SELECT MEDICAL CORP - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


		(Mark One)
x		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


For the Quarter Ended March 31, 2003
o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Period From to .

Commission File Number: 000-32499

SELECT MEDICAL CORPORATION

(Exact name of Registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		23-2872718 (I.R.S. employer identification number)

4716 Old Gettysburg Road, P.O. Box 2034, Mechanicsburg, Pennsylvania 17055
(Address of principal executive offices and zip code)

(717) 972-1100
(Registrant’s telephone number, including area code)

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 the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES x NO o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES x NO o

As of April 30, 2003, the number of outstanding shares of the Registrant’s Common Stock was 47,475,097.

TABLE OF CONTENTS


PART I FINANCIAL INFORMATION
	ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
		Consolidated Balance Sheets
		Consolidated Statements of Operations
		Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income (Loss)
		Consolidated Statements of Cash Flows
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
WAIVER, DATED AS OF MARCH 18, 2003 TO CREDIT AGREE
CERTIFICATION OF PRESIDENT & C.E.O.
CERTIFICATION OF SENIOR VICE PRESIDENT & C.F.O.


PART I	FINANCIAL INFORMATION	3
ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS
	Consolidated balance sheets	3
	Consolidated statements of operations	4
	Consolidated statement of changes in stockholders’ equity	5
	Consolidated statements of cash flows	6
	Notes to consolidated financial statements	7
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
	RESULTS OF OPERATIONS	18
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	29
ITEM 4.	CONTROLS AND PROCEDURES	29
PART II	OTHER INFORMATION	29
ITEM 1.	LEGAL PROCEEDINGS	29
ITEM 2.	CHANGES IN SECURITIES AND USE OF PROCEEDS	30
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	30
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	30
ITEM 5.	OTHER INFORMATION	30
ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K	30
SIGNATURE		31

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PART I FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

Select Medical Corporation
Consolidated Balance Sheets
(in thousands, except share and per share amounts)


			March 31,		December 31,
			2003		2002

			(unaudited)
Assets
Current Assets:
	Cash and cash equivalents		$	38,528	$	56,062
	Accounts receivable, net of allowance for doubtful accounts of $87,204 and $79,815 in 2003 and 2002, respectively			222,609		233,105
	Current deferred tax asset			42,268		40,125
	Other current assets			17,663		17,601

Total Current Assets				321,068		346,893
Property and equipment, net				113,516		114,707
Goodwill				208,096		196,887
Trademark				37,875		37,875
Intangible assets				941		8,969
Non-current deferred tax asset				5,803		7,995
Other assets				16,761		25,733

Total Assets			$	704,060	$	739,059

		Liabilities and Stockholders’ Equity
Current Liabilities:
	Bank overdrafts		$	8,087	$	11,121
	Current portion of long-term debt and notes payable			21,432		29,470
	Accounts payable			37,529		38,590
	Accrued payroll			34,315		34,891
	Accrued vacation			16,249		15,195
	Accrued restructuring			682		800
	Accrued other			44,862		36,306
	Income taxes payable			15,392		23,722
	Due to third party payors			9,377		26,177

Total Current Liabilities				187,925		216,272
Long-term debt, net of current portion				206,488		230,747

Total Liabilities				394,413		447,019
Commitments and Contingencies
Minority interest in consolidated subsidiary companies				5,088		5,622
Stockholders’ Equity:
	Common stock - $.01 par value: Authorized shares - 200,000,000, Issued shares - 47,465,000 and 46,676,000 in 2003 and 2002, respectively			475		467
	Capital in excess of par			237,887		236,183
	Retained earnings			64,609		50,155
	Accumulated other comprehensive income (loss)			1,588		(387	)

Total Stockholders’ Equity				304,559		286,418

Total Liabilities and Stockholders’ Equity			$	704,060	$	739,059

See accompanying notes.

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


			For the Quarter Ended March 31,

			2003			2002

Net operating revenues			$	312,307		$	271,920

Costs and expenses:
	Cost of services			252,269			221,735
	General and administrative			9,503			9,686
	Bad debt expense			12,183			10,443
	Depreciation and amortization			7,514			6,026

Total costs and expenses				281,469			247,890

Income from operations				30,838			24,030
Other income and expense:
Interest income				(186	)		(71	)
Interest expense				6,426			6,778

Income before minority interests and income taxes				24,598			17,323
Minority interest in consolidated subsidiary companies				824			603

Income before income taxes				23,774			16,720
Income tax expense				9,320			6,544

Net income			$	14,454		$	10,176

Net income per common share:
	Basic:
		Income per common share	$	0.31		$	0.22
	Diluted:
		Income per common share	$	0.29		$	0.21
Weighted average shares outstanding:
	Basic			47,150			46,080
	Diluted			49,201			48,624

See accompanying notes.

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Select Medical Corporation
Consolidated Statement of Changes in Stockholders’ Equity and Comprehensive Income (Loss)
(in thousands)
(unaudited)


										Accumulated
				Common		Capital in				Other
		Common		Stock Par		Excess of		Retained		Comprehensive			Comprehensive
		Stock		Value		Par		Earnings		Income(Loss)			Income

Balance at December 31, 2002			46,676	$	467	$	236,183	$	50,155	$	(387	)
	Net income								14,454				$	14,454
	Other comprehensive income										1,975			1,975

	Total comprehensive income												$	16,429

	Issuance of common stock		789		8		1,487
	Tax benefit of stock option exercises						217

Balance at March 31, 2003			47,465	$	475	$	237,887	$	64,609	$	1,588

See accompanying notes.

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Select Medical Corporation
Consolidated Statements of Cash Flows

(in thousands)
(unaudited)


			For the Quarter Ended
			March 31,

			2003			2002

Operating activities
Net income			$	14,454		$	10,176
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization			7,514			6,026
	Provision for bad debts			12,183			10,443
	Minority interests			824			603
	Changes in operating assets and liabilities, net of effects from acquisition of businesses:
		Accounts receivable		6,707			(15,754	)
		Other current assets		(10	)		(141	)
		Other assets		1,573			461
		Accounts payable		(369	)		934
		Due to third-party payors		(16,799	)		8,009
		Accrued expenses		5,240			9,350
		Income taxes		(6,887	)		4,046

Net cash provided by operating activities				24,430			34,153

Investing activities
Purchases of property and equipment, net				(6,973	)		(8,959	)
Earnout payments				(429	)		(489	)
Acquisition of businesses, net of cash acquired				(732	)		—

Net cash used in investing activities				(8,134	)		(9,448	)

Financing activities
Net repayments on credit facility debt				(30,562	)		(8,991	)
Principal payments on seller and other debt				(1,719	)		(2,740	)
Proceeds from issuance of common stock				1,495			973
Proceeds from (repayment of) bank overdrafts				(3,034	)		595
Payment of deferred financing costs				—			(67	)
Distributions to minority interests				(127	)		(159	)

Net cash used in financing activities				(33,947	)		(10,389	)

Effect of exchange rate changes on cash and cash equivalents				117			(3	)

Net increase (decrease) in cash and cash equivalents				(17,534	)		14,313
Cash and cash equivalents at beginning of period				56,062			10,703

Cash and cash equivalents at end of period			$	38,528		$	25,016

Supplemental Cash Flow Information
Cash paid for interest			$	1,872		$	2,212
Cash paid for income taxes			$	16,321		$	2,218

See accompanying notes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation

The unaudited condensed consolidated financial statements of Select Medical Corporation (the “Company”) as of March 31, 2003 and for the three month periods ended March 31, 2003 and 2002, have been prepared in accordance with generally accepted accounting principles. In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for such periods. All intercompany transactions and balances have been eliminated. The results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2003.

Certain information and disclosures normally included in the notes to consolidated financial statements have been condensed or omitted as permitted by the rules and regulations of the Securities and Exchange Commission, although the Company believes the disclosure is adequate to make the information presented not misleading. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2002 contained in the Company’s Form 10-K filed with the Securities Exchange Commission.

2. Accounting Policies

Reclassifications

Certain reclassifications have been made to prior-year amounts in order to conform to the current-year presentation.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities 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.

Insurance Risk Programs

The Company is insured for malpractice claims based on claims made or claims incurred policies purchased in the commercial insurance market. The Company’s policies prior to December 31, 2002 had low deductibles, or self-insured retention levels. A self-insured retention is a minimal amount of liability and legal fees that the Company must pay for each claim. The policy that became effective on December 31, 2002 contains substantial self-insured retentions for the Company’s professional liability claims. The company utilizes an actuary to determine the value of the losses that may occur within this self-insured retention level and adjusts its accruals based upon this analysis. To the extent that subsequent claims information varies from loss estimates, the accruals for these liabilities are adjusted to current loss data.

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Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities”, an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to improve financial reporting of special purpose and other entities. In accordance with the interpretation, business enterprises that represent the primary beneficiary of another entity by retaining a controlling financial interest in that entity’s assets, liabilities, and results of operations must consolidate the entity in their financial statements. Prior to the issuance of FIN 46, consolidation generally occurred when an enterprise controlled another entity through voting interests. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company does not expect FIN 46 to have a material impact on its financial statements.

In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 145 “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” As a result of rescinding SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” the requirement that gains and losses from the extinguishment of debt be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect is eliminated. The Company reported extraordinary items in 2000 and 2001 as a result of debt extinguishments. The provisions of SFAS 145 that affect the Company are effective for fiscal periods beginning after May 15, 2002, although early adoption of SFAS 145 is permitted. In accordance with the provisions of SFAS No. 145, the Company adopted this pronouncement in the first quarter of 2003. As a result of the adoption of SFAS No. 145 the Company reclassified its extraordinary items recorded in 2000 and 2001 to the other income and expense category of its consolidated statement of operations.

Stock Option Plans

During the three months ended March 31, 2003, the Company granted stock options under its Second Amended and Restated 1997 Stock Option Plan totaling 48,010 shares of Common Stock at the exercise price of $13.35 per share. In addition, the Company granted stock options under its 2002 Non-Employee Directors’ Plan totaling 29,000 shares of Common Stock at the exercise price of $13.35 per share.

As permitted by Statement of Financial Accounting Standards No. 123, “Accounting for Stock Based Compensation” (SFAS No. 123), the Company has chosen to apply APB Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25) and related interpretations in accounting for its Plans. Accordingly, no compensation cost has been recognized for options granted under the Plans. Had compensation costs for the Plans been determined based on the fair value at the grant dates for awards under the Plans consistent with the method of SFAS No. 123, approximately $1,080,000 and $2,080,000 of additional compensation expense, net of tax, would have been recognized during the three months ended March 31, 2003 and 2002, respectively.

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For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The Company’s pro forma net earnings and earnings per share assuming compensation costs had been recognized consistent with the fair value method under SFAS No. 123 were as follows:


		For the Three Months Ended March 31,

		2003		2002

Net income – as reported		$	14,454,000	$	10,176,000
Net income – pro forma			13,374,000		8,096,000
	Weighted average grant-date fair value		6.60		5.38
Basic earnings per share – as reported			0.31		0.22
Basic earnings per share – pro forma			0.29		0.17
Diluted earnings per share – as reported			0.29		0.21
Diluted earnings per share – pro forma			0.27		0.17

Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income at March 31, 2003 consist of cumulative translation adjustment gains of $1,921,000 associated with the Company’s Canadian operations and unrealized losses on available-for-sale securities of $333,000, net of tax.

3. Intangible Assets

Amortization expense for intangible assets with finite lives for the three months ended March 31, 2003 was $7,000. Estimated amortization expense for intangible assets for each of the five years commencing January 1, 2003 will be approximately $28,000.

Intangible assets consist of the following:


	As of March 31, 2003

	Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets
Management services agreements	$	1,081,000	$	(140,000	)


Unamortized intangible assets
Goodwill	$	208,096,000
Trademarks		37,875,000

Total	$	245,971,000

The changes in the carrying amount of goodwill for the Company’s reportable segments for the three months ended March 31, 2003 are as follows:

	Specialty Hospitals		Outpatient Rehabilitation			All Other		Total
Balance as of December 31, 2002	$	84,391,000	$	111,912,000		$	584,000	$	196,887,000
Goodwill acquired during year		—		10,166,000			—		10,166,000
Income tax benefits recognized		—		(933,000	)		—		(933,000	)
Earn-out payments		—		429,000			—		429,000
Translation adjustment		—		1,547,000			—		1,547,000

Balance as of March 31, 2003	$	84,391,000	$	123,121,000		$	584,000	$	208,096,000

4. Restructuring Charges

The following summarizes the Company’s restructuring activity:


	Lease
	Termination
	Costs			Severance			Total

December 31, 2002	$	788,000		$	12,000		$	800,000
Amounts paid in 2003		(106,000	)		(12,000	)		(118,000	)

March 31, 2003	$	682,000		$	—		$	682,000

The Company expects to pay out the remaining lease termination costs through 2005.

5. Segment Information

The Company’s segments consist of (i) specialty hospitals and (ii) outpatient rehabilitation. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

The following table summarizes selected financial data for the Company’s reportable segments:


	Three Months Ended March 31, 2003

	Specialty		Outpatient
	Hospitals		Rehabilitation		All Other			Total

Net revenue	$	183,428,000	$	125,575,000	$	3,304,000		$	312,307,000
Income (loss) from operations		21,859,000		16,588,000		(7,609,000	)		30,838,000
Total assets		311,814,000		329,603,000		62,643,000			704,060,000
Capital expenditures		2,887,000		2,740,000		1,346,000			6,973,000

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	Three Months Ended March 31, 2002

	Specialty		Outpatient
	Hospitals		Rehabilitation		All Other			Total

Net revenue	$	148,828,000	$	119,694,000	$	3,398,000		$	271,920,000
Income (loss) from operations		12,619,000		18,522,000		(7,111,000	)		24,030,000
Total assets		298,352,000		327,591,000		44,791,000			670,734,000
Capital expenditures		6,183,000		2,435,000		341,000			8,959,000

6. Net Income per Share

The following table sets forth for the periods indicated the calculation of net income per share in the Company’s consolidated statement of operations and the differences between basic weighted average shares outstanding and diluted weighted average shares outstanding used to compute diluted earnings per share:


		Three Months Ended March 31,
		2003		2002

Numerator:
	Net income	$	14,454,000	$	10,176,000

Denominator:
	Denominator for basic earnings per share – weighted average shares		47,150,000		46,080,000
	Effect of dilutive securities:
	a) Stock options		1,388,000		1,527,000
	b) Warrants		663,000		1,017,000

Denominator for diluted earnings per share-adjusted weighted average shares and assumed conversions			49,201,000		48,624,000

	Basic income per common share	$	0.31	$	0.22
	Diluted income per common share	$	0.29	$	0.21

7. Commitments and Contingencies

Litigation

On August 10, 1998 a complaint in the U.S. District Court for the Eastern District of Pennsylvania was filed that named as defendants NovaCare, Inc. (now known as J.L. Halsey Corporation), other named defendants and 100 defendants who were to be named at a later time. This qui tam action sought triple damages and penalties under the False Claims Act against J.L. Halsey Corporation. The allegations involve, among other things, the distinction between individual and group billing in physical rehabilitation clinics that the Company acquired from NovaCare. On October 16, 2000, the relator plaintiff made a motion to amend the complaint to, among other things, add the Company and some of its subsidiaries acquired in the NovaCare acquisition as defendants in this case. This motion was granted in September of 2001. The amended complaint alleges that from about January 1, 1995 through the present, the defendants submitted false or fraudulent bills for physical therapy to various federal health programs. On January 3, 2002, J.L. Halsey Corporation and its related subsidiaries (including the subsidiaries acquired in the NovaCare acquisition) entered into a settlement agreement with the relator plaintiff and the government, pursuant to which, in exchange for a payment by J.L.

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Halsey Corporation of $375,000, the parties settled all claims arising out of conduct that took place before the Company’s acquisition of the NovaCare subsidiaries that are defendants in the case. Claims against the Company and the NovaCare subsidiaries regarding alleged conduct occurring after the NovaCare acquisition were not covered by the settlement. In September 2002, the Company learned that the United States Attorney for the Eastern District of Pennsylvania had notified the court that the United States had decided not to intervene in this case. As of April 30, 2003, the Company and the subsidiaries have not been served with the amended complaint. Based on a review of the amended complaint, the Company does not believe that this lawsuit is meritorious, and it intends to vigorously defend against this action if it is pursued by the relator plaintiff. However, because of the uncertain nature of the litigation, the Company cannot predict the outcome of this matter.

Other

In February 2002, PHICO Insurance Company (“PHICO”), at the request of the Pennsylvania Insurance Department, was placed in liquidation by an order of the Commonwealth Court of Pennsylvania (“Liquidation Order”). The Company had placed its primary malpractice insurance coverage through PHICO from June 1998 through December 2000. In January 2001, these policies were replaced by policies issued with other insurers. Currently, the Company has approximately 14 unsettled cases in seven states from the policy years covered by PHICO issued policies. The Liquidation Order refers these claims to the various state guaranty associations. These state guaranty association statutes generally provide for coverage between $100,000-$300,000 per insured claim, depending upon the state. Some states also have catastrophic loss funds to cover settlements in excess of the available state guaranty funds. Most state insurance guaranty statutes provide for net worth and residency limitations that, if applicable, may limit or prevent the Company from recovering from these state guaranty association funds. At this time, the Company believes that it will meet the requirements for coverage under most of the applicable state guarantee association statutes, and that the resolution of these claims will not have a material adverse effect on the Company’s financial position, cash flow or results of operations. However, because the rules related to state guaranty association funds are subject to interpretation, and because these claims are still in the process of resolution, the Company’s conclusions may change as this process progresses.

The Company is subject to legal proceedings and claims that have arisen in the ordinary course of its business and have not been finally adjudicated, which include malpractice claims covered (subject to the above discussion regarding PHICO Insurance Company) under the Company’s insurance policy. In the opinion of management, the outcome of these actions will not have a material effect on the financial position or results of operations of the Company.

8. Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries

The Company conducts a significant portion of its business through its subsidiaries. Presented below is condensed consolidating financial information for the Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at March 31, 2003 and for the three months ended March 31, 2003 and 2002.

On January 1, 2003, the Company purchased the outstanding minority interests of Rehab Advantage Therapy Services, LLC and Select Management Services, LLC. The operations of these businesses through January 1, 2003 have been included as Non-Guarantor Subsidiaries. The operations (through a 100% owned subsidiary) commencing on January 1, 2003 have been included as Guarantor Subsidiaries.

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The equity method has been used by the Company with respect to investments in subsidiaries. The equity method has been used by Subsidiary Guarantors with respect to investments in Non-Guarantor Subsidiaries. Separate financial statements for Subsidiary Guarantors are not presented.

The following table sets forth the Non-Guarantor Subsidiaries at March 31, 2003:

Canadian Back Institute Limited
Kentucky Orthopedic Rehabilitation, LLC.
Medical Information Management Systems, LLC.
Metro Therapy, Inc.
Millennium Rehab Services, LLC.
Select Specialty Hospital – Central Pennsylvania, L.P.
Select Specialty Hospital – Houston, L.P.
Select Specialty Hospital – Mississippi Gulf Coast, Inc.
TJ Corporation I, LLC.

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		Select Medical Corporation
		Condensed Consolidating Balance Sheet
		March 31,2003

		Select Medical
		Corporation						Non-
		(Parent			Subsidiary			Guarantor
		Company Only)			Guarantors			Subsidiaries			Eliminations			Consolidated

		(dollars in thousands)
Assets
	Current Assets:
	Cash and cash equivalents	$	15,170		$	21,250		$	2,108		$	—		$	38,528
	Accounts receivable, net		(480	)		188,856			34,233			—			222,609
	Current deferred tax asset		7,840			31,185			3,243			—			42,268
	Other current assets		2,568			11,935			3,160			—			17,663

Total Current Assets			25,098			253,226			42,744			—			321,068
Property and equipment, net			9,777			85,677			18,062			—			113,516
Investment in affiliates			333,922			56,632			—			(390,554	)(a)		—
Goodwill			5,854			157,393			44,849			—			208,096
Trademark			—			37,875			—			—			37,875
Other intangibles			—			941			—			—			941
Non-current deferred tax asset			(642	)		(5,793	)		12,238			—			5,803
Other assets			11,850			4,185			726			—			16,761

Total Assets		$	385,859		$	590,136		$	118,619		$	(390,554	)	$	704,060

Liabilities and Stockholders’ Equity
Current Liabilities:
	Bank overdrafts	$	8,087		$	—		$	—		$	—		$	8,087
	Current portion of long-term debt and notes payable		570			20,253			609			—			21,432
	Accounts payable		2,365			29,700			5,464			—			37,529
	Intercompany accounts		(3,617	)		(11,294	)		14,911			—			—
	Accrued payroll		472			33,742			101			—			34,315
	Accrued vacation		2,098			12,725			1,426			—			16,249
	Accrued restructuring		—			682			—			—			682
	Accrued other		19,839			23,160			1,863			—			44,862
	Income taxes		653			19,142			(4,403	)		—			15,392
	Due to third party payors		(8,480	)		26,370			(8,513	)		—			9,377

Total Current Liabilities			21,987			154,480			11,458			—			187,925
Long-term debt, net of current portion			59,313			99,183			47,992			—			206,488

Total liabilities			81,300			253,663			59,450			—			394,413
Commitments and Contingencies
Minority interest in consolidated subsidiary companies			—			385			4,703			—			5,088
Stockholders’ Equity:
	Common stock		475			—			—			—			475
	Capital in excess of par		237,887			—			—			—			237,887
	Retained earnings		64,609			86,782			25,657			(112,439	)(b)		64,609
	Subsidiary investment		—			249,306			28,809			(278,115	)(a)		—
	Accumulated other comprehensive income		1,588			—			—			—			1,588

Total Stockholders’ Equity			304,559			336,088			54,466			(390,554	)		304,559

Total Liabilities and Stockholders’ Equity		$	385,859		$	590,136		$	118,619		$	(390,554	)	$	704,060

(a) Elimination of investments in subsidiaries.

(b) Elimination of investments in subsidiaries’ earnings.

-13-


		Select Medical Corporation
		Condensed Consolidating Statement of Operations
		For the Three Months Ended March 31, 2003

		Select Medical
		Corporation						Non-
		(Parent Company			Subsidiary			Guarantor
		Only)			Guarantors			Subsidiaries		Eliminations					Consolidated

		(dollars in thousands)

Net operating revenues		$	2,795		$	260,872		$	48,640	$	—				$	312,307

Costs and expenses:
	Cost of services		—			212,712			39,557		—					252,269
	General and administrative		9,503			—			—		—					9,503
	Bad debt expense		—			10,699			1,484		—					12,183
	Depreciation and amortization		898			5,662			954		—					7,514

Total costs and expenses			10,401			229,073			41,995		—					281,469

Income (loss) from operations			(7,606	)		31,799			6,645		—					30,838
Other income and expense:
Intercompany interest and royalty fees			5,854			(5,859	)		5		—					—
Intercompany management fees			(15,162	)		14,697			465		—					—
Interest income			(113	)		(73	)		—		—					(186	)
Interest expense			2,115			3,015			1,296		—					6,426

Income (loss) before minority interests and income taxes			(300	)		20,019			4,879		—					24,598
Minority interest in consolidated subsidiary companies			—			117			707		—					824

Income (loss) before income taxes			(300	)		19,902			4,172		—					23,774
Income tax expense (benefit)			(84	)		7,865			1,539		—					9,320
Equity in earnings of subsidiaries			14,670			1,228			—		(15,898	)	(a	)		—

Net income		$	14,454		$	13,265		$	2,633	$	(15,898	)			$	14,454

(a) Elimination of equity in net income (loss) from consolidated subsidiaries.

- 14 -


			Select Medical Corporation
			Condensed Consolidating Statement of Cash Flows
			For the Year Ended March 31, 2003

			Medical
			Corporation						Non-
			(Parent			Subsidiary			Guarantor
			Company			Guarantors			Subsidiaries			Eliminations					Consolidated

			(dollars in thousands)
Operating activities
Net income			$	14,454		$	13,265		$	2,633		$	(15,898	)	(a	)	$	14,454
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization			898			5,662			954			—					7,514
	Provision for bad debts			—			10,699			1,484			—					12,183
	Minority interests			—			117			707			—					824
	Changes in operating assets and liabilities, net of effects from acquisition of businesses:
		Equity in earnings of subsidiaries		(14,670	)		(1,228	)		—			15,898		(a	)		—
		Intercompany		17,034			(15,156	)		(1,878	)		—					—
		Accounts receivable		195			5,320			1,192			—					6,707
		Other current assets		320			(263	)		(67	)		—					(10	)
		Other assets		85			1,173			315			—					1,573
		Accounts payable		(172	)		28			(225	)		—					(369	)
		Due to third-party payors		3,156			(15,933	)		(4,022	)		—					(16,799	)
		Accrued expenses		1,053			2,897			1,290			—					5,240
		Income taxes		(6,197	)		—			(690	)		—					(6,887	)

Net cash provided by operating activities				16,156			6,581			1,693			—					24,430

Investing activities
Purchases of property and equipment, net				(1,339	)		(4,118	)		(1,516	)		—					(6,973	)
Earnout payments				—			(429	)		—			—					(429	)
Acquisition of businesses, net of cash acquired				—			(732	)		—			—					(732	)

Net cash used in investing activities				(1,339	)		(5,279	)		(1,516	)		—					(8,134	)

Financing activities
Intercompany debt reallocation				6,140			(6,355	)		215			—					—
Net repayments on credit facility debt				(29,743	)		—			(819	)		—					(30,562	)
Principal payments on seller and other debt				—			(1,719	)		—			—					(1,719	)
Proceeds from issuance of common stock				1,495			—			—			—					1,495
Repayment of bank overdrafts				(3,034	)		—			—			—					(3,034	)
Distributions to minority interests				—			—			(127	)		—					(127	)

Net cash used in financing activities				(25,142	)		(8,074	)		(731	)		—					(33,947	)

Effect of exchange rate changes on cash and cash equivalents				117			—			—			—					117

Net decrease in cash and cash equivalents				(10,208	)		(6,772	)		(554	)		—					(17,534	)
Cash and cash equivalents at beginning of period				25,378			28,022			2,662			—					56,062

Cash and cash equivalents at end of period			$	15,170		$	21,250		$	2,108		$	—				$	38,528

(a) Elimination of equity in earnings of subsidiary.

- 15 -


		Select Medical Corporation
		Condensed Consolidating Statement of Operations
		For the Quarter Ended March 31, 2002

		Corporation
		(Parent						Non-
		Company			Subsidiary			Guarantor
		Only)			Guarantors			Subsidiaries		Eliminations					Consolidated

			(dollars in thousands)
Net operating revenues		$	3,202		$	222,281		$	46,437	$	—				$	271,920

Costs and expenses:
	Cost of services		—			183,819			37,916		—					221,735
	General and administrative		9,686			—			—		—					9,686
	Bad debt expense		—			8,440			2,003		—					10,443
	Depreciation and amortization		416			4,431			1,179		—					6,026

Total costs and expenses			10,102			196,690			41,098		—					247,890

Income (loss) from operations			(6,900	)		25,591			5,339		—					24,030
Other income and expense:
Intercompany interest and royalty fees			5,079			(5,228	)		149		—					—
Intercompany management fees			(12,368	)		11,716			652		—					—
Interest income			(61	)		(11	)		1		—					(71	)
Interest expense			1,588			4,163			1,027		—					6,778

Income (loss) before minority interests and income taxes			(1,138	)		14,951			3,510		—					17,323
Minority interest in consolidated subsidiary companies			—			—			603		—					603

Income (loss) before income taxes			(1,138	)		14,951			2,907		—					16,720
Income tax expense			901			4,953			690		—					6,544
Equity in earnings of subsidiaries			12,215			1,052			—		(13,267	)	(a	)		—

Net income		$	10,176		$	11,050		$	2,217	$	(13,267	)			$	10,176

(a) Elimination of equity in net income (loss) from consolidated subsidiaries.

- 16 -


			Select Medical Corporation
			Condensed Consolidating Statement of Cash Flows
			For the Quarter Ended March 31, 2002

			Select Medical
			Corporation						Non-
			(Parent			Subsidiary			Guarantor
			Company Only)			Guarantors			Subsidiaries			Eliminations			Consolidated

						(dollars in thousands)
Operating activities
Net income			$	10,176		$	11,050		$	2,217		$	(13,267)	(a)	$	10,176
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization			416			4,431			1,179			—			6,026
	Provision for bad debts			—			8,440			2,003			—			10,443
	Minority interests			—			—			603			—			603
	Changes in operating assets and liabilities, net of effects from acquisition of businesses:
		Equity (loss) in earnings of subsidiaries		(12,215	)		(1,052	)		—			13,267	(a)		—
		Intercompany		1,606			5,451			(7,057	)		—			—
		Accounts receivable		(291	)		(16,158	)		695			—			(15,754	)
		Other current assets		(257	)		(170	)		286			—			(141	)
		Other assets		893			(1,555	)		1,123			—			461
		Accounts payable		1,924			(552	)		(438	)		—			934
		Due to third-party payors		(3,200	)		8,751			2,458			—			8,009
		Accrued expenses		2,579			7,637			(866	)		—			9,350
		Income taxes		4,981			—			(935	)		—			4,046

Net cash provided by operating activities				6,612			26,273			1,268			—			34,153

Investing activities
Purchases of property and equipment, net				(329	)		(7,594	)		(1,036	)		—			(8,959	)
Earnout payments				—			(489	)		—			—			(489	)

Net cash used in investing activities				(329	)		(8,083	)		(1,036	)		—			(9,448	)

Financing activities
Intercompany debt reallocation				18,152			(18,446	)		294			—			—
Net repayments on credit facility debt				(8,320	)		—			(671	)		—			(8,991	)
Principal payments on seller and other debt				(370	)		(2,370	)		—			—			(2,740	)
Proceeds from issuance of common stock				973			—			—			—			973
Proceeds from bank overdrafts				595			—			—			—			595
Payment of deferred financing costs				(67	)		—			—			—			(67	)
Distributions to minority interests							—			(159	)		—			(159	)

Net cash provided by (used in) financing activities				10,963			(20,816	)		(536	)		—			(10,389	)

Effect of exchange rate changes on cash and cash equivalents				(3	)		—			—			—			(3	)

Net increase (decrease) in cash and cash equivalents				17,243			(2,626	)		(304	)		—			14,313
Cash and cash equivalents at beginning of period				559			8,086			2,058			—			10,703

Cash and cash equivalents at end of period			$	17,802		$	5,460		$	1,754		$	—		$	25,016

(a) Elimination of equity in earnings of subsidiary.

- 17 -

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read this discussion together with our consolidated financial statements and notes thereto contained in our Form 10-K filed with the Securities Exchange Commission on March 14, 2003.

Forward Looking Statements

This discussion contains forward-looking statements relating to the financial condition, results of operations, plans, objectives, future performance and business of Select Medical Corporation. These statements include, without limitation, statements preceded by, followed by or that include the words “believes,” “expects,” “anticipates,” “estimates” or similar expressions. These forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to factors including the following:

• a change in government reimbursement for our services that would affect our revenue;

• the failure of our long-term acute care hospitals to maintain their status as such, which could negatively impact our profitability;

• a government investigation or assertion that we have violated applicable regulations may result in increased costs and a significant use of internal resources,

• shortages in qualified nurses could increase our operating costs significantly;

• the effects of liability and other claims asserted against us;

• conditions in the malpractice insurance market may further increase the cost of malpractice insurance and/or force us to assume even higher self-insured retentions;

• private third party payors of our services may undertake cost containment initiatives that would decrease our revenue; and

• future acquisitions may use significant resources and expose us to unforeseen risks.

For a discussion of these and other factors affecting our business, see the section captioned “Risk Factors” in our Form 10-K under Item 1 – Business.

Overview

We are a leading operator of specialty acute care hospitals for long term stay patients in the United States. We are also a leading operator of outpatient rehabilitation clinics in the United States and Canada. As of March 31, 2003, we operated 72 specialty acute care hospitals in 24 states and 739 outpatient rehabilitation clinics in 32 states, the District of Columbia and seven Canadian provinces. We began operations in 1997 under the leadership of our current management team.

We operate through two business segments, our specialty acute care hospital segment and our outpatient rehabilitation segment. For the three months ended March 31, 2003, we had net operating revenues of $312.3 million. Of this total, we earned approximately 60% of our net operating revenues from our specialty hospitals and approximately 40% from our outpatient rehabilitation business.

Our specialty acute care hospital segment consists of hospitals designed to serve the needs of long term stay acute patients. These patients typically suffer from serious and often complex medical conditions that require a high degree of care. Our outpatient rehabilitation business consists of clinics and contract services that provide physical, occupational and speech rehabilitation services. Our patients are typically diagnosed with musculoskeletal impairments that restrict their ability to perform normal activities of daily living.

- 18 -

The following table sets forth operating statistics for our specialty acute care hospitals and our outpatient rehabilitation clinics for each of the periods presented. The data in the table reflect the changes in the number of specialty acute care hospitals and outpatient rehabilitation clinics we operate that resulted from acquisitions, start-up activities and closures. The operating statistics reflect data for the period of time these operations were managed by us.


			Three months ended

			March 31,

			2003			2002

Specialty Hospital Data
	# of Hospitals - Start of Period			72			64
		# of Hospital Start-ups		0			0

	# of Hospitals - End of Period			72			64

	# of Licensed Beds			2,616			2,307
	# of Admissions			5,958			5,211
	# of Patient Days			165,818			149,869
	Average Length of Stay			29			30
	Net Revenue Per Patient Day (a)		$	1,106		$	993
	Occupancy Rate			71	%		72	%
	% Patient Days – Medicare			78	%		77	%
Outpatient Rehabilitation Data
	# of Clinics Owned - Start of Period			679			664
		# of Clinics Acquired		33			1
		# of Clinic Start-ups		6			14
		# of Clinics Closed/Sold/Consolidated		10			12

	# of Clinics Owned - End of Period			708			667
	# of Clinics Managed - End of Period			31			53

	Total # of Clinics (All) – End of Period			739			720

	# of Visits (U.S)			981,572			964,416
	Net Revenue Per Visit (U.S.) (b)		$	88		$	86


(a)		Net revenue per patient day is calculated by dividing specialty hospital patient service revenues by the total number of patient days.

(b)		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 our Canadian subsidiary and contract services revenue.

Our goal is to open approximately eight to ten new specialty acute care hospitals each year, utilizing primarily our “hospital within a hospital” model. We also may open new specialty acute care hospitals in freestanding buildings. We also intend to open new clinics in our current markets where we can benefit from existing referral relationships and brand awareness to produce incremental growth. From time to time, we also intend to evaluate acquisition opportunities that may enhance the scale of our business and expand our geographic reach.

- 19 -

Critical Accounting Matters

Sources of Revenue

Our net operating revenues are derived from a number of sources, including commercial, managed care, private and governmental payors. Our net operating revenues include amounts estimated by management to be reimbursable from each of the applicable payors and the federal Medicare program. Amounts we receive for treatment of patients are generally less than the standard billing rates. We account for the differences between the estimated reimbursement rates and the standard billing rates as contractual adjustments, which we deduct from gross revenues to arrive at net operating revenues.

Approximately 69% and 64% of our specialty hospital revenues for the three months ended March 31, 2003 and 2002, respectively, were received from services provided to Medicare patients. Of this amount, approximately 53% and 98% were paid by Medicare under a cost-based reimbursement methodology for the three months ended March 31, 2003 and 2002, respectively. These payments are subject to final cost report settlements based on administrative review and audit by third parties. An annual cost report is filed for each provider to report the cost of providing services and to settle the difference between the interim payments we receive and final costs. We record adjustments to the original estimates in the periods that such adjustments become known. Historically these adjustments have not been significant. Because our routine payments from Medicare are different than the final reimbursement due to us under the cost based reimbursement system, we record a receivable or payable for the difference. As of March 31, 2003 we had a net amount due from Medicare of $0.7 million and at December 31, 2002 we had a net amount due to Medicare of $7.3 million, related to our cost-based hospitals. We recorded this amount as due to third party payors on our balance sheet. Substantially all of our Medicare cost reports are settled through 1999.

Net operating revenues generated directly from the Medicare program from all segments represented approximately 45% and 40% of net operating revenues for the three months ended March 31, 2003 and 2002, respectively. The increase in the percentage of our revenues generated from the Medicare program is due to the growth in the number of specialty hospitals and their higher respective share of Medicare revenues generated in this segment of our business compared to our outpatient rehabilitation segment.

On August 30, 2002, the Centers for Medicare & Medicaid Services (“CMS”) published final regulations establishing a prospective payment system for Medicare payment of long-term acute care hospitals (“LTCH-PPS”), which replaces the reasonable cost-based payment system previously in effect. Under LTCH-PPS, each discharged patient will be assigned to a distinct long-term care diagnosis-related group (“LTC-DRG”), and a long-term acute care hospital will generally be paid a pre-determined fixed amount applicable to the assigned LTC-DRG (adjusted for area wage differences). As required by Congress, LTC-DRG payment rates have been set to maintain budget neutrality with total expenditures that would have been made under the reasonable cost-based payment system.

LTCH-PPS is being phased in over a five-year transition period, during which a long-term care hospital’s payment for each Medicare patient will be a blended amount consisting of set percentages of the LTC-DRG payment rate and the hospital’s reasonable cost-based reimbursement. The LTC-DRG payment rate is 20% for a hospital’s cost reporting period beginning on or after October 1, 2002, and will increase by 20% for each cost reporting period thereafter until the hospital’s cost reporting period beginning on or after October 1, 2006, when the hospital will be paid solely on the basis of LTC-DRG payment rates. A long-term acute care hospital may elect to be paid solely on the basis of LTC-DRG payment rates (and not be subject to the transition period) at the start of any of its cost reporting periods during the transition period.

- 20 -

During the quarter ended March 31, 2003, an additional twenty-three of our hospitals implemented LTCH-PPS pursuant to the new regulations. This brings the total number of our hospitals which have implemented LTCH-PPS to thirty-six at March 31, 2003. Thirty-five of these hospitals elected to be paid solely on the basis of LTC-DRG payments. The balance of our hospitals are expected to implement LTCH-PPS over the next six months.

The LTCH-PPS regulations also refined the criteria that must be met in order for a hospital to be classified as a long-term acute care hospital. For cost reporting periods beginning on or after October 1, 2002, a long-term acute care hospital must have an average inpatient length of stay for Medicare patients (including both Medicare covered and non-covered days) of greater than 25 days. Previously, average lengths of stay were measured with respect to all patients.

While the implementation of LTCH-PPS is intended to be revenue neutral to the industry, it may be possible for our hospitals to experience enhanced financial performance due to our low cost operating model and the high acuity of our patient population. However, there are risks associated with transitioning to the new payment system. The conversion to the new payment system was accretive to our earnings in the quarter ended March 31, 2003, and we are continuing to assess the long-term impact of the LTCH-PPS.

Other revenue primarily represents amounts the Medicare program reimburses us for a portion of our corporate expenses that are related to our specialty hospital operations. Under the LTCH-PPS, we will no longer get specifically reimbursed for the portion of our corporate costs related to the provision of Medicare services in our specialty hospitals. Instead, we will receive from Medicare a pre-determined fixed amount assigned to the applicable LTC-DRG, which is intended to reflect the average cost of treating such a patient, including corporate costs. As a result of this change in our revenue stream, we began allocating corporate departmental costs that are directly related to our specialty hospital operations to our specialty hospital segment in 2003 to better match the cost with the revenues for this segment. We do not believe that this allocation of costs will have any adverse impact on the profitability or margins of this segment, due to the increase in net revenue this segment will experience under LTCH-PPS.

Insurance

Under a number of our insurance programs, which includes our employee health insurance program and certain components under our property and casualty insurance program, we are liable for a portion of our losses. In these cases we accrue for our losses under an occurrence based principal whereby we estimate the losses that will be incurred by us in a respective accounting period and accrue that estimated liability. Where we have substantial exposure, we utilize actuaries to assist us in estimating the losses. In cases where we have minimal exposure, we will estimate our losses by analyzing historical trends. We monitor these programs quarterly and make revision to our estimates as necessary to appropriately reflect our liability under these programs.

Bad Debts

We estimate our bad debts based upon the age of our accounts receivable and our historical collection percentages. These estimates are sensitive to changes in the economy that affect our customers.

Related Party

We are party to various rental and other agreements with companies affiliated through common ownership. Our payments to these related parties amounted to $0.4 million for each of the three months ended March 31, 2003 and 2002. Our future commitments are related to commercial office space we lease for our corporate headquarters in Mechanicsburg, Pennsylvania. These future commitments amount to $16.3 million through 2015. These transactions and commitments are described more fully in Note 16 to Select Medical

- 21 -

Corporation’s consolidated financial statements contained in our form 10-K for the year ended December 31, 2002.

Results of Operations

The following table outlines, for the periods indicated, selected operating data as a percentage of net operating revenues.


	Three Months Ended
	March 31,

	2003			2002

Net operating revenues		100.0	%		100.0	%

Cost of services (a)		80.8	%		81.5	%
General and administrative		3.0	%		3.6	%
Bad debt expense		3.9	%		3.8	%

EBITDA (b)		12.3	%		11.1	%
Depreciation and amortization		2.4	%		2.2	%

Income from operations		9.9	%		8.9	%
Interest expense, net		2.0	%		2.5	%

Income before minority interests, and income taxes		7.9	%		6.4	%
Minority interests		0.3	%		0.2	%

Income before income taxes		7.6	%		6.2	%
Income tax		3.0	%		2.5	%

Net income		4.6	%		3.7	%

- 22 -

The following table summarizes selected financial data by business segment, for the periods indicated.


			Three Months Ended
			March 31,
									%
			2003			2002			Change

			(dollars in thousands)
Net operating revenues:
	Specialty hospitals		$	183,428		$	148,828			23.2	%
	Outpatient rehabilitation			125,575			119,694			4.9
	Other			3,304			3,398			(2.8	)

		Total company	$	312,307		$	271,920			14.9	%

EBITDA: (b)
	Specialty hospitals		$	25,486		$	15,667			62.7	%
	Outpatient rehabilitation			19,503			21,048			(7.3	)
	Other			(6,637	)		(6,659	)		0.3

		Total company	$	38,352		$	30,056			27.6	%

Income (loss) from operations:
	Specialty hospitals		$	21,859		$	12,619			73.2	%
	Outpatient rehabilitation			16,588			18,522			(10.4	)
	Other			(7,609	)		(7,111	)		(7.0	)

		Total company	$	30,838		$	24,030			28.3	%

EBITDA margins: (b)
	Specialty hospitals			13.9	%		10.5	%		32.4	%
	Outpatient rehabilitation			15.5			17.6			(11.9	)
	Other		NM			NM			NM

	Total company			12.3	%		11.1	%		10.8	%

Total assets:
	Specialty hospitals		$	311,814		$	298,352
	Outpatient rehabilitation			329,603			327,591
	Other			62,643			44,791

	Total company		$	704,060		$	670,734

Capital expenditures
	Specialty hospitals		$	2,887		$	6,183
	Outpatient rehabilitation			2,740			2,435
	Other			1,346			341

	Total company		$	6,973		$	8,959

- 23 -

The following tables reconcile net income (loss) to EBITDA for the Company and income (loss) from operations to EBITDA on a segment basis.


	March 31, 2003

				Specialty			Outpatient			All
	Total			Hospitals			Rehabilitation			Other

				(dollars in thousands)
Net income	$	14,454
Income tax expense		9,320
Minority interest		824
Interest expense, net		6,240

Income (loss) from operations	$	30,838		$	21,859		$	16,588		$	(7,609	)
Depreciation and amortization		7,514			3,627			2,915			972

EBITDA (b)	$	38,352		$	25,486		$	19,503		$	(6,637	)

Net revenue	$	312,307		$	183,428		$	125,575		$	3,304
EBITDA margin (b)		12.3	%		13.9	%		15.5	%	NM


	March 31, 2002

				Specialty			Outpatient			All
	Total			Hospitals			Rehabilitation			Other

				(dollars in thousands)
Net income	$	10,176
Income tax expense		6,544
Minority interest		603
Interest expense, net		6,707

Income (loss) from operations	$	24,030		$	12,619		$	18,522		$	(7,111	)
Depreciation and amortization		6,026			3,048			2,526			452

EBITDA (b)	$	30,056		$	15,667		$	21,048		$	(6,659	)

Net revenue	$	271,920		$	148,828		$	119,694		$	3,398
EBITDA margin (b)		11.1	%		10.5	%		17.6	%	NM

The following table reconciles same hospitals information.


		Three Months Ended

		March 31, 2003			March 31, 2002

		(dollars in thousands)
Net Operating Revenue
	Specialty hospitals net operating revenue	$	183,428		$	148,828
	Less: Specialty hospitals opened after 1/1/02		8,803			—

	Same hospitals net operating revenue	$	174,625		$	148,828

EBITDA
	Specialty hospitals EBITDA	$	25,486		$	15,667
	Less: Specialty hospitals opened after 1/1/02 losses		(1,262	)		(738	)

	Same hospitals EBITDA	$	26,748		$	16,405

Same hospitals EBITDA margin			15.3	%		11.0	%

NM – Not Meaningful

(a) Cost of services include salaries, wages and benefits, operating supplies, lease and rent expense and other operating costs.

(b) We define EBITDA as net income (loss) before interest, income taxes, depreciation and amortization and minority interest. EBITDA is commonly used as an analytical indicator within the healthcare industry, and also

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serves as a measure of leverage capacity and debt service ability. EBITDA is also used by management to evaluate financial performance and determine resource allocation for each of our operating units, and for us as a whole. EBITDA is not a measure of financial performance under generally accepted accounting principles. Items excluded from EBITDA are significant components in understanding and assessing financial performance. 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 EBITDA is not a measurement determined in accordance with generally accepted accounting principles and is thus susceptible to varying calculations, EBITDA as presented may not be comparable to other similarly titled measures of other companies.

Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

Net Operating Revenues

Our net operating revenues increased by 14.9% to $312.3 million for the three months ended March 31, 2003 compared to $271.9 million for the three months ended March 31, 2002. The reasons for the increase in net operating revenues are discussed below.

Specialty Acute Care Hospitals. Our specialty hospital net operating revenues increased 23.2% to $183.4 million for the three months ended March 31, 2003 compared to $148.8 million for the three months ended March 31, 2002. Net operating revenues for the 64 specialty hospitals opened before January 1, 2002 and operated throughout both periods increased 17.3% to $174.6 million for the three months ended March 31, 2003 from $148.8 million for the three months ended March 31, 2002. This resulted from a higher volume of patient days and a higher net revenue per patient day. The remaining increase of $8.8 million resulted from the internal development of new specialty hospitals that commenced operations in 2002.

Outpatient Rehabilitation. Our outpatient rehabilitation net operating revenues increased 4.9% to $125.6 million for the three months ended March 31, 2003 compared to $119.7 million for the three months ended March 31, 2002. The number of patient visits in our U.S. based outpatient rehab clinics increased 1.8% for the three months ended March 31, 2003 to 981,572 visits compared to 964,416 visits for the three months ended March 31, 2002. Net revenue per visit in these clinics increased to $88 for the three months ended March 31, 2003 compared to $86 for the three months ended March 31, 2002. The increase was principally related to the consolidation of a group of clinics that we previously managed and clinics that we acquired after March 31, 2002. Excluding the effects of the previously managed clinics and the recently acquired clinics, net operating revenues for the three months ended March 31, 2003 would have been $121.6 million, a 1.6% increase from the prior year, and the number of U.S. based visits would have been 905,216, a 6.1% decline from the prior year. This decline in visits is principally related to the harsh weather we experienced in several of our markets, which also constrained our revenue growth. We estimate that we lost approximately 40,000 U.S. based visits due to weather-related cancellations and temporary clinic closures during the three months ended March 31, 2003. These lost weather related visits affected clinics we operated throughout both periods.

Other. Our other revenues remained relatively constant at $3.3 million for the three months ended March 31, 2003 compared to $3.4 million for the three months ended March 31, 2002. We expect this revenue item to decline throughout the remainder of 2003 as our specialty acute care hospitals convert to LTCH-PPS. See “Critical Accounting Matters-Sources of Revenue” for a further discussion of this change.

Operating Expenses

Our operating expenses increased by 13.3% to $274.0 million for the three months ended March 31, 2003 compared to $241.9 million for the three months ended March 31, 2002. Our operating expenses include our cost of services, general and administrative expense and bad debt expense. The increase in operating expenses was principally related to the internal development of new specialty hospitals that commenced operations in 2002, costs associated with increased patient volumes, consolidations of previously managed clinics and higher benefit costs experienced in our NovaCare outpatient operations. As a percentage of our net operating revenues, our operating expenses were 87.7% for the three months ended March 31, 2003 compared to 88.9% for the three months ended March 31, 2002. Cost of services as a percentage of operating revenues

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decreased to 80.8% for the three months ended March 31, 2003 from 81.5% for the three months ended March 31, 2002. These costs primarily reflect our labor expenses. This decrease resulted because we experienced a larger rate of growth in our specialty hospital revenues compared to the growth in our specialty hospital cost of services. Another component of cost of services is rent expense, which was $22.2 million for the three months ended March 31, 2003 compared to $20.6 million for the three months ended March 31, 2002. This increase is principally related to our new hospitals that opened during 2002. During the same time period, general and administrative expense as a percentage of net operating revenues decreased to 3.0% for the three months ended March 31, 2003 from 3.6% for the three months ended March 31, 2002. Our bad debt expense as a percentage of net operating revenues was 3.9% for the three months ended March 31, 2003 compared to 3.8% for the three months ended March 31, 2002.

EBITDA

Our total EBITDA increased 27.6% to $38.4 million for the three months ended March 31, 2003 compared to $30.1 million for the three months ended March 31, 2002. Our EBITDA margins increased to 12.3% for the three months ended March 31, 2003 compared to 11.1% for the three months ended March 31, 2002. Our EBITDA margins are adversely affected by the losses incurred at our start-up hospitals. If we exclude the dilutive effect caused by the hospitals opened in 2002 and our pre-opening hospitals, our overall EBITDA margins would be 13.1% for the three months ended March 31, 2003 compared to 11.3% for the three months ended March 31, 2002. For cash flow information, see “-Capital Resources and Liquidity.”

Specialty Acute Care Hospitals. EBITDA increased by 62.7% to $25.5 million for the three months ended March 31, 2003 compared to $15.7 million for the three months ended March 31, 2002. Our EBITDA margins increased to 13.9% for the three months ended March 31, 2003 from 10.5% for the three months ended March 31, 2002. The hospitals opened before January 1, 2002 and operated throughout both periods had EBITDA of $26.7 million, an increase of 63.0% over the EBITDA of these hospitals in the same period last year. This increase in same hospital EBITDA resulted from an increase in patient days and revenue per patient day. Our EBITDA margin in these same store hospitals increased to 15.3% for the three months ended March 31, 2003 from 11.0% for the three months ended March 31, 2002.

Outpatient Rehabilitation. EBITDA declined by 7.3% to $19.5 million for the three months ended March 31, 2003 compared to $21.0 million for the three months ended March 31, 2002. Our EBITDA margins decreased to 15.5% for the three months ended March 31, 2003 from 17.6% for the three months ended March 31, 2002. This EBITDA decline was primarily the result of three factors. First, the adverse effect of patient visit cancellations and temporary clinic closure due to the harsh weather in several of our markets. Second, our benefit costs in our NovaCare outpatient operations continued to run at levels higher than those experienced prior to April 2002. Third, beginning January 1, 2003, we purchased and began consolidating a group of clinics that we previously managed, which had the effect of compressing our margins.

Other. The EBITDA loss was $6.6 million for the three months ended March 31, 2003 compared to a loss of $6.7 million for the three months ended March 31, 2002.

Income from Operations

Income from operations increased 28.3% to $30.8 million for the three months ended March 31, 2003 compared to $24.0 million for the three months ended March 31, 2002. The increase in income from operations resulted from the EBITDA increases described above, and was offset by an increase in depreciation and amortization expense of $1.5 million. The increase in depreciation and amortization expense resulted primarily from increases in depreciation on fixed asset additions that are principally related to new hospital and clinic development.

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Interest Expense

Interest expense decreased by $0.4 million to $6.4 million for the three months ended March 31, 2003 from $6.8 million for the three months ended March 31, 2002. The decline in interest expense is due to the lower debt levels outstanding in 2003 compared to 2002, and a lower effective interest rate in 2003. The lower debt levels resulted from scheduled term amortization payments and principal pre-payments that we have made under our credit facility. All repayments have been made with cash flows generated through operations.

Minority Interests

Minority interests in consolidated earnings increased to $0.8 million for the three months ended March 31, 2003 compared to $0.6 million for the three months ended March 31, 2002. This increase resulted from the improved profitability of our specialty hospitals with minority interests.

Income Taxes

We recorded income tax expense of $9.3 million for the three months ended March 31, 2003. The expense represented an effective tax rate of 39.2% and approximates the federal and state statutory tax rates. We recorded income tax expense of $6.5 million for the three months ended March 31, 2002. This expense represented an effective tax rate of 39.1%.

Capital Resources and Liquidity

For the three months ended March 31, 2003 operating activities provided $24.4 million of cash flow compared to $34.2 million for the three months ended March 31, 2002. Although our net income was greater for the three months ended March 31, 2003 compared to the three months ended March 31, 2002, we experienced this decrease in cash flow because of repayments of amounts due to third-party payors and income tax payments offset the increased income and the strong collections of accounts receivable that we experienced. Our accounts receivable days outstanding were 64 days at March 31, 2003 compared to 73 days at December 31, 2002 and 74 days at March 31, 2002.

Investing activities used $8.1 and $9.4 million of cash flow for the three months ended March 31, 2003 and 2002, respectively. This usage resulted from purchases of property and equipment of $7.0 and $9.0 million in 2003 and 2002, respectively, that relate principally to new hospital development. Additionally, we incurred earnout-related payments of $0.4 million in 2003 and $0.5 million in 2002 and acquisition payments of $0.7 million in 2003.

Financing activities used $33.9 and $10.4 million of cash for the three months ended March 31, 2003 and 2002, respectively. This was due principally to the repayment of credit facility, seller and other debt which when aggregated amount to $32.3 and $11.7 million in 2003 and 2002, respectively. Of the $32.3 million debt repayment occurring during the three months ended March 31, 2003, $25.0 million was related to an accelerated pre-payment of our term debt that we made with our excess cash reserves.

Capital Resources

Net working capital increased slightly to $133.1 million at March 31, 2003 compared to $130.6 million at December 31, 2002.

We have a credit agreement with a group of banks. Our credit facility consists of a term facility of $43.5 million and a revolving credit facility of $152.4 million. As of March 31, 2003 we had borrowed all of our available loans under the U.S. and Canadian term loans and had availability to borrow an additional $147.8 million under our revolving facility subject to certain limitations. We have $4.6 million outstanding under letters of credit issued through the credit facility. The revolving facility terminates in 2005.

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Borrowings under the credit agreement bear interest at a fluctuating rate of interest based upon financial covenant ratio tests. As of March 31, 2003, our weighted average interest rate under our credit agreement was approximately 5.0% compared to 7.4% at December 31, 2002. This reduction occurred on March 31, 2003 when our hedging agreement terminated. As a result, we did not realize any significant change in our interest expense during the quarter ended March 31, 2003. See Item 3, “Quantitative and Qualitative Disclosures on Market Risk” for a discussion of our floating interest rates on borrowings under our credit facility.

We believe that existing cash balances, internally generated cash flows and borrowings under our revolving credit facility will be sufficient to finance capital expenditures and working capital requirements for at least the next twelve months. Our goal is to open eight to ten additional hospitals before the end of 2003. A new specialty hospital has typically required approximately $3.4 million per hospital over the initial year of operations to fund leasehold improvements, equipment, start-up losses and working capital. From time to time, we may complete acquisitions of specialty hospitals and outpatient rehabilitation businesses. We currently have approximately $147.8 million of unused capacity under our revolving credit facility which can be used for acquisitions. Based on the size of the acquisition, approval of the acquisition by our lenders may be required. If funds required for future acquisitions exceed existing sources of capital, we will need to increase our credit facilities or obtain additional capital by other means.

Inflation

The health care industry is labor intensive. Wages and other expenses increase during periods of inflation and when labor shortages occur in the marketplace. In addition, suppliers pass along rising costs to us in the form of higher prices. We have implemented cost control measures, including our case and resource management program, to curtail increases in operating costs and expenses. We have, to date, offset increases in operating costs by increasing reimbursement for services and expanding services. However, we cannot predict our ability to cover or offset future cost increases.

Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities,” an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to improve financial reporting of special purpose and other entities. In accordance with the interpretation, business enterprises that represent the primary beneficiary of another entity by retaining a controlling financial interest in that entity’s assets, liabilities, and results of operations must consolidate the entity in their financial statements. Prior to the issuance of FIN 46, consolidation generally occurred when an enterprise controlled another entity through voting interests. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. We do not expect FIN 46 to have a material impact on our financial statements.

In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 145 “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” As a result of rescinding SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” the requirement that gains and losses from the extinguishment of debt be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect is eliminated. We reported extraordinary items in 2000 and 2001 as a result of debt extinguishments. The provisions of SFAS 145 that affect us are effective for fiscal periods beginning after May 15, 2002, although early adoption of SFAS 145 is permitted. In accordance with the provisions of SFAS No. 145, we adopted this pronouncement in the first quarter of 2003. As a result of the adoption of SFAS No. 145, we reclassified our extraordinary items recorded in 2000 and 2001 to the other income and expense category of our consolidated statement of operations.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to interest rate changes, primarily as a result of floating interest rates on borrowings under our credit facility. A change in interest rates by one percentage point on variable rate debt would have resulted in interest expense fluctuating approximately $44,000 for the three months ended March 31, 2003. Our interest rate swap agreement terminated on March 31, 2003. Based on the credit facility debt outstanding on March 31, 2003 and after the termination of the interest rate swap agreement, a change in interest rates by one percentage point would result in interest expense fluctuating approximately $0.1 million for a three-month period.

Approximately 27% of our term-loan borrowings under our credit agreement are denominated in Canadian dollars. Although we are not required by our credit agreement to maintain a hedge on our foreign currency risk, we have entered into a five year agreement that allows us to limit the cost of Canadian dollars to a range of U.S.$0.6631 to U.S.$0.6711 per Canadian dollar to limit our risk on the potential fluctuation in the exchange rate of the Canadian dollar to the U.S. dollar.

ITEM 4. CONTROLS AND PROCEDURES

Within 90 days prior to the filing date of this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures provide reasonable assurance that material information required to be included in our periodic SEC reports is recorded, processed, summarized and reported within the time periods specified in the relevant SEC rules and forms.

In addition, we reviewed our internal controls, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of their last evaluation.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On August 10, 1998 a complaint in the U.S. District Court for the Eastern District of Pennsylvania was filed that named as defendants, NovaCare, Inc. (now known as J.L. Halsey Corporation), other named defendants and 100 defendants who were to be named at a later time. This qui tam action sought triple damages and penalties under the False Claims Act against J.L. Halsey Corporation. The allegations involve, among other things, the distinction between individual and group billing in physical rehabilitation clinics that we acquired from NovaCare. On October 16, 2000 the relator plaintiff made a motion to amend the complaint to, among other things, add Select Medical Corporation and some of its subsidiaries acquired in the NovaCare acquisition as defendants in this case. This motion was granted in September of 2001. The amended complaint alleges that from about January 1, 1995 through the present, the defendants submitted false or fraudulent bills for physical therapy to various federal health programs. On January 3, 2002, J.L. Halsey Corporation and its related subsidiaries (including the subsidiaries acquired in the NovaCare acquisition) entered into a settlement agreement with the relator plaintiff and the government, pursuant to which, in exchange for a payment by J.L. Halsey Corporation of $375,000, the parties settled all claims arising out of conduct that took place before Select Medical’s acquisition of the NovaCare subsidiaries that are defendants in the case. Claims against the Company and the NovaCare subsidiaries regarding conduct occurring after the NovaCare acquisition were not covered by this settlement. In September 2002, Select learned that the United States Attorney for the Eastern District of Pennsylvania had notified the court that the United States had decided no to intervene in this case.

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As of April 30, 2003, Select and the subsidiaries have not been served with the amended complaint. Based on a review of the amended complaint, we do not believe that this lawsuit is meritorious, and we intend to vigorously defend against this action if it is pursued by the relator plaintiff. However, because of the uncertain nature of the litigation, we cannot predict the outcome of this matter.

In addition, as part of our business, we are subject to legal actions alleging liability on our part. To cover claims arising out of the operations of our hospitals and outpatient rehabilitation facilities, we maintain professional malpractice liability insurance and general liability insurance in amounts and with deductibles that we believe to be sufficient for our operations. We also maintain umbrella liability coverage covering claims which, due to their nature or amount, are not covered by our insurance policies. We cannot assure you that professional liability insurance will cover all claims against us or continue to be available at reasonable costs for us to maintain adequate levels of insurance. These insurance policies also do not cover punitive damages.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a. Exhibits

The exhibits to this report are listed in the Exhibit Index appearing on page 34 hereof.

b. Reports on Form 8-K

Form 8K, dated March 19, 2003, pursuant to Item 9, in connection with the certifications of our Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002, which accompanied our form 10-K for the year ended December 31, 2002, in accordance with Regulation FD.

Form 8-K, dated March 27, 2003, pursuant to Item 9, in connection with the distribution of our annual report to stockholders, in accordance with Regulation FD.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.


		SELECT MEDICAL CORPORATION

		By:		/s/ Martin F. Jackson

				Martin F. Jackson
				Senior Vice President and Chief Financial Officer
				(Duly Authorized Officer)

		By:		/s/ Scott A. Romberger

				Scott A. Romberger
				Vice President, Chief Accounting Officer and Controller
				(Principal Accounting Officer)

Dated: May 12, 2003

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CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Robert A. Ortenzio, President and Chief Executive Officer of Select Medical Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Select Medical Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

	a)		designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b)		evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	c)		presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based upon our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons fulfilling the equivalent function):

	a)		all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 12, 2003

/s/ Robert A. Ortenzio

Robert A. Ortenzio

President and Chief Executive Officer

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CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Martin F. Jackson, Senior Vice President and Chief Financial Officer of Select Medical Corporation, certify that:

	a)		designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	b)		evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	c)		presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

	a)		all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

Date: May 12, 2003

/s/: Martin F. Jackson

Martin F. Jackson

Senior Vice President and Chief Financial Officer

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EXHIBIT INDEX


Exhibit		Description

10.1		Waiver, dated as of March 18, 2003 to the Credit Agreement dated as of September 22, 2000 among Select Medical Corporation, Canadian Back Institute Limited, the lenders party thereto, JP Morgan Chase Bank, J.P. Morgan Bank Canada, Banc of America Securities, LLC and CIBC, Inc.

99.1		Certification of President and Chief Executive Officer relating to Form 10-Q for the quarter ended March 31, 2003.

99.2		Certification of Senior Vice President and Chief Financial Officer relating to Form 10-Q for the quarter ended March 31, 2003.

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(a)		Elimination of investments in subsidiaries.

(b)		Elimination of investments in subsidiaries’ earnings.

	•		a change in government reimbursement for our services that would affect our revenue;

	•		the failure of our long-term acute care hospitals to maintain their status as such, which could negatively impact our profitability;

	•		a government investigation or assertion that we have violated applicable regulations may result in increased costs and a significant use of internal resources,

	•		shortages in qualified nurses could increase our operating costs significantly;

	•		the effects of liability and other claims asserted against us;

	•		conditions in the malpractice insurance market may further increase the cost of malpractice insurance and/or force us to assume even higher self-insured retentions;

	•		private third party payors of our services may undertake cost containment initiatives that would decrease our revenue; and

	•		future acquisitions may use significant resources and expose us to unforeseen risks.

(a)		Cost of services include salaries, wages and benefits, operating supplies, lease and rent expense and other operating costs.

(b)		We define EBITDA as net income (loss) before interest, income taxes, depreciation and amortization and minority interest. EBITDA is commonly used as an analytical indicator within the healthcare industry, and also

			Form 8K, dated March 19, 2003, pursuant to Item 9, in connection with the certifications of our Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002, which accompanied our form 10-K for the year ended December 31, 2002, in accordance with Regulation FD.

			Form 8-K, dated March 27, 2003, pursuant to Item 9, in connection with the distribution of our annual report to stockholders, in accordance with Regulation FD.

1.		I have reviewed this quarterly report on Form 10-Q of Select Medical Corporation;

2.		Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.		Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: