US Physical Therapy
Annual Report 2019

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, 2019OR 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 ClassTrading SymbolName of Each Exchange on Which RegisteredCommon Stock, $.01 par valueUSPHNew 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 duringthe preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ☑ No  oIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant toRule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑No  oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reportingcompany or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and“emerging growth company” in Rule 12b-2 of the Exchange Act.Large accelerated filer☑Accelerated filer oNon-accelerated filer o (Do not check if a smaller reportingcompany)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, 2019 was $778.6million based on the closing sale price reported on the NYSE for the registrant’s common stock on June 30, 2019, 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 February 28, 2020, the number of shares outstanding of the registrant’s common stock, par value $.01 per share, was: 12,774,600.DOCUMENTS INCORPORATED BY REFERENCEDOCUMENTPART OF FORM 10-KPortions of Definitive Proxy Statement for the 2020 Annual Meeting of ShareholdersPart IIITABLE OF CONTENTSTable of Contents PagePART I Item 1.Business 3 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 23 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 43 Item 8.Financial Statements and Supplementary Data 44 Notes to Consolidated Financial Statements 52 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 78 Item 9A.Controls and Procedures 78 Item 9B.Other Information 79 PART III Item 10.Directors, Executive Officers and Corporate Governance 79 Item 11.Executive Compensation 79 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 79 Item 13.Certain Relationships and Related Transactions, and Director Independence 79 Item 14.Principal Accountant Fees and Services 79 PART IV Item 15.Exhibits and Financial Statement Schedules 79 Item 16.Form 10-K Summary 79 Signatures 85 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 certificationand/or enrollment status;•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, which may result in sanctions orreputational harm and increased costs;•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, and changesin the deductibles and co-pays owed by patients;•revenue and earnings expectations;•legal actions, which could subject us to increased operating costs and uninsured liabilities;•general economic conditions;•availability and cost of qualified physical therapists;•personnel productivity and retaining key personnel;•competitive, 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;•competitive environment in the industrial injury prevention business, which could result in the termination or non-renewalof contractual service arrangements and other adverse financial consequences for that service line;•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;•a security breach of our or our third party vendors’ information technology systems may subject us to potential legal actionand reputational harm and may result in a violation of the Health Insurance Portability and Accountability Act of 1996 ofthe Health Information Technology for Economic and Clinical Health Act;•maintaining adequate internal controls;•maintaining necessary insurance coverage;•the potential impact of the coronavirus;1TABLE OF CONTENTS•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.2TABLE OF CONTENTSPART IITEM 1.BUSINESS.GENERALOur company, U.S. Physical Therapy, Inc. (“we”, “us”, “our” or the “Company”), through its subsidiaries, operates outpatientphysical therapy clinics that provide pre-and post-operative care for a variety of orthopedic-related disorders and sports-relatedinjuries, treatment for neurological-related injuries and rehabilitation of injured workers. We primarily operate through subsidiaryclinic partnerships in which we generally own a 1% general partnership interest and a 24% to 99% limited partnership interest and themanaging therapist(s) of the clinics owns the remaining limited partnership interest in the majority of the clinics (hereinafter referredto 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”). We also have a majority interest in a company,which is a leading provider of industrial injury prevention services. Services provided in this business include onsite injuryprevention and rehabilitation, performance optimization, post-offer employment testing, functional capacity evaluations andergonomic assessments. The majority of these services are contracted with and paid for directly by employers including a number ofFortune 500 companies. Other clients include large insurers and their contractors. These services are performed through IndustrialSports Medicine Professionals, consisting of both physical therapists and specialized certified athletic trainers (ATCs).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 acquire single and multi-clinic outpatient physical therapy practices and to develop outpatient physicaltherapy clinics, primarily to operate as satellites in an existing partnership, on national basis. At December 31, 2019, we operated 583clinics in 40 states. The average age of the 583 clinics in operation at December 31, 2019 was 10.4 years. Our highest concentration ofclinics are in the following states: Texas, Tennessee, Michigan, Virginia, Florida, Oregon, Maryland, Georgia, Pennsylvania andArizona. In addition to our 583 clinics, at December 31, 2019, we also managed 26 physical therapy practices for unrelated physiciangroups and hospitals and operated the industrial injury prevention business, as described below.During the last three years, we completed the following multi-clinic acquisitions:AcquisitionDate% InterestAcquiredNumber ofClinics 2019 September 2019 AcquisitionSeptember 30, 2019 67% 11 2018 August 2018 AcquisitionAugust 31 70% 4 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 In addition to the above multi-clinic acquisitions, in March 2017, we acquired a 55% interest in the initial industrial injuryprevention business. On April 30, 2018, we acquired a 65% interest in another business in the industrial injury prevention sector andin connection with the closing we combined the two businesses. After the combination, we owned a 59.45% interest in the combinedbusiness, Briotix Health, Limited Partnership (“Briotix Health”). On April 11, 2019, we acquired a third company that is a provider ofindustrial injury prevention services. The acquired company specializes in delivering injury prevention and care, post offeremployment testing, functional capacity evaluations and return-to-work services. It performs these services across a network in 45states including onsite at eleven client locations. The business was then combined with Briotix Health increasing our ownershipposition in the partnership to approximately 76.0%.3TABLE OF CONTENTSAlso during 2019, we purchased the assets and business of one physical therapy clinic in a separate transaction. The clinicoperates as a satellite clinic of one of the existing partnerships. Besides the August 2018 multi-clinic acquisition, through several ofour majority owned Clinic Partnerships we acquired five separate clinic practices that year. These practices operate as satellites of therespective existing Clinic Partnerships. During 2017, we purchased the assets and business of two physical therapy clinics inseparate transactions. One clinic was consolidated with an existing clinic and the other operates as a satellite clinic of one of theexisting partnerships.The results of operations of the acquired clinics have been included in our consolidated financial statements since the date oftheir respective acquisition.We 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. For multi-site clinic practices in which a controlling interest is acquired by us, the prior owners typically continue on asemployees to manage the clinic operations, retaining a non-controlling ownership interest in the clinics and receiving a competitivesalary for managing the clinic operations. In addition, we have developed satellite clinic facilities as part of existing ClinicPartnerships and Wholly-Owned facilities, with the result that a substantial number of Clinic Partnerships and Wholly-Ownedfacilities operate more than one clinic location. In 2020, we intend to continue to acquire clinic practices and continue to focus ondeveloping 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 as 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, 2019, through wholly-owned subsidiaries, we owned a 1% general partnership interest in all the ClinicPartnerships. Our limited partnership interests range from 24% 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.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 the4TABLE OF CONTENTSobligation, 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 contain no mandatory redemption feature. The purchase price of the partner’s limited partnershipinterest upon exercise of the Put Right or the Call Right is calculated at a predetermined multiple of earnings performance as detailedin 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 1,000 to 5,000 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.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, to speed recovery from surgery and musculoskeletal injuries and eliminate or minimize the need foropioids.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 regular5TABLE OF CONTENTScommunication with physicians regarding patient progress. We employ personnel to assist clinic directors in developing andimplementing marketing plans for the physician community and to assist in establishing relationships with health maintenanceorganizations, preferred provider organizations, industry, case managers and insurance companies.SOURCES 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 our payor mix for the years ended: December 31, 2019December 31, 2018December 31, 2017PayorNetPatientRevenuePercentageNetPatientRevenuePercentageNetPatientRevenuePercentage (Net Patient Revenues in Thousands)Managed Care Programs$124,516 28.7%$134,748 32.3%$120,773 31.0%Commercial Health Insurance 79,535 18.4% 72,786 17.4% 79,968 20.5%Medicare/Medicaid 132,611 30.6% 117,554 28.1% 103,713 26.7%Workers’ Compensation Insurance 63,542 14.7% 59,942 14.4% 55,364 14.2%Other 33,141 7.6% 32,673 7.8% 29,408 7.6%Total$433,345 100.0%$417,703 100.0%$389,226 100.0%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, 2019, approximately 35.1% of our visits and 30.6% of our net patient revenues were frompatients with Medicare or Medicaid program coverage. To receive Medicare reimbursement, a facility (Medicare CertifiedRehabilitation Agency) or the individual therapist (Physical/Occupational Therapist in Private Practice) must meet applicableparticipation conditions set by the Department of Health and Human Services (“HHS”) relating to the type of facility, equipment,recordkeeping, personnel and standards of medical care, and also must comply with all state and local laws. HHS, through Centers forMedicare & Medicaid Services (“CMS”) and designated agencies, periodically inspects or surveys clinics/providers for approvaland/or compliance. We anticipate that our newly developed and acquired clinics will become certified as Medicare providers or willbe enrolled as a group of physical/occupation therapists in a private practice. Failure to obtain or maintain this certification wouldadversely affect financial results.The Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (“MPFS”).For services provided in 2018, a 0.5% increase was applied to the fee schedule payment rates; for services provided in 2019, a 0.25%increase was applied to the fee schedule payment rates before applying the mandatory budget neutrality adjustment. For servicesprovided in 2020 through 2025, a 0.0% update will be applied each year to the fee schedule payment rates, before applying themandatory budget neutrality adjustment. However, in the 2020 MPFS Final Rule, CMS proposed an increase to the code values foroffice/outpatient evaluation and management (E/M) codes and cuts to other codes to maintain budget neutrality of the MPFS. Thischange in code valuations would be effective January 1, 2021. Under the proposal,6TABLE OF CONTENTSphysical/occupational therapy services could see code reductions that may result in an estimated 8% decrease in payment. Inannouncing this possible reduction in the applicable physical/occupational therapy codes, CMS indicated that it would furtherconsider and address industry and provider concerns before finalizing the 2021 code values.Beginning in 2021, payments to individual therapists (Physical/Occupational Therapist in Private Practice) paid under the feeschedule may be subject to adjustment based on performance in the Merit Based Incentive Payment System (“MIPS”), whichmeasures performance based on certain quality metrics, resource use, and meaningful use of electronic health records. Under theMIPS requirements, a provider's performance is assessed according to established performance standards each year and then is usedto determine an adjustment factor that is applied to the professional's payment for the corresponding payment year. The provider’sMIPS performance in 2019 will determine the payment adjustment in 2021. Each year from 2019 through 2024, professionals whoreceive a significant share of their revenues through an alternate payment model (“APM”), (such as accountable care organizationsor bundled payment arrangements) that involves risk of financial losses and a quality measurement component will receive a 5%bonus in the corresponding payment year. The bonus payment for APM participation is intended to encourage participation andtesting of new APMs and to promote the alignment of incentives across payors. The specifics of the MIPS and APM adjustmentswill 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 to7TABLE OF CONTENTSinclude this data on the claim form. Since 2013, therapists have been required to report new codes and modifiers on the claim formthat reflect a patient’s functional limitations and goals at initial evaluation, periodically throughout care, and at discharge. Reportingof these functional limitation codes and modifiers are required on the claim for payment.Medicare claims for outpatient therapy services furnished by therapy assistants on or after January 1, 2020 must include amodifier indicating the service was furnished by a therapy assistant. Outpatient therapy services furnished on or after January 1,2022 in whole or part by a therapy assistant will be paid at an amount equal to 85% of the payment amount otherwise applicable forthe 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 involving allegations of potential wrongdoing that would have a materialeffect on our financial statements as of December 31, 2019. 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. For 2019, net patient revenue from Medicare accounted for approximately $119.4 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.8TABLE OF CONTENTSOne 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 be provided tothe Owner’s existing patients, with another party who currently provides the same or similar item or service as the 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).Little or No Bona Fide Business Risk. The Owner’s primary contribution to the venture is referrals; it makes little or no financialor other investment in the business, delegating the entire operation to the Manager/Supplier, while retaining profits generated fromits 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 right and billinsurers 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’ keyservices.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 the Owner(i.e., the profits of the venture) takes into account the value and volume of business the Owner generates.Exclusivity. The arrangement bars the Owner from providing items or services to any patients other than those coming 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 other9TABLE OF CONTENTSactivities, 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. Sanctions for failing to complywith HIPAA include criminal penalties and civil sanctions. In February of 2009, the American Recovery and Reinvestment Act of 2009(“ARRA”) was signed into law. Title XIII of ARRA, the Health Information Technology for Economic and Clinical Health Act(“HITECH”), provided for substantial Medicare and Medicaid incentives for providers to adopt electronic health records (“EHRs”)and grants for the development of health information exchange (“HIE”). Recognizing that HIE and EHR systems will not beimplemented unless the public can be assured that the privacy and security of patient information in such systems is protected,HITECH also significantly expanded the scope of the privacy and security requirements under HIPAA. Most notable are themandatory breach notification requirements and a heightened enforcement scheme that includes increased penalties, and which nowapply 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 one of the third largest nationaloutpatient rehabilitation providers.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.10TABLE OF CONTENTSWe 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.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. 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 (“CCO”), who has the responsibility for the day-to-day oversight,administration and development of our compliance program. The CCO, internal and external counsel, management and theCompliance Committee review our policies and procedures for our compliance program from time to time in an effort to improveoperations and to ensure compliance with requirements of standards, laws and regulations and11TABLE OF CONTENTSto reflect the on-going compliance focus areas which have been identified by management, counsel or the Compliance Committee.We also have established systems for reporting potential violations, educating our employees, monitoring and auditing complianceand 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 CCO and other compliance andlegal personnel. The CCO regularly communicates with the Chairman of the Compliance Committee. The Compliance Committee meetsat least four times a year or more frequently as necessary to carry out its responsibilities and reports regularly to the Board regardingits actions 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 risk relating to compliance with federal and state healthcare laws, andgenerally to assist the CCO. The Internal Compliance Committee meets at least four times a year or more frequently as necessary tocarry out its responsibilities. In addition, management has appointed a team to address our Company’s compliance with HIPAA. TheHIPAA team consists of a security officer and employees from our legal, information systems, finance, operations, compliance,business services and human resources departments. The team prepares assessments and makes recommendations regardingoperational changes and/or new systems, if needed, to comply with HIPAA.Each clinic certified as a Medicare Rehabilitation Agency has a formally appointed governing body composed of a member 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 CCO, 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 CCO, who, together with the Compliance Committee, has the power andresources to 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, we provide a package of compliance materials containing manuals and detailed instructions for meetingMedicare 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)12TABLE OF CONTENTSfrom 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.Formal 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. We also perform certain additional compliance related functions pursuant to the CorporateIntegrity Agreement (“Corporate Integrity Agreement” or “CIA”) that we entered into with the OIG. The CIA, which became effectiveas of December 21, 2015, outlines certain specific requirements relating to compliance oversight and program implementation, as wellas periodic reporting. In addition, pursuant to the CIA, an independent review organization annually will perform a Medicare billingand coding audit on a small group of randomly selected Company clinics. Our Company Compliance Program has been modified soas 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 our Subsidiaries with the U. S. Department of Justice related tocertain Medicare billings that occurred between 2007 and 2009 at a single outpatient physical therapy clinic. The settlement resolvedclaims relating to whether certain physical therapy services provided to a limited number of Medicare patients at the clinic satisfiedall of the criteria for payment by the Medicare program, including proper supervision of physical therapist assistants. The Subsidiarypaid $718,000 in 2015 to resolve the matter, and we and the Subsidiary entered into the CIA. The Subsidiary no longer conducts anybusiness.EMPLOYEESAt December 31, 2019, we employed approximately 5,400 people, of which approximately 3,200 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.13TABLE OF CONTENTSITEM 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 reduce payments under the Medicare programs. See“Business- Sources of Revenue” in Item 1 for more information. The ultimate content, timing or effect of any healthcare reformlegislation and the impact of potential legislation on us is uncertain and difficult, if not impossible, to predict. That impact may bematerial 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 us. In addition, the CIA requiresus to engage an independent review organization to conduct annual audits of randomly selected Company clinics in order to reviewcompliance with federal requirements relating to the proper billing14TABLE OF CONTENTSand coding for claims. While our facilities intend to comply with the federal requirements for properly coding and billing claims forreimbursement, there can be no assurance that these audits will determine that all applicable requirements are fully met at the clinicsthat are reviewed. In addition, a failure to fully comply with the requirements of the CIA may subject us to the assessment of finesand penalties, or exclusion from participation in the Medicare program. These consequences could have a materially adverse effecton 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 Medicare Physician Fee Schedule (“MPFS”).For services provided in 2018, a 0.5% increase was applied to the fee schedule payment rates; for services provided in 2019, a 0.25%increase was applied to the fee schedule payment rates before applying the mandatory budget neutrality adjustment. For servicesprovided in 2020 through 2025, a 0.0% percent update will be applied each year to the fee schedule payment rates, before applyingthe mandatory budget neutrality adjustment. However, in the 2020 MPFS Final Rule, CMS proposed an increase to the code valuesfor office/outpatient evaluation and management (E/M) codes and cuts to other codes to maintain budget neutrality of the MPFS.This change in code valuations would be effective January 1, 2021. Under the proposal, physical/occupational therapy servicescould see code reductions that may result in an estimated 8% decrease in payment. In announcing this possible reduction in theapplicable physical/occupational therapy codes, CMS indicated that it would further consider and address industry and providerconcerns before finalizing the 2021 code values.Beginning in 2021, payments to individual therapists (Physical/Occupational Therapist in Private Practice) paid under the feeschedule may be subject to adjustment based on performance in the Merit Based Incentive Payment System (“MIPS”), whichmeasures performance based on certain quality metrics, resource use, and meaningful use of electronic health records. Under theMIPS requirements, a provider's performance is assessed according to established performance standards each year and then is usedto determine an adjustment factor that is applied to the professional's payment for the corresponding payment year. The provider’sMIPS performance in 2019 will determine the payment adjustment in 2021. Each year from 2019 through 2024, professionals whoreceive a significant share of their revenues through an alternate payment model (“APM”), (such as accountable care organizationsor bundled payment arrangements) that involves risk of financial losses and a quality measurement component will receive a 5%bonus in the corresponding payment year. The bonus payment for APM participation is intended to encourage participation andtesting of new APMs and to promote the alignment of incentives across payors. The specifics of the MIPS and APM adjustmentswill 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 bedetermined15TABLE OF CONTENTSon a targeted basis based on a variety of factors that CMS considers appropriate The Bipartisan Budget Act of 2018 extends thetargeted medical review indefinitely, but reduces the threshold to $3,000 through December 31, 2027. For 2028, the threshold amountwill be increased by the percentage increase in the Medicare Economic Index (“MEI”) for 2028 and in subsequent years the thresholdamount 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, 2020 must include amodifier indicating the service was furnished by a therapy assistant. Outpatient therapy services furnished on or after January 1,2022 in whole or part by a therapy assistant will be paid at an amount equal to 85% of the payment amount otherwise applicable forthe 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, 2019. 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. For year ended December 31, 2019, net patient revenues from Medicare were approximately $119.4 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 operations.We 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.16TABLE OF CONTENTSRevenue 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 to comply with applicable laws, regulations and rules could have a material andadverse effect on our results of operations and financial condition. Furthermore, becoming subject to these governmentalinvestigations, audits and reviews can also require us to incur significant legal and document production expenses as we cooperatewith the government authorities, regardless of whether the particular investigation, audit or review leads to the identification ofunderlying 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, including the consequences of coronavirus, could have a detrimental effect on our revenues.Historically, state budget pressures have translated into reductions in state spending. Given that Medicaid outlays are a significantcomponent of state budgets, we can expect continuing cost containment pressures on Medicaid outlays for our services in the statesin which we operate. In addition, an economic downturn, coupled with sustained unemployment, may also impact the number ofenrollees in managed care programs as well as the profitability of managed care companies, which could result in reducedreimbursement rates.17TABLE OF CONTENTSThe 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 2019, approximately 69.4% ofour revenues were derived collectively from managed care plans, commercial health insurers, workers’ compensation payors, andother private pay revenue sources while approximately 30.6% 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 includingchanges to Medicare reimbursement. Additional reforms or other changes to these payment systems may be proposed or adopted,either by the U.S. Congress or by CMS, including bundled payments, outcomes-based payment methodologies and a shift away fromtraditional fee-for-service reimbursement. If revised regulations are adopted, the availability, methods and rates of Medicarereimbursements for services of the type furnished at our facilities could change. Some of these changes and proposed changes couldadversely affect our business strategy, operations and financial results.We 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.18TABLE OF CONTENTSOur 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.We have established policies and procedures in an effort to ensure compliance with these privacy related requirements.However, if there is a breach, we may be subject to various penalties and damages and may be required to incur costs to mitigate theimpact 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 therapist 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.Some 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 our current and planned activities do not constitute fee-splitting or the unlawful corporate practice of medicineas contemplated by these state laws. However, there can be no assurance that future interpretations of such laws will not requirestructural and organizational modification of our existing relationships with the practices. If a court or regulatory body determinesthat we have violated these laws or if new laws are introduced that would render our arrangements illegal, we could be subject to civilor criminal penalties, our contracts could be found legally invalid and unenforceable (in whole or in part), or we could be required torestructure 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.19TABLE OF CONTENTSTesting 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 or proprietary business information, operational or business delays resulting from thedisruption of information technology systems and subsequent mitigation activities, or regulatory action taken as a result of suchincident. We provide our employees training and regular reminders on important measures they can take to prevent breaches. Weroutinely identify attempts to gain unauthorized access to our systems. However, given the rapidly evolving nature and proliferationof cyber threats, there can be no assurance our training and network security measures or other controls will detect, prevent, orremediate security or data breaches in a timely manner or otherwise prevent unauthorized access to, damage to, or interruption of oursystems and operations. Accordingly, we may be vulnerable to losses associated with the improper functioning, security breach, orunavailability of our information systems as well 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 strong20TABLE OF CONTENTSrelationships with these physicians. If we cannot recruit and retain our base of experienced and clinically skilled therapists, ourbusiness may decrease and our net operating revenues may decline. Periodically, we have clinics in isolated communities that aretemporarily unable to operate due to the unavailability of a therapist 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, dilutive issuances of equity securitiesand expenses that could have an adverse effect on our financial condition and results of operations. Acquisitions involve numerousrisks, 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.21TABLE OF CONTENTSThe number of shares of our common stock eligible for future sale could adversely affect the market price of our stock.At December 31, 2019, we had reserved approximately 300,000 shares for future equity grants. We may issue additional restrictedsecurities or register additional shares of common stock under the Securities Act of 1933, as amended (the “Securities Act”), in thefuture. The issuance of a significant number of shares of common stock upon the exercise of stock options or the availability for sale,or sale, of a substantial number of the shares of common stock eligible for future sale under effective registration statements, underRule 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 1,000 to 5,000 square feet.We also lease our executive offices located in Houston, Texas, under a non-cancelable operating lease expiring in February 2028.We currently lease approximately 44,000 square feet of space (including allocations for common areas) at our executive offices.ITEM 3.LEGAL PROCEEDINGS.We are a party to various legal actions, proceedings, and claims (some of which are not insured), and regulatory and othergovernmental audits and investigations in the ordinary course of our business. We cannot predict the ultimate outcome of pendinglitigation, proceedings, and regulatory and other governmental audits and investigations. These matters could potentially subject usto sanctions, damages, recoupments, fines, and other penalties. The Department of Justice, CMS, or other federal and stateenforcement and regulatory agencies may conduct additional investigations related to our businesses in the future that may, eitherindividually or in the aggregate, have a material adverse effect on our business, financial position, results of operations, and liquidity.Healthcare providers are subject to lawsuits under the qui tam provisions of the federal False Claims Act. Qui tam lawsuitstypically remain under seal for some time while the government decides whether or not to intervene on behalf of a private qui tamplaintiff (known as a relator) and take the lead in the litigation. These lawsuits can involve significant monetary damages andpenalties and award bounties to private plaintiffs who successfully bring the suits. We are and have been a defendant in these casesin the past, and may be named as a defendant in similar cases from time to time in the future.Florida LitigationOn August 19, 2019, we received notice of a qui tam lawsuit filed by a relator on behalf of the United States, titled U.S. ex rel.Bonnie Elsdon, v. U.S. Physical Therapy, Inc., U.S. Physical Therapy, Ltd., Rehab Partners #2, Inc., The Hale Hand Center, LimitedPartnership (the “Hale Partnership”), and Suzanne Hale. This whistleblower lawsuit was filed in the U.S. District Court for theSouthern District of Texas, seeking damages and civil penalties under the federal False Claim Act. This lawsuit was originally filedunder seal by a22TABLE OF CONTENTSformer employee of The Hale Hand Center, Limited Partnership (“Hale Partnership”), a majority-owned subsidiary of the Company, onMay 25, 2018. The U.S Government declined to intervene in the case and unsealed the Complaint on July 17, 2019. The plaintiff -relator served the Complaint on us and the other named defendants on August 19, 2019.The Complaint alleges that the Hale Partnership engaged in conduct to purposely “upcode” its billings for services provided toMedicare patients. The plaintiff - relator points to three dates of service and provides examples of what it alleges are inflated billingsby the Hale Partnership; the relator then claims that similar false claims must have occurred on other days and at other Company-owned partnerships.On October 3, 2019, we filed Motions to Dismiss based on numerous grounds on behalf of each of the named defendants. OnOctober 29, 2019, the plaintiff-relator dismissed three of the named defendants, Rehab Partners #2, Inc., U.S. Physical Therapy, Ltd.,and Suzanne Hale. The Motions to Dismiss as to the remaining two defendants has been fully briefed and is pending before theCourt for a ruling.We have engaged counsel and fully investigated the matter, and believe that the allegations in the Complaint have no merit. Weintend to vigorously defend this action, but at this time we are unable to predict the timing and outcome of the matter.ITEM 4.MINE SAFETY DISCLOSURES.Not Applicable.PART IIITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES.Our common stock has traded on the New York Stock Exchange (“NYSE”) since August 14, 2012 under the symbol “USPH.”Prior to that, our common stock was traded on the Nasdaq Global Select Market under the symbol “USPH”. As of February 27, 2020,there were 83 holders of record of our outstanding common stock.DIVIDENDSOn February 25, 2020, the Board of Directors declared a dividend of $0.32 per share on all shares of common stock issued andoutstanding to those shareholders of record on March 13, 2020 payable on April 17, 2020. During 2019, we paid a quarterly dividendof $0.27 for first and second quarter and for third and fourth quarter, $0.30 per share totaling $1.14 per share for the year, whichamounted to a total of aggregate cash payments of dividend to holders of our common stock in 2019 of approximately $14.5 million.During 2018, we paid a regular quarterly dividend of $0.23 per share, totaling $0.92 per share, which amounted to a total of aggregatecash payments of dividends to holders of our common stock in 2018 of approximately $11.7 million. During 2017, we paid a quarterlydividend of $0.20 per share totaling $0.80 per share for 2017, which amounted to a total of aggregate cash payments of dividends toholders of our common stock in 2017 of approximately $10.1 million. We are currently restricted from paying dividends in excess of$20,000,000 in any fiscal year on our common stock under the Credit Agreement (as defined in “Item 7. Management’s Discussionand Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”).23TABLE OF CONTENTSFIVE 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 we specifically incorporate this information by reference. Inaddition, the performance graph and the related description shall not be deemed “soliciting material” or “filed” with the SEC orsubject 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, 2014 through December 31, 2019. The graph assumes that $100 was invested in our common stock and the commonstock of each of the companies listed on The NYSE Composite Index and The NYSE Health Care Index on December 31, 2014 and thatany dividends were reinvested.Comparison of Five Years Cumulative Total Return for the Year Ended December 31, 2019  12/1412/1512/1612/1712/1812/19U. S. Physical Therapy, Inc. 100 128 167 172 244 273 NYSE Composite 100 94 102 118 105 128 NYSE Healthcare Index 100 103 100 119 127 151 24TABLE OF CONTENTSITEM 6.SELECTED FINANCIAL DATA.The following selected financial data should be read in conjunction with the description of our critical accounting policies setforth in “Management’s Discussion and Analysis of Results of Operations and Financial Condition” and the Consolidated FinancialStatements and Notes included herein. For the Years Ended December 31, 20192018201720162015 ($ in thousands, except per share data)Net revenues$481,969 $453,911 $414,051 $356,546 $331,302 Operating income$67,425 $60,314 $54,728 $49,533 $47,294 Gain on derecognition of debt$— $1,846 $— $— $— Gain on sale of partnership interest$5,514 $— $— $— $— Interest expense Mandatorily redeemable non-controlling interests - change inredemption value$— $— $12,894 $6,169 $2,670 Mandatorily redeemable non-controlling interests - earningsallocable$— $— $6,055 $4,057 $3,538 Debt and other$2,079 $2,042 $2,111 $1,252 $1,031 Total interest expense$2,079 $2,042 $21,060 $11,478 $7,239 Net income$57,259 $48,842 $27,724 $26,268 $26,489 Net income attributable to non-controlling interests$17,220 $13,969 $5,468 $5,717 $5,874 Net income attributable to USPH shareholders$40,039 $34,873 $22,256 $20,551 $20,615 Per share net income attributable to USPH shareholders: Basic and diluted$2.45 $1.31 $1.76 $1.64 $1.66 Dividends declared and paid per common share$1.14 $0.92 $0.80 $0.68 $0.60 Computation of earnings per share - USPH shareholders: Net Income attributable to USPH shareholders$40,039 $34,873 $22,256 $20,551 $20,615 Charges to retained earnings: Revaluation of redeemable non-controlling interest$(11,893)$(24,770)$(201)$— $— Tax effect at statutory rate (federal and state) of 26.25%$3,121 $6,502 $75 $— $— $31,267 $16,605 $22,130 $20,551 $20,615 Earnings per share (Basic and diluted)$2.45 $1.31 $1.76 $1.64 $1.66 Shares used in computation: Basic and diluted earnings per share - weighted-averageshares 12,756 12,666 12,570 12,500 12,392 On December 31, 20192018201720162015 ($ in thousands)Total assets$560,845 $443,166 $418,982 $351,231 $303,757 Mandatorily redeemable non-controlling interests$— $— $327 $69,190 $45,974 Long-term debt, less current portion$50,361 $38,402 $56,728 $50,596 $48,335 Working capital$24,823 $37,268 $37,530 $41,347 $41,193 Current ratio 1.41 1.89 1.95 2.68 3.17 25TABLE OF CONTENTSITEM 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, 2019, we operated 583 clinics in 40 states. The average age of our clinics at December 31, 2019 was 10.4years. 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 26 such third-party facilities under management as of December 31, 2019.In March 2017, we acquired a 55% interest in the initial industrial injury prevention business. On April 30, 2018, we made asecond acquisition and subsequently combined the two businesses. After the combination, the Company owned a 59.45% interest inthe combined business, Briotix Health, Limited Partnership (“Briotix Health”). Services provided include onsite injury 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. We perform these services through Industrial SportsMedicine Professionals, consisting of both physical therapists and specialized certified athletic trainers (ATCs). On April 11, 2019, weacquired a third company that is a provider of industrial injury prevention services. The acquired company specializes in deliveringinjury prevention and care, post offer employment testing, functional capacity evaluations and return-to-work services. It performsthese services across a network in 45 states including onsite at eleven client locations. The acquired business was then combinedwith Briotix Health increasing our ownership position in the partnership to approximately 76.0%.In addition to the above acquired interests in the industrial injury prevention businesses, during 2019, 2018 and 2017, wecompleted the following multi-clinic acquisitions:AcquisitionDate% InterestAcquiredNumber ofClinics 2019 September 2019 AcquisitionSeptember 30, 2019 67% 11 2018 August 2018 AcquisitionAugust 31 70% 4 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 Also during 2019, we purchased the assets and business of one physical therapy clinic in a separate transaction. The clinicoperates as a satellite clinic of one of our existing partnerships. Besides the multi-clinic acquisition in 2018, through several of ourmajority owned Clinic Partnerships, we acquired five separate clinic practices. These practices operate as satellites of the respectiveexisting Clinic Partnerships. Also, during 2017, we 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 our existingpartnerships.The results of operations of the acquired clinics have been included in our consolidated financial statements since the date oftheir respective acquisition. We intend to continue to pursue additional acquisition opportunities, develop new clinics and opensatellite clinics.26TABLE OF CONTENTSCRITICAL 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 consists of revenues for physicaltherapy and occupational therapy clinics that provide pre-and post-operative care and treatment for orthopedic related disorders,sports-related injuries, preventative care, rehabilitation of injured workers and neurological-related injuries. Net patient revenues(patient revenues less estimated contractual adjustments) are recognized at the estimated net realizable amounts from third-partypayors, patients and others in exchange for services rendered when obligations under the terms of the contract are satisfied. There isan implied contract between us and the patient upon each patient visit. Generally, this occurs as we provide physical andoccupational therapy services, as each service provided is distinct and future services rendered are not dependent on previouslyrendered services. We have agreements with third-party payors that provide for payments to us at amounts different from itsestablished rates. The allowance for estimated contractual adjustments is based on terms of payor contracts and historical collectionand write-off experience.Management contract revenues, which are included in other revenues in the consolidated statements of net income, are derivedfrom contractual arrangements whereby we manage a clinic owned by a third party. We do not have any ownership interest in theseclinics. Typically, revenues are determined based on the number of visits conducted at the clinic and recognized at the point in timewhen services are performed. Costs, typically salaries for our employees, are recorded when incurred.Revenues from the industrial injury prevention business, which are also included in other revenues in the consolidatedstatements of net income, are derived from onsite services we provide to clients’ employees including injury prevention,rehabilitation, ergonomic assessments and performance optimization. Revenue from the industrial injury prevention business isrecognized when obligations under the terms of the contract are satisfied. Revenues are recognized at an amount equal to theconsideration we expect to receive in exchange for providing injury prevention services to its clients. The revenue is determined andrecognized based on the number of hours and respective rate for services provided in a given period.Additionally, other revenues include services we provide on-site, such as schools and industrial worksites, for physical oroccupational therapy services, and athletic trainers and gym membership fees. Contract terms and rates are agreed to in advancebetween us and the third parties. Services are typically performed over the contract period and revenue is recorded at the point ofservice. If the services are paid in advance, revenue is recorded as a contract liability over the period of the agreement andrecognized at the point in time when the services are performed.In May 2014, March 2016, April 2016, and December 2016, the Financial Accounting Standards Board (“FASB”) issuedAccounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, ASU 2016-08, Revenue from Contractswith Customers, Principal versus Agent Considerations, ASU 2016-10, Revenue from Contracts with Customers, IdentifyingPerformance Obligations and Licensing, ASU 2016-12, Revenue from Contracts with Customers, Narrow Scope Improvements andPractical Expedients, and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts withCustomer (collectively the “standards”), respectively, which supersede most of the current revenue recognition requirements (“ASC606”). The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods orservices to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for thosegoods or services.We implemented the new standards beginning January 1, 2018 using a modified retrospective transition method. The principalchange relates to how the new standard requires healthcare providers to estimate the amount of variable consideration to be includedin the transaction price up to an amount which is probable that a significant reversal will not occur. The most common forms ofvariable consideration we experience are amounts for services provided that are ultimately not realizable from a customer. There wereno changes to revenues or other revenues upon implementation. Under the new standards, our estimate for unrealizable amounts willcontinue to be recognized as a reduction to revenue. The bad debt expense historically reported will not materially change.27TABLE OF CONTENTSFor ASC 606, there is an implied contract between us and the patient upon each patient visit. Separate contractual arrangementsexist between us and third party payors (e.g. insurers, managed care programs, government programs, workers' compensationprograms which establish the amounts the third parties pay on behalf of the patients for covered services rendered. While theseagreements are not considered contracts with the customer, they are used for determining the transaction price for services providedto the patients covered by the third party payors. The payor contracts do not indicate performance obligations for us, but indicatereimbursement rates for patients who are covered by those payors when the services are provided. At that time, we are obligated toprovide services for the reimbursement rates stipulated in the payor contracts. The execution of the contract alone does not indicatea performance obligation. For self-paying customers, the performance obligation exists when we provide the services at establishedrates. The difference between our established rate and the anticipated reimbursement rate is accounted for as an offset to revenue –contractual allowance.We determine allowances for doubtful accounts based on the specific agings and payor classifications at each clinic. Theprovision for doubtful accounts is included in clinic operating costs in the statements of net income. Patient accounts receivable,which are stated at the historical carrying amount net of contractual allowances, write-offs and allowance for doubtful accounts,includes only those amounts we estimate to be collectible.The following table details the revenue related to the various categories. Year Ended December 31, 201920182017Patient revenues$433,345 $417,703 $389,226 Management contract revenues 8,676 8,339 6,275 Industrial injury prevention services revenues 37,462 25,466 14,908 Other revenues 2,486 2,403 3,642 $481,969 $453,911 $414,051 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 we estimate our contractualallowance for each clinic based on payor contracts and the historical collection experience of the clinic and applies an appropriatecontractual allowance reserve percentage to the gross accounts receivable balances for each payor of the clinic. Based on ourhistorical experience, calculating the contractual allowance reserve percentage at the payor level is sufficient to allow us to providethe necessary detail and accuracy with our collectability estimates. However, the services authorized and provided and relatedreimbursement are subject to interpretation that could result in payments that differ from our estimates. Payor terms are periodicallyrevised necessitating continual review and assessment of the estimates made by management. Our billing systems may not capturethe exact change in our contractual allowance reserve estimate from period to period. Therefore, in order to assess the accuracy ofour 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, 2019. For purposes of demonstrating thesensitivity of this estimate on our 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 $1.2 million for the yearended December 31, 2019. Management believes the changes in the estimate of the contractual allowance reserve for the periodsended December 31, 2019, 2018 and 2017 have not been material to the statement of income.28TABLE OF CONTENTSThe following table sets forth information regarding our patient accounts receivable as of the dates indicated (in thousands): December 31, 20192018Gross patient accounts receivable$124,035 $108,141 Less contractual allowances 75,109 60,718 Subtotal - accounts receivable 48,926 47,423 Less allowance for doubtful accounts 2,698 2,672 Net patient accounts receivable$46,228 $44,751 The following table presents our patient accounts receivable aging by payor class as of the dates indicated (in thousands): December 31, 2019December 31, 2018PayorCurrent to120 Days120+ DaysTotalCurrentto120 Days120+ DaysTotalManaged Care/ Commercial Plans$14,159 $1,783 $15,942 $14,852 $2,263 $17,115 Medicare/Medicaid 11,408 1,491 12,899 10,026 1,736 11,762 Workers Compensation* 6,593 1,121 7,714 7,056 1,339 8,395 Self-pay 4,365 3,040 7,405 4,497 3,748 8,245 Other** 808 1,460 2,268 945 961 1,906 Totals$37,333 $8,895 $46,228 $37,376 $10,047 $47,423 *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. We recognize the financial statement benefit of a tax position only afterdetermining 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 made significant changes to U.S. corporate income tax laws including a decrease inthe corporate income tax rate to 21% effective January 1,29TABLE OF CONTENTS2018. As a result, we revalued our deferred tax assets and liabilities. Based on a review and analysis as of December 31, 2017, werecorded a reduction in our net deferred tax liabilities of $4.3 million thereby reducing our provision for income taxes by such amountfor the 2017 year.We do not believe that we have any significant uncertain tax positions at December 31, 2019, 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, 2019 and 2018.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.Goodwill. 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. We evaluate indefinite lived tradenames using the relief from royalty method in conjunctionwith its annual goodwill impairment test. We operate a one segment business which is made up of various clinics within partnerships.The partnerships are components of regions and are aggregated to that operating segment level for the purpose of determiningreporting units when performing the annual goodwill impairment test. In 2019, 2018 and 2017, we had six regions. In addition to the sixregions, in 2018 and 2019, the impairment test included a separate analysis for the industrial injury prevention business.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 2019, the factors (i.e., price/earnings ratio, discount rate andresidual capitalization rate) were updated to reflect current market conditions. The evaluation of goodwill in 2019, 2018 and 2017 didnot result in any goodwill amounts that were deemed impaired. In 2017, we wrote off the goodwill of $0.5 million related to the closureof 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-controlling interestsin our consolidated financial statements consist of those owners, including us, that have certain redemption rights, whether currentlyexercisable or not, and which currently, or in the future, require that we purchase or the owner sell the non-controlling interest heldby the owner, if certain conditions are met and the owners request the purchase (“Put Right”). We also have a call right (“CallRight”). The Put Right or Call Right may be triggered by the owner or us, respectively, at such time as both of the following eventshave occurred: 1) termination of the owner’s employment, regardless of the reason for such termination, and 2) the passage ofspecified number of years after the closing of the transaction, typically three to five years, as defined in the limited partnershipagreement. The Put Rights and Call Rights are not automatic (even upon death) and require either the owner or us to exercise ourrights when the conditions triggering the Put or Call Rights have been satisfied. The purchase price is derived at a predeterminedformula based on a multiple of trailing twelve months earnings performance as defined in the respective limited partnershipagreements.On the date we acquire a controlling interest in a partnership and the limited partnership agreement for such partnershipscontains redemption rights not under our control, the fair value of the non-controlling interest is recorded in the consolidatedbalance sheet under the caption – Redeemable non-controlling interests. Then, in each reporting period thereafter until it ispurchased by us, the redeemable non-controlling interest is adjusted to the greater of its then current redemption value or initialvalue, based on the predetermined formula defined in the respective limited partnership agreement. As a result, the value of the non-controlling interest is not adjusted below its initial value. We record any adjustment in the redemption value, net of tax, directly toretained earnings and not in the consolidated statements of income. Although the adjustments are not reflected in the consolidated30TABLE OF CONTENTSstatements of income, current accounting rules require that we reflect the adjustments, net of tax, in the earnings per sharecalculation. The amount of net income attributable to redeemable non-controlling interest owners is included in consolidated netincome on the face of the consolidated income statement. We believe the redemption value (i.e. the carrying amount) and fair valueare the same.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.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:2019Year ended December 31, 20192018Year ended December 31, 20182017Year ended December 31, 2017New ClinicsClinics opened or acquired during the year ended December 31, 2019Mature ClinicsClinics opened or acquired prior to January 1, 20192018 New ClinicsClinics opened or acquired during the year ended December 31, 20182018 Mature ClinicsClinics opened or acquired prior to January 1, 20182017 New ClinicsClinics opened or acquired during the year ended December 31, 20172017 Mature ClinicsClinics opened or acquired prior to January 1, 20172016 New ClinicsClinics opened or acquired during the year ended December 31, 2016The following table presents selected operating and financial data, used by management as key indicators of our operatingperformance: For the Years Ended December 31, 201920182017Number of clinics, at the end of period 583 591 578 Working Days 255 255 254 Average visits per day per clinic 27.6 26.6 25.9 Total patient visits 4,091,967 3,957,534 3,705,226 Net patient revenue per visit$105.90 $105.55 $105.05 31TABLE OF CONTENTSRESULTS OF OPERATIONSFISCAL YEAR 2019 COMPARED TO FISCAL 2018•Net revenues increased $28.1 million, or 6.2%, from $453.9 million in 2018 to $481.9 million in 2019, primarily due to anincrease in net patient revenues from physical therapy operations due to internal growth and new clinic development plusan acquisition, and an increase in the revenue from the industrial injury prevention business due to internal growth andacquisitions.•For the year ended December 31, 2019, our Operating Results (as defined below) increased 7.3% to $36.0 million, or $2.82per diluted share, as compared to $33.5 million, or $2.65 per diluted share, for 2018. Operating Results, a non-GenerallyAccepted Accounting Principle (“GAAP”) measure, equals net income attributable to our shareholders per theconsolidated statements of net income less the gain on the sale of a partnership interest in 2019 and the gain on thederecognition of debt in 2018, both net of tax, as described below. The earnings per share from Operating Results alsoexcludes the impact of the revaluation of redeemable non-controlling interest. On June 30, 2019, we sold 50% of our interestin one physical therapy partnership to the group’s founders for $11.6 million and recognized a net pre-tax gain of $5.5million which is not included in Operating Results. See table below for a detailed computation (in thousands, except pershare data): Year Ended December 31, 20192018Net income attributable to USPH shareholders$40,039 $34,873 Adjustments: Gain on sale of partnership interest (5,514) — Gain on derecognition of debt — (1,846)Tax effect at statutory rate (federal and state) of 26.25% 1,447 484 Operating Results$35,972 $33,511 Basic and diluted Operating Results per share$2.82 $2.65 Shares used in computation - basic and diluted 12,756 12,666 •For the year ended December 31, 2019, our net income attributable to its shareholders, in accordance with GAAP, was $40.0million as compared to $34.9 million for the comparable period of 2018. For both periods of 2019, in accordance with currentaccounting guidance, the revaluation of redeemable non-controlling interest, net of tax, is not included in net income butrather charged directly to retained earnings; however, the chare or credit for this change is included in the earnings perbasic and diluted share calculation. See table below (in thousands, except per share data). Year Ended December 31, 20192018Computation of earnings per share - USPH shareholders: Net income attributable to USPH shareholders$40,039 $34,873 Charges to retained earnings: Revaluation of redeemable non-controlling interest (11,893) (24,770)Tax effect at statutory rate (federal and state) of 26.25% 3,121 6,502 $31,267 $16,605 Earnings per share (basic and diluted)$2.45 $1.31 32TABLE OF CONTENTS•For 2019, our Adjusted EBITDA increased by 8.5% to $67.3 million from $62.1 million in 2018. Adjusted EBITDA is definedas earnings before gain on derecognition of debt, gain on sale of partnership interest, interest income, interest expense –debt and other, taxes, depreciation, amortization and equity-based awards compensation expense. See reconciliation ofAdjusted EBITDA to net income attributable to our shareholders in the following table (in thousands): Year Ended December 31, 20192018Net income attributable to USPH shareholders$40,039 $34,873 Adjustments: Depreciation and amortization 10,095 9,755 Gain on sale of partnership interest (5,514) — Gain on derecognition of debt — (1,846)Interest income (46) (93)Interest expense - debt and other 2,079 2,042 Provision for income taxes 13,647 11,369 Equity-based awards compensation expense 6,985 5,939 Adjusted EBITDA$67,285 $62,039 The above tables reconcile net income attributable to our shareholders calculated in accordance with GAAP to AdjustedEBITDA and Operating Results, non-GAAP measures defined above. We believe providing Operating Results and Adjusted EBITDAare useful information to our investors for the purposes of comparing our period-to-period results. In addition, we believe thatproviding Operating Results, which eliminates certain items described above that can be subject to volatility and unusual costs, asone of the principal measures to evaluate and monitor financial performance period over period. We believe that Operating Results isuseful information for investors to use in comparing the Company's period-to-period results as well as for comparing with othersimilar businesses. We believe reporting Adjusted EBITDA is useful information for investors in comparing the Company’s period-to-period results as well as comparing with similar businesses which report adjusted EBITDA as defined by their company.Operating Results and Adjusted EBITDA are not measures of financial performance under GAAP. Operating Results andAdjusted EBITDA should not be considered in isolation or as an alternative to, or substitute for, net income attributable to USPHshareholders presented in the consolidated financial statements.Net Patient Revenues•Net patient revenues from physical therapy operations increased to $433.3 million in 2019 from $417.7 million in 2018, anincrease of $15.6 million, or 3.7%, due to an increase in total patient visits of 3.4% (discussed below) and an increase in theaverage net patient revenue per visit to $105.90 from $105.55. Of the $15.6 million increase in net patient revenues, $10.8million related to an increase in business of Mature Clinics and $4.8 million related to New Clinics. The net patient revenuesrelated to the 30 clinics sold on June 30, 2019 had the effect of reducing total net revenues by $11.6 million in 2019 (only thefirst six months included for the 2019 year - $12.2 million) compared to 2018 (twelve months total was $23.8 million).•Total patient visits increased to 4,092,000 for 2019 from 3,958,000 for 2018. The growth in patient visits was attributable to43,000 visits in New Clinics and an increase of 91,000 visits for Mature Clinics.•Net patient revenues are based on established billing rates less allowances and discounts for patients covered bycontractual programs and workers’ compensation. Net patient revenues reflect contractual and other adjustments, which weevaluate monthly, relating to patient discounts from certain payors. Payments received under these contractual programsand workers’ compensation are based on predetermined rates and are generally less than the established billing rates of theclinics.33TABLE OF CONTENTSOther RevenuesOther revenues consist of the following (in thousands): Year Ended December 31, December 31, 2019December 31, 2018Industrial injury prevention services revenues 37,462 25,466 Management contract revenues 8,676 8,339 Other revenues 2,486 2,403 $48,624 $36,208 Other revenues, consisting primarily of industrial injury prevention business and management fees revenue, increased by $12.4million, from $36.2 million in 2018 to $48.6 million in 2019. Revenues from management contracts were $8.7 million for 2019 ascompared to $8.3 million for 2018. Revenue from the industrial injury prevention business increased 47.1% to $37.5 million in 2019compared to $25.5 million in 2018 due to internal growth and acquisitions. Other miscellaneous revenue was $2.4 million for both 2019and 2018.Operating CostsTotal operating costs were $369.5 million in 2019, or 76.7% (a reduction of 90 basis points) of net revenues, as compared to$352.2 million in 2018, or 77.6% of net revenues. The $17.3 million increase was attributable to $10.3 million in operating costs relatedto New Clinics, an increase of $9.2 million related to Mature Clinics, an increase of $8.8 million related to the industrial injuryprevention business and an increase in management contracts costs of $0.1 million offset by a reduction in expenses related to theclinics sold of $11.1 million. See table detailing acquisition dates above under – “Executive Summary”. Each component of clinicoperating costs is discussed below:Operating Costs—Salaries and Related CostsSalaries and related costs increased to $274.2 million for 2019 from $259.2 million for 2018, an increase of $15.0 million, or 5.8%.Approximately $2.7 million of the increase was attributable to New Clinics, an additional $13.3 million related to Mature Clinics and$7.3 million related to the industrial injury prevention business primarily due to the acquisition in 2019. Salaries and related costs for2019 as compared to 2018 was reduced by expenses related to the clinics sold of $8.3 million. Salaries and related costs related tomanagement contracts remained consistent. Included in salaries and related costs was approximately $1.4 million in higher employeehealthcare costs than planned. Salaries and related costs as a percentage of net revenues was 56.9% for 2019 and 57.1% for 2018.Operating Costs—Rent, Supplies, Contract Labor and OtherRent, supplies, contract labor and other costs increased to $90.4 million for 2019 from $88.4 million for 2018, an increase of $2.0million, or 2.2%. Approximately $3.1 million of the increase was attributable to New Clinics, $0.3 million of the decrease was due tolower costs at various Mature Clinics, $1.8 million increase was due to the industrial injury prevention businesses, $0.1 million relatedto management contracts and offset by a reduction in expenses related to the clinics sold of $2.7 million. Rent, supplies, contractlabor and other costs as a percent of net revenues was 18.8% for 2019 and 19.5% for 2018.Operating Costs—Provision for Doubtful AccountsThe provision for doubtful accounts for net patient receivables was $4.9 million for 2019 and $4.6 million for 2018. As apercentage of net patient revenues, the provision for doubtful accounts were 1.0% for both 2019 and 2018.Our provision for doubtful accounts as a percentage of total patient accounts receivable was 5.5% at December 31, 2019 and5.6% at December 31, 2018. 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.34TABLE OF CONTENTSThe average accounts receivable days outstanding were 33 days at December 31, 2019 and 37 days at December 31, 2018. Netpatient receivables in the amount of $4.8 million and $3.9 million were written-off in 2019 and 2018, respectively.Gross ProfitGross profit in 2019 grew by 10.6% or $10.8 million to $112.5 million, as compared to $101.7 million in 2018. The gross profitpercentage grew to 23.3% of net revenue in the recent year as compared to 22.4% for 2018. The gross profit percentage for ourphysical therapy clinics was 23.6% for 2019 as compared to 22.7% for 2018. The gross profit percentage on management contractswas 14.8% for 2019 as compared to 12.1% for 2018. The gross profit percentage for the industrial injury prevention business was22.4% for 2019 as compared to 20.4% for 2018.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 $45.0 million for 2019 and $41.3 million for 2018. The dollar increase is primarily due to increases in salaries, benefits andequity based compensation. Corporate office costs as a percentage of net revenues were 9.3% for 2019 and 9.1% in 2018.Interest Expense – debt and otherInterest expense – debt and other was $2.1 million for 2019 and $2.0 million for 2018. At December 31, 2019, $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.Gain on Sale of Partnership InterestThe gain of $5.5 million resulted from a sale of partnership interest. As previously disclosed, on June 30, 2019, we sold a 50%interest in one physical therapy partnership to the group’s founders. The sales proceeds, all of which was in cash, was $11.6 million.Gain on Derecognition of DebtIn 2018, the gain from derecognition of debt of $1.8 million related to a liability to some former physical therapy partners whichwas no longer deemed payable.Provision for Income TaxesThe provision for income tax in 2019 was $13.6 million and $11.4 million in 2018. The provision for income tax as a percentage ofincome before taxes less net income attributable to non-controlling interest was 25.4% in 2019 and 24.6% in 2018.Net Income Attributable to Non-controlling InterestsNet income attributable to non-controlling interests was $17.2 million in 2019 and $13.9 million in 2018. Net income attributable tonon-controlling interests (permanent equity) was $6.6 million in 2019 as compared to $5.5 million in 2018. Net income attributable toredeemable non-controlling interests (temporary equity) was $10.6 million in 2019 and $8.4 million in 2018.RESULTS OF OPERATIONSFISCAL YEAR 2018 COMPARED TO FISCAL 2017•Net revenues increased $39.8 million, or 9.6%, from $414.1 million in 2017 to $453.9 million in 2018, primarily due to anincrease in net patient revenues from physical therapy operations from both internal growth and acquisitions, an increasein the revenue from the industrial injury prevention business from a combination of internal growth plus an acquisition andan increase in revenue from acquired management contracts. Our first company in the industrial injury prevention businesswas acquired in March 2017 and, on April 30, 2018, we made a second acquisition.35TABLE OF CONTENTS•For the year ended December 31, 2018, our Operating Results increased 28.1% to $33.5 million, or $2.65 per diluted share, ascompared to $26.2 million, or $2.08 per diluted share, for the 2017 year. Operating Results (as defined below), a non-generally accepted accounting principles (“non-GAAP”) measure, for the 2018 fourth quarter and for the 2018 year, equalsnet income attributable to our shareholders excluding gain on derecognition of debt, net of taxes. For the 2017 fourthquarter and 2017 year, Operating Results is defined as net income attributable to our shareholders prior to the benefit due tothe revaluation of deferred tax assets and liabilities due to the 2017 Tax Cuts and Jobs Act (“TCJA”), and prior to chargesfor interest expense – mandatorily redeemable non-controlling interests – change in redemption value and charges for costsrelated to restatement of financials – legal and accounting, both charges net of tax. See table below.•For the year ended December 31, 2018, our net income attributable to its shareholders, in accordance with GAAP, was $34.9million, $1.31 per share, as compared to $22.3 million, or $1.76 per share, for the 2017 year. For both periods of 2018, inaccordance with current accounting guidance, the revaluation of redeemable non-controlling interest, net of tax, is notincluded in net income but rather charged directly to retained earnings, but is included in the earnings per basic and dilutedshare calculation. See table below.•For 2018, our Adjusted EBITDA increased by 7.1% to $62.1 million from $57.9 million in 2017. See definition andreconciliation of Adjusted EBITDA in the following table. Year Ended December 31, 20182017Computation of earnings per share - USPH shareholders Net income attributable to USPH shareholders$34,873 $22,256 Charges to retained earnings: Revaluation of redeemable non-controlling interest (24,770) (201)Tax effect at statutory rate (federal and state) of 26.25% 6,502 75 $16,605 $22,130 Basic and diluted per share$1.31 $1.76 Adjustments: Tax benefit - revaluation of deferred tax assets and liabilities — (4,325)Gain on derecognition of debt (1,846) — Interest expense MRNCI * - change in redemption value — 12,894 Cost related to restatement of financials - legal and accounting — 670 Revaluation of redeemable non-controlling interest 24,770 201 Tax effect at statutory rate (federal and state) of 26.25% and 39.25%, respectively (6,018) (5,405)Operating results$33,511 $26,165 Basic and diluted operating results per share$2.65 $2.08 Shares used in computation: Basic and diluted 12,666 12,570 36TABLE OF CONTENTS Year Ended December 31, 20182017Net income attributable to USPH shareholders$34,873 $22,256 Adjustments: Depreciation and amortization 9,755 9,710 Gain on derecognition of debt (1,846) — Interest income (93) (88)Interest expense MRNCI * - change in redemption value — 12,894 Interest expense - debt and other 2,042 2,111 Provision for income taxes 11,369 6,032 Equity-based awards compensation expense 5,939 5,032 Adjusted EBITDA$62,039 $57,947 *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 Adjusted EBITDA and Operating Results, non-GAAP measures defined below. We believe providing Operating Results and Adjusted EBITDA are useful information to ourinvestors for the purposes of comparing our period-to-period results. In addition, we believe that providing Operating Results allowsour investors to compare our results with other similar businesses since most do not have redeemable instruments and thereforehave different liability and equity structures. We use Operating Results, which eliminates the MRNCI – change in redemption whichis a current non-cash item that can be subject to volatility and unusual costs, as one of the principal measures to evaluate andmonitor financial performance period over period. Adjusted EBITDA is defined as earnings before gain on derecognition of debt,interest income, interest expense – mandatorily redeemable non-controlling interests – change in redemption value, interest expense– debt and other, taxes, depreciation, amortization and equity-based awards compensation expense.Operating Results and Adjusted EBITDA are not measures of financial performance under GAAP. Operating Results andAdjusted EBITDA should not be considered in isolation or as an alternative to, or substitute for, net income attributable to USPHshareholders presented in the consolidated financial statements.Net Patient Revenues•Net patient revenues increased to $417.7 million for 2018 from $389.2 million for 2017, an increase of $28.5 million, or 7.3%.The increase in net patient revenues of $28.5 million consisted of an increase of $4.7 million from New Clinics and $23.8million from Mature Clinics. During 2018, we acquired one multi-clinic group consisting of four clinics and five other singleclinic practices for a total of 9 clinics. The net patient revenues from acquired clinics are included in our results ofoperations since the respective date of their acquisition. See above table and discussion under “—Executive Summary”detailing our multi-clinic acquisitions.•Total patient visits increased to 3,958,000 for 2018 from 3,705,000 for 2017. The growth in patient visits was attributable to43,000 visits in New Clinics and an increase of 210,000 visits for Mature Clinics primarily due to 2017 New Clinics.•The average net patient revenue per visit slightly increased to $105.55 in 2018 from $105.05 in 2017.•Net patient revenues are based on established billing rates less allowances and discounts for patients covered bycontractual programs and workers’ compensation. Net patient revenues reflect contractual and other adjustments, which weevaluate monthly, relating to patient discounts from certain payors. Payments received under these contractual programsand workers’ compensation are based on predetermined rates and are generally less than the established billing rates of theclinics.37TABLE OF CONTENTSOther RevenuesOther revenues, consisting primarily of our industrial injury prevention business and management fees revenue, increased by$11.4 million, from $24.8 million in 2017 to $36.2 million in 2018. The revenues from the recently acquired industrial injury preventionbusiness were $25.5 million in 2018 and $14.9 million in 2017. Revenues from management contracts were $8.3 million for 2018 ascompared to $7.4 million for 2017. Other miscellaneous revenue was $2.4 million for 2018 and $2.5 million for 2017.Operating CostsOperating costs were $352.2 million, or 77.6% of net revenues, for 2018 and $323.4 million, or 78.1% of net revenues, for 2017.The dollar increase was attributable to $5.3 million in operating costs for New Clinics, an additional $15.1 million related to a MatureClinics, $7.4 million related to the addition of the industrial injury prevention business, and an increase of $1.0 million related tomanagement contracts. The 2017 closure costs of $0.6 million, included in operating costs, are primarily due to the closure of a singleclinic acquired partnership due to the loss of a significant management contract. (See table detailing acquisition dates above under –“Executive Summary”). Each component of clinic operating costs is discussed below:Operating Costs—Salaries and Related CostsSalaries and related costs increased to $259.2 million for 2018 from $237.1 million for 2017, an increase of $22.1 million, or 9.3%.Approximately $3.3 million of the increase was attributable to New Clinics, $12.6 million of the increase was due to higher costs atvarious Mature Clinics primarily due to an increase in salaries and related costs in 2017 New Clinics which had a full year of activityin 2018, $5.4 million was due to higher salary costs at the industrial injury prevention businesses primarily due to the acquisition inApril of 2018 and $0.8 million related to management contracts. Salaries and related costs as a percentage of net revenues was 57.1%for 2018 and 57.3% for 2017.Operating Costs—Rent, Supplies, Contract Labor and OtherRent, supplies, contract labor and other costs increased to $88.4 million for 2018 from $82.1 million for 2017, an increase of $6.3million, or 7.7%. Approximately $1.9 million of the increase was attributable to New Clinics, $1.7 million of the increase was due tohigher costs at various Mature Clinics, $1.7 million was due to the industrial injury prevention businesses primarily due to theacquisition in April of 2018 and $1.0 million related to management contracts. For 2018, New Clinics accounted for approximately $1.9million of the increase, the industrial injury prevention business accounted for approximately $0.7 million and 2017 New Clinicsaccounted for approximately $3.7 million of the increase due to a full year of activity. Rent, supplies, contract labor and other costs asa percent of net revenues was 19.5% for 2018 and 19.8% for 2017.Operating Costs—Provision for Doubtful AccountsThe provision for doubtful accounts for net patient receivables was $4.6 million for 2018 and $3.7 million for 2017. As apercentage of net patient revenues, the provision for doubtful accounts was 1.0% for 2018 and 0.9% for 2017.Our provision for doubtful accounts as a percentage of total patient accounts receivable was 5.6% at December 31, 2018 and4.9% at December 31, 2017. 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 37 days at December 31, 2018 and 36 days at December 31, 2017. Netpatient receivables in the amount of $3.9 million and $3.3 million were written-off in 2018 and 2017, respectively.Closure CostsFor 2018 and 2017, closure costs amounted to a credit of $9,000 and a charge of $599,000, respectively. As previously mentioned,the 2017 closure costs are primarily due to the closure of a single clinic acquired partnership due to the loss of a significantmanagement contract.38TABLE OF CONTENTSGross ProfitThe gross profit in 2018 grew by 12.2% or $11.1 million to $101.7 million, as compared to $90.6 million in 2017. The gross profitpercentage grew to 22.4% of net revenue in the recent year as compared to 21.9% for 2017. The gross profit percentage for ourphysical therapy clinics was 22.7% for 2018 as compared to 22.5% for 2017. The gross profit percentage on management contractswas 12.1% for 2018 as compared to 14.9% for 2017. The gross profit percentage for the industrial injury prevention business was20.4% for 2018 as compared to 13.3% for 2017.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 $41.3 million for 2018 and $35.9 million for 2017. 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 2018 and 8.7% in 2017.Interest Expense – mandatorily redeemable non-controlling interest – change in redemption value.We no longer have mandatorily redeemable non-controlling interests. As previously mentioned, due to amended partnershipsagreements, the redemption values of the mandatorily redeemable non-controlling interests (previously classified as liabilities) werereclassified as redeemable non-controlling interest (temporary equity) at fair value on the December 31, 2017 consolidated balancesheet. For 2017, the earnings and liabilities attributable to mandatorily redeemable non-controlling interests were recorded within theconsolidated statements of income line item: Interest expense – mandatorily redeemable non-controlling interests – earnings allocableand in the consolidated balance sheet line item: Mandatorily redeemable non-controlling interests. For 2018, any adjustments in theredemption value, net of tax, are recorded directly to retained earnings and are not reflected in the consolidated statements of income.Although the redemption adjustments are not reflected in the consolidated statements of income, current accounting rules requirethat we reflect these adjustments, net of tax, in the earnings per share calculation.Interest Expense mandatorily redeemable non-controlling interest – change in redemption value for the 2017 year was $12.9million. The change in redemption value for acquired partnerships was based on the redemption amount (which is derived from aformula based on a specified multiple times the underlying business’ trailing twelve months of earnings before interest, taxes,depreciation, amortization and our internal management fee) at the end of the reporting period compared to the end of the previousperiod. This change is directly related to an increase or decrease in the profitability and underlying value of our partnerships ascompared to the prior year.Interest Expense – mandatorily redeemable non-controlling interest – earnings allocable.For 2018, the amount of net income attributable to redeemable non-controlling interest owners is included in consolidated netincome on the face of the consolidated statement of income in the line item – Net income attributable to non-controlling interests. For2017, interest expense – mandatorily redeemable non-controlling interest – earnings allocable, which represent the portion ofearnings allocable to the holders of mandatorily redeemable non-controlling interests, was $6.1 million.Interest Expense – debt and otherInterest expense – debt and other was $2.0 million for 2018 and $2.1 million for 2017. At December 31, 2018, $38.0 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.Gain on Derecognition of DebtGain on derecognition of debt was $1.8 million for the year 2018 as a liability relating to some former physical therapy partners isno longer deemed payable.39TABLE OF CONTENTSProvision for Income TaxesThe provision for income tax in 2018 was $11.4 million, inclusive of a $0.5 million benefit related to the reconciliation of the 2017federal and state returns to our book provision. Without this benefit, the provision for income taxes as a percentage of income beforetaxes less net income attributable to non-controlling interest was 25.7%. The income tax expense in 2017 was $6.0 million. Included in2017 is a tax benefit of $4.3 million due to the revaluation of deferred tax assets and liabilities due to the TCJA. Also, included in 2017was a charge of $0.3 million related to a detailed reconciliation of the federal and state taxes payable and receivable accounts alongwith federal and state deferred tax assets and liability accounts at December 31, 2016. Without this reconciliation charge and prior tothe $4.3 million tax benefit, the provision for income taxes as a percentage of income before taxes less net income attributable to non-controlling interest was 35.6%. As reported, the provision for income tax as a percentage of income before taxes less net incomeattributable to non-controlling interest was 24.6% in 2018 and 21.3% in 2017.Net Income Attributable to Non-controlling InterestsNet income attributable to non-controlling interests was $13.9 million in 2018 and $5.5 million in 2017. Net income attributable tonon-controlling interests (permanent equity) was $5.5 million in 2018 as compared to $5.2 million in 2017. Net income attributable toredeemable non-controlling interests (temporary equity) was $8.4 million in 2018 and $0.2 million in 2017.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, 2019, we had $23.5million in cash and cash equivalents compared to $23.4 million at December 31, 2018. 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 2020. 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 our 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, 2019, $46.0 million was outstanding on the Amended Credit Agreement resulting in $79.0 million of availability.As of the date of this report, we were in compliance with all of the covenants thereunder.Cash was provided by operations ($62.4 million), proceeds on sale of partnership interest ($11.6 million) and net proceeds fromour Amended Credit Agreement ($8.0 million). The major uses of cash for investing and40TABLE OF CONTENTSfinancing activities included: purchase of interests in businesses ($30.6 million), distributions to non-controlling interests ($16.2million), payments of cash dividends to our shareholders ($14.6 million), purchases of fixed assets ($10.2 million), purchases ofredeemable non-controlling interest, temporary equity ($8.7 million) and payments on notes payable ($1.4 million)On September 30, 2019, we acquired a 67% interest in an eleven-clinic physical therapy practice. The purchase price for the 67%interest was $12.4 million, of which $12.1 million was paid in cash and $0.3 million in a seller note that is payable in two principalinstallments totaling $150,000 each, plus accrued interest in September 2020 and September 2021. The note accrues interest at 5.0%per annum.On April 30, 2018, we purchased a 65% interest in the assets and business of industrial injury prevention services, for anaggregate purchase price of $8.6 million in cash and $400,000 in seller note that is payable, plus accrued interest, on April 30, 2019.The initial industrial injury prevention business was acquired in March 2017 and, on April 30, 2018, we made a second acquisitionwith the two businesses then combined. After the combination, we owned a 59.45% interest in the combined business, Briotix Health.On April 11, 2019, we acquired a company that is a provider of industrial injury prevention services. The acquired companyspecializes in delivering injury prevention and care, post offer employment testing, functional capacity evaluations and return-to-work services. It performs these services across a network in 45 states including onsite at eleven client locations. The business wasthen combined with Briotix Health, increasing our ownership position in the Briotix Health partnership to approximately 76.0%. Thepurchase price for the acquired company was $22.9 million ($23.6 million less cash acquired of $0.7 million), which consisted of $18.9million in cash, (of which $0.5 million will be paid to certain shareholders), and a $4.0 million seller note. The note accrues interest at5.5% and the principal and accrued interest is payable, on April 9, 2021.On August 31, 2018 we acquired a 70% interest in a four-clinic physical therapy practice. The purchase price for the 70% interestwas $7.3 million in cash and $400,000 in a seller note that is payable in two principal installments totaling $200,000 each, plus accruedinterest. The first installment was paid in August 2019 and the second installment remains payable in August 2020.On February 28, 2018, through one of our majority owned partnerships, we acquired the assets and business of two physicaltherapy clinics, for an aggregate purchase price of $760,000 in cash and $150,000 in a seller note which was paid along with accruedinterest on August 31, 2019.In addition to the multi-clinic acquisitions above in 2018, we through several of our majority owned Clinic Partnerships, acquiredfive separate clinic practices. These practices will operate as satellites of the respective existing clinic partnership.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. We have from time to time purchased thenon-controlling interests of limited partners in our Clinic Partnerships. We may purchase additional non-controlling interests in thefuture. Generally, any acquisition or purchase of non-controlling interests is expected to be accomplished using a combination ofcash 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 be dependent upon the payment of another payor. Claims under litigationand vehicular incidents can take a year or longer to collect. Medicare and other payor claims relating to new clinics awaiting CMSapproval initially may not be submitted for six months or more. When all reasonable internal collection efforts have been exhausted,accounts are written off prior to sending them to outside collection firms. With managed care, commercial health plans and self-paypayor type receivables, the write-off generally occurs after the account receivable has been outstanding for 120 days or longer.41TABLE OF CONTENTSWe have future obligations for debt repayments, employment agreements and future minimum rentals under operating leases.The obligations as of December 31, 2019 are summarized as follows (in thousands): Total20202021202220232024ThereafterCredit Agreement$46,000 $— $46,000 $— $— $— $— Notes Payable 5,089 728 4,361 — — — — Interest Payable 320 253 67 — — — — Employee Agreements 74,407 50,840 20,968 1,421 1,178 — — Operating Leases 115,490 35,784 28,022 20,618 14,332 8,302 8,432 $241,306 $87,605 $99,418 $22,039 $15,510 $8,302 $8,432 We generally enter into various notes payable as a means of financing our acquisitions. Our present outstanding notes payableprimarily relate to the acquisition of a business, acquisition of a majority interest in a business. At December 31, 2019, our remainingoutstanding balance on these notes aggregated $5.1 million. The note payable for the acquisition of a business of $4.0 million ispayable in April 2021. The other $1.1 million of notes are generally payable in equal annual installments of principal over two yearsplus any accrued and unpaid interest. See above table for a detail of future principal payments. Interest accrues at various interestrates ranging from 3.75% to 5.00% per annum, subject to adjustment.In conjunction with acquisitions, we entered into amendments to our limited partnership agreements for our acquiredpartnerships. The limited partnership agreements, as amended, provide that, upon the triggering events, we have a Call Right and theselling entity or individual has a Put Right for the purchase and sale of the limited partnership interest held by the partner. Oncetriggered, the Put Right and the Call Right do not expire, even upon an individual partner’s death, and contain no mandatoryredemption feature. The purchase price of the partner’s limited partnership interest upon the exercise of either the Put Right or theCall Right is calculated per the terms of the respective agreements and classified as redeemable non-controlling interest (temporaryequity) in our consolidated balance sheets. The fair value of the redeemable non-controlling interest at December 31, 2019 was $137.8million.As of December 31, 2019, we have accrued $4.3 million related to credit balances and overpayments due to patients and payors.This amount is expected to be paid in 2020.From 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, 2019, there are currently an additionalestimated 131,176 shares (based on the closing price of $114.35 on December 31, 2019) 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, 2019 and 2018.Off Balance Sheet ArrangementsWith the exception of operating leases for our executive offices and clinic facilities discussed in Note 16 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;42TABLE OF CONTENTS•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;•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;•competitive environment in the industrial injury prevention business, which could result in the termination or non-renewalof contractual service arrangements and other adverse financial consequences for that service line;•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;•the potential impact of the coronavirus;•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, 2019 was the outstanding balance of seller notes of $5.1 million and anoutstanding balance on our Amended Credit Agreement of $46.0 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 $460,000 of interestexpense. See Note 9 to our consolidated financial statements included in Item 8.43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 45 Audited Financial Statements: Consolidated Balance Sheets as of December 31, 2019 and 2018 48 Consolidated Statements of Income for the years ended December 31, 2019, 2018 and 2017 49 Consolidated Statements of Changes in Equity for the years ended December 31, 2019, 2018 and 2017 50 Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017 51 Notes to Consolidated Financial Statements 52 44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, 2019 and 2018, the related consolidated statements of income, changes in equity,and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statementschedule included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statementspresent fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of itsoperations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accountingprinciples generally accepted in the United States of America.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)(“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2019, 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 February 28, 2020 expressed an unqualified opinion.Change in accounting principleAs discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases onJanuary 1, 2019 due to the adoption of Accounting Standards Codification (“ASC”) 842, Leases.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.Critical audit matterThe critical audit matter communicated below is a matter arising from the current period audit of the financial statements that wascommunicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are materialto the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of acritical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, bycommunicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts ordisclosures to which it relates.Measurement of Patient Revenue Net of Contractual AdjustmentsAs discussed in Note 2 to the consolidated financial statements, revenues are recognized in the period in which services arerendered. Net patient revenues (patient revenues less estimated contractual adjustments) are recognized at the estimated netrealizable amounts from third-party payors, patients and others in exchange for services rendered when obligations under the termsof the contract are satisfied. The Company has agreements45TABLE OF CONTENTSwith third-party payors that provides for payments at amounts different from its established rates. Each month the Companyestimates its contractual adjustment for each clinic based on the terms of third-party payor contracts and the historical collection andwrite-off experience of the clinic and applies a contractual adjustment reserve percentage to the gross accounts receivable balances.The Company then performs a comparison of cash collections to corresponding net revenues for the prior twelve months. Weidentified the measurement of contractual adjustments as a critical audit matter.The principal consideration for our determination that the measurement of contractual adjustments is a critical audit matter is that theestimate requires a high degree of auditor subjectivity in evaluating management’s assumptions related to developing futurecollection patterns across the various clinic locations.Our audit procedures related to the Company’s measurement of contractual adjustments included the following, among others.•We tested the design and operating effectiveness of controls relating to billing and cash collection, net rate trend analysisby clinic and cash collection versus net revenue trend analysis.•For a sample of patient visits, we inspected and compared underlying documents for each transaction, which includedgross billing rates and cash collected (net revenue).•For a sample of patient visits, we traced gross billings and net revenue to net revenue recorded in the general ledger and toeach report used in determining and assessing the contractual adjustment calculation.•We compared cash collections to recorded net revenue over a twelve month period ending December 31, 2019 and again forthe twelve month period ending in the first month subsequent to period end, to identify whether there were unusual trendsthat would indicate that the usage of historical collection patterns would no longer be reasonable to predict futurecollection patterns./s/ GRANT THORNTON LLPWe have served as the Company’s auditor since 2004.Houston, TexasFebruary 28, 202046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, 2019, 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, 2019, 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, 2019, and our reportdated February 28, 2020 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, TexasFebruary 28, 202047TABLE OF CONTENTSU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands, except share data) December 31,2019December 31,2018ASSETS Current assets: Cash and cash equivalents$23,548 $23,368 Patient accounts receivable, less allowance for doubtful accounts of $2,698 and $2,672,respectively 46,228 44,751 Accounts receivable - other 9,823 6,742 Other current assets 5,787 4,353 Total current assets 85,386 79,214 Fixed assets: Furniture and equipment 54,942 52,611 Leasehold improvements 33,247 31,712 Fixed assets, gross 88,189 84,323 Less accumulated depreciation and amortization 66,099 64,154 Fixed assets, net 22,090 20,169 Operating lease right-of-use assets 81,586 — Goodwill 317,676 293,525 Other identifiable intangible assets, net 52,588 48,828 Other assets 1,519 1,430 Total assets$560,845 $443,166 LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS, USPHSHAREHOLDERS’ EQUITY AND NON-CONTROLLING INTERESTS Current liabilities: Accounts payable - trade$2,494 $2,019 Accrued expenses 30,855 38,493 Current portion of operating lease liabilities 26,486 — Current portion of notes payable 728 1,434 Total current liabilities 60,563 41,946 Notes payable, net of current portion 4,361 402 Revolving line of credit 46,000 38,000 Deferred taxes 10,071 9,012 Deferred rent — 2,159 Operating lease liabilities, net of current portion 60,258 — Other long-term liabilities 141 829 Total liabilities 181,394 92,348 Redeemable non-controlling interests - temporary equity 137,750 133,943 Commitments and contingencies (Note 10) 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, 14,989,337 and 14,899,233shares issued, respectively 150 149 Additional paid-in capital 87,383 80,028 Retained earnings 184,352 167,396 Treasury stock at cost, 2,214,737 shares (31,628) (31,628)Total USPH shareholders’ equity 240,257 215,945 Non-controlling interests - permanent equity 1,444 930 Total USPH shareholders' equity and non-controlling interests 241,701 216,875 Total liabilities, redeemable non-controlling interests, USPH shareholders' equityand non-controlling interests$560,845 $443,166 See notes to consolidated financial statements.48TABLE OF CONTENTSU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(In thousands, except per share data) Year Ended December 31,2019December 31,2018December 31,2017Net patient revenues$433,345 $417,703 $389,226 Other revenues 48,624 36,208 24,825 Net revenues 481,969 453,911 414,051 Operating costs: Salaries and related costs 274,233 259,228 237,067 Rent, supplies, contract labor and other 90,379 88,426 82,096 Provision for doubtful accounts 4,858 4,603 3,672 Closure costs 25 (9) 599 Total operating costs 369,495 352,248 323,434 Gross profit 112,474 101,663 90,617 Corporate office costs 45,049 41,349 35,889 Operating income 67,425 60,314 54,728 Gain on sale of partnership interest 5,514 — — Gain on derecognition of debt — 1,846 — Interest and other income, net 46 93 88 Interest expense: Mandatorily redeemable non-controlling interests - change in redemptionvalue — — (12,894)Mandatorily redeemable non-controlling interests - earnings allocable — — (6,055)Debt and other (2,079) (2,042) (2,111)Total interest expense (2,079) (2,042) (21,060)Income before taxes 70,906 60,211 33,756 Provision for income taxes 13,647 11,369 6,032 Net income 57,259 48,842 27,724 Less: net income attributable to non-controlling interests: Non-controlling interests - permanent equity (6,561) (5,536) (5,224)Redeemable non-controlling interests - temporary equity (10,659) (8,433) (244) (17,220) (13,969) (5,468)Net income attributable to USPH shareholders$40,039 $34,873 $22,256 Basic and diluted earnings per share attributable to USPH shareholders$2.45 $1.31 $1.76 Shares used in computation - basic and diluted 12,756 12,666 12,570 Dividends declared per common share$1.14 $0.92 $0.80 See notes to consolidated financial statements.49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-ControllingInterestsTotal SharesAmountSharesAmountBalance January 1, 2017 14,733 $147 $68,687 $150,342 (2,215)$(31,628)$187,548 $1,140 $188,688 Issuance of restricted stock, net ofcancellations 76 1 — — — — 1 1 Revaluation of redeemable non-controlling interest, net of tax — — — (126) — — (126) — (126)Compensation expense - equity-basedawards — — 5,032 — — — 5,032 — 5,032 Transfer of compensation liability forcertain stock issued pursuant to long-term incentive plans — — 165 — — — 165 — 165 Sale of non-controlling interest, net oftax and purchases — — 56 — — — 56 (20) 36 Dividends paid to USPT shareholders — — — (10,066) — — (10,066) — (10,066)Distributions to non-controllinginterest partners — — — — — — — (5,300) (5,300)Other — — — — — — — 160 160 Net income attributable to non-controlling interets - permanentequity — — — — — — 5,224 5,224 Net income attributable to USPHshareholders — — — 22,256 — — 22,256 — 22,256 Balance December 31, 2017 14,809 148 73,940 162,406 (2,215) (31,628) 204,866 1,204 206,070 Issuance of restricted stock, net ofcancellations 90 1 — — — — 1 — 1 Revaluation of redeemable non-controlling interest, net of tax — — — (18,268) — — (18,268) — (18,268)Compensation expense - equity-basedawards — — 5,939 — — — 5,939 — 5,939 Transfer of compensation liability forcertain stock issued pursuant to long-term incentive plans — — 373 — — — 373 — 373 Sale of non-controlling interest, net ofpurchases and tax — — (224) — — — (224) (48) (272)Dividends paid to USPT shareholders — — — (11,664) — — (11,664) — (11,664)Distributions to non-controllinginterest partners — — — — — — — (5,812) (5,812)Other — — — 49 — — 49 50 99 Net income attributable to non-controlling interets - permanentequity — — — — — — — 5,536 5,536 Net income attributable to USPHshareholders — — — 34,873 — — 34,873 — 34,873 Balance December 31, 2018 14,899 149 80,028 167,396 (2,215) (31,628) 215,945 930 216,875 Issuance of restricted stock, net ofcancellations 90 1 — — — — 1 — 1 Revaluation of redeemable non-controlling interest, net of tax — — — (8,771) — — (8,771) — (8,771)Compensation expense - equity-basedawards — — 6,985 — — — 6,985 — 6,985 Transfer of compensation liability forcertain stock issued pursuant to long-term incentive plans — — 636 — — — 636 — 636 Purchase of partnership interests -redeemable non-controlling interests — — (266) — — — (266) (26) (292)Sale of non-controlling interest, net ofpurchases and tax — — — 196 — — 196 — 196 Dividends paid to USPT shareholders — — — (14,555) — — (14,555) — (14,555)Distributions to non-controllinginterest partners — — — — — — — (6,014) (6,014)Other — — — 47 — — 47 (7) 40 Net income attributable to non-controlling interest - permanentequity — — — — — — — 6,561 6,561 Net income attributable to USPHshareholders — — — 40,039 — — 40,039 — 40,039 Balance December 31, 2019 14,989 $150 $87,383 $184,352 (2,215)$(31,628)$240,257 $1,444 $241,701 See notes to consolidated financial statements.50TABLE OF CONTENTSU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Year Ended December31,2019December31,2018December31,2017OPERATING ACTIVITIES Net income including non-controlling interests$57,259 $48,842 $27,724 Adjustments to reconcile net income including non-controlling interests to net cashprovided by operating activities: Depreciation and amortization 10,095 9,755 9,710 Provision for doubtful accounts 4,858 4,603 3,672 Equity-based awards compensation expense 6,985 5,939 5,032 Deferred income taxes 4,651 4,813 (4,864)Gain on sale of partnership interest (5,514) — — Gain on derecognition of Debt — (1,846) — Other 96 167 621 Changes in operating assets and liabilities: Increase in patient accounts receivable (6,376) (3,434) (3,447)Increase in accounts receivable - other (2,499) (1,087) (3,022)(Increase) decrease in other assets (1,878) 345 2,086 (Decrease) increase in accounts payable and accrued expenses (4,209) 4,876 6,979 Increase in mandatorily redeemable non-controlling interests — — 11,579 (Decrease) increase in other liabilities (1,020) 32 456 Net cash provided by operating activities 62,448 73,005 56,526 INVESTING ACTIVITIES Purchase of fixed assets (10,189) (7,193) (7,095)Purchase of majority interest in businesses (30,597) (16,367) (36,682)Purchase of redeemable non-controlling interest, temporary equity (8,651) — — Purchase of non-controlling interest, permanent equity (428) (350) — Sales of non-controlling interest-permanent equity 207 — 121 Proceeds on sale of partnership interest, net 11,601 — — Proceeds on sale of fixed assets 64 1 81 Net cash used in investing activities (37,993) (23,909) (43,575) FINANCING ACTIVITIES Distributions to non-controlling interests, permanent and temporary equity (16,235) (15,646) (5,572)Cash dividends paid to shareholders (14,555) (11,664) (10,066)Proceeds from revolving line of credit 145,000 103,000 93,000 Payments on revolving line of credit (137,000) (119,000) (85,000)Payments to settle mandatorily redeemable non-controlling interests — (265) (2,361)Principal payments on notes payable (1,433) (4,044) (1,227)Other (52) (42) 161 Net cash used in financing activities (24,275) (47,661) (11,065) Net increase in cash and cash equivalents 180 1,435 1,886 Cash and cash equivalents - beginning of period 23,368 21,933 20,047 Cash and cash equivalents - end of period$23,548 $23,368 $21,933 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Income taxes$9,856 $9,183 $8,543 Interest$1,890 $2,357 $2,113 Non-cash investing and financing transactions during the period: Purchase of businesses - seller financing portion$4,300 $950 $2,150 Purchase of business - payable to common shareholders of acquired business$502 $— $— Notes payable related to purchase of redeemable non-controlling interest, temporaryequity$283 $— $— Notes payable related to purchase of non-controlling interest, permanent equity$103 $— $— Notes receivable related to sale of partnership interest - redeemable non-controllinginterest$2,870 $— $— See notes to consolidated financial statements.51TABLE OF CONTENTSU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2019, 2018 and 20171. 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 for a variety of orthopedic-related disorders and sports-related injuries, treatment forneurological-related injuries and rehabilitation of injured workers. As of December 31, 2019, the Company owned and/or operated 583clinics in 40 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 26 such third-party facilities undermanagement as of December 31, 2019.In March 2017, the Company acquired a 55% interest in the initial industrial injury prevention business. On April 30, 2018, theCompany acquired a 65% interest in another business in the industrial injury prevention sector. On April 30, 2018, the Companycombined the two businesses. After the combination, the Company owned a 59.45% interest in the combined business, BriotixHealth, Limited Partnership (“Briotix Health”), the Company’s industrial injury prevention operation. On April 11, 2019, the Companyacquired a third company that is a provider of industrial injury prevention services. The acquired company specializes in deliveringinjury prevention and care, post offer employment testing, functional capacity evaluations and return-to-work services. It performsthese services across a network in 45 states including onsite at eleven client locations. The business was then combined with BriotixHealth increasing the Company’s ownership position in the partnership to approximately 76.0%. Services provided include onsiteinjury prevention and rehabilitation, performance optimization, post-offer employment testing, functional capacity evaluations andergonomic assessments. The majority of these services are contracted with and paid for directly by employers, including a number ofFortune 500 companies. Other clients include large insurers and their contractors. These services are performed through IndustrialSports Medicine Professionals, consisting of both physical therapists and specialized certified athletic trainers (ATCs).In addition to the above acquired interests in the industrial injury prevention business, during the last three years, the Companycompleted the following multi-clinic acquisitions:AcquisitionDate% InterestAcquiredNumber ofClinics 2019 September 2019 AcquisitionSeptember 30, 2019 67% 11 2018 August 2018 AcquisitionAugust 31 70% 4 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 Also during 2019, the Company purchased the assets and business of one physical therapy clinic in a separate transaction. Theclinic operates as a satellite clinic of one of the existing partnerships. Besides the multi-clinic acquisition in 2018, the Company,through several of its majority owned Clinic Partnerships, acquired five separate clinic practices. These practices operate as satellitesof the respective existing Clinic Partnerships. During 2017, the Company purchased the assets and business of two physical therapyclinics in separate transactions. One clinic was consolidated with an existing clinic and the other operates as a satellite clinic of oneof the existing partnerships.52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.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 24% 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”).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 – permanent equity. For acquired Clinic Partnerships with redeemable non-controlling interests, the earnings attributable tothe redeemable non-controlling interests are recorded within the consolidated statements of income line item – net incomeattributable to redeemable non-controlling interests – temporary equity and the equity interests are recorded on the consolidatedbalance sheet as redeemable non-controlling interests – temporary equity.Prior to 2018, 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.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 Note 5, classified as liabilities through the issuance of newSeller Entity Interests classified in temporary equity. Pursuant to ASC 470-50-40-2, the Company removed the outstanding liability-classified Seller Entity Interests at their carrying amounts, recognized the new temporary-equity-classified Seller Entity Interests attheir fair value, and recorded no gain or loss on extinguishment as management believes the redemption value (i.e. the carryingamount) and fair value are the same. In summary, the redemption values of the mandatorily redeemable non-controlling interest(previously classified as liabilities) were reclassified as redeemable non-controlling interest (temporary equity) at fair value on theDecember 31, 2017 consolidated balance sheet. See Note 5 - 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.53TABLE OF CONTENTS2. 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 equivalents. 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.Impairment 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 2019, 2018 and2017, there were six regions. In addition to the six regions, in 2018 and 2019, the impairment test included a separate analysis for theindustrial injury prevention 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 2019, 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 2019,2018 and 2017 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.54TABLE OF CONTENTSRedeemable Non-Controlling InterestsThe non-controlling interests that are reflected as redeemable non-controlling interests in the consolidated financial statementsconsist of those that the owners and the Company have certain redemption rights, whether currently exercisable or not, and whichcurrently, or in the future, require that the Company purchase or the owner sell the non-controlling interest held by the owner, ifcertain conditions are met. The purchase price is derived at a predetermined formula based on a multiple of trailing twelve monthsearnings performance as defined in the respective limited partnership agreements. The redemption rights can be triggered by theowner or the Company at such time as both of the following events have occurred: 1) termination of the owner’s employment,regardless of the reason for such termination, and 2) the passage of specified number of years after the closing of the transaction,typically three to five years, as defined in the limited partnership agreement. The redemption rights are not automatic or mandatory(even upon death) and require either the owner or the Company to exercise its rights when the conditions triggering the redemptionrights have been satisfied.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 carrying value, based on the predetermined formula defined in the respective limited partnershipagreement. As a result, the value of the non-controlling interest is not adjusted below its initial carrying value. The Company recordsany adjustment in the redemption value, net of tax, directly to retained earnings and are not reflected in the consolidated statementsof income. Although the adjustments are not reflected in the consolidated statements of income, current accounting rules require thatthe Company reflects the adjustments, net of tax, in the earnings per share calculation. The amount of net income attributable toredeemable non-controlling interest owners is included in consolidated net income on the face of the consolidated statements of netincome. Management believes the redemption value (i.e. the carrying amount) and fair value are the same.Mandatorily Redeemable Non-Controlling InterestsThe non-controlling interests that are reflected as mandatorily redeemable non-controlling interests in the consolidatedstatements of income consist of those owners who have certain redemption rights, whether currently exercisable or not, and whichcurrently, or in the future, require that the Company purchase the non-controlling interest of those owners at a predetermined formulabased on a multiple of trailing twelve months earnings performance as defined in the respective limited partnership agreements. Theredemption rights are triggered at such time as both of the following events have occurred: 1) termination of the owner’semployment, regardless of the reason for such termination, and 2) the passage of specified number of years after the closing of thetransaction, typically three to five years, as defined in the limited partnership agreement.Prior to September 30th 2017, on the date the Company acquired a controlling interest in a partnership and the limitedpartnership agreement for such partnership contained mandatory redemption rights, the fair value of the non-controlling interest wasrecorded in the long-term liabilities section of the consolidated balance sheet under the caption – Mandatorily redeemable non-controlling interests. In each reporting period thereafter until purchased by the Company, the redeemable non-controlling interestwas being adjusted to its then current redemption value, based on the predetermined formula defined in the respective partnershipagreement. The Company reflected any adjustment in the redemption value and any earnings attributable to the mandatorilyredeemable non-controlling interest in its consolidated statements of income by recording the adjustments and earnings to otherincome and expense in the captions - Interest expense – mandatorily redeemable non-controlling interests – change in redemptionvalue and Interest expense – mandatorily redeemable non-controlling interests – earnings allocable.As 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) have been amended andare now classified as redeemable non-controlling interest (temporary equity) at fair value on the December 31, 2019 consolidatedbalance sheet.55TABLE OF CONTENTSNon-Controlling InterestsThe Company recognizes non-controlling interests, in which the Company has no obligation but the right to purchase the non-controlling interests, as permanent equity in the consolidated financial statements separate from the parent entity’s equity. Theamount of net income attributable to non-controlling interests is included in consolidated net income on the face of the statements ofnet 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 RecognitionIn May 2014, March 2016, April 2016, and December 2016, the Financial Accounting Standards Board (“FASB”) issuedAccounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, ASU 2016-08, Revenue from Contractswith Customers, Principal versus Agent Considerations, ASU 2016-10, Revenue from Contracts with Customers, IdentifyingPerformance Obligations and Licensing, ASU 2016-12, Revenue from Contracts with Customers, Narrow Scope Improvements andPractical Expedients, and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts withCustomer (collectively the “standards”), respectively, which supersede most of the current revenue recognition requirements (“ASC606”). The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods orservices to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for thosegoods or services.The Company implemented the new standards beginning January 1, 2018 using a modified retrospective transition method. Theprincipal change relates to how the new standard requires healthcare providers to estimate the amount of variable consideration to beincluded in the transaction price up to an amount which is probable that a significant reversal will not occur. The most common formsof variable consideration the Company experiences are amounts for services provided that are ultimately not realizable from acustomer. There were no changes to revenues or other revenues upon implementation. Under the new standards, the Company’sestimate for unrealizable amounts will continue to be recognized as a reduction to revenue. The bad debt expense historicallyreported will not materially change.For ASC 606, there is an implied contract between us and the patient upon each patient visit. Separate contractual arrangementsexist between us and third party payors (e.g. insurers, managed care programs, government programs, workers' compensation) whichestablish the amounts the third parties pay on behalf of the patients for covered services rendered. While these agreements are notconsidered contracts with the customer, they are used for determining the transaction price for services provided to the patientscovered by the third party payors. The payor contracts do not indicate performance obligations for us, but indicate reimbursementrates for patients who are covered by those payors when the services are provided. At that time, the Company is obligated toprovide services for the reimbursement rates stipulated in the payor contracts. The execution of the contract alone does not indicatea performance obligation. For self-paying customers, the performance obligation exists when we provide the services at establishedrates. The difference between the Company’s established rate and the anticipated reimbursement rate is accounted for as an offset torevenue – contractual allowance.The following table details the revenue related to the various categories. Year Ended December 31, December 31,2019December 31,2018December 31, 2017Net patient revenues$433,345 $417,703 $389,226 Management contract revenues 8,676 8,339 6,275 Industrial injury prevention services revenues 37,462 25,466 14,908 Other revenues 2,486 2,403 3,642 $481,969 $453,911 $414,051 56TABLE OF CONTENTSPatient revenuesRevenues are recognized in the period in which services are rendered. Net patient revenues consists of revenues for physicaltherapy and occupational therapy clinics that provide pre-and post-operative care and treatment for orthopedic related disorders,sports-related injuries, preventative care, rehabilitation of injured workers and neurological-related injuries. Net patient revenues(patient revenues less estimated contractual adjustments) are recognized at the estimated net realizable amounts from third-partypayors, patients and others in exchange for services rendered when obligations under the terms of the contract are satisfied. There isan implied contract between us and the patient upon each patient visit. Generally, this occurs as the Company provides physical andoccupational therapy services, as each service provided is distinct and future services rendered are not dependent on previouslyrendered services. The Company has agreements with third-party payors that provide for payments to the Company at amountsdifferent from its established rates.Medicare ReimbursementThe Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (“MPFS”).For services provided in 2019, a 0.25% increase has been applied to the fee schedule payment rates before applying the mandatorybudget neutrality adjustment. For services provided in 2020 through 2025, a 0.0% percent update will be applied each year to the feeschedule payment rates, before applying the mandatory budget neutrality adjustment. Beginning in 2021, payments to individualtherapists (Physical/Occupational Therapist in Private Practice) paid under the fee schedule may be subject to adjustment based onperformance in the Merit Based Incentive Payment System (“MIPS”), which measures performance based on certain quality metrics,resource use, and meaningful use of electronic health records. Under the MIPS requirements, a provider's performance is assessedaccording to established performance standards each year and then is used to determine an adjustment factor that is applied to theprofessional's payment for the corresponding payment year. The provider’s MIPS performance in 2019 will determine the paymentadjustment in 2021. Each year from 2019 through 2024, professionals who receive a significant share of their revenues through analternate payment model (“APM”), (such as accountable care organizations or bundled payment arrangements) that involves risk offinancial losses and a quality measurement component will receive a 5% bonus in the corresponding payment year. The bonuspayment for APM participation is intended to encourage participation and testing of new APMs and to promote the alignment ofincentives across payors. The specifics of the MIPS and APM adjustments will be subject to future notice and comment rule-making.The Budget Control Act of 2011 increased the federal debt ceiling in connection with deficit reductions over the next ten years,and requires automatic reductions in federal spending by approximately $1.2 trillion. Payments to Medicare providers are subject 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 Centers for Medicare andMedicaid Services (“CMS”) to modify the manual medical review process such that those reviews will no longer apply to all claimsexceeding the $3,700 threshold and instead will be determined on a targeted basis based on a variety of factors that CMS considersappropriate. The Bipartisan Budget Act of 2018 extended the targeted medical review indefinitely, but57TABLE OF CONTENTSreduced the threshold to $3,000 through December 31, 2027. For 2028, the threshold amount will be increased by the percentageincrease in the Medicare Economic Index (“MEI”) for 2028. In subsequent years the threshold amount will increase based on thecorresponding 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%.Medicare claims for outpatient therapy services furnished by therapy assistants on or after January 1, 2020 must include amodifier indicating the service was furnished by a therapy assistant. Outpatient therapy services furnished on or after January 1,2022 in whole or part by a therapy assistant will be paid at an amount equal to 85% of the payment amount otherwise applicable forthe service.Statutes, regulations, and payment rules governing the delivery of therapy services to Medicare beneficiaries are complex andsubject to interpretation. The Company believes that it is in compliance, in all material respects, with all applicable laws andregulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing that wouldhave a material effect on the Company’s financial statements as of December 31, 2019. Compliance with such laws and regulationscan be subject to future government review and interpretation, as well as significant regulatory action including fines, penalties, andexclusion from the Medicare program. Net patient revenue from Medicare were approximately $119.4 million, $103.6 million and $92.6million, respectively, for 2019, 2018 and 2017.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 at a point in time when services areperformed. Costs, typically salaries for the Company’s employees, are recorded when incurred.Industrial Injury Prevention Services RevenuesRevenue from the industrial injury prevention business, which are also included in other revenues in the consolidatedstatements of net income, are derived from onsite services we provide to clients’ employees including injury prevention,rehabilitation, ergonomic assessments and performance optimization. Revenue from the Company’s industrial injury preventionbusiness is recognized when obligations under the terms of the contract are satisfied. Revenues are recognized at an amount equal tothe consideration the company expects to receive in exchange for providing injury prevention services to its clients. The revenue isdetermined and recognized based on the number of hours and respective rate for services provided in a given period.Other RevenuesAdditionally, other revenues include services the Company provides on-site, such as schools and industrial worksites, forphysical or occupational therapy services, and athletic trainers and gym membership fees. Contract terms and rates are agreed to inadvance between the Company and the third parties. Services are typically performed over the contract period and revenue isrecorded at the point of service. If the services are paid in advance, revenue is recorded as a contract liability over the period of theagreement and recognized at the point in time, when the services are performed.58TABLE OF CONTENTSContractual AllowancesThe allowance for estimated contractual adjustments is based on terms of payor contracts and historical collection and write-offexperience. Contractual 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 a clinic-by-clinic basis. In theaggregate, historically the difference between net revenues and corresponding cash collections has generally reflected a differencewithin approximately 1% of net revenues. Additionally, analysis of subsequent periods’ contractual write-offs on a payor basisreflects a difference within approximately 1% between the actual aggregate contractual reserve percentage as compared to theestimated contractual allowance reserve percentage associated with the same period end balance. As a result, the Company believesthat a change in the contractual allowance reserve estimate would not likely be more than 1% at December 31, 2019.Allowance for Doubtful AccountsThe Company determines allowances for doubtful accounts based on the specific agings and payor classifications at eachclinic. The provision for doubtful accounts is included in operating costs in the statements of net income. Patient accountsreceivable, which are stated at the historical carrying amount net of contractual allowances, write-offs and allowance for doubtfulaccounts, includes only those amounts the Company estimates to be collectible.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 made significant changes to U.S. corporate income tax laws including a decrease inthe 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.59TABLE OF CONTENTSThe 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, 2019, 2018 and 2017. The Company will book any interest orpenalties, if required, in interest and other expense, as appropriate.Fair Values of Financial InstrumentsThe carrying amounts reported in the balance sheets for cash and cash equivalents, accounts receivable, accounts payable andnotes payable approximate their fair values due to the short-term maturity of these financial instruments. The carrying amount underthe Amended Credit Agreement and the redemption value of Redeemable non-controlling interests approximate the respective fairvalues. The fair value of the Company’s redeemable non-controlling interests is determined based on “Level 3” inputs. The interestrate on the Amended Credit Agreement, which is tied to LIBOR, is set at various short-term intervals, as detailed in the AmendedCredit 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 reportable 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, tradenames, allocations of purchase price, allowance for receivables,tax provision and contractual allowances, that affect the amounts reported in the consolidated financial statements and relateddisclosures. Actual results may differ from these estimates.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 to minimize the Company’s maximum liability andcash outlay. Accrued expenses include the estimated incurred but unreported costs to settle unpaid claims and estimated futureclaims. Management believes that the current accrued amounts are sufficient to pay claims arising from self-insurance claims incurredthrough December 31, 2019.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 Company recognizes any forfeitures as they occur. Therestricted stock issued is included in basic and diluted shares for the earnings per share computation.Recently Adopted Accounting GuidanceIn May 2014, March 2016, April 2016, and December 2016, the Financial Accounting Standards Board (“FASB”) issuedAccounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, ASU 2016-08, Revenue from Contractswith Customers, Principal versus Agent Considerations, ASU 2016-10, Revenue from Contracts with Customers, IdentifyingPerformance Obligations and Licensing, ASU 2016-12, Revenue from Contracts with Customers, Narrow Scope Improvements andPractical Expedients, and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts withCustomer (collectively “the standards”), respectively, which supersede most of the current revenue recognition requirements. Thecore principle of the new guidance is that an entity should recognize revenue to depict the60TABLE OF CONTENTStransfer 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.The Company implemented the new standards 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 forms of variable consideration the Company experiences are amounts for servicesprovided that are ultimately not realizable from a customer. Under the new standards, the Company’s estimate for unrealizableamounts will continue to be recognized as a reduction to revenue. The bad debt expense historically reported will not materiallychange.In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.2016-02, Leases (Topic 842) (“ASC 842”), which amended prior accounting standards for leases.The Company implemented the new lease standard, ASC Topic 842 – Leases as of January 1, 2019 using the transition method inASU 2018-11 issued in July 2018 which allows the Company to initially apply the new leases standard at adoption date and recognizea cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. There was no adjustmentrequired to retained earnings upon adoption. Accordingly, no retrospective adjustments were made to the comparative periodspresented. The Company elected certain of the practical expedients permitted, including the expedient that allows the Company toretain its existing lease assessment and classification.Adoption of ASC 842 resulted in an increase to total assets and liabilities due to the recording of operating lease right-of-useassets (“ROU”) and operating lease liabilities of approximately $78.0 million and $82.6 million respectively, as of January 1, 2019 foroperating leases as a lessee. The adoption did not materially impact the Company’s consolidated statement of income or cash flows.See Footnote 10 - Leases for further discussion of leases.In August 2018, the Securities Exchange Commission (“SEC”) issued Final Rule 33-10532, Disclosure Update and Simplification,which amends certain disclosure requirements that were redundant, duplicative, overlapping or superseded by other SEC disclosurerequirements. The amendments generally eliminated or otherwise reduced certain disclosure requirements of various SEC rules andregulations. However, in some cases, the amendments require additional information to be disclosed, including changes instockholders’ equity in interim periods. The rule is effective 30 days after its publication in the Federal Register. The rule was postedon October 4, 2018. On September 25, 2018, the SEC released guidance advising it will not object to a registrant adopting therequirement to include changes in stockholders’ equity in the Form 10-Q for the first quarter beginning after the effective date of therule. The Company adopted this guidance in its Form 10-Q for the period ended March 31, 2019.In 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. There was no impact togoodwill from this change.Recently Issued Accounting GuidanceIn June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses, which added a new impairment model(known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Under the newguidance, an entity recognizes as an allowance its estimate of expected credit losses. The CECL model applies to most debtinstruments, including trade receivables. The61TABLE OF CONTENTSCECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expectedcredit losses on assets that have a low risk of loss. The standard is required to be applied using the modified retrospective approachwith a cumulative-effect adjustment to retained earnings, if any, upon adoption.The Company has completed the adoption of the standard on January 1, 2020. The financial instruments subject to ASU 2016-13are the Company’s accounts receivable derived from contracts with customers. A significant portion of the Company’s accountsreceivable is from highly-solvent, creditworthy payors including governmental programs such as Medicare and Medicaid, and highlyregulated commercial insurers. The Company’s estimate of expected credit losses as of January 1, 2020, using its expected credit lossevaluation process, resulted in no adjustments to the allowance for credit losses and no cumulative-effect adjustment to retainedearnings on the adoption date of the standard.Subsequent EventOn February 26, 2020, the Company completed an acquisition of a four clinic physical therapy practice. The clinics are held infour separate partnerships. On the date of purchase, the Company acquired approximately 65% of the equity interests, with thepractice’s clinical founders and associates retaining approximately 35%. The aggregate purchase price for the acquisition wasapproximately $12.2 million.3. Acquisitions of BusinessesDuring 2019, 2018 and 2017, the Company acquired a majority interest in the following multi-clinic physical therapy practices:AcquisitionDate% InterestAcquiredNumber ofClinics 2019 September 2019 AcquisitionSeptember 30, 2019 67% 11 2018 August 2018 AcquisitionAugust 31 70% 4 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 On September 30, 2019, the Company acquired a 67% interest in an eleven-clinic physical therapy practice. The purchase pricefor the 67% interest was $12.4 million, of which $12.1 million was paid in cash and $0.3 million in a seller note that is payable in twoprincipal installments totaling $150,000 each, plus accrued interest in September 2020 and September 2021. The note accrues interestat 5.0% per annum.On April 11, 2019, the Company acquired a company that is a provider of industrial injury prevention services. The acquiredcompany specializes in delivering injury prevention and care, post offer employment testing, functional capacity evaluations andreturn-to-work services. It performs these services across a network of 45 states including onsite at eleven client locations. Thebusiness was then combined with Briotix Health, the Company’s industrial injury prevention operation, increasing the Company’sownership position in the Briotix Health partnership to approximately 76.0%. The purchase price for the acquired company was $22.9million ($23.6 million less cash acquired of $0.7 million), which consisted of $18.9 million in cash, (of which $0.5 million will be paid tocertain shareholders), and a $4.0 million seller note. The note accrues interest at 5.5% and the principal and accrued interest ispayable, on April 9, 2021.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.62TABLE OF CONTENTSThe purchase price for the 2019 acquisitions has been preliminarily allocated as follows (in thousands): IIPS*Clinic PracticeTotalCash paid, net of cash acquired ($900)$18,427 $12,170 $30,597 Payable to shareholders of seller 486 — 486 Seller note 4,000 300 4,300 Total consideration$22,913 $12,470 $35,383 Estimated fair value of net tangible assets acquired: Total current assets$1,907 $697 $2,604 Total non-current assets 611 3,028 3,639 Total liabilities (1,504) (2,846) (4,350)Net tangible assets acquired$1,014 $879 $1,893 Referral relationships 1,500 1,500 3,000 Non-compete 590 700 1,290 Tradename 2,500 1,600 4,100 Goodwill 17,309 14,021 31,330 Fair value of non-controlling interest (classified as redeemable non-controlling interests) — (6,230) (6,230) $22,913 $12,470 $35,383 *Industrial injury prevention servicesOn August 31, 2018, the Company acquired a 70% interest in a four-clinic physical therapy practice. The purchase price for the70% interest was $7.3 million in cash and $0.4 million in a seller note that is payable in two principal installments totaling $200,000each, plus accrued interest. The first installment was paid in cash in August 2019 and the second installment remains payable inAugust 2020.On April 30, 2018, the Company acquired a 65% interest in another business in the industrial injury prevention sector. Theaggregate purchase price for the 65% interest was $8.6 million in cash and $400,000 in a seller note that was paid on April 30, 2019. OnApril 30, 2018, the Company combined its two businesses. After the combination, the Company owned a 59.45% interest in thecombined business, Briotix Health. See discussion above regarding an additional acquisition on April 30, 2019 in the industrial injuryprevention business.In addition, during 2018, the Company, through several of its majority owned Clinic Partnerships, acquired five separate clinicpractices. These practices operate as satellites of the existing Clinic Partnership. The aggregate purchase price was $1.0 millioninclusive of cash of $850,000 and a note payable of $150,000. The note accrued interest at 4.5% and the principal and accrued interest,was paid in cash on August 31, 2019.The purchase price for the 2018 acquisitions were allocated as follows (in thousands):Cash paid, net of cash acquired ($372)$16,367 Seller notes 950 Total consideration$17,317 Estimated fair value of net tangible assets acquired: Total current assets$1,633 Total non-current assets 305 Total liabilities (525)Net tangible assets acquired$1,413 Referral relationships 2,926 Non-compete 298 Tradename 990 Goodwill 19,835 Fair value of non-controlling interest (classified as redeemablenon-controlling interests) (8,145) $17,317 63TABLE OF CONTENTSOn 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 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 was payable in two principal installments totaling $125,000 each,plus accrued interest. The first installment was paid in May 2018 and the second installment in May 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 was payable in two principal installments totaling $250,000each, plus accrued interest. The first installment was paid in June 2018 and the second installment in June 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 was payable in two principal installments totaling $250,000 each, plus accrued interest. The first installment was paid in October2018 and the second installment in October 2019.Also, in 2017, the Company purchased the assets and business of two physical therapy clinics in separate transactions. Oneclinic was consolidated with an existing clinic and the other operates as a satellite clinic of one of the existing partnerships.The purchase price for the 2017 acquisitions were allocated as follows (in thousands):Cash paid, net of cash acquired ($2,297)$36,682 Seller notes 2,150 Total consideration$38,832 Estimated fair value of net tangible assets acquired: Total current assets$5,853 Total non-current assets 1,527 Total liabilities (2,865)Net tangible assets acquired$4,515 Referral relationships 4,250 Non-compete 660 Tradename 6,850 Goodwill 46,722 Fair value of non-controlling interest (classified as redeemablenon-controlling interests) (13,883)Fair value of non-controlling interest (originally classified as mandatorily redeemable non-controlling interests) (10,282) $38,832 The finalized purchase prices plus the fair value of the non-controlling interests for the acquisition in 2018 and 2017 wereallocated to the fair value of the assets acquired, inclusive of identifiable intangible assets, i.e. trade names, referral relationships andnon-compete agreements, and liabilities assumed based on the fair values at the acquisition date, with the amount exceeding the fairvalues being recorded as goodwill. For the acquisitions in 2019, the Company is in the process of completing its formal valuationanalysis to identify and determine the fair value of tangible and identifiable intangible assets acquired and the liabilities assumed.Thus, the final allocation of the purchase price may differ from the preliminary estimates used at December 31, 2019 based onadditional information obtained and completion of the valuation of the identifiable intangible assets. Changes in the estimatedvaluation of the tangible assets acquired, the completion of the valuation of identifiable intangible assets and the completion by theCompany of the identification of any unrecorded pre-acquisition contingencies, where the liability is probable and the amount can bereasonably estimated, will likely result in adjustments to goodwill. The Company does not expect the adjustments to be material.64TABLE OF CONTENTSFor the acquisitions in 2019, the values assigned to the referral relationships and non-compete agreements are being amortizedto expense equally over the respective estimated lives. For referral relationships, the amortization period is 11.0 years. For non-compete agreements, the amortization period is 6.0 years. The values assigned to tradenames are tested annually for impairment.For the acquisitions in 2018 and 2017, 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 weighted average amortization periodwas 10.54 and 10.10 years at December 31, 2018 and December 31, 2017, respectively. For non-compete agreements, the weightedaverage amortization period was 6.00 and 5.16 years at December 31, 2018 and December 31, 2017, respectively. Generally, the valuesassigned to tradenames are tested annually for impairment.For the 2019, 2018 and 2017 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 2019, 2018 and 2017 acquisitions have not been included as the results,individually and in the aggregate.4. Acquisitions and Sale of Non-Controlling InterestsDuring 2019, the Company acquired additional interests in four partnerships which are included in non-controlling interest. Theadditional interests purchased in each of the partnerships ranged from 1% and 55%. Also in 2019, the Company sold a 1% interest ina partnership. The net after-tax difference between the payments and the portion of undistributed earnings of $196,000 was creditedto additional paid-in capital.During 2018, the Company acquired additional interests in three partnerships included in non-controlling interest. Theadditional interests purchased in each of the partnerships ranged from 5.5% and 35%. The net after-tax difference of $224,000 wascredited to additional paid-in capital.During 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 net after-tax difference of $56,000 was credited to additional paid-incapital.5. Redeemable Non-Controlling InterestSince October 2017, when the Company acquires a majority interest (the “Acquisition”) in a physical therapy clinic business(referred to as “Therapy Practice”), these Acquisitions occur in a series of steps which are described below.1.Prior to the Acquisition, the Therapy Practice exists as a separate legal entity (the “Seller Entity”). The Seller Entity 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.65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.The Partnership Agreement contains provisions for the redemption of the Seller Entity Interest, either at the option of theCompany (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 under certain circumstances prior to the fifthanniversary of the Closing Date, the Seller Entity thereafter may have an irrevocable right to cause the Company topurchase from Seller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest at thepurchase 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 shall have the Put Right to cause the Company topurchase from Seller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest at thepurchase price described in “3” below.66TABLE OF CONTENTSc.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 prior to the fifth anniversary of the Closing Date, theCompany thereafter shall have an irrevocable right to purchase from Seller Entity the Terminated Selling Shareholder’sAllocable Percentage of Seller Entity’s Interest, in each case at the purchase price described in “3” below.b.In the event that any Selling Shareholder’s employment with NewCo is terminated for any reason on or after the 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.67TABLE OF CONTENTSFor the year ended December 31, 2019 and 2018, the following table details the changes in the carrying amount (fair value) of theredeemable non-controlling interests (in thousands): Year Ended December 31,2019December 31, 2018Beginning balance$133,943 $102,572 Operating results allocated to redeemable non-controlling interest partners 10,659 8,433 Distributions to redeemable non-controlling interest partners (10,221) (9,835)Changes in the fair value of redeemable non-controlling interest 11,893 24,770 Purchases of redeemable non-controlling interest (8,934) 8,145 Fair value of redeemable non-controlling interest - amended partnership agreements — — Acquired interest 6,230 — Sales of redeemable non-controlling interest - temporary equity 3,120 — Reduction of non-controlling interest due to sale of USPh partnership interest (6,132) — Notes receivable related to sales of redeemable non-controlling interest - temporaryequity (2,870) (142)Other 62 — Ending balance$137,750 $133,943 The following table categorizes the carrying amount (fair value) of the redeemable non-controlling interests (in thousands): December 31,2019December 31, 2018Contractual time period has lapsed but holder's employment has not been terminated$51,921 $42,624 Contractual time period has not lapsed and holder's employment has not been terminated 85,829 91,319 Holder's employment has terminated and contractual time period has expired — — Holder's employment has terminated and contractual time period has not expired — — $137,750 $133,943 6. GoodwillThe changes in the carrying amount of goodwill as of December 31, 2019 and 2018 consisted of the following (in thousands): Year EndedDecember 31, 2019Year EndedDecember 31, 2018 Beginning balance$293,525 $271,338 Goodwill acquired 31,330 19,778 Goodwill related to partnership interest sold (7,325) — Goodwill adjustments for purchase price allocation of businesses acquired in prior year 146 2,409 Ending balance$317,676 $293,525 68TABLE OF CONTENTS7. Intangible Assets, netIntangible assets, net as of December 31, 2019 and 2018 consisted of the following (in thousands): December 31, 2019December 31, 2018Tradenames$32,049 $30,256 Referral relationships, net of accumulated amortization of $11,677 and $9,370,respectively 18,367 16,895 Non-compete agreements, net of accumulated amortization of $5,424 and $4,716,respectively 2,172 1,677 $52,588 $48,828 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 31,2019, 2018 and 2017 (in thousands): Year EndedDecember 31,2019Year EndedDecember 31,2018Year EndedDecember 31, 2017Referral relationships$2,307 $2,161 $1,934 Non-compete agreements 708 616 720 $3,015 $2,777 $2,654 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.The remaining balances of the referral relationships and non-compete agreements is expected to be amortized as follows (inthousands):thousands):Referral RelationshipsNon-Compete AgreementsYearsEnding December 31,Annual AmountYearsEnding December 31,Annual Amount2020$2,403 2020$619 2021$2,403 2021$541 2022$2,354 2022$364 2023$2,247 2023$294 2024$2,082 2024$238 Thereafter$6,878 Thereafter$116 8. Accrued ExpensesAccrued expenses as of December 31, 2019 and 2018 consisted of the following (in thousands): December 31, 2019December 31, 2018Salaries and related costs$19,340 $21,726 Credit balances due to patients and payors 4,303 7,293 Group health insurance claims 2,277 3,124 Other 4,935 6,350 Total$32,066 $38,493 69During the twelve months ended December 31, 2020$728 During the twelve months ended December 31, 2021 50,361 $51,089 TABLE OF CONTENTS9. Notes PayableNotes payable as of December 31, 2019 and 2018 consisted of the following (in thousands): December 31,2019December 31,2018Credit Agreement average effective interest rate of 3.9% inclusive of unused fee$46,000 $38,000 Various notes payable with $728 plus accrued interest due in the next year, interestaccrues in the range of 4.75% through 5.50% per annum 5,089 1,836 $51,089 $39,836 Less current portion (728) (1,434)Long term portion$50,361 $38,402 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, 2019, $46.0 million was outstanding on the Credit Agreement resulting in $79.0 million of availability. As ofDecember 31, 2019, the Company was in compliance with all of the covenants thereunder.The Company generally enters into various notes payable as a means of financing a portion of its acquisitions and purchasingof non-controlling interests. In conjunction with the transactions related to these in 2019, the Company entered into notes payable inthe aggregate amount of $4.7 million of which an aggregate principal payment of $0.3 million is due in 2020 and $4.4 million is due in2021. Interest accrues in the range of 4.75% to 5.50% 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, 2019 are as follows (in thousands):70TABLE OF CONTENTS10. LeasesThe Company has operating leases for its corporate offices and operating facilities. The Company determines if an arrangementis a lease at the inception of a contract. Effective January 1, 2019, right-of-use assets and operating lease liabilities are included in theconsolidated balance sheet. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term andoperating lease liabilities represent net present value of the Company’s obligation to make lease payments arising from the lease.Right-of-use assets and operating lease liabilities are recognized at commencement date based on the net present value of the fixedlease payments over the lease term. The Company’s operating lease terms are generally five years or less. The Company’s lease termsinclude options to extend or terminate the lease when it is reasonably certain that the option will be exercised. As most of theCompany’s operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on theinformation available at commencement date in determining the present value of lease payments. Operating fixed lease expense isrecognized on a straight-line basis over the lease term.In accordance with ASC 842, the Company records on its consolidated balance sheet leases with a term greater than 12 months.The Company has elected, in compliance with current accounting standards, not to record leases with an initial terms of 12 months orless in the consolidated balance sheet. ASC 842 requires the separation of the fixed lease components from the variable leasecomponents. The Company has elected the practical expedient to account for separate lease components of a contract as a singlelease cost thus causing all fixed payments to be capitalized. Non-lease and variable cost components are not included in themeasurement of the right-of-use assets or operating lease liabilities. The Company also elected the package of practical expedientspermitted within ASC 842, which among other things, allows the Company to carry forward historical lease classification. Variablelease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based onchanges in index rates or usage are not included in the right-of-use assets or operating lease liabilities. These are expensed asincurred and recorded as variable lease expense.For the year ended December 31, 2019, the components of lease expense were as follows (in thousands): Year EndedDecember 31, 2019Operating lease cost$30,225 Short-term lease cost 1,212 Variable lease cost 6,074 Total lease cost*$37,511 *Sublease income was immaterialLease cost is reflected in the consolidated statement of net income in the line item – rent, supplies, contract labor and other.For the year ended December 31, 2019, supplemental cash flow information related to leases was as follows (in thousands): Year EndedDecember 31, 2019Cash paid for amounts included in the measurement of operating lease liabilities (in thousands)$30,077 Right-of-use assets obtained in exchange for new operating lease liabilities (in thousands)*$113,222 *Includes the right-of-use assets obtained in exchange for lease liabilities of $82.6 million which were recognized upon adoption of ASC Topic 842 atJanuary 1, 2019.71TABLE OF CONTENTSThe aggregate future lease payments for operating leases as of December 31, 2019 were as follows (in thousands):YearAmount2020$29,279 2021 23,369 2022 17,039 2023 11,528 2024 6,453 Therafter 6,129 Total lease payments$93,797 Less: imputed interest 7,053 Total operating lease liabilities$86,744 Average lease terms and discount rates were as follows: Year EndedDecember 31, 2019Weighted-average remaining lease term - Operating leases4.05 YearsWeighted-average discount rate - Operating leases 3.9%11. Income TaxesSignificant components of deferred tax assets and liabilities included in the consolidated balance sheets at December 31, 2019and 2018 were as follows (in thousands): December 31, 2019December 31, 2018Deferred tax assets: Compensation$1,964 $1,842 Allowance for doubtful accounts 514 600 Acquired net operating losses 840 — Lease obligations - including closed clinics 21,445 34 Deferred tax assets$24,763 $2,476 Deferred tax liabilities: Depreciation and amortization$(13,195)$(11,309)Operating lease right-of-use assets (21,416) — Other (223) (179)Deferred tax liabilities (34,834) (11,488)Net deferred tax liability$(10,071)$(9,012)The deferred tax assets and liabilities related to purchased interests not yet finalized may result in an immaterial adjustment.During 2019, the Company recorded deferred tax assets of $3.0 million related to the revaluation of redeemable non-controllinginterests and acquisitions of non-controlling interests. In addition, during 2019, the Company recorded an adjustment to the deferredtax assets of $0.3 million as a result of a detailed reconciliation of its federal and state taxes payable and receivable accounts alongwith its federal and state deferred tax asset and liability accounts with its federal and state tax returns for 2018. The offset of thisadjustment was a decrease to the previously reported federal income tax receivable. As of December 31, 2019, the Company has afederal income tax receivable of $1.5 million and state tax receivables of $1.3 million. The tax receivables are included in other currentassets on the accompanying consolidated balance sheets.72TABLE OF CONTENTSThe differences between the federal tax rate and the Company’s effective tax rate for the years ended December 31, 2019, 2018and 2017 were as follows (in thousands): December 31, 2019December 31, 2018December 31, 2017U. S. tax at statutory rate$11,274 21.0%$9,710 21.0%$9,900 35.0%Tax legislation adjustment — 0.0% — 0.0% (4,325) (15.3)%State income taxes, net of federal benefit and tax reform 2,059 3.8% 1,722 3.7% 1,060 3.7%Excess equity compensation deduction (871) (1.6)% (806) (1.7)% (1,139) (4.0)%Non-deductible expenses 1,185 2.2% 743 1.6% 560 2.0%Other — 0.0% — 0.0% (24) (0.1)% $13,647 25.4%$11,369 24.6%$6,032 21.3%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.Significant components of the provision for income taxes for the years ended December 31, 2019, 2018 and 2017 were as follows(in thousands): December 31, 2019December 31, 2018December 31, 2017Current: Federal$6,523 $5,357 $9,332 State 2,473 1,199 1,564 Total current 8,996 6,556 10,896 Deferred: Federal 3,730 3,771 (5,233)State 921 1,042 369 Total deferred 4,651 4,813 (4,864)Total income tax provision$13,647 $11,369 $6,032 For 2019, 2018 and 2017, 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. The adjustments were immaterial. The Companyconsiders 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 2016 through 2018 and U.S. state jurisdictions are open forperiods ranging from 2015 through 2018.The Company does not believe that it has any significant uncertain tax positions at December 31, 2019 and December 31, 2018,nor is this expected to change within the next twelve months due to the settlement and expiration of statutes of limitation.The Company did not have any accrued interest or penalties associated with any unrecognized tax benefits nor was any interestexpense recognized during the years ended December 31, 2019, 2018 and 2017.73TABLE OF CONTENTS12. 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.A cumulative summary of equity plans as of December 31, 2019 follows: AuthorizedRestrictedStockIssuedOutstandingStockOptionsStockOptionsExercisedStockOptionsExercisableSharesAvailablefor GrantEquity Plans Amended 1999 Plan 600,000 416,402 — 139,791 — 7,775 Amended 2003 Plan 2,100,000 1,019,995 — 778,300 — 301,705 2,700,000 1,436,397 — 918,091 — 309,480 During 2019, 2018 and 2017, 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 Share2019 91,682 $104.85 2018 93,801 $78.63 2017 79,475 $62.19 During 2019, 2018 and 2017, the following shares were cancelled due to employee terminations prior to restrictions lapsing:Year CancelledNumber of SharesWeighted Average FairValue Per Share2019 1,578 $87.88 2018 3,867 $59.51 2017 2,875 $63.12 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.There were 150,771 and 152,926 shares outstanding as of December 31, 2019 and December 31, 2018 respectively, for whichrestrictions had not lapsed. The restrictions will lapse in 2020 through 2023.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 $7.0 million, $5.9 million, and $5.0 million, respectively, for 2019, 2018 and 2017. As ofDecember 31, 2019, the remaining $9.2 million of compensation expense will be recognized from 2019 through 2022.74TABLE OF CONTENTS13. 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.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. In March 2009, the Board authorized therepurchase of up to 10% or approximately 1,200,000 shares of its common stock (“March 2009 Authorization”). The Amended CreditAgreement permits share repurchases of up to $15,000,000, subject to compliance with covenants. The Company is required to retireshares 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 131,176 shares (based on the closing price of $114.35 onDecember 31, 2019, the last business day in 2019) 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 2019 or 2018.15. 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, 2019, 2018 and 2017.The Company matching contributions totaled $2.0 million, $1.8 million and $1.5 million, respectively, for the years ended December 31,2019, 2018 and 2017.16. 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 $37.5 million, $37.1 million and $34.8 million for the years ended December 31,2019, 2018 and 2017, 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, 2019 are as follows (in thousands):2020$35,784 2021 28,022 2022 20,618 2023 14,332 2024 8,302 Thereafter 8,432 Total$115,490 75TABLE OF CONTENTSEmployment AgreementsAt December 31, 2019, the Company had outstanding employment agreements with four of its executive officers one of whichhas provided notice of a planned retirement in October 2020. These remaining three agreements, which presently expire on December31, 2020, provide for automatic two year renewals at the conclusion of each expiring term or renewal term. All of the agreementscontain 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 $39.3 million in 2020 and $8.6 million in the aggregate from 2021 through 2023. 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.17. Earnings Per ShareThe computations of basic and diluted earnings per share for the years ended December 31, 2019, 2018 and 2017 are as follows(in thousands, except per share data): Year EndedDecember 31,2019Year EndedDecember 31,2018Year EndedDecember 31,2017Computation of earnings per share - USPH shareholders: Net income attributable to USPH shareholders$40,039 $34,873 $22,256 Charges to retained earnings: Revaluation of redeemable non-controlling interest (11,893) (24,770) (201)Tax effect at statutory rate (federal and state) of 26.25% 3,121 6,502 75 $31,267 $16,605 $22,130 Earnings per share (basic and diluted)$2.45 $1.31 $1.76 Shares used in computation: Basic and diluted earnings per share - weighted-average shares 12,756 12,666 12,570 18. Selected Quarterly Financial Data (Unaudited) Q1 2019Q2 2019Q3 2019Q4 2019Net patient revenues$106,650 $113,363 $104,392 $108,940 Net revenues$116,231 $126,373 $117,251 $122,114 Gross profit$26,718 $31,425 $27,372 $26,959 Operating income$15,425 $19,898 $16,816 $15,286 Net income$12,375 $19,800 $13,069 $12,015 Net income attributable to USPH shareholders$8,443 $14,620 $9,047 $7,929 Basic and diluted earnings per share attributable to commonshareholders:$0.39 $0.85 $0.66 $0.55 Shares used in computation - basic and diluted 12,707 12,767 12,774 12,774 76TABLE OF CONTENTS Q1 2018Q2 2018Q3 2018Q4 2018Net patient revenues$100,552 $105,989 $103,354 $107,808 Net revenues$108,342 $115,098 $113,122 $117,349 Gross profit$23,214 $27,154 $26,076 $25,219 Operating income$13,051 $17,026 $15,433 $14,804 Net income$10,054 $13,236 $11,879 $13,673 Net income attributable to USPH shareholders$7,117 $9,246 $8,102 $10,408 Basic and diluted earnings per share attributable to commonshareholders:$0.27 $0.48 $0.13 $0.43 Shares used in computation - basic and diluted 12,616 12,677 12,685 12,685 77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 31,2019. 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, 2019.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 45.78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, 2019 thathave materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.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 2020 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 2020 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 2020 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 2020 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 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 2020 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 84 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 Summary –None.79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]. 4.1*Description of Company Securities [filed herewith the Company’s Form 10-K for the year ended December 31, 2019 filedwith the SEC on February 28, 2020.] 10.1+1999 Employee Stock Option Plan (as amended and restated May 20, 2008) [incorporated by reference to Appendix A 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 effective March 26, 2016)[incorporated herein by reference to Appendix A to the Company's Definitive Proxy Statement on Schedule 14A filedwith the SEC on April 7, 2016.] 10.3+U. S. Physical Therapy, Inc. Long-Term Incentive Plan for Senior Management for 2013, effective March 27, 2013[incorporated by reference to Exhibit 99.1 to the Company Current Report on Form 8-K filed with the SEC on April 1,2013]. 10.4+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for 2013, effective March 27, 2013 [incorporated by reference toExhibit 99.2 to the Company Current Report on Form 8-K filed with the SEC on April 1, 2013]. 10.5+U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for 2013, effective March 27, 2013 [incorporated byreference to Exhibit 99.3 to the Company Current Report on Form 8-K filed with the SEC on April 1, 2013]. 10.6+U. S. Physical Therapy, Inc. Long-Term Incentive Plan for Senior Management for 2014, effective March 21, 2014[incorporated by reference to Exhibit 99.1 to the Company Current Report on Form 8-K filed with the SEC on March 27,2014]. 10.7+U. S. Physical Therapy, Inc. Discretionary Long-Term Incentive Plan for Senior Management for 2014, effective 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]. 10.8+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2014, effective March 21, 2014[incorporated by reference to Exhibit 99.3 to the Company Current Report on Form 8-K filed with the SEC on March 27,2014]. 10.9+U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2014, effective March 21, 2014[incorporated by reference to Exhibit 99.4 to the Company Current Report on Form 8-K filed with the SEC on March 27,2014]. 80TABLE OF CONTENTSNumberDescription10.10+U. S. Physical Therapy, Inc. Long Term Incentive Plan for Senior Management for 2015, effective March 23, 2015[incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on March27, 2015.] 10.11+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.] 10.12+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2015, effective March 23, 2015[incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on March27, 2015.] 10.13+U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2015, effective March 23, 2015[incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC on March27, 2015.] 10.14+U. S. Physical Therapy, Inc. Objective Long Term Incentive Plan for Senior Management for 2016, effective March 10,2016 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC onMarch 16, 2016]. 10.15+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]. 10.16+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2016, effective March 10, 2016[incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on March16, 2016]. 10.17+U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2016, effective March 10, 2016[incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on March16, 2016]. 10.18+Form 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]. 10.19+U. S. Physical Therapy, Inc. Long-Term Incentive Plan for Senior Management for 2017, effective March 24, 2017[incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K/A filed with the SEC onFebruary 9, 2018.] 10.20+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.] 10.21+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2017, effective March 24, 2017[incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on March30, 2017.] 10.22+U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2017, effective March 24, 2017[incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC on March30, 2017.] 81TABLE OF CONTENTSNumberDescription10.23+U. S. Physical Therapy, Inc. Objective Long-Term Incentive Plan for Senior Management for 2018, effective April 9,2018 [incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC onApril 12, 2018.] 10.24+U. S. Physical Therapy, Inc. Discretionary Long-Term Incentive Plan for Senior Management for 2018, effective April 9,2018 [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC onApril 12, 2018.] 10.25+U. S. Physical Therapy, Inc. Objective Cash/RSA Bonus Plan for Senior Management for 2018, effective April 9, 2018[incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on April 12,2018.] 10.26+U. S. Physical Therapy, Inc. Discretionary Cash/RSA Bonus Plan for Senior Management for 2018, effective April 9,2018 [incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC onApril 12, 2018.] 10.27+Second Amended and Restated Credit Agreement dated as of November 10, 2017 among the Company, as Borrower,Bank of America, N.A. as Administrative Agent and the Lenders Patty (incorporated by reference to Exhibit 99.2 to theCompany’s Current Report on Form 8-K filed with the SEC on November 14, 2017). 10.28+Second Amended and Restated Employment Agreement by and between the Company and Christopher J. 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]. 10.29+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]. 10.30+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]. 10.31+Employment Agreement commencing on March 1, 2018 by and between the Company and Graham Reeve [incorporatedby reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 7, 2018]. 10.32+Objective Long-Term Incentive Plan for Senior Management [incorporated by reference to Exhibit 99.1 to theCompany’s Current Report on Form 8-K filed with the SEC on March 8, 2019.] 10.33+Discretionary Long-Term Incentive Plan for Senior Management [incorporated by reference to Exhibit 99.2 to theCompany’s Current Report on Form 8-K filed with the SEC on March 8, 2019.] 10.34+Objective Cash/RSA Bonus Plan for Senior Management [incorporated by reference to Exhibit 99.3 to the Company’sCurrent Report on Form 8-K filed with the SEC on March 8, 2019.] 10.35+Discretionary Cash/RSA Bonus Plan for Senior Management [incorporated by reference to Exhibit 99.4 to theCompany’s Current Report on Form 8-K filed with the SEC on March 8, 2019.] 82TABLE OF CONTENTSNumberDescription10.36+Third Amended and Restated Employment Agreement by and between the Company and Christopher J. Reading datedeffective May 21, 2019 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filedwith the SEC on March 22, 2019] 10.37+Third Amended and Restated Employment Agreement by and between the Company and Lawrance W. McAfee datedeffective May 21, 2019 [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filedwith the SEC on March 22, 2019] 10.38+Second Amended and Restated Employment Agreement by and between the Company and Glenn D. McDowell datedeffective May 21, 2019 [incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filedwith the SEC on March 22, 2019] 10.39+Amended & Restated Employment Agreement commencing by and between the Company and Graham Reeve datedeffective May 21, 2019 [incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filedwith the SEC on March 22, 2019] 10.40+Restricted Stock Agreement [incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-Kfiled with the SEC on March 22, 2019] 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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, 2019: Reserves and allowances deducted fromasset accounts: Allowance for doubtful accounts(1)$2,672 $4,858 — $4,832(2) $2,698 YEAR ENDED DECEMBER 31, 2018: Reserves and allowances deducted fromasset accounts: Allowance for doubtful accounts$2,273 $4,603 — $4,204(2) $2,672 YEAR ENDED DECEMBER 31, 2017: Reserves and allowances deducted fromasset accounts: Allowance for doubtful accounts$1,792 $3,672 — $3,191(2) $2,273 (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.84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: February 28, 2020Pursuant 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./s/ Chris J. ReadingChief Executive Officer, President and Director(Principal Executive Officer)February 28, 2020Chris J. Reading /s/ Lawrance W. McAfeeExecutive Vice President, Chief Financial Officer andDirector (Principal Financial Officer and PrincipalAccounting Officer)February 28, 2020Lawrance W. McAfee /s/ Jerald L. PullinsChairman of the BoardFebruary 28, 2020Jerald L. Pullins /s/ Mark J. BrooknerDirectorFebruary 28, 2020Mark J. Brookner /s/ Harry S. ChapmanDirectorFebruary 28, 2020Harry S. Chapman /s/ Bernard A. HarrisDirectorFebruary 28, 2020Dr. Bernard A. Harris, Jr. /s/ Kathleen A. GilmartinDirectorFebruary 28, 2020Kathleen A. Gilmartin /s/ Edward L. KuntzDirectorFebruary 28, 2020Edward L. Kuntz /s/ Reginald E. SwansonDirectorFebruary 28, 2020Reginald E. Swanson /s/ Clayton K. TrierDirectorFebruary 28, 2020Clayton K. Trier 85TABLE OF CONTENTSEXHIBIT INDEX (NOT UPDATED)LIST 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]. 4.1*Description of Company Securities [filed herewith the Company’s Form 10-K for the year ended December 31, 2019 filedwith the SEC on February 28, 2020.] 10.1+1999 Employee Stock Option Plan (as amended and restated May 20, 2008) [incorporated by reference to Appendix A tothe Company’s Definitive Proxy Statement on Schedule 14A, filed with the SEC on April 17, 2008]. 10.2+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.] 10.3+U. S. Physical Therapy, Inc. Long-Term Incentive Plan for Senior Management for 2013, effective March 27, 2013[incorporated by reference to Exhibit 99.1 to the Company Current Report on Form 8-K filed with the SEC on April 1,2013]. 10.4+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for 2013, effective March 27, 2013 [incorporated by reference toExhibit 99.2 to the Company Current Report on Form 8-K filed with the SEC on April 1, 2013]. 10.5+U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for 2013, effective March 27, 2013 [incorporated byreference to Exhibit 99.3 to the Company Current Report on Form 8-K filed with the SEC on April 1, 2013]. 10.6+U. S. Physical Therapy, Inc. Long-Term Incentive Plan for Senior Management for 2014, effective March 21, 2014[incorporated by reference to Exhibit 99.1 to the Company Current Report on Form 8-K filed with the SEC on March 27,2014]. 10.7+U. S. Physical Therapy, Inc. Discretionary Long-Term Incentive Plan for Senior Management for 2014, effective 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]. 10.8+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2014, effective March 21, 2014[incorporated by reference to Exhibit 99.3 to the Company Current Report on Form 8-K filed with the SEC on March 27,2014]. 10.9+U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2014, effective March 21, 2014[incorporated by reference to Exhibit 99.4 to the Company Current Report on Form 8-K filed with the SEC on March 27,2014]. 10.10+U. S. Physical Therapy, Inc. Long Term Incentive Plan for Senior Management for 2015, effective March 23, 2015[incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on March27, 2015.] 86TABLE OF CONTENTSNumberDescription10.11+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. 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.] 10.14+U. S. Physical Therapy, Inc. Objective Long Term Incentive Plan for Senior Management for 2016, effective March 10,2016 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC onMarch 16, 2016]. 10.15+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]. 10.16+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2016, effective March 10, 2016[incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on March16, 2016]. 10.17+U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2016, effective March 10, 2016[incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on March16, 2016]. 10.18+Form 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]. 10.19+U. S. Physical Therapy, Inc. Long-Term Incentive Plan for Senior Management for 2017, effective March 24, 2017[incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K/A filed with the SEC onFebruary 9, 2018.] 10.20+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.] 10.21+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2017, effective March 24, 2017[incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on March30, 2017.] 10.22+U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2017, effective March 24, 2017[incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC on March30, 2017.] 10.23+U. S. Physical Therapy, Inc. Objective Long-Term Incentive Plan for Senior Management for 2018, effective April 9,2018 [incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC onApril 12, 2018.] 10.24+U.S. Physical Therapy, Inc. Discretionary Long-Term Incentive Plan for Senior Management for 2018, effective April 9,2018 [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC onApril 12, 2018.] 10.25+U. S. Physical Therapy, Inc. Objective Cash/RSA Bonus Plan for Senior Management for 2018, effective April 9, 2018[incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on April 12,2018.] 87TABLE OF CONTENTSNumberDescription10.26+U. S. Physical Therapy, Inc. Discretionary Cash/RSA Bonus Plan for Senior Management for 2018, effective April 9,2018 [incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC onApril 12, 2018.] 10.27+Second Amended and Restated Credit Agreement dated as of November 10, 2017 among the Company, as Borrower,Bank of America, N.A. as Administrative Agent and the Lenders Patty (incorporated by reference to Exhibit 99.2 to theCompany’s Current Report on Form 8-K filed with the SEC on November 14, 2017). 10.28+Second Amended and Restated Employment Agreement by and between the Company and Christopher J. 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]. 10.29+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]. 10.30+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]. 10.31+Employment Agreement commencing on March 1, 2018 by and between the Company and Graham Reeve [incorporatedby reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 7, 2018]. 10.32+Objective Long-Term Incentive Plan for Senior Management [incorporated by reference to Exhibit 99.1 to theCompany’s Current Report on Form 8-K filed with the SEC on March 8, 2019.] 10.33+Discretionary Long-Term Incentive Plan for Senior Management [incorporated by reference to Exhibit 99.2 to theCompany’s Current Report on Form 8-K filed with the SEC on March 8, 2019.] 10.34+Objective Cash/RSA Bonus Plan for Senior Management [incorporated by reference to Exhibit 99.3 to the Company’sCurrent Report on Form 8-K filed with the SEC on March 8, 2019.] 10.35+Discretionary Cash/RSA Bonus Plan for Senior Management [incorporated by reference to Exhibit 99.4 to theCompany’s Current Report on Form 8-K filed with the SEC on March 8, 2019.] 10.36+Third Amended and Restated Employment Agreement by and between the Company and Christopher J. Reading datedeffective May 21, 2019 [incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filedwith the SEC on March 22, 2019] 10.37+Third Amended and Restated Employment Agreement by and between the Company and Lawrance W. McAfee datedeffective May 21, 2019 [incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filedwith the SEC on March 22, 2019] 10.38+Second Amended and Restated Employment Agreement by and between the Company and Glenn D. McDowell datedeffective May 21, 2019 [incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filedwith the SEC on March 22, 2019] 88TABLE OF CONTENTSNumberDescription10.39+Amended & Restated Employment Agreement commencing by and between the Company and Graham Reeve datedeffective May 21, 2019 [incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filedwith the SEC on March 22, 2019] 10.40+Restricted Stock Agreement [incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-Kfiled with the SEC on March 22, 2019] 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.89EXHIBIT 4.1The Company’s authorized capital stock consists of 500,000 shares of preferred stock, par value $0.01 per share (the “PreferredStock”), and 20,000,000 Common Stock,The following is a summary of the material provisions of the Company’s Certificate of Incorporation, as amended (the “Certificate ofIncorporation”) and Amended and Restated By-laws (the “By-laws”), insofar as they relate to the material terms of the CommonStock. This description summarizes the material terms and provisions of the Common Stock, but it is not complete. This summary isqualified in its entirety by reference to the Certificate of Incorporation and By-laws, which are incorporated herein by reference.Each holder of the Common Stock is entitled to one vote for each share on all matters to be voted upon by the stockholders and thereare no cumulative voting rights. In the event of a liquidation, dissolution or winding up of the Company, holders of the CommonStock would be entitled to share in the Company’s assets remaining after the payment of the Company’s debts and liabilities. Holdersof the Common Stock have no preemptive or conversion rights or other subscription rights and there are no redemption or sinkingfund provisions applicable to the Common Stock. The rights, preferences and privileges of the holders of the Common Stock aresubject to, and may be adversely affected by, the rights of the holders of shares of any series of Preferred Stock that we maydesignate in the future.The Common Stock is not convertible into, or exchangeable for, any other class or series of the Company’s capital stock. Holders ofthe Common Stock do not have preemptive or other rights to subscribe for or purchase additional securities of the Company.Certain provisions of the Company’s articles of incorporation and bylaws may delay, discourage, prevent or render more difficult anattempt to obtain control of the Company, whether through a tender offer, business combination, proxy contest or otherwise. Theseprovisions include the charter authorization of “blank check” preferred stock (as described above) and a restriction on the ability ofstockholders to call a special meeting.EXHIBIT 21.1List of SubsidiariesNameDBAEntity TypeState ofFormationForeign Qualification 2037953 Ontario, Inc. CorpCanada Ability Health PT Management GP, LLC LLCTXFLAbility Health Services and Rehabilitation, L.P.Ability RehabilitationLPTXFLAchieve Management GP, LLC LLCTX Achieve Physical Therapy and Performance, LimitedPartnership LPTX Action Therapy Centers, Limited PartnershipAction Physical TherapyHouston Hand TherapyPT ProfessionalsLPTX Adams County Physical Therapy, Limited Partnership LPTXPAAdvance Rehabilitation & Consulting, LimitedPartnership LPTXAL, FL & GAAdvance Rehabilitation Management GP, LLC LLCTXFLAgape Physical Therapy & Sports Rehabilitation,Limited Partnership LPTXMDAgape Physical Therapy Management GP, LLC LLCTX Agility Spine & Sports PT Management GP LLC LLCTX Agility Spine & Sports Physical Therapy andRehabilitation, Limited Partnership LPTXAZAnkeny Physical & Sports Therapy, LimitedPartnership LPTXIAARC Iowa PT Plus, LLC LLCTXIAARC Physical Therapy Plus, Limited Partnership LPTXKS, IA, MOARC PT Management GP, LLC LLCTXMOARCH Physical Therapy and Sports Medicine, LimitedPartnership LPTXMIArrow Physical Therapy, Limited PartnershipBroken Arrow Physical TherapyLPTXOKArrowhead Physical Therapy, Limited PartnershipElite Sports Medicine & Physical TherapyLPTXMSAshland Physical Therapy, Limited Partnership LPTXORAudubon Physical Therapy, Limited Partnership LPTXLABarren Ridge Physical Therapy, Limited Partnership LPTXVABayside Management GP, LLC LLCTX Bayside Physical Therapy & Sports Rehabilitation,Limited Partnership LPTXMDBeaufort Physical Therapy, Limited Partnership LPTXNCBosque River Physical Therapy and Rehabilitation,Limited Partnership LPTX Bow Physical Therapy & Spine Center, LimitedPartnership LPTXNHBrazos Valley Physical Therapy, Limited Partnership LPTX Brick Hand & Rehabilitative Services, LimitedPartnership LPTXNJBriotix Health, Limited PartnershipInSite HealthLPDEAZ, CA, CO, CT, FL, GA, HI, IL, IA,IN, KS, KY, MA, MD, MI, MN, MO,MT, NV, NJ, NY, NC, OH, OK, OR,PA, SC, TX, UT, VA, WA, WIBriotix Management GP, LLC LLCTXFL, MA, OH, UTBTE Workforce Solutions, LLC (formerly BTETechnoligies, Inc.) LLCDE Cape Cod Hand Therapy, Limited PartnershipCape Cod Hand & Upper Extremity TherapyLPTXMACarolina Physical Therapy and Sports Medicine,Limited Partnership LPTXSCCarolina PT Management GP, LLC LLCTX Center for Physical Rehabilitation and Therapy, LimitedPartnership LPDEMICleveland Physical Therapy, Ltd. LPTX Comprehensive Hand & Physical Therapy, LimitedPartnership LPTXFLNameDBAEntity TypeState ofFormationForeign Qualification Coppell Spine & Sports Rehab, Limited PartnershipNorth Davis/Keller Physical TherapyPhysical Therapy of ColleyvillePhysical Therapy of North TexasPhysical Therapy of CorinthTrinity Sports & Physical TherapyPhysical Therapy of Flower MoundSouthlake Physical TherapyPhysical Therapy of Trophy ClubHeritage Trace Physical TherapyTherapy Partners of Frisco/Little ElmTherapy Partners of North TexasLPTX CPR Management GP, LLC LLCTX Cross Creek Physical Therapy, Limited Partnership LPTXMSCrossroads Physical Therapy, Limited PartnershipGreen Oaks Physical Therapy - Fort WorthGreen Oaks Physical TherapyLPTX Crossroads Rehabilitation, Limited PartnershipCrossroads Physical TherapyLPTXMICustom Physical Therapy, Limited Partnership LPTXNVCutting Edge Physical Therapy, Limited Partnership LPTXINDearborn Physical Therapy, Ltd.Advanced Physical TherapyLPTXMIDecatur Hand and Physical Therapy Specialists,Limited Partnership LPTXGADekalb Comprehensive Physical Therapy, LimitedPartnership LPTXGADenali Physical Therapy, Limited Partnership LPTXAKDHT Hand Therapy, Limited PartnershipArizona Desert Hand Therapy ServicesDesert Hand and Physical TherapyLPTXAZDHT Management GP, LLC LLCTXAZDynamic Hand Therapy & Rehabilitation, LimitedPartnership LPTXILEastgate Physical Therapy, Limited PartnershipSummit Physical TherapyLPTXOHEdge Physical Therapy, Limited PartnershipRiver's Edge Physical TherapyLPTXMTEnid Therapy Center, Limited PartnershipEnid Physical TherapyLPTXOKEverett Management, LLC LLCWA Evergreen Physical Therapy, Limited Partnership LPTXMIExcel Physical Therapy, Limited Partnership LPTXAKExcel PT Texas GP, LLC LLCTX Fit2WRK, Inc. CorpTX Five Rivers Therapy Services, Limited PartnershipPeak Physical TherapyLPTXARFlannery Physical Therapy, Limited PartnershipPhysical Therapy PlusLPTXNJForest City Physical Therapy, Limited Partnership LPTXILFredericksburg Physical Therapy, Limited Partnership LPTX Frisco Physical Therapy, Limited PartnershipPT of ProsperLPTX Gahanna Physical Therapy, Limited PartnershipCornerstone Physical TherapyLPTXOHGenesee Valley Physical Therapy, Limited Partnership LPTXMIGreen Oaks Physical Therapy, Limited Partnership LPTX Hamilton Physical Therapy Services, LP LPTXNJHands-On Sports Medicine, Limited PartnershipMetro Spine and Sports RehabilitationLPTXILNameDBAEntity TypeState ofFormationForeign Qualification Hanoun Medical, Inc.BTE Workforce SolutionsBriotix HealthCorpCanada Harbor Physical Therapy, Limited Partnership LPTXMDHeritage Physical Therapy, Limited Partnership LPTXCAHH Rehab Associates, Inc.Genesee Valley Physical TherapyTheramax Physical TherapyCorpMIDEHigh Plains Physical Therapy, Limited Partnership LPTXWYHighlands Physical Therapy & Sports Medicine,Limited Partnership LPTXNJHoeppner Physical Therapy, Limited Partnership LPTXVTHPTS Management GP, LLC LLCTXNJIH GP, LLC LLCTX Indy ProCare Physical Therapy, Limited Partnership LPTXINInSite Health Limited Partnership LPDE Intermountain Physical Therapy, Limited Partnership LPTXIDJackson Clinics PT Management GP , LLC LLCTX Jackson Clinics, Limited Partnership LPTXMD, VAJaco Rehab Honolulu Management GP, LLC LLCTX Jaco Kapolei Management GP, LLC LLCTX Jaco Mililani Management GP LLC LLCTX Jaco Waikele Management GP LLC LLCTX Jaco Rehab Honolulu, Limited Partnership LPTXHIJaco Rehab Kapolei, Limited Partnership LPTXHIJaco Rehab Mililani, Limited Partnership LPTX Jaco Rehab Waikele, Limited Partnership LPTXHIJoan Ostermeier Physical Therapy, Limited PartnershipSport & Spine Clinic of WittenbergLPTXWIJulie Emond Physical Therapy, Limited PartnershipMaple Valley Physical TherapyLPTXVTKelly Lynch Physical Therapy, Limited PartnershipSport & Spine Clinic of WatertownLPTXWINameDBAEntity TypeState ofFormationForeign Qualification Kennebec Physical Therapy, LLC LLCTXMEKingwood Physical Therapy, Ltd.Spring-Klein Physical TherapyWest Woodlands Physical TherapyLake Conroe Sports Medicine and RehabilitationCypress Oaks Physical TherapyLPTX Lake Houston Physical Therapy, Limited PartnershipNorthern Oaks Orthopedic & Sports PTLPTX Leader Physical Therapy, Limited PartnershipMemphis Physical TherapyLPTXTNLife Fitness Physical Therapy, LLCIn Balance Physical TherapyHerbst Physical TherapyLLCMDPALife Strides Physical Therapy and Rehabilitation,Limited Partnership LPTXSCLiveWell Physical Therapy, Limited Partnership LPTX Madison Physical Therapy, Limited Partnership LPTXNJMadison Spine, Limited Partnership LPTXNJMax Motion Physical Therapy, Limited Partnership LPTXAZMerrill Physical Therapy, Limited Partnership LPTXWIMishock Physical Therapy, Limited PartnershipXcelerate Physical TherapyLPTXPAMishock PT Management GP, LLC LLCTX Mission Rehabilitation and Sports Medicine, LimitedPartnership LPTX Mobile Spine and Rehabilitation, Limited Partnership LPTXALMomentum Physical & Sports Rehabilitation, LimitedPartnershipMomentum Physical Therapy & Sports RehabLPTXFL, CO, AZMountain View Physical Therapy, Limited PartnershipMountain View Physical and Hand TherapyLPTXORMSPT Management GP, LLC LLCTXNJNational Rehab Delaware, Inc. CorpDEMONational Rehab GP, Inc. CorpTXFL,MONational Rehab Management GP, Inc. CorpTXILNew Horizons Physical Therapy, Limited Partnership LPTXINNorman Physical Therapy, Limited Partnership LPTXOKNorth Jersey Game On Physical Therapy, LimitedPartnershipMadison Spine & Physical TherapyLPTXNJNorth Lake Physical Therapy and Rehab, LimitedPartnership LPTXORNameDBAEntity TypeState ofFormationForeign Qualification North Lake PT Management GP, LLC LLCTX Northern Lights Physical Therapy, Limited Partnership LPTXNDNorthwest PT Management GP, LLC LLCTX Northwoods Physical Therapy, Limited Partnership LPTXMIOPR Management Services, Inc. Inc.TXAK, AL, AZ, CO, CT, DE, FL, GA,IA, ID, IL, IN, KS, LA, MA, MD,ME, MI, MN, MO, MS, MT, NC, ND,NE, NH, NJ, NM, NV, OH, OK, OR,PA, SC, SD, TN, VA, VT, WI, WYOSR Physical Therapy, Limited Partnership LPTXMNOSR Physical Therapy Management GP LLC LLCTX Old Towne Physical Therapy, Limited Partnership LPTXDEOne to One PT Management GP LLC LLCTXFLOne to One Physical Therapy, Limited Partnership LPDE Oregon Spine & Physical Therapy, Limited PartnershipPeak State Physical TherapyLPTXORPelican State Physical Therapy, Limited PartnershipAudubon Physical TherapyLPTXLAPenns Wood Physical Therapy, Limited Partnership LPTXPAPerformancePro Sports Medicine and Rehabilitation,Limited Partnership LPTX Phoenix Physical Therapy, Limited Partnership LPTXOHPhysical Restoration and Sports Medicine, LimitedPartnership LPTXVAPhysical Therapy Northwest, Limited Partnership LPTXORPhysical Therapy and Spine Institute, LimitedPartnership LPTXILPhysical Therapy Solutions, Limited Partnership LPDEVAPinnacle Therapy Services, LLC LLCDEMOPioneer Physical Therapy, Limited Partnership LPTXNEPlymouth Physical Therapy Specialists, LimitedPartnership LPTXMINameDBAEntity TypeState ofFormationForeign Qualification Port City Physical Therapy, Limited Partnership LPTXMEPrecision Physical Therapy, Limited Partnership LPTXPAPremier Physical Therapy and Sports Performance,Limited Partnership LPDE Premier Management GP, LLC LLCDE ProActive Physical Therapy, Limited Partnership LPTXSDProCare Physical Therapy Management GP, LLC LLCTX ProCare PT, Limited Partnership LPTXPAProgressive Physical Therapy Clinic, Ltd.Progressive Hand and Physical TherapyLPTX PTS GP Management, LLC LLCTX Quad City Physical Therapy & Spine, LimitedPartnership LPTXIARACVA GP, LLC LLCTXVAR. Clair Physical Therapy, Limited PartnershipClair Physical TherapyLPTX Radtke Physical Therapy, Limited Partnership LPTXMNReaction Physical Therapy, LLC LLCDEOKRebound Physical Therapy, Limited Partnership LPTXORRebound PT Management GP, LLC LLCTX Red River Valley Physical Therapy, Limited Partnership LPTX Redbud Occupational & Physical Therapy, LimitedPartnership LPTXOKRedmond Ridge Management, LLC LLCWA Regional Physical Therapy Center, Limited Partnership LPTX Rehab Partners #1, Inc. CorpTXFL, MA, & WIRehab Partners #2, Inc. CorpTXFLRehab Partners #3, Inc. CorpTXMO, MT, NJ, ND, & SDRehab Partners #4, Inc. CorpTXOH, & UTRehab Partners #5, Inc. CorpTX Rehab Partners #6, Inc. CorpTXORNameDBAEntity TypeState of FormationForeign Qualification Rehab Partners Acquisition #1, Inc. CorpTX Rehabilitation Associates of Central Virginia, LimitedPartnershipRehab Associates of Central Virginia (CampbellCounty)LPTXVARice Rehabilitation Associates, Limited Partnership LPTXGARiverview Physical Therapy, Limited Partnership(formerly Yarmouth Physical Therapy) LPTXMERiverwest Physical Therapy, Limited Partnership LPTXLARoepke Physical Therapy, Limited PartnershipElite Hand & Upper Extremity ClinicLPTXWIRYKE Management GP, LLC LLCTX Saginaw Valley Sport and Spine, Limited PartnershipSport & Spine Physical Therapy and Rehab; EvergreenPTLPTXMISaline Physical Therapy of Michigan, Ltd.Physical Therapy in MotionLPTXMISeacoast Physical Therapy, Limited Partnership LPTXMESignature Physical Therapy, Limited Partnership LPTXOKSnohomish Management, LLC LLCWA Sooner Physical Therapy, Limited Partnership LPTXOKSouth Tulsa Physical Therapy, Limited PartnershipPhysical Therapy of JenksLPTXOKSpectrum Physical Therapy, Limited PartnershipSouthshore Physical TherapyLPTXCTSpine & Sport Physical Therapy, Limited Partnership LPTXGASport & Spine Clinic of Fort Atkinson, LimitedPartnershipSport & Spine Clinic of Sauk CitySport & Spine Clinic of MadisonSport & Spine Clinic of JeffersonSport & Spine EdgertonLPTXWISport & Spine Clinic, L.P.Sport & SpineSport & Spine Clinic of EdgarSport & Spine MinocquaSport & Spine - Rib MountainLPDEWISpracklen Physical Therapy, Limited Partnership LPTXNESTAR PT Management GP, LLC LLCTX STAR Physical Therapy, LP LPTXAR, TN, INStar Therapy Centers, Limited PartnershipStar Therapy Services of CopperfieldStar Therapy Services of Cy-FairStar Therapy Services of FulshearStar Therapy Services of KatyStar Therapy Services of MagnoliaStar Therapy Services of Spring CypressStar Therapy Services of Cinco RanchLPTX NameDBAEntity TypeState ofFormationForeign Qualification Texstar Physical Therapy, Limited Partnership LPTX The Hale Hand Center, Limited Partnership LPTXFLThe U.S. Physical Therapy Foundation NPTXQualified to fund raise in CA, FL,KS, MD, MI, TN, TX, VATherapyworks Physical Therapy, LLCTherapyworksLLCDEINThibodeau Physical Therapy, Limited Partnership LPTXMIThunder Physical Therapy, Limited Partnership LPTXWATulsa Hand Therapy, LLCTulsa Hand and Physical TherapyLLCTXOKU.S. Physical Therapy, Inc. CorpNVMI and AZU.S. Physical Therapy, Ltd. LPTXNJ,NCU.S. PT - Delaware, Inc. CorpDEFL, IL, MN, MONM,U.S. PT Alliance Rehabilitation Services, Inc.Alliance Rehabilitation ServicesCorpTXPAU.S. PT Management, Ltd. LPTXWAU.S. PT Michigan #1, Limited PartnershipGenesee Valley Physical TherapyLPTXMIU.S. PT Michigan #2, Limited PartnershipPhysical Therapy SolutionsLPTXMIU.S. PT Solutions, Inc.Physical Therapy SolutionsCorpTXVANameDBAEntity TypeState ofFormationForeign Qualification U.S. PT Texas, Inc.Kinetix Physical TherapyCorpTXMSU.S. PT Therapy Services, Inc. (formerly U.S. SurgicalPartners, Inc.)Capstone Physical TherapyCarolina Hand and Wellness CenterHand Therapy of North Texas - FriscoHand Therapy of North Texas - CoppellInnovative Physical TherapyLake City Hand TherapyLife Sport Physical TherapyLife Sport Physical Therapy - Glen EllynMetro Hand RehabilitationMissouri City Physical TherapyMountain View Physical Therapy of MedfordMountain View Physical Therapy of TalentNorthern Illinois Therapy ServicesPropel Physical TherapyReAction Physical TherapyTherapeutic ConceptsTulsa Hand TherapyWaco Sports Medicine and RehabilitationCorpDECA, FL, IA, IL, IN, KS, ME, MS, MO,NC, OH, OK, OR, PA, TX VA, & WIU.S. PT Turnkey Services, Inc.(formerly Surgical Management GP, Inc.The Hand & Orthopedic Rehab ClinicCorpTXINU.S. Therapy, Inc.First Choice Physical TherapyCorpTXIN The Facilities Group, Inc. University Physical Therapy, Limited Partnership LPTXVAUSPT Physical Therapy, Limited PartnershipBody Basics Physical TherapyLPTXIAVictory Physical Therapy, Limited Partnership LPTX West Texas Physical Therapy, Limited Partnership LPTX Wright PT Management GP, LLC LLCTX Wright Physical Therapy, Limited Partnership LPTXID EXHIBIT 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe have issued our reports dated February 28, 2020, with respect to the consolidated financial statements and internal control over financial reporting included in the Annual Report ofU.S. Physical Therapy, Inc. on Form 10-K for the year ended December 31, 2019. We consent to the incorporation by reference of said reports in the Registration Statements of U.S.Physical Therapy, Inc. on Forms S-8 (File Nos. 333-30071 effective June 26, 1997, 333-64159 effective September 24, 1998, 333-67678 effective August 16, 2001, 333-67680 effective August16, 2001, 333-82932 effective February 15, 2002, 333-103057 effective February 10, 2003, 333-113592 effective March 15, 2004, 333-116230 effective June 4, 2004, 333-153051 effectiveAugust 15, 2008, 333-185381 effective December 11, 2012, 333-200832 effective December 10, 2014, and 333-230368 effective March 18, 2019).Houston, Texas February 28, 2020EXHIBIT 31.1CERTIFICATIONI, Christopher J. Reading, certify that:1.I have reviewed this annual report on Form 10-K of U.S. Physical Therapy, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periodspresented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the period in whichthis report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting andthe preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered bythis report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal controlover financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (orpersons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize andreport financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting.Date: February 28, 2020 /s/ Christopher J. Reading Christopher J. ReadingPresident and Chief Executive Officer(principal executive officer)EXHIBIT 31.2CERTIFICATIONI, Lawrance W. McAfee, certify that:1.I have reviewed this annual report on Form 10-K of U.S. Physical Therapy, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periodspresented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the period in whichthis report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting andthe preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered bythis report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal controlover financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (orpersons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize andreport financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting.Date: February 28, 2020 /s/ Lawrance W. McAfee Lawrance W. McAfeeExecutive Vice President andChief Financial Officer(Principal Accounting Officer)EXHIBIT 31.3CERTIFICATIONI, Jon C. Bates, certify that:1.I have reviewed this annual report on Form 10-K of U.S. Physical Therapy, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periodspresented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the period in whichthis report is being prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting andthe preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples;(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered bythis report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal controlover financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (orpersons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize andreport financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting.Date: February 28, 2020 /s/ Jon C. Bates Jon C. BatesVice President and Corporate ControllerEXHIBIT 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of U.S. Physical Therapy, Inc. (the “registrant”) on Form 10-K for the year ending December31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “report”), we, Christopher J. Reading,Lawrence W. McAfee and Jon C. Bates, Chief Executive Officer, Chief Financial Officer and Controller, respectively, of the registrant,certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:(1)The report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, asamended; and(2)The information contained in the report fairly presents, in all material respects, the financial condition and results ofoperations of the registrant.February 28, 2020/s/ Christopher J. Reading Christopher J. ReadingChief Executive Officer /s/ Lawrance W. McAfee Lawrance W. McAfeeChief Financial Officer /s/ Jon C. Bates Jon C. BatesVice President and Controller A signed original of this written statement required by Section 906 has been provided to U. S. Physical Therapy, Inc. and will beretained by U. S. Physical Therapy, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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