What changed in this filing

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Item 1. Financial Statements

2021-08-05 compared with 2021-05-06 · 579 added, 140 removed, 844 unchanged (46% of the section changed)

4 unchanged sentences

Three Months Ended

Six Months Ended

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  

Total costs and expenses

249,363  

249,093  

485,114  

489,412  

Income from operations

Other income:

13,795  

12,549  

29,017  

28,354  

Other income/(losses):

Non–operating income

Unrealized gains/(losses) on marketable equity securities

Income/(loss) before income taxes

Income tax (provision)/benefit

Net income/(loss)

11,846  

12,392  

Gains on acquisitions of equity method investments

95,202  

Unrealized (losses)/gains on marketable equity securities

20,053  

Income before income taxes

108,094  

38,556  

136,635  

Income tax provision

105,330  

28,522  

126,638  

Net income attributable to noncontrolling interest

Net income/(loss) attributable to National HealthCare Corporation

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

Net income attributable to National HealthCare Corporation

$ 104,883  

$ 28,324  

$ 126,150  

$ 1,472  

Earnings per share attributable to National HealthCare Corporation stockholders:

$ 6.83  

$ 1.85  

$ 8.22  

$ 0.10  

$ 6.80  

$ 1.84  

$ 8.19  

$ 0.10  

Weighted average common shares outstanding:

15,349,162  

15,307,105  

15,338,400  

15,300,941  

15,419,012  

15,372,430  

15,404,634  

15,367,464  

Dividends declared per common share

$ 0.52  

$ 1.04  

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

4 unchanged sentences

Three Months Ended

Net income/(loss)

Other comprehensive loss:

Unrealized losses on investments in marketable debt securities

Six Months Ended

$ 105,330  

$ 28,522  

$ 126,638  

$ 1,706  

Other comprehensive income:

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

Reclassification adjustment for realized gains on sales of marketable debt securities

Income tax benefit related to items of other comprehensive income

Other comprehensive loss, net of tax

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

Other comprehensive income/(loss), net of tax

Net income attributable to noncontrolling interest

Comprehensive income/(loss) attributable to National HealthCare Corporation

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.

2 unchanged sentences

(in thousands)

March 31, 2021

Current Assets:

Cash and cash equivalents

$ 134,692  

$ 147,093  

Restricted cash and cash equivalents, current portion

14,093  

Marketable equity securities

128,666  

128,590  

Marketable debt securities

33,651  

47,762  

Restricted marketable equity securities

25,174  

Restricted marketable debt securities, current portion

16,839  

16,601  

Accounts receivable

97,811  

89,670  

Prepaid expenses and other assets

1 unchanged sentence

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

Net property and equipment

519,617  

520,318  

Other Assets:

1 unchanged sentence

Restricted marketable debt securities, less current portion

115,856  

125,472  

Deposits and other assets

Operating lease right-of-use assets

168,572  

179,055  

168,295  

21,341  

Intangible assets

Notes receivable, less current portion

12,093  

Investments in unconsolidated companies

40,782  

Total other assets

471,845  

385,059  

$ 1,457,369  

$ 1,362,132  

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

2 unchanged sentences

(in thousands, except share and per share amounts)

March 31, 2021

Liabilities and Stockholders ’

71 unchanged sentences

in thousands)   

Three Months Ended

Six Months Ended

Cash Flows From Operating Activities:

Net income/(loss)

$ 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

1 unchanged sentence

Unrealized (gains)/losses on marketable equity securities

40,339  

Gains on sale of marketable debt securities

4 unchanged sentences

Accounts receivable

Federal income tax receivable

Prepaid expenses and other assets

4 unchanged sentences

Provider relief funds

19,294  

Contract liabilities

50,992  

Other current liabilities

11,979  

Other noncurrent liabilities

Net cash provided by operating activities

40,122  

154,727  

Cash Flows From Investing Activities:

Purchases of property and equipment

Acquisition of equity method investment, net of cash acquired

Acquisitions of equity method investments, net of cash acquired

Investments in unconsolidated companies

3 unchanged sentences

Proceeds from sale of marketable securities

44,939  

19,823  

Net cash used in investing activities

1 unchanged sentence

Borrowings under credit facility

40,000  

Repayments under credit facility

Principal payments under finance lease obligations

3 unchanged sentences

Repurchase of common shares

Entrance fee refunds

Net cash (used in)/provided by financing activities

Entrance fee (refunds) deposits

Net cash used in financing activities

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

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.

