ITEM 1B. | UNRESOLVED STAFF COMMENTS. None
None
We lease the properties used for our clinics under non-cancelable operating leases with terms ranging from one to five years, with the exception of the property for one clinic which we own. We intend to lease the premises for any new clinic locations except in rare instances where leasing is not a cost-effective alternative. Our typical clinic occupies 1,000 to 5,0007,000 square feet. There are 14 clinics occupying space in the range of over 7,000 square feet to 13,500 square feet.
We also lease our executive offices located in Houston, Texas, under a non-cancelable operating lease expiring in February 2028. We currently lease approximately 44,000 square feet of space (including allocations for common areas) at our executive offices.
| ITEM 3. | LEGAL PROCEEDINGS. |
We are a party to various legal actions, proceedings, and claims (some of which are not insured), and regulatory and other governmental audits and investigations in the ordinary course of our business. We cannot predict the ultimate outcome of pending litigation, proceedings, and regulatory and other governmental audits and investigations. These matters could potentially subject us to sanctions, damages, recoupments, fines, and other penalties. The Department of Justice, CMS, or other federal and state enforcement and regulatory agencies may conduct additional investigations related to our businesses in the future that may, either individually or in the aggregate, have a material adverse effect on our business, financial position, results of operations, and liquidity.
Healthcare providers are subject to lawsuits under the qui tam provisions of the federal False Claims Act. Qui tam lawsuits typically remain under seal for some time while the government decides whether or not to intervene on behalf of a private qui tam plaintiff (known as a relator) and take the lead in the litigation. These lawsuits can involve significant monetary damages and penalties and award bounties to private plaintiffs who successfully bring the suits. We are and have been a defendant in these cases in the past, and may be named as a defendant in similar cases from time to time in the future.
On August 19, 2019, we received notice of a qui tam lawsuit filed by a relator on behalf of the United States, titled U.S. ex rel. Bonnie Elsdon, v. U.S. Physical Therapy, Inc., U.S. Physical Therapy, Ltd., Rehab Partners #2, Inc., The Hale Hand Center, Limited Partnership (the “Hale Partnership”), and Suzanne Hale.Hale. This whistleblower lawsuit was filed in the U.S. District Court for the Southern District of Texas, seeking damages and civil penalties under the federal False Claim Act. This lawsuit was originally filed under seal by a TABLE OF CONTENTS
former employee of The Hale Hand Center, Limited Partnership (“Hale Partnership”), a majority-owned subsidiary of the Company, on May 25, 2018. The U.S Government declined to intervene in the case and unsealed the Complaint on July 17, 2019. The plaintiff - relator served the Complaint on us and the other named defendants on August 19, 2019.
The Complaint alleges that the Hale Partnership engaged in conduct to purposely “upcode” its billings for services provided to Medicare patients. The plaintiff - relator points to three dates of service and provides examples of what it alleges are inflated billings by the Hale Partnership; the relator then claims that similar false claims must have occurred on other days and at other Company-owned partnerships.
On October 3, 2019, we filed Motions to Dismiss based on numerous grounds on behalf of each of the named defendants. On October 29, 2019, the plaintiff-relator dismissed three of the named defendants, Rehab Partners #2, Inc., U.S. Physical Therapy, Ltd., and Suzanne Hale. The Motions to Dismiss as to the remaining two defendants has been fully briefed and is pending before the Court for a ruling.
We have engaged counsel and fully investigated the matter, and believe that the allegations in the Complaint have no merit. We intend to vigorously defend this action, but at this time we are unable to predict the timing and outcome of the matter.
| ITEM 4. | MINE SAFETY DISCLOSURES. |
PART II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERSAND ISSUER PURCHASES OF EQUITY SECURITIES. |
Our common stock has traded on the New York Stock Exchange (“NYSE”) since August 14, 2012 under the symbol “USPH.” Prior to that, our common stock was traded on the Nasdaq Global Select Market under the symbol “USPH”. As of February 27, 2020,March 1, 2021, there were 8379 holders of record of our outstanding common stock.
On February 25, 2020, the23, 2021, our Board of Directors declared a dividend of $0.35 per share which will be paid on April 9, 2021 to shareholders of record as of March 12, 2021. During 2020, we paid a cash dividend for the first quarter of 2020 of $0.32 per share on all shares of common stock issued and outstanding to those shareholdersas of record on March 13, 2020 payable on April 17, 2020 which amounted to $4.1 million. In March 2020, our Board of Directors announced the suspension of any further dividends in 2020. During 2019, we paid a quarterly dividend of $0.27 for the first and second quarterquarters and $0.30 per share for the third and fourth quarter, $0.30 per sharequarters, totaling $1.14 per share for the year, which amounted to a total of aggregate cash payments of dividenddividends to holders of our common stock in 2019 of approximately $14.5 million. During 2018, we paid a regular quarterly dividend of $0.23 per share, totaling $0.92 per share, which amounted to a total of aggregate cash payments of dividends to holders of our common stock in 2018 of approximately $11.7 million. During 2017, we paid a quarterly dividend of $0.20 per share totaling $0.80 per share for 2017, which amounted to a total of aggregate cash payments of dividends to holders of our common stock in 2017 of approximately $10.1 million. We are currently restricted from paying dividends in excess of $20,000,000$50,000,000 in any fiscal year on our common stock under the Credit Agreement (as defined in “Item‘‘Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”Resources’’).
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FIVE YEAR PERFORMANCE GRAPH
The performance graph and related description shall not be deemed incorporated by reference into any filing under the Securities Act or under the Exchange Act, except to the extent that we specifically incorporate this information by reference. In addition, the performance graph and the related description shall not be deemed “soliciting material” or “filed” with the SEC or subject to
On August 14, 2012, our common stock began trading on NYSE. The following performance graph compares the cumulative total stockholder return of our common stock to The NYSE Composite Index and the NYSE Health Care Index for the period from December 31, 20142015 through December 31, 2019.2020. The graph assumes that $100 was invested in our common stock and the common stock of each of the companies listed on The NYSE Composite Index and The NYSE Health Care Index on December 31, 20142015 and that any dividends were reinvested.
Comparison of Five Years Cumulative Total Return for the Year Ended December 31, 2019
| 12/14 | 12/15 | 12/16 | 12/17 | 12/18 | 12/19 | U. S. Physical Therapy, Inc. | | 100 | | | 128 | | | 167 | | | 172 | | | 244 | | | 273 | | NYSE Composite | | 100 | | | 94 | | | 102 | | | 118 | | | 105 | | | 128 | | NYSE Healthcare Index | | 100 | | | 103 | | | 100 | | | 119 | | | 127 | | | 151 | |
2020
| 12/15 | 12/16 | 12/17 | 12/18 | 12/19 | 12/20 | U. S. Physical Therapy, Inc. | 100 | 131 | 135 | 191 | 213 | 224 | NYSE Composite | 100 | 109 | 126 | 112 | 137 | 143 | NYSE Healthcare Index | 100 | 97 | 115 | 122 | 146 | 162 |
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| ITEM 6. | SELECTED FINANCIAL DATA. |
The following selected financial data should be read in conjunction with the description of our critical accounting policies set forth in “Management’s Discussion and Analysis of Results of Operations and Financial Condition” and the Consolidated Financial Statements and Notes included herein.
| For the Years Ended December 31, | | 2019 | 2018 | 2017 | 2016 | 2015 | | ($ in thousands, except per share data) | Net revenues | $ | 481,969 | | $ | 453,911 | | $ | 414,051 | | $ | 356,546 | | $ | 331,302 | | Operating income | $ | 67,425 | | $ | 60,314 | | $ | 54,728 | | $ | 49,533 | | $ | 47,294 | | | | | | | | | | | | | | | | | | Gain on derecognition of debt | $ | — | | $ | 1,846 | | $ | — | | $ | — | | $ | — | | Gain on sale of partnership interest | $ | 5,514 | | $ | — | | $ | — | | $ | — | | $ | — | | Interest expense
| | | | | | | | | | | | | | | | Mandatorily redeemable non-controlling interests - change in redemption value | $ | — | | $ | — | | $ | 12,894 | | $ | 6,169 | | $ | 2,670 | | Mandatorily redeemable non-controlling interests - earnings allocable | $ | — | | $ | — | | $ | 6,055 | | $ | 4,057 | | $ | 3,538 | | Debt and other | $ | 2,079 | | $ | 2,042 | | $ | 2,111 | | $ | 1,252 | | $ | 1,031 | | Total interest expense | $ | 2,079 | | $ | 2,042 | | $ | 21,060 | | $ | 11,478 | | $ | 7,239 | | Net income | $ | 57,259 | | $ | 48,842 | | $ | 27,724 | | $ | 26,268 | | $ | 26,489 | | Net income attributable to non-controlling interests | $ | 17,220 | | $ | 13,969 | | $ | 5,468 | | $ | 5,717 | | $ | 5,874 | | Net income attributable to USPH shareholders | $ | 40,039 | | $ | 34,873 | | $ | 22,256 | | $ | 20,551 | | $ | 20,615 | | | | | | | | | | | | | | | | | | Per share net income attributable to USPH shareholders:
| | | | | | | | | | | | | | | | Basic and diluted | $ | 2.45 | | $ | 1.31 | | $ | 1.76 | | $ | 1.64 | | $ | 1.66 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Dividends declared and paid per common share | $ | 1.14 | | $ | 0.92 | | $ | 0.80 | | $ | 0.68 | | $ | 0.60 | | | | | | | | | | | | | | | | | | Computation of earnings per share - USPH shareholders:
| | | | | | | | | | | | | | | | Net Income attributable to USPH shareholders | $ | 40,039 | | $ | 34,873 | | $ | 22,256 | | $ | 20,551 | | $ | 20,615 | | Charges to retained earnings:
| | | | | | | | | | | | | | | | Revaluation of redeemable non-controlling interest | $ | (11,893 | ) | $ | (24,770 | ) | $ | (201 | ) | $ | — | | $ | — | | Tax effect at statutory rate (federal and state) of 26.25% | $ | 3,121 | | $ | 6,502 | | $ | 75 | | $ | — | | $ | — | | | $ | 31,267 | | $ | 16,605 | | $ | 22,130 | | $ | 20,551 | | $ | 20,615 | | | | | | | | | | | | | | | | | | Earnings per share (Basic and diluted) | $ | 2.45 | | $ | 1.31 | | $ | 1.76 | | $ | 1.64 | | $ | 1.66 | | | | | | | | | | | | | | | | | | Shares used in computation:
| | | | | | | | | | | | | | | | Basic and diluted earnings per share - weighted-average shares | | 12,756 | | | 12,666 | | | 12,570 | | | 12,500 | | | 12,392 | |
| On December 31, | | 2019 | 2018 | 2017 | 2016 | 2015 | | ($ in thousands) | Total assets | $ | 560,845 | | $ | 443,166 | | $ | 418,982 | | $ | 351,231 | | $ | 303,757 | | Mandatorily redeemable non-controlling interests | $ | — | | $ | — | | $ | 327 | | $ | 69,190 | | $ | 45,974 | | Long-term debt, less current portion | $ | 50,361 | | $ | 38,402 | | $ | 56,728 | | $ | 50,596 | | $ | 48,335 | | Working capital | $ | 24,823 | | $ | 37,268 | | $ | 37,530 | | $ | 41,347 | | $ | 41,193 | | Current ratio | | 1.41 | | | 1.89 | | | 1.95 | | | 2.68 | | | 3.17 | |
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| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
Our Business.We operate outpatient physical therapy clinics that provide pre- and post-operative care and treatment for a variety of orthopedic-related disorders and sports-related injuries, neurologically-related injuries and rehabilitation of injured workers. At December 31, 2019,2020, we operated 583554 clinics in 4039 states. The average age of our clinics at December 31, 20192020 was 10.411.03 years. In addition to our ownership and operation of outpatient physical therapy clinics, we also manage physical therapy facilities for third parties, such as physicians and hospitals, with 2638 such third-party facilities under management as of December 31, 2019.2020.
In March 2017, we acquired a 55% interest in the initial industrial injury prevention business. On April 30, 2018, we made a second acquisition and subsequently combined the two businesses. After the combination, the Company owned a 59.45% interest in the combined business, Briotix Health, Limited Partnership (“Briotix Health”). Services provided include onsite injury and ergonomic assessments. The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Other clients include large insurers and their contractors. We perform these services through Industrial Sports Medicine Professionals, consisting of both physical therapists and specialized certified athletic trainers (ATCs). On April 11, 2019, we acquired a third company that is a provider of industrial injury prevention services. TheThis acquired company specializes in delivering injury prevention and care, post offer employment testing, functional capacity evaluations and return-to-work services. It performs these services across a network in 45 states including onsite at eleven client locations. The acquiredAfter the acquisition, the business was then combined with Briotix Health increasing our ownership position in the partnership to approximately 76.0%.
In addition to the above acquired interests in the industrial injury prevention businesses, during 2020, 2019 2018 and 2017,2018, we completed the following multi-clinic acquisitions:Acquisition | Date | % Interest Acquired | Number of Clinics | | 2019 | | | | | | | September 2019 Acquisition | September 30, 2019 | | 67 | % | | 11 | | | | | | | | | | | 2018 | | | | | | | August 2018 Acquisition | August 31 | | 70 | % | | 4 | | | | | | | | | | | 2017 | | | | | | | January 2017 Acquisition | January 1 | | 70 | % | | 17 | | May 2017 Acquisition | May 31 | | 70 | % | | 4 | | June 2017 Acquisition | June 30 | | 60 | % | | 9 | | October 2017 Acquisition | October 31 | | 70 | % | | 9 | |
acquisitions in our physical therapy operations:
Acquisition | | Date | | % Interest Acquired | | Number of Clinics | November 2020 Acquisition | | November 30, 2020 | | 75% | | 3 | September 2020 Acquisition | | September 30, 2020 | | 70% | | * | February 2020 Acquisition | | February 27, 2020 | | 65% ** | | 4 | September 2019 Acquisition | | September 30, 2019 | | 67% | | 11 | August 2018 Acquisition | | August 31, 2018 | | 70% | | 4 |
| * | The business includes six management and services contracts which had a remaining term of approximately five years as of the date acquired. |
| ** | The four clinics are in four separate partnerships. The Company's interest in the four partnerships range from 10.0% to 83.8%, with an overall 65.0% based on the initial purchase transaction. |
Also during 2019, we purchased the assets and business of one physical therapy clinic in a separate transaction. The clinic operates as a satellite clinic of one of our existing partnerships. Besides the multi-clinic acquisition in 2018 referenced in the table above, we acquired five separate clinic practices through several of our majority owned Clinic Partnerships, we acquired five separate clinic practices.Partnerships. These practices operate as satellites of the respective existing Clinic Partnerships. Also, during 2017, we purchased the assets and business of two physical therapy clinics in separate transactions. One clinic was consolidated with an existing clinic and the other operates as a satellite clinic of one of our existing partnerships.The results of operations of the acquired clinics have been included in our consolidated financial statements since the date of their respective acquisition.
We intend to continue to pursue additional acquisition opportunities, develop new clinics and open satellite clinics.
Impact of COVID-19
As previously disclosed in a series of filings with the SEC and further described in detail in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020, June 30, 2020 and September 30, 2020 filed with the SEC on May 21, 2020, August 7, 2020, and November 6, 2020, respectively, our results have been negatively impacted by the effects of the COVID-19 pandemic. Management has taken a number of steps to reduce costs, make up for operating losses incurred in March and April, and increase profits. We continue to experience somewhat lower physical therapy patient volumes; however revenues improved significantly in the 2020 fourth quarter, compared to the 2020 second and third quarters. Our average physical therapy patient volumes per day per clinic were 26.2, 18.9, 25.8 and 27.7 respectively, in the first to fourth quarters of 2020. Our industrial injury prevention business has been less affected by the pandemic.
TABLE OF CONTENTS In March, with the onset of the COVID-19 pandemic, we began to furlough or terminate approximately 40% of our 5,500 full and part-time workforce. As of December 31, 2020 approximately 1,200 of the furloughed employees have returned to work at some point during the year.As of the filing of this annual report, we continue to experience lower physical therapy revenues. As stay at home orders and other restrictions have been lifted, we have seen our physical therapy volumes trending upwards. Should stay at home orders or other restrictions be reenacted, we could see our patient volume and revenues decline again.
We have put preparedness plans in place at our facilities to maintain continuity of operations, while also taking steps to keep employees and patients safe. In line with recommendations to reduce large gatherings and increase social distancing, we have, where practical, transitioned a large number of office-based employees to a remote work environment.
In March 2020, in response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain payroll tax credits associated with the retention of employees.
We have received a number of benefits under the CARES Act including, but not limited to:
| • | The CARES Act allowed for qualified healthcare providers to receive advanced payments under the existing Medicare Accelerated and Advance Payments Program (“MAAPP funds”) during the COVID-19 pandemic. Under this program, healthcare providers could choose to receive advanced payments for future Medicare services provided. We applied for and received approval to receive MAAP funds from Centers for Medicare & Medicaid Services (“CMS”) in April 2020. We will record these payments as a liability until all performance obligations have been met as the paymentswere made on behalf of patients before services were provided. Currently, MAAPP funds received are required to be applied to future Medicare billings commencing in August 2021, with all such remaining amounts required to be repaid by January 2024. Beginning January 2024, any unpaid balance will begin accruing interest. We currently intendto repay funds prior to August 2021. Included in cash and cash equivalents and accrued liabilities at December 31, 2020 is $14.1 million of MAAPP funds. |
We elected to defer depositing the employer’s share of Social Security taxes for payments due from March 27, 2020 through December 31, 2020, interest-free and penalty-free. As of December 31, 2020, $4.2 million related to these deferred payments is included in accrued liabilities and $4.1 million is included in long term liabilities.
The CARES Act provided additional waivers, reimbursement, grants and other funds to assist health care providers during the COVID-19 pandemic, including $100.0 billion in appropriations for the Public Health and Social Services Emergency Fund, also referred to as the Provider Relief Fund, to be used for preventing, preparing, and responding to the coronavirus, and for reimbursing eligible health care providers for lost revenues and health care related expenses that are attributable to COVID-19. Through December 31, 2020, our consolidated subsidiaries received approximately $13.5 million of payments under the CARES Act (“Relief Funds”). In accordance with GAAP, these payments have been recorded as Other income – Relief Funds. For the year ended December 31, 2020, we have recognized approximately $13.5 million, as Other income – Relief Funds on the accompanying consolidated statements of income. These funds are not required to be repaid upon attestation and provided that we comply with certain terms and conditions regarding the use of such funds, which could change materially based on evolving grant compliance provisions and guidance provided by the U.S. Department of Health and Human Services. Currently, we can attest to and comply with the terms and conditions. We will continue to monitor the evolving guidelines and may record adjustments as additional information is released.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are those that have a significant impact on our results of operations and financial position involving significant estimates requiring our judgment. Our critical accounting policies are:
Revenues are recognized in the period in which services are rendered. Net patient revenues consists of revenues for physical therapy and occupational therapy clinics that provide pre-and post-operative care and treatment for orthopedic related disorders, sports-related injuries, preventative care, rehabilitation of injured workers and neurological-related injuries. Net patient revenues (patient revenues less estimated contractual adjustments) are recognized at the estimated net realizable amounts from third-party payors, patients and others in exchange for services rendered when obligations under the terms of the contract are satisfied. There is an implied contract between us and the patient upon each patient visit. Generally, this occurs as we provide physical and occupational therapy services, as each service provided is distinct and future services rendered are not dependent on previously rendered services. We have agreements with third-party payors that provide for payments to us at amounts different from itsour established rates. The allowance for estimated contractual adjustments is based on terms of payor contracts and historical collection and write-off experience.
Management contract revenues, which are included in other revenues in the consolidated statements of net income, are derived from contractual arrangements whereby we manage a clinic owned by a third party. We do not have any ownership interest in these clinics. Typically, revenues are determined based on the number of visits conducted at the clinic and recognized at the point in time when services are performed. Costs, typically salaries for our employees, are recorded when incurred.
Revenues from the industrial injury prevention business, which are also included in other revenues in the consolidated statements of net income, are derived from onsite services we provide to clients’ employees including injury prevention, rehabilitation, ergonomic assessments and performance optimization. Revenue from the industrial injury prevention business is recognized when obligations under the terms of the contract are satisfied. Revenues are recognized at an amount equal to the consideration we expect to receive in exchange for providing injury prevention services to its clients. The revenue is determined and recognized based on the number of hours and respective rate for services provided in a given period.
Additionally, other revenues include services we provide on-site at locations such as schools and industrial worksites for physical or occupational therapy services, and athletic trainers and gym membership fees. Contract terms and rates are agreed to in advance between us and the third parties. Services are typically performed over the contract period and revenue is recorded at the point of service. If the services are paid in advance, revenue is recorded as a contract liability over the period of the agreement and recognized at the point in time when the services are performed.
In May 2014, March 2016, April 2016, and December 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, ASU 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations, ASU 2016-10, Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing, ASU 2016-12, Revenue from Contracts with Customers, Narrow Scope Improvements and Practical Expedients, and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customer (collectively the “standards”), respectively, which supersede most of the current revenue recognition requirements (“ASC 606”). The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
We implemented the new standards beginning January 1, 2018 using a modified retrospective transition method. The principal change relates to how the new standard requires healthcare providers to estimate the amount of variable consideration to be included in the transaction price up to an amount which is probable that a significant reversal will not occur. The most common forms of variable consideration we experience are amounts for services provided that are ultimately not realizable from a customer. There were no changes to revenues or other revenues upon implementation. Under the new standards, our estimate for unrealizable amounts will continue to be recognized as a reduction to revenue. The bad debt expense historically reported will not materially change. TABLE OF CONTENTS
For ASC 606, there is an implied contract between us and the patient upon each patient visit. Separate contractual arrangements exist between us and third party payors (e.g. insurers, managed care programs, government programs, and workers' compensation programs which establish the amounts the third parties pay on behalf of the patients for covered services rendered. While these agreements are not considered contracts with the customer, they are used for determining the transaction price for services provided to the patients covered by the third party payors. The payor contracts do not indicate performance obligations for us, but indicate reimbursement rates for patients who are covered by those payors when the services are provided. At that time, we are obligated to provide services for the reimbursement rates stipulated in the payor contracts. The execution of the contract alone does not indicate a performance obligation. For self-paying customers, the performance obligation exists when we provide the services at established rates. The difference between our established rate and the anticipated reimbursement rate is accounted for as an offset to revenue – contractual allowance.
We determine allowances for doubtful accountscredit losses based on the specific agings and payor classifications at each clinic. The provision for doubtful accountscredit losses is included in clinic operating costs in the statements of net income. Patient accounts receivable, which are stated at the historical carrying amount net of contractual allowances, write-offs and allowance for doubtful accounts,credit losses, includes only those amounts we estimate to be collectible.
The following table details the revenue related to the various categories. | Year Ended December 31, | | 2019 | 2018 | 2017 | Patient revenues | $ | 433,345 | | $ | 417,703 | | $ | 389,226 | | Management contract revenues | | 8,676 | | | 8,339 | | | 6,275 | | Industrial injury prevention services revenues | | 37,462 | | | 25,466 | | | 14,908 | | Other revenues | | 2,486 | | | 2,403 | | | 3,642 | | | $ | 481,969 | | $ | 453,911 | | $ | 414,051 | |
categories (in thousands).
| | Year Ended | | | | December 31, 2020 | | | December 31, 2019 | | | December 31, 2018 | | Net patient revenues | | $ | 373,340 | | | $ | 433,345 | | | $ | 417,703 | | Management contract revenues | | | 8,410 | | | | 8,676 | | | | 8,339 | | Other revenues | | | 2,020 | | | | 2,486 | | | | 2,403 | | Physical therapy operations | | $ | 383,770 | | | $ | 444,507 | | | $ | 428,445 | | Industrial injury prevention services revenues | | | 39,199 | | | | 37,462 | | | | 25,466 | | | | $ | 422,969 | | | $ | 481,969 | | | $ | 453,911 | |
Contractual Allowances.Contractual allowances result from the differences between the rates charged for services performed and expected reimbursements by both insurance companies and government sponsored healthcare programs for such services. Medicare regulations and the various third party payors and managed care contracts are often complex and may include multiple reimbursement mechanisms payable for the services provided in our clinics. We estimate contractual allowances based on our interpretation of the applicable regulations, payor contracts and historical calculations. Each month we estimate our contractual allowance for each clinic based on payor contracts and the historical collection experience of the clinic and appliesapply an appropriate contractual allowance reserve percentage to the gross accounts receivable balances for each payor of the clinic. Based on our historical experience, calculating the contractual allowance reserve percentage at the payor level is sufficient to allow us to provide the necessary detail and accuracy with our collectability estimates. However, the services authorized and provided and related reimbursement are subject to interpretation that could result in payments that differ from our estimates. Payor terms are periodically revised necessitating continual review and assessment of the estimates made by management. Our billing systems may not capture the exact change in our contractual allowance reserve estimate from period to period. Therefore, in order to assess the accuracy of our revenues and hence our contractual allowance reserves, our management regularly compares itsour cash collections to corresponding net revenues measured both in the aggregate and on a clinic-by-clinic basis. In the aggregate, the historical difference between net revenues and corresponding cash collections in any given fiscal year has generally reflected a difference within approximately 1%1.0% to 1.5% of net revenues. Additionally, analysis of subsequent period’s contractual write-offs on a payor basis reflects a difference within approximately 1%1.0% to 1.5% between the actual aggregate contractual reserve percentage as compared to the estimated contractual allowance reserve percentage associated with the same period end balance. As a result, we believe that a reasonable likely change in the contractual allowance reserve estimate would not be more than 1% to 1.5% of gross billings in accounts receivable at December 31, 2019.2020. For purposes of demonstrating the sensitivity of this estimate on our Company’s financial condition, a one percent1% to 1.5% increase or decrease in our aggregate contractual allowance reserve percentage would decrease or increase, respectively, net patient revenue by approximately $1.2 million to $1.8 million for the year ended December 31, 2019.2020. Management believes the changes in the estimate of the contractual allowance reserve for the periods ended December 31, 2020, 2019 2018 and 20172018 have not been material to the statement of income. TABLE OF CONTENTS
The following table sets forth information regarding our patient accounts receivable as of the dates indicated (in thousands): | December 31, | | 2019 | 2018 | Gross patient accounts receivable | $ | 124,035 | | $ | 108,141 | | Less contractual allowances | | 75,109 | | | 60,718 | | Subtotal - accounts receivable | | 48,926 | | | 47,423 | | Less allowance for doubtful accounts | | 2,698 | | | 2,672 | | Net patient accounts receivable | $ | 46,228 | | $ | 44,751 | |
| | December 31, | | | | 2020 | | | 2019 | | Gross patient accounts receivable | | $ | 119,180 | | | $ | 124,035 | | Less contractual allowances | | | 75,266 | | | | 75,109 | | Subtotal - accounts receivable | | | 43,914 | | | | 48,926 | | Less allowance for credit losses | | | 2,008 | | | | 2,698 | | Net patient accounts receivable | | $ | 41,906 | | | $ | 46,228 | |
The following table presents our patient accounts receivable aging by payor class as of the dates indicated (in thousands): | December 31, 2019 | December 31, 2018 | Payor | Current to 120 Days | 120+ Days | Total | Current to 120 Days | 120+ Days | Total | Managed Care/ Commercial Plans | $ | 14,159 | | $ | 1,783 | | $ | 15,942 | | $ | 14,852 | | $ | 2,263 | | $ | 17,115 | | Medicare/Medicaid | | 11,408 | | | 1,491 | | | 12,899 | | | 10,026 | | | 1,736 | | | 11,762 | | Workers Compensation* | | 6,593 | | | 1,121 | | | 7,714 | | | 7,056 | | | 1,339 | | | 8,395 | | Self-pay | | 4,365 | | | 3,040 | | | 7,405 | | | 4,497 | | | 3,748 | | | 8,245 | | Other** | | 808 | | | 1,460 | | | 2,268 | | | 945 | | | 961 | | | 1,906 | | Totals | $ | 37,333 | | $ | 8,895 | | $ | 46,228 | | $ | 37,376 | | $ | 10,047 | | $ | 47,423 | |
| | December 31, 2020 | | | December 31, 2019 | | Payor | | Current to 120 Days | | | 120+ Days | | | Total | | | Current to 120 Days | | | 120+ Days | | | Total | | Managed Care/ Commercial Plans | | $ | 13,053 | | | $ | 1,774 | | | $ | 14,827 | | | $ | 14,159 | | | $ | 1,783 | | | $ | 15,942 | | Medicare/Medicaid | | | 10,707 | | | | 1,196 | | | | 11,903 | | | | 11,408 | | | | 1,491 | | | | 12,899 | | Workers Compensation* | | | 6,576 | | | | 926 | | | | 7,502 | | | | 6,593 | | | | 1,121 | | | | 7,714 | | Self-pay | | | 4,086 | | | | 3,146 | | | | 7,232 | | | | 4,365 | | | | 3,040 | | | | 7,405 | | Other** | | | 1,108 | | | | 1,342 | | | | 2,450 | | | | 808 | | | | 1,460 | | | | 2,268 | | Totals | | $ | 35,530 | | | $ | 8,384 | | | $ | 43,914 | | | $ | 37,333 | | | $ | 8,895 | | | $ | 46,228 | |
* Workers compensation is paid by state administrators or their designated agents. | * | Workers compensation is paid by state administrators or their designated agents. |
| ** | Other includes primarily litigation claims and, to a lesser extent, vehicular insurance claims. |
** Other includes primarily litigation claims and, to a lesser extent, vehicular insurance claims.
Reimbursement for Medicare beneficiaries is based upon a fee schedule published by HHS. For a more complete description of our third party revenue sources, see “Business—Sources of Revenue” in Item 1.Provision for Doubtful Accounts. We determine our provision for doubtful accounts based on the specific agings
Goodwill. The fair value of goodwill and payor classifications at each clinic. We review the accounts receivable aging and rely on prior experience with particular payors to determine an appropriate reserve for doubtful accounts. Historically, clinics that have a large number of aged accounts generally have less favorable collection experience, and thus, require a higher provision. Accounts that are ultimately determined to be uncollectible are written off against our bad debt provision. The amount of our aggregate provision for doubtful accounts is regularly reviewed for adequacy in light of current and historical experience.Accounting for Income Taxes. We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount to be recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
The Tax Cuts and Jobs Act of 2017 (the “TCJA”) was passed by Congress on December 20, 2017 and signed into law by President Trump on December 22, 2017. The TCJA made significant changes to U.S. corporate income tax laws including a decrease in the corporate income tax rate to 21% effective January 1,
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2018. As a result, we revalued our deferred tax assets and liabilities. Based on a review and analysis as of December 31, 2017, we recorded a reduction in our net deferred tax liabilities of $4.3 million thereby reducing our provision for income taxes by such amount for the 2017 year.
We do not believe that we have any significant uncertain tax positions at December 31, 2019, nor is this expected to change within the next twelve months due to the settlement and expiration of statutes of limitation.
We did not have any accrued interest or penalties associated with any unrecognized tax benefits nor was any interest expense recognized during the twelve months ended December 31, 2019 and 2018.
Carrying Value of Long-Lived Assets. Our property and equipment,other identifiable intangible assets and goodwill (collectively, our “long-lived assets”) comprise a significant portion of our total assets. The accounting standards require that we periodically,with indefinite lives are evaluated for impairment atleast annually and upon the occurrence of certain events assess the recoverability of our long-lived assets. If the carrying value of our property and equipment exceeds their undiscounted cash flows, we are required to write the carrying value down to estimated fair value.
Goodwill. The fair value of goodwill and other intangible assets with indefinite lives are tested for impairment annually and upon the occurrence of certain events,or conditions, and are written down to fair value if considered impaired. These events or conditions include, but are not limited to: a significant adverse change in the business environment, regulatory environment, or legal factors; a current period operating or cash flow loss combined with a history of such losses or a projection of continuing losses; or a sale or disposition of a significant portion of a reporting unit. The occurrence of one of these events or conditions could significantly impact an impairment assessment, necessitating an impairment charge. We evaluate goodwill for impairment on at least an annual basis (in the third quarter) by comparing the fair value of its reporting units to the carrying value of each reporting unit including related goodwill. We evaluate indefinite livedindefinite-lived tradenames using the relief from royalty method in conjunction with its annual goodwill impairment test.
We operate a onetwo segment business which is made up of various clinics within partnerships.partnerships, and the other is industrial injury prevention services business. The partnerships are components of regions and are aggregated to thatthe operating segment level for the purpose of determining our reporting units when performing theour annual goodwill impairment test. In 2020, 2019 and 2018, and 2017, we hadthere were six regions. In addition to the six regions, in 20182020 and 2019, the impairment testanalysis included a separate analysis for the industrial injury prevention business.business, as a separate reporting unit.
As part of the impairment analysis, we are first required to assess qualitatively if we can conclude whether goodwill is more likely than not impaired. If goodwill is more likely than not impaired, we are then required to complete a quantitative analysis of whether a reporting unit’s fair value is less than its carrying amount. In evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company considers relevant events or circumstances that affect the fair value or carrying amount of a reporting unit. The Company considers both the income and market approach in determining the fair value of its reporting units when performing a quantitative analysis.
An impairment loss generally would be recognized when the carrying amount of the net assets of a reporting unit, inclusive of goodwill and other identifiable intangible assets, exceeds the estimated fair value of the reporting unit. The estimated fair value of a reporting unit is determined using two factors: (i) earnings prior to taxes, depreciation and amortization for the reporting unit multiplied by a price/earnings ratio used in the industry and (ii) a discounted cash flow analysis. A weight is assigned to each factor and the sum of each weight times the factor is considered the estimated fair value. For 2019, the factors (i.e., price/earnings ratio, discount rate and residual capitalization rate) were updated to reflect current market conditions. The evaluation of goodwill in 2020, 2019 2018 and 20172018 did not result in any goodwill amounts that were deemed impaired. In 2017,
Based on the economic conditions in 2020, and the decline in patient visits due to the pandemic, we wrote offevaluated whether events or circumstances indicated that it was more likely than not that the fair value of the reporting units were reduced below their carrying value as of December 31, 2020. As a result of the assessment, we determined that it was not more likely than not that goodwill and tradenames of $0.5the reporting units was impaired as of December 31, 2020. Due to the uncertainty of the current economic conditions resulting from the COVID-19 pandemic, we will continue to review the carrying amounts of goodwill and other intangibles.
For the year ended December 31, 2020, we derecognized (wrote-off) goodwill in the amount of $1.9 million related to the closure of a single clinic acquired partnershipcertain closed clinics due to the loss of a significant management contract.COVID-19.
Redeemable Non-Controlling Interests.–The non-controlling interests that are reflected as redeemable non-controlling interests in our consolidated financial statements consist of those owners, including us, that have certain redemption rights, whether currently exercisable or not, and which currently, or in the future, require that we purchase or the owner sell the non-controlling interest held by the owner, if certain conditions are met and the owners request the purchase (“Put Right”). We also have a call right (“Call Right”). The Put Right or Call Right may be triggered by the owner or us, respectively, at such time as both of the following events have occurred: 1) termination of the owner’s employment, regardless of the reason for such termination, and 2) the passage of specified number of years after the closing of the transaction, typically three to five years, as defined in the limited partnership agreement. The Put Rights and Call Rights are not automatic (even upon death) and require either the owner or us to exercise our rights when the conditions triggering the Put or Call Rights have been satisfied. The purchase price is derived at a predetermined formula based on a multiple of trailing twelve months earnings performance as defined in the respective limited partnership agreements.
On the date we acquire a controlling interest in a partnership and the limited partnership agreement for such partnerships contains redemption rights not under our control, the fair value of the non-controlling interest is recorded in the consolidated balance sheet under the caption – Redeemable non-controlling interests. Then, in each reporting period thereafter until it is purchased by us, the redeemable non-controlling interest is adjusted to the greater of its then current redemption value or initial value, based on the predetermined formula defined in the respective limited partnership agreement. As a result, the value of the non-controlling interest is not adjusted below its initial value. We record any adjustment in the redemption value, net of tax, directly to retained earnings and not in the consolidated statements of income. Although the adjustments are not reflected in the consolidated TABLE OF CONTENTS
statements of income, current accounting rules require that we reflect the adjustments, net of tax, in the earnings per share calculation. The amount of net income attributable to redeemable non-controlling interest owners is included in consolidated net income on the face of the consolidated income statement. We believe the redemption value (i.e. the carrying amount) and fair value are the same.
Effective December 31, 2017, we entered into amendments to our limited partnership agreements for our acquired partnerships replacing the mandatory redemption feature. No monetary consideration was paid to the partners to amend the agreements. The amended limited partnership agreements provide that, upon the triggering events, we have a Call Right and the selling entity or individual has a Put Right for the purchase and sale of the limited partnership interest held by the partner. Once triggered, the Put Right and the Call Right do not expire, even upon an individual partner’s death, and contain no mandatory redemption feature. The purchase price of the partner’s limited partnership interest upon the exercise of either the Put Right or the Call Right is calculated per the terms of the respective agreements. We accounted for the amendment of the limited partnership agreements as an extinguishment of the outstanding mandatorily redeemable non-controlling interests, which were classified as liabilities, through the issuance of new redeemable non-controlling interests classified in temporary equity. Pursuant to Accounting Standards Codification (“ASC”) 470-50-40-2, we removed the outstanding liabilities at their carrying amounts, recognized the new temporary equities at their fair value, and recorded no gain or loss on extinguishment as management believes the redemption value (i.e. the carrying amount) and fair value are the same. In summary, the redemption values of the mandatorily redeemable non-controlling interest (previously classified as liabilities) were reclassified as redeemable non-controlling interest (temporary equity) at fair value on the December 31, 2017 consolidated balance sheet.
Non-Controlling Interests –We recognize non-controlling interests, in which we have no obligation but the right to purchase the non-controlling interests, as equity in the consolidated financial statements separate from the parent entity’s equity. The amount of net income attributable to non-controlling interests is included in consolidated net income on the face of the consolidated statements of income. Operating losses are allocated to non-controlling interests even when such allocation creates a deficit balance for the non-controlling interest partner. When we purchase a non-controlling interest and the purchase price exceedsdiffers from the book value at the time of purchase, any excess or shortfall is recognized as an adjustment to additional paid-in capital.
SELECTED OPERATING AND FINANCIAL DATA
The following table and discussion relates to continuing operations unless otherwise noted. The defined terms with their respective description used in the following discussion are listed below:
2019 2020 | Year ended December 31, 2020 | 2019 | Year ended December 31, 2019 | 2018
| Year ended December 31, 2018
| 2017
| Year ended December 31, 2017
| New Clinics | Clinics opened or acquired during the year ended December 31, 2019 2020 | Mature Clinics | Clinics opened or acquired prior to January 1, 2019 | 2018 New Clinics
| Clinics opened or acquired during the year ended December 31, 2018
| 2018 Mature Clinics
| Clinics opened or acquired prior to January 1, 2018
| 2017 New Clinics
| Clinics opened or acquired during the year ended December 31, 2017
| 2017 Mature Clinics
| Clinics opened or acquired prior to January 1, 2017
| 2016 New Clinics
| Clinics opened or acquired during the year ended December 31, 2016 2020 and are still operating |
The following table presents selected operating and financial data, used by management as key indicators of our operating performance: | For the Years Ended December 31, | | 2019 | 2018 | 2017 | Number of clinics, at the end of period | | 583 | | | 591 | | | 578 | | Working Days | | 255 | | | 255 | | | 254 | | Average visits per day per clinic | | 27.6 | | | 26.6 | | | 25.9 | | Total patient visits | | 4,091,967 | | | 3,957,534 | | | 3,705,226 | | Net patient revenue per visit | $ | 105.90 | | $ | 105.55 | | $ | 105.05 | |
| | For the Years Ended December 31, | | | | 2020 | | | 2019 | | Number of clinics, at the end of period | | | 554 | | | | 583 | | Working Days | | | 256 | | | | 255 | | Average visits per day per clinic | | | 24.6 | | | | 27.6 | | Total patient visits | | | 3,533,371 | | | | 4,091,967 | | Net patient revenue per visit | | $ | 105.66 | | | $ | 105.90 | |
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FISCAL YEAR 20192020 COMPARED TO FISCAL 20182019 Net
Reported net revenues increased $28.1for 2020 was $423.0 million or 6.2%, from $453.9 million in 2018 to $481.9 million in 2019, primarily due to an increase in net patient revenues from physical therapy operations due to internal growth and new clinic development plus an acquisition, and an increase in the revenue from the industrial injury prevention business due to internal growth and acquisitions. For the year ended December 31, 2019, our Operating Results (as defined below) increased 7.3% to $36.0 million, or $2.82 per diluted share, as compared to $33.5$482.0 million or $2.65 per diluted share, for 2018. Operating Results, a non-Generally Accepted Accounting Principle (“GAAP”) measure, equals net income attributable to our shareholders per the consolidated statements of net income less the gain on the sale of a partnership interest in 2019 and the gain on the derecognition of debt in 2018, both net of tax, as described below. The earnings per share from Operating Results also excludes the impact of the revaluation of redeemable non-controlling interest. On June 30, 2019, we sold 50% of our interest in one physical therapy partnership to the group’s founders for $11.6 million and recognized a net pre-tax gain of $5.5 million which is not included in Operating Results.2019. See table below for a detailed computationdetail of reported net revenues (in thousands, except per share data)thousands):
| Year Ended December 31, | | 2019 | 2018 | Net income attributable to USPH shareholders | $ | 40,039 | | $ | 34,873 | | Adjustments:
| | | | | | | Gain on sale of partnership interest | | (5,514 | ) | | — | | Gain on derecognition of debt | | — | | | (1,846 | ) | Tax effect at statutory rate (federal and state) of 26.25% | | 1,447 | | | 484 | | Operating Results | $ | 35,972 | | $ | 33,511 | | | | | | | | | Basic and diluted Operating Results per share | $ | 2.82 | | $ | 2.65 | | | | | | | | | Shares used in computation - basic and diluted | | 12,756 | | | 12,666 | |
| | For the Year Ended | | | | December 31, 2020 | | | December 31, 2019 | | Revenues: | | | | | | | Net patient revenues | | $ | 373,340 | | | $ | 433,345 | | Management contract revenue | | | 8,410 | | | | 8,676 | | Other patient revenues | | | 2,020 | | | | 2,486 | | Physical therapy operations | | $ | 383,770 | | | $ | 444,507 | | Industrial injury prevention services | | | 39,199 | | | | 37,462 | | | | $ | 422,969 | | | $ | 481,969 | |
For the year ended December 31, 2019,2020, our net income attributable to its shareholders, in accordance with GAAP, was $40.0$35.2 million as compared to $34.9$40.0 million for the comparable period of 2018.2019. Inclusive of the charge for revaluation of non-controlling interest, net of tax, used to compute diluted earnings per share in accordance with GAAP, earnings per share was $2.48 per share for 2020 and $2.45 per share for 2019. For both periods of2020 and 2019, in accordance with current accounting guidance, the revaluation of redeemable non-controlling interest, net of tax, is not included in net income but rather charged directly to retained earnings; however, the chare or creditcharge for this change is included in the earnings per basic and diluted share calculation. See table below (in thousands, except per share data). | Year Ended December 31, | | 2019 | 2018 | Computation of earnings per share - USPH shareholders:
| | | | | | | Net income attributable to USPH shareholders | $ | 40,039 | | $ | 34,873 | | Charges to retained earnings:
| | | | | | | Revaluation of redeemable non-controlling interest | | (11,893 | ) | | (24,770 | ) | Tax effect at statutory rate (federal and state) of 26.25% | | 3,121 | | | 6,502 | | | $ | 31,267 | | $ | 16,605 | | | | | | | | | Earnings per share (basic and diluted) | $ | 2.45 | | $ | 1.31 | |
| | Year Ended December 31, | | | | 2020 | | | 2019 | | Computation of earnings per share - USPH shareholders: | | | | | | | Net income attributable to USPH shareholders | | $ | 35,194 | | | $ | 40,039 | | Credit (charges) to retained earnings: | | | | | | | | | Revaluation of redeemable non-controlling interest | | | (4,632 | ) | | | (11,893 | ) | Tax effect at statutory rate (federal and state) of 26.25% | | | 1,216 | | | | 3,121 | | | | $ | 31,778 | | | $ | 31,267 | | Earnings per share (basic and diluted) | | $ | 2.48 | | | $ | 2.45 | |
For 2020, our Operating Results (as defined below), including Relief Funds (defined below), was $38.4 million, or $2.99 per diluted share, as compared to $36.0 million, or $2.82 per diluted share in 2019. For 2020, our Operating Results, excluding Relief Funds, was $30.6 million, or $2.39 per diluted share, as compared to $36.0 million, or $2.82 per diluted share in 2019. Operating Results, a non-Generally Accepted Accounting Principle (“GAAP”) measure, equals net income attributable to our shareholders per the consolidated statements of net income plus charges incurred for closure costs, less gain on the sale of partnership interests and clinics, less allocated non-controlling interests, excludes expenses incurred for the transition to our new Chief Financial Officer, all net of tax. The earnings per share from Operating Results also excludes the impact of the revaluation of redeemable non-controlling interest. See table below for a detailed computation (in thousands, except per share data):
| | Year Ended December 31, | | | | 2020 | | | 2019 | | Computation of earnings per share - USPH shareholders: | | | | | | | Net income attributable to USPH shareholders | | $ | 35,194 | | | $ | 40,039 | | Credit (charges) to retained earnings: | | | | | | | | | Revaluation of redeemable non-controlling interest | | | (4,632 | ) | | | (11,893 | ) | Tax effect at statutory rate (federal and state) of 26.25% | | | 1,216 | | | | 3,121 | | | | $ | 31,778 | | | $ | 31,267 | | Earnings per share (basic and diluted) | | $ | 2.48 | | | $ | 2.45 | | Adjustments: | | | | | | | | | Expenses related to CFO transition | | | 1,331 | | | | - | | Closure costs | | | 3,931 | | | | - | | Gain on sale of partnership interest and clinics | | | (1,091 | ) | | | (5,514 | ) | Relief Funds | | | (13,500 | ) | | | - | | Allocation to non-controlling interest | | | 3,116 | | | | - | | Revaluation of redeemable non-controlling interest | | | 4,632 | | | | 11,893 | | Tax effect at statutory rate (federal and state) of 26.25% | | | 415 | | | | (1,674 | ) | Operating Results (without Relief Funds) | | $ | 30,612 | | | $ | 35,972 | | Relief Funds | | | 13,500 | | | | - | | Allocation to non-controlling interest | | | (2,893 | ) | | | - | | Tax effect at statutory rate (federal and state) of 26.25% | | | (2,784 | ) | | | - | | Operating Results (including Relief Funds) | | $ | 38,435 | | | $ | 35,972 | | Basic and diluted Operating Results (without Relief Funds) per share | | $ | 2.39 | | | $ | 2.82 | | Basic and diluted Operating Results (including Relief Funds) per share | | $ | 2.99 | | | $ | 2.82 | | Shares used in computation - basic and diluted | | | 12,835 | | | | 12,756 | |
For 2019, our2020, the Company's Adjusted EBITDA increased by 8.5%was $70.0 million compared to $67.3 million from $62.1$72.8 million in 2018.2019. For 2020, the Company's Adjusted EBITDA, excluding Relief Funds, was $56.5 million. Adjusted EBITDA is defined as earnings before gain on derecognition of debt, gain on sale of partnership interest, interest income, interest expense – debt and other, taxes, depreciation, amortization, derecognition of goodwill and equity-based awards compensation expense. See reconciliation of Adjusted EBITDA to net income attributable to our shareholders in the following table (in thousands):
| Year Ended December 31, | | 2019 | 2018 | Net income attributable to USPH shareholders | $ | 40,039 | | $ | 34,873 | | | | | | | | | Adjustments:
| | | | | | | Depreciation and amortization | | 10,095 | | | 9,755 | | Gain on sale of partnership interest | | (5,514 | ) | | — | | Gain on derecognition of debt | | — | | | (1,846 | ) | Interest income | | (46 | ) | | (93 | ) | Interest expense - debt and other | | 2,079 | | | 2,042 | | Provision for income taxes | | 13,647 | | | 11,369 | | Equity-based awards compensation expense | | 6,985 | | | 5,939 | | | | | | | | | Adjusted EBITDA | $ | 67,285 | | $ | 62,039 | |
| | Year Ended December 31, | | | | 2020 | | | 2019 | | Net income attributable to USPH shareholders | | $ | 35,194 | | | $ | 40,039 | | Adjustments: | | | | | | | | | Depreciation and amortization | | | 10,533 | | | | 10,095 | | Closure costs - derecognition of goodwill | | | 1,859 | | | | - | | Relief Funds | | | (13,500 | ) | | | - | | Interest income | | | (142 | ) | | | (46 | ) | Interest expense - debt and other | | | 1,634 | | | | 2,079 | | Provision for income taxes | | | 13,022 | | | | 13,647 | | Equity-based awards compensation expense | | | 7,917 | | | | 6,985 | | Adjusted EBITDA (without Relief Funds) | | $ | 56,517 | | | $ | 72,799 | | Relief Funds | | | 13,500 | | | | - | | Adjusted EBITDA | | $ | 70,017 | | | $ | 72,799 | |
The above tables reconcile net income attributable to our shareholders calculated in accordance with GAAP to Adjusted EBITDA and Operating Results, non-GAAP measures defined above. We believe providing Operating Results and Adjusted EBITDA are useful information to our investors for the purposes of comparing our period-to-period results. In addition, we believe that providing Operating Results, which eliminates certain items described above that can be subject to volatility and unusual costs, asis one of the principal measures to evaluate and monitor financial performance period over period. We also believe that Operating Results is useful information for investors to use in comparing the Company's period-to-period results as well as for comparing with other similar businesses. We believe reporting Adjusted EBITDA is useful information for investors in comparing the Company’s period-to-period results as well as comparing with similar businesses which report adjusted EBITDA as defined by their company.
Operating Results and Adjusted EBITDA are not measures of financial performance under GAAP. Operating Results and Adjusted EBITDA should not be considered in isolation or as an alternative to, or substitute for, net income attributable to USPHour shareholders presented in the consolidated financial statements.
Net Patient Revenues
Net patient revenues from physical therapy operations increaseddecreased approximately 13.8% or $60.0 million to $373.3 million in 2020 from $433.3 million in 2019. Included in net patient revenues above are revenues related to clinics sold or closed in 2020 and 2019 from $417.7of $4.4 million in 2018, an increase2020 and $28.6 million in 2019. During 2020, the Company sold its interest in 14 clinics and closed 34 clinics. During 2019, the Company sold its interest in a partnership which include 30 clinics and closed 11 clinics. For comparison purposes, adjusted for revenue from the clinics sold or closed, net patient revenues from physical therapy operations was approximately $369.0 million in 2020, inclusive of $15.6$9.7 million or 3.7%, duerelated to an increaseNew Clinics and $404.8 million in total2019. Net patient visitsrevenues related to Mature Clinics decreased by $45.5 million in 2020 compared to 2019. The reduction is largely attributable to the adverse effects of 3.4% (discussed below)the COVID-19 pandemic. See table below for a detail of net patient revenues from physical therapy operations (in thousands):
| | For the Year Ended | | | | December 31, 2020 | | | December 31, 2019 | | Related to Mature Clinics | | $ | 359,294 | | | $ | 404,784 | | Related to New Clinics | | | 9,664 | | | | - | | From 2020 sold and closed clinics | | | 4,382 | | | | 15,542 | | From 2019 sold and closed clinics | | | - | | | | 13,019 | | | | $ | 373,340 | | | $ | 433,345 | |
Including all clinics operational during 2020 and an increase in2019, the average net patient revenue per visit towas $105.66 and $105.90 from $105.55. Of the $15.6 million increase in net patient revenues, $10.8 million related to an increase in business of Mature Clinics and $4.8 million related to New Clinics. The net patient revenues related to the 30 clinics sold on June 30, 2019 had the effect of reducing total net revenues by $11.6 million in 2019 (only the first six months included for the 2019 year - $12.2 million) compared to 2018 (twelve months total was $23.8 million). respectively. Total patient visits increased to 4,092,000 for 2019 from 3,958,000 for 2018.were 3,533,371 in 2020 and 4,091,967 in 2019. The growth in patient visits wasreduction is largely attributable to 43,000 visits in New Clinics and an increasethe adverse effects of 91,000 visits for Mature Clinics.the COVID-19 pandemic.
Net patient revenues are based on established billing rates less allowances and discounts for patients covered by contractual programs and workers’ compensation. Net patient revenues reflect contractual and other adjustments, which we evaluate monthly, relating to patient discounts from certain payors. Payments received under these contractual programs and workers’ compensation are based on predetermined rates and are generally less than the established billing rates of the clinics.
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Other Revenues Other revenues consist of the following (in thousands):
| Year Ended December 31, | | December 31, 2019 | December 31, 2018 | Industrial injury prevention services revenues | | 37,462 | | | 25,466 | | Management contract revenues | | 8,676 | | | 8,339 | | Other revenues | | 2,486 | | | 2,403 | | | $ | 48,624 | | $ | 36,208 | |
Other revenues, consisting primarily of revenues from our industrial injury prevention business and management fees revenue, increased by $12.4$1.0 million, from $36.2 million in 2018 to $48.6 million in 2019.2019 to $49.6 million in 2020. Revenues from management contracts were $8.4 million for 2020 as compared to $8.7 million for 2019 as compared to $8.3 million for 2018.2019. Revenue from theour industrial injury prevention business increased 47.1%4.6% to $39.2 million in 2020 compared to $37.5 million in 2019 compared to $25.52019. Other revenues were $2.0 million in 2018 due to internal growth2020 and acquisitions. Other miscellaneous revenue was $2.4 million in 2019. See table below for both 2019 and 2018.a detail of reported net revenues (in thousands):
| | For the Year Ended | | | | December 31, 2020 | | | December 31, 2019 | | Revenues: | | | | | | | Net patient revenues | | $ | 373,340 | | | $ | 433,345 | | Management contract revenue | | | 8,410 | | | | 8,676 | | Other patient revenues | | | 2,020 | | | | 2,486 | | Physical therapy operations | | $ | 383,770 | | | $ | 444,507 | | Industrial injury prevention services | | | 39,199 | | | | 37,462 | | | | $ | 422,969 | | | $ | 481,969 | |
Total operating costs, excluding closure costs, were $324.6 million in 2020, as compared to $369.5 million in 2019, or2019. Operating costs were 76.7% (a reduction of 90 basis points)as a percentage of net revenues as compared to $352.2 million in 2018, or 77.6% of net revenues. The $17.3 million increase was attributable to $10.3 millionboth 2020 and 2019. Included in operating costs for 2020 was $8.4 million related to New Clinics. Operating costs for Mature Clinics an increase of $9.2decreased by $31.3 million in 2020 compared to 2019. Operating costs related to Mature Clinics, an increase of $8.8 millionmanagement contracts decreased by $0.7 million. Operating costs related to the industrial injury prevention business were $29.1 million in both 2020 and an increase2019. See table below for a detail of operating costs, excluding closure costs (in thousands):
| | For the Year Ended | | | | December 31, 2020 | | | December 31, 2019 | | Physical Therapy Operations | | | | | | | Related to Mature Clinics | | $ | 274,781 | | | $ | 306,128 | | Related to New Clinics | | | 8,416 | | | | - | | Related to 2020 closed and sold clinics | | | 5,583 | | | | 14,588 | | Related to 2019 closed and sold clinics | | | 40 | | | | 12,283 | | Physical therapy management contracts | | | 6,654 | | | | 7,389 | | Total Physical Therapy Operations | | $ | 295,474 | | | $ | 340,388 | | Industrial injury prevention services | | | 29,114 | | | | 29,082 | | Total operating costs, excluding closure costs | | $ | 324,588 | | | $ | 369,470 | |
Closure costs in management contractsthe current period of $3.9 million include estimates of remaining lease obligations, derecognition of goodwill and other costs of $0.1 million offset by a reduction in expenses related to the clinicsclosed and sold of $11.1 million. See table detailing acquisition dates above under – “Executive Summary”.clinics. Each component of clinic operating costs is discussed below:
Operating Costs—Salaries and Related Costs
Salaries and related costs increaseddecreased to $235.6 million for 2020 from $274.2 million forin 2019, from $259.2 million for 2018, an increasea decrease of $15.0$38.6 million, or 5.8%14.1%. Approximately $2.7 million of the increaseIncluded in salaries and related costs for 2020 was attributable to New Clinics, an additional $13.3$5.5 million related to New Clinics. Salaries and related costs for clinics sold or closed in 2020 and 2019 were $3.0 million and $16.7 million in 2020 and 2019, respectively. Salaries and related costs for Mature Clinics and $7.3decreased $31.2 million relatedin 2020 compared to the industrial injury prevention business primarily due to the acquisition in 2019. Salaries and related costs for 2019 as compared to 2018 was reduced by expenses related to the clinics sold of $8.3management contracts decreased $0.4 million. Salaries and related costs related to management contracts remained consistent. Included in salaries and related costs was approximately $1.4 million in higher employee healthcare costs than planned.for the industrial injury prevention business increased $1.1 million. Salaries and related costs as a percentage of net revenues was 55.7% for 2020 and 56.9% for 20192019. See table below for a detail of salaries and 57.1% for 2018.related costs (in thousands):
| | For the Year Ended | | | | December 31, 2020 | | | December 31, 2019 | | Physical Therapy Operations | | | | | | | Related to Mature Clinics | | $ | 196,686 | | | $ | 227,859 | | Related to New Clinics | | | 5,495 | | | | - | | Related to 2020 closed and sold clinics | | | 3,089 | | | | 9,494 | | Related to 2019 closed and sold clinics | | | - | | | | 7,248 | | Related to Physical therapy management contracts | | | 5,921 | | | | 6,337 | | Total Physical Therapy Operations | | $ | 211,191 | | | $ | 250,938 | | Related to Industrial injury prevention services | | | 24,437 | | | | 23,295 | | Total Salaries and related costs | | $ | 235,628 | | | $ | 274,233 | |
Operating Costs—Rent, Supplies, Contract Labor and Other
Rent, supplies, contract labor and other costs increaseddecreased to $84.3 million for 2020 from $90.4 million for 2019, from $88.4 million for 2018, an increasea decrease of $2.0$6.0 million, or 2.2%6.7%. Approximately $3.1 million of the increaseIncluded in rent, supplies, contract labor and other costs for 2020 was attributable to New Clinics, $0.3 million of the decrease was due to lower costs at various Mature Clinics, $1.8 million increase was due to the industrial injury prevention businesses, $0.1$2.8 million related to management contractsNew Clinics. Rent, supplies, contract labor and offset by a reduction in expensesother costs for clinics related to partnership interests closed or sold in 2020 and 2019 were $2.4 million and $9.8 million in 2020 and 2019, respectively, rent, supplies, contract labor and other costs related to Mature Clinics were the clinics sold of $2.7 million.same for both periods 2020 and 2019. Rent, supplies, contract labor and other costs as a percent of net revenues was 18.8% for 2019 and 19.5%19.9% for 2018.2020. See table below for a detail of rent, supplies, contract labor and other costs (in thousands):
| | For the Year Ended | | | | December 31, 2020 | | | December 31, 2019 | | Physical Therapy Operations | | | | | | | Related to Mature Clinics | | $ | 73,726 | | | $ | 73,766 | | Related to New Clinics | | | 2,846 | | | | - | | Related to 2020 closed and sold clinics | | | 2,437 | | | | 4,896 | | Related to 2019 closed and sold clinics | | | 41 | | | | 4,908 | | Related to Physical therapy management contracts | | | 734 | | | | 1,052 | | Total Physical Therapy Operations | | $ | 79,784 | | | $ | 84,622 | | Related to Industrial injury prevention services | | | 4,552 | | | | 5,757 | | Total Rent and other costs | | $ | 84,336 | | | $ | 90,379 | |
Operating Costs—Provision for Doubtful AccountsCredit Losses
The provision for doubtful accountscredit losses for net patient receivables was $4.6 million for 2020 and $4.9 million for 2019 and $4.6 million for 2018.2019. As a percentage of net patient revenues, the provision for doubtful accounts werecredit losses was 1.1% for 2020 and 1.0% for both 2019 and 2018.2019.
Our provision for doubtful accountscredit losses as a percentage of total patient accounts receivable was 4.5% at December 31, 2020 and 5.5% at December 31, 2019 and 5.6% at December 31, 2018.2019. The provision for doubtful accountscredit losses at the end of each period is based on a detailed, clinic-by-clinic review of overdue accounts and is regularly reviewed in the aggregate in light of historical experience.
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The average accounts receivable days outstanding were 32 days at December 31, 2020 and 33 days at December 31, 2019 and 37 days at December 31, 2018.2019. Net patient receivables in the amount of $4.8$4.5 million and $3.9$4.8 million were written-off in 2020 and 2019, and 2018, respectively.
Gross profit, in 2019 grew by 10.6% or $10.8 million to $112.5excluding closure costs, for 2020 was $98.4 million, as compared to $101.7$112.5 million in 2018. The gross2019. Gross profit excluding closure costs as a percentage grew to 23.3% of net revenue infor the recent year as compared to 22.4% for 2018. The gross profit percentage for ourCompany’s physical therapy clinics was 23.6% for 2019 as23.1% in 2020 compared to 22.7% for 2018.23.6% in 2019. The gross profit percentage on management contracts was 14.8% for 2019increased to 20.9% in 2020 as compared to 12.1% for 2018.14.8% in the 2019. The gross profit percentage for the industrial injury prevention business was 22.4% for 2019$10.1 million, or 25.7% as a percentage of industrial injury prevention revenues, in 2020 as compared to 20.4% for 2018.$8.4 million, or 22.4% as a percentage of industrial injury prevention revenues, in the comparable 2019 period. The table below details the gross profit, excluding closure costs (in thousands):
| | For the Year Ended | | | | December 31, 2020 | | | December 31, 2019 | | Gross profit, excluding closure costs: | | | | | | | Physical therapy clinics | | $ | 86,540 | | | $ | 102,833 | | Management contracts | | | 1,755 | | | | 1,287 | | Industrial injury prevention services | | | 10,086 | | | | 8,379 | | Gross profit, excluding closure costs | | $ | 98,381 | | | $ | 112,499 | |
Corporate office costs, consisting primarily of salaries, benefits and equity based compensation of corporate office personnel and directors, rent, insurance costs, depreciation and amortization, travel, legal, compliance, professional, marketing and recruiting fees, were $42.0 million for 2020 and $45.0 million for 2019 and $41.3 million for 2018. The dollar increase is primarily due to increases in salaries, benefits and equity based compensation.2019. Corporate office costs as a percentage of net revenues were 9.9% for 2020 and 9.3% in 2019.
Operating Income
Operating income for 2020 was $52.4 million as compared to $67.4 million for 2019. Operating income as a percentage of net revenue decreased from 14.0% in 2019 to 12.4% in 2020.
Other Income - Gain on Sale of Partnership Interest
Included in other income was the gain of $1.1 million in 2020 resulting from the sale of 14 previously closed clinics and, 9.1% in 2018.2019, a gain of $5.5 million resulting from the sale of a partnership interest with 30 clinics.
Other Income - Relief Funds
Included in other income in 2020 was $13.5 million of Relief Funds. See discussion of Relief Funds on page 26.
Interest Expense – debtDebt and otherOther
Interest expense – debt and other was $1.6 million for 2020 and $2.1 million for 2019 and $2.0 million for 2018.2019. At December 31, 2019, $46.02020, $16.0 million was outstanding under our Amended Credit Agreement (as defined below under “—Liquidity and Capital Resources”). See “—Liquidity and Capital Resources” below for a discussion of the terms of our Amended Credit Agreement. Gain on Sale of Partnership Interest
The gain of $5.5 million resulted from a sale of partnership interest. As previously disclosed, on June 30, 2019, we sold a 50% interest in one physical therapy partnership to the group’s founders. The sales proceeds, all of which was in cash, was $11.6 million.
Gain on Derecognition of Debt
In 2018, the gain from derecognition of debt of $1.8 million related to a liability to some former physical therapy partners which was no longer deemed payable.
Provision for Income Taxes
The provision for income tax in 2019 was $13.0 million for 2020 and $13.6 million and $11.4 million in 2018.for 2019. The provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest (effective tax rate) was 27.0% for 2020 and 25.4% for 2019. See table below ($ in 2019 and 24.6% in 2018.thousands):
| | Year Ended | | | | December 31, 2020 | | | December 31, 2019 | | Income before taxes | | $ | 65,513 | | | $ | 70,906 | | Less: net income attributable to non-controlling interests: | | | | | | | | | Non-controlling interests - permanent equity | | | (6,122 | ) | | | (6,561 | ) | Redeemable non-controlling interests - temporary equity | | | (11,175 | ) | | | (10,659 | ) | | | $ | (17,297 | ) | | $ | (17,220 | ) | Income before taxes less net income attributable to non-controlling interests | | $ | 48,216 | | | $ | 53,686 | | Provision for income taxes | | $ | 13,022 | | | $ | 13,647 | | Effective tax rate | | | 27.0 | % | | | 25.4 | % |
Net Income Attributable to Non-controlling Interests Net income attributable to non-controlling interests was $17.2 million in 2019 and $13.9 million in 2018.
Net income attributable to non-controlling interests (permanent equity) was $6.1 million in 2020 and $6.6 million in 2019 as compared to $5.5 million in 2018.2019. Net income attributable to redeemable non-controlling interests (temporary equity) was $11.2 million in 2020 and $10.6 million in 2019 and $8.4 million in 2018.RESULTS OF OPERATIONS
FISCAL YEAR 2018 COMPARED TO FISCAL 2017
Net revenues increased $39.8 million, or 9.6%, from $414.1 million in 2017 to $453.9 million in 2018, primarily due to an increase in net patient revenues from physical therapy operations from both internal growth and acquisitions, an increase in the revenue from the industrial injury prevention business from a combination of internal growth plus an acquisition and an increase in revenue from acquired management contracts. Our first company in the industrial injury prevention business was acquired in March 2017 and, on April 30, 2018, we made a second acquisition.2019.
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| • | For the year ended December 31, 2018, our Operating Results increased 28.1% to $33.5 million, or $2.65 per diluted share, as compared to $26.2 million, or $2.08 per diluted share, for the 2017 year. Operating Results (as defined below), a non-generally accepted accounting principles (“non-GAAP”) measure, for the 2018 fourth quarter and for the 2018 year, equals net income attributable to our shareholders excluding gain on derecognition of debt, net of taxes. For the 2017 fourth quarter and 2017 year, Operating Results is defined as net income attributable to our shareholders prior to the benefit due to the revaluation of deferred tax assets and liabilities due to the 2017 Tax Cuts and Jobs Act (“TCJA”),and prior to charges for interest expense – mandatorily redeemable non-controlling interests – change in redemption value and charges for costs related to restatement of financials – legal and accounting, both charges net of tax. See table below. |
For the year ended December 31, 2018, our net income attributable to its shareholders, in accordance with GAAP, was $34.9 million, $1.31 per share, as compared to $22.3 million, or $1.76 per share, for the 2017 year. For both periods of 2018, in accordance with current accounting guidance, the revaluation of redeemable non-controlling interest, net of tax, is not included in net income but rather charged directly to retained earnings, but is included in the earnings per basic and diluted share calculation. See table below.
For 2018, our Adjusted EBITDA increased by 7.1% to $62.1 million from $57.9 million in 2017. See definition and reconciliation of Adjusted EBITDA in the following table.
| Year Ended December 31, | | 2018 | 2017 | Computation of earnings per share - USPH shareholders
| | | | | | | Net income attributable to USPH shareholders | $ | 34,873 | | $ | 22,256 | | Charges to retained earnings:
| | | | | | | Revaluation of redeemable non-controlling interest | | (24,770 | ) | | (201 | ) | Tax effect at statutory rate (federal and state) of 26.25% | | 6,502 | | | 75 | | | $ | 16,605 | | $ | 22,130 | | | | | | | | | Basic and diluted per share | $ | 1.31 | | $ | 1.76 | | | | | | | | | Adjustments:
| | | | | | | Tax benefit - revaluation of deferred tax assets and liabilities | | — | | | (4,325 | ) | Gain on derecognition of debt | | (1,846 | ) | | — | | Interest expense MRNCI * - change in redemption value | | — | | | 12,894 | | Cost related to restatement of financials - legal and accounting | | — | | | 670 | | Revaluation of redeemable non-controlling interest | | 24,770 | | | 201 | | Tax effect at statutory rate (federal and state) of 26.25% and 39.25%, respectively | | (6,018 | ) | | (5,405 | ) | Operating results | $ | 33,511 | | $ | 26,165 | | | | | | | | | Basic and diluted operating results per share | $ | 2.65 | | $ | 2.08 | | | | | | | | | Shares used in computation:
| | | | | | | Basic and diluted | | 12,666 | | | 12,570 | |
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| Year Ended December 31, | | 2018 | 2017 | Net income attributable to USPH shareholders | $ | 34,873 | | $ | 22,256 | | | | | | | | | Adjustments:
| | | | | | | Depreciation and amortization | | 9,755 | | | 9,710 | | Gain on derecognition of debt | | (1,846 | ) | | — | | Interest income | | (93 | ) | | (88 | ) | Interest expense MRNCI * - change in redemption value | | — | | | 12,894 | | Interest expense - debt and other | | 2,042 | | | 2,111 | | Provision for income taxes | | 11,369 | | | 6,032 | | Equity-based awards compensation expense | | 5,939 | | | 5,032 | | | | | | | | | Adjusted EBITDA | $ | 62,039 | | $ | 57,947 | |
| * | Mandatorily redeemable non-controlling interests |
The above table details the calculation of basic and diluted earnings per share attributable to our shareholders and reconciles net income attributable to our shareholders calculated in accordance with GAAP to Adjusted EBITDA and Operating Results, non-GAAP measures defined below. We believe providing Operating Results and Adjusted EBITDA are useful information to our investors for the purposes of comparing our period-to-period results. In addition, we believe that providing Operating Results allows our investors to compare our results with other similar businesses since most do not have redeemable instruments and therefore have different liability and equity structures. We use Operating Results, which eliminates the MRNCI – change in redemption which is a current non-cash item that can be subject to volatility and unusual costs, as one of the principal measures to evaluate and monitor financial performance period over period. Adjusted EBITDA is defined as earnings before gain on derecognition of debt, interest income, interest expense – mandatorily redeemable non-controlling interests – change in redemption value, interest expense – debt and other, taxes, depreciation, amortization and equity-based awards compensation expense.
Operating Results and Adjusted EBITDA are not measures of financial performance under GAAP. Operating Results and Adjusted EBITDA should not be considered in isolation or as an alternative to, or substitute for, net income attributable to USPH shareholders presented in the consolidated financial statements.
Net Patient Revenues
Net patient revenues increased to $417.7 million for 2018 from $389.2 million for 2017, an increase of $28.5 million, or 7.3%. The increase in net patient revenues of $28.5 million consisted of an increase of $4.7 million from New Clinics and $23.8 million from Mature Clinics. During 2018, we acquired one multi-clinic group consisting of four clinics and five other single clinic practices for a total of 9 clinics. The net patient revenues from acquired clinics are included in our results of operations since the respective date of their acquisition. See above table and discussion under “—Executive Summary” detailing our multi-clinic acquisitions.
Total patient visits increased to 3,958,000 for 2018 from 3,705,000 for 2017. The growth in patient visits was attributable to 43,000 visits in New Clinics and an increase of 210,000 visits for Mature Clinics primarily due to 2017 New Clinics.
The average net patient revenue per visit slightly increased to $105.55 in 2018 from $105.05 in 2017.
Net patient revenues are based on established billing rates less allowances and discounts for patients covered by contractual programs and workers’ compensation. Net patient revenues reflect contractual and other adjustments, which we evaluate monthly, relating to patient discounts from certain payors. Payments received under these contractual programs and workers’ compensation are based on predetermined rates and are generally less than the established billing rates of the clinics.
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Other Revenues
Other revenues, consisting primarily of our industrial injury prevention business and management fees revenue, increased by $11.4 million, from $24.8 million in 2017 to $36.2 million in 2018. The revenues from the recently acquired industrial injury prevention business were $25.5 million in 2018 and $14.9 million in 2017. Revenues from management contracts were $8.3 million for 2018 as compared to $7.4 million for 2017. Other miscellaneous revenue was $2.4 million for 2018 and $2.5 million for 2017.
Operating Costs
Operating costs were $352.2 million, or 77.6% of net revenues, for 2018 and $323.4 million, or 78.1% of net revenues, for 2017. The dollar increase was attributable to $5.3 million in operating costs for New Clinics, an additional $15.1 million related to a Mature Clinics, $7.4 million related to the addition of the industrial injury prevention business, and an increase of $1.0 million related to management contracts. The 2017 closure costs of $0.6 million, included in operating costs, are primarily due to the closure of a single clinic acquired partnership due to the loss of a significant management contract. (See table detailing acquisition dates above under – “Executive Summary”). Each component of clinic operating costs is discussed below:
Operating Costs—Salaries and Related Costs
Salaries and related costs increased to $259.2 million for 2018 from $237.1 million for 2017, an increase of $22.1 million, or 9.3%. Approximately $3.3 million of the increase was attributable to New Clinics, $12.6 million of the increase was due to higher costs at various Mature Clinics primarily due to an increase in salaries and related costs in 2017 New Clinics which had a full year of activity in 2018, $5.4 million was due to higher salary costs at the industrial injury prevention businesses primarily due to the acquisition in April of 2018 and $0.8 million related to management contracts. Salaries and related costs as a percentage of net revenues was 57.1% for 2018 and 57.3% for 2017.
Operating Costs—Rent, Supplies, Contract Labor and Other
Rent, supplies, contract labor and other costs increased to $88.4 million for 2018 from $82.1 million for 2017, an increase of $6.3 million, or 7.7%. Approximately $1.9 million of the increase was attributable to New Clinics, $1.7 million of the increase was due to higher costs at various Mature Clinics, $1.7 million was due to the industrial injury prevention businesses primarily due to the acquisition in April of 2018 and $1.0 million related to management contracts. For 2018, New Clinics accounted for approximately $1.9 million of the increase, the industrial injury prevention business accounted for approximately $0.7 million and 2017 New Clinics accounted for approximately $3.7 million of the increase due to a full year of activity. Rent, supplies, contract labor and other costs as a percent of net revenues was 19.5% for 2018 and 19.8% for 2017.
Operating Costs—Provision for Doubtful Accounts
The provision for doubtful accounts for net patient receivables was $4.6 million for 2018 and $3.7 million for 2017. As a percentage of net patient revenues, the provision for doubtful accounts was 1.0% for 2018 and 0.9% for 2017.
Our provision for doubtful accounts as a percentage of total patient accounts receivable was 5.6% at December 31, 2018 and 4.9% at December 31, 2017. The provision for doubtful accounts at the end of each period is based on a detailed, clinic-by-clinic review of overdue accounts and is regularly reviewed in the aggregate in light of historical experience.
The average accounts receivable days outstanding were 37 days at December 31, 2018 and 36 days at December 31, 2017. Net patient receivables in the amount of $3.9 million and $3.3 million were written-off in 2018 and 2017, respectively.
Closure Costs
For 2018 and 2017, closure costs amounted to a credit of $9,000 and a charge of $599,000, respectively. As previously mentioned, the 2017 closure costs are primarily due to the closure of a single clinic acquired partnership due to the loss of a significant management contract.
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Gross Profit
The gross profit in 2018 grew by 12.2% or $11.1 million to $101.7 million, as compared to $90.6 million in 2017. The gross profit percentage grew to 22.4% of net revenue in the recent year as compared to 21.9% for 2017. The gross profit percentage for our physical therapy clinics was 22.7% for 2018 as compared to 22.5% for 2017. The gross profit percentage on management contracts was 12.1% for 2018 as compared to 14.9% for 2017. The gross profit percentage for the industrial injury prevention business was 20.4% for 2018 as compared to 13.3% for 2017.
Corporate Office Costs
Corporate office costs, consisting primarily of salaries, benefits and equity based compensation of corporate office personnel and directors, rent, insurance costs, depreciation and amortization, travel, legal, compliance, professional, marketing and recruiting fees, were $41.3 million for 2018 and $35.9 million for 2017. The dollar increase is primarily due to increases in salaries, benefits and equity based compensation. Corporate office costs as a percentage of net revenues were 9.1% for 2018 and 8.7% in 2017.
Interest Expense – mandatorily redeemable non-controlling interest – change in redemption value.
We no longer have mandatorily redeemable non-controlling interests. As previously mentioned, due to amended partnerships agreements, the redemption values of the mandatorily redeemable non-controlling interests (previously classified as liabilities) were reclassified as redeemable non-controlling interest (temporary equity) at fair value on the December 31, 2017 consolidated balance sheet. For 2017, the earnings and liabilities attributable to mandatorily redeemable non-controlling interests were recorded within the consolidated statements of income line item: Interest expense – mandatorily redeemable non-controlling interests – earnings allocable and in the consolidated balance sheet line item: Mandatorily redeemable non-controlling interests. For 2018, any adjustments in the redemption value, net of tax, are recorded directly to retained earnings and are not reflected in the consolidated statements of income. Although the redemption adjustments are not reflected in the consolidated statements of income, current accounting rules require that we reflect these adjustments, net of tax, in the earnings per share calculation.
Interest Expense mandatorily redeemable non-controlling interest – change in redemption value for the 2017 year was $12.9 million. The change in redemption value for acquired partnerships was based on the redemption amount (which is derived from a formula based on a specified multiple times the underlying business’ trailing twelve months of earnings before interest, taxes, depreciation, amortization and our internal management fee) at the end of the reporting period compared to the end of the previous period. This change is directly related to an increase or decrease in the profitability and underlying value of our partnerships as compared to the prior year.
Interest Expense – mandatorily redeemable non-controlling interest – earnings allocable.
For 2018, the amount of net income attributable to redeemable non-controlling interest owners is included in consolidated net income on the face of the consolidated statement of income in the line item – Net income attributable to non-controlling interests. For 2017, interest expense – mandatorily redeemable non-controlling interest – earnings allocable, which represent the portion of earnings allocable to the holders of mandatorily redeemable non-controlling interests, was $6.1 million.
Interest Expense – debt and other
Interest expense – debt and other was $2.0 million for 2018 and $2.1 million for 2017. At December 31, 2018, $38.0 million was outstanding under our Amended Credit Agreement (as defined below under “—Liquidity and Capital Resources”). See “—Liquidity and Capital Resources” below for a discussion of the terms of our Amended Credit Agreement.
Gain on Derecognition of Debt
Gain on derecognition of debt was $1.8 million for the year 2018 as a liability relating to some former physical therapy partners is no longer deemed payable.
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Provision for Income Taxes
The provision for income tax in 2018 was $11.4 million, inclusive of a $0.5 million benefit related to the reconciliation of the 2017 federal and state returns to our book provision. Without this benefit, the provision for income taxes as a percentage of income before taxes less net income attributable to non-controlling interest was 25.7%. The income tax expense in 2017 was $6.0 million. Included in 2017 is a tax benefit of $4.3 million due to the revaluation of deferred tax assets and liabilities due to the TCJA. Also, included in 2017 was a charge of $0.3 million related to a detailed reconciliation of the federal and state taxes payable and receivable accounts along with federal and state deferred tax assets and liability accounts at December 31, 2016. Without this reconciliation charge and prior to the $4.3 million tax benefit, the provision for income taxes as a percentage of income before taxes less net income attributable to non-controlling interest was 35.6%. As reported, the provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest was 24.6% in 2018 and 21.3% in 2017.
Net Income Attributable to Non-controlling Interests
Net income attributable to non-controlling interests was $13.9 million in 2018 and $5.5 million in 2017. Net income attributable to non-controlling interests (permanent equity) was $5.5 million in 2018 as compared to $5.2 million in 2017. Net income attributable to redeemable non-controlling interests (temporary equity) was $8.4 million in 2018 and $0.2 million in 2017.
LIQUIDITY AND CAPITAL RESOURCES
We believe that our business is generating sufficient cash flow from operating activities to allow us to meet our short-term and long-term cash requirements, other than those with respect to future significant acquisitions. At December 31, 2019,2020, we had $23.5$32.9 million in cash and cash equivalents compared to $23.4$23.5 million at December 31, 2018.2019. Although the start-up costs associated with opening new clinics and our planned capital expenditures are significant, we believe that our cash and cash equivalents and availability under our Amended Credit Agreement are sufficient to fund the working capital needs of our operating subsidiaries, future clinic development and acquisitions and investments through at least December 2020.2021. Significant acquisitions would likely require financing under our Amended Credit Agreement.
Effective December 5, 2013, we entered into an Amended and Restated Credit Agreement with a commitment for a $125.0 million revolving credit facility. This agreement was amended in August 2015, January 2016, March 2017 and November 2017 (hereafter referred to as “Amended Credit Agreement”). The Amended Credit Agreement is unsecured and has loan covenants, including requirements that we comply with a consolidated fixed charge coverage ratio and consolidated leverage ratio. Proceeds from the Amended Credit Agreement may be used for working capital, acquisitions, purchases of our common stock, dividend payments to our common stockholders, capital expenditures and other corporate purposes. The pricing grid is based on our consolidated leverage ratio with the applicable spread over LIBOR ranging from 1.25% to 2.0% or the applicable spread over the Base Rate ranging from 0.1% to 1%. Fees under the Amended Credit Agreement include an unused commitment fee ranging from 0.25% to 0.3% depending on our consolidated leverage ratio and the amount of funds outstanding under the Amended Credit Agreement.
The January 2016 amendment to the Amended Credit Agreement increased the cash and noncash consideration that we could pay with respect to acquisitions permitted under the Amended Credit Agreement to $50,000,000 for any fiscal year, and increased the amount we may pay in cash dividends to our shareholders in an aggregate amount not to exceed $10,000,000 in any fiscal year. The March 2017 amendment, among other items, increased the amount we may pay in cash dividends to our shareholders in an aggregate amount not to exceed $15,000,000 in any fiscal year. The November 2017 amendment, among other items, adjusted the pricing grid as described above, increased the aggregate amount we may pay in cash dividends to $20,000,000 to our shareholders and extended the maturity date to November 30, 2021.
On December 31, 2019, $46.02020, $16.0 million was outstanding on the Amended Credit Agreement resulting in $79.0$109.0 million of availability. As of the date of this report, we were in compliance with all of the covenants thereunder.
Cash was provided by operations was $99.9 million and net proceeds from our Amended Credit Agreement amounted to $30.0 million. The major uses of cash for investing and financing activities included: purchase of interests in businesses ($ 62.423.9 million), purchases of redeemable non-controlling interest, temporary equity ($20.4 million), purchases of fixed assets ($7.6 million), proceeds on sale of partnership interest ($ 11.6 million) and net proceeds from our Amended Credit Agreement ($8.0 million). The major uses of cash for investing andTABLE OF CONTENTS
financing activities included: purchase of interests in businesses ($30.60.8 million), distributions to non-controlling interests ($16.218.3 million), payments of cash dividends to our shareholders ($14.64.1 million), purchases of fixed assets ($10.2 million), purchases of redeemable non-controlling interest, temporary equity ($8.7 million) and payments on notes payable ($1.41.0 million)
On November 30, 2020, we acquired a 75% interest in a three-clinic physical therapy practice. The purchase price for the 75% interest was $8.9 million (net of cash acquired), of which $8.6 million was paid in cash and $0.3 million in the form of a seller note that is payable in two principal installments totaling $162,500 each. The first principal payment plus accrued interest will be paid on November 2021 with the second installment to be paid in November 2022. The note accrues interest at 3.25% per annum.
On September 30, 2020, we acquired a 70% interest in an entity which holds six management contracts that have been in place for a number of years and had five years remaining on their term as of the acquisition date. The purchase price for the 70% interest was approximately $4.2 million, with $3.7 million payable in cash and $0.5 million in notes payable. One of the notes payable of $0.2 million is payable, with any accrued interest at 5% per annum, on September 30, 2021. The remaining note of $0.3 million was paid in November 2020.
On February 27, 2020, we acquired interests in a four-clinic physical therapy practice. The four clinics are operated in four separate partnerships. The Company’s interests in the four partnerships range from 10.0% to 83.8%, with an overall 65.0% based on the initial purchase transaction. The aggregate purchase price was $11.9 million, of which $11.6 million was paid in cash and $0.3 million in the form of a seller note. The note accrues interest at 4.75% per annum and the principal and interest is payable in February 2022.
On September 30, 2019, we acquired a 67% interest in an eleven-clinic physical therapy practice. The purchase price for the 67% interest was $12.4 million, of which $12.1 million was paid in cash and $0.3 million in the form of a seller note that is payable in two principal installments totaling $150,000 each,each. The first principal payment plus accrued interest was paid in September 2020 andwith the second installment to be paid in September 2021. The note accrues interest at 5.0% per annum. On April 30, 2018, we purchased a 65% interest in the assets and business of industrial injury prevention services, for an aggregate purchase price of $8.6 million in cash and $400,000 in seller note that is payable, plus accrued interest, on April 30, 2019. The initial industrial injury prevention business was acquired in March 2017 and, on April 30, 2018, we made a second acquisition with the two businesses then combined. After the combination, we owned a 59.45% interest in the combined business, Briotix Health.
On April 11, 2019, we acquired a company that is a provider of industrial injury prevention services. The acquired company specializes in delivering injury prevention and care, post offer employment testing, functional capacity evaluations and return-to-work services. It performs these services across a network inof 45 states including onsite at eleven client locations. The business was then combined with Briotix Health, the Company’s industrial injury prevention operation, increasing ourthe Company’s ownership position in the Briotix Health partnership to approximately 76.0%. The purchase price for the acquired company was $22.9 million ($23.6 million less cash acquired of $0.7 million), which consisted of $18.9 million in cash, (of which $0.5 million will be paid to certain shareholders), and a $4.0 million seller note. The note accrues interest at 5.5% and the principal and accrued interest is payable on April 9, 2021.
On March 4, 2019, in conjunction with the purchase of a redeemable non-controlling interest, we entered into a note payable in the amount of $228,120 that was payable in two equal installments of $114,080 each, plus accrued interest. The first installment was paid in March 2020 and the second installment remains payable in March 2021.
On August 31, 2018 we acquired a 70% interest in a four-clinic physical therapy practice. The purchase price for the 70% interest was $7.3 million in cash and $400,000 in a seller note that is payable in two principal installments totaling $200,000 each, plus accrued interest. The first installment was paid in August 2019 and the second installment remains payablewas paid in August 2020.
On February 28, 2018, through one of our majority owned partnerships, we acquired the assets and business of two physical therapy clinics, for an aggregate purchase price of $760,000 in cash and $150,000 in a seller note which was paid along with accrued interest on August 31, 2019.
In addition to the multi-clinic acquisitions above in 2018,2020, we acquired five separate clinic practices through several of our majority ownedmajority-owned Clinic Partnerships, acquired five separate clinic practices.Partnerships. These practices will operate as satellites of the respective existing clinic partnership.
Historically, we have generated sufficient cash from operations to fund our development activities and to cover operational needs. We plan to continue developing new clinics and making additional acquisitions. We have from time to time purchased the non-controlling interests of limited partners in our Clinic Partnerships. We may purchase additional non-controlling interests in the future. Generally, any acquisition or purchase of non-controlling interests is expected to be accomplished using a combination of cash and financing. Any large acquisition would likely require financing.
We make reasonable and appropriate efforts to collect accounts receivable, including applicable deductible and co-payment amounts. Claims are submitted to payors daily, weekly or monthly in accordance with our policy or payor’s requirements. When possible, we submit our claims electronically. The collection process is time consuming and typically involves the submission of claims to multiple payors whose payment of claims may be dependent upon the payment of another payor. Claims under litigation and vehicular incidents can take a year or longer to collect. Medicare and other payor claims relating to new clinics awaiting CMS approval initially may not be submitted for six months or more. When all reasonable internal collection efforts have been exhausted, accounts are written off prior to sending them to outside collection firms. With managed care, commercial health plans and self-pay payor type receivables, the write-off generally occurs after the account receivable has been outstanding for 120 days or longer. TABLE OF CONTENTS
We have future obligations for debt repayments, employment agreements and future minimum rentals under operating leases. The obligations as of December 31, 20192020 are summarized as follows (in thousands): | Total | 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Credit Agreement | $ | 46,000 | | $ | — | | $ | 46,000 | | $ | — | | $ | — | | $ | — | | $ | — | | Notes Payable | | 5,089 | | | 728 | | | 4,361 | | | — | | | — | | | — | | | — | | Interest Payable | | 320 | | | 253 | | | 67 | | | — | | | — | | | — | | | — | | Employee Agreements | | 74,407 | | | 50,840 | | | 20,968 | | | 1,421 | | | 1,178 | | | — | | | — | | Operating Leases | | 115,490 | | | 35,784 | | | 28,022 | | | 20,618 | | | 14,332 | | | 8,302 | | | 8,432 | | | $ | 241,306 | | $ | 87,605 | | $ | 99,418 | | $ | 22,039 | | $ | 15,510 | | $ | 8,302 | | $ | 8,432 | |
| | Total | | | 2021 | | | 2022 | | | 2023 | | | 2024 | | | 2025 | | | Thereafter | | Credit Agreement | | $ | 16,000 | | | $ | 16,000 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | Notes Payable | | | 5,495 | | | | 4,899 | | | | 596 | | | | - | | | | - | | | | - | | | | - | | Interest Payable | | | 114 | | | | 107 | | | | 7 | | | | - | | | | - | | | | - | | | | - | | Employee Agreements | | | 47,884 | | | | 39,402 | | | | 7,145 | | | | 1,332 | | | | 5 | | | | - | | | | - | | Operating Leases | | | 119,834 | | | | 37,427 | | | | 29,655 | | | | 22,233 | | | | 14,379 | | | | 7,909 | | | | 8,231 | | | | $ | 189,327 | | | $ | 97,835 | | | $ | 37,403 | | | $ | 23,565 | | | $ | 14,384 | | | $ | 7,909 | | | $ | 8,231 | |
We generally enter into various notes payable as a means of financing our acquisitions. Our present outstanding notes payable primarily relate to the acquisitionacquisitions of a business acquisitionor acquisitions of a majority interestinterests in a business.businesses. At December 31, 2019,2020, our remaining outstanding balance on these notes aggregated $5.1$5.5 million. The notenotes payable for the acquisition of a businessbusinesses of $4.0$5.5 million isare payable in April 2021. The other $1.1 million of notes2021 and 2022. Notes are generally payable in equal annual installments of principal over two years plus any accrued and unpaid interest. See above table for a detail of future principal payments. Interest accrues at various interest rates ranging from 3.75%3.25% to 5.00%5.50% per annum, subject to adjustment.
In conjunction with acquisitions, we entered into amendments to our limited partnership agreements for our acquired partnerships. The limited partnership agreements, as amended, provide that, upon the triggering events, we have a Call Right and the selling entity or individual has a Put Right for the purchase and sale of the limited partnership interest held by the partner. Once triggered, the Put Right and the Call Right do not expire, even upon an individual partner’s death, and contain no mandatory redemption feature. The purchase price of the partner’s limited partnership interest upon the exercise of either the Put Right or the Call Right is calculated per the terms of the respective agreements and classified as redeemable non-controlling interest (temporary equity) in our consolidated balance sheets. The fair value of the redeemable non-controlling interest at December 31, 20192020 was $137.8$132.3 million.
As of December 31, 2019,2020, we have accrued $4.3$5.7 million related to credit balances and overpayments due to patients and payors. This amount is expected to be paid in 2020.2021.
From September 2001 through December 31, 2008, our Board of Directors (“Board”) authorized us to purchase, in the open market or in privately negotiated transactions, up to 2,250,000 shares of our common stock. In March 2009, the Board authorized the repurchase of up to 10% or approximately 1,200,000 shares of our common stock (“March 2009 Authorization”). Our Amended Credit Agreement permits share repurchases of up to $15,000,000 in the aggregate, subject to compliance with covenants. We are required to retire shares purchased under the March 2009 Authorization.
There is no expiration date for the share repurchase program. As of December 31, 2019,2020, there are currently an additional estimated 131,176124,740 shares (based on the closing price of $114.35$120.25 on December 31, 2019)2020) that may be purchased from time to time in the open market or private transactions depending on price, availability and our cash position. We did not purchase any shares of our common stock during the year ended December 31, 20192020 and 2018.2019.
Off Balance Sheet Arrangements With the exception of operating leases for our executive offices and clinic facilities discussed in Note 16 to our consolidated financial statements included in Item 8, we
We have no off-balance sheet debt or other off-balance sheet financing arrangements.
FACTORS AFFECTING FUTURE RESULTS
The risks related to our business and operations include:
the multiple effects of the impact of public health crises and epidemics/pandemics, such as the novel strain of COVID-19 (coronavirus) which the financial magnitude cannot be currently estimated; changes as the result of government enacted national healthcare reform;
changes in Medicare rules and guidelines and reimbursement or failure of our clinics to maintain their Medicare certification status;and/or enrollment status, including the Medicare reimbursement reductions TABLE OF CONTENTS
revenue we receive from Medicare and Medicaid being subject to potential retroactive reduction; business and regulatory conditions including federal and state regulations; governmental and other third partythird-party payor inspections, reviews, investigations and audits; audits, which may result in sanctions or reputational harm and increased costs; compliance with federal and state laws and regulations relating to the privacy of individually identifiable patient information, and associated fines and penalties for failure to comply; changes in reimbursement rates or payment methods from third party payors including government agencies, and changes in the deductibles and co-pays owed by patients; revenue and earnings expectations; legal actions, which could subject us to increased operating costs and uninsured liabilities; general economic conditions; availability and cost of qualified physical therapists; personnel productivity and retaining key personnel; competitive, economic or reimbursement conditions in our markets which may require us to reorganize or close certain clinics and thereby incur losses and/or closure costs including the possible write-down or write-off of goodwill and other intangible assets; competitive environment in the industrial injury prevention business, which could result in the termination or non-renewal of contractual service arrangements and other adverse financial consequences for that service line; acquisitions, purchase of non-controlling interests (minority interests) and the successful integration of the operations of the acquired businesses; maintaining our information technology systems with adequate safeguards to protect against cyber-attacks; a security breach of our or our third party vendors’ information technology systems may subject us to potential legal action and reputational harm and may result in a violation of the Health Insurance Portability and Accountability Act of 1996 of the Health Information Technology for Economic and Clinical Health Act; maintaining adequate internal controls; maintaining necessary insurance coverage; the potential impact of the coronavirus;
availability, terms, and use of capital; and weather and other seasonal factors.
See also Risk Factors in Item 1A of this Annual Report on Form 10-K.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
We do not maintain any derivative instruments such as interest rate swap arrangements, hedging contracts, futures contracts or the like. Our only indebtedness as of December 31, 20192020 was the outstanding balance of seller notes from our acquisitions of $5.1$5.5 million and an outstanding balance on our Amended Credit Agreement of $46.0$16.0 million. The outstanding balance under our Amended Credit Agreement is subject to fluctuating interest rates. A 1% change in the interest rate would yield an additional $460,000$160,000 of interest expense. See Note 9 to our consolidated financial statements included in Item 8.
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND RELATED INFORMATION
| | | 42 | | | | | Audited Financial Statements:
| | | | 2019 | | | 45 | 2018 | | | 46 | 2018 | | | 47 | 2018 | | | 48 | | | | 49 |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
U.S. Physical Therapy, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of U.S. Physical Therapy, Inc. (a Nevada corporation) and subsidiaries (the “Company”) as of December 31, 20192020 and 2018,2019, the related consolidated statements of income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2019,2020, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192020 and 2018,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2020, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2019,2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 28, 2020March 1, 2021 expressed an unqualified opinion. Change in accounting principle
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases on January 1, 2019 due to the adoption of Accounting Standards Codification (“ASC”) 842, Leases.
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit mattermatters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinionsopinion on the critical audit matter or on the accounts or disclosures to which it relates.
Measurement of Patient Revenue Net of Contractual Adjustments
As discussed in Note 2 to the consolidated financial statements, revenues are recognized in the period in which services are rendered. Net patient revenues (patient revenues less estimated contractual adjustments) are recognized at the estimated net realizable amounts from third-party payors, patients and others in exchange for services rendered when obligations under the terms of the contract are satisfied. The Company has agreements TABLE OF CONTENTS
with third-party payors that provides for payments at amounts different from its established rates. Each month the Company estimates its contractual adjustment for each clinic based on the terms of third-party payor contracts and the historical collection and write-off experience of the clinic and applies a contractual adjustment reserve percentage to the gross accounts receivable balances. The Company then performs a comparison of cash collections to corresponding net revenues for the prior twelve months. We identified the measurement of contractual adjustments as a critical audit matter.
The principal consideration for our determination that the measurement of contractual adjustments is a critical audit matter is that the estimate requires a high degree of auditor subjectivity in evaluating management’s assumptions related to developing future collection patterns across the various clinic locations.
Our audit procedures related to the Company’s measurement of contractual adjustments included the following, among others.
We tested the design and operating effectiveness of controls relating to billing and cash collection, net rate trend analysis by clinic and cash collection versus net revenue trend analysis.
For a sample of patient visits, we inspected and compared underlying documents for each transaction, which included gross billing rates and cash collected (net revenue).
For a sample of patient visits, we traced gross billings and net revenue to net revenue recorded in the general ledger and to each report used in determining and assessing the contractual adjustment calculation.
We compared cash collections to recorded net revenue over a twelve month period ending December 31, 20192020 and again for the twelve month period ending in the first month subsequent to period end, to identify whether there were unusual trends that would indicate that the usage of historical collection patterns would no longer be reasonable to predict future collection patterns.
We have served as the Company’s auditor since 2004.
Houston, Texas
February 28, 2020 March 1, 2021
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
U.S. Physical Therapy, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of U.S. Physical Therapy, Inc. (a Nevada corporation) and subsidiaries (the “Company”) as of December 31, 2019,2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2019,2020, and our report dated February 28, 2020March 1, 2021 expressed an unqualified opinion on those financial statements.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Houston, Texas
February 28, 2020 March 1, 2021
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) | December 31, 2019 | December 31, 2018 | ASSETS
| | | | | | | Current assets:
| | | | | | | Cash and cash equivalents | $ | 23,548 | | $ | 23,368 | | Patient accounts receivable, less allowance for doubtful accounts of $2,698 and $2,672, respectively | | 46,228 | | | 44,751 | | Accounts receivable - other | | 9,823 | | | 6,742 | | Other current assets | | 5,787 | | | 4,353 | | Total current assets | | 85,386 | | | 79,214 | | Fixed assets:
| | | | | | | Furniture and equipment | | 54,942 | | | 52,611 | | Leasehold improvements | | 33,247 | | | 31,712 | | Fixed assets, gross | | 88,189 | | | 84,323 | | Less accumulated depreciation and amortization | | 66,099 | | | 64,154 | | Fixed assets, net | | 22,090 | | | 20,169 | | Operating lease right-of-use assets | | 81,586 | | | — | | Goodwill | | 317,676 | | | 293,525 | | Other identifiable intangible assets, net | | 52,588 | | | 48,828 | | Other assets | | 1,519 | | | 1,430 | | Total assets | $ | 560,845 | | $ | 443,166 | | LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS, USPH SHAREHOLDERS’ EQUITY AND NON-CONTROLLING INTERESTS
| | | | | | | Current liabilities:
| | | | | | | Accounts payable - trade | $ | 2,494 | | $ | 2,019 | | Accrued expenses | | 30,855 | | | 38,493 | | Current portion of operating lease liabilities | | 26,486 | | | — | | Current portion of notes payable | | 728 | | | 1,434 | | Total current liabilities | | 60,563 | | | 41,946 | | Notes payable, net of current portion | | 4,361 | | | 402 | | Revolving line of credit | | 46,000 | | | 38,000 | | Deferred taxes | | 10,071 | | | 9,012 | | Deferred rent | | — | | | 2,159 | | Operating lease liabilities, net of current portion | | 60,258 | | | — | | Other long-term liabilities | | 141 | | | 829 | | Total liabilities | | 181,394 | | | 92,348 | | Redeemable non-controlling interests - temporary equity | | 137,750 | | | 133,943 | | Commitments and contingencies (Note 10)
| | | | | | | U.S. Physical Therapy, Inc. (“USPH”) shareholders’ equity:
| | | | | | | Preferred stock, $.01 par value, 500,000 shares authorized, no shares issued and outstanding | | — | | | — | | Common stock, $.01 par value, 20,000,000 shares authorized, 14,989,337 and 14,899,233 shares issued, respectively | | 150 | | | 149 | | Additional paid-in capital | | 87,383 | | | 80,028 | | Retained earnings | | 184,352 | | | 167,396 | | Treasury stock at cost, 2,214,737 shares | | (31,628 | ) | | (31,628 | ) | Total USPH shareholders’ equity | | 240,257 | | | 215,945 | | Non-controlling interests - permanent equity | | 1,444 | | | 930 | | Total USPH shareholders' equity and non-controlling interests | | 241,701 | | | 216,875 | | Total liabilities, redeemable non-controlling interests, USPH shareholders' equity and non-controlling interests | $ | 560,845 | | $ | 443,166 | |
| | December 31, 2020 | | | December 31, 2019 | | ASSETS | | | | | | | Current assets: | | | | | | | Cash and cash equivalents | | $ | 32,918 | | | $ | 23,548 | | Patient accounts receivable, less allowance for credit losses of $2,008 and $2,698, respectively | | | 41,906 | | | | 46,228 | | Accounts receivable - other | | | 9,039 | | | | 9,823 | | Other current assets | | | 3,773 | | | | 5,787 | | Total current assets | | | 87,636 | | | | 85,386 | | Fixed assets: | | | | | | | | | Furniture and equipment | | | 55,426 | | | | 54,942 | | Leasehold improvements | | | 35,320 | | | | 33,247 | | Fixed assets, gross | | | 90,746 | | | | 88,189 | | Less accumulated depreciation and amortization | | | 69,081 | | | | 66,099 | | Fixed assets, net | | | 21,665 | | | | 22,090 | | Operating lease right-of-use assets | | | 81,595 | | | | 81,586 | | Goodwill | | | 345,646 | | | | 317,676 | | Other identifiable intangible assets, net | | | 56,280 | | | | 52,588 | | Other assets | | | 1,539 | | | | 1,519 | | Total assets | | $ | 594,361 | | | $ | 560,845 | | LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS, USPH SHAREHOLDERS’ EQUITY AND NON-CONTROLLING INTERESTS | | | | | | | | | Current liabilities: | | | | | | | | | Accounts payable - trade | | $ | 1,335 | | | $ | 2,494 | | Accrued expenses | | | 59,746 | | | | 30,855 | | Current portion of operating lease liabilities | | | 27,512 | | | | 26,486 | | Current portion of notes payable | | | 4,899 | | | | 728 | | Total current liabilities | | | 93,492 | | | | 60,563 | | Notes payable, net of current portion | | | 596 | | | | 4,361 | | Revolving line of credit | | | 16,000 | | | | 46,000 | | Deferred taxes | | | 7,779 | | | | 10,071 | | Operating lease liabilities, net of current portion | | | 61,985 | | | | 60,258 | | Other long-term liabilities | | | 4,539 | | | | 141 | | Total liabilities | | | 184,391 | | | | 181,394 | | | | | | | | | | | Redeemable non-controlling interests - temporary equity | | | 132,340 | | | | 137,750 | | | | | | | | | | | Commitments and Contingencies (Note 17) | | | 0 | | | | 0 | | | | | | | | | | | U.S. Physical Therapy, Inc. (“USPH”) shareholders’ equity: | | | | | | | | | Preferred stock, $0.01 par value, 500,000 shares authorized, 0 shares issued and outstanding | | | 0 | | | | 0 | | Common stock, $0.01 par value, 20,000,000 shares authorized, 15,066,282 and 14,989,337 shares issued, respectively | | | 151 | | | | 150 | | Additional paid-in capital | | | 95,622 | | | | 87,383 | | Retained earnings | | | 212,015 | | | | 184,352 | | Treasury stock at cost, 2,214,737 shares | | | (31,628 | ) | | | (31,628 | ) | Total USPH shareholders’ equity | | | 276,160 | | | | 240,257 | | Non-controlling interests - permanent equity | | | 1,470 | | | | 1,444 | | Total USPH shareholders' equity and non-controlling interests | | | 277,630 | | | | 241,701 | | Total liabilities, redeemable non-controlling interests, USPH shareholders' equity and non-controlling interests | | $ | 594,361 | | | $ | 560,845 | |
See notes to consolidated financial statements.
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data) | Year Ended | | December 31, 2019 | December 31, 2018 | December 31, 2017 | Net patient revenues | $ | 433,345 | | $ | 417,703 | | $ | 389,226 | | Other revenues | | 48,624 | | | 36,208 | | | 24,825 | | Net revenues | | 481,969 | | | 453,911 | | | 414,051 | | Operating costs:
| | | | | | | | | | Salaries and related costs | | 274,233 | | | 259,228 | | | 237,067 | | Rent, supplies, contract labor and other | | 90,379 | | | 88,426 | | | 82,096 | | Provision for doubtful accounts | | 4,858 | | | 4,603 | | | 3,672 | | Closure costs | | 25 | | | (9 | ) | | 599 | | Total operating costs | | 369,495 | | | 352,248 | | | 323,434 | | Gross profit | | 112,474 | | | 101,663 | | | 90,617 | | Corporate office costs | | 45,049 | | | 41,349 | | | 35,889 | | Operating income | | 67,425 | | | 60,314 | | | 54,728 | | Gain on sale of partnership interest | | 5,514 | | | — | | | — | | Gain on derecognition of debt | | — | | | 1,846 | | | — | | Interest and other income, net | | 46 | | | 93 | | | 88 | | Interest expense:
| | | | | | | | | | Mandatorily redeemable non-controlling interests - change in redemption value | | — | | | — | | | (12,894 | ) | Mandatorily redeemable non-controlling interests - earnings allocable | | — | | | — | | | (6,055 | ) | Debt and other | | (2,079 | ) | | (2,042 | ) | | (2,111 | ) | Total interest expense | | (2,079 | ) | | (2,042 | ) | | (21,060 | ) | Income before taxes | | 70,906 | | | 60,211 | | | 33,756 | | Provision for income taxes | | 13,647 | | | 11,369 | | | 6,032 | | Net income | | 57,259 | | | 48,842 | | | 27,724 | | Less: net income attributable to non-controlling interests:
| | | | | | | | | | Non-controlling interests - permanent equity | | (6,561 | ) | | (5,536 | ) | | (5,224 | ) | Redeemable non-controlling interests - temporary equity | | (10,659 | ) | | (8,433 | ) | | (244 | ) | | | (17,220 | ) | | (13,969 | ) | | (5,468 | ) | Net income attributable to USPH shareholders | $ | 40,039 | | $ | 34,873 | | $ | 22,256 | | Basic and diluted earnings per share attributable to USPH shareholders | $ | 2.45 | | $ | 1.31 | | $ | 1.76 | | Shares used in computation - basic and diluted | | 12,756 | | | 12,666 | | | 12,570 | | Dividends declared per common share | $ | 1.14 | | $ | 0.92 | | $ | 0.80 | |
| | Year Ended | | | | December 31, 2020 | | | December 31, 2019 | | | December 31, 2018 | | | | | | | | | | | | Net patient revenues | | $ | 373,340 | | | $ | 433,345 | | | $ | 417,703 | | Other revenues | | | 49,629 | | | | 48,624 | | | | 36,208 | | Net revenues | | | 422,969 | | | | 481,969 | | | | 453,911 | | Operating costs: | | | | | | | | | | | | | Salaries and related costs | | | 235,629 | | | | 274,233 | | | | 259,228 | | Rent, supplies, contract labor and other | | | 84,336 | | | | 90,379 | | | | 88,426 | | Provision for credit losses | | | 4,623 | | | | 4,858 | | | | 4,603 | | Closure costs - lease and other | | | 2,072 | | | | 25 | | | | (9 | ) | Closure costs - derecognition of goodwill | | | 1,859 | | | | 0 | | | | 0 | | Total operating costs | | | 328,519 | | | | 369,495 | | | | 352,248 | | | | | | | | | | | | | | | Gross profit | | | 94,450 | | | | 112,474 | | | | 101,663 | | | | | | | | | | | | | | | Corporate office costs | | | 42,037 | | | | 45,049 | | | | 41,349 | | Operating income | | | 52,413 | | | | 67,425 | | | | 60,314 | | | | | | | | | | | | | | | Other income and expense: | | | | | | | | | | | | | Relief Funds | | | 13,501 | | | | 0 | | | | 0 | | Gain on sale of partnership interest and clinics | | | 1,091 | | | | 5,514 | | | | 0 | | Gain on derecognition of debt | | | 0 | | | | 0 | | | | 1,846 | | Interest and other income, net | | | 142 | | | | 46 | | | | 93 | | Interest expense - debt and other | | | (1,634 | ) | | | (2,079 | ) | | | (2,042 | ) | Total other income and expense | | | 13,100 | | | | 3,481 | | | | (103 | ) | Income before taxes | | | 65,513 | | | | 70,906 | | | | 60,211 | | Provision for income taxes | | | 13,022 | | | | 13,647 | | | | 11,369 | | | | | | | | | | | | | | | Net income | | | 52,491 | | | | 57,259 | | | | 48,842 | | | | | | | | | | | | | | | Less: net income attributable to non-controlling interests: | | | | | | | | | | | | | Non-controlling interests - permanent equity | | | (6,122 | ) | | | (6,561 | ) | | | (5,536 | ) | Redeemable non-controlling interests - temporary equity | | | (11,175 | ) | | | (10,659 | ) | | | (8,433 | ) | | | | (17,297 | ) | | | (17,220 | ) | | | (13,969 | ) | | | | | | | | | | | | | | Net income attributable to USPH shareholders | | $ | 35,194 | | | $ | 40,039 | | | $ | 34,873 | | | | | | | | | | | | | | | Basic and diluted earnings per share attributable to USPH shareholders | | $ | 2.48 | | | $ | 2.45 | | | $ | 1.31 | | | | | | | | | | | | | | | Shares used in computation - basic and diluted | | | 12,835 | | | | 12,756 | | | | 12,666 | | | | | | | | | | | | | | | Dividends declared per common share | | $ | 0.32 | | | $ | 1.14 | | | $ | 0.92 | |
See notes to consolidated financial statements.
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands) | U.S. Physical Therapy, Inc. | | | | Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Total Shareholders’ Equity | Non- Controlling Interests | Total | | Shares | Amount | Shares | Amount | Balance January 1, 2017 | | 14,733 | | $ | 147 | | $ | 68,687 | | $ | 150,342 | | | (2,215 | ) | $ | (31,628 | ) | $ | 187,548 | | $ | 1,140 | | $ | 188,688 | | Issuance of restricted stock, net of cancellations | | 76 | | | 1 | | | — | | | — | | | — | | | — | | | 1 | | | 1 | | | | | Revaluation of redeemable non-controlling interest, net of tax | | — | | | — | | | — | | | (126 | ) | | — | | | — | | | (126 | ) | | — | | | (126 | ) | Compensation expense - equity-based awards | | — | | | — | | | 5,032 | | | — | | | — | | | — | | | 5,032 | | | — | | | 5,032 | | Transfer of compensation liability for certain stock issued pursuant to long-term incentive plans | | — | | | — | | | 165 | | | — | | | — | | | — | | | 165 | | | — | | | 165 | | Sale of non-controlling interest, net of tax and purchases | | — | | | — | | | 56 | | | — | | | — | | | — | | | 56 | | | (20 | ) | | 36 | | Dividends paid to USPT shareholders | | — | | | — | | | — | | | (10,066 | ) | | — | | | — | | | (10,066 | ) | | — | | | (10,066 | ) | Distributions to non-controlling interest partners | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,300 | ) | | (5,300 | ) | Other | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 160 | | | 160 | | Net income attributable to non-controlling interets - permanent equity | | | | | — | | | — | | | — | | | — | | | — | | | — | | | 5,224 | | | 5,224 | | Net income attributable to USPH shareholders | | — | | | — | | | — | | | 22,256 | | | — | | | — | | | 22,256 | | | — | | | 22,256 | | Balance December 31, 2017 | | 14,809 | | | 148 | | | 73,940 | | | 162,406 | | | (2,215 | ) | | (31,628 | ) | | 204,866 | | | 1,204 | | | 206,070 | | Issuance of restricted stock, net of cancellations | | 90 | | | 1 | | | — | | | — | | | — | | | — | | | 1 | | | — | | | 1 | | Revaluation of redeemable non-controlling interest, net of tax | | — | | | — | | | — | | | (18,268 | ) | | — | | | — | | | (18,268 | ) | | — | | | (18,268 | ) | Compensation expense - equity-based awards | | — | | | — | | | 5,939 | | | — | | | — | | | — | | | 5,939 | | | — | | | 5,939 | | Transfer of compensation liability for certain stock issued pursuant to long-term incentive plans | | — | | | — | | | 373 | | | — | | | — | | | — | | | 373 | | | — | | | 373 | | Sale of non-controlling interest, net of purchases and tax | | — | | | — | | | (224 | ) | | — | | | — | | | — | | | (224 | ) | | (48 | ) | | (272 | ) | Dividends paid to USPT shareholders | | — | | | — | | | — | | | (11,664 | ) | | — | | | — | | | (11,664 | ) | | — | | | (11,664 | ) | Distributions to non-controlling interest partners | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (5,812 | ) | | (5,812 | ) | Other | | — | | | — | | | — | | | 49 | | | — | | | — | | | 49 | | | 50 | | | 99 | | Net income attributable to non-controlling interets - permanent equity | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 5,536 | | | 5,536 | | Net income attributable to USPH shareholders | | — | | | — | | | — | | | 34,873 | | | — | | | — | | | 34,873 | | | — | | | 34,873 | | Balance December 31, 2018 | | 14,899 | | | 149 | | | 80,028 | | | 167,396 | | | (2,215 | ) | | (31,628 | ) | | 215,945 | | | 930 | | | 216,875 | | Issuance of restricted stock, net of cancellations | | 90 | | | 1 | | | — | | | — | | | — | | | — | | | 1 | | | — | | | 1 | | Revaluation of redeemable non-controlling interest, net of tax | | — | | | — | | | — | | | (8,771 | ) | | — | | | — | | | (8,771 | ) | | — | | | (8,771 | ) | Compensation expense - equity-based awards | | — | | | — | | | 6,985 | | | — | | | — | | | — | | | 6,985 | | | — | | | 6,985 | | Transfer of compensation liability for certain stock issued pursuant to long-term incentive plans | | — | | | — | | | 636 | | | — | | | — | | | — | | | 636 | | | — | | | 636 | | Purchase of partnership interests - redeemable non-controlling interests | | — | | | — | | | (266 | ) | | — | | | — | | | — | | | (266 | ) | | (26 | ) | | (292 | ) | Sale of non-controlling interest, net of purchases and tax | | — | | | — | | | — | | | 196 | | | — | | | — | | | 196 | | | — | | | 196 | | Dividends paid to USPT shareholders | | — | | | — | | | — | | | (14,555 | ) | | — | | | — | | | (14,555 | ) | | — | | | (14,555 | ) | Distributions to non-controlling interest partners | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (6,014 | ) | | (6,014 | ) | Other | | — | | | — | | | — | | | 47 | | | — | | | — | | | 47 | | | (7 | ) | | 40 | | Net income attributable to non-controlling interest - permanent equity | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 6,561 | | | 6,561 | | Net income attributable to USPH shareholders | | — | | | — | | | — | | | 40,039 | | | — | | | — | | | 40,039 | | | — | | | 40,039 | | Balance December 31, 2019 | | 14,989 | | $ | 150 | | $ | 87,383 | | $ | 184,352 | | | (2,215 | ) | $ | (31,628 | ) | $ | 240,257 | | $ | 1,444 | | $ | 241,701 | |
| | U.S. Physical Therapy, Inc. | | | | | | | | | | Common Stock | | | Additional Paid-In Capital | | | Retained Earnings | | | Treasury Stock | | | Total Shareholders’ Equity | | | Non-Controlling Interests | | | Total | | | | Shares | | | Amount | | | Shares | | | Amount | | Balance January 1, 2018 | | | 14,809 | | | $ | 148 | | | $ | 73,940 | | | $ | 162,406 | | | | (2,215 | ) | | $ | (31,628 | ) | | $ | 204,866 | | | $ | 1,204 | | | $ | 206,070 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Issuance of restricted stock, net of cancellations | | | 90 | | | | 1 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 1 | | | | 0 | | | | 1 | | Revaluation of redeemable non-controlling interest, net of tax | | | 0 | | | | 0 | | | | 0 | | | | (18,268 | ) | | | 0 | | | | 0 | | | | (18,268 | ) | | | 0 | | | | (18,268 | ) | Compensation expense - equity-based awards | | | - | | | | 0 | | | | 5,939 | | | | 0 | | | | - | | | | 0 | | | | 5,939 | | | | 0 | | | | 5,939 | | Transfer of compensation liability for certain stock issued pursuant to long-term incentive plans | | | - | | | | 0 | | | | 373 | | | | 0 | | | | - | | | | 0 | | | | 373 | | | | 0 | | | | 373 | | Sale of non-controlling interest, net of purchases and tax | | | - | | | | 0 | | | | (224 | ) | | | 0 | | | | - | | | | 0 | | | | (224 | ) | | | (48 | ) | | | (272 | ) | Dividends paid to USPT shareholders | | | - | | | | 0 | | | | 0 | | | | (11,664 | ) | | | - | | | | 0 | | | | (11,664 | ) | | | 0 | | | | (11,664 | ) | Distributions to non-controlling interest partners - permanent equity | | | - | | | | 0 | | | | 0 | | | | 0 | | | | - | | | | 0 | | | | 0 | | | | (5,812 | ) | | | (5,812 | ) | Other | | | - | | | | 0 | | | | 0 | | | | 49 | | | | - | | | | 0 | | | | 49 | | | | 50 | | | | 99 | | Net income attributable to non-controlling interest - permanent equity | | | - | | | | 0 | | | | 0 | | | | 0 | | | | - | | | | 0 | | | | 0 | | | | 5,536 | | | | 5,536 | | Net income attributable to USPH shareholders | | | - | | | | 0 | | | | 0 | | | | 34,873 | | | | - | | | | 0 | | | | 34,873 | | | | 0 | | | | 34,873 | | Balance December 31, 2018 | | | 14,899 | | | $ | 149 | | | $ | 80,028 | | | $ | 167,396 | | | | (2,215 | ) | | $ | (31,628 | ) | | $ | 215,945 | | | $ | 930 | | | $ | 216,875 | |
| | U.S. Physical Therapy, Inc. | | | | | | | | | | Common Stock | | | Additional Paid-In Capital | | | Retained Earnings | | | Treasury Stock | | | Total Shareholders’ Equity | | | Non-Controlling Interests | | | Total | | | | Shares | | | Amount | | | Shares | | | Amount | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Issuance of restricted stock, net of cancellations | | | 90 | | | | 1 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 1 | | | | 0 | | | | 1 | | Revaluation of redeemable non-controlling interest, net of tax | | | 0 | | | | 0 | | | | 0 | | | | (8,771 | ) | | | 0 | | | | 0 | | | | (8,771 | ) | | | 0 | | | | (8,771 | ) | Compensation expense - equity-based awards | | | - | | | | 0 | | | | 6,985 | | | | 0 | | | | - | | | | 0 | | | | 6,985 | | | | 0 | | | | 6,985 | | Transfer of compensation liability for certain stock issued pursuant to long-term incentive plans | | | - | | | | 0 | | | | 636 | | | | 0 | | | | - | | | | 0 | | | | 636 | | | | 0 | | | | 636 | | Purchase of partnership interests - redeemable non-controlling interests | | | - | | | | 0 | | | | (266 | ) | | | 0 | | | | - | | | | 0 | | | | (266 | ) | | | (26 | ) | | | (292 | ) | Sale of non-controlling interest, net of purchases and tax | | | - | | | | 0 | | | | 0 | | | | 196 | | | | - | | | | 0 | | | | 196 | | | | 0 | | | | 196 | | Dividends paid to USPT shareholders | | | - | | | | 0 | | | | 0 | | | | (14,555 | ) | | | - | | | | 0 | | | | (14,555 | ) | | | 0 | | | | (14,555 | ) | Distributions to non-controlling interest partners - permanent equity | | | - | | | | 0 | | | | 0 | | | | 0 | | | | - | | | | 0 | | | | 0 | | | | (6,014 | ) | | | (6,014 | ) | Other | | | - | | | | 0 | | | | 0 | | | | 47 | | | | - | | | | 0 | | | | 47 | | | | (7 | ) | | | 40 | | Net income attributable to non-controlling interest - permanent equity | | | - | | | | 0 | | | | 0 | | | | 0 | | | | - | | | | 0 | | | | 0 | | | | 6,561 | | | | 6,561 | | Net income attributable to USPH shareholders | | | - | | | | 0 | | | | 0 | | | | 40,039 | | | | - | | | | 0 | | | | 40,039 | | | | 0 | | | | 40,039 | | Balance December 31, 2019 | | | 14,989 | | | | 150 | | | | 87,383 | | | | 184,352 | | | | (2,215 | ) | | | (31,628 | ) | | | 240,257 | | | | 1,444 | | | | 241,701 | |
| | U.S. Physical Therapy, Inc. | | | | | | | | | | Common Stock | | | Additional Paid-In Capital | | | Retained Earnings | | | Treasury Stock | | | Total Shareholders’ Equity | | | Non-Controlling Interests | | | Total | | | | Shares | | | Amount | | | Shares | | | Amount | | Issuance of restricted stock, net of cancellations | | | 76 | | | | 1 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 1 | | | | 0 | | | | 1 | | Revaluation of redeemable non-controlling interest, net of tax | | | 0 | | | | 0 | | | | 0 | | | | (3,415 | ) | | | 0 | | | | 0 | | | | (3,415 | ) | | | 0 | | | | (3,415 | ) | Compensation expense - equity-based awards | | | - | | | | 0 | | | | 7,917 | | | | 0 | | | | - | | | | 0 | | | | 7,917 | | | | 0 | | | | 7,917 | | Transfer of compensation liability for certain stock issued pursuant to long-term incentive plans | | | - | | | | 0 | | | | 486 | | | | 0 | | | | - | | | | 0 | | | | 486 | | | | 0 | | | | 486 | | Purchase of partnership interests - redeemable non-controlling interests | | | - | | | | 0 | | | | 0 | | | | 0 | | | | - | | | | 0 | | | | 0 | | | | (168 | ) | | | (168 | ) | Sale of non-controlling interest, net of purchases and tax | | | - | | | | 0 | | | | (164 | ) | | | 0 | | | | - | | | | 0 | | | | (164 | ) | | | 0 | | | | (164 | ) | Dividends paid to USPT shareholders | | | - | | | | 0 | | | | 0 | | | | (4,110 | ) | | | - | | | | 0 | | | | (4,110 | ) | | | 0 | | | | (4,110 | ) | Distributions to non-controlling interest partners - permanent equity | | | - | | | | 0 | | | | 0 | | | | 0 | | | | - | | | | 0 | | | | 0 | | | | (5,928 | ) | | | (5,928 | ) | Other | | | - | | | | 0 | | | | 0 | | | | (6 | ) | | | - | | | | 0 | | | | (6 | ) | | | 0 | | | | (6 | ) | Net income attributable to non-controlling interest - permanent equity | | | - | | | | 0 | | | | 0 | | | | 0 | | | | - | | | | 0 | | | | 0 | | | | 6,122 | | | | 6,122 | | Net income attributable to USPH shareholders | | | - | | | | 0 | | | | 0 | | | | 35,194 | | | | - | | | | 0 | | | | 35,194 | | | | 0 | | | | 35,194 | | Balance December 31, 2020 | | | 15,065 | | | | 151 | | | | 95,622 | | | | 212,015 | | | | (2,215 | ) | | | (31,628 | ) | | | 276,160 | | | | 1,470 | | | | 277,630 | |
See notes to consolidated financial statements.
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) | Year Ended | | December 31, 2019 | December 31, 2018 | December 31, 2017 | OPERATING ACTIVITIES
| | | | | | | | | | Net income including non-controlling interests | $ | 57,259 | | $ | 48,842 | | $ | 27,724 | | Adjustments to reconcile net income including non-controlling interests to net cash provided by operating activities:
| | | | | | | | | | Depreciation and amortization | | 10,095 | | | 9,755 | | | 9,710 | | Provision for doubtful accounts | | 4,858 | | | 4,603 | | | 3,672 | | Equity-based awards compensation expense | | 6,985 | | | 5,939 | | | 5,032 | | Deferred income taxes | | 4,651 | | | 4,813 | | | (4,864 | ) | Gain on sale of partnership interest | | (5,514 | ) | | — | | | — | | Gain on derecognition of Debt | | — | | | (1,846 | ) | | — | | Other | | 96 | | | 167 | | | 621 | | Changes in operating assets and liabilities:
| | | | | | | | | | Increase in patient accounts receivable | | (6,376 | ) | | (3,434 | ) | | (3,447 | ) | Increase in accounts receivable - other | | (2,499 | ) | | (1,087 | ) | | (3,022 | ) | (Increase) decrease in other assets | | (1,878 | ) | | 345 | | | 2,086 | | (Decrease) increase in accounts payable and accrued expenses | | (4,209 | ) | | 4,876 | | | 6,979 | | Increase in mandatorily redeemable non-controlling interests | | — | | | — | | | 11,579 | | (Decrease) increase in other liabilities | | (1,020 | ) | | 32 | | | 456 | | Net cash provided by operating activities | | 62,448 | | | 73,005 | | | 56,526 | | | INVESTING ACTIVITIES
| | | | | | | | | | Purchase of fixed assets | | (10,189 | ) | | (7,193 | ) | | (7,095 | ) | Purchase of majority interest in businesses | | (30,597 | ) | | (16,367 | ) | | (36,682 | ) | Purchase of redeemable non-controlling interest, temporary equity | | (8,651 | ) | | — | | | — | | Purchase of non-controlling interest, permanent equity | | (428 | ) | | (350 | ) | | — | | Sales of non-controlling interest-permanent equity | | 207 | | | — | | | 121 | | Proceeds on sale of partnership interest, net | | 11,601 | | | — | | | — | | Proceeds on sale of fixed assets | | 64 | | | 1 | | | 81 | | Net cash used in investing activities | | (37,993 | ) | | (23,909 | ) | | (43,575 | ) | | FINANCING ACTIVITIES
| | | | | | | | | | Distributions to non-controlling interests, permanent and temporary equity | | (16,235 | ) | | (15,646 | ) | | (5,572 | ) | Cash dividends paid to shareholders | | (14,555 | ) | | (11,664 | ) | | (10,066 | ) | Proceeds from revolving line of credit | | 145,000 | | | 103,000 | | | 93,000 | | Payments on revolving line of credit | | (137,000 | ) | | (119,000 | ) | | (85,000 | ) | Payments to settle mandatorily redeemable non-controlling interests | | — | | | (265 | ) | | (2,361 | ) | Principal payments on notes payable | | (1,433 | ) | | (4,044 | ) | | (1,227 | ) | Other | | (52 | ) | | (42 | ) | | 161 | | Net cash used in financing activities | | (24,275 | ) | | (47,661 | ) | | (11,065 | ) | | | | | | | | | | | Net increase in cash and cash equivalents | | 180 | | | 1,435 | | | 1,886 | | Cash and cash equivalents - beginning of period | | 23,368 | | | 21,933 | | | 20,047 | | Cash and cash equivalents - end of period | $ | 23,548 | | $ | 23,368 | | $ | 21,933 | | | | | | | | | | | | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
| | | | | | | | | | Cash paid during the period for:
| | | | | | | | | | Income taxes | $ | 9,856 | | $ | 9,183 | | $ | 8,543 | | Interest | $ | 1,890 | | $ | 2,357 | | $ | 2,113 | | Non-cash investing and financing transactions during the period:
| | | | | | | | | | Purchase of businesses - seller financing portion | $ | 4,300 | | $ | 950 | | $ | 2,150 | | Purchase of business - payable to common shareholders of acquired business | $ | 502 | | $ | — | | $ | — | | Notes payable related to purchase of redeemable non-controlling interest, temporary equity | $ | 283 | | $ | — | | $ | — | | Notes payable related to purchase of non-controlling interest, permanent equity | $ | 103 | | $ | — | | $ | — | | Notes receivable related to sale of partnership interest - redeemable non-controlling interest | $ | 2,870 | | $ | — | | $ | — | |
| | Year Ended | | | | December 31, 2020 | | | December 31, 2019 | | | December 31, 2018 | | OPERATING ACTIVITIES | | | | | | | | | | Net income including non-controlling interests | | $ | 52,491 | | | $ | 57,259 | | | $ | 48,842 | | Adjustments to reconcile net income including non-controlling interests to net cash provided by operating activities: | | | | | | | | | | | | | Depreciation and amortization | | | 10,533 | | | | 10,095 | | | | 9,755 | | Provision for credit losses | | | 4,623 | | | | 4,858 | | | | 4,603 | | Equity-based awards compensation expense | | | 7,917 | | | | 6,985 | | | | 5,939 | | Deferred income taxes | | | (258 | ) | | | 4,651 | | | | 4,813 | | Gain on sale of partnership interest | | | (1,091 | ) | | | (5,514 | ) | | | (1,846 | ) | Write-off of goodwill - closed clinics | | | 1,859 | | | | 0 | | | | 0 | | Other | | | 281 | | | | 96 | | | | 167 | | Changes in operating assets and liabilities: | | | | | | | | | | | | | Decrease (increase) in patient accounts receivable | | | 899 | | | | (6,376 | ) | | | (3,434 | ) | Decrease(increase) in accounts receivable - other | | | 1,661 | | | | (2,499 | ) | | | (1,087 | ) | Decrease (increase) in other assets | | | 4,161 | | | | (1,878 | ) | | | 345 | | Increase (decrease) in accounts payable and accrued expenses | | | 12,427 | | | | (4,209 | ) | | | 4,876 | | Increase (decrease) in other long-term liabilities | | | 4,492 | | | | (1,020 | ) | | | 32 | | Net cash provided by operating activities | | | 99,995 | | | | 62,448 | | | | 73,005 | | | | INVESTING ACTIVITIES | | | | | | | | | | | | | Purchase of fixed assets | | | (7,639 | ) | | | (10,189 | ) | | | (7,193 | ) | Purchase of majority interest in businesses, net of cash acquired | | | (23,907 | ) | | | (30,597 | ) | | | (16,367 | ) | Purchase of redeemable non-controlling interest, temporary equity | | | (20,385 | ) | | | (8,651 | ) | | | 0 | | Purchase of non-controlling interest, permanent equity | | | (238 | ) | | | (428 | ) | | | (350 | ) | Proceeds on sale of redeemable non-controlling interest, temporary equity | | | 127 | | | | 207 | | | | 0 | | Proceeds on sales of partnership interest, clinics and fixed assets | | | 839 | | | | 11,665 | | | | 1 | | Net cash used in investing activities | | | (51,203 | ) | | | (37,993 | ) | | | (23,909 | ) | | | FINANCING ACTIVITIES | | | | | | | | | | | | | Distributions to non-controlling interests, permanent and temporary equity | | | (18,331 | ) | | | (16,235 | ) | | | (15,646 | ) | Cash dividends paid to shareholders | | | (4,110 | ) | | | (14,555 | ) | | | (11,664 | ) | Proceeds from revolving line of credit | | | 214,000 | | | | 145,000 | | | | 103,000 | | Payments on revolving line of credit | | | (244,000 | ) | | | (137,000 | ) | | | (119,000 | ) | Payments to settle mandatorily redeemable non-controlling interests | | | 0 | | | | 0 | | | | (265 | ) | Principal payments on notes payable | | | (1,037 | ) | | | (1,433 | ) | | | (4,044 | ) | Medicare Accelerated and Advance Payment Funds | | | 14,054 | | | | 0 | | | | 0 | | Other | | | 2 | | | | (52 | ) | | | (42 | ) | Net cash used in financing activities | | | (39,422 | ) | | | (24,275 | ) | | | (47,661 | ) | | | | | | | | | | | | | | Net increase in cash and cash equivalents | | | 9,370 | | | | 180 | | | | 1,435 | | Cash and cash equivalents - beginning of period | | | 23,548 | | | | 23,368 | | | | 21,933 | | Cash and cash equivalents - end of period | | $ | 32,918 | | | $ | 23,548 | | | $ | 23,368 | | | | | | | | | | | | | | | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | | | | | | | | | | | Cash paid during the period for: | | | | | | | | | | | | | Income taxes | | $ | 7,677 | | | $ | 9,856 | | | $ | 9,183 | | Interest | | $ | 1,202 | | | $ | 1,890 | | | $ | 2,357 | | Non-cash investing and financing transactions during the period: | | | | | | | | | | | | | Purchase of businesses - seller financing portion | | $ | 1,121 | | | $ | 4,300 | | | $ | 950 | | Purchase of business - payable to common shareholders of acquired business | | $ | 0 | | | $ | 502 | | | $ | 0 | | Notes payable related to purchase of redeemable non-controlling interest, temporary equity | | $ | 136 | | | $ | 283 | | | $ | 0 | | Notes payable related to purchase of non-controlling interest, permanent equity | | $ | 699 | | | $ | 103 | | | $ | 0 | | Notes receivable related to sale of partnership interest - redeemable non-controlling interest | | $ | 0 | | | $ | 2,870 | | | $ | 0 | | Notes receivables related to sale of partnership interest | | $ | 994 | | | $ | 0 | | | $ | 0 | |
See notes to consolidated financial statements.
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2020, 2019 2018 and 2017 2018
1. Organization, Nature of Operations and Basis of Presentation
The consolidated financial statements include the accounts of U.S. Physical Therapy, Inc. and its subsidiaries (together,(the “Company”). All significant intercompany transactions and balances have been eliminated.
The Company operates its business through 2 reportable business segments. The Company’s reportable segments include the “Company”) operate outpatient physical therapy operations segment and the industrial injury prevention services segment. The Company’s physical therapy operations consist of physical therapy and occupational therapy clinics that provide pre-and post-operative care and treatment for a variety of orthopedic-relatedorthopedic related disorders, and sports-related injuries, treatment for neurological-related injuries andpreventive care, rehabilitation of injured workers. workers and neurological injuries. The industrial injury prevention services segment includes onsite injury prevention and rehabilitation, performance optimization and ergonomic assessments. Prior to the second quarter of 2020, the Company operated as a single segment. All prior year segment information has been reclassified to conform to the 2020 segment presentation. See Note 12. Segment Information.
Physical Therapy Operations
The physical therapy operations segment primarily operates through subsidiary clinic partnerships, in which the Company generally owns a 1% general partnership interest in all the Clinic Partnerships. Our limited partnership interests typically range from 10% to 99% in the Clinic Partnerships. The managing therapist of each clinic owns, directly or indirectly, the remaining limited partnership interest in most of the clinics (hereinafter referred to as “Clinic Partnerships”). To a lesser extent, the Company operates some clinics, through wholly-owned subsidiaries, under profit sharing arrangements with therapists (hereinafter referred to as “Wholly-Owned Facilities”).
The Company continues to seek to attract for employment physical therapists who have established relationships with physicians and other referral sources, by offering these therapists a competitive salary and incentives based on the profitability of the clinic that they manage. For multi-site clinic practices in which a controlling interest is acquired by the Company, the prior owners typically continue on as employees to manage the clinic operations, retaining a non-controlling ownership interest in the clinics and receiving a competitive salary for managing the clinic operations. In addition, the Company has developed satellite clinic facilities as part of existing Clinic Partnerships and Wholly-Owned Facilities, with the result that a substantial number of Clinic Partnerships and Wholly-Owned Facilities operate more than 1 clinic location.
As of December 31, 2019,2020, the Company owned and/or operated 583554 clinics in 4039 states. The clinics’ business primarily originates from physician referrals. The principal sources of payment for the clinics’ services are managed care programs, commercial health insurance, Medicare/Medicaid, workers’ compensation insurance and proceeds from personal injury cases. In addition to the Company’s ownership and operation of outpatient physical therapy clinics, it also manages physical therapy facilities for third parties, such as physicians and hospitals, with 2638 such third-party facilities under management as of December 31, 2019.In March 2017, the Company acquired a 55% interest in the initial industrial injury prevention business. On April 30, 2018, the Company acquired a 65% interest in another business in the industrial injury prevention sector. On April 30, 2018, the Company combined the two businesses. After the combination, the Company owned a 59.45% interest in the combined business, Briotix Health, Limited Partnership (“Briotix Health”), the Company’s industrial injury prevention operation. On April 11, 2019, the Company acquired a third company that is a provider of industrial injury prevention services. The acquired company specializes in delivering injury prevention and care, post offer employment testing, functional capacity evaluations and return-to-work services. It performs these services across a network in 45 states including onsite at eleven client locations. The business was then combined with Briotix Health increasing the Company’s ownership position in the partnership to approximately 76.0%. Services provided include onsite injury prevention and rehabilitation, performance optimization, post-offer employment testing, functional capacity evaluations and ergonomic assessments. The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Other clients include large insurers and their contractors. These services are performed through Industrial Sports Medicine Professionals, consisting of both physical therapists and specialized certified athletic trainers (ATCs).
In addition to the above acquired interests in the industrial injury prevention business, during2020.
During the last three years, the Company completed the following multi-clinic acquisitions:Acquisition | Date | % Interest Acquired | Number of Clinics | | 2019 | | | | | | | September 2019 Acquisition | September 30, 2019 | | 67 | % | | 11 | | | | | | | | | | | 2018 | | | | | | | August 2018 Acquisition | August 31 | | 70 | % | | 4 | | | | | | | | | | | 2017 | | | | | | | January 2017 Acquisition | January 1 | | 70 | % | | 17 | | May 2017 Acquisition | May 31 | | 70 | % | | 4 | | June 2017 Acquisition | June 30 | | 60 | % | | 9 | | October 2017 Acquisition | October 31 | | 70 | % | | 9 | |
acquisitions within its physical therapy operations segment:
Acquisition | | Date | | % Interest Acquired | | Number of Clinics | | | | | | | | November 2020 Acquisition | | November 30, 2020 | | 75% | | 3 | September 2020 Acquisition | | September 30, 2020 | | 70% | | *0 | February 2020 Acquisition | | February 27, 2020 | | 65% | ** | 4 | September 2019 Acquisition | | September 30, 2019 | | 67% | | 11 | August 2018 Acquisition | | August 31, 2018 | | 70% | | 4 |
* | The business includes 6 management and services contracts which had a remaining term of approximately five years as of the date acquired. |
** | The 4 clinics are in 4 separate partnerships. The Company's interest in the 4 partnerships range from 10.0% to 83.8%, with an overall 65.0% based on the initial purchase transaction. |
Also during 2019, the Companywe purchased the assets and business of one1 physical therapy clinic in a separate transaction. The clinic operates as a satellite clinic of one1 of the existing partnerships. Besides the August 2018 multi-clinic acquisition, in 2018, the Company,we acquired 5 separate clinic practices that year through several of itsour majority owned Clinic Partnerships, acquired five separate clinic practices.Partnerships. These practices operate as satellites of the respective existing Clinic Partnerships.
During 2017,the year ended December 31, 2020, the Company purchased the assetssold 14 previously closed clinics. The aggregate sales price was $1.1 million, of which $0.7 million was paid in cash and business$0.4 million in a note receivable, payable in 2 equal installments of two physical therapy clinics in separate transactions. One clinic was consolidated with an existing clinicprincipal and the other operates as a satellite clinic of one of the existing partnerships.any accrued interest on June 15, 2021 and 2022.TABLE OF CONTENTS
The results of operations of the acquired clinics have been included in the Company’s consolidated financial statements since the date of their respective acquisition. The Company intends to continue to pursue additional acquisition opportunities, develop new clinics and open satellite clinics.
The consolidated financial statements include the accounts of U.S. Physical Therapy, Inc. and its subsidiaries. All significant intercompany transactions and balances have been eliminated. The Company primarily operates through subsidiary clinic partnerships, in which the Company generally owns a 1% general partnership interest and a 24% to 99% limited partnership interest. The managing therapist of each clinic owns the remaining limited partnership interest in the majority of the clinics (hereinafter referred to as “Clinic Partnership”). To a lesser extent, the Company operates some clinics through wholly-owned subsidiaries under profit sharing arrangements with therapists (hereinafter referred to as “Wholly-Owned Facilities”).
For non-acquired Clinic Partnerships, the earnings and liabilities attributable to the non-controlling interests, typically owned by the managing therapist, directly or indirectly, are recorded within the balance sheets and income statements as non-controlling interests – permanent equity. For acquired Clinic Partnerships with redeemable non-controlling interests, the earnings attributable to the redeemable non-controlling interests are recorded within the consolidated statements of income line item – net income attributable to redeemable non-controlling interests – temporary equity and the equity interests are recorded on the consolidated balance sheet as redeemable non-controlling interests – temporary equity. Prior to 2018, for acquired Clinic Partnerships with mandatorily redeemable non-controlling interests, the earnings and liabilities attributable to the non-controlling interest are recorded within the consolidated statements of income line item: Interest expense – mandatorily redeemable non-controlling interests – earnings allocable.
Effective December 31, 2017, the Company entered into amendments to its acquired limited partnership agreements replacing the mandatory redemption feature.features. No monetary consideration was paid to the partners to amend the agreements. The amended limited partnership agreements provide that, upon certain events, the Company has a call right (the “Call Right”) and the selling entity has a put right (the “Put Right”) for the purchase and sale of the limited partnership interest held by the partner. Once triggered, the Put Right and the Call Right do not expire, even upon an individual partner’s death, and contain no mandatory redemption feature. The purchase price of the partner’s limited partnership interest upon the exercise of either the Put Right or the Call Right is calculated per the terms of the respective agreements. The Company accounted for the amendment of its limited partnership agreements as an extinguishment of the outstanding Seller Entity Interests, as defined in Note 5, classified as liabilities through the issuance of new Seller Entity Interests classified in temporary equity. Pursuant to ASC 470-50-40-2, the Company removed the outstanding liability-classified Seller Entity Interests at their carrying amounts, recognized the new temporary-equity-classified Seller Entity Interests at their fair value, and recorded no gain or loss on extinguishment as management believes the redemption value (i.e. the carrying amount) and fair value are the same. In summary, the redemption values of the mandatorily redeemable non-controlling interest (previously classified as liabilities) were reclassified as redeemable non-controlling interest (temporary equity) at fair value on the December 31, 2017 consolidated balance sheet. See Note 5 - Redeemable Non-Controlling Interests – for further discussion.
For Wholly-Owned Facilities with profit sharing arrangements, an appropriate accrual is recorded for the amount of profit sharing due the clinic partners/directors. The amount is expensed as compensation and included in clinic operating costs—salaries and related costs. The respective liability is included in current liabilities—accrued expenses on the consolidated balance sheets.
Industrial Injury Prevention Services
In March 2017, the Company acquired a 55% interest in the initial industrial injury prevention business. On April 30, 2018, the Company acquired a 65% interest in another business in the industrial injury prevention sector. On April 30, 2018, the Company combined the 2 businesses. After the combination, the Company owned a 59.45% interest in the combined business, Briotix Health, Limited Partnership (“Briotix Health”), which is the Company’s industrial injury prevention operation.
On April 11, 2019, the Company acquired 100% of a third provider of industrial injury prevention services. The acquired company specializes in delivering injury prevention and care, post offer employment testing, functional capacity evaluations and return-to-work services. It performs these services across a network in 45 states including onsite at 11 client locations. After the acquisition, the business was then combined with Briotix Health increasing the Company’s ownership position in the partnership to approximately 76.0%.
Services provided in the industrial injury prevention services segment include onsite injury prevention and rehabilitation, performance optimization, post offer employment testing, functional capacity evaluations, and ergonomic assessments. The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Other clients include large insurers and their contractors. The Company performs these services through Industrial Sports Medicine Professionals, consisting of both physical therapists and specialized certified athletic trainers (ATCs).
50 Impact of COVID-19
As previously disclosed in a series of filings with the SEC and further described in detail in our Quarterly Reports on Form 10-Q for the first three quarters of 2020, the Company’s results have been negatively impacted by the effects of the COVID-19 pandemic. Management has taken a number of steps to reduce costs, make up for operating losses incurred in March and April, and increase profits subsequently. The Company continues to experience somewhat lower physical therapy patient volumes; however revenues improved significantly in the 2020 fourth quarter compared to the 2020 second and third quarters. The Company’s average physical therapy patient volumes per day per clinic were 26.2, 18.9, 25.8, and 27.7, respectively, in the first four quarters of 2020. The Company’s industrial injury prevention business was less affected by the pandemic in 2020.
In March, with the onset of the COVID-19 pandemic, the Company began to furlough or terminate approximately 40% of its 5,500 full and part-time workforce. Since early May, approximately 1,200 of the furloughed employees have returned to work on a full or part-time basis.
As of the filing of this annual report, the Company continues to experience lower physical therapy revenues. As stay at home orders and other restrictions have been lifted, we have seen our physical therapy volumes trending upwards. Should stay at home orders or other restrictions be reenacted, the Company could see its Company’s patient volume and revenues decline again.
The Company has put preparedness plans in place at its facilities to maintain continuity of operations, while also taking steps to keep employees and patients safe. In line with recommendations to reduce large gatherings and increase social distancing, the Company has, where practical, transitioned a large number of office-based employees to a remote work environment.
Medicare Accelerated and Advance Payment Program (“MAAPP Funds”)
In response to the COVID-19 pandemic, the federal government approved the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act allowed for qualified healthcare providers to receive advanced payments under the existing MAAPP Funds during the COVID-19 pandemic. Under this program, healthcare providers could choose to receive advanced payments for future Medicare services provided. The Company applied for and received approval fromCenters for Medicare & Medicaid Services (“CMS”) in April 2020. The Company recorded these payments as a liability until all performance obligations have been met as the payments were made on behalf of patients before services were provided. Currently, MAAPP funds received are required to be applied to future Medicare billings commencing in August 2021, with all such remaining amounts required to be repaid by January 2024. Beginning January 2024, any unpaid balance will begin accruing interest. The Company currently intends to repay funds prior to August 2021. Included in cash and cash equivalents and accrued liabilities at December 31, 2020 is $14.1 million of MAAPP Funds.
Relief Funds
The CARES Act also provided additional waivers, reimbursement, grants and other funds to assist health care providers during the COVID-19 pandemic, including $100.0 billion in appropriations for the Public Health and Social Services Emergency Fund, also referred to as the Provider Relief Fund, to be used for preventing, preparing, and responding to the coronavirus, and for reimbursing eligible health care providers for lost revenues and health care related expenses that are attributable to COVID-19.
Through December 31, 2020, the Company’s consolidated subsidiaries received approximately $13.5 million of payments under the CARES Act (“Relief Funds”). For the year ended December 31, 2020, the Company has recognized approximately $13.5 million, as Other income – Relief Funds on the accompany consolidated statement of operations. These funds are not required to be repaid upon attestation and compliance with certain terms and conditions, which could change materially based on evolving grant compliance provisions and guidance provided by the U.S. Department of Health and Human Services. Currently, the Company can attest and comply with the terms and conditions of the grant guidance. The Company will continue to monitor the evolving guidelines and may record adjustments as additional information is released.
2. Significant Accounting Policies
The Company maintains its cash and cash equivalents at financial institutions. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The combined account balances at several institutions typically exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. Management believes that this risk is not significant.
Fixed assets are stated at cost. Depreciation is computed on the straight-line method over the estimated useful lives of the related assets. Estimated useful lives for furniture and equipment range from three to eight years and for software purchased from three to seven years. Leasehold improvements are amortized over the shorter of the related lease term or estimated useful lives of the assets, which is generally three to five years.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company reviews property and equipment and intangible assets with finite lives for impairment upon the occurrence of certain events or circumstances that indicate the related amounts may be impaired. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Goodwill represents the excess of the amount paid and fair value of the non-controlling interests over the fair value of the acquired business assets, which include certain identifiable intangible assets. Historically, goodwill has been derived from acquisitions and, prior to 2009, from the purchase of some or all of a particular local management’s equity interest in an existing clinic. Effective January 1, 2009, if the purchase price of a non-controlling interest by the Company exceeds or is less than the book value at the time of purchase, any excess or shortfall is recognized as an adjustment to additional paid-in capital.
Goodwill and other indefinite-lived intangible assets are not amortized, but are instead subject to periodic impairment evaluations. The fair value of goodwill and other identifiable intangible assets with indefinite lives are testedevaluated for impairment at least annually and upon the occurrence of certain events or conditions, and are written down to fair value if considered impaired. These events or conditions include, but are not limited to: a significant adverse change in the business environment, regulatory environment, or legal factors; a current period operating or cash flow loss combined with a history of such losses or a projection of continuing losses; or a sale or disposition of a significant portion of a reporting unit. The Company evaluates goodwill foroccurrence of one of these events or conditions could significantly impact an impairment on at leastassessment, necessitating an annual basis (in its third quarter) by comparing the fair value of its reporting units to the carrying value of each reporting unit including related goodwill.impairment charge. The Company evaluates indefinite lived tradenames using the relief from royalty method in conjunction with its annual goodwill impairment test.
The Company operates a one2 segment business which is made up of various clinics within partnerships.partnerships, and the other is industrial injury prevention services business. The partnerships are components of regions and are aggregated to the operating segment level for the purpose of determining the Company’s reporting units when performing its annual goodwill impairment test. In 2020, 2019 2018 and 2017,2018, there were six6 regions. In addition to the six regions, in 20182020 and 2019, the impairment testanalysis included a separate analysis for the industrial injury prevention business, as a separate reporting unit.
As part of the impairment analysis, the Company is first required to assess qualitatively if it can conclude whether goodwill is more likely than not impaired. If goodwill is more likely than not impaired, the Company is then required to complete a quantitative analysis of whether a reporting unit’s fair value is less than its carrying amount. In evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company considers relevant events or circumstances that affect the fair value or carrying amount of a reporting unit. The Company considers both the income and market approach in determining the fair value of its reporting units when performing a quantitative analysis.
An impairment loss generally would be recognized when the carrying amount of the net assets of a reporting unit, inclusive of goodwill and other identifiable intangible assets, exceeds the estimated fair value of the reporting unit. The estimated fair value of a reporting unit is determined using two factors: (i) earnings prior to taxes, depreciation and amortization for the reporting unit multiplied by a price/earnings ratio used in the industry and (ii) a discounted cash flow analysis. A weight is assigned to each factor and the sum of each weight times the factor is considered the estimated fair value. For 2019, the factors (i.e., price/earnings ratio, discount rate and residual capitalization rate) were updated to reflect current market conditions. The evaluation of goodwill in 2020, 2019 2018 and 20172018 did not result in any goodwill amounts that were deemed impaired. The
Based on the economic conditions experienced in 2020 and the decline in patient visits due to the pandemic, the Company hasevaluated whether events or circumstances indicated that it was more likely than not identified any triggering events occurring afterthat the testing datefair value of the reporting units were reduced below their carrying value as of December 31, 2020. As a result of the assessment, the Company determined that would impactit was not more likely than not that goodwill and tradenames of the impairment testing results obtained. reporting units were impaired as of December 31, 2020.
The Company will continue to monitor for any triggering events or other indicators of impairment. Due to the uncertainty of the current economic conditions resulting from the COVID-19 pandemic, the Company will continue to review its carrying amounts of goodwill and other intangibles quarterly. For the year ended December 31, 2020, the Company derecognized (wrote-off) goodwill in the amount of $1.9 million related to closed clinics due to COVID-19.Redeemable Non-Controlling Interests
The non-controlling interests that are reflected as redeemable non-controlling interests in the consolidated financial statements consist of those thatin which the owners and the Company have certain redemption rights, whether currently exercisable or not, and which currently, or in the future, require that the Company purchase or the owner sell the non-controlling interest held by the owner, if certain conditions are met. The purchase price is derived at a predetermined formula based on a multiple of trailing twelve months earnings performance as defined in the respective limited partnership agreements. The redemption rights can be triggered by the owner or the Company at such time as both of the following events have occurred: 1) termination of the owner’s employment, regardless of the reason for such termination, and 2) the passage of specified number of years after the closing of the transaction, typically three to five years, as defined in the limited partnership agreement. The redemption rights are not automatic or mandatory (even upon death) and require either the owner or the Company to exercise its rights when the conditions triggering the redemption rights have been satisfied.
On the date the Company acquires a controlling interest in a partnership, and the limited partnership agreement for such partnership contains redemption rights not under the control of the Company, the fair value of the non-controlling interest is recorded in the consolidated balance sheet under the caption – Redeemable non-controlling interests. Then, in each reporting period thereafter until it is purchased by the Company, the redeemable non-controlling interest is adjusted to the greater of its then current redemption value or initial carrying value, based on the predetermined formula defined in the respective limited partnership agreement. As a result, the value of the non-controlling interest is not adjusted below its initial carrying value. The Company records any adjustment in the redemption value, net of tax, directly to retained earnings and are not reflected in the consolidated statements of income. Although the adjustments are not reflected in the consolidated statements of income, current accounting rules require that the Company reflects the adjustments, net of tax, in the earnings per share calculation. The amount of net income attributable to redeemable non-controlling interest owners is included in consolidated net income on the face of the consolidated statements of net income. Management believes the redemption value (i.e. the carrying amount) and fair value are the same. Mandatorily Redeemable
Non-Controlling Interests The non-controlling interests that are reflected as mandatorily redeemable non-controlling interests in the consolidated statements of income consist of those owners who have certain redemption rights, whether currently exercisable or not, and which currently, or in the future, require that the Company purchase the non-controlling interest of those owners at a predetermined formula based on a multiple of trailing twelve months earnings performance as defined in the respective limited partnership agreements. The redemption rights are triggered at such time as both of the following events have occurred: 1) termination of the owner’s employment, regardless of the reason for such termination, and 2) the passage of specified number of years after the closing of the transaction, typically three to five years, as defined in the limited partnership agreement.
Prior to September 30th 2017, on the date the Company acquired a controlling interest in a partnership and the limited partnership agreement for such partnership contained mandatory redemption rights, the fair value of the non-controlling interest was recorded in the long-term liabilities section of the consolidated balance sheet under the caption – Mandatorily redeemable non-controlling interests. In each reporting period thereafter until purchased by the Company, the redeemable non-controlling interest was being adjusted to its then current redemption value, based on the predetermined formula defined in the respective partnership agreement. The Company reflected any adjustment in the redemption value and any earnings attributable to the mandatorily redeemable non-controlling interest in its consolidated statements of income by recording the adjustments and earnings to other income and expense in the captions - Interest expense – mandatorily redeemable non-controlling interests – change in redemption value and Interest expense – mandatorily redeemable non-controlling interests – earnings allocable.
As previously mentioned due to amendments of the limited partnership agreements entered into by the Company, the redemption values of the mandatorily redeemable non-controlling interest (previously classified as liabilities) have been amended and are now classified as redeemable non-controlling interest (temporary equity) at fair value on the December 31, 2019 consolidated balance sheet.
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Non-Controlling Interests
The Company recognizes non-controlling interests, in which the Company has no obligation but the right to purchase the non-controlling interests, as permanent equity in the consolidated financial statements separate from the parent entity’s equity. The amount of net income attributable to non-controlling interests is included in consolidated net income on the face of the statements of net income. Changes in a parent entity’s ownership interest in a subsidiary that do not result in deconsolidation are treated as equity transactions if the parent entity retains its controlling financial interest. The Company recognizes a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss is measured using the fair value of the non-controlling equity investment on the deconsolidation date.
When the purchase price of a non-controlling interest by the Company exceeds the book value at the time of purchase, any excess or shortfall is recognized as an adjustment to additional paid-in capital. Additionally, operating losses are allocated to non-controlling interests even when such allocation creates a deficit balance for the non-controlling interest partner.
In May 2014, March 2016, April 2016, and December 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, ASU 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations, ASU 2016-10, Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing, ASU 2016-12, Revenue from Contracts with Customers, Narrow Scope Improvements and Practical Expedients, and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customer (collectively the “standards”), respectively, which supersede most of the current revenue recognition requirements (“ASC 606”). The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
The Company implemented the new standards beginning January 1, 2018 using a modified retrospective transition method. The principal change relates to how the new standard requires healthcare providers to estimate the amount of variable consideration to be included in the transaction price up to an amount which is probable that a significant reversal will not occur. The most common forms of variable consideration the Company experiences are amounts for services provided that are ultimately not realizable from a customer. There were no changes to revenues or other revenues upon implementation. Under the new standards, the Company’s estimate for unrealizable amounts will continue to be recognized as a reduction to revenue. The bad debt expense historically reported will not materially change.
For ASC 606, there is an implied contract between us and the patient upon each patient visit. Separate contractual arrangements exist between us and third partythird-party payors (e.g. insurers, managed care programs, government programs, workers' compensation) which establish the amounts the third parties pay on behalf of the patients for covered services rendered. While these agreements are not considered contracts with the customer, they are used for determining the transaction price for services provided to the patients covered by the third party payors. The payor contracts do not indicate performance obligations for us, but indicate reimbursement rates for patients who are covered by those payors when the services are provided. At that time, the Company is obligated to provide services for the reimbursement rates stipulated in the payor contracts. The execution of the contract alone does not indicate a performance obligation. For self-paying customers, the performance obligation exists when we provide the services at established rates. The difference between the Company’s established rate and the anticipated reimbursement rate is accounted for as an offset to revenue – contractual allowance.
The following table details the revenue related to the various categories. | Year Ended December 31, | | December 31, 2019 | December 31, 2018 | December 31, 2017 | Net patient revenues | $ | 433,345 | | $ | 417,703 | | $ | 389,226 | | Management contract revenues | | 8,676 | | | 8,339 | | | 6,275 | | Industrial injury prevention services revenues | | 37,462 | | | 25,466 | | | 14,908 | | Other revenues | | 2,486 | | | 2,403 | | | 3,642 | | | $ | 481,969 | | $ | 453,911 | | $ | 414,051 | |
categories (in thousands).
| | Year Ended | | | | December 31, 2020 | | | December 31, 2019 | | | December 31, 2018 | | Net patient revenues | | $ | 373,340 | | | $ | 433,345 | | | $ | 417,703 | | Management contract revenues | | | 8,410 | | | | 8,676 | | | | 8,339 | | Other revenues | | | 2,020 | | | | 2,486 | | | | 2,403 | | Physical therapy operations | | $ | 383,770 | | | $ | 444,507 | | | $ | 428,445 | | Industrial injury prevention services revenues | | | 39,199 | | | | 37,462 | | | | 25,466 | | | | $ | 422,969 | | | $ | 481,969 | | | $ | 453,911 | |
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Revenues are recognized in the period in which services are rendered. Net patient revenues consists of revenues for physical therapy and occupational therapy clinics that provide pre-and post-operative care and treatment for orthopedic related disorders, sports-related injuries, preventative care, rehabilitation of injured workers and neurological-related injuries. Net patient revenues (patient revenues less estimated contractual adjustments) are recognized at the estimated net realizable amounts from third-party payors, patients and others in exchange for services rendered when obligations under the terms of the contract are satisfied. There is an implied contract between us and the patient upon each patient visit. Generally, this occurs as the Company provides physical and occupational therapy services, as each service provided is distinct and future services rendered are not dependent on previously rendered services. The Company has agreements with third-party payors that provide for payments to the Company at amounts different from its established rates.
The Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (“MPFS”(‘‘MPFS’’). For services provided in 2018, a 0.5% increase was applied to the fee schedule payment rates; for services provided in 2019, a 0.25% increase has beenwas applied to the fee schedule payment rates before applying the mandatory budget neutrality adjustment. For services provided in 2020 through 2025, a 0.0% percent update will be applied each year to the fee schedule payment rates, before applying the mandatory budget neutrality adjustment. However, in the 2020 MPFS Final Rule, CMS proposed an increase to the code values for office/outpatient evaluation and management (E/M) codes and cuts to other codes to maintain budget neutrality of the MPFS. This change in code valuations was to become effective January 1, 2021. Under the 2021 MPFS Final Rule, reimbursement for the codes applicable to physical/occupational therapy services were to be reduced by approximately 9% in the aggregate. The 9% reduction in payment was addressed by the Consolidated Appropriations Act, 2021 (“Act”) signed into law on December 27,2020. Based on various provisions in the Act, the Company now estimates that the Medicare rate reduction for the full year of 2021 will be approximately 3.5% in aggregate.
Beginning in 2021, payments to individual therapists (Physical/Occupational Therapist in Private Practice) paid under the fee schedule may be subject to adjustment based on performance in the Merit Based Incentive Payment System (“MIPS”), which measures performance based on certain quality metrics, resource use, and meaningful use of electronic health records. Under the MIPS requirements, a provider's performance is assessed according to established performance standards each year and then is used to determine an adjustment factor that is applied to the professional's payment for the corresponding payment year. The provider’s MIPS performance in 2019 will determine the payment adjustment in 2021. Each year from 2019 through 2024, professionals who receive a significant share of their revenues through an alternate payment model (“APM”), (such as accountable care organizations or bundled payment arrangements) that involves risk of financial losses and a quality measurement component will receive a 5% bonus in the corresponding payment year. The bonus payment for APM participation is intended to encourage participation and testing of new APMs and to promote the alignment of incentives across payors. The specifics of the MIPS and APM adjustments will be subject to future notice and comment rule-making.
The Budget Control Act of 2011 increased the federal debt ceiling in connection with deficit reductions over the next ten years, and requires automatic reductions in federal spending by approximately $1.2 trillion. Payments to Medicare providers are subject to these automatic spending reductions, subject to a 2% cap. On April 1, 2013, a 2% reduction to Medicare payments was implemented. The Bipartisan Budget Act of 2015, enacted on November 2, 2015, extended the 2% reductions to Medicare payments through fiscal year 2025. The Bipartisan Budget Act of 2018, enacted on February 9, 2018, extends the 2% reductions to Medicare payments through fiscal year 2027. The Coronavirus Aid, Relief, and Economic Security (CARES) Act suspended the 2% payment reduction Medicare payments for dates of service from May 1, 2020, through December 31, 2020. The Consolidated Appropriations Act, 2021 further suspended the 2% payment reduction until March 31, 2021.
Historically, the total amount paid by Medicare in any one year for outpatient physical therapy, occupational therapy, and/or speech-language pathology services provided to any Medicare beneficiary was subject to an annual dollar limit (i.e., the “Therapy Cap” or “Limit”). For 2017, the annual Limit on outpatient therapy services was $1,980 for combined Physical Therapy and Speech Language Pathology services and $1,980 for Occupational Therapy services. As a result of Bipartisan Budget Act of 2018, the Therapy Caps have been eliminated, effective as of January 1, 2018.
Under the Middle Class Tax Relief and Job Creation Act of 2012 (“MCTRA”), since October 1, 2012, patients who met or exceeded $3,700 in therapy expenditures during a calendar year have been subject to a manual medical review to determine whether applicable payment criteria are satisfied. The $3,700 threshold is applied to Physical Therapy and Speech Language Pathology Services; a separate $3,700 threshold is applied to the Occupational Therapy. The MACRA directed Centers for Medicare and Medicaid Services (“CMS”)CMS to modify the manual medical review process such that those reviews will no longer apply to all claims exceeding the $3,700 threshold and instead will be determined on a targeted basis based on a variety of factors that CMS considers appropriate. The Bipartisan Budget Act of 2018 extendedextends the targeted medical review indefinitely, but TABLE OF CONTENTS
reduced reduces the threshold to $3,000 through December 31, 2027. For 2028, the threshold amount will be increased by the percentage increase in the Medicare Economic Index (“MEI”) for 2028. In2028 and in subsequent years the threshold amount will increase based on the corresponding percentage increase in the MEI for such subsequent year.
CMS adopted a multiple procedure payment reduction (“MPPR”) for therapy services in the final update to the MPFS for calendar year 2011. The MPPR applied to all outpatient therapy services paid under Medicare Part B — occupational therapy, physical therapy and speech-language pathology. Under the policy, the Medicare program pays 100% of the practice expense component of the Relative Value Unit (“RVU”) for the therapy procedure with the highest practice expense RVU, then reduces the payment for the practice expense component for the second and subsequent therapy procedures or units of service furnished during the same day for the same patient, regardless of whether those therapy services are furnished in separate sessions. Since 2013, the practice expense component for the second and subsequent therapy service furnished during the same day for the same patient was reduced by 50% .In addition, the MCTRA directed CMS to implement a claims-based data collection program to gather additional data on patient function during the course of therapy in order to better understand patient conditions and outcomes. All practice settings that provide outpatient therapy services are required to include this data on the claim form. Since 2013, therapists have been required to report new codes and modifiers on the claim form that reflect a patient’s functional limitations and goals at initial evaluation, periodically throughout care, and at discharge. Reporting of these functional limitation codes and modifiers are required on the claim for payment.
Medicare claims for outpatient therapy services furnished by therapy assistants on or after January 1, 2020 must include a modifier indicating the service was furnished by a therapy assistant. Outpatient therapy services furnished on or after January 1, 2022 in whole or part by a therapy assistant will be paid at an amount equal to 85% of the payment amount otherwise applicable for the service.
Statutes, regulations, and payment rules governing the delivery of therapy services to Medicare beneficiaries are complex and subject to interpretation. The Company believesWe believe that it iswe are in compliance, in all material respects, with all applicable laws and regulations and isare not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a material effect on the Company’sour financial statements as of December 31, 2019.2020. Compliance with such laws and regulations can be subject to future government review and interpretation, as well as significant regulatory action including fines, penalties, and exclusion from the Medicare program. NetFor year ended December 31, 2020, net patient revenuerevenues from Medicare were approximately $119.4 million, $103.6 million$101.6 million.
Given the history of frequent revisions to the Medicare program and $92.6 million, respectively,its reimbursement rates and rules, we may not continue to receive reimbursement rates from Medicare that sufficiently compensate us for 2019, 2018our services or, in some instances, cover our operating costs. Limits on reimbursement rates or the scope of services being reimbursed could have a material adverse effect on our revenue, financial condition and 2017.results of operations. Additionally, any delay or default by the federal or state governments in making Medicare and/or Medicaid reimbursement payments could materially and, adversely, affect our business, financial condition and results of operations.
Management Contract Revenues
Management contract revenues, which are included in other revenues, are derived from contractual arrangements whereby the Company manages a clinic for third party owners. The Company does not have any ownership interest in these clinics. Typically, revenues are determined based on the number of visits conducted at the clinic and recognized at a point in time when services are performed. Costs, typically salaries for the Company’s employees, are recorded when incurred.
Industrial Injury Prevention Services Revenues
Revenue from the industrial injury prevention business, which are also included in other revenues in the consolidated statements of net income, are derived from onsite services we provide to clients’ employees including injury prevention, rehabilitation, ergonomic assessments and performance optimization. Revenue from the Company’s industrial injury prevention business is recognized when obligations under the terms of the contract are satisfied. Revenues are recognized at an amount equal to the consideration the company expects to receive in exchange for providing injury prevention services to its clients. The revenue is determined and recognized based on the number of hours and respective rate for services provided in a given period.
Additionally, other revenues include services the Company provides on-site at locations such as schools and industrial worksites for physical or occupational therapy services, and athletic trainers and gym membership fees. Contract terms and rates are agreed to in advance between the Company and the third parties. Services are typically performed over the contract period and revenue is recorded at the point of service. If the services are paid in advance, revenue is recorded as a contract liability over the period of the agreement and recognized at the point in time, when the services are performed. TABLE OF CONTENTS
The allowance for estimated contractual adjustments is based on terms of payor contracts and historical collection and write-off experience. Contractual allowances result from the differences between the rates charged for services performed and expected reimbursements by both insurance companies and government sponsored healthcare programs for such services. Medicare regulations and the various third party payors and managed care contracts are often complex and may include multiple reimbursement mechanisms payable for the services provided in Company clinics. The Company estimates contractual allowances based on its interpretation of the applicable regulations, payor contracts and historical calculations. Each month the Company estimates its contractual allowance for each clinic based on payor contracts and the historical collection experience of the clinic and applies an appropriate contractual allowance reserve percentage to the gross accounts receivable balances for each payor of the clinic. Based on the Company’s historical experience, calculating the contractual allowance reserve percentage at the payor level is sufficient to allow the Company to provide the necessary detail and accuracy with its collectability estimates. However, the services authorized and provided and related reimbursement are subject to interpretation that could result in payments that differ from the Company’s estimates. Payor terms are periodically revised necessitating continual review and assessment of the estimates made by management. The Company’s billing system does not capture the exact change in its contractual allowance reserve estimate from period to period in order to assess the accuracy of its revenues and hence its contractual allowance reserves. Management regularly compares its cash collections to corresponding net revenues measured both in the aggregate and on a clinic-by-clinic basis. In the aggregate, historically the difference between net revenues and corresponding cash collections for any fiscal year has generally reflected a difference within approximately 1% to 1.5% of net revenues. Additionally, analysis of subsequent periods’ contractual write-offs on a payor basis reflects a difference within approximately 1% to 1.5% between the actual aggregate contractual reserve percentage as compared to the estimated contractual allowance reserve percentage associated with the same period end balance. As a result, the Company believes that a change in the contractual allowance reserve estimate would not likely be more than 1% to 1.5% of gross billings included in accounts receivable at December 31, 2019.2020.
Allowance for Doubtful AccountsCredit Losses
The Company determines allowances for doubtful accountscredit losses based on the specific agings and payor classifications at each clinic. The provision for doubtful accountscredit losses is included in operating costs in the statements of net income. Patient accounts receivable, which are stated at the historical carrying amount net of contractual allowances, write-offs and allowance for doubtful accounts,credit losses, includes only those amounts the Company estimates to be collectible.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount to be recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Tax Cuts and Jobs Act of 2017 (the “TCJA”) was passed by Congress on December 20, 2017 and signed into law by President Trump on December 22, 2017. The TCJA made significant changes to U.S. corporate income tax laws including a decrease in the corporate income tax rate to 21% effective January 1, 2018. As a result, the Company revalued its deferred tax assets and liabilities. Based on a review and analysis as of December 31, 2017, the Company estimated a reduction of its net deferred tax liabilities by $4.3 million thereby reducing its provision for income taxes by such amount for the 2017 year.
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The Company did not0t have any accrued interest or penalties associated with any unrecognized tax benefits nor0r was any interest expense recognized during the twelve months ended December 31, 2020, 2019 2018 and 2017.2018. The Company will book any interest or penalties, if required, in interest and other expense, as appropriate.
Fair Values of Financial Instruments
The carrying amounts reported in the balance sheets for cash and cash equivalents, accounts receivable, accounts payable and notes payable approximate their fair values due to the short-term maturity of these financial instruments. The carrying amount under the Amended Credit Agreement and the redemption value of Redeemable non-controlling interests approximate the respective fair values. The fair value of the Company’s redeemable non-controlling interests is determined based on “Level 3” inputs. The interest rate on the Amended Credit Agreement, which is tied to LIBOR, is set at various short-term intervals, as detailed in the Amended Credit Agreement.
Operating segments are components of an enterprise for which separate financial information is available that is evaluated regularly by chief operating decision makers in determining the allocation of resources and in assessing performance. The Company identifies operating segments based on management responsibilitycurrently operates through two segments: physical therapy operations and believes it meets the criteria for aggregating its operating segments into a single reportable segment.industrial injury prevention services.
In preparing the Company’s consolidated financial statements, management makes certain estimates and assumptions, especially in relation to, but not limited to, goodwill impairment, tradenames, allocations of purchase price, allowance for receivables, tax provision and contractual allowances, that affect the amounts reported in the consolidated financial statements and related disclosures. Actual results may differ from these estimates.
The Company utilizes a self-insurance plan for its employee group health and dental insurance coverage administered by a third party. Predetermined loss limits have been arranged with the insurance company to minimize the Company’s maximum liability and cash outlay. Accrued expenses include the estimated incurred but unreported costs to settle unpaid claims and estimated future claims. Management believes that the current accrued amounts are sufficient to pay claims arising from self-insurance claims incurred through December 31, 2019.2020.
Restricted stock issued to employees and directors is subject to continued employment or continued service on the board, respectively. Generally, restrictions on the stock granted to employees lapse in equal annual installments on the following four anniversaries of the date of grant. For those shares granted to directors, the restrictions will lapse in equal quarterly installments during the first year after the date of grant. For those granted to officers, the restriction will lapse in equal quarterly installments during the four years following the date of grant. Compensation expense for grants of restricted stock is recognized based on the fair value per share on the date of grant amortized over the vesting period. The Company recognizes any forfeitures as they occur. The restricted stock issued is included in basic and diluted shares for the earnings per share computation.
Recently Adopted Accounting Guidance In May 2014, March 2016, April 2016, and December 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, ASU 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations, ASU 2016-10, Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing, ASU 2016-12, Revenue from Contracts with Customers, Narrow Scope Improvements and Practical Expedients, and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customer (collectively “the standards”), respectively, which supersede most of the current revenue recognition requirements. The core principle of the new guidance is that an entity should recognize revenue to depict the
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transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required. The original standards were effective for fiscal years beginning after December 15, 2016; However, in July 2015, the FASB approved a one-year deferral of these standards, with a new effective date for fiscal years beginning after December 15, 2017. The standards require the selection of a retrospective or cumulative effect transition method.
The Company implemented the new standards beginning January 1, 2018 using a modified retrospective transition method. Adoption of the new standard did not result in material changes to the presentation of net revenues and bad debt expense in the consolidated statements of income, and the presentation of the amount of income from operations and net income will be unchanged upon adoption of the new standards. The principal change relates to how the new standard requires healthcare providers to estimate the amount of variable consideration to be included in the transaction price up to an amount which is probable that a significant reversal will not occur. The most common forms of variable consideration the Company experiences are amounts for services provided that are ultimately not realizable from a customer. Under the new standards, the Company’s estimate for unrealizable amounts will continue to be recognized as a reduction to revenue. The bad debt expense historically reported will not materially change.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASC 842”), which amended prior accounting standards for leases.
The Company implemented the new lease standard, ASC Topic 842 – Leases as of January 1, 2019 using the transition method in ASU 2018-11 issued in July 2018 which allows the Company to initially apply the new leases standard at adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. There was no adjustment required to retained earnings upon adoption. Accordingly, no retrospective adjustments were made to the comparative periods presented. The Company elected certain of the practical expedients permitted, including the expedient that allows the Company to retain its existing lease assessment and classification.
Adoption of ASC 842 resulted in an increase to total assets and liabilities due to the recording of operating lease right-of-use assets (“ROU”) and operating lease liabilities of approximately $78.0 million and $82.6 million respectively, as of January 1, 2019 for operating leases as a lessee. The adoption did not materially impact the Company’s consolidated statement of income or cash flows. See Footnote 10 - Leases for further discussion of leases.
In August 2018, the Securities Exchange Commission (“SEC”) issued Final Rule 33-10532, Disclosure Update and Simplification, which amends certain disclosure requirements that were redundant, duplicative, overlapping or superseded by other SEC disclosure requirements. The amendments generally eliminated or otherwise reduced certain disclosure requirements of various SEC rules and regulations. However, in some cases, the amendments require additional information to be disclosed, including changes in stockholders’ equity in interim periods. The rule is effective 30 days after its publication in the Federal Register. The rule was posted on October 4, 2018. On September 25, 2018, the SEC released guidance advising it will not object to a registrant adopting the requirement to include changes in stockholders’ equity in the Form 10-Q for the first quarter beginning after the effective date of the rule. The Company adopted this guidance in its Form 10-Q for the period ended March 31, 2019. In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (Topic 350), which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment change. ASU 2017-04 is effective prospectively for fiscal years, and the interim periods within those years, beginning after December 15, 2019. There was no impact to goodwill from this change.
Recently Issued Accounting Guidance
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses, which added a new impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The CECL model applies to most debt instruments, including trade receivables. The TABLE OF CONTENTS
CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. The standard is required to be applied using the modified retrospective approach with a cumulative-effect adjustment to retained earnings, if any, upon adoption.
The Company has completed the adoption of the standardASU 2016-13, Financial Instruments – Credit Losses on January 1, 2020. The financial instruments subject to ASU 2016-13 are the Company’s accounts receivable derived from contracts with customers. A significant portion of the Company’s accounts receivable isare from highly-solvent, creditworthy payors including governmental programs such as Medicare and Medicaid, and highly regulated commercial insurers. The Company’s estimate of expected credit losses as of January 1, 2020, using its expected credit loss evaluation process, resulted in no adjustments to the allowance for credit losses and no cumulative-effect adjustment to retained earnings on the adoption date of the standard. Subsequent Event
On February 26,
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (Topic 350), which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. ASU 2017-04 is effective prospectively for fiscal years, and the interim periods within those years, beginning after December 15, 2019. The Company completed the adoption of the standard effective January 1, 2020 and there was no impact to goodwill from the Company’s adoption of this change.
Recently Issued Accounting Guidance
In March 2020, the Company completed an acquisitionFASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of a four clinic physical therapy practice.the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional expedients and exceptions to the guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The clinics are held in four separate partnerships. On the date of purchase,new guidance was effective upon issuance, and the Company acquired approximately 65%is allowed to elect to apply the amendments prospectively through December 31, 2022. Borrowings under the Amended Credit Agreement bear interest based on LIBOR or an alternate base rate. Provisions within the agreement currently provide the Company with the ability to replace LIBOR with a different reference rate in the event LIBOR ceases to exist.
In August 2020, the FASB issued ASU 2020-06 Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. As part of this update, convertible instruments are to be included in diluted earnings per share using the if-converted method, rather than the treasury stock method. Further, contracts which can be settled in cash or shares, excluding liability-classified share-based payment awards, are to be included in diluted earnings per share on an if-converted basis if the effect is dilutive, regardless of whether the entity or the counterparty can choose between cash and share settlement. The share-settlement presumption may not be rebutted based on past experience or a stated policy.
This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021. The Company plans to adopt this pronouncement as of January 1, 2022. The use of either the modified retrospective or fully retrospective method of transition is permitted. The Company is currently evaluating the impact of the equity interests, withadoption of ASU 2020-06 on the practice’s clinical founders and associates retaining approximately 35%Company's consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The aggregate purchase priceobjective of ASU 2019-12 is to simplify the accounting for income taxes by removing certain exceptions to the acquisitiongeneral principles in Topic 740 and to provide more consistent application to improve the comparability of financial statements. The amendments in this ASU are effective for fiscal years beginning after December 15, 2020, and early adoption is permitted. We are currently evaluating the impact this guidance may have on our consolidated financial statements and related footnote disclosures.
Subsequent Event
On January 29, 2021, the Company, entered into the First Amendment to Second Amended and Restated Credit Agreement (hereafter referred to as “Amended Credit Agreement”) extending the maturity date from November 30, 2021 to November 30, 2025. The commitment under the Amended Credit Agreement remains at $125 million, however the accordion feature in the agreement was approximately $12.2expanded to provide for capacity up to $150 million. See Note 9 for more information on the Amended Credit Agreement.
3. Acquisitions of Businesses
During 2020, 2019 2018 and 2017,2018, the Company acquired a majority interest in the following multi-clinic physical therapy practices: Acquisition | Date | % Interest Acquired | Number of Clinics | | 2019 | | | | | | | September 2019 Acquisition | September 30, 2019 | | 67 | % | | 11 | | | | | | | | | | | 2018 | | | | | | | August 2018 Acquisition | August 31 | | 70 | % | | 4 | | | | | | | | | | | 2017 | | | | | | | January 2017 Acquisition | January 1 | | 70 | % | | 17 | | May 2017 Acquisition | May 31 | | 70 | % | | 4 | | June 2017 Acquisition | June 30 | | 60 | % | | 9 | | October 2017 Acquisition | October 31 | | 70 | % | | 9 | |
Acquisition | | Date | | % Interest Acquired | | Number of Clinics | November 2020 Acquisition | | November 30, 2020 | | 75% | | 3 | September 2020 Acquisition | | September 30, 2020 | | 70% | | * | February 2020 Acquisition | | February 27, 2020 | | 65% | ** | 4 | September 2019 Acquisition | | September 30, 2019 | | 67% | | 11 | August 2018 Acquisition | | August 31, 2018 | | 70% | | 4 |
* The business includes 6 management and services contracts which had a remaining term of approximately five years as of the date acquired.
** The 4 clinics are in 4 separate partnerships. The Company's interest in the 4 partnerships range from 10.0% to 83.8%, with an overall 65.0% based on the initial purchase transaction.
On November 30, 2020, the Company acquired a 75% interest in a 3-clinic physical therapy practice. The purchase price for the 75% interest was $9.1 million, of which $8.8 million was paid in cash and $0.3 million in the form of a seller note that is payable in 2 principal installments totaling $162,500 each. The first principal payment plus accrued interest will be paid on November 2021 with the second installment to be paid in November 2022. The note accrues interest at 3.25% per annum.
On September 30, 2020, the Company acquired a 70% interest in an entity which holds 6-management contracts that have been in place for a number of years. Currently, these contracts have a five year term. The purchase price for the 70% interest was approximately $4.2 million, with $3.7 million payable in cash and $0.5 million in notes payable. One of the notes payable of $0.2 million is payable, with any accrued interest at 5% per annum, on September 30, 2021. The remaining note of $0.3 million was paid in November 2020.
On February 27, 2020, the Company acquired interests in a 4-clinic physical therapy practice. The 4 clinics are operated in 4 separate partnerships. The Company’s interests in the 4 partnerships range from 10.0% to 83.8%, with an overall 65.0% based on the initial purchase transaction. The aggregate purchase price was $12.3 million, of which $11.9 million was paid in cash and $0.3 million in the form of a seller note. The note accrues interest at 4.75% per annum and the principal and interest is payable on February 2022.
The purchase price for the 2020 physical therapy operations acquisitions has been preliminarily allocated as follows (in thousands):
Cash paid, net of cash acquired ($500) | | $ | 23,907 | | Seller note | | | 1,121 | | Total consideration | | $ | 25,028 | | | | | | | Estimated fair value of net tangible assets acquired: | | | | | Total current assets | | $ | 1,271 | | Total non-current assets | | | 134 | | Total liabilities | | | (555 | ) | Net tangible assets acquired | | $ | 850 | | Referral relationships | | | 3,597 | | Non-compete | | | 1,012 | | Tradename | | | 2,326 | | Goodwill | | | 28,540 | | Fair value of non-controlling interest (classified as redeemable non-controlling interests) | | | (11,297 | ) | | | $ | 25,028 | |
On September 30, 2019, the Company acquired a 67% interest in an eleven-clinic11-clinic physical therapy practice. The purchase price for the 67% interest was $12.4 million ($12.6 million less cash acquired of $0.2 million), of which $12.1$12.3 million was paid in cash and $0.3 million in a seller note that is payable in two2 principal installments totaling $150,000 each, plus accrued interest. A payment of $150,000 plus accrued interest was paid in September 2020 and a second payment is due in September 2021. The note accrues interest at 5.0% per annum.
On April 11, 2019, the Company acquired a company that is a provider of industrial injury prevention services. The acquired company specializes in delivering injury prevention and care, post offer employment testing, functional capacity evaluations and return-to-work services. It performs these services across a network of 45 states including onsite at eleven11 client locations. The acquired business was then combined with Briotix Health, the Company’s industrial injury prevention operation, increasing the Company’s ownership position in the Briotix Health partnership to approximately 76.0%. The purchase price for the acquired company was $22.9 million ($23.6 million less cash acquired of $0.7 million), which consisted of $18.9 million in cash, (of which $0.5 million will be paid to certain shareholders), and a $4.0 million seller note. The note accrues interest at 5.5% and the principal and accrued interest is payable, on April 9, 2021.
The results of operations of the acquired clinics have been included in the Company’s consolidated financial statements since the date of their respective acquisition. The Company intends to continue to pursue additional acquisition opportunities, develop new clinics and open satellite clinics. TABLE OF CONTENTS
The purchase price for the 2019 acquisitions has been preliminarilywere allocated as follows (in thousands): | IIPS* | Clinic Practice | Total | Cash paid, net of cash acquired ($900) | $ | 18,427 | | $ | 12,170 | | $ | 30,597 | | Payable to shareholders of seller | | 486 | | | — | | | 486 | | Seller note | | 4,000 | | | 300 | | | 4,300 | | Total consideration | $ | 22,913 | | $ | 12,470 | | $ | 35,383 | | | | | | | | | | | | Estimated fair value of net tangible assets acquired:
| | | | | | | | | | Total current assets | $ | 1,907 | | $ | 697 | | $ | 2,604 | | Total non-current assets | | 611 | | | 3,028 | | | 3,639 | | Total liabilities | | (1,504 | ) | | (2,846 | ) | | (4,350 | ) | Net tangible assets acquired | $ | 1,014 | | $ | 879 | | $ | 1,893 | | Referral relationships | | 1,500 | | | 1,500 | | | 3,000 | | Non-compete | | 590 | | | 700 | | | 1,290 | | Tradename | | 2,500 | | | 1,600 | | | 4,100 | | Goodwill | | 17,309 | | | 14,021 | | | 31,330 | | Fair value of non-controlling interest (classified as redeemable non-controlling interests) | | — | | | (6,230 | ) | | (6,230 | ) | | $ | 22,913 | | $ | 12,470 | | $ | 35,383 | |
| | IIPS* | | | Physical Therapy Operations | | | Total | | Cash paid, net of cash acquired ($890) | | $ | 18,428 | | | $ | 12,170 | | | $ | 30,598 | | Payable to shareholders of seller | | | 485 | | | | 0 | | | | 485 | | Seller note | | | 4,000 | | | | 300 | | | | 4,300 | | Total consideration | | $ | 22,913 | | | $ | 12,470 | | | $ | 35,383 | | | | | | | | | | | | | | | Estimated fair value of net tangible assets acquired: | | | | | | | | | | | | | Total current assets | | $ | 1,641 | | | $ | 650 | | | $ | 2,291 | | Total non-current assets | | | 848 | | | | 394 | | | | 1,242 | | Total liabilities | | | (2,978 | ) | | | (191 | ) | | | (3,169 | ) | Net tangible assets acquired | | $ | (489 | ) | | $ | 853 | | | $ | 364 | | Referral relationships | | | 3,400 | | | | 2,600 | | | | 6,000 | | Non-compete | | | 250 | | | | 270 | | | | 520 | | Tradename | | | 1,300 | | | | 740 | | | | 2,040 | | Goodwill | | | 18,452 | | | | 14,237 | | | | 32,689 | | Fair value of non-controlling interest (classified as redeemable non-controlling interests) | | | 0 | | | | (6,230 | ) | | | (6,230 | ) | | | $ | 22,913 | | | $ | 12,470 | | | $ | 35,383 | |
* Industrial injury prevention services | * | Industrial injury prevention services |
On August 31, 2018, the Company acquired a 70% interest in a four-clinic4-clinic physical therapy practice. The purchase price for the 70% interest was $7.3 million in cash and $0.4 million in a seller note that iswas payable in two2 principal installments totaling $200,000 each, plus accrued interest. The first installment was paid in cash in August 2019 and the second installment remains payablewas paid in August 2020.
On April 30, 2018, the Company acquired a 65% interest in another business in the industrial injury prevention sector. The aggregate purchase price for the 65% interest was $8.6 million in cash and $400,000 in a seller note that was paid on April 30, 2019. On April 30, 2018, the Company combined its two2 businesses. After the combination, the Company owned a 59.45% interest in the combined business, Briotix Health. See discussion above regarding an additional acquisition on April 30,11, 2019 in the industrial injury prevention business.
In addition, during 2018, the Company, through several of its majority owned Clinic Partnerships, acquired five5 separate clinic practices. These practices operate as satellites of the existing Clinic Partnership. The aggregate purchase price was $1.0 million inclusive of cash of $850,000 and a note payable of $150,000. The note accrued interest at 4.5% and the principal and accrued interest, was paid in cash on August 31, 2019.
The purchase price for the 2018 acquisitions were allocated as follows (in thousands): Cash paid, net of cash acquired ($372) | $ | 16,367 | | Seller notes | | 950 | | Total consideration | $ | 17,317 | | | | | | Estimated fair value of net tangible assets acquired:
| | | | Total current assets | $ | 1,633 | | Total non-current assets | | 305 | | Total liabilities | | (525 | ) | Net tangible assets acquired | $ | 1,413 | | Referral relationships | | 2,926 | | Non-compete | | 298 | | Tradename | | 990 | | Goodwill | | 19,835 | | Fair value of non-controlling interest (classified as redeemable non-controlling interests) | | (8,145 | ) | | $ | 17,317 | |
Cash paid, net of cash acquired ($372) | | $ | 16,367 | | Seller note | | | 950 | | Total consideration | | $ | 17,317 | | | | | | | Estimated fair value of net tangible assets acquired: | | | | | Total current assets | | $ | 1,633 | | Total non-current assets | | | 305 | | Total liabilities | | | (525 | ) | Net tangible assets acquired | | $ | 1,413 | | Referral relationships | | | 2,926 | | Non-compete | | | 298 | | Tradename | | | 990 | | Goodwill | | | 19,835 | | Fair value of non-controlling interest (classified as redeemable non-controlling interests) | | | (8,145 | ) | | | $ | 17,317 | |
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On January 1, 2017, the Company acquired a 70% interest in a seventeen-clinic physical therapy practice. The purchase price for the 70% interest was $10.7 million in cash and $0.5 million in a seller note that was payable in two principal installments totaling $250,000 each, plus accrued interest. The first installment was paid in January 2018 and the second installment in January 2019.
On May 31, 2017, the Company acquired a 70% interest in a four-clinic physical therapy practice. The purchase price for the 70% interest was $2.3 million in cash and $250,000 in a seller note that was payable in two principal installments totaling $125,000 each, plus accrued interest. The first installment was paid in May 2018 and the second installment in May 2019.
On June 30, 2017, the Company acquired a 60% interest in a nine-clinic physical therapy practice. The purchase price for the 60% interest was $15.8 million in cash and $0.5 million in a seller note that was payable in two principal installments totaling $250,000 each, plus accrued interest. The first installment was paid in June 2018 and the second installment in June 2019.
On October 31, 2017, the Company acquired a 70% interest in a nine-clinic physical therapy practice and two management contracts with third party providers. The purchase price for the 70% interest was $4.0 million in cash and $0.5 million in a seller note that was payable in two principal installments totaling $250,000 each, plus accrued interest. The first installment was paid in October 2018 and the second installment in October 2019.
Also, in 2017, the Company purchased the assets and business of two physical therapy clinics in separate transactions. One clinic was consolidated with an existing clinic and the other operates as a satellite clinic of one of the existing partnerships.
The purchase price for the 2017 acquisitions were allocated as follows (in thousands):
Cash paid, net of cash acquired ($2,297) | $ | 36,682 | | Seller notes | | 2,150 | | Total consideration | $ | 38,832 | | Estimated fair value of net tangible assets acquired:
| | | | Total current assets | $ | 5,853 | | Total non-current assets | | 1,527 | | Total liabilities | | (2,865 | ) | Net tangible assets acquired | $ | 4,515 | | Referral relationships | | 4,250 | | Non-compete | | 660 | | Tradename | | 6,850 | | Goodwill | | 46,722 | | Fair value of non-controlling interest (classified as redeemable non-controlling interests) | | (13,883 | ) | Fair value of non-controlling interest (originally classified as mandatorily redeemable non-controlling interests) | | (10,282 | ) | | $ | 38,832 | |
The finalized purchase prices plus the fair value of the non-controlling interests for the acquisitionacquisitions in 20182019 and 20172018 were allocated to the fair value of the assets acquired, inclusive of identifiable intangible assets, i.e. trade names, referral relationships and non-compete agreements, and liabilities assumed based on the fair values at the acquisition date, with the amount exceeding the fair values being recorded as goodwill. For the acquisitions in 2019,2020, the Company is in the process of completing its formal valuation analysis to identify and determine the fair value of tangible and identifiable intangible assets acquired and the liabilities assumed. Thus, the final allocation of the purchase price may differ from the preliminary estimates used at December 31, 20192020 based on additional information obtained and completion of the valuation of the identifiable intangible assets. Changes in the estimated valuation of the tangible assets acquired, the completion of the valuation of identifiable intangible assets and the completion by the Company of the identification of any unrecorded pre-acquisition contingencies, where the liability is probable and the amount can be reasonably estimated, will likely result in adjustments to goodwill. The Company does not expect the adjustments to be material. TABLE OF CONTENTS
For the acquisitions in 2019,2020, the values assigned to the referral relationships and non-compete agreements are being amortized to expense equally over the respective estimated lives. For referral relationships, the amortization period is 11.0 years. For non-compete agreements, the amortization period is 6.0 years. The values assigned to tradenames are tested annually for impairment.
For the acquisitions in 20182019 and 2017,2018, the values assigned to the referral relationships and non-compete agreements are being amortized to expense equally over the respective estimated lives. For referral relationships, the weighted average amortization period was 10.54 and 10.10 years at December 31, 20182019 and December 31, 2017,2018, respectively. For non-compete agreements, the weighted average amortization period was 6.00 and 5.16 years at December 31, 20182019 and December 31, 2017,2018, respectively. Generally, the values assigned to tradenames are tested annually for impairment.
For the 2020, 2019 2018 and 20172018 acquisitions, total current assets primarily represent patient accounts receivable. Total non-current assets are fixed assets, primarily equipment, used in the practices.
The consideration paid for each of the acquisitions was derived through arm’s length negotiations. Funding for the cash portions was derived from proceeds from the Company’s revolving credit facility. The results of operations of the acquisitions have been included in the Company’s consolidated financial statements since their respective date of acquisition. Unaudited proforma consolidated financial information for the acquisitions in 2020, 2019 2018 and 20172018 acquisitions have not been included as the results, individually and in the aggregate.
4. Acquisitions and Sale of Non-Controlling Interests
During 2019,2020, the Company acquired additional interests in four5 partnerships which are included in non-controlling interest. The additional interests purchased in each of the partnerships ranged from 1%20% to 35%. The aggregated purchase price for these acquired interests was $0.3 million. The Company sold an interest in a partnership for $0.1 million.
Also during 2020, the Company sold 14 previously closed clinics. The aggregate sales price was $1.1 million, of which $0.7 million was paid in cash and 55%$0.4 million in a note receivable, payable in 2 equal installments of principal and any accrued interest on June 15,2021 and 2022.
During 2019, the Company acquired additional interests in 4 partnerships which are included in non-controlling interest. The additional interests purchased in each of the partnerships ranged from 1% to 20%. Also in 2019, the Company sold a 1% interest in a partnership. The net after-tax difference between the payments and the portion of undistributed earnings of $196,000$196,000 was credited to additional paid-in capital.During 2018, the Company acquired additional interests in three partnerships included in non-controlling interest. The additional interests purchased in each of the partnerships ranged from 5.5% and 35%. The net after-tax difference of $224,000 was credited to additional paid-in capital.
During 2017, the Company acquired additional interests in two partnerships included in non-controlling interest. The additional interests purchased in each of the partnerships was 35%. The net after-tax difference of $56,000 was credited to additional paid-in capital.
5. Redeemable Non-Controlling Interest
Since October 2017, when the Company acquires a majority interest (the “Acquisition”) in a physical therapy clinic business (referred to as “Therapy Practice”), these Acquisitions occur in a series of steps which are described below.
| 1. | Prior to the Acquisition, the Therapy Practice exists as a separate legal entity (the “Seller Entity”). The Seller Entity is owned by one or more individuals (the “Selling Shareholders”) most of whom are physical therapists that work in the Therapy Practice and provide physical therapy services to patients. |
| 2. | In conjunction with the Acquisition, the Seller Entity contributes the Therapy Practice into a newly-formed limited partnership (“NewCo”), in exchange for one hundred percent (100%) of the limited and general partnership interests in NewCo. Therefore, in this step, NewCo becomes a wholly-owned subsidiary of the Seller Entity. |
| 3. | The Company enters into an agreement (the “Purchase Agreement”) to acquire from the Seller Entity a majority (ranges from 50% to 90%) of the limited partnership interest and in all cases 100% of the general partnership interest in NewCo. The Company does not purchase 100% of the limited partnership interest because the Selling Shareholders, through the Seller Entity, want to maintain an ownership percentage. The consideration for the Acquisition is primarily payable in the form of cash at closing and a small two-year note in lieu of an escrow (the “Purchase Price”). The Purchase Agreement does not contain any future earn-out or other contingent consideration that is payable to the Seller Entity or the Selling Shareholders. |
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| 4. | The Company and the Seller Entity also execute a partnership agreement (the “Partnership Agreement”) for NewCo that sets forth the rights and obligations of the limited and general partners of NewCo. After the Acquisition, the Company is the general partner of NewCo. |
| 5. | As noted above, the Company does not purchase 100% of the limited partnership interests in NewCo and the Seller Entity retains a portion of the limited partnership interest in NewCo (“Seller Entity Interest”). |
| 6. | In most cases, some or all of the Selling Shareholders enter into an employment agreement (the “Employment Agreement”) with NewCo with an initial term that ranges from three to five years (the “Employment Term”), with automatic one-year renewals, unless employment is terminated prior to the end of the Employment Term. As a result, a Selling Shareholder becomes an employee (“Employed Selling Shareholder”) of NewCo. The employment of an Employed Selling Shareholder can be terminated by the Employed Selling Shareholder or NewCo, with or without cause, at any time. In a few situations, a Selling Shareholder does not become employed by NewCo and is not involved with NewCo following the closing; in those situations, such Selling Shareholders sell their entire ownership interest in the Seller Entity as of the closing of the Acquisition. |
| 7. | The compensation of each Employed Selling Shareholder is specified in the Employment Agreement and is customary and commensurate with his or her responsibilities based on other employees in similar capacities within NewCo, the Company and the industry. |
| 8. | The Company and the Selling Shareholder (including both Employed Selling Shareholders and Selling Shareholders not employed by NewCo) execute a non-compete agreement (the “Non-Compete Agreement”) which restricts the Selling Shareholder from engaging in competing business activities for a specified period of time (the “Non-Compete Term”). A Non-Compete Agreement is executed with the Selling Shareholders in all cases. That is, even if the Selling Shareholder does not become an Employed Selling Shareholder, the Selling Shareholder is restricted from engaging in a competing business during the Non-Compete Term. |
| 9. | The Non-Compete Term commences as of the date of the Acquisition and expires on the later of: |
| a. | Two years after the date an Employed Selling Shareholders’ employment is terminated (if the Selling Shareholder becomes an Employed Selling Shareholder) or |
| b. | Five to six years from the date of the Acquisition, as defined in the Non-Compete Agreement, regardless of whether the Selling Shareholder is employed by NewCo. |
| 10. | The Non-Compete Agreement applies to a restricted region which is defined as a 15-mile radius from the Therapy Practice. That is, an Employed Selling Shareholder is permitted to engage in competing businesses or activities outside the 15-mile radius (after such Employed Selling Shareholder no longer is employed by NewCo) and a Selling Shareholder who is not employed by NewCo immediately is permitted to engage in the competing business or activities outside the 15-mile radius. |
The Partnership Agreement contains provisions for the redemption of the Seller Entity Interest, either at the option of the Company (the “Call Right”) or at the option of the Seller Entity (the “Put Right”) as follows:
| a. | In the event that any Selling Shareholder’s employment is terminated under certain circumstances prior to the fifth anniversary of the Closing Date, the Seller Entity thereafter may have an irrevocable right to cause the Company to purchase from Seller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest at the purchase price described in “3” below. |
| b. | In the event that any Selling Shareholder is not employed by NewCo as of the fifth anniversary of the Closing Date and the Company has not exercised its Call Right with respect to the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest, Seller Entity thereafter shall have the Put Right to cause the Company to purchase from Seller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest at the purchase price described in “3” below. |
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| c. | In the event that any Selling Shareholder’s employment with NewCo is terminated for any reason on or after the fifth anniversary of the Closing Date, the Seller Entity shall have the Put Right, and upon the exercise of the Put Right, the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest shall be redeemed by the Company at the purchase price described in “3” below. |
| a. | If any Selling Shareholder’s employment by NewCo is terminated prior to the fifth anniversary of the Closing Date, the Company thereafter shall have an irrevocable right to purchase from Seller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest, in each case at the purchase price described in “3” below. |
| b. | In the event that any Selling Shareholder’s employment with NewCo is terminated for any reason on or after the fifth anniversary of the Closing Date, the Company shall have the Call Right, and upon the exercise of the Call Right, the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest shall be redeemed by the Company at the purchase price described in “3” below. |
| 3. | For the Put Right and the Call Right, the purchase price is derived from a formula based on a specified multiple of NewCo’s trailing twelve months of earnings before interest, taxes, depreciation, amortization, and the Company’s internal management fee, plus an Allocable Percentage of any undistributed earnings of NewCo (the “Redemption Amount”). NewCo’s earnings are distributed monthly based on available cash within NewCo; therefore, the undistributed earnings amount is small, if any. |
| 4. | The Purchase Price for the initial equity interest purchased by the Company is also based on the same specified multiple of the trailing twelve-month earnings that is used in the Put Right and the Call Right noted above. |
| 5. | The Put Right and the Call Right do not have an expiration date, but the Seller Entity Interest is not required to be purchased by the Company or sold by the Seller Entity. |
| 6. | The Put Right and the Call Right never apply to Selling Shareholders who do not become employed by NewCo, since the Company requires that such Selling Shareholders sell their entire ownership interest in the Seller Entity at the closing of the Acquisition. |
An Employed Selling Shareholder’s ownership of his or her equity interest in the Seller Entity predates the Acquisition and the Company’s purchase of its partnership interest in NewCo. The Employment Agreement and the Non-Compete Agreement do not contain any provision to escrow or “claw back” the equity interest in the Seller Entity held by such Employed Selling Shareholder, nor the Seller Entity Interest in NewCo, in the event of a breach of the employment or non-compete terms. More specifically, even if the Employed Selling Shareholder is terminated for “cause” by NewCo, such Employed Selling Shareholder does not forfeit his or her right to his or her full equity interest in the Seller Entity and the Seller Entity does not forfeit its right to any portion of the Seller Entity Interest. The Company’s only recourse against the Employed Selling Shareholder for breach of either the Employment Agreement or the Non-Compete Agreement is to seek damages and other legal remedies under such agreements. There are no conditions in any of the arrangements with an Employed Selling Shareholder that would result in a forfeiture of the equity interest held in the Seller Entity or of the Seller Entity Interest.
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For the year ended December 31, 2020, 2019 and 2018, the following table details the changes in the carrying amount (fair value) of the redeemable non-controlling interests (in thousands): | Year Ended | | December 31, 2019 | December 31, 2018 | Beginning balance | $ | 133,943 | | $ | 102,572 | | Operating results allocated to redeemable non-controlling interest partners | | 10,659 | | | 8,433 | | Distributions to redeemable non-controlling interest partners | | (10,221 | ) | | (9,835 | ) | Changes in the fair value of redeemable non-controlling interest | | 11,893 | | | 24,770 | | Purchases of redeemable non-controlling interest | | (8,934 | ) | | 8,145 | | Fair value of redeemable non-controlling interest - amended partnership agreements | | — | | | — | | Acquired interest | | 6,230 | | | — | | Sales of redeemable non-controlling interest - temporary equity | | 3,120 | | | — | | Reduction of non-controlling interest due to sale of USPh partnership interest | | (6,132 | ) | | — | | Notes receivable related to sales of redeemable non-controlling interest - temporary equity | | (2,870 | ) | | (142 | ) | Other | | 62 | | | — | | Ending balance | $ | 137,750 | | $ | 133,943 | |
| | Year Ended | | | | December 31, 2020 | | | December 31, 2019 | | | December 31, 2018 | | Beginning balance | | $ | 137,750 | | | $ | 133,943 | | | $ | 102,572 | | Operating results allocated to redeemable non-controlling interest partners | | | 11,175 | | | | 10,659 | | | | 8,433 | | Distributions to redeemable non-controlling interest partners | | | (12,403 | ) | | | (10,221 | ) | | | (9,835 | ) | Changes in the fair value of redeemable non-controlling interest | | | 4,632 | | | | 11,893 | | | | 24,770 | | Purchases of redeemable non-controlling interest | | | (20,521 | ) | | | (8,934 | ) | | | 8,145 | | Acquired interest | | | 11,297 | | | | 6,230 | | | | 0 | | Reduction of non-controlling interest due to sale of USPH partnership interest | | | 0 | | | | (6,132 | ) | | | 0 | | Sales of redeemable non-controlling interest - temporary equity | | | 1,133 | | | | 3,120 | | | | 0 | | Notes receivable related to sales of redeemable non-controlling interest - temporary equity | | | (1,006 | ) | | | (2,870 | ) | | | (142 | ) | Adjustments in notes receivable related to the the sales of redeemable non-controlling interest - temporary equity | | | 283 | | | | 0 | | | | 0 | | Other | | | 0 | | | | 62 | | | | 0 | | Ending balance | | $ | 132,340 | | | $ | 137,750 | | | $ | 133,943 | |
The following table categorizes the carrying amount (fair value) of the redeemable non-controlling interests (in thousands): | December 31, 2019 | December 31, 2018 | Contractual time period has lapsed but holder's employment has not been terminated | $ | 51,921 | | $ | 42,624 | | Contractual time period has not lapsed and holder's employment has not been terminated | | 85,829 | | | 91,319 | | Holder's employment has terminated and contractual time period has expired | | — | | | — | | Holder's employment has terminated and contractual time period has not expired | | — | | | — | | | $ | 137,750 | | $ | 133,943 | |
| | December 31, 2020 | | | December 31, 2019 | | | December 31, 2018 | | Contractual time period has lapsed but holder's employment has not been terminated | | $ | 62,390 | | | $ | 51,921 | | | $ | 42,624 | | Contractual time period has not lapsed and holder's employment has not been terminated | | | 69,950 | | | | 85,829 | | | | 91,319 | | Holder's employment has terminated and contractual time period has expired | | | 0 | | | | 0 | | | | 0 | | Holder's employment has terminated and contractual time period has not expired | | | 0 | | | | 0 | | | | 0 | | | | $ | 132,340 | | | $ | 137,750 | | | $ | 133,943 | |
The changes in the carrying amount of goodwill as of December 31, 2020 and 2019 consisted of the following (in thousands):
| | Year Ended December 31, 2020 | | | Year Ended December 31, 2019 | | | | | | | | | Beginning balance | | $ | 317,676 | | | $ | 293,525 | | Goodwill acquired | | | 28,540 | | | | 31,330 | | Goodwill related to partnership interest sold | | | 0 | | | | (7,325 | ) | Goodwill derecognition (write-off) related to closed clinics | | | (1,859 | ) | | | 0 | | Goodwill adjustments for purchase price allocation of businesses acquired in prior year | | | 1,289 | | | | 146 | | Ending balance | | $ | 345,646 | | | $ | 317,676 | |
7. Intangible Assets, net
Intangible assets, net as of December 31, 2020, 2019 and 2018 consisted of the following (in thousands): | Year Ended December 31, 2019 | Year Ended December 31, 2018 | | | | | | | | Beginning balance | $ | 293,525 | | $ | 271,338 | | Goodwill acquired | | 31,330 | | | 19,778 | | Goodwill related to partnership interest sold | | (7,325 | ) | | — | | Goodwill adjustments for purchase price allocation of businesses acquired in prior year | | 146 | | | 2,409 | | Ending balance | $ | 317,676 | | $ | 293,525 | |
| | December 31, 2020 | | | December 31, 2019 | | Tradenames | | $ | 32,317 | | | $ | 32,049 | | Referral relationships, net of accumulated amortization of $14,522 and $11,677, respectively | | | 22,119 | | | | 18,367 | | Non-compete agreements, net of accumulated amortization of $5,993 and $5,424, respectively | | | 1,844 | | | | 2,172 | | | | $ | 56,280 | | | $ | 52,588 | |
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7. Intangible Assets, net
Intangible assets, net as of December 31, 2019 and 2018 consisted of the following (in thousands):
| December 31, 2019 | December 31, 2018 | Tradenames | $ | 32,049 | | $ | 30,256 | | Referral relationships, net of accumulated amortization of $11,677 and $9,370, respectively | | 18,367 | | | 16,895 | | Non-compete agreements, net of accumulated amortization of $5,424 and $4,716, respectively | | 2,172 | | | 1,677 | | | $ | 52,588 | | $ | 48,828 | |
Tradenames, referral relationships and non-compete agreements are related to the businesses acquired. The value assigned to tradenames has an indefinite life and is tested at least annually for impairment using the relief from royalty method in conjunction with the Company’s annual goodwill impairment test. The value assigned to referral relationships is being amortized over their respective estimated useful lives which range from 6 to 16 years. Non-compete agreements are amortized over the respective term of the agreements which range from 5 to 6 years.
The following table details the amount of amortization expense recorded for intangible assets for the years ended December 31, 2020, 2019 2018 and 20172018 (in thousands): | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | Referral relationships | $ | 2,307 | | $ | 2,161 | | $ | 1,934 | | Non-compete agreements | | 708 | | | 616 | | | 720 | | | $ | 3,015 | | $ | 2,777 | | $ | 2,654 | |
| | Year Ended December 31, 2020 | | | Year Ended December 31, 2019 | | | Year Ended December 31, 2018 | | Referral relationships | | $ | 2,845 | | | $ | 2,307 | | | $ | 2,161 | | Non-compete agreements | | | 569 | | | | 708 | | | | 616 | | | | $ | 3,414 | | | $ | 3,015 | | | $ | 2,777 | |
For one1 acquisition, the value assigned to tradename was being amortized over the term of the six year agreement in which the Company had acquired the right to use the specific tradename.
The remaining balances of the referral relationships and non-compete agreements is expected to be amortized as follows (in thousands): Referral Relationships | Non-Compete Agreements | Years Ending December 31, | Annual Amount | Years Ending December 31, | Annual Amount | 2020 | $ | 2,403 | | 2020 | $ | 619 | | 2021 | $ | 2,403 | | 2021 | $ | 541 | | 2022 | $ | 2,354 | | 2022 | $ | 364 | | 2023 | $ | 2,247 | | 2023 | $ | 294 | | 2024 | $ | 2,082 | | 2024 | $ | 238 | | Thereafter | $ | 6,878 | | Thereafter | $ | 116 | |
Referral Relationships | | Non-Compete Agreements | | Years | | Annual Amount | | Years | | Annual Amount | | Ending December 31, | | | | Ending December 31, | | | | 2021 | $ | 2,946 | | 2021 | $ | 556 | | 2022 | $ | 2,886 | | 2022 | $ | 403 | | 2023 | $ | 2,778 | | 2023 | $ | 335 | | 2024 | $ | 2,615 | | 2024 | $ | 279 | | 2025 | $ | 2,470 | | 2025 | $ | 212 | | Thereafter | $ | 8,424 | | Thereafter | $ | 59 | |
Accrued expenses as of December 31, 20192020 and 20182019 consisted of the following (in thousands): | December 31, 2019 | December 31, 2018 | Salaries and related costs | $ | 19,340 | | $ | 21,726 | | Credit balances due to patients and payors | | 4,303 | | | 7,293 | | Group health insurance claims | | 2,277 | | | 3,124 | | Other | | 4,935 | | | 6,350 | | Total | $ | 32,066 | | $ | 38,493 | |
| | December 31, 2020 | | | December 31, 2019 | | Salaries and related costs | | $ | 24,646 | | | $ | 19,340 | | Credit balances due to patients and payors | | | 5,756 | | | | 4,303 | | Group health insurance claims | | | 2,113 | | | | 2,277 | | Closure costs | | | 1,333 | | | | 116 | | Federal income taxes payable | | | 5,715 | | | | 0 | | MAAPP funds payable | | | 14,054 | | | | 0 | | Deferred employer payroll taxes - CARES ACT | | | 4,170 | | | | 0 | | Other | | | 1,959 | | | | 4,819 | | Total | | $ | 59,746 | | | $ | 30,855 | |
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Notes payable as of December 31, 20192020 and 20182019 consisted of the following (in thousands): | December 31, 2019 | December 31, 2018 | Credit Agreement average effective interest rate of 3.9% inclusive of unused fee | $ | 46,000 | | $ | 38,000 | | Various notes payable with $728 plus accrued interest due in the next year, interest accrues in the range of 4.75% through 5.50% per annum | | 5,089 | | | 1,836 | | | $ | 51,089 | | $ | 39,836 | | Less current portion | | (728 | ) | | (1,434 | ) | Long term portion | $ | 50,361 | | $ | 38,402 | |
| | December 31, 2020 | | | December 31, 2019 | | Credit Agreement average effective interest rate of 2.6% and 3.9% in 2020 and 2019, respectively (inclusive of unused fee) | | $ | 16,000 | | | $ | 46,000 | | Various notes payable with $4,899 plus accrued interest due in the next year, interest accrues in the range of 3.25% through 5.50% per annum | | | 5,495 | | | | 5,089 | | | | $ | 21,495 | | | $ | 51,089 | | Less current portion | | | (4,899 | ) | | | (728 | ) | Long term portion | | $ | 16,596 | | | $ | 50,361 | |
Effective December 5, 2013, the Company entered into an Amended and Restated Credit Agreement with a commitment for a $125.0 million revolving credit facility. This agreement was amended and/or restated in August 2015, January 2016, March 2017 and November 2017 and January 2021 (hereafter referred to as “Amended Credit Agreement”). The Amended Credit Agreement is unsecured and has loan covenants, including requirements that the Company comply with a consolidated fixed charge coverage ratio and consolidated leverage ratio. Proceeds from the Amended Credit Agreement may be used for working capital, acquisitions, purchases of the Company’s common stock, dividend payments to the Company’s common stockholders, capital expenditures and other corporate purposes. The pricing grid which is based on the Company’s consolidated leverage ratio with the applicable spread over LIBOR ranging from 1.25% to 2.0% or the applicable spread over the Base Rate ranging from 0.1% to 1%. Fees under the Amended Credit Agreement include an unused commitment fee ranging from 0.25% toof 0.3% depending on the Company’s consolidated leverage ratio andof the amount of funds outstanding under the Amended Credit Agreement.
The January 2016 amendment to the Amended Credit Agreement increasedallows the cash and noncash consideration that the Company could pay with respect to acquisitions permitted under the Amended Credit Agreement to $50,000,000$50,000,000 for any fiscal year, and increased the amount the Company may pay in cash dividends to its shareholders in an aggregate amount not to exceed $10,000,000$50,000,000 in any fiscal year. The March 2017 amendment, among other items, increasedcommitment remains at $125 million, however the amountaccordion feature in the Company may pay in cash dividendsagreement was expanded to its shareholders in an aggregate amount notprovide for capacity up to exceed $15,000,000 in any fiscal year. The November 2017 amendment, among other items, adjusted the pricing grid as described above, increased the aggregate amount the Company may pay in cash dividends to its shareholders to an amount not to exceed $20,000,000$150 million, and extended thehas a maturity date to of November 30, 2021.2025. The Amended Credit Agreement is unsecured and includes certain financial covenants which include a consolidated fixed charge coverage ratio and a consolidated leverage ratio, as defined in the agreement.
On December 31, 2019, $46.02020, $16.0 million was outstanding on the Amended Credit Agreement resulting in $79.0$109.0 million of availability. As of December 31, 2019,2020, the Company was in compliance with all of the covenants thereunder.
The Company generally enters into various notes payable as a means of financing a portion of its acquisitions and purchasing of non-controlling interests. In conjunction with thethese transactions related to these in 2019,2020, the Company entered into notes payable in the aggregate amount of $4.7$1.4 million of which an aggregate principal payment of $0.3$0.5 million is due in 20202021 and $4.4$0.6 million is due in 2021.2022. Interest accrues in the range of 4.75%3.25% to 5.50% per annum and is payable with each principal installment.Aggregate annual payments The balance of principal required pursuant to the Credit Agreement and the various notes payable subsequententered into prior to December 31, 2019 are as follows (in thousands):
During the twelve months ended December 31, 2020 | $ | 728 | | During the twelve months ended December 31, 2021 | | 50,361 | | | $ | 51,089 | |
2020 was $4.4 million which will be paid in 2021.
The Company has operating leases for its corporate offices and operating facilities. The Company determines if an arrangement is a lease at the inception of a contract. Effective January 1, 2019, right-of-use assets and operating lease liabilities are included in the consolidated balance sheet. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent net present value of the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and operating lease liabilities are recognized at commencement date based on the net present value of the fixed lease payments over the lease term. The Company’s operating lease terms are generally five years or less. The Company’s lease terms include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. As most of the Company’s operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Operating fixed lease expense is recognized on a straight-line basis over the lease term.
In accordance with ASC 842, the Company records on its consolidated balance sheet leases with a term greater than 12 months. The Company has elected, in compliance with current accounting standards, not to record leases with an initial termsterm of 12 months or less in the consolidated balance sheet. ASC 842 requires the separation of the fixed lease components from the variable lease components. The Company has elected the practical expedient to account for separate lease components of a contract as a single lease cost thus causing all fixed payments to be capitalized. Non-lease and variable cost components are not included in the measurement of the right-of-use assets or operating lease liabilities. The Company also elected the package of practical expedients permitted within ASC 842, which among other things, allows the Company to carry forward historical lease classification. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage are not included in the right-of-use assets or operating lease liabilities. These are expensed as incurred and recorded as variable lease expense.
For the yearyears ended December 31, 2020 and 2019, the components of lease expense were as follows (in thousands): | Year Ended December 31, 2019 | Operating lease cost | $ | 30,225 | | Short-term lease cost | | 1,212 | | Variable lease cost | | 6,074 | | Total lease cost* | $ | 37,511 | |
| | Year Ended December 31, | | | | 2020 | | | 2019 | | Operating lease cost | | $ | 30,710 | | | $ | 30,225 | | Short-term lease cost | | | 1,454 | | | | 1,212 | | Variable lease cost | | | 5,752 | | | | 6,074 | | Total lease cost* | | $ | 37,916 | | | $ | 37,511 | |
| * | Sublease income was immaterial |
Lease cost iscosts are reflected in the consolidated statementstatements of net income in the line item – rent, supplies, contract labor and other.
For the yearyears ended December 31, 2020 and 2019, supplemental cash flow information related to leases was as follows (in thousands): | Year Ended December 31, 2019 | Cash paid for amounts included in the measurement of operating lease liabilities (in thousands) | $ | 30,077 | | Right-of-use assets obtained in exchange for new operating lease liabilities (in thousands)* | $ | 113,222 | |
| | Year Ended December 31, | | | | 2020 | | | 2019 | | Cash paid for amounts included in the measurement of operating lease liabilities (in thousands) | | $ | 30,307 | | | $ | 30,077 | | | | | | | | | | | Right-of-use assets obtained in exchange for new operating lease liabilities (in thousands)* | | $ | 32,710 | | | $ | 113,222 | |
| * | Includes the right-of-use assets obtained in exchange for lease liabilities offor the year 2019 - $82.6 million which were recognized upon adoption of ASC Topic 842 at January 1, 2019. |
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The aggregate future lease payments for operating leases as of December 31, 20192020 were as follows (in thousands): Year | Amount | 2020 | $ | 29,279 | | 2021 | | 23,369 | | 2022 | | 17,039 | | 2023 | | 11,528 | | 2024 | | 6,453 | | Therafter | | 6,129 | | Total lease payments | $ | 93,797 | | Less: imputed interest | | 7,053 | | Total operating lease liabilities | $ | 86,744 | |
Fiscal Year | | Amount | | 2021 | | $ | 29,819 | | 2022 | | | 23,861 | | 2023 | | | 17,787 | | 2024 | | | 11,487 | | 2025 and therafter | | | 12,294 | | Total lease payments | | $ | 95,248 | | Less: imputed interest | | | 5,751 | | Total operating lease liabilities | | $ | 89,497 | |
Average lease terms and discount rates were as follows:
| | Year Ended December 31, | | | | 2020 | | | 2019 | | Weighted-average remaining lease term - Operating leases | | 4.05 Years | | | 4.05 Years | | | | | | | | | Weighted-average discount rate - Operating leases | | | 3.1 | % | | | 3.9 | % |
| Year Ended
December 31, 2019
| Weighted-average remaining lease term - Operating leases
| 4.05 Years
| Weighted-average discount rate - Operating leases
| | 3.9
| %
|
11. Income Taxes
Significant components of deferred tax assets and liabilities included in the consolidated balance sheets at December 31, 20192020 and 20182019 were as follows (in thousands): | December 31, 2019 | December 31, 2018 | Deferred tax assets:
| | | | | | | Compensation | $ | 1,964 | | $ | 1,842 | | Allowance for doubtful accounts | | 514 | | | 600 | | Acquired net operating losses | | 840 | | | — | | Lease obligations - including closed clinics | | 21,445 | | | 34 | | Deferred tax assets | $ | 24,763 | | $ | 2,476 | | Deferred tax liabilities:
| | | | | | | Depreciation and amortization | $ | (13,195 | ) | $ | (11,309 | ) | Operating lease right-of-use assets | | (21,416 | ) | | — | | Other | | (223 | ) | | (179 | ) | Deferred tax liabilities | | (34,834 | ) | | (11,488 | ) | Net deferred tax liability | $ | (10,071 | ) | $ | (9,012 | ) |
| | December 31, 2020 | | | December 31, 2019 | | | | | | | | | Deferred tax assets: | | | | | | | Compensation | | $ | 1,865 | | | $ | 1,964 | | Allowance for credit losses | | | 396 | | | | 514 | | Acquired net operating losses | | | 558 | | | | 840 | | Lease obligations - including closed clinics | | | 23,819 | | | | 21,445 | | Deferred tax assets | | $ | 26,638 | | | $ | 24,763 | | Deferred tax liabilities: | | | | | | | | | Depreciation and amortization | | $ | (12,650 | ) | | $ | (13,195 | ) | Operating lease right-of-use assets | | | (21,419 | ) | | | (21,416 | ) | Other | | | (348 | ) | | | (223 | ) | Deferred tax liabilities | | | (34,417 | ) | | | (34,834 | ) | Net deferred tax liability | | $ | (7,779 | ) | | $ | (10,071 | ) |
The deferred tax assets and liabilities related to purchased interests not yet finalized may result in an immaterial adjustment.
During 2019,2020, the Company recorded deferred tax assets of $3.0$1.2 million related to the revaluation of redeemable non-controlling interests and acquisitions of non-controlling interests. In addition, during 2019,2020, the Company recorded an adjustment to the deferred tax assets of $0.3$1.4 million as a result of a detailed reconciliation of its federal and state taxes payable and receivable accounts along with its federal and state deferred tax asset and liability accounts with its federal and state tax returns for 2018.2019. The offset of this adjustment was a decrease to the previously reported federal income tax receivable. As of December 31, 2019,2020, the Company has a federal income tax receivablepayable of $1.5$5.7 million and state tax receivables of $1.3$0.7 million. The federal income tax receivables arepayable is included in accrued liabilities and the tax receivable is included in other current assets on the accompanying consolidated balance sheets. TABLE OF CONTENTS
The differences between the federal tax rate and the Company’s effective tax rate for the years ended December 31, 2020, 2019 2018 and 20172018 were as follows (in thousands): | December 31, 2019 | December 31, 2018 | December 31, 2017 | U. S. tax at statutory rate | $ | 11,274 | | | 21.0 | % | $ | 9,710 | | | 21.0 | % | $ | 9,900 | | | 35.0 | % | Tax legislation adjustment | | — | | | 0.0 | % | | — | | | 0.0 | % | | (4,325 | ) | | (15.3 | )% | State income taxes, net of federal benefit and tax reform | | 2,059 | | | 3.8 | % | | 1,722 | | | 3.7 | % | | 1,060 | | | 3.7 | % | Excess equity compensation deduction | | (871 | ) | | (1.6 | )% | | (806 | ) | | (1.7 | )% | | (1,139 | ) | | (4.0 | )% | Non-deductible expenses | | 1,185 | | | 2.2 | % | | 743 | | | 1.6 | % | | 560 | | | 2.0 | % | Other | | — | | | 0.0 | % | | — | | | 0.0 | % | | (24 | ) | | (0.1 | )% | | $ | 13,647 | | | 25.4 | % | $ | 11,369 | | | 24.6 | % | $ | 6,032 | | | 21.3 | % |
As a result | | | December 31, 2020 | | | December 31, 2019 | | | December 31, 2018 | | U. S. tax at statutory rate | | $ | 10,125 | | 21.0% | | $ | 11,274 | | 21.0% | | $ | 9,710 | | 21.0% | | State income taxes, net of federal benefit | | | 1,956 | | 3.9% | | | 2,059 | | 3.8% | | | 1,722 | | 3.7% | | Excess equity compensation deduction | | | (99) | | 0.0% | | | (871) | | -1.6 % | | | (806) | | -1.7 % | | Non-deductible expenses | | | 1,040 | | 2.1% | | | 1,185 | | 2.2% | | | 743 | | 1.6% | | | | $ | 13,022 | | 27.0% | | $ | 13,647 | | 25.4% | | $ | 11,369 | | 24.6% | |
Significant components of the provision for income taxes for the years ended December 31, 2020, 2019 2018 and 20172018 were as follows (in thousands): | December 31, 2019 | December 31, 2018 | December 31, 2017 | Current:
| | | | | | | | | | Federal | $ | 6,523 | | $ | 5,357 | | $ | 9,332 | | State | | 2,473 | | | 1,199 | | | 1,564 | | Total current | | 8,996 | | | 6,556 | | | 10,896 | | Deferred:
| | | | | | | | | | Federal | | 3,730 | | | 3,771 | | | (5,233 | ) | State | | 921 | | | 1,042 | | | 369 | | Total deferred | | 4,651 | | | 4,813 | | | (4,864 | ) | Total income tax provision | $ | 13,647 | | $ | 11,369 | | $ | 6,032 | |
| | December 31, 2020 | | | December 31, 2019 | | | December 31, 2018 | | Current: | | | | | | | | | | Federal | | $ | 10,506 | | | $ | 6,523 | | | $ | 5,357 | | State | | | 2,774 | | | | 2,473 | | | | 1,199 | | Total current | | | 13,280 | | | | 8,996 | | | | 6,556 | | Deferred: | | | | | | | | | | | | | Federal | | | (38 | ) | | | 3,730 | | | | 3,771 | | State | | | (220 | ) | | | 921 | | | | 1,042 | | Total deferred | | | (258 | ) | | | 4,651 | | | | 4,813 | | Total income tax provision | | $ | 13,022 | | | $ | 13,647 | | | $ | 11,369 | |
For 2020, 2019 2018 and 2017,2018, the Company performed a detailed reconciliation of its federal and state taxes payable and receivable accounts along with its federal and state deferred tax asset and liability accounts. The adjustments were immaterial. The Company considers this reconciliation process to be an annual control.
The Company is required to establish a valuation allowance for deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income in the periods which the deferred tax assets are deductible, management believes that a valuation allowance is not required, as it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets.
The Company’s U.S. federal returns remain open to examination for 20162017 through 20182019 and U.S. state jurisdictions are open for periods ranging from 20152016 through 2018.2019 .
The Company does not believe that it has any significant uncertain tax positions at December 31, 20192020 and December 31, 2018,2019, nor is this expected to change within the next twelve months due to the settlement and expiration of statutes of limitation.
The Company did not0t have any accrued interest or penalties associated with any unrecognized tax benefits nor was any interest expense recognized during the years ended December 31, 2020, 2019 2018 and 2017.2018. 73
12. Segment Information
The Company’s reportable segments include the physical therapy operations segment and the industrial injury prevention services segment. Also included in the physical therapy operations segment are revenues from management contract services and other services which include services the Company provides on-site, such as schools for athletic trainers.
The Company evaluates performance of the segments based on gross profit. The Company has provided additional information regarding its reportable segments which contributes to the understanding of the Company and provides useful information.
12.
The following table summarizes selected financial data for the Company’s reportable segments. Prior year results presented herein have been changed to conform to the current presentation.
| | December 31, | | | December 31, | | | December 31, | | | | 2020 | | | 2019 | | | 2018 | | | | (in thousands) | | | | | | (in thousands) | | Net operating revenues: | | | | | | | | | | Physical therapy operations | | $ | 383,770 | | | $ | 444,507 | | | $ | 428,445 | | Industrial injury prevention services | | | 39,199 | | | | 37,462 | | | | 25,466 | | Total Company | | $ | 422,969 | | | $ | 481,969 | | | $ | 453,911 | | | | | | | | | | | | | | | Gross profit: | | | | | | | | | | | | | Physical therapy operations (excluding closure costs) | | $ | 88,295 | | | $ | 104,120 | | | $ | 96,463 | | Industrial injury prevention services | | | 10,086 | | | | 8,379 | | | | 5,192 | | | | $ | 98,381 | | | $ | 112,499 | | | $ | 101,655 | | Physical therapy operations - closure costs | | | 3,931 | | | | 25 | | | | (8 | ) | Gross profit | | $ | 94,450 | | | $ | 112,474 | | | $ | 101,663 | | | | | | | | | | | | | | | Total Assets: | | | | | | | | | | | | | Physical therapy operations | | $ | 550,181 | | | $ | 518,027 | | | $ | 421,474 | | Industrial injury prevention services | | | 44,180 | | | | 42,818 | | | | 21,692 | | Total Company | | $ | 594,361 | | | $ | 560,845 | | | $ | 443,166 | |
The Company has the following equity based plans with outstanding equity grants:
The Amended and Restated 1999 Employee Stock Option Plan (the “Amended 1999 Plan”) permits the Company to grant to non-employee directors and employees of the Company up to 600,000 non-qualified options to purchase shares of common stock and restricted stock (subject to proportionate adjustments in the event of stock dividends, splits, and similar corporate transactions). The exercise prices of options granted under the Amended 1999 Plan are determined by the Compensation Committee. The period within which each option will be exercisable is determined by the Compensation Committee. The Amended 1999 Plan was approved by the shareholders of the Company at the 2008 Shareholders Meeting on May 20, 2008.
The Amended and Restated 2003 Stock Option Plan (the “Amended 2003 Plan”) permits the Company to grant to key employees and outside directors of the Company incentive and non-qualified options and shares of restricted stock covering up to 2,100,000 shares of common stock (subject to proportionate adjustments in the event of stock dividends, splits, and similar corporate transactions). The material terms of the Amended 2003 Plan was reapproved by the shareholders of the Company at the 2015 Shareholders Meeting on May 19, 2015 and an increase in the number of shares authorized for issuance from 1,750,000 to 2,100,000 was approved at the 2016 Shareholders Meeting on March 17, 2016.
A cumulative summary of equity plans as of December 31, 2020 follows:
| | Authorized | | | Restricted Stock Issued | | | Outstanding Stock Options | | | Stock Options Exercised | | | Stock Options Exercisable | | | Shares Available for Grant | | Equity Plans | | | | | | | | | | | | | | | | | | | Amended 1999 Plan | | | 600,000 | | | | 416,402 | | | | 0 | | | | 139,791 | | | | 0 | | | | 7,775 | | Amended 2003 Plan | | | 2,100,000 | | | | 1,106,977 | | | | 0 | | | | 778,300 | | | | 0 | | | | 224,760 | | | | | 2,700,000 | | | | 1,523,379 | | | | 0 | | | | 918,091 | | | | 0 | | | | 232,535 | |
During 2020, 2019 follows: | Authorized | Restricted Stock Issued | Outstanding Stock Options | Stock Options Exercised | Stock Options Exercisable | Shares Available for Grant | Equity Plans
| | | | | | | | | | | | | | | | | | | Amended 1999 Plan | | 600,000 | | | 416,402 | | | — | | | 139,791 | | | — | | | 7,775 | | Amended 2003 Plan | | 2,100,000 | | | 1,019,995 | | | — | | | 778,300 | | | — | | | 301,705 | | | | 2,700,000 | | | 1,436,397 | | | — | | | 918,091 | | | — | | | 309,480 | |
During 2019,and 2018, and 2017, the Company granted the following shares of restricted stock to directors, officers and employees pursuant to its equity plans as follows:
Year Granted | Number of Shares | Weighted Average Fair Value Per Share | 2019 | | 91,682 | | $ | 104.85 | | 2018 | | 93,801 | | $ | 78.63 | | 2017 | | 79,475 | | $ | 62.19 | |
Year Granted | | Number of Shares | | Weighted Average Fair Value Per Share | | 2020 | | 86,982 | | $ | 104.69 | | 2019 | | 91,682 | | $ | 104.85 | | 2018 | | 93,801 | | $ | 78.63 | |
During 2020, 2019 2018 and 2017,2018, the following shares were cancelled due to employee terminations prior to restrictions lapsing: Year Cancelled | Number of Shares | Weighted Average Fair Value Per Share | 2019 | | 1,578 | | $ | 87.88 | | 2018 | | 3,867 | | $ | 59.51 | | 2017 | | 2,875 | | $ | 63.12 | |
Year Cancelled | | Number of Shares | | Weighted Average Fair Value Per Share | | 2020 | | 10,037 | | $ | 102.52 | | 2019 | | 1,578 | | $ | 87.88 | | 2018 | | 3,867 | | $ | 59.51 | |
Generally, restrictions on the stock granted to employees lapse in equal annual installments on the following four anniversaries of the date of grant. For those shares granted to directors, the restrictions will lapse in equal quarterly installments during the first year after the date of grant. For those granted to officers, the restriction will lapse in equal quarterly installments during the four years following the date of grant.
There were 150,771127,562 and 152,926150,771 shares outstanding as of December 31, 20192020 and December 31, 20182019 respectively, for which restrictions had not lapsed. The restrictions will lapse in 20202021 through 2023.2024.
Compensation expense for grants of restricted stock is recognized based on the fair value on the date of grant. Compensation expense for restricted stock grants was $7.0$7.9 million, $5.9 million, and $5.0 million, respectively, for 2020, 2019 2018 and 2017.2018. As of December 31, 2019,2020, the remaining $9.2$8.8 million of compensation expense will be recognized from 20192021 through 2022.2024. TABLE OF CONTENTS
The Board is empowered, without approval of the shareholders, to cause shares of preferred stock to be issued in one or more series and to establish the number of shares to be included in each such series and the rights, powers, preferences and limitations of each series. There are no provisions in the Company’s Articles of Incorporation specifying the vote required by the holders of preferred stock to take action. All such provisions would be set out in the designation of any series of preferred stock established by the Board. The bylaws of the Company specify that, when a quorum is present at any meeting, the vote of the holders of at least a majority of the outstanding shares entitled to vote who are present, in person or by proxy, shall decide any question brought before the meeting, unless a different vote is required by law or the Company’s Articles of Incorporation.
Because the Board has the power to establish the preferences and rights of each series, it may afford the holders of any series of preferred stock, preferences, powers, and rights, voting or otherwise, senior to the right of holders of common stock. The issuance of the preferred stock could have the effect of delaying or preventing a change in control of the Company. 14.
From September 2001 through December 31, 2008, the Board authorized the Company to purchase, in the open market or in privately negotiated transactions, up to 2,250,000 shares of the Company’s common stock. In March 2009, the Board authorized the repurchase of up to 10% or approximately 1,200,000 shares of its common stock (“March 2009 Authorization”). The Amended Credit Agreement permits share repurchases of up to $15,000,000, subject to compliance with covenants. The Company is required to retire shares purchased under the March 2009 Authorization.
Under the March 2009 Authorization, the Company has purchased a total of 859,499 shares. There is no0 expiration date for the share repurchase program. There are currently an additional estimated 131,176124,740 shares (based on the closing price of $114.35$120.25 on December 31, 2019,2020, the last business day in 2019)2020) that may be purchased from time to time in the open market or private transactions depending on price, availability and the Company’s cash position. The Company did not purchase any shares of its common stock during 20192020 or 2018.15.2019.
16. Defined Contribution Plan
The Company has several 401(k) profit sharing plans covering all employees with three months of service. For certain plans, the Company makes matching contributions. The Company may also make discretionary contributions of up to 50% of employee contributions. The Company did not0t make any discretionary contributions for the years ended December 31, 2020, 2019 2018 and 2017.2018. The Company matching contributions totaled $1.9 million, $2.0 million $1.8 million and $1.5$1.8 million, respectively, for the years ended December 31, 2020, 2019 2018 and 2017.16.2018.
17. Commitments and Contingencies Operating Leases
The Company has entered into operating leases for its executive offices and clinic facilities. In connection with these agreements, the Company incurred rent expense of $37.5 million, $37.1 million and $34.8 million for the years ended December 31, 2019, 2018 and 2017, respectively. Several of the leases provide for an annual increase
We may be subject to litigation in the rental payment based upon the Consumer Price Index. The majorityordinary course of the leases provide for renewal periods ranging from one to five years. The agreements to extend the leases typically specify that rental rates would be adjusted to market rates as of each renewal date.The future minimum operating lease commitments for each of the next five years and thereafter and in the aggregate as of December 31, 2019 are as follows (in thousands):
2020 | $ | 35,784 | | 2021 | | 28,022 | | 2022 | | 20,618 | | 2023 | | 14,332 | | 2024 | | 8,302 | | Thereafter | | 8,432 | | Total | $ | 115,490 | |
business.
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At December 31, 2019,2020, the Company had outstanding employment agreements with four4 of its executive officers, one of whichwhom (Mr. McDowell) has provided notice of a planned retirement in October 2020. TheseAugust 2021. The three remaining three agreements which presentlyhave terms that expire on December 31, 2020,2021, February 28, 2022 and November 8, 2022, respectively; however, each of these agreements provide for an automatic two year renewalsrenewal at the conclusion of eachthe expiring term or renewal term. All of the agreements contain a provision for annual adjustment of salaries.
In addition, the Company has outstanding employment agreements with most of the managing physical therapist partners of the Company’s physical therapy clinics and with certain other clinic employees which obligate subsidiaries of the Company to pay compensation of $39.3$37.1 million in 20202021 and $8.6$6.1 million in the aggregate from 20212022 through 2023.2024. In addition, many of the employment agreements with the managing physical therapists provide for monthly bonus payments calculated as a percentage of each clinic’s net revenues (not in excess of operating profits) or operating profits. 17.
The computations of basic and diluted earnings per share for the years ended December 31, 2020, 2019 2018 and 20172018 are as follows (in thousands, except per share data): | Year Ended December 31, 2019 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | Computation of earnings per share - USPH shareholders:
| | | | | | | | | | Net income attributable to USPH shareholders | $ | 40,039 | | $ | 34,873 | | $ | 22,256 | | Charges to retained earnings:
| | | | | | | | | | Revaluation of redeemable non-controlling interest | | (11,893 | ) | | (24,770 | ) | | (201 | ) | Tax effect at statutory rate (federal and state) of 26.25% | | 3,121 | | | 6,502 | | | 75 | | | $ | 31,267 | | $ | 16,605 | | $ | 22,130 | | | | | | | | | | | | Earnings per share (basic and diluted) | $ | 2.45 | | $ | 1.31 | | $ | 1.76 | | | | | | | | | | | | Shares used in computation:
| | | | | | | | | | Basic and diluted earnings per share - weighted-average shares | | 12,756 | | | 12,666 | | | 12,570 | |
18. Selected Quarterly Financial Data (Unaudited)
| Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | Net patient revenues | $ | 106,650 | | $ | 113,363 | | $ | 104,392 | | $ | 108,940 | | Net revenues | $ | 116,231 | | $ | 126,373 | | $ | 117,251 | | $ | 122,114 | | Gross profit | $ | 26,718 | | $ | 31,425 | | $ | 27,372 | | $ | 26,959 | | Operating income | $ | 15,425 | | $ | 19,898 | | $ | 16,816 | | $ | 15,286 | | Net income | $ | 12,375 | | $ | 19,800 | | $ | 13,069 | | $ | 12,015 | | Net income attributable to USPH shareholders | $ | 8,443 | | $ | 14,620 | | $ | 9,047 | | $ | 7,929 | | | | | | | | | | | | | | | Basic and diluted earnings per share attributable to common shareholders: | $ | 0.39 | | $ | 0.85 | | $ | 0.66 | | $ | 0.55 | | | | | | | | | | | | | | | Shares used in computation - basic and diluted | | 12,707 | | | 12,767 | | | 12,774 | | | 12,774 | |
| | Year Ended | | | | December 31, 2020 | | | December 31, 2019 | | | December 31, 2018 | | Computation of earnings per share - USPH shareholders: | | | | | | | | | | Net income attributable to USPH shareholders | | $ | 35,194 | | | $ | 40,039 | | | $ | 34,873 | | Credit (charges) to retained earnings: | | | | | | | | | | | | | Revaluation of redeemable non-controlling interest | | | (4,632 | ) | | | (11,893 | ) | | | (24,770 | ) | Tax effect at statutory rate (federal and state) of 26.25% | | | 1,216 | | | | 3,121 | | | | 6,502 | | | | $ | 31,778 | | | $ | 31,267 | | | $ | 16,605 | | | | | | | | | | | | | | | Earnings per share (basic and diluted) | | $ | 2.48 | | | $ | 2.45 | | | $ | 1.31 | | | | | | | | | | | | | | | Shares used in computation: | | | | | | | | | | | | | Basic and diluted earnings per share - weighted-average shares | | | 12,835 | | | | 12,756 | | | | 12,666 | |
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| Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | Net patient revenues | $ | 100,552 | | $ | 105,989 | | $ | 103,354 | | $ | 107,808 | | Net revenues | $ | 108,342 | | $ | 115,098 | | $ | 113,122 | | $ | 117,349 | | Gross profit | $ | 23,214 | | $ | 27,154 | | $ | 26,076 | | $ | 25,219 | | Operating income | $ | 13,051 | | $ | 17,026 | | $ | 15,433 | | $ | 14,804 | | Net income | $ | 10,054 | | $ | 13,236 | | $ | 11,879 | | $ | 13,673 | | Net income attributable to USPH shareholders | $ | 7,117 | | $ | 9,246 | | $ | 8,102 | | $ | 10,408 | | | | | | | | | | | | | | | Basic and diluted earnings per share attributable to common shareholders: | $ | 0.27 | | $ | 0.48 | | $ | 0.13 | | $ | 0.43 | | | | | | | | | | | | | | | Shares used in computation - basic and diluted | | 12,616 | | | 12,677 | | | 12,685 | | | 12,685 | |
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| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
Not applicable.
| ITEM 9A. | CONTROLS AND PROCEDURES. |
Evaluation of Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Exchange Act) as of the end of the fiscal period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in ensuring that the information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. U.S. Physical Therapy, Inc. and subsidiaries’ (the “Company”) internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Internal control over financial reporting includes those policies and procedures that:
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors;directors; and Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, the risk.
Management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2019.2020. In making this assessment, management used the criteria described in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2019.2020.
The Company’s internal control over financial reporting has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their report included on page 45.44.TABLE OF CONTENTS
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended December 31, 20192020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| ITEM 9B. | OTHER INFORMATION. |
PART III
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
The information required in response to this Item 10 is incorporated herein by reference to our definitive proxy statement relating to our 20202021 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year covered by this report.
| ITEM 11. | EXECUTIVE COMPENSATION. |
The information required in response to this Item 11 is incorporated herein by reference to our definitive proxy statement relating to our 20202021 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year covered by this report.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
The information required in response to this Item 12 is incorporated herein by reference to our definitive proxy statement relating to our 20202021 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year covered by this report.
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
The information required in response to this Item 13 is incorporated herein by reference to our definitive proxy statement relating to our 20202021 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year covered by this report.
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
The information required in response to this Item 14 is incorporated herein by reference to our definitive proxy statement relating to our 20202021 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year covered by this report.
PART IV
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. |
| (a) | Documents filed as a part of this report: |
1.Financial Statements. Reference is made to the Index to Financial Statements and Related Information under Item 8 in Part IIhereof, where these documents are listed.
2.Financial Statement Schedules. See page 81 for Schedule II—Valuation and Qualifying Accounts. All other schedules areomitted because of the absence of conditions under which they are required or because the required information is shown in the financial statements or notes thereto.
3.Exhibits. The exhibits listed in List of Exhibits on the next page are filed or incorporated by reference as part of this report.
| 1. | Financial Statements. Reference is made to the Index to Financial Statements and Related Information under Item 8 in Part II hereof, where these documents are listed. |
| 2. | Financial Statement Schedules. See page 84 for Schedule II — Valuation and Qualifying Accounts. All other schedules are omitted because of the absence of conditions under which they are required or because the required information is shown in the financial statements or notes thereto. |
| 3. | Exhibits. The exhibits listed in List of Exhibits on the next page are filed or incorporated by reference as part of this report. |
| ITEM 16. | Form 10-K Summary–None. |
None.
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LIST OF EXHIBITS
Number | Description | | | | Articles of Incorporation of the Company [filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended June 30, 2001 and incorporated herein by reference]. | | | | | 3.2
| Amendment to the Articles of Incorporation of the Company [filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended June 30, 2001 and incorporated herein by reference]. | | | 3.3 | Bylaws of the Company, as amended [filed as an exhibit to the Company’s Form 10-KSB for the year ended December 31, 1993 and incorporated herein by reference—Commission File Number—1-11151]. | | | | | 4.1*
| Description of Company Securities [filed herewith the Company’s Form 10-K for the year ended December 31, 2019 filed with the SEC on February 28, 2020.] | | | | | 10.1+
| 1999 Employee Stock Option Plan (as amended and restated May 20, 2008) [incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A, filed with the SEC on April 17, 2008]. | | | | | 10.2+
| U.S. Physical Therapy, Inc. 2003 Stock Incentive Plan, (as amended and restated effective March 26, 2016) [incorporated herein by reference to Appendix A to the Company's Definitive Proxy Statement on Schedule 14A filed with the SEC on April 7, 2016.] | | | | | 10.3+
| U. S. Physical Therapy, Inc. Long-Term Incentive Plan for Senior Management for 2013, effective March 27, 2013 [incorporated by reference to Exhibit 99.1 to the Company Current Report on Form 8-K filed with the SEC on April 1, 2013]. | | | | | 10.4+
| U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for 2013, effective March 27, 2013 [incorporated by reference to Exhibit 99.2 to the Company Current Report on Form 8-K filed with the SEC on April 1, 2013]. | | | | | 10.5+
| U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for 2013, effective March 27, 2013 [incorporated by reference to Exhibit 99.3 to the Company Current Report on Form 8-K filed with the SEC on April 1, 2013]. | | | | | 10.6+
| U. S. Physical Therapy, Inc. Long-Term Incentive Plan for Senior Management for 2014, effective March 21, 2014 [incorporated by reference to Exhibit 99.1 to the Company Current Report on Form 8-K filed with the SEC on March 27, 2014]. | | | | | 10.7+
| U. S. Physical Therapy, Inc. Discretionary Long-Term Incentive Plan for Senior Management for 2014, effective March 21, 2014 [incorporated by reference to Exhibit 99.2 to the Company Current Report on Form 8-K filed with the SEC on March 27, 2014]. | | | | | 10.8+
| U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2014, effective March 21, 2014 [incorporated by reference to Exhibit 99.3 to the Company Current Report on Form 8-K filed with the SEC on March 27, 2014]. | | | | | 10.9+
| U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2014, effective March 21, 2014 [incorporated by reference to Exhibit 99.4 to the Company Current Report on Form 8-K filed with the SEC on March 27, 2014]. | | | | |
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Number
| Description
| 10.10+
| U. S. Physical Therapy, Inc. Long Term Incentive Plan for Senior Management for 2015, effective March 23, 2015 [incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 27, 2015.] |
| | 10.11+
| U. S. Physical Therapy, Inc. Discretionary Long Term Incentive Plan for Senior Management for 2015, effective March 23, 2015 [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 27, 2015.] | | | | | 10.12+
| U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2015, effective March 23, 2015 [incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 27, 2015.] | | | | ��
| 10.13+
| U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2015, effective March 23, 2015 [incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC on March 27, 2015.] | | | | | 10.14+
| U. S. Physical Therapy, Inc. Objective Long Term Incentive Plan for Senior Management for 2016, effective March 10, 2016 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2016]. | | | | | 10.15+
| U. S. Physical Therapy, Inc. Discretionary Long Term Incentive Plan for Senior Management for 2016, effective March 10, 2016 [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2016]. | | | | | 10.16+
| U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2016, effective March 10, 2016 [incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2016]. | | | | | 10.17+
| U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2016, effective March 10, 2016 [incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2016]. | | | | | 10.18+
| Form of Restricted Stock Agreement [incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2016]. | | | | | 10.19+
| U. S. Physical Therapy, Inc. Long-Term Incentive Plan for Senior Management for 2017, effective March 24, 2017 [incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K/A filed with the SEC on February 9, 2018.] | | | | | 10.20+
| U. S. Physical Therapy, Inc. Discretionary Long –Term Incentive Plan for Senior Management for 2017, effective March 24, 2017 [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 30, 2017.] | | | | | 10.21+
| U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2017, effective March 24, 2017 [incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 30, 2017.] | | | | | 10.22+
| U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2017, effective March 24, 2017 [incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC on March 30, 2017.] | | | | |
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Number
| Description
| 10.23+
| U. S. Physical Therapy, Inc. Objective Long-Term Incentive Plan for Senior Management for 2018, effective April 9, 2018 [incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 12, 2018.] |
| | 10.24+
| U. S. Physical Therapy, Inc. Discretionary Long-Term Incentive Plan for Senior Management for 2018, effective April 9, 2018 [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on April 12, 2018.] | | | | | 10.25+
| U. S. Physical Therapy, Inc. Objective Cash/RSA Bonus Plan for Senior Management for 2018, effective April 9, 2018 [incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on April 12, 2018.] | | | | | 10.26+
| U. S. Physical Therapy, Inc. Discretionary Cash/RSA Bonus Plan for Senior Management for 2018, effective April 9, 2018 [incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC on April 12, 2018.] | | | | | 10.27+
| Second Amended and Restated Credit Agreement dated as of November 10, 2017 among the Company, as Borrower, Bank of America, N.A. as Administrative Agent and the Lenders Patty (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 14, 2017). | | | | | 10.28+
| Second Amended and Restated Employment Agreement by and between the Company and Christopher J. Reading dated effective February 9, 2016 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on February 12, 2016]. | | | | | 10.29+
| Second Amended and Restated Employment Agreement by and between the Company and Lawrance W. McAfee dated effective February 9, 2016 [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on February 12, 2016]. | | | | | 10.30+
| Amended and Restated Employment Agreement by and between the Company and Glenn D. McDowell dated effective February 9, 2016 [incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on February 12, 2016]. | | | | | 10.31+
| Employment Agreement commencing on March 1, 2018 by and between the Company and Graham Reeve [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 7, 2018]. | | | | | 10.32+
| Objective Long-Term Incentive Plan for Senior Management [incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 8, 2019.] | | | | | 10.33+
| Discretionary Long-Term Incentive Plan for Senior Management [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 8, 2019.] | | | | | 10.34+
| Objective Cash/RSA Bonus Plan for Senior Management [incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 8, 2019.] | | | | | 10.35+
| Discretionary Cash/RSA Bonus Plan for Senior Management [incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC on March 8, 2019.] | | | | |
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Number
| Description
| 10.36+
| Third Amended and Restated Employment Agreement by and between the Company and Christopher J. Reading dated effective May 21, 2019 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2019] |
| | 10.37+
| Third Amended and Restated Employment Agreement by and between the Company and Lawrance W. McAfee dated effective May 21, 2019 [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2019] | | | | | 10.38+
| Second Amended and Restated Employment Agreement by and between the Company and Glenn D. McDowell dated effective May 21, 2019 [incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2019] | | | | | 10.39+
| Amended & Restated Employment Agreement commencing by and between the Company and Graham Reeve dated effective May 21, 2019 [incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2019] | | | | | 10.40+
| Restricted Stock Agreement [incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2019] | | | | U. S. Physical Therapy, Inc. Objective Long-Term Incentive Plan for Senior Management for 2020, effective March 3, 2020 [incorporated by reference to Exhibit 99.1 to the Company Current Report on Form 8-K filed with the SEC on March 6, 2020]. | | | | Amendment to Employment Agreement entered into as of March 26, 2020 by and between the Company and Lawrance McAfee [incorporated by reference to Exhibit 10.2 to the Company Current Report on Form 8-K filed with the SEC on March 26, 2020]. | | | | Amendment to Employment Agreement entered into as of March 26, 2020 by and between the Company and Glenn McDowell [incorporated by reference to Exhibit 10.3 to the Company Current Report on Form 8-K filed with the SEC on March 26, 2020]. | | | | Amendment to Employment Agreement entered into as of March 26, 2020 by and between the Company and Graham Reeve [incorporated by reference to Exhibit 10.4 to the Company Current Report on Form 8-K filed with the SEC on March 26, 2020]. | | | | U. S. Physical Therapy, Inc. Objective Long-Term Incentive Plan for Senior Management for 2020, effective March 3, 2020 [incorporated by reference to Exhibit 99.1 to the Company Current Report on Form 8-K filed with the SEC on March 6, 2020]. | | | | U. S. Physical Therapy, Inc. Discretionary Long-Term Incentive Plan for Senior Management for 2020, effective March 3, 2020 [incorporated by reference to Exhibit 99.2 to the Company Current Report on Form 8-K filed with the SEC on March 6, 2020]. | | | | U. S. Physical Therapy, Inc. Objective Cash/RSA Bonus Plan for Senior Management for 2020, effective March 3, 2020 [incorporated by reference to Exhibit 99.3 to the Company Current Report on Form 8-K filed with the SEC on March 6, 2020]. | | | | U. S. Physical Therapy, Inc. Discretionary Cash/RSA Bonus Plan for Senior Management for 2020, effective March 3, 2020 [incorporated by reference to Exhibit 99.4 to the Company Current Report on Form 8-K filed with the SEC on March 6, 2020]. | | | | Employment Agreement entered into as of November 9, 2020 by and between U.S. Physical Therapy and Carey Hendrickson [incorporated by reference to Exhibit 10.1 to the Company Current Report on Form 8-K filed with the SEC on September 23, 2020.] | | | | Consulting Agreement entered into as of September 22, 2020 by and between U.S. Physical Therapy and Lawrence McAfee [incorporated by reference to Exhibit 10.1 to the Company Current Report on Form 8-K filed with the SEC on September 23, 2020.] |
| First Amendment to Second Amended and Restated Credit Agreement [filed by reference to Exhibit 10.1 to the Company Current Report on Form 8-K filed with the SEC on February 4, 2021.] | | | | CSubsidiaries of the Registrant | | | | Consent of Independent Registered Public Accounting Firm—Grant Thornton LLP | | | | | 31.1*
| Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended | | | | | 31.2*
| Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended | | | | | 31.3*
| Certification of Controller pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended | | | | | 32.1*
| Certification of Periodic Report of the Chief Executive Officer, Chief Financial Officer and Controller pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | 101.INS* | XBRL Instance Document | | | 101.SCH* | XBRL Taxonomy Extension Schema Document | | | 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | | | 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | | | 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | | | 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
| + | Management contract or compensatory plan or arrangement. |
FINANCIAL STATEMENT SCHEDULE* SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES | Balance at Beginning of Period | Additions Charged to Costs and Expenses | Additions Charged to Other Accounts | Deductions | Balance at End of Period | YEAR ENDED DECEMBER 31, 2019:
| | | | | | | | | | | | | | | | Reserves and allowances deducted from asset accounts:
| | | | | | | | | | | | | | | | Allowance for doubtful accounts(1) | $ | 2,672 | | $ | 4,858 | | | — | | $ | 4,832(2 | ) | $ | 2,698 | | YEAR ENDED DECEMBER 31, 2018:
| | | | | | | | | | | | | | | | Reserves and allowances deducted from asset accounts:
| | | | | | | | | | | | | | | | Allowance for doubtful accounts | $ | 2,273 | | $ | 4,603 | | | — | | $ | 4,204(2 | ) | $ | 2,672 | | YEAR ENDED DECEMBER 31, 2017:
| | | | | | | | | | | | | | | | Reserves and allowances deducted from asset accounts:
| | | | | | | | | | | | | | | | Allowance for doubtful accounts | $ | 1,792 | | $ | 3,672 | | | — | | $ | 3,191(2 | ) | $ | 2,273 | |
(In Thousands)
| | Balance at Beginning of Period | | | Additions Charged to Costs and Expenses | | | Additions Charged to Other Accounts | | | Deductions | | | Balance at End of Period | | YEAR ENDED DECEMBER 31, 2020: | | | | | | | | | | | | | | | | Reserves and allowances deducted from asset accounts: | | | | | | | | | | | | | | | | Allowance for credit losses(1) | | $ | 2,698 | | | $ | 4,623 | | | | 0 | | | $ | 5,313 | (2) | | $ | 2,008 | | YEAR ENDED DECEMBER 31, 2019: | | | | | | | | | | | | | | | | | | | | | Reserves and allowances deducted from asset accounts: | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses | | $ | 2,672 | | | $ | 4,858 | | | | 0 | | | $ | 4,832 | (2) | | $ | 2,698 | | YEAR ENDED DECEMBER 31, 2018: | | | | | | | | | | | | | | | | | | | | | Reserves and allowances deducted from asset accounts: | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses | | $ | 2,273 | | | $ | 4,603 | | | | 0 | | | $ | 4,204 | (2) | | $ | 2,672 | |
| (1) | Related to patient accounts receivable and accounts receivable—other.receivable-other. |
| (2) | Uncollectible accounts written off, net of recoveries. |
| * | All other schedules are omitted because of the absence of conditions under which they are required or because the required information is shown in the financial statements or notes thereto. |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| U.S. PHYSICAL THERAPY, INC. | | | (Registrant) | | | | | By: | /s/ Lawrance W. McAfee Carey Hendrickson | | | Lawrance W. McAfee Carey Hendrickson | | | Chief Financial Officer | | | (Principal Financial Officer and Principal Accounting Officer) | | By:
| | | By: | /s/ Jon C. Bates | | | Jon C. Bates | | | Vice President/Controller |
Date: February 28, 2020March 1, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of the date indicated above.
/s/ Chris J. Reading
| | Chief Executive Officer, President and Director
| | /s/ Chris J. Reading | | (Principal Executive Officer) | February 28, 2020 March 1, 2021 | Chris J. Reading | | | | /s/ Edward L. Kuntz | | | | /s/ Lawrance W. McAfee
| Executive Vice President, Chief Financial Officer and Director (Principal Financial Officer and Principal Accounting Officer)
| February 28, 2020
| Lawrance W. McAfee
| | | | /s/ Jerald L. Pullins
| Chairman of the Board | February 28, 2020 March 1, 2021 | JeraldEdward L. Pullins Kuntz | | | | | | | /s/ Mark J. Brookner | | Director | February 28, 2020 March 1, 2021 | Mark J. Brookner | | | | | | | /s/ Harry S. Chapman | | Director | February 28, 2020 March 1, 2021 | Harry S. Chapman | | | | | | | /s/ Bernard A. Harris | | Director | February 28, 2020 March 1, 2021 | Dr. Bernard A. Harris, Jr. | | | | | | | /s/ Kathleen A. Gilmartin | | Director | February 28, 2020 March 1, 2021 | Kathleen A. Gilmartin | | | | | | | /s/ Edward L. Kuntz
| Director
| February 28, 2020
| Edward L. Kuntz
| | | | | | /s/ Reginald E. Swanson | | Director | February 28, 2020 March 1, 2021 | Reginald E. Swanson | | | | | | | /s/ Clayton K. Trier | | Director | February 28, 2020 March 1, 2021 | Clayton K. Trier | | | |
TABLE OF CONTENTS
EXHIBIT INDEX (NOT UPDATED)
LIST OF EXHIBITS
Number
| Description
| | Articles of Incorporation of the Company [filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended June 30, 2001 and incorporated herein by reference].
| | | | Amendment to the Articles of Incorporation of the Company [filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended June 30, 2001 and incorporated herein by reference].
| | | 3.3
| Bylaws of the Company, as amended [filed as an exhibit to the Company’s Form 10-KSB for the year ended December 31, 1993 and incorporated herein by reference—Commission File Number—1-11151].
| | | | Description of Company Securities [filed herewith the Company’s Form 10-K for the year ended December 31, 2019 filed with the SEC on February 28, 2020.]
| | | | 1999 Employee Stock Option Plan (as amended and restated May 20, 2008) [incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A, filed with the SEC on April 17, 2008].
| | | | Form of Restricted Stock Agreement [incorporated by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K filed with the SEC on March 12, 2013.]
| | | | U. S. Physical Therapy, Inc. Long-Term Incentive Plan for Senior Management for 2013, effective March 27, 2013 [incorporated by reference to Exhibit 99.1 to the Company Current Report on Form 8-K filed with the SEC on April 1, 2013].
| | | | U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for 2013, effective March 27, 2013 [incorporated by reference to Exhibit 99.2 to the Company Current Report on Form 8-K filed with the SEC on April 1, 2013].
| | | | U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for 2013, effective March 27, 2013 [incorporated by reference to Exhibit 99.3 to the Company Current Report on Form 8-K filed with the SEC on April 1, 2013].
| | | | U. S. Physical Therapy, Inc. Long-Term Incentive Plan for Senior Management for 2014, effective March 21, 2014 [incorporated by reference to Exhibit 99.1 to the Company Current Report on Form 8-K filed with the SEC on March 27, 2014].
| | | | U. S. Physical Therapy, Inc. Discretionary Long-Term Incentive Plan for Senior Management for 2014, effective March 21, 2014 [incorporated by reference to Exhibit 99.2 to the Company Current Report on Form 8-K filed with the SEC on March 27, 2014].
| | | | U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2014, effective March 21, 2014 [incorporated by reference to Exhibit 99.3 to the Company Current Report on Form 8-K filed with the SEC on March 27, 2014].
| | | | U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2014, effective March 21, 2014 [incorporated by reference to Exhibit 99.4 to the Company Current Report on Form 8-K filed with the SEC on March 27, 2014].
| | | | U. S. Physical Therapy, Inc. Long Term Incentive Plan for Senior Management for 2015, effective March 23, 2015 [incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 27, 2015.]
| | |
TABLE OF CONTENTS
Number
| Description
| | U. S. Physical Therapy, Inc. Discretionary Long Term Incentive Plan for Senior Management for 2015, effective March 23, 2015 [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 27, 2015.]
| | | | U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2015, effective March 23, 2015 [incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC on March 27, 2015.]
| | | | U. S. Physical Therapy, Inc. Objective Long Term Incentive Plan for Senior Management for 2016, effective March 10, 2016 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2016].
| | | | U. S. Physical Therapy, Inc. Discretionary Long Term Incentive Plan for Senior Management for 2016, effective March 10, 2016 [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2016].
| | | | U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2016, effective March 10, 2016 [incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2016].
| | | | U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2016, effective March 10, 2016 [incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2016].
| | | | Form of Restricted Stock Agreement [incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2016].
| | | | U. S. Physical Therapy, Inc. Long-Term Incentive Plan for Senior Management for 2017, effective March 24, 2017 [incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K/A filed with the SEC on February 9, 2018.]
| | | | U. S. Physical Therapy, Inc. Discretionary Long –Term Incentive Plan for Senior Management for 2017, effective March 24, 2017 [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 30, 2017.]
| | | | U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2017, effective March 24, 2017 [incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 30, 2017.]
| | | | U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2017, effective March 24, 2017 [incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC on March 30, 2017.]
| | | | U. S. Physical Therapy, Inc. Objective Long-Term Incentive Plan for Senior Management for 2018, effective April 9, 2018 [incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 12, 2018.]
| | | | U.S. Physical Therapy, Inc. Discretionary Long-Term Incentive Plan for Senior Management for 2018, effective April 9, 2018 [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on April 12, 2018.]
| | | | U. S. Physical Therapy, Inc. Objective Cash/RSA Bonus Plan for Senior Management for 2018, effective April 9, 2018 [incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on April 12, 2018.]
| | |
TABLE OF CONTENTS
Number
| Description
| | U. S. Physical Therapy, Inc. Discretionary Cash/RSA Bonus Plan for Senior Management for 2018, effective April 9, 2018 [incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC on April 12, 2018.]
| | | | Second Amended and Restated Credit Agreement dated as of November 10, 2017 among the Company, as Borrower, Bank of America, N.A. as Administrative Agent and the Lenders Patty (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 14, 2017).
| | | | Second Amended and Restated Employment Agreement by and between the Company and Christopher J. Reading dated effective February 9, 2016 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on February 12, 2016].
| | | | Second Amended and Restated Employment Agreement by and between the Company and Lawrance W. McAfee dated effective February 9, 2016 [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on February 12, 2016].
| | | | Amended and Restated Employment Agreement by and between the Company and Glenn D. McDowell dated effective February 9, 2016 [incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on February 12, 2016].
| | | | Employment Agreement commencing on March 1, 2018 by and between the Company and Graham Reeve [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 7, 2018].
| | | | Objective Long-Term Incentive Plan for Senior Management [incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 8, 2019.]
| | | | Discretionary Long-Term Incentive Plan for Senior Management [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 8, 2019.]
| | | | Objective Cash/RSA Bonus Plan for Senior Management [incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 8, 2019.]
| | | | Discretionary Cash/RSA Bonus Plan for Senior Management [incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC on March 8, 2019.]
| | | | Third Amended and Restated Employment Agreement by and between the Company and Christopher J. Reading dated effective May 21, 2019 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2019]
| | | | Third Amended and Restated Employment Agreement by and between the Company and Lawrance W. McAfee dated effective May 21, 2019 [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2019]
| | | | Second Amended and Restated Employment Agreement by and between the Company and Glenn D. McDowell dated effective May 21, 2019 [incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2019]
| | |
TABLE OF CONTENTS
Number
| Description
| | Amended & Restated Employment Agreement commencing by and between the Company and Graham Reeve dated effective May 21, 2019 [incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2019]
| | | | Restricted Stock Agreement [incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2019]
| | | | Subsidiaries of the Registrant
| | | | Consent of Independent Registered Public Accounting Firm—Grant Thornton LLP
| | | | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
| | | | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
| | | | Certification of Controller pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
| | | | Certification of Periodic Report of the Chief Executive Officer, Chief Financial Officer and Controller pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
| | | 101.INS*
| XBRL Instance Document
| | | 101.SCH*
| XBRL Taxonomy Extension Schema Document
| | | 101.CAL*
| XBRL Taxonomy Extension Calculation Linkbase Document
| | | 101.DEF*
| XBRL Taxonomy Extension Definition Linkbase Document
| | | 101.LAB*
| XBRL Taxonomy Extension Label Linkbase Document
| | | 101.PRE*
| XBRL Taxonomy Extension Presentation Linkbase Document
|
| + | Management contract or compensatory plan or arrangement. |
|