Condensed Consolidating Financial Information

6 Months Ended

Jun. 30, 2019

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 2018 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, 2019
	Encompass Health Corporation			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminating Entries			Encompass Health Consolidated
	(In Millions)
Net operating revenues	$	5.5		$	606.7		$	556.8		$	(34.0	)	$	1,135.0
Operating expenses:
Salaries and benefits	14.4			290.3			323.4			(5.2		)	622.9
Other operating expenses	11.5			85.2			65.9			(12.8		)	149.8
Occupancy costs	0.5			25.0			10.8			(16.0		)	20.3
Supplies	—			24.5			17.2			—			41.7
General and administrative expenses	39.4			—			37.7			—			77.1
Depreciation and amortization	4.9			26.1			21.7			—			52.7
Total operating expenses	70.7			451.1			476.7			(34.0		)	964.5
Loss on early extinguishment of debt	2.3			—			—			—			2.3
Interest expense and amortization of debt discounts and fees	30.6			6.2			7.6			(6.7		)	37.7
Other income	(6.7		)	(0.3		)	(1.9		)	6.7			(2.2		)
Equity in net income of nonconsolidated affiliates	—			(1.3		)	(0.5		)	—			(1.8		)
Equity in net income of consolidated affiliates	(117.6		)	(16.6		)	—			134.2			—
Management fees	(40.4		)	29.5			10.9			—			—
Income from continuing operations before income tax (benefit) expense	66.6			138.1			64.0			(134.2		)	134.5
Provision for income tax (benefit) expense	(24.7		)	37.1			11.1			—			23.5
Income from continuing operations	91.3			101.0			52.9			(134.2		)	111.0
Loss from discontinued operations, net of tax	(0.1		)	—			—			—			(0.1		)
Net and comprehensive income	91.2			101.0			52.9			(134.2		)	110.9
Less: Net and comprehensive income attributable to noncontrolling interests	—			—			(19.7		)	—			(19.7		)
Net and comprehensive income attributable to Encompass Health	$	91.2		$	101.0		$	33.2		$	(134.2	)	$	91.2



	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		$	588.1		$	507.1		$	(33.2	)	$	1,067.7
Operating expenses:
Salaries and benefits	9.4			280.9			293.3			(5.4		)	578.2
Other operating expenses	9.3			90.8			62.3			(13.0		)	149.4
Occupancy costs	0.5			24.0			9.8			(14.8		)	19.5
Supplies	—			23.8			15.5			—			39.3
General and administrative expenses	41.2			—			13.7			—			54.9
Depreciation and amortization	3.5			27.3			18.9			—			49.7
Total operating expenses	63.9			446.8			413.5			(33.2		)	891.0
Interest expense and amortization of debt discounts and fees	31.9			5.7			6.7			(6.6		)	37.7
Other income	(6.2		)	(0.3		)	(1.4		)	6.6			(1.3		)
Equity in net income of nonconsolidated affiliates	—			(1.6		)	(0.4		)	—			(2.0		)
Equity in net income of consolidated affiliates	(117.5		)	(17.2		)	—			134.7			—
Management fees	(38.5		)	28.4			10.1			—			—
Income from continuing operations before income tax (benefit) expense	72.1			126.3			78.6			(134.7		)	142.3
Provision for income tax (benefit) expense	(19.5		)	34.0			14.8			—			29.3
Income from continuing operations	91.6			92.3			63.8			(134.7		)	113.0
Income from discontinued operations, net of tax	0.2			—			—			—			0.2
Net and comprehensive income	91.8			92.3			63.8			(134.7		)	113.2
Less: Net and comprehensive income attributable to noncontrolling interests	—			—			(21.4		)	—			(21.4		)
Net and comprehensive income attributable to Encompass Health	$	91.8		$	92.3		$	42.4		$	(134.7	)	$	91.8




	Six Months Ended June 30, 2019
	Encompass Health Corporation			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminating Entries			Encompass Health Consolidated
	(In Millions)
Net operating revenues	$	10.6		$	1,213.2		$	1,102.8		$	(67.6	)	$	2,259.0
Operating expenses:
Salaries and benefits	30.3			579.2			644.5			(10.3		)	1,243.7
Other operating expenses	21.8			169.9			133.5			(25.3		)	299.9
Occupancy costs	1.0			49.9			21.0			(32.0		)	39.9
Supplies	—			48.5			33.3			—			81.8
General and administrative expenses	79.3			—			51.2			—			130.5
Depreciation and amortization	9.9			52.4			42.9			—			105.2
Total operating expenses	142.3			899.9			926.4			(67.6		)	1,901.0
Loss on early extinguishment of debt	2.3			—			—			—			2.3
Interest expense and amortization of debt discounts and fees	60.7			12.4			15.3			(13.5		)	74.9
Other income	(14.4		)	(0.6		)	(4.4		)	13.5			(5.9		)
Equity in net income of nonconsolidated affiliates	—			(3.3		)	(1.0		)	—			(4.3		)
Equity in net income of consolidated affiliates	(247.8		)	(33.6		)	—			281.4			—
Management fees	(80.2		)	59.0			21.2			—			—
Income from continuing operations before income tax (benefit) expense	147.7			279.4			145.3			(281.4		)	291.0
Provision for income tax (benefit) expense	(46.4		)	74.9			25.8			—			54.3
Income from continuing operations	194.1			204.5			119.5			(281.4		)	236.7
Loss from discontinued operations, net of tax	(0.6		)	—			—			—			(0.6		)
Net and comprehensive income	193.5			204.5			119.5			(281.4		)	236.1
Less: Net and comprehensive income attributable to noncontrolling interests	—			—			(42.6		)	—			(42.6		)
Net and comprehensive income attributable to Encompass Health	$	193.5		$	204.5		$	76.9		$	(281.4	)	$	193.5




	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		$	1,182.8		$	985.6		$	(65.8	)	$	2,113.7
Operating expenses:
Salaries and benefits	22.6			563.3			573.3			(10.8		)	1,148.4
Other operating expenses	17.7			175.4			122.9			(25.4		)	290.6
Occupancy costs	1.0			47.7			19.0			(29.6		)	38.1
Supplies	—			48.5			30.7			—			79.2
General and administrative expenses	80.6			—			35.4			—			116.0
Depreciation and amortization	5.5			53.9			36.2			—			95.6
Total operating expenses	127.4			888.8			817.5			(65.8		)	1,767.9
Interest expense and amortization of debt discounts and fees	61.7			11.4			11.9			(11.7		)	73.3
Other income	(10.9		)	(0.5		)	(1.5		)	11.7			(1.2		)
Equity in net income of nonconsolidated affiliates	—			(3.4		)	(0.9		)	—			(4.3		)
Equity in net income of consolidated affiliates	(229.8		)	(33.7		)	—			263.5			—
Management fees	(76.9		)	57.2			19.7			—			—
Income from continuing operations before income tax (benefit) expense	139.6			263.0			138.9			(263.5		)	278.0
Provision for income tax (benefit) expense	(36.3		)	70.9			24.7			—			59.3
Income from continuing operations	175.9			192.1			114.2			(263.5		)	218.7
Loss from discontinued operations, net of tax	(0.3		)	—			—			—			(0.3		)
Net and comprehensive income	175.6			192.1			114.2			(263.5		)	218.4
Less: Net and comprehensive income attributable to noncontrolling interests	—			—			(42.8		)	—			(42.8		)
Net and comprehensive income attributable to Encompass Health	$	175.6		$	192.1		$	71.4		$	(263.5	)	$	175.6



	As of June 30, 2019
	Encompass Health Corporation		Guarantor Subsidiaries		Nonguarantor Subsidiaries		Eliminating Entries			Encompass Health Consolidated
	(In Millions)
Assets
Current assets:
Cash and cash equivalents	$	193.6	$	3.6	$	24.5	$	—		$	221.7
Restricted cash	—		—		56.8		—			56.8
Accounts receivable	—		282.0		214.0		—			496.0
Other current assets	64.0		31.4		54.9		(79.9		)	70.4
Total current assets	257.6		317.0		350.2		(79.9		)	844.9
Property and equipment, net	124.7		1,115.5		547.9		—			1,788.1
Operating lease right-of-use assets	14.6		176.7		120.8		(27.7		)	284.4
Goodwill	—		912.2		1,199.4		—			2,111.6
Intangible assets, net	19.8		108.0		315.8		—			443.6
Deferred income tax assets	39.4		28.9		—		(25.7		)	42.6
Other long-term assets	51.4		91.5		154.0		—			296.9
Intercompany notes receivable	530.2		—		—		(530.2		)	—
Intercompany receivable and investments in consolidated affiliates	2,922.9		673.9		—		(3,596.8		)	—
Total assets	$	3,960.6	$	3,423.7	$	2,688.1	$	(4,260.3	)	$	5,812.1
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt	$	35.9	$	7.8	$	11.9	$	(17.5	)	$	38.1
Current operating lease liabilities	2.5		24.8		25.1		(7.2		)	45.2
Accounts payable	7.8		52.3		35.5		—			95.6
Accrued expenses and other current liabilities	200.8		91.5		344.1		(62.4		)	574.0
Total current liabilities	247.0		176.4		416.6		(87.1		)	752.9
Long-term debt, net of current portion	2,381.2		286.7		51.7		—			2,719.6
Long-term operating lease liabilities	12.3		155.2		98.8		(20.5		)	245.8
Intercompany notes payable	—		—		530.2		(530.2		)	—
Other long-term liabilities	44.2		10.8		127.9		(25.7		)	157.2
Intercompany payable	—		—		52.6		(52.6		)	—
	2,684.7		629.1		1,277.8		(716.1		)	3,875.5
Commitments and contingencies
Redeemable noncontrolling interests	—		—		352.8		—			352.8
Shareholders’ equity:
Encompass Health shareholders’ equity	1,275.9		2,794.6		749.6		(3,544.2		)	1,275.9
Noncontrolling interests	—		—		307.9		—			307.9
Total shareholders’ equity	1,275.9		2,794.6		1,057.5		(3,544.2		)	1,583.8
Total liabilities and shareholders’ equity	$	3,960.6	$	3,423.7	$	2,688.1	$	(4,260.3	)	$	5,812.1



	As of December 31, 2018
	Encompass Health Corporation		Guarantor Subsidiaries		Nonguarantor Subsidiaries		Eliminating Entries			Encompass Health Consolidated
	(In Millions)
Assets
Current assets:
Cash and cash equivalents	$	41.5	$	3.0	$	24.7	$	—		$	69.2
Restricted cash	—		—		59.0		—			59.0
Accounts receivable	—		270.7		197.0		—			467.7
Other current assets	36.3		17.6		31.1		(18.8		)	66.2
Total current assets	77.8		291.3		311.8		(18.8		)	662.1
Property and equipment, net	123.9		1,041.5		469.4		—			1,634.8
Goodwill	—		912.2		1,188.6		—			2,100.8
Intangible assets, net	21.4		96.5		325.5		—			443.4
Deferred income tax assets	47.9		28.9		—		(33.9		)	42.9
Other long-term assets	47.9		100.4		142.7		—			291.0
Intercompany notes receivable	535.3		—		—		(535.3		)	—
Intercompany receivable and investments in consolidated affiliates	2,904.4		457.6		—		(3,362.0		)	—
Total assets	$	3,758.6	$	2,928.4	$	2,438.0	$	(3,950.0	)	$	5,175.0
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt	$	35.0	$	7.6	$	10.7	$	(17.5	)	$	35.8
Accounts payable	8.9		46.4		34.7		—			90.0
Accrued expenses and other current liabilities	211.8		76.4		259.8		(1.3		)	546.7
Total current liabilities	255.7		130.4		305.2		(18.8		)	672.5
Long-term debt, net of current portion	2,188.7		262.1		27.8		—			2,478.6
Intercompany notes payable	—		—		535.3		(535.3		)	—
Other long-term liabilities	37.5		17.1		184.4		(33.8		)	205.2
Intercompany payable	—		—		53.1		(53.1		)	—
	2,481.9		409.6		1,105.8		(641.0		)	3,356.3
Commitments and contingencies
Redeemable noncontrolling interests	—		—		261.7		—			261.7
Shareholders’ equity:
Encompass Health shareholders’ equity	1,276.7		2,518.8		790.2		(3,309.0		)	1,276.7
Noncontrolling interests	—		—		280.3		—			280.3
Total shareholders’ equity	1,276.7		2,518.8		1,070.5		(3,309.0		)	1,557.0
Total liabilities and shareholders’ equity	$	3,758.6	$	2,928.4	$	2,438.0	$	(3,950.0	)	$	5,175.0



	Six Months Ended June 30, 2019
	Encompass Health Corporation			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminating Entries			Encompass Health Consolidated
	(In Millions)
Net cash (used in) provided by operating activities	$	(38.2	)	$	203.8		$	139.7		$	—		$	305.3
Cash flows from investing activities:
Purchases of property and equipment	(13.6		)	(69.9		)	(72.3		)	—			(155.8		)
Additions to capitalized software costs	(3.2		)	(0.3		)	(3.1		)	—			(6.6		)
Acquisitions of businesses, net of cash acquired	—			—			(13.7		)	—			(13.7		)
Funding of intercompany note receivable	(8.0		)	—			—			8.0			—
Proceeds from repayment of intercompany note receivable	22.0			—			—			(22.0		)	—
Other, net	(4.8		)	(7.9		)	(2.8		)	—			(15.5		)
Net cash used in investing activities	(7.6		)	(78.1		)	(91.9		)	(14.0		)	(191.6		)
Cash flows from financing activities:
Principal payments on debt, including pre-payments	(110.6		)	—			(1.5		)	—			(112.1		)
Principal borrowings on intercompany note payable	—			—			8.0			(8.0		)	—
Principal payments on intercompany note payable	—			—			(22.0		)	22.0			—
Borrowings on revolving credit facility	400.0			—			—			—			400.0
Payments on revolving credit facility	(95.0		)	—			—			—			(95.0		)
Principal payments under finance lease obligations	(0.3		)	(4.0		)	(5.0		)	—			(9.3		)
Repurchases of common stock, including fees and expenses	(43.8		)	—			—			—			(43.8		)
Dividends paid on common stock	(54.8		)	—			(0.1		)	—			(54.9		)
Distributions paid to noncontrolling interests of consolidated affiliates	—			—			(36.5		)	—			(36.5		)
Taxes paid on behalf of employees for shares withheld	(14.9		)	—			(1.2		)	—			(16.1		)
Other, net	(0.6		)	—			8.8			—			8.2
Change in intercompany advances	117.9			(121.1		)	3.2			—			—
Net cash provided by (used in) financing activities	197.9			(125.1		)	(46.3		)	14.0			40.5
Increase in cash, cash equivalents, and restricted cash	152.1			0.6			1.5			—			154.2
Cash, cash equivalents, and restricted cash at beginning of period	41.5			3.0			89.0			—			133.5
Cash, cash equivalents, and restricted cash at end of period	$	193.6		$	3.6		$	90.5		$	—		$	287.7

Reconciliation of Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents at beginning of period	$	41.5		$	3.0		$	24.7		$	—		$	69.2
Restricted cash at beginning of period	—			—			59.0			—			59.0
Restricted cash included in other long term assets at beginning of period	—			—			5.3			—			5.3
Cash, cash equivalents, and restricted cash at beginning of period	$	41.5		$	3.0		$	89.0		$	—		$	133.5

Cash and cash equivalents at end of period	$	193.6		$	3.6		$	24.5		$	—		$	221.7
Restricted cash at end of period	—			—			56.8			—			56.8
Restricted cash included in other long-term assets at end of period	—			—			9.2			—			9.2
Cash, cash equivalents, and restricted cash at end of period	$	193.6		$	3.6		$	90.5		$	—		$	287.7



	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	$	(14.2	)	$	222.5		$	177.2		$	—		$	385.5
Cash flows from investing activities:
Purchases of property and equipment	(18.0		)	(60.9		)	(29.9		)	—			(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		)	(61.0		)	(38.4		)	(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		)
Principal payments under finance lease obligations	—			(4.1		)	(4.3		)	—			(8.4		)
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			—			4.0			—			4.5
Change in intercompany advances	220.1			(156.5		)	(63.6		)	—			—
Net cash provided by (used in) financing activities	145.7			(160.6		)	(131.6		)	30.0			(116.5		)
(Decrease) increase in cash, cash equivalents, and restricted cash	(0.1		)	0.9			7.2			—			8.0
Cash, cash equivalents, and restricted cash at beginning of period	34.3			3.0			79.5			—			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		$	3.0		$	17.1		$	—		$	54.4
Restricted cash at beginning of period	—			—			62.4			—			62.4
Cash, cash equivalents, and restricted cash at beginning of period	$	34.3		$	3.0		$	79.5		$	—		$	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		$	—		$	—