Business Combinations

6 Months Ended

Jun. 30, 2023

Business Combination and Asset Acquisition [Abstract]

During the six months ended June 30, 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.

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 certificate of need 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. 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. The goodwill recorded as a result of these transactions that is deductible for federal income tax purposes is $2.1 million.

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
Certificate of need (useful life of 20 years)	7.0

Goodwill	7.5

Total assets acquired	$	16.9

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Fair value of assets acquired	$	—	$	—	$	9.4	$	—
Goodwill	—		—		7.5		—

Fair value of noncontrolling interest owned by joint venture partner	—		—		(16.9)		—

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 Revenues		Net Income Attributable to Encompass Health
Acquired entities only: Actual from acquisition date to June 30, 2023	$	—	$	—
Combined entity: Supplemental pro forma from 04/01/23-6/30/23	1,187.1		91.4
Combined entity: Supplemental pro forma from 04/01/22-6/30/22	1,067.1		48.9
Combined entity: Supplemental pro forma from 01/01/23-6/30/23	2,350.8		179.3
Combined entity: Supplemental pro forma from 01/01/22-6/30/22	2,131.0		136.7

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. See Note 3, Business Combinations, to the consolidated financial statements accompanying the 2022 Form 10‑K for information regarding acquisitions completed in 2022.