousands)
Assets
Current Assets:
Cash and cash equivalents	$	35,070	$	3,734	$	1,340	$	—		$	40,144
Accounts receivable, net		—		308,043		53,531		(1,645	)(a)		359,929
Current deferred tax asset		12,383		1,060		4,434		—			17,877
Prepaid income taxes		3,895		—		—		—			3,895
Intercompany receivables		—		1,021,479		102,694		(1,124,173	)(b)		—
Other current assets		5,600		19,655		6,563		—			31,818
Total Current Assets		56,948		1,353,971		168,562		(1,125,818	)		453,663
Property and equipment, net		16,344		425,677		59,531		—			501,552
Investment in affiliates		2,930,022		82,475		—		(3,012,497	)(c)(d)		—
Goodwill		—		1,640,534		—		—			1,640,534
Other identifiable intangibles		—		71,745		—		—			71,745
Non-current deferred tax asset		5,107		—		—		(5,107	)(e)		—
Other assets		28,680		63,447		692		—			92,819
Total Assets	$	3,037,101	$	3,637,849	$	228,785	$	(4,143,422	)	$	2,760,313
Liabilities and Equity
Current Liabilities:
Bank overdrafts	$	17,836	$	—	$	—	$	—		$	17,836
Current portion of long-term debt and notes payable		8,916		1,059		1,671		—			11,646
Accounts payable		4,674		72,213		12,660		—			89,547
Intercompany payables		1,124,173		—		—		(1,124,173	)(b)		—
Accrued payroll		186		88,096		304		—			88,586
Accrued vacation		4,249		44,508		6,957		—			55,714
Accrued interest		17,955		804		—		—			18,759
Accrued other		58,650		39,876		8,754		—			107,280
Due to third party payors		—		—		2,723		(1,645	)(a)		1,078
Total Current Liabilities		1,236,639		246,556		33,069		(1,125,818	)		390,446
Long-term debt, net of current portion		872,671		358,104		60,522		—			1,291,297
Non-current deferred tax liability		—		85,287		9,330		(5,107	)(e)		89,510
Other non-current liabilities		46,474		20,275		1,753		—			68,502
Total Liabilities		2,155,784		710,222		104,674		(1,130,925	)		1,839,755
Redeemable non-controlling interests		—		—		10,811		—			10,811
Stockholder's Equity:
Common stock		0		—		—		—			0
Capital in excess of par		859,839		—		—		—			859,839
Retained earnings		21,478		790,692		21,197		(811,889	)(d)		21,478
Subsidiary investment		—		2,136,935		63,673		(2,200,608	)(c)		—
Total Select Medical Corporation Stockholder's Equity		881,317		2,927,627		84,870		(3,012,497	)		881,317
Non-controlling interests		—		—		28,430		—			28,430
Total Equity		881,317		2,927,627		113,300		(3,012,497	)		909,747
Total Liabilities and Equity	$	3,037,101	$	3,637,849	$	228,785	$	(4,143,422	)	$	2,760,313

(a)

Reclass portion of due to third party payor to accounts receivable net in consolidation.

(b)

Elimination of intercompany.

(c)

Elimination of investments in consolidated subsidiaries.

(d)

Elimination of investments in consolidated subsidiaries' earnings.

(e)

Reclass of non-current deferred tax asset to report net non-current deferred tax liability in consolidation.

Select Medical Corporation

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

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

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
Equity in earnings of unconsolidated subsidiaries		—			(5,194	)		(23	)		—			(5,217	)
Loss (gain) from disposal of assets		—			(3,606	)		2			—			(3,604	)
Non-cash stock compensation expense		2,599			—			—			—			2,599
Amortization of debt discount and issuance costs		3,325			—			—			—			3,325
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)		—
Accounts receivable		—			(15,938	)		(14,582	)		—			(30,520	)
Other current assets		(1,314	)		(983	)		685			—			(1,612	)
Other assets		1,348			183			144			—			1,675
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		18,892			90,213			14,944			—			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, net of distributions		—			(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 credit facility term loans		(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		79,937			(72,802	)		(7,135	)		—			—
Distributions to non-controlling interests		—			—			(1,681	)		—			(1,681	)
Net cash used in financing activities		(10,683	)		(73,022	)		(9,224	)		—			(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.

16. Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries under the Company's 7⁵/8% Senior Subordinated Notes

        The Company's 7⁵/8% senior subordinated notes are fully and unconditionally guaranteed, except for customary limitations, on a senior subordinated basis by all of the Company's wholly-owned subsidiaries (the "Subsidiary Guarantors") which is defined as a subsidiary where the Company holds all ownership interests. Certain of the Company's subsidiaries did not guarantee the 7⁵/8% senior subordinated notes (the "Non-Guarantor Subsidiaries").

        The Company conducts a significant portion of its business through its subsidiaries. Presented below is condensed consolidating financial information for the Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at December 31, 2011 and 2012 and the years ended December 31, 2010, 2011 and 2012.

        The equity method has been used by the Company 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.

        The condensed consolidating balance sheets at December 2011 and the condensed consolidating statements of cash flows for the years ended December 31, 2011 and 2010 included in this footnote contain certain immaterial adjustments that were made to the December 31, 2011 condensed consolidating balance sheet and the condensed consolidating statements of cash flows for the years ended December 31, 2011 and 2010 relating to the presentation of intercompany transactions. On the December 31, 2011 condensed consolidating balance sheet, intercompany accounts that were previously reported as both asset and liability balances within the liability section of the balance sheet have been adjusted and presented separately as either an intercompany receivable within the current asset classification or as an intercompany payable within the current liability classification, based upon the account's attributes on each subsidiary's balance sheet. On the condensed consolidating statement of cash flows for the years ended December 31, 2011 and 2010, the changes in intercompany advances that were previously reported as a change in operating assets and liabilities in cash flow provided by (used in) operating activities has been adjusted as a financing activity. These adjustments had no impact on the total equity of the Guarantors, non-Guarantors or Parent Company. They did not alter the net increase or decrease in cash for the Guarantors, non-Guarantors or Parent Company.

        On February 20, 2013, the Company instructed U.S. Bank Trust National Association, as trustee, to deliver an irrevocable notice of redemption to the holders of all of the Company's outstanding 7⁵/8% senior subordinated notes due 2015 all of which will be redeemed at 100% of the principal amount plus any accrued and unpaid interest to the redemption date on or about March 22, 2013.

Select Medical Corporation
Consolidating Balance Sheet
December 31, 2012

	Select Medical Corporation (Parent Company Only)		Subsidiary Guarantors		Non-Guarantor Subsidiaries		Eliminations			Consolidated
	(in thousands)
Assets
Current Assets:
Cash and cash equivalents	$	35,070	$	3,734	$	1,340	$	—		$	40,144
Accounts receivable, net		—		308,043		53,531		(1,645	)		359,929
Current deferred tax asset		12,383		1,060		4,434		—			17,877
Prepaid income taxes		3,895		—		—		—			3,895
Intercompany receivables		—		1,021,479		102,694		(1,124,173	)		—
Other current assets		5,600		19,655		6,563		—			31,818
Total Current Assets		56,948		1,353,971		168,562		(1,125,818	)		453,663
Property and equipment, net		16,344		425,677		59,531		—			501,552
Investment in affiliates		2,930,022		82,475		—		(3,012,497	)(a)(b)		—
Goodwill		—		1,640,534		—		—			1,640,534
Other identifiable intangibles		—		71,745		—		—			71,745
Non-current deferred tax asset		5,107		—		—		(5,107	)		—
Other assets		28,680		63,447		692		—			92,819
Total Assets	$	3,037,101	$	3,637,849	$	228,785	$	(4,143,422	)	$	2,760,313
Liabilities and Equity
Current Liabilities:
Bank overdrafts	$	17,836	$	—	$	—	$	—		$	17,836
Current portion of long-term debt and notes payable		8,916		1,059		1,671		—			11,646
Accounts payable		4,674		72,213		12,660		—			89,547
Intercompany payables		1,124,173		—		—		(1,124,173	)		—
Accrued payroll		186		88,096		304		—			88,586
Accrued vacation		4,249		44,508		6,957		—			55,714
Accrued interest		17,955		804		—		—			18,759
Accrued other		58,650		39,876		8,754		—			107,280
Due to third party payors		—		—		2,723		(1,645	)		1,078
Total Current Liabilities		1,236,639		246,556		33,069		(1,125,818	)		390,446
Long-term debt, net of current portion		872,671		358,104		60,522		—			1,291,297
Non-current deferred tax liability		—		85,287		9,330		(5,107	)		89,510
Other non-current liabilities		46,474		20,275		1,753		—			68,502
Total Liabilities		2,155,784		710,222		104,674		(1,130,925	)		1,839,755
Redeemable non-controlling interests		—		—		10,811		—			10,811
Stockholder's Equity:
Common stock		0		—		—		—			0
Capital in excess of par		859,839		—		—		—			859,839
Retained earnings		21,478		790,692		21,197		(811,889	)(b)		21,478
Subsidiary investment		—		2,136,935		63,673		(2,200,608	)(a)		—
Total Select Medical Corporation Stockholder's Equity		881,317		2,927,627		84,870		(3,012,497	)		881,317
Non-controlling interests		—		—		28,430		—			28,430
Total Equity		881,317		2,927,627		113,300		(3,012,497	)		909,747
Total Liabilities and Equity	$	3,037,101	$	3,637,849	$	228,785	$	(4,143,422	)	$	2,760,313

(a)

Elimination of investments in consolidated subsidiaries.

(b)

Elimination of investments in consolidated subsidiaries' earnings.

Select Medical Corporation
Consolidating Statement of Operations
For the Year Ended December 31, 2012

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Net operating revenues	$	123		$	2,549,896		$	398,950		$	—		$	2,948,969
Costs and expenses:
Cost of services		2,139			2,099,734			341,677			—			2,443,550
General and administrative		67,402			(1,208	)		—			—			66,194
Bad debt expense		—			33,595			5,460			—			39,055
Depreciation and amortization		3,267			50,734			9,310			—			63,311
Total costs and expenses		72,808			2,182,855			356,447			—			2,612,110
Income (loss) from operations		(72,685	)		367,041			42,503			—			336,859
Other income and expense:
Intercompany interest and royalty fees		(2,532	)		2,494			38			—			—
Intercompany management fees		120,276			(102,096	)		(18,180	)		—			—
Loss on early retirement of debt		(6,064	)		—			—			—			(6,064	)
Equity in earnings of unconsolidated subsidiaries		—			7,637			68			—			7,705
Interest expense		(54,167	)		(25,348	)		(4,244	)		—			(83,759	)
Income (loss) from operations before income taxes		(15,172	)		249,728			20,185			—			254,741
Income tax expense (benefit)		(8,206	)		101,795			(15	)		—			93,574
Equity in earnings of subsidiaries		162,470			15,639			—			(178,109	)(a)		—
Net income		155,504			163,572			20,200			(178,109	)		161,167
Less: Net income attributable to non-controlling interests		—			—			5,663			—			5,663
Net income attributable to Select Medical Corporation	$	155,504		$	163,572		$	14,537		$	(178,109	)	$	155,504

(a)

Elimination of equity in earnings of subsidiaries.

Select Medical Corporation
Consolidating Statement of Cash Flows
For the Year Ended December 31, 2012

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Operating activities
Net income	$	155,504		$	163,572		$	20,200		$	(178,109	)(a)	$	161,167
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,267			50,734			9,310			—			63,311
Provision for bad debts		—			33,595			5,460			—			39,055
Equity in earnings of unconsolidated subsidiaires		—			(7,637	)		(68	)		—			(7,705	)
Loss on early retirement of debt		6,064			—			—			—			6,064
Loss (gain) from disposal or sale of assets		—			(6,002	)		96			—			(5,906	)
Non-cash stock compensation expense		5,677			—			—			—			5,677
Amortization of debt discount and issuance costs		7,190			—			—			—			7,190
Deferred income taxes		7,909			—			—			—			7,909
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Equity in earnings of subsidiaries		(162,470	)		(15,639	)		—			178,109	(a)		—
Accounts receivable		—			29,727			(14,569	)		—			15,158
Other current assets		740			141			(2,488	)		—			(1,607	)
Other assets		2,448			3,268			161			—			5,877
Accounts payable		(2,679	)		(4,040	)		602			—			(6,117	)
Due to third-party payors		—			(15,278	)		10,830			—			(4,448	)
Accrued expenses		25,350			(3,835	)		2,231			—			23,746
Net cash provided by operating activities		49,000			228,606			31,765			—			309,371
Investing activities
Purchases of property and equipment		(5,150	)		(49,160	)		(13,875	)		—			(68,185	)
Proceeds from sale of assets		—			16,511			—			—			16,511
Investment in businesses, net of distributions		—			(14,689	)		—			—			(14,689	)
Acquisition of businesses, net of cash acquired		—			(6,043	)		—			—			(6,043	)
Net cash used in investing activities		(5,150	)		(53,381	)		(13,875	)		—			(72,406	)
Financing activities
Borrowings on revolving credit facility		495,000			—			—			—			495,000
Payments on revolving credit facility		(405,000	)		—			—			—			(405,000	)
Borrowings on 2011 credit facility term loans, net of discount		266,750			—			—			—			266,750
Payments on 2011 credit facility term loans		(9,875	)		—			—			—			(9,875	)
Repurchase of 75/8% senior subordinated notes, net of premiums		(278,495	)		—			—			—			(278,495	)
Borrowings of other debt		8,003			—			278			—			8,281
Principal payments on other debt		(8,049	)		(433	)		(1,813	)		—			(10,295	)
Debt issuance costs		(6,527	)		—			—			—			(6,527	)
Dividends paid to Holdings		(268,479	)		—			—			—			(268,479	)
Equity investment by Holdings		1,817			—			—			—			1,817
Proceeds from bank overdrafts		1,227			—			—			—			1,227
Intercompany		183,421			(171,058	)		(12,363	)		—			—
Distributions to non-controlling interests		—			—			(3,268	)		—			(3,268	)
Net cash used in financing activities		(20,207	)		(171,491	)		(17,166	)		—			(208,864	)
Net increase in cash and cash equivalents		23,643			3,734			724			—			28,101
Cash and cash equivalents at beginning of period		11,427			—			616			—			12,043
Cash and cash equivalents at end of period	$	35,070		$	3,734		$	1,340		$	—		$	40,144

(a)

Elimination of equity in earnings of consolidated subsidiaries.

Select Medical Corporation
Consolidating Balance Sheet
December 31, 2011

	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		52,529		(8,107	)		413,743
Current deferred tax asset		11,415		3,221		3,669		—			18,305
Prepaid income taxes		9,497		—		—		—			9,497
Intercompany receivables		—		880,537		98,448		(978,985	)		—
Other current assets		6,340		19,407		4,075		—			29,822
Total Current Assets		38,679		1,272,486		159,337		(987,092	)		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
Non-current deferred tax asset		2,509		—		—		(2,509	)		—
Other assets		31,128		41,480		853		—			73,461
Total Assets	$	2,838,733	$	3,542,313	$	214,841	$	(3,825,149	)	$	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 payables		978,985		—		—		(978,985	)		—
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 other		47,829		56,113		7,401		—			111,343
Due to third party payors		—		13,633		—		(8,107	)		5,526
Total Current Liabilities		1,075,404		270,303		27,447		(987,092	)		386,062
Long-term debt, net of current portion		733,328		425,315		60,007		—			1,218,650
Non-current deferred tax liability		—		75,750		8,787		(2,509	)		82,028
Other non-current liabilities		46,555		17,970		380		—			64,905
Total Liabilities		1,855,287		789,338		96,621		(989,601	)		1,751,645
Redeemable non-controlling interests		—		—		8,988		—			8,988
Stockholder's Equity:
Common stock		0		—		—		—			0
Capital in excess of par		848,844		—		—		—			848,844
Retained earnings		134,602		627,120		23,154		(650,274	)(b)		134,602
Subsidiary investment		—		2,125,855		59,419		(2,185,274	)(a)		—
Total Select Medical Corporation Stockholder's Equity		983,446		2,752,975		82,573		(2,835,548	)		983,446
Non-controlling interests		—		—		26,659		—			26,659
Total Equity		983,446		2,752,975		109,232		(2,835,548	)		1,010,105
Total Liabilities and Equity	$	2,838,733	$	3,542,313	$	214,841	$	(3,825,149	)	$	2,770,738

(a)

Elimination of investments in consolidated subsidiaries.

(b)

Elimination of investments in consolidated subsidiaries' earnings.

Select Medical Corporation
Consolidating Statement of Operations
For the Year Ended December 31, 2011

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Net operating revenues	$	121		$	2,436,177		$	368,209		$	—		$	2,804,507
Costs and expenses:
Cost of services		1,729			1,996,671			310,170			—			2,308,570
General and administrative		61,995			359			—			—			62,354
Bad debt expense		—			44,300			7,047			—			51,347
Depreciation and amortization		4,115			58,064			9,338			—			71,517
Total costs and expenses		67,839			2,099,394			326,555			—			2,493,788
Income (loss) from operations		(67,718	)		336,783			41,654			—			310,719
Other income and expense:
Intercompany interest and royalty fees		(3,408	)		3,382			26			—			—
Intercompany management fees		120,013			(102,970	)		(17,043	)		—			—
Loss on early retirement of debt		(20,385	)		—			—			—			(20,385	)
Equity in earnings of unconsolidated subsidiaries		—			2,870			53			—			2,923
Interest income		132			122			68			—			322
Interest expense		(41,817	)		(34,612	)		(4,803	)		—			(81,232	)
Income (loss) before income taxes		(13,183	)		205,575			19,955			—			212,347
Income tax expense (benefit)		(12,821	)		92,561			1,244			—			80,984
Equity in earnings of subsidiaries		126,809			13,406			—			(140,215)	(a)		—
Net income		126,447			126,420			18,711			(140,215	)		131,363
Less: Net income attributable to non-controlling interests		—			—			4,916			—			4,916
Net income attributable to Select Medical Corporation	$	126,447		$	126,420		$	13,795		$	(140,215	)	$	126,447

(a)

Elimination of equity in earnings of subsidiaries.

Select Medical Corporation
Consolidating Statement of Cash Flows
For the Year Ended December 31, 2011

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Operating activities
Net income	$	126,447		$	126,420		$	18,711		$	(140,215	)(a)	$	131,363
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,115			58,064			9,338			—			71,517
Provision for bad debts		—			44,300			7,047			—			51,347
Equity in earnings of unconsolidated subsidiaries		—			(2,870	)		(53	)		—			(2,923	)
Loss on early retirement of debt		20,385			—			—			—			20,385
Loss (gain) from disposal or sale of assets		13			(5,024	)		45			—			(4,966	)
Non-cash stock compensation expense		3,725			—			—			—			3,725
Amortization of debt discount and issuance costs		6,700			—			—			—			6,700
Deferred income taxes		35,305			—			—			—			35,305
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Equity in earnings of subsidiaries		(126,809	)		(13,406	)		—			140,215	(a)		—
Accounts receivable		—			(98,966	)		(12,160	)		—			(111,126	)
Other current assets		(1,780	)		1,165			(586	)		—			(1,201	)
Other assets		(12,069	)		9,683			318			—			(2,068	)
Accounts payable		1,326			16,247			3,056			—			20,629
Due to third-party payors		—			1,408			(1,181	)		—			227
Accrued expenses		14,823			5,522			794			—			21,139
Net cash provided by operating activities		72,181			142,543			25,329			—			240,053
Investing activities
Purchases of property and equipment		(3,413	)		(37,759	)		(4,844	)		—			(46,016	)
Investment in businesses, net of distributions		—			(15,699	)		—			—			(15,699	)
Acquisition of businesses, net of cash acquired		—			(899	)		—			—			(899	)
Proceeds from sale of assets		—			7,879			—			—			7,879
Net cash used in investing activities		(3,413	)		(46,478	)		(4,844	)		—			(54,735	)
Financing activities
Borrowings on revolving credit facility		735,000			—			—			—			735,000
Payments on revolving credit facility		(720,000	)		—			—			—			(720,000	)
Borrowings on 2011 credit facility term loans, net of discount		841,500			—			—			—			841,500
Payments on 2011 credit facility term loans		(4,250	)		—			—			—			(4,250	)
Payments on 2005 credit facility term loans, net of call premium		(484,633	)		—			—			—			(484,633	)
Repurchase of 75/8% senior subordinated notes, net of premiums		(273,941	)		—			—			—			(273,941	)
Borrowings of other debt		6,100			955			—			—			7,055
Principal payments on other debt		(5,662	)		(755	)		(1,082	)		—			(7,499	)
Debt issuance costs		(18,556	)		—			—			—			(18,556	)
Repayments of bank overdrafts		(2,183	)		—			—			—			(2,183	)
Equity investment by Holdings		208			—			—			—			208
Dividends paid to Holdings		(245,729	)		—			—			—			(245,729	)
Intercompany		114,656			(99,832	)		(14,824	)		—			—
Distributions to non-controlling interests		—			—			(4,612	)		—			(4,612	)
Net cash used in financing activities		(57,490	)		(99,632	)		(20,518	)		—			(177,640	)
Net increase (decrease) in cash and cash equivalents		11,278			(3,567	)		(33	)		—			7,678
Cash and cash equivalents at beginning of period		149			3,567			649			—			4,365
Cash and cash equivalents at end of period	$	11,427		$	—		$	616		$	—		$	12,043

(a)

Elimination of equity in earnings of consolidated subsidiaries.

Select Medical Corporation
Consolidating Statement of Operations and Comprehensive Income
For the Year Ended December 31, 2010

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Net operating revenues	$	107		$	2,060,001		$	330,182		$	—		$	2,390,290
Costs and expenses:
Cost of services		1,473			1,703,096			277,610			—			1,982,179
General and administrative		53,035			9,086			—			—			62,121
Bad debt expense		—			34,267			6,880			—			41,147
Depreciation and amortization		2,837			57,267			8,602			—			68,706
Total costs and expenses		57,345			1,803,716			293,092			—			2,154,153
Income (loss) from operations		(57,238	)		256,285			37,090			—			236,137
Other income and expense:
Intercompany interest and royalty fees		(4,057	)		4,026			31			—			—
Intercompany management fees		101,878			(86,451	)		(15,427	)		—			—
Equity in losses of unconsolidated subsidiaries		—			(440	)		—			—			(440	)
Other income		632			—			—			—			632
Interest expense		(44,921	)		(34,965	)		(4,586	)		—			(84,472	)
Income (loss) before income taxes		(3,706	)		138,455			17,108			—			151,857
Income tax expense (benefit)		(7,097	)		56,271			2,206			—			51,380
Equity in earnings of subsidiaries		92,366			10,647			—			(103,013)	(a)		—
Net income		95,757			92,831			14,902			(103,013	)		100,477
Less: Net income attributable to non-controlling interests		—			—			4,720			—			4,720
Net income attributable to Select Medical Corporation		95,757			92,831			10,182			(103,013	)		95,757
Other comprehensive income:
Unrealized gain on interest rate swap, net of tax		8,914			—			—			—			8,914
Comprehensive income attributable to Select Medical Corporation	$	104,671		$	92,831		$	10,182		$	(103,013	)	$	104,671

(a)

Elimination of equity in net income from consolidated subsidiaries.

Select Medical Corporation
Consolidating Statement of Cash Flows
For the Year Ended December 31, 2010

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non- Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Operating activities
Net income	$	95,757		$	92,831		$	14,902		$	(103,013	)(a)	$	100,477
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		2,837			57,267			8,602			—			68,706
Provision for bad debts		—			34,267			6,880			—			41,147
Equity in losses of unconsolidated subsidiaries		—			440			—			—			440
Loss from disposal of assets		4			329			151			—			484
Non-cash gain from interest rate swaps		(632	)		—			—			—			(632	)
Non-cash stock compensation expense		2,236			—			—			—			2,236
Amortization of debt discount and issuance costs		6,599			—			—			—			6,599
Deferred income taxes		9,450			—			—			—			9,450
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Equity in earnings of subsidiaries		(92,366	)		(10,647	)		—			103,013	(a)		—
Accounts receivable		—			(42,549	)		(21,780	)		—			(64,329	)
Other current assets		826			(1,008	)		1,777			—			1,595
Other assets		(6,492	)		(1,472	)		1,193			—			(6,771	)
Accounts payable		2,798			(9,971	)		12			—			(7,161	)
Due to third-party payors		—			(4,390	)		2,488			—			(1,902	)
Accrued expenses		(25,160	)		42,387			2,498			—			19,725
Net cash provided by (used in) operating activities		(4,143	)		157,484			16,723			—			170,064
Investing activities
Purchases of property and equipment		(3,078	)		(33,186	)		(15,497	)		—			(51,761	)
Proceeds from sale of assets		—			565			—			—			565
Acquisition of businesses, net of cash acquired		—			(165,802	)		—			—			(165,802	)
Net cash used in investing activities		(3,078	)		(198,423	)		(15,497	)		—			(216,998	)
Financing activities
Equity investment by Holdings		241			—			—			—			241
Borrowings on revolving credit facility		227,000			—			—			—			227,000
Payments on revolving credit facility		(202,000	)		—			—			—			(202,000	)
Payments on credit facility term loan		(1,223	)		—			—			—			(1,223	)
Borrowings of other debt		5,564			—			783			—			6,347
Principal payments on other debt		(5,589	)		(946	)		(901	)		—			(7,436	)
Dividends paid to Holdings		(69,671	)		—			—			—			(69,671	)
Proceeds from bank overdrafts		18,792			—			—			—			18,792
Intercompany		(46,684	)		43,154			3,530			—			—
Distributions to non-controlling interests		—			—			(4,431	)		—			(4,431	)
Net cash provided by (used in) financing activities		(73,570	)		42,208			(1,019	)		—			(32,381	)
Net increase (decrease) in cash and cash equivalents		(80,791	)		1,269			207			—			(79,315	)
Cash and cash equivalents at beginning of period		80,940			2,298			442			—			83,680
Cash and cash equivalents at end of period	$	149		$	3,567		$	649		$	—		$	4,365

(a)

Elimination of equity in earnings of subsidiaries.