Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended March 31, 2018

OR
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
(Exact name of Registrant as specified in its Charter)
 
Delaware
Delaware
 
20-1764048
23-2872718
(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
(Registrants’ telephone number, including area code)
Indicate by check mark whether the Registrants (1) have 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 Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.   Yes ý  No o
Indicate by check mark whether the Registrants have submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrants were required to submit and post such files).   Yes ý  No o
Indicate by check mark whether the Registrant, Select Medical Holdings Corporation, 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 x
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
Emerging Growth Company o
 
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.  o
Indicate by check mark whether the Registrant, Select Medical Corporation, 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 o
 
Accelerated filer o
 
 
 
Non-accelerated filer x
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
Emerging Growth Company o
 
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.  o
Indicate by check mark whether the Registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No ý
As of April 30, 2018, Select Medical Holdings Corporation had outstanding 134,061,769 shares of common stock.
This Form 10-Q is a combined quarterly report being filed separately by two Registrants: Select Medical Holdings Corporation and Select Medical Corporation. 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 Inc., the indirect operating subsidiary of Concentra Group Holdings Parent, LLC (“Concentra Group Holdings Parent”), and its subsidiaries. References to the “Company,” “we,” “us,” and “our” refer collectively to Holdings, Select, and Concentra Group Holdings Parent and its subsidiaries.

Table of Contents

TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents

PART I: FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except share and per share amounts)

 
Select Medical Holdings Corporation
 
Select Medical Corporation
 
December 31, 2017
 
March 31,
2018
 
December 31, 2017
 
March 31,
2018
ASSETS
 

 
 

 
 

 
 

Current Assets:
 

 
 

 
 

 
 

Cash and cash equivalents
$
122,549

 
$
119,683

 
$
122,549

 
$
119,683

Accounts receivable
691,732

 
806,391

 
691,732

 
806,391

Prepaid income taxes
31,387

 
21,270

 
31,387

 
21,270

Other current assets
75,158

 
93,997

 
75,158

 
93,997

Total Current Assets
920,826

 
1,041,341

 
920,826

 
1,041,341

Property and equipment, net
912,591

 
973,483

 
912,591

 
973,483

Goodwill
2,782,812

 
3,318,611

 
2,782,812

 
3,318,611

Identifiable intangible assets, net
326,519

 
424,647

 
326,519

 
424,647

Other assets
184,418

 
210,561

 
184,418

 
210,561

Total Assets
$
5,127,166

 
$
5,968,643

 
$
5,127,166

 
$
5,968,643

LIABILITIES AND EQUITY
 

 
 

 
 

 
 

Current Liabilities:
 

 
 

 
 

 
 

Overdrafts
$
29,463

 
$
21,547

 
$
29,463

 
$
21,547

Current portion of long-term debt and notes payable
22,187

 
22,499

 
22,187

 
22,499

Accounts payable
128,194

 
138,436

 
128,194

 
138,436

Accrued payroll
160,562

 
135,561

 
160,562

 
135,561

Accrued vacation
92,875

 
105,325

 
92,875

 
105,325

Accrued interest
19,885

 
28,588

 
19,885

 
28,588

Accrued other
143,166

 
163,141

 
143,166

 
163,141

Income taxes payable
9,071

 
10,634

 
9,071

 
10,634

Total Current Liabilities
605,403

 
625,731

 
605,403

 
625,731

Long-term debt, net of current portion
2,677,715

 
3,478,021

 
2,677,715

 
3,478,021

Non-current deferred tax liability
124,917

 
125,020

 
124,917

 
125,020

Other non-current liabilities
145,709

 
167,120

 
145,709

 
167,120

Total Liabilities
3,553,744

 
4,395,892

 
3,553,744

 
4,395,892

Commitments and contingencies (Note 10)


 


 


 


Redeemable non-controlling interests
640,818

 
607,474

 
640,818

 
607,474

Stockholders’ Equity:
 

 
 

 
 

 
 

Common stock of Holdings, $0.001 par value, 700,000,000 shares authorized, 134,114,715 and 134,104,286 shares issued and outstanding at 2017 and 2018, respectively
134

 
134

 
—

 
—

Common stock of Select, $0.01 par value, 100 shares issued and outstanding
—

 
—

 
0

 
0

Capital in excess of par
463,499

 
468,885

 
947,370

 
952,825

Retained earnings (accumulated deficit)
359,735

 
383,581

 
(124,002
)
 
(100,225
)
Total Select Medical Holdings Corporation and Select Medical Corporation Stockholders’ Equity
823,368

 
852,600

 
823,368

 
852,600

Non-controlling interests
109,236

 
112,677

 
109,236

 
112,677

Total Equity
932,604

 
965,277

 
932,604

 
965,277

Total Liabilities and Equity
$
5,127,166

 
$
5,968,643

 
$
5,127,166

 
$
5,968,643

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

3
Table of Contents

Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except per share amounts)

 
Select Medical Holdings Corporation
 
Select Medical Corporation
 
For the Three Months Ended March 31,
 
For the Three Months Ended March 31,
 
2017
 
2018
 
2017
 
2018
Net operating revenues
$
1,091,517

 
$
1,252,964

 
$
1,091,517

 
$
1,252,964

Costs and expenses:
 

 
 

 
 

 
 

Cost of services
929,138

 
1,065,813

 
929,138

 
1,065,813

General and administrative
28,075

 
31,782

 
28,075

 
31,782

Depreciation and amortization
42,539

 
46,771

 
42,539

 
46,771

Total costs and expenses
999,752

 
1,144,366

 
999,752

 
1,144,366

Income from operations
91,765

 
108,598

 
91,765

 
108,598

Other income and expense:
 

 
 

 
 

 
 

Loss on early retirement of debt
(19,719
)
 
(10,255
)
 
(19,719
)
 
(10,255
)
Equity in earnings of unconsolidated subsidiaries
5,521

 
4,697

 
5,521

 
4,697

Non-operating gain (loss)
(49
)
 
399

 
(49
)
 
399

Interest expense
(40,853
)
 
(47,163
)
 
(40,853
)
 
(47,163
)
Income before income taxes
36,665

 
56,276

 
36,665

 
56,276

Income tax expense
13,202

 
12,294

 
13,202

 
12,294

Net income
23,463

 
43,982

 
23,463

 
43,982

Less: Net income attributable to non-controlling interests
7,593

 
10,243

 
7,593

 
10,243

Net income attributable to Select Medical Holdings Corporation and Select Medical Corporation
$
15,870

 
$
33,739

 
$
15,870

 
$
33,739

Income per common share:
 

 
 

 
 

 
 

Basic
$
0.12

 
$
0.25

 
 

 
 

Diluted
$
0.12

 
$
0.25

 
 

 
 

Weighted average shares outstanding:
 

 
 

 
 

 
 

Basic
128,464

 
129,691

 
 

 
 

Diluted
128,628

 
129,816

 
 

 
 

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


4
Table of Contents

Condensed Consolidated Statements of Changes in Equity and Income
(unaudited)
(in thousands)
 
 
 
 
 
Select Medical Holdings Corporation Stockholders
 
 
 
 
 
Redeemable
Non-controlling
Interests
 
 
Common
Stock
Issued
 
Common
Stock
Par Value
 
Capital in
Excess
of Par
 
Retained
Earnings
 
Total
Stockholders’
Equity
 
Non-controlling
Interests
 
Total
Equity
Balance at December 31, 2017
$
640,818

 
 
134,115

 
$
134

 
$
463,499

 
$
359,735

 
$
823,368

 
$
109,236

 
$
932,604

Net income attributable to Select Medical Holdings Corporation
 

 
 
 

 
 

 
 

 
33,739

 
33,739

 


 
33,739

Net income attributable to non-controlling interests
5,743

 
 
 

 
 

 
 

 
 

 
—

 
4,500

 
4,500

Issuance of restricted stock
 

 
 
4

 
0

 
0

 
 

 
—

 


 
—

Forfeitures of unvested restricted stock
 
 
 
(88
)
 
0

 
0

 
 
 
—

 
 
 
—

Vesting of restricted stock
 
 
 
 
 
 
 
4,717

 
 
 
4,717

 
 
 
4,717

Repurchase of common shares
 

 
 
(7
)
 
0

 
(69
)
 
(53
)
 
(122
)
 


 
(122
)
Exercise of stock options
 

 
 
80

 
0

 
738

 
 

 
738

 


 
738

Exchange of interests
163,659

 
 
 
 
 
 
 
 
74,341

 
74,341

 
 
 
74,341

Distributions to non-controlling interests
(203,972
)
 
 
 

 
 

 
 

 
(83,233
)
 
(83,233
)
 
(1,094
)
 
(84,327
)
Redemption adjustment on non-controlling interests
1,051

 
 
 

 
 

 
 

 
(1,051
)
 
(1,051
)
 


 
(1,051
)
Other
175

 
 
 

 
 

 
 

 
103

 
103

 
35

 
138

Balance at March 31, 2018
$
607,474

 
 
134,104

 
$
134

 
$
468,885

 
$
383,581

 
$
852,600

 
$
112,677

 
$
965,277

 
 
 
 
 
Select Medical Corporation Stockholders
 
 
 
 
 
Redeemable
Non-controlling
Interests
 
 
Common
Stock
Issued
 
Common
Stock
Par Value
 
Capital in
Excess
of Par
 
Accumulated Deficit
 
Total
Stockholders’
Equity
 
Non-controlling
Interests
 
Total
Equity
Balance at December 31, 2017
$
640,818

 
 
0

 
$
0

 
$
947,370

 
$
(124,002
)
 
$
823,368

 
$
109,236

 
$
932,604

Net income attributable to Select Medical Corporation
 

 
 
 

 
 

 
 

 
33,739

 
33,739

 
 

 
33,739

Net income attributable to non-controlling interests
5,743

 
 
 

 
 

 
 

 
 

 
—

 
4,500

 
4,500

Additional investment by Holdings
 

 
 
 

 
 

 
738

 
 

 
738

 
 

 
738

Dividends declared and paid to Holdings
 

 
 
 

 
 

 
 

 
(122
)
 
(122
)
 
 

 
(122
)
Contribution related to restricted stock award issuances by Holdings
 

 
 
 

 
 

 
4,717

 
 

 
4,717

 
 

 
4,717

Exchange of interests
163,659

 
 
 
 
 
 
 
 
74,341

 
74,341

 
 
 
74,341

Distributions to non-controlling interests
(203,972
)
 
 
 

 
 

 
 

 
(83,233
)
 
(83,233
)
 
(1,094
)
 
(84,327
)
Redemption adjustment on non-controlling interests
1,051

 
 
 

 
 

 
 

 
(1,051
)
 
(1,051
)
 
 

 
(1,051
)
Other
175

 
 
 

 
 

 
 

 
103

 
103

 
35

 
138

Balance at March 31, 2018
$
607,474

 
 
0

 
$
0

 
$
952,825

 
$
(100,225
)
 
$
852,600

 
$
112,677

 
$
965,277

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


5
Table of Contents

Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)

 
Select Medical Holdings Corporation
 
Select Medical Corporation
 
For the Three Months Ended March 31,
 
For the Three Months Ended March 31,
 
2017
 
2018
 
2017
 
2018
Operating activities
 

 
 

 
 

 
 

Net income
$
23,463

 
$
43,982

 
$
23,463

 
$
43,982

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 

 
 

 
 

 
 

Distributions from unconsolidated subsidiaries
4,911

 
1,364

 
4,911

 
1,364

Depreciation and amortization
42,539

 
46,771

 
42,539

 
46,771

Provision for bad debts
781

 
85

 
781

 
85

Equity in earnings of unconsolidated subsidiaries
(5,521
)
 
(4,697
)
 
(5,521
)
 
(4,697
)
Loss on extinguishment of debt
6,527

 
412

 
6,527

 
412

Gain on sale of assets and businesses
(4,609
)
 
(513
)
 
(4,609
)
 
(513
)
Stock compensation expense
4,586

 
4,927

 
4,586

 
4,927

Amortization of debt discount, premium and issuance costs
3,422

 
3,136

 
3,422

 
3,136

Deferred income taxes
(3,425
)
 
78

 
(3,425
)
 
78

Changes in operating assets and liabilities, net of effects of business combinations:
 

 
 

 
 

 
 

Accounts receivable
(118,269
)
 
(45,811
)
 
(118,269
)
 
(45,811
)
Other current assets
(7,621
)
 
(8,945
)
 
(7,621
)
 
(8,945
)
Other assets
(48
)
 
16,633

 
(48
)
 
16,633

Accounts payable
412

 
(6,552
)
 
412

 
(6,552
)
Accrued expenses
(18,429
)
 
(11,981
)
 
(18,429
)
 
(11,981
)
Income taxes
15,420

 
11,838

 
15,420

 
11,838

Net cash provided by (used in) operating activities
(55,861
)
 
50,727

 
(55,861
)
 
50,727

Investing activities
 

 
 

 
 

 
 

Business combinations, net of cash acquired
(9,566
)
 
(515,359
)
 
(9,566
)
 
(515,359
)
Purchases of property and equipment
(50,653
)
 
(39,617
)
 
(50,653
)
 
(39,617
)
Investment in businesses
(500
)
 
(1,754
)
 
(500
)
 
(1,754
)
Proceeds from sale of assets and businesses
19,512

 
691

 
19,512

 
691

Net cash used in investing activities
(41,207
)
 
(556,039
)
 
(41,207
)
 
(556,039
)
Financing activities
 

 
 

 
 

 
 

Borrowings on revolving facilities
530,000

 
165,000

 
530,000

 
165,000

Payments on revolving facilities
(415,000
)
 
(150,000
)
 
(415,000
)
 
(150,000
)
Proceeds from term loans
1,139,822

 
779,904

 
1,139,822

 
779,904

Payments on term loans
(1,170,817
)
 
(2,875
)
 
(1,170,817
)
 
(2,875
)
Revolving facility debt issuance costs
(3,887
)
 
(1,333
)
 
(3,887
)
 
(1,333
)
Borrowings of other debt
6,571

 
11,600

 
6,571

 
11,600

Principal payments on other debt
(5,275
)
 
(5,909
)
 
(5,275
)
 
(5,909
)
Repurchase of common stock
(156
)
 
(122
)
 
—

 
—

Dividends paid to Holdings
—

 
—

 
(156
)
 
(122
)
Proceeds from exercise of stock options
617

 
738

 
—

 
—

Equity investment by Holdings
—

 
—

 
617

 
738

Decrease in overdrafts
(17,062
)
 
(7,916
)
 
(17,062
)
 
(7,916
)
Proceeds from issuance of non-controlling interests
2,094

 
—

 
2,094

 
—

Distributions to non-controlling interests
(3,657
)
 
(286,641
)
 
(3,657
)
 
(286,641
)
Net cash provided by financing activities
63,250

 
502,446

 
63,250

 
502,446

Net decrease in cash and cash equivalents
(33,818
)
 
(2,866
)
 
(33,818
)
 
(2,866
)
Cash and cash equivalents at beginning of period
99,029

 
122,549

 
99,029

 
122,549

Cash and cash equivalents at end of period
$
65,211

 
$
119,683

 
$
65,211

 
$
119,683

Supplemental Information
 

 
 

 
 

 
 

Cash paid for interest
$
38,565

 
$
35,233

 
$
38,565

 
$
35,233

Cash paid for taxes
$
1,207

 
$
376

 
$
1,207

 
$
376

Non-cash equity exchange for acquisition of U.S. HealthWorks
$
—

 
$
238,000

 
$
—

 
$
238,000

 


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

6
Table of Contents

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL 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, 2018, and for the three month periods ended March 31, 2017 and 2018, have been prepared pursuant to the rules and regulations of the Securities Exchange Commission (the “SEC”) for interim reporting and 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 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, 2018, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2018. 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, 2017, contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 22, 2018.
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 and liabilities, including disclosure of contingencies, at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
Leases
In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016‑02, Leases. This ASU includes a lessee accounting model that recognizes two types of leases: finance and operating. This ASU requires that a lessee recognize on the balance sheet assets and liabilities for all leases with lease terms of more than twelve months. Lessees will need to recognize almost all leases on the balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained the dual model, requiring leases to be classified as either operating or finance. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as finance or operating lease. For short‑term leases of twelve months or less, lessees are permitted to make an accounting election by class of underlying asset not to recognize right-of-use assets or lease liabilities. If the alternative is elected, lease expense would be recognized generally on the straight‑line basis over the respective lease term.
The amendments in ASU 2016-02 will take effect for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier application is permitted as of the beginning of an interim or annual reporting period. A modified retrospective approach is required for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements.
Upon adoption, the Company will recognize significant assets and liabilities on the consolidated balance sheets as a result of the operating lease obligations of the Company. Operating lease expense will still be recognized as rent expense on a straight‑line basis over the respective lease terms in the consolidated statements of operations.
The Company will implement the new standard beginning January 1, 2019. The Company’s implementation efforts are focused on designing accounting processes, disclosure processes, and internal controls in order to account for its leases under the new standard.



