UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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 /X/ No
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date: 3,519,750
<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 March 31, 1996
and December 31, 1995 3
Consolidated Statements of Operations for the
three months ended March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows for the
three months ended March 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 8
<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
1996 1995
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,871 $ 2,634
Patient accounts receivable, less
allowance for doubtful accounts
of $824 and $727, respectively 6,434 5,873
Accounts receivable-other 122 108
Other current assets 368 382
Total current assets 9,795 8,997
Fixed assets:
Furniture and equipment 6,214 6,008
Leasehold improvements 2,810 2,781
9,024 8,789
Less accumulated depreciation 3,196 2,897
5,828 5,892
Non-compete agreements, net of
amortization of $333, and $308,
respectively 292 317
Goodwill, net of amortization of $64,
and $56, respectively 842 547
Other assets 128 157
$ 16,885 $ 15,910
See notes to consolidated financial statements
3
<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
1996 1995
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 135 $ 287
Accrued expenses 1,099 887
Estimated third-party payor
(Medicare) settlements 1,007 715
Notes payable 68 24
Total current liabilities 2,309 1,913
Notes payable - long term portion 273 116
Convertible subordinated notes payable 8,050 8,050
Minority interests in subsidiary limited
partnerships 803 669
Commitments - -
Shareholders' equity:
Preferred stock, $.01 par value,
500 shares authorized, -0-
shares outstanding - -
Common stock, $.01 par value, 10,000
shares authorized, 3,520 shares
outstanding at March 31, 1996,
and December 31, 1995,
respectively 35 35
Additional paid-in capital 10,870 10,870
Accumulated deficit (5,455) (5,743)
Total shareholders' equity 5,450 5,162
$ 16,885 $ 15,910
See notes to consolidated financial statements
4
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Months Ended
March 31,
1996 1995
(unaudited)
Net patient revenues $ 7,494 $ 5,562
Other revenues 29 24
Net revenues 7,523 5,586
Clinic operating costs:
Salaries and related costs 3,454 2,675
Rent, clinic supplies and other 2,241 1,832
Provision for doubtful accounts 185 103
5,880 4,610
Corporate office costs:
General and administrative 760 697
Recruitment and development 185 225
945 922
Loss on closure of facilities - 438
Operating income (loss) before
non-operating expenses 698 (384)
Interest expense (184) (190)
Minority interests in subsidiary
limited partnerships (226) (67)
Net income (loss) $ 288 $ (641)
Net income (loss) per share $ .08 $ (.18)
Weighted average number of common
and common equivalent shares
outstanding 3,779 3,516
See notes to consolidated financial statements
5<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended
March 31,
1996 1995
(unaudited)
Operating activities
Net income (loss) $ 288 $ (641)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization 415 422
Loss on sale of fixed assets 1 7
Loss on disposal of certain assets
in closure of facilities - 158
Minority interests in earnings of
subsidiary limited partnerships 226 67
Provision for bad debts 185 103
Changes in operating assets and
liabilities:
Increase in patient accounts
receivable (746) (653)
Decrease (increase) in accounts
receivable-other (14) 60
Decrease in other assets 22 31
Increase in accounts payable and
accrued expenses 60 356
Increase (decrease) in estimated
third-party payer (Medicare)
settlements 292 (110)
Net cash provided by (used in)
operating activities 730 (200)
Investing activities
Purchase of fixed assets (299) (368)
Purchase of intangibles (303) -
Proceeds on sale of fixed assets - 7
Net cash used in investing activities (602) (361)
See notes to consolidated financial statements
6
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended
March 31,
1996 1995
(unaudited)
Financing activities
Proceeds from notes payable 215 -
Payment of notes payable (14) (176)
Proceeds from investment of minority
investors in subsidiary limited
partnerships 5 7
Proceeds from exercise of stock options - 23
Distributions to minority investors
in subsidiary limited partnerships (97) (27)
Net cash provided by (used in) financing
activities 109 (173)
Net increase (decrease) in cash and
cash equivalents 237 (734)
Cash and cash equivalents - beginning
of period 2,634 2,117
Cash and cash equivalents - end of
period $ 2,871 $ 1,383
Supplemental disclosures of cash flow
information
Cash paid during the period for:
Income taxes $ 5 $ 23
Interest $ 164 $ 168
See notes to consolidated financial statements
7<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 months ended March 31, 1996 are not
necessarily indicative of the results expected for the entire year.
8
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.
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 March 31, 1996, the Company operated fifty-seven
outpatient physical and occupational therapy clinics. Fifty-seven
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) and 1995 (nine 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
9
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 March 31, 1996 Compared to the Three Months
Ended March 31, 1995
Net Patient Revenues
Net patient revenues increased to $7,494,000 for the three months
ended March 31, 1996 ("1996 First Quarter")from $5,562,000 for the
three months ended March 31, 1995 ("1995 First Quarter"), an
increase of $1,932,000, or 35%. Net patient revenues from the ten
clinics developed since the 1995 First Quarter (the "New Clinics")
accounted for 37% of the increase or $721,000. The remaining
increase of $1,211,000 in net patient revenues comes from those
forty-eight clinics opened more than one year as of March 31, 1996
(the "Pre-March 1996 Clinics"). Of the $1,211,000 increase in net
patient revenues for these clinics, a 25% increase in the number of
patient visits increased net patient revenues by $1,390,000, which
was offset, in part, by a decrease in the average rate charged per
visit of 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
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
decreased to 78% for the 1996 First Quarter compared to 83% for the
10
1995 First Quarter. This decrease is due primarily to the
seasoning of the Company's existing clinics which have been in
operation for at least one year. During the initial period of
operation, clinic operating costs for newly opened clinics tend to
be higher 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.
Clinic Operating Costs - Salaries and Related Costs
Clinic operating costs - salaries and related costs increased to
$3,454,000 for the 1996 First Quarter from $2,675,000 for the 1995
First Quarter, an increase of $779,000 or 29%. Approximately 40%
of the increase or $315,000 was due to the New Clinics. The
remaining 60% increase or $464,000 is due principally to increased
staffing to meet the increase in patient visits for the clinics
opened prior to the 1995 First Quarter.
Clinic Operating Costs - Rent, Clinic Supplies and Other
Clinic operating costs - rent, clinic supplies and other increased
to $2,241,000 for the 1996 First Quarter from $1,832,000 for the
1995 First Quarter, an increase of $409,000 or 22%. Approximately
51% of the increase or $208,000 was due to the New Clinics, while
49% or $201,000 of the increase was due to the clinics opened prior
to the 1995 First Quarter.
Clinic Operating Costs - Provision for Doubtful Accounts
Clinic operating costs - provision for doubtful accounts increased
to $185,000 for the 1996 First Quarter from $103,000 for the 1995
First Quarter, an increase of 79% or $82,000. Approximately 20% of
the increase or $16,000 was due to the New Clinics, while 80% or
$66,000 of the increase relates to the clinics opened prior to the
1995 First Quarter. The provision was approximately 2% of net
patient revenues for both periods.
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
11
legal and professional fees, remained stable from the 1995 First
Quarter to the 1996 First Quarter. Corporate office costs-general
and administrative, as a percent of net revenues, decreased from
12% for the 1995 First Quarter to 10% for the 1996 First 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
decreased $40,000 or 18% to $185,000 for the 1996 First Quarter
from $225,000 for the 1995 First Quarter. The majority of this
decrease relates to a decrease in salaries and related costs of
recruitment and development personnel.
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 First Quarter, 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
12
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
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 First Quarter.
Interest Expense
Interest expense of $184,000 for the 1996 First Quarter relates
primarily to $61,000 of interest expense on the $3,050,000
aggregate principal amount of 8% Convertible Subordinated Notes
issued by the Company in June 1993 and $100,000 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 First Quarter
relating to the Contingent Interest Enhancement feature of the
Series B Notes. This feature allows 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 at the
end of two years from the date of issuance of the Series B Notes
(the "Contingent Interest Enhancement"). The maximum number of
shares of Company Common Stock that may be issued pursuant to the
Contingent Interest Enhancement is 102,000 shares which corresponds
to a market price of the Company's Common Stock of $7.50 per share
or less. No additional shares will be issued if the market value
of the Company's Common Stock is at least $16.59 per share
Minority Interests in Subsidiary Limited Partnerships
Minority interests in subsidiary limited partnerships increased
$159,000 or 239% in the 1996 First Quarter compared to the 1995
First Quarter due to the increase in aggregate profitability of
those clinics in which partners have achieved positive retained
earnings and are accruing partnership income.
13
Net Income
The Company's net income for the 1996 First Quarter of $288,000
exceeded the 1995 First Quarter's net loss of $641,000 principally
due to the $1,932,000 increase in net patient revenues which more
than offset the $1,270,000 increase in clinic operating costs and
the $438,000 loss on closure of facilities recognized during the
1995 First Quarter.
Liquidity and Capital Resources
At March 31, 1996, the Company had $2,871,000 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 March 31,
1996 is $1,699,000 of short-term U.S. Government Agency securities.
The increase in cash of $237,000 from December 31, 1995 to March
31, 1996 is due to cash provided by operating activities of
$730,000, 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 $602,000, and
distributions to minority partners in subsidiary limited
partnerships of $97,000.
At March 31, 1996, the Company had a current ratio of 4.24 to 1.0
compared to 4.70 to 1.0 at December 31, 1995 and a debt to equity
ratio of 1.54 to 1.0 at March 31, 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 March 31, 1996 relates primarily to the
increase in equity as a result of the net income of $288,000 for
the 1996 First Quarter.
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.
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.
14
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 intends to increase the
number of new clinic openings to approximately ten to fifteen for
1996.
15<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 March 31, 1996.
16<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: May 14, 1996 By: /s/ MARK J. BROOKNER
Mark J. Brookner
Chief Financial
Officer and
Treasurer (duly
authorized officer
and principal
financial officer)
17
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