
	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:

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Inpatient Rehabilitation - Our national network of inpatient rehabilitation hospitals stretches across 31 states and Puerto Rico, with a concentration of hospitals in the eastern half of the United States and Texas. As of September 30, 2018, we operate 129 inpatient rehabilitation hospitals, including one hospital that operates as a joint venture that we account for using the equity method of accounting. In addition, we manage five 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 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.

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Home Health and Hospice - As of September 30, 2018, we provide home health and hospice services across 273 locations and 30 states with concentrations in the Southeast and Texas. In addition, two of these agencies operate as joint ventures that we account for using the equity method of accounting. 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, home health aide, and private duty services. Our hospice services primarily include in-home services to terminally ill patients and their families to address patients’ physical needs, including pain control and symptom management, and to provide emotional and spiritual support.

The accounting policies of our reportable segments are the same as those described in Note 1, Basis of Presentation, “Net Operating Revenues” and “Accounts Receivable” to these condensed consolidated financial statements and Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements accompanying the 2017 Form 10-K. All revenues for our services are generated through external customers. See Note 1, Basis of Presentation, “Net Operating Revenues,” for the payor composition 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 Rehabilitation												Home Health and Hospice
	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2018			2017			2018			2017
Net operating revenues	$	825.6		$	783.5		$	2,500.5		$	2,338.9		$	242.0		$	198.1		$	680.8		$	566.2
Operating expenses:
Inpatient rehabilitation:
Salaries and benefits	423.6			403.2			1,264.3			1,195.7			—			—			—			—
Other operating expenses	124.3			117.4			374.1			342.1			—			—			—			—
Supplies	33.6			33.1			104.2			100.6			—			—			—			—
Occupancy costs	15.9			15.7			47.4			46.3			—			—			—			—
Home health and hospice:
Cost of services sold (excluding depreciation and amortization)	—			—			—			—			114.6			92.1			322.3			267.3
Support and overhead costs	—			—			—			—			82.4			68.9			235.2			203.4
	597.4			569.4			1,790.0			1,684.7			197.0			161.0			557.5			470.7
Other income	(1.8		)	(1.0		)	(3.5		)	(2.9		)	—			—			(0.5		)	—
Equity in net income of nonconsolidated affiliates	(1.9		)	(1.9		)	(5.5		)	(5.6		)	(0.2		)	(0.2		)	(0.9		)	(0.6		)
Noncontrolling interests	19.0			16.7			59.3			48.6			2.0			2.5			6.4			4.6
Segment Adjusted EBITDA	$	212.9		$	200.3		$	660.2		$	614.1		$	43.2		$	34.8		$	118.3		$	91.5

Capital expenditures	$	64.5		$	59.1		$	181.1		$	164.7		$	1.7		$	1.7		$	7.7		$	5.6



	Inpatient Rehabilitation		Home Health and Hospice		Encompass Health Consolidated
As of September 30, 2018
Total assets	$	3,875.1	$	1,297.3	$	5,131.9
Investments in and advances to nonconsolidated affiliates	9.8		2.9		12.7
As of December 31, 2017
Total assets	$	3,789.1	$	1,150.5	$	4,893.7
Investments in and advances to nonconsolidated affiliates	9.3		2.6		11.9

Segment reconciliations (in millions):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Total segment Adjusted EBITDA	$	256.1		$	235.1		$	778.5		$	705.6
General and administrative expenses	(49.9		)	(39.7		)	(165.9		)	(128.6		)
Depreciation and amortization	(51.2		)	(46.2		)	(146.8		)	(137.2		)
Gain (loss) on disposal of assets	1.0			(3.0		)	(2.2		)	(3.3		)
Loss on early extinguishment of debt	—			(0.3		)	—			(10.7		)
Interest expense and amortization of debt discounts and fees	(37.3		)	(36.8		)	(110.6		)	(118.5		)
Net income attributable to noncontrolling interests	20.7			19.2			63.5			53.2
SARs mark-to-market impact on noncontrolling interests	0.3			—			2.2			—
Change in fair market value of equity securities	(0.1		)	—			(1.1		)	—
Income from continuing operations before income tax expense	$	139.6		$	128.3		$	417.6		$	360.5



	September 30, 2018			December 31, 2017
Total assets for reportable segments	$	5,172.4		$	4,939.6
Reclassification of deferred income tax liabilities to net deferred income tax assets	(40.5		)	(45.9		)
Total consolidated assets	$	5,131.9		$	4,893.7

Additional detail regarding the revenues of our operating segments by service line follows (in millions):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Inpatient rehabilitation:
Inpatient	$	798.4	$	758.2	$	2,425.1	$	2,262.4
Outpatient and other	27.2		25.3		75.4		76.5
Total inpatient rehabilitation	825.6		783.5		2,500.5		2,338.9
Home health and hospice:
Home health	209.2		180.3		599.3		516.1
Hospice	32.8		17.8		81.5		50.1
Total home health and hospice	242.0		198.1		680.8		566.2
Total net operating revenues	$	1,067.6	$	981.6	$	3,181.3	$	2,905.1