Business Combinations

3 Months Ended

Mar. 31, 2022

Business Combination and Asset Acquisition [Abstract]

Home Health and Hospice

On January 1, 2022, we acquired a 50% equity interest from Frontier Home Health and Hospice, LLC in a joint venture with Saint Alphonsus System (“Saint Alphonsus”) which operates home health and hospice locations in Boise, Idaho. The total purchase price was $15.9 million and was funded on December 31, 2021. This acquisition was made to enhance our existing joint venture relationship with Saint Alphonsus and expand our footprint in this geographic area. This transaction was not material to our financial position, results of operations, or cash flows.

We accounted for this transaction under the acquisition method of accounting and reported the results of operations of the acquired locations from the date of acquisition. Assets acquired, liabilities assumed, and noncontrolling interests 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 and license intangible assets; and an income approach utilizing the relief-from-royalty method for the trade name 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. 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 reflects our expectations of favorable growth opportunities in the home health and hospice markets based on positive demographic trends. At least $14.4 million of the goodwill recorded as a result of this transaction is deductible for federal income tax purposes.

The fair values recorded were based upon a preliminary valuation. Estimates and assumptions used in such valuation are subject to change, which could be significant, within the measurement period (up to one year from the acquisition date). We expect to continue to obtain information to assist us in determining the fair value of the net assets acquired at the acquisition date during the measurement period.

The preliminary fair value of the assets acquired and liabilities assumed at the acquisition date were as follows (in millions):


Cash and cash equivalents	$	0.7
Accounts receivable, net	1.6


Operating lease right-of-use-assets	0.3
Identifiable intangible assets:
Noncompete agreement (useful life of 5 years)	0.2
Trade name (useful life of 6 months)	0.1

Licenses (useful lives of 10 years)	0.9
Internal-use software (useful life of 3 years)	0.1
Goodwill	28.7

Total assets acquired	32.6
Liabilities assumed:
Current operating lease liabilities	0.1
Accounts payable	0.1
Accrued payroll	0.2
Other current liabilities	0.2
Long-term operating lease liabilities	0.2

Total liabilities assumed	0.8
Noncontrolling interests	15.9
Net assets acquired	$	15.9

Information regarding the cash paid for the acquisition during each period presented is as follows (in millions):


	Three Months Ended March 31,
		2022		2021
Fair value of assets acquired		$	3.9	$	—
Goodwill		28.7		—
Fair value of liabilities assumed		(0.8)		—
Fair value of noncontrolling interest owned by joint venture partner		(15.9)		—

Cash paid for acquisition		$	15.9	$	—

Pro Forma Results of Operations

The following table summarizes the results of operations of the above mentioned acquisition from the date 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 acquisition been January 1, 2021 (in millions):


	Net Operating Revenues		Net Income Attributable to Encompass Health
Acquired entities only: Actual from acquisition date to March 31, 2022


Home Health and Hospice	$	1.8	$	0.2
Combined entity: Supplemental pro forma from 01/01/2022-03/31/2022	1,333.6		87.5
Combined entity: Supplemental pro forma from 01/01/2021-03/31/2021	1,232.7		107.5

The information presented above is for illustrative purposes only and is not necessarily indicative of results that would have been achieved if the acquisition had occurred as of the beginning of our 2021 reporting period. See Note 2, Business

Combinations, to the consolidated financial statements accompanying the 2021 Form 10‑K for information regarding acquisitions completed in 2021.