7
Table of Contents

Recently Adopted Accounting Pronouncements
Revenue from Contracts with Customers
Beginning in May 2014, the FASB issued several Accounting Standards Updates which established Topic 606, Revenue from Contracts with Customers (the “standard”). This standard supersedes existing revenue recognition requirements and seeks to eliminate most industry-specific guidance under current GAAP. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
The Company adopted the new standard on January 1, 2018, using the full retrospective transition method. Adoption of the revenue recognition standard impacted the Company’s reported results as follows:
 
Three Months Ended March 31, 2017
 
As Reported
 
As Adjusted(1)
 
Adoption Impact
 
(in thousands)
Condensed Consolidated Statements of Operations
 
 
 
 
 
Net operating revenues
$
1,111,361

 
$
1,091,517

 
$
(19,844
)
Bad debt expense
20,625

 
781

 
(19,844
)
 
 
 
 
 
 
Condensed Consolidated Statements of Cash Flows
 
 
 
 
 
Provision for bad debts
20,625

 
781

 
(19,844
)
Changes in accounts receivable
(138,113
)
 
(118,269
)
 
19,844

 _____________________________________________________________
(1) Bad debt expense is now included in cost of services on the condensed consolidated statements of operations.
 
December 31, 2017
 
As Reported
 
As Adjusted
 
Adoption Impact
 
(in thousands)
Condensed Consolidated Balance Sheets
 
 
 
 
 
Accounts receivable
$
767,276

 
$
691,732

 
$
(75,544
)
Allowance for doubtful accounts
75,544

 
—

 
(75,544
)
Accounts receivable
$
691,732

 
$
691,732

 
$
—

The Company has presented the applicable disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers in Note 7.
Income Taxes
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740), and Intra-Entity Transfers of Assets Other Than Inventory. Previous GAAP prohibited the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. The ASU requires an entity to recognize the income tax consequences of an intra‑entity transfer of an asset other than inventory when the transfer occurs. The Company adopted the guidance effective January 1, 2018. Adoption of the guidance did not have a material impact on the Company’s consolidated financial statements.

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3.  Acquisitions
U.S. HealthWorks Acquisition
On February 1, 2018, Concentra Inc. (“Concentra”) acquired all of the issued and outstanding shares of stock of U.S. HealthWorks, Inc. (“U.S. HealthWorks”), an occupational medicine and urgent care service provider, pursuant to the terms of an Equity Purchase and Contribution Agreement (the “Purchase Agreement”) dated as of October 22, 2017, by and among Concentra, U.S. HealthWorks, Concentra Group Holdings, LLC (“Concentra Group Holdings”), Concentra Group Holdings Parent, LLC (“Concentra Group Holdings Parent”) and Dignity Health Holding Corporation (“DHHC”). For the three months ended March 31, 2018, the Company recognized $2.9 million of U.S. HealthWorks acquisition costs which are included in general and administrative expense.
In connection with the closing of the transaction, Concentra Group Holdings made distributions to its equity holders and redeemed certain of its outstanding equity interests from existing minority equity holders. Subsequently, Concentra Group Holdings and a wholly owned subsidiary of Concentra Group Holdings Parent merged, with Concentra Group Holdings surviving the merger and becoming a wholly owned subsidiary of Concentra Group Holdings Parent. As a result of the merger, the equity interests of Concentra Group Holdings outstanding after the redemption described above were exchanged for membership interests in Concentra Group Holdings Parent.
Concentra acquired U.S. HealthWorks for $753.0 million. The Purchase Agreement provides for certain post-closing adjustments for cash, indebtedness, transaction expenses, and working capital. DHHC, a subsidiary of Dignity Health, was issued a 20% equity interest in Concentra Group Holdings Parent, which was valued at $238.0 million. The remainder of the purchase price was paid in cash. Select retained a majority voting interest in Concentra Group Holdings Parent following the closing of the transaction.
For the U.S. HealthWorks acquisition, the Company allocated the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their preliminary estimated fair values in accordance with the provisions of Accounting Standards Codification Topic 805, Business Combinations. The Company is in the process of completing its assessment of the acquisition-date fair values of the assets acquired and the liabilities assumed and determining the estimated useful lives of long-lived assets and finite-lived intangible assets; therefore, the values set forth below are subject to adjustment during the measurement period. The amount of these potential adjustments could be significant. The Company expects to complete its purchase price allocation activities by December 31, 2018.
The following table reconciles the preliminary allocation of estimated fair value to identifiable net assets and goodwill to the consideration given for the acquired business (in thousands):
Identifiable tangible assets
$
184,357

Identifiable intangible assets
105,000

Goodwill
535,595

Total assets
824,952

Total liabilities
71,952

Consideration given
$
753,000

A preliminary estimate for goodwill of $535.6 million has been recognized for the business combination, representing the excess of the consideration given over the fair value of identifiable net assets acquired. The value of goodwill is derived from U.S. HealthWorks’ future earnings potential and its assembled workforce. Goodwill has been assigned to the Concentra reporting unit and is not deductible for tax purposes. However, prior to its acquisition by the Company, U.S. HealthWorks completed certain acquisitions that resulted in tax deductible goodwill with an estimated value of $83.1 million, which the Company will deduct through 2032.
For the period February 1, 2018 through March 31, 2018, U.S. HealthWorks had net operating revenues of $89.9 million which is reflected in the Company’s consolidated statements of operations. Due to the integrated nature of our operations, it is not practicable to separately identify earnings of U.S. HealthWorks on a stand-alone basis.

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Pro Forma Results
The following pro forma unaudited results of operations have been prepared assuming the acquisition of U.S. HealthWorks occurred on January 1, 2017. These results are not necessarily indicative of results of future operations nor of the results that would have occurred had the acquisition been consummated on the aforementioned date.
 
Three Months Ended March 31,
 
2017
 
2018
 
(in thousands, except per share amounts)
Net revenue
$
1,228,484

 
$
1,300,544

Net income
17,685

 
45,677

Net income attributable to the Company
7,827

 
34,538

Income per common share:
 

 
 
Basic
$
0.06

 
$
0.26

Diluted
$
0.06

 
$
0.26

 The pro forma financial information is based on the preliminary allocation of the purchase price of the U.S. HealthWorks acquisition and is therefore subject to adjustment upon finalizing the purchase price allocation, as described above, during the measurement period. The net income tax impact was calculated at a statutory rate, as if U.S. HealthWorks had been a subsidiary of the Company as of January 1, 2017.
For the three months ended March 31, 2017, pro forma results were adjusted to include the U.S. HealthWorks acquisition costs recognized by the Company during 2017 and 2018, which were approximately $5.8 million. For the three months ended March 31, 2018, pro forma results were adjusted to exclude approximately $2.9 million of U.S. HealthWorks acquisition costs which were recognized by the Company during the period.


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4.          Intangible Assets
Goodwill
The following table shows changes in the carrying amounts of goodwill by reporting unit for the three months ended March 31, 2018:
 
Long Term Acute Care
 
Inpatient Rehabilitation
 
Outpatient
Rehabilitation
 
Concentra
 
Total
 
(in thousands)
Balance as of December 31, 2017
$
1,045,220

 
$
415,528

 
$
647,522

 
$
674,542

 
$
2,782,812

Acquired
—

 
—

 
345

 
535,595

 
535,940

Sold
—

 
—

 
(141
)
 
—

 
(141
)
Balance as of March 31, 2018
$
1,045,220

 
$
415,528

 
$
647,726

 
$
1,210,137

 
$
3,318,611

See Note 3 for details of the goodwill acquired during the period.
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, 2017
 
March 31, 2018
 
 
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
 
19,155

 
—

 
19,155

 
19,159

 
—

 
19,159

Accreditations
 
1,895

 
—

 
1,895

 
1,895

 
—

 
1,895

Finite-lived intangible assets:
 
 

 
 

 
 

 
 

 
 

 
 

Trademarks
 
—

 
—

 
—

 
5,000

 
(417
)
 
4,583

Customer relationships
 
143,953

 
(38,281
)
 
105,672

 
243,969

 
(43,886
)
 
200,083

Favorable leasehold interests
 
13,295

 
(4,319
)
 
8,976

 
13,279

 
(4,742
)
 
8,537

Non-compete agreements
 
28,023

 
(3,900
)
 
24,123

 
28,130

 
(4,438
)
 
23,692

Total identifiable intangible assets
 
$
373,019

 
$
(46,500
)
 
$
326,519

 
$
478,130

 
$
(53,483
)
 
$
424,647

 The Company’s accreditations and indefinite-lived trademarks have renewal terms and the costs to renew these intangible assets are expensed as incurred. At March 31, 2018, the accreditations and indefinite-lived trademarks have a weighted average time until next renewal of 1.5 years and 8.9 years, respectively.
The Company’s customer relationships, non-compete agreements, and U.S. HealthWorks trademarks amortize over their estimated useful lives. Amortization expense was $4.4 million and $6.4 million for the three months ended March 31, 2017 and 2018, respectively.
The Company’s leasehold interests have finite lives and are amortized to rent expense over the remaining term of their respective leases to reflect a market rent per period based upon the market conditions present at the acquisition date.

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5. 
Long-Term Debt and Notes Payable
For purposes of this indebtedness footnote, references to Select exclude Concentra because the Concentra credit facilities are non-recourse to Holdings and Select.
As of March 31, 2018, the Company’s long-term debt and notes payable are as follows (in thousands):
 
Principal
Outstanding
 
Unamortized
Premium
(Discount)
 
Unamortized
Issuance
Costs
 
Carrying
Value
 
 
Fair
Value
Select:
 

 
 

 
 

 
 

 
 
 

6.375% senior notes
$
710,000

 
$
721

 
$
(6,074
)
 
$
704,647

 
 
$
720,650

Credit facilities:
 

 
 

 
 

 
 

 
 
 

Revolving facility
245,000

 
—

 
—

 
245,000

 
 
225,400

Term loans
1,138,500

 
(11,883
)
 
(11,946
)
 
1,114,671

 
 
1,151,308

Other
43,268

 
—

 
(519
)
 
42,749

 
 
42,749

Total Select debt
2,136,768

 
(11,162
)
 
(18,539
)
 
2,107,067

 
 
2,140,107

Concentra:
 

 
 

 
 

 
 

 
 
 

Credit facilities:
 

 
 

 
 

 
 

 
 
 

Term loans
1,414,175

 
(3,498
)
 
(23,021
)
 
1,387,656

 
 
1,427,384

Other
5,797

 
—

 
—

 
5,797

 
 
5,797

Total Concentra debt
1,419,972

 
(3,498
)
 
(23,021
)
 
1,393,453

 
 
1,433,181

Total debt
$
3,556,740

 
$
(14,660
)
 
$
(41,560
)
 
$
3,500,520

 
 
$
3,573,288

 
Principal maturities of the Company’s long-term debt and notes payable are approximately as follows (in thousands):
 
2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
 
Total
Select:
 

 
 

 
 

 
 

 
 

 
 

 
 

6.375% senior notes
$
—

 
$
—

 
$
—

 
$
710,000

 
$
—

 
$
—

 
$
710,000

Credit facilities:
 

 
 

 
 

 
 

 
 

 
 

 
 

Revolving facility
—

 
—

 
—

 
—

 
245,000

 
—

 
245,000

Term loans
8,625

 
11,500

 
11,500

 
11,500

 
11,500

 
1,083,875

 
1,138,500

Other
9,218

 
3,207

 
25,285

 
221

 
—

 
5,337

 
43,268

Total Select debt
17,843

 
14,707

 
36,785

 
721,721

 
256,500

 
1,089,212

 
2,136,768

Concentra:
 

 
 

 
 

 
 

 
 

 
 

 
 

Credit facilities:
 

 
 

 
 

 
 

 
 

 
 

 
 

Term loans
—

 
—

 
5,719

 
12,365

 
1,156,091

 
240,000

 
1,414,175

Other
1,170

 
304

 
322

 
320

 
308

 
3,373

 
5,797

Total Concentra debt
1,170

 
304

 
6,041

 
12,685

 
1,156,399

 
243,373

 
1,419,972

Total debt
$
19,013

 
$
15,011

 
$
42,826

 
$
734,406

 
$
1,412,899

 
$
1,332,585

 
$
3,556,740



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Table of Contents

As of December 31, 2017, the Company’s long-term debt and notes payable are as follows (in thousands):
 
Principal
Outstanding
 
Unamortized
Premium
(Discount)
 
Unamortized
Issuance
Costs
 
Carrying
Value
 
 
Fair
Value
Select:
 

 
 

 
 

 
 

 
 
 

6.375% senior notes
$
710,000

 
$
778

 
$
(6,553
)
 
$
704,225

 
 
$
727,750

Credit facilities:
 

 
 

 
 

 
 

 
 
 

Revolving facility
230,000

 
—

 
—

 
230,000

 
 
211,600

Term loans
1,141,375

 
(12,445
)
 
(12,500
)
 
1,116,430

 
 
1,154,215

Other
36,877

 
—

 
(533
)
 
36,344

 
 
36,344

Total Select debt
2,118,252

 
(11,667
)
 
(19,586
)
 
2,086,999

 
 
2,129,909

Concentra:
 

 
 

 
 

 
 

 
 
 

Credit facilities:
 

 
 

 
 

 
 

 
 
 

Term loans
619,175

 
(2,257
)
 
(10,668
)
 
606,250

 
 
625,173

Other
6,653

 
—

 
—

 
6,653

 
 
6,653

Total Concentra debt
625,828

 
(2,257
)
 
(10,668
)
 
612,903

 
 
631,826

Total debt
$
2,744,080

 
$
(13,924
)
 
$
(30,254
)
 
$
2,699,902

 
 
$
2,761,735

 Select Credit Facilities
On March 22, 2018, Select entered into Amendment No. 1 to the senior secured credit agreement (the “Select credit agreement”) dated March 6, 2017. The Select credit agreement originally provided for $1.6 billion in senior secured credit facilities comprised of $1.15 billion in term loans (the “Select term loans”) and a $450.0 million revolving credit facility (the “Select revolving facility” and together with the Select term loans, the “Select credit facilities”), including a $75.0 million sublimit for the issuance of standby letters of credit.
Amendment No. 1 (i) decreases the applicable interest rate on the Select term loans from the Adjusted LIBO Rate (as defined in the Select credit agreement and subject to an Adjusted LIBO floor of 1.00%) plus 3.50% to the Adjusted LIBO Rate plus a percentage ranging from 2.50% to 2.75%, or from the Alternative Base Rate (as defined in the Select credit agreement and subject to an Alternate Base Rate floor of 2.00%) plus 2.50% to the Alternative Base Rate plus a percentage ranging from 1.50% to 1.75%, in each case based on Select’s total net leverage ratio (as defined in the Select credit agreement); (ii) decreases the applicable interest rate on the loans outstanding under the Select revolving credit facility from the Adjusted LIBO Rate plus a percentage ranging from 3.00% to 3.25% to the Adjusted LIBO Rate plus a percentage ranging from 2.50% to 2.75%, or from the Alternative Base Rate plus a percentage ranging from 2.00% to 2.25% to the Alternative Base Rate plus a percentage ranging from 1.50% to 1.75%, in each case based on Select’s total net leverage ratio; (iii) extends the maturity date for the Select term loans from March 6, 2024 to March 6, 2025; and (iv) makes certain other technical amendments to the Select credit agreement as set forth therein.
Concentra Credit Facilities
Concentra First Lien Credit Agreement
On February 1, 2018, Concentra entered into an amendment to its first lien credit agreement (the “Concentra first lien credit agreement”), dated June 1, 2015, by and among Concentra, as the borrower, Concentra Holdings, Inc., a subsidiary of Concentra Group Holdings Parent, JPMorgan Chase Bank, N.A., as the administrative agent and the collateral agent, and the other lenders party thereto. Concentra used borrowings under the Concentra first lien credit agreement and the Concentra second lien credit agreement, as described below, together with cash on hand, to pay the purchase price for all of the issued and outstanding stock of U.S. HealthWorks to DHHC and to finance the redemption and reorganization transactions executed under the Purchase Agreement (as described in Note 3), as well as to pay fees and expenses associated with the financing.
Concentra amended the Concentra first lien credit agreement to, among other things, provide for (i) an additional $555.0 million in tranche B term loans that, along with the existing tranche B term loans under the Concentra first lien credit agreement, have a maturity date of June 1, 2022 (collectively, the “Concentra first lien term loan”) and (ii) an additional $25.0 million to the $50.0 million, five-year revolving credit facility under the terms of the existing Concentra first lien credit agreement. The tranche B term loans bear interest at a rate equal to the Adjusted LIBO Rate (as defined in the Concentra first lien credit agreement) plus 2.75% (subject to an Adjusted LIBO Rate floor of 1.00%) for Eurodollar Borrowings (as defined in the Concentra first lien credit agreement), or Alternate Base Rate (as defined in the Concentra first lien credit agreement) plus 1.75% (subject to an Alternate Base Rate floor of 2.00%) for ABR Borrowings (as defined in the Concentra first lien credit agreement). All other material terms and conditions applicable to the original tranche B term loan commitments are applicable to the additional tranche B term loans created under the Concentra first lien credit agreement.

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Table of Contents

Concentra Second Lien Credit Agreement
On February 1, 2018, Concentra entered into a second lien credit agreement (the “Concentra second lien credit agreement” and, together with the Concentra first lien credit agreement, the “Concentra credit facilities”) with Concentra Holdings, Inc., Wells Fargo Bank, National Association, as the administrative agent and the collateral agent, and the other lenders party thereto.
The Concentra second lien credit agreement provides for $240.0 million in term loans (the “Concentra second lien term loan” and, together with the Concentra first lien term loan, the “Concentra term loans”) with a maturity date of June 1, 2023. Borrowings under the Concentra second lien credit agreement bear interest at a rate equal to the Adjusted LIBO Rate (as defined in the Concentra second lien credit agreement) plus 6.50% (subject to an Adjusted LIBO Rate floor of 1.00%), or Alternate Base Rate (as defined in the Concentra second lien credit agreement) plus 5.50% (subject to an Alternate Base Rate floor of 2.00%).
In the event that, on or prior to February 1, 2019, Concentra prepays any of the Concentra second lien term loan to refinance such term loans, Concentra shall pay a premium of 2.00% of the aggregate principal amount of the Concentra second lien term loan prepaid. If Concentra prepays any of the Concentra second lien term loan to refinance such term loans on or prior to February 1, 2020, Concentra shall pay a premium of 1.00% of the aggregate principal amount of the Concentra second lien term loan prepaid.
Concentra will be required to prepay borrowings under the Concentra second lien term loan with (i) 100% of the net cash proceeds received from non-ordinary course asset sales or other dispositions, or as a result of a casualty or condemnation, subject to reinvestment provisions and other customary carveouts and the payment of certain indebtedness secured by liens, (ii) 100% of the net cash proceeds received from the issuance of debt obligations other than certain permitted debt obligations, and (iii) 50% of excess cash flow (as defined in the Concentra second lien credit agreement) if Concentra’s leverage ratio is greater than 4.25 to 1.00 and 25% of excess cash flow if Concentra’s leverage ratio is less than or equal to 4.25 to 1.00 and greater than 3.75 to 1.00, in each case, reduced by the aggregate amount of term loans and certain debt optionally prepaid during the applicable fiscal year and the aggregate amount of senior revolving commitments reduced permanently during the applicable fiscal year (other than in connection with a refinancing). Concentra will not be required to prepay borrowings with excess cash flow if Concentra’s leverage ratio is less than or equal to 3.75 to 1.00.
The Concentra second lien credit agreement also contains a number of affirmative and restrictive covenants, including limitations on mergers, consolidations and dissolutions; sales of assets; investments and acquisitions; indebtedness; liens; affiliate transactions; and dividends and restricted payments. The Concentra second lien credit agreement contains events of default for non-payment of principal and interest when due (subject to a grace period for interest), cross-default and cross-acceleration provisions and an event of default that would be triggered by a change of control.
The borrowings under the Concentra second lien term loan are guaranteed, on a second lien basis, by Concentra Holdings, Inc., Concentra, and certain domestic subsidiaries of Concentra and will be guaranteed by Concentra’s future domestic subsidiaries (other than Excluded Subsidiaries and Consolidated Practices, each as defined in the Concentra second lien credit agreement). The borrowings under the Concentra second lien term loan are secured by substantially all of Concentra’s and its domestic subsidiaries’ existing and future property and assets and by a pledge of Concentra’s capital stock, the capital stock of certain of Concentra’s domestic subsidiaries and up to 65% of the voting capital stock and 100% of the non-voting capital stock of Concentra’s foreign subsidiaries, if any.
Loss on Early Retirement of Debt
The amendments to the Select credit facilities and Concentra credit facilities resulted in losses on early retirement of debt totaling $10.3 million for the three months ended March 31, 2018. The losses on early retirement of debt consisted of $0.4 million of debt extinguishment losses and $9.9 million of debt modification losses during the three months ended March 31, 2018.
Fair Value
The Company considers the inputs in the valuation process to be Level 2 in the fair value hierarchy for Select’s 6.375% senior notes and for its credit facilities. Level 2 in the fair value hierarchy is defined as inputs that are observable for the asset or liability, either directly or indirectly, which includes quoted prices for identical assets or liabilities in markets that are not active.
The fair values of the Select credit facilities and the Concentra credit facilities were based on quoted market prices for this debt in the syndicated loan market. The fair value of Select’s 6.375% senior notes was based on quoted market prices. The carrying amount of other debt, principally short-term notes payable, approximates fair value.



14
Table of Contents

6.  Segment Information
The Company identifies its operating segments according to how the chief operating decision maker evaluates financial performance and allocates resources. During the year ended December 31, 2017, the Company changed its internal segment reporting structure which is reflective of how the Company now manages its business operations, reviews operating performance, and allocates resources. The Company’s reportable segments include long term acute care, inpatient rehabilitation, outpatient rehabilitation, and Concentra. Prior year results for the three months ended March 31, 2017, presented herein have been recast to conform to the current presentation. The Company previously disclosed financial information for the following reportable segments: specialty hospitals, outpatient rehabilitation, and Concentra.
Other activities include the Company’s corporate shared services and certain other non-consolidating joint ventures and minority investments in other healthcare related businesses. The Company evaluates performance of the segments based on Adjusted EBITDA. Adjusted EBITDA is defined as earnings excluding interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, acquisition costs associated with U.S. HealthWorks, non-operating gain (loss), and equity in earnings (losses) of unconsolidated subsidiaries. The Company has provided additional information regarding its reportable segments, such as total assets, which contributes to the understanding of the Company and provides useful information to the users of the consolidated financial statements.
The following tables summarize selected financial data for the Company’s reportable segments. The segment results of Holdings are identical to those of Select.
 
Three Months Ended March 31,
 
2017
 
2018
 
(in thousands)
Net operating revenues:(1)
 

 
 

Long term acute care
$
445,123

 
$
464,676

Inpatient rehabilitation
144,825

 
174,774

Outpatient rehabilitation
250,371

 
257,381

Concentra
250,589

 
356,116

Other
609

 
17

Total Company
$
1,091,517

 
$
1,252,964

Adjusted EBITDA:
 

 
 

Long term acute care
$
72,337

 
$
72,972

Inpatient rehabilitation
16,328

 
26,776

Outpatient rehabilitation
31,351

 
30,525

Concentra
42,592

 
57,797

Other
(23,718
)
 
(24,838
)
Total Company
$
138,890

 
$
163,232

Total assets:
 

 
 

Long term acute care
$
1,978,226

 
$
1,862,791

Inpatient rehabilitation
643,994

 
877,750

Outpatient rehabilitation
980,261

 
973,122

Concentra
1,297,672

 
2,143,405

Other
102,784

 
111,575

Total Company
$
5,002,937

 
$
5,968,643

Purchases of property and equipment, net:
 

 
 

Long term acute care
$
10,943

 
$
10,472

Inpatient rehabilitation
21,414

 
12,917

Outpatient rehabilitation
6,673

 
7,338

Concentra
8,686

 
6,621

Other
2,937

 
2,269

Total Company
$
50,653

 
$
39,617

 



15
Table of Contents


A reconciliation of Adjusted EBITDA to income before income taxes is as follows:
 
Three Months Ended March 31, 2017
 
Long Term Acute Care
 
Inpatient Rehabilitation
 
Outpatient
Rehabilitation
 
Concentra
 
Other
 
Total
 
(in thousands)
Adjusted EBITDA
$
72,337

 
$
16,328

 
$
31,351

 
$
42,592

 
$
(23,718
)
 
 

Depreciation and amortization
(13,042
)
 
(5,458
)
 
(6,340
)
 
(16,123
)
 
(1,576
)
 
 

Stock compensation expense
—

 
—

 
—

 
(306
)
 
(4,280
)
 
 

Income (loss) from operations
$
59,295

 
$
10,870

 
$
25,011

 
$
26,163

 
$
(29,574
)
 
$
91,765

Loss on early retirement of debt
 

 
 
 
 

 
 

 
 

 
(19,719
)
Equity in earnings of unconsolidated subsidiaries
 

 
 
 
 

 
 

 
 

 
5,521

Non-operating loss
 

 
 
 
 

 
 

 
 

 
(49
)
Interest expense
 

 
 
 
 

 
 

 
 

 
(40,853
)
Income before income taxes
 

 
 
 
 

 
 

 
 

 
$
36,665

 
Three Months Ended March 31, 2018
 
Long Term Acute Care
 
Inpatient Rehabilitation
 
Outpatient
Rehabilitation
 
Concentra
 
Other
 
Total
 
(in thousands)
Adjusted EBITDA
$
72,972

 
$
26,776

 
$
30,525

 
$
57,797

 
$
(24,838
)
 
 

Depreciation and amortization
(11,058
)
 
(5,722
)
 
(6,637
)
 
(21,147
)
 
(2,207
)
 
 

Stock compensation expense
—

 
—

 
—

 
(211
)
 
(4,716
)
 
 

U.S. HealthWorks acquisition costs
—

 
—

 
—

 
(2,936
)
 
—

 
 
Income (loss) from operations
$
61,914

 
$
21,054

 
$
23,888

 
$
33,503

 
$
(31,761
)
 
$
108,598

Loss on early retirement of debt
 
 
 
 
 
 
 
 
 
 
(10,255
)
Equity in earnings of unconsolidated subsidiaries
 

 
 
 
 

 
 

 
 

 
4,697

Non-operating gain
 
 
 
 
 
 
 
 
 
 
399

Interest expense
 

 
 
 
 

 
 

 
 

 
(47,163
)
Income before income taxes
 

 
 
 
 

 
 

 
 

 
$
56,276

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


16
Table of Contents

7. Revenue from Contracts with Customers
Net operating revenues consist primarily of patient service revenues generated from services provided to patients and other revenues for services provided to healthcare institutions under contractual arrangements. The following tables disaggregate the Company’s net operating revenues by operating segment for the three months ended March 31, 2017 and 2018:
 
Three Months Ended March 31, 2017
 
Long Term
Acute Care
 
Inpatient Rehabilitation
 
Outpatient
Rehabilitation
 
Concentra
 
(in thousands)
Patient service revenues:
 
 
 
 
 
 
 
Medicare
$
236,437

 
$
57,504

 
$
36,698

 
$
545

Non-Medicare
206,625

 
47,243

 
183,803

 
247,801

Total patient services revenues
443,062

 
104,747

 
220,501

 
248,346

Other revenues
2,061

 
40,078

 
29,870

 
2,243

Total net operating revenues
$
445,123

 
$
144,825

 
$
250,371

 
$
250,589

 
Three Months Ended March 31, 2018
 
Long Term
Acute Care
 
Inpatient Rehabilitation
 
Outpatient
Rehabilitation
 
Concentra
 
(in thousands)
Patient service revenues:
 
 
 
 
 
 
 
Medicare
$
240,992

 
$
72,841

 
$
38,190

 
$
628

Non-Medicare
220,006

 
61,902

 
188,900

 
353,252

Total patient services revenues
460,998

 
134,743

 
227,090

 
353,880

Other revenues
3,678

 
40,031

 
30,291