Condensed Consolidating Financial Information

6 Months Ended

Jun. 30, 2018

Condensed Financial Information Disclosure [Abstract]

Condensed Consolidating Financial Information

The accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X, Rule 3-10, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.” Each of the subsidiary guarantors is 100% owned by Encompass Health, and all guarantees are full and unconditional and joint and several, subject to certain customary conditions for release. Encompass Health’s investments in its consolidated subsidiaries, as well as guarantor subsidiaries’ investments in nonguarantor subsidiaries and nonguarantor subsidiaries’ investments in guarantor subsidiaries, are presented under the equity method of accounting with the related investment presented within the line items Intercompany receivable and investments in consolidated affiliates and Intercompany payable in the accompanying condensed consolidating balance sheets.

The terms of our credit agreement allow us to declare and pay cash dividends on our common stock so long as: (1) we are not in default under our credit agreement and (2) our senior secured leverage ratio (as defined in our credit agreement) remains less than or equal to 2x. The terms of our senior note indenture allow us to declare and pay cash dividends on our common stock so long as (1) we are not in default, (2) the consolidated coverage ratio (as defined in the indenture) exceeds 2x or we are otherwise allowed under the indenture to incur debt, and (3) we have capacity under the indenture’s restricted payments covenant to declare and pay dividends. See Note 9, Long-term Debt, to the consolidated financial statements accompanying the 2017 Form 10-K.

Periodically, certain wholly owned subsidiaries of Encompass Health make dividends or distributions of available cash and/or intercompany receivable balances to their parents. In addition, Encompass Health makes contributions to certain wholly owned subsidiaries. When made, these dividends, distributions, and contributions impact the Intercompany receivable and investments in consolidated affiliates, Intercompany payable, and Encompass Health shareholders’ equity line items in the accompanying condensed consolidating balance sheet but have no impact on the consolidated financial statements of Encompass Health Corporation.



	Three Months Ended June 30, 2018
	Encompass Health Corporation			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminating Entries			Encompass Health Consolidated
	(In Millions)
Net operating revenues	$	5.7		$	581.5		$	513.7		$	(33.2	)	$	1,067.7
Operating expenses:
Salaries and benefits	9.4			277.7			296.5			(5.4		)	578.2
Other operating expenses	9.3			89.8			63.3			(13.0		)	149.4
Occupancy costs	0.5			23.9			9.9			(14.8		)	19.5
Supplies	—			23.5			15.8			—			39.3
General and administrative expenses	41.2			—			13.7			—			54.9
Depreciation and amortization	3.5			26.7			19.5			—			49.7
Total operating expenses	63.9			441.6			418.7			(33.2		)	891.0
Interest expense and amortization of debt discounts and fees	31.9			5.2			7.2			(6.6		)	37.7
Other income	(6.2		)	(0.3		)	(1.4		)	6.6			(1.3		)
Equity in net income of nonconsolidated affiliates	—			(1.7		)	(0.3		)	—			(2.0		)
Equity in net income of consolidated affiliates	(117.4		)	(17.6		)	—			135.0			—
Management fees	(38.5		)	28.1			10.4			—			—
Income from continuing operations before income tax (benefit) expense	72.0			126.2			79.1			(135.0		)	142.3
Provision for income tax (benefit) expense	(19.6		)	34.0			14.9			—			29.3
Income from continuing operations	91.6			92.2			64.2			(135.0		)	113.0
Income from discontinued operations, net of tax	0.2			—			—			—			0.2
Net income	91.8			92.2			64.2			(135.0		)	113.2
Less: Net income attributable to noncontrolling interests	—			—			(21.4		)	—			(21.4		)
Net income attributable to Encompass Health	$	91.8		$	92.2		$	42.8		$	(135.0	)	$	91.8
Comprehensive income	$	91.8		$	92.2		$	64.2		$	(135.0	)	$	113.2
Comprehensive income attributable to Encompass Health	$	91.8		$	92.2		$	42.8		$	(135.0	)	$	91.8



	Three Months Ended June 30, 2017
	Encompass Health Corporation			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminating Entries			Encompass Health Consolidated
	(In Millions)
Net operating revenues	$	5.3		$	558.4		$	434.3		$	(31.6	)	$	966.4
Operating expenses:
Salaries and benefits	8.7			267.1			257.2			(5.2		)	527.8
Other operating expenses	7.5			78.9			55.0			(12.1		)	129.3
Occupancy costs	0.5			23.3			8.8			(14.3		)	18.3
Supplies	—			23.4			13.7			—			37.1
General and administrative expenses	37.6			—			14.8			—			52.4
Depreciation and amortization	2.4			25.7			17.7			—			45.8
Total operating expenses	56.7			418.4			367.2			(31.6		)	810.7
Loss on early extinguishment of debt	10.4			—			—			—			10.4
Interest expense and amortization of debt discounts and fees	34.5			5.3			5.9			(5.3		)	40.4
Other income	(5.4		)	(0.1		)	(0.7		)	5.3			(0.9		)
Equity in net income of nonconsolidated affiliates	—			(1.8		)	(0.2		)	—			(2.0		)
Equity in net income of consolidated affiliates	(85.2		)	(7.7		)	—			92.9			—
Management fees	(36.1		)	27.1			9.0			—			—
Income from continuing operations before income tax (benefit) expense	30.4			117.2			53.1			(92.9		)	107.8
Provision for income tax (benefit) expense	(32.4		)	46.8			14.2			—			28.6
Income from continuing operations	62.8			70.4			38.9			(92.9		)	79.2
Income from discontinued operations, net of tax	0.2			—			—			—			0.2
Net income	63.0			70.4			38.9			(92.9		)	79.4
Less: Net income attributable to noncontrolling interests	—			—			(16.4		)	—			(16.4		)
Net income attributable to Encompass Health	$	63.0		$	70.4		$	22.5		$	(92.9	)	$	63.0
Comprehensive income	$	63.0		$	70.4		$	38.9		$	(92.9	)	$	79.4
Comprehensive income attributable to Encompass Health	$	63.0		$	70.4		$	22.5		$	(92.9	)	$	63.0




	Six Months Ended June 30, 2018
	Encompass Health Corporation			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminating Entries			Encompass Health Consolidated
	(In Millions)
Net operating revenues	$	11.1		$	1,168.5		$	999.9		$	(65.8	)	$	2,113.7
Operating expenses:
Salaries and benefits	22.6			556.9			579.7			(10.8		)	1,148.4
Other operating expenses	17.7			173.5			124.8			(25.4		)	290.6
Occupancy costs	1.0			47.6			19.1			(29.6		)	38.1
Supplies	—			47.9			31.3			—			79.2
General and administrative expenses	80.6			—			35.4			—			116.0
Depreciation and amortization	5.5			52.8			37.3			—			95.6
Total operating expenses	127.4			878.7			827.6			(65.8		)	1,767.9
Interest expense and amortization of debt discounts and fees	61.7			10.4			12.9			(11.7		)	73.3
Other income	(10.9		)	(0.5		)	(1.5		)	11.7			(1.2		)
Equity in net income of nonconsolidated affiliates	—			(3.6		)	(0.7		)	—			(4.3		)
Equity in net income of consolidated affiliates	(229.4		)	(35.4		)	—			264.8			—
Management fees	(76.9		)	56.5			20.4			—			—
Income from continuing operations before income tax (benefit) expense	139.2			262.4			141.2			(264.8		)	278.0
Provision for income tax (benefit) expense	(36.7		)	70.7			25.3			—			59.3
Income from continuing operations	175.9			191.7			115.9			(264.8		)	218.7
Loss from discontinued operations, net of tax	(0.3		)	—			—			—			(0.3		)
Net income	175.6			191.7			115.9			(264.8		)	218.4
Less: Net income attributable to noncontrolling interests	—			—			(42.8		)	—			(42.8		)
Net income attributable to Encompass Health	$	175.6		$	191.7		$	73.1		$	(264.8	)	$	175.6
Comprehensive income	$	175.6		$	191.7		$	115.9		$	(264.8	)	$	218.4
Comprehensive income attributable to Encompass Health	$	175.6		$	191.7		$	73.1		$	(264.8	)	$	175.6




	Six Months Ended June 30, 2017
	Encompass Health Corporation			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminating Entries			Encompass Health Consolidated
	(In Millions)
Net operating revenues	$	10.6		$	1,119.1		$	856.6		$	(62.8	)	$	1,923.5
Operating expenses:
Salaries and benefits	19.9			537.4			511.1			(10.5		)	1,057.9
Other operating expenses	15.7			155.8			109.6			(24.0		)	257.1
Occupancy costs	1.0			46.6			16.9			(28.3		)	36.2
Supplies	—			46.9			27.2			—			74.1
General and administrative expenses	69.2			—			19.7			—			88.9
Depreciation and amortization	4.8			51.4			34.8			—			91.0
Total operating expenses	110.6			838.1			719.3			(62.8		)	1,605.2
Loss on early extinguishment of debt	10.4			—			—			—			10.4
Interest expense and amortization of debt discounts and fees	69.7			10.7			11.7			(10.4		)	81.7
Other income	(10.8		)	(0.2		)	(1.3		)	10.4			(1.9		)
Equity in net income of nonconsolidated affiliates	—			(3.7		)	(0.4		)	—			(4.1		)
Equity in net income of consolidated affiliates	(171.4		)	(17.5		)	—			188.9			—
Management fees	(72.0		)	54.2			17.8			—			—
Income from continuing operations before income tax (benefit) expense	74.1			237.5			109.5			(188.9		)	232.2
Provision for income tax (benefit) expense	(55.8		)	94.8			29.3			—			68.3
Income from continuing operations	129.9			142.7			80.2			(188.9		)	163.9
Loss from discontinued operations, net of tax	(0.1		)	—			—			—			(0.1		)
Net income	129.8			142.7			80.2			(188.9		)	163.8
Less: Net income attributable to noncontrolling interests	—			—			(34.0		)	—			(34.0		)
Net income attributable to Encompass Health	$	129.8		$	142.7		$	46.2		$	(188.9	)	$	129.8
Comprehensive income	$	130.1		$	142.7		$	80.2		$	(188.9	)	$	164.1
Comprehensive income attributable to Encompass Health	$	130.1		$	142.7		$	46.2		$	(188.9	)	$	130.1



	As of June 30, 2018
	Encompass Health Corporation		Guarantor Subsidiaries		Nonguarantor Subsidiaries		Eliminating Entries			Encompass Health Consolidated
	(In Millions)
Assets
Current assets:
Cash and cash equivalents	$	34.2	$	3.9	$	20.9	$	—		$	59.0
Restricted cash	—		—		65.8		—			65.8
Accounts receivable	—		268.2		188.4		—			456.6
Other current assets	76.4		17.1		60.7		(64.0		)	90.2
Total current assets	110.6		289.2		335.8		(64.0		)	671.6
Property and equipment, net	120.6		1,007.1		438.1		—			1,565.8
Goodwill	—		854.6		1,220.1		—			2,074.7
Intangible assets, net	21.9		102.3		319.2		—			443.4
Deferred income tax assets	106.8		8.4		—		(39.8		)	75.4
Other long-term assets	51.2		103.4		103.9		—			258.5
Intercompany notes receivable	589.4		—		—		(589.4		)	—
Intercompany receivable and investments in consolidated affiliates	2,844.9		577.1		—		(3,422.0		)	—
Total assets	$	3,845.4	$	2,942.1	$	2,417.1	$	(4,115.2	)	$	5,089.4
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt	$	34.5	$	7.7	$	11.3	$	(17.5	)	$	36.0
Accounts payable	12.7		47.6		25.3		—			85.6
Accrued expenses and other current liabilities	190.2		66.4		242.2		(46.5		)	452.3
Total current liabilities	237.4		121.7		278.8		(64.0		)	573.9
Long-term debt, net of current portion	2,318.3		238.1		44.1		—			2,600.5
Intercompany notes payable	—		—		589.4		(589.4		)	—
Other long-term liabilities	34.8		17.1		177.6		(39.7		)	189.8
Intercompany payable	—		—		80.3		(80.3		)	—
	2,590.5		376.9		1,170.2		(773.4		)	3,364.2
Commitments and contingencies
Redeemable noncontrolling interests	—		—		223.9		—			223.9
Shareholders’ equity:
Encompass Health shareholders’ equity	1,254.9		2,565.2		776.6		(3,341.8		)	1,254.9
Noncontrolling interests	—		—		246.4		—			246.4
Total shareholders’ equity	1,254.9		2,565.2		1,023.0		(3,341.8		)	1,501.3
Total liabilities and shareholders’ equity	$	3,845.4	$	2,942.1	$	2,417.1	$	(4,115.2	)	$	5,089.4



	As of December 31, 2017
	Encompass Health Corporation		Guarantor Subsidiaries		Nonguarantor Subsidiaries		Eliminating Entries			Encompass Health Consolidated
	(In Millions)
Assets
Current assets:
Cash and cash equivalents	$	34.3	$	2.9	$	17.2	$	—		$	54.4
Restricted cash	—		—		62.4		—			62.4
Accounts receivable	—		285.2		186.9		—			472.1
Other current assets	61.4		21.7		48.7		(18.5		)	113.3
Total current assets	95.7		309.8		315.2		(18.5		)	702.2
Property and equipment, net	101.8		991.5		423.8		—			1,517.1
Goodwill	—		854.6		1,118.0		—			1,972.6
Intangible assets, net	11.8		105.1		286.2		—			403.1
Deferred income tax assets	97.4		8.4		—		(42.2		)	63.6
Other long-term assets	49.2		100.5		85.4		—			235.1
Intercompany notes receivable	486.2		—		—		(486.2		)	—
Intercompany receivable and investments in consolidated affiliates	2,839.1		311.3		—		(3,150.4		)	—
Total assets	$	3,681.2	$	2,681.2	$	2,228.6	$	(3,697.3	)	$	4,893.7
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt	$	32.8	$	7.4	$	9.6	$	(17.5	)	$	32.3
Accounts payable	10.4		43.5		24.5		—			78.4
Accrued expenses and other current liabilities	166.8		82.0		159.0		(1.0		)	406.8
Total current liabilities	210.0		132.9		193.1		(18.5		)	517.5
Long-term debt, net of current portion	2,258.5		242.2		44.7		—			2,545.4
Intercompany notes payable	—		—		486.2		(486.2		)	—
Other long-term liabilities	31.0		17.8		178.6		(42.1		)	185.3
Intercompany payable	—		—		144.8		(144.8		)	—
	2,499.5		392.9		1,047.4		(691.6		)	3,248.2
Commitments and contingencies
Redeemable noncontrolling interests	—		—		220.9		—			220.9
Shareholders’ equity:
Encompass Health shareholders’ equity	1,181.7		2,288.3		717.4		(3,005.7		)	1,181.7
Noncontrolling interests	—		—		242.9		—			242.9
Total shareholders’ equity	1,181.7		2,288.3		960.3		(3,005.7		)	1,424.6
Total liabilities and shareholders’ equity	$	3,681.2	$	2,681.2	$	2,228.6	$	(3,697.3	)	$	4,893.7



	Six Months Ended June 30, 2018
	Encompass Health Corporation			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminating Entries			Encompass Health Consolidated
	(In Millions)
Net cash (used in) provided by operating activities	$	(13.8	)	$	219.5		$	179.8		$	—		$	385.5
Cash flows from investing activities:
Purchases of property and equipment	(18.0		)	(60.6		)	(30.2		)	—			(108.8		)
Additions to capitalized software costs	(8.7		)	—			(1.0		)	—			(9.7		)
Acquisitions of businesses, net of cash acquired	(129.7		)	—			(6.1		)	—			(135.8		)
Proceeds from repayment of intercompany note receivable	30.0			—			—			(30.0		)	—
Other, net	(5.2		)	(0.1		)	(1.4		)	—			(6.7		)
Net cash used in investing activities	(131.6		)	(60.7		)	(38.7		)	(30.0		)	(261.0		)
Cash flows from financing activities:
Principal payments on debt, including pre-payments	(7.6		)	—			(1.5		)	—			(9.1		)
Principal payments on intercompany note payable	—			—			(30.0		)	30.0			—
Borrowings on revolving credit facility	245.0			—			—			—			245.0
Payments on revolving credit facility	(190.0		)	—			—			—			(190.0		)
Dividends paid on common stock	(49.8		)	—			(0.1		)	—			(49.9		)
Purchase of equity interests in consolidated affiliates	(65.1		)	—			—			—			(65.1		)
Distributions paid to noncontrolling interests of consolidated affiliates	—			—			(35.2		)	—			(35.2		)
Taxes paid on behalf of employees for shares withheld	(7.4		)	—			(0.9		)	—			(8.3		)
Other, net	0.5			(3.7		)	(0.7		)	—			(3.9		)
Change in intercompany advances	219.7			(154.1		)	(65.6		)	—			—
Net cash provided by (used in) financing activities	145.3			(157.8		)	(134.0		)	30.0			(116.5		)
(Decrease) increase in cash, cash equivalents, and restricted cash	(0.1		)	1.0			7.1			—			8.0
Cash, cash equivalents, and restricted cash at beginning of period	34.3			2.9			79.6			—			116.8
Cash, cash equivalents, and restricted cash at end of period	$	34.2		$	3.9		$	86.7		$	—		$	124.8

Reconciliation of Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents at beginning of period	$	34.3		$	2.9		$	17.2		$	—		$	54.4
Restricted cash at beginning of period	—			—			62.4			—			62.4
Cash, cash equivalents, and restricted cash at beginning of period	$	34.3		$	2.9		$	79.6		$	—		$	116.8

Cash and cash equivalents at end of period	$	34.2		$	3.9		$	20.9		$	—		$	59.0
Restricted cash at end of period	—			—			65.8			—			65.8
Cash, cash equivalents, and restricted cash at end of period	$	34.2		$	3.9		$	86.7		$	—		$	124.8

Supplemental schedule of noncash financing activity:
Intercompany note activity	$	(134.2	)	$	—		$	134.2		$	—		$	—



	Six Months Ended June 30, 2017
	Encompass Health Corporation			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminating Entries			Encompass Health Consolidated
	(In Millions)
Net cash provided by operating activities	$	26.8		$	169.9		$	135.3		$	—		$	332.0
Cash flows from investing activities:
Purchases of property and equipment	(13.1		)	(39.7		)	(47.1		)	—			(99.9		)
Additions to capitalized software costs	(8.3		)	(0.2		)	(1.2		)	—			(9.7		)
Acquisitions of businesses, net of cash acquired	(10.9		)	—			(10.0		)	—			(20.9		)
Proceeds from repayment of intercompany note receivable	17.0			—			—			(17.0		)	—
Other, net	(1.7		)	9.0			3.7			—			11.0
Net cash used in investing activities	(17.0		)	(30.9		)	(54.6		)	(17.0		)	(119.5		)
Cash flows from financing activities:
Principal payments on debt, including pre-payments	(11.9		)	—			(1.5		)	—			(13.4		)
Principal payments on intercompany note payable	—			—			(17.0		)	17.0			—
Borrowings on revolving credit facility	105.0			—			—			—			105.0
Payments on revolving credit facility	(187.0		)	—			—			—			(187.0		)
Repurchases of common stock, including fees and expenses	(18.1		)	—			—			—			(18.1		)
Dividends paid on common stock	(43.5		)	—			—			—			(43.5		)
Proceeds from exercising stock warrants	26.6			—			—			—			26.6
Distributions paid to noncontrolling interests of consolidated affiliates	—			—			(24.1		)	—			(24.1		)
Taxes paid on behalf of employees for shares withheld	(19.5		)	—			(0.3		)	—			(19.8		)
Other, net	0.4			(3.3		)	7.4			—			4.5
Change in intercompany advances	158.4			(133.4		)	(25.0		)	—			—
Net cash provided by (used in) financing activities	10.4			(136.7		)	(60.5		)	17.0			(169.8		)
Increase in cash, cash equivalents, and restricted cash	20.2			2.3			20.2			—			42.7
Cash, cash equivalents, and restricted cash at beginning of period	20.6			1.6			79.2			—			101.4
Cash, cash equivalents, and restricted cash at end of period	$	40.8		$	3.9		$	99.4		$	—		$	144.1

Reconciliation of Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents at beginning of period	$	20.6		$	1.6		$	18.3		$	—		$	40.5
Restricted cash at beginning of period	—			—			60.9			—			60.9
Cash, cash equivalents, and restricted cash at beginning of period	$	20.6		$	1.6		$	79.2		$	—		$	101.4

Cash and cash equivalents at end of period	$	40.8		$	3.9		$	26.4		$	—		$	71.1
Restricted cash at end of period	—			—			73.0			—			73.0
Cash, cash equivalents, and restricted cash at end of period	$	40.8		$	3.9		$	99.4		$	—		$	144.1

Supplemental schedule of noncash financing activity:
Conversion of convertible debt	$	319.4		$	—		$	—		$	—		$	319.4