Spin Off of Home Health and Hospice Business

12 Months Ended

Dec. 31, 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 years ended December 31, 2022 and 2021. 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.

Under the terms of the arrangement, we have provided certain transition services to Enhabit predominately consisting of certain finance, information technology, human resources, employee benefits and other administrative services. Some of those services may be provided for a period of up to two years after the Spin Off. For the years ended December 31, 2023 and 2022, income related to these transition services was $2.9 million and $2.1 million, respectively. These amounts were reflected as reductions to General and administrative expenses in our consolidated statements of comprehensive income.

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


	For the Year Ended December 31,
	2022		2021
Net operating revenue	$	542.3	$	1,106.6
Operating expenses:
Salaries and benefits	376.4		759.2
Other operating expenses	47.5		89.7
Occupancy costs	11.0		21.2
Supplies	11.7		25.1
General and administrative expenses	59.3		27.9
Depreciation and amortization	16.7		36.9
Total operating expenses	522.6		960.0
Interest expense and amortization of debt discounts and fees	0.2		0.3
Other income	—		(4.8)
Equity in net income of nonconsolidated affiliates	—		(0.6)
Income from discontinued operations before income taxes	19.5		151.7
Provision for income tax expense	4.3		37.6
Income from discontinued operations, net of tax	15.2		114.1
Less: Net income attributable to noncontrolling interests included in discontinued operations	(1.3)		(1.8)
Net income attributable to Encompass Health included in discontinued operations	$	13.9	$	112.3

Transaction costs of $56.7 million and $22.9 million incurred during the years ended December 31, 2022 and 2021, respectively, are included in general and administrative expenses in the table above and in (Loss) income from discontinued operations, net of tax, in the consolidated statements of comprehensive income. These charges primarily related to third-party advisory, consulting, legal and professional services, that were associated with the Spin Off.

During 2023, we incurred legal costs of $15.8 million related to ongoing litigation against former executive officers of our home health and hospice business. These costs are included in (Loss) income from discontinued operations, net of tax, in the consolidated statements of comprehensive income.