What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-01 compared with 2020-02-28 · 329 added, 239 removed, 747 unchanged (43% of the section changed)

18 unchanged sentences

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 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 Companys internal control over financial reporting as of December 31, 2019, 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, 2020 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 .

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, 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 March 1, 2021 expressed an unqualified opinion.

Basis for opinion

12 unchanged sentences

(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 matter 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 separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

The communication of critical audit matters 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 opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Measurement of Patient Revenue Net of Contractual Adjustments

1 unchanged sentence

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

with third-party payors that provides for payments at amounts different from its established rates.

The Company has agreements 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.

10 unchanged sentences

Houston, Texas

February 28, 2020

March 1, 2021

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

6 unchanged sentences

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 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, and our report dated February 28, 2020 expressed an unqualified opinion on those financial statements.

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, 2020, and our report dated March 1, 2021 expressed an unqualified opinion on those financial statements.

Basis for opinion

16 unchanged sentences

Houston, Texas

February 28, 2020

March 1, 2021

PHYSICAL THERAPY, INC.

2 unchanged sentences

(In thousands, except share data)

December 31, 2020

December 31, 2019

Current assets:

Cash and cash equivalents

Patient accounts receivable, less allowance for doubtful accounts of $2,698 and $2,672, respectively

Patient accounts receivable, less allowance for credit losses of $ 2,008 and $ 2,698 , respectively

Accounts receivable - other

9 unchanged sentences

Other identifiable intangible assets, net

LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS, USPH SHAREHOLDERS’ EQUITY AND NON-CONTROLLING INTERESTS

LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS, USPH

SHAREHOLDERS’ EQUITY AND NON-CONTROLLING INTERESTS

Current liabilities:

7 unchanged sentences

Deferred taxes

Deferred rent

Operating lease liabilities, net of current portion

19 unchanged sentences

(In thousands, except per share data)

December 31, 2020

December 31, 2019

December 31, 2018

Net patient revenues

3 unchanged sentences

Rent, supplies, contract labor and other

Provision for doubtful accounts

Closure costs

Provision for credit losses

Closure costs - lease and other

Closure costs - derecognition of goodwill

Total operating costs

1 unchanged sentence

Operating income

Gain on sale of partnership interest

Other income and expense:

Gain on sale of partnership interest and clinics

Gain on derecognition of debt

Interest and other income, net

Interest expense:

Mandatorily redeemable non-controlling interests - change in redemption value

Mandatorily redeemable non-controlling interests - earnings allocable

Debt and other

Total interest expense

Interest expense - debt and other

Total other income and expense

Income before taxes

13 unchanged sentences

Physical Therapy, Inc.

Paid-In Capital

Treasury Stock

Shareholders’

Total Shareholders’

Non-Controlling

Balance January 1, 2018

3 unchanged sentences

Transfer of compensation liability for certain stock issued pursuant to long-term incentive plans

Sale of non-controlling interest, net of tax and purchases

Sale of non-controlling interest, net of purchases and tax

Dividends paid to USPT shareholders

Distributions to non-controlling interest partners

Net income attributable to non-controlling interets - permanent equity

Distributions to non-controlling interest partners - permanent equity

Net income attributable to non-controlling interest - permanent equity

Net income attributable to USPH shareholders

Balance December 31, 2018

Physical Therapy, Inc.

Paid-In Capital

Treasury Stock

Total Shareholders’

Non-Controlling

Issuance of restricted stock, net of cancellations

2 unchanged sentences

Transfer of compensation liability for certain stock issued pursuant to long-term incentive plans

Purchase of partnership interests - redeemable non-controlling interests

Sale of non-controlling interest, net of purchases and tax

Dividends paid to USPT shareholders

Distributions to non-controlling interest partners

Net income attributable to non-controlling interets - permanent equity

Distributions to non-controlling interest partners - permanent equity

Net income attributable to non-controlling interest - permanent equity

Net income attributable to USPH shareholders

Balance December 31, 2019

Physical Therapy, Inc.

Paid-In Capital

Treasury Stock

Total Shareholders’

Non-Controlling

Issuance of restricted stock, net of cancellations

5 unchanged sentences

Dividends paid to USPT shareholders

Distributions to non-controlling interest partners

Distributions to non-controlling interest partners - permanent equity

Net income attributable to non-controlling interest - permanent equity

6 unchanged sentences

(In thousands)

December 31, 2020

December 31, 2019

December 31, 2018

OPERATING ACTIVITIES

2 unchanged sentences

Depreciation and amortization

Provision for doubtful accounts

Provision for credit losses

Equity-based awards compensation expense

1 unchanged sentence

Gain on sale of partnership interest

Gain on derecognition of Debt

Write-off of goodwill - closed clinics

Changes in operating assets and liabilities:

Increase in patient accounts receivable

Increase in accounts receivable - other

(Increase) decrease in other assets

(Decrease) increase in accounts payable and accrued expenses

Increase in mandatorily redeemable non-controlling interests

(Decrease) increase in other liabilities

Decrease (increase) in patient accounts receivable

Decrease(increase) in accounts receivable - other

Decrease (increase) in other assets

Increase (decrease) in accounts payable and accrued expenses

Increase (decrease) in other long-term liabilities

Net cash provided by operating activities

1 unchanged sentence

Purchase of fixed assets

Purchase of majority interest in businesses

Purchase of majority interest in businesses, net of cash acquired

Purchase of redeemable non-controlling interest, temporary equity

Purchase of non-controlling interest, permanent equity

Sales of non-controlling interest-permanent equity

Proceeds on sale of partnership interest, net

Proceeds on sale of fixed assets

Proceeds on sale of redeemable non-controlling interest, temporary equity

Proceeds on sales of partnership interest, clinics and fixed assets

Net cash used in investing activities

6 unchanged sentences

Principal payments on notes payable

Medicare Accelerated and Advance Payment Funds

Net cash used in financing activities

10 unchanged sentences

Notes receivable related to sale of partnership interest - redeemable non-controlling interest

Notes receivables related to sale of partnership interest

See notes to consolidated financial statements.

4 unchanged sentences

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) operate outpatient physical therapy clinics that provide pre-and post-operative care for a variety of orthopedic-related disorders and sports-related injuries, treatment for neurological-related injuries and rehabilitation of injured workers.

and its subsidiaries (the “Company”).

All significant intercompany transactions and balances have been eliminated.

The Company operates its business through two reportable business segments.

The Company’s reportable segments include the 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 orthopedic related disorders, sports-related injuries, preventive care, rehabilitation of injured 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.

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 one clinic location.

As of December 31, 2020, the Company owned and/or operated 554 clinics in 39 states.

2 unchanged sentences

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 38 such third-party facilities under management as of December 31, 2020.

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 Companys 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 Companys 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, during the last three years, the Company completed the following multi-clinic acquisitions:

During the last three years, the Company completed the following acquisitions within its physical therapy operations segment:

November 2020 Acquisition

November 30, 2020

September 2020 Acquisition

September 30, 2020

February 2020 Acquisition

February 27, 2020

September 2019 Acquisition

September 30, 2019

August 2018 Acquisition

January 2017 Acquisition

May 2017 Acquisition

June 2017 Acquisition

October 2017 Acquisition

Also during 2019, the Company purchased the assets and business of one physical therapy clinic in a separate transaction.

August 31, 2018

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 the existing partnerships.

Besides the multi-clinic acquisition in 2018, the Company, through several of its majority owned Clinic Partnerships, acquired five separate clinic practices.

Besides the August 2018 multi-clinic acquisition, we acquired five separate clinic practices that year through several of our majority owned Clinic Partnerships.

These practices operate as satellites of the respective existing Clinic Partnerships.

During 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 results of operations of the acquired clinics have been included in the Companys consolidated financial statements since the date of their respective acquisition.

During the year ended December 31, 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 $ 0.4 million in a note receivable, payable in two equal installments of principal and any accrued interest on June 15, 2021 and 2022.

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).

Clinic Partnerships

1 unchanged sentence

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.

Effective December 31, 2017, the Company entered into amendments to its acquired limited partnership agreements replacing the mandatory redemption features.

No monetary consideration was paid to the partners to amend the agreements.

11 unchanged sentences

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 two 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 eleven 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).

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 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 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.

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.

Significant Accounting Policies

15 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 (in its third quarter) by comparing the fair value of its reporting units to the carrying value of each reporting unit including related goodwill.

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 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.

The Company evaluates indefinite lived tradenames using the relief from royalty method in conjunction with its annual goodwill impairment test.

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

The Company operates a two segment business which is made up of various clinics within 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 and 2018 , there were six regions.

In addition to the six regions, in 2018 and 2019, the impairment test included a separate analysis for the industrial injury prevention business, a separate reporting unit.

In addition to the six regions, in 2020 and 2019 , the impairment analysis 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 and 2018 did not result in any goodwill amounts that were deemed impaired.

The Company has not identified any triggering events occurring after the testing date that would impact the impairment testing results obtained.

Based on the economic conditions experienced in 2020 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 December 31, 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 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 that 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 non-controlling interests that are reflected as redeemable non-controlling interests in the consolidated financial statements consist of those in 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.

10 unchanged sentences

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 owners 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 30 th 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.

Non-Controlling Interests

24 unchanged sentences

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,

The following table details the revenue related to the various categories (in thousands).

December 31, 2020

3 unchanged sentences

Management contract revenues

Industrial injury prevention services revenues

Other revenues

Physical therapy operations

Industrial injury prevention services revenues

Patient revenues

7 unchanged sentences

The Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (‘‘MPFS’’).

For services provided in 2019, a 0.25% increase has been applied to the fee schedule payment rates before applying the mandatory budget neutrality adjustment.

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.

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.

9 unchanged sentences

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”).

4 unchanged sentences

a separate $ 3,700 threshold is applied to the Occupational Therapy.

The MACRA directed Centers for Medicare and Medicaid Services (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 extended the targeted medical review indefinitely, but

reduced 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.

In subsequent years the threshold amount will increase based on the corresponding percentage increase in the MEI for such subsequent year.

The MACRA directed 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 extends the targeted medical review indefinitely, but 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 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.

2 unchanged sentences

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.

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Statutes, regulations, and payment rules governing the delivery of therapy services to Medicare beneficiaries are complex and subject to interpretation.

The Company believes that it is in compliance, in all material respects, with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a material effect on the Companys financial statements as of December 31, 2019.

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 the our financial statements as of December 31, 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.

Net patient revenue from Medicare were approximately $119.4 million, $103.6 million and $92.6 million, respectively, for 2019, 2018 and 2017.

For year ended December 31, 2020, net patient revenues from Medicare were approximately $ 101.6 million.

Given the history of frequent revisions to the Medicare program and its reimbursement rates and rules, we may not continue to receive reimbursement rates from Medicare that sufficiently compensate us for our 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 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

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Other Revenues

Additionally, other revenues include services the Company provides on-site, such as schools and industrial worksites, for physical or occupational therapy services, and athletic trainers and gym membership fees.

Additionally, other revenues include services the Company provides on-site at locations such as schools and industrial worksites for physical or occupational therapy services, athletic trainers and gym membership fees.

Contract terms and rates are agreed to in advance between the Company and the third parties.

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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 has generally reflected a difference within approximately 1% of net revenues.

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 December 31, 2019.

Allowance for Doubtful Accounts

The Company determines allowances for doubtful accounts based on the specific agings and payor classifications at each clinic.

The provision for doubtful accounts 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, includes only those amounts the Company estimates to be collectible.

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, 2020.

Allowance for Credit Losses

The Company determines allowances for credit losses based on the specific agings and payor classifications at each clinic.

The provision for credit 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 credit losses, includes only those amounts the Company estimates to be collectible.

Income taxes are accounted for under the asset and liability method.

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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.

The Company 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, 2018 and 2017.

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 twelve months ended December 31, 2020, 2019 and 2018.

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

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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 responsibility and believes it meets the criteria for aggregating its operating segments into a single reportable segment.

The Company currently operates through two segments:

physical therapy operations and industrial injury prevention services.

Use of Estimates

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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

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 Companys 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.

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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.

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The CECL model applies to most debt instruments, including trade receivables.

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 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 standard on January 1, 2020.

The Company completed the adoption of ASU 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 Companys accounts receivable is from highly-solvent, creditworthy payors including governmental programs such as Medicare and Medicaid, and highly regulated commercial insurers.

A significant portion of the Company’s accounts receivable are 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.

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 FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of 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 new guidance was effective upon issuance, and the Company 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 adoption of ASU 2020-06 on the 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 objective of ASU 2019-12 is to simplify the accounting for income taxes by removing certain exceptions to the general 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 February 26, 2020, the Company completed an acquisition of a four clinic physical therapy practice.

The clinics are held in four separate partnerships.

On the date of purchase, the Company acquired approximately 65% of the equity interests, with the practices clinical founders and associates retaining approximately 35%.

The aggregate purchase price for the acquisition was approximately $12.2 million.

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 expanded to provide for capacity up to $ 150 million.

See Note 9 for more information on the Amended Credit Agreement.

Acquisitions of Businesses

During 2019, 2018 and 2017, the Company acquired a majority interest in the following multi-clinic physical therapy practices:

During 2020, 2019 and 2018, the Company acquired a majority interest in the following physical therapy practices:

November 2020 Acquisition

November 30, 2020

September 2020 Acquisition

September 30, 2020

February 2020 Acquisition

February 27, 2020

September 2019 Acquisition

September 30, 2019

August 2018 Acquisition

January 2017 Acquisition

May 2017 Acquisition

June 2017 Acquisition

October 2017 Acquisition

August 31, 2018

* 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.

On November 30, 2020, the Company acquired a 75 % interest in a three -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 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, 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.

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 $ 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 )

Total consideration

Estimated fair value of net tangible assets acquired:

Total current assets

Total non-current assets

Total liabilities

Net tangible assets acquired

Referral relationships

Fair value of non-controlling interest (classified as redeemable non-controlling interests)

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 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 ($ 12.6 million less cash acquired of $ 0.2 million), of which $ 12.3 million was paid in cash and $ 0.3 million in a seller note payable in two 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.

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It performs these services across a network of 45 states including onsite at eleven client locations.

The business was then combined with Briotix Health, the Companys industrial injury prevention operation, increasing the Companys ownership position in the Briotix Health partnership to approximately 76.0%.

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.

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The Company intends to continue to pursue additional acquisition opportunities, develop new clinics and open satellite clinics.

The purchase price for the 2019 acquisitions has been preliminarily allocated as follows (in thousands):

Clinic Practice

The purchase price for the 2019 acquisitions were allocated as follows (in thousands):

Physical Therapy Operations

Cash paid, net of cash acquired ($ 890 )

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On August 31, 2018, the Company 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 $0.4 million in a seller note that is payable in two principal installments totaling $200,000 each, plus accrued interest.

The first installment was paid in cash in August 2019 and the second installment remains payable in August 2020.

The purchase price for the 70 % interest was $ 7.3 million in cash and $ 0.4 million in a seller note that was payable in two principal installments totaling $ 200,000 each, plus accrued interest.

The first installment was paid in cash in August 2019 and the second installment was paid in August 2020.

On April 30, 2018, the Company acquired a 65 % interest in another business in the industrial injury prevention sector.

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Referral relationships

Fair value of non-controlling interest (classified as redeemable

non-controlling interests)

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)

Total consideration

Estimated fair value of net tangible assets acquired:

Total current assets

Total non-current assets

Total liabilities

Net tangible assets acquired

Referral relationships

Fair value of non-controlling interest (classified as redeemable

non-controlling interests)

Fair value of non-controlling interest (originally classified as mandatorily redeemable non-controlling interests)

The finalized purchase prices plus the fair value of the non-controlling interests for the acquisition in 2018 and 2017 were allocated to the fair value of the assets acquired, inclusive of identifiable intangible assets, i.e.

Fair value of non-controlling interest (classified as redeemable non-controlling interests)

The finalized purchase prices plus the fair value of the non-controlling interests for the acquisitions in 2019 and 2018 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.

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Acquisitions and Sale of Non-Controlling Interests

During 2020, the Company acquired additional interests in five partnerships which are included in non-controlling interest.

The additional interests purchased in each of the partnerships ranged from 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 $ 0.4 million in a note receivable, payable in two equal installments of principal and any accrued interest on June 15, 2021 and 2022.

During 2019, the Company acquired additional interests in four partnerships which are included in non-controlling interest.

The additional interests purchased in each of the partnerships ranged from 1% and 55%.

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 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.

Redeemable Non-Controlling Interest

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December 31, 2019

December 31, 2018

Beginning balance

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Purchases of redeemable non-controlling interest

Fair value of redeemable non-controlling interest - amended partnership agreements

Acquired interest

Sales of redeemable non-controlling interest - temporary equity

Reduction of non-controlling interest due to sale of USPH partnership interest

Sales of redeemable non-controlling interest - temporary equity

Notes receivable related to sales of redeemable non-controlling interest - temporary equity

Adjustments in notes receivable related to the the sales of redeemable non-controlling interest - temporary equity

Ending balance

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December 31, 2019

December 31, 2018

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

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Goodwill related to partnership interest sold

Goodwill derecognition (write-off) related to closed clinics

Goodwill adjustments for purchase price allocation of businesses acquired in prior year

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Non-Compete Agreements

Ending December 31,

Annual Amount

Ending December 31,

Annual Amount

Ending December 31,

Accrued Expenses

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Group health insurance claims

Closure costs

Federal income taxes payable

MAAPP funds payable

Deferred employer payroll taxes - CARES ACT

Notes Payable

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December 31, 2019

Credit Agreement average effective interest rate of 3.9% inclusive of unused fee

Credit Agreement average effective interest rate of 2.6 % and 3.9 % in 2020 and 2019, respectively (inclusive of unused fee)

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

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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 in August 2015, January 2016, March 2017 and November 2017 (hereafter referred to as Amended Credit Agreement).

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.

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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% to 0.3% depending on the Companys 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 the Company could pay with respect to acquisitions permitted under the Amended Credit Agreement to $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 in any fiscal year.

The March 2017 amendment, among other items, increased the amount the Company may pay in cash dividends to its 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 the Company may pay in cash dividends to its shareholders to an amount not to exceed $20,000,000 and extended the maturity date to November 30, 2021.

On December 31, 2019, $46.0 million was outstanding on the Credit Agreement resulting in $79.0 million of availability.

Fees under the Amended Credit Agreement include an unused commitment fee of 0.3 % of the amount of funds outstanding under the Amended Credit Agreement.

The Amended Credit Agreement allows the cash and noncash consideration that the Company could pay with respect to acquisitions permitted under the Amended Credit Agreement to $ 50,000,000 for any fiscal year, and the amount the Company may pay in cash dividends to its shareholders in an aggregate amount not to exceed $ 50,000,000 in any fiscal year.

The commitment remains at $ 125 million , however the accordion feature in the agreement was expanded to provide for capacity up to $ 150 million , and has a maturity date of November 30, 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, 2020, $ 16.0 million was outstanding on the Amended Credit Agreement resulting in $ 109.0 million of availability.

As of December 31, 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 the transactions related to these in 2019, the Company entered into notes payable in the aggregate amount of $4.7 million of which an aggregate principal payment of $0.3 million is due in 2020 and $4.4 million is due in 2021.

In conjunction with these transactions in 2020, the Company entered into notes payable in the aggregate amount of $ 1.4 million of which an aggregate principal payment of $ 0.5 million is due in 2021 and $ 0.6 million is due in 2022.

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

Aggregate annual payments of principal required pursuant to the Credit Agreement and the various notes payable subsequent to December 31, 2019 are as follows (in thousands):

During the twelve months ended December 31, 2020

During the twelve months ended December 31, 2021

The balance of the various notes payable entered into prior to 2020 was $ 4.4 million which will be paid in 2021.

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

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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 terms of 12 months or less in the consolidated balance sheet.

The Company has elected, in compliance with current accounting standards, not to record leases with an initial term 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.

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

For the year ended December 31, 2019, the components of lease expense were as follows (in thousands):

December 31, 2019

For the years ended December 31, 2020 and 2019, the components of lease expense were as follows (in thousands):

Year Ended December 31,

Operating lease cost

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Sublease income was immaterial

Lease cost is reflected in the consolidated statement of net income in the line item – rent, supplies, contract labor and other.

For the year ended December 31, 2019, supplemental cash flow information related to leases was as follows (in thousands):

December 31, 2019

Lease costs are reflected in the consolidated statements of net income in the line item – rent, supplies, contract labor and other.

For the years ended December 31, 2020 and 2019, supplemental cash flow information related to leases was as follows (in thousands):

Year Ended December 31,

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

Right-of-use assets obtained in exchange for new operating lease liabilities (in thousands) *

* 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.

Includes the right-of-use assets obtained in exchange for lease liabilities for the year 2019 - $ 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 December 31, 2020 were as follows (in thousands):

2025 and therafter

Total lease payments

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Average lease terms and discount rates were as follows:

December 31, 2019

Year Ended December 31,

Weighted-average remaining lease term - Operating leases

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Deferred tax assets:

Allowance for doubtful accounts

Allowance for credit losses

Acquired net operating losses

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The offset of this adjustment was a decrease to the previously reported federal income tax receivable.

As of December 31, 2019, the Company has a federal income tax receivable of $1.5 million and state tax receivables of $1.3 million.

The tax receivables are included in other current assets on the accompanying consolidated balance sheets.

As of December 31, 2020, the Company has a federal income tax payable of $ 5.7 million and state tax receivables of $ 0.7 million.

The federal income tax payable is included in accrued liabilities and the tax receivable is included in other current assets on the accompanying consolidated balance sheets.

The differences between the federal tax rate and the Company’s effective tax rate for the years ended December 31, 2020, 2019 and 2018 were as follows (in thousands):

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tax at statutory rate

Tax legislation adjustment

State income taxes, net of federal benefit and tax reform

State income taxes, net of federal benefit

Excess equity compensation deduction

Non-deductible expenses

As a result of TCJA, the Company revalued its deferred tax assets and liabilities as of December 31, 2017.

Significant components of the provision for income taxes for the years ended December 31, 2020, 2019 and 2018 were as follows (in thousands):

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The Company does not believe that it has any significant uncertain tax positions at December 31, 2020 and December 31, 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 not have any accrued interest or penalties associated with any unrecognized tax benefits nor was any interest expense recognized during the years ended December 31, 2019, 2018 and 2017.

The Company did no t 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 and 2018.

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 .

T he 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 .

(in thousands)

Net operating revenues:

Physical therapy operations

Industrial injury prevention services

Total Company

Gross profit:

Physical therapy operations (excluding closure costs)

Industrial injury prevention services

Physical therapy operations - closure costs

Total Assets:

Physical therapy operations

Industrial injury prevention services

Total Company

Equity Based Plans

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The Company may also make discretionary contributions of up to 50 % of employee contributions.

The Company did not make any discretionary contributions for the years ended December 31, 2019, 2018 and 2017.

The Company did no t make any discretionary contributions for the years ended December 31, 2020, 2019 and 2018.

The Company matching contributions totaled $ 1.9 million, $ 2.0 million and $ 1.8 million, respectively, for the years ended December 31, 2020, 2019 and 2018.

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 in the rental payment based upon the Consumer Price Index.

The majority 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):

We may be subject to litigation in the ordinary course of business.

Employment Agreements

At December 31, 2019, the Company had outstanding employment agreements with four of its executive officers one of which has provided notice of a planned retirement in October 2020.

These remaining three agreements, which presently expire on December 31, 2020, provide for automatic two year renewals at the conclusion of each expiring term or renewal term.

At December 31, 2020, the Company had outstanding employment agreements with four of its executive officers, one of whom (Mr.

McDowell) has provided notice of a planned retirement in August 2021 .

The three remaining agreements have terms that expire December 31, 2021 , February 28, 2022 and November 8, 2022 , respectively;

however, each of these agreements provide for an automatic two year renewal at the conclusion of the expiring term or renewal term.

All of the agreements contain a provision for annual adjustment of salaries.

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Net income attributable to USPH shareholders

Charges to retained earnings:

Credit (charges) to retained earnings:

Revaluation of redeemable non-controlling interest

3 unchanged sentences

Basic and diluted earnings per share - weighted-average shares

Selected Quarterly Financial Data (Unaudited)

Net patient revenues

Operating income

Net income attributable to USPH shareholders

Basic and diluted earnings per share attributable to common shareholders:

Shares used in computation - basic and diluted

Net patient revenues

Operating income

Net income attributable to USPH shareholders

Basic and diluted earnings per share attributable to common shareholders:

Shares used in computation - basic and diluted

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

1 unchanged sentence

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-K

Item 8. Financial Statements and Supplementary Data