NATIONAL HEALTHCARE CORP 10-Q

nhc20210630_10q.htm     Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549   FORM 10-Q     ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended  June 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____     Commission file number     001-13489     (Exact name of registrant as specified in its Charter)     Delaware 52-2057472 (State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.)     100 E. Vine Street Murfreesboro , TN 37130 (Address of principal executive offices) (Zip Code)     ( 615 ) 890–2020 Registrant's telephone number, including area code     Securities registered pursuant to Section 12(b) of the Exchange Act:   Title of each class Trading Symbols(s) Name of each exchange on which registered Common, $0.01 par value NHC NYSE American   Indicate by check mark whether the registrant: (1) Has filed all reports required to be filed by Section 13 or 15(d), of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐   Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S–T (§ 232.405 of this chapter) during the preceding 12 months (or for such period that the registrant was required to submit such files).     Yes  ☒  No ☐   Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.   Large Accelerated filer ☒ Accelerated filer ☐     Non–accelerated filer ☐ Smaller reporting company ☐       Emerging growth company  ☐   If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐   Indicate by check mark whether the registrant is a shell company (as is defined in Rule 12b–2 of the Exchange Act). Yes ☐    No ☒   15,423,240  shares of common stock of the registrant were outstanding as of August 2, 2021.       Table of Contents       TABLE OF CONTENTS       PART I. FINANCIAL INFORMATION   Page Item 1. Financial Statements 3       Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 25       Item 3. Quantitative and Qualitative Disclosures About Market Risk 37       Item 4. Controls and Procedures 38   PART II. OTHER INFORMATION   Item 1. Legal Proceedings 38       Item 1A Risk Factors 38       Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 38       Item 3. Defaults Upon Senior Securities 38       Item 4. Mine Safety Disclosures 39       Item 5. Other Information 39       Item 6. Exhibits 39   2 Table of Contents   PART I. FINANCIAL INFORMATION   Item 1. Financial Statements.     NATIONAL HEALTHCARE CORPORATION Interim Condensed Consolidated Statements of Operations (in thousands, except share and per share amounts) (unaudited)       Three Months Ended June 30     Six Months Ended June 30       2021     2020     2021     2020                                     Revenues and grant income:                                 Net patient revenues   $ 236,976     $ 225,671     $ 453,831     $ 469,766   Other revenues     11,056       11,323       22,425       23,352   Government stimulus income     15,126       24,648       37,875       24,648   Net operating revenues and grant income     263,158       261,642       514,131       517,766                                     Cost and expenses:                                 Salaries, wages, and benefits     156,804       156,914       301,934       304,383   Other operating     72,043       70,861       142,196       142,529   Facility rent     10,170       10,320       20,233       20,652   Depreciation and amortization     10,131       10,545       20,292       20,983   Interest     215       453       459       865   Total costs and expenses     249,363       249,093       485,114       489,412                                     Income from operations     13,795       12,549       29,017       28,354                                     Other income/(losses):                                 Non–operating income     5,586       5,954       11,846       12,392   Gains on acquisitions of equity method investments     95,202       -       95,202       1,708   Unrealized (losses)/gains on marketable equity securities     ( 6,489 )     20,053       570       ( 40,339 )                                   Income before income taxes     108,094       38,556       136,635       2,115   Income tax provision     ( 2,764 )     ( 10,034 )     ( 9,997 )     ( 409 ) Net income     105,330       28,522       126,638       1,706   Net income attributable to noncontrolling interest     ( 447 )     ( 198 )     ( 488 )     ( 234 )                                   Net income attributable to National HealthCare Corporation   $ 104,883     $ 28,324     $ 126,150     $ 1,472                                     Earnings per share attributable to National HealthCare Corporation stockholders:                                 Basic   $ 6.83     $ 1.85     $ 8.22     $ 0.10   Diluted   $ 6.80     $ 1.84     $ 8.19     $ 0.10                                     Weighted average common shares outstanding:                                 Basic     15,349,162       15,307,105       15,338,400       15,300,941   Diluted     15,419,012       15,372,430       15,404,634       15,367,464                                     Dividends declared per common share   $ 0.52     $ 0.52     $ 1.04     $ 1.04     The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.      3 Table of Contents     NATIONAL HEALTHCARE CORPORATION Interim Condensed Consolidated Statements of Comprehensive Income/(Loss) (unaudited – in thousands)       Three Months Ended June 30     Six Months Ended June 30       2021     2020     2021     2020                                     Net income   $ 105,330     $ 28,522     $ 126,638     $ 1,706                                     Other comprehensive income:                                 Unrealized gains/(losses) on investments in marketable debt securities     407       4,796       ( 2,033 )     2,251   Reclassification adjustment for realized gains on sales of marketable debt securities     ( 212 )     ( 11 )     ( 212 )     ( 13 ) Income tax (expense)/benefit related to items of other comprehensive income     ( 42 )     ( 1,005 )     476       ( 470 ) Other comprehensive income/(loss), net of tax     153       3,780       ( 1,769 )     1,768                                     Net income attributable to noncontrolling interest     ( 447 )     ( 198 )     ( 488 )     ( 234 )                                   Comprehensive income attributable to National HealthCare Corporation   $ 105,036     $ 32,104     $ 124,381     $ 3,240     The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.   4 Table of Contents     NATIONAL HEALTHCARE CORPORATION Interim Condensed Consolidated Balance Sheets (in thousands)       June 30, 2021     December 31, 2020       unaudited           Assets                 Current Assets:                 Cash and cash equivalents   $ 134,692     $ 147,093   Restricted cash and cash equivalents, current portion     14,093       9,673   Marketable equity securities     128,666       128,590   Marketable debt securities     33,651       47,762   Restricted marketable equity securities     25,174       4,680   Restricted marketable debt securities, current portion     16,839       16,601   Accounts receivable     97,811       89,670   Inventories     7,939       8,781   Prepaid expenses and other assets     6,160       2,977   Notes receivable, current portion     882       928   Total current assets     465,907       456,755                     Property and Equipment:                 Property and equipment, at cost     1,050,009       1,030,426   Accumulated depreciation and amortization     ( 530,392 )     ( 510,108 ) Net property and equipment     519,617       520,318                     Other Assets:                 Restricted cash and cash equivalents, less current portion     1,802       1,736   Restricted marketable debt securities, less current portion     115,856       125,472   Deposits and other assets     4,681       4,580   Operating lease right-of-use assets     168,572       179,055   Goodwill     168,295       21,341   Intangible assets     7,038       -   Notes receivable, less current portion     3,734       12,093   Investments in unconsolidated companies     1,867       40,782   Total other assets     471,845       385,059   Total assets   $ 1,457,369     $ 1,362,132     The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.   5 Table of Contents   NATIONAL HEALTHCARE CORPORATION Interim Condensed Consolidated Balance Sheets (continued) (in thousands, except share and per share amounts)       June 30, 2021     December 31, 2020       unaudited           Liabilities and Stockholders ’ Equity                 Current Liabilities:                 Trade accounts payable   $ 22,246     $ 21,112   Finance lease obligations, current portion     4,557       4,423   Operating lease liabilities, current portion     26,873       25,451   Accrued payroll     93,264       86,183   Amounts due to third party payors     16,931       16,454   Accrued risk reserves, current portion     30,932       30,953   Other current liabilities     19,639       21,344   Provider relief funds     10,429       16,068   Contract liabilities     40,121       51,253   Dividends payable     8,020       7,987   Total current liabilities     273,012       281,228                     Finance lease obligations, less current portion     8,228       10,540   Operating lease liabilities, less current portion     141,699       153,604   Accrued risk reserves, less current portion     70,918       68,584   Refundable entrance fees     7,461       7,462   Deferred income taxes     13,463       14,079   Other noncurrent liabilities     29,336       28,375   Total liabilities     544,117       563,872                     Equity:                 Common stock, $.01 par value; 45,000,000 shares authorized; 15,423,240 and 15,369,745 shares, respectively, issued and outstanding     154       153   Capital in excess of par value     230,248       226,943   Retained earnings     673,151       563,024   Accumulated other comprehensive income     3,288       5,057   Total National HealthCare Corporation stockholders’ equity     906,841       795,177   Noncontrolling interest     6,411       3,083   Total equity     913,252       798,260   Total liabilities and equity   $ 1,457,369     $ 1,362,132     The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.   6 Table of Contents     NATIONAL HEALTHCARE CORPORATION Interim Condensed Consolidated Statements of Cash Flows (unaudited – in thousands)          Six Months Ended June 30       2021     2020   Cash Flows From Operating Activities:                 Net income   $ 126,638     $ 1,706   Adjustments to reconcile net income to net cash provided by operating activities:                 Depreciation and amortization     20,292       20,983   Equity in earnings of unconsolidated investments     ( 5,306 )     ( 5,429 ) Distributions from unconsolidated investments     6,314       6,901   Unrealized (gains)/losses on marketable equity securities     ( 570 )     40,339   Gains on sale of marketable debt securities     ( 212 )     ( 13 ) Gains on acquisitions of equity method investments     ( 95,202 )     ( 1,708 ) Deferred income taxes     ( 140 )     ( 11,529 ) Stock–based compensation     1,179       1,289   Changes in operating assets and liabilities:                 Accounts receivable     2,402       8,350   Inventories     842       332   Prepaid expenses and other assets     ( 2,278 )     2,238   Trade accounts payable     ( 2,325 )     ( 1,241 ) Accrued payroll     3,858       ( 1,320 ) Amounts due to third party payors     ( 15 )     2,570   Accrued risk reserves     2,313       8,860   Provider relief funds     ( 5,639 )     19,294   Contract liabilities     ( 11,132 )     50,992   Other current liabilities     ( 1,800 )     11,979   Other noncurrent liabilities     903       134   Net cash provided by operating activities     40,122       154,727   Cash Flows From Investing Activities:                 Purchases of property and equipment     ( 13,143 )     ( 12,517 ) Acquisitions of equity method investments, net of cash acquired     ( 28,713 )     ( 6,648 ) Investments in unconsolidated companies     -       ( 185 ) Investments in notes receivable     -       ( 425 ) Collections of notes receivable     8,405       1,139   Purchases of marketable securities     ( 43,483 )     ( 19,754 ) Proceeds from sale of marketable securities     44,939       19,823   Net cash used in investing activities     ( 31,995 )     ( 18,567 ) Cash Flows From Financing Activities:                 Borrowings under credit facility     -       40,000   Repayments under credit facility     -       ( 50,000 ) Principal payments under finance lease obligations     ( 2,178 )     ( 2,052 ) Dividends paid to common stockholders     ( 15,990 )     ( 15,948 ) Noncontrolling interest contributions     -       525   Issuance of common shares     2,405       949   Repurchase of common shares     ( 278 )     ( 53 ) Entrance fee (refunds) deposits     ( 1 )     188   Net cash used in financing activities     ( 16,042 )     ( 26,391 ) Net (Decrease)/Increase in Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents     ( 7,915 )     109,769   Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, Beginning of Period     158,502       61,010   Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, End of Period   $ 150,587     $ 170,779                     Balance Sheet Classifications:                 Cash and cash equivalents   $ 134,692     $ 149,471   Restricted cash and cash equivalents     15,895       21,308   Total Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents   $ 150,587     $ 170,779     The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.   7 Table of Contents     NATIONAL HEALTHCARE CORPORATION Interim Condensed Consolidated Statements of Stockholders ’ Equity (in thousands, except share and per share amounts) (unaudited)       Common Stock     Capital in Excess of     Retained     Accumulated Other Comprehensive     Non- controlling     Total Stockholders’       Shares     Amount     Par Value     Earnings     Income     Interest     Equity   Balance at January 1, 2021     15,369,745     $ 153     $ 226,943     $ 563,024     $ 5,057     $ 3,083     $ 798,260   Net income     –       –       –       21,267       –       41       21,308   Other comprehensive loss     –       –       –       –       ( 1,922 )     –       ( 1,922 ) Stock–based compensation     –       –       496       –       –       –       496   Shares sold – options exercised     24,331       1       326       –       –       –       327   Repurchase of common shares     ( 3,936 )     –       ( 278 )     –       –       –       ( 278 ) Dividends declared to common stockholders ( $0.52 per share)     –       –       –       ( 8,003 )     –       –       ( 8,003 ) Balance at March 31, 2021     15,390,140     $ 154     $ 227,487     $ 576,288     $ 3,135     $ 3,124     $ 810,188                                                             Net income     –       –       –       104,883       –       447       105,330   Contributions attributable to noncontrolling interest     –       –       –       –       –       2,840       2,840   Other comprehensive income     –       –       –       –       153       –       153   Stock–based compensation     –       –       683       –       –       –       683   Shares sold – options exercised     33,100       –       2,078       –       –       –       2,078   Dividends declared to common stockholders ( $0.52 per share)     –       –       –       ( 8,020 )     –       –       ( 8,020 ) Balance at June 30, 2021     15,423,240     $ 154     $ 230,248     $ 673,151     $ 3,288     $ 6,411     $ 913,252         Common Stock     Capital in Excess of     Retained     Accumulated Other Comprehensive     Non- controlling     Total Stockholders’       Shares     Amount     Par Value     Earnings     Income     Interest     Equity   Balance at January 1, 2020     15,332,206     $ 153     $ 222,787     $ 553,093     $ 2,560     $ 476     $ 779,069   Net (loss) income     –       –       –       ( 26,852 )     –       36       ( 26,816 ) Contributions attributable to noncontrolling interest     –       –       –       –       –       281       281   Other comprehensive loss     –       –       –       –       ( 2,012 )     –       ( 2,012 ) Stock–based compensation     –       –       466       –       –       –       466   Shares sold – options exercised     15,006       –       400       –       –       –       400   Repurchase of common shares     ( 611 )     –       ( 53 )     –       –       –       ( 53 ) Dividends declared to common stockholders ( $0.52 per share)     –       –       –       ( 7,980 )     –       –       ( 7,980 ) Balance at March 31, 2020     15,346,601     $ 153     $ 223,600     $ 518,261     $ 548     $ 793     $ 743,355                                                             Net income     –       –       –       28,324       –       198       28,522   Contributions attributable to noncontrolling interest     –       –       –       –       –       244       244   Other comprehensive income     –       –       –       –       3,780       –       3,780   Stock–based compensation     –       –       823       –       –       –       823   Shares sold – options exercised     11,073       –       549       –       –       –       549   Repurchase of common shares     ( 186 )     –       –       –       –       –       –   Dividends declared to common stockholders ( $0.52 per share)     –       –       –       ( 7,986 )     –       –       ( 7,986 ) Balance at June 30, 2020     15,357,488     $ 153     $ 224,972     $ 538,599     $ 4,328     $ 1,235     $ 769,287     The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.   8 Table of Contents   NATIONAL HEALTHCARE CORPORATION Notes to Interim Condensed Consolidated Financial Statements June 30, 2021 (unaudited)       Note 1 – Description of Business   National HealthCare Corporation (“NHC” or the “Company”) is a leading provider of senior health care services. As of June 30, 2021, we operate or manage, through certain affiliates, 75 skilled nursing facilities with a total of 9,473 licensed beds, 24 assisted living facilities, five independent living facilities, one behavioral health hospital, 35 homecare agencies, and 28 hospice agencies. We operate specialized care units within certain of our healthcare centers such as Alzheimer's disease care units and sub-acute nursing units. In addition, we provide insurance services, management and accounting services, and we lease properties to operators of skilled nursing and assisted living facilities. We operate in 10 states and are located primarily in the southeastern United States.       Note 2 – Summary of Significant Accounting Policies   The listing below is not intended to be a comprehensive list of all our significant accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. generally accepted accounting principles (“GAAP”), with limited need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. See our audited December 31, 2020 consolidated financial statements and notes thereto which contain accounting policies and other disclosures required by U.S. GAAP. Our audited December 31, 2020 consolidated financial statements are available at our web site: www.nhccare.com .   Basis of Presentation   The unaudited interim condensed consolidated financial statements to which these notes are attached include all normal, recurring adjustments which are necessary to fairly present the financial position, results of operations and cash flows of NHC. All significant intercompany transactions and balances have been eliminated in consolidation. The consolidated financial statements include the accounts of all entities controlled by NHC. The Company presents noncontrolling interest within the equity section of its consolidated balance sheets. The Company presents the amount of consolidated net income that is attributable to NHC and the noncontrolling interest in its consolidated statements of operations.   We assume that users of these interim financial statements have read or have access to the audited December 31, 2020  consolidated financial statements and that the adequacy of additional disclosure needed for a fair presentation, except in regard to material contingencies, may be determined in that context. Accordingly, footnotes and other disclosures which would substantially duplicate the disclosure contained in our most recent annual report to stockholders have been omitted. This interim financial information is not necessarily indicative of the results that may be expected for a full year for a variety of reasons.   Estimates and Assumptions   The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and could cause our reported net income to vary significantly from period to period, including but not limited to, the potential future effects of the novel coronavirus (“COVID- 19” ).   Net Patient Revenues and Accounts Receivable   Net patient revenues are derived from services rendered to patients for skilled and intermediate nursing, rehabilitation therapy, assisted living and independent living, home health care services, and hospice services. Net patient revenue is reported at the amount that reflects the consideration to which the Company expects to be entitled in exchange for providing patient services. These amounts are due from patients, governmental programs, and other third -party payors, and include variable consideration for retroactive revenue adjustments due to settlement of audits, reviews, and investigations.   The Company recognizes revenue as its performance obligations are completed. Routine services are treated as a single performance obligation satisfied over time as services are rendered. These routine services represent a bundle of services that are not capable of being distinct. The performance obligations are satisfied over time as the patient simultaneously receives and consumes the benefits of the healthcare services provided. Additionally, there may be ancillary services which are not included in the daily rates for routine services, but instead are treated as separate performance obligations satisfied at a point in time when those services are rendered.  Contract liabilities are recorded for payments the Company receives in which performance obligations have not been completed.   9 Table of Contents   The Company determines the transaction price based on established billing rates reduced by contractual adjustments provided to third party payors. Contractual adjustments are based on contractual agreements and historical experience. The Company considers the patient's ability and intent to pay the amount of consideration upon admission. Credit losses are recorded as bad debt expense, which is included as a component of other operating expenses in the interim condensed consolidated statements of operations. Bad debt expense was $ 1,102,000 and $ 2,021,000 for the three months and six months ended June 30, 2021. For the three months and six months ended June 30, 2020, bad debt expense was $ 1,245,000 and $ 2,075,000 , respectively. As of June 30, 2021, and December 31, 2020, the Company has recorded allowance for doubtful accounts of $ 6,841,000 and $ 5,672,000 , respectively, as our best estimate of expected losses inherent in the accounts receivable balance.   Other Revenues   Other revenues include revenues from the provision of insurance services, management and accounting services to other long–term care providers, and rental income. Our insurance revenues consist of premiums that are generally paid in advance and then amortized into income over the policy period. We charge for management services based on a percentage of net revenues. We charge for accounting services based on a monthly fee or a fixed fee per bed of the healthcare center under contract. We record other revenues as the performance obligations are satisfied based on the terms of our contractual arrangements.   We recognize rental income based on the terms of our operating leases. Under certain of our leases, we receive variable rent, which is based on the increase in revenues of a lessee over a base year. We recognize variable rent annually or monthly, as applicable, when, based on the actual revenue of the lessee is earned.   Government Grants   In the absence of specific guidance to account for government grants under U.S. GAAP, we have concluded 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   In accordance with the provisions of Accounting Standards Codification ("ASC") 280, Segment Reporting , the Company is required to report financial and descriptive information about its reportable operating segments. The Company has two reportable operating segments: ( 1 ) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and one behavioral health hospital, and ( 2 ) homecare and hospice services. The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. See Note 8 for further disclosure of the Company’s operating segments.   Other Operating Expenses   Other operating expenses include the costs of care and services that we provide to the residents of our facilities and the costs of maintaining our facilities. Our primary patient care costs include drugs, medical supplies, purchased professional services, food, and professional liability insurance and licensing fees. The primary facility costs include utilities and property insurance.   General and Administrative Costs   With the Company being a healthcare provider, the majority of our expenses are "cost of revenue" items. Costs that could be classified as "general and administrative" by the Company would include its corporate office costs, excluding stock-based compensation, which were $ 4,885,000 and $ 10,254,000  for the three and six months ended June 30, 2021. General and administrative costs were $ 4,892,000 and $ 10,390,000 for the three months and six months ended June 30, 2020, respectively.   Long-Term Leases   The Company’s lease portfolio primarily consists of finance and operating real estate leases for certain skilled nursing facilities, assisted and independent living facilities, homecare and hospice offices, and pharmacy warehouses. The original terms of the leases typically range from two to fifteen years. Several of the real estate leases include renewal options which vary in length and may not include specific rent renewal amounts. We determine if an arrangement is a lease at inception of a contract. We determine the lease term by assuming exercise of renewal options that are reasonably certain.   10 Table of Contents   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 statements of operations. We recognize lease components and non-lease components together and not as separate parts of a lease for real estate leases.   Operating lease right-of-use assets and liabilities are recorded at the present value of the lease payments over the lease term. The present value of the lease payments are discounted using the incremental borrowing rate associated with each lease. The variable components of the lease payment that fluctuate with the operations of a health facility are not included in determining the right-of-use assets and lease liabilities. Rather, these variable components are expensed as incurred.   Property and Equipment   Property and equipment are recorded at cost. Depreciation is provided by the straight-line method over the expected useful lives of the assets estimated as follows: buildings and improvements, 20 - 40 years and equipment and furniture, 3 - 15 years. Leasehold improvements are amortized over periods that do not exceed the non-cancelable respective lease terms using the straight-line method.   Finance leases are recorded at cost. Finance leases are amortized in accordance with the provision codified within ASC 842, Leases . Amortization of finance lease assets is included in depreciation and amortization expense.   Business Combinations   We account for acquisitions using the acquisition method of accounting in accordance with ASC 805, Business Combinations. Acquisitions are accounted for as purchases and are included in our consolidated financial statements from their respective acquisition dates. Assets acquired and liabilities assumed, if any, are measured at fair value on the acquisition date using the appropriate valuation method. Goodwill generated from acquisitions is recognized for the excess of the purchase price over tangible and identifiable intangible assets. In determining the fair value of identifiable assets, we use various valuation techniques. These valuation methods require us to make estimates and assumptions surrounding projected revenues and costs, future growth, and discount rates.   Goodwill and Other Intangible Assets   Goodwill represents the excess of purchase price over the fair value of identifiable net assets acquired in business combinations. Goodwill is not amortized, but is subject to an annual impairment test. We perform our annual goodwill impairment assessment on the first day of the fourth quarter.  Tests are performed more frequently if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount.   The Company’s indefinite-lived intangible assets consist of trade names and certificates of need and licenses. The Company reviews indefinite-lived intangible assets for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable.   Accrued Risk Reserves      We are self–insured for risks related to health insurance and have wholly–owned limited purpose insurance companies that insure risks related to workers’ compensation and general and professional liability insurance claims. The accrued risk reserves include a liability for reported claims and estimates for incurred but unreported claims. Our policy is to engage an external, independent actuary to assist in estimating our exposure for claims obligations (for both asserted and unasserted claims). We reassess our accrued risk reserves on a quarterly basis.   Professional liability remains an area of particular concern to us. The long-term care industry has seen an increase in personal injury/wrongful death claims based on alleged negligence by skilled nursing facilities and their employees in providing care to residents. The Company has been, and continues to be, subject to claims and legal actions that arise in the ordinary course of business, including potential claims related to patient care and treatment. A significant increase in the number of these claims, or an increase in the amounts due as a result of these claims could have a material adverse effect on our consolidated financial position, results of operations and cash flows. It is also possible that future events could cause us to make significant adjustments or revisions to these reserve estimates and cause our reported net income to vary significantly from period to period.   We are principally self-insured for incidents occurring in all centers owned or leased by us. The coverages include both primary policies and excess policies. In all years, settlements, if any, in excess of available insurance policy limits and our own reserves would be expensed by us.   11 Table of Contents   Continuing Care Contracts   We have one continuing care retirement center (“CCRC”) within our operations. Residents at this retirement center may enter into continuing care contracts with us. The contracts provide that 10 % of the resident entry fee becomes non-refundable upon occupancy, and the remaining refundable portion of the entry fee is calculated using the lessor of the price at which the apartment is re-assigned or 90 % of the original entry fee, plus 40 % of any appreciation if the apartment value exceeds the original resident’s entry fee.   Non-refundable fees are included as a component of the transaction price and are amortized into revenue over the actuarily determined remaining life of the resident, which is the expected period of occupancy by the resident. We pay the refundable portion of our entry fees to residents when they relocate from our community and the apartment is re-occupied. Refundable entrance fees are not included as part of the transaction price and are classified as noncurrent liabilities section of our consolidated balance sheets. As of June 30, 2021, and December 31, 2020, we have recorded refundable entrance fees in the amount of $ 7,461,000 and $ 7,462,000 , 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, 2021, and December 31, 2020, we have recorded a future service obligation liability in the amount of $2,177,000 . This obligation is reflected within other noncurrent liabilities in the interim condensed consolidated balance sheets.    Other Noncurrent Liabilities   Other noncurrent liabilities include reserves primarily related to various uncertain income tax positions, deferred revenue, and obligations to provide future services to our CCRC residents. Deferred revenue includes the deferred gain on the sale of assets to National Health Corporation (“National”) and the non-refundable portion ( 10% ) of CCRC entrance fees being amortized over the remaining life expectancies of the residents.   Noncontrolling Interest   The noncontrolling interest in a subsidiary is presented within total equity in the Company's interim condensed consolidated balance sheets. The Company presents the noncontrolling interest and the amount of consolidated net income attributable to NHC in its interim condensed consolidated statements of operations. The Company’s earnings per share is calculated based on net income attributable to NHC’s stockholders. The carrying amount of the noncontrolling interest is adjusted based on an allocation of the subsidiary earnings, contributions, and distributions.   Variable Interest Entities   We have equity interests in unconsolidated limited liability companies that operate various post-acute and senior healthcare businesses. We analyze our investments in these limited liability companies to determine if the company is considered a variable interest entity (“VIE”) and would require consolidation. To the extent that we own interests in a VIE and we (i) have the power to direct the activities of the VIE and (ii) have the obligation or rights to absorb the VIE's losses or receive its benefits, then we would be determined to be the primary beneficiary and would consolidate the VIE. To the extent we own interests in a VIE, then at each reporting period, we re-assess our conclusions as to which, if any, party within the VIE is considered the primary beneficiary.   The Company's maximum exposure to losses in its investments in unconsolidated VIEs cannot be quantified and may or may not be limited to its investment in the unconsolidated VIE. The investments in unconsolidated VIEs are classified as “investments in limited liability companies” in the consolidated balance sheets.   Prior Period Classification   Certain amounts in prior periods have been reclassified to conform with current period presentation.       Note 3 – Coronavirus Pandemic   In early March 2020, COVID- 19, a disease caused by the novel strain of the coronavirus, was characterized as a pandemic by the World Health Organization. The U.S. government enacted several laws beginning in March 2020 designed to help the nation respond to the COVID- 19 pandemic. The new laws impacted 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"). Through the CARES Act, as well as the Paycheck Protection Program and Health Care Enhancement Act ("PPPCHE"), the federal government has allocated $178 billion to the Public Health and Social Services Emergency Fund , which is referred to as the Provider Relief Fund. The Provider Relief Fund is administered through grants and other mechanisms to skilled nursing providers, home health providers, hospitals, and other Medicare and Medicaid enrolled providers to cover any unreimbursed health care related expenses or lost revenue attributable to the public health emergency resulting from COVID- 19.        12 Table of Contents   The Provider Relief Fund grants come with terms and condition certifications in which all providers are required to submit documents to ensure the funds will be used for healthcare-related expenses or lost revenue attributable to COVID- 19. The Company recorded $ 15,126,000 and $ 24,648,000 of government stimulus income from the Provider Relief Funds for the three months ended June 30, 2021 and 2020, respectively. The Company recorded $ 37,875,000  and $ 24,648,000 of government stimulus income from the Provider Relief Funds for the six  months ended June 30, 2021 and 2020, respectively.  The grant income was determined on a systemic basis in line with the recognition of specific expenses and lost revenues for which the grants are intended to compensate. The Company’s assessment of whether the terms and conditions for amounts received have been met for income recognition and the Company’s related income calculation considered all frequently asked questions and other interpretive guidance issued to date by the U.S. Department of Health and Human Services (“HHS”).   As of June 30, 2021, amounts not recognized as income are $ 10,429,000  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 $ 10,429,000  of Provider Relief Funds before the reporting requirement deadlines outlined by HHS.   Additionally, as part of the CARES Act, the legislation included an expansion of the Medicare Accelerated and Advance Payment Program. The expanded Medicare Accelerated and Advance Payment Program is a streamlined version of existing policy that allows the Medicare Administrative Contractors (“MAC’s”) to issue up to three months of advance Medicare payments to help increase cash flow and liquidity to Medicare Part A and Part B providers in certain circumstances that include national emergencies. We received approximately $ 51,253,000  as part of this program. These funds are applied against claims for services provided to Medicare patients after approximately one year from the date we received the funds. During the 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. Recoupment of the accelerated payments began in the second quarter of 2021. As of June 30, 2021, $ 40,121,000 of the accelerated payments remain and is reflected within contract liabilities in the interim condensed consolidated balance sheet.   The CARES Act temporarily suspended Medicare sequestration beginning May 1, 2020 through December 31, 2020. The Medicare sequestration policy reduces fee-for-service Medicare payments by 2 percent. On December 27, 2020, the Consolidated Appropriations Act of 2021 further suspended the 2.0% payment adjustment through June 30, 2021. On April 14, 2021, Congress extended the Medicare sequestration suspension period to December 31, 2021.   The CARES Act also temporarily permitted employers to defer the deposit and payment of the employer’s portion of the social security taxes ( 6.2% of employee wages) that otherwise would be due between March 27, 2020 and December 31, 2020. The provision requires that the deferred taxes be paid over a two -year period with half the amount required to be paid by December 31, 2021, and the other half by December 31, 2022. At June 30, 2021, we have deferred $ 21,153,000 of the Company’s share of the social security taxes.  At June 30, 2021, half of the payroll tax deferral is included in accrued payroll in the current liabilities section of the consolidated balance sheet and the other half of the payroll tax deferral is included in other noncurrent liabilities within our consolidated balance sheet.    We have also received supplemental Medicaid payments from many of the states in which we operate to help mitigate the incremental costs resulting from the COVID- 19 public health emergency. We have recorded $ 7,094,000 and $ 3,858,000 in net patient revenues for these supplemental Medicaid payments for the three months ended June 30, 2021 and 2020, respectively. We have recorded $ 11,049,000 and $ 5,532,000 in net patient revenues for these supplemental Medicaid payments for the six months ended June 30, 2021 and 2020, respectively.       Note 4 – Acquisition of Caris HealthCare, L.P.   On June 11, 2021, the Company acquired the remaining 24.9 % equity interest in Caris HealthCare, L.P. (“Caris”) for a purchase price of approximately $ 28,713,000 , net of cash acquired. Caris specializes in providing hospice and palliative care to over 1,200 patients per day in 28 locations in Georgia, Missouri, South Carolina, Tennessee, and Virginia. As a leading senior care provider, this acquisition is a strategic advancement of our growth that provides a continuum of post-acute health care to seniors in our operational footprint.   Prior to the June 11, 2021 acquisition date, the Company held a 75.1 % non-controlling equity interest in Caris, which was accounted for as an equity method investment. The Company accounted for the acquisition of the remaining 24.9 % equity interest of Caris as a step acquisition, which required remeasurement of the Company’s previous 75.1 % ownership interest to fair value. Using acquisition accounting, the Company increased the value of its previously held equity method investment to its fair value of approximately $ 133.1 million, which resulted in a gain of $ 95.2 million. This gain is recorded in the interim condensed consolidated statements of operations under the line item “gains on acquisitions of equity method investments”.   13 Table of Contents   The Company utilized widely accepted income-based, market-based, and cost-based valuation approaches to perform the preliminary purchase price allocation and to determine the fair value of the previously held equity method investment.   The Company has performed a preliminary valuation analysis of the fair market value of Caris’ assets to be acquired and liabilities to be assumed. The final valuation of the assets acquired and liabilities assumed was not complete as of June 30, 2021, but will be finalized within the allowable measurement period. The following table summarizes the allocation of the preliminary assets and liabilities as of the transaction’s closing date ( in thousands ):       Amount   Cash and cash equivalents   $ 15,515   Restricted cash and cash equivalents     58   Accounts receivable     10,544   Prepaid expenses and other assets     1,006   Property and equipment     3,608   Operating lease – right-of-use assets     1,600   Intangible assets     7,038   Total assets acquired     39,369             Trade accounts payable     3,459   Accrued payroll     3,223   Other current liabilities     587   Operating lease liabilities     1,600   Other noncurrent liabilities     58   Total liabilities assumed     8,927             Net identifiable assets acquired     30,442   Goodwill     146,954   Total estimated fair value of Caris   $ 177,396     The indefinite-lived intangible assets acquired include the trade name of Caris and the certificates of need and licenses. The goodwill is recorded in the homecare and hospice segment and is attributed to the workforce acquired and reputation of the business as part of the transaction. We expect approximately 35 % - 40 % of the goodwill to be deductible for income tax purposes.   For the second quarter of 2021, Caris contributed net patient revenues of $ 3,712,000 and income before income taxes of $ 982,000 that are included in the Company’s interim condensed consolidated statements of operations.   The following table contains unaudited pro forma interim condensed consolidated statements of operations information for the three months and six months ended June 30, 2021 and 2020, assuming that the Caris acquisition closed on January 1, 2020. The pro forma financial information includes various assumptions, including those related to the preliminary purchase price allocation of assets acquired and liabilities assumed. The pro forma financial information may vary in future quarters based on the final valuations and analysis of the fair value of the assets acquired and liabilities assumed (in thousands) .       Three Months Ended June 30     Six Months Ended June 30       2021     2020     2021     2020   Net patient revenues   $ 249,733     $ 241,670     $ 481,802     $ 501,726   Total costs and expenses     258,754       261,573       506,320       514,274   Income from operations     17,161       16,068       35,782       35,452   Non-operating income     3,162       3,453       6,975       7,315   Income before income taxes     13,834       39,574       43,327       4,136   Net income attributable to NHC   $ 10,378     $ 29,077     $ 32,350     $ 2,968         Note 5 – Net Patient Revenues   The Company disaggregates revenue from contracts with customers by service type and by payor.   14 Table of Contents   Revenue by Service Type   The Company’s net patient services can generally be classified into the following two categories: ( 1 ) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and a behavioral health hospital, and ( 2 ) homecare and hospice services (in thousands) .       Three Months Ended June 30     Six Months Ended June 30       2021     2020     2021     2020   Net patient revenues:                                 Inpatient services   $ 218,860     $ 214,387     $ 422,103     $ 445,374   Homecare and hospice services     18,116       11,284       31,728       24,392   Total net patient revenue   $ 236,976     $ 225,671     $ 453,831     $ 469,766     For inpatient and hospice services, revenue is recognized on a daily basis as each day represents a separate contract and performance obligation. For homecare, revenue is recognized when services are provided based on the number of days of service rendered in the period of care or on a per-visit basis. Typically, patients and third -party payors are billed monthly after services are performed or the patient is discharged, and payments are due based on contract terms.   As our performance obligations relate to contracts with a duration of one year or less, the Company is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The Company has minimal unsatisfied performance obligations at the end of the reporting period as our patients are typically under no obligation to remain admitted in our facilities or under our care.  As the period between the time of service and time of payment is typically one year or less, the Company did  not adjust for the effects of a significant financing component.   Revenue by Payor   Certain groups of patients receive funds to pay the cost of their care from a common source. The following table sets forth sources of net patient revenues for the periods indicated:       Three Months Ended June 30   Six Months Ended June 30 Source   2021   2020   2021   2020 Medicare     34 %     32 %     34 %     33 % Managed Care     12 %     10 %     13 %     11 % Medicaid     29 %     32 %     29 %     30 % Private Pay and Other     25 %     26 %     24 %     26 % Total     100 %     100 %     100 %     100 %   Medicare covers skilled nursing services for beneficiaries who require nursing care and/or rehabilitation services following a hospitalization of at least three consecutive days (there is temporary relief from the three -day hospital stay during the COVID- 19 emergency). For each eligible day a Medicare beneficiary is in a skilled nursing facility, Medicare pays the facility a daily payment, subject to adjustment for certain factors such as a wage index in the geographic area. The payment covers all services provided by the skilled nursing facility for the beneficiary that day, including room and board, nursing, therapy and drugs, as well as an estimate of capital–related costs to deliver those services.   For homecare services, Medicare pays based on the acuity level of the patient and based on periods of care. A period of care is defined as a length of care up to 30 days with multiple continuous periods allowed. The services covered by the payment include all disciplines of care, in addition to medical supplies, within the scope of the home health benefit.   Certain managed care payors for homecare services pay on a per-visit basis. This revenue is recorded on an accrual basis based upon the date of services at amounts equal to its established or estimated per-visit rates.        For hospice services, Medicare pays a daily rate to cover the hospice’s costs for providing services included in the patient care plan. Medicare makes daily payments based on 1 of 4 levels of hospice care. All hospice care and services offered to patients and their families must follow an individualized written plan of care that meets the patient’s needs.   Our hospice service revenue is subject to certain limitations on payments from Medicare. We are subject to an inpatient cap limit and an overall Medicare payment cap for each provider number. We monitor these caps on a provider-by-provider basis and estimate amounts due back to Medicare if we estimate a cap has been exceeded. If applicable, we record these cap adjustments as a reduction to revenue.   15 Table of Contents   Medicaid is operated by individual states with the financial participation of the federal government. The states in which we operate currently use prospective cost–based reimbursement systems. Under cost–based reimbursement systems, the skilled nursing facility is reimbursed for the reasonable direct and indirect allowable costs it incurred in a base year in providing routine resident care services as defined by the program.   Private pay, managed care, and other payment sources include commercial insurance, individual patient funds, managed care plans and the Veterans Administration. Private paying patients, private insurance carriers and the Veterans Administration generally pay based on the healthcare center's charges or specifically negotiated contracts. For private pay patients in skilled nursing, assisted living and independent living facilities, the Company bills for room and board charges, with the remittance being due on receipt of the statement and generally by the 10th day of the month the services are performed.   Contract Liabilities   Included in the Company’s interim condensed consolidated balance sheets are contract liabilities, which represent payments the Company receives in advance of services provided. As of June 30, 2021 and December 31, 2020, the Company has recorded $ 40,121,000 and $ 51,253,000 , respectively, in contract liabilities related to receipts from the Medicare Accelerated and Advance Payment Program.  Recoupment of the accelerated payments began in the second quarter of 2021.   A summary of the contract liabilities are follows ( in thousands ):   Balance at December 31, 2020   $ 51,253   Payments received     -   Payments recouped     ( 11,132 ) Balance at June 30, 2021   $ 40,121     Third Party Payors   Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. Noncompliance with such laws and regulations can be subject to regulatory actions including fines, penalties, and exclusion from the Medicare and Medicaid programs. We believe that we are following all applicable laws and regulations.   Medicare and Medicaid program revenues, as well as certain Managed Care program revenues, are subject to audit and retroactive adjustment by government representatives or their agents. Settlements with third -party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and the Company’s historical settlement activity, including an assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustment is subsequently resolved. Estimated settlements are adjusted in future periods as adjustments become known, or as years are settled or are no longer subject to such audits, reviews, and investigations. We believe that any differences between the net revenues recorded and final determination will not materially affect the consolidated financial statements. We have made provisions of approximately $ 16,931,000 and $ 16,454,000 as of June 30, 2021 and December 31, 2020, respectively, for various Medicare, Medicaid, and Managed Care claims reviews and current and prior year cost reports.       Note 6 – Other Revenues   Other revenues are outlined in the table below. Revenues from rental income include health care real estate properties owned by us and leased to third party operators. Revenues from management and accounting services include fees provided to manage and provide accounting services to other healthcare operators. Revenues from insurance services include premiums for workers’ compensation and professional liability insurance policies that our wholly–owned insurance subsidiaries have written for certain healthcare operators to which we provide management or accounting services. "Other" revenues include miscellaneous health care related earnings (in thousands) .       Three Months Ended June 30     Six Months Ended June 30       2021     2020     2021     2020   Rental income   $ 5,514     $ 5,646     $ 11,161     $ 11,325   Management and accounting services fees     4,136       4,121       8,460       8,600   Insurance services     1,277       1,398       2,541       2,780   Other     129       158       263       647   Total other revenues   $ 11,056     $ 11,323     $ 22,425     $ 23,352     16 Table of Contents   Rental Income   The Company leases real estate assets consisting of skilled nursing facilities and assisted living facilities to third party operators. Additionally, we sublease four Florida skilled nursing facilities included in our lease from National Health Investors (“NHI”) as noted in Note 9 – Long Term Leases. Rental income reflected in the interim condensed consolidated statements of operations consisted of the following (in thousands) :       Three Months Ended June 30     Six Months Ended June 30       2021     2020     2021     2020   Operating lease payments   $ 5,303     $ 5,505     $ 10,809     $ 11,008   Variable lease payments     211       141       352       317   Total rental income   $ 5,514     $ 5,646     $ 11,161     $ 11,325     Management Fees from National Health Corporation   We manage five skilled nursing facilities owned by National Health Corporation (“National”). For the three and six months ended June 30, 2021, we recognized management fees and interest on management fees of $ 940,000 and $ 1,837,000 from these centers, respectively. For the three months and six months ended June 30, 2020, we recognized management fees and interest on management fees of $ 941,000 and $ 2,478,000 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, 2021 were $ 766,000 and $ 1,518,000 , respectively. 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. 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, 2021 were $ 511,000 and $ 1,023,000 , 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".       Note 7 – Non – Operating Income   Non–operating income includes equity in earnings of unconsolidated investments, dividends and other realized gains and losses on sales of marketable securities, and interest income (in thousands) .       Three Months Ended June 30     Six Months Ended June 30       2021     2020     2021     2020   Equity in earnings of unconsolidated investments   $ 2,395     $ 2,618     $ 5,306     $ 5,429   Dividends and net realized gains on sales of securities     1,915       1,891       3,877       3,913   Interest income     1,276       1,445       2,663       3,050   Total non-operating income   $ 5,586     $ 5,954     $ 11,846     $ 12,392     Caris HealthCare, L.P.   On June 11, 2021, the Company acquired the remaining 24.9 % equity interest in Caris. See Note 4 - “Acquisition of Caris HealthCare, L.P.” for further detail describing the acquisition.   Prior to the June 11, 2021 acquisition date, Caris was our most significant equity method investment with a 75.1 % non-controlling ownership interest. From the respective acquisition date, Caris’ financial information is now included in the Company’s consolidated financial statements and will no longer be accounted for as an equity method investment.   17 Table of Contents       Note 8 – Business Segments   The Company has two reportable operating segments: ( 1 ) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and our behavioral health hospital; and ( 2 ) homecare and hospice services. These reportable operating segments are consistent with information used by the Company’s Chief Executive Officer, as chief operating decision maker (“CODM”), to assess performance and allocate resources.   The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. For additional information on these reportable segments see Note 2 – Summary of Significant Accounting Policies.   The Company’s CODM evaluates performance and allocates capital resources to each segment based on an operating model that is designed to improve the quality of patient care and profitability of the Company while enhancing long-term shareholder value. The CODM does not review assets by segment in his resource allocation and therefore, assets by segment are not disclosed below.   The following table sets forth the Company’s unaudited interim condensed consolidated statements of operations by business segment (in thousands ):       Three Months Ended June 30, 2021       Inpatient Services     Homecare and Hospice     All Other     Total   Revenues:                                 Net patient revenues   $ 218,860     $ 18,116     $ -     $ 236,976   Other revenues     97       -       10,959       11,056   Government stimulus income     15,126       -       -       15,126   Net operating revenues and grant income     234,083       18,116       10,959       263,158                                     Costs and expenses:                                 Salaries, wages, and benefits     128,573       10,482       17,749       156,804   Other operating     65,129       3,991       2,923       72,043   Rent     8,278       454       1,438       10,170   Depreciation and amortization     9,227       94       810       10,131   Interest     215       -       -       215   Total costs and expenses     211,422       15,021       22,920       249,363                                     Income (loss) from operations     22,661       3,095       ( 11,961 )     13,795   Non-operating income     -       -       5,586       5,586   Gain on acquisition of equity method investment     -       -       95,202       95,202   Unrealized losses on marketable equity securities     -       -       ( 6,489 )     ( 6,489 )                                   Income before income taxes   $ 22,661     $ 3,095     $ 82,338     $ 108,094         Three Months Ended June 30, 2020       Inpatient Services     Homecare and Hospice     All Other     Total   Revenues and grant income:                                 Net patient revenues   $ 214,387     $ 11,284     $ -     $ 225,671   Other revenues     127       -       11,196       11,323   Government stimulus income     22,622       2,026       -       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       7,963       12,571       156,914   Other operating     63,999       4,342       2,520       70,861   Rent     8,380       446       1,494       10,320   Depreciation and amortization     9,626       106       813       10,545   Interest     366       -       87       453   Total costs and expenses     218,751       12,857       17,485       249,093                                     Income (loss) from operations     18,385       453       ( 6,289 )     12,549   Non-operating income     -       -       5,954       5,954   Unrealized gains on marketable equity securities     -       -       20,053       20,053                                     Income before income taxes   $ 18,385     $ 453     $ 19,718     $ 38,556     18 Table of Contents       Six Months Ended June 30, 2021       Inpatient Services     Homecare and Hospice     All Other     Total   Revenues and grant income:                                 Net patient revenues   $ 422,103     $ 31,728     $ -     $ 453,831   Other revenues     195       -       22,230       22,425   Government stimulus income     37,875       -       -       37,875   Net operating revenues and grant income     460,173       31,728       22,230       514,131                                     Costs and expenses:                                 Salaries, wages, and benefits     257,383       18,890       25,661       301,934   Other operating     129,938       6,934       5,324       142,196   Rent     16,472       884       2,877       20,233   Depreciation and amortization     18,490       181       1,621       20,292   Interest     459       -       -       459   Total costs and expenses     422,742       26,889       35,483       485,114                                     Income (loss) from operations     37,431       4,839       ( 13,253 )     29,017   Non-operating income     -       -       11,846       11,846   Gain on acquisition of equity method investment     -       -       95,202       95,202   Unrealized gains on marketable equity securities     -       -       570       570                                     Income before income taxes   $ 37,431     $ 4,839     $ 94,365     $ 136,635         Six Months Ended June 30, 2020       Inpatient Services     Homecare and Hospice     All Other     Total   Revenues and grant income:                                 Net patient revenues   $ 445,374     $ 24,392     $ -     $ 469,766   Other revenues     561       -       22,791       23,352   Government stimulus income     22,622       2,026       -       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       8,161       5,264       142,529   Rent     16,757       903       2,992       20,652   Depreciation and amortization     19,197       160       1,626       20,983   Interest     748       -       117       865   Total costs and expenses     437,401       25,503       26,508       489,412                                     Income (loss) from operations     31,156       915       ( 3,717 )     28,354   Non-operating income     -       -       12,392       12,392   Gain on acquisition of equity method investment     -       -       1,708       1,708   Unrealized losses on marketable equity securities     -       -       ( 40,339 )     ( 40,339 )                                   Income (loss) before income taxes   $ 31,156     $ 915     $ ( 29,956 )   $ 2,115         Note 9 – Long-Term Leases   Operating Leases   At June 30, 2021, 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 $ 9,492,000 and $ 18,903,000 for the three and six months ended June 30, 2021. 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.   19 Table of Contents   Finance Leases   At June 30, 2021, 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. Each of the leases is a ten -year lease with two five –year renewal options. Under the terms of the leases, base rent totals $ 5,200,000 annually with rent thereafter escalating by 4 % of the increase in facility revenue over the 2014 base year.   Minimum Lease Payments   The following table summarizes the maturity of our finance and operating lease liabilities as of June 30, 2021 ( in thousands ):       Finance Leases     Operating Leases   2022   $ 5,200     $ 36,047   2023     5,200       35,418   2024     3,467       34,918   2025     -       34,549   2026     -       34,343   Thereafter     -       22,857   Total minimum lease payments     13,867       198,132   Less: amounts representing interest     ( 1,082 )     ( 29,560 ) Present value of future minimum lease payments     12,785       168,572   Less: current portion     ( 4,557 )     ( 26,873 ) Noncurrent lease liabilities   $ 8,228     $ 141,699         Note 10 – Earnings per Share   Basic net income per share is computed based on the weighted average number of common shares outstanding for each period presented. Diluted net income per share reflects the potential dilution that would have occurred if securities to issue common stock were exercised, converted, or resulted in the issuance of common stock that would have then shared in our earnings.   The following table summarizes the earnings and the weighted average number of common shares used in the calculation of basic and diluted earnings per share (in thousands, except for share and per share amounts) :       Three Months Ended June 30     Six Months Ended June 30       2021     2020     2021     2020   Basic:                                 Weighted average common shares outstanding     15,349,162       15,307,105       15,338,400       15,300,941   Net income attributable to National HealthCare Corporation   $ 104,883     $ 28,324     $ 126,150     $ 1,472   Earnings per common share, basic   $ 6.83     $ 1.85     $ 8.22     $ 0.10                                     Diluted:                                 Weighted average common shares outstanding     15,349,162       15,307,105       15,338,400       15,300,941   Effects of dilutive instruments     69,850       65,325       66,234       66,523   Weighted average common shares outstanding     15,419,012       15,372,430       15,404,634       15,367,464                                     Net income attributable to National HealthCare Corporation   $ 104,883     $ 28,324     $ 126,150     $ 1,472   Earnings per common share, diluted   $ 6.80     $ 1.84     $ 8.19     $ 0.10     In the above table, options to purchase 631,905 and 698,421 shares of our common stock have been excluded for the six months ended June 31, 2021 and 2020, respectively, due to their anti-dilutive impact.   20 Table of Contents       Note 11 – Investments in Marketable Securities   Our investments in marketable equity securities are carried at fair value with the changes in unrealized gains and losses recognized in our results of operations at each measurement date. Our investments in marketable debt securities are classified as available for sale securities and carried at fair value with the unrealized gains and losses recognized through accumulated other comprehensive income at each measurement date. Any credit related decline in fair market values of our available for sale debt securities are recorded in our results of operations through an allowance for credit losses. Realized gains and losses from securities sales are recognized in results of operations upon disposition of the securities using the specific identification method on a trade date basis. Refer to Note 12 for a description of the Company's methodology for determining the fair value of marketable securities.   Marketable securities consist of the following (in thousands) :       June 30, 2021     December 31, 2020       Amortized Cost     Fair Value     Amortized Cost     Fair Value   Investments available for sale:                                 Marketable equity securities   $ 30,176     $ 128,666     $ 30,176     $ 128,590   Corporate debt securities     20,009       19,930       25,812       25,778   Asset-backed securities     2,476       2,464       2,485       2,480   U.S. Treasury securities     11,298       11,257       19,519       19,504   Restricted investments available for sale:                                 Marketable equity securities     24,783       25,174       4,783       4,680   Corporate debt securities     63,046       66,398       61,709       66,247   Asset-based securities     33,587       34,436       40,655       41,769   U.S. Treasury securities     22,234       22,015       20,760       21,159   State and municipal securities     9,543       9,846       12,497       12,898       $ 217,152     $ 320,186     $ 218,396       323,105     Included in the marketable equity securities are the following (in thousands, except share amounts):       June 30, 2021     December 31, 2020       Shares     Cost     Fair Value     Shares     Cost     Fair Value   NHI Common Stock     1,630,642     $ 24,734     $ 109,335       1,630,642     $ 24,734     $ 112,792     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, 2021     December 31, 2020       Cost     Fair Value     Cost     Fair Value   Maturities:                                 Within 1 year   $ 41,415     $ 41,582     $ 49,694     $ 49,863   1 to 5 years     85,438       88,232       99,143       103,002   6 to 10 years     35,340       36,532       34,326       36,685   Over 10 years     -       -       274       285       $ 162,193     $ 166,346     $ 183,437     $ 189,835     Gross unrealized gains related to marketable equity securities are $ 99,232,000 and $ 98,445,000 as of June 30, 2021 and December 31, 2020, respectively. Gross unrealized losses related to marketable equity securities are $ 351,000 and $ 134,000 as of June 30, 2021 and December 31, 2020, respectively. For the three months and six months ended June 30, 2021, the Company recognized a net unrealized loss of $ 6,489,000 and a net unrealized gain of $ 570,000 , 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, 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.   Gross unrealized gains related to available for sale marketable debt securities are $ 4,806,000 and $ 6,759,000 as of June 30, 2021 and December 31, 2020, respectively. Gross unrealized losses related to available for sale marketable debt securities are $ 653,000 and $ 361,000 as of June 30, 2021 and December 31, 2020, respectively. The Company’s unrealized losses in our available for sale marketable debt securities were determined to be non-credit related.   21 Table of Contents   The Company has not recognized any credit related impairments for the three months or six months ending June 30, 2021 and 2020.   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, 2021 and 2020 were $ 44,939,000 and $ 19,823,000 , respectively. Investment gains of $ 212,000 and $ 13,000 were realized on these sales during the six months ended June 30, 2021 and 2020, respectively. No sales were reported for marketable equity securities for the six months ended June 30, 2021 and 2020, respectively.       Note 12 – Fair Value Measurements   The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs that may be used to measure fair value:     Level   1  – The valuation is based on quoted prices in active markets for identical instruments.   Level   2  – The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model–based valuation techniques for which all significant assumptions are observable in the market.   Level   3  – The valuation is based on unobservable inputs that are supported by minimal or no market activity and that are significant to the fair value of the instrument. Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies, or similar techniques that incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument, or valuations that require significant management judgment or estimation.   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, 2021 and December 31, 2020 for assets and liabilities measured at fair value on a recurring basis (in thousands) :       Fair Value Measurements Using   June 30, 2021   Fair Value     Quoted Prices in Active Markets For Identical Assets (Level 1)     Significant Other Observable Inputs (Level 2)     Significant Unobservable Inputs (Level 3)   Cash and cash equivalents   $ 134,692     $ 134,692     $ –     $ –   Restricted cash and cash equivalents     15,895       15,895       –       –   Marketable equity securities     153,840       153,840       –       –   Corporate debt securities     86,328       46,850       39,478       –   Mortgage–backed securities     36,900       -       36,900       –   U.S. Treasury securities     33,272       33,272       –       –   State and municipal securities     9,846       -       9,846       –   Total financial assets   $ 470,773     $ 384,549     $ 86,224     $ –     22 Table of Contents       Fair Value Measurements Using   December 31, 2020   Fair Value     Quoted Prices in Active Markets For Identical Assets (Level 1)     Significant Other Observable Inputs (Level 2)     Significant Unobservable Inputs (Level 3)   Cash and cash equivalents   $ 147,093     $ 147,093     $ –     $ –   Restricted cash and cash equivalents     11,409       11,409       –       –   Marketable equity securities     133,270       133,270       –       –   Corporate debt securities     92,025       56,772       35,253       –   Asset–backed securities     44,249       –       44,249       –   U.S. Treasury securities     40,663       40,663       –       –   State and municipal securities     12,898       –       12,898       –   Total financial assets   $ 481,607     $ 389,207     $ 92,400     $ –         Note 13 – Goodwill and Other Intangible Assets   At June 30, 2021, the Company reviewed the carrying value of goodwill for impairment indicators, including due to the events and circumstances surrounding the Coronavirus Pandemic ("COVID- 19" ). As a result of the review, there were no impairment indicators regarding the Company’s goodwill during the three months ended June 30, 2021 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. We will continue to monitor future events, changes in circumstances, and the potential impact thereof. If actual results are not consistent with our assumptions and estimates, we may be exposed to future goodwill impairment losses.   See Note 4 – Acquisition of Caris HealthCare, L.P. for further detail describing the goodwill addition in 2021. At June 30, 2021, the following table represents the activity related to our goodwill by segment ( in thousands ):       Inpatient Services     Homecare and Hospice     All Other     Total   January 1, 2021   $ 3,741     $ 17,600     $ –     $ 21,341   Additions     –       146,954       –       146,954   June 30, 2021   $ 3,741     $ 164,554     $ –     $ 168,295     As part of the Caris acquisition, we also recorded indefinite-lived intangible assets that consisted of the trade name ($ 4,340,000 ) and certificates of need and licenses ($ 2,698,000 ).       Note 14 - Stock Repurchase Program   During the six months ended June 30, 2021, the Company repurchased 3,936 shares of its common stock for a total cost of $ 278,000 . The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued.       Note 15 – Stock – Based Compensation   NHC recognizes stock–based compensation expense for all stock options granted over the requisite service period using the fair value at the date of grant using the Black–Scholes pricing model. Stock–based compensation totaled $ 683,000 and $ 823,000 for the three months ended June 30, 2021 and 2020, respectively. Stock–based compensation totaled $ 1,179,000 and $ 1,289,000 for the six months ended June 30, 2021 and 2020, respectively. Stock–based compensation is included in “Salaries, wages and benefits” in the interim condensed consolidated statements of operations.   At June 30, 2021, the Company had $ 2,494,000 of unrecognized compensation cost related to unvested stock–based compensation awards. This unrecognized compensation cost will be amortized over an approximate one -year period.   Stock Options   The following table summarizes the significant assumptions used to value the options granted for the six months ended June 30, 2021 and for the year ended December 31, 2020.       June 30, 2021   December 31, 2020 Risk–free interest rate     0.21 %     0.87 % Expected volatility     35.1 %     20.1 % Expected life, in years     2.2       2.2   Expected dividend yield     3.01 %     2.91 %   23 Table of Contents   The following table summarizes our outstanding stock options for the six months ended June 30, 2021 and for the year ended December 31, 2020.       Number of Shares     Weighted Average Exercise Price     Aggregate Intrinsic Value   Options outstanding at January 1, 2020     809,529     $ 71.24     $ –   Options granted     104,057       73.98       –   Options exercised     ( 43,630 )     63.37       –   Options cancelled     ( 3,000 )     72.94       –   Options outstanding at December 31, 2020     866,956       72.11       –   Options granted     56,829       70.73       –   Options exercised     ( 148,900 )     68.41       –   Options cancelled     ( 6,000 )     72.94       –   Options outstanding at June 30, 2021     768,885     $ 72.72     $ 648,212                             Options exercisable at June 30, 2021     222,686     $ 69.84     $ 580,540     Options Outstanding June 30, 2021     Exercise Prices     Weighted Average Exercise Price     Weighted Average Remaining Contractual Life in Years   103,809       60.73 - 67.28       63.66       2.9   665,076       71.64 - 84.30       74.14       1.1   768,885                   72.72       1.3         Note 16 – Income Taxes   The Company's income tax provision as a percentage of our income before income taxes was 2.6 % and 26.0 % for the three months ended June 30, 2021 and 2020, respectively.    The Company's income tax provision as a percentage of our income before income taxes was 7.3 % and 19.4 % for the six months ended June 30, 2021 and 2020, respectively.    Typically, these percentages vary from the U.S. federal statutory income tax rate of 21% primarily due to state income taxes, excess tax benefits from stock-based compensation, benefits resulting from the lapsing of statute of limitations of items in our tax contingency reserve, and non-deductible expenses. For the three months and six months ended June 30, 2021, the income tax provision and effective tax rate were favorably impacted by the nontaxable gain recognized upon re-measurement of our existing equity investment in Caris Healthcare, L.P.   Our quarterly income tax provision, and our estimate of our annual effective income tax rate, is subject to variation due to several factors, including volatility based on the amount of pre-tax income or loss.     The Company is no longer subject to U.S. federal and state examinations by tax authorities for years before 2017 (with certain state exceptions).       Note 17 – Contingencies and Commitments   Accrued Risk Reserves   We are self–insured for risks related to health insurance and have wholly–owned limited purpose insurance companies that insure risks related to workers’ compensation and general and professional liability insurance claims both for our owned and leased entities and certain of the entities to which we provide management or accounting services. The liability we have recognized for reported claims and estimates for incurred but unreported claims totals $ 101,850,000 and $ 99,537,000 at June 30, 2021 and December 31, 2020, respectively. The liability is included in accrued risk reserves in the interim condensed consolidated balance sheets and is subject to adjustment for actual claims incurred. It is possible that these claims plus unasserted claims could exceed our insurance coverages and our reserves, which could have a material adverse effect on our consolidated financial position, results of operations and cash flows.   24 Table of Contents   As a result of the terms of our insurance policies and our use of wholly–owned limited purpose insurance companies, we have retained significant insurance risk with respect to workers’ compensation and general and professional liability. We consider the professional services of independent actuaries to assist us in estimating our exposures for claims obligations (for both asserted and unasserted claims) related to deductibles and exposures in excess of coverage limits, and we maintain reserves for these obligations. Such estimates are based on many variables including historical and statistical information and other factors.   Workers ’ Compensation   For workers’ compensation, we utilize a wholly–owned Tennessee domiciled property/casualty insurance company to write coverage for NHC affiliates and for third–party customers. Policies are written for a duration of twelve months and cover only risks related to workers’ compensation losses. All customers are companies which operate in the senior care industry. Business is written on a direct basis.    General and Professional Liability Insurance and Lawsuits   The senior care industry has experienced significant increases in both the number of personal injury/wrongful death claims and in the severity of awards based upon alleged negligence by skilled nursing facilities and their employees in providing care to residents. The Company has been, and continues to be, subject to claims and legal actions that arise in the ordinary course of business, including potential claims related to patient care and treatment. The defense of these lawsuits may result in significant legal costs, regardless of the outcome, and can result in large settlement amounts or damage awards. Additional insurance is purchased through third party providers that serve to supplement the coverage provided through our wholly owned captive insurance company.   There is certain additional litigation incidental to our business, none of which, based upon information available to date, would be material to our financial position, results of operations, or cash flows. In addition, the long–term care industry is continuously subject to scrutiny by governmental regulators, which could result in litigation or claims related to regulatory compliance matters.   Qui Tam Litigation     United States of America, ex rel. Jennifer Cook and Sally Gaither v. Integrated Behavioral Health, Inc., NHC HealthCare/Moulton, LLC, et al. , Case No. 2:20 -CV- 00877 -AMM (N.D. Ala.)   This is a qui tam case originally filed under seal on June 22, 2020. The United States declined intervention on March 1, 2021. Thereafter, the Plaintiff filed an amended Complaint against Dr. Sanja Malhotra, Integrated Behavioral Health, Inc. and other entities Dr. Malhotra is alleged to own or in which he has a financial interest.  The Complaint also named multiple skilled nursing facilities as Defendants, including NHC Healthcare/Moulton, LLC, an affiliate of National HealthCare Corporation. The gravamen of the Complaint against the facilities is that Dr. Malhotra had nurse practitioners providing free services in the facilities in exchange for referrals to entities he owned or in which he had a financial interest in violation of the False Claims Act and Anti-Kickback Statute. NHC Healthcare/Moulton, LLC denies the allegations and is vigorously defending the claim. A motion to dismiss has been filed and is pending.   Governmental Regulations   Laws and regulations governing the Medicare, Medicaid and other federal healthcare programs are complex and subject to interpretation. Management believes that it is following all applicable laws and regulations in all material respects. However, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusions from the Medicare, Medicaid and other federal healthcare programs. There have been several enacted and proposed federal and state relief measures as a result of COVID- 19 which should provide support to us during this pandemic; however, the full benefit of any such programs would not be realized until these payments are fully implemented, government agencies issue applicable regulations, or guidance and such relief is provided.         Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.   Forward–Looking Statements   References throughout this document to the Company include National HealthCare Corporation and its wholly owned subsidiaries. In accordance with the Securities and Exchange Commissions “Plain English” guidelines, this Quarterly Report on Form 10–Q has been written in the first person. In this document, the words “we”, “our”, “ours” and “us” refer only to National HealthCare Corporation and its wholly–owned subsidiaries and not any other person.   This Quarterly Report on Form 10–Q and other information we provide from time to time, contains certain “forward–looking” statements as that term is defined by the Private Securities Litigation Reform Act of 1995. All statements regarding our expected future financial position, results of operations or cash flows, continued performance improvements, ability to service and refinance our debt obligations, ability to finance growth opportunities, ability to control our patient care liability costs, ability to respond to changes in government regulations, ability to execute our three–year strategic plan, and similar statements including, without limitations, those containing words such as “believes”, “anticipates”, “expects”, “intends”, “estimates”, “plans”, and other similar expressions are forward–looking statements.   25 Table of Contents   Forward–looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from those projected or contemplated in the forward–looking statements as a result of, but not limited to, the following factors:     ● national and local economic conditions, including their effect on the availability and cost of labor, utilities and materials;         ● the effect of government regulations and changes in regulations governing the healthcare industry, including our compliance with such regulations;         ● changes in Medicare and Medicaid payment levels and methodologies and the application of such methodologies by the government and its fiscal intermediaries;         ● liabilities and other claims asserted against us, including patient care liabilities, as well as the resolution of current litigation (see Note 17: Contingencies and Commitments);         ● the uncertainty of the extent, duration and effects of the COVID-19 pandemic and the response of governments         ● the ability to attract and retain qualified personnel;         ● the availability and terms of capital to fund acquisitions and capital improvements;         ● the ability to refinance existing debt on favorable terms;         ● the competitive environment in which we operate;         ● the ability to maintain and increase census levels; and         ● demographic changes.   See the notes to the quarterly financial statements, and “Item 1. Business” in our 2020 Annual Report on Form 10–K for a discussion of various governmental regulations and other operating factors relating to the healthcare industry and the risk factors inherent in them. This may be found on our web site at www.nhccare.com. You should carefully consider these risks before making any investment in the Company. These risks and uncertainties are not the only ones facing us. There may be additional risks that we do not presently know of or that we currently deem immaterial. If any of the risks occur, our business, financial condition or results of operations could be materially adversely affected. In that case, the trading price of our shares of stock could decline, and you may lose all or part of your investment. Given these risks and uncertainties, we can give no assurances that these forward–looking statements will, in fact, transpire and, therefore, caution investors not to place undue reliance on them.   Overview   National HealthCare Corporation (“NHC” or the “Company”) is a leading provider of senior health care services. We operate or manage, through certain affiliates, 75 skilled nursing facilities with a total of 9,473 licensed beds, 24 assisted living facilities, five independent living facilities, one behavioral health hospital, 35 homecare agencies, and 28 hospice agencies. We operate specialized care units within certain of our healthcare centers such as Alzheimer's disease care units and sub-acute nursing units. In addition, we provide insurance services, management and accounting services, and we lease properties to operators of skilled nursing and assisted living facilities. We operate in 10 states and are located primarily in the southeastern United States.   Impact of COVID-19   In early March 2020, COVID-19, a disease caused by the novel strain of the coronavirus, was characterized as a pandemic by the World Health Organization. As a provider of healthcare services, we are significantly exposed to the public health and economic effects of the COVID-19 pandemic.  NHC’s primary objective has remained the same throughout the COVID-19 pandemic: that is to protect the health and safety of our patients, residents, and partners (employees). We continue to follow all guidance from the Centers for Medicare and Medicaid Services (“CMS”), the Centers for Disease Control and Prevention (“CDC”), and state and local health departments to prevent the spread of the disease within our operations.    We began our first vaccination clinics in our skilled nursing facilities around the middle of December 2020. As the vaccination clinics progressed and as the vaccine became more accessible, we began to see a significant decline in COVID-19 cases among our operations.  With the COVID-19 cases significantly declining during the first and second quarters of 2021, the census in our skilled nursing facilities began to increase. The census in our skilled nursing facilities has risen every month in the first and second quarters of 2021 and increased approximately 7.5% from January 1, 2021 through June 30, 2021.    26 Table of Contents   Despite the COVID-19 cases significantly declining during the first and second quarters of 2021, our operating expenses remain elevated with incentive compensation being paid to our frontline partners, as well as increased costs of personal protective equipment (“PPE”), sanitizers and cleaning supplies, and COVID-19 testing of our patients and partners. Despite the continued disruption of COVID-19 to our operations, our capital and financial resources, including our overall liquidity, remain strong. Our liquidity provides us with significant flexibility to maintain the strength of our balance sheet in periods of uncertainty or stress.   At this time, we are not able to quantify the impact that the COVID-19 pandemic will have on our future financial results, but we expect the developments related to COVID-19 to adversely affect our financial performance in 2021.  The ultimate impact of the pandemic on our financial results will depend on, among other factors, the duration and severity of the pandemic, the volume of acute and post-acute healthcare patients cared for across the broader health care systems, the timing and availability of effective medical treatments and vaccines, and the impact of government actions and administrative regulations on our industry and broader economy, including future government stimulus efforts.  We have received and may continue to receive payments and advances from the various federal and state initiatives. These legislative initiatives have been beneficial to partially mitigate the impact of the COVID-19 pandemic on our results of operations and financial position to date.  The federal and state governments may consider additional stimulus and relief efforts, but we are unable to predict whether any of the additional stimulus measures will be enacted or their impact.      Legislation and Government Stimulus Due to COVID-19   The U.S. government enacted several laws beginning in March 2020 designed to help the nation respond to the COVID-19 pandemic. The new laws impacted healthcare providers in a variety of ways, but the largest legislation from a monetary relief perspective is the CARES Act. Through the CARES Act, as well as the Paycheck Protection Program and Health Care Enactment Act, the federal government has allocated $178 billion to the Public Health and Social Services Emergency Fund , which is referred to as the Provider Relief Fund. The Provider Relief Fund is administered through grants and other mechanisms to skilled nursing providers, home health providers, hospitals, and other Medicare and Medicaid enrolled providers to cover any unreimbursed health care related expenses or lost revenue attributable to the public health emergency resulting from COVID-19.       The Provider Relief Fund grants come with terms and condition certifications in which all providers are required to submit documents to ensure the funds will be used for healthcare-related expenses or lost revenue attributable to COVID-19. The Company recorded $15,126,000 and $24,648,000 of government stimulus income from the Provider Relief Funds for the three months ended June 30, 2021 and 2020, respectively. The Company recorded $37,875,000 and $24,648,000 of government stimulus income from the Provider Relief Funds for the six months ended June 30, 2021 and 2020, respectively.  The grant income was determined on a systemic basis in line with the recognition of specific expenses and lost revenues for which the grants are intended to compensate. The Company’s assessment of whether the terms and conditions for amounts received have been met for income recognition and the Company’s related income calculation considered all frequently asked questions and other interpretive guidance issued to date by HHS.   As of June 30, 2021, amounts not recognized as income are $10,429,000 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 $10,429,000 of Provider Relief Funds before the reporting requirement deadlines outlined by HHS.   Additionally, as part of the CARES Act, the legislation included an expansion of the Medicare Accelerated and Advance Payment Program. We received approximately $51,253,000 as part of this program. These funds are applied against claims for services provided to Medicare patients after approximately one year from the date we received the funds. Recoupment of the accelerated payments began in the second quarter of 2021. As of June 30, 2021, $40,121,000 of the accelerated payments remain and is reflected within contract liabilities in the interim condensed consolidated balance sheet.   The CARES Act temporarily suspended Medicare sequestration beginning May 1, 2020 through December 31, 2020. The Medicare sequestration policy reduces fee-for-service Medicare payments by 2 percent. On December 27, 2020, the Consolidated Appropriations Act of 2021 further suspended the 2.0% payment adjustment through June 30, 2021. On April 14, 2021, Congress extended the Medicare sequestration suspension period to December 31, 2021.   The CARES Act also temporarily permitted employers to defer the deposit and payment of the employer’s portion of the social security taxes (6.2% of employee wages) that otherwise would be due between March 27, 2020 and December 31, 2020. The provision requires that the deferred taxes be paid over a two-year period with half the amount required to be paid by December 31, 2021, and the other half by December 31, 2022. At June 30, 2021, we have deferred $21,153,000 of the Company’s share of the social security taxes.    27 Table of Contents   Summary of Goals and Areas of Focus   Occupancy   A primary area of management focus continues to be the rates of occupancy within our skilled nursing facilities. The overall census in owned and leased skilled nursing facilities for the six months ending June 30, 2021 was 78.9% compared to 87.9% for the same period a year ago. For the three months ended June 30, 2021, overall census in our owned and leased skilled nursing facilities was 81.1%% compared to 84.3% in the second quarter of 2020. The census in our skilled nursing facilities for the second quarter of 2021 increased approximately 4% from April 1, 2021 through June 30, 2021. The census in our skilled nursing facilities increased approximately 7.5% from January 1, 2021 through June 30, 2021.     Due to the pandemic, as well as the increased availability of assisted living facilities and home and community-based services, the challenge of maintaining desirable patient census levels has been amplified. Management has undertaken a number of steps in order to best position our current and future health care facilities. This includes working internally to examine and improve systems to be most responsive to referral sources and payors. Additionally, NHC is in various stages of partnerships with hospital systems, payors, and other post–acute alliances to better position ourselves so we are an active participant in the delivery of post-acute healthcare services.   Quality of Patient Care   CMS introduced the Five-Star Quality Rating System to help consumers, their families and caregivers compare skilled nursing facilities more easily. The Five-Star Quality Rating System gives each skilled nursing operation a rating ranging between one and five stars in various categories (five stars being the best). The Company has always strived for patient-centered care and quality outcomes as precursors to outstanding financial performance.   The tables below summarize NHC's overall performance in these Five-Star ratings versus the skilled nursing industry as of June 30, 2021:       NHC Ratings   Industry Ratings Total number of skilled nursing facilities, end of period     75           Number of 4 and 5-star rated skilled nursing facilities     60           Percentage of 4 and 5-star rated skilled nursing facilities     80 %     47 % Average rating for all skilled nursing facilities, end of period     4.15       3.21     Development and Growth   We are undertaking to expand our senior care operations while protecting our existing operations and markets. The following table lists our recent development activities.   Type of Operation     Description     Size     Location     Placed in Service   Skilled Nursing     Acquisition     166 beds     Knoxville, TN     February 2020   Assisted Living     Bed Addition     20 beds     Gallatin, TN     September 2020   Skilled Nursing     Bed Addition     30 beds     Kingsport, TN     December 2020   Hospice     Acquisition     28 agencies     Various     June 2021   Behavioral Health Hospital     New Facility     16 beds     St. Louis, MO     Under Construction   Behavioral Health Hospital     New Facility     64 beds     Knoxville, TN     Under Construction     Accrued Risk Reserves   Our accrued professional liability and workers’ compensation reserves totaled $101,850,000 at June 30, 2021 and are a primary area of management focus. We have set aside restricted cash and cash equivalents and marketable securities to fund our estimated professional liability and workers’ compensation liabilities.   As to exposure for professional liability claims, we have developed performance certification criteria to measure and bring focus to the patient care issues most likely to produce professional liability exposure, including in–house acquired pressure ulcers, significant weight loss and numbers of falls. These programs for certification, which we regularly modify and improve, have produced measurable improvements in reducing these incidents. Our experience is that achieving goals in these patient care areas improves both patient and employee satisfaction.   28 Table of Contents   Government Reimbursement Programs   Medicare – Skilled Nursing Facilities   On July 29, 2021, CMS released a final rule outlining fiscal year 2022 Medicare payment rates and policy changes for skilled nursing facilities, which begins October 1, 2021. The fiscal year 2022 rule results in an increase of approximately $410 million in Medicare Part A payments to SNFs in 2022.  This estimate reflects an update to payment rates of 1.2%, which is based on a 2.7% SNF market basket update, less a 0.8% forecast error adjustment and a 0.7% productivity adjustment. These impact figures do not incorporate the SNF Value-Based Program reductions that are estimated to be $184.3 million in FY2022.   On July 31, 2020, CMS released its final rule outlining fiscal year 2021 Medicare payment rates and policy changes for skilled nursing facilities, which began October 1, 2020. The fiscal year 2021 final rule provided for an approximate 2.2% increase, or $750 million, compared to fiscal year 2020 levels. The final rule reflected the commitment to shifting Medicare payments from volume to value, with the continued implementation of PDPM and value-based purchasing to improve interoperability, operational quality, and safety.     The CARES Act temporarily suspended Medicare sequestration beginning May 1, 2020 through December 31, 2020. The Medicare sequestration policy reduces fee-for-service Medicare payments by 2 percent. The CARES Act extends the sequestration policy through 2030 in exchange for this temporary suspension. On December 27, 2020, the Consolidated Appropriations Act of 2021 further suspended the 2.0% payment adjustment through June 30, 2021. On April 14, 2021, Congress extended the Medicare sequestration suspension period to December 31, 2021.   For the first six months of 2021, our average Medicare per diem rate for skilled nursing facilities increased 4.2% as compared to the same period in 2020.    Medicaid – Skilled Nursing Facilities   Effective July 1, 2020 and for the fiscal year 2021, the state of Tennessee implemented specific individual nursing facility increases. We estimate the resulting increase in revenue for the 2021 fiscal year will be approximately $1,500,000, or $375,000 per quarter.   Effective October 1, 2020 and for the fiscal year 2021, the state of South Carolina implemented specific individual nursing facility rate changes. We estimate the resulting increase in revenue for the 2021 fiscal year will be approximately $3,600,000 annually, or $900,000 per quarter.   We have also received from many of the states in which we operate supplemental Medicaid payments to help mitigate the incremental costs resulting from the COVID-19 public health emergency. We have recorded $7,094,000 and $3,858,000 in net patient revenues for these supplemental Medicaid payments for the three months ended June 30, 2021 and 2020, respectively. We have recorded $11,049,000 and $5,532,000 in net patient revenues for these supplemental Medicaid payments for the six months ended June 30, 2021 and 2020, respectively.   For the first six months of 2021, our average Medicaid per diem increased 8.4% compared to the same period in 2020.   We face challenges with respect to states’ Medicaid payments, because many currently do not cover the total costs incurred in providing care to those patients. States will continue to control Medicaid expenditures and also look for adequate funding sources, including provider assessments. There are several pieces of legislation that include provisions designed to reduce Medicaid spending. These provisions include, among others, provisions strengthening the Medicaid asset transfer restrictions for persons seeking to qualify for Medicaid long-term care coverage, which could, due to the timing of the penalty period, increase facilities’ exposure to uncompensated care. Other provisions could increase state funding for home and community-based services, potentially having an impact on funding for nursing facilities.   Medicare – Homecare Programs   In November 2020, CMS released its final rule outlining fiscal year 2021 Medicare payment rates. CMS projects payments to home health agencies in fiscal year 2021 will increase in aggregate by 1.9%, or $390 million. The increase reflects the effects of the 2.0% home health payment update percentage and a 0.1% decrease due to reductions made by the rural add-on policy. The rule also updates the home health wage index, limiting any decrease in a geographic area’s wage index value to no more than 5% next year.   In June 2021, CMS released its proposed rule outlining fiscal year 2022 Medicare payment rates. CMS projects payments to home health agencies in fiscal year 2022 will increase in aggregate by 1.7%, or $310 million, based on proposed policies. Additionally, CMS proposed plans to expand the Home Health Value-Based Purchasing (HHVBP) model nationwide by the start of 2022. The CMS Innovation Center developed the HHVBP demonstration in an effort to create financial incentives for better quality of care.   29 Table of Contents   Medicare – Hospice   In July 2020, CMS released its final rule outlining fiscal year 2021 Medicare payment rates. CMS issued a rate increase of 2.4%, or $540 million, effective October 1, 2020. The hospice cap amount for the 2021 cap year is equal to the FY 2020 cap amount updated by the FY 2021 hospice payment update percentage of 2.4 percent, or $30,683.93.   In Apil 2021, CMS released its proposed rule outlining fiscal year 2022 Medicare payment rates. CMS issued a proposed rule to update hospice payment rates for fiscal year 2022 with a 2.3%, or $530 million, net increase to payments as compared to FY 2021. This includes a 2.5% market basket update and a 0.2 percentage point cut for productivity.   Segment Reporting   The Company has two reportable operating segments: (1) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and our behavioral health hospital; and (2) homecare and hospice services. These reportable operating segments are consistent with information used by the Company’s Chief Executive Officer, as chief operating decision maker (“CODM”), to assess performance and allocate resources.   The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. For additional information on these reportable segments see Note 2 – Summary of Significant Accounting Policies.       The Company’s CODM evaluates performance and allocates capital resources to each segment based on an operating model that is designed to improve the quality of patient care and profitability of the Company while enhancing long-term shareholder value. The CODM does not review assets by segment in his resource allocation and therefore, assets by segment are not disclosed below.   The following table sets forth the Company’s unaudited interim condensed consolidated statements of operations by business segment (in thousands ):       Three Months Ended June 30, 2021       Inpatient Services     Homecare and Hospice     All Other     Total   Revenues:                                 Net patient revenues   $ 218,860     $ 18,116     $ -     $ 236,976   Other revenues     97       -       10,959       11,056   Government stimulus income     15,126       -       -       15,126   Net operating revenues and grant income     234,083       18,116       10,959       263,158                                     Costs and expenses:                                 Salaries, wages, and benefits     128,573       10,482       17,749       156,804   Other operating     65,129       3,991       2,923       72,043   Rent     8,278       454       1,438       10,170   Depreciation and amortization     9,227       94       810       10,131   Interest     215       -       -       215   Total costs and expenses     211,422       15,021       22,920       249,363                                     Income (loss) from operations     22,661       3,095       (11,961 )     13,795   Non-operating income     -       -       5,586       5,586   Gain on acquisition of equity method investment     -       -       95,202       95,202   Unrealized losses on marketable equity securities     -       -       (6,489 )     (6,489 )                                   Income before income taxes   $ 22,661     $ 3,095     $ 82,338     $ 108,094     30 Table of Contents       Three Months Ended June 30, 2020       Inpatient Services     Homecare and Hospice     All Other     Total   Revenues and grant income:                                 Net patient revenues   $ 214,387     $ 11,284     $ -     $ 225,671   Other revenues     127       -       11,196       11,323   Government stimulus income     22,622       2,026       -       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       7,963       12,571       156,914   Other operating     63,999       4,342       2,520       70,861   Rent     8,380       446       1,494       10,320   Depreciation and amortization     9,626       106       813       10,545   Interest     366       -       87       453   Total costs and expenses     218,751       12,857       17,485       249,093                                     Income (loss) from operations     18,385       453       (6,289 )     12,549   Non-operating income     -       -       5,954       5,954   Unrealized gains on marketable equity securities     -       -       20,053       20,053                                     Income before income taxes   $ 18,385     $ 453     $ 19,718     $ 38,556         Six Months Ended June 30, 2021       Inpatient Services     Homecare and Hospice     All Other     Total   Revenues and grant income:                                 Net patient revenues   $ 422,103     $ 31,728     $ -     $ 453,831   Other revenues     195       -       22,230       22,425   Government stimulus income     37,875       -       -       37,875   Net operating revenues and grant income     460,173       31,728       22,230       514,131                                     Costs and expenses:                                 Salaries, wages, and benefits     257,383       18,890       25,661       301,934   Other operating     129,938       6,934       5,324       142,196   Rent     16,472       884       2,877       20,233   Depreciation and amortization     18,490       181       1,621       20,292   Interest     459       -       -       459   Total costs and expenses     422,742       26,889       35,483       485,114                                     Income (loss) from operations     37,431       4,839       (13,253 )     29,017   Non-operating income     -       -       11,846       11,846   Gain on acquisition of equity method investment     -       -       95,202       95,202   Unrealized gains on marketable equity securities     -       -       570       570                                     Income before income taxes   $ 37,431     $ 4,839     $ 94,365     $ 136,635     31 Table of Contents       Six Months Ended June 30, 2020       Inpatient Services     Homecare and Hospice     All Other     Total   Revenues and grant income:                                 Net patient revenues   $ 445,374     $ 24,392     $ -     $ 469,766   Other revenues     561       -       22,791       23,352   Government stimulus income     22,622       2,026       -       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       8,161       5,264       142,529   Rent     16,757       903       2,992       20,652   Depreciation and amortization     19,197       160       1,626       20,983   Interest     748       -       117       865   Total costs and expenses     437,401       25,503       26,508       489,412                                     Income (loss) from operations     31,156       915       (3,717 )     28,354   Non-operating income     -       -       12,392       12,392   Gain on acquisition of equity method investment     -       -       1,708       1,708   Unrealized losses on marketable equity securities     -       -       (40,339 )     (40,339 )                                   Income (loss) before income taxes   $ 31,156     $ 915     $ (29,956 )   $ 2,115     Non-GAAP Financial Presentation   The Company is providing certain non-GAAP financial measures as the Company believes that these figures are helpful in allowing investors to more accurately assess the ongoing nature of the Company’s operations and measure the Company’s performance more consistently across periods. Therefore, the Company believes this information is meaningful in addition to the information contained in the GAAP presentation of financial information. The presentation of this additional non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.   Specifically, the Company believes the presentation of non-GAAP financial information that excludes the unrealized gains or losses on our marketable equity securities, operating results for the newly constructed healthcare facilities not at full capacity, share-based compensation expense, and any gains on the acquisitions of equity method investments is helpful in allowing investors to more accurately access the Company’s operations.   The operating results for the newly constructed healthcare facilities not at full capacity for the three and six months ended June 30, 2021 include facilities that began operations from 2019 to 2021. For the three and six months ended June 30, 2020, included are facilities that began operations from 2018 to 2020. For all of the 2021 and 2020 periods presented, there is one memory care facility that is included in the reconciliation.   In June 2021, the gain on the acquisition of an equity method investment is from the acquisition of Caris HealthCare, L.P. See Note 4 for additional detail describing the Caris acquisition. In February 2020, the gain on the acquisition of an equity method investment is from the acquisition of a skilled nursing facility in Knoxville, Tennessee where we owned a prior 25% non-controlling ownership interest before acquiring the remaining 75% ownership interest.   The tables below provide reconciliations of GAAP to non-GAAP items (dollars in thousands, except per share data):       Three Months Ended June 30     Six Months Ended June 30       2021     2020     2021     2020                                     Net income attributable to National Healthcare Corporation   $ 104,883     $ 28,324     $ 126,150     $ 1,472   Non-GAAP adjustments                                 Unrealized (gains)/losses on marketable equity securities     6,489       (20,053 )     (570 )     40,339   Gains on acquisitions of equity method investments     (95,202 )     -       (95,202 )     (1,708 ) Operating results for newly opened facilities not at full capacity     120       112       365       314   Share-based compensation expense     683       823       1,179       1,289   Provision/(benefit) of income taxes on non-GAAP adjustments     (1,896 )     4,971       (253 )     (10,461 ) Non-GAAP Net income   $ 15,077     $ 14,177     $ 31,669     $ 31,245                                                                       GAAP diluted earnings per share   $ 6.80     $ 1.84     $ 8.19     $ 0.10   Non-GAAP adjustments                                 Unrealized (gains)/losses on marketable equity securities     0.31       (0.97 )     (0.03 )     1.94   Gains on acquisitions of equity method investments     (6.17 )     -       (6.18 )     (0.08 ) Operating results for newly opened facilities not at full capacity     0.01       0.01       0.02       0.02   Share-based compensation expense     0.03       0.04       0.06       0.05   Non-GAAP diluted earnings per share   $ 0.98     $ 0.92     $ 2.06     $ 2.03     32 Table of Contents   Results of Operations   The following table and discussion set forth items from the interim condensed consolidated statements of operations as a percentage of net operating revenues and grant income for the three months and six months ended June 30, 2021 and 2020.   Percentage of Net Operating Revenues and Grant Income       Three Months Ended June 30     Six Months Ended June 30       2021     2020     2021     2020   Net operating revenues and grant income     100.0 %     100.0 %     100 %     100 % Costs and expenses:                                 Salaries, wages, and benefits     59.6       60.0       58.7       58.8   Other operating     27.4       27.1       27.7       27.5   Facility rent     3.9       3.9       4.0       4.0   Depreciation and amortization     3.8       4.0       3.9       4.0   Interest     0.1       0.2       0.1       0.2   Total costs and expenses     94.8       95.2       94.4       94.5   Income from operations     5.2       4.8       5.6       5.5   Non–operating income     2.2       2.2       2.4       2.3   Gains on acquisitions of equity method investments     36.2       -       18.5       0.4   Unrealized gains/(losses) on marketable equity securities     (2.5 )     7.7       0.1       (7.8 ) Income before income taxes     41.1       14.7       26.6       0.4   Income tax provision     (1.1 )     (3.8 )     (2.0 )     (0.1 ) Net income     40.0       10.9       24.6       0.3   Net income attributable to noncontrolling interest     (0.1 )     (0.1 )     (0.1 )     0.0   Net income attributable to stockholders of NHC     39.9       10.8       24.5       0.3     Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020   Results for the quarter ended June 30, 2021 compared to the second quarter of 2020 include a 0.6% increase in net operating revenues and grant income and a 9.9% increase in income from operations. For the quarter ended June 30, 2021, GAAP net income attributable to NHC was $104,883,000 compared to $28,324,000 for the same period in 2020.   The large increase in our reported GAAP net income for the second quarter of 2021 is primarily due to the gain recorded from the acquisition of Caris, a hospice provider. Excluding the gain on the Caris acquisition, as well as the unrealized losses in our marketable equity securities portfolio and the other non-GAAP adjustments, non-GAAP net income for the three months ended June 30, 2021 was $15,077,000 compared to $14,177,000 for the second quarter of 2020, which is an increase of 6.4%.   Net operating revenues and grant income   Net patient revenues increased $11,305,000, or 5.0%, compared to the same period last year.   The total census at owned and leased skilled nursing facilities for the quarter averaged 81.1%, compared to an average of 84.3% for the same quarter a year ago. With the COVID-19 cases significantly declining during the first and second quarters of 2021, the census in our skilled nursing facilities began to increase.  The census in our skilled nursing facilities for the second quarter of 2021 increased approximately 4% from April 1, 2021 through June 30, 2021.   Overall, the composite skilled nursing facility per diem increased 7.8% compared to the same quarter a year ago. Our Medicare per diem rates increased 2.0% and managed care per diem rates increased 4.2% compared to the same quarter a year ago. Medicaid and private pay per diem rates increased 8.2% and 3.7%, respectively, compared to the same quarter a year ago. The Medicaid per diem rate increased significantly due to the supplemental COVID-19 payments that we received from various states to help mitigate the incremental costs in fighting the pandemic. For the three months ending June 30, 2021 and 2020, respectively, $7,094,000 and $3,858,000 have been included in our net patient revenues for these supplemental COVID-19 Medicaid payments.   In June 2021, the Company acquired the remaining ownership interest in Caris, which resulted in net patient revenues increasing of $3,712,000 for the three months ended June 30, 2021 compared to the second quarter of 2020. Our homecare operations had an increase in net patient revenues of approximately $3,121,000 for the three months ended June 30, 2021 compared to the second quarter of 2020. In November 2020, the Company sold a skilled nursing facility located in Town & Country, Missouri. For the three months ended June 30, 2021, the sale of this facility decreased net patient revenue by $2,171,000 compared to the second quarter of 2020.   33 Table of Contents   Other revenues decreased $267,000, or 2.4%, compared to the same quarter last year, as further detailed in Note 6 to our interim condensed consolidated financial statements.   During the three months ended June 30, 2021 and 2020, respectively, we recorded $15,126,000 and $24,648,000 in government stimulus income related to funds received from the CARES Act Provider Relief Fund. See Note 3 - Coronavirus Pandemic for additional information.     Total costs and expenses   Total costs and expenses for the three months ended June 30, 2021 compared to the same period of 2020 increased $270,000, or 0.1%, to $249,363,000 from $249,093,000.   Salaries, wages, and benefits decreased $110,000, or 0.1%, to $156,804,000 from $156,914,000. Salaries, wages, and benefits as a percentage of net operating revenues and grant income was 59.6% compared to 60.0% for the three months ended June 30, 2021 and 2020, respectively. With the COVID-19 cases significantly declining during the second quarter of 2021, the COVID-related incentive pay (or combat pay) was significantly reduced in the second quarter of 2021 compared to the same quarter a year ago. But, we continue to face tremendous wage pressure and inflation to retain and attract new partners (employees). Therefore, the wage pressure and inflation increases offset any reduction in salaries and wages from the decreasing of the COVID-related incentive pay. Our Caris acquisition increased salaries, wages, and benefits $1,905,000 in the second quarter of 2021 compared to the same quarter a year ago.   Other operating expenses increased $1,182,000, or 1.7%, to $72,043,000 for the 2021 period compared to $70,861,000 for the 2020 period. Other operating expenses as a percentage of net operating revenues and grant income was 27.4% and 27.1% for the three months ended June 30, 2021 and 2020, respectively. Our Caris acquisition increased other operating expenses $771,000 in the second quarter of 2021 compared to the same quarter a year ago.   Other income   Non–operating income decreased by $368,000 compared to the same period last year, as further detailed in Note 7 to our interim condensed consolidated financial statements.   Gain on acquisition of equity method investments   In June 2021, a gain of $95,202,000 was recorded on the acquisition of the remaining ownership interest of Caris. We previously held a noncontrolling interest in the partnership. See Note 4 for additional detail describing the Caris acquisition.   Income taxes   The income tax provision for the three months ended June 30, 2021 is $2,764,000 (an effective income tax rate of 2.6%). The $95.2 million gain from the Caris acquisition is a non-taxable event and is the primary driver of our effective tax rate being lower than expected. Excluding certain items, we expect our corporate (federal and state) income tax rate for 2021 to be approximately 26.0%.    Noncontrolling interest   The noncontrolling interest in subsidiaries is presented within total equity of the Company’s consolidated balance sheets. The company presents the noncontrolling interest and the amount of consolidated net income attributable to NHC in its consolidated statements of operations. The Company’s earnings per share is calculated based on net income attributable to NHC’s stockholders. The carrying amount of the noncontrolling interest is adjusted based on an allocation of subsidiary earnings based on ownership interest.   Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020   Results for the six months ended June 30, 2021 compared to the first six months of 2020 include a 0.7% decrease in net operating revenues and grant income and a 2.3% increase in income from operations. For the six months ended June 30, 2021, GAAP net income attributable to NHC was $126,150,000 compared to $1,472,000 for the same period in 2020.   The large increase in our reported GAAP net income for the 2021 six-month period compared to the same period in 2020 is primarily due to the gain recorded from the acquisition of Caris, a hospice provider. Excluding the gain on the Caris acquisition, as well as the unrealized gains and losses in our marketable equity securities portfolio and the other non-GAAP adjustments, non-GAAP net income for the six months ended June 30, 2021 was $31,669,000 compared to $31,245,000 for the first six months of 2020, which is an increase of 1.4%.   34 Table of Contents   Net operating revenues and grant income   Net patient revenues decreased $15,935,000, or 3.4%, compared to the same period last year.    The total census at owned and leased skilled nursing facilities for the six months averaged 78.9%, compared to an average of 87.9% for the same period a year ago. With the COVID-19 cases significantly declining during the first and second quarters of 2021, the census in our skilled nursing facilities began to increase. The census in our skilled nursing facilities has risen every month in the first and second quarters of 2021 and increased approximately 7.5% from January 1, 2021 through June 30, 2021.    Overall, the composite skilled nursing facility per diem at our owned and leased skilled nursing facilities increased 7.4% compared to the same period a year ago. Our Medicare per diem rates increased 4.2% and managed care per diem rates increased 3.7% compared to the same period a year ago. Medicaid and private pay per diem rates increased 8.4% and 1.1%, respectively, compared to the same period a year ago. The Medicaid per diem rate increased significantly due to the supplemental COVID-19 payments that we received from various states to help mitigate the incremental costs in fighting the pandemic. For the six months ending June 30, 2021 and 2020, respectively, $11,049,000 and $5,532,000 have been included in our net patient revenues for these supplemental COVID-19 Medicaid payments   In June 2021, the Company acquired the remaining ownership interest in Caris, which resulted in net patient revenues increasing $3,712,000 for the six months ended June 30, 2021 compared to the same period a year ago. Our homecare operations had an increase in net patient revenues of approximately $3,625,000 for the six months ended June 30, 2021, compared to the same period a year ago. In November 2020, the Company sold a skilled nursing facility located in Town & Country, Missouri. For the six months ended June 30, 2021, the sale of this facility decreased net patient revenue by $4,404,000 compared to the same period a year ago.   Other revenues decreased $927,000, or 4.0%, compared to the same period last year, as further detailed in Note 6 to our interim condensed consolidated financial statements.   During the six months ended June 30, 2021 and 2020, respectively, we recorded $37,875,000 and $24,648,000 in government stimulus income related to funds received from the CARES Act Provider Relief Fund. See Note 3 - Coronavirus Pandemic for additional information.     Total costs and expenses   Total costs and expenses for the six months ended June 30, 2021 compared to the same period of 2020 decreased $4,298,000, or 0.9%, to $485,114,000 from $489,412,000.   Salaries, wages, and benefits decreased $2,449,000, or 0.8%, to $301,934,000 from $304,383,000. Salaries, wages, and benefits as a percentage of net operating revenues and grant income was 58.7% compared to 58.8% for the six months ended June 30, 2021 and 2020, respectively. With the COVID-19 cases significantly declining during the first and second quarter of 2021, the COVID-related incentive pay (or combat pay) was significantly reduced for the 2021 six-month period compared to the same period a year ago. But, we continue to face tremendous wage pressure and inflation to retain and attract new partners (employees). Therefore, the wage pressure and inflation increases offset most of the reduction in salaries and wages from the decreasing of the COVID-related incentive pay. Our Caris acquisition in June 2021 increased salaries, wages, and benefits $1,905,000 in the second quarter of 2021 compared to the six-month period a year ago.   Other operating expenses decreased $333,000, or 0.2%, to $142,196,000 for the 2021 period compared to $142,529,000 for the 2020 period. Other operating expenses as a percentage of net operating revenues and grant income was 27.7% and 27.5% for the six months ended June 30, 2021 and 2020, respectively. Our Caris acquisition increased other operating expenses $771,000 in the six month period of 2021 compared to the same period a year ago.   Other income   Non–operating income decreased by $546,000 compared to the same period last year, as further detailed in Note 7 to our interim condensed consolidated financial statements.   Gain on acquisition of equity method investments   In June 2021, a gain of $95,202,000 was recorded on the acquisition of the remaining ownership interest of Caris. We previously held a noncontrolling interest in the partnership. See Note 4 for additional detail describing the Caris acquisition.   35 Table of Contents   In February 2020, a gain of $1,708,000 was recorded on the acquisition of the remaining ownership interest of a 166-bed skilled nursing facility in Knoxville, Tennessee. We previously held a noncontrolling interest in the facility. Upon acquiring the remaining ownership interest, we valued the business and our previously held equity position based upon the facility’s fair value.   Income taxes   The income tax provision for the six months ended June 30, 2021 is $9,997,000 (an effective income tax rate of 7.3%). The $95.2 million gain from the Caris acquisition is a non-taxable event and is the primary driver of our effective tax rate being lower than expected. Excluding certain items, we expect our corporate (federal and state) income tax rate for 2021 to be approximately 26.0%.    Noncontrolling interest   The noncontrolling interest in subsidiaries is presented within total equity of the Company’s consolidated balance sheets. The company presents the noncontrolling interest and the amount of consolidated net income attributable to NHC in its consolidated statements of operations. The Company’s earnings per share is calculated based on net income attributable to NHC’s stockholders. The carrying amount of the noncontrolling interest is adjusted based on an allocation of subsidiary earnings based on ownership interest.   Liquidity, Capital Resources, and Financial Condition   Our primary sources of cash include revenues from the operations of our healthcare and senior living facilities, management and accounting services, rental income, and investment income. Our primary uses of cash include salaries, wages and other operating costs of our healthcare and senior living facilities, the cost of additions to and acquisitions of real property, facility rent expenses, and dividend distributions. These sources and uses of cash are reflected in our interim condensed consolidated statements of cash flows and are discussed in further detail below.   The following is a summary of our sources and uses of cash flows (dollars in thousands) :       Six Months Ended June 31     Six Month Change       2021     2020     $     %   Cash, cash equivalents, restricted cash, and restricted cash equivalents, at beginning of period   $ 158,502     $ 61,010     $ 97,492       159.8                                     Cash provided by operating activities     40,122       154,727       (114,605 )     (74.1 )                                   Cash used in investing activities     (31,995 )     (18,567 )     (13,428 )     (72.3 )                                   Cash used in financing activities     (16,042 )     (26,391 )     10,349       39.2                                     Cash, cash equivalents, restricted cash, and restricted cash equivalents, at end of period   $ 150,587     $ 170,779     $ (20,192 )     (11.8 )   Operating Activities   Net cash provided by operating activities for the six months ended June 30, 2021 was $40,122,000 as compared to $154,727,000 in the same period last year. Cash provided by operating activities consisted of net income of $126,638,000 and adjustments for non–cash items of $79,959,000. There was cash used for working capital needs in the amount of $12,871,000 for six months ended June 30, 2021 compared to cash provided by working capital needs in the amount $102,187,000 for the same period a year ago. We also received cash distributions from our unconsolidated investments of $6,314,000 during the six months ended June 30, 2021, compared to $6,901,000 for the same period a year ago.   Included in the adjustments for non-cash items are depreciation expense, equity in earnings of unconsolidated investments, unrealized gains on our marketable equity securities, deferred taxes, stock compensation, and gains on the acquisitions of equity method investments.   Investing Activities   Net cash used in investing activities totaled $31,995,000 for the six months ended June 30, 2021 compared to $18,567,000 for the six months ended June 30, 2020. Cash used for property and equipment additions was $13,143,000 and $12,517,000 for the six months ended June 30, 2021 and 2020, respectively. The acquisition of Caris resulted in cash used of $28,713,000 for the six months ended June 30, 2021. The Company collected notes receivable of $8,405,000 and $1,139,000 for the six months ended June 30, 2021 and 2020, respectively. Sales of marketable securities, net of purchases, resulted in positive cash flow of $1,456,000 for the six months ended June 30, 2021 compared to $69,000 for the six months ended June 30, 2020.   36 Table of Contents   Financing Activities     Net cash used in financing activities totaled $16,042,000 for the six months ended June 30, 2021 compared to net cash used in financing activities of $26,391,000 for the six months ended June 30, 2020. We made principal payments under our finance lease obligations in the amount of $2,178,000 and $2,052,000 for the six months ended June 30, 2021 and 2020, respectively. Cash used for dividend payments to common stockholders totaled $15,990,000 in the current year period compared to $15,948,000 for the same period a year ago.   Short – term liquidity   We expect to meet our short-term liquidity requirements primarily from our cash flows from operating activities. In addition to cash flows from operations, our current cash on hand of $134,692,000 and our marketable equity and debt securities of $162,317,000 are expected to be adequate to meet our contractual obligations, operating liquidity, and our growth and development plans in the next twelve months.    Long – term liquidity   We expect to meet our long-term liquidity requirements primarily from our cash flows from operating activities, our current cash on hand of $134,692,000 and our marketable equity and debt securities of $162,317,000. We also have substantial value in our unencumbered real estate assets which could potentially be used as collateral in future borrowing opportunities. At June 30, 2021, we do not have any long-term debt.   Our ability to meet our long–term contractual obligations, and to finance our operating requirements and growth plans will depend upon our future performance. Our future performance will be affected by business, economic, financial and other factors, including potential changes in state and federal government payment rates for healthcare, customer demand, success of our marketing efforts, pressures from competitors, and the state of the economy, including the state of financial and credit markets, as well as many unforeseen factors.   Commitment and Contingencies   Governmental Regulations   Laws and regulations governing the Medicare, Medicaid and other federal healthcare programs are complex and subject to interpretation. Management believes that it is following all applicable laws and regulations in all material respects. However, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusions from the Medicare, Medicaid, and other federal healthcare programs. There have been several enacted and proposed federal and state relief measures as a result of COVID-19 which should provide support to us during this pandemic; however, the full benefit of any such programs would not be realized until these payments are fully implemented, government agencies issue applicable regulations, or guidance and such relief is provided.     Item 3. Quantitative and Qualitative Disclosures About Market Risk.   Market risk represents the potential economic loss arising from adverse changes in the fair value of financial instruments. Currently, our exposure to market risk relates primarily to our fixed–income and equity portfolios. These investment portfolios are exposed primarily to, but not limited to, interest rate risk, credit risk, equity price risk, and concentration risk. We also have exposure to market risk that includes our cash and cash equivalents, notes receivable, and long–term debt. The Company's senior management has established comprehensive risk management policies and procedures to manage these market risks.   Interest Rate Risk   The fair values of our fixed–income investments fluctuate in response to changes in market interest rates. Increases and decreases in prevailing interest rates generally translate into decreases and increases, respectively, in the fair values of those instruments. Additionally, the fair values of interest rate sensitive instruments may be affected by the creditworthiness of the issuer, prepayment options, the liquidity of the instrument and other general market conditions. At June 30, 2021, we have available for sale marketable debt securities in the amount of $166,346,000. The fixed maturity portfolio is comprised of investments with primarily short–term and intermediate–term maturities. The portfolio composition allows flexibility in reacting to fluctuations of interest rates. The fixed maturity portfolio allows our insurance company subsidiaries to achieve an adequate risk–adjusted return while maintaining sufficient liquidity to meet obligations.   37 Table of Contents   Our cash and cash equivalents consist of highly liquid investments with a maturity of less than three months when purchased. As a result of the short–term nature of our cash instruments, a hypothetical 1% change in interest rates would have minimal impact on our future earnings and cash flows related to these instruments.   We do not currently use any derivative instruments to hedge our interest rate exposure. We have not used derivative instruments for trading purposes and the use of such instruments in the future would be subject to approvals by the Investment Committee of the Board of Directors.   Credit Risk   Credit risk is managed by diversifying the fixed maturity portfolio to avoid concentrations in any single industry group or issuer and by limiting investments in securities with lower credit ratings.   Equity Price and Concentration Risk   Our marketable equity securities are recorded at their fair market value based on quoted market prices. Thus, there is exposure to equity price risk, which is the potential change in fair value due to a change in quoted market prices. At June 30, 2021, the fair value of our marketable equity securities is approximately $153,840,000. Of the $153.8 million equity securities portfolio, our investment in NHI comprises approximately $109.3 million, or 71.1%, of the total fair value. We manage our exposure to NHI by closely monitoring the financial condition, performance, and outlook of the company. Hypothetically, a 10% change in quoted market prices would result in a related increase or decrease in the fair value of our equity investments of approximately $15.4 million. At June 30, 2021, our equity securities had net unrealized gains of $98.9 million. Of the $98.9 million of unrealized gains, $84.6 million is related to our investment in NHI.     Item 4. Controls and Procedures .   As of June 30, 2021, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Principal Accounting Officer (“PAO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the CEO and PAO, concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2021.     PART II. OTHER INFORMATION     Item 1. Legal Proceedings.   For a discussion of prior, current, and pending litigation of material significance to NHC, please see Note 17 of this Form 10–Q.     Item 1A. Risk Factors.   During the six months ended June 30, 2021, there were no material changes to the risk factors that were disclosed in Item 1A of National HealthCare Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020.     Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.   Not applicable     Item 3. Defaults Upon Senior Securities.   None   38 Table of Contents   Item 4. Mine Safety Disclosures.   Not applicable     Item 5. Other Information.   None      Item 6. Exhibits.     (a)        List of exhibits   EXHIBIT INDEX   Exhibit No.   Description       3.1   Certificate of Incorporation of National HealthCare Corporation (Incorporated by reference to Exhibit 3.1 to the Registrant’s registration statement on Form S-4 (File No. 333-37185) dated October 3, 1997.)       3.2   Certificate of Amendment to the Certificate of Incorporation of National HealthCare Corporation (Incorporated by reference to Exhibit 3.5 to the quarterly report on Form 10-Q filed on August 3, 2017.)       3.3   Certificate of Designation Series B Junior Participating Preferred Stock (Incorporated by reference to Exhibit 3.1 to the Registrant’s registration statement on Form 8-A, dated August 3, 2007.)       3.4   Restated Bylaws as amended February 14, 2013 (Incorporated by reference to Exhibit 3.5 to the quarterly report on Form 10-Q filed on May 8, 2013.)       4.1   Form of Common Stock (Incorporated by reference to Exhibit 4.1 to the quarterly report on Form 10-Q filed on August 3, 2017.)       31.1   Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer       31.2   Rule 13a-14(a)/15d-14(a) Certification of Principal Accounting Officer       32   Certification pursuant to 18 U.S.C. Section 1350 by Chief Executive Officer and Principal Accounting Officer       101.INS   Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)       101.SCH   Inline XBRL Taxonomy Extension Schema Document       101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document       101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document       101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document       101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document       104   Cover Page Interactive File (embedded within the Inline XBRL document and include in Exhibit 101)   39 Table of Contents   SIGNATURES   Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.     NATIONAL HEALTHCARE CORPORATION   (Registrant)         Date: August 5, 2021 /s/ Stephen F. Flatt                        Stephen F. Flatt     Chief Executive Officer               Date: August 5, 2021 /s/ Brian F. Kidd                          Brian F. Kidd     Senior Vice President and Controller     (Principal Accounting Officer)             40