8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 18, 2013 (December 13, 2013)

U.S. PHYSICAL THERAPY, INC.

(Exact name of registrant as specified in its charter)

Nevada	1-11151	76-0364866
(State or other jurisdiction of	(Commission	(I.R.S. Employer
incorporation or organization)	File Number)	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

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12(b) under the Exchange Act (17 CFR 240.14a-12(b))

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Explanatory Note

This Amendment No. 1 on Form 8-K/A amends the Current Report on Form 8-K dated December 13, 2013 (“Original Form 8-K”) filed by U. S. Physical Therapy, Inc. (the “Company”) on December 18, 2013 disclosing the Company entered into a Reorganization and Purchase Agreement (the “Purchase Agreement”) with ARC Rehabilitation Services, LLC, Athletic & Rehabilitation Center, LLC, Matthew J. Condon, Kevin O’Rourke (collectively referred to as “Sellers”) (hereafter referred to as “ARC Acquisition”). This Form 8-K/A amends Item 9.01 of the Original Form 8-K to provide financial statements and pro forma financial statements related to the ARC Acquisition.

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Business Acquired.

1) Audited Financial Statements of ARC Investment Services, LLC for the year ended December 31, 2012, attached as Exhibit 99.1 to the Current Report on Form 8-K/A.

(b) Pro Forma Financial Information.

1) Unaudited Combined Condensed Pro Forma Balance Sheets as of September 30, 2013 and December 31, 2012, attached as Exhibit 99.2 to the Current Report on Form 8-K/A.

2) Unaudited Combined Condensed Pro Forma Statements of Net Income for the nine months ended September 30, 2013 and the year ended December 31, 2012, attached as Exhibit 99.2 to the Current Report on Form 8-K/A.

(d) Exhibits.

Exhibit No.	Description
99.1 *	Audited Financial Statements of ARC Investment Services, LLC for the year ended December 31, 2012.
99.2 *	Unaudited Combined Condensed Pro Forma Balance Sheets as of September 30, 2013 and December 31, 2012 and Unaudited Combined Condensed Pro Forma Statements of Net Income for the nine months ended September 30, 2013 and the year ended December 31, 2012.

* Filed herewith.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	U.S. PHYSICAL THERAPY, INC.
Dated: February 12, 2014	By:	/s/ LAWRANCE W. MCAFEE
		Lawrance W. McAfee
		Chief Financial Officer
		(duly authorized officer and principal financial and accounting officer)

Exhibit Index

Exhibit No.	Description
99.1 *	Audited Financial Statements of ARC Investment Services, LLC for the year ended December 31, 2012.
99.2 *	Unaudited Combined Condensed Pro Forma Balance Sheets as of September 30, 2013 and December 31, 2012 and Unaudited Combined Condensed Pro Forma Statements of Net Income for the nine months ended September 30, 2013 and the year ended December 31, 2012.

* Filed herewith.

EX-99.1

Exhibit 99.1

ARC INVESTMENT SERVICES, LLC

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

Contents

	Page
Independent Auditors’ Report		1 - 2
Financial Statements
Consolidated Balance Sheet		3
Consolidated Statement Of Income		4
Consolidated Statement Of Members’ Equity		5
Consolidated Statement Of Cash Flows		6
Notes To Consolidated Financial Statements		7 - 13

		RubinBrown LLP Certified Public Accountants & Business Consultants
		10975 Grandview Drive Suite 600 Overland Park, KS 66210
	Independent Auditors’ Report	T 913.491.4144 F 913.491.6821 W rubinbrown.com E info@rubinbrown.com

Members

ARC Investment Services, LLC

Overland Park, Kansas

Report On The Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of ARC Investment Services, LLC (the Company), which comprise the consolidated balance sheet as of December 31, 2012, and the related consolidated statements of income, members’ equity and cash flows for the year then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility For The Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Members

ARC Investment Services, LLC

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2012, and the results of its operations and its cash flows for the year then ended, in accordance with accounting principles generally accepted in the United States of America.

Overland Park, Kansas

February 10, 2014

Page 2

ARC INVESTMENT SERVICES, LLC

CONSOLIDATED BALANCE SHEET

December 31, 2012

Assets
Current Assets
Cash	$	3,614,878
Accounts receivable, net		2,013,766
Other current assets		84,984
Total Current Assets		5,713,628
Fixed Assets
Land owned by variable interest entity		80,296
Building owned by variable interest entity		722,668
Furniture and equipment		882,335
Leasehold improvements		455,573
		2,140,872
Less accumulated depreciation and amortization		(812,514	)
Less accumulated depreciation for building owned by variable interest entity		(47,097	)
		1,281,261
	$	6,994,889
Liabilities And Members’ Equity
Current Liabilities
Current portion of deferred lease incentives	$	84,767
Current portion of note payable of variable interest entity		45,059
Accounts payable		221,161
Accrued payroll		177,734
Accrued compensated absences		189,540
Accrued profit sharing contribution		97,140
Deferred revenue		102,231
Total Current Liabilities		917,632
Note Payable Of Variable Interest Entity		505,616
Deferred Lease Incentives		94,987
Total Liabilities		1,518,235
Commitments And Contingencies (Notes 6 And 7)
Members’ Equity Attributable To ARC Investment Services, LLC		5,271,462
Noncontrolling Interest		205,192
Total Members’ Equity		5,476,654
	$	6,994,889

See the accompanying notes to consolidated financial statements.

Page 3

ARC INVESTMENT SERVICES, LLC

CONSOLIDATED STATEMENT OF INCOME

For The Year Ended December 31, 2012

Net Patient Revenues	$	11,471,823
Clinic Operating Costs
Salaries and related costs		3,691,457
Rent, clinic supplies, marketing and other		1,648,764
Total Clinic Operating Costs		5,340,221
Gross Margin		6,131,602
Corporate Office Costs		2,937,743
Operating Income		3,193,859
Other Expense
Miscellaneous expense		3,336
Interest expense		23,542
Total Other Expense		26,878
Net Income		3,166,981
Less: Net Income Attributable To The
Noncontrolling Interest		22,052
Net Income Attributable To ARC
Investment Services, LLC	$	3,144,929

See the accompanying notes to consolidated financial statements.

Page 4

ARC INVESTMENT SERVICES, LLC

CONSOLIDATED STATEMENT OF MEMBERS’ EQUITY

For The Year Ended December 31, 2012

	Members’ Equity
	Attributable To			Non-
	ARC Investment			Controlling
	Services, LLC			Interest		Total
Balance - January 1, 2012	$	2,786,533		$	183,140	$	2,969,673
Net Income		3,144,929			22,052		3,166,981
Distributions		(660,000	)		—		(660,000	)
Balance - December 31, 2012	$	5,271,462		$	205,192	$	5,476,654

See the accompanying notes to consolidated financial statements.

Page 5

ARC INVESTMENT SERVICES, LLC

CONSOLIDATED STATEMENT OF CASH FLOWS

For The Year Ended December 31, 2012

Cash Flows From Operating Activities
Net income	$	3,166,981
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		207,883
Loss on disposition of assets		(1,493	)
Changes in assets and liabilities:
Increase in accounts receivable		(176,979	)
Decrease in other assets		816
Increase in accounts payable		101,244
Increase in accrued payroll		19,123
Increase in accrued compensated absences		27,120
Increase in accrued profit sharing contribution		890
Decrease in deferred lease incentives		(70,453	)
Increase in deferred revenue		65,961
Net Cash Provided By Operating Activities		3,341,093
Cash Flows Used In Investing Activities
Purchase of property and equipment		(152,155	)
Cash Flows From Financing Activities
Payments of note payable of variable interest entity		(40,582	)
Payments of note payable to related party		(126,702	)
Distributions to members		(660,000	)
Net Cash Used In Financing Activities		(827,284	)
Net Increase In Cash		2,361,654
Cash - Beginning Of Year		1,253,224
Cash - End Of Year	$	3,614,878
Supplemental Disclosure Of Cash Flow Information
Interest paid	$	23,542
Leasehold improvements acquired through lease incentives	$	42,584

See the accompanying notes to consolidated financial statements.

Page 6

ARC INVESTMENT SERVICES, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012

1. Nature Of Operations And Basis Of Presentation

Principles Of Consolidation

The accompanying consolidated financial statements include the accounts of ARC Investment Services, LLC, and its wholly owned subsidiaries, ARC Rehabilitation Services, LLC and Athletic & Rehabilitation Center, LLC (collectively, the Company). Additionally, the accounts of MKL Properties, LLC, a variable interest entity, are consolidated. All significant inter-entity transactions and account balances have been eliminated in the consolidation. The equity and results of operations of MKL Properties, LLC which is not owned by ARC Investment Services, LLC, are reported as noncontrolling interest.

Nature Of Business

The Company provides physical therapy and occupational therapy to patients through various outpatient physical therapy clinics. Operations are largely focused on the Greater Kansas City Metropolitan area. As of December 31, 2012, the Company owned and operated 15 clinics in two states. The clinic’s business primarily originates from employer referrals. The principal sources of payment for the clinics’ services are commercial health insurance and direct payments from self-insured employers.

MKL Properties, LLC, a closely held Missouri limited liability company, was created primarily to own and lease a building to one of the clinic locations used by the Company. ARC Investment Services, LLC has evaluated its variable interest in MKL Properties, LLC, and has determined that it is the primary beneficiary of this variable interest entity (VIE). ARC Investment Services, LLC paid lease fees of approximately $64,000 to MKL Properties, LLC in 2012 as part of a 10 year non-cancellable lease expiring December 31, 2021. The creditors of MKL Properties, LLC do not have general recourse to ARC Investment Services, LLC’s assets. Further, the assets of MKL Properties, LLC can only be used to settle its obligations, and are not available to the creditors of ARC Investment Services, LLC.

Page 7

ARC INVESTMENT SERVICES, LLC

Notes To Consolidated Financial Statements (Continued)

The following table summarizes the balance sheet at December 31, 2012 for MKL Properties, LLC, the consolidated variable interest entity.

Assets
Land	$	80,296
Building		722,668
Less accumulated depreciation		(47,097	)
	$	755,867
Liabilities And Noncontrolling Interest
Current portion of note payable	$	45,059
Note payable		505,616
Noncontrolling interest		205,192
	$	755,867

2. Summary Of Significant Accounting Policies

Estimates And Assumptions

Management uses estimates and assumptions in preparing consolidated financial statements in accordance with accounting principles generally accepted in the United States. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported revenues and expenses. Actual results could vary from the estimates that were used.

Accounts Receivable

Accounts receivable are carried at original amount less an estimate made for contractual adjustments and doubtful accounts based on management’s review of all outstanding amounts on a regular basis. The Company grants unsecured credit to its customers. Net accounts receivable include only those amounts the Company estimates to be collectible by management. Accounts receivable are written off when deemed uncollectible by management. Management has established an allowance for contractual adjustments of $1,014,058 at December 31, 2012. Management believes that all receivables net of contractual adjustments are collectible and, therefore, has not established an allowance for doubtful accounts at December 31, 2012.

Page 8

ARC INVESTMENT SERVICES, LLC

Notes To Consolidated Financial Statements (Continued)

Contractual allowances result from the differences between the rates charged for services performed and expected reimbursements from private payors as well as from insurance companies and patients. The Company estimates its contractual allowance based on payor contracts, state regulators’ fee schedules, and the historical collection experience and applies an appropriate contractual allowance reserve percentage to the gross accounts receivable balances for each payor of the clinics. The services authorized and provided, and related reimbursement, are subject to interpretation that could result in payments that differ from the Company’s estimates.

Fixed Assets

Fixed assets are carried at cost, less accumulated depreciation and amortization computed using straight-line methods over the following periods:

Building	39 years
Furniture and equipment	5 - 7 years
Leasehold improvements	5 - 6 years

Additions and improvements are capitalized, while expenditures for maintenance and repairs are expensed as incurred. The cost and accumulated depreciation and amortization of property sold or retired are removed from the accounts, and gains or losses, if any, are reflected in earnings for the period. Depreciation and amortization expense totaled $207,883 for 2012.

The Company reviews fixed assets for impairment upon the occurrence of certain events or circumstances that indicate 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.

Deferred Lease Incentives

Lease incentives are deferred as liabilities and are being amortized on a straight-line basis over the life of the lease as a reduction of the corresponding rent expense.

Revenue Recognition

Patient revenues are recognized in the period in which services are rendered. Net patient revenues (patient revenues less estimated contractual allowances) are reported at the estimated net realizable amounts from private payors, patients, insurance companies and others for services rendered.

Page 9

ARC INVESTMENT SERVICES, LLC

Notes To Consolidated Financial Statements (Continued)

Generally, for services rendered in Missouri, the Company has agreements with third-party payors 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, historical collection and write-off experience.

Generally, for services rendered in Kansas, the Company has a fee schedule set by State regulators for payments to the Company at amounts different from established rates. The allowance for estimated contractual adjustments is based on terms of the fee schedule, historical collection and write-off experience.

Advertising

Advertising costs are recognized in the period the related expenses are incurred. Advertising costs were $51,497 in 2012 and are included in rent, clinic supplies, marketing, and other on the accompanying consolidated statement of income.

Software Development Costs

Software development costs are expensed as incurred until technological feasibility of the product is established. Capitalization of software development costs ceases once the product is available for general release to customers. As of December 31, 2012, no software development costs have been capitalized.

Income Taxes

ARC Investment Services, LLC and MKL Properties, LLC are organized as limited liability companies which are not taxpaying entities for federal or certain state income tax purposes. ARC Investment Services, LLC and MKL Properties, LLC are not subject to income taxes but rather the members report their distributive share of taxable income on their respective income tax returns. The Companies’ federal and state tax returns for tax years 2009 and later remain subject to examination by taxing authorities.

Subsequent Events

Management has evaluated subsequent events through February 10, 2014, the date which the consolidated financial statements were available for issue.

Page 10

ARC INVESTMENT SERVICES, LLC

Notes To Consolidated Financial Statements (Continued)

3. Note Payable Of Variable Interest Entity

MKL Properties, LLC has a note payable to a bank bearing interest at 3.60% which is collateralized by the land and building owned by MKL Properties, LLC. The note payable requires monthly principal and interest installments of $5,344 through January 26, 2017, when the remaining principal and interest is due. The note is personally guaranteed by the owners of MKL Properties, LLC.

Future minimum payments on the note payable are as follows:

Year	Amount
2013	$	45,059
2014		46,708
2015		48,418
2016		50,190
2017		360,300
	$	550,675

4. Note Payable To Related Party

During the year ended December 31, 2012, the Company paid in full the remaining balance of a note payable to a former member in the amount of $126,702.

5. Employee Benefit Plan

The Company established a safe harbor 401(k) plan (the Plan) covering substantially all employees. The Plan provides for an employer contribution in accordance with the provisions of Section 401(k) of the Internal Revenue Code. All contributions are deposited into a trust fund administered by independent trustees. Eligible employees can make pretax and post tax 401(k) contributions. In addition, the Company contributes 3% of each participant’s wages to the Plan on an annual basis. The Company contributions were $97,140 in 2012, all of which is reported in accrued profit sharing contribution in the accompanying consolidated balance sheet.

Page 11

ARC INVESTMENT SERVICES, LLC

Notes To Consolidated Financial Statements (Continued)

6. Lease Commitments

The Company’s clinic facilities are leased under non-cancelable operating leases ranging from three to six years with monthly payments ranging from $2,920 to $9,300. Certain lease agreements contain incentives including leasehold improvements and moving expenses which were provided by the lessor to the Company. These incentives totaled $298,854, and are recognized over the corresponding lease terms as reductions in the rent expense. The remaining deferred lease incentives were $179,754 as of December 31, 2012.

As of December 31, 2012, future minimum lease payments under operating lease agreements are as follows:

Year	Amount
2013	$	650,634
2014		561,602
2015		470,255
2016		276,644
2017		167,828
Thereafter		36,000
	$	2,162,963

Rent expense during 2012 was $716,163.

7. Contingencies

The Company is subject to legal proceedings and claims that arise in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the financial position or results of operations of the Company.

8. Concentrations Of Risk

The Company maintains bank accounts with federally insured banks. The balances, at times, may exceed the federally insured limits. At December 31, 2012, without regard to in-transit items, the bank account balances were approximately $3,300,000 in excess of the federally insured limits.

Page 12

ARC INVESTMENT SERVICES, LLC

Notes To Consolidated Financial Statements (Continued)

9. Subsequent Event

On December 13, 2013, substantially all of the assets of ARC Rehabilitation Services, LLC and Athletic & Rehabilitation Center, LLC were sold to a third party through an asset purchase agreement. The Company received $35,955,000 for the acquired assets, which includes 11 of the outpatient physical and occupational therapy clinics and three on site industrial clinic locations. Clinic operations will continue under a new entity formed by the third party.

Page 13

EX-99.2

Exhibit 99.2

U. S. Physical Therapy, Inc.

Pro Forma Combined Financial Information (Unaudited)

The accompanying unaudited pro forma combined financial statements present the historical financial information of the U. S. Physical Therapy, Inc. and subsidiaries (the “Company” or “USPT”) as adjusted for the acquisition of ARC Rehabilitation Services, LLC and Athletic & Rehabilitation Center LLC (together hereinafter referred to as “ARC”).

The Company entered into a Reorganization and Purchase Agreement (the “Purchase Agreement”) with ARC, Matthew J. Condon, Kevin O’Rourke (collectively referred to as “Sellers”). Prior to, and in connection with, the transaction contemplated by the Purchase Agreement, the Sellers and Purchaser, formed or caused to be formed ARC Physical Therapy Plus, Limited Partnership, a Texas limited partnership (“ARC PT”) and ARC PT Management GP, LLC, a Texas limited liability company (“ARC GP”). ARC GP, which owns a 1% interest in ARC PT, is the sole general partner of ARC PT. ARC PT owns and operates 11 outpatient physical and occupational therapy clinics and has three on site industrial client locations it serves. As a result of the transaction contemplated by the Purchase Agreement, U. S. Physical Therapy, LTD (“USPT”), a subsidiary of the Company, will own 89% of the limited partnership interests of ARC PT and 100% general partnership interest in ARC GP (the “Acquired Interests”).

The Company paid an aggregate of $35,955,000 for the Acquired Interests, including (i) $35,455,000 in cash and (ii) a promissory note in the amount of $500,000. The cash consideration was funded from the Company’s cash reserves and funds drawn on the Company’s credit agreement.

The accompanying pro forma combined balance sheets and statements of income for the nine months ended September 30, 2013 and the year ended December 31, 2012 combines the historical information of the Company for the nine months ended September 30, 2013 and year ended December 31, 2012 with the historical information of ARC for the nine months ended September 30, 2013 and the year ended December 31, 2012, respectively, as if the acquisition had occurred on January 1, 2012.

The pro forma combined financial statements have been prepared by management, based on the historical financial statements of the Company and ARC. These pro forma combined financial statements may not be indicative of the results that actually would have occurred if the ARC Acquisition had been in effect on the dates indicated or of the results that may be obtained in the future. The pro forma combined financial statements should be read in conjunction with the historical financial statements of the Company for the nine months ended September 30, 2013 and the year ended December 31, 2012 and with the historical financial statements of ARC for the year ended December 31, 2012, which are included as Exhibit 99.1 in this filing.

U. S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

COMBINED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET

AS OF SEPTEMBER 30, 2013

(IN THOUSANDS, EXCEPT SHARE DATA)

(unaudited)

	USPT (1)			ARC (2)		Adjustments Debit (Credit)			Proforma Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	12,123		$	3,281	$	(284	) (3)	$	15,120
Patient accounts receivable, net		27,289			1,564		—			28,853
Accounts receivable, net		1,263			—		—			1,263
Other current assets		4,482			154		—			4,636
Total current assets		45,157			4,999		(284	)		49,872
Fixed assets:
Fixed assets at cost		59,666			1,198		(373	) (4)		60,491
Less accumulated depreciation and amortization		46,150			862		645	(4)		46,367
		13,516			336		272	(4)		14,124
Goodwill		105,234			—		25,645	(5)		130,879
Other intangible assets, net		14,672			—		6,885	(6)		21,557
Other assets		1,078			60		—			1,138
	$	179,657		$	5,395	$	32,518		$	217,570
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable—trade	$	1,301		$	19	$	—		$	1,320
Accrued expenses		14,779			566		—			15,345
Current portion of notes payable		575			—		(250	) (7)		825
Total current liabilities		16,655			585		(250	)		17,490
Notes payable		400			—		—			400
Revolving line of credit		14,150			—		(33,155	) (8)		47,305
Deferred rent		1,015			95		—			1,110
Other long-term liabilities		728			—		—			728
Total liabilities		32,948			680		(33,405	)		67,033
Commitments and contingencies
Shareholders’ 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, 14,321,557 shares issued/members’ equity		143			4,715		4,715	(9)		143
Additional paid-in capital		39,225			—		—			39,225
Retained earnings		116,555			—		(3,395	) (10)		119,950
Treasury stock at cost, 2,214,737 shares		(31,628	)		—		—			(31,628	)
Total U. S. Physical Therapy, Inc. shareholders’ equity		124,295			4,715		1,320			127,690
Non-controlling interests		22,414			—		(433	) (11)		22,847
Total equity		146,709			4,715		887			150,537
	$	179,657		$	5,395	$	(32,518	)	$	217,570

See notes to combined condensed pro forma consolidated balance sheets.

U. S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

COMBINED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET

AS OF DECEMBER 31, 2012

(IN THOUSANDS, EXCEPT SHARE DATA)

	USPT (12)			ARC (13)		Adjustments (14)			Adjustments Debit (Credit)			Proforma Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	11,671		$	3,615	$	—		$	—		$	15,286
Patient accounts receivable, net		25,973			2,014		—			—			27,987
Accounts receivable, net		1,703			—		—			—			1,703
Other current assets		5,975			85		—			—			6,060
Total current assets		45,322			5,714		—			—			51,036
Fixed assets:
Fixed assets at cost		57,174			2,141		(803	)		(513	) (15)		57,999
Less accumulated depreciation and amortization		44,158			860		(47	)		689	(15)		44,282
		13,016			1,281		(756	)		176	(15)		13,717
Goodwill		100,188			—		—			25,645	(5)		125,833
Other intangible assets, net		12,146			—		—			7,119	(6)		19,265
Other assets		1,042			—		—			—			1,042
	$	171,714		$	6,995	$	(756	)	$	32,940		$	210,893
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable—trade	$	1,732		$	221	$	—		$	—		$	1,953
Accrued expenses		14,116			652		—			—			14,768
Current portion of notes payable		459			45		(45	)		(250	) (16)		709
Total current liabilities		16,307			918		(45	)		(250	)		17,430
Notes payable		175			506		(506	)		(250	) (16)		425
Revolving line of credit		17,400			—		—			(35,455	) (17)		52,855
Deferred rent		894			95		—			—			989
Other long-term liabilities		2,279			—		—			—			2,279
Total liabilities		37,055			1,519		(551	)		(35,955	)		73,978
Commitments and contingencies
Shareholders’ 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, 14,321,557 shares issued/members equity		141			5,271		—			5,271	(9)		141
Additional paid-in capital		37,489			—		—			—			37,489
Retained earnings		111,321			—		—			(1,961	) (18)		113,282
Treasury stock at cost, 2,214,737 shares		(31,628	)		—		—			—			(31,628	)
Total U. S. Physical Therapy, Inc. shareholders’ equity		117,323			5,271		—			3,310			119,284
Non-controlling interests		17,336			205		(205	)		(295	) (19)		17,631
Total equity		134,659			5,476		(205	)		3,015			136,915
	$	171,714		$	6,995	$	(756	)	$	(32,940	)	$	210,893

See notes to combined condensed pro forma consolidated balance sheets.

Notes to Unaudited Combined Condensed Pro Forma Consolidated Balance Sheets

1. Based on the historical financial statements of the Company filed with the SEC on November 7, 2013 in its Form 10Q for the quarterly period ended September 30, 2013 (“September 2013 Form 10Q”).

2. Based on the internal financial statements of ARC Investment Services, LLC for the nine months ended September 30, 2013. Elimination entries for the portion of the business not acquired in the ARC Acquisition is immaterial. The amounts in this column reflect the assets and liabilities of the business included in the ARC Acquisition.

3. Represents payment on notes payable due January 1, 2013 if the ARC Acquisition occurred on January 1, 2012 of $250,000 and cash adjustment for activity of $34,000.

4. To remove cost and accumulated depreciation on ARC and step up basis to $825,000. Also, includes estimated accumulated amortization through September 30, 2013 of $217,000.

5. To reflect Goodwill related to ARC Acquisition if the transaction occurred as of January 1, 2012.

6. To reflect estimated fair value of the identifiable intangible assets of $7,431,000 less accumulated amortization of $546,000 as of September 30, 2013 and $312,000 as of December 31, 2012.

7. To reflect remaining balance of notes payable in the original amount of $500,000 less payment as if the ARC Acquisition occurred on January 1, 2012.

8. To reflect funds drawn on the Company’s credit agreement of $35,455,000 less cash paid down of $2,300,000 based on proforma results.

9. To eliminate ARC members’ equity.

10. To reflect proforma earnings through September 30, 2013 as if the ARC Acquisition had occurred on January 1, 2012.

11. To reflect non-controlling interests through September 30, 2013 as if the ARC Acquisition had occurred on January 1, 2012.

12. Based on the historical financial statements of the Company filed with the SEC on March 12, 2013 in the Form 10K for the year ended December 31, 2012.

13. Based on the audited financial statements of ARC Investment Services, LLC for the year ended December 31, 2012 (“ARC 2012 Audited Financials”).

14. To eliminate the portion of the business included in the ARC 2012 Audited Financials not included as part of the ARC Acquisition.

15. To remove cost and accumulated depreciation on ARC and step up basis to $825,000. Also, includes estimated of accumulated amortization through September 30, 2013 of $124,000.

16. To reflect notes payable incurred by the Company in ARC Acquisition.

17. To reflect funds drawn on the Company’s credit agreement to fund ARC Acquisition.

18. To reflect proforma earnings through December 31, 2012 as if the ARC Acquisition had occurred on January 1, 2012.

19. To reflect non-controlling interests through December 31, 2012 as if the ARC Acquisition had occurred on January 1, 2012.

U. S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

COMBINED CONDENSED PRO FORMA STATEMENT OF NET INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013

(IN THOUSANDS, EXCEPT PER SHARE DATA)

(unaudited)

	USPT (1)			ARC (2)		Adjustments Debit (Credit)			Proforma Consolidated
Net patient revenues	$	191,027		$	8,616	$	(129	) (3)	$	199,772
Other revenues		4,426			—		—			4,426
Net revenues		195,453			8,616		(129	)		204,198
Clinic operating costs:
Salaries and related costs		105,318			3,787		—			109,105
Rent, clinic supplies, contract labor and other		38,161			1,425		196	(4)		39,782
Provision for doubtful accounts		3,390			—		129	(3)		3,519
Closure costs		21			—		—			21
Total clinic operating costs		146,890			5,212		325			152,427
Gross margin		48,563			3,404		(196	)		51,771
Corporate office costs		19,165			—		120	(5)		19,285
Operating income from continuing operations		29,398			3,404		(316	)		32,486
Interest and other income, net		5			—		—			5
Interest expense		(398	)		—		560	(6)		(958	)
Income before taxes from continuing operations		29,005			3,404		(876	)		31,533
Provision for income taxes		8,798			—		956	(7)		9,754
Net income from continuing operations including non-controlling interests		20,207			3,404		(1,832	)		21,779
Less: net income attributable to non-controlling interests		(6,618	)		—		(138	) (8)		(6,756	)
Net income attributable to common shareholders from continuing operations	$	13,589		$	3,404	$	(1,970	)	$	15,023
Earnings from continuing operations per share attributable to common shareholders:
Basic	$	1.13							$	1.25
Diluted	$	1.12							$	1.24
Shares used in computation:
Basic		12,050								12,050
Diluted		12,069								12,069

See notes to combined condensed pro forma statements of income.

U. S. PHYSICAL THERAPY, INC. AND SUBSIDIARIES

COMBINED CONDENSED PRO FORMA STATEMENT OF NET INCOME

FOR THE YEAR ENDED DECEMBER 31, 2012

(IN THOUSANDS, EXCEPT PER SHARE DATA)

													Adjustments			Proforma
	USPT (9)			ARC (10)			Adjustments (11)			Adjustments (12)			Debit (Credit)			Consolidated
Net patient revenues	$	244,443		$	11,471		$	(341	)	$	(64	)	$	(171	) (3)	$	255,680
Other revenues		7,645			—			(2,094	)		—			—			5,551
Net revenues		252,088			11,471			(2,435	)		(64	)		(171	)		261,231
Clinic operating costs:
Salaries and related costs		132,824			3,691			(1,220	)		(479	)		1,139	(13)		135,955
Rent, clinic supplies, contract labor and other		51,620			1,649			(1,518	)		(497	)		1,995	(14)		53,249
Provision for doubtful accounts		4,848			—			(24	)		—			171	(3)		4,995
Closure costs		211			—			—			—			—			211
Total clinic operating costs		189,503			5,340			(2,762	)		(976	)		3,305			194,410
Gross margin		62,585			6,131			327			912			(3,134	)		66,821
Corporate office costs		24,782			2,937			(278	)		—			(2,777	) (15)		24,664
Operating income from continuing operations		37,803			3,194			605			912			(357	)		42,157
Interest and other income (expense), net		6			(3	)		—			—			—			3
Interest expense		(557	)		(24	)		—			24			647	(5)		(1,204	)
Income before taxes from continuing operations		37,252			3,167			605			936			(1,004	)		40,956
Provision for income taxes		11,034			—			181			—			1,122	(16)		12,337
Net income from continuing operations including non-controlling interests		26,218			3,167			424			936			(2,126	)		28,619
Less: net income attributable to non-controlling interests		(8,285	)		—			(145	)		—			(295	) (7)		(8,725	)
Net income attributable to common shareholders from continuing operations	$	17,933		$	3,167		$	279		$	936		$	(2,421	)	$	19,894
Earnings from continuing operations per share attributable to common shareholders:
Basic	$	1.52														$	1.69
Diluted	$	1.51														$	1.67
Shares used in computation:
Basic		11,804															11,804
Diluted		11,904															11,904

See notes to combined condensed pro forma statements of income.

Notes to Unaudited Combined Condensed Pro Forma Consolidated Statements of Income

1. Based on the historical financial statements of the Company filed with the SEC on November 7, 2013 in its Form 10Q for the quarterly period ended September 30, 2013 (“September 2013 Form 10Q”).

2. Based on the internal financial statements of ARC Investment Services, LLC for the nine months ended September 30, 2013. Elimination entries for the portion of the business not acquired in the ARC Acquisition is immaterial.

3. To reflect bad debt provision in clinic operating costs.

4. To reflect estimated additional depreciation and amortization based on the step up in basis of the fixed assets and intangible assets to fair market value.

5. To reflect estimated amortization of non-competition agreement.

6. To reflect estimated additional interest expense and amortization of debt costs due to proceeds drawn on the Company’s Credit Agreement to fund this acquisition and due to debt incurred in this acquisition transaction.

7. To reflect estimated additional tax provision due to these proforma adjustments and ARC results.

8. To reflect the non-controlling interest for ARC non-controlling limited partners.

9. Based on the historical financial statements of the Company filed with the SEC on March 12, 2013 in the Form 10K for the year ended December 31, 2012.

10. Based on the audited financial statements of ARC Investment Services, LLC for the year ended December 31, 2012 (“ARC 2012 Audited Financials”).

11. To reflect discontinued operations of USPT. Refer to disclosures in September 2013 Form 10Q.

12. To eliminate the portion of the business included in the ARC 2012 Audited Financials not included as part of the ARC Acquisition.

13. To reflect salaries and related costs in ARC corporate office costs as clinic operating costs.

14. To reflect estimated additional depreciation and amortization of $197,000 based on the step up in basis of the fixed assets and intangibles assets to fair market value and to reflect rent, clinic supplies, contract labor and other in ARC corporate office costs as clinic operating costs.

15. To reflect ARC corporate office costs in clinic operating costs and estimated amortization of non-competition agreements.

16. To reflect estimated additional tax provision due to these proforma and other adjustments and ARC results.