CORRESP 1 filename1.htm

VIA EDGAR

February 10, 2017

Mr. Rufus Decker
Accounting Branch Chief
Office of Beverages, Apparel, and Mining
United States Securities and Exchange Commission
100 F Street, N. E.
Washington, D. C. 20549

RE:
U.S. Physical Therapy, Inc.
Form 10-K for the Year Ended December 31, 2015
Filed March 4, 2016
File No. 001-11151

Dear Mr. Decker:

This letter is in response to your letter dated January 13, 2017 to U.S. Physical Therapy, Inc. (the “Company”) transmitting the comments of the staff (the “Staff”) of the United States Securities and Exchange Commission (the “Commission”) relating to the above referred Form 10-K.  For your convenience, the response below is preceded by the Staff’s comment to which the response relates.

U.S. Physical Therapy, Inc. and Subsidiaries Financial Statements
Notes to Consolidated Financial Statements
Note 2. Significant Accounting Policies
Non-controlling Interests, page 44

1.
Comment. We read your response to comment 1.  As stated in paragraph 5 of ASC 480-10-S99-3A, the possibility that any triggering event that is not solely within the control of the issuer could occur – without regard to probability – would require the instrument to be classified in temporary equity.  You indicate that you are required to purchase the non-controlling limited partners’ interest in the event their employment ceases after the holding period.  As a result, it appears that upon inception these agreements with non-controlling interest limited partners have redemption provisions that may not be solely within your control.  Please tell us in greater detail why the non-controlling interests subject to these redemption provisions are not presented in temporary equity at inception pursuant to ASC 480-10-S99-3A.
 

Response:   After further review of the accounting literature mentioned in your comment above, the Company concurs that the non-controlling interests subject to redemption provisions should be presented in temporary equity at the inception of the agreement.  See further discussion in the response to comment 2 below.

2.
Comment.  We read your response to comment 1.  For non-controlling interests classified in temporary equity that are not currently redeemable, paragraph 15 of ASC 480-10-S99-3A considers the probability that they will become redeemable in determining the subsequent measurement adjustments made.  You indicate that, if you deem if probable that the non-controlling interest limited partners will assert their redemption rights, the redeemable non-controlling interest is adjusted to its redemption value.  Your accounting appears to focus on the probability that a security will be redeemed, which is different than the probability that a security will become redeemable as required by this ASC.  Please tell us in detail how your accounting policy for subsequent measurement complies with ASC 480-10-S99-3A, including paragraphs 13 through 15, as refined by paragraphs 16(c) and 16(e).  Please address your accounting for non-controlling interests classified in temporary equity that are not currently redeemable and those that are currently redeemable.  In doing so, please tell us in detail the criteria you use for determining when a non-controlling interest that is not currently redeemable is probable of redemption.  Refer to the definition of probable in ASC 450-20-20.

Response:   After further review of the accounting literature mentioned in your comment above, the Company concurs that the non-controlling interests subject to redemption provisions should be presented in temporary equity at the inception of the agreement and adjusted at the end of each reporting period to its estimated redemption value.

In accordance with Staff Accounting Bulletin No. 108, the Company evaluated the cumulative impact of this correction on prior periods and determined that the impact on historical results are immaterial to the consolidated financial statements taken as a whole.  Further, the Company also evaluated the impact of this correction through an adjustment to its financial statements and concluded, based on the guidance within ASC 250-10 related to SAB Topic 1.N, Considering the Effects of Prior Year Misstatement when Quantifying Misstatements in Current Year Financial Statements, to adjust its previously issued financial statements to reflect the impact of the correction when it files subsequent reports of Form 10-Q and 10-K since correcting prior year financial statements for immaterial corrections would not require previously filed reports to be amended.  The Company will adjust its financial statements for the years ended December 31, 2015 and 2014 to reflect the immaterial error correction, when next presented  in its upcoming Annual Report on Form 10-K for the year ended December 31, 2016, which is expected to be filed with the SEC prior to March 16, 2017.
 

Future disclosure regarding redeemable non-controlling interests will be as follows: “The non-controlling interests that are reflected as redeemable non-controlling interests in the consolidated financial statements consist of those owners who have certain redemption rights which currently or in the future require that the Company purchase the non-controlling interest of those owners at a predetermined formula.  The redeemable non-controlling interests are adjusted to the estimated redemption value at the end of each reporting period.  The after tax adjustments are charged to additional paid-in capital and are not reflected in the statements of net income.  Although the adjustments are not reflected in the statements of net income, current accounting rules require that the Company reflect the adjustment in the earnings per share calculation.”

In the upcoming filing of the Annual Report on Form 10-K for the year ended December 31, 2016, the disclosure regarding the revision to the previously issued financial statements will be included in a separate footnote as follows:

“Prior to issuing the 2016 annual financial statements, the Company determined it had accounted for redeemable non-controlling interests incorrectly.  See Footnote 2 – Significant Accounting Policies – Non-controlling interests – for a description of the accounting for redeemable non-controlling interests.  Management determined this correction was not material to any previously issued annual or quarterly consolidated financial statements.   Management  evaluated the impact of this change on prior periods under the guidance in ASC 250-10 relating to the SEC Staff Accounting Bulletin Topic 1.M, Assessing Materiality.  The Company also evaluated the impact of making this change through an adjustment to its financial statements and concluded, based on the guidance with ASC 250-10 relating to SAB Topic 1.N, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, to correct its previously issued financial statements to reflect the impact of this correction when it files subsequent reports on Form 10-Q and Form 10-K.  Accordingly, the Company has corrected its consolidated financial statements for the years ended December 31, 2014 and 2015 as noted in the following tables. In addition, any prior year information within footnotes, including quarterly data, impacted by this correction has been updated within this annual report. Prior period quarterly information will be corrected when the Form 10-Q for the comparable current period is filed in future filings. There is no effect on historically reported retained earnings nor any effect on historically reported net income attributable to common shareholders. Also, this correction did not change net cash flows provided by or used in operating, investing or financing activities previously reported.
 

The following schedules present the impact of this correction on the Company’s previously reported consolidated balance sheet for the year ended December 31, 2015 and the consolidated statements of net income for the years ended December 31, 2015 and 2014:
 
CONSOLIDATED BALANCE SHEET

   
As Reported
December 31, 2015
   
Adjustments
   
As Adjusted
2015
 
ASSETS
           
Current assets:
                 
Cash and cash equivalents
 
$
15,778
   
$
-
   
$
15,778
 
Patient accounts receivable, less allowance for doubtful accounts of $1,444 and $1,669, respectively
   
36,231
     
-
     
36,231
 
Accounts receivable - other, less allowance for doubtful accounts of $198 and $198, respectively
   
2,388
     
-
     
2,388
 
Other current assets
   
5,785
     
-
     
5,785
 
Total current assets
   
60,182
     
-
     
60,182
 
Fixed assets:
                       
Furniture and equipment
   
44,749
     
-
     
44,749
 
Leasehold improvements
   
25,160
     
-
     
25,160
 
Fixed assets, gross
   
69,909
     
-
     
69,909
 
Less accumulated depreciation and amortization
   
53,255
     
-
     
53,255
 
Fixed assets, net
   
16,654
     
-
     
16,654
 
Goodwill
   
171,547
     
-
     
171,547
 
Other identifiable intangible assets, net
   
30,296
     
-
     
30,296
 
Other assets
   
1,234
     
-
     
1,234
 
Total assets
 
$
279,913
   
$
-
   
$
279,913
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                       
Current liabilities:
                       
Accounts payable - trade
 
$
1,636
   
$
-
   
$
1,636
 
Accrued expenses
   
16,596
     
-
     
16,596
 
Current portion of notes payable
   
775
     
-
     
775
 
Total current liabilities
   
19,007
     
-
     
19,007
 
Notes payable
   
4,335
     
-
     
4,335
 
Revolving line of credit
   
44,000
     
-
     
44,000
 
Deferred rent
   
1,395
     
-
     
1,395
 
Deferred taxes
   
8,355
     
(1,700
)
   
6,655
 
Other long-term liabilities
   
868
     
-
     
868
 
Total liabilities
   
77,960
     
(1,700
)
   
76,260
 
Commitments and contingencies
                       
Redeemable non-controlling interests
   
8,843
     
32,320
     
41,163
 
Equity:
                       
U. S. Physical Therapy, Inc. 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, 14,635,874 and 14,487,346 shares issued, respectively
   
146
     
-
     
146
 
Additional paid-in capital
   
45,251
     
(2,647
)
   
42,604
 
Retained earnings
   
149,016
     
-
     
149,016
 
Treasury stock at cost, 2,214,737 shares
   
(31,628
)
   
-
     
(31,628
)
Total U. S. Physical Therapy, Inc. shareholders’ equity
   
162,785
     
(2,647
)
   
160,138
 
Non-controlling interests
   
30,325
     
(27,973
)
   
2,352
 
Total equity
   
193,110
     
(30,620
)
   
162,490
 
Total liabilities and equity
 
$
279,913
   
$
-
   
$
279,913
 
 

CONSOLIDATED STATEMENT OF NET INCOME
 
   
As Reported
Year Ended
December 31, 2015
   
Adjustments
   
As Adusted
Year Ended
December 31, 2015
 
                   
Net patient revenues
 
$
324,293
   
$
-
   
$
324,293
 
Other revenues
   
7,009
     
-
     
7,009
 
Net revenues
   
331,302
     
-
     
331,302
 
Clinic operating costs:
                       
Salaries and related costs
   
180,514
     
-
     
180,514
 
Rent, clinic supplies, contract labor and other
   
68,046
     
-
     
68,046
 
Provision for doubtful accounts
   
4,170
     
-
     
4,170
 
Closure costs
   
211
     
-
     
211
 
Total clinic operating costs
   
252,941
     
-
     
252,941
 
Gross margin
   
78,361
     
-
     
78,361
 
Corporate office costs
   
31,067
     
-
     
31,067
 
Operating income from continuing operations
   
47,294
     
-
     
47,294
 
Interest and other income, net
   
81
     
-
     
81
 
Interest expense
   
(1,031
)
   
-
     
(1,031
)
Income before taxes from continuing operations
   
46,344
     
-
     
46,344
 
Provision for income taxes
   
14,653
     
-
     
14,653
 
Net income including non-controlling interests
   
31,691
     
-
     
31,691
 
Less: net income attributable to non-controlling interests
   
(9,412
)
   
-
     
(9,412
)
Net income attributable to common shareholders
 
$
22,279
   
$
-
   
$
22,279
 
                         
Basic earnings per share attributable to common shareholders:
                       
Prior to revaluation of redeemable non-controlling interests, net of tax
 
$
1.80
   
$
-
   
$
1.80
 
Charges to additional-paid-in-capital - revaluation of non-controlling interests, net of tax
   
(0.03
)
   
(0.14
)
   
(0.17
)
Basic
   
1.77
     
(0.14
)
   
1.63
 
                         
Diluted earnings per share attributable to common shareholders:
                       
Prior to revaluation of redeemable non-controlling interests, net of tax
 
$
1.80
   
$
-
   
$
1.80
 
Charges to additional-paid-in-capital - revaluation of non-controlling interests, net of tax
   
(0.03
)
   
(0.14
)
   
(0.17
)
Diluted
   
1.77
     
(0.14
)
   
1.63
 
                         
Shares used in computation:
                       
Basic
   
12,392
     
-
     
12,392
 
Diluted
   
12,392
     
-
     
12,392
 
                         
Dividends declared per common share
 
$
0.60
   
$
-
   
$
0.60
 
 

CONSOLIDATED STATEMENT OF NET INCOME
 
   
As Reported
Year Ended
December 31, 2014
   
Adjustments
   
As Adjusted
Year Ended
December 31, 2014
 
                   
Net patient revenues
 
$
299,009
   
$
-
   
$
299,009
 
Other revenues
   
6,065
     
-
     
6,065
 
Net revenues
   
305,074
     
-
     
305,074
 
Clinic operating costs:
                       
Salaries and related costs
   
163,417
     
-
     
163,417
 
Rent, clinic supplies, contract labor and other
   
61,209
     
-
     
61,209
 
Provision for doubtful accounts
   
4,112
     
-
     
4,112
 
Closure costs
   
169
     
-
     
169
 
Total clinic operating costs
   
228,907
     
-
     
228,907
 
Gross margin
   
76,167
     
-
     
76,167
 
Corporate office costs
   
30,399
     
-
     
30,399
 
Operating income from continuing operations
   
45,768
     
-
     
45,768
 
Interest and other income, net
   
18
     
-
     
18
 
Interest expense
   
(1,088
)
   
-
     
(1,088
)
Income before taxes from continuing operations
   
44,698
     
-
     
44,698
 
Provision for income taxes
   
14,274
     
-
     
14,274
 
Net income from continuing operations including non-controlling interests
   
30,424
     
-
     
30,424
 
Discontinued operations, net of tax benefit of $-0-, $-0- and $3,180.
   
-
     
-
     
-
 
Net income including non-controlling interests
   
30,424
     
-
     
30,424
 
Less: net income attributable to non-controlling interests
   
(9,571
)
   
-
     
(9,571
)
Net income attributable to common shareholders
 
$
20,853
   
$
-
   
$
20,853
 
                         
Basic earnings per share attributable to common shareholders:
                       
Prior to revaluation of redeemable non-controlling interests, net of tax
 
$
1.71
   
$
-
   
$
1.71
 
Charges to additional-paid-in-capital - revaluation of non-controlling interests, net of tax
   
(0.09
)
   
(0.01
)
   
(0.10
)
Basic
   
1.62
     
(0.01
)
   
1.61
 
                         
Diluted earnings per share attributable to common shareholders:
                       
Prior to revaluation of redeemable non-controlling interests, net of tax
 
$
1.71
   
$
-
   
$
1.71
 
Charges to additional-paid-in-capital - revaluation of non-controlling interests, net of tax
   
(0.09
)
   
(0.01
)
   
(0.10
)
Diluted
   
1.62
     
(0.01
)
   
1.61
 
                         
Shares used in computation:
                       
Basic
   
12,217
     
-
     
12,217
 
Diluted
   
12,221
     
-
     
12,221
 
                         
Dividends declared per common share
 
$
0.48
   
$
-
   
$
(0.48
)

The above tables are subject to final audit, however, Management believes the information contained in the tables to be materially accurate.

In connection with the Company’s response to the Staff, the Company acknowledges that the Company is responsible for the adequacy and accuracy of the disclosure in the Company’s filings, notwithstanding any review, comments, action or absence of action by the Staff.

Sincerely,

Lawrance W. McAfee
Executive Vice President and Chief Financial Officer

LWM/JJB