US Physical Therapy Annual Report 2020

Plain-text annual report

UNITED 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, 2020OR☐TRANSITION 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)NEVADA 76-0364866(STATE OR OTHER JURISDICTION OF INCORPORATIONOR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)1300 WEST SAM HOUSTON PARKWAY SOUTH,SUITE 300,HOUSTON, TEXAS 77042(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 ☐ 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 ☐ No☑Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorterperiod that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during thepreceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See thedefinitions 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☐Non-accelerated filer☐ (Do not check if a smaller reporting company)Smaller reporting company☐ Emerging growth company☐If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accountingstandards provided pursuant to Section 13(a) of the Exchange Act.  ☐Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reportingunder Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐ No ☑The aggregate market value of the shares of the registrant’s common stock held by non-affiliates of the registrant at June 30, 2020 was $565.3 million based on the closing sale pricereported on the NYSE for the registrant’s common stock on June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter. For purposes of thiscomputation, all executive officers, directors and 5% or greater beneficial owners of the registrant were deemed to be affiliates. Such determination should not be deemed an admissionthat such executive officers, directors and beneficial owners are, in fact, affiliates of the registrant.As of March 1, 2021, the number of shares outstanding of the registrant’s common stock, par value $.01 per share, was: 12,897,096.Table of ContentsDOCUMENTS INCORPORATED BY REFERENCEDOCUMENTPART OF FORM 10-KPortions of Definitive Proxy Statement for the 2021 Annual Meeting of ShareholdersPart IIITable of Contents PagePART I Item 1.Business4Item 1A.Risk Factors15Item 1B.Unresolved Staff Comments22Item 2.Properties22Item 3.Legal Proceedings22Item 4.Mine Safety Disclosures23 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities23Item 6.Management’s Discussion and Analysis of Financial Condition and Results of Operations25Item 7.Quantitative and Qualitative Disclosures About Market Risk40Item 8.Financial Statements and Supplementary Data41 Notes to Consolidated Financial Statements49Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure74Item 9A.Controls and Procedures74Item 9B.Other Information75 PART III Item 10.Directors, Executive Officers and Corporate Governance75Item 11.Executive Compensation75Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters75Item 13.Certain Relationships and Related Transactions, and Director Independence75Item 14.Principal Accountant Fees and Services75 PART IV Item 15.Exhibits and Financial Statement Schedules75Item 16.Form 10-K Summary75Signatures 822Table of ContentsFORWARD-LOOKING STATEMENTSWe make statements in this report that are considered to be forward-looking statements within the meaning given such term under Section 21E of the Securities Exchange Act of1934, as amended (the “Exchange Act”). These statements contain forward-looking information relating to the financial condition, results of operations, plans, objectives, futureperformance and business of our Company. These statements (often using words such as “believes”, “expects”, “intends”, “plans”, “appear”, “should” and similar words) involve risksand uncertainties that could cause actual results to differ materially from those we project. Included among such statements are those relating to opening clinics, availability of personneland the reimbursement environment. The forward-looking statements are based on our current views and assumptions and actual results could differ materially from those anticipated insuch forward-looking statements as a result of certain risks, uncertainties, and factors, which include, but are not limited to:business can be affected by certain risks, uncertainties and factors which include, but are not limited to:•the multiple effects of the impact of public health crises and epidemics/pandemics, such as the novel strain of COVID-19 (coronavirus) for which the financial magnitude cannotbe currently estimated;•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 certification and/or enrollment status, including Medicarereimbursement reductions.•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 or reputational harm and increased costs;•compliance with federal and state laws and regulations relating to the privacy of individually identifiable patient information, and associated fines and penalties for failure tocomply;•changes in reimbursement rates or payment methods from third party payors including government agencies, and changes in the deductibles and co-pays owed by patients;•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 certain clinics and thereby incur losses and/or closure costsincluding the possible write-down or write-off of goodwill and other intangible assets;•competitive environment in the industrial injury prevention business, which could result in the termination or non-renewal of contractual service arrangements and otheradverse financial consequences for that service line;•acquisitions, purchase of non-controlling interests (minority interests) and the successful integration of the operations of the 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 action and reputational harm and may result in a violationof the Health Insurance Portability and Accountability Act of 1996 of the Health Information Technology for Economic and Clinical Health Act;•maintaining adequate internal controls;•maintaining necessary insurance coverage;•availability, terms, and use of capital; and•weather and other seasonal factors.Many factors are beyond our control. Given these uncertainties, you should not place undue reliance on our forward-looking statements. Please see the other sections of this reportand our other periodic reports filed with the Securities and Exchange Commission (the “SEC”) for more information on these factors. Our forward-looking statements represent ourestimates and assumptions only as of the date of this report. Except as required by law, we are under no obligation to update any forward-looking statement, regardless of the reason thestatement may no longer be accurate.3Table of ContentsPART IITEM 1.BUSINESS.GENERALOur Company, U.S. Physical Therapy, Inc. and subsidiaries (“we”, “us”, “our” or the “Company”), operates its business through two reportable business segments. Our reportablesegments include the physical therapy operations segment and the industrial injury prevention services segment. Our Company, through its subsidiaries, operates outpatient physicaltherapy clinics that provide pre-and post-operative care for a variety of orthopedic-related disorders and sports-related injuries, treatment for neurological-related injuries andrehabilitation of injured workers. We primarily operate through subsidiary clinic partnerships in which we generally own a 1% general partnership interest and a 10% to 99% limitedpartnership interest and the managing therapist(s) of the clinics owns the remaining limited partnership interest in the majority of the clinics (hereinafter referred to as “ClinicPartnerships”). To a lesser extent, we operate some clinics through wholly-owned subsidiaries under profit sharing arrangements with therapists (hereinafter referred to as “Wholly-Owned Facilities”). 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 onsiteinjury prevention and rehabilitation, performance optimization, post-offer employment testing, functional capacity evaluations and ergonomic assessments. The majority of theseservices are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Other clients include large insurers and their contractors. These servicesare performed through Industrial Sports Medicine Professionals, consisting of both physical therapists and specialized certified athletic trainers (ATCs).Our strategy is to acquire multi-clinic outpatient physical therapy practices, to develop outpatient physical therapy clinics as satellites in existing partnerships, and to continue toacquire companies that provide industrial injury prevention services. At December 31, 2020, we operated 554 clinics in 39 states. The average age of the 554 clinics in operation atDecember 31, 2020 was 11.03 years. Our highest concentration of clinics are in the following states: Texas, Tennessee, Michigan, Virginia, Florida, Oregon, Maryland, Georgia,Pennsylvania, Arizona, Idaho and Missouri. In addition to our 554 clinics, at December 31, 2020, we also managed 38 physical therapy practices for unrelated physician groups andhospitals, and operated the industrial injury prevention business, as described below.During the last three years, we completed the following acquisitions:Acquisition Date % InterestAcquired Number ofClinicsNovember 2020 Acquisition November 30, 2020 75% 3September 2020 Acquisition September 30, 2020 70% *February 2020 Acquisition February 27, 2020 65% ** 4September 2019 Acquisition September 30, 2019 67% 11August 2018 Acquisition August 31, 2018 70% 4*The business includes six management and services contracts which had a remaining term of approximately five years as of the date acquired.**The four clinics are in four separate partnerships. The Company's interest in the four partnerships range from 10.0% to 83.8%, with an overall 65.0% based on the initialpurchase transaction.In addition to the above acquisitions, in March 2017, we acquired a 55% interest in the initial industrial injury prevention business. On April 30, 2018, we acquired a 65% interest inanother business in the industrial injury prevention sector and in connection with the closing we combined the two businesses. After the combination, we owned a 59.45% interest inthe combined business, Briotix Health, Limited Partnership (“Briotix Health”). On April 11, 2019, we acquired a third company that is a provider of industrial injury prevention services.This acquired company specializes in delivering injury 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. After the acquisition, the business was then combined with Briotix Health increasing ourownership position in Briotix to approximately 76.0%.4Table of ContentsDuring the year ended December 31, 2020, we sold 14 previously closed clinics. The aggregate sales price was $1.1 million, of which $0.7 million was paid in cash and $0.4 million ina note receivable, payable in two equal installments of principal and any accrued interest on June 15, 2021 and 2022.Also during 2019, we purchased the assets and business of one physical therapy clinic in a separate transaction. The clinic operates as a satellite clinic of one of our existingpartnerships. Besides the August 2018 multi-clinic acquisition referenced in the table above, we acquired five separate clinic practices that year through several of our majority ownedClinic Partnerships. These practices operate as satellites of the respective existing Clinic Partnerships.We continue to seek to attract for employment physical therapists who have established relationships with physicians and other referral sources by offering these therapists acompetitive salary and incentives based on the profitability of the clinic that they manage. For multi-site clinic practices in which a controlling interest is acquired by us, the priorowners typically continue on as employees to manage the clinic operations, retaining a non-controlling ownership interest in the clinics and receiving a competitive salary formanaging the clinic operations. In addition, we have developed satellite clinic facilities as part of existing Clinic Partnerships and Wholly-Owned Facilities, with the result that asubstantial number of Clinic Partnerships and Wholly-Owned Facilities operate more than one clinic location. During 2021, we intend to continue to acquire multi-clinic practices andto continue to develop outpatient physical therapy clinics as satellites in existing partnerships, along with increasing our patient volume through marketing and new programs.Therapists at our clinics initially perform a comprehensive evaluation of each patient, which is then followed by a treatment plan specific to the injury as prescribed by thepatient’s physician. The treatment plan may include a number of procedures, including therapeutic exercise, manual therapy techniques, ultrasound, electrical stimulation, hot packs,iontophoresis, education on management of daily life skills and home exercise programs. A clinic’s business primarily comes from referrals by local physicians. The principal sources ofpayment 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 in various states in the form of limited partnerships, limitedliability companies and wholly-owned corporations. This description of our business should be read in conjunction with our financial statements and the related notes contained in Item8 in this Annual Report on Form 10-K. Our principal executive offices are located at 1300 West Sam Houston Parkway South, Suite 300, Houston, Texas 77042. Our telephone number is(713) 297-7000. Our website is www.usph.com.OUR CLINICSMost of our clinics are operated as Clinic Partnerships in which we own the general partnership interest and a majority of the limited partnership interests. The managinghealthcare practitioner of the clinics usually owns a portion of the limited partnership interests. Generally, the therapist partners have no interest in the net losses of ClinicPartnerships, except to the extent of their capital accounts. Since we also develop satellite clinic facilities of existing clinics, most Clinic Partnerships consist of more than one cliniclocation. As of December 31, 2020, through wholly-owned subsidiaries, we owned a 1% general partnership interest in all the Clinic Partnerships. Our limited partnership interestsrange from 10% to 99% in the Clinic Partnerships. For the vast majority of the Clinic Partnerships, the managing healthcare practitioner is a physical therapist who owns the remaininglimited partnership interest in the Clinic Partnership.For our Clinic Partnership agreements related to those in which we acquired a majority interest, generally, the prior management continues to own a 10% to 50% interest.Typically, each therapist partner or director, including those employed by Clinic Partnerships in which we acquired a majority interest, enters into an employment agreement for aterm of up to five years with their Clinic Partnership. Each agreement typically provides for a covenant not to compete during the period of his or her employment and for up to two yearsthereafter. Under each employment agreement, the therapist partner receives a base salary and may receive a bonus based on the net revenues or profits generated by their ClinicPartnership or specific clinic. In the case of Clinic Partnerships, the therapist partner receives earnings distributions based upon their ownership interest. Upon termination ofemployment, we typically have the right, but not the obligation, 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 respective limited partnership agreements, we have a call right(the “Call Right”) and the selling entity or individual has a put right (the “Put Right”) with respect to the partner’s limited partnership interests. The Put Right and the Call Right do notexpire, even upon an individual partner’s death, and contain no mandatory redemption feature. The purchase price of the partner’s limited partnership interest upon exercise of the PutRight or the Call Right is calculated at a predetermined multiple of earnings performance as detailed in the respective agreements.5Table of ContentsEach Clinic Partnership maintains an independent local identity, while at the same time enjoying the benefits of national purchasing, negotiated third-party payor contracts,centralized support services and management practices. Under a management agreement, one of our subsidiaries provides a variety of support services to each clinic, includingsupervision of site selection, construction, clinic design and equipment selection, establishment of accounting systems and billing procedures and training of office support personnel,processing of accounts payable, operational direction, auditing of regulatory compliance, payroll, benefits administration, accounting services, legal services, quality assurance andmarketing support.Our typical clinic occupies 1,000 to 7,000 square feet of leased space in an office building or shopping center. There are 14 clinics occupying space in the range of over 7,000 squarefeet to 13,500.square feet. We attempt 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, staffing may also include additional physical therapists,occupational therapists, therapy assistants, aides, exercise physiologists, athletic trainers and office personnel. Therapy services are performed under the supervision of a licensedtherapist.We provide services at our clinics on an outpatient basis. Patients are usually treated for approximately one hour per day, two to three times a week, typically for two to six weeks.We generally charge for treatment on a per procedure basis. Medicare patients are charged based on prescribed time increments and Medicare billing standards. In addition, our clinicswill develop, when appropriate, individual maintenance and self-management exercise programs to be continued after treatment. We continually assess the potential for developingnew services and expanding the methods of providing our existing services in the most efficient manner while providing high quality patient care.Services provided in the industrial injury prevention services segment include onsite injury prevention and rehabilitation, performance optimization, post offer employment testing,functional capacity evaluations, and ergonomic assessments. The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500companies. Other clients include large insurers and their contractors. We perform these services through Industrial Sports Medicine Professionals, consisting of both physicaltherapists and specialized certified athletic trainers (ATCs).FACTORS INFLUENCING DEMAND FOR PHYSICAL 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, health maintenance organizations, businesses andindustries, continuously seek cost savings for traditional healthcare services. We believe that our therapy services provide a cost-effective way to prevent short-term disabilities frombecoming chronic conditions, to help avoid invasive procedures, to speed recovery from surgery and musculoskeletal injuries and eliminate or minimize the need for opioids.Earlier Hospital Discharge. Changes in health insurance reimbursement, both public and private, have encouraged the earlier discharge of patients to reduce costs. We believethat early hospital discharge practices foster greater demand for outpatient physical therapy services.Aging Population. In general, the elderly population has a greater incidence of disability compared to the population as a whole. As this segment of the population continues togrow, we believe that demand for rehabilitation services will expand.6Table of ContentsIncrease 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 teaching them how to move in ways that are pain free.MARKETINGWe focus our marketing efforts primarily on physicians, including orthopedic surgeons, neurosurgeons, physiatrists, internal medicine physicians, podiatrists, occupationalmedicine physicians and general practitioners. In marketing to the physician community, we emphasize our commitment to quality patient care and regular communication withphysicians regarding patient progress. We employ personnel to assist clinic directors in developing and implementing marketing plans for the physician community and to assist inestablishing relationships with health maintenance organizations, preferred provider organizations, case managers and insurance companies.SOURCES OF REVENUE FOR PHYSICAL THERAPY OPERATIONSPayor sources for physical therapy operations are primarily managed care programs, commercial health insurance, Medicare/Medicaid and workers’ compensation insurance.Commercial health insurance, Medicare and managed care programs generally provide coverage to patients utilizing our clinics after payment by the patients of normal deductibles andco-insurance payments. Workers’ compensation laws generally require employers to provide, directly or indirectly through insurance, costs of medical rehabilitation for their employeesfrom work-related injuries and disabilities and, in some jurisdictions, mandatory vocational rehabilitation, usually without any deductibles, co-payments or cost sharing. Treatments forpatients who are parties to personal injury cases are generally paid from the proceeds of settlements with insurance companies or from favorable judgments. If an unfavorable judgmentis 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 allreceivable types are regularly reviewed and adjusted as appropriate.The following table shows our payor mix for the years ended ($ in thousands): December 31, 2020 December 31, 2019 December 31, 2018 Payor Net PatientRevenue Percentage Net PatientRevenue Percentage Net PatientRevenue Percentage Managed Care Programs $104,513 28.0% $124,516 28.7% $134,748 32.3%Commercial Health Insurance 73,364 19.7% 79,535 18.4% 72,786 17.4%Medicare/Medicaid 118,030 31.6% 132,611 30.6% 117,554 28.1%Workers' Compensation Insurance 48,628 13.0% 63,542 14.7% 59,942 14.4%Other 28,805 7.7% 33,141 7.6% 32,673 7.8%Total $373,340 100.0% $433,345 100.0% $417,703 100.0%Our physical therapy business depends to a significant extent on our relationships with commercial health insurers, health maintenance organizations, preferred providerorganizations and workers’ compensation insurers. In some geographical areas, our clinics must be approved as providers by key health maintenance organizations and preferredprovider plans to obtain payments. Failure to obtain or maintain these approvals would adversely affect financial results.During the year ended December 31, 2020, approximately 35.3% of our visits and 31.6% of our net patient revenues were from patients with Medicare or Medicaid programcoverage. To receive Medicare reimbursement, a facility (Medicare Certified Rehabilitation Agency) or the individual therapist (Physical/Occupational Therapist in Private Practice) mustmeet applicable participation conditions set by the Department of Health and Human Services (“HHS”) relating to the type of facility, equipment, recordkeeping, personnel andstandards of medical care, and also must comply with all state and local laws. HHS, through Centers for Medicare & Medicaid Services (“CMS”) and designated agencies, periodicallyinspects or surveys clinics/providers for approval and/or compliance. We anticipate that our newly developed and acquired clinics will become certified as Medicare providers or will beenrolled as a group of physical/occupation therapists in a private practice. Failure to obtain or maintain this certification would adversely affect financial results.7Table of ContentsThe Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (‘‘MPFS’’). For services provided in 2018, a 0.5% increase wasapplied 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 budgetneutrality adjustment. For services provided in 2020 through 2025, a 0.0% percent update is expected to 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 for 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 was to become effective January 1, 2021 under the 2021 MPFS Final Rule,reimbursement for the codes applicable to physical/occupational therapy services were to be reduced by approximately 9% in the aggregate. The 9% reduction in payment wasaddressed by the Consolidated Appropriations Act, 2021 (“Act”) signed into law on December 27, 2020. Based on various provisions in the Act, we now estimate that the Medicare ratereduction for the full year of 2021 will be approximately 3.5% in aggregate.Beginning in 2021, payments to individual therapists (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 electronichealth records. Under the MIPS requirements, a provider's performance is assessed according to established performance standards each year and then is used to determine anadjustment factor that is applied to the professional's payment for the corresponding payment year. The provider’s MIPS performance in 2019 will determine the payment adjustment in2021. Each year from 2019 through 2024, professionals who receive a significant share of their revenues through an alternate payment model (“APM”), (such as accountable careorganizations or bundled payment arrangements) that involves risk of financial losses and a quality measurement component will receive a 5% bonus in the corresponding paymentyear. The bonus payment for APM participation is intended to encourage participation and testing of new APMs and to promote the alignment of incentives across payors. Thespecifics 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 federalspending by approximately $1.2 trillion. Payments to Medicare providers are subject to these automatic spending reductions, subject to a 2% cap. On April 1, 2013, a 2% reduction toMedicare payments was implemented. The Bipartisan Budget Act of 2015, enacted on November 2, 2015, extended the 2% reductions to Medicare payments through fiscal year 2025. TheBipartisan Budget Act of 2018, enacted on February 9, 2018, extends the 2% reductions to Medicare payments through fiscal year 2027. The Coronavirus Aid, Relief, and EconomicSecurity (CARES) Act suspended the 2% payment reduction Medicare payments for dates of service from May 1, 2020, through December 31, 2020. The Consolidated AppropriationsAct, 2021 further suspended the 2% payment reduction until March 31, 2021.Under the Middle Class Tax Relief and Job Creation Act of 2012 (‘‘MCTRA’’), since October 1, 2012, patients who met or exceeded $3,700 in therapy expenditures during a calendaryear have been subject to a manual medical review to determine whether applicable payment criteria are satisfied. The $3,700 threshold is applied to Physical Therapy and SpeechLanguage Pathology Services; a separate $3,700 threshold is applied to the Occupational Therapy. The Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”) directedCMS to modify the manual medical review process such that those reviews will no longer apply to all claims exceeding the $3,700 threshold and instead will be determined on a targetedbasis based on a variety of factors that CMS considers appropriate The Bipartisan Budget Act of 2018 extends the targeted medical review indefinitely, but reduces the threshold to$3,000 through December 31, 2027. For 2028, the threshold amount will be increased by the percentage increase in the Medicare Economic Index (“MEI”) for 2028 and in 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 for calendar year 2011. The MPPR applied to all outpatienttherapy services paid under Medicare Part B — occupational therapy, physical therapy and speech-language pathology. Under the policy, the Medicare program pays 100% of thepractice expense component of the Relative Value Unit (‘‘RVU’’) for the therapy procedure with the highest practice expense RVU, then reduces the payment for the practice expensecomponent for the second and subsequent therapy procedures or units of service furnished during the same day for the same patient, regardless of whether those therapy services arefurnished in separate sessions. Since 2013, the practice 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 additional data on patient function during the course of therapyin order to better understand patient conditions and outcomes. All practice settings that provide outpatient therapy services are required to include this data on the claim form. Since2013, therapists have been required to report new codes and modifiers on the claim form that reflect a patient’s functional limitations and goals at initial evaluation, periodicallythroughout care, and at discharge. Reporting of 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 a modifier indicating the service was furnished by atherapy 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 paymentamount otherwise applicable for the service.8Table of ContentsStatutes, regulations, and payment rules governing the delivery of therapy services to Medicare beneficiaries are complex and subject to interpretation. We believe that we are incompliance, in all material respects, with all applicable laws and regulations and are not aware of any pending or threatened investigations involving allegations of potential wrongdoingthat would have a material effect on the our financial statements as of December 31, 2020. Compliance with such laws and regulations can be subject to future government review andinterpretation, as well as significant regulatory action including fines, penalties, and exclusion from the Medicare program. For year ended December 31, 2020, net patient revenues fromMedicare were approximately $101.6 million.REGULATION AND HEALTHCARE REFORMNumerous federal, state and local regulations regulate healthcare services and those who provide them. Some states into which we may expand have laws requiring facilitiesemploying health professionals and providing health-related services to be licensed and, in some cases, to obtain a certificate of need (that is, demonstrating to a state regulatoryauthority the need for, and financial feasibility of, new facilities or the commencement of new healthcare services). Only one of the states in which we currently operate requires acertificate of need for the operation of our physical therapy business functions. Our therapists and/or clinics, however, are required to be licensed, as determined by the state in whichthey provide services. Failure to obtain or maintain any required certificates, approvals or licenses could have a material adverse effect on our business, financial condition and resultsof operations.Regulations Controlling Fraud and Abuse. Various federal and state laws regulate financial relationships involving providers of healthcare services. These laws include Section1128B(b) of the Social Security Act (42 U.S. C. § 1320a-7b[b]) (the “Fraud and Abuse Law”), under which civil and criminal penalties can be imposed upon persons who, among otherthings, offer, solicit, pay or receive remuneration in return for (i) the referral of patients for the rendering of any item or service for which payment may be made, in whole or in part, by aFederal health care program (including Medicare and Medicaid); or (ii) purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, ordering any good, facility,service, or item for which payment may be made, in whole or in part, by a Federal health care program (including Medicare and Medicaid). We believe that our business procedures andbusiness arrangements are in compliance with these provisions. However, the provisions are broadly written and the full extent of their specific application to specific facts andarrangements to which we are a party is uncertain and difficult to predict. In addition, several states have enacted state laws similar to the Fraud and Abuse Law, which may be morerestrictive than the federal Fraud and Abuse Law.The Office of the Inspector General (“OIG”) of HHS has issued regulations describing compensation financial arrangements that fall within a “Safe Harbor” and, therefore, are notviewed as illegal remuneration under the Fraud and Abuse Law. Failure to fall within a Safe Harbor does not mean that the Fraud and Abuse Law has been violated; however, the OIGhas indicated that failure to fall within 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 importance and application of certain aspects of the Fraud andAbuse Law. One of the OIG special fraud alerts related to the rental of space in physician offices by persons or entities to which the physicians refer patients. The OIG’s stated concernin these arrangements is that rental payments may be disguised kickbacks to the physician-landlords to induce referrals. We rent clinic space for some of our clinics from referringphysicians and have taken the steps that we believe are necessary to ensure that all leases comply to the extent possible and applicable, with the space rental Safe Harbor to the Fraudand Abuse Law.One of the OIG’s special advisory bulletins addressed certain complex contractual arrangements for the provision of items and services. This special advisory bulletin identifiedseveral characteristics commonly exhibited by suspect arrangements, the existence of one or more of which could indicate a prohibited arrangement to the OIG. Generally, the indicia of asuspect contractual joint venture 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 to the Owner’s existing patients, with another party whocurrently 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 patients under the control or influence of the Owner).9Table of ContentsLittle or No Bona Fide Business Risk. The Owner’s primary contribution to the venture is referrals; it makes little or no financial or other investment in the business, delegating the entireoperation to the Manager/Supplier, while retaining profits generated from its captive referral base.Status of the Manager/Supplier. The Manager/Supplier is a would-be competitor of the Owner’s new line of business and would normally compete for the captive referrals. It has thecapacity to provide virtually identical services in its own right and bill insurers and patients for them in its own name.Scope of Services Provided by the Manager/Supplier. The Manager/Supplier provides all, or many, of the new business’ key services.Remuneration. The practical effect of the arrangement, viewed in its entirety, is to provide the Owner the opportunity to bill insurers and patients for business otherwise provided by theManager/Supplier. The remuneration from the venture to the Owner (i.e., the profits of the venture) takes into account the value and volume of business the Owner generates.Exclusivity. The arrangement bars the Owner from providing items or services to any patients other than those coming from Owner and/or bars the Manager/Supplier from providingservices in its own right to the Owner’s patients.Due to the nature of our business operations, many of our management service arrangements exhibit one or more of these characteristics. However, we believe we have taken stepsregarding the structure of such arrangements as necessary to sufficiently distinguish them from these suspect ventures, and to comply with the requirements of the Fraud and AbuseLaw. However, if the OIG believes we have entered into a prohibited contractual joint venture, it could have an adverse effect on our business, financial condition and results ofoperations.Although the business of managing physician-owned and hospital-owned physical therapy facilities is regulated by the Fraud and Abuse Law, the manner in which we contractwith such facilities often falls outside the complete scope of available Safe Harbors. We believe our arrangements comply with the Fraud and Abuse Law, even though federal courtsprovide limited guidance as to the application of the Fraud and Abuse Law to these arrangements. If our management contracts are held to violate the Fraud and Abuse Law, it 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”) prohibit referrals by a physician of “designated health services”which are payable, in whole or in part, by Medicare or Medicaid, to an entity in which the physician or the physician’s immediate family member has an investment interest or otherfinancial relationship, subject to several exceptions. Unlike the Fraud and Abuse Law, the Stark Law is a strict liability statute. Proof of intent to violate the Stark Law is not required.Physical therapy and occupational therapy services are among the “designated health services”. Further, the Stark Law has application to our management contracts with individualphysicians and physician groups, as well as, any other financial relationship between us and referring physicians, including medical advisor arrangements and any financial transactionresulting from a clinic acquisition. The Stark Law also prohibits billing for services rendered pursuant to a prohibited referral. Several states have enacted laws similar to the Stark Law.These state laws may cover all (not just Medicare and Medicaid) patients. As with the Fraud and Abuse Law, we consider the Stark Law in planning our clinics, establishing contractualand other arrangements with physicians, marketing and other activities, and believe that our operations are in compliance with the Stark Law. If we violate the Stark Law or any similarstate laws, our financial results and operations could be adversely affected. Penalties for violations include denial of payment for the services, significant civil monetary penalties, andexclusion from the Medicare and Medicaid programs.HIPAA. In an effort to further combat healthcare fraud and protect patient confidentially, Congress included several anti-fraud measures in the Health Insurance Portability andAccountability Act of 1996 (“HIPAA”). HIPAA created a source of funding for fraud control to coordinate federal, state and local healthcare law enforcement programs, conductinvestigations, provide guidance to the healthcare industry concerning fraudulent healthcare practices, and establish a national data bank to receive and report final adverse actions.HIPAA also criminalized certain forms of health fraud against all public and private payors. Additionally, HIPAA mandates the adoption of standards regarding the exchange ofhealthcare information in an effort to ensure the privacy and electronic security of patient information and standards relating to the privacy of health information. Sanctions for failing tocomply with HIPAA include criminal penalties and civil sanctions. In February of 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was signed into law. Title XIII ofARRA, the Health Information Technology for Economic and Clinical Health Act (“HITECH”), provided for substantial Medicare and Medicaid incentives for providers to adoptelectronic health records (“EHRs”) and grants for the development of health information exchange (“HIE”). Recognizing that HIE and EHR systems will not be implemented unless thepublic 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 securityrequirements under HIPAA. Most notable are the mandatory 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/or regulations applicable in the use and disclosure ofindividually identifiable health information that can be more stringent than comparable provisions under HIPAA.10Table of ContentsWe 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 in the United States. Congress, state legislatures andthe private sector continue to review and assess alternative healthcare delivery and payment systems. Potential alternative approaches could include mandated basic healthcare benefits,controls on healthcare spending through limitations on the growth of private health insurance premiums and Medicare and Medicaid spending, the creation of large insurancepurchasing groups, and price controls. Legislative debate is expected to continue in the future and market forces are expected to demand only modest increases or reduced costs. Forinstance, managed care entities are demanding lower reimbursement 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 reasonably predict what impact the adoption of federal or statehealthcare reform measures or future private sector reform may have on our business.COMPETITIONThe healthcare industry, including the physical therapy business, and the industrial injury prevention services business are highly competitive. The physical therapy business aswell as the industrial injury prevention services business are both highly fragmented with no company having a significant market share nationally. We believe that we are one of thelargest national outpatient physical therapy services providers.Competitive factors affecting our business include quality of care, cost, treatment outcomes, convenience of location, and relationships with, and ability to meet the needs of,referral and payor sources. Our clinics compete, directly or indirectly, with many types of healthcare providers including the physical therapy departments of hospitals, private therapyclinics, physician-owned therapy clinics, and chiropractors. We may face more intense competition if consolidation of the therapy industry continues.We believe that our strategy of providing key therapists in a community with an opportunity to participate in ownership or clinic profitability provides us with a competitiveadvantage by helping to ensure the commitment of local management to the success of the clinic.We also believe that our competitive position is enhanced by our strategy of locating our clinics, when possible, on the ground floor of buildings and shopping centers withnearby parking, thereby making the clinics more easily accessible to patients. We offer convenient hours. We also attempt to make the decor in our clinics less institutional and moreaesthetically pleasing than traditional hospital clinics.ENFORCEMENT ENVIRONMENTIn recent years, federal and state governments have launched several initiatives aimed at uncovering behavior that violates the federal civil and criminal laws regarding false claimsand fraudulent billing and coding practices. Such laws require providers to adhere to complex reimbursement requirements regarding proper billing and coding in order to becompensated for their services by government payors. Our compliance program requires adherence to applicable law and promotes reimbursement education and training; however, adetermination that our clinics’ billing and coding practices are false or fraudulent could have a material adverse effect 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 ourcompliance with these programs and applicable laws and regulations. In addition, our Corporate Integrity Agreement, which expired in February 2021, required annual audits to beperformed by an independent review organization on a small sample of our clinics, the results of which were reported to the federal government. See “-Compliance Program – CorporateIntegrity Agreement” for more on the Corporate Integrity Agreement (“CIA”). Managed care payors may also reserve the right to conduct audits. An adverse inspection, review, audit orinvestigation could result in: refunding amounts we have been paid; fines penalties and/or revocation of billing privileges for the affected clinics; the imposition of a new CorporateIntegrity Agreement; exclusion from participation in the Medicare or Medicaid programs or one or more managed care payor network; or damage to our reputation.11Table of ContentsWe and our clinics are subject to federal and state laws prohibiting entities and individuals from knowingly and willfully making claims to Medicare, Medicaid and othergovernmental 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 thegovernment against healthcare providers such as us. As such suits are generally filed under seal with a court to allow the government adequate time to investigate and determinewhether it will intervene in the action, the implicated healthcare providers often are unaware of the suit until the government has made its determination and the seal is lifted. Violations oralleged 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) significantfinancial or criminal sanctions, resulting in the possibility of substantial financial penalties for small billing errors that are replicated in a large number of claims, as each individual claimcould be deemed a separate violation. In addition, many states also have enacted similar statutes, which may include criminal penalties, substantial fines, and treble damages.COMPLIANCE PROGRAMOur Compliance Program. Our ongoing success depends upon our reputation for quality service and ethical business practices. We operate in a highly regulated environmentwith many federal, state and local laws and regulations. We take a proactive interest in understanding and complying with the laws and regulations that apply to our business.Our Board of Directors (the “Board”) has adopted a Code of Business Conduct and Ethics and a set of Corporate Governance Guidelines to clarify the ethical standards underwhich the Board and management carry out their duties. In addition, the Board has created a Compliance Committee of the Board (“Compliance Committee”) whose purpose is to assistthe Board in discharging their oversight responsibilities with respect to compliance with federal and state laws and regulations relating to healthcare.We have issued a Compliance Manual and created compliance training materials, hand-outs and an on-line testing program. These tools were prepared to ensure that everyemployee of our Company and subsidiaries has a clear understanding of our mutual commitment to high standards of professionalism, honesty, fairness and compliance with the law inconducting business. These standards are administered by our Chief Compliance Officer (“CCO”), who has the responsibility for the day-to-day oversight, administration anddevelopment of our compliance program. The CCO, internal and external counsel, management and the Compliance Committee review our policies and procedures for our complianceprogram from time to time in an effort to improve operations and to ensure compliance with requirements of standards, laws and regulations and to reflect the on-going compliance focusareas 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 compliance and handling enforcement and discipline.Committees. Our Compliance Committee, appointed by the Board, consists of four independent directors. The Compliance Committee has general oversight of our Company’scompliance with the legal and regulatory requirements regarding healthcare operations. The Compliance Committee relies on the expertise and knowledge of management, the CCO andother compliance and legal personnel. The CCO regularly communicates with the Chairman of the Compliance Committee. The Compliance Committee meets at least four times a year ormore frequently as necessary to carry out its responsibilities and reports regularly to the Board regarding its actions and recommendations.We also have an Internal Compliance Committee, which is comprised of Company leaders in the areas of operations, clinical services, finance, human resources, legal, informationtechnology and credentialing. The Internal Compliance Committee has the responsibility for evaluating and assessing Company areas of risk relating to compliance with federal andstate healthcare laws, and generally to assist the CCO. The Internal Compliance Committee meets at least four times a year or more frequently as necessary to carry out itsresponsibilities. In addition, management has appointed a team to address our Company’s compliance with HIPAA. The HIPAA team consists of a security officer and employees fromour legal, information systems, finance, operations, compliance, business services and human resources departments. The team prepares assessments and makes recommendationsregarding operational changes and/or new systems, if needed, to comply with HIPAA.Each clinic certified as a Medicare Rehabilitation Agency has a formally appointed governing body composed of a member of our management and the director/administrator of theclinic. The governing body retains legal responsibility for the overall conduct of the clinic. The members confer regularly and discuss, among other issues, clinic compliance withapplicable laws and regulations. In addition, there are Professional Advisory Committees which serve as Infection Control Committees. These committees meet in the facilities andfunction as advisors.12Table of ContentsWe have in place a Risk Management Committee consisting of, among others, the CCO, the Vice President of Human Resources, and other legal, compliance and operationspersonnel. This committee reviews and monitors all employee and patient incident reports and provides clinic personnel with actions to be taken in response to the reports.Reporting Violations. In order to facilitate our employees’ ability to report in confidence, anonymously and without retaliation any perceived improper work-related activities,accounting irregularities and other violations of our compliance program, we have set up an independent national compliance hotline. The compliance hotline is available to receiveconfidential reports of wrongdoing Monday through Friday (excluding holidays), 24 hours a day. The compliance hotline is staffed by experienced third party professionals trained toutilize utmost care and discretion in handling sensitive issues and confidential information. The information received is documented and forwarded timely to the CCO, who, togetherwith the Compliance Committee, has the power and resources to investigate and resolve matters of improper conduct.Educating Our Employees. We utilize numerous methods to train our employees in compliance related issues, including an online learning management system. All employeescomplete a comprehensive training program comprised of numerous modules relating to our business and proper practices when newly hired and annually thereafter. Thedirectors/administrators also provide periodic “refresher” training for existing employees and one-on-one comprehensive training with new hires. The corporate compliance groupresponds to questions from clinic personnel and conducts frequent teleconference meetings, 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 meeting Medicare Conditions of Participation Standards andother compliance requirements. During follow up training with the director/administrator of the clinic, compliance department staff explain various details regarding requirements andcompliance standards. Compliance staff will remain in contact with the director/administrator while the clinic is implementing compliance standards and will provide any assistancerequired. All new office managers receive training (including Medicare, regulatory and corporate compliance, insurance billing, charge entry and transaction posting and coding, daily,weekly and monthly accounting reports) from the training staff at the corporate office. The corporate compliance group will assist in continued compliance, including guidance to theclinic staff with regard to Medicare certifications, state survey requirements and responses to any inquiries from regulatory agencies.Monitoring and Auditing Clinic Operational Compliance. We have in place audit programs and other procedures to monitor and audit clinic operational compliance withapplicable policies and procedures. We employ internal auditors who, as part of their job responsibilities, conduct periodic audits of each clinic. Most clinics are audited at least onceevery 24 months and additional focused audits are performed as deemed necessary. During these audits, particular attention is given to compliance with Medicare and internal policies,Federal and state laws and regulations, third party payor requirements, and patient chart documentation, billing, reporting, record keeping, collections and contract procedures. Theaudits are conducted on site or remotely and include interviews with the employees involved in management, operations, billing and accounts receivable.Formal audit reports are prepared and reviewed with corporate management and the Compliance Committee. Each clinic director/administrator receives a letter instructing them ofany corrective measures required. Each clinic director/administrator then works with the compliance team and operations to ensure such corrective measures are achieved.Handling Enforcement and Discipline. It is our policy that any employee who fails to comply with compliance program requirements or who negligently or deliberately fails tocomply with known laws or regulations specifically addressed in our compliance program should be subject to disciplinary action up to and including discharge from employment. TheCompliance Committee, compliance staff, human resources staff and management investigate violations of our compliance program and impose disciplinary action as consideredappropriate.Corporate Integrity Agreement. We also performed certain additional compliance related functions pursuant to CIA that we entered into with the OIG. The CIA, which becameeffective as of December 21, 2015, and expired in February 2021, outlined certain specific requirements relating to compliance oversight and program implementation, as well as periodicreporting. In addition, pursuant to the CIA, an independent review organization annually performed a Medicare billing and coding audit on a small group of randomly selected Companyclinics. Our Compliance Program was modified so as to comply with the requirements of the CIA. The term of the CIA was five years and expired in February 2021.The CIA was entered into as part of the settlement by one of our Subsidiaries with the U. S. Department of Justice related to certain Medicare billings that occurred between 2007and 2009 at a single outpatient physical therapy clinic. The settlement resolved claims relating to whether certain physical therapy services provided to a limited number of Medicarepatients at the clinic satisfied all of the criteria for payment by the Medicare program, including proper supervision of physical therapist assistants. The Subsidiary paid $718,000 in2015 to resolve the matter, and we and the Subsidiary entered into the CIA. The Subsidiary no longer conducts any business.13Table of ContentsEMPLOYEESOur strategy to acquire physical therapy practices, develop outpatient physical therapy clinics as satellites within existing partnerships, acquire industrial injury preventionbusinesses, and to continue to support the growth of our existing businesses requires a talented workforce that can grow with us. As of December 31, 2020, we employed approximately4,630 people nationwide, of which approximately 2,550 were full-time employees.It is crucial that we continue to attract and retain top talent. To attract and retain talented employees, we strive to make our corporate office and all of our practices and businesses adiverse and healthy workplace, with opportunities for our employees to receive continuing education, skill development, encouragement to grow and develop their career, all supportedby competitive compensation, incentives, and benefits. Our clinical professionals are all licensed and a vast majority have advanced degrees. Our operational leadership teams havelong-standing relationships with local and regional universities, professional affiliations, and other applicable sources that provide our practices with a talent pipeline.We provide competitive compensation and benefits programs to help meet our employees' needs in the practices and communities in which they serve. These programs (which canvary by practice and employment classification) include incentive compensation plans, a 401(k) plan, healthcare and insurance benefits, health savings and flexible spending accounts,paid time off, family leave, education assistance, mental health, and other employee assistance benefits.We invest resources to develop the talent needed to support our business strategy. Resources include a multitude of training and development programs delivered internally andexternally, online and instructor-led, and on-the-job learning formats.We expect to continue adding personnel in the future as we focus on potential acquisition targets and organic growth opportunities.Beginning in March 2020, we have supported our employees and government efforts to curb the COVID-19 pandemic through a multifaceted communication, infrastructure, andbehavior modification and enforcement effort:•Establishing clear COVID-19 policies, health and safety protocols, and routine updates to our employees and patients;•Increasing cleaning protocols and hand hygiene across all locations;•Providing additional personal protective equipment and cleaning supplies;•Implementing protocols to address actual and suspected COVID-19 cases and potential exposures;•Limiting non-essential travel for all employees;•Adjusting schedules and workload to permit remote working where possible;•Decreasing density, increasing social distancing and restricting visitors in our clinics and offices for employees working onsite; and•Requiring masks to be worn by all individuals in all locations.Additionally, due to the impact of COVID-19 on our operations, we have generated efficiencies in staffing, including limiting hiring to critical business roles, reducing scheduledhours, furloughs, and reductions-in-force. Through our employees' commitment to following operational protocols and their continued efforts to provide quality services to our patients,we have seen much of the workforce and our operations return to pre-pandemic levels. Throughout 2020, we conducted approximately 2,300 furloughs and reductions-in-force and haveseen approximately 1,200 of these employees or 52%, return back to work.AVAILABLE INFORMATIONOur annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d)of the Exchange Act are made available free of charge on our internet website at www.usph.com as soon as reasonably practicable after we electronically file such material with, orfurnish it to, the SEC.14Table of ContentsITEM 1A.RISK FACTORS.Our business, operations and financial condition are subject to various risks. Some of these risks are described below, and readers of this Annual Report on Form 10-K should takesuch risks into account in evaluating our Company or making any decision to invest in us. This section does not describe all risks applicable to our Company, our industry or ourbusiness, and it is intended only as a summary of material factors affecting our business.Risks related to our business and operationsWe are subject to risks associated with public health crises and epidemics/pandemics, such as the novel strain of coronavirus(“COVID-19”).Our operations expose us to risks associated with public health crises and epidemics/pandemics, such as COVID-19 that has spread globally. Since February 2020, the continuedspread has led to disruption and volatility in the global capital markets, which increases the cost of, and adversely impacts access to, capital and increases economic uncertainty. Thepandemic has caused an economic slowdown of potentially extended duration, and it is possible that it could cause a global recession.COVID-19 is having, and will continue to have, an adverse impact on our operations and supply chains, including a temporary loss of physical therapists and other employees whoare infected or quarantined for a period of time, an increase in cancellations of physical therapy patient appointments and a decline in the scheduling of new or additional patientappointments. Due to these impacts and measures, we have experienced, and will continue to experience, significant and unpredictable impact on employees and reductions andcancellations of our patient visits.Impact on the business and cash reserves resulting from retirement or resignation of key partners and resulting purchase of their non-controlling interests (minority interests)As described in Note 5, the redeemable non-controlling interests in our partnerships are held by our partners. Upon the occurrence of certain events, such as retirement or othertermination of employment, partners from acquired partnerships may have the right to exercise a “put” to cause us to purchase their redeemable non-controlling interests. Depending onthe amount and timing of the exercise of any “put” rights, the funds required could have an adverse impact on our capital structure.Healthcare reform legislation may affect our business.In recent years, many legislative proposals have been introduced or proposed in Congress and in some state legislatures that would affect major changes in the healthcare system,either nationally or at the state level. At the federal level, Congress has continued to propose or consider healthcare budgets that substantially reduce payments under the Medicareprograms. See “Business- Sources of Revenue” in Item 1 for more information. The ultimate content, timing or effect of any healthcare reform legislation and the impact of potentiallegislation on us is uncertain and difficult, if not impossible, to predict. That impact may be material to our business, financial condition or results of operations.Our operations are subject to extensive regulation.The healthcare industry is subject to extensive federal, state and local laws and regulations relating to:•facility and professional licensure/permits, including certificates of need;•conduct of operations, including financial relationships among healthcare providers, Medicare fraud and abuse, and physician self-referral;•addition of facilities and services; and•billing and payment for services.In recent years, there have been heightened coordinated civil and criminal enforcement efforts by both federal and state government agencies relating to the healthcare industry.We believe we are in substantial compliance with all laws, but differing interpretations or enforcement of these laws and regulations could subject our current practices to allegations ofimpropriety or illegality or could require us to make changes in our methods of operations, facilities, equipment, personnel, services and capital expenditure programs and increase ouroperating expenses. If we fail to comply with these extensive laws and government regulations, we could become ineligible to receive government program reimbursement, suffer civil orcriminal penalties or be required to make significant changes to our operations. In addition, we could be forced to expend considerable resources responding to an investigation or otherenforcement action under these laws or regulations. For a more complete description of certain of these laws and regulations, see “Business—Regulation and Healthcare Reform” and“Business – Compliance Program” in Item 1.15Table of ContentsThe healthcare industry is subject to extensive federal, state and local laws and regulations relating to (1) facility and professional licensure, including certificates of need, (2)conduct of operations, including financial relationships among healthcare providers, Medicare fraud and abuse and physician self-referral, (3) addition of facilities and services andenrollment of newly developed 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 and regulations. While our facilities intend to complywith the existing licensing, Medicare certification requirements and accreditation standards, there can be no assurance that these regulatory authorities will determine that all applicablerequirements are fully met at any given time. A determination by any of these regulatory authorities that a facility is not in compliance with these requirements could lead to theimposition of requirements that the facility takes corrective action, assessment of fines and penalties, or loss of licensure or Medicare certification of accreditation. These consequencescould have an adverse effect on us.Decreases in Medicare reimbursement rates and payment reductions applied to the second and subsequent therapy services may adversely 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 wasapplied 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 budgetneutrality adjustment. For services provided in 2020 through 2025, a 0.0% percent update is expected to 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 for office/outpatient evaluation and management (E/M)codes and cuts to other codes to maintain budget neutrality of the MPFS. Under the 2021 MPFS Final Rule, reimbursement for the codes applicable to physical/occupational therapyservices were to be reduced by approximately 9% in the aggregate. The 9% reduction in payment was addressed by the Consolidated Appropriations Act, 2021 (“Act”) signed into lawon December 27, 2020. Based on various provisions in the Act, we now estimate that the Medicare rate reduction for the full year of 2021 will be approximately 3.5% in aggregate.Beginning in 2021, payments to individual therapists (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 electronichealth records. Under the MIPS requirements, a provider's performance is assessed according to established performance standards each year and then is used to determine anadjustment factor that is applied to the professional's payment for the corresponding payment year. The provider’s MIPS performance in 2019 will determine the payment adjustment in2021. Each year from 2019 through 2024, professionals who receive a significant share of their revenues through an alternate payment model (“APM”), (such as accountable careorganizations or bundled payment arrangements) that involves risk of financial losses and a quality measurement component will receive a 5% bonus in the corresponding paymentyear. The bonus payment for APM participation is intended to encourage participation and testing of new APMs and to promote the alignment of incentives across payors. Thespecifics 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 federalspending by approximately $1.2 trillion. Payments to Medicare providers are subject to these automatic spending reductions, subject to a 2% cap. On April 1, 2013, a 2% reduction toMedicare payments was implemented. The Bipartisan Budget Act of 2015, enacted on November 2, 2015, extended the 2% reductions to Medicare payments through fiscal year 2025. TheBipartisan Budget Act of 2018, enacted on February 9, 2018, extends the 2% reductions to Medicare payments through fiscal year 2027. The Coronavirus Aid, Relief, and EconomicSecurity (CARES) Act suspended the 2% payment reduction Medicare payments for dates of service from May 1, 2020, through December 31, 2020. The Consolidated AppropriationsAct, 2021 further suspended the 2% payment reduction until March 31, 2021.Under the Middle Class Tax Relief and Job Creation Act of 2012 (‘‘MCTRA’’), since October 1, 2012, patients who met or exceeded $3,700 in therapy expenditures during a calendaryear have been subject to a manual medical review to determine whether applicable payment criteria are satisfied. The $3,700 threshold is applied to Physical Therapy and SpeechLanguage Pathology Services; a separate $3,700 threshold is applied to the Occupational Therapy. The MACRA directed CMS to modify the manual medical review process such thatthose reviews will no longer apply to all claims exceeding the $3,700 threshold and instead will be determined on a targeted basis based on a variety of factors that CMS considersappropriate The Bipartisan Budget Act of 2018 extends the targeted medical review indefinitely, but reduces the threshold to $3,000 through December 31, 2027. For 2028, the thresholdamount will be increased by the percentage increase in the Medicare Economic Index (“MEI”) for 2028 and in subsequent years the threshold amount will increase based on thecorresponding percentage increase in the MEI for such subsequent year.16Table of ContentsCMS adopted a multiple procedure payment reduction (‘‘MPPR’’) for therapy services in the final update to the MPFS for calendar year 2011. The MPPR applied to all outpatienttherapy services paid under Medicare Part B — occupational therapy, physical therapy and speech-language pathology. Under the policy, the Medicare program pays 100% of thepractice expense component of the Relative Value Unit (‘‘RVU’’) for the therapy procedure with the highest practice expense RVU, then reduces the payment for the practice expensecomponent for the second and subsequent therapy procedures or units of service furnished during the same day for the same patient, regardless of whether those therapy services arefurnished in separate sessions. Since 2013, the practice 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 additional data on patient function during the course of therapy inorder to better understand patient conditions and outcomes. All practice settings that provide outpatient therapy services are required to include this data on the claim form. Since 2013,therapists have been required to report new codes and modifiers on the claim form that reflect a patient’s functional limitations and goals at initial evaluation, periodically throughoutcare, and at discharge. Reporting of 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 a modifier indicating the service was furnished by a therapyassistant. 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 amountotherwise applicable for the service.Statutes, regulations, and payment rules governing the delivery of therapy services to Medicare beneficiaries are complex and subject to interpretation. We believe that we are incompliance, in all material respects, with all applicable laws and regulations and are not aware of any pending or threatened investigations involving allegations of potential wrongdoingthat would have a material effect on the our financial statements as of December 31, 2020. Compliance with such laws and regulations can be subject to future government review andinterpretation, as well as significant regulatory action including fines, penalties, and exclusion from the Medicare program. For year ended December 31, 2020, net patient revenues fromMedicare were approximately $101.6 million.Given the history of frequent revisions to the Medicare program and its reimbursement rates and rules, we may not continue to receive reimbursement rates from Medicare thatsufficiently compensate us for our services or, in some instances, cover our operating costs. Limits on reimbursement rates or the scope of services being reimbursed could have amaterial adverse effect on our revenue, financial condition and results of operations. Additionally, any delay or default by the federal or state governments in making Medicare and/orMedicaid reimbursement payments could materially and, adversely, affect our business, financial condition and results of operations.We expect the federal and state governments to continue their efforts to contain growth in Medicaid expenditures, which could adversely affect our revenue and profitability.Medicaid spending has increased rapidly in recent years, becoming a significant component of state budgets. This, combined with slower state revenue growth, has led both thefederal government and many states to institute measures aimed at controlling the growth of Medicaid spending, and in some instances reducing aggregate Medicaid spending. Weexpect these state and federal efforts to continue for the foreseeable future. Furthermore, not all of the states in which we operate, most notably Texas, have elected to expand Medicaidas part of federal healthcare reform legislation. There can be no assurance that the program, on the current terms or otherwise, will continue for any particular period of time beyond theforeseeable future. If Medicaid reimbursement rates are reduced or fail to increase as quickly as our costs, or if there are changes in the rules governing the Medicaid program that aredisadvantageous to our businesses, our business and results of operations could be materially and adversely affected.Revenue we receive from Medicare and Medicaid is subject to potential retroactive reduction.Payments we receive from Medicare and Medicaid can be retroactively adjusted after examination during the claims settlement process or as a result of post-payment audits. Payorsmay disallow our requests for reimbursement, or recoup amounts previously reimbursed, based on determinations by the payors or their third-party audit contractors that certain costsare not reimbursable because either adequate or additional documentation was not provided or because certain services were not covered or deemed to not be medically necessary.Significant adjustments, recoupments or repayments of our Medicare or Medicaid revenue, and the costs associated with complying with investigative audits by regulatory andgovernmental authorities, could adversely affect our financial condition and results of operations.Additionally, from time to time we become aware, either based on information provided by third parties and/or the results of internal audits, of payments from payor sources thatwere either wholly or partially in excess of the amount that we should have been paid for the service provided. Overpayments may result from a variety of factors, including insufficientdocumentation supporting the services rendered or medical necessity of the services or other failures to document the satisfaction of the necessary conditions of payment. We arerequired by law in most instances to refund the full amount of the overpayment after becoming aware of it, and failure to do so within requisite time limits imposed by the law could leadto significant fines and penalties being imposed on us. Furthermore, our initial billing of and payments for services that are unsupported by the requisite documentation andsatisfaction of any other conditions of payment, regardless of our awareness of the failure at the time of the billing or payment, could expose us to significant fines and penalties. We,and/or certain of our operating companies, could also be subject to exclusion from participation in the Medicare or Medicaid programs in some circumstances as well, in addition to anymonetary or other fines, penalties or sanctions that we may incur under applicable federal and/or state law. Our repayment of any such amounts, as well as any fines, penalties or othersanctions that we may incur, could be significant and could have a material and adverse effect on our results of operations and financial condition.17Table of ContentsFrom time to time we are also involved in various external governmental investigations, audits and reviews. Reviews, audits and investigations of this sort can lead to governmentactions, which can result in the assessment of damages, civil or criminal fines or penalties, or other sanctions, including restrictions or changes in the way we conduct business, loss oflicensure or exclusion from participation in government programs. Failure to comply with applicable laws, regulations and rules could have a material and adverse effect on our results ofoperations and financial condition. Furthermore, becoming subject to these governmental investigations, audits and reviews can also require us to incur significant legal and documentproduction expenses as we cooperate with the government authorities, regardless of whether the particular investigation, audit or review leads to the identification of underlying issues.As a result of increased post-payment reviews of claims we submit to Medicare for our services, we may incur additional costs and may be required to repay amounts already paidto us.We are subject to regular post-payment inquiries, investigations and audits of the claims we submit to Medicare for payment for our services. These post-payment reviews haveincreased as a result of government cost-containment initiatives. These additional post-payment reviews may require us to incur additional costs to respond to requests for records andto pursue the reversal of payment 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 HealthcareReform” in Item 1.An economic downturn, state budget pressures, sustained unemployment and continued deficit spending by the federal government may result in a reduction in reimbursement andcovered services.An economic downturn, including the consequences of a pandemic, such as COVID-19, could have a detrimental effect on our revenues. Historically, state budget pressures havetranslated into reductions in state spending. Given that Medicaid outlays are a significant component of state budgets, we can expect continuing cost containment pressures onMedicaid outlays for our services in the states in which we operate. In addition, an economic downturn, coupled with sustained unemployment, may also impact the number of enrolleesin managed care programs as well as the profitability of managed care companies, which could result in reduced reimbursement rates.The existing federal deficit, as well as deficit spending by federal and state governments as the result of adverse developments in the economy or other reasons, can lead tocontinuing pressure to reduce governmental expenditures for other purposes, including government-funded programs in which we participate, such as Medicare and Medicaid. Suchactions in turn may adversely affect our results 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 2020, approximately 68.4% of our revenues were derived collectively frommanaged care plans, commercial health insurers, workers’ compensation payors, and other private pay revenue sources while approximately 31.6% of our revenues were derived fromMedicare and Medicaid. Initiatives undertaken by industry and government to contain healthcare costs affect the profitability of our clinics. These payors attempt to control healthcarecosts by contracting with healthcare providers to obtain services on a discounted basis. We believe that this trend will continue and may limit reimbursement for healthcare services. Ifinsurers or managed care companies from whom we receive substantial payments were to reduce the amounts they pay for services, our profit margins may decline, or we may losepatients if we choose not to renew our contracts with these insurers at lower rates. In addition, in certain geographical areas, our clinics must be approved as providers by key healthmaintenance organizations and preferred provider plans. Failure to obtain or maintain these approvals would adversely affect our financial results.In recent years, through legislative and regulatory actions, the federal government has made substantial changes to various payment systems under the Medicare program. See“Business—Sources of Revenue” in Item 1 for more information including changes to Medicare reimbursement. Additional reforms or other changes to these payment systems may beproposed or adopted, either by the U.S. Congress or by CMS, including bundled payments, outcomes-based payment methodologies and a shift away from traditional fee-for-servicereimbursement. If revised regulations are adopted, the availability, methods and rates of Medicare reimbursements for services of the type furnished at our facilities could change. Someof these changes and proposed changes could adversely affect our business strategy, operations and financial results.18Table of ContentsWe face inspections, reviews, audits and investigations under federal and state government programs and contracts. These audits could have adverse findings that maynegatively 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 ourcompliance with these programs and applicable laws and regulations. Managed care payors may also reserve the right to conduct audits. An adverse inspection, review, audit orinvestigation 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 payor networks;•expansion of the scope of our Corporate Integrity Agreement or the imposition of a new 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 material adverse effect on our business and operatingresults.Our facilities are subject to extensive federal and state laws and regulations relating to the privacy of individually identifiable information.HIPAA required the HHS to adopt standards to protect the privacy and security of individually identifiable health-related information. The department released final regulationscontaining privacy standards in 2000 and published revisions to the final regulations in 2002. The privacy regulations extensively regulate the use and disclosure of individuallyidentifiable health-related information. The regulations also provide patients with significant rights related to understanding and controlling how their health information is used ordisclosed. The security regulations require healthcare providers to implement administrative, physical and technical practices to protect the security of individually identifiable healthinformation that is maintained or transmitted electronically. HITECH, which was signed into law in 2009, enhanced the privacy, security and enforcement provisions of HIPAA by, amongother things establishing security breach notification requirements, allowing enforcement of HIPAA by state attorneys general, and increasing penalties for HIPAA violations. Violationsof 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 privacy concerns, including unauthorized access or theft ofpersonal information. State statutes and regulations vary from state to state. Lawsuits, including class actions and action by state attorneys general, directed at companies that haveexperienced a privacy or security 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 variouspenalties and damages and may be required to incur costs to mitigate the impact of the breach on affected individuals.In conducting our business, we are required to comply with applicable laws regarding fee-splitting and the corporate practice of medicine.Some states prohibit the “corporate practice of therapy” that restricts business corporations from providing physical therapy services through the direct employment of therapistphysicians or from exercising control over medical decisions by therapists. The laws relating to corporate practice vary from state to state and are not fully developed in each state inwhich we have facilities. Typically, however, professional corporations owned and controlled by licensed professionals are exempt from corporate practice restrictions and may employtherapists to furnish professional services. Those professional corporations may be managed by business corporations, such as the Company.19Table of ContentsSome states also prohibit entities from engaging in certain financial arrangements, such as fee-splitting, with physicians or therapists. The laws relating to fee-splitting also varyfrom state to state and are not fully developed. Generally, these laws restrict business arrangements that involve a physician or therapist sharing medical fees with a referral source, butin some states, these laws have been interpreted to extend to management agreements between physicians or therapists and business entities under some circumstances.We believe that our current and planned activities do not constitute fee-splitting or the unlawful corporate practice of medicine as contemplated by these state laws. However,there can be no assurance that future interpretations of such laws will not require structural and organizational modification of our existing relationships with the practices. If a court orregulatory body determines that we have violated these laws or if new laws are introduced that would render our arrangements illegal, we could be subject to civil or criminal penalties,our contracts could be found legally invalid and unenforceable (in whole or in part), or we could be required to restructure our contractual arrangements with our affiliated physiciansand other licensed providers.Failure to maintain effective internal control over our financial reporting could have an adverse effect on our ability to report our financial results on a timely and accurate basis.We are required to produce our consolidated financial statements in accordance with the requirements of accounting principles generally accepted in the United States of America.Effective internal control over financial reporting is necessary for us to provide reliable financial reports, to help mitigate the risk of fraud and to operate successfully. We are required byfederal securities laws to document and test our internal control procedures in order to satisfy the requirements of the Sarbanes-Oxley Act of 2002, which requires annual managementassessments of the effectiveness of our internal control over financial reporting.Testing and maintaining our internal control over financial reporting can be expensive and divert our management’s attention from other matters that are important to our business.We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with applicable law, or our independent registeredpublic accounting firm may not 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 maintaineffective internal control over financial reporting, or our independent registered public accounting firm is unable to provide us with an unqualified attestation report on our internalcontrol, we could be required to take costly and time-consuming corrective measures, be required to restate the affected historical financial statements, be subjected to investigationsand/or sanctions by federal and state securities regulators, and be subjected to civil lawsuits by security holders. Any of the foregoing could also cause investors to lose confidence inour reported financial information and in us and would likely result in a decline 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 HITECH and subject us to potential legal and reputationalharm.In the normal course of business, our information technology systems hold sensitive patient information including patient demographic data and other protected healthinformation, which is subject to HIPAA and HITECH. We also contract with third-party vendors to maintain and store our patient’s individually identifiable health information. Numerousstate and federal laws and regulations address privacy and information security concerns resulting from our access to our patient’s and employee’s personal information.Our information technology systems and those of our vendors that process, maintain, and transmit such data are subject to computer viruses, cyber-attacks, or breaches. Weadhere to policies and procedures designed to ensure compliance with HIPAA and other privacy and information security laws and require our third-party vendors to do so as well. If,however, we or our third-party vendors experience a breach, loss, or other compromise of unsecured protected health information or other personal information, such an event couldresult in significant civil and criminal penalties, lawsuits, reputational harm, and increased costs to us, any of which could have a material adverse effect on our financial condition andresults of operations.Furthermore, while our information technology systems, and those of our third-party vendors, are maintained with safeguards protecting against cyber-attacks. A cyber-attack thatbypasses 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 ofoperations, or cash flows. In addition, our future results could be adversely affected due to the theft, destruction, loss, misappropriation, or release of protected health information, otherconfidential data or proprietary business information, operational or business delays resulting from the disruption of information technology systems and subsequent mitigationactivities, or regulatory action taken as a result of such incident. 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 proliferation of cyber threats, there can be no assurance ourtraining and network security measures or other controls will detect, prevent, or remediate security or data breaches in a timely manner or otherwise prevent unauthorized access to,damage to, or interruption of our systems and operations. Accordingly, we may be vulnerable to losses associated with the improper functioning, security breach, or unavailability ofour information systems as well as any systems used in acquired operations.20Table of ContentsWe depend upon the cultivation and maintenance of relationships with the physicians in our markets.Our success is dependent upon referrals from physicians in the communities our clinics serve and our ability to maintain good relations with these physicians and other referralsources. Physicians referring patients to our clinics are free to refer their patients to other therapy providers or to their own physician owned therapy practice. If we are unable tosuccessfully cultivate and maintain strong relationships with physicians and other referral sources, our business may decrease and our net operating revenues may decline.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 to maintain good relations with these physicians. Ourtherapists are the front line for generating these referrals and we are dependent on their talents and skills to successfully cultivate and maintain strong relationships with thesephysicians. If we cannot recruit and retain our base of experienced and clinically skilled therapists, our business may decrease and our net operating revenues may decline. Periodically,we have clinics in isolated communities that are temporarily unable to operate due to the unavailability of a therapist who satisfies our standards.We may also experience increases in our labor costs, primarily due to higher wages and greater benefits required to attract and retain qualified healthcare personnel, and suchincreases may adversely affect our profitability. Furthermore, while we attempt to manage overall labor costs in the most efficient way, our efforts to manage them may have limitedeffectiveness and may lead to increased 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, a significant number of our clinics are located in statesalong the Gulf Coast and Atlantic Coast which are subject to periodic winter storms, hurricanes and other severe storm systems. Periods of severe weather may cause physical damageto our facilities or prevent our 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 competitive advantages. Intense competition may adverselyaffect our business, financial condition or results of operations. For a more complete description of this competitive environment, see “Business—Competition” in Item 1. An adverseeffect on our business, financial condition or results of operations may require us to write down goodwill.We may incur closure costs and losses.The competitive, economic or reimbursement conditions in our markets in which we operate may require us to reorganize or to close certain clinics. In the event a clinic isreorganized or closed, we may incur losses and closure costs. The closure costs and losses may include, but are not limited to, lease obligations, severance, and write-down or write-offof goodwill and other intangible assets.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 and industrial injury prevention businesses. Acquisitions mayinvolve significant cash expenditures, potential debt incurrence and operational losses, dilutive issuances of equity securities and expenses that could have an adverse effect on ourfinancial condition and results of operations. Acquisitions involve numerous risks, including:•the difficulty and expense of integrating acquired personnel into our business;•the diversion of management’s time from existing operations;•the potential loss of key employees of acquired companies;•the difficulty of assignment and/or procurement of managed care contractual arrangements; and•the assumption of the liabilities and exposure to unforeseen liabilities of acquired companies, including liabilities for failure to comply with healthcare regulations.21Table of ContentsRisks related to our common stockIssuance 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, is authorized to grant stock awards to our employees,directors and consultants. Shareholders will incur dilution upon the exercise of any outstanding stock awards or the grant of any restricted stock. In addition, if we raise additional fundsby issuing additional common stock, or securities convertible into or exchangeable or exercisable for common stock, further dilution to our existing stockholders will result, and newinvestors could have rights superior to existing stockholders.The number of shares of our common stock eligible for future sale could adversely affect the market price of our stock.At December 31, 2020, we had reserved approximately 233,000 shares for future equity grants. We may issue additional restricted securities or register additional shares of commonstock under the Securities Act of 1933, as amended (the “Securities Act”), in the future. The issuance of a significant number of shares of common stock upon the exercise of stockoptions or the availability for sale, or sale, of a substantial number of the shares of common stock eligible for future sale under effective registration statements, under Rule 144 orotherwise, could adversely affect the market price of the common stock.Provisions in our articles of incorporation and bylaws could delay or prevent a change in control of our company, even if that change would be beneficial to our stockholders.Certain provisions of our articles of incorporation and bylaws may delay, discourage, prevent or render more difficult an attempt to obtain control of our company, whether througha tender offer, business combination, proxy contest or otherwise. These provisions include the charter authorization of “blank check” preferred stock and a restriction on the ability ofstockholders to call a special 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 whichwe own. We intend to lease the premises for any new clinic locations except in rare instances where leasing is not a cost-effective alternative. Our typical clinic occupies 1,000 to 7,000square feet. There are 14 clinics occupying space in the range of over 7,000 square feet to 13,500 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 feetof 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 other governmental audits and investigations in the ordinarycourse of our business. We cannot predict the ultimate outcome of pending litigation, proceedings, and regulatory and other governmental audits and investigations. These matterscould potentially subject us to sanctions, damages, recoupments, fines, and other penalties. The Department of Justice, CMS, or other federal and state enforcement and regulatoryagencies may conduct additional investigations related to our businesses in the future that may, either individually 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 lawsuits typically remain under seal for some time while thegovernment decides whether or not to intervene on behalf of a private qui tam plaintiff (known as a relator) and take the lead in the litigation. These lawsuits can involve significantmonetary damages and penalties and award bounties to private plaintiffs who successfully bring the suits. We are and have been a defendant in these cases in the past, and may benamed as a defendant in similar cases from time to time in the future.22Table of ContentsFlorida 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, Limited Partnership (the “Hale Partnership”), and Suzanne Hale. This whistleblower lawsuit was filed in the U.S.District Court for the Southern District of Texas, seeking damages and civil penalties under the federal False Claim Act. This lawsuit was originally filed under seal by a former employeeof The Hale Hand Center, Limited Partnership (“Hale Partnership”), a majority-owned subsidiary of the Company, on May 25, 2018. The U.S Government declined to intervene in the caseand 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 to Medicare patients. The plaintiff - relator points tothree dates of service and provides examples of what it alleges are inflated billings by the Hale Partnership; the relator then claims that similar false claims must have occurred on otherdays and at other Company-owned partnerships.On October 3, 2019, we filed Motions to Dismiss based on numerous grounds on behalf of each of the named defendants. On October 29, 2019, the plaintiff-relator dismissed threeof 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 briefedand is pending before the Court for a ruling.We have engaged counsel and fully investigated the matter, and believe that the allegations in the Complaint have no merit. We intend to vigorously defend this action, but at thistime 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 ISSUER PURCHASES OF EQUITY SECURITIES.Our common stock has traded on the New York Stock Exchange (“NYSE”) since August 14, 2012 under the symbol “USPH.” Prior to that, our common stock was traded on theNasdaq Global Select Market under the symbol “USPH”. As of March 1, 2021, there were 79 holders of record of our outstanding common stock.DIVIDENDSOn February 23, 2021, our Board of Directors declared a dividend of $0.35 per share which will be paid on April 9, 2021 to shareholders of record as of March 12, 2021. During 2020,we paid a cash dividend for the first quarter of 2020 of $0.32 per share on all shares of common stock issued and outstanding as of April 17, 2020 which amounted to $4.1 million. InMarch 2020, our Board of Directors announced the suspension of any further dividends in 2020. During 2019, we paid a quarterly dividend of $0.27 for the first and second quarters and$0.30 per share for the third and fourth quarters, totaling $1.14 per share for the year, which amounted to total aggregate cash payments of dividends to holders of our common stock in2019 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 total aggregate cash payments ofdividends to holders of our common stock in 2018 of approximately $11.7 million. We are currently restricted from paying dividends in excess of $50,000,000 in any fiscal year on ourcommon stock under the Credit Agreement (as defined in ‘‘Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and CapitalResources’’).23Table of ContentsFIVE YEAR PERFORMANCE GRAPHThe performance graph and related description shall not be deemed incorporated by reference into any filing under the Securities Act or under the Exchange Act, except to theextent that we specifically incorporate this information by reference. In addition, the performance graph and the related description shall not be deemed “soliciting material” or “filed”with the SEC or subject toRegulation 14A or 14C.On August 14, 2012, our common stock began trading on NYSE. The following performance graph compares the cumulative total stockholder return of our common stock to TheNYSE Composite Index and the NYSE Health Care Index for the period from December 31, 2015 through December 31, 2020. The graph assumes that $100 was invested in our commonstock and the common stock of each of the companies listed on The NYSE Composite Index and The NYSE Health Care Index on December 31, 2015 and that any dividends werereinvested.Comparison of Five Years Cumulative Total Return for the Year Ended December 31, 202012/1512/1612/1712/1812/1912/20U. S. Physical Therapy, Inc.100131135191213224NYSE Composite100109126112137143NYSE Healthcare Index1009711512214616224Table of ContentsITEM 6.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.EXECUTIVE SUMMARYOur Business. We operate outpatient physical therapy clinics that provide pre- and post-operative care and treatment for a variety of orthopedic-related disorders and sports-related injuries, neurologically-related injuries and rehabilitation of injured workers. At December 31, 2020, we operated 554 clinics in 39 states. The average age of our clinics atDecember 31, 2020 was 11.03 years. In addition to our ownership and operation of outpatient physical therapy clinics, we also manage physical therapy facilities for third parties, suchas physicians and hospitals, with 38 such third-party facilities under management as of December 31, 2020.In March 2017, we acquired a 55% interest in the initial industrial injury prevention business. On April 30, 2018, we made a second acquisition and subsequently combined the twobusinesses. After the combination, the Company owned a 59.45% interest in the combined business, Briotix Health, Limited Partnership (“Briotix Health”). Services provided includeonsite injury and ergonomic assessments. The majority of these services are contracted with and paid for directly by employers, including a number of Fortune 500 companies. Otherclients include large insurers and their contractors. We perform these services through Industrial Sports Medicine Professionals, consisting of both physical therapists and specializedcertified athletic trainers (ATCs). On April 11, 2019, we acquired a third company that is a provider of industrial injury prevention services. This acquired company specializes indelivering injury prevention and care, post offer employment testing, functional capacity evaluations and return-to-work services. It performs these services across a network in 45states including onsite at eleven client locations. After the acquisition, the business was then combined with Briotix Health increasing our ownership position in the partnership toapproximately 76.0%.In addition to the above acquired interests in the industrial injury prevention businesses, during 2020, 2019 and 2018, we completed the following acquisitions in ourphysical therapy operations:Acquisition Date % InterestAcquired Number ofClinicsNovember 2020 Acquisition November 30, 2020 75% 3September 2020 Acquisition September 30, 2020 70% *February 2020 Acquisition February 27, 2020 65% ** 4September 2019 Acquisition September 30, 2019 67% 11August 2018 Acquisition August 31, 2018 70% 4*The business includes six management and services contracts which had a remaining term of approximately five years as of the date acquired.**The four clinics are in four separate partnerships. The Company's interest in the four partnerships range from 10.0% to 83.8%, with an overall 65.0% based on the initialpurchase transaction.Also during 2019, we purchased the assets and business of one physical therapy clinic in a separate transaction. The clinic operates as a satellite clinic of one of our existingpartnerships. Besides the multi-clinic acquisition in 2018 referenced in the table above, we acquired five separate clinic practices through several of our majority owned ClinicPartnerships. These practices operate as satellites of the respective existing Clinic Partnerships.We intend to continue to pursue additional acquisition opportunities, develop new clinics and open satellite clinics.Impact of COVID-19As previously disclosed in a series of filings with the SEC and further described in detail in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020, June 30, 2020and September 30, 2020 filed with the SEC on May 21, 2020, August 7, 2020, and November 6, 2020, respectively, our results have been negatively impacted by the effects of the COVID-19 pandemic. Management has taken a number of steps to reduce costs, make up for operating losses incurred in March and April, and increase profits. We continue to experiencesomewhat lower physical therapy patient volumes; however revenues improved significantly in the 2020 fourth quarter, compared to the 2020 second and third quarters. Our averagephysical therapy patient volumes per day per clinic were 26.2, 18.9, 25.8 and 27.7 respectively, in the first to fourth quarters of 2020. Our industrial injury prevention business has beenless affected by the pandemic.25Table of ContentsIn March, with the onset of the COVID-19 pandemic, we began to furlough or terminate approximately 40% of our 5,500 full and part-time workforce. As of December 31, 2020approximately 1,200 of the furloughed employees have returned to work at some point during the year.As of the filing of this annual report, we continue to experience lower physical therapy revenues. As stay at home orders and other restrictions have been lifted, we have seen ourphysical therapy volumes trending upwards. Should stay at home orders or other restrictions be reenacted, we could see our patient volume and revenues decline again.We have put preparedness plans in place at our facilities to maintain continuity of operations, while also taking steps to keep employees and patients safe. In line withrecommendations to reduce large gatherings and increase social distancing, we have, where practical, transitioned a large number of office-based employees to a remote workenvironment.In March 2020, in response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act providesnumerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior andfuture limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior taxlegislation for tax depreciation of certain qualified improvement property, and the creation of certain payroll tax credits associated with the retention of employees.We have received a number of benefits under the CARES Act including, but not limited to:•The CARES Act allowed for qualified healthcare providers to receive advanced payments under the existing Medicare Accelerated and Advance Payments Program(“MAAPP funds”) during the COVID-19 pandemic. Under this program, healthcare providers could choose to receive advanced payments for future Medicare servicesprovided. We applied for and received approval to receive MAAP funds from Centers for Medicare & Medicaid Services (“CMS”) in April 2020. We will record thesepayments as a liability until all performance obligations have been met as the payments were made on behalf of patients before services were provided. Currently, MAAPPfunds received are required to be applied to future Medicare billings commencing in August 2021, with all such remaining amounts required to be repaid by January 2024.Beginning January 2024, any unpaid balance will begin accruing interest. We currently intend to repay funds prior to August 2021. Included in cash and cash equivalents andaccrued liabilities at December 31, 2020 is $14.1 million of MAAPP funds.•We elected to defer depositing the employer’s share of Social Security taxes for payments due from March 27, 2020 through December 31, 2020, interest-free and penalty-free.As of December 31, 2020, $4.2 million related to these deferred payments is included in accrued liabilities and $4.1 million is included in long term liabilities.•The CARES Act provided additional waivers, reimbursement, grants and other funds to assist health care providers during the COVID-19 pandemic, including $100.0 billion inappropriations for the Public Health and Social Services Emergency Fund, also referred to as the Provider Relief Fund, to be used for preventing, preparing, and responding tothe coronavirus, and for reimbursing eligible health care providers for lost revenues and health care related expenses that are attributable to COVID-19. Through December 31,2020, our consolidated subsidiaries received approximately $13.5 million of payments under the CARES Act (“Relief Funds”). In accordance with GAAP, these payments havebeen recorded as Other income – Relief Funds. For the year ended December 31, 2020, we have recognized approximately $13.5 million, as Other income – Relief Funds on theaccompanying consolidated statements of income. These funds are not required to be repaid upon attestation and provided that we comply with certain terms and conditionsregarding the use of such funds, which could change materially based on evolving grant compliance provisions and guidance provided by the U.S. Department of Health andHuman Services. Currently, we can attest to and comply with the terms and conditions. We will continue to monitor the evolving guidelines and may record adjustments asadditional information is released.CRITICAL ACCOUNTING POLICIESCritical accounting policies are those that have a significant impact on our results of operations and financial position involving significant estimates requiring our judgment. Ourcritical accounting policies are:26Table of ContentsRevenue Recognition.Revenues are recognized in the period in which services are rendered. Net patient revenues consists of revenues for physical therapy and occupational therapy clinics that providepre-and post-operative care and treatment for orthopedic related disorders, sports-related injuries, preventative care, rehabilitation of injured workers and neurological-related injuries.Net patient revenues (patient revenues less estimated contractual adjustments) are recognized at the estimated net realizable amounts from third-party payors, patients and others inexchange for services rendered when obligations under the terms of the contract are satisfied. There is an implied contract between us and the patient upon each patient visit. Generally,this occurs as we provide physical and occupational therapy services, as each service provided is distinct and future services rendered are not dependent on previously renderedservices. We have agreements with third-party payors that provide for payments to us at amounts different from our established rates. The allowance for estimated contractualadjustments is based on terms of payor contracts and historical collection and write-off experience.Management contract revenues, which are included in other revenues in the consolidated statements of net income, are derived from contractual arrangements whereby wemanage a clinic owned by a third party. We do not have any ownership interest in these clinics. Typically, revenues are determined based on the number of visits conducted at theclinic and recognized at the point in time when services are performed. Costs, typically salaries for our employees, are recorded when incurred.Revenues from the industrial injury prevention business, which are also included in other revenues in the consolidated statements of net income, are derived from onsite serviceswe provide to clients’ employees including injury prevention, rehabilitation, ergonomic assessments and performance optimization. Revenue from the industrial injury preventionbusiness is recognized when obligations under the terms of the contract are satisfied. Revenues are recognized at an amount equal to the consideration we expect to receive in exchangefor providing injury prevention services to its clients. The revenue is determined and recognized based on the number of hours and respective rate for services provided in a givenperiod.Additionally, other revenues include services we provide on-site at locations such as schools and industrial worksites for physical or occupational therapy services, athletictrainers and gym membership fees. Contract terms and rates are agreed to in advance between us and the third parties. Services are typically performed over the contract period andrevenue is recorded at the point of service. If the services are paid in advance, revenue is recorded as a contract liability over the period of the agreement and recognized at the point intime when the services are performed.In May 2014, March 2016, April 2016, and December 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenuefrom Contracts with Customers, ASU 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations, ASU 2016-10, Revenue from Contracts with Customers,Identifying Performance Obligations and Licensing, ASU 2016-12, Revenue from Contracts with Customers, Narrow Scope Improvements and Practical Expedients, and ASU 2016-20,Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customer (collectively the “standards”), respectively, which supersede most of the current revenuerecognition requirements (“ASC 606”). The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services tocustomers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.We implemented the new standards beginning January 1, 2018 using a modified retrospective transition method. The principal change relates to how the new standard requireshealthcare providers to estimate the amount of variable consideration to be included in the transaction price up to an amount which is probable that a significant reversal will not occur.The most common forms of variable consideration we experience are amounts for services provided that are ultimately not realizable from a customer. There were no changes torevenues or other revenues upon implementation. Under the new standards, our estimate for unrealizable amounts will continue to be recognized as a reduction to revenue. The baddebt expense historically reported will not materially change.For ASC 606, there is an implied contract between us and the patient upon each patient visit. Separate contractual arrangements exist between us and third party payors (e.g.insurers, managed care programs, government programs, and workers' compensation programs which establish the amounts the third parties pay on behalf of the patients for coveredservices rendered. While these agreements are not considered 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 reimbursement rates for patients who are covered by those payorswhen the services are provided. At that time, we are obligated to provide services for the reimbursement rates stipulated in the payor contracts. The execution of the contract alone doesnot indicate a performance obligation. For self-paying customers, the performance obligation exists when we provide the services at established rates. The difference between ourestablished rate and the anticipated reimbursement rate is accounted for as an offset to revenue – contractual allowance.27Table of ContentsWe determine allowances for credit losses based on the specific agings and payor classifications at each clinic. The provision for credit losses is included in clinic operating costsin the statements of net income. Patient accounts receivable, which are stated at the historical carrying amount net of contractual allowances, write-offs and allowance for credit losses,includes only those amounts we estimate to be collectible.The following table details the revenue related to the various categories (in thousands). Year Ended December 31, 2020 December 31, 2019 December 31, 2018 Net patient revenues $373,340 $433,345 $417,703 Management contract revenues 8,410 8,676 8,339 Other revenues 2,020 2,486 2,403 Physical therapy operations $383,770 $444,507 $428,445 Industrial injury prevention services revenues 39,199 37,462 25,466 $422,969 $481,969 $453,911 Contractual Allowances. Contractual allowances result from the differences between the rates charged for services performed and expected reimbursements by both insurancecompanies and government sponsored healthcare programs for such services. Medicare regulations and the various third party payors and managed care contracts are often complexand may include multiple reimbursement mechanisms payable for the services provided in our clinics. We estimate contractual allowances based on our interpretation of the applicableregulations, payor contracts and historical calculations. Each month we estimate our contractual allowance for each clinic based on payor contracts and the historical collectionexperience of the clinic and apply an appropriate contractual allowance reserve percentage to the gross accounts receivable balances for each payor of the clinic. Based on our historicalexperience, calculating the contractual allowance reserve percentage at the payor level is sufficient to allow us to provide the necessary detail and accuracy with our collectabilityestimates. However, the services authorized and provided and related reimbursement are subject to interpretation that could result in payments that differ from our estimates. Payor termsare periodically revised necessitating continual review and assessment of the estimates made by management. Our billing systems may not capture the exact change in our contractualallowance reserve estimate from period to period. Therefore, in order to assess the accuracy of our revenues and hence our contractual allowance reserves, our management regularlycompares our cash collections to corresponding net revenues measured both in the aggregate and on a clinic-by-clinic basis. In the aggregate, the historical difference between netrevenues and corresponding cash collections in any given fiscal year has generally reflected a difference within approximately 1.0% to 1.5% of net revenues. Additionally, analysis ofsubsequent period’s contractual write-offs on a payor basis reflects a difference within approximately 1.0% to 1.5% between the actual aggregate contractual reserve percentage ascompared to the estimated contractual allowance reserve percentage associated with the same period end balance. As a result, we believe that a reasonable likely change in thecontractual allowance reserve estimate would not be more than 1% to 1.5% of gross billings in accounts receivable at December 31, 2020. For purposes of demonstrating the sensitivityof this estimate on our Company’s financial condition, a 1% to 1.5% increase or decrease in our aggregate contractual allowance reserve percentage would decrease or increase,respectively, net patient revenue by approximately $1.2 million to $1.8 million for the year ended December 31, 2020. Management believes the changes in the estimate of the contractualallowance reserve for the periods ended December 31, 2020, 2019 and 2018 have not been material to the statement of income.The following table sets forth information regarding our patient accounts receivable as of the dates indicated (in thousands): December 31, 2020 2019 Gross patient accounts receivable $119,180 $124,035 Less contractual allowances 75,266 75,109 Subtotal - accounts receivable 43,914 48,926 Less allowance for credit losses 2,008 2,698 Net patient accounts receivable $41,906 $46,228 28Table of ContentsThe following table presents our patient accounts receivable aging by payor class as of the dates indicated (in thousands): December 31, 2020 December 31, 2019 Payor Current to120 Days 120+ Days Total Current to120 Days 120+ Days Total Managed Care/ Commercial Plans $13,053 $1,774 $14,827 $14,159 $1,783 $15,942 Medicare/Medicaid 10,707 1,196 11,903 11,408 1,491 12,899 Workers Compensation* 6,576 926 7,502 6,593 1,121 7,714 Self-pay 4,086 3,146 7,232 4,365 3,040 7,405 Other** 1,108 1,342 2,450 808 1,460 2,268 Totals $35,530 $8,384 $43,914 $37,333 $8,895 $46,228 * Workers compensation is paid by state administrators or their designated agents.** Other includes primarily litigation claims and, to a lesser extent, vehicular insurance claims.Reimbursement for Medicare beneficiaries is based upon a fee schedule published by HHS. For a more complete description of our third party revenue sources, see “Business—Sources of Revenue” in Item 1.Goodwill. The fair value of goodwill and other identifiable intangible assets with indefinite lives are evaluated for impairment at least annually and upon the occurrence of certainevents or conditions, and are written down to fair value if considered impaired. These events or conditions include, but are not limited to: a significant adverse change in the businessenvironment, regulatory environment, or legal factors; a current period operating or cash flow loss combined with a history of such losses or a projection of continuing losses; or asale or disposition of a significant portion of a reporting unit. The occurrence of one of these events or conditions could significantly impact an impairment assessment, necessitatingan impairment charge. We evaluate indefinite-lived tradenames using the relief from royalty method in conjunction with its annual goodwill impairment test.We operate a two segment business which is made up of various clinics within partnerships, and the other is industrial injury prevention services business. The partnerships arecomponents of regions and are aggregated to the operating segment level for the purpose of determining our reporting units when performing our annual goodwill impairment test. In2020, 2019 and 2018, there were six regions. In addition to the six regions, in 2020 and 2019, the impairment analysis included a separate analysis for the industrial injury preventionbusiness, as a separate reporting unit.As part of the impairment analysis, we are first required to assess qualitatively if we can conclude whether goodwill is more likely than not impaired. If goodwill is more likely thannot impaired, we are then required to complete a quantitative analysis of whether a reporting unit’s fair value is less than its carrying amount. In evaluating whether it is more likely thannot that the fair value of a reporting unit is less than its carrying amount, the Company considers relevant events or circumstances that affect the fair value or carrying amount of areporting unit. The Company considers both the income and market approach in determining the fair value of its reporting units when performing a quantitative analysis.An impairment loss generally would be recognized when the carrying amount of the net assets of a reporting unit, inclusive of goodwill and other identifiable intangible assets,exceeds the estimated fair value of the reporting unit. The evaluation of goodwill in 2020, 2019 and 2018 did not result in any goodwill amounts that were deemed impaired.Based on the economic conditions in 2020, and the decline in patient visits due to the pandemic, we evaluated whether events or circumstances indicated that it was more likelythan not that the fair value of the reporting units were reduced below their carrying value as of December 31, 2020. As a result of the assessment, we determined that it was not morelikely than not that goodwill and tradenames of the reporting units was impaired as of December 31, 2020. Due to the uncertainty of the current economic conditions resulting from theCOVID-19 pandemic, we will continue to review the carrying amounts of goodwill and other intangibles.For the year ended December 31, 2020, we derecognized (wrote-off) goodwill in the amount of $1.9 million related to certain closed clinics due to COVID-19.Redeemable Non-Controlling Interests – The non-controlling interests that are reflected as redeemable non-controlling interests in our consolidated financial statements consist ofthose owners, including us, that have certain redemption rights, whether currently exercisable or not, and which currently, or in the future, require that we purchase or the owner sell thenon-controlling interest held by the owner, if certain conditions are met and the owners request the purchase (“Put Right”). We also have a call right (“Call Right”). The Put Right or CallRight may be triggered by the owner or us, respectively, at such time as both of the following events have occurred: 1) termination of the owner’s employment, regardless of the reasonfor such termination, and 2) the passage of specified number of years after the closing of the transaction, typically three to five years, as defined in the limited partnership agreement.The Put Rights and Call Rights are not automatic (even upon death) and require either the owner or us to exercise our rights when the conditions triggering the Put or Call Rights havebeen satisfied. The purchase price is derived at a predetermined formula based on a multiple of trailing twelve months earnings performance as defined in the respective limitedpartnership agreements.29Table of ContentsOn the date we acquire a controlling interest in a partnership and the limited partnership agreement for such partnerships contains redemption rights not under our control, the fairvalue of the non-controlling interest is recorded in the consolidated balance sheet under the caption – Redeemable non-controlling interests. Then, in each reporting period thereafteruntil it is purchased by us, the redeemable non-controlling interest is adjusted to the greater of its then current redemption value or initial value, based on the predetermined formuladefined 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 theredemption value, net of tax, directly to retained earnings and not in the consolidated statements of income. Although the adjustments are not reflected in the consolidated statements ofincome, current accounting rules require that we reflect the adjustments, net of tax, in the earnings per share calculation. The amount of net income attributable to redeemable non-controlling interest owners is included in consolidated net income on the face of the consolidated income statement. We believe the redemption value (i.e. the carrying amount) and fairvalue are the same.Effective December 31, 2017, we entered into amendments to our limited partnership agreements for our acquired partnerships replacing the mandatory redemption feature. Nomonetary consideration was paid to the partners to amend the agreements. The amended limited partnership agreements provide that, upon the triggering events, we have a CallRight and the selling entity or individual has a Put Right for the purchase and sale of the limited partnership interest held by the partner. Once triggered, the Put Right and the CallRight do not expire, even upon an individual partner’s death, and contain no mandatory redemption feature. The purchase price of the partner’s limited partnership interest upon theexercise of either the Put Right or the Call Right is calculated per the terms of the respective agreements. We accounted for the amendment of the limited partnership agreements asan extinguishment of the outstanding mandatorily redeemable non-controlling interests, which were classified as liabilities, through the issuance of new redeemable non-controllinginterests classified in temporary equity. Pursuant to Accounting Standards Codification (“ASC”) 470-50-40-2, we removed the outstanding liabilities at their carrying amounts,recognized the new temporary equities at their fair value, and recorded no gain or loss on extinguishment as management believes the redemption value (i.e. the carrying amount)and fair value are the same. In summary, the redemption values of the mandatorily redeemable non-controlling interest (previously classified as liabilities) were reclassified asredeemable non-controlling interest (temporary equity) at fair value on the December 31, 2017 consolidated balance sheet.Non-Controlling Interests – We recognize non-controlling interests, in which we have no obligation but the right to purchase the non-controlling interests, as equity in theconsolidated financial statements separate from the parent entity’s equity. The amount of net income attributable to non-controlling interests is included in consolidated net income onthe face of the consolidated statements of income. Operating losses are allocated to non-controlling interests even when such allocation creates a deficit balance for the non-controllinginterest partner. When we purchase a non-controlling interest and the purchase differs from the book value at the time of purchase, any excess or shortfall is recognized as anadjustment 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 their respective description used in the followingdiscussion are listed below:2020 Year ended December 31, 20202019 Year ended December 31, 2019New ClinicsClinics opened or acquired during the year ended December 31, 2020Mature ClinicsClinics opened or acquired prior to January 1, 2020 and are still operating30Table of ContentsThe following table presents selected operating and financial data, used by management as key indicators of our operating performance: For the Years Ended December31, 2020 2019 Number of clinics, at the end of period 554 583 Working Days 256 255 Average visits per day per clinic 24.6 27.6 Total patient visits 3,533,371 4,091,967 Net patient revenue per visit $105.66 $105.90 RESULTS OF OPERATIONSFISCAL YEAR 2020 COMPARED TO FISCAL 2019•Reported net revenues for 2020 was $423.0 million as compared to $482.0 million for 2019. See table below for a detail of reported net revenues (in thousands): For the Year Ended December 31, 2020 December 31, 2019 Revenues: Net patient revenues $373,340 $433,345 Management contract revenue 8,410 8,676 Other patient revenues 2,020 2,486 Physical therapy operations $383,770 $444,507 Industrial injury prevention services 39,199 37,462 $422,969 $481,969 •For 2020, our net income attributable to shareholders, in accordance with GAAP, was $35.2 million as compared to $40.0 million for the comparable period of 2019. Inclusive ofthe charge for revaluation of non-controlling interest, net of tax, used to compute diluted earnings per share in accordance with GAAP, earnings per share was $2.48 per sharefor 2020 and $2.45 per share for 2019. For both 2020 and 2019, in accordance with current accounting guidance, the revaluation of redeemable non-controlling interest, net of tax,is not included in net income but rather charged directly to retained earnings; however, the charge for this change is included in the earnings per basic and diluted sharecalculation. See table below (in thousands, except per share data). Year Ended December 31, 2020 2019 Computation of earnings per share - USPH shareholders: Net income attributable to USPH shareholders $35,194 $40,039 Credit (charges) to retained earnings: Revaluation of redeemable non-controlling interest (4,632) (11,893)Tax effect at statutory rate (federal and state) of 26.25% 1,216 3,121 $31,778 $31,267 Earnings per share (basic and diluted) $2.48 $2.45 •For 2020, our Operating Results (as defined below), including Relief Funds (defined below), was $38.4 million, or $2.99 per diluted share, as compared to $36.0 million, or $2.82per diluted share in 2019. For 2020, our Operating Results, excluding Relief Funds, was $30.6 million, or $2.39 per diluted share, as compared to $36.0 million, or $2.82 per dilutedshare in 2019. Operating Results, a non-Generally Accepted Accounting Principle (“GAAP”) measure, equals net income attributable to our shareholders per the consolidatedstatements of net income plus charges incurred for closure costs, less gain on the sale of partnership interests and clinics, less allocated non-controlling interests, excludesexpenses incurred for the transition to our new Chief Financial Officer, all net of tax. The earnings per share from Operating Results also excludes the impact of the revaluation ofredeemable non-controlling interest. See table below for a detailed computation (in thousands, except per share data):31Table of Contents Year Ended December 31, 2020 2019 Computation of earnings per share - USPH shareholders: Net income attributable to USPH shareholders $35,194 $40,039 Credit (charges) to retained earnings: Revaluation of redeemable non-controlling interest (4,632) (11,893)Tax effect at statutory rate (federal and state) of 26.25% 1,216 3,121 $31,778 $31,267 Earnings per share (basic and diluted) $2.48 $2.45 Adjustments: Expenses related to CFO transition 1,331 - Closure costs 3,931 - Gain on sale of partnership interest and clinics (1,091) (5,514)Relief Funds (13,500) - Allocation to non-controlling interest 3,116 - Revaluation of redeemable non-controlling interest 4,632 11,893 Tax effect at statutory rate (federal and state) of 26.25% 415 (1,674)Operating Results (without Relief Funds) $30,612 $35,972 Relief Funds 13,500 - Allocation to non-controlling interest (2,893) - Tax effect at statutory rate (federal and state) of 26.25% (2,784) - Operating Results (including Relief Funds) $38,435 $35,972 Basic and diluted Operating Results (without Relief Funds) per share $2.39 $2.82 Basic and diluted Operating Results (including Relief Funds) per share $2.99 $2.82 Shares used in computation - basic and diluted 12,835 12,756 •For 2020, the Company's Adjusted EBITDA was $70.0 million compared to $72.8 million in 2019. For 2020, the Company's Adjusted EBITDA, excluding Relief Funds, was $56.5million. Adjusted EBITDA is defined as earnings before interest income, interest expense – debt and other, taxes, depreciation, amortization, derecognition of goodwill andequity-based awards compensation expense. See reconciliation of Adjusted EBITDA to net income attributable to our shareholders in the following table (in thousands):32Table of Contents Year Ended December 31, 2020 2019 Net income attributable to USPH shareholders $35,194 $40,039 Adjustments: Depreciation and amortization 10,533 10,095 Closure costs - derecognition of goodwill 1,859 - Relief Funds (13,500) - Interest income (142) (46)Interest expense - debt and other 1,634 2,079 Provision for income taxes 13,022 13,647 Equity-based awards compensation expense 7,917 6,985 Adjusted EBITDA (without Relief Funds) $56,517 $72,799 Relief Funds 13,500 - Adjusted EBITDA $70,017 $72,799 The above tables reconcile net income attributable to our shareholders calculated in accordance with GAAP to Adjusted EBITDA and Operating Results, non-GAAP measuresdefined above. We believe that Operating Results, which eliminates certain items described above that can be subject to volatility and unusual costs, is one of the principal measures toevaluate and monitor financial performance period over period. We also believe that Operating Results is useful information for investors to use in comparing the Company's period-to-period results as well as for comparing with other similar businesses. We believe Adjusted EBITDA is useful information for investors in comparing the Company’s period-to-periodresults 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 and Adjusted EBITDA should not be considered inisolation or as an alternative to, or substitute for, net income attributable to our shareholders presented in the consolidated financial statements.Net Patient Revenues•Net patient revenues from physical therapy operations decreased approximately 13.8% or $60.0 million to $373.3 million in 2020 from $433.3 million in 2019. Included in net patientrevenues above are revenues related to clinics sold or closed in 2020 and 2019 of $4.4 million in 2020 and $28.6 million in 2019. During 2020, the Company sold its interest in 14clinics and closed 34 clinics. During 2019, the Company sold its interest in a partnership which include 30 clinics and closed 11 clinics. For comparison purposes, adjusted forrevenue from the clinics sold or closed, net patient revenues from physical therapy operations was approximately $369.0 million in 2020, inclusive of $9.7 million related to NewClinics and $404.8 million in 2019. Net patient revenues related to Mature Clinics decreased by $45.5 million in 2020 compared to 2019. The reduction is largely attributable to theadverse effects of the COVID-19 pandemic. See table below for a detail of net patient revenues from physical therapy operations (in thousands): For the Year Ended December 31, 2020 December 31, 2019 Related to Mature Clinics $359,294 $404,784 Related to New Clinics 9,664 - From 2020 sold and closed clinics 4,382 15,542 From 2019 sold and closed clinics - 13,019 $373,340 $433,345 •Including all clinics operational during 2020 and 2019, the average net patient revenue per visit was $105.66 and $105.90 respectively. Total patient visits were 3,533,371 in 2020and 4,091,967 in 2019. The reduction is largely attributable to the adverse effects of the COVID-19 pandemic.33Table of Contents•Net patient revenues are based on established billing rates less allowances and discounts for patients covered by contractual programs and workers’ compensation. Net patientrevenues reflect contractual and other adjustments, which we evaluate monthly, relating to patient discounts from certain payors. Payments received under these contractualprograms and workers’ compensation are based on predetermined rates and are generally less than the established billing rates of the clinics.Other RevenuesOther revenues, consisting primarily of revenues from our industrial injury prevention business and management fees revenue, increased by $1.0 million, from $48.6 million in 2019to $49.6 million in 2020. Revenues from management contracts were $8.4 million for 2020 as compared to $8.7 million for 2019. Revenue from our industrial injury prevention businessincreased 4.6% to $39.2 million in 2020 compared to $37.5 million in 2019. Other revenues were $2.0 million in 2020 and $2.4 million in 2019. See table below for a detail of reported netrevenues (in thousands): For the Year Ended December 31, 2020 December 31, 2019 Revenues: Net patient revenues $373,340 $433,345 Management contract revenue 8,410 8,676 Other patient revenues 2,020 2,486 Physical therapy operations $383,770 $444,507 Industrial injury prevention services 39,199 37,462 $422,969 $481,969 Operating CostsTotal operating costs, excluding closure costs, were $324.6 million in 2020, as compared to $369.5 million in 2019. Operating costs were 76.7% as a percentage of net revenues inboth 2020 and 2019. Included in operating costs for 2020 was $8.4 million related to New Clinics. Operating costs for Mature Clinics decreased by $31.3 million in 2020 compared to 2019.Operating costs related to management contracts decreased by $0.7 million. Operating costs related to the industrial injury prevention business were $29.1 million in both 2020 and 2019.See table below for a detail of operating costs, excluding closure costs (in thousands): For the Year Ended December 31, 2020 December 31, 2019 Physical Therapy Operations Related to Mature Clinics $274,781 $306,128 Related to New Clinics 8,416 - Related to 2020 closed and sold clinics 5,583 14,588 Related to 2019 closed and sold clinics 40 12,283 Physical therapy management contracts 6,654 7,389 Total Physical Therapy Operations $295,474 $340,388 Industrial injury prevention services 29,114 29,082 Total operating costs, excluding closure costs $324,588 $369,470 Closure costs in the current period of $3.9 million include estimates of remaining lease obligations, derecognition of goodwill and other costs related to closed and sold clinics.Each component of clinic operating costs is discussed below:34Table of ContentsOperating Costs—Salaries and Related CostsSalaries and related costs decreased to $235.6 million for 2020 from $274.2 million in 2019, a decrease of $38.6 million, or 14.1%. Included in salaries and related costs for 2020 was$5.5 million related to New Clinics. Salaries and related costs for clinics sold or closed in 2020 and 2019 were $3.0 million and $16.7 million in 2020 and 2019, respectively. Salaries andrelated costs for Mature Clinics decreased $31.2 million in 2020 compared to 2019. Salaries and related costs for management contracts decreased $0.4 million. Salaries and related costsfor the industrial injury prevention business increased $1.1 million. Salaries and related costs as a percentage of net revenues was 55.7% for 2020 and 56.9% for 2019. See table below fora detail of salaries and related costs (in thousands): For the Year Ended December 31, 2020 December 31, 2019 Physical Therapy Operations Related to Mature Clinics $196,686 $227,859 Related to New Clinics 5,495 - Related to 2020 closed and sold clinics 3,089 9,494 Related to 2019 closed and sold clinics - 7,248 Related to Physical therapy management contracts 5,921 6,337 Total Physical Therapy Operations $211,191 $250,938 Related to Industrial injury prevention services 24,437 23,295 Total Salaries and related costs $235,628 $274,233 Operating Costs—Rent, Supplies, Contract Labor and OtherRent, supplies, contract labor and other costs decreased to $84.3 million for 2020 from $90.4 million for 2019, a decrease of $6.0 million, or 6.7%. Included in rent, supplies, contractlabor and other costs for 2020 was $2.8 million related to New Clinics. Rent, supplies, contract labor and other costs for clinics related to partnership interests closed or sold in 2020 and2019 were $2.4 million and $9.8 million in 2020 and 2019, respectively, rent, supplies, contract labor and other costs related to Mature Clinics were the same for both periods 2020 and 2019.Rent, supplies, contract labor and other costs as a percent of net revenues was 18.8% for 2019 and 19.9% for 2020. See table below for a detail of rent, supplies, contract labor and othercosts (in thousands): For the Year Ended December 31, 2020 December 31, 2019 Physical Therapy Operations Related to Mature Clinics $73,726 $73,766 Related to New Clinics 2,846 - Related to 2020 closed and sold clinics 2,437 4,896 Related to 2019 closed and sold clinics 41 4,908 Related to Physical therapy management contracts 734 1,052 Total Physical Therapy Operations $79,784 $84,622 Related to Industrial injury prevention services 4,552 5,757 Total Rent and other costs $84,336 $90,379 Operating Costs—Provision for Credit LossesThe provision for credit losses for net patient receivables was $4.6 million for 2020 and $4.9 million for 2019. As a percentage of net patient revenues, the provision for credit losseswas 1.1% for 2020 and 1.0% for 2019.Our provision for credit losses as a percentage of total patient accounts receivable was 4.5% at December 31, 2020 and 5.5% at December 31, 2019. The provision for credit losses atthe end of each period is based on a detailed, clinic-by-clinic review of overdue accounts and is regularly reviewed in the aggregate in light of historical experience.35Table of ContentsThe average accounts receivable days outstanding were 32 days at December 31, 2020 and 33 days at December 31, 2019. Net patient receivables in the amount of $4.5 million and$4.8 million were written-off in 2020 and 2019, respectively.Gross ProfitGross profit, excluding closure costs, for 2020 was $98.4 million, as compared to $112.5 million in 2019. Gross profit excluding closure costs as a percentage of net revenue for theCompany’s physical therapy clinics was 23.1% in 2020 compared to 23.6% in 2019. The gross profit percentage on management contracts increased to 20.9% in 2020 as compared to14.8% in the 2019. The gross profit for the industrial injury prevention business was $10.1 million, or 25.7% as a percentage of industrial injury prevention revenues, in 2020 as comparedto $8.4 million, or 22.4% as a percentage of industrial injury prevention revenues, in the comparable 2019 period. The table below details the gross profit, excluding closure costs (inthousands): For the Year Ended December 31, 2020 December 31, 2019 Gross profit, excluding closure costs: Physical therapy clinics $86,540 $102,833 Management contracts 1,755 1,287 Industrial injury prevention services 10,086 8,379 Gross profit, excluding closure costs $98,381 $112,499 Corporate Office CostsCorporate office costs, consisting primarily of salaries, benefits and equity based compensation of corporate office personnel and directors, rent, insurance costs, depreciation andamortization, travel, legal, compliance, professional, marketing and recruiting fees, were $42.0 million for 2020 and $45.0 million for 2019. Corporate office costs as a percentage of netrevenues were 9.9% for 2020 and 9.3% in 2019.Operating IncomeOperating income for 2020 was $52.4 million as compared to $67.4 million for 2019. Operating income as a percentage of net revenue decreased from 14.0% in 2019 to 12.4% in2020.Other Income - Gain on Sale of Partnership InterestIncluded in other income was the gain of $1.1 million in 2020 resulting from the sale of 14 previously closed clinics and, in 2019, a gain of $5.5 million resulting from the sale of apartnership interest with 30 clinics.Other Income - Relief FundsIncluded in other income in 2020 was $13.5 million of Relief Funds. See discussion of Relief Funds on page 26.Interest Expense – Debt and OtherInterest expense – debt and other was $1.6 million for 2020 and $2.1 million for 2019. At December 31, 2020, $16.0 million was outstanding under our Amended Credit Agreement (asdefined below under “—Liquidity and Capital Resources”). See “— Liquidity and Capital Resources” below for a discussion of the terms of our Amended Credit Agreement.Provision for Income TaxesThe provision for income tax was $13.0 million for 2020 and $13.6 million for 2019. The provision for income tax as a percentage of income before taxes less net income attributableto non-controlling interest (effective tax rate) was 27.0% for 2020 and 25.4% for 2019. See table below ($ in thousands):36Table of Contents Year Ended December 31, 2020 December 31, 2019 Income before taxes $65,513 $70,906 Less: net income attributable to non-controlling interests: Non-controlling interests - permanent equity (6,122) (6,561)Redeemable non-controlling interests - temporary equity (11,175) (10,659) $(17,297) $(17,220)Income before taxes less net income attributable to non-controlling interests $48,216 $53,686 Provision for income taxes $13,022 $13,647 Effective tax rate 27.0% 25.4%Net Income Attributable to Non-controlling InterestsNet income attributable to non-controlling interests (permanent equity) was $6.1 million in 2020 and $6.6 million in 2019. Net income attributable to redeemable non-controllinginterests (temporary equity) was $11.2 million in 2020 and $10.6 million in 2019.LIQUIDITY AND CAPITAL RESOURCESWe believe that our business is generating sufficient cash flow from operating activities to allow us to meet our short-term and long-term cash requirements, other than those withrespect to future significant acquisitions. At December 31, 2020, we had $32.9 million in cash and cash equivalents compared to $23.5 million at December 31, 2019. Although the start-upcosts associated with opening new clinics and our planned capital expenditures are significant, we believe that our cash and cash equivalents and availability under our Amended CreditAgreement are sufficient to fund the working capital needs of our operating subsidiaries, future clinic development and acquisitions and investments through at least December 2021.Significant acquisitions would likely require financing under our Amended Credit Agreement.Effective December 5, 2013, we entered into an Amended and Restated Credit Agreement with a commitment for a $125.0 million revolving credit facility. This agreement wasamended in August 2015, January 2016, March 2017 and November 2017 (hereafter referred to as “Amended Credit Agreement”). The Amended Credit Agreement is unsecured and hasloan covenants, including requirements that we comply with a consolidated fixed charge coverage ratio and consolidated leverage ratio. Proceeds from the Amended Credit Agreementmay be used for working capital, acquisitions, purchases of our common stock, dividend payments to our common stockholders, capital expenditures and other corporate purposes. Thepricing grid is based on our consolidated leverage ratio with the applicable spread over LIBOR ranging from 1.25% to 2.0% or the applicable spread over the Base Rate ranging from 0.1%to 1%. Fees under the Amended Credit Agreement include an unused commitment fee ranging from 0.25% to 0.3% depending on our consolidated leverage ratio and the amount of fundsoutstanding under the Amended Credit Agreement.The January 2016 amendment to the Amended Credit Agreement increased the cash and noncash consideration that we could pay with respect to acquisitions permitted under theAmended Credit Agreement to $50,000,000 for any fiscal year, and increased the amount we may pay in cash dividends to our 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 we may pay in cash dividends to our shareholders in an aggregate amount not toexceed $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 we may pay incash dividends to $20,000,000 to our shareholders and extended the maturity date to November 30, 2021.On December 31, 2020, $16.0 million was outstanding on the Amended Credit Agreement resulting in $109.0 million of availability. As of the date of this report, we were incompliance with all of the covenants thereunder.37Table of ContentsCash provided by operations was $99.9 million and net proceeds from our Amended Credit Agreement amounted to $30.0 million. The major uses of cash for investing andfinancing activities included: purchase of interests in businesses ($23.9 million), purchases of redeemable non-controlling interest, temporary equity ($20.4 million), purchases of fixedassets ($7.6 million), proceeds on sale of partnership interest ($0.8 million), distributions to non-controlling interests ($18.3 million), payments of cash dividends to our shareholders($4.1 million), and payments on notes payable ($1.0 million)On November 30, 2020, we acquired a 75% interest in a three-clinic physical therapy practice. The purchase price for the 75% interest was $8.9 million (net of cash acquired), ofwhich $8.6 million was paid in cash and $0.3 million in the form of a seller note that is payable in two principal installments totaling $162,500 each. The first principal payment plusaccrued interest will be paid on November 2021 with the second installment to be paid in November 2022. The note accrues interest at 3.25% per annum.On September 30, 2020, we acquired a 70% interest in an entity which holds six management contracts that have been in place for a number of years and had five years remaining ontheir term as of the acquisition date. The purchase price for the 70% interest was approximately $4.2 million, with $3.7 million payable in cash and $0.5 million in notes payable. One of thenotes payable of $0.2 million is payable, with any accrued interest at 5% per annum, on September 30, 2021. The remaining note of $0.3 million was paid in November 2020.On February 27, 2020, we acquired interests in a four-clinic physical therapy practice. The four clinics are operated in four separate partnerships. The Company’s interests in thefour partnerships range from 10.0% to 83.8%, with an overall 65.0% based on the initial purchase transaction. The aggregate purchase price was $11.9 million, of which $11.6 million waspaid in cash and $0.3 million in the form of a seller note. The note accrues interest at 4.75% per annum and the principal and interest is payable in February 2022.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 millionwas paid in cash and $0.3 million in the form of a seller note that is payable in two principal installments totaling $150,000 each. The first principal payment plus accrued interest waspaid in September 2020 with the second installment to be paid in September 2021. The note accrues interest at 5.0% per annum.On April 11, 2019, we acquired a company that is a provider of industrial injury prevention services. The acquired company specializes in delivering injury prevention and care, postoffer employment testing, functional capacity evaluations and return-to-work services. It performs these services across a network of 45 states including onsite at eleven clientlocations. The business was then combined with Briotix Health, the Company’s industrial injury prevention operation, increasing the Company’s ownership position in the Briotix Healthpartnership to approximately 76.0%. The purchase price for the acquired company was $22.9 million ($23.6 million less cash acquired of $0.7 million), which consisted of $18.9 million incash, (of which $0.5 million will be paid to certain shareholders), and a $4.0 million seller note. The note accrues interest at 5.5% and the principal and accrued interest is payable on April9, 2021.On March 4, 2019, in conjunction with the purchase of a redeemable non-controlling interest, we entered into a note payable in the amount of $228,120 that was payable in twoequal installments of $114,080 each, plus accrued interest. The first installment was paid in March 2020 and the second installment remains payable in March 2021.On August 31, 2018 we acquired a 70% interest in a four-clinic physical therapy practice. The purchase price for the 70% interest was $7.3 million in cash and $400,000 in a sellernote that is payable in two principal installments totaling $200,000 each, plus accrued interest. The first installment was paid in August 2019 and the second installment was paid inAugust 2020.On February 28, 2018, through one of our majority owned partnerships, we acquired the assets and business of two physical therapy clinics, for an aggregate purchase price of$760,000 in cash and $150,000 in a seller note which was paid along with accrued interest on August 31, 2019.In addition to the multi-clinic acquisitions above in 2020, we acquired five separate clinic practices through several of our majority-owned Clinic Partnerships. Thesepractices 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 operational needs. We plan to continue developing new clinics andmaking additional acquisitions. We have from time to time purchased the non-controlling interests of limited partners in our Clinic Partnerships. We may purchase additional non-controlling interests in the future. Generally, any acquisition or purchase of non-controlling interests is expected to be accomplished using a combination of cash and financing. Anylarge acquisition would likely require financing.38Table of ContentsWe make reasonable and appropriate efforts to collect accounts receivable, including applicable deductible and co-payment amounts. Claims are submitted to payors daily, weeklyor monthly in accordance with our policy or payor’s requirements. When possible, we submit our claims electronically. The collection process is time consuming and typically involvesthe submission of claims to multiple payors whose payment of claims may be dependent upon the payment of another payor. Claims under litigation and vehicular incidents can take ayear or longer to collect. Medicare and other payor claims relating to new clinics awaiting CMS approval initially may not be submitted for six months or more. When all reasonableinternal collection efforts have been exhausted, accounts are written off prior to sending them to outside collection firms. With managed care, commercial health plans and self-pay payortype receivables, the write-off generally occurs after the account receivable has been outstanding for 120 days or longer.We have future obligations for debt repayments, employment agreements and future minimum rentals under operating leases. The obligations as of December 31, 2020 aresummarized as follows (in thousands): Total 2021 2022 2023 2024 2025 Thereafter Credit Agreement $16,000 $16,000 $- $- $- $- $- Notes Payable 5,495 4,899 596 - - - - Interest Payable 114 107 7 - - - - Employee Agreements 47,884 39,402 7,145 1,332 5 - - Operating Leases 119,834 37,427 29,655 22,233 14,379 7,909 8,231 $189,327 $97,835 $37,403 $23,565 $14,384 $7,909 $8,231 We generally enter into various notes payable as a means of financing our acquisitions. Our present outstanding notes payable primarily relate to the acquisitions of a business oracquisitions of majority interests in businesses. At December 31, 2020, our remaining outstanding balance on these notes aggregated $5.5 million. The notes payable for the acquisitionof businesses of $5.5 million are payable in 2021 and 2022. Notes are generally payable in equal annual installments of principal over two years plus any accrued and unpaid interest. Seeabove table for a detail of future principal payments. Interest accrues at various interest rates ranging from 3.25% to 5.50% per annum, subject to adjustment.In conjunction with acquisitions, we entered into amendments to our limited partnership agreements for our acquired partnerships. The limited partnership agreements, asamended, provide that, upon the triggering events, we have a Call Right and the selling entity or individual has a Put Right for the purchase and sale of the limited partnership interestheld by the partner. Once triggered, the Put Right and the Call Right do not expire, even upon an individual partner’s death, and contain no mandatory redemption feature. The purchaseprice of the partner’s limited partnership interest upon the exercise of either the Put Right or the Call Right is calculated per the terms of the respective agreements and classified asredeemable non-controlling interest (temporary equity) in our consolidated balance sheets. The fair value of the redeemable non-controlling interest at December 31, 2020 was $132.3million.As of December 31, 2020, we have accrued $5.7 million related to credit balances and overpayments due to patients and payors. This amount is expected to be paid in 2021.From September 2001 through December 31, 2008, our Board of Directors (“Board”) authorized us to purchase, in the open market or in privately negotiated transactions, up to2,250,000 shares of our common stock. In March 2009, the Board authorized the repurchase of up to 10% or approximately 1,200,000 shares of our common stock (“March 2009Authorization”). Our Amended Credit Agreement permits share repurchases of up to $15,000,000 in the aggregate, subject to compliance with covenants. We are required to retireshares purchased under the March 2009 Authorization.There is no expiration date for the share repurchase program. As of December 31, 2020, there are currently an additional estimated 124,740 shares (based on the closing price of$120.25 on December 31, 2020) that may be purchased from time to time in the open market or private transactions depending on price, availability and our cash position. We did notpurchase any shares of our common stock during the year ended December 31, 2020 and 2019.Off Balance Sheet ArrangementsWe 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:•the multiple effects of the impact of public health crises and epidemics/pandemics, such as the novel strain of COVID-19 (coronavirus) which the financial magnitude cannot becurrently estimated;•changes as the result of government enacted national healthcare reform;39Table of Contents•changes in Medicare rules and guidelines and reimbursement or failure of our clinics to maintain their Medicare certification and/or enrollment status, including the Medicarereimbursement reductions•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 or reputational harm and increased costs;•compliance with federal and state laws and regulations relating to the privacy of individually identifiable patient information, and associated fines and penalties for failure tocomply;•changes in reimbursement rates or payment methods from third party payors including government agencies, and changes in the deductibles and co-pays owed by patients;•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 certain clinics and thereby incur losses and/or closure costsincluding the possible write-down or write-off of goodwill and other intangible assets;•competitive environment in the industrial injury prevention business, which could result in the termination or non-renewal of contractual service arrangements and otheradverse financial consequences for that service line;adverse financial consequences for that service line;•acquisitions, purchase of non-controlling interests (minority interests) and the successful integration of the operations of the 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 action and reputational harm and may result in a violationof the Health Insurance Portability and Accountability Act of 1996 of the Health Information Technology for Economic and Clinical Health Act;•maintaining adequate internal controls;•maintaining necessary insurance coverage;•availability, terms, and use of capital; and•weather and other seasonal factors.See also Risk Factors in Item 1A of this Annual Report on Form 10-K.ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.We do not maintain any derivative instruments such as interest rate swap arrangements, hedging contracts, futures contracts or the like. Our only indebtedness as of December 31,2020 was the outstanding balance of seller notes from our acquisitions of $5.5 million and an outstanding balance on our Amended Credit Agreement of $16.0 million. The outstandingbalance under our Amended Credit Agreement is subject to fluctuating interest rates. A 1% change in the interest rate would yield an additional $160,000 of interest expense. See Note 9to our consolidated financial statements included in Item 8.40Table 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 LLP42 Audited Financial Statements: Consolidated Balance Sheets as of December 31, 2020 and 201945Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 201846Consolidated Statements of Changes in Equity for the years ended December 31, 2020, 2019 and 201847Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 201848Notes to Consolidated Financial Statements4941Table 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) and subsidiaries (the “Company”) as of December 31, 2020 and2019, the related consolidated statements of income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes andfinancial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all materialrespects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period endedDecember 31, 2020, in conformity with accounting principles generally accepted in the United States of America.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financialreporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission (“COSO”), and our report dated March 1, 2021 expressed an unqualified opinion.Basis for opinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of thefinancial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well asevaluating the overall presentation of the financial statements. 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 was communicated or required to be communicated to theaudit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complexjudgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating thecritical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures 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 are rendered. Net patient revenues (patient revenues lessestimated contractual adjustments) are recognized at the estimated net realizable amounts from third-party payors, patients and others in exchange for services rendered whenobligations under the terms of the contract are satisfied. The Company has agreements with third-party payors that provides for payments at amounts different from its established rates.Each month the Company estimates its contractual adjustment for each clinic based on the terms of third-party payor contracts and the historical collection and write-off experience ofthe clinic and applies a contractual adjustment reserve percentage to the gross accounts receivable balances. The Company then performs a comparison of cash collections tocorresponding net revenues for the prior twelve months. We identified the measurement of contractual adjustments as a critical audit matter.The principal consideration for our determination that the measurement of contractual adjustments is a critical audit matter is that the estimate requires a high degree of auditorsubjectivity in evaluating management’s assumptions related to developing future collection patterns across the various clinic locations.42Table of ContentsOur audit procedures related to the Company’s measurement of contractual adjustments included the following, among others.•We tested the design and operating effectiveness of controls relating to billing and cash collection, net rate trend analysis by clinic and cash collection versus net revenuetrend analysis.•For a sample of patient visits, we inspected and compared underlying documents for each transaction, which included gross billing rates and cash collected (net revenue).•For a sample of patient visits, we traced gross billings and net revenue to net revenue recorded in the general ledger and to each report used in determining and assessing thecontractual adjustment calculation.•We compared cash collections to recorded net revenue over a twelve month period ending December 31, 2020 and again for the twelve month period ending in the first monthsubsequent to period end, to identify whether there were unusual trends that would indicate that the usage of historical collection patterns would no longer be reasonable topredict future collection patterns./s/ GRANT THORNTON LLPWe have served as the Company’s auditor since 2004.Houston, TexasMarch 1, 202143Table 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, 2020, based oncriteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion,the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of theCompany as of and for the year ended December 31, 2020, and our report dated March 1, 2021 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 assessment of the effectiveness of internal control over financialreporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internalcontrol over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company inaccordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whethereffective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting,assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing suchother procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis 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 reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, andthat receipts and expenditures of the company are being 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 that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to futureperiods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate./s/ GRANT THORNTON LLPHouston, TexasMarch 1, 202144Table of ContentsU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands, except share data) December 31, 2020 December 31, 2019 ASSETS Current assets: Cash and cash equivalents $32,918 $23,548 Patient accounts receivable, less allowance for credit losses of $2,008 and $2,698, respectively 41,906 46,228 Accounts receivable - other 9,039 9,823 Other current assets 3,773 5,787 Total current assets 87,636 85,386 Fixed assets: Furniture and equipment 55,426 54,942 Leasehold improvements 35,320 33,247 Fixed assets, gross 90,746 88,189 Less accumulated depreciation and amortization 69,081 66,099 Fixed assets, net 21,665 22,090 Operating lease right-of-use assets 81,595 81,586 Goodwill 345,646 317,676 Other identifiable intangible assets, net 56,280 52,588 Other assets 1,539 1,519 Total assets $594,361 $560,845 LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS, USPHSHAREHOLDERS’ EQUITY AND NON-CONTROLLING INTERESTS Current liabilities: Accounts payable - trade $1,335 $2,494 Accrued expenses 59,746 30,855 Current portion of operating lease liabilities 27,512 26,486 Current portion of notes payable 4,899 728 Total current liabilities 93,492 60,563 Notes payable, net of current portion 596 4,361 Revolving line of credit 16,000 46,000 Deferred taxes 7,779 10,071 Operating lease liabilities, net of current portion 61,985 60,258 Other long-term liabilities 4,539 141 Total liabilities 184,391 181,394 Redeemable non-controlling interests - temporary equity 132,340 137,750 Commitments and Contingencies (Note 17) U.S. Physical Therapy, Inc. (“USPH”) shareholders’ equity: Preferred stock, $0.01 par value, 500,000 shares authorized, no shares issued and outstanding - - Common stock, $0.01 par value, 20,000,000 shares authorized, 15,066,282 and 14,989,337 shares issued, respectively 151 150 Additional paid-in capital 95,622 87,383 Retained earnings 212,015 184,352 Treasury stock at cost, 2,214,737 shares (31,628) (31,628)Total USPH shareholders’ equity 276,160 240,257 Non-controlling interests - permanent equity 1,470 1,444 Total USPH shareholders' equity and non-controlling interests 277,630 241,701 Total liabilities, redeemable non-controlling interests, USPH shareholders' equity and non-controlling interests $594,361 $560,845 See notes to consolidated financial statements.45Table of ContentsU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(In thousands, except per share data) Year Ended December 31, 2020 December 31, 2019 December 31, 2018 Net patient revenues $373,340 $433,345 $417,703 Other revenues 49,629 48,624 36,208 Net revenues 422,969 481,969 453,911 Operating costs: Salaries and related costs 235,629 274,233 259,228 Rent, supplies, contract labor and other 84,336 90,379 88,426 Provision for credit losses 4,623 4,858 4,603 Closure costs - lease and other 2,072 25 (9)Closure costs - derecognition of goodwill 1,859 - - Total operating costs 328,519 369,495 352,248 Gross profit 94,450 112,474 101,663 Corporate office costs 42,037 45,049 41,349 Operating income 52,413 67,425 60,314 Other income and expense: Relief Funds 13,501 - - Gain on sale of partnership interest and clinics 1,091 5,514 - Gain on derecognition of debt - - 1,846 Interest and other income, net 142 46 93 Interest expense - debt and other (1,634) (2,079) (2,042)Total other income and expense 13,100 3,481 (103)Income before taxes 65,513 70,906 60,211 Provision for income taxes 13,022 13,647 11,369 Net income 52,491 57,259 48,842 Less: net income attributable to non-controlling interests: Non-controlling interests - permanent equity (6,122) (6,561) (5,536)Redeemable non-controlling interests - temporary equity (11,175) (10,659) (8,433) (17,297) (17,220) (13,969) Net income attributable to USPH shareholders $35,194 $40,039 $34,873 Basic and diluted earnings per share attributable to USPH shareholders $2.48 $2.45 $1.31 Shares used in computation - basic and diluted 12,835 12,756 12,666 Dividends declared per common share $0.32 $1.14 $0.92 See notes to consolidated financial statements.46Table of ContentsU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(In thousands) U.S. Physical Therapy, Inc. Common Stock AdditionalPaid-In Capital RetainedEarnings Treasury Stock Total Shareholders’Equity Non-ControllingInterests Total Shares Amount Shares Amount Balance January 1, 2018 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-based awards - - 5,939 - - - 5,939 - 5,939 Transfer of compensation liability forcertain stock issued pursuant tolong-term incentive plans - - 373 - - - 373 - 373 Sale of non-controlling interest, netof purchases and tax - - (224) - - - (224) (48) (272)Dividends paid to USPT shareholders - - - (11,664) - - (11,664) - (11,664)Distributions to non-controllinginterest partners - permanentequity - - - - - - - (5,812) (5,812)Other - - - 49 - - 49 50 99 Net income attributable to non-controlling interest - 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 U.S. Physical Therapy, Inc. Common Stock AdditionalPaid-In Capital RetainedEarnings Treasury Stock Total Shareholders’Equity Non-ControllingInterests Total Shares Amount Shares Amount 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-based awards - - 6,985 - - - 6,985 - 6,985 Transfer of compensation liability forcertain stock issued pursuant tolong-term incentive plans - - 636 - - - 636 - 636 Purchase of partnership interests -redeemable non-controllinginterests - - (266) - - - (266) (26) (292)Sale of non-controlling interest, netof purchases and tax - - - 196 - - 196 - 196 Dividends paid to USPT shareholders - - - (14,555) - - (14,555) - (14,555)Distributions to non-controllinginterest partners - permanentequity - - - - - - - (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 U.S. Physical Therapy, Inc. Common Stock AdditionalPaid-In Capital RetainedEarnings Treasury Stock Total Shareholders’Equity Non-ControllingInterests Total Shares Amount Shares Amount Issuance of restricted stock, net ofcancellations 76 1 - - - - 1 - 1 Revaluation of redeemable non-controlling interest, net of tax - - - (3,415) - - (3,415) - (3,415)Compensation expense - equity-based awards - - 7,917 - - - 7,917 - 7,917 Transfer of compensation liability forcertain stock issued pursuant tolong-term incentive plans - - 486 - - - 486 - 486 Purchase of partnership interests -redeemable non-controllinginterests - - - - - - - (168) (168)Sale of non-controlling interest, netof purchases and tax - - (164) - - - (164) - (164)Dividends paid to USPT shareholders - - - (4,110) - - (4,110) - (4,110)Distributions to non-controllinginterest partners - permanentequity - - - - - - - (5,928) (5,928)Other - - - (6) - - (6) - (6)Net income attributable to non-controlling interest - permanentequity - - - - - - - 6,122 6,122 Net income attributable to USPHshareholders - - - 35,194 - - 35,194 - 35,194 Balance December 31, 2020 15,065 151 95,622 212,015 (2,215) (31,628) 276,160 1,470 277,630 See notes to consolidated financial statements.47Table of ContentsU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Year Ended December 31, 2020 December 31, 2019 December 31, 2018 OPERATING ACTIVITIES Net income including non-controlling interests $52,491 $57,259 $48,842 Adjustments to reconcile net income including non-controlling interests to net cash provided by operatingactivities: Depreciation and amortization 10,533 10,095 9,755 Provision for credit losses 4,623 4,858 4,603 Equity-based awards compensation expense 7,917 6,985 5,939 Deferred income taxes (258) 4,651 4,813 Gain on sale of partnership interest (1,091) (5,514) (1,846)Write-off of goodwill - closed clinics 1,859 - - Other 281 96 167 Changes in operating assets and liabilities: Decrease (increase) in patient accounts receivable 899 (6,376) (3,434)Decrease(increase) in accounts receivable - other 1,661 (2,499) (1,087)Decrease (increase) in other assets 4,161 (1,878) 345 Increase (decrease) in accounts payable and accrued expenses 12,427 (4,209) 4,876 Increase (decrease) in other long-term liabilities 4,492 (1,020) 32 Net cash provided by operating activities 99,995 62,448 73,005 INVESTING ACTIVITIES Purchase of fixed assets (7,639) (10,189) (7,193)Purchase of majority interest in businesses, net of cash acquired (23,907) (30,597) (16,367)Purchase of redeemable non-controlling interest, temporary equity (20,385) (8,651) - Purchase of non-controlling interest, permanent equity (238) (428) (350)Proceeds on sale of redeemable non-controlling interest, temporary equity 127 207 - Proceeds on sales of partnership interest, clinics and fixed assets 839 11,665 1 Net cash used in investing activities (51,203) (37,993) (23,909) FINANCING ACTIVITIES Distributions to non-controlling interests, permanent and temporary equity (18,331) (16,235) (15,646)Cash dividends paid to shareholders (4,110) (14,555) (11,664)Proceeds from revolving line of credit 214,000 145,000 103,000 Payments on revolving line of credit (244,000) (137,000) (119,000)Payments to settle mandatorily redeemable non-controlling interests - - (265)Principal payments on notes payable (1,037) (1,433) (4,044)Medicare Accelerated and Advance Payment Funds 14,054 - - Other 2 (52) (42)Net cash used in financing activities (39,422) (24,275) (47,661) Net increase in cash and cash equivalents 9,370 180 1,435 Cash and cash equivalents - beginning of period 23,548 23,368 21,933 Cash and cash equivalents - end of period $32,918 $23,548 $23,368 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Income taxes $7,677 $9,856 $9,183 Interest $1,202 $1,890 $2,357 Non-cash investing and financing transactions during the period: Purchase of businesses - seller financing portion $1,121 $4,300 $950 Purchase of business - payable to common shareholders of acquired business $- $502 $- Notes payable related to purchase of redeemable non-controlling interest, temporary equity $136 $283 $- Notes payable related to purchase of non-controlling interest, permanent equity $699 $103 $- Notes receivable related to sale of partnership interest - redeemable non-controlling interest $- $2,870 $- Notes receivables related to sale of partnership interest $994 $- $- See notes to consolidated financial statements.48Table of ContentsU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2020, 2019 and 20181. Organization, Nature of Operations and Basis of PresentationThe consolidated financial statements include the accounts of U.S. Physical Therapy, Inc. and its subsidiaries (the “Company”). All significant intercompany transactions andbalances have been eliminated.The Company operates its business through two reportable business segments. The Company’s reportable segments include the physical therapy operations segment and theindustrial injury prevention services segment. The Company’s physical therapy operations consist of physical therapy and occupational therapy clinics that provide pre-and post-operative care and treatment for orthopedic related disorders, sports-related injuries, preventive care, rehabilitation of injured workers and neurological injuries. The industrial injuryprevention services segment includes onsite injury prevention and rehabilitation, performance optimization and ergonomic assessments. Prior to the second quarter of 2020, theCompany operated as a single segment. All prior year segment information has been reclassified to conform to the 2020 segment presentation. See Note 12. Segment Information.Physical Therapy OperationsThe physical therapy operations segment primarily operates through subsidiary clinic partnerships, in which the Company generally owns a 1% general partnership interest in allthe Clinic Partnerships. Our limited partnership interests typically range from 10% to 99% in the Clinic Partnerships. The managing therapist of each clinic owns, directly or indirectly, theremaining limited partnership interest in most of the clinics (hereinafter referred to as “Clinic Partnerships”). To a lesser extent, the Company operates some clinics, through wholly-owned subsidiaries, under profit sharing arrangements with therapists (hereinafter referred to as “Wholly-Owned Facilities”).The Company continues to seek to attract for employment physical therapists who have established relationships with physicians and other referral sources, by offering thesetherapists a competitive salary and incentives based on the profitability of the clinic that they manage. For multi-site clinic practices in which a controlling interest is acquired by theCompany, the prior owners typically continue on as employees 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, the Company has developed satellite clinic facilities as part of existing Clinic Partnerships and Wholly-Owned Facilities, with theresult that a substantial number of Clinic Partnerships and Wholly-Owned Facilities operate more than one clinic location.As of December 31, 2020, the Company owned and/or operated 554 clinics in 39 states. The clinics’ business primarily originates from physician referrals. The principal sources ofpayment for the clinics’ services are managed care programs, commercial health insurance, Medicare/Medicaid, workers’ compensation insurance and proceeds from personal injurycases. In addition to the Company’s ownership and operation of outpatient physical therapy clinics, it also manages physical therapy facilities for third parties, such as physicians andhospitals, with 38 such third-party facilities under management as of December 31, 2020.During the last three years, the Company completed the following acquisitions within its physical therapy operations segment:Acquisition Date % InterestAcquired Number ofClinics November 2020 Acquisition November 30, 2020 75% 3September 2020 Acquisition September 30, 2020 70% *February 2020 Acquisition February 27, 2020 65%**4September 2019 Acquisition September 30, 2019 67% 11August 2018 Acquisition August 31, 2018 70% 4*The business includes six management and services contracts which had a remaining term of approximately five years as of the date acquired.**The four clinics are in four separate partnerships. The Company's interest in the four partnerships range from 10.0% to 83.8%, with an overall 65.0% based on the initial purchasetransaction.49Table of ContentsAlso during 2019, we purchased the assets and business of one physical therapy clinic in a separate transaction. The clinic operates as a satellite clinic of one of the existingpartnerships. Besides the August 2018 multi-clinic acquisition, we acquired five separate clinic practices that year through several of our majority owned Clinic Partnerships. Thesepractices operate as satellites of the respective existing Clinic Partnerships. During the year ended December 31, 2020, the Company sold 14 previously closed clinics. The aggregate sales price was $1.1 million, of which $0.7 million was paid in cash and$0.4 million in a note receivable, payable in two equal installments of principal and any accrued interest on June 15, 2021 and 2022.The Company intends to continue to pursue additional acquisition opportunities, develop new clinics and open satellite clinics.Clinic PartnershipsFor non-acquired Clinic Partnerships, the earnings and liabilities attributable to the non-controlling interests, typically owned by the managing therapist, directly or indirectly, arerecorded within the balance sheets and income statements as non-controlling interests – permanent equity. For acquired Clinic Partnerships with redeemable non-controlling interests,the earnings attributable to the redeemable non-controlling interests are recorded within the consolidated statements of income line item – net income attributable to redeemable non-controlling interests – temporary equity and the equity interests are recorded on the consolidated balance sheet as redeemable non-controlling interests – temporary equity.Effective December 31, 2017, the Company entered into amendments to its acquired limited partnership agreements replacing the mandatory redemption features. No monetaryconsideration was paid to the partners to amend the agreements. The amended limited partnership agreements provide that, upon certain events, the Company has a call right (the “CallRight”) and the selling entity has a put right (the “Put Right”) for the purchase and sale of the limited partnership interest held by the partner. Once triggered, the Put Right and the CallRight do not expire, even upon an individual partner’s death, and contain no mandatory redemption feature. The purchase price of the partner’s limited partnership interest upon theexercise of either the Put Right or the Call Right is calculated per the terms of the respective agreements. The Company accounted for the amendment of its limited partnershipagreements as an extinguishment of the outstanding Seller Entity Interests, as defined in Note 5, classified as liabilities through the issuance of new Seller Entity Interests classified intemporary 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 at their fair value, and recorded no gain or loss on extinguishment as management believes the redemption value (i.e. the carrying amount) and fairvalue are the same. In summary, the redemption values of the mandatorily redeemable non-controlling interest (previously classified as liabilities) were reclassified as redeemable non-controlling interest (temporary equity) at fair value on the December 31, 2017 consolidated balance sheet. 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 profit sharing due the clinic partners/directors. The amount isexpensed as compensation and included in clinic operating costs—salaries and related costs. The respective liability is included in current liabilities—accrued expenses on theconsolidated balance sheets.Industrial Injury Prevention ServicesIn March 2017, the Company acquired a 55% interest in the initial industrial injury prevention business. On April 30, 2018, the Company acquired a 65% interest in anotherbusiness in the industrial injury prevention sector. On April 30, 2018, the Company combined the two businesses. After the combination, the Company owned a 59.45% interest in thecombined business, Briotix Health, Limited Partnership (“Briotix Health”), which is the Company’s industrial injury prevention operation.On April 11, 2019, the Company acquired 100% of a third provider of industrial injury prevention services. The acquired company specializes in delivering injury prevention andcare, 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 clientlocations. After the acquisition, the business was then combined with Briotix Health increasing the Company’s ownership position in the partnership to approximately 76.0%.Services provided in the industrial injury prevention services segment include onsite injury prevention and rehabilitation, performance optimization, post offer employmenttesting, functional capacity evaluations, and ergonomic 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. The Company performs these services through Industrial Sports Medicine Professionals, consisting ofboth physical therapists and specialized certified athletic trainers (ATCs).50Table of ContentsImpact of COVID-19As previously disclosed in a series of filings with the SEC and further described in detail in our Quarterly Reports on Form 10-Q for the first three quarters of 2020, the Company’sresults have been negatively impacted by the effects of the COVID-19 pandemic. Management has taken a number of steps to reduce costs, make up for operating losses incurred inMarch and April, and increase profits subsequently. The Company continues to experience somewhat lower physical therapy patient volumes; however revenues improved significantlyin the 2020 fourth quarter compared to the 2020 second and third quarters. The Company’s average physical therapy patient volumes per day per clinic were 26.2, 18.9, 25.8, and 27.7,respectively, in the first four quarters of 2020. The Company’s industrial injury prevention business was less affected by the pandemic in 2020.In March, with the onset of the COVID-19 pandemic, the Company began to furlough or terminate approximately 40% of its 5,500 full and part-time workforce. Since early May,approximately 1,200 of the furloughed employees have returned to work on a full or part-time basis.As of the filing of this annual report, the Company continues to experience lower physical therapy revenues. As stay at home orders and other restrictions have been lifted, wehave seen our physical therapy volumes trending upwards. Should stay at home orders or other restrictions be reenacted, the Company could see its Company’s patient volume andrevenues decline again.The Company has put preparedness plans in place at its facilities to maintain continuity of operations, while also taking steps to keep employees and patients safe. In line withrecommendations to reduce large gatherings and increase social distancing, the Company has, where practical, transitioned a large number of office-based employees to a remote workenvironment.Medicare Accelerated and Advance Payment Program (“MAAPP Funds”)In response to the COVID-19 pandemic, the federal government approved the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act allowed forqualified healthcare providers to receive advanced payments under the existing MAAPP Funds during the COVID-19 pandemic. Under this program, healthcare providers could chooseto receive advanced payments for future Medicare services provided. The Company applied for and received approval from Centers for Medicare & Medicaid Services (“CMS”) in April2020. The Company recorded these payments as a liability until all performance obligations have been met as the payments were made on behalf of patients before services wereprovided. Currently, MAAPP funds received are required to be applied to future Medicare billings commencing in August 2021, with all such remaining amounts required to be repaid byJanuary 2024. Beginning January 2024, any unpaid balance will begin accruing interest. The Company currently intends to repay funds prior to August 2021. Included in cash and cashequivalents and accrued liabilities at December 31, 2020 is $14.1 million of MAAPP Funds.Relief FundsThe CARES Act also provided additional waivers, reimbursement, grants and other funds to assist health care providers during the COVID-19 pandemic, including $100.0 billion inappropriations for the Public Health and Social Services Emergency Fund, also referred to as the Provider Relief Fund, to be used for preventing, preparing, and responding to thecoronavirus, and for reimbursing eligible health care providers for lost revenues and health care related expenses that are attributable to COVID-19. Through December 31, 2020, the Company’s consolidated subsidiaries received approximately $13.5 million of payments under the CARES Act (“Relief Funds”). For the yearended December 31, 2020, the Company has recognized approximately $13.5 million, as Other income – Relief Funds on the accompany consolidated statement of operations. Thesefunds are not required to be repaid upon attestation and compliance with certain terms and conditions, which could change materially based on evolving grant compliance provisionsand guidance provided by the U.S. Department of Health and Human Services. Currently, the Company can attest and comply with the terms and conditions of the grant guidance. TheCompany will continue to monitor the evolving guidelines and may record adjustments as additional information is released.51Table of Contents2. Significant Accounting PoliciesCash EquivalentsThe Company maintains its cash and cash equivalents at financial institutions. The Company considers all highly liquid investments with a maturity of three months or lesswhen purchased to be cash equivalents. The combined account balances at several institutions typically exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverageand, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. Management believes that this risk is not significant.Long-Lived AssetsFixed assets are stated at cost. Depreciation is computed on the straight-line method over the estimated useful lives of the related assets. Estimated useful lives for furniture andequipment range from three to eight years and for software purchased from three to seven years. Leasehold improvements are amortized over the shorter of the related lease term orestimated useful lives of the assets, 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 of certain events or circumstances that indicate therelated amounts may be impaired. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.GoodwillGoodwill represents the excess of the amount paid and fair value of the non-controlling interests over the fair value of the acquired business assets, which include certainidentifiable intangible assets. Historically, goodwill has been derived from acquisitions and, prior to 2009, from the purchase of some or all of a particular local management’s equityinterest in an existing clinic. Effective January 1, 2009, if the purchase price of a non-controlling interest by the Company exceeds or is less than the book value at the time of purchase,any excess or shortfall is recognized as an adjustment to additional paid-in capital.Goodwill and other indefinite-lived intangible assets are not amortized, but are instead subject to periodic impairment evaluations. The fair value of goodwill and otheridentifiable intangible assets with indefinite lives are evaluated for impairment at least annually and upon the occurrence of certain events or conditions, and are written down to fairvalue if considered impaired. These events or conditions include, but are not limited to: a significant adverse change in the business environment, regulatory environment, or legalfactors; a current period operating or cash flow loss combined with a history of such losses or a projection of continuing losses; or a sale or disposition of a significant portion of areporting unit. The occurrence of one of these events or conditions could significantly impact an impairment assessment, necessitating an impairment charge. The Company evaluatesindefinite lived tradenames using the relief from royalty method in conjunction with its annual goodwill impairment test.The Company operates a two segment business which is made up of various clinics within partnerships, and the other is industrial injury prevention services business. Thepartnerships are components of regions and are aggregated to the operating segment level for the purpose of determining the Company’s reporting units when performing its annualgoodwill impairment test. In 2020, 2019 and 2018, there were six regions. In addition to the six regions, in 2020 and 2019, the impairment analysis included a separate analysis for theindustrial injury prevention business, as a separate reporting unit.As part of the impairment analysis, the Company is first required to assess qualitatively if it can conclude whether goodwill is more likely than not impaired. If goodwill is morelikely than not impaired, the Company is then required to complete a quantitative analysis of whether a reporting unit’s fair value is less than its carrying amount. In evaluating whether itis more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company considers relevant events or circumstances that affect the fair value or carryingamount of a reporting unit. The Company considers both the income and market approach in determining the fair value of its reporting units when performing a quantitative analysis.An impairment loss generally would be recognized when the carrying amount of the net assets of a reporting unit, inclusive of goodwill and other identifiable intangible assets,exceeds the estimated fair value of the reporting unit. The evaluation of goodwill in 2020, 2019 and 2018 did not result in any goodwill amounts that were deemed impaired.Based on the economic conditions experienced in 2020 and the decline in patient visits due to the pandemic, the Company evaluated whether events or circumstances indicatedthat it was more likely than not that the fair value of the reporting units were reduced below their carrying value as of December 31, 2020. As a result of the assessment, the Companydetermined that it was not more likely than not that goodwill and tradenames of the reporting units were impaired as of December 31, 2020.52Table of ContentsThe Company will continue to monitor for any triggering events or other indicators of impairment. Due to the uncertainty of the current economic conditions resulting from theCOVID-19 pandemic, the Company will continue to review its carrying amounts of goodwill and other intangibles quarterly.For the year ended December 31, 2020, the Company derecognized (wrote-off) goodwill in the amount of $1.9 million related to closed clinics due to COVID-19.Redeemable Non-Controlling InterestsThe non-controlling interests that are reflected as redeemable non-controlling interests in the consolidated financial statements consist of those in which the owners and theCompany have certain redemption rights, whether currently exercisable or not, and which currently, or in the future, require that the Company purchase or the owner sell the non-controlling interest held by the owner, if certain conditions are met. The purchase price is derived at a predetermined formula based on a multiple of trailing twelve months earningsperformance as defined in the respective limited partnership agreements. The redemption rights can be triggered by the owner or the Company at such time as both of the followingevents 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 thetransaction, 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 theowner or the Company to exercise its rights when the conditions triggering the redemption rights have been satisfied.On the date the Company acquires a controlling interest in a partnership, and the limited partnership agreement for such partnership contains redemption rights not under thecontrol of the Company, the fair value of the non-controlling interest is recorded in the consolidated balance sheet under the caption – Redeemable non-controlling interests. Then, ineach reporting period thereafter until it is purchased by the Company, the redeemable non-controlling interest is adjusted to the greater of its then current redemption value or initialcarrying value, based on the predetermined formula defined in the respective limited partnership agreement. As a result, the value of the non-controlling interest is not adjusted below itsinitial carrying value. The Company records any adjustment in the redemption value, net of tax, directly to retained earnings and are not reflected in the consolidated statements ofincome. Although the adjustments are not reflected in the consolidated statements of income, current accounting rules require that the Company reflects the adjustments, net of tax, inthe earnings per share calculation. The amount of net income attributable to redeemable non-controlling interest owners is included in consolidated net income on the face of theconsolidated statements of net income. Management believes the redemption value (i.e. the carrying amount) and fair value are the same.Non-Controlling InterestsThe Company recognizes non-controlling interests, in which the Company has no obligation but the right to purchase the non-controlling interests, as permanent equity in theconsolidated financial statements separate from the parent entity’s equity. The amount of net income attributable to non-controlling interests is included in consolidated net income onthe face of the statements of net income. Changes in a parent entity’s ownership interest in a subsidiary that do not result in deconsolidation are treated as equity transactions if theparent entity retains its controlling financial interest. The Company recognizes a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss is measured using thefair value of the non-controlling equity investment on the deconsolidation date.When the purchase price of a non-controlling interest by the Company exceeds the book value at the time of purchase, any excess or shortfall is recognized as an adjustment toadditional paid-in capital. Additionally, operating losses are allocated to non-controlling interests even when such allocation creates a deficit balance for the non-controlling interestpartner.53Table of ContentsRevenue RecognitionIn May 2014, March 2016, April 2016, and December 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09,Revenue from Contracts with Customers, ASU 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations, ASU 2016-10, Revenue from Contracts withCustomers, Identifying Performance Obligations and Licensing, ASU 2016-12, Revenue from Contracts with Customers, Narrow Scope Improvements and Practical Expedients, and ASU2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customer (collectively the “standards”), respectively, which supersede most of the currentrevenue recognition requirements (“ASC 606”). The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services tocustomers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.The Company implemented the new standards beginning January 1, 2018 using a modified retrospective transition method. The principal change relates to how the newstandard requires healthcare providers to estimate the amount of variable consideration to be included in the transaction price up to an amount which is probable that a significantreversal will not occur. The most common forms of variable consideration the Company experiences are amounts for services provided that are ultimately not realizable from a customer.There were no changes to revenues or other revenues upon implementation. Under the new standards, the Company’s estimate for unrealizable amounts will continue to be recognizedas a reduction to revenue. The bad debt expense historically reported will not materially change.For ASC 606, there is an implied contract between us and the patient upon each patient visit. Separate contractual arrangements exist between us and third-party payors (e.g.insurers, managed care programs, government programs, workers' compensation) which establish the amounts the third parties pay on behalf of the patients for covered servicesrendered. While these agreements are not considered contracts with the customer, they are used for determining the transaction price for services provided to the patients covered bythe third party payors. The payor contracts do not indicate performance obligations for us, but indicate reimbursement rates for patients who are covered by those payors when theservices are provided. At that time, the Company is obligated to provide services for the reimbursement rates stipulated in the payor contracts. The execution of the contract alone doesnot indicate a performance obligation. For self-paying customers, the performance obligation exists when we provide the services at established rates. The difference between theCompany’s established rate and the anticipated reimbursement rate is accounted for as an offset to revenue – contractual allowance.The following table details the revenue related to the various categories (in thousands). Year Ended December 31, 2020 December 31, 2019 December 31, 2018 Net patient revenues $373,340 $433,345 $417,703 Management contract revenues 8,410 8,676 8,339 Other revenues 2,020 2,486 2,403 Physical therapy operations $383,770 $444,507 $428,445 Industrial injury prevention services revenues 39,199 37,462 25,466 $422,969 $481,969 $453,911 Patient revenuesRevenues are recognized in the period in which services are rendered. Net patient revenues consists of revenues for physical therapy and occupational therapy clinics thatprovide pre-and post-operative care and treatment for orthopedic related disorders, sports-related injuries, preventative care, rehabilitation of injured workers and neurological-relatedinjuries. Net patient revenues (patient revenues less estimated contractual adjustments) are recognized at the estimated net realizable amounts from third-party payors, patients andothers in exchange for services rendered when obligations under the terms of the contract are satisfied. There is an implied contract between us and the patient upon each patient visit.Generally, this occurs as the Company provides physical and occupational therapy services, as each service provided is distinct and future services rendered are not dependent onpreviously rendered services. The Company has agreements with third-party payors that provide for payments to the Company at amounts different from its established rates.Medicare ReimbursementThe Medicare program reimburses outpatient rehabilitation providers based on the Medicare Physician Fee Schedule (‘‘MPFS’’). For services provided in 2018, a 0.5% increasewas 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 budgetneutrality adjustment. For services provided in 2020 through 2025, a 0.0% percent update will be applied each year to the fee schedule payment rates, before applying the mandatorybudget neutrality adjustment. However, in the 2020 MPFS Final Rule, CMS proposed an increase to the code values for office/outpatient evaluation and management (E/M) codes andcuts to other codes to maintain budget neutrality of the MPFS. This change in code valuations was to become effective January 1, 2021. Under the 2021 MPFS Final Rule, reimbursementfor the codes applicable to physical/occupational therapy services were to be reduced by approximately 9% in the aggregate. The 9% reduction in payment was addressed by theConsolidated Appropriations Act, 2021 (“Act”) signed into law on December 27, 2020. Based on various provisions in the Act, the Company now estimates that the Medicare ratereduction for the full year of 2021 will be approximately 3.5% in aggregate.54Table of ContentsBeginning in 2021, payments to individual therapists (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 electronichealth records. Under the MIPS requirements, a provider's performance is assessed according to established performance standards each year and then is used to determine anadjustment factor that is applied to the professional's payment for the corresponding payment year. The provider’s MIPS performance in 2019 will determine the payment adjustment in2021. Each year from 2019 through 2024, professionals who receive a significant share of their revenues through an alternate payment model (“APM”), (such as accountable careorganizations or 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 and testing of new APMs and to promote the alignment of incentives across payors. The specifics ofthe 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 federalspending by approximately $1.2 trillion. Payments to Medicare providers are subject to these automatic spending reductions, subject to a 2% cap. On April 1, 2013, a 2% reduction toMedicare payments was implemented. The Bipartisan Budget Act of 2015, enacted on November 2, 2015, extended the 2% reductions to Medicare payments through fiscal year 2025. TheBipartisan Budget Act of 2018, enacted on February 9, 2018, extends the 2% reductions to Medicare payments through fiscal year 2027. The Coronavirus Aid, Relief, and EconomicSecurity (CARES) Act suspended the 2% payment reduction Medicare payments for dates of service from May 1, 2020, through December 31, 2020. The Consolidated AppropriationsAct, 2021 further suspended the 2% payment reduction until March 31, 2021.Historically, the total amount paid by Medicare in any one year for outpatient physical therapy, occupational therapy, and/or speech-language pathology services provided toany Medicare beneficiary was subject to an annual dollar limit (i.e., the “Therapy Cap” or “Limit”). For 2017, the annual Limit on outpatient therapy services was $1,980 for combinedPhysical Therapy and Speech Language Pathology services and $1,980 for Occupational Therapy services. As a result of Bipartisan Budget Act of 2018, the Therapy Caps have beeneliminated, 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 or exceeded $3,700 in therapy expenditures during acalendar year have been subject to a manual medical review to determine whether applicable payment criteria are satisfied. The $3,700 threshold is applied to Physical Therapy andSpeech Language Pathology Services; a separate $3,700 threshold is applied to the Occupational Therapy. The MACRA directed CMS to modify the manual medical review process suchthat those reviews will no longer apply to all claims exceeding the $3,700 threshold and instead will be determined on a targeted basis based on a variety of factors that CMS considersappropriate. The Bipartisan Budget Act of 2018 extends the targeted medical review indefinitely, but reduces the threshold to $3,000 through December 31, 2027. For 2028, the thresholdamount will be increased by the percentage increase in the Medicare Economic Index (“MEI”) for 2028 and in subsequent years the threshold amount will increase based on 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 for calendar year 2011. The MPPR applied to all outpatienttherapy services paid under Medicare Part B — occupational therapy, physical therapy and speech-language pathology. Under the policy, the Medicare program pays 100% of thepractice expense component of the Relative Value Unit (“RVU”) for the therapy procedure with the highest practice expense RVU, then reduces the payment for the practice expensecomponent for the second and subsequent therapy procedures or units of service furnished during the same day for the same patient, regardless of whether those therapy services arefurnished in separate sessions. Since 2013, the practice 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 additional data on patient function during the course of therapy inorder to better understand patient conditions and outcomes. All practice settings that provide outpatient therapy services are required to include this data on the claim form. Since 2013,therapists have been required to report new codes and modifiers on the claim form that reflect a patient’s functional limitations and goals at initial evaluation, periodically throughoutcare, and at discharge. Reporting of 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 a modifier indicating the service was furnished by atherapy 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 amountotherwise applicable for the service.55Table of ContentsStatutes, regulations, and payment rules governing the delivery of therapy services to Medicare beneficiaries are complex and subject to interpretation. We believe that we arein compliance, in all material respects, with all applicable laws and regulations and are not aware of any pending or threatened investigations involving allegations of potentialwrongdoing that would have a material effect on the our financial statements as of December 31, 2020. Compliance with such laws and regulations can be subject to future governmentreview and interpretation, as well as significant regulatory action including fines, penalties, and exclusion from the Medicare program. For year ended December 31, 2020, net patientrevenues from Medicare were approximately $101.6 million.Given the history of frequent revisions to the Medicare program and its reimbursement rates and rules, we may not continue to receive reimbursement rates from Medicare thatsufficiently compensate us for our services or, in some instances, cover our operating costs. Limits on reimbursement rates or the scope of services being reimbursed could have amaterial adverse effect on our revenue, financial condition and results of operations. Additionally, any delay or default by the federal or state governments in making Medicare and/orMedicaid reimbursement payments could materially and, adversely, affect our business, financial condition and results of operations.Management Contract RevenuesManagement contract revenues, which are included in other revenues, are derived from contractual arrangements whereby the Company manages a clinic for third party owners.The Company does not have any ownership interest in these clinics. Typically, revenues are determined based on the number of visits conducted at the clinic and recognized at a pointin time when services are performed. 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 consolidated statements of net income, are derived from onsite serviceswe provide to clients’ employees including injury prevention, rehabilitation, ergonomic assessments and performance optimization. Revenue from the Company’s industrial injuryprevention business is recognized when obligations under the terms of the contract are satisfied. Revenues are recognized at an amount equal to the consideration the company expectsto receive in exchange for providing injury prevention services to its clients. The revenue is determined and recognized based on the number of hours and respective rate for servicesprovided in a given period.Other RevenuesAdditionally, other revenues include services the Company provides on-site at locations such as schools and industrial worksites for physical or occupational therapy services,athletic trainers and gym membership fees. Contract terms and rates are agreed to in advance between the Company and the third parties. Services are typically performed over thecontract period and revenue is recorded at the point of service. If the services are paid in advance, revenue is recorded as a contract liability over the period of the agreement andrecognized at the point in time, when the services are performed.Contractual AllowancesThe allowance for estimated contractual adjustments is based on terms of payor contracts and historical collection and write-off experience. Contractual allowances result fromthe differences between the rates charged for services performed and expected reimbursements by both insurance companies and government sponsored healthcare programs for suchservices. Medicare regulations and the various third party payors and managed care contracts are often complex and may include multiple reimbursement mechanisms payable for theservices provided in Company clinics. The Company estimates contractual allowances based on its interpretation of the applicable regulations, payor contracts and historicalcalculations. Each month the Company estimates its contractual allowance for each clinic based on payor contracts and the historical collection experience of the clinic and applies anappropriate contractual allowance reserve percentage to the gross accounts receivable balances for each payor of the clinic. Based on the Company’s historical experience, calculatingthe contractual allowance reserve percentage at the payor level is sufficient to allow the Company to provide the necessary detail and accuracy with its collectability estimates. However,the services authorized and provided and related reimbursement are subject to interpretation that could result in payments that differ from the Company’s estimates. Payor terms areperiodically revised necessitating continual review and assessment of the estimates made by management. The Company’s billing system does not capture the exact change in itscontractual allowance reserve estimate from period 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 the aggregate, historically the difference between netrevenues and corresponding cash collections for any fiscal year has generally reflected a difference within approximately 1% to 1.5% of net revenues. Additionally, analysis ofsubsequent periods’ contractual write-offs on a payor basis reflects a difference within approximately 1% to 1.5% between the actual aggregate contractual reserve percentage ascompared to the estimated contractual allowance reserve percentage associated with the same period end balance. As a result, the Company believes that a change in the contractualallowance reserve estimate would not likely be more than 1% to 1.5% of gross billings included in accounts receivable at December 31, 2020.56Table of ContentsAllowance for Credit LossesThe Company determines allowances for credit losses based on the specific agings and payor classifications at each clinic. The provision for credit losses is included inoperating 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 allowancefor credit losses, 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 the future tax consequences attributable to differencesbetween the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effecton deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the positionfollowing an audit. For tax positions meeting the more-likely-than-not threshold, the amount to be recognized in the financial statements is the largest benefit that has a greater than 50percent likelihood of being realized upon ultimate settlement with the relevant tax authority.The Company did not have any accrued interest or penalties associated with any unrecognized tax benefits nor was any interest expense recognized during the twelve monthsended December 31, 2020, 2019 and 2018. The Company will book any interest or penalties, 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 and notes payable approximate their fair values dueto the short-term maturity of these financial instruments. The carrying amount under the Amended Credit Agreement and the redemption value of Redeemable non-controlling interestsapproximate the respective fair values. The fair value of the Company’s redeemable non-controlling interests is determined based on “Level 3” inputs. The interest rate on the AmendedCredit Agreement, which is tied to LIBOR, is set at various short-term intervals, as detailed in the Amended Credit Agreement.Segment ReportingOperating segments are components of an enterprise for which separate financial information is available that is evaluated regularly by chief operating decision makers indetermining the allocation of resources and in assessing performance. The Company currently operates through two segments: physical therapy operations and industrial injuryprevention services.Use of EstimatesIn preparing the Company’s consolidated financial statements, management makes certain estimates and assumptions, especially in relation to, but not limited to, goodwillimpairment, tradenames, allocations of purchase price, allowance for receivables, tax provision and contractual allowances, that affect the amounts reported in the consolidated financialstatements and related disclosures. 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 third party. Predetermined loss limits have beenarranged with the insurance company to minimize the Company’s maximum liability and cash outlay. Accrued expenses include the estimated incurred but unreported costs to settleunpaid claims and estimated future claims. Management believes that the current accrued amounts are sufficient to pay claims arising from self-insurance claims incurred throughDecember 31, 2020.57Table of ContentsRestricted StockRestricted stock issued to employees and directors is subject to continued employment or continued service on the board, respectively. Generally, restrictions on the stockgranted to employees lapse in equal annual installments on the following four anniversaries of the date of grant. For those shares granted to directors, the restrictions will lapse in equalquarterly installments during the first year after the date of grant. For those granted to officers, the restriction will lapse in equal quarterly installments during the four years following thedate of grant. Compensation expense for grants of restricted stock is recognized based on the fair value per share on the date of grant amortized over the vesting period. The Companyrecognizes any forfeitures as they occur. The restricted stock issued is included in basic and diluted shares for the earnings per share computation.Recently Adopted Accounting GuidanceIn February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASC 842”), whichamended 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 in ASU 2018-11 issued in July 2018 which allowsthe Company to initially apply the new leases standard at adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period ofadoption. There was no adjustment required to retained earnings upon adoption. Accordingly, no retrospective adjustments were made to the comparative periods presented. TheCompany elected certain of the practical expedients permitted, including the expedient that allows the Company to retain 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-use assets (“ROU”) and operating lease liabilities ofapproximately $78.0 million and $82.6 million respectively, as of January 1, 2019 for operating leases as a lessee. The adoption did not materially impact the Company’s consolidatedstatement 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 requirementsthat were redundant, duplicative, overlapping or superseded by other SEC disclosure requirements. The amendments generally eliminated or otherwise reduced certain disclosurerequirements of various SEC rules and regulations. However, in some cases, the amendments require additional information to be disclosed, including changes in stockholders’ equity ininterim periods. The rule is effective 30 days after its publication in the Federal Register. The rule was posted on October 4, 2018. On September 25, 2018, the SEC released guidanceadvising it will not object to a registrant adopting the requirement 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 June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses, which added a new impairment model (known as the current expected credit loss (CECL)model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The CECL modelapplies to most debt instruments, including trade receivables. The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measureexpected credit losses on assets that have a low risk of loss. The standard is required to be applied using the modified retrospective approach with a cumulative-effect adjustment toretained earnings, if any, upon adoption.The Company completed the adoption of ASU 2016-13, Financial Instruments – Credit Losses on January 1, 2020. The financial instruments subject to ASU 2016-13 are theCompany’s accounts receivable derived from contracts with customers. A significant portion of the Company’s accounts receivable are from highly-solvent, creditworthy payorsincluding governmental programs such as Medicare and Medicaid, and highly regulated commercial insurers. The Company’s estimate of expected credit losses as of January 1, 2020,using its expected credit loss evaluation process, resulted in no adjustments to the allowance for credit losses and no cumulative-effect adjustment to retained earnings on the adoptiondate of the standard.In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (Topic 350), which eliminates the requirement to calculate the implied fair valueof goodwill to measure a goodwill impairment charge. ASU 2017-04 is effective prospectively for fiscal years, and the interim periods within those years, beginning after December 15,2019. The Company completed the adoption of the standard effective January 1, 2020 and there was no impact to goodwill from the Company’s adoption of this change.58Table of ContentsRecently Issued Accounting GuidanceIn March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASUprovides temporary optional expedients and exceptions to the guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected markettransition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The new guidance was effective upon issuance, and theCompany is allowed to elect to apply the amendments prospectively through December 31, 2022. Borrowings under the Amended Credit Agreement bear interest based on LIBOR or analternate base rate. Provisions within the agreement currently provide the Company with the ability to replace LIBOR with a different reference rate in the event LIBOR ceases to exist.In August 2020, the FASB issued ASU 2020-06 Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s OwnEquity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity which simplifies the accounting for certain financial instruments withcharacteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. As part of this update, convertible instruments are to be included indiluted earnings per share using the if-converted method, rather than the treasury stock method. Further, contracts which can be settled in cash or shares, excluding liability-classifiedshare-based payment awards, are to be included in diluted earnings per share on an if-converted basis if the effect is dilutive, regardless of whether the entity or the counterparty canchoose between cash and share settlement. The share-settlement presumption may not be rebutted based on past experience or a stated policy.This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021. The Company plans to adopt thispronouncement as of January 1, 2022. The use of either the modified retrospective or fully retrospective method of transition is permitted. The Company is currently evaluating theimpact of the adoption of ASU 2020-06 on the Company's consolidated financial statements.In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The objective of ASU 2019-12 isto simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and to provide more consistent application to improve the comparabilityof financial statements. The amendments in this ASU are effective for fiscal years beginning after December 15, 2020, and early adoption is permitted. We are currently evaluating theimpact this guidance may have on our consolidated financial statements and related footnote disclosures.Subsequent EventOn January 29, 2021, the Company, entered into the First Amendment to Second Amended and Restated Credit Agreement (hereafter referred to as “Amended CreditAgreement”) extending the maturity date from November 30, 2021 to November 30, 2025. The commitment under the Amended Credit Agreement remains at $125 million, however theaccordion feature in the agreement was expanded to provide for capacity up to $150 million. See Note 9 for more information on the Amended Credit Agreement.59Table of Contents3. Acquisitions of BusinessesDuring 2020, 2019 and 2018, the Company acquired a majority interest in the following physical therapy practices:Acquisition Date % InterestAcquired Number ofClinicsNovember 2020 Acquisition November 30, 2020 75% 3September 2020 Acquisition September 30, 2020 70% *February 2020 Acquisition February 27, 2020 65%**4September 2019 Acquisition September 30, 2019 67% 11August 2018 Acquisition August 31, 2018 70% 4* The business includes six management and services contracts which had a remaining term of approximately five years as of the date acquired.** The four clinics are in four separate partnerships. The Company's interest in the four partnerships range from 10.0% to 83.8%, with an overall 65.0% based on the initialpurchase transaction.On November 30, 2020, the Company acquired a 75% interest in a three-clinic physical therapy practice. The purchase price for the 75% interest was $9.1 million, of which $8.8million was paid in cash and $0.3 million in the form of a seller note that is payable in two principal installments totaling $162,500 each. The first principal payment plus accrued interestwill be paid on November 2021 with the second installment to be paid in November 2022. The note accrues interest at 3.25% per annum.On September 30, 2020, the Company acquired a 70% interest in an entity which holds six-management contracts that have been in place for a number of years. Currently, thesecontracts have a five year term. The purchase price for the 70% interest was approximately $4.2 million, with $3.7 million payable in cash and $0.5 million in notes payable. One of thenotes payable of $0.2 million is payable, with any accrued interest at 5% per annum, on September 30, 2021. The remaining note of $0.3 million was paid in November 2020.On February 27, 2020, the Company acquired interests in a four-clinic physical therapy practice. The four clinics are operated in four separate partnerships. The Company’sinterests in the four partnerships range from 10.0% to 83.8%, with an overall 65.0% based on the initial purchase transaction. The aggregate purchase price was $12.3 million, of which$11.9 million was paid in cash and $0.3 million in the form of a seller note. The note accrues interest at 4.75% per annum and the principal and interest is payable on February 2022.The purchase price for the 2020 physical therapy operations acquisitions has been preliminarily allocated as follows (in thousands):Cash paid, net of cash acquired ($500) $23,907 Seller note 1,121 Total consideration $25,028 Estimated fair value of net tangible assets acquired: Total current assets $1,271 Total non-current assets 134 Total liabilities (555)Net tangible assets acquired $850 Referral relationships 3,597 Non-compete 1,012 Tradename 2,326 Goodwill 28,540 Fair value of non-controlling interest (classified as redeemable non-controlling interests) (11,297) $25,028 60Table of ContentsOn September 30, 2019, the Company acquired a 67% interest in an eleven-clinic physical therapy practice. The purchase price for the 67% interest was $12.4 million ($12.6million less cash acquired of $0.2 million), of which $12.3 million was paid in cash and $0.3 million in a seller note payable in two principal installments totaling $150,000 each, plus accruedinterest. A payment of $150,000 plus accrued interest was paid in September 2020 and a second payment is due in September 2021. The note accrues interest at 5.0% per annum.On April 11, 2019, the Company acquired a company that is a provider of industrial injury prevention services. The acquired company specializes in delivering injury preventionand care, post offer employment testing, functional capacity evaluations and return-to-work services. It performs these services across a network of 45 states including onsite at elevenclient locations. The acquired business was then combined with Briotix Health, the Company’s industrial injury prevention operation, increasing the Company’s ownership position inthe Briotix Health partnership to approximately 76.0%. The purchase price for the acquired company was $22.9 million ($23.6 million less cash acquired of $0.7 million), which consisted of$18.9 million in cash, (of which $0.5 million will be paid to certain shareholders), and a $4.0 million seller note. The note accrues interest at 5.5% and the principal and accrued interest ispayable, on April 9, 2021.The results of operations of the acquired clinics have been included in the Company’s consolidated financial statements since the date of their respective acquisition. TheCompany intends to continue to pursue additional acquisition opportunities, develop new clinics and open satellite clinics.The purchase price for the 2019 acquisitions were allocated as follows (in thousands): IIPS* Physical TherapyOperations Total Cash paid, net of cash acquired ($890) $18,428 $12,170 $30,598 Payable to shareholders of seller 485 - 485 Seller note 4,000 300 4,300 Total consideration $22,913 $12,470 $35,383 Estimated fair value of net tangible assets acquired: Total current assets $1,641 $650 $2,291 Total non-current assets 848 394 1,242 Total liabilities (2,978) (191) (3,169)Net tangible assets acquired $(489) $853 $364 Referral relationships 3,400 2,600 6,000 Non-compete 250 270 520 Tradename 1,300 740 2,040 Goodwill 18,452 14,237 32,689 Fair value of non-controlling interest (classified as redeemable non-controlling 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 the 70% interest was $7.3 million in cash and $0.4million in a seller note that was payable in two principal installments totaling $200,000 each, plus accrued interest. The first installment was paid in cash in August 2019 and the secondinstallment was paid in August 2020.On April 30, 2018, the Company acquired a 65% interest in another business in the industrial injury prevention sector. The aggregate 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. On April 30, 2018, the Company combined its two businesses. After the combination, the Companyowned a 59.45% interest in the combined business, Briotix Health. See discussion above regarding an additional acquisition on April 11, 2019 in the industrial injury prevention business.In addition, during 2018, the Company, through several of its majority owned Clinic Partnerships, acquired five separate clinic practices. These practices operate as satellites ofthe existing Clinic Partnership. The aggregate purchase price was $1.0 million inclusive of cash of $850,000 and a note payable of $150,000. The note accrued interest at 4.5% and theprincipal and accrued interest, was paid in cash on August 31, 2019.61Table of ContentsThe purchase price for the 2018 acquisitions were allocated as follows (in thousands):Cash paid, net of cash acquired ($372) $16,367 Seller note 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 redeemable non-controlling interests) (8,145) $17,317 The finalized purchase prices plus the fair value of the non-controlling interests for the acquisitions in 2019 and 2018 were allocated to the fair value of the assets acquired,inclusive of identifiable intangible assets, i.e. trade names, referral relationships and non-compete agreements, and liabilities assumed based on the fair values at the acquisition date,with the amount exceeding the fair values being recorded as goodwill. For the acquisitions in 2020, the Company is in the process of completing its formal valuation analysis to identifyand 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 thepreliminary estimates used at December 31, 2020 based on additional 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 the Company of the identification of any unrecordedpre-acquisition contingencies, where the liability is probable and the amount can be reasonably estimated, will likely result in adjustments to goodwill. The Company does not expect theadjustments to be material.For the acquisitions in 2020, the values assigned to the referral relationships and non-compete agreements are being amortized to expense equally over the respective estimatedlives. 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 testedannually for impairment.For the acquisitions in 2019 and 2018, the values assigned to the referral relationships and non-compete agreements are being amortized to expense equally over the respectiveestimated lives. For referral relationships, the weighted average amortization period was 10.54 and 10.10 years at December 31, 2019 and December 31, 2018, respectively. For non-competeagreements, the weighted average amortization period was 6.00 and 5.16 years at December 31, 2019 and December 31, 2018, respectively. Generally, the values assigned to tradenamesare tested annually for impairment.For the 2020, 2019 and 2018 acquisitions, total current assets primarily represent patient accounts receivable. Total non-current assets are fixed assets, primarily equipment, usedin the practices.The consideration paid for each of the acquisitions was derived through arm’s length negotiations. Funding for the cash portions was derived from proceeds from theCompany’s revolving credit facility. The results of operations of the acquisitions have been included in the Company’s consolidated financial statements since their respective date ofacquisition. Unaudited proforma consolidated financial information for the acquisitions in 2020, 2019 and 2018 acquisitions have not been included as the results, individually and in theaggregate.62Table of Contents4. Acquisitions and Sale of Non-Controlling InterestsDuring 2020, the Company acquired additional interests in five partnerships which are included in non-controlling interest. The additional interests purchased in each of thepartnerships ranged from 20% to 35%. The aggregated purchase price for these acquired interests was $0.3 million. The Company sold an interest in a partnership for $0.1 million.Also during 2020, the Company sold 14 previously closed clinics. The aggregate sales price was $1.1 million, of which $0.7 million was paid in cash and $0.4 million in a notereceivable, payable in two equal installments of principal and any accrued interest on June 15, 2021 and 2022.During 2019, the Company acquired additional interests in four partnerships which are included in non-controlling interest. The additional interests purchased in each of thepartnerships ranged from 1% to 20%. Also in 2019, the Company sold a 1% interest in a partnership. The net after-tax difference between the payments and the portion of undistributedearnings of $196,000 was credited to additional paid-in capital.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”), theseAcquisitions occur in a series of steps which are described below.1.Prior to the Acquisition, the Therapy Practice exists as a separate legal entity (the “Seller Entity”). The Seller Entity is owned by one or more individuals (the “SellingShareholders”) most of whom are physical therapists that work in the Therapy 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 limited partnership (“NewCo”), in exchange for one hundred percent(100%) of the limited and general partnership interests in NewCo. Therefore, in this step, NewCo becomes a wholly-owned subsidiary of the Seller Entity.3.The Company enters into an agreement (the “Purchase Agreement”) to acquire from the Seller Entity a majority (ranges from 50% to 90%) of the limited partnership interest andin all cases 100% of the general partnership interest in NewCo. The Company does not purchase 100% of the limited partnership interest because the Selling Shareholders,through the Seller Entity, want to maintain an ownership percentage. The consideration for the Acquisition is primarily payable in the form of cash at closing and a small two-year note in lieu of an escrow (the “Purchase Price”). The Purchase Agreement does not contain any future earn-out or other contingent consideration that is payable to theSeller Entity or the Selling Shareholders.4.The Company and the Seller Entity also execute a partnership agreement (the “Partnership Agreement”) for NewCo that sets forth the rights and obligations of the limited andgeneral partners of NewCo. After the Acquisition, the Company is the general partner of NewCo.5.As noted above, the Company does not purchase 100% of the limited partnership interests in NewCo and the Seller Entity retains a portion of the limited partnership interest inNewCo (“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 fromthree to five years (the “Employment Term”), with automatic one-year renewals, unless employment is terminated prior to the end of the Employment Term. As a result, a SellingShareholder becomes an employee (“Employed Selling Shareholder”) of NewCo. The employment of an Employed Selling Shareholder can be terminated by the EmployedSelling Shareholder or NewCo, with or without cause, at any time. In a few situations, a Selling Shareholder does not become employed by NewCo and is not involved withNewCo following the closing; in those situations, such Selling Shareholders sell their entire ownership interest in the Seller Entity as of the closing of the Acquisition.7.The compensation of each Employed Selling Shareholder is specified in the Employment Agreement and is customary and commensurate with his or her responsibilities basedon other employees in similar capacities within NewCo, the Company and the industry.8.The Company and the Selling Shareholder (including both Employed Selling Shareholders and Selling Shareholders not employed by NewCo) execute a non-compete agreement(the “Non-Compete Agreement”) which restricts the Selling Shareholder from engaging in competing business activities for a specified period of time (the “Non-CompeteTerm”). A Non-Compete Agreement is executed with the Selling Shareholders in all cases. That is, even if the Selling Shareholder does not become an Employed SellingShareholder, the Selling Shareholder is restricted from engaging in a competing business 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 Shareholder becomes an Employed Selling Shareholder) orb.Five to six years from the date of the Acquisition, as defined in the Non-Compete Agreement, regardless of whether the Selling Shareholder is employed by NewCo.10.The Non-Compete Agreement applies to a restricted region which is defined as a 15-mile radius from the Therapy Practice. That is, an Employed Selling Shareholder is permittedto engage in competing businesses or activities outside the 15-mile radius (after such Employed Selling Shareholder no longer is employed by NewCo) and a Selling Shareholderwho is not employed by NewCo immediately is permitted to engage in the competing business or activities outside the 15-mile radius.63Table of ContentsThe Partnership Agreement contains provisions for the redemption of the Seller Entity Interest, either at the option of the Company (the “Call Right”) or at the option of theSeller 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 fifth anniversary of the Closing Date, the Seller Entitythereafter may have an irrevocable right to cause the Company to purchase from Seller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’sInterest at the purchase price described in “3” below.b.In the event that any Selling Shareholder is not employed by NewCo as of the fifth anniversary of the Closing Date and the Company has not exercised its Call Right withrespect to the Terminated Selling Shareholder’s Allocable Percentage 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 the purchase price described in “3” below.c.In the event that any Selling Shareholder’s employment with NewCo is terminated for any reason on or after the fifth anniversary of the Closing Date, the Seller Entity shallhave the Put Right, and upon the exercise of the Put Right, the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest shall be redeemed by theCompany at the 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, the Company thereafter shall have an irrevocable right topurchase from Seller Entity the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest, in each case at the purchase price described in “3” below.b.In the event that any Selling Shareholder’s employment with NewCo is terminated for any reason on or after the fifth anniversary of the Closing Date, the Company shallhave the Call Right, and upon the exercise of the Call Right, the Terminated Selling Shareholder’s Allocable Percentage of Seller Entity’s Interest shall be redeemed by theCompany at the purchase price described in “3” below.3.For the Put Right and the Call Right, the purchase price is derived from a formula based on a specified multiple of NewCo’s trailing twelve months of earnings before interest,taxes, depreciation, amortization, and the Company’s internal management fee, plus an Allocable Percentage of any undistributed earnings of NewCo (the “RedemptionAmount”). NewCo’s earnings are distributed monthly based on available cash within NewCo; therefore, the undistributed earnings amount is small, if any.4.The Purchase Price for the initial equity interest purchased by the Company is also based on the same specified multiple of the trailing twelve-month earnings that is used inthe 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 be purchased 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 the Company requires that such Selling Shareholders selltheir entire ownership interest in the Seller Entity at the closing of the Acquisition.An Employed Selling Shareholder’s ownership of his or her equity interest in the Seller Entity predates the Acquisition and the Company’s purchase of its partnership interestin NewCo. The Employment Agreement and the Non-Compete Agreement do not contain any provision to escrow or “claw back” the equity interest in the Seller Entity held by suchEmployed Selling Shareholder, nor the Seller Entity Interest in NewCo, in the event of a breach of the employment or non-compete terms. More specifically, even if the Employed SellingShareholder is terminated for “cause” by NewCo, such Employed Selling Shareholder does not forfeit his or her right to his or her full equity interest in the Seller Entity and the SellerEntity does not forfeit its right to any portion of the Seller Entity Interest. The Company’s only recourse against the Employed Selling Shareholder for breach of either the EmploymentAgreement or the Non-Compete Agreement is to seek damages and other legal remedies under such agreements. There are no conditions in any of the arrangements with an EmployedSelling Shareholder that would result in a forfeiture of the equity interest held in the Seller Entity or of the Seller Entity Interest.64Table of ContentsFor the year ended December 31, 2020, 2019 and 2018, the following table details the changes in the carrying amount (fair value) of the redeemable non-controlling interests (inthousands): Year Ended December 31, 2020 December 31, 2019 December 31, 2018 Beginning balance $137,750 $133,943 $102,572 Operating results allocated to redeemable non-controlling interest partners 11,175 10,659 8,433 Distributions to redeemable non-controlling interest partners (12,403) (10,221) (9,835)Changes in the fair value of redeemable non-controlling interest 4,632 11,893 24,770 Purchases of redeemable non-controlling interest (20,521) (8,934) 8,145 Acquired interest 11,297 6,230 - Reduction of non-controlling interest due to sale of USPH partnership interest - (6,132) - Sales of redeemable non-controlling interest - temporary equity 1,133 3,120 - Notes receivable related to sales of redeemable non-controlling interest - temporary equity (1,006) (2,870) (142)Adjustments in notes receivable related to the the sales of redeemable non-controlling interest - temporary equity 283 - - Other - 62 - Ending balance $132,340 $137,750 $133,943 The following table categorizes the carrying amount (fair value) of the redeemable non-controlling interests (in thousands): December 31, 2020 December 31, 2019 December 31, 2018 Contractual time period has lapsed but holder's employment has not been terminated $62,390 $51,921 $42,624 Contractual time period has not lapsed and holder's employment has not been terminated 69,950 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 - - - $132,340 $137,750 $133,943 65Table of Contents6. GoodwillThe changes in the carrying amount of goodwill as of December 31, 2020 and 2019 consisted of the following (in thousands): Year EndedDecember 31, 2020 Year EndedDecember 31, 2019 Beginning balance $317,676 $293,525 Goodwill acquired 28,540 31,330 Goodwill related to partnership interest sold - (7,325)Goodwill derecognition (write-off) related to closed clinics (1,859) - Goodwill adjustments for purchase price allocation of businesses acquired in prior year 1,289 146 Ending balance $345,646 $317,676 7. Intangible Assets, netIntangible assets, net as of December 31, 2020, 2019 and 2018 consisted of the following (in thousands): December 31, 2020 December 31, 2019 Tradenames $32,317 $32,049 Referral relationships, net of accumulated amortization of $14,522 and $11,677, respectively 22,119 18,367 Non-compete agreements, net of accumulated amortization of $5,993 and $5,424, respectively 1,844 2,172 $56,280 $52,588 Tradenames, referral relationships and non-compete agreements are related to the businesses acquired. The value assigned to tradenames has an indefinite life and is tested atleast annually for impairment using the relief from royalty method in conjunction with the Company’s annual goodwill impairment test. The value assigned to referral relationships isbeing amortized over their respective estimated useful lives which range from 6 to 16 years. Non-compete agreements are amortized over the respective term of the agreements whichrange from 5 to 6 years.The following table details the amount of amortization expense recorded for intangible assets for the years ended December 31, 2020, 2019 and 2018 (in thousands): Year EndedDecember 31, 2020 Year EndedDecember 31, 2019 Year EndedDecember 31, 2018 Referral relationships $2,845 $2,307 $2,161 Non-compete agreements 569 708 616 $3,414 $3,015 $2,777 For one acquisition, the value assigned to tradename was being amortized over the term of the six year agreement in which the Company had acquired the right to use thespecific tradename.The remaining balances of the referral relationships and non-compete agreements is expected to be amortized as follows (in thousands):Referral Relationships Non-Compete Agreements Years Annual Amount Years Annual Amount Ending December 31, Ending December 31, 2021$2,946 2021$556 2022$2,886 2022$403 2023$2,778 2023$335 2024$2,615 2024$279 2025$2,470 2025$212 Thereafter$8,424 Thereafter$59 66Table of Contents8. Accrued ExpensesAccrued expenses as of December 31, 2020 and 2019 consisted of the following (in thousands): December 31, 2020 December 31, 2019 Salaries and related costs $24,646 $19,340 Credit balances due to patients and payors 5,756 4,303 Group health insurance claims 2,113 2,277 Closure costs 1,333 116 Federal income taxes payable 5,715 - MAAPP funds payable 14,054 - Deferred employer payroll taxes - CARES ACT 4,170 - Other 1,959 4,819 Total $59,746 $30,855 9. Notes PayableNotes payable as of December 31, 2020 and 2019 consisted of the following (in thousands): December 31, 2020 December 31, 2019 Credit Agreement average effective interest rate of 2.6% and 3.9% in 2020 and 2019, respectively (inclusive of unused fee) $16,000 $46,000 Various notes payable with $4,899 plus accrued interest due in the next year, interest accrues in the range of 3.25% through 5.50% perannum 5,495 5,089 $21,495 $51,089 Less current portion (4,899) (728)Long term portion $16,596 $50,361 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. Thisagreement was amended and/or restated in August 2015, January 2016, March 2017 and November 2017 and January 2021 (hereafter referred to as “Amended Credit Agreement”). TheAmended Credit Agreement is unsecured and has loan covenants, including requirements that the Company comply with a consolidated fixed charge coverage ratio and consolidatedleverage ratio. Proceeds from the Amended Credit Agreement may be used for working capital, acquisitions, purchases of the Company’s common stock, dividend payments to theCompany’s common stockholders, capital expenditures and other corporate purposes. The pricing grid which is based on the Company’s consolidated leverage ratio with the applicablespread 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 of 0.3% of the amount of funds outstanding under the Amended Credit Agreement.The Amended Credit Agreement allows the cash and noncash consideration that the Company could pay with respect to acquisitions permitted under the Amended CreditAgreement to $50,000,000 for any fiscal year, and the amount the Company may pay in cash dividends to its shareholders in an aggregate amount not to exceed $50,000,000 in any fiscalyear. The commitment remains at $125 million, however the accordion feature in the agreement was expanded to provide for capacity up to $150 million, and has a maturity date ofNovember 30, 2025. The Amended Credit Agreement is unsecured and includes certain financial covenants which include a consolidated fixed charge coverage ratio and a consolidatedleverage ratio, as defined in the agreement.On December 31, 2020, $16.0 million was outstanding on the Amended Credit Agreement resulting in $109.0 million of availability. As of December 31, 2020, the Company was incompliance with all of the covenants thereunder.The Company generally enters into various notes payable as a means of financing a portion of its acquisitions and purchasing of non-controlling interests. In conjunction withthese transactions in 2020, the Company entered into notes payable in the aggregate amount of $1.4 million of which an aggregate principal payment of $0.5 million is due in 2021 and$0.6 million is due in 2022. Interest accrues in the range of 3.25% to 5.50% per annum and is payable with each principal installment. The balance of the various notes payable enteredinto prior to 2020 was $4.4 million which will be paid in 2021.67Table of Contents10. LeasesThe Company has operating leases for its corporate offices and operating facilities. The Company determines if an arrangement is a lease at the inception of a contract. EffectiveJanuary 1, 2019, right-of-use assets and operating lease liabilities are included in the consolidated balance sheet. Right-of-use assets represent the Company’s right to use an underlyingasset during the lease term and operating lease liabilities represent net present value of the Company’s obligation to make lease payments arising from the lease. Right-of-use assets andoperating lease liabilities are recognized at commencement date based on the net present value of the fixed lease payments over the lease term. The Company’s operating lease terms aregenerally five years or less. The Company’s lease terms include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. As most of theCompany’s operating leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determiningthe present value of lease payments. Operating fixed lease expense is recognized on a straight-line basis over the lease term.In accordance with ASC 842, the Company records on its consolidated balance sheet leases with a term greater than 12 months. The Company has elected, in compliance withcurrent accounting standards, not to record leases with an initial term of 12 months or less in the consolidated balance sheet. ASC 842 requires the separation of the fixed leasecomponents from the variable lease components. The Company has elected the practical expedient to account for separate lease components of a contract as a single lease cost thuscausing all fixed payments to be capitalized. Non-lease and variable cost components are not included in the measurement of the right-of-use assets or operating lease liabilities. TheCompany also elected the package of practical expedients permitted within ASC 842, which among other things, allows the Company to carry forward historical lease classification.Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage are notincluded in the right-of-use assets or operating lease liabilities. These are expensed as incurred and recorded as variable lease expense.For the years ended December 31, 2020 and 2019, the components of lease expense were as follows (in thousands): Year Ended December 31, 2020 2019 Operating lease cost $30,710 $30,225 Short-term lease cost 1,454 1,212 Variable lease cost 5,752 6,074 Total lease cost* $37,916 $37,511 *Sublease income was immaterialLease costs are reflected in the consolidated statements of net income in the line item – rent, supplies, contract labor and other.For the years ended December 31, 2020 and 2019, supplemental cash flow information related to leases was as follows (in thousands): Year Ended December 31, 2020 2019 Cash paid for amounts included in the measurement of operating lease liabilities (in thousands) $30,307 $30,077 Right-of-use assets obtained in exchange for new operating lease liabilities (in thousands)* $32,710 $113,222 *Includes the right-of-use assets obtained in exchange for lease liabilities for the year 2019 - $82.6 million which were recognized upon adoption of ASC Topic 842 at January 1,2019.The aggregate future lease payments for operating leases as of December 31, 2020 were as follows (in thousands):Fiscal Year Amount 2021 $29,819 2022 23,861 2023 17,787 2024 11,487 2025 and therafter 12,294 Total lease payments $95,248 Less: imputed interest 5,751 Total operating lease liabilities $89,497 68Table of ContentsAverage lease terms and discount rates were as follows: Year Ended December 31, 2020 2019 Weighted-average remaining lease term - Operating leases 4.05 Years 4.05 Years Weighted-average discount rate - Operating leases 3.1% 3.9%11. Income TaxesSignificant components of deferred tax assets and liabilities included in the consolidated balance sheets at December 31, 2020 and 2019 were as follows (in thousands): December 31, 2020 December 31, 2019 Deferred tax assets: Compensation $1,865 $1,964 Allowance for credit losses 396 514 Acquired net operating losses 558 840 Lease obligations - including closed clinics 23,819 21,445 Deferred tax assets $26,638 $24,763 Deferred tax liabilities: Depreciation and amortization $(12,650) $(13,195)Operating lease right-of-use assets (21,419) (21,416)Other (348) (223)Deferred tax liabilities (34,417) (34,834)Net deferred tax liability $(7,779) $(10,071)The deferred tax assets and liabilities related to purchased interests not yet finalized may result in an immaterial adjustment.During 2020, the Company recorded deferred tax assets of $1.2 million related to the revaluation of redeemable non-controlling interests and acquisitions of non-controllinginterests. In addition, during 2020, the Company recorded an adjustment to the deferred tax assets of $1.4 million as a result of a detailed reconciliation of its federal and state taxespayable and receivable accounts along with its federal and state deferred tax asset and liability accounts with its federal and state tax returns for 2019. The offset of this adjustment was adecrease to the previously reported federal income tax receivable. As of December 31, 2020, the Company has a federal income tax payable of $5.7 million and state tax receivables of $0.7million. The federal income tax payable is included in accrued liabilities and the tax receivable is included in other current assets on the accompanying consolidated balance sheets.The differences between the federal tax rate and the Company’s effective tax rate for the years ended December 31, 2020, 2019 and 2018 were as follows (in thousands): December 31, 2020 December 31, 2019 December 31, 2018 U. S. tax at statutory rate $10,125 21.0% $11,274 21.0% $9,710 21.0% State income taxes, net of federal benefit 1,956 3.9% 2,059 3.8% 1,722 3.7% Excess equity compensation deduction (99) 0.0% (871) -1.6 % (806) -1.7 % Non-deductible expenses 1,040 2.1% 1,185 2.2% 743 1.6% $13,022 27.0% $13,647 25.4% $11,369 24.6% 69Table of ContentsSignificant components of the provision for income taxes for the years ended December 31, 2020, 2019 and 2018 were as follows (in thousands): December 31, 2020 December 31, 2019 December 31, 2018 Current: Federal $10,506 $6,523 $5,357 State 2,774 2,473 1,199 Total current 13,280 8,996 6,556 Deferred: Federal (38) 3,730 3,771 State (220) 921 1,042 Total deferred (258) 4,651 4,813 Total income tax provision $13,022 $13,647 $11,369 For 2020, 2019 and 2018, the Company performed a detailed reconciliation of its federal and state taxes payable and receivable accounts along with its federal and state deferredtax asset and liability accounts. The adjustments were immaterial. The Company considers this reconciliation process to be an annual control.The Company is required to establish a valuation allowance for deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or allof the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which thosetemporary differences become deductible. Management considers the projected future taxable income and tax planning strategies in making this assessment. Based upon the level ofhistorical taxable income and projections for future taxable income in the periods which the deferred tax assets are deductible, management believes that a valuation allowance is notrequired, as it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets.The Company’s U.S. federal returns remain open to examination for 2017 through 2019 and U.S. state jurisdictions are open for periods ranging from 2016 through 2019.The Company does not believe that it has any significant uncertain tax positions at December 31, 2020 and December 31, 2019, nor is this expected to change within the nexttwelve months due to the settlement and expiration of statutes of limitation.The Company did not have any accrued interest or penalties associated with any unrecognized tax benefits nor was any interest expense recognized during the years endedDecember 31, 2020, 2019 and 2018.12. Segment InformationThe Company’s reportable segments include the physical therapy operations segment and the industrial injury prevention services segment. Also included in the physicaltherapy operations segment are revenues from management contract services and other services which include services the Company provides on-site, such as schools for athletictrainers.The Company evaluates performance of the segments based on gross profit. The Company has provided additional information regarding its reportable segments whichcontributes to the understanding of the Company and provides useful information.70Table of ContentsThe following table summarizes selected financial data for the Company’s reportable segments. Prior year results presented herein have been changed to conform to the currentpresentation. December 31, December 31, December 31, 2020 2019 2018 (in thousands) (in thousands) Net operating revenues: Physical therapy operations $383,770 $444,507 $428,445 Industrial injury prevention services 39,199 37,462 25,466 Total Company $422,969 $481,969 $453,911 Gross profit: Physical therapy operations (excluding closure costs) $88,295 $104,120 $96,463 Industrial injury prevention services 10,086 8,379 5,192 $98,381 $112,499 $101,655 Physical therapy operations - closure costs 3,931 25 (8)Gross profit $94,450 $112,474 $101,663 Total Assets: Physical therapy operations $550,181 $518,027 $421,474 Industrial injury prevention services 44,180 42,818 21,692 Total Company $594,361 $560,845 $443,166 13. 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 theCompany up to 600,000 non-qualified options to purchase shares of common stock and restricted stock (subject to proportionate adjustments in the event of stock dividends, splits, andsimilar corporate transactions). The exercise prices of options granted under the Amended 1999 Plan are determined by the Compensation Committee. The period within which eachoption will be exercisable is determined by the Compensation Committee. The Amended 1999 Plan was approved by the shareholders of the Company at the 2008 Shareholders Meetingon May 20, 2008.The Amended and Restated 2003 Stock Option Plan (the “Amended 2003 Plan”) permits the Company to grant to key employees and outside directors of the Company incentiveand non-qualified options and shares of restricted stock covering up to 2,100,000 shares of common stock (subject to proportionate adjustments in the event of stock dividends, splits,and similar corporate transactions). The material terms of the Amended 2003 Plan was reapproved by the shareholders of the Company at the 2015 Shareholders Meeting on May 19,2015 and an increase in the number of shares authorized for issuance from 1,750,000 to 2,100,000 was approved at the 2016 Shareholders Meeting on March 17, 2016.A cumulative summary of equity plans as of December 31, 2020 follows: Authorized RestrictedStock Issued OutstandingStock Options Stock OptionsExercised Stock OptionsExercisable Shares Availablefor Grant Equity Plans Amended 1999 Plan 600,000 416,402 - 139,791 - 7,775 Amended 2003 Plan 2,100,000 1,106,977 - 778,300 - 224,760 2,700,000 1,523,379 - 918,091 - 232,535 71Table of ContentsDuring 2020, 2019 and 2018, the Company granted the following shares of restricted stock to directors, officers and employees pursuant to its equity plans as follows:Year Granted Number of Shares Weighted Average FairValue Per Share 2020 86,982 $104.69 2019 91,682 $104.85 2018 93,801 $78.63 During 2020, 2019 and 2018, the following shares were cancelled due to employee terminations prior to restrictions lapsing:Year Cancelled Number of Shares Weighted Average FairValue Per Share 2020 10,037 $102.52 2019 1,578 $87.88 2018 3,867 $59.51 Generally, restrictions on the stock granted to employees lapse in equal annual installments on the following four anniversaries of the date of grant. For those shares granted todirectors, the restrictions will lapse in equal quarterly installments during the first year after the date of grant. For those granted to officers, the restriction will lapse in equal quarterlyinstallments during the four years following the date of grant.There were 127,562 and 150,771 shares outstanding as of December 31, 2020 and December 31, 2019 respectively, for which restrictions had not lapsed. The restrictions will lapsein 2021 through 2024.Compensation expense for grants of restricted stock is recognized based on the fair value on the date of grant. Compensation expense for restricted stock grants was $7.9million, $5.9 million, and $5.0 million, respectively, for 2020, 2019 and 2018. As of December 31, 2020, the remaining $8.8 million of compensation expense will be recognized from 2021through 2024.14. Preferred StockThe Board is empowered, without approval of the shareholders, to cause shares of preferred stock to be issued in one or more series and to establish the number of shares to beincluded in each such series and the rights, powers, preferences and limitations of each series. There are no provisions in the Company’s Articles of Incorporation specifying the voterequired by the holders of preferred stock to take action. All such provisions would be set out in the designation of any series of preferred stock established by the Board. The bylaws ofthe Company specify that, when a quorum is present at any meeting, the vote of the holders of at least a majority of the outstanding shares entitled to vote who are present, in person orby proxy, shall decide any question brought before the meeting, unless a different vote is required by law or the Company’s Articles of Incorporation.Because the Board has the power to establish the preferences and rights of each series, it may afford the holders of any series of preferred stock, preferences, powers, andrights, voting or otherwise, senior to the right of holders of common stock. The issuance of the preferred stock could have the effect of delaying or preventing a change in control of theCompany.15. Common StockFrom September 2001 through December 31, 2008, the Board authorized the Company to purchase, in the open market or in privately negotiated transactions, up to 2,250,000shares of the Company’s common stock. In March 2009, the Board authorized the repurchase of up to 10% or approximately 1,200,000 shares of its common stock (“March 2009Authorization”). The Amended Credit Agreement permits share repurchases of up to $15,000,000, subject to compliance with covenants. The Company is required to retire sharespurchased under the March 2009 Authorization.Under the March 2009 Authorization, the Company has purchased a total of 859,499 shares. There is no expiration date for the share repurchase program. There are currently anadditional estimated 124,740 shares (based on the closing price of $120.25 on December 31, 2020, the last business day in 2020) that may be purchased from time to time in the openmarket or private transactions depending on price, availability and the Company’s cash position. The Company did not purchase any shares of its common stock during 2020 or 2019.72Table of Contents16. Defined Contribution PlanThe Company has several 401(k) profit sharing plans covering all employees with three months of service. For certain plans, the Company makes matching contributions. TheCompany may also make discretionary contributions of up to 50% of employee contributions. The Company did not make any discretionary contributions for the years ended December31, 2020, 2019 and 2018. The Company matching contributions totaled $1.9 million, $2.0 million and $1.8 million, respectively, for the years ended December 31, 2020, 2019 and 2018.17. Commitments and ContingenciesWe may be subject to litigation in the ordinary course of business.Employment AgreementsAt December 31, 2020, the Company had outstanding employment agreements with four of its executive officers, one of whom (Mr. McDowell) has provided notice of a plannedretirement in August 2021. The three remaining agreements have terms that expire December 31, 2021, February 28, 2022 and November 8, 2022, respectively; however, each of theseagreements provide for an automatic two year renewal at the conclusion of the expiring term or renewal term. All of the agreements contain a provision for annual adjustment of salaries.In addition, the Company has outstanding employment agreements with most of the managing physical therapist partners of the Company’s physical therapy clinics and withcertain other clinic employees which obligate subsidiaries of the Company to pay compensation of $37.1 million in 2021 and $6.1 million in the aggregate from 2022 through 2024. Inaddition, many of the employment agreements with the managing physical therapists provide for monthly bonus payments calculated as a percentage of each clinic’s net revenues (notin excess of operating profits) or operating profits.18. Earnings Per ShareThe computations of basic and diluted earnings per share for the years ended December 31, 2020, 2019 and 2018 are as follows (in thousands, except per share data): Year Ended December 31, 2020 December 31, 2019 December 31, 2018 Computation of earnings per share - USPH shareholders: Net income attributable to USPH shareholders $35,194 $40,039 $34,873 Credit (charges) to retained earnings: Revaluation of redeemable non-controlling interest (4,632) (11,893) (24,770)Tax effect at statutory rate (federal and state) of 26.25% 1,216 3,121 6,502 $31,778 $31,267 $16,605 Earnings per share (basic and diluted) $2.48 $2.45 $1.31 Shares used in computation: Basic and diluted earnings per share - weighted-average shares 12,835 12,756 12,666 73Table of ContentsITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.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 the effectiveness of our disclosure controls and procedures (asdefined in Rule 13a-15(e) promulgated under the Exchange Act) as of the end of the fiscal period covered by this report. Based upon that evaluation, our Chief Executive Officer andChief Financial Officer have concluded that our disclosure controls and procedures are effective in ensuring that the information required to be disclosed in the reports we file orsubmit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC and that such information isaccumulated 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 is defined in Rule 13a-15(f) under the Exchange Act. U.S.Physical Therapy, Inc. and subsidiaries’ (the “Company”) internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.Internal control over financial reporting includes those policies and procedures that:•Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accountingprinciples, and that our receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a materialeffect on the financial statements.Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financialreporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financialreporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented ordetected on a timely basis by internal control over financial reporting. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. However, these inherent limitations are knownfeatures of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, the risk.Management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, managementused the criteria described in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on thisassessment, management concluded that our internal control over financial reporting was effective as of December 31, 2020.The Company’s internal control over financial reporting has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their reportincluded on page 44.Changes in Internal Control over Financial ReportingThere have been no changes in our internal control over financial reporting during the quarter ended December 31, 2020 that have materially affected, or are reasonably likelyto materially affect, our internal control over financial reporting.74Table of ContentsITEM 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 statement relating to our 2021 Annual Meeting of Stockholders to befiled with the SEC pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year covered by this report.ITEM 11.EXECUTIVE COMPENSATION.The information required in response to this Item 11 is incorporated herein by reference to our definitive proxy statement relating to our 2021 Annual Meeting of Stockholders to befiled with the SEC pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year covered by this report.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.The information required in response to this Item 12 is incorporated herein by reference to our definitive proxy statement relating to our 2021 Annual Meeting of Stockholders to befiled with the SEC pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year covered by this report.ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.The information required in response to this Item 13 is incorporated herein by reference to our definitive proxy statement relating to our 2021 Annual Meeting of Stockholders to befiled with the SEC pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year covered by this report.ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES.The information required in response to this Item 14 is incorporated herein by reference to our definitive proxy statement relating to our 2021 Annual Meeting of Stockholders to befiled with the SEC pursuant to Regulation 14A, not later than 120 days after 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 in Part II hereof, where these documents are listed.2. Financial Statement Schedules. See page 81 for Schedule II — Valuation and Qualifying Accounts. All other schedules are omitted because of the absence ofconditions under which they are required or because the required information is shown in the financial statements or notes thereto.3. Exhibits. The exhibits listed in List of Exhibits on the next page are filed or incorporated by reference as part of this report.ITEM 16.Form 10-K Summary – None.75Table of ContentsEXHIBIT INDEXLIST OF EXHIBITSNumberDescription 3.1Articles of Incorporation of the Company [filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended June 30, 2001 and incorporated herein byreference]. 3.2Amendment to the Articles of Incorporation of the Company [filed as an exhibit to the Company’s Form 10-Q for the quarterly period ended June 30, 2001 andincorporated 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 December 31, 1993 and incorporated herein byreference—Commission File Number—1-11151]. 4.1*Description of Company Securities [filed herewith the Company’s Form 10-K for the year ended December 31, 2019 filed with the SEC on February 28, 2020.] 10.1+1999 Employee Stock Option Plan (as amended and restated May 20, 2008) [incorporated by reference to Appendix A to the Company’s Definitive Proxy Statementon 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 theCompany's Definitive Proxy Statement on Schedule 14A filed with the SEC on April 7, 2016.] 10.3+U. S. Physical Therapy, Inc. Long-Term Incentive Plan for Senior Management for 2013, effective March 27, 2013 [incorporated by reference to Exhibit 99.1 to theCompany Current Report on Form 8-K filed with the SEC on April 1, 2013]. 10.4+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for 2013, effective March 27, 2013 [incorporated by reference to Exhibit 99.2 to the Company CurrentReport on Form 8-K filed with the SEC on April 1, 2013]. 10.5+U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for 2013, effective March 27, 2013 [incorporated by reference to Exhibit 99.3 to the Company CurrentReport 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 theCompany Current Report on Form 8-K filed with the SEC on March 27, 2014]. 10.7+U. S. Physical Therapy, Inc. Discretionary Long-Term Incentive Plan for Senior Management for 2014, effective March 21, 2014 [incorporated by reference toExhibit 99.2 to the Company Current Report on Form 8-K filed with the SEC on March 27, 2014]. 10.8+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2014, effective March 21, 2014 [incorporated by reference to Exhibit 99.3 to theCompany 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 tothe 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 theCompany’s Current Report on Form 8-K filed with the SEC on March 27, 2015.]76Table of Contents10.11+U. S. Physical Therapy, Inc. Discretionary Long Term Incentive Plan for Senior Management for 2015, effective March 23, 2015 [incorporated by reference to Exhibit99.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 27, 2015.] 10.12+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2015, effective March 23, 2015 [incorporated by reference to Exhibit 99.3 to theCompany’s Current Report on Form 8-K filed with the SEC on March 27, 2015.] 10.13+U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2015, effective March 23, 2015 [incorporated by reference to Exhibit 99.4 to theCompany’s Current Report on Form 8-K filed with the SEC on March 27, 2015.] 10.14+U. S. Physical Therapy, Inc. Objective Long Term Incentive Plan for Senior Management for 2016, effective March 10, 2016 [incorporated by reference to Exhibit 10.1 tothe Company’s Current Report on Form 8-K filed with the SEC on March 16, 2016]. 10.15+U. S. Physical Therapy, Inc. Discretionary Long Term Incentive Plan for Senior Management for 2016, effective March 10, 2016 [incorporated by reference to Exhibit10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2016]. 10.16+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2016, effective March 10, 2016 [incorporated by reference to Exhibit 10.3 to theCompany’s Current Report on Form 8-K filed with the SEC on March 16, 2016]. 10.17+U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2016, effective March 10, 2016 [incorporated by reference to Exhibit 10.4 to theCompany’s Current Report on Form 8-K filed with the SEC on March 16, 2016]. 10.18+Form of Restricted Stock Agreement [incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on March 16, 2016]. 10.19+U. S. Physical Therapy, Inc. Long-Term Incentive Plan for Senior Management for 2017, effective March 24, 2017 [incorporated by reference to Exhibit 99.1 to theCompany’s Current Report on Form 8-K/A filed with the SEC on February 9, 2018.] 10.20+U. S. Physical Therapy, Inc. Discretionary Long –Term Incentive Plan for Senior Management for 2017, effective March 24, 2017 [incorporated by reference to Exhibit99.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 30, 2017.] 10.21+U. S. Physical Therapy, Inc. Objective Cash Bonus Plan for Senior Management for 2017, effective March 24, 2017 [incorporated by reference to Exhibit 99.3 to theCompany’s Current Report on Form 8-K filed with the SEC on March 30, 2017.] 10.22+ U. S. Physical Therapy, Inc. Discretionary Cash Bonus Plan for Senior Management for 2017, effective March 24, 2017 [incorporated by reference to Exhibit 99.4 to theCompany’s Current Report on Form 8-K filed with the SEC on March 30, 2017.] 10.23+U. S. Physical Therapy, Inc. Objective Long-Term Incentive Plan for Senior Management for 2018, effective April 9, 2018 [incorporated by reference to Exhibit 99.1 tothe Company’s Current Report on Form 8-K filed with the SEC on April 12, 2018.] 77Table of Contents10.24+U. S. Physical Therapy, Inc. Discretionary Long-Term Incentive Plan for Senior Management for 2018, effective April 9, 2018 [incorporated by reference to Exhibit99.2 to the Company’s Current Report on Form 8-K filed with the SEC on April 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 theCompany’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 tothe Company’s Current Report on Form 8-K filed with the SEC on April 12, 2018.] 10.27+Second Amended and Restated Credit Agreement dated as of November 10, 2017 among the Company, as Borrower, Bank of America, N.A. as Administrative Agentand the Lenders Patty (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 14, 2017). 10.28+Second Amended and Restated Employment Agreement by and between the Company and Christopher J. Reading dated effective February 9, 2016 [incorporated byreference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on February 12, 2016]. 10.29+Second Amended and Restated Employment Agreement by and between the Company and Lawrance W. McAfee dated effective February 9, 2016 [incorporated byreference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on February 12, 2016]. 10.30+Amended and Restated Employment Agreement by and between the Company and Glenn D. McDowell dated effective February 9, 2016 [incorporated by referenceto Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on February 12, 2016]. 10.31+Employment Agreement commencing on March 1, 2018 by and between the Company and Graham Reeve [incorporated by reference to Exhibit 10.1 to the Company’sCurrent Report on Form 8-K filed with the SEC on March 7, 2018]. 10.32+Objective Long-Term Incentive Plan for Senior Management [incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with theSEC on March 8, 2019.] 10.33+Discretionary Long-Term Incentive Plan for Senior Management [incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed withthe SEC on March 8, 2019.] 10.34+Objective Cash/RSA Bonus Plan for Senior Management [incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SECon March 8, 2019.] 10.35+Discretionary Cash/RSA Bonus Plan for Senior Management [incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with theSEC on March 8, 2019.] 10.36+Third Amended and Restated Employment Agreement by and between the Company and Christopher J. Reading dated effective May 21, 2019 [incorporated byreference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2019]78Table of Contents10.37+Third Amended and Restated Employment Agreement by and between the Company and Lawrance W. McAfee dated effective May 21, 2019 [incorporated byreference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2019] 10.38+Second Amended and Restated Employment Agreement by and between the Company and Glenn D. McDowell dated effective May 21, 2019 [incorporated byreference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2019] 10.39+Amended & Restated Employment Agreement commencing by and between the Company and Graham Reeve dated effective May 21, 2019 [incorporated by referenceto Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2019] 10.40+Restricted Stock Agreement [incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on March 22, 2019] 10.41+U. S. Physical Therapy, Inc. Objective Long-Term Incentive Plan for Senior Management for 2020, effective March 3, 2020 [incorporated by reference to Exhibit 99.1 tothe Company Current Report on Form 8-K filed with the SEC on March 6, 2020]. 10.42+Amendment to Employment Agreement entered into as of March 26, 2020 by and between the Company and Lawrance McAfee [incorporated by reference to Exhibit10.2 to the Company Current Report on Form 8-K filed with the SEC on March 26, 2020]. 10.43+Amendment to Employment Agreement entered into as of March 26, 2020 by and between the Company and Glenn McDowell [incorporated by reference to Exhibit10.3 to the Company Current Report on Form 8-K filed with the SEC on March 26, 2020]. 10.44+Amendment to Employment Agreement entered into as of March 26, 2020 by and between the Company and Graham Reeve [incorporated by reference to Exhibit 10.4to the Company Current Report on Form 8-K filed with the SEC on March 26, 2020]. 10.45+U. S. Physical Therapy, Inc. Objective Long-Term Incentive Plan for Senior Management for 2020, effective March 3, 2020 [incorporated by reference to Exhibit 99.1 tothe Company Current Report on Form 8-K filed with the SEC on March 6, 2020]. 10.46+U. S. Physical Therapy, Inc. Discretionary Long-Term Incentive Plan for Senior Management for 2020, effective March 3, 2020 [incorporated by reference to Exhibit99.2 to the Company Current Report on Form 8-K filed with the SEC on March 6, 2020]. 10.47+U. S. Physical Therapy, Inc. Objective Cash/RSA Bonus Plan for Senior Management for 2020, effective March 3, 2020 [incorporated by reference to Exhibit 99.3 to theCompany Current Report on Form 8-K filed with the SEC on March 6, 2020]. 10.48+U. S. Physical Therapy, Inc. Discretionary Cash/RSA Bonus Plan for Senior Management for 2020, effective March 3, 2020 [incorporated by reference to Exhibit 99.4 tothe Company Current Report on Form 8-K filed with the SEC on March 6, 2020].the Company Current Report on Form 8-K filed with the SEC on March 6, 2020]. 10.49+Employment Agreement entered into as of November 9, 2020 by and between U.S. Physical Therapy and Carey Hendrickson [incorporated by reference to Exhibit 10.1to the Company Current Report on Form 8-K filed with the SEC on September 23, 2020.] 10.50+Consulting Agreement entered into as of September 22, 2020 by and between U.S. Physical Therapy and Lawrence McAfee [incorporated by reference to Exhibit 10.1to the Company Current Report on Form 8-K filed with the SEC on September 23, 2020.]79Table of Contents10.51+First Amendment to Second Amended and Restated Credit Agreement [filed by reference to Exhibit 10.1 to the Company Current Report on Form 8-K filed with theSEC on February 4, 2021.] 21.1*CSubsidiaries of the Registrant 23.1*Consent of Independent Registered Public Accounting Firm—Grant Thornton LLP 31.1*Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended 31.2*Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended 31.3*Certification of Controller pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended 32.1*Certification of Periodic Report of the Chief Executive Officer, Chief Financial Officer and Controller pursuant to Rule 13a-14(b) of the Securities Exchange Act of1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS*XBRL Instance Document 101.SCH*XBRL Taxonomy Extension Schema Document 101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF*XBRL Taxonomy Extension Definition Linkbase Document 101.LAB*XBRL Taxonomy Extension Label Linkbase Document 101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document*Filed herewith+Management contract or compensatory plan or arrangement.80Table of ContentsFINANCIAL STATEMENT SCHEDULE*SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTSU.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES(In Thousands) Balance atBeginning of Period Additions Chargedto Costs and Expenses Additions Chargedto Other Accounts Deductions Balance atEnd of Period YEAR ENDED DECEMBER 31, 2020: Reserves and allowances deducted from asset accounts: Allowance for credit losses(1) $2,698 $4,623 - $5,313(2) $2,008 YEAR ENDED DECEMBER 31, 2019: Reserves and allowances deducted from asset accounts: Allowance for credit losses $2,672 $4,858 - $4,832(2) $2,698 YEAR ENDED DECEMBER 31, 2018: Reserves and allowances deducted from asset accounts: Allowance for credit losses $2,273 $4,603 - $4,204(2) $2,672 (1)Related to patient accounts receivable and accounts receivable-other.(2)Uncollectible accounts written off, net of recoveries.*All other schedules are omitted because of the absence of conditions under which they are required or because the required information is shown in the financial statements ornotes thereto.81Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized. U.S. PHYSICAL THERAPY, INC. (Registrant) By:/s/ Carey Hendrickson Carey Hendrickson Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) By:/s/ Jon C. Bates Jon C. Bates Vice President/ControllerDate: March 1, 2021Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacitiesindicated as of the date indicated above. Chief Executive Officer, President and Director /s/ Chris J. Reading (Principal Executive Officer)March 1, 2021Chris J. Reading /s/ Edward L. Kuntz Chairman of the BoardMarch 1, 2021Edward L. Kuntz /s/ Mark J. Brookner DirectorMarch 1, 2021Mark J. Brookner /s/ Harry S. Chapman DirectorMarch 1, 2021Harry S. Chapman /s/ Bernard A. Harris DirectorMarch 1, 2021Dr. Bernard A. Harris, Jr. /s/ Kathleen A. Gilmartin DirectorMarch 1, 2021Kathleen A. Gilmartin /s/ Reginald E. Swanson DirectorMarch 1, 2021Reginald E. Swanson /s/ Clayton K. Trier DirectorMarch 1, 2021Clayton K. Trier 82EXHIBIT 4.1The Company’s authorized capital stock consists of 500,000 shares of preferred stock, par value $0.01 per share (the “Preferred Stock”), 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 of Incorporation”) 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 is qualified in its entirety by reference to theCertificate 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 there are no cumulative voting rights. In the event of aliquidation, 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. Holders of the Common Stock have no preemptive orconversion rights or other subscription rights and there are no redemption or sinking fund provisions applicable to the Common Stock. The rights, preferences and privileges of theholders of the Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of Preferred Stock that we may designate 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 of the Common Stock do not have preemptive orother 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 an attempt to obtain control of the Company, whether through a tender offer, business combination, proxy contest or otherwise. These provisionsinclude the charter authorization of “blank check” preferred stock (as described above) and a restriction on the ability of stockholders to call a special meeting.Exhibit 21.1NotesNameDBAEntityTypeState ofFormationForeign QualificationGeneral Partner (LP)/Owner(corp)/Member (LLC)Tax ID 2037953 Ontario, Inc. CorpCanada Briotix Health, LP Ability Health PT Management GP, LLC LLCTXFLRehab Partners #4, Inc.81-4216526 Ability Health Services and Rehabilitation, L.P.Ability RehabilitationLPTXFLAbility Health PT ManagementGP, LLC38-4017532 Achieve Management GP, LLC LLCTX Rehab Partners #4, Inc47-3291851 Achieve Physical Therapy and Performance,Limited Partnership LPTX Achieve Management GP, LLC47-3283941 Action Therapy Centers, Limited PartnershipAction Physical TherapyHouston Hand Therapy PTProfessionalsLPTX Rehab Partners #1, Inc.76-0389610 Adams County Physical Therapy, LimitedPartnership LPTXPARehab Partners #5, Inc.76-0483100 Advance Rehabilitation & Consulting, LimitedPartnership LPTXAL, FL & GAAdvance RehabilitationManagement GP, LLC27-4414647 Advance Rehabilitation Management GP, LLC LLCTXFLRehab Partners #4, Inc27-4414443 Agape Physical Therapy & SportsRehabilitation, Limited Partnership LPTXMDAgape Physical TherapyManagement GP, LLC32-0378859 Agape Physical Therapy Management GP,LLC LLCTX Rehab Partners #4, Inc45-5378415 Agility Spine & Sports PT Management GPLLC LLCTX 82-10244870 Agility Spine & Sports Physical Therapy andRehabilitation, Limited Partnership LPTXAZAgility Spine & Sports PTManagement GP, LLC82-0901134To bedissolvedAnkeny Physical & Sports Therapy, LimitedPartnership LPTXIARehab Partners #5, Inc.76-0424735 ARC Iowa PT Plus, LLC LLCTXIAARC PT Management GP, LLC(note: owned 100% by ARCPhysical Therapy Plus, LP)82-5241308 ARC Physical Therapy Plus, LimitedPartnership LPTXKS, MOARC PT Management GP, LLC80-0955852 ARC PT Management GP, LLC LLCTXMORehab Partners #4, Inc.46-3942987 ARCH Physical Therapy and Sports Medicine,Limited Partnership LPTXMIRehab Partners #1, Inc.27-5086288 Arrow Physical Therapy, Limited PartnershipBroken Arrow PhysicalTherapyLPTXOKRehab Partners #2, Inc.76-0631992 Arrowhead Physical Therapy, LimitedPartnershipElite Sports Medicine &Physical TherapyLPTXMSRehab Partners #2, Inc.26-0176798 Ashland Physical Therapy, LimitedPartnership LPTXORRehab Partners #6, Inc.75-3054977 Audubon Physical Therapy, LimitedPartnership LPTXLARehab Partners #6, Inc.76-0622471 Barren Ridge Physical Therapy, LimitedPartnership LPTXVARehab Partners #6, Inc.26-3594831 Bayside Management GP, LLC LLCTX Rehab Partners #4, Inc27-4348787 Bayside Physical Therapy & SportsRehabilitation, Limited Partnership LPTXMDBayside Management GP, LLC27-4348871 Beaufort Physical Therapy, LimitedPartnership LPTXNCRehab Partners #3, Inc.76-0639928 Bow Physical Therapy & Spine Center, LimitedPartnership LPTXNHRehab Partners #6, Inc.76-0623486 Brazos Valley Physical Therapy, LimitedPartnership LPTX Rehab Partners #3, Inc.76-0407118 Brick Hand & Rehabilitative Services, LimitedPartnership LPTXNJRehab Partners #3, Inc.76-0420711 Briotix Health, Limited PartnershipInSite Health (6/25/2020 - PerCyndi M. and Leon P. this dbais no longer used).LPDEAZ, 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, LLC81-1190407 Briotix Management GP, LLC LLCTXFL, MA, OH, UT 81-1200727 BTE Workforce Solutions, LLC (formerly BTETechnoligies, Inc.) LLCDEAK, AL,CO, DC, FL, GA,HI, IA, ID, IL, IN, KS, KY,LA, MD, ME, MI, MN,MO,MS, MT, NC, ND,NE, NH, NJ, NM, NV, OK,PA, RI, SC, SD, TX, UT,VT, WI, WV, WYBriotix Health, LP52-1165956 C. Foster Physical Therapists, LimitedPartnership LPTX C. Foster PT Management GP,LLC36-4965660 C. Foster PT Management GP, LLC LLCTX Rehab Partners #4, Inc.35-2689219 Cape Cod Hand Therapy, Limited PartnershipCape Cod Hand & UpperExtremity TherapyLPTXMARehab Partners #1, Inc.27-0058293 Carolina Physical Therapy and SportsMedicine, Limited Partnership LPTXSCCarolina PT Management GP, LLC82-1408170 Carolina PT Management GP, LLC LLCTX 82-1453799 Center for Physical Rehabilitation andTherapy, Limited Partnership LPDEMICPR Management GP, LLC47-4006118 Cleveland Physical Therapy, Ltd. LPTX Rehab Partners #2, Inc.76-0410649 Comprehensive Hand & Physical Therapy,Limited Partnership LPTXFLRehab Partners #2, Inc.76-0452158 Coppell Spine & Sports Rehab, LimitedPartnershipNorth Davis/Keller PhysicalTherapy PhysicalTherapy of ColleyvillePhysical Therapy of NorthTexas Physical Therapy ofCorinth Trinity Sports& Physical Therapy Physical Therapy of FlowerMound Southlake Physical Therapy Physical Therapy ofTrophy Club HeritageTrace Physical Therapy Therapy Partners ofFrisco/Little Elm TherapyPartners of North TexasLPTX Rehab Partners #5, Inc.76-0513962 CPR Management GP, LLC LLCTX Rehab Partners #4, Inc.47-3434985 Cross Creek Physical Therapy, LimitedPartnership LPTXMSRehab Partners #4, Inc.35-2185612 Crossroads Physical Therapy, LimitedPartnershipGreen Oaks Physical Therapy -Fort Worth Green OaksPhysical TherapyLPTX Rehab Partners #1, Inc.76-0551398 Crossroads Rehabilitation, Limited PartnershipCrossroads Physical TherapyLPTXMIRehab Partners #1, Inc.84-1658419 Custom Physical Therapy, Limited Partnership LPTXNVRehab Partners #4, Inc.04-3708931 Cutting Edge Physical Therapy, LimitedPartnership LPTXINRehab Partners #4, Inc.20-4069256 Dearborn Physical Therapy, Ltd.Advanced Physical TherapyLPTXMIRehab Partners #1, Inc.76-0376595 Decatur Hand and Physical TherapySpecialists, Limited Partnership LPTXGARehab Partners #4, Inc.20-3319149 Dekalb Comprehensive Physical Therapy,Limited Partnership LPTXGARehab Partners #4, Inc.20-3631634 Denali Physical Therapy, Limited Partnership LPTXAKRehab Partners #5, Inc.20-8666329 DHT Hand Therapy, Limited PartnershipArizona Desert Hand TherapyServices Desert Hand andPhysical TherapyLPTXAZDHT Management GP, LLC20-5881475 DHT Management GP, LLC LLCTXAZRehab Partners #4, Inc20-5881418 Dynamic Hand Therapy & Rehabilitation,Limited Partnership LPTXILRehab Partners #4, Inc.20-8847486 Eastgate Physical Therapy, Limited PartnershipSummit Physical TherapyLPTXOHRehab Partners #4, Inc.76-0637484 Edge Physical Therapy, Limited PartnershipRiver's Edge Physical TherapyLPTXMTRehab Partners #3, Inc.76-0473771 Enid Therapy Center, Limited PartnershipEnid Physical TherapyLPTXOKRehab Partners #2, Inc.76-0384228 Everett Management, LLC LLCWA U.S. Physical Therapy, Ltd.37-1776322 Evergreen Physical Therapy, LimitedPartnership LPTXMIRehab Partners #1, Inc.20-8613843 Excel Physical Therapy, Limited Partnership LPTXAKExcel PT Texas GP, LLC20-3951569 Excel PT Texas GP, LLC LLCTX Rehab Partners #6, Inc.20-3951532 Fit2WRK, Inc. CorpTX U.S. Physical Therapy, Inc.27-1647054 Five Rivers Therapy Services, LimitedPartnershipPeak Physical TherapyLPTXARRehab Partners #3, Inc.20-3785604 Flannery Physical Therapy, Limited PartnershipPhysical Therapy PlusLPTXNJRehab Partners #3, Inc.76-0580514To bedissolvedForest City Physical Therapy, LimitedPartnership LPTXILRehab Partners #4, Inc.76-0525481 Fredericksburg Physical Therapy, LimitedPartnership LPTX Rehab Partners #1, Inc.20-3589445 Fremont PT Management GP, LLC LLCTX 85-4237359 Fremont Therapy Group, Limited Partnership LPTX Fremont PT Management GP, LLC Frisco Physical Therapy, Limited PartnershipPT of ProsperLPTX Rehab Partners #1, Inc.76-0625171 Gahanna Physical Therapy, Limited PartnershipCornerstone Physical TherapyLPTXOHRehab Partners #4, Inc.27-0643842 Genesee Valley Physical Therapy, LimitedPartnership LPTXMIRehab Partners #1, Inc.26-2299603 Green Oaks Physical Therapy, LimitedPartnership LPTX Rehab Partners #1, Inc.72-1531238 Hamilton Physical Therapy Services, LP LPTXNJHPTS Management GP, LLC74-3145890 Hands-On Sports Medicine, Limited PartnershipMetro Spine and SportsRehabilitationLPTXILRehab Partners #4, Inc.20-3300800 Hanoun Medical, Inc.BTE Workforce Solutions Briotix HealthCorpCanada 2037053 Ontario, Inc. (owned byBriotix Health, LP) Harbor Physical Therapy, Limited Partnership LPTXMDRehab Partners #6, Inc.20-3303737To bedissolvedHeritage Physical Therapy, Limited Partnership LPTXCARehab Partners #5, Inc.76-0647511 HH Rehab Associates, Inc.Genesee Valley PhysicalTherapyTheramax Physical TherapyCorpMIDEU.S. PT - Michigan, Inc.38-2427228 High Plains Physical Therapy, LimitedPartnership LPTXWYRehab Partners #4, Inc.41-2060941 Highlands Physical Therapy & SportsMedicine, Limited Partnership LPTXNJRehab Partners #3, Inc.27-3126287 Hoeppner Physical Therapy, LimitedPartnership LPTXVTRehab Partners #5, Inc.76-0613907 Houston On Demand Physical Therapy, LLC LLCTX Kingwood Physical Therapy, Ltd.85-3267403 HPTS Management GP, LLC LLCTXNJRehab Partners #3, Inc.74-3145888To bedissolvedIH GP, LLC LLCTX 82-4303618 Indy ProCare Physical Therapy, LimitedPartnership LPTXINRehab Partners #4, Inc.45-4419567To bedissolvedInSite Health Limited Partnership LPDE IH GP, LLC82-4365153 Intermountain Physical Therapy, LimitedPartnership LPTXIDRehab Partners #6, Inc.76-0532873 Jackson Clinics PT Management GP , LLC LLCTX Rehab Partners #4, Inc.46-4470249 Jackson Clinics, Limited Partnership LPTXMD, VAJackson Clinics PT ManagementGP, LLC61-1729833 Jaco Rehab Honolulu Management GP, LLC LLCTX 84-3191941 Jaco Kapolei Management GP, LLC LLCTX 84-3152468 Jaco Mililani Management GP LLC LLCTX 84-3167120 Jaco Waikele Management GP LLC LLCTX 84-3176419 Jaco Rehab Honolulu, Limited Partnership LPTXHIJaco Rehab HonoluluManagement GP, LLC84-3255422 Jaco Rehab Kapolei, Limited Partnership LPTXHIJaco Kapolei Management GP,LLC84-3236943 Jaco Rehab Mililani, Limited Partnership LPTX Jaco Mililani Management GP, LLC84-3206751 Jaco Rehab Waikele, Limited Partnership LPTXHIJaco Waikele Management GP,LLC84-3226914 Joan Ostermeier Physical Therapy, LimitedPartnershipSport & Spine Clinic ofWittenbergLPTXWIRehab Partners #1, Inc.76-0556793 Julie Emond Physical Therapy, LimitedPartnershipMaple Valley Physical TherapyLPTXVTRehab Partners #3, Inc.76-0544267 Kelly Lynch Physical Therapy, LimitedPartnershipSport & Spine Clinic ofWatertownLPTXWIRehab Partners #1, Inc.76-0559026 Kennebec Physical Therapy, LLC LLCTXMEU.S. Physical Therapy, Ltd.46-4456545 Kingwood Physical Therapy, Ltd.Spring-Klein Physical Therapy West WoodlandsPhysical Therapy Lake Conroe Sports Medicineand Rehabilitation CypressOaks Physical Therapy Star Therapy Services ofFairfield; Grand Oaks Sports Medicineand RehabilitationLPTX Rehab Partners #2, Inc.76-0384227 Lake Houston Physical Therapy, LimitedPartnershipNorthern Oaks Orthopedic &Sports PTLPTX Rehab Partners #1, Inc.75-3050296 Leader Physical Therapy, Limited PartnershipMemphis Physical TherapyLPTXTNRehab Partners #4, Inc.76-0539465Withdraw PALife Fitness Physical Therapy, LLCIn Balance Physical Therapy Herbst Physical TherapyLLCMDPAU.S. Physical Therapy, Ltd.20-1193079 Life Strides Physical Therapy andRehabilitation, Limited Partnership LPTXSCRehab Partners #2, Inc.20-5120914 LiveWell Physical Therapy, Limited Partnership LPTX Rehab Partners #5, Inc.26-3700763 Madison Physical Therapy, Limited Partnership LPTXNJMSPT Management GP, LLC 27-2047964 Madison Spine, Limited Partnership LPTXNJMSPT Management GP, LLC 90-0813058 Max Motion Physical Therapy, LimitedPartnership LPTXAZRehab Partners #3, Inc.26-3988733 Merrill Physical Therapy, Limited Partnership LPTXWIRehab Partners #1, Inc.76-0512097 Mishock Physical Therapy, Limited PartnershipXcelerate Physical TherapyLPTXPAMishock PT Management GP, LLC30-0783139 Mishock PT Management GP, LLC LLCTX Rehab Partners #4, Inc.46-2793533 Mission Rehabilitation and Sports Medicine,Limited PartnershipRYKE RehabilitationLPTX RYKE Management GP, LLC26-3747839 Mobile Spine and Rehabilitation, LimitedPartnership LPTXALRehab Partners #6, Inc.76-0600186 Momentum Physical & Sports Rehabilitation,Limited PartnershipMomentum Physical Therapy& Sports RehabLPTXFL, CO, AZRehab Partners #10, LLC47-2388509 Mountain View Physical Therapy, LimitedPartnershipMountain View Physical andHand TherapyLPTXORRehab Partners #6, Inc.76-0528482 MSPT Management GP, LLC LLCTXNJRehab Partners #4, Inc27-2047906 National Rehab Delaware, Inc. CorpDEMONational Rehab GP, Inc.74-2899827shows taxclearanceNational Rehab GP, Inc. CorpTXFL,MOU.S. PT - Delaware, Inc.76-0345539 National Rehab Management GP, Inc. CorpTXILU.S. PT - Delaware, Inc.76-0345543 New Horizons Physical Therapy, LimitedPartnership LPTXINRehab Partners #4, Inc.20-2729857 Norman Physical Therapy, Limited Partnership LPTXOKRehab Partners #4, Inc.76-0420713 North Jersey Game On Physical Therapy,Limited PartnershipMadison Spine & PhysicalTherapyLPTXNJRehab Partners #3, Inc.27-3885529 North Lake Physical Therapy and Rehab,Limited Partnership LPTXORNorth Lake PT Management GP,LLC90-0964749 North Lake PT Management GP, LLC LLCTX Rehab Partners #4, Inc.46-2599705 Northern Lights Physical Therapy, LimitedPartnership LPTXNDRehab Partners #3, Inc.27-0342077 Northwest PT Management GP, LLC LLCTX Rehab Partners #4, Inc.82-2410286 Northwoods Physical Therapy, LimitedPartnership LPTXMIRehab Partners #1, Inc.26-1258418 OPR Management Services, Inc. CorpTXAK, 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, WYU.S. Physical Therapy, Ltd.81-3815218 OSR Physical Therapy, Limited Partnership LPTXMNOSR Physical TherapyManagement GP, LLC83-0657305 OSR Physical Therapy Management GP LLC LLCTX 83-0649952To bedissolvedOld Towne Physical Therapy, LimitedPartnership LPTXDERehab Partners #3, Inc.26-0237594 One to One PT Management GP LLC LLCTXFLRehab Partners #4, Inc.84-4060850 One to One Physical Therapy, LimitedPartnership LPDE One to One PT Management GP,LLC84-4074270 Oregon Spine & Physical Therapy, LimitedPartnershipPeak State Physical TherapyLPTXORRehab Partners #6, Inc.76-0613909 Peak Performance PT Management GP, LLC LLCTX Peak Performance PhysicalTherapy and Fitness, LLC85-3948317 Peak Performance Physical Therapy, LimitedPartnership LPTX Peak Performance PTManagement GP, LLC85-4174416 Pelican State Physical Therapy, LimitedPartnershipAudubon Physical TherapyLPTXLARehab Partners #6, Inc.76-0433513 Penns Wood Physical Therapy, LimitedPartnership LPTXPARehab Partners #5, Inc.76-0430771 PerformancePro Sports Medicine andRehabilitation, Limited Partnership LPTX Rehab Partners #5, Inc.26-1539873 Phoenix Physical Therapy, Limited Partnership LPTXOHRehab Partners #4, Inc.27-0932165Check withPeter if to bedissolvedPhysical Restoration and Sports Medicine,Limited Partnership LPTXVARehab Partners #6, Inc.27-0878621 Physical Therapy Northwest, LimitedPartnership LPTXORNorthwest PT Management GP,LLC82-2397360 Physical Therapy and Spine Institute, LimitedPartnership LPTXILRehab Partners #4, Inc.76-0438263 Physical Therapy Solutions, LimitedPartnership LPDEVAPTS GP Management, LLC47-3075583 Pinnacle Therapy Services, LLC LLCDEMOU.S. Physical Therapy, Ltd.46-3247784 Pioneer Physical Therapy, Limited Partnership LPTXNERehab Partners #1, Inc.20-3530492 Plymouth Physical Therapy Specialists, LimitedPartnership LPTXMIRehab Partners #3, Inc.76-0424739 Port City Physical Therapy, Limited Partnership LPTXMERehab Partners #3, Inc.76-0585914 Precision Physical Therapy, Limited Partnership LPTXPARehab Partners #5, Inc.76-0438265 Premier Physical Therapy and SportsPerformance, Limited Partnership LPDE Premier Management GP, LLC47-5385666 Premier Management GP, LLC LLCDE Rehab Partners #4, Inc.47-5403407 ProActive Physical Therapy, LimitedPartnership LPTXSDRehab Partners #3, Inc.76-0600187 ProCare Physical Therapy Management GP, LLC LLCTX Rehab Partners #4, Inc.46-2044643 ProCare PT, Limited Partnership LPTXPAProCare Physical TherapyManagement GP, LLC90-0941849 Progressive Physical Therapy Clinic, Ltd.Progressive Hand and PhysicalTherapyLPTX Rehab Partners #1, Inc.76-0387638 PTS GP Management, LLC LLCTX Rehab Partners #4, Inc.47-3239903 Quad City Physical Therapy & Spine, LimitedPartnership LPTXIARehab Partners #5, Inc.14-1921829 RACVA GP, LLC LLCTXVARehab Partners #4, Inc.37-1838302 R. Clair Physical Therapy, Limited PartnershipClair Physical TherapyLPTX Rehab Partners #1, Inc.76-0478967 Radtke Physical Therapy, Limited Partnership LPTXMNRehab Partners #5, Inc.76-0574455 Reaction Physical Therapy, LLC LLCDEOKU.S. Physical Therapy, Ltd.47-1586428 Rebound Physical Therapy, Limited Partnership LPTXORRebound PT Management GP, LLC81-1026078 Rebound PT Management GP, LLC LLCTX Rehab Partners #4, Inc.81-1045143 Red River Valley Physical Therapy, LimitedPartnership LPTX Rehab Partners #5, Inc.20-4489003 Redmond Ridge Management, LLC LLCWA U.S. Physical Therapy, Ltd.61-1754288 Regional Physical Therapy Center, LimitedPartnership LPTX Rehab Partners #5, Inc.76-0429008 Rehab Partners #1, Inc. CorpTXFL, MA, & WIU.S. PT Delaware, Inc.76-0345544 Rehab Partners #2, Inc. CorpTXFLU.S. PT Delaware, Inc.76-0379584Withdraw, NJRehab Partners #3, Inc. CorpTXMO, MT, NJ, ND, & SDU.S. PT Delaware, Inc.76-0394604Withdraw UTRehab Partners #4, Inc. CorpTXOH, & UTU.S. PT Delaware, Inc.76-0418425 Rehab Partners #5, Inc. CorpTX U.S. PT Delaware, Inc.76-0427607 Rehab Partners #6, Inc. CorpTXORU.S. PT Delaware, Inc.76-0433511 Rehab Partners Acquisition #1, Inc. CorpTX U.S. Physical Therapy, Inc.76-0377650 Rehabilitation Associates of Central Virginia,Limited PartnershipRehab Associates of CentralVirginia (Campbell County)LPTXVARACVA GP, LLC81-3831622 Rice Rehabilitation Associates, LimitedPartnership LPTXGARehab Partners #4, Inc.76-0430769 Riverview Physical Therapy, LimitedPartnership (formerly Yarmouth PhysicalTherapy) LPTXMERehab Partners #3, Inc.27-0001262Dissolve LP;WithdrawnLARiverwest Physical Therapy, LimitedPartnership LPTXLARehab Partners #6, Inc.76-0496362 Roepke Physical Therapy, Limited PartnershipElite Hand & Upper ExtremityClinicLPTXWIRehab Partners #1, Inc.76-0483099 RYKE Management GP, LLC LLCTX Rehab Partners #5, Inc.26-3747599 Saginaw Valley Sport and Spine, LimitedPartnershipSport & Spine PhysicalTherapy and Rehab; EvergreenPTLPTXMIRehab Partners #3, Inc.76-0403520 Saline Physical Therapy of Michigan, Ltd.Physical Therapy in MotionLPTXMIRehab Partners #1, Inc.76-0376594 San Antonio On Demand Physical Therapy,LLC LLCTX U.S. Physical Therapy, Ltd. Seacoast Physical Therapy, Limited Partnership LPTXMERehab Partners #3, Inc.45-2498148 Signature Physical Therapy, Limited Partnership LPTXOKRehab Partners #2, Inc.20-5992649 Snohomish Management, LLC LLCWA U.S. Physical Therapy, Ltd.38-3953679 South Tulsa Physical Therapy, LimitedPartnershipPhysical Therapy of JenksLPTXOKRehab Partners #2, Inc.76-0566430 Spectrum Physical Therapy, Limited PartnershipSouthshore Physical TherapyLPTXCTRehab Partners #2, Inc.76-0393448GA isdissolvedSpine & Sport Physical Therapy, LimitedPartnership LPTXGARehab Partners #4, Inc.76-0414726 Sport & Spine Clinic of Fort Atkinson, LimitedPartnershipSport & Spine Clinic of SaukCitySport & Spine Clinic ofMadison Sport& Spine Clinic of JeffersonSport & Spine EdgertonLPTXWIRehab Partners #1, Inc.76-0694802 Sport & Spine Clinic, L.P.Sport & Spine Sport & Spine Clinicof Edgar Sport &Spine Minocqua Sport & Spine - RibMountainLPDEWIRehab Partners Acquisition #1,Inc.76-0376131 Spracklen Physical Therapy, LimitedPartnership LPTXNERehab Partners #1, Inc.76-0580510 STAR PT Management GP, LLC LLCTX Rehab Partners #4, Inc26-1107563 STAR Physical Therapy, LP LPTXAR, TN, INSTAR PT Management GP, LLC62-1707893 Star Therapy Centers, Limited PartnershipStar Therapy Services ofCopperfield StarTherapy Services of Cy-Fair Star Therapy Services ofFulshearStar Therapy Services of KatyStar Therapy Services ofMagnoliaStar Therapy Services ofSpring Cypress Star Therapy Services of CincoRanchLPTX Rehab Partners #1, Inc.76-0389608 Texstar Physical Therapy, Limited Partnership LPTX Rehab Partners #5, Inc.76-0669263 The Hale Hand Center, Limited Partnership LPTXFLRehab Partners #2, Inc.76-0601187 The U.S. Physical Therapy Foundation NPTXQualified to fund raise inCA, FL, KS, MD, MI, TN,TX, VA 81-1071364 Therapyworks Physical Therapy, LLCTherapyworksLLCDEINU.S. Physical Therapy, Ltd.46-4446075 Thibodeau Physical Therapy, LimitedPartnership LPTXMIRehab Partners #1, Inc.26-1147899 Thunder Physical Therapy, Limited Partnership LPTXWARehab Partners #4, Inc.26-3806761 U.S. Physical Therapy, Inc. CorpNVMI and AZN/A76-0364866 U.S. Physical Therapy, Ltd. LPTXNJ,NCNational Rehab GP, Inc.76-0388092 U.S. PT - Delaware, Inc. CorpDEFL, IL, MN, MONM,U.S. Physical Therapy, Inc.51-0343523 U.S. PT Alliance Rehabilitation Services, Inc.Alliance RehabilitationServicesCorpTXPAU.S. Physical Therapy, Inc.26-2377769 U.S. PT Management, Ltd. LPTXWANational Rehab Management GP,Inc.76-0388500 U.S. PT Michigan #1, Limited PartnershipGenesee Valley PhysicalTherapyLPTXMIRehab Partners #1, Inc.76-0570431 U.S. PT Michigan #2, Limited PartnershipPhysical Therapy SolutionsLPTXMIRehab Partners #2, Inc.76-0579492 U.S. PT Solutions, Inc.Physical Therapy SolutionsCorpTXVAU.S. Physical Therapy, Inc.26-0609553 U.S. PT Texas, Inc.Kinetix Physical TherapyCorpTXMSU.S. Physical Therapy, Inc.20-5125415To bedissolvedU.S. PT Therapy Services, Inc. (formerly U.S.Surgical Partners, Inc.)Capstone Physical TherapyCarolina Hand and WellnessCenterHand 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 PhysicalTherapyMountain View PhysicalTherapy of MedfordMountain View PhysicalTherapy of TalentNorthern Illinois TherapyServicesPropel Physical TherapyReAction Physical TherapyTherapeutic ConceptsTulsa Hand TherapyWaco Sports Medicine andRehabilitation CorpDECA, FL, IA, IL, IN, KS,ME, MS, MO, NC, OH,OK, OR, PA, TX VA, &WIU.S. Physical Therapy, Inc.76-0613914 U.S. PT Turnkey Services, Inc.(formerly Surgical Management GP, Inc.The Hand & Orthopedic RehabClinicCorpTXINU.S. Physical Therapy, Inc.20-2803028 U.S. Therapy, Inc.First Choice Physical TherapyCorpTXINU.S. PT - Delaware, Inc.76-0637511 The Facilities Group, Inc. University Physical Therapy, LimitedPartnership LPTXVARehab Partners #6, Inc.76-0613913 USPT Physical Therapy, Limited PartnershipBody Basics Physical TherapyLPTXIARehab Partners #5, Inc.20-5441273 Victory Physical Therapy, Limited Partnership LPTX Rehab Partners #5, Inc.20-4406904 West Texas Physical Therapy, LimitedPartnership LPTX Rehab Partners #5, Inc.20-5834588 Wright PT Management GP, LLC LLCTX Rehab Partners #4, Inc.82-3239740 Wright Physical Therapy, Limited Partnership LPTXIDWright PT Management GP, LLC82-3255983NameDBAEntity TypeState of FormationForeign QualificationTax IDEverett Physical Therapy and Sports PerformanceCenter, PLLCSports Physical TherapySPT- BellevueSPT- KirklandSPT – EverettSPT – Factoria PLLCWA 47-0930529Redmond Ridge Physical Therapy, PLLCFunctional Therapy GroupFTG DuvallFTG Redmond RidgeFTG Woodinville PLLCWA 26-1241495Snohomish Physical Therapy, PLLCMovement Physical and Hand Therapy ofSnohomishMovement Physical and Hand Therapy of CanyonParkMPT SnohomishMPT Canyon Park PLLCWA 33-1058838EXHIBIT 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe have issued our reports dated March 1, 2021, with respect to the consolidated financial statements and internal control over financial reporting included in the Annual Report of U.S.Physical Therapy, Inc. on Form 10-K for the year ended December 31, 2020. We consent to the incorporation by reference of said reports in the Registration Statements of U.S. PhysicalTherapy, 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 August 16, 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 effective August 15,2008, 333-185381 effective December 11, 2012, 333-200832 effective December 10, 2014, and 333-230368 effective March 18, 2019)./s/ GRANT THORNTON LLPHouston, TexasMarch 1, 2021EXHIBIT 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 fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading 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 all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is beingprepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonableassurance regarding the reliability of financial reporting and the 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 our conclusions about the effectiveness of the disclosure controlsand procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourthfiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and theaudit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect theregistrant’s ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.Date: March 1, 2021 /s/ Christopher J. Reading Christopher J. Reading President and Chief Executive Officer(principal executive officer)EXHIBIT 31.2CERTIFICATIONI, Carey Hendrickson, 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 fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading 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 all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is beingprepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonableassurance regarding the reliability of financial reporting and the 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 our conclusions about the effectiveness of the disclosure controlsand procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourthfiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and theaudit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect theregistrant’s ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.Date: March 1, 2021 /s/ Carey Hendrickson Carey Hendrickson Chief 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 fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading 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 all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is beingprepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonableassurance regarding the reliability of financial reporting and the 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 our conclusions about the effectiveness of the disclosure controlsand procedures, as of the end of the period covered by this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourthfiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and theaudit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect theregistrant’s ability to record, process, summarize and report financial information; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.Date: March 1, 2021 /s/ Jon C. Bates Jon C. Bates Vice President and Corporate ControllerEXHIBIT 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 December 31, 2020 as filed with the Securities and ExchangeCommission on the date hereof (the “report”), we, Christopher J. Reading, Carey Hendrickson and Jon C. Bates, Chief Executive Officer, Chief Financial Officer and Controller,respectively, of the registrant, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:(1) The report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and(2) The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the registrant.March 1, 2021 /s/ Christopher J. Reading Christopher J. Reading Chief Executive Officer /s/ Carey Hendrickson Carey Hendrickson Chief Financial Officer /s/ Jon C. Bates Jon C. Bates Vice President and Controller A signed original of this written statement required by Section 906 has been provided to U. S. Physical Therapy, Inc. and will be retained by U. S. Physical Therapy, Inc. andfurnished to the Securities and Exchange Commission or its staff upon request.

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