
	Segment Reporting

Our internal financial reporting and management structure is focused on the major types of services provided by HealthSouth. We manage our operations using two operating segments which are also our reportable segments: (1) inpatient rehabilitation and (2) home health and hospice. These reportable operating segments are consistent with information used by our chief executive officer, who is our chief operating decision maker, to assess performance and allocate resources. The following is a brief description of our reportable segments:

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Inpatient Rehabilitation - Our national network of inpatient rehabilitation hospitals stretches across 31 states and Puerto Rico, with a concentration of hospitals in the eastern half of the United States and Texas. As of September 30, 2017, we operate 126 inpatient rehabilitation hospitals, including one hospital that operates as a joint venture which we account for using the equity method of accounting. In addition, we manage four inpatient rehabilitation units through management contracts. We provide specialized rehabilitative treatment on both an inpatient and outpatient basis. Our inpatient rehabilitation hospitals provide a higher level of rehabilitative care to patients who are recovering from conditions such as stroke and other neurological disorders, cardiac and pulmonary conditions, brain and spinal cord injuries, complex orthopedic conditions, and amputations.

•

Home Health and Hospice - As of September 30, 2017, we provide home health and hospice services in 235 locations across 28 states. Two of these home health locations operate as joint ventures which we account for using the equity method of accounting. Our home health services include a comprehensive range of Medicare-certified home nursing services to adult patients in need of care. These services include, among others, skilled nursing, physical, occupational, and speech therapy, medical social work, and home health aide services. Our hospice services primarily include in-home services to terminally ill patients and their families to address patients’ physical needs, including pain control and symptom management, and to provide emotional and spiritual support.

The accounting policies of our reportable segments are the same as those described in Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements accompanying the 2016 Form 10-K. All revenues for our services are generated through external customers. See Note 1, Basis of Presentation, “Net Operating Revenues,” for the payor composition of our revenues. No corporate overhead is allocated to either of our reportable segments. Our chief operating decision maker evaluates the performance of our segments and allocates resources to them based on adjusted earnings before interest, taxes, depreciation, and amortization (“Segment Adjusted EBITDA”).

Selected financial information for our reportable segments is as follows (in millions):



	Inpatient Rehabilitation												Home Health and Hospice
	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016			2017			2016			2017			2016
Net operating revenues	$	794.8		$	751.7		$	2,377.3		$	2,253.5		$	200.8		$	175.1		$	574.4		$	503.8
Less: Provision for doubtful accounts	(11.3		)	(13.7		)	(38.4		)	(43.8		)	(1.3		)	(1.1		)	(4.3		)	(2.9		)
Net operating revenues less provision for doubtful accounts	783.5			738.0			2,338.9			2,209.7			199.5			174.0			570.1			500.9
Operating expenses:
Inpatient rehabilitation:
Salaries and benefits	403.2			371.2			1,195.7			1,107.2			—			—			—			—
Other operating expenses	117.4			110.1			342.1			321.7			—			—			—			—
Supplies	33.1			31.9			100.6			96.1			—			—			—			—
Occupancy costs	15.7			15.0			46.3			46.0			—			—			—			—
Home health and hospice:
Cost of services sold (excluding depreciation and amortization)	—			—			—			—			93.5			86.8			271.2			246.8
Support and overhead costs	—			—			—			—			68.9			59.5			203.4			174.5
	569.4			528.2			1,684.7			1,571.0			162.4			146.3			474.6			421.3
Other income	(1.0		)	(0.8		)	(2.9		)	(2.1		)	—			—			—			—
Equity in net income of nonconsolidated affiliates	(1.9		)	(2.3		)	(5.6		)	(6.7		)	(0.2		)	(0.2		)	(0.6		)	(0.6		)
Noncontrolling interests	16.7			14.3			48.6			47.9			2.5			2.1			4.6			5.8
Segment Adjusted EBITDA	$	200.3		$	198.6		$	614.1		$	599.6		$	34.8		$	25.8		$	91.5		$	74.4

Capital expenditures	$	59.1		$	42.7		$	164.7		$	128.9		$	1.7		$	2.2		$	5.6		$	4.6



	Inpatient Rehabilitation		Home Health and Hospice		HealthSouth Consolidated
As of September 30, 2017
Total assets	$	3,812.4	$	1,141.4	$	4,883.4
Investments in and advances to nonconsolidated affiliates	10.0		2.6		12.6
As of December 31, 2016
Total assets	$	3,629.6	$	1,123.7	$	4,681.9
Investments in and advances to nonconsolidated affiliates	10.6		2.4		13.0

Segment reconciliations (in millions):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Total segment Adjusted EBITDA	$	235.1		$	224.4		$	705.6		$	674.0
General and administrative expenses	(39.7		)	(30.3		)	(128.6		)	(96.6		)
Depreciation and amortization	(46.2		)	(43.5		)	(137.2		)	(128.8		)
Loss on disposal of assets	(3.0		)	(1.6		)	(3.3		)	(2.0		)
Professional fees—accounting, tax, and legal	—			—			—			(1.9		)
Loss on early extinguishment of debt	(0.3		)	(2.6		)	(10.7		)	(7.4		)
Interest expense and amortization of debt discounts and fees	(36.8		)	(42.5		)	(118.5		)	(130.5		)
Net income attributable to noncontrolling interests	19.2			16.4			53.2			53.7
Income from continuing operations before income tax expense	$	128.3		$	120.3		$	360.5		$	360.5



	September 30, 2017			December 31, 2016
Total assets for reportable segments	$	4,953.8		$	4,753.3
Reclassification of deferred income tax liabilities to net deferred income tax assets	(70.4		)	(71.4		)
Total consolidated assets	$	4,883.4		$	4,681.9

Additional detail regarding the revenues of our operating segments by service line follows (in millions):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Inpatient rehabilitation:
Inpatient	$	768.6	$	724.1	$	2,297.7	$	2,164.6
Outpatient and other	26.2		27.6		79.6		88.9
Total inpatient rehabilitation	794.8		751.7		2,377.3		2,253.5
Home health and hospice:
Home health	181.2		162.0		519.4		470.0
Hospice	19.6		13.1		55.0		33.8
Total home health and hospice	200.8		175.1		574.4		503.8
Total net operating revenues	$	995.6	$	926.8	$	2,951.7	$	2,757.3