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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from              to              
Commission file numbers: 001-34465
 
SELECT MEDICAL HOLDINGS CORPORATION
(Exact name of Registrant as specified in its Charter)
Delaware 20-1764048
(State or Other Jurisdiction of Incorporation or Organization)   (I.R.S. Employer Identification Number)
 
4714 Gettysburg Road, P.O. Box 2034
Mechanicsburg, PA 17055
(Address of Principal Executive Offices and Zip code)
(717) 972-1100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.001 per share SEM New York Stock Exchange
(NYSE)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods as such Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☒  No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).   Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
  Emerging Growth Company
 If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No ☒
As of June 30, 2020, Select Medical Holdings Corporation had outstanding 133,970,064 shares of common stock.
Unless the context indicates otherwise, any reference in this report to “Holdings” refers to Select Medical Holdings Corporation and any reference to “Select” refers to Select Medical Corporation, the wholly owned operating subsidiary of Holdings, and any of Select’s subsidiaries. Any reference to “Concentra” refers to Concentra Group Holdings Parent, LLC (“Concentra Group Holdings Parent”) and its subsidiaries, including Concentra Inc. References to the “Company,” “we,” “us,” and “our” refer collectively to Holdings, Select, and Concentra.


TABLE OF CONTENTS
 
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PART I: FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Select Medical Holdings Corporation
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except share and per share amounts)
December 31, 2019 June 30, 2020
ASSETS    
Current Assets:    
Cash and cash equivalents $ 335,882    $ 509,737   
Accounts receivable 762,677    749,245   
Prepaid income taxes 18,585    9,204   
Other current assets 95,848    95,143   
Total Current Assets 1,212,992    1,363,329   
Operating lease right-of-use assets
1,003,986    1,022,721   
Property and equipment, net 998,406    959,086   
Goodwill 3,391,955    3,391,196   
Identifiable intangible assets, net 409,068    398,266   
Other assets 323,881    333,860   
Total Assets $ 7,340,288    $ 7,468,458   
LIABILITIES AND EQUITY    
Current Liabilities:    
Current operating lease liabilities $ 207,950    $ 216,689   
Current portion of long-term debt and notes payable 25,167    13,435   
Accounts payable 145,731    142,946   
Accrued payroll 183,754    125,109   
Accrued vacation 124,111    124,624   
Accrued interest 33,853    29,610   
Accrued other 191,076    204,074   
Government advances (Note 12) —    316,992   
Unearned government assistance (Note 12) —    45,505   
Income taxes payable 2,638    36,985   
Total Current Liabilities 914,280    1,255,969   
Non-current operating lease liabilities
852,897    866,097   
Long-term debt, net of current portion 3,419,943    3,390,417   
Non-current deferred tax liability 148,258    144,697   
Other non-current liabilities 101,334    142,861   
Total Liabilities 5,436,712    5,800,041   
Commitments and contingencies (Note 11)
Redeemable non-controlling interests 974,541    495,987   
Stockholders’ Equity:    
Common stock, $0.001 par value, 700,000,000 shares authorized, 134,328,112 and 133,970,064 shares issued and outstanding at 2019 and 2020, respectively
134    134   
Capital in excess of par 491,038    496,785   
Retained earnings 279,800    495,964   
Total Stockholders’ Equity 770,972    992,883   
Non-controlling interests 158,063    179,547   
Total Equity 929,035    1,172,430   
Total Liabilities and Equity $ 7,340,288    $ 7,468,458   
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3

Select Medical Holdings Corporation
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except per share amounts)
  For the Three Months Ended June 30,
  2019 2020
Net operating revenues $ 1,361,364    $ 1,232,718   
Costs and expenses:    
Cost of services, exclusive of depreciation and amortization 1,150,150    1,082,456   
General and administrative 31,339    33,461   
Depreciation and amortization 54,993    52,271   
Total costs and expenses 1,236,482    1,168,188   
Other operating income (Note 12) —    54,988   
Income from operations 124,882    119,518   
Other income and expense:    
Equity in earnings of unconsolidated subsidiaries 7,394    8,324   
Gain on sale of businesses —    346   
Interest expense (51,464)   (37,366)  
Income before income taxes 80,812    90,822   
Income tax expense 20,826    23,336   
Net income 59,986    67,486   
Less: Net income attributable to non-controlling interests 15,170    15,836   
Net income attributable to Select Medical Holdings Corporation $ 44,816    $ 51,650   
Earnings per common share (Note 10):    
Basic $ 0.33    $ 0.39   
Diluted $ 0.33    $ 0.39   
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4

Select Medical Holdings Corporation
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except per share amounts)

  For the Six Months Ended June 30,
  2019 2020
Net operating revenues $ 2,685,995    $ 2,647,350   
Costs and expenses:    
Cost of services, exclusive of depreciation and amortization 2,282,242    2,282,827   
General and administrative 60,016    67,292   
Depreciation and amortization 107,131    104,023   
Total costs and expenses 2,449,389    2,454,142   
Other operating income (Note 12) —    54,988   
Income from operations 236,606    248,196   
Other income and expense:    
Equity in earnings of unconsolidated subsidiaries 11,760    10,912   
Gain on sale of businesses 6,532    7,547   
Interest expense (102,275)   (83,473)  
Income before income taxes 152,623    183,182   
Income tax expense 39,293    45,248   
Net income 113,330    137,934   
Less: Net income attributable to non-controlling interests 27,680    33,159   
Net income attributable to Select Medical Holdings Corporation $ 85,650    $ 104,775   
Earnings per common share (Note 10):    
Basic $ 0.63    $ 0.78   
Diluted $ 0.63    $ 0.78   
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Select Medical Holdings Corporation
Condensed Consolidated Statements of Changes in Equity and Income
(unaudited)
(in thousands)

For the Six Months Ended June 30, 2020
  Total Stockholders’ Equity    
  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, 2019 134,328    $ 134    $ 491,038    $ 279,800    $ 770,972    $ 158,063    $ 929,035   
Net income attributable to Select Medical Holdings Corporation 53,125    53,125    53,125   
Net income attributable to non-controlling interests —    10,067    10,067   
Issuance of restricted stock       —    —   
Forfeitures of unvested restricted stock (15)       —    —   
Vesting of restricted stock 6,136    6,136    6,136   
Repurchase of common shares (492)     (5,350)   (3,341)   (8,691)   (8,691)  
Issuance of non-controlling interests —    1,679    1,679   
Distributions to and purchases of non-controlling interests (2,726)   (2,726)   (4,048)   (6,774)  
Redemption adjustment on non-controlling interests (10,123)   (10,123)   (10,123)  
Other (55)   (55)   420    365   
Balance at March 31, 2020 133,823    $ 134    $ 491,824    $ 316,680    $ 808,638    $ 166,181    $ 974,819   
Net income attributable to Select Medical Holdings Corporation       51,650    51,650    51,650   
Net income attributable to non-controlling interests         —    12,572    12,572   
Issuance of restricted stock 200          —    —   
Forfeitures of unvested restricted stock (7)       —    —   
Vesting of restricted stock 6,262    6,262    6,262   
Repurchase of common shares (46)     (441)   (283)   (724)   (724)  
Issuance of non-controlling interests —       
Distributions to and purchases of non-controlling interests     (65)   (65)   (418)   (483)  
Redemption adjustment on non-controlling interests       127,916    127,916    127,916   
Other     (795)     (794)   1,205    411   
Balance at June 30, 2020 133,970    $ 134    $ 496,785    $ 495,964    $ 992,883    $ 179,547    $ 1,172,430   


The accompanying notes are an integral part of these condensed consolidated financial statements.
6

Select Medical Holdings Corporation
Condensed Consolidated Statements of Changes in Equity and Income
(unaudited)
(in thousands)

For the Six Months Ended June 30, 2019
  Total Stockholders’ Equity    
  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, 2018 135,266    $ 135    $ 482,556    $ 320,351    $ 803,042    $ 113,198    $ 916,240   
Net income attributable to Select Medical Holdings Corporation 40,834    40,834    40,834   
Net income attributable to non-controlling interests —    4,810    4,810   
Issuance of restricted stock 21        —    —   
Forfeitures of unvested restricted stock (24)       —    —   
Vesting of restricted stock 5,488    5,488    5,488   
Issuance of non-controlling interests —    6,837    6,837   
Distributions to and purchases of non-controlling interests 259    259    (2,739)   (2,480)  
Redemption adjustment on non-controlling interests (47,470)   (47,470)   (47,470)  
Other (122)   (122)   413    291   
Balance at March 31, 2019 135,263    $ 135    $ 488,303    $ 313,593    $ 802,031    $ 122,519    $ 924,550   
Net income attributable to Select Medical Holdings Corporation 44,816    44,816    44,816   
Net income attributable to non-controlling interests —    3,663    3,663   
Issuance of restricted stock 187        —    —   
Vesting of restricted stock 5,591    5,591    5,591   
Repurchase of common shares (936)     (8,164)   (5,456)   (13,620)   (13,620)  
Exercise of stock options 50      459    459    459   
Issuance of non-controlling interests 6,366    6,366    24,761    31,127   
Distributions to and purchases of non-controlling interests 14    14    (1,430)   (1,416)  
Redemption adjustment on non-controlling interests 270    270    270   
Other 82    82    428    510   
Balance at June 30, 2019 134,564    $ 135    $ 492,569    $ 353,305    $ 846,009    $ 149,941    $ 995,950   
The accompanying notes are an integral part of these condensed consolidated financial statements.
7

Select Medical Holdings Corporation
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)

  For the Six Months Ended June 30,
  2019 2020
Operating activities    
Net income $ 113,330    $ 137,934   
Adjustments to reconcile net income to net cash provided by operating activities:    
Distributions from unconsolidated subsidiaries 11,148    11,223   
Depreciation and amortization 107,131    104,023   
Provision for expected credit losses 1,958    253   
Equity in earnings of unconsolidated subsidiaries (11,760)   (10,912)  
Gain on sale of assets and businesses (6,354)   (7,881)  
Stock compensation expense 12,613    13,866   
Amortization of debt discount, premium and issuance costs 6,326    1,093   
Deferred income taxes (6,290)   (3,416)  
Changes in operating assets and liabilities, net of effects of business combinations:    
Accounts receivable (85,873)   13,179   
Other current assets (9,236)   713   
Other assets (939)   11,504   
Accounts payable 2,670    4,251   
Accrued expenses (18,156)   4,028   
Government advances —    316,992   
Unearned government assistance —    45,505   
Income taxes 16,346    43,743   
Net cash provided by operating activities 132,914    686,098   
Investing activities    
Business combinations, net of cash acquired (86,062)   (6,961)  
Purchases of property and equipment (89,285)   (71,253)  
Investment in businesses (52,257)   (14,749)  
Proceeds from sale of assets and businesses 125    12,401   
Net cash used in investing activities (227,479)   (80,562)  
Financing activities    
Borrowings on revolving facilities 635,000    470,000   
Payments on revolving facilities (460,000)   (470,000)  
Payments on term loans (132,685)   (39,843)  
Borrowings of other debt 14,230    31,487   
Principal payments on other debt (12,680)   (35,733)  
Repurchase of common stock (13,620)   (9,415)  
Proceeds from exercise of stock options 459    —   
Increase in overdrafts 2,176    —   
Proceeds from issuance of non-controlling interests 18,288    1,686   
Distributions to and purchases of non-controlling interests (7,745)   (13,660)  
Purchase of membership interests of Concentra Group Holdings Parent (Note 4) —    (366,203)  
Net cash provided by (used in) financing activities 43,423    (431,681)  
Net increase (decrease) in cash and cash equivalents (51,142)   173,855   
Cash and cash equivalents at beginning of period 175,178    335,882   
Cash and cash equivalents at end of period $ 124,036    $ 509,737   
Supplemental Information    
Cash paid for interest $ 97,909    $ 86,124   
Cash paid for taxes 29,241    4,920   
Operating lease right-of-use assets obtained in exchange for lease liabilities, excluding adoption impact of ASC Topic 842 at January 1, 2019 66,977    132,125   
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
8

SELECT MEDICAL HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.               Basis of Presentation
The unaudited condensed consolidated financial statements of Select Medical Holdings Corporation (“Holdings”) include the accounts of its wholly owned subsidiary, Select Medical Corporation (“Select”). Holdings conducts substantially all of its business through Select and its subsidiaries. Holdings and Select and its subsidiaries are collectively referred to as the “Company.” The unaudited condensed consolidated financial statements of the Company as of June 30, 2020, and for the three and six month periods ended June 30, 2019 and 2020, 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 and six months ended June 30, 2020, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2020. 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, 2019, contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 20, 2020.
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.
Recently Adopted Accounting Pronouncements
Financial Instruments
On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326), which replaced the incurred loss approach for recognizing credit losses on financial instruments with an expected loss approach. The expected loss approach is subject to management judgments using assessments of incurred credit losses, assessments of current conditions, and forecasts using reasonable and supportable assumptions. The standard was required to be applied using the modified retrospective approach with a cumulative-effect adjustment to retained earnings, if any, upon adoption.
The Company’s primary financial instrument subject to the standard is its accounts receivable derived from contracts with patients. Historically, the Company has experienced infrequent, immaterial credit losses related to its accounts receivable and, based on its experience, believes the risk of material defaults is low. The Company experienced credit losses of $1.1 million for the year ended December 31, 2017, credit loss recoveries of $0.1 million for the year ended December 31, 2018, and credit losses of $3.0 million for the year ended December 31, 2019. The Company’s historical credit losses have been infrequent and immaterial largely because the Company’s accounts receivable are typically paid for by highly-solvent, creditworthy payors such as Medicare, other governmental programs, and highly-regulated commercial insurers, on behalf of the patient. The Company believes it has moderate credit risk related to defaults on self-pay amounts in accounts receivable; however, these amounts represented less than 1.0% of the Company’s accounts receivable at January 1, 2020.
In estimating the Company’s expected credit losses under Topic 326, the Company considers its incurred loss experience and adjusts for known and expected events and other circumstances, identified using periodic assessments implemented by the Company, which management believes are relevant in assessing the collectability of its accounts receivable. Because of the infrequent and insignificant nature of the Company’s historical credit losses, forecasts of expected credit losses are generally unnecessary. Expected credit losses are recognized by the Company through an allowance for credit losses and related credit loss expense.
9

As of January 1, 2020, the Company completed its expected credit loss assessment for its financial instruments subject to Topic 326. The Company’s estimate of expected credit losses as of January 1, 2020, resulted in no adjustments to the allowance for credit losses and no cumulative-effect adjustment to retained earnings on the adoption date of the standard.
3.  Credit Risk Concentrations
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash balances and accounts receivables. The Company’s excess cash is held with large financial institutions. The Company grants unsecured credit to its patients, most of whom reside in the service area of the Company’s facilities and are insured under third-party payor agreements. The Company’s general policy is to verify insurance coverage prior to the date of admission for patients admitted to its critical illness recovery hospitals and rehabilitation hospitals. Within the Company’s outpatient rehabilitation clinics, insurance coverage is verified prior to the patient’s visit. Within the Company’s Concentra centers, insurance coverage is verified or an authorization is received from the patient’s employer prior to the patient’s visit.
Because of the diversity in the Company’s non-governmental third-party payor base, as well as their geographic dispersion, patient accounts receivable which are due from the Medicare program represent the Company’s only significant concentration of credit risk. Approximately 15% and 13% of the Company’s accounts receivable is from Medicare at December 31, 2019, and June 30, 2020, respectively.
4.  Redeemable Non-Controlling Interests
The ownership interests held by outside parties in subsidiaries, limited liability companies, and limited partnerships controlled by the Company are classified as non-controlling interests. Some of the Company’s non-controlling ownership interests consist of outside parties that have certain redemption rights that, if exercised, require the Company to purchase the parties’ ownership interests. These interests are classified and reported as redeemable non-controlling interests and have been adjusted to their approximate redemption values.
On January 1, 2020, Select acquired approximately 17.2% of the outstanding membership interests of Concentra Group Holdings Parent on a fully diluted basis from Welsh, Carson, Anderson & Stowe XII, L.P. (“WCAS”), Dignity Health Holding Corporation (“DHHC”), and certain other sellers in exchange for an aggregate purchase price of approximately $338.4 million. On February 1, 2020, Select acquired an additional 1.4% of the outstanding membership interests of Concentra Group Holdings Parent on a fully diluted basis from WCAS, DHHC, and certain other sellers in exchange for an aggregate purchase price of approximately $27.8 million. These purchases were in lieu of, and are considered to be, the exercise of the first put right provided to certain equity holders under the terms of the Amended and Restated Limited Liability Company Agreement of Concentra Group Holdings Parent, dated as of February 1, 2018, as amended (the “Concentra LLC Agreement”).
Following these purchases, Select owns approximately 66.6% of the outstanding membership interests of Concentra Group Holdings Parent on a fully diluted basis and approximately 68.8% of the outstanding Class A membership interests of Concentra Group Holdings Parent.
The changes in redeemable non-controlling interests are as follows (in thousands):
Six Months Ended June 30,
2019 2020
Balance as of January 1 $ 780,488    $ 974,541   
Net income attributable to redeemable non-controlling interests 7,700    7,256   
Distributions to and purchases of redeemable non-controlling interests (2,771)   (5,687)  
Purchase of membership interests of Concentra Group Holdings Parent —    (366,203)  
Redemption adjustment on redeemable non-controlling interests 47,470    10,123   
Other 354    347   
Balance as of March 31 $ 833,241    $ 620,377   
Net income attributable to redeemable non-controlling interests 11,507    3,264   
Distributions to and purchases of redeemable non-controlling interests (395)   (30)  
Redemption adjustment on redeemable non-controlling interests (270)   (127,916)  
Other 339    292   
Balance as of June 30 $ 844,422    $ 495,987   
10

5.  Variable Interest Entities
Concentra does not own many of its medical practices, as certain states prohibit the “corporate practice of medicine,” which restricts business corporations from practicing medicine through the direct employment of physicians or from exercising control over medical decisions by physicians. In these states, Concentra typically enters into long-term management agreements with professional corporations or associations that are owned by licensed physicians, which, in turn, employ or contract with physicians who provide professional medical services in Concentra’s occupational health centers.
The management agreements have terms that provide for Concentra to conduct, supervise, and manage the day-to-day non-medical operations of the occupational health centers and provide all management and administrative services. Concentra receives a management fee for these services, which is based, in part, on the performance of the professional corporation or association. Additionally, the outstanding voting equity interests of the professional corporations or associations are typically owned by licensed physicians appointed at Concentra’s discretion. Concentra has the ability to direct the transfer of ownership of the professional corporation or association to a new licensed physician at any time.
The total assets of Concentra’s variable interest entities, which are comprised principally of accounts receivable, were $178.4 million and $153.2 million at December 31, 2019, and June 30, 2020, respectively. The total liabilities of Concentra’s variable interest entities, which are comprised principally of accounts payable, accrued expenses, and obligations payable for services received under the aforementioned management agreements, were $176.7 million and $151.9 million at December 31, 2019, and June 30, 2020, respectively.
6.  Intangible Assets
Goodwill
The following table shows changes in the carrying amounts of goodwill by reporting unit for the six months ended June 30, 2020:
  Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation
Concentra Total
  (in thousands)
Balance as of December 31, 2019 $ 1,078,804    $ 430,900    $ 649,763    $ 1,232,488    $ 3,391,955   
Acquired —    —    728    4,567    5,295   
Sold —    —    (6,034)   —    (6,034)  
Measurement period adjustment —    —    —    (20)   (20)  
Balance as of June 30, 2020 $ 1,078,804    $ 430,900    $ 644,457    $ 1,237,035    $ 3,391,196   
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, 2019 June 30, 2020
  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 17,157    —    17,157    18,410    —    18,410   
Accreditations 1,874    —    1,874    1,874    —    1,874   
Finite-lived intangible assets:            
Trademarks 5,000    (5,000)   —    5,000    (5,000)   —   
Customer relationships 287,373    (87,346)   200,027    288,963    (100,300)   188,663   
Non-compete agreements 32,114    (8,802)   23,312    32,883    (10,262)   22,621   
Total identifiable intangible assets $ 510,216    $ (101,148)   $ 409,068    $ 513,828    $ (115,562)   $ 398,266   
11

The Company’s accreditations and indefinite-lived trademarks have renewal terms and the costs to renew these intangible assets are expensed as incurred. At June 30, 2020, the accreditations and indefinite-lived trademarks have a weighted average time until next renewal of 1.5 years and 6.7 years, respectively.
The Company’s finite-lived intangible assets amortize over their estimated useful lives. Amortization expense was $8.9 million and $6.9 million for the three months ended June 30, 2019 and 2020, respectively. Amortization expense was $16.0 million and $13.8 million for the six months ended June 30, 2019 and 2020, respectively.
7.  Long-Term Debt and Notes Payable
As of June 30, 2020, the Company’s long-term debt and notes payable were as follows (in thousands):
  Principal
Outstanding
Unamortized Premium (Discount) Unamortized
Issuance Costs
Carrying Value Fair Value
Select 6.250% senior notes
$ 1,225,000    $ 36,890    $ (18,455)   $ 1,243,435    $ 1,238,353   
Select credit facilities:          
Select term loan 2,103,437    (9,404)   (10,251)   2,083,782    1,987,748   
Other debt, including finance leases 76,984    —    (349)   76,635    76,635   
Total debt $ 3,405,421    $ 27,486    $ (29,055)   $ 3,403,852    $ 3,302,736   
Principal maturities of the Company’s long-term debt and notes payable were approximately as follows (in thousands):
  2020 2021 2022 2023 2024 Thereafter Total
Select 6.250% senior notes
$ —    $ —    $ —    $ —    $ —    $ 1,225,000    $ 1,225,000   
Select credit facilities:              
Select term loan —    —    —    4,757    11,150    2,087,530    2,103,437   
Other debt, including finance leases 8,745    8,510    3,583    20,715    23,532    11,899    76,984   
Total debt $ 8,745    $ 8,510    $ 3,583    $ 25,472    $ 34,682    $ 3,324,429    $ 3,405,421   
As of December 31, 2019, the Company’s long-term debt and notes payable were as follows (in thousands):
  Principal
Outstanding
Unamortized Premium (Discount) Unamortized
Issuance Costs
Carrying Value Fair Value
Select 6.250% senior notes
$ 1,225,000    $ 39,988    $ (19,944)   $ 1,245,044    $ 1,322,020   
Select credit facilities:          
Select term loan 2,143,280    (10,411)   (11,348)   2,121,521    2,145,959   
Other debt, including finance leases 78,941    —    (396)   78,545    78,545   
Total debt $ 3,447,221    $ 29,577    $ (31,688)   $ 3,445,110    $ 3,546,524   
Excess Cash Flow Payment
In February 2020, Select made a principal prepayment of approximately $39.8 million associated with its term loans in accordance with the provision in its senior secured credit agreement, dated March 6, 2017 (together with any borrowings thereunder, the “Select credit facilities”) that requires mandatory prepayments of term loans as a result of annual excess cash flow, as defined in the Select credit facilities.
Fair Value
The Company considers the inputs in the valuation process to be Level 2 in the fair value hierarchy for its 6.250% senior notes due August 15, 2026 (the “senior notes”) and the Select 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 value of the Select credit facilities was based on quoted market prices for this debt in the syndicated loan market. The fair value of the senior notes was based on quoted market prices. The carrying amount of other debt, principally short-term notes payable, approximates fair value.
12

8.  Segment Information
The Company’s reportable segments include the critical illness recovery hospital segment, rehabilitation hospital segment, outpatient rehabilitation segment, and Concentra segment. Other activities include the Company’s corporate shared services, certain investments, and employee leasing services with non-consolidating subsidiaries. For the three and six months ended June 30, 2020, the Company’s other activities include other operating income related to the recognition of payments received under the Provider Relief Fund for losses of revenue and health care related expenses attributable to the coronavirus disease 2019 (“COVID-19”). Refer to Note 12 – CARES Act for further information.
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, gain (loss) on sale of businesses, and equity in earnings (losses) of unconsolidated subsidiaries. The Company has provided additional information regarding its reportable segments, such as total assets, which contributes to the understanding of the Company and provides useful information to the users of the consolidated financial statements.
The following tables summarize selected financial data for the Company’s reportable segments.
  Three Months Ended June 30, Six Months Ended June 30,
  2019 2020 2019 2020
  (in thousands)
Net operating revenues:        
Critical illness recovery hospital $ 461,143    $ 519,626    $ 918,677    $ 1,020,147   
Rehabilitation hospital 160,374    168,667    314,932    350,686   
Outpatient rehabilitation 261,891    167,138    508,796    422,387   
Concentra 413,451    312,338    809,772    710,873   
Other 64,505    64,949    133,818    143,257   
Total Company $ 1,361,364    $ 1,232,718    $ 2,685,995    $ 2,647,350   
Adjusted EBITDA:        
Critical illness recovery hospital $ 64,138    $ 89,743    $ 137,136    $ 178,313   
Rehabilitation hospital 29,968    27,605    55,765    66,174   
Outpatient rehabilitation 42,584    (6,282)   71,575    20,840   
Concentra 76,087    41,497    142,345    102,963   
Other (26,544)   26,189    (50,471)   (2,205)  
Total Company $ 186,233    $ 178,752    $ 356,350    $ 366,085   
Total assets:        
Critical illness recovery hospital $ 2,119,574    $ 2,115,294    $ 2,119,574    $ 2,115,294   
Rehabilitation hospital 1,107,852    1,135,206    1,107,852    1,135,206   
Outpatient rehabilitation 1,265,487    1,267,308    1,265,487    1,267,308   
Concentra 2,447,387    2,351,974    2,447,387    2,351,974   
Other 166,640    598,676    166,640    598,676   
Total Company $ 7,106,940    $ 7,468,458    $ 7,106,940    $ 7,468,458   
Purchases of property and equipment:        
Critical illness recovery hospital $ 14,488    $ 14,970    $ 24,648    $ 23,935   
Rehabilitation hospital 5,356    1,923    18,539    5,248   
Outpatient rehabilitation 6,705    6,593    15,745    14,977   
Concentra 12,240    6,820    27,938    22,406   
Other 1,423    1,739    2,415    4,687   
Total Company $ 40,212    $ 32,045    $ 89,285    $ 71,253   



13

A reconciliation of Adjusted EBITDA to income before income taxes is as follows:
  Three Months Ended June 30, 2019
  Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation
Concentra Other Total
  (in thousands)
Adjusted EBITDA $ 64,138    $ 29,968    $ 42,584    $ 76,087    $ (26,544)    
Depreciation and amortization (14,495)   (6,696)   (6,991)   (24,479)   (2,332)    
Stock compensation expense —    —    —    (767)   (5,591)    
Income (loss) from operations $ 49,643    $ 23,272    $ 35,593    $ 50,841    $ (34,467)   $ 124,882   
Equity in earnings of unconsolidated subsidiaries         7,394   
Interest expense         (51,464)  
Income before income taxes         $ 80,812   
  Three Months Ended June 30, 2020
  Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation
Concentra Other Total
  (in thousands)
Adjusted EBITDA $ 89,743    $ 27,605    $ (6,282)   $ 41,497    $ 26,189     
Depreciation and amortization (13,892)   (6,907)   (7,194)   (21,857)   (2,421)    
Stock compensation expense —    —    —    (701)   (6,262)    
Income (loss) from operations $ 75,851    $ 20,698    $ (13,476)   $ 18,939    $ 17,506    $ 119,518   
Equity in earnings of unconsolidated subsidiaries         8,324   
Gain on sale of business 346   
Interest expense         (37,366)  
Income before income taxes         $ 90,822   
  Six Months Ended June 30, 2019
  Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation
Concentra Other Total
  (in thousands)
Adjusted EBITDA $ 137,136    $ 55,765    $ 71,575    $ 142,345    $ (50,471)    
Depreciation and amortization (25,946)   (13,098)   (14,023)   (49,383)   (4,681)    
Stock compensation expense —    —    —    (1,534)   (11,079)    
Income (loss) from operations $ 111,190    $ 42,667    $ 57,552    $ 91,428    $ (66,231)   $ 236,606   
Equity in earnings of unconsolidated subsidiaries         11,760   
Gain on sale of businesses 6,532   
Interest expense         (102,275)  
Income before income taxes