UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 1-11151
U.S. PHYSICAL THERAPY, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 76-0364866
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1300 WEST SAM HOUSTON PARKWAY SOUTH, SUITE 300,
HOUSTON, TEXAS 77042
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 297-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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.
[X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
One):
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
As of August 8, 2006, the number of shares outstanding (issued less treasury
stock) of the registrant's common stock, par value $.01 per share, was:
11,711,844.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets as of June 30, 2006 and December
31, 2005 3
Consolidated Statements of Net Income for the three and six
months ended June 30, 2006 and 2005 4
Consolidated Statements of Cash Flows for the six months ended
June 30, 2006 and 2005 5
Consolidated Statements of Shareholders' Equity for the six
months ended June 30, 2006 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 17
Item 3. Quantitative and Qualitative Disclosure About Market Risk 23
Item 4. Controls and Procedures 23
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits 24
Signatures 25
2
ITEM 1. FINANCIAL STATEMENTS.
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
2006 2005
----------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 13,564 $ 12,352
Marketable securities - available for sale ................... 1,550 2,650
Patient accounts receivable, less allowance for doubtful
accounts of $1,482 and $1,621, respectively ............... 20,297 19,661
Accounts receivable -- other ................................. 703 761
Other current assets ......................................... 1,606 1,428
-------- --------
Total current assets ................................... 37,720 36,852
Fixed assets:
Furniture and equipment ...................................... 24,151 23,010
Leasehold improvements ....................................... 15,427 14,556
-------- --------
39,578 37,566
Less accumulated depreciation and amortization ............... 25,224 23,825
-------- --------
14,354 13,741
Goodwill ........................................................ 15,474 14,339
Other assets .................................................... 949 1,587
-------- --------
$ 68,497 $ 66,519
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable -- trade .................................... $ 1,541 $ 1,721
Accrued expenses ............................................. 5,180 5,150
Notes payable ................................................ 244 244
-------- --------
Total current liabilities .............................. 6,965 7,115
Notes Payable - long-term portion ............................... 347 483
Deferred rent ................................................... 1,254 1,263
Other long-term liabilities ..................................... 1,335 1,159
-------- --------
Total liabilities ...................................... 9,901 10,020
Minority interests in subsidiary limited partnerships ........... 3,057 3,024
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 500,000 shares authorized, no
shares issued and outstanding ............................. -- --
Common stock, $.01 par value, 20,000,000 shares authorized,
13,652,847 and 13,645,167 shares issued at June 30, 2006
and December 31, 2005, respectively ....................... 137 136
Additional paid-in capital ................................... 35,148 35,037
Additional paid-in capital, equity based compensation ........ 384 --
Retained earnings ............................................ 48,048 44,408
Treasury stock at cost, 1,941,003 and 1,809,785 shares held at
June 30, 2006 and December 31, 2005, respectively ......... (28,178) (26,106)
-------- --------
Total shareholders' equity ............................. 55,539 53,475
-------- --------
$ 68,497 $ 66,519
======== ========
See notes to consolidated financial statements.
3
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(unaudited)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------- -----------------
2006 2005 2006 2005
------- ------- ------- -------
Net patient revenues ..................................... $35,179 $33,065 $69,240 $63,417
Management contract revenues ............................. 570 509 1,139 1,012
Other revenues ........................................... 9 2 35 25
------- ------- ------- -------
Net revenues ....................................... 35,758 33,576 70,414 64,454
Clinic operating costs:
Salaries and related costs ............................ 18,686 16,532 37,153 32,332
Rent, clinic supplies, contract labor and other ....... 7,293 6,859 14,817 13,195
Provision for doubtful accounts ....................... 458 350 1,024 662
------- ------- ------- -------
26,437 23,741 52,994 46,189
Closure costs ......................................... 179 84 201 84
Loss (gain) on sale or disposal of fixed assets ....... 43 (83) 55 (41)
Corporate office costs ................................... 4,487 4,156 9,002 8,197
------- ------- ------- -------
Operating income ......................................... 4,612 5,678 8,162 10,025
Interest and investment income, net ...................... 85 94 167 187
Loss in unconsolidated joint venture ..................... (10) -- (31) --
Minority interests in subsidiary limited partnerships .... (1,165) (1,296) (2,366) (2,483)
------- ------- ------- -------
(1,090) (1,202) (2,230) (2,296)
Income before income taxes ............................... 3,522 4,476 5,932 7,729
Provision for income taxes ............................... 1,366 1,714 2,292 2,937
------- ------- ------- -------
Net income ......................................... $ 2,156 $ 2,762 $ 3,640 $ 4,792
======= ======= ======= =======
Basic earnings per common share .......................... $ 0.18 $ 0.23 $ 0.31 $ 0.40
======= ======= ======= =======
Diluted earnings per common share ........................ $ 0.18 $ 0.23 $ 0.30 $ 0.40
======= ======= ======= =======
Shares used in computation:
Basic earnings per common share ....................... 11,754 11,913 11,788 11,938
======= ======= ======= =======
Diluted earnings per common share ..................... 11,894 12,065 11,965 12,082
======= ======= ======= =======
See notes to consolidated financial statements.
4
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
SIX MONTHS ENDED
JUNE 30,
------------------
2006 2005
------- --------
OPERATING ACTIVITIES
Net income ............................................................... $ 3,640 $ 4,792
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ......................................... 2,220 2,142
Minority interests in earnings of subsidiary limited partnerships ..... 2,366 2,483
Provision for doubtful accounts ....................................... 1,024 662
Deferred income taxes ................................................. 495 222
Equity-based awards compensation expense .............................. 464 --
Tax benefit from exercise of stock options ............................ -- 570
Recognition of deferred rent subsidies ................................ (204) (188)
Closure costs - write-off of goodwill ................................. 54 --
Loss (gain) on sale of assets ......................................... 71 (41)
Other ................................................................. -- 26
Changes in operating assets and liabilities:
Increase in patient accounts receivable ............................... (1,601) (1,677)
Increase in accounts receivable -- other .............................. (1) (461)
(Increase) decrease in other assets ................................... (52) 229
Increase (decrease) in accounts payable and accrued expenses .......... (150) 2,466
Increase in other liabilities ......................................... 371 235
------- --------
Net cash provided by operating activities ................................ 8,697 11,460
INVESTING ACTIVITIES
Purchase of fixed assets ................................................. (2,928) (1,838)
Acquisition of business .................................................. (54) (5,000)
Acquisitions of minority interests, included in goodwill ................. (1,099) (1,319)
Purchase of marketable securities - available for sale ................... (100) (9,400)
Proceeds on sale of marketable securities - available for sale ........... 1,200 7,100
Proceeds on sale of fixed assets ......................................... 5 194
------- --------
Net cash used in investing activities .................................... (2,976) (10,263)
FINANCING ACTIVITIES
Distributions to minority investors in subsidiary limited partnerships ... (2,333) (2,956)
Repurchase of common stock ............................................... (2,072) (3,573)
Payment of notes payable ................................................. (136) --
Excess tax benefit from stock options exercised .......................... 10 --
Proceeds from exercise of stock options .................................. 22 643
------- --------
Net cash used in financing activities .................................... (4,509) (5,886)
Net increase (decrease) in cash and cash equivalents ..................... 1,212 (4,689)
Cash and cash equivalents - beginning of period .......................... 12,352 19,353
------- --------
Cash and cash equivalents -- end of period ............................... $13,564 $ 14,664
======= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes .......................................................... $ 2,383 $ 3,024
Interest .............................................................. $ 21 $ --
Non-cash transactions during the period:
Purchase of business - seller financing portion ....................... $ -- $ 500
See notes to consolidated financial statements.
5
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
(unaudited)
COMMON STOCK ADDITIONAL APIC TREASURY STOCK TOTAL
--------------- PAID-IN EQUITY-BASED RETAINED ----------------- SHAREHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS SHARES AMOUNT EQUITY
------ ------ ---------- ------------ -------- ------ -------- -------------
Balance December 31, 2005 ...... 13,645 $136 $35,037 $ -- $44,408 (1,810) $(26,106) $53,475
Proceeds from exercise of
stock options ............... 3 -- 22 -- -- -- -- 22
Excess tax benefit from
exercise of stock options ... -- -- 10 -- -- -- -- 10
Issuance of restricted stock ... 5 1 79 (80) -- -- -- --
Amortization of restricted
stock ....................... -- -- -- 18 -- -- -- 18
Equity-based compensation
expense ..................... -- -- -- 446 -- -- -- 446
Purchase of treasury stock ..... -- -- -- -- -- (131) (2,072) (2,072)
Net income ..................... -- -- -- -- 3,640 -- -- 3,640
------ ---- ------- ---- ------- ------ -------- -------
Balance, June 30, 2006 ......... 13,653 $137 $35,148 $384 $48,048 (1,941) $(28,178) $55,539
====== ==== ======= ==== ======= ====== ======== =======
See notes to consolidated financial statements.
6
U.S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
(unaudited)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of U.S. Physical
Therapy, Inc. and its subsidiaries. All significant intercompany transactions
and balances have been eliminated. The Company primarily operates through
subsidiary clinic partnerships, in which the Company generally owns a 1% general
partnership interest and a 64% limited partnership interest. The managing
therapist of each clinic owns the remaining limited partnership interest in the
majority of the clinics (hereinafter referred to as "Traditional Partnership
Model" or "Clinic Partnership"). To a lesser extent, the Company operates some
clinics, through wholly-owned subsidiaries, under profit sharing arrangements
with therapists (hereinafter referred to as "Wholly-Owned Facilities").
We continue to seek to attract physical and occupational therapists who have
established relationships with physicians by offering therapists a competitive
salary; a bonus based on his or her clinic's net revenue; and a share of the
profits of the clinic operated by that therapist. In addition, we have developed
satellite clinic facilities of existing clinics, with the result that many
clinic groups operate more than one clinic location. In 2006, we intend to
continue to focus on developing new clinics and on opening satellite clinics
where deemed appropriate. We will continue to evaluate acquisition opportunities
in select markets.
The accompanying unaudited consolidated financial statements were prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and in accordance with the
instructions for Form 10-Q. However, the statements do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. For further
information regarding the Company's accounting policies, please read the audited
financial statements included in the Company's Form 10-K for the year ended
December 31, 2005.
The Company believes, and the Chief Executive Officer, Chief Financial Officer
and Controller have certified, that the financial statements included in this
report contain all necessary adjustments (consisting only of normal recurring
adjustments) to present fairly, in all material respects, the Company's
financial position, results of operations and cash flows for the interim periods
presented.
Operating results for the six months ended June 30, 2006 are not necessarily
indicative of the results the Company expects for the entire year. Please also
review the Risk Factors section included in our Form 10-K for the year ended
December 31, 2005.
SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity or
remaining maturity at the time of purchase of three months or less to be cash
equivalents. Based upon its investment policy, the Company invests its cash
primarily in deposits with major financial institutions, in highly rated
commercial paper, short-term United States treasury obligations, United States
and municipal government agency securities and United States government
sponsored enterprises. The Company held approximately $9.1 million and $8.1
million in highly liquid investments at June 30, 2006 and December 31, 2005,
respectively.
The Company maintains its cash and cash equivalents at financial institutions.
The combined account balances at several institutions typically exceed Federal
Deposit Insurance Corporation ("FDIC") insurance coverage and, as a result,
there is a concentration of credit risk related to amounts on deposit in excess
of FDIC insurance coverage. Management believes that this risk is not
significant.
7
MARKETABLE SECURITIES
Management determines the appropriate classification of its investments at the
time of purchase and reevaluates such determination at each balance sheet date.
As of June 30, 2006 and December 31, 2005, all marketable securities were
classified as available for sale. Available-for-sale securities are carried at
fair value, with unrealized holding gains and losses, net of tax, reported as a
separate component of shareholders' equity. Since the fair value of the
marketable securities - available for sale equals the cost basis for such
securities, there is no effect on comprehensive income for the periods reported.
LONG-LIVED ASSETS
Fixed assets are stated at cost. Depreciation is computed on the straight-line
method over the estimated useful lives of the related assets. Estimated useful
lives for furniture and equipment range from three to eight years. Leasehold
improvements are amortized over the shorter of the related lease term or
estimated useful lives of the assets, which is generally five years.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews property and equipment and intangible assets with finite
lives for impairment upon the occurrence of certain events or circumstances
which indicate that the related amounts may be impaired. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.
GOODWILL
Goodwill represents the excess of costs over the fair value of the acquired
business assets. Historically, goodwill has been derived from the acquisition of
businesses and the purchase of a portion or all of a partner's equity interest
in a clinic in certain partnerships formed prior to January 18, 2001.
The fair value of goodwill and other intangible assets with indefinite lives are
tested for impairment annually and upon the occurrence of certain events, and
are written down to fair value if considered impaired. The Company evaluates
goodwill for impairment on an annual basis (in its third quarter) by comparing
the fair value of each reporting unit to the carrying value of the reporting
unit including related goodwill. A reporting unit refers to the acquired
interest of a single clinic or group of clinics. Local management typically
continues to manage the acquired clinic or group of clinics on behalf of the
Company. For each clinic or group of clinics, the Company maintains discrete
financial information and both corporate and local management regularly review
the operating results. For each purchase of the equity interest, goodwill, if
deemed appropriate, is assigned to the respective clinic or group of clinics.
MINORITY INTERESTS
In the majority of the Company's partnership agreements, the therapist partner
begins with a 20% profit interest in his or her clinic partnership, which
increases by 3% at the end of each year thereafter up to a maximum of 35%.
Within the balance sheet and statement of net income, the Company has
historically recorded therapist partner's profit interest in the clinic
partnerships as minority interests in subsidiary limited partnerships. The
Emerging Issues Task Force ("EITF") issued EITF 00-23, "Issues Related to the
Accounting for Stock Compensation under APB No. 25 and FASB Interpretation No.
44" ("EITF 00-23"), which provides specific accounting guidance relating to
various incentive compensation issues. For partnerships formed after January 18,
2001, in situations where the therapist limited partner has minimal risk, EITF
00-23 requires the Company to expense as compensation rather than as a minority
interest in earnings, the therapist partners' interest in profits. Moreover,
EITF 00-23 requires that the Company expense as compensation rather than
capitalizing as goodwill, the purchase of minority interests in the partnerships
for clinic partnerships formed after January 18, 2001. For partnerships formed
after January 18, 2001 in situations where the therapist limited partner has
made a substantial investment and has more than inconsequential risk, the
minority interest is reported in the minority interests in subsidiary limited
partnerships line item.
8
The following table summarizes the minority interests in earnings of subsidiary
limited partnerships and related compensation included in salaries and related
costs (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
2006 2005 2006 2005
-------- ------- ------ -------
Partnerships formed after January 18, 2001 (1) ..... $ 344 $ 287 $ 587 $ 546
Partnerships formed prior to January 18, 2001 (2) .. 1,165 1,296 2,366 2,483
------ ------ ------ ------
All partnerships ................................... $1,509 $1,583 $2,953 $3,029
====== ====== ====== ======
(1) Expensed as salaries and related costs pursuant to EITF 00-23.
(2) Reported as minority interests in subsidiary limited partnerships in the
statements of net income.
As of June 30, 2006 and December 31, 2005, undistributed minority interests
related to certain partnerships formed after January 18, 2001 in the amount of
$735,000 and $593,000, respectively, were classified as other long-term
liabilities. The undistributed minority interests related to certain
partnerships formed prior to January 18, 2001 are included in the line item in
our balance sheets entitled "minority interest in subsidiary limited
partnerships".
REVENUE RECOGNITION
Revenues are recognized in the period in which services are rendered. Net
patient revenues (patient revenues less estimated contractual adjustments) are
reported at the estimated net realizable amounts from insurance companies,
third-party payors, patients and others for services rendered. The Company has
agreements with third-party payors that provide for payments to the Company at
amounts different from its established rates. The allowance for estimated
contractual adjustments is based on terms of payor contracts and historical
collection and write-off experience.
The Company determines allowances for doubtful accounts based on the specific
agings and payor classifications at each clinic. The provision for doubtful
accounts is included in clinic operating costs in the statement of net income.
Net accounts receivable includes only those amounts the Company estimates to be
collectible.
Since 1999, reimbursement for outpatient therapy services has been made
according to a fee schedule published by the Department of Health and Human
Services. Under the Balanced Budget Act of 1997, the total amount paid by
Medicare in any one year for outpatient physical and/or occupational therapy
(including speech-language pathology) to any one patient is limited to $1,500
(the "Medicare Cap or Limit"), except for services provided in hospitals. After
a three-year moratorium, this Medicare Limit on therapy services was implemented
for services rendered on or after September 1, 2003 subject to an adjusted total
of $1,590 (the "Adjusted Medicare Limit"). Effective December 8, 2003, a
moratorium was again placed on the Adjusted Medicare Limit for the remainder of
2003 and for years 2004 and 2005.
Under the Medicare Prescription Drug, Improvement and Modernization Act of 2003,
the Adjusted Medicare Limit was reinstated effective as of January 1, 2006.
Outpatient therapy services rendered to Medicare beneficiaries by the Company's
therapists are subject to the cap, except to the extent these services are
rendered pursuant to certain management and professional services agreements
with inpatient facilities, in which case the caps do not apply. The Medicare
Limit for 2006 is $1,740 subject to an exception policy created by Centers for
Medicare and Medicaid Service, as more fully defined in the February 15, 2006
Medicare Fact Sheet. The exception process allows for automatic and manual
exceptions to the Medicare Cap for medically necessary services. The exception
process specified diagnoses that qualify for an automatic exception to the
therapy caps if the condition or complexity has a direct and significant impact
on the course of therapy being provided and the additional treatment is
medically necessary. The exception process further provides that manual
exceptions may be granted if the condition or complexity does not allow for an
automatic exception, but is believed to require medically necessary services. In
the absence of an exception, patients who are impacted by the cap may choose
themselves to pay for services in excess of the cap; however, it is assumed that
the cap will result in lost revenues to the Company. Such negative impact on the
Company's revenue could potentially be reduced by replacing lost revenues by
more marketing efforts to non-Medicare sources or through staffing reductions.
If such negative impact is not mitigated, the 2006 Medicare Limit would have an
adverse impact on 2006 net income.
9
Laws and regulations governing the Medicare program are complex and subject to
interpretation. The Company believes that it is in compliance in all material
respects with all applicable laws and regulations and is not aware of any
pending or threatened investigations involving allegations of potential
wrongdoing that would have a material effect on the Company's financial
statements as of June 30, 2006. Compliance with such laws and regulations can be
subject to future government review and interpretation, as well as significant
regulatory action including fines, penalties, and exclusion from the Medicare
program.
CONTRACTUAL ALLOWANCES
Contractual allowances result from the differences between the rates charged for
services performed and expected reimbursements by both insurance companies and
government sponsored healthcare programs for such services. Medicare regulations
and the various third party payors and managed care contracts are often complex
and may include multiple reimbursement mechanisms payable for the services
provided in our clinics. We estimate contractual allowances based on our
interpretation of the applicable regulations, payor contracts and historical
calculations. Each month the Company estimates its contractual allowance for
each clinic based on payor contracts and the historical collection experience of
the clinic and applies an appropriate contractual allowance reserve percentage
to the gross accounts receivable balances for each payor of the clinic. Based on
our historical experience, calculating the contractual allowance reserve
percentage at the payor level is sufficient to allow us to provide the necessary
detail and accuracy with our collectibility estimates. However, the services
authorized and provided and related reimbursement are subject to interpretation
that could result in payments that differ from our estimates. Payor terms are
periodically revised necessitating continual review and assessment of the
estimates made by management. Our billing system does not capture the exact
change in our contractual allowance reserve estimate from period to period in
order to assess the accuracy of our revenues and hence our contractual allowance
reserves. Management regularly compares its cash collections to corresponding
net revenues measured both in the aggregate and on a clinic-by-clinic basis. In
the aggregate, historically the difference between net revenues and
corresponding cash collections has generally been less than 1% of net revenues.
Additionally, analysis of subsequent period's contractual write-offs on a payor
basis shows a less than 1% difference between the actual aggregate contractual
reserve percentage as compared to the estimated contractual allowance reserve
percentage associated with the same period end balance. As a result, we believe
that a reasonable likely change in the contractual allowance reserve estimate
would not likely be more than 1% at June 30, 2006.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash and cash
equivalents, accounts receivable, accounts payable and notes payable approximate
their fair values due to the short-term maturity of these financial instruments.
The carrying amounts for marketable securities - available for sale approximate
the fair value on the respective balance sheet dates.
SEGMENT REPORTING
Operating segments are components of an enterprise for which separate financial
information is available that is evaluated regularly by chief operating decision
makers in deciding how to allocate resources and in assessing performance. The
Company identifies operating segments based on management responsibility and
believes it meets the criteria for aggregating its operating segments into a
single reporting segment.
USE OF ESTIMATES
In preparing the Company's consolidated financial statements, management makes
certain estimates and assumptions that affect the amounts reported in the
consolidated financial statements and related disclosures. Actual results may
differ from these estimates.
10
SELF-INSURANCE PROGRAM
The Company utilizes a self-insurance plan for its employee group health
insurance coverage administered by a third party. Predetermined loss limits have
been arranged with the insurance company to limit the Company's maximum
liability and cash outlay. Accrued expenses include the estimated incurred but
unreported costs to settle unpaid claims and estimated future claims.
RECLASSIFICATIONS
Certain reclassifications have been made to prior period amounts to conform to
current period presentation of auction rate securities as marketable securities
rather than cash and cash equivalents in the consolidated balance sheet as of
December 31, 2005. The Consolidated Statement of Cash Flows for the six months
ended June 30, 2005 reflects the activity in the marketable securities -
available for sale for such period. Since the fair value of the marketable
securities - available for sale equals the cost basis, there is no effect on
current assets, total assets, net income or comprehensive income.
STOCK OPTIONS AND RESTRICTED STOCK
Effective January 1, 2006, the Company adopted Statement No. 123R, Share-Based
Payment (SFAS 123R), which requires companies to measure and recognize
compensation expense for all stock-based payments at fair value. SFAS 123R is
being applied on the modified prospective basis. Prior to the adoption of SFAS
123R, the Company applied the intrinsic-value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations including FASB
Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25, to account for its
fixed-plan stock options. Under the intrinsic-value-based method, compensation
expense was recognized only to the extent that the current market price of the
underlying stock on the date of grant exceeded the exercise price. Historically,
the Company has granted stock options with an exercise price equal to the
current market price of the underlying stock, therefore, the Company had not
recognized any compensation expense related to stock-based payments.
Under the modified prospective approach, SFAS 123R applies to new awards and to
awards that were outstanding on January 1, 2006 that are subsequently modified,
repurchased or cancelled. Under the modified prospective approach, compensation
cost recognized for the first six months of 2006 includes compensation for all
stock-based payments granted prior to, but not yet vested on January 1, 2006,
based on the grant-date fair value estimated in accordance with the provisions
of SFAS 123, and compensation cost for the stock-based payment granted
subsequent to January 1, 2006, based on the grant-date fair value estimated with
the provisions of SFAS 123R. Prior periods were not restated to reflect the
impact of adopting the new standard.
The impact of adopting SFAS 123R on January 1, 2006 resulted in lowering net
income and net income per share for the three months and six months ended June
30, 2006 by $137,000, or $0.01 per share, and $274,000, or $0.02 per share,
respectively.
The following table illustrates the effect on net income and net income per
share had the Company accounted for stock-based compensation in accordance with
SFAS 123 for the three and six months ended June 30, 2005 (in thousands, except
per share data):
THREE MONTHS SIX MONTHS
JUNE 30, 2005 JUNE 30, 2005
------------- -------------y
Actual net income ............................... $2,762 $4,792
Deduct: Total stock based compensation
expense determined under the fair
value method, net of taxes ................ 208 371
------ ------
Pro forma net income ............................ $2,554 $4,421
====== ======
Earnings per share:
Actual basic earnings per common share ....... $ 0.23 $ 0.40
Actual diluted earnings per common share ..... $ 0.23 $ 0.40
Pro forma basic earnings per common share .... $ 0.21 $ 0.37
Pro forma diluted earnings per common share .. $ 0.21 $ 0.37
11
Prior to October 1, 2005, the Company utilized Black-Scholes, a standard option
pricing model, to measure the fair value of stock options granted to employees.
The Black-Scholes model does not provide for the interaction among economic and
behavioral assumptions. While SFAS 123R permits entities to continue to use such
a model, the standard also permits the use of a "lattice" model. For the fourth
quarter of 2005, the Company determined that the Trinomial Lattice Model was the
best available measure of the fair value of employee stock options. The
Trinomial Lattice Model accounts for changing employee behavior as the stock
price changes. The use of a lattice model captures the observed pattern of
increasing rates of exercise as the stock price increases. Also, SFAS 123R
requires that the benefits associated with the tax deductions attributable to
the grant of stock options that are in excess of recognized compensation cost be
reported as a financing cash flow, rather than as an operating cash flow as
required under previous literature.
The following weighted-average assumptions were used in estimating the fair
value per share of the options granted under the stock option plans and assuming
no dividends for the six months ended June 30, 2006 and 2005:
2006 2005
---- ----
Risk-free interest rates 4.28% 4.14%
Expected volatility 30.0% 55.4%
Expected life (in years) n/a 5.3
Suboptimal exercise factor 3 n/a
Exit rate post-vesting 12.5% n/a
The Company calculates the expected volatility for stock-based awards using
historical volatility adjusted for periods of excess volatility. The Company
estimates the forfeiture rate for stock-based awards based on historical data.
Currently, the Company estimates the forfeiture rate to be 21%.
Stock option activity is summarized as follows:
Weighted-
Weighted Average Aggregate
Average Remaining Intrinsic
Number of Exercise Contractual Value
Shares Exercise Price Price Term 000's
--------- --------------- -------- ----------- ---------
Outstanding at December 31, 2005 1,142,084 $2.81 - $18.98 $13.39
Granted 2,000 $19.29 19.29
Exercised (2,680) $3.04 - $16.34 7.95
Cancelled (3,652) $12.60 - $18.42 17.99
Forfeited (4,615) $12.60 - $18.42 16.95
---------
Outstanding at June 30, 2006 1,133,137 $2.81 - $19.29 13.38 7.59 Years $1,428
=========
Exercisable at June 30, 2006 665,972 $2.81 - $19.29 12.83 7.14 Years $1,202
=========
The weighted average grant-date fair value of options granted during the six
months ended June 30, 2006 and 2005, respectively, was $6.55 and $7.55,
respectively. The total intrinsic value of options exercised during the six
months ended June 30, 2006 and 2005 was $26,000 and $1.5 million, respectively.
A summary of the status of the nonvested shares as of June 30, 2006 and the
changes during the six months ended June 30, 2006, is presented below:
Weighted-Average
Number of Grant-Date
Shares Fair Value
--------- ---------------
Nonvested at January 1, 2006 519,710 $8.43
Granted 2,000 6.55
Vested (49,930) 7.70
Forfeited (4,615) 9.81
-------
Nonvested at June 30, 2006 467,165 8.49
=======
12
As of June 30, 2006, the future pre-tax expense of nonvested stock options is
$2.7 million to be recognized in the remainder of 2006 through 2010.
As of June 30, 2006, a total of 179,984 shares remained available for grant
under the Company's stock option plans.
In the second quarter of 2006, the Company granted 5,000 shares of restricted
stock to an employee pursuant its 2003 Stock Incentive Plan for $0.01 per share.
The restricted stock is subject to continued employment by the employee and
vested 1,000 shares on the date of grant and the remaining 4,000 shares vest in
equal installments on the following four anniversaries of the date of grant. As
the grant of restricted stocks typically relates to future service, on the date
of grant the total compensation expense is recorded as unearned compensation and
is shown as a reduction of shareholders' equity. The unearned compensation is
expensed over the vesting period. Estimated compensation expense for this grant
of $80,000 will be recognized over four years based on the estimated fair value
of $16.00 per share on the date of grant. Since 1,000 shares vested on the date
of grant, the compensation expense recognized in the second quarter and six
months ended June 30, 2006 was $17,000.
RECENTLY PROMULGATED ACCOUNTING PRONOUNCEMENTS
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" ("SFAS 154"), which replaces Accounting Principles Board Opinion
No. 20, "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in
Interim Financial Statements - An Amendment of APB Opinion No. 28." SFAS 154
provides guidance on the accounting for and reporting of accounting changes and
error corrections. It establishes retrospective application, or the latest
practicable date, as the required method for reporting a change in accounting
principle and the reporting of a correction of an error. SFAS 154 is effective
for accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. The adoption of this statement did not have a material
effect on our financial condition or results of operations.
In June 2005, the EITF issued EITF Issue No. 05-6, "Determining the Amortization
Period for Leasehold Improvements Purchased after Lease Inception or Acquired in
a Business Combination." This accounting guidance states that leasehold
improvements that are placed in service significantly after, and not
contemplated at or near, the beginning of the lease term should be amortized
over the shorter of the useful life of the assets or a term that includes
required lease periods and renewals that are deemed to be reasonably assured at
the date the leasehold improvements are purchased. Leasehold improvements
acquired in a business combination should be amortized over the shorter of the
useful life of the assets or a term that includes required lease periods and
renewals that are deemed to be reasonably assured at the date of acquisition.
The Company is required to apply EITF Issue No. 05-6 to leasehold improvements
that are purchased or acquired in reporting periods beginning after June 29,
2005. The adoption of this issue did not have a material impact on our Company's
consolidated statement of net income or consolidated balance sheet in the
reporting period in which adopted or for those periods following adoption.
In October 2005, the FASB issued FASB Staff Position No. 13-1 ("FAS 13-1")
"Accounting for Rental Costs Incurred during a Construction Period". FAS 13-1
requires rental costs associated with ground or building operating leases that
are incurred during a construction period to be recognized as rental expense.
The rental costs must be included in income from operations. FAS 13-1 is
effective for the first reporting period beginning after December 15, 2005. The
adoption of FAS 13-1 did not have a material effect on our consolidated
financial position, results of operations or cash flows.
In June 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48") - Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109.
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
accounting for derecognition, interest, penalties, accounting in interim
periods, disclosure and classification of matters related to uncertainty in
income taxes, and transitional requirements upon adoption of FIN 48. FIN 48 is
effective for fiscal years beginning after December 15, 2006. Management is
currently evaluating the impact of this statement on the Company.
13
2. EARNINGS PER SHARE
The computations of basic and diluted earnings per share for the Company are as
follows (in thousands, except per share data):
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -----------------
2006 2005 2006 2005
------- ------- ------- -------
Numerator:
Net income .................................... $ 2,156 $ 2,762 $ 3,640 $ 4,792
------- ------- ------- -------
Denominator:
Denominator for basic earnings per share ---
weighted average shares .................... 11,754 11,913 11,788 11,938
Effect of dilutive securities:
Stock Options .............................. 140 152 177 144
------- ------- ------- -------
Denominator for diluted earnings per share ---
adjusted weighted average shares and assumed
conversions ................................ 11,894 12,065 11,965 12,082
======= ======= ======= =======
Basic earnings per common share ............... $ 0.18 $ 0.23 $ 0.31 $ 0.40
======= ======= ======= =======
Diluted earnings per common share ............. $ 0.18 $ 0.23 $ 0.30 $ 0.40
======= ======= ======= =======
Options to purchase 190,200 and 74,300 shares for the three months ended June
30, 2006 and June 30, 2005, respectively, and 152,100 and 81,800 shares for the
six months ended June 30, 2006 and June 30, 2005, respectively, were excluded
from the diluted earnings per share calculations for the respective periods
because the options' exercise prices were greater than the average market price
of the common shares during the periods.
3. PURCHASE OF COMMON STOCK
In September 2001, the Board of Directors ("Board") authorized the Company to
purchase, in the open market or in privately negotiated transactions, up to
1,000,000 shares of its common stock. On February 26, 2003, on December 8, 2004
and on August 23, 2005, the Board authorized share repurchase programs of up to
250,000, 500,000 and 500,000 additional shares, respectively, of the Company's
outstanding common stock. As of June 30, 2006, there were approximately 324,000
shares remaining that could be purchased under these programs. Since there is no
expiration date for these share repurchase programs, additional shares may be
purchased from time to time in the open market or private transactions depending
on price, availability and the Company's cash position. Shares purchased are
held as treasury shares and may be used for such valid corporate purposes or
retired as the Board considers advisable. During the quarter ended June 30,
2006, the Company purchased 82,318 shares of its common stock on the open market
for $1.2 million. During the six months ended June 30, 2006, the Company
purchased 131,218 shares of its common stock on the open market for $2.1
million.
4. ACQUISITIONS
ACQUISITION OF BUSINESSES
On May 18, 2005, the Company acquired a majority interest in Hamilton Physical
Therapy, an operator of three physical and occupational therapy clinics located
in central New Jersey ("Hamilton Acquisition"). The Company acquired a 75%
interest with existing partners retaining a 25% interest. The Company paid
$5,425,000, consisting of a three-year note payable in the amount of $500,000
and cash of $4,925,000. In addition, the Company incurred $75,000 of capitalized
acquisition costs. The purchase agreement also provides for possible contingent
consideration of up to $650,000 based on the achievement of a certain designated
level of operating results within a three-year period following the acquisition.
Any contingent payment made will increase goodwill. In July 2006, the Company
paid additional consideration of $90,000 which will have the effect of
increasing goodwill.
14
On December 19, 2005, the Company acquired a majority interest in Excel Physical
Therapy, an operator of two physical therapy clinics located near Anchorage,
Alaska ("Excel Acquisition"). The Company acquired a 65% interest with existing
partners retaining a 35% interest. The Company paid $1,600,000, consisting of a
three-year note payable in the amount of $309,710 and cash of $1,290,000. In
addition, the Company incurred $84,000 of capitalized acquisition costs. The
purchase agreement also provides for possible contingent consideration of up to
$325,000 based on the achievement of a certain designated level of operating
results within a three-year period following the acquisition. Any contingent
payment made will increase goodwill.
The acquisitions resulted in approximately $6.9 million of goodwill which is
deductible for tax purposes. Other assets related to the acquisitions included
accounts receivable valued at $214,000, furniture and equipment valued at
$235,000 and non-competition agreements valued at $171,000 which is being
amortized over five years (of which approximately $32,500 had been amortized at
June 30, 2006). The Company also assumed certain employee benefits of
approximately $287,000 and recorded minority interests in subsidiary limited
partnerships of approximately $73,000.
The Company is permitted to make, and has occasionally made, changes to
preliminary purchase price allocations during the first year after completing
the acquisitions.
Unaudited proforma consolidated financial information for these acquisitions has
not been included as the results were not material to current operations.
ACQUISITIONS OF MINORITY INTERESTS
During the second quarter of 2006, the Company purchased the 35% minority in a
limited partnership for $298,000 and during the first quarter of 2006, the
Company purchased the 35% minority interest in a limited partnership for
$800,000.
During 2005, the Company purchased a 15% minority interest from a limited
partner who owned a 20.5% minority interest in a limited partnership for
$774,000. The limited partner retained a 5.5% minority interest. Also, during
2005, the Company purchased the 35% minority interest in a limited partnership
for $193,000, the 20% minority interest in another limited partnership for
$54,000 and the 35% minority interest in another limited partnership for
$463,000.
On June 1, 2002, the Company purchased the 35% minority interest in a limited
partnership for $220,000. Additional consideration may be paid in the future
based upon clinic performance. Based on the clinic's performance, the Company
paid additional consideration of $31,000, $41,000 and $32,360 in August 2003,
2004 and 2005, respectively. In July 2002, the Company sold half of the
purchased interest to another therapist for $220,000, payable from future
profits of the partnership. The Company discounted the note receivable by 50%
and is recognizing gain on the sale as payments are made.
For all minority interest purchases noted above, the Company paid or has agreed
to pay to the minority limited partner any undistributed earnings earned through
an agreed date prior to the purchase date.
The Company's minority interest purchases were accounted for as purchases and
accordingly, the results of operations of the acquired minority interest
percentage are included in the accompanying financial statements from the dates
of purchase. In addition, the Company is permitted to make, and has occasionally
made, changes to preliminary purchase price allocations during the first year
after completing the purchase.
The changes in the carrying amount of goodwill consisted of the following (in
thousands):
SIX MONTHS
ENDED
JUNE 30, 2006
-------------
Beginning balance $14,339
Goodwill acquired during the period 1,135
Goodwill written off (54)
Adjustment to purchase price 54
-------
Ending balance $15,474
=======
In connection with the closure of a facility, the Company wrote-off $54,000 of
goodwill.
15
5. CLOSURE COSTS
During 2005, management closed nine clinics, of which eight were closed in the
fourth quarter of 2005. During the second quarter of 2006, management closed
three clinics. No clinics were closed in the first quarter of 2006.
The accrual balance, which consisted of lease obligations for the closed
clinics, at December 31, 2005 and the accrual balance and activity for the six
months ended June 30, 2006 are as follows (in thousands):
DEC 31, JUNE 30,
2005 2006
TYPE OF COST BALANCE ADDITIONS ACTIVITY BALANCE
------------ ------- --------- -------- --------
Lease obligations $278 $131 $(319) $90
Leasehold Improvements -- 16 (16) --
Goodwill -- 54 (54) --
---- ---- ----- ---
$278 $201 $(389) $90
==== ==== ===== ===
Lease obligations represent the future payments remaining under lease agreements
adjusted for estimated early settlements.
6. NOTES PAYABLE
Notes payable as of June 30, 2006 and December 31, 2005 consist of the
following:
JUNE 30, DECEMBER 31,
2006 2005
-------- ------------
(IN THOUSANDS)
Promissory note payable in quarterly
principal installments of $41,667
plus accrued interest through May 18, 2008,
interest accrues at 6% per annum $ 333 $ 417
Promissory note payable in quarterly
principal installments of $25,809 plus
accrued interest through December 19, 2008,
interest accrues at 6% per annum 258 310
----- -----
591 727
Less current portion (244) (244)
----- -----
$ 347 $ 483
===== =====
In connection with the Hamilton Acquisition, the Company incurred a note payable
in the amount of $500,000, payable in equal quarterly principal installments of
$41,667 beginning September 1, 2005 plus any accrued and unpaid interest.
Interest accrues at a fixed rate of 6% per annum. All outstanding principal and
any accrued and unpaid interest then outstanding is due and payable on May 18,
2008.
In connection with the Excel Acquisition, the Company incurred a note payable in
the amount of $309,710, payable in equal quarterly principal installments of
$25,809 beginning April 1, 2006 plus any accrued and unpaid interest. Interest
accrues at a fixed rate of 5.75% per annum. All outstanding principal and any
accrued and unpaid interest then outstanding is due and payable on December 19,
2008.
Effective September 30, 2005, the Company entered into an unsecured Credit
Agreement ("Credit Agreement"). The Credit Agreement, which matures on September
30, 2007, allows the Company to borrow funds not to exceed at any one time an
outstanding balance of $5,000,000 ("Commitment"). The outstanding balance bears
interest, at the Company's option, at a rate per annum equal to either the prime
rate, as defined in the agreement, or the adjusted LIBOR rate, as defined in the
agreement, plus three-quarters of one percent. The Company is required to pay a
commitment fee, which is paid quarterly in arrears, of 0.20% per annum on the
daily average difference between the Commitment and the outstanding balance. As
of the date of this report, there are no funds outstanding under this credit
agreement.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
EXECUTIVE SUMMARY
OUR BUSINESS
We operate outpatient physical and occupational therapy clinics that provide
preventive, curative and post-operative care for a variety of orthopedic-related
disorders and sports-related injuries, treatment for neurologically-related
injuries and rehabilitation of injured workers. At June 30, 2006, we operated
303 outpatient physical and occupational therapy clinics in 39 states. The
average age of our clinics at June 30, 2006 was 5.0 years. We have developed 292
of the clinics and acquired 11. To date, we have sold six clinics, closed 46
facilities and consolidated four clinics with other existing clinics. During the
first six months of 2006, we added 20 new clinics and closed three.
In addition to our owned clinics, we also manage physical therapy facilities for
third parties, primarily physicians, with six third-party facilities under
management as of June 30, 2006.
SELECTED OPERATING AND FINANCIAL DATA
The following table presents selected operating and financial data that we
believe are key indicators of our operating performance.
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- -------------------
2006 2005 2006 2005
-------- --------- -------- --------
Number of clinics 303 277 303 277
Working days 64 64 128 127
Average visits per day per clinic 19.0 19.6 19.0 19.0
Total patient visits 362,515 342,002 713,420 655,677
Net patient revenue per visit $ 97.04 $ 96.68 $ 97.05 $ 96.72
Statements of operations per visit:
Net revenues $ 98.64 $ 98.17 $ 98.70 $ 98.30
Salaries and related costs (51.55) (48.34) (52.08) (49.31)
Rent, clinic supplies, contract labor and other (20.12) (20.06) (20.77) (20.12)
Provision for doubtful accounts (1.26) (1.02) (1.43) (1.01)
Gain (loss) on sale or disposal of fixed assets (0.12) .24 (0.08) 0.06
Closure costs (0.49) (0.24) (0.28) (0.13)
-------- -------- -------- --------
Contribution from clinics 25.10 28.75 24.06 27.79
Corporate office costs (12.38) (12.15) (12.62) (12.50)
-------- -------- -------- --------
Operating income $ 12.72 $ 16.60 $ 11.44 $ 15.29
======== ======== ======== ========
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2006 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
2005
- Net revenues rose 6.5% to $35.8 million for the three months ended
June 30, 2006 ("2006 Second Quarter") from $33.6 million for the three
months ended June 30, 2005 ("2005 Second Quarter") due to a 6.0%
increase in patient visits from 342,000 to 362,500 combined with a
$0.36 increase from $96.68 to $97.04 in net patient revenue per visit.
17
- Earnings were $0.18 per diluted share for the 2006 Second Quarter as
compared to $0.23 for the 2005 Second Quarter. Net income for the 2006
Second Quarter was $2.2 million versus $2.8 million for the same
period last year. Total diluted shares were 11.9 million for the 2006
Second Quarter and 12.1 million for the 2005 Second Quarter.
NET PATIENT REVENUES
- Net patient revenues increased to $35.2 million for the 2006 Second
Quarter from $33.1 million for the 2005 Second Quarter, an increase of
$2.1 million, or 6.4%, due to a 6.0% increase in patient visits to
362,500 and a $0.36 increase in net patient revenues per visit to
$97.04.
- Total patient visits increased 20,500 or 6.0%, to 362,500 for the 2006
Second Quarter from 342,000 for the 2005 Second Quarter. The growth in
visits was attributable to an increase of approximately 21,100 visits
or 6.2% in clinics opened or acquired between July 1, 2005 and June
30, 2006 (the "New Clinics") together with a decrease of 600 or 0.2%
in visits for clinics opened or acquired before July 1, 2005 (the
"Mature Clinics").
- Net patient revenues from New Clinics accounted for approximately
104.8% of the total increase, or approximately $2.2 million of which
$400,000 related to the two clinics acquired after the second quarter
of 2005. The offsetting decrease of $100,000 in net patient revenues
was from Mature Clinics. Of the $100,000 decrease, a $1.1 million
increase related to clinics opened between January 1, 2004 and June
30, 2005, a $700,000 increase related to three clinics acquired in May
2005 and a $1.7 million decrease related to clinics opened prior to
January 1, 2004.
Net patient revenues are based on established billing rates less allowances and
discounts for patients covered by contractual programs and workers'
compensation. Net patient revenues reflect contractual and other adjustments
relating to patient discounts from certain payors. Payments received under these
programs are based on predetermined rates and are generally less than the
established billing rates of the clinics.
CLINIC OPERATING COSTS
Clinic operating costs as a percent of net revenues were 74.6% for the 2006
Second Quarter and 70.7% for the 2005 Second Quarter.
CLINIC OPERATING COSTS - SALARIES AND RELATED COSTS
Salaries and related costs increased to $18.7 million for the 2006
Second Quarter from $16.5 million for the 2005 Second Quarter, an
increase of $2.2 million, or 13.0%. Of the $2.2 million increase, $1.3
million was incurred at the New Clinics and $900,000 at the Mature
Clinics. Salaries and related costs as a percent of net revenues
increased to 52.3% for the 2006 Second Quarter compared to 49.2% for
the 2005 Second Quarter. Significant demand for physical therapists
coupled with a limited supply of licensed clinicians has resulted in
an increase in salary costs.
CLINIC OPERATING COSTS - RENT, CLINIC SUPPLIES, CONTRACT LABOR AND OTHER
Rent, clinic supplies, contract labor and other increased to $7.3
million for the 2006 Second Quarter from $6.9 million for the 2005
Second Quarter, an increase of $400,000, or 6.3%. Approximately
$800,000 was incurred at the New Clinics and a decrease of $400,000
was incurred at the Mature Clinics. Rent, clinic supplies, contract
labor and other as a percent of net revenues was 20.4% for both the
2006 Second Quarter and the 2005 Second Quarter.
CLINIC OPERATING COSTS - PROVISION FOR DOUBTFUL ACCOUNTS
The provision for doubtful accounts increased to $458,000 for the 2006
Second Quarter from $350,000 for the 2005 Second Quarter, an increase
of $108,000 or 30.9%. The provision for doubtful accounts as a percent
of net patient revenues was 1.3% for the 2006 Second Quarter and 1.1%
for the 2005 Second Quarter. Our allowance for bad debts as a percent
of total patient accounts receivable was 6.8% at June 30, 2006, as
compared to 7.6% at December 31, 2005. Our percentage of receivables
outstanding 120 days or longer decreased from 26.7% of total
outstanding receivables at December 31, 2005 to 23.9% at June 30,
2006.
18
GAIN ON SALE OR DISPOSAL OF FIXED ASSETS
For the 2006 Second Quarter, a loss from the disposal of fixed assets
of $43,000 was recognized. For the 2005 Second Quarter, a net gain on
the sale of fixed assets of $83,000 was recognized primarily related
to the sale of a building, which generated a gain of approximately
$100,000 before taxes and minority interest. The building was
previously used by a clinic closed in August 2004.
CLOSURE COSTS
For the 2006 Second Quarter, a charge of $179,000 was taken related to
clinic closure costs. The charge primarily consisted of lease
obligations for lease commitments and write-off of leasehold
improvements related to clinics closed in the 2006 Second Quarter,
write-off of goodwill related to a clinic closed in the 2006 Second
Quarter and lease settlement adjustments for clinics closed prior to
2006. For the 2005 Second Quarter, a charge of $84,000 was taken
related to clinic closure costs. The charge primarily consisted of
additional accrual for lease commitments related to clinics closed in
the third quarter of 2004 and the write-off of goodwill for a clinic
closed in the 2005 Second Quarter.
CORPORATE OFFICE COSTS
Corporate office costs, consisting primarily of salaries and benefits of
corporate office personnel, rent, insurance costs, depreciation and
amortization, travel, legal, professional, and recruiting fees, increased to
$4.5 million for the 2006 Second Quarter from $4.2 million for the 2005 Second
Quarter, an increase of $300,000, or 8.0%. Corporate office costs increased
primarily as the result of a non-cash charge of $242,000 related to stock-based
compensation expense. Effective January 1, 2006, the Company adopted Statement
No. 123R, Share-Based Payment (SFAS 123R), which requires companies to measure
and recognize compensation expense for all stock-based payments at fair value.
Prior periods were not restated to reflect the impact of adopting the new
standard. Corporate office costs as a percent of revenues were 12.5% for the
2006 Second Quarter and 12.4% for the 2005 Second Quarter. After adjusting for
stock-based compensation expense, corporate office costs would have been 11.9%
of revenues for the 2006 Second Quarter.
MINORITY INTERESTS IN EARNINGS OF SUBSIDIARY LIMITED PARTNERSHIPS
Minority interests in earnings of subsidiary limited partnerships decreased
$100,000 to $1.2 million for the 2006 Second Quarter from $1.3 million for the
2005 Second Quarter. Minority interest as a percentage of operating income
before corporate office costs decreased to 12.8% for the 2006 Second Quarter
compared to 13.2% for the 2005 Second Quarter.
PROVISION FOR INCOME TAXES
The provision for income taxes decreased to $1.4 million for the 2006 Second
Quarter from $1.7 million for the 2005 Second Quarter, a decrease of
approximately $300,000, or 20.3% as a result of lower pre-tax income. During the
2006 Second Quarter, we accrued state and federal income taxes at an effective
tax rate of 38.8% versus 38.3% for the 2005 Second Quarter. The increase in the
effective tax rate is due to anticipated higher state income taxes.
SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2005
- Net revenues rose 9.2% to $70.4 million for the six months ended June
30, 2006 ("2006 Six Months") from $64.5 million for the six months
ended June 30, 2005 ("2005 Six Months") due to an 8.8% increase in
patient visits from 655,600 to 713,400 combined with a $0.33 increase
from $96.72 to $97.05 in net patient revenue per visit.
- Earnings were $0.30 per diluted share for the 2006 Six Months as
compared to $0.40 for the 2005 Six Months. Net income for the 2006 Six
Months was $3.6 million versus $4.8 million for the 2005 Six Months.
Total diluted shares were 12.0 million for the 2006 Six Months and
12.1 million for the 2005 Six Months.
NET PATIENT REVENUES
- Net patient revenues increased to $69.2 million for the 2006 Six
Months from $63.4 million for the 2005 Six Months, an increase of $5.8
million, or 9.2%, due to an 8.8% increase in patient visits to 713,400
and a $0.33 increase in net patient revenues per visit to $97.05.
- Total patient visits increased 57,800 or 8.8%, to 713,400 for the 2006
Six Months from 655,600 for the 2005 Six Months. The growth in visits
was attributable to an increase of approximately 34,800 visits or 5.3%
in New Clinics together with an increase of 23,000 visits or 3.5% in
Mature Clinics.
19
- Net patient revenues from New Clinics accounted for approximately
63.9% of the total increase, or approximately $3.7 million, of which
$800,000 related to the two clinics acquired in December 2005. The
remaining increase of $2.1 million in net patient revenues was from
Mature Clinics. Of this $2.1 million increase, a $2.8 million increase
related to clinics opened between January 1, 2004 and June 30, 2005, a
$2.2 million increase related to three clinics acquired in May 2005
and a $2.9 million decrease related to clinics opened prior to January
1, 2004.
CLINIC OPERATING COSTS
Clinic operating costs as a percent of net revenues were 75.6% for the 2006 Six
Months and 71.7% for the 2005 Six Months.
CLINIC OPERATING COSTS - SALARIES AND RELATED COSTS
Salaries and related costs increased to $37.1 million for the 2006 Six
Months from $32.3 million for the 2005 Six Months, an increase of $4.8
million, or 14.9%. Of the $4.8 million increase, $2.2 million was
incurred at the New Clinics and $2.6 million at the Mature Clinics due
to rising salary costs. Salaries and related costs as a percent of net
revenues increased to 52.8% for the 2006 Six Months compared to 50.2%
for the 2005 Six Months. Significant demand for physical therapists
coupled with a limited supply of licensed clinicians has resulted in
an increase in salary costs.
CLINIC OPERATING COSTS - RENT, CLINIC SUPPLIES, CONTRACT LABOR AND OTHER
Rent, clinic supplies, contract labor and other increased to $14.8
million for the 2006 Six Months from $13.2 million for the 2005 Six
Months, an increase of $1.6 million, or 12.3%. Approximately $1.4
million was incurred at the New Clinics and $200,000 was incurred at
the Mature Clinics. Rent, clinic supplies, contract labor and other as
a percent of net revenues was 21.0% for the 2006 Six Months compared
to 20.5% for the 2005 Six Months.
CLINIC OPERATING COSTS - PROVISION FOR DOUBTFUL ACCOUNTS
The provision for doubtful accounts increased to $1.0 million for the
2006 Six Months from $700,000 for the 2005 Six Months, an increase of
$300,000 or 54.8%. The provision for doubtful accounts as a percent of
net patient revenues was 1.5% for the 2006 Six Months and 1.0% for the
2005 Six Months. Our allowance for bad debts as a percent of total
patient accounts receivable was 6.8% at June 30, 2006, as compared to
7.6% at December 31, 2005. Our percentage of receivables outstanding
120 days or longer was reduced from 26.7% of total outstanding
receivables at December 31, 2005 to 23.9% at June 30, 2006.
GAIN ON SALE OR DISPOSAL OF FIXED ASSETS
For the 2006 Six Months, a loss from the disposal of fixed assets of
$55,000 was recognized. For the 2005 Six Months, a net gain on the
sale of fixed assets of $41,000 was recognized primarily related to
the sale of a building, which generated a gain of approximately
$100,000 before taxes and minority interest. The building was
previously used by a clinic closed in August 2004. The gain was
partially offset by losses on the sale and disposal of fixed assets.
CLOSURE COSTS
For the 2006 Six Months, a charge of $201,000 was taken related to
clinic closure costs. The charge primarily consisted of lease
obligations for lease commitments and write off of leasehold
improvements related to clinics closed in the 2006 Six Months,
write-off of goodwill related to a clinic closed in the 2006 Six
Months and lease settlement adjustments for clinics closed prior to
2006. For the 2005 Six Months, a charge of $84,000 was taken related
to clinic closure costs. The charge primarily consisted of additional
accrual for lease commitments related to clinics closed in the third
quarter of 2004 and the write-off of goodwill for a clinic closed in
the 2005 Six Months.
CORPORATE OFFICE COSTS
Corporate office costs, consisting primarily of salaries and benefits of
corporate office personnel, rent, insurance costs, depreciation and
amortization, travel, legal, professional, and recruiting fees, increased to
$9.0 million for the 2006 Six Months from $8.2 million for the 2005 Six Months,
an increase of $800,000, or 9.8%. Corporate office costs increased primarily as
a result of a non-cash charge of $464,000 related to stock-based compensation
expense. Effective January 1, 2006, the Company adopted Statement No. 123R,
Share-Based Payment (SFAS 123R), which requires companies to
20
measure and recognize compensation expense for all stock-based payments at fair
value. Prior periods were not restated to reflect the impact of adopting the new
standard. Corporate office costs as a percent of revenues were 12.8% for the
2006 Six Months and 12.7% for the 2005 Six Months. After adjusting for
stock-based compensation expense, corporate office costs would have been 12.1%
of revenues for the 2006 Six Months.
MINORITY INTERESTS IN EARNINGS OF SUBSIDIARY LIMITED PARTNERSHIPS
Minority interests in earnings of subsidiary limited partnerships decreased
$100,000 to $2.4 million for the 2006 Six Months from $2.5 million for the 2005
Six Months. Minority interest as a percentage of operating income before
corporate office costs increased to 13.8% for the 2006 Six Months from 13.6%
for the 2005 Six Months.
PROVISION FOR INCOME TAXES
The provision for income taxes decreased to $2.3 million for the 2006 Six Months
from $2.9 million for the 2005 Six Months, a decrease of approximately $600,000,
or 22.0% as a result of lower pre-tax income. During the 2006 Six Months, we
accrued state and federal income taxes at an effective tax rate of 38.6% versus
38.0% for the 2005 Six Months. The increase in the effective tax rate is due to
anticipated higher state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
We believe that our business is generating enough cash flow from operating
activities to allow us to meet our normal short-term and long-term cash
requirements. At June 30, 2006, we had $15.1 million in cash and cash
equivalents and marketable securities - available for sale ("Cash Equivalents
Available") compared to $15.0 million at December 31, 2005. Although the
start-up costs associated with opening new clinics, and our planned capital
expenditures are significant, we believe that our Cash Equivalents Available are
sufficient to fund the working capital needs of our operating subsidiaries,
future clinic development and investments through at least June 2007. Included
in cash and cash equivalents at June 30, 2006 were $2.5 million in a money
market fund and $5.0 million in investments which include short-term high-grade
commercial paper (credit rating of A1/P1 or better), municipal obligations and
government sponsored enterprise investments.
Cash Equivalents Available increased $112,000 from December 31, 2005 to June 30,
2006 was due primarily to cash provided by operating activities of $8.7 million,
offset by $2.9 million used for the purchase of fixed assets, $2.1 million used
for the repurchase of the Company's common stock, $2.3 million used for
distributions to minority investors in subsidiary limited partnerships and $1.1
million used for the purchase of minority interests.
Our current ratio increased to 5.4 to 1.0 at June 30, 2006 from 5.2 to 1.0 at
December 31, 2005. The increase in the current ratio is due primarily to an
increase in patient account receivables due to increased revenue.
Effective September 30, 2005, the Company entered into an unsecured Credit
Agreement. The Credit Agreement, which matures on September 30, 2007, allows the
Company to borrow funds not to exceed at any one time an outstanding principal
balance of $5,000,000 ("Commitment"). The outstanding balance bears interest, at
the Company's option, at a rate per annum equal to either the prime rate, as
defined in the agreement, or the adjusted LIBOR rate, as defined in the
agreement, plus three-quarters of one percent. The Company is required to pay a
commitment fee, which is paid quarterly in arrears, of 0.20% per annum on the
daily average difference between the Commitment and the outstanding balance. As
of the date of this report, there were no funds outstanding under the Credit
Agreement.
Historically, we have generated sufficient cash from operations to fund our
development activities and cover operational needs. We generally develop new
clinics rather than acquire them, which requires less capital. We plan to
continue developing new clinics and make additional acquisitions in select
markets. We have from time to time purchased the minority interests of limited
partners in our clinic partnerships. We may purchase additional minority
interests in the future. Generally, any acquisition or purchase of minority
interests is expected to be accomplished using a combination of cash, notes or
common stock. We believe that existing funds and the availability of funds under
the Credit Agreement, supplemented by cash flows from existing operations, will
be sufficient to meet our current operating needs, development plans and any
purchases of minority interests through at least June 2007.
In conjunction with the Hamilton Acquisition, we entered into a note payable
with the sellers in the amount of $500,000 payable in equal quarterly principal
installments of $41,667, beginning September 1, 2005, plus any accrued and
unpaid interest. Interest accrues at a fixed rate of 6% per annum. All
outstanding principal and any accrued and unpaid interest then outstanding is
due and payable on the third anniversary of the note, May 18, 2008. The purchase
agreement also provides for possible contingent consideration of up to $650,000
based on the achievement of a certain designated level of operating results
within a three-year period following the acquisition. In addition, we entered
into a 5-year lease for each
21
of the three facilities. In July 2006, we paid $90,000 additional consideration
related to this acquisition upon achievement of the predefined operating results
for the first year and such amount was added to goodwill.
In conjunction with the Excel Acquisition, we entered into a note payable with
the sellers in the amount of $309,710 payable in equal quarterly principal
installments of $25,809, beginning April 1, 2006, plus any accrued and unpaid
interest. Interest accrues at a fixed rate of 5.75% per annum. All outstanding
principal and any accrued and unpaid interest then outstanding is due and
payable on the third anniversary of the note, December 19, 2008. The purchase
agreement also provides for possible contingent consideration of up to $325,000
based on the achievement of a certain designated level of operating results
within a three-year period following the acquisition. In addition, we entered
into a 5-year lease for one of the facilities and assumed a lease expiring
September 30, 2009 on the other facility.
In September 2001, the Board of Directors ("Board") authorized the Company to
purchase, in the open market or in privately negotiated transactions, up to
1,000,000 shares of its common stock. On February 26, 2003, on December 8, 2004
and on August 23, 2005, the Board authorized share repurchase programs of up to
250,000, 500,000 and 500,000 additional shares, respectively, of the Company's
outstanding common stock. As of June 30, 2006, there were approximately 324,000
shares remaining that could be purchased under these programs. Since there is no
expiration date for these share repurchase programs, additional shares may be
purchased from time to time in the open market or private transactions depending
on price, availability and the Company's cash position. Shares purchased are
held as treasury shares and may be used for such valid corporate purposes or
retired as the Board considers advisable. During the quarter ended June 30,
2006, the Company purchased 82,318 shares of its common stock on the open market
for $1.2 million. During the six months ended June 30, 2006, the Company
purchased 131,218 shares of its common stock on the open market for $2.1
million.
FACTORS AFFECTING FUTURE RESULTS
Clinic Development
As of June 30, 2006, we had 303 clinics in operation, 20 of which were opened in
the first six months of 2006. We expect to incur initial operating losses from
new clinics opened in 2006. Generally we experience losses during the initial
period of a new clinic's operation. Operating margins for newly opened clinics
tend to be lower than more seasoned clinics because of start-up costs and lower
patient visits and revenues. Patient visits and revenues gradually increase in
the first year of operation, as patients and referral sources become aware of
the new clinic. Revenues typically continue to increase during the two years
following the first anniversary of a clinic opening. Based on the historical
performance of our newer clinics, generally the clinics opened in 2005 would
favorably impact our results of operations beginning in 2006.
FORWARD LOOKING STATEMENTS
We make statements in this report that are considered to be forward-looking
statements within the meaning under Section 21E of the Securities Exchange Act
of 1934. These statements contain forward-looking information relating to the
financial condition, results of operations, plans, objectives, future
performance and business of our Company. These statements (often using words
such as "believes", "expects", "intends", "plans", "appear", "should" and
similar words) involve risks and uncertainties that could cause actual results
to differ materially from those we project. Included among such statements are
those relating to opening new clinics, availability of personnel and the
reimbursement environment. The forward-looking statements are based on our
current views and assumptions and actual results could differ materially from
those anticipated in such forward-looking statements as a result of certain
risks, uncertainties, and factors, which include, but are not limited to:
- revenue and earnings expectations;
- general economic, business, and regulatory conditions;
- availability and cost of qualified physical and occupational
therapists;
- salary costs and personnel productivity;
- failure of our clinics to maintain their Medicare certification status
or changes in Medicare guidelines;
- competitive and/or economic conditions in our markets which may
require us to close certain clinics and thereby incur closure costs
and losses including the possible write-off or write-down of goodwill;
- changes in reimbursement rates or payment methods from third party
payors including governmental agencies and deductibles and co-pays
owed by patients;
- maintaining adequate internal controls;
- availability, terms, and use of capital;
- future acquisitions; and
- weather.
22
Many factors are beyond our control.
Given these uncertainties, you should not place undue reliance on our
forward-looking statements. Please see the other sections of this report and our
other periodic reports filed with the Securities and Exchange Commission (the
"SEC") for more information on these factors. Our forward-looking statements
represent our estimates and assumptions only as of the date of this report.
Except as required by law, we are under no obligation to update any
forward-looking statement, regardless of the reason the statement is no longer
accurate.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We do not maintain any derivative instruments, interest rate swap arrangements,
hedging contracts, futures contracts or the like. We have no material amount of
debt.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures
As of the last day of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our principal
executive officer and principal financial officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. Based on this
evaluation, our principal executive officer and principal financial officer
concluded that our disclosure controls and procedures are effective in ensuring
that information required to be disclosed in the reports that we file or submit
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms and that
such information is accumulated and communicated to our management, including
our principal executive officer and principal financial officer, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.
(b) Changes in Internal Control
There have been no changes in our internal control over financial reporting
during our last fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information regarding shares of the Company's
common stock repurchased by the Company during the quarter ended June 30, 2006.
TOTAL NUMBER OF
SHARES PURCHASED
AS MAXIMUM NUMBER
PART OF PUBLICLY OF SHARES THAT MAY
TOTAL NUMBER OF ANNOUNCED PLANS YET BE PURCHASED
SHARES AVERAGE PRICE OR UNDER THE PLANS OR
PERIOD PURCHASED PAID PER SHARE PROGRAMS(1) PROGRAMS(1)
------ --------------- -------------- ---------------- ------------------
April 1, 2006 through
April 30, 2006 -- $ -- -- 406,015
May 1, 2006 through
May 31, 2006 72,318 14.76 72,318 333,697
June 1, 2006 through
June 30, 2006 10,000 $ 14.11 10,000 323,697
------ -------- ------ -------
Total 82,318 $ 14.68 82,318 323,697
====== ======== ====== =======
(1) In September 2001, the Board authorized the Company to purchase, in the
open market or in privately negotiated transactions, up to 1,000,000 shares
of its common stock. On February 26, 2003, on December 8, 2004 and on
August 23, 2005, the Board authorized share repurchase programs of up to
250,000, 500,000 and 500,000 additional shares, respectively, of the
Company's outstanding common stock. As of June 30, 2006, there were
approximately 324,000 shares remaining that could be purchased under these
programs. Since there is no expiration date for these share repurchase
programs, additional shares may be purchased from time to time in the open
market or private transactions depending on price, availability and the
Company's cash position. Shares purchased are held as treasury shares and
may be used for such valid corporate purposes or retired as the Board
considers advisable. All shares of common stock repurchased by the Company
during the quarter ended June 30, 2006 were purchased under these programs.
23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's annual meeting of shareholders was held on May 31, 2006. At the
meeting, ten directors were elected by a vote of holders of the Company's Common
Shares, par value of $.01 per share, as outlined in the Company's proxy
statement. With respect to the election of directors, (a) proxies were solicited
pursuant to Regulation 14A under the Securities Exchange Act of 1934, (b) there
was no solicitation in opposition to management's nominees as listed in the
proxy statement, and (c) all of such nominees were elected.
The election of such directors and the results of those votes were as follows:
Votes Votes
For Withheld
---------- -------
Daniel C. Arnold 11,078,197 108,809
Christopher J. Reading 11,131,515 55,491
Lawrance W. McAfee 11,073,937 113,069
Mark J. Brookner 11,036,019 150,987
Bruce D. Broussard 11,114,452 72,554
Bernard A. Harris 11,169,705 17,301
Marlin W. Johnston 11,133,900 53,106
J. Livingston Kosberg 11,036,459 150,547
Jerald L. Pullins 11,169,295 17,711
Clayton K. Trier 11,113,842 73,164
The Amended and Restated 1999 Employee Stock Option Plan was also approved at
the meeting with the following votes:
For Against Abstain Not Voted
--- --------- ------- ---------
7,745,526 1,030,529 6,365 2,404,586
Finally, the appointment of Grant Thornton LLP as our independent registered
public accounting firm for 2006 was ratified at the meeting with the following
votes:
Votes Votes Votes
For Against Abstaining
----- ------- ----------
11,168,260 11,318 7,428
ITEM 6. EXHIBITS.
(a) Exibits
EXHIBIT
NO. DESCRIPTION
------- -----------
31.1* Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2* Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
31.3* Rule 13a-14(a)/15d-14(a) Certification of Controller
32* Certification Pursuant to 18 U.S.C 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
* Filed herewith
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on our behalf by the
undersigned thereunto duly authorized.
U.S. PHYSICAL THERAPY, INC.
Date: August 9, 2006 By: /s/ LAWRANCE W. MCAFEE
------------------------------------
Lawrance W. McAfee
Chief Financial Officer
(duly authorized officer and
principal financial and
accounting officer)
By: /s/ DAVID RICHARDSON
------------------------------------
David Richardson
Vice President/Controller
25
INDEX OF EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -----------
31.1* Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2* Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
31.3* Rule 13a-14(a)/15d-14(a) Certification of Controller
32* Certification Pursuant to 18 U.S.C 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
* Filed herewith
26