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Item 8. Financial Statements and Supplementary Data

2024-02-16 compared with 2023-02-17 · 463 added, 771 removed, 758 unchanged (62% of the section changed)

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Opinion on the 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”). 

We have audited the accompanying consolidated balance sheets of National HealthCare Corporation (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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 16, 2024 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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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 respond to those risks.

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

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Description of the Matter

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

As described in Note 16 to the consolidated financial statements, the accrued risk reserves include professional liability claims reserves for unpaid reported professional liability claims and estimates for incurred but unreported claims.

The Company’s policy with respect to the professional liability claims reserves is to use an actuary to assist management in estimating the exposure for claims obligations (for both asserted and unasserted claims).

Auditing management’s professional liability claims reserves was complex and highly judgmental due to the significant estimation required in determining the reserves, particularly the assumptions of the severity of asserted claims and the quantity and severity of unknown claims.

The Company’s accrued risk reserves totaled $103,259,000 as of December 31, 2023.

As described in Note 17 to the consolidated financial statements, the accrued risk reserves include professional liability claims reserves for unpaid reported professional liability claims and estimates for incurred but unreported claims.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the effectiveness of controls over the Company’s professional liability claims reserve determination, including controls over management’s review of the significant assumptions described above.

For example, we tested controls over management’s review of the actuarial analysis, the significant actuarial assumptions and the data inputs provided to the actuary.

To test the professional liability claims reserves, our audit procedures included, among others, testing the completeness and accuracy of the underlying claims data provided to the Company’s actuarial specialist, obtaining legal confirmation letters to evaluate the reserves recorded on significant litigated matters, and reviewing the Company's insurance contracts by policy year to assess the Company's self-insured retentions, deductibles, and coverage limits.

In addition, we involved our actuarial specialists to assist in our evaluation of the methodologies applied by management's specialist and assessing the accuracy of the Company’s reserves.

For example, we tested controls over management’s review of the actuarial analysis, the significant actuarial assumptions and the data inputs provided to the actuary.

To test the professional liability claims reserves, our audit procedures included, among others, testing the completeness and accuracy of the underlying claims data provided to the Company’s actuarial specialist, obtaining legal confirmation letters to evaluate inclusion of significant litigated matters in the claims data, and reviewing the Company's insurance contracts by policy year to assess the Company's self-insured retentions, deductibles, and coverage limits.

In addition, we involved our actuarial specialists to assist in our evaluation of the methodologies applied by management's specialist and assessing the accuracy of the Company’s reserves.

We also compared the reserves recorded to a range developed by our actuarial specialists based on independently selected assumptions

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Non-operating income

Gain on acquisitions of equity method investments

Unrealized losses on marketable equity securities

Gain on acquisition of equity method investment

Unrealized gains (losses) on marketable equity securities

Income before income taxes

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Unrealized gains (losses) on investments in marketable debt securities

Reclassification adjustment for realized gains on sale of marketable debt securities

Reclassification adjustment for realized losses (gains) on sale of marketable debt securities

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

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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

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:

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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  

Operating lease – right-of-use assets

Intangible assets

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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.

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Trade accounts payable

$ 16,958  

$ 22,488  

$ 19,194 $ 16,958

Finance lease obligations, current portion

Operating lease liabilities, current portion

29,075  

27,574  

29,352 29,075

Accrued payroll

72,510  

106,698  

84,110 72,510

Amounts due to third party payors

16,631  

17,595  

18,369 16,631

Accrued risk reserves, current portion

31,365  

31,134  

30,549 31,365

Other current liabilities

17,615  

20,059  

Provider relief funds

Contract liabilities

15,022  

22,991 17,615

Dividends payable

Total current liabilities

197,887  

263,201  

214,476 197,887

Finance lease obligations, less current portion

Operating lease liabilities, less current portion

91,016  

128,542  

63,175 91,016

Accrued risk reserves, less current portion

71,104  

66,914  

72,710 71,104

Refundable entrance fees

Deferred income taxes

10,909  

17,200 10,909

Other noncurrent liabilities

19,953  

16,571  

26,379 19,953

Total liabilities

397,936  

494,936  

400,316 397,936

Common stock, $ .01 par value;

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Capital in excess of par value

226,991  

232,167  

227,604 226,991

Retained earnings

656,664  

669,078  

Accumulated other comprehensive income (loss)

Total National HealthCare Corporation stockholders’

874,276  

903,004  

687,599 656,664

Accumulated other comprehensive loss

Total National HealthCare Corporation stockholders’ equity

908,752 874,276

Noncontrolling interest

877,514  

908,460  

910,480 877,514

Total liabilities and equity

$ 1,275,450  

$ 1,403,396  

$ 1,310,796 $ 1,275,450

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

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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

10,050  

Unrealized losses on marketable equity securities

15,806  

13,863  

23,966  

Unrealized (gains) losses on marketable equity securities

(Gains) losses on sale of marketable securities

Gains on acquisition of equity method investments

Gain on acquisition of equity method investment

Gain on sale of property and equipment

Impairment (recovery) of assets

( 3,728 )  

Deferred income taxes

Stock–based compensation

Changes in operating assets and liabilities:

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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:

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Proceeds from the sale of property and equipment

Acquisition of skilled nursing facility

Investments in unconsolidated companies

Acquisition of equity method investments

Investments in notes receivable

Collections of notes receivable

Acquisition of equity method investment

(Investments in) collections of notes receivable

Purchases of marketable securities

Sale of marketable securities

49,961  

101,920  

40,994  

Net cash used in investing activities

Cash Flows From Financing Activities:

Borrowings under credit facility

40,000  

Principal payments under credit facility

Principal payments under finance lease obligations

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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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Balance at January 1, 2021

15,369,745 $ 153 $ 226,943 $ 563,024 $ 5,057 $ 3,083 $ 798,260

– – – 138,590 – 497 139,087

Contributions attributable to noncontrolling interest

Other comprehensive income

Stock–based compensation

Shares sold –

options exercised

– – – – – 1,876 1,876

Other comprehensive loss

– – – – ( 3,452 )

Stock–based compensation

– – 2,620 – – – 2,620

Shares sold – options exercised

90,725 1 3,440 – – – 3,441

Repurchase of common shares

– – – ( 836 )

Dividends declared to common stockholders ($ 2.11 per share)

– – – ( 32,536 )

– – ( 32,536 )

Balance at January 1, 2022

15,452,033 $ 154 $ 232,167 $ 669,078 $ 1,605 $ 5,456 $ 908,460

– – – 22,445 – ( 2,468 )

Contributions attributable to noncontrolling interest

– – – – – 250 250

Other comprehensive loss

Stock–based compensation

Shares sold –

options exercised

– – – ( 11,137 )

Stock–based compensation

– – 2,612 – – – 2,612

Shares sold – options exercised

54,260 – 2,114 – – – 2,114

Repurchase of common shares

– – – ( 9,903 )

Dividends declared to common stockholders ($ 2.26 per share)

– – – ( 34,859 )

– – ( 34,859 )

Balance at January 1, 2023

Net income (loss)

Contributions attributable to noncontrolling interest

Other comprehensive loss

Stock–based compensation

Shares sold –

options exercised

15,357,746 $ 153 $ 226,991 $ 656,664 $ ( 9,532 )

$ 3,238 $ 877,514

– – – 66,798 – ( 1,510 )

Other comprehensive income

– – – – 2,928 – 2,928

Stock–based compensation

– – 2,782 – – – 2,782

Shares sold – options exercised

37,264 – 313 – – – 313

Repurchase of common shares

– – – ( 2,482 )

Dividends declared to common stockholders ($ 2.34 per share)

– – – ( 35,863 )

– – ( 35,863 )

Balance at December 31, 2023

15,350,661 $ 153 $ 227,604 $ 687,599 $ ( 6,604 )

$ 1,728 $ 910,480

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

Notes to Consolidated Financial Statements

Note 1 –

Summary of Significant Accounting Policies

Note 1 – Summary of Significant Accounting Policies

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 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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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 Company presents the amount of consolidated net income that is attributable to NHC and the noncontrolling interest in its consolidated statements of operations.

Variable interest entities (“VIEs”) in which we have an interest have been consolidated when we have been identified as the primary beneficiary.

Investments in ventures in which we have the ability to exercise significant influence but do not have control over are accounted for using the equity method.

Equity method investments are initially recorded at cost and subsequently are adjusted for our share of the venture’s earnings or losses and cash distributions.

Investments in entities in which we lack the ability to exercise significant influence are included in the consolidated financial statements at cost unless there has been a decline in the market value of our investment that is deemed to be other than temporary.

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GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates and could cause our reported net income to vary significantly from period to period, including but not limited to, the potential future effects of the novel coronavirus (“COVID- 19”

Actual results could differ from those estimates and could cause our reported net income to vary significantly from period to 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 explicit price concessions provided to third party payors.

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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. 

Bad debt expense was $ 7,424,000 , $ 4,711,000 , and $ 3,886,000 for years ended December 31, 2023, 2022, and 2021, respectively.

As of December 31, 2023, and 2022, the Company has recorded allowance for doubtful accounts of $ 8,054,000 and $ 6,246,000 , respectively, as our best estimate of probable losses inherent in the accounts receivable balance.

Other Revenues

Other revenues include revenues from the provision of insurance services, management and accounting services to other long–term care providers, and rental income.

Our insurance revenues consist of premiums that are generally paid in advance and then amortized into income over the policy period.

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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. 

We recognize variable rent annually or monthly, as applicable, when the actual revenue of the lessee is earned.

Government Grants

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

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( 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 6 for further disclosure of the Company’s operating segments.  

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 6 for further disclosure of the Company’s operating segments.

Other Operating Expenses

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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

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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.

For available for sale debt securities in an unrealized loss position, we first assess whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of the amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the security’s cost basis is written down to fair value through our results of operations.

For debt securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors.

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.

Mortgage and Other Notes Receivable

In accordance with ASC Topic 310, Receivables , NHC evaluates the carrying values of its mortgage and other notes receivable on an instrument-by-instrument basis.

On a quarterly basis, NHC reviews its notes receivable for recoverability when events or circumstances, including the non–receipt of contractual principal and interest payments, significant deteriorations of the financial condition of the borrower and significant adverse changes in general economic conditions, indicate that the carrying amount of the note receivable may not be recoverable.

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”. 

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

Property and equipment are recorded at cost.

Depreciation is provided by the straight–line method over the expected useful lives of the assets estimated as follows:

buildings and improvements, 20–40 years and equipment and furniture, 3–15 years.

Leasehold improvements are amortized over periods that do not exceed the non–cancelable respective lease terms using the straight–line method.

Depreciation is provided by the straight–line method over the expected useful lives of the assets estimated as follows:

buildings and improvements, 20– 40 years and equipment and furniture, 3– 15 years.

Leasehold improvements are amortized over periods that do not exceed the non–cancelable respective lease terms using the straight–line method.

Expenditures for repairs and maintenance are charged to expense as incurred.

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Management has evaluated long-lived assets and determined there were impairment charges of $ 0 , $ 0 , and $ 4,497,000 during the years ended December 31, 2023, 2022, and 2021, respectively.

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.

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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Long-Term Leases

The Company’s lease portfolio primarily consists of finance and operating real estate leases for certain skilled nursing facilities, assisted and independent living facilities, homecare and hospice offices, and pharmacy warehouses.

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

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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.

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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 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. 

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

Accrued Risk Reserves

We are principally self–insured for risks related to employee health insurance and utilize wholly owned limited purpose insurance companies for workers’

compensation and professional liability claims.

Accrued risk reserves primarily represent the accrual for risks associated with employee health insurance, workers’

compensation and professional liability claims.

We are self–insured for risks related to workers' compensation and general and professional liability insurance.

We have two wholly–owned limited purpose insurance companies that insure these risks.

Accrued risk reserves represent the accrual for risks associated with workers’ compensation and professional liability claims.

The accrued risk reserves include a liability for unpaid reported claims and estimates for incurred but unreported claims.

Our policy with respect to a significant portion of our workers’

compensation and professional and general liability claims is to use an actuary to assist management in estimating our exposure for claims obligation (for both asserted and unasserted claims).

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. 

Our policy with respect to a significant portion of our workers’ compensation and professional and general liability claims is to use an actuary to assist management in estimating our exposure for claims obligation (for both asserted and unasserted claims).

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    

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

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

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

Residents at this retirement center may enter into continuing care contracts with us.

The contract provides that 10 % of the resident entry fee becomes non–refundable upon occupancy, and the remaining refundable portion of the entry fee is calculated using the lessor of the price at which the apartment is re–assigned or 90 % of the original entry fee, plus 40 % of any appreciation if the apartment exceeds the original resident’s entry fee.

Non-refundable fees are included as a component of the transaction price and are amortized into revenue over the actuarially determined remaining life of the resident, which is the expected period of occupancy by the resident.

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The balances of refundable entrance fees as of December 31, 2023 and December 31, 2022 were $ 6,376,000 and $ 6,207,000 , 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.

If the present value of the net cost of future services exceeds the related anticipated revenues, a liability is recorded (obligation to provide future services) with a corresponding charge to income.

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

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. 

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

At December 31, 2023 and 2022, we have recorded a future service obligation in the amounts of $ 1,606,000 and $ 2,218,000 , respectively.

Other Noncurrent Liabilities

Other noncurrent liabilities include reserves primarily related to various uncertain income tax positions, deferred revenue, and obligations to provide services to our CCRC residents.

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

Deferred revenue includes the deferred gain on the sale of assets to National Health Corporation (“National”) and the non-refundable portion of CCRC entrance fees being amortized over the remaining life expectancies of the residents.

We utilize ASC Topic 740, Income Taxes , which requires an asset and liability approach for financial accounting and reporting for income taxes.

1 unchanged sentence

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 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.

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

Liabilities for income tax matters include amounts for income taxes, applicable penalties, and interest thereon and are the result of the potential alternative interpretations of tax laws and the judgmental nature of the timing of recognition of taxable income.

Noncontrolling Interest

The noncontrolling interest in a subsidiary is presented within total equity in the Company’s consolidated balance sheets.

The Company presents the noncontrolling interest and the amount of consolidated net income attributable to NHC in its consolidated statements of operations.

The Company’s earnings per share is calculated based on net income attributable to NHC’s stockholders.

The carrying amount of the noncontrolling interest is adjusted based on an allocation of subsidiary earnings based on ownership interest.

Stock –

Based Compensation

Stock–based awards granted include stock options, restricted stock units, and stock purchased under our employee stock purchase plan.

Stock–based compensation cost is measured at the grant date, based on the fair value of the awards, and is recognized as expense over the requisite service period only for those equity awards expected to vest.

Stock – Based Compensation

Stock–based awards granted include stock options, restricted stock units, and stock purchased under our employee stock purchase plan.

The fair value of the restricted stock units is determined based on the stock price on the date of grant.

We estimated the fair value of stock options and stock purchased under our employee stock purchase plan using the Black–Scholes model.

This model utilizes the estimated fair value of common stock and requires that, at the date of grant, we use the expected term of the grant, the expected volatility of the price of our common stock, risk–free interest rates and expected dividend yield of our common stock.

The fair value is amortized on a straight–line basis over the requisite service periods of the awards.

We estimated the fair value of stock options and stock purchased under our employee stock purchase plan using the Black–Scholes model.

The fair value is amortized on a straight–line basis over the requisite service periods of the awards.

Comprehensive Income

ASC Topic 220, Comprehensive Income, requires that changes in the amounts of certain items, including unrealized gains and losses on marketable debt securities, be shown in the consolidated financial statements as comprehensive income.

We report comprehensive income in the consolidated statements of comprehensive income and also in the consolidated statements of stockholders’

We report comprehensive income in the consolidated statements of comprehensive income and also in the consolidated statements of stockholders’ equity.

Concentration of Credit Risks

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These balances in the U.S.

may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limits.

While we monitor the cash balances in our operating accounts, these cash and restricted cash balances could be impacted if the underlying financial institutions fail or could be subject to other adverse conditions in the financial markets.

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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.

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 –

Coronavirus Pandemic ("COVID- 19" )

Accounting Guidance Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2023 - 07, “ Segment Reporting (Topic 280 ):

Improvement to Reportable Segment Disclosures .” The ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit and loss, and contain other disclosure requirements.

This ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024..

Early adoption is permitted.

We are currently evaluating the impact this standard will have on our disclosures.

Note 2 – Coronavirus Pandemic ("COVID- 19" )

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

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

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

Through the CARES Act, as well as the Paycheck Protection Program and Health Care Enhancement Act ("PPPCHE"), the federal government 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 Company recorded $ 0 , $ 11,457,000 and $ 63,360,000 of government stimulus income from the Provider Relief Funds for the years ended December 31, 2023, 2022 and 2021, respectively.

The grant income was determined on a systemic basis in line with the recognition of specific expenses and lost revenues for which the grants are intended to compensate.

The Company’s assessment of whether the terms and conditions for amounts received have been met for income recognition and the Company’s related income calculation considered all frequently asked questions and other interpretive guidance issued to date by the U.S.

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

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 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.

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.

We have recorded $ 19,442,000 , $ 20,482,000 and $ 26,179,000 in net patient revenues for these supplemental Medicaid payments for the years ended December 31, 2022, 2021 and 2020, respectively.

Note 3 –

Net Patient Revenues

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

We have also received supplemental Medicaid payments from many of the states in which we operate to help mitigate the incremental labor and medical supply costs resulting from the public health emergency.

We have recorded $ 20,214,000 , $ 19,442,000 and $ 20,482,000 in net patient revenues for these supplemental Medicaid payments for the years ended December 31, 2023, 2022 and 2021, respectively.

Note 3 – Net Patient Revenues

The Company disaggregates revenue from contracts with customers by service type and by payor.

Revenue by Service Type

The Company’s net patient services can generally be classified into the following two categories:

Year Ended December 31,

Inpatient services

$ 900,231  

$ 868,687  

$ 879,693  

Homecare services

128,854  

96,855  

52,102  

$ 956,077 $ 900,231 $ 868,687

Homecare and hospice services

131,537 128,854 96,855

Total net patient revenues

$ 1,029,085  

$ 965,542  

$ 931,795  

$ 1,087,614 $ 1,029,085 $ 965,542

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

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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

2 unchanged sentences

Year Ended December 31,

34 % 37 % 36 %

10 % 10 % 11 %

30 % 28 % 29 %

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

26 % 25 % 24 %

100 % 100 % 100 %

Medicare covers skilled nursing services for beneficiaries who require nursing care and/or rehabilitation services following a hospitalization of at least three consecutive days.

For each eligible day a Medicare beneficiary is in a skilled nursing facility, Medicare pays the facility a daily payment, subject to adjustment for certain factors such as a wage index in the geographic area.

The payment covers all services provided by the skilled nursing facility for the beneficiary that day, including room and board, nursing, therapy and drugs, as well as an estimate of capital–related costs to deliver those services.

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

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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 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.

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

The states in which we operate currently use prospective cost–based reimbursement systems.

Under cost–based reimbursement systems, the skilled nursing facility is reimbursed for the reasonable direct and indirect allowable costs it incurred in a base year in providing routine resident care services as defined by the program.

The states in which we operate currently use prospective cost–based reimbursement systems.

Private pay, managed care, and other payment sources include commercial insurance, individual patient funds, managed care plans and the Veterans Administration.

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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, 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

$ 51,253  

Payments recouped

Balance, December 31, 2021

15,022  

Payments recouped

Balance, December 31, 2022

Third Party Payors

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Settlements with third -party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care.

These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and the Company’s historical settlement activity, including an assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustment is subsequently resolved.

Estimated settlements are adjusted in future periods as adjustments become known, or as years are settled or are no longer subject to such audits, reviews, and investigations.

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We have made provisions of approximately $ 18,369,000 and $ 16,631,000 as of December 31, 2023 and 2022, respectively, for various Medicare, Medicaid, and Managed Care claims reviews and current and prior year cost reports.

Note 4 –

Other Revenues

Note 4 – Other Revenues

Other revenues are outlined in the table below.

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Revenues from management and accounting services include fees provided to manage and provide accounting services to other healthcare operators.

Revenues from insurance services include premiums for workers’

compensation and professional liability insurance policies that our wholly owned insurance subsidiaries have written for certain healthcare operators to which we provide management or accounting services.

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

Revenues from insurance services include premiums for workers’ compensation and professional liability insurance policies that our wholly owned insurance subsidiaries have written for certain healthcare operators to which we provide management or accounting services.

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

Year Ended December 31,

Rental income

$ 23,451  

$ 22,717  

$ 22,768  

$ 23,926 $ 23,451 $ 22,717

Management and accounting service fees

16,160  

17,139  

17,147  

18,544 16,160 17,139

Insurance services

3,857 4,766 5,019

1,373 819 525

Gain on sale of property and equipment

Total other revenues

$ 45,196  

$ 45,400  

$ 48,917  

Rental Income  

The Company leases real estate assets consisting of skilled nursing facilities and assisted living facilities to third party operators.

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

Long Term Leases.

$ 53,930 $ 45,196 $ 45,400

Rental Income

The Company leases real estate assets consisting of skilled nursing facilities and assisted living facilities to third party operators.

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

Rental income reflected in the consolidated statements of operations consisted of the following (in thousands) :

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Operating lease payments

$ 23,039  

$ 22,609  

$ 22,019  

$ 22,928 $ 23,039 $ 22,609

Variable lease payments

Total rental income

$ 23,451  

$ 22,717  

$ 22,768  

$ 23,926 $ 23,451 $ 22,717

Variable lease payments are based on revenue increases as compared to a base year.

The following table sets forth the undiscounted cash flows for future minimum lease payments receivable for leases in effect at December 31, 2023 ( in thousands ):

$ 22,738  

22,730  

20,220  

Total future minimum lease payments

$ 88,418  

Management Fees from National

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

See Note 17  regarding our relationship with National.

See Note 18 regarding our relationship with National.

During 2023, 2022 and 2021, we recognized approximately $ 5,200,000 , $ 4,332,000 , and $ 3,915,000 , respectively, of management fees and interest on management fees.

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Insurance Services

For workers’

compensation insurance services, the premium revenues reflected in the consolidated statements of operations for the years ended December 31, 2022, 2021 and 2020 were $ 2,689,000 , $ 2,974,000 , and $ 3,300,000 , respectively.

For workers’ compensation insurance services, the premium revenues reflected in the consolidated statements of operations for the years ended December 31, 2023, 2022 and 2021 were $ 2,611,000 , $ 2,689,000 , and $ 2,974,000 , respectively.

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

For professional liability insurance services, the premium revenues reflected in the consolidated statements of operations for the years ended December 31, 2023, 2022 and 2021 were $ 1,246,000 , $ 2,077,000 , and $ 2,045,000 , respectively.

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

Note 5 –

Operating Income

Non–operating income includes equity in earnings of unconsolidated investments, dividends and other realized gains and losses on marketable securities, and interest income (in thousands) .

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 Property and Equipment

In 2023, we contributed land to a newly-formed limited liability company resulting in an equity interest in the new entity.

The fair value of the land contributed to the new entity was $ 8,000,000 .

The related cost basis of the contributed land was $ 1,770,000 , which resulted in a gain of $ 6,230,000 .

Note 5 – Non – Operating Income

Non–operating income includes equity in earnings of unconsolidated investments, dividends and other realized gains and losses on marketable securities, and interest income (in thousands) .

Year Ended December 31,

Equity in earnings of unconsolidated investments

$ 5,111  

$ 12,342  

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

$ 2,015 $ 477 $ 5,111

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

6,262 5,530 7,998

Interest income

8,383 5,134 4,665

Total non-operating income

$ 11,141  

$ 17,774  

$ 26,527  

$ 16,660 $ 11,141 $ 17,774

Caris HealthCare, L.P.

Caris ”

( “ Caris ” )

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 no longer accounted for as an equity method investment. 

Note 6 –

Business Segments

From the respective acquisition date, Caris’ 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 – Business Segments

The Company has two reportable operating segments:

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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. 

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 ):

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.

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, 2023

Net patient revenues

$ 900,231  

$ 128,854  

$ 1,029,085  

$ 956,077 $ 131,537 $ – $ 1,087,614

Other revenues

45,060  

45,196  

Government stimulus income

11,457  

Net operating revenues and grant income

911,824  

128,854  

45,060  

1,085,738  

1,141 – 52,789 53,930

Net operating revenues

957,218 131,537 52,789 1,141,544

Costs and Expenses:

Salaries, wages and benefits

580,707  

77,688  

27,774  

686,169  

589,279 80,610 42,455 712,344

Other operating

251,355  

26,319  

11,698  

289,372  

254,559 23,529 10,095 288,183

Facility rent

32,956  

40,977  

33,787 2,172 5,566 41,525

Depreciation and amortization

36,522  

40,489  

Recovery of assets  

( 3,728 )  

38,172 786 3,076 42,034

Total costs and expenses

902,103  

107,025  

44,714  

1,053,842  

Income before non-operating income

21,829  

31,896  

916,121 107,097 61,192 1,084,410

Income (loss) before non-operating income

41,097 24,440 ( 8,043 )

Non-operating income

11,141  

Unrealized losses on marketable equity securities

Income (loss) before income taxes

$ 9,721  

$ 21,829  

$ 27,231  

– – 16,660 16,660

Unrealized gains on marketable equity securities

– – 14,944 14,944

Income before income taxes

$ 41,097 $ 24,440 $ 23,201 $ 88,738

Year Ended December 31, 2022

Net patient revenues

$ 868,687  

$ 96,855  

$ 965,542  

$ 900,231 $ 128,854 $ – $ 1,029,085

Other revenues

45,014  

45,400  

136 – 45,060 45,196

Government stimulus income

63,360  

11,457 – – 11,457

Net operating revenues and grant income

932,433  

96,855  

45,014  

1,074,302  

911,824 128,854 45,060 1,085,738

Costs and Expenses:

Salaries, wages and benefits

557,604  

59,226  

49,233  

666,063  

580,707 77,688 27,774 686,169

Other operating

238,354  

16,053  

12,347  

266,754  

251,355 26,319 11,698 289,372

Facility rent

32,819  

40,818  

32,956 2,327 5,694 40,977

Depreciation and amortization

36,890  

40,672  

Impairment of assets

36,522 691 3,276 40,489

Recovery of assets

– – ( 3,728 )

Total costs and expenses

871,009  

77,786  

74,582  

1,023,377  

Income (loss) before non-operating income

61,424  

19,069  

50,925  

902,103 107,025 44,714 1,053,842

Income before non-operating income

9,721 21,829 346 31,896

Non-operating income

17,774  

Gain on acquisition of equity method investment

95,202  

– – 11,141 11,141

Unrealized losses on marketable equity securities

Income before income taxes

$ 61,424  

$ 19,069  

$ 69,545  

$ 150,038  

– – ( 15,806 )

Income (loss) before income taxes

$ 9,721 $ 21,829 $ ( 4,319 )

Year Ended December 31, 2021

Net patient revenues

$ 879,693  

$ 52,102  

$ 931,795  

$ 868,687 $ 96,855 $ – $ 965,542

Other revenues

45,514  

48,917  

386 – 45,014 45,400

Government stimulus income

47,505  

63,360 – – 63,360

Net operating revenues and grant income

930,601  

52,102  

45,514  

1,028,217  

932,433 96,855 45,014 1,074,302

Costs and Expenses:

Salaries, wages and benefits

546,188  

37,377  

37,427  

620,992  

557,604 59,226 49,233 666,063

Other operating

254,230  

10,416  

10,513  

275,159  

238,354 16,053 12,347 266,754

Facility rent

33,090  

40,494  

32,819 2,064 5,935 40,818

Depreciation and amortization

38,217  

42,018  

36,890 443 3,339 40,672

Impairment of assets

4,497 – 3,728 8,225

Total costs and expenses

873,099  

49,972  

56,991  

980,062  

871,009 77,786 74,582 1,023,377

Income (loss) before non-operating income

57,502  

( 11,477 )  

48,155  

61,424 19,069 ( 29,568 )

Non-operating income

26,527  

– – 17,774 17,774

Gain on acquisition of equity method investment

– – 95,202 95,202

Unrealized losses on marketable equity securities

Income (loss) before income taxes

$ 57,502  

$ 2,130  

$ 52,423  

Note 7 –

Long –

– – ( 13,863 )

Income before income taxes

$ 61,424 $ 19,069 $ 69,545 $ 150,038

Note 7 – Long – Term Leases

Operating Leases

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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.

The annual base rent was $ 34,075,000 in 2023.

The annual base rent is $ 32,625,000 in 2024, $ 32,225,000 in 2025, and $ 31,975,000 in 2026 with the lease term expiring at December 31, 2026.

The percentage rent 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 2023, 2022, and 2021 was $ 5,549,000 , $ 3,887,000 and $ 3,721,000 , respectively.

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Finance Leases

Effective June 1, 2014, NHC began leasing and operating three senior healthcare facilities in the state of Missouri under three separate lease agreements.

Effective March 1, 2014, NHC began leasing and operating three senior healthcare facilities in the state of Missouri under three separate lease agreements.

Two of the healthcare facilities are skilled nursing facilities that also include assisted living facilities and the third healthcare facility is a memory care facility.

Each of the leases is a ten -year lease with two five–year renewal options.

Under the terms of the leases, base rent totals $ 5,200,000 annually with rent thereafter escalating by 4 % of the increase in facility revenue over the 2014 base year.

With the ten -year lease term ending on March 1, 2024, we have chosen not to renew or extend the leases and will be exiting these three healthcare