UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
Í ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OR
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
TO
COMMISSION FILE NUMBER 1-11151
U.S. PHYSICAL THERAPY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
1300 WEST SAM HOUSTON PARKWAY SOUTH,
SUITE 300,
HOUSTON, TEXAS
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
76-0364866
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
77042
(ZIP CODE)
REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE:
(713) 297-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:
Title of Each Class
Common Stock, $.01 par value
Name of Each Exchange on Which Registered
The Nasdaq Stock Market LLC
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ‘ No Í
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes ‘ No Í
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes Í No ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes Í No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act.
Large accelerated filer ‘ Accelerated filer Í
Smaller reporting company ‘
Non-accelerated filer ‘
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ‘ No Í
The aggregate market value of the shares of the registrant’s common stock held by non-affiliates of the registrant at June 30,
2011 was $227,257,000 based on the closing sale price reported on the Nasdaq Global Select Market for the registrant’s common
stock on June 30, 2011, the last business day of the registrant’s most recently completed second fiscal quarter. For purposes of this
computation, all executive officers, directors and 5% or greater beneficial owners of the registrant were deemed to be affiliates.
Such determination should not be deemed an admission that such executive officers, directors and beneficial owners are, in fact,
affiliates of the registrant.
As of March 8, 2012, the number of shares outstanding of the registrant’s common stock, par value $.01 per share,
was: 11,758,751.
Portions of Definitive Proxy Statement for the 2012 Annual Meeting of Shareholders
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT
PART OF FORM 10-K
PART III
Form 10-K Table of Contents
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors, Executive Officers and Corporate Governace . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Signatures
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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1
FORWARD LOOKING STATEMENTS
We make statements in this report that are considered to be forward-looking statements within the meaning
given such term under Section 21E of the Securities Exchange Act of 1934. These statements contain forward-
looking information relating to the financial condition, results of operations, plans, objectives, future
performance and business of our Company. These statements (often using words such as “believes”, “expects”,
“intends”, “plans”, “appear”, “should” and similar words) involve risks and uncertainties that could cause actual
results to differ materially from those we project. Included among such statements are those relating to opening
new clinics, availability of personnel and the reimbursement environment. The forward-looking statements are
based on our current views and assumptions and actual results could differ materially from those anticipated in
such forward-looking statements as a result of certain risks, uncertainties, and factors, which include, but are not
limited to:
• changes in Medicare guidelines and reimbursement or failure of our clinics to maintain their Medicare
certification status;
• revenue and earnings expectations;
• general economic conditions;
• business and regulatory conditions including federal and state regulations;
• changes as the result of government enacted national healthcare reform;
• availability and cost of qualified physical therapists;
• personnel productivity;
• 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;
• changes in reimbursement rates or payment methods from third party payors including government
agencies and deductibles and co-pays owed by patients;
• maintaining adequate internal controls;
• availability, terms, and use of capital;
• acquisitions and the successful integration of the operations of the acquired businesses; and
• weather and other seasonal factors.
Many factors are beyond our control. Given these uncertainties, you should not place undue reliance on our
forward-looking statements. Please see the other sections of this report and our other periodic reports filed with
the Securities and Exchange Commission (the “SEC”) for more information on these factors. Our forward-
looking statements represent our estimates and assumptions only as of the date of this report. Except as required
by law, we are under no obligation to update any forward-looking statement, regardless of the reason the
statement is no longer accurate.
2
ITEM 1.
BUSINESS.
GENERAL
PART I
Our company, U.S. Physical Therapy, Inc. (the “Company”), through its subsidiaries, operates outpatient
physical 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. We
operate two clinics which specialize in the outpatient, non-surgical treatment of osteo arthritis degenerative joint
disease and other musculoskeletal conditions (“Physician Services”) and perform certain services on behalf of
third parties that provide physical therapy services. We primarily operate through subsidiary clinic partnerships
in which we generally own a 1% general partnership interest and a 64% limited partnership interest and the
managing therapist(s) of the clinics owns the remaining limited partnership interest in the majority of the clinics
(hereinafter referred to as “Clinic Partnerships”). To a lesser extent, we operate some clinics through wholly-
owned subsidiaries under profit sharing arrangements with therapists (hereinafter referred to as “Wholly-Owned
Facilities”). Unless the context otherwise requires, references in this Annual Report on Form 10-K to “we”, “our”
or “us” includes the Company and all of its subsidiaries.
Our strategy is to develop and acquire outpatient physical therapy clinics on a national basis. At
December 31, 2011, we operated 416 clinics, inclusive of the two clinics that perform physician services (the
“Physician Services Clinics”), in 42 states. The average age of the 416 clinics in operation at December 31, 2011
was 8.0 years. There were 314 clinics operated under Clinic Partnerships and 102 were operated as Wholly-
Owned Facilities. Of the 416 clinics, we developed 293 and acquired 123. During 2011, we opened 21 clinics,
acquired 20 and closed 17. Our highest concentration of clinics are in the following states — Tennessee, Texas,
Michigan, Washington, Georgia, Maryland, New Jersey, Wisconsin, Arizona, Florida, Oklahoma, Virginia and
Indiana. In addition to our 416 clinics, at December 31, 2011, we also managed 15 physical therapy practices for
third parties, including physicians.
On July 25, 2011, we acquired a 51% interest in a 20 clinic multi-partner physical therapy group (“July
2011 Acquisition”). During 2010, we acquired a majority interest in 25 clinics in three separate transactions. On
February 26, 2010, we acquired a 70% interest in five clinics in the northeast (“February 2010 Acquisition”). On
December 21, 2010, we acquired a 70% interest in a six clinic physical therapy group in the mid-Atlantic region
(“December 21, 2010 Acquisition”). On December 31, 2010, we acquired a 65% interest in a 14 clinic physical
therapy group located in the southeast (“December 31, 2010 Acquisition”).
We continue to seek to attract physical therapists who have established relationships with physicians and
other referral sources by offering therapists a competitive salary and a share of the profits or an ownership
interest in the clinic operated by that therapist. In addition, we have developed satellite clinic facilities of existing
clinics, with the result that a substantial number of clinic groups operate more than one clinic location. Of the 21
clinics opened in 2011, six were with new partners and 15 were satellites of existing partnerships. In 2012, we
intend to continue to focus on developing new clinics and on opening satellite clinics where appropriate along
with increasing our patient volume through marketing and new programs. In addition, we will evaluate
acquisition opportunities.
Therapists at our clinics initially perform a comprehensive evaluation of each patient, which is then
followed by a treatment plan specific to the injury as prescribed by the patient’s physician. The treatment plan
may include a number of procedures, including therapeutic exercise, manual therapy techniques, ultrasound,
electrical stimulation, hot packs, iontophoresis, education on management of daily life skills and home exercise
programs. A clinic’s business primarily comes from referrals by local physicians. The principal sources of
payment for the clinics’ services are managed care programs, commercial health insurance, Medicare and
workers’ compensation insurance.
Our Company was re-incorporated in April 1992 under the laws of the State of Nevada and has operating
subsidiaries organized in various states in the form of limited partnerships and wholly-owned corporations.
3
This description of our business should be read in conjunction with our financial statements and the related notes
contained elsewhere in this Annual Report on Form 10-K. Our principal executive offices are located at
1300 West Sam Houston Parkway South, Suite 300, Houston, Texas 77042. Our telephone number is
(713) 297-7000. Our website is www.usph.com.
OUR CLINICS
Most of our clinics are Clinic Partnerships in which we own the general partnership interest and a majority
of the limited partnership interests. The managing healthcare practioner of the clinics usually owns a portion of
the limited partnership interests. Historically, the therapist partners had no interest in the net losses of Clinic
Partnerships, except to the extent of their capital accounts. Since we also develop satellite clinic facilities of
existing clinics, Clinic Partnerships may consist of more than one clinic location. As of December 31, 2011,
through wholly-owned subsidiaries, we owned a 1% general partnership interest in all the Clinic Partnerships,
except for one partnership in which we own a 6% general partnership interest. Our limited partnership interests
range from 50% to 99% in the Clinic Partnerships, but with respect to the majority of our Clinic Partnerships, we
own a limited partnership interest of 64%. For the vast majority of the Clinic Partnerships, the managing
healthcare practioner is a physical therapist who owns the remaining limited partnership interest in the Clinic
Partnerships.
In the majority of the Clinic Partnership agreements, the therapist partner begins with a 20% interest in their
Clinic Partnership earnings which increases by 3% at the end of each year thereafter up to a maximum interest of
35%.
Typically each therapist partner or director enters into an employment agreement for a term of up to three
years with their Clinic Partnership. Each agreement typically provides for a covenant not to compete during the
period of his or her employment and for up to two years thereafter. Under each employment agreement, the
therapist partner receives a base salary and may receive a bonus based on the net revenues or profits generated by
his or her Clinic Partnership. In the case of Clinic Partnerships, the therapist partner receives earnings
distributions based upon his or her ownership interest. Upon termination of employment, the Company typically
has the right, but is not obligated, to purchase the therapist’s partnership interest in Clinic Partnerships. In
connection with several of our acquired clinics, in the event that a limited minority partner’s employment ceases
at any time after three years from the acquisition date, we have agreed to repurchase that individual’s
noncontrolling interest at a predetermined multiple of earnings before interest and taxes.
Each Clinic Partnership maintains an independent local identity, while at the same time enjoying the
benefits of national purchasing, negotiated third-party payor contracts, centralized support services and
management practices. Under a management agreement, one of our subsidiaries provides a variety of support
services to each clinic, including supervision of site selection, construction, clinic design and equipment
selection, establishment of accounting systems and billing procedures and training of office support personnel,
processing of accounts payable, operational direction, auditing of regulatory compliance, payroll, benefits
administration, accounting services, quality assurance and marketing support.
Our typical clinic occupies approximately 1,500 to 3,000 square feet of leased space in an office building or
shopping center. We attempt to lease ground level space for patient ease of access to our clinics. We also attempt
to make the decor in our clinics less institutional and more aesthetically pleasing than traditional hospital clinics.
Typical minimum staff at a clinic consists of a licensed physical therapist and an office manager, as well as, if
appropriate, a medical advisor. As patient visits grow, staffing may also include additional physical therapists,
occupational therapists, therapy assistants, aides, exercise physiologists, athletic trainers and office personnel.
Therapy services are performed under the supervision of a licensed therapist.
We provide services at our clinics on an outpatient basis. Patients are usually treated for approximately one
hour per day, two to three times a week, typically for two to six weeks. We generally charge for treatment on a
per procedure basis. Medicare patients are charged based on prescribed time increments and Medicare billing
4
standards. In addition, our clinics will develop, when appropriate, individual maintenance and self-management
exercise programs to be continued after treatment. We continually assess the potential for developing new
services and expanding the methods of providing our existing services in the most efficient manner while
providing high quality patient care.
FACTORS INFLUENCING DEMAND FOR THERAPY SERVICES
We believe that the following factors, among others, influence the growth of outpatient physical therapy
services:
Economic Benefits of Therapy Services.
Purchasers and providers of healthcare services, such as
insurance companies, health maintenance organizations, businesses and industries, continuously seek cost
savings for traditional healthcare services. We believe that our therapy services provide a cost-effective way to
prevent short-term disabilities from becoming chronic conditions and to speed recovery from surgery and
musculoskeletal injuries.
Earlier Hospital Discharge. Changes in health insurance reimbursement, both public and private, have
encouraged the earlier discharge of patients to reduce costs. We believe that early hospital discharge practices
foster greater demand for outpatient physical therapy services.
Aging Population.
In general, the elderly population has a greater incidence of disability compared to the
population as a whole. As this segment of the population grows, we believe that demand for rehabilitation
services will expand.
MARKETING
We focus our marketing efforts primarily on physicians, including orthopedic surgeons, neurosurgeons,
physiatrists, internal medicine physicians, podiatrists, occupational medicine physicians and general
practitioners. In marketing to the physician community, we emphasize our commitment to quality patient care
and regular communication with physicians regarding patient progress. We employ personnel to assist clinic
directors in developing and implementing marketing plans for the physician community and to assist in
establishing relationships with health maintenance organizations, preferred provider organizations, industry and
case managers and insurance companies.
SOURCES OF REVENUE
Payor sources for clinic services are primarily managed care programs, commercial health insurance,
Medicare/Medicaid and workers’ compensation insurance. Commercial health insurance, Medicare and managed
care programs generally provide coverage to patients utilizing our clinics after payment by the patients of normal
deductibles and co-insurance payments. Workers’ compensation laws generally require employers to provide,
directly or indirectly through insurance, costs of medical rehabilitation for their employees from work-related
injuries and disabilities and, in some jurisdictions, mandatory vocational rehabilitation, usually without any
deductibles, co-payments or cost sharing. Treatments for patients who are parties to personal injury cases are
generally paid from the proceeds of settlements with insurance companies or from favorable judgments. If an
unfavorable judgment is received, collection efforts are generally not pursued against the patient and the patient’s
account is written-off against established reserves. Bad debt reserves relating to all receivable types are regularly
reviewed and adjusted as appropriate.
5
The following table shows our payor mix for the years ended:
Payor
Managed Care
December 31, 2011
December 31, 2010
December 31, 2009
Net Patient
Revenue
Percentage
Net Patient
Revenue
Percentage
Net Patient
Revenue
Percentage
(Net Patient Revenues in Thousands)
Program . . . . . . . . . .
$ 66,025
29.1% $ 63,993
31.4% $ 61,819
31.6%
Commercial Health
Insurance
Medicare/Medicaid . . .
Workers’
Compensation
Insurance
Other
. . . . . . . . . . . . . .
52,697
56,287
23.3%
24.8%
50,243
46,165
24.6%
22.6%
49,150
40,765
25.2%
20.9%
39,338
12,232
17.4%
5.4%
34,185
9,523
16.7%
4.7%
34,458
9,130
17.6%
4.7%
Total . . . . . . . . . . .
$226,579
100.0% $204,109
100.0% $195,322
100.0%
Our business depends to a significant extent on our relationships with commercial health insurers, health
maintenance organizations, preferred provider organizations and workers’ compensation insurers. In some
geographical areas, our clinics must be approved as providers by key health maintenance organizations and
preferred provider plans to obtain payments. Failure to obtain or maintain these approvals would adversely affect
financial results.
During the year ended December 31, 2011, approximately 25% of our visits and 23% of our net patient
revenues were from patients with Medicare program coverage. To receive Medicare reimbursement, a facility
(Medicare Certified Rehabilitation Agency) or the individual therapist (Physical/Occupational Therapist in
Private Practice) must meet applicable participation conditions set by the Department of Health and Human
Services (“HHS”) relating to the type of facility, equipment, record keeping, personnel and standards of medical
care, and also must comply with all state and local laws. HHS, through Centers for Medicare & Medicaid
Services (“CMS”) and designated agencies, periodically inspects or surveys clinics/providers for approval and/or
compliance. We anticipate that newly developed clinics will generally become certified as Medicare providers or
will be enrolled as a group of physical/occupation therapists in a private practice. However, we cannot assure you
that newly developed clinics will be successful in becoming eligible as Medicare providers.
Medicare Physician Fee Schedule Sustainable Growth Rate Update.
The Medicare program reimburses
outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (“MPFS”). The MPFS rates are
automatically updated annually based on a formula, called the sustainable growth rate (“SGR”) formula. The use
of the SGR formula has resulted in calculated automatic reductions in rates in every year since 2002; however,
for each year through 2011, CMS or Congress has taken action to prevent the implementation of SGR formula
reductions. The Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010
provided a 2.2% increase to MPFS payment rates, retroactive from June 1, 2010 through November 30, 2010,
suspending a 21.3% reduction that briefly became effective on June 1, 2010. The Medicare and Medicaid
Extenders Act of 2010 (“MMEA”) prevented a 25.5% reduction in the MPFS payment rates that would have
taken effect on January 1, 2011. The Temporary Payroll Tax Cut Continuation Act of 2011 (“TPTC”) delayed
application of the SGR for two additional months, through February 29, 2012. The Middle Class Tax Relief and
Job Creation Act of 2012 (“MCTRA”) included a measure freezing payment rates at their current level through
December 31, 2012.
On November 1, 2011, CMS released the 2012 Medicare Physician Fee Schedule final rule. Given the
prevention of the 27.4% reduction, the projected impact of other changes in the rule on outpatient physician therapy
service payments in aggregate is expected to be a 4.0% increase in 2012, primarily due to the continued phase in of
new practice expense survey data derived from the Physician Practice Information Survey (“PPIS”). In 2013, when
the use of the PPIS data is fully phased in, the impact is expected to be a 6.0% increase for outpatient physical
6
therapy payments. In the final 2012 Medicare Physician Fee Schedule rule, CMS indicated that over the next year it
will continue to review whether specific Current Procedural Terminology (“CPT”) codes billed under the fee
schedule are overvalued or undervalued, including certain specific CPT codes used by physical therapists.
Therapy Caps. As a result of the Balanced Budget Act of 1997, the formula for determining the total
amount paid by Medicare in any one year for outpatient physical therapy, occupational therapy, and/or speech-
language pathology services provided to any Medicare beneficiary (i.e., the “Therapy Cap” or “Limit”) was
established. Based on the statutory definitions which constrained how the Therapy Cap would be applied, there is
one Limit for Physical Therapy and Speech Language Pathology Services combined, and one Limit for
Occupational Therapy. These Therapy Caps are applicable to outpatient therapy services provided in all settings,
except for services provided in departments of hospitals. Therefore, outpatient therapy services rendered to
Medicare beneficiaries by the Company's therapist personnel are subject to the Therapy Cap, except to the extent
these services are rendered pursuant to certain management and professional services agreements with hospitals
for services provided in hospital departments. Effective January 1, 2012, the annual Limit on outpatient therapy
services is $1,880 for physical therapy and speech language pathology services combined and $1,880 for
occupational therapy services. Under the MCTRA this Limit will temporarily apply to hospital outpatient
departments beginning no later than October 1, 2012.
Furthermore, under the MCTRA, starting on October 1, 2012, patients who meet or exceed $3,700 in
therapy expenditures will be subject to a manual medical review. The MCTRA designates that this medical
review will be similar to the process used following Deficit Reduction Act implementation in 2006. The $3,700
threshold will be applied to the combined physical therapy/speech language pathology cap; a separate $3,700
threshold will be applied to the occupational therapy cap.
In conjunction with establishing the Therapy Cap, Congress either delayed the implementation of these
Limits or it provided a process authorizing CMS to grant exceptions to the Therapy Cap for services provided
during a given year, as long as those services met certain qualifications. More recently, the MMEA extended the
exceptions process for outpatient Therapy Caps through December 31, 2011, and the TPTC directed CMS to
continue to allow exceptions to Therapy Caps for certain medically necessary services provided on or after
January 1, 2012, through February 29, 2012. Under the MCTRA, Congress may extend the Therapy Caps
exceptions process through December 31, 2012.
Multiple Procedure Payment Reduction. CMS adopted a multiple procedure payment reduction (MPPR)
for therapy services in the final update to the MPFS for calendar year 2011. Under MPPR, the Medicare program
pays 100% of the practice expense component of the Relative Value Unit (“RVU”) for the therapy procedure
with the highest RVU, then reduces the payment for the practice expense component of the RVU for additional
procedures. The reduction for these subsequent procedures varies based on the setting, with a 20% reduction for
services in an office or other non-institutional setting and 25% in institutional settings. The reduction applies to
any service furnished during the same day for the same patient, regardless of the type of therapy service or
whether the therapy services are furnished in separate sessions. The MPPR was continued in calendar year 2012.
Statutes, regulations, and payment rules governing the delivery of therapy services to Medicare beneficiaries
are complex and subject to interpretation. The Company believes that it is in compliance in all material respects
with all applicable laws and regulations and is not aware of any pending or threatened investigations involving
allegations of potential wrongdoing that would have a material effect on the Company’s financial statements as
of December 31, 2011. 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.
Medicare regulations require that a physician or non-physician practitioner certify the need for skilled
therapy services for each patient and that these services be provided under an established plan of treatment,
which is periodically revised.
Medicaid has not been a material payor for us, constituting less than 2% of historical revenue.
7
REGULATION AND HEALTHCARE REFORM
Numerous federal, state and local regulations regulate healthcare services and those who provide them.
Some states into which we may expand have laws requiring facilities employing health professionals and
providing health-related services to be licensed and, in some cases, to obtain a certificate of need (that is,
demonstrating to a state regulatory authority the need for, and financial feasibility of, new facilities or the
commencement of new healthcare services). Only one of the states in which we currently operate requires a
certificate of need for the operation of our physical therapy business functions. Our therapists and/or clinics,
however, are required to be licensed, as determined by the state in which they provide services. Failure to obtain
or maintain any required certificates, approvals or licenses could have a material adverse effect on our business,
financial condition and results of operations.
Regulations Controlling Fraud and Abuse. Various federal and state laws regulate financial relationships
involving providers of healthcare services. These laws include Section 1128B(b) of the Social Security Act (42
U.S. C. § 1320a-7b[b]) (the “Fraud and Abuse Law”), under which civil and criminal penalties can be imposed
upon persons who, among other things, offer, solicit, pay or receive remuneration in return for (i) the referral of
patients for the rendering of any item or service for which payment may be made, in whole or in part, by a Federal
health care program (including Medicare and Medicaid); or (ii) purchasing, leasing, ordering, or arranging for or
recommending purchasing, leasing, ordering any good, facility, service, or item for which payment may be made, in
whole or in part, by a Federal health care program (including Medicare and Medicaid). We believe that our business
procedures and business arrangements are in compliance with these provisions. However, the provisions are broadly
written and the full extent of their specific application to specific facts and arrangements to which the Company is a
party is uncertain and difficult to predict. In addition, several states have enacted state laws similar to the Fraud and
Abuse Law, which may be more restrictive than the federal Fraud and Abuse Law.
In 1991, the Office of the Inspector General (“OIG”) of the HHS issued the first of its regulations describing
compensation financial arrangements that fall within a “Safe Harbor” and, therefore, are not viewed as illegal
remuneration under the Fraud and Abuse Law. Failure to fall within a Safe Harbor does not mean that the Fraud
and Abuse Law has been violated; however, the OIG has indicated that failure to fall within a Safe Harbor may
subject an arrangement to increased scrutiny under a “facts and circumstances” test.
Our business of managing physician-owned physical therapy facilities is regulated by the Fraud and Abuse
Law. However, the manner in which we contract with such facilities often falls outside the complete scope of
available Safe Harbors. We believe our arrangements comply with the Fraud and Abuse Law, even though
federal courts provide limited guidance as to the application of the Fraud and Abuse Law to these arrangements.
If our management contracts are held to violate the Fraud and Abuse Law, it could have an adverse effect on our
business, financial condition and results of operations.
In February 2000, the OIG issued a special fraud alert regarding the rental of space in physician offices by
persons or entities to which the physicians refer patients. The OIG’s stated concern in these arrangements is that
rental payments may be disguised kickbacks to the physician-landlords to induce referrals. We rent clinic space
for a few of our clinics from referring physicians and have taken the steps that we believe are necessary to ensure
that all leases comply to the extent possible and applicable with the space rental Safe Harbor to the Fraud and
Abuse Law.
In April 2003, the OIG issued a special advisory bulletin addressing certain complex contractual
arrangements for the provision of items and services that were previously identified as suspect in a 1989 special
fraud alert. This special advisory bulletin identified several characteristics commonly exhibited by suspect
arrangements, the existence of one or more of which could indicate a prohibited arrangement to the OIG.
Generally, the indicia of a suspect contractual joint venture as identified by the special advisory bulletin and
Opinion 04-17 include the following:
• New Line of Business. A provider in one line of business (“Owner”) expands into a new line of
business that can be provided to the Owner’s existing patients, with another party who currently provides
the same or similar item or service as the new business (“Manager/Supplier”).
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• Captive Referral Base.
The arrangement predominantly or exclusively serves the Owner’s existing
patient base (or patients under the control or influence of the Owner).
• Little or No Bona Fide Business Risk.
The Owner’s primary contribution to the venture is referrals; it
makes little or no financial or other investment in the business, delegating the entire operation to the
Manager/Supplier, while retaining profits generated from its captive referral base.
• Status of the Manager/Supplier.
The Manager/Supplier is a would-be competitor of the Owner’s new
line of business and would normally compete for the captive referrals. It has the capacity to provide
virtually identical services in its own right and bill insurers and patients for them in its own name.
• Scope of Services Provided by the Manager/Supplier.
The Manager/Supplier provides all, or many, of
the new business’ key services.
• Remuneration.
The practical effect of the arrangement, viewed in its entirety, is to provide the Owner
the opportunity to bill insurers and patients for business otherwise provided by the Manager/Supplier. The
remuneration from the venture to the Owner (i.e., the profits of the venture) takes into account the value
and volume of business the Owner generates.
• Exclusivity.
The arrangement bars the Owner from providing items or services to any patients other
than those coming from Owner and/or bars the Manager/Supplier from providing services in its own right
to the Owner’s patients.
Due to the nature of our business operations, many of our management service arrangements exhibit one or
more of these characteristics. However, the Company believes it has taken steps regarding the structure of such
arrangements as necessary to sufficiently distinguish them from these suspect ventures, and to comply with the
requirements of the Fraud and Abuse Law. However, if the OIG believes the Company has entered into a
prohibited contractual joint venture, it could have an adverse effect on our business, financial condition and
results of operations.
Stark Law.
Provisions of the Omnibus Budget Reconciliation Act of 1993 (42 U.S.C. § 1395nn) (the
“Stark Law”) prohibit referrals by a physician of “designated health services” which are payable, in whole or in
part, by Medicare or Medicaid, to an entity in which the physician or the physician’s immediate family member
has an investment interest or other financial relationship, subject to several exceptions. Unlike the Fraud and
Abuse Law, the Stark Law is a strict liability statute. Proof of intent to violate the Stark Law is not required.
Physical therapy services are among the “designated health services”. Further, the Stark Law has application to
the Company’s management contracts with individual physicians and physician groups, as well as, any other
financial relationship between us and referring physicians, including any financial transaction resulting from a
clinic acquisition. The Stark Law also prohibits billing for services rendered pursuant to a prohibited referral.
Several states have enacted laws similar to the Stark Law. These state laws may cover all (not just Medicare and
Medicaid) patients. Many federal healthcare reform proposals in the past few years have attempted to expand the
Stark Law to cover all patients as well. As with the Fraud and Abuse Law, we consider the Stark Law in planning
our clinics, marketing and other activities, and believe that our operations are in compliance with the Stark Law.
If we violate the Stark Law, our financial results and operations could be adversely affected. Penalties for
violations include denial of payment for the services, significant civil monetary penalties, and exclusion from the
Medicare and Medicaid programs.
HIPAA.
In an effort to further combat healthcare fraud and protect patient confidentially, Congress
included several anti-fraud measures in the Health Insurance Portability and Accountability Act of 1996
(“HIPAA”). HIPAA created a source of funding for fraud control to coordinate federal, state and local healthcare
law enforcement programs, conduct investigations, provide guidance to the healthcare industry concerning
fraudulent healthcare practices, and establish a national data bank to receive and report final adverse actions.
HIPAA also criminalized certain forms of health fraud against all public and private payors. Additionally,
HIPAA mandates the adoption of standards regarding the exchange of healthcare information in an effort to
ensure the privacy and electronic security of patient information and standards relating to the privacy of health
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information. Sanctions for failing to comply with HIPAA include criminal penalties and civil sanctions. In
February of 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was signed into law. Title
XIII of ARRA, the Health Information Technology for Economic and Clinical Health Act (“HITECH”), provided
for substantial Medicare and Medicaid incentives for providers to adopt electronic health records (“EHRs”) and
grants for the development of health information exchange (“HIE”). Recognizing that HIE and EHR systems will
not be implemented unless the public can be assured that the privacy and security of patient information in such
systems is protected, HITECH also significantly expanded the scope of the privacy and security requirements
under HIPAA. Most notable are the new mandatory breach notification requirements and a heightened
enforcement scheme that includes increased penalties, and which now apply to business associates as well as to
covered entities. In addition to HIPAA, a number of states have adopted laws and/or regulations applicable in the
use and disclosure of individually identifiable health information that can be more stringent than comparable
provisions under HIPAA.
We believe that our operations fully comply with applicable standards for privacy and security of protected
healthcare information. We cannot predict what negative effect, if any, HIPAA/HITECH or any applicable state
law or regulation will have on our business.
Other Regulatory Factors.
Political, economic and regulatory influences are fundamentally changing the
healthcare industry in the United States. Congress, state legislatures and the private sector continue to review and
assess alternative healthcare delivery and payment systems. Potential alternative approaches could include
mandated basic healthcare benefits, controls on healthcare spending through limitations on the growth of private
health insurance premiums and Medicare and Medicaid spending, the creation of large insurance purchasing
groups, and price controls. Legislative debate is expected to continue in the future and market forces are expected
to demand only modest increases or reduced costs. For instance, managed care entities are demanding lower
reimbursement rates from healthcare providers and, in some cases, are requiring or encouraging providers to
accept capitated payments that may not allow providers to cover their full costs or realize traditional levels of
profitability. We cannot reasonably predict what impact the adoption of any federal or state healthcare reform
measures or future private sector reform may have on our business.
COMPETITION
The healthcare industry, including the physical therapy business, is highly competitive. The physical therapy
business is highly fragmented with no company having as much as six percent of the market share nationally. We
believe that our Company is the third largest national outpatient rehabilitation providers.
Competitive factors affecting our business include quality of care, cost, treatment outcomes, convenience of
location, and relationships with, and ability to meet the needs of, referral and payor sources. Our clinics compete,
directly or indirectly, with many types of healthcare providers including the physical therapy departments of
hospitals, private therapy clinics, physician-owned therapy clinics, and chiropractors. We may face more intense
competition if consolidation of the therapy industry continues.
We believe that our strategy of providing key therapists in a community with an opportunity to participate in
ownership or clinic profitability provides us with a competitive advantage by helping to ensure the commitment
of local management to the success of the clinic.
We also believe that our competitive position is enhanced by our strategy of locating our clinics, when
possible, on the ground floor of buildings and shopping centers with nearby parking, thereby making the clinics
more easily accessible to patients. We offer convenient hours. We also attempt to make the decor in our clinics
less institutional and more aesthetically pleasing than traditional hospital clinics.
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ENFORCEMENT ENVIRONMENT
In recent years, federal and state governments have launched several initiatives aimed at uncovering
behavior that violates the federal civil and criminal laws regarding false claims and fraudulent billing and coding
practices. Such laws require providers to adhere to complex reimbursement requirements regarding proper billing
and coding in order to be compensated for their services by government payors. Our compliance program
requires adherence to applicable law and promotes reimbursement education and training; however, a
determination that our clinics' billing and coding practices are false or fraudulent could have a material adverse
effect on us.
We and our clinics are subject to federal and state laws prohibiting entities and individuals from knowingly
and willfully making claims to Medicare, Medicaid and other governmental programs and third party payors that
contain false or fraudulent information. The federal False Claims Act encourages private individuals to file suits
on behalf of the government against healthcare providers such as us. As such suits are generally filed under seal
with a court to allow the government adequate time to investigate and determine whether it will intervene in the
action, the implicated healthcare providers often are unaware of the suit until the government has made its
determination and the seal is lifted. Violations or alleged violations of such laws, and any related lawsuits, could
result in (i) exclusion from participation in Medicare, Medicaid and other federal healthcare programs, or
(ii) significant financial or criminal sanctions, resulting in the possibility of substantial financial penalties for
small billing errors that are replicated in a large number of claims, as each individual claim could be deemed a
separate violation. In addition, many states also have enacted similar statutes, which may include criminal
penalties, substantial fines, and treble damages.
COMPLIANCE PROGRAM
Our Compliance Program.
The ongoing success of our Company depends upon our reputation for quality
service and ethical business practices. Our Company operates in a highly regulated environment with many
federal, state and local laws and regulations. We take a proactive interest in understanding and complying with
the laws and regulations that apply to our business.
Our Board of Directors (the “Board”) has adopted a Code of Business Conduct and Ethics to clarify the
ethical standards under which the Board and management carry out their duties. In addition, the Board has
created a Corporate Compliance Sub-Committee of the Board’s Audit Committee (“Compliance Committee”)
whose purpose is to assist the Board and its Audit Committee (“Audit Committee”) in discharging their oversight
responsibilities with respect to compliance with federal and state laws and regulations relating to healthcare.
We have issued an Ethics and Compliance Manual, created a compliance DVD, hand-outs and an on-line
testing program. These tools were prepared to ensure that each clinic as well as every employee of our Company
and subsidiaries has a clear understanding of our mutual commitment to high standards of professionalism,
honesty, fairness and compliance with the law in conducting business. These standards are administered by our
Compliance Officer (“CO”), who has the responsibility for the day-to-day oversight, administration and
development of our compliance program. The CO, internal and external counsel, management and the
Compliance Committee review our policies and procedures for our compliance program from time to time in an
effort to improve operations and to ensure compliance with requirements of standards, laws and regulations and
to reflect the on-going compliance focus areas which have been identified by the Compliance Committee. We
also have established systems for reporting potential violations, educating our employees, monitoring and
auditing compliance and handling enforcement and discipline.
Committees. Our Compliance Committee, appointed by the Board, consists of four independent directors.
The Compliance Committee has general oversight of our Company’s compliance with the legal and regulatory
requirements regarding healthcare operations. The Compliance Committee relies on the expertise and knowledge
of management, the CO and other compliance and legal personnel. The CO regularly communicates with the
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Chairman of the Compliance Committee. The Compliance Committee meets at least four times a year or more
frequently as necessary to carry out its responsibilities and reports regularly to the Board regarding its actions
and recommendations.
In addition, management has appointed a team to address our Company’s compliance with HIPAA. The
HIPAA team consists of a security officer and employees from our legal, information systems, finance,
operations, compliance, business services and human resources departments. The team prepares assessments and
makes recommendations regarding operational changes and/or new systems, if needed, to comply with HIPAA.
Each clinic certified as a Medicare Rehabilitation Agency has a formally appointed governing body
composed of a member of management of the Company and the director/administrator of the clinic. The
governing body retains legal responsibility for the overall conduct of the clinic. The members confer regularly
and discuss, among other issues, clinic compliance with applicable laws and regulations. In addition, there are
Professional Advisory Committees which serve as Infection Control Committees. These committees meet in the
facilities and function as advisors.
The Company has in place a Risk Management Committee consisting of the CO, the Corporate in-house
Legal Counsel and the Corporate Vice President of Administration. This committee reviews and monitors all
employee and patient incident reports and provides clinic personnel with actions to be taken in response to the
reports.
Reporting Violations.
In order to facilitate our employees’ ability to report in confidence, anonymously
and without retaliation any perceived improper work-related activities, accounting irregularities and other
violations of our compliance program, we have set up an independent national compliance hotline. The
compliance hotline is available to receive confidential reports of wrongdoing Monday through Friday (excluding
holidays), 24 hours a day. The compliance hotline is staffed by experienced third party professionals trained to
utilize utmost care and discretion in handling sensitive issues and confidential information. The information
received is documented and forwarded timely to the CO, who, together with the Compliance Committee, has the
power and resources to investigate and resolve matters of improper conduct.
Educating Our Employees. We utilize numerous methods to train our employees in compliance related
issues. The directors/administrators of each clinic are responsible to conduct the initial training sessions on
compliance with existing employees. Training is based on our Ethics and Compliance Manual, inclusive of
HIPAA information, and our compliance DVD. The directors/administrators also provide periodic “refresher”
training for existing employees and one-on-one comprehensive training with new hires. The corporate
compliance group responds to questions from clinic personnel and will conduct frequent teleconference meetings
on topics as deemed necessary.
When a clinic opens, the CO provides a package of compliance materials containing manuals and detailed
instructions for meeting Medicare Conditions of Participation Standards and other compliance requirements.
During follow up training with the director/administrator of the clinic, the CO explains various details regarding
requirements and compliance standards. The CO and the compliance staff will remain in contact with the
director/administrator while the clinic is implementing compliance standards and will provide any assistance
required. All new office managers receive training (including Medicare, regulatory and corporate compliance,
insurance billing, charge entry and transaction posting and coding, daily, weekly and monthly accounting reports)
from the training staff at the corporate office. The corporate compliance group will assist in continued
compliance, including guidance to the clinic staff with regard to Medicare certifications, state survey
requirements and responses to any inquiries from regulatory agencies.
Monitoring and Auditing Clinic Operational Compliance. Our Company has in place audit programs and
other procedures to monitor and audit clinic operational compliance with applicable policies and procedures. We
employ internal auditors who, as part of their job responsibilities, conduct periodic audits of each clinic. Each
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clinic is audited at least once every 18 months and additional focused audits are performed as deemed necessary.
During these audits, particular attention is given to compliance with Medicare and internal policies, Federal and
state laws and regulations, third party payor requirements, and patient chart documentation, billing, reporting,
record keeping, collections and contract procedures. The audits are conducted on site and include interviews with
the employees involved in management, operations, billing and accounts receivable. Formal audit reports are
prepared and reviewed with corporate management and the Compliance Committee. Each clinic director/
administrator receives a letter instructing them of any corrective measures required. Each clinic director/
administrator then works with the compliance team and operations to ensure such corrective measures are
achieved.
Handling Enforcement and Discipline.
It is our policy that any employee who fails to comply with
compliance program requirements or who negligently or deliberately fails to comply with known laws or
regulations specifically addressed in our compliance program should be subject to disciplinary action up to and
including discharge from employment. The Compliance Committee, compliance staff, human resources staff and
management investigate violations of our compliance program and impose disciplinary action as considered
appropriate.
EMPLOYEES
At December 31, 2011, we employed 2,522 people, of which 1,992 were full-time employees. At that date,
no Company employees were governed by collective bargaining agreements or were members of a union. We
consider our relations with our employees to be good.
In the states in which our current clinics are located, persons performing designated physical therapy
services are required to be licensed by the state. Based on standard employee screening systems in place, all
persons currently employed by us who are required to be licensed are licensed. We are not aware of any federal
licensing requirements applicable to our employees.
AVAILABLE INFORMATION
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are made
available free of charge on our internet website at www.usph.com as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC.
ITEM 1A. — RISK FACTORS
Our business, operations and financial condition are subject to various risks. Some of these risks are
described below, and readers of this Annual Report on Form 10-K should take such risks into account in
evaluating our Company or making any decision to invest in us. This section does not describe all risks
applicable to our Company, our industry or our business, and it is intended only as a summary of material factors
affecting our business.
Risks related to our business and operations
The uncertain economic conditions and the historically high unemployment rate may have material adverse
impacts on our business and financial condition that we currently cannot predict.
Unemployment in the United States has remained high while business and consumer confidence is relatively
low. Although it is difficult to predict with any degree of certainty the impact on our business, these factors could
materially and adversely affect our business and financial condition.
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We depend upon reimbursement by third-party payors.
Substantially all of our revenues are derived from private and governmental third-party payors. In 2011,
approximately 75% of our revenues were derived collectively from managed care plans, commercial health
insurers, workers’ compensation payors, and other private pay revenue sources and approximately 25% of our
revenues were derived from Medicare and Medicaid. Initiatives undertaken by industry and government to
contain healthcare costs affect the profitability of our clinics. These payors attempt to control healthcare costs by
contracting with healthcare providers to obtain services on a discounted basis. We believe that this trend will
continue and may limit reimbursement for healthcare services. If insurers or managed care companies from
whom we receive substantial payments were to reduce the amounts they pay for services, our profit margins may
decline, or we may lose patients if we choose not to renew our contracts with these insurers at lower rates. In
addition, in certain geographical areas, our clinics must be approved as providers by key health maintenance
organizations and preferred provider plans. Failure to obtain or maintain these approvals would adversely affect
our financial results.
Medicare Physician Fee Schedule Sustainable Growth Rate Update. The Medicare program reimburses
outpatient rehabilitation providers based on the MPFS. The MPFS rates are automatically updated annually based
on a formula, called the SGR formula. The use of the SGR formula has resulted in calculated automatic
reductions in rates in every year since 2002; however, for each year through 2011, CMS or Congress has taken
action to prevent the implementation of SGR formula reductions. The Preservation of Access to Care for
Medicare Beneficiaries and Pension Relief Act of 2010 provided a 2.2% increase to MPFS payment rates,
retroactive from June 1, 2010 through November 30, 2010, suspending a 21.3% reduction that briefly became
effective on June 1, 2010. The MMEA prevented a 25.5% reduction in the MPFS payment rates that would have
taken effect on January 1, 2011. The TPTC delayed application of the SGR for two additional months, through
February 29, 2012. The MCTRA included a measure freezing payment rates at their current level through
December 31, 2012.
On November 1, 2011, CMS released the 2012 Medicare Physician Fee Schedule final rule. Given the
prevention of the 27.4% reduction, the projected impact of other changes in the rule on outpatient physician
therapy service payments in aggregate is expected to be a 4.0% increase in 2012, primarily due to the continued
phase in of new practice expense survey data derived from the PPIS. In 2013, when the use of the PPIS data is
fully phased in, the impact is expected to be a 6.0% increase for outpatient physical therapy payments. In the
final 2012 Medicare Physician Fee Schedule rule, CMS indicated that over the next year it will continue to
review whether specific CPT codes billed under the fee schedule are overvalued or undervalued, including
certain specific CPT codes used by physical therapists.
Therapy Caps. As a result of the Balanced Budget Act of 1997, the formula for determining the total
amount paid by Medicare in any one year for outpatient physical therapy, occupational therapy, and/or speech-
language pathology services provided to any Medicare beneficiary (i.e., the “Therapy Cap” or “Limit”) was
established. Based on the statutory definitions which constrained how the Therapy Cap would be applied, there is
one Limit for Physical Therapy and Speech Language Pathology Services combined, and one Limit for
Occupational Therapy. These Therapy Caps are applicable to outpatient therapy services provided in all settings,
except for services provided in departments of hospitals. Therefore, outpatient therapy services rendered to
Medicare beneficiaries by the Company's therapist personnel are subject to the Therapy Cap, except to the extent
these services are rendered pursuant to certain management and professional services agreements with hospitals
for services provided in hospital departments. Effective January 1, 2012, the annual Limit on outpatient therapy
services is $1,880 for physical therapy and speech language pathology services combined and $1,880 for
occupational therapy services. Under the MCTRA this Limit will temporarily apply to hospital outpatient
departments beginning no later than October 1, 2012.
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Furthermore, under the MCTRA, starting on October 1, 2012, patients who meet or exceed $3,700 in
therapy expenditures will be subject to a manual medical review. The MCTRA designates that this medical
review will be similar to the process used following Deficit Reduction Act implementation in 2006. The $3,700
threshold will be applied to the combined physical therapy/speech language pathology cap; a separate $3,700
threshold will be applied to the occupational therapy cap.
In conjunction with establishing the Therapy Cap, Congress either delayed the implementation of these
Limits or it provided a process authorizing CMS to grant exceptions to the Therapy Cap for services provided
during a given year, as long as those services met certain qualifications. More recently, the MMEA extended the
exceptions process for outpatient Therapy Caps through December 31, 2011, and the TPTC directed CMS to
continue to allow exceptions to Therapy Caps for certain medically necessary services provided on or after
January 1, 2012, through February 29, 2012. Under the MCTRA, Congress may extend the Therapy Caps
exceptions process through December 31, 2012.
Multiple Procedure Payment Reduction. CMS adopted a MPPR for therapy services in the final update to
the MPFS for calendar year 2011. Under MPPR, the Medicare program pays 100% of the practice expense
component of the RVU for the therapy procedure with the highest RVU, then reduces the payment for the
practice expense component of the RVU for additional procedures. The reduction for these subsequent
procedures varies based on the setting, with a 20% reduction for services in an office or other non-institutional
setting and 25% in institutional settings. The reduction applies to any service furnished during the same day for
the same patient, regardless of the type of therapy service or whether the therapy services are furnished in
separate sessions. The MPPR was continued in calendar year 2012.
Statutes, regulations, and payment rules governing the delivery of therapy services to Medicare beneficiaries
are complex and subject to interpretation. The Company believes that it is in compliance in all material respects
with all applicable laws and regulations and is not aware of any pending or threatened investigations involving
allegations of potential wrongdoing that would have a material effect on the Company’s financial statements as
of December 31, 2011. 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.
Medicare regulations require that a physician or non-physician practitioner certify the need for skilled
therapy services for each patient and that these services be provided under an established plan of treatment,
which is periodically revised.
For a further description of this and other laws and regulations involving governmental reimbursements, see
“Business — Sources of Revenue” and “— Regulation and Healthcare Reform” in Item 1.
We depend upon the cultivation and maintenance of relationships with the physicians in our markets.
Our success is dependent upon referrals from physicians in the communities our clinics serve and our ability
to maintain good relations with these physicians and other referral sources. Physicians referring patients to our
clinics are free to refer their patients to other therapy providers or to their own physician owned therapy practice.
If we are unable to successfully cultivate and maintain strong relationships with physicians and other referral
sources, our business may decrease and our net operating revenues may decline.
We also depend upon our ability to recruit and retain experienced physical therapists.
Our revenue generation is dependent upon referrals from physicians in the communities our clinics serve,
and our ability to maintain good relations with these physicians. Our therapists are the front line for generating
these referrals and we are dependent on their talents and skills to successfully cultivate and maintain strong
relationships with these physicians. If we cannot recruit and retain our base of experienced and clinically skilled
therapists, our business may decrease and our net operating revenues may decline. Periodically, we have clinics
in isolated communities that are temporarily unable to operate due to the unavailability of a therapist who
satisfies our standards.
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Our revenues may fluctuate due to weather.
We have a significant number of clinics in states that normally experience snow and ice during the winter
months. Also, a significant number of our clinics are located in states along the Gulf Coast and Atlantic Coast
which are subject to periodic winter storms, hurricanes and other severe storm systems. Periods of severe weather
may cause physical damage to our facilities or prevent our staff or patients from traveling to our clinics, which
may cause a decrease in our net operating revenues.
Our operations are subject to extensive regulation.
The healthcare industry is subject to extensive federal, state and local laws and regulations relating to:
• facility and professional licensure/permits, including certificates of need;
• conduct of operations, including financial relationships among healthcare providers, Medicare fraud and
abuse, and physician self-referral;
• addition of facilities and services; and
• billing and payment for services.
In recent years, there have been heightened coordinated civil and criminal enforcement efforts by both
federal and state government agencies relating to the healthcare industry. We believe we are in substantial
compliance with all laws, but differing interpretations or enforcement of these laws and regulations could subject
our current practices to allegations of impropriety or illegality or could require us to make changes in our
methods of operations, facilities, equipment, personnel, services and capital expenditure programs and increase
our operating expenses. If we fail to comply with these extensive laws and government regulations, we could
become ineligible to receive government program reimbursement, suffer civil or criminal penalties or be required
to make significant changes to our operations. In addition, we could be forced to expend considerable resources
responding to an investigation or other enforcement action under these laws or regulations. For a more complete
description of certain of these laws and regulations, see “Business — Regulation and Healthcare Reform” in
Item 1.
Healthcare reform legislation may affect our business.
In recent years, many legislative proposals have been introduced or proposed in Congress and in some state
legislatures that would affect major changes in the healthcare system, either nationally or at the state level. At the
federal level, Congress has continued to propose or consider healthcare budgets that substantially reduce
payments under the Medicare programs. The ultimate content, timing or effect of any healthcare reform
legislation and the impact of potential legislation on us is uncertain and difficult, if not impossible to predict.
That impact may be material to our business, financial condition or results of operations.
We operate in a highly competitive industry.
We encounter competition from local, regional or national entities, some of which have superior resources
or other competitive advantages. Intense competition may adversely affect our business, financial condition or
results of operations. For a more complete description of this competitive environment, see “Business —
Competition” in Item 1. An adverse effect on our business, financial condition or results of operations may
require us to write-down goodwill.
We may incur closure costs and losses.
The competitive, economic or reimbursement conditions in our markets in which we operate may require us
to reorganize or to close certain clinics. In the event a clinic is reorganized or closed, we may incur losses and
closure costs. The closure costs and losses may include, but are not limited to, lease obligations, severance, and
write-down or write-off of goodwill and other intangible assets.
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Future acquisitions may use significant resources, may be unsuccessful and could expose us to unforeseen
liabilities.
As part of our growth strategy, we intend to continue pursuing acquisitions of outpatient physical therapy
clinics. Acquisitions may involve significant cash expenditures, potential debt incurrence and operational losses,
dilutive issuances of equity securities and expenses that could have an adverse effect on our financial condition
and results of operations. Acquisitions involve numerous risks, including:
• the difficulty and expense of integrating acquired personnel into our business;
• the diversion of management’s time from existing operations;
• the potential loss of key employees of acquired companies;
• the difficulty of assignment and/or procurement of managed care contractual arrangements; and
• the assumption of the liabilities and exposure to unforeseen liabilities of acquired companies, including
liabilities for failure to comply with healthcare regulations.
We may not be successful in obtaining financing for acquisitions at a reasonable cost, or such financing may
contain restrictive covenants that limit our operating flexibility. We also may be unable to acquire outpatient
physical therapy clinics or successfully operate such clinics following the acquisition.
Certain of our internal controls, particularly as they relate to billings and cash collections, are largely
decentralized at our clinic locations.
Our clinic operations are largely decentralized and certain of our internal controls, particularly the
processing of billings and cash collections, occur at the clinic level. Taken as a whole, we believe our internal
controls for these functions at our clinics are adequate. Our controls for billing and cash collections largely
depend on compliance with our written policies and procedures and separation of functions among clinic
personnel. We also maintain corporate level controls, including an audit compliance program, that are intended to
mitigate and detect any potential deficiencies in internal controls at the clinic level. The effectiveness of these
controls to future periods are subject to the risk that controls may become inadequate because of changes in
conditions or the level of compliance with our policies and procedures deteriorates.
Risks Relating to Our Outstanding Common Stock
Our stock price could be volatile, which could cause you to lose part or all of your investment.
The stock market has from time to time experienced significant price and volume fluctuations that may be
unrelated to the operating performance of particular companies. In particular, the market price of our common
stock has been and may continue to be highly volatile. During 2011, our stock price ranged from a low of $16.58
per share (on September 12, 2011) to a high of $26.23 per share (on July 7, 2011). Factors, such as
announcements concerning changes in revenues and earnings expectations, regulatory conditions, including
federal and state regulations, and economic and other external factors, as well as period-to-period fluctuations
and financial results, may have a significant effect on the market price of our common stock.
From time to time, there has been limited trading volume in our common stock. In addition, there can be no
assurance that there will continue to be a trading market or that any securities research analysts will continue to
provide research coverage with respect to our common stock. It is possible that such factors will adversely affect
the market for our common stock.
Issuance of shares in connection with financing transactions or under stock incentive plans will dilute
current stockholders.
Pursuant to our stock incentive plans, our Compensation Committee of the Board of Directors, consisting
solely of independent directors, is authorized to grant stock awards to our employees, directors and consultants.
17
You will incur dilution upon the exercise of any outstanding stock awards or the grant of any restricted stock. In
addition, if we raise additional funds by issuing additional common stock, or securities convertible into or
exchangeable or exercisable for common stock, further dilution to our existing stockholders will result, and new
investors could have rights superior to existing stockholders.
The number of shares of our common stock eligible for future sale could adversely affect the market price
of our stock.
At December 31, 2011, we had reserved approximately 349,000 shares of common stock for issuance under
outstanding options and 398,000 shares for future equity grants. All of these shares of common stock are
registered for sale or resale on currently effective registration statements. We may issue additional restricted
securities or register additional shares of common stock under the Securities Act in the future. The issuance of a
significant number of shares of common stock upon the exercise of stock options or the availability for sale, or
sale, of a substantial number of the shares of common stock eligible for future sale under effective registration
statements, under Rule 144 or otherwise, could adversely affect the market price of the common stock.
Provisions in our articles of incorporation and bylaws could delay or prevent a change in control of our
company, even if that change would be beneficial to our stockholders.
Certain provisions of our articles of incorporation and bylaws may delay, discourage, prevent or render
more difficult an attempt to obtain control of our company, whether through a tender offer, business
combination, proxy contest or otherwise. These provisions include the charter authorization of “blank check”
preferred stock and a restriction on the ability of stockholders to call a special meeting.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not Applicable.
ITEM 2. PROPERTIES.
We lease the properties used for our clinics under non-cancelable operating leases with terms ranging from
one to five years, with the exception of the property for one clinic which we own. We intend to lease the
premises for any new clinics locations except in rare instances where leasing is not a cost-effective alternative.
Our typical clinic occupies 1,500 to 3,000 square feet.
We also lease our executive offices located in Houston, Texas, under a non-cancelable operating lease
expiring in June 2015. We currently occupy approximately 37,537 square feet of space (including allocations for
common areas) at our executive offices.
ITEM 3. LEGAL PROCEEDINGS.
We are involved in litigation and other proceedings arising in the ordinary course of business. While the
ultimate outcome of lawsuits or other proceedings cannot be predicted with certainty, we do not believe the
impact of existing lawsuits or other proceedings will have a material impact on our business, financial condition
or results of operations.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
18
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
PRICE QUOTATIONS
Our common stock is traded on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “USPH.” As
of March 8, 2012, there were 60 holders of record of our outstanding common stock. The table below indicates
the high and low sales prices of our common stock reported for the periods presented.
Quarter
2011
2010
High
Low
High
Low
First . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$22.69
26.06
26.23
21.27
$18.87
21.51
16.58
16.75
$19.22
19.38
18.73
20.92
$14.97
15.52
15.30
16.71
Prior to 2011, we had not declared or paid cash dividends or more distributions on our common stock.
During 2011, we paid a quarterly dividend of $0.08 per share totaling $0.32 per share for 2011, which amounted
to a total of aggregate cash payments of dividends to holders of our common stock in 2011 of $3.8 million. On
February 28, 2012, our Board of Directors declared a quarterly dividend of $0.09 per share payable to
shareholders of record on March 15, 2012 to be paid on March 30, 2012. We are currently restricted from paying
dividends in excess of $5,000,000 in any fiscal year on our common stock by our bank credit facility.
ISSUER PURCHASES OF EQUITY SECURITIES
The following table provides information regarding shares of the Company’s common stock purchased by
the Company during the quarter ended December 31, 2011.
Total Number of
Shares
Purchased
Average Price
Paid per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs(1)
Maximum Number
of Shares that May
Yet be Purchased
Under the Plans or
Programs(1)
Period
October 1, 2011 through
October 31, 2011 . . . . . . .
November 1, 2011 through
—
November 30, 2011 . . . . .
72,000
December 1, 2011 through
December 31, 2011 . . . . . .
Total . . . . . . . . . . . . . . . . . . .
57,630
129,630
$ —
$18.33
$18.47
$18.39
—
72,000
57,630
129,630
—
—
172,000
172,000
(1)
In March 2009, the Board authorized the repurchase of up to 10% or approximately 1,200,000 shares of the
Company’s common stock the (“March 2009 Authorization”). In connection with the March 2009
Authorization, the Company amended its credit agreement, as described below, to permit share repurchases
of up to $15,000,000. The Company is required to retire shares purchased under the March 2009
Authorization. Since there is no expiration date for these share repurchase programs, additional shares may
be purchased from time to time in the open market or private transactions depending on price, availability
and the Company’s cash position. During 2011, we purchased 254,642 shares of our common stock for an
aggregate cost of $4.7 million. Using the December 31, 2011 closing price of $19.68 per share, there were
approximately 172,000 shares remaining that could be purchased under these programs.
19
FIVE YEAR PERFORMANCE GRAPH
The following performance graph compares the cumulative total stockholder return of our common stock to
The Nasdaq Stock Market United States Index and The Nasdaq Stock Market Healthcare Index for the period
from December 31, 2006 through December 31, 2011. The graph assumes that $100 was invested in our common
stock and the common stock of the companies listed on The Nasdaq Stock Market United States Index and The
Nasdaq Stock Market Healthcare Index on December 31, 2006 and that any dividends were reinvested.
Comparison of Five Years Cumulative Total Return
For the Year Ended December 31, 2011
D
o
l
l
a
r
s
200
150
100
50
0
12/06
12/07
12/08
12/09
12/10
12/11
U.S. Physical Therapy, Inc.
The Nasdaq Stock Market United States Index
The Nasdaq Stock Market Healthcare Index
U.S. Physical Therapy, Inc.
The Nasdaq Stock Market United States Index
The Nasdaq Stock Market Healthcare Index
12/06
12/07
100
100
100
117
108
131
12/08
109
66
95
12/09
138
95
126
12/10
12/11
162
113
152
161
114
144
20
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data should be read in conjunction with the description of our critical
accounting policies set forth in Item 7.
For the Years Ended December 31,
2011
2010
2009
2008
2007
Net revenues . . . . . . . . . . . . . . . . . . . .
Income from continuing operations
including noncontrolling interests,
net of tax . . . . . . . . . . . . . . . . . . . . .
Discontinued operations, net of tax . . .
Net income including noncontrolling
$237,006
($ in thousands, except per share data)
$201,409
$211,233
$187,686
$151,686
$ 29,783
$
— $
$ 24,700
$ 19,974
$ 17,089
— $
— $
— $
$ 14,542
(77)
interests . . . . . . . . . . . . . . . . . . . . . .
$ 29,783
$ 24,700
$ 19,974
$ 17,089
$ 14,465
Net income attributable to common
shareholders . . . . . . . . . . . . . . . . . .
$ 20,974
$ 15,645
$ 11,767
$ 10,004
$
8,738
Per common share
Net income from continuing
operations attributable to common
shareholders:
Basic . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to common
shareholders:
Basic . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . .
Long-term debt, less current
portion . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Working capital
Current ratio . . . . . . . . . . . . . . . . . . . .
Total long-term debt to total
$
$
$
$
1.78
1.75
1.78
1.75
$
$
$
$
1.34
1.32
1.34
1.32
$
$
$
$
1.01
1.00
1.01
1.00
$
$
$
$
0.84
0.83
0.84
0.83
$
$
$
$
0.76
0.75
0.75
0.75
On December 31,
2011
2010
2009
2008
2007
$163,252
$140,861
($ in thousands)
$111,429
$118,247
$ 96,252
$ 23,784
$ 29,343
2.80
$
5,750
$ 25,053
2.76
$
400
$ 18,255
2.24
$ 12,412
$ 24,108
2.65
$
7,959
$ 24,595
3.15
capitalization . . . . . . . . . . . . . . . . .
0.20
0.05
—
0.15
0.11
21
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
EXECUTIVE SUMMARY
Our Business. We operate outpatient physical therapy clinics that provide preventative and post-operative
care for a variety of orthopedic-related disorders and sports-related injuries, treatment for neurologically-related
injuries and rehabilitation of injured workers.
During 2011 and 2010, we completed the following acquisitions:
Acquisition
% Interest
Acquired
Number of
Clinics
Date
2011
July 2011 Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
July 25
February 2010 Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 21, 2010 Acquisition . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2010 Acquisition . . . . . . . . . . . . . . . . . . . . . . .
February 26
December 21
December 31
2010
51%
70%
70%
65%
20
5
6
14
The three acquisitions in 2010 are hereinafter referred to collectively as the “2010 Acquisitions”. No clinics
were acquired in 2009.
The results of operations of the acquired clinics have been included in our consolidated financial statements
since the date of their acquisition.
At December 31, 2011, we operated 416 clinics in 42 states, inclusive of two Physician Services Clinics.
The average age of our clinics at December 31, 2011, was 8.0 years. Of the 416 clinics, we developed 293 of the
clinics and acquired 123. In 2011, we opened 21 clinics, acquired 20 and closed 17.
In addition to our owned clinics, we also manage physical therapy facilities for third parties, primarily
physicians, with 15 third-party facilities under management as of December 31, 2011.
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:
Revenues from physician services, sold primarily through franchisee arrangements, are considered multiple
deliverables — training and ongoing services. Each component can be purchased separately. Revenue is
recognized over the period of the respective services are provided.
Revenue Recognition. Revenues are recognized in the period in which services are rendered. Net patient
revenues (patient revenues less estimated contractual adjustments) are reported at the estimated net realizable
amounts from insurance companies, third-party payors, patients and others for services rendered. The Company
has agreements with third-party payors that provide for payments to the Company at contracted amounts
different from its established rates. The allowance for estimated contractual adjustments is based on terms of
payor contracts and historical collection and write-off experience.
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
22
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 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
collectibility estimates. However, the services authorized and provided and related reimbursement are subject to
interpretation that could result in payments that differ from our estimates. Payor terms are periodically revised
necessitating continual review and assessment of the estimates made by management. Our billing system 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 its 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 has generally reflected a difference within approximately 1% of net revenues. Additionally, analysis
of subsequent period’s contractual write-offs on a payor basis reflects a difference within approximately 1%
between the actual aggregate contractual reserve percentage as compared to the estimated contractual allowance
reserve percentage associated with the same period end balance. As a result, we believe that a reasonable likely
change in the contractual allowance reserve estimate would not be more than 1% at December 31, 2011. For
purposes of demonstrating the sensitivity of this estimate on the Company’s financial condition, a one percent
increase or decrease in our aggregate contractual allowance reserve percentage would decrease or increase,
respectively, net patient revenue by approximately $716,000 for the year ended December 31, 2011.
Management believes the changes in the estimate of the contractual allowance reserve for the periods ended
December 31, 2011, 2010 and 2009 have not been material to the statement of operations.
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 doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2011
2010
$70,435
39,948
30,487
2,154
$58,552
31,548
27,004
2,190
Net patient accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$28,333
$24,814
The following table presents our patient accounts receivable aging by payor class as of the dates indicated
(in thousands):
Accounts Receivable by Payor Class
Payor
Managed Care/ Commercial Plans . . . . . . . . .
Medicare/Medicaid . . . . . . . . . . . . . . . . . . . . .
Workers Compensation* . . . . . . . . . . . . . . . . .
Self-pay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2011
December 31, 2010
Current to
120 Days
$10,066
5,964
5,475
739
996
120+ Days
Total
$2,213
1,758
1,198
1,295
783
$12,279
7,722
6,673
2,034
1,779
Current to
120 Days
$ 9,001
5,328
4,952
872
1,012
120+ Days
Total
$1,972
1,408
814
857
788
$10,973
6,736
5,766
1,729
1,800
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$23,240
$7,247
$30,487
$21,165
$5,839
$27,004
* Workers compensation is paid by state administrators or their designated agents.
** Other includes primarily litigation claims and, to a lesser extent, vehicular insurance claims.
23
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.
Allowance for Doubtful Accounts. We determine allowances for doubtful accounts based on the specific
agings and payor classifications at each clinic. We review the accounts receivable aging and rely on prior
experience with particular payors to determine an appropriate reserve for doubtful accounts. Historically, clinics
that have a large number of aged accounts generally have less favorable collection experience, and thus, require a
higher allowance. Accounts that are ultimately determined to be uncollectible are written off against our bad debt
allowance. The amount of our aggregate allowance for doubtful accounts is regularly reviewed for adequacy in
light of current and historical experience.
Accounting for Income Taxes. We account for income taxes under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
The Company recognizes the financial statement benefit of a tax position only after determining that the
relevant tax authority would more likely than not sustain the position following an audit. For tax positions
meeting the more-likely-than-not threshold, the amount to be recognized in the financial statements is the largest
benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant
tax authority.
The Company does not believe that it has any significant uncertain tax positions at December 31, 2011, nor
is this expected to change within the next twelve months due to the settlement and expiration of statutes of
limitation.
The Company did not have any accrued interest or penalties associated with any unrecognized tax benefits
nor was any interest expense recognized during the twelve months ended December 31, 2011 and 2010.
Carrying Value of Long-Lived Assets. Our property and equipment, intangible assets and goodwill
(collectively, our “long-lived assets”) comprise a significant portion of our total assets. The accounting standards
require that we periodically, and upon the occurrence of certain events, assess the recoverability of our long-lived
assets. If the carrying value of our property and equipment exceeds their undiscounted cash flows, we are
required to write the carrying value down to estimated fair value.
Goodwill. The fair value of goodwill and other intangible assets with indefinite lives are tested for
impairment annually and upon the occurrence of certain events, and are written down to fair value if considered
impaired. We evaluate goodwill for impairment on at least an annual basis (in our third quarter) by comparing
the fair value of each reporting unit to the carrying value of the reporting unit including related goodwill. We
operate a one segment business which is made up of various clinics within partnerships. A reporting unit refers to
the acquired interest of a single clinic or group of clinics. Local management typically continues to manage the
acquired clinic or group of clinics. For each clinic or group of clinics, we maintain discrete financial information
and both corporate and local management regularly review the operating results. We did not combine any of the
reporting units for impairment testing in any year presented. For each purchase of the equity interest, goodwill, if
any, is assigned to the respective clinic or group of clinics, if deemed appropriate. The evaluation of goodwill in
2011, 2010 and 2009 did not result in any goodwill amounts that were deemed impaired. An impairment loss
24
generally would be recognized when the carrying amount of the net assets of the reporting unit, inclusive of
goodwill and other intangible assets, exceed the estimated fair value of the reporting unit. The estimated fair
value of a reporting unit is determined using two factors: (i) earnings prior to taxes, depreciation and
amortization for the reporting unit multiplied by a price/earnings ratio used in the industry and (ii) a discounted
cash flow analysis. A weight is assigned to each factor and the sum of the each weight multiplied by the factor is
considered the estimated fair value. For 2011, the factors (ie. price/earnings ratio, discount rate and residual
capitalization rate) were updated to reflect current market conditions.
SELECTED OPERATING AND FINANCIAL DATA
The following table and discussion relates to continuing operations unless otherwise noted. The defined
terms with their respective description used in the following discussion are listed below:
2011 . . . . . . . . . . . . . . . . . . . . . . Year ended December 31, 2011
2010 . . . . . . . . . . . . . . . . . . . . . . Year ended December 31, 2010
2009 . . . . . . . . . . . . . . . . . . . . . . Year ended December 31, 2009
New Clinics . . . . . . . . . . . . . . . . Clinics opened or acquired during the year ended December 31, 2011
Mature Clinics . . . . . . . . . . . . . . Clinics opened or acquired prior to January 1, 2011
2010 New Clinics . . . . . . . . . . . Clinics opened or acquired during the year ended December 31, 2010
2010 Mature Clinics . . . . . . . . . Clinics opened or acquired prior to January 1, 2010
2009 New Clinics . . . . . . . . . . . Clinics opened during the year ended December 31, 2009
2009 Mature Clinics . . . . . . . . . Clinics opened or acquired prior to January 1, 2009
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,
2011
2010
2009
Number of clinics, at the end of period . . . . . . . . . . . . . . . .
Working Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average visits per day per clinic . . . . . . . . . . . . . . . . . . . . .
Total patient visits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net patient revenue per visit . . . . . . . . . . . . . . . . . . . . . . . .
416
255
20.9
2,163,679
104.72
$
392
254
20.5
1,926,892
105.92
$
368
255
20.4
1,899,123
102.85
$
RESULTS OF OPERATIONS
FISCAL YEAR 2011 COMPARED TO FISCAL 2010
• Net revenues rose 12.2% to $237.0 million for 2011 from $211.2 million for 2010 due to increases in net
patient revenues and other revenues as discussed below. The 2011 results include five months of
operations of the July 2011 Acquisition. The 2010 results include 10 months of operations for the
February 2010 Acquisition and eight days of operations for the December 21, 2010 Acquisition. The 2011
and 2010 results include 255 days and 254 days of operations, respectively.
• Net income attributable to common shareholders for the year ended December 31, 2011 increased 34.1%
to $21.0 million from $15.6 million in 2010. Diluted earnings per share rose to $1.75 from $1.32.
Included in the 2011 results is a pretax gain of $5.4 million related to a purchase price settlement on the
February 2010 Acquisition. Included in the 2010 results was a positive adjustment in the income tax
provision of $0.8 million and a gain from the sale of a five clinic joint venture of approximately $0.6
25
million. Excluding the 2011 and 2010 gains and the 2010 tax adjustment, diluted earnings per shares from
operations would have been $1.35 for 2011 and $1.22 for 2010, an increase of 10.7%. See table below
Net income attributable to common shareholders
. . . . . . . . . . . . . . . . .
Gain on purchase price settlement of $5,434 less tax effect of $629 . . . .
Positive adjustment in income tax provision . . . . . . . . . . . . . . . . . . . . . .
Gain on the sale of a five clinic joint venture of $578 less tax effect of
Year Ended
December 31,
2011
2010
(In thousands, except per share data)
$15,645
$20,974
(4,805)
—
(814)
—
$227 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Adjusted net income attributable to common shareholders . . . . . . . . . . .
$16,169
(351)
$14,480
Adjusted net income attributable to common shareholders per diluted
share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.35
$
1.22
Net Patient Revenues
• Net patient revenues increased to $226.6 million for 2011 from $204.1 million for 2010, an increase of
$22.5 million, or 11.0%, primarily due to an increase in patient visits from 1.9 million to 2.2 million. The
increase in net patient revenues of $22.5 million consisted of an increase of $14.3 million from Mature
Clinics and $8.2 million from New Clinics, primarily due to the July 2011 Acquisition. The $14.4 million
from Mature Clinics is made up of an increase of $14.2 million from the 2010 Acquisitions and $0.2
million from other Mature Clinics.
• Total patient visits increased to 2,164,000 for 2011 from 1,927,000 for 2010. The growth in patient visits
was attributable to 76,000 visits in New Clinics, primarily due to the July 2011 Acquisition and an
increase of 162,000 visits for Mature Clinics, primarily due to the 2010 Acquisitions.
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 programs are based on predetermined rates and are generally less than the established billing rates of
the clinics.
Other Revenues
Other revenues increased by $3.3 million from $7.1 million to $10.4 million primarily due to $2.5 million
higher revenues from physician services, which include clinical services related to intra articular joint and lumbar
osteoarthritis programs as well as electro-diagnostic analysis, and $0.5 million from a management contract
acquired as part of the 2010 Acquisitions.
Clinic Operating Costs
Clinic operating costs were 74.4% of net revenues for 2011 and 73.5% of net revenues for 2010. Each
component of clinic operating costs is discussed below:
Clinic Operating Costs — Salaries and Related Costs
Salaries and related costs increased to $125.1 million for 2011 from $110.9 million for 2010, an increase of
$14.2 million, or 12.8%. Approximately $5.5 million of the increase was attributable to New Clinics. The
remaining $8.7 million of the increase was due to $10.4 million in higher costs at various 2010 New Clinics
26
offset by a decrease of $1.7 million in costs at 2010 Mature Clinics. Salaries and related costs as a percentage of
net revenues was 52.8% for 2011 and 52.5% for 2010.
Clinic Operating Costs — Rent, Clinic Supplies and Other
Rent, clinic supplies and other costs increased to $47.4 million for 2011 from $40.9 million for 2010, an
increase of $6.5 million, or 15.8%. For 2011, New Clinics accounted for approximately $2.8 million of the
increase and 2010 New Clinics accounted for approximately $4.2 million of the increase due to a full year of
activity for clinics developed or acquired in 2010. Rent, clinic supplies and other costs for 2010 Mature Clinics
decreased $0.5 million in 2011 as compared to 2010 due to cost containment efforts. Rent, clinic supplies and
other costs as a percent of net revenues was 20.0% for 2011 and 19.4% for 2010.
Clinic Operating Costs — Provision for Doubtful Accounts
The provision for doubtful accounts for net patient receivables as a percentage of net patient revenues was
1.7% for 2011 and 1.6% for 2010. Our allowance for bad debts as a percentage of total patient accounts
receivable was 7.0% at December 31, 2011 and 8.1% at December 31, 2010. The allowance for doubtful
accounts 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.
The accounts receivable days outstanding were 48 days at December 31, 2011 and 45 days at December 31,
2010. Receivables in the amount of $3.0 million and $2.8 million were written-off in 2011 and 2010,
respectively.
Closure Costs
For 2011, closure costs amounted to $59,000 related to the closure of 17 clinics. In 2010, 15 clinics were
closed with closure costs amounting to $163,000.
Corporate Office Costs
Corporate office costs, consisting primarily of salaries, benefits and equity based compensation of corporate
office personnel and directors, rent, insurance costs, depreciation and amortization, travel, legal, compliance,
professional, marketing and recruiting fees, were $24.7 million for 2011 and $22.8 million for 2010, an increase
of $1.9 million inclusive of $0.5 million related to a potential legal settlement. Corporate office costs were
reduced as a percentage of net revenues to 10.4% for 2011 from 10.8% for 2010.
Interest and Other Income, net
Interest and other income for 2011 included a pretax gain of $5.4 million related to a purchase price
settlement on the February 2010 Acquisition that occurred beyond our purchase price measurement date. The
settlement included $1.5 million in cash, $0.1 million in debt forgiveness and $3.8 million in exchange of the
remaining noncontrolling interest. Interest and other income for 2010 included a pre-tax gain of $578,000 from
the sale of our 51.0% interest in a five clinic Texas joint venture.
Interest Expense
Interest expense increased to $496,000 for 2011 from $236,000 for 2010 primarily due to higher average
borrowings. At December 31, 2011, $23.5 million was outstanding under our revolving credit facility. See
“Liquidity and Capital Resources” below for a discussion of the terms of our revolving credit facility.
27
Provision for Income Taxes
The provision for income taxes increased to $11.1 million for 2011 from $8.8 million for 2010, an increase
of approximately $2.3 million, primarily as a result of higher pre-tax income. For 2011, we accrued state and
federal income taxes at an effective tax rate (provision for taxes divided by the difference between income from
operations and net income attributable to noncontrolling interest) of 34.6%. Of the $5.4 million gain mentioned
above, $3.8 million was non taxable. During the fourth quarter of 2010, we completed a process to perform a
detailed reconciliation of our federal and state taxes payable and receivable accounts along with our federal and
state deferred tax asset and liability accounts. Historically, calculations of these tax-related accounts were
performed through summary estimates and analysis. As a result of this detailed analysis, we recorded a reduction
in our current state income tax provision of $814,000. Without the effect of the $814,000, during 2010, we
accrued state and federal income taxes at an effective tax rate of 39.4%. We performed a similar reconciliation
process during the fourth quarter of 2011 which did not yield a significant adjustment.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests was $8.8 million in 2011 compared to $9.1 million in
2010. As a percentage of operating income before corporate office costs, net income attributable to
noncontrolling interests was 14.5% in 2011 compared to 16.2% in 2010. The reduction is attributable to the
Company’s increased ownership interest in certain physical therapy partnerships.
FISCAL YEAR 2010 COMPARED TO FISCAL 2009
• Net revenues rose 4.9% to $211.2 million for 2010 from $201.4 million for 2009 due to a 3.0% increase
in net patient revenue per visit to $105.92 from $102.85 for 2009 while the number of patient visits
increased by 1.5% from 1,899,000 to 1,927,000. Our net patient revenue per visit increased due to our
continuing efforts to provide additional services and to negotiate more favorable reimbursement rates
with payors. The 2010 results include 10 months of operations for the clinics acquired in the February
2010 Acquisition and eight days of operations for the clinics acquired in the December 21, 2010
Acquisition. The 2010 and 2009 results include 254 days and 255 days of operations, respectively.
• Net income attributable to common shareholders increased 33.0% to $15.6 million for 2010 from
$11.8 million. Earnings per diluted share increased to $1.32 from $1.00. Total diluted shares for the years
ended December 31, 2010 and 2009 were 11.9 million and 11.8 million, respectively.
Net Patient Revenues
• Net patient revenues increased to $204.1 million for 2010 from $195.3 million for 2009, an increase of
$8.8 million, or 4.5%, primarily due to an increase of $3.07 in patient revenues per visit to $105.92 as
previously mentioned.
• Total patient visits increased to 1,927,000 for 2010 from 1,899,000 for 2009. 2010 New Clinics
accounted for 62,000 additional visits in 2010 while 2010 Mature Clinics accounted for a decrease of
34,000 visits. For 2009 New Clinics, the number of visits increased by 35,000 from 2009 to 2010 due to
an increase in business for developed clinics and a full year of activity for those opened in 2009. For 2009
Mature Clinics, the number of visits decreased by 68,000 in 2010 as compared to 2009.
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 programs are based on predetermined rates and are generally less than the established
billing rates of the clinics.
28
Other Revenues
Other revenues increased by approximately $1.0 million from 2009 to 2010 due to additional management
contracts.
Clinic Operating Costs
Clinic operating costs were 73.5% of net revenues for 2010 and 74.3% of net revenues for 2009. Each
component of clinic operating costs is discussed below:
Clinic Operating Costs — Salaries and Related Costs
Salaries and related costs increased to $110.9 million for 2010 from $105.7 million for 2009, an increase of
$5.2 million, or 4.9%. Approximately $4.1 million of the increase was attributable to 2010 New Clinics. The
remaining $1.1 million of the increase was due to $2.1 million in higher costs at various 2009 New Clinics offset
by a decrease of $1.0 million in costs at various 2009 Mature Clinics. Salaries and related costs as a percentage
of net revenues was 52.5% for 2010 and 2009.
Clinic Operating Costs — Rent, Clinic Supplies and Other
Rent, clinic supplies and other costs increased to $40.9 million for 2010 from $40.5 million for 2009, an
increase of $0.4 million, or 1.1%. For 2010, 2010 New Clinics accounted for approximately $1.9 million of the
increase and 2009 New Clinics accounted for approximately $0.7 million of the increase due to a full year of
activity for clinics developed in 2009. Rent, clinic supplies and other costs for 2009 Mature Clinics decreased
$2.2 million in 2010 as compared to 2009 due to cost containment efforts. Rent, clinic supplies and other costs as
a percent of net revenues was 19.4% for 2010 and 20.1% for 2009.
Clinic Operating Costs — Provision for Doubtful Accounts
The provision for doubtful accounts for net patient receivables as a percentage of net patient revenues was
1.6% for 2010 and 1.7% for 2009. Our allowance for bad debts as a percentage of total patient accounts
receivable was 8.1% at December 31, 2010 and 7.6% at December 31, 2009. The allowance for doubtful
accounts 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.
The accounts receivable days outstanding were 45 days at December 31, 2010 and December 31, 2009.
Receivables in the amount of $2.8 million and $3.8 million were written-off in 2010 and 2009, respectively.
Closure Costs
In 2010, 15 clinics were closed with closure costs amounting to $163,000. For 2009, closure costs amounted
to $91,000 related to the closure of 10 clinics.
Corporate Office Costs
Corporate office costs, consisting primarily of salaries, benefits and equity based compensation of corporate
office personnel and directors, rent, insurance costs, depreciation and amortization, travel, legal, compliance,
professional, marketing and recruiting fees, were $22.8 million for 2010 and $23.5 million for 2009, a decrease
of $0.7 million. This decrease is primarily due to lower incentive compensation, including the long-term
incentive plan. Corporate office costs as a percentage of net revenues were 10.8% for 2010 and 11.7% for 2009.
29
Interest and Other Income, net
Interest and other income for 2010 included a pre-tax gain of $578,000 from the sale of our 51.0% interest
in a five clinic Texas joint venture.
Interest Expense
Interest expense decreased to $236,000 for 2010 from $352,000 for 2009 primarily due to lower average
borrowings. At December 31, 2010, $5.5 million was outstanding under our revolving credit facility. See
“Liquidity and Capital Resources” below for a discussion of the terms of our revolving credit facility.
Provision for Income Taxes
The provision for income taxes increased to $8.8 million for 2010 from $7.9 million for 2009, an increase of
approximately $0.9 million, primarily as a result of higher pre-tax income. During the fourth quarter of 2010, we
completed a process to perform a detailed reconciliation of our federal and state taxes payable and receivable
accounts along with our federal and state deferred tax asset and liability accounts. Historically, calculations of
these tax-related accounts were performed through summary estimates and analysis. As a result of this detailed
analysis, we recorded a reduction in our current state income tax provision of $814,000. Without the effect of the
$814,000, during 2010, we accrued state and federal income taxes at an effective tax rate (provision for taxes
divided by the difference between income from operations and net income attributable to noncontrolling interest)
of 39.4%. For 2009, the results included certain incentive compensation that was not tax deductible thereby
slightly increasing the effective income tax rate to 40.3%.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests was $9.1 million in 2010 compared to $8.2 million in
2009. As a percentage of operating income before corporate office costs, net income attributable to
noncontrolling interests was 16.2% in 2010 compared to 15.9% in 2009.
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, 2011, we had $10.0 million in cash and cash equivalents compared to $9.2 million at
December 31, 2010. 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 availability under our revolving
credit facility are sufficient to fund the working capital needs of our operating subsidiaries, future clinic
development and investments through at least December 2012. The amount outstanding under our revolving
credit facility was $23.5 million at December 31, 2011 compared to $5.5 million at December 31, 2010. At
December 31, 2011, we had $51.5 million available under our revolving credit facility. Significant acquisitions
would likely require financing under our revolving credit facility.
The increase in cash and cash equivalents of $0.8 million from December 31, 2010 to December 31, 2011
was due primarily to $32.7 million provided by operations, $18.0 million of net proceeds on our revolving credit
facility and $1.5 million from a purchase price settlement. The major uses of cash for investing and financing
activities included: acquisitions of noncontrolling interests ($20.4 million), distributions to noncontrolling
interests ($9.8 million), purchase of business and earnout payment on a previously acquired business ($9.5
million), purchases of our common stock ($4.7 million), payments of cash dividends to our shareholders ($3.8
million), purchases of fixed assets ($3.2 million), and payments on notes payable ($0.3 million).
30
Effective August 27, 2007, we entered into a credit agreement with a commitment for a $30.0 million
revolving credit facility which was increased to $50.0 million effective June 4, 2008 (“Credit Agreement”).
Effective March 18, 2009, we amended the Credit Agreement to permit us to purchase up to $15,000,000 of our
common stock subject to compliance with certain covenants, including the requirement that after giving effect to
any stock purchase, our consolidated leverage ratio (as defined in the Credit Agreement) be less than 1.0 to 1.0
and that any stock repurchased be retired within seven days of purchase. Effective October 13, 2010, we
amended the Credit Agreement to extend the maturity date from August 31, 2011 to August 31, 2015. In
addition, the Credit Agreement was amended to adjust the pricing grid which is based on our consolidated
leverage ratio with the applicable spread over LIBOR ranging from 1.6% to 2.5% or the applicable spread over
the Base Rate ranging from .1% to 1%. On July 14, 2011, we amended the Credit Agreement to increase the
commitment from $50.0 million to $75.0 million. The 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 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. Fees under the Credit Agreement include an unused commitment fee ranging from .1% to .25%
depending on our consolidated leverage ratio and the amount of funds outstanding under the Credit Agreement.
On December 31, 2011, $23.5 million was outstanding on the revolving credit facility resulting in $51.5 million
of availability, and we were in compliance with all of the covenants thereunder.
In six separate transactions during 2011, we purchased a total of 22.2% of the 30% non-controlling interest
in STAR Physical Therapy, LP, a subsidiary of the Company (“STAR”). The aggregate purchase price paid for
the 22.2% interest was $16.9 million, which included $0.8 million of undistributed earnings. The remaining
purchase price of $16.1 million, less future tax benefits of $6.3 million, was recognized as an adjustment to
additional paid-in capital. After these transactions, we owned 92.2% and the non-controlling interest limited
partners in aggregate owned the remaining 7.8% in the partnership.
Effective June 30, 2011, we purchased the 35% non-controlling interest in one of our Texas partnerships
(“June 2011 Noncontrolling Interest Purchase”). The aggregate purchase price for the 35% interest was $3.9
million, of which $3.5 million was paid in cash and $367,272 was paid in the form of a note to the seller. The
purchase price included $0.2 million of undistributed earnings and $0.2 million in invested capital. The
remaining purchase price of $3.5 million, less future tax benefits of $1.4 million, was recognized as an
adjustment to additional paid-in capital. After this transaction, we own 100% of the partnership.
In addition, during 2011, we purchased the non-controlling interests of several other partners for $142,000,
which included $48,000 of undistributed earnings and sold additional interest to an existing partner for $58,000.
The net purchase price of approximately $36,000, less future tax benefits of $23,000, was recognized as an
adjustment to additional paid-in capital.
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 in
selected markets. We have from time to time purchased the noncontrolling interests of limited partners in our
Clinic Partnerships. We may purchase additional noncontrolling interests in the future. Generally, any acquisition
or purchase of noncontrolling 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 Medicare Rehab Agency
status 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
31
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, 2011 are summarized as follows (in thousands):
Contractual Obligation
Total
2012
2013
2014
2015
2016
Thereafter
Notes Payable . . . . . . . . . . . . . . . . . . .
Interest Payable . . . . . . . . . . . . . . . . .
Employee Agreements . . . . . . . . . . . .
Operating Leases . . . . . . . . . . . . . . . .
$ 24,217
37
$
$ 24,677
$ 52,661
$
433
28
16,789
17,306
$
284
9
5,012
13,070
$ — $23,500
—
711
6,421
—
1,892
9,381
$ — $ —
—
—
3,653
—
273
2,830
$101,592
$34,556
$18,375
$11,273
$30,632
$3,103
$3,653
We generally enter into various notes payable as a means of financing our acquisitions. Our presently
outstanding notes payable relate only to certain of the acquisitions of businesses and noncontrolling interests that
occurred in 2011 and 2010. For those acquisitions, we entered into several notes payables aggregating to $1.1
million. The notes are payable in equal annual installments of principal over two years plus any accrued and
unpaid interest. Interest accrues at various interest rates ranging from 3.25% to 4.0% per annum. In addition, we
assumed leases with remaining terms of 1 month to 6 years for the operating facilities. At December 31, 2011,
the balance on these notes payable was $0.7 million.
In conjunction with the above mentioned acquisitions, in the event that a limited minority partner’s
employment ceases at any time after three years from the acquisition date, we have agreed to repurchase that
individual’s noncontrolling interest at a predetermined multiple of earnings before interest and taxes.
The purchase agreement related to an acquisition that occurred in 2008 provided for possible contingent
consideration of up to $3,781,000 based on the achievement of a designated level of operating results within a
three-year period following the acquisition. In 2009, 2010 and 2011, we paid $1,179,000, $1,080,000 and
$1,522,000, respectively, of additional consideration related to the operating results of such acquired business.
Those amounts were recorded as additional goodwill.
From September 2001 through December 31, 2008, the 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”). In connection with the March 2009 Authorization, we amended our bank credit agreement to
permit the share repurchases of up to $15,000,000. We are required to retire shares purchased under the March
2009 Authorization. Since there is no expiration date for these share repurchase programs, additional shares may
be purchased from time to time in the open market or private transactions depending on price, availability and
our cash position. During 2011, we purchased 254,642 shares of our common stock for an aggregate cost of $4.7
million. Using the December 31, 2011 closing price of $19.68 per share, there were approximately 172,000
shares remaining that could be purchased under these programs. During 2010, we purchased 86,522 shares for an
aggregate purchase price of $1.4 million. During 2009, we purchased 518,335 shares for an aggregate price of
$5.6 million.
Off Balance Sheet Arrangements
With the exception of operating leases for its executive offices and clinic facilities discussed in Note 13 to
our consolidated financial statements included in Item 8, we have no off-balance sheet debt or other off-balance
sheet financing arrangements.
32
FACTORS AFFECTING FUTURE RESULTS
The risks related to our business and operations include:
• The uncertain economic conditions and the historically high unemployment rate in the United States may
have material adverse impacts on our business and financial condition that we currently cannot predict.
• We depend upon reimbursement by third-party payors including Medicare and Medicaid.
• Changes as a result of healthcare reform legislation may affect our business.
• We depend upon the cultivation and maintenance of relationships with the physicians in our markets.
• We also depend upon our ability to recruit and retain experienced physical therapists.
• Our revenues may fluctuate due to weather.
• Our operations are subject to extensive regulation.
• We operate in a highly competitive industry.
• We may incur closure costs and losses.
• Future acquisitions may use significant resources, may be unsuccessful and could expose us to unforeseen
liabilities.
• Certain of our internal controls, particularly as they relate to billings and cash collections, are largely
decentralized at our clinic locations.
See Risk Factors in Item 1A of this Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not maintain any derivative instruments such as, interest rate swap arrangements, hedging contracts,
futures contracts or the like. Our only indebtedness as of December 31, 2011 was seller notes of $0.7 million and
an outstanding balance on our revolving credit facility of $23.5 million. The outstanding balance under our
revolving credit facility is subject to fluctuating interest rates. A 1% change in the interest rate would yield an
additional $235,000 of interest expense. See Note 7 of the Notes to the Consolidated Financial Statements in
Item 8.
33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND RELATED INFORMATION
Reports of Independent Registered Public Accounting Firm — Grant Thornton LLP . . . . . . . . . . . . . . . . . . .
Audited Financial Statements:
Consolidated Balance Sheets as of December 31, 2011 and 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Net Income for the years ended December 31, 2011, 2010 and 2009 . . . . . . . . . .
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2011, 2010 and 2009 . . . .
Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009 . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35
37
38
39
40
41
34
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and
Shareholders of U.S. Physical Therapy, Inc.
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, 2011 and 2010, and the related consolidated
statements of net income, shareholders’ equity and cash flows for each of the three years in the period ended
December 31, 2011. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the consolidated financial position of U.S. Physical Therapy, Inc. and subsidiaries as of December 31, 2011 and
2010, and the results of their consolidated operations and their cash flows for each of the three years in the period
ended December 31, 2011 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), U.S. Physical Therapy, Inc. and subsidiaries’ internal control over financial reporting as of
December 31, 2011, based on criteria established in Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 9,
2012, expressed an unqualified opinion.
/s/ GRANT THORNTON LLP
Houston, Texas
March 9, 2012
35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and
Shareholders of U.S. Physical Therapy, Inc.
We have audited U.S. Physical Therapy, Inc. (a Nevada Corporation) and subsidiaries’ internal control over
financial reporting as of December 31, 2011, based on criteria established in Internal Control — Integrated
Frame work issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
U.S. Physical Therapy, Inc. and subsidiaries’ 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 appearing under Item 9A on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on U.S. Physical Therapy, Inc.’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). 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.
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.
In our opinion, based on our audit, U.S. Physical Therapy, Inc. and subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established
in 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), the consolidated balance sheets of U.S. Physical Therapy, Inc. and subsidiaries as of
December 31, 2011 and 2010, and the related consolidated statements of net income, shareholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2011, and our report dated March 9,
2012 expressed an unqualified opinion.
/s/ GRANT THORNTON LLP
Houston, Texas
March 9, 2012
36
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Current assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patient accounts receivable, less allowance for doubtful accounts of $2,154 and
$
9,983
$
9,179
$2,190, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,333
24,814
December 31,
2011
December 31,
2010
(In thousands, except per
share data)
Accounts receivable — other, less allowance for doubtful accounts of $883 and
$83, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,614
5,737
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,667
Fixed assets:
Furniture and equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Other intangible assets, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable — trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolving line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
Shareholders’ equity:
U. S. Physical Therapy, Inc. shareholders’ equity:
Preferred stock, $.01 par value, 500,000 shares authorized, no shares issued and
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, $.01 par value, 20,000,000 shares authorized, 13,919,588 and
13,893,157 shares issued, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock at cost, 2,214,737 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total U. S. Physical Therapy, Inc. shareholders’ equity . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
See notes to consolidated financial statements.
37
1,555
3,736
39,284
33,563
19,590
53,153
39,230
13,923
79,424
7,308
922
$140,861
$
1,237
12,744
250
14,231
250
5,500
966
3,531
24,478
35,103
20,385
55,488
42,299
13,189
92,750
9,603
2,043
$163,252
$
1,809
14,082
433
16,324
284
23,500
941
623
41,672
—
—
139
36,133
102,405
(31,628)
107,049
14,531
121,580
$163,252
139
45,570
89,876
(31,628)
103,957
12,426
116,383
$140,861
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET INCOME
Net patient revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2011
2010
2009
(In thousands, except per share data)
$195,322
$204,101
$226,579
6,087
7,132
10,427
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
237,006
211,233
201,409
Clinic operating costs:
Salaries and related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rent, clinic supplies, contract labor and other . . . . . . . . . . . . . . . . . . . . . . . .
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Closure costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total clinic operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate office costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and other income, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income including noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . .
Less: net income attributable to noncontrolling interests . . . . . . . . . . . . . . .
125,117
47,396
3,785
59
176,357
24,718
35,931
5,445
(496)
40,880
11,097
29,783
(8,809)
110,872
40,944
3,241
163
155,220
22,823
33,190
586
(236)
33,540
8,840
24,700
(9,055)
105,737
40,502
3,348
91
149,678
23,479
28,252
8
(352)
27,908
7,934
19,974
(8,207)
Net income attributable to common shareholders . . . . . . . . . . . . . . . . . . . . . . .
$ 20,974
$ 15,645
$ 11,767
Earnings per share attributable to common shareholders:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.78
1.75
$
$
1.34
1.32
$
$
1.01
1.00
Shares used in computation:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,814
11,638
11,703
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,977
11,870
11,807
See notes to consolidated financial statements.
38
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Balance December 31, 2008 . . . . . . . . . . .
Proceeds from exercise of stock options . . .
Tax benefit from exercise of stock
options . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of restricted stock . . . . . . . . . . . .
Cancellation of restricted stock . . . . . . . . .
Compensation expense — restricted
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation expense — stock
options . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of noncontrolling interests . . .
Purchase and retirement of treasury
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions to noncontrolling interest
partners . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . .
Balance December 31, 2009 . . . . . . . . . . .
Proceeds from exercise of stock options . . .
Tax benefit from exercise of stock
options . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of restricted stock . . . . . . . . . . . .
Cancellation of restricted stock . . . . . . . . .
Compensation expense — restricted
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation expense — stock
options . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of business . . . . . . . . . . . . . . . . .
Sale of business . . . . . . . . . . . . . . . . . . . . .
Acquisition of noncontrolling interests . . .
Purchase and retirement of treasury
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions to noncontrolling interest
partners . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . .
U. S. Physical Therapy, Inc.
Common Stock
Shares Amount
Additional
Paid-In
Capital
Retained
Earnings
14,252
11
$142
1
$ 43,648
56
$ 69,446
—
Treasury Stock
Shares Amount
(In thousands)
(2,215)
—
$(31,628)
—
Total
Shareholders’
Equity
Noncontrolling
Interests
Total
$ 81,608
57
$ 6,214
—
$ 87,822
57
—
97
(13)
—
—
—
—
—
—
—
—
—
44
—
—
974
599
(2,111)
—
—
—
—
—
—
(518)
(5)
—
(5,581)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
44
—
—
974
599
(2,111)
(5,586)
—
—
13,829
68
—
—
$138
1
—
—
$ 43,210
419
—
11,767
$ 75,632
—
—
—
(2,215)
—
—
—
$(31,628)
—
—
11,767
$ 87,352
420
—
93
(10)
—
—
—
—
—
(87)
—
—
—
—
—
—
—
—
—
—
—
—
—
336
—
—
1,245
47
—
—
313
—
—
—
—
—
—
—
—
—
—
—
(1,401)
—
15,645
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
336
—
—
1,245
47
—
—
313
(1,401)
—
15,645
—
—
—
—
—
(83)
—
(9,465)
8,207
$ 4,873
—
—
—
—
—
—
8,133
(92)
37
—
(9,580)
9,055
44
—
—
974
599
(2,194)
(5,586)
(9,465)
19,974
$ 92,225
420
336
—
—
1,245
47
8,133
(92)
350
(1,401)
(9,580)
24,700
Balance December 31, 2010 . . . . . . . . . . .
13,893
$139
$ 45,570
$ 89,876
(2,215)
$(31,628)
$103,957
$12,426
$116,383
Proceeds from exercise of stock options . . .
Net tax benefit from exercise of stock
options . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of restricted stock . . . . . . . . . . . .
Cancellation of restricted stock . . . . . . . . .
Compensation expense — restricted
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer of compensation liability for
certain stock issued pursuant to long-
term incentive plans . . . . . . . . . . . . . . . .
Purchase of business . . . . . . . . . . . . . . . . .
Sale of business . . . . . . . . . . . . . . . . . . . . .
Acquisition of noncontrolling interests . . .
Settlement of purchase price . . . . . . . . . . .
Purchase and retirement of treasury
stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions to noncontrolling interest
partners . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends to shareholders . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . .
139
—
160
(18)
—
—
—
—
—
—
(255)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
217
—
—
2,032
199
—
—
(11,885)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(4,656)
—
(3,789)
20,974
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
217
—
—
2,032
199
—
—
(11,885)
—
(4,656)
—
(3,789)
20,974
—
—
—
—
—
—
8,096
—
(1,198)
(3,835)
—
(9,767)
—
8,809
—
217
—
—
2,032
199
8,096
—
(13,083)
(3,835)
(4,656)
(9,767)
(3,789)
29,783
Balance December 31, 2011 . . . . . . . . . . .
13,919
$139
$ 36,133
$102,405
(2,215)
$(31,628)
$107,049
$14,531
$121,580
See notes to consolidated financial statements.
39
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES
Net income including noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income including noncontrolling interests to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on purchase price settlement
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity-based awards compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on sale of business and fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
(Increase) decrease in patient accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in accounts receivable — other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Increase) decrease in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . .
(Decrease) increase in other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INVESTING ACTIVITIES
Purchase of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of businesses, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions of noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement of purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds on sale of business and fixed assets, net
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FINANCING ACTIVITIES
Distributions to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase and retire of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from revolving line of credit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on revolving line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit from stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents — beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2011
2010
(In thousands)
2009
$ 29,783
$ 24,700
$ 19,974
5,449
3,785
(5,435)
2,032
182
(217)
3,833
437
(5,147)
(990)
(1,972)
1,190
(275)
5,667
3,241
—
1,292
(333)
(336)
452
(414)
(4,169)
(297)
206
(292)
804
5,897
3,348
—
1,573
122
(44)
714
(492)
165
(468)
(855)
595
415
32,655
30,521
30,944
(3,222)
(9,451)
(20,439)
1,500
6
(3,673)
(18,197)
(682)
—
919
(3,876)
(1,178)
(2,329)
—
57
(31,606)
(21,633)
(7,326)
(9,767)
(3,789)
(4,656)
118,900
(100,900)
(250)
217
—
(245)
804
9,179
(9,580)
—
(1,401)
46,300
(41,200)
(1,013)
336
420
(6,138)
2,750
6,429
(9,438)
—
(5,586)
24,450
(35,450)
(1,379)
44
57
(27,302)
(3,684)
10,113
Cash and cash equivalents — end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
9,983
$ 9,179
$ 6,429
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash investing and financing transactions during the period:
Purchase of business — seller financing portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of noncontrolling interest — seller financing portion . . . . . . . . . . . . . . . . . .
$
$
$
$
9,037
325
$ 7,804
179
$
$ 8,445
324
$
200
367
$
$
525
$
— $
—
—
See notes to consolidated financial statements.
40
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2011
1. Organization, Nature of Operations and Basis of Presentation
U.S. Physical Therapy, Inc. and its subsidiaries (the “Company”) operate outpatient physical 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. As of December 31, 2011
the Company owned and operated 416 clinics in 42 states including the to physician services facilities described
below. The clinics’ business primarily originates from physician referrals. The principal sources of payment for
the clinics’ services are managed care programs, commercial health insurance, Medicare/Medicaid, workers’
compensation insurance and proceeds from personal injury cases. In addition to the Company’s ownership of
outpatient physical therapy clinics, it also operates two physician services facilities which provide services
related to intra articular joint and lumbar osteoarthritis programs as well as electro-diagnostic analysis and
manages physical therapy facilities for third parties, including physicians, with 15 such third-party facilities
under management as of December 31, 2011.
The consolidated financial statements include the accounts of U.S. Physical Therapy, Inc. and its
subsidiaries. All significant intercompany transactions and balances have been eliminated. The Company
primarily operates through subsidiary clinic partnerships in which the Company generally owns a 1% general
partnership interest and a 64% limited partnership interest. The managing therapist of each clinic owns the
remaining limited partnership interest in the majority of the clinics (hereinafter referred to as “Clinic
Partnership”). To a lesser extent, the Company operates some clinics through wholly-owned subsidiaries under
profit sharing arrangements with therapists (hereinafter referred to as “Wholly-Owned Facilities”).
During 2011, we opened 21 clinics, acquired 20 and closed 17. Of the 21 clinics opened, six were with new
partners and 15 were satellites of existing partnerships.
On July 25, 2011, the Company acquired a 51% interest in a 20 clinic multi-partner physical therapy group
(“July Acquisition”). During 2010, we acquired a majority interest in 25 clinics in three separate transactions. On
February 26, 2010, we acquired a 70% interest in five clinics in the northeast (“February 2010 Acquisition”). On
December 21, 2010, we acquired a 70% interest in a six clinic physical therapy group in the mid-Atlantic region
(“December 21, 2010 Acquisition”). On December 31, 2010, we acquired a 65% interest in a 14 clinic physical
therapy group located in the Southeast (“December 31, 2010 Acquisition”).
Clinic Partnerships
For Clinic Partnerships, the earnings and liabilities attributable to the noncontrolling interest, typically
owned by the managing therapist, directly or indirectly, are recorded within the statements of net income and
balance sheets as noncontrolling interests.
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 balance sheet.
Physician Services Revenues
Revenues from physician services are generated by franchisee arrangements with third parties, pursuant to
which there are multiple deliverables — training and ongoing services — as well as through the two physician
services facilities. Each component can be purchased separately. Revenue is recognized over the period the
respective services are provided. Physician service revenue are included in “other revenues” in the accompanying
Consolidated Statements of Net Income.
41
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Management Contract Revenues
Management contract revenues are derived from contractual arrangements whereby the Company manages a
clinic for third party owners. The Company does not have any ownership interest in these clinics. Typically,
revenues are determined based on the number of visits conducted at the clinic and recognized when services are
performed. Costs, typically salaries for the Company’s employees, are recorded when incurred. Management
contract revenues are included in “other revenues” in the accompanying Consolidated Statements of Net Income.
2.
Significant Accounting Policies
Cash Equivalents
The Company maintains its cash and cash equivalents at financial institutions. The combined account
balances at several institutions typically exceed Federal Deposit Insurance Corporation (“FDIC”) insurance
coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC
insurance coverage. Management believes that this risk is not significant.
Long-Lived Assets
Fixed assets are stated at cost. Depreciation is computed on the straight-line method over the estimated
useful lives of the related assets. Estimated useful lives for furniture and equipment range from three to eight
years and for software purchased from three to seven years. Leasehold improvements are amortized over the
shorter of the related lease term or estimated useful lives of the assets, which is generally three to five years.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company reviews property and equipment and intangible assets with finite lives for impairment upon
the occurrence of certain events or circumstances that indicate the related amounts may be impaired. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Goodwill
Goodwill represents the excess of costs over the fair value of the acquired business 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 (noncontrolling interests) in an existing clinic. Effective January 1, 2009, if
the purchase price of a noncontrolling interest by the Company exceeds or is less than the book value at the time
of purchase, any excess or shortfall is recognized as an adjustment to additional paid-in capital.
The fair value of goodwill and other intangible assets with indefinite lives are tested for impairment
annually and upon the occurrence of certain events, and are written down to fair value if considered impaired.
The Company evaluates goodwill for impairment on at least an annual basis (in its third quarter) by comparing
the fair value of each reporting unit to the carrying value of the reporting unit including related goodwill. The
Company operates a one segment business which is made up of various clinics within partnerships. A reporting
unit refers to the acquired interest of a single clinic or group of clinics. Local management typically continues to
manage the acquired clinic or group of clinics. For each clinic or group of clinics, the Company maintains
discrete financial information and both corporate and local management regularly review the operating results.
The Company did not combine any of the reporting units for impairment testing in any year presented. For each
purchase of the equity interest, goodwill, if any, is assigned to the respective clinic or group of clinics, if deemed
appropriate. The evaluation of goodwill in 2011, 2010 and 2009 did not result in any goodwill amounts that were
deemed impaired.
An impairment loss generally would be recognized when the carrying amount of the net assets of the
reporting unit, inclusive of goodwill and other intangible assets, exceed the estimated fair value of the reporting
42
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
unit. The estimated fair value of a reporting unit is determined using two factors: (i) earnings prior to taxes,
depreciation and amortization for the reporting unit multiplied by a price/earnings ratio used in the industry and
(ii) a discounted cash flow analysis. A weight is assigned to each factor and the sum of the each weight times the
factor is considered the estimated fair value. For 2011, the factors (ie. price/earnings ratio, discount rate and
residual capitalization rate) were updated to reflect current market conditions.
The Company has not identified any triggering events occurring after the testing date that would impact the
impairment testing results obtained. Factors which could result in future impairment charges include but are not
limited to:
• revenue and earnings expectations;
• general economic conditions;
• regulatory conditions including federal and state regulations;
• changes as the result of government enacted national healthcare reform;
• availability and cost of qualified physical therapists;
• personnel productivity;
• changes in Medicare guidelines and reimbursement or failure of our clinics to maintain their Medicare
certification status;
• 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;
• changes in reimbursement rates or payment methods from third party payors including government
agencies and deductibles and co-pays owed by patients;
• maintaining adequate internal controls;
• availability, terms, and use of capital;
• acquisitions and the successful integration of the operations of the acquired businesses; and
• weather and other seasonal factors.
The Company will continue to monitor for any triggering events or other indicators of impairment.
Noncontrolling Interests
The Company recognizes noncontrolling interests as equity in the consolidated financial statements separate
from the parent entity’s equity. The amount of net income attributable to noncontrolling interests is included in
consolidated net income on the face of the income statement. Changes in a parent entity’s ownership interest in a
subsidiary that do not result in deconsolidation are treated as equity transactions if the parent entity retains its
controlling financial interest. The Company recognizes a gain or loss in net income when a subsidiary is
deconsolidated. Such gain or loss is measured using the fair value of the noncontrolling equity investment on the
deconsolidation date.
When the purchase price of a noncontrolling 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 noncontrolling interests even when such allocation creates a deficit balance for
the noncontrolling interest partner.
43
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Revenue Recognition
Revenues are recognized in the period in which services are rendered. Net patient revenues (patient
revenues less estimated contractual adjustments) are reported at the estimated net realizable amounts from third-
party payors, patients and others for services rendered. The Company has agreements with third-party payors that
provide for payments to the Company at amounts different from its established rates. The allowance for
estimated contractual adjustments is based on terms of payor contracts and historical collection and write-off
experience.
The Company determines allowances for doubtful accounts based on the specific agings and payor
classifications at each clinic. The provision for doubtful accounts is included in clinic operating costs in the
statement of net income. Net accounts receivable, which are stated at the historical carrying amount net of
contractual allowances, write-offs and allowance for doubtful accounts, includes only those amounts the
Company estimates to be collectible.
The Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee
Schedule (“MPFS”). The MPFS rates are automatically updated annually based on a formula, called the
sustainable growth rate (“SGR”) formula. The use of the SGR formula has resulted in calculated automatic
reductions in rates in every year since 2002; however, for each year through 2011, Centers for Medicare &
Medicaid Services (“CMS”) or Congress has taken action to prevent the implementation of SGR formula
reductions. The Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2011
provided a 2.2% increase to MPFS payment rates, retroactive from June 1, 2011 through November 30, 2011,
suspending a 21.3% reduction that briefly became effective on June 1, 2011. The Medicare and Medicaid
Extenders Act of 2011 (“MMEA”) prevented a 25.5% reduction in the MPFS payment rates that would have
taken effect on January 1, 2011. The Temporary Payroll Tax Cut Continuation Act of 2011 (“TPTC”) delayed
application of the SGR for two additional months, through February 29, 2012. The Middle Class Tax Relief and
Job Creation Act of 2012 (“MCTRA”) included a measure freezing payment rates at their current level through
December 31, 2012.
On November 1, 2011, CMS released the 2012 Medicare Physician Fee Schedule final rule. Given the
prevention of the 27.4% reduction, the projected impact of other changes in the rule on outpatient physician
therapy service payments in aggregate is expected to be a 4.0% increase in 2012, primarily due to the continued
phase in of new practice expense survey data derived from the Physician Practice Information Survey (“PPIS”).
In 2013, when the use of the PPIS data is fully phased in, the impact is expected to be a 6.0% increase for
outpatient physical therapy payments. In the final 2012 Medicare Physician Fee Schedule rule, CMS indicated
that over the next year it will continue to review whether specific Current Procedural Terminology (“CPT”)
codes billed under the fee schedule are overvalued or undervalued, including certain specific CPT codes used by
physical therapists.
As a result of the Balanced Budget Act of 1997, the formula for determining the total amount paid by
Medicare in any one year for outpatient physical therapy, occupational therapy, and/or speech-language
pathology services provided to any Medicare beneficiary (i.e., the “Therapy Cap” or “Limit”) was established.
Based on the statutory definitions which constrained how the Therapy Cap would be applied, there is one Limit
for Physical Therapy and Speech Language Pathology Services combined, and one Limit for Occupational
Therapy. These Therapy Caps are applicable to outpatient therapy services provided in all settings, except for
services provided in departments of hospitals. Therefore, outpatient therapy services rendered to Medicare
beneficiaries by the Company’s therapist personnel are subject to the Therapy Cap, except to the extent these
services are rendered pursuant to certain management and professional services agreements with hospitals for
services provided in hospital departments. Effective January 1, 2012, the annual Limit on outpatient therapy
services is $1,880 for physical therapy and speech language pathology services combined and $1,880 for
44
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
occupational therapy services. Under the MCTRA this Limit will temporarily apply to hospital outpatient
departments beginning no later than October 1, 2012.
Furthermore, under the MCTRA, starting on October 1, 2012, patients who meet or exceed $3,700 in
therapy expenditures will be subject to a manual medical review. The MCTRA designates that this medical
review will be similar to the process used following Deficit Reduction Act implementation in 2006. The $3,700
threshold will be applied to the combined physical therapy/speech language pathology cap; a separate $3,700
threshold will be applied to the occupational therapy cap.
In conjunction with establishing the Therapy Cap, Congress either delayed the implementation of these
Limits or it provided a process authorizing CMS to grant exceptions to the Therapy Cap for services provided
during a given year, as long as those services met certain qualifications. More recently, the MMEA extended the
exceptions process for outpatient Therapy Caps through December 31, 2011, and the TPTC directed CMS to
continue to allow exceptions to Therapy Caps for certain medically necessary services provided on or after
January 1, 2012, through February 29, 2012. Under the MCTRA, Congress may extend the Therapy Caps
exceptions process through December 31, 2012.
CMS adopted a multiple procedure payment reduction (MPPR) for therapy services in the final update to the
MPFS for calendar year 2011. Under MPPR, the Medicare program pays 100% of the practice expense
component of the Relative Value Unit (“RVU”) for the therapy procedure with the highest RVU, then reduces
the payment for the practice expense component of the RVU for additional procedures. The reduction for these
subsequent procedures varies based on the setting, with a 20% reduction for services in an office or other
non-institutional setting and 25% in institutional settings. The reduction applies to any service furnished during
the same day for the same patient, regardless of the type of therapy service or whether the therapy services are
furnished in separate sessions. The MPPR was continued in calendar year 2012.
Statutes, regulations, and payment rules governing the delivery of therapy services to Medicare beneficiaries
are complex and subject to interpretation. The Company believes that it is in compliance in all material respects
with all applicable laws and regulations and is not aware of any pending or threatened investigations involving
allegations of potential wrongdoing that would have a material effect on the Company’s financial statements as
of December 31, 2011. 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.
Management contract revenues are derived from contractual arrangements whereby we manage a clinic for
third party owners. The Company does not have any ownership interest in these clinics. Typically, revenues are
determined based on the number of visits conducted at the clinic and recognized when services are performed.
Physician services and other revenues are recognized as services are performed.
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 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
45
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 collectibility
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 has generally reflected a difference within approximately 1% of net revenues. Additionally, analysis
of subsequent period’s contractual write-offs on a payor basis reflects a difference within approximately 1%
between the actual aggregate contractual reserve percentage as compared to the estimated contractual allowance
reserve percentage associated with the same period end balance. As a result, the Company believes that a change
in the contractual allowance reserve estimate would not likely be more than 1% at December 31, 2011.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
The Company recognizes the financial statement benefit of a tax position only after determining that the
relevant tax authority would more likely than not sustain the position following an audit. For tax positions
meeting the more-likely-than-not threshold, the amount to be recognized in the financial statements is the largest
benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant
tax authority.
The Company did not have any accrued interest or penalties associated with any unrecognized tax benefits
nor was any interest expense recognized during the twelve months ended December 31, 2011 and 2010. The
Company will book any interest or penalties, if required, in interest and/or other income/expense as appropriate.
Fair Values of Financial Instruments
The carrying amounts reported in the balance sheet for cash and cash equivalents, accounts receivable,
accounts payable and notes payable approximate their fair values due to the short-term maturity of these financial
instruments. The carrying amount of the revolving credit facility approximates its fair value. The interest rate on
the revolving credit facility, which is tied to the Eurodollar Rate, is set at various short-term intervals, as detailed
in the credit agreement.
Segment Reporting
Operating segments are components of an enterprise for which separate financial information is available
that is evaluated regularly by chief operating decision makers in deciding how to allocate resources and in
assessing performance. The Company identifies operating segments based on management responsibility and
believes it meets the criteria for aggregating its operating segments into a single reporting segment.
46
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, 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 insurance coverage administered
by a third party. Predetermined loss limits have been arranged with the insurance company to minimize the
Company’s maximum liability and cash outlay. Accrued expenses include the estimated incurred but unreported
costs to settle unpaid claims and estimated future claims. Management believes that the current accrued amounts
are sufficient to pay claims arising from self insurance claims incurred through December 31, 2011.
Stock Options
The Company measures and recognizes compensation expense for all stock-based payments at fair value.
Compensation cost recognized includes compensation for all stock-based payments granted prior to, but not yet
vested on January 1, 2006, based on the grant-date fair value estimated at the time of grant and compensation
cost for the stock-based payments granted subsequent to January 1, 2006, based on the grant-date fair value. No
stock options were granted during the years ended December 31, 2011, 2010 and 2009.
Prior to October 1, 2005, the Company utilized Black-Scholes, a standard option pricing model, to measure
the fair value of stock options granted to employees. The Black-Scholes model does not provide for the
interaction among economic and behavioral assumptions. In the fourth quarter of 2005, the Company determined
that the Trinomial Lattice Model was the best available measure of the fair value of employee stock options. The
Trinomial Lattice Model accounts for changing employee behavior as the stock price changes. The use of a
lattice model captures the observed pattern of increasing rates of exercise as the stock price increases.
As of December 31, 2011, there were no nonvested stock options.
Restricted Stock
Restricted stock issued to employees and directors is subject to continued employment or continued service
on the board, respectively. Typically, the transfer restrictions for shares granted to employees lapse in equal
installments on the following four or five annual anniversaries of 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 restricted stock issued is included in basic and diluted shares for the earnings per share
computation.
Recently Promulgated Accounting Pronouncements
In July 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-07, “Health Care
Entities (Topic 954): Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts and the
Allowance for Doubtful Accounts for Certain Health Care Entities” (“ASU 2011-07”). ASU 2011-07 requires
certain health care entities to change the presentation in their statement of operations by reclassifying the
provision for bad debts associated with patient service revenue from an operating expense to a deduction from
patient service revenue (net of contractual allowances and discounts). Additionally, those health care entities are
47
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
required to provide enhanced disclosure about their policies for recognizing revenue and assessing bad debts. The
amendments also require disclosures of patient service revenue (net of contractual allowances and discounts) as
well as qualitative and quantitative information about changes in the allowance for doubtful accounts. ASU
2011-07 is effective for fiscal years and interim periods within those fiscal years beginning after December 15,
2011, with early adoption permitted. The adoption of ASU 2011-07 in 2012 is not expected to have a material
impact on the Company’s consolidated financial statements.
In September 2011, the FASB issued ASU 2011-08, “Intangibles-Goodwill and Other (Topic 350): Testing
Goodwill for Impairment” (“ASU 2011-08”), which modifies the impairment test for goodwill and indefinite
lived intangibles. These modifications provide an entity the option to first assess qualitative factors to determine
whether the existence of events or circumstances leads to a determination that it is more likely than not (more
than 50%) that the fair value of a reporting unit is less than its carrying amount. Such qualitative factors may
include the following: macroeconomic conditions; industry and market considerations; cost factors; overall
financial performance; and other relevant entity-specific events. If an entity elects to perform a qualitative
assessment and determines that an impairment is more likely than not, the entity is then required to perform the
existing two-step quantitative impairment test, otherwise no further analysis is required. An entity also may elect
not to perform the qualitative assessment and, instead, go directly to the two-step quantitative impairment test.
These changes are effective for any goodwill impairment test performed on January 1, 2012 or later, although
early adoption is permitted. These changes should not affect the outcome of the impairment analysis of a
reporting unit. The Company performs a review of the Company’s goodwill in the third quarter of each fiscal
year. The adoption of ASU 2011-08 in 2012 is not expected to have a material impact on the Company’s
consolidated financial statements.
Subsequent Event
The Company has evaluated events occurring after the balance sheet date for possible disclosure as a
subsequent event through the date that these financial statements were issued.
3. Acquisitions and Divestiture
Acquisition of Businesses
During 2011 and 2010, the Company completed the following multi-clinic acquisitions of physical therapy
practices:
Acquisition
% Interest
Acquired
Number of
Clinics
Date
2011
July 2011 Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
July 25
51%
February 2010 Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 21, 2010 Acquisition . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2010 Acquisition . . . . . . . . . . . . . . . . . . . . . . .
February 26
December 21
December 31
70%
70%
65%
2010
20
5
6
14
In addition to the above multi-clinic acquisitions, on March 1, 2010, a subsidiary of the Company purchased
an outpatient therapy practice for $100,000, which consisted of $75,000 of cash and a payable of $25,000. The
purchase price was allocated $30,000 to non-current assets and $70,000 to goodwill. Effective July 1, 2010, a
subsidiary of the Company purchased an outpatient therapy practice for $100,000, which consisted of $50,000
48
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
cash and a payable of $50,000, of which $25,000 was paid in December 2010. The purchase price was allocated
$30,000 to non-current assets, $20,000 to non-competition agreement and $50,000 to goodwill. Both practices
were consolidated into existing Company clinics. The Company did not acquire any clinics in 2009.
The purchase price for the 51% interest in the July 2011 Acquisition was $8,426,000, which consisted of
$8,226,000 in cash and a $200,000 seller note, that is payable in two principal installments totaling $100,000
each, plus any accrued interest, in July 2012 and 2013. The seller note accrues interest at 3.25% per annum. The
consideration was agreed upon through arm’s length negotiations. Funding for the cash portion of the purchase
price was derived from proceeds from the Company’s revolving credit facility. For the company 51% of the
goodwill for the July 2011 Acquisition is tax deductible.
Because the July 2011 Acquisition occurred during the second half of 2011, the purchase price plus the fair
value of the noncontrolling interest was allocated to the fair value of the assets acquired and liabilities assumed
based on the preliminary estimates of the fair values at the acquisition date, with the amount exceeding the
estimated fair values being recorded as goodwill. The Company is in the process of completing its formal
valuation analysis to identify and determine the fair value of tangible and 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, 2011 based on additional information obtained. Changes in the estimated valuation of the
tangible and intangible assets acquired 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 preliminary purchase price was allocated as follows (in thousands):
Cash paid, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Seller notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,930
200
Total consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,130
Estimated fair value of net tangible assets acquired:
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net tangible assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of noncontrolling interest
$ 1,341
1,100
(581)
$ 1,860
14,366
(8,096)
$ 8,130
The purchase price for the 70% interest acquired in the February 2010 Acquisition was $8.9 million, net of
cash acquired, which consisted of $8,718,000 in cash and $200,000 in seller notes. The purchase price for the
70% interest acquired in the December 21, 2010 Acquisition was $4.0 million, net of cash acquired, which
consisted of $3,877,000 in cash and $100,000 in a seller note. The purchase price for the 65% interest acquired in
the December 31, 2010 Acquisition was $4.5 million, net of cash acquired, which consisted of $4,347,000 in cash
and $200,000 in a seller note.
49
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The purchase prices allocated for the 2010 multi-clinic acquisitions in aggregate were as follows (in
thousands):
Cash paid, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Seller notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$16,942
500
Total consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$17,442
Estimated fair value of net tangible assets acquired:
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net tangible assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Referral relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non compete, 6 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tradename . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of noncontrolling interest
$ 1,765
1,308
(851)
$ 2,222
1,700
480
2,700
18,471
(8,131)
$17,442
For the 2010 multi-clinic acquisitions, the purchase price was allocated to the fair value of the assets
acquired including tradenames, non-competition agreements and referral relationships, and to the liabilities
assumed based on the estimates of the fair values at the acquisition date, with the amount exceeding the
estimated fair values being recorded as goodwill. For the Company, its portion of the goodwill is tax deductible.
For the 2011 and 2010 acquisitions, total current assets primarily represent patient accounts receivable of
$3.0 million. Total non current assets are fixed assets, primarily equipment, used in the practices. For the 2010
acquisitions, the value assigned to (i) referral relationships is amortized to expense equally over the respective
estimated original life which is 12 years for these acquisitions, (ii) non compete agreements is amortized over
five to six years and (iii) goodwill and tradenames are tested at least annually for impairment.
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 2011 and 2010
acquisitions have not been included as the results, individually and in the aggregate, were not material to current
operations.
In November 2011, the Company and the seller of the February 2010 Acquisition reached an agreement
regarding an adjustment to purchase price as disclosed above. The Company received $1.5 million cash, the
forgiveness of the balance of $0.1 million on the notes payable as well as the 30% originally held by the seller
which had a book value of $3.8 million.
Acquisitions of Noncontrolling Interests
In six separate transactions during 2011, the Company purchased a total of 22.2% of the 30%
non-controlling interest in STAR Physical Therapy, LP, a subsidiary of the Company (“STAR”). The aggregate
purchase price paid for the 22.2% interest was $16.9 million, which included $0.8 million of undistributed
50
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
earnings. The remaining purchase price of $16.1 million, less future tax benefits of $6.3 million, was recognized
as an adjustment to additional paid-in capital. After these transactions, the Company owned 92.2% and the
non-controlling interest limited partners in aggregate owned the remaining 7.8% in the partnership. Of the 22.2%
aggregate non-controlling interests purchased, 17% was held by Regg Swanson, the Managing Director and a
founder of STAR and a member of the Company’s Board of Directors (“Swanson”). The purchase prices were
determined based on the contractual terms in the Reorganization of Securities Purchase Agreement dated as of
September 6, 2007 among the Company, STAR, the limited partners of STAR and Regg Swanson as Seller
Representative and in his individual capacity, which was filed as Exhibit 10.1 to the Company’s Current Report
on Form 8-K filed with the SEC on September 7, 2007. After the sale of his 17.0% interest, Swanson owned
2.0% of STAR (“Swanson Interest”).
Effective June 30, 2011, the Company purchased the 35% non-controlling interest in one of its Texas
partnerships. The aggregate purchase price for the 35% interest was $3.9 million, of which $3.5 million was paid
in cash and $367,272 was paid in the form of a note to the seller, which is payable in two equal annual
installments of principal plus any accrued and unpaid interest. Interest accrues at 3.25% per annum. The purchase
price included $0.2 million of undistributed earnings and $0.2 million in invested capital. The remaining
purchase price of $3.5 million, less future tax benefits of $1.4 million, was recognized as an adjustment to
additional paid-in capital. After this transaction, the Company owns 100% of the partnership.
In addition, during 2011, the Company purchased the non-controlling interests of several other partners for
$142,000, which included $48,000 of undistributed earnings and sold additional interest to an existing partner for
$58,000. The net purchase price of approximately $36,000, less future tax benefits of $23,000, was recognized as
an adjustment to additional paid-in capital.
During 2010, the Company purchased noncontrolling interests in nine partnerships for an aggregate
purchase price of $682,000. The amount paid plus a net deficit of $37,000 in limited partners’ equity, less tax
benefits of $217,000, was recognized as an adjustment to additional paid-in capital.
During 2009, the Company purchased 15% of the 25% noncontrolling interest in certain clinics related to a
partnership. In addition, the Company purchased noncontrolling interests in five other partnerships. The total
paid, which amounted to $2,200,000, less the tax benefit of $816,000 and the book value related to the purchases
of $90,000 was recognized as an adjustment to additional paid-in capital. During 2009, the Company paid
$133,000 related to contingent payments for noncontrolling interests purchased prior to 2009.
The results of operations of the acquired noncontrolling interests are included in the accompanying financial
statements from the dates of purchase in the net income attributable to common shareholders.
Divestiture of Business
On March 31, 2010, the Company sold its 51% interest in a joint venture of five Texas clinics for $974,000.
The Company recorded a pre-tax gain of $578,000, which is included in other income in the consolidated
statement of net income.
The operating results of these locations were not material to the operations of the Company, and therefore,
the operating results of these clinics were not reclassified and reported as discontinued operations. The cash flow
impact of these clinics was determined to be immaterial to the consolidated statements of cash flows.
51
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
4. Goodwill
The changes in the carrying amount of goodwill as of December 31, 2011 and 2010 consisted of the
following (in thousands):
Year Ended
December 31,
2011
2010
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill acquired during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill allocated to specific assets for businesses acquired in 2010 . . . . . . . . .
Goodwill adjustments for purchase price allocation of businesses acquired . . . .
Goodwill written off — closed clinic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$79,424
15,887
(2,990)
443
(14)
$57,247
22,222
—
(45)
—
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$92,750
$79,424
In addition to the goodwill resulting from the 2011 and 2010 acquisitions, for 2011 and 2010, the goodwill
acquired includes $1.5 million and $1.1 million, respectively, related to additional consideration based on the
achievement of operating results for the second and third year of operations of an acquisition which occurred in
2008. Due to the timing of the acquisition, current accounting regulations required the amounts paid be
capitalized as goodwill. These amounts are tax deductible.
5.
Intangible Assets, net
Intangible assets, net as of December 31, 2011 and 2010 consisted of the following (in thousands):
Tradename . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Referral relationships, net of accumulated amortization of $784 and $479,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non compete agreements, net of accumulated amortization of $1,443 and $1,053,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2011
2010
$6,073
$4,373
2,777
2,082
753
853
$9,603
$7,308
Tradenames and referral relationships are related to the businesses acquired. The value assigned to
tradenames has an indefinite life and is tested at least annually for impairment in conjunction with the
Company’s annual goodwill impairment test. The value assigned to referral relationships is being amortized over
their respective estimated useful lives which range from six to 16 years. Non compete agreements are amortized
over the respective term of the agreements which range from five to six years.
The following table details the amount of amortization expense recorded for intangible assets for the years
ended December 31, 2011, 2010 and 2009 (in thousands):
Referral relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non compete agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
52
Year Ended December 31,
2011
$305
390
$695
2010
$213
344
$557
2009
$163
134
$297
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The remaining balance of referral relationships and non compete agreements is expected to be amortized as
follows (in thousands):
Referral Relationships
Non Compete Agreements
Years
2012-2013
2014
2015-2017
2018
2019
2020
2021
2022
2023
Annual
Amount
$305
$302
$281
$245
$216
$209
$186
$137
$29
Years
2012
2013
2014
2015
2016
Annual
Amount
$330
$227
$86
$86
$24
6. Accrued Expenses
Accrued expenses as of December 31, 2011 and 2010 consisted of the following (in thousands):
Year Ended
December 31,
2011
2010
Salaries and related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Group health insurance claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit balances due to patients and payors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,275
1,168
793
2,846
$ 8,989
1,324
702
1,729
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$14,082
$12,744
7. Notes Payable
Notes payable as of December 31, 2011 and 2010 consisted of the following ($ in thousands):
Revolving credit agreement average effective interest rate of 2.6% inclusive of
unused fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Various promissory notes payable in annual installments of an aggregate of $100
plus accrued interest through February 26, 2012, interest accrues at 3.25% per
annum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Promissory note payable in annual installments of $100 plus accrued interest
through December 31, 2012, interest accrues at 3.25% per annum . . . . . . . . . .
Promissory note payable in annual installments of $50 plus accrued interest
through December 21, 2012, interest accrues at 4.00% per annum . . . . . . . . . .
Promissory note payable in annual installments of $184 plus accrued interest
through June 30, 2013, interest accrues at 3.25% per annum . . . . . . . . . . . . . . .
Promissory note payable in annual installments of $100 plus accrued interest
through July 25, 2013, interest accrues at 3.25% per annum . . . . . . . . . . . . . . .
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011
2010
$23,500
$5,500
—
100
50
367
200
200
200
100
—
—
24,217
(433)
6,000
(250)
$23,784
$5,750
53
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Effective August 27, 2007, the Company entered into a credit agreement with a commitment for a $30.0
million revolving credit facility which was increased to $50.0 million effective June 4, 2008 (“Credit
Agreement”). Effective March 18, 2009, the Credit Agreement was amended to permit the purchase of up to
$15,000,000 of the Company’s common stock subject to compliance with certain covenants, including the
requirement that after giving effect to any stock purchase, the Company’s consolidated leverage ratio (as defined
in the Credit Agreement) be less than 1.0 to 1.0 and that any stock repurchased be retired within seven days of
purchase. Effective October 13, 2010, the Credit Agreement was amended to extend the maturity date from
August 31, 2011 to August 31, 2015. In addition, the Credit Agreement was amended to adjust the pricing grid
which is based on the Company’s consolidated leverage ratio with the applicable spread over LIBOR ranging
from 1.6% to 2.5% or the applicable spread over the Base Rate ranging from .1% to 1%. On July 14, 2011, the
Credit Agreement was amended to increase the commitment from $50.0 million to $75.0 million. The Credit
Agreement is unsecured and has loan covenants, including requirements that the Company comply with a
consolidated fixed charge coverage ratio and consolidated leverage ratio. Proceeds from the Credit Agreement
may be used for working capital, acquisitions, purchases of the Company’s common stock, dividend payments to
the Company’s common stockholders, capital expenditures and other corporate purposes. Fees under the Credit
Agreement include an unused commitment fee ranging from .1% to .25% depending on the Company’s
consolidated leverage ratio and the amount of funds outstanding under the Credit Agreement. On December 31,
2011, $23.5 million was outstanding on the revolving credit facility resulting in $51.5 million of availability. The
Company was in compliance with all of the covenants thereunder.
The Company generally enters into various notes payable as a means of financing a portion of its
acquisitions and purchases of non controlling interests. In June 2011, the Company, in conjunction with the
purchase of a non controlling interest, entered into a note payable in the amount of $367,272 payable in two
equal annual installments of $183,636 plus any accrued and unpaid interest. Interest accrues at 3.25% per annum.
In conjunction with the July 2011 Acquisition, the Company entered into a note payable in the amount of
$200,000 payable in two equal annual installments of $100,000 plus any accrued and unpaid interest. Interest
accrues at 3.25% per annum.
In conjunction with the 2010 multi-clinic acquisitions, the Company entered into various notes payable
aggregating $500,000. The notes are payable in equal annual installments of principal over two years plus any
accrued and unpaid interest. Interest accrues at rates ranging from 3.25% to 4.0% per annum. The remaining
balance of $100,000 on the notes payable related to the February 2011 Acquisition was forgiven in conjunction
with the agreement on the adjustment of the purchase price as disclosed above.
Aggregate annual payments of principal required pursuant to the revolving credit facility and the above
notes payable subsequent to December 31, 2011 are as follows:
During the year ended December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
During the year ended December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
During the year ended December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
During the year ended December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
$
433
284
—
23,500
$24,217
54
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
8.
Income Taxes
Significant components of deferred tax assets included in the consolidated balance sheets at December 31,
2011 and 2010 were as follows (in thousands):
Deferred tax assets:
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lease obligations — closed clinics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
2011
2010
$1,253
950
139
58
26
$ 1,375
740
47
—
40
$2,426
$ 2,202
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
$ — $(3,970)
(164)
(478)
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (478)
$(4,134)
Net deferred tax assets (liabilities) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,948
$(1,932)
Amount included in:
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
921
$ 896
$ —
$1,052
$ — $(2,853)
During 2011, the Company recorded deferred tax assets of $7.7 million related to acquisitions of non
controlling interests. At December 31, 2011 and 2010, the Company had a tax receivable of $3.6 million and $1.8
million, respectively, 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 results of continuing
operations for the years ended December 31, 2011, 2010 and 2009 were as follows (in thousands):
2011
2010
2009
U. S. tax at statutory rate . . . . . . . . . . . . . . . . .
State income taxes, net of federal benefit . . . .
Non taxable gain . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible expenses . . . . . . . . . . . . . . . . .
$11,225
1,116
(1,342)
98
35.0% $8,570
185
3.5%
—
-4.2%
85
0.3%
35.0% $6,895
762
0.7%
—
—
277
0.4%
35.0%
3.9%
—
1.4%
$11,097
34.6% $8,840
36.1% $7,934
40.3%
55
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Significant components of the provision for income taxes for continuing operations for the years ended
December 31, 2011, 2010 and 2009 were as follows (in thousands):
2011
2010
2009
Current:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,732
1,532
$7,730
658
$6,002
1,218
Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,264
8,388
7,220
Deferred:
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,603
230
3,833
392
60
452
611
103
714
Total income tax provision for continuing operations . . . . . . . . . . . . . .
$11,097
$8,840
$7,934
During the fourth quarter of 2010, the Company completed a process to perform 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. Historically, calculations of these tax-related accounts were performed through summary
estimates and analysis. As a result of this detailed analysis, the Company recorded a reduction in its current state
income tax provision of $814,000. The Company considers this reconciliation process to be an annual control
and performed a similar reconciliation process during the fourth quarter of 2011. In addition, the Company
adjusted its deferred tax asset for the tax benefit of $816,000 related to the purchase of a non controlling interest
in 2009. The tax benefit is shown as an offset to the purchase of non controlling interests in the Consolidated
Statement of Shareholders’ Equity.
The Company is required to establish a valuation allowance for deferred tax assets if, based on the weight of
available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible. Management considers the projected
future taxable income and tax planning strategies in making this assessment. Based upon the level of historical
taxable income and projections for future taxable income in the periods which the deferred tax assets are
deductible, management believes that a valuation allowance is not required, as it is more likely than not that the
results of future operations will generate sufficient taxable income to realize the deferred tax assets.
The Company’s U.S. federal returns remain open to examination for 2008 through 2010 and U.S. state
jurisdictions are open for periods ranging from 2004 through 2010.
The Company does not believe that it has any significant uncertain tax positions at December 31, 2011, nor
is this expected to change within the next twelve months due to the settlement and expiration of statutes of
limitation.
The Company did not have any accrued interest or penalties associated with any unrecognized tax benefits
nor was any interest expense recognized during the years ended December 31, 2011 and 2010.
56
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
9. Equity Based Plans
The Company has the following equity based plans:
The 1992 Stock Option Plan, as amended (the “1992 Plan”), permitted the Company to grant to key
employees and outside directors of the Company incentive and non-qualified options to purchase up to
3,495,000 shares of common stock (subject to proportionate adjustments in the event of stock dividends, splits,
and similar corporate transactions). The 1992 Plan expired in 2002 and no new option grants can be awarded
subsequent to this date. At December 31, 2011, there were no stock options outstanding under the 1992 Plan.
Incentive stock options (those intended to satisfy the requirements of the Internal Revenue Code) granted
under the 1992 Plan were granted at an exercise price not less than the fair market value of the shares of common
stock on the date of grant. The exercise prices of options granted under the 1992 Plan were determined by the
Compensation Committee. The period within which each option is exercisable was determined by the
Compensation Committee (however, in no event may the exercise period of an incentive stock option extend
beyond 10 years from the date of grant).
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 Option 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.
During 2003, the Board of Directors of the Company (the “Board”) granted inducement options covering
145,000 options, respectively, to five individuals in connection with their offers of employment. As of
December 31, 2011, 124,000 of the 145,000 options are outstanding. Inducement options may be exercised for a
10 year term from the date of the grant.
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 1,250,000 shares of common stock (subject to proportionate adjustments in the
event of stock dividends, splits, and similar corporate transactions). The Amended 2003 Plan was approved by
the shareholders of the Company at the 2010 Shareholders Meeting on May 18, 2010.
A cumulative summary of equity plans as of December 31, 2011 follows:
Equity Plans
Authorized
Restricted
Stock Issued
Outstanding
Stock Options
Stock Options
Exercised
Stock Options
Exercisable
1992 Plan . . . . . . . . . . . . . . 3,495,000
Amended 1999 Plan . . . . . .
600,000
Amended 2003 Plan . . . . . . 1,250,000
164,000
Inducements . . . . . . . . . . . .
—
360,900
172,750
—
— 2,796,012
122,701
526,800
84,000
17,310
251,500
80,000
—
17,310
251,500
80,000
Shares
Available
for Grant
—
99,089
298,950
—
5,509,000
533,650
348,810
3,529,513
348,810
398,039
57
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of the status of the Company’s stock options granted under the plans as of December 31, 2011,
2010 and 2009 and the changes during the years then ended is presented below:
Outstanding at December 31, 2008 . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2009 . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
892,309
—
(10,752)
(1,290)
(6,075)
874,192
—
(142,002)
(160)
(8,140)
Outstanding at December 31, 2010 . . . . . . . . . . . . .
723,890
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(375,080)
—
—
Outstanding at December 31, 2011 . . . . . . . . . . . . .
348,810
Exercisable at December 31, 2011 . . . . . . . . . . . . . .
348,810
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(000’s)
14.14
—
4.05
18.42
16.97
14.24
—
13.66
18.42
18.54
14.30
13.92
14.71
14.71
4.6 Years
3.6 Years
2.6 Years
2.6 Years
$1,732
All shares pursuant to stock options were fully vested at December 31, 2011 and 2010.
A summary of the intrinsic value of stock options exercised during the years ended December 31, 2011,
2010 and 2009 is as follows:
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
10,752
142,002
375,080
Aggregate
Intrinsic
Value
(000’)
$ 113
$ 863
$3,160
58
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following tables summarize information about the Company’s stock options outstanding as of
December 31, 2011, 2010 and 2009, respectively:
1999 Plan . . . . . . . . .
2003 Plan . . . . . . . . .
Inducements . . . . . . .
1992 Plan . . . . . . . . .
1999 Plan . . . . . . . . .
2003 Plan . . . . . . . . .
Inducements . . . . . . .
1992 Plan . . . . . . . . .
1999 Plan . . . . . . . . .
2003 Plan . . . . . . . . .
Inducements . . . . . . .
Outstanding
Options as of
December 31,
2011
17,310
251,500
80,000
348,810
Outstanding
Options as of
December 31,
2010
15,000
43,390
541,500
124,000
723,890
Outstanding
Options as of
December 31,
2009
15,002
57,690
677,500
124,000
874,192
Exercise
Price
$12.60 - $18.42
$12.51 - $18.80
$12.75 - $14.32
Weighted
Average
Remaining
Contractual
Life
3.2 Years
2.9 Years
1.7 Years
Exercisable
17,310
251,500
80,000
Exercise
Price
$12.60 - $18.42
$12.51 - $18.80
$12.75 - $14.32
$12.51 - $18.80
2.6 Years
348,810
$12.51 - $18.80
Exercise
Price
$
16.34
$12.60 - $18.42
$12.51 - $18.80
$12.75 - $14.32
Weighted
Average
Remaining
Contractual
Life
.6 Years
3.9 Years
3.8 Years
2.8 Years
Exercisable
15,000
43,390
541,500
124,000
Exercise
Price
$
16.34
$12.60 - $18.42
$12.51 - $18.80
$12.75 - $14.32
$12.51 - $18.80
3.6 Years
723,890
$12.51 - $18.80
Exercise
Price
$ 4.15 - $16.34
$ 4.15 - $19.29
$12.51 - $18.80
$12.75 - $14.32
Weighted
Average
Remaining
Contractual
Life
1.7 Years
5.0 Years
4.8 Years
3.8 Years
Exercisable
15,002
50,440
668,500
124,000
Exercise
Price
$ 4.15 - $16.34
$ 4.15 - $18.42
$12.51 - $18.80
$12.75 - $14.32
$ 4.15 - $19.29
4.6 Years
857,942
$ 4.15 - $18.80
The following table summarizes information about the Company’s stock options outstanding and those
options that are exercisable as of December 31, 2011:
Range of Exercise Prices
$12.00 — $12.99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13.00 — $13.99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$14.00 — $14.99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15.00 — $15.99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18.00 — $18.80 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding
Options
Exercisable
Options
62,180
124,000
55,150
32,730
74,750
348,810
62,180
124,000
55,150
32,730
74,750
348,810
59
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During 2011, 2010 and 2009, the Company granted the following shares (net of those shares cancelled in
their respective grant year due to employee terminations prior to restrictions lapsing) of restricted stock to
directors, officers and employees pursuant to its equity plans as follows:
Year Granted
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
82,000
84,400
156,750
Weighted
Average
Fair Value
Per Share
14.78
16.53
19.94
Generally, restrictions on the stock granted to employees lapse in equal annual installments on the following
four or five 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 executive officers,
the restriction will lapse in equal quarterly installments during the three to four years following the date of grant.
As of December 31, 2011, there were 216,031 shares outstanding for which restrictions had not lapsed. The
restrictions will lapse in 2012 through 2015.
Compensation expense for grants of restricted stock will be recognized based on the fair value on the date of
grant. Compensation expense for restricted stock grants was $2,032,000, $1,245,000 and $974,000, respectively,
for 2011, 2010 and 2009. As of December 31, 2011, the remaining $3.3 million of compensation expense will be
recognized from 2012 through 2015.
10. 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.
11. Common Stock
In September 2001 through December 31, 2008, the Board of Directors ("Board") authorized the Company
to purchase, in the open market or in privately negotiated transactions, up to 2,250,000 shares of its common
stock. However, the terms of the Company’s revolving credit facility had prohibited such purchases since August
2007. As of December 31, 2008, there were approximately 50,000 shares remaining that could be purchased
under those programs. 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”). In connection with the March 2009
Authorization, the Company amended its revolving credit facility to permit the share repurchases. The Company
60
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
is required to retire shares purchased under the March 2009 Authorization. Since there is no expiration date for
these share repurchase programs, additional shares may be purchased from time to time in the open market or
private transactions depending on price, availability and the Company’s cash position. During 2011, the
Company purchased 254,642 shares of its common stock for an aggregate cost of $4.7 million. Using the
December 31, 2011 closing price of $19.68 per share, there were approximately 172,000 shares remaining that
could be purchased under these programs. During 2010, the Company purchased 86,522 shares for an aggregate
purchase price of $1.4 million. During 2009, the Company purchased 518,335 shares for an aggregate price of
$5.6 million.
12. Defined Contribution Plan
The Company has a 401(k) profit sharing plan covering all employees with three months of service. The
Company may make discretionary contributions of up to 50% of employee contributions. The Company did not
make any discretionary contributions and recognized no contribution expense for the years ended December 31,
2011, 2010 and 2009.
13. Commitments and Contingencies
Operating Leases
The Company has entered into operating leases for its executive offices and clinic facilities. In connection
with these agreements, the Company incurred rent expense of $19.4 million, $16.8 million and $16.3 million for
the years ended December 31, 2011, 2010 and 2009, respectively. Several of the leases provide for an annual
increase in the rental payment based upon the Consumer Price Index. The majority of the leases provide for
renewal periods ranging from one to five years. The agreements to extend the leases specify that rental rates
would be adjusted to market rates as of each renewal date.
The future minimum operating lease commitments for each of the next five years and thereafter and in the
aggregate as of December 31, 2011 are as follows (in thousands):
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$17,306
13,070
9,381
6,421
2,830
3,653
$52,661
Employment Agreements
At December 31, 2011, the Company had outstanding employment agreements with three of its executive
officers. These agreements, which presently expire on December 31, 2013, provide for automatic one year
renewals if not terminated on at least 12 months notice. All of the agreements contain a provision for annual
adjustment of salaries.
In addition, the Company has outstanding employment agreements with most of the managing physical
therapist partners of the Company’s physical therapy clinics and with certain other clinic employees which
obligate subsidiaries of the Company to pay compensation of $15.7 million in 2012 and $6.8 million in the
aggregate from 2013 through 2016. In addition, most 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.
61
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
14. Earnings Per Share
The computations of basic and diluted earnings per share for the years ended December 31, 2011, 2010 and
2009 are as follows (in thousands, except per share data):
2011
2010
2009
Numerator:
Net income attributable to common shareholders . . . . . . . . . . . . . . . .
$20,974
$15,645
$11,767
Denominator:
Denominator for basic earnings per share — weighted-average
shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of dilutive securities — Stock options . . . . . . . . . . . . . . . . . . .
11,814
163
11,638
232
11,703
104
Denominator for diluted earnings per share — adjusted weighted-
average shares and assumed conversions . . . . . . . . . . . . . . . . . . . . .
11,977
11,870
11,807
Earnings per common share:
Basic — net income attributable to common shareholders . . . . . . . . .
Diluted — net income attributable to common shareholders . . . . . . . .
$
$
1.78
1.75
$
$
1.34
1.32
$
$
1.01
1.00
All options to purchase shares for the year ended December 31, 2011 were included in the diluted earnings
per share calculation as the average market price for 2011 exceeded the options’ exercise price. Options to
purchase 92,900 and 387,885 shares for the years ended December 31, 2010 and 2009, respectively, were
excluded from the diluted earnings per share calculation for the respective periods because the options’ exercise
prices exceeded the average market price of the common shares during the periods.
62
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
15. Selected Quarterly Financial Data (Unaudited)
Net patient revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . .
Net income including noncontrolling interests . . . . . . . .
Net income attributable to common shareholders . . . . . .
Earnings per common share:
Basic — net income attributable to common
2011
Q1
Q2
Q3
Q4
(In thousands, except per share data)
$53,872
$56,741
$ 8,611
$ 6,185
$ 3,746
$56,678
$59,912
$10,775
$ 7,603
$ 4,900
$57,332
$59,675
$ 8,507
$ 5,853
$ 4,099
$58,697
$60,678
$12,987
$10,142
$ 8,229
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted — net income attributable to common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.32
0.31
$
$
0.42
0.41
$
$
0.35
0.34
$
$
0.70
0.69
Shares used in computation:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,718
11,945
11,807
11,999
11,886
12,011
11,786
11,892
Net patient revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . .
Net income including noncontrolling interests . . . . . . . .
Net income attributable to common shareholders . . . . . .
Earnings per common share:
Basic — net income attributable to common
2010
Q1
Q2
Q3
Q4
(In thousands, except per share data)
$48,779
$50,405
$ 7,182
$ 5,131
$ 3,172
$52,296
$54,103
$ 9,911
$ 7,034
$ 4,451
$51,748
$53,398
$ 8,684
$ 6,177
$ 3,875
$51,278
$53,327
$ 7,763
$ 6,358
$ 4,147
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted — net income attributable to common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.27
0.27
$
$
0.38
0.38
$
$
0.33
0.33
$
$
0.36
0.35
Shares used in computation:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,614
11,840
11,622
11,857
11,667
11,889
11,649
11,906
63
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, has conducted an
evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e)
promulgated under the Exchange Act) as of the end of the fiscal period covered by this report. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls
and procedures are effective in ensuring that the information required to be disclosed in the reports we file or
submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the rules and forms of the SEC and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding disclosure.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended
December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
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 Exchange Act. U.S. Physical Therapy, Inc and
subsidiaries’ (the “Company”) internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles.
Internal control over financial reporting includes those policies and procedures that:
• Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company;
• 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.
64
Management conducted an assessment of the effectiveness of our internal control over financial reporting as
of December 31, 2011. In making this assessment, management used the criteria described in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment, management concluded that our internal control over financial reporting was effective
as of December 31, 2011.
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 36.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required in response to this Item 10 is incorporated herein by reference to our definitive
proxy statement relating to our 2012 Annual Meeting of Stockholders to be filed with the SEC pursuant to
Regulation 14A, not later than 120 days after the end of our fiscal year covered by this report.
ITEM 11. EXECUTIVE COMPENSATION.
The information required in response to this Item 11 is incorporated herein by reference to our definitive
proxy statement relating to our 2012 Annual Meeting of Stockholders to be filed with the SEC pursuant to
Regulation 14A, not later than 120 days after the end of our fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information required in response to this Item 12 is incorporated herein by reference to our definitive
proxy statement relating to our 2012 Annual Meeting of Stockholders to be filed with the SEC pursuant to
Regulation 14A, not later than 120 days after the end of our fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
The information required in response to this Item 13 is incorporated herein by reference to our definitive
proxy statement relating to our 2012 Annual Meeting of Stockholders to be filed with the SEC pursuant to
Regulation 14A, not later than 120 days after the end of our fiscal year covered by this report.
ITEM 14.
PRINCIPAL ACCOUNTING 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 2012 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.
65
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Documents filed as a part of this report:
PART IV
1. Financial Statements. Reference is made to the Index to Financial Statements and Related
Information under Item 8 in Part II hereof, where these documents are listed.
2. Financial Statement Schedules. See page 66 for Schedule II — Valuation and Qualifying
Accounts. All other schedules are omitted because of the absence of conditions under which they are
required or because the required information is shown in the financial statements or notes thereto.
3. Exhibits. The exhibits listed in List of Exhibits on the next page are filed or incorporated by
reference as part of this report.
66
Number
3.1
3.2
3.3
10.1+
10.2+
10.3+
10.4+
10.5+
10.6+
10.7+
10.8+
10.9+
10.10+
10.11+
10.12+
10.13+
10.14+
EXHIBIT INDEX
LIST OF EXHIBITS
Description
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].
1992 Stock Option Plan, as amended [filed as an exhibit to the Company’s Form 10-Q for the
quarterly period ended June 30, 2001 and incorporated herein by reference].
Executive Option Plan [filed as an exhibit to the Company’s Registration Statement on Form S-8
(Reg. No. 33-63444) and incorporated herein by reference].
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].
U. S. Physical Therapy, Inc. 2003 Stock Incentive Plan, as amended and restated March 26, 2010
[incorporated by reference to Appendix A to the Company’s proxy statement on Schedule 14A filed
with the SEC on April 9, 2010].
Non-Statutory Stock Option Agreement dated February 26, 2002 between the Company and Mary
Dimick [filed as an exhibit to the Company’s Registration Statement on Form S-8 dated February 10,
2003 — Reg. No. 333-103057- and incorporated herein by reference].
Non-Statutory Stock Option Agreement dated May 20, 2003 between the Company and Jerald
Pullins [filed as an exhibit to the Company’s Registration Statement on Form S-8 filed March 15,
2004 — Reg. No. 333-113592 — and incorporated herein by reference].
Non-Statutory Stock Option Agreement dated November 18, 2003 between the Company and
Christopher Reading [filed as an exhibit to the Company’s Registration Statement on Form S-8 filed
March 15, 2004 — Reg. No. 333-113592 — and incorporated herein by reference].
Non-Statutory Stock Option Agreement dated November 18, 2003 between the Company and
Lawrance McAfee [filed as an exhibit to the Company’s Registration Statement on Form S-8 filed
March 15, 2004 — Reg. No. 333-113592 — and incorporated herein by reference].
Non-Statutory Stock Option Agreement dated November 18, 2003 between the Company and Janna
King [filed as an exhibit to the Company’s Registration Statement on Form S-8 filed March 15,
2004 — Reg. No. 333-113592 — and incorporated herein by reference].
Non-Statutory Stock Option Agreement dated November 18, 2003 between the Company and
Glenn McDowell [filed as an exhibit to the Company’s Registration Statement on Form S-8 filed
March 15, 2004 — Reg. No. 333-113592 — and incorporated herein by reference].
Consulting agreement between the Company and J. Livingston Kosberg [filed as an exhibit to the
Company’s Form 10-Q for the quarterly period ended June 30, 2001 and incorporated herein by
reference].
First Amendment to the Consulting Agreement between the Company and J. Livingston — Kosberg
[filed as an exhibit to the Company’s Form 10-K for the year ended December 31, 2002 and
incorporated herein by reference.]
Amended and Restated Employment Agreement dated May 24, 2007, between U.S. Physical
Therapy, Inc. and Christopher J. Reading [incorporated by reference to Exhibit 10.3 to the
Company’s Current Report on Form 8-K filed with the SEC on May 25, 2007].
Amendment to Amended and Restated Employment Agreement dated December 2, 2008 between
U.S. Physical Therapy, Inc. and Christopher J. Reading [incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K, filed with the SEC on December 5, 2008].
67
Number
10.15+
10.16+
10.17+
10.18+
10.19+
10.20+
10.21
10.22+
10.23+
10.24+
10.25+
10.26
10.27
10.28
10.29
10.30
Description
Amended and Restated Employment Agreement dated May 24, 2007, between U.S. Physical
Therapy, Inc. and Lawrance W. McAfee [incorporated by reference to Exhibit 10.4 to the Company’s
Current Report on Form 8-K filed with the SEC on May 25, 2007].
Amendment to Amended and Restated Employment Agreement dated December 2, 2008 between
U.S. Physical Therapy, Inc. and Lawrance W. McAfee [incorporated by reference to Exhibit 10.2 to
the Company’s Current Report on Form 8-K, filed with the SEC on December 5, 2008].
Form of Restricted Stock Agreement [incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K/A filed with the SEC on May 30, 2007].
Employment Agreement dated May 24, 2007, between U. S. Physical Therapy, Inc. and Glenn D.
McDowell [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
filed with the SEC on May 25, 2007].
Amendment to Employment Agreement dated December 2, 2008 between U.S. Physical Therapy,
Inc. and Glenn D. McDowell [incorporated by reference to Exhibit 10.3 to the Company’s Current
Report on Form 8-K, filed with the SEC on December 5, 2008].
USPH Executive Long-Term Incentive Plan, as Amended [incorporated by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K, filed with the SEC on December 31, 2008].
USPH 2009 Executive Bonus Plan (incorporated by reference to Exhibit 99.1 to the Company’s
Current Report on Form 8-K filed with the SEC on May 19, 2009).
U. S. Physical Therapy, Inc. Objective Long-Term Incentive Plan for Senior Management, effective
March 31, 2011 [incorporated by reference to Exhibit 99.1 to the Company’s Current Report on
Form 8-K filed with the SEC on April 6, 2011].
U. S. Physical Therapy, Inc. Discretionary Long-Term Incentive Plan for Senior Management for 2011,
effective March 31, 2011 [incorporated by reference to Exhibit 99.2 to the Company’s Current Report
on Form 8-K filed with the SEC on April 6, 2011].
U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for 2011, effective March 31, 2011
[incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the
SEC on April 6, 2011].
U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for 2011, effective March 31, 2011
[incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the
SEC on April 6, 2011].
Reorganization and Securities Purchase Agreement dated as of September 6, 2007 between U. S.
Physical Therapy, Ltd., STAR Physical Therapy, LP (“STAR LP”), the limited partners of STAR LP,
and Regg Swanson as Seller Representative and in his individual capacity [incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2007].
Credit Agreement, dated as of August 27, 2007 among U. S. Physical Therapy, Inc., as the Borrower,
Bank of America, N. A., as Administrative Agent, Swing Line Lender and L/C Issuer, and The Other
Lenders Party Hereto [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8-K/A filed with the SEC on September 5, 2007].
First Amendment to Credit Agreement dated as of June 4, 2008 by and among U.S. Physical
Therapy, Inc., a Nevada Corporation, the Lenders party hereto, and Bank of America, N. A., as
Administrative Agent [incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2008, filed with the SEC on August 11, 2008].
Second Amendment to Credit Agreement and Consent by and among the Company and the Lenders
party hereto, and Bank of America, N. A., as Administrative Agent (incorporated by reference to
Exhibit 99.1 to the Company Current Report on Form 8-K filed with the SEC on March 18, 2010).
Third Amendment to Credit Agreement dated as of October 13, 2010, by and among the Company
and the Lenders party hereto, and Bank of America, N.A. as administrative Agent [incorporated by
reference to Exhibit 10.30 to the Company Annual Report on Form 10-K filed with the SEC on
March 10, 2011].
68
Number
Description
21.1*
23.1*
31.1*
31.2*
31.3*
32.1*
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
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
Filed herewith
*
+ Management contract or compensatory plan or arrangement.
69
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
U.S. Physical Therapy, Inc.
We have audited in accordance with the standards of the Public Company Accounting Oversight Board (United
States) the consolidated financial statements of U.S. Physical Therapy, Inc. (a Nevada Corporation) and
subsidiaries (the “Company”) referred to in our report dated March 9, 2012, which is included in the annual
report to security holders and included in Part II of this form. Our audits of the consolidated financial statements
included the financial statement schedule listed in the index appearing under item 15, which is the responsibility
of the Company’s management. In our opinion, this financial statement schedule, when considered in relation to
the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set
forth therein.
/s/ GRANT THORNTON LLP
Houston, Texas
March 9, 2012
70
FINANCIAL STATEMENT SCHEDULE*
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
COL. A
Description
YEAR ENDED DECEMBER 31, 2011:
Reserves and allowances deducted from asset
accounts:
Allowance for doubtful accounts(1) . . . . . . . . . . . .
YEAR ENDED DECEMBER 31, 2010:
Reserves and allowances deducted from asset
accounts:
COL B
COL C
Additions
COL D
COL E
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Charged
to Other
Accounts Deductions
Balance at
End of
Period
(Amounts in Thousands)
$2,273
$3,785
—
$3,021(2) $3,037
Allowance for doubtful accounts . . . . . . . . . . . . . . . .
$1,872
$3,241
—
$2,840(2) $2,273
YEAR ENDED DECEMBER 31, 2009:
Reserves and allowances deducted from asset
accounts:
Allowance for doubtful accounts . . . . . . . . . . . . . . . .
$2,275
$3,348
—
$3,751(2) $1,872
(1) Related to patient accounts receivable and accounts receivable — other.
(2) Uncollectible accounts written off, net of recoveries.
*
All other schedules are omitted because of the absence of conditions under which they are required or
because the required information is shown in the financial statements or notes thereto.
71
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.
SIGNATURES
U.S. PHYSICAL THERAPY, INC.
(Registrant)
By: /s/
Lawrance W. McAfee
Lawrance W. McAfee
Chief Financial Officer
By: /s/
Jon C. Bates
Jon C. Bates
Vice President/Controller
Date: March 9, 2012
72
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.
By:
/s/ Christopher J. Reading
Christopher J. Reading
By:
/s/
Lawrance W. McAfee
Lawrance W. McAfee
By:
By:
/s/
Jerald Pullins
Jerald Pullins
/s/ Daniel C. Arnold
Daniel C. Arnold
By:
/s/ Mark J. Brookner
Mark J. Brookner
By:
/s/ Harry S. Chapman
Harry S. Chapman
By:
/s/ Bernard A. Harris, Jr.
Bernard A. Harris, Jr.
By:
/s/ Marlin W. Johnston
Marlin W. Johnston
By:
By:
/s/ Regg Swanson
Regg Swanson
/s/ Clayton Trier
Clayton Trier
President, Chief Executive Officer and Director
(principal executive officer)
Executive Vice President, Chief Financial Officer and
Director (principal financial and accounting officer)
Chairman of the Board
Vice Chairman of the Board
Director
Director
Director
Director
Director
Director
73
Number
3.1
3.2
3.3
10.1+
10.2+
10.3+
10.4+
10.5+
10.6+
10.7+
10.8+
10.9+
10.10+
10.11+
10.12+
10.13+
10.14+
EXHIBIT INDEX
LIST OF EXHIBITS
Description
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].
1992 Stock Option Plan, as amended [filed as an exhibit to the Company’s Form 10-Q for the
quarterly period ended June 30, 2001 and incorporated herein by reference].
Executive Option Plan [filed as an exhibit to the Company’s Registration Statement on Form S-8
(Reg. No. 33-63444) and incorporated herein by reference].
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].
U. S. Physical Therapy, Inc. 2003 Stock Incentive Plan, as amended and restated March 26, 2010
[incorporated by reference to Appendix A to the Company’s proxy statement on Schedule 14A filed
with the SEC on April 9, 2010].
Non-Statutory Stock Option Agreement dated February 26, 2002 between the Company and Mary
Dimick [filed as an exhibit to the Company’s Registration Statement on Form S-8 dated February 10,
2003 — Reg. No. 333-103057- and incorporated herein by reference].
Non-Statutory Stock Option Agreement dated May 20, 2003 between the Company and Jerald
Pullins [filed as an exhibit to the Company’s Registration Statement on Form S-8 filed March 15,
2004 — Reg. No. 333-113592 — and incorporated herein by reference].
Non-Statutory Stock Option Agreement dated November 18, 2003 between the Company and
Christopher Reading [filed as an exhibit to the Company’s Registration Statement on Form S-8 filed
March 15, 2004 — Reg. No. 333-113592 — and incorporated herein by reference].
Non-Statutory Stock Option Agreement dated November 18, 2003 between the Company and
Lawrance McAfee [filed as an exhibit to the Company’s Registration Statement on Form S-8 filed
March 15, 2004 — Reg. No. 333-113592 — and incorporated herein by reference].
Non-Statutory Stock Option Agreement dated November 18, 2003 between the Company and Janna
King [filed as an exhibit to the Company’s Registration Statement on Form S-8 filed March 15,
2004 — Reg. No. 333-113592 — and incorporated herein by reference].
Non-Statutory Stock Option Agreement dated November 18, 2003 between the Company and
Glenn McDowell [filed as an exhibit to the Company’s Registration Statement on Form S-8 filed
March 15, 2004 — Reg. No. 333-113592 — and incorporated herein by reference].
Consulting agreement between the Company and J. Livingston Kosberg [filed as an exhibit to the
Company’s Form 10-Q for the quarterly period ended June 30, 2001 and incorporated herein by
reference].
First Amendment to the Consulting Agreement between the Company and J. Livingston — Kosberg
[filed as an exhibit to the Company’s Form 10-K for the year ended December 31, 2002 and
incorporated herein by reference.]
Amended and Restated Employment Agreement dated May 24, 2007, between U.S. Physical
Therapy, Inc. and Christopher J. Reading [incorporated by reference to Exhibit 10.3 to the
Company’s Current Report on Form 8-K filed with the SEC on May 25, 2007].
Amendment to Amended and Restated Employment Agreement dated December 2, 2008 between
U.S. Physical Therapy, Inc. and Christopher J. Reading [incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K, filed with the SEC on December 5, 2008].
74
Number
10.15+
10.16+
10.17+
10.18+
10.19+
10.20+
10.21
10.22+
10.23+
10.24+
10.25+
10.26
10.27
10.28
10.29
10.30
Description
Amended and Restated Employment Agreement dated May 24, 2007, between U.S. Physical
Therapy, Inc. and Lawrance W. McAfee [incorporated by reference to Exhibit 10.4 to the Company’s
Current Report on Form 8-K filed with the SEC on May 25, 2007].
Amendment to Amended and Restated Employment Agreement dated December 2, 2008 between
U.S. Physical Therapy, Inc. and Lawrance W. McAfee [incorporated by reference to Exhibit 10.2 to
the Company’s Current Report on Form 8-K, filed with the SEC on December 5, 2008].
Form of Restricted Stock Agreement [incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K/A filed with the SEC on May 30, 2007].
Employment Agreement dated May 24, 2007, between U. S. Physical Therapy, Inc. and Glenn D.
McDowell [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
filed with the SEC on May 25, 2007].
Amendment to Employment Agreement dated December 2, 2008 between U.S. Physical Therapy,
Inc. and Glenn D. McDowell [incorporated by reference to Exhibit 10.3 to the Company’s Current
Report on Form 8-K, filed with the SEC on December 5, 2008].
USPH Executive Long-Term Incentive Plan, as Amended [incorporated by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K, filed with the SEC on December 31, 2008].
USPH 2009 Executive Bonus Plan (incorporated by reference to Exhibit 99.1 to the Company’s
Current Report on Form 8-K filed with the SEC on May 19, 2009).
U. S. Physical Therapy, Inc. Objective Long-Term Incentive Plan for Senior Management, effective
March 31, 2011 [incorporated by reference to Exhibit 99.1 to the Company’s Current Report on
Form 8-K filed with the SEC on April 6, 2011].
U. S. Physical Therapy, Inc. Discretionary Long-Term Incentive Plan for Senior Management for 2011,
effective March 31, 2011 [incorporated by reference to Exhibit 99.2 to the Company’s Current Report
on Form 8-K filed with the SEC on April 6, 2011].
U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for 2011, effective March 31, 2011
[incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the
SEC on April 6, 2011].
U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for 2011, effective March 31, 2011
[incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the
SEC on April 6, 2011].
Reorganization and Securities Purchase Agreement dated as of September 6, 2007 between U. S.
Physical Therapy, Ltd., STAR Physical Therapy, LP (“STAR LP”), the limited partners of STAR LP,
and Regg Swanson as Seller Representative and in his individual capacity [incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2007].
Credit Agreement, dated as of August 27, 2007 among U. S. Physical Therapy, Inc., as the Borrower,
Bank of America, N. A., as Administrative Agent, Swing Line Lender and L/C Issuer, and The Other
Lenders Party Hereto [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on
Form 8-K/A filed with the SEC on September 5, 2007].
First Amendment to Credit Agreement dated as of June 4, 2008 by and among U.S. Physical
Therapy, Inc., a Nevada Corporation, the Lenders party hereto, and Bank of America, N. A., as
Administrative Agent [incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2008, filed with the SEC on August 11, 2008].
Second Amendment to Credit Agreement and Consent by and among the Company and the Lenders
party hereto, and Bank of America, N. A., as Administrative Agent (incorporated by reference to
Exhibit 99.1 to the Company Current Report on Form 8-K filed with the SEC on March 18, 2010).
Third Amendment to Credit Agreement dated as of October 13, 2010, by and among the Company
and the Lenders party hereto, and Bank of America, N.A. as administrative Agent [incorporated by
reference to Exhibit 10.30 to the Company Annual Report on Form 10-K filed with the SEC on
March 10, 2011].
75
Number
Description
21.1*
23.1*
31.1*
31.2*
31.3*
32.1*
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
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
Filed herewith
*
+ Management contract or compensatory plan or arrangement.
76
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
NAME OF
SUBSIDIARY
U.S. PT – Delaware, Inc.
dba The Facilities Group
U.S. Therapy, Inc.
dba First Choice Physical Therapy
National Rehab GP, Inc.
National Rehab Delaware, Inc.
U.S. PT – Michigan, Inc.
HH Rehab Associates, Inc.
dba Genesee Valley Physical Therapy
dba Theramax Physical Therapy
Professional Rehab Services, Inc.
U.S. Physical Therapy, Ltd.
U.S. PT Management, Ltd.
National Rehab Management GP, Inc.
Rehab Partners #1, Inc.
Rehab Partners #2, Inc.
Rehab Partners #3, Inc.
Rehab Partners #4, Inc.
Rehab Partners #5, Inc.
Rehab Partners #6, Inc.
U.S. PT Payroll, Inc. (formerly Rehab Partners #7, Inc.)
Rehab Partners Acquisition #1, Inc.
U.S. PT Therapy Services, Inc.
(formerly U.S. Surgical Partners, Inc.)
dba Capstone Physical Therapy
dba Carolina Hand and Wellness Center
dba Hand Therapy Specialists of North Texas
dba Innovative Physical Therapy
dba Kennebec Physical Therapy
dba Kinetix Physical Therapy
dba Lake City Hand Therapy
dba Life Sport Physical Therapy
dba Metro Hand Rehabilitation
dba Missouri City Physical Therapy
dba Mountain View Physical Therapy of Medford
dba Mountain View Physical Therapy of Talent
dba Northern Illinois Therapy Services
dba Pinnacle Therapy Services
dba ProCare Sports Medicine
dba Propel Physical Therapy
dba Reaction Physical Therapy
dba Therapeutic Concepts
dba Therapyworks
dba Tulsa Hand Therapy
dba Waco Sports Medicine & Rehabilitation
U.S. PT Contract Management, Inc.
TYPE OF
ENTITY
Corporation
STATE OF
INCORPORATION
OR FORMATION
Delaware
Corporation
Texas
Corporation
Corporation
Corporation
Corporation
Corporation
Limited Partnership
Limited Partnership
Corporation
Corporation
Corporation
Corporation
Corporation
Corporation
Corporation
Corporation
Corporation
Texas
Delaware
Delaware
Michigan
Michigan
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Corporation
Delaware
Corporation
Texas
Therapy Clinic, Ltd. Dba Progressive Hand and Physical Therapy
Limited Partnership
Virginia Parc Physical
NAME OF
SUBSIDIARY
U.S. PT Turnkey Services, Inc.
(formerly Surgical Management GP, Inc.
dba The Hand & Upper Extremity Rehab Clinic
Southeastern Hand Rehabilitation, Inc.
dba Reist Hand Therapy
dba Achieve Physical Therapy
Action Therapy Centers, Limited Partnership
dba Action Physical Therapy
dba Houston Hand Therapy
Star Therapy Centers, Limited Partnership
dba Star Therapy Services of Cinco Ranch
dba Star Therapy Services of Cy-Fair
dba Star Therapy Services of Copperfield
dba Star Therapy Services of Katy
dba Star Therapy Services of Magnolia
dba Star Therapy Services of Spring Cypress
Progressive Physical
Therapy, Ltd. dba
McKinney Physical Therapy
Associates
Dearborn Physical Therapy,
Ltd. dba Advanced
Physical Therapy
Saline Physical Therapy of
Michigan, Ltd. dba Physical
Therapy in Motion
Roepke Physical Therapy,
Limited Partnership
dba Elite Hand & Upper Extremity Clinic
Merrill Physical Therapy,
Limited Partnership
Joan Ostermeier Physical
Therapy, Limited
Partnership dba Sport &
Spine Clinic of Wittenberg
Crossroads Physical Therapy, Limited Partnership
dba Green Oaks Physical Therapy
dba Green Oaks Physical Therapy – Fort Worth
Kelly Lynch Physical Therapy,
Limited Partnership
U.S. PT Michigan #1, Limited
Partnership
Spracklen Physical Therapy,
Limited Partnership
Frisco Physical Therapy, Limited
Partnership
Partnership
Sport & Spine Clinic of Fort
Atkinson, Limited Partnership
dba Sport & Spine Clinic of Sauk City
dba Sport & Spine Clinic of Madison
dba Sport & Spine Clinic of Edgerton
dba Sport & Spine Clinic of Jefferson
Sport & Spine Clinic of
Auburndale, Limited Partnership
Bosque River Physical Therapy and Rehabilitation, Limited
TYPE OF
ENTITY
STATE OF
INCORPORATION
OR FORMATION
Corporation
Texas
Corporation
Florida
Limited Partnership
Texas
Limited Partnership
Texas
Texas
Limited Partnership
Texas
Limited Partnership
Texas
Limited Partnership
Texas
Limited Partnership
Limited Partnership
Texas
Texas
Limited Partnership
Limited Partnership
Texas
Texas
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Texas
Texas
Texas
Texas
Texas
Limited Partnership
Limited Partnership
Texas
Texas
NAME OF
SUBSIDIARY
Kingwood Physical Therapy, Ltd.
dba Spring-Klein Physical Therapy
dba West Woodlands Physical Therapy
Enid Therapy Center, Limited Partnership
Active Physical Therapy, Limited Partnership
Cleveland Physical Therapy, Ltd.
Aquatic and Orthopedic Rehab Specialists, Limited Partnership
dba Horizon Physical Therapy
Vileno Therapy of Treasure Coast, Limited Partnership
dba Treasure Coast Hand & Physical Therapy
Comprehensive Hand & Physical Therapy, Limited Partnership
Safety Harbor Physical Therapy, Limited Partnership
dba Apex Physical Therapy
South Tulsa Physical Therapy, Limited Partnership
dba Jenks Physical Therapy
Hands On Therapy, Limited Partnership
U.S. PT Michigan #2, Limited Partnership
Tupelo Hand Rehabilitation, Limited Partnership
The Hale Hand Center, Limited Partnership
Sooner Physical Therapy, Limited Partnership
Arrow Physical Therapy, Limited Partnership
dba Broken Arrow Physical Therapy
Achieve Physical Therapy, Limited Partnership
Melbourne Physical Therapy Specialists, Limited Partnership
Maine Physical Therapy, Limited Partnership
Saginaw Valley Sport and Spine, Limited Partnership
dba Sport & Spine Physical Therapy and Rehab
Brazos Valley Physical Therapy, Limited Partnership
Plymouth Physical Therapy Specialists, Limited Partnership
Brick Hand & Rehabilitative Services, Limited Partnership
Heartland Physical Therapy, Limited Partnership
Bay View Physical Therapy, Ltd.
dba Pine State Physical Therapy
dba Bay View Physical Therapy of Newport
Thomas Hand and Rehabilitation Specialists, Limited Partnership
dba Thomas Physical & Hand Therapy
Port City Physical Therapy, Limited Partnership
TYPE OF
ENTITY
STATE OF
INCORPORATION
OR FORMATION
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
NAME OF
SUBSIDIARY
Proactive Physical Therapy, Limited Partnership
Momentum Therapy, Limited Partnership
Beaufort Physical Therapy, Limited Partnership
Brownwood Physical Therapy, Limited Partnership dba Pecan Valley Physical Therapy
Four Corners Physical Therapy, Limited Partnership
Wilmington Hand Therapy, Limited Partnership dba Hand Therapy of Wilmington
High Point Physical Therapy, Limited Partnership
Riverview Physical Therapy, Limited Partnership
Spine & Sport Physical Therapy, Limited Partnership
Norman Physical Therapy, Limited Partnership
Rice Rehabilitation Associates, Limited Partnership
Physical Therapy and Spine Institute, Limited Partnership
Forest City Physical Therapy, Limited Partnership
Leader Physical Therapy, Limited Partnership dba Memphis Physical Therapy
Coastal Physical Therapy, Limited Partnership
Eastgate Physical Therapy, Limited Partnership dba Summit Physical Therapy
Lucasville Therapy Services, Limited Partnership
dba Physical Therapy of Wheelersburg
Ankeny Physical & Sports Therapy, Limited Partnership
Regional Physical Therapy Center, Limited Partnership
Precision Physical Therapy, Limited Partnership
Adams County Physical Therapy, Limited Partnership
Coppell Spine & Sports Rehab, Limited Partnership
dba North Davis/Keller Physical Therapy
dba Physical Therapy of Colleyville
dba Physical Therapy of Corinth
dba Physical Therapy of Flower Mound
dba Physical Therapy of North Texas
dba Southlake Physical Therapy
dba Physical Therapy of Flower Mound South
dba Physical Therapy of Trophy Club
Julie Emond Physical Therapy, Limited Partnership
dba Maple Valley Physical Therapy
City of Lakes Physical Therapy, Limited Partnership
Radtke Physical Therapy, Limited Partnership
Hoeppner Physical Therapy, Limited Partnership
Des Moines Physical Therapy, Limited Partnership
Shrewsbury Physical Therapy, Limited Partnership
Heritage Physical Therapy, Limited Partnership
Mansfield Physical Therapy, Limited Partnership
Texstar Physical Therapy, Limited Partnership
TYPE OF
ENTITY
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
STATE OF
INCORPORATION
OR FORMATION
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
NAME OF
SUBSIDIARY
Peninsula Physical Therapy,
Limited Partnership
dba Portland Physical Therapy
Flint Physical Therapy,
Limited Partnership
Pelican State Physical Therapy,
Limited Partnership dba
Audubon Physical Therapy
Airpark Physical Therapy,
Limited Partnership dba
Philadelphia Physical Therapy
Paramount Physical Therapy & Hand Institute,
Limited Partnership
Edge Physical Therapy, Limited
Partnership dba River's Edge
Physical Therapy
Laurel Physical Therapy,
Limited Partnership dba
South Mississippi Physical Therapy
Riverwest Physical Therapy,
Limited Partnership
Northern Neck Physical Therapy,
Limited Partnership
Intermountain Physical Therapy,
Limited Partnership
Portsmouth Premier Physical Therapy,
Limited Partnership
Covington Rehabilitation and
Hand Therapy, Limited Partnership
dba South Mississippi Physical
Therapy
Crawford Physical Therapy,
Limited Partnership
Mobile Spine and Rehabilitation,
Limited Partnership
TYPE OF
ENTITY
STATE OF
INCORPORATION
OR FORMATION
Limited Partnership
Texas
Limited Partnership
Texas
Limited Partnership
Texas
Limited Partnership
Limited Partnership
Texas
Texas
Limited Partnership
Texas
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
NAME OF
SUBSIDIARY
University Physical Therapy, Limited
Partnership
Oregon Spine & Physical Therapy, Limited
Audubon Physical Therapy, Limited Partnership
Bow Physical Therapy & Spine Center, Limited
Partnership
Partnership
Caldwell Management, Limited Partnership
North Shore Sports & Physical Therapy, Limited
Partnership
Physical Therapy Connection of McLean,
Limited Partnership
dba Physical Therapy Connection of Fairfax
dba Physical Therapy Connection of Reston
Royal Physical Therapy, Limited Partnership
Sport & Spine Clinic, L.P.
dba Sport & Spine Clinic of Edgar
dba Sport & Spine Clinic of Rib Mountain
Riverview Physical Therapy, Limited
Partnership
Sport & Spine Clinic L.P.
Flannery Physical Therapy, Limited Partnership,
dba Physical Therapy Plus
Mountain View Physical Therapy, Limited
Ashland Physical Therapy, Limited Partnership
Lake Houston Physical Therapy, Limited
R. Clair Physical Therapy, Limited Partnership,
Partnership
Partnership
dba Clair
Physical Therapy Limited Partnership
Green Oaks Physical Therapy, Limited
Partnership Therapy
dba Green Oaks Physical
dba Green Oaks PT – Cedar Hill
dba Green Oaks PT – Grand Prairie
Spectrum Physical Therapy, Limited Partnership
dba Southshore Physical Therapy
Precise Touch Physical Therapy, Limited
Partnership
dba Mountain View Physical Therapy of
Grants Pass
Lucasville Physical Therapy, Limited
Partnership
dba Direct Care Physical Therapy
dba Physical Therapy of Wheelersburg
Custom Physical Therapy, Limited Partnership
Workwise Therapy Services, Limited
Partnership
High Plains Physical Therapy, Limited
Partnership
Evergreen Physical Therapy, Limited
Partnership
Wise Performance Physical Therapy, Limited
Partnership
Moving Well Physical Therapy, Limited
Partnership
TYPE OF
ENTITY
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
STATE OF
INCORPORATION
OR FORMATION
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
NAME OF
SUBSIDIARY
Cross Creek Physical Therapy, Limited
Partnership
Georgia Orthopedic Physical Therapy,
Limited Partnership
Port Orange Physical Therapy, Limited
Partnership
Hamilton Physical Therapy Services,
Limited Partnership
Ventana Therapy Center, Limited
Partnership
Mariposa Hand & Rehab Specialists,
Limited Partnership
dba Sports Driven Rehabilitation &
Training
Active PT and Sports Rehabilitation,
Limited Partnership
New Horizons PT, Limited Partnership
Decatur Hand Therapy Specialists, Limited
Partnership
Fredericksburg Physical Therapy, Limited
Partnership
Pioneer Physical Therapy, Limited
Partnership
Restore Physical Therapy, Limited
Partnership
Harbor Physical Therapy, Limited
Partnership
Rebud Occupational & Physical Therapy,
Limited Partnership
Sycamore Hand Center, Limited
Partnership
Hands-On Sports Medicine, Limited
Partnership
dba Metro Spine and Sports
Rehabilitation
Dekalb Comprehensive Physical Therapy,
Limited Partnership
Triumph Physical Therapy, Limited
Partnership
Five Rivers Physical Therapy, Limited
dba Peak Physical Therapy
Oak Openings Physical Therapy, Limited
Partnership
Partnership
Cutting Edge Physical Therapy, Limited
Partnership
Excel Physical Therapy, Limited
Partnership
Core Performance Physical Therapy,
Limited Partnership
Quad City Physical Therapy, Limited
Partnership
Cape Cod Hand Therapy, Limited
Partnership
Excel PT Texas GP, LLC
HPTS Management GP, LLC
Thibodeau Physical Therapy, Limited
Partnership
Northwoods Physical Therapy, Limited
Partnership
TYPE OF
ENTITY
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Liability Company
Limited Liability Company
Limited Partnership
Limited Partnership
STATE OF
INCORPORATION
OR FORMATION
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
NAME OF
SUBSIDIARY
U.S. PT Managed Care, Inc.
dba Virginia Sports Medicine &
Physical Therapy
PerformancePro Sports Medicine &
Rehabilitation, Limited Partnership
Preferred Physical Therapy, Limited
Partnership
Osteoarthritis Centers of America, Limited
Partnership
dba OsteoArthritis Centers of America
U.S. PT Solutions, Inc.
dba Physical Therapy Solutions
Dynamic Hand Therapy & Rehabilitation,
Limited Partnership
STAR Physical Therapy, Limited
Partnership
STAR PT Management GP, LLC
Life Fitness Physical Therapy, LLC
Ultimate Performance Physical Therapy,
Limited Partnership
Cedar Creek Physical Therapy, Limited
Partnership
Charleston Specialty Rehab Institute,
Limited Partnership
New Heights Physical Therapy, Limited
Partnership
Beacon Physical Therapy, Limited
Partnership
RYKE Rehabilitation, Limited Partnership
RYKE Management GP, LLC
Thunder Physical Therapy, Limited
Partnership
LiveWell Physical Therapy, Limited
Partnership
Max Motion Physical Therapy, Limited
Partnership
DHT Hand Therapy, Limited Partnership
dba Arizona Desert Hand Therapy
DHT Management GP, LLC
Physical Therapy of Casper, Limited
Partnership
Fit2WRK, Inc.
Lone Star Procurement Group, Inc.
dba Lone Star Healthcare Purchasing
Network
Gahanna Physical Therapy, Limited
Partnership
dba Cornerstone Physical Therapy
Northern Lights Physical Therapy, Limited
Partnership
Georgia Pro Motion Physical Therapy,
Limited Partnership
Physical Restoration & Sports Medicine,
Limited Partnership
Phoenix Physical Therapy, Limited
Partnership
Madison PT of New Jersey, PC
Madison Spine & Physical Therapy, PC
Montvale Physical Therapy, PC
TYPE OF
ENTITY
Corporation
Limited Partnership
Limited Partnership
Limited Partnership
Corporation
Limited Partnership
Limited Partnership
Limited Liability Company
Limited Liability Company
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Liability Company
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Liability Company
Limited Partnership
Corporation
Corporation
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Professional Corporation
Professional Corporation
Professional Corporation
STATE OF
INCORPORATION
OR FORMATION
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
New Jersey
New Jersey
New Jersey
Madison Spine & Physical Therapy, PC
Ohio Life Balance Physical Therapy,
Limited Partnership
dba Life Balance Physical Therapy
Highlands Physical Therapy & Sports
Medicine, Limited Partnership
Maplewood Physical Therapy, Limited
Partnership
North Jersey Game On Physical Therapy,
Limited Partnership
Prestige Physical Therapy, Limited
Partnership
Bayside Physical Therapy & Sports
Rehabilitation, Limited Partnership
Bayside Management GP, LLC
Advance Rehabilitation & Consulting,
Limited Partnership
Advance Rehabilitation Management GP,
LLC
ARCH Physical Therapy and Sports
Medicine,
Partnership
Partnership
LLC
Limited Partnership
Seacoast Physical Therapy, Limited
Integrated Rehab Group, Limited
Integrated Management GP, LLC
South Sound Physical and Hand Therapy,
Everett Physical Therapy and Sports
Performance Center, LLC
Professional Corporation
New Jersey
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Partnership
Limited Liability Company
Limited Partnership
Limited Liability Company
Limited Partnership
Limited Partnership
Limited Partnership
Limited Liability Company
Limited Liability Company
Limited Liability Company
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Washington
Washington
NAME OF
SUBSIDIARY
Redmond Ridge Physical Therapy, LLC
Snohomish Physical Therapy, LLC
Indy ProCare Physical Therapy, Limited Partnership
TYPE OF
ENTITY
Limited Liability Company
Limited Liability Company
Limited Partnership
INCORPORATION
OR FORMATION
Washington
Washington
Texas
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated March 9, 2012, with respect to the consolidated financial statements, schedule and internal control
over financial reporting included in the Annual Report of U.S. Physical Therapy, Inc. on Form 10-K for the year ended December 31,
2011. We hereby consent to the incorporation by reference of said reports in the Registration Statements of U.S. Physical Therapy,
Inc. on Form S-8s (File 333-30071, 333-64159, 333-67680, 333-67678, 333-82932, 333-103057, 333-113592, 33-116230, and 333-
153051).
EXHIBIT 23.1
/s/ GRANT THORNTON LLP
Houston, Texas
March 9, 2012
EXHIBIT 31.1
I, Christopher J. Reading, certify that:
1.
I have reviewed this annual report on Form 10-K of U.S. Physical Therapy, Inc.;
CERTIFICATION
2.
3.
4.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 9, 2012
/s/ Christopher J. Reading
Christopher J. Reading
President and Chief Executive Officer
(principal executive officer)
EXHIBIT 31.2
I, Lawrance W. McAfee, certify that:
1.
I have reviewed this annual report on Form 10-K of U.S. Physical Therapy, Inc.;
CERTIFICATION
2.
3.
4.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 9, 2012
/s/ Lawrance W. McAfee
Lawrance W. McAfee
Executive Vice President and
Chief Financial Officer
(principal financial and accounting officer)
EXHIBIT 31.3
I, Jon C. Bates, certify that:
1.
I have reviewed this annual report on Form 10-K of U.S. Physical Therapy, Inc.;
CERTIFICATION
2.
3.
4.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 9, 2012
/s/ Jon C. Bates
Jon C. Bates
Vice President and Controller
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report of U.S. Physical Therapy, Inc. (the “registrant”) on Form 10-K for the year ending
December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “report”), we, Christopher J.
Reading, Lawrence W. McAfee and Jon C. Bates, Chief Executive Officer, Chief Financial Officer and Controller, respectively, of
the registrant, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to our
knowledge:
(1) The report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) The information contained in the report fairly presents, in all material respects, the financial condition and results of
operations of the registrant.
March 9, 2012
/s/ Christopher J. Reading
Christopher J. Reading
Chief Executive Officer
/s/ Lawrance W. McAfee
Lawrance W. McAfee
Chief Financial Officer
/s/ Jon C. Bates
Jon C. Bates
Vice President and Controller
A signed original of this written statement required by Section 906 has been provided to U. S. Physical Therapy, Inc. and will be
retained by U. S. Physical Therapy, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.