Financial Analysis

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. 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 a qui tam action may remain unaware of the existence of a sealed complaint for years. While the complaint is under seal, the government reviews the merits of the case and may conduct a broad investigation and seek d …

CommitmentsAndContingenciesDisclosureTextBlock · excerpt; the full note is in the filing

Employee Benefit Plans: Substantially all Encompass Health employees are eligible to enroll in Encompass Health-sponsored healthcare plans, including coverage for medical and dental benefits. Our primary healthcare plans are national plans administered by third-party administrators. We are self-insured for these plans. During 2025, 2024, and 2023, costs associated with these plans, net of amounts paid by employees, approximated $252.2 million, $227.4 million, and $186.2 million, respectively. The Encompass Health Corporation 401(k) Retirement Plan (the 401(k) Plan) is a qualified 401(k) savings plan. The 401(k) Plan allows eligible employees to contribute up to 100% of their pay on a pre-tax basis into their individual retirement account in the plan subject to the normal maximum limits set annually by the Internal Revenue Service. Encompass Health employees who are at least 21 years of age are eligible to participate in the 401(k) Plan and all contributions to the plan are in the form of cash. Encompass Healths employer matching contribution under the 401(k) Plan is 50% of the first 6% of each participants elective deferrals, which vest 100% after three years of service. Participants are always fully vested in their own contributions. Employer contributions to the 401(k) Plan approximated $35.6 million, $32.1 million, and $31.3 million in 2025, 2024, and 2023, respectively. In 2025, 2024, and 2023, approximately $2.7 million, $2.9 million, and $1.1 million, respectively, from …

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Long-term Debt: Our long-term debt outstanding consists of the following (in millions): As of December 31, 2025 2024 Credit Agreement Advances under revolving credit facility $ 130.0 $ 20.0 Bonds payable 5.75% Senior Notes due 2025 99.8 4.50% Senior Notes due 2028 792.0 788.4 4.75% Senior Notes due 2030 787.0 784.2 4.625% Senior Notes due 2031 393.6 392.5 Other notes payable 93.6 94.5 Finance lease obligations 294.6 318.4 2,490.8 2,497.8 Less: Current portion (43.6) (138.6) Long-term debt, net of current portion $ 2,447.2 $ 2,359.2 The following chart shows scheduled principal payments due on long-term debt for the next five years and thereafter (in millions): Year Ending December 31, Face Amount Net Amount 2026 $ 43.6 $ 43.6 2027 177.2 177.2 2028 835.9 827.8 2029 44.7 44.6 2030 850.2 837.1 Thereafter 566.9 560.5 Total $ 2,518.5 $ 2,490.8 Senior Secured Credit Agreement The credit agreement provides for a $1 billion revolving credit facility, with a $260 million letter of credit subfacility and a swingline loan subfacility, all of which mature in October 2027. Amounts drawn on the revolving credit facility bear interest at a rate per annum of, at our option, (1) secured overnight financing rate (SOFR) or (2) the higher of (a) Barclays Bank PLCs prime rate and (b) the federal funds rate plus 0.5%, in each case, plus, in each case, an applicable margin that varies depending upon our leverage ratio. We are also subject to a commitment fee of 0.25% or 0.30%, depending on our leve …

DebtDisclosureTextBlock · excerpt; the full note is in the filing

Our Net operating revenues disaggregated by payor source are as follows (in millions): Year Ended December 31, 2025 2024 2023 Medicare $ 3,886.9 $ 3,495.3 $ 3,126.1 Medicare Advantage 974.4 903.7 776.1 Managed care 634.0 579.2 531.4 Medicaid 184.2 179.4 190.7 Other third-party payors 39.7 41.7 41.8 Workers compensation 29.6 27.8 25.8 Patients 17.2 15.9 14.9 Other income 169.2 130.2 94.4 Total $ 5,935.2 $ 5,373.2 $ 4,801.2 …

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Share-Based Payments: The Company has awarded employee stock-based compensation in the form of stock options and restricted stock awards (RSAs) under the terms of share-based incentive plans designed to align employee and executive interests to those of its stockholders. All employee stock-based compensation awarded between January 1, 2023 and May 1, 2025 was issued under the 2016 Omnibus Performance Incentive Plan (the 2016 Plan), a stockholder-approved plan that reserved and provided for the grant of up to 16,860,765 shares of common stock after adjustment for the effect of the spin off of our home health and hospice business in 2022. This plan allowed for the grants of nonqualified stock options, incentive stock options, restricted stock, stock appreciate rights, performance shares, performance share units, dividend equivalents, restricted stock units (RSUs), and/or other stock-based awards. No additional stock-based compensation will be awarded from the 2016 Plan. On May 1, 2025, our stockholders approved the 2025 Omnibus Performance Incentive Plan, which reserves and provides for the grant of up to 12,000,000 shares of common stock. All employee stock-based compensation awarded after May 1, 2025 was issued under this plan. This plan allows for the same types of equity grants as the 2016 Plan. Stock-based compensation expense recognized in continuing operations was $56.5 million, $48.3 million, and $50.6 million during the years ended December 31, 2025, 2024, and 2023, re …

DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock · excerpt; the full note is in the filing

Fair Value Measurements: Our financial assets and liabilities that are measured at fair value on a recurring basis are as follows (in millions): Fair Value Measurements at Reporting Date Using As of December 31, 2025 Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Valuation Technique (1) Equity securities $ 36.3 $ 20.3 $ 16.0 $ M Available for sale debt securities: U.S. government and agency securities 40.4 40.4 M Corporate bonds and notes 69.1 69.1 M Redeemable noncontrolling interests 58.3 58.3 I As of December 31, 2024 Equity securities $ 130.9 $ 4.2 $ 126.7 $ M Redeemable noncontrolling interests 56.5 56.5 I (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 years ended December 31, 2025, 2024, and 2023, we did not record any material gains or losses related to these assets. As discussed in Note 1, Summary of Significant Accounting Policies , Fair Value Measurements, 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 consolidated balance sheets. The carrying amount …

FairValueDisclosuresTextBlock · excerpt; the full note is in the filing

Goodwill and Other Intangible Assets: The following table shows changes in the carrying amount of Goodwill (in millions): Amount Goodwill as of December 31, 2022 $ 1,263.2 Acquisitions 18.1 Goodwill as of December 31, 2023 1,281.3 Acquisitions 2.7 Goodwill as of December 31, 2024 1,284.0 Acquisitions 33.6 Goodwill as of December 31, 2025 $ 1,317.6 Goodwill increased in 2023, 2024, and 2025 as a result of our acquisitions of inpatient rehabilitation operations. We performed impairment reviews as of October 1, 2025, 2024, and 2023 and concluded no Goodwill impairment existed. As of December 31, 2025, we had no accumulated impairment losses related to Goodwill . The following table provides information regarding our other intangible assets (in millions): Gross Carrying Amount Accumulated Amortization Net Certificates of need: 2025 $ 137.0 $ (54.9) $ 82.1 2024 131.4 (49.0) 82.4 Licenses: 2025 $ 65.6 $ (57.5) $ 8.1 2024 65.7 (56.4) 9.3 Noncompete agreements: 2025 $ 64.9 $ (61.7) $ 3.2 2024 66.5 (63.4) 3.1 Trade name - Encompass: 2025 $ 135.2 $ $ 135.2 2024 135.2 135.2 Trade names - all other: 2025 $ 38.9 $ (24.5) $ 14.4 2024 39.6 (23.6) 16.0 Internal-use software: 2025 $ 245.7 $ (180.9) $ 64.8 2024 214.4 (163.3) 51.1 Market access assets: 2025 $ 13.2 $ (12.7) $ 0.5 2024 13.2 (12.5) 0.7 Total intangible assets: 2025 $ 700.5 $ (392.2) $ 308.3 2024 666.0 (368.2) 297.8 Amortization expense for other intangible assets is as follows (in millions): For the Year Ended December 31, 2025 20 …

GoodwillAndIntangibleAssetsDisclosureTextBlock · excerpt; the full note is in the filing

Income Taxes: The domestic and foreign components of Income from continuing operations before income tax expense are as follows (in millions): For the Year Ended December 31, 2025 United States $ 944.8 Foreign 8.2 Income from continuing operations before income tax expense $ 953.0 The significant components of the Provision for income tax expense related to continuing operations are as follows (in millions): For the Year Ended December 31, 2025 Current: Federal $ 132.3 State and local 35.7 Foreign 2.6 Total current expense 170.6 Deferred: Federal 20.0 State and local 2.3 Foreign Total deferred expense 22.3 Total income tax expense related to continuing operations $ 192.9 A reconciliation of differences between the federal income tax at statutory rates and our actual income tax expense on our income from continuing operations, is presented below (in millions, except for percentages): For the Year Ended December 31, 2025 Amount % Tax expense at statutory rate $ 200.1 21.0 % State and other income taxes, net of federal tax effect (1) 31.6 3.3 % Changes in valuation allowance 2.9 0.3 % Noncontrolling interests (40.5) (4.2) % Nontaxable or nondeductible items: Share-based windfall tax benefits (12.5) (1.3) % Nondeductible executive compensation 10.1 1.0 % Other 1.9 0.2 % Tax credits (2.5) (0.3) % Foreign tax effects 2.6 0.3 % Other, net (0.8) (0.1) % Income tax expense $ 192.9 20.2 % (1) In 2025, state taxes in Florida, Tennessee, Pennsylvania, Massachusetts, California, and Virgi …

IncomeTaxDisclosureTextBlock · excerpt; the full note is in the filing

Leases: We lease real estate, vehicles, and equipment under operating and finance leases with non-cancelable terms generally expiring at various dates through 2039. Our operating and finance leases generally have 1- to 25-year terms, with one or more renewal options, primarily relating to our real estate leases, with terms to be determined at the time of renewal. The exercise of such lease renewal options is at our sole discretion, and to the extent we are reasonably certain we will exercise a renewal option, the years related to that option are included in our determination of the lease term for purposes of classifying and measuring a given lease. Certain leases also include options to purchase the leased property. The components of lease costs are as follows (in millions): For the Year Ended December 31, 2025 2024 2023 Operating lease cost $ 43.4 $ 41.7 $ 40.9 Finance lease cost: Amortization of right-of-use assets 25.7 25.7 25.7 Interest on lease liabilities 23.0 24.7 26.2 Total finance lease cost 48.7 50.4 51.9 Short-term and variable lease cost 1.7 2.3 2.9 Sublease income (3.2) (3.1) (3.3) Total lease cost $ 90.6 $ 91.3 $ 92.4 Supplemental consolidated balance sheet information related to leases is as follows (in millions): As of December 31, Classification 2025 2024 Assets Operating lease Operating lease right-of-use assets $ 212.6 $ 203.7 Finance lease (1) Property and equipment, net 195.9 221.5 Total leased assets $ 408.5 $ 425.2 Liabilities Current liabilities: Opera …

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Recently Adopted Accounting Pronouncements 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. We adopted ASU 2023-09 prospectively with an effective date as of January 1, 2025. The disclosures required are presented in Note 14, Income Taxes . Recent Accounting Pronouncements Not Yet Adopted In November 2024, the FASB issued ASU 2024-03, Income StatementReporting Comprehensive IncomeExpense 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 consolidated financial statements. In September 2025, the FASB issued ASU 2025-06, IntangiblesGoodwill and OtherInternal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which intends …

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Segment Reporting: We manage our operations using one 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 . All revenues for our services are generated through external customers. See Note 1, Summary of Significant Accounting Policies , 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): For the Year Ended December 31, 2025 202 …

SegmentReportingDisclosureTextBlock · excerpt; the full note is in the filing

Summary of Significant Accounting Policies: Organization and Description of Business Encompass Health Corporation, incorporated in Delaware in 1984, including its subsidiaries, is a provider of inpatient rehabilitation services. We operate hospitals in 39 states and Puerto Rico, with concentrations in Florida and Texas. As of December 31, 2025, we operated 173 inpatient rehabilitation hospitals. We are the sole owner of 106 of these hospitals. We retain 50.0% to 97.5% ownership in the remaining 67 jointly owned hospitals. Basis of Presentation and Consolidation The accompanying consolidated financial statements of Encompass Health and its subsidiaries were prepared in accordance with generally accepted accounting principles in the United States of America and include the assets, liabilities, revenues, and expenses of all wholly-owned subsidiaries, majority-owned subsidiaries over which we exercise control, and, when applicable, entities in which we have a controlling financial interest. Certain prior year amounts may have been reclassified for comparative purposes to conform to the current-year financial statement presentation. We use the equity method to account for our investments in entities we do not control, but where we have the ability to exercise significant influence over operating and financial policies. Consolidated Net income attributable to Encompass Health includes our share of the net earnings of these entities. The difference between consolidation and the equi …

SignificantAccountingPoliciesTextBlock · excerpt; the full note is in the filing