##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange act of 1934
 For the Quarterly Period Ended March 31, 2011
 o
    
    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 and 001  31441
 SELECT MEDICAL HOLDINGS CORPORATION
 SELECT MEDICAL CORPORATION
  Delaware 
Delaware
(State or other jurisdiction of
    
    20-1764048
23-2872718
(I.R.S. employer identification number)incorporation or organization)
 4714 Gettysburg Road, P.O. Box 2034, Mechanicsburg, Pennsylvania 17055
 
  þ o
  o o
  Large accelerated filers o
    
    Accelerated filers þ
    
    Non-accelerated filers o
    
    Smaller reporting company o
  o þ




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##### 



TABLE OF CONTENTS
 PART I FINANCIAL INFORMATION
    
    
    3ITEM 1. CONSOLIDATED FINANCIAL STATEMENTSConsolidated balance sheets
    
    
    3Consolidated statements of operations
    
    
    4Consolidated statements of changes in stockholders equity and income
    
    
    5Consolidated statements of cash flows
    
    
    6Notes to consolidated financial statements
    
    
    7ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    22ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    37ITEM 4. CONTROLS AND PROCEDURES
    
    
    37PART II OTHER INFORMATION
    
    
    38ITEM 1. LEGAL PROCEEDINGS
    
    
    38ITEM 1A. RISK FACTORS
    
    
    39ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    39ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    39ITEM 4. REMOVED AND RESERVED
    
    
    39ITEM 5. OTHER INFORMATION
    
    
    39ITEM 6. EXHIBITS
    
    
    39SIGNATURES
    
    
    40Exhibit 10.8Exhibit 31.1Exhibit 31.2Exhibit 32.1




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##### Table of Contents



PART
I FINANCIAL INFORMATION
 
 ITEM
1. CONSOLIDATED FINANCIAL STATEMENTS
 
 Consolidated Balance Sheets

(unaudited)
(in thousands, except share and per share amounts)
 Select Medical Holdings Corporation
    
    
    Select Medical CorporationDecember 31,
    
    
    March 31,
    
    
    December 31,
    
    
    March 31,2010
    
    
    2011
    
    
    2010
    
    
    2011ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    4,365
    
    
    $
    15,068
    
    
    $
    4,365
    
    
    $
    15,068Accounts receivable, net of allowance for doubtful accounts
of $44,416 and $51,457 in 2010 and 2011,
respectively
    
    
    353,432
    
    
    
    439,310
    
    
    
    353,432
    
    
    
    439,310Current deferred tax asset
    
    
    30,654
    
    
    
    29,644
    
    
    
    30,654
    
    
    
    29,644Prepaid income taxes
    
    
    12,699
    
    
    
    
    
    
    
    12,699
    
    
    
    Other current assets
    
    
    28,176
    
    
    
    31,264
    
    
    
    28,176
    
    
    
    31,264Total Current Assets
    
    
    429,326
    
    
    
    515,286
    
    
    
    429,326
    
    
    
    515,286Property and equipment, net
    
    
    532,100
    
    
    
    526,905
    
    
    
    532,100
    
    
    
    526,905Goodwill
    
    
    1,631,252
    
    
    
    1,640,535
    
    
    
    1,631,252
    
    
    
    1,640,535Other identifiable intangibles
    
    
    80,119
    
    
    
    73,102
    
    
    
    80,119
    
    
    
    73,102Assets held for sale
    
    
    11,342
    
    
    
    11,342
    
    
    
    11,342
    
    
    
    11,342Other assets
    
    
    37,947
    
    
    
    36,649
    
    
    
    35,433
    
    
    
    34,273Total Assets
    
    $
    2,722,086
    
    
    $
    2,803,819
    
    
    $
    2,719,572
    
    
    $
    2,801,443LIABILITIES AND EQUITYCurrent Liabilities:Bank overdrafts
    
    $
    18,792
    
    
    $
    9,374
    
    
    $
    18,792
    
    
    $
    9,374Current portion of long-term debt and notes payable
    
    
    149,379
    
    
    
    150,323
    
    
    
    149,379
    
    
    
    150,323Accounts payable
    
    
    74,193
    
    
    
    86,642
    
    
    
    74,193
    
    
    
    86,642Accrued payroll
    
    
    63,760
    
    
    
    75,357
    
    
    
    63,760
    
    
    
    75,357Accrued vacation
    
    
    46,588
    
    
    
    49,057
    
    
    
    46,588
    
    
    
    49,057Accrued interest
    
    
    30,937
    
    
    
    12,889
    
    
    
    21,586
    
    
    
    9,898Accrued restructuring
    
    
    6,754
    
    
    
    6,293
    
    
    
    6,754
    
    
    
    6,293Accrued other
    
    
    103,856
    
    
    
    96,732
    
    
    
    116,456
    
    
    
    96,732Income taxes payable
    
    
    
    
    
    
    6,698
    
    
    
    
    
    
    
    6,698Due to third party payors
    
    
    5,299
    
    
    
    4,825
    
    
    
    5,299
    
    
    
    4,825Total Current Liabilities
    
    
    499,558
    
    
    
    498,190
    
    
    
    502,807
    
    
    
    495,199Long-term debt, net of current portion
    
    
    1,281,390
    
    
    
    1,324,393
    
    
    
    974,913
    
    
    
    1,017,409Non-current deferred tax liability
    
    
    59,074
    
    
    
    63,653
    
    
    
    59,074
    
    
    
    63,653Other non-current liabilities
    
    
    66,650
    
    
    
    69,526
    
    
    
    66,650
    
    
    
    69,526Total Liabilities
    
    
    1,906,672
    
    
    
    1,955,762
    
    
    
    1,603,444
    
    
    
    1,645,787Stockholders Equity:Common stock of Holdings, $0.001par value, 700,000,000
shares authorized, 154,519,025 shares and
154,273,150 shares
issued and outstanding in 2010 and 2011, respectively
    
    
    155
    
    
    
    154
    
    
    
    
    
    
    
    Common stock of Select, $0.01par value, 100 shares issued
and outstanding
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    0Capital in excess of par
    
    
    535,628
    
    
    
    535,239
    
    
    
    834,894
    
    
    
    838,305Retained earnings
    
    
    248,097
    
    
    
    281,094
    
    
    
    249,700
    
    
    
    285,781Total Select Medical Holdings Corporation and Select MedicalCorporation Stockholders Equity
    
    
    783,880
    
    
    
    816,487
    
    
    
    1,084,594
    
    
    
    1,124,086Non-controlling interest
    
    
    31,534
    
    
    
    31,570
    
    
    
    31,534
    
    
    
    31,570Total Equity
    
    
    815,414
    
    
    
    848,057
    
    
    
    1,116,128
    
    
    
    1,155,656Total Liabilities and Equity
    
    $
    2,722,086
    
    
    $
    2,803,819
    
    
    $
    2,719,572
    
    
    $
    2,801,443
 The accompanying notes are an integral part of these consolidated financial statements.
  3




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##### Table of Contents



Consolidated Statements of Operations

(unaudited)
(in thousands, except per share amounts)
 Select Medical Holdings Corporation
    
    
    Select Medical CorporationFor the Quarter Ended March 31,
    
    
    For the Quarter Ended March 31,2010
    
    
    2011
    
    
    2010
    
    
    2011Net operating revenues
    
    $
    584,813
    
    
    $
    693,186
    
    
    $
    584,813
    
    
    $
    693,186Costs and expenses:Cost of services
    
    
    472,377
    
    
    
    557,416
    
    
    
    472,377
    
    
    
    557,416General and administrative
    
    
    12,789
    
    
    
    16,566
    
    
    
    12,789
    
    
    
    16,566Bad debt expense
    
    
    9,287
    
    
    
    14,350
    
    
    
    9,287
    
    
    
    14,350Depreciation and amortization
    
    
    17,711
    
    
    
    17,222
    
    
    
    17,711
    
    
    
    17,222Total costs and expenses
    
    
    512,164
    
    
    
    605,554
    
    
    
    512,164
    
    
    
    605,554Income from operations
    
    
    72,649
    
    
    
    87,632
    
    
    
    72,649
    
    
    
    87,632Other income and expense:Equity in
losses of unconsolidated subsidiaries
    
    
    
    
    
    
    (73
    )
    
    
    
    
    
    
    (73
    )Other income
    
    
    134
    
    
    
    
    
    
    
    134
    
    
    
    Interest income
    
    
    
    
    
    
    56
    
    
    
    
    
    
    
    56Interest expense
    
    
    (30,042
    )
    
    
    (25,664
    )
    
    
    (23,038
    )
    
    
    (18,662
    )Income before income taxes
    
    
    42,741
    
    
    
    61,951
    
    
    
