Document
false0000785161 0000785161 2020-02-06 2020-02-06


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): February 6, 2020
Encompass Health Corporation
(Exact name of Registrant as specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
001-10315
63-0860407
(Commission File Number)
(IRS Employer Identification No.)
 
 
9001 Liberty Parkway, Birmingham, Alabama 35242
(Address of Principal Executive Offices, Including Zip Code)
(205) 967-7116
(Registrant’s Telephone Number, Including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐
Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
☐
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
☐
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
☐
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.     Emerging growth company   ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
EHC
New York Stock Exchange




The information contained herein is being furnished pursuant to Item 2.02 of Form 8‑K, “Results of Operations and Financial Condition,” and Item 7.01 of Form 8-K, “Regulation FD Disclosure.” This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, (the “Securities Act”) or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
ITEM 2.02. Results of Operations and Financial Condition.
On February 6, 2020, Encompass Health Corporation (“Encompass Health” or the “Company”) issued a press release reporting the financial results of the Company for the three months and year ended December 31, 2019. A copy of the press release is attached to this report as Exhibit 99.1 and incorporated herein by reference.
The Company uses “same-store” comparisons to explain the changes in certain performance metrics and line items within its financial statements. Same-store comparisons are calculated based on hospitals and home health and hospice locations open throughout both the full current and prior periods presented. These comparisons include the financial results of market consolidation transactions in existing markets, as it is difficult to determine, with precision, the incremental impact of these transactions on the Company's results of operations.
ITEM 7.01. Regulation FD Disclosure.
See Item 2.02, “Results of Operations and Financial Condition,” above.
In addition, a copy of the supplemental information which will be discussed during the Company’s earnings call at 9:00 a.m. Eastern Time on Friday, February 7, 2020 is attached to this report as Exhibit 99.2 and incorporated herein by reference.
Note Regarding Presentation of Non-GAAP Financial Measures
The financial data contained in the press release and supplemental information include non-GAAP financial measures, including the Company’s adjusted earnings per share, leverage ratio, Adjusted EBITDA, and adjusted free cash flow.
The Company is providing adjusted earnings per share from continuing operations attributable to Encompass Health (“adjusted earnings per share”). The Company believes the presentation of adjusted earnings per share provides useful additional information to investors because it provides better comparability of ongoing operating performance to prior periods given that it excludes the impact of government, class action, and related settlements; professional fees—accounting, tax, and legal; mark-to-market adjustments for stock appreciation rights; gains or losses related to hedging and equity instruments; loss on early extinguishment of debt; adjustments to its income tax provision (such as valuation allowance adjustments and settlements of income tax claims); items related to corporate and facility restructurings; and certain other items the Company believes to be non-indicative of its ongoing operating performance. It is reasonable to expect that one or more of these excluded items will occur in future periods, but the amounts recognized can vary significantly from period to period and may not directly relate to the Company’s ongoing operating performance. Accordingly, they can complicate comparisons of the Company’s results of operations across periods and comparisons of the Company’s results to those of other healthcare companies. Adjusted earnings per share should not be considered as a measure of financial performance under generally accepted accounting principles in the United States (“GAAP”) as the items excluded from it are significant components in understanding and assessing financial performance. Because adjusted earnings per share is not a measurement determined in accordance with GAAP and is thus susceptible to varying calculations, it may not be comparable as presented to other similarly titled measures of other companies. The Company reconciles adjusted earnings per share to earnings per share in the press release attached as Exhibit 99.1 and the supplemental information attached as Exhibit 99.2.
The leverage ratio referenced therein is defined as the ratio of consolidated total debt to Adjusted EBITDA for the trailing four quarters. The Company believes its leverage ratio and Adjusted EBITDA are measures of its ability to service its debt and its ability to make capital expenditures. Additionally, the leverage ratio is a standard measurement used by investors to gauge the creditworthiness of an institution. The Company’s credit agreement also includes a maximum leverage ratio financial covenant which allows the Company to deduct up to $300 million of cash on hand from consolidated total debt. The Company reconciles Adjusted EBITDA to net income and to net cash provided by operating activities in the press release attached as Exhibit 99.1 and the supplemental information attached as Exhibit 99.2. Adjusted EBITDA for the Company’s reportable segments is reconciled to net income from continuing operations before income tax expense in the press release attached as Exhibit 99.1 and the supplemental information attached as Exhibit 99.2.




The Company uses Adjusted EBITDA on a consolidated basis as a liquidity measure. The Company believes this financial measure on a consolidated basis is important in analyzing its liquidity because it is the key component of certain material covenants contained within the Company’s credit agreement, which is discussed in more detail in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Liquidity and Capital Resources,” and Note 10, Long-term Debt, to the consolidated financial statements included in its Annual Report on Form 10‑K for the year ended December 31, 2019 (the “2019 Form 10‑K”), when filed. These covenants are material terms of the credit agreement. Noncompliance with these financial covenants under the credit agreement—its interest coverage ratio and its leverage ratio—could result in the Company’s lenders requiring the Company to immediately repay all amounts borrowed. If the Company anticipated a potential covenant violation, it would seek relief from its lenders, which would have some cost to the Company, and such relief might be on terms less favorable to those in the Company’s existing credit agreement. In addition, if the Company cannot satisfy these financial covenants, it would be prohibited under the credit agreement from engaging in certain activities, such as incurring additional indebtedness, paying common stock dividends, making certain payments, and acquiring and disposing of assets. Consequently, Adjusted EBITDA is critical to the Company’s assessment of its liquidity.
In general terms, the credit agreement definition of Adjusted EBITDA, therein referred to as “Adjusted Consolidated EBITDA,” allows the Company to add back to consolidated net income interest expense, income taxes, and depreciation and amortization and then add back to consolidated net income (1) all unusual or nonrecurring items reducing consolidated net income (of which only up to $10 million in a year may be cash expenditures), (2) any losses from discontinued operations, (3) non-ordinary course fees, costs and expenses incurred with respect to any litigation or settlement, (4) share-based compensation expense, (5) costs and expenses associated with changes in the fair value of marketable securities, (6) costs and expenses associated with the issuance or prepayment debt and acquisitions, and (7) any restructuring charges not in excess of 20% of Adjusted Consolidated EBITDA. The Company also subtracts from consolidated net income all unusual or nonrecurring items to the extent they increase consolidated net income.
The calculation of Adjusted EBITDA under the credit agreement does not require us to deduct net income attributable to noncontrolling interests or gains on fair value adjustments of hedging and equity instruments, disposal of assets and development activities. It also does not allow us to add back losses on fair value adjustments of hedging instruments or unusual or nonrecurring cash expenditures in excess of $10 million. These items and amounts, in addition to the items falling within the credit agreement’s “unusual or nonrecurring” classification, may occur in future periods, but can vary significantly from period to period and may not directly relate to, or be indicative of, the Company’s ongoing liquidity or operating performance. Accordingly, the Adjusted EBITDA calculation presented here includes adjustments for them.
Adjusted EBITDA is not a measure of financial performance under GAAP, and the items excluded from Adjusted EBITDA are significant components in understanding and assessing financial performance. Therefore, Adjusted EBITDA should not be considered a substitute for net income or cash flows from operating, investing, or financing activities. Because Adjusted EBITDA is not a measurement determined in accordance with GAAP and is thus susceptible to varying calculations, Adjusted EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. Revenues and expenses are measured in accordance with the policies and procedures described in Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements accompanying the 2019 Form 10-K, when filed.
The Company also uses adjusted free cash flow as an analytical indicator to assess its performance. Management believes the presentation of adjusted free cash flow provides investors an efficient means by which they can evaluate the Company’s capacity to reduce debt, pursue development activities, and return capital to its common stockholders. The calculation of adjusted free cash flow and a reconciliation of net cash provided by operating activities to adjusted free cash flow are included in the press release attached as Exhibit 99.1 and the supplemental information attached as Exhibit 99.2. This measure is not a defined measure of financial performance under GAAP and should not be considered as an alternative to net cash provided by operating activities. The Company’s definition of adjusted free cash flow is limited and does not represent residual cash flows available for discretionary spending. Because this measure is not determined in accordance with GAAP and is susceptible to varying calculations, it may not be comparable to other similarly titled measures presented by other companies. See the consolidated statements of cash flows included in the 2019 Form 10‑K, when filed, and in the press release attached as Exhibit 99.1 for the GAAP measures of cash flows from operating, investing, and financing activities.




Forward-Looking Statements
The information contained in the press release and supplemental information includes certain estimates, projections, and other forward-looking statements that involve known and unknown risks and relate to, among other things, future events, the Company’s business strategy, financial plans, dividend strategies or payments, effective income tax rates, plans to repurchase its debt or equity securities, future financial performance, projected business results or model, ability to return value to its shareholders, projected capital expenditures, leverage ratio, acquisition opportunities, and the impact of future legislation or regulation. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “targets,” “potential,” or “continue” or the negative of these terms or other comparable terminology. These estimates, projections, and other forward-looking statements are based on assumptions the Company believes, as of the date hereof, are reasonable. Inevitably, there will be differences between such estimates and actual results, and those differences may be material.
There can be no assurance that any estimates, projections, or forward-looking statements will be realized.
All such estimates, projections, and forward-looking statements speak only as of the date hereof. The Company undertakes no duty to publicly update or revise that information.
You are cautioned not to place undue reliance on the estimates, projections, and other forward-looking statements in this report, the press release, and supplemental information as they are based on current expectations and general assumptions and are subject to various risks, uncertainties, and other factors, including those set forth in the attached press release and in the 2019 Form 10‑K, when filed, and in other documents the Company previously filed with the SEC, many of which are beyond the Company’s control. These factors may cause actual results to differ materially from the views, beliefs, and estimates expressed herein.
ITEM 9.01. Financial Statements and Exhibits.
(d)    Exhibits.
Exhibit Number
 
Description
 
 
104
 
Cover Page Interactive Data File - the cover page iXBRL tags are embedded within the Inline XBRL document





SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.

ENCOMPASS HEALTH CORPORATION
By:
/S/   DOUGLAS E. COLTHARP
 
Name:
Douglas E. Coltharp
 
Title:
Executive Vice President and Chief Financial Officer
Dated: February 6, 2020



Exhibit 99.1

encompasshealthnewlogoa15.jpg
Media Contact
February 6, 2020
Casey Lassiter, 205 447-6410
 
 
 
 
Investor Relations Contact
 
Crissy Carlisle, 205 970-5860
 
 
Encompass Health reports results for fourth quarter 2019
and reiterates full-year 2020 guidance
BIRMINGHAM, Ala. - Encompass Health Corporation (NYSE: EHC), a national leader in integrated healthcare, offering facility-based and home-based patient care through its network of inpatient rehabilitation hospitals, home health agencies and hospice agencies, today reported its results of operations for the fourth quarter ended December 31, 2019.
“We had another strong year with solid financial results and significant progress on all of our strategic initiatives,” said President and Chief Executive Office of Encompass Health Mark Tarr. “In 2020, we will continue to build on our momentum from 2019 with a focus on expanding our footprint across all business lines, increasing clinical collaboration, building stroke market share and developing and implementing innovative post-acute solutions.”
Consolidated results
 
 
 
 
 
Growth
 
 
Q4 2019
 
Q4 2018
 
Dollars
 
Percent
 
 
(In Millions, Except per Share Data)
 
Net operating revenues
$
1,184.4

 
$
1,096.0

 
$
88.4

 
8.1
 %
 
Income from continuing operations attributable to Encompass Health per diluted share
0.68

 
0.26


0.42


161.5
 %

Adjusted earnings per share
0.85

 
0.80

 
0.05

 
6.3
 %
 
Cash flows provided by operating activities
215.6

 
178.4

 
37.2

 
20.9
 %
 
Adjusted EBITDA
238.2

 
221.8

 
16.4

 
7.4
 %
 
Adjusted free cash flow
136.9

 
113.3

 
23.6

 
20.8
 %
 
 
Year Ended December 31,
 
 
 
 
 
 
2019
 
2018
 
 
 
 
 
Cash flows provided by operating activities
635.3

 
762.4

 
(127.1
)
 
(16.7
)%
 
Adjusted free cash flow
516.5

 
538.1

 
(21.6
)
 
(4.0
)%
 
Revenue growth was driven by volume and pricing growth in the inpatient rehabilitation segment and volume growth in the home health and hospice segment.

 
 
1
Exhibit 99.1

The increase in income from continuing operations attributable to Encompass Health per diluted share in 2019 resulted primarily from increased revenue and a lower effective tax rate, as well as the accrual for the settlement with the United States Department of Justice (“DOJ Settlement”) in the fourth quarter of 2018.
The increase in adjusted earnings per share resulted primarily from increased revenue and a lower effective tax rate.
The decrease in full-year cash flows provided by operating activities and adjusted free cash flow resulted primarily from an increase in working capital.
See attached supplemental information for calculations of non-GAAP measures and reconciliations to their most comparable GAAP measure.
Inpatient rehabilitation segment results
 
 
 
 
 
Growth
 
Q4 2019
 
Q4 2018
 
Dollars
 
Percent
Net operating revenues:
(In Millions)
Inpatient
$
873.5

 
$
822.8

 
$
50.7

 
6.2
%
Outpatient and other
23.2

 
22.9

 
0.3

 
1.3
%
Total segment revenue
$
896.7

 
$
845.7

 
$
51.0

 
6.0
%
 
 
 
 
 
 
 
 
 
(Actual Amounts)
Discharges
47,885

 
45,498

 
2,387

 
5.2
%
Same-store discharge growth
 
 
 
 
 
 
3.2
%
Net patient revenue per discharge
$
18,242

 
$
18,084

 
$
158

 
0.9
%
Revenue reserves related to bad debt as a percent of revenue
1.7
%
 
1.5
%
 
 
 
20 basis points

 
 
 
 
 
 
 
 
 
(In Millions)
Adjusted EBITDA
$
225.1

 
$
211.7

 
$
13.4

 
6.3
%
•
Revenue - Revenue growth resulted from volume growth and an increase in net patient revenue per discharge. Discharge growth from new stores resulted from the Company's joint ventures in Winston-Salem, North Carolina (October 2018), Lubbock, Texas (May 2019), and Boise, Idaho (July 2019), as well as a wholly owned hospital in Katy, Texas (September 2019). New-store growth also resulted from a joint venture hospital in Yuma, Arizona changing from the equity method of accounting to a consolidated entity effective July 1, 2019. Growth in net patient revenue per discharge was impacted by the implementation of the Centers for Medicare & Medicaid Services (“CMS”) Section GG for reimbursement purposes on October 1, 2019. Growth in net patient revenue per discharge in Q4 2019 benefited from prior period cost report adjustments and the timing of discharges between fiscal quarters.
Other revenue in the fourth quarter of 2019 included $2.5 million of business interruption insurance recoveries related to Hurricane Michael.
Revenue reserves related to bad debt as a percent of revenue increased 20 basis points in the fourth quarter of 2019 primarily due to a new, industry-wide post-payment review initiated by a supplemental review contractor.
•
Adjusted EBITDA - The increase in Adjusted EBITDA for the inpatient rehabilitation segment resulted primarily from revenue growth. Salaries and benefits increased as a percent of revenue primarily due to a 3.5% increase in salaries and wages per full-time equivalent, inclusive of $1.5 million of training costs associated with the transition to CMS Section GG.

 
 
2


Home health and hospice segment results
 
 
 
 
 
Growth
 
Q4 2019
 
Q4 2018
 
Dollars
 
Percent
Net operating revenues:
(In Millions)
Home health
$
236.9

 
$
215.3

 
$
21.6

 
10.0
 %
Hospice
50.8

 
35.0

 
15.8

 
45.1
 %
Total segment revenue
$
287.7

 
$
250.3

 
$
37.4

 
14.9
 %
 
 
 
 
 
 
 
 
Home Health Metrics
(Actual Amounts)
Admissions
41,781

 
35,151

 
6,630

 
18.9
 %
Same-store admissions growth
 
 
 
 
 
 
6.6
 %
Episodes
73,055

 
64,037

 
9,018

 
14.1
 %
Same-store episode growth
 
 
 
 
 
 
2.0
 %
Revenue per episode
$
2,901

 
$
2,972

 
$
(71
)
 
(2.4
)%
 
 
 
 
 
 
 
 
 
(In Millions)
Adjusted EBITDA
$
49.6

 
$
44.1

 
$
5.5

 
12.5
 %
•
Revenue - Revenue growth resulted from volume growth, including the impact of the acquisition of Alacare on July 1, 2019. Revenue per episode decreased due primarily to the patient mix of the former Alacare locations and the timing of episodes between fiscal quarters.
Hospice revenue increased primarily due to the acquisition of Alacare and same-store admissions growth of 10.1%.
•
Adjusted EBITDA - Growth in Adjusted EBITDA primarily resulted from revenue growth offset by higher support and overhead costs.
Corporate general and administrative expenses
 
Q4 2019
 
% of Consolidated Revenue
 
Q4 2018
 
% of Consolidated Revenue
 
(In Millions)
General and administrative expenses, excluding stock-based compensation
$
36.5

 
3.1%
 
$
34.0

 
3.1%
Full-year consolidated results
 
Full-Year
 
Growth
 
2019
 
2018
 
Dollars
 
Percent
 
(in millions, except per share data)
Net operating revenues
$
4,605.0

 
$
4,277.3

 
$
327.7

 
7.7
%
Income from continuing operations attributable to Encompass Health per diluted share
3.62

 
2.92

 
0.70

 
24.0
%
Adjusted earnings per share
3.91

 
3.63

 
0.28

 
7.7
%
Adjusted EBITDA
964.9

 
901.0

 
63.9

 
7.1
%
See the attached supplemental information for additional details regarding these calculations.

 
 
3


2020 guidance
In a current report on Form 8-K dated January 13, 2020, the Company provided its preliminary guidance ranges for 2020. The Company is confirming the following guidance ranges.
Full-year 2020 guidance ranges
(in millions, except per share data)
Net operating revenues
$4,850 to $4,950
Adjusted EBITDA
$935 to $965
Adjusted earnings per share from continuing operations attributable to Encompass Health
$3.50 to $3.72
For additional considerations regarding the Company's 2020 guidance ranges, see the supplemental information posted on the Company's website at http://investor.encompasshealth.com. See also the “Other Information” section below for an explanation of why the Company does not provide guidance for comparable GAAP measures for Adjusted EBITDA and adjusted earnings per share.
Earnings conference call and webcast
The Company will host an investor conference call at 9:00 a.m. Eastern Time on Friday, February 7, 2020 to discuss its results for the fourth quarter of 2019. For reference during the call, the Company will post certain supplemental information at http://investor.encompasshealth.com.
The conference call may be accessed by dialing 877 587-6761 and giving the pass code 2849248. International callers should dial 706 679-1635 and give the same pass code. Please call approximately ten minutes before the start of the call to ensure you are connected. The conference call will also be webcast live and will be available for on-line replay at http://investor.encompasshealth.com by clicking on an available link.
About Encompass Health
As a national leader in integrated healthcare services, Encompass Health (NYSE: EHC) offers both facility-based and home-based patient care through its network of inpatient rehabilitation hospitals, home health agencies and hospice agencies. With a national footprint that includes 133 hospitals and 245 home health locations and 83 hospice locations in 37 states and Puerto Rico, the Company is committed to delivering high-quality, cost-effective, integrated care across the healthcare continuum. Driven by a set of shared values, Encompass Health is the result of the union between HealthSouth Corporation and Encompass Home Health & Hospice, and is ranked as one of Fortune's 100 Best Companies to Work For. For more information, visit encompasshealth.com, or follow us on Twitter and Facebook.
Other information
The information in this press release is summarized and should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”), when filed, as well as the Company's Current Report on Form 8-K filed on February 6, 2020 (the “Q4 Earnings Form 8-K”), to which this press release is attached as Exhibit 99.1. In addition, the Company will post supplemental information today on its website at http://investor.encompasshealth.com for reference during its February 7, 2020 earnings call.
The financial data contained in the press release and supplemental information include non-GAAP financial measures, including the Company’s adjusted earnings per share, leverage ratio, Adjusted EBITDA, and adjusted free cash flow. Reconciliations to their most comparable GAAP measure, except with regard to non-GAAP guidance, are included below or in the Q4 Earnings Form 8-K. Readers are encouraged to review the “Note Regarding Presentation of Non-GAAP Financial Measures” included in the Q4 Earnings Form 8-K which provides further explanation and disclosure regarding the Company’s use of these non-GAAP financial measures.

 
 
4


Excluding net operating revenues, the Company does not provide guidance on a GAAP basis because it is unable to predict, with reasonable certainty, the future impact of items that are deemed to be outside the control of the Company or otherwise non-indicative of its ongoing operating performance. Such items include government, class action, and related settlements; professional fees—accounting, tax, and legal; mark-to-market adjustments for stock appreciation rights; gains or losses related to hedging instruments; loss on early extinguishment of debt; adjustments to its income tax provision (such as valuation allowance adjustments and settlements of income tax claims); items related to corporate and facility restructurings; and certain other items the Company believes to be non-indicative of its ongoing operations. These items cannot be reasonably predicted and will depend on several factors, including industry and market conditions, and could be material to the Company's results computed in accordance with GAAP.
However, the following reasonably estimable GAAP measures for 2020 would be included in a reconciliation for Adjusted EBITDA if the other reconciling GAAP measures could be reasonably predicted:
•
Interest expense and amortization of debt discounts and fees - estimate of $170 million to $180 million
•
Amortization of debt-related items - approximately $6 million
The Q4 Earnings Form 8-K and, when filed, the 2019 Form 10-K can be found on the Company's website at
http://investor.encompasshealth.com and the SEC's website at www.sec.gov.

 
 
5
Encompass Health Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)

 
For the Three Months Ended December 31,
 
For the Year Ended December 31,
 
2019
 
2018
 
2019
 
2018
 
(In Millions)
Net operating revenues
$
1,184.4

 
$
1,096.0

 
$
4,605.0

 
$
4,277.3

Operating expenses:
 

 
 

 
 

 
 

Salaries and benefits
668.5

 
613.3

 
2,573.0

 
2,354.0

Other operating expenses
167.1

 
151.6

 
623.6

 
585.1

Occupancy costs
20.6

 
20.3

 
82.3

 
78.0

Supplies
43.2

 
40.9

 
167.9

 
158.7

General and administrative expenses
64.0

 
54.3

 
247.0

 
220.2

Depreciation and amortization
58.4

 
52.9

 
218.7

 
199.7

Government, class action, and related settlements
—

 
52.0

 
—

 
52.0

Total operating expenses
1,021.8

 
985.3

 
3,912.5

 
3,647.7

Loss on early extinguishment of debt
5.4

 
—

 
7.7

 
—

Interest expense and amortization of debt discounts and fees
44.5

 
36.7

 
159.7

 
147.3

Other income
(3.6
)
 
0.7

 
(30.5
)
 
(2.2
)
Equity in net income of nonconsolidated affiliates
(1.2
)
 
(2.3
)
 
(6.7
)
 
(8.7
)
Income from continuing operations before income tax expense
117.5

 
75.6

 
562.3

 
493.2

Provision for income tax expense
27.3

 
29.4

 
115.9

 
118.9

Income from continuing operations
90.2

 
46.2

 
446.4

 
374.3

Income (loss) from discontinued operations, net of tax
—

 
1.5

 
(0.6
)
 
1.1

Net income
90.2

 
47.7

 
445.8

 
375.4

Less: Net income attributable to noncontrolling interests
(22.6
)
 
(19.6
)
 
(87.1
)
 
(83.1
)
Net income attributable to Encompass Health
$
67.6

 
$
28.1

 
$
358.7

 
$
292.3

 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 

 
 

 
 
 
 
Basic
97.8

 
98.0

 
98.0

 
97.9

Diluted
99.5

 
100.0

 
99.4

 
99.8

Earnings per common share:
 
 
 
 
 
 
 
Basic earnings per share attributable to Encompass Health common shareholders:
 
 
 

 
 

 
 

Continuing operations
$
0.69

 
$
0.27

 
$
3.66

 
$
2.97

Discontinued operations
—

 
0.02

 
(0.01
)
 
0.01

Net income
$
0.69

 
$
0.29

 
$
3.65

 
$
2.98

Diluted earnings per share attributable to Encompass Health common shareholders:
 
 
 
 
 
 
 
Continuing operations
$
0.68

 
$
0.26

 
$
3.62

 
$
2.92

Discontinued operations
—

 
0.02

 
(0.01
)
 
0.01

Net income
$
0.68

 
$
0.28

 
$
3.61

 
$
2.93

 
 
 
 
 
 
 
 
Amounts attributable to Encompass Health:
 
 
 

 
 
 
 
Income from continuing operations
$
67.6

 
$
26.6

 
$
359.3

 
$
291.2

Income (loss) from discontinued operations, net of tax
—

 
1.5

 
(0.6
)
 
1.1

Net income attributable to Encompass Health
$
67.6

 
$
28.1

 
$
358.7

 
$
292.3


 
 
6
Encompass Health Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)

 
December 31,
2019
 
December 31,
2018
 
(In Millions)
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
94.8

 
$
69.2

Restricted cash
57.4

 
59.0

Accounts receivable
506.1

 
467.7

Prepaid expenses and other current assets
97.5

 
66.2

Total current assets
755.8

 
662.1

Property and equipment, net
1,959.3

 
1,634.8

Operating lease right-of-use assets
276.5

 
—

Goodwill
2,305.2

 
2,100.8

Intangible assets, net
476.3

 
443.4

Deferred income tax assets
2.9

 
42.9

Other long-term assets
304.7

 
291.0

Total assets
$
6,080.7

 
$
5,175.0

Liabilities and Shareholders’ Equity
 
 
 
Current liabilities:
 

 
 

Current portion of long-term debt
$
39.3

 
$
35.8

Current operating lease liabilities
40.4

 
—

Accounts payable
94.6

 
90.0

Accrued payroll
210.5

 
188.4

Accrued interest payable
32.4

 
24.4

Other current liabilities
303.8

 
333.9

Total current liabilities
721.0

 
672.5

Long-term debt, net of current portion
3,023.3

 
2,478.6

Long-term operating lease liabilities
243.8

 
—

Self-insured risks
117.2

 
119.6

Other long-term liabilities
42.7

 
85.6

 
4,148.0

 
3,356.3

Commitments and contingencies
 
 
 
Redeemable noncontrolling interests
239.6

 
261.7

Shareholders’ equity:
 

 
 

Encompass Health shareholders’ equity
1,352.2

 
1,276.7

Noncontrolling interests
340.9

 
280.3

Total shareholders’ equity
1,693.1

 
1,557.0

Total liabilities and shareholders’ equity
$
6,080.7

 
$
5,175.0


 
 
7
Encompass Health Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)

 
For the Year Ended December 31,
 
2019
 
2018
 
(In Millions)
Cash flows from operating activities:
 
 
 
Net income
$
445.8

 
$
375.4

Loss (income) from discontinued operations, net of tax
0.6

 
(1.1
)
Adjustments to reconcile net income to net cash provided by operating activities—
 

 
 

Provision for government, class action, and related settlements
—

 
52.0

Depreciation and amortization
218.7

 
199.7

Amortization of debt-related items
4.5

 
4.0

Loss on early extinguishment of debt
7.7

 
—

Equity in net income of nonconsolidated affiliates
(6.7
)
 
(8.7
)
Distributions from nonconsolidated affiliates
6.6

 
8.3

Stock-based compensation
114.4

 
85.9

Deferred tax expense (benefit)
40.0

 
(9.1
)
Gain on consolidation of Yuma Rehabilitation Hospital
(19.2
)
 
—

Other, net
7.4

 
9.2

Changes in assets and liabilities, net of acquisitions —
 

 
 

Accounts receivable
(22.9
)
 
7.0

Prepaid expenses and other assets
(35.4
)
 
11.5

Accounts payable
(6.1
)
 
6.6

Accrued payroll
13.2

 
14.8

Other liabilities
(128.9
)
 
6.1

Net cash (used in) provided by operating activities of discontinued operations
(4.4
)
 
0.8

Total adjustments
188.9

 
388.1

Net cash provided by operating activities
635.3

 
762.4

Cash flows from investing activities:
 
 
 
Acquisition of businesses, net of cash acquired
(231.5
)
 
(143.9
)
Purchases of property and equipment
(372.4
)
 
(254.5
)
Additions to capitalized software costs
(13.0
)
 
(16.0
)
Purchases of intangible assets
(18.7
)
 
(5.7
)
Proceeds from sale of restricted investments
17.6

 
11.6

Purchases of restricted investments
(32.9
)
 
(13.3
)
Other, net
(6.5
)
 
(2.7
)
Net cash used in investing activities
(657.4
)
 
(424.5
)
 
 
 
 

 
(Continued)
8
Encompass Health Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)

 
For the Year Ended December 31,
 
2019
 
2018
 
(In Millions)
Cash flows from financing activities:
 

 
 

Proceeds from bond issuance
1,000.0

 
—

Principal payments on debt, including pre-payments
(519.5
)
 
(20.6
)
Borrowings on revolving credit facility
635.0

 
325.0

Payments on revolving credit facility
(620.0
)
 
(390.0
)
Principal payments under finance lease obligations
(19.5
)
 
(17.9
)
Debt amendment and issuance costs
(21.5
)
 
(0.1
)
Repurchases of common stock, including fees and expenses
(45.9
)
 
—

Dividends paid on common stock
(108.7
)
 
(100.8
)
Purchase of equity interests in consolidated affiliates
(162.9
)
 
(65.1
)
Distributions paid to noncontrolling interests of consolidated affiliates
(79.8
)
 
(75.4
)
Taxes paid on behalf of employees for shares withheld
(16.6
)
 
(8.3
)
Contributions from consolidated affiliates
15.9

 
12.6

Other, net
(8.3
)
 
19.4

Net cash provided by (used in) financing activities
48.2

 
(321.2
)
Increase in cash, cash equivalents, and restricted cash
26.1

 
16.7

Cash, cash equivalents. and restricted cash at beginning of year
133.5

 
116.8

Cash, cash equivalents, and restricted cash at end of year
$
159.6

 
$
133.5

 
 
 
 
Reconciliation of Cash, Cash Equivalents, and Restricted Cash
 
 
 
Cash and cash equivalents at beginning of period
$
69.2

 
$
54.4

Restricted cash at beginning of period
59.0

 
62.4

Restricted cash included in other long-term assets at beginning of period
5.3

 
—

Cash, cash equivalents, and restricted cash at beginning of period
$
133.5

 
$
116.8

 
 
 
 
Cash and cash equivalents at end of period
$
94.8

 
$
69.2

Restricted cash at end of period
57.4

 
59.0

Restricted cash included in other long-term assets at end of period
7.4

 
5.3

Cash, cash equivalents, and restricted cash at end of period
$
159.6

 
$
133.5




 
 
9
Encompass Health Corporation and Subsidiaries
Supplemental Information
Earnings Per Share

 
Q4
 
Year Ended
 
2019
 
2018
 
2019
 
2018
 
(In Millions, Except Per Share Data)
Adjusted EBITDA
$
238.2

 
$
221.8

 
$
964.9

 
$
901.0

Depreciation and amortization
(58.4
)
 
(52.9
)
 
(218.7
)
 
(199.7
)
Interest expense and amortization of debt discounts and fees
(44.5
)
 
(36.7
)
 
(159.7
)
 
(147.3
)
Stock-based compensation expense
(27.4
)
 
(20.3
)
 
(114.4
)
 
(85.9
)
Loss on disposal of assets
(7.8
)
 
(3.5
)
 
(11.1
)
 
(5.7
)
 
100.1

 
108.4

 
461.0

 
462.4

Certain items non-indicative of ongoing operating performance:
 
 
 
 
 
 
 
Loss on early extinguishment of debt
(5.4
)
 
—

 
(7.7
)
 
—

Transaction costs
(0.1
)
 
—

 
(2.1
)
 
(1.0
)
Gain on consolidation of Yuma
—

 
—

 
19.2

 
—

SARs mark-to-market impact on noncontrolling interests
0.7

 
0.4

 
5.0

 
2.6

Change in fair market value of equity securities
(0.4
)
 
(0.8
)
 
0.8

 
(1.9
)
Government, class action, and related settlements
—

 
(52.0
)
 
—

 
(52.0
)
Payroll taxes on SARs exercise
—

 
—

 
(1.0
)
 
—

Pre-tax income
94.9

 
56.0

 
475.2

 
410.1

Income tax expense
(27.3
)
 
(29.4
)
 
(115.9
)
 
(118.9
)
Income from continuing operations (1)
$
67.6

 
$
26.6

 
$
359.3

 
$
291.2

 
 
 
 
 
 
 
 
Basic shares
97.8

 
98.0

 
98.0

 
97.9

Diluted shares
99.5

 
100.0

 
99.4

 
99.8

 
 
 
 
 
 
 
 
Basic earnings per share (1)
$
0.69

 
$
0.27

 
$
3.66

 
$
2.97

Diluted earnings per share (1)
$
0.68

 
$
0.26

 
$
3.62

 
$
2.92

(1) 
Income from continuing operations attributable to Encompass Health

 
 
10
Encompass Health Corporation and Subsidiaries
Supplemental Information
Adjusted Earnings Per Share


 
Q4
 
Year Ended
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Earnings per share, as reported
$
0.68

 
$
0.26

 
$
3.62

 
$
2.92

Adjustments, net of tax:
 
 
 
 
 
 
 
Government, class action, and related settlements
—

 
0.52

 
—

 
0.52

Mark-to-market adjustment for stock appreciation rights
0.11

 
0.03

 
0.47

 
0.21

Transaction costs
—

 
—

 
0.02

 
0.01

Income tax adjustments
0.02

 
(0.02
)
 
(0.10
)
 
(0.03
)
Loss on early extinguishment of debt
0.04

 
—

 
0.06

 
—

Change in fair market value of equity securities
—

 
0.01

 
(0.01
)
 
0.01

Gain on consolidation of Yuma
—

 
—

 
(0.14
)
 
—

Payroll taxes on SARs exercise
—

 
—

 
0.01

 
—

Adjusted earnings per share*
$
0.85

 
$
0.80

 
$
3.91

 
$
3.63

*
Adjusted EPS may not sum due to rounding.


 
 
11
Encompass Health Corporation and Subsidiaries
Supplemental Information
Adjusted Earnings Per Share


 
For the Three Months Ended December 31, 2019
 
 
 
Adjustments
 
 
 
As Reported
 
Mark-to-Market Adjustment for Stock Comp. Expense
 
Loss on Early Exting. of Debt
 
Income Tax Adjustments
 
Transaction Costs
 
Change in Fair Market Value of Equity Securities
 
As Adjusted
 
(In Millions, Except Per Share Amounts)
Adjusted EBITDA*
$
238.2

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
238.2

Depreciation and amortization
(58.4
)
 
—

 
—

 
—

 
—

 
—

 
(58.4
)
Interest expense and amortization of debt discounts and fees
(44.5
)
 
—

 
—

 
—

 
—

 
—

 
(44.5
)
Stock-based compensation
(27.4
)
 
15.5

 
—

 
—

 
—

 
—

 
(11.9
)
Loss on disposal of assets
(7.8
)
 
—

 
—

 
—

 
—

 
—

 
(7.8
)
Loss on early extinguishment of debt
(5.4
)
 
—

 
5.4

 
—

 
—

 
—

 
—

Transaction costs
(0.1
)
 
—

 
—

 
—

 
0.1

 
—

 
—

SARs mark-to-market impact on noncontrolling interests
0.7

 
(0.7
)
 
—

 
—

 
—

 
—

 
—

Change in fair market value of equity securities
(0.4
)
 
—

 
—

 
—

 
—

 
0.4

 
—

Income from continuing operations before income tax expense
94.9

 
14.8

 
5.4

 
—

 
0.1

 
0.4

 
115.6

Provision for income tax expense
(27.3
)
 
(4.0
)
 
(1.5
)
 
2.3

 
(0.1
)
 
(0.1
)
 
(30.7
)
Income from continuing operations attributable to Encompass Health
$
67.6

 
$
10.8

 
$
3.9

 
$
2.3

 
$
—

 
$
0.3

 
$
84.9

Diluted earnings per share from continuing operations, as reported**
$
0.68

 
$
0.11

 
$
0.04

 
$
0.02

 
$
—

 
$
—

 
$
0.85

Diluted shares used in calculation
99.5

 
 
 
 
 
 
 
 
 
 
 
 
*
Reconciliation to GAAP provided on page 16
**
Adjusted EPS may not sum across due to rounding.

 
 
12
Encompass Health Corporation and Subsidiaries
Supplemental Information
Adjusted Earnings Per Share


 
For the Three Months Ended December 31, 2018
 
 
 
Adjustments
 
 
 
As Reported
 
Gov't, Class Action, & Related Settlements
 
Mark-to-Market Adjustment for Stock Comp. Expense
 
Income Tax Adjustments
 
Change in Fair Market Value of Equity Securities
 
As Adjusted
 
(In Millions, Except Per Share Amounts)
Adjusted EBITDA*
$
221.8

 
$
—

 
$
—

 
$
—

 
$
—

 
$
221.8

Depreciation and amortization
(52.9
)
 
—

 
—

 
—

 
—

 
(52.9
)
Interest expense and amortization of debt discounts and fees
(36.7
)
 
—

 
—

 
—

 
—

 
(36.7
)
Stock-based compensation
(20.3
)
 
—

 
4.6

 
—

 
—

 
(15.7
)
Loss on disposal of assets
(3.5
)
 
—

 
—

 
—

 
—

 
(3.5
)
SARs mark-to-market impact on noncontrolling interests
0.4

 
—

 
(0.4
)
 
—

 
—

 
—

Change in fair market value of equity securities
(0.8
)
 
—

 
—

 
—

 
0.8

 
—

Government, class action, and related settlements
(52.0
)
 
52.0

 
—

 
—

 
—

 
—

Income from continuing operations before income tax expense
56.0

 
52.0

 
4.2

 
—

 
0.8

 
113.0

Provision for income tax expense
(29.4
)
 
—

 
(1.2
)
 
(1.9
)
 
(0.2
)
 
(32.7
)
Income from continuing operations attributable to Encompass Health
$
26.6

 
$
52.0

 
$
3.0

 
$
(1.9
)
 
$
0.6

 
$
80.3

Diluted earnings per share from continuing operations**
$
0.26

 
$
0.52

 
$
0.03

 
$
(0.02
)
 
$
0.01

 
$
0.80

Diluted shares used in calculation
100.0

 
 
 
 
 
 
 
 
 
 

*
Reconciliation to GAAP provided on page 16
**
Adjusted EPS may not sum across due to rounding.

 
 
13
Encompass Health Corporation and Subsidiaries
Supplemental Information
Adjusted Earnings Per Share


 
For the Year Ended December 31, 2019
 
 
 
Adjustments
 
 
 
As Reported
 
Mark-to-Market Adjustment for Stock Comp. Expense
 
Loss on Early Exting. of Debt
 
Income Tax Adjustments
 
Transaction Costs
 
Change in Fair Market Value of Equity Securities
 
Gain on Consolidation of Yuma
 
Payroll Taxes on SARs Exercise
 
As Adjusted
 
(In Millions, Except Per Share Amounts)
Adjusted EBITDA*
$
964.9

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
964.9

Depreciation and amortization
(218.7
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(218.7
)
Interest expense and amortization of debt discounts and fees
(159.7
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(159.7
)
Stock-based compensation
(114.4
)
 
68.5

 
—

 
—

 
—

 
—

 
—

 
—

 
(45.9
)
Loss on disposal of assets
(11.1
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(11.1
)
Loss on early extinguishment of debt
(7.7
)
 
—

 
7.7

 
—

 
—

 
—

 
—

 
—

 
—

Transaction costs
(2.1
)
 
—

 
—

 
—

 
2.1

 
—

 
—

 
—

 
—

Gain on consolidation of Yuma
19.2

 
—

 
—

 
—

 
—

 
—

 
(19.2
)
 
—

 
—

SARs mark-to-market impact on noncontrolling interests
5.0

 
(5.0
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Change in fair market value of equity securities
0.8

 
—

 
—

 
—

 
—

 
(0.8
)
 
—

 
—

 
—

Payroll taxes on SARs exercise
(1.0
)
 
—

 
—

 
—

 
—

 
—

 
—

 
1.0

 
—

Income from continuing operations before income tax expense
475.2

 
63.5

 
7.7

 
—

 
2.1

 
(0.8
)
 
(19.2
)
 
1.0

 
529.5

Provision for income tax expense
(115.9
)
 
(17.2
)
 
(2.1
)
 
(10.3
)
 
(0.6
)
 
0.2

 
5.2

 
(0.2
)
 
(140.9
)
Income from continuing operations attributable to Encompass Health
$
359.3

 
$
46.3

 
$
5.6

 
$
(10.3
)
 
$
1.5

 
$
(0.6
)
 
$
(14.0
)
 
$
0.8

 
$
388.6

Diluted earnings per share from continuing operations, as reported**
$
3.62

 
$
0.47

 
$
0.06

 
$
(0.10
)
 
$
0.02

 
$
(0.01
)
 
$
(0.14
)
 
$
0.01

 
$
3.91

Diluted shares used in calculation
99.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
*
Reconciliation to GAAP provided on page 16
**
Adjusted EPS may not sum across due to rounding.

 
 
14
Encompass Health Corporation and Subsidiaries
Supplemental Information
Adjusted Earnings Per Share


 
For the Year Ended December 31, 2018
 
 
 
Adjustments
 
 
As Reported
 
Gov't, Class Action, & Related Settlements
 
Mark-to-Market Adjustment on Stock Compensation Expense
 
Income Tax Adjustments
 
Transaction Costs
 
Change in Fair Market Value of Equity Securities
 
As Adjusted
 
(In Millions, Except Per Share Amounts)
Adjusted EBITDA*
$
901.0

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
901.0

Depreciation and amortization
(199.7
)
 
—

 
—

 
—

 
—

 
—

 
(199.7
)
Interest expense and amortization of debt discounts and fees
(147.3
)
 
—

 
—

 
—

 
—

 
—

 
(147.3
)
Stock-based compensation
(85.9
)
 
—

 
31.2

 
—

 
—

 
—

 
(54.7
)
Loss on disposal of assets
(5.7
)
 
—

 
—

 
—

 
—

 
—

 
(5.7
)
Transaction costs
(1.0
)
 
—

 
—

 
—

 
1.0

 
—

 
—

SARs mark-to-market impact on noncontrolling interests
2.6

 
—

 
(2.6
)
 
—

 
—

 
—

 
—

Change in fair market value of equity securities
(1.9
)
 
—

 
—

 
—

 
—

 
1.9

 
—

Government, class action, and related settlements
(52.0
)
 
52.0

 
—

 
—

 
—

 
—

 
—

Income from continuing operations before income tax expense
410.1

 
52.0

 
28.6

 
—

 
1.0

 
1.9

 
493.6

Provision for income tax expense
(118.9
)
 
—

 
(8.0
)
 
(3.3
)
 
(0.3
)
 
(0.5
)
 
(131.0
)
Income from continuing operations attributable to Encompass Health
$
291.2

 
$
52.0

 
$
20.6

 
$
(3.3
)
 
$
0.7

 
$
1.4

 
$
362.6

Diluted earnings per share from continuing operations**
$
2.92

 
$
0.52

 
$
0.21

 
$
(0.03
)
 
$
0.01

 
$
0.01

 
$
3.63

Diluted shares used in calculation
99.8

 
 
 
 
 
 
 
 
 
 
 
 

*
Reconciliation to GAAP provided on page 16
**
Adjusted EPS may not sum across due to rounding.

 
 
15
Encompass Health Corporation and Subsidiaries
Supplemental Information
Reconciliation of Net Income to Adjusted EBITDA


 
For the Three Months Ended December 31,
 
For the Year Ended December 31,
 
2019
 
2018
 
2019
 
2018
 
(In Millions)
Net income
$
90.2

 
$
47.7

 
$
445.8

 
$
375.4

(Income) loss from discontinued operations, net of tax, attributable to Encompass Health
—

 
(1.5
)
 
0.6

 
(1.1
)
Net income attributable to noncontrolling interests
(22.6
)
 
(19.6
)
 
(87.1
)
 
(83.1
)
Provision for income tax expense
27.3

 
29.4

 
115.9

 
118.9

Interest expense and amortization of debt discounts and fees
44.5

 
36.7

 
159.7

 
147.3

Depreciation and amortization
58.4

 
52.9

 
218.7

 
199.7

Government, class action, and related settlements
—

 
52.0

 
—

 
52.0

Loss on early extinguishment of debt
5.4

 
—

 
7.7

 
—

Loss on disposal of assets
7.8

 
3.5

 
11.1

 
5.7

Stock-based compensation expense
27.4

 
20.3

 
114.4

 
85.9

Transaction costs
0.1

 
—

 
2.1

 
1.0

Gain on consolidation of Yuma
—

 
—

 
(19.2
)
 
—

SARs mark-to-market impact on noncontrolling interests
(0.7
)
 
(0.4
)
 
(5.0
)
 
(2.6
)
Change in fair market value of equity securities
0.4

 
0.8

 
(0.8
)
 
1.9

Payroll taxes on SARs exercise
—

 
—

 
1.0

 
—

Adjusted EBITDA
$
238.2

 
$
221.8

 
$
964.9

 
$
901.0

Reconciliation of Segment Adjusted EBITDA to Income from Continuing Operations
Before Income Tax Expense
 
For the Three Months Ended December 31,
 
For the Year Ended December 31,
 
2019
 
2018
 
2019
 
2018
 
(In Millions)
Total segment Adjusted EBITDA
$
274.7

 
$
255.8

 
$
1,095.4

 
$
1,034.3

General and administrative expenses
(64.0
)
 
(54.3
)
 
(247.0
)
 
(220.2
)
Depreciation and amortization
(58.4
)
 
(52.9
)
 
(218.7
)
 
(199.7
)
Loss on disposal of assets
(7.8
)
 
(3.5
)
 
(11.1
)
 
(5.7
)
Government, class action, and related settlements
—

 
(52.0
)
 
—

 
(52.0
)
Loss on early extinguishment of debt
(5.4
)
 
—

 
(7.7
)
 
—

Interest expense and amortization of debt discounts and fees
(44.5
)
 
(36.7
)
 
(159.7
)
 
(147.3
)
Net income attributable to noncontrolling interests
22.6

 
19.6

 
87.1

 
83.1

SARS mark-to-market impact on noncontrolling interests
0.7

 
0.4

 
5.0

 
2.6

Change in fair market value of equity securities
(0.4
)
 
(0.8
)
 
0.8

 
(1.9
)
Gain on consolidation of Yuma
—

 
—

 
19.2

 
—

Payroll taxes on SARs exercise
—

 
—

 
(1.0
)
 
—

Income from continuing operations before income tax expense
$
117.5

 
$
75.6

 
$
562.3

 
$
493.2



 
 
16
Encompass Health Corporation and Subsidiaries
Supplemental Information
Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA


 
For the Three Months Ended December 31,
 
For the Year Ended December 31,
 
 
 
2019
 
2018
 
2019
 
2018
 
(In Millions)
Net cash provided by operating activities
$
215.6

 
$
178.4

 
$
635.3

 
$
762.4

Interest expense and amortization of debt discounts and fees
44.5

 
36.7

 
159.7

 
147.3

Equity in net income of nonconsolidated affiliates
1.2

 
2.3

 
6.7

 
8.7

Net income attributable to noncontrolling interests in continuing operations
(22.6
)
 
(19.6
)
 
(87.1
)
 
(83.1
)
Amortization of debt-related items
(1.4
)
 
(1.0
)
 
(4.5
)
 
(4.0
)
Distributions from nonconsolidated affiliates
(1.8
)
 
(2.8
)
 
(6.6
)
 
(8.3
)
Current portion of income tax expense
8.1

 
30.5

 
75.9

 
128.0

Change in assets and liabilities
(5.3
)
 
1.1

 
180.1

 
(46.0
)
Cash (provided by) used in operating activities of discontinued operations
(0.2
)
 
(1.5
)
 
4.4

 
(0.8
)
Transaction costs
0.1

 
—

 
2.1

 
1.0

SARS mark-to-market impact on noncontrolling interests
(0.7
)
 
(0.4
)
 
(5.0
)
 
(2.6
)
Payroll taxes on SARs exercise
—

 
—

 
1.0

 
—

Change in fair market value of equity securities
0.4

 
0.8

 
(0.8
)
 
1.9

Other
0.3

 
(2.7
)
 
3.7

 
(3.5
)
Adjusted EBITDA
$
238.2

 
$
221.8

 
$
964.9

 
$
901.0



 
 
17
Encompass Health Corporation and Subsidiaries
Supplemental Information
Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow

 
For the Three Months Ended December 31,
 
For the Year Ended December 31,
 
 
 
2019
 
2018
 
2019
 
2018
 
(In Millions)
Net cash provided by operating activities
$
215.6

 
$
178.4

 
$
635.3

 
$
762.4

Impact of discontinued operations
(0.2
)
 
(1.5
)
 
4.4

 
(0.8
)
Net cash provided by operating activities of continuing operations
215.4

 
176.9

 
639.7

 
761.6

Capital expenditures for maintenance
(62.0
)
 
(47.6
)
 
(167.1
)
 
(152.9
)
Distributions paid to noncontrolling interests of consolidated affiliates
(22.2
)
 
(18.9
)
 
(79.8
)
 
(75.4
)
Items non-indicative of ongoing operations:
 
 
 
 
 
 
 
Cash paid for government, class action, and
related settlements
5.6

 
—

 
52.0

 
—

Transaction costs and related assumed liabilities
0.1

 
2.9

 
2.1

 
0.5

Cash paid for SARs exercise
—

 
—

 
69.6

 
4.3

Adjusted free cash flow
$
136.9

 
$
113.3

 
$
516.5

 
$
538.1

For the three months ended December 31, 2019, net cash used in investing activities was $145.7 million and resulted primarily from capital expenditures. Net cash used in financing activities during the three months ended December 31, 2019 was $424.1 million and resulted primarily from net debt repayments, cash dividends paid on common stock, and distributions to noncontrolling interests of consolidated affiliates.
For the three months ended December 31, 2018, net cash used in investing activities was $98.2 million and resulted primarily from capital expenditures. Net cash used in financing activities during the three months ended December 31, 2018 was $67.7 million and resulted primarily from net debt repayments, cash dividends paid on common stock, and distributions to noncontrolling interests of consolidated affiliates.
For the year ended December 31, 2019, net cash used in investing activities was $657.4 million and primarily resulted from the acquisition of Alacare and capital expenditures. Net cash provided by financing activities during the year ended December 31, 2019 was $48.2 million and primarily resulted from the issuance of $1.0 billion of senior notes offset by repayments on the Company's revolving credit facility and 5.75% Senior Notes due 2024, the purchase of one-third of the rollover shares held by members of the home health and hospice management team, dividends paid common stock, distributions paid to noncontrolling interests of consolidated affiliates, and repurchases of common stock.
For the year ended December 31, 2018, net cash used in investing activities was $424.5 million and resulted primarily from capital expenditures and the acquisition of Camellia Healthcare. Net cash used in financing activities during the year ended December 31, 2018 was $321.2 million and resulted primarily from cash dividends paid on common stock, net debt payments, distributions to noncontrolling interests of consolidated affiliates, and purchasing one-third of the Rollover Shares held by members of the home health and hospice management team.

 
 
18
Encompass Health Corporation and Subsidiaries
Forward-Looking Statements

Statements contained in this press release and the supplemental information which are not historical facts, such as those relating to financial guidance and assumptions, balance sheet and cash flow plans, and anticipated acquisitions, are forward-looking statements. In addition, Encompass Health, through its senior management, may from time to time make forward-looking public statements concerning the matters described herein. All such estimates, projections, and forward-looking information speak only as of the date hereof, and Encompass Health undertakes no duty to publicly update or revise such forward-looking information, whether as a result of new information, future events, or otherwise. Such forward-looking statements are necessarily estimates based upon current information, involve a number of risks and uncertainties, and relate to, among other things, future events, Encompass Health's plan to repurchase its debt or equity securities, dividend strategies, effective income tax rates, its business strategy, its financial plans, its future financial performance, its projected business results or model, its ability to return value to shareholders, its projected capital expenditures, its leverage ratio, its acquisition opportunities, and the impact of future legislation or regulation. Actual events or results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors which could cause actual events or results to differ materially from those estimated by Encompass Health include, but are not limited to, the price of Encompass Health's common stock as it affects the Company's willingness and ability to repurchase shares and the financial and accounting effects of any repurchases; any adverse outcome of various lawsuits, claims, and legal or regulatory proceedings involving Encompass Health, including any matters related to yet undiscovered issues, if any, in acquired operations; Encompass Health's ability to attract and retain key management personnel; any adverse effects on Encompass Health's stock price resulting from the integration of acquired operations; potential disruptions, breaches, or other incidents affecting the proper operation, availability, or security of Encompass Health's or its vendors' information systems, including unauthorized access to or theft of patient, business associate, or other sensitive information or inability to provide patient care because of system unavailability as well as unforeseen issues, if any, related to integration of acquired systems; the ability to successfully integrate acquired operations, including realization of anticipated tax benefits, revenues, and cost savings, minimizing the negative impact on margins arising from the changes in staffing and other operating practices, and avoidance of unforeseen exposure to liabilities; Encompass Health's ability to successfully complete and integrate de novo developments, acquisitions, investments, and joint ventures consistent with its growth strategy; increases in Medicare audit activity, including increased use of sampling and extrapolation, resulting in additional unpaid reimbursement claims and an increase in the backlog of appealed claims denials; changes, delays in (including in connection with resolution of Medicare payment reviews or appeals), or suspension of reimbursement for Encompass Health's services by governmental or private payors; changes in the regulation of the healthcare industry at either or both of the federal and state levels, including as part of national healthcare reform and deficit reduction (such as the patient driven groupings model and other payment system reforms); competitive pressures in the healthcare industry and Encompass Health's response thereto; Encompass Health's ability to obtain and retain favorable arrangements with third-party payors; Encompass Health's ability to control costs, particularly labor and employee benefit costs, including group medical expenses; adverse effects resulting from coverage determinations made by Medicare Administrative Contractors regarding its Medicare reimbursement claims and lengthening delays in Encompass Health's ability to recover improperly denied claims through the administrative appeals process on a timely basis; Encompass Health's ability to adapt to changes in the healthcare delivery system, including value-based purchasing and involvement in coordinated care initiatives or programs that may arise with its referral sources; Encompass Health's ability to attract and retain nurses, therapists, and other healthcare professionals in a highly competitive environment with often severe staffing shortages and the impact on Encompass Health's labor expenses from potential union activity and staffing shortages; general conditions in the economy and capital markets, including any instability or uncertainty related to armed conflict or an act of terrorism, governmental impasse over approval of the United States federal budget, an increase in the debt ceiling, or an international sovereign debt crisis; the increase in the costs of defending and insuring against alleged professional liability claims and Encompass Health's ability to predict the estimated costs related to such claims; and other factors which may be identified from time to time in Encompass Health's SEC filings and other public announcements, including Encompass Health's Form 10‑K for the year ended December 31, 2019, when filed.

 
 
19
Fourth Quarter 2019 Earnings Call February 7, 2020 Supplemental information

 
Forward-looking statements The information contained in this presentation includes certain estimates, projections and other forward-looking information that reflect Encompass Health’s current outlook, views and plans with respect to future events, including legislative and regulatory developments, strategy, capital expenditures, acquisition and other development activities, cyber security, dividend strategies, repurchases of securities, effective tax rates, financial performance, financial assumptions, business model, balance sheet and cash flow plans, market share, development of new information tools and models, and shareholder value-enhancing transactions. These estimates, projections and other forward-looking information are based on assumptions the Company believes, as of the date hereof, are reasonable. Inevitably, there will be differences between such estimates and actual events or results, and those differences may be material. There can be no assurance any estimates, projections or forward-looking information will be realized. All such estimates, projections and forward-looking information speak only as of the date hereof. Encompass Health undertakes no duty to publicly update or revise the information contained herein. You are cautioned not to place undue reliance on the estimates, projections and other forward-looking information in this presentation as they are based on current expectations and general assumptions and are subject to various risks, uncertainties and other factors, including those set forth in the earnings release attached as Exhibit 99.1 to the Company’s Form 8-K dated February 6, 2020 (the “Q4 Earnings Release Form 8-K”), the Form 10-K for the year ended December 31, 2019, when filed, and in other documents Encompass Health previously filed with the SEC, many of which are beyond Encompass Health’s control, that may cause actual events or results to differ materially from the views, beliefs and estimates expressed herein. Note regarding presentation of non-GAAP financial measures The following presentation includes certain “non-GAAP financial measures” as defined in Regulation G under the Securities Exchange Act of 1934, including Adjusted EBITDA, leverage ratios, adjusted earnings per share, and adjusted free cash flow. Schedules are attached that reconcile the non-GAAP financial measures included in the following presentation to the most directly comparable financial measures calculated and presented in accordance with Generally Accepted Accounting Principles in the United States. The Q4 Earnings Release Form 8-K, to which the following presentation is attached as Exhibit 99.2, provides further explanation and disclosure regarding Encompass Health’s use of non-GAAP financial measures and should be read in conjunction with this supplemental information. Encompass Health 2

 
Table of contents Q4 2019 summary.................................................................................................... 4-5 Clinical collaboration ............................................................................................... 6 Inpatient rehabilitation segment ................................................................................. 7-8 Home health & hospice segment.................................................................................. 9-10 Consolidated Adjusted EBITDA..................................................................................... 11 Earnings per share................................................................................................... 12-13 Adjusted free cash flow ............................................................................................ 14 Guidance.............................................................................................................. 15-16 Free cash flow assumptions and uses............................................................................. 17-18 Overview of rollover shares and SARs ............................................................................ 19 Appendix Map of locations ..................................................................................................... 21 Rebranding and name change ..................................................................................... 22 Expansion activity ................................................................................................... 23 Pre-payment claims denials - inpatient rehabilitation segment ............................................. 24 Business outlook ..................................................................................................... 25-28 Debt schedule and maturity profile .............................................................................. 29-30 New-store/same-store growth..................................................................................... 31-33 Payment sources (percent of revenues) ......................................................................... 34 Inpatient rehabilitation operational and labor metrics ....................................................... 35 Home health & hospice operational metrics .................................................................... 36 Share information ................................................................................................... 37 Segment operating results ......................................................................................... 38-39 Reconciliations to GAAP ............................................................................................ 40-48 End notes ............................................................................................................. 49-50 Encompass Health 3

 
Q4 2019 summary Q4 Full Year ($millions) 2019 2018 Growth 2019 2018 Growth Encompass Health Consolidated Net operating revenues $ 1,184.4 $ 1,096.0 8.1% $ 4,605.0 $ 4,277.3 7.7% Adjusted EBITDA $ 238.2 $ 221.8 7.4% $ 964.9 $ 901.0 7.1% Inpatient Rehabilitation Segment Net operating revenues $ 896.7 $ 845.7 6.0% $ 3,513.0 $ 3,346.2 5.0% Adjusted EBITDA $ 225.1 $ 211.7 6.3% $ 899.6 $ 871.9 3.2% Home Health and Hospice Segment Net operating revenues $ 287.7 $ 250.3 14.9% $ 1,092.0 $ 931.1 17.3% Adjusted EBITDA $ 49.6 $ 44.1 12.5% $ 195.8 $ 162.4 20.6% Major takeaways: u Strong revenue growth Ÿ Inpatient rehabilitation segment ü Discharge growth of 5.2%; same store = 3.2% ü Net revenue per discharge increase of 0.9% Ÿ Home health and hospice segment ü Home health admissions growth of 18.9%; same store = 6.6% ü Revenue per episode decrease of 2.4% u Consolidated Adjusted EBITDA increased 7.4%; full-year increase of 7.1% u Adjusted EPS of $0.85 per diluted share increased 6.3%; full-year increase of 7.7% - see pages 12 and 13. u FY 2019 adjusted free cash flow of $516.5 million - see page 14. Encompass Health Reconciliations to GAAP provided on pages 40-48 4

 
Q4 2019 summary (cont.) u Expansion activity (see page 23) Ÿ Announced plans to build a new 40-bed inpatient rehabilitation hospital in Toledo, Ohio; expected to be operational in late 2020 Ÿ Added 40 beds to existing hospitals, bringing full-year 2019 bed additions to 152 beds Ÿ Opened one new home health location in Vero Beach, Florida and one new hospice location in Greensburg, Pennsylvania u Balance sheet Ÿ Leverage ratio of 3.2x at end of year Ÿ Redeemed $400 million of 5.75% Senior Notes due 2024 at 100.958% in November 2019 Ÿ Amended senior credit facility in November 2019 ü Increased size of revolver from $700 million to $1 billion ü Extended agreement’s maturity by two years to 2024 u Shareholder and other distributions Ÿ Paid quarterly cash dividend of $0.28 per share in October 2019 Ÿ Declared a $0.28 per share quarterly cash dividend in October 2019 (paid in January 2020) Ÿ Received notice of exercise from holders of Home Health Holdings in January 2020 for a portion of their vested rollover shares and all of their SARs (see page 19) ü Expect to settle the exercises upon payment of approximately $263 million in cash in February 2020 Ÿ Repurchased 776,334 shares of common stock for approximately $46 million in full-year 2019(1) Encompass Health Refer to pages 49-50 for end notes. 5

 
The Company continues to improve the patient experience and outcomes through integrated care delivery. Inpatient rehabilitation–home health clinical collaboration As of December 31, 2019, (all payors) overlap markets* Encompass Health had 89 overlap markets.* 35.6% Clinical collaboration objectives: 34.0% Ÿ Improve patient experience 24,560 and outcomes Clinical Collaboration29.5% Rate 89 21,547 Ÿ Reduce total cost of care 25.4% across a post-acute episode 17,947 Coordination between our IRFs 13,800 and HH teams is resulting in lower 18.5% 81 discharges to SNFs and higher discharges home. 8,555 42,950 41,858 44,479 40,637 76 The clinical collaboration rate 37,671 with Encompass Health’s 72 inpatient rehabilitation hospitals 71 increased 160 basis points in 2019 compared to 2018. The Company’s clinical collaboration rate objective is 2015 2016 2017 2018 2019 40% in the near term. Encompass Health EHC Home Health Overlap Markets IRF discharges to: Non-EHC Home Health * Overlap markets have an Encompass Health IRF and an Encompass Health home health location within an Encompass Health approximate 30-mile radius, excluding markets that have home health licensure barriers. Overlap 6 markets are open for 12 months before inclusion in the clinical collaboration rate.

 
Inpatient rehabilitation segment - revenue Q4 Q4 Favorable/ ($millions) 2019 2018 (Unfavorable) Net operating revenues: Inpatient $ 873.5 $ 822.8 6.2% Outpatient and other 23.2 22.9 1.3% Total segment revenue $ 896.7 $ 845.7 6.0% (Actual Amounts) Discharges 47,885 45,498 5.2% Same-store discharge growth 3.2% Net patient revenue per discharge $ 18,242 $ 18,084 0.9% Revenue reserves related to bad debt as a percent of revenue 1.7% 1.5% 20 basis points u Revenue growth was driven by volume and pricing growth. Ÿ New-store discharge growth resulted from joint ventures in Winston-Salem, NC (October 2018), Lubbock, TX (May 2019), and Boise, ID (July 2019) and a wholly owned hospital in Katy, TX (September 2019). Ÿ New-store growth also resulted from a joint venture hospital in Yuma, Arizona changing from the equity method of accounting to a consolidated entity effective July 1, 2019.(2) Ÿ Growth in net patient revenue per discharge reflects the implementation of CMS Section GG for reimbursement purposes on October 1, 2019 (see page 26). Ÿ Growth in net patient revenue per discharge benefited from prior period cost report adjustments and the timing of discharges between fiscal quarters. Ÿ Other revenue in Q4 2019 included $2.5 million of business interruption insurance recoveries related to Hurricane Michael (October 2018). Ÿ Revenue reserves related to bad debt as a percent of revenue increased 20 basis points primarily due to a new, industry wide post-payment review initiated by a supplemental review contractor. Encompass Health Refer to pages 49-50 for end notes. 7

 
Inpatient rehabilitation segment - Adjusted EBITDA u All expense ratios were negatively impacted in Q4 Q4 Q4 % of % of 2019 by an increase in revenue ($millions) 2019 Revenue 2018 Revenue reserves related to bad debt Net operating revenues $ 896.7 $ 845.7 (see page 24). u Expense ratios were positively Operating expenses: impacted in Q4 2019 by $2.5 Salaries and benefits (465.4) 51.9% (437.2) 51.7% million of revenue from business interruption (a) insurance recoveries related Other operating expenses (135.8) 15.1% (128.2) 15.2% to Hurricane Michael. Supplies (37.7) 4.2% (36.4) 4.3% u Salaries and benefits Occupancy costs (15.7) 1.8% (16.4) 1.9% increased as a percent of revenue primarily due to a Hospital operating expenses (189.2) 21.1% (181.0) 21.4% 3.5% increase in salaries and Other income(b) 4.0 0.1 wages per full-time equivalent, inclusive of $1.5 Equity in nonconsolidated affiliates 1.0 2.0 million of training and Noncontrolling interests (22.0) (17.9) education costs associated with the transition to CMS Segment Adjusted EBITDA $ 225.1 $ 211.7 Section GG Percent change 6.3% u Benefit costs per full-time equivalent decreased year In arriving at Adjusted EBITDA, the following were excluded: over year due to workers’ (a) Loss on disposal of assets $ 7.8 $ 3.5 compensation reserve adjustments related to prior (b) Change in fair market value of equity securities $ 0.4 $ 0.8 claim years. Encompass Health Reconciliations to GAAP provided on pages 40-48 8

 
Home health and hospice segment - revenue Q4 Q4 Favorable/ ($millions) 2019 2018 (Unfavorable) Net operating revenues: Home health revenue $ 236.9 $ 215.3 10.0 % Hospice revenue 50.8 35.0 45.1 % Total segment revenue $ 287.7 $ 250.3 14.9 % Home Health Metrics (Actual Amounts) Admissions 41,781 35,151 18.9 % Same-store admissions growth 6.6 % Episodes 73,055 64,037 14.1 % Same-store episode growth 2.0 % Revenue per episode $ 2,901 $ 2,972 (2.4)% u Revenue growth was driven by volume growth. Ÿ New-store admissions growth included the acquisition of Alacare on July 1, 2019. u Revenue per episode decreased due primarily to the patient mix of the former Alacare locations and the timing of episodes between fiscal quarters. u Hospice revenue increased primarily due to the acquisition of Alacare and same-store admissions growth of 10.1%. Encompass Health 9

 
Home health and hospice segment - Adjusted EBITDA Q4 Q4 % of % of ($millions) 2019 Revenue 2018 Revenue Net operating revenues $ 287.7 $ 250.3 u Segment Adjusted EBITDA Cost of services (133.4 46.4 (116.1 46.4 for 2019 included the ) % ) % acquisition of Alacare Support and overhead costs (103.6) 36.0% (88.3) 35.3% which closed on July 1, Operating expenses (237.0) 82.4% (204.4) 81.7% 2019 u Support and overhead Equity in net income of nonconsolidated affiliates 0.2 0.3 costs as a percent of Noncontrolling interests(a) (1.3) (2.1) revenue increased primarily due to higher Segment Adjusted EBITDA $ 49.6 $ 44.1 group medical costs and Percent change 12.5% the integration of Alacare. In arriving at Adjusted EBITDA, the following were excluded: (a) SARs mark-to-market impact on noncontrolling interests (see page 19) $ (0.7) $ (0.4) Encompass Health Reconciliations to GAAP provided on pages 40-48 10

 
Consolidated Adjusted EBITDA Consolidated Adjusted EBITDA for the quarter of $238.2 million % of Consolidated % of Consolidated ($millions) Q4 2019 Revenue Q4 2018 Revenue Inpatient rehabilitation segment Adjusted EBITDA $ 225.1 $ 211.7 Home health and hospice segment Adjusted EBITDA 49.6 44.1 General and administrative expenses* (36.5) 3.1% (34.0) 3.1% Consolidated Adjusted EBITDA $ 238.2 $ 221.8 Percentage change 7.4% General and Administrative Expenses Associated with Rebranding and Name Change ($millions) Q1 Q2 Q3 Q4 Year to Date 2019 $ 0.8 $ 0.2 $ 0.3 $ — $ 1.3 2018 3.6 2.8 1.9 2.6 10.9 2017 0.5 1.7 1.5 2.5 6.2 See rebranding and name change information on page 22. * General and administrative expenses in the above table exclude stock compensation of $27.4 million and $20.3 million for the fourth quarter Encompass Health of 2019 and 2018, respectively, as well as $0.1 million in transaction costs for the fourth quarter of 2019. 11 . Reconciliations to GAAP provided on pages 40-48

 
Earnings per share - as reported u Q4 Year Ended The increase in EPS for both periods of (In Millions, Except Per Share Data) 2019 2018 2019 2018 2019 resulted primarily from increased Adjusted EBITDA $ 238.2 $ 221.8 $ 964.9 $ 901.0 Adjusted EBITDA, a lower effective tax Depreciation and amortization (58.4) (52.9) (218.7) (199.7) rate, and the accrual for loss (4) Interest expense and amortization of contingencies in 2018. EPS for full-year debt discounts and fees (44.5) (36.7) (159.7) (147.3) 2019 also benefited from a gain on the Stock-based compensation expense (27.4) (20.3) (114.4) (85.9) consolidation of Yuma Rehabilitation Loss on disposal of assets (7.8) (3.5) (11.1) (5.7) Hospital(2). 100.1 108.4 461.0 462.4 u Higher interest expense resulted from Certain items non-indicative of ongoing increased debt in 2019, including the operating performance: Loss on early extinguishment of debt(3) (5.4) — (7.7) — funding of the Alacare acquisition and Transaction costs (0.1) — (2.1) (1.0) purchase of the Home Health Holdings Gain on consolidation of Yuma(2) — — 19.2 — rollover shares and exercise of SARs (see SARs mark-to-market impact on page 19). noncontrolling interests (see page 19) 0.7 0.4 5.0 2.6 u Stock-based compensation increased in Change in fair market value of equity securities (0.4) (0.8) 0.8 (1.9) 2019 due to higher SARs cost resulting Government, class action, and related from an increase in the applicable peer settlements(4) — (52.0) — (52.0) multiple and Adjusted EBITDA growth in Payroll taxes on SARs exercise (see the home health and hospice segment (see page 19) — — (1.0) — page 19). Pre-tax income 94.9 56.0 475.2 410.1 u Income tax expense (27.3) (29.4) (115.9) (118.9) The lower effective tax rate in 2019 Income from continuing operations* $ 67.6 $ 26.6 $ 359.3 $ 291.2 resulted primarily from the deductible portion of the DOJ Settlement(4) and Diluted shares (see page 37) 99.5 100.0 99.4 99.8 windfall tax benefits related to the Diluted earnings per share* $ 0.68 $ 0.26 $ 3.62 $ 2.92 vesting of share-based compensation. Encompass Health * Earnings per share are determined using income from continuing operations attributable to Encompass Health. 12 Refer to pages 49-50 for end notes.

 
Adjusted earnings per share(5) Q4 Year Ended 2019 2018 2019 2018 Earnings per share, as reported $ 0.68 $ 0.26 $ 3.62 $ 2.92 Adjustments, net of tax: Government, class action, and related settlements(4) — 0.52 — 0.52 Mark-to-market adjustment for stock appreciation rights (see page 19) 0.11 0.03 0.47 0.21 Transaction costs — — 0.02 0.01 Income tax adjustments 0.02 (0.02) (0.10) (0.03) Loss on early extinguishment of debt(3) 0.04 — 0.06 — Change in fair market value of equity securities — 0.01 (0.01) 0.01 Gain on consolidation of Yuma(2) — — (0.14) — Payroll taxes on SARs exercise — — 0.01 — Adjusted earnings per share* $ 0.85 $ 0.80 $ 3.91 $ 3.63 Adjusted earnings per share removes from the GAAP earnings per share calculation the impact of items the Company believes are non-indicative of its ongoing operating performance. * Adjusted EPS may not sum due to rounding. See complete calculations of adjusted earnings per share on pages 45-48. Encompass Health 13 Refer to pages 49-50 for end notes.

 
2019 Adjusted free cash flow(6) $63.9 $10.7 ($70.1) ($11.9) ($14.2) $538.1 $516.5 Adjusted free cash Adjusted Working capital Cash interest Cash tax Maintenance Adjusted free cash flow FY 2018 EBITDA and other payments payments, capital expenditures flow FY 2019 net of refunds u Adjusted free cash flow for 2019 decreased as higher Adjusted EBITDA was primarily offset by an increase in working capital. Ÿ Increased working capital primarily resulted from higher accounts receivable related to TPE and other claims reviews in both segments. Reconciliations to GAAP provided on pages 40-48 Encompass Health 14 Refer to pages 49-50 for end notes.

 
2020 Guidance 2019 2020 Actuals Guidance Net operating revenues Net operating revenues $4,605.0 million $4,850 million to $4,950 million Adjusted EBITDA(7) Adjusted EBITDA(7) $964.9 million $935 million to $965 million Adjusted earnings per share Adjusted earnings per share from continuing operations from continuing operations attributable to Encompass attributable to Encompass Health(5) Health(5) $3.91 $3.50 to $3.72 Encompass Health Refer to pages 49-50 for end notes. 15

 
2020 Guidance considerations Inpatient Rehabilitation Home Health and Hospice u Estimated 0% to 0.75% increase in Medicare u Estimated 2.0% to 3.0% net Medicare pricing pricing for Q1 through Q3 and anticipated 2.5% decrease for CY 2020 for home health (see page increase for Q4 (see page 26) 27) u Salary increase of approx. 3.0%; benefits u Salary increase of approx. 3.0%; benefits increase increase of approx. 8.0% to 12.0% of approx. 8.0% to 12.0% u Inclusive of $50 million to $100 million of home u health and hospice acquisitions Revenue reserve related to bad debt of 1.4% to u 1.6% of net operating revenues Administrative costs related to PDGM and the Review Choice Demonstration program u u Administrative costs related to ongoing training Rollout of Medalogix and its impact on visit and education for Section GG utilization and resulting impact on productivity in the first half of the year Consolidated u Continued investments of approximately $5 million in strategic initiatives, including post-acute innovation and advanced technology u Increased interest expense due to increased debt in 2019 and funding of the rollover shares and SARs in 2020 u Increased depreciation and amortization resulting from 2019 and 2020 development activities and capital expenditures u Diluted share count of ~100 million shares u Tax rate of ~26% Encompass Health 16

 
Adjusted free cash flow(6) assumptions Certain cash flow items 2019 2020 (millions) Actuals Assumptions u Increased cash interest payments expected in 2020 due to new borrowings in 2019 to fund the acquisition of Alacare Cash interest payments (net of and the exercise of the home amortization of debt discounts $155.2 $165 to $175 health rollover shares and SARs and fees) plus 2020 borrowings to fund the final tranche of rollover shares and SARs (see page 19) Cash payments for income taxes, u $104.1 $60 to $80 Decreased cash payments for net of refunds income taxes expected in 2020 due to overpayments in 2019 and the expected deduction for the exercise of 2020 SARs (see Working capital and other $22.0 $40 to $60 page 19). Maintenance CAPEX $167.1 $155 to $165 Adjusted free cash flow $516.5 $455 to $545 Encompass Health Reconciliations to GAAP provided on pages 40-48; Refer to pages 49-50 for end notes. 17

 
Uses of free cash flow 2019 2020 Actuals Assumptions IRF bed expansions $39.8 $40 to $50 New IRFs - De novos 114.2 200 to 240 Growth in core - Acquisitions — opportunistic business - Replacement IRFs and other 83.1 45 to 65 Home health and hospice acquisitions (includes Alacare in 2019) 231.5 50 to 100 $468.6 $335 to $445 Debt Debt (borrowings) redemptions, net $(548.2) opportunistic reduction Quarterly cash dividend currently set at $0.28 per common share(8) Cash dividends on common stock(8) 108.7 ~$111 Shareholder Purchase of Home Health Holdings and other rollover shares and exercise of SARs distributions (see page 19) 231.4 ~263 Common stock repurchases 45.9 opportunistic $(162.2) $TBD ~$204 million authorization as of Dec. 31, 2019(1) Encompass Health See the debt schedule on page 29. Refer to pages 49-50 for end notes. 18

 
Overview of rollover shares and SARs held by members of the home health and hospice management team Background In connection with the 2014 acquisition of Encompass Home Health and Hospice: • Certain members of that management team rolled a portion of their pre-acquisition equity into the post-acquisition entity (“Home Health Holdings”) resulting in a 16.7% ownership interest (the “Rollover Shares”). Home Health • The Company also granted stock appreciation rights (“SARs”) based on the fair value of the common stock of Home Health Holdings to certain members of that management team. Half of the SARs Holdings vested on Jan. 1, 2019, and the other half vested on Jan. 1, 2020. • Home Health Holdings was capitalized with a promissory note to the parent company totaling ~$385 Original million (equal to 5.5x the segment’s 2014 EBITDA). This was done to provide the opportunity for Rollover leveraged returns on the equity, thereby mimicking a private equity transaction structure. Shares • To the extent Home Health Holdings needed cash (e.g., acquisitions, capex, etc.), such amounts 16.7% were added to the principal amount of the original note and subsequent new notes. Cash generated from the operations of Home Health Holdings has been used to pay interest and a portion of the principal on the notes. Holder – The right (but not the obligation) to sell for cash up to 1/3 of the Rollover Shares to the parent after 1/1/18; Options 2/3 after 1/1/19; and all outstanding Rollover Shares after 1/1/20 Company – The right (but not the obligation) to purchase for cash all or any portion of the Rollover Shares after 1/1/20 Fair value of the Rollover Shares and SARs is determined using the product of Home Health Holdings’ EBITDA for the trailing 12-month period and a median market price multiple based on a basket of public home health companies and Valuation recent transactions, less the current balance of the intracompany note(s) to the parent. As of Dec. 31, 2019, the value of the remaining Rollover Shares was approximately $208 million and the value of the remaining SARs was approximately $101 million. In Feb. 2018, July 2019, and Jan. 2020, holders exercised their rights to sell Rollover Shares to EHC. EHC settled the first two exercises upon payment of approximately $65 million and approximately $163 million in Q1 2018 and Q3 2019, respectively. EHC expects to settle the Jan. 2020 exercises upon payment of approximately $162 million in cash in Feb. 2020. After this payment, approximately $46 million of the rollover shares will remain outstanding, Activity representing ~1.2% Home Health Holdings. In Q1 2019 and Q3 2019, holders exercised vested SARs for cash proceeds of approximately $13 million and approximately $55 million, respectively. In Q1 2020, holders exercised the remaining SARs. EHC expects to settle those SARs for ~$101 million in cash in Q1 2020. Encompass Health 19

 
Appendix

 
Encompass Health a leading provider of inpatient rehabilitation and home-based care Market overlap 89 of EHC’s IRFs have an EHC home health location within the service area.* Portfolio as of December 31, 2019 Inpatient rehabilitation hospitals (“IRFs”) Home health locations Hospice locations 9 Future IRFs** 37 States and Puerto Rico ~43,400 employees Inpatient rehabilitation - 12/31/19 Home health and hospice - 12/31/19 133 IRFs (47 are joint ventures) 245 Home health locations 33 States and Puerto Rico Largest owner and 83 Hospice locations ~31,600 Employees operator of IRFs 31 States 23% of licensed beds† ~11,800 Employees 4th Largest provider of 31% of Medicare patients served† Key statistics - year ended 12/31/19 Medicare-certified Key statistics - year ended 12/31/19 skilled home health ~159,700 Home health admissions ~186,800 Inpatient discharges services ~10,500 Hospice admissions ~$3.5 Billion in revenue ~$1.1 Billion in revenue † * Excluding markets that have home health licensure barriers ** Previously announced under development Based on 2017 and 2018 data Encompass Health Note: Two of the 245 home health locations are nonconsolidated. 21 These locations are accounted for using the equity method of accounting.

 
Rebranding and name change The Company’s rebranding and name change reinforce its existing strategy and position as an integrated provider of inpatient and home-based care. JULY 2017 APRIL 2018 OCT. 2018 Announced Phase 1 field asset Phase 3 field asset planned conversions conversions name change JAN. 2018 JULY 2018 JAN. 2019 As of Jan. 1, 2019, all of the Legally changed Phase 2 field asset Phase 4 field asset Company’s hospitals and name and conversions conversions; home health and hospice stock ticker to transition complete locations have been Encompass Health Corporation (EHC) transitioned to the Encompass Health brand. 2017 2018 2019 Total Operating expenses* ~$6 million ~$11 million ~$1 million ~$18 million Capital expenditures ~$1 million ~$3 million ~$3 million ~$7 million Total rebranding investment ~$7 million ~$14 million ~$4 million ~$25 million Encompass Health *Included in corporate general and administrative expenses line item 22

 
Expansion activity Inpatient Rehabilitation Facilities - As of Dec. 31, 2019 Previously announced IRF # of New Beds 9 2019 2020 2021 development projects underway De novo: Katy, TX 40 — — 1 Murrieta, CA — 50 — 3 New states 2 Sioux Falls, SD — 40 — 3 Toledo, OH 40 4 Cumming, GA — — 50 Q4 2019 expansion activity highlights: 5 North Tampa, FL — — 50 u Announced plans to build a new 40-bed 6 Stockbridge, GA — — 50 inpatient rehabilitation hospital in 7 Greenville, SC — — 40 Toledo, Ohio; expected to be operational Joint ventures: in late 2020 Lubbock, TX 40 — — u Added 40 beds to existing hospitals Boise, ID 40 — — 8 Coralville, IA — 40 — 9 San Angelo, TX — — 40 Bed expansions, net* 152 ~100 ~100 272 ~270 ~330 Home Health and Hospice Locations Q4 2019 expansion activity highlights: # of Locations u Added one home health location in December 31, 2018 278 Florida Acquisitions 48 u Opening of new locations 4 Added one hospice location in Merging of locations (2) Pennsylvania December 31, 2019 328 * Net bed expansions in each year may change due to the timing of certain regulatory approvals and/or construction delays. Encompass Health 23 For 2020, the currently expected range for bed expansions is 100 to 120.

 
Pre-payment claims denials - inpatient rehabilitation segment Background Encompass Health reserves pre-payment claim denials as a reduction of • For several years prior to 2018, under programs designated as net operating revenues upon notice from a MAC a claim is under review. “widespread probes,” certain Medicare Administrative Contractors (“MACs”) conducted pre-payment claim reviews and denied payment for Impact to Income Statement certain diagnosis codes. Update of • Encompass Health appeals most denials. On claims it takes to an Collections of Revenue Reserve for administrative law judge (“ALJ”), Encompass Health historically has Period New Denials Previously Reserve for Denied Claims New Denials Prior experienced an approximate 70% success rate. Denials – MACs identify medical documentation issues as a leading basis for (In Millions) denials. Q4 2019 $3.8 $(4.6) $1.1 $— – Encompass Health’s investment in clinical information systems and its Q3 2019 11.3 (6.1) 3.4 — medical services department has further improved its documentation Q2 2019 3.5 (1.7) 1.1 — and reduced technical denials. Q1 2019 1.6 (2.5) 0.5 — • By statute, ALJ decisions are due within 90 days of a request for hearing, Q4 2018 4.6 (3.2) 1.4 — but appeals are taking years. HHS has implemented rule changes to Q3 2018 0.7 (1.3) 0.2 — address the backlog of appeals, but their effect is uncertain. Q2 2018 1.8 (2.8) 0.5 — • In November 2018, a federal court ordered HHS to reduce the backlog in Q1 2018 3.1 (6.8) 0.9 — the following increments: a 19% reduction by the end of FY 2019; a 49% reduction by the end of FY 2020; a 75% reduction by the end of FY 2021; Q4 2017 0.7 (7.8) 0.2 — and elimination of the backlog by the end of FY 2022. Q3 2017 7.4 (6.2) 2.2 — • All Medicare providers continue to experience delays resulting in a Q2 2017 16.5 (7.7) 4.9 — growing backlog. Q1 2017 19.0 (5.9) 5.7 — – Currently, ALJs are hearing Encompass Health appeals from claims Q4 2016 17.8 (4.4) 5.4 0.5 denied up to eight years ago. Impact to Balance Sheet • In late 2017, CMS implemented the Targeted Probe and Educate (“TPE”) initiative. For more information regarding TPE, see https:// Dec. 31, Dec. 31, Dec. 31, www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring- 2019 2018 2017 Programs/Medicare-FFS-Compliance-Programs/Medical-Review/Targeted- (In Millions) Probe-and-EducateTPE.html Pre-payment claims denials $ 155.3 $ 158.1 $ 164.0 • Effective February 2018, Palmetto GBA assumed responsibilities for Recorded reserves (46.6) (47.4) (49.2) Cahaba’s MAC jurisdiction. See announcement from CMS at https:// Net accounts receivable from www.cms.gov/Medicare/Medicare-Contracting/Medicare-Administrative- pre-payment claims denials $ 108.7 $ 110.7 $ 114.8 Contractors/Downloads/JurisdictionJAwardFactSheet-09082017.pdf Encompass Health 24

 
Business outlook: 2020 to 2022 2020 2021 2022 • Enhance clinical collaboration between the Company’s IRFs and home health locations • Build stroke market share Key • Develop and implement post-acute solutions operational • Implement changes to reimbursement models initiatives in both business segments • Implement Review Choice Demonstration Program • Participate in alternative payment models • Same-store IRF growth Core • New-store IRF growth (de novos and acquisitions) growth • Same-store home health and hospice growth • New-store home health and hospice growth (acquisitions and de novos) Expansion • Regularly evaluate strategic positioning and consider acquisitions of other of service complementary businesses offerings Strong balance • Maintain balance sheet flexibility sheet Shareholder • Quarterly cash dividends on common stock and other • Opportunistic common stock repurchases distribution • Purchases of Home Health Holdings rollover shares and exercises of SARs s Encompass Health 25

 
Business outlook 2020 to 2022: revenue assumptions Inpatient Rehabilitation* Volume (includes new stores) 3+% annual discharge growth Approximately 72% of segment revenue Medicare Pricing FY 2020 FY 2021 FY 2022 Amounts are approximations Q419-Q320(9) Q420-Q321 Q421-Q322 Final Rule Estimate† Estimate† Market basket update 2.9% 3.0% 3.2% Healthcare reform productivity adjustment (0.4%) (0.5%) (0.5%) Net market basket update 2.5% 2.5% 2.7% Change in wage index and other labor adjustments (0.1%) TBD TBD Change in CMG relative weights and average length of stay values(9) (1.65%) to (2.4%) TBD TBD Change in outlier threshold (0.0%) TBD TBD Estimated impact to Encompass Health 0% to 0.75% Medicare Advantage Approximately 21% of revenue and managed care pricing Expected increases 1-3% 2-4% 2-4% * Outpatient, which services accounted for 0.9% of total operating revenues for full-year 2019, is not included in the pricing assumptions. † Estimates are based on current CMS and Congressional Budget Office projections Encompass Health which do not include potential changes from legislation or the CMS rule-making process. 26 Refer to pages 49-50 for end notes.

 
Business outlook 2020 to 2022: revenue assumptions Home Health* Volume 10+% annual admission growth (includes new stores) Approximately 84% of segment revenue Medicare Pricing CY 2020 CY 2021 CY 2022 Amounts are approximations Q120-Q420(10) Q121-Q421 Q122-Q422 Final Rule Estimate† Estimate† Market basket update 1.5% 3.1% 3.2% Legislative changes to the (10) (0.2%) (0.1%) —% rural add-on program Healthcare reform - (0.5%) (0.5%) productivity adjustment Net market basket update 1.3% 2.5% 2.7% Impact to Encompass Health from (2.3%) reimbursement model changes Estimated impact to Encompass Health, net of (1.0%) market basket update Base rate reduction for assumed (4.4%) behavioral adjustments Estimated impact, including the base rate (5.4%) reduction for assumed behavioral adjustments Assumed offsets 3.4% to 2.4% Estimated impact (2.0%) to (3.0%) to Encompass Health Medicare Advantage and managed care pricing Approximately 14% of revenue Expected increases 0-2% 0-2% 0-2% * Hospice, which services accounted for 3.8% of total operating revenues for full-year 2019, is not included in the above pricing assumptions. Estimated 0.25% to 0.75% net Medicare pricing increase for CY2020 for Encompass Health’s hospice. † Estimates are based on current CMS and Congressional Budget Office projections Encompass Health which do not include potential changes from legislation or the CMS rule-making process. 27 Refer to pages 49-50 for end notes.

 
Business outlook 2020 to 2022: labor and other expense assumptions Inpatient Rehabilitation Home Health and Hospice Salaries and Benefits 2020 2021 2022 Salary increases ~3.0% 2.85-3.35% 2.85-3.35% Benefit costs increases 8-12% 5-10% 5-10% Segment Operating Expenses Salaries Salaries and benefits and benefits ~70% ~85% % of Salaries and Benefits Salaries ~90% Other Other expenses Benefits ~10% expenses ~30% ~15% IRF Expenses Home Health and Hospice Expenses •Other operating expenses and supply •Other operating expenses and supply costs tracking with inflation costs tracking with inflation Encompass Health 28

 
Debt schedule Change in December 31, December 31, Debt vs. ($millions) 2019 2018 YE 2018 Advances under $1 billion revolving credit facility, November 2024 - LIBOR +150bps $ 45.0 $ 30.0 $ 15.0 Term loan facility, November 2024 - LIBOR +150bps 265.2 280.1 (14.9) Bonds Payable: 5.125% Senior Notes due 2023 297.3 296.6 0.7 5.75% Senior Notes due 2024(3) 697.3 1,194.7 (497.4) 5.75% Senior Notes due 2025 345.6 345.0 0.6 4.50% Senior Notes due 2028(11) 491.7 — 491.7 4.75% Senior Notes due 2030(11) 491.7 — 491.7 Other notes payable 44.7 104.2 (59.5) Finance lease obligations 384.1 263.8 120.3 Long-term debt $ 3,062.6 $ 2,514.4 $ 548.2 Debt to Adjusted EBITDA 3.2x 2.8x Encompass Health Reconciliations to GAAP provided on pages 40-48; Refer to pages 49-50 for end notes. 29

 
Debt maturity profile - face value As of December 31, 2019* ($ in millions) $916 Available Callable beginning $45 Drawn + November 2017 $39 reserved Callable beginning for LC’s Revolver February 2023 capacity Callable beginning February 2025 $700 Callable beginning Callable beginning Senior September 2020 March 2018 Notes 5.75% $500 $500 $350 Senior Senior $265 $300 Senior Notes Notes Senior Term Notes 4.5% 4.75% Notes Loans 5.75% 5.125% Revolver 2020 2022 2023 2024 2024 2024 2025 2026 2027 2028 2029 2030 No significant debt maturities prior to 2023 * This chart does not include ~$384 million of finance lease obligations or ~$45 million of other notes payable. Encompass Health See the debt schedule on page 29. 30

 
New-store/same-store growth Inpatient Rehabilitation 25.0 20.0 Yuma, AZ (51 beds)(2) Shelby County, AL (34 beds) Boise, ID (40 beds) Bluffton, SC (38 beds) Gulfport, MS (33 beds) Katy, TX (40 beds) 15.0 Westerville, OH (60 beds) Murrells Inlet, Lubbock, TX Pearland, TX SC (29 beds) (40 beds) 10.0 (40 beds) Jackson, TN Winston-Salem, (48 beds) NC (68 beds) 5.0 0.0 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Discharges Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 New store 1.2% 1.9% 2.4% 2.0% 1.9% 1.6% 1.0% 1.7% 1.3% 1.5% 2.4% 2.0% Same store 1.6% 1.6% 1.4% 3.9% 4.8% 3.6% 2.0% 1.9% (0.2)% 2.2% 3.1% 3.2% Total by qtr. 2.8% 3.5% 3.8% 5.9% 6.7% 5.2% 3.0% 3.6% 1.1% 3.7% 5.5% 5.2% Total by year 4.0% 4.6% 3.9% Same-store year* 1.8% 2.8% 1.8% Same-store year UDS (12) (0.5)% 1.1% TBD * Includes consolidated inpatient rehabilitation hospitals classified as same store during each period Encompass Health Refer to pages 49-50 for end notes. 31

 
New-store/same-store growth Home Health Acquired Alacare Home Health & Hospice 30.0 (23 home health locations in Alabama) in July 2019 25.0 Acquired Camellia Healthcare (14 home health locations in 3 states) 20.0 in May 2018 15.0 10.0 5.0 0.0 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Admissions Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 New store 5.7% 6.4% 6.7% 3.5% 2.5% 5.3% 5.4% 5.3% 5.7% 2.9% 13.0% 12.3% Same store* 13.9% 13.3% 8.8% 10.1% 7.4% 5.1% 3.8% 5.4% 6.4% 8.3% 9.7% 6.6% Total by quarter 19.6% 19.7% 15.5% 13.6% 9.9% 10.4% 9.2% 10.7% 12.1% 11.2% 22.7% 18.9% Total by year 17.0% 10.0% 16.3% Same-store year* 11.4% 5.6% 7.7% u In 2017, the Company acquired or opened 15 home health locations. u In 2018, the Company acquired or opened 23 home health locations. u In 2019, the Company acquired or opened 27 home health locations. Encompass Health * Includes consolidated home health agencies classified as same store during each period 32

 
New-store/same-store growth Hospice Acquired Camellia Healthcare (18 hospice locations in 3 states) Acquired Alacare Home Health & Hospice in May 2018 (23 hospice locations in Alabama) 60.0 in July 2019 40.0 20.0 0.0 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Admissions Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 New store 38.6% 28.8% 24.2% 8.8% 4.4% 26.1% 40.3% 41.2% 35.5% 15.7% 34.6% 31.1% Same store* 17.2% 13.1% 28.8% 27.2% 36.8% 35.2% 21.1% 8.6% 13.7% 13.6% 5.8% 10.1% Total by quarter 55.8% 41.9% 53.0% 36.0% 41.2% 61.3% 61.4% 49.8% 49.2% 29.3% 40.4% 41.2% Total by year 45.9% 53.5% 39.8% Same-store year* 20.9% 24.6% 12.2% u In 2017, the Company acquired or opened 2 hospice locations. u In 2018, the Company acquired or opened 22 hospice locations. u In 2019, the Company acquired or opened 25 hospice locations. Encompass Health * Includes consolidated hospice agencies classified as same store during each period 33

 
Payment sources (percent of revenues) Inpatient Home Health Rehabilitation and Hospice Consolidated Segment Segment Q4 Q4 Q4 Full Year 2019 2018 2019 2018 2019 2018 2019 2018 Medicare 71.9% 73.4% 83.8% 85.0% 74.8% 76.0% 75.1% 75.9% Medicare Advantage 11.1% 9.5% 10.1% 9.6% 10.8% 9.5% 10.6% 9.2% Managed care 9.5% 10.2% 4.3% 3.3% 8.2% 8.7% 8.3% 8.8% Medicaid 3.2% 2.8% 1.6% 1.7% 2.8% 2.6% 2.8% 2.6% Other third-party payors 1.2% 1.5% —% —% 0.9% 1.1% 0.9% 1.1% Workers’ compensation 0.8% 0.7% 0.1% 0.3% 0.7% 0.6% 0.7% 0.7% Patients 0.6% 0.5% —% —% 0.5% 0.4% 0.5% 0.5% Other income 1.7% 1.4% 0.1% 0.1% 1.3% 1.1% 1.1% 1.2% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Encompass Health 34

 
Inpatient rehabilitation operational and labor metrics Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2019 2019 2019 2019 2018 2018 2018 2018 2019 2018 (In Millions) Net patient revenue- inpatient $ 873.5 $ 850.6 $ 851.8 $ 847.6 $ 822.8 $ 798.4 $ 809.6 $ 817.1 $ 3,423.5 $ 3,247.9 Net patient revenue- outpatient and other revenues 23.2 21.7 22.1 22.5 22.9 27.2 25.0 23.2 89.5 98.3 Net operating revenues $ 896.7 $ 872.3 $ 873.9 $ 870.1 $ 845.7 $ 825.6 $ 834.6 $ 840.3 $ 3,513.0 $ 3,346.2 (Actual Amounts) Discharges(13) 47,885 46,669 46,679 45,609 45,498 44,230 45,010 45,108 186,842 179,846 Net patient revenue per discharge $ 18,242 $ 18,226 $ 18,248 $ 18,584 $ 18,084 $ 18,051 $ 17,987 $ 18,114 $ 18,323 $ 18,059 Outpatient visits 82,536 86,395 104,566 102,028 111,399 119,006 131,041 127,308 375,525 488,754 Average length of stay 12.4 12.6 12.5 12.8 12.5 12.7 12.5 12.7 12.6 12.6 Occupancy % 70.0% 69.2% 70.6% 72.3% 68.8% 68.9% 70.1% 71.9% 69.5% 69.3% # of licensed beds 9,249 9,219 9,062 8,941 8,966 8,888 8,848 8,831 9,249 8,966 Occupied beds 6,474 6,380 6,398 6,464 6,169 6,124 6,202 6,349 6,428 6,213 Full-time equivalents (FTEs)(14) 22,096 22,037 21,570 21,345 21,199 21,119 21,010 20,978 21,762 21,076 Contract labor 159 187 227 246 266 237 248 285 205 259 Total FTE and contract labor 22,255 22,224 21,797 21,591 21,465 21,356 21,258 21,263 21,967 21,335 EPOB(15) 3.44 3.48 3.41 3.34 3.48 3.49 3.43 3.35 3.42 3.43 Refer to pages 49-50 for end notes. Encompass Health 35

 
Home health and hospice operational metrics Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2019 2019 2019 2019 2018 2018 2018 2018 2019 2018 (In Millions) Net home health revenue $ 236.9 $ 238.9 $ 222.7 $ 219.5 $ 215.3 $ 209.2 $ 204.8 $ 185.3 $ 918.0 $ 814.6 Net hospice revenue 50.8 50.4 38.4 34.4 35.0 32.8 28.3 20.4 174.0 116.5 Net operating revenues $ 287.7 $ 289.3 $ 261.1 $ 253.9 $ 250.3 $ 242.0 $ 233.1 $ 205.7 $ 1,092.0 $ 931.1 Home Health: (Actual Amounts) Admissions(16) 41,781 42,174 37,828 37,944 35,151 34,364 34,026 33,855 159,727 137,396 Recertifications 29,460 30,213 28,129 28,282 29,530 28,733 28,089 25,229 116,084 111,581 Episodes 73,055 72,016 66,881 63,626 64,037 61,765 61,238 56,658 275,578 243,698 Average revenue per episode $ 2,901 $ 2,980 $ 2,959 $ 3,057 $ 2,972 $ 2,995 $ 2,968 $ 2,934 $ 2,972 $ 2,968 Episodic visits per episode 16.4 17.3 17.1 17.7 17.4 17.6 17.5 17.9 17.1 17.6 Total visits 1,372,326 1,425,323 1,325,362 1,308,610 1,285,150 1,259,055 1,240,490 1,174,950 5,431,621 4,959,645 Cost per visit $ 79 $ 78 $ 76 $ 75 $ 76 $ 77 $ 76 $ 75 $ 77 $ 76 Hospice: Admissions(17) 2,866 2,884 2,324 2,378 2,030 2,054 1,797 1,593 10,452 7,474 Patient days 345,855 353,549 259,501 239,022 231,515 223,834 192,404 143,231 1,197,927 790,984 Average daily census 3,759 3,843 2,852 2,656 2,516 2,433 2,114 1,591 3,282 $ 2,167 Revenue per day $ 147 $ 142 $ 148 $ 144 $ 151 $ 147 $ 148 $ 142 $ 145 $ 147 Encompass Health Refer to pages 49-50 for end notes. 36

 
Share information Weighted Average for the Period Q4 Full Year (Millions) 2019 2018 2019 2018 2017 Basic shares outstanding(18) 97.8 98.0 98.0 97.9 93.7 Convertible senior subordinated notes(18) — — — — 4.0 Restricted stock awards, dilutive stock options, restricted stock units, and common stock warrants 1.7 2.0 1.4 1.9 1.6 Diluted shares outstanding 99.5 100.0 99.4 99.8 99.3 End of Period Q4 Full Year (Millions) 2019 2018 2019 2018 2017 Basic shares outstanding(18) 98.6 98.9 98.6 98.9 98.3 Encompass Health Refer to pages 49-50 for end notes. 37

 
Segment operating results Q4 2019 Q4 2018 Home Home Health and Health and (In Millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 896.7 $ 287.7 $ — $ 1,184.4 $ 845.7 $ 250.3 $ — $ 1,096.0 Operating Expenses: Inpatient Rehabilitation: Salaries and benefits (465.4) — (203.1) (668.5) (437.2) — (176.1) (613.3) Other operating expenses(a) (135.8) — (23.5) (159.3) (128.2) — (19.9) (148.1) Supplies (37.7) — (5.5) (43.2) (36.4) — (4.5) (40.9) Occupancy (15.7) — (4.9) (20.6) (16.4) — (3.9) (20.3) Home Health and Hospice: Cost of services sold (excluding depreciation and amortization) — (133.4) 133.4 — — (116.1) 116.1 — Support and overhead costs — (103.6) 103.6 — — (88.3) 88.3 — (654.6) (237.0) — (891.6) (618.2) (204.4) — (822.6) Other income(b) 4.0 — — 4.0 0.1 — — 0.1 Equity in net income of nonconsolidated affiliates 1.0 0.2 — 1.2 2.0 0.3 — 2.3 Noncontrolling interests(c) (22.0) (1.3) — (23.3) (17.9) (2.1) — (20.0) Segment Adjusted EBITDA $ 225.1 $ 49.6 $ — 274.7 $ 211.7 $ 44.1 $ — 255.8 General and administrative expenses(d)(e) (36.5) (34.0) Adjusted EBITDA $ 238.2 $ 221.8 In arriving at Adjusted EBITDA, the following were excluded: (a) Loss on disposal of assets $ 7.8 $ — $ — $ 7.8 $ 3.5 $ — $ — $ 3.5 (b) Change in fair market value of $ 0.4 $ — $ — $ 0.4 $ 0.8 $ — $ — $ 0.8 equity securities (c) SARs mark-to-market impact on $ — $ (0.7) $ — $ (0.7) $ — $ (0.4) $ — $ (0.4) noncontrolling interests (see page 19) (d) Stock-based compensation $ — $ — $ — $ 27.4 $ — $ — $ — $ 20.3 (e) Transaction costs $ — $ — $ — $ 0.1 $ — $ — $ — $ — Encompass Health Reconciliations to GAAP provided on pages 40-48 38

 
Segment operating results Year Ended December 31, 2019 Year Ended December 31, 2018 Home Home Health and Health and (In Millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 3,513.0 $ 1,092.0 $ — $ 4,605.0 $ 3,346.2 $ 931.1 $ — $ 4,277.3 Operating Expenses: Inpatient Rehabilitation: Salaries and benefits (1,813.1) — (758.9) (2,572.0) (1,701.5) — (652.5) (2,354.0) Other operating expenses(a) (521.9) — (90.6) (612.5) (502.3) — (77.1) (579.4) Supplies (147.0) — (20.9) (167.9) (140.6) — (18.1) (158.7) Occupancy (64.8) — (17.5) (82.3) (63.8) — (14.2) (78.0) Home Health and Hospice: Cost of services sold (excluding depreciation and amortization) — (506.2) 506.2 — — (438.4) 438.4 — Support and overhead costs(b) — (381.7) 381.7 — — (323.5) 323.5 — (2,546.8) (887.9) — (3,434.7) (2,408.2) (761.9) — (3,170.1) Other income(c)(d) 10.5 — — 10.5 3.6 0.5 — 4.1 Equity in net income of nonconsolidated affiliates 5.5 1.2 — 6.7 7.5 1.2 — 8.7 Noncontrolling interests(e) (82.6) (9.5) — (92.1) (77.2) (8.5) — (85.7) Segment Adjusted EBITDA $ 899.6 $ 195.8 $ — 1,095.4 $ 871.9 $ 162.4 $ — 1,034.3 General and administrative expenses(f)(g) (130.5) (133.3) Adjusted EBITDA $ 964.9 $ 901.0 In arriving at Adjusted EBITDA, the following were excluded: (a) Loss (gain) on disposal of assets $ 11.2 $ (0.1) $ — $ 11.1 $ 5.7 $ — $ — $ 5.7 (b) Payroll taxes on SARs exercise $ — $ 1.0 $ — $ 1.0 $ — $ — $ — $ — (c) Change in fair market value of $ (0.8) $ — $ — $ (0.8) $ 1.9 $ — $ — $ 1.9 equity securities (d) Gain on consolidation of Yuma(2) $ (19.2) $ — $ — $ (19.2) $ — $ — $ — $ — (e) SARs mark-to-market impact on $ — $ (5.0) $ — $ (5.0) $ — $ (2.6) $ — $ (2.6) noncontrolling interests (see page 19) (f) Stock-based compensation $ — $ — $ — $ 114.4 $ — $ — $ — $ 85.9 (g) Transaction costs $ — $ — $ — $ 2.1 $ — $ — $ — $ 1.0 Encompass Health Reconciliations to GAAP provided on pages 40-48 39

 
Reconciliation of net income to Adjusted EBITDA(7) 2019 Q1 Q2 Q3 Q4 Full Year Per Per Per Per Per (in millions, except per share data) Total Share Total Share Total Share Total Share Total Share Net Income $ 125.2 $ 110.9 $ 119.5 $ 90.2 $ 445.8 Loss from disc ops, net of tax, attributable to Encompass Health 0.5 0.1 — — 0.6 Net income attributable to noncontrolling interests (22.9) (19.7) (21.9) (22.6) (87.1) Income from continuing operations attributable to Encompass Health* 102.8 $ 1.04 91.3 $ 0.92 97.6 $ 0.98 67.6 $ 0.68 359.3 $ 3.62 Provision for income tax expense 30.8 23.5 34.3 27.3 115.9 Interest expense and amortization of debt discounts and fees 37.2 37.7 40.3 44.5 159.7 Depreciation and amortization 52.5 52.7 55.1 58.4 218.7 Loss on early extinguishment of debt(3) — 2.3 — 5.4 7.7 Loss on disposal of assets 1.1 1.3 0.9 7.8 11.1 Stock-based compensation expense 19.4 45.9 21.7 27.4 114.4 Transaction costs 0.6 0.4 1.0 0.1 2.1 Gain on consolidation of Yuma(2) — — (19.2) — (19.2) SARs mark-to-market impact on noncontrolling interests (see page 19) (0.8) (2.6) (0.9) (0.7) (5.0) Change in fair market value of equity securities (0.9) (0.3) — 0.4 (0.8) Payroll taxes on SARs exercise 0.2 — 0.8 — 1.0 Adjusted EBITDA $ 242.9 $ 252.2 $ 231.6 $ 238.2 $ 964.9 Weighted average common shares outstanding: Basic 98.4 98.0 97.8 97.8 98.0 Diluted 99.7 99.3 99.4 99.5 99.4 * Per share amounts for each period presented are based on diluted weighted-average shares outstanding. Encompass Health Refer to pages 49-50 for end notes. 40

 
Reconciliation of net income to Adjusted EBITDA(7) 2018 Q1 Q2 Q3 Q4 Full Year Per Per Per Per Per (in millions, except per share data) Total Share Total Share Total Share Total Share Total Share Net Income $ 105.2 $ 113.2 $ 109.3 $ 47.7 $ 375.4 Loss (income) from disc ops, net of tax, attributable to Encompass Health 0.5 (0.2) 0.1 (1.5) (1.1) Net income attributable to noncontrolling interests (21.4) (21.4) (20.7) (19.6) (83.1) Income from continuing operations attributable to Encompass Health* 84.3 $ 0.85 91.6 $ 0.92 88.7 $ 0.89 26.6 $ 0.26 291.2 $ 2.92 Gov't, class action, and related settlements(4) — — — 52.0 52.0 Provision for income tax expense 30.0 29.3 30.2 29.4 118.9 Interest expense and amortization of debt discounts and fees 35.6 37.7 37.3 36.7 147.3 Depreciation and amortization 45.9 49.7 51.2 52.9 199.7 Loss (gain) on disposal of assets 0.8 2.4 (1.0) 3.5 5.7 Stock-based compensation expense 26.1 21.4 18.1 20.3 85.9 Transaction costs 1.0 — — — 1.0 SARs mark-to-market impact on noncontrolling interests (see page 19) (1.0) (0.9) (0.3) (0.4) (2.6) Change in fair market value of equity securities 0.6 0.4 0.1 0.8 1.9 Adjusted EBITDA $ 223.3 $ 231.6 $ 224.3 $ 221.8 $ 901.0 Weighted average common shares outstanding: Basic 97.8 97.9 98.0 98.0 97.9 Diluted 99.4 99.6 100.0 100.0 99.8 * Per share amounts for each period presented are based on diluted weighted-average shares outstanding. Encompass Health Refer to pages 49-50 for end notes. 41

 
Net cash provided by operating activities reconciled to Adjusted EBITDA(7) Q4 Full Year (In Millions) 2019 2018 2019 2018 Net cash provided by operating activities $ 215.6 $ 178.4 $ 635.3 $ 762.4 Interest expense and amortization of debt discounts and fees 44.5 36.7 159.7 147.3 Equity in net income of nonconsolidated affiliates 1.2 2.3 6.7 8.7 Net income attributable to noncontrolling interests in continuing operations (22.6) (19.6) (87.1) (83.1) Amortization of debt-related items (1.4) (1.0) (4.5) (4.0) Distributions from nonconsolidated affiliates (1.8) (2.8) (6.6) (8.3) Current portion of income tax expense 8.1 30.5 75.9 128.0 Change in assets and liabilities (5.3) 1.1 180.1 (46.0) Cash (provided by) used in operating activities of discontinued operations (0.2) (1.5) 4.4 (0.8) Transaction costs 0.1 — 2.1 1.0 SARs mark-to-market impact on noncontrolling interests (see page 19) (0.7) (0.4) (5.0) (2.6) Payroll taxes on SARs exercise — — 1.0 — Change in fair market value of equity securities 0.4 0.8 (0.8) 1.9 Other 0.3 (2.7) 3.7 (3.5) Adjusted EBITDA $ 238.2 $ 221.8 $ 964.9 $ 901.0 Encompass Health Refer to pages 49-50 for end notes. 42

 
Reconciliation of segment Adjusted EBITDA to income from continuing operations before income tax expense Three Months Ended Year Ended December 31, December 31, 2019 2018 2019 2018 (In Millions) Total segment Adjusted EBITDA $ 274.7 $ 255.8 $ 1,095.4 $ 1,034.3 General and administrative expenses (64.0) (54.3) (247.0) (220.2) Depreciation and amortization (58.4) (52.9) (218.7) (199.7) Loss on disposal of assets (7.8) (3.5) (11.1) (5.7) Government, class action, and related settlements(4) — (52.0) — (52.0) Loss on early extinguishment of debt(3) (5.4) — (7.7) — Interest expense and amortization of debt discounts and fees (44.5) (36.7) (159.7) (147.3) Net income attributable to noncontrolling interests 22.6 19.6 87.1 83.1 SARs mark-to-market impact on noncontrolling interests (see page 19) 0.7 0.4 5.0 2.6 Change in fair market value of equity securities (0.4) (0.8) 0.8 (1.9) Gain on consolidation of Yuma(2) — — 19.2 — Payroll taxes on SARs exercise — — (1.0) — Income from continuing operations before income tax expense $ 117.5 $ 75.6 $ 562.3 $ 493.2 Encompass Health 43

 
Reconciliation of net cash provided by operating activities to adjusted free cash flow(6) Q4 Full Year (In Millions) 2019 2018 2019 2018 Net cash provided by operating activities $ 215.6 $ 178.4 $ 635.3 $ 762.4 Impact of discontinued operations (0.2) (1.5) 4.4 (0.8) Net cash provided by operating activities of continuing operations 215.4 176.9 639.7 761.6 Capital expenditures for maintenance (62.0) (47.6) (167.1) (152.9) Distributions paid to noncontrolling interests of consolidated affiliates (22.2) (18.9) (79.8) (75.4) Items non-indicative of ongoing operating performance: Cash paid for government, class action, and related settlements 5.6 — 52.0 — Transaction costs and related assumed liabilities 0.1 2.9 2.1 0.5 Cash paid for SARs exercise (inclusive of payroll taxes) — — 69.6 4.3 Adjusted free cash flow $ 136.9 $ 113.3 $ 516.5 $ 538.1 Cash dividends on common stock $ 27.4 $ 26.4 $ 108.7 $ 100.8 Encompass Health Refer to pages 49-50 for end notes. 44

 
Adjusted EPS(5) - Q4 2019 For the Three Months Ended December 31, 2019 Adjustments Mark-to- Market Change in Adjustment Loss on Fair Market for Stock Early Value of As Comp. Exting. Income Tax Transaction Equity As Reported Expense of Debt Adjustments Costs Securities Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA $ 238.2 $ — $ — $ — $ — $ — $ 238.2 Depreciation and amortization (58.4) — — — — — (58.4) Interest expense and amortization of debt discounts and fees (44.5) — — — — — (44.5) Stock-based compensation (27.4) 15.5 — — — — (11.9) Loss on disposal of assets (7.8) — — — — — (7.8) Loss on early extinguishment of debt(3) (5.4) — 5.4 — — — — Transaction costs (0.1) — — — 0.1 — — SARs mark-to-market impact on noncontrolling interests (see page 19) 0.7 (0.7) — — — — — Change in fair market value of equity securities (0.4) — — — — 0.4 — Income from continuing operations before income tax expense 94.9 14.8 5.4 — 0.1 0.4 115.6 Provision for income tax expense (27.3) (4.0) (1.5) 2.3 (0.1) (0.1) (30.7) Income from continuing operations attributable to Encompass Health $ 67.6 $ 10.8 $ 3.9 $ 2.3 $ — $ 0.3 $ 84.9 Diluted earnings per share from continuing operations* $ 0.68 $ 0.11 $ 0.04 $ 0.02 $ — $ — $ 0.85 Diluted shares used in calculation 99.5 Encompass Health * Adjusted EPS may not sum across due to rounding. 45 Refer to pages 49-50 for end notes.

 
Adjusted EPS(5) - Q4 2018 For the Three Months Ended December 31, 2018 Adjustments Mark-to- Market Change in Gov't, Class Adjustment Fair Market Action, & for Stock Value of As Related Compensation Income Tax Equity As Reported Settlements Expense Adjustments Securities Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA $ 221.8 — $ — $ — $ — $ 221.8 Depreciation and amortization (52.9) — — — — (52.9) Interest expense and amortization of debt discounts and fees (36.7) — — — — (36.7) Stock-based compensation (20.3) — 4.6 — — (15.7) Loss on disposal of assets (3.5) — — — — (3.5) SARs mark-to-market impact on noncontrolling interests (see page 19) 0.4 — (0.4) — — — Change in fair market value of equity securities (0.8) — — — 0.8 — Government, class action, and related settlements(4) (52.0) 52.0 — — — Income from continuing operations before income tax expense 56.0 52.0 4.2 — 0.8 113.0 Provision for income tax expense (29.4) — (1.2) (1.9) (0.2) (32.7) Income from continuing operations attributable to Encompass Health $ 26.6 $ 52.0 $ 3.0 $ (1.9) $ 0.6 $ 80.3 Diluted earnings per share from continuing operations* $ 0.26 $ 0.52 $ 0.03 $ (0.02) $ 0.01 $ 0.80 Diluted shares used in calculation 100.0 Encompass Health * Adjusted EPS may not sum across due to rounding. 46 Refer to pages 49-50 for end notes.

 
Adjusted EPS(5) - YTD 2019 For the Year Ended December 31, 2019 Adjustments Mark-to- Loss Market on Change in Adjustment Early Fair Market Payroll for Stock Exting. Value of Gain on Taxes on As Comp. of Income Tax Transaction Equity Consolidation SARs As Reported Expense Debt Adjustments Costs Securities of Yuma Exercise Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA $ 964.9 $ — $ — $ — $ — $ — $ — $ — $ 964.9 Depreciation and amortization (218.7) — — — — — — — (218.7) Interest expense and amortization of debt discounts and fees (159.7) — — — — — — — (159.7) Stock-based compensation (114.4) 68.5 — — — — — — (45.9) Loss on disposal of assets (11.1) — — — — — — — (11.1) Loss on early extinguishment of debt(3) (7.7) — 7.7 — — — — — — Transaction costs (2.1) — — — 2.1 — — — — Gain on consolidation of Yuma(2) 19.2 — — — — — (19.2) — — SARs mark-to-market impact on noncontrolling interests (see page 19) 5.0 (5.0) — — — — — — — Change in fair market value of equity securities 0.8 — — — — (0.8) — — — Payroll taxes on SARs exercise (1.0) — — — — — — 1.0 — Income from continuing operations before income tax expense 475.2 63.5 7.7 — 2.1 (0.8) (19.2) 1.0 529.5 Provision for income tax expense (115.9) (17.2) (2.1) (10.3) (0.6) 0.2 5.2 (0.2) (140.9) Income from continuing operations attributable to Encompass Health $ 359.3 $ 46.3 $ 5.6 $ (10.3) $ 1.5 $ (0.6) $ (14.0) $ 0.8 $ 388.6 Diluted earnings per share from continuing operations* $ 3.62 $ 0.47 $ 0.06 $ (0.10) $ 0.02 $ (0.01) $ (0.14) $ 0.01 $ 3.91 Diluted shares used in calculation 99.4 Encompass Health * Adjusted EPS may not sum across due to rounding. 47 Refer to pages 49-50 for end notes.

 
Adjusted EPS(5) - YTD 2018 For the Year Ended December 31, 2018 Adjustments Mark-to- Market Change in Gov't, Class Adjust. on Fair Market Action, & Stock Value of As Related Comp. Income Tax Transaction Equity As Reported Settlements Expense Adjustments Costs Securities Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA $ 901.0 — $ — $ — $ — $ — $ 901.0 Depreciation and amortization (199.7) — — — — — (199.7) Interest expense and amortization of debt discounts and fees (147.3) — — — — — (147.3) Stock-based compensation (85.9) — 31.2 — — — (54.7) Loss on disposal of assets (5.7) — — — — — (5.7) Transaction costs (1.0) — — — 1.0 — — SARs mark-to-market impact on noncontrolling interests (see page 19) 2.6 — (2.6) — — — — Change in fair market value of equity securities (1.9) — — — — 1.9 — Government, class action, and related settlements(4) (52.0) 52.0 — — — — — Income from continuing operations before income tax expense 410.1 52.0 28.6 — 1.0 1.9 493.6 Provision for income tax expense (118.9) — (8.0) (3.3) (0.3) (0.5) (131.0) Income from continuing operations attributable to Encompass Health $ 291.2 $ 52.0 $ 20.6 $ (3.3) $ 0.7 $ 1.4 $ 362.6 Diluted earnings per share from continuing operations* $ 2.92 $ 0.52 $ 0.21 $ (0.03) $ 0.01 $ 0.01 $ 3.63 Diluted shares used in calculation 99.8 Encompass Health * Adjusted EPS may not sum across due to rounding. 48 Refer to pages 49-50 for end notes.

 
End notes (1) On Oct. 28, 2013, the Company announced its board of directors authorized the repurchase of up to $200 million of its common stock. On Feb. 14, 2014, the Company's board approved an increase in this common stock repurchase authorization from $200 million to $250 million. As of June 30, 2018, the remaining repurchase authorization was approximately $58 million. On July 24, 2018, the Company's board approved resetting the aggregate common stock repurchase authorization to $250 million. As of December 31, 2019, the remaining repurchase authorization was approximately $204 million. (2) As a result of negotiations with our partner to amend the joint venture agreement related to Yuma Rehabilitation Hospital, the accounting for this hospital changed from the equity method of accounting to a consolidated entity effective July 1, 2019. We accounted for this change in control as a business combination and consolidated this entity using the acquisition method. As a result of our consolidation of this hospital and the remeasurement of our previously held equity interest at fair value, we recorded a $19.2 million gain as part of other income in the third quarter of 2019. (3) In June 2019, the Company redeemed $100 million of its 5.75% Senior Notes due 2024 at a price of 101.917%, which resulted in a total cash outlay of ~$102 million. The redemption was funded using cash on hand and funding under the Company’s revolving credit facility. As a result of this redemption, the Company recorded an approximate $2 million loss on early extinguishment of debt in the second quarter of 2019. In November 2019, the Company redeemed $400 million of its 5.75% Senior Notes due 2024 at a price of 100.958%, which resulted in a total cash outlay of approximately $404 million. The redemption was funded using a portion of the proceeds from the Company’s September 2019 public offering of $1 billion of senior unsecured notes (see end note 11). As a result of the redemption, the Company recorded an approximate $5 million loss on early extinguishment of debt in the fourth quarter of 2019. (4) As previously disclosed, from 2013 to 2019, the Company cooperated with an investigation of alleged improper or fraudulent Medicare and Medicaid claims. The investigation, under the direction of DOJ, produced no evidence of fraud, falsity or wrongdoing. However, based on discussions with DOJ, and having considered the burdens and distractions associated with continuing the investigation and the likely costs of future litigation, the Company estimated a settlement value of $48 million and accrued a loss contingency in that amount in the fourth quarter of 2018. Following further discussions, the Company entered into an agreement effective as of June 21, 2019 to settle the DOJ investigation, together with related qui tam or “whistleblower” lawsuits, for a cash payment of $48 million. (5) The Company is providing adjusted earnings per share from continuing operations attributable to Encompass Health (“adjusted earnings per share”), which is a non- GAAP measure. The Company believes the presentation of adjusted earnings per share provides useful additional information to investors because it provides better comparability of ongoing operating performance to prior periods given that it excludes the impact of government, class action, and related settlements, professional fees - accounting, tax, and legal, mark-to-market adjustments for stock appreciation rights, gains or losses related to hedging and equity instruments, loss on early extinguishment of debt, adjustments to its income tax provision (such as valuation allowance adjustments, settlements of income tax claims and windfall tax benefits), items related to corporate and facility restructurings, and certain other items deemed to be non-indicative of ongoing operating performance. It is reasonable to expect that one or more of these excluded items will occur in future periods, but the amounts recognized can vary significantly from period to period and may not directly relate to the Company's ongoing operating performance. Accordingly, they can complicate comparisons of the Company's results of operations across periods and comparisons of the Company's results to those of other healthcare companies. Adjusted earnings per share should not be considered as a measure of financial performance under generally accepted accounting principles in the United States as the items excluded from it are significant components in understanding and assessing financial performance. Because adjusted earnings per share is not a measurement determined in accordance with GAAP and is thus susceptible to varying calculations, it may not be comparable as presented to other similarly titled measures of other companies.* (6) Definition of adjusted free cash flow, which is a non-GAAP measure, is net cash provided by operating activities of continuing operations minus capital expenditures for maintenance, dividends paid on preferred stock, distributions to noncontrolling interests, and certain other items deemed to be non-indicative of ongoing operating performance. Common stock dividends are not included in the calculation of adjusted free cash flow. Because this measure is not determined in accordance with GAAP and is susceptible to varying calculations, it may not be comparable to other similarly titled measures presented by other companies. (7) Adjusted EBITDA is a non-GAAP financial measure. The Company’s leverage ratio (total consolidated debt to Adjusted EBITDA for the trailing four quarters) is, likewise, a non-GAAP measure. Management and some members of the investment community utilize Adjusted EBITDA as a financial measure and the leverage ratio as a liquidity measure on an ongoing basis. These measures are not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance or liquidity. In evaluating Adjusted EBITDA, the reader should be aware that in the future the Company may incur expenses similar to the adjustments set forth. (8) On July 20, 2017, the board of directors approved a $0.01 per share, or 4.2%, increase to the quarterly cash dividend on the Company’s common stock, bringing the quarterly cash dividend to $0.25 per common share. On July 24, 2018, the board of directors approved a $0.02 per share, or 8.0%, increase to the quarterly cash dividend on the Company’s common stock, bringing the quarterly cash dividend to $0.27 per common share. On July 23, 2019, the board of directors approved a $0.01 per share, or 3.7%, increase to the quarterly cash dividend on the Company’s common stock, bringing the quarterly cash dividend to $0.28 per common share. Encompass Health * Reconciliations to GAAP provided on pages 40-48. 49

 
End notes, con’t. (9) On July 31, 2019, the Centers for Medicare and Medicaid Services released its notice of final rule making for fiscal year 2020 under the inpatient rehabilitation facility prospective payment system (the “2020 Final IRF Rule”). Based on its analysis of the adjustments included in the final rule and other factors, including the acuity of the Company’s patients over the three-month period ended December 31, 2019, the Company currently estimates its Medicare payment rates for its inpatient rehabilitation segment will be flat to up 75 basis points in fiscal year 2020 (effective October 1, 2019). Beginning on October 1, 2019, CMS will implement new case mix groupings, relative weights and length of stay values to reflect incorporation of CARE Tool assessment data. These changes will impact payment under the IRF-PPS. (10) On October 31, 2019, CMS released its notice of final rulemaking for calendar year 2020 (the “2020 Final HH Rule”) for home health agencies under the home health prospective payment system (the “HH-PPS”). The 2020 Final HH Rule implemented a net 1.3% market basket increase (market basket update of 1.5% reduced by 0.2% for an extension of the rural payment add-on factor) on January 1, 2020. Additionally, pursuant to the requirements of The Bipartisan Budget Act (“BBA”) of 2018, the 2020 Final HH Rule set out significant changes to the HH-PPS, including a new payment system, referred to as the Patient-Driven Groupings Model (“PDGM”), that uses 30-day payment periods and relies more heavily on clinical characteristics and other patient information (such as principal diagnosis, functional level, referral source, and timing), rather than the former therapy service-use thresholds, to set payments. CMS also finalized a 4.36% reduction in the base payment rate for 2020 intended to offset the provider behavioral changes that CMS assumed PDGM will drive. The 2020 Final HH Rule also eliminated by 2021 the process known as Request for Anticipated Payments (“RAPs”) which allows providers to seek reimbursement of either 50% or 60% of the estimated base payment for the full care episode at the beginning of that episode. As part of eliminating RAPs, beginning January 1, 2021, CMS will require home health agencies to submit “no pay” RAPs within five days of initiating a care episode, with a payment penalty for failing to timely submit the “no pay” RAP. Beginning January 1, 2022, CMS will require home health agencies to submit certain documentation and information through a notice of admission (“NOA”) within five days of initiating a care episode, with a payment penalty for failing to timely submit the NOA. CMS also adopted additional quality reporting measures and significantly increased the standardized patient assessment data elements collected by providers. Based on 2018 data and assuming no change in the foregoing and other factors, which are subject to potentially significant change, we estimate a 2% to 3% incremental reduction (after the 1.3% net market basket update) in Medicare payments for 2020. (11) In September 2019, the Company issued $500 million of 4.5% Senior Notes due 2028 and $500 million of 4.75% Senior Notes due 2030. The proceeds were used to fund the purchase of the home health rollover shares and exercise of SARs in Q3 2019, fund a call of $400 million of 5.75% Senior Notes due 2024 in Q4 2019, and repay borrowings under the Company’s revolving credit facility. (12) Data provided by Uniform Data System for Medical Rehabilitation, a division of UB Foundation Activities, Inc., a data gathering and analysis organization for the rehabilitation industry; represents ~80% of industry, including Encompass Health inpatient rehabilitation sites (13) Represents discharges from 133 consolidated hospitals in Q4 and Q3 2019; 130 consolidated hospitals in Q2 2019; 129 consolidated hospitals in Q1 2019 and Q4 2018; 128 consolidated hospitals in Q3 2018; 127 consolidated hospitals in Q2 2018; and 126 consolidated hospitals in Q1 2018 (14) Full-time equivalents included in the table represent Encompass Health employees who participate in or support the operations of our hospitals and include an estimate of full-time equivalents related to contract labor. (15) Employees per occupied bed, or “EPOB,” is calculated by dividing the number of full-time equivalents, including an estimate of full-time equivalents from the utilization of contract labor, by the number of occupied beds during each period. The number of occupied beds is determined by multiplying the number of licensed beds by the Company’s occupancy percentage. (16) Represents home health admissions from 243 consolidated locations in Q4 2019; 243 consolidated locations in Q3 2019; 220 consolidated locations in Q2 2019; 219 consolidated locations in Q1 2019; 218 consolidated locations in Q4 2018; 214 consolidated locations in Q3 2018; 213 consolidated locations in Q2 2018; and 196 consolidated locations in Q1 2018 (17) Represents hospice admissions from 83 locations in Q4 2019; 82 locations in Q3 2019; 59 locations in Q2 and Q1 2019; 58 locations in Q4 2018; 57 locations in Q3 2018 and Q2 2018; and 38 locations in Q1 2018 (18) In November 2013, the Company closed separate, privately negotiated exchanges in which it issued $320 million of 2.0% Convertible Senior Subordinated Notes due 2043 in exchange for 257,110 shares of its 6.5% Series A Convertible Perpetual Preferred Stock. The Company recorded ~$249 million as debt and ~$71 million as equity. In May 2017, the Company provided notice of its intent to redeem all $320 million of outstanding convertible notes. In lieu of receiving the redemption price, the holders had the right to convert their notes into shares of the Company’s common stock at a conversion rate of 27.2221 shares per $1,000 principal amount of Notes, which rate was increased by a make-whole premium. In the aggregate, holders of $319.4 million in principal elected to convert, which resulted in the Company issuing 8,895,483 shares of common stock (approximately 8.6 million shares were previously included in the diluted share count). The remaining $0.6 million of principal was redeemed by cash payment. Encompass Health 50