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, 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 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 September 30, 1997
and December 31, 1996 3
Consolidated Statements of Operations for the
three months and nine months ended
September 30, 1997 and 1996 5
Consolidated Statement of Cash Flow for the
nine months ended September 30, 1997 and 1996 7
Notes to Consolidated Financial Statements 9
<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
1997 1996
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 4,958 $ 4,912
Patient accounts receivable, less
allowance for doubtful accounts
of $1,506, and $1,159,
respectively 7,403 6,359
Accounts receivable-other 243 127
Other current assets 319 407
Total current assets 12,923 11,805
Fixed assets:
Furniture and equipment 7,878 7,043
Leasehold improvements 3,735 3,280
11,613 10,323
Less accumulated depreciation 5,573 4,317
6,040 6,006
Noncompete agreements, net of
amortization of $477, and $406,
respectively 148 218
Goodwill, net of amortization of
$127, and $94, respectively 1,053 811
Other assets 1,120 643
$ 21,284 $ 19,483
See notes to consolidated financial statements.
3<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
1997 1996
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 135 $ 275
Accrued expenses 1,146 971
Estimated third-party payor
(Medicare) settlements 941 1,277
Notes payable 71 68
Total current liabilities 2,293 2,591
Notes payable - long-term portion 202 226
Convertible subordinated notes
payable 8,050 8,050
Minority interests in subsidiary
limited partnerships 1,398 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 September 30, 1997 and
December 31, 1996, respectively 36 36
Additional paid-in capital 11,614 11,661
Accumulated deficit (2,309) (4,102)
Total shareholders' equity 9,341 7,595
$ 21,284 $ 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
September 30,
1997 1996
(unaudited)
Net patient revenues $ 10,017 $ 8,168
Other revenues 139 45
Net revenues 10,156 8,213
Clinic operating costs:
Salaries and related costs 4,529 3,699
Rent, clinic supplies and other 2,781 2,234
Provision for doubtful accounts 297 259
7,607 6,192
Corporate office costs:
General and administrative 891 784
Recruitment and development 273 210
1,164 994
Operating income before non-
operating expenses 1,385 1,027
Interest expense 188 188
Minority interests in subsidiary
limited partnerships 419 265
Income before income taxes 778 574
Provision for income taxes 1 31
Net income $ 777 $ 543
Net income per common and common
equivalent share $ .21 $ .15
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)
Nine Months Ended
September 30,
1997 1996
(unaudited)
Net patient revenues $ 28,194 $ 23,547
Other revenues 340 108
Net revenues 28,534 23,655
Clinic operating costs:
Salaries and related costs 12,982 10,828
Rent, clinic supplies and other 7,726 6,681
Provision for doubtful accounts 819 661
21,527 18,170
Corporate office costs:
General and administrative 2,687 2,329
Recruitment and development 814 583
3,501 2,912
Operating income before non-
operating expenses 3,506 2,573
Interest expense 555 558
Minority interests in subsidiary
limited partnerships 1,106 720
Income before income taxes 1,845 1,295
Provision for income taxes 52 52
Net income $ 1,793 $ 1,243
Net income per common and common
equivalent share $ .49 $ .33
See notes to consolidated financial statements.
6<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
(in thousands)
Nine Months Ended
September 30,
1997 1996
(unaudited)
Operating activities
Net income $ 1,793 $ 1,243
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,399 1,294
Minority interests in earnings
of subsidiary limited
partnerships 1,106 720
Provision for bad debts 819 662
Gain on sale of fixed assets (3) -
Changes in operating assets and
liabilities:
Increase in patient accounts
receivable (1,864) (1,203)
Increase in accounts receivable-
other (116) (2)
Decrease (increase) in other
assets (400) 82
Increase in accounts payable
and accrued expenses 37 151
Increase (decrease) in estimated
third-party payor (Medicare)
settlements (336) 280
Net cash provided by operating
activities 2,435 3,227
See notes to consolidated financial statements.
7<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
(in thousands)
Nine Months Ended
September 30,
1997 1996
(unaudited)
Investing activities
Purchase of fixed assets (1,383) (1,120)
Purchase of intangibles (275) (302)
Proceeds on sale of fixed assets 67 6
Net cash used in investing activities (1,591) (1,416)
Financing activities
Proceeds from notes payable 40 215
Payment of notes payable (61) (48)
Acquisition of treasury stock (47) -
Proceeds from investment of minority
investors in subsidiary limited
partnerships 1 10
Proceeds from exercise of stock
options - 27
Distributions to minority investors
in subsidiary limited partnerships (731) (458)
Net cash used in financing activities (798) (254)
Net increase in cash and cash
equivalents 46 1,557
Cash and cash equivalents -
beginning of period 4,912 2,634
Cash and cash equivalents -
end of period $ 4,958 $ 4,191
Supplemental disclosures of cash
flow information
Cash paid during the period for:
Income taxes $ 565 $ 65
Interest $ 499 $ 500
See notes to consolidated financial statements.
8<PAGE>
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine months ended September 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 nine months
ended September 30, 1996 have been reclassified to conform with the
presentation used for the three and nine months ended September 30,
1997.
2. Stock Repurchase Program
In January 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
September 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 September 30, 1997, the Company operated 78 outpatient physical
and occupational therapy clinics in 25 states. The average age of
the 78 clinics in operation at September 30, 1997 is 2.8 years old.
Since inception of the Company, 79 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,
10<PAGE>
consolidated the operations of three of its clinics with other
existing clinics to more efficiently serve various geographic
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 nine months ended September 30, 1997 ("1997
Nine Months") of $(6,000) and $54,000, respectively, and for the
nine months ended September 30, 1996 ("1996 Nine Months") of
$278,000 and $385,000, respectively.
Results of Operations
Three Months Ended September 30, 1997 Compared to the Three Months
Ended September 30, 1996
Net Patient Revenues
Net patient revenues increased to $10,017,000 for the three months
ended September 30, 1997 ("1997 Third Quarter") from $8,168,000 for
the three months ended September 30, 1996 ("1996 Third Quarter"), an
increase of $1,849,000, or 23 percent. Net patient revenues from
the 17 clinics developed since the 1996 Third Quarter (the "New
Clinics") accounted for 59 percent of the increase or $1,085,000.
The remaining increase of $764,000 in net patient revenues comes
from those 61 clinics opened more than one year as of September 30,
1997 (the "Pre-September 1997 Clinics"). The majority of the
$764,000 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
11<PAGE>
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
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 $94,000, or 209
percent, to $139,000 for the 1997 Third Quarter from $45,000 for the
1996 Third 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, an increase in interest income as a result of the
higher average amount of cash and cash equivalents available for
investment during the 1997 Third Quarter compared to the 1996 Third
Quarter and an increase in real estate commission income.
Clinic Operating Costs
Clinic operating costs as a percent of net patient revenues
increased slightly to 75.9 percent for the 1997 Third Quarter
compared to 75.8 percent for the 1996 Third Quarter.
Clinic Operating Costs - Salaries and Related Costs
Clinic operating costs - salaries and related costs increased to
$4,529,000 for the 1997 Third Quarter from $3,699,000 for the 1996
Third Quarter, an increase of $830,000 or 22 percent. Approximately
61 percent of the increase, or $511,000, was due to the New Clinics.
The remaining 39 percent increase or $319,000 is due principally to
increased staffing to meet the increase in patient visits for the
clinics opened prior to the 1997 Third Quarter, coupled with an
increase in bonuses earned by the managing therapists at the clinics
opened prior to the 1997 Third 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 slightly to 45.2 percent
for the 1997 Third Quarter from 45.3 percent for the 1996 Third
Quarter.
12<PAGE>
Clinic Operating Costs - Rent, Clinic Supplies and Other
Clinic operating costs - rent, clinic supplies and other increased
to $2,781,000 for the 1997 Third Quarter from $2,234,000 for the
1996 Third Quarter, an increase of $547,000, or 24 percent. Such
costs for the New Clinics for the 1997 Third Quarter were $419,000,
which were coupled by an increase in such costs of $128,000 relating
to the clinics opened prior to the 1997 Third Quarter. Clinic
operating costs - rent, clinic supplies and other as a percent of
net patient revenues increased slightly to 27.8 percent for the 1997
Third Quarter from 27.4 percent for the 1996 Third Quarter.
Clinic Operating Costs - Provision for Doubtful Accounts
Clinic operating costs - provision for doubtful accounts increased
to $297,000 for the 1997 Third Quarter from $259,000 for the 1996
Third Quarter, an increase of 15 percent or $38,000. Approximately
64 percent of the increase, or $24,000, was due to the New Clinics,
while 36 percent, or $14,000, of the increase relates to the clinics
opened prior to the 1997 Third Quarter. The provision as a percent
of net patient revenues decreased slightly to 3.0 percent for the
1997 Third Quarter compared to 3.2 percent for the 1996 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,
legal, public company listing and application fees and professional
fees increased to $891,000 for the 1997 Third Quarter from $784,000
for the 1996 Third Quarter, an increase of $107,000, or 14 percent.
Corporate office costs - general and administrative increased
primarily as a result of additional personnel hired since the 1996
Third Quarter to oversee the operations of an increasing number of
clinics in operation and to establish a corporate compliance
program. Coupled with this increase was an increase in legal
expenses associated with operating an increased number of clinics at
September 30, 1997. Corporate office costs - general and
administrative, as a percent of net revenues, decreased to 8.8
percent for the 1997 Third Quarter from 9.5 percent for the 1996
Third Quarter, reflecting increased revenues in the 1997 Third
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 $63,000 or 30 percent
to $273,000 for the 1997 Third Quarter from $210,000 for the 1996
Third 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 $188,000 for the 1997 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 1997 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.
Minority Interests in Subsidiary Limited Partnerships
Minority interests in subsidiary limited partnerships increased
$154,000, or 58 percent, to $419,000 for the 1997 Third Quarter from
$265,000 for the 1996 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.
14<PAGE>
Provision for Income Taxes
The provision for income taxes for the 1997 Third Quarter includes
a provision for state taxable income of $37,000, offset, by the
recognition during the 1997 Third Quarter of a deferred tax asset of
$36,000 relating to federal income taxes.
Net Income
The Company's net income for the 1997 Third Quarter of $777,000
exceeded the 1996 Third Quarter net income of $543,000 principally
due to the $1,943,000 increase in net revenues and the decrease in
the provision for income taxes of $30,000, which more than offset
the $1,415,000 increase in clinic operating costs, the $170,000
increase in corporate office costs and the $154,000 increase in
minority interests in subsidiary limited partnerships.
Nine Months Ended September 30, 1997 Compared to the Nine Months
Ended September 30, 1996
Net Patient Revenues
Net patient revenues increased to $28,194,000 for the 1997 Nine
Months from $23,547,000 for the 1996 Nine Months, an increase of
$4,647,000, or 20 percent. Net patient revenues from the 17 clinics
developed since the 1996 Nine Months accounted for 41 percent of the
increase or $1,916,000. The remaining increase of $2,731,000 in net
patient revenues comes from the Pre-September 1997 Clinics. Of the
$2,731,000 increase in net patient revenues for these clinics, an
eleven percent increase in the number of patient visits increased
net patient revenues by $2,492,000, 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 $232,000, or 215
percent, to $340,000 for the 1997 Nine Months from $108,000 for the
1996 Nine 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, an increase in interest income as a result of the
higher average amount of cash and cash equivalents available for
investment during the 1997 Nine Months compared to the 1996 Nine
Months and an increase in real estate commission income.
Clinic Operating Costs
Clinic operating costs as a percent of net patient revenues declined
slightly to 76.4 percent for the 1997 Nine Months compared to 77.2
percent for the 1996 Nine Months.
Clinic Operating Costs - Salaries and Related Costs
Clinic operating costs - salaries and related costs increased to
$12,982,000 for the 1997 Nine Months from $10,828,000 for the 1996
Nine Months, an increase of $2,154,000 or 20 percent. Approximately
50 percent of the increase, or $1,069,000, was due to the New
Clinics. The remaining 50 percent increase or $1,085,000 is due
principally to increased staffing to meet the increase in patient
visits for the clinics opened prior to the 1997 Nine Months, coupled
with an increase in bonuses earned by the managing therapists at the
clinics opened prior to the 1997 Nine 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 remained stable at 46
percent for the 1997 Nine Months and the 1996 Nine Months.
Clinic Operating Costs - Rent, Clinic Supplies and Other
Clinic operating costs - rent, clinic supplies and other increased
to $7,726,000 for the 1997 Nine Months from $6,681,000 for the 1996
Nine Months, an increase of $1,045,000, or 16 percent. Such costs
16<PAGE>
for the New Clinics for the 1997 Nine Months were $839,000, coupled
with an increase in such costs of $206,000 relating to the clinics
opened prior to the 1997 Nine Months. Clinic operating costs - rent,
clinic supplies and other as a percent of net patient revenues
declined to 27.4 percent for the 1997 Nine Months from 28.4 percent
for the 1996 Nine Months.
Clinic Operating Costs - Provision for Doubtful Accounts
Clinic operating costs - provision for doubtful accounts increased
to $819,000 for the 1997 Nine Months from $661,000 for the 1996 Nine
Months, an increase of 24 percent or $158,000. Approximately 26
percent of the increase, or $42,000, was due to the New Clinics,
while 74 percent, or $116,000, of the increase relates to the
clinics opened prior to the 1997 Nine Months. The provision as a
percent of net patient revenues increased slightly to 2.9 percent
for the 1997 Nine Months compared to 2.8 percent for the 1996 Nine
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 to $2,687,000 for the 1997 Nine Months from
$2,330,000 for the 1996 Nine Months, an increase of $358,000 or 15
percent. Corporate office costs - general and administrative
increased primarily as a result of additional personnel hired since
the 1996 Third Quarter to oversee the operations of an increasing
number of clinics in operation and to establish a corporate
compliance program. 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 September 30, 1997, an
increase in legal expenses associated with operating an increased
number of clinics at September 30, 1997, and 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. Corporate office costs - general and administrative, as
a percent of net revenues, decreased to 9.4 percent for the 1997
Nine Months from 9.8 percent for the 1996 Nine Months, reflecting
increased revenues in the 1997 Nine 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 $231,000 or 40 percent
to $814,000 for the 1997 Nine Months from $583,000 for the 1996 Nine
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 $555,000 for the 1997 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,
$57,000 of interest expense was recorded in the 1997 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.
Minority Interests in Subsidiary Limited Partnerships
Minority interests in subsidiary limited partnerships increased
$386,000, or 54 percent, to $1,106,000 for the 1997 Nine Months from
$720,000 for the 1996 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.
18<PAGE>
Provision for Income Taxes
The provision for income taxes for the 1997 Nine Months includes a
provision for state taxable income of $159,000, offset, in part, by
the recognition during the 1997 Nine Months of a deferred tax asset
of $107,000 relating to federal income taxes.
Net Income
The Company's net income for the 1997 Nine Months of $1,793,000
exceeded the 1996 Nine Months net income of $1,243,000 principally
due to the $4,879,000 increase in net revenues, which more than
offset the $3,357,000 increase in clinic operating costs, the
$589,000 increase in corporate office costs and the $386,000
increase in minority interests in subsidiary limited partnerships.
Liquidity and Capital Resources
At September 30, 1997, the Company had $4,958,000 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 September 30,
1997, is $3,500,000 of short-term United States government agency
securities and $300,000 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
September 30, 1997.
The increase in cash of $46,000 from December 31, 1996 to September
30, 1997 is due primarily to cash provided by operating activities
of $2,435,000, coupled with proceeds from notes payable of $40,000
and proceeds from the sale of fixed assets of $67,000 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 $1,658,000, for distributions to
minority investors in subsidiary limited partnerships of $731,000,
for payment of $61,000 to reduce notes payable and to acquire
treasury stock of $47,000.
19<PAGE>
The Company's current ratio increased to 5.64 to 1.00 at September
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
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
September 30, 1997, the Company had a debt-to-equity ratio of 0.89
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
September 30, 1997 relates primarily to the increase in equity as a
result of the net income of $1,793,000 for the nine months ended
September 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.
In January 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
September 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 and 1998
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
20<PAGE>
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.
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 nine months ended September 30, 1997 is not
expected to be material.
21<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 on Form 8-K
No reports on Form 8-K were filed with the Securities and
Exchange Commission during the quarter ended September 30, 1997.
22<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 12, 1997 By: /s/ MARK J. BROOKNER
Mark J. Brookner
Chief Financial Officer and
Treasurer (duly authorized
officer and principal financial
officer)
23<PAGE>
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