Encompass Health Corp

Condensed Consolidated Statements of Operations

Condensed Consolidated Statements of Comprehensive Income

Condensed Consolidated Balance Sheets

(1)Our consolidated assets as of September 30, 2025 and December 31, 2024 include total assets of variable interest entities of $211.2 million and $208.1 million, respectively, which cannot be used by us to settle the obligations of other entities. Our consolidated liabilities as of September 30, 2025 and December 31, 2024 include total liabilities of the variable interest entities of $49.0 million and $45.0 million, respectively. See Note 3, Variable Interest Entities.

Condensed Consolidated Statements of Shareholders’ Equity

Condensed Consolidated Statements of Shareholders’ Equity (Continued)

Condensed Consolidated Statements of Cash Flows

Condensed Consolidated Statements of Cash Flows (Continued)

1. Basis of Presentation

Encompass Health Corporation (the “Company” or “Encompass Health”), incorporated in Delaware in 1984, including its subsidiaries, is a provider of inpatient rehabilitation services. Our national network of inpatient rehabilitation hospitals stretches across 39 states and Puerto Rico, with concentrations of hospitals in Florida and Texas. As of September 30, 2025, we operated 170 inpatient rehabilitation hospitals. We are the sole owner of 104 of these hospitals. We retain 50.0% to 97.5% ownership in the remaining 66 jointly owned hospitals.

The accompanying unaudited condensed consolidated financial statements of Encompass Health Corporation and Subsidiaries should be read in conjunction with the consolidated financial statements and accompanying notes contained in Encompass Health’s Annual Report on Form 10-K filed with the United States Securities and Exchange Commission on February 28, 2025 (the “2024 Form 10‑K”). The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the SEC applicable to interim financial information. Certain information and note disclosures included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been omitted in these interim statements, as allowed by such SEC rules and regulations. The condensed consolidated balance sheet as of December 31, 2024 has been derived from audited financial statements, but it does not include all disclosures required by GAAP. However, we believe the disclosures are adequate to make the information presented not misleading. Certain prior year amounts may have been reclassified for comparative purposes to conform to the current-year financial statement presentation.

The unaudited results of operations for the interim periods shown in these financial statements are not necessarily indicative of operating results for the entire year. In our opinion, the accompanying condensed consolidated financial statements recognize all adjustments of a normal recurring nature considered necessary to fairly state the financial position, results of operations, and cash flows for each interim period presented.

Net Operating Revenues—

Our Net operating revenues disaggregated by payor source are as follows (in millions):

See Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements accompanying the 2024 Form 10-K for our policy related to Net operating revenues.

Marketable Securities—

We record all equity securities with readily determinable fair values and for which we do not exercise significant influence at fair value and record the change in fair value for the reporting period in our condensed consolidated statements of operations.

We record debt securities with readily determinable fair values and for which we do not exercise significant influence as available-for-sale securities. We carry the available-for-sale securities at fair value and report unrealized holding gains or losses, net of income taxes, in Accumulated other comprehensive income, which is a separate component of shareholders’ equity. We recognize realized gains and losses in our condensed consolidated statements of operations using the specific identification method. Unrealized losses are charged against earnings when a decline in fair value was determined to be other than temporary. Management reviews several factors to determine whether a loss is other than temporary, such as the length of time a security is in an unrealized loss position, the extent to which fair value is less than cost, the financial condition and near term prospects of the issuer, industry, or geographic area and our ability and intent to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.

Noncontrolling Interests in Consolidated Affiliates—

Effective July 1, 2024, we expanded our existing joint venture with Piedmont Healthcare (“Piedmont”), which we control, by contributing the assets and operations of our previously wholly-owned 70-bed hospital in Augusta, Georgia. Piedmont contributed approximately $90 million on July 1, 2024, which indirectly resulted in Piedmont obtaining a 50% ownership interest in the hospital. As a result of this transaction, we recorded a post-tax gain of $22.9 million increasing Capital in excess of par valueon the condensed consolidated statement of shareholders’ equity for the nine months ending September 30, 2024. The contribution from Piedmont is included in Contributions from noncontrolling interests of consolidated affiliates on the condensed consolidated statement of cash flows for the nine months ended September 30, 2024.

Recently Adopted Accounting Pronouncements—

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which requires all public entities, including entities with a single reportable segment, to provide disclosure of (1) significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, (2) the amount and description of the composition of other segment items which reconcile to segment profit or loss, and (3) the title and position of the entity’s CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and allocating resources. ASU 2023-07 was effective for us beginning January 1, 2024. The disclosures required are presented in Note 12, Segment Reporting.

Recent Accounting Pronouncements Not Yet Adopted—

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which intends to improve the transparency of income tax disclosures by requiring companies to (1) disclose consistent categories and greater disaggregation of information in the effective rate reconciliation and (2) provide information on income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for our annual periods beginning January 1, 2025. We are required to apply the guidance prospectively but have the option to apply it retrospectively. While we are currently evaluating the requirements of this standard and any potential impact it may have on our condensed consolidated financial statements, we expect to update our annual tax disclosures as a result of the new standard.

In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses,” which requires disaggregation of certain expense captions into specified categories within the notes to the financial statements for both interim and annual reporting periods. ASU 2024-03 is effective for our annual periods beginning January 1, 2027 and interim periods beginning January 1, 2028. Early adoption is permitted. We are currently evaluating the requirements of this standard and any potential impact it may have on our condensed consolidated financial statements.

In September 2025, the FASB issued ASU 2025-06, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software,” which intends to modernize the guidance related to internal-use software costs to reflect current software development methods. ASU 2025-06 requires entities to begin capitalizing software costs when management authorizes and commits to funding the software project, and it is probable the project will be completed and the software will be used for its intended purpose. ASU 2025-06 is effective for our annual and interim periods beginning January 1, 2028. Early adoption is permitted. The guidance can be applied on a prospective basis, a modified basis for in-process projects, or on a retrospective basis. We are currently evaluating the requirements of this standard and any potential impact it may have on our condensed consolidated financial statements.

We do not believe any other recently issued, but not yet effective, accounting standards will have a material effect on our condensed consolidated financial position, results of operations, or cash flows.

2. Business Combinations

During the nine months ended September 30, 2025, we completed the following acquisition which was not individually material to our financial position, results of operations, or cash flows. The acquisition was made to enhance our position and ability to provide inpatient rehabilitation services to patients in the applicable geographic area.

•In May 2025, we acquired 51% of the operations of a 54-bed inpatient rehabilitation unit in Fort Myers, Florida when Lee Healthcare Holdings, LLC contributed those operations to our existing joint venture.

We accounted for this transaction under the acquisition method of accounting and reported the results of operations of the acquired unit from the date of acquisition. Assets acquired were recorded at their estimated fair values as of the acquisition date. The estimated fair value of the noncompete intangible asset was based on an income approach using discounted cash flow techniques. The aforementioned income method utilizes management’s estimates of future operating results and cash flows discounted using a weighted-average cost of capital. The excess of the fair value of the consideration conveyed over the fair value of the assets acquired was recorded as goodwill. The goodwill reflects our expectations of our ability to gain access to and penetrate the acquired unit’s historical patient base and the benefits of being able to leverage operational efficiencies with favorable growth opportunities based on positive demographic trends in this market. None of the goodwill recorded as a result of this transaction is deductible for federal income tax purposes.

The fair values recorded were based upon a preliminary valuation. Estimates and assumptions used in such valuation are subject to change, which could be significant, within the measurement period (up to one year from the acquisition date). The primary areas of the preliminary valuation that are not yet finalized relate to the fair value of amounts for the intangible asset and the final amount of residual goodwill. We expect to continue to obtain information to assist us in determining the fair value of the net assets acquired at the acquisition date during the measurement period.

The fair value of the assets acquired at the acquisition dates were as follows (in millions):

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

The pro forma effects of the above mentioned acquisition on our results of operations for periods prior to the respective acquisition date were not material.

3. Variable Interest Entities

As of September 30, 2025 and December 31, 2024, we consolidated eight limited partnership-like entities that are variable interest entities (“VIEs”) and of which we are the primary beneficiary. Our ownership percentages in these entities range from 50.0% to 75.0% as of September 30, 2025. Through partnership and management agreements with or governing each of these entities, we manage all of these entities and handle all day-to-day operating decisions. Accordingly, we have the decision-making power over the activities that most significantly impact the economic performance of our VIEs and an obligation to absorb losses or receive benefits from the VIE that could potentially be significant to the VIE. These decisions and significant activities include, but are not limited to, marketing efforts, oversight of patient admissions, medical training, nurse and therapist scheduling, provision of healthcare services, billing, collections, and creation and maintenance of medical records. The terms of the agreements governing each of our VIEs prohibit us from using the assets of each VIE to satisfy the obligations of other entities.

The carrying amounts and classifications of the consolidated VIEs’ assets and liabilities, which are included in our condensed consolidated balance sheets, are as follows (in millions):

4. Marketable Securities

Restricted marketable securities at both balance sheet dates represent restricted assets held at HCS, Ltd (“HCS”), our consolidated wholly owned offshore captive insurance company. HCS insures a substantial portion of Encompass Health’s professional liability, workers’ compensation, and other insurance claims. These funds are committed for payment of claims incurred, and the classification of these marketable securities as current or noncurrent depends on the classification of the corresponding claims liability. As of September 30, 2025, $34.1 million of restricted marketable securities are included in Other current assetsand $105.7 million of restricted marketable securities are included in Other long-term assets in our condensed consolidated balance sheet. As of December 31, 2024, $39.0 million of restricted marketable securities are included in Other current assets and $91.9 million are included in Other long-term assets in our condensed consolidated balance sheet.

During the three and nine months ended September 30, 2025, $1.0 million and $1.8 million, respectively, of unrealized net gains (losses) were recognized in our condensed consolidated statements of operations on equity securities still held at the reporting date. During the three and nine months ended September 30, 2024, $2.8 million and $2.7 million, respectively, of unrealized net gains (losses) were recognized in our condensed consolidated statements of operations on equity securities still held at the reporting date.

A summary of our debt securities as of September 30, 2025 is as follows (in millions):

During the three and nine months ended September 30, 2025, we did not record any impairment charges related to our debt securities. We did not have any debt securities during the three and nine months ended September 30, 2024.

Investing information related to our available-for-sale debt securities is as follows (in millions):

The contractual maturities of our available-for-sale debt securities as of September 30, 2025 are as follows (in millions):

5. Long-term Debt

Our long-term debt outstanding consists of the following (in millions):

The following chart shows scheduled principal payments due on long-term debt for the next five years and thereafter (in millions):

In September 2025, we redeemed the remaining $100 million of the outstanding principal balance of our 5.75% Senior Notes due 2025 at maturity using cash on hand and capacity under our revolving credit facility.

6. Redeemable Noncontrolling Interests

The following is a summary of the activity related to our Redeemable noncontrolling interests (in millions):

The following table reconciles the net income attributable to nonredeemable Noncontrolling interests, as recorded in the shareholders’ equity section of the condensed consolidated balance sheets, and the net income attributable to Redeemable noncontrolling interests, as recorded in the mezzanine section of the condensed consolidated balance sheets, to the Net income attributable to noncontrolling interests presented in the condensed consolidated statements of operations (in millions):

See also Note 7, Fair Value Measurements.

7. Fair Value Measurements

Our financial assets and liabilities that are measured at fair value on a recurring basis are as follows (in millions):

(1) The two valuation techniques are: market approach (M) and income approach (I).

There are assets and liabilities that are not required to be measured at fair value on a recurring basis. However, these assets may be recorded at fair value as a result of impairment charges or other adjustments made to the carrying value of the applicable assets. During the three and nine months ended September 30, 2025 and 2024, we didnot record any material gains or losses related to these assets.

As discussed in Note 1, Summary of Significant Accounting Policies, “Fair Value Measurements,” to the consolidated financial statements accompanying the 2024 Form 10‑K, the carrying value equals fair value for our financial instruments that are not included in the table below and are classified as current in our condensed consolidated balance sheets. The carrying amounts and estimated fair values for all of our other financial instruments are presented in the following table (in millions):

Fair values for our long-term debt and financial commitments are determined using inputs, including quoted prices in nonactive markets, that are observable either directly or indirectly, or Level 2 inputs within the fair value hierarchy. See Note 1, Summary of Significant Accounting Policies, “Fair Value Measurements,” to the consolidated financial statements accompanying the 2024 Form 10‑K.

8. Share-Based Payments

During the nine months ended September 30, 2025, we issued a total of 0.4 million restricted stock awards to members of our management team and our board of directors. Of the restricted stock awards issued to members of our management team,0.1 million contain only a service condition, while the remainder contain a service and/or performance condition as well as a market condition for certain members of management. For the awards that include a performance and market condition, the number of shares that will ultimately be granted to employees may vary based on the Company’s performance during the applicable three-year performance measurement period. Additionally, we granted 0.1 million stock options to members of our management team. The fair value of these awards and options was determined using the policies described in Note 1, Summary of Significant Accounting Policies, and Note 13, Share-Based Payments, to the consolidated financial statements accompanying the 2024 Form 10‑K.

9. Income Taxes

Our Provision for income tax expenseof $44.9 million for the three months ended September 30, 2025 primarily resulted from the application of our estimated effective blended federal and state income tax rate. Our Provision for income tax expenseof $137.5 million for the nine months ended September 30, 2025 primarily resulted from the application of our estimated effective blended federal and state income tax rate and non-deductible executive compensation, partially offset by tax benefits resulting from share-based compensation windfalls. Our Provision for income tax expenseof $36.0 million and $112.6 million for the three and nine months ended September 30, 2024, respectively, primarily resulted from the application of our estimated effective blended federal and state income tax rate partially offset by tax benefits resulting from share-based compensation windfalls.

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (“OBBBA”). The OBBBA contains a broad range of tax reform provisions affecting businesses. While tax changes in the OBBBA are not expected to have a material impact on our effective tax rate, we do anticipate that certain tax provisions in the OBBBA, namely the provision that permanently extends bonus depreciation for assets placed in service after January 19, 2025 and the provision allowing for immediate expensing of certain research and development costs, to result in current deductions that will result in lower cash income tax for 2025. We currently estimate these provisions to produce an additional approximately $180 million in current deductions resulting in approximately $50 million in cash tax savings in 2025. We continue to evaluate the tax and other provisions of the OBBBA and the potential effects on our financial position, results of operations, and cash flows.

10. Earnings per Common Share

The following table sets forth the computation of basic and diluted earnings per common share (in millions, except per share amounts):

The following table sets forth the reconciliation between basic weighted average common shares outstanding and diluted weighted average common shares outstanding (in millions):

See Note 16, Earnings per Common Share, to the consolidated financial statements accompanying the 2024 Form 10‑K for additional information related to our common stock.

11. Contingencies and Other Commitments

We provide services in the highly regulated healthcare industry. Furthermore, operating inpatient rehabilitation hospitals requires significant staffing and involves intensive therapy for individuals suffering from significant physical or cognitive disabilities or injuries. As a result, various lawsuits, claims, and legal and regulatory proceedings have been and can be expected to be instituted or asserted against us. The resolution of any such lawsuits, claims, or legal and regulatory proceedings could materially and adversely affect our financial position, results of operations, and cash flows in a given period.

Other Matters—

The False Claims Act allows private citizens, called “relators,” to institute civil proceedings on behalf of the United States alleging violations of the False Claims Act. These lawsuits, also known as “whistleblower” or “qui tam” actions, can involve significant monetary damages, fines, attorneys’ fees and the award of bounties to the relators who successfully prosecute or bring these suits to the government. Qui tam cases are sealed at the time of filing, which means knowledge of the information contained in the complaint typically is limited to the relator, the federal government, and the presiding court. The defendant in aqui tam action may remain unaware of the existence of a sealed complaint or its specific claims for years. While the complaint is under seal, the government reviews the merits of the case and may conduct a broad investigation and seek discovery from the defendant and other parties before deciding whether to intervene in the case and take the lead on litigating the claims. The court lifts the seal when the government makes its decision on whether to intervene. If the government decides not to intervene, the relator may elect to continue to pursue the lawsuit individually on behalf of the government. It is possible thatqui tam lawsuits have been filed against us, which suits remain under seal, or that we are unaware of such filings or precluded by existing law or court order from discussing or disclosing the filing of such suits. We may be subject to liability under one or more undisclosedqui tam cases brought pursuant to the False Claims Act.

It is our obligation as a participant in Medicare and other federal healthcare programs to routinely conduct audits and reviews of the accuracy of our billing systems and other regulatory compliance matters. As a result of these reviews, we have made, and will continue to make, disclosures to the United States Department of Health and Human Services Office of Inspector General and the Centers for Medicare & Medicaid Services relating to amounts we suspect represent over-payments from these programs, whether due to inaccurate billing or otherwise. Some of these disclosures have resulted in, and may in the future result in, Encompass Health refunding amounts to Medicare or other federal healthcare programs.

Other Commitments—

We are a party to service and other contracts in connection with conducting our business. Minimum amounts due under these agreements are $20.4 million for the remainder of 2025, $53.9 million in 2026, $35.9 million in 2027, $30.3 million in 2028, $25.7 million in 2029, and $60.6 million thereafter. These contracts primarily relate to software licensing and support and medical equipment.

12. Segment Reporting:

We manage our operations usingone operating segment which is also our reportable segment: inpatient rehabilitation. Our national network of inpatient rehabilitation hospitals provide specialized rehabilitative treatment on an inpatient basis. Our inpatient rehabilitation hospitals provide a higher level of rehabilitative care to patients who are recovering from conditions such as stroke and other neurological disorders, cardiac and pulmonary conditions, brain and spinal cord injuries, complex orthopedic conditions, and amputations.

The accounting policies of our reportable segment are the same as those described in Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements accompanying the 2024 Form 10‑K. All revenues for our services are generated through external customers. See Note 1, Basis of Presentation, “Net Operating Revenues,” for the disaggregation of our revenues. Our chief operating decision maker (“CODM”) is the chief executive officer. Our CODM evaluates the performance and allocates resources based on adjusted earnings before interest, taxes, depreciation, and amortization (“Adjusted EBITDA”). Our CODM primarily considers forecast-to-budget variances and current year actuals to prior year actuals variances to assess performance and to help inform operating decisions, including allocating resources.

Selected financial information, including significant segment expenses, for our reportable segment is as follows (in millions):

(1)Includes interest and dividend income, investment gain or loss, and equity in net income of nonconsolidated affiliates.

Segment reconciliation (in millions):

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

Equity in net income of nonconsolidated affiliates and the Provision for income tax expense are reported on our condensed consolidated statements of operations. Segment assets are reported on our condensed consolidated balance sheets as Total assets. Segment capital expenditures are reported on our condensed consolidated statements of cash flows as Purchases of property, equipment, and intangible assets.