10-Q 1 ehc-20220331.htm 10-Q ehc-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 ______________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-10315
______________________________ 
Encompass Health Corporation
(Exact name of Registrant as specified in its Charter)
Delaware63-0860407
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)
9001 Liberty Parkway
Birmingham, Alabama 35242
(Address of Principal Executive Offices)
(205) 967-7116
(Registrant’s telephone number)
 Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareEHCNew York Stock Exchange
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 period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-Accelerated filer
Smaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes  No 
 
The registrant had 99,802,649 shares of common stock outstanding, net of treasury shares, as of April 21, 2022.



TABLE OF CONTENTS
NOTE TO READERS
As used in this report, the terms “Encompass Health,” “we,” “us,” “our,” and the “Company” refer to Encompass Health Corporation and its consolidated subsidiaries, unless otherwise stated or indicated by context. This drafting style is suggested by the Securities and Exchange Commission and is not meant to imply that Encompass Health Corporation, the publicly traded parent company, owns or operates any specific asset, business, or property. The hospitals, operations, and businesses described in this filing are primarily owned and operated by subsidiaries of the parent company. In addition, we use the term “Encompass Health Corporation” to refer to Encompass Health Corporation alone wherever a distinction between Encompass Health Corporation and its subsidiaries is required or aids in the understanding of this filing.
i


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report contains historical information, as well as forward-looking statements that involve known and unknown risks and relate to, among other things, future events, the spread and impact of the COVID-19 pandemic, changes to Medicare reimbursement and other healthcare laws and regulations from time to time, our business strategy and ongoing strategic review, including the planned separation of our home health and hospice business, our dividend and stock repurchase strategies, our financial plans, our growth plans, our future financial performance, our projected business results, or our projected capital expenditures. In some cases, the reader can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “targets,” “potential,” or “continue” or the negative of these terms or other comparable terminology. Such forward-looking statements are necessarily estimates based upon current information and involve a number of risks and uncertainties, many of which are beyond our control. Any forward-looking statement is based on information current as of the date of this report and speaks only as of the date on which such statement is made. Actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, the factors described below could cause, and in the case of the COVID-19 pandemic has already caused, actual results to differ materially from those estimated by us.
Each of the factors discussed in Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2021, as well as uncertainties and factors, if any, discussed elsewhere in this Form 10-Q, including in the “Executive Overview—Key Challenges” section of Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our other filings from time to time with the SEC, or in materials incorporated therein by reference.
Our ongoing strategic review and planned spin off of our home health and hospice business exposes us to a number of risks and uncertainties, including diversion of management’s time to the process; the incurrence of significant expenses associated with the review and pursuit of the planned separation or transaction; increased difficulties in attracting, retaining or motivating key management personnel; exposure to potential litigation; and inability to complete or realize anticipated benefits from the planned separation or other strategic alternative involving our home health and hospice business, any of which could adversely affect our business, financial results or condition, or stock price.
If the spin off is completed, both the remaining company and the new company will be highly concentrated in their respective primary lines of business, particularly with respect to Medicare regulations and reimbursement, and each will be a less diversified company than we currently are.
If the spin off is completed, there may be changes in our stockholder base, which may cause volatility in the price of our common stock.
A pandemic, epidemic, or other widespread outbreak of an infectious disease or other public health crisis could decrease our patient volumes, pricing, and revenues, lead to staffing and supply shortages and associated cost increases, otherwise interrupt operations, or lead to increased litigation risk and, in the case of the COVID-19 pandemic, has already done so in many instances.
Governmental actions in response to the COVID-19 pandemic, such as limitations on elective procedures, vaccine mandates, shelter-in-place orders, new workplace regulations, facility closures and quarantines, could reduce volumes, lead to staffing shortages, increase staffing costs, and otherwise impair our ability to operate and provide care and in many instances already have done so.
Our inability to maintain infectious disease prevention and control efforts that are required and effectively minimize the spread of COVID-19 among patients and employees could decrease our patient volumes and revenues, lead to staffing shortages or otherwise interrupt operations, or lead to increased litigation risk.
Reductions or delays in, or suspension of, reimbursement for our services by governmental or private payors, including our inability to obtain and retain favorable arrangements with third-party payors, could decrease our revenues and adversely affect other operating results.
Restrictive interpretations of the regulations governing the claims that are reimbursable by Medicare could decrease our revenues and adversely affect other operating results.
New or changing Medicare quality reporting requirements could adversely affect our operating costs or Medicare reimbursement.
ii


Reimbursement claims are subject to various audits from time to time and such audits may lead to assertions that we have been overpaid or have submitted improper claims, and such assertions may require us to incur additional costs to respond to requests for records and defend the validity of payments and claims and may ultimately require us to refund any amounts determined to have been overpaid.
The use by governmental agencies and contractors of statistical sampling and extrapolation may substantially expand claims of overpayment or noncompliance.
Delays and other substantive and procedural deficiencies in the administrative appeals process associated with denied Medicare reimbursement claims, including from various Medicare audit programs, could delay or reduce our reimbursement for services previously provided, including through recoupment from other claims due to us from Medicare.
Efforts to reduce payments to healthcare providers undertaken by third-party payors, conveners, and referral sources could adversely affect our revenues or profitability.
Changes in our payor mix or the acuity of our patients could reduce our revenues or profitability.
Changes in the rules and regulations of the healthcare industry at either or both of the federal and state levels, including those contemplated now and in the future as part of national healthcare reform and deficit reduction (such as the re-basing of payment systems, the introduction of site neutral payments or case-mix weightings across post-acute settings, and other payment system reforms) could decrease revenues and increase the costs of complying with the rules and regulations.
The ongoing evolution of the healthcare delivery system, including alternative payment models and value-based purchasing initiatives, could decrease our reimbursement rate or increase costs associated with our operations.
Compliance with the extensive and frequently changing laws and regulations applicable to healthcare providers, including those related to data privacy and security, anti-trust, and employment practices, requires substantial time, effort and expense, and if we fail to comply, we could incur penalties and significant costs of investigating and defending asserted claims, whether meritorious or not, or be required to make significant changes to our operations.
Our inability to maintain proper local, state and federal licensing, including compliance with the Medicare conditions of participation and provider enrollment requirements, such as the CMS vaccine mandate, could decrease our revenues.
Incidents affecting the proper operation, availability, or security of our or our vendors’ or partners’ information systems, including the patient information stored there, could cause substantial losses and adversely affect our operations and governmental mandates to increase use of electronic records and interoperability exacerbate that risk.
Any adverse outcome of various lawsuits, claims, and legal or regulatory proceedings, including disclosed and undisclosed qui tam suits could be difficult to predict and could adversely affect our financial results or condition or our operations, and we could experience increased costs of defending and insuring against alleged professional liability and other claims.
Our inability to successfully complete and integrate de novo developments, acquisitions, investments, and joint ventures consistent with our growth strategy, including realization of anticipated revenues, cost savings, productivity improvements arising from the related operations and avoidance of unanticipated difficulties, costs or liabilities that could arise from acquisitions or integrations could adversely affect our financial results or condition.
Our inability to attract and retain nurses, therapists, and other healthcare professionals in a highly competitive environment with often severe staffing shortages and potential union activity could increase staffing costs and adversely affect other financial and operating results.
Competitive pressures in the healthcare industry, including from other providers that may be participating in integrated delivery payment arrangements in which we do not participate, and our response to those pressures could adversely affect our revenues or other financial results.
Our inability to provide a consistently high quality of care, including as represented in metrics publish by Medicare, could decrease our revenues.
Our inability to maintain or develop relationships with patient referral sources could decrease our revenues.
iii


Our debt and the associated restrictive covenants could have negative consequences for our business and limit our ability to execute aspects of our business plan successfully.
The price of our common stock could adversely affect our willingness and ability to repurchase shares.
We may be unable or unwilling to continue to declare and pay dividends on our common stock.
General conditions in the economy and capital markets, including any disruption, instability, or uncertainty related to armed conflict or an act of terrorism, a governmental impasse over approval of the United States federal budget or an increase to the debt ceiling, an international trade war, or a sovereign debt crisis could adversely affect our financial results or condition, including access to the capital markets.
The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no duty to update these forward-looking statements, even though our situation may change in the future. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements.
iv


PART I. FINANCIAL INFORMATION
Item 1.Financial Statements (Unaudited)
Encompass Health Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended March 31,
 20222021
(In Millions, Except Per Share Data)
Net operating revenues$1,333.6 $1,230.4 
Operating expenses:
Salaries and benefits776.0 687.2 
Other operating expenses182.1 162.3 
Occupancy costs20.9 20.2 
Supplies56.1 51.9 
General and administrative expenses48.4 38.6 
Depreciation and amortization66.2 62.5 
Total operating expenses1,149.7 1,022.7 
Loss on early extinguishment of debt0.3  
Interest expense and amortization of debt discounts and fees39.6 42.8 
Other expense (income)3.6 (1.4)
Equity in net income of nonconsolidated affiliates(0.9)(1.0)
Income from continuing operations before income tax expense141.3 167.3 
Provision for income tax expense31.2 34.5 
Income from continuing operations110.1 132.8 
Loss from discontinued operations, net of tax  
Net and comprehensive income110.1 132.8 
Less: Net and comprehensive income attributable to noncontrolling interests(22.6)(25.5)
Net and comprehensive income attributable to Encompass Health$87.5 $107.3 
Weighted average common shares outstanding:
Basic99.2 99.0 
Diluted100.2 100.2 
Earnings per common share:
Basic earnings per share attributable to Encompass Health common shareholders:
Continuing operations
$0.88 $1.08 
Discontinued operations
  
Net income
$0.88 $1.08 
Diluted earnings per share attributable to Encompass Health common shareholders:
Continuing operations
$0.87 $1.07 
Discontinued operations
  
Net income
$0.87 $1.07 
Amounts attributable to Encompass Health common shareholders:
 
Income from continuing operations$87.5 $107.3 
Loss from discontinued operations, net of tax  
Net income attributable to Encompass Health$87.5 $107.3 

The accompanying notes to condensed consolidated financial statements are an integral part of these condensed statements.
1


Encompass Health Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
March 31,
2022
December 31,
2021
 (In Millions)
Assets  
Current assets: 
Cash and cash equivalents$94.2 $54.8 
Restricted cash
61.0 65.1 
Accounts receivable
683.5 680.3 
Other current assets111.0 121.2 
Total current assets949.7 921.4 
Property and equipment, net2,667.1 2,601.6 
Operating lease right-of-use assets236.8 242.0 
Goodwill2,456.5 2,427.9 
Intangible assets, net410.6 417.5 
Other long-term assets223.3 254.5 
Total assets(1)
$6,944.0 $6,864.9 
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt$42.8 $42.8 
Current operating lease liabilities38.4 38.4 
Accounts payable147.3 137.6 
Accrued expenses and other current liabilities526.0 530.0 
Total current liabilities754.5 748.8 
Long-term debt, net of current portion3,221.3 3,243.9 
Long-term operating lease liabilities208.3 213.1 
Deferred income tax liabilities89.7 86.7 
Other long-term liabilities178.6 173.2 
 4,452.4 4,465.7 
Commitments and contingencies
Redeemable noncontrolling interests43.2 42.2 
Shareholders’ equity:  
Encompass Health shareholders’ equity1,973.5 1,911.3 
Noncontrolling interests474.9 445.7 
Total shareholders’ equity2,448.4 2,357.0 
Total liabilities(1) and shareholders’ equity
$6,944.0 $6,864.9 
(1)Our consolidated assets as of March 31, 2022 and December 31, 2021 include total assets of variable interest entities of $228.0 million and $226.2 million, respectively, which cannot be used by us to settle the obligations of other entities. Our consolidated liabilities as of March 31, 2022 and December 31, 2021 include total liabilities of the variable interest entities of $40.8 million and $38.2 million, respectively. See Note 3, Variable Interest Entities.
The accompanying notes to condensed consolidated financial statements are an integral part of these condensed statements.
2



Encompass Health Corporation and Subsidiaries
Condensed Consolidated Statements of Shareholders’ Equity
(Unaudited)


 Three Months Ended March 31, 2022
 (In Millions)
 Encompass Health Common Shareholders  
 Number of Common
Shares Outstanding
Common StockCapital in Excess of
Par Value
Accumulated IncomeTreasury StockNoncontrolling
Interests
Total
Balance at beginning of period99.5 $1.1 $2,289.6 $141.8 $(521.2)$445.7 $2,357.0 
Net income— — — 87.5 — 20.7 108.2 
Receipt of treasury stock(0.1)— — — (7.6)— (7.6)
Dividends declared ($0.28 per share)
— — — (28.1)— — (28.1)
Stock-based compensation— — 7.5 — — — 7.5 
Distributions declared— — — — — (24.9)(24.9)
Capital contributions from consolidated affiliates— — — — — 21.4 21.4 
Other0.4 — 4.0 — (1.1)12.0 14.9 
Balance at end of period99.8 $1.1 $2,301.1 $201.2 $(529.9)$474.9 $2,448.4 

 Three Months Ended March 31, 2021
 (In Millions)
 Encompass Health Common Shareholders  
 Number of Common Shares OutstandingCommon StockCapital in Excess of Par ValueAccumulated DeficitTreasury StockNoncontrolling InterestsTotal
Balance at beginning of period99.4 $1.1 $2,326.6 $(242.3)$(497.4)$382.0 $1,970.0 
Net income— — — 107.3 — 23.1 130.4 
Receipt of treasury stock(0.2)— — — (15.6)— (15.6)
Dividends declared ($0.28 per share)
— — (27.8)— — — (27.8)
Stock-based compensation— — 2.8 — — — 2.8 
Distributions declared— — — — — (22.4)(22.4)
Capital contributions from consolidated affiliates— — — — — 5.8 5.8 
Other0.4 — 1.1 — (0.7)(0.6)(0.2)
Balance at end of period99.6 $1.1 $2,302.7 $(135.0)$(513.7)$387.9 $2,043.0 
The accompanying notes to condensed consolidated financial statements are an integral part of these condensed statements.
3



Encompass Health Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)