10 unchanged sentences

$ 3,083  

Net income/(loss)

Equity contributed by noncontrolling interest

$ 798,260  

21,267  

21,308  

Other comprehensive loss

10 unchanged sentences

$ 3,135  

$ 3,124  

$ 810,188  

104,883  

105,330  

Contributions attributable to noncontrolling interest

Other comprehensive income

Stock–based compensation

Shares sold –

options exercised

33,100  

Dividends declared to common stockholders ( $0.52 per share)

Balance at June 30, 2021

15,423,240  

$ 230,248  

$ 673,151  

$ 3,288  

$ 6,411  

$ 913,252  

Comprehensive

6 unchanged sentences

$ 779,069  

Net (loss) income

Contributions attributable to noncontrolling interest

Other comprehensive loss

Stock–based compensation

Shares sold –

options exercised

15,006  

Repurchase of common shares

Dividends declared to common stockholders ( $0.52 per share)

Balance at March 31, 2020

15,346,601  

$ 223,600  

Other comprehensive loss

$ 518,261  

$ 743,355  

28,324  

28,522  

Contributions attributable to noncontrolling interest

Other comprehensive income

Stock–based compensation

4 unchanged sentences

Dividends declared to common stockholders ( $0.52 per share)

Balance at March 31, 2021

Balance at June 30, 2020

15,357,488  

7 unchanged sentences

Notes to Interim Condensed Consolidated Financial Statements

March 31, 2021

June 30, 2021

(unaudited)  

3 unchanged sentences

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

As of March 31, 2021, we operate or manage, through certain affiliates, 75 skilled nursing facilities with a total of 9,463 licensed beds, 24 assisted living facilities, five independent living facilities, one behavioral health hospital, and 35 homecare programs.

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.

We also have a noncontrolling ownership interest in a hospice care business that services NHC-owned skilled nursing facilities and others.

In addition, we provide insurance services, management and accounting services, and we lease properties to operators of skilled nursing and assisted living facilities.

24 unchanged sentences

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, and home health care services.

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.

9 unchanged sentences

Credit losses are recorded as bad debt expense, which is included as a component of other operating expenses in the interim condensed consolidated statements of operations.

Bad debt expense was $ 919,000 and $ 830,000 for the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, and December 31, 2020, the Company has recorded allowance for doubtful accounts of $ 6,268,000 and $ 5,672,000 , respectively, as our best estimate of expected losses inherent in the accounts receivable balance.

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

13 unchanged sentences

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 services.

( 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”

7 unchanged sentences

With the Company being a healthcare provider, the majority of our expenses are "cost of revenue" items.

Costs that could be classified as "general and administrative" by the Company would include its corporate office costs, excluding stock-based compensation, which were $ 5,369,000 and $ 5,498,000  for the three months ended March 31, 2021 and 2020, respectively.

Costs that could be classified as "general and administrative" by the Company would include its corporate office costs, excluding stock-based compensation, which were $ 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 offices, and pharmacy warehouses.

The original terms of the leases typically range from two to fifteen years.

17 unchanged sentences

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. 

At March 31, 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 March 31, 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.

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   

19 unchanged sentences

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

As of March 31, 2021, and December 31, 2020, we have recorded refundable entrance fees in the amount of $ 7,334,000 and $ 7,462,000 , respectively.

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 March 31, 2021, and December 31, 2020, we have recorded a future service obligation liability in the amount of $2,177,000.

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. 

20 unchanged sentences

In early March 2020, COVID- 19, a disease caused by the novel strain of the coronavirus, was characterized as a pandemic by the World Health Organization.

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

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

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

The pandemic and these containment measures had an adverse impact on the Company's results of operations in 2020 and for the three months ended March 31, 2021.

For the first time since the beginning of the COVID- 19 pandemic, the census in our skilled nursing facilities increased approximately 3.5 % from January 1, 2021 through 

March 31, 2021. 

We began our first vaccination clinics in our skilled nursing facilities around the middle of December 2020.

March 31, 2021, each of our 75  skilled nursing facilities had hosted at least three vaccination clinics onsite for our patients and partners (employees).

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.   

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

1 unchanged sentence

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.

During the three months ending March 31, 2021, we received additional disbursements from the Provider Relief Fund which totaled $ 30,191,000 .

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

The Company recorded $ 22,749,000  of government stimulus income from the Provider Relief Funds for the three  months ended March 31, 2021. 

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.

1 unchanged sentence

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

As of March 31, 2021, amounts not recognized as income are $ 23,510,000  and are reflected in the current liability section of our interim condensed consolidated balance sheet (provider relief funds).

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;

3 unchanged sentences

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

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

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.

2 unchanged sentences

Recoupment of the accelerated payments began in the second quarter of 2021.

As of March 31, 2021, the accelerated payments are reflected within contract liabilities in the interim condensed consolidated balance sheet as the related performance obligations have not been completed.

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 March 31, 2021.

On April 14, 2021, Congress extended the Medicare sequestration suspension period to December 31, 2021.

1 unchanged sentence

The provision requires that the deferred taxes be paid over a two -year period with half the amount required to be paid by December 31, 2021, and the other half by December 31, 2022.

At March 31, 2021, we have deferred $ 21,153,000 of the Company’s share of the social security taxes. 

At March 31, 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 from many of the states in which we operate a supplemental Medicaid payment to help mitigate the incremental costs resulting from the COVID- 19 public health emergency.

For the three months ended March 31, 2021, we have recorded $ 3,955,000 in net patient revenues in our interim condensed consolidated statements of operations for these supplemental Medicaid payments.

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”.

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 ):

Cash and cash equivalents

$ 15,515  

Restricted cash and cash equivalents

Accounts receivable

10,544  

Prepaid expenses and other assets

Property and equipment

Operating lease –

right-of-use assets

Intangible assets

Total assets acquired

39,369  

Trade accounts payable

Accrued payroll

Other current liabilities

Operating lease liabilities

Other noncurrent liabilities

Total liabilities assumed

Net identifiable assets acquired

30,442  

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

Six Months Ended

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

Income before income taxes

13,834  

39,574  

43,327  

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.

1 unchanged sentence

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 services (in thousands) .

Three Months Ended

Six Months Ended

Net patient revenues:

4 unchanged sentences

$ 445,374  

Homecare and hospice services

18,116  

11,284  

31,728  

24,392  

Total net patient revenue

1 unchanged sentence

$ 225,671  

For inpatient services, revenue is recognized on a daily basis as each day represents a separate contract and performance obligation.

$ 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.

8 unchanged sentences

Three Months Ended

Six Months Ended

Private Pay and Other

5 unchanged sentences

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.

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

4 unchanged sentences

For private pay patients in skilled nursing, assisted living and independent living facilities, the Company bills for room and board charges, with the remittance being due on receipt of the statement and generally by the 10th day of the month the services are performed.

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

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

Contract Liabilities

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

As of March 31, 2021 and December 31, 2020, the Company has recorded $ 51,253,000 in contract liabilities related to receipts from the Medicare Accelerated and Advance Payment Program. 

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.

3 unchanged sentences

Payments received

Payments recognized

Balance at March 31, 2021

Payments recouped

Balance at June 30, 2021

$ 40,121  

8 unchanged sentences

We believe that any differences between the net revenues recorded and final determination will not materially affect the consolidated financial statements.

We have made provisions of approximately $ 15,574,000 and $ 16,454,000 as of March 31, 2021 and December 31, 2020, respectively, for various Medicare, Medicaid, and Managed Care claims reviews and current and prior year cost reports.

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 –

7 unchanged sentences

Three Months Ended

Six Months Ended

Rental income

1 unchanged sentence

$ 5,646  

$ 11,161  

$ 11,325  

Management and accounting services fees

3 unchanged sentences

$ 11,323  

$ 22,425  

$ 23,352  

Rental Income

4 unchanged sentences

Three Months Ended

Six Months Ended

Operating lease payments

1 unchanged sentence

$ 5,505  

$ 10,809  

$ 11,008  

Variable lease payments

2 unchanged sentences

$ 5,646  

Management Fees from National

We manage five skilled nursing facilities owned by National.

For the three months ended March 31, 2021 and 2020, we recognized management fees and interest on management fees of $ 896,000 and $ 1,537,000 from these centers, respectively.

$ 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 ended March 31, 2021 and 2020 were $ 753,000 and $ 779,000 , respectively.

compensation insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months and six months ended June 30, 2021 were $ 766,000 and $ 1,518,000 , respectively.

For workers’

Associated losses and expenses are reflected in the interim condensed consolidated statements of operations as "Salaries, wages and benefits."

For professional liability insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020 were $ 511,000 and $ 603,000 , 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, 2021 were $ 511,000 and $ 1,023,000 , respectively.

Associated losses and expenses including those for self–insurance are included in the interim condensed consolidated statements of operations as "Other operating costs and expenses".

3 unchanged sentences

Three Months Ended

Six Months Ended

Equity in earnings of unconsolidated investments

1 unchanged sentence

$ 2,618  

$ 5,306  

$ 5,429  

Dividends and net realized gains on sales of securities

Interest income

Gains on acquisitions of equity method investments

Total non-operating income

1 unchanged sentence

$ 5,954  

Caris HealthCare, L.P.

Our most significant equity method investment is a 75.1 % non–controlling ownership interest in Caris, a business that specializes in hospice care services. The carrying value of our investment is $ 35,480,000 and $ 38,916,000 at March 31, 2021 and December 31, 2020, respectively.

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

Summarized financial information of Caris for the three months ended March 31, 2021 and 2020 is provided below (in thousands):

Three Months Ended

$ 11,846  

$ 12,392  

11,946  

12,356  

$ 3,282  

$ 3,470  

Gains on Acquisitions of Equity Method Investments

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

We previously held a 25 % noncontrolling interest in the facility and accounted for the investment as an equity method investment.

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

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

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

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

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.

Note 8 –

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( 1 ) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and our behavioral health hospital;

and ( 2 ) homecare services.

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.

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

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Net patient revenues

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10,482  

17,749  

156,804  

Other operating

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Non-operating income

Gain on acquisition of equity method investment

95,202  

Unrealized losses on marketable equity securities

Income before income taxes

$ 22,661  

$ 3,095  

$ 82,338  

$ 108,094  

Three Months Ended June 30, 2020

Revenues and grant income:

Net patient revenues

$ 214,387  

$ 11,284  

$ 225,671  

Other revenues

11,196  

11,323  

Government stimulus income

22,622  

24,648  

Net operating revenues and grant income

237,136  

13,310  

11,196  

261,642  

Costs and expenses:

Salaries, wages, and benefits

136,380  

12,571  

156,914  

Other operating

63,999  

70,861  

10,320  

Depreciation and amortization

10,545  

Total costs and expenses

218,751  

12,857  

17,485  

249,093  

Income (loss) from operations

18,385  

12,549  

Non-operating income

Unrealized gains on marketable equity securities

20,053  

Income before income taxes

2 unchanged sentences

$ 38,556  

Six Months Ended June 30, 2021

Revenues and grant income:

Net patient revenues

$ 422,103  

Three Months Ended March 31, 2020

$ 31,728  

$ 453,831  

Other revenues

22,230  

22,425  

Government stimulus income

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  

142,196  

16,472  

20,233  

Depreciation and amortization

18,490  

20,292  

Total costs and expenses

422,742  

26,889  

35,483  

485,114  

Income (loss) from operations

37,431  

29,017  

Non-operating income

11,846  

Gain on acquisition of equity method investment

95,202  

Unrealized gains on marketable equity securities

Income before income taxes

$ 37,431  

$ 4,839  

$ 94,365  

$ 136,635  

Six Months Ended June 30, 2020

Revenues and grant income:

Net patient revenues

5 unchanged sentences

23,352  

Net operating revenues

Government stimulus income

22,622  

24,648  

Net operating revenues and grant income

468,557  

26,418  

22,791  

517,766  

Costs and expenses:

2 unchanged sentences

16,279  

16,509  

304,383  

Other operating

2 unchanged sentences

16,757  

20,652  

Depreciation and amortization

19,197  

20,983  

Total costs and expenses

2 unchanged sentences

26,508  

Income from operations

489,412  

Income (loss) from operations

31,156  

28,354  

Non-operating income

12,392  

Gain on acquisition of equity method investment

Unrealized losses on marketable equity securities

1 unchanged sentence

$ 31,156  

$ 2,115  

Note 9 –

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Operating Leases

At March 31, 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.

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 $ 9,411,000 and $ 9,655,000 for the three months ended March 31, 2021 and 2020, respectively.

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.

Finance Leases

At March 31, 2021, we leased and operated three senior healthcare facilities in the state of Missouri under three separate lease agreements.

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.

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Minimum Lease Payments

The following table summarizes the maturity of our finance and operating lease liabilities as of March 31, 2021 ( in thousands ):

The following table summarizes the maturity of our finance and operating lease liabilities as of June 30, 2021 ( in thousands ):

$ 5,200  

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

Three Months Ended

Three Months Ended June 30

Six Months Ended June 30

Weighted average common shares outstanding

1 unchanged sentence

15,307,105  

Net income/(loss) attributable to National HealthCare Corporation

15,338,400  

Earnings/(loss) per common share, basic

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  

Weighted average common shares outstanding

1 unchanged sentence

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

1 unchanged sentence

15,372,430  

Net income/(loss) attributable to National HealthCare Corporation

15,404,634  

Earnings/(loss) per common share, diluted

15,367,464  

In the above table, options to purchase 634,780 shares of our common stock have been excluded for the three months ended March 31, 2021 due to their anti-dilutive impact.   

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.

Note 11 –

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Marketable securities consist of the following (in thousands) :

March 31, 2021

June 30, 2021

December 31, 2020

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Marketable equity securities

24,783  

25,174  

Corporate debt securities

20 unchanged sentences

323,105  

$ 218,396  

323,105  

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

March 31, 2021

June 30, 2021

December 31, 2020

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

March 31, 2021

June 30, 2021

December 31, 2020

18 unchanged sentences

$ 189,835  

Gross unrealized gains related to marketable equity securities are $ 105,464,000 and $ 98,445,000 as of March 31, 2021 and December 31, 2020, respectively.

Gross unrealized losses related to marketable equity securities are $ 94,000 and $ 134,000 as of March 31, 2021 and December 31, 2020, respectively.

For the three months ended March 31, 2021 and 2020, the Company recognized a net unrealized gain of $ 7,059,000 and a net unrealized loss of $ 60,392,000 , 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 $ 4,973,000 and $ 6,759,000 as of March 31, 2021 and December 31, 2020, respectively.

Gross unrealized losses related to available for sale marketable debt securities are $ 1,015,000 and $ 361,000 as of March 31, 2021 and December 31, 2020, respectively.

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.

The Company has not recognized any credit related impairments for the three months ending March 31, 2021 and 2020.

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 three months ended March 31, 2021 and 2020 were $ 6,086,000 and $ 3,410,000 , respectively.

No investment gains were reported on these sales during the three months ended March 31, 2021 and $ 2,000 of investment gains were realized on these sales during the three months ended March 31, 2020.

No sales were reported for marketable equity securities for the three months ended March 31, 2021 and 2020, respectively.

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 –

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

The following table summarizes fair value measurements by level at March 31, 2021 and December 31, 2020 for assets and liabilities measured at fair value on a recurring basis (in thousands) :

The following table summarizes fair value measurements by level at June 30, 2021 and December 31, 2020 for assets and liabilities measured at fair value on a recurring basis (in thousands) :

Fair Value Measurements Using

March 31, 2021

June 30, 2021

For Identical

19 unchanged sentences

State and municipal securities

11,097  

Total financial assets

33 unchanged sentences

$ 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 ):

Homecare and Hospice

January 1, 2021

$ 3,741  

$ 17,600  

$ 21,341  

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 three months ended March 31, 2021, the Company repurchased 3,936 shares of its common stock for a total cost of $ 278,000 .

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.

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NHC recognizes stock–based compensation expense for all stock options granted over the requisite service period using the fair value at the date of grant using the Black–Scholes pricing model.

Stock–based compensation totaled $ 496,000 and $ 466,000 for the three months ended March 31, 2021 and 2020, respectively.

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 March 31, 2021, the Company had $ 2,637,000 of unrecognized compensation cost related to unvested stock–based compensation awards.

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

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 three months ended March 31, 2021 and for the year ended December 31, 2020.

March 31, 2021

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.

Risk–free interest rate

0.21 %  

0.87 %  

Expected volatility

35.1 %  

20.1 %  

Expected life, in years

1 unchanged sentence

3.01 %  

2.91 %  

The following table summarizes our outstanding stock options for the three months ended March 31, 2021 and for the year ended December 31, 2020.

The following table summarizes our outstanding stock options for the six months ended June 30, 2021 and for the year ended December 31, 2020.

Exercise Price

12 unchanged sentences

Options cancelled

Options outstanding at March 31, 2021

Options outstanding at June 30, 2021

768,885  

1 unchanged sentence

$ 648,212  

Options exercisable at March 31, 2021

Options exercisable at June 30, 2021

222,686  

1 unchanged sentence

$ 580,540  

March 31, 2021

June 30, 2021

Exercise Prices

9 unchanged sentences

Note 16 –

The Company's income tax provision as a percentage of our income before income taxes was 25.3 % and 26.4 % for the three months ended March 31, 2021 and 2020, respectively. 

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 ended March 31, 2021 and 2020, the accrual of state income taxes was the only significant reconciling item.

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.  

6 unchanged sentences

compensation and general and professional liability insurance claims both for our owned and leased entities and certain of the entities to which we provide management or accounting services.

The liability we have recognized for reported claims and estimates for incurred but unreported claims totals $ 101,481,000 and $ 99,537,000 at March 31, 2021 and December 31, 2020, respectively.

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.

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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.

2:20 -CV- 00877 -AMM (N.D.

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

5 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements