What changed in this filing

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Item 1. Financial Statements

2020-11-06 compared with 2020-08-07 · 186 added, 173 removed, 705 unchanged (34% of the section changed)

4 unchanged sentences

(IN THOUSANDS, EXCEPT SHARE DATA)

June 30, 2020

September 30, 2020

December 31, 2019

44 unchanged sentences

For the Three Months Ended

For the Six Months Ended

June 30, 2020

June 30, 2019

For the Nine Months Ended

September 30, 2020

September 30, 2019

September 30,2020

September 30, 2019

Net patient revenues

5 unchanged sentences

Closure costs - lease and other

Closure costs - write-off of goodwill

Closure costs - derecognition of goodwill

Total operating costs

20 unchanged sentences

(IN THOUSANDS)

Six Months Ended

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

OPERATING ACTIVITIES

6 unchanged sentences

Loss on sale of fixed assets

Gain on sale of partnership interest, net of tax

Gain on sale of partnership interest

Write-off of goodwill - closed clinics

4 unchanged sentences

Increase (decrease) in accounts payable and accrued expenses

Increase (decrease) in other liabilities

Decrease in other long-term liabilities

Net cash provided by operating activities

15 unchanged sentences

Medicare Accelerated and Advance Payment Funds

Net cash provided by (used in) financing activities

Net cash used in financing activities

Net increase in cash and cash equivalents

10 unchanged sentences

Notes receivables related to sale of partnership interest

Payable related to purchase of partnership interest - settlement of redeemable non-controlling interest

See notes to consolidated financial statements.

1 unchanged sentence

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

CONSOLIDATED STATEMENTS OF CHANGES IN E QUITY

(IN THOUSANDS)

3 unchanged sentences

Non-Controlling

For the three months ended June 30, 2020

For the three months ended September 30, 2020

Paid-In Capital

Balance March 31, 2020

Balance June 30, 2020

Issuance of restricted stock, net of cancellations

4 unchanged sentences

Net income attributable to USPH shareholders

Balance June 30, 2020

Balance September 30, 2020

U.S.Physical Therapy, Inc.

2 unchanged sentences

Non-Controlling

For the six months ended June 30, 2020

For the nine months ended September 30, 2020

Paid-In Capital

8 unchanged sentences

Net income attributable to USPH shareholders

Balance June 30, 2020

Balance September 30, 2020

See notes to consolidated financial statements.

3 unchanged sentences

Non-Controlling

For the three months ended June 30, 2019

For the three months ended September 30, 2019

Paid-In Capital

Balance March 31, 2019

Balance June 30, 2019

Issuance of restricted stock, net of cancellations

8 unchanged sentences

Net income attributable to USPH shareholders

Balance June 30, 2019

Balance September 30, 2019

U.S.Physical Therapy, Inc.

2 unchanged sentences

Non-Controlling

For the six months ended June 30, 2019

For the nine months ended September 30, 2019

Paid-In Capital

10 unchanged sentences

Net income attributable to USPH shareholders

Balance June 30, 2019

Balance September 30, 2019

See notes to consolidated financial statements.

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

September 30, 2020

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

8 unchanged sentences

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 presentation.

All prior year segment information has been reclassified to conform to the 2020 segment presentation.

Segment Information.

7 unchanged sentences

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 one clinic location.

On September 30, 2020, the Company acquired a 70 % interest in an entity which holds six -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 four -clinic physical therapy practice.

4 unchanged sentences

On September 30, 2019 , the Company 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, plus accrued interest in September 2020 and September 2021.

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 was payable in two principal installments totaling $ 150,000 each.

The first principal payment plus accrued interest was paid in September 2020 with the second installment to be paid in September 2021.

The note accrues interest at 5.0 % per annum.

During the six months ended June 30, 2020, the Company sold 11 previously closed clinics.

During the nine months ended September 30, 2020, the Company sold 12 previously closed clinics.

The aggregate sales price was $ 1.1 million, of which $ 0.7 million was paid in cash and $ 0.4 million in a note receivable, payable in two equal installments of principal and any accrued interest on June 15, 2021 and 2022.

As of June 30, 2020, the Company operated 554 clinics in 39 states.

The Company also manages physical therapy facilities for third parties, primarily hospital and physicians, with 29 third-party facilities under management as of June 30, 2020.

As of September 30, 2020, the Company operated 550 clinics in 39 states.

The Company also manages physical therapy facilities for third parties, primarily hospital and physicians, with 38 third-party facilities under management as of September 30, 2020.