 Three Months Ended March 31,
 20222021
 (In Millions)
Cash flows from operating activities:  
Net income$110.1 $132.8 
Adjustments to reconcile net income to net cash provided by operating activities—  
Depreciation and amortization66.2 62.5 
Stock-based compensation7.5 2.8 
Deferred tax expense2.0 8.7 
Other, net7.9 2.0 
Change in assets and liabilities, net of acquisitions— 
Accounts receivable7.3 (55.1)
Other assets12.0 1.3 
Accrued payroll5.6 5.7 
Other liabilities0.4 (2.2)
Net cash used in operating activities of discontinued operations(0.1) 
Total adjustments108.8 25.7 
Net cash provided by operating activities218.9 158.5 
Cash flows from investing activities:
Purchases of property and equipment(115.2)(98.8)
Other, net(7.9)3.2 
Net cash used in investing activities(123.1)(95.6)
Cash flows from financing activities:
Principal payments on debt, including pre-payments(103.9)(3.6)
Borrowings on revolving credit facility130.0  
Payments on revolving credit facility(25.0) 
Debt amendment costs(20.0) 
Taxes paid on behalf of employees for shares withheld(7.6)(15.6)
Contributions from consolidated affiliates21.4 4.5 
Dividends paid on common stock(28.5)(29.1)
Distributions paid to noncontrolling interests of consolidated affiliates(21.3)(27.8)
Other, net(6.0)(5.9)
Net cash used in financing activities(60.9)(77.5)
Increase (decrease) in cash, cash equivalents, and restricted cash34.9 (14.6)
Cash, cash equivalents, and restricted cash at beginning of period120.3 310.9 
Cash, cash equivalents, and restricted cash at end of period$155.2 $296.3 
Reconciliation of Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents at beginning of period
$54.8 $224.0 
Restricted cash at beginning of period
65.1 65.4 
Restricted cash included in other long-term assets at beginning of period
0.4 21.5 
Cash, cash equivalents, and restricted cash at beginning of period
$120.3 $310.9 
Cash and cash equivalents at end of period
$94.2 $223.9 
Restricted cash at end of period
61.0 62.2 
Restricted cash included in other long-term assets at end of period
 10.2 
Cash, cash equivalents, and restricted cash at end of period
$155.2 $296.3 
Supplemental schedule of noncash operating, investing and financing activities:
Property and equipment additions through finance leases$0.2 $19.7 
Operating lease additions5.9 17.4 
The accompanying notes to condensed consolidated financial statements are an integral part of these condensed statements.
4


Encompass Health Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements

1.Basis of Presentation
Encompass Health Corporation, incorporated in Delaware in 1984, including its subsidiaries, is a leading provider of post-acute healthcare services, offering both facility-based and home-based patient services in 42 states and Puerto Rico through its network of inpatient rehabilitation hospitals, home health agencies, and hospice agencies. We manage our operations and disclose financial information using two reportable segments: (1) inpatient rehabilitation and (2) home health and hospice. See also Note 11, Segment Reporting.
On December 9, 2020, we announced a formal process to explore strategic alternatives for our home health and hospice business. As a result of this process, we expect to spin off our home health and hospice business to form an independent, publicly traded company on July 1, 2022, subject to customary conditions, including the effectiveness of a Form 10 registration statement, regulatory approvals and receipt of a favorable IRS private letter ruling. On January 19, 2022, we announced the home health and hospice business would be rebranded and operate under the name Enhabit Home Health & Hospice. The rebranding of agency locations began in mid-April 2022 and is expected to be largely completed by the effective date of the spin off.
The accompanying unaudited condensed consolidated financial statements of Encompass Health Corporation and Subsidiaries should be read in conjunction with the consolidated financial statements and accompanying notes contained in Encompass Health’s Annual Report on Form 10-K filed with the United States Securities and Exchange Commission on February 25, 2022 (the “2021 Form 10‑K”). The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the SEC applicable to interim financial information. Certain information and note disclosures included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been omitted in these interim statements, as allowed by such SEC rules and regulations. The condensed consolidated balance sheet as of December 31, 2021 has been derived from audited financial statements, but it does not include all disclosures required by GAAP. However, we believe the disclosures are adequate to make the information presented not misleading.
The unaudited results of operations for the interim periods shown in these financial statements are not necessarily indicative of operating results for the entire year. In our opinion, the accompanying condensed consolidated financial statements recognize all adjustments of a normal recurring nature considered necessary to fairly state the financial position, results of operations, and cash flows for each interim period presented. Certain prior-year amounts have been reclassified to conform to the current year presentation.
Net Operating Revenues
Our Net operating revenues disaggregated by payor source and segment are as follows (in millions):
Inpatient RehabilitationHome Health and HospiceConsolidated
Three Months Ended March 31,Three Months Ended March 31,Three Months Ended March 31,
202220212022202120222021
Medicare$689.9 $614.5 $217.4 $223.9 $907.3 $838.4 
Medicare Advantage
156.0 158.4 34.5 28.0 190.5 186.4 
Managed care
131.5 112.2 18.8 14.3 150.3 126.5 
Medicaid41.7 39.0 3.5 3.8 45.2 42.8 
Other third-party payors10.1 12.1   10.1 12.1 
Workers’ compensation6.1 5.7 0.1 0.1 6.2 5.8 
Patients5.2 4.9  0.2 5.2 5.1 
Other income18.8 13.1  0.2 18.8 13.3 
Total$1,059.3 $959.9 $274.3 $270.5 $1,333.6 $1,230.4 
See Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements accompanying the 2021 Form 10-K for our policy related to Net operating revenues.

5

Encompass Health Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Recently Adopted Accounting Pronouncements
We do not believe any recently issued, but not yet effective, accounting standards will have a material effect on our condensed consolidated financial position, results of operations, or cash flows.
2.Business Combinations
Home Health and Hospice
On January 1, 2022, we acquired a 50% equity interest from Frontier Home Health and Hospice, LLC in a joint venture with Saint Alphonsus System (“Saint Alphonsus”) which operates home health and hospice locations in Boise, Idaho. The total purchase price was $15.9 million and was funded on December 31, 2021. This acquisition was made to enhance our existing joint venture relationship with Saint Alphonsus and expand our footprint in this geographic area. This transaction was not material to our financial position, results of operations, or cash flows.
We accounted for this transaction under the acquisition method of accounting and reported the results of operations of the acquired locations from the date of acquisition. Assets acquired, liabilities assumed, and noncontrolling interests were recorded at their estimated fair values as of the acquisition date. Estimated fair values were based on various valuation methodologies including: an income approach using primarily discounted cash flow techniques for the noncompete and license intangible assets; and an income approach utilizing the relief-from-royalty method for the trade name intangible asset. The aforementioned income methods utilize management’s estimates of future operating results and cash flows discounted using a weighted average cost of capital that reflects market participant assumptions. For all other assets and liabilities, the fair value was assumed to represent carrying value due to their short maturities. The excess of the fair value of the consideration conveyed over the fair value of the net assets acquired was recorded as goodwill. All goodwill recorded reflects our expectations of favorable growth opportunities in the home health and hospice markets based on positive demographic trends. At least $14.4 million of the goodwill recorded as a result of this transaction is deductible for federal income tax purposes.
The fair values recorded were based upon a preliminary valuation. Estimates and assumptions used in such valuation are subject to change, which could be significant, within the measurement period (up to one year from the acquisition date). We expect to continue to obtain information to assist us in determining the fair value of the net assets acquired at the acquisition date during the measurement period.

6

Encompass Health Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
The preliminary fair value of the assets acquired and liabilities assumed at the acquisition date were as follows (in millions):
Cash and cash equivalents$0.7 
Accounts receivable, net1.6 
Operating lease right-of-use-assets0.3 
Identifiable intangible assets: 
Noncompete agreement (useful life of 5 years)
0.2 
Trade name (useful life of 6 months)
0.1 
Licenses (useful lives of 10 years)
0.9 
Internal-use software (useful life of 3 years)
0.1 
Goodwill28.7 
Total assets acquired32.6 
Liabilities assumed:
Current operating lease liabilities0.1 
Accounts payable0.1 
Accrued payroll0.2 
Other current liabilities0.2 
Long-term operating lease liabilities0.2 
Total liabilities assumed0.8 
Noncontrolling interests15.9 
Net assets acquired$15.9 
Information regarding the cash paid for the acquisition during each period presented is as follows (in millions):
Three Months Ended March 31,
20222021
Fair value of assets acquired$3.9 $ 
Goodwill28.7  
Fair value of liabilities assumed(0.8) 
Fair value of noncontrolling interest owned by joint venture partner
(15.9) 
Cash paid for acquisition$15.9 $ 
Pro Forma Results of Operations
The following table summarizes the results of operations of the above mentioned acquisition from the date of acquisition included in our consolidated results of operations and the unaudited pro forma results of operations of the combined entity had the date of the acquisition been January 1, 2021 (in millions):
Net Operating RevenuesNet Income Attributable to Encompass Health
Acquired entities only: Actual from acquisition date to March 31, 2022
Home Health and Hospice
$1.8 $0.2 
Combined entity: Supplemental pro forma from 01/01/2022-03/31/20221,333.6 87.5 
Combined entity: Supplemental pro forma from 01/01/2021-03/31/20211,232.7 107.5 
The information presented above is for illustrative purposes only and is not necessarily indicative of results that would have been achieved if the acquisition had occurred as of the beginning of our 2021 reporting period. See Note 2, Business

7

Encompass Health Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Combinations, to the consolidated financial statements accompanying the 2021 Form 10‑K for information regarding acquisitions completed in 2021.
3.Variable Interest Entities
As of March 31, 2022 and December 31, 2021, we consolidated ten limited partnership-like entities that are variable interest entities (“VIEs”) and of which we are the primary beneficiary. Our ownership percentages in these entities range from 50.0% to 90.0% as of March 31, 2022. Through partnership and management agreements with or governing each of these entities, we manage all of these entities and handle all day-to-day operating decisions. Accordingly, we have the decision making power over the activities that most significantly impact the economic performance of our VIEs and an obligation to absorb losses or receive benefits from the VIE that could potentially be significant to the VIE. These decisions and significant activities include, but are not limited to, marketing efforts, oversight of patient admissions, medical training, nurse and therapist scheduling, provision of healthcare services, billing, collections, and creation and maintenance of medical records. The terms of the agreements governing each of our VIEs prohibit us from using the assets of each VIE to satisfy the obligations of other entities.
The carrying amounts and classifications of the consolidated VIEs’ assets and liabilities, which are included in our condensed consolidated balance sheet, are as follows (in millions):
March 31, 2022December 31, 2021
Assets 
Current assets: 
Cash and cash equivalents$0.6 $ 
Accounts receivable
34.7 36.3 
Other current assets11.4 7.7 
Total current assets46.7 44.0 
Property and equipment, net115.6 116.3 
Operating lease right-of-use assets3.0 3.2 
Goodwill28.4 28.3 
Intangible assets, net3.1 3.3 
Other long-term assets31.2 31.1 
Total assets$228.0 $226.2 
Liabilities
Current liabilities:
Current portion of long-term debt$1.0 $1.0 
Current operating lease liabilities1.6 1.5 
Accounts payable5.7 5.9 
Accrued expenses and other current liabilities22.6 19.4 
Total current liabilities30.9 27.8 
Long-term debt, net of current portion8.4 8.6 
Long-term operating lease liabilities1.5 1.8 
Total liabilities$40.8 $38.2 

8

Encompass Health Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
4.Long-term Debt
Our long-term debt outstanding consists of the following (in millions):
March 31, 2022December 31, 2021
Credit Agreement—  
Advances under revolving credit facility$305.0 $200.0 
Term loan facilities235.3 238.5 
Bonds payable—
5.125% Senior Notes due 2023
 99.6 
5.75% Senior Notes due 2025
347.2 347.0 
4.50% Senior Notes due 2028
779.5 786.8 
4.75% Senior Notes due 2030
777.2 784.7 
4.625% Senior Notes due 2031
389.9 393.7 
Other notes payable49.0 49.6 
Finance lease obligations381.0 386.8 
3,264.1 3,286.7 
Less: Current portion(42.8)(42.8)
Long-term debt, net of current portion$3,221.3 $3,243.9 
On December 9, 2021, we announced the commencement of a consent solicitation of holders of our 5.75% Senior Notes due 2025, 4.50% Senior Notes due 2028, 4.75% Senior Notes due 2030, and 4.625% Senior Notes due 2031 (collectively the “Senior Notes”) for the adoption of certain amendments to an indenture (the “Base Indenture”) dated as of December 1, 2009, as supplemented by each Senior Notes’ respective supplemental indenture (together with the Base Indenture, the “Indenture”), which will provide us with greater flexibility in effecting the spin off discussed in Note 1, Basis of Presentation. Each Indenture contains restrictive covenants that, among other things, limit our ability and the ability of certain of our subsidiaries to make certain asset dispositions, investments, and distributions to holders of our capital stock. The amendments to the Indentures permit us, subject to the leverage ratio condition set forth below, to distribute to our equity holders in one or more transactions (a “Distribution”) some or all of the common stock of a subsidiary that holds substantially all of the assets of our home health and hospice business. We may make any such distribution so long as the Leverage Ratio (as defined in each Indenture) is no more than 3.5 to 1.0 on a pro forma basis after giving effect thereto. The amendments also reduce the capacity under our restricted payments builder basket under each existing Indenture by $200 million and amends the definition of “Consolidated Net Income” to allow us to exclude from Consolidated Net Income (a component of the Leverage Ratio) any fees, expenses or charges related to any Distribution and the solicitation of consents from the holders of the Senior Notes. In December 2021 and January 2022, we received the requisite consents for the adoption of these amendments. Under the terms of the amendments, we agreed to pay the holders of the Senior Notes a total of $40.5 million, excluding fees. We paid $20 million of this amount in January 2022. The remaining payment is contingent upon the execution of a Distribution and will be paid at such time.
In March 2022, we redeemed the remaining $100 million in outstanding principal amount of the 5.125% Senior Notes due 2023 (the “2023 Notes”) using capacity under our revolving credit facility. Pursuant to the terms of the 2023 Notes, this optional redemption was made at a price of par. As a result of this redemption, we recorded an aggregate $0.3 million Loss on early extinguishment of debt during the three months ended March 31, 2022.

9

Encompass Health Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
5.Redeemable Noncontrolling Interests
The following is a summary of the activity related to our Redeemable noncontrolling interests (in millions):
Three Months Ended March 31,
20222021
Balance at beginning of period$42.2 $31.6 
Net income attributable to noncontrolling interests1.9 2.4 
Distributions declared(0.9)(2.3)
Balance at end of period$43.2 $31.7 
The following table reconciles the net income attributable to nonredeemable Noncontrolling interests, as recorded in the shareholders’ equity section of the condensed consolidated balance sheets, and the net income attributable to Redeemable noncontrolling interests, as recorded in the mezzanine section of the condensed consolidated balance sheets, to the Net and comprehensive income attributable to noncontrolling interests presented in the condensed consolidated statements of comprehensive income (in millions):
Three Months Ended March 31,
20222021
Net income attributable to nonredeemable noncontrolling interests$20.7 $23.1 
Net income attributable to redeemable noncontrolling interests1.9 2.4 
Net income attributable to noncontrolling interests$22.6 $25.5 
See also Note 6, Fair Value Measurements.
6.Fair Value Measurements
Our financial assets and liabilities that are measured at fair value on a recurring basis are as follows (in millions):
  Fair Value Measurements at Reporting Date Using
As of March 31, 2022Fair ValueQuoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Valuation Technique (1)
Equity securities (2)
$80.4 $3.9 $76.5 $ M
Redeemable noncontrolling interests43.2   43.2 I
As of December 31, 2021
Equity securities (2)
$82.2 $4.1 $78.1 $ M
Redeemable noncontrolling interests42.2   42.2 I
(1) The three valuation techniques are: market approach (M), cost approach (C), and income approach (I).
(2) As of March 31, 2022, $4.8 million are included in Other current assets and $75.6 million are included in Other long-term assets in the condensed consolidated balance sheet. As of December 31, 2021, $82.2 million are included in Other long-term assets in the condensed consolidated balance sheet.
There are assets and liabilities that are not required to be measured at fair value on a recurring basis. However, these assets may be recorded at fair value as a result of impairment charges or other adjustments made to the carrying value of the applicable assets. During the three months ended March 31, 2022 and 2021, we did not record any material gains or losses related to these assets.

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Encompass Health Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
As discussed in Note 1, Summary of Significant Accounting Policies, “Fair Value Measurements,” to the consolidated financial statements accompanying the 2021 Form 10‑K, the carrying value equals fair value for our financial instruments that are not included in the table below and are classified as current in our condensed consolidated balance sheets. The carrying amounts and estimated fair values for all of our other financial instruments are presented in the following table (in millions):
 As of March 31, 2022As of December 31, 2021
 Carrying AmountEstimated Fair ValueCarrying AmountEstimated Fair Value
Long-term debt:    
Advances under revolving credit facility$305.0 $305.0 $200.0 $200.0 
Term loan facilities235.3 236.3 238.5 239.6 
5.125% Senior Notes due 2023
  99.6 100.2 
5.75% Senior Notes due 2025
347.2 356.1 347.0 357.9 
4.50% Senior Notes due 2028
779.5 790.9 786.8 823.0 
4.75% Senior Notes due 2030
777.2 768.0 784.7 824.0 
4.625% Senior Notes due 2031
389.9 374.4 393.7 407.0 
Other notes payable49.0 49.0 49.6 49.6 
Financial commitments:
Letters of credit 37.2  38.2 
Fair values for our long-term debt and financial commitments are determined using inputs, including quoted prices in nonactive markets, that are observable either directly or indirectly, or Level 2 inputs within the fair value hierarchy. See Note 1, Summary of Significant Accounting Policies, “Fair Value Measurements,” to the consolidated financial statements accompanying the 2021 Form 10‑K.
7.Share-Based Payments
During the three months ended March 31, 2022, we issued a total of 0.6 million restricted stock awards to members of our management team and our board of directors. Approximately 0.2 million of these awards contain only a service condition, while the remainder contain both a service and a performance condition. For the awards that include a performance condition, the number of shares that will ultimately be granted to employees may vary based on the Company’s performance during the applicable two year performance measurement period. Additionally, we granted 0.1 million stock options to members of our management team. The fair value of these awards and options was determined using the policies described in Note 1, Summary of Significant Accounting Policies, and Note 14, Share-Based Payments, to the consolidated financial statements accompanying the 2021 Form 10‑K.
8.Income Taxes
Our Provision for income tax expense of $31.2 million for the three months ended March 31, 2022 primarily resulted from the application of our estimated effective blended federal and state income tax rate. Our Provision for income tax expense of $34.5 million for the three months ended March 31, 2021 primarily resulted from the application of our estimated effective blended federal and state income tax rate offset by tax benefits resulting from share-based compensation windfalls.

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Encompass Health Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
9.Earnings per Common Share
The following table sets forth the computation of basic and diluted earnings per common share (in millions, except per share amounts):
 Three Months Ended March 31,
 20222021
Basic:
Numerator:  
Income from continuing operations$110.1 $132.8 
Less: Net income attributable to noncontrolling interests included in continuing operations
(22.6)(25.5)
Less: Income allocated to participating securities
(0.4)(0.5)
Income from continuing operations attributable to Encompass Health common shareholders
87.1 106.8 
Loss from discontinued operations, net of tax, attributable to Encompass Health common shareholders  
Net income attributable to Encompass Health common shareholders
$87.1 $106.8 
Denominator:
Basic weighted average common shares outstanding
99.2 99.0 
Basic earnings per share attributable to Encompass Health common shareholders:
Continuing operations
$0.88 $1.08 
Discontinued operations
  
Net income
$0.88 $1.08 
Diluted:
Numerator:
Income from continuing operations$110.1 $132.8 
Less: Net income attributable to noncontrolling interests included in continuing operations
(22.6)(25.5)
Income from continuing operations attributable to Encompass Health common shareholders
87.5 107.3 
Loss from discontinued operations, net of tax, attributable to Encompass Health common shareholders  
Net income attributable to Encompass Health common shareholders
$87.5 $107.3 
Denominator:
Diluted weighted average common shares outstanding
100.2 100.2 
Diluted earnings per share attributable to Encompass Health common shareholders:
Continuing operations
$0.87 $1.07 
Discontinued operations
  
Net income
$0.87 $1.07 

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Encompass Health Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
The following table sets forth the reconciliation between basic weighted average common shares outstanding and diluted weighted average common shares outstanding (in millions):
Three Months Ended March 31,
20222021
Basic weighted average common shares outstanding99.2 99.0 
Restricted stock awards, dilutive stock options, and restricted stock units
1.0 1.2 
Diluted weighted average common shares outstanding100.2 100.2 
See Note 17, Earnings per Common Share, to the consolidated financial statements accompanying the 2021 Form 10‑K for additional information related to our common stock.
10.Contingencies and Other Commitments
We operate in a highly regulated industry in which healthcare providers are routinely subject to litigation. As a result, various lawsuits, claims, and legal and regulatory proceedings have been and can be expected to be instituted or asserted against us. The resolution of any such lawsuits, claims, or legal and regulatory proceedings could materially and adversely affect our financial position, results of operations, and cash flows in a given period.
Other Matters—
The False Claims Act allows private citizens, called “relators,” to institute civil proceedings on behalf of the United States alleging violations of the False Claims Act. These lawsuits, also known as “whistleblower” or “qui tam” actions, can involve significant monetary damages, fines, attorneys’ fees and the award of bounties to the relators who successfully prosecute or bring these suits to the government. Qui tam cases are sealed at the time of filing, which means knowledge of the information contained in the complaint typically is limited to the relator, the federal government, and the presiding court. The defendant in a qui tam action may remain unaware of the existence of a sealed complaint for years. While the complaint is under seal, the government reviews the merits of the case and may conduct a broad investigation and seek discovery from the defendant and other parties before deciding whether to intervene in the case and take the lead on litigating the claims. The court lifts the seal when the government makes its decision on whether to intervene. If the government decides not to intervene, the relator may elect to continue to pursue the lawsuit individually on behalf of the government. It is possible that qui tam lawsuits have been filed against us, which suits remain under seal, or that we are unaware of such filings or precluded by existing law or court order from discussing or disclosing the filing of such suits. We may be subject to liability under one or more undisclosed qui tam cases brought pursuant to the False Claims Act.
It is our obligation as a participant in Medicare and other federal healthcare programs to routinely conduct audits and reviews of the accuracy of our billing systems and other regulatory compliance matters. As a result of these reviews, we have made, and will continue to make, disclosures to the United States Department of Health and Human Services Office of Inspector General and the Centers for Medicare & Medicaid Services relating to amounts we suspect represent over-payments from these programs, whether due to inaccurate billing or otherwise. Some of these disclosures have resulted in, or may result in, Encompass Health refunding amounts to Medicare or other federal healthcare programs.
11.Segment Reporting
Our internal financial reporting and management structure is focused on the major types of services provided by Encompass Health. We manage our operations using two operating segments which are also our reportable segments: (1) inpatient rehabilitation and (2) home health and hospice. These reportable operating segments are consistent with information used by our chief executive officer, who is our chief operating decision maker, to assess performance and allocate resources. The following is a brief description of our reportable segments:
Inpatient Rehabilitation - Our national network of inpatient rehabilitation hospitals stretches across 35 states and Puerto Rico, with a concentration of hospitals in the eastern half of the United States and Texas. As of March 31, 2022, we operate 147 inpatient rehabilitation hospitals. We are the sole owner of 93 of these hospitals. We retain 50.0% to 97.5% ownership in the remaining 54 jointly owned hospitals. In addition, we manage two inpatient rehabilitation units through management contracts. We provide specialized rehabilitative treatment on both an inpatient and outpatient basis. Our inpatient rehabilitation hospitals provide a higher level of rehabilitative care to

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Encompass Health Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
patients who are recovering from conditions such as stroke and other neurological disorders, cardiac and pulmonary conditions, brain and spinal cord injuries, complex orthopedic conditions, and amputations.
Home Health and Hospice - As of March 31, 2022, we provide home health services in 252 locations and hospice services in 99 locations across 34 states with concentrations in the southern half of the United States. We are the sole owner of 335 of these locations. We retain 50.0% to 90.0% ownership in the remaining 16 jointly owned locations. Our home health services include a comprehensive range of Medicare-certified home nursing services to adult patients in need of care. These services include, among others, skilled nursing, physical, occupational, and speech therapy, medical social work, and home health aide services. Hospice care focuses on the quality of life for patients who are experiencing an advanced, life limiting illness while treating the person and symptoms of the disease, rather than the disease itself.
The accounting policies of our reportable segments are the same as those described in Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements accompanying the 2021 Form 10‑K. All revenues for our services are generated through external customers. See Note 1, Basis of Presentation, “Net Operating Revenues,” for the disaggregation of our revenues. No corporate overhead is allocated to either of our reportable segments. Our chief operating decision maker evaluates the performance of our segments and allocates resources to them based on adjusted earnings before interest, taxes, depreciation, and amortization (“Segment Adjusted EBITDA”).
Selected financial information for our reportable segments is as follows (in millions):
Inpatient RehabilitationHome Health and Hospice
Three Months Ended March 31,Three Months Ended March 31,
2022202120222021
Net operating revenues$1,059.3 $959.9 $274.3 $270.5 
Operating expenses:
Inpatient rehabilitation: