What changed in this filing

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Item 1. Financial Statements

2020-11-05 compared with 2020-08-07 · 173 added, 175 removed, 1037 unchanged (25% of the section changed)

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Revenues and grant income:

26 unchanged sentences

Three Months Ended

Six Months Ended

Nine 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

Reclassification adjustment for realized gains on sales of restricted marketable debt securities

Income tax expense related to items of other comprehensive income

6 unchanged sentences

(in thousands)

September 30,

Current Assets:

23 unchanged sentences

(in thousands, except share and per share amounts)

September 30,

Liabilities and Stockholders’

72 unchanged sentences

in thousands)  

Six Months Ended

Nine Months Ended

Cash Flows From Operating Activities:

10 unchanged sentences

Accounts receivable

Income tax receivable

Prepaid expenses and other assets

42 unchanged sentences

Balance at January 1, 2020

15,332,206  

$ 222,787  

$ 553,093  

$ 2,560  

$ 779,069  

Net income/(loss)

4 unchanged sentences

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

3 unchanged sentences

options exercised

11,073  

Repurchase of common shares

1 unchanged sentence

Balance at June 30, 2020

15,357,488  

$ 224,972  

$ 538,599  

$ 4,328  

$ 1,235  

$ 769,287  

Noncontrolling interest contributions

Other comprehensive income

Stock–based compensation

Shares sold –

options exercised

Dividends declared to common stockholders ($0.52 per share)

Balance at September 30, 2020

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Stockholders’

Equity (con’t)

(in thousands, except share and per share amounts)

Comprehensive

2 unchanged sentences

Balance at January 1, 2019

15,255,002  

$ 219,435  

$ 516,435  

$ 1,179  

$ 734,457  

Net income/(loss)

21,269  

( 38 )  

21,231  

Other comprehensive income

2 unchanged sentences

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

3 unchanged sentences

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  

Net income/(loss)

Noncontrolling interest distributions

Other comprehensive income

Stock–based compensation

Dividends declared to common stockholders ($0.52 per share)

Balance at September 30, 2019

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

June 30, 2020

September 30, 2020

(unaudited)  

3 unchanged sentences

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

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.

As of September 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.

60 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 $ 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.

Bad debt expense was $ 1,463,000 and $ 3,538,000 for the three months and nine months ended September 30, 2020.

For the three months and nine months ended September 30, 2019, bad debt expense was $ 827,000 and $ 2,866,000 , respectively.

As of September 30, 2020, and December 31, 2019, the Company has recorded allowance for doubtful accounts of $ 6,295,000 and $ 4,451,000 , respectively, as our best estimate of expected losses inherent in the accounts receivable balance.

Other Revenues

20 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 $ 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.

Costs that could be classified as "general and administrative" by the Company would include its corporate office costs, excluding stock-based compensation, which were $ 10,921,000 and $ 24,535,000  for the three months and nine months ended September 30, 2020, respectively.

General and administrative costs were $ 7,170,000 and $ 18,991,000 for the three months and nine months ended September 30, 2019, respectively.

Long-Term Leases

19 unchanged sentences

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

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.

At September 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 September 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.

22 unchanged sentences

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.

As of September 30, 2020, and December 31, 2019, we have recorded refundable entrance fees in the amount of $ 7,462,000 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 .

As of September 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. 

15 unchanged sentences

in the consolidated balance sheets.

Prior Period Classifications

Certain amounts in prior periods have been reclassified to conform with current period presentation.

Note 3 –

4 unchanged sentences

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.

The pandemic and these containment measures have had an adverse impact on the Company's results of operations in 2020.

The financial results for the second and third quarters of 2020 have been significantly impacted by COVID- 19 with census in our skilled nursing facilities dropping to 81.3 % during the third quarter of 2020, 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.

4 unchanged sentences

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.

During the second and third quarters of 2020, we received four disbursements from the Provider Relief Fund which totaled $ 58,184,000 .

These funds come 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 or lost revenue attributable to COVID- 19.

Of the $58,184,000  of funds received, the Company recorded $ 12,132,000 and $ 36,780,000  of government stimulus income for the three  and nine months ended September 30, 2020, respectively. 

As of September 30, 2020, amounts not recognized as income are $ 21,404,000  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 or lost revenues in the future;

therefore, at this time, we believe that we will fully utilize the remaining $21,404,000  of provider relief funds before the reporting requirement deadlines outlined by the U.S.

Department of Health and Human Services (“HHS”). 

The government stimulus income estimates we recorded at 

September 30, 2020 

may change as our ability to utilize and retain the funds will depend on the magnitude and impact of the pandemic, as well as HHS' reporting requirements as they continue to change and evolve. 

On October 22, 2020, HHS issued an updated Post-Payment Notice of Reporting Requirements ( "October 22, 2020 Notice") which, among other changes, materially revises the definition of lost revenues that was the basis for the grant income we recognized during the three and nine months ended September 30, 2020. 

As a non-recognizable subsequent event, the Company's estimate as of September 30, 2020, as set forth above, has 

not been updated for the October 22, 2020 Notice;

additional information is included in Note 17.

Additionally, as part of the CARES Act, the legislation included an expansion of the Medicare Accelerated and Advance Payment Program.

The expanded Medicare Accelerated and Advance Payment Program is a streamlined version of existing policy that allows the Medicare Administrative Contractors (“MAC’s”) to issue up to three months of advance Medicare payments to help increase cash flow and liquidity to Medicare Part A and Part B providers in certain circumstances that include national emergencies.

We received approximately $ 51,253,000  as part of this program.

These funds 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.

On October 8, 2020 as part of the Continuing Appropriations Act, 2021 and Other Extensions Act, the Centers for Medicare & Medicaid Services’

(“CMS”) amended the repayment terms for the accelerated and advance payments.

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

During the first eleven months after repayment begins, repayment will occur through an automatic recoupment of twenty-five percent of Medicare payments.

During the succeeding six months, repayment will occur through an automatic recoupment of fifty percent of Medicare payments.

Any remaining balance that was not paid through the recoupment process within twenty-nine months of receipt of the funds will be required to be paid on-demand, subject to an interest rate of four percent.

As of September 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. 

As of September 30, 2020, we have deferred $ 14,854,000 of the Company’s share of the social security taxes. 

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

6 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

(in thousands)

25 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Private Pay and Other

3 unchanged sentences

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.

A period of care is defined as a length of care up to 30 days with multiple continuous periods allowed.

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

9 unchanged sentences

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.

As of September 30, 2020, the Company has recorded $ 51,253,000 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 one year from the date we received the funds.

During the first eleven months after repayment begins, repayment will occur through an automatic recoupment of twenty-five percent of Medicare payments.

During the succeeding six months, repayment will occur through an automatic recoupment of fifty percent of Medicare payments.

Recoupment of the accelerated payments is currently expected to begin in April 2021.

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

3 unchanged sentences

Payments recognized

Balance at June 30, 2020

Balance at September 30, 2020

$ 51,253  

8 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 $ 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.

We have made provisions of approximately $ 15,642,000 and $ 15,108,000 as of September 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

Nine Months Ended

(in thousands)

5 unchanged sentences

Management and accounting services fees

12,651  

13,567  

Insurance services

10 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

(in thousands)

12 unchanged sentences

We manage five skilled nursing facilities owned by National.

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.

For the three and nine months ended September 30, 2020, we recognized management fees and interest on management fees of $ 920,000 and $ 3,399,000 from these centers, respectively.

For the three months and nine months ended September 30, 2019, we recognized management fees and interest on management fees of $ 1,543,000 and $ 4,748,000 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 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 insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months and nine months ended September 30, 2020 were $ 779,000 and $ 2,441,000 , respectively.

For the three and nine months ended September 30, 2019, the workers’

compensation premium revenues reflected in the interim condensed consolidated statements of operations were $ 866,000 and $ 2,656,000 .

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 and six months ended June 30, 2020 were $ 515,000 and $ 1,118,000 , respectively.

For professional liability insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months and nine months ended September 30, 2020 were $ 515,000 and $ 1,633,000 , 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".

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

(in thousands)

Equity in earnings of unconsolidated investments

Equity in earnings of unconsolidated investments

$ 3,019  

11 unchanged sentences

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.

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 $ 35,035,000 and $ 36,673,000 at September 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

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

Nine Months Ended

$ 48,690  

$ 45,554  

37,753  

35,410  

$ 10,937  

$ 10,144  

Gains on Acquisitions of Equity Method Investments

26 unchanged sentences

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

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Revenues and grant income:

32 unchanged sentences

10,785  

( 6,289 )  

12,549  

Non-operating income

Unrealized gains on marketable equity securities

20,053  

Unrealized losses on marketable equity securities

Income before income taxes

2 unchanged sentences

$ 1,377  

Three Months Ended June 30, 2019

$ 13,259  

Three Months Ended September 30, 2019

Net patient revenues

26 unchanged sentences

Income (loss) from operations

12,218  

( 2,702 )  

10,189  

Non-operating income

Unrealized losses on marketable equity securities

( 54 )  

Income before income taxes

Unrealized gains on marketable equity securities

Income (loss) before income taxes

$ 9,484  

1 unchanged sentence

$ 22,543  

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Revenues and grant income:

25 unchanged sentences

25,134  

30,972  

Depreciation and amortization

9 unchanged sentences

35,376  

28,354  

Non-operating income

2 unchanged sentences

Unrealized losses on marketable equity securities

( 40,339 )  

Income (loss) before income taxes

2 unchanged sentences

$ 15,374  

Six Months Ended June 30, 2019

(As Adjusted)

Nine Months Ended September 30, 2019

Net patient revenues

21 unchanged sentences

24,754  

30,602  

Depreciation and amortization

9 unchanged sentences

32,541  

25,973  

Non-operating income

2 unchanged sentences

Unrealized gains on marketable equity securities

16,096  

Income before income taxes

6 unchanged sentences

Operating Leases

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.

At September 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 $ 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.

Total facility rent expense to NHI was $ 9,655,000 and $ 28,965,000 for the three months and nine months ended September 30, 2020.

Total facility rent expense to NHI was $ 9,515,000 and $ 28,545,000 for the three months and nine months ended September 30, 2019.

Finance Leases

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

At September 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 June 30, 2020 ( in thousands ):

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

$ 5,200  

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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

Three Months Ended

Nine Months Ended

Weighted average common shares outstanding

38 unchanged sentences

$ 3.55  

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.

In the above table, options to purchase 698,080 shares of our common stock have been excluded for the nine months ended September 30, 2020 due to their anti-dilutive impact.

Note 10 –

6 unchanged sentences

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

June 30, 2020

September 30, 2020

December 31, 2019

31 unchanged sentences

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

June 30, 2020

September 30, 2020

December 31, 2019

7 unchanged sentences

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

June 30, 2020

September 30, 2020

December 31, 2019

13 unchanged sentences

41,231  

Over 10 years

$ 136,051  

2 unchanged sentences

$ 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.

Gross unrealized gains related to marketable equity securities are $ 81,804,000 and $ 122,290,000 as of September 30, 2020 and December 31, 2019, respectively.

Gross unrealized losses related to marketable equity securities are $ 107,000 and $ 13,000 as of September 30, 2020 and December 31, 2019, respectively.

For the three months and nine months ended September 30, 2020, the Company recognized net unrealized losses of $ 241,000 and $ 40,580,000 , 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 nine months ended September 30, 2019, the Company recognized net unrealized gains of $ 9,312,000 and $ 16,096,000 , 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 $ 6,727,000 and $ 3,407,000 as of September 30, 2020 and December 31, 2019, respectively.

Gross unrealized losses related to available for sale marketable debt securities are $ 738,000 and $ 167,000 as of September 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 six months ending June 30, 2020 and 2019.

The Company has not recognized any credit related impairments for the nine months ending September 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 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.

Proceeds from the sale of available for sale marketable debt securities during the nine months ended September 30, 2020 and 2019 were $ 28,004,000 and $ 41,272,000 , respectively.

Investment gains of $ 135,000 and $ 117,000 were realized on these sales during the nine months ended September 30, 2020 and 2019, respectively.

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

Note 11 –

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 June 30, 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 September 30, 2020 and December 31, 2019 for assets and liabilities measured at fair value on a recurring basis (in thousands) :

Fair Value Measurements Using

June 30, 2020

Quoted Prices

September 30, 2020

For Identical

27 unchanged sentences

December 31, 2019

Quoted Prices

For Identical

28 unchanged sentences

Long–term debt consists of the following (dollars in thousands) :

Interest Rate

September 30,

Credit facility, interest payable monthly

2 unchanged sentences

Total long-term debt

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.

Loans bear interest at either (i) LIBOR plus 1.40 % or (ii) the base rate plus 0.40 %.

On August 13, 2020, NHC terminated the credit facility.

At September 30, 2020, the Company does not have a credit facility in place.

Note 13 - Stock Repurchase Program

 In August 2019, the Board of Directors authorized a common stock purchase program.

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

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

In August 2020, the Board of Directors authorized a common stock purchase program.

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

During the nine months ended September 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.

The plan expires on August 31, 2021.

Note 14 –

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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 $ 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 totaled $ 518,000 and $ 340,000 for the three months ended September 30, 2020 and 2019, respectively.

Stock-based compensation totaled $ 1,807,000 and $ 1,448,000 for the nine months ended September 30, 2020 and 2019, respectively.

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

in the interim condensed consolidated statements of operations.

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

At September 30, 2020, the Company had $ 3,024,000 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 six months ended June 30, 2020 and for the year ended December 31, 2019.

June 30, 2020

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

September 30,

Risk–free interest rate

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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.

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

Exercise Price

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Options cancelled

Options outstanding at June 30, 2020

Options outstanding at September 30, 2020

851,080  

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$ 66,000  

Options exercisable at June 30, 2020

Options exercisable at September 30, 2020

215,456  

1 unchanged sentence

$ 18,000  

June 30, 2020

September 30, 2020

Exercise Prices

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153,000  

$ 60.73  - $ 64.64  

$ 60.73 - $64.64  

$ 72.94  - $ 86.48  

698,080  

$ 72.94 - $86.48  

851,080  

Note 15 –

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.

federal and state income tax returns are included within income tax expense.

The Company's income tax provision as a percentage of our income before income taxes was 3.0 % and 5.2 % for the three and nine months ended September 30, 2020, respectively. 

The income tax provision as a percentage of income before income taxes was 14 % and 22.0 % for the three and nine months ended September 30, 2019, respectively.  

Typically, these percentages vary from the U.S.

federal statutory income tax rate of 21% primarily due to state income taxes, excess tax benefits from stock-based compensation, benefits resulting from the lapsing of statute of limitations of items in our tax contingency reserve, and non-deductible expenses. 

The tax benefit related to statute of limitation expirations was $ 2,234,000 for the three and nine months ended September 30, 2020. 

The tax benefit related to statute of limitation expirations was $ 2,064,000 for the three and nine months ended September 30, 2019.

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

The Company is no longer subject to U.S.

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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 $ 105,008,000 and $ 96,011,000 at June 30, 2020 and December 31, 2019, respectively.

The liability we have recognized for reported claims and estimates for incurred but unreported claims totals $ 105,953,000 and $ 96,011,000 at September 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.

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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.

Divestiture of Skilled Nursing Facility

On August 21, 2020, the Company entered into a definitive agreement for the sale of the real estate and operations of a skilled nursing facility in Town and Country, Missouri. 

This transaction is expected to be completed in the fourth quarter of 2020.

Note 17  –

Subsequent Event

Provider Relief Funds Guidance

On September 19, 2020, HHS issued a six -page Post-Payment Notice of Reporting Requirements ( "September 19, 2020 Notice") pertaining to the guidance and reporting process for recipients of Provider Relief Funds. 

This September 19, 2020 Notice was used to estimate the government stimulus income recorded in the interim condensed consolidated statements of operations for the three and nine months ended 

September 30, 2020. 

October 22, 2020, HHS issued a subsequent Post-Payment Notice of Reporting Requirements ( "October 22, 2020 Notice") document that materially revises the definition of lost revenues compared to the September 19, 2020 Notice. 

The definition of lost revenues has subsequently changed to refer to the negative year-over-year difference in 2019 and 2020 actual revenues from patient care related sources as opposed to the negative year-over-year change in net patient care operating income. 

As stated in Note 3,  the Company's estimate for recording government stimulus income for the three and nine months ended 

September 30, 2020 has 

not been updated for the October 22, 2020 Notice. 

The Company's evaluation of the October 22, 2020 Notice is ongoing and its impact on our financial statements is 

not yet known. 

GAAP does not permit amounts recognized as of September 30, 2020 to be updated on the basis of new information in the October 22, 2020 Notice.    

As evidenced by the October 22, 2020 Notice, HHS' interpretation of the underlying terms and conditions of these Provider Relief Fund payments, including auditing and reporting requirements, continues to change and evolve. 

Additional guidance or new and amended interpretations of existing guidance on the terms and conditions may result in changes in the Company's estimates, and such changes may be material. 

Additionally, any such changes may result in the Company's inability to recognize additional Provider Relief Fund payments or may result in derecognition of amounts previously recognized, which may be material.  

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