What changed in this filing

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Item 1. Financial Statements

2020-08-07 compared with 2020-05-07 · 653 added, 156 removed, 559 unchanged (59% of the section changed)

4 unchanged sentences

Three Months Ended

Six Months Ended

Revenues and grant income:

Net patient revenues

Other revenues

Net operating revenues

Government stimulus income

Net operating revenues and grant income

Cost and expenses:

8 unchanged sentences

Unrealized gains/(losses) on marketable equity securities

Income/(loss) before income taxes

Income tax (provision)/benefit

Net income/(loss)

(Income)/loss attributable to noncontrolling interest

Net income/(loss) attributable to National HealthCare Corporation

Earnings/(loss) per share attributable to National HealthCare Corporation stockholders:

Income before income taxes

Income tax provision

Net (income)/loss attributable to noncontrolling interest

Net income attributable to National HealthCare Corporation

Earnings per share attributable to National HealthCare Corporation stockholders:

Weighted average common shares outstanding:

6 unchanged sentences

Three Months Ended

Net income/(loss)

Other comprehensive income/(loss):

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

Reclassification adjustment for realized gains on sale of securities

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

Other comprehensive income/(loss), net of tax

Six Months Ended

Other comprehensive income:

Unrealized gains on investments in restricted marketable debt securities

Reclassification adjustment for realized gains on sales of marketable debt securities

Income tax expense related to items of other comprehensive income

Other comprehensive income, net of tax

Net (income)/loss attributable to noncontrolling interest

Comprehensive income/(loss) attributable to National HealthCare Corporation

Comprehensive income attributable to National HealthCare Corporation

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

10 unchanged sentences

Notes receivable, current portion

Federal income tax receivable

Total current assets

18 unchanged sentences

Trade accounts payable

$ 18,442  

$ 18,903  

Finance lease obligations, current portion

Operating lease liabilities, current portion

24,850  

24,243  

Accrued payroll

61,210  

69,826  

Amounts due to third party payors

17,824  

15,108  

Accrued risk reserves, current portion

29,827  

29,520  

Other current liabilities

27,425  

15,029  

Provider relief funds

19,294  

Contract liabilities

50,992  

Dividends payable

Current maturities of long-term debt

10,000  

Total current liabilities

262,142  

194,763  

Finance lease obligations, less current portion

12,785  

14,963  

Operating lease liabilities, less current portion

166,179  

178,666  

Accrued risk reserves, less current portion

75,181  

66,491  

Refundable entrance fees

Obligation to provide future services

Deferred income taxes

12,953  

24,012  

Other noncurrent liabilities

Deferred revenue

29,068  

21,229  

Total liabilities

565,951  

507,579  

Common stock, $ .01 par value;

2 unchanged sentences

Capital in excess of par value

224,972  

222,787  

Retained earnings

538,599  

553,093  

Accumulated other comprehensive income

Total National HealthCare Corporation stockholders’

768,052  

778,593  

Noncontrolling interest

769,287  

779,069  

Total liabilities and equity

$ 1,335,238  

$ 1,286,648  

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

2 unchanged sentences

(unaudited –

in thousands)

Three Months Ended

in thousands)  

Six Months Ended

Cash Flows From Operating Activities:

Net income/(loss)

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

4 unchanged sentences

Gains on sale of restricted marketable debt securities

Gain on acquisition of equity method investment

Gains on acquisitions of equity method investments

Deferred income taxes

2 unchanged sentences

Accounts receivable

Income tax receivable

Prepaid expenses and other assets

3 unchanged sentences

Accrued risk reserves

Provider relief funds

Contract liabilities

Other current liabilities

Other noncurrent liabilities

Deferred revenue

Net cash provided by operating activities

Cash Flows From Investing Activities:

Additions to property and equipment

Purchases of property and equipment

Acquisition of equity method investment, net of cash acquired

Investments in notes receivable

Investments in unconsolidated companies

Investments in notes receivable

Collections of notes receivable

Purchase of restricted marketable debt securities

Sale of restricted marketable debt securities

Purchases of restricted marketable debt securities

Proceeds from sale of restricted marketable debt securities

Net cash used in investing activities

1 unchanged sentence

Borrowings under credit facility

Repayments under credit facility

Principal payments under finance lease obligations

Dividends paid to common stockholders

Noncontrolling interest contributions/(distributions)

Issuance of common shares

Repurchase of common shares

Equity contributed by noncontrolling entities

Net cash provided by (used in) financing activities

Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents

Entrance fee deposits/(refunds)

Net cash used in financing activities

Net Increase in Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents

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

12 unchanged sentences

Balance at January 1, 2020

Net income attributable to National HealthCare Corporation

Net loss attributable to noncontrolling interest

Other comprehensive income

15,332,206  

$ 222,787  

$ 553,093  

$ 2,560  

$ 779,069  

Net income/(loss)

Noncontrolling interest contributions

Other comprehensive loss

Stock–based compensation

1 unchanged sentence

options exercised

15,006  

Repurchase of common shares

1 unchanged sentence

Balance at March 31, 2020

15,346,601  

$ 223,600  

$ 518,261  

743,355  

28,324  

28,522  

Noncontrolling interest contributions

Other comprehensive income

Stock–based compensation

Shares sold –

options exercised

11,073  

Repurchase of common shares

Dividends declared to common stockholders ($ 0.52 per share)

Balance at June 30, 2020

15,357,488  

$ 224,972  

$ 538,599  

$ 4,328  

$ 1,235  

$ 769,287  

Comprehensive

Stockholders’

Income (Loss)

Balance at January 1, 2019

Net loss attributable to National HealthCare Corporation

Net income attributable to noncontrolling interest

Equity contributed by noncontrolling interest

Other comprehensive loss

15,255,002  

$ 219,435  

$ 516,435  

$ 1,179  

$ 734,457  

Net income/(loss)

21,269  

( 38 )  

21,231  

Other comprehensive income

Stock–based compensation

1 unchanged sentence

options exercised

59,384  

Repurchase of common shares

1 unchanged sentence

Balance at March 31, 2019

15,303,990  

$ 219,566  

$ 530,052  

$ 1,141  

750,715  

Net income/(loss)

13,711  

( 29 )  

13,682  

Noncontrolling interest distributions

Other comprehensive income

Stock–based compensation

Shares sold –

options exercised

14,800  

Dividends declared to common stockholders ($ 0.52 per share)

Balance at June 30, 2019

15,318,790  

$ 221,054  

$ 535,797  

$ 2,148  

$ 1,095  

$ 760,247  

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

1 unchanged sentence

Notes to Interim Condensed Consolidated Financial Statements

March 31, 2020

June 30, 2020

(unaudited)  

Note 1 –

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or the “Company”) is a leading provider of senior health care services.

As of March 31, 2020, we operate or manage, through certain affiliates, 75 skilled nursing facilities with a total of 9,513 licensed beds, 25 assisted living facilities, five independent living facilities, one behavioral health hospital, and 35 homecare programs.

As of June 30, 2020, we operate or manage, through certain affiliates, 76 skilled nursing facilities with a total of 9,633 licensed beds, 24 assisted living facilities, five independent living facilities, one behavioral health hospital, and 35 homecare programs.

We operate specialized care units within certain of our healthcare centers such as Alzheimer's disease care units and sub-acute nursing units.

8 unchanged sentences

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, 2019 consolidated financial statements and notes thereto which contain accounting policies and other disclosures required by GAAP.

See our audited December 31, 2019 consolidated financial statements and notes thereto which contain accounting policies and other disclosures required by U.S.

Our audited December 31, 2019 consolidated financial statements are available at our web site:

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2019 - 12, Income Taxes (Topic 740 ):

Simplifying the Accounting for Income Taxe s .

Simplifying the Accounting for Income Taxes .

This ASU is part of the FASB’s overall simplification initiative to reduce the costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements.

12 unchanged sentences

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.

The Company determines the transaction price based on established billing rates reduced by contractual adjustments provided to third party payors.

2 unchanged sentences

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 $ 830,000 and $ 1,047,000 for the three months ended March 31, 2020 and 2019, respectively.

As of March 31, 2020, and December 31, 2019, the Company has recorded allowance for doubtful accounts of $ 4,929,000 and $ 4,451,000 , respectively, as our best estimate of expected losses inherent in the accounts receivable balance.

Bad debt expense was $ 1,245,000 and $ 2,075,000 for the three months and six months ended June 30, 2020.

For the three months and six months ended June 30, 2019, bad debt expense was $ 992,000 and $ 2,039,000 , respectively.

As of June 30, 2020, and December 31, 2019, the Company has recorded allowance for doubtful accounts of $ 5,294,000 and $ 4,451,000 , respectively, as our best estimate of expected losses inherent in the accounts receivable balance.

Other Revenues

4 unchanged sentences

We record other revenues as the performance obligations are satisfied based on the terms of our contractual arrangements.

Government Grants

In the absence of specific guidance to account for government grants under U.S.

GAAP, we have concluded to 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

11 unchanged sentences

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 $ 3,059,000 and $ 1,813,000  for the three months ended March 31, 2020 and 2019, respectively.

Costs that could be classified as "general and administrative" by the Company would include its corporate office costs, excluding stock-based compensation, which were $ 10,555,000 and $ 13,614,000  for the three months and six months ended June 30, 2020, respectively.

General and administrative costs were $ 6,677,000 and $ 11,821,000 for the three months and six months ended June 30, 2019, respectively.

Long-Term Leases

5 unchanged sentences

The Company records right-of-use assets and liabilities on the interim condensed consolidated balance sheets 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 on our interim condensed consolidated balance sheets and are expensed on a straight-line basis over the lease term in our interim condensed consolidated statement of operations.

Operating lease right-of-use assets and liabilities are recorded at the present value of the lease payments over the lease term.

11 unchanged sentences

We perform our annual goodwill impairment assessment on the first day of the fourth quarter. 

At March 31, 2020, the Company reviewed the carrying value of goodwill for impairment indicators due to the events and circumstances surrounding the COVID- 19 pandemic.

As a result of the review, there were no impairment indicators regarding the Company’s goodwill during the three months ended March 31, 2020 that required a quantitative test to be performed.

At June 30, 2020, the Company reviewed the carrying value of goodwill for impairment indicators due to the events and circumstances surrounding the COVID- 19 pandemic.

As a result of the review, there were no impairment indicators regarding the Company’s goodwill during the three months ended June 30, 2020 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.

15 unchanged sentences

In all years, settlements, if any, in excess of available insurance policy limits and our own reserves would be expensed by us.

Continuing Care Contracts and Refundable Entrance Fee

Continuing Care Contracts

We have one continuing care retirement center (“CCRC”) within our operations.

3 unchanged sentences

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 non-current liabilities in our consolidated balance sheets.

As of March 31, 2020, and December 31, 2019, we have recorded a refundable entrance fee in the amount of $ 7,455,000 .

Obligation to Provide Future Services

We 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 (obligation to provide future services) with a corresponding charge to income.

As of March 31, 2020, and December 31, 2019, we have recorded a future service obligation in the amount of $ 2,035,000 .

Refundable entrance fees are not included as part of the transaction price and are classified as noncurrent liabilities section of our consolidated balance sheets.

As of June 30, 2020, and December 31, 2019, we have recorded refundable entrance fees in the amount of $ 7,643,000 and $7,455,000, 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 June 30, 2020, and December 31, 2019, we have recorded a future service obligation liability in the amount of $ 2,035,000 .

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

Deferred revenue includes the deferred gain on the sale of assets to National Health Corporation (“National”), the non-refundable portion ( 10% ) of CCRC entrance fees being amortized over the remaining life expectancies of the residents, and premiums received within our workers’

compensation and professional liability companies in which the performance obligations have not been satisfied.

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.

Noncontrolling Interest

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Note 3 –

Coronavirus Pandemic ("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.

The COVID- 19 virus has spread rapidly, with every state in the United States (“U.S.”) having confirmed cases.

The rapid spread has resulted in authorities around the U.S.

implementing various measures to contain the virus, such as quarantines, shelter-in-place orders and business shutdowns.

The pandemic and these containment measures have had, and are expected to continue to have, an adverse impact on the Company's results of operations.

The financial results for the three months ended June 30, 2020 were significantly impacted by COVID- 19 with census in our skilled nursing facilities dropping to 84.3 %, while we also incurred significantly increased operating expenses.

government enacted several laws beginning in March 2020 designed to help the nation respond to the COVID- 19 pandemic.

The new laws impact healthcare providers in a variety of ways, but the largest legislation from a monetary relief perspective is the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). 

The CARES Act provided $2.2 trillion of economy-wide financial stimulus in the form of financial aid to individuals, businesses, nonprofits, states and municipalities.

The CARES Act originally appropriated $100 billion to establish 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 any unreimbursed health care related expenses or lost revenue attributable to the public health emergency resulting from COVID- 19.

On April 24, 2020, another $75 billion was added to the Provider Relief Fund by the Paycheck Protection Program and Health Care Enactment Act, bringing the total amount appropriated in the fund to $175 billion. 

During the second quarter of 2020, we received three disbursements from the Provider Relief Fund which totaled $ 43,942,000 .

These funds came with terms and condition certifications in which all providers are required to submit documents to ensure the funds will be used for healthcare-related expenses and lost revenue attributable to COVID- 19.

Of the $43,942,000  of funds received, the Company recorded $ 24,648,000  of income related to these funds as we have reasonable assurance that the applicable terms and conditions to retain the funds has been met during the three months ended June 30, 2020.

This $24,648,000  is reflected within government stimulus income in the interim condensed consolidated statements of operations. 

As of June 30, 2020, amounts not recognized as income are approximately $ 19,294,000  and are reflected in the current liability section of our interim condensed consolidated balance sheet (provider relief funds).

We anticipate incurring additional COVID- 19 related expenses and lost revenues in the future;

therefore, at this time, we believe that we will fully utilize the remaining $19,294,000  of provider relief funds before the end of the pandemic. 

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 $ 50,992,000  as part of this program.

These funds will begin to be applied against claims for services provided to Medicare patients after approximately 120 days from the date we received the funds.

The payback period will be for approximately 90 days;

therefore, any remaining unapplied accelerated payment proceeds will be repaid within 210 days. 

Application to claims of the accelerated payments received by the Company is currently expected to begin in August 2020. 

As of June 30, 2020, the accelerated payments are reflected within contract liabilities in the interim condensed consolidated balance sheets as the related performance obligations have not been completed.

The CARES Act also provided for the temporary suspension of the automatic 2% reduction of Medicare claim reimbursement for the period of May 1, 2020 through December 31, 2020 and the deferral of the employer share of social security taxes ( 6.2% ), effective for payments due after the March 2020 enactment date. 

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. 

As of June 30, 2020, we have deferred $ 7.7 million of social security taxes. 

This deferral is included in other noncurrent liabilities within our interim condensed consolidated balance sheets. 

Note 4 –

Net Patient Revenues

3 unchanged sentences

( 1 ) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and a behavioral health hospital, and ( 2 ) homecare services.

Three Months Ended March 31

Three Months Ended

Six Months Ended

(in thousands)

Net patient revenues:

Inpatient services

$ 214,387  

$ 220,887  

$ 445,374  

$ 442,521  

11,284  

14,377  

24,392  

28,854  

Total net patient revenue

$ 225,671  

$ 235,264  

$ 469,766  

$ 471,375  

For inpatient 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 episode or on a per-visit basis.

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.

7 unchanged sentences

Three Months Ended

Six Months Ended

Private Pay and Other

2 unchanged sentences

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 episodes of care.

An episode of care is defined as a length of care up to 30 days with multiple continuous episodes allowed.

The services covered by the episode payment include all disciplines of care, in addition to medical supplies, within the scope of the home health benefit.

For homecare services, Medicare pays based on the acuity level of the patient and based on periods of care.

An 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.

Medicaid is operated by individual states with the financial participation of the federal government.

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Certain managed care payors for homecare services pay on a per-visit basis.

This non-episodic based revenue is recorded on an accrual basis based upon the date of services at amounts equal to its established or estimated per-visit rates.     

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 condensed consolidated balance sheets are contract liabilities, which represent payments the Company receives in advance of services provided.

As of June 30, 2020, the Company has recorded $ 50,992,000 in contract liabilities related to receipts from the Medicare Accelerated and Advance Payment Program.

These funds will begin to be applied against claims for services provided to Medicare patients after approximately 120 days from the date we received the funds.

The payback period will be for approximately 90 days;

therefore, any remaining unapplied accelerated payment proceeds will be repaid within 210 days. 

Recoupment of the accelerated payments received by the Company is currently expected to begin in August 2020.

A summary of the contract liabilities are follows ( in thousands ):

Balance at December 31, 2019

Payments received

50,992  

Payments recognized

Balance at June 30, 2020

$ 50,992  

Third Party Payors

7 unchanged sentences

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 $ 15,607,000 and $ 15,108,000 as of March 31, 2020 and December 31, 2019, respectively, for various Medicare, Medicaid, and Managed Care claims reviews and current and prior year cost reports.

We have made provisions of approximately $ 17,824,000 and $ 15,108,000 as of June 30, 2020 and December 31, 2019, respectively, for various Medicare, Medicaid, and Managed Care claims reviews and current and prior year cost reports.

Note 5 –

7 unchanged sentences

Three Months Ended

Six Months Ended

(in thousands)

Rental income

$ 5,646  

$ 5,677  

$ 11,325  

$ 11,285  

Management and accounting services fees

1 unchanged sentence

Total other revenues

$ 11,323  

$ 11,887  

$ 23,352  

$ 24,061  

Rental Income

4 unchanged sentences

Three Months Ended

Six Months Ended

(in thousands)

Operating lease payments

$ 5,505  

$ 5,486  

$ 11,008  

$ 10,963  

Variable lease payments

Total rental income

$ 5,646  

$ 5,677  

$ 11,325  

$ 11,285  

Management Fees from National

We manage five skilled nursing facilities owned by National.

For the three months ended March 31, 2020 and 2019, we recognized management fees and interest on management fees of $ 1,537,000 and $ 1,854,000 from these centers, respectively.

For the three and six months ended June 30, 2020, we recognized management fees and interest on management fees of $ 941,000 and $ 2,478,000 from these centers, respectively.

For the three months and six months ended June 30, 2019, we recognized management fees and interest on management fees of $ 1,351,000 and $ 3,206,000 for these centers, respectively.

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, 2020 and 2019 were $ 779,000 and $ 847,000 , respectively.

compensation insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months and six months ended June 30, 2020 were $ 883,000 and $ 1,662,000 , respectively.

For the three and six months ended June 30, 2019, the workers’

compensation premium revenues reflected in the interim condensed consolidated statements of operations were $ 943,000 and $ 1,791,000 .

Associated losses and expenses are reflected 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, 2020 and 2019 were $ 603,000 and $ 677,000 , respectively.

For professional liability insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months and six months ended June 30, 2020 were $ 515,000 and $ 1,118,000 , 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".

2 unchanged sentences

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.

Our most significant equity method investment is a 75.1 % non–controlling ownership interest in Caris HealthCare L.P.

(“Caris”), a business that specializes in hospice care services.

Three Months Ended

Six Months Ended

(in thousands)

Equity in earnings of unconsolidated investments

Dividends and net realized gains and losses on sales of securities

Equity in earnings of unconsolidated investments

$ 2,618  

$ 2,480  

$ 5,429  

$ 4,801  

Dividends and net realized gains on sales of securities

Interest income

Gain on acquisition of equity method investment

Gains on acquisitions of equity method investments

Total non-operating income

Gain on Acquisition of Equity Method Investment

$ 5,954  

$ 8,272  

$ 14,100  

$ 14,273  

Caris HealthCare, L.P.

Our most significant equity method investment is a 75.1 % non–controlling ownership interest in Caris, a business that specializes in hospice care services. The carrying value of our investment is $ 35,206,000 and $ 36,673,000 at June 30, 2020 and December 31, 2019, respectively.

The carrying amounts are included in investments in unconsolidated companies in the consolidated balance sheets.

Summarized financial information of Caris for the six months ended June 30, 2020 and 2019 is provided below (in thousands):

Six Months Ended

Gains on Acquisitions of Equity Method Investments

Effective February 27, 2020, the Company expanded its controlled operations through an acquisition of the remaining ownership interest of a 166 -bed skilled nursing facility in Knoxville, Tennessee.

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This remeasurement of our equity interest at fair value resulted in a gain of $ 1,707,000 .

The gain was recorded in "Non-operating income" in the interim condensed consolidated statement of operations.

The gain was recorded in "Non-operating income" in the interim condensed consolidated statements of operations.

Additionally, the excess of the fair value over the amounts assigned to the assets and liabilities of the investee resulted in recording goodwill in the amount of $ 346,000 on the acquisition date.

Effective June 1, 2019, the Company expanded its controlled operations through an acquisition of the remaining ownership interest of a 60 -bed memory care facility in St.

Peters, Missouri.

We previously held a noncontrolling interest in the facility and accounted for the investment as an equity method investment.

The operating results of the business have been included in the accompanying interim condensed consolidated financial statements since the remaining ownership interest acquisition date.

Upon acquiring the remaining ownership interest, the Company recorded and increased its previously held equity interest up to fair value as of the acquisition date.

This remeasurement of our equity interest at fair value resulted in a gain of $ 1,975,000 during the second quarter of 2019.

The gain was recorded in "Non-operating income" in the interim condensed consolidated statements of operations.

Note 7 –

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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, 2020

Three Months Ended June 30, 2020

Revenues and grant income:

Net patient revenues

$ 214,387  

$ 11,284  

$ 225,671  

Other revenues

11,196  

11,323  

Government stimulus income

22,622  

24,648  

Net operating revenues and grant income

237,136  

13,310  

11,196  

261,642  

Costs and expenses:

Salaries, wages, and benefits

136,380  

12,571  

156,914  

Other operating

63,999  

70,861  

10,320  

Depreciation and amortization

10,545  

Total costs and expenses

218,751  

12,857  

17,485  

249,093  

Income (loss) from operations

18,385  

( 6,289 )  

12,549  

Non-operating income

Unrealized gains on marketable equity securities

20,053  

Income before income taxes

$ 18,385  

$ 19,718  

$ 38,556  

Three Months Ended June 30, 2019

Net patient revenues

$ 220,887  

$ 14,377  

$ 235,264  

Other revenues

11,645  

11,887  

Net operating revenues

221,129  

14,377  

11,645  

247,151  

Costs and expenses:

Salaries, wages, and benefits

130,720  

147,878  

Other operating

60,172  

67,598  

10,197  

Depreciation and amortization

10,335  

Total costs and expenses

Income from operations

208,911  

13,704  

14,347  

236,962  

Income (loss) from operations

12,218  

( 2,702 )  

10,189  

Non-operating income

Unrealized losses on marketable equity securities

( 54 )  

Income before income taxes

$ 12,218  

$ 5,516  

$ 18,407  

Six Months Ended June 30, 2020

Revenues and grant income:

Net patient revenues

$ 445,374  

$ 24,392  

$ 469,766  

Other revenues

22,791  

23,352  

Government stimulus income

22,622  

24,648  

Net operating revenues and grant income

468,557  

26,418  

22,791  

517,766  

Costs and expenses:

Salaries, wages, and benefits

271,595  

16,279  

16,509  

304,383  

Other operating

129,104  

142,529  

16,757  

20,652  

Depreciation and amortization

19,197  

20,983  

Total costs and expenses

437,401  

25,503  

26,508  

489,412  

Income (loss) from operations

31,156  

( 3,717 )  

28,354  

Non-operating income

14,100  

Unrealized losses on marketable equity securities

( 40,339 )  

Income (loss) before income taxes

Three Months Ended March 31, 2019

$ 31,156  

$ ( 29,956 )  

$ 2,115  

Six Months Ended June 30, 2019

(As Adjusted)

Net patient revenues

$ 442,521  

$ 28,854  

$ 471,375  

Other revenues

23,588  

24,061  

Net operating revenues

442,994  

28,854  

23,588  

495,436  

Costs and expenses:

Salaries, wages, and benefits

259,778  

16,880  

12,608  

289,266  

Other operating

122,801  

137,030  

16,520  

20,435  

Depreciation and amortization

19,124  

20,852  

Total costs and expenses

Income from operations

418,891  

26,879  

23,693  

469,463  

Income (loss) from operations

24,103  

( 105 )  

25,973  

Non-operating income

14,273  

Unrealized gains on marketable equity securities

Income before income taxes

$ 24,103  

$ 1,975  

$ 20,952  

$ 47,030  

Note 8 –

1 unchanged sentence

Operating Leases

At March 31, 2020, we leased from NHI the real property of 35 skilled nursing facilities, seven assisted living centers and three independent living centers under two separate lease agreements.

At June 30, 2020, we leased from NHI the real property of 35 skilled nursing facilities, seven assisted living centers and three independent living centers under two separate lease agreements.

As part of the first lease agreement, we sublease four Florida skilled nursing facilities to a third -party operator.

Base rent expense under both NHI lease agreements totals $ 34,200,000 annually with rent thereafter escalating by 4 % of the increase in facility revenue over a base year.

Total facility rent expense to NHI was $ 9,655,000 and $ 9,515,000 for the three months ended March 31, 2020 and 2019, respectively.

Total facility rent expense to NHI was $ 9,655,000 and $ 19,310,000 for the three months and six months ended June 30, 2020.

Total facility rent expense to NHI was $ 9,515,000 and $ 19,030,000 for the three months and six months ended June 30, 2019.

Finance Leases

At March 31, 2020, we leased and operated three senior healthcare facilities in the state of Missouri under three separate lease agreements.

At June 30, 2020, we leased and operated three senior healthcare facilities in the state of Missouri under three 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.

2 unchanged sentences

Minimum Lease Payments

The following table summarizes the maturity of our finance and operating lease liabilities as of March 31, 2020 ( in thousands ):

The following table summarizes the maturity of our finance and operating lease liabilities as of June 30, 2020 ( in thousands ):

$ 5,200  

$ 35,429  

35,141  

34,636  

34,420  

34,269  

57,050  

Total minimum lease payments

19,067  

230,945  

amounts representing interest

Present value of future minimum lease payments

17,077  

191,029  

current portion

Noncurrent lease liabilities

$ 12,785  

$ 166,179  

Note 9 –

Earnings per Share

Basic net income (loss) per share is computed based on the weighted average number of common shares outstanding for each period presented.

Diluted net income (loss) 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 (losses) and the weighted average number of common shares used in the calculation of basic and diluted earnings (loss) per share (in thousands, except for share and per share amounts) :

Three Months Ended March 31

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 June 30

Six Months Ended June 30

Weighted average common shares outstanding

Net income/(loss) attributable to National HealthCare Corporation

Earnings/(loss) per common share, basic

15,307,105  

15,269,637  

15,300,941  

15,262,950  

Net income attributable to National HealthCare Corporation

$ 28,324  

$ 13,711  

$ 1,472  

$ 34,980  

Earnings per common share, basic

$ 1.85  

$ 0.90  

$ 0.10  

$ 2.29  

Weighted average common shares outstanding

15,307,105  

15,269,637  

15,300,941  

15,262,950  

Effects of dilutive instruments

65,325  

83,065  

66,523  

75,570  

Weighted average common shares outstanding

Net income/(loss) attributable to National HealthCare Corporation

Earnings/(loss) per common share, diluted

The impact of potentially dilutive securities ( 652,208 ) for the three months ended March 31, 2020 were not considered because the effect would be anti-dilutive in that period.

Options to purchase 8,475 shares of our common stock have been excluded for the quarter ended March 31, 2019 due to their anti–dilutive impact. 

15,372,430  

15,352,702  

15,367,464  

15,338,520  

Net income attributable to National HealthCare Corporation

$ 28,324  

$ 13,711  

$ 1,472  

$ 34,980  

Earnings per common share, diluted

$ 1.84  

$ 0.89  

$ 0.10  

$ 2.28  

In the above table, options to purchase 698,421 and 8,796 shares of our common stock have been excluded for the six months ended June 30, 2020 and 2019, respectively, due to their anti-dilutive impact.

Note 10 –

6 unchanged sentences

Marketable securities and restricted marketable securities consist of the following (in thousands) :

March 31, 2020

June 30, 2020

December 31, 2019

1 unchanged sentence

Marketable equity securities

$ 30,176  

$ 112,114  

$ 30,176  

$ 152,453  

Restricted investments available for sale:

Corporate debt securities

65,554  

69,452  

63,414  

65,653  

Asset-based securities

52,370  

52,846  

54,451  

55,185  

Treasury securities

13,366  

14,134  

13,379  

13,410  

State and municipal securities

12,819  

13,156  

12,922  

13,158  

$ 174,285  

$ 261,702  

$ 174,342  

$ 299,859  

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

March 31, 2020

June 30, 2020

December 31, 2019

NHI Common Stock

1,630,642  

$ 24,734  

$ 99,013  

1,630,642  

$ 24,734  

$ 132,865  

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, 2020

June 30, 2020

December 31, 2019

Within 1 year

$ 21,229  

$ 21,249  

$ 15,726  

$ 15,767  

89,640  

92,620  

88,314  

90,408  

6 to 10 years

32,965  

35,444  

40,126  

41,231  

Over 10 years

Gross unrealized gains related to marketable equity securities are $ 62,244,000 and $ 122,290,000 as of March 31, 2020 and December 31, 2019, respectively.

Gross unrealized losses related to marketable equity securities are $ 359,000 and $ 13,000 as of March 31, 2020 and December 31, 2019, respectively.

For the three months ended March 31, 2020 and 2019, the Company recognized net unrealized losses of $ 60,392,000 and net unrealized gains of $ 6,838,000 , respectively, for the changes in fair market value of the marketable equity securities in the interim condensed consolidated statement of operations.

Gross unrealized gains related to available for sale marketable debt securities are $ 3,024,000 and $ 3,407,000 as of March 31, 2020 and December 31, 2019, respectively.

Gross unrealized losses related to available for sale marketable debt securities are $ 2,330,000 and $ 167,000 as of March 31, 2020 and December 31, 2019, respectively.

$ 144,109  

$ 149,588  

$ 144,166  

$ 147,406  

Gross unrealized gains related to marketable equity securities are $ 82,126,000 and $ 122,290,000 as of June 30, 2020 and December 31, 2019, respectively.

Gross unrealized losses related to marketable equity securities are $ 188,000 and $ 13,000 as of June 30, 2020 and December 31, 2019, respectively.

For the three months and six months ended June 30, 2020, the Company recognized net unrealized gains of $ 20,053,000 and net unrealized losses of $ 40,339,000 , respectively, for the changes in fair market value of the marketable equity securities in the interim condensed consolidated statements of operations.

For the three months and six months ended June 30, 2019, the Company recognized net unrealized losses of $ 54,000 and net unrealized gains of $ 6,784,000 , 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 $ 6,418,000 and $ 3,407,000 as of June 30, 2020 and December 31, 2019, respectively.

Gross unrealized losses related to available for sale marketable debt securities are $ 939,000 and $ 167,000 as of June 30, 2020 and December 31, 2019, 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 ending March 31, 2020 and 2019.

The Company has not recognized any credit related impairments for the six months ending June 30, 2020 and 2019.

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 debt securities during the three months ended March 31, 2020 and 2019 were $ 3,410,000 and $ 6,576,000 , respectively.

Investment gains of $ 2,000 and $- 0 - were realized on these sales during the three months ended March 31, 2020 and 2019, respectively.

No sales were reported for marketable equity securities for the three months ended March 31, 2020 and 2019, respectively.

Proceeds from the sale of available for sale marketable debt securities during the six months ended June 30, 2020 and 2019 were $ 19,823,000 and $ 30,103,000 , respectively.

Investment gains of $ 13,000 and $- 0 - were realized on these sales during the six months ended June 30, 2020 and 2019, respectively.

No sales were reported for marketable equity securities for the six months ended June 30, 2020 and 2019, respectively.

Note 1 1 –

9 unchanged sentences

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, 2020 and December 31, 2019 for assets and liabilities measured at fair value on a recurring basis (in thousands) :

The following table summarizes fair value measurements by level at June 30, 2020 and December 31, 2019 for assets and liabilities measured at fair value on a recurring basis (in thousands) :

Fair Value Measurements Using

March 31, 2020

Quoted Prices in

Active Markets

June 30, 2020

Quoted Prices

For Identical

Cash and cash equivalents

$ 149,471  

Restricted cash and cash equivalents

21,308  

Marketable equity securities

112,114  

Corporate debt securities

69,452  

48,562  

20,890  

Mortgage–backed securities

52,846  

Treasury securities

14,134  

State and municipal securities

13,156  

11,178  

Total financial assets

$ 432,481  

$ 347,567  

$ 84,914  

Fair Value Measurements Using

December 31, 2019

Quoted Prices in

Active Markets

Quoted Prices

For Identical

Cash and cash equivalents

$ 50,334  

Restricted cash and cash equivalents

10,676  

Marketable equity securities

152,453  

Corporate debt securities

65,653  

48,584  

17,069  

Asset - backed securities

55,185  

Treasury securities

13,410  

State and municipal securities

13,158  

11,183  

Total financial assets

$ 360,869  

$ 277,432  

$ 83,437  

Note 1 2 –

3 unchanged sentences

Credit facility, interest payable monthly

$ 10,000  

Less current portion

Total long-term debt

As of March 31, 2020, the available borrowing capacity for the credit facility is $ 10 million.

As of June 30, 2020, the available borrowing capacity for the credit facility is $ 60 million.

The credit facility has a maturity date of October 2020.

3 unchanged sentences

The program will allow for repurchases of up to $ 25 million of its common stock.

During the quarter ended March 31, 2020, the Company repurchased 611 shares of its common stock for a total cost of $ 53,000 .

During the six months ended June 30, 2020, the Company repurchased 797 shares of its common stock for a total cost of $ 53,000 .

The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued.

2 unchanged sentences

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 $ 466,000 and $ 424,000 for the three months ended March 31, 2020 and 2019, respectively.

Stock–based compensation totaled $ 823,000 and $ 684,000 for the three months ended June 30, 2020 and 2019, respectively.

Stock-based compensation totaled $ 1,289,000 and $ 1,108,000 for the six months ended June 30, 2020 and 2019, respectively.

Stock–based compensation is included in “Salaries, wages and benefits”

in the interim condensed consolidated statements of operations.

At March 31, 2020, the Company had $ 4,077,000 of unrecognized compensation cost related to unvested stock–based compensation awards.

At June 30, 2020, the Company had $ 3,544,000 of unrecognized compensation cost related to unvested stock–based compensation awards.

This unrecognized compensation cost will be amortized over an approximate two -year period.

Stock Options

The following table summarizes the significant assumptions used to value the options granted for the three months ended March 31, 2020 and for the year ended December 31, 2019.

March 31, 2020

December 31, 2019

The following table summarizes the significant assumptions used to value the options granted for the six months ended June 30, 2020 and for the year ended December 31, 2019.

June 30, 2020

Risk–free interest rate

0.85 %  

2.30 %  

Expected volatility

20.2 %  

17.4 %  

Expected life, in years

Expected dividend yield

The following table summarizes our outstanding stock options for the three months ended March 31, 2020 and for the year ended December 31, 2019.

2.92 %  

2.73 %  

The following table summarizes our outstanding stock options for the six months ended June 30, 2020 and for the year ended December 31, 2019.

Exercise Price

Options outstanding at January 1, 2019

1,163,381  

$ 71.16  

Options granted

53,316  

Options exercised

1 unchanged sentence

Options outstanding at December 31, 2019

785,529  

Options granted

102,465  

Options exercised

Options outstanding at March 31, 2020

Options exercisable at March 31, 2020

March 31, 2020

Options cancelled

Options outstanding at June 30, 2020

853,421  

$ 72.10  

$ 174,000  

Options exercisable at June 30, 2020

217,456  

$ 68.30  

$ 92,000  

June 30, 2020

Exercise Prices

3 unchanged sentences

Life in Years

155,000  

$ 60.73  - $ 64.64  

698,421  

$ 72.94  - $ 86.48  

853,421  

Note 1 5 –

The income tax benefit for the three months ended March 31, 2020 is $( 9,625,000 ) (an effective income tax rate of 26.4 %).

The income tax provision and effective tax rate for the three months ended March 31, 2020 were unfavorably impacted by adjustments to unrecognized tax benefits of $ 205,000 .

The income tax provision for the three months ended March 31, 2020 resulted in an overall tax benefit due to an overall pre-tax book loss resulting from the unrealized loss of $ 60,392,000 for the market value decrease in our marketable equity securities portfolio.  

The income tax provision for the three months ended March 31, 2019 was $ 7,392,000 (an effective income tax rate of 25.8 %).

The income tax provision and effective tax rate for the three months ended March 31, 2019 were unfavorably impacted by adjustments to unrecognized tax benefits of $ 200,000 but was favorably impacted by a tax benefit of $ 228,000 relating to the exercise of stock options. 

The income tax provision for the three months ended June 30, 2020 is $ 10,034,000 (an effective income tax rate of 26.0 %).

The income tax provision and effective tax rate for the three months ended June 30, 2020 were unfavorably impacted by adjustments to unrecognized tax benefits of $ 78,000 .

The income tax provision for the three months ended June 30, 2019 was $ 4,725,000 (an effective income tax rate of 25.7 %).

The income tax provision and effective tax rate for the three months ended June 30, 2019 were unfavorably impacted by adjustments to unrecognized tax benefits of $ 95,000 .

The income tax provision for the six months ended June 30, 2020 was $ 409,000 (an effective tax rate of 19.4 %).

The income tax provision and effective tax rate for the six months ended June 30, 2020 were unfavorably impacted by nondeductible expenses of $ 108,000 and adjustments to unrecognized tax benefits of $ 283,000 but were favorably impacted by a tax benefit of $ 60,000 relating to the exercise of stock options.

The income tax provision for the six months ended June 30, 2020 resulted in a lower effective tax rate due to the lower pre-tax book income resulting from the unrealized loss of $ 40,339,000 for the market value decrease in our marketable equity securities portfolio.

The income tax provision for the six months ended June 30, 2019 was $ 12,117,000 (an effective tax rate of 25.8 %).

The income tax provision and effective tax rate for the six months ended June 30, 2019 were unfavorably impacted by nondeductible expenses of $ 105,000 and adjustments to unrecognized tax benefits of $ 295,000 but were favorably impacted by a tax benefit of $ 275,000 relating to the exercise of stock options.

Interest and penalties expense related to U.S.

7 unchanged sentences

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 $ 100,762,000 and $ 96,011,000 at March 31, 2020 and December 31, 2019, respectively.

The liability we have recognized for reported claims and estimates for incurred but unreported claims totals $ 105,008,000 and $ 96,011,000 at June 30, 2020 and December 31, 2019, 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.

10 unchanged sentences

All customers are companies which operate in the senior care industry.

Business is written on a direct basis.

Direct business coverage is written for statutory limits and the insurance company’s losses in excess of $ 1,000,000 per claim are covered by reinsurance.

General and Professional Liability Lawsuits and Insurance

The senior care industry has experienced increases in both the number of personal injury/wrongful death claims and in the severity of awards based upon alleged negligence by nursing facilities and their employees in providing care to residents.

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.

Insurance coverage for both periods includes both primary policies and excess policies.

The primary coverage is in the amount of $ 1.0 million per incident, $ 3.0 million per location with an annual primary policy aggregate limit that is adjusted on an annual basis.

For 2019 and 2020, the excess coverage is $ 9.0 million per occurrence.

Additional insurance is purchased through third party providers that serve to supplement the coverage provided through our wholly owned captive insurance company.

Financing Commitments

In conjunction with our management contract with National, we have entered into a line of credit arrangement whereby we may have amounts due from National from time to time.

The maximum loan commitment under the line of credit is $ 2,000,000 .

At March 31, 2020, National did not have an outstanding balance on the line of credit.

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.

Nutritional Support Services, L.P., Qui Tam Litigation 

2 unchanged sentences

Nutritional Support Services, L.P., No.

6:17 -cv- 2608 -AMQ (D.S.C.), which was filed in the United States District Court for the District of South Carolina.

6:17 -cv- 2608 -AMQ (D.S.C.), which was filed in the United States District Court for the District of South Carolina (the "Court").

The action alleges that NSS violated the False Claims Act by reporting a National Drug Code (“NDC”) number that did not correspond to the NDC for dispensed prescriptions.

1 unchanged sentence

On April 16, 2018, the United States filed a Notice of Election to Decline Intervention with respect to the allegations asserted in this action.

On March 14, 2020, the Court entered an Order granting the Defendant’s Motion to Dismiss.

On May 6, 2020, the Court entered a Final Judgment dismissing the case.

Governmental Regulations

4 unchanged sentences

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 16 –

Subsequent Events

On March 27, 2020, the United States government passed the Coronavirus Aid, Relief, and Economic Security Act, (the “CARES Act”), which provided $2.2 trillion of economy-wide financial stimulus in the form of financial aid to individuals, businesses, nonprofits, states and municipalities.

Within the CARES Act, the legislation set aside under Title VIII in Division B the Public Health and Social Services Emergency Fund , which is referred to as the Provider Relief Fund.

This Provider Relief Fund set aside $100 billion to be administered through grants and other mechanisms to skilled nursing providers, home health providers, hospitals, public entities, non-for-profit entities, and Medicare and Medicaid enrolled providers to cover any unreimbursed health care related expenses or lost revenue attributable to the public health emergency resulting from COVID- 19.

In April 2020, we received two disbursements from the Provider Relief Fund which totaled $ 19,468,000 .

These funds come with terms and condition certifications in which all providers will be required to submit documents to ensure the funds will be used for healthcare-related expenses or lost revenue attributable to COVID- 19.

These funds are not reflected in our first quarter 2020 interim condensed consolidated financial statements.

In April 2020, the Company also submitted requests and received funding as part of the Centers for Medicare and Medicaid Services (“CMS”) COVID- 19 Accelerated Payment Program.

The CMS COVID- 19 Accelerated 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 $ 50,744,000 as part of this Medicare Accelerated Payment Program.

These funds will begin to be applied against claims for services provided to Medicare patients after approximately 120 days from the date we received the funds.

The payback period will be for approximately 90 days;

therefore, any remaining unapplied Accelerated Payment Program proceeds will be repaid within 210 days from the April 2020 receipt of the funds.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements