UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2021

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from              to              

Commission file numbers: 001-34465

SELECT MEDICAL HOLDINGS CORPORATION

(Exact name of Registrant as specified in its Charter)

Delaware	20-1764048
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

4714 Gettysburg Road, P.O. Box 2034

Mechanicsburg, PA 17055

(Address of Principal Executive Offices and Zip code)

(717) 972-1100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	SEM	New York Stock Exchange
		(NYSE)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods as such Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☒  No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).   Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging Growth Company	☐

 If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☒

As of April 30, 2021, Select Medical Holdings Corporation had outstanding 134,838,706 shares of common stock.

Unless the context indicates otherwise, any reference in this report to “Holdings” refers to Select Medical Holdings Corporation and any reference to “Select” refers to Select Medical Corporation, the wholly owned operating subsidiary of Holdings, and any of Select’s subsidiaries. Any reference to “Concentra” refers to Concentra Group Holdings Parent, LLC (“Concentra Group Holdings Parent”) and its subsidiaries, including Concentra Inc. References to the “Company,” “we,” “us,” and “our” refer collectively to Holdings, Select, and Concentra.

1

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	3
ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Condensed consolidated balance sheets	3
	Condensed consolidated statements of operations	4
	Condensed consolidated statements of comprehensive income	5
	Condensed consolidated statements of changes in equity and income	6
	Condensed consolidated statements of cash flows	7
	Notes to condensed consolidated financial statements	8
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	20
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	41
ITEM 4.	CONTROLS AND PROCEDURES	41
PART II	OTHER INFORMATION	42
ITEM 1.	LEGAL PROCEEDINGS	42
ITEM 1A.	RISK FACTORS	42
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	42
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	42
ITEM 4.	MINE SAFETY DISCLOSURES	42
ITEM 5.	OTHER INFORMATION	42
ITEM 6.	EXHIBITS	43
SIGNATURES

2

PART I: FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Select Medical Holdings Corporation

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share amounts)

	December 31, 2020		March 31, 2021
ASSETS
Current Assets:
Cash and cash equivalents	$	577,061	$	750,274
Accounts receivable	896,763		959,715
Prepaid income taxes	5,686		5,657
Other current assets	114,490		119,668
Total Current Assets	1,594,000		1,835,314
Operating lease right-of-use assets	1,032,217		1,053,880
Property and equipment, net	943,420		930,843
Goodwill	3,379,014		3,390,325
Identifiable intangible assets, net	387,541		384,322
Other assets	319,207		326,097
Total Assets	$	7,655,399	$	7,920,781
LIABILITIES AND EQUITY
Current Liabilities:
Current operating lease liabilities	$	220,413	$	223,648
Current portion of long-term debt and notes payable	12,621		15,426
Accounts payable	177,087		189,170
Accrued payroll	224,876		228,839
Accrued vacation	132,811		140,622
Accrued interest	29,240		10,072
Accrued other	228,948		253,141
Government advances (Note 15)	321,807		324,975
Unearned government assistance (Note 15)	82,607		101,814
Income taxes payable	7,956		52,545
Total Current Liabilities	1,438,366		1,540,252
Non-current operating lease liabilities	875,367		894,526
Long-term debt, net of current portion	3,389,398		3,387,249
Non-current deferred tax liability	132,421		133,408
Other non-current liabilities	168,703		168,798
Total Liabilities	6,004,255		6,124,233
Commitments and contingencies (Note 14)
Redeemable non-controlling interests	398,171		445,931
Stockholders’ Equity:
Common stock, $0.001 par value, 700,000,000 shares authorized, 134,850,735 and 134,838,706 shares issued and outstanding at 2020 and 2021, respectively	135		135
Capital in excess of par	509,128		514,336
Retained earnings	553,244		625,381
Accumulated other comprehensive income (loss)	(2,027)		6,124
Total Stockholders’ Equity	1,060,480		1,145,976
Non-controlling interests	192,493		204,641
Total Equity	1,252,973		1,350,617
Total Liabilities and Equity	$	7,655,399	$	7,920,781

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Select Medical Holdings Corporation

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands, except per share amounts)

	For the Three Months Ended March 31,
	2020		2021
Revenue	$	1,414,632	$	1,546,463
Costs and expenses:
Cost of services, exclusive of depreciation and amortization	1,200,371		1,293,449
General and administrative	33,831		35,403
Depreciation and amortization	51,752		49,620
Total costs and expenses	1,285,954		1,378,472
Other operating income	—		34,021
Income from operations	128,678		202,012
Other income and expense:
Equity in earnings of unconsolidated subsidiaries	2,588		9,919
Gain on sale of businesses	7,201		—
Interest income	—		4,749
Interest expense	(46,107)		(34,402)
Income before income taxes	92,360		182,278
Income tax expense	21,912		45,064
Net income	70,448		137,214
Less: Net income attributable to non-controlling interests	17,323		26,668
Net income attributable to Select Medical Holdings Corporation	$	53,125	$	110,546
Earnings per common share (Note 13):
Basic	$	0.40	$	0.82

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Select Medical Holdings Corporation

Condensed Consolidated Statements of Comprehensive Income

(unaudited)

(in thousands)

	For the Three Months Ended March 31,
	2020		2021
Net income	$	70,448	$	137,214
Other comprehensive income:
Gain on interest rate cap cash flow hedge, net of tax effect of $2,834	—		8,151
Comprehensive income	70,448		145,365
Less: Comprehensive income attributable to non-controlling interests	17,323		26,668
Comprehensive income attributable to Select Medical Holdings Corporation	$	53,125	$	118,697

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Select Medical Holdings Corporation

Condensed Consolidated Statements of Changes in Equity and Income

(unaudited)

(in thousands)

	For the Three Months Ended March 31, 2021
		Total Stockholders’ Equity
	Common Stock Issued	Common Stock Par Value		Capital in Excess of Par		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity		Non-controlling Interests		Total Equity
Balance at December 31, 2020	134,850	$	135	$	509,128	$	553,244	$	(2,027)	$	1,060,480	$	192,493	$	1,252,973
Net income attributable to Select Medical Holdings Corporation						110,546				110,546				110,546
Net income attributable to non-controlling interests										—		17,042		17,042
Issuance of restricted stock	2	0		0						—				—
Forfeitures of unvested restricted stock	(14)	0		0						—				—
Vesting of restricted stock				6,173						6,173				6,173
Non-controlling interests acquired in business combination										—		8,193		8,193
Distributions to and purchases of non-controlling interests				(787)						(787)		(13,458)		(14,245)
Redemption value adjustment on non-controlling interests						(38,405)				(38,405)				(38,405)
Gain on interest rate cap cash flow hedge, net of tax effect								8,151		8,151				8,151
Other				(178)		(4)				(182)		371		189
Balance at March 31, 2021	134,838	$	135	$	514,336	$	625,381	$	6,124	$	1,145,976	$	204,641	$	1,350,617

	For the Three Months Ended March 31, 2020
		Total Stockholders’ Equity
	Common Stock Issued	Common Stock Par Value		Capital in Excess of Par		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity		Non-controlling Interests		Total Equity
Balance at December 31, 2019	134,328	$	134	$	491,038	$	279,800	$	—	$	770,972	$	158,063	$	929,035
Net income attributable to Select Medical Holdings Corporation						53,125				53,125				53,125
Net income attributable to non-controlling interests										—		10,067		10,067
Issuance of restricted stock	2	0		0						—				—
Forfeitures of unvested restricted stock	(15)	0		0						—				—
Vesting of restricted stock				6,136						6,136				6,136
Repurchase of common shares	(492)			(5,350)		(3,341)				(8,691)				(8,691)
Issuance of non-controlling interests										—		1,679		1,679
Distributions to and purchases of non-controlling interests						(2,726)				(2,726)		(4,048)		(6,774)
Redemption value adjustment on non-controlling interests						(10,123)				(10,123)				(10,123)
Other						(55)				(55)		420		365
Balance at March 31, 2020	133,823	$	134	$	491,824	$	316,680	$	—	$	808,638	$	166,181	$	974,819

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Select Medical Holdings Corporation

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

	For the Three Months Ended March 31,
	2020		2021
Operating activities
Net income	$	70,448	$	137,214
Adjustments to reconcile net income to net cash provided by operating activities:
Distributions from unconsolidated subsidiaries	8,479		11,633
Depreciation and amortization	51,752		49,620
Provision for expected credit losses	199		67
Equity in earnings of unconsolidated subsidiaries	(2,588)		(9,919)
Loss (gain) on sale or disposal of assets and businesses	(7,339)		72
Stock compensation expense	6,903		6,709
Amortization of debt discount, premium and issuance costs	553		543
Deferred income taxes	9,364		(897)
Changes in operating assets and liabilities, net of effects of business combinations:
Accounts receivable	(53,928)		(60,142)
Other current assets	27		(4,425)
Other assets	2,248		961
Accounts payable	(8,992)		23,460
Accrued expenses	(44,455)		21,167
Unearned government assistance	—		19,207
Income taxes	11,413		44,618
Net cash provided by operating activities	44,084		239,888
Investing activities
Business combinations, net of cash acquired	(6,833)		(6,314)
Purchases of property and equipment	(39,208)		(39,719)
Investment in businesses	(9,848)		(6,571)
Proceeds from sale of assets and businesses	11,230		19
Net cash used in investing activities	(44,659)		(52,585)
Financing activities
Borrowings on revolving facilities	460,000		—
Payments on revolving facilities	(295,000)		—
Payments on term loans	(39,843)		—
Borrowings of other debt	6,487		8,915
Principal payments on other debt	(8,099)		(9,342)
Repurchase of common stock	(8,691)		—
Proceeds from issuance of non-controlling interests	1,679		—
Distributions to and purchases of non-controlling interests	(12,474)		(13,663)
Purchase of membership interests of Concentra Group Holdings Parent	(366,203)		—
Net cash used in financing activities	(262,144)		(14,090)
Net increase (decrease) in cash and cash equivalents	(262,719)		173,213
Cash and cash equivalents at beginning of period	335,882		577,061
Cash and cash equivalents at end of period	$	73,163	$	750,274
Supplemental Information
Cash paid for interest	$	67,885	$	52,470
Cash paid for taxes	1,135		1,343

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

SELECT MEDICAL HOLDINGS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.                  Basis of Presentation

The unaudited condensed consolidated financial statements of Select Medical Holdings Corporation (“Holdings”) include the accounts of its wholly owned subsidiary, Select Medical Corporation (“Select”). Holdings conducts substantially all of its business through Select and its subsidiaries. Holdings and Select and its subsidiaries are collectively referred to as the “Company.” The unaudited condensed consolidated financial statements of the Company as of March 31, 2021, and for the three month periods ended March 31, 2020 and 2021, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim reporting and the accounting principles generally accepted in the United States of America (“GAAP”). Accordingly, certain information and disclosures required by GAAP, which are normally included in the notes to the consolidated financial statements, have been condensed or omitted pursuant to those rules and regulations, although the Company believes the disclosure is adequate to make the information presented not misleading. In the opinion of management, such information contains all adjustments, which are normal and recurring in nature, necessary for a fair statement of the financial position, results of operations and cash flow for such periods. All significant intercompany transactions and balances have been eliminated.

The results of operations for the three months ended March 31, 2021, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2021. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2020, contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 25, 2021.

2.    Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results could differ from those estimates.

3.     Credit Risk Concentrations

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash balances and accounts receivable. The Company’s excess cash is held with large financial institutions. The Company grants unsecured credit to its patients, most of whom reside in the service area of the Company’s facilities and are insured under third-party payor agreements.

Because of the diversity in the Company’s non-governmental third-party payor base, as well as their geographic dispersion, accounts receivable due from the Medicare program represent the Company’s only significant concentration of credit risk. Approximately 18% and 17% of the Company’s accounts receivable is due from Medicare at December 31, 2020, and March 31, 2021, respectively.

4.     Redeemable Non-Controlling Interests

The ownership interests held by outside parties in subsidiaries, which include limited liability companies and limited partnerships, controlled by the Company are classified as non-controlling interests. Some of the Company’s non-controlling ownership interests consist of outside parties that have certain redemption rights that, if exercised, require the Company to purchase the parties’ ownership interests. These interests are classified and reported as redeemable non-controlling interests and have been adjusted to their approximate redemption values, after the attribution of net income or loss.

The Company’s redeemable non-controlling interests are comprised primarily of the voting membership interests owned by outside members of Concentra Group Holdings Parent, each of which have put rights with respect to their interests in Concentra Group Holdings Parent.

8

The changes in redeemable non-controlling interests were as follows:

	Three Months Ended March 31,
	2020		2021
	(in thousands)
Balance as of January 1	$	974,541	$	398,171
Net income attributable to redeemable non-controlling interests	7,256		9,626
Distributions to and purchases of redeemable non-controlling interests	(5,687)		(614)
Purchase of membership interests of Concentra Group Holdings Parent	(366,203)		—
Redemption value adjustment on redeemable non-controlling interests	10,123		38,405
Other	347		343
Balance as of March 31	$	620,377	$	445,931

5.     Variable Interest Entities

Certain states prohibit the “corporate practice of medicine,” which restricts the Company from owning medical practices which directly employ physicians and from exercising control over medical decisions by physicians. In these states, the Company enters into long-term management agreements with medical practices that are owned by licensed physicians, which, in turn, employ or contract with physicians who provide professional medical services. The management agreements provide for the Company to direct the transfer of ownership of the medical practices to new licensed physicians at any time. Based on the provisions of the management agreements, the medical practices are variable interest entities for which the Company is the primary beneficiary.

As of December 31, 2020 and March 31, 2021, the total assets of the Company’s variable interest entities were $208.4 million and $229.0 million, respectively, and are principally comprised of accounts receivable. As of December 31, 2020 and March 31, 2021, the total liabilities of these variable interest entities were $55.1 million and $63.2 million, respectively, and are principally comprised of accounts payable and accrued expenses. The Company’s variable interest entities have obligations payable for services received under the aforementioned management agreements of $151.8 million and $164.3 million as of December 31, 2020 and March 31, 2021, respectively; these intercompany balances are eliminated in consolidation.

6.     Leases

The Company has operating and finance leases for its facilities. The Company leases its corporate office space from related parties.

The Company’s total lease cost was as follows:

	Three Months Ended March 31, 2020						Three Months Ended March 31, 2021
	Unrelated Parties		Related Parties		Total		Unrelated Parties		Related Parties		Total
	(in thousands)
Operating lease cost	$	69,792	$	1,733	$	71,525	$	70,114	$	1,799	$	71,913
Finance lease cost:
Amortization of right-of-use assets	62		—		62		35		—		35
Interest on lease liabilities	256		—		256		251		—		251
Variable lease cost	12,232		156		12,388		13,009		3		13,012
Sublease income	(2,555)		—		(2,555)		(2,234)		—		(2,234)
Total lease cost	$	79,787	$	1,889	$	81,676	$	81,175	$	1,802	$	82,977

9

Supplemental cash flow information related to leases was as follows:

	Three Months Ended March 31,
	2020		2021
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	70,282	$	72,437
Operating cash flows for finance leases	256		251
Financing cash flows for finance leases	43		58
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	$	67,894	$	79,987
Finance leases	—		138

Supplemental balance sheet information related to leases was as follows:

	December 31, 2020						March 31, 2021
	Unrelated Parties		Related Parties		Total		Unrelated Parties		Related Parties		Total
	(in thousands)
Operating Leases
Operating lease right-of-use assets	$	1,002,151	$	30,066	$	1,032,217	$	1,024,736	$	29,144	$	1,053,880
Current operating lease liabilities	$	214,377	$	6,036	$	220,413	$	217,557	$	6,091	$	223,648
Non-current operating lease liabilities	848,215		27,152		875,367		868,904		25,622		894,526
Total operating lease liabilities	$	1,062,592	$	33,188	$	1,095,780	$	1,086,461	$	31,713	$	1,118,174

	December 31, 2020						March 31, 2021
	Unrelated Parties		Related Parties		Total		Unrelated Parties		Related Parties		Total
	(in thousands)
Finance Leases
Property and equipment, net	$	5,644	$	—	$	5,644	$	5,798	$	—	$	5,798
Current portion of long-term debt and notes payable	$	663	$	—	$	663	$	544	$	—	$	544
Long-term debt, net of current portion	13,491		—		13,491		13,686		—		13,686
Total finance lease liabilities	$	14,154	$	—	$	14,154	$	14,230	$	—	$	14,230

The weighted average remaining lease terms and discount rates were as follows:

	December 31, 2020		March 31, 2021
Weighted average remaining lease term (in years):
Operating leases	7.8		7.9
Finance leases	31.2		30.8
Weighted average discount rate:
Operating leases	5.6	%	5.5	%
Finance leases	7.2	%	7.2	%

10

As of March 31, 2021, maturities of lease liabilities were approximately as follows:

	Operating Leases		Finance Leases
	(in thousands)
2021 (remainder of year)	$	211,313	$	1,116
2022	246,372		1,699
2023	200,937		1,710
2024	161,847		1,381
2025	129,235		1,205
Thereafter	508,893		29,019
Total undiscounted cash flows	1,458,597		36,130
Less: Imputed interest	340,423		21,900
Total discounted lease liabilities	$	1,118,174	$	14,230

7.     Intangible Assets

Goodwill

The following table shows changes in the carrying amounts of goodwill by reporting unit for the three months ended March 31, 2021:

	Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Total
	(in thousands)
Balance as of December 31, 2020	$	1,084,761	$	432,753	$	646,433	$	1,215,067	$	3,379,014
Acquisition of businesses	—		9,402		721		1,188		11,311
Balance as of March 31, 2021	$	1,084,761	$	442,155	$	647,154	$	1,216,255	$	3,390,325

Identifiable Intangible Assets

The following table provides the gross carrying amounts, accumulated amortization, and net carrying amounts for the Company’s identifiable intangible assets:

	December 31, 2020						March 31, 2021
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
	(in thousands)
Indefinite-lived intangible assets:
Trademarks	$	166,698	$	—	$	166,698	$	166,698	$	—	$	166,698
Certificates of need	18,392		—		18,392		18,327		—		18,327
Accreditations	1,874		—		1,874		1,874		—		1,874
Finite-lived intangible assets:
Trademarks	5,000		(5,000)		—		5,000		(5,000)		—
Customer relationships	291,923		(113,346)		178,577		295,423		(119,964)		175,459
Non-compete agreements	33,771		(11,771)		22,000		34,521		(12,557)		21,964
Total identifiable intangible assets	$	517,658	$	(130,117)	$	387,541	$	521,843	$	(137,521)	$	384,322

The Company’s accreditations and trademarks have renewal terms and the costs to renew these intangible assets are expensed as incurred. At March 31, 2021, the accreditations and trademarks have a weighted average time until next renewal of 1.5 years and 6.5 years, respectively.

The Company’s finite-lived intangible assets amortize over their estimated useful lives. Amortization expense was $6.9 million and $7.1 million for the three months ended March 31, 2020 and 2021, respectively.

11

8.     Long-Term Debt and Notes Payable

As of March 31, 2021, the Company’s long-term debt and notes payable were as follows:

	Principal Outstanding		Unamortized Premium (Discount)		Unamortized Issuance Costs		Carrying Value		Fair Value
	(in thousands)
Select 6.250% senior notes	$	1,225,000	$	32,254	$	(16,215)	$	1,241,039	$	1,299,113
Select credit facilities:
Select term loan	2,103,437		(7,898)		(8,609)		2,086,930		2,087,661
Other debt, including finance leases	74,986		—		(280)		74,706		74,706
Total debt	$	3,403,423	$	24,356	$	(25,104)	$	3,402,675	$	3,461,480

Principal maturities of the Company’s long-term debt and notes payable were approximately as follows:

	2021		2022		2023		2024		2025		Thereafter		Total
	(in thousands)
Select 6.250% senior notes	$	—	$	—	$	—	$	—	$	—	$	1,225,000	$	1,225,000
Select credit facilities:
Select term loan	—		—		4,757		11,150		2,087,530		—		2,103,437
Other debt, including finance leases	14,307		3,909		21,154		23,717		334		11,565		74,986
Total debt	$	14,307	$	3,909	$	25,911	$	34,867	$	2,087,864	$	1,236,565	$	3,403,423

As of December 31, 2020, the Company’s long-term debt and notes payable were as follows:

	Principal Outstanding		Unamortized Premium (Discount)		Unamortized Issuance Costs		Carrying Value		Fair Value
	(in thousands)
Select 6.250% senior notes	$	1,225,000	$	33,773	$	(16,953)	$	1,241,820	$	1,316,875
Select credit facilities:
Select term loan	2,103,437		(8,393)		(9,149)		2,085,895		2,082,403
Other debt, including finance leases	74,606		—		(302)		74,304		74,304
Total debt	$	3,403,043	$	25,380	$	(26,404)	$	3,402,019	$	3,473,582

9.     Interest Rate Cap

The Company is subject to market risk exposure arising from changes in interest rates on the Select term loan, which bears interest at a variable interest rate. The Company’s objective in using an interest rate derivative is to mitigate its exposure to increases in interest rates. The interest rate cap limits the Company’s exposure to increases in the reference rate to 1.0% on $2.0 billion of principal outstanding under the Select term loan. The interest rate cap is effective March 31, 2021 for the monthly periods from and including April 30, 2021 through September 30, 2024. The Company will pay a monthly premium for the interest rate cap over the term of the agreement. The annual premium is equal to 0.0916% of the notional amount.

The interest rate cap has been designated as a cash flow hedge and is highly effective at offsetting the changes in cash outflows when the reference rate exceeds 1.0%. Changes in the fair value of the interest rate cap, net of tax, are recognized in other comprehensive income and are reclassified out of accumulated other comprehensive income and into interest expense when the hedged interest obligations affect earnings. During the three months ended March 31, 2021, the Company recognized gains, net of tax, of $8.2 million related to changes in the fair value of the interest rate cap contract in other comprehensive income. The Company did not reclassify any amounts out of accumulated other comprehensive income into interest expense during the three months ended March 31, 2021. Refer to Note 10 – Fair Value of Financial Instruments for information on the fair value of the Company’s interest rate cap contract and its balance sheet classification.

The estimated pre-tax losses expected to be reclassified from accumulated other comprehensive income into interest expense within the next twelve months are approximately $1.8 million.

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10.     Fair Value of Financial Instruments

Financial instruments which are measured at fair value, or for which a fair value is disclosed, are classified in the fair value hierarchy, as outlined below, on the basis of the observability of the inputs used in the fair value measurement:

•Level 1 – inputs are based upon quoted prices for identical instruments in active markets.

•Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data.

•Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the instrument.

The Company’s interest rate cap contract is recorded at its fair value on a recurring basis. The fair value of the interest rate cap contract is based upon a model-derived valuation using observable market inputs, such as interest rates and interest rate volatility, and the strike price.

Financial Instrument	Balance Sheet Classification	Level	December 31, 2020		March 31, 2021
Asset:			(in thousands)
Interest rate cap contract, non-current portion	Other assets	Level 2	$	—	$	10,051
Liability:
Interest rate cap contract, current portion	Accrued other	Level 2	$	1,339	$	1,797
Interest rate cap contract, non-current portion	Other non-current liabilities	Level 2	1,392		—

The Company does not measure its indebtedness at fair value in its condensed consolidated balance sheets. The fair value of the Select credit facilities is based on quoted market prices for this debt in the syndicated loan market. The fair value of the senior notes is based on quoted market prices. The carrying value of the Company’s other debt, as disclosed in Note 8 – Long-Term Debt and Notes Payable, approximates fair value.

		December 31, 2020				March 31, 2021
Financial Instrument	Level	Carrying Value		Fair Value		Carrying Value		Fair Value
		(in thousands)
Select 6.250% senior notes	Level 2	$	1,241,820	$	1,316,875	$	1,241,039	$	1,299,113
Select credit facilities:
Select term loan	Level 2	2,085,895		2,082,403		2,086,930		2,087,661

The Company’s other financial instruments, which primarily consist of cash and cash equivalents, accounts receivable, and accounts payable, approximate fair value because of the short-term maturities of these instruments.

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11.     Segment Information

The Company’s reportable segments consist of the critical illness recovery hospital segment, rehabilitation hospital segment, outpatient rehabilitation segment, and Concentra segment. Other activities include the Company’s corporate shared services, certain investments, and employee leasing services with non-consolidating subsidiaries. For the three months ended March 31, 2021, the Company’s other activities also include other operating income related to the recognition of payments received under the Provider Relief Fund for health care related expenses and loss of revenue attributable to the coronavirus disease 2019 (“COVID-19”). Refer to Note 15 – CARES Act for further information.

The Company evaluates the performance of its 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, gain (loss) on sale of businesses, 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.

	Three Months Ended March 31,
	2020		2021
	(in thousands)
Revenue:
Critical illness recovery hospital	$	500,521	$	594,872
Rehabilitation hospital	182,019		207,804
Outpatient rehabilitation	255,249		251,961
Concentra	398,535		422,840
Other	78,308		68,986
Total Company	$	1,414,632	$	1,546,463
Adjusted EBITDA:
Critical illness recovery hospital	$	88,570