U S PHYSICAL THERAPY INC /NV 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND RELATED INFORMATION Reports of Independent Registered Public Accounting Firm—Grant Thornton LLP 42 Audited Financial Statements: Consolidated Balance Sheets as of December 31, 2020 and 2019 45 Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 2018 46 Consolidated Statements of Changes in Equity for the years ended December 31, 2020, 2019 and 2018 47 Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018 48 Notes to Consolidated Financial Statements 49 41 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders U.S. Physical Therapy, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of U.S. Physical Therapy, Inc. (a Nevada corporation) and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 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 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 These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of 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 As discussed in Note 2 to the consolidated financial statements, revenues are recognized in the period in which services are rendered. Net patient revenues (patient revenues less estimated contractual adjustments) are recognized at the estimated net realizable amounts from third-party payors, patients and others in exchange for services rendered when obligations under the terms of the contract are satisfied. The Company has agreements with third-party payors that provides for payments at amounts different from its established rates. Each month the Company estimates its contractual adjustment for each clinic based on the terms of third-party payor contracts and the historical collection and write-off experience of the clinic and applies a contractual adjustment reserve percentage to the gross accounts receivable balances. The Company then performs a comparison of cash collections to corresponding net revenues for the prior twelve months. We identified the measurement of contractual adjustments as a critical audit matter. The principal consideration for our determination that the measurement of contractual adjustments is a critical audit matter is that the estimate requires a high degree of auditor subjectivity in evaluating management’s assumptions related to developing future collection patterns across the various clinic locations. 42 Table of Contents Our audit procedures related to the Company’s measurement of contractual adjustments included the following, among others. • We tested the design and operating effectiveness of controls relating to billing and cash collection, net rate trend analysis by clinic and cash collection versus net revenue trend analysis. • For a sample of patient visits, we inspected and compared underlying documents for each transaction, which included gross billing rates and cash collected (net revenue). • For a sample of patient visits, we traced gross billings and net revenue to net revenue recorded in the general ledger and to each report used in determining and assessing the contractual adjustment calculation. • We compared cash collections to recorded net revenue over a twelve month period ending December 31, 2020 and again for the twelve month period ending in the first month subsequent to period end, to identify whether there were unusual trends that would indicate that the usage of historical collection patterns would no longer be reasonable to predict future collection patterns. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2004. Houston, Texas March 1, 2021 43 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders U.S. Physical Therapy, Inc. Opinion on internal control over financial reporting We have audited the internal control over financial reporting of U.S. Physical Therapy, Inc. (a Nevada corporation) and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 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, 2020, and our report dated March 1, 2021 expressed an unqualified opinion on those financial statements. Basis for opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and limitations of internal control over financial reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ GRANT THORNTON LLP Houston, Texas March 1, 2021 44 Table of Contents U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) December 31, 2020 December 31, 2019 ASSETS Current assets: Cash and cash equivalents $ 32,918 $ 23,548 Patient accounts receivable, less allowance for credit losses of $ 2,008 and $ 2,698 , respectively 41,906 46,228 Accounts receivable - other 9,039 9,823 Other current assets 3,773 5,787 Total current assets 87,636 85,386 Fixed assets: Furniture and equipment 55,426 54,942 Leasehold improvements 35,320 33,247 Fixed assets, gross 90,746 88,189 Less accumulated depreciation and amortization 69,081 66,099 Fixed assets, net 21,665 22,090 Operating lease right-of-use assets 81,595 81,586 Goodwill 345,646 317,676 Other identifiable intangible assets, net 56,280 52,588 Other assets 1,539 1,519 Total assets $ 594,361 $ 560,845 LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS, USPH SHAREHOLDERS’ EQUITY AND NON-CONTROLLING INTERESTS Current liabilities: Accounts payable - trade $ 1,335 $ 2,494 Accrued expenses 59,746 30,855 Current portion of operating lease liabilities 27,512 26,486 Current portion of notes payable 4,899 728 Total current liabilities 93,492 60,563 Notes payable, net of current portion 596 4,361 Revolving line of credit 16,000 46,000 Deferred taxes 7,779 10,071 Operating lease liabilities, net of current portion 61,985 60,258 Other long-term liabilities 4,539 141 Total liabilities 184,391 181,394 Redeemable non-controlling interests - temporary equity 132,340 137,750 Commitments and Contingencies (Note 17) U.S. Physical Therapy, Inc. (“USPH”) shareholders’ equity: Preferred stock, $ 0.01 par value, 500,000 shares authorized, no shares issued and outstanding - - Common stock, $ 0.01 par value, 20,000,000 shares authorized, 15,066,282 and 14,989,337 shares issued, respectively 151 150 Additional paid-in capital 95,622 87,383 Retained earnings 212,015 184,352 Treasury stock at cost, 2,214,737 shares ( 31,628 ) ( 31,628 ) Total USPH shareholders’ equity 276,160 240,257 Non-controlling interests - permanent equity 1,470 1,444 Total USPH shareholders' equity and non-controlling interests 277,630 241,701 Total liabilities, redeemable non-controlling interests, USPH shareholders' equity and non-controlling interests $ 594,361 $ 560,845 See notes to consolidated financial statements. 45 Table of Contents U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) Year Ended December 31, 2020 December 31, 2019 December 31, 2018 Net patient revenues $ 373,340 $ 433,345 $ 417,703 Other revenues 49,629 48,624 36,208 Net revenues 422,969 481,969 453,911 Operating costs: Salaries and related costs 235,629 274,233 259,228 Rent, supplies, contract labor and other 84,336 90,379 88,426 Provision for credit losses 4,623 4,858 4,603 Closure costs - lease and other 2,072 25 ( 9 ) Closure costs - derecognition of goodwill 1,859 - - Total operating costs 328,519 369,495 352,248 Gross profit 94,450 112,474 101,663 Corporate office costs 42,037 45,049 41,349 Operating income 52,413 67,425 60,314 Other income and expense: Relief Funds 13,501 - - Gain on sale of partnership interest and clinics 1,091 5,514 - Gain on derecognition of debt - - 1,846 Interest and other income, net 142 46 93 Interest expense - debt and other ( 1,634 ) ( 2,079 ) ( 2,042 ) Total other income and expense 13,100 3,481 ( 103 ) Income before taxes 65,513 70,906 60,211 Provision for income taxes 13,022 13,647 11,369 Net income 52,491 57,259 48,842 Less: net income attributable to non-controlling interests: Non-controlling interests - permanent equity ( 6,122 ) ( 6,561 ) ( 5,536 ) Redeemable non-controlling interests - temporary equity ( 11,175 ) ( 10,659 ) ( 8,433 ) ( 17,297 ) ( 17,220 ) ( 13,969 ) Net income attributable to USPH shareholders $ 35,194 $ 40,039 $ 34,873 Basic and diluted earnings per share attributable to USPH shareholders $ 2.48 $ 2.45 $ 1.31 Shares used in computation - basic and diluted 12,835 12,756 12,666 Dividends declared per common share $ 0.32 $ 1.14 $ 0.92 See notes to consolidated financial statements. 46 Table of Contents U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In thousands) U.S. Physical Therapy, Inc. Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Total Shareholders’ Equity Non-Controlling Interests Total Shares Amount Shares Amount Balance January 1, 2018 14,809 $ 148 $ 73,940 $ 162,406 ( 2,215 ) $ ( 31,628 ) $ 204,866 $ 1,204 $ 206,070 Issuance of restricted stock, net of cancellations 90 1 - - - - 1 - 1 Revaluation of redeemable non-controlling interest, net of tax - - - ( 18,268 ) - - ( 18,268 ) - ( 18,268 ) Compensation expense - equity-based awards - - 5,939 - - - 5,939 - 5,939 Transfer of compensation liability for certain stock issued pursuant to long-term incentive plans - - 373 - - - 373 - 373 Sale of non-controlling interest, net of purchases and tax - - ( 224 ) - - - ( 224 ) ( 48 ) ( 272 ) Dividends paid to USPT shareholders - - - ( 11,664 ) - - ( 11,664 ) - ( 11,664 ) Distributions to non-controlling interest partners - permanent equity - - - - - - - ( 5,812 ) ( 5,812 ) Other - - - 49 - - 49 50 99 Net income attributable to non-controlling interest - permanent equity - - - - - - - 5,536 5,536 Net income attributable to USPH shareholders - - - 34,873 - - 34,873 - 34,873 Balance December 31, 2018 14,899 $ 149 $ 80,028 $ 167,396 ( 2,215 ) $ ( 31,628 ) $ 215,945 $ 930 $ 216,875 U.S. Physical Therapy, Inc. Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Total Shareholders’ Equity Non-Controlling Interests Total Shares Amount Shares Amount Issuance of restricted stock, net of cancellations 90 1 - - - - 1 - 1 Revaluation of redeemable non-controlling interest, net of tax - - - ( 8,771 ) - - ( 8,771 ) - ( 8,771 ) Compensation expense - equity-based awards - - 6,985 - - - 6,985 - 6,985 Transfer of compensation liability for certain stock issued pursuant to long-term incentive plans - - 636 - - - 636 - 636 Purchase of partnership interests - redeemable non-controlling interests - - ( 266 ) - - - ( 266 ) ( 26 ) ( 292 ) Sale of non-controlling interest, net of purchases and tax - - - 196 - - 196 - 196 Dividends paid to USPT shareholders - - - ( 14,555 ) - - ( 14,555 ) - ( 14,555 ) Distributions to non-controlling interest partners - permanent equity - - - - - - - ( 6,014 ) ( 6,014 ) Other - - - 47 - - 47 ( 7 ) 40 Net income attributable to non-controlling interest - permanent equity - - - - - - - 6,561 6,561 Net income attributable to USPH shareholders - - - 40,039 - - 40,039 - 40,039 Balance December 31, 2019 14,989 150 87,383 184,352 ( 2,215 ) ( 31,628 ) 240,257 1,444 241,701 U.S. Physical Therapy, Inc. Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Total Shareholders’ Equity Non-Controlling Interests Total Shares Amount Shares Amount Issuance of restricted stock, net of cancellations 76 1 - - - - 1 - 1 Revaluation of redeemable non-controlling interest, net of tax - - - ( 3,415 ) - - ( 3,415 ) - ( 3,415 ) Compensation expense - equity-based awards - - 7,917 - - - 7,917 - 7,917 Transfer of compensation liability for certain stock issued pursuant to long-term incentive plans - - 486 - - - 486 - 486 Purchase of partnership interests - redeemable non-controlling interests - - - - - - - ( 168 ) ( 168 ) Sale of non-controlling interest, net of purchases and tax - - ( 164 ) - - - ( 164 ) - ( 164 ) Dividends paid to USPT shareholders - - - ( 4,110 ) - - ( 4,110 ) - ( 4,110 ) Distributions to non-controlling interest partners - permanent equity - - - - - - - ( 5,928 ) ( 5,928 ) Other - - - ( 6 ) - - ( 6 ) - ( 6 ) Net income attributable to non-controlling interest - permanent equity - - - - - - - 6,122 6,122 Net income attributable to USPH shareholders - - - 35,194 - - 35,194 - 35,194 Balance December 31, 2020 15,065 151 95,622 212,015 ( 2,215 ) ( 31,628 ) 276,160 1,470 277,630 See notes to consolidated financial statements. 47 Table of Contents U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2020 December 31, 2019 December 31, 2018 OPERATING ACTIVITIES Net income including non-controlling interests $ 52,491 $ 57,259 $ 48,842 Adjustments to reconcile net income including non-controlling interests to net cash provided by operating activities: Depreciation and amortization 10,533 10,095 9,755 Provision for credit losses 4,623 4,858 4,603 Equity-based awards compensation expense 7,917 6,985 5,939 Deferred income taxes ( 258 ) 4,651 4,813 Gain on sale of partnership interest ( 1,091 ) ( 5,514 ) ( 1,846 ) Write-off of goodwill - closed clinics 1,859 - - Other 281 96 167 Changes in operating assets and liabilities: Decrease (increase) in patient accounts receivable 899 ( 6,376 ) ( 3,434 ) Decrease(increase) in accounts receivable - other 1,661 ( 2,499 ) ( 1,087 ) Decrease (increase) in other assets 4,161 ( 1,878 ) 345 Increase (decrease) in accounts payable and accrued expenses 12,427 ( 4,209 ) 4,876 Increase (decrease) in other long-term liabilities 4,492 ( 1,020 ) 32 Net cash provided by operating activities 99,995 62,448 73,005 INVESTING ACTIVITIES Purchase of fixed assets ( 7,639 ) ( 10,189 ) ( 7,193 ) Purchase of majority interest in businesses, net of cash acquired ( 23,907 ) ( 30,597 ) ( 16,367 ) Purchase of redeemable non-controlling interest, temporary equity ( 20,385 ) ( 8,651 ) - Purchase of non-controlling interest, permanent equity ( 238 ) ( 428 ) ( 350 ) Proceeds on sale of redeemable non-controlling interest, temporary equity 127 207 - Proceeds on sales of partnership interest, clinics and fixed assets 839 11,665 1 Net cash used in investing activities ( 51,203 ) ( 37,993 ) ( 23,909 ) FINANCING ACTIVITIES Distributions to non-controlling interests, permanent and temporary equity ( 18,331 ) ( 16,235 ) ( 15,646 ) Cash dividends paid to shareholders ( 4,110 ) ( 14,555 ) ( 11,664 ) Proceeds from revolving line of credit 214,000 145,000 103,000 Payments on revolving line of credit ( 244,000 ) ( 137,000 ) ( 119,000 ) Payments to settle mandatorily redeemable non-controlling interests - - ( 265 ) Principal payments on notes payable ( 1,037 ) ( 1,433 ) ( 4,044 ) Medicare Accelerated and Advance Payment Funds 14,054 - - Other 2 ( 52 ) ( 42 ) Net cash used in financing activities ( 39,422 ) ( 24,275 ) ( 47,661 ) Net increase in cash and cash equivalents 9,370 180 1,435 Cash and cash equivalents - beginning of period 23,548 23,368 21,933 Cash and cash equivalents - end of period $ 32,918 $ 23,548 $ 23,368 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Income taxes $ 7,677 $ 9,856 $ 9,183 Interest $ 1,202 $ 1,890 $ 2,357 Non-cash investing and financing transactions during the period: Purchase of businesses - seller financing portion $ 1,121 $ 4,300 $ 950 Purchase of business - payable to common shareholders of acquired business $ - $ 502 $ - Notes payable related to purchase of redeemable non-controlling interest, temporary equity $ 136 $ 283 $ - Notes payable related to purchase of non-controlling interest, permanent equity $ 699 $ 103 $ - Notes receivable related to sale of partnership interest - redeemable non-controlling interest $ - $ 2,870 $ - Notes receivables related to sale of partnership interest $ 994 $ - $ - See notes to consolidated financial statements. 48 Table of Contents U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2020, 2019 and 2018 1. Organization, Nature of Operations and Basis of Presentation The consolidated financial statements include the accounts of U.S. Physical Therapy, Inc. and its subsidiaries (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. See Note 12. Segment Information. Physical Therapy Operations The physical therapy operations segment primarily operates through subsidiary clinic partnerships, in which the Company generally owns a 1 % general partnership interest in all the Clinic Partnerships. Our limited partnership interests typically range from 10 % to 99 % in the Clinic Partnerships. The managing therapist of each clinic owns, directly or indirectly, the remaining limited partnership interest in most of the clinics (hereinafter referred to as “Clinic Partnerships”). To a lesser extent, the Company operates some clinics, through wholly-owned subsidiaries, under profit sharing arrangements with therapists (hereinafter referred to as “Wholly-Owned Facilities”). The Company continues to seek to attract for employment physical therapists who have established relationships with physicians and other referral sources, by offering these therapists a competitive salary and incentives based on the profitability of the clinic that they manage. For multi-site clinic practices in which a controlling interest is acquired by the Company, the prior owners typically continue on as employees to manage the clinic operations, retaining a non-controlling ownership interest in the clinics and receiving a competitive salary for managing the clinic operations. In addition, the Company has developed satellite clinic facilities as part of existing Clinic Partnerships and Wholly-Owned Facilities, with the result that a substantial number of Clinic Partnerships and Wholly-Owned Facilities operate more than one clinic location. As of December 31, 2020, the Company owned and/or operated 554 clinics in 39 states. The clinics’ business primarily originates from physician referrals. The principal sources of payment for the clinics’ services are managed care programs, commercial health insurance, Medicare/Medicaid, workers’ compensation insurance and proceeds from personal injury cases. In addition to the Company’s ownership and operation of outpatient physical therapy clinics, it also manages physical therapy facilities for third parties, such as physicians and hospitals, with 38 such third-party facilities under management as of December 31, 2020. During the last three years, the Company completed the following acquisitions within its physical therapy operations segment: Acquisition Date % Interest Acquired Number of Clinics November 2020 Acquisition November 30, 2020 75 % 3 September 2020 Acquisition September 30, 2020 70 % * February 2020 Acquisition February 27, 2020 65 % ** 4 September 2019 Acquisition September 30, 2019 67 % 11 August 2018 Acquisition August 31, 2018 70 % 4 * The business includes six management and services contracts which had a remaining term of approximately five years as of the date acquired. ** The four clinics are in four separate partnerships. The Company's interest in the four partnerships range from 10.0 % to 83.8 %, with an overall 65.0 % based on the initial purchase transaction. 49 Table of Contents 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 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 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. 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 and income statements as non-controlling interests – permanent equity. For acquired Clinic Partnerships with redeemable non-controlling interests, the earnings attributable to the redeemable non-controlling interests are recorded within the consolidated statements of income line item – net income attributable to redeemable non-controlling interests – temporary equity and the equity interests are recorded on the consolidated balance sheet as redeemable non-controlling interests – temporary equity . 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. The amended limited partnership agreements provide that, upon certain events, the Company has a call right (the “Call Right”) and the selling entity has a put right (the “Put Right”) for the purchase and sale of the limited partnership interest held by the partner. Once triggered, the Put Right and the Call Right do not expire, even upon an individual partner’s death, and contain no mandatory redemption feature. The purchase price of the partner’s limited partnership interest upon the exercise of either the Put Right or the Call Right is calculated per the terms of the respective agreements. The Company accounted for the amendment of its limited partnership agreements as an extinguishment of the outstanding Seller Entity Interests, as defined in Note 5, classified as liabilities through the issuance of new Seller Entity Interests classified in temporary equity. Pursuant to ASC 470-50-40-2, the Company removed the outstanding liability-classified Seller Entity Interests at their carrying amounts, recognized the new temporary-equity-classified Seller Entity Interests at their fair value, and recorded no gain or loss on extinguishment as management believes the redemption value (i.e. the carrying amount) and fair value are the same. In summary, the redemption values of the mandatorily redeemable non-controlling interest (previously classified as liabilities) were reclassified as redeemable non-controlling interest (temporary equity) at fair value on the December 31, 2017 consolidated balance sheet. See Note 5 - Redeemable Non-Controlling Interests – for further discussion. Wholly-Owned Facilities For Wholly-Owned Facilities with profit sharing arrangements, an appropriate accrual is recorded for the amount of profit sharing due the clinic partners/directors. The amount is expensed as compensation and included in clinic operating costs—salaries and related costs. The respective liability is included in current liabilities— accrued expenses on the consolidated balance sheets. Industrial Injury Prevention Services In March 2017, the Company acquired a 55 % interest in the initial industrial injury prevention business. On April 30, 2018, the Company acquired a 65 % interest in another business in the industrial injury prevention sector. On April 30, 2018, the Company combined the 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). 50 Table of Contents 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. Relief Funds The CARES Act also provided additional waivers, reimbursement, grants and other funds to assist health care providers during the COVID-19 pandemic, including $ 100.0 billion in appropriations for the Public Health and Social Services Emergency Fund, also referred to as the Provider Relief Fund, to be used for preventing, preparing, and responding to the coronavirus, and for reimbursing eligible health care providers for lost revenues and health care related expenses that are attributable to COVID-19. Through December 31, 2020, the Company’s consolidated subsidiaries received approximately $ 13.5 million of payments under the CARES Act (“Relief Funds”). For the year ended December 31, 2020, the Company has recognized approximately $ 13.5 million, as Other income – Relief Funds on the accompany consolidated statement of operations. These funds are not required to be repaid upon attestation and compliance with certain terms and conditions, which could change materially based on evolving grant compliance provisions and guidance provided by the U.S. Department of Health and Human Services. Currently, the Company can attest and comply with the terms and conditions of the grant guidance. The Company will continue to monitor the evolving guidelines and may record adjustments as additional information is released. 51 Table of Contents 2. Significant Accounting Policies Cash Equivalents The Company maintains its cash and cash equivalents at financial institutions. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The combined account balances at several institutions typically exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. Management believes that this risk is not significant. Long-Lived Assets Fixed assets are stated at cost. Depreciation is computed on the straight-line method over the estimated useful lives of the related assets. Estimated useful lives for furniture and equipment range from three to eight years and for software purchased from three to seven years . Leasehold improvements are amortized over the shorter of the related lease term or estimated useful lives of the assets, which is generally three to five years . Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Company reviews property and equipment and intangible assets with finite lives for impairment upon the occurrence of certain events or circumstances that indicate the related amounts may be impaired. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Goodwill Goodwill represents the excess of the amount paid and fair value of the non-controlling interests over the fair value of the acquired business assets, which include certain identifiable intangible assets. Historically, goodwill has been derived from acquisitions and, prior to 2009 , from the purchase of some or all of a particular local management’s equity interest in an existing clinic. Effective January 1, 2009 , if the purchase price of a non-controlling interest by the Company exceeds or is less than the book value at the time of purchase, any excess or shortfall is recognized as an adjustment to additional paid-in capital. Goodwill and other indefinite-lived intangible assets are not amortized, but are instead subject to periodic impairment evaluations. The fair value of goodwill and other identifiable intangible assets with indefinite lives are 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 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 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 evaluation of goodwill in 2020, 2019 and 2018 did not result in any goodwill amounts that were deemed impaired. 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 . 52 Table of Contents 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 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. The redemption rights can be triggered by the owner or the Company at such time as both of the following events have occurred: 1) termination of the owner’s employment, regardless of the reason for such termination, and 2) the passage of specified number of years after the closing of the transaction, typically three to five years , as defined in the limited partnership agreement. The redemption rights are not automatic or mandatory (even upon death) and require either the owner or the Company to exercise its rights when the conditions triggering the redemption rights have been satisfied. On the date the Company acquires a controlling interest in a partnership, and the limited partnership agreement for such partnership contains redemption rights not under the control of the Company, the fair value of the non-controlling interest is recorded in the consolidated balance sheet under the caption – Redeemable non-controlling interests. Then, in each reporting period thereafter until it is purchased by the Company, the redeemable non-controlling interest is adjusted to the greater of its then current redemption value or initial carrying value, based on the predetermined formula defined in the respective limited partnership agreement. As a result, the value of the non-controlling interest is not adjusted below its initial carrying value. The Company records any adjustment in the redemption value, net of tax, directly to retained earnings and are not reflected in the consolidated statements of income. Although the adjustments are not reflected in the consolidated statements of income, current accounting rules require that the Company reflects the adjustments, net of tax, in the earnings per share calculation. The amount of net income attributable to redeemable non-controlling interest owners is included in consolidated net income on the face of the consolidated statements of net income. Management believes the redemption value (i.e. the carrying amount) and fair value are the same. Non-Controlling Interests The Company recognizes non-controlling interests, in which the Company has no obligation but the right to purchase the non-controlling interests, as permanent equity in the consolidated financial statements separate from the parent entity’s equity. The amount of net income attributable to non-controlling interests is included in consolidated net income on the face of the statements of net income. Changes in a parent entity’s ownership interest in a subsidiary that do not result in deconsolidation are treated as equity transactions if the parent entity retains its controlling financial interest. The Company recognizes a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss is measured using the fair value of the non-controlling equity investment on the deconsolidation date. When the purchase price of a non-controlling interest by the Company exceeds the book value at the time of purchase, any excess or shortfall is recognized as an adjustment to additional paid-in capital. Additionally, operating losses are allocated to non-controlling interests even when such allocation creates a deficit balance for the non-controlling interest partner. 53 Table of Contents Revenue Recognition In May 2014, March 2016, April 2016, and December 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, ASU 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations, ASU 2016-10, Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing, ASU 2016-12, Revenue from Contracts with Customers, Narrow Scope Improvements and Practical Expedients, and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customer (collectively the “standards”), respectively, which supersede most of the current revenue recognition requirements (“ASC 606”). The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company implemented the new standards beginning January 1, 2018 using a modified retrospective transition method. The principal change relates to how the new standard requires healthcare providers to estimate the amount of variable consideration to be included in the transaction price up to an amount which is probable that a significant reversal will not occur. The most common forms of variable consideration the Company experiences are amounts for services provided that are ultimately not realizable from a customer. There were no changes to revenues or other revenues upon implementation. Under the new standards, the Company’s estimate for unrealizable amounts will continue to be recognized as a reduction to revenue. The bad debt expense historically reported will not materially change. For ASC 606, there is an implied contract between us and the patient upon each patient visit. Separate contractual arrangements exist between us and third-party payors (e.g. insurers, managed care programs, government programs, workers' compensation) which establish the amounts the third parties pay on behalf of the patients for covered services rendered. While these agreements are not considered contracts with the customer, they are used for determining the transaction price for services provided to the patients covered by the third party payors. The payor contracts do not indicate performance obligations for us, but indicate reimbursement rates for patients who are covered by those payors when the services are provided. At that time, the Company is obligated to provide services for the reimbursement rates stipulated in the payor contracts. The execution of the contract alone does not indicate a performance obligation. For self-paying customers, the performance obligation exists when we provide the services at established rates. The difference between the Company’s established rate and the anticipated reimbursement rate is accounted for as an offset to revenue – contractual allowance. The following table details the revenue related to the various categories (in thousands). Year Ended December 31, 2020 December 31, 2019 December 31, 2018 Net patient revenues $ 373,340 $ 433,345 $ 417,703 Management contract revenues 8,410 8,676 8,339 Other revenues 2,020 2,486 2,403 Physical therapy operations $ 383,770 $ 444,507 $ 428,445 Industrial injury prevention services revenues 39,199 37,462 25,466 $ 422,969 $ 481,969 $ 453,911 Patient revenues Revenues are recognized in the period in which services are rendered. Net patient revenues consists of revenues for physical therapy and occupational therapy clinics that provide pre-and post-operative care and treatment for orthopedic related disorders, sports-related injuries, preventative care, rehabilitation of injured workers and neurological-related injuries. Net patient revenues (patient revenues less estimated contractual adjustments) are recognized at the estimated net realizable amounts from third-party payors, patients and others in exchange for services rendered when obligations under the terms of the contract are satisfied. There is an implied contract between us and the patient upon each patient visit. Generally, this occurs as the Company provides physical and occupational therapy services, as each service provided is distinct and future services rendered are not dependent on previously rendered services. The Company has agreements with third-party payors that provide for payments to the Company at amounts different from its established rates. Medicare Reimbursement 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. 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. 54 Table of Contents Beginning in 2021, payments to individual therapists (Physical/Occupational Therapist in Private Practice) paid under the fee schedule may be subject to adjustment based on performance in the Merit Based Incentive Payment System (“MIPS”), which measures performance based on certain quality metrics, resource use, and meaningful use of electronic health records. Under the MIPS requirements, a provider's performance is assessed according to established performance standards each year and then is used to determine an adjustment factor that is applied to the professional's payment for the corresponding payment year. The provider’s MIPS performance in 2019 will determine the payment adjustment in 2021. Each year from 2019 through 2024, professionals who receive a significant share of their revenues through an alternate payment model (“APM”), (such as accountable care organizations or bundled payment arrangements) that involves risk of financial losses and a quality measurement component will receive a 5 % bonus in the corresponding payment year. The bonus payment for APM participation is intended to encourage participation and testing of new APMs and to promote the alignment of incentives across payors. The specifics of the MIPS and APM adjustments will be subject to future notice and comment rule-making. The Budget Control Act of 2011 increased the federal debt ceiling in connection with deficit reductions over the next ten years , and requires automatic reductions in federal spending by approximately $ 1.2 trillion. Payments to Medicare providers are subject to these automatic spending reductions, subject to a 2 % cap. On April 1, 2013, a 2 % reduction to Medicare payments was implemented. The Bipartisan Budget Act of 2015, enacted on November 2, 2015, extended the 2 % reductions to Medicare payments through fiscal year 2025. The Bipartisan Budget Act of 2018, enacted on February 9, 2018, extends the 2 % reductions to Medicare payments through fiscal year 2027. The Coronavirus Aid, Relief, and Economic Security (CARES) Act suspended the 2 % payment reduction Medicare payments for dates of service from May 1, 2020, through December 31, 2020. The Consolidated Appropriations Act, 2021 further suspended the 2 % payment reduction until March 31, 2021. Historically, the total amount paid by Medicare in any one year for outpatient physical therapy, occupational therapy, and/or speech-language pathology services provided to any Medicare beneficiary was subject to an annual dollar limit (i.e., the “Therapy Cap” or “Limit”). For 2017, the annual Limit on outpatient therapy services was $ 1,980 for combined Physical Therapy and Speech Language Pathology services and $ 1,980 for Occupational Therapy services. As a result of Bipartisan Budget Act of 2018, the Therapy Caps have been eliminated, effective as of January 1, 2018. Under the Middle Class Tax Relief and Job Creation Act of 2012 (“MCTRA”), since October 1, 2012, patients who met or exceeded $ 3,700 in therapy expenditures during a calendar year have been subject to a manual medical review to determine whether applicable payment criteria are satisfied. The $ 3,700 threshold is applied to Physical Therapy and Speech Language Pathology Services; a separate $ 3,700 threshold is applied to the Occupational Therapy. The MACRA directed 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. The MPPR applied to all outpatient therapy services paid under Medicare Part B — occupational therapy, physical therapy and speech-language pathology. Under the policy, the Medicare program pays 100 % of the practice expense component of the Relative Value Unit (“RVU”) for the therapy procedure with the highest practice expense RVU, then reduces the payment for the practice expense component for the second and subsequent therapy procedures or units of service furnished during the same day for the same patient, regardless of whether those therapy services are furnished in separate sessions. Since 2013, the practice expense component for the second and subsequent therapy service furnished during the same day for the same patient was reduced by 50 % . In addition, the MCTRA directed CMS to implement a claims-based data collection program to gather additional data on patient function during the course of therapy in order to better understand patient conditions and outcomes. All practice settings that provide outpatient therapy services are required to include this data on the claim form. Since 2013, therapists have been required to report new codes and modifiers on the claim form that reflect a patient’s functional limitations and goals at initial evaluation, periodically throughout care, and at discharge. Reporting of these functional limitation codes and modifiers are required on the claim for payment. Medicare claims for outpatient therapy services furnished by therapy assistants on or after January 1, 2020 must include a modifier indicating the service was furnished by a therapy assistant. Outpatient therapy services furnished on or after January 1, 2022 in whole or part by a therapy assistant will be paid at an amount equal to 85 % of the payment amount otherwise applicable for the service. 55 Table of Contents 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 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. 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 Management contract revenues, which are included in other revenues, are derived from contractual arrangements whereby the Company manages a clinic for third party owners. The Company does not have any ownership interest in these clinics. Typically, revenues are determined based on the number of visits conducted at the clinic and recognized at a point in time when services are performed. Costs, typically salaries for the Company’s employees, are recorded when incurred. Industrial Injury Prevention Services Revenues Revenue from the industrial injury prevention business, which are also included in other revenues in the consolidated statements of net income, are derived from onsite services we provide to clients’ employees including injury prevention, rehabilitation, ergonomic assessments and performance optimization. Revenue from the Company’s industrial injury prevention business is recognized when obligations under the terms of the contract are satisfied. Revenues are recognized at an amount equal to the consideration the company expects to receive in exchange for providing injury prevention services to its clients. The revenue is determined and recognized based on the number of hours and respective rate for services provided in a given period. Other Revenues 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. Services are typically performed over the contract period and revenue is recorded at the point of service. If the services are paid in advance, revenue is recorded as a contract liability over the period of the agreement and recognized at the point in time, when the services are performed. Contractual Allowances The allowance for estimated contractual adjustments is based on terms of payor contracts and historical collection and write-off experience. Contractual allowances result from the differences between the rates charged for services performed and expected reimbursements by both insurance companies and government sponsored healthcare programs for such services. Medicare regulations and the various third party payors and managed care contracts are often complex and may include multiple reimbursement mechanisms payable for the services provided in Company clinics. The Company estimates contractual allowances based on its interpretation of the applicable regulations, payor contracts and historical calculations. Each month the Company estimates its contractual allowance for each clinic based on payor contracts and the historical collection experience of the clinic and applies an appropriate contractual allowance reserve percentage to the gross accounts receivable balances for each payor of the clinic. Based on the Company’s historical experience, calculating the contractual allowance reserve percentage at the payor level is sufficient to allow the Company to provide the necessary detail and accuracy with its collectability estimates. However, the services authorized and provided and related reimbursement are subject to interpretation that could result in payments that differ from the Company’s estimates. Payor terms are periodically revised necessitating continual review and assessment of the estimates made by management. The Company’s billing system does not capture the exact change in its contractual allowance reserve estimate from period to period in order to assess the accuracy of its revenues and hence its contractual allowance reserves. Management regularly compares its cash collections to corresponding net revenues measured both in the aggregate and on a clinic-by-clinic basis. In the aggregate, historically the difference between net revenues and corresponding cash collections for any fiscal year has generally reflected a difference within approximately 1 % to 1.5 % of net revenues. Additionally, analysis of subsequent periods’ contractual write-offs on a payor basis reflects a difference within approximately 1 % to 1.5 % between the actual aggregate contractual reserve percentage as compared to the estimated contractual allowance reserve percentage associated with the same period end balance. As a result, the Company believes that a change in the contractual allowance reserve estimate would not likely be more than 1 % to 1.5 % of gross billings included in accounts receivable at December 31, 2020. 56 Table of Contents 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 Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount to be recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The 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. Fair Values of Financial Instruments The carrying amounts reported in the balance sheets for cash and cash equivalents, accounts receivable, accounts payable and notes payable approximate their fair values due to the short-term maturity of these financial instruments. The carrying amount under the Amended Credit Agreement and the redemption value of Redeemable non-controlling interests approximate the respective fair values. The fair value of the Company’s redeemable non-controlling interests is determined based on “Level 3” inputs. The interest rate on the Amended Credit Agreement, which is tied to LIBOR, is set at various short-term intervals, as detailed in the Amended Credit Agreement. Segment Reporting 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 currently operates through two segments: physical therapy operations and industrial injury prevention services. Use of Estimates In preparing the Company’s consolidated financial statements, management makes certain estimates and assumptions, especially in relation to, but not limited to, goodwill impairment, tradenames, allocations of purchase price, allowance for receivables, tax provision and contractual allowances, that affect the amounts reported in the consolidated financial statements and related disclosures. Actual results may differ from these estimates. Self-Insurance Program The Company utilizes a self-insurance plan for its employee group health and dental insurance coverage administered by a third party. Predetermined loss limits have been arranged with the insurance company to minimize the Company’s maximum liability and cash outlay. Accrued expenses include the estimated incurred but unreported costs to settle unpaid claims and estimated future claims. Management believes that the current accrued amounts are sufficient to pay claims arising from self-insurance claims incurred through December 31, 2020. 57 Table of Contents Restricted Stock Restricted stock issued to employees and directors is subject to continued employment or continued service on the board, respectively. Generally, restrictions on the stock granted to employees lapse in equal annual installments on the following four anniversaries of the date of grant. For those shares granted to directors, the restrictions will lapse in equal quarterly installments during the first year after the date of grant. For those granted to officers, the restriction will lapse in equal quarterly installments during the four years following the date of grant. Compensation expense for grants of restricted stock is recognized based on the fair value per share on the date of grant amortized over the vesting period. The Company recognizes any forfeitures as they occur. The restricted stock issued is included in basic and diluted shares for the earnings per share computation. Recently Adopted Accounting Guidance In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASC 842”), which amended prior accounting standards for leases. The Company implemented the new lease standard, ASC Topic 842 – Leases as of January 1, 2019 using the transition method in ASU 2018-11 issued in July 2018 which allows the Company to initially apply the new leases standard at adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. There was no adjustment required to retained earnings upon adoption. Accordingly, no retrospective adjustments were made to the comparative periods presented. The Company elected certain of the practical expedients permitted, including the expedient that allows the Company to retain its existing lease assessment and classification. Adoption of ASC 842 resulted in an increase to total assets and liabilities due to the recording of operating lease right-of-use assets (“ROU”) and operating lease liabilities of approximately $ 78.0 million and $ 82.6 million respectively, as of January 1, 2019 for operating leases as a lessee. The adoption did not materially impact the Company’s consolidated statement of income or cash flows. See Footnote 10 - Leases for further discussion of leases. In August 2018, the Securities Exchange Commission (“SEC”) issued Final Rule 33-10532, Disclosure Update and Simplification, which amends certain disclosure requirements that were redundant, duplicative, overlapping or superseded by other SEC disclosure requirements. The amendments generally eliminated or otherwise reduced certain disclosure requirements of various SEC rules and regulations. However, in some cases, the amendments require additional information to be disclosed, including changes in stockholders’ equity in interim periods. The rule is effective 30 days after its publication in the Federal Register. The rule was posted on October 4, 2018. On September 25, 2018, the SEC released guidance advising it will not object to a registrant adopting the requirement to include changes in stockholders’ equity in the Form 10-Q for the first quarter beginning after the effective date of the rule. The Company adopted this guidance in its Form 10-Q for the period ended March 31, 2019. In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses, which added a new impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The CECL model applies to most debt instruments, including trade receivables. The 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 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 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. In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (Topic 350), which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. ASU 2017-04 is effective prospectively for fiscal years, and the interim periods within those years, beginning after December 15, 2019. The Company completed the adoption of the standard effective January 1, 2020 and there was no impact to goodwill from the Company’s adoption of this change. 58 Table of Contents 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 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. 59 Table of Contents 3. Acquisitions of Businesses During 2020, 2019 and 2018, the Company acquired a majority interest in the following physical therapy practices: Acquisition Date % Interest Acquired Number of Clinics November 2020 Acquisition November 30, 2020 75 % 3 September 2020 Acquisition September 30, 2020 70 % * February 2020 Acquisition February 27, 2020 65 % ** 4 September 2019 Acquisition September 30, 2019 67 % 11 August 2018 Acquisition August 31, 2018 70 % 4 * The business includes six management and services contracts which had a remaining term of approximately five years as of the date acquired. ** The four clinics are in four separate partnerships. The Company's interest in the four partnerships range from 10.0 % to 83.8 %, with an overall 65.0 % based on the initial purchase transaction. 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 ) $ 23,907 Seller note 1,121 Total consideration $ 25,028 Estimated fair value of net tangible assets acquired: Total current assets $ 1,271 Total non-current assets 134 Total liabilities ( 555 ) Net tangible assets acquired $ 850 Referral relationships 3,597 Non-compete 1,012 Tradename 2,326 Goodwill 28,540 Fair value of non-controlling interest (classified as redeemable non-controlling interests) ( 11,297 ) $ 25,028 60 Table of Contents 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 ($ 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. On April 11, 2019, the Company acquired a company that is a provider of industrial injury prevention services. The acquired company specializes in delivering injury prevention and care, post offer employment testing, functional capacity evaluations and return-to-work services. It performs these services across a network of 45 states including onsite at eleven client locations. The acquired business was then combined with Briotix Health, the Company’s industrial injury prevention operation, increasing the Company’s ownership position in the Briotix Health partnership to approximately 76.0 %. The purchase price for the acquired company was $ 22.9 million ($ 23.6 million less cash acquired of $ 0.7 million), which consisted of $ 18.9 million in cash, (of which $ 0.5 million will be paid to certain shareholders), and a $ 4.0 million seller note. The note accrues interest at 5.5 % and the principal and accrued interest is payable, on April 9, 2021. The results of operations of the acquired clinics have been included in the Company’s consolidated financial statements since the date of their respective acquisition. The Company intends to continue to pursue additional acquisition opportunities, develop new clinics and open satellite clinics. The purchase price for the 2019 acquisitions were allocated as follows (in thousands): IIPS* Physical Therapy Operations Total Cash paid, net of cash acquired ($ 890 ) $ 18,428 $ 12,170 $ 30,598 Payable to shareholders of seller 485 - 485 Seller note 4,000 300 4,300 Total consideration $ 22,913 $ 12,470 $ 35,383 Estimated fair value of net tangible assets acquired: Total current assets $ 1,641 $ 650 $ 2,291 Total non-current assets 848 394 1,242 Total liabilities ( 2,978 ) ( 191 ) ( 3,169 ) Net tangible assets acquired $ ( 489 ) $ 853 $ 364 Referral relationships 3,400 2,600 6,000 Non-compete 250 270 520 Tradename 1,300 740 2,040 Goodwill 18,452 14,237 32,689 Fair value of non-controlling interest (classified as redeemable non-controlling interests) - ( 6,230 ) ( 6,230 ) $ 22,913 $ 12,470 $ 35,383 * Industrial injury prevention services 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 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. The aggregate purchase price for the 65 % interest was $ 8.6 million in cash and $ 400,000 in a seller note that was paid on April 30, 2019. On April 30, 2018, the Company combined its two businesses. After the combination, the Company owned a 59.45 % interest in the combined business, Briotix Health. See discussion above regarding an additional acquisition on April 11, 2019 in the industrial injury prevention business. In addition, during 2018, the Company, through several of its majority owned Clinic Partnerships, acquired five separate clinic practices. These practices operate as satellites of the existing Clinic Partnership. The aggregate purchase price was $ 1.0 million inclusive of cash of $ 850,000 and a note payable of $ 150,000 . The note accrued interest at 4.5 % and the principal and accrued interest, was paid in cash on August 31, 2019. 61 Table of Contents The purchase price for the 2018 acquisitions were allocated as follows (in thousands): Cash paid, net of cash acquired ($ 372 ) $ 16,367 Seller note 950 Total consideration $ 17,317 Estimated fair value of net tangible assets acquired: Total current assets $ 1,633 Total non-current assets 305 Total liabilities ( 525 ) Net tangible assets acquired $ 1,413 Referral relationships 2,926 Non-compete 298 Tradename 990 Goodwill 19,835 Fair value of non-controlling interest (classified as redeemable non-controlling interests) ( 8,145 ) $ 17,317 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. For the acquisitions in 2020, the Company is in the process of completing its formal valuation analysis to identify and determine the fair value of tangible and identifiable intangible assets acquired and the liabilities assumed. Thus, the final allocation of the purchase price may differ from the preliminary estimates used at December 31, 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. The Company does not expect the adjustments to be material. For the acquisitions in 2020, the values assigned to the referral relationships and non-compete agreements are being amortized to expense equally over the respective estimated lives. For referral relationships, the amortization period is 11.0 years. For non-compete agreements, the amortization period is 6.0 years. The values assigned to tradenames are tested annually for impairment. For the acquisitions in 2019 and 2018, the values assigned to the referral relationships and non-compete agreements are being amortized to expense equally over the respective estimated lives. For referral relationships, the weighted average amortization period was 10.54 and 10.10 years at December 31, 2019 and December 31, 2018, respectively. For non-compete agreements, the weighted average amortization period was 6.00 and 5.16 years at December 31, 2019 and December 31, 2018, respectively. Generally, the values assigned to tradenames are tested annually for impairment. For the 2020, 2019 and 2018 acquisitions, total current assets primarily represent patient accounts receivable. Total non-current assets are fixed assets, primarily equipment, used in the practices. The consideration paid for each of the acquisitions was derived through arm’s length negotiations. Funding for the cash portions was derived from proceeds from the Company’s revolving credit facility. The results of operations of the acquisitions have been included in the Company’s consolidated financial statements since their respective date of acquisition. Unaudited proforma consolidated financial information for the acquisitions in 2020, 2019 and 2018 acquisitions have not been included as the results, individually and in the aggregate. 62 Table of Contents 4. 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 % 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. 5. Redeemable Non-Controlling Interest Since October 2017, when the Company acquires a majority interest (the “Acquisition”) in a physical therapy clinic business (referred to as “Therapy Practice”), these Acquisitions occur in a series of steps which are described below. 1. Prior to the Acquisition, the Therapy Practice exists as a separate legal entity (the “Seller Entity”). The Seller Entity is owned by one or more individuals (the “Selling Shareholders”) most of whom are physical therapists that work in the Therapy Practice and provide physical therapy services to patients. 2. In conjunction with the Acquisition, the Seller Entity contributes the Therapy Practice into a newly-formed limited partnership (“NewCo”), in exchange for one hundred percent ( 100 %) of the limited and general partnership interests in NewCo. Therefore, in this step, NewCo becomes a wholly-owned subsidiary of the Seller Entity. 3. The Company enters into an agreement (the “Purchase Agreement”) to acquire from the Seller Entity a majority (ranges from 50 % to 90 %) of the limited partnership interest and in all cases 100 % of the general partnership interest in NewCo. The Company does not purchase 100% of the limited partnership interest because the Selling Shareholders, through the Seller Entity, want to maintain an ownership percentage. The consideration for the Acquisition is primarily payable in the form of cash at closing and a small two-year note in lieu of an escrow (the “Purchase Price”). The Purchase Agreement does not contain any future earn-out or other contingent consideration that is payable to the Seller Entity or the Selling Shareholders. 4. The Company and the Seller Entity also execute a partnership agreement (the “Partnership Agreement”) for NewCo that sets forth the rights and obligations of the limited and general partners of NewCo. After the Acquisition, the Company is the general partner of NewCo. 5. As noted above, the Company does not purchase 100% of the limited partnership interests in NewCo and the Seller Entity retains a portion of the limited partnership interest in NewCo (“Seller Entity Interest”). 6. In most cases, some or all of the Selling Shareholders enter into an employment agreement (the “Employment Agreement”) with NewCo with an initial term that ranges from three to five years (the “Employment Term”), with automatic one-year renewals, unless employment is terminated prior to the end of the Employment Term. As a result, a Selling Shareholder becomes an employee (“Employed Selling Shareholder”) of NewCo. The employment of an Employed Selling Shareholder can be terminated by the Employed Selling Shareholder or NewCo, with or without cause, at any time. In a few situations, a Selling Shareholder does not become employed by NewCo and is not involved with NewCo following the closing; in those situations, such Selling Shareholders sell their entire ownership interest in the Seller Entity as of the closing of the Acquisition. 7. The compensation of each Employed Selling Shareholder is specified in the Employment Agreement and is customary and commensurate with his or her responsibilities based on other employees in similar capacities within NewCo, the Company and the industry. 8. The Company and the Selling Shareholder (including both Employed Selling Shareholders and Selling Shareholders not employed by NewCo) execute a non-compete agreement (the “Non-Compete Agreement”) which restricts the Selling Shareholder from engaging in competing business activities for a specified period of time (the “Non-Compete Term”). A Non-Compete Agreement is executed with the Selling Shareholders in all cases. That is, even if the Selling Shareholder does not become an Employed Selling Shareholder, the Selling Shareholder is restricted from engaging in a competing business during the Non-Compete Term. 9. The Non-Compete Term commences as of the date of the Acquisition and expires on the later of: a. Two years after the date an Employed Selling Shareholders’ employment is terminated (if the Selling Shareholder becomes an Employed Selling Shareholder) or b. Five to six years from the date of the Acquisition, as defined in the Non-Compete Agreement, regardless of whether the Selling Shareholder is employed by NewCo. 10. The Non-Compete Agreement applies to a restricted region which is defined as a 15-mile radius from the Therapy Practice. That is, an Employed Selling Shareholder is permitted to engage in competing businesses or activities outside the 15-mile radius (after such Employed Selling Shareholder no longer is employed by NewCo) and a Selling Shareholder who is not employed by NewCo immediately is permitted to engage in the competing business or activities outside the 15-mile radius. 63 Table of Contents The Partnership Agreement contains provisions for the redemption of the Seller Entity Interest, either at the option of the Company (the “Call Right”) or at the option of the Seller Entity (the “Put Right”) as follows: 1. Put Right a. In the event that any Selling Shareholder’s employment is terminated under certain circumstances prior to the fifth anniversary of the Closing Date, the Seller Entity thereafter may have an irrevocable right to cause the Company to purchase from Seller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest at the purchase price described in “3” below. b. In the event that any Selling Shareholder is not employed by NewCo as of the fifth anniversary of the Closing Date and the Company has not exercised its Call Right with respect to the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest, Seller Entity thereafter shall have the Put Right to cause the Company to purchase from Seller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest at the purchase price described in “3” below. c. In the event that any Selling Shareholder’s employment with NewCo is terminated for any reason on or after the fifth anniversary of the Closing Date, the Seller Entity shall have the Put Right, and upon the exercise of the Put Right, the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest shall be redeemed by the Company at the purchase price described in “3” below. 2. Call Right a. If any Selling Shareholder’s employment by NewCo is terminated prior to the fifth anniversary of the Closing Date, the Company thereafter shall have an irrevocable right to purchase from Seller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest, in each case at the purchase price described in “3” below. b. In the event that any Selling Shareholder’s employment with NewCo is terminated for any reason on or after the fifth anniversary of the Closing Date, the Company shall have the Call Right, and upon the exercise of the Call Right, the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest shall be redeemed by the Company at the purchase price described in “3” below. 3. For the Put Right and the Call Right, the purchase price is derived from a formula based on a specified multiple of NewCo’s trailing twelve months of earnings before interest, taxes, depreciation, amortization, and the Company’s internal management fee, plus an Allocable Percentage of any undistributed earnings of NewCo (the “Redemption Amount”). NewCo’s earnings are distributed monthly based on available cash within NewCo; therefore, the undistributed earnings amount is small, if any. 4. The Purchase Price for the initial equity interest purchased by the Company is also based on the same specified multiple of the trailing twelve-month earnings that is used in the Put Right and the Call Right noted above. 5. The Put Right and the Call Right do not have an expiration date, but the Seller Entity Interest is not required to be purchased by the Company or sold by the Seller Entity. 6. The Put Right and the Call Right never apply to Selling Shareholders who do not become employed by NewCo, since the Company requires that such Selling Shareholders sell their entire ownership interest in the Seller Entity at the closing of the Acquisition. An Employed Selling Shareholder’s ownership of his or her equity interest in the Seller Entity predates the Acquisition and the Company’s purchase of its partnership interest in NewCo. The Employment Agreement and the Non-Compete Agreement do not contain any provision to escrow or “claw back” the equity interest in the Seller Entity held by such Employed Selling Shareholder, nor the Seller Entity Interest in NewCo, in the event of a breach of the employment or non-compete terms. More specifically, even if the Employed Selling Shareholder is terminated for “cause” by NewCo, such Employed Selling Shareholder does not forfeit his or her right to his or her full equity interest in the Seller Entity and the Seller Entity does not forfeit its right to any portion of the Seller Entity Interest. The Company’s only recourse against the Employed Selling Shareholder for breach of either the Employment Agreement or the Non-Compete Agreement is to seek damages and other legal remedies under such agreements. There are no conditions in any of the arrangements with an Employed Selling Shareholder that would result in a forfeiture of the equity interest held in the Seller Entity or of the Seller Entity Interest. 64 Table of Contents For the year ended December 31, 2020, 2019 and 2018, the following table details the changes in the carrying amount (fair value) of the redeemable non-controlling interests (in thousands): Year Ended December 31, 2020 December 31, 2019 December 31, 2018 Beginning balance $ 137,750 $ 133,943 $ 102,572 Operating results allocated to redeemable non-controlling interest partners 11,175 10,659 8,433 Distributions to redeemable non-controlling interest partners ( 12,403 ) ( 10,221 ) ( 9,835 ) Changes in the fair value of redeemable non-controlling interest 4,632 11,893 24,770 Purchases of redeemable non-controlling interest ( 20,521 ) ( 8,934 ) 8,145 Acquired interest 11,297 6,230 - Reduction of non-controlling interest due to sale of USPH partnership interest - ( 6,132 ) - Sales of redeemable non-controlling interest - temporary equity 1,133 3,120 - Notes receivable related to sales of redeemable non-controlling interest - temporary equity ( 1,006 ) ( 2,870 ) ( 142 ) Adjustments in notes receivable related to the the sales of redeemable non-controlling interest - temporary equity 283 - - Other - 62 - Ending balance $ 132,340 $ 137,750 $ 133,943 The following table categorizes the carrying amount (fair value) of the redeemable non-controlling interests (in thousands): December 31, 2020 December 31, 2019 December 31, 2018 Contractual time period has lapsed but holder's employment has not been terminated $ 62,390 $ 51,921 $ 42,624 Contractual time period has not lapsed and holder's employment has not been terminated 69,950 85,829 91,319 Holder's employment has terminated and contractual time period has expired - - - Holder's employment has terminated and contractual time period has not expired - - - $ 132,340 $ 137,750 $ 133,943 65 Table of Contents 6. Goodwill The changes in the carrying amount of goodwill as of December 31, 2020 and 2019 consisted of the following (in thousands): Year Ended December 31, 2020 Year Ended December 31, 2019 Beginning balance $ 317,676 $ 293,525 Goodwill acquired 28,540 31,330 Goodwill related to partnership interest sold - ( 7,325 ) Goodwill derecognition (write-off) related to closed clinics ( 1,859 ) - Goodwill adjustments for purchase price allocation of businesses acquired in prior year 1,289 146 Ending balance $ 345,646 $ 317,676 7. Intangible Assets, net Intangible assets, net as of December 31, 2020, 2019 and 2018 consisted of the following (in thousands): December 31, 2020 December 31, 2019 Tradenames $ 32,317 $ 32,049 Referral relationships, net of accumulated amortization of $ 14,522 and $ 11,677 , respectively 22,119 18,367 Non-compete agreements, net of accumulated amortization of $ 5,993 and $ 5,424 , respectively 1,844 2,172 $ 56,280 $ 52,588 Tradenames, referral relationships and non-compete agreements are related to the businesses acquired. The value assigned to tradenames has an indefinite life and is tested at least annually for impairment using the relief from royalty method in conjunction with the Company’s annual goodwill impairment test. The value assigned to referral relationships is being amortized over their respective estimated useful lives which range from 6 to 16 years . Non-compete agreements are amortized over the respective term of the agreements which range from 5 to 6 years . The following table details the amount of amortization expense recorded for intangible assets for the years ended December 31, 2020, 2019 and 2018 (in thousands): Year Ended December 31, 2020 Year Ended December 31, 2019 Year Ended December 31, 2018 Referral relationships $ 2,845 $ 2,307 $ 2,161 Non-compete agreements 569 708 616 $ 3,414 $ 3,015 $ 2,777 For one acquisition, the value assigned to tradename was being amortized over the term of the six year agreement in which the Company had acquired the right to use the specific tradename. The remaining balances of the referral relationships and non-compete agreements is expected to be amortized as follows (in thousands): Referral Relationships Non-Compete Agreements Years Annual Amount Years Annual Amount Ending December 31, Ending December 31, 2021 $ 2,946 2021 $ 556 2022 $ 2,886 2022 $ 403 2023 $ 2,778 2023 $ 335 2024 $ 2,615 2024 $ 279 2025 $ 2,470 2025 $ 212 Thereafter $ 8,424 Thereafter $ 59 66 Table of Contents 8. Accrued Expenses Accrued expenses as of December 31, 2020 and 2019 consisted of the following (in thousands): December 31, 2020 December 31, 2019 Salaries and related costs $ 24,646 $ 19,340 Credit balances due to patients and payors 5,756 4,303 Group health insurance claims 2,113 2,277 Closure costs 1,333 116 Federal income taxes payable 5,715 - MAAPP funds payable 14,054 - Deferred employer payroll taxes - CARES ACT 4,170 - Other 1,959 4,819 Total $ 59,746 $ 30,855 9. Notes Payable Notes payable as of December 31, 2020 and 2019 consisted of the following (in thousands): December 31, 2020 December 31, 2019 Credit Agreement average effective interest rate of 2.6 % and 3.9 % in 2020 and 2019, respectively (inclusive of unused fee) $ 16,000 $ 46,000 Various notes payable with $ 4,899 plus accrued interest due in the next year, interest accrues in the range of 3.25 % through 5.50 % per annum 5,495 5,089 $ 21,495 $ 51,089 Less current portion ( 4,899 ) ( 728 ) Long term portion $ 16,596 $ 50,361 Effective December 5, 2013, the Company entered into an Amended and Restated Credit Agreement with a commitment for a $ 125.0 million revolving credit facility. This agreement was amended and/or restated in August 2015, January 2016, March 2017 and November 2017 and January 2021 (hereafter referred to as “Amended Credit Agreement”). The Amended Credit Agreement is unsecured and has loan covenants, including requirements that the Company comply with a consolidated fixed charge coverage ratio and consolidated leverage ratio. Proceeds from the Amended Credit Agreement may be used for working capital, acquisitions, purchases of the Company’s common stock, dividend payments to the Company’s common stockholders, capital expenditures and other corporate purposes. The pricing grid which is based on the Company’s consolidated leverage ratio with the applicable spread over LIBOR ranging from 1.25 % to 2.0 % or the applicable spread over the Base Rate ranging from 0.1 % to 1 %. Fees under the Amended Credit Agreement include an unused commitment fee 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 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. The balance of the various notes payable entered into prior to 2020 was $ 4.4 million which will be paid in 2021. 67 Table of Contents 10. Leases The Company has operating leases for its corporate offices and operating facilities. The Company determines if an arrangement is a lease at the inception of a contract. Effective January 1, 2019, right-of-use assets and operating lease liabilities are included in the consolidated balance sheet. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent net present value of the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and operating lease liabilities are recognized at commencement date based on the net present value of the fixed lease payments over the lease term. The Company’s operating lease terms are generally five years or less. The Company’s lease terms include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. As most of the Company’s operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Operating fixed lease expense is recognized on a straight-line basis over the lease term. In accordance with ASC 842, the Company records on its consolidated balance sheet leases with a term greater than 12 months. The Company has elected, in compliance with current accounting standards, not to record leases with an initial 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. The Company has elected the practical expedient to account for separate lease components of a contract as a single lease cost thus causing all fixed payments to be capitalized. Non-lease and variable cost components are not included in the measurement of the right-of-use assets or operating lease liabilities. The Company also elected the package of practical expedients permitted within ASC 842, which among other things, allows the Company to carry forward historical lease classification. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage are not included in the right-of-use assets or operating lease liabilities. These are expensed as incurred and recorded as variable lease expense. For the years ended December 31, 2020 and 2019, the components of lease expense were as follows (in thousands): Year Ended December 31, 2020 2019 Operating lease cost $ 30,710 $ 30,225 Short-term lease cost 1,454 1,212 Variable lease cost 5,752 6,074 Total lease cost * $ 37,916 $ 37,511 * Sublease income was immaterial Lease 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, 2020 2019 Cash paid for amounts included in the measurement of operating lease liabilities (in thousands) $ 30,307 $ 30,077 Right-of-use assets obtained in exchange for new operating lease liabilities (in thousands) * $ 32,710 $ 113,222 * Includes the right-of-use assets obtained in exchange for lease liabilities 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): Fiscal Year Amount 2021 $ 29,819 2022 23,861 2023 17,787 2024 11,487 2025 and therafter 12,294 Total lease payments $ 95,248 Less: imputed interest 5,751 Total operating lease liabilities $ 89,497 68 Table of Contents Average lease terms and discount rates were as follows: Year Ended December 31, 2020 2019 Weighted-average remaining lease term - Operating leases 4.05 Years 4.05 Years Weighted-average discount rate - Operating leases 3.1 % 3.9 % 11. Income Taxes Significant components of deferred tax assets and liabilities included in the consolidated balance sheets at December 31, 2020 and 2019 were as follows (in thousands): December 31, 2020 December 31, 2019 Deferred tax assets: Compensation $ 1,865 $ 1,964 Allowance for credit losses 396 514 Acquired net operating losses 558 840 Lease obligations - including closed clinics 23,819 21,445 Deferred tax assets $ 26,638 $ 24,763 Deferred tax liabilities: Depreciation and amortization $ ( 12,650 ) $ ( 13,195 ) Operating lease right-of-use assets ( 21,419 ) ( 21,416 ) Other ( 348 ) ( 223 ) Deferred tax liabilities ( 34,417 ) ( 34,834 ) Net deferred tax liability $ ( 7,779 ) $ ( 10,071 ) The deferred tax assets and liabilities related to purchased interests not yet finalized may result in an immaterial adjustment. During 2020, the Company recorded deferred tax assets of $ 1.2 million related to the revaluation of redeemable non-controlling interests and acquisitions of non-controlling interests. In addition, during 2020, the Company recorded an adjustment to the deferred tax assets of $ 1.4 million as a result of a detailed reconciliation of its federal and state taxes payable and receivable accounts along with its federal and state deferred tax asset and liability accounts with its federal and state tax returns for 2019. The offset of this adjustment was a decrease to the previously reported federal income tax receivable. 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): December 31, 2020 December 31, 2019 December 31, 2018 U. S. tax at statutory rate $ 10,125 21.0 % $ 11,274 21.0 % $ 9,710 21.0 % State income taxes, net of federal benefit 1,956 3.9 % 2,059 3.8 % 1,722 3.7 % Excess equity compensation deduction ( 99 ) 0.0 % ( 871 ) - 1.6 % ( 806 ) - 1.7 % Non-deductible expenses 1,040 2.1 % 1,185 2.2 % 743 1.6 % $ 13,022 27.0 % $ 13,647 25.4 % $ 11,369 24.6 % 69 Table of Contents Significant components of the provision for income taxes for the years ended December 31, 2020, 2019 and 2018 were as follows (in thousands): December 31, 2020 December 31, 2019 December 31, 2018 Current: Federal $ 10,506 $ 6,523 $ 5,357 State 2,774 2,473 1,199 Total current 13,280 8,996 6,556 Deferred: Federal ( 38 ) 3,730 3,771 State ( 220 ) 921 1,042 Total deferred ( 258 ) 4,651 4,813 Total income tax provision $ 13,022 $ 13,647 $ 11,369 For 2020, 2019 and 2018, the Company performed a detailed reconciliation of its federal and state taxes payable and receivable accounts along with its federal and state deferred tax asset and liability accounts. The adjustments were immaterial. The Company considers this reconciliation process to be an annual control. The Company is required to establish a valuation allowance for deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income in the periods which the deferred tax assets are deductible, management believes that a valuation allowance is not required, as it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. The Company’s U.S. federal returns remain open to examination for 2017 through 2019 and U.S. state jurisdictions are open for periods ranging from 2016 through 2019 . 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 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. 12. Segment Information The Company’s reportable segments include the physical therapy operations segment and the industrial injury prevention services segment. Also included in the physical therapy operations segment are revenues from management contract services and other services which include services the Company provides on-site, such as schools for athletic trainers . The Company evaluates performance of the segments based on gross profit. The Company has provided additional information regarding its reportable segments which contributes to the understanding of the Company and provides useful information . 70 Table of Contents 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 . December 31, December 31, December 31, 2020 2019 2018 (in thousands) (in thousands) Net operating revenues: Physical therapy operations $ 383,770 $ 444,507 $ 428,445 Industrial injury prevention services 39,199 37,462 25,466 Total Company $ 422,969 $ 481,969 $ 453,911 Gross profit: Physical therapy operations (excluding closure costs) $ 88,295 $ 104,120 $ 96,463 Industrial injury prevention services 10,086 8,379 5,192 $ 98,381 $ 112,499 $ 101,655 Physical therapy operations - closure costs 3,931 25 ( 8 ) Gross profit $ 94,450 $ 112,474 $ 101,663 Total Assets: Physical therapy operations $ 550,181 $ 518,027 $ 421,474 Industrial injury prevention services 44,180 42,818 21,692 Total Company $ 594,361 $ 560,845 $ 443,166 13. Equity Based Plans The Company has the following equity based plans with outstanding equity grants: The Amended and Restated 1999 Employee Stock Option Plan (the “Amended 1999 Plan”) permits the Company to grant to non-employee directors and employees of the Company up to 600,000 non-qualified options to purchase shares of common stock and restricted stock (subject to proportionate adjustments in the event of stock dividends, splits, and similar corporate transactions). The exercise prices of options granted under the Amended 1999 Plan are determined by the Compensation Committee. The period within which each option will be exercisable is determined by the Compensation Committee. The Amended 1999 Plan was approved by the shareholders of the Company at the 2008 Shareholders Meeting on May 20, 2008. The Amended and Restated 2003 Stock Option Plan (the “Amended 2003 Plan”) permits the Company to grant to key employees and outside directors of the Company incentive and non-qualified options and shares of restricted stock covering up to 2,100,000 shares of common stock (subject to proportionate adjustments in the event of stock dividends, splits, and similar corporate transactions). The material terms of the Amended 2003 Plan was reapproved by the shareholders of the Company at the 2015 Shareholders Meeting on May 19, 2015 and an increase in the number of shares authorized for issuance from 1,750,000 to 2,100,000 was approved at the 2016 Shareholders Meeting on March 17, 2016. A cumulative summary of equity plans as of December 31, 2020 follows: Authorized Restricted Stock Issued Outstanding Stock Options Stock Options Exercised Stock Options Exercisable Shares Available for Grant Equity Plans Amended 1999 Plan 600,000 416,402 - 139,791 - 7,775 Amended 2003 Plan 2,100,000 1,106,977 - 778,300 - 224,760 2,700,000 1,523,379 - 918,091 - 232,535 71 Table of Contents During 2020, 2019 and 2018, the Company granted the following shares of restricted stock to directors, officers and employees pursuant to its equity plans as follows: Year Granted Number of Shares Weighted Average Fair Value Per Share 2020 86,982 $ 104.69 2019 91,682 $ 104.85 2018 93,801 $ 78.63 During 2020, 2019 and 2018, the following shares were cancelled due to employee terminations prior to restrictions lapsing: Year Cancelled Number of Shares Weighted Average Fair Value Per Share 2020 10,037 $ 102.52 2019 1,578 $ 87.88 2018 3,867 $ 59.51 Generally, restrictions on the stock granted to employees lapse in equal annual installments on the following four anniversaries of the date of grant. For those shares granted to directors, the restrictions will lapse in equal quarterly installments during the first year after the date of grant. For those granted to officers, the restriction will lapse in equal quarterly installments during the four years following the date of grant. There were 127,562 and 150,771 shares outstanding as of December 31, 2020 and December 31, 2019 respectively, for which restrictions had not lapsed. The restrictions will lapse in 2021 through 2024 . Compensation expense for grants of restricted stock is recognized based on the fair value on the date of grant. Compensation expense for restricted stock grants was $ 7.9 million, $ 5.9 million, and $ 5.0 million, respectively, for 2020, 2019 and 2018. As of December 31, 2020, the remaining $ 8.8 million of compensation expense will be recognized from 2021 through 2024. 14. Preferred Stock The Board is empowered, without approval of the shareholders, to cause shares of preferred stock to be issued in one or more series and to establish the number of shares to be included in each such series and the rights, powers, preferences and limitations of each series. There are no provisions in the Company’s Articles of Incorporation specifying the vote required by the holders of preferred stock to take action. All such provisions would be set out in the designation of any series of preferred stock established by the Board. The bylaws of the Company specify that, when a quorum is present at any meeting, the vote of the holders of at least a majority of the outstanding shares entitled to vote who are present, in person or by proxy, shall decide any question brought before the meeting, unless a different vote is required by law or the Company’s Articles of Incorporation. Because the Board has the power to establish the preferences and rights of each series, it may afford the holders of any series of preferred stock, preferences, powers, and rights, voting or otherwise, senior to the right of holders of common stock. The issuance of the preferred stock could have the effect of delaying or preventing a change in control of the Company. 15. Common Stock From September 2001 through December 31, 2008, the Board authorized the Company to purchase, in the open market or in privately negotiated transactions, up to 2,250,000 shares of the Company’s common stock. In March 2009, the Board authorized the repurchase of up to 10 % or approximately 1,200,000 shares of its common stock (“March 2009 Authorization”). The Amended Credit Agreement permits share repurchases of up to $ 15,000,000 , subject to compliance with covenants. The Company is required to retire shares purchased under the March 2009 Authorization. Under the March 2009 Authorization, the Company has purchased a total of 859,499 shares. There is no expiration date for the share repurchase program. There are currently an additional estimated 124,740 shares (based on the closing price of $ 120.25 on December 31, 2020, the last business day in 2020) that may be purchased from time to time in the open market or private transactions depending on price, availability and the Company’s cash position. The Company did not purchase any shares of its common stock during 2020 or 2019. 72 Table of Contents 16. Defined Contribution Plan The Company has several 401(k) profit sharing plans covering all employees with three months of service. For certain plans, the Company makes matching contributions. The Company may also make discretionary contributions of up to 50 % of employee contributions. The Company did 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. 17. Commitments and Contingencies We may be subject to litigation in the ordinary course of business. Employment Agreements 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. In addition, the Company has outstanding employment agreements with most of the managing physical therapist partners of the Company’s physical therapy clinics and with certain other clinic employees which obligate subsidiaries of the Company to pay compensation of $ 37.1 million in 2021 and $ 6.1 million in the aggregate from 2022 through 2024. In addition, many of the employment agreements with the managing physical therapists provide for monthly bonus payments calculated as a percentage of each clinic’s net revenues (not in excess of operating profits) or operating profits. 18. Earnings Per Share The computations of basic and diluted earnings per share for the years ended December 31, 2020, 2019 and 2018 are as follows (in thousands, except per share data): Year Ended December 31, 2020 December 31, 2019 December 31, 2018 Computation of earnings per share - USPH shareholders: Net income attributable to USPH shareholders $ 35,194 $ 40,039 $ 34,873 Credit (charges) to retained earnings: Revaluation of redeemable non-controlling interest ( 4,632 ) ( 11,893 ) ( 24,770 ) Tax effect at statutory rate (federal and state) of 26.25 % 1,216 3,121 6,502 $ 31,778 $ 31,267 $ 16,605 Earnings per share (basic and diluted) $ 2.48 $ 2.45 $ 1.31 Shares used in computation: Basic and diluted earnings per share - weighted-average shares 12,835 12,756 12,666 73 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable.