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Item 8. Financial Statements and Supplementary Data

2023-02-17 compared with 2022-02-18 · 317 added, 421 removed, 1212 unchanged (38% of the section changed)

3 unchanged sentences

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of National HealthCare Corporation (the Company) as of December 31, 2021 and 2020, and the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of National HealthCare Corporation (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). 

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 17, 2023 expressed an unqualified opinion thereon.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that response to those risks.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. 

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. 

We believe that our audits provide a reasonable basis for our opinion. 

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

1 unchanged sentence

Estimation of Professional Liability Claims Reserves

Description of the

Description of the Matter

The Company’s accrued risk reserves totaled $102,469,000 as of December 31, 2022.

25 unchanged sentences

Depreciation and amortization

Impairment of assets

Impairment (recovery) of assets

Total costs and expenses

3 unchanged sentences

Gain on acquisitions of equity method investments

Unrealized gains (losses) on marketable equity securities

Unrealized losses on marketable equity securities

Income before income taxes

23 unchanged sentences

Cash and cash equivalents

$ 58,667  

$ 107,607  

Restricted cash and cash equivalents, current portion

15,121  

10,407  

Marketable equity securities

100,786  

113,108  

Marketable debt securities

23,136  

35,310  

Restricted marketable equity securities

22,358  

26,958  

Restricted marketable debt securities, current portion

16,244  

20,727  

Accounts receivable

99,986  

96,124  

Prepaid expenses and other assets

Notes receivable, current portion

10,244  

Notes receivable

Total current assets

353,932  

426,638  

Property and Equipment:

Property and equipment, at cost

1,081,219  

1,064,337  

Accumulated depreciation and amortization

Net property and equipment

506,532  

520,996  

Other Assets:

1 unchanged sentence

Restricted marketable debt securities, less current portion

103,267  

116,063  

Deposits and other assets

12,728  

Operating lease –

right-of-use assets

120,521  

156,116  

168,295  

Intangible assets

Notes receivable, less current portion

Investments in unconsolidated companies

Total other assets

414,986  

455,762  

$ 1,275,450  

$ 1,403,396  

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

24 unchanged sentences

Provider relief funds

16,068  

Contract liabilities

15,022  

51,253  

Dividends payable

3 unchanged sentences

Finance lease obligations, less current portion

10,540  

Operating lease liabilities, less current portion

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45,000,000 shares authorized;

15,452,033 and 15,369,745 shares, respectively, issued and outstanding  

15,357,746 and 15,452,033 shares, respectively, issued and outstanding

Capital in excess of par value

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669,078  

Accumulated other comprehensive income

Accumulated other comprehensive income (loss)

Total National HealthCare Corporation stockholders’

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Cash Flows From Operating Activities:

$ 19,977  

$ 139,087  

$ 41,990  

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

Depreciation and amortization

40,489  

40,672  

42,018  

Equity in earnings of unconsolidated investments

Distributions from unconsolidated investments

Unrealized losses (gains) on marketable equity securities

Gains on sale of marketable securities

Gains on acquisitions of equity method investments

Gain on sale of skilled nursing facility

10,050  

Unrealized losses on marketable equity securities

15,806  

13,863  

23,966  

(Gains) losses on sale of marketable securities

Gains on acquisition of equity method investments

Gain on sale of property and equipment

Impairment (recovery) of assets

( 3,728 )  

Deferred income taxes

Impairment of assets

Stock–based compensation

1 unchanged sentence

Accounts receivable

Federal income tax receivable

Prepaid expenses and other assets

Operating lease obligations

Trade accounts payable

Accrued payroll

17,292  

15,948  

Amounts due to third party payors

1 unchanged sentence

Provider relief funds

16,068  

Contract liabilities

51,253  

Other current liabilities

1 unchanged sentence

Net cash provided by operating activities

62,394  

203,259  

Cash Flows From Investing Activities:

Purchases of property and equipment

Proceeds from the sale of skilled nursing facility

Proceeds from the sale of property and equipment

Investments in unconsolidated companies

Acquisitions of equity method investments

Acquisition of equity method investments

Investments in notes receivable

2 unchanged sentences

Sale of marketable securities

49,961  

101,920  

40,994  

Net cash used in investing activities

1 unchanged sentence

Borrowings under credit facility

40,000  

Principal payments under credit facility

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

97,492  

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

119,743  

158,502  

61,010  

Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, End of Period

$ 74,865  

$ 119,743  

$ 158,502  

Balance Sheet Classifications:

Cash and cash equivalents

$ 58,667  

$ 107,607  

$ 147,093  

Restricted cash and cash equivalents

16,198  

12,136  

11,409  

Total Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents

$ 74,865  

$ 119,743  

$ 158,502  

NATIONAL HEALTHCARE CORPORATION

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Cash payments for interest

$ 1,425  

$ 3,118  

Cash payments for income taxes

22,881  

16,524  

20,889  

Non-cash activities include:

 Noncontrolling interest contribution of land  

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

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Balance at January 1, 2020

15,255,002  

$ 219,435  

$ 516,435  

$ 1,179  

$ 734,457  

68,211  

( 235 )  

67,976  

Distributions attributable to noncontrolling interest

Contributions attributable to noncontrolling interest

Other comprehensive income

2 unchanged sentences

options exercised

87,600  

Repurchase of common shares

1 unchanged sentence

Balance at January 1, 2021

15,332,206  

$ 222,787  

$ 553,093  

$ 2,560  

$ 779,069  

41,871  

41,990  

Contributions attributable to noncontrolling interest

Other comprehensive income

Other comprehensive loss

Stock–based compensation

1 unchanged sentence

options exercised

38,336  

Repurchase of common shares

1 unchanged sentence

Balance at January 1, 2022

15,369,745  

$ 226,943  

$ 563,024  

$ 5,057  

$ 3,083  

$ 798,260  

138,590  

139,087  

Net income (loss)

Contributions attributable to noncontrolling interest

3 unchanged sentences

options exercised

90,725  

Repurchase of common shares

1 unchanged sentence

Balance at December 31, 2022

15,452,033  

$ 232,167  

$ 669,078  

$ 1,605  

$ 5,456  

$ 908,460  

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

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Nature of Operations

National HealthCare Corporation ("NHC" or "the Company") operates, manages or provides services to skilled nursing facilities, assisted living facilities, independent living facilities, home health care agencies, hospice agencies, and a behavioral health hospital located in 10 Southeastern, Northeastern and Midwestern states in the United States.

The most significant part of our business relates to skilled and intermediate nursing care in which setting we also provide assisted living and retirement services, rehabilitative therapy services, memory and Alzheimer's care services, home health care, and hospice services.

National HealthCare Corporation ("NHC" or "the Company") operates, manages or provides services to skilled nursing facilities, assisted living facilities, independent living facilities, home health care agencies, hospice agencies, and behavioral health hospitals located in 8 Southeastern and Midwestern states in the United States.

The most significant part of our business relates to skilled and intermediate nursing care settings in which we also provide assisted living and retirement services, rehabilitative therapy services, memory and Alzheimer's care services, home health and hospice services, and behavioral health services.

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

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Principles of Consolidation and Basis of Presentation

The consolidated financial statements, which are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), include our wholly owned and controlled subsidiaries and affiliates.

The consolidated financial statements, which are prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”), include our wholly owned and controlled subsidiaries and affiliates.

All significant intercompany transactions and balances have been eliminated in consolidation.

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The preparation of financial statements in conformity with U.S.

GAAP requires management 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 COVID- 19.

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.

Net Patient Revenues and Accounts Receivable

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Additionally, there may be ancillary services which are not included in the daily rates for routine services, but instead are treated as separate performance obligations satisfied at a point in time when those services are rendered.

Contract liabilities are recorded for payments the Company receives in which performance obligations have not been completed.

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

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.  Subsequent changes resulting from a patient’s ability to pay are recorded as bad debt expense, which is included as a component of other operating expenses in the consolidated statements of operations.

Contract liabilities are recorded for payments the Company receives in which performance obligations have not been completed. 

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

Explicit price concessions 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 consolidated statements of operations.

Bad debt expense was $ 4,711,000 , $ 3,886,000 , and $ 3,339,000 for years ended December 31, 2022, 2021, and 2020, respectively. 

As of December 31, 2021, and 2020, the Company has recorded an allowance for doubtful accounts of $ 6,411,000 and $ 5,672,000 , respectively, as our best estimate of probable losses inherent in the accounts receivable balance.

As of December 31, 2022, and 2021, the Company has recorded allowance for doubtful accounts of $ 6,246,000 and $ 6,411,000 , respectively, as our best estimate of probable losses inherent in the accounts receivable balance.

Other Revenues

As discussed in Note 5, other revenues include revenues from the provision of insurance services, management and accounting services to other long–term care providers, and rental income.

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 long–term care center under contract.

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.

1 unchanged sentence

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.

We 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.

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.

( 1 ) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and behavioral health hospitals, 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 7 for further disclosure of the Company’s operating segments.

See Note 6 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, professional insurance and licensing fees.

The primary facility costs include utilities and property insurance.

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

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Cash and Cash Equivalents

Cash equivalents include highly liquid investments with an original maturity of three months or less when purchased.

Restricted Cash and Cash Equivalents and Restricted Marketable Securities

7 unchanged sentences

If a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

Realized gains and losses from securities are recognized in results of operations upon disposition of the securities using the specific identification method on a trade date basis.

Inventories consist generally of food and supplies and are valued at the lower of cost or market, with cost determined on a first–in, first–out (FIFO) basis.

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If necessary, impairment is measured as the amount by which the carrying amount exceeds the discounted cash flows expected to be received under the note receivable or, if foreclosure is probable, the fair value of the collateral securing the note receivable.

For the year ended December 31, 2022, the Company recorded a recovery of a note receivable of $ 3,728,000 due to the borrower paying off the note.

For the year ended December 31, 2021, the Company recorded a credit loss provision for this same note receivable of $3,728,00 due to the financial instability of the borrower. 

The recovery and credit loss provision of the note receivable is recorded in the consolidated statements of operations under the line item “impairment (recovery) of assets”. 

Property and Equipment

1 unchanged sentence

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 –

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.

7 unchanged sentences

Management has evaluated long-lived assets and determined there were impairment charges of $ 0 , $ 4,497,000 , and $ 0 during the years ended December 31, 2022, 2021, and 2020, respectively.

The impairment charges are recorded in the consolidated statements of operations under the line item “impairment of assets”.

The 2021 impairment charges were recorded in the consolidated statements of operations under the line item “impairment of assets”

and were due to the August 2022 exit of the seven skilled nursing facilities in Massachusetts and New Hampshire.

Business Combinations

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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.

Goodwill generated from acquisitions is recognized for the excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed.

In determining the fair value of identifiable assets, we use various valuation techniques.

1 unchanged sentence

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.

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 the inception of a contract.

We determine the lease term by assuming exercise of renewal options that are reasonably certain to be exercised.

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

We recognize lease components and non-lease components together and not as separate parts of a lease for real estate leases.

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.

The Company records right-of-use assets and liabilities 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 and are expensed on a straight-line basis over the lease term.

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 values 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 healthcare facility are not included in determining the right-of-use assets and lease liabilities.

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.

Goodwill and Other Intangible Assets

The Company accounts for goodwill under ASC Topic 350, Intangibles –

Goodwill and Other .

Goodwill represents the excess of purchase price over the fair value of identifiable net assets acquired in business combinations.

Goodwill represents the excess of the 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.

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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, 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

The Company’s indefinite-lived intangible assets consist of trade names and certificates of need and licenses.

Accrued Risk Reserves

7 unchanged sentences

Our health insurance reserve is based on our known claims incurred and an estimate of incurred but unreported claims determined by our analysis of historical claims paid.

We reassess our accrued risk reserves on a quarterly basis, with changes in estimated losses being recorded in the consolidated statements of operations in the period first identified.

Other Current Liabilities

Other current liabilities primarily represent accruals for current federal and state income taxes, real estate taxes and other current liabilities.

Continuing Care Contracts and Refundable Entrance Fees    

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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 other noncurrent liabilities in the Company's consolidated balance sheets.

The balances of refundable entrance fees as of December 31, 2021 and December 

31, 2020 were $ 7,011,000 and $ 7,462,000 , respectively.

Refundable entrance fees are not included as part of the transaction price and are classified as refundable entrance fees in the Company's consolidated balance sheets.

The balances of refundable entrance fees as of December 31, 2022 and December 31, 2021 were $ 6,207,000 and $ 7,011,000 , respectively.

We annually estimate the present value of the net 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.

1 unchanged sentence

The obligation to provide future services is included in other noncurrent liabilities in the Company’s consolidated balance sheets.

At December 31, 2021 and 2020, we have recorded a future service obligation in the amounts of $ 2,338,000 and $2,177,000, respectively.

At December 31, 2022 and 2021, we have recorded a future service obligation in the amounts of $ 2,218,000 and $ 2,338,000 , respectively. 

Other Noncurrent Liabilities

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The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

See Note 15 for further discussion of our accounting for income taxes.

See Note 13  for further discussion of our accounting for income taxes.

Also, under ASC Topic 740, Income Taxes , tax positions are evaluated for recognition using a more–likely–than–not threshold, and those tax positions requiring recognition are measured at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.

31 unchanged sentences

We evaluate the need to provide reserves for potential credit losses on our financial instruments based on management's periodic review of the portfolio on an instrument-by-instrument basis.

Recently Adopted Accounting Guidance

On November 17, 2021, the FASB issued ASU No.

2021 - 10, Government Assistance (Topic 832 ):

Disclosures by Business Entities about Government Assistance, which aims to provide increased transparency by requiring businesses to disclose information about certain types of government assistance they receive in the notes to the financial statements.

2021 - 10 requires business entities to provide these disclosures when they have ( 1 ) have received government assistance and ( 2 ) use a grant or contribution accounting model by analogy to other accounting guidance.

2021 - 10 is effective for reporting periods beginning after December 15, 2021, with early adoption permitted.

The Company adopted the standard as of January 1, 2021 and has included the appropriate disclosures in our notes to the financial statements.

Reclassifications

Certain accounts in the prior-year financial statements have been reclassified for comparative purposes to conform to the presentation in the current-year financial statements. 

Note 2 –

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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 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.

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 $ 63,360,000  and $ 47,505,000 of government stimulus income from the Provider Relief Funds for the years ended December 31, 2021 and 2020, respectively. 

The 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 PPPCHE, the federal government 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 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 are used for healthcare-related expenses or lost revenue attributable to COVID- 19.

The Company recorded $ 11,457,000 , $ 63,360,000  and $ 47,505,000 of government stimulus income from the Provider Relief Funds for the years ended December 31, 2022, 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 December 31, 2021 and 2020, amounts not recognized as income are $ 9,443,000 and $ 16,068,000 , respectively, and are reflected in the current liability section of our 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 we will fully utilize the remaining $9,443,000 of provider relief funds before the reporting requirement deadline that is required by the U.S.

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 nine 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 December 31, 2021, $ 15,022,000 of the accelerated payments remain and is reflected within contract liabilities in the consolidated balance sheet.

The CARES Act and subsequent related legislation temporarily suspended Medicare sequestration beginning May 1, 2020 through March 

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.

In the second quarter of 2020, we received approximately $ 51,253,000 as part of this program.

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

The Company repaid $ 36,231,000 of the funds in 2021 and the remaining $ 15,022,000 of the funds in 2022.

The CARES Act and subsequent related legislation temporarily suspended Medicare sequestration beginning May 1, 2020 through March 31, 2022.

The Medicare sequestration policy reduces fee-for-service Medicare payments by 2 percent.

Beginning April 1, 2022, the sequestration reductions will then be 1% from April 1, 2022 through June 30, 2022. 

The full 

2% reduction is scheduled to go back into effect July 1, 2022.  

The CARES Act extends the sequestration policy through 2030 in exchange for this temporary suspension, which the sequestration reduction for 2030 has been increased up to 3%.

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.

Beginning April 1, 2022, the sequestration reductions were 1% from April 1, 2022 through June 30, 2022.

The full 2% reduction went back into effect July 1, 2022.

The CARES Act extends the sequestration policy through 2030 in exchange for this temporary suspension, which the sequestration reduction for 2030 has been increased up to 3%.

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 have been 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 December 31, 2021, we have deferred $ 10,545,000 of the Company’s share of the social security taxes included in the current liabilities section of the consolidated balance sheet.

The Company paid $ 10,613,000 during the year ended December 31, 2021 and the remaining $ 10,545,000 during the year ended December 31, 2022.

