FORM 10-Q | |
SECURITIES AND EXCHANGE COMMISSION | |
WASHINGTON, D.C. 20549 | |
Quarterly Report Under Section 13 of 15(d) | |
of the Securities Exchange Act of 1934 | |
For quarter ended June 30, 2003 | Commission file number 333-37185 |
NATIONAL HEALTHCARE CORPORATION | |
(Exact name of registrant as specified in its Charter) | |
Delaware | 52-2057472 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporate or organization | Identification No.) |
100 Vine Street | |
Murfreesboro, TN | 37130 |
(Address of principal | (Zip Code) |
executive offices) | |
Registrant's telephone number, including area code (615) 890-2020 | |
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. | |
Yes x | No |
(2) Has been subject to such filing requirements for the past 90 days. | |
Yes x | No |
Indicate by check mark whether the registrant is an accelerated filer. Yes x No | |
11,592,204 shares were outstanding as of July 31, 2003 |
PART I. FINANCIAL INFORMATION | ||||
Item 1. Financial Statements. | ||||
NATIONAL HEALTHCARE CORPORATION | ||||
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||
(Unaudited) | ||||
Three Months Ended | Six Months Ended | |||
June 30 | June 30 | |||
2003 | 2002 | 2003 | 2002 | |
(in thousands, except share and per share amounts) | ||||
REVENUES: | ||||
Net patient revenues | $ 104,682 | $ 101,074 | $ 205,846 | $ 201,366 |
Other revenues | 11,334 | 12,691 | 23,375 | 23,625 |
Net revenues | 116,016 | 113,765 | 229,221 | 224,991 |
COSTS AND EXPENSES: | ||||
Salaries, wages and benefits | 62,496 | 59,829 | 123,898 | 119,755 |
Other operating | 31,707 | 32,609 | 63,805 | 61,682 |
Rent | 10,418 | 10,362 | 20,799 | 20,756 |
Write-off of note receivable | --- | --- | --- | 2,760 |
Depreciation and amortization | 3,053 | 3,001 | 6,108 | 6,006 |
Interest | 556 | 887 | 1,120 | 1,813 |
Total costs and expenses | 108,230 | 106,688 | 215,730 | 212,772 |
INCOME BEFORE INCOME TAXES | 7,786 | 7,077 | 13,491 | 12,219 |
INCOME TAX PROVISION | (3,114) | (2,846) | (5,396) | (4,901) |
NET INCOME | $ 4,672 | $ 4,231 | $ 8,095 | $ 7,318 |
EARNINGS PER SHARE: | ||||
Basic | $ .40 | $ .37 | .70 | $ .64 |
Diluted | $ .39 | $ .35 | .67 | $ .61 |
WEIGHTED AVERAGE SHARES OUTSTANDING: | ||||
Basic | 11,596,572 | 11,504,101 | 11,596,229 | 11,511,186 |
Diluted | 12,070,071 | 11,970,708 | 12,064,052 | 11,962,768 |
The accompanying notes to interim condensed consolidated financial statements are an integral part of these statements.
NATIONAL HEALTHCARE CORPORATION | ||
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS | ||
(in thousands) | ||
ASSETS | ||
June 30 | December 31 | |
2003 | 2002 | |
(Unaudited) | ||
CURRENT ASSETS: | ||
Cash and cash equivalents | $ 78,955 | $ 68,932 |
Restricted cash held by trustees | 17,485 | 14,107 |
Marketable securities | 39,253 | 35,106 |
Accounts receivable, less allowance for | ||
doubtful accounts of $8,357 and $8,161 | 34,920 | 38,151 |
Notes receivable | 190 | 192 |
Inventory at lower of cost (first-in, | ||
first-out method) or market | 4,923 | 4,722 |
Deferred income taxes | 950 | 2,135 |
Prepaid expenses and other assets | 1,551 | 1,266 |
Total current assets | 178,227 | 164,611 |
PROPERTY AND EQUIPMENT: | ||
Property and equipment, at cost | 190,533 | 179,319 |
Less accumulated depreciation and amortization | (101,742) | (95,277) |
Net property and equipment: | 88,791 | 84,042 |
OTHER ASSETS: | ||
Bond reserve funds, mortgage replacement reserves | ||
and other deposits | 62 | 72 |
Goodwill | 3,033 | 3,033 |
Unamortized financing costs | 413 | 402 |
Notes receivable | 11,393 | 12,394 |
Notes receivable from National | 10,000 | 10,868 |
Notes receivable from ESOP | 17,857 | 17,857 |
Deferred income taxes | 11,734 | 10,835 |
Minority equity investments and other | 1,211 | 1,461 |
Total other assets | 55,703 | 56,922 |
$322,721 | $305,575 | |
The accompanying notes to interim condensed consolidated financial statements are an integral part | ||
of these consolidated balance sheets. | ||
The interim condensed balance sheet at December 31, 2002 is taken from the audited financial | ||
statements at that date. |
NATIONAL HEALTHCARE CORPORATION | ||
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS | ||
(in thousands, except share and per share amounts) | ||
LIABILITIES AND SHAREOWNERS' EQUITY | ||
June 30 | December 31 | |
2003 | 2002 | |
(Unaudited) | ||
CURRENT LIABILITIES: | ||
Current portion of long-term debt | $ 2,219 | $ 2,151 |
Trade accounts payable | 8,100 | 8,160 |
Accrued payroll | 27,077 | 30,508 |
Amounts due to third-party payors | 28,937 | 29,837 |
Accrued risk reserves | 39,268 | 31,632 |
Other current liabilities | 13,287 | 11,654 |
Accrued interest | 133 | 135 |
Total current liabilities | 119,021 | 114,077 |
LONG-TERM DEBT, LESS CURRENT PORTION | 25,215 | 26,220 |
DEBT SERVICED BY OTHER PARTIES, LESS CURRENT PORTION | 1,827 | 1,952 |
OTHER NONCURRENT LIABILITIES | 12,009 | 11,935 |
DEFERRED LEASE CREDIT | 6,644 | 7,043 |
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES | 794 | 750 |
DEFERRED INCOME | 26,245 | 23,457 |
COMMITMENTS, CONTINGENCIES AND GUARANTEES | ||
SHAREOWNERS' EQUITY: | ||
Preferred stock, $.01 par value; 10,000,000 shares | ||
authorized; none issued or outstanding | --- | --- |
Common stock, $.01 par value; 30,000,000 shares | ||
authorized; 11,596,635 and 11,593,978 shares, | ||
respectively, issued and outstanding | 116 | 115 |
Capital in excess of par value, less notes receivable | 71,831 | 71,722 |
Retained earnings | 49,934 | 41,839 |
Unrealized gains on securities | 9,085 | 6,465 |
Total shareowners' equity | 130,966 | 120,141 |
$322,721 | $305,575 |
The accompanying notes to interim condensed consolidated financial statements are in integral part of these |
consolidated balance sheets. |
The interim condensed balance sheet at December 31, 2002 is taken from the audited financial statements at that |
date. |
NATIONAL HEALTHCARE CORPORATION | ||
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
(Unaudited) | ||
Six Months Ended | ||
June 30 | ||
2003 | 2002 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | (in thousands) | |
Net income | $ 8,095 | $ 7,318 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation | 6,079 | 5,871 |
Write-off of note receivable | --- | 2,760 |
Provision for doubtful accounts receivable | 196 | 479 |
Amortization of intangibles and deferred charges | 27 | 135 |
Amortization of deferred income | (299) | (328) |
Deferred income | 2,085 | 987 |
Equity in earnings of unconsolidated investments | (177) | (152) |
Amortization of deferred lease credit | (399) | (399) |
Distributions from unconsolidated investments | 418 | 135 |
Deferred income taxes | (1,461) | (1,212) |
Changes in assets and liabilities: | ||
Accounts receivable | 3,035 | 1,383 |
Inventory | (201) | (208) |
Prepaid expenses and other assets | (285) | (854) |
Accounts payable | (60) | (160) |
Accrued payroll | (3,431) | (2,075) |
Amounts due to third party payors | (900) | 473 |
Accrued interest | (2) | 393 |
Other current liabilities and accrued risk reserves | 9,269 | 9,693 |
Entrance fee deposits | 1,002 | (34) |
Other non current liabilities | 74 | --- |
Net cash provided by operating activities | 23,065 | 24,205 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Additions to and acquisitions of property and equipment, net | (10,828) | (6,717) |
Investment in notes receivable | --- | (2,098) |
Collection of notes receivable | 1,871 | 113 |
Sales of marketable securities, net | 220 | 660 |
Net cash used in investing activities | (8,737) | (8,042) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Increase in cash held by trustee | (3,378) | (991) |
Increase in minority interests in subsidiaries | 44 | 58 |
Decrease in bond reserve funds, mortgage replacement reserves | ||
and other deposits | 10 | 2 |
Issuance of common shares | 40 | 270 |
Collection of receivables | 70 | 4,101 |
Payments on debt | (1,062) | (4,097) |
Increase in financing costs | (29) | (3) |
Net cash used in financing activities | (4,305) | (660) |
NET INCREASE IN CASH AND CASH EQUIVALENTS | 10,023 | 15,503 |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 68,932 | 42,198 |
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ 78,955 | $ 57,701 |
Supplemental Information: | ||
Cash payments for interest expense | $ 1,122 | $ 1,420 |
Cash payments for income taxes | $ 5,426 | $ 4,700 |
The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.
NATIONAL HEALTHCARE CORPORATION | |||||||
Interim Condensed Consolidated Statements of Shareowners' Equity | |||||||
(in thousands, except share amounts) | |||||||
(unaudited) | |||||||
Receivables | Unrealized | Total Share- | |||||
Common Stock | from Sale | Paid in | Retained | Gains (Losses) | owners' | ||
Shares | Amount | of Shares | Capital | Earnings | on Securities | Equity | |
Balance at 12/31/02 | 11,593,978 | $115 | $ (799) | $72,521 | $41,839 | $ 6,465 | $120,141 |
Net income | --- | --- | --- | --- | 8,095 | --- | 8,095 |
Unrealized losses on securities | --- | --- | --- | --- | --- | 2,620 | 2,620 |
Total Comprehensive Income | 10,715 | ||||||
Shares sold | 2,657 | 1 | --- | 39 | --- | --- | 40 |
Collection of receivables | --- | --- | 70 | --- | --- | --- | 70 |
Balance at 6/30/03 | 11,596,635 | $116 | $ (729) | $72,560 | $49,934 | $ 9,085 | $130,966 |
Balance at 12/31/01 | 11,476,956 | $114 | $(4,995) | $71,109 | $25,402 | $ 4,448 | $ 96,078 |
Net income | --- | --- | --- | --- | 7,318 | --- | 7,318 |
Unrealized gains on securities | --- | --- | --- | --- | --- | 3,368 | 3,368 |
Total Comprehensive Income | 10,686 | ||||||
Shares sold | 39,521 | 1 | --- | 269 | --- | --- | 270 |
Collection of receivables | --- | --- | 4,101 | --- | --- | --- | 4,101 |
Balance at 6/30/02 | 11,516,477 | $115 | $(894) | $71,378 | $32,720 | $ 7,816 | $111,135 |
The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.
Note 1 - CONSOLIDATED FINANCIAL STATEMENTS
The unaudited financial statements to which these notes are attached include, in our opinion, all adjustments which are necessary to fairly present the financial position, results of operations and cash flows of National HealthCare Corporation ("NHC" or the "Company"). We assume that users of these interim financial statements have read or have access to the audited December 31, 2002 financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations 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. Our audited December 31, 2002 financial statements are available at our web site: www.nhccare.com.
Note 2 - OTHER REVENUES
Three Months Ended | Six Months Ended | |||
June 30 | June 30 | |||
2003 | 2002 | 2003 | 2002 | |
(in thousands) | ||||
Revenues from management, accounting & financial services | $ 6,606 | $ 8,286 | $14,337 | $14,943 |
Guarantee fees | 54 | 47 | 86 | 101 |
Advisory fees from National Health Investors, Inc. and | ||||
National Health Realty, Inc. | 662 | 667 | 1,305 | 1,323 |
Dividends and other realized gains on securities | 765 | 938 | 1,553 | 1,873 |
Equity in earnings of unconsolidated investments | 152 | 7 | 177 | 152 |
Interest income | 1,504 | 1,362 | 3,038 | 2,660 |
Rental income | 1,015 | 1,059 | 2,020 | 1,961 |
Other | 576 | 325 | 859 | 612 |
$11,334 | $12,691 | $23,375 | $23,625 |
Revenues from management, accounting and financial services include management and accounting fees and revenues from other services provided to managed and other long-term health care centers. "Other" revenues include non-healthcare related earnings.
Note 3 - GUARANTEES AND CONTINGENCIES
Guarantees and Related Events
In addition to our primary debt obligations, which are included in our consolidated financial statements, we have guaranteed the debt obligations of certain other entities. Those guarantees, which are not included as debt obligations in our consolidated financial statements, total $28,897,000 at June 30, 2003 and include $15,722,000 of debt of managed and other long-term health care centers and $13,175,000 of debt of National Health Corporation ("National") and the National Health Corporation Leveraged Employee Stock Ownership Plan (the "ESOP").
The $15,722,000 of guarantees of debt of managed and other long-term health care centers relates to first mortgage debt obligations of three long-term health care centers to which we provide management or accounting services. We agreed to guarantee these obligations in order to obtain management agreements. For this service, we charge an annual guarantee fee of 1% to 2% of the outstanding principal balance guaranteed, which fee is in addition to our management fee. All of this guaranteed indebtedness is secured by first mortgages, pledges of personal property, accounts receivable, marketable securities and, in certain instances, the personal guarantees of the owners of the facilities.
The $13,175,000 of guarantees of debt of National and the ESOP relates to senior secured notes held by financial institutions. The total outstanding balance of National and the ESOP's obligations under these senior secured notes is $21,248,000. Of this obligation, $8,073,000 has been included in our debt obligations because we are a direct obligor on this indebtedness. The remaining $13,175,000, which is not included in our debt obligations because we are not a direct obligor, is due from NHI to National and the ESOP. Additionally, under the amended terms of these note agreements, the lending institutions have the right to put to us the entire outstanding balance of this debt on March 31, 2005. Upon exercise of this put option by the lending institutions at this time, we would be obligated to purchase the then outstanding balance of these senior secured notes, which is estimated to be approximately $15,116,000 at March 31, 2005.
Debt Cross Defaults
Our $8,073,000 senior secured notes and our $4,643,000 senior notes which are included as debt on our balance sheet were borrowed from National. National obtained its financing through the ESOP. As we are a direct obligor on this debt, it has been reported as a liability owed by us to the holders of the debt instruments rather than as a liability owed to National and the ESOP.
Through a guarantee agreement, our $8,073,000 senior secured notes and our $13,674,000 guarantee described above, and our $4,643,000 senior notes have cross-default provisions with other debt of National and the ESOP. We currently believe that National and the ESOP are in compliance with the terms of their debt agreements.
Limited Guarantee of Investment Income to Facility Residents
As a marketing tool to provide opportunities for enhanced income to existing residents and to attract new residents, NHC has offered to facility residents at one of its centers beginning April 1, 2003 to guarantee the continuation of dividend income of at least $.40 per share, per quarter on newly purchased shares of National Health Investors, Inc. (NHI:NYSE). The guarantee expires on the earlier of the resident's termination of occupancy, the resident's sale of the NHI common stock, or on April 30, 2004.
NHC has limited the guarantee offer to an unlimited number of residents who meet certain income and net worth tests and to 35 other sophisticated residents. NHC may limit the number of shares to which this guarantee will relate.
Although the total number of shares has not yet been determined, we believe NHC's maximum exposure under the plan to be less than $200,000 and we do not expect our guarantee will be called upon during the term of the plan. Under the provisions of FIN 45, we have estimated the fair value of this guarantee to be $0.
Note 4 - NEW ACCOUNTING PRONOUNCEMENTS
On December 31, 2002, the FASB issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" (SFAS 148). SFAS 148 amends Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" (SFAS 123), to provide alternative methods of transition to SFAS 123's fair value method of accounting for stock-based employee compensation. SFAS 148 also amends the disclosure provisions of SFAS 123 and APB Opinion No. 28, "Interim Financial Reporting", to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. While SFAS 148 does not amend SFAS 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of SFAS 148 are applicable to all companies with stock-based employee compensation, regardless of whether they account for the compensation using the fair value method of SFAS 123 or the intrinsic value method of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). See Note 7 for the required disclosures under SFAS 148.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that the guarantor recognize, at the inception of certain guarantees, a liability for the fair value of the obligation undertaken in issuing such guarantees. FIN 45 also requires additional disclosure requirements about the guarantor's obligations under certain guarantees that it has issued. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002 and the disclosure requirements are effective for financial statement periods ending after December 15, 2002. Through June 30, 2003, adoption of FIN 45 has not had a material effect on the Company's financial statements. The future effect of FIN 45 on the Company's financial statements will depend on whether the Company enters into new or modifies existing guarantees.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"), which requires the consolidation of variable interest entities. FIN 46's consolidation provisions apply immediately to variable interest entities created subsequent to January 31, 2003. Variable interest entities created prior to January 31, 2003 must be consolidated effective July 1, 2003. Disclosures are required currently if the Company expects to consolidate any variable interest entities. The Company is currently evaluating the requirement to consolidate any additional material entities as a result of FIN 46. The Company does not believe that it has entered into any contractual agreements with variable interest entities subsequent to January 31, 2003.
Note 5 - LEGAL PROCEEDINGS
General Liability Lawsuits
The entire long term care industry has seen a dramatic increase in personal injury/wrongful death claims based on alleged negligence by nursing homes and their employees in providing care to residents. As of June 30, 2003, we and/or our managed centers are currently defendants in 87 such claims covering the years 1995 through June 30, 2003. Forty-six of these suits are in Florida, where we have not operated or managed long-term care providers since September 30, 2000.
When bids were solicited for third party liability coverage for 2002, we were not totally surprised to find only two companies would quote coverage. Both quotations were so onerous and expensive that we elected to pay the quoted premium into a self-funded captive insurance company. Thus, during 2002 and the current fiscal year, insurance coverage for incidents occurring at all providers owned or leased, and most providers managed by us, is maintained through this Cayman Island captive insurance company which is qualified and taxed as a domestic NHC subsidiary.
Our coverages for all years include both primary policies and umbrella policies. For years 1999 through 2001 forward, the policies contain a per incident deductible. In 2000 and 2001, there is no aggregate limit on our potential deductible obligations. In 2002, the deductibles were eliminated and first dollar coverage is provided through the captive insurance company.
In 2003, first dollar coverage continues to be provided through the captive insurance company. In addition, the excess coverage for 2003 is also through the captive insurance company.
We use independent actuaries to estimate 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. It is possible that claims against us could exceed our coverage limits and our reserves, which would have a material adverse effect on our financial position, results of operations and cash flows.
Note 6 - EARNINGS PER SHARE
Basic earnings per share is based on the weighted average number of common shares outstanding during the year.
Diluted earnings per share assumes the exercise of options using the treasury stock method.
The following table summarizes the earnings and the average number of common shares used in the calculation of basic and diluted earnings per share.
Three Months Ended | Six Months Ended | |||
June 30 | June 30 | |||
(dollars in thousands, except per share amounts) | 2003 | 2002 | 2003 | 2002 |
Basic: | ||||
Weighted average common shares | 11,596,572 | 11,504,101 | 11,596,229 | 11,511,186 |
Net income | $ 4,672,000 | $ 4,231,000 | $8,095,000 | $ 7,318,000 |
Earnings per common share, basic | $ .40 | $ .37 | $ .70 | $ .64 |
Diluted: | ||||
Weighted average common shares | 11,596,572 | 11,504,101 | 11,596,229 | 11,511,186 |
Options | 473,499 | 466,607 | 467,823 | 451,582 |
Assumed average common shares outstanding | 12,070,071 | 11,970,708 | 12,064,052 | 11,962,768 |
Net income | $ 4,672,000 | $ 4,231,000 | $8,095,000 | $ 7,318,000 |
Earnings per common share, diluted | $ .39 | $ .35 | $ .67 | $ .61 |
Note 7. STOCK OPTION PLANS
We have incentive option plans that provide for the granting of options to key employees and directors to purchase shares of common stock at no less than market value on the date of grant. Options issued to non-employee directors vest immediately. Options issued to employees vest over a six year period. The maximum term of the options is six years. The following table summarizes option activity:
Weighted | ||
Number of | Average | |
Shares | Exercise Price | |
Options outstanding at December 31, 2001 | 647,500 | 6.88 |
Options granted | 30,000 | 17.25 |
Options expired | (15,000) | 30.77 |
Options outstanding at December 31, 2002 | 662,500 | 6.81 |
Options granted | 60,000 | 19.60 |
Options expired | (40,000) | 39.88 |
Options outstanding at June 30, 2003 | 682,500 | $ 6.00 |
Weighted Average | |||
Weighted Average | Remaining Contractual | ||
Options Outstanding | Exercise Prices | Exercise Price | Life in Years |
90,000 | $17.25 to $19.68 | $18.82 | 4.5 |
592,500 | $3.00 to $10.40 | $ 4.05 | 3.4 |
682,500 |
At June 30, 2003, options for 682,500 shares are exercisable. The weighted average remaining contractual life of options outstanding at June 30, 2003 is 3.6 years.
Additionally, we have an employee stock purchase plan that allows employees to purchase our shares of stock through payroll deductions. The plan allows employees to terminate participation at any time.
We have adopted the disclosure-only provisions of SFAS 123, as amended. As a result, no compensation cost has been recognized in the consolidated statements of income for our stock-based compensation plans. Had compensation cost for our stock option plans been determined based on the fair value at the grant date of awards in 2002 and 2001, consistent with the provisions of SFAS 123, our net income and earnings per share would have been as follows:
Three Months Ended | Six Months Ended | |||
June 30 | June 30 | |||
2003 | 2002 | 2003 | 2002 | |
(dollars in thousands, except per share amounts) | ||||
Net income - as reported | $4,672 | $4,231 | $8,095 | $7,318 |
Net income - pro forma | 4,606 | 4,178 | 7,976 | 7,221 |
Net earnings per share - as reported | ||||
Basic | $ .40 | $ .37 | $ .70 | $ .64 |
Diluted | $ .39 | $ .35 | $ .67 | $ .61 |
Net earnings per share - pro forma | ||||
Basic | $ .40 | $ .36 | $ .69 | $ .63 |
Diluted | $ .38 | $ .35 | $ .66 | $ .60 |
The weighted average fair value of options granted was $8.69 and $7.45 for 2002 and 2001, respectively. For purposes of pro forma disclosures of net income and earnings per share as required by SFAS 123, as amended, the estimated fair value of the options is amortized to expense over the options' vesting period. The fair value of each grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants in 2002 and 2001:
December 31, | 2003 | 2002 |
Dividend yield | 0% | 0% |
Expected volatility | 34% | 50% |
Expected lives | 5 years | 5 years |
Risk-free interest rate | 3.00% | 5.56% |
In connection with the exercise of certain stock options, we have received 5.57% interest-bearing, full recourse notes in the amount of $774,000 at June 30, 2003. The notes are secured by shares of NHC, shares of NHR, or shares of NHI having a fair market value of not less than 150% of the amount of the note. The principal balances of the notes are reflected as a reduction of shareowners' equity in the consolidated financial statements.
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
National HealthCare Corporation ("NHC" or the "Company") operates or manages 78 long-term health care centers with 9,586 beds in 11 states. We provide nursing care as well as ancillary therapy services to patients in a variety of settings including long-term care nursing centers (78), subacute care units (9), Alzheimer's care units (6), homecare programs (32), assisted living centers (21) and independent living centers (7). In addition, we provide accounting and financial services to owners of over 30 long-term health care centers and investment advisory services to National Health Investors, Inc. ("NHI") and National Health Realty, Inc. ("NHR").
Critical Accounting Policies
In December 2001, the SEC requested all registrants list their three to five most "critical accounting policies" in MD&A. The SEC indicated that a "critical accounting policy" is one which is both important to the portrayal of the Company's financial condition and results and requires management's most difficult, subjective or complex judgements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. In our Form 10-K annual report for the fiscal year ended December 31, 2002, we identified in MD&A the following critical accounting policies as fitting this definition.
1) Revenue Recognition - third party payors
2) Accrued risk revenues
3) Revenue recognition - uncertain collections
4) Revenue recognition - mortgage interest
5) Potential recognition of deferred income
6) Tax contingencies
Please refer to MD&A in the 2002 Form 10-K for a more complete discussion of these policies. There are no additional critical accounting policies identified in the second quarter of 2003.
SNF Medicare Payments Increase
The Center for Medicare and Medicaid Services ("CMS") announced that, for the fiscal year beginning October 1, 2003, per diem payment rates under the skilled nursing facilities (SNF) prospective payment system (PPS) will increase by a total of 6.2%. The increase includes both an annual update of 3.0% and forecast error adjustments of 3.26%. We estimate our fourth quarter revenues will increase by approximately $1.25 million related to these rate improvements.
Results of Operations
Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002.
Results for the three month period ended June 30, 2003 include a 2.0% increase in net revenues compared to the same period in 2002 and a 10.4% increase in net income.
Net patient revenues increased 3.6% compared to the same period last year. We estimate that the October 2002 Medicare rate cuts for skilled nursing centers and home health care services reduced our revenues by approximately $2.7 million for the quarter ended June 30, 2003. These Medicare cuts were offset by Medicaid increases, improved census mix and improved census.
The total census at owned and leased centers for the quarter averaged 94.0% compared to an average of 92.9% for the same quarter a year ago.
Other revenues decreased $1.4 million or 10.7% in 2003 from $12.7 million in 2002 to $11.3 million in 2003. The decrease is due to the receipt in the same quarter last year of management fees and accounting and financial service fees which had been earned in prior years, but which had been doubtful of collection and not previously accrued. The decrease was offset in part by increased professional liability insurance fees charged to managed centers. During the three months ended June 30, 2003, NHC provided financial and accounting services for 39 facilities as compared to 37 facilities during the three months ended June 30, 2002.
Total costs and expenses for the 2003 second quarter increased $1.5 million or 1.4% to $108.2 million from $106.7 million. Salaries, wages and benefits, the largest operating costs of this service company, increased $2.7 million or 4.5% to $62.5 million from $59.8 million. Other operating expenses decreased $.9 million or 2.8% to $31.7 million for the 2003 period compared to $32.6 million in the 2002 period. Rent expense remained unchanged at $10.4 million. Depreciation and amortization increased 1.7% to $3.1 million. Interest costs decreased $.3 million to $.6 million. Increases in salaries, wages and benefits are due primarily to inflationary wage increases. Decreases in other operating costs are due primarily to the $1.2 million write-off in the 2002 period of development costs related to the construction of a new retirement and nursing home community. The decrease is partially offset by inflationary increases as well as increases in costs of professional liability insurance, workers compensation insurance and health insurance in the current period.
The decrease in interest costs is primarily due to the $10.6 million prepayment of long-term debt in December 2002.
Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002.
Results for the six month period ended June 30, 2003 include a 1.9% increase in net revenues compared to the same period in 2002 and a 10.6% increase in net income.
Net patient revenues increased 2.2% compared to the same period last year. We estimate that the October 2002 Medicare rate cuts for skilled nursing centers and home health care services reduced our revenues by approximately $5.4 million for the six months ended June 30, 2003. These Medicare cuts were offset by Medicaid increases, improved census mix and improved census.
The total census at owned and leased centers for the six months averaged 93.8% compared to an average of 93.0% for the same period a year ago.
Other revenues decreased $.2 million or 1.1% in 2003 from $23.6 million in 2002 to $23.4 million in 2003. The decrease is due primarily to the receipt in the second quarter last year of management fees and accounting and financial service fees which had been earned in prior years but which had been doubtful of collection and not previously accrued. The decrease was offset in part by increased professional liability insurance fees charged to managed centers. During the six months ended June 30, 2003, NHC provided financial and accounting services for 39 facilities as compared to 33 facilities during the six months ended June 30, 2002.
Total costs and expenses for the 2003 first six months increased $2.9 million or 1.4% to $215.7 million from $212.8 million. Salaries, wages and benefits, the largest operating costs of this service company, increased $4.1 million or 3.5% to $123.9 million from $119.8 million. Other operating expenses increased $2.1 million or 3.4% to $63.8 million for the 2003 period compared to $61.7 million in the 2002 period. Rent expense remains unchanged at $20.8 million. Depreciation and amortization increased 1.7% to $6.1 million. Interest costs decreased $.7 million to $1.1 million. There were no note receivable write-offs this year compared to $2.8 million of write-offs in the same period last year. Increases in salaries, wages and benefits are due primarily to inflationary wage increases. Increases in other operating costs are due to inflationary increases as well as increases in costs of professional liability insurance, workers compensation insurance and health insurance offset in part due to the write-off in 2002 of development costs related to the construction of a new retirement and nursing home community.
The decrease in interest costs is primarily due to the $10.6 million prepayment of long-term debt in December 2002.
Liquidity and Capital Resources
Net cash provided by operating activities during the first six months of 2003 totaled $23.1 million compared to $24.2 million provided in the same period last year. Cash provided by operating activities is composed of net income plus depreciation and increases in accrued liabilities and reserves and deferred income, offset by increases in accounts receivable and decreases in accounts payable and accrued payroll. Cash flows used in investing activities during the first six months of 2003 totaled $8.7 million compared to $8.0 million used by investing activities in the same period in 2002. Cash used for additions to property and equipment totaled $10.8 million in 2003 compared to $6.7 million in 2002. No cash was used this year for investments in notes receivable, compared to $2.1 million used last year. Collections of notes receivable generated $1.9 million in 2003 compared to $.1 million in 2002. Cash provided by sales of marketable securities totaled $.2 million compared to $.7 million in 2002.
Cash used in financing activities totaled $4.3 million in the first six months of 2003 compared to $0.7 million used for the same period in 2002. Cash used for payments of debt totaled $1.1 million and increases in cash held by trustees totaled $3.4 million in 2003. In the prior year, cash flows used totaled $4.1 million for payments on debt and $1.0 million for increase in cash held by trustee offset in part by $4.1 million collection of notes receivable.
At June 30, 2003, our ratio of long-term debt to total capitalization (total debt plus deferred income plus shareholders equity) is 20.0%.
Our current cash on hand, marketable securities, short-term notes receivable, operating cash flows and, as needed, our borrowing capacity are expected to be adequate to finance any scheduled debt reductions plus our operating requirements and growth and development plans for 2003 and into 2004.
Guarantees and Contingencies
In addition to our primary debt obligations, which are included in our consolidated financial statements, we have guaranteed the debt obligations of certain other entities. Those guarantees, which are not included as debt obligations in our consolidated financial statements, total $28,897,000 at June 30, 2003 and include $15,722,000 of debt of managed and other long-term health care centers and $13,175,000 of debt of National Health Corporation ("National") and the National Health Corporation Leveraged Employee Stock Ownership Plan (the "ESOP").
The $15,722,000 of guarantees of debt of managed and other long-term health care centers relates to first mortgage debt obligations of three long-term health care centers to which we provide management or accounting services. We agreed to guarantee these obligations in order to obtain management agreements. For this service, we charge an annual guarantee fee of 1% to 2% of the outstanding principal balance guaranteed, which fee is in addition to our management fee. All of this guaranteed indebtedness is secured by first mortgages, pledges of personal property, accounts receivable, marketable securities and, in certain instances, the personal guarantees of the owners of the facilities.
The $13,175,000 of guarantees of debt of National and the ESOP relates to senior secured notes held by financial institutions. The total outstanding balance of National and the ESOP's obligations under these senior secured notes is $21,248,000. Of this obligation, $8,073,000 has been included in our debt obligations because we are a direct obligor on this indebtedness. The remaining $13,175,000, which is not included in our debt obligations because we are not a direct obligor, is due from NHI to National and the ESOP. Additionally, under the amended terms of these note agreements, the lending institutions have the right to put to us the entire outstanding balance of this debt on June 30, 2005. Upon exercise of this put option by the lending institutions at this time, we would be obligated to purchase the then outstanding balance of these senior secured notes, which is estimated to be approximately $15,116,000 at March 31, 2005.
Debt Cross Defaults
Our $8,073,000 senior secured notes and our $4,643,000 senior notes were borrowed from National. National obtained its financing through the ESOP. As we are a direct obligor on this debt, it has been reported as a liability owed by us to the holders of the debt instruments rather than as a liability owed to National and the ESOP.
Through a guarantee agreement, our $8,073,000 senior secured notes and our $13,674,000 guarantee described above, and our $4,643,000 senior notes have cross-default provisions with other debt of National and the ESOP. We currently believe that National and the ESOP are in compliance with the terms of their debt agreements.
Limited Guarantee of Investment Income to Facility Residents
As a marketing tool to provide opportunities for enhanced income to existing residents and to attract new residents, NHC has offered to facility residents at one of its centers beginning April 1, 2003 to guarantee the continuation of dividend income of at least $.40 per share, per quarter on newly purchased shares of National Health Investors, Inc. (NHI:NYSE). The guarantee expires on the earlier of the resident's termination of occupancy, the resident's sale of the NHI common stock, or on April 30, 2004.
NHC has limited the guarantee offer to an unlimited number of residents who meet certain income and net worth tests and to 35 other sophisticated residents. NHC may limit the number of shares to which this guarantee will relate.
Although the total number of shares has not yet been determined, we believe NHC's maximum exposure under the plan to be less than $200,000 and we do not expect our guarantee will be called upon during the term of the plan. Under the provisions of FIN 45, we have estimated the fair value of this guarantee to be $0.
Contractual Cash Obligations
Our contractual cash obligations for periods subsequent to June 30, 2003 are as follows:
Less than | |||||
Total | 1 Year | 2-3 Years | 4-5 years | After 5 years | |
(in thousands) | |||||
Long-term debt | $ 29,261 | $ 2,219 | $ 4,842 | $ 5,221 | $16,979 |
Obligation to purchase | |||||
senior secured notes from | |||||
financial institutions | 9,372 | --- | 9,372 | --- | --- |
Operating leases | 175,144 | 44,946 | 93,163 | 37,035 | --- |
Total Contractual Cash | |||||
Obligations | $213,777 | $47,165 | $107,377 | $48,066 | $16,979 |
We have guaranteed debt obligations of certain other entities totaling approximately $28,897,000. These guarantees are not included in the table above due to uncertainty about the amount or timing of our obligations under our commitments. We do not anticipate material obligations under these commitments
Our current cash on hand, marketable securities, short-term notes receivable, operating cash flows, and as needed, our borrowing capacity are expected to be adequate to finance our operating requirements and growth and development plans for 2003 and into 2004.
Our charter authorizes the payment of dividends at the discretion of the Board of Directors; however, at present, we do not anticipate paying dividends.
New Accounting Pronouncements
On December 31, 2002, the FASB issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" (SFAS 148). SFAS 148 amends Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" (SFAS 123), to provide alternative methods of transition to SFAS 123's fair value method of accounting for stock-based employee compensation. SFAS 148 also amends the disclosure provisions of SFAS 123 and APB Opinion No. 28, "Interim Financial Reporting", to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. While SFAS 148 does not amend SFAS 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of SFAS 148 are applicable to all companies with stock-based employee compensation, regardless of whether they account for the compensation using the fair value method of SFAS 123 or the intrinsic value method of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). See Note 7 for the required disclosures under SFAS 148.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that the guarantor recognize, at the inception of certain guarantees, a liability for the fair value of the obligation undertaken in issuing such guarantees. FIN 45 also requires additional disclosure requirements about the guarantor's obligations under certain guarantees that it has issued. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002 and the disclosure requirements are effective for financial statement periods ending after December 15, 2002. Through June 30, 2003, adoption of FIN 45 has not had a material effect on the Company's financial statements. The future effect of FIN 45 on the Company's financial statements will depend on whether the Company enters into new or modifies existing guarantees.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"), which requires the consolidation of variable interest entities. FIN 46's consolidation provisions apply immediately to variable interest entities created subsequent to January 31, 2003. Variable interest entities created prior to January 31, 2003 must be consolidated effective July 1, 2003. Disclosures are required currently if the Company expects to consolidate any variable interest entities. The Company is currently evaluating the requirement to consolidate any additional material entities as a result of FIN 46. The Company does not believe that it has entered into any contractual agreements with variable interest entities subsequent to January 31, 2003.
General Liability Lawsuits
The entire long term care industry has seen a dramatic increase in personal injury/wrongful death claims based on alleged negligence by nursing homes and their employees in providing care to residents. As of June 30, 2003, we and/or our managed centers are currently defendants in 87 such claims covering 1995 through 2002. Forty-six of these claims are filed in Florida, where we have not operated or managed long-term care providers since September 30, 2000.
When bids were solicited for third party liability coverage for 2002, we were not totally surprised to find only two companies would quote coverage. Both quotations were so onerous and expensive that we elected to pay the quoted premium into a self-funded captive insurance company. Thus, during 2002 and the current fiscal year, insurance coverage for incidents occurring at all providers owned or leased, and most providers managed by us, is maintained through this Cayman Island captive insurance company which is qualified and taxed as a domestic NHC subsidiary.
The coverages for all years include both primary policies and umbrella policies. For years 1999 through 2001 forward, the policies contain a per incident deductible. In 2000 and 2001, there is no aggregate limit on our potential deductible obligations. In 2002, the deductibles were eliminated and first dollar coverage is provided through the captive insurance company.
In 2003, first dollar coverage continues to be provided through the captive insurance company. In addition, the excess coverage for 2003 is also through the captive insurance company.
We use independent actuaries to estimate 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. It is possible that claims against us could exceed our coverage limits and our reserves, which would have a material adverse effect on our financial position, results of operations and cash flows.
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 Commission's "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.
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 5: Legal Proceedings);
- the ability of third parties for whom we have guaranteed debt to refinance certain short term debt obligations;
- 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;
- the ability to maintain and increase census levels; and
- demographic changes.
See the notes to the quarterly financial statement, and "Item 1. Business" as is found in our 2002 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 side 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 actually 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.
Item 3.Quantitative and Qualitative Information About Market Risk
Interest Rate Risk
Our cash and cash equivalents consist of highly liquid investments with a maturity of less than three months. As a result of the short-term nature of our cash instruments, a hypothetical 10% change in interest rates would have no impact on our future earnings and cash flows related to these instruments. Approximately $31.5 million of our notes receivable bear interest at fixed interest rates. As the interest rates on these notes receivable are fixed, a hypothetical 10% change in interest rates would have no impact on our future earnings and cash flows related to these instruments. Approximately $8.0 million of our notes receivable bear interest at variable rates (generally at prime plus 2%). Because the interest rates of these instruments are variable, a hypothetical 10% change in interest rates would result in a related increase or decrease in annual interest income of approximately $34,200. As of June 30, 2003, $17.2 million of our long-term debt and debt serviced by other parties bear interest at fixed interest rates. Because the interest rates of these instruments are fixed, a hypothetical 10% change in interest rates would have no impact on our future earnings and cash flows related to these instruments. The remaining $12.1 million of our long-term debt and debt serviced by other parties bear interest at variable rates. Because the interest rates of these instruments are variable, a hypothetical 10% change in interest rates would result in a related increase or decrease in annual interest expense of approximately $34,000.
Equity Price Risk
We consider our investments in marketable securities as "available for sale" securities and unrealized gains and losses are recorded in stockholders' equity in accordance with Statement of Financial Accounting Standards No. 115. The investments in marketable 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 price. Hypothetically, a 10% change in quoted market prices would result in a related 10% change in the fair value of our investments in marketable securities.
Item 4.Controls and Procedures
As of June 30, 2003, 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 June 30, 2003. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls during the quarter ended or subsequent to June 30, 2003.
Item 1.Legal Proceedings.
For a discussion of prior, current and pending litigation of material significance to NHC, please see Note 5 of this Form 10-Q.
Item 2.Changes in Securities. Not applicable
Item 3.Defaults Upon Senior Securities. None
Item 4.Submission of Matters to Vote of Security Holders. None
Item 5.Other Information. None
Item 6.Exhibits and Reports on Form 8-K.
(a) List of exhibits
Exhibit No. | Description |
31 | Rule 13a-14(a)/15d-14(a) Certifications |
302 Certification of W. Andrew Adams | |
302 Certification of Donald K. Daniel | |
99 | Additional Exhibits |
906 Certification of W. Andrew Adams | |
906 Certification of Donald K. Daniel |
(b) Reports on Form 8-K.
Form 8-K filed on July 30, 2003 regarding second quarter earnings release.
SIGNATURES
Pursuant to the requirements of the Security 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 August 13, 2003 | /s/ W. Andrew Adams |
W. Andrew Adams | |
Chief Executive Officer | |
Date August 13, 2003 | /s/ Donald K. Daniel |
Donald K. Daniel | |
Vice President and Controller | |
Principal Accounting Officer |
EXHIBIT 31
CERTIFICATION
I, W. Andrew Adams, certify that:
1. I have reviewed this quarterly report on Form 10-Q of National HealthCare Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function);
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 13, 2003
/s/ W. Andrew Adams | |
W. Andrew Adams | |
Chairman and President | |
Chief Executive Officer |
CERTIFICATION
I, Donald K. Daniel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of National HealthCare Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function);
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 13, 2003
/s/ Donald K. Daniel | |
Donald K. Daniel | |
Vice President and Controller | |
Principal Accounting Officer |
Exhibit 99
Certification of Quarterly Report on Form 10-Q
of National HealthCare Corporation
For The Quarter Ended June 30, 2003
The undersigned hereby certify, pursuant to 18 U.S.C. Section 906 of the Sarbanes-Oxley Act of 2002, that, to the undersigned's best knowledge and belief, the Quarterly Report on Form 10-Q for National HealthCare Corporation ("Issuer") for the period ending June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"):
(a) | fully complies with the requirements of section 13(a) or 15(d) of the Securities |
Exchange Act of 1934; and | |
(b) | the information contained in the Report fairly presents, in all material respects, |
the financial condition and results of operations of the Issuer. | |
This Certification accompanies the Quarterly Report on Form 10-Q of the Issuer for the quarterly period ended June 30, 2003.
This Certification is executed as of August 13, 2003.
/s/ W. Andrew Adams | |
W. Andrew Adams | |
Chief Executive Officer | |
/s/ Donald K. Daniel | |
Donald K. Daniel | |
Principal Accounting Officer |
A signed original of this written statement required by Section 906 has been provided to National HealthCare Corporation and will be retained by National HealthCare Corporation and furnished to the Securities and Exchange Commission or its staff upon request.