CMS reports increase in thrid quarter results.

MECHANICSBURG, Pa.--(BUSINESS WIRE)--April 21, 1995--Continental Medical Systems Inc. (CMS) (NYSE:CNM) Friday announced results for the third quarter ended March 31, 1995.

Third quarter income from operations plus interest, depreciation, amortization and special charge (EBITDA) was $28,531,000, as compared with $25,114,000 in the current year s second quarter, a 14% increase. Before giving effect to the special charges and the extraordinary gain described below, third quarter earnings per share was 13 cents, an increase over the second quarter earnings per share of 8 cents.

The increase in EBITDA and earnings per share was principally attributable to the improved results in the contract therapy group and continuing growth in the rehabilitation hospital group.

EBITDA for the quarter ended March 31, 1995 increased 7% compared to the prior year's third quarter. Before giving effect to the special charge and the extraordinary gain, earnings per share for the third quarter ended March 31, 1995 increased 18% over the earnings per share for the third quarter of the prior year.

The increase between the comparative third quarters was due to improvement in the performance of the Company s rehabilitation hospital group. EBITDA for the nine months ended March 31, 1995 was $82,445,000 versus $84,155,000 for the nine months ended March 31, 1994.

Earnings per share excluding special charges and the extraordinary gain was $.34 and $.40 for the nine months ended March 31, 1995 and 1994, respectively.

Also, during the quarter, the Company achieved operating cash flow of approximately $19 million and purchased $37 million principal amount of its senior subordinated notes.

For the three months ended March 31, 1995 and 1994 net operating revenues were $249,331,000 and $252,986,000, respectively. For the comparative nine months ended March 31, 1995 and 1994, net operating revenues were $738,363,000 and $751,789,000, respectively. Excluding the facilities divested at the end of fiscal 1994, net operating revenues increased 1% for the current three and nine month periods over the comparable periods of the prior year.

As previously announced in the Company s second quarter earnings release, the Company has taken a special after tax charge of approximately $3 million in the third quarter pertaining to its CMS Therapies Inc. subsidiary.

The third quarter special charge reflects the costs of eliminating management and staff positions, office lease terminations and certain other costs of the changes implemented during the third quarter. The Company also had an extraordinary gain of $1.96 million after tax relating to market purchases of its senior subordinated notes at a discount.

Including the special charges and extraordinary gain, the Company had net income of $3,762,000, or 10 cents per share, for the third quarter ended March 31, 1995 compared to net income of $4,170,000, or 11 cents per share, for the third quarter of the previous year, and net income for the nine months ended March 31, 1995 of $3,854,000, or 10 cents per share, compared to $15,531,000, or 40 cents per share, for the nine months ended March 31, 1994.

The current year second quarter results included a special charge relating to the CMS Therapies subsidiary.

Commenting on the results of the third quarter, Chairman and Chief Executive Officer R.A. Ortenzio stated, "We are encouraged by the overall improvement in the Company s operating results for the third quarter and the continued generation of operating cash flow which has helped us to reduce the outstanding balance of our senior subordinated notes by $85 million this year.

"We have made significant progress at our largest contract therapy company, CMS Therapies, during the third quarter. With the elimination of over 260 positions, the flattening of the organization and the renewed emphasis on our most valuable resource, our therapists, the earnings contribution of CMS Therapies in the third quarter was over $3 million more than in the second quarter. We expect continued profitability in the future."

Ortenzio stated that he continues to be pleased with the improvement in the overall performance of the rehabilitation hospital group, commenting that "for the 32 facilities that were operating during the entire nine months ended in March 31, 1994 and March 31, 1995, the occupancy percentages increased from 66% to 70%.

"The occupancy levels of our entire 37 hospitals for the first nine months was 69%, which is an all time high." Ortenzio also stated that the earnings contribution from the rehabilitation hospital group increased during both the three and nine month periods ended March 31, 1995 over the comparative periods of the prior year.

Commenting on the recently announced strategic merger with Horizon Healthcare Corp., Ortenzio stated, "It is our expectation that this strategic merger will be completed in June 1995. The combination of these two quality health care companies will create the nation s premier post-acute health care company.

"The merger represents a tremendous opportunity to take advantage of the strengths of both companies and to realize the full benefit of the synergies inherent in the combination."

CMS is a diversified provider of medical rehabilitation and physician services. CMS operates 37 freestanding rehabilitation hospitals, provides outpatient rehabilitation services at more than 130 locations and manages 13 inpatient rehabilitation units for general acute care hospitals. These services are provided in 20 states.

CMS provides contract therapy in more than 30 states with physical, occupational, respiratory and speech therapy services. Physician staffing services provide hospitals and physician groups with temporary physician and allied health professional staffing services in all 50 states. -0-

                   CONTINENTAL MEDICAL SYSTEMS INC.
                     Comparative Income Summary
               (amounts in thousands, except share data)

                                      Three Months Ended
                                           March 31,
                                          (Unaudited)

                                    1995              1994

Net operating revenues            $249,331          $252,986

Costs and expenses:
    Cost of services               220,800           226,315
    Interest expense                 8,669             9,685
    Depreciation and amortization    9,518             9,710
    Special charge                   5,045

Income from operations               5,299             7,276

Other income, principally interest     915               776
Income before minority interests,
 income taxes and extraordinary gain 6,214             8,052
Minority interests                  (2,126)           (1,042)
Income before income taxes and
  extraordinary gain                 4,088             7,010
Income taxes                         2,284             2,840
Income before extraordinary gain     1,804             4,170
Extraordinary gain, net of taxes     1,958
Net income                          $3,762            $4,170

Net income per common share
  and common equivalent share:
      Net income before extraordinary
       gain                          $0.05             $0.11
      Extraordinary gain              0.05                --
      Net income                     $0.10             $0.11

      Excluding special charge
       and extraordinary gain        $0.13             $0.11

Weighted average number
 of shares outstanding          39,535,492         38,835,178

                CONTINENTAL MEDICAL SYSTEMS, INC.
                   Comparative Income Summary
               (amounts in thousands, except share data)

                                      Nine Months Ended
                                           March 31,
                                         (Unaudited)

                                    1995              1994

Net operating revenues            $738,363          $751,789

Costs and expenses:
    Cost of services               655,918           667,634
    Interest expense                26,363            28,688
    Depreciation and amortization   27,952            28,486
    Special charge                  18,443

Income from operations               9,687            26,981

Other income, principally interest   2,361             2,538
Income before minority interests,
 income taxes and
 extraordinary gain                 12,048            29,519
Minority interests                  (5,197)           (3,416)
Income before income taxes and
 extraordinary gain                  6,851            26,103
Income taxes                         4,955            10,572
Income before extraordinary gain     1,896            15,531
Extraordinary gain, net of taxes     1,958
Net income                          $3,854           $15,531

Net income per common share
   and common equivalent share:
      Net income before extraordinary
       gain                          $0.05             $0.40
      Extraordinary gain              0.05                --
      Net income                     $0.10             $0.40

      Excluding special charge
       and extraordinary gain        $0.34             $0.40

Weighted average number
 of shares outstanding          39,530,243         38,609,729

                   CONTINENTAL MEDICAL SYSTEMS, INC.
                      Comparative Balance Sheet
                       (amounts in thousands)
                            (Unaudited)

                                  March 31,         June 30,
                                    1995              1994

Current assets                    $284,011          $321,487

Property & equipment, net          240,464           252,023

Other                              197,693           193,232

Total assets                      $722,168          $766,742

Current liabilities               $145,414          $155,084

Long-term debt                     310,895           353,752

Other                               24,539            22,354

Stockholders' equity               241,320           235,552

Total liabilities &
     stockholders' equity         $722,168          $766,742

CONTACT: Continental Medical Systems Inc., Mechanicsburg

Dennis L. Lehman, CFO, 717/790-8407 or

Warren McInteer, director of corporate finance & investor

relations, 717/790-8247