US Physical Therapy
Annual Report 2017

Plain-text annual report

TABLE OF CONTENTSUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549Form 10-K(Mark One)☑ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017OR oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-11151U.S. PHYSICAL THERAPY, INC.(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)NEVADA76-0364866(STATE OR OTHER JURISDICTION OF INCORPORATIONOR ORGANIZATION)(I.R.S. EMPLOYER IDENTIFICATION NO.)1300 WEST SAM HOUSTON PARKWAY SOUTH,SUITE 300,HOUSTON, TEXAS77042(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 297-7000SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:Title of Each ClassName of Each Exchange on Which RegisteredCommon Stock, $.01 par valueNew York Stock ExchangeSECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT: NONEIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  o No ☑Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes  o No ☑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 thepreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes ☑ No  oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data Filerequired 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 registrantwas required to submit and post such files). Yes ☑ No  oIndicate 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 anyamendment to this Form 10-K.  oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filer oAccelerated filer☑Non-accelerated filer o (Do not check if a smaller reporting company)Smaller reporting company o Emerging growth company oIf an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying withany new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o No ☑The aggregate market value of the shares of the registrant’s common stock held by non-affiliates of the registrant at June 30, 2017 was $475.4million based on the closing sale price reported on the NYSE for the registrant’s common stock on June 30, 2017, the last business day of the registrant’smost recently completed second fiscal quarter. For purposes of this computation, all executive officers, directors and 5% or greater beneficial owners ofthe registrant were deemed to be affiliates. Such determination should not be deemed an admission that such executive officers, directors and beneficialowners are, in fact, affiliates of the registrant.As of March 14, 2018, the number of shares outstanding of the registrant’s common stock, par value $.01 per share, was: 12,671,386.DOCUMENTS INCORPORATED BY REFERENCEDOCUMENTPART OF FORM 10-KPortions of Definitive Proxy Statement for the 2018 Annual Meeting ofShareholdersPart IIITABLE OF CONTENTSTable of Contents PagePART I Item 1.Business 4 Item 1A.Risk Factors 14 Item 1B.Unresolved Staff Comments 22 Item 2.Properties 22 Item 3.Legal Proceedings 22 Item 4.Mine Safety Disclosures 23 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities 24 Item 6.Selected Financial Data 25 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations 26 Item 7A.Quantitative and Qualitative Disclosures About Market Risk 41 Item 8.Financial Statements and Supplementary Data 42 Notes to Consolidated Financial Statements 49 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 73 Item 9A.Controls and Procedures 73 Item 9B.Other Information 74 PART III Item 10.Directors, Executive Officers and Corporate Governance 74 Item 11.Executive Compensation 74 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 74 Item 13.Certain Relationships and Related Transactions, and Director Independence 74 Item 14.Principal Accountant Fees and Services 75 PART IV Item 15.Exhibits and Financial Statement Schedules 75 Item 16.Form 10-K Summary 75 Signatures 80 2TABLE OF CONTENTSFORWARD-LOOKING STATEMENTSWe make statements in this report that are considered to be forward-looking statements within the meaning given such termunder Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements contain forward-looking information relating to the financial condition, results of operations, plans, objectives, future performance and business ofour Company. These statements (often using words such as “believes”, “expects”, “intends”, “plans”, “appear”, “should” andsimilar words) involve risks and uncertainties that could cause actual results to differ materially from those we project. Includedamong such statements are those relating to opening clinics, availability of personnel and the reimbursement environment. Theforward-looking statements are based on our current views and assumptions and actual results could differ materially from thoseanticipated in such forward-looking statements as a result of certain risks, uncertainties, and factors, which include, but are notlimited to:•changes as the result of government enacted national healthcare reform;•changes in Medicare rules and guidelines and reimbursement or failure of our clinics to maintain their Medicare certificationstatus;•revenue we receive from Medicare and Medicaid being subject to potential retroactive reduction;•business and regulatory conditions including federal and state regulations;•governmental and other third party payor inspections, reviews, investigations and audits;•compliance with federal and state laws and regulations relating to the privacy of individually identifiable patientinformation, and associated fines and penalties for failure to comply;•changes in reimbursement rates or payment methods from third party payors including government agencies anddeductibles and co-pays owed by patients;•revenue and earnings expectations;•cost, risks and uncertainties associated with the Company’s recent restatement of its prior financial statements due to thecorrection of its accounting methodology for redeemable noncontrolling partnership interests, and including any pendingand future claims or proceedings relating to such matters;•legal actions; which could subject us to increased operating costs and uninsured liabilities;•general economic conditions;•availability and cost of qualified physical therapists;•personnel productivity and retaining key personnel;•competitive, economic or reimbursement conditions in our markets which may require us to reorganize or close certainclinics and thereby incur losses and/or closure costs including the possible write-down or write-off of goodwill and otherintangible assets;•acquisitions, purchase of non-controlling interests (minority interests) and the successful integration of the operations ofthe acquired businesses;•maintaining our information technology systems with adequate safeguards to protect against cyber attacks;•maintaining adequate internal controls;•maintaining necessary insurance coverage;•availability, terms, and use of capital; and•weather and other seasonal factors.Many factors are beyond our control. Given these uncertainties, you should not place undue reliance on our forward-lookingstatements. Please see the other sections of this report and our other periodic reports filed with the Securities and ExchangeCommission (the “SEC”) for more information on these factors. Our forward-looking statements represent our estimates andassumptions only as of the date of this report. Except as required by law, we are under no obligation to update any forward-lookingstatement, regardless of the reason the statement may no longer be accurate.3TABLE OF CONTENTSPART IITEM 1.BUSINESS.GENERALOur company, U.S. Physical Therapy, Inc. (the “Company”), through its subsidiaries, operates outpatient physical therapyclinics that provide pre-and post-operative care and treatment for orthopedic-related disorders, sports-related injuries, preventativecare, rehabilitation of injured workers and neurological-related injuries. We primarily operate through subsidiary clinic partnerships inwhich we generally own a 1% general partnership interest and a 49% to 99% limited partnership interest and the managingtherapist(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 sharingarrangements with therapists (hereinafter referred to as “Wholly-Owned Facilities”). In March 2017, the Company acquired a 55%interest in a company which is a leading provider of workforce performance solutions. Services provided include onsite injuryprevention and rehabilitation, performance optimization and ergonomic assessments. The majority of these services are contractedwith and paid for directly by employers including a number of Fortune 500 companies. Other clients include large insurers and theircontractors.Unless the context otherwise requires, references in this Annual Report on Form 10-K to “we”, “our” or “us” includes theCompany and all of its subsidiaries.Our strategy is to develop outpatient physical therapy clinics and to acquire single and multi-clinic outpatient physical therapypractices on a national basis. At December 31, 2017, we operated 578 clinics in 41 states. The average age of the 578 clinics inoperation at December 31, 2017 was 9.6 years. Our highest concentration of clinics are in the following states: Texas, Tennessee,Michigan, Virginia, Washington, Oregon, Maryland, Florida, Georgia, Pennsylvania and Wisconsin. In addition to our 578 clinics, atDecember 31, 2017, we also managed 32 physical therapy practices for unrelated physician groups and hospitals and operated theworkforce performance solutions business, as described above.During the last three years, we completed the following multi-clinic acquisitions:AcquisitionDate% InterestAcquiredNumber ofClinics 2017 January 2017 AcquisitionJanuary 1 70% 17 May 2017 AcquisitionMay 31 70% 4 June 2017 AcquisitionJune 30 60% 9 October 2017 AcquisitionOctober 31 70% 9 2016 February 2016 AcquisitionFebruary 29 55% 8 November 2016 AcquisitionNovember 30 60% 12 2015 January 2015 AcquisitionJanuary 31 60% 9 April 2015 AcquisitionApril 30 70% 3 June 2015 AcquisitionJune 30 70% 4 December 2015 AcquisitionDecember 31 59% 4 Also, during the year of 2017, we purchased the assets and business of two physical therapy clinics in separate transactions.One clinic was consolidated with an existing clinic and the other operates as a satellite clinic of one of our existing partnerships.In addition to the multi-clinic acquisitions, we acquired two single clinic practices in separate transactions during 2016. During2015, we acquired a 60% interest in a single clinic practice.The Company intends to continue to pursue additional acquisition opportunities, develop new clinics and open satellite clinics.4TABLE OF CONTENTSWe continue to seek to attract for employment physical therapists who have established relationships with physicians andother referral sources by offering these therapists a competitive salary and incentives based on the profitability of the clinic that theymanage. We also look for therapists with whom to establish new, de novo clinics to be owned jointly by us and such therapists. Inthese situations, the therapist is typically offered the opportunity to co-invest in the new clinic and also receives a competitive salaryfor managing the clinic. For multi-site clinic practices in which a controlling interest is acquired by the Company, the prior ownerstypically continue on as employees to manage the clinic operations, retaining a non-controlling ownership interest in the clinics andreceiving a competitive salary for managing the clinic operations. In addition, we have developed satellite clinic facilities as part ofexisting Clinic Partnerships and Wholly-Owned facilities, with the result that a substantial number of Clinic Partnerships and Wholly-Owned facilities operate more than one clinic location. In 2018, we intend to continue to acquire clinic practices and continue to focuson developing new clinics and on opening satellite clinics where appropriate along with increasing our patient volume throughmarketing and new programs.Therapists at our clinics initially perform a comprehensive evaluation of each patient, which is then followed by a treatment planspecific to the injury as prescribed by the patient’s physician. The treatment plan may include a number of procedures, includingtherapeutic exercise, manual therapy techniques, ultrasound, electrical stimulation, hot packs, iontophoresis, education onmanagement 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/Medicaid and workers’ compensation insurance.We were re-incorporated in April 1992 under the laws of the State of Nevada and have operating subsidiaries organized invarious states in the form of limited partnerships, limited liability companies and wholly-owned corporations. This description of ourbusiness should be read in conjunction with our financial statements and the related notes contained in Item 8 in this Annual Reporton 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 CLINICSMost of our clinics are operated by Clinic Partnerships in which we own the general partnership interest and a majority of thelimited partnership interests. The managing healthcare practitioner of the clinics usually owns a portion of the limited partnershipinterests. Generally, the therapist partners have no interest in the net losses of Clinic Partnerships, except to the extent of their capitalaccounts. Since we also develop satellite clinic facilities of existing clinics, most Clinic Partnerships consist of more than one cliniclocation. As of December 31, 2017, through wholly-owned subsidiaries, we owned a 1% general partnership interest in all the ClinicPartnerships. Our limited partnership interests range from 49% to 99% in the Clinic Partnerships. For the vast majority of the ClinicPartnerships, the managing healthcare practitioner is a physical therapist who owns the remaining limited partnership interest in theClinic Partnership.For our Clinic Partnership agreements related to those that we acquired a majority interest, generally, the prior managementcontinues to own a 10% to 50% interest. For our Clinic Partnership agreements related to our developed clinics, the therapist partnertypically begins with a 20% interest in their Clinic Partnership earnings which increases by 3% at the end of each year thereafter upto a maximum interest of 35%.Typically, each therapist partner or director, including those employed by Clinic Partnerships in which we acquired a majorityinterest, enters into an employment agreement for a term of up to five years with their Clinic Partnership. Each agreement typicallyprovides for a covenant not to compete during the period of his or her employment and for up to two years thereafter. Under eachemployment agreement, the therapist partner receives a base salary and may receive a bonus based on the net revenues or profitsgenerated by their Clinic Partnership or specific clinic. In the case of Clinic Partnerships, the therapist partner receives earningsdistributions based upon their ownership interest. Upon termination of employment, we typically have the right, but not theobligation, to purchase the therapist’s partnership interest in de novo Clinic Partnerships. In connection with most of our acquiredclinics, in the event that a limited minority partner’s employment ceases and certain requirements are met as detailed in the respectivelimited partnership agreements, we have a call right (the “Call Right”) and the selling entity or individual has a put right (the “PutRight”) with respect to the partner’s limited partnership interests. The Put Right and the Call Right do not expire, even upon anindividual partner’s death, and contain5TABLE OF CONTENTSno mandatory redemption feature. The purchase price of the partner’s limited partnership interest upon exercise of the Put Right orthe Call Right is calculated at a predetermined multiple of earnings performance as detailed in the respective agreements.Each Clinic Partnership maintains an independent local identity, while at the same time enjoying the benefits of nationalpurchasing, negotiated third-party payor contracts, centralized support services and management practices. Under a managementagreement, 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 ofoffice support personnel, processing of accounts payable, operational direction, auditing of regulatory compliance, payroll, benefitsadministration, accounting services, legal services, quality assurance and marketing support.Our typical clinic occupies approximately 1,600 to 3,000 square feet of leased space in an office building or shopping center. Weattempt to lease ground level space for patient ease of access to our clinics. We also attempt to make the decor in our clinics lessinstitutional 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 patient visits grow, staffingmay also include additional physical therapists, occupational therapists, therapy assistants, aides, exercise physiologists, athletictrainers 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 tothree times a week, typically for two to six weeks. We generally charge for treatment on a per procedure basis. Medicare patients arecharged based on prescribed time increments and Medicare billing 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 potentialfor developing new services and expanding the methods of providing our existing services in the most efficient manner whileproviding high quality patient care.FACTORS INFLUENCING DEMAND FOR THERAPY SERVICESWe 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, healthmaintenance organizations, businesses and industries, continuously seek cost savings for traditional healthcare services. We believethat our therapy services provide a cost-effective way to prevent short-term disabilities from becoming chronic conditions, to helpavoid invasive procedures and to speed recovery from surgery and musculoskeletal injuries.Earlier Hospital Discharge. Changes in health insurance reimbursement, both public and private, have encouraged the earlierdischarge of patients to reduce costs. We believe that early hospital discharge practices foster greater demand for outpatientphysical therapy services.Aging Population. In general, the elderly population has a greater incidence of disability compared to the population as awhole. As this segment of the population continues to grow, we believe that demand for rehabilitation services will expand.Increase in Obesity. Two of every three American men are considered to be overweight or obese and the rate continues to grow.The strain on a person’s body can be significant. Physical therapy services help the obese become more active and fit by teachingthem how to move in ways that are pain free.MARKETINGWe focus our marketing efforts primarily on physicians, including orthopedic surgeons, neurosurgeons, physiatrists, internalmedicine physicians, podiatrists, occupational medicine physicians and general practitioners. In marketing to the physiciancommunity, we emphasize our commitment to quality patient care and regular communication with physicians regarding patientprogress. We employ personnel to assist clinic directors in developing and implementing marketing plans for the physiciancommunity and to assist in establishing relationships with health maintenance organizations, preferred provider organizations,industry, case managers and insurance companies.6TABLE OF CONTENTSSOURCES OF REVENUEPayor sources for clinic services are primarily managed care programs, commercial health insurance, Medicare/Medicaid andworkers’ compensation insurance. Commercial health insurance, Medicare and managed care programs generally provide coverage topatients utilizing our clinics after payment by the patients of normal deductibles and co-insurance payments. Workers’ compensationlaws generally require employers to provide, directly or indirectly through insurance, costs of medical rehabilitation for theiremployees from work-related injuries and disabilities and, in some jurisdictions, mandatory vocational rehabilitation, usually withoutany deductibles, co-payments or cost sharing. Treatments for patients who are parties to personal injury cases are generally paidfrom 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. The following table shows ourpayor mix for the years ended: December 31, 2017December 31, 2016December 31, 2015PayorNetPatientRevenuePercentageNetPatientRevenuePercentageNetPatientRevenuePercentage (Net Patient Revenues in Thousands)Managed Care Program$120,773 31.0%$94,861 27.2%$91,845 28.3%Commercial Health Insurance 79,968 20.5% 84,784 24.3% 73,555 22.7%Medicare/Medicaid 103,713 26.7% 89,743 25.7% 79,321 24.5%Workers’ Compensation Insurance 55,364 14.2% 56,478 16.2% 60,087 18.5%Other 29,408 7.6% 22,973 6.6% 19,485 6.0%Total$389,226 100.0%$348,839 100.0%$324,293 100.0%Our business depends to a significant extent on our relationships with commercial health insurers, health maintenanceorganizations, preferred provider organizations and workers’ compensation insurers. In some geographical areas, our clinics must beapproved as providers by key health maintenance organizations and preferred provider plans to obtain payments. Failure to obtain ormaintain these approvals would adversely affect financial results.During the year ended December 31, 2017, approximately 28.4% of our visits and 23.8% of our net patient revenues were frompatients 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 bythe Department of Health and Human Services (“HHS”) relating to the type of facility, equipment, recordkeeping, personnel andstandards of medical care, and also must comply with all state and local laws. HHS, through Centers for Medicare & MedicaidServices (“CMS”) and designated agencies, periodically inspects or surveys clinics/providers for approval and/or compliance. Weanticipate that our newly developed and acquired clinics will become certified as Medicare providers or will be enrolled as a group ofphysical/occupation therapists in a private practice. Failure to obtain or maintain this certification would adversely affect financialresults.The Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (“MPFS”).For services provided in 2018, a 0.5% increase has been applied to the fee schedule payment rates; for services provided in 2019, a0.25% increase will be applied to the fee schedule payment rates, subject to an adjustment beginning in 2019 under the Merit-BasedIncentive Payment System (“MIPS”). For services provided in 2020 through 2025, a 0.0% percent update will be applied each year tothe fee schedule payment rates, subject to adjustments under MIPS and any alternative payment models (“APMs”). Beginning in2019, payments to individual therapists (Physical/Occupational Therapist in Private Practice) under the fee schedule may be subjectto adjustment based on performance in MIPS, which measures performance based on certain quality metrics, resource use, andmeaningful use of electronic health records. Under the MIPS requirements, a provider’s performance is assessed according toestablished performance standards and used to determine an adjustment factor that is then applied to the professional’s payment fora year. Each year from 2019 through 2024 professionals who receive a significant share of their revenues through an APM (such asaccountable care organizations or bundled payment arrangements) that involves risk of financial losses and a7TABLE OF CONTENTSquality measurement component will receive a 5% bonus. The bonus payment for APM participation is intended to encourageparticipation and testing of new APMs and to promote the alignment of incentives across payors. The specifics of the MIPS andAPM adjustments beginning in 2019 and 2020, respectively, will be subject to future notice and comment rule-making.The Budget Control Act of 2011 increased the federal debt ceiling in connection with deficit reductions over the next ten years,and requires automatic reductions in federal spending by approximately $1.2 trillion. Payments to Medicare providers are subject tothese automatic spending reductions, subject to a 2% cap. On April 1, 2013, a 2% reduction to Medicare payments was implemented.The Bipartisan Budget Act of 2015, enacted on November 2, 2015, extended the 2% reductions to Medicare payments through fiscalyear 2025. The Bipartisan Budget Act of 2018, enacted on February 9, 2018, extends the 2% reductions to Medicare paymentsthrough fiscal year 2027.Historically, the total amount paid by Medicare in any one year for outpatient physical therapy, occupational therapy, and/orspeech-language pathology services provided to any Medicare beneficiary was subject to an annual dollar limit (i.e., the “TherapyCap” or “Limit”). For 2017, the annual Limit on outpatient therapy services was $1,980 for combined Physical Therapy and SpeechLanguage Pathology services and $1,980 for Occupational Therapy services. As a result of Bipartisan Budget Act of 2018, theTherapy Caps have been eliminated, effective as of January 1, 2018.Under the Middle Class Tax Relief and Job Creation Act of 2012 (“MCTRA”), since October 1, 2012, patients who met orexceeded $3,700 in therapy expenditures during a calendar year have been subject to a manual medical review to determine whetherapplicable payment criteria are satisfied. The $3,700 threshold is applied to Physical Therapy and Speech Language PathologyServices; a separate $3,700 threshold is applied to the Occupational Therapy. The MACRA directed CMS to modify the manualmedical review process such that those reviews will no longer apply to all claims exceeding the $3,700 threshold and instead will bedetermined on a targeted basis based on a variety of factors that CMS considers appropriate The Bipartisan Budget Act of 2018extends the targeted medical review indefinitely, but reduces the threshold to $3,000 through December 31, 2027. For 2028, thethreshold amount will be increased by the percentage increase in the Medicare Economic Index (“MEI”) for 2028 and in subsequentyears the threshold amount will increase based on the corresponding percentage increase in the MEI for such subsequent year.CMS adopted a multiple procedure payment reduction (“MPPR”) for therapy services in the final update to the MPFS forcalendar year 2011. The MPPR applied to all outpatient therapy services paid under Medicare Part B — occupational therapy,physical therapy and speech-language pathology. Under the policy, the Medicare program pays 100% of the practice expensecomponent of the Relative Value Unit (“RVU”) for the therapy procedure with the highest practice expense RVU, then reduces thepayment for the practice expense component for the second and subsequent therapy procedures or units of service furnished duringthe same day for the same patient, regardless of whether those therapy services are furnished in separate sessions. Since 2013, thepractice expense component for the second and subsequent therapy service furnished during the same day for the same patient wasreduced by 50%. In addition, the MCTRA directed CMS to implement a claims-based data collection program to gather additionaldata on patient function during the course of therapy in order to better understand patient conditions and outcomes. All practicesettings that provide outpatient therapy services are required to include this data on the claim form. Since 2013, therapists have beenrequired to report new codes and modifiers on the claim form that reflect a patient’s functional limitations and goals at initialevaluation, periodically throughout care, and at discharge. Reporting of these functional limitation codes and modifiers are requiredon the claim for payment.Medicare claims for outpatient therapy services furnished by therapy assistants on or after January 1, 2022 must include amodifier indicating the service was furnished by a therapy assistant. CMS is required to develop a modifier to mark services providedby a therapy assistant by January 1, 2019, and then submitted claims have to report the modifier mark starting January 1, 2020.Outpatient therapy services furnished on or after January 1, 2022 in whole or part by a therapy assistant will be paid at an amountequal to 85% of the payment amount otherwise applicable for the service.Statutes, regulations, and payment rules governing the delivery of therapy services to Medicare beneficiaries are complex andsubject to interpretation. We believe that we are in compliance in all material respects with all applicable laws and regulations and arenot aware of any pending or threatened investigations involving8TABLE OF CONTENTSallegations of potential wrongdoing that would have a material effect on our financial statements as of December 31, 2017.Compliance with such laws and regulations can be subject to future government review and interpretation, as well as significantregulatory action including fines, penalties, and exclusion from the Medicare program. For 2017, net patient revenue from Medicareaccounted for approximately $92.6 million.REGULATION AND HEALTHCARE REFORMNumerous federal, state and local regulations regulate healthcare services and those who provide them. Some states into whichwe may expand have laws requiring facilities employing health professionals and providing health-related services to be licensedand, in some cases, to obtain a certificate of need (that is, demonstrating to a state regulatory authority the need for, and financialfeasibility of, new facilities or the commencement of new healthcare services). Only one of the states in which we currently operaterequires a certificate of need for the operation of our physical therapy business functions. Our therapists and/or clinics, however, arerequired to be licensed, as determined by the state in which they provide services. Failure to obtain or maintain any requiredcertificates, 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 ofhealthcare services. These laws include Section 1128B(b) of the Social Security Act (42 U.S. C. § 1320a-7b[b]) (the “Fraud and AbuseLaw”), under which civil and criminal penalties can be imposed upon persons who, among other things, offer, solicit, pay or receiveremuneration in return for (i) the referral of patients for the rendering of any item or service for which payment may be made, in wholeor in part, by a Federal health care program (including Medicare and Medicaid); or (ii) purchasing, leasing, ordering, or arranging foror recommending purchasing, leasing, ordering any good, facility, service, or item for which payment may be made, in whole or inpart, by a Federal health care program (including Medicare and Medicaid). We believe that our business procedures and businessarrangements are in compliance with these provisions. However, the provisions are broadly written and the full extent of their specificapplication to specific facts and arrangements to which we are a party is uncertain and difficult to predict. In addition, several stateshave enacted state laws similar to the Fraud and Abuse Law, which may be more restrictive than the federal Fraud and Abuse Law.The Office of the Inspector General (“OIG”) of HHS has issued regulations describing compensation financial arrangements thatfall within a “Safe Harbor” and, therefore, are not viewed as illegal remuneration under the Fraud and Abuse Law. Failure to fall withina Safe Harbor does not mean that the Fraud and Abuse Law has been violated; however, the OIG has indicated that failure to fallwithin a Safe Harbor may subject an arrangement to increased scrutiny under a “facts and circumstances” test.The OIG also has issued special fraud alerts and special advisory bulletins to remind the provider community of the importanceand application of certain aspects of the Fraud and Abuse Law. One of the OIG special fraud alerts related to the rental of space inphysician offices by persons or entities to which the physicians refer patients. The OIG’s stated concern in these arrangements isthat rental payments may be disguised kickbacks to the physician-landlords to induce referrals. We rent clinic space for some of ourclinics from referring physicians and have taken the steps that we believe are necessary to ensure that all leases comply to the extentpossible and applicable with the space rental Safe Harbor to the Fraud and Abuse Law.One of the OIG’s special advisory bulletins addressed certain complex contractual arrangements for the provision of items andservices. This special advisory bulletin identified several characteristics commonly exhibited by suspect arrangements, the existenceof one or more of which could indicate a prohibited arrangement to the OIG. Generally, the indicia of a suspect contractual jointventure as identified by the special advisory bulletin and an associated OIG advisory opinion include the following:•New Line of Business. A provider in one line of business (“Owner”) expands into a new line of business that can beprovided to the Owner’s existing patients, with another party who currently provides the same or similar item or service asthe new business (“Manager/Supplier”).•Captive Referral Base. The arrangement predominantly or exclusively serves the Owner’s existing patient base (or patientsunder the control or influence of the Owner).9TABLE OF CONTENTS•Little or No Bona Fide Business Risk. The Owner’s primary contribution to the venture is referrals; it makes little or nofinancial or other investment in the business, delegating the entire operation to the Manager/Supplier, while retainingprofits 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 andwould normally compete for the captive referrals. It has the capacity to provide virtually identical services in its own rightand 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 billinsurers and patients for business otherwise provided by the Manager/Supplier. The remuneration from the venture to theOwner (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 fromOwner 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 thesecharacteristics. However, we believe we have taken steps regarding the structure of such arrangements as necessary to sufficientlydistinguish them from these suspect ventures, and to comply with the requirements of the Fraud and Abuse Law. However, if the OIGbelieves we have entered into a prohibited contractual joint venture, it could have an adverse effect on our business, financialcondition and results of operations.Although the business of managing physician-owned physical therapy facilities is regulated by the Fraud and Abuse Law, themanner in which we contract with such facilities often falls outside the complete scope of available Safe Harbors. We believe ourarrangements comply with the Fraud and Abuse Law, even though federal courts provide limited guidance as to the application ofthe Fraud and Abuse Law to these arrangements. If our management contracts are held to violate the Fraud and Abuse Law, it couldhave 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”) prohibitreferrals by a physician of “designated health services” which are payable, in whole or in part, by Medicare or Medicaid, to an entityin which the physician or the physician’s immediate family member has an investment interest or other financial relationship, subjectto several exceptions. Unlike the Fraud and Abuse Law, the Stark Law is a strict liability statute. Proof of intent to violate the StarkLaw is not required. Physical therapy services are among the “designated health services”. Further, the Stark Law has application toour management contracts with individual physicians and physician groups, as well as, any other financial relationship between usand referring physicians, including medical advisor arrangements and 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 tothe Stark Law. These state laws may cover all (not just Medicare and Medicaid) patients. As with the Fraud and Abuse Law, weconsider the Stark Law in planning our clinics, establishing contractual and other arrangements with physicians, marketing and otheractivities, and believe that our operations are in compliance with the Stark Law. If we violate the Stark Law or any similar state laws,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-fraudmeasures in the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”). HIPAA created a source of funding forfraud control to coordinate federal, state and local healthcare law enforcement programs, conduct investigations, provide guidance tothe healthcare industry concerning fraudulent healthcare practices, and establish a national data bank to receive and report finaladverse actions. HIPAA also criminalized certain forms of health fraud against all public and private payors. Additionally, HIPAAmandates the adoption of standards regarding the exchange of healthcare information in an effort to ensure the privacy andelectronic security of patient information and standards relating to the privacy of health information. Sanctions10TABLE OF CONTENTSfor failing to comply with HIPAA include criminal penalties and civil sanctions. In February of 2009, the American Recovery andReinvestment Act of 2009 (“ARRA”) was signed into law. Title XIII of ARRA, the Health Information Technology for Economic andClinical Health Act (“HITECH”), provided for substantial Medicare and Medicaid incentives for providers to adopt electronic healthrecords (“EHRs”) and grants for the development of health information exchange (“HIE”). Recognizing that HIE and EHR systemswill not be implemented unless the public can be assured that the privacy and security of patient information in such systems isprotected, HITECH also significantly expanded the scope of the privacy and security requirements under HIPAA. Most notable arethe mandatory breach notification requirements and a heightened enforcement scheme that includes increased penalties, and whichnow apply to business associates as well as to covered entities. In addition to HIPAA, a number of states have adopted laws and/orregulations applicable in the use and disclosure of individually identifiable health information that can be more stringent thancomparable provisions under HIPAA.We believe that our operations 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 inthe United States. Congress, state legislatures and the private sector continue to review and assess alternative healthcare deliveryand payment systems. Potential alternative approaches could include mandated basic healthcare benefits, controls on healthcarespending through limitations on the growth of private health insurance premiums and Medicare and Medicaid spending, the creationof large insurance purchasing groups, and price controls. Legislative debate is expected to continue in the future and market forcesare expected to demand only modest increases or reduced costs. For instance, managed care entities are demanding lowerreimbursement rates from healthcare providers and, in some cases, are requiring or encouraging providers to accept capitatedpayments that may not allow providers to cover their full costs or realize traditional levels of profitability. We cannot reasonablypredict what impact the adoption of federal or state healthcare reform measures or future private sector reform may have on ourbusiness.COMPETITIONThe healthcare industry, including the physical therapy business, is highly competitive. The physical therapy business is highlyfragmented with no company having a significant market share nationally. We believe that we are currently the third largest nationaloutpatient rehabilitation provider.Competitive factors affecting our business include quality of care, cost, treatment outcomes, convenience of location, andrelationships with, and ability to meet the needs of, referral and payor sources. Our clinics compete, directly or indirectly, with manytypes of healthcare providers including the physical therapy departments of hospitals, private therapy clinics, physician-ownedtherapy 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 clinicprofitability provides us with a competitive advantage by helping to ensure the commitment of local management to the success ofthe clinic.We also believe that our competitive position is enhanced by our strategy of locating our clinics, when possible, on the groundfloor of buildings and shopping centers with nearby parking, thereby making the clinics more easily accessible to patients. We offerconvenient hours. We also attempt to make the decor in our clinics less institutional and more aesthetically pleasing than traditionalhospital clinics.ENFORCEMENT ENVIRONMENTIn recent years, federal and state governments have launched several initiatives aimed at uncovering behavior that violates thefederal civil and criminal laws regarding false claims and fraudulent billing and coding practices. Such laws require providers toadhere to complex reimbursement requirements regarding proper billing and coding in order to be compensated for their services bygovernment payors. Our compliance program requires adherence to applicable law and promotes reimbursement education andtraining; however, a determination that our clinics’ billing and coding practices are false or fraudulent could have a material adverseeffect on us.11TABLE OF CONTENTSAs a result of our participation in the Medicare and Medicaid programs, we are subject to various governmental inspections,reviews, audits and investigations to verify our compliance with these programs and applicable laws and regulations. In addition, ourCorporate Integrity Agreement requires annual audits to be performed by an independent review organization on a small sample ofour clinics, the results of which are reported to the federal government. See “-Compliance Program – Corporate Integrity Agreement”.Managed care payors may also reserve the right to conduct audits. An adverse inspection, review, audit or investigation could resultin: refunding amounts we have been paid; fines penalties and/or revocation of billing privileges for the affected clinics; expansion ofthe scope of our Corporate Integrity Agreement; exclusion from participation in the Medicare or Medicaid programs or one or moremanaged care payor network; or damage to our reputation.We and our clinics are subject to federal and state laws prohibiting entities and individuals from knowingly and willfully makingclaims 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 providerssuch as us. As such suits are generally filed under seal with a court to allow the government adequate time to investigate anddetermine whether it will intervene in the action, the implicated healthcare providers often are unaware of the suit until thegovernment 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 financialor criminal sanctions, resulting in the possibility of substantial financial penalties for small billing errors that are replicated in a largenumber of claims, as each individual claim could be deemed a separate violation. In addition, many states also have enacted similarstatutes, which may include criminal penalties, substantial fines, and treble damages.COMPLIANCE PROGRAMOur Compliance Program. Our ongoing success depends upon our reputation for quality service and ethical businesspractices. We operate in a highly regulated environment with many federal, state and local laws and regulations. We take a proactiveinterest 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 and a set of Corporate GovernanceGuidelines to clarify the ethical standards under which the Board and management carry out their duties. In addition, the Board hascreated a Compliance Committee of the Board (“Compliance Committee”) whose purpose is to assist the Board in discharging theiroversight responsibilities with respect to compliance with federal and state laws and regulations relating to healthcare.We have issued an Ethics and Compliance Manual and created compliance training materials, hand-outs and an on-line testingprogram. These tools were prepared to ensure that every employee of our Company and subsidiaries has a clear understanding ofour mutual commitment to high standards of professionalism, honesty, fairness and compliance with the law in conducting business.These standards are administered by our Chief 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 ComplianceCommittee review our policies and procedures for our compliance program from time to time in an effort to improve operations and toensure compliance with requirements of standards, laws and regulations and to reflect the on-going compliance focus areas whichhave been identified by management, counsel or the Compliance Committee. We also have established systems for reportingpotential 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 ComplianceCommittee has general oversight of our Company’s compliance with the legal and regulatory requirements regarding healthcareoperations. The Compliance Committee relies on the expertise and knowledge of management, the CO and other compliance and legalpersonnel. The CO regularly communicates with the Chairman of the Compliance Committee. The Compliance Committee meets atleast four times a year or more frequently as necessary to carry out its responsibilities and reports regularly to the Board regarding itsactions and recommendations.We also have an Internal Compliance Committee, which is comprised of Company leaders in the areas of operations, clinicalservices, finance, human resources, legal, information technology and credentialing. The Internal Compliance Committee has theresponsibility for evaluating and assessing Company areas of risk12TABLE OF CONTENTSrelating to compliance with federal and state healthcare laws, and generally to assist the CO. The Internal Compliance Committeemeets at least four times a year or more frequently as necessary to carry out its responsibilities. In addition, management hasappointed a team to address our Company’s compliance with HIPAA. The HIPAA team consists of a security officer and employeesfrom our legal, information systems, finance, operations, compliance, business services and human resources departments. The teamprepares assessments and makes recommendations regarding operational changes and/or new systems, if needed, to comply withHIPAA.Each clinic certified as a Medicare Rehabilitation Agency has a formally appointed governing body composed of a member ofour management and the director/administrator of the clinic. The governing body retains legal responsibility for the overall conductof 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 thefacilities and function as advisors.We have in place a Risk Management Committee consisting of, among others, the CO, the Corporate Vice President ofAdministration, and other legal, compliance and operations personnel. This committee reviews and monitors all employee and patientincident 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 retaliationany perceived improper work-related activities, accounting irregularities and other violations of our compliance program, we have setup an independent national compliance hotline. The compliance hotline is available to receive confidential reports of wrongdoingMonday through Friday (excluding holidays), 24 hours a day. The compliance hotline is staffed by experienced third partyprofessionals trained to utilize utmost care and discretion in handling sensitive issues and confidential information. The informationreceived is documented and forwarded timely to the CO, who, together with the Compliance Committee, has the power and resourcesto investigate and resolve matters of improper conduct.Educating Our Employees. We utilize numerous methods to train our employees in compliance related issues. All employeescomplete an initial training program comprised of numerous modules relating to our business and proper practices. Thedirectors/administrators also provide periodic “refresher” training for existing employees and one-on-one comprehensive trainingwith new hires. The corporate compliance group responds to questions from clinic personnel and conducts frequent teleconferencemeetings, webinars and training sessions on a variety of compliance related topics.When a clinic opens, the Company provides a package of compliance materials containing manuals and detailed instructions formeeting Medicare Conditions of Participation Standards and other compliance requirements. During follow up training with thedirector/administrator of the clinic, compliance department staff explain various details regarding requirements and compliancestandards. Compliance staff will remain in contact with the director/administrator while the clinic is implementing compliancestandards and will provide any assistance required. All new office managers receive training (including Medicare, regulatory andcorporate compliance, insurance billing, charge entry and transaction posting and coding, daily, weekly and monthly accountingreports) from the training staff at the corporate office. The corporate compliance group will assist in continued compliance, includingguidance to the clinic staff with regard to Medicare certifications, state survey requirements and responses to any inquiries fromregulatory agencies.Monitoring and Auditing Clinic Operational Compliance. We have in place audit programs and other procedures to monitorand audit clinic operational compliance with applicable policies and procedures. We employ internal auditors who, as part of their jobresponsibilities, conduct periodic audits of each clinic. Most clinics are audited at least once every 24 months and additional focusedaudits are performed as deemed necessary. During these audits, particular attention is given to compliance with Medicare andinternal 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 typically are conducted on site and include interviewswith the employees involved in management, operations, billing and accounts receivable.13TABLE OF CONTENTSFormal audit reports are prepared and reviewed with corporate management and the Compliance Committee. Each clinicdirector/administrator receives a letter instructing them of any corrective measures required. Each clinic director/administrator thenworks 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 programrequirements or who negligently or deliberately fails to comply with known laws or regulations specifically addressed in ourcompliance program should be subject to disciplinary action up to and including discharge from employment. The ComplianceCommittee, compliance staff, human resources staff and management investigate violations of our compliance program and imposedisciplinary action as considered appropriate.Corporate Integrity Agreement. The Company also performs certain additional compliance related functions pursuant to theCorporate Integrity Agreement (“Corporate Integrity Agreement” or “CIA”) that the Company entered into with the OIG. The CIA,which became effective as of December 21, 2015, outlines certain specific requirements relating to compliance oversight and programimplementation, as well as periodic reporting. In addition, pursuant to the CIA, an independent review organization annually willperform a Medicare billing and coding audit on a small group of randomly selected Company clinics. The Company’s ComplianceProgram has been modified so as to comply with the requirements of the CIA. The term of the CIA is five years.The CIA was entered into as part of the settlement by one of the Company’s Subsidiaries with the U. S. Department of Justicerelated to certain Medicare billings that occurred between 2007 and 2009 at a single outpatient physical therapy clinic. The settlementresolved claims relating to whether certain physical therapy services provided to a limited number of Medicare patients at the clinicsatisfied all of the criteria for payment by the Medicare program, including proper supervision of physical therapist assistants. TheSubsidiary paid $718,000 in 2015 to resolve the matter, and the Subsidiary and the Company entered into the CIA. The Subsidiary nolonger conducts any business.EMPLOYEESAt December 31, 2017, we employed approximately 4,300 people, of which approximately 3,000 were full-time employees. At thatdate, no Company employees were governed by collective bargaining agreements or were members of a union. We consider ourrelations 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 belicensed by the state. Based on standard employee screening systems in place, all persons currently employed by us who arerequired to be licensed are licensed. We are not aware of any federal licensing requirements applicable to our employees.AVAILABLE INFORMATIONOur annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reportsfiled or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are made available free of charge on our internet website atwww.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, andreaders of this Annual Report on Form 10-K should take such risks into account in evaluating our Company or making any decisionto invest in us. This section does not describe all risks applicable to our Company, our industry or our business, and it is intendedonly as a summary of material factors affecting our business.Risks related to our business and operationsHealthcare reform legislation may affect our business.In recent years, many legislative proposals have been introduced or proposed in Congress and in some state legislatures thatwould affect major changes in the healthcare system, either nationally or at the state level. At the federal level, Congress hascontinued to propose or consider healthcare budgets that substantially reduce14TABLE OF CONTENTSpayments under the Medicare programs. See “Business- Sources of Revenue” in Item 1 for more information. The ultimate content,timing or effect of any healthcare reform legislation and the impact of potential legislation on us is uncertain and difficult, if notimpossible, to predict. That impact may be material to our business, financial condition or results of operations.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, andphysician 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 stategovernment agencies relating to the healthcare industry. We believe we are in substantial compliance with all laws, but differinginterpretations or enforcement of these laws and regulations could subject our current practices to allegations of impropriety orillegality or could require us to make changes in our methods of operations, facilities, equipment, personnel, services and capitalexpenditure programs and increase our operating expenses. If we fail to comply with these extensive laws and governmentregulations, we could become ineligible to receive government program reimbursement, suffer civil or criminal penalties or be requiredto make significant changes to our operations. In addition, we could be forced to expend considerable resources responding to aninvestigation or other enforcement action under these laws or regulations. For a more complete description of certain of these lawsand regulations, see “Business — Regulation and Healthcare Reform” and “Business — Compliance Program” in Item 1.The healthcare industry is subject to extensive federal, state and local laws and regulations relating to (1) facility andprofessional licensure, including certificates of need, (2) conduct of operations, including financial relationships among healthcareproviders, Medicare fraud and abuse and physician self-referral, (3) addition of facilities and services and enrollment of newlydeveloped facilities in the Medicare program, (4) payment for services and (5) safeguarding protected health information.Both federal and state regulatory agencies inspect, survey and audit our facilities to review our compliance with these laws andregulations. While our facilities intend to comply with the existing licensing, Medicare certification requirements and accreditationstandards, there can be no assurance that these regulatory authorities will determine that all applicable requirements are fully met atany given time. A determination by any of these regulatory authorities that a facility is not in compliance with these requirementscould lead to the imposition of requirements that the facility takes corrective action, assessment of fines and penalties, or loss oflicensure or Medicare certification of accreditation. These consequences could have an adverse effect on our Company.The Company’s CIA imposes certain compliance related functions and reporting obligations on the Company. In addition, theCIA requires the Company to engage an independent review organization to conduct annual audits of randomly selected Companyclinics in order to review compliance with federal requirements relating to the proper billing and coding for claims. While our facilitiesintend to comply with the federal requirements for properly coding and billing claims for reimbursement, there can be no assurancethat these audits will determine that all applicable requirements are fully met at the clinics that are reviewed. In addition, a failure tofully comply with the requirements of the CIA may subject the Company to the assessment of fines and penalties, or exclusion fromparticipation in the Medicare program. These consequences could have a materially adverse effect on our Company.Decreases in Medicare reimbursement rates and payment reductions applied to the second and subsequent therapy services mayadversely affect our financial results.The Medicare program reimburses outpatient rehabilitation providers based on the MPFS. For services provided in 2018, a 0.5%increase has been applied to the fee schedule payment rates; for services provided in 2019, a 0.25% increase will be applied, subjectto an adjustment beginning under the MIPS. For services provided in 2020 through 2025, a 0.0% percent update will be applied eachyear to the fee schedule payment15TABLE OF CONTENTSrates, subject to adjustments under MIPS and any APMs. Beginning in 2019, payments to individual therapists(Physical/Occupational Therapist in Private Practice) under the fee schedule may be subject to adjustment based on performance inMIPS, which measures performance based on certain quality metrics, resource use, and meaningful use of electronic health records.Under the MIPS requirements a provider’s performance is assessed according to established performance standards and used todetermine an adjustment factor that is then applied to the professional’s payment for a year. Each year from 2019 through 2024professionals who receive a significant share of their revenues through an APM (such as accountable care organizations or bundledpayment arrangements) that involves risk of financial losses and a quality measurement component will receive a 5% bonus. Thebonus payment for APM participation is intended to encourage participation and testing of new APMs and to promote the alignmentof incentives across payors. The specifics of the MIPS and APM adjustments beginning in 2019 and 2020, respectively, will besubject to future notice and comment rule-making.The Budget Control Act of 2011 increased the federal debt ceiling in connection with deficit reductions over the next ten years,and requires automatic reductions in federal spending by approximately $1.2 trillion. Payments to Medicare providers are subject tothese automatic spending reductions, subject to a 2% cap. On April 1, 2013, a 2% reduction to Medicare payments was implemented.The Bipartisan Budget Act of 2015, enacted on November 2, 2015, extended the 2% reductions to Medicare payments through fiscalyear 2025. The Bipartisan Budget Act of 2018, enacted on February 9, 2018, extends the 2% reductions to Medicare paymentsthrough fiscal year 2027.Furthermore, under the Middle Class Tax Relief and Job Creation Act of 2012 (“MCTRA”), since October 1, 2012, patients whomet or exceeded $3,700 in therapy expenditures during a calendar year have been subject to a manual medical review to determinewhether applicable payment criteria are satisfied. The $3,700 threshold is applied to Physical Therapy and Speech LanguagePathology Services; a separate $3,700 threshold is applied to the Occupational Therapy. The MACRA directed CMS to modify themanual medical review process such that those reviews will no longer apply to all claims exceeding the $3,700 threshold and insteadwill be determined on a targeted basis based on a variety of factors that CMS considers appropriate. The Bipartisan Budget Act of2018 extends the targeted medical review indefinitely, but reduces the threshold to $3,000 through December 31, 2027. For 2028, thethreshold amount will be increased by the percentage increase in the Medicare Economic Index (“MEI”) for 2028 and in subsequentyears the threshold amount will increase based on the corresponding percentage increase in the MEI for such subsequent year.CMS adopted a multiple procedure payment reduction (“MPPR”) for therapy services in the final update to the MPFS forcalendar year 2011. The MPPR applied to all outpatient therapy services paid under Medicare Part B — occupational therapy,physical therapy and speech-language pathology. Under the policy, the Medicare program pays 100% of the practice expensecomponent of the Relative Value Unit (“RVU”) for the therapy procedure with the highest practice expense RVU, then reduces thepayment for the practice expense component for the second and subsequent therapy procedures or units of service furnished duringthe same day for the same patient, regardless of whether those therapy services are furnished in separate sessions. Since 2013, thepractice expense component for the second and subsequent therapy service furnished during the same day for the same patient wasreduced by 50%. In addition, the MCTRA directed CMS to implement a claims-based data collection program to gather additionaldata on patient function during the course of therapy in order to better understand patient conditions and outcomes. All practicesettings that provide outpatient therapy services are required to include this data on the claim form. Since 2013, therapists have beenrequired to report new codes and modifiers on the claim form that reflect a patient’s functional limitations and goals at initialevaluation, periodically throughout care, and at discharge. Reporting of these functional limitation codes and modifiers are requiredon the claim for payment.Medicare claims for outpatient therapy services furnished by therapy assistants on or after January 1, 2022 must include amodifier indicating the service was furnished by a therapy assistant. CMS is required to develop a modifier to mark services providedby a therapy assistant by January 1, 2019, and then submitted claims have to report the modifier mark starting January 1, 2020.Outpatient therapy services furnished on or after January 1, 2022 in whole or part by a therapy assistant will be paid at an amountequal to 85% of the payment amount otherwise applicable for the service.Statutes, regulations, and payment rules governing the delivery of therapy services to Medicare beneficiaries are complex andsubject to interpretation. We believe that we are in compliance in all material respects with all applicable laws and regulations and isnot aware of any pending or threatened investigations involving16TABLE OF CONTENTSallegations of potential wrongdoing that would have a material effect on our financial statements as of December 31, 2017.Compliance with such laws and regulations can be subject to future government review and interpretation, as well as significantregulatory action including fines, penalties, and exclusion from the Medicare program. For 2017, net patient revenue from Medicareaccounts for approximately $92.6 million.Given the history of frequent revisions to the Medicare program and its reimbursement rates and rules, we may not continue toreceive reimbursement rates from Medicare that sufficiently compensate us for our services or, in some instances, cover ouroperating costs. Limits on reimbursement rates or the scope of services being reimbursed could have a material adverse effect on ourrevenue, financial condition and results of operations. Additionally, any delay or default by the federal or state governments inmaking Medicare and/or Medicaid reimbursement payments could materially and, adversely, affect our business, financial conditionand results of operationsWe expect the federal and state governments to continue their efforts to contain growth in Medicaid expenditures, which couldadversely affect our revenue and profitability.Medicaid spending has increased rapidly in recent years, becoming a significant component of state budgets. This, combinedwith slower state revenue growth, has led both the federal government and many states to institute measures aimed at controlling thegrowth of Medicaid spending, and in some instances reducing aggregate Medicaid spending. We expect these state and federalefforts to continue for the foreseeable future. Furthermore, not all of the states in which we operate, most notably Texas, have electedto expand Medicaid as part of federal healthcare reform legislation. There can be no assurance that the program, on the current termsor otherwise, will continue for any particular period of time beyond the foreseeable future. If Medicaid reimbursement rates arereduced or fail to increase as quickly as our costs, or if there are changes in the rules governing the Medicaid program that aredisadvantageous to our businesses, our business and results of operations could be materially and adversely affected.Revenue we receive from Medicare and Medicaid is subject to potential retroactive reduction.Payments we receive from Medicare and Medicaid can be retroactively adjusted after examination during the claims settlementprocess or as a result of post-payment audits. Payors may disallow our requests for reimbursement, or recoup amounts previouslyreimbursed, based on determinations by the payors or their third-party audit contractors that certain costs are not reimbursablebecause either adequate or additional documentation was not provided or because certain services were not covered or deemed tonot be medically necessary. Significant adjustments, recoupments or repayments of our Medicare or Medicaid revenue, and the costsassociated with complying with investigative audits by regulatory and governmental authorities, could adversely affect our financialcondition and results of operations.Additionally, from time to time we become aware, either based on information provided by third parties and/or the results ofinternal audits, of payments from payor sources that were either wholly or partially in excess of the amount that we should have beenpaid for the service provided. Overpayments may result from a variety of factors, including insufficient documentation supportingthe services rendered or medical necessity of the services or other failures to document the satisfaction of the necessary conditionsof payment. We are required by law in most instances to refund the full amount of the overpayment after becoming aware of it, andfailure to do so within requisite time limits imposed by the law could lead to significant fines and penalties being imposed on us.Furthermore, our initial billing of and payments for services that are unsupported by the requisite documentation and satisfaction ofany other conditions of payment, regardless of our awareness of the failure at the time of the billing or payment, could expose us tosignificant fines and penalties. We, and/or certain of our operating companies, could also be subject to exclusion from participation inthe Medicare or Medicaid programs in some circumstances as well, in addition to any monetary or other fines, penalties or sanctionsthat we may incur under applicable federal and/or state law. Our repayment of any such amounts, as well as any fines, penalties orother sanctions that we may incur, could be significant and could have a material and adverse effect on our results of operations andfinancial condition.From time to time we are also involved in various external governmental investigations, audits and reviews. Reviews, audits andinvestigations of this sort can lead to government actions, which can result in the assessment of damages, civil or criminal fines orpenalties, or other sanctions, including restrictions or changes in the way we conduct business, loss of licensure or exclusion fromparticipation in government programs. Failure to17TABLE OF CONTENTScomply with applicable laws, regulations and rules could have a material and adverse effect on our results of operations and financialcondition. Furthermore, becoming subject to these governmental investigations, audits and reviews can also require us to incursignificant legal and document production expenses as we cooperate with the government authorities, regardless of whether theparticular investigation, audit or review leads to the identification of underlying issues.As a result of increased post-payment reviews of claims we submit to Medicare for our services, we may incur additional costsand may be required to repay amounts already paid to us.We are subject to regular post-payment inquiries, investigations and audits of the claims we submit to Medicare for payment forour services. These post-payment reviews have increased as a result of government cost-containment initiatives. These additionalpost-payment reviews may require us to incur additional costs to respond to requests for records and to pursue the reversal ofpayment denials, and ultimately may require us to refund amounts paid to us by Medicare that are determined to have been overpaid.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.An economic downturn, state budget pressures, sustained unemployment and continued deficit spending by the federalgovernment may result in a reduction in reimbursement and covered services.An economic downturn could have a detrimental effect on our revenues. Historically, state budget pressures have translatedinto reductions in state spending. Given that Medicaid outlays are a significant component of state budgets, we can expectcontinuing cost containment pressures on Medicaid outlays for our services in the states in which we operate. In addition, aneconomic downturn, coupled with sustained unemployment, may also impact the number of enrollees in managed care programs aswell as the profitability of managed care companies, which could result in reduced reimbursement rates.The existing federal deficit, as well as deficit spending by federal and state governments as the result of adverse developmentsin the economy or other reasons, can lead to continuing pressure to reduce governmental expenditures for other purposes, includinggovernment-funded programs in which we participate, such as Medicare and Medicaid. Such actions in turn may adversely affect ourresults of operations.We depend upon reimbursement by third-party payors.Substantially all of our revenues are derived from private and governmental third-party payors. In 2017, approximately 73.4% ofour revenues were derived collectively from managed care plans, commercial health insurers, workers’ compensation payors, andother private pay revenue sources while approximately 26.6% of our revenues were derived from Medicare and Medicaid. Initiativesundertaken by industry and government to contain healthcare costs affect the profitability of our clinics. These payors attempt tocontrol healthcare costs by contracting with healthcare providers to obtain services on a discounted basis. We believe that this trendwill continue and may limit reimbursement for healthcare services. If insurers or managed care companies from whom we receivesubstantial payments were to reduce the amounts they pay for services, our profit margins may decline, or we may lose patients if wechoose not to renew our contracts with these insurers at lower rates. In addition, in certain geographical areas, our clinics must beapproved as providers by key health maintenance organizations and preferred provider plans. Failure to obtain or maintain theseapprovals would adversely affect our financial results.In recent years, through legislative and regulatory actions, the federal government has made substantial changes to variouspayment systems under the Medicare program. See “Business — Sources of Revenue” in Item 1 for more information. PresidentObama signed into law comprehensive reforms to the healthcare system, including changes to Medicare reimbursement. Additionalreforms or other changes to these payment systems may be proposed or adopted, either by the U.S. Congress or by CMS, includingbundled payments, outcomes-based payment methodologies and a shift away from traditional fee-for-service reimbursement. Ifrevised regulations are adopted, the availability, methods and rates of Medicare reimbursements for services of the type furnished atour facilities could change. Some of these changes and proposed changes could adversely affect our business strategy, operationsand financial results.18TABLE OF CONTENTSWe face inspections, reviews, audits and investigations under federal and state government programs and contracts. These auditscould have adverse findings that may negatively affect our business.As a result of our participation in the Medicare and Medicaid programs, we are subject to various governmental inspections,reviews, audits and investigations to verify our compliance with these programs and applicable laws and regulations. Managed carepayors may also reserve the right to conduct audits. An adverse inspection, review, audit or investigation could result in:•refunding amounts we have been paid pursuant to the Medicare or Medicaid programs or from managed care payors;•state or federal agencies imposing fines, penalties and other sanctions on us;•temporary suspension of payment for new patients to the facility or agency;•decertification or exclusion from participation in the Medicare or Medicaid programs or one or more managed care payornetworks;•expansion of the scope of our Corporate Integrity Agreement;•damage to our reputation;•the revocation of a facility’s or agency’s license; and•loss of certain rights under, or termination of, our contracts with managed care payors.If adverse inspections, reviews, audits or investigations occur and any of the results noted above occur, it could have a materialadverse effect on our business and operating results.Our facilities are subject to extensive federal and state laws and regulations relating to the privacy of individually identifiableinformation.HIPAA required the HHS to adopt standards to protect the privacy and security of individually identifiable health-relatedinformation. The department released final regulations containing privacy standards in 2000 and published revisions to the finalregulations in 2002. The privacy regulations extensively regulate the use and disclosure of individually identifiable health-relatedinformation. The regulations also provide patients with significant rights related to understanding and controlling how their healthinformation is used or disclosed. The security regulations require healthcare providers to implement administrative, physical andtechnical practices to protect the security of individually identifiable health information that is maintained or transmittedelectronically. HITECH, which was signed into law in 2009, enhanced the privacy, security and enforcement provisions of HIPAA by,among other things establishing security breach notification requirements, allowing enforcement of HIPAA by state attorneysgeneral, and increasing penalties for HIPAA violations. Violations of HIPAA or HITECH could result in civil or criminal penalties.In addition to HIPAA, there are numerous federal and state laws and regulations addressing patient and consumer privacyconcerns, including unauthorized access or theft of personal information. State statutes and regulations vary from state to state.Lawsuits, including class actions and action by state attorneys general, directed at companies that have experienced a privacy orsecurity breach also can occur.The Company and its clinics have established policies and procedures in an effort to ensure compliance with these privacyrelated requirements. However, if there is a breach, we may be subject to various penalties and damages and may be required to incurcosts to mitigate the impact of the breach on affected individuals.In conducting our business, we are required to comply with applicable laws regarding fee-splitting and the corporate practice ofmedicine.Some states prohibit the “corporate practice of therapy” that restricts business corporations from providing physical therapyservices through the direct employment of therapists physicians or from exercising control over medical decisions by therapists. Thelaws relating to corporate practice vary from state to state and are not fully developed in each state in which we have facilities.Typically, however, professional corporations owned and controlled by licensed professionals are exempt from corporate practicerestrictions and may employ therapists to furnish professional services. Those professional corporations may be managed bybusiness corporations, such as the Company.19TABLE OF CONTENTSSome states also prohibit entities from engaging in certain financial arrangements, such as fee-splitting, with physicians ortherapists. The laws relating to fee-splitting also vary from state to state and are not fully developed. Generally, these laws restrictbusiness arrangements that involve a physician or therapist sharing medical fees with a referral source, but in some states, these lawshave been interpreted to extend to management agreements between physicians or therapists and business entities under somecircumstances.We believe that the Company’s current and planned activities do not constitute fee-splitting or the unlawful corporate practiceof medicine as contemplated by these state laws. However, there can be no assurance that future interpretations of such laws will notrequire structural and organizational modification of our existing relationships with the practices. If a court or regulatory bodydetermines that we have violated these laws or if new laws are introduced that would render our arrangements illegal, we could besubject to civil or criminal penalties, our contracts could be found legally invalid and unenforceable (in whole or in part), or we couldbe required to restructure our contractual arrangements with our affiliated physicians and other licensed providers.Failure to maintain effective internal control over our financial reporting could have an adverse effect on our ability to reportour financial results on a timely and accurate basis.We are required to produce our consolidated financial statements in accordance with the requirements of accounting principlesgenerally accepted in the United States of America. Effective internal control over financial reporting is necessary for us to providereliable financial reports, to help mitigate the risk of fraud and to operate successfully. We are required by federal securities laws todocument and test our internal control procedures in order to satisfy the requirements of the Sarbanes-Oxley Act of 2002, whichrequires annual management assessments of the effectiveness of our internal control over financial reporting.Testing and maintaining our internal control over financial reporting can be expensive and divert our management’s attentionfrom other matters that are important to our business. We may not be able to conclude on an ongoing basis that we have effectiveinternal control over financial reporting in accordance with applicable law, or our independent registered public accounting firm maynot be able to issue an unqualified attestation report if we conclude that our internal control over financial reporting is not effective.If we fail to maintain effective internal control over financial reporting, or our independent registered public accounting firm is unableto provide us with an unqualified attestation report on our internal control, we could be required to take costly and time-consumingcorrective measures, be required to restate the affected historical financial statements, be subjected to investigations and/orsanctions by federal and state securities regulators, and be subjected to civil lawsuits by security holders. Any of the foregoingcould also cause investors to lose confidence in our reported financial information and in our company and would likely result in adecline in the market price of our stock and in our ability to raise additional financing if needed in the future.We may be adversely affected by a security breach, such as a cyber attack, which may cause a violation of HIPAA or HITECHand subject us to potential legal and reputational harm.In the normal course of business, our information technology systems hold sensitive patient information including patientdemographic data and other protected health information, which is subject to HIPAA and HITECH. We also contract with third-partyvendors to maintain and store our patient’s individually identifiable health information. Numerous state and federal laws andregulations address privacy and information security concerns resulting from our access to our patient’s and employee’s personalinformation.Our information technology systems and those of our vendors that process, maintain, and transmit such data are subject tocomputer viruses, cyber attacks, or breaches. We adhere to policies and procedures designed to ensure compliance with HIPAA andother privacy and information security laws and require our third-party vendors to do so as well. If, however, we or our third-partyvendors experience a breach, loss, or other compromise of unsecured protected health information or other personal information,such an event could result in significant civil and criminal penalties, lawsuits, reputational harm, and increased costs to us, any ofwhich could have a material adverse effect on our financial condition and results of operations.Furthermore, while our information technology systems, and those of our third-party vendors, are maintained with safeguardsprotecting against cyber attacks. A cyber attack that bypasses our information technology security systems, or those of our third-party vendors, could result in a material adverse effect on our business, financial condition, results of operations, or cash flows. Inaddition, our future results could be adversely affected due to the theft, destruction, loss, misappropriation, or release of protectedhealth information, other confidential data or20TABLE OF CONTENTSproprietary business information, operational or business delays resulting from the disruption of information technology systemsand subsequent mitigation activities, or regulatory action taken as a result of such incident. We provide our employees training andregular reminders on important measures they can take to prevent breaches. We routinely identify attempts to gain unauthorizedaccess to our systems. However, given the rapidly evolving nature and proliferation of cyber threats, there can be no assurance ourtraining and network security measures or other controls will detect, prevent, or remediate security or data breaches in a timelymanner or otherwise prevent unauthorized access to, damage to, or interruption of our systems and operations. Accordingly, we maybe vulnerable to losses associated with the improper functioning, security breach, or unavailability of our information systems aswell as any systems used in acquired operations.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 goodrelations with these physicians and other referral sources. Physicians referring patients to our clinics are free to refer their patients toother therapy providers or to their own physician owned therapy practice. If we are unable to successfully cultivate and maintainstrong relationships with physicians and other referral sources, our business may decrease and our net operating revenues maydecline.We 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 tomaintain good relations with these physicians. Our therapists are the front line for generating these referrals and we are dependenton their talents and skills to successfully cultivate and maintain strong relationships with these physicians. If we cannot recruit andretain our base of experienced and clinically skilled therapists, our business may decrease and our net operating revenues maydecline. Periodically, we have clinics in isolated communities that are temporarily unable to operate due to the unavailability of atherapist who satisfies our standards.We may also experience increases in our labor costs, primarily due to higher wages and greater benefits required to attract andretain qualified healthcare personnel, and such increases may adversely affect our profitability. Furthermore, while we attempt tomanage overall labor costs in the most efficient way, our efforts to manage them may have limited effectiveness and may lead toincreased turnover and other challenges.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, asignificant number of our clinics are located in states along the Gulf Coast and Atlantic Coast which are subject to periodic winterstorms, hurricanes and other severe storm systems. Periods of severe weather may cause physical damage to our facilities or preventour staff or patients from traveling to our clinics, which may cause a decrease in our net operating revenues.We operate in a highly competitive industry.We encounter competition from local, regional or national entities, some of which have superior resources or other competitiveadvantages. Intense competition may adversely affect our business, financial condition or results of operations. For a more completedescription of this competitive environment, see “Business — Competition” in Item 1. An adverse effect on our business, financialcondition 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 toclose certain clinics. In the event a clinic is reorganized or closed, we may incur losses and closure costs. The closure costs andlosses may include, but are not limited to, lease obligations, severance, and write-down or write-off of goodwill and other intangibleassets.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. Acquisitionsmay involve significant cash expenditures, potential debt incurrence and operational losses,21TABLE OF CONTENTSdilutive issuances of equity securities and expenses that could have an adverse effect on our financial condition and results ofoperations. 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 failureto comply with healthcare regulations.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, consisting solely of independent directors, isauthorized to grant stock awards to our employees, directors and consultants. Shareholders will incur dilution upon the exercise ofany outstanding stock awards or the grant of any restricted stock. In addition, if we raise additional funds by issuing additionalcommon stock, or securities convertible into or exchangeable or exercisable for common stock, further dilution to our existingstockholders 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, 2017, we had reserved approximately 490,000 shares for future equity grants. 140,000 shares of common stockpursuant to our equity plans are registered for sale or resale on currently effective registration statements and have been approvedby stockholders. The remaining 350,000 shares have been approved by the stockholders and will be registered for sale or resale in2018. We may issue additional restricted securities or register additional shares of common stock under the Securities Act of 1933, asamended (the “Securities Act”), in the future. The issuance of a significant number of shares of common stock upon the exercise ofstock options or the availability for sale, or sale, of a substantial number of the shares of common stock eligible for future sale undereffective 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 thatchange would be beneficial to our stockholders.Certain provisions of our articles of incorporation and bylaws may delay, discourage, prevent or render more difficult an attemptto obtain control of our company, whether through a tender offer, business combination, proxy contest or otherwise. Theseprovisions include the charter authorization of “blank check” preferred stock and a restriction on the ability of stockholders to call aspecial meeting.ITEM 1B.UNRESOLVED STAFF COMMENTS.NoneITEM 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 clinic locations except inrare instances where leasing is not a cost-effective alternative. Our typical clinic occupies 1,600 to 3,000 square feet.We also lease our executive offices located in Houston, Texas, under a non-cancelable operating lease expiring in April 2022. Wecurrently lease approximately 40,777 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.22TABLE OF CONTENTSIn addition, on March 31, 2017, an alleged shareholder filed a putative class action lawsuit in the United States District Court forthe Southern District of New York (the “Court”) against the Company, chief executive officer Christopher J. Reading, chief financialofficer Lawrance C. McAfee and corporate controller Jon C. Bates, alleging, inter alia, that the defendants misstated or omitted tostate material information concerning the Company’s historical accounting for redeemable non-controlling interests of acquiredpartnerships, in alleged violation of Sections 10(b) and 20(a) of the Exchange Act. The complaint seeks a declaration that the action isa proper class action under Rule 23 of the Federal Rules of Civil Procedure, unspecified compensatory damages in an amount to bedetermined at trial and interest, costs and expenses. On June 26, 2017, the Court appointed a lead plaintiff in the matter. On July 31,2017, the lead plaintiff filed an amended complaint, alleging substantially the same violations and seeking substantially the sameunspecified damages. The amended complaint also names Glenn McDowell, the Company’s Chief Operating Officer, as an additionaldefendant. On December 1, 2017, the Company filed a Motion to Dismiss and subsequent filings related to the Motion to Dismisswere completed on February 7, 2018. The Motion to Dismiss is currently pending before the Court.While the ultimate outcome of lawsuits or other proceedings cannot be predicted with certainty, we do not believe the impact ofexisting 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.23TABLE OF CONTENTSPART IIITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES.PRICE QUOTATIONSOur common stock has traded on the New York Stock Exchange (“NYSE”) since August 14, 2012 under the symbol “USPH.”Prior to that, our common stock was traded on the Nasdaq Global Select Market under the symbol “USPH”. As of March 14, 2018,there were 65 holders of record of our outstanding common stock. The table below indicates the high and low sales prices of ourcommon stock reported for the periods presented. 20172016QuarterHighLowHighLowFirst$78.00 $62.60 $54.35 $45.62 Second 68.10 59.24 61.31 46.39 Third 66.80 56.50 64.89 57.76 Fourth 73.65 61.65 72.65 51.96 On March 6, 2018, the Board of Directors declared a dividend of $0.23 per share on all shares of common stock issued andoutstanding to those shareholders of record on March 21, 2018 payable on April 13, 2018. During 2017, we paid a regular quarterlydividend of $0.20 per share totaling $0.80 per share, which amounted to a total of aggregate cash payments of dividend to holders ofour common stock in 2017 of approximately $10.1 million. During 2016, we paid a regular quarterly dividend of $0.17 per share totaling$0.68 per share, which amounted to a total of aggregate cash payments of dividends to holders of our common stock in 2016 ofapproximately $8.5 million. During 2015, we paid a quarterly dividend of $0.15 per share totaling $0.60 per share for 2015, whichamounted to a total of aggregate cash payments of dividends to holders of our common stock in 2015 of approximately $7.4 million.We are currently restricted from paying dividends in excess of $20,000,000 in any fiscal year on our common stock under the CreditAgreement (as defined in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources”).FIVE YEAR PERFORMANCE GRAPHThe performance graph and related description shall not be deemed incorporated by reference into any filing under theSecurities Act or under the Exchange Act, except to the extent that the Company specifically incorporates this information byreference. In addition, the performance graph and the related description shall not be deemed “soliciting material” or “filed” with theSEC or subject to Regulation 14A or 14C.On August 14, 2012, our common stock began trading on NYSE. The following performance graph compares the cumulativetotal stockholder return of our common stock to The NYSE Composite Index and the NYSE Health Care Index for the period fromDecember 31, 2012 through December 31, 2017. The graph assumes that $100 was invested in our common stock and the commonstock of each of the companies listed on The NYSE Composite Index and The NYSE Health Care Index on December 31, 2012 and thatany dividends were reinvested.24TABLE OF CONTENTSComparison of Five Years Cumulative Total Return for the Year Ended December 31, 2017  12/1212/1312/1412/1512/1612/17U. S. Physical Therapy, Inc. 100 128 152 195 255 262 NYSE Composite 100 123 128 120 131 152 NYSE Healthcare Index 100 130 151 157 151 180 ITEM 6.SELECTED FINANCIAL DATA.The following selected financial data should be read in conjunction with the description of our critical accounting policies setforth in “Management’s Discussion and Analysis of Results of Operations and Financial Condition” and the Consolidated FinancialStatements and Notes included herein. For the Years Ended December 31, 20172016201520142013 ($ in thousands, except per share data)Net revenues$414,051 $356,546 $331,302 $305,074 $264,058 Operating income$54,728 $49,533 $47,294 $45,768 $38,770 Interest expense Mandatorily redeemable non-controlling interests - changein redemption value$12,894 $6,169 $2,670 $2,978 $1,222 Mandatorily redeemable non-controlling interests -earnings allocable$6,055 $4,057 $3,538 $3,388 $2,642 Debt and other$2,111 $1,252 $1,031 $1,088 $538 Total interest expense$21,060 $11,478 $7,239 $7,454 $4,402 Net income$27,724 $26,268 $26,489 $25,314 $22,981 Net income attributable to non-controlling interests$5,468 $5,717 $5,874 $6,183 $5,869 Net income attributable to USPH shareholders$22,256 $20,551 $20,615 $19,131 $17,112 25TABLE OF CONTENTS For the Years Ended December 31, 20172016201520142013 ($ in thousands, except per share data)Per share net income attributable to USPH shareholders: Basic and diluted$1.76 $1.64 $1.66 $1.57 $1.42 Dividends declared and paid per common share$0.80 $0.68 $0.60 $0.48 $0.40 On December 31, 20172016201520142013 ($ in thousands)Total assets$418,982 $351,231 $303,757 $268,377 $247,436 Mandatorily redeemable non-controlling interests$327 $69,190 $45,974 $40,371 $38,004 Long-term debt, less current portion$56,728 $50,596 $48,335 $34,734 $40,650 Working capital$37,530 $41,347 $41,193 $29,347 $26,488 Current ratio 1.95 2.68 3.17 2.15 2.14 ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS.EXECUTIVE SUMMARYOur Business. We operate outpatient physical therapy clinics that provide pre- and post-operative care and treatment for avariety of orthopedic-related disorders and sports-related injuries, neurologically-related injuries and rehabilitation of injuredworkers. At December 31, 2017, we operated 578 clinics in 41 states. The average age of our clinics at December 31, 2017 was 9.6years. In addition to our ownership and operation of outpatient physical therapy clinics, we also manage physical therapy facilitiesfor third parties, such as physicians and hospitals, with 32 such third-party facilities under management as of December 31, 2017.In March 2017, we acquired a 55% interest in a company which is a leading provider of workforce performance solutions.Services provided include onsite injury prevention and rehabilitation, performance optimization and ergonomic assessments. Themajority of these services are contracted with and paid for directly by employers including a number of Fortune 500 companies. Otherclients include large insurers and their contractors.During 2017, 2016 and 2015, we completed the following multi-clinic acquisitions:AcquisitionDate% InterestAcquiredNumber ofClinics 2017 January 2017 AcquisitionJanuary 1 70% 17 May 2017 AcquisitionMay 31 70% 4 June 2017 AcquisitionJune 30 60% 9 October 2017 AcquisitionOctober 31 70% 9 2016 February 2016 AcquisitionFebruary 29 55% 8 November 2016 AcquisitionNovember 30 60% 12 2015 January 2015 AcquisitionJanuary 31 60% 9 April 2015 AcquisitionApril 30 70% 3 June 2015 AcquisitionJune 30 70% 4 December 2015 AcquisitionDecember 31 59% 4 Also, during the year of 2017, we purchased the assets and business of two physical therapy clinics in separate transactions.One clinic was consolidated with an existing clinic and the other operates as a satellite clinic of one of the existing partnerships.26TABLE OF CONTENTSIn addition to the multi-clinic acquisitions, we acquired two single clinic practices in separate transactions during 2016. During2015, we acquired a 60% interest in a single clinic practice.The results of operations of the acquired clinics have been included in the Company’s consolidated financial statements sincethe date of their respective acquisition. The Company intends to continue to pursue additional acquisition opportunities, developnew clinics and open satellite clinics.CRITICAL ACCOUNTING POLICIESCritical accounting policies are those that have a significant impact on our results of operations and financial position involvingsignificant estimates requiring our judgment. Our critical accounting policies are:Revenue Recognition. Revenues are recognized in the period in which services are rendered. Net patient revenues (patientrevenues 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 forpayments to the Company at contracted amounts different from its established rates. The allowance for estimated contractualadjustments 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 performedand 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 multiplereimbursement mechanisms payable for the services provided in our clinics. We estimate contractual allowances based on ourinterpretation of the applicable regulations, payor contracts and historical calculations. Each month the Company estimates itscontractual allowance for each clinic based on payor contracts and the historical collection experience of the clinic and applies anappropriate contractual allowance reserve percentage to the gross accounts receivable balances for each payor of the clinic. Basedon our historical experience, calculating the contractual allowance reserve percentage at the payor level is sufficient to allow us toprovide the necessary detail and accuracy with our collectability estimates. However, the services authorized and provided andrelated reimbursement are subject to interpretation that could result in payments that differ from our estimates. Payor terms areperiodically revised necessitating continual review and assessment of the estimates made by management. Our billing systems maynot capture the exact change in our contractual allowance reserve estimate from period to period. Therefore, in order to assess theaccuracy of our revenues and hence our contractual allowance reserves, our management regularly compares its cash collections tocorresponding net revenues measured both in the aggregate and on a clinic-by-clinic basis. In the aggregate, the historical differencebetween net revenues and corresponding cash collections has generally reflected a difference within approximately 1% of netrevenues. Additionally, analysis of subsequent period’s contractual write-offs on a payor basis reflects a difference withinapproximately 1% between the actual aggregate contractual reserve percentage as compared to the estimated contractual allowancereserve percentage associated with the same period end balance. As a result, we believe that a reasonable likely change in thecontractual allowance reserve estimate would not be more than 1% at December 31, 2017. For purposes of demonstrating thesensitivity of this estimate on the Company’s financial condition, a one percent increase or decrease in our aggregate contractualallowance reserve percentage would decrease or increase, respectively, net patient revenue by approximately $1,084,700 for the yearended December 31, 2017. Management believes the changes in the estimate of the contractual allowance reserve for the periodsended December 31, 2017, 2016 and 2015 have not been material to the statement of income.The following table sets forth information regarding our patient accounts receivable as of the dates indicated (in thousands): December 31, 20172016Gross patient accounts receivable$108,667 $90,145 Less contractual allowances 61,687 49,513 Subtotal - accounts receivable 46,980 40,632 Less allowance for doubtful accounts 2,273 1,792 Net patient accounts receivable$44,707 $38,840 27TABLE OF CONTENTSThe following table presents our patient accounts receivable aging by payor class as of the dates indicated (in thousands): December 31, 2017December 31, 2016PayorCurrentto120 Days120+DaysTotalCurrentto120 Days120+DaysTotalManaged Care/ Commercial Plans$15,150 $2,120 $17,270 $13,906 $1,939 $15,845 Medicare/Medicaid 10,021 1,511 11,532 8,252 1,201 9,453 Workers Compensation* 7,767 1,243 9,010 7,550 1,107 8,657 Self-pay 3,837 3,185 7,022 2,709 2,469 5,178 Other** 1,586 560 2,146 1,212 287 1,499 Totals$38,361 $8,619 $46,980 $33,629 $7,003 $40,632 *Workers compensation is paid by state administrators or their designated agents.**Other includes primarily litigation claims and, to a lesser extent, vehicular insurance claims.Reimbursement for Medicare beneficiaries is based upon a fee schedule published by HHS. For a more complete description ofour third party revenue sources, see “Business — Sources of Revenue” in Item 1.Provision for Doubtful Accounts. We determine our provision for doubtful accounts based on the specific agings and payorclassifications at each clinic. We review the accounts receivable aging and rely on prior experience with particular payors todetermine an appropriate reserve for doubtful accounts. Historically, clinics that have a large number of aged accounts generallyhave less favorable collection experience, and thus, require a higher provision. Accounts that are ultimately determined to beuncollectible are written off against our bad debt provision. The amount of our aggregate provision for doubtful accounts is regularlyreviewed 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 andliabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amountsof existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differencesare expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized inincome in the period that includes the enactment date. The Company recognizes the financial statement benefit of a tax position onlyafter determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positionsmeeting the more-likely-than-not threshold, the amount to be recognized in the financial statements is the largest benefit that has agreater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.The Tax Cuts and Jobs Act of 2017 (the “TCJA”) was passed by Congress on December 20, 2017 and signed into law byPresident Trump on December 22, 2017. The TCJA makes significant changes to U.S. corporate income tax laws including a decreasein the corporate income tax rate to 21% effective January 1, 2018. As a result, we revalued our deferred tax assets and liabilities. Basedon a review and analysis as of December 31, 2017, we estimated a reduction our net deferred tax liabilities by $4.3 million therebyreducing our provision for income taxes by such amount for the 2017 year.We do not believe that we have any significant uncertain tax positions at December 31, 2017, nor is this expected to changewithin the next twelve months due to the settlement and expiration of statutes of limitation.We did not have any accrued interest or penalties associated with any unrecognized tax benefits nor was any interest expenserecognized during the twelve months ended December 31, 2017 and 2016.Carrying Value of Long-Lived Assets. Our property and equipment, intangible assets and goodwill (collectively, our “long-livedassets”) comprise a significant portion of our total assets. The accounting standards require that we periodically, and upon theoccurrence of certain events, assess the recoverability of our long-lived assets. If the carrying value of our property and equipmentexceeds their undiscounted cash flows, we are required to write the carrying value down to estimated fair value.28TABLE OF CONTENTSGoodwill. The fair value of goodwill and other intangible assets with indefinite lives are tested for impairment annually andupon the occurrence of certain events, and are written down to fair value if considered impaired. We evaluate goodwill for impairmenton at least an annual basis (in the third quarter) by comparing the fair value of its reporting units to the carrying value of eachreporting unit including related goodwill. The Company evaluates indefinite lived tradenames using the relief from royalty method inconjunction with its annual goodwill impairment test. We operate a one segment business which is made up of various clinics withinpartnerships. The partnerships are components of regions and are aggregated to that operating segment level for the purpose ofdetermining reporting units when performing the annual goodwill impairment test. In 2017, 2016 and 2015, we had six regions. Inaddition to the six regions, in 2017, the impairment test included a separate analysis for the workforce performance solutionsbusiness.An impairment loss generally would be recognized when the carrying amount of the net assets of a reporting unit, inclusive ofgoodwill and other intangible assets, exceeds the estimated fair value of the reporting unit. The estimated fair value of a reportingunit is determined using two factors: (i) earnings prior to taxes, depreciation and amortization for the reporting unit multiplied by aprice/earnings ratio used in the industry and (ii) a discounted cash flow analysis. A weight is assigned to each factor and the sum ofeach weight times the factor is considered the estimated fair value. For 2017, the factors (i.e., price/earnings ratio, discount rate andresidual capitalization rate) were updated to reflect current market conditions. The evaluation of goodwill in 2017, 2016 and 2015 didnot result in any goodwill amounts that were deemed impaired. In 2017, the Company wrote off the goodwill of $0.5 million related tothe closure of a single clinic acquired partnership due to the loss of a significant management contract.Redeemable Non-Controlling Interests – The non-controlling interests that are reflected as redeemable non-controllinginterests in the consolidated financial statements consist of those owners and the Company who have certain redemption rights,whether currently exercisable or not, and which currently, or in the future, require that we purchase or the owner sell the non-controlling interest held by the owner, if certain conditions are met and the owners request the purchase (“Put Right”). We also havea call right (“Call Right”). The Put Right or Call Right may be triggered by the owner or us, respectively, at such time as both of thefollowing events have occurred: 1) termination of the owner’s employment, regardless of the reason for such termination, and 2) thepassage of specified number of years after the closing of the transaction, typically three to five years, as defined in the limitedpartnership agreement. The Put Rights and Call Rights are not automatic (even upon death) and require either the owner or us toexercise our rights when the conditions triggering the Put or Call Rights have been satisfied. The purchase price is derived at apredetermined formula based on a multiple of trailing twelve months earnings performance as defined in the respective limitedpartnership agreements.On the date we acquire a controlling interest in a partnership and the limited partnership agreement for such partnershipscontains redemption rights not under the control of the Company, the fair value of the non-controlling interest is recorded in theconsolidated balance sheet under the caption – Redeemable non-controlling interests. Then, in each reporting period thereafter untilit is purchased by the Company, the redeemable non-controlling interest is adjusted to the greater of its then current redemptionvalue or initial value, based on the predetermined formula defined in the respective limited partnership agreement. As a result, thevalue of the non-controlling interest is not adjusted below its initial value. The Company records any adjustment in the redemptionvalue, net of tax, directly to retained earnings and are not reflected in the consolidated statements of income. Although theadjustments are not reflected in the consolidated statements of income, current accounting rules require that the Company reflectsthe adjustments, net of tax, in the earnings per share calculation. The amount of net income attributable to redeemable non-controlling interest owners is included in consolidated net income on the face of the consolidated income statement. Managementbelieves the redemption value (i.e. the carrying amount) and fair value are the same.Mandatorily Redeemable Non-Controlling Interests – The non-controlling interests that were reflected as mandatorilyredeemable non-controlling interests in the consolidated financial statements are subject to Required Redemption (as defined inFootnote 5 – Mandatorily Redeemable Non-Controlling Interest), whether currently exercisable or not, and which currently, or in thefuture, require that we purchase the non-controlling interest of those owners at a predetermined formula based on a multiple oftrailing twelve months earnings performance as defined in the respective limited partnership agreements. The Required Redemption istriggered at such time as both of the following events have occurred: 1) termination of the holder’s employment with NewCo (asdefined29TABLE OF CONTENTSin Footnote 5– Mandatorily Redeemable Non-Controlling Interest), regardless of the reason for such termination, and 2) the passageof specified number of years after the closing of the transaction, typically three to five years, as defined in the applicable limitedpartnership agreement.Effective December 31, 2017, we entered into amendments to our limited partnership agreements for our acquired partnershipsreplacing the mandatory redemption feature. No monetary consideration was paid to the partners to amend the agreements. Theamended limited partnership agreements provide that, upon the triggering events, we have a Call Right and the selling entity orindividual has a Put Right for the purchase and sale of the limited partnership interest held by the partner. Once triggered, the PutRight and the Call Right do not expire, even upon an individual partner’s death, and contain no mandatory redemption feature. Thepurchase price of the partner’s limited partnership interest upon the exercise of either the Put Right or the Call Right is calculated perthe terms of the respective agreements. We accounted for the amendment of the limited partnership agreements as an extinguishmentof the outstanding mandatorily redeemable non-controlling interests, which were classified as liabilities, through the issuance of newredeemable non-controlling interests classified in temporary equity. Pursuant to Accounting Standards Codification (“ASC”) 470-50-40-2, we removed the outstanding liabilities at their carrying amounts, recognized the new temporary equities at their fair value, andrecorded no gain or loss on extinguishment as management believes the redemption value (i.e. the carrying amount) and fair value arethe same. In summary, the redemption values of the mandatorily redeemable non-controlling interest (previously classified asliabilities) were reclassified as redeemable non-controlling interest (temporary equity) at fair value on the December 31, 2017consolidated balance sheet. The remaining balance of $327,000 in the line item – Mandatorily redeemable non-controlling interests –relates to one limited partnership agreement that was not amended as the non-controlling interest was purchased by the Company inJanuary 2018.Non-Controlling Interests – We recognize non-controlling interests, in which we have no obligation but the right to purchasethe non-controlling interests, as equity in the consolidated financial statements separate from the parent entity’s equity. The amountof net income attributable to non-controlling interests is included in consolidated net income on the face of the consolidatedstatements of income. Operating losses are allocated to non-controlling interests even when such allocation creates a deficit balancefor the non-controlling interest partner. When we purchase a non-controlling interest and the purchase price exceeds the book valueat the time of purchase, any excess or shortfall is recognized as an adjustment to additional paid-in capital.SELECTED OPERATING AND FINANCIAL DATAThe following table and discussion relates to continuing operations unless otherwise noted. The defined terms with theirrespective description used in the following discussion are listed below:2017Year ended December 31, 20172016Year ended December 31, 20162015Year ended December 31, 2015New ClinicsClinics opened or acquired during the year ended December 31, 2017Mature ClinicsClinics opened or acquired prior to January 1, 20172016 New ClinicsClinics opened or acquired during the year ended December 31, 20162016 Mature ClinicsClinics opened or acquired prior to January 1, 20162015 New ClinicsClinics opened or acquired during the year ended December 31, 20152015 Mature ClinicsClinics opened or acquired prior to January 1, 20152014 New ClinicsClinics opened or acquired during the year ended December 31, 2014The following table presents selected operating and financial data, used by management as key indicators of our operatingperformance: For the Years Ended December 31, 201720162015Number of clinics, at the end of period 578 540 508 Working Days 254 255 255 Average visits per day per clinic 25.9 25.0 24.1 Total patient visits 3,705,226 3,316,729 3,080,166 Net patient revenue per visit$105.05 $105.18 $105.28 30TABLE OF CONTENTSRESULTS OF OPERATIONSFISCAL YEAR 2017 COMPARED TO FISCAL 2016•Net revenues increased 16.1% from $356.5 million in 2016 to $414.1 million in 2017, primarily due to an increase in totalpatient visits of 11.7% from 3,317,000 to 3,705,000, higher revenues from management contracts and revenues from theworkforce performance solutions business acquired in March 2017.•For the year ended December 31, 2017, Operating Results increased 7.7% to $26.2 million as compared to $24.3 million in2016. Diluted earnings per share from Operating Results was $2.08 in 2017 as compared to $1.94 in 2016. Operating Results,a non-generally accepted accounting principles (“non-GAAP”) measure, are defined as net income attributable to commonshareholders prior to interest expense – mandatorily redeemable non-controlling interests – change in redemption valueand costs related to restatement of financials, both net of tax, and the tax benefit of revaluation of deferred tax assets andliabilities due to the TCJA. See table below.•For the year ended December 31, 2017, our net income attributable to our shareholders, in accordance with generallyaccepted accounting principles (“GAAP”), was $22.3 million, or $1.76 per diluted share, as compared to $20.6 million, or$1.64 per diluted share, for the 2016 year. Included in the quarter and year ended December 31, 2017 is a tax benefit of $4.3million related to the revaluation of deferred tax assets and liabilities due to the TCJA. See table below. Year Ended December 31, 20172016Computation of basic and diluted net income attributable to USPH shareholders per share: Net income attributable to USPH shareholders$22,256 $20,551 Charges to additional paid-in capital: Revaluation of redeemable non-controlling interest (201) — Tax effect at statutory rate (federal and state) of 39.25% 75 — $22,130 $20,551 Basic and diluted net income attributable to USPH shareholders per share$1.76 $1.64 Adjustments to determine operating results: Tax benefit - revaluation of deferred tax assets and liabilities (4,325) — Interest expense MRNCI* - change in redemption value 12,894 6,169 Costs related to restatement of financials - legal and accounting 670 — Revaluation of redeemable non-controlling interest 201 — Tax effect at statutory rate (federal and state) of 39.25% (5,405) (2,421) Operating results$26,165 $24,299 Basic and diluted operating results per share$2.08 $1.94 Shares used in computation: Basic and diluted 12,570 12,500 *Mandatorily redeemable non-controlling interestsThe above table details the calculation of basic and diluted earnings per share attributable to our shareholders and reconcilesnet income attributable to our shareholders calculated in accordance with GAAP to Operating Results, a non-GAAP measure definedabove. We believe providing Operating Results to investors is31TABLE OF CONTENTSuseful information for comparing the Company’s period-to-period results. We use Operating Results, which eliminates the MRNCI –change in redemption which is a current non-cash item that can be subject to volatility and unusual costs, as one of the principalmeasures to evaluate and monitor financial performance period over period. We believe that Operating Results is useful informationfor investors to use in comparing the Company’s period-to-period results as well as for comparing with other similar businesses sincemost do not have mandatorily redeemable instruments and therefore have different liability and equity structures. Operating Resultsis not a measure of financial performance under generally accepted accounting principles and this measurement should not beconsidered in isolation or an alternative to, or substitute for, net income attributable to our shareholders presented in ourconsolidated financial statements.Net Patient Revenues•Net patient revenues increased to $389.2 million for 2017 from $348.8 million for 2016, an increase of $40.4 million, or 11.6%.The increase in net patient revenues of $40.4 million consisted of an increase of $19.3 million from New Clinics and $21.1million from Mature Clinics. During 2017, we acquired four multi-clinic groups for a total of 39 clinics. The net patientrevenues from these multi-clinic groups are included in our results of operations since the respective date of theiracquisition. See above table under “— Executive Summary” detailing our multi-clinic acquisitions.•Total patient visits increased to 3,705,000 for 2017 from 3,317,000 for 2016. The growth in patient visits was attributable to229,000 visits in New Clinics and an increase of 159,000 visits for Mature Clinics primarily due to 2016 New Clinics.•The average net patient revenue per visit slightly decreased to $105.05 in 2017 from $105.18 in 2016.Net patient revenues are based on established billing rates less allowances and discounts for patients covered by contractualprograms and workers’ compensation. Net patient revenues reflect contractual and other adjustments, which we evaluate monthly,relating to patient discounts from certain payors. Payments received under these contractual programs and workers’ compensationare based on predetermined rates and are generally less than the established billing rates of the clinics.Other RevenuesOther revenues, consisting primarily of management fees and workforce performance business solutions revenue, increased by$17.1 million, from $7.7 million in 2016 to $24.8 million in 2017. The revenues from the recently acquired workforce performancesolutions business were $14.9 million for the ten months of operations in 2017. Revenues from management contracts were $7.4million as compared to $5.5 million for 2016. Other miscellaneous revenue was $2.5 million for 2017 and $2.2 million for 2016.Operating CostsOperating costs were $323.4 million, or 78.1% of net revenues, for 2017 and $274.5 million, or 77.0% of net revenues, for 2016.The increase was attributable to $17.3 million in operating costs for New Clinics, an additional $15.6 million related to a full year ofactivity in 2017 for 2016 New Clinics, $12.9 million related to the addition of the workforce performance solutions business, $2.6million related to 2016 Mature Clinics and an additional $0.5 million in closure costs. The 2017 closure costs are primarily due to theclosure of a single clinic acquired partnership due to the loss of a significant management contract. (See table detailing acquisitiondates above under – “Executive Summary”). Each component of clinic operating costs is discussed below:Operating Costs—Salaries and Related CostsSalaries and related costs increased to $237.1 million for 2017 from $198.5 million for 2016, an increase of $38.6 million, or 19.4%.Approximately $14.2 million of the increase was attributable to New Clinics, $11.6 million of the increase was due to higher costs atvarious 2016 New Clinics due to a full year of activity, $10.6 million was due to the ten months of activity for the workforceperformance solutions business and higher costs of $2.2 million at 2016 Mature Clinics. Salaries and related costs as a percentage ofnet revenues was 57.3% for 2017 and 55.7% for 2016.Operating Costs—Rent, Supplies, Contract Labor and OtherRent, supplies, contract labor and other costs increased to $82.1 million for 2017 from $71.9 million for 2016, an increase of $10.2million, or 14.2%. For 2017, New Clinics accounted for approximately $5.9 million32TABLE OF CONTENTSof the increase, workforce performance solutions business accounted for approximately $2.3 million and 2016 New Clinics accountedfor approximately $4.2 million of the increase due to a full year of activity. Rent, supplies, contract labor and other costs for 2016Mature Clinics decreased $2.2 million in 2017 as compared to 2016. Rent, supplies, contract labor and other costs as a percent of netrevenues was 19.8% for 2017 and 20.2% for 2016.Operating Costs—Provision for Doubtful AccountsThe provision for doubtful accounts for net patient receivables was $3.7 million for 2017 and $4.0 million for 2016. As apercentage of net patient revenues, the provision for doubtful accounts was 0.9% for 2017 and 1.1% for 2016.Our provision for doubtful accounts as a percentage of total patient accounts receivable was 4.9% at December 31, 2017 and4.4% at December 31, 2016. The provision for doubtful accounts at the end of each period is based on a detailed, clinic-by-clinicreview of overdue accounts and is regularly reviewed in the aggregate in light of historical experience.The average accounts receivable days outstanding were 36 days for December 31, 2017 and for December 31, 2016. Net patientreceivables in the amount of $3.3 million and $3.6 million were written-off in 2017 and 2016, respectively.Closure CostsFor 2017 and 2016, closure costs amounted to $599,000 and $131,000, respectively. As previously mentioned, the 2017 closurecosts are primarily due to the closure of a single clinic acquired partnership due to the loss of a significant management contract.Gross ProfitThe gross profit for 2017 was $90.6 million, or 21.9% of net revenue, as compared to $82.0 million, or 23.0% of net revenue, for2016. The gross profit percentage for the Company’s physical therapy clinics was 22.0% in 2017 as compared to 23.0% a year earlier.The gross profit percentage on management contracts was 14.9% in the 2017 as compared to 14.7% in 2016. The gross profitpercentage for the recently acquired workforce performance solutions business was 13.3%.Corporate Office CostsCorporate office costs, consisting primarily of salaries, benefits and equity based compensation of corporate office personneland directors, rent, insurance costs, depreciation and amortization, travel, legal, compliance, professional, marketing and recruitingfees, were $35.9 million for 2017 and $32.5 million for 2016. The dollar increase is primarily due to increases in salaries, benefits andequity based compensation. Corporate office costs as a percentage of net revenues were 8.7% for 2017 and 9.1% in 2016.Interest Expense – mandatorily redeemable non-controlling interest – change in redemption value.Interest Expense – mandatorily redeemable non-controlling interest – change in redemption value increased to $12.9 million for2017 from $6.2 million in 2016. The change in redemption value for acquired partnerships is based on the redemption amount (which isderived from a formula based on a specified multiple times the underlying business’ trailing twelve months of earnings beforeinterest, taxes, depreciation, amortization and our internal management fee) at the end of the reporting period compared to the end ofthe previous period. This change is primarily related to an increase in the profitability and underlying value of the Company’spartnerships compared to the respective prior year end.Interest Expense – mandatorily redeemable non-controlling interest – earnings allocable.Interest Expense – mandatorily redeemable non-controlling interest – earnings allocable represent the portion of earningsallocable to the holders of the mandatorily redeemable non-controlling interest. This expense increased to $6.1 million in 2017 ascompared to $4.1 million in 2016. The increase is the result of new business acquisitions and increased performance of existingbusinesses.33TABLE OF CONTENTSInterest Expense – debt and otherInterest expense – debt and other was $2.1 million for 2017 and $1.3 million for 2016. At December 31, 2017, $54.0 million wasoutstanding under our Amended Credit Agreement (as defined below under “— Liquidity and Capital Resources”). See “— Liquidityand Capital Resources” below for a discussion of the terms of our Amended Credit Agreement.Provision for Income TaxesThe provision for income taxes was $6.0 million for 2017 and $11.9 million for 2016. Included in 2017 is an estimated tax benefit of$4.3 million due to the revaluation of deferred tax assets and liabilities, as previously discussed. The provision for income taxes, priorto the $4.3 million tax benefit, as a percentage of income before taxes less net income attributable to non-controlling interest was36.6% in 2017 and in 2016. The reconciliation of the 2016 federal and state returns to our book provision was $312,000 which isincluded in the 2017 provision. The reconciliation of the 2015 federal and state returns to our book provision was $34,000 which isincluded in the 2016 provision.Net Income Attributable to Non-controlling InterestsNet income attributable to non-controlling interests was $5.5 million in 2017 and $5.7 million in 2016. Net income attributable tonon-controlling interests (permanent equity) was $5.2 million in 2017 as compared to $5.7 million in 2016. Net income attributable toredeemable non-controlling interests (temporary equity) was $0.2 million in 2017.FISCAL YEAR 2016 COMPARED TO FISCAL 2015•Net revenues rose 7.6 % to $356.5 million for 2016 from $331.3 million for 2015 primarily due to increases in net patientrevenues which are discussed in detail below.•Operating results was $24.3 million in 2016, or $1.94 per diluted share, and $22.2 million in 2015, or $1.79 per diluted share.For the year ended December 31, 2016, our net income attributable to our shareholders, in accordance GAAP, was $20.6million, or $1.64 per diluted share, as compared to $20.6 million, or $1.66 per diluted share, for the 2015 year. The followingtables detail these computation: Year Ended December 31, 20162015Computation of basic and diluted net income attributable to USPH shareholders per share: Net income attributable to USPH shareholders$20,551 $20,615 Basic and diluted net income attributable to USPH shareholders per share$1.64 $1.66 Adjustments to determine operating results: Interest expense MRNCI* - change in redemption value 6,169 2,670 Tax effect at statutory rate (federal and state) of 39.25% (2,421) (1,048) Operating results$24,299 $22,237 Basic and diluted operating results per share$1.94 $1.79 Shares used in computation: Basic and diluted 12,500 12,392 *Mandatorily redeemable non-controlling interests34TABLE OF CONTENTSThe above tables detail the calculation of basic and diluted earnings per share attributable to our shareholders and reconcilesnet income attributable to our shareholders calculated in accordance with GAAP to Operating Results, a non-GAAP measure definedabove. We believe providing Operating Results to investors is useful information for comparing the Company’s period-to-periodresults. We use Operating Results, which eliminates the MRNCI – change in redemption which is a current non-cash item that can besubject to volatility and unusual costs, as one of the principal measures to evaluate and monitor financial performance period overperiod. We believe that Operating Results is useful information for investors to use in comparing the Company’s period-to-periodresults as well as for comparing with other similar businesses since most do not have mandatorily redeemable instruments andtherefore have different liability and equity structures. Operating results is not a measure of financial performance under generallyaccepted accounting principles and this measurement should not be considered in isolation or an alternative to, or substitute for, netincome attributable to our shareholders presented in our consolidated financial statements.Net Patient Revenues•Net patient revenues increased to $348.8 million for 2016 from $324.3 million for 2015, an increase of $24.5 million, or 7.6%.The increase in net patient revenues of $24.5 million consisted of an increase of $12.8 million from 2016 New Clinics and$11.7 million from 2016 Mature Clinics of which $15.1 million was related to 2015 New Clinics offset by a decrease of $3.4million related to 2015 Mature Clinics. During 2016, we acquired two multi-clinic groups for a total of 20 clinics. The netpatient revenues from these multi-clinic groups are included in our results of operations since the respective date of theiracquisition. See above table under “— Executive Summary” detailing our multi-clinic acquisitions.•Total patient visits increased to 3,316,800 for 2016 from 3,080,200 for 2015. The growth in patient visits was attributable to102,800 visits in 2016 New Clinics primarily due to the acquisitions in 2016 and an increase of 133,800 visits for 2016 MatureClinics primarily due to 2015 New Clinics.•The average net patient revenue per visit slightly decreased to $105.18 in 2016 from $105.28 in 2015.Net patient revenues are based on established billing rates less allowances and discounts for patients covered by contractualprograms 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 aregenerally less than the established billing rates of the clinics.Other RevenuesOther revenues, consisting primarily of management fees, increased by $0.7 million, from $7.0 million in 2015 to $7.7 million in2016.Operating CostsOperating costs were $274.5 million, or 77.0% of net revenues, for 2016 and $252.9 million, or 76.3% of net revenues, for 2015.The increase was attributable to $10.9 million in operating costs for 2016 New Clinics, an increase in operating costs of $11.2 millionfor 2015 New Clinics, due to a full year of activity (see table detailing acquisition dates above under – “Executive Summary”), and andecrease of $0.5 million for 2014 Mature Clinics. Each component of clinic operating costs is discussed below:Operating Costs—Salaries and Related CostsOperating Costs—Salaries and Related CostsSalaries and related costs increased to $198.5 million for 2016 from $180.5 million for 2015, an increase of $18.0 million, or 10.0%.Approximately $7.6 million of the increase was attributable to 2016 New Clinics, $8.0 million of the increase was due to a higher costsat various 2015 New Clinics due to a full year of activity and higher costs of $2.4 million at 2014 Mature Clinics. Salaries and relatedcosts as a percentage of net revenues was 55.7% for 2016 and 54.5% for 2015.Operating Costs—Rent, Supplies, Contract Labor and OtherRent, supplies, contract labor and other costs increased to $71.9 million for 2016 from $68.0 million for 2015, an increase of $3.9million, or 5.6%. For 2016, 2016 New Clinics accounted for approximately35TABLE OF CONTENTS$3.1 million of the increase and 2015 New Clinics accounted for approximately $3.2 million of the increase due to a full year of activity.Rent, supplies, contract labor and other costs for 2015 Mature Clinics decreased $2.4 million in 2016 as compared to 2015. Rent,supplies, contract labor and other costs as a percent of net revenues was 20.2% for 2016 and 20.5% for 2015.Operating Costs—Provision for Doubtful AccountsThe provision for doubtful accounts for net patient receivables was $4.0 million for 2016 and $4.2 million for 2015. As apercentage of net patient revenues, the provision for doubtful accounts was 1.1% for 2016 and 1.3% for 2015.Our provision for doubtful accounts as a percentage of total patient accounts receivable was 4.4% at December 31, 2016 and3.8% at December 31, 2015. The provision for doubtful accounts at the end of each period is based on a detailed, clinic-by-clinicreview of overdue accounts and is regularly reviewed in the aggregate in light of historical experience.The average accounts receivable days outstanding were 36 days for December 31, 2016 and for December 31, 2015. Net patientreceivables in the amount of $3.6 million and $4.4 million were written-off in 2016 and 2015, respectively.Closure CostsFor 2016 and 2015, closure costs amounted to $131,000 and $211,000, respectively.Gross ProfitIn 2016, the gross profit (net revenues less total clinic operating costs) increased by 4.7% to $82.0 million from $78.4 million in2015. The gross profit percentage for 2016 was 23.0% as compared to 23.7% for 2015.Corporate Office CostsCorporate office costs, consisting primarily of salaries, benefits and equity based compensation of corporate office personneland directors, rent, insurance costs, depreciation and amortization, travel, legal, compliance, professional, marketing and recruitingfees, were $32.5 million for 2016 and $31.1 million for 2015. The dollar increase is primarily due to increases in salaries, benefits andequity based compensation. Corporate office costs as a percentage of net revenues were 9.1% for 2016 and 9.4% in 2015.Interest Expense – mandatorily redeemable non-controlling interest – change in redemption value.Interest Expense – mandatorily redeemable non-controlling interest – change in redemption value increased to $6.2 million forthe year 2016 from $2.7 million in 2015. This increase is primarily due to the increased earnings performance of the underlyingbusinesses. The change in redemption value is based on the redemption amount (which is derived from a formula based on aspecified multiple times the underlying business’ trailing twelve months of earnings before interest, taxes, depreciation, amortizationand our internal management fee) at the end of the reporting period compared to the end of the previous period.Interest Expense – mandatorily redeemable non-controlling interest – earnings allocable.Interest Expense – mandatorily redeemable non-controlling interest – earnings allocable represent the portion of earningsallocable to the holders of the mandatorily redeemable non-controlling interest. This expense increased to $4.1 million in 2016 ascompared to $3.5 million in 2015. The increase is the result of new business acquisitions and increased performance of existingbusinesses.Interest Expense – debt and otherInterest expense – debt and other was $1.3 million for 2016 and $1.0 million for 2015. At December 31, 2016, $46.0 million wasoutstanding under our Amended Credit Agreement (as defined below under “— Liquidity and Capital Resources”). See “— Liquidityand Capital Resources” below for a discussion of the terms of our Amended Credit Agreement.36TABLE OF CONTENTSProvision for Income TaxesThe provision for income taxes was $11.9 million for 2016 and $13.7 million for 2015. We accrued state and federal income taxes atan effective tax rate (provision for taxes divided by the difference between income from operations and net income attributable tonon-controlling interest) of 36.6% for 2016 and 39.8% for 2015. The 2016 provision for taxes includes a reduction of $1.0 million due tothe adoption of new Financial Accounting Standards Board guidance relevant to stock compensation accounting provisions. Thisguidance amends how excess tax benefits should be classified. Under the guidance, excess tax benefits will be a component of theincome tax provision/benefit in the period in which they occur. The reconciliation of the 2015 federal and state returns to our bookprovision was $34,000 which is included in the 2016 provision. The 2015 tax provision includes an additional $147,000 due toreconciliation of the 2014 federal and state returns to our book provision.Net Income Attributable to Non-controlling InterestsNet income attributable to non-controlling interests was $5.7 million in 2016 and $5.9 million in 2015.LIQUIDITY AND CAPITAL RESOURCESWe believe that our business is generating sufficient cash flow from operating activities to allow us to meet our short-term andlong-term cash requirements, other than those with respect to future significant acquisitions. At December 31, 2017, we had $21.9million in cash and cash equivalents compared to $20.0 million at December 31, 2016. Although the start-up costs associated withopening new clinics and our planned capital expenditures are significant, we believe that our cash and cash equivalents andavailability under our Amended Credit Agreement are sufficient to fund the working capital needs of our operating subsidiaries,future clinic development and acquisitions and investments through at least December 2018. Significant acquisitions would likelyrequire financing under our Amended Credit Agreement.Effective December 5, 2013, we entered into an Amended and Restated Credit Agreement with a commitment for a $125.0 millionrevolving credit facility. This agreement was amended in August 2015, January 2016, March 2017 and November 2017 (hereafterreferred to as “Amended Credit Agreement”). The Amended Credit Agreement is unsecured and has loan covenants, includingrequirements that we comply with a consolidated fixed charge coverage ratio and consolidated leverage ratio. Proceeds from theAmended Credit Agreement may be used for working capital, acquisitions, purchases of our common stock, dividend payments toour common stockholders, capital expenditures and other corporate purposes. The pricing grid is based on our consolidated leverageratio with the applicable spread over LIBOR ranging from 1.25% to 2.0% or the applicable spread over the Base Rate ranging from0.1% to 1%. Fees under the Amended Credit Agreement include an unused commitment fee ranging from 0.25% to 0.3% dependingon the Company’s consolidated leverage ratio and the amount of funds outstanding under the Amended Credit Agreement.The January 2016 amendment to the Amended Credit Agreement increased the cash and noncash consideration that we couldpay with respect to acquisitions permitted under the Amended Credit Agreement to $50,000,000 for any fiscal year, and increased theamount we may pay in cash dividends to our shareholders in an aggregate amount not to exceed $10,000,000 in any fiscal year. TheMarch 2017 amendment, among other items, increased the amount we may pay in cash dividends to our shareholders in an aggregateamount not to exceed $15,000,000 in any fiscal year. The November 2017 amendment, among other items, adjusted the pricing grid asdescribed above, increased the aggregate amount we may pay in cash dividends to $20,000,000 to our shareholders and extended thematurity date to November 30, 2021.On December 31, 2017, $54.0 million was outstanding on the Amended Credit Agreement resulting in $71.0 million of availability.As of the date of this report, we were in compliance with all of the covenants thereunder.The increase in cash and cash equivalents of $1.9 million from December 31, 2017 to December 31, 2016 was due primarily to$56.5 million provided by operations and $8.0 million net proceeds from our Amended Credit Agreement. The major uses of cash forinvesting and financing activities included: purchase of businesses ($36.7 million), payments of cash dividends to our shareholders($10.1 million), purchases of fixed assets ($7.1 million), distributions to non-controlling interests ($5.6 million), acquisitions of non-controlling interests through settlements of liabilities related to mandatorily redeemable non-controlling interests ($2.4 million) andpayments on notes payable ($1.2 million).37TABLE OF CONTENTSOn January 1, 2017, we acquired a 70% interest in a seventeen-clinic physical therapy practice. The purchase price for the 70%interest was $10.7 million in cash and $0.5 million in a seller note that is payable in two principal installments totaling $250,000 each,plus accrued interest. The first installment was paid in January 2018 and the second installment is due in January 2019.In March 2017, we acquired a 55% interest in a company which is a leading provider of workforce performance solutions.Services provided include onsite injury prevention and rehabilitation, performance optimization and ergonomic assessments. Themajority of these services are contracted with and paid for directly by employers including a number of Fortune 500 companies. Otherclients include large insurers and their contractors. The purchase price for the 55% interest was $6.2 million in cash and $0.4 million ina seller note that is payable, principal plus accrued interest, in September 2018.On May 31, 2017, we acquired a 70% interest in a four-clinic physical therapy practice. The purchase price for the 70% interestwas $2.3 million in cash and $250,000 in a seller note that is payable in two principal installments totaling $125,000 each, plus accruedinterest, in May 2018 and 2019.On June 30, 2017, we acquired a 60% interest in a nine-clinic physical therapy practice. The purchase price for the 60% interestwas $15.8 million in cash and $0.5 million in a seller note that is payable in two principal installments totaling $250,000 each, plusaccrued interest, in June 2018 and 2019.On October 31, 2017, we acquired a 70% interest in a nine-clinic physical therapy practice and two management contracts withthird party providers. The purchase price for the 70% interest was $4.0 million in cash and $0.5 million in a seller note that is payablein two principal installments totaling $250,000 each, plus accrued interest, in October 2018 and 2019.On November 30, 2016, we acquired a 60% interest in a 12 clinic physical therapy practice. The purchase price for the 60%interest was $11.0 million in cash and $0.5 million in a seller note that is payable in two principal installments of $250,000 each, plusaccrued interest, one of which was paid in November 2017 and one of which is due in November 2018. On February 29, 2016, weacquired a 55% interest in an eight-clinic physical therapy practice. The purchase price for the 55% interest was $13.2 million in cashand $0.5 million in a seller note that was payable in two principal installments totaling $250,000 each, plus accrued interest. The firstinstallment was paid in February 2017 and the next installment was paid in February 2018.On December 31, 2015, we acquired a 59% interest in a four-clinic practice for $4.6 million in cash and $400,000 in seller notesthat were payable in two principal installments of an aggregate of $200,000 each, plus accrued interest. The first installment was paidin December 2016 and the next installment was paid in December 2017. On June 30, 2015, we acquired a 70% interest in a four-clinicphysical therapy practice. The purchase price was $3.6 million in cash and $0.7 million in seller notes that are payable plus accruedinterest, in June 2018. On April 30, 2015, we acquired a 70% interest in a three-clinic physical therapy practice. The purchase pricewas $4.7 million in cash and $150,000 in a seller note that was payable in two principal installments of $75,000 each, plus accruedinterest. The first installment was paid in April 2016 and the next installment was paid in April 2017. On January 31, 2015, we acquireda 60% interest in a nine-clinic physical therapy practice. The purchase price for the 60% interest was $6.7 million in cash and $0.5million in a seller note that is payable in two principal installments of $250,000 each, plus accrued interest. The installments were paidin January 2016 and 2017. In addition to the multi-clinic acquisitions, on August 31, 2015, we acquired a 60% interest in a singlephysical therapy clinic for $150,000 in cash and $50,000 in a seller note that was paid plus accrued interest in August 2016.Historically, we have generated sufficient cash from operations to fund our development activities and to cover operationalneeds. We plan to continue developing new clinics and making additional acquisitions in selected markets. We have from time to timepurchased the non-controlling interests of limited partners in our Clinic Partnerships. We may purchase additional non-controllinginterests in the future. Generally, any acquisition or purchase of non-controlling interests is expected to be accomplished using acombination 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-paymentamounts. Claims are submitted to payors daily, weekly or monthly in accordance with our policy or payor’s requirements. Whenpossible, we submit our claims electronically. The collection process is time consuming and typically involves the submission ofclaims to multiple payors whose payment of claims may be38TABLE OF CONTENTSdependent upon the payment of another payor. Claims under litigation and vehicular incidents can take a year or longer to collect.Medicare and other payor claims relating to new clinics awaiting CMS approval initially may not be submitted for six months or more.When all reasonable internal collection efforts have been exhausted, accounts are written off prior to sending them to outsidecollection firms. With managed care, commercial health plans and self-pay payor type receivables, the write-off generally occurs afterthe 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, 2017 are summarized as follows (in thousands): Total20182019202020212022ThereafterCredit Agreement$54,000 $— $— $— $54,000 $— $— Mandatorily Redeemable Non-ControllingInterest 327 327 — — — — — Notes Payable 6,772 4,044 2,728 — — — — Interest Payable 224 203 21 — — — — Employee Agreements 49,061 31,826 13,225 2,832 1,178 — — Operating Leases 102,757 33,357 25,551 21,777 10,919 6,144 5,009 $213,141 $69,757 $41,525 $24,609 $66,097 $6,144 $5,009 We generally enter into various notes payable as a means of financing our acquisitions. Our present outstanding notes payablerelate only to certain of the acquisitions of businesses and non-controlling interests and settlement of mandatorily redeemable non-controlling interests. At December 31, 2017, our remaining outstanding balance on these notes aggregated $6.8 million. Generally, thenotes are payable in equal annual installments of principal over two years plus any accrued and unpaid interest. See above table for adetail of future principal payments. Interest accrues at various interest rates ranging from 3.25% to 4.25% per annum, subject toadjustment. In addition, we assumed leases with remaining terms of 1 month to 6 years for the operating facilities.In conjunction with the above mentioned acquisitions, in the event that a limited minority partner’s employment ceases,typically after three to five years, from the original date the interest was acquired, we have agreed to repurchase that individual’snon-controlling interest at a predetermined multiple of earnings before interest, taxes, depreciation, amortization and certainintercompany charges.Effective December 31, 2017, we entered into amendments to our limited partnership agreements for our acquired partnershipsreplacing the mandatory redemption feature. No monetary consideration was paid to the partners to amend the agreements. Theamended limited partnership agreements provide that, upon the triggering events, the Company has a Call Right and the selling entityor individual has a Put Right for the purchase and sale of the limited partnership interest held by the partner. Once triggered, the PutRight and the Call Right do not expire, even upon an individual partner’s death, and contain no mandatory redemption feature. Thepurchase price of the partner’s limited partnership interest upon the exercise of either the Put Right or the Call Right is calculated perthe terms of the respective agreements. We accounted for the amendment of our limited partnership agreements as an extinguishmentof the outstanding Seller Entity Interests classified as liabilities through the issuance of new Seller Entity Interests classified intemporary equity. Pursuant to ASC 470-50-40-2, we removed the outstanding liability-classified Seller Entity Interests at their carryingamounts, recognized the new temporary-equity-classified Seller Entity Interests at their fair value, and recorded no gain or loss onextinguishment as management believes the redemption value (i.e. the carrying amount) and fair value are the same. In summary, theredemption values of the mandatorily redeemable non-controlling interest (previously classified as liabilities) were reclassified asredeemable non-controlling interest (temporary equity) at fair value on the December 31, 2017 consolidated balance sheet. Theremaining balance of $327,000 in the line item – Mandatorily redeemable non-controlling interests – relates to one limitedpartnership agreement that was not amended as the non-controlling interest was purchased by the Company in January 2018. Thefair value of the redeemable non-controlling interest at December 31, 2017 was $102.5 million.As of December 31, 2017, we have accrued $4.2 million related to credit balances and overpayments due to patients and payors.This amount is expected to be paid in 2018.39TABLE OF CONTENTSFrom September 2001 through December 31, 2008, our Board of Directors (“Board”) authorized us to purchase, in the openmarket or in privately negotiated transactions, up to 2,250,000 shares of our common stock. In March 2009, the Board authorized therepurchase of up to 10% or approximately 1,200,000 shares of our common stock (“March 2009 Authorization”). Our Amended CreditAgreement permits share repurchases of up to $15,000,000, subject to compliance with covenants. We are required to retire sharespurchased under the March 2009 Authorization.There is no expiration date for the share repurchase program. As of December 31, 2017, there are currently an additionalestimated 207,756 shares (based on the closing price of $72.20 on December 31, 2017) that may be purchased from time to time in theopen market or private transactions depending on price, availability and our cash position. We did not purchase any shares of ourcommon stock during the year ended December 31, 2017.Off Balance Sheet ArrangementsWith the exception of operating leases for our executive offices and clinic facilities discussed in Note 15 to our consolidatedfinancial statements included in Item 8, we have no off-balance sheet debt or other off-balance sheet financing arrangements.FACTORS AFFECTING FUTURE RESULTSThe risks related to our business and operations include:•changes as the result of government enacted national healthcare reform;•changes in Medicare rules and guidelines and reimbursement or failure of our clinics to maintain their Medicare certificationstatus;•revenue we receive from Medicare and Medicaid being subject to potential retroactive reduction;•business and regulatory conditions including federal and state regulations;•governmental and other third party payor inspections, reviews, investigations and audits;•compliance with federal and state laws and regulations relating to the privacy of individually identifiable patientinformation, and associated fines and penalties for failure to comply;•changes in reimbursement rates or payment methods from third party payors including government agencies anddeductibles and co-pays owed by patients;•revenue and earnings expectations;•cost, risks and uncertainties associated with the Company’s recent restatement of its prior financial statements due to thecorrection of its accounting methodology for redeemable noncontrolling partnership interests, and including any pendingand future claims or proceedings relating to such matters;•legal actions; which could subject us to increased operating costs and uninsured liabilities;•general economic conditions;•availability and cost of qualified physical therapists;•personnel productivity and retaining key personnel;•competitive, economic or reimbursement conditions in our markets which may require us to reorganize or close certainclinics and thereby incur losses and/or closure costs including the possible write-down or write-off of goodwill and otherintangible assets;•acquisitions, purchase of non-controlling interests (minority interests) and the successful integration of the operations ofthe acquired businesses;•maintaining our information technology systems with adequate safeguards to protect against cyber attacks;•maintaining adequate internal controls;•maintaining necessary insurance coverage;40TABLE OF CONTENTS•availability, terms, and use of capital; and•weather and other seasonal factors.See also Risk Factors in Item 1A of this Annual Report on Form 10-K.ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.We do not maintain any derivative instruments such as interest rate swap arrangements, hedging contracts, futures contracts orthe like. Our only indebtedness as of December 31, 2017 was the outstanding balance of seller notes of $6.8 million and anoutstanding balance on our Amended Credit Agreement of $54.0 million. The outstanding balance under our Amended CreditAgreement is subject to fluctuating interest rates. A 1% change in the interest rate would yield an additional $540,000 of interestexpense. See Note 10 to our consolidated financial statements included in Item 8.41TABLE OF CONTENTSITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIESINDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND RELATED INFORMATIONReports of Independent Registered Public Accounting Firm—Grant Thornton LLP 43 Audited Financial Statements: Consolidated Balance Sheets as of December 31, 2017 and 2016 45 Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015 46 Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016 and 2015 47 Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 48 Notes to Consolidated Financial Statements 49 42TABLE OF CONTENTSREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard of Directors and ShareholdersU.S. Physical Therapy, Inc.Opinion on the financial statementsWe have audited the accompanying consolidated balance sheets of U.S. Physical Therapy, Inc. (a Nevada corporation) andsubsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of income, changes in equity,and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and schedule (collectivelyreferred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financialposition of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the threeyears in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States ofAmerica.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)(“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in the 2013Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission(“COSO”), and our report dated March 14, 2018 expressed an unqualified opinion.Basis for opinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on theCompany’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required tobe independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules andregulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error orfraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whetherdue to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accountingprinciples used and significant estimates made by management, as well as evaluating the overall presentation of the financialstatements. We believe that our audits provide a reasonable basis for our opinion./s/ GRANT THORNTON LLPWe have served as the Company’s auditor since 2004.Houston, TXMarch 14, 201843TABLE OF CONTENTSREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard of Directors and ShareholdersU.S. Physical Therapy, Inc.Opinion on internal control over financial reportingWe have audited the internal control over financial reporting of U.S. Physical Therapy, Inc. (a Nevada corporation) and subsidiaries(the “Company”) as of December 31, 2017, based on criteria established in the 2013 Internal Control—Integrated Framework issuedby the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, inall material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in the2013 Internal Control—Integrated Framework issued by COSO.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)(“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2017, and our reportdated March 14, 2018 expressed an unqualified opinion on those financial statements.Basis for opinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessmentof the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on InternalControl over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financialreporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent withrespect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securitiesand Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditto obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a materialweakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, andperforming such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonablebasis for our opinion.Definition and limitations of internal control over financial reportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain tothe maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets ofthe company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directors of the company; and (3) provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets thatcould 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 becauseof changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate./s/ GRANT THORNTON LLPHouston, TXMarch 14, 201844TABLE OF CONTENTSU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands, except share data) December 31,2017December 31,2016ASSETS Current assets: Cash and cash equivalents$21,933 $20,047 Patient accounts receivable, less allowance for doubtful accounts of $2,273 and $1,792,respectively 44,707 38,840 Accounts receivable - other 5,655 2,649 Other current assets 4,786 4,428 Total current assets 77,081 65,964 Fixed assets: Furniture and equipment 51,100 48,426 Leasehold improvements 29,760 26,765 Fixed assets, gross 80,860 75,191 Less accumulated depreciation and amortization 60,475 56,018 Fixed assets, net 20,385 19,173 Goodwill 271,338 226,806 Other identifiable intangible assets, net 48,954 38,060 Other assets 1,224 1,228 Total assets$418,982 $351,231 LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS, USPHSHAREHOLDERS’ EQUITY AND NON-CONTROLLING INTERESTS Current liabilities: Accounts payable - trade$2,165 $1,634 Accrued expenses 33,342 21,756 Current portion of notes payable 4,044 1,227 Total current liabilities 39,551 24,617 Notes payable, net of current portion 2,728 4,596 Revolving line of credit 54,000 46,000 Mandatorily redeemable non-controlling interests 327 69,190 Deferred taxes 10,875 15,736 Deferred rent 2,116 1,575 Other long-term liabilities 743 829 Total liabilities 110,340 162,543 Redeemable non-controlling interests 102,572 — Commitments and contingencies (Note 16) U.S. Physical Therapy, Inc. (“USPH”) shareholders’ equity: Preferred stock, $.01 par value, 500,000 shares authorized, no shares issued andoutstanding — — Common stock, $.01 par value, 20,000,000 shares authorized, 14,809,299 and 14,732,699shares issued, respectively 148 147 Additional paid-in capital 73,940 68,687 Retained earnings 162,406 150,342 Treasury stock at cost, 2,214,737 shares (31,628) (31,628)Total USPH shareholders’ equity 204,866 187,548 Non-controlling interests 1,204 1,140 Total USPH shareholders’ equity and non-controlling interests 206,070 188,688 Total liabilities, redeemable non-controlling interests, USPH shareholders’ equityand non-controlling interests$418,982 $351,231 See notes to consolidated financial statements.45TABLE OF CONTENTSU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(In thousands, except per share data) Year Ended December 31,2017December 31,2016December 31,2015Net patient revenues$389,226 $348,839 $324,293 Other revenues 24,825 7,707 7,009 Net revenues 414,051 356,546 331,302 Operating costs: Salaries and related costs 237,067 198,495 180,514 Rent, supplies, contract labor and other 82,096 71,868 68,046 Provision for doubtful accounts 3,672 4,040 4,170 Closure costs 599 131 211 Total operating costs 323,434 274,534 252,941 Gross profit 90,617 82,012 78,361 Corporate office costs 35,889 32,479 31,067 Operating income 54,728 49,533 47,294 Interest and other income, net 88 93 81 Interest expense: Mandatorily redeemable non-controlling interests - change in redemptionvalue (12,894) (6,169) (2,670)Mandatorily redeemable non-controlling interests - earnings allocable (6,055) (4,057) (3,538)Debt and other (2,111) (1,252) (1,031)Total interest expense (21,060) (11,478) (7,239) Income before taxes 33,756 38,148 40,136 Provision for income taxes 6,032 11,880 13,647 Net income 27,724 26,268 26,489 Less: net income attributable to non-controlling interests (5,468) (5,717) (5,874) Net income attributable to USPH shareholders$22,256 $20,551 $20,615 Basic and diluted earnings per share attributable to USPH shareholders$1.76 $1.64 $1.66 Shares used in computation - basic and diluted 12,570 12,500 12,392 Dividends declared per common share$0.80 $0.68 $0.60 See notes to consolidated financial statements.46TABLE OF CONTENTSU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(In thousands) U.S.Physical Therapy, Inc. Common StockAdditionalPaid-InCapitalRetainedEarningsTreasury StockTotalShareholders’EquityNon-ControllingInterests SharesAmountSharesAmountTotalBalance January 1, 2015 14,487 $145 $58,799 $125,135 (2,215)$(31,628)$152,451 $1,488 $153,939 Proceeds from exercise of stockoptions 1 1 4 — — — 5 — 5 Net tax benefit from exercise ofstock options — — 947 — — — 947 — 947 Issuance of restricted stock 148 — — — — — — — — Compensation expense - restrictedstock — — 4,491 — — — 4,491 — 4,491 Transfer of compensation liabilityfor certain stock issued pursuant tolong-term incentive plans — — 446 — — — 446 — 446 Acquisitions and sales of non-controlling interests — — (449) — — — (449) (217) (666)Distributions to non-controllinginterest partners, as restated — — — — — — — (5,892) (5,892)Dividends payable to USPTshareholders — — — (7,449) — — (7,449) — (7,449)Net income — — — 20,615 — — 20,615 5,874 26,489 Balance December 31, 2015 14,636 146 64,238 138,301 (2,215) (31,628)$171,057 1,253 172,310 Issuance of restricted stock 97 1 — — — — 1 — 1 Compensation expense - equity-basedawards — — 4,962 — — — 4,962 — 4,962 Transfer of compensation liabilityfor certain stock issued pursuant tolong-term incentive plans — — 211 — — — 211 — 211 Acquisitions of non-controllinginterests, net — — (533) — — — (533) (112) (645)Adjustment for prior yearacquisitions of non-controllinginterest - tax true up — — (191) — — — (191) — (191)Dividends payable to USPTshareholders — — — (8,510) — — (8,510) — (8,510)Distributions to non-controllinginterest partners — — — — — — — (5,718) (5,718)Net income — — — 20,551 — — 20,551 5,717 26,268 Balance December 31, 2016 14,733 $147 $68,687 $150,342 (2,215)$(31,628)$187,548 $1,140 $188,688 Issuance of restricted stock 76 1 — — — — 1 — 1 Revaluation of redeemable non-controlling interest — — — (126) — — (126) — (126)Compensation expense - equity-basedawards — — 5,032 — — — 5,032 — 5,032 Transfer of compensation liabilityfor certain stock issued pursuant tolong-term incentive plans — — 165 — — — 165 — 165 Sale of non-controlling interest, netof purchases — — 56 — — — 56 (20) 36 Dividends payable to USPTshareholders — — — (10,066) — — (10,066) — (10,066)Distributions to non-controllinginterest partners — — — — — — — (5,300) (5,300)Other — — — — — — — 160 160 Net income — — — 22,256 — — 22,256 5,224 27,480 Balance December 31, 2017 14,809 $148 $73,940 $162,406 (2,215)$(31,628)$204,866 $1,204 $206,070 See notes to consolidated financial statements.47TABLE OF CONTENTSU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Year Ended December31,2017December31,2016December31,2015OPERATING ACTIVITIES Net income including non-controlling interests$27,724 $26,268 $26,489 Adjustments to reconcile net income including non-controlling interests to netcash provided by operating activities: Depreciation and amortization 9,710 8,779 7,952 Provision for doubtful accounts 3,672 4,040 4,170 Equity-based awards compensation expense 5,032 4,962 4,491 Excess tax benefit from equity-based rewards — — (947)Deferred income tax (4,864) 2,979 5,953 Other 621 152 264 Changes in operating assets and liabilities: Increase in patient accounts receivable (3,447) (3,275) (5,519)Increase in accounts receivable - other (3,022) (400) (852)Decrease (increase) in other assets 2,086 (1,399) (1,375)Increase (decrease) in accounts payable and accrued expenses 6,979 2,994 (7,011)Increase in mandatorily redeemable non-controlling interests 11,579 5,598 2,509 Increase in other liabilities 456 352 1,396 Net cash provided by operating activities 56,526 51,050 37,520 INVESTING ACTIVITIES Purchase of fixed assets (7,095) (8,260) (6,263)Purchase of businesses, net of cash acquired (36,682) (23,623) (18,965)Sale of non-controlling interest, net of purchases 121 (670) (968)Proceeds on sale of fixed assets 81 61 71 Net cash used in investing activities (43,575) (32,492) (26,125) FINANCING ACTIVITIES Distributions to non-controlling interests (5,572) (5,718) (5,892)Cash dividends paid to shareholders - funded (10,066) (8,510) (7,449)Proceeds from revolving line of credit 93,000 168,000 103,000 Payments on revolving line of credit (85,000) (166,000) (93,500)Payments to settle mandatorily redeemable non-controlling interests (2,361) (1,262) (6,115)Principal payments on notes payable (1,227) (800) (884)Tax benefit from equity-based rewards — — 947 Other 161 1 5 Net cash used in financing activities (11,065) (14,289) (9,888) Net increase in cash and cash equivalents 1,886 4,269 1,507 Cash and cash equivalents - beginning of period 20,047 15,778 14,271 Cash and cash equivalents - end of period$21,933 $20,047 $15,778 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Income taxes$8,543 $10,584 $7,779 Interest$2,113 $784 $884 Non-cash investing and financing transactions during the period: Purchase of business - seller financing portion$2,150 $1,000 $1,800 Acquisition of non-controlling interest - seller financing portion$— $387 $— Payment to settle redeemable non-controlling interest - financing portion$— $127 $3,077 Receivable from sale of non-controlling interests$— $(138)$— See notes to consolidated financial statements.48TABLE OF CONTENTSU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2017, 2016 and 20151. Organization, Nature of Operations and Basis of PresentationU.S. Physical Therapy, Inc. and its subsidiaries (together, the “Company”) operate outpatient physical therapy clinics thatprovide 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, 2017, the Company owned and/or operated 578clinics in 41 states. The clinics’ business primarily originates from physician referrals. The principal sources of payment for theclinics’ services are managed care programs, commercial health insurance, Medicare/Medicaid, workers’ compensation insurance andproceeds from personal injury cases. In addition to the Company’s ownership and operation of outpatient physical therapy clinics, italso manages physical therapy facilities for third parties, such as physicians and hospitals, with 32 such third-party facilities undermanagement as of December 31, 2017.In March 2017, the Company acquired a 55% interest in a company which is a leading provider of workforce performancesolutions. Services provided include onsite injury prevention and rehabilitation, performance optimization and ergonomicassessments. The majority of these services are contracted with and paid for directly by employers including a number of Fortune500 companies. Other clients include large insurers and their contractors.The consolidated financial statements include the accounts of U.S. Physical Therapy, Inc. and its subsidiaries. All significantintercompany transactions and balances have been eliminated. The Company primarily operates through subsidiary clinicpartnerships, in which the Company generally owns a 1% general partnership interest and a 49% to 99% limited partnership interest.The managing therapist of each clinic owns the remaining limited partnership interest in the majority of the clinics (hereinafterreferred to as “Clinic Partnership”). To a lesser extent, the Company operates some clinics through wholly-owned subsidiaries underprofit sharing arrangements with therapists (hereinafter referred to as “Wholly-Owned Facilities”).During the last three years, the Company completed the following multi-clinic acquisitions: Date% InterestAcquiredNumber ofClinics 2017 January 2017 AcquisitionJanuary 1 70% 17 May 2017 AcquisitionMay 31 70% 4 June 2017 AcquisitionJune 30 60% 9 October 2017 AcquisitionOctober 31 70% 9 2016 February 2016 AcquisitionFebruary 29 55% 8 November 2016 AcquisitionNovember 30 60% 12 2015 January 2015 AcquisitionJanuary 31 60% 9 April 2015 AcquisitionApril 30 70% 3 June 2015 AcquisitionJune 30 70% 4 December 2015 AcquisitionDecember 31 59% 4 Also, during the year of 2017, the Company purchased the assets and business of two physical therapy clinics in separatetransactions. One clinic was consolidated with an existing clinic and the other operates as a satellite clinic of one of the existingpartnerships.In addition to the multi-clinic acquisitions, the Company acquired two single clinic practices in separate transactions during2016. During 2015, the Company acquired a 60% interest in a single clinic practice.49TABLE OF CONTENTSThe results of operations of the acquired clinics have been included in the Company’s consolidated financial statements sincethe date of their respective acquisition. The Company intends to continue to pursue additional acquisition opportunities, developnew clinics and open satellite clinics.Clinic PartnershipsFor non-acquired Clinic Partnerships, the earnings and liabilities attributable to the non-controlling interests, typically owned bythe managing therapist, directly or indirectly, are recorded within the balance sheets and income statements as non-controllinginterests. For acquired Clinic Partnerships with mandatorily redeemable non-controlling interests, the earnings and liabilitiesattributable to the non-controlling interest are recorded within the consolidated statements of income line item: Interest expense –mandatorily redeemable non-controlling interests – earnings allocable and in the consolidated balance sheet line item:Mandatorily redeemable non-controlling interests. For acquired Clinic Partnerships with redeemable non-controlling interests, theearnings attributable to the redeemable non-controlling interests are recorded within the consolidated statements of income line item– net income attributable to non-controlling interests and the equity interests are recorded on the consolidated balance sheet asredeemable non-controlling interests.Effective December 31, 2017, the Company entered into amendments to its acquired limited partnership agreements replacing themandatory redemption feature. No monetary consideration was paid to the partners to amend the agreements. The amended limitedpartnership agreements provide that, upon certain events, the Company has a call right (the “Call Right”) and the selling entity has aput right (the “Put Right”) for the purchase and sale of the limited partnership interest held by the partner. Once triggered, the PutRight and the Call Right do not expire, even upon an individual partner’s death, and contain no mandatory redemption feature. Thepurchase price of the partner’s limited partnership interest upon the exercise of either the Put Right or the Call Right is calculated perthe terms of the respective agreements. The Company accounted for the amendment of its limited partnership agreements as anextinguishment of the outstanding Seller Entity Interests, as defined in Footnote 5, classified as liabilities through the issuance ofnew Seller Entity Interests classified in temporary equity. Pursuant to ASC 470-50-40-2, the Company removed the outstandingliability-classified Seller Entity Interests at their carrying amounts, recognized the new temporary-equity-classified Seller EntityInterests at their fair value, and recorded no gain or loss on extinguishment as management believes the redemption value (i.e. thecarrying amount) and fair value are the same. In summary, the redemption values of the mandatorily redeemable non-controllinginterest (previously classified as liabilities) were reclassified as redeemable non-controlling interest (temporary equity) at fair value onthe December 31, 2017 consolidated balance sheet. The remaining balance of $327,000 in the line item – Mandatorily redeemablenon-controlling interests – relates to one limited partnership agreement that was not amended as the non-controlling interest waspurchased by the Company in January 2018. See Footnote 5 - Mandatorily redeemable non-controlling interests – Footnote 6 -Redeemable non-controlling interests – for further discussion.Wholly-Owned FacilitiesFor Wholly-Owned Facilities with profit sharing arrangements, an appropriate accrual is recorded for the amount of profitsharing due the clinic partners/directors. The amount is expensed as compensation and included in clinic operating costs—salariesand related costs. The respective liability is included in current liabilities—accrued expenses on the consolidated balance sheets.2. Significant Accounting PoliciesCash EquivalentsThe Company maintains its cash and cash equivalents at financial institutions. The Company considers all highly liquidinvestments with a maturity of three months or less when purchased to be cash equivelents. The combined account balances atseveral institutions typically exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is aconcentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. Management believes that this riskis not significant.Long-Lived AssetsFixed assets are stated at cost. Depreciation is computed on the straight-line method over the estimated useful lives of therelated assets. Estimated useful lives for furniture and equipment range from three to eight years and for software purchased fromthree to seven years. Leasehold improvements are amortized over the shorter of the related lease term or estimated useful lives of theassets, which is generally three to five years.50TABLE OF CONTENTSImpairment of Long-Lived Assets and Long-Lived Assets to Be Disposed OfThe Company reviews property and equipment and intangible assets with finite lives for impairment upon the occurrence ofcertain events or circumstances that indicate the related amounts may be impaired. Assets to be disposed of are reported at the lowerof the carrying amount or fair value less costs to sell.GoodwillGoodwill represents the excess of the amount paid and fair value of the non-controlling interests over the fair value of theacquired business assets, which include certain identifiable intangible assets. Historically, goodwill has been derived fromacquisitions and, prior to 2009, from the purchase of some or all of a particular local management’s equity interest in an existing clinic.Effective January 1, 2009, if the purchase price of a non-controlling interest by the Company exceeds or is less than the book value atthe time of purchase, any excess or shortfall is recognized as an adjustment to additional paid-in capital.The fair value of goodwill and other identifiable intangible assets with indefinite lives are tested for impairment annually andupon the occurrence of certain events, and are written down to fair value if considered impaired. The Company evaluates goodwill forimpairment on at least an annual basis (in its third quarter) by comparing the fair value of its reporting units to the carrying value ofeach reporting unit including related goodwill. The Company evaluates indefinite lived tradenames using the relief from royaltymethod in conjunction with its annual goodwill impairment test. The Company operates a one segment business which is made up ofvarious clinics within partnerships. The partnerships are components of regions and are aggregated to the operating segment levelfor the purpose of determining the Company’s reporting units when performing its annual goodwill impairment test. In 2017, 2016 and2015, there were six regions. In addition to the six regions, in 2017, the impairment test included a separate analysis for the workforceperformance solutions business, a separate reporting unit.An impairment loss generally would be recognized when the carrying amount of the net assets of a reporting unit, inclusive ofgoodwill and other identifiable intangible assets, exceeds the estimated fair value of the reporting unit. The estimated fair value of areporting unit is determined using two factors: (i) earnings prior to taxes, depreciation and amortization for the reporting unitmultiplied by a price/earnings ratio used in the industry and (ii) a discounted cash flow analysis. A weight is assigned to each factorand the sum of each weight times the factor is considered the estimated fair value. For 2017, the factors (i.e., price/earnings ratio,discount rate and residual capitalization rate) were updated to reflect current market conditions. The evaluation of goodwill in 2017,2016 and 2015 did not result in any goodwill amounts that were deemed impaired.The Company has not identified any triggering events occurring after the testing date that would impact the impairment testingresults obtained. The Company will continue to monitor for any triggering events or other indicators of impairment.Mandatorily Redeemable Non-Controlling InterestsThe non-controlling interests that are reflected as mandatorily redeemable non-controlling interests in the consolidated financialstatements consist of those owners who have certain redemption rights, whether currently exercisable or not, and which currently, orin the future, require that the Company purchase the non-controlling interest of those owners at a predetermined formula based on amultiple of trailing twelve months earnings performance as defined in the respective limited partnership agreements. The redemptionrights are triggered at such time as both of the following events have occurred: 1) termination of the owner’s employment, regardlessof the reason for such termination, and 2) the passage of specified number of years after the closing of the transaction, typically threeto five years, as defined in the limited partnership agreement.On the date the Company acquires a controlling interest in a partnership and the limited partnership agreement for suchpartnership contains mandatory redemption rights, the fair value of the non-controlling interest is recorded in the long-term liabilitiessection of the consolidated balance sheet under the caption – Mandatorily redeemable non-controlling interests. Then, in eachreporting period thereafter until purchased by the Company, the redeemable non-controlling interest is adjusted to its then currentredemption value, based on the predetermined formula defined in the respective partnership agreement. The Company reflects anyadjustment in the redemption value and any earnings attributable to the mandatorily redeemable non-controlling interest in itsconsolidated statements of income by recording the adjustments and earnings to other income and expense in the captions - Interestexpense – mandatorily redeemable non-controlling interests – change in redemption value and Interest expense – mandatorilyredeemable non-controlling interests – earnings allocable.51TABLE OF CONTENTSAs previously mentioned due to amendments of the limited partnership agreements entered into by the Company, theredemption values of the mandatorily redeemable non-controlling interest (previously classified as liabilities) were amended and arenow classified as redeemable non-controlling interest (temporary equity) at fair value on the December 31, 2017 consolidated balancesheet.Redeemable Non-Controlling InterestsThe non-controlling interests that are reflected as redeemable non-controlling interests in the consolidated financial statementsconsist of those owners and the Company have certain redemption rights, whether currently exercisable or not, and which currently,or in the future, require that the Company purchase or the owner sell the non-controlling interest held by the owner, if certainconditions are met. The purchase price is derived at a predetermined formula based on a multiple of trailing twelve months earningsperformance as defined in the respective limited partnership agreements. The redemption rights can be triggered by the owner or theCompany at such time as both of the following events have occurred: 1) termination of the owner’s employment, regardless of thereason for such termination, and 2) the passage of specified number of years after the closing of the transaction, typically three tofive years, as defined in the limited partnership agreement. The redemption rights are not automatic or mandatory (even upon death)and require either the owner or the Company to exercise its rights when the conditions triggering the redemption rights have beensatisfied.On the date the Company acquires a controlling interest in a partnership and the limited partnership agreement for suchpartnership contains redemption rights not under the control of the Company, the fair value of the non-controlling interest isrecorded in the consolidated balance sheet under the caption – Redeemable non-controlling interests. Then, in each reporting periodthereafter until it is purchased by the Company, the redeemable non-controlling interest is adjusted to the greater of its then currentredemption value or initial value, based on the predetermined formula defined in the respective limited partnership agreement. As aresult, the value of the non-controlling interest is not adjusted below its initial value. The Company records any adjustment in theredemption value, net of tax, directly to retained earnings and are not reflected in the consolidated statements of income. Althoughthe adjustments are not reflected in the consolidated statements of income, current accounting rules require that the Companyreflects the adjustments, net of tax, in the earnings per share calculation. The amount of net income attributable to redeemable non-controlling interest owners is included in consolidated net income on the face of the consolidated statement of income. Managementbelieves the redemption value (i.e. the carrying amount) and fair value are the same.Non-Controlling InterestsThe Company recognizes non-controlling interests, in which the Company has no obligation but the right to purchase the non-controlling interests, as equity in the consolidated financial statements separate from the parent entity’s equity. The amount of netincome attributable to non-controlling interests is included in consolidated net income on the face of the statements of net income.Changes in a parent entity’s ownership interest in a subsidiary that do not result in deconsolidation are treated as equitytransactions if the parent entity retains its controlling financial interest. The Company recognizes a gain or loss in net income when asubsidiary is deconsolidated. Such gain or loss is measured using the fair value of the non-controlling equity investment on thedeconsolidation date.When the purchase price of a non-controlling interest by the Company exceeds the book value at the time of purchase, anyexcess or shortfall is recognized as an adjustment to additional paid-in capital. Additionally, operating losses are allocated to non-controlling interests even when such allocation creates a deficit balance for the non-controlling interest partner.Revenue RecognitionRevenues are recognized in the period in which services are rendered. Net patient revenues (patient revenues less estimatedcontractual adjustments) are reported at the estimated net realizable amounts from third-party payors, patients and others for servicesrendered. The Company has agreements with third-party payors that provide for payments to the Company at amounts different fromits established rates. The allowance for estimated contractual adjustments is based on terms of payor contracts and historicalcollection and write-off experience.The Company determines allowances for doubtful accounts based on the specific agings and payor classifications at eachclinic. The provision for doubtful accounts is included in clinic operating costs in the52TABLE OF CONTENTSstatements of net income. Patient accounts receivable, which are stated at the historical carrying amount net of contractualallowances, write-offs and allowance for doubtful accounts, includes only those amounts the Company estimates to be collectible.Medicare ReimbursementThe Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (“MPFS”).For services provided in 2018, a 0.5% increase has been applied to the fee schedule payment rates; for services provided in 2019, a0.25% increase will be applied to the fee schedule payment rates, subject to an adjustment beginning in 2019 under the Merit-BasedIncentive Payment System (“MIPS”). For services provided in 2020 through 2025, a 0.0% percent update will be applied each year tothe fee schedule payment rates, subject to adjustments under MIPS and any alternative payment models (“APMs”). Beginning in2019, payments to individual therapists (Physical/Occupational Therapist in Private Practice) under the fee schedule may be subjectto adjustment based on performance in MIPS, which measures performance based on certain quality metrics, resource use, andmeaningful use of electronic health records. Under the MIPS requirements, a provider’s performance is assessed according toestablished performance standards and used to determine an adjustment factor that is then applied to the professional’s payment fora year. Each year from 2019 through 2024 professionals who receive a significant share of their revenues through an APM (such asaccountable care organizations or bundled payment arrangements) that involves risk of financial losses and a quality measurementcomponent will receive a 5% bonus. The bonus payment for APM participation is intended to encourage participation and testing ofnew APMs and to promote the alignment of incentives across payors. The specifics of the MIPS and APM adjustments beginning in2019 and 2020, respectively, will be subject to future notice and comment rule-making.The Budget Control Act of 2011 increased the federal debt ceiling in connection with deficit reductions over the next ten years,and requires automatic reductions in federal spending by approximately $1.2 trillion. Payments to Medicare providers are subject tothese automatic spending reductions, subject to a 2% cap. On April 1, 2013, a 2% reduction to Medicare payments was implemented.The Bipartisan Budget Act of 2015, enacted on November 2, 2015, extended the 2% reductions to Medicare payments through fiscalyear 2025. The Bipartisan Budget Act of 2018, enacted on February 9, 2018, extends the 2% reductions to Medicare paymentsthrough fiscal year 2027.Historically, the total amount paid by Medicare in any one year for outpatient physical therapy, occupational therapy, and/orspeech-language pathology services provided to any Medicare beneficiary was subject to an annual dollar limit (i.e., the “TherapyCap” or “Limit”). For 2017, the annual Limit on outpatient therapy services was $1,980 for combined Physical Therapy and SpeechLanguage Pathology services and $1,980 for Occupational Therapy services. As a result of Bipartisan Budget Act of 2018, theTherapy Caps have been eliminated, effective as of January 1, 2018.Under the Middle Class Tax Relief and Job Creation Act of 2012 (“MCTRA”), since October 1, 2012, patients who met orexceeded $3,700 in therapy expenditures during a calendar year have been subject to a manual medical review to determine whetherapplicable payment criteria are satisfied. The $3,700 threshold is applied to Physical Therapy and Speech Language PathologyServices; a separate $3,700 threshold is applied to the Occupational Therapy. The MACRA directed CMS to modify the manualmedical review process such that those reviews will no longer apply to all claims exceeding the $3,700 threshold and instead will bedetermined on a targeted basis based on a variety of factors that CMS considers appropriate The Bipartisan Budget Act of 2018extends the targeted medical review indefinitely, but reduces the threshold to $3,000 through December 31, 2027. For 2028, thethreshold amount will be increased by the percentage increase in the Medicare Economic Index (“MEI”) for 2028 and in subsequentyears the threshold amount will increase based on the corresponding percentage increase in the MEI for such subsequent year.CMS adopted a multiple procedure payment reduction (“MPPR”) for therapy services in the final update to the MPFS forcalendar year 2011. The MPPR applied to all outpatient therapy services paid under Medicare Part B — occupational therapy,physical therapy and speech-language pathology. Under the policy, the Medicare program pays 100% of the practice expensecomponent of the Relative Value Unit (“RVU”) for the therapy procedure with the highest practice expense RVU, then reduces thepayment for the practice expense component for the second and subsequent therapy procedures or units of service furnished duringthe same day for the same patient, regardless of whether those therapy services are furnished in separate sessions. Since 2013, thepractice53TABLE OF CONTENTSexpense component for the second and subsequent therapy service furnished during the same day for the same patient was reducedby 50%. In addition, the MCTRA directed CMS to implement a claims-based data collection program to gather additional data onpatient function during the course of therapy in order to better understand patient conditions and outcomes. All practice settingsthat provide outpatient therapy services are required to include this data on the claim form. Since 2013, therapists have been requiredto report new codes and modifiers on the claim form that reflect a patient’s functional limitations and goals at initial evaluation,periodically throughout care, and at discharge. Reporting of these functional limitation codes and modifiers are required on the claimfor payment.Medicare claims for outpatient therapy services furnished by therapy assistants on or after January 1, 2022 must include amodifier indicating the service was furnished by a therapy assistant. CMS is required to develop a modifier to mark services providedby a therapy assistant by January 1, 2019, and then submitted claims have to report the modifier mark starting January 1, 2020.Outpatient therapy services furnished on or after January 1, 2022 in whole or part by a therapy assistant will be paid at an amountequal to 85% of the payment amount otherwise applicable for the service.Statutes, regulations, and payment rules governing the delivery of therapy services to Medicare beneficiaries are complex andsubject to interpretation. We believe that we are in compliance, in all material respects, with all applicable laws and regulations andare not aware of any pending or threatened investigations involving allegations of potential wrongdoing that would have a materialeffect on the our financial statements as of December 31, 2017. Compliance with such laws and regulations can be subject to futuregovernment review and interpretation, as well as significant regulatory action including fines, penalties, and exclusion from theMedicare program. Net patient revenue from Medicare were approximately $92.6 million, $81.8 million and $73.2 million, respectively,for 2017, 2016 and 2015.Management Contract RevenuesManagement contract revenues, which are included in other revenues, are derived from contractual arrangements whereby theCompany 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.Workforce Performance Solutions RevenueRevenue from the workforce performance solutions business, which are also included in other revenues, are derived from onsiteservices provided to clients’ employees including injury prevention, rehabilitation, ergonomic assessments and performanceoptimization. Revenues are determined based on the number of hours and respective rate for services provided.Contractual AllowancesContractual allowances result from the differences between the rates charged for services performed and expectedreimbursements by both insurance companies and government sponsored healthcare programs for such services. Medicareregulations and the various third party payors and managed care contracts are often complex and may include multiplereimbursement mechanisms payable for the services provided in Company clinics. The Company estimates contractual allowancesbased on its interpretation of the applicable regulations, payor contracts and historical calculations. Each month the Companyestimates its contractual allowance for each clinic based on payor contracts and the historical collection experience of the clinic andapplies an appropriate contractual allowance reserve percentage to the gross accounts receivable balances for each payor of theclinic. Based on the Company’s historical experience, calculating the contractual allowance reserve percentage at the payor level issufficient to allow the Company to provide the necessary detail and accuracy with its collectability estimates. However, the servicesauthorized and provided and related reimbursement are subject to interpretation that could result in payments that differ from theCompany’s estimates. Payor terms are periodically revised necessitating continual review and assessment of the estimates made bymanagement. The Company’s billing system does not capture the exact change in its contractual allowance reserve estimate fromperiod to period in order to assess the accuracy of its revenues and hence its contractual allowance reserves. Management regularlycompares its cash collections to corresponding net revenues measured both in the aggregate and on a54TABLE OF CONTENTSclinic-by-clinic basis. In the aggregate, historically the difference between net revenues and corresponding cash collections hasgenerally reflected a difference within approximately 1% of net revenues. Additionally, analysis of subsequent period’s contractualwrite-offs on a payor basis reflects a difference within approximately 1% between the actual aggregate contractual reserve percentageas compared to the estimated contractual allowance reserve percentage associated with the same period end balance. As a result, theCompany believes that a change in the contractual allowance reserve estimate would not likely be more than 1% at December 31,2017.Income TaxesIncome taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for thefuture tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilitiesand their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured usingenacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoveredor settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includesthe enactment date.The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authoritywould more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, theamount to be recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of beingrealized upon ultimate settlement with the relevant tax authority.The Tax Cuts and Jobs Act of 2017 (the “TCJA”) was passed by Congress on December 20, 2017 and signed into law byPresident Trump on December 22, 2017. The TCJA makes significant changes to U.S. corporate income tax laws including a decreasein the corporate income tax rate to 21% effective January 1, 2018. As a result, the Company revalued its deferred tax assets andliabilities. Based on a review and analysis as of December 31, 2017, the Company estimated a reduction of its net deferred taxliabilities by $4.3 million thereby reducing its provision for income taxes by such amount for the 2017 year.The Company did not have any accrued interest or penalties associated with any unrecognized tax benefits nor was any interestexpense recognized during the twelve months ended December 31, 2017 and 2016. The Company will book any interest or penalties, ifrequired, in interest and other expense, as appropriate.Fair Values of Financial InstrumentsThe carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accountspayable and notes payable approximate their fair values due to the short-term maturity of these financial instruments. The carryingamount under the Amended Credit Agreement (as defined in Note 10) approximates its fair value. The interest rate on the CreditAgreement, which is tied to the Eurodollar Rate, is set at various short-term intervals, as detailed in the Credit Agreement.Segment ReportingOperating segments are components of an enterprise for which separate financial information is available that is evaluatedregularly by chief operating decision makers in determining the allocation of resources and in assessing performance. The Companyidentifies operating segments based on management responsibility and believes it meets the criteria for aggregating its operatingsegments into a single reporting segment.Use of EstimatesIn 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 theseestimates.Self-Insurance ProgramThe Company utilizes a self-insurance plan for its employee group health and dental insurance coverage administered by a thirdparty. Predetermined loss limits have been arranged with the insurance company to55TABLE OF CONTENTSminimize the Company’s maximum liability and cash outlay. Accrued expenses include the estimated incurred but unreported costs tosettle unpaid claims and estimated future claims. Management believes that the current accrued amounts are sufficient to pay claimsarising from self-insurance claims incurred through December 31, 2017.Restricted StockRestricted stock issued to employees and directors is subject to continued employment or continued service on the board,respectively. Generally, restrictions on the stock granted to employees lapse in equal annual installments on the following fouranniversaries of the date of grant. For those shares granted to directors, the restrictions will lapse in equal quarterly installmentsduring the first year after the date of grant. For those granted to officers, the restriction will lapse in equal quarterly installmentsduring the four years following the date of grant. Compensation expense for grants of restricted stock is recognized based on the fairvalue per share on the date of grant amortized over the vesting period. The restricted stock issued is included in basic and dilutedshares for the earnings per share computation.Recently Issued Accounting GuidanceIn January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (Topic 350), which eliminates therequirement to calculate the implied fair value of goodwill to measure a goodwill impairment change. ASU 2017-04 is effectiveprospectively for fiscal years, and the interim periods within those years, beginning after December 15, 2019. The Company does notexpect adoption of this ASU to have a material impact.In February 2016, the FASB issued amended accounting guidance (ASU 2016-02, Leases) which replaced most existing leaseaccounting guidance under U. S. generally accepted accounting principles. Among other changes, the amended guidance requiresthat a right-to-use asset, which is an asset that represents the lessee’s right to use, and a lease liability, which is a lessee’s obligationto make lease payments arising for a lease measured on a discounted basis, be recognized on the balance sheet by lessees for thoseleases with a term of greater than 12 months. The amended guidance is effective for reporting periods beginning after December 15,2018; however, early adoption is permitted. Entities can use a modified retrospective approach for leases that exist or are entered intoafter the beginning of the earliest comparative period in the financial statements or recognize the cumulative effect of applying thenew standard as an adjustment to the opening balance of retained earnings..Since the Company leases all but one of its clinic facilities, upon adoption, the Company will recognize significant assets andliabilities on the consolidated balance sheets as a result of the operating lease obligations of the Company. Operating lease expensewill still be recognized as rent expense on a straight-line basis over the respective lease terms in the consolidated statements ofincome.The Company will implement the new standard beginning January 1, 2019. The Company’s implementation efforts are focusedon populating the data in a lease accounting software package and developing internal controls in order to account for its leasesunder the new standard.In May 2014, March 2016, April 2016, and December 2016, the FASB issued ASU 2014-09, Revenue from Contracts withCustomers, ASU 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations, ASU 2016-10, Revenuefrom Contracts with Customers, Identifying Performance Obligations and Licensing, ASU 2016-12, Revenue from Contracts withCustomers, Narrow Scope Improvements and Practical Expedients, and ASU 2016-20, Technical Corrections and Improvements toTopic 606, Revenue from Contracts with Customer (collectively “the standards”), respectively, which supersede most of the currentrevenue recognition requirements. The core principle of the new guidance is that an entity should recognize revenue to depict thetransfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to beentitled in exchange for those goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue andcash flows arising from contracts with customers are also required. The original standards were effective for fiscal years beginningafter December 15, 2016; however, in July 2015, the FASB approved a one-year deferral of these standards, with a new effective datefor fiscal years beginning after December 15, 2017. The standards require the selection of a retrospective or cumulative effecttransition method.56TABLE OF CONTENTSThe Company implemented the new standard beginning January 1, 2018 using a modified retrospective transition method.Adoption of the new standard did not result in material changes to the presentation of net revenues and bad debt expense in theconsolidated statements of income, and the presentation of the amount of income from operations and net income will be unchangedupon adoption of the new standards. The principal change relates to how the new standard requires healthcare providers to estimatethe amount of variable consideration to be included in the transaction price up to an amount which is probable that a significantreversal will not occur. The most common form of variable consideration the Company experiences are amounts for services providedthat are ultimately not realizable from a customer. Under the current standards, the Company’s estimate for unrealizable amounts isrecorded as a reduction of revenue. Under the new standards, the Company’s estimate for unrealizable amounts will continue to berecognized as a reduction to revenue. The bad debt expense historically reported will not materially change.Subsequent EventThe Company has evaluated events occurring after the balance sheet date for possible disclosure as a subsequent eventthrough the date that these consolidated financial statements were issued. No disclosures were required.3. Acquisitions of BusinessesDuring 2017, 2016 and 2015, the Company acquired a majority interest in the following multi-clinic physical therapy practices: Date% InterestAcquiredNumber ofClinics 2017 January 2017 AcquisitionJanuary 1 70% 17 May 2017 AcquisitionMay 31 70% 4 June 2017 AcquisitionJune 30 60% 9 October 2017 AcquisitionOctober 31 70% 9 2016 February 2016 AcquisitionFebruary 29 55% 8 November 2016 AcquisitionNovember 30 60% 12 2015 January 2015 AcquisitionJanuary 31 60% 9 April 2015 AcquisitionApril 30 70% 3 June 2015 AcquisitionJune 30 70% 4 December 2015 AcquisitionDecember 31 59% 4 On January 1, 2017, the Company acquired a 70% interest in a seventeen-clinic physical therapy practice. The purchase price forthe 70% interest was $10.7 million in cash and $0.5 million in a seller note that was payable in two principal installments totaling$250,000 each, plus accrued interest. The first installment was paid in January 2018 and the second installment is due in January 2019.On May 31, 2017, the Company acquired a 70% interest in a four-clinic physical therapy practice. The purchase price for the 70%interest was $2.3 million in cash and $250,000 in a seller note that is payable in two principal installments totaling $125,000 each, plusaccrued interest, in May 2018 and 2019.On June 30, 2017, the Company acquired a 60% interest in a nine-clinic physical therapy practice. The purchase price for the60% interest was $15.8 million in cash and $0.5 million in a seller note that is payable in two principal installments totaling $250,000each, plus accrued interest, in June 2018 and 2019.On October 31, 2017, the Company acquired a 70% interest in a nine-clinic physical therapy practice and two managementcontracts with third party providers. The purchase price for the 70% interest was $4.0 million in cash and $0.5 million in a seller notethat is payable in two principal installments totaling $250,000 each, plus accrued interest, in October 2018 and 2019.57TABLE OF CONTENTSIn addition to the above, as previously mentioned in March 2017, the Company acquired a 55% interest in a company which is aleading provider of workforce performance solutions. The purchase price for the 55% interest was $6.2 million in cash and $0.4 millionin a seller note that is payable, principal plus accrued interest, in September 2018. Also, in 2017, the Company purchased the assetsand business of two physical therapy clinics in separate transactions. One clinic was consolidated with an existing clinic and theother operates as a satellite clinic of one of the existing partnerships.The results of operations of the acquired clinics have been included in the Company’s consolidated financial statements sincethe date of their respective acquisition. The Company intends to continue to pursue additional acquisition opportunities, developnew clinics and open satellite clinics.The purchase price for the 2017 acquisitions has been preliminarily allocated as follows (in thousands):Cash paid, net of cash acquired$36,682 Seller notes 2,150 Total consideration$38,832 Estimated fair value of net tangible assets acquired: Total current assets$6,248 Total non-current assets 1,818 Total liabilities (2,909)Net tangible assets acquired$5,157 Referral relationships 3,885 Non-compete 1,224 Tradename 8,439 Goodwill 44,292 Fair value of non-controlling interest (classified as redeemable non-controlling interests) (13,883)Fair value of non-controlling interest (originally classified as mandatorily redeemable non-controlling interests) (10,282) $38,832 On November 30, 2016, the Company acquired a 60% interest in a 12 clinic physical therapy practice. The purchase price for the60% interest was $11.0 million in cash and $0.5 million in a seller note that is payable in two principal installments of $250,000 each,plus accrued interest. The first installment was paid in November 2017 and the second installment is due in November 2018. OnFebruary 29, 2016, the Company acquired a 55% interest in an eight-clinic physical therapy practice. The purchase price for the 55%interest was $13.2 million in cash and $0.5 million in a seller note that is payable in two principal installments of $250,000 each, plusaccrued interest. The first installment was paid in February 2017 and the second was paid in February 2018. During 2016, twosubsidiaries of the Company each acquired a single clinic therapy practice for an aggregate purchase price of $75,000.The purchase price for the 2016 acquisitions were allocated as follows (in thousands):Cash paid, net of cash acquired$23,623 Seller notes 1,000 Total consideration$24,623 Fair value of net tangible assets acquired: Total current assets$1,372 Total non-current assets 839 Total liabilities (399)Net tangible assets acquired$1,812 Referral relationships 4,919 Non-compete 847 Tradename 3,802 Goodwill 32,123 Fair value of non-controlling interest (originally classified as mandatorily redeemable non-controlling interests) (18,880) $24,623 58TABLE OF CONTENTSOn December 31, 2015, the Company acquired a 59% interest in a four-clinic physical therapy practice. The purchase price was$4.6 million in cash and $400,000 in seller notes payable that were payable in two principal installments of an aggregate of $200,000each, plus accrued interest. The first payment was paid in December 2016 and the second installment was paid in December 2017. OnJune 30, 2015, the Company acquired a 70% interest in a four-clinic physical therapy practice. The purchase price was $3.6 million incash and $0.7 million in seller notes that are payable plus accrued interest, in June 2018. On April 30, 2015, the Company acquired a70% interest in a three-clinic physical therapy practice. The purchase price was $4.7 million in cash and $150,000 in a seller note thatwas payable in two principal installments of $75,000 each, plus accrued interest. The first payment was paid in April 2016 and thesecond installment was paid in April 2017. On January 31, 2015, the Company acquired a 60% interest in a nine-clinic physical therapypractice.The purchase price for the 60% interest was $6.7 million in cash and $0.5 million in a seller note that is payable in two principalinstallments of $250,000 each, plus accrued interest. This note was paid in full in January 2017. In addition to the multi-clinicacquisitions, on August 31, 2015, the Company acquired a 60% interest in a single physical therapy clinic for $150,000 in cash and$50,000 in a seller note payable plus accrued interest that was paid in August 2016.The purchase prices for the 2015 acquisitions have been allocated as follows (in thousands):Cash paid, net of cash acquired$18,965 Seller notes 1,800 Total consideration$20,765 Fair value of net tangible assets acquired: Total current assets$1,952 Total non-current assets 1,068 Total liabilities (1,067)Net tangible assets acquired$1,953 Referral relationships 3,655 Non-compete 594 Tradename 3,417 Goodwill 23,437 Fair value of non-controlling interest (12,291) $20,765 The purchase prices plus the fair value of the non-controlling interests for the acquisition in January 2017 and for the yearsended December 31, 2016 and 2015 were allocated to the fair value of the assets acquired, inclusive of identifiable intangible assets,i.e. trade names, referral relationships and non-compete agreements, and liabilities assumed based on the fair values at the acquisitiondate, with the amount exceeding the fair values being recorded as goodwill are finalized. For the acquisitions occurring on or afterFebruary 1, 2017, the Company is in the process of completing its formal valuation analysis to identify and determine the fair value oftangible and identifiable intangible assets acquired and the liabilities assumed. Thus, the final allocation of the purchase price maydiffer from the preliminary estimates used at December 31, 2017 based on additional information obtained and completion of thevaluation of the identifiable intangible assets. Changes in the estimated valuation of the tangible assets acquired, the completion ofthe valuation of identifiable intangible assets and the completion by the Company of the identification of any unrecorded pre-acquisition contingencies, where the liability is probable and the amount can be reasonably estimated, will likely result in adjustmentsto goodwill.For the acquisitions in 2016 and 2015, the values assigned to the referral relationships and non-compete agreements are beingamortized to expense equally over the respective estimated lives. For referral relationships, the range of the estimated lives was 7½ to13 years, and for non-compete agreements the estimated lives was five to six years. Generally, the values assigned to tradenames aretested annually for impairment, however with regards to one acquisition in 2013, the tradename was being amortized over the term ofthe six year agreement in59TABLE OF CONTENTSwhich the Company has acquired the rights to use the specific tradename. In 2016, the remaining value of the tradename was chargedto earnings as the Company decided to combine two acquired operations in Georgia; therefore, the tradename under this six yearagreement will no longer be used.For the 2017, 2016 and 2015 acquisitions, total current assets primarily represent patient accounts receivable. Total non-currentassets are fixed assets, primarily equipment, used in the practices.The consideration paid for each of the acquisitions was derived through arm’s length negotiations. Funding for the cashportions was derived from proceeds from the Company’s revolving credit facility. The results of operations of the acquisitions havebeen included in the Company’s consolidated financial statements since their respective date of acquisition. Unaudited proformaconsolidated financial information for the acquisitions in 2017, 2016 and 2015 acquisitions have not been included as the results,individually and in the aggregate, were not material to current operations.4. Non-Controlling InterestsDuring 2017, the Company acquired additional interests in two partnerships included in non-controlling interest. The additionalinterests purchased in each of the partnerships was 35%. The aggregate purchase price paid was $13,000. Also, during 2017, theCompany sold a 2% interest in a partnership for $138,000. The net after-tax difference of $56,000 was credited to additional paid-incapital.During 2016, the Company acquired additional interests in six partnerships included in non-controlling interest. The interests inthe partnerships purchased ranged from 2% to 35%. The aggregate purchase price paid was $0.9 million in cash and $0.4 million in aseller note, that is payable in two principal installments of $194,000 each in February 2017 and 2018. The purchase price included$112,000 of undistributed earnings. The remaining $1.2 million, less future tax benefits of $0.5 million, was recognized as anadjustment to additional paid-in capital.During 2016, the Company sold a 4% interest in one partnership and 35% in another. The sales prices included aggregate cashof $138,000 plus notes receivable of $148,000 with payments due monthly based on percentages of distributions and bonuses earnedby the purchasers. The total sales price of $286,000, less the tax effect of $110,000, was charged to additional paid-in capital.In 2015, the Company purchased additional interests in six partnerships. The interests in the partnerships purchased rangedfrom 5% to 35%. The aggregate purchase prices paid were $0.9 million in cash. The purchase prices included an aggregate of $217,000of undistributed earnings. The remaining $0.7 million, less future tax benefits of $0.3 million, was recognized as an adjustment toadditional paid-in capital.5. Mandatorily Redeemable Non-Controlling InterestPrior to the second quarter of 2017, when the Company acquired a majority interest (the “Acquisition”) in a physical therapyclinic business (referred to as “Therapy Practice”), these Acquisitions occurred in a series of steps which are described below.1.Prior to the Acquisition, the Therapy Practice exists as a separate legal entity (the “Seller Entity”). The Seller Entity isowned by one or more individuals (the “Selling Shareholders”) most of whom are physical therapists that work in theTherapy Practice and provide physical therapy services to patients.2.In conjunction with the Acquisition, the Seller Entity contributes the Therapy Practice into a newly-formed limitedpartnership (“NewCo”), in exchange for one hundred percent (100%) of the limited and general partnership interests inNewCo. Therefore, in this step, NewCo becomes a wholly-owned subsidiary of the Seller Entity.3.The Company enters into an agreement (the “Purchase Agreement”) to acquire from the Seller Entity a majority (rangesfrom 50% to 90%) of the limited partnership interest and in all cases 100% of the general partnership interest in NewCo. TheCompany does not purchase 100% of the limited partnership interest because the Selling Shareholders, through the SellerEntity, want to maintain an ownership percentage. The consideration for the Acquisition is primarily payable in the form ofcash at closing and a small two-year note in lieu of an escrow (the “Purchase Price”). The Purchase Agreement does notcontain any future earn-out or other contingent consideration that is payable to the Seller Entity or the SellingShareholders.60TABLE OF CONTENTS4.The Company and the Seller Entity also execute a partnership agreement (the “Partnership Agreement”) for NewCo thatsets forth the rights and obligations of the limited and general partners of NewCo. After the Acquisition, the Company isthe general partner of NewCo.5.As noted above, the Company does not purchase 100% of the limited partnership interests in NewCo and the Seller Entityretains a portion of the limited partnership interest in NewCo (“Seller Entity Interest”).6.In most cases, some or all of the Selling Shareholders enter into an employment agreement (the “Employment Agreement”)with NewCo with an initial term that ranges from three to five years (the “Employment Term”), with automatic one-yearrenewals, unless employment is terminated prior to the end of the Employment Term. As a result, a Selling Shareholderbecomes an employee (“Employed Selling Shareholder”) of NewCo. The employment of an Employed Selling Shareholdercan be terminated by the Employed Selling Shareholder or NewCo, with or without cause, at any time. In a few situations, aSelling Shareholder does not become employed by NewCo and is not involved with NewCo following the closing; in thosesituations, such Selling Shareholders sell their entire ownership interest in the Seller Entity as of the closing of theAcquisition.7.The compensation of each Employed Selling Shareholder is specified in the Employment Agreement and is customary andcommensurate with his or her responsibilities based on other employees in similar capacities within NewCo, the Companyand the industry.8.The Company and the Selling Shareholder (including both Employed Selling Shareholders and Selling Shareholders notemployed by NewCo) execute a non-compete agreement (the “Non-Compete Agreement”) which restricts the SellingShareholder from engaging in competing business activities for a specified period of time (the “Non-Compete Term”). ANon-Compete Agreement is executed with the Selling Shareholders in all cases. That is, even if the Selling Shareholderdoes not become an Employed Selling Shareholder, the Selling Shareholder is restricted from engaging in a competingbusiness during the Non-Compete Term.9.The Non-Compete Term commences as of the date of the Acquisition and expires on the later of :a.Two years after the date an Employed Selling Shareholders’ employment is terminated (if the Selling Shareholderbecomes an Employed Selling Shareholder) orb.Five to six years from the date of the Acquisition, as defined in the Non-Compete Agreement, regardless of whetherthe Selling Shareholder is employed by NewCo.10.The Non-Compete Agreement applies to a restricted region which is defined as a 15-mile radius from the Therapy Practice.That is, an Employed Selling Shareholder is permitted to engage in competing businesses or activities outside the 15-mileradius (after such Employed Selling Shareholder no longer is employed by NewCo) and a Selling Shareholder who is notemployed by NewCo immediately is permitted to engage in the competing business or activities outside the 15-mile radius.11.The Partnership Agreement contains provisions for the redemption of the Seller Entity Interest, either at the option of theCompany (the “Call Option”) or on a required basis (the “Required Redemption”):a.Required Redemptioni.Once the Required Redemption is triggered, the Company is obligated to purchase from the Seller Entity and theSeller Entity is obligated to sell to the Company, the allocable portion of the Seller Entity Interest based on theterminated Selling Shareholder’s pro rata ownership interest in the Seller Entity (the “Allocable Portion”).Required Redemption is triggered when both of the following events have occurred:1.Termination of an Employed Selling Shareholder’s employment with NewCo, regardless of the reason forsuch termination, and2.The expiration of an agreed upon period of time, typically three to five years, as set forth in the relevantPartnership Agreement (the “Holding Period”).61TABLE OF CONTENTSii.In the event an Employed Selling Shareholder’s employment terminates prior to the expiration of the HoldingPeriod, the Required Redemption would occur only upon expiration of the Holding Period.b.Call Optioni.In the event that an Employed Selling Shareholder’s employment terminates prior to expiration of the HoldingPeriod, the Company has the contractual right, but not the obligation, to acquire the Employed SellingShareholder’s Allocable Portion of the Seller Entity Interest from the Seller Entity through exercise of the CallOption.c.For the Required Redemption and the Call Option, the purchase price is derived from a formula based on a specifiedmultiple of NewCo’s trailing twelve months of earnings before interest, taxes, depreciation, amortization, and theCompany’s internal management fee, plus an Allocable Portion of any undistributed earnings of NewCo (the“Redemption Amount”). NewCo’s earnings are distributed monthly based on available cash within NewCo; thereforethe undistributed earnings amount is small, if any.d.The Purchase Price for the initial equity interest purchased by the Company is also based on the same specifiedmultiple of the trailing twelve-month earnings that is used in the Required Redemption noted above.e.Although, the Required Redemption and the Call Option do not have an expiration date, the Seller Entity Interesteventually will be purchased by the Company.f.The Required Redemption and the Call Option never apply to Selling Shareholders who do not become employed byNewCo, since the Company requires that such Selling Shareholders sell their entire ownership interest in the SellerEntity at the closing of the Acquisition.12.An Employed Selling Shareholder’s ownership of his or her equity interest in the Seller Entity predates the Acquisition andthe Company’s purchase of its partnership interest in NewCo. The Employment Agreement and the Non-CompeteAgreement do not contain any provision to escrow or “claw back” the equity interest in the Seller Entity held by suchEmployed Selling Shareholder, nor the Seller Entity Interest in NewCo, in the event of a breach of the employment or non-compete terms. More specifically, even if the Employed Selling Shareholder is terminated for “cause” by NewCo, suchEmployed Selling Shareholder does not forfeit his or her right to his or her full equity interest in the Seller Entity and theSeller Entity does not forfeit its right to any portion of the Seller Entity Interest. The Company’s only recourse against theEmployed Selling Shareholder for breach of either the Employment Agreement or the Non-Compete Agreement is to seekdamages and other legal remedies under such agreements. There are no conditions in any of the arrangements with anEmployed Selling Shareholder that would result in a forfeiture of the equity interest held in the Seller Entity or of the SellerEntity Interest.As previously mentioned due to amended partnership agreements, the redemption values of the mandatorily redeemable non-controlling interest (previously classified as liabilities) were reclassified as redeemable non-controlling interest (temporary equity) atfair value on the December 31, 2017 consolidated balance sheet.62TABLE OF CONTENTSThe following table details the changes in the carrying amount of the mandatorily redeemable non-controlling interests (inthousands): Year EndedDecember 31,2017Year EndedDecember 31, 2016 Beginning balance$69,190 $45,974 Operating results allocated to mandatorily redeemable non-controlling interest partners 6,055 4,057 Distributions to mandatorily redeemable non-controlling interest partners (7,336) (4,628)Changes in the redemption value of mandatorily redeemable non-controlling interest 12,894 6,169 Payments for settlement of mandatorily redeemable non-controlling interest (2,361) (1,262)Purchases of businesses - initial liability related to mandatorily redeemable non-controlling interest 10,282 18,880 Other 119 — Extinguishment of mandatorily redeemable non-controlling interest (88,516) — Ending balance$327 $69,190 The following table categorizes the carrying amount of the mandatorily redeemable non-controlling interests (in thousands): December 31,2017December 31, 2016 Contractual time period has lapsed but holder’s employment has not been terminated$327 $24,700 Contractual time period has not lapsed and holder’s employment has not been terminated — 46,949 Holder’s employment has terminated and contractual time period has expired — — Holder’s employment has terminated and contractual time period has not expired — — Redemption value prior to excess distributed earnings$327 $71,649 Excess distributions over earnings and losses — (2,459) $327 $69,190 6. Redeemable Non-Controlling InterestWhen the Company acquires a majority interest in a Therapy Practice, those Acquisitions occur in a series of steps as describedin numbers 1 through 10 of Footnote 5 – Mandatorily Redeemable Non-Controlling Interests. For the Acquisitions that occurred afterthe first quarter of 2017, the Partnership Agreement contained provisions for the redemption of the Seller Entity Interest, either at theoption of the Company (the “Call Right”) or at the option of the Seller Entity (the “Put Right”) as follows:1.Put Righta.In the event that any Selling Shareholder’s employment is terminated involuntarily by the Company without “Cause”pursuant to such Selling Shareholder’s Employment Agreement prior to the fifth anniversary of the Closing Date, theSeller Entity thereafter shall have an irrevocable right to cause the Company to purchase from Seller Entity theTerminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest at the purchase price described in “3”below.b.In the event that any Selling Shareholder is not employed by NewCo as of the fifth anniversary of the Closing Dateand the Company has not exercised its Call Right with respect to the Terminated Selling Shareholder’s AllocablePercentage of Seller Entity’s Interest, Seller Entity thereafter shall63TABLE OF CONTENTShave the Put Right to cause the Company to purchase from Seller Entity the Terminated Selling Shareholder’sAllocable Percentage of Seller Entity’s Interest at the purchase price described in “3” below.c.In the event that any Selling Shareholder’s employment with NewCo is terminated for any reason on or after the fifthanniversary of the Closing Date, the Seller Entity shall have the Put Right, and upon the exercise of the Put Right, theTerminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest shall be redeemed by the Company atthe purchase price described in “3” below.2.Call Righta.If any Selling Shareholder’s employment by NewCo is terminated (i) pursuant to a voluntary termination by the SellingShareholder or (ii) by NewCo with “Cause” (as defined in the Selling Shareholder’s Employment Agreement), prior tothe fifth anniversary of the Closing Date, the Company thereafter shall have an irrevocable right to purchase fromSeller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest, in each case at thepurchase price described in “3” below.b.In the event that any Selling Shareholder’s employment with NewCo is terminated for any reason on or after the fifthanniversary of the Closing Date, the Company shall have the Call Right, and upon the exercise of the Call Right, theTerminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest shall be redeemed by the Company atthe purchase price described in “3” below.3.For the Put Right and the Call Right, the purchase price is derived from a formula based on a specified multiple of NewCo’strailing twelve months of earnings before interest, taxes, depreciation, amortization, and the Company’s internalmanagement fee, plus an Allocable Percentage of any undistributed earnings of NewCo (the “Redemption Amount”).NewCo’s earnings are distributed monthly based on available cash within NewCo; therefore, the undistributed earningsamount is small, if any.4.The Purchase Price for the initial equity interest purchased by the Company is also based on the same specified multiple ofthe trailing twelve-month earnings that is used in the Put Right and the Call Right noted above.5.The Put Right and the Call Right do not have an expiration date, but the Seller Entity Interest is not required to bepurchased by the Company or sold by the Seller Entity.6.The Put Right and the Call Right never apply to Selling Shareholders who do not become employed by NewCo, since theCompany requires that such Selling Shareholders sell their entire ownership interest in the Seller Entity at the closing of theAcquisition.An Employed Selling Shareholder’s ownership of his or her equity interest in the Seller Entity predates the Acquisition and theCompany’s purchase of its partnership interest in NewCo. The Employment Agreement and the Non-Compete Agreement do notcontain any provision to escrow or “claw back” the equity interest in the Seller Entity held by such Employed Selling Shareholder,nor the Seller Entity Interest in NewCo, in the event of a breach of the employment or non-compete terms. More specifically, even ifthe Employed Selling Shareholder is terminated for “cause” by NewCo, such Employed Selling Shareholder does not forfeit his or herright to his or her full equity interest in the Seller Entity and the Seller Entity does not forfeit its right to any portion of the SellerEntity Interest. The Company’s only recourse against the Employed Selling Shareholder for breach of either the EmploymentAgreement or the Non-Compete Agreement is to seek damages and other legal remedies under such agreements. There are noconditions in any of the arrangements with an Employed Selling Shareholder that would result in a forfeiture of the equity interestheld in the Seller Entity or of the Seller Entity Interest.64TABLE OF CONTENTSFor the year ended December 31, 2017, the following table details the changes in the carrying amount (fair value) of theredeemable non-controlling interests (in thousands): Year EndedDecember 31, 2017 Beginning balance$— Operating results allocated to redeemable non-controlling interest partners 244 Distributions to redeemable non-controlling interest partners (272)Changes in the fair value of redeemable non-controlling interest 201 Purchases of businesses - initial equity related to redeemable non-controlling interest 13,883 Fair value of redeemable non-controlling interest - amended partnership agreements 88,516 Ending balance$102,572 As previously mentioned due to amended partnership agreements, the redemption values of the mandatorily redeemable non-controlling interest (previously classified as liabilities) were reclassified as redeemable non-controlling interest (temporary equity) atfair value on the December 31, 2017 consolidated balance sheet.The following table categorizes the carrying amount (fair value) of the redeemable non-controlling interests (in thousands): December 31, 2017 Contractual time period has lapsed but holder’s employment has not been terminated$33,613 Contractual time period has not lapsed and holder’s employment has not been terminated 72,700 Holder’s employment has terminated and contractual time period has expired — Holder’s employment has terminated and contractual time period has not expired — Redemption value prior to excess distributed earnings$106,313 Excess distributions over earnings and losses (3,741) $102,572 7. GoodwillThe changes in the carrying amount of goodwill as of December 31, 2017 and 2016 consisted of the following (in thousands): Year EndedDecember 31, 2017Year EndedDecember 31, 2016 Beginning balance$226,806 $195,373 Goodwill acquired during the year 44,292 31,419 Goodwill adjustments for purchase price allocation of businesses acquired in prior year 706 14 Goodwill written-off - closed clinic (466) — Ending balance$271,338 $226,806 In 2017, the Company wrote off the goodwill related to the closure of a single clinic acquired partnership due to the loss of asignificant management contract.65TABLE OF CONTENTS8. Intangible Assets, netIntangible assets, net as of December 31, 2017 and 2016 consisted of the following (in thousands): December 31, 2017December 31, 2016Tradenames$29,673 $21,234 Referral relationships, net of accumulated amortization of $7,209 and $5,275,respectively 16,811 14,859 Non-compete agreements, net of accumulated amortization of $4,100 and $3,380,respectively 2,470 1,967 $48,954 $38,060 Tradenames, referral relationships and non-compete agreements are related to the businesses acquired. The value assigned totradenames has an indefinite life and is tested at least annually for impairment using the relief from royalty method in conjunctionwith the Company’s annual goodwill impairment test. The value assigned to referral relationships is being amortized over theirrespective estimated useful lives which range from 6 to 16 years. Non-compete agreements are amortized over the respective term ofthe agreements which range from 5 to 6 years.The following table details the amount of amortization expense recorded for intangible assets for the years ended December 31,2017, 2016 and 2015 (in thousands): Year EndedDecember 31, 2017Year EndedDecember 31, 2016Year EndedDecember 31, 2015Tradenames$— $330 $84 Referral relationships 1,934 1,512 1,153 Non-compete agreements 720 525 478 $2,654 $2,367 $1,715 For one acquisition, the value assigned to tradename was being amortized over the term of the six year agreement in which theCompany had acquired the right to use the specific tradename. In 2016, the remaining value of this tradename was charged toearnings and included in amortization expense in the above table as the Company decided to combine two acquired operations inGeorgia and the tradename under this six year agreement will no longer be used.The remaining balances of the referral relationships and non-compete agreements is expected to be amortized as follows (inthousands):Referral RelationshipsNon-Compete AgreementsYearsAnnual AmountYearsAnnual Amount2018$2,032 2018$763 2019$1,942 2019$691 2020$1,942 2020$477 2021$1,942 2021$399 2022$1,894 2022$140 Thereafter$7,059 9. Accrued ExpensesAccrued expenses as of December 31, 2017 and 2016 consisted of the following (in thousands): December 31, 2017December 31, 2016Salaries and related costs$16,828 $10,569 Credit balances due to patients and payors 4,158 3,880 Group health insurance claims 2,929 2,499 Federal income tax payable 2,833 — Other 6,594 4,808 Total$33,342 $21,756 66During the twelve months ended December 31, 2018$4,044 During the twelve months ended December 31, 2019 2,728 During the twelve months ended December 31, 2020 — During the twelve months ended December 31, 2021 54,000 $60,772 TABLE OF CONTENTS10. Notes PayableNotes payable as of December 31, 2017 and 2016 consisted of the following (dollars in thousands): December 31,2017December 31,2016Credit Agreement average effective interest rate of 3.6% inclusive of unused fee$54,000 $46,000 Various notes payable with $4,044 plus accrued interest due in the next year, interest accrues in the range of 3.25% through 4.25% per annum 6,772 5,823 60,772 51,823 Less current portion (4,044) (1,227)Long term portion$56,728 $50,596 Effective December 5, 2013, the Company entered into an Amended and Restated Credit Agreement with a commitment for a$125.0 million revolving credit facility. This agreement was amended in August 2015, January 2016, March 2017 and November 2017(hereafter referred to as “Amended Credit Agreement”). The Amended Credit Agreement is unsecured and has loan covenants,including requirements that the Company comply with a consolidated fixed charge coverage ratio and consolidated leverage ratio.Proceeds from the Amended Credit Agreement may be used for working capital, acquisitions, purchases of the Company’s commonstock, dividend payments to the Company’s common stockholders, capital expenditures and other corporate purposes. The pricinggrid which is based on the Company’s consolidated leverage ratio with the applicable spread over LIBOR ranging from 1.25% to 2.0%or the applicable spread over the Base Rate ranging from 0.1% to 1%. Fees under the Amended Credit Agreement include an unusedcommitment fee ranging from 0.25% to 0.3% depending on the Company’s consolidated leverage ratio and the amount of fundsoutstanding under the Amended Credit Agreement.The January 2016 amendment to the Amended Credit Agreement increased the cash and noncash consideration that theCompany could pay with respect to acquisitions permitted under the Amended Credit Agreement to $50,000,000 for any fiscal year,and increased the amount the Company may pay in cash dividends to its shareholders in an aggregate amount not to exceed$10,000,000 in any fiscal year. The March 2017 amendment, among other items, increased the amount the Company may pay in cashdividends to its shareholders in an aggregate amount not to exceed $15,000,000 in any fiscal year. The November 2017 amendment,among other items, adjusted the pricing grid as described above, increased the aggregate amount the Company may pay in cashdividends to its shareholders to an amount not to exceed $20,000,000 and extended the maturity date to November 30, 2021.On December 31, 2017, $54.0 million was outstanding on the Credit Agreement resulting in $71.0 million of availability. As ofDecember 31, 2017, 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, purchasing ofnon-controlling interests and paying the settlement of mandatorily redeemable non-controlling interests. In conjunction with thetransactions related to these in 2017, the Company entered into notes payable in the aggregate amount of $2.2 million of which anaggregate principal payment of $1.3 million which is due in 2018 and $0.9 million in 2019. Interest accrues in the range of 3.25% to4.25% per annum and is payable with each principal installment.Aggregate annual payments of principal required pursuant to the Credit Agreement and the various notes payable subsequentto December 31, 2017 are as follows (in thousands):67TABLE OF CONTENTS11. Income TaxesSignificant components of deferred tax assets and liabilities included in the consolidated balance sheets at December 31, 2017and 2016 were as follows (in thousands): December 31, 2017December 31, 2016Deferred tax assets: Compensation$1,529 $1,914 Allowance for doubtful accounts 478 572 Lease obligations - closed clinics 54 57 Deferred tax assets$2,061 $2,543 Deferred tax liabilities: Depreciation and amortization$(12,590)$(17,896)Other (346) (383)Deferred tax liabilities (12,936) (18,279)Net deferred tax liability$(10,875)$(15,736)As a result of TCJA, the Company revalued its deferred tax assets and liabilities as of December 31, 2017. Based on a review andanalysis as of December 31, 2017, the Company estimated a reduction of its net deferred tax liabilities by $4.3 million thereby reducingits provision for income taxes by such amount for the 2017 year. The deferred tax assets and liabilities related to purchased interestsnot yet finalized may result in an immaterial adjustment. Also during 2017, the Company recorded an adjustment to the deferred taxassets having the effect of reducing its net deferred tax liability of $1.2 million related to acquisitions of non-controlling interests in2016 based on a detailed reconciliation of its federal and state taxes payable and receivable accounts along with its federal and statedeferred tax asset and liability accounts. The offset to this adjustment was a reduction in the previously reported tax receivable ofapproximately $1.7 million and a charge to current year provision for income taxes of $0.3 million. At December 31, 2017, the Companyhad a federal income tax payable of $2.8 million (included in current liabilities – accrued expenses on the accompanying consolidatedbalance sheet) and a state income tax receivable of $2.2 million. As of December 31, 2016, the Company had a federal tax receivable of$0.7 million and a state tax receivable of $1.5 million (prior to adjustment of $1.7 million: state tax receivable adjustment $0.6 millionand federal tax receivable adjustment of $1.1 million). The tax receivables are included in other current assets on the accompanyingconsolidated balance sheets.The differences between the federal tax rate and the Company’s effective tax rate for results of continuing operations for theyears ended December 31, 2017, 2016 and 2015 were as follows (in thousands): December 31, 2017December 31, 2016December 31, 2015U. S. tax at statutory rate$9,900 35.0%$11,351 35.0%$11,991 35.0%Tax legislation adjustment$(4,325) -15.3% — — — — State income taxes, net of federal benefit and tax reform 1,060 3.7% 945 2.9% 1,337 3.9%Excess equity compensation deduction (1,139) -4.0% (911) -2.8% — — Non-deductible expenses 560 2.0% 495 1.5% 319 0.9%Other (24) -0.1% — — — — $6,032 21.3%$11,880 36.6%$13,647 39.8%In March 2016, the FASB issued guidance to simplify some provisions in stock compensation accounting. The Companyadopted this guidance in the fourth quarter of 2016. Prior to this guidance, excess tax benefits were recorded in additional paid-incapital, but became a component of the income tax provision/benefit in the period in which they occurred. For 2016, the adoptionresulted in a reduction of the income tax provision by $1.0 million. For 2017, the excess equity compensation deduction amount was$1.3 million. The federal tax portion is shown above as excess equity compensation deduction.68TABLE OF CONTENTSSignificant components of the provision for income taxes for the years ended December 31, 2017, 2016 and 2015 were as follows(in thousands): December 31, 2017December 31, 2016December 31, 2015Current: Federal$9,332 $7,620 $6,502 State 1,564 1,281 1,192 Total current 10,896 8,901 7,694 Deferred: Federal (5,233) 2,548 5,302 State 369 431 651 Total deferred (4,864) 2,979 5,953 Total income tax provision$6,032 $11,880 $13,647 For 2017, 2016 and 2015, the Company performed a detailed reconciliation of its federal and state taxes payable and receivableaccounts along with its federal and state deferred tax asset and liability accounts. As a result of this detailed analysis, the Companyrecorded an increase in the income tax provision of $312,000, $34,000 and $147,000 for 2017, 2016, and 2015, respectively. TheCompany considers this reconciliation process to be an annual control.The Company is required to establish a valuation allowance for deferred tax assets if, based on the weight of available evidence,it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred taxassets is dependent upon the generation of future taxable income during the periods in which those temporary differences becomedeductible. Management considers the projected future taxable income and tax planning strategies in making this assessment. Basedupon the level of historical taxable income and projections for future taxable income in the periods which the deferred tax assets aredeductible, management believes that a valuation allowance is not required, as it is more likely than not that the results of futureoperations will generate sufficient taxable income to realize the deferred tax assets.The Company’s U.S. federal returns remain open to examination for 2014 through 2016 and U.S. state jurisdictions are open forperiods ranging from 2013 through 2016.The Company does not believe that it has any significant uncertain tax positions at December 31, 2017, nor is this expected tochange 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 interestexpense recognized during the years ended December 31, 2017, 2016 and 2015.12. Equity Based PlansThe Company has the following equity based plans with outstanding equity grants:The Amended and Restated 1999 Employee Stock Option Plan (the “Amended 1999 Plan”) permits the Company to grant to non-employee directors and employees of the Company up to 600,000 non-qualified options to purchase shares of common stock andrestricted stock (subject to proportionate adjustments in the event of stock dividends, splits, and similar corporate transactions). Theexercise prices of options granted under the Amended 1999 Plan are determined by the Compensation Committee. The period withinwhich each option will be exercisable is determined by the Compensation Committee. The Amended 1999 Plan was approved by theshareholders of the Company at the 2008 Shareholders Meeting on May 20, 2008.The Amended and Restated 2003 Stock Option Plan (the “Amended 2003 Plan”) permits the Company to grant to key employeesand outside directors of the Company incentive and non-qualified options and shares of restricted stock covering up to 2,100,000shares of common stock (subject to proportionate adjustments in the event of stock dividends, splits, and similar corporatetransactions). The material terms of the Amended 2003 Plan was reapproved by the shareholders of the Company at the 2015Shareholders Meeting on May 19, 2015 and an increase in the number of shares authorized for issuance from 1,750,000 to 2,100,000was approved at the 2016 Shareholders Meeting on March 17, 2016.69TABLE OF CONTENTSA cumulative summary of equity plans as of December 31, 2017 follows: AuthorizedRestrictedStockIssuedOutstandingStockOptionsStockOptionsExercisedStockOptionsExercisableSharesAvailablefor GrantEquity Plans Amended 1999 Plan 600,000 416,402 — 139,791 — 7,775 Amended 2003 Plan 2,100,000 839,957 — 778,300 — 481,743 2,700,000 1,256,359 — 918,091 — 489,518 During 2017, 2016 and 2015, the Company granted the following shares of restricted stock to directors, officers and employeespursuant to its equity plans as follows:Year GrantedNumber of SharesWeighted Average FairValue Per Share2017 79,475 $62.19 2016 101,790 $51.59 2015 147,928 $41.66 During 2017, 2016 and 2015, the following shares were cancelled due to employee terminations prior to restrictions lapsing:Year CancelledNumber of SharesWeighted Average FairValue Per Share2017 2,875 $63.12 2016 4,965 $35.78 2015 — — Generally, restrictions on the stock granted to employees lapse in equal annual installments on the following four anniversariesof the date of grant. For those shares granted to directors, the restrictions will lapse in equal quarterly installments during the firstyear after the date of grant. For those granted to officers, the restriction will lapse in equal quarterly installments during the fouryears following the date of grant.As of December 31, 2017, there were 174,602 shares outstanding for which restrictions had not lapsed. The restrictions will lapsein 2018 through 2021.Compensation expense for grants of restricted stock is recognized based on the fair value on the date of grant. Compensationexpense for restricted stock grants was $5.0 million, $5.0 million and $4.5 million, respectively, for 2017, 2016 and 2015. As ofDecember 31, 2017, the remaining $6.6 million of compensation expense will be recognized from 2018 through 2021.13. Preferred StockThe Board is empowered, without approval of the shareholders, to cause shares of preferred stock to be issued in one or moreseries and to establish the number of shares to be included in each such series and the rights, powers, preferences and limitations ofeach series. There are no provisions in the Company’s Articles of Incorporation specifying the vote required by the holders ofpreferred stock to take action. All such provisions would be set out in the designation of any series of preferred stock established bythe Board. The bylaws of the Company specify that, when a quorum is present at any meeting, the vote of the holders of at least amajority of the outstanding shares entitled to vote who are present, in person or by proxy, shall decide any question brought beforethe 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 seriesof preferred stock, preferences, powers, and rights, voting or otherwise, senior to the right of holders of common stock. The issuanceof the preferred stock could have the effect of delaying or preventing a change in control of the Company.of the preferred stock could have the effect of delaying or preventing a change in control of the Company.14. Common StockFrom September 2001 through December 31, 2008, the Board authorized the Company to purchase, in the open market or inprivately negotiated transactions, up to 2,250,000 shares of the Company’s common stock. In70TABLE OF CONTENTSMarch 2009, the Board authorized the repurchase of up to 10% or approximately 1,200,000 shares of its common stock (“March 2009Authorization”). The Amended Credit Agreement permits share repurchases of up to $15,000,000, subject to compliance withcovenants. The Company is required to retire shares purchased under the March 2009 Authorization.Under the March 2009 Authorization, the Company has purchased a total of 859,499 shares. There is no expiration date for theshare repurchase program. There are currently an additional estimated 207,756 shares (based on the closing price of $72.20 onDecember 29, 2017, the last business day in 2017) that may be purchased from time to time in the open market or private transactionsdepending on price, availability and the Company’s cash position. The Company did not purchase any shares of its common stockduring 2017 or 2016.15. Defined Contribution PlanThe Company has several 401(k) profit sharing plans covering all employees with three months of service. For certain plans, theCompany makes matching contributions. The Company may also make discretionary contributions of up to 50% of employeecontributions. The Company did not make any discretionary contributions for the years ended December 31, 2017, 2016 and 2015.The Company matching contributions totaled $1.5 million, $1.1 million and $0.9 million, respectively, for the years ended December 31,2017, 2016 and 2015.16. Commitments and ContingenciesOperating LeasesThe Company has entered into operating leases for its executive offices and clinic facilities. In connection with theseagreements, the Company incurred rent expense of $34.8 million, $30.3 million and $28.3 million for the years ended December 31,2017, 2016 and 2015, respectively. Several of the leases provide for an annual increase in the rental payment based upon theConsumer Price Index. The majority of the leases provide for renewal periods ranging from one to five years. The agreements toextend the leases typically specify that rental rates would be adjusted to market rates as of each renewal date.The future minimum operating lease commitments for each of the next five years and thereafter and in the aggregate as ofDecember 31, 2017 are as follows (in thousands):2018$33,357 2019 25,551 2020 21,777 2021 10,919 2022 6,144 Thereafter 5,009 Total$102,757 Employment AgreementsAt December 31, 2017, the Company had outstanding employment agreements with three of its executive officers. Theseagreements, which presently expire on December 31, 2018, provide for automatic two year renewals at the conclusion of each expiringterm or renewal term. All of the agreements contain a provision for annual adjustment of salaries.In addition, the Company has outstanding employment agreements with most of the managing physical therapist partners of theCompany’s physical therapy clinics and with certain other clinic employees which obligate subsidiaries of the Company to paycompensation of $30.1 million in 2018 and $15.6 million in the aggregate from 2019 through 2022. In addition, many of the employmentagreements with the managing physical therapists provide for monthly bonus payments calculated as a percentage of each clinic’snet revenues (not in excess of operating profits) or operating profits.71TABLE OF CONTENTS17. Earnings Per ShareThe computations of basic and diluted earnings per share for the years ended December 31, 2017, 2016 and 2015 are as follows(in thousands, except per share data): Year EndedDecember 31,2017Year EndedDecember 31,2016Year EndedDecember 31, 2015Net income attributable to USPh shareholders$22,256 $20,551 $20,615 Charges to additional paid-in capital Revaluation of redeemable non-controlling interests (201) — — Tax effect at statutory rate (federal and state) of 39.25% 75 — — $22,130 $20,551 $20,615 Basic and diluted net income per share attributable to USPHshareholders$1.76 $1.64 $1.66 Shares used in computation: Basic and diluted earnings per share - weighted-average shares 12,570 12,500 12,392 18. Selected Quarterly Financial Data (Unaudited) Q1 2017Q2 2017Q3 2017Q4 2017Net patient revenues$93,654 $97,657 $96,273 $101,642 Net revenues$97,565 $104,251 $103,032 $109,203 Operating income$12,200 $15,678 $12,888 $13,962 Net income$6,034 $6,390 $6,594 $8,706 Net income attributable to USPH shareholders$4,816 $4,941 $5,150 $7,349 Basic and diluted earnings per share attributable to commonshareholders:$0.38 $0.39 $0.41 $0.57 Shares used in computation - basic and diluted 12,528 12,579 12,581 12,593 Q1 2016Q2 2016Q3 2016Q4 2016Net patient revenues$85,049 $88,433 $86,411 $88,946 Net revenues$86,908 $90,430 $88,344 $90,864 Operating income$11,491 $15,033 $12,055 $10,954 Net income$5,953 $7,671 $6,134 $6,510 Net income attributable to USPH shareholders$4,488 $6,012 $4,804 $5,247 Basic and diluted earnings per share attributable to commonshareholders:$0.36 $0.48 $0.38 $0.42 Shares used in computation - basic and diluted 12,448 12,511 12,520 12,519 72TABLE OF CONTENTSITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURE.Not applicable.ITEM 9A.CONTROLS AND PROCEDURES.Evaluation of Disclosure Controls and ProceduresOur management, including our Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of theeffectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Exchange Act) as of theend of the fiscal period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officerhave concluded that our disclosure controls and procedures are effective in ensuring that the information required to be disclosed inthe reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periodsspecified in the rules and forms of the SEC and that such information is accumulated and communicated to our management,including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.Management’s Report on Internal Control over Financial ReportingManagement is responsible for establishing and maintaining adequate internal control over financial reporting, as such term isdefined in Rule 13a-15(f) under the Exchange Act. U.S. Physical Therapy, Inc. and subsidiaries’ (the “Company”) internal control overfinancial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial 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 anddispositions of the assets of the Company;•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles, and that our receipts and expenditures are being made only inaccordance with authorizations of the Company’s management and directors; and•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition ofthe 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 becauseof its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and issubject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also becircumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatementsmay not be prevented or detected on a timely basis by internal control over financial reporting. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate. However, these inherent limitations are known features ofthe financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, therisk.Management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31,2017. In making this assessment, management used the criteria described in Internal Control — Integrated Framework (2013) issuedby the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded thatour internal control over financial reporting was effective as of December 31, 2017.The Company’s internal control over financial reporting has been audited by Grant Thornton LLP, an independent registeredpublic accounting firm, as stated in their report included on page 43.73TABLE OF CONTENTSChanges in Internal Control over Financial ReportingThere have been no changes in our internal control over financial reporting during the quarter ended December 31, 2017 thathave materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Remediation of Previously Reported Material Weaknesses in Internal Control over Financial ReportingManagement has taken certain action to remediate the material weakness in the Company’s internal control over financialreporting discussed in the Company’s Annual Report on Form 10-K, for the year ended December 31, 2016 and summarized below.•Redeemable non-controlling interests – We did not properly account for redeemable non-controlling interests. TheCompany’s business combination / purchase accounting controls relating to our accounting for redeemable non-controlling interests were not designed effectively to ensure that we correctly interpreted and applied technical accountingrequirements concerning the classification of such interests on our consolidated financial statements.Our remediation included a robust review of applicable guidance concerning the manner in which limited partnership interestsare to be reflected on our consolidated financial statements. In addition, as previously disclosed in our second and third quarter Form10Qs, we have implemented changes to our processes and controls to ensure appropriate consideration of such applicableaccounting guidance when we acquire partnership interests in the future. Specifically, we enhanced our review procedures,documentation and approvals related to new standard limited partnership agreements used in our acquisitions. We believe that suchprocesses and controls will enable management to prevent or detect on a timely basis potential future errors in our financial reportingof such interests and based on our testing of these new processes and controls we believe that this material weakness has beenremediated as of December 31, 2017.ITEM 9B.OTHER INFORMATION.Not applicable.PART IIIITEM 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 statementrelating to our 2018 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A, not later than 120 daysafter 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 relatingto our 2018 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A, not later than 120 days after theend of our fiscal year covered by this report.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS.The information required in response to this Item 12 is incorporated herein by reference to our definitive proxy statementrelating to our 2018 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A, not later than 120 daysafter 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 statementrelating to our 2018 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A, not later than 120 daysafter the end of our fiscal year covered by this report.74TABLE OF CONTENTSITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES.The information required in response to this Item 14 is incorporated herein by reference to our definitive proxy statementrelating to our 2018 Annual Meeting of Stockholders to be filed with the SEC pursuant to Regulation 14A, not later than 120 daysafter the end of our fiscal year covered by this report.PART IVITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.(a)Documents filed as a part of this report:1.Financial Statements. Reference is made to the Index to Financial Statements and Related Information under Item 8 inPart II hereof, where these documents are listed.2.Financial Statement Schedules. See page 79 for Schedule II — Valuation and Qualifying Accounts. All otherschedules are omitted because of the absence of conditions under which they are required or because the requiredinformation 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 thisreport.ITEM 16.Form 10-K SummaryNone.75TABLE OF CONTENTSEXHIBIT INDEXLIST OF EXHIBITSNumberDescription3.1Articles of Incorporation of the Company [filed as an exhibit to the Company’s Form 10-Q for the quarterly periodended June 30, 2001 and incorporated herein by reference]. 3.2Amendment to the Articles of Incorporation of the Company [filed as an exhibit to the Company’s Form 10-Q for thequarterly period ended June 30, 2001 and incorporated herein by reference]. 3.3Bylaws of the Company, as amended [filed as an exhibit to the Company’s Form 10-KSB for the year ended December31, 1993 and incorporated herein by reference—Commission File Number—1-11151]. 10.1+1999 Employee Stock Option Plan (as amended and restated May 20, 2008) [incorporated by reference to Appendix A tothe Company’s Definitive Proxy Statement on Schedule 14A, filed with the SEC on April 17, 2008]. 10.2+U. S. Physical Therapy, Inc. 2003 Stock Incentive Plan, as amended and restated March 26, 2010 [incorporated byreference to Appendix A to the Company’s proxy statement on Schedule 14A filed with the SEC on April 9, 2010]. 10.3+Form of Restricted Stock Agreement [incorporated by reference to Exhibit 10.17 to the Company’s Annual Report onForm 10-K filed with the SEC on March 12, 2013.] 10.4+U. S. Physical Therapy, Inc. Long-Term Incentive Plan for Senior Management for 2013, effective March 27, 2013[incorporated by reference to Exhibit 99.1 to the Company Current Report on Form 8-K filed with the SEC on April 1,2013]. 10.5+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for 2013, effective March 27, 2013 [incorporated by reference toExhibit 99.2 to the Company Current Report on Form 8-K filed with the SEC on April 1, 2013]. 10.6+U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for 2013, effective March 27, 2013 [incorporated byreference to Exhibit 99.3 to the Company Current Report on Form 8-K filed with the SEC on April 1, 2013]. 10.7+U. S. Physical Therapy, Inc. Long-Term Incentive Plan for Senior Management for 2014, effective March 21, 2014[incorporated by reference to Exhibit 99.1 to the Company Current Report on Form 8-K filed with the SEC on March 27,2014]. 10.8+U. S. Physical Therapy, Inc. Discretionary Long-Term Incentive Plan for Senior Management for 2014, effective March21, 2014 [incorporated by reference to Exhibit 99.2 to the Company Current Report on Form 8-K filed with the SEC onMarch 27, 2014]. 10.9+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2014, effective March 21, 2014[incorporated by reference to Exhibit 99.3 to the Company Current Report on Form 8-K filed with the SEC on March 27,2014]. 10.10+U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2014, effective March 21, 2014[incorporated by reference to Exhibit 99.4 to the Company Current Report on Form 8-K filed with the SEC on March 27,2014]. 76TABLE OF CONTENTSNumberDescription10.11+U. S. Physical Therapy, Inc. Long Term Incentive Plan for Senior Management for 2015, effective March 23, 2015[incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on March27, 2015.] 10.12+U. S. Physical Therapy, Inc. Discretionary Long Term Incentive Plan for Senior Management for 2015, effective March23, 2015 [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC onMarch 27, 2015.] 10.13+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2015, effective March 23, 2015[incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on March27, 2015.] 10.14+U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2015, effective March 23, 2015[incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC on March27, 2015.] 10.15+U. S. Physical Therapy, Inc. Objective Long Term Incentive Plan for Senior Management for 2016, effective March 10,2016 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC onMarch 16, 2016]. 10.16+U. S. Physical Therapy, Inc. Discretionary Long Term Incentive Plan for Senior Management for 2016, effective March10, 2016 [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC onMarch 16, 2016]. 10.17+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2016, effective March 10, 2016[incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on March16, 2016]. 10.18+U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2016, effective March 10, 2016[incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on March16, 2016]. 10.19Form of Restricted Stock Agreement [incorporated by reference to Exhibit 10.5 to the Company’s Current Report onForm 8-K filed with the SEC on March 16, 2016]. 10.20+U. S. Physical Therapy, Inc. Long-Term Incentive Plan for Senior Management for 2017, effective March 24, 2017[incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K/A filed with the SEC onFebruary 9, 2018.] 10.21+U. S. Physical Therapy, Inc. Discretionary Long –Term Incentive Plan for Senior Management for 2017, effective March24, 2017 [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC onMarch 30, 2017.] 10.22+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2017, effective March 24, 2017[incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on March30, 2017.] 10.23+U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2017, effective March 24, 2017[incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC on March30, 2017.] 77TABLE OF CONTENTSNumberDescription10.24Second Amended and Restated Credit Agreement dated as of November 10, 2017 among the Company, as Borrower,Bank of America, N.A. as Administrative Agent and the Lenders Patty (incorporated by reference to Exhibit 99.2 to theCompany’s Current Report on Form 8-K filed with the SEC on November 14, 2017). 10.25+Second Amended and Restated Employment Agreement by and between the Company and Christopher J. Readingdated effective February 9, 2016 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on February 12, 2016]. 10.26+Second Amended and Restated Employment Agreement by and between the Company and Lawrance W. McAfeedated effective February 9, 2016 [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on February 12, 2016]. 10.27+Amended and Restated Employment Agreement by and between the Company and Glenn D. McDowell dated effectiveFebruary 9, 2016 [incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with theSEC on February 12, 2016]. 21.1*Subsidiaries of the Registrant 23.1*Consent of Independent Registered Public Accounting Firm—Grant Thornton LLP 31.1*Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended 31.2*Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended 31.3*Certification of Controller pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended 32.1*Certification of Periodic Report of the Chief Executive Officer, Chief Financial Officer and Controller pursuant to Rule13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant toSection 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.78TABLE OF CONTENTSFINANCIAL STATEMENT SCHEDULE*SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTSU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES Balance atBeginning ofPeriodAdditions Chargedto Costs andExpensesAdditionsChargedto Other AccountsDeductionsBalance atEnd of PeriodYEAR ENDED DECEMBER 31, 2017: Reserves and allowances deducted fromasset accounts: Allowance for doubtful accounts(1)$1,792 $3,672 — $3,191(2)$2,273 YEAR ENDED DECEMBER 31, 2016: Reserves and allowances deducted fromasset accounts: Allowance for doubtful accounts$1,642 $3,906 — $3,756(2)$1,792 YEAR ENDED DECEMBER 31, 2015: Reserves and allowances deducted fromasset accounts: Allowance for doubtful accounts$1,867 $4,170 — $4,395(2)$1,642 (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 requiredinformation is shown in the financial statements or notes thereto.79TABLE OF CONTENTSSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto duly authorized. 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/ControllerDate: March 14, 2018Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities indicated as of the date indicated above.By:/S/ CHRISTOPHER J. READINGPresident, Chief Executive Officer and Director (principal executiveofficer) Christopher J. Reading By:/S/ LAWRANCE W. MCAFEEExecutive Vice President, Chief Financial Officer and Director(principal financial and accounting officer) Lawrance W. McAfee By:/S/ JERALD PULLINSChairman of the Board Jerald Pullins By:/S/ MARK J. BROOKNERDirector Mark J. Brookner By:/S/ HARRY S. CHAPMANDirector Harry S. Chapman By:/S/ BERNARD A. HARRIS, JR.Director Bernard A. Harris, Jr. By:/S/ EDWARD L. KUNTZDirector Edward L. Kuntz By:/S/ REGG SWANSONDirector Regg Swanson By:/S/ CLAYTON TRIERDirector Clayton Trier80TABLE OF CONTENTSEXHIBIT INDEXLIST OF EXHIBITSNumberDescription3.1Articles of Incorporation of the Company [filed as an exhibit to the Company’s Form 10-Q for the quarterly periodended June 30, 2001 and incorporated herein by reference]. 3.2Amendment to the Articles of Incorporation of the Company [filed as an exhibit to the Company’s Form 10-Q for thequarterly period ended June 30, 2001 and incorporated herein by reference]. 3.3Bylaws of the Company, as amended [filed as an exhibit to the Company’s Form 10-KSB for the year ended December31, 1993 and incorporated herein by reference—Commission File Number—1-11151]. 10.1+1999 Employee Stock Option Plan (as amended and restated May 20, 2008) [incorporated by reference to Appendix A tothe Company’s Definitive Proxy Statement on Schedule 14A, filed with the SEC on April 17, 2008]. 10.2+U. S. Physical Therapy, Inc. 2003 Stock Incentive Plan, as amended and restated March 26, 2010 [incorporated byreference to Appendix A to the Company’s proxy statement on Schedule 14A filed with the SEC on April 9, 2010]. 10.3+Form of Restricted Stock Agreement [incorporated by reference to Exhibit 10.17 to the Company’s Annual Report onForm 10-K filed with the SEC on March 12, 2013.] 10.4+U. S. Physical Therapy, Inc. Long-Term Incentive Plan for Senior Management for 2013, effective March 27, 2013[incorporated by reference to Exhibit 99.1 to the Company Current Report on Form 8-K filed with the SEC on April 1,2013]. 10.5+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for 2013, effective March 27, 2013 [incorporated by reference toExhibit 99.2 to the Company Current Report on Form 8-K filed with the SEC on April 1, 2013]. 10.6+U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for 2013, effective March 27, 2013 [incorporated byreference to Exhibit 99.3 to the Company Current Report on Form 8-K filed with the SEC on April 1, 2013]. 10.7+U. S. Physical Therapy, Inc. Long-Term Incentive Plan for Senior Management for 2014, effective March 21, 2014[incorporated by reference to Exhibit 99.1 to the Company Current Report on Form 8-K filed with the SEC on March 27,2014]. 10.8+U. S. Physical Therapy, Inc. Discretionary Long-Term Incentive Plan for Senior Management for 2014, effective March21, 2014 [incorporated by reference to Exhibit 99.2 to the Company Current Report on Form 8-K filed with the SEC onMarch 27, 2014]. 10.9+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2014, effective March 21, 2014[incorporated by reference to Exhibit 99.3 to the Company Current Report on Form 8-K filed with the SEC on March 27,2014]. 10.10+U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2014, effective March 21, 2014[incorporated by reference to Exhibit 99.4 to the Company Current Report on Form 8-K filed with the SEC on March 27,2014]. 81TABLE OF CONTENTSNumberDescription10.11+U. S. Physical Therapy, Inc. Long Term Incentive Plan for Senior Management for 2015, effective March 23, 2015[incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on March27, 2015.] 10.12+U. S. Physical Therapy, Inc. Discretionary Long Term Incentive Plan for Senior Management for 2015, effective March23, 2015 [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC onMarch 27, 2015.] 10.13+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2015, effective March 23, 2015[incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on March27, 2015.] 10.14+U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2015, effective March 23, 2015[incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC on March27, 2015.] 10.15+U. S. Physical Therapy, Inc. Objective Long Term Incentive Plan for Senior Management for 2016, effective March 10,2016 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC onMarch 16, 2016]. 10.16+U. S. Physical Therapy, Inc. Discretionary Long Term Incentive Plan for Senior Management for 2016, effective March10, 2016 [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC onMarch 16, 2016]. 10.17+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2016, effective March 10, 2016[incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on March16, 2016]. 10.18+U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2016, effective March 10, 2016[incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on March16, 2016]. 10.19Form of Restricted Stock Agreement [incorporated by reference to Exhibit 10.5 to the Company’s Current Report onForm 8-K filed with the SEC on March 16, 2016]. 10.20+U. S. Physical Therapy, Inc. Long-Term Incentive Plan for Senior Management for 2017, effective March 24, 2017[incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K/A filed with the SEC onFebruary 9, 2018.] 10.21+U. S. Physical Therapy, Inc. Discretionary Long –Term Incentive Plan for Senior Management for 2017, effective March24, 2017 [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC onMarch 30, 2017.] 10.22+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2017, effective March 24, 2017[incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on March30, 2017.] 10.23+U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2017, effective March 24, 2017[incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC on March30, 2017.] 82TABLE OF CONTENTSNumberDescription10.24Second Amended and Restated Credit Agreement dated as of November 10, 2017 among the Company, as Borrower,Bank of America, N.A. as Administrative Agent and the Lenders Patty (incorporated by reference to Exhibit 99.2 to theCompany’s Current Report on Form 8-K filed with the SEC on November 14, 2017). 10.25+Second Amended and Restated Employment Agreement by and between the Company and Christopher J. Readingdated effective February 9, 2016 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on February 12, 2016]. 10.26+Second Amended and Restated Employment Agreement by and between the Company and Lawrance W. McAfeedated effective February 9, 2016 [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on February 12, 2016]. 10.27+Amended and Restated Employment Agreement by and between the Company and Glenn D. McDowell dated effectiveFebruary 9, 2016 [incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with theSEC on February 12, 2016]. 21.1*Subsidiaries of the Registrant 23.1*Consent of Independent Registered Public Accounting Firm—Grant Thornton LLP 31.1*Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended 31.2*Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended 31.3*Certification of Controller pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended 32.1*Certification of Periodic Report of the Chief Executive Officer, Chief Financial Officer and Controller pursuant to Rule13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant toSection 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.83

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