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Business Combinations | 12 Months Ended
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Dec. 31, 2018
Business Combinations [Abstract] |
Business Combinations | Business Combinations: 2018 Acquisitions Inpatient Rehabilitation During 2018, we completed the following inpatient rehabilitation acquisitions, none of which were individually material to our financial position, results of operations, or cash flows. Each acquisition was made to enhance our position and ability to provide inpatient rehabilitation services to patients in the applicable geographic areas.
• | In September 2018, we acquired approximately 62% of a 29-bed inpatient rehabilitation unit, including a 60-bed certificate of need, in Murrells Inlet, South Carolina through a joint venture with Tidelands Health. The acquisition was funded through contributions of funds to be utilized by the consolidated joint venture to build a 46-bed de novo inpatient rehabilitation satellite location.
• | In October 2018, we acquired approximately 50% of the 68-bed inpatient rehabilitation unit in Winston-Salem, North Carolina, through a joint venture with Novant Health Inc. This acquisition was funded through a contribution of a 68‑bed de novo inpatient rehabilitation hospital to the consolidated joint venture.
• | In November 2018, we acquired approximately 68% of an 17-bed inpatient rehabilitation unit in Littleton, Colorado through a joint venture with Portercare Adventist Health System. The acquisition was funded through the contribution of our existing inpatient rehabilitation hospital in Littleton, Colorado to the consolidated joint venture.
We accounted for these transactions under the acquisition method of accounting and reported the results of operations of the acquired hospitals from its respective date of acquisition. Assets acquired 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 intangible asset; an income approach utilizing the relief from royalty method for the trade name intangible asset; and an income approach utilizing the excess earnings method for the certificate of need 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. The excess of the fair value of the consideration conveyed over the fair value of the assets acquired was recorded as goodwill. The goodwill reflects our expectations of our ability to gain access to and penetrate the acquired hospital’s historical patient base and the benefits of being able to leverage operational efficiencies with favorable growth opportunities based on positive demographic trends in this market. None of the goodwill recorded as a result from these transactions is deductible for federal income tax purposes. The fair value of the assets acquired at the acquisition date were as follows (in millions):
Property and equipment | $ | 0.1 |
Identifiable intangible assets: |  |
Noncompete agreements (useful lives of 2 to 3 years) | 1.4 |
Trade names (useful lives of 20 years) | 2.3 |
Certificates of need (useful lives of 20 years) | 12.5 |
Goodwill | 23.2 |
Total assets acquired | 39.5 |
Total liabilities assumed | (0.2 | )
Net assets acquired | $ | 39.3 |
Information regarding the net cash paid for the inpatient rehabilitation acquisitions during 2018 is as follows (in millions):
Fair value of assets acquired | $ | 16.3 |
Goodwill | 23.2 |
Fair value of liabilities assumed | (0.2 | )
Fair value of noncontrolling interest owned by joint venture partner | (39.3 | )
Net cash paid for acquisition | $ | — |
Home Health and Hospice Camellia Acquisition On May 1, 2018, we completed the previously announced acquisition of privately owned Camellia Healthcare and affiliated entities (“Camellia”). The Camellia portfolio consists of hospice, home health and private duty locations in Mississippi, Alabama, Louisiana and Tennessee. The acquisition leverages our home health and hospice operating platform across key certificate of need states and strengthens our geographic presence in the Southeastern United States. We funded the cash purchase price of the acquisition with cash on hand and borrowings under our revolving credit facility. We accounted for this transaction under the acquisition method of accounting and reported the results of operations of Camellia from its date of acquisition. Assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date. Estimated fair values were based on various valuation methodologies including: replacement cost and continued use methods for property and equipment; an income approach using primarily discounted cash flow techniques for the noncompete and certain license intangible assets; an income approach utilizing the relief-from-royalty method for the trade name intangible asset; and an income approach utilizing the excess earnings method for the certificate of need and certain license intangible assets. 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 as a result from this transaction is deductible for federal income tax purposes. The goodwill reflects our expectations of favorable growth opportunities in the home health and hospice markets based on positive demographic trends. The fair value of the assets acquired and liabilities assumed at the acquisition date were as follows (in millions):
Cash and cash equivalents | $ | 1.3 |
Prepaid expenses and other current assets | 0.3 |
Property and equipment, net | 0.6 |
Identifiable intangible assets: |
Noncompete agreements (useful lives of 5 years) | 0.5 |
Trade name (useful life of 1 year) | 1.4 |
Certificates of need (useful lives of 10 years) | 16.6 |
Licenses (useful lives of 10 years) | 21.6 |
Goodwill | 96.1 |
Total assets acquired | 138.4 |
Liabilities assumed: |
Accounts payable | 1.7 |
Accrued payroll | 4.0 |
Total liabilities assumed | 5.7 |
Net assets acquired | $ | 132.7 |
Information regarding the net cash paid for Camellia is as follows (in millions):
Fair value of assets acquired, net of $1.3 million of cash acquired | $ | 41.0 |
Goodwill | 96.1 |
Fair value of liabilities assumed | (5.7 | )
Net cash paid for acquisition | $ | 131.4 |
Other Home Health and Hospice Acquisitions During 2018, we completed the following home health acquisitions, none of which were individually material to our financial position, results of operations, or cash flows. Each acquisition was made to enhance our position and ability to provide post-acute healthcare services to patients in the applicable geographic areas. Each acquisition was funded using cash on hand.
• | In January 2018, we acquired the assets of one hospice location from Golden Age Hospice, Inc. in Oklahoma City, Oklahoma.
• | In June 2018, we acquired the assets of one hospice location from Medical Services of America in Las Vegas, Nevada.
• | In November 2018, we acquired the assets of one home health and one hospice location from Tenet Hospital Limited in Birmingham, Alabama and El Paso, Texas. We also acquired 75% of the assets of a home health location in Talladega, Alabama through a joint venture with Tenet Hospital Limited.
• | In December 2018, we acquired 75% of the assets of a hospice location in Talladega, Alabama through a joint venture with Tenet Hospital Limited.
We accounted for these transactions under the acquisition method of accounting and reported the results of operations of the acquired locations from their respective dates of acquisition. Assets acquired were recorded at their estimated fair values as of the respective acquisition dates. The fair values of identifiable intangible assets were based on valuations using an income approach. The income approach is based on management’s estimates of future operating results and cash flows discounted using a weighted-average cost of capital that reflects market participant assumptions. The excess of the fair value of the consideration conveyed over the fair value of the net assets acquired was recorded as goodwill. The goodwill reflects our expectations of our ability to utilize the acquired locations’ mobile workforce and established relationships within each community and the benefits of being able to leverage operational efficiencies with favorable growth opportunities based on positive demographic trends in these markets. All goodwill recorded as a result of these transactions is deductible for federal income tax purposes. The fair value of the assets acquired at the acquisition date were as follows (in millions):
Total current assets | $ | 0.1 |
Identifiable intangible assets: |
Noncompete agreements (useful lives of 5 years) | 0.2 |
Certificates of need (useful lives of 10 years) | 2.5 |
Licenses (useful lives of 10 years) | 1.5 |
Goodwill | 8.9 |
Total assets acquired | $ | 13.2 |
Total liabilities assumed | (0.1 | )
Net assets acquired | $ | 13.1 |
Information regarding the net cash paid for the other home health and hospice acquisitions during each period presented is as follows (in millions):
Fair value of assets acquired | $ | 4.3 |
Goodwill | 8.9 |
Fair value of liabilities assumed | (0.1 | )
Fair value of noncontrolling interest owned by joint venture partner | (0.6 | )
Net cash paid for acquisitions | $ | 12.5 |
Pro Forma Results of Operations The following table summarizes the results of operations of the above mentioned acquisitions from their respective dates 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 acquisitions been January 1, 2017 (in millions):
| Net Operating Revenues |  | Net (Loss) Income Attributable to Encompass Health
Acquired entities only: Actual from acquisition date to December 31, 2018 |  |  |
Inpatient Rehabilitation | $ | 9.1 |  |  | $ | (1.6 | )
Camellia | 50.0 |  |  | (0.9 | )
All Other Home Health and Hospice | 3.5 |  |  | (0.3 | )
Combined entity: Supplemental pro forma from 01/01/2018-12/31/2018 (unaudited) | 4,337.4 |  |  | 300.0 |
Combined entity: Supplemental pro forma from 01/01/2017-12/31/2017 (unaudited) | 4,039.9 |  |  | 289.0 |
The information presented above is for illustrative purposes only and is not necessarily indicative of results that would have been achieved if the acquisitions had occurred as of the beginning of our 2017 period. 2017 Acquisitions Inpatient Rehabilitation During 2017, we completed the following inpatient rehabilitation acquisitions, none of which were individually material to our financial position, results of operations, or cash flows. Each acquisition was made to enhance our position and ability to provide inpatient rehabilitation services to patients in the applicable geographic areas.
• | In April 2017, we acquired 80% of the 33-bed inpatient rehabilitation unit of Memorial Hospital at Gulfport in Gulfport, Mississippi, through a joint venture with Memorial Hospital at Gulfport. This acquisition was funded on March 31, 2017 using cash on hand.
• | In April 2017, we also acquired approximately 80% of the inpatient rehabilitation unit of Mount Carmel West in Columbus, Ohio, through a joint venture with Mount Carmel Health System. This acquisition was funded through a contribution of a 60‑bed de novo inpatient rehabilitation hospital to the consolidated joint venture.
• | In July 2017, we acquired 50% of the inpatient rehabilitation unit at Jackson-Madison County General Hospital through a joint venture with West Tennessee Healthcare. The acquisition was funded through a contribution of our existing inpatient rehabilitation hospital in Martin, Tennessee to the consolidated joint venture.
• | In September 2017, we acquired 75% of Heritage Valley Beaver Hospital’s inpatient rehabilitation unit in Beaver, Pennsylvania, through a joint venture with Heritage Valley Health System, Inc. The acquisition was funded through the exchange of 25% of our existing inpatient rehabilitation hospital in Sewickley, Pennsylvania.
We accounted for these transactions under the acquisition method of accounting and reported the results of operations of the acquired hospitals from their respective dates of acquisition. Assets acquired were recorded at their estimated fair values as of the respective acquisition dates. The fair values of the identifiable intangible assets were based on valuations using the income approach. The income approach is based on management’s estimates of future operating results and cash flows discounted using a weighted-average cost of capital that reflects market participant assumptions. The excess of the fair value of the consideration conveyed over the fair value of the net assets acquired was recorded as goodwill. The goodwill reflects our expectations of our ability to gain access to and penetrate the acquired hospital’s historical patient base and the benefits of being able to leverage operational efficiencies with favorable growth opportunities based on positive demographic trends in these markets. None of the goodwill recorded as a result of these transactions is deductible for federal income tax purposes. The fair value of the assets acquired at the acquisition date were as follows (in millions):
Property and equipment | $ | 0.1 |
Identifiable intangible assets: |  |
Noncompete agreements (useful lives of 2 to 3 years) | 0.6 |
Trade name (useful life of 20 years) | 0.5 |
Certificate of need (useful life of 20 years) | 9.8 |
Goodwill | 24.0 |
Total assets acquired | $ | 35.0 |
Information regarding the net cash paid for the inpatient rehabilitation acquisitions during 2017 is as follows (in millions):
Fair value of assets acquired | $ | 11.0 |
Goodwill | 24.0 |
Fair value of noncontrolling interest owned by joint venture partner | (24.1 | )
Net cash paid for acquisition | $ | 10.9 |
Home Health and Hospice During 2017, we completed the following home health acquisitions, none of which were individually material to our financial position, results of operations, or cash flows. Each acquisition was made to enhance our position and ability to provide post-acute healthcare services to patients in the applicable geographic areas. Each acquisition was funded using cash on hand.
• | In February 2017, we acquired the assets of Celtic Healthcare of Maryland, Inc., a home health provider with locations in Owings Mill, Maryland and Rockville, Maryland.
• | In February 2017, we also acquired the assets of two home health locations from Community Health Services, Inc., located in Owensboro, Kentucky and Elizabethtown, Kentucky.
• | In May 2017, we acquired the assets of two home health locations from Bio Care Home Health Services, Inc. and Kinsman Enterprises, Inc., located in Irving, Texas and Longview, Texas.
• | In July 2017, we acquired the assets of four home health locations from VNA Healthtrends, located in Bourbonnais, Illinois; Des Plaines, Illinois; Schererville, Indiana; and Tempe, Arizona.
• | In August 2017, we acquired the assets of two home health locations from VNA Healthtrends, located in Canton, Ohio and Forsyth, Illinois.
• | In October 2017, we acquired the assets of a home health location from Ware Visiting Nurses Services, Inc. located in Savannah, Georgia; and
• | In October 2017, we also acquired the assets of a home health location from Pickens County Health Care Authority located in Carrollton, Alabama.
We accounted for these transactions under the acquisition method of accounting and reported the results of operations of the acquired locations from their respective dates of acquisition. Assets acquired or liabilities assumed were recorded at their estimated fair values as of the respective acquisition dates. The fair values of identifiable intangible assets were based on valuations using the cost and income approaches. The cost approach is based on amounts that would be required to replace the asset (i.e., replacement cost). The income approach is based on management’s estimates of future operating results and cash flows discounted using a weighted-average cost of capital that reflects market participant assumptions. The excess of the fair value of the consideration conveyed over the fair value of the net assets acquired was recorded as goodwill. The goodwill reflects our expectations of our ability to utilize the acquired locations’ mobile workforce and established relationships within each community and the benefits of being able to leverage operational efficiencies with favorable growth opportunities based on positive demographic trends in these markets. All of the goodwill recorded as a result of these transactions is deductible for federal income tax purposes. The fair value of the assets acquired and liabilities assumed at the acquisition date were as follows (in millions):
Total current assets | $ | 0.1 |
Identifiable intangible asset: |
Noncompete agreements (useful lives of 5 years) | 0.8 |
Trade name (useful life of 1 year) | 0.1 |
Certificates of need (useful lives of 10 years) | 1.8 |
Licenses (useful lives of 10 years) | 4.0 |
Goodwill | 21.4 |
Total assets acquired | 28.2 |
Total liabilities assumed | (0.3 | )
Net assets acquired | $ | 27.9 |
Information regarding the net cash paid for the home health acquisitions during 2017 is as follows (in millions):
Fair value of assets acquired | $ | 6.8 |
Goodwill | 21.4 |
Fair value of liabilities assumed | (0.3 | )
Net cash paid for acquisitions | $ | 27.9 |
Pro Forma Results of Operations The following table summarizes the results of operations of the above mentioned acquisitions from their respective dates 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 acquisitions been January 1, 2016 (in millions):
| Net Operating Revenues |  | Net (Loss) Income Attributable to Encompass Health
Acquired entities only: Actual from acquisition date to December 31, 2017 | $ | 32.9 |  |  | $ | (6.3 | )
Combined entity: Supplemental pro forma from 01/01/2017-12/31/2017 (unaudited) | 3,996.1 |  |  | 260.3 |
Combined entity: Supplemental pro forma from 01/01/2016-12/31/2016 (unaudited) | 3,771.5 |  |  | 254.8 |
The information presented above is for illustrative purposes only and is not necessarily indicative of results that would have been achieved if the acquisitions had occurred as of the beginning of our 2016 reporting period. 2016 Acquisitions Inpatient Rehabilitation During 2016, we completed the following inpatient rehabilitation hospital acquisitions, none of which were individually material to our financial position, results of operations, or cash flows. Each acquisition was made to enhance our position and ability to provide inpatient rehabilitation services to patients in the applicable geographic areas. Each acquisition was funded through a contribution to the respective consolidated joint venture.
• | In February 2016, we acquired 50% of the inpatient rehabilitation hospital at CHI St. Vincent Hot Springs, a 20-bed inpatient rehabilitation hospital in Hot Springs, Arkansas, through a joint venture with St. Vincent Community Health Services, Inc.
• | In August 2016, we acquired 50% of the inpatient rehabilitation hospital at St. Joseph Regional Health Center, a 19-bed inpatient rehabilitation hospital in Bryan, Texas, through a joint venture with St. Joseph Health System.
• | In August 2016, we also acquired 51% of the inpatient rehabilitation hospital at The Bernsen Rehabilitation Center at St. John, a 24-bed inpatient rehabilitation hospital in Broken Arrow, Oklahoma, through a joint venture with St. John Health System.
We accounted for these transactions under the acquisition method of accounting and reported the results of operations of the acquired hospitals from their respective dates of acquisition. Assets acquired and liabilities assumed, if any, were recorded at their estimated fair values as of the respective acquisition dates. The fair values of the identifiable intangible assets were based on valuations using the income approach. The income approach is based on management’s estimates of future operating results and cash flows discounted using a weighted-average cost of capital that reflects market participant assumptions. The excess of the fair value of the consideration conveyed over the fair value of the net assets acquired was recorded as goodwill. The goodwill reflects our expectations of our ability to gain access to and penetrate the acquired hospital’s historical patient base and the benefits of being able to leverage operational efficiencies with favorable growth opportunities based on positive demographic trends in these markets. None of the goodwill recorded as a result of these transactions is deductible for federal income tax purposes. The fair value of the assets acquired at the acquisition date were as follows (in millions):
Property and equipment | $ | 5.3 |
Identifiable intangible assets: |  |
Noncompete agreements (useful lives of 1 to 3 years) | 0.4 |
Trade names (useful lives of 20 years) | 1.0 |
Goodwill | 9.4 |
Total assets acquired | $ | 16.1 |
Information regarding the net cash paid for all inpatient rehabilitation acquisitions during 2016 is as follows (in millions):
Fair value of assets acquired | $ | 6.7 |
Goodwill | 9.4 |
Fair value of noncontrolling interest owned by joint venture partner | (16.1 | )
Net cash paid for acquisition | $ | — |
See also Note 8, Investments in and Advances to Nonconsolidated Affiliates. Home Health and Hospice During 2016, we completed the following home health and hospice acquisitions, none of which were individually material to our financial position, results of operations, or cash flows. Each acquisition was made to enhance our position and ability to provide post-acute healthcare services to patients in the applicable geographic areas. Each acquisition was funded using cash on hand.
• | In May 2016, we acquired Home Health Agency of Georgia, LLC, a home health and hospice provider with two home health locations and two hospice locations in the Greater Atlanta area.
• | In July 2016, we acquired Advantage Health Inc., a home health provider with one location in Yuma, Arizona.
• | In September 2016, we acquired three hospice agencies from Sotto International, Inc. located in Texarkana, Arkansas; Magnolia, Arkansas; and Texarkana, Texas.
• | In October 2016, we acquired two home health agencies from Summit Home Health Care, Inc. located in Cheyenne, Wyoming and Laramie, Wyoming.
• | In October 2016, we also acquired LightHouse Health Care, Inc., a home health provider with one location in Springfield, Virginia.
• | In November 2016, we acquired Gulf City Home Care, Inc., a home health provider with one location in Sarasota, Florida.
• | In November 2016, we also acquired Honor Hospice, LLC, a hospice provider with one location in Wheat Ridge, Colorado.
We accounted for all of these transactions under the acquisition method of accounting and reported the results of operations of the acquired locations from their respective dates of acquisition. Assets acquired and liabilities assumed were recorded at their estimated fair values as of the respective acquisition dates. The fair values of identifiable intangible assets were based on valuations using the cost and income approaches. The cost approach is based on amounts that would be required to replace the asset (i.e., replacement cost). The income approach is based on management’s estimates of future operating results and cash flows discounted using a weighted-average cost of capital that reflects market participant assumptions. The excess of the fair value of the consideration conveyed over the fair value of the net assets acquired was recorded as goodwill. The goodwill reflects our expectations of our ability to utilize the acquired locations’ mobile workforce and established relationships within each community and the benefits of being able to leverage operational efficiencies with favorable growth opportunities based on positive demographic trends in these markets. All goodwill recorded as a result of these transactions is deductible for federal income tax purposes. The fair value of the assets acquired and liabilities assumed at the acquisition date were as follows (in millions):
Identifiable intangible asset: |  |
Noncompete agreements (useful lives of 5 years) | $ | 1.1 |
Trade names (useful lives of 1 year) | 0.7 |
Certificate of needs (useful lives of 10 years) | 1.9 |
Licenses (useful lives of 10 years) | 3.4 |
Goodwill | 41.4 |
Total assets acquired | 48.5 |
Total liabilities assumed | (0.4 | )
Net assets acquired | $ | 48.1 |
Information regarding the net cash paid for home health and hospice acquisitions during 2016 is as follows (in millions):
Fair value of assets acquired | $ | 7.1 |
Goodwill | 41.4 |
Fair value of liabilities assumed | (0.4 | )
Net cash paid for acquisitions | $ | 48.1 |
Pro Forma Results of Operations The following table summarizes the results of operations of the above mentioned inpatient rehabilitation hospitals and home health and hospice agencies from their respective dates 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 acquisitions been January 1, 2015 (in millions):
| Net Operating Revenues |  | Net (Loss) Income Attributable to Encompass Health
Acquired entities only: Actual from acquisition date to December 31, 2016 | $ | 27.4 |  |  | $ | (2.2 | )
Combined entity: Supplemental pro forma from 1/01/2016-12/31/2016 (unaudited) | 3,745.6 |  |  | 252.2 |
Combined entity: Supplemental pro forma from 1/01/2015-12/31/2015 (unaudited) | 3,217.1 |  |  | 187.3 |
The information presented above is for illustrative purposes only and is not necessarily indicative of results that would have been achieved if the acquisitions had occurred as of the beginning of our 2015 reporting period.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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