What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2023-02-28 compared with 2022-03-01 · 22 added, 2604 removed, 6 unchanged (100% of the section changed)

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.

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 February 28, 2023, there were 83 holders of record of our outstanding common stock.

On February 21, 2023, our Board of Directors declared a dividend of $0.43 per share which will be paid on April 7, 2023 to shareholders of record as of March 10, 2023.

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

During 2022, we paid a quarterly

dividend of $0.41 per quarter, totaling $1.64 per share for the year, which amounted to total aggregate cash payments of dividends to holders of our common stock in 2022 of approximately $21.3 million.

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.

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”).

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

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.

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, 2017 through December 31, 2022.

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, 2017 and that any dividends were reinvested.

Comparison of Five Years Cumulative Total Return for the Year Ended December 31, 2022

U.S Physical Therapy.

Physical Therapy, Inc

NYSE Composite

NYSE Healthcare Index

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.

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

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

December 2021 Acquisition

December 31, 2021

November 2021 Acquisition

November 30, 2021

September 2021 Acquisition

September 30, 2021

June 2021 Acquisition

June 30, 2021

March 2021 Acquisition

March 31, 2021

November 2020 Acquisition

November 30, 2020

September 2020 Acquisition

September 30, 2020

February 2020 Acquisition

February 27, 2020

September 2019 Acquisition

September 30, 2019

April 2019 Acquisition

April 11, 2019

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

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.

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.

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”).

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.

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:

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

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.

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

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):

December 31, 2021

December 31, 2020

December 31, 2019

Net patient revenue

Other revenue

Physical therapy operations

Management contract revenue

Industrial injury prevention services revenue

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.

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,

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):

Gross patient accounts receivable

Less contractual allowances

Subtotal - accounts receivable

Less allowance for credit losses

Net patient accounts receivable

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

Managed Care/ Commercial Plans

Medicare/Medicaid

Workers Compensation*

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.

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.

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.

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.

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.

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

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.

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.

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:

Year ended December 31, 2021

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,

Number of clinics, at the end of period

Average visits per day per clinic

Total patient visits

Net patient revenue per visit

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.

below (in thousands, except per share data):

For the Year Ended December 31,

Computation of earnings per share - USPH shareholders:

Net income attributable to USPH shareholders

(Charges) credit to retained earnings:

Revaluation of redeemable non-controlling interest

Tax effect at statutory rate (federal and state) of 25.55% and 26.25%, respectively

Earnings per share (basic and diluted)

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

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):

For the Year Ended December 31,

Computation of earnings per share - USPH shareholders:

Net income attributable to USPH shareholders

Credit (charges) to retained earnings:

Revaluation of redeemable non-controlling interest

Tax effect at statutory rate (federal and state) of 25.55% and 26.25%, respectively

Earnings per share (basic and diluted)

Closure costs

Expenses related to executive officers transition

Gain on sale of partnership interest and clinics

Settlement of a liability

Allocation to non-controlling interest

Revaluation of redeemable non-controlling interest

Tax effect at statutory rate (federal and state) of 25.55% and 26.25%, respectively

Operating Results (excluding Relief Funds) (a non-GAAP measure)

Allocation to non-controlling interest

Tax effect at statutory rate (federal and state) of 25.55% and 26.25%, respectively

Operating Results (including Relief Funds) (a non-GAAP measure)

Basic and diluted Operating Results per share (excluding Relief Funds) (a non-GAAP measure)

Basic and diluted Operating Results per share (including Relief Funds) (a non-GAAP measure)

Shares used in computation - basic and diluted

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.

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):

December 31, 2021

December 31, 2020

Revenue related to Mature Clinics

Revenue related to 2021 Clinic Additions

Revenue related to 2020 Clinic Additions

Revenue from clinics sold or closed in 2021

Revenue from clinics sold or closed in 2020

Net patient revenue from physical therapy operations

Other revenue

Revenue from physical therapy operations

Management contract revenue

Industrial injury prevention services

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.

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.

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):

December 31, 2021

December 31, 2020

Operating cost related to Mature Clinics

Operating cost related to 2021 Clinic Additions

Operating cost related to 2020 Clinic Additions

Operating cost related to clinics sold or closed in 2021

Operating cost related to clinics sold or closed in 2020

Closure costs

Physical therapy operations

Physical therapy management contracts

Industrial injury prevention services

Total operating cost

Physical therapy operations - closure costs

Total operating cost excluding closure costs (a non-GAAP measure)

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):

December 31, 2021

December 31, 2020

Physical therapy operations

Salaries and related costs related to Mature Clinics

Salaries and related costs related to 2021 Clinic Additions

Salaries and related costs related to 2020 Clinic Additions

Salaries and related costs related to clinics sold or closed in 2021

Salaries and related costs related to clinics sold or closed in 2020

Total Physical therapy operations

Physical therapy management contracts

Industrial injury prevention services

Total salaries and related costs

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%.

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):

December 31, 2021

December 31, 2020

Physical therapy operations

Rent, supplies, contract labor and other costs related to Mature Clinics

Rent, supplies, contract labor and other costs related to 2021 Clinic Additions

Rent, supplies, contract labor and other costs related to 2020 Clinic Additions

Rent, supplies, contract labor and other costs related to clinics sold or closed in 2021

Rent, supplies, contract labor and other costs related to clinics sold or closed in 2020

Total Physical therapy operations

Physical therapy management contracts

Industrial injury prevention services

Total rent, supplies, contract labor and other costs

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, 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

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):

December 31, 2021

December 31, 2020

Physical therapy operations

Management contracts

Industrial injury prevention services

Physical therapy operations - closure costs

Gross profit, excluding closure costs (a non-GAAP measure)

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.

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):

December 31, 2021

December 31, 2020

Income before taxes

net income attributable to non-controlling interest:

Redeemable non-controlling interest - temporary equity

Non-controlling interest - permanent equity

Income before taxes less net income attributable to non-controlling interest

Provision for income taxes

Effective tax rate

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

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

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%.

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

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

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

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.

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

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

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.

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):

Credit Agreement

Notes Payable

Interest Payable

Employee Agreements

Operating Leases

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.

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”).

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.

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

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

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.

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.

FINANCIAL STATEMENTS AND

SUPPLEMENTARY DATA.

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 )

Audited Financial Statements:

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019

Consolidated Statements of Changes in Equity for the years ended December 31, 2021, 2020 and 2019

Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2021

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

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

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2004.

Houston, Texas

March 1, 2022

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

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.

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

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,

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

PHYSICAL THERAPY, INC.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

December 31, 2021

December 31, 2020

Current assets:

Cash and cash equivalents

Patient accounts receivable, less allowance for credit losses of $ 2,768 and $ 2,008 , respectively

Accounts receivable - other

Other current assets

Total current assets

Fixed assets:

Furniture and equipment

Leasehold improvements

Fixed assets, gross

Less accumulated depreciation and amortization

Fixed assets, net

Operating lease right-of-use assets

Investment in unconsolidated affiliate

Other identifiable intangible assets, net

LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST, USPH

SHAREHOLDERS’ EQUITY AND NON-CONTROLLING INTEREST

Current liabilities:

Accounts payable - trade

Accounts payable - due to seller of acquired business

Accrued expenses

Current portion of operating lease liabilities

Current portion of notes payable

Total current liabilities

Notes payable, net of current portion

Revolving line of credit

Deferred taxes

Operating lease liabilities, net of current portion

Other long-term liabilities

Total liabilities

Redeemable non-controlling interest - temporary equity

Commitments and Contingencies

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

Additional paid-in capital

Retained earnings

Treasury stock at cost, 2,214,737 shares

Total USPH shareholders’ equity

Non-controlling interest - permanent equity

Total USPH shareholders' equity and non-controlling interest - permanent equity

Total liabilities, redeemable non-controlling interest, USPH shareholders' equity and

non-controlling interest - permanent equity

See notes to consolidated financial statements.

PHYSICAL THERAPY, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

December 31, 2021

December 31, 2020

December 31, 2019

Net patient revenue

Other revenue

Operating cost:

Salaries and related costs

Rent, supplies, contract labor and other

Provision for credit losses

Closure costs - lease and other

Closure costs - derecognition of goodwill

Total operating cost

Corporate office costs

Operating income

Other income and expense

Gain on sale of partnership interest and clinics

Settlement of a legal matter

Resolution of a payor matter

Equity in earnings of unconsolidated affiliate

Interest and other income, net

Interest expense - debt and other

Total other income and expense

Income and equity in earnings of unconsolidated affiliates before taxes

Provision for income taxes

net income attributable to non-controlling interest:

Redeemable non-controlling interest - temporary equity

Non-controlling interest - permanent equity

Net income attributable to USPH shareholders

Basic and diluted earnings per share attributable to USPH shareholders

Shares used in computation - basic and diluted

Dividends declared per common share

See notes to consolidated financial statements.

PHYSICAL THERAPY, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands)

Physical Therapy, Inc.

Paid-In Capital

Treasury Stock

Total Shareholders’

Non-Controlling

Balance January 1, 2019

Issuance of restricted stock, net of cancellations

Revaluation of redeemable non-controlling interest, net of tax

Compensation expense - equity-based awards

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

Purchase of partnership interests - non-controlling interest

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

Dividends paid to USPT shareholders

Distributions to non-controlling interest partners - permanent equity

Net income attributable to non-controlling interest - permanent equity

Net income attributable to USPH shareholders

Balance December 31, 2019

Physical Therapy, Inc.

Paid-In Capital

Treasury Stock

Total Shareholders’

Non-Controlling

Issuance of restricted stock, net of cancellations

Revaluation of redeemable non-controlling interest, net of tax

Compensation expense - equity-based awards

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

Purchase of partnership interests - non-controlling interest

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

Dividends paid to USPT shareholders

Distributions to non-controlling interest partners - permanent equity

Net income attributable to non-controlling interest - permanent equity

Net income attributable to USPH shareholders

Balance December 31, 2020

Physical Therapy, Inc.

Paid-In Capital

Treasury Stock

Total Shareholders’

Non-Controlling

Issuance of restricted stock, net of cancellations

Revaluation of redeemable non-controlling interest, net of tax

Compensation expense - equity-based awards

Purchase of partnership interests - non-controlling interest

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

Dividends paid to USPT shareholders

Distributions to non-controlling interest partners - permanent equity

Short swing profit settlement

Net income attributable to non-controlling interest - permanent equity

Net income attributable to USPH shareholders

Balance December 31, 2021

See notes to consolidated financial statements.

PHYSICAL THERAPY, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

December 31, 2021

December 31, 2020

December 31, 2019

OPERATING ACTIVITIES

Net income including non-controlling interest and earnings from unconsolidated affiliates, net

Adjustments to reconcile net income including non-controlling interest to net cash provided by

operating activities:

Depreciation and amortization

Provision for credit losses

Equity-based awards compensation expense

Deferred income taxes

Gain on sale of partnership interest

Derecognition (write-off) of goodwill - closed clinics

Earnings in unconsolidated affiliate

Changes in operating assets and liabilities:

(Increase) decrease in patient accounts receivable

(Increase) decrease in accounts receivable - other

(Increase) decrease in other assets

Increase (decrease) in accounts payable and accrued expenses

Increase (decrease) in other long-term liabilities

Net cash provided by operating activities

INVESTING ACTIVITIES

Purchase of fixed assets

Purchase of majority interest in businesses, net of cash acquired

Purchase of redeemable non-controlling interest, temporary equity

Purchase of non-controlling interest, permanent equity

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

Proceeds on sales of partnership interest, clinics and fixed assets

Distributions from unconsolidated affiliate

Sales of non-controlling interest-permanent

Net cash used in investing activities

FINANCING ACTIVITIES

Distributions to non-controlling interest, permanent and temporary equity

Cash dividends paid to shareholders

Proceeds from revolving line of credit

Payments on revolving line of credit

Principal payments on notes payable

(Payment) receipt of Medicare Accelerated and Advance Funds

Net cash provided by (used in) financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents - beginning of period

Cash and cash equivalents - end of period

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the period for:

Non-cash investing and financing transactions during the period:

Purchase of businesses - seller financing portion

Purchase of business - payable to common shareholders of acquired business

Notes payable related to purchase of redeemable non-controlling interest, temporary equity

Notes payable due to purchase of non-controlling interest, permanent equity

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

Note receivables related to sale of partnership interest

See notes to consolidated financial statements.

PHYSICAL THERAPY, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2021, 2020 and 2019

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”).

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.

December 2021 Acquisition

December 31, 2021

November 2021 Acquisition

November 30, 2021

September 2021 Acquisition

September 30, 2021

June 2021 Acquisition

June 30, 2021

March 2021 Acquisition

March 31, 2021

November 2020 Acquisition

November 30, 2020

September 2020 Acquisition

September 30, 2020

February 2020 Acquisition

February 27, 2020

September 2019 Acquisition

September 30, 2019

April 2019 Acquisition

April 11, 2019

Industrial injury prevention

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.

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.

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.

During the year ended December 31, 2021, the Company sold two clinics.

The aggregate sales price was $ 0.1 million.

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.

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.

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.

Significant Accounting Policies

Cash Equivalents

The Company maintains its cash and cash equivalents at financial institutions.

The Company considers all highly liquid investments

with a maturity of three months or less when purchased to be cash equivalents.

The combined account balances at several institutions typically exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is a

concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage.

Management believes that this risk is not significant.

Long-Lived Assets

Fixed assets are stated at cost.

Depreciation is computed on the straight-line method over the estimated useful lives of the

related assets.

Estimated useful lives for furniture and equipment range from three to eight years and for software purchased from three to seven years .

Leasehold improvements are amortized over the shorter of the related lease term or estimated useful lives of the assets, which is generally

three to five years .

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of

The Company reviews property and equipment

and intangible assets with finite lives for impairment upon the occurrence of certain events or circumstances that indicate the related amounts may be impaired.

Assets to be disposed of are reported at the lower of the carrying amount or fair value

less costs to sell.

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 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.

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.

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.

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.

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.

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.

there is an implied contract between us and the patient upon each patient visit.

Separate contractual arrangements exist between us and third-party payors (e.g.

insurers, managed care programs, government programs, workers' compensation) which

establish the amounts the third parties pay on behalf of the patients for covered services rendered.

While these agreements are not considered contracts with the customer, they are used for determining the transaction price for services provided

to the patients covered by the third party payors.

The payor contracts do not indicate performance obligations for us, but indicate reimbursement rates for patients who are covered by those payors when the services are provided.

At that time, the

Company is obligated to provide services for the reimbursement rates stipulated in the payor contracts.

The execution of the contract alone does not indicate a performance obligation.

For self-paying customers, the performance obligation exists

when we provide the services at established rates.

The difference

between the Company’s established rate and the anticipated reimbursement rate is accounted for as an offset to revenue — contractual allowance.

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

December 31, 2021

December 31, 2020

December 31, 2019

Net patient revenue

Other patient revenue

Physical therapy operations

Physical therapy management contracts

Industrial injury prevention services

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.

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

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

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

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.

typically performed over the contract period and revenue is recorded at the point of service.

If the services are paid in advance, revenue is recorded as a contract liability over the period of the agreement and recognized at the point in time,

when the services are performed.

Contractual Allowances

The allowance for estimated contractual adjustments is based on terms of payor contracts and historical collection and write-off

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.

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.

provision for credit losses is included in operating costs in the statements of net income.

Patient accounts receivable, which are stated at the historical carrying amount net of contractual allowances, write-offs and allowance for credit losses,

includes only those amounts the Company estimates to be collectible.

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

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.

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

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

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

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.

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

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.

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

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”).

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.

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.

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

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

Acquisitions of Businesses

During 2021, 2020 and 2019, the Company acquired a majority interest in the following businesses:

December 2021 Acquisition

December 31, 2021

November 2021 Acquisition

November 30, 2021

September 2021 Acquisition

September 30, 2021

June 2021 Acquisition

June 30, 2021

March 2021 Acquisition

March 31, 2021

November 2020 Acquisition

November 30, 2020

September 2020 Acquisition

September 30, 2020

February 2020 Acquisition

February 27, 2020

September 2019 Acquisition

September 30, 2019

April 2019 Acquisition

April 11, 2019

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.

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.

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

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.

The purchase price for the 2021 acquisitions has been preliminarily allocated as follows (in thousands):

Physical Therapy Operations

Cash paid, net of cash acquired

Contingent payments

Other payable

Seller put right

Total consideration

Estimated fair value of net tangible assets acquired:

Total current assets

Total non-current assets

Total liabilities

Net tangible assets acquired

Customer and referral relationships

Non-compete agreements

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

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 %

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

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

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

Total consideration

Estimated fair value of net tangible assets acquired:

Total current assets

Total non-current assets

Total liabilities

Net tangible assets acquired

Referral relationships

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

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.

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):

Physical Therapy Operations

Cash paid, net of cash acquired ($ 890 )

Payable to shareholders of seller

Total consideration

Estimated fair value of net tangible assets acquired:

Total current assets

Total non-current assets

Total liabilities

Net tangible assets acquired

Referral relationships

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

* 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

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.

Acquisitions and Sale of Non-Controlling Interests

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

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.

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.

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.

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.

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.

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.

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”).

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

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,

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.

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.

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.

The Non-Compete Term commences as of the date of the Acquisition and expires on the later

Two years after the date an Employed Selling

Shareholders’ employment is terminated (if the Selling Shareholder becomes an Employed Selling Shareholder) or

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.

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:

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.

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.

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.

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.

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.

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.

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.

The Put Right and the Call Right do not have an expiration date.

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.

ProgressiveHealth

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.

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.

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

Therefore, in this step, NewCo became wholly-owned by the Selling Shareholders.

The Company entered into an agreement (the “Purchase Agreement”) to acquire from the Selling Shareholders a majority of the membership interest in NewCo.

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”).

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.

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”).

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”).

The Non-Compete Term commences as of the date of the Acquisition and expires on the later

Two years after the date a Selling Shareholder

no longer is involved in the management of NewCo or

Seven years from the date of the acquisition.

The Non-Compete Agreement applies to the entire United States.

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:

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.

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.

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.

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.

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.

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):

December 31, 2021

December 31, 2020

December 31, 2019

Beginning balance

Operating results allocated to redeemable non-controlling interest partners

Distributions to redeemable non-controlling interest partners

Changes in the fair value of redeemable non-controlling interest

Purchases of redeemable non-controlling interest

Acquired interest

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

Sales of redeemable non-controlling interest - temporary equity

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

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

temporary equity

Ending balance

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

Contractual time period has not lapsed and holder's employment has not terminated

Holder's employment has terminated and contractual time period has expired

Holder's employment has terminated and contractual time period has not expired

The changes in the carrying amount of goodwill as of December 31, 2021 and 2020 consisted of the following (in thousands):

December 31, 2021

December 31, 2020

Beginning balance

Goodwill acquired

Goodwill derecognition (write-off) related to closed clinics

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

Ending balance

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.

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

Customer and referral relationships, net of accumulated amortization of $ 17,762 and $ 14,522 , respectively

Non-compete agreements, net of accumulated amortization of $ 6,450 and $ 5,993 , respectively

Tradenames, customer and referral relationships and non-compete agreements are related to the businesses acquired.

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

Non-compete agreements

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

Annual Amount

Ending December 31,

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

Credit balances due to patients and payors

Group health insurance claims

Closure costs

Federal taxes payable

MAAPP funds payable

Contingent payment related to acquisition

Settlement of a legal matter

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.

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)

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

Less current portion

Long term portion

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.

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.

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.

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.

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.

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

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,

Operating lease cost

Short-term lease cost

Variable lease cost

Total lease cost *

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,

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

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

The aggregate future lease payments for operating leases as of December 31, 2021 were as follows (in thousands):

2027 and therafter

Total lease payments

imputed interest

Total operating lease liabilities

Average lease terms and discount rates were as follows:

Year Ended December 31,

Weighted-average remaining lease term - Operating leases

Weighted-average discount rate - Operating leases

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:

Allowance for credit losses

Acquired net operating losses

Lease obligations - including closed clinics

Deferred tax assets

Deferred tax liabilities:

Depreciation and amortization

Operating lease right-of-use assets

Deferred tax liabilities

Net deferred tax liability

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

tax at statutory rate

State income taxes, net of federal benefit

Excess equity compensation deduction

Non-deductible expenses

Significant components of the provision for income taxes for the years ended December 31, 2021, 2020 and 2019 were as follows (in

December 31, 2021

December 31, 2020

December 31, 2019

Total current

Total deferred

Total income tax provision

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

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.

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

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,

Net operating revenue:

Physical therapy operations

Industrial injury prevention services

Total Company

Gross profit:

Physical therapy operations (excluding closure costs) (a non-GAAP measure)

Industrial injury prevention services

Physical therapy operations - closure costs

Total Assets:

Physical therapy operations

Industrial injury prevention services

Total Company

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.

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:

Stock Options

Shares Available

Amended 1999 Plan

Amended 2003 Plan

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:

Number of Shares

Weighted Average Fair

Value Per Share

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

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.

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.

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.

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.

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.

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.

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.

Bonnie Elsdon, v.

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.

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.

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 .

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):

December 31, 2021

December 31, 2020

December 31, 2019

Computation of earnings per share - USPH shareholders:

Net income attributable to USPH shareholders

(Charges) credit to retained earnings:

Revaluation of redeemable non-controlling interest

Tax effect at statutory rate (federal and state) of 25.55 % and 26.25 %, respectively

Earnings per share (basic and diluted)

Shares used in computation:

Basic and diluted earnings per share - weighted-average shares

Party Transactions

Settlement of Short Swing

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.

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.

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.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING

AND FINANCIAL DISCLOSURE.

Not applicable.

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.

Physical Therapy, Inc.

and subsidiaries’ (the “Company”) internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial

statements for external purposes in accordance with generally accepted accounting principles.

Internal control over financial reporting includes those policies and procedures that:

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting

principles, and that our receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; 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.

OTHER INFORMATION.

Not applicable.

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.

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.

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.

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.

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.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

Documents filed as a part of this report:

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.

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.

The exhibits listed in List of Exhibits on the next page are filed or incorporated by reference as part of this

Form 10-K Summary

EXHIBIT INDEX

LIST OF EXHIBITS

Articles of Incorporation of the Company [filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended June 30, 2001 and incorporated herein by reference].

Amendment to the Articles of Incorporation of the Company [filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended June 30, 2001 and incorporated herein

by reference].

Bylaws of the Company, as amended [filed as an exhibit to the Company’s Form 10-KSB for the year ended December 31, 1993 and incorporated herein by reference—Commission File

Number—1-11151].

Description of Company Securities [filed herewith the Company’s Form 10-K for the year ended December 31, 2019 filed with the SEC on February 28, 2020.]

1999 Employee Stock Option Plan (as amended and restated May 20, 2008) [incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement on Schedule 14A,

filed with the SEC on April 17, 2008].

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.]

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].

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].

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].

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].

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].

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].

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].

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.]

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.]

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.]

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.]

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].

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].

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].

Physical Therapy, Inc.

Discretionary Cash Bonus Plan for Senior Management for 2016, effective March 10, 2016 [incorporated by reference to Exhibit 10.4 to the

Company’s Current Report on Form 8-K filed with the SEC on March 16, 2016].

Form of Restricted Stock Agreement [incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2016].

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.]

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.]

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.]

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.]

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.]

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.]

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.]

Physical Therapy, Inc.

Discretionary Cash/RSA Bonus Plan for Senior Management for 2018, effective April 9, 2018 [incorporated by reference to Exhibit 99.4 to the

Company’s Current Report on Form 8-K filed with the SEC on April 12, 2018.]

Second Amended and Restated Credit Agreement dated as of November 10, 2017 among the Company, as Borrower, Bank of America, N.A.

as Administrative Agent and the Lenders Patty

(incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 14, 2017).

Second Amended and Restated Employment Agreement by and between the Company and Christopher J.

Reading dated effective February 9, 2016 [incorporated by reference to Exhibit

10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on February 12, 2016].

Second Amended and Restated Employment Agreement by and between the Company and Lawrance W.

McAfee dated effective February 9, 2016 [incorporated by reference to Exhibit 10.2

to the Company’s Current Report on Form 8-K, filed with the SEC on February 12, 2016].

Amended and Restated Employment Agreement by and between the Company and Glenn D.

McDowell dated effective February 9, 2016 [incorporated by reference to Exhibit 10.3 to the

Company’s Current Report on Form 8-K, filed with the SEC on February 12, 2016].

Employment Agreement commencing on March 1, 2018 by and between the Company and Graham Reeve [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on

Form 8-K filed with the SEC on March 7, 2018].

Objective Long-Term Incentive Plan for Senior Management [incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 8,

Discretionary Long-Term Incentive Plan for Senior Management [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on

March 8, 2019.]

Objective Cash/RSA Bonus Plan for Senior Management [incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 8,

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,

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]

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]

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]

Amended & Restated Employment Agreement commencing by and between the Company and Graham Reeve dated effective May 21, 2019 [incorporated by reference to Exhibit 10.4 to

the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2019]

Restricted Stock Agreement [incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2019]

Physical Therapy, Inc.

Objective Long-Term Incentive Plan for Senior Management for 2020, effective March 3, 2020 [incorporated by reference to Exhibit 99.1 to the

Company Current Report on Form 8-K filed with the SEC on March 6, 2020].

Amendment to Employment Agreement entered into as of March 26, 2020 by and between the Company and 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].

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].

Amendment to Employment Agreement entered into as of March 26, 2020 by and between the Company and Glenn McDowell [incorporated by reference to Exhibit 10.3 to the Company

Current Report on Form 8-K filed with the SEC on March 26, 2020].

Amendment to Employment Agreement entered into as of March 26, 2020 by and between the Company and Graham Reeve [incorporated by reference to Exhibit 10.4 to the Company

Current Report on Form 8-K filed with the SEC on March 26, 2020].

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].

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].

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].

Physical Therapy, Inc.

Discretionary Cash/RSA Bonus Plan for Senior Management for 2020, effective March 3, 2020 [incorporated by reference to Exhibit 99.4 to the

Company Current Report on Form 8-K filed with the SEC on March 6, 2020].

Employment Agreement entered into as of November 9, 2020 by and between U.S.

Physical Therapy and Carey Hendrickson [incorporated by reference to Exhibit 10.1 to the Company

Current Report on Form 8-K filed with the SEC on September 23, 2020.]

Consulting Agreement entered into as of September 22, 2020 by and between U.S.

Physical Therapy and Lawrence McAfee [incorporated by reference to Exhibit 10.1 to the Company

Current Report on Form 8-K filed with the SEC on September 23, 2020.]

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.]

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

Second Amendment to Second Amended and Restated Credit Agreement.

Subsidiaries of the Registrant

Consent of Independent Registered Public Accounting Firm—Grant Thornton LLP

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended

Certification of Controller pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended

Certification of Periodic Report of the Chief Executive Officer, Chief Financial Officer and Controller pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as

amended, and 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Taxonomy Extension Definition Linkbase Document

XBRL Taxonomy Extension Label Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document

Filed herewith

Management contract or compensatory plan or arrangement.

FINANCIAL STATEMENT SCHEDULE*

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

PHYSICAL THERAPY, INC.

AND SUBSIDIARIES

(In Thousands)

Beginning of Period

Additions Charged

to Costs and Expenses

Additions Charged

to Other Accounts

End of Period

YEAR ENDED DECEMBER 31, 2021 :

Reserves and allowances deducted from asset accounts:

Allowance for credit losses (1)

YEAR ENDED DECEMBER 31, 2020 :

Reserves and allowances deducted from asset accounts:

Allowance for credit losses

YEAR ENDED DECEMBER 31, 2019 :

Reserves and allowances deducted from asset accounts:

Allowance for credit losses

Related to patient accounts receivable and accounts

receivable-other.

Uncollectible accounts written off, net of

All other schedules are omitted because of the absence of conditions under which they are required or because the required information is shown in the financial

statements or notes thereto.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by

the undersigned, thereunto duly authorized.

PHYSICAL THERAPY, INC.

/s/ Carey Hendrickson

Carey Hendrickson

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

Vice President/Controller

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.

Chief Executive Officer, President and Director

(Principal Executive Officer)

March 1, 2022

/s/ Edward L.

Chairman of the Board

March 1, 2022

/s/ Bernard A.

March 1, 2022

/s/ Kathleen A.

March 1, 2022

/s/ Anne Motsenbocker

March 1, 2022

Anne Motsenbocker

/s/ Reginald E.

March 1, 2022

/s/ Clayton K.

March 1, 2022

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

What changed 10-K

Item 5. Market for Registrant’s Common Equity