    49,745
    
    
    
    68,953Income tax expense
    
    
    17,109
    
    
    
    26,564
    
    
    
    19,560
    
    
    
    29,014Net income
    
    
    25,632
    
    
    
    35,387
    
    
    
    30,185
    
    
    
    39,939Less: Net income attributable to
non-controlling interests
    
    
    1,406
    
    
    
    1,715
    
    
    
    1,406
    
    
    
    1,715Net income attributable to Select Medical Holdings Corporation and Select
Medical Corporation
    
    $
    24,226
    
    
    $
    33,672
    
    
    $
    28,779
    
    
    $
    38,224Income per common share:Basic
    
    $
    0.15
    
    
    $
    0.22Diluted
    
    $
    0.15
    
    
    $
    0.22
 The accompanying notes are an integral part of these consolidated financial statements.
  4




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##### Table of Contents



Select Medical Holdings Corporation
 
 Consolidated Statement of Changes in Equity and Income
 (unaudited)
 (in thousands)
 Select Medical Holdings Corporation StockholdersCommonComprehensive
    
    
    Common
    
    
    Stock Par
    
    
    Capital in
    
    
    Retained
    
    
    Non-controllingTotal
    
    
    Income
    
    
    Stock Issued
    
    
    Value
    
    
    Excess of  Par
    
    
    Earnings
    
    
    InterestsBalance at December 31, 2010
    
    $
    815,414
    
    
    
    
    
    
    
    154,519
    
    
    $
    155
    
    
    $
    535,628
    
    
    $
    248,097
    
    
    $
    31,534Net income
    
    
    35,387
    
    
    $
    35,387
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,672
    
    
    
    1,715Issuance and vesting of restricted stock
    
    
    593
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    593Exercise of stock options
    
    
    81
    
    
    
    
    
    
    
    24
    
    
    
    0
    
    
    
    81Stock option expense
    
    
    287
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    287Repurchase of common shares
    
    
    (2,026
    )
    
    
    
    
    
    
    (270
    )
    
    
    (1
    )
    
    
    (1,350
    )
    
    
    (675
    )Distributions to non-controlling
interests
    
    
    (1,671
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,671
    )Other
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8
    )Balance at March 31, 2011
    
    $
    848,057
    
    
    
    
    
    
    
    154,273
    
    
    $
    154
    
    
    $
    535,239
    
    
    $
    281,094
    
    
    $
    31,570
 Select Medical Corporation
Consolidated Statement of Changes in Equity and Income
(unaudited)
(in thousands)
 Select Medical Corporation StockholdersCommonComprehensive
    
    
    Common
    
    
    Stock Par
    
    
    Capital in
    
    
    Retained
    
    
    Non-controllingTotal
    
    
    Income
    
    
    Stock Issued
    
    
    Value
    
    
    Excess of  Par
    
    
    Earnings
    
    
    InterestsBalance at December 31, 2010
    
    $
    1,116,128
    
    
    
    
    
    
    
    0
    
    
    $
    0
    
    
    $
    834,894
    
    
    $
    249,700
    
    
    $
    31,534Net income
    
    
    39,939
    
    
    $
    39,939
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,224
    
    
    
    1,715Federal tax benefit of losses contributed by
Holdings
    
    
    2,450
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,450Additional investment by Holdings
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81Net change in dividends payable to Holdings
    
    
    12,600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,600Dividends declared and paid to Holdings
    
    
    (14,743
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,743
    )Distributions to non-controlling interests
    
    
    (1,671
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,671
    )Other
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8
    )Contribution related to restricted stock awards
and stock option issuances by Holdings
    
    
    880
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    880Balance at March 31, 2011
    
    $
    1,155,656
    
    
    
    
    
    
    
    0
    
    
    $
    0
    
    
    $
    838,305
    
    
    $
    285,781
    
    
    $
    31,570
 The accompanying notes are an integral part of these consolidated financial statements.
  5




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##### Table of Contents



Consolidated Statements of Cash Flows

(unaudited)
(in thousands)
 Select Medical Holdings Corporation
    
    
    Select Medical CorporationFor the Three Months Ended March 31,
    
    
    For the Three Months Ended March 31,2010
    
    
    2011
    
    
    2010
    
    
    2011Operating activitiesNet income
    
    $
    25,632
    
    
    $
    35,387
    
    
    $
    30,185
    
    
    $
    39,939Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    17,711
    
    
    
    17,222
    
    
    
    17,711
    
    
    
    17,222Provision for bad debts
    
    
    9,287
    
    
    
    14,350
    
    
    
    9,287
    
    
    
    14,350Loss from disposal of assets
    
    
    133
    
    
    
    188
    
    
    
    133
    
    
    
    188Non-cash gain from interest rate swaps
    
    
    (134
    )
    
    
    
    
    
    
    (134
    )
    
    
    Non-cash stock compensation expense
    
    
    508
    
    
    
    880
    
    
    
    508
    
    
    
    880Amortization of debt discount
    
    
    450
    
    
    
    507
    
    
    
    
    
    
    
    Changes in operating assets and
liabilities, net of
effects from acquisition of businesses:Accounts receivable
    
    
    (63,205
    )
    
    
    (100,135
    )
    
    
    (63,205
    )
    
    
    (100,135
    )Other current assets
    
    
    (2,066
    )
    
    
    (3,076
    )
    
    
    (2,066
    )
    
    
    (3,076
    )Other assets
    
    
    2,130
    
    
    
    2,052
    
    
    
    1,992
    
    
    
    1,914Accounts payable
    
    
    (1,802
    )
    
    
    11,777
    
    
    
    (1,802
    )
    
    
    11,777Due to third-party payors
    
    
    57
    
    
    
    (474
    )
    
    
    57
    
    
    
    (474
    )Accrued expenses
    
    
    (20,633
    )
    
    
    (9,948
    )
    
    
    (14,172
    )
    
    
    (3,588
    )Income and deferred taxes
    
    
    16,136
    
    
    
    26,238
    
    
    
    18,587
    
    
    
    28,688Net cash provided by (used in) operating activities
    
    
    (15,796
    )
    
    
    (5,032
    )
    
    
    (2,919
    )
    
    
    7,685Investing activitiesPurchases of property and equipment
    
    
    (13,047
    )
    
    
    (12,920
    )
    
    
    (13,047
    )
    
    
    (12,920
    )Proceeds from sale of business
    
    
    
    
    
    
    250
    
    
    
    
    
    
    
    250Acquisition of businesses, net of cash acquired
    
    
    
    
    
    
    (2,000
    )
    
    
    
    
    
    
    (2,000
    )Net cash used in investing activities
    
    
    (13,047
    )
    
    
    (14,670
    )
    
    
    (13,047
    )
    
    
    (14,670
    )Financing activitiesBorrowings on revolving credit facility
    
    
    
    
    
    
    205,000
    
    
    
    
    
    
    
    205,000Payments on revolving credit facility
    
    
    
    
    
    
    (105,000
    )
    
    
    
    
    
    
    (105,000
    )Payment on credit facility term loans
    
    
    
    
    
    
    (59,563
    )
    
    
    
    
    
    
    (59,563
    )Borrowings of other debt
    
    
    5,015
    
    
    
    5,496
    
    
    
    5,015
    
    
    
    5,496Principal payments on seller and other debt
    
    
    (2,357
    )
    
    
    (2,494
    )
    
    
    (2,357
    )
    
    
    (2,494
    )Dividends paid to Holdings
    
    
    
    
    
    
    
    
    
    
    (12,877
    )
    
    
    (14,743
    )Repurchase of common stock
    
    
    
    
    
    
    (2,026
    )
    
    
    
    
    
    
    Proceeds from issuance of common stock
    
    
    110
    
    
    
    81
    
    
    
    
    
    
    
    Equity investment by Holdings
    
    
    
    
    
    
    
    
    
    
    110
    
    
    
    81Proceeds from (repayment of) bank overdrafts
    
    
    17,314
    
    
    
    (9,418
    )
    
    
    17,314
    
    
    
    (9,418
    )Distributions to non-controlling interests
    
    
    (1,746
    )
    
    
    (1,671
    )
    
    
    (1,746
    )
    
    
    (1,671
    )Net cash provided by financing activities
    
    
    18,336
    
    
    
    30,405
    
    
    
    5,459
    
    
    
    17,688Net increase (decrease in) cash and cash equivalents
    
    
    (10,507
    )
    
    
    10,703
    
    
    
    (10,507
    )
    
    
    10,703Cash and cash equivalents at beginning of period
    
    
    83,680
    
    
    
    4,365
    
    
    
    83,680
    
    
    
    4,365Cash and cash equivalents at end of period
    
    $
    73,173
    
    
    $
    15,068
    
    
    $
    73,173
    
    
    $
    15,068Supplemental Cash Flow InformationCash paid for interest
    
    $
    46,038
    
    
    $
    41,365
    
    
    $
    33,162
    
    
    $
    28,648Cash paid for taxes
    
    $
    980
    
    
    $
    103
    
    
    $
    980
    
    
    $
    103
 The accompanying notes are an integral part of these consolidated financial statements.
  6




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##### Table of Contents



SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 1. Basis of Presentation
    2. Accounting Policies
 Use of Estimates
   7




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##### Table of Contents



Recent Accounting Pronouncements
  3. Intangible Assets
  As of March 31, 2011Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization(in thousands)Amortized intangible assets:Non-compete agreements
    
    $
    25,909
    
    
    $
    (24,589
    )Indefinite-lived intangible assets:Goodwill
    
    $
    1,640,535Trademarks
    
    
    57,709Certificates of need
    
    
    11,913Accreditations
    
    
    2,160Total
    
    $
    1,712,317
   Three Months Ended March 31,2010
    
    
    2011(in thousands)Amortization expense
    
    $
    1,867
    
    
    $
    326
  8




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##### Table of Contents



2011
    
    $
    1,3062012
    
    
    3402013
    
    
    02014
    
    
    02015
    
    
    0
  Specialty
    
    
    OutpatientHospitals
    
    
    Rehabilitation
    
    
    Total(in thousands)Balance as of December 31, 2010
    
    $
    1,330,609
    
    
    $
    300,643
    
    
    $
    1,631,252Goodwill revision (1)
    
    
    7,114
    
    
    
    
    
    
    
    7,114Goodwill acquired during quarter
    
    
    2,169
    
    
    
    
    
    
    
    2,169Balance as of March 31, 2011
    
    $
    1,339,892
    
    
    $
    300,643
    
    
    $
    1,640,535
 (1.)
    
    During the three months ended March 31, 2011 the Company made a revision to the
Regency Hospital Company, L.L.C. purchase price allocation resulting from the
finalization of the intangible asset valuations. 4. Restructuring Reserves
    9




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##### Table of Contents



Lease Termination Costs(in thousands)December 31, 2010
    
    $
    6,754Amounts paid in 2011
    
    
    (595
    )Accretion expense
    
    
    134March 31, 2011
    
    $
    6,293
  5. Fair Value
     6. Segment Information
   10




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##### Table of Contents



Three Months Ended March 31, 2010Specialty
    
    
    OutpatientHospitals
    
    
    Rehabilitation
    
    
    All Other
    
    
    Total(in thousands)Net operating revenue
    
    $
    411,685
    
    
    $
    173,065
    
    
    $
    63
    
    
    $
    584,813Adjusted EBITDA
    
    
    82,897
    
    
    
    20,518
    
    
    
    (12,547
    )
    
    
    90,868Total assets:Select Medical Corporation
    
    
    1,991,456
    
    
    
    502,346
    
    
    
    132,252
    
    
    
    2,626,054Select Medical Holdings Corporation
    
    
    1,991,456
    
    
    
    502,346
    
    
    
    135,168
    
    
    
    2,628,970Capital expenditures
    
    
    10,598
    
    
    
    2,035
    
    
    
    414
    
    
    
    13,047
 Three Months Ended March 31, 2011Specialty
    
    
    OutpatientHospitals
    
    
    Rehabilitation
    
    
    All Other
    
    
    Total(in thousands)Net operating revenue
    
    $
    519,924
    
    
    $
    173,191
    
    
    $
    71
    
    
    $
    693,186Adjusted EBITDA
    
    
    100,353
    
    
    
    21,406
    
    
    
    (16,025
    )
    
    
    105,734Total assets:Select Medical Corporation
    
    
    2,140,798
    
    
    
    482,444
    
    
    
    178,201
    
    
    
    2,801,443Select Medical Holdings Corporation
    
    
    2,140,798
    
    
    
    482,444
    
    
    
    180,577
    
    
    
    2,803,819Capital expenditures
    
    
    10,487
    
    
    
    2,181
    
    
    
    252
    
    
    
    12,920
  11




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##### Table of Contents



Three Months Ended March 31, 2010Specialty
    
    
    OutpatientHospitals
    
    
    Rehabilitation
    
    
    All OtherAdjusted EBITDA
    
    $
    82,897
    
    
    $
    20,518
    
    
    $
    (12,547
    )Depreciation and amortization
    
    
    (10,959
    )
    
    
    (5,856
    )
    
    
    (896
    )Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    (508
    )
 Select MedicalHoldings
    
    
    Select MedicalCorporation
    
    
    CorporationIncome (loss) from operations
    
    $
    71,938
    
    
    $
    14,662
    
    
    $
    (13,951
    )
    
    $
    72,649
    
    
    $
    72,649Other income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    134
    
    
    
    134Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,042
    )
    
    
    (23,038
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    42,741
    
    
    $
    49,745
 Three Months Ended March 31, 2011Specialty
    
    
    OutpatientHospitals
    
    
    Rehabilitation
    
    
    All OtherAdjusted EBITDA
    
    $
    100,353
    
    
    $
    21,406
    
    
    $
    (16,025
    )Depreciation and amortization
    
    
    (12,046
    )
    
    
    (4,459
    )
    
    
    (717
    )Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    (880
    )
 Select MedicalHoldings
    
    
    Select MedicalCorporation
    
    
    CorporationIncome (loss) from operations
    
    $
    88,307
    
    
    $
    16,947
    
    
    $
    (17,622
    )
    
    $
    87,632
    
    
    $
    87,632Equity in
losses of
unconsolidated subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (73
    )
    
    
    (73
    )Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,608
    )
    
    
    (18,606
    )Income before income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    61,951
    
    
    $
    68,953
 7. Income per Common Share
   12




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##### Table of Contents



For the Three Months EndedMarch 31,2010
    
    
    2011(in thousands, except per share data)Numerator:Net income attributable to Select Medical Holdings Corporation
    
    $
    24,226
    
    
    $
    33,672Less: Earnings allocated to unvested restricted stockholders
    
    
    50
    
    
    
    361Net income available to common stockholders
    
    $
    24,176
    
    
    $
    33,311Denominator:Weighted average shares  basic
    
    
    159,670
    
    
    
    152,838Effect of dilutive securities:Stock options
    
    
    351
    
    
    
    218Weighted average shares  diluted
    
    
    160,021
    
    
    
    153,056Basic income per common share
    
    $
    0.15
    
    
    $
    0.22Diluted income per common share
    
    $
    0.15
    
    
    $
    0.22
  Three Months Ended March 31,2010
    
    
    2011(in thousands)Stock options
    
    
    1,581
    
    
    
    2,372
 8. Commitments and Contingencies
 Litigation
   13




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##### Table of Contents



Construction Commitments
  9. Refinancing
  10.
    
    Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries under Selects
7 5/8% Senior Subordinated Notes
    14




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##### Table of Contents



15




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##### Table of Contents



Select Medical CorporationCondensed Consolidating Balance SheetMarch 31, 2011(unaudited)Select MedicalCorporation (Parent
    
    
    Subsidiary
    
    
    Non-GuarantorCompany Only)
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)AssetsCurrent Assets:Cash and cash equivalents
    
    $
    8,864
    
    
    $
    5,590
    
    
    $
    614
    
    
    $
    
    
    
    $
    15,068Accounts receivable, net
    
    
    
    
    
    
    396,170
    
    
    
    43,140
    
    
    
    
    
    
    
    439,310Current deferred tax asset
    
    
    7,648
    
    
    
    18,449
    
    
    
    3,547
    
    
    
    
    
    
    
    29,644Other current assets
    
    
    9,040
    
    
    
    18,872
    
    
    
    3,352
    
    
    
    
    
    
    
    31,264Total Current Assets
    
    
    25,552
    
    
    
    439,081
    
    
    
    50,653
    
    
    
    
    
    
    
    515,286Property and equipment, net
    
    
    6,410
    
    
    
    463,952
    
    
    
    56,543
    
    
    
    
    
    
    
    526,905Investment in affiliates
    
    
    2,708,891
    
    
    
    76,947
    
    
    
    
    
    
    
    (2,785,838
    )(a) (b)
    
    
    Goodwill
    
    
    
    
    
    
    1,640,535
    
    
    
    
    
    
    
    
    
    
    
    1,640,535Other identifiable intangibles
    
    
    
    
    
    
    73,102
    
    
    
    
    
    
    
    
    
    
    
    73,102Assets held for sale
    
    
    11,342
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,342Other assets
    
    
    21,617
    
    
    
    11,602
    
    
    
    1,054
    
    
    
    
    
    
    
    34,273Total Assets
    
    $
    2,773,812
    
    
    $
    2,705,219
    
    
    $
    108,250
    
    
    $
    (2,785,838
    )
    
    $
    2,801,443Liabilities and EquityCurrent Liabilities:Bank overdrafts
    
    $
    9,374
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    9,374Current portion of long-term debt
and notes payable
    
    
    148,988
    
    
    
    605
    
    
    
    730
    
    
    
    
    
    
    
    150,323Accounts payable
    
    
    7,805
    
    
    
    68,188
    
    
    
    10,649
    
    
    
    
    
    
    
    86,642Intercompany accounts
    
    
    933,922
    
    
    
    (850,321
    )
    
    
    (83,601
    )
    
    
    
    
    
    
    Accrued payroll
    
    
    729
    
    
    
    74,341
    
    
    
    287
    
    
    
    
    
    
    
    75,357Accrued vacation
    
    
    3,515
    
    
    
    39,790
    
    
    
    5,752
    
    
    
    
    
    
    
    49,057Accrued interest
    
    
    9,447
    
    
    
    451
    
    
    
    
    
    
    
    
    
    
    
    9,898Accrued restructuring
    
    
    
    
    
    
    6,293
    
    
    
    
    
    
    
    
    
    
    
    6,293Accrued other
    
    
    35,190
    
    
    
    55,788
    
    
    
    5,754
    
    
    
    
    
    
    
    96,732Income taxes payable
    
    
    6,698
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,698Due to (from) third party payors
    
    
    
    
    
    
    20,647
    
    
    
    (15,822
    )
    
    
    
    
    
    
    4,825Total Current Liabilities
    
    
    1,155,668
    
    
    
    (584,218
    )
    
    
    (76,251
    )
    
    
    
    
    
    
    495,199Long-term debt, net of current portion
    
    
    439,958
    
    
    
    510,748
    
    
    
    66,703
    
    
    
    
    
    
    
    1,017,409Non-current deferred tax liability
    
    
    1,582
    
    
    
    53,938
    
    
    
    8,133
    
    
    
    
    
    
    
    63,653Other non-current liabilities
    
    
    52,518
    
    
    
    17,008
    
    
    
    
    
    
    
    
    
    
    
    69,526Total Liabilities
    
    
    1,649,726
    
    
    
    (2,524
    )
    
    
    (1,415
    )
    
    
    
    
    
    
    1,645,787Stockholders Equity:Common stock
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Capital in excess of par
    
    
    838,305
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    838,305Retained earnings
    
    
    285,781
    
    
    
    541,983
    
    
    
    21,691
    
    
    
    (563,674
    )(b)
    
    
    285,781Subsidiary investment
    
    
    
    
    
    
    2,165,760
    
    
    
    56,404
    
    
    
    (2,222,164
    )(a)
    
    
    Total Select Medical Corporation
Stockholders Equity
    
    
    1,124,086
    
    
    
    2,707,743
    
    
    
    78,095
    
    
    
    (2,785,838
    )
    
    
    1,124,086Non-controlling interest
    
    
    
    
    
    
    
    
    
    
    31,570
    
    
    
    
    
    
    
    31,570Total Equity
    
    
    1,124,086
    
    
    
    2,707,743
    
    
    
    109,665
    
    
    
    (2,785,838
    )
    
    
    1,155,656Total Liabilities and Equity
    
    $
    2,773,812
    
    
    $
    2,705,219
    
    
    $
    108,250
    
    
    $
    (2,785,838
    )
    
    $
    2,801,443
 (a)
    
    Elimination of investments in subsidiaries.(b)
    
    Elimination of investments in subsidiaries retained earnings.  16




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##### Table of Contents



Select Medical CorporationCondensed Consolidating Statement of OperationsFor the Quarter Ended March 31, 2011(unaudited)Select MedicalCorporation (Parent
    
    
    Subsidiary
    
    
    Non-GuarantorCompany Only)
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Net operating revenues
    
    $
    71
    
    
    $
    600,253
    
    
    $
    92,862
    
    
    $
    
    
    
    $
    693,186Costs and expenses:Cost of services
    
    
    638
    
    
    
    481,222
    
    
    
    75,556
    
    
    
    
    
    
    
    557,416General and administrative
    
    
    16,455
    
    
    
    111
    
    
    
    
    
    
    
    
    
    
    
    16,566Bad debt expense
    
    
    
    
    
    
    13,001
    
    
    
    1,349
    
    
    
    
    
    
    
    14,350Depreciation and amortization
    
    
    646
    
    
    
    14,356
    
    
    
    2,220
    
    
    
    
    
    
    
    17,222Total costs and expenses
    
    
    17,739
    
    
    
    508,690
    
    
    
    79,125
    
    
    
    
    
    
    
    605,554Income (loss) from operations
    
    
    (17,668
    )
    
    
    91,563
    
    
    
    13,737
    
    
    
    
    
    
    
    87,632Other income and expense:Intercompany interest and royalty fees
    
    
    (995
    )
    
    
    986
    
    
    
    9
    
    
    
    
    
    
    
    Intercompany management fees
    
    
    23,472
    
    
    
    (19,230
    )
    
    
    (4,242
    )
    
    
    
    
    
    
    Equity in earnings (losses) of unconsolidated
subsidiaries
    
    
    
    
    
    
    (88
    )
    
    
    15
    
    
    
    
    
    
    
    (73
    )Interest income
    
    
    31
    
    
    
    24
    
    
    
    1
    
    
    
    
    
    
    
    56Interest expense
    
    
    (7,365
    )
    
    
    (9,949
    )
    
    
    (1,348
    )
    
    
    
    
    
    
    (18,662
    )Income (loss) before income taxes
    
    
    (2,525
    )
    
    
    63,306
    
    
    
    8,172
    
    
    
    
    
    
    
    68,953Income tax expense
    
    
    926
    
    
    
    27,820
    
    
    
    268
    
    
    
    
    
    
    
    29,014Equity in earnings of subsidiaries
    
    
    41,675
    
    
    
    5,797
    
    
    
    
    
    
    
    (47,472)
    (a)
    
    
    Net income
    
    
    38,224
    
    
    
    41,283
    
    
    
    7,904
    
    
    
    (47,472
    )
    
    
    39,939Less: Net income attributable to non-controlling interests
    
    
    
    
    
    
    
    
    
    
    1,715
    
    
    
    
    
    
    
    1,715Net income attributable to Select Medical Corporation
    
    $
    38,224
    
    
    $
    41,283
    
    
    $
    6,189
    
    
    $
    (47,472
    )
    
    $
    38,224
 (a)
    
    Elimination of equity in earnings of subsidiaries.  17




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##### Table of Contents



Select Medical CorporationCondensed Consolidating Statement of Cash FlowsFor the Quarter Ended March 31, 2011(unaudited)Select Medical
    
    
    
    
    
    
    Non-Corporation (Parent
    
    
    Subsidiary
    
    
    GuarantorCompany Only)
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Operating activitiesNet income
    
    $
    38,224
    
    
    $
    41,283
    
    
    $
    7,904
    
    
    $
    (47,472)
    (a)
    
    $
    39,939Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    646
    
    
    
    14,356
    
    
    
    2,220
    
    
    
    
    
    
    
    17,222Provision for bad debts
    
    
    
    
    
    
    13,001
    
    
    
    1,349
    
    
    
    
    
    
    
    14,350Loss from disposal of assets
    
    
    2
    
    
    
    181
    
    
    
    5
    
    
    
    
    
    
    
    188Non-cash stock compensation expense
    
    
    880
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    880Changes in operating assets and
liabilities, net of
effects from acquisition of businesses:Equity in earnings of subsidiaries
    
    
    (41,675
    )
    
    
    (5,797
    )
    
    
    
    
    
    
    47,472
    (a)
    
    
    Intercompany
    
    
    3,234
    
    
    
    (3,781
    )
    
    
    547
    
    
    
    
    
    
    
    Accounts receivable
    
    
    
    
    
    
    (94,955
    )
    
    
    (5,180
    )
    
    
    
    
    
    
    (100,135
    )Other current assets
    
    
    (4,480
    )
    
    
    1,267
    
    
    
    137
    
    
    
    
    
    
    
    (3,076
    )Other assets
    
    
    676
    
    
    
    1,174
    
    
    
    64
    
    
    
    
    
    
    
    1,914Accounts payable
    
    
    1,778
    
    
    
    8,352
    
    
    
    1,647
    
    
    
    
    
    
    
    11,777Due to third-party payors
    
    
    
    
    
    
    8,422
    
    
    
    (8,896
    )
    
    
    
    
    
    
    (474
    )Accrued expenses
    
    
    (6,487
    )
    
    
    4,096
    
    
    
    (1,197
    )
    
    
    
    
    
    
    (3,588
    )Income and deferred taxes
    
    
    28,688
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,688Net cash provided by (used in) operating activities
    
    
    21,486
    
    
    
    (12,401
    )
    
    
    (1,400
    )
    
    
    
    
    
    
    7,685Investing activitiesPurchases of property and equipment
    
    
    (288
    )
    
    
    (11,561
    )
    
    
    (1,071
    )
    
    
    
    
    
    
    (12,920
    )Proceeds from sale of business
    
    
    
    
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    250Acquisition of businesses, net of cash acquired
    
    
    
    
    
    
    (2,000
    )
    
    
    
    
    
    
    
    
    
    
    (2,000
    )Net cash used in investing activities
    
    
    (288
    )
    
    
    (13,311
    )
    
    
    (1,071
    )
    
    
    
    
    
    
    (14,670
    )Financing activitiesEquity investment by Holdings
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81Borrowings on revolving credit facility
    
    
    205,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    205,000Payments on revolving credit facility
    
    
    (105,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (105,000
    )Payments on credit facility term loans
    
    
    (59,563
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59,563
    )Borrowings of other debt
    
    
    5,496
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,496Principal payments on seller and other debt
    
    
    (1,880
    )
    
    
    (279
    )
    
    
    (335
    )
    
    
    
    
    
    
    (2,494
    )Dividends paid to Holdings
    
    
    (14,743
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,743
    )Proceeds from bank overdrafts
    
    
    (9,418
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,418
    )Intercompany debt reallocation
    
    
    (32,456
    )
    
    
    28,014
    
    
    
    4,442
    
    
    
    
    
    
    
    Distributions to non-controlling interests
    
    
    
    
    
    
    
    
    
    
    (1,671
    )
    
    
    
    
    
    
    (1,671
    )Net cash provided by (used in) financing activities
    
    
    (12,483
    )
    
    
    27,735
    
    
    
    2,436
    
    
    
    
    
    
    
    17,688Net increase (decrease) in cash and cash equivalents
    
    
    8,715
    
    
    
    2,023
    
    
    
    (35
    )
    
    
    
    
    
    
    10,703Cash and cash equivalents at beginning of period
    
    
    149
    
    
    
    3,567
    
    
    
    649
    
    
    
    
    
    
    
    4,365Cash and cash equivalents at end of period
    
    $
    8,864
    
    
    $
    5,590
    
    
    $
    614
    
    
    $
    
    
    
    $
    15,068
 (a)
    
    Elimination of equity in earnings of subsidiaries.  18




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##### Table of Contents



Select Medical CorporationCondensed Consolidating Balance SheetDecember 31, 2010(unaudited)Select MedicalCorporation (Parent
    
    
    Subsidiary
    
    
    Non-GuarantorCompany Only)
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)AssetsCurrent Assets:Cash and cash equivalents
    
    $
    149
    
    
    $
    3,567
    
    
    $
    649
    
    
    $
    
    
    
    $
    4,365Accounts receivable, net
    
    
    
    
    
    
    314,123
    
    
    
    39,309
    
    
    
    
    
    
    
    353,432Current deferred tax asset
    
    
    8,007
    
    
    
    19,226
    
    
    
    3,421
    
    
    
    
    
    
    
    30,654Prepaid income taxes
    
    
    12,699
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,699Other current assets
    
    
    4,560
    
    
    
    20,127
    
    
    
    3,489
    
    
    
    
    
    
    
    28,176Total Current Assets
    
    
    25,415
    
    
    
    357,043
    
    
    
    46,868
    
    
    
    
    
    
    
    429,326Property and equipment, net
    
    
    6,806
    
    
    
    467,554
    
    
    
    57,740
    
    
    
    
    
    
    
    532,100Investment in affiliates
    
    
    2,667,767
    
    
    
    81,839
    
    
    
    
    
    
    
    (2,749,606
    )(a) (b)
    
    
    Goodwill
    
    
    
    
    
    
    1,631,252
    
    
    
    
    
    
    
    
    
    
    
    1,631,252Other identifiable intangibles
    
    
    
    
    
    
    80,119
    
    
    
    
    
    
    
    
    
    
    
    80,119Assets held for sale
    
    
    11,342
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,342Other assets
    
    
    22,293
    
    
    
    12,022
    
    
    
    1,118
    
    
    
    
    
    
    
    35,433Total Assets
    
    $
    2,733,623
    
    
    $
    2,629,829
    
    
    $
    105,726
    
    
    $
    (2,749,606
    )
    
    $
    2,719,572Liabilities and EquityCurrent Liabilities:Bank overdrafts
    
    $
    18,792
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    18,792Current portion of long-term debt
and notes payable
    
    
    147,609
    
    
    
    758
    
    
    
    1,012
    
    
    
    
    
    
    
    149,379Accounts payable
    
    
    6,027
    
    
    
    59,164
    
    
    
    9,002
    
    
    
    
    
    
    
    74,193Intercompany accounts
    
    
    925,741
    
    
    
    (832,683
    )
    
    
    (93,058
    )
    
    
    
    
    
    
    Accrued payroll
    
    
    967
    
    
    
    62,539
    
    
    
    254
    
    
    
    
    
    
    
    63,760Accrued vacation
    
    
    3,255
    
    
    
    37,948
    
    
    
    5,385
    
    
    
    
    
    
    
    46,588Accrued interest
    
    
    21,198
    
    
    
    388
    
    
    
    
    
    
    
    
    
    
    
    21,586Accrued restructuring
    
    
    
    
    
    
    6,754
    
    
    
    
    
    
    
    
    
    
    
    6,754Accrued other
    
    
    29,948
    
    
    
    79,157
    
    
    
    7,351
    
    
    
    
    
    
    
    116,456Due to third party payors
    
    
    
    
    
    
    12,225
    
    
    
    (6,926
    )
    
    
    
    
    
    
    5,299Total Current Liabilities
    
    
    1,153,537
    
    
    
    (573,750
    )
    
    
    (76,980
    )
    
    
    
    
    
    
    502,807Long-term debt, net of current portion
    
    
    429,743
    
    
    
    482,858
    
    
    
    62,312
    
    
    
    
    
    
    
    974,913Non-current deferred tax liability
    
    
    2,266
    
    
    
    48,976
    
    
    
    7,832
    
    
    
    
    
    
    
    59,074Other non-current liabilities
    
    
    63,483
    
    
    
    3,167
    
    
    
    
    
    
    
    
    
    
    
    66,650Total Liabilities
    
    
    1,649,029
    
    
    
    (38,749
    )
    
    
    (6,836
    )
    
    
    
    
    
    
    1,603,444Stockholders Equity:Common stock
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Capital in excess of par
    
    
    834,894
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    834,894Retained earnings
    
    
    249,700
    
    
    
    500,700
    
    
    
    24,587
    
    
    
    (525,287
    )(b)
    
    
    249,700Subsidiary investment
    
    
    
    
    
    
    2,167,878
    
    
    
    56,441
    
    
    
    (2,224,319
    )(a)
    
    
    Total Select Medical Corporation
Stockholders Equity
    
    
    1,084,594
    
    
    
    2,668,578
    
    
    
    81,028
    
    
    
    (2,749,606
    )
    
    
    1,084,594Non-controlling interest
    
    
    
    
    
    
    
    
    
    
    31,534
    
    
    
    
    
    
    
    31,534Total Equity
    
    
    1,084,594
    
    
    
    2,668,578
    
    
    
    112,562
    
    
    
    (2,749,606
    )
    
    
    1,116,128Total Liabilities and Equity
    
    $
    2,733,623
    
    
    $
    2,629,829
    
    
    $
    105,726
    
    
    $
    (2,749,606
    )
    
    $
    2,719,572
 (a)
    
    Elimination of investments in subsidiaries.(b)
    
    Elimination of investments in subsidiaries retained earnings.  19




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##### Table of Contents



Select Medical CorporationCondensed Consolidating Statement of OperationsFor the Quarter Ended March 31, 2010(unaudited)Select Medical
    
    
    
    
    
    
    Non-Corporation (Parent
    
    
    Subsidiary
    
    
    GuarantorCompany Only)
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Net operating revenues
    
    $
    63
    
    
    $
    502,327
    
    
    $
    82,423
    
    
    $
    
    
    
    $
    584,813Costs and expenses:Cost of services
    
    
    328
    
    
    
    405,265
    
    
    
    66,784
    
    
    
    
    
    
    
    472,377General and administrative
    
    
    12,774
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    12,789Bad debt expense
    
    
    
    
    
    
    7,671
    
    
    
    1,616
    
    
    
    
    
    
    
    9,287Depreciation and amortization
    
    
    818
    
    
    
    14,650
    
    
    
    2,243
    
    
    
    
    
    
    
    17,711Total costs and expenses
    
    
    13,920
    
    
    
    427,601
    
    
    
    70,643
    
    
    
    
    
    
    
    512,164Income (loss) from operations
    
    
    (13,857
    )
    
    
    74,726
    
    
    
    11,780
    
    
    
    
    
    
    
    72,649Other income and expense:Intercompany interest and royalty fees
    
    
    (1,074
    )
    
    
    1,070
    
    
    
    4
    
    
    
    
    
    
    
    Intercompany management fees
    
    
    22,816
    
    
    
    (19,311
    )
    
    
    (3,505
    )
    
    
    
    
    
    
    Other income
    
    
    134
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    134Interest expense
    
    
    (13,448
    )
    
    
    (8,527
    )
    
    
    (1,063
    )
    
    
    
    
    
    
    (23,038
    )Income (loss) before income taxes
    
    
    (5,429
    )
    
    
    47,958
    
    
    
    7,216
    
    
    
    
    
    
    
    49,745Income tax expense (benefit)
    
    
    88
    
    
    
    19,492
    
    
    
    (20
    )
    
    
    
    
    
    
    19,560Equity in earnings of subsidiaries
    
    
    34,296
    
    
    
    5,596
    
    
    
    
    
    
    
    (39,892)
    (a)
    
    
    Net income
    
    
    28,779
    
    
    
    34,062
    
    
    
    7,236
    
    
    
    (39,892
    )
    
    
    30,185Less: Net income attributable to non-controlling interests
    
    
    
    
    
    
    
    
    
    
    1,406
    
    
    
    
    
    
    
    1,406Net income attributable to Select Medical Corporation
    
    $
    28,779
    
    
    $
    34,062
    
    
    $
    5,830
    
    
    $
    (39,892
    )
    
    $
    28,779
 (a)
    
    Elimination of equity in earnings of subsidiaries.  20




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##### Table of Contents



Select Medical CorporationCondensed Consolidating Statement of Cash FlowsFor the Quarter Ended March 31, 2010(unaudited)Select MedicalCorporation
    
    
    
    
    
    
    Non-(Parent Company
    
    
    Subsidiary
    
    
    GuarantorOnly)
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Operating activitiesNet income
    
    $
    28,779
    
    
    $
    34,062
    
    
    $
    7,236
    
    
    $
    (39,892
    )(a)
    
    $
    30,185Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    818
    
    
    
    14,650
    
    
    
    2,243
    
    
    
    
    
    
    
    17,711Provision for bad debts
    
    
    
    
    
    
    7,671
    
    
    
    1,616
    
    
    
    
    
    
    
    9,287Loss from disposal of assets
    
    
    
    
    
    
    96
    
    
    
    37
    
    
    
    
    
    
    
    133Non-cash gain from interest rate swaps
    
    
    (134
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (134
    )Non-cash stock compensation expense
    
    
    508
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    508Changes in operating assets and
liabilities, net of
effects from acquisition of businesses:Equity in earnings of subsidiaries
    
    
    (34,296
    )
    
    
    (5,596
    )
    
    
    
    
    
    
    39,892
    (a)
    
    
    Intercompany
    
    
    2,808
    
    
    
    (6,753
    )
    
    
    3,945
    
    
    
    
    
    
    
    Accounts receivable
    
    
    
    
    
    
    (51,648
    )
    
    
    (11,557
    )
    
    
    
    
    
    
    (63,205
    )Other current assets
    
    
    (1,394
    )
    
    
    (2,977
    )
    
    
    2,305
    
    
    
    
    
    
    
    (2,066
    )Other assets
    
    
    1,754
    
    
    
    794
    
    
    
    (556
    )
    
    
    
    
    
    
    1,992Accounts payable
    
    
    3,107
    
    
    
    (5,070
    )
    
    
    161
    
    
    
    
    
    
    
    (1,802
    )Due to third-party payors
    
    
    
    
    
    
    8,606
    
    
    
    (8,549
    )
    
    
    
    
    
    
    57Accrued expenses
    
    
    (22,991
    )
    
    
    11,603
    
    
    
    (2,784
    )
    
    
    
    
    
    
    (14,172
    )Income and deferred taxes
    
    
    18,587
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,587Net cash provided by (used in) operating activities
    
    
    (2,454
    )
    
    
    5,438
    
    
    
    (5,903
    )
    
    
    
    
    
    
    (2,919
    )Investing activitiesPurchases of property and equipment
    
    
    (413
    )
    
    
    (11,146
    )
    
    
    (1,488
    )
    
    
    
    
    
    
    (13,047
    )Net cash used in investing activities
    
    
    (413
    )
    
    
    (11,146
    )
    
    
    (1,488
    )
    
    
    
    
    
    
    (13,047
    )Financing activitiesBorrowings of other debt
    
    
    5,015
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,015Principal payments on seller and other debt
    
    
    (1,798
    )
    
    
    (270
    )
    
    
    (289
    )
    
    
    
    
    
    
    (2,357
    )Dividends paid to Holdings
    
    
    (12,877
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,877
    )Equity investment by Holdings
    
    
    110
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110Proceeds from bank overdrafts
    
    
    17,314
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,314Intercompany debt reallocation
    
    
    (17,433
    )
    
    
    7,962
    
    
    
    9,471
    
    
    
    
    
    
    
    Distributions to non-controlling interests
    
    
    
    
    
    
    
    
    
    
    (1,746
    )
    
    
    
    
    
    
    (1,746
    )Net cash provided by (used in) financing activities
    
    
    (9,669
    )
    
    
    7,692
    
    
    
    7,436
    
    
    
    
    
    
    
    5,459Net increase (decrease) in cash and cash equivalents
    
    
    (12,536
    )
    
    
    1,984
    
    
    
    45
    
    
    
    
    
    
    
    (10,507
    )Cash and cash equivalents at beginning of period
    
    
    80,940
    
    
    
    2,298
    
    
    
    442
    
    
    
    
    
    
    
    83,680Cash and cash equivalents at end of period
    
    $
    68,404
    
    
    $
    4,282
    
    
    $
    487
    
    
    $
    
    
    
    $
    73,173
 (a)
    
    Elimination of equity in earnings of subsidiaries.  21




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 You should read this discussion together with our unaudited consolidated financial statements
and accompanying notes.
 Forward Looking Statements
   
    
    additional changes in government reimbursement for our services, including changes that
will result from the expiration of the moratorium for long term acute care hospitals
established by the Medicare, Medicaid and SCHIP Extension Act of 2007, the American Recovery
and Reinvestment Act, and the Patient Protection and Affordable Care Act may result in a
reduction in net operating revenues, an increase in costs and a reduction in profitability;
 
    
    the failure of our specialty hospitals to maintain their Medicare certifications may
cause our net operating revenues and profitability to decline;
 
    
    the failure of our facilities operated as hospitals within hospitals to qualify as
hospitals separate from their host hospitals may cause our net operating revenues and
profitability to decline;
 
    
    a government investigation or assertion that we have violated applicable regulations may
result in sanctions or reputational harm and increased costs;
 
    
    acquisitions or joint ventures may prove difficult or unsuccessful, use significant
resources or expose us to unforeseen liabilities;
 
    
    private third-party payors for our services may undertake future cost containment
initiatives that limit our future net operating revenues and profitability;
 
    
    the failure to maintain established relationships with the physicians in the areas we
serve could reduce our net operating revenues and profitability;
 
    
    shortages in qualified nurses or therapists could increase our operating costs
significantly;
 
    
    competition may limit our ability to grow and result in a decrease in our net operating
revenues and profitability;
 
    
    the loss of key members of our management team could significantly disrupt our
operations;
 
    
    the effect of claims asserted against us could subject us to substantial uninsured
liabilities and in the future we may not be able to obtain insurance at a reasonable
price;and
 
    
    other factors discussed from time to time in our filings with the Securities and Exchange
Commission (the SEC), including factors discussed under the heading Risk Factors of our
annual report on Form 10-K for the year ended December 31, 2010.
  22




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##### Table of Contents



Overview
    23




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##### Table of Contents



Significant 2011 Events
 Refinancing
  Summary Financial Results
 First Quarter Ended March 31, 2011
   Regulatory Changes
   24




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##### Table of Contents



Health Reform Legislation
   Medicare Payment of Long Term Acute Care Hospitals during Fiscal Year 2011
  Medicare Payment of Long Term Acute Care Hospitals during Fiscal Year 2012
  Medicare Payment of Inpatient Rehabilitation Facilities during Fiscal Year 2011
   25




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##### Table of Contents



Medicare Payment of Inpatient Rehabilitation Facilities during Fiscal Year 2012
  Reductions to the Medicare Physician Fee Schedule
  Medicare Payment of Outpatient Rehabilitation Services
   26




---



##### Table of Contents



Medicare Quality Reporting Program for LTCHs and IRFs
    Facility Licensure, Certification and Accreditation
    27




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##### Table of Contents



Operating Statistics
  Three Months EndedMarch 31,2010
    
    
    2011Specialty hospital data(1):Number of hospitals owned  start of period
    
    
    94
    
    
    
    116Number of hospitals acquired
    
    
    
    
    
    
    1Number of hospitals closed/sold
    
    
    
    
    
    
    (1
    )Number of hospitals owned  end of period
    
    
    94
    
    
    
    116Number of hospitals managed  end of period
    
    
    1
    
    
    
    2Total number of hospitals (all)  end of period
    
    
    95
    
    
    
    118Available licensed beds
    
    
    4,245
    
    
    
    5,153Admissions
    
    
    11,101
    
    
    
    13,810Patient days
    
    
    267,848
    
    
    
    333,856Average length of stay (days)
    
    
    25
    
    
    
    25Net revenue per patient day(2)
    
    $
    1,491
    
    
    $
    1,514Occupancy rate
    
    
    70
    %
    
    
    72
    %Percent patient days  Medicare
    
    
    65
    %
    
    
    64
    %Outpatient rehabilitation data:Number of clinics owned  start of period
    
    
    883
    
    
    
    875Number of clinic start-ups
    
    
    5
    
    
    
    8Number of clinics closed/sold
    
    
    (3
    )
    
    
    (9
    )Number of clinics owned  end of period
    
    
    885
    
    
    
    874Number of clinics managed  end of period
    
    
    74
    
    
    
    71Total number of clinics (all)  end of period
    
    
    959
    
    
    
    945Number of visits
    
    
    1,125,958
    
    
    
    1,138,700Net revenue per visit (3)
    
    $
    101
    
    
    $
    103
 
 (1)
    
    Specialty hospitals consist of long term acute care hospitals and inpatient rehabilitation
facilities.(2)
    
    Net revenue per patient day is calculated by dividing specialty hospital direct patient
service revenues by the total number of patient days.(3)
    
    Net revenue per visit is calculated by dividing outpatient rehabilitation clinic revenue by
the total number of visits. For purposes of this computation, outpatient rehabilitation clinic
revenue does not include managed clinics or contract services revenue.  28




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##### Table of Contents



Results of Operations
  Select Medical HoldingsCorporation
    
    
    Select Medical CorporationThree Months
    
    
    Three MonthsEnded
    
    
    EndedMarch 31,
    
    
    March 31,2010
    
    
    2011
    
    
    2010
    
    
    2011Net operating revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of services(1)
    
    
    80.8
    
    
    
    80.4
    
    
    
    80.8
    
    
    
    80.4General and administrative
    
    
    2.2
    
    
    
    2.4
    
    
    
    2.2
    
    
    
    2.4Bad debt expense
    
    
    1.6
    
    
    
    2.1
    
    
    
    1.6
    
    
    
    2.1Depreciation and amortization
    
    
    3.0
    
    
    
    2.5
    
    
    
    3.0
    
    
    
    2.5Income from operations
    
    
    12.4
    
    
    
    12.6
    
    
    
    12.4
    
    
    
    12.6Equity in losses of unconsolidated
subsidiaries
    
    
    
    
    
    
    (0.0
    )
    
    
    
    
    
    
    (0.0
    )Other income
    
    
    0.0
    
    
    
    
    
    
    
    0.0
    
    
    
    Interest expense, net
    
    
    (5.1
    )
    
    
    (3.7
    )
    
    
    (4.0
    )
    
    
    (2.7
    )Income before income taxes
    
    
    7.3
    
    
    
    8.9
    
    
    
    8.4
    
    
    
    9.9Income tax expense
    
    
    2.9
    
    
    
    3.8
    
    
    
    3.3
    
    
    
    4.2Net income
    
    
    4.4
    
    
    
    5.1
    
    
    
    5.1
    
    
    
    5.7Net income attributable to
non-controlling interest
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.2Net income attributable to
Holdings and Select
    
    
    4.2
    %
    
    
    4.9
    %
    
    
    4.9
    %
    
    
    5.5
    %
  29




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##### Table of Contents



Select Medical Holdings Corporation
    
    
    Select Medical CorporationThree Months Ended March 31,
    
    
    Three Months Ended March 31,%
    
    
    
    
    
    
    
    
    
    
    %2010
    
    
    2011
    
    
    Change
    
    
    2010
    
    
    2011
    
    
    Change(in thousands)Net operating revenues:Specialty hospitals
    
    $
    411,685
    
    
    $
    519,924
    
    
    
    26.3
    %
    
    $
    411,685
    
    
    $
    519,924
    
    
    
    26.3
    %Outpatient
rehabilitation
    
    
    173,065
    
    
    
    173,191
    
    
    
    0.1
    
    
    
    173,065
    
    
    
    173,191
    
    
    
    0.1Other(3)
    
    
    63
    
    
    
    71
    
    
    
    12.7
    
    
    
    63
    
    
    
    71
    
    
    
    12.7Total company
    
    $
    584,813
    
    
    $
    693,186
    
    
    
    18.5
    %
    
    $
    584,813
    
    
    $
    693,186
    
    
    
    18.5
    %Income (loss) from
operations:Specialty hospitals
    
    $
    71,938
    
    
    $
    88,307
    
    
    
    22.8
    %
    
    $
    71,938
    
    
    $
    88,307
    
    
    
    22.8
    %Outpatient
rehabilitation
    
    
    14,662
    
    
    
    16,947
    
    
    
    15.6
    
    
    
    14,662
    
    
    
    16,947
    
    
    
    15.6Other(3)
    
    
    (13,951
    )
    
    
    (17,622
    )
    
    
    (26.3
    )
    
    
    (13,951
    )
    
    
    (17,622
    )
    
    
    (26.3
    )Total company
    
    $
    72,649
    
    
    $
    87,632
    
    
    
    20.6
    %
    
    $
    72,649
    
    
    $
    87,632
    
    
    
    20.6
    %Adjusted EBITDA: (2)Specialty hospitals
    
    $
    82,897
    
    
    $
    100,353
    
    
    
    21.1
    %
    
    $
    82,897
    
    
    $
    100,353
    
    
    
    21.1
    %Outpatient
rehabilitation
    
    
    20,518
    
    
    
    21,406
    
    
    
    4.3
    
    
    
    20,518
    
    
    
    21,406
    
    
    
    4.3Other(3)
    
    
    (12,547
    )
    
    
    (16,025
    )
    
    
    (27.7
    )
    
    
    (12,547
    )
    
    
    (16,025
    )
    
    
    (27.7
    )Adjusted EBITDA
margins: (2)Specialty hospitals
    
    
    20.1
    %
    
    
    19.3
    %
    
    
    
    
    
    
    20.1
    %
    
    
    19.3
    %Outpatient
rehabilitation
    
    
    11.9
    
    
    
    12.4
    
    
    
    
    
    
    
    11.9
    
    
    
    12.4Other(3)
    
    
    N/M
    
    
    
    N/M
    
    
    
    
    
    
    
    N/M
    
    
    
    N/MTotal assets:Specialty hospitals
    
    $
    1,991,456
    
    
    $
    2,140,798
    
    
    
    
    
    
    $
    1,991,456
    
    
    $
    2,140,798Outpatient
rehabilitation
    
    
    502,346
    
    
    
    482,444
    
    
    
    
    
    
    
    502,346
    
    
    
    482,444Other(3)
    
    
    135,168
    
    
    
    180,577
    
    
    
    
    
    
    
    132,252
    
    
    
    178,201Total company
    
    $
    2,628,970
    
    
    $
    2,803,819
    
    
    
    
    
    
    $
    2,626,054
    
    
    $
    2,801,443Purchases of property
and equipment, net:Specialty hospitals
    
    $
    10,598
    
    
    $
    10,487
    
    
    
    
    
    
    $
    10,598
    
    
    $
    10,487Outpatient
rehabilitation
    
    
    2,035
    
    
    
    2,181
    
    
    
    
    
    
    
    2,035
    
    
    
    2,181Other(3)
    
    
    414
    
    
    
    252
    
    
    
    
    
    
    
    414
    
    
    
    252Total company
    
    $
    13,047
    
    
    $
    12,920
    
    
    
    
    
    
    $
    13,047
    
    
    $
    12,920
  30




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##### Table of Contents



N/M  Not Meaningful.(1)
    
    Cost of services includes salaries, wages and benefits, operating supplies, lease and
rent expense and other operating costs.(2)
    
    We define Adjusted EBITDA as net income before interest, income taxes, depreciation and
amortization, stock compensation expense, equity in losses of unconsolidated subsidiaries
and other income. We believe that the presentation of Adjusted EBITDA is important to
investors because Adjusted EBITDA is commonly used as an analytical indicator of
performance by investors within the healthcare industry. Adjusted EBITDA is used by
management to evaluate financial performance and determine resource allocation for each of
our operating units. Adjusted EBITDA is not a measure of financial performance under
generally accepted accounting principles. Items excluded from Adjusted EBITDA are
significant components in understanding and assessing financial performance. Adjusted
EBITDA should not be considered in isolation or as an alternative to, or substitute for,
net income, cash flows generated by operations, investing or financing activities, or other
financial statement data presented in the consolidated financial statements as indicators
of financial performance or liquidity. Because Adjusted EBITDA is not a measurement
determined in accordance with generally accepted accounting principles and is thus
susceptible to varying calculations, Adjusted EBITDA as presented may not be comparable to
other similarly titled measures of other companies. See Note 6 to our interim unaudited
consolidated financial statements for the period ended March 31, 2011 for a reconciliation
of net income to Adjusted EBITDA as utilized by us in reporting our segment performance.(3)
    
    Other includes our general and administrative services and non-healthcare services. Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
  Net Operating Revenues
  Specialty Hospitals.
  31




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##### Table of Contents



Outpatient Rehabilitation.
 Operating Expenses
  Adjusted EBITDA
 Specialty Hospitals.
  32




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##### Table of Contents



Outpatient Rehabilitation
 Other
 Income from Operations
  Interest Expense
 Select Medical Corporation.
 Select Medical Holdings Corporation .
 Income Taxes
 Select Medical Corporation.
 Select Medical Holdings Corporation.
  33




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##### Table of Contents



Non-Controlling Interests
  Liquidity and Capital Resources
 Cash Flows for the Three Months Ended March 31, 2011 and Three Months Ended March 31, 2010
 Select Medical HoldingsCorporation
    
    
    Select Medical CorporationThree Months Ended
    
    
    Three Months EndedMarch 31,
    
    
    March 31,2010
    
    
    2011
    
    
    2010
    
    
    2011(in thousands)
    
    
    (in thousands)Cash flows provided by (used in) operating
activities
    
    $
    (15,796
    )
    
    $
    (5,032
    )
    
    $
    (2,919
    )
    
    $
    7,685Cash flows used in investing activities
    
    
    (13,047
    )
    
    
    (14,670
    )
    
    
    (13,047
    )
    
    
    (14,670
    )Cash flows provided by financing activities
    
    
    18,336
    
    
    
    30,405
    
    
    
    5,459
    
    
    
    17,688Net increase (decrease) in cash and cash
equivalents
    
    
    (10,507
    )
    
    
    10,703
    
    
    
    (10,507
    )
    
    
    10,703Cash and cash equivalents at beginning of
period
    
    
    83,680
    
    
    
    4,365
    
    
    
    83,680
    
    
    
    4,365Cash and cash equivalents at end of period
    
    $
    73,173
    
    
    $
    15,068
    
    
    $
    73,173
    
    
    $
    15,068
      34




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##### Table of Contents



Capital Resources
 Select Medical Corporation.
 Select Medical Holdings Corporation.
  
    
    a $300.0 million revolving loan facility that will terminate on August 22, 2013, including
both a letter of credit sub-facility and a swingline loan sub-facility, and
 
    
    $143.5 million in term loans that mature on February 24, 2012 (the Tranche B Term Loans), and
 
    
    $278.8 million in term loans that mature on August 22, 2014 (the Tranche B-1 Term Loans).
   35




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##### Table of Contents



36




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##### Table of Contents



Inflation
  Recent Accounting Pronouncements
  
 ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Quantitative and Qualitative Disclosures About Market Risk
  
 ITEM 4.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   37




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
   Inherent Limitations on Effectiveness of Controls
  
 PART II OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
     38




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##### Table of Contents



ITEM 1A.
    
    RISK FACTORS.
  
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Purchases of Equity Securities by the Issuer
  ApproximateTotal Number
    
    
    Dollar Value ofof Shares
    
    
    Shares thatPurchased as
    
    
    May Yet BePart of Publicly
    
    
    PurchasedTotal Number
    
    
    
    
    
    
    Announced
    
    
    Under theof Shares
    
    
    Average Price
    
    
    Plans or
    
    
    Plans orPeriod
    
    Purchased
    
    
    Paid Per Share
    
    
    Programs
    
    
    ProgramsJanuary 1,
2011 to January  31, 2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    55,856,585February 1,
2011 to February 28, 2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    55,856,585March 1, 2011
to March 31, 2011
    
    
    269,991
    
    
    $
    7.48
    
    
    
    269,991
    
    
    $
    53,831,437
 
 ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4.
    
    REMOVED AND RESERVED
 
 ITEM 5.
    
    OTHER INFORMATION
  
 ITEM 6.
    
    EXHIBITS
   39




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##### Table of Contents



SIGNATURES
  SELECT MEDICAL CORPORATIONBy:
    /s/ Martin F. JacksonMartin F. JacksonExecutive Vice President and Chief Financial Officer
(Duly Authorized Officer)By:
    /s/ Scott A. RombergerScott A. RombergerSenior Vice President, Chief Accounting Officer and
Controller
(Principal Accounting Officer) Dated:
May 5, 2011
 SELECT MEDICAL HOLDINGS CORPORATIONBy:
    /s/ Martin F. JacksonMartin F. JacksonExecutive Vice President and Chief Financial Officer
(Duly Authorized Officer)By:
    /s/ Scott A. RombergerScott A. RombergerSenior Vice President, Chief Accounting Officer and
Controller
(Principal Accounting Officer) Dated: May
5, 2011
  40




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##### Table of Contents



Exhibit
    
    Description10.1
    
    
    Fourth Amendment to Change of Control Agreement, dated March 8, 2011, between Select Medical
Corporation and Martin F. Jackson, incorporated herein by reference to Exhibit 10.111 of the
Annual Report on Form 10-K of Select Medical Holdings Corporation and Select Medical
Corporation filed on March 9, 2011 (Reg. Nos. 001-34465 and 001-31441).10.2
    
    
    Amendment No. 8 to Employment Agreement, dated March 8, 2011, between Select Medical
Corporation and Robert A. Ortenzio, incorporated herein by reference to Exhibit 10.112 of the
Annual Report on Form 10-K of Select Medical Holdings Corporation and Select Medical
Corporation filed on March 9, 2011 (Reg. Nos. 001-34465 and 001-31441).10.3
    
    
    Amendment No. 8 to Employment Agreement, dated March 8, 2011, between Select Medical
Corporation and Rocco A. Ortenzio, incorporated herein by reference to Exhibit 10.113 of the
Annual Report on Form 10-K of Select Medical Holdings Corporation and Select Medical
Corporation filed on March 9, 2011 (Reg. Nos. 001-34465 and 001-31441).10.4
    
    
    Amendment No. 9 to Employment Agreement, dated March 8, 2011, between Select Medical
Corporation and Patricia A. Rice, incorporated herein by reference to Exhibit 10.114 of the
Annual Report on Form 10-K of Select Medical Holdings Corporation and Select Medical
Corporation filed on March 9, 2011 (Reg. Nos. 001-34465 and 001-31441).10.5
    
    
    Fourth Amendment to Change of Control Agreement, dated March 8, 2011, between Select Medical
Corporation and Scott A. Romberger, incorporated herein by reference to Exhibit 10.115 of the
Annual Report on Form 10-K of Select Medical Holdings Corporation and Select Medical
Corporation filed on March 9, 2011 (Reg. Nos. 001-34465 and 001-31441).10.6
    
    
    Fourth Amendment to Change of Control Agreement, dated March 8, 2011, between Select Medical
Corporation and James J. Talalai, incorporated herein by reference to Exhibit 10.116 of the
Annual Report on Form 10-K of Select Medical Holdings Corporation and Select Medical
Corporation filed on March 9, 2011 (Reg. Nos. 001-34465 and 001-31441).10.7
    
    
    Fourth Amendment to Change of Control Agreement, dated March 8, 2011, between Select Medical
Corporation and Michael E. Tarvin, incorporated herein by reference to Exhibit 10.117 of the
Annual Report on Form 10-K of Select Medical Holdings Corporation and Select Medical
Corporation filed on March 9, 2011 (Reg. Nos. 001-34465 and 001-31441).10.8
    
    
    Amendment No. 1 to Employment Agreement, dated March 21, 2011, between Select Medical
Corporation and David S. Chernow.31.1
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of Executive Vice President and Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of Chief Executive Officer, and Executive Vice
President and Chief Financial Officer pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
  41