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.

1 unchanged sentence

Note 3 –

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 will provide 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 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 fair market valuation analysis and determine the fair value of the previously held equity method investment.

The Company has performed a valuation analysis of the fair market value of Caris’

assets to be acquired and liabilities to be assumed.

The following table summarizes the assets acquired and liabilities assumed 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

39,891  

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 the acquisition

$ 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 year ended December 31, 2021, Caris contributed net patient revenues of $ 39,746,000 and income before income taxes of $ 10,085,000 that are included in the Company’s consolidated statements of operations.

The following table contains unaudited pro forma consolidated statements of operations information for the years ended December 31, 2021, 2020, and 2019, assuming that the Caris acquisition closed on January 1, 2019 ( in thousands ). 

Net Patient Revenues

$ 993,498  

$ 994,559  

$ 1,008,920  

Other revenue

45,419  

48,978  

48,617  

Government stimulus income

63,373  

51,441  

Net operating revenues and grant income

1,102,290  

1,094,978  

1,057,537  

Total costs and expenses

1,044,583  

1,030,074  

994,764  

Income from operations

57,707  

64,904  

62,773  

Non-operating income

12,885  

14,446  

14,905  

Gain on acquisition of equity method investments

Unrealized gains (losses) on marketable equity securities

12,230  

Income before income taxes

56,729  

57,091  

91,883  

Income tax provision

45,286  

45,444  

70,838  

Net income (loss) attributable to noncontrolling interest

Net income attributable to NHC

$ 44,789  

$ 45,325  

$ 71,073  

Note 4 –

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 and hospice services (in thousands) .

Year Ended December 31,

3 unchanged sentences

$ 879,693  

Homecare and hospice services

Homecare services

128,854  

1 unchanged sentence

52,102  

Total net patient revenue

Total net patient revenues

$ 1,029,085  

6 unchanged sentences

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

3 unchanged sentences

Private Pay and Other

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 a temporary relief from the three -day hospital stay during the COVID- 19 emergency).

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.

1 unchanged sentence

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 episodes allowed.

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

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

For hospice services, Medicare pays a daily rate to cover the costs for providing services included in the patient care plan.

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.

8 unchanged sentences

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 facilities charges or specifically negotiated contracts.

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.

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

As of December 31, 2021 and 2020, the Company has recorded $ 15,022,000 and $ 51,253,000 , respectively, in contract liabilities related to receipts from the Medicare Accelerated and Advance Payment Program.

These funds began being 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 occurs through an automatic recoupment of twenty-five percent of Medicare payments.

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

Recoupment of the accelerated payments began in April 2021.

As of December 31, 2022 and 2021, the Company has recorded $ 0 and $ 15,022,000 , 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, January 1, 2021

Payments received

$ 51,253  

Payments recognized

Payments recouped

Balance, December 31, 2021

15,022  

Payments received

Payments recognized

Payments recouped

Balance, December 31, 2022

$ 15,022  

Third Party Payors

1 unchanged sentence

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 in compliance with all applicable laws and regulations.

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.

2 unchanged sentences

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

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 $ 16,631,000 and $ 17,595,000 as of December 31, 2022 and 2021, respectively, for various Medicare, Medicaid, and Managed Care claims reviews and current and prior year cost reports.

1 unchanged sentence

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.

2 unchanged sentences

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. 

Other revenues are outlined in the table below 

(in thousands):

"Other" revenues include miscellaneous health care related earnings ( in thousands ). 

Year Ended December 31,

8 unchanged sentences

Insurance services

Gain on sale of skilled nursing facility

Gain on sale of property and equipment

Total other revenues

4 unchanged sentences

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 8  –

Additionally, we sublease four Florida skilled nursing facilities included in our lease from National Health Investors (“NHI”) as noted in Note 7 –

Long Term Leases.

19 unchanged sentences

We have managed skilled nursing facilities for National since 1988, and we currently manage five facilities.

See Note 19 regarding our relationship with National.

See Note 17  regarding our relationship with National.

During 2022, 2021 and 2020, we recognized approximately $ 4,332,000 , $ 3,915,000 , and $ 4,729,000 , respectively, of management fees and interest on management fees.

6 unchanged sentences

Management Fees and Financial and Accounting Services for Other Healthcare Centers

During 2021, 2020 and 2019, we provided management services and financial and accounting services to certain healthcare facilities (in addition to the five National centers) operated by third party owners. 

For the years ended December 31, 2021, 2020 and 2019, we recognized management fees and financial and accounting fees of $ 13,224,000 , $ 12,418,000 , and $ 11,906,000 from these centers, respectively.

We provide management services and financial and accounting services to certain healthcare facilities (in addition to the five National centers) operated by third party owners.

For the years ended December 31, 2022, 2021 and 2020, we recognized management fees and financial and accounting fees of $ 11,828,000 , $ 13,224,000 , and $ 12,418,000 from these centers, respectively.

Insurance Services

4 unchanged sentences

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

Gain on sale of skilled nursing facility

In November 2020, the Company sold a skilled nursing facility located in Town & Country, Missouri.

The total consideration paid to the Company was $ 6,750,000 , which resulted in a gain of $ 2,784,000 .

Note 5 –

5 unchanged sentences

$ 12,342  

$ 9,744  

Dividends and net realized gains on sale of securities

Dividends and net realized gains or losses on the sale of securities

Interest income

5 unchanged sentences

Caris ”

On June 11, 2021, the Company acquired the remaining 24.9 % equity interest in Caris.

See Note 3 –

“Acquisition of Caris Healthcare, L.P.”

for further detail describing the acquisition.

On June 11, 2021, the Company acquired the remaining 24.9 % equity interest in Caris HealthCare, L.P.

(“Caris”).

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 is longer be accounted for as an equity method investment.

financial information is now included in the Company’s consolidated financial statements and is no longer accounted for as an equity method investment. 

Note 6 –

1 unchanged sentence

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 make (“CODM”), to assess performance and allocate resources.

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

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 1 - “

Summary of Significant Accounting Policies ”

category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. 

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 tables set forth the Company’s consolidated statements of operations by business segment (in thousands ):

Year Ended December 31, 2022

Homecare and Hospice

Net patient revenues

30 unchanged sentences

40,489  

Impairment of assets

Total costs and expenses

Recovery of assets  

( 3,728 )  

Total costs and expenses

902,103  

1 unchanged sentence

44,714  

Income (loss) before non-operating income

1,053,842  

Income before non-operating income

21,829  

3 unchanged sentences

11,141  

Gain on acquisition of equity method investment

95,202  

Unrealized losses on marketable equity securities

Income before income taxes

$ 61,424  

Income (loss) before income taxes

$ 9,721  

2 unchanged sentences

Year Ended December 31, 2021

Homecare and Hospice

Net patient revenues

30 unchanged sentences

40,672  

Impairment of assets

Total costs and expenses

6 unchanged sentences

19,069  

50,925  

Non-operating income

2 unchanged sentences

Gain on acquisition of equity method investment

95,202  

Unrealized losses on marketable equity securities

Income (loss) before income taxes

Income before income taxes

$ 61,424  

1 unchanged sentence

$ 69,545  

$ 150,038  

Year Ended December 31, 2020

6 unchanged sentences

48,917  

Net operating revenues

Government stimulus income

47,505  

Net operating revenues and grant income

930,601  

52,102  

45,514  

1,028,217  

Costs and Expenses:

8 unchanged sentences

10,513  

275,159  

Facility rent

17 unchanged sentences

Gain on acquisition of equity method investment

Unrealized gains on marketable equity securities

12,230  

Income before income taxes

$ 52,189  

Unrealized losses on marketable equity securities

Income (loss) before income taxes

$ 57,502  

3 unchanged sentences

Long –

As of December 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.

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

On January 1, 2007, a 15–year lease extension began which included three additional five–year renewal options.

In December 2012, NHC extended the lease agreement through the first of the three additional five–year renewal options, which extended the lease date through 2026.

The two additional five–year renewal options on the lease still remain.

Under the terms of the lease, base rent totals $ 30,750,000 annually with rent thereafter escalating by 4 % of the increase in facility revenue over a 2007 base year.

In September 2013 and under the second lease agreement, NHC began operating seven skilled nursing facilities in New Hampshire and Massachusetts.

The 15 -year lease term consists of base rent of $ 3,450,000 annually with rent escalating by 4 % of the increase in facility revenue over a 2014 base year.

Additionally, NHC has the option to purchase the seven facilities from NHI in the 13th year of the lease for a purchase price of $ 49,000,000 .

Base rent expense under both NHI lease agreements totals $ 34,200,000 annually.

Percentage rent under the leases is based on a quarterly calculation of revenue increases and is payable on a quarterly basis.

Percentage rent expense under both leases for 2021, 2020, and 2019 was $ 3,721,000 , $ 3,617,000 and $ 3,587,000 , respectively.

Operating Leases

At December 31, 2022, we lease from NHI the real property of 28 skilled nursing facilities, five assisted living centers and three independent living centers under one master lease agreement.

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

The lease includes base rent plus a percentage rent.

On September 1, 2022, we transferred the operations of seven skilled nursing facilities located in Massachusetts and New Hampshire to a third -party operator.

We leased the real property of these seven facilities from NHI under a separate lease agreement.

In conjunction with the transfer of the operations to a third party, we terminated our lease agreement for the seven skilled nursing facilities and amended our master lease agreement with NHI.

The amendment was accounted for as a lease modification under ASC 842, Leases .

The base rent within the amended master lease agreement increased approximately $ 8,775,000 over the next four and one - third years. The annual base rent in 2023 increased from $ 30,750,000 to $ 34,075,000 , in 2024 from $ 30,750,000 to $ 32,625,000 , in 2025 from $ 30,750,000 to $ 32,225,000 , and in 2026 from $ 30,750,000 to $ 31,975,000 .

Base rent expense under the NHI lease agreements for 2022, 2021, and 2020 was $ 33,783,000 , $ 34,200,000 , and $ 34,200,000 , respectively.

Percentage rent under the master lease agreement is based on a quarterly calculation of revenue increases and is payable on a quarterly basis.

Percentage rent expense under the NHI lease agreements for 2022, 2021, and 2020 was $ 3,887,000 , $ 3,721,000 and $ 3,617,000 , respectively.

We have a right of first refusal with NHI to purchase any of the properties should NHI receive an offer from an unrelated party during the term of the lease or up to 180 days after termination of the related lease.

38 unchanged sentences

Finance lease obligations, less current portion

10,540  

Operating lease liabilities

38 unchanged sentences

32,589  

34,381  

Total minimum lease payments

4 unchanged sentences

120,091  

156,116  

current portion

1 unchanged sentence

$ 91,016  

$ 128,542  

Supplemental cash flow data were as follows (in thousands) :

42 unchanged sentences

$ 2.72  

In the above table, options to purchase 375,638 , 291,946 , and 713,956 shares of our common stock have been excluded for the years ended December 31, 2022, 2021, and 2020, respectively, due to their anti-dilutive impact.

Note 9 –

Investments in Marketable Securities

Our investments in marketable securities include marketable equity securities and marketable debt 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 value 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.

Marketable securities consist of the following (in thousands) :

1 unchanged sentence

December 31, 2021

(in thousands)

Investments available for sale:

13 unchanged sentences

14,998  

19,519  

19,504  

Restricted investments available for sale:

2 unchanged sentences

22,358  

25,442  

26,958  

Corporate debt securities

18 unchanged sentences

$ 312,166  

$ 218,396  

$ 323,105  

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

30 unchanged sentences

$ 172,100  

Gross unrealized gains related to marketable equity securities are $ 85,394,000 and $ 98,445,000 as of December 31, 2021 and 2020, respectively.

Gross unrealized gains related to marketable equity securities are $ 71,869,000 and $ 85,394,000 as of December 31, 2022 

and 2021, respectively.

Gross unrealized losses related to marketable equity securities are $ 3,227,000 and $ 946,000 as of December 31, 2022 and 2021, respectively.

For the years ended December 31, 2021, 2020, and 2019 the Company recognized net unrealized losses of $ 13,863,000 , $ 23,966,000 , and a net unrealized gain of $ 12,230,000 , respectively, in the consolidated statements of operations.

For the years ended December 31, 2022, 2021, and 2020 the Company recognized net unrealized losses of $ 15,806,000 , 13,863,000 , and $ 23,966,000 , respectively, in the consolidated statements of operations.

Gross unrealized gains related to available for sale marketable debt securities are $ 9,000 and $ 3,189,000 as of December 31, 2022 and 2021, respectively.

Gross unrealized losses related to available for sale marketable debt securities are $ 1,176,000 and $ 361,000 as of December 31, 2021 and 2020, respectively.

Gross unrealized losses related to available for sale marketable debt securities are $ 11,071,000 and $ 1,176,000 as of December 31, 2022 

and 2021, 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 years ended December 31, 2022 and 2021.

1 unchanged sentence

Proceeds from the sale of available for sale marketable securities during the years ended December 31, 2022, 2021, and 2020 were $ 49,961,000 , $ 101,920,000 , and $ 40,994,000 , respectively.

Net investment gains of $ 1,042,000 , $ 195,000 , and $ 127,000 were realized on these sales during the years ended December 31, 2021, 2020, and 2019, respectively.

Net investment losses of $ 1,326,000 and net investment gains of $ 1,042,000 and $ 195,000 were realized on these sales during the years ended December 31, 2022, 2021, and 2020, respectively.

Note 10 –

30 unchanged sentences

December 31, 2022

Quoted Prices in

Active Markets

For Identical

Cash and cash equivalents

$ 107,607  

Restricted cash and cash equivalents

12,136  

Marketable equity securities

140,066  

Corporate debt securities

81,779  

50,005  

31,774  

Asset–backed securities

34,770  

Treasury securities

47,628  

State and municipal securities

Total financial assets

$ 431,909  

$ 357,442  

$ 74,467  

Fair Value Measurements Using

December 31, 2021

Quoted Prices in

Active Markets

For Identical

Cash and cash equivalents

$ 147,093  

Restricted cash and cash equivalents

11,409  

Marketable equity securities

133,270  

Corporate debt securities

92,025  

56,772  

35,253  

Asset–backed securities

44,249  

Treasury securities

40,663  

State and municipal securities

12,898  

Total financial assets

$ 481,607  

$ 389,207  

$ 92,400  

Note 11 –

22 unchanged sentences

$ 520,996  

The Company estimates the cost to complete construction in progress is approximately $ 5,360,000 at December 31, 2021.

The Company evaluated its long-lived assets and recorded an impairment charge of $ 4,497,000 , $ 0 , and $ 0 for the years ended 2021, 2020, and 2019.

The impairment charges are recorded in the consolidated statements of operations under the line item “impairment of assets”.

Note 12 –

Goodwill and Other Intangible Assets

As of December 31, 2021, we evaluated potential triggering events that might be indicators that our goodwill and indefinite lived intangibles were impaired.

As of December 31, 

2022, we evaluated potential triggering events that might be indicators that our goodwill and indefinite lived intangibles were impaired.

The Company performs its goodwill impairment analysis for each reporting unit that constitutes a component for which ( 1 ) discrete financial information is available and ( 2 ) segment management regularly reviews the operating results of that component, in accordance with the provisions of ASC Topic 350, Intangibles - Goodwill and Other .

No goodwill or intangible asset impairments were recorded during the years ended December, 31 2021, 2020, and 2019.

See Note 3 –

Acquisition of Caris HealthCare, L.P.

for further detail describing the goodwill addition in 2021.

No goodwill or intangible asset impairments were recorded during the years ended December 

31, 2022, 2021, and 2020.

The following table represents activity in goodwill by segment as of and for the year ended December 31, 2022 ( in thousands ):

Year Ended December 31, 2022

Homecare and Hospice

January 1, 2020

5 unchanged sentences

21,341  

December 31, 2020

146,954  

December 31, 2021

164,554  

4 unchanged sentences

$ 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 –

Notes Receivable

At December 31, 2021 and 2020, we have notes receivable from healthcare facilities totaling $ 453,000 and $ 13,021,000 , respectively, reflected in the accompanying consolidated balance sheets.

The note is a working capital loan with an 8 % fixed interest rate and periodic payments required prior to maturity.

The note matures in 2025.

The Company evaluated its notes receivable and recorded a credit loss provision of $ 3,728,000 , $ 0 , and $ 0 for the years ended 2021, 2020, and 2019.

The credit loss provision is recorded in the consolidated statements of operations under the line item “impairment of assets”.

Note 15 –

As part of the Caris acquisition in June 2021, 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 13  

The provision for income taxes is comprised of the following components (in thousands) :

3 unchanged sentences

$ 19,054  

$ 13,356  

Total current tax provision

1 unchanged sentence

21,391  

14,457  

Deferred tax provision

7 unchanged sentences

Accrued risk reserves

$ 2,209  

$ 1,803  

Accrued expenses

3 unchanged sentences

Operating lease liabilities

30,558  

39,629  

Total gross deferred tax assets

50,559  

67,242  

valuation allowance

Deferred tax assets less valuation allowance

$ 49,581  

$ 67,242  

Deferred tax liabilities:

10 unchanged sentences

Tax provision at federal statutory rate

$ 5,719  

$ 31,508  

$ 11,009  

Increase (decrease) in income taxes resulting from:

1 unchanged sentence

Nontaxable revaluation gain

Return to provision

Unrecognized tax benefits

Expiration of statute of limitations

Tax (expense) benefit of minority interest

Total increases (decreases)

Effective income tax expense

$ 7,254  

$ 10,951  

$ 10,433  

Our deferred tax assets have been evaluated for realization based on historical taxable income, tax planning strategies, the expected timing of reversals of existing temporary differences and future taxable income anticipated.

Our deferred tax assets are more likely than not to be realized in full due to the existence of sufficient taxable income of the appropriate character under the tax law.

Our deferred tax assets, with the exception of certain state tax net operating losses and certain deferred tax assets associated with unrealized losses on marketable securities, are more likely than not to be realized in full due to the existence of sufficient taxable income of the appropriate character under the tax law. 

As such, the only valuation allowance relates to state net operating losses and unrealized losses on marketable securities.

Uncertain tax positions may arise where tax laws may allow for alternative interpretations or where the timing of recognition of income is subject to judgment.

7 unchanged sentences

Balance, January 1, 2020

$ 7,413  

$ 12,749  

$ 3,309  

$ 16,058  

Additions based on tax positions related to the current year

Additions for tax positions of prior years

Additions (reductions) for tax positions of prior years

Reductions for statute of limitation expirations

Balance, December 31, 2020

12,507  

Additions based on tax positions related to the current year

2 unchanged sentences

Balance, December 31, 2021

11,192  

Additions based on tax positions related to the current year

2 unchanged sentences

Balance, December 31, 2022

During the year ended December 31, 2021, we have recognized a $ 1,469,000 decrease in unrecognized tax benefits and an accompanying $ 867,000 decrease of related interest and penalties due to the effect of statute of limitations lapse.

The favorable impact on our tax provision was $1,901,000.

During the years ended December 31, 2020 and 2019, the favorable impact on our tax provision due to the effect of statute of limitations lapsing was $ 2,366,000 and $2,064,000, respectively.

$ 4,754  

$ 8,505  

$ 2,678  

$ 11,183  

Unrecognized tax benefits of $ 4,109,000 , net of federal benefit at December 31, 2022, attributable to permanent differences, would favorably impact our effective tax rate if recognized.

1 unchanged sentence

Interest and penalties expense related to U.S.

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

Interest and penalties expense (benefit) was $( 324,000 ), $( 695,000 ), and $ 38,000 for the years ended December 31, 2021, 2020, and 2019, respectively.

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

The Company is no longer subject to U.S.

federal and state examinations by tax authorities for years before 2019 (with few state exceptions).

Note 16 –

Note 14  

Stock Repurchases

During 2021, the Company purchased 8,437 shares of its common stock for a total cost of $ 836,000 .

During 2020, the Company purchased 797 shares of its common stock for a total cost of $ 53,000 .

During 2019, the Company purchased 10,396 shares of its common stock for a total cost of $ 872,000 .

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

Note 17 –

During 2022, the Company purchased 148,547 shares of its common stock for a total cost of $ 9,903,000 . The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued. 

Note 15  

Stock –

9 unchanged sentences

In May 2020, our stockholders approved the 2020 Omnibus Equity Incentive Plan (the “2020 Equity Incentive Plan”) pursuant to which 2,500,000 shares of our common stock were available to grant for restricted stock, stock appreciation rights, stock options, and employee stock purchase plans.

At December 31, 2021, 2,381,814 shares were available for future grants under the 2020 Equity Incentive Plan.

At December 31, 2022, 2,042,701  shares were available for future grants under the 2020 Equity Incentive Plan.

Additionally, we have an employee stock purchase plan that allows employees to purchase our shares of stock through payroll deductions.

3 unchanged sentences

Stock–based compensation totaled $ 2,612,000 , $ 2,620,000 , and $ 2,453,000 , for the years ended December 31, 2022, 2021, and 2020, respectively.

Stock–based compensation is included in salaries, wages and benefits in the consolidated statements of operations.

Tax deductions for the options exercised totaled $ 2,844,000 , $ 677,000 , and $ 3,918,000 for the years ended December 31, 2021, 2020, and 2019, respectively.

The total intrinsic value of shares exercised was $ 2,844,000 , $ 677,000 , and $ 3,960,000 for the years ended December 31, 2021, 2020 and 2019, respectively.

Stock–based compensation is included in salaries, wages and benefits in the consolidated statements of operations. The total intrinsic value of shares exercised (and tax deductions taken) was $ 583,000 , $ 2,844,000 , and $ 677,000 for the years ended December 31, 2022, 2021 and 2020, respectively. 

At December 31, 2022, the Company had $ 3,182,000 of unrecognized compensation cost related to unvested stock-based compensation awards.

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

This unrecognized compensation cost will be amortized over an approximate two and a half year period.

Stock Options

10 unchanged sentences

Risk–free interest rate

1.83 %  

0.21 %  

0.87 %  

Expected volatility

31.4 %  

34.9 %  

20.1 %  

Expected life, in years

Expected dividend yield

3.57 %  

3.00 %  

2.91 %  

The following table summarizes option activity:

25 unchanged sentences

445,144  

377,899  

Options exercisable at December 31, 2022

1 unchanged sentence

$ 69.78  

$ 377,899  

Exercise Prices

3 unchanged sentences

$ 64.61  

88,395  

$ 71.64 –

1 unchanged sentence

445,144  

Note 18 –

$ 66.62  

Note 16  

Contingencies and Guarantees

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 or 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 total $ 98,048,000 and $ 99,537,000 at December 31, 2021 and 2020, respectively.

The liability is included in accrued risk reserves in the consolidated balance sheets.

The amounts are 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 would have a material adverse effect on our financial position, results of operations and cash flows.

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 $ 102,469,000 and $ 98,048,000 at December 31, 2022 and 2021, respectively.

The liability is included in accrued risk reserves in the 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.

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 use independent actuaries to assist management 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.

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.

6 unchanged sentences

Business is written on a direct basis.

For direct business, coverage is written for statutory limits and the insurance company’s losses in excess of those limits are covered by reinsurance.

General and Professional Liability Insurance and Lawsuits

10 unchanged sentences

Jennifer Cook and Sally Gaither v.

Integrated Behavioral Health, Inc., NHC HealthCare/Moulton, LLC, et al.

Integrated Behavioral Health, Inc., NHC HealthCare/Moulton, LLC, et al., Case No.

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

This is a qui tam case originally filed under seal on June 22, 2020.

Ala.) This is a qui tam case originally filed under seal on June 22, 2020.

The United States declined intervention on March 1, 2021.

2 unchanged sentences

and other entities that 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 Complaint alleges that nurse practitioners affiliated with Dr.

Malhotra provided free services to the facilities in exchange for referrals to entities owned by or in which Dr.

Malhotra had a financial interest in violation of the False Claims Act and Anti-Kickback Statute.

Malhotra provided free services to the facilities in exchange for referrals to entities owned by or in which Dr.

Malhotra 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 was filed on November 4, 2021. 

On January 28, 2022, the district court stayed this matter and administratively terminated the motion to dismiss pending the U.S.

Supreme Court's review of a petition for certiorari filed in an unrelated matter, but involving one of the legal arguments raised in the motion to dismiss. 

We expect that motion to dismiss will be renewed once the stay is lifted. 

There is no expected timeline for the lifting of the stay.  

Supreme Court's review of a petition for certiorari filed in an unrelated matter but involving one of the legal arguments raised in the motion to dismiss.

Supreme Court recently denied the petition for certiorari in the unrelated matter.

As a result, NHC Healthcare/Moulton, LLC’s motion to dismiss has been renewed and is now pending before the district court.

Governmental Regulations

2 unchanged sentences

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. 

There have been several enacted federal and state relief measures as a result of COVID- 19 which have provided substantial support to us during this pandemic.

Debt Guarantees

At December 31, 2022, no agreement to guarantee the debt of other parties exists.

Note 19 –

Note 17  

Relationship with National Health Corporation

8 unchanged sentences

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

At December 31, 2021, National did not have an outstanding balance on the line of credit.

At December 31, 2022 and 2021, National did not have an outstanding balance on the line of credit.

The maximum line of credit commitment amount of $ 2,000,000 is also the amount of a deferred gain that has been outstanding since NHC sold certain assets to National in 1988.

9 unchanged sentences

s Ownership of Our Stock

At December 31, 2021, National owns 1,084,763 shares, or approximately 7.0 % of our outstanding common stock. 

At December 31, 2022, 2021, and 2020, National owns 1,084,763 shares, or approximately 7.1 %, 7.0 %, and 7.1 % of our outstanding common stock, respectively. 

Consolidation Considerations

6 unchanged sentences

NHC does not have a variable interest in National as a whole.

Note 20 –

Note 18  

Variable Interest Entity

2 unchanged sentences

We perform ongoing qualitative analysis to determine if we are the primary beneficiary of a VIE.

At December 31, 2021, we are the primary beneficiary of one VIE and therefore consolidate that entity.

At December 31, 2022 and 2021, we are the primary beneficiary of one VIE and therefore consolidate that entity.

Springfield, Missouri Lease

6 unchanged sentences

Land and buildings and improvements of $ 11,047,000 at December 31, 2022 and 2021 have been recorded in our consolidated financial statements, as well as the operations of the facility because we are the primary beneficiary in the relationship. 

Note 19  – 

Massachusetts and New Hampshire Skilled Nursing Facilities

On September 1, 2022, we transferred the operations of seven skilled nursing facilities located in Massachusetts and New Hampshire to a third -party operator.

NHC leased the real property of these seven facilities from NHI.

In conjunction with the transfer of the operations to a third party, we terminated our lease agreement with NHI for the seven skilled nursing facilities and amended our master lease agreement with NHI, see Note 7 –

Long-Term Leases.

The seven skilled nursing facilities had net patient revenues of $ 49,155,000 , $ 67,161,000 , and $ 70,644,000 for the years ended December 31, 2022, 2021, and 2020, respectively. 

Excluding stimulus funds, the seven skilled nursing facilities had losses before income taxes of $ 2,478,000 , $ 13,410,000 , and $ 6,569,000 for the years ended December 31, 2022, 2021, and 2020, respectively. 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data