Spin Off of Home Health and Hospice Business

6 Months Ended

Jun. 30, 2023

Discontinued Operations and Disposal Groups [Abstract]

Spin Off of Home Health and Hospice Business

On July 1, 2022, we completed the previously announced separation of our home health and hospice business through the distribution (the “Spin Off”) of all of the outstanding shares of common stock, par value $0.01 per share, of Enhabit, Inc. (“Enhabit”) to the stockholders of record of Encompass Health as of the close of business on June 24, 2022 (the “Record Date”). The Spin Off was effective at 12:01 a.m., Eastern Time, on July 1, 2022. The Spin Off was structured as a pro rata distribution of one share of Enhabit common stock for every two shares of Encompass Health common stock held of record as of the Record Date. No fractional shares were distributed. A cash payment was made in lieu of any fractional shares. As a result of the Spin Off, Enhabit is now an independent public company and its common stock is listed under the symbol “EHAB” on the New York Stock Exchange.

In accordance with applicable accounting guidance, the historical results of Enhabit have been presented as discontinued operations and, as such, have been excluded from continuing operations for the three and six months ended June 30, 2022. Our presentation of discontinued operations excludes any allocation of general corporate and overhead costs as well as interest expense. Prior to July 1, 2022, we operated under two reporting segments. We now operate under a single reporting segment. In anticipation of the Spin Off, Enhabit transferred the “Encompass” trade name (net book value of $104.2 million) to us during the second quarter of 2022.

In connection with the Spin Off, on June 30, 2022, we entered into several agreements with Enhabit that govern the relationship of the parties following the Spin Off, including a Separation and Distribution Agreement, a Transition Services Agreement, a Tax Matters Agreement and an Employee Matters Agreement.

We will provide transition services to Enhabit predominately consisting of certain finance, information technology, human resources, employee benefits and other administrative services for a period of up to two years after the Spin Off. For the three and six months ended June 30, 2023, income related to these transition services of $0.9 million and $1.9 million, respectively, were reflected as reductions to General and administrative expenses in our condensed consolidated statements of comprehensive income.

The following table presents the results of operations of Enhabit as discontinued operations (in millions):


	Three Months Ended June 30, 2022		Six Months Ended June 30, 2022
Net operating revenue	$	268.0	$	542.3
Operating expenses:
Salaries and benefits	187.8		376.4
Other operating expenses	24.5		47.6
Occupancy costs	5.5		11.0
Supplies	5.4		11.7
General and administrative expenses	24.0		35.0
Depreciation and amortization	8.2		16.7
Total operating expenses	255.4		498.4
Interest expense and amortization of debt discounts and fees	—		0.1


Income from discontinued operations before income taxes	12.6		43.8
Provision for income tax expense	1.1		8.6
Income from discontinued operations, net of tax	11.5		35.2
Less: Net income attributable to noncontrolling interests included in discontinued operations	(0.7)		(1.3)
Net income attributable to Encompass Health included in discontinued operations	$	10.8	$	33.9

Transaction costs of $22.9 million and $32.5 million incurred during the three and six months ended June 30, 2022, respectively, are included in general and administrative expenses in the table above and in (Loss) income from discontinued operations, net of tax, in the condensed consolidated statements of comprehensive income. These charges primarily relate to third-party advisory, consulting, legal and professional services, that are associated with the Spin Off.

See Note 2, Spin Off of Home Health and Hospice Business, to the consolidated financial statements accompanying the 2022 Form 10‑K for additional information.