UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
For the transition period from to
Commission file number 1-11151
U.S. PHYSICAL THERAPY, INC.
(Name of small business issuer in its charter)
Nevada 76-0364866
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3040 Post Oak Blvd., Suite 222, Houston, Texas 77056
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (713) 297-7000
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date: 3,594,715
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995 3
Consolidated Statements of Operations for the
three months and nine months ended
September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1996 and 1995 9
Notes to Consolidated Financial Statements 11
<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
Sept. 30, Dec. 31,
1996 1995
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 4,191 $ 2,634
Patient accounts receivable, less
allowance for doubtful accounts
of $991 and $727, respectively 6,414 5,873
Accounts receivable-other 110 108
Other current assets 330 382
Total current assets 11,045 8,997
Fixed assets:
Furniture and equipment 6,666 6,008
Leasehold improvements 3,110 2,781
9,776 8,789
Less accumulated depreciation 3,916 2,897
5,860 5,892
Non-compete agreements, net of
amortization of $383, and $308,
respectively 241 317
Goodwill, net of amortization of
$84, and $56, respectively 822 547
Other assets 666 157
$ 18,634 $ 15,910
See notes to consolidated financial statements
3<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
Sept.30, Dec.30,
1996 1995
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 132 $ 287
Accrued expenses 1,012 887
Estimated third-party payor
(Medicare) settlements 995 715
Notes payable 68 24
Total current liabilities 2,207 1,913
Notes payable - long term portion 239 116
Convertible subordinated notes payable 8,050 8,050
Minority interests in subsidiary limited
partnerships 941 669
Commitments - -
Shareholders' equity:
Preferred stock, $.01 par value,
500 shares authorized, -0-
shares outstanding - -
Common stock, $.01 par value, 10,000
shares authorized, 3,595 shares
outstanding at September 30, 1996,
and 3,520 shares outstanding at
December 31, 1995 36 35
Additional paid-in capital 11,661 10,870
Accumulated deficit (4,500) (5,743)
Total shareholders' equity 7,197 5,162
$ 18,634 $ 15,910
See notes to consolidated financial statements
4<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Months Ended
September 30,
1996 1995
(unaudited)
Net patient revenues $ 8,168 $ 6,347
Other revenues 45 30
Net revenues 8,213 6,377
Clinic operating costs:
Salaries and related costs 3,699 2,782
Rent, clinic supplies and other 2,247 1,925
Provision for doubtful accounts 259 128
6,205 4,835
Corporate office costs:
General and administrative 802 739
Recruitment and development 210 170
1,012 909
Operating income before non-
operating expenses 996 633
Interest expense (188) (179)
Life insurance proceeds - 700
Minority interests in subsidiary
limited partnerships (265) (154)
Net income $ 543 $ 1,000
See notes to consolidated financial statements
5<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Months Ended
September 30,
1996 1995
(unaudited)
Net income per common and common
equivalent share $ .15 $ .27
Net income per common share-assuming
issuance of all dilutive contingent
shares $ .15 $ .26
Weighted average number of
common and common equivalent
shares outstanding 3,678 3,694
Weighted average number of
common and common equivalent
shares outstanding-assuming full
dilution 3,678 4,466
See notes to consolidated financial statements
6<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Nine Months Ended
September 30,
1996 1995
(unaudited)
Net patient revenues $ 23,547 $ 18,148
Other revenues 108 74
Net revenues 23,655 18,222
Clinic operating costs:
Salaries and related costs 10,828 8,194
Rent, clinic supplies and other 6,696 5,622
Provision for doubtful accounts 661 380
18,185 14,196
Corporate office costs:
General and administrative 2,366 2,226
Recruitment and development 583 573
2,949 2,799
Loss on closure of facilities - 438
Operating income before non-
operating expenses 2,521 789
Interest expense (558) (554)
Life insurance proceeds - 700
Minority interests in subsidiary
limited partnerships (720) (374)
Net income $ 1,243 $ 561
See notes to consolidated financial statements
7<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Nine Months Ended
September 30,
1996 1995
(unaudited)
Net income per common and common
equivalent share $ .33 $ .15
Net income per common share-assuming
issuance of all dilutive contingent
shares $ .33 $ .15
Weighted average number of
common and common equivalent
shares outstanding 3,718 3,691
Weighted average number of
common and common equivalent
shares outstanding-assuming full
dilution 3,718 3,691
See notes to consolidated financial statements
8
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
September 30,
1996 1995
(unaudited)
Operating activities
Net income $ 1,243 $ 561
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization 1,294 1,245
Gain on sale of fixed assets - (5)
Loss on disposal of certain assets
in closure of facilities - 158
Minority interests in earnings of
subsidiary limited partnerships 720 374
Provision for doubtful accounts 662 380
Changes in operating assets and
liabilities:
Increase in patient accounts
receivable (1,203) (1,899)
Increase in accounts receivable-other (2) (606)
Decrease in other assets 82 59
Increase in accounts payable and
accrued expenses 151 194
Increase in estimated third-party
payer (Medicare)settlements 280 242
Net cash provided by operating
activities 3,227 703
Investing activities
Purchase of fixed assets (1,120) (939)
Purchase of intangibles (302) (26)
Proceeds on sale of fixed assets 6 44
Net cash used in investing activities (1,416) (921)
See notes to consolidated financial statements
9<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
September 30,
1996 1995
(unaudited)
Financing activities
Proceeds from notes payable 215 -
Payment of notes payable (48) (239)
Proceeds from investment of minority
investors in subsidiary limited
partnerships 10 71
Proceeds from exercise of stock options 27 49
Distributions to minority investors
in subsidiary limited partnerships (458) (225)
Net cash used in financing activities (254) (344)
Net increase (decrease) in cash and
cash equivalents 1,557 (562)
Cash and cash equivalents - beginning
of period 2,634 2,117
Cash and cash equivalents - end of
period $ 4,191 $ 1,555
Supplemental disclosures of cash flow
information
Cash paid during the period for:
Income taxes $ 65 $ 41
Interest $ 500 $ 499
See notes to consolidated financial statements
10<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
1. Basis of Presentation and Significant Accounting Policies
The consolidated financial statements include the accounts of U.S.
Physical Therapy, Inc. and its wholly-owned subsidiaries (the
"Company"). All significant intercompany transactions and balances
have been eliminated. With the exception of one clinic in which the
Company has a 100% ownership percentage, the Company, through its
wholly-owned subsidiaries, currently owns a 1% general partnership
interest and limited partnership interests ranging from 59% to 80%
in the clinics it operates. For the majority of the clinics, the
managing therapist of each such clinic, along with other therapists
at the clinic in several of the partnerships, own the remaining
limited partnership interest in the clinic which ranges from 19% to
40%. The minority interest in the equity and earnings of the
subsidiary clinic limited partnerships are presented separately in
the consolidated financial statements.
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and in accordance with
the instructions for Form 10-QSB. Accordingly, the statements do
not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements.
In the opinion of management, the accompanying unaudited financial
statements contain all necessary adjustments (consisting only of
normal recurring adjustments) to present fairly the Company's
financial position, results of operations and cash flows for the
interim periods presented. For further information regarding the
Company's accounting policies, refer to the audited financial
statements included in the Company's Form 10-KSB for the year ended
December 31, 1995.
Operating results for the three and nine months ended September 30,
1996 are not necessarily indicative of the results expected for the
entire year.
11<PAGE>
Long-Lived Assets
In March 1995, the FASB issued Statement No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying
amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The adoption of
Statement 121 in the first quarter of 1996 did not have any
material impact on the Company's operations.
Use of Estimates
Management is required to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
2. Non-Cash Transaction
In May 1994, the Company issued $2,000,000 aggregate principal
amount of 8% Convertible Subordinated Notes, Series B ("the Series
B Notes"). The Series B Notes contained a Contingent Interest
Enhancement feature which allowed the Series B Note holders to
receive an interest enhancement payable in shares of Company Common
Stock based upon the market value of the Company's shares for the
month of June 1996. A total of 70,965 shares of the Company's
Common Stock were issued in connection with the Contingent Interest
Enhancement feature. Deferred financing costs, included in "Other
Assets" on the balance sheet, totaling $765,000 were recorded in
connection with the issuance of the 70,965 shares. As of September
30, 1996, $181,000 of amortization relating to the deferred
financing costs had been recorded.
Item 2. Management's Discussion and Analysis or Plan of Operation
Overview
The Company operates outpatient physical and occupational therapy
clinics which provide post-operative care and treatment for a
variety of orthopedic related disorders and sports-related
injuries. At September 30, 1996, the Company operated sixty-three
12<PAGE>
outpatient physical and occupational therapy clinics. Sixty-three
clinics were developed by the Company and opened in 1990 (one
clinic), 1991 (two clinics), 1992 (three clinics), 1993 (fifteen
clinics), 1994 (twenty-seven clinics), 1995 (nine clinics) and 1996
(six clinics). Five clinics were acquired by the Company during
1992 (three clinics) and 1994 (two clinics). In March 1995, the
Company closed two clinics, which originally opened in 1994, due to
adverse clinic performance and consolidated the operations of one
of its clinics opened in 1994 with another clinic opened in 1993.
In 1995, the Company consolidated the operations of two previously
acquired clinics into one single facility and consolidated another
previously acquired clinic with one of the clinics developed and
opened in 1991. These consolidations were undertaken to more
efficiently serve these geographic markets. In the first quarter
of 1996, the Company acquired all of the assets of a clinic located
in McKinney, Texas and consolidated its existing clinic located in
McKinney into the acquired facility.
Results of Operations
Three Months Ended September 30, 1996 Compared to the Three Months
Ended September 30, 1995
Net Patient Revenues
Net patient revenues increased to $8,168,000 for the three months
ended September 30, 1996 ("1996 Third Quarter")from $6,347,000 for
the three months ended September 30, 1995 ("1995 Third Quarter"),
an increase of $1,821,000, or 29%. Net patient revenues from the
nine clinics developed since the 1995 Third Quarter (the "New
Clinics") accounted for 41% of the increase or $749,000. The
remaining increase of $1,072,000 in net patient revenues comes from
those fifty-three clinics opened more than one year as of September
30, 1996. Of the $1,072,000 increase in net patient revenues for
these clinics, a 16% increase in the number of patient visits
increased net patient revenues by $1,046,000, which was coupled by
a slight increase in the average rate charged per visit of 0.3%.
Net patient revenues are based on established billing rates less
allowances and discounts for patients covered by worker's
compensation programs and other contractual programs. Payments
received under these programs are based on predetermined rates and
are generally less than the established billing rates of the
13<PAGE>
clinics. Net patient revenues reflect reserves, which are
evaluated quarterly by management, for contractual and other
adjustments relating to patient discounts from certain payors. Net
patient revenues also are reported net of estimated retrospective
adjustments under Medicare. Medicare reimbursement for outpatient
physical or occupational therapy services are paid based on a cost
reimbursement methodology. The Company is initially reimbursed at
a tentative rate with final settlement determined after submission
of an annual cost report by the Company and audits thereof by the
Medicare fiscal intermediary.
Clinic Operating Costs
Clinic operating costs as a percent of net patient revenues
remained stable at 76% for the 1996 Third Quarter compared to the
1995 Third Quarter.
Clinic Operating Costs - Salaries and Related Costs
Clinic operating costs - salaries and related costs increased to
$3,699,000 for the 1996 Third Quarter from $2,782,000 for the 1995
Third Quarter, an increase of $917,000 or 33%. Approximately 39%
of the increase or $360,000 was due to the New Clinics. The
remaining 67% increase or $557,000 is due principally to increased
staffing to meet the increase in patient visits for the clinics
opened prior to the 1995 Third Quarter, coupled with an increase in
bonuses earned by the managing therapists at the clinics opened
prior to the 1995 Third Quarter. Such bonuses are based on the
gross revenues or operating profit generated by the individual
clinics.
Clinic Operating Costs - Rent, Clinic Supplies and Other
Clinic operating costs - rent, clinic supplies and other increased
to $2,247,000 for the 1996 Third Quarter from $1,925,000 for the
1995 Third Quarter, an increase of $322,000 or 17%. Approximately
60% of the increase or $192,000 was due to the New Clinics, while
40% or $130,000 of the increase was due to the clinics opened prior
to the 1995 Third Quarter. Clinic operating costs - rent, clinic
supplies and other as a percent of net patient revenues has
declined slightly from 30% for the 1995 Third Quarter to 28% for
the 1996 Third Quarter.
Clinic Operating Costs - Provision for Doubtful Accounts
Clinic operating costs - provision for doubtful accounts increased
to $259,000 for the 1996 Third Quarter from $128,000 for the 1995
14<PAGE>
Third Quarter, an increase of 102% or $131,000. Approximately 13%
of the increase or $17,000 was due to the New Clinics, while 87% or
$114,000 of the increase relates to the clinics opened prior to the
1995 Third Quarter. The provision as a percent of net patient
revenues increased to 3.2% for the 1996 Third Quarter compared to
2.0% for the 1995 Third Quarter, reflecting management's evaluation
of the increase in bad debts written off at several of the clinics
opened prior to the 1995 Third Quarter.
Corporate Office Costs - General & Administrative
Corporate office costs - general and administrative, consisting
primarily of salaries of corporate office personnel and related
costs, insurance costs, depreciation and amortization, travel and
legal and professional fees, remained relatively stable from the
1995 Third Quarter to the 1996 Third Quarter. Corporate office
costs - general and administrative, as a percent of net revenues,
decreased from 12% for the 1995 Third Quarter to 10% for the 1996
Third Quarter due primarily to the increased revenues in the 1996
Third Quarter.
Corporate Office Costs - Recruitment & Development
Corporate office costs - recruitment and development primarily
represent salaries of recruitment and development personnel,
travel, marketing and recruiting fees attributed directly to the
Company's activities in the development and acquisition of new and
future clinics. All recruitment and development personnel are
located at the corporate office in Houston, Texas. Once a clinic
has opened, these personnel are not involved with the clinic. Also
included in recruiting and development expenses is the amortization
of certain pre-opening costs which represent travel costs of
personnel at the corporate office which were incurred to identify
and open new clinics. The amortization of pre-opening costs
incurred directly by the clinics are reflected in clinic operating
costs. Corporate office costs - recruitment and development
increased to $210,000 for the 1996 Third Quarter from $170,000 for
the 1995 Third Quarter, an increase of $40,000 or 23%. The
majority of this increase relates to additional recruiting fees
incurred in connection with the Company's anticipated opening of at
least six additional clinics in the fourth quarter of 1996, two of
which were opened in October 1996.
15<PAGE>
Interest Expense
Interest expense of $188,000 for the 1996 Third Quarter relates
primarily to $62,000 of interest expense on the $3,050,000
aggregate principal amount of 8% Convertible Subordinated Notes
issued by the Company in June 1993 and $101,000 of interest expense
on the $5,000,000 aggregate principal amount of 8% Series B and
Series C Notes issued by the Company in May 1994. In addition,
$19,000 of interest expense was recorded in the 1996 Third Quarter
relating to the Contingent Interest Enhancement feature of the
Series B Notes. This feature allowed Series B Note holders to
receive an interest enhancement payable in shares of Company Common
Stock based upon the market value of the Company's shares for the
month of June 1996, which corresponded to two years from the date
of issuance of the Series B Notes (the "Contingent Interest
Enhancement"). A total of 70,965 shares of Company Common Stock
were issued in connection with the Contingent Interest Enhancement
feature.
Life Insurance Proceeds
During the 1995 Third Quarter, the managing physical therapist at
one of the Company's clinics passed away in an automobile accident.
In connection with this event, the Company recognized a net
$700,000 in life insurance proceeds.
Minority Interests in Subsidiary Limited Partnerships
Minority interests in subsidiary limited partnerships increased
$111,000 or 72% in the 1996 Third Quarter compared to the 1995 Third Quarter due
to the increase in aggregate profitability of
those clinics in which partners have achieved positive retained
earnings and are accruing partnership income.
Net Income
The Company's net income for the 1996 Third Quarter of $543,000 was
less than the 1995 Third Quarter's net income of $1,000,000
principally due to the inclusion of a $700,000 gain from life
insurance proceeds in the 1995 Third Quarter. Exclusive of this
$700,000 gain, net income for the 1995 Third Quarter would have
been $300,000. The increase in net income from the 1995 Third
Quarter of $300,000 (exclusive of the life insurance proceeds gain)
to the 1996 Third Quarter's level of $543,000 is due primarily to
an increase in net revenues of $1,836,000 from the 1995 Third
Quarter to the 1996 Third Quarter which more than offset the
$1,370,000 increase in clinic operating costs.
16<PAGE>
Nine Months Ended September 30, 1996 Compared to the Nine Months
Ended September 30, 1995
Net Patient Revenues
Net patient revenues increased to $23,547,000 for the nine months
ended September 30, 1996 ("1996 Nine Months")from $18,148,000 for
the nine months ended September 30, 1995 ("1995 Nine Months"), an
increase of $5,399,000, or 30%. Net patient revenues from the ten
clinics developed since the 1995 Nine Months (the "New Clinics")
accounted for 26% of the increase or $1,423,000. The remaining
increase of $3,976,000 in net patient revenues comes from those
fifty-three clinics opened more than one year as of September 30,
1996. Of the $3,976,000 increase in net patient revenues for these
clinics, a 23% increase in the number of patient visits increased
net patient revenues by $4,205,000, which was offset, in part, by
a decrease in the average rate charged per visit of 1.0%.
Net patient revenues are based on established billing rates less
allowances and discounts for patients covered by worker's
compensation programs and other contractual programs. Payments
received under these programs are based on predetermined rates and
are generally less than the established billing rates of the
clinics. Net patient revenues reflect reserves, which are
evaluated quarterly by management, for contractual and other
adjustments relating to patient discounts from certain payors. Net
patient revenues also are reported net of estimated retrospective
adjustments under Medicare. Medicare reimbursement for outpatient
physical or occupational therapy services are paid based on a cost
reimbursement methodology. The Company is initially reimbursed at
a tentative rate with final settlement determined after submission
of an annual cost report by the Company and audits thereof by the
Medicare fiscal intermediary.
Clinic Operating Costs
Clinic operating costs as a percent of net patient revenues
remained stable at 77% for the 1996 Nine Months compared to 78% for
the 1995 Nine Months.
Clinic Operating Costs - Salaries and Related Costs
Clinic operating costs - salaries and related costs increased to
$10,828,000 for the 1996 Nine Months from $8,194,000 for the 1995
Nine Months, an increase of $2,634,000 or 32%. Approximately 28%
of the increase or $743,000 was due to the New Clinics. The
17<PAGE>
remaining 72% increase or $1,891,000 is due principally to
increased staffing to meet the increase in patient visits for the
clinics opened prior to the 1995 Nine Months, coupled with an
increase in bonuses earned by the managing therapists at the
clinics opened prior to the 1995 Nine Months. Such bonuses are
based on the gross revenues or operating profit generated by the
individual clinics.
Clinic Operating Costs - Rent, Clinic Supplies and Other
Clinic operating costs - rent, clinic supplies and other increased
to $6,696,000 for the 1996 Nine Months from $5,622,000 for the 1995
Nine Months, an increase of $1,074,000 or 19%. Approximately 41%
of the increase or $435,000 was due to the New Clinics, while 59%
or $639,000 of the increase was due to the clinics opened prior to
the 1995 Nine Months. Clinic operating costs - rent, clinic
supplies and other as a percent of net patient revenues has
declined slightly from 31% for the 1995 Nine Months to 28% for the
1996 Nine Months.
Clinic Operating Costs - Provision for Doubtful Accounts
Clinic operating costs - provision for doubtful accounts increased
to $661,000 for the 1996 Nine Months from $380,000 for the 1995
Nine Months, an increase of 74% or $281,000. Approximately 11% of
the increase or $32,000 was due to the New Clinics, while 89% or
$249,000 of the increase relates to the clinics opened prior to the
1995 Nine Months. The provision as a percent of net patient
revenues increased to 2.8% for the 1996 Nine Months compared to
2.1% for the 1995 Nine Months, reflecting management's evaluation
of the increase in bad debts written off at several of the clinics
opened prior to the 1995 Nine Months.
Corporate Office Costs - General & Administrative
Corporate office costs - general and administrative, consisting
costs, insurance costs, depreciation and amortization, travel and
legal and professional fees, increased by 6% to $2,366,000 for the
1996 Nine Months from $2,226,000 for the 1995 Nine Months,
primarily due to an increase in salaries and related costs of
corporate office personnel needed to service the increased number
of clinics in operation at September 30, 1996 compared to September
30, 1995. Corporate office costs - general and administrative, as
a percent of net revenues, decreased from 12% for the 1995 Nine
Months to 10% for the 1996 Nine Months, reflecting increased
revenues in the 1996 Nine Months.
18<PAGE>
Corporate Office Costs - Recruitment & Development
Corporate office costs - recruitment and development primarily
represent salaries of recruitment and development personnel,
travel, marketing and recruiting fees attributed directly to the
Company's activities in the development and acquisition of new and
future clinics. All recruitment and development personnel are
located at the corporate office in Houston, Texas. Once a clinic
has opened, these personnel are not involved with the clinic. Also
included in recruiting and development expenses is the amortization
of certain pre-opening costs which represent travel costs of
personnel at the corporate office which were incurred to identify
and open new clinics. The amortization of pre-opening costs
incurred directly by the clinics are reflected in clinic operating
costs. Corporate office costs - recruitment and development
increased $10,000 or 2% to $583,000 for the 1996 Nine Months from
$573,000 for the 1995 Nine Months. The majority of this increase
relates to additional recruiting fees incurred in connection with
the Company's anticipated opening of at least six additional
clinics in the fourth quarter of 1996, two of which were opened in
October 1996.
Loss on Closure of Facilities
In February 1995, the Company decided to close two of its clinics,
located in Georgia and Arizona, due to adverse clinic performance.
In the 1995 Nine Months, the Company recognized a $438,000 loss
relating to these closures which occurred in March 1995. During
the fourth quarter of 1995, the Company fulfilled all obligations
relating to the closure of the facilities and recognized a decrease
of $79,000 in the loss on closure of facilities.
Prior to the opening of all clinic facilities, management evaluates
the potential clinic partner and the demographics of the area and
decides, based on this evaluation, if the elements exist for a
successful partnership. The factors considered include the
prospective partner's experience and reputation within the local
health care community, the prospective partner's potential for
attracting referrals from physicians and other referral sources,
and the potential for increased business based on the competitive
situation as well as the overall ability of the prospective partner
to manage and market the business. The Company overestimated the
partners' ability to attract patients at the two clinics that were
closed during 1995, and, consequently, revenues at the two clinics
19<PAGE>
did not meet minimum expectations. Upon further analysis, the
Company did not believe the revenue shortfalls in these two clinics
could be remedied in a reasonable period of time. No future clinic
closures are planned at this time; however, no assurance can be
given that clinic closures will not occur in the future if a
particular clinic is not operating at satisfactory levels.
The Georgia and Arizona clinics, which both opened during 1994,
accounted for net patient revenues and clinic operating costs of
$35,000 and $78,000, respectively, for the 1995 Nine Months.
Interest Expense
Interest expense of $558,000 for the 1996 Nine Months relates
primarily to $183,000 of interest expense on the $3,050,000
aggregate principal amount of 8% Convertible Subordinated Notes
issued by the Company in June 1993 and $300,000 of interest expense
on the $5,000,000 aggregate principal amount of 8% Series B and
Series C Notes issued by the Company in May 1994. In addition,
$56,000 of interest expense was recorded in the 1996 Nine Months
relating to the Contingent Interest Enhancement feature of the
Series B Notes. This feature allowed Series B Note holders to
receive an interest enhancement payable in shares of Company Common
Stock based upon the market value of the Company's shares for the
month of June 1996, which corresponded to two years from the date
of issuance of the Series B Notes (the "Contingent Interest
Enhancement"). A total of 70,965 shares of Company Common Stock
were issued in connection with the Contingent Interest Enhancement
feature.
Life Insurance Proceeds
During the 1995 Nine Months, the managing physical therapist at one
of the Company's clinics passed away in an automobile accident. In
connection with this event, the Company recognized a net $700,000
in life insurance proceeds.
Minority Interests in Subsidiary Limited Partnerships
Minority interests in subsidiary limited partnerships increased
$346,000 or 93% in the 1996 Nine Months compared to the 1995 Nine
Months due to the increase in aggregate profitability of those
clinics in which partners have achieved positive retained earnings
and are accruing partnership income.
20<PAGE>
Net Income
The Company's net income for the 1996 Nine Months of $1,243,000
exceeded the 1995 Nine Month's net income of $561,000 principally
due to the $5,433,000 increase in net revenues which more than
offset the $3,989,000 increase in clinic operating costs. In
addition, the 1995 Nine Months included the $700,000 gain from life
insurance proceeds, offset by the $438,000 loss on closure of
facilities, both of which were not present in the 1996 Nine Months.
Liquidity and Capital Resources
At September 30, 1996, the Company had $4,191,000 in cash and cash
equivalents, which is available to fund the working capital needs
of its operating subsidiaries and future clinic developments and
acquisitions. Included in cash and cash equivalents at September
30, 1996 is $2,997,000 of short-term U.S. Government Agency
securities. The market value of the short-term U.S. Government
Agency securities approximated the carrying value of such
securities as of September 30, 1996.
The increase in cash of $1,557,000 from December 31, 1995 to
September 30, 1996 is due to cash provided by operating activities
of $3,227,000, coupled with proceeds from notes payable of
$215,000, offset in part by the Company's use of cash to fund
capital expenditures, primarily for physical therapy equipment,
leasehold improvements and intangibles, in the amount of
$1,416,000, and distributions to minority partners in subsidiary
limited partnerships of $458,000.
At September 30, 1996, the Company had a current ratio of 4.63 to
1.0 compared to 4.70 to 1.0 at December 31, 1995 and a debt to
equity ratio of 1.16 to 1.0 at September 30, 1996 compared to 1.59
to 1.0 at December 31, 1995. The improvement in the debt to equity
ratio from December 31, 1995 to September 30, 1996 relates
primarily to the increase in equity as a result of the net income
of $1,243,000 for the 1996 Nine Months.
The quarterly interest obligation on the outstanding 8% Convertible
Subordinated Notes, the 8% Convertible Subordinated Notes, Series
B and the 8% Convertible Subordinated Notes, Series C is $61,000,
$40,000 and $60,000, respectively, through June 30, 2003, June 30,
2004 and June 30, 2004, respectively.
21<PAGE>
Management believes that existing funds, supplemented by cash flows
from existing operations, will be sufficient to meet its current
operating needs and its development plans through 1996.
Factors Affecting Future Results
In 1995, the Company reduced the number of new clinic openings to
nine from twenty-nine new clinics opened during 1994 and focused
primarily on enhancing the results of operations of its existing
clinics. The fewer clinic openings in 1995 significantly reduced
corporate office-recruitment and development expenses, since new
clinics traditionally involve a significant amount of start-up
costs, such as travel and recruitment fees, as well as reduce the
effect of initial operating losses from new clinics on the
Company's results of operations. During the initial period of
operation, operating margins for newly opened clinics tend to be
lower than more seasoned clinics due to the start-up costs of newly
opened clinics (salaries and related costs of the physical
therapist and other clinic personnel, rent and equipment and other
supplies required to open the clinic) and the fact that patient
revenues tend to be lower in the first year of a new clinic's
operation and increase over the next several years. With the
majority of the clinics being more seasoned and now recognizing
profitable monthly results, the Company increased the number of new
clinic openings to six for the nine months ended September 30, 1996
and intends to open at least six additional clinics in the fourth
quarter of 1996, two of which were opened in October. The Company
expects to further accelerate the pace of new clinic openings in
1997.
22<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits
27. Financial Data Schedule
(b) Reports of Form 8-K
No reports on Form 8-K were filed with the Securities and
Exchange Commission during the quarter ended September 30, 1996.
23<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
U.S. PHYSICAL THERAPY, INC.
Date: November 14, 1996 By: /s/ MARK J. BROOKNER
Mark J. Brookner
Chief Financial
Officer and
Treasurer (duly
authorized officer
and principal
financial officer)
24
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