U S PHYSICAL THERAPY INC /NV 10-K

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Our common stock has traded on the New York Stock Exchange (“NYSE”) since August 14, 2012 under the symbol “USPH.” Prior to that, our common stock was traded on the Nasdaq Global Select Market under the symbol “USPH”. As of March 1, 2022, there were 88 holders of record of our outstanding common stock. 19 Table of Contents DIVIDENDS On February 22, 2022, our Board of Directors declared a dividend of $0.41 per share which will be paid on April 8, 2022 to shareholders of record as of March 14, 2022. During 2021, we paid a quarterly dividend of $0.35 for the first and second quarters and $0.38 per share for each of the third and fourth quarters, totaling $1.46 per share for the year, which amounted to total aggregate cash payments of dividends to holders of our common stock in 2021 of approximately $18.8 million. During 2020, we paid a cash dividend for the first quarter of 2020 of $0.32 per share on all shares of common stock issued and outstanding as of April 17, 2020 which amounted to $4.1 million. In March 2020, our Board of Directors announced the suspension of any further dividends in 2020. During 2019, we paid a quarterly dividend of $0.27 for the first and second quarters and $0.30 per share for the third and fourth quarters, totaling $1.14 per share for the year, which amounted to total aggregate cash payments of dividends to holders of our common stock in 2019 of approximately $14.5 million. We are currently restricted from paying dividends on our common stock in excess of $50,000,000 in any fiscal year on our common stock under the Credit Agreement (as defined in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”). 20 Table of Contents FIVE YEAR PERFORMANCE GRAPH The performance graph and related description shall not be deemed incorporated by reference into any filing under the Securities Act or under the Exchange Act, except to the extent that we specifically incorporate this information by reference. In addition, the performance graph and the related description shall not be deemed “soliciting material” or “filed” with the SEC or subject to Regulation 14A or 14C. On August 14, 2012, our common stock began trading on NYSE. The following performance graph compares the cumulative total stockholder return of our common stock to The NYSE Composite Index and the NYSE Health Care Index for the period from December 31, 2016 through December 31, 2021. The graph assumes that $100 was invested in our common stock and the common stock of each of the companies listed on The NYSE Composite Index and The NYSE Health Care Index on December 31, 2016 and that any dividends were reinvested. Comparison of Five Years Cumulative Total Return for the Year Ended December 31, 2021   12/16 12/17 12/18 12/19 12/20 12/21 U.S Physical Therapy. Incs. 100 103 146 156 171 136 NYSE Composite 100 116 103 123 131 155 NYSE Healthcare Index 100 119 127 151 168 203 21 Table of Contents ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. EXECUTIVE SUMMARY Our Business. Our reportable segments include the physical therapy operations segment and the industrial injury prevention services segment. Through our subsidiaries, we operate outpatient physical therapy clinics that provide pre-and post-operative care for a variety of orthopedic-related disorders and sports-related injuries, treatment for neurological-related injuries and rehabilitation of injured workers. We also have majority interests in companies which are leading providers of industrial injury prevention services. Services provided in these businesses include onsite injury prevention and rehabilitation, performance optimization, post-offer employment testing, functional capacity evaluations and ergonomic assessments. The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Other clients include large insurers and their contractors. These services are performed through Industrial Sports Medicine Professionals, consisting of both physical therapists and specialized certified athletic trainers (ATCs). During the last three years we completed the acquisitions of seven multi-clinic practices and three industrial injury prevention services businesses as detailed below: Acquisition Date % Interest Acquired Number of Clinics December 2021 Acquisition December 31, 2021 75% 3 November 2021 Acquisition November 30, 2021 70% * September 2021 Acquisition September 30, 2021 100% * June 2021 Acquisition June 30, 2021 65% 8 March 2021 Acquisition March 31, 2021 70% 6 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 April 2019 Acquisition April 11, 2019 100% * * Industrial injury prevention business ** The business includes six management and services contracts which have been in place for a number of years. As of the date acquired, the contracts had a remaining term of five years. *** The four clinics are in four separate partnerships. The Company's interest in the four partnershipsrange from 10.0% to 83.8%, with an overall 65.0% based on the initial purchase transaction. Besides the multi-clinic acquisitions referenced in the table above, during 2021 and 2020, we purchased the assets and business of three physical therapy clinics in separate transactions. The clinics operate as satellite clinics of three of our existing clinic partnerships. During the year ended December 31, 2021, we sold two clinics. The aggregate sales price was $0.1 million. During the year ended December 31, 2020, we 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. The first payment was received in June 2021 and the next payment is due on June 15, 2022. 22 Table of Contents We intend to continue to pursue additional acquisition opportunities, develop new clinics and open satellite clinics. Impact of COVID-19 As previously disclosed in a series of filings with the SEC and further described in detail in our Quarterly Reports on Form 10-Q for the first three quarters of 2020 and our Annual Report on Form 10-K for the year ended December 31, 2020, our results were negatively impacted by the effects of the COVID-19 pandemic in 2020. For the 2021 period as compared to the 2020 period, the increase in revenues and expenses are primarily due to our business returning to and now exceeding pre-pandemic results. We have put preparedness plans in place at our facilities to maintain continuity of operations, while also taking steps to keep employees and patients safe. In line with recommendations to reduce large gatherings and increase social distancing, we continue to allow a large number of office-based employees to work remotely. We are monitoring the situation and will adjust work environments accordingly. In March 2020 in response to the COVID-19 pandemic, the federal government approved the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain payroll tax credits associated with the retention of employees. We have received a number of benefits under the CARES Act including, but not limited to: • The CARES Act allowed for qualified healthcare providers to receive advanced payments under the existing Medicare Accelerated and Advance Payments Program (“MAAPP funds”) during the COVID-19 pandemic. Under this program, healthcare providers could choose to receive advanced payments for future Medicare services provided. We applied for and received approval to receive MAAP funds from Centers for Medicare & Medicaid Services (“CMS”) in April 2020. We recorded the $14.1 million in advance payments received as a liability. During the quarter ended March 31, 2021, we repaid the MAAPP funds of $14.1 million rather than applying them to future services performed. • We elected to defer depositing the employer’s share of Social Security taxes for payments due from March 27, 2020, through December 31, 2020, interest-free and penalty-free. In December 2021, we paid $4.1 million related to these deferred payments. As of December 31, 2021, $4.2 million related to these deferred payments is included in accrued liabilities. • The CARES Act provided additional waivers, reimbursement, grants and other funds to assist health care providers during the COVID-19 pandemic, including $100.0 billion in appropriations for the Public Health and Social Services Emergency Fund, also referred to as the Provider Relief Fund, to be used for preventing, preparing, and responding to the coronavirus, and for reimbursing eligible health care providers for lost revenues and health care related expenses that are attributable to COVID-19. For the years ended December 31, 2021, and December 31, 2020, the Company’s consolidated subsidiaries recorded income of approximately $4.6 million and $13.5 million, respectively, of payments under the CARES Act (“Relief Funds”). Under the Company’s accounting policy, these payments were recorded as Other income – Relief Funds. 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. We will continue to monitor the evolving guidelines and may record adjustments as additional information is released. CRITICAL ACCOUNTING POLICIES Critical accounting policies are those that have a significant impact on our results of operations and financial position involving significant estimates requiring our judgment. Our critical accounting policies are: 23 Table of Contents Revenue Recognition. Revenues are recognized in the period in which services are rendered. Net patient revenue 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 revenue (patient revenues less estimated contractual adjustments) is recognized at the estimated net realizable amounts from third-party payors, patients and others in exchange for services rendered when obligations under the terms of the contract are satisfied. There is an implied contract between us and the patient upon each patient visit. Generally, this occurs as we provide physical and occupational therapy services, as each service provided is distinct and future services rendered are not dependent on previously rendered services. We have agreements with third-party payors that provide for payments to us at amounts different from our established rates. The allowance for estimated contractual adjustments is based on terms of payor contracts and historical collection and write-off experience. Management contract revenue, which is included in other revenue in the consolidated statements of net income, is derived from contractual arrangements whereby we manage a clinic owned by a third party. We do not have any ownership interest in these clinics. Typically, revenues are determined based on the number of visits conducted at the clinic and recognized at the point in time when services are performed. Costs, typically salaries for our employees, are recorded when incurred. Revenues from the industrial injury prevention services business, which are also included in other revenues in the consolidated statements of net income, are derived from onsite services we provide to clients’ employees including injury prevention, rehabilitation, ergonomic assessments and performance optimization. Revenue from the industrial injury prevention services business is recognized when obligations under the terms of the contract are satisfied. Revenues are recognized at an amount equal to the consideration we expect to receive in exchange for providing injury prevention services to our clients. The revenue is determined and recognized based on the number of hours and respective rate for services provided in a given period. Additionally, other revenue includes services we provide 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 us and the third parties. Services are typically performed over the contract period and revenue is recorded at the point of service. If the services are paid in advance, revenue is recorded as a contract liability over the period of the agreement and recognized at the point in time when the services are performed. We implemented ASC 606 beginning January 1, 2018, using a modified retrospective transition method. The principal change relates to how the new standard requires healthcare providers to estimate the amount of variable consideration to be included in the transaction price up to an amount which is probable that a significant reversal will not occur. The most common forms of variable consideration we experience are amounts for services provided that are ultimately not realizable from a customer. There were no changes to revenues or other revenues upon implementation. Under the new standards, our estimate for unrealizable amounts will continue to be recognized as a reduction to revenue. The bad debt expense historically reported will not materially change. For ASC 606, there is an implied contract between us and the patient upon each patient visit. Separate contractual arrangements exist between us and third-party payors (e.g. insurers, managed care programs, government programs, and workers' compensation programs which establish the amounts the third parties pay on behalf of the patients for covered services rendered. While these agreements are not considered contracts with the customer, they are used for determining the transaction price for services provided to the patients covered by the third-party payors. The payor contracts do not indicate performance obligations for us but indicate reimbursement rates for patients who are covered by those payors when the services are provided. At that time, we are obligated to provide services for the reimbursement rates stipulated in the payor contracts. The execution of the contract alone does not indicate a performance obligation. For self-paying customers, the performance obligation exists when we provide the services at established rates. The difference between our established rate and the anticipated reimbursement rate is accounted for as an offset to revenue—contractual allowance. We determine allowances for credit losses based on the specific agings of receivables and payor classifications at each clinic. The provision for credit losses is included in clinic operating costs in the statements of net income. Patient accounts receivable, which are stated at the historical carrying amount net of contractual allowances, write-offs and allowance for credit losses, includes only those amounts we estimate to be collectible. The following table details the revenue related to the various categories (in thousands): Year Ended December 31, 2021 December 31, 2020 December 31, 2019 Net patient revenue $ 438,330 $ 373,340 $ 433,345 Other revenue 2,939 2,020 2,486 Physical therapy operations 441,269 375,360 435,831 Management contract revenue 9,853 8,410 8,676 Industrial injury prevention services revenue 43,900 39,199 37,462 $ 495,022 $ 422,969 $ 481,969 24 Table of Contents Contractual Allowances. Contractual allowances result from the differences between the rates charged for services performed and expected reimbursements by both insurance companies and government sponsored healthcare programs for such services. Medicare regulations and the various third party payors and managed care contracts are often complex and may include multiple reimbursement mechanisms payable for the services provided in our clinics. We estimate contractual allowances based on our interpretation of the applicable regulations, payor contracts and historical calculations. Each month we estimate our contractual allowance for each clinic based on payor contracts and the historical collection experience of the clinic and apply an appropriate contractual allowance reserve percentage to the gross accounts receivable balances for each payor of the clinic. Based on our historical experience, calculating the contractual allowance reserve percentage at the payor level is sufficient to allow us to provide the necessary detail and accuracy with our collectability estimates. However, the services authorized and provided and related reimbursement are subject to interpretation that could result in payments that differ from our estimates. Payor terms are periodically revised necessitating continual review and assessment of the estimates made by management. Our billing systems may not capture the exact change in our contractual allowance reserve estimate from period to period. Therefore, in order to assess the accuracy of our revenues and hence our contractual allowance reserves, our management regularly compares our cash collections to corresponding net revenues measured both in the aggregate and on a clinic-by-clinic basis. In the aggregate, the historical difference between net revenues and corresponding cash collections in any given fiscal year has generally reflected a difference within approximately 1.0% to 1.5% of net revenues. Additionally, analysis of subsequent period’s contractual write-offs on a payor basis reflects a difference within approximately 1.0% to 1.5% between the actual aggregate contractual reserve percentage as compared to the estimated contractual allowance reserve percentage associated with the same period end balance. As a result, we believe that a reasonable likely change in the contractual allowance reserve estimate would not be more than 1% to 1.5% of gross billings in accounts receivable at December 31, 2021. For purposes of demonstrating the sensitivity of this estimate on our Company’s financial condition, a 1% to 1.5% increase or decrease in our aggregate contractual allowance reserve percentage would decrease or increase, respectively, net patient revenue by approximately $1.3 million to $1.9 million for the year ended December 31, 2021. Management believes the changes in the estimate of the contractual allowance reserve for the periods ended December 31, 2021, 2020 and 2019 have not been material to the statement of income. The following table sets forth information regarding our patient accounts receivable as of the dates indicated (in thousands): December 31, 2021 2020 Gross patient accounts receivable $ 129,524 $ 119,180 Less contractual allowances 80,484 75,266 Subtotal - accounts receivable 49,040 43,914 Less allowance for credit losses 2,768 2,008 Net patient accounts receivable $ 46,272 $ 41,906 The following table presents our patient accounts receivable aging by payor class as of the dates indicated (in thousands): December 31, 2021 December 31, 2020 Payor Current to 120 Days 120+ Days Total Current to 120 Days 120+ Days Total Managed Care/ Commercial Plans $ 13,985 $ 2,381 $ 16,366 $ 13,053 $ 1,774 $ 14,827 Medicare/Medicaid 13,442 1,636 15,078 10,707 1,196 11,903 Workers Compensation* 5,600 1,312 6,912 6,576 926 7,502 Self-pay 4,371 3,316 7,687 4,086 3,146 7,232 Other** 1,168 1,829 2,997 1,108 1,342 2,450 Totals $ 38,566 $ 10,474 $ 49,040 $ 35,530 $ 8,384 $ 43,914 * Workers compensation is paid by state administrators or their designated agents. ** Other includes primarily litigation claims and, to a lesser extent, vehicular insurance claims. Reimbursement for Medicare beneficiaries is based upon a fee schedule published by HHS. For a more complete description of our third-party revenue sources, see “Business—Sources of Revenue” in Item 1. Goodwill. 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. We evaluate indefinite-lived tradenames in conjunction with our annual goodwill impairment test. 25 Table of Contents We operate a two segment business which is made up of various clinics within partnerships, and the other is an industrial injury prevention services business. The partnerships are components of regions and are aggregated to the operating segment level for the purpose of determining our reporting units when performing our annual goodwill impairment test. In 2021, 2020 and 2019, there were six regions. In addition to the six regions, in 2021 and 2020, the impairment analysis included a separate analysis for the industrial injury prevention services business, as a separate reporting unit. As part of the impairment analysis, we are first required to assess qualitatively if we can conclude whether goodwill is more likely than not impaired. If goodwill is more likely than not impaired, we are then required to complete a quantitative analysis of whether a reporting unit’s fair value is less than its carrying amount. In evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we consider relevant events or circumstances that affect the fair value or carrying amount of a reporting unit. We consider 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 2021, 2020 and 2019 did not result in any goodwill amounts that were deemed impaired. For our annual assessment of goodwill, we 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, 2021. As a result of the assessment, we determined that it was not more likely than not that goodwill and tradenames of the reporting units were impaired as of December 31, 2021. Redeemable Non-Controlling Interest —The non-controlling interests that are reflected as redeemable non-controlling interest in our consolidated financial statements consist of those owners, including us, that have certain redemption rights, whether currently exercisable or not, and which currently, or in the future, require that we purchase or the owner sell the non-controlling interest held by the owner, if certain conditions are met and the owners request the purchase (“Put Right”). We also have a call right (“Call Right”). The Put Right or Call Right may be triggered by the owner or us, respectively, at such time as both of the following events have occurred: 1) termination of the owner’s employment, regardless of the reason for such termination, and 2) the passage of specified number of years after the closing of the transaction, typically three to five years, as defined in the limited partnership agreement. The Put Rights and Call Rights are not automatic (even upon death) and require either the owner or us to exercise our rights when the conditions triggering the Put or Call Rights have been satisfied. The purchase price is derived at a predetermined formula based on a multiple of trailing twelve months earnings performance as defined in the respective limited partnership agreements. On the date we acquire a controlling interest in a partnership and the limited partnership agreement for such partnerships contains redemption rights not under our control, the fair value of the non-controlling interest is recorded in the consolidated balance sheet under the caption— Redeemable non-controlling interest . Then, in each reporting period thereafter until it is purchased by us, the redeemable non-controlling interest is adjusted to the greater of its then current redemption value or initial value, based on the predetermined formula defined in the respective limited partnership agreement. As a result, the value of the non-controlling interest is not adjusted below its initial value. We record any adjustment in the redemption value, net of tax, directly to retained earnings and not in the consolidated statements of income. Although the adjustments are not reflected in the consolidated statements of income, current accounting rules require that we reflect the adjustments, net of tax, in the earnings per share calculation. The amount of net income attributable to redeemable non-controlling interest owners is included in consolidated net income on the face of the consolidated statement of income . We believe the redemption value (i.e. the carrying amount) and fair value are the same. Effective December 31, 2017, we entered into amendments to our limited partnership agreements for our acquired partnerships replacing the mandatory redemption feature. No monetary consideration was paid to the partners to amend the agreements. The amended limited partnership agreements provide that, upon the triggering events, we have a Call Right and the selling entity or individual has a Put Right for the purchase and sale of the limited partnership interest held by the partner. Once triggered, the Put Right and the Call Right do not expire, even upon an individual partner’s death, and contain no mandatory redemption feature. The purchase price of the partner’s limited partnership interest upon the exercise of either the Put Right or the Call Right is calculated per the terms of the respective agreements. We accounted for the amendment of the limited partnership agreements as an extinguishment of the outstanding mandatorily redeemable non-controlling interests, which were classified as liabilities, through the issuance of new redeemable non-controlling interests classified in temporary equity. Pursuant to Accounting Standards Codification (“ASC”) 470-50-40-2, we removed the outstanding liabilities at their carrying amounts, recognized the new temporary equities at their fair value, and recorded no gain or loss on extinguishment as management believes the redemption value (i.e. the carrying amount) and fair value are the same. In summary, the redemption values of the mandatorily redeemable non-controlling interest (previously classified as liabilities) were reclassified as redeemable non-controlling interest (temporary equity) at fair value on the December 31, 2017, consolidated balance sheet. Non-Controlling Interest— We recognize non-controlling interests, in which we have no obligation but the right to purchase the non-controlling interests, as equity in the consolidated financial statements separate from the parent entity’s equity. The amount of net income attributable to non-controlling interests is included in consolidated net income on the face of the consolidated statements of income. Operating losses are allocated to non-controlling interests even when such allocation creates a deficit balance for the non-controlling interest partner. When we purchase a non-controlling interest and the purchase differs from the book value at the time of purchase, any excess or shortfall is recognized as an adjustment to additional paid-in capital. 26 Table of Contents SELECTED OPERATING AND FINANCIAL DATA The following table and discussion relate to continuing operations unless otherwise noted. The defined terms with their respective description used in the following discussion are listed below: 2021 Year ended December 31, 2021 2020 Year ended December 31, 2020 2021 Additions Clinics opened or acquired during the year ended December 31, 2021 2020 Additions Clinics opened or acquired during the year ended December 31, 2020 Clinics Additions Clinics opened or acquired during the year ended December 31, 2021 and 2020 Mature Clinics Clinics opened or acquired prior to January 1, 2020 and are still operating The following table presents selected operating and financial data, used by management as key indicators of our operating performance: For the Years Ended December 31, 2021 2020 Number of clinics, at the end of period 591 554 Working Days 254 256 Average visits per day per clinic 29.1 24.6 Total patient visits 4,219,576 3,533,371 Net patient revenue per visit $ 103.88 $ 105.66 RESULTS OF OPERATIONS 2021 COMPARED TO 2020 For 2021, the net income attributable to our shareholders was $40.8 million compared to $35.2 million for 2020 and $40.0 million for the year ended December 31, 2019 (“2019”). Inclusive of the charge or credit for revaluation of non-controlling interest, net of taxes, used to compute earnings per diluted share in accordance with GAAP, the amount was $31.1 million, or $2.41 per diluted share, for 2021 as compared to $31.8 million, or $2.48 per diluted share, for 2020, and $31.3 million, or $2.45 per diluted share, for 2019. For both 2021 and 2020, in accordance with current accounting guidance, the revaluation of redeemable non-controlling interest, net of tax, is not included in net income but rather charged directly to retained earnings; however, the charge for this change is included in the earnings per basic and diluted share calculation. See table below (in thousands, except per share data): For the Year Ended December 31, 2021 2020 Computation of earnings per share - USPH shareholders: Net income attributable to USPH shareholders $ 40,831 $ 35,194 (Charges) credit to retained earnings: Revaluation of redeemable non-controlling interest (13,011 ) (4,632 ) Tax effect at statutory rate (federal and state) of 25.55% and 26.25%, respectively 3,324 1,216 $ 31,144 $ 31,778 Earnings per share (basic and diluted) $ 2.41 $ 2.48 For 2021, our Operating Results, inclusive of Relief Funds, were $43.8 million, or $3.39 per diluted share, an increase of 13.8%, as compared to $38.4 million, or $2.99 per diluted share, for 2020. For 2021, our Operating Results, excluding Relief Funds (as defined below), were $40.9 million, or $3.17 per diluted share, an increase of 33.5%, as compared to $30.6 million, or $2.39 per diluted share, for 2020. Operating Results, a non-Generally Accepted Accounting Principles (“non-GAAP”) measure, equals net income attributable to diluted shareholders per the consolidated statements of income less gain on sale of partnership interests and clinics plus charges incurred for clinic closure costs and expenses related to executive officer transitions and settlement of a legal matter, all net of taxes. Operating Results per diluted share also excludes the impact of the revaluation of redeemable non-controlling interest and the associated tax impact. See table below for a detailed computation (in thousands, except per share data): 27 Table of Contents For the Year Ended December 31, 2021 2020 Computation of earnings per share - USPH shareholders: Net income attributable to USPH shareholders $ 40,831 $ 35,194 Credit (charges) to retained earnings: Revaluation of redeemable non-controlling interest (13,011 ) (4,632 ) Tax effect at statutory rate (federal and state) of 25.55% and 26.25%, respectively 3,324 1,216 $ 31,144 $ 31,778 Earnings per share (basic and diluted) $ 2.41 $ 2.48 Adjustments: Closure costs 30 3,931 Expenses related to executive officers transition 1,301 1,331 Gain on sale of partnership interest and clinics - (1,091 ) Relief Funds (4,597 ) (13,500 ) Settlement of a liability 2,635 - Allocation to non-controlling interest 676 3,116 Revaluation of redeemable non-controlling interest 13,011 4,632 Tax effect at statutory rate (federal and state) of 25.55% and 26.25%, respectively (3,336 ) 415 Operating Results (excluding Relief Funds) (a non-GAAP measure) $ 40,864 $ 30,612 Relief Funds $ 4,597 $ 13,500 Allocation to non-controlling interest (715 ) (2,893 ) Tax effect at statutory rate (federal and state) of 25.55% and 26.25%, respectively (992 ) (2,784 ) Operating Results (including Relief Funds) (a non-GAAP measure) $ 43,754 $ 38,435 Basic and diluted Operating Results per share (excluding Relief Funds) (a non-GAAP measure) $ 3.17 $ 2.39 Basic and diluted Operating Results per share (including Relief Funds) (a non-GAAP measure) $ 3.39 $ 2.99 Shares used in computation - basic and diluted 12,898 12,835 The above table reconciles net income attributable to our shareholders calculated in accordance with GAAP to Operating Results, a non-GAAP measure defined above. We believe that Operating Results, which eliminates certain items described above that can be subject to volatility and unusual costs, is one of the principal measures to evaluate and monitor financial performance period over period. We also believe that Operating Results is useful information for investors to use in comparing the Company's period-to-period results as well as for comparing with other similar businesses. Operating Results is not a measure of financial performance under GAAP and, therefore, should not be considered in isolation or as an alternative to, or substitute for, net income attributable to our shareholders presented in the consolidated financial statements. Reported total revenue Reported total revenue for 2021 increased $72.1 million, or 17.0% to $495.0 million as compared to $423.0 million for 2020. See table below for a detail of reported total revenue (in thousands): 28 Table of Contents Year Ended December 31, 2021 December 31, 2020 Revenue related to Mature Clinics $ 402,744 $ 358,103 Revenue related to 2021 Clinic Additions 13,802 - Revenue related to 2020 Clinic Additions 21,283 9,664 Revenue from clinics sold or closed in 2021 455 1,242 Revenue from clinics sold or closed in 2020 46 4,331 Net patient revenue from physical therapy operations 438,330 373,340 Other revenue 2,939 2,020 Revenue from physical therapy operations 441,269 375,360 Management contract revenue 9,853 8,410 Industrial injury prevention services 43,900 39,199 Net Revenue $ 495,022 $ 422,969 Net patient revenue from physical therapy operations Net patient revenue from physical therapy operations increased $65.0 million, or 17.4%, to $438.3 million for 2021 from $373.3 million in 2020. Included in net patient revenue from physical therapy operations are revenues related to clinics sold or closed of $0.5 million for 2021 and $5.5 million for 2020. During 2021, the Company sold its interest in two clinics and closed three clinics. During 2020, the Company sold its interest in 14 clinics and closed 34 clinics. For comparison purposes, excluding revenue from the clinics sold or closed, net patient revenue from physical therapy operations was approximately $437.8 million for 2021 and $367.8 million for 2020, an increase of 19.1%. Revenue related to Mature Clinics increased $44.6 million, or 12.5%, for 2021 compared to 2020. The average net patient revenue per visit was $103.88 for 2021 as compared to $105.66 for 2020, including all clinics operational during such periods. Total patient visits were 4,219,576 for 2021 and 3,533,371 for 2020, an increase of 19.4%. Net patient revenues are based on established billing rates less allowances and discounts for patients covered by contractual programs and workers’ compensation. Net patient revenues reflect contractual and other adjustments, which we evaluate monthly, relating to patient discounts from certain payors. Payments received under these contractual programs and workers’ compensation are based on predetermined rates and are generally less than the established billing rates of the clinics. Other revenue from physical therapy operations, management contracts and industrial injury prevention services Other revenue was $2.9 million in 2021 and $2.0 million in 2020. Revenues from management contracts were $9.9 million in 2021 as compared to $8.4 million in 2020. Revenue from our industrial injury prevention services business increased 12.0% to $43.9 million in 2021 compared to $39.2 million in 2020, with $2.2 million of the increase related to the acquisition of an industrial injury prevention services business on November 30, 2021 . Operating cost Total operating cost, excluding closure costs, a non-GAAP measure, was $377.8 million in 2021, as compared to $324.6 million in 2020. Total operating cost, excluding closure costs, was 76.3% as a percentage of net revenue in 2021 and 76.7% in 2020. On a cost per visit basis, total operating cost, excluding closure costs, was $79.70 per visit in 2021 as compared to $81.74 per visit in 2020, a decrease of 2.5%. Included in operating cost for 2021 was $30.6 million related to Clinic Additions, of which $19.6 million was associated with the 2020 Clinic Additions. Included in operating cost for 2020 was $8.4 million related to 2020 Clinic Additions. Operating cost related to Mature Clinics increased by $31.7 million for 2021 compared to 2020. Operating cost related to management contracts increased by $1.7 million in 2021 compared to 2020. In addition, operating cost related to the industrial injury prevention services business increased by $4.1 million for the comparable periods. See table below for a detail of operating cost, excluding closure costs (a non-GAAP measure) (in thousands): 29 Table of Contents Year Ended December 31, 2021 December 31, 2020 Operating cost related to Mature Clinics $ 305,148 $ 273,476 Operating cost related to 2021 Clinic Additions 11,080 - Operating cost related to 2020 Clinic Additions 19,561 8,416 Operating cost related to clinics sold or closed in 2021 484 1,345 Operating cost related to clinics sold or closed in 2020 25 5,583 Closure costs 30 3,931 Physical therapy operations 336,328 292,751 Physical therapy management contracts 8,306 6,655 Industrial injury prevention services 33,206 29,113 Total operating cost $ 377,840 $ 328,519 Less: Physical therapy operations - closure costs (30 ) (3,931 ) Total operating cost excluding closure costs (a non-GAAP measure) $ 377,810 $ 324,588 Closure costs in 2020 were $3.9 million, which includes estimates of remaining lease obligations, derecognition of goodwill and other costs related to closed and sold clinics. Each component of clinic operating costs is discussed below: Operating Cost—Salaries and Related Costs Salaries and related costs increased to $278.5 million for 2021 from $235.6 million in 2020, an increase of $42.8 million, or 18.2%. Included in salaries and related costs for 2021 was $7.3 million related to 2021 Clinic Additions. Salaries and related costs for clinics sold or closed in 2021 and 2020 were $0.3 million and $3.8 million in 2021 and 2020, respectively. Salaries and related costs for Mature Clinics increased $26.5 million in 2021 compared to 2020. Salaries and related costs for management contracts increased $1.4 million for 2021 compared to 2020. Salaries and related costs for the industrial injury prevention services business increased $2.8 million for the comparable periods. Salaries and related costs as a percentage of net revenues were 56.3% for 2021 and 55.7% for 2020. Salaries and related costs for physical therapy operations were $57.81 per visit in 2021 as compared to $58.10 per visit in 2020, a decrease of 0.5%. See table below for a detail of salaries and related costs (in thousands): Year Ended December 31, 2021 December 31, 2020 Physical therapy operations Salaries and related costs related to Mature Clinics $ 222,431 $ 195,962 Salaries and related costs related to 2021 Clinic Additions 7,258 - Salaries and related costs related to 2020 Clinic Additions 13,940 5,495 Salaries and related costs related to clinics sold or closed in 2021 293 805 Salaries and related costs related to clinics sold or closed in 2020 18 3,009 Total Physical therapy operations 243,940 205,271 Physical therapy management contracts 7,316 5,921 Industrial injury prevention services 27,213 24,437 Total salaries and related costs $ 278,469 $ 235,629 Operating Cost—Rent, Supplies, Contract Labor and Other Rent, supplies, contract labor and other costs increased to $94.0 million for 2021 from $84.3 million for 2020, an increase of $9.7 million, or 11.5%. Included in rent, supplies, contract labor and other costs for 2021 and 2020 related to Clinic Additions was $9.0 million. Rent, supplies, contract labor and other costs for clinics related to partnership interests closed or sold in 2021 and 2020 were $0.2 million and $2.8 million in 2020, respectively. Rent, supplies, contract labor and other costs related to Mature Clinics increased $4.4 million. Rent, supplies, contract labor and other costs as a percent of net revenues was 19.0% for 2021 and 19.9% for 2020. Rent, supplies, contract labor and other costs for physical therapy operations were $20.63 per visit in 2021 as compared to $22.37 per visit in 2020, a decrease of 7.8%. See table below for a detail of rent, supplies, contract labor and other costs (in thousands): 30 Table of Contents Year Ended December 31, 2021 December 31, 2020 Physical therapy operations Rent, supplies, contract labor and other costs related to Mature Clinics $ 77,770 $ 73,348 Rent, supplies, contract labor and other costs related to 2021 Clinic Additions 3,653 - Rent, supplies, contract labor and other costs related to 2020 Clinic Additions 5,436 2,846 Rent, supplies, contract labor and other costs related to clinics sold or closed in 2021 187 528 Rent, supplies, contract labor and other costs related to clinics sold or closed in 2020 8 2,328 Total Physical therapy operations 87,054 79,050 Physical therapy management contracts 989 734 Industrial injury prevention services 5,993 4,552 Total rent, supplies, contract labor and other costs $ 94,036 $ 84,336 Operating Cost—Provision for Credit Losses The provision for credit losses for net patient receivables was $5.3 million for 2021 and $4.6 million for 2020. As a percentage of net patient revenues, the provision for credit losses was 1.1% for both 2021 and 2020. The provision for credit losses at the end of each period is based on a detailed, clinic-by-clinic review of overdue accounts and is regularly reviewed in the aggregate in light of historical experience. Our provision for credit losses as a percentage of total patient accounts receivable was 5.64% at December 31, 2021 and 4.57% at December 31, 2020. The average accounts receivable days outstanding were 32 days at December 31, 2021 and December 31, 2020. Net patient receivables in the amounts of $4.6 million and $4.5 million were written-off in 2021 and 2020, respectively. Gross Profit Gross profit, excluding closure costs, a non-GAAP measure, was $117.2 million for 2021, an increase of $18.8 million, or 19.1% as compared to $98.4 million for 2020. The gross profit percentage, less closure costs, was 23.7% of total revenue for 2021, an increase of 40 basis points, as compared to 23.3% for 2020. The gross profit percentage for the Company’s physical therapy operations, excluding closure costs, was 23.8% for 2021, an increase of 70 basis points as compared to 23.1% for 2020. The gross profit percentage on management contracts revenue was 15.7% for 2021 as compared to 20.9% for 2020. The gross profit percentage for the industrial injury prevention services business was 24.4% for 2021 as compared to 25.7% for 2020. See table below for details on gross profit, excluding closure costs (a non-GAAP measure) (in thousands) and a reconciliation against Gross Profit (in thousands): Year Ended December 31, 2021 December 31, 2020 Physical therapy operations $ 104,971 $ 86,540 Management contracts 1,547 1,755 Industrial injury prevention services 10,694 10,086 Physical therapy operations - closure costs (30 ) (3,931 ) Gross profit $ 117,182 $ 94,450 Physical therapy operations - closure costs 30 3,931 Gross profit, excluding closure costs (a non-GAAP measure) $ 117,212 $ 98,381 Corporate Office Costs Corporate office costs were $46.5 million for 2021 compared to $42.0 million for 2020. Corporate office costs were 9.4% of total revenue for 2021 as compared to 9.9% for 2020. For 2020, corporate offices costs included temporary salary reductions and furloughs related to the pandemic. Also, in both 2021 and 2020, corporate office costs included $1.3 million in equity compensation expense related to the accelerated vesting of restricted stock previously granted to two executive officers upon their retirement in July 2021 and November 2020. Excluding the equity compensation related to the accelerated vesting of restricted stock, corporate office costs was 9.1% of total revenue for 2021 and 9.6% for 2020. 31 Table of Contents Operating Income Operating income for 2021 was $70.6 million, an increase of $18.2 million, or 34.8%, as compared to $52.4 million for 2020. Operating income as a percentage of total revenue increased 190 basis points from 12.4% for 2020 to 14.3% for 2021. Other Income—Relief Funds Relief Funds recognized in other income were $4.6 million for 2021 and $13.5 million for 2020. See discussion related to Relief Funds for more information. Other Income - Resolution of a Payor Matter and Other Expense – Settlement of a Legal Matter Other income for the 2021 Year includes $1.2 million of income related to the positive resolution of a payor matter and other expense includes a $2.6 million increase in a reserve related to a settlement of a legal matter. In January 2022, the Company paid $2.75 million related to this matter. Interest Expense—Debt and Other Interest expense—debt and other was $0.9 million for 2021 and $1.6 million for 2020. At December 31, 2021, $114.0 million was outstanding under our Amended Credit Agreement (as defined below under “—Liquidity and Capital Resources”). See “—Liquidity and Capital Resources” below for a discussion of the terms of our Amended Credit Agreement. Provision for Income Taxes The provision for income tax was $15.3 million for 2021 and $13.0 million for 2020. The provision for income tax as a percentage of income before taxes less net income attributable to non-controlling interest (effective tax rate) was 27.2% for 2021 and 27.0% for 2020. See table below ($ in thousands): Year Ended December 31, 2021 December 31, 2020 Income before taxes $ 73,196 $ 65,513 Less: net income attributable to non-controlling interest: Redeemable non-controlling interest - temporary equity (11,358 ) (11,175 ) Non-controlling interest - permanent equity (5,735 ) (6,122 ) $ (17,093 ) $ (17,297 ) Income before taxes less net income attributable to non-controlling interest $ 56,103 $ 48,216 Provision for income taxes $ 15,272 $ 13,022 Effective tax rate 27.2 % 27.0 % Net Income Attributable to Non-controlling Interest Net income attributable to redeemable non-controlling interest (temporary equity) was $11.4 million for 2021 and $11.2 million for 2020. Net income attributable to non-controlling interest (permanent equity) was $5.7 million for 2021 and $6.1 million for 2020. LIQUIDITY AND CAPITAL RESOURCES We believe that our business is generating sufficient cash flow from operating activities to allow us to meet our short-term and long-term cash requirements, other than those with respect to future significant acquisitions. At December 31, 2021, we had $28.5 million in cash and cash equivalents compared to $32.9 million at December 31, 2020. Although the start-up costs associated with opening new clinics and our planned capital expenditures are significant, we believe that our cash and cash equivalents and the availability under our Amended Credit Agreement are sufficient to fund the working capital needs of our operating subsidiaries, future clinic development and acquisitions and investments through at least December 2022. Significant acquisitions would likely require financing under our Amended Credit Agreement. Effective December 5, 2013, we entered into an Amended and Restated Credit Agreement with a commitment for a $125.0 million revolving credit facility. This agreement was amended in August 2015, January 2016, March 2017, November 2017, January 2021, and November 2021 (hereafter is referred to as “Amended Credit Agreement”). In November 2021, we exercised the accordion feature in the Amended Credit Agreement to increase to limit on our facility from $125.0 million to $150.0 million, with an updated accordion feature providing for an additional capacity of $25.0 million, therefore increasing the availability up to $175.0 million. 32 Table of Contents The 2021 amendment to the Amended Credit Agreement allows for cash and noncash consideration for acquisitions permitted under the Amended Credit Agreement of up to $50,000,000 for any fiscal year, and allows for payments in cash dividends to shareholders in an aggregate amount not to exceed $50,000,000 in any fiscal year. 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. The Amended Credit Agreement is unsecured and has loan covenants, including requirements that we comply with a consolidated fixed charge coverage ratio and consolidated leverage ratio. Proceeds from the Amended Credit Agreement may be used for working capital, acquisitions, purchases of our common stock, dividend payments to our common stockholders, capital expenditures and other corporate purposes. The pricing grid is based on our consolidated leverage ratio with the applicable spread over LIBOR ranging from 1.25% to 2.0% or the applicable spread over the Base Rate ranging from 0.1% to 1%. Fees under the Amended Credit Agreement include an unused commitment fee ranging from 0.25% to 0.3% depending on our consolidated leverage ratio and the amount of funds outstanding under the Amended Credit Agreement. On December 31, 2021, $114.0 million was outstanding on the Amended Credit Agreement resulting in $61.0 million of availability. As of the date of this report, we were in compliance with all of the covenants thereunder. Cash provided by operations was $76.4 million and net proceeds from our Amended Credit Agreement amounted to $98.0 million. The major uses of cash for investing and financing activities included: purchase of interests in businesses ($86.8 million), purchases of redeemable non-controlling interest, temporary equity ($28.5 million), purchases of fixed assets ($8.2 million), proceeds on sale of partnership interest ($0.3 million), distributions to non-controlling interests ($16.9 million), payments of cash dividends to our shareholders ($18.8 million), and payments on notes payable ($4.9 million). On December 31, 2021, we acquired a 75% interest in a three-clinic physical therapy practice with the practice founder retaining 25%. The purchase price for the 75% interest was approximately $3.7 million, of which $3.5 million was paid in cash and $0.2 million in the form of a note payable. The note accrues interest at 3.25% per annum and the principal and interest is payable on December 31, 2023. On November 30, 2021, we acquired an approximate 70% interest in a leading provider of industrial injury prevention services. The previous owners retained the remaining interest. The initial purchase price for the 70% equity interest, not inclusive of the $2.0 million contingent payment in conjunction with the acquisition if specified future operational objectives are met, was approximately $63.2 million, of which $62.2 million was paid in cash, and $1.0 million is in the form of a note payable. The note accrues interest at 3.25% and the principal and interest is payable on November 30, 2023. The business generates approximately $27.0 million in annual revenue at a margin of approximately 20%. As part of the transaction, we also agreed to the potential future purchase of a separate company under the same ownership that provides physical therapy and rehabilitation services to hospitals and other ancillary providers in a distinct market area. The current owners have the right to put this transaction to us in approximately five years, with such right having a $3.5 million fair value at December 31, 2021, as reflected on the Company’s consolidated balance sheet in Other long-term liabilities. The value of this right will be adjusted in future periods, as appropriate, with any change in fair value reflected in the Company’s consolidated statement of income. On September 30, 2021, we acquired a company that specializes in return-to-work and ergonomic services, among other offerings. The business generates more than $2.0 million in annual revenue. We acquired the company’s assets at a purchase price of approximately $3.3 million (which includes the obligation to pay an amount up to $0.6 million in contingent payment consideration in conjunction with the acquisition if specified future operational objectives are met) and contributed those assets to o ur industrial injury prevention services subsidiary. The initial purchase price, not inclusive of the $0.6 million contingent payment, was approximately $2.7 million, of which $2.4 million was paid in cash, and $0.3 million is in the form of a note payable. The note accrues interest at 3.25% per annum and the principal and interest is payable on September 30, 2023. On June 30, 2021, we acquired a 65% interest in an eight-clinic physical therapy practice with the previous owners retaining 35%. The purchase price was approximately $10.3 million, of which $9.0 million was paid in cash, $1.0 million is payable based on the achievement of certain business criteria and $0.3 million is in the form of a note payable. The note accrues interest at 3.25% per annum and the principal and interest is payable on June 30, 2023. Additionally, we have an obligation to pay an additional amount up to $0.8 million in contingent payment consideration in conjunction with the acquisition if specified future operational objectives are met. We recorded acquisition-date fair value of this contingent liability based on the likelihood of the contingent earn-out payment. The earn-out payment will subsequently be remeasured to fair value each reporting date. On March 31, 2021, we acquired a 70% interest in a five-clinic physical therapy practice with the previous owners retaining 30%. When acquired, the practice was developing a sixth clinic which has been completed. The purchase price for the 70% interest was approximately $12.0 million, of which $11.7 million was paid in cash and $0.3 million in the form of a note payable. The note accrues interest at 3.25% per annum and the principal and interest is payable on March 31, 2023. 33 Table of Contents On November 30, 2020, we acquired a 75% interest in a three-clinic physical therapy practice with the previous owners retaining 25% . The purchase price for the 75% interest was $8.9 million (net of cash acquired), of which $8.6 million was paid in cash and $0.3 million in the form of a note payable that is payable in two principal installments totaling $162,500 each. The first principal payment plus accrued interest was paid in November 2021 with the second installment to be paid in November 2022. The note accrues interest at 3.25% per annum. On September 30, 2020, we acquired a 70% interest in an entity which holds six management contracts that have been in place for a number of years and had five years remaining on their term as of the acquisition date. The previous owners retained the remaining 30%. 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 was paid in September 2021 and the note of $0.3 million was paid in November 2020. On February 27, 2020, we acquired interests in a four-clinic physical therapy practice. The four clinics are operated in four separate partnerships. The Company’s interests in the four partnerships range from 10.0% to 83.8%, with an overall 65.0% based on the initial purchase transaction. The aggregate purchase price was $11.9 million, of which $11.6 million was paid in cash and $0.3 million in the form of a seller note. The note accrues interest at 4.75% per annum and the principal and interest was paid in February 2022. On September 30, 2019, we acquired a 67% interest in an eleven-clinic physical therapy practice with the previous owners retaining 33% . The purchase price for the 67% interest was $12.4 million, of which $12.1 million was paid in cash and $0.3 million in the form of a seller note that is payable in two principal installments totaling $150,000 each. The first principal payment plus accrued interest was paid in September 2020 and the second installment was paid in September 2021. The note accrues interest at 5.0% per annum. On April 11, 2019, we acquired a company that is a provider of industrial injury prevention services. The acquired company specializes in delivering injury prevention and care, post offer employment testing, functional capacity evaluations and return-to-work services. It performs these services across a network of 45 states including onsite at eleven client locations. The business was then combined with Briotix Health, the Company’s industrial injury prevention services 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 was paid in April 2021. Historically, we have generated sufficient cash from operations to fund our development activities and to cover operational needs. We plan to continue developing new clinics and making additional acquisitions. We have from time to time purchased the non-controlling interests of limited partners in our Clinic Partnerships. We may purchase additional non-controlling interests in the future. Generally, any acquisition or purchase of non-controlling interests is expected to be accomplished using a combination of cash and financing. Any large acquisition would likely require financing. We make reasonable and appropriate efforts to collect accounts receivable, including applicable deductible and co-payment amounts. Claims are submitted to payors daily, weekly or monthly in accordance with our policy or payor’s requirements. When possible, we submit our claims electronically. The collection process is time consuming and typically involves the submission of claims to multiple payors whose payment of claims may be dependent upon the payment of another payor. Claims under litigation and vehicular incidents can take a year or longer to collect. Medicare and other payor claims relating to new clinics awaiting CMS approval initially may not be submitted for six months or more. When all reasonable internal collection efforts have been exhausted, accounts are written off prior to sending them to outside collection firms. With managed care, commercial health plans and self-pay payor type receivables, the write-off generally occurs after the account receivable has been outstanding for 120 days or longer. We have future obligations for debt repayments, employment agreements and future minimum rentals under operating leases. The obligations as of December 31, 2021 are summarized as follows (in thousands): Total 2022 2023 2024 2025 2026 Thereafter Credit Agreement $ 114,000 $ - $ - $ - $ 114,000 $ - $ - Notes Payable 4,417 830 3,587 - - - - Interest Payable 292 74 218 - - - - Employee Agreements 61,278 52,837 8,321 120 - - - Operating Leases 136,992 41,270 33,637 25,527 17,111 10,575 8,872 $ 316,979 $ 95,011 $ 45,763 $ 25,647 $ 131,111 $ 10,575 $ 8,872 We generally enter into various notes payable as a means of financing our acquisitions. Our present outstanding notes payable primarily relate to the acquisitions of a business or acquisitions of majority interests in businesses. At December 31, 2021, our remaining outstanding balance on these notes aggregated $4.4 million. The notes payable for the acquisition of businesses of $4.4 million are payable in 2022 and 2023. Notes are generally payable in equal annual installments of principal over two years plus any accrued and unpaid interest. See above table for a detail of future principal payments. Interest accrues at various interest rates ranging from 3.25% to 4.75% per annum. 34 Table of Contents The limited partnership agreements, as amended, provide that, upon the triggering events, we have a Call Right and the selling entity or individual has a Put Right for the purchase and sale of the limited partnership interest held by the partner. Once triggered, the Put Right and the Call Right do not expire, even upon an individual partner’s death, and contain no mandatory redemption feature. The purchase price of the partner’s limited partnership interest upon the exercise of either the Put Right or the Call Right is calculated per the terms of the respective agreements and classified as redeemable non-controlling interest (temporary equity) in our consolidated balance sheets. The fair value of the redeemable non-controlling interest at December 31, 2021 was $154.4 million. As of December 31, 2021, we have accrued $6.6 million related to credit balances and overpayments due to patients and payors. This amount is expected to be paid in 2022. From September 2001 through December 31, 2008, our Board of Directors (“Board”) authorized us to purchase, in the open market or in privately negotiated transactions, up to 2,250,000 shares of our common stock. In March 2009, the Board authorized the repurchase of up to 10% or approximately 1,200,000 shares of our common stock (“March 2009 Authorization”). Our Amended Credit Agreement permits share repurchases of up to $15,000,000 in the aggregate, subject to compliance with covenants. We are required to retire shares purchased under the March 2009 Authorization. There is no expiration date for the share repurchase program. As of December 31, 2021, there are currently an additional estimated 156,986 shares (based on the closing price of $95.55 on December 31, 2021) that may be purchased from time to time in the open market or private transactions depending on price, availability and our cash position. We did not purchase any shares of our common stock during the years ended December 31, 2021 and 2020. W e have an investment in a joint venture that is accounted for using the equity method of accounting. 35 Table of Contents FACTORS AFFECTING FUTURE RESULTS The risks related to our business and operations include: • the multiple effects of the impact of public health crises and epidemics/pandemics, such as the novel strain of COVID-19 and its variants, for which the total financial magnitude cannot be currently estimated; • changes in Medicare rules and guidelines and reimbursement or failure of our clinics to maintain their Medicare certification and/or enrollment status; • revenue we receive from Medicare and Medicaid being subject to potential retroactive reduction; • changes in reimbursement rates or payment methods from third party payors including government agencies, and changes in the deductibles and co-pays owed by patients; • compliance with federal and state laws and regulations relating to the privacy of individually identifiable patient information, and associated fines and penalties for failure to comply; • competitive, economic or reimbursement conditions in our markets which may require us to reorganize or close certain clinics and thereby incur losses and/or closure costs including the possible write-down or write-off of goodwill and other intangible assets; • the impact of COVID-19 related vaccination and/or testing mandates at the federal, state and/or local level, which could have an adverse impact on staffing, revenue, costs and the results of operations: • changes as the result of government enacted national healthcare reform; • business and regulatory conditions including federal and state regulations; • governmental and other third party payor inspections, reviews, investigations and audits, which may result in sanctions or reputational harm and increased costs; • revenue and earnings expectations; • legal actions, which could subject us to increased operating costs and uninsured liabilities; • general economic conditions; • availability and cost of qualified physical therapists; • personnel productivity and retaining key personnel; • competitive environment in the industrial injury prevention services business, which could result in the termination or non-renewal of contractual service arrangements and other adverse financial consequences for that service line; • acquisitions, and the successful integration of the operations of the acquired businesses; • impact on the business and cash reserves resulting from retirement or resignation of key partners and resulting purchase of their non-controlling interest (minority interests); • maintaining our information technology systems with adequate safeguards to protect against cyber-attacks; • a security breach of our or our third party vendors’ information technology systems may subject us to potential legal action and reputational harm and may result in a violation of the Health Insurance Portability and Accountability Act of 1996 of the Health Information Technology for Economic and Clinical Health Act; • maintaining clients for which we perform management and other services, as a breach or termination of those contractual arrangements by such clients could cause operating results to be less than expected; • maintaining adequate internal controls; • maintaining necessary insurance coverage; • availability, terms, and use of capital; and • weather and other seasonal factors. See also Risk Factors in Item 1A of this Annual Report on Form 10-K. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We do not maintain any derivative instruments such as interest rate swap arrangements, hedging contracts, futures contracts or the like. Our only indebtedness as of December 31, 2021 was the outstanding balance of seller notes from our acquisitions of $4.4 million and an outstanding balance on our Amended Credit Agreement of $114.0 million. The outstanding balance under our Amended Credit Agreement is subject to fluctuating interest rates. A 1% change in the interest rate would yield an additional $1.1 million of interest expense. See Note 9 to our consolidated financial statements included in Item 8. 36 Table of Contents 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 (PCAOB ID Number 248 ) 38 Audited Financial Statements: Consolidated Balance Sheets as of December 31, 2021 and 2020 40 Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019 41 Consolidated Statements of Changes in Equity for the years ended December 31, 2021, 2020 and 2019 42 Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2021 43 Notes to Consolidated Financial Statements 44 37 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, 2021 and 2020, the related consolidated statements of income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, 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, 2021, 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, 2022 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 regarding 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 matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. 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. 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, 2021 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, 2022 38 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, 2021, 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, 2021, 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, 2021, and our report dated March 1, 2022 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. Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting of the acquisition made in November 2021 (“Acquired Entity”), whose financial statements reflect total assets and revenues constituting 13.3% and 0.4%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2021. As indicated in Management’s Report on Internal Control over Financial Reporting, the Acquired Entity was acquired on November 30, 2021. Management’s assertion of the effectiveness of the Company’s internal control over financial reporting excluded internal control over financial reporting of the Acquired Entity. 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, 2022 39 Table of Contents U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) December 31, 2021 December 31, 2020 ASSETS (audited) (audited) Current assets: Cash and cash equivalents $ 28,567 $ 32,918 Patient accounts receivable, less allowance for credit losses of $ 2,768 and $ 2,008 , respectively 46,272 41,906 Accounts receivable - other 16,144 9,039 Other current assets 4,183 3,773 Total current assets 95,166 87,636 Fixed assets: Furniture and equipment 58,743 55,426 Leasehold improvements 39,194 35,320 Fixed assets, gross 97,937 90,746 Less accumulated depreciation and amortization 74,958 69,081 Fixed assets, net 22,979 21,665 Operating lease right-of-use assets 96,427 81,595 Investment in unconsolidated affiliate 12,215 - Goodwill 434,679 345,646 Other identifiable intangible assets, net 86,382 56,280 Other assets 1,578 1,539 Total assets $ 749,426 $ 594,361 LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST, USPH SHAREHOLDERS’ EQUITY AND NON-CONTROLLING INTEREST Current liabilities: Accounts payable - trade $ 3,268 $ 1,335 Accounts payable - due to seller of acquired business 3,203 - Accrued expenses 45,705 59,746 Current portion of operating lease liabilities 30,475 27,512 Current portion of notes payable 830 4,899 Total current liabilities 83,481 93,492 Notes payable, net of current portion 3,587 596 Revolving line of credit 114,000 16,000 Deferred taxes 14,385 7,779 Operating lease liabilities, net of current portion 74,185 61,985 Other long-term liabilities 7,345 4,539 Total liabilities 296,983 184,391 Redeemable non-controlling interest - temporary equity 155,262 132,340 Commitments and Contingencies 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, 15,126,160 and 15,066,282 shares issued, respectively 151 151 Additional paid-in capital 102,688 95,622 Retained earnings 224,395 212,015 Treasury stock at cost, 2,214,737 shares ( 31,628 ) ( 31,628 ) Total USPH shareholders’ equity 295,606 276,160 Non-controlling interest - permanent equity 1,575 1,470 Total USPH shareholders' equity and non-controlling interest - permanent equity 297,181 277,630 Total liabilities, redeemable non-controlling interest, USPH shareholders' equity and non-controlling interest - permanent equity $ 749,426 $ 594,361 See notes to consolidated financial statements. 40 Table of Contents U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) Year Ended December 31, 2021 December 31, 2020 December 31, 2019 Net patient revenue $ 438,330 $ 373,340 $ 433,345 Other revenue 56,692 49,629 48,624 Net revenue 495,022 422,969 481,969 Operating cost: Salaries and related costs 278,469 235,629 274,233 Rent, supplies, contract labor and other 94,036 84,336 90,379 Provision for credit losses 5,305 4,623 4,858 Closure costs - lease and other 30 2,072 25 Closure costs - derecognition of goodwill - 1,859 - Total operating cost 377,840 328,519 369,495 Gross profit 117,182 94,450 112,474 Corporate office costs 46,533 42,037 45,049 Operating income 70,649 52,413 67,425 Other income and expense Relief Funds 4,597 13,501 - Gain on sale of partnership interest and clinics - 1,091 5,514 Settlement of a legal matter ( 2,635 ) - - Resolution of a payor matter 1,216 - - Equity in earnings of unconsolidated affiliate 112 - - Interest and other income, net 199 142 46 Interest expense - debt and other ( 942 ) ( 1,634 ) ( 2,079 ) Total other income and expense 2,547 13,100 3,481 Income and equity in earnings of unconsolidated affiliates before taxes 73,196 65,513 70,906 Provision for income taxes 15,272 13,022 13,647 Net income 57,924 52,491 57,259 Less: net income attributable to non-controlling interest: Redeemable non-controlling interest - temporary equity ( 11,358 ) ( 11,175 ) ( 10,659 ) Non-controlling interest - permanent equity ( 5,735 ) ( 6,122 ) ( 6,561 ) ( 17,093 ) ( 17,297 ) ( 17,220 ) Net income attributable to USPH shareholders $ 40,831 $ 35,194 $ 40,039 Basic and diluted earnings per share attributable to USPH shareholders $ 2.41 $ 2.48 $ 2.45 Shares used in computation - basic and diluted 12,898 12,835 12,756 Dividends declared per common share $ 1.46 $ 0.32 $ 1.14 See notes to consolidated financial statements. 41 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, 2019 14,899 $ 149 $ 80,028 $ 167,396 ( 2,215 ) $ ( 31,628 ) $ 215,945 $ 930 $ 216,875 Issuance of restricted stock, net of cancellations 90 1 - - - - 1 - 1 Revaluation of redeemable non-controlling interest, net of tax - - - ( 8,771 ) - - ( 8,771 ) - ( 8,771 ) Compensation expense - equity-based awards - - 6,985 - - - 6,985 - 6,985 Transfer of compensation liability for certain stock issued pursuant to long-term incentive plans - - 636 - - - 636 - 636 Purchase of partnership interests - non-controlling interest - - ( 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 77 $ 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 - non-controlling interest - - - - - - - ( 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 15,066 $ 151 $ 95,622 $ 212,015 ( 2,215 ) $ ( 31,628 ) $ 276,160 $ 1,470 $ 277,630 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 60 $ - $ - $ - - $ - $ - $ - $ - Revaluation of redeemable non-controlling interest, net of tax - - - ( 9,686 ) - - ( 9,686 ) - ( 9,686 ) Compensation expense - equity-based awards - - 7,867 - - - 7,867 - 7,867 Purchase of partnership interests - non-controlling interest - - ( 918 ) - - - ( 918 ) ( 60 ) ( 978 ) Sale of non-controlling interest, net of purchases and tax - - 96 - - - 96 2 98 Dividends paid to USPT shareholders - - - ( 18,765 ) - - ( 18,765 ) - ( 18,765 ) Distributions to non-controlling interest partners - permanent equity - - - - - - - ( 5,572 ) ( 5,572 ) Short swing profit settlement - - 20 - - - 20 - 20 Other - - 1 - - - 1 - 1 Net income attributable to non-controlling interest - permanent equity - - - - - - - 5,735 5,735 Net income attributable to USPH shareholders - - - 40,831 - - 40,831 - 40,831 Balance December 31, 2021 15,126 $ 151 $ 102,688 $ 224,395 ( 2,215 ) $ ( 31,628 ) $ 295,606 $ 1,575 $ 297,181 See notes to consolidated financial statements. 42 Table of Contents U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2021 December 31, 2020 December 31, 2019 OPERATING ACTIVITIES Net income including non-controlling interest and earnings from unconsolidated affiliates, net $ 57,924 $ 52,491 $ 57,259 Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities: Depreciation and amortization 11,591 10,533 10,095 Provision for credit losses 5,305 4,623 4,858 Equity-based awards compensation expense 7,867 7,917 6,985 Deferred income taxes 5,688 ( 258 ) 4,651 Gain on sale of partnership interest - ( 1,091 ) ( 5,514 ) Derecognition (write-off) of goodwill - closed clinics - 1,859 - Earnings in unconsolidated affiliate ( 112 ) - - Other ( 134 ) 281 96 Changes in operating assets and liabilities: (Increase) decrease in patient accounts receivable ( 9,417 ) 899 ( 6,376 ) (Increase) decrease in accounts receivable - other ( 1,538 ) 1,661 ( 2,499 ) (Increase) decrease in other assets ( 633 ) 4,161 ( 1,878 ) Increase (decrease) in accounts payable and accrued expenses 4,657 12,427 ( 4,209 ) Increase (decrease) in other long-term liabilities ( 4,792 ) 4,492 ( 1,020 ) Net cash provided by operating activities 76,406 99,995 62,448 INVESTING ACTIVITIES Purchase of fixed assets ( 8,201 ) ( 7,639 ) ( 10,189 ) Purchase of majority interest in businesses, net of cash acquired ( 86,823 ) ( 23,907 ) ( 30,597 ) Purchase of redeemable non-controlling interest, temporary equity ( 28,465 ) ( 20,385 ) ( 8,651 ) Purchase of non-controlling interest, permanent equity ( 1,274 ) ( 238 ) ( 428 ) Proceeds on sale of redeemable non-controlling interest, temporary equity 69 127 207 Proceeds on sales of partnership interest, clinics and fixed assets 275 839 11,665 Distributions from unconsolidated affiliate 152 - - Sales of non-controlling interest-permanent 131 - - Net cash used in investing activities ( 124,136 ) ( 51,203 ) ( 37,993 ) FINANCING ACTIVITIES Distributions to non-controlling interest, permanent and temporary equity ( 16,931 ) ( 18,331 ) ( 16,235 ) Cash dividends paid to shareholders ( 18,765 ) ( 4,110 ) ( 14,555 ) Proceeds from revolving line of credit 316,000 214,000 145,000 Payments on revolving line of credit ( 218,000 ) ( 244,000 ) ( 137,000 ) Principal payments on notes payable ( 4,899 ) ( 1,037 ) ( 1,433 ) (Payment) receipt of Medicare Accelerated and Advance Funds ( 14,054 ) 14,054 - Other 28 2 ( 52 ) Net cash provided by (used in) financing activities 43,379 ( 39,422 ) ( 24,275 ) Net (decrease) increase in cash and cash equivalents ( 4,351 ) 9,370 180 Cash and cash equivalents - beginning of period 32,918 23,548 23,368 Cash and cash equivalents - end of period $ 28,567 $ 32,918 $ 23,548 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Income taxes $ 12,214 $ 7,677 $ 9,856 Interest $ 1,352 $ 1,202 $ 1,890 Non-cash investing and financing transactions during the period: Purchase of businesses - seller financing portion $ 3,050 $ 1,121 $ 4,300 Purchase of business - payable to common shareholders of acquired business $ - $ - $ 502 Notes payable related to purchase of redeemable non-controlling interest, temporary equity $ 1,759 $ 136 $ 283 Notes payable due to purchase of non-controlling interest, permanent equity $ - $ 699 $ 103 Notes receivable related to sale of partnership interest - redeemable non-controlling interest $ 914 $ - $ 2,870 Note receivables related to sale of partnership interest $ - $ 994 $ - See notes to consolidated financial statements. 43 Table of Contents U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2021, 2020 and 2019 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. Services provided by the industrial injury prevention services segment include 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 current segment presentation. See Note 12 - Segment Information. During the last three years we completed the acquisitions of seven multi-clinic practices and three industrial injury prevention businesses as detailed below. Acquisition Date % Interest Acquired Number of Clinics December 2021 Acquisition December 31, 2021 75 % 3 November 2021 Acquisition November 30, 2021 70 % * September 2021 Acquisition September 30, 2021 100 % * June 2021 Acquisition June 30, 2021 65 % 8 March 2021 Acquisition March 31, 2021 70 % 6 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 April 2019 Acquisition April 11, 2019 100 % * * Industrial injury prevention business ** The business includes six management and services contracts which have been in place for a number of years. As of the date acquired, the contracts had a remaining term of five years . *** 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. 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, retain a non-controlling ownership interest in the clinics and receive 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. Besides the multi-clinic acquisitions referenced in the table above, during 2021and 2020, we purchased the assets and business of five and three physical therapy clinics, respectively, in separate transactions. 44 Table of Contents During the year ended December 31, 2021, the Company sold two clinics. The aggregate sales price was $ 0.1 million. During the year ended December 31, 2020, we 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 due in two equal installments of principal and any accrued interest. The first payment was received in June 2021 and the next payment is due on June 15, 2022. 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 interest—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 balance sheets and income statements as redeemable non-controlling interest — temporary equity . 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 Services provided in the industrial injury prevention services segment include onsite injury prevention and rehabilitation, performance optimization, post offer employment testing, functional capacity evaluations, and ergonomic assessments. The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Other clients include large insurers and their contractors. The Company performs these services through Industrial Sports Medicine Professionals, consisting of both physical therapists and specialized certified athletic trainers (ATCs). Impact of COVID-19 As previously disclosed in a series of filings with the SEC and further described in detail in the Company’s Quarterly Reports on Form 10-Q for the first three quarters of 2020 and our Annual Report on Form 10-K for the year ended December 31, 2020, the Company’s results were negatively impacted by the effects of the COVID-19 pandemic in 2020. For 2021 periods as compared to 2020 periods, the increase in revenues and expenses are primarily due to the Company returning to and now exceeding pre-pandemic results. The Company has put preparedness plans in place at our facilities to maintain continuity of operations, while also taking steps to keep employees and patients safe. In line with recommendations to reduce large gatherings and increase social distancing, the Company has continued to allow a large number of office-based employees to work remotely. The Company is continuing to monitor the situation and will adjust work environments accordingly. In March 2020 in response to the COVID-19 pandemic, the federal government approved the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain payroll tax credits associated with the retention of employees. 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 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. The Company recorded the $ 14.1 million in advance payments received as a liability. During the first quarter of 2021, the Company repaid the MAAPP Funds of $ 14.1 million rather than applying them to future services performed. Relief Funds On March 27, 2020, the CARES Act was enacted. The CARES Act provided additional waivers, reimbursement, grants and other funds to assist health care providers during the COVID-19 pandemic, including $ 100.0 billion in appropriations for the Public Health and Social Services Emergency Fund, also referred to as the Provider Relief Fund, to be used for preventing, preparing, and responding to the coronavirus, and for reimbursing eligible health care providers for lost revenues and health care related expenses that are attributable to COVID-19. For the years ended December 31, 2021 and December 31, 2020, the Company’s consolidated subsidiaries recorded income of approximately $ 4.6 million and $ 13.5 million, respectively, from payments under the CARES Act (“Relief Funds”). Under the Company’s accounting policy, these payments were recorded as Other income – Relief Funds. 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. The Company will continue to monitor the evolving guidelines and may record adjustments as additional information is released. 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. 45 Table of Contents 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. Investment in unconsolidated affiliate Investments in unconsolidated joint ventures in which the Company has less than a controlling interest, are accounted for under the equity method of accounting and, accordingly, are adjusted for capital contributions, distributions and the Company’s equity in net earnings or loss of the respective joint venture. 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 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 an 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 2021, 2020 and 2019 , there were six regions. In addition to the six regions, the impairment analysis included a separate analysis for the industrial injury prevention services 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 2021, 2020 and 2019 did not result in any goodwill amounts that were deemed impaired. As part of the annual assessment, 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, 2021. 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, 2021. The Company will continue to monitor for any triggering events or other indicators of impairment. Redeemable Non-Controlling Interest The non-controlling interest that is reflected as redeemable non-controlling interest in the consolidated financial statements consists 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. 46 Table of Contents 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 ca ption—Redeemab le 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 Interest The Company recognizes non-controlling interest, in which the Company has no obligation but the right to purchase the non-controlling interest, 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. 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. 47 Table of Contents The following table details the revenue related to the various categories (in thousands). Year Ended December 31, 2021 December 31, 2020 December 31, 2019 Net patient revenue $ 438,330 $ 373,340 $ 433,345 Other patient revenue 2,939 2,020 2,486 Physical therapy operations $ 441,269 $ 375,360 $ 435,831 Physical therapy management contracts 9,853 8,410 8,676 Industrial injury prevention services 43,900 39,199 37,462 $ 495,022 $ 422,969 $ 481,969 Patient revenue Revenues are recognized in the period in which services are rendered. Net patient revenue 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 2017 through 2019, a 0.5 % increase was applied to the fee schedule payment rates before applying the mandatory budget neutrality adjustment. For services provided in 2020 through 2025 no adjustment is expected to be applied each year to the fee schedule payment rates, before applying the mandatory budget neutrality adjustment. In the 2020 MPFS Final Rule, CMS revised coding, documentation guidelines, and increased the code values for office/outpatient evaluation and management (E/M) codes and cuts to other codes to maintain budget neutrality of the MPFS beginning in 2021. Under the 2021 MPFS Final Rule, CMS increased the values for the E/M office visit codes and cuts to other specialty codes to maintain budget neutrality. As a result, CMS projected a 9 % decrease in fee schedule payment rates for therapy services set to take effect in 2021. However, Congress intervened with passage of the Consolidated Appropriations Act, 2021 and reimbursement for the codes applicable to physical/occupational therapy services provided by our clinics received an estimated 3.5 % decrease in the aggregate in payment from Medicare in calendar year 2021 as compared to 2020. In the 2022 MPFS Final Rule published on November 2, 2021, there was to be an approximately 3.75 % reduction to Medicare payments for physical/occupational therapy services. This was due to the expiration of the additional funding to the conversion factor provided by Congress in 2021 under the Consolidated Appropriations Act, 2021. However, this reduction was addressed in the Protecting Medicare and American Farmers from Sequester Cuts Act (“2021 Act”) signed into law on December 10, 2021. Based on various provisions in the 2021 Act, the Company now estimates that the Medicare rate reduction for the full year of 2022 will be approximately 0.75 %. The 2021 Act did not address the 15 % reduction in Medicare payments for services performed by a physical or occupational therapist assistant, which began on January 1, 2022. In addition, the Consolidated Appropriations Act, 2021 includes reductions in Medicare payment rates of approximately 3 % in each of calendar years 2023 and 2024, unless regulatory or Congressional action results in modifications to such rates as has occurred in 2021 and 2022. 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 CARES Act suspended the 2 % payment reduction to 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. On April 14, 2021, additional legislation was enacted that waived the 2 % payment reduction for the remainder of calendar 2021. The 2021 Act, which was signed into law on December 10, 2021, included a three-month extension of the 2 % sequester relief applied to all Medicare payments through March 31, 2022, followed by three months of 1 % sequester relief through June 30, 2022. Sequester relief is scheduled to then end on June 30, 2022. 48 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. Therapists eligible to participate in MIPS include only those therapists who are enrolled with Medicare as private practice providers, and does not include therapists in facility-based providers, such as our clinics enrolled as certified rehabilitation agencies. Less than 3 % of the Company’s therapist providers currently participate in MIPS. 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. For those therapist providers who actually participated in MIPS during 2019, the resulting average payment adjustment was an increase of 1 %. 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. In 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 %. Medicare claims for outpatient therapy services furnished by therapist assistants on or after January 1, 2020 must include a modifier indicating the service was furnished by a therapist assistant. Outpatient therapy services furnished on or after January 1, 2022, in whole or part by a therapist assistant will be paid at an amount equal to 85 % of the payment amount otherwise applicable for the service. Statutes, regulations, and payment rules governing the delivery of therapy services to Medicare beneficiaries are complex and subject to interpretation. We believe that we are in compliance, in all material respects, with all applicable laws and regulations and are not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a material effect on our financial statements as of December 31, 2021. Compliance with such laws and regulations can be subject to future government review and interpretation, as well as significant regulatory action including fines, penalties, and exclusion from the Medicare program. For the years ended December 31, 2021, and 2020, respectively, net patient revenue from Medicare was approximately $ 134.4 million and $ 101.6 million, respectively. Management Contract Revenue Management contract revenue, which is included in other revenue, is 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, revenue is 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 Revenue Revenue from the industrial injury prevention services business, which is also included in other revenue in the consolidated statements of net income, is derived from onsite services the Company provides to clients’ employees including injury prevention, rehabilitation, ergonomic assessments , post-offer employment testing and performance optimization. Revenue from the Company’s industrial injury prevention services 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 Revenue Additionally, other revenue includes 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. 49 Table of Contents 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, 2021. 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 CARES Act includes changes to certain tax law related to net operating losses and the deductibility of interest expense and depreciation. ASC 740, Income Taxes requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation is enacted. The legislation had no effect on the Company’s deferred income taxes and current income taxes payable during the year ended December 31, 2021. 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, 2021, 2020 and 2019. 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, contingent earn-out payments, 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 approximates the fair value. The interest rate on the Amended Credit Agreement is tied to the London Interbank Offered Rate (“LIBOR”). 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. The Redeemable non-controlling interest included on the consolidated balance sheets and the put right associated with the potential future purchase of the separate company in the November 2021 acquisition are both marked to fair value on a recurring basis using level 3 inputs. The redemption value of Redeemable non-controlling interests approximates the fair value. The put right associated with the potential future purchase of the separate company in the November 2021 acquisition is determined using a Monte Carlo simulation model utilizing unobservable inputs such as asset volatility and discount rates. The unobservable inputs in the valuation include asset volatility of 25 % and a discount rate of 8.96 %. See Note 5 for the changes in the fair value of Redeemable non-controlling interest. There were no changes in the fair value of put right associated with the potential future purchase of the separate company in the November 2021 acquisition for the year ended December 31, 2021. 50 Table of Contents 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, 2021. 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 Pronouncements 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 the standard 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. 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 was permitted. The adoption of ASU 2020-06 did not have a material impact on the Company’s financial statements. 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. 51 Table of Contents This pronouncement was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021.The Board specified that an entity should adopt the guidance at the beginning of its annual fiscal year. The Company adopted this pronouncement as of January 1, 2022. The use of either the modified retrospective or fully retrospective method of transition is permitted. The Company has determined that the adoption of ASU 2020-06 will not have a material impact on the Company’s financial statements. 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 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 (as defined in Note 9) 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. 52 Table of Contents 3. Acquisitions of Businesses During 2021, 2020 and 2019, the Company acquired a majority interest in the following businesses: Acquisition Date % Interest Acquired Number of Clinics December 2021 Acquisition December 31, 2021 75 % 3 November 2021 Acquisition November 30, 2021 70 % IIPS* September 2021 Acquisition September 30, 2021 100 % IIPS* June 2021 Acquisition June 30, 2021 65 % 8 March 2021 Acquisition March 31, 2021 70 % 6 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 April 2019 Acquisition April 11, 2019 100 % * * Industrial injury prevention business ** The business includes six management and services contracts which have been in place for a number of years. As of the date acquired, the contracts had a remaining term of five years . *** 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 December 31, 2021, the Company acquired a 75 % in three -clinic physical therapy practice with the practice founder retaining 25 %. The purchase price for the 75 % interest was approximately $ 3.7 million, of which $ 3.5 million was paid in cash and $ 0.2 million in the form of a note payable. The note accrues interest at 3.25 % per annum and the principal and interest is payable on December 31, 2023. On November 30, 2021, the Company acquired an approximate 70 % interest in a leading provider of industrial injury prevention services. In each case, the previous owners retained the remaining interest. The purchase price for the approximate 70 % equity interest, not inclusive of a $ 2.0 million contingent payment, was approximately $ 63.2 million of which $ 60.7 million was paid in cash and $ 1.0 million in the form of a note payable. The note accrues interest at 3.25 % per annum and the principal and interest is payable on November 30, 2023. As part of the transaction, the Company also agreed to the potential future purchase of a separate company under the same ownership that provides physical therapy and rehabilitation services to hospitals and other ancillary providers in a distinct market area. The current owners have the right to put this transaction to the Company in approximately five years , with such right having a $ 3.5 million value at December 31, 2021, as reflected on the Company’s consolidated balance sheet in Other long-term liabilities. The value of this right will be adjusted in future periods, as appropriate, with any change in value reflected in the Company’s consolidated statement of income. The Company does not currently possess more than 50% of the controlling interests in this separate company, does not control this company through contract or governance rights and currently does not exercise significant influence over this separate company. Due to the aforementioned reasons, and based on current accounting guidance, the Company did not consolidate the separate company through the variable interest or voting interest model. On September 30, 2021, the Company acquired a company that specializes in return-to-work and ergonomic services, among other offerings. The Company acquired the company’s assets at a purchase price of approximately $ 3.3 million (which includes the obligation to pay an amount up to $ 0.6 million in contingent payment consideration in conjunction with the acquisition if specified future operational objectives are met), and contributed those assets to Briotix Health. The initial purchase price, not inclusive of the $ 0.6 million contingent payment, was approximately $ 2.7 million, of which $ 2.4 million was paid in cash, and $ 0.3 million is in the form of a note payable. The note accrues interest at 3.25 % per annum and the principal and interest is payable on September 30, 2023. On June 30, 2021, the Company acquired a 65 % interest in an eight -clinic physical therapy with the previous owners retaining 35 %. The purchase price was approximately $ 10.3 million, of which $ 9.0 million was paid in cash, $ 1.0 million is payable based on the achievement of certain business criteria and $ 0.3 million is in the form of a note payable. The note accrues interest at 3.25 % per annum and the principal and interest is payable on June 30, 2023. Additionally, the Company has an obligation to pay an additional amount up to $ 0.8 million in contingent payment consideration in conjunction with the acquisition if specified future operational objectives are met. The Company recorded acquisition-date fair value of this contingent liability based on the likelihood of the contingent earn-out payment. The earn-out payment will subsequently be remeasured to fair value each reporting date. On March 31, 2021, the Company acquired a 70 % interest in a five -clinic physical therapy practice with the previous owners retaining 30 %. When acquired, the practice was developing a sixth clinic which has been completed. The purchase price for the 70 % interest was approximately $ 12.0 million, of which $ 11.7 million was paid in cash and $ 0.3 million in the form of a note payable. The note accrues interest at 3.25 % per annum and the principal and interest is payable on March 31, 2023. 53 Table of Contents The purchase price for the 2021 acquisitions has been preliminarily allocated as follows (in thousands): IIPS* Physical Therapy Operations Total Cash paid, net of cash acquired $ 63,193 $ 23,630 $ 86,823 Seller notes 1,250 800 2,050 Contingent payments 2,520 837 3,357 Other payable - 1,000 1,000 Seller put right 3,522 3,522 Total consideration $ 70,485 $ 26,267 $ 96,752 Estimated fair value of net tangible assets acquired: Total current assets $ 5,589 $ 1,046 $ 6,635 Total non-current assets 12,620 6,462 19,082 Total liabilities ( 4,842 ) ( 6,832 ) ( 11,674 ) Net tangible assets acquired $ 13,367 $ 676 $ 14,043 Customer and referral relationships 21,126 3,729 24,855 Non-compete agreements 500 574 1,074 Tradenames 5,141 1,755 6,896 Goodwill 58,257 31,489 89,746 Fair value of non-controlling interest (classified as redeemable non-controlling interest) ( 27,906 ) ( 11,956 ) ( 39,862 ) $ 70,485 $ 26,267 $ 96,752 * Industrial injury prevention services On November 30, 2020, the Company acquired a 75 % interest in a three -clinic physical therapy practice with the previous owners retaining 25 %. The purchase price for the 75 % interest was $ 8.9 million (net of cash acquired), of which $ 8.6 million was paid in cash and $ 0.3 million in the form of a note payable that is payable in two principal installments totaling $ 162,500 each. The first principal payment plus accrued interest was paid in November 2021 with the second installment to be paid in November 2022 totaling $ 162,500 . 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. The purchase price for the 70 % interest was approximately $ 4.2 million, of which $ 3.7 million was paid in cash and $ 0.5 million in the form of two notes payable. One of the notes payable of $ 0.3 million was paid in November 2020. The remaining note payable of $ 0.2 million was paid on September 30, 2021. On February 27, 2020, the Company acquired interests in a four -clinic physical therapy practice. The four clinics are in four separate partnerships. The Company’s interests in the four partnerships range from 10.0 % to 83.8 %, with an overall 65.0 % based on the initial purchase transaction. The aggregate purchase price was $ 11.9 million, of which $ 11.6 million was paid in cash and $ 0.3 million in the form of a note payable. The note accrues interest at 4.75 % per annum and the principal and interest was paid on February 2022. The purchase price for the 2020 physical therapy operations acquisitions has been allocated as follows (in thousands): Cash paid, net of cash acquired $ 23,912 Seller note 1,121 Total consideration $ 25,033 Estimated fair value of net tangible assets acquired: Total current assets $ 1,049 Total non-current assets 196 Total liabilities ( 562 ) Net tangible assets acquired $ 683 Referral relationships 5,520 Non-compete 500 Tradename 1,890 Goodwill 27,738 Fair value of non-controlling interest (classified as redeemable non-controlling interest) ( 11,298 ) $ 25,033 54 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 of $ 150 ,000 was paid 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 services 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 was paid 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 was 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 interest) - ( 6,230 ) ( 6,230 ) $ 22,913 $ 12,470 $ 35,383 * Industrial injury prevention services The finalized purchase prices plus the fair value of the non-controlling interests for the acquisitions in 2020 and 2019 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 some of the acquisitions in 2021, 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, 2021 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 2021, the values assigned to the customer and referral relationships and non-compete agreements are being amortized to expense equally over the respective estimated lives. For customer and referral relationships, the weighted-average amortization period is 13.8 years. For non-compete agreements, the weighted-average amortization period is 5.6 years. The values assigned to tradenames are tested annually for impairment. For the acquisitions in 2020 and 2019, 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, 2020 and December 31, 2019, respectively. For non-compete agreements, the weighted average amortization period was 6.00 years and 5.16 years at December 31, 2020 and December 31, 2019, respectively. Generally, the values assigned to tradenames are tested annually for impairment. For the 2021, 2020 and 2019 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 2021, 2020 and 2019, have not been included as the results are immaterial individually and in the aggregate. 55 Table of Contents 4. Acquisitions and Sale of Non-Controlling Interests During 2021, 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 5 % to 35 %. The aggregated purchase price for these acquired interests was $ 1.3 million. The Company also sold an interest in a partnership for $ 0.1 million. 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 also 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. The first payment was received in June 2021 and the next payment is due on June 15, 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 Therapy Practice Acquisitions Since October 2017, when the Company acquires a majority interest (the “Acquisition”) in a physical therapy clinic Therapy Practice (referred to as “Therapy Practice”), these Therapy Practice transactions 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 Acquired Therapy Practice and provide physical therapy services to patients. 2. In conjunction with the Acquisition, the Seller Entity contributes the Acquired 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 usually 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 Therapy Practice 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 Therapy Practice during the Non-Compete Term. 56 Table of Contents 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 mileage radius from the Acquired Therapy Practice. That is, an Employed Selling Shareholder is permitted to engage in competing Therapy Practicees or activities outside the designated geography (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 Therapy Practice or activities outside the designated geography. 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 has 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 has 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 has 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 has 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. 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. 57 Table of Contents ProgressiveHealth Acquisition On November 30, 2021, the Company acquired a majority interest in ProgressiveHealth Companies, LLC (“Progressive”), which owns a majority interest in certain subsidiaries (“Progressive Subsidiaries”) that operate in the industrial injury prevention and therapy services businesses. The Progressive transaction was completed in a series of steps which are described below. 1. Prior to the acquisition, the Progressive Subsidiaries were owned by a legal entity (“Progressive Parent”) controlled by its individual owners (the “Selling Shareholders”), who work in and manage the Progressive business. 2. In conjunction with the acquisition, the Selling Shareholders caused the Progressive Parent to transfer its ownership of the Progressive Subsidiaries into a newly-formed limited liability company (“NewCo”), in exchange for one hundred percent ( 100 %) of the membership interests in NewCo. Therefore, in this step, NewCo became wholly-owned by the Selling Shareholders. 3. The Company entered into an agreement (the “Purchase Agreement”) to acquire from the Selling Shareholders a majority of the membership interest in NewCo. The consideration for the acquisition is primarily payable in the form of cash at closing, a relatively small portion paid in cash after the closing contingent on certain performance criteria, and a small note in lieu of an escrow (the “Purchase Price”). 4. The Company and the Selling Shareholders also executed an operating agreement (the “Operating Agreement”) for NewCo that sets forth the rights and obligations of the members of NewCo. 5. As noted above, the Company did not purchase 100 % of the membership interests in NewCo and the Selling Shareholders retained a portion of the membership interest in NewCo (“Selling Shareholders’ Interest”). 6. The Company and the Selling Shareholders executed a non-compete agreement (the “Non-Compete Agreement”) which restricts the Selling Shareholders from competing for a specified period of time (the “Non-Compete Term”). 7. The Non-Compete Term commences as of the date of the Acquisition and expires on the later of: a. Two years after the date a Selling Shareholder no longer is involved in the management of NewCo or b. Seven years from the date of the acquisition. 8. The Non-Compete Agreement applies to the entire United States. 9. The Put Right and the Call Right do not have an expiration date. The Operating Agreement contains provisions for the redemption of the Selling Shareholder’s Interest, either at the option of the Company (the “Call Right”) or at the option of the Selling Shareholder (the “Put Right”) as follows: 1. Put Right a. Each of the Selling Shareholders has the right to sell 30 % of their respective residual interests on each of the 4th and 5th anniversaries of the acquisition closing, and then 10 % on each of the 6th and 7th anniversaries. b. In the event that any Selling Shareholder terminates his management relationship with NewCo for any reason on or after the seventh anniversary of the Closing Date, the Selling Shareholder has the Put Right, and upon the exercise of the Put Right, the Selling Shareholder’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 ceases to perform management services on behalf of NewCo, the Company thereafter shall have an irrevocable right to purchase from such Selling Shareholder his Interest, in each case 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. 58 Table of Contents 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. Neither the Operating Agreement nor the Non-Compete Agreement contain any provision to escrow or “claw back” the equity interest in NewCo held by the Selling Shareholders, in the event of a breach of the operating agreement or non-compete terms, or the management services agreement pursuant to which the Selling Shareholders perform services on behalf of NewCo. The Company’s only recourse against the Selling Shareholder for breach of any of these agreements is to seek damages and other legal remedies under such agreements. There are no conditions in any of the arrangements with a Selling Shareholder that would result in a forfeiture of the equity interest in NewCo held by a Selling Shareholder. 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. For the years ended December 31, 2021, 2020 and 2019, the following table details the changes in the carrying amount (fair value) of the redeemable non-controlling interests (in thousands): Year Ended December 31, 2021 December 31, 2020 December 31, 2019 Beginning balance $ 132,340 $ 137,750 $ 133,943 Operating results allocated to redeemable non-controlling interest partners 11,358 11,175 10,659 Distributions to redeemable non-controlling interest partners ( 11,359 ) ( 12,403 ) ( 10,221 ) Changes in the fair value of redeemable non-controlling interest 13,011 4,632 11,893 Purchases of redeemable non-controlling interest ( 30,204 ) ( 20,521 ) ( 8,934 ) Acquired interest 39,862 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 982 1,133 3,120 Notes receivable related to sales of redeemable non-controlling interest - temporary equity ( 914 ) ( 1,006 ) ( 2,870 ) Adjustments in notes receivable related to the the sales of redeemable non-controlling interest - temporary equity 186 283 - Other - - 62 Ending balance $ 155,262 $ 132,340 $ 137,750 The following table categorizes the carrying amount (fair value) of the redeemable non-controlling interests (in thousands): December 31, 2021 December 31, 2020 December 31, 2019 Contractual time period has lapsed but holder's employment has not terminated $ 80,781 $ 62,390 $ 51,921 Contractual time period has not lapsed and holder's employment has not terminated 74,481 69,950 85,829 Holder's employment has terminated and contractual time period has expired - - - Holder's employment has terminated and contractual time period has not expired - - - $ 155,262 $ 132,340 $ 137,750 59 Table of Contents 6. Goodwill The changes in the carrying amount of goodwill as of December 31, 2021 and 2020 consisted of the following (in thousands): Year Ended December 31, 2021 Year Ended December 31, 2020 Beginning balance $ 345,646 $ 317,676 Goodwill acquired 89,746 28,540 Goodwill derecognition (write-off) related to closed clinics - ( 1,859 ) Goodwill adjustments for purchase price allocation of businesses acquired in prior year ( 713 ) 1,289 Ending balance $ 434,679 $ 345,646 During 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. 7. Intangible Assets, net Intangible assets, net as of December 31, 2021, and 2020 consisted of the following (in thousands): December 31, 2021 December 31, 2020 Tradenames $ 38,790 $ 32,317 Customer and referral relationships, net of accumulated amortization of $ 17,762 and $ 14,522 , respectively 45,643 22,119 Non-compete agreements, net of accumulated amortization of $ 6,450 and $ 5,993 , respectively 1,949 1,844 $ 86,382 $ 56,280 Tradenames, customer and 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 customer and 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, 2021, 2020 and 2019 (in thousands): December 31, 2021 December 31, 2020 December 31, 2019 Customer and referral relationships $ 3,240 $ 2,845 $ 2,307 Non-compete agreements 458 569 708 $ 3,698 $ 3,414 $ 3,015 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 customer and referral relationships and non-compete agreements are expected to be amortized as follows (in thousands): Customer and Referral Relationships Non-Compete Agreements Years Annual Amount Years Annual Amount Ending December 31, Ending December 31, 2022 $ 4,798 2022 $ 512 2023 $ 4,691 2023 $ 443 2024 $ 4,526 2024 $ 387 2025 $ 4,382 2025 $ 322 2026 $ 3,914 2026 $ 236 Thereafter $ 23,332 Thereafter $ 49 60 Table of Contents 8. Accrued Expenses Accrued expenses as of December 31, 2021 and 2020 consisted of the following (in thousands): December 31, 2021 December 31, 2020 Salaries and related costs $ 23,569 $ 24,646 Credit balances due to patients and payors 6,649 5,756 Group health insurance claims 1,984 2,113 Closure costs 498 1,333 Federal taxes payable 2,716 9,885 MAAPP funds payable - 14,054 Contingent payment related to acquisition 1,000 - Settlement of a legal matter 2,750 - Other 6,539 1,959 Total $ 45,705 $ 59,746 Federal taxes payable includes $ 4.2 million related to deferred employer payroll taxes pursuant to the CARES ACT offset by a federal income tax receivable of $ 1.5 million. 9. Notes Payable Notes payable as of December 31, 2021, and 2020 consisted of the following (in thousands): December 31, 2021 December 31, 2020 Credit Agreement average effective interest rate of 2.1 % for December 31, 2021 and December 31, 2020, (inclusive of unused fee) $ 114,000 $ 16,000 Various notes payable with $ 830 plus accrued interest due in the next year, interest accrues in the range of 3.25 % through 4.75 % per annum 4,417 5,495 $ 118,417 $ 21,495 Less current portion ( 830 ) ( 4,899 ) Long term portion $ 117,587 $ 16,596 Effective December 5, 2013, the Company entered into an Amended and Restated Credit Agreement with a commitment for a $ 125.0 million revolving credit facility. This agreement was amended in August 2015, January 2016, March 2017, November 2017, January 2021, and November 2021 (hereafter is referred to as “Amended Credit Agreement”). In November 2021, the Company exercised the accordion feature in the Amended Credit Agreement to increase the limit on the facility from $ 125.0 million to $ 150.0 million, with an updated accordion feature providing for additional capacity of $ 25.0 million, therefore increasing the availability up to $ 175.0 million. The Amended Credit Agreement is unsecured and has loan covenants, including requirements that we comply with a consolidated fixed charge coverage ratio and consolidated leverage ratio. Proceeds from the Amended Credit Agreement may be used for working capital, acquisitions, purchases of our common stock, dividend payments to our common stockholders, capital expenditures and other corporate purposes. The pricing grid is based on our consolidated leverage ratio with the applicable spread over LIBOR ranging from 1.25 % to 2.0 % or the applicable spread over the Base Rate ranging from 0.1 % to 1 %. Fees under the Amended Credit Agreement include an unused commitment fee of 0.3 % of the amount of funds outstanding under the Amended Credit Agreement. The 2021 amendment to the Amended Credit Agreement allows for cash and noncash consideration for acquisitions permitted under the Amended Credit Agreement of up to $ 50,000,000 for any fiscal year, and allows for payments in cash dividends to shareholders in an aggregate amount not to exceed $ 50,000,000 in any fiscal year. 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, 2021, $ 114.0 million was outstanding on the Amended Credit Agreement resulting in $ 61.0 million of availability. As of December 31, 2021, 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 2021, the Company entered into notes payable in the aggregate amount of $ 4.4 million of which an aggregate principal payment of $ 0.8 million was due in 2021 and $ 3.6 million is due in 2022. Interest accrues in the range of 3.25 % to 4.75 % per annum and is payable with each principal installment. The balance of the various notes payable entered into prior to 2021 was $ 3.6 million which will be paid in 2022 and 2023. 61 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, 2021 and 2020, the components of lease expense were as follows (in thousands): Year Ended December 31, 2021 2020 Operating lease cost $ 32,021 $ 30,710 Short-term lease cost 1,160 1,454 Variable lease cost 7,057 5,752 Total lease cost * $ 40,238 $ 37,916 * 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, 2021 and 2020, supplemental cash flow information related to leases was as follows (in thousands): Year Ended December 31, 2021 2020 Cash paid for amounts included in the measurement of operating lease liabilities (in thousands) $ 33,192 $ 30,307 Right-of-use assets obtained in exchange for new operating lease liabilities (in thousands) $ 46,088 $ 32,710 The aggregate future lease payments for operating leases as of December 31, 2021 were as follows (in thousands): Fiscal Year Amount 2022 $ 32,945 2023 27,467 2024 20,876 2025 14,000 2026 8,492 2027 and therafter 7,055 Total lease payments $ 110,835 Less: imputed interest 6,175 Total operating lease liabilities $ 104,660 62 Table of Contents Average lease terms and discount rates were as follows: Year Ended December 31, 2021 2020 Weighted-average remaining lease term - Operating leases 4.17 Years 4.05 Years Weighted-average discount rate - Operating leases 2.77 % 3.1 % 11. Income Taxes Significant components of deferred tax assets and liabilities included in the consolidated balance sheets at December 31, 2021 and 2020 were as follows (in thousands): December 31, 2021 December 31, 2020 Deferred tax assets: Compensation $ 2,817 $ 1,865 Allowance for credit losses 573 396 Acquired net operating losses - 558 Lease obligations - including closed clinics 26,856 23,819 Deferred tax assets $ 30,246 $ 26,638 Deferred tax liabilities: Depreciation and amortization $ ( 19,607 ) $ ( 12,650 ) Operating lease right-of-use assets ( 24,637 ) ( 21,419 ) Other ( 387 ) ( 348 ) Deferred tax liabilities ( 44,631 ) ( 34,417 ) Net deferred tax liability $ ( 14,385 ) $ ( 7,779 ) The deferred tax assets and liabilities related to purchased interests not yet finalized may result in an immaterial adjustment. During 2021, the Company recorded net deferred tax assets of $ 0.8 million related to the revaluation of redeemable non-controlling interests and acquisitions of non-controlling interests. In addition, during 2021, the Company recorded an adjustment to the deferred tax assets of $ 3.0 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 2020. The offset of this adjustment was a decrease to the previously reported state income tax receivable and a decrease to the federal income tax payable. As of December 31, 2021, the Company has a federal tax payable of $ 2.7 million and state tax receivables of $ 0.6 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, 2021, 2020 and 2019 were as follows (in thousands): December 31, 2021 December 31, 2020 December 31, 2019 U. S. tax at statutory rate $ 11,782 21.0 % $ 10,125 21.0 % $ 11,274 21.0 % State income taxes, net of federal benefit 2,478 4.4 % 1,956 3.9 % 2,059 3.8 % Excess equity compensation deduction ( 246 ) - 0.4 % ( 99 ) 0 .0% % ( 871 ) - 1.6 % Non-deductible expenses 1,258 2.2 % 1,040 2.1 % 1,185 2.2 % $ 15,272 27.2 % $ 13,022 27.0 % $ 13,647 25.4 % Significant components of the provision for income taxes for the years ended December 31, 2021, 2020 and 2019 were as follows (in thousands): December 31, 2021 December 31, 2020 December 31, 2019 Current: Federal $ 7,477 $ 10,506 $ 6,523 State 2,107 2,774 2,473 Total current 9,584 13,280 8,996 Deferred: Federal 4,866 ( 38 ) 3,730 State 822 ( 220 ) 921 Total deferred 5,688 ( 258 ) 4,651 Total income tax provision $ 15,272 $ 13,022 $ 13,647 63 Table of Contents For 2021, 2020 and 2019, 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 2018 through 2020 and U.S. state jurisdictions are open for periods ranging from 2017 through 2020 . The Company does not believe that it has any significant uncertain tax positions at December 31, 2021 and December 31, 2020, 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, 2021, 2020 and 2019. 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 . 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 . Year Ended December 31, 2021 2020 2019 Net operating revenue: Physical therapy operations $ 451,122 $ 383,770 $ 444,507 Industrial injury prevention services 43,900 39,199 37,462 Total Company $ 495,022 $ 422,969 $ 481,969 Gross profit: Physical therapy operations (excluding closure costs) (a non-GAAP measure) $ 106,518 $ 88,295 $ 104,120 Industrial injury prevention services 10,694 10,086 8,379 $ 117,212 $ 98,381 $ 112,499 Physical therapy operations - closure costs 30 3,931 25 Gross profit $ 117,182 $ 94,450 $ 112,474 Total Assets: Physical therapy operations $ 587,801 $ 499,911 $ 518,027 Industrial injury prevention services 161,625 94,450 112,474 Total Company $ 749,426 $ 594,361 $ 630,501 13. Investment in Unconsolidated Affiliate Through one of the subsidiaries, the Company has a 49 % joint venture interest in a company which provides physical therapy services for patients at hospitals. Since the Company is deemed to not have a controlling interest in the company, the Company’s investment is accounted for using the equity method of accounting. The investment balance of this joint venture as of December 31, 2021, is $ 12.2 million, of which $ 12.3 million related to the fair value on the date of acquisition. The $ 12.2 million includes earnings of $ 112 thousand less a distribution received of $ 153 thousand. 64 Table of Contents 14. 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, 2021 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 1,166,855 - 778,300 - 164,882 2,700,000 1,583,257 - 918,091 - 172,657 During 2021, 2020 and 2019, 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 2021 60,317 $ 131.29 2020 86,982 $ 104.69 2019 91,682 $ 104.85 During 2021, 2020 and 2019, the following shares were cancelled due to employee terminations prior to restrictions lapsing: Year Cancelled Number of Shares Weighted Average Fair Value Per Share 2021 439 $ 113.80 2020 10,037 $ 102.52 2019 1,578 $ 87.88 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 102,682 and 127,562 shares outstanding as of December 31, 2021 and December 31, 2020, respectively, for which restrictions had not lapsed. The restrictions will lapse in 2022 through 2025 . 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 $ 7.8 million, $ 7.9 million, and $ 7.0 million, respectively, for 2021, 2020 and 2019. As of December 31, 2021, the remaining $ 8.9 million of compensation expense will be recognized from 2022 through 2025. 65 Table of Contents 15. 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. 16. 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 156,986 shares (based on the closing price of $ 95.55 on December 31, 2021, the last business day in 2021) that may be purchased from time to time in the open market or private transactions depending on price, availability and the Company’s cash position. The Company did no t purchase any shares of its common stock during 2021 or 2020. 17. 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, 2021, 2020 and 2019. The Company matching contributions totaled $ 1.9 million, $ 1.9 million and $ 2.0 million, respectively, for the years ended December 31, 2021, 2020 and 2019. 18. Commitments and Contingencies Employment Agreements At December 31, 2021, the Company had outstanding employment agreements with four of its executive officers. The agreements have terms that expire November 8, 2022 , July 1, 2023 , December 31, 2023 , and February 28, 2024 ; however, each of these agreements provide for an automatic two-year renewal at the conclusion of the expiring term or renewal term. 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 $ 52.8 million in 2022 and $ 8.4 million in the aggregate from 2023 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. Litigation Settlement of a Legal Matter On August 19, 2019, we received notice of a qui tam lawsuit (“the Complaint”) filed by a relator on behalf of the United States, titled U.S. ex rel. Bonnie Elsdon, v. U.S. Physical Therapy, Inc., U.S. Physical Therapy, Ltd., Rehab Partners #2, Inc., The Hale Hand Center, Limited Partnership (the “Hale Partnership”), and Suzanne Hale. This whistleblower lawsuit was filed in the U.S. District Court for the Southern District of Texas, seeking damages and civil penalties under the federal False Claim Act. This lawsuit was originally filed under seal by a former employee of The Hale Hand Center, Limited Partnership (“Hale Partnership”), a majority-owned subsidiary of the Company, on May 25, 2018. The U.S Government declined to intervene in the case and unsealed the Complaint on July 17, 2019. 66 Table of Contents The Complaint alleged that the Hale Partnership engaged in conduct to purposely “upcode” its billings for services provided to Medicare patients. The plaintiff - relator also claimed that similar false claims occurred on other days and at other Company-owned partnerships. On October 3, 2019, we filed Motions to Dismiss based on numerous grounds on behalf of each of the named defendants. On October 29, 2019, the plaintiff-relator dismissed three of the named defendants, Rehab Partners #2, Inc., U.S. Physical Therapy, Ltd., and Suzanne Hale. The Motions to Dismiss were denied on November 30, 2020. In January 2022, to avoid the legal fees and discovery costs in defending this matter and the uncertainty of protracted litigation, the Company entered into a settlement agreement with the plaintiff-relator. In the settlement agreement, the plaintiff-relator released all defendants from liability for all conduct alleged in the Complaint, and the Company admitted no liability or wrongdoing. In connection with the settlement, the Office of the United States Attorney for the Southern District of Texas agreed to a dismissal of the claims against the Hale Partnership and the Company. Under the terms of the settlement, the Company agreed to make payments to the government, the plaintiff-relator and her counsel. Such payments, in the aggregate, amounted to $ 2.75 million of which $ 2.6 million was recorded as an expense in 2021 . 19. Earnings Per Share The computations of basic and diluted earnings per share for the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands, except per share data): Year Ended December 31, 2021 December 31, 2020 December 31, 2019 Computation of earnings per share - USPH shareholders: Net income attributable to USPH shareholders $ 40,831 $ 35,194 $ 40,039 (Charges) credit to retained earnings: Revaluation of redeemable non-controlling interest ( 13,011 ) ( 4,632 ) ( 11,893 ) Tax effect at statutory rate (federal and state) of 25.55 % and 26.25 %, respectively 3,324 1,216 3,121 $ 31,144 $ 31,778 $ 31,267 Earnings per share (basic and diluted) $ 2.41 $ 2.48 $ 2.45 Shares used in computation: Basic and diluted earnings per share - weighted-average shares 12,898 12,835 12,756 20. Related Party Transactions Settlement of Short Swing Profit Claim For the year ended December 31, 2021, the Company recorded approximately $ 20,000 related to the short swing profit settlement remitted by a shareholder of our company under Section 16(b) of the Securities Exchange Act of 1934, as amended. The Company recognized the proceeds as an increase to additional paid-in capital in the consolidated balance sheets as of December 31, 2021 and consolidated statements of stockholders’ equity, as well as in cash provided by financing activities included in Other, in the consolidated statements of cash flows, for the year ended December 31, 2021. 21. Reclassification of Prior Period Presentation Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. ITEM 9A. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures Our management, including our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Exchange Act) as of the end of the fiscal period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in ensuring that the information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. U.S. Physical Therapy, Inc. and subsidiaries’ (the “Company”) internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: • Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; 67 Table of Contents • Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and • Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, the risk. Management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria described in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In accordance with guidance issued by the SEC, recently acquired businesses may be excluded from management’s assessment of the effectiveness of the Company’s internal control over financial reporting in the year of acquisition. Accordingly, management excluded the November 2021 Acquisition from management’s assessment of the effectiveness of the Company’s internal control over financial reporting from the November 30, 2021, acquisition date, which excluded total assets and total net revenues representing approximately 13.3% and 0.4%, respectively, of the Company’s related consolidated financial statement amounts as of and for the year ended December 31, 2021. Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2021. The Company’s internal control over financial reporting has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their report included on page 39. Changes in Internal Control over Financial Reporting In November 2021, we completed an acquisition of a leading provider of industrial injury prevention services. As part of our ongoing integration activities, we are currently in the process of implementing internal controls and procedures at the newly acquired entity. Except for the integration of the newly acquired entity noted above, there were no changes in our internal control over financial reporting during the quarter ended December 31, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION. Not applicable. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. The information required in response to this Item 10 is incorporated herein by reference to our definitive proxy statement relating to our 2022 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year covered by this report. ITEM 11. EXECUTIVE COMPENSATION. The information required in response to this Item 11 is incorporated herein by reference to our definitive proxy statement relating to our 2022 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year covered by this report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The information required in response to this Item 12 is incorporated herein by reference to our definitive proxy statement relating to our 2022 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year covered by this report. 68 Table of Contents ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. The information required in response to this Item 13 is incorporated herein by reference to our definitive proxy statement relating to our 2022 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year covered by this report. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. The information required in response to this Item 14 is incorporated herein by reference to our definitive proxy statement relating to our 2022 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year covered by this report. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Documents filed as a part of this report: 1. Financial Statements. Reference is made to the Index to Financial Statements and Related Information under Item 8 in Part II hereof, where these documents are listed. 2. Financial Statement Schedules. See page 85 for Schedule II — Valuation and Qualifying Accounts. All other schedules are omitted because of the absence of conditions under which they are required or because the required information is shown in the financial statements or notes thereto. 3. Exhibits. The exhibits listed in List of Exhibits on the next page are filed or incorporated by reference as part of this report. ITEM 16. Form 10-K Summary None. 69 Table of Contents EXHIBIT INDEX LIST OF EXHIBITS Number ​ Description 3.1 ​ Articles of Incorporation of the Company [filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended June 30, 2001 and incorporated herein by reference]. ​ 3.2 ​ Amendment to the Articles of Incorporation of the Company [filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended June 30, 2001 and incorporated herein by reference]. ​ 3.3 ​ Bylaws of the Company, as amended [filed as an exhibit to the Company’s Form 10-KSB for the year ended December 31, 1993 and incorporated herein by reference—Commission File Number—1-11151]. ​ 4.1* ​ Description of Company Securities [filed herewith the Company’s Form 10-K for the year ended December 31, 2019 filed with the SEC on February 28, 2020.] ​ 10.1+ ​ 1999 Employee Stock Option Plan (as amended and restated May 20, 2008) [incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A, filed with the SEC on April 17, 2008]. ​ 10.2+ ​ U.S. Physical Therapy, Inc. 2003 Stock Incentive Plan, (as amended and restated effective March 26, 2016) [incorporated herein by reference to Appendix A to the Company's Definitive Proxy Statement on Schedule 14A filed with the SEC on April 7, 2016.] ​ 10.3+ ​ U. S. Physical Therapy, Inc. Long-Term Incentive Plan for Senior Management for 2013, effective March 27, 2013 [incorporated by reference to Exhibit 99.1 to the Company Current Report on Form 8-K filed with the SEC on April 1, 2013]. ​ 10.4+ ​ U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for 2013, effective March 27, 2013 [incorporated by reference to Exhibit 99.2 to the Company Current Report on Form 8-K filed with the SEC on April 1, 2013]. ​ 10.5+ ​ U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for 2013, effective March 27, 2013 [incorporated by reference to Exhibit 99.3 to the Company Current Report on Form 8-K filed with the SEC on April 1, 2013]. ​ 10.6+ ​ U. S. Physical Therapy, Inc. Long-Term Incentive Plan for Senior Management for 2014, effective March 21, 2014 [incorporated by reference to Exhibit 99.1 to the Company Current Report on Form 8-K filed with the SEC on March 27, 2014]. ​ 10.7+ ​ U. S. Physical Therapy, Inc. Discretionary Long-Term Incentive Plan for Senior Management for 2014, effective March 21, 2014 [incorporated by reference to Exhibit 99.2 to the Company Current Report on Form 8-K filed with the SEC on March 27, 2014]. ​ 10.8+ ​ U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2014, effective March 21, 2014 [incorporated by reference to Exhibit 99.3 to the Company Current Report on Form 8-K filed with the SEC on March 27, 2014]. ​ 10.9+ ​ U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2014, effective March 21, 2014 [incorporated by reference to Exhibit 99.4 to the Company Current Report on Form 8-K filed with the SEC on March 27, 2014]. ​ 10.10+ ​ U. S. Physical Therapy, Inc. Long Term Incentive Plan for Senior Management for 2015, effective March 23, 2015 [incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 27, 2015.] 70 Table of Contents Number ​ Description 10.11+ ​ U.S. Physical Therapy, Inc. Discretionary Long Term Incentive Plan for Senior Management for 2015, effective March 23, 2015 [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 27, 2015.] ​ 10.12+ ​ U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2015, effective March 23, 2015 [incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 27, 2015.] ​ 10.13+ ​ U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2015, effective March 23, 2015 [incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC on March 27, 2015.] ​ 10.14+ ​ U. S. Physical Therapy, Inc. Objective Long Term Incentive Plan for Senior Management for 2016, effective March 10, 2016 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2016]. ​ 10.15+ ​ U. S. Physical Therapy, Inc. Discretionary Long Term Incentive Plan for Senior Management for 2016, effective March 10, 2016 [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2016]. ​ 10.16+ ​ U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2016, effective March 10, 2016 [incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2016]. ​ 10.17+ ​ U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2016, effective March 10, 2016 [incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2016]. ​ 10.18+ ​ Form of Restricted Stock Agreement [incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2016]. ​ 10.19+ ​ U. S. Physical Therapy, Inc. Long-Term Incentive Plan for Senior Management for 2017, effective March 24, 2017 [incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K/A filed with the SEC on February 9, 2018.] ​ 10.20+ ​ U. S. Physical Therapy, Inc. Discretionary Long –Term Incentive Plan for Senior Management for 2017, effective March 24, 2017 [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 30, 2017.] ​ 10.21+ ​ U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2017, effective March 24, 2017 [incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 30, 2017.] ​ 10.22+ ​ U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2017, effective March 24, 2017 [incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC on March 30, 2017.] ​ 10.23+ ​ U. S. Physical Therapy, Inc. Objective Long-Term Incentive Plan for Senior Management for 2018, effective April 9, 2018 [incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 12, 2018.] ​ 10.24+ ​ U. S. Physical Therapy, Inc. Discretionary Long-Term Incentive Plan for Senior Management for 2018, effective April 9, 2018 [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on April 12, 2018.] 71 Table of Contents Number ​ Description 10.25+ ​ U. S. Physical Therapy, Inc. Objective Cash/RSA Bonus Plan for Senior Management for 2018, effective April 9, 2018 [incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on April 12, 2018.] ​ 10.26+ ​ U. S. Physical Therapy, Inc. Discretionary Cash/RSA Bonus Plan for Senior Management for 2018, effective April 9, 2018 [incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC on April 12, 2018.] ​ 10.27+ ​ Second Amended and Restated Credit Agreement dated as of November 10, 2017 among the Company, as Borrower, Bank of America, N.A. as Administrative Agent and the Lenders Patty (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 14, 2017). ​ 10.28+ ​ Second Amended and Restated Employment Agreement by and between the Company and Christopher J. Reading dated effective February 9, 2016 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on February 12, 2016]. ​ 10.29+ ​ Second Amended and Restated Employment Agreement by and between the Company and Lawrance W. McAfee dated effective February 9, 2016 [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on February 12, 2016]. ​ 10.30+ ​ Amended and Restated Employment Agreement by and between the Company and Glenn D. McDowell dated effective February 9, 2016 [incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on February 12, 2016]. ​ 10.31+ ​ Employment Agreement commencing on March 1, 2018 by and between the Company and Graham Reeve [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 7, 2018]. ​ 10.32+ ​ Objective Long-Term Incentive Plan for Senior Management [incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 8, 2019.] ​ 10.33+ ​ Discretionary Long-Term Incentive Plan for Senior Management [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 8, 2019.] ​ 10.34+ ​ Objective Cash/RSA Bonus Plan for Senior Management [incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 8, 2019.] ​ 10.35+ ​ Discretionary Cash/RSA Bonus Plan for Senior Management [incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC on March 8, 2019.] ​ 10.36+ ​ Third Amended and Restated Employment Agreement by and between the Company and Christopher J. Reading dated effective May 21, 2019 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 22, 2019] ​ 10.37+ ​ Third Amended and Restated Employment Agreement by and between the Company and Lawrance W. McAfee dated effective May 21, 2019 [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 22, 2019] 72 Table of Contents Number ​ Description 10.38+ ​ Second Amended and Restated Employment Agreement by and between the Company and Glenn D. McDowell dated effective May 21, 2019 [incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2019] ​ 10.39+ ​ Amended & Restated Employment Agreement commencing by and between the Company and Graham Reeve dated effective May 21, 2019 [incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2019] ​ 10.40+ ​ Restricted Stock Agreement [incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2019] ​ 10.41+ ​ U. S. Physical Therapy, Inc. Objective Long-Term Incentive Plan for Senior Management for 2020, effective March 3, 2020 [incorporated by reference to Exhibit 99.1 to the Company Current Report on Form 8-K filed with the SEC on March 6, 2020]. ​ 10.42+ ​ Amendment to Employment Agreement entered into as of March 26, 2020 by and between the Company and Christopher Reading [incorporated by reference to Exhibit 10.3 to the Company Current Report on Form 8-K filed with the SEC on March 26, 2020]. 10.43+ ​ Amendment to Employment Agreement entered into as of March 26, 2020 by and between the Company and Lawrance McAfee [incorporated by reference to Exhibit 10.3 to the Company Current Report on Form 8-K filed with the SEC on March 26, 2020]. 10.44+ ​ Amendment to Employment Agreement entered into as of March 26, 2020 by and between the Company and Glenn McDowell [incorporated by reference to Exhibit 10.3 to the Company Current Report on Form 8-K filed with the SEC on March 26, 2020]. ​ 10.45+ ​ Amendment to Employment Agreement entered into as of March 26, 2020 by and between the Company and Graham Reeve [incorporated by reference to Exhibit 10.4 to the Company Current Report on Form 8-K filed with the SEC on March 26, 2020]. ​ 10.46+ ​ U. S. Physical Therapy, Inc. Objective Long-Term Incentive Plan for Senior Management for 2020, effective March 3, 2020 [incorporated by reference to Exhibit 99.1 to the Company Current Report on Form 8-K filed with the SEC on March 6, 2020]. ​ 10.47+ ​ U. S. Physical Therapy, Inc. Discretionary Long-Term Incentive Plan for Senior Management for 2020, effective March 3, 2020 [incorporated by reference to Exhibit 99.2 to the Company Current Report on Form 8-K filed with the SEC on March 6, 2020]. ​ 10.48+ ​ U. S. Physical Therapy, Inc. Objective Cash/RSA Bonus Plan for Senior Management for 2020, effective March 3, 2020 [incorporated by reference to Exhibit 99.3 to the Company Current Report on Form 8-K filed with the SEC on March 6, 2020]. ​ 10.49+ ​ U. S. Physical Therapy, Inc. Discretionary Cash/RSA Bonus Plan for Senior Management for 2020, effective March 3, 2020 [incorporated by reference to Exhibit 99.4 to the Company Current Report on Form 8-K filed with the SEC on March 6, 2020]. ​ 10.50+ ​ Employment Agreement entered into as of November 9, 2020 by and between U.S. Physical Therapy and Carey Hendrickson [incorporated by reference to Exhibit 10.1 to the Company Current Report on Form 8-K filed with the SEC on September 23, 2020.] ​ 10.51+ ​ Consulting Agreement entered into as of September 22, 2020 by and between U.S. Physical Therapy and Lawrence McAfee [incorporated by reference to Exhibit 10.1 to the Company Current Report on Form 8-K filed with the SEC on September 23, 2020.] 10.52+ ​ Employment Agreement by and between the Company and Eric Williams entered into on December 3, 2020 and commencing as of July 1, 2021 [filed by reference to Exhibit 10.1 to the Company Current Report on Form 8-K filed with the SEC on December 7, 2020.] 10.53+ ​ First Amendment to Second Amended and Restated Credit Agreement [filed by reference to Exhibit 10.1 to the Company Current Report on Form 8-K filed with the SEC on February 4, 2021.] ​ 10.54+ ​ Second Amendment to Second Amended and Restated Credit Agreement. * 73 Table of Contents Number Description 21.1* Subsidiaries of the Registrant 23.1* Consent of Independent Registered Public Accounting Firm—Grant Thornton LLP 31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended 31.2* Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended 31.3* Certification of Controller pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended 32.1* Certification of Periodic Report of the Chief Executive Officer, Chief Financial Officer and Controller pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS* XBRL Instance Document 101.SCH* XBRL Taxonomy Extension Schema Document 101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* XBRL Taxonomy Extension Label Linkbase Document 101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document * Filed herewith + Management contract or compensatory plan or arrangement. 74 Table of Contents FINANCIAL STATEMENT SCHEDULE* SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES (In Thousands) Balance at Beginning of Period Additions Charged to Costs and Expenses Additions Charged to Other Accounts Deductions Balance at End of Period YEAR ENDED DECEMBER 31, 2021 : Reserves and allowances deducted from asset accounts: Allowance for credit losses (1) $ 2,008 $ 5,305 - $ 4,545 (2) $ 2,768 YEAR ENDED DECEMBER 31, 2020 : Reserves and allowances deducted from asset accounts: Allowance for credit losses $ 2,698 $ 4,623 - $ 5,313 (2) $ 2,008 YEAR ENDED DECEMBER 31, 2019 : Reserves and allowances deducted from asset accounts: Allowance for credit losses $ 2,672 $ 4,858 - $ 4,832 (2) $ 2,698 (1) Related to patient accounts receivable and accounts receivable-other. (2) Uncollectible accounts written off, net of recoveries. * All other schedules are omitted because of the absence of conditions under which they are required or because the required information is shown in the financial statements or notes thereto. 75 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. U.S. PHYSICAL THERAPY, INC. (Registrant) By: /s/ Carey Hendrickson Carey Hendrickson Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) By: /s/ Jon C. Bates Jon C. Bates Vice President/Controller Date: March 1, 2022 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of the date indicated above. /s/ Chris J. Reading Chief Executive Officer, President and Director (Principal Executive Officer) March 1, 2022 Chris J. Reading /s/ Edward L. Kuntz Chairman of the Board March 1, 2022 Edward L. Kuntz /s/ Mark J. Brookner Director March 1, 2022 Mark J. Brookner /s/ Harry S. Chapman Director March 1, 2022 Harry S. Chapman /s/ Bernard A. Harris Director March 1, 2022 Dr. Bernard A. Harris, Jr. 76 Table of Contents /s/ Kathleen A. Gilmartin Director March 1, 2022 Kathleen A. Gilmartin /s/ Anne Motsenbocker Director March 1, 2022 Anne Motsenbocker /s/ Reginald E. Swanson Director March 1, 2022 Reginald E. Swanson /s/ Clayton K. Trier Director March 1, 2022 Clayton K. Trier 77