Table of Contents



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

  

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 20222023

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    001-13489

 

nhc20220331_10qimg001.jpg

image01.jpg
 

(Exact name of registrant as specified in its Charter)

  

Delaware

52-2057472

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization

Identification No.)

  

100 E. Vine Street

Murfreesboro, TN

37130

(Address of principal executive offices)

(Zip Code)

  

(615) 890–2020

Registrant's telephone number, including area code

  

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

Trading

Symbols(s)

Name of each exchange on which

registered

Common, $0.01 par value

NHC

NYSE American

 

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. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S–T (§ 232.405 of this chapter) during the preceding 12 months (or for such period that the registrant was required to submit such files).    Yes ☒      No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer ☒

Accelerated filer ☐

  

Non–accelerated filer ☐

Smaller reporting company ☐

  
 

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the registrant is a shell company (as is defined in Rule 12b–2 of the Exchange Act). Yes ☐   No ☒

 

15,471,43115,320,443 shares of common stock of the registrant were outstanding as of May 1, 2022.2023.

 



 

1

  

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

Page

Item 1.

Financial Statements

3

   

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

24

   

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

3335

   

Item 4.

Controls and Procedures

3335

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

3336

   

Item 1A

Risk Factors

3336

   

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

3336

   

Item 3.

Defaults Upon Senior Securities

3436

   

Item 4.

Mine Safety Disclosures

34

36

   

Item 5.

Other Information

3436

   

Item 6.

Exhibits

3437

 

2

  

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(unaudited)

 

 

Three Months Ended

March 31

  

Three Months Ended

March 31

 
 

2022

  

2021

  

2023

  

2022

 
  

Revenues:

 

Revenues and grant income:

 

Net patient revenues

 $256,337  $216,855  $258,007  $256,337 

Other revenues

 12,026  11,369  11,556  12,026 

Government stimulus income

  10,620   22,749   -   10,620 

Net operating revenues and grant income

 278,983  250,973  269,563  278,983 
  

Cost and expenses:

  

Salaries, wages, and benefits

 170,694  149,159  167,824  170,694 

Other operating

 74,085  66,124  71,489  74,085 

Facility rent

 10,065  10,063  10,092  10,065 

Depreciation and amortization

 9,757  10,161  10,048  9,757 

Interest

  165   244   98   165 

Total costs and expenses

  264,766   235,751   259,551   264,766 
  

Income from operations

 14,217  15,222  10,012  14,217 
  

Other income:

  

Non–operating income

 3,199  6,260  4,323  3,199 

Unrealized gains on marketable equity securities

  3,126   7,059   1,386   3,126 
  

Income before income taxes

 20,542  28,541  15,721  20,542 

Income tax provision

  (5,193

)

  (7,233

)

  (4,436)  (5,193

)

Net income

 15,349  21,308  11,285  15,349 

Net income attributable to noncontrolling interest

  (31

)

  (41

)

Net loss/(income) attributable to noncontrolling interest

  438   (31

)

  

Net income attributable to National HealthCare Corporation

 $15,318  $21,267  $11,723  $15,318 
  

Earnings per share attributable to National HealthCare Corporation stockholders:

  

Basic

 $0.99  $1.39  $0.76  $0.99 

Diluted

 $0.99  $1.38  $0.76  $0.99 
  

Weighted average common shares outstanding:

Weighted average common shares outstanding:

   

Weighted average common shares outstanding:

   

Basic

 15,416,836  15,327,520  15,337,423  15,416,836 

Diluted

 15,463,855  15,390,076  15,356,335  15,463,855 
  

Dividends declared per common share

 $0.55  $0.52  $0.57  $0.55 

 

The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.

 

3

  

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Comprehensive Income/(Loss)

(unaudited in thousands)

 

  

Three Months Ended

March 31

 
  

2022

  

2021

 
         

Net income

 $15,349  $21,308 
         

Other comprehensive loss:

        

Unrealized losses on investments in marketable debt securities

  (6,327

)

  (2,440

)

Reclassification adjustment for realized gains on sales of marketable debt securities

  (107

)

  0 

Income tax benefit related to items of other comprehensive income

  1,374   518 

Other comprehensive loss, net of tax

  (5,060

)

  (1,922

)

         

Net income attributable to noncontrolling interest

  (31

)

  (41

)

         

Comprehensive income attributable to National HealthCare Corporation

 $10,258  $19,345 
  

Three Months Ended

March 31

 
  

2023

  

2022

 
         

Net income

 $11,285  $15,349 
         

Other comprehensive income/(loss):

        

Unrealized gains/(losses) on investments in marketable debt securities

  1,958   (6,327

)

Reclassification adjustment for realized gains on sales of marketable debt securities

  -   (107

)

Income tax (expense)/benefit related to items of other comprehensive income

  (279

)

  1,374 

Other comprehensive income/(loss), net of tax

  1,679   (5,060

)

         

Net loss/(income) attributable to noncontrolling interest

  438   (31

)

         

Comprehensive income attributable to National HealthCare Corporation

 $13,402  $10,258 

 

The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.

 

4

  

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Balance Sheets

(in thousands)

 

 

March 31, 2022

  

December 31,

2021

  

March 31,

2023

  

December 31,

2022

 
 

unaudited

     

unaudited

    

Assets

        

Current Assets:

  

Cash and cash equivalents

 $56,993  $107,607  $46,144  $58,667 

Restricted cash and cash equivalents, current portion

 17,187  10,407  27,485  15,121 

Marketable equity securities

 118,048  113,108  100,825  100,786 

Marketable debt securities

 30,987  35,310  17,822  23,136 

Restricted marketable equity securities

 25,249  26,958  23,385  22,358 

Restricted marketable debt securities, current portion

 13,703  20,727  3,950  16,244 

Accounts receivable

 101,748  96,124  103,134  99,986 

Inventories

 8,586  8,582  6,946  7,088 

Prepaid expenses and other assets

  11,519   7,815   8,212   10,546 

Total current assets

  384,020   426,638   337,903   353,932 
  

Property and Equipment:

  

Property and equipment, at cost

 1,073,293  1,064,337  1,087,834  1,081,219 

Accumulated depreciation and amortization

  (553,092

)

  (543,341

)

  (584,710

)

  (574,687

)

Net property and equipment

  520,201   520,996   503,124   506,532 
  

Other Assets:

  

Restricted cash and cash equivalents, less current portion

 1,736  1,729  1,047  1,077 

Restricted marketable debt securities, less current portion

 118,098  116,063  117,450  103,267 

Deposits and other assets

 4,956  4,499  13,103  12,728 

Operating lease right-of-use assets

 150,191  156,116  113,799  120,521 

Goodwill

 168,295  168,295  168,295  168,295 

Intangible assets

 7,038  7,038  7,038  7,038 

Investments in unconsolidated companies

  2,476   2,022   3,594   2,060 

Total other assets

  452,790   455,762   424,326   414,986 

Total assets

 $1,357,011  $1,403,396  $1,265,353  $1,275,450 

 

The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.

 

5

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Balance Sheets (continued)

(in thousands, except share and per share amounts)

 

 

March 31, 2022

  

December 31,

2021

  

March 31,

2023

  

December 31,

2022

 
 

unaudited

     

unaudited

    

Liabilities and Stockholders Equity

        

Current Liabilities:

  

Trade accounts payable

 $25,842  $22,488  $12,940  $16,958 

Finance lease obligations, current portion

 4,766  4,695  4,627  4,985 

Operating lease liabilities, current portion

 28,005  27,574  29,065  29,075 

Accrued payroll

 73,877  106,698  56,710  72,510 

Amounts due to third party payors

 17,319  17,595  16,679  16,631 

Accrued risk reserves, current portion

 30,890  31,134  31,435  31,365 

Other current liabilities

 21,760  20,059  23,021  17,615 

Provider relief funds

 516  9,443 

Contract liabilities

 5,003  15,022 

Dividends payable

  8,509   8,493   8,733   8,748 

Total current liabilities

  216,487   263,201   183,210   197,887 
  

Finance lease obligations, less current portion

 4,627  5,845  -  860 

Operating lease liabilities, less current portion

 122,186  128,542  83,988  91,016 

Accrued risk reserves, less current portion

 70,523  66,914  74,191  71,104 

Refundable entrance fees

 6,097  7,011  6,036  6,207 

Deferred income taxes

 8,078  6,852  11,519  10,909 

Other noncurrent liabilities

  17,957   16,571   26,507   19,953 

Total liabilities

  445,955   494,936   385,451   397,936 
  

Equity:

  

Common stock, $.01 par value; 45,000,000 shares authorized; 15,471,331 and 15,452,033 shares, respectively, issued and outstanding

 154  154 

Common stock, $.01 par value; 45,000,000 shares authorized; 15,320,443 and 15,357,746 shares, respectively, issued and outstanding

 153  153 

Capital in excess of par value

 232,733  232,167  225,148  226,991 

Retained earnings

 675,887  669,078  659,654  656,664 

Accumulated other comprehensive income (loss)

  (3,455

)

  1,605 

Accumulated other comprehensive loss

  (7,853

)

  (9,532

)

Total National HealthCare Corporation stockholders’ equity

 905,319  903,004  877,102  874,276 

Noncontrolling interest

  5,737   5,456   2,800   3,238 

Total equity

  911,056   908,460   879,902   877,514 

Total liabilities and equity

 $1,357,011  $1,403,396  $1,265,353  $1,275,450 

 

The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.

 

6

  

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Cash Flows

(unaudited in thousands)  

 

 

Three Months Ended

March 31

  

Three Months Ended

March 31

 
 

2022

  

2021

  

2023

  

2022

 

Cash Flows From Operating Activities:

        

Net income

 $15,349  $21,308  $11,285  $15,349 

Adjustments to reconcile net income to net cash (used in)/provided by operating activities:

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

Depreciation and amortization

 9,757  10,161  10,048  9,757 

Equity in earnings of unconsolidated investments

 (454

)

 (2,911

)

 (1,535

)

 (454

)

Distributions from unconsolidated investments

 0  5,897 

Unrealized gains on marketable equity securities

 (3,126

)

 (7,059

)

 (1,386) (3,126

)

Gains on sale of marketable securities

 (45

)

 0 

(Gains)/losses on sale of marketable securities

 492  (45

)

Deferred income taxes

 2,600  1,596  331  2,600 

Stock–based compensation

 712  496  639  712 

Changes in operating assets and liabilities:

  

Accounts receivable

 (5,624

)

 (4,622

)

 (3,148

)

 (5,624

)

Inventories

 (4

)

 664  142  (4

)

Prepaid expenses and other assets

 (4,385

)

 (601

)

 1,957  (4,385

)

Operating lease obligations

 (316

)

 - 

Trade accounts payable

 3,354  (4,999

)

 (4,018

)

 3,354 

Accrued payroll

 (32,821

)

 (21,777

)

 (15,800

)

 (32,821

)

Amounts due to third party payors

 (276

)

 (880

)

 48  (276

)

Accrued risk reserves

 3,365  1,945  3,157  3,365 

Provider relief funds

 (8,927

)

 7,442  -  (8,927

)

Contract liabilities

 (10,019

)

 0  -  (10,019

)

Other current liabilities

 1,701  4,331  5,407  1,701 

Other noncurrent liabilities

  1,386   1,598   6,554   1,386 

Net cash (used in)/provided by operating activities

 (27,457

)

 12,589 

Net cash provided by/(used in) operating activities

 13,857  (27,457

)

Cash Flows From Investing Activities:

        

Purchases of property and equipment

 (8,962

)

 (4,327

)

 (6,640

)

 (8,962

)

Collections of notes receivable

 224  255  2  224 

Purchases of marketable securities

 (14,128

)

 (7,866

)

 (10,281

)

 (14,128

)

Proceeds from sale of marketable securities

  16,946   6,086   15,492   16,946 

Net cash used in investing activities

 (5,920

)

 (5,852

)

 (1,427

)

 (5,920

)

Cash Flows From Financing Activities:

        

Principal payments under finance lease obligations

 (1,147

)

 (1,081

)

 (1,218

)

 (1,147

)

Dividends paid to common stockholders

 (8,493

)

 (7,988

)

 (8,748

)

 (8,493

)

Noncontrolling interest contributions

 250  0  -  250 

Issuance of common shares

 0  327 

Repurchase of common shares

 (146

)

 (278

)

 (2,482

)

 (146

)

Entrance fee refunds

  (914

)

  (128

)

  (171

)

  (914

)

Net cash used in financing activities

  (10,450

)

  (9,148

)

  (12,619

)

  (10,450

)

Net Decrease in Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents

 (43,827

)

 (2,411

)

 (189

)

 (43,827

)

Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, Beginning of Period

  119,743   158,502   74,865   119,743 

Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, End of Period

 $75,916  $156,091  $74,676  $75,916 
  

Balance Sheet Classifications:

  

Cash and cash equivalents

 $56,993  $134,107  $46,144  $56,993 

Restricted cash and cash equivalents

  18,923   21,984   28,532   18,923 

Total Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents

 $75,916  $156,091  $74,676  $75,916 

 

The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.

 

7

  

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Stockholders Equity

(in thousands, except share and per share amounts)

(unaudited)

 

For the three months ended March 31, 2023:

  

Common Stock

  

Capital in

Excess of

  

Retained

  

Accumulated

Other

Comprehensive

  

Non-

controlling

  

Total

Stockholders’

 
  

Shares

  

Amount

  

Par Value

  

Earnings

  

Income (Loss)

  

Interest

  

Equity

 

Balance at January 1, 2021

  15,369,745  $153  $226,943  $563,024  $5,057  $3,083  $798,260 

Net income

     0   0   21,267   0   41   21,308 

Other comprehensive loss

     0   0   0   (1,922

)

  0   (1,922

)

Stock–based compensation

     0   496   0   0   0   496 

Shares sold – options exercised

  24,331   1   326   0   0   0   327 

Repurchase of common shares

  (3,936

)

  0   (278

)

  0   0   0   (278

)

Dividends declared to common stockholders ($0.52 per share)

  -   0   0   (8,003

)

  0   0   (8,003

)

Balance at March 31, 2021

  15,390,140  $154  $227,487  $576,288  $3,135  $3,124   810,188 
  

Common Stock

  

Capital in

Excess of

  

Retained

  

Accumulated

Other

Comprehensive

  

Non-

controlling

  

Total

Stockholders’

 
  

Shares

  

Amount

  

Par Value

  

Earnings

  

Income (Loss)

  

Interest

  

Equity

 

Balance at January 1, 2023

  15,357,746  $153  $226,991  $656,664  $(9,532

)

 $3,238  $877,514 

Net income/(loss)

           11,723      (438)  11,285 

Other comprehensive income

              1,679      1,679 

Stock–based compensation

        639            639 

Shares sold – options exercised

  7,046                   

Repurchase of common shares

  (44,349

)

     (2,482

)

           (2,482

)

Dividends declared to common stockholders ($0.57 per share)

           (8,733

)

        (8,733

)

Balance at March 31, 2023

  15,320,443  $153  $225,148  $659,654  $(7,853

)

 $2,800   879,902 

 

 

For the three months ended March 31, 2022:

 

Common Stock

 

Capital in

Excess of

 

Retained

 

Accumulated

Other

Comprehensive

 

Non-

controlling

 

Total

Stockholders’

  

Common Stock

 

Capital in

Excess of

 

Retained

 

Accumulated

Other

Comprehensive

 

Non-

controlling

 

Total

Stockholders’

 
 

Shares

  

Amount

  

Par Value

  

Earnings

  

Income (Loss)

  

Interest

  

Equity

  

Shares

  

Amount

  

Par Value

  

Earnings

  

Income (Loss)

  

Interest

  

Equity

 

Balance at January 1, 2022

 15,452,033  $154  $232,167  $669,078  $1,605  $5,456  $908,460  15,452,033  $154  $232,167  $669,078  $1,605  $5,456  $908,460 

Net income

   0  0  15,318  0  31  15,349        15,318    31  15,349 

Equity contributed by noncontrolling interest

   0  0  0  0  250  250            250  250 

Other comprehensive loss

   0  0  0  (5,060

)

 0  (5,060

)

         (5,060

)

   (5,060

)

Stock–based compensation

   0  712  0  0  0  712      712        712 

Shares sold – options exercised

 21,463  0  0  0  0  0  0  21,463             

Repurchase of common shares

 (2,165

)

 0  (146

)

 0  0  0  (146

)

 (2,165

)

   (146

)

       (146

)

Dividends declared to common stockholders ($0.55 per share)

     0   0   (8,509

)

  0   0   (8,509

)

           (8,509

)

        (8,509

)

Balance at March 31, 2022

  15,471,331  $154  $232,733  $675,887  $(3,455

)

 $5,737   911,056   15,471,331  $154  $232,733  $675,887  $(3,455

)

 $5,737   911,056 

 

TThehe accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.

 

8

  

NATIONAL HEALTHCARE CORPORATION

Notes to Interim Condensed Consolidated Financial Statements

March 31,September 30, 2022

(unaudited) 

 

 

 

Note 1 Description of Business

 

National HealthCare Corporation (“NHC” or the “Company”) is a leading provider of senior health care services. As of March 31, 2022,2023, we operate or manage, through certain affiliates, 7568 skilled nursing facilities with a total of 9,4568,732 licensed beds, 2423 assisted living facilities 5with 1,181 units, five independent living facilities, 1three behavioral health hospital, 35hospitals, 34 homecare agencies, and 2930 hospice agencies. We operate specialized care units within certain of our healthcare centers such as Alzheimer's disease care units and sub-acute nursing units. In addition, we provide insurance services, management and accounting services, and we lease properties to operators of skilled nursing and assisted living facilities. We operate in 108 states and are located primarily in the southeastern United States.

  

 

Note 2 Summary of Significant Accounting Policies

 

The listing below is not intended to be a comprehensive list of all our significant accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. generally accepted accounting principles (“GAAP”), with limited need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. See our audited December 31, 20212022 consolidated financial statements and notes thereto which contain accounting policies and other disclosures required by U.S. GAAP. Our audited December 31, 20212022 consolidated financial statements are available at our web site: www.nhccare.com.

  

Basis of Presentation

 

The unaudited interim condensed consolidated financial statements to which these notes are attached include all normal, recurring adjustments which are necessary to fairly present the financial position, results of operations and cash flows of NHC. All significant intercompany transactions and balances have been eliminated in consolidation. The consolidated financial statements include the accounts of all entities controlled by NHC. The Company presents noncontrolling interest within the equity section of its consolidated balance sheets. The Company presents the amount of consolidated net income that is attributable to NHC and the noncontrolling interest in its consolidated statements of operations.

 

We assume that users of these interim financial statements have read or have access to the audited December 31, 20212022 consolidated financial statements and that the adequacy of additional disclosure needed for a fair presentation, except in regard to material contingencies, may be determined in that context. Accordingly, footnotes and other disclosures which would substantially duplicate the disclosure contained in our most recent annual report to stockholders have been omitted. This interim financial information is not necessarily indicative of the results that may be expected for a full year for a variety of reasons.

 

Estimates and Assumptions

 

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and could cause our reported net income to vary significantly from period to period, including but not limited to, the potential future effects of the novel coronavirus (“COVID-19”).period.

 

Net Patient Revenues and Accounts Receivable

 

Net patient revenues are derived from services rendered to patients for skilled and intermediate nursing, rehabilitation therapy, assisted living and independent living, home health care services, hospice services, and hospicebehavioral health services. Net patient revenue is reported at the amount that reflects the consideration to which the Company expects to be entitled in exchange for providing patient services. These amounts are due from patients, governmental programs, and other third-party payors, and include variable consideration for retroactive revenue adjustments due to settlement of audits, reviews, and investigations.

 

9

The Company recognizes revenue as its performance obligations are completed. Routine services are treated as a single performance obligation satisfied over time as services are rendered. These routine services represent a bundle of services that are not capable of being distinct. The performance obligations are satisfied over time as the patient simultaneously receives and consumes the benefits of the healthcare services provided. Additionally, there may be ancillary services which are not included in the daily rates for routine services, but instead are treated as separate performance obligations satisfied at a point in time when those services are rendered.  Contract liabilities are recorded for payments the Company receives in which performance obligations have not been completed.

 

9

The Company determines the transaction price based on established billing rates reduced by contractual adjustmentsexplicit price concessions provided to third party payors. Contractual adjustmentsExplicit price concessions are based on contractual agreements and historical experience. The Company considers the patient's ability and intent to pay the amount of consideration upon admission. Credit losses are recorded as bad debt expense, which is included as a component of other operating expenses in the interim condensed consolidated statements of operations. Bad debt expense was $2,536,000$1,811,000 and $919,000$2,536,000 for the three months ended March 31, 20222023 and 2021,2022, respectively. As of March 31, 2022,2023, and December 31, 2021,2022, the Company has recorded allowance for doubtful accounts of $6,726,000$7,005,000 and $6,411,000,$6,246,000, respectively, as our best estimate of expected losses inherent in the accounts receivable balance.

 

Other Revenues

 

Other revenues include revenues from the provision of insurance services, management and accounting services to other long–term care providers, and rental income. Our insurance revenues consist of premiums that are generally paid in advance and then amortized into income over the policy period. We charge for management services based on a percentage of net revenues. We charge for accounting services based on a monthly fee or a fixed fee per bed of the healthcare center under contract. We record other revenues as the performance obligations are satisfied based on the terms of our contractual arrangements.

 

We recognize rental income based on the terms of our operating leases. Under certain of our leases, we receive variable rent, which is based on the increase in revenues of a lessee over a base year. We recognize variable rent annually or monthly, as applicable, when, based on the actual revenue of the lessee is earned.

 

Government Grants

 

In the absence of specific guidance to account for government grants under U.S. GAAP, we have concluded toWe account for government grants in accordance with International Accounting Standard (“IAS”) 20, Accounting for Government Grants and Disclosure of Government Assistance, and as such, we recognize grant income on a systematic basis in line with the recognition of specific expenses and lost revenues for which the grants are intended to compensate.   

 

Segment Reporting

 

In accordance with the provisions of Accounting Standards Codification ("ASC") 280, Segment Reporting, the Company is required to report financial and descriptive information about its reportable operating segments. The Company has 2two reportable operating segments: (1) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and onebehavioral health hospital,hospitals, and (2) homecare and hospice services. The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. See Note 7 for further disclosure of the Company’s operating segments.

 

Other Operating Expenses

 

Other operating expenses include the costs of care and services that we provide to the residents of our facilities and the costs of maintaining our facilities. Our primary patient care costs include drugs, medical supplies, purchased professional services, food, and professional liability insurance and licensing fees. The primary facility costs include utilities and property insurance.

 

General and Administrative Costs

 

With the Company being a healthcare provider, the majority of our expenses are "cost of revenue" items. Costs that could be classified as "general and administrative" by the Company would include its corporate office costs, excluding stock-based compensation, which were $5,787,000$5,653,000 and $5,369,000$5,787,000 for the three months ended March 31, 20222023 and 2021,2022, respectively.

 

Long-Term Leases

 

The Company’s lease portfolio primarily consists of finance and operating real estate leases for certain skilled nursing facilities, assisted and independent living facilities, homecare and hospice offices, and pharmacy warehouses. The original terms of the leases typically range from two to fifteen years. Several of the real estate leases include renewal options which vary in length and may not include specific rent renewal amounts. We determine if an arrangement is a lease at inception of a contract. We determine the lease term by assuming exercise of renewal options that are reasonably certain.

 

10

The Company records right-of-use assets and liabilities for non-cancelable real estate operating leases with original or remaining lease terms in excess of one year. Leases with a lease term of 12 months or less at inception are not recorded and are expensed on a straight-line basis over the lease term. We recognize lease components and non-lease components together and not as separate parts of a lease for real estate leases.

 

10

Operating lease right-of-use assets and liabilities are recorded at the present value of the lease payments over the lease term. The present value of the lease payments are discounted using the incremental borrowing rate associated with each lease. The variable components of the lease payment that fluctuate with the operations of a health facility are not included in determining the right-of-use assets and lease liabilities. Rather, these variable components are expensed as incurred.

 

Property and Equipment

 

Property and equipment are recorded at cost. Depreciation is provided by the straight-line method over the expected useful lives of the assets estimated as follows: buildings and improvements, 20-40 years and equipment and furniture, 3-15 years. Leasehold improvements are amortized over periods that do not exceed the non-cancelable respective lease terms using the straight-line method.

 

Finance leases are recorded at cost. Finance leases are amortized in accordance with the provision codified within ASC 842, Leases. Amortization of finance lease assets is included in depreciation and amortization expense.

 

Business Combinations

 

We account for acquisitions using the acquisition method of accounting in accordance with ASC 805, Business Combinations. Acquisitions are accounted for as purchases and are included in our consolidated financial statements from their respective acquisition dates. Assets acquired and liabilities assumed, if any, are measured at fair value on the acquisition date using the appropriate valuation method. Goodwill generated from acquisitions is recognized for the excess of the purchase price over the fair value of tangible and identifiable intangible assets.assets acquired and liabilities assumed. In determining the fair value of identifiable assets, we use various valuation techniques. These valuation methods require us to make estimates and assumptions surrounding projected revenues and costs, future growth, and discount rates.

 

Goodwill and Other Intangible Assets

 

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. Goodwill is not amortized but is subject to an annual impairment test. We perform our annual goodwill impairment assessment on the first day of the fourth quarter.  Tests are performed more frequently if events occur, or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount.

 

The Company’s indefinite-lived intangible assets consist of trade names and certificates of need and licenses. The Company reviews indefinite-lived intangible assets for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable.

 

Accrued Risk Reserves  

 

We are self–insured for risks related to health insurance and have wholly–owned limited purpose insurance companies that insure risks related to workers’ compensation and general and professional liability insurance claims. The accrued risk reserves include a liability for reported claims and estimates for incurred but unreported claims. Our policy is to engage an external, independent actuary to assist in estimating our exposure for claims obligations (for both asserted and unasserted claims). We reassess our accrued risk reserves on a quarterly basis.

 

Professional liability remains an area of particular concern to us. The long-term care industry has seen an increase in personal injury/wrongful death claims based on alleged negligence by skilled nursing facilities and their employees in providing care to residents. The Company has been, and continues to be, subject to claims and legal actions that arise in the ordinary course of business, including potential claims related to patient care and treatment. A significant increase in the number of these claims, or an increase in the amounts due as a result of these claims could have a material adverse effect on our consolidated financial position, results of operations and cash flows. It is also possible that future events could cause us to make significant adjustments or revisions to these reserve estimates and cause our reported net income to vary significantly from period to period.

 

We are principally self-insured for incidents occurring in all centers owned or leased by us. The coverages include both primary policies and excess policies. In all years, settlements, if any, in excess of available insurance policy limits and our own reserves would be expensed by us.

 

11

 

Continuing Care Contracts

 

We have one continuing care retirement center (“CCRC”) within our operations. Residents at this retirement center may enter into continuing care contracts with us. The contracts provide that 10% of the resident entry fee becomes non-refundable upon occupancy, and the remaining refundable portion of the entry fee is calculated using the lessor of the price at which the apartment is re-assigned or 90% of the original entry fee, plus 40% of any appreciation if the apartment value exceeds the original resident’s entry fee.

 

Non-refundable fees are included as a component of the transaction price and are amortized into revenue over the actuarily determined remaining life of the resident, which is the expected period of occupancy by the resident. We pay the refundable portion of our entry fees to residents when they relocate from our community and the apartment is re-occupied. Refundable entrance fees are not included as part of the transaction price and are classified as noncurrent liabilities section ofin our consolidated balance sheets. As of March 31, 2022, and December 31, 2021, we have recorded refundable entrance fees in the amount of $6,097,000 and $7,011,000, respectively.

 

We also annually estimate the present value of the cost of future services and the use of facilities to be provided to the current CCRC residents and compare that amount with the balance of non-refundable deferred revenue from entrance fees received. If the present value of the cost of future services exceeds the related anticipated revenues, a liability is recorded with a corresponding charge to income. As of March 31, 2022,2023, and December 31, 2021,2022, we have recorded a future service obligation liability in the amount of $2,338,000.$2,218,000. This obligation is reflected within other noncurrent liabilities in the interim condensed consolidated balance sheets. 

 

Other Noncurrent Liabilities

 

Other noncurrent liabilities include reserves primarily related to various uncertain income tax positions, deferred revenue, and obligations to provide future services to our CCRC residents. Deferred revenue includes the deferred gain on the sale of assets to National Health Corporation (“National”) and the non-refundable portion (10%) of CCRC entrance fees being amortized over the remaining life expectancies of the residents.

Other noncurrent liabilities also include funds received related to the Employee Retention Credit ("ERC"), a refundable tax credit for businesses that sustained a partial suspension of operations limiting commerce due to COVID-19 or had significant declines in gross receipts during 2020 and 2021.

 

Noncontrolling Interest

 

The noncontrolling interest in a subsidiary is presented within total equity in the Company's interim condensed consolidated balance sheets. The Company presents the noncontrolling interest and the amount of consolidated net income attributable to NHC in its interim condensed consolidated statements of operations. The Company’s earnings per share is calculated based on net income attributable to NHC’s stockholders. The carrying amount of the noncontrolling interest is adjusted based on an allocation of the subsidiary earnings, contributions, and distributions.

 

Variable Interest Entities

 

We have equity interests in unconsolidated limited liability companies that operate various post-acute and senior healthcare businesses. We analyze our investments in these limited liability companies to determine if the company is considered a variable interest entity (“VIE”) and would require consolidation. To the extent that we own interests in a VIE and we (i) have the power to direct the activities of the VIE and (ii) have the obligation or rights to absorb the VIE's losses or receive its benefits, then we would be determined to be the primary beneficiary and would consolidate the VIE. To the extent we own interests in a VIE, then at each reporting period, we re-assess our conclusions as to which, if any, party within the VIE is considered the primary beneficiary.

 

The Company's maximum exposure to losses in its investments in unconsolidated VIEs cannot be quantified and may or may not be limited to its investment in the unconsolidated VIE. The investments in unconsolidated VIEs are classified as “investments in unconsolidated companies” in the interim condensed consolidated balance sheets.

Reclassifications

  

Certain accounts in the prior-year financial statements have been reclassified for comparative purposes to conform to the presentation in the current-year financial statements. 

 

Note 3 Coronavirus Pandemic

 

In early March 2020, COVID-19, a disease caused by the novel strain of the coronavirus, was characterized as a pandemic by the World Health Organization. The U.S. government enacted several laws beginning in March 2020 designed to help the nation respond to the COVID-19 pandemic. The laws impacted healthcare providers in a variety of ways, but the largest legislation from a monetary relief perspective iswas the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). Through the CARES Act, as well as the Paycheck Protection Program and Health Care Enhancement Act ("PPPCHE"), the federal government allocated $178 billion to the Public Health and Social Services Emergency Fund, which is referred to as the Provider Relief Fund. The Provider Relief Fund is administered through grants and other mechanisms to skilled nursing providers, home health providers, hospitals, and other Medicare and Medicaid enrolled providers to cover unreimbursed health care related expenses or lost revenue attributable to the public health emergency resulting from COVID-19.    

 

12

 

The Provider Relief Fund grants come with terms and condition certifications in which all providers are required to submit documents to ensure the funds are used for healthcare-related expenses or lost revenue attributable to COVID-19. The Company recorded $10,620,000$0 and $22,749,000$10,620,000 of government stimulus income from the Provider Relief Funds for the three months ended March 31, 20222023 and 2021,2022, respectively. The grant income was determined on a systemicsystematic basis in line with the recognition of specific expenses and lost revenues for which the grants are intended to compensate. The Company’s assessment of whether the terms and conditions for amounts received have been met for income recognition and the Company’s related income calculation considered all frequently asked questions and other interpretive guidance issued to date by the U.S. Department of Health and Human Services (“HHS”).

 

Additionally, as part of the CARES Act, the legislation included an expansion of the Medicare Accelerated and Advance Payment Program. The expanded Medicare Accelerated and Advance Payment Program is a streamlined version of existing policy that allows the Medicare Administrative Contractors (“MAC’s”) to issue up to three months of advance Medicare payments to help increase cash flow and liquidity to Medicare Part A and Part B providers in certain circumstances that include national emergencies. We received approximately $51,253,000 as part of this program. These funds are applied against claims for services provided to Medicare patients after approximately one year from the date we received the funds. During the firsteleven months after repayment began, repayment occurs through an automatic recoupment of twenty-five percent of Medicare payments. During the succeeding nine months, repayment will occur through an automatic recoupment of fifty percent of Medicare payments. Any remaining balance that was not paid through the recoupment process within twenty-nine months of receipt of the funds will be required to be paid on-demand, subject to an interest rate of four percent. Recoupment of the accelerated payments began in the second quarter of 2021. As of March 31, 2022 and December 31, 2021, $5,003,000 and $15,022,000, respectively, of the accelerated payments remain and are reflected within contract liabilities in the interim condensed consolidated balance sheet.

The CARES Act and subsequent related legislation temporarily suspended Medicare sequestration beginning May 1, 2020 through March 31, 2022. The Medicare sequestration policy reduces fee-for-service Medicare payments by 2 percent. Beginning April 1, 2022, the sequestration reductions will then be 1% from April 1, 2022 through June 30, 2022. The full 2% reduction is scheduled to go back into effect July 1, 2022. The CARES Act extends the sequestration policy through 2030 in exchange for this temporary suspension, which the sequestration reduction for 2030 has been increased up to 3%.

The CARES Act also temporarily permitted employers to defer the deposit and payment of the employer’s portion of the social security taxes (6.2% of employee wages) that otherwise would have been due between March 27, 2020 and December 31, 2020. The provision requires that the deferred taxes be paid over a two-year period with half the amount required to be paid by December 31, 2021, and the other half by December 31, 2022. At March 31, 2022 and December 31, 2021, we have deferred $10,545,000 of the Company’s share of the social security taxes included in the current liabilities section of the consolidated balance sheet. 

We have also received supplemental Medicaid payments from many of the states in which we operate to help mitigate the incremental costs resulting from the COVID-19 public health emergency. We have recorded $5,538,000$4,883,000 and $3,955,000$5,538,000 in net patient revenues for these supplemental Medicaid payments for the three months ended March 31, 20222023 and 2021,2022, respectively.

  

13

 

Note 4 Net Patient Revenues

 

The Company disaggregates revenue from contracts with customers by service type and by payor.

 

Revenue by Service Type

 

The Company’s net patient services can generally be classified into the following two categories: (1) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and a behavioral health hospital,hospitals, and (2) homecare and hospice services (in thousands).

 

 

Three Months Ended

March 31

  

Three Months Ended

March 31

 
 

2022

  

2021

  

2023

  

2022

 

Net patient revenues:

  

Inpatient services

 $224,842  $203,242  $226,169  $224,842 

Homecare and hospice

  31,495   13,613   31,838   31,495 

Total net patient revenue

 $256,337  $216,855 

Total net patient revenues

 $258,007  $256,337 

 

13

For inpatient and hospice services, revenue is recognized on a daily basis as each day represents a separate contract and performance obligation. For homecare, revenue is recognized when services are provided based on the number of days of service rendered in the period of care or on a per-visit basis. Typically, patients and third-party payors are billed monthly after services are performed or the patient is discharged, and payments are due based on contract terms.

 

As our performance obligations relate to contracts with a duration of one year or less, the Company is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The Company has minimal unsatisfied performance obligations at the end of the reporting period as our patients are typically under no obligation to remain admitted in our facilities or under our care.  As the period between the time of service and time of payment is typically one year or less, the Company did not adjust for the effects of a significant financing component.

 

Revenue by Payor

 

Certain groups of patients receive funds to pay the cost of their care from a common source. The following table sets forth sources of net patient revenues for the periods indicated:

 

 

Three Months Ended

March 31

  

Three Months Ended

March 31

 

Source

 

2021

  

2020

  

2023

  

2022

 

Medicare

 37%  35%  36%  37% 

Managed Care

 10%  12%  11%  10% 

Medicaid

 28%  29%  27%  28% 

Private Pay and Other

  25%   24%   26%   25% 

Total

  100%   100%   100%   100% 

 

Medicare covers skilled nursing services for beneficiaries who require nursing care and/or rehabilitation services following a hospitalization of at least three consecutive days (there isdays.  Although, there has been temporary relief from the three-day hospital stay duringthrough the COVID-19 emergency). public health emergency, which is set to end on May 11, 2023. For each eligible day a Medicare beneficiary is in a skilled nursing facility, Medicare pays the facility a daily payment, subject to adjustment for certain factors such as a wage index in the geographic area. The payment covers all services provided by the skilled nursing facility for the beneficiary that day, including room and board, nursing, therapy and drugs, as well as an estimate of capital–related costs to deliver those services.

 

For homecare services, Medicare pays based on the acuity level of the patient and based on periods of care. A period of care is defined as a length of care up to 30 days with multiple continuous periods allowed. The services covered by the payment include all disciplines of care, in addition to medical supplies, within the scope of the home health benefit.

 

14

For hospice services, Medicare pays a daily rate to cover the hospice’s costs for providing services included in the patient care plan. Medicare makes daily payments based on 1 of 4 levels of hospice care. All hospice care and services offered to patients and their families must follow an individualized written plan of care that meets the patient’s needs.

 

Our hospice service revenue is subject to certain limitations on payments from Medicare. We are subject to an inpatient cap limit and an overall Medicare payment cap for each provider number. We monitor these caps on a provider-by-provider basis and estimate amounts due back to Medicare if we estimate a cap has been exceeded. If applicable, we record these cap adjustments as a reduction to revenue.

 

Medicaid is operated by individual states with the financial participation of the federal government. The states in which we operate currently use prospective cost–based reimbursement systems. Under cost–based reimbursement systems, the skilled nursing facility is reimbursed for the reasonable direct and indirect allowable costs it incurred in a base year in providing routine resident care services as defined by the program.

 

Private pay, managed care, and other payment sources include commercial insurance, individual patient funds, managed care plans and the Veterans Administration. Private paying patients, private insurance carriers and the Veterans Administration generally pay based on the healthcare center's charges or specifically negotiated contracts. For private pay patients in skilled nursing, assisted living and independent living facilities, the Company bills for room and board charges, with the remittance being due on receipt of the statement and generally by the 10th day of the month the services are performed.

 

Certain managed care payors for homecare services pay on a per-visit basis. This revenue is recorded on an accrual basis based upon the date of services at amounts equal to its established or estimated per-visit rates.

 

Contract Liabilities

Included in the Company’s interim condensed consolidated balance sheets are contract liabilities, which represent payments the Company receives in advance

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Third Party Payors

 

Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. Noncompliance with such laws and regulations can be subject to regulatory actions including fines, penalties, and exclusion from the Medicare and Medicaid programs. We believe that we are following all applicable laws and regulations.

 

Medicare and Medicaid program revenues, as well as certain Managed Care program revenues, are subject to audit and retroactive adjustment by government representatives or their agents. Settlements with third-party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and the Company’s historical settlement activity, including an assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustment is subsequently resolved. Estimated settlements are adjusted in future periods as adjustments become known, or as years are settled or are no longer subject to such audits, reviews, and investigations. We believe that any differences between the net revenues recorded, and final determination will not materially affect the consolidated financial statements. We have made provisions of approximately $17,319,000$16,679,000 and $17,595,000$16,631,000 as of March 31, 20222023 and December 31, 2021,2022, respectively, for various Medicare, Medicaid, and Managed Care claims reviews and current and prior year cost reports.

  

 

Note 5 Other Revenues

 

Other revenues are outlined in the table below. Revenues from rental income include health care real estate properties owned by us and leased to third party operators. Revenues from management and accounting services include fees provided to manage and provide accounting services to other healthcare operators. Revenues from insurance services include premiums for workers’ compensation and professional liability insurance policies that our wholly owned insurance subsidiaries have written for certain healthcare operators to which we provide management or accounting services. "Other" revenues include miscellaneous health care related earnings (in thousands).

 

 

Three Months Ended

March 31

  

Three Months Ended

March 31

 
 

2022

  

2021

  

2023

  

2022

 

Rental income

 $5,982  $5,647  $6,043  $5,982 

Management and accounting services fees

 4,304  4,324  4,097  4,304 

Insurance services

 1,247  1,264  1,048  1,247 

Other

  493   134   368   493 

Total other revenues

 $12,026  $11,369  $11,556  $12,026 

 

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Rental Income

 

The Company leases real estate assets consisting of skilled nursing facilities and assisted living facilities to third party operators. Additionally, we sublease 4four Florida skilled nursing facilities included in our lease from National Health Investors (“NHI”) as noted in Note 8 – Long Term Leases.

 

Management Fees from National Health Corporation

 

We manage 5five skilled nursing facilities owned by National Health Corporation (“National”). For the three months ended March 31, 20222023 and 2021,2022, we recognized management fees and interest on management fees of $981,000$1,190,000 and $896,000,$981,000, respectively, for these centers.

 

15

Insurance Services

 

For workers’ compensation insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months ended March 31, 20222023 and 20212022 were $728,000$736,000 and $753,000,$728,000, respectively. Associated losses and expenses including those for self-insurance are reflectedincluded in the interim condensed consolidated statements of operations as "Salaries, wages and benefits."

 

For professional liability insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months ended March 31, 20222023 and 20212022 were $519,000$312,000 and $511,000,$519,000, respectively. Associated losses and expenses including those for self–insurance are included in the interim condensed consolidated statements of operations as "Other operating costs and expenses".

  

 

Note 6 NonOperating Income

 

Non–operating income includes equity in earnings of unconsolidated investments, dividends and other realized gains and losses on sales of marketable securities, and interest income (in thousands).

 

 

Three Months Ended

March 31

  

Three Months Ended

March 31

 
 

2022

  

2021

  

2023

  

2022

 

Dividends and net realized gains and losses on sales of securities

 $1,233  $1,753 

Interest income

 1,555  992 

Equity in earnings of unconsolidated investments

 $454  $2,911   1,535   454 

Dividends and net realized gains on sales of securities

 1,753  1,962 

Interest income

  992   1,387 

Total non-operating income

 $3,199  $6,260  $4,323  $3,199 

  

Caris HealthCare, L.P.

On June 11, 2021, the Company acquired the remaining 24.9% equity interest in Caris HealthCare, L.P. (“Caris”). Prior to the June 11, 2021 acquisition date, Caris was our most significant equity method investment with a 75.1% non-controlling ownership interest. From the respective acquisition date, Caris’ financial information is now included in the Company’s consolidated financial statements and will no longer be accounted for as an equity method investment.

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Note 7 Business Segments

 

The Company has 2two reportable operating segments: (1) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and our behavioral health hospital;hospitals; and (2) homecare and hospice services. These reportable operating segments are consistent with information used by the Company’s Chief Executive Officer, as chief operating decision maker (“CODM”), to assess performance and allocate resources.

The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. For additional information on these reportable segments see Note 2Summary of Significant Accounting Policies.

 

The Company’s CODM evaluates performance and allocates capital resources to each segment based on an operating model that is designed to improve the quality of patient care and profitability of the Company while enhancing long-term shareholder value. The CODM does not review assets by segment in his resource allocation and therefore, assets by segment are not disclosed below.

 

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The following table sets forth the Company’s unaudited interim condensed consolidated statements of operations by business segment (in thousands):

 

 

Three Months Ended March 31, 2022

  

Three Months Ended March 31, 2023

 
 

Inpatient
Services

  

Homecare

and Hospice

  

All Other

  

Total

  

Inpatient
Services

  

Homecare

and Hospice

  

All Other

  

Total

 

Revenues:

 

Revenues and grant income:

 

Net patient revenues

 $224,842  $31,495  $0  $256,337  $226,169  $31,838  $-  $258,007 

Other revenues

 114  0  11,912  12,026   271   -   11,285   11,556 

Government stimulus income

  10,620   0   0   10,620 

Net operating revenues and grant income

 235,576  31,495  11,912  278,983  226,440  31,838  11,285  269,563 
  

Costs and expenses:

  

Salaries, wages, and benefits

 142,185  19,401  9,108  170,694  138,939  20,244  8,641  167,824 

Other operating

 64,383  7,095  2,607  74,085  62,264  5,499  3,726  71,489 

Rent

 8,347  592  1,126  10,065  8,168  558  1,366  10,092 

Depreciation and amortization

 8,838  113  806  9,757  9,117  185  746  10,048 

Interest

  165   0   0   165   98   -   -   98 

Total costs and expenses

  223,918   27,201   13,647   264,766   218,586   26,486   14,479   259,551 
  

Income (loss) from operations

 11,658  4,294  (1,735

)

 14,217 

Income/(loss) from operations

 7,854  5,352  (3,194

)

 10,012 

Non-operating income

 0  0  3,199  3,199  -  -  4,323  4,323 

Unrealized gains on marketable equity securities

  0   0   3,126   3,126   -   -   1,386   1,386 
  

Income before income taxes

 $11,658  $4,294  $4,590  $20,542  $7,854  $5,352  $2,515  $15,721 

 

 

 

Three Months Ended March 31, 2021

  

Three Months Ended March 31, 2022

 
 

Inpatient
Services

  

Homecare

  

All Other

  

Total

  

Inpatient
Services

  

Homecare

and Hospice

  

All Other

  

Total

 

Revenues:

  

Net patient revenues

 $203,242  $13,613  $0  $216,855  $224,842  $31,495  $-  $256,337 

Other revenues

 98  0  11,271  11,369  114  -  11,912  12,026 

Government stimulus income

  22,749   0   0   22,749   10,620   -   -   10,620 

Net operating revenues and grant income

 226,089  13,613  11,271  250,973  235,576  31,495  11,912  278,983 
  

Costs and expenses:

  

Salaries, wages, and benefits

 131,811  9,435  7,913  149,159  142,185  19,401  9,108  170,694 

Other operating

 61,808  1,915  2,401  66,124  64,383  7,095  2,607  74,085 

Rent

 8,194  431  1,438  10,063  8,347  592  1,126  10,065 

Depreciation and amortization

 9,263  87  811  10,161  8,838  113  806  9,757 

Interest

  244   0   0   244   165   -   -   165 

Total costs and expenses

  211,320   11,868   12,563   235,751   223,918   27,201   13,647   264,766 
  

Income/(loss) from operations

 14,769  1,745  (1,292

)

 15,222  11,658  4,294  (1,735

)

 14,217 

Non-operating income

 0  0  6,260  6,260  -  -  3,199  3,199 

Unrealized gains on marketable equity securities

  0   0   7,059   7,059   -   -   3,126   3,126 
  

Income before income taxes

 $14,769  $1,745  $12,027  $28,541  $11,658  $4,294  $4,590  $20,542 

 

17

  
 

Note 8 Long-Term Leases

 

Operating Leases

 

At March 31, 2022,2023, we leasedlease from NHI the real property of 3528 skilled nursing facilities, 7five assisted living centers and 3three independent living centers under 2 separateone lease agreements.agreement. As part of the firstlease agreement, we sublease 4four Florida skilled nursing facilities to a third-party operator. BaseThe lease includes base rent expense under both NHIplus a percentage rent. The annual base rent is $34,075,000 in 2023, $32,625,000 in 2024, $32,225,000 in 2025, and $31,975,000 in 2026 with the lease agreements totals $34,200,000 annually withterm expiring in 2026. The percentage rent thereafter escalating by 4%is based on a quarterly calculation of the increase in facility revenue overincreases and is payable on a base year.quarterly basis. Total facility rent expense to NHI was $9,252,000$9,295,000 and $9,411,000$9,252,000 for the three months ended March 31, 20222023 and 2021,2022, respectively.

 

Finance Leases

 

At March 31, 2022,2023, we leased and operated 3three senior healthcare facilities in the state of Missouri under 3three separate lease agreements. Two of the healthcare facilities are skilled nursing facilities that also include assisted living facilities and the third healthcare facility is a memory care facility. Each of the leases is a ten-year lease with 2two five–year renewal options.options with the original lease expiring in 2024. Under the terms of the leases, base rent totals $5,200,000 annually with rent thereafter escalating by 4% of the increase in facility revenue over the 2014 base year.

 

Minimum Lease Payments

 

The following table summarizes the maturity of our finance and operating lease liabilities as of March 31, 20222023 (in thousands):

 

 

Finance

Leases

  

Operating

Leases

  

Finance

Leases

  

Operating

Leases

 

2023

 $5,200  $36,046 

2024

 4,767  35,489  $4,767  $35,514 

2025

 0  35,033  -  33,855 

2026

 0  34,756  -  33,104 

2027

 0  26,704  -  24,499 

2028

 -  133 

Thereafter

  0   4,888   -   - 

Total minimum lease payments

  9,967   172,916  4,767  127,105 

Less: amounts representing interest

  (574

)

  (22,725

)

  (140

)

  (14,052

)

Present value of future minimum lease payments

 9,393  150,191  4,627  113,053 

Less: current portion

  (4,766

)

  (28,005

)

  (4,627

)

  (29,065

)

Noncurrent lease liabilities

 $4,627  $122,186  $-  $83,988 

 

18

 

Note 9 Earnings per Share

 

Basic net income per share is computed based on the weighted average number of common shares outstanding for each period presented. Diluted net income per share reflects the potential dilution that would have occurred if securities to issue common stock were exercised, converted, or resulted in the issuance of common stock that would have then shared in our earnings.

 

The following table summarizes the earnings and the weighted average number of common shares used in the calculation of basic and diluted earnings per share (in thousands, except for share and per share amounts):

 

 

Three Months Ended

March 31

  

Three Months Ended
March 31

 
 

2022

  

2021

  

2023

  

2022

 

Basic:

  

Weighted average common shares outstanding

  15,416,836   15,327,520   15,337,423   15,416,836 

Net income attributable to National HealthCare Corporation

 $15,318  $21,267  $11,723  $15,318 

Earnings per common share, basic

 $0.99  $1.39  $0.76  $0.99 
  

Diluted:

  

Weighted average common shares outstanding

 15,416,836  15,327,520  15,337,423  15,416,836 

Effects of dilutive instruments

  47,019   62,556   18,912   47,019 

Weighted average common shares outstanding

  15,463,855   15,390,076   15,356,335   15,463,855 
  

Net income attributable to National HealthCare Corporation

 $15,318  $21,267  $11,723  $15,318 

Earnings per common share, diluted

 $0.99  $1.38  $0.76  $0.99 

 

18

our common stock have been excluded for the three months ended March 31, 2023 and 2022, respectively, due to their anti-dilutive impact.

 

Note 10 Investments in Marketable Securities

 

Our investments in marketable equity securities are carried at fair value with the changes in unrealized gains and losses recognized in our results of operations at each measurement date. Our investments in marketable debt securities are classified as available for sale securities and carried at fair value with the unrealized gains and losses recognized through accumulated other comprehensive income at each measurement date. Any credit related decline in fair market values below amortized cost of our available for sale debt securities are recorded in our results of operations through an allowance for credit losses. Realized gains and losses from securities sales are recognized in results of operations upon disposition of the securities using the specific identification method on a trade date basis. Refer to Note 11 for a description of the Company's methodology for determining the fair value of marketable securities.

 

Marketable securities consist of the following (in thousands):

 

 

March 31, 2022

  

December 31, 2021

  

March 31, 2023

  

December 31, 2022

 
 

Amortized

Cost

  

Fair

Value

  

Amortized

Cost

  

Fair

Value

  

Amortized

Cost

  

Fair

Value

  

Amortized

Cost

  

Fair

Value

 

Investments available for sale:

  

Marketable equity securities

 $30,176  $118,048  $30,176  $113,108  $30,176  $100,825  $30,176  $100,786 

Corporate debt securities

 17,030  16,554  19,038  18,843  10,836  10,539  14,317  13,885 

Asset-backed securities

 501  493  1,481  1,469  500  499  500  494 

U.S. Treasury securities

 14,189  13,940  15,082  14,998  6,936  6,784  9,009  8,757 

Restricted investments available for sale:

  

Marketable equity securities

 25,546  25,249  25,442  26,958  24,006  23,385  24,326  22,358 

Corporate debt securities

 62,399  61,699  60,816  62,936  53,670  50,880  54,412  51,009 

Asset-based securities

 30,715  29,982  32,918  33,301  23,790  21,849  24,605  22,437 

U.S. Treasury securities

 37,403  35,181  33,052  32,630  47,745  43,895  45,989  41,294 

State and municipal securities

  4,972   4,939   7,700   7,923   4,844   4,776   4,877   4,771 
 $222,931  $306,085  $225,705   312,166  $202,503  $263,432  $208,211   265,791 

 

19

Included in the marketable equity securities are the following (in thousands, except share amounts):

 

  

March 31, 2022

  

December 31, 2021

 
  

Shares

  

Cost

  

Fair

Value

  

Shares

  

Cost

  

Fair

Value

 

NHI Common Stock

  1,630,642  $24,734  $96,224   1,630,642  $24,734  $93,713 
  

March 31, 2023

  

December 31, 2022

 
  

Shares

  

Cost

  

Fair

Value

  

Shares

  

Cost

  

Fair

Value

 

NHI Common Stock

  1,630,642  $24,734  $84,109   1,630,642  $24,734  $85,152 

 

The amortized cost and estimated fair value of debt securities classified as available for sale, by contractual maturity, are as follows (in thousands):

 

 

March 31, 2022

  

December 31, 2021

  

March 31, 2023

  

December 31, 2022

 
 

Cost

  

Fair

Value

  

Cost

  

Fair

Value

  

Cost

  

Fair

Value

  

Cost

  

Fair

Value

 

Maturities:

  

Within 1 year

 $34,236  $34,159  $32,718  $32,843  $28,078  $27,485  $33,662  $33,037 

1 to 5 years

 89,482  87,771  95,293  96,937  82,037  77,903  81,500  76,394 

6 to 10 years

 43,491  40,858  41,580  41,835  37,607  33,231  38,547  33,216 

Over 10 years

  0   0   496   485   599   603   -   - 
 $167,209  $162,788  $170,087  $172,100  $148,321  $139,222  $153,709  $142,647 

 

19

Gross unrealized gains related to marketable equity securities are $88,514,000$72,266,000 and $85,394,000$71,869,000 as of March 31, 20222023 and December 31, 2021,2022, respectively. Gross unrealized losses related to marketable equity securities are $939,000$2,238,000 and $946,000$3,227,000 as of March 31, 20222023 and December 31, 2021,2022, respectively. For the three months ended March 31, 20222023 and 2021,2022, the Company recognized net unrealized gains of $3,126,000$1,386,000 and $7,059,000,$3,126,000, respectively, for the changes in fair market value of the marketable equity securities in the interim condensed consolidated statements of operations.

 

Gross unrealized gains related to available for sale marketable debt securities are $484,000$80,000 and $3,189,000$9,000 as of March 31, 20222023 and December 31, 2021,2022, respectively. Gross unrealized losses related to available for sale marketable debt securities are $4,905,000$9,179,000 and $1,176,000$11,071,000 as of March 31, 20222023 and December 31, 2021,2022, respectively.

The Company’s unrealized losses in our available for sale marketable debt securities were determined to be non-credit related.

The Company has not recognized any credit related impairments for the three months ended March 31, 20222023 and 2021.2022.

 

For the marketable securities in gross unrealized loss positions, (a) it is more likely than not that the Company will not be required to sell the investment securities before recovery of the unrealized losses, and (b) the Company expects that the contractual principal and interest will be received on the investment securities.

 

Proceeds from the sale of available for sale marketable securities during the three months ended March 31, 20222023 and 20212022 were $16,946,000$15,492,000 and $6,086,000,$16,946,000, respectively. Investment losses of $492,000 and investment gains of $45,000 were realized on these sales during the three months ended March 31, 2022.2023 NaN investment gains were realized on these sales during theand three2022, months ended March 31, 2021.

respectively.

  

 

Note 11 Fair Value Measurements

 

The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs that may be used to measure fair value:

 

 

Level 1  – The valuation is based on quoted prices in active markets for identical instruments.

 

Level 2 – The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model–based valuation techniques for which all significant assumptions are observable in the market.

 

Level 3 – The valuation is based on unobservable inputs that are supported by minimal or no market activity and that are significant to the fair value of the instrument. Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies, or similar techniques that incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument, or valuations that require significant management judgment or estimation.

 

20

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

 

The following table summarizes fair value measurements by level at March 31, 20222023 and December 31, 20212022 for assets and liabilities measured at fair value on a recurring basis (in thousands):

 

 

Fair Value Measurements Using

  

Fair Value Measurements Using

 

March 31, 2022

 

Fair

Value

  

Quoted

Prices in

Active
Markets

For Identical

Assets

(Level 1)

  

Significant

Other

Observable

Inputs

(Level 2)

  

Significant

Unobservable

Inputs

(Level 3)

 

March 31, 2023

 

Fair

Value

  

Quoted

Prices in

Active
Markets

For Identical

Assets

(Level 1)

  

Significant

Other

Observable

Inputs

(Level 2)

  

Significant

Unobservable

Inputs

(Level 3)

 

Cash and cash equivalents

 $56,993  $56,993  $0  $  $46,144  $46,144  $  $ 

Restricted cash and cash equivalents

 18,923  18,923  0    28,532  28,532     

Marketable equity securities

 143,297  143,297  0    124,210  124,210     

Corporate debt securities

 78,253  43,059  35,194    61,419  43,132  18,287   

Mortgage–backed securities

 30,475  0  30,475   

Asset–backed securities

 22,348    22,348   

U.S. Treasury securities

 49,121  49,121  0    50,679  50,679     

State and municipal securities

  4,939   0   4,939      4,776   1,340   3,436    

Total financial assets

 $382,001  $311,393  $70,608  $  $338,108  $294,037  $44,071  $ 

 

20

 
  

Fair Value Measurements Using

 

December 31, 2021

 

Fair

Value

  

Quoted

Prices in

Active

Markets

For Identical

Assets

(Level 1)

  

Significant

Other

Observable

Inputs

(Level 2)

  

Significant

Unobservable

Inputs

(Level 3)

 

Cash and cash equivalents

 $107,607  $107,607  $0  $ 

Restricted cash and cash equivalents

  12,136   12,136   0    

Marketable equity securities

  140,066   140,066   0    

Corporate debt securities

  81,779   50,005   31,774    

Asset–backed securities

  34,770   0   34,770    

U.S. Treasury securities

  47,628   47,628   0    

State and municipal securities

  7,923   0   7,923    

Total financial assets

 $431,909  $357,442  $74,467  $ 

 

  

Fair Value Measurements Using

 

December 31, 2022

 

Fair

Value

  

Quoted

Prices in

Active

Markets

For Identical

Assets

(Level 1)

  

Significant

Other

Observable

Inputs

(Level 2)

  

Significant

Unobservable

Inputs

(Level 3)

 

Cash and cash equivalents

 $58,667  $58,667  $  $ 

Restricted cash and cash equivalents

  16,198   16,198       

Marketable equity securities

  123,144   123,144       

Corporate debt securities

  64,894   48,525   16,369    

Asset–backed securities

  22,931      22,931    

U.S. Treasury securities

  50,051   50,051       

State and municipal securities

  4,771   1,337   3,434    

Total financial assets

 $340,656  $297,922  $42,734  $ 

  

 

Note 12 Goodwill and Other Intangible Assets

 

At March 31, 2022,2023, the Company reviewed the carrying value of goodwill for impairment indicators, including due to the events and circumstances surrounding the Coronavirus Pandemic ("COVID-19").indicators. As a result of the review, there were 0no impairment indicators regarding the Company’s goodwill during the three months ended March 31, 2022 that required a quantitative test to be performed. However, our accounting estimates could materially change from period to period due to changing market factors, including those driven by COVID-19.factors. We will continue to monitor future events, changes in circumstances, and the potential impact thereof. If actual results are not consistent with our assumptions and estimates, we may be exposed to future goodwill impairment losses.

 

At March 31, 2022,2023, the following table represents the activity related to our goodwill by segment (in thousands):

 

  

Inpatient

Services

  

Homecare

and Hospice

  

All Other

  

Total

 

January 1, 2022

 $3,741  $164,554  $  $168,295 

Additions

  0   0      0 

March 31, 2022

 $3,741  $164,554  $  $168,295 
  

Inpatient

Services

  

Homecare

and Hospice

  

All Other

  

Total

 

January 1, 2023

 $3,741  $164,554  $  $168,295 

Additions

            

March 31, 2023

 $3,741  $164,554  $  $168,295 

 

We also have recorded indefinite-lived intangible assets that consist of trade names ($4,340,000) and certificates of need and licenses ($2,698,000).

 

21

 

Note 13 - Stock Repurchase Program

 

During the three months ended March 31, 2023, the Company repurchased 44,349 shares of its common stock for a total cost of $2,482,000. During the three months ended March 31, 2022, the Company repurchased 2,165 shares of its common stock for a total cost of $146,000. During the three months ended March 31, 2021, the Company repurchased 3,936 shares of its common stock for a total cost of $278,000. The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued.

 

  

 

Note 14 StockBased Compensation

 

NHC recognizes stock–based compensation expense for all stock options granted over the requisite service period using the fair value at the date of grant using the Black–Scholes pricing model. Stock–based compensation totaled $712,000$639,000 and $496,000$712,000 for the three months ended March 31, 20222023 and 2021,2022, respectively. Stock–based compensation is included in “Salaries, wages and benefits” in the interim condensed consolidated statements of operations.

 

At March 31, 2022,2023, the Company had $4,432,000$5,347,000 of unrecognized compensation cost related to unvested stock–based compensation awards. This unrecognized compensation cost will be amortized over an approximate three-year period.

 

21

Stock Options

 

The following table summarizes the significant assumptions used to value the options granted for the three months ended March 31, 20222023 and for the year ended December 31, 2021.2022.

 

 

March 31, 2022

  

December 31,
2021

  

March 31,

2023

  

December 31,
2022

 

Risk–free interest rate

 1.63%  0.21%  4.71%

 

 1.83%

 

Expected volatility

 30.95%  34.90%  30.27%

 

 31.40%

 

Expected life, in years

 2.9  2.2  2.9  2.9 

Expected dividend yield

 3.62%  3.00%  4.43%

 

 3.57%

 

 

The following table summarizes our outstanding stock options for the three months ended March 31, 20222023 and for the year ended December 31, 2021.2022.

 

 

Number of

Shares

  

Weighted

Average

Exercise Price

  

Aggregate

Intrinsic

Value

  

Number of

Shares

  

Weighted

Average

Exercise Price

  

Aggregate

Intrinsic

Value

 

Options outstanding at January 1, 2021

 866,956  $72.11  $ 

Options outstanding at January 1, 2022

 374,926  $72.95  $ 

Options granted

 55,706  70.80    302,266  64.72   

Options exercised

 (541,736

)

 71.39    (32,597

)

 64.49   

Options cancelled

  (6,000

)

  72.94     (199,451

)

  75.98    

Options outstanding at December 31, 2021

 374,926  72.95   

Options outstanding at December 31, 2022

 445,144  66.62   

Options granted

 249,640  64.15     246,436   54.15    

Options cancelled

  (157,240

)

  76.99    

Options outstanding at March 31, 2022

  467,326   66.88  $2,085,879 

Options outstanding at March 31, 2023

  691,580  $62.18  $979,843 
  

Options exercisable at March 31, 2022

  172,686   69.60  $567,923 

Options exercisable at March 31, 2023

  157,901  $69.78  $ 

 

 

Options

Outstanding

March 31, 2022

  

Exercise Prices

  

Weighted Average

Exercise Price

  

Weighted Average

Remaining

Contractual

Life in Years

 
332,620  61.90-68.84   63.96   4.1 
134,706  71.64-77.92   74.11   2.1 
467,326    0   66.88   3.5 

Options

Outstanding

March 31, 2023

  

Exercise Prices

 

Weighted Average

Exercise Price

  

Weighted Average

Remaining

Contractual

Life in Years

 
603,185  53.94-69.19  60.34   4.0 
88,395  71.64-77.92  74.72   2.1 
691,580       62.18   3.7 

 

22

  
 

Note 15 Income Taxes

 

The Company's income tax provision as a percentage of our income before income taxes was 28.2% and 25.3% for the three months ended March 31, 20222023 and 2021.2022, respectively.

 

Typically, these percentages vary from the U.S. federal statutory income tax rate of 21% primarily due to state income taxes, excess tax benefits from stock-based compensation, benefits resulting from the lapsing of statute of limitations of items in our tax contingency reserve, and non-deductible expenses. For the three months ended March 31, 20222023 and 2021,2022, the accrual of state income tax was the onlymost significant reconciling item.

 

Our quarterly income tax provision, and our estimate of our annual effective income tax rate, is subject to variation due to several factors, including volatility based on the amount of pre-tax income or loss.  

 

The Company is no longer subject to U.S. federal and state examinations by tax authorities for years before 20182019 (with certain state exceptions).

  

 

Note 16 Contingencies and Commitments

 

Accrued Risk Reserves

 

We are self–insured for risks related to health insurance and have wholly–owned limited purpose insurance companies that insure risks related to workers’ compensation and general and professional liability insurance claims both for our owned and leased entities and certain of the entities to which we provide management or accounting services. The liability we have recognized for reported claims and estimates for incurred but unreported claims totals $101,413,000$105,626,000 and $98,048,000$102,469,000 at March 31, 20222023 and December 31, 2021,2022, respectively. The liability is included in accrued risk reserves in the interim condensed consolidated balance sheets and is subject to adjustment for actual claims incurred. It is possible that these claims plus unasserted claims could exceed our insurance coverages and our reserves, which could have a material adverse effect on our consolidated financial position, results of operations and cash flows.

 

As a result of the terms of our insurance policies and our use of wholly owned limited purpose insurance companies, we have retained significant insurance risk with respect to workers’ compensation and general and professional liability. We consider the professional services of independent actuaries to assist us in estimating our exposures for claims obligations (for both asserted and unasserted claims) related to deductibles and exposures in excess of coverage limits, and we maintain reserves for these obligations. Such estimates are based on many variables including historical and statistical information and other factors.

 

Workers Compensation

 

For workers’ compensation, we utilize a wholly–owned Tennessee domiciled property/casualty insurance company to write coverage for NHC affiliates and for third–party customers. Policies are written for a duration of twelve months and cover only risks related to workers’ compensation losses. All customers are companies which operate in the senior care industry. Business is written on a direct basis. 

 

General and Professional Liability Insurance and Lawsuits

 

The senior care industry has experienced significant increases in both the number of personal injury/wrongful death claims and in the severity of awards based upon alleged negligence by skilled nursing facilities and their employees in providing care to residents. The Company has been, and continues to be, subject to claims and legal actions that arise in the ordinary course of business, including potential claims related to patient care and treatment. The defense of these lawsuits may result in significant legal costs, regardless of the outcome, and can result in large settlement amounts or damage awards. Additional insurance is purchased through third party providers that serve to supplement the coverage provided through our wholly owned captive insurance company.

 

There is certain additional litigation incidental to our business, none of which, based upon information available to date, would be material to our financial position, results of operations, or cash flows. In addition, the long–term care industry is continuously subject to scrutiny by governmental regulators, which could result in litigation or claims related to regulatory compliance matters.

 

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Qui Tam Litigation

 

United States of America, ex rel. Jennifer Cook and Sally Gaither v. Integrated Behavioral Health, Inc., NHC HealthCare/Moulton, LLC, et al., Case No. 2:20-CV-00877-AMM (N.D. Ala.) This is a qui tam case originally filed under seal on June 22, 2020. The United States declined intervention on March 1, 2021. Thereafter, the PlaintiffPlaintiffs filed an amended Complaint against Dr. Sanja Malhotra, Integrated Behavioral Health, Inc. and other entities that Dr. Malhotra iswas alleged to own or in which he hasallegedly had a financial interest. The Complaint also named multiple skilled nursing facilities as Defendants, including NHC Healthcare/Moulton, LLC, an affiliate of National HealthCare Corporation. The Complaint allegesalleged that nurse practitioners affiliated with Dr. Malhotra provided free services to the facilities in exchange for referrals to entities owned by or in which Dr. Malhotra had a financial interest in violation of the False Claims Act and Anti-Kickback Statute. NHC Healthcare/Moulton, LLC deniesdenied the allegations and is vigorously defending the claim. Afiled a motion to dismiss was filed on November 4, 2021. On January 28, 2022, the district court stayed this matter and administratively terminated the motion to dismiss pending the U.S. Supreme Court's review of a petition for certiorari filed in an unrelated matter but involving one of the legal arguments raised in the motion to dismiss. We expect thatThereafter, the U.S. Supreme Court denied the petition for certiorari in the unrelated matter. As a result, NHC Healthcare/Moulton, LLC renewed its motion to dismiss will be renewed oncedismiss. The District Court granted NHC Healthcare/Moulton’s Motion to Dismiss, along with other pending Motions to Dismiss, and entered an Order of Dismissal on March 23, 2023 and an Amended Order of Dismissal on April 4, 2023, which dismissed the stay is lifted.  There iscase in its entirety with prejudice with respect to the claims asserted by the Plaintiffs. The Plaintiffs filed a Notice of Appeal on noApril 20, 2023 to appeal the dismissal to the 11th expected timeline for the liftingCircuit Court of the stay.  Appeals.

 

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Governmental Regulations

 

Laws and regulations governing the Medicare, Medicaid and other federal healthcare programs are complex and subject to interpretation. Management believes that it is following all applicable laws and regulations in all material respects. However, 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 exclusions from the Medicare, Medicaid and other federal healthcare programs. There have been several enacted and proposed federal and state relief measures as a result of COVID-19 which have provided substantial support to us during this pandemic; however, the full benefit of any such programs would not be realized until these payments are fully implemented, government agencies issue applicable regulations, or guidance and such relief is provided.

  

 

Note 17 Subsequent Event

On May 3, 2022, we signed operations transfer agreements ("OTAs") for the seven skilled nursing facilities located in Massachusetts and New Hampshire.  After a period of up to 90 days after the signing of the OTAs, the operations of the seven facilities are expected to be transferred to a third-party skilled nursing operator.  We expect to transfer the operations during the third quarter of 2022.

The seven skilled nursing facilities had net patient revenues of $17,801,000 and $15,377,000 for the three months ended March 31, 2022 and 2021, respectively.  The seven skilled nursing facilities had losses before income taxes of $635,000 and $2,769,000 for the three months ended March 31, 2022 and 2021, respectively.  For the year ended December 31, 2021, the seven skilled nursing facilities had net patient revenues of $67,161,000 and losses before income taxes of $3,741,000.

In conjunction with the OTAs, we have signed an acknowledgement agreement with NHI that will terminate our lease agreement with the seven skilled nursing facilities and amend our master lease agreement.  The lease termination agreement and amendment to the master lease are subject to the operations being transferred.   

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward–Looking Statements

 

References throughout this document to the Company include National HealthCare Corporation and its wholly owned subsidiaries. In accordance with the Securities and Exchange Commissions “Plain English” guidelines, this Quarterly Report on Form 10–Q has been written in the first person. In this document, the words “we”, “our”, “ours” and “us” refer only to National HealthCare Corporation and its wholly–owned subsidiaries and not any other person.

 

This Quarterly Report on Form 10–Q and other information we provide from time to time, contains certain “forward–looking” statements as that term is defined by the Private Securities Litigation Reform Act of 1995. All statements regarding our expected future financial position, results of operations or cash flows, continued performance improvements, ability to service and refinance our debt obligations, ability to finance growth opportunities, ability to control our patient care liability costs, ability to respond to changes in government regulations, ability to execute our three–year strategic plan, and similar statements including, without limitations, those containing words such as “believes”, “anticipates”, “expects”, “intends”, “estimates”, “plans”, and other similar expressions are forward–looking statements.

 

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Forward–looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from those projected or contemplated in the forward–looking statements as a result of, but not limited to, the following factors:

 

national and local economic conditions, including their effect on the availability and cost of labor, utilities and materials;

 

 

the effect of government regulations and changes in regulations governing the healthcare industry, including our compliance with such regulations;

 

 

changes in Medicare and Medicaid payment levels and methodologies and the application of such methodologies by the government and its fiscal intermediaries;

 

 

liabilities and other claims asserted against us, including patient care liabilities, as well as the resolution of current litigation (see Note 16: Contingencies and Commitments);

 

 

the uncertainty of the extent, duration and effects of the COVID-19 pandemic and the response of governments

the ability to attract and retain qualified personnel;

 

 

the availability and terms of capital to fund acquisitions and capital improvements;

 

 

the competitive environment in which we operate;

our need to make investments continually in our processes and information systems to protect the privacy of patients, partners and other persons and reduce the risk of successful cybersecurity attacks;

 

damage to our reputation, regulatory penalties, legal claims and liability under state and federal laws that we could suffer upon any cybersecurity or privacy breaches;

the ability to maintain and increase census levels; and

 

 

demographic changes.

 

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See the notes to the quarterly financial statements, and “Item 1. Business” in our 20212022 Annual Report on Form 10–K for a discussion of various governmental regulations and other operating factors relating to the healthcare industry and the risk factors inherent in them. This may be found on our web site at www.nhccare.com. You should carefully consider these risks before making any investment in the Company. These risks and uncertainties are not the only ones facing us. There may be additional risks that we do not presently know of or that we currently deem immaterial. If any of the risks occur, our business, financial condition or results of operations could be materially adversely affected. In that case, the trading price of our shares of stock could decline, and you may lose all or part of your investment. Given these risks and uncertainties, we can give no assurances that these forward–looking statements will, in fact, transpire and, therefore, caution investors not to place undue reliance on them.

 

Overview

 

National HealthCare Corporation (“NHC” or the “Company”) is a leading provider of senior health care services. WeAs of March 31, 2023, we operate or manage, through certain affiliates, 7568 skilled nursing facilities with a total of 9,4568,732 licensed beds, 2423 assisted living facilities with 1,181 units, five independent living facilities, onethree behavioral health hospital, 35hospitals, 34 homecare agencies, and 2930 hospice agencies. We operate specialized care units within certain of our healthcare centers such as Alzheimer's disease care units and sub-acute nursing units. In addition, we provide insurance services, management and accounting services, and we lease properties to operators of skilled nursing and assisted living facilities. We operate in 108 states and are located primarily in the southeastern United States.

 

 

Impact of COVID-19

 

In early March 2020, COVID-19, a disease caused by the novel strain of the coronavirus, was characterized as a pandemic by the World Health Organization. As a provider of healthcare services, we arewere significantly exposed to the public health and economic effects of the COVID-19 pandemic.  NHC’s primary objective was and has remained the same throughout the COVID-19 pandemic: that is to protect the health and safety of our patients, residents, and partners (employees). We continue to follow all guidance from the Centers for Medicare and Medicaid Services (“CMS”), the Centers for Disease Control and Prevention (“CDC”), and state and local health departments to prevent the spread of the disease within our operations. 

 

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We began our first vaccination clinics in our skilled nursing facilities around the middle ofin December 2020. As the vaccination clinics progressed and as the vaccine became more accessible, we began to see a significant decline in COVID-19 cases among our operations, as well as a significant decrease in 2021.the adverse health events related to COVID. Despite the COVID-19 cases significantlyand adverse health events from COVID declining, during 2021, our operating expenses remainremained elevated with incentive compensation being paid to ourattract and retain frontline partners, as well as increased costs of personal protective equipment (“PPE”), sanitizers and cleaning supplies, and COVID-19 testing of our patients and partners. Despite the continued disruption of COVID-19 to our operations, our capital and financial resources, including our overall liquidity, remain strong. Our liquidity provides us with significant flexibility to maintain the strength of our balance sheet in periods of uncertainty or stress.

 

At this time, we are not able to quantify the impact that the COVID-19 pandemic will have on our future financial results, but we expect the developments related to COVID-19 to adversely affect our financial performance in 2022.  The ultimate impact of the pandemic on our financial results will depend on, among other factors, the duration and severity of the pandemic, the volume of acute and post-acute healthcare patients cared for across the broader health care systems, the timing and availability of effective medical treatments and vaccines, and the impact of government actions and administrative regulations on our industry and broader economy, including future government stimulus efforts.  We have received and may continue to receive payments and advances from the various federal and state initiatives. These legislative initiatives have been beneficial to partially mitigate the impact of the COVID-19 pandemic on our results of operations and financial position to date.  The federal and state governments may consider additional stimulus and relief efforts, but we are unable to predict whether any of the additional stimulus measures will be enacted or their impact.   

Legislation and Government Stimulus Due to COVID-19

 

The U.S. government enacted several laws beginning in March 2020 designed to help the nation respond to the COVID-19 pandemic. The new laws impacted healthcare providers in a variety of ways, but the largest legislation from a monetary relief perspective iswas the CARES Act. Through the CARES Act, as well as the PPPCHE, the federal government allocated $178 billion to the Public Health and Social Services Emergency Fund, which is referred to as the Provider Relief Fund. The Provider Relief Fund is administered through grants and other mechanisms to skilled nursing providers, home health providers, hospitals, and other Medicare and Medicaid enrolled providers to cover unreimbursed health care related expenses or lost revenue attributable to the public health emergency resulting from COVID-19.    

 

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The Provider Relief Fund grants come with terms and condition certifications in which all providers are required to submit documents to ensure the funds will beare used for healthcare-related expenses or lost revenue attributable to COVID-19. The Company recorded $10,620,000$0 and $22,749,000$10,620,000 of government stimulus income from the Provider Relief Funds for the three months ended March 31, 20222023 and 2021,2022, respectively. The grant income was determined on a systemicsystematic basis in line with the recognition of specific expenses and lost revenues for which the grants are intended to compensate. The Company’s assessment of whether the terms and conditions for amounts received have been met for income recognition and the Company’s related income calculation considered all frequently asked questions and other interpretive guidance issued to date by HHS.

Additionally, as partthe U.S. Department of the CARES Act, the legislation included an expansion of the Medicare AcceleratedHealth and Advance Payment Program. We received approximately $51,253,000 as part of this program. These funds are applied against claims for services provided to Medicare patients after approximately one year from the date we received the funds. Recoupment of the accelerated payments began in the second quarter of 2021. As of March 31, 2022, $5,003,000 of the accelerated payments remain and is reflected within contract liabilities in the interim condensed consolidated balance sheet.

The CARES Act and subsequent related legislation temporarily suspended Medicare sequestration beginning May 1, 2020 through March 31, 2022. The Medicare sequestration policy reduces fee-for-service Medicare payments by 2 percent. Beginning April 1, 2022, the sequestration reductions will then be 1% from April 1, 2022 through June 30, 2022. The full 2% reduction is scheduled to go back into effect July 1, 2022. The CARES Act extends the sequestration policy through 2030 in exchange for this temporary suspension, which the sequestration reduction for 2030 has been increased up to 3%Human Services (“HHS”).

 

The CARES ActWe have also temporarily permitted employers to defer the deposit and paymentreceived supplemental Medicaid payments from many of the employer’s portion ofstates in which we operate to help mitigate the social security taxes (6.2% of employee wages) that otherwise wouldincremental costs resulting from the COVID-19 public health emergency. We have been due between March 27, 2020recorded $4,883,000 and December 31, 2020. The provision requires that$5,538,000 in net patient revenues for these supplemental Medicaid payments for the deferred taxes be paid over a two-year period with half the amount required to be paid by December 31, 2021, and the other half by December 31, 2022. Atthree months ended March 31, 2023 and 2022, we have deferred $10,545,000 of the Company’s share of the social security taxes included in the current liabilities section of the consolidated balance sheet. respectively.

 

 

Summary of Goals and Areas of Focus

 

Occupancy

 

A primary area of management focus continues to be the rates of occupancy within our skilled nursing facilities. The overall census in owned and leased skilled nursing facilities for the three months ending March 31, 20222023 was 82.7%87.4% compared to 76.8%82.7% for the same period a year ago.  

 

Due to the pandemic, as well as the increased availability of assisted living facilities and home and community-based services,America’s healthcare labor shortage, the challenge of maintaining desirable patient census levels has been amplified. Management has undertaken a number of steps in order to best position our current and future health care facilities. This includes working internally to examine and improve systems to be most responsive to referral sources and payors.payors, as well as find creative initiatives to retain and attract qualified healthcare professionals. Additionally, NHC is in various stages of partnerships with hospital systems, payors, and other post–acute alliances to better position ourselves so we are an active participant in the delivery of post-acute healthcare services.

 

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Quality of Patient Care

 

CMS introduced the Five-Star Quality Rating System to help consumers, their families and caregivers compare skilled nursing facilities more easily. The Five-Star Quality Rating System gives each skilled nursing operation a rating ranging between one and five stars in various categories (five stars being the best). The Company has always strived for patient-centered care and quality outcomes as precursors to outstanding financial performance.

 

The tables below summarize NHC's overall performance in these Five-Star ratings versus the skilled nursing industry as of March 31, 2022:2023:

 

  

NHC Ratings

  

Industry Ratings

 

Total number of skilled nursing facilities, end of period

  75     

Number of 4 and 5-star rated skilled nursing facilities

  58     

Percentage of 4 and 5-star rated skilled nursing facilities

  77%   44% 

Average rating for all skilled nursing facilities, end of period

  4.1   3.1 

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NHC Ratings

  

Industry Ratings

 

Total number of skilled nursing facilities, end of period

  68     

Number of 4 and 5-star rated skilled nursing facilities

  40     

Percentage of 4 and 5-star rated skilled nursing facilities

  59%   37% 

Average rating for all skilled nursing facilities, end of period

  3.6   2.9 

 

Development and Growth

 

We are undertaking to expand our senior care operations while protecting our existing operations and markets. The following table lists our recent development activities.

 

Type of

Operation

  

Description

  

Size

  

Location

  

Placed in Service

Homecare

New Office

1 office

Anderson, SC

January 2022

Hospice

  

AcquisitionNew Office

  

28 offices1 office

  

VariousTullahoma, TN

  

June 2021March 2022

Behavioral Health Hospital

  

New Facility

  

64 beds

  

Knoxville, TN

  

April 2022

Behavioral Health Hospital

  

New Facility

  

16 beds

  

St. Louis, MO

  

MayJune 2022

HospiceNew Office1 officeCedar Bluff, VAMarch 2023

 

Accrued Risk Reserves

 

Our accrued professional liability and workers’ compensation reserves totaled $101,413,000$105,626,000 at March 31, 20222023 and are a primary area of management focus. We have set aside restricted cash and cash equivalents and marketable securities to fund our estimated professional liability and workers’ compensation liabilities.

 

As to exposure for professional liability claims, we have developed performance certification criteria to measure and bring focus to the patient care issues most likely to produce professional liability exposure, including in–house acquired pressure ulcers, significant weight loss and numbers of falls. These programs for certification, which we regularly modify and improve, have produced measurable improvements in reducing these incidents. Our experience is that achieving goals in these patient care areas improves both patient and employee satisfaction.

 

 

Government Reimbursement Programs

 

Medicare Skilled Nursing Facilities

 

OnIn July 29, 2021,2022, CMS released its final rule outlining fiscal year 2022 Medicare payment rates and policy changes for skilled nursing facilities, which began October 1, 2021. The fiscal year 2022 rule provided for an approximate 1.2% increase, or $410 million, compared to 2021 levels. The net increase includes a 2.7% market-basket update that is offset by a 0.7% productivity adjustment and a 0.8% market-basket forecast error adjustment since the difference between the projected and actual market basket for FY2020 exceeded its threshold.

In April 2022, CMS released its proposed rule outlining fiscal year 2023 Medicare payment rates and policy changes for skilled nursing facilities, which will beginbegan on October 1, 2022. The fiscal year 2023 rule provided for an approximate 2.7% increase, or $904 million, compared to 2022 levels. The net increase includes a 3.9% market-basket increase plus a 1.5% market basket forecast error adjustment, less a 0.3% productivity adjustment and a 2.3% decrease in the FY 2023 SNF PPS rates as a result of the recalibrated parity adjustment. The recalibrated parity adjustment is a total of 4.6% and is being phased in over the next two years (2.3% annually).

In April 2023, CMS released its proposed rule outlining fiscal year 2024 Medicare payment rates and policy changes for skilled nursing facilities, which will begin on October 1, 2023. The fiscal year 2024 proposed rule equates to a net decreaseincrease of 0.7%3.7%, or approximately $320 million,$1.2 billion, in Medicare Part A payments to SNFs in fiscal year 20232024 compared to 20222023 levels.  The proposed rule includes a 2.8%2.7% market basket rate increase, a 1.5% increase for3.6% market basket forecast error adjustment, andless a 0.4% decrease for multifactor0.2% productivity adjustment, foras well as a net update of 3.9%. But, CMS also proposes to offset the 3.9% increase with a downward adjustment to payment rates by 4.6%negative 2.3%, or $1.7 billion, to achieve budget neutrality fromapproximately $745 million, decrease in 2024 SNF Payment Prospective Systems rates as a result of the aggregate fiscal year 2020 Medicare payments undersecond phase of the new Patient Driven Payment Model.Model parity adjustment recalibration.

 

For the first three months of 2022,2023, our average Medicare per diem rate for skilled nursing facilities increased 1.2%2.1% as compared to the same period in 2021.2022. 

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Medicaid Skilled Nursing Facilities

 

Effective July 1, 20212022 and for the fiscal year 2022,2023, the state of Tennessee implemented specific individual nursing facility increases. We estimate the resulting increase in revenue for the 20222023 fiscal year will be approximately $3,500,000$3,200,000 annually, or $875,000$800,000 per quarter.

 

Effective JulyOctober 1, 20212022 and for the fiscal year 2022,2023, the state of MissouriSouth Carolina implemented specific individual nursing facility increases. We estimate the resulting increase in revenue for the 20222023 fiscal year will be approximately $2,000,000$3,735,000 annually, or $500,000$934,000 per quarter.

 

We have also received from many of the states in which we operate supplemental Medicaid payments to help mitigate the incremental costs resulting from the COVID-19 public health emergency. We have recorded $5,538,000$4,883,000 and $3,955,000$5,538,000 in net patient revenues for these supplemental Medicaid payments for the three months ended March 31, 2023 and 2022, and 2021, respectively.

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For the first three months of 2022,2023, our average Medicaid per diem increased 4.8%3.6% compared to the same period in 2021.2022.

 

We face challengesState Medicaid plans subject to budget constraints are of particular concern to us. Changes in federal funding coupled with respectstate budget problems and Medicaid expansion under the Affordable Care Act have produced an uncertain environment. Some states will not keep pace with post-acute healthcare inflation. States are currently under pressure to states’pursue other alternatives to skilled nursing care such as community and home–based services. Medicaid programs are funded jointly by the federal government and the states and are administered by states under approved plans.  Most state Medicaid payments because many currently do not cover the total costs incurred in providing careare made under a prospective payment system or under programs which negotiate payment levels with individual providers.  Some states use, or have applied to those patients. States will continueuse, waivers granted by CMS to control Medicaid expenditures and also look for adequate funding sources, including provider assessments. There are several pieces of legislationimplement expansion, impose different eligibility or enrollment restrictions, or otherwise implement programs that include provisions designed to reduce Medicaid spending. These provisions include, among others, provisions strengthening the Medicaid asset transfer restrictions for persons seeking to qualify for Medicaid long-term care coverage, which could, due to the timing of the penalty period, increase facilities’ exposure to uncompensated care. Other provisions could increase state funding for home and community-based services, potentially having an impact on funding for nursing facilities.vary from federal standards.

 

Medicare Homecare Programs

 

In November 2021,October 2022, CMS released its final rule outlining fiscal year 20222023 Medicare payment rates. CMS projects payments to home health agencies in fiscal year 20222023 will increase in aggregate by 3.2%0.7%, or $570$125 million. The increase reflects the effects of the home health payment update percentage of 2.6%4.0%, a permanent behavioral assumption adjustment resulting in a decrease of 3.5%, and an estimated 0.7%0.2% increase that reflects the effects of an update to the updated fixed-dollar loss ratio and an estimated 0.1% decreaseused in payments due to the changes in the rural add-on percentages for 2022.determining outlier payments.

 

Medicare Hospice

 

In July 2021,2022, CMS released its final rule outlining fiscal year 20222023 Medicare payment rates. CMS issued a rate increase of 2.0%3.8%, or $480$825 million, effective October 1, 2021.2022. The increase is the result of a 2.7%4.1% inpatient hospital market basket increase reduced by a 0.7%0.3% productivity adjustment. The FY2022FY2023 hospice payment updatesupdate also includeincludes an update to the statutory aggregate cap amount, which limits the overall payments per patient that are made annually. The cap amount for FY2022 is $31,298.FY2023 would be $32,487.

 

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Segment Reporting

 

The Company has two reportable operating segments: (1) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and our behavioral health hospital;hospitals; and (2) homecare and hospice services. These reportable operating segments are consistent with information used by the Company’s Chief Executive Officer, as chief operating decision maker (“CODM”), to assess performance and allocate resources.

The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. For additional information on these reportable segments see Note 2 – Summary of Significant Accounting Policies.

 

The Company’s CODM evaluates performance and allocates capital resources to each segment based on an operating model that is designed to improve the quality of patient care and profitability of the Company while enhancing long-term shareholder value. The CODM does not review assets by segment in his resource allocation and therefore, assets by segment are not disclosed below.

 

The following table sets forth the Company’s unaudited interim condensed consolidated statements of operations by business segment (in thousands):

 

 

Three Months Ended March 31, 2022

  

Three Months Ended March 31, 2023

 
 

Inpatient
Services

  

Homecare

and Hospice

  

All Other

  

Total

  

Inpatient
Services

  

Homecare

and Hospice

  

All Other

  

Total

 

Revenues:

 

Revenues and grant income:

 

Net patient revenues

 $224,842  $31,495  $-  $256,337  $226,169  $31,838  $-  $258,007 

Other revenues

 114  -  11,912  12,026   271   -   11,285   11,556 

Government stimulus income

  10,620   -   -   10,620 

Net operating revenues and grant income

 235,576  31,495  11,912  278,983  226,440  31,838  11,285  269,563 
  

Costs and expenses:

  

Salaries, wages, and benefits

 142,185  19,401  9,108  170,694  138,939  20,244  8,641  167,824 

Other operating

 64,383  7,095  2,607  74,085  62,264  5,499  3,726  71,489 

Rent

 8,347  592  1,126  10,065  8,168  558  1,366  10,092 

Depreciation and amortization

 8,838  113  806  9,757  9,117  185  746  10,048 

Interest

  165   -   -   165   98   -   -   98 

Total costs and expenses

  223,918   27,201   13,647   264,766   218,586   26,486   14,479   259,551 
  

Income (loss) from operations

 11,658  4,294  (1,735

)

 14,217 

Income/(loss) from operations

 7,854  5,352  (3,194

)

 10,012 

Non-operating income

 -  -  3,199  3,199  -  -  4,323  4,323 

Unrealized gains on marketable equity securities

  -   -   3,126   3,126   -   -   1,386   1,386 
  

Income before income taxes

 $11,658  $4,294  $4,590  $20,542  $7,854  $5,352  $2,515  $15,721 

  

Three Months Ended March 31, 2022

 
  

Inpatient
Services

  

Homecare

and Hospice

  

All Other

  

Total

 

Revenues:

                

Net patient revenues

 $224,842  $31,495  $-  $256,337 

Other revenues

  114   -   11,912   12,026 

Government stimulus income

  10,620   -   -   10,620 

Net operating revenues and grant income

  235,576   31,495   11,912   278,983 
                 

Costs and expenses:

                

Salaries, wages, and benefits

  142,185   19,401   9,108   170,694 

Other operating

  64,383   7,095   2,607   74,085 

Rent

  8,347   592   1,126   10,065 

Depreciation and amortization

  8,838   113   806   9,757 

Interest

  165   -   -   165 

Total costs and expenses

  223,918   27,201   13,647   264,766 
                 

Income/(loss) from operations

  11,658   4,294   (1,735

)

  14,217 

Non-operating income

  -   -   3,199   3,199 

Unrealized gains on marketable equity securities

  -   -   3,126   3,126 
                 

Income before income taxes

 $11,658  $4,294  $4,590  $20,542 

 

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29

  

Three Months Ended March 31, 2021

 
  

Inpatient
Services

  

Homecare

  

All Other

  

Total

 

Revenues:

                

Net patient revenues

 $203,242  $13,613  $-  $216,855 

Other revenues

  98   -   11,271   11,369 

Government stimulus income

  22,749   -   -   22,749 

Net operating revenues and grant income

  226,089   13,613   11,271   250,973 
                 

Costs and expenses:

                

Salaries, wages, and benefits

  131,811   9,435   7,913   149,159 

Other operating

  61,808   1,915   2,401   66,124 

Rent

  8,194   431   1,438   10,063 

Depreciation and amortization

  9,263   87   811   10,161 

Interest

  244   -   -   244 

Total costs and expenses

  211,320   11,868   12,563   235,751 
                 

Income/(loss) from operations

  14,769   1,745   (1,292

)

  15,222 

Non-operating income

  -   -   6,260   6,260 

Unrealized gains on marketable equity securities

  -   -   7,059   7,059 
                 

Income before income taxes

 $14,769  $1,745  $12,027  $28,541 

 

Non-GAAP Financial Presentation

 

The Company is providing certain non-GAAP financial measures as the Company believes that these figures are helpful in allowing investors to more accurately assess the ongoing nature of the Company’s operations and measure the Company’s performance more consistently across periods. Therefore, the Company believes this information is meaningful in addition to the information contained in the GAAP presentation of financial information. The presentation of this additional non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

 

Specifically, the Company believes the presentation of non-GAAP financial information that excludes the unrealized gains or losses on our marketable equity securities, operating results for the newly constructed healthcare facilities or start-up operations not at full capacity, and share-based compensation expense is helpful in allowing investors to assess the Company’s operations more accurately.

 

The operating results for the newly constructed healthcare facilities not at full capacity for the three months ended March 31, 2023 include facilities that began operations from 2021 to 2023, which is two behavioral health hospitals, one homecare agency, and two hospice agencies. For the three months ended March 31, 2022, includeincluded are facilities that began operations from 2020 to 2022, which is two behavioral health hospitals that will be licensed and operating during the second quarter of 2022. For the three months ended March 31, 2021, included are facilities that began operations from 2019 to 2021, which is one memory care facility.hospitals.

 

The tables below provide reconciliations of GAAP to non-GAAP items (dollars in thousands, except per share data):

 

 

Three Months Ended

March 31

  

Three Months Ended

March 31

 
 

2022

  

2021

  

2023

  

2022

 
  

Net income attributable to National Healthcare Corporation

 $15,318  $21,267  $11,723  $15,318 

Non-GAAP adjustments:

 

Non-GAAP adjustments

 

Unrealized gains on marketable equity securities

 (3,126

)

 (7,059

)

 (1,386

)

 (3,126

)

Operating results for newly opened facilities not at full capacity

 743  245 

Operating results for newly opened facilities or agencies not at full capacity

 1,217  743 

Share-based compensation expense

 712  496  639  712 

Provision of income taxes on non-GAAP adjustments

  434   1,643 

Income tax (benefit)/provision on non-GAAP adjustments

  (122

)

  434 

Non-GAAP Net income

 $14,081  $16,592  $12,071  $14,081 
  
  

GAAP diluted earnings per share

 $0.99  $1.38  $0.76  $0.99 

Non-GAAP adjustments:

 

Non-GAAP adjustments

 

Unrealized gains on marketable equity securities

 (0.15

)

 (0.33

)

 (0.06

)

 (0.15

)

Operating results for newly opened facilities not at full capacity

 0.04  0.01 

Operating results for newly opened facilities or agencies not at full capacity

 0.06  0.04 

Share-based compensation expense

  0.03   0.02   0.03   0.03 

Non-GAAP diluted earnings per share

 $0.91  $1.08  $0.79  $0.91 

 

2930

 

Results of Operations

 

The following table and discussion set forth items from the interim condensed consolidated statements of operations as a percentage of net operating revenues and grant income for the three months ended March 31, 20222023 and 2021.2022.

 

Percentage of Net Operating Revenues and Grant Income

 

 

Three Months Ended
March 31

  

Three Months Ended
March 31

 
 

2022

  

2021

  

2023

  

2022

 

Net operating revenues and grant income

 100.0% 100.0

%

 100.0

%

 100.0

%

Costs and expenses:

  

Salaries, wages, and benefits

 61.2  59.4  62.3  61.2 

Other operating

 26.6  26.3  26.5  26.6 

Facility rent

 3.5  4.0  3.7  3.5 

Depreciation and amortization

 3.5  4.1  3.7  3.5 

Interest

  0.1   0.1   0.1   0.1 

Total costs and expenses

  94.9   93.9   96.3   94.9 

Income from operations

 5.1  6.1  3.7  5.1 

Non–operating income

 1.2  2.5  1.6  1.2 

Unrealized gains on marketable equity securities

  1.1   2.8   0.5   1.1 

Income before income taxes

 7.4  11.4  5.8  7.4 

Income tax provision

  (1.9

)

  (2.9

)

  (1.6

)

  (1.9

)

Net income

 5.5  8.5  4.2  5.5 

Net income attributable to noncontrolling interest

  0.0   0.0 

Net loss/(income) attributable to noncontrolling interest

  0.1   0.0 

Net income attributable to stockholders of NHC

  5.5%  8.5

%

  4.3

%

  5.5

%

 

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Results for the quarter ended March 31, 2023 compared to the first quarter of 2022 include a 3.4% decrease in net operating revenues and grant income. The net operating revenues and grant income decrease was primarily driven by the reduction in government stimulus income of $10,620,000 during the first quarter of 2023 compared to the same period a year ago, as well as us exiting the seven skilled nursing facilities in Massachusetts and New Hampshire during the third quarter of 2022. Excluding the government stimulus income and the seven skilled nursing facilities in Massachusetts and New Hampshire, same-facility net operating revenues increased 7.1% during the first quarter of 2023 compared to the same period a year ago. 

For the quarter ended March 31, 2023, GAAP net income attributable to NHC was $11,723,000 compared to net income of $15,318,000 for the same period in 2022. Excluding the unrealized gains in our marketable equity securities portfolio and other non-GAAP adjustments, adjusted net income for the quarter ended March 31, 2023 was $12,071,000 compared to $14,081,000 for the same period in 2022.  The decrease in adjusted net income for the first quarter of 2023 compared to the first quarter of 2022 was primarily due to the $10,620,000 less in government stimulus income recorded during the current quarter.  

Net operating revenues and grant income

Net patient revenues increased $1,670,000, or 0.7%, compared to the same period last year.

The total census at owned and leased skilled nursing facilities for the quarter averaged 87.4%, compared to an average of 82.7% for the same quarter a year ago. Overall, the composite skilled nursing facility per diem increased 3.3% compared to the same quarter a year ago. Our Medicare per diem rates increased 2.1% and managed care per diem rates increased 2.7% compared to the same quarter a year ago. Medicaid and private pay per diem rates increased 3.6% and 3.1%, respectively, compared to the same quarter a year ago. For the three months ended March 31, 2023 and 2022, respectively, $4,883,000 and $5,538,000 have been included in our net patient revenues for supplemental COVID-19 Medicaid payments.

In September 2022, the Company transferred the operations of seven skilled nursing facilities located in Massachusetts and New Hampshire resulting in net patient revenues decreasing $16,603,000 for the three months ended March 31, 2023 compared to the same quarter last year. 

Other revenues decreased $470,000, or 3.9%, compared to the same quarter last year, as further detailed in Note 5 to our interim condensed consolidated financial statements.

During the three months ended March 31, 2023 and 2022, respectively, we recorded $0 and $10,620,000 in government stimulus income related to funds received from the CARES Act Provider Relief Fund. See Note 3 - Coronavirus Pandemic for additional information.  

31

Total costs and expenses

Total costs and expenses for the three months ended March 31, 2023 compared to the same period of 2022 decreased $5,215,000, or 2.0% to $259,551,000 from $264,766,000.

Salaries, wages, and benefits decreased $2,870,000, or 1.7%, to $167,824,000 from $170,694,000. Salaries, wages, and benefits as a percentage of net operating revenues and grant income was 62.3% compared to 61.2% for the three months ended March 31, 2023 and 2022, respectively. We continue to face workforce and labor shortages within all of our operations, which increases wage pressure in regards to retaining and attracting qualified healthcare partners (employees). The labor and workforce shortages have resulted in us contracting with agency nurse staffing companies.  The agency nurse staffing companies charge inflated hourly rates; therefore, we are working diligently to find solutions to reduce and eliminate the agency nurse staffing within our healthcare operations. For the quarter ended March 31, 2023, our agency nurse staffing expense decreased $4,941,000, or approximately 34%, compared to the same period a year ago.  

In September 2022, the Company transferred the operations of seven skilled nursing facilities located in Massachusetts and New Hampshire resulting in salaries, wages, and benefits decreasing $11,884,000 for the three months ended March 31, 2023 compared to the same quarter last year.

Other operating expenses decreased $2,596,000, or 3.5%, to $71,489,000 for the 2023 period compared to $74,085,000 for the 2022 period. Other operating expenses as a percentage of net operating revenues and grant income was 26.5% and 26.6% for the three months ended March 31, 2023 and 2022, respectively. The transfer of the operations of the seven skilled nursing facilities located in Massachusetts and New Hampshire, as noted above, resulted in other operating expenses decreasing $5,206,000 for the three months ended March 31, 2023 compared to the same quarter last year. We continue to face inflationary pressures in certain categories within other operating expenses as well, such as food/dietary supplies and drugs/pharmaceutical supplies.  

Other income

Non–operating income increased by $1,124,000 compared to the same period last year, as further detailed in Note 6 to our interim condensed consolidated financial statements.

Income taxes

The income tax provision for the three months ended March 31, 2023 is $4,436,000 (an effective income tax rate of 28.2%). 

Noncontrolling interest

The noncontrolling interest in subsidiaries is presented within total equity of the Company’s consolidated balance sheets. The Company presents the noncontrolling interest and the amount of consolidated net income attributable to NHC in its consolidated statements of operations. The Company’s earnings per share is calculated based on net income attributable to NHC’s stockholders. The carrying amount of the noncontrolling interest is adjusted based on an allocation of subsidiary earnings based on ownership interest.

 

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

 

Results for the quarter ended March 31, 2022 compared to the first quarter of 2021 include an 11.2% increase in net operating revenues and grant income and a 6.6%income.  Despite the decrease in income from operations. Provider Relief Funds, the net operating revenues increase was primarily due to the census increase in our skilled nursing facilities and the June 2021 acquisition of Caris Healthcare, a hospice provider.   

For the quarter ended March 31, 2022, GAAP net income attributable to NHC was $15,318,000 compared to net income of $21,267,000 for the same period in 2021.

Excluding the unrealized gains in our marketable equity securities portfolio and other non-GAAP adjustments, adjusted net income for the quarter ended March 31, 2022 was $14,081,000 compared to $16,592,000 for the same period in 2021.  The decrease in adjusted net income for the first quarter of 2022 compared to the first quarter of 2021 was primarily due to less government stimulus income recorded during the current quarter, as well as higher inflationary pressures on labor costs.  

 

Net operating revenues and grant income

 

Net patient revenues increased $39,482,000, or 18.2%, compared to the same period last year.

32

 

The total census at owned and leased skilled nursing facilities for the quarter averaged 82.7%, compared to an average of 76.8% for the same quarter a year ago. Overall, the composite skilled nursing facility per diem increased 2.9% compared to the same quarter a year ago. Our Medicare per diem rates increased 1.2% and managed care per diem rates increased 6.9% compared to the same quarter a year ago. Medicaid and private pay per diem rates increased 4.8% and 9.2%, respectively, compared to the same quarter a year ago. For the three months ended March 31, 2022 and 2021, respectively, $5,538,000 and $3,955,000 have been included in our net patient revenues for these supplemental COVID-19 Medicaid payments.

 

In June 2021, the Company acquired the remaining ownership interest in Caris, which resulted in net patient revenues increasing $17,785,000 for the three months ended March 31, 2022 compared to the first quarter of 2021.

 

Other revenues increased $657,000, or 5.8%, compared to the same quarter last year, as further detailed in Note 5 to our interim condensed consolidated financial statements.

 

During the three months ended March 31, 2022 and 2021, respectively, we recorded $10,620,000 and $22,749,000 in government stimulus income related to funds received from the CARES Act Provider Relief Fund. See Note 3 - Coronavirus Pandemic for additional information.  

30

 

Total costs and expenses

 

Total costs and expenses for the three months ended March 31, 2022 compared to the same period of 2021 increased $29,015,000, or 12.3% to $264,766,000 from $235,751,000.

 

Salaries, wages, and benefits increased $21,535,000, or 14.4%, to $170,694,000 from $149,159,000. Salaries, wages, and benefits as a percentage of net operating revenues and grant income was 61.2% compared to 59.4% for the three months ended March 31, 2022 and 2021, respectively. Our Caris acquisition increased salaries, wages, and benefits $10,224,000 in the first quarter of 2022 compared to the same quarter a year ago. We continue to face tremendous workforce and labor shortages within all of our operations, which increases wage pressure and inflation in regard to retaining and attracting qualified healthcare partners (employees). With the workforce environment being so challenging, the largest expense increase from a labor standpoint is in our agency nurse staffing.  Our agency nurse staffing expense increased $12,435,000 for the first quarter of 2022 compared to the same quarter a year ago.

 

Other operating expenses increased $7,961,000, or 12.0%, to $74,085,000 for the 2022 period compared to $66,124,000 for the 2021 period. Other operating expenses as a percentage of net operating revenues and grant income was 26.6% and 26.3% for the three months ended March 31, 2022 and 2021, respectively. Our Caris acquisition increased other operating expenses $5,104,000 in the first quarter of 2022 compared to the same quarter a year ago. We continue to face inflationary pressures in certain categories within other operating expenses as well, such as food/dietary supplies and drugs/pharmaceutical supplies.  

 

Other income

 

Non–operating income decreased by $3,061,000 compared to the same period last year, as further detailed in Note 6 to our interim condensed consolidated financial statements.

 

Income taxes

 

The income tax provision for the three months ended March 31, 2022 is $5,193,000 (an effective income tax rate of 25.3%). Excluding certain items, we expect our corporate (federal and state) income tax rate for 2022 to be approximately 26.0%. 

 

Noncontrolling interest

 

The noncontrolling interest in subsidiaries is presented within total equity of the Company’s consolidated balance sheets. The company presents the noncontrolling interest and the amount of consolidated net income attributable to NHC in its consolidated statements of operations. The Company’s earnings per share is calculated based on net income attributable to NHC’s stockholders. The carrying amount of the noncontrolling interest is adjusted based on an allocation of subsidiary earnings based on ownership interest.

 

 

Liquidity, Capital Resources, and Financial Condition

 

Our primary sources of cash include revenues from the operations of our healthcare and senior living facilities, management and accounting services, rental income, and investment income. Our primary uses of cash include salaries, wages and other operating costs of our healthcare and senior living facilities, the cost of additions to and acquisitions of real property, facility rent expenses, and dividend distributions. These sources and uses of cash are reflected in our interim condensed consolidated statements of cash flows and are discussed in further detail below.

 

The following is a summary of our sources and uses of cash flows (dollars in thousands):

 

 

Three Months Ended

March 31

  

Three Month Change

  

Three Months Ended

March 31

  

Three Month Change

 
 

2022

  

2021

      

%

  

2023

  

2022

     

%

 

Cash, cash equivalents, restricted cash, and restricted cash equivalents, at beginning of period

 $119,743  $158,502  $(38,759

)

 (24.5

)

 $74,865  $119,743  $(44,878

)

 (37.5

)

  

Cash (used in)/provided by operating activities

 (27,457

)

 12,589  (40,046

)

 (318.1

)

Cash provided by/(used in) operating activities

 13,857  (27,457

)

 41,314  150.5 
  

Cash used in investing activities

 (5,920

)

 (5,852

)

 (68

)

 (1.2

)

 (1,427

)

 (5,920

)

 4,493  75.9 
  

Cash used in financing activities

  (10,450

)

  (9,148

)

  (1,302

)

  (14.2

)

  (12,619

)

  (10,450

)

  (2,169

)

  (20.8

)

  

Cash, cash equivalents, restricted cash, and restricted cash equivalents, at end of period

 $75,916  $156,091  $(80,175

)

  (51.4

)

 $74,676  $75,916  $(1,240

)

  (1.6

)

 

31
33

 

Operating Activities

 

Net cash used inprovided by operating activities for the three months ended March 31, 20222023 was $27,457,000$13,857,000 as compared to cash provided byused in operating activities of $12,589,000$27,457,000 in the same period last year. Cash used inprovided by operating activities consisted of net income of $15,349,000$11,285,000 and adjustments for non–cash items of $9,444,000.$8,097,000. There was cash used for working capital needs in the amount of $52,250,000$6,017,000 for the three months ended March 31, 20222023 compared to $16,899,000$52,250,000 for the same period a year ago. 

 

Included in the adjustments for non-cash items are depreciation expense, equity in earnings of unconsolidated investments, unrealized lossesgains on our marketable equity securities, deferred taxes, and stock compensation.

 

Investing Activities

 

Net cash used in investing activities totaled $1,427,000 for the three months ended March 31, 2023, compared to $5,920,000 for the three months ended March 31, 2022, compared to $5,852,000 for the three months ended March 31, 2021.2022. Cash used for property and equipment additions was $8,962,000$6,640,000 and $4,327,000$8,962,000 for the three months ended March 31, 2023, and 2022, and 2021, respectively. The two behavioral health hospitals that are opening during the second quarter of 2022 were $4,430,000 of the property additions for the first quarter of 2022. Proceeds from the sale of marketable securities, net of purchases, resulted in cash provided by investing activity of $5,211,000 and $2,818,000 for the three months ended March 31, 2022.  For the three months ended March 31, 2021, proceeds from the sale of marketable securities, net of purchases, resulting in cash used in investing activities of $1,780,000.2023 and 2022, respectively. 

 

Financing Activities 

 

Net cash used in financing activities totaled $12,619,000 for the three months ended March 31, 2023 compared to $10,450,000 for the three months ended March 31, 2022 compared to $9,148,000 for the three months ended March 31, 2021.2022. We made principal payments under our finance lease obligations in the amount of $1,147,000$1,218,000 and $1,081,000$1,147,000 for the three months ended March 31, 20222023 and 2021,2022, respectively. Cash used for dividend payments to common stockholders totaled $8,493,000$8,748,000 in the current year period compared to $7,988,000$8,493,000 for the same period a year ago. We repurchased common shares outstanding in the amount of $2,482,000 in the current year period compared to $146,000 for the same period a year ago.

 

Shortterm liquidity

 

We expect to meet our short-term liquidity requirements primarily from our cash flows from operating activities. In addition to cash flows from operations, our current cash on hand of $56,993,000$46,144,000 and our marketable equity and debt securities of $149,035,000$118,647,000 are expected to be adequate to meet our contractual obligations, operating liquidity, and our growth and development plans in the next twelve months. 

 

Longterm liquidity

 

We expect to meet our long-term liquidity requirements primarily from our cash flows from operating activities, our current cash on hand of $56,993,000$46,144,000 and our marketable equity and debt securities of $149,035,000.$118,647,000. We also have substantial value in our unencumbered real estate assets which could potentially be used as collateral in future borrowing opportunities. At March 31, 2022,2023, we do not have any long-term debt.

 

Our ability to meet our long–term contractual obligations, and to finance our operating requirements and growth plans will depend upon our future performance. Our future performance will be affected by business, economic, financial and other factors, including potential changes in state and federal government payment rates for healthcare, customer demand, success of our marketing efforts, pressures from competitors, and the state of the economy, including the state of financial and credit markets, as well as many unforeseen factors.

 

 

Commitment and Contingencies

 

Governmental Regulations

 

Laws and regulations governing the Medicare, Medicaid and other federal healthcare programs are complex and subject to interpretation. Management believes that it is following all applicable laws and regulations in all material respects. However, 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 exclusions from the Medicare, Medicaid, and other federal healthcare programs. There have been several enacted and proposed federal and state relief measures as a result of COVID-19 which should provide support to us during this pandemic; however, the full benefit of any such programs would not be realized until these payments are fully implemented, government agencies issue applicable regulations, or guidance and such relief is provided.

 

32
34

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

 

Market risk represents the potential economic loss arising from adverse changes in the fair value of financial instruments. Currently, our exposure to market risk relates primarily to our fixed–income and equity portfolios. These investment portfolios are exposed primarily to, but not limited to, interest rate risk, credit risk, equity price risk, and concentration risk. We also have exposure to market risk that includes our cash and cash equivalents, notes receivable, and long–term debt.equivalents. The Company's senior management has established comprehensive risk management policies and procedures to manage these market risks.

 

Interest Rate Risk

 

The fair values of our fixed–income investments fluctuate in response to changes in market interest rates. Increases and decreases in prevailing interest rates generally translate into decreases and increases, respectively, in the fair values of those instruments. Additionally, the fair values of interest rate sensitive instruments may be affected by the creditworthiness of the issuer, prepayment options, the liquidity of the instrument and other general market conditions. At March 31, 2022,2023, we have available for sale marketable debt securities in the amount of $162,788,000.$139,222,000. The fixed maturity portfolio is comprised of investments with primarily short–term and intermediate–term maturities. The portfolio composition allows flexibility in reacting to fluctuations of interest rates. The fixed maturity portfolio allows our insurance company subsidiaries to achieve an adequate risk–adjusted return while maintaining sufficient liquidity to meet obligations.

 

Our cash and cash equivalents consist of highly liquid investments with a maturity of less than three months when purchased. As a result of the short–term nature of our cash instruments, a hypothetical 1% change in interest rates would have minimal impact on our future earnings and cash flows related to these instruments.

 

We do not currently use any derivative instruments to hedge our interest rate exposure. We have not used derivative instruments for trading purposes and the use of such instruments in the future would be subject to approvals by the Investment Committee of the Board of Directors.

 

Credit Risk

 

Credit risk is managed by diversifying the fixed maturity portfolio to avoid concentrations in any single industry group or issuer and by limiting investments in securities with lower credit ratings.

 

Equity Price and Concentration Risk

 

Our marketable equity securities are recorded at their fair market value based on quoted market prices. Thus, there is exposure to equity price risk, which is the potential change in fair value due to a change in quoted market prices. At March 31, 2022,2023, the fair value of our marketable equity securities is approximately $143,297,000.$124,210,000. Of the $143.3$124.2 million equity securities portfolio, our investment in NHI comprises approximately $96.2$84.1 million, or 67.2%67.7%, of the total fair value. We manage our exposure to NHI by closely monitoring the financial condition, performance, and outlook of the company. Hypothetically, a 10% change in quoted market prices would result in a related increase or decrease in the fair value of our equity investments of approximately $14.3$12.4 million. At March 31, 2022,2023, our equity securities had net unrealized gains of $88.5$70.0 million. Of the $88.5$70.0 million of unrealized gains, $71.5$59.4 million is related to our investment in NHI.

 

 

Item 4.

Controls and Procedures.

 

As of March 31, 2022,2023, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Principal Accounting Officer (“PAO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the CEO and PAO, concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2022.2023.

 

During the period covered by this report, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

35

 

PART II. OTHER INFORMATION

 

 

Item 1.

Legal Proceedings.

 

For a discussion of prior, current, and pending litigation of material significance to NHC, please see Note 1716 of this Form 10–Q.

 

Item 1A.

Risk Factors.

 

During the three months ended March 31, 2022,2023, there were no material changes to the risk factors that were disclosed in Item 1A of National HealthCare Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021.

2022.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

Not applicable

 

33

Item 3.

Defaults Upon Senior Securities.

 

None

 

Item 4.

Mine Safety Disclosures.

 

Not applicable

 

Item 5.

Other Information.

 

On May 3, 2022, we signed operations transfer agreements ("OTAs") for the seven skilled nursing facilities located in Massachusetts and New Hampshire.  After a period of up to 90 days after the signing of the OTAs, the operations of the seven facilities are expected to be transferred to a third-party skilled nursing operator.  We expect to transfer the operations during the third quarter of 2022.  None

 

The seven skilled nursing facilities had net patient revenues

36

 

Item 6.

Exhibits.

 

 

(a)        List of exhibits

 

EXHIBIT INDEX

 

Exhibit

No.

 

Description

   

3.1

 

Certificate of Incorporation of National HealthCare Corporation (Incorporated by reference to Exhibit 3.1 to the Registrant’s registration statement on Form S-4 (File No. 333-37185) dated October 3, 1997.)

   

3.2

 

Certificate of Amendment to the Certificate of Incorporation of National HealthCare Corporation (Incorporated by reference to Exhibit 3.5 to the quarterly report on Form 10-Q filed on August 3, 2017.)

   

3.3

 

Certificate of Designation Series B Junior Participating Preferred Stock (Incorporated by reference to Exhibit 3.1 to the Registrant’s registration statement on Form 8-A, dated August 3, 2007.)

   

3.4

 

Restated Bylaws as amended February 14, 2013 (Incorporated by reference to Exhibit 3.5 to the quarterly report on Form 10-Q filed on May 8, 2013.)

   

4.1

 

Form of Common Stock (Incorporated by reference to Exhibit 4.1 to the quarterly report on Form 10-Q filed on August 3, 2017.)

10.1

Amendment No. 9 to Master Agreement to Lease between National Health Investors, Inc. and National HealthCare Corporation (Incorporated by reference to Exhibit 10.1 to the quarterly report on Form 10-Q filed on November 3, 2022.)

10.2

Amendment No. 10 to Master Agreement to Lease between National Health Investors, Inc. and National HealthCare Corporation (Incorporated by reference to Exhibit 10.2 to the quarterly report on Form 10-Q filed on November 3, 2022.)

   

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 Principal Accounting Officer

   

32

 

Certification pursuant to 18 U.S.C. Section 1350 by Chief Executive Officer and Principal Accounting Officer

   

101.INS

 

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

   

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

   

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

   

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

   

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

   

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

   

104

 

Cover Page Interactive File (embedded within the Inline XBRL document and include in Exhibit 101)

 

34
37

 

SIGNATURES

 

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 thereunto duly authorized.

 

 

NATIONAL HEALTHCARE CORPORATION

 

(Registrant)

   

Date: May 5, 20224, 2023

/s/ Stephen F. Flatt                   

 
 

Stephen F. Flatt

 
 

Chief Executive Officer

 
   
   

Date: May 5, 20224, 2023

/s/ Brian F. Kidd                     

 
 

Brian F. Kidd

 
 

Senior Vice President and Controller

 
 

(Principal Accounting Officer)

 

 

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