Clinic Partnerships

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 as non-controlling interests and within the 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 non-controlling interests – redeemable non-controlling interests – temporary equity and the equity interests are recorded on the consolidated balance sheet as redeemable non-controlling interests .

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 as non-controlling interests – permanent equity and within the income statements as net-income attributable to non-controlling interests – permanent equity .

In accordance with current accounting guidance, the revaluation of redeemable non-controlling interest, net of tax, is not included in net income but charged directly to retained earnings and is included in the earnings per basic and diluted share calculation .

4 unchanged sentences

Industrial Injury Prevention Services

Since March 2017, the Company has acquired a majority interest in two industrial injury prevention businesses and acquired all of another company in the industrial injury prevention sector.

In March 2017, the Company acquired a 55 % interest in the initial industrial injury prevention business.

2 unchanged sentences

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.

On April 11, 2019, the Company acquired 100 % of 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.

12 unchanged sentences

The Company believes, and the Chief Executive Officer, Chief Financial Officer and Corporate Controller have certified, that the financial statements included in this report present fairly, in all material respects, the Company’s financial position, results of operations and cash flows for the interim periods presented.

Operating results for the three months and six months ended June 30, 2020 are not necessarily indicative of the results the Company expects for the entire year.

Operating results for the three months and nine months ended September 30, 2020 are not necessarily indicative of the results the Company expects for the entire year.

The Company included the following Risk Factor which should be read in conjunction with the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 28, 2020.

10 unchanged sentences

Impact of COVID-19

As previously disclosed in a series of filings with the SEC and further described in detail in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 filed with the SEC on May 21, 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, stem operating losses incurred in March and April and increase profits subsequently.

As previously disclosed in a series of filings with the SEC and further described in detail in the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020 filed with the SEC on May 21, 2020 and August 7, 2020, respectively, 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.

The Company continues to experience somewhat lower physical therapy patient volumes;

however revenues improved significantly in the 2020 third quarter compared to the 2020 second quarter.

The Company’s average physical therapy patient volumes per day per clinic were 26.2 , 18.9 , and 25.8 , respectively, in the first three quarters of 2020.

The Company’s industrial injury prevention business has been less affected by the pandemic and is currently running at slightly less than its pre-COVID-19 levels .

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, over 750 of the furloughed employees have returned to work on a full or part-time basis.

Since early May, appoximately 1,200 of the furloughed employees have returned to work on a full or part-time basis.

As of the filing of this quarterly report, the Company continues to experience lower physical therapy revenues;

however the Company has seen recent improvement.

As stay at home orders and other restrictions have been lifted, we have seen our physical therapy volumes trending upwards, however should stay at home orders or other restrictions be reenacted, we could see the Company’s patient volume and revenues decline.

The Company’s industrial injury prevention business has been less affected by the pandemic and is currently operating at approximately 90 % of normal.

however the Company has seen recent improvements.

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 the Company’s 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 CARES Act was signed into law.

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.

The Company has received, or expect to receive a number of benefits under The CARES Act including, but not limited to:

The Company has received, or expects to receive, 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.

The Company applied for and received approval from Centers for Medicare & Medicaid Services (“CMS”) in April 2020.

T he Company recorded these payments of $ 12.8 million 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 will be applied to future Medicare billings commencing in August 2020, with all such remaining amounts required to be repaid by November 2020.

Beginning November 2020, any unpaid balance will begin accruing interest.

The Company applied for and received approval to receive from Centers for Medicare & Medicaid Services (“CMS”) in April 2020.

The Company will record 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 September 30, 2020 is $ 12.9 million of MAAPP funds.

The Company 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 June 30, 2020, included in accrued liabilities is $ 2.2 million related to these deferred payments;

The Company received approximately $ 7.9 million during the six months ended June 30, 2020 from the initial tranche of funds that was distributed to healthcare providers for related expenses or lost revenues that are attributable to the COVID-19 pandemic.

The Company recognized the $ 7.9 million grant in other revenues for the six months ended June 30, 2020.

As of September 30, 2020, included in accrued liabilities is $ 4.9 million related to these deferred payments.

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 September 30, 2020, the Company’s consolidated subsidiaries received approximately $ 8.3 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 three and nine months ended September 30, 2020, the Company has recognized approximately $ 0.4 million and $ 8.3 million, respectively, as Other income – Relief Funds on the accompanying consolidated statements of income.

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 to and comply with the terms and conditions.

The Company will continue to monitor the evolving guidelines and may record adjustments as additional information is released.

Significant Accounting Policies

17 unchanged sentences

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.

The fair value of goodwill and other identifiable intangible assets with indefinite lives are tested for impairment annually and upon the occurrence of certain events, and are written down to fair value if considered impaired.

The Company evaluates goodwill for impairment on at least an annual basis (normally in its third quarter) by comparing the fair value of its reporting units to the carrying value of each reporting unit including related goodwill.

The Company evaluates indefinite lived tradenames using the relief from royalty method in conjunction with its annual goodwill impairment tes t or when other triggering events are identified.

T he Company operates a one segment business which is made up of various clinics within partnerships.

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 2019, there were six regions.

In addition to the six regions, in 2019, the impairment test included a separate analysis for the industrial injury prevention business, a separate reporting unit.

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 2019 did not result in any goodwill amounts that were deemed impaired.

Based on the current economic conditions and the decline in patient visits due to the pandemic, the Company evaluated 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 June 30, 2020.

As a result of the assessment, the Company determined that it was not more likely than not that goodwill and tradenames of the reporting units was impaired as of June 30, 2020.

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 evaluated for impairment at least annually and upon the occurrence of certain events, 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.

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.

To determine the fair values of its tradenames, the Company uses a relief from royalty income approach.

As a result of the assessment, the Company determined that it was not more likely than not that goodwill and tradenames of the reporting units was impaired as of September 30, 2020.

As the Company did not note an impairment, no additional disclosures were deemed to be required by management.

1 unchanged sentence

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.

For the six months ended June 30, 2020, the Company derecognized (wrote-off) goodwill in the amount of $ 1.9 million related to closed clinics due to COVID- 19.

For the nine months ended September 30, 2020, the Company derecognized (wrote-off) goodwill in the amount of $ 1.9 million related to closed clinics due to COVID- 19.

The Company will continue to monitor for any triggering events or other indicators of impairment.

5 unchanged sentences

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.

The Company records any adjustments in the redemption value, net of tax, directly to retained earnings and they 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.

12 unchanged sentences

Revenues are recognized in the period in which services are rendered.

See Footnote 3 – Revenue Recognition, for further discussion of revenue recognition.

See Note 3- Revenue Recognition, for further discussion of revenue recognition.

Allowance for Doubtful Accounts

8 unchanged sentences

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.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Securities Act (“CARES Act”) was enacted.

On March 27, 2020, CARES Act was enacted.

The CARES Act includes changes to certain tax law related to net operating losses and the deductibility of interest expense and depreciation.

ASC 740, Income Taxes requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted.

The legislation had no effect on the Company’s deferred income taxes and current income taxes payable during the six months ended June 30, 2020 .

The Company did no t have any accrued interest or penalties associated with any unrecognized tax benefits no r was any interest expense recognized during the six months ended June 30, 2020 .

The legislation had no effect on the Company’s deferred income taxes and current income taxes payable during the nine months ended September 30, 2020 .

The Company did no t have any accrued interest or penalties associated with any unrecognized tax benefits no r was any interest expense recognized during the nine months ended September 30, 2020 .

The Company records any interest or penalties, if required, in interest and other expense, as appropriate.

15 unchanged sentences

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 June 30, 2020 .

Management believes that the current accrued amounts are sufficient to pay claims arising from self-insurance claims incurred through September 30, 2020 .

Restricted Stock

16 unchanged sentences

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.

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.

The Company has completed the adoption of the standard on January 1, 2020 and there was no impact to goodwill from the Company’s adoption of this change.

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

9 unchanged sentences

ACQUISITIONS OF BUSINESSES

On September 30, 2020, the Company acquired a 70 % interest in an entity which holds six -management contracts that have been in place for a number of years.

Currently, these contracts have a five year remaining 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 four -clinic physical therapy practice.

The four clinics are 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 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 on February 2022.

The purchase price plus the fair value of the non-controlling interests for the acquisitions in 2020 was 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 estimated fair values at the acquisition date, with the amount in excess of fair values being recorded as goodwill.

tradenames, referral relationships and non-compete agreements, and liabilities assumed based on the estimated fair values at the acquisition date, with the amount in excess of fair values being recorded as goodwill.

The Company is in the process of completing its formal valuation analysis of the acquisitions, 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 June 30, 2020 based on additional information obtained and completion of the valuation of the identifiable intangible assets.

Thus, the final allocation of the purchase price may differ from the preliminary estimates used at September 30, 2020 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.

15 unchanged sentences

On September 30, 2019, the Company 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, plus accrued interest in September 2020 and September 2021.

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, plus accrued interest.

The first principal payment and accrued interest was paid in September 2020 and the second payment plus accrued interest remains due to be paid in September 2021.

The note accrues interest at 5.0 % per annum.

22 unchanged sentences

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.

The Company has completed its formal valuation analyses for the IIPS acquisition in 2019 with immaterial changes to the values.

The Company is in the process of completing its formal valuation analysis of the 2019 physical therapy operations acquisition, to identify and determine the fair value of tangible and identifiable intangible assets acquired and the liabilities assumed.

The Company does not expect the adjustments to be material.

The Company has completed its formal valuation analyses for the acquisitions in 2019.

For the acquisitions in 2019, the values assigned to the referral relationships and non-compete agreements are being amortized to expense equally over the respective estimated lives.

35 unchanged sentences

Three Months Ended

Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Net patient revenues

5 unchanged sentences

The Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (‘‘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 was applied to the fee schedule payment rates before applying the mandatory budget neutrality adjustment.

7 unchanged sentences

Reimbursement and coverage for these services vary among payors.

Effective as of March 1, 2020, CMS provided a temporary waiver to allow physical therapists and occupational therapists (and their respective assistants) to perform and be reimbursed for the full scope of services performed remotely as “telehealth visits”.

The foregoing telehealth temporary waiver will continue until the end of the COVID-19 pandemic as determined by HHS.

HHS has the authority extend the public health emergency, which it did on July 23, 2020.

Since March 1, 2020, CMS provided a temporary waiver to allow physical therapists and occupational therapists (and their respective assistants) to perform and be reimbursed for the full scope of services performed remotely as “telehealth visits”.

The foregoing telehealth temporary waiver will continue until the end of the COVID-19 pandemic as determined by the U.S.

Department of Health and Human Services.

They have the authority to extend the public health emergency, which it did on July 23, 2020 and then again on October 23, 2020.

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.

8 unchanged sentences

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 CARES Act, enacted on March 27, 2020, temporarily suspended the 2 % payment adjustment, effective for claims with dates of service from May 1, 2020 through December 31, 2020.

The Bipartisan Budget Act of 2018, enacted on February 9, 2018, extended the 2 % reductions to Medicare payments through fiscal year 2027.

The CARES Act temporarily suspended the 2 % payment adjustment, effective for claims with dates of service from May 1, 2020 through December 31, 2020.

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.

15 unchanged sentences

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.

We believe that we are in compliance in all material respects with all applicable laws and regulations and are not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a material effect on our financial statements as of June 30, 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.

For the six months ended June 30, 2020 and 2019, net patient revenue from Medicare accounted for approximately $ 44.4 million and $ 59.4 million, respectively.

Contractual Allowances

10 unchanged sentences

Additionally, analysis of subsequent periods’ contractual write-offs on a payor basis reflects a difference within approximately 1 % 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 % at June 30, 2020.

As a result, the Company believes that a change in the contractual allowance reserve estimate would not likely be more than 1 % at September 30, 2020.

A contract’s transaction price is allocated to each distinct performance obligation and recognized when, or as, the performance obligation is satisfied.

11 unchanged sentences

Sale of clinics

The Company recognized a gain of $ 1.1 million in the second quarter of 2020, included in other income, resulting from the sale of 11 previously closed clinics.

The Company recognized a gain of $ 1.1 million in the first nine months of 2020 , included in other income, resulting from the sale of 12 previously closed clinics.

Receipts of Relief Funds

The Company received $ 7.9 million of funds from the Public Health and Social Services Emergency Fund (“Relief Fund”) as part of the CARES Act.

The Relief Fund monies do not have to be repaid, were used for operations and to offset losses due to the COVID-19 pandemic in the second quarter of 2020.

The Company’s consolidated subsidiaries received approximately $ 8.3 million of payments under the Provider Relief Fund as of September 30, 2020.

Under the Company’s accounting policy, these payments have been recorded as other income – Relief Funds.

For the three and nine months ended September 30, 2020, the Company has recognized approximately $ 0.4 million and $ 8.3 million, respectively, as other income – Relief Funds on the accompanying condensed consolidated statements of income.

Department of Health and Human Services.

Currently, the Company can attest to and comply with the terms and conditions.

The Company will continue to monitor the evolving guidelines and may record adjustments as additional information is released.

EARNINGS PER SHARE

In accordance with current accounting guidance, the revaluation of redeemable non-controlling interest (see Footnote 6 – Redeemable Non-Controlling Interest), net of tax, charged directly to retained earnings is included in the earnings per basic and diluted share calculation.

In accordance with current accounting guidance, the revaluation of redeemable non-controlling interest (see Note 6 – Redeemable Non-Controlling Interest), net of tax, charged directly to retained earnings is included in the earnings per basic and diluted share calculation.

The following table provides a detail of the basic and diluted earnings per share computation (in thousands, except per share data).

Three Months Ended

Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Computation of earnings per share - USPH shareholders:

49 unchanged sentences

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.

For the three and six months ended June 30, 2020 , the following table details the changes in the carrying amount (fair value) of the redeemable non-controlling interests (in thousands):

For the three and nine months ended September 30, 2020 , the following table details the changes in the carrying amount (fair value) of the redeemable non-controlling interests (in thousands):

Three Months Ended

Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Beginning balance

10 unchanged sentences

The following table categorizes the carrying amount (fair value) of the redeemable non-controlling interests (in thousands):

June 30, 2020

June 30, 2019

September 30, 2020

September 30, 2019

Contractual time period has lapsed but holder's employment has not been terminated

3 unchanged sentences

The changes in the carrying amount of goodwill consisted of the following (in thousands):

Six Months Ended

June 30, 2020

Nine Months Ended

September 30, 2020

December 31, 2019

7 unchanged sentences

INTANGIBLE ASSETS, NET

Intangible assets, net as of June 30, 2020 and December 31, 2019 consisted of the following (in thousands):

June 30, 2020

Intangible assets, net as of September 30, 2020 and December 31, 2019 consisted of the following (in thousands):

September 30, 2020

December 31, 2019

3 unchanged sentences

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 six to sixteen years .

The value assigned to referral relationships is being amortized over their respective estimated useful lives which range from six to thirteen years .

Non-compete agreements are amortized over the respective term of the agreements which range from five to six years .

The following table details the amount of amortization expense recorded for intangible assets for the three months and six months ended June 30, 2020 and 2019 (in thousands):

The following table details the amount of amortization expense recorded for intangible assets for the three months and nine months ended September 30, 2020 and 2019 (in thousands):

Three Months Ended

Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Referral relationships

Non-compete agreements

Based on the balance of referral relationships and non-compete agreements as of June 30, 2020, the expected amount to be amortized in 2020 and thereafter by year is as follows (in thousands):

Based on the balance of referral relationships and non-compete agreements as of September 30, 2020, the expected amount to be amortized in 2020 and thereafter by year is as follows (in thousands):

Referral Relationships

4 unchanged sentences

Ending December 31,

2020 (excluding the six months ended June 30, 2020)

2020 (excluding the nine months ended September 30, 2020)

ACCRUED EXPENSES

Accrued expenses as of June 30, 2020 and December 31, 2019 consisted of the following (in thousands):

June 30, 2020

Accrued expenses as of September 30, 2020 and December 31, 2019 consisted of the following (in thousands):

September 30, 2020

December 31, 2019

3 unchanged sentences

Closure costs

Federal income taxes payable

Federal and state income taxes payable

MAAPP funds payable

Deferred employer payroll taxes - CARES ACT

In response to the COVID-19 pandemic, the federal government approved the CARES Act.

Under this program, healthcare providers could choose to receive advanced payments for future Medicare services provided.

The Company applied for and received approval from Centers for Medicare & Medicaid Services (“CMS”) in April 2020.

T he 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 will be applied to future Medicare billings commencing in August 2020, with all such remaining amounts required to be repaid by November 2020.

Beginning November 2020, any unpaid balance will begin accruing interest.

Failure to repay the advanced payments when due will result in interest charges on the outstanding balance owed.

Closure costs consist primarily of remaining lease commitments.

See Note – 1 Basis of Presentation and Significant Accounting Policies – Impact of COVID-19 for a discussion of CARE Act and MAAPP funds.

Closure costs consist primarily of remaining lease commitments related to closed clinics.

NOTES PAYABLE AND AMENDED CREDIT AGREEMENT

Amounts outstanding under the Amended Credit Agreement (as defined below) and notes payable as of June 30, 2020 and December 31, 2019 consisted of the following (in thousands):

June 30, 2020

Amounts outstanding under the Amended Credit Agreement (as defined below) and notes payable as of September 30, 2020 and December 31, 2019 consisted of the following (in thousands):

September 30, 2020

December 31, 2019

12 unchanged sentences

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 $ 20.0 million and extended the maturity date to November 30, 2021 .

On June 30, 2020, $ 33.0 million was outstanding on the Amended Credit Agreement resulting in $ 92.0 million of availability.

As of June 30, 2020, the Company was in compliance with all of the covenants contained in the Amended Credit Agreement.

As of September 30, 2020, $ 7.0 million was outstanding on the Amended Credit Agreement, resulting in $ 118.0 million of availability.

As of September 30, 2020, the Company was in compliance with all of the covenants contained in the Amended Credit Agreement.

Given the uncertainty inherent in operating results due to the COVID-19 pandemic, the Company continues to closely monitor covenant compliance.

The Company will engage as required in discussions with its lender regarding an amendment to the facility so as to maintain compliance with all covenants.

The Company is currently in negotiations with its lender to renew the Amended Credit Agreement .

The Company generally enters into various notes payable as a means of financing a portion of its acquisitions and purchases of non-controlling interests.

In a recent acquisition on September 30, 2020, the Company entered into a notes payable in the amount of $ 0.5 million.

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.

Interest accrues at the rate of 5.0 % per annum.

In conjunction with the acquisitions on February 27, 2020 , the Company entered into a note payable in the amount of $ 300,000 payable in February 2022 plus accrued interest.

During the quarter ended June 30, 2020, the Company entered into various notes payable as a means of financing a portion of its acquisition of partner’s non-controlling interest in the amount of $ 0.2 million.

During the quarter ended September 30, 2020, the Company entered into various notes payable as a means of financing a portion of its acquisition of partner’s non-controlling interest in the amount of $ 0.2 million.

Interest accrues at the rate of 4.75 % per annum.

1 unchanged sentence

Interest accrues in the range of 3.25 % to 5.50 % per annum and is payable with each principal installment.

Subsequent aggregate annual payments of principal required pursuant to the Amended Credit Agreement and outstanding notes payable at June 30, 2020 are as follows (in thousands):

During the twelve months ended June 30, 2021

During the twelve months ended June 30, 2022

During the twelve months ended June 30, 2023

The outstanding amounts under the Amended Credit Agreement facility (balance at June 30, 2020 of $ 33.0 million) mature on November 30, 2021 .

Subsequent aggregate annual payments of principal required pursuant to the Amended Credit Agreement and outstanding notes payable at September 30, 2020 are as follows (in thousands):

During the twelve months ended September 30, 2021

During the twelve months ended September 30, 2022

The outstanding amounts under the Amended Credit Agreement facility (balance at September 30, 2020 of $ 7.0 million) mature on November 30, 2021 .

The Company has operating leases for its corporate offices and operating facilities.

15 unchanged sentences

These are expensed as incurred and recorded as variable lease expense.

For the three months and six months ended June 30, 2020, the components of lease expense were as follows (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

For the three months and nine months ended September 30, 2020, the components of lease expense were as follows (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Operating lease cost

5 unchanged sentences

Supplemental information related to leases was as follows (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Cash paid for amounts included in the measurement of operating lease liabilities (in thousands)

1 unchanged sentence

* Includes the right-of-use assets obtained in exchange for lease liabilities of $ 82.6 million which were recognized upon adoption of ASC Topic 842 at January 1, 2019.

The aggregate future lease payments for operating leases as of June 30, 2020 were as follows (in thousands):

2020 (excluding the six months ended June 30, 2020)

The aggregate future lease payments for operating leases as of September 30, 2020 were as follows (in thousands):

2020 (excluding the nine months ended September 30, 2020)

2025 and therafter

4 unchanged sentences

Three Months Ended

June 30, 2020

Six Months Ended

June 30, 2020

September 30, 2020

Nine Months Ended

September 30, 2020

Weighted-average remaining lease term - Operating leases

8 unchanged sentences

Three Months Ended

Six Months Ended

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Nine Months Ended

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

(in thousands)

18 unchanged sentences

There is no expiration date for the share repurchase program.

There are currently an additional estimated 185,139 shares (based on the closing price of $ 81.02 on June 30, 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 no t purchase any shares of its common stock during the six months ended June 30, 2020.

There are currently an additional estimated 172,652 shares (based on the closing price of $ 86.88 on September 30, 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 no t purchase any shares of its common stock during the nine months ended September 30, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements