XML 27 R11.htm IDEA: XBRL DOCUMENT v3.24.0.1
Business Combinations
 12 Months Ended
Dec. 31, 2023
Business Combination and Asset Acquisition [Abstract]  
Business Combinations Business Combinations:
2023 Acquisitions
During 2023, we completed the following acquisitions, none of which were individually material to our financial position, results of operations, or cash flows. Each acquisition was made to enhance our position and ability to provide inpatient rehabilitation services to patients in the applicable geographic areas.
•In March 2023, we acquired 50% of the operations of a 24-bed inpatient rehabilitation unit in Eau Claire, Wisconsin when Hospital Sisters Health System contributed those operations to our existing joint venture.
•In March 2023, we acquired 50% of the operations of a 48-bed inpatient rehabilitation unit in Knoxville, Tennessee when Covenant Health contributed those operations to our existing joint venture.
•In September 2023, we acquired 50% of the operations of a 29-bed inpatient rehabilitation unit in Columbus, Georgia when Piedmont Healthcare, Inc. contributed those operations to our existing joint venture.
We accounted for these transactions under the acquisition method of accounting and reported the results of operations of the acquired hospitals from the respective dates of acquisition. Assets acquired 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 discounted cash flow techniques for the noncompete intangible assets; an income approach utilizing the relief from royalty method for the trade name intangible assets; and an income approach utilizing the excess earnings method for the certificates of need intangible assets. The aforementioned income methods utilize management’s estimates of future operating results and cash flows discounted using a weighted-average cost of capital. The excess of the fair value of the consideration conveyed over the fair value of the assets acquired was recorded as goodwill. The goodwill reflects our expectations of our ability to gain access to and penetrate the acquired units’ historical patient base and the benefits of being able to leverage operational efficiencies with favorable growth opportunities based on positive demographic trends in these markets. The goodwill recorded as a result of these transactions that is deductible for federal income tax purposes is $7.4 million.
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). The primary areas of the preliminary valuation that are not yet finalized relate to the fair value of amounts for intangible assets and the final amount of residual goodwill. 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 fair value of the assets acquired at the acquisition dates were as follows (in millions):
Property and equipment, net$0.1 
Identifiable intangible assets: 
Noncompete agreements (useful lives of 3 years)
0.5 
Trade names (useful lives of 20 years)
1.8 
Certificates of need (useful lives of 20 years)
10.6 
Goodwill18.1 
Total assets acquired$31.1 
Information regarding the net cash paid for the acquisitions during 2023 is as follows (in millions):
Fair value of assets acquired
$13.0 
Goodwill18.1 
Fair value of noncontrolling interest owned by joint venture partner
(31.1)
Net cash paid for acquisitions$— 
Pro Forma Results of Operations
The following table summarizes the results of operations of the above mentioned acquisitions from the dates of acquisitions included in our consolidated results of operations and the unaudited pro forma results of operations of the combined entity had the dates of the acquisitions been January 1, 2022 (in millions):
Net Operating RevenuesNet Income Attributable to Encompass Health
Acquired entities only: Actual from acquisition date to December 31, 2023$— $— 
Combined entity: Supplemental pro forma from 01/01/2023-12/31/2023 (unaudited)4,812.8 353.9 
Combined entity: Supplemental pro forma from 01/01/2022-12/31/2022 (unaudited)4,379.4 274.5 
The information presented above is for illustrative purposes only and is not necessarily indicative of results that would have been achieved if the acquisitions had occurred as of the beginning of our 2022 reporting period.
2022 Acquisitions
During 2022, we completed the following acquisitions, none of which were individually material to our financial position, results of operations, or cash flows. Each acquisition was made to enhance our position and ability to provide inpatient rehabilitation services to patients in the applicable geographic areas.
•In August 2022, we acquired 60% of the operations of a 23-bed inpatient rehabilitation unit in Grand Forks, North Dakota when Altru Health System contributed those operations to our existing joint venture.
•In August 2022, we acquired 50% of the operations of a 22-bed inpatient rehabilitation unit in Moline, Illinois when Trinity Medical Center contributed those operations to our existing joint venture.
•In December 2022, we acquired 50% of the operations of a 54-bed inpatient rehabilitation unit in Naples, Florida when NCH Healthcare System contributed those operations to our joint venture.
We accounted for these transactions under the acquisition method of accounting and reported the results of operations of the acquired hospitals from the respective dates of acquisition. Assets acquired were recorded at their estimated fair values as of the acquisition date. Estimated fair values were based on an income approach using discounted cash flow techniques for the noncompete intangible assets. The aforementioned income method utilizes management’s estimates of future operating results and cash flows discounted using a weighted-average cost of capital. The excess of the fair value of the consideration conveyed over the fair value of the assets acquired was recorded as goodwill. The goodwill reflects our expectations of our ability to gain access to and penetrate the acquired hospitals’ historical patient base and the benefits of being able to leverage operational efficiencies with favorable growth opportunities based on positive demographic trends in these markets. None of the goodwill recorded as a result from these transactions is deductible for federal income tax purposes.
The fair value of the assets acquired at the acquisition dates were as follows (in millions):
Identifiable intangible assets: 
Noncompete agreements (useful lives of 2 to 3 years)
$0.9 
Goodwill26.2 
Total assets acquired$27.1 
Information regarding the net cash paid for the acquisitions during 2022 is as follows (in millions):
Fair value of assets acquired
$0.9 
Goodwill26.2 
Fair value of noncontrolling interest owned by joint venture partner
(27.1)
Net cash paid for acquisitions$— 
Pro Forma Results of Operations
The following table summarizes the results of operations of the above-mentioned acquisitions from the dates of acquisitions included in our consolidated results of operations and the unaudited pro forma results of operations of the combined entity had the dates of the acquisitions been January 1, 2021 (in millions):
Net Operating RevenuesNet Income Attributable to Encompass Health
Acquired entities only: Actual from acquisition date to December 31, 2022$— $— 
Combined entity: Supplemental pro forma from 01/01/2022-12/31/2022 (unaudited)4,369.0 273.7 
Combined entity: Supplemental pro forma from 01/01/2021-12/31/2021 (unaudited)4,039.8 415.3 
The information presented above is for illustrative purposes only and is not necessarily indicative of results that would have been achieved if the acquisitions had occurred as of the beginning of our 2021 period.
2021 Acquisitions
During 2021, we completed the following acquisitions, none of which were individually material to our financial position, results of operations, or cash flows. Each acquisition was made to enhance our position and ability to provide inpatient rehabilitation services to patients in the applicable geographic areas.
•In April 2021, we acquired 51% of the operations of a 14-bed inpatient rehabilitation unit in San Angelo, Texas when Shannon Medical contributed those operations to our existing joint venture entity.
•In June 2021, we acquired 75% of the operations of a 16-bed inpatient rehabilitation unit in McKees Rocks, Pennsylvania through our existing joint venture with Heritage Valley Health System, Inc. The acquisition was funded using cash on hand.
•In July 2021, we acquired 65% of the operations of a 22-bed inpatient rehabilitation unit in Odessa, Texas when ECHD Ventures contributed those operations to our existing joint venture entity.
We accounted for these transactions under the acquisition method of accounting and reported the results of operations of the acquired hospitals from its respective date of acquisition. Assets acquired 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 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. The excess of the fair value of the consideration conveyed over the fair value of the assets acquired was recorded as goodwill. The goodwill reflects our expectations of our ability to gain access to and penetrate the acquired hospital’s historical patient base and the benefits of being able to leverage operational efficiencies with favorable growth opportunities based on positive demographic trends in this market. None of the goodwill recorded as a result from these transactions is deductible for federal income tax purposes.
The fair value of the assets acquired at the acquisition dates were as follows (in millions):
Identifiable intangible assets: 
Noncompete agreements (useful lives of 3 to 5 years)
$1.0 
Trade name (useful life of 20 years)
0.3 
Goodwill8.8 
Other long-term assets0.1 
Total assets acquired$10.2 
Information regarding the net cash paid for the acquisitions during 2021 is as follows (in millions):
Fair value of assets acquired
$1.4 
Goodwill8.8 
Fair value of noncontrolling interest owned by joint venture partner
(9.1)
Net cash paid for acquisitions
$1.1 
Pro Forma Results of Operations
The following table summarizes the results of operations of the above mentioned-acquisitions from their respective dates of acquisition included in our consolidated results of operations and the unaudited pro forma results of operations of the combined entity had the date of the acquisitions been January 1, 2021 (in millions):
Net Operating RevenuesNet Income Attributable to Encompass Health
Acquired entities only: Actual from acquisition date to December 31, 2021$— $— 
Combined entity: Supplemental pro forma from 01/01/2021-12/31/2021 (unaudited)4,021.1 412.5 
The information presented above is for illustrative purposes only and is not necessarily indicative of results that would have been achieved if the acquisitions had occurred as of the beginning of our 2021 period.