Condensed Consolidating Financial Information

9 Months Ended

Sep. 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 September 30, 2019
	Encompass Health Corporation			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminating Entries			Encompass Health Consolidated
	(In Millions)
Net operating revenues	$	5.3		$	598.6		$	592.0		$	(34.3	)	$	1,161.6
Operating expenses:
Salaries and benefits	14.9			294.5			356.6			(5.2		)	660.8
Other operating expenses	9.4			88.2			72.0			(13.0		)	156.6
Occupancy costs	0.5			25.2			12.2			(16.1		)	21.8
Supplies	—			24.7			18.2			—			42.9
General and administrative expenses	36.7			—			15.8			—			52.5
Depreciation and amortization	4.9			26.6			23.6			—			55.1
Total operating expenses	66.4			459.2			498.4			(34.3		)	989.7
Interest expense and amortization of debt discounts and fees	33.3			6.1			9.4			(8.5		)	40.3
Other income	(8.3		)	(19.7		)	(1.5		)	8.5			(21.0		)
Equity in net income of nonconsolidated affiliates	—			(0.9		)	(0.3		)	—			(1.2		)
Equity in net income of consolidated affiliates	(127.3		)	(15.0		)	—			142.3			—
Management fees	(39.9		)	29.0			10.9			—			—
Income from continuing operations before income tax (benefit) expense	81.1			139.9			75.1			(142.3		)	153.8
Provision for income tax (benefit) expense	(16.5		)	37.5			13.3			—			34.3
Income from continuing operations	97.6			102.4			61.8			(142.3		)	119.5
Loss from discontinued operations, net of tax	—			—			—			—			—
Net and comprehensive income	97.6			102.4			61.8			(142.3		)	119.5
Less: Net and comprehensive income attributable to noncontrolling interests	—			—			(21.9		)	—			(21.9		)
Net and comprehensive income attributable to Encompass Health	$	97.6		$	102.4		$	39.9		$	(142.3	)	$	97.6



	Three Months Ended September 30, 2018
	Encompass Health Corporation			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminating Entries			Encompass Health Consolidated
	(In Millions)
Net operating revenues	$	4.8		$	580.4		$	514.7		$	(32.3	)	$	1,067.6
Operating expenses:
Salaries and benefits	11.3			281.1			305.3			(5.4		)	592.3
Other operating expenses	9.9			81.1			63.9			(12.0		)	142.9
Occupancy costs	0.5			24.0			10.0			(14.9		)	19.6
Supplies	—			22.9			15.7			—			38.6
General and administrative expenses	38.8			—			11.1			—			49.9
Depreciation and amortization	4.4			27.1			19.7			—			51.2
Total operating expenses	64.9			436.2			425.7			(32.3		)	894.5
Interest expense and amortization of debt discounts and fees	31.6			5.6			6.9			(6.8		)	37.3
Other income	(6.9		)	(0.3		)	(1.3		)	6.8			(1.7		)
Equity in net income of nonconsolidated affiliates	—			(1.8		)	(0.3		)	—			(2.1		)
Equity in net income of consolidated affiliates	(117.8		)	(14.6		)	—			132.4			—
Management fees	(37.9		)	28.3			9.6			—			—
Income from continuing operations before income tax (benefit) expense	70.9			127.0			74.1			(132.4		)	139.6
Provision for income tax (benefit) expense	(17.8		)	34.2			13.8			—			30.2
Income from continuing operations	88.7			92.8			60.3			(132.4		)	109.4
Loss from discontinued operations, net of tax	(0.1		)	—			—			—			(0.1		)
Net and comprehensive income	88.6			92.8			60.3			(132.4		)	109.3
Less: Net and comprehensive income attributable to noncontrolling interests	—			—			(20.7		)	—			(20.7		)
Net and comprehensive income attributable to Encompass Health	$	88.6		$	92.8		$	39.6		$	(132.4	)	$	88.6



	Nine Months Ended September 30, 2019
	Encompass Health Corporation			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminating Entries			Encompass Health Consolidated
	(In Millions)
Net operating revenues	$	15.9		$	1,811.8		$	1,694.8		$	(101.9	)	$	3,420.6
Operating expenses:
Salaries and benefits	45.2			873.7			1,001.1			(15.5		)	1,904.5
Other operating expenses	31.2			258.1			205.5			(38.3		)	456.5
Occupancy costs	1.5			75.1			33.2			(48.1		)	61.7
Supplies	—			73.2			51.5			—			124.7
General and administrative expenses	116.0			—			67.0			—			183.0
Depreciation and amortization	14.8			79.0			66.5			—			160.3
Total operating expenses	208.7			1,359.1			1,424.8			(101.9		)	2,890.7
Loss on early extinguishment of debt	2.3			—			—			—			2.3
Interest expense and amortization of debt discounts and fees	94.0			18.5			24.7			(22.0		)	115.2
Other income	(22.7		)	(20.3		)	(5.9		)	22.0			(26.9		)
Equity in net income of nonconsolidated affiliates	—			(4.2		)	(1.3		)	—			(5.5		)
Equity in net income of consolidated affiliates	(375.1		)	(48.6		)	—			423.7			—
Management fees	(120.1		)	88.0			32.1			—			—
Income from continuing operations before income tax (benefit) expense	228.8			419.3			220.4			(423.7		)	444.8
Provision for income tax (benefit) expense	(62.9		)	112.4			39.1			—			88.6
Income from continuing operations	291.7			306.9			181.3			(423.7		)	356.2
Loss from discontinued operations, net of tax	(0.6		)	—			—			—			(0.6		)
Net and comprehensive income	291.1			306.9			181.3			(423.7		)	355.6
Less: Net and comprehensive income attributable to noncontrolling interests	—			—			(64.5		)	—			(64.5		)
Net and comprehensive income attributable to Encompass Health	$	291.1		$	306.9		$	116.8		$	(423.7	)	$	291.1



	Nine Months Ended September 30, 2018
	Encompass Health Corporation			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminating Entries			Encompass Health Consolidated
	(In Millions)
Net operating revenues	$	15.9		$	1,763.2		$	1,500.3		$	(98.1	)	$	3,181.3
Operating expenses:
Salaries and benefits	33.9			844.5			878.5			(16.2		)	1,740.7
Other operating expenses	27.6			256.4			186.9			(37.4		)	433.5
Occupancy costs	1.5			71.7			29.0			(44.5		)	57.7
Supplies	—			71.4			46.4			—			117.8
General and administrative expenses	119.4			—			46.5			—			165.9
Depreciation and amortization	9.9			81.1			55.8			—			146.8
Total operating expenses	192.3			1,325.1			1,243.1			(98.1		)	2,662.4
Interest expense and amortization of debt discounts and fees	93.3			17.0			18.8			(18.5		)	110.6
Other income	(17.8		)	(0.8		)	(2.8		)	18.5			(2.9		)
Equity in net income of nonconsolidated affiliates	—			(5.2		)	(1.2		)	—			(6.4		)
Equity in net income of consolidated affiliates	(347.6		)	(48.4		)	—			396.0			—
Management fees	(114.8		)	85.5			29.3			—			—
Income from continuing operations before income tax (benefit) expense	210.5			390.0			213.1			(396.0		)	417.6
Provision for income tax (benefit) expense	(54.1		)	105.1			38.5			—			89.5
Income from continuing operations	264.6			284.9			174.6			(396.0		)	328.1
Loss from discontinued operations, net of tax	(0.4		)	—			—			—			(0.4		)
Net and comprehensive income	264.2			284.9			174.6			(396.0		)	327.7
Less: Net and comprehensive income attributable to noncontrolling interests	—			—			(63.5		)	—			(63.5		)
Net and comprehensive income attributable to Encompass Health	$	264.2		$	284.9		$	111.1		$	(396.0	)	$	264.2



	As of September 30, 2019
	Encompass Health Corporation		Guarantor Subsidiaries		Nonguarantor Subsidiaries		Eliminating Entries			Encompass Health Consolidated
	(In Millions)
Assets
Current assets:
Cash and cash equivalents	$	391.2	$	3.7	$	27.1	$	—		$	422.0
Restricted cash	—		—		66.8		—			66.8
Accounts receivable	—		279.0		237.9		—			516.9
Other current assets	52.6		39.2		25.8		(45.9		)	71.7
Total current assets	443.8		321.9		357.6		(45.9		)	1,077.4
Property and equipment, net	127.7		1,167.9		579.2		—			1,874.8
Operating lease right-of-use assets	14.0		197.1		126.0		(25.7		)	311.4
Goodwill	—		912.1		1,393.1		—			2,305.2
Intangible assets, net	17.2		105.1		364.5		—			486.8
Deferred income tax assets	19.1		28.9		—		(25.6		)	22.4
Other long-term assets	53.1		89.5		166.2		—			308.8
Intercompany notes receivable	789.4		—		—		(789.4		)	—
Intercompany receivable and investments in consolidated affiliates	3,157.2		421.7		—		(3,578.9		)	—
Total assets	$	4,621.5	$	3,244.2	$	2,986.6	$	(4,465.5	)	$	6,386.8
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term debt	$	416.9	$	8.0	$	12.3	$	—		$	437.2
Current operating lease liabilities	2.7		23.6		25.8		(7.2		)	44.9
Accounts payable	7.6		55.1		38.7		—			101.4
Accrued expenses and other current liabilities	177.7		101.5		291.8		(45.9		)	525.1
Total current liabilities	604.9		188.2		368.6		(53.1		)	1,108.6
Long-term debt, net of current portion	2,627.4		284.5		50.0		—			2,961.9
Long-term operating lease liabilities	11.6		177.2		103.3		(18.7		)	273.4
Intercompany notes payable	—		—		789.4		(789.4		)	—
Other long-term liabilities	44.5		11.0		131.6		(25.5		)	161.6
Intercompany payable	—		—		79.7		(79.7		)	—
	3,288.4		660.9		1,522.6		(966.4		)	4,505.5
Commitments and contingencies
Redeemable noncontrolling interests	—		—		210.0		—			210.0
Shareholders’ equity:
Encompass Health shareholders’ equity	1,333.1		2,583.3		915.8		(3,499.1		)	1,333.1
Noncontrolling interests	—		—		338.2		—			338.2
Total shareholders’ equity	1,333.1		2,583.3		1,254.0		(3,499.1		)	1,671.3
Total liabilities and shareholders’ equity	$	4,621.5	$	3,244.2	$	2,986.6	$	(4,465.5	)	$	6,386.8



	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



	Nine Months Ended September 30, 2019
	Encompass Health Corporation			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminating Entries			Encompass Health Consolidated
	(In Millions)
Net cash (used in) provided by operating activities	$	(43.7	)	$	299.9		$	163.5		$	—		$	419.7
Cash flows from investing activities:
Purchases of property and equipment	(22.3		)	(136.9		)	(100.7		)	—			(259.9		)
Additions to capitalized software costs	(4.5		)	(0.6		)	(4.1		)	—			(9.2		)
Acquisitions of businesses, net of cash acquired	(217.5		)	—			(13.7		)	—			(231.2		)
Funding of intercompany note receivable	(64.0		)	—			—			64.0			—
Proceeds from repayment of intercompany note receivable	39.5			—			17.5			(57.0		)	—
Other, net	(6.8		)	(1.0		)	(3.6		)	—			(11.4		)
Net cash used in investing activities	(275.6		)	(138.5		)	(104.6		)	7.0			(511.7		)
Cash flows from financing activities:
Proceeds from bond issuance	1,000.0			—			—			—			1,000.0
Principal payments on debt, including pre-payments	(114.3		)	—			(1.5		)	—			(115.8		)
Principal borrowings on intercompany note payable	—			—			64.0			(64.0		)	—
Principal payments on intercompany note payable	(17.5		)	—			(39.5		)	57.0			—
Borrowings on revolving credit facility	525.0			—			—			—			525.0
Payments on revolving credit facility	(555.0		)	—			—			—			(555.0		)
Principal payments under finance lease obligations	(0.5		)	(5.9		)	(7.8		)	—			(14.2		)
Debt issuance costs	(15.2		)	—			—			—			(15.2		)
Repurchases of common stock, including fees and expenses	(45.9		)	—			—			—			(45.9		)
Dividends paid on common stock	(81.2		)	—			(0.1		)	—			(81.3		)
Purchase of equity interests in consolidated affiliates	(162.9		)	—			—			—			(162.9		)
Distributions paid to noncontrolling interests of consolidated affiliates	—			—			(57.6		)	—			(57.6		)
Taxes paid on behalf of employees for shares withheld	(15.0		)	—			(1.2		)	—			(16.2		)
Other, net	(0.6		)	—			12.0			—			11.4
Change in intercompany advances	152.1			(154.8		)	2.7			—			—
Net cash provided by (used in) financing activities	669.0			(160.7		)	(29.0		)	(7.0		)	472.3
Increase in cash, cash equivalents, and restricted cash	349.7			0.7			29.9			—			380.3
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	$	391.2		$	3.7		$	118.9		$	—		$	513.8

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	$	391.2		$	3.7		$	27.1		$	—		$	422.0
Restricted cash at end of period	—			—			66.8			—			66.8
Restricted cash included in other long-term assets at end of period	—			—			25.0			—			25.0
Cash, cash equivalents, and restricted cash at end of period	$	391.2		$	3.7		$	118.9		$	—		$	513.8



	Nine Months Ended September 30, 2018
	Encompass Health Corporation			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminating Entries			Encompass Health Consolidated
	(In Millions)
Net cash (used in) provided by operating activities	$	(16.9	)	$	339.3		$	261.6		$	—		$	584.0
Cash flows from investing activities:
Purchases of property and equipment	(23.3		)	(98.3		)	(49.9		)	—			(171.5		)
Additions to capitalized software costs	(12.1		)	—			(1.1		)	—			(13.2		)
Acquisitions of businesses, net of cash acquired	(129.7		)	—			(6.1		)	—			(135.8		)
Proceeds from repayment of intercompany note receivable	70.0			—			—			(70.0		)	—
Other, net	(6.8		)	2.9			(1.9		)	—			(5.8		)
Net cash used in investing activities	(101.9		)	(95.4		)	(59.0		)	(70.0		)	(326.3		)
Cash flows from financing activities:
Principal payments on debt, including pre-payments	(13.8		)	—			(2.3		)	—			(16.1		)
Principal payments on intercompany note payable	—			—			(70.0		)	70.0			—
Borrowings on revolving credit facility	285.0			—			—			—			285.0
Payments on revolving credit facility	(315.0		)	—			—			—			(315.0		)
Principal payments under finance lease obligations	—			(6.2		)	(6.8		)	—			(13.0		)
Dividends paid on common stock	(74.3		)	—			(0.1		)	—			(74.4		)
Purchase of equity interests in consolidated affiliates	(65.1		)	—			—			—			(65.1		)
Distributions paid to noncontrolling interests of consolidated affiliates	—			—			(56.5		)	—			(56.5		)
Taxes paid on behalf of employees for shares withheld	(7.4		)	—			(0.9		)	—			(8.3		)
Other, net	3.1			—			6.8			—			9.9
Change in intercompany advances	314.0			(236.3		)	(77.7		)	—			—
Net cash provided by (used in) financing activities	126.5			(242.5		)	(207.5		)	70.0			(253.5		)
Increase (decrease) in cash, cash equivalents, and restricted cash	7.7			1.4			(4.9		)	—			4.2
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	$	42.0		$	4.4		$	74.6		$	—		$	121.0

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	$	42.0		$	4.4		$	10.5		$	—		$	56.9
Restricted cash at end of period	—			—			62.1			—			62.1
Long term restricted cash at end of period	—			—			2.0			—			2.0
Cash, cash equivalents, and restricted cash at end of period	$	42.0		$	4.4		$	74.6		$	—		$	121.0

Supplemental schedule of noncash financing activity:
Intercompany note activity	$	(135.8	)	$	—		$	135.8		$	—		$	—