UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 X No
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date: 3,606,609
<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 June 30, 1997
and December 31, 1996 3
Consolidated Statements of Operations for the
three months and six months ended
June 30, 1997 and 1996 5
Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996 7
Notes to Consolidated Financial Statements 9
<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
1997 1996
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 4,726 $ 4,912
Patient accounts receivable, less
allowance for doubtful accounts
of $1,413, and $1,159,
respectively 6,997 6,359
Accounts receivable-other 187 127
Other current assets 339 407
Total current assets 12,249 11,805
Fixed assets:
Furniture and equipment 7,581 7,043
Leasehold improvements 3,545 3,280
11,126 10,323
Less accumulated depreciation 5,135 4,317
5,991 6,006
Noncompete agreements, net of
amortization of $453, and $406,
respectively 171 218
Goodwill, net of amortization of
$115, and $94, respectively 791 811
Other assets 937 643
$ 20,139 $ 19,483
See notes to consolidated financial statements.
3<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
1997 1996
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 194 $ 275
Accrued expenses 1,070 971
Estimated third-party payor
(Medicare) settlements 742 1,277
Notes payable 71 68
Total current liabilities 2,077 2,591
Notes payable - long-term portion 226 226
Convertible subordinated notes
payable 8,050 8,050
Minority interests in subsidiary
limited partnerships 1,222 1,021
Commitments - -
Shareholders' equity:
Preferred stock, $.01 par value,
500 shares authorized, -0-
shares outstanding - -
Common stock, $.01 par value,
10,000 shares authorized, 3,607
and 3,595 shares outstanding
at June 30, 1997 and December 31,
1996, respectively 36 36
Additional paid-in capital 11,614 11,661
Accumulated deficit (3,086) (4,102)
Total shareholders' equity 8,564 7,595
$ 20,139 $ 19,483
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
June 30,
1997 1996
(unaudited)
Net patient revenues $ 9,550 $ 7,885
Other revenues 136 34
Net revenues 9,686 7,919
Clinic operating costs:
Salaries and related costs 4,326 3,675
Rent, clinic supplies and other 2,596 2,206
Provision for doubtful accounts 288 217
7,210 6,098
Corporate office costs:
General and administrative 911 785
Recruitment and development 313 188
1,224 973
Operating income before non-
operating expenses 1,252 848
Interest expense 184 186
Minority interests in subsidiary
limited partnerships 411 228
Income before income taxes 657 434
Provision for income taxes 35 21
Net income $ 622 $ 413
Net income per common and common
equivalent share $ .17 $ .11
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)
Six Months Ended
June 30,
1997 1996
(unaudited)
Net patient revenues $ 18,177 $ 15,379
Other revenues 201 63
Net revenues 18,378 15,442
Clinic operating costs:
Salaries and related costs 8,453 7,129
Rent, clinic supplies and other 4,945 4,447
Provision for doubtful accounts 522 402
13,920 11,978
Corporate office costs:
General and administrative 1,705 1,545
Recruitment and development 632 373
2,337 1,918
Operating income before non-
operating expenses 2,121 1,546
Interest expense 367 370
Minority interests in subsidiary
limited partnerships 687 454
Income before income taxes 1,067 722
Provision for income taxes 51 21
Net income $ 1,016 $ 701
Net income per common and common
equivalent share $ .28 $ .19
See notes to consolidated financial statements.
6<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
June 30,
1997 1996
(unaudited)
Operating activities
Net income $ 1,016 $ 701
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization 921 857
Minority interests in earnings
of subsidiary limited
partnerships 687 454
Provision for bad debts 522 402
Loss (gain) on sale of fixed
assets (3) (2)
Changes in operating assets and
liabilities:
Increase in patient accounts
receivable (1,160) (997)
Increase in accounts receivable-
other (60) (17)
Decrease (increase) in other
assets (233) 24
Increase in accounts payable
and accrued expenses 18 223
Decrease in estimated third-party
payer (Medicare) settlements (535) (28)
Net cash provided by operating
activities 1,173 1,617
See notes to consolidated financial statements.
7<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
June 30,
1997 1996
(unaudited)
Investing activities
Purchase of fixed assets (896) (682)
Purchase of intangibles - (302)
Proceeds on sale of fixed assets 67 6
Net cash used in investing
activities (829) (978)
Financing activities
Proceeds from notes payable 40 215
Payment of notes payable (37) (30)
Acquisition of treasury stock (47) -
Proceeds from investment of minority
investors in subsidiary limited
partnerships 1 9
Distributions to minority investors
in subsidiary limited partnerships (487) (344)
Net cash used in financing activities (530) (150)
Net increase (decrease) in cash and
cash equivalents (186) 489
Cash and cash equivalents -
beginning of period 4,912 2,634
Cash and cash equivalents -
end of period $ 4,726 $ 3,123
Supplemental disclosures of cash
flow information
Cash paid during the period for:
Income taxes $ 390 $ 56
Interest $ 276 $ 327
See notes to consolidated financial statements.
8<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
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 two clinics in which
the Company has a 100 percent ownership percentage, the Company,
through its wholly-owned subsidiaries, currently owns a one percent
general partnership interest and limited partnership interests
ranging from 59 percent to 80 percent 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 percent to 40 percent. 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, 1996.
9<PAGE>
Operating results for the three and six months ended June 30, 1997
are not necessarily indicative of the results expected for the
entire year.
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.
Reclassifications
The accompanying financial statements for the three and six months
ended June 30, 1996 have been reclassified to conform with the
presentation used for the three and six months ended June 30, 1997.
2. Stock Repurchase Program
During the three months ended March 31, 1997, the Company's Board of
Directors authorized it to repurchase up to 200,000 shares of its
common stock. The timing of which and the actual number of shares
purchased will depend on market conditions. The repurchased shares,
which will be financed with available cash, will be held as treasury
shares and will thereafter be available for general corporate
purposes. As of June 30, 1997, 4,900 shares have been repurchased
at a cost of $47,000.
Item 6. 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 June 30, 1997, the Company operated 75 outpatient physical and
occupational therapy clinics in 23 states. The average age of the
75 clinics in operation at June 30, 1997 is 2.7 years old. Since
inception of the Company, 76 clinics have been developed and six
clinics have been acquired by the Company. To date, the Company has
closed two facilities, due to adverse clinic performance,
consolidated the operations of three of its clinics with other
existing clinics to more efficiently serve various geographic
10<PAGE>
markets and sold certain fixed assets at two of the Company's
clinics and then closed such facilities. The sale of fixed assets
and the concurrent closure of the two clinics occurred during the
three months ended March 31, 1997 ("1997 First Quarter"). No loss
was recognized relating to these 1997 First Quarter closures. These
two clinics combined accounted for net patient revenues and clinic
operating costs for the six months ended June 30, 1997 ("1997 Six
Months") of $(1,000) and $54,000, respectively, and for the six
months ended June 30, 1996 ("1996 Six Months") of $153,000 and
$267,000, respectively.
Results of Operations
Three Months Ended June 30, 1997 Compared to the Three Months Ended
June 30, 1996
Net Patient Revenues
Net patient revenues increased to $9,550,000 for the three months
ended June 30, 1997 ("1997 Second Quarter") from $7,885,000 for the
three months ended June 30, 1996 ("1996 Second Quarter"), an
increase of $1,665,000, or 21 percent. Net patient revenues from
the 17 clinics developed since the 1996 Second Quarter (the "New
Clinics") accounted for 52 percent of the increase or $857,000. The
remaining increase of $808,000 in net patient revenues comes from
those 58 clinics opened more than one year as of June 30, 1997 (the
"Pre-June 1997 Clinics"). The majority of the $808,000 increase in
net patient revenues for these clinics resulted from a ten percent
increase in the number of patient visits, while the rate charged per
visit remained stable.
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 furnished by clinics or
rehabilitation agencies is paid based on a cost reimbursement
11<PAGE>
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.
Other Revenues
Other revenues, consisting of interest, management fees, sublease
and real estate commission income, increased by $102,000, or 300
percent, to $136,000 for the 1997 Second Quarter from $34,000 for
the 1996 Second Quarter. This increase was due primarily to
management fees earned in connection with a contract the Company
entered into during the 1997 First Quarter to manage a third party
physical therapy clinic, coupled with an increase in interest income
as a result of the higher average amount of cash and cash
equivalents available for investment during the 1997 Second Quarter
compared to the 1996 Second Quarter. These increases were offset,
in part, by a decrease in real estate commission income.
Clinic Operating Costs
Clinic operating costs as a percent of net patient revenues declined
to 75.5 percent for the 1997 Second Quarter compared to 77.3 percent
for the 1996 Second Quarter.
Clinic Operating Costs - Salaries and Related Costs
Clinic operating costs - salaries and related costs increased to
$4,326,000 for the 1997 Second Quarter from $3,675,000 for the 1996
Second Quarter, an increase of $651,000 or 18 percent.
Approximately 72 percent of the increase, or $471,000, was due to
the New Clinics. The remaining 28 percent increase or $180,000 is
due principally to increased staffing to meet the increase in
patient visits for the clinics opened prior to the 1997 Second
Quarter, coupled with an increase in bonuses earned by the managing
therapists at the clinics opened prior to the 1997 Second Quarter.
Such bonuses are based on the gross revenues or operating profit
generated by the individual clinics. Clinic operating costs -
salaries and related costs as a percent of net patient revenues
declined to 45.3 percent for the 1997 Second Quarter from 46.6
percent for the 1996 Second Quarter.
12<PAGE>
Clinic Operating Costs - Rent, Clinic Supplies and Other
Clinic operating costs - rent, clinic supplies and other increased
to $2,596,000 for the 1997 Second Quarter from $2,206,000 for the
1996 Second Quarter, an increase of $390,000, or 18 percent. Such
costs for the New Clinics for the 1997 Second Quarter were $371,000,
which were coupled by a slight increase in such costs of $19,000
relating to the clinics opened prior to the 1997 Second Quarter. Clinic
operating costs - rent, clinic supplies and other as a
percent of net patient revenues declined slightly to 27.2 percent
for the 1997 Second Quarter from 28.0 percent for the 1996 Second
Quarter.
Clinic Operating Costs - Provision for Doubtful Accounts
Clinic operating costs - provision for doubtful accounts increased
to $288,000 for the 1997 Second Quarter from $217,000 for the 1996
Second Quarter, an increase of 33 percent or $71,000. Approximately
25 percent of the increase, or $18,000, was due to the New Clinics,
while 75 percent, or $53,000, of the increase relates to the clinics
opened prior to the 1997 Second Quarter. The provision as a percent
of net patient revenues increased slightly to 3.0 percent for the
1997 Second Quarter compared to 2.8 percent for the 1996 Second
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,
legal, public company listing and application fees and professional
fees increased by 16 percent to $911,000 for the 1997 Second Quarter
from $785,000 for the 1996 Second Quarter, due to a $24,000
application fee to NASDAQ that the Company incurred in April 1997,
when the Company's Common Stock began trading on the Nasdaq National
Market. The Company's Common Stock previously was traded on the
Nasdaq Small Cap Market. Coupled with this increase was an increase
in travel expenses of corporate office personnel needed to service
the increased number of clinics in operation at June 30, 1997 and an
increase in legal expenses associated with operating an increased
number of clinics at June 30, 1997. Corporate office costs -
general and administrative, as a percent of net revenues, decreased
to 9.4 percent for the 1997 Second Quarter from 9.9 percent for the
1996 Second Quarter, reflecting increased revenues in the 1997
Second Quarter.
13<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. Corporate office
costs - recruitment and development increased $125,000 or 66 percent
to $313,000 for the 1997 Second Quarter from $188,000 for the 1996
Second Quarter. The majority of this increase relates to an
increase in salaries and related costs of recruitment and
development personnel which were added in response to management's
intention to accelerate the pace of new clinic openings during 1997
from the level of 12 new clinics developed and opened during 1996.
Coupled with the increase in salaries and related costs is an
increase in travel expenses and recruiting fees which also correlate
with the anticipated growth in new clinic openings in 1997.
Interest Expense
Interest expense of $184,000 for the 1997 Second 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 1997 Second 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.
Minority Interests in Subsidiary Limited Partnerships
Minority interests in subsidiary limited partnerships increased
$183,000, or 80 percent, to $411,000 for the 1997 Second Quarter
from $228,000 for the 1996 Second Quarter due to the increase in
aggregate profitability of those clinics in which partners have
achieved positive retained earnings and are accruing partnership
income.
14<PAGE>
Provision for Income Taxes
The provision for income taxes increased to $35,000 for the 1997
Second Quarter from $21,000 for the 1996 Second Quarter, due
primarily to an increase in taxable income from 1996 to 1997.
Net Income
The Company's net income for the 1997 Second Quarter of $622,000
exceeded the 1996 Second Quarter's net income of $413,000
principally due to the $1,767,000 increase in net revenues, which
more than offset the $1,112,000 increase in clinic operating costs,
the $251,000 increase in corporate office costs and the $183,000
increase in minority interests in subsidiary limited partnerships.
Six Months Ended June 30, 1997 Compared to the Six Months Ended June
30, 1996
Net Patient Revenues
Net patient revenues increased to $18,177,000 for the 1997 Six
Months from $15,379,000 for the 1996 Six Months, an increase of
$2,798,000, or 18 percent. Net patient revenues from the 17 clinics
developed since the 1996 Six Months accounted for 50 percent of the
increase or $1,400,000. The remaining increase of $1,398,000 in net
patient revenues comes from those 58 clinics opened more than one
year as of June 30, 1997 (the "Pre-June 1997 Clinics"). Of the
$1,398,000 increase in net patient revenues for these clinics, an
eight percent increase in the number of patient visits increased net
patient revenues by $1,181,000, which was coupled by an increase in
the average rate charged per visit of one percent.
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 furnished by clinics or
rehabilitation agencies is paid based on a cost reimbursement
15<PAGE>
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.
Other Revenues
Other revenues, consisting of interest, management fees, sublease
and real estate commission income, increased by $138,000, or 219
percent, to $201,000 for the 1997 Six Months from $63,000 for the
1996 Six Months. This increase was due primarily to management fees
earned in connection with a contract the Company entered into during
the 1997 First Quarter to manage a third party physical therapy
clinic, coupled with an increase in interest income as a result of
the higher average amount of cash and cash equivalents available for
investment during the 1997 Six Months compared to the 1996 Six
Months. These increases were offset, in part, by a decrease in real
estate commission income.
Clinic Operating Costs
Clinic operating costs as a percent of net patient revenues declined
slightly to 76.6 percent for the 1997 Six Months compared to 77.9
percent for the 1996 Six Months.
Clinic Operating Costs - Salaries and Related Costs
Clinic operating costs - salaries and related costs increased to
$8,453,000 for the 1997 Six Months from $7,129,000 for the 1996 Six
Months, an increase of $1,324,000 or 19 percent. Approximately 51
percent of the increase, or $676,000, was due to the New Clinics.
The remaining 49 percent increase or $648,000 is due principally to
increased staffing to meet the increase in patient visits for the
clinics opened prior to the 1997 Six Months, coupled with an
increase in bonuses earned by the managing therapists at the clinics
opened prior to the 1997 Six Months. Such bonuses are based on the
gross revenues or operating profit generated by the individual
clinics. Clinic operating costs - salaries and related costs as a
percent of net patient revenues increased slightly to 46.5 percent
for the 1997 Six Months from 46.4 percent for the 1996 Six Months.
16<PAGE>
Clinic Operating Costs - Rent, Clinic Supplies and Other
Clinic operating costs - rent, clinic supplies and other increased
to $4,945,000 for the 1997 Six Months from $4,447,000 for the 1996
Six Months, an increase of $498,000, or 11 percent. Such costs for
the New Clinics for the 1997 Six Months were $529,000, which were
offset by a decrease in such costs of $31,000 relating to the
clinics opened prior to the 1997 Six Months. Clinic operating costs - rent,
clinic supplies and other as a percent of net patient revenues declined to
27.2 percent for the 1997 Six Months from 28.9 percent for the 1996 Six
Months.
Clinic Operating Costs - Provision for Doubtful Accounts
Clinic operating costs - provision for doubtful accounts increased
to $522,000 for the 1997 Six Months from $402,000 for the 1996 Six
Months, an increase of 30 percent or $120,000. Approximately 25
percent of the increase, or $30,000, was due to the New Clinics,
while 75 percent, or $90,000, of the increase relates to the clinics
opened prior to the 1997 Six Months. The provision as a percent of
net patient revenues increased slightly to 2.9 percent for the 1997
Six Months compared to 2.6 percent for the 1996 Six Months.
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,
legal, public company listing and application fees and professional
fees increased by 10 percent to $1,705,000 for the 1997 Six Months
from $1,545,000 for the 1996 Six Months, due to a $24,000
application fee to NASDAQ that the Company incurred in April 1997,
when the Company's Common Stock began trading on the Nasdaq National
Market. The Company's Common Stock previously was traded on the
Nasdaq Small Cap Market. Coupled with this increase was an increase
in travel expenses of corporate office personnel needed to service
the increased number of clinics in operation at June 30, 1997 and an
increase in legal expenses associated with operating an increased
number of clinics at June 30, 1997. Corporate office costs -
general and administrative, as a percent of net revenues, decreased
to 9.3 percent for the 1997 Six Months from 10.0 percent for the
1996 Six Months, reflecting increased revenues in the 1997 Six
Months.
17<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. Corporate office
costs - recruitment and development increased $259,000 or 69 percent
to $632,000 for the 1997 Six Months from $373,000 for the 1996 Six
Months. The majority of this increase relates to an increase in
salaries and related costs of recruitment and development personnel
which were added in response to management's intention to accelerate
the pace of new clinic openings during 1997 from the level of 12 new
clinics developed and opened during 1996. Coupled with the increase
in salaries and related costs is an increase in travel expenses and
recruiting fees which also correlate with the anticipated growth in
new clinic openings in 1997.
Interest Expense
Interest expense of $367,000 for the 1997 Six Months relates
primarily to $121,000 of interest expense on the $3,050,000
aggregate principal amount of 8% Convertible Subordinated Notes
issued by the Company in June 1993 and $199,000 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,
$38,000 of interest expense was recorded in the 1997 Six 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.
Minority Interests in Subsidiary Limited Partnerships
Minority interests in subsidiary limited partnerships increased
$233,000, or 51 percent, to $687,000 for the 1997 Six Months from
$454,000 for the 1996 Six Months due to the increase in aggregate
profitability of those clinics in which partners have achieved
positive retained earnings and are accruing partnership income.
18<PAGE>
Provision for Income Taxes
The provision for income taxes increased to $51,000 for the 1997 Six
Months from $21,000 for the 1996 Six Months, due primarily to an
increase in taxable income from 1996 to 1997.
Net Income
The Company's net income for the 1997 Six Months of $1,016,000
exceeded the 1996 Six Month's net income of $701,000 principally due
to the $2,936,000 increase in net revenues, which more than offset
the $1,942,000 increase in clinic operating costs, the $419,000
increase in corporate office costs and the $233,000 increase in
minority interests in subsidiary limited partnerships.
Liquidity and Capital Resources
At June 30, 1997, the Company had $4,726,000 in cash and cash
equivalents, which is available to fund the working capital needs of
its operating subsidiaries, future clinic developments and
acquisitions and the Company's repurchase of shares of its common
stock. Included in cash and cash equivalents at June 30, 1997,
is $2,500,000 of short-term United States government agency
securities and $1,155,000 of short-term United States government
money market funds. The market value of the United States government
agency securities and the United States government money market
funds approximated the carrying value of such securities as of June
30, 1997.
The decrease in cash of $186,000 from December 31, 1996 to June 30,
1997 is due primarily to the Company's use of cash to fund capital
expenditures, primarily for physical therapy equipment, leasehold
improvements and intangibles in the amount of $896,000, for
distributions to minority investors in subsidiary limited
partnerships of $487,000, and to acquire treasury stock of $47,000,
offset, in part, by cash provided by operating activities of
$1,173,000, coupled with proceeds from notes payable of $40,000 and
proceeds from the sale of fixed assets of $67,000.
The Company's current ratio increased to 5.90 to 1.00 at June 30,
1997 from 4.56 to 1.00 at December 31, 1996. The increase in the
current ratio is due primarily to an increase in net patient
revenues, which, in turn, have caused an increase in patient
19<PAGE>
accounts receivable. In addition, estimated third-party payor
(Medicare) settlements decreased in conjunction with the Company's
filing their 1996 annual cost reports with Medicare in May 1997. At
June 30, 1997, the Company had a debt-to-equity ratio of 0.97 to
1.00 compared to 1.10 to 1.0 at December 31, 1996. The improvement
in the debt-to-equity ratio from December 31, 1996 to June 30, 1997
relates primarily to the increase in equity as a result of the net
income of $1,016,000 for the six months ended June 30, 1997.
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.
During the 1997 First Quarter, the Company's Board of Directors
authorized it to repurchase up to 200,000 shares of its common
stock. The timing of which and the actual number of shares
purchased will depend on market conditions. The repurchased shares,
which will be financed with available cash, will be held as treasury
shares and will thereafter be available for general corporate
purposes. As of June 30, 1997, 4,900 shares have been repurchased
at a cost of $47,000.
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 at least 1997.
Factors Affecting Future Results
Operating results in future periods may be affected by the Company's
plan to accelerate the pace of new clinic openings in 1997 from the
12 new clinic openings which occurred in 1996. Increased clinic
openings traditionally involve a significant amount of start-up
costs, such as travel and recruitment fees. In addition, 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.
20<PAGE>
Recently Promulgated Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be
adopted on December 31, 1997. At that time, the Company will be
required to change the methods currently used to compute earnings
per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the
dilutive effect of outstanding stock options and warrants will be
excluded. The impact of Statement 128 on the calculation of primary
earnings per share and fully diluted earnings per share for the
three months and the six months ended June 30, 1997 is not expected
to be material.
21<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its 1997 annual meeting of shareholders
("Annual Meeting") on May 20, 1997. At the Annual Meeting, ten
directors were elected for one-year terms and the Company's
shareholders voted for approval under the Company's 1992 Stock
Option Plan of (a) a 50,000 share limit on the maximum number of
shares subject to stock options that may be granted to any officer
or employee during any calendar year and (b) a 95,000 share increase
in the number of shares reserved for issuance.
(b) The names of the ten directors elected at the Annual Meeting
are as follows: J. Livingston Kosberg, Roy W. Spradlin, Mark J.
Brookner, Daniel C. Arnold, Nelson Broms, George H. Hargrave, James
B. Hoover, Marlin W. Johnson, Richard C.W. Mauran and Albert L.
Rosen.
(c) The following votes were cast in the election of directors:
WITHHOLD
Nominees For AUTHORITY
J. Livingston Kosberg 2,236,645 11,560
Roy W. Spradlin 2,246,305 1,900
Mark J. Brookner 2,234,145 14,060
Daniel C. Arnold 2,246,805 1,400
Nelson Broms 2,246,805 1,400
George H. Hargrave 2,236,305 11,900
James B. Hoover 2,246,805 1,400
Marlin W. Johnston 2,246,805 1,400
Richard C.W. Mauran 2,182,043 66,162
Albert L. Rosen 2,246,805 1,400
There were 2,157,193 votes cast FOR approval under the
Company's 1992 Stock Option Plan of (a) a 50,000 share limit on the
maximum number of shares subject to stock options that may be
granted to any officer or employee during any calendar year and (b)
22<PAGE>
a 95,000 share increase in the number of shares reserved for
issuance, 88,872 votes were cast AGAINST such approval, and 2,140
votes were abstentions. Broker non-votes as to approval of the
amendments to the Company's 1992 Stock Option Plan totaled zero.
There were a total of 2,248,205 shares represented by person
or by proxy at the Annual Meeting.
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits
10. 1992 Stock Option Plan, as amended (filed as an exhibit
to the Company's Registration Statement on Form S-8(333-30071) and
incorporated herein by reference.
27. Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed a Form 8-K announcing that effective April 28,
1997, the Company's Common Stock began trading on the Nasdaq
National Market under the symbol "USPH". The Company's Common Stock
previously was traded on the Nasdaq Small Cap Market.
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: August 13, 1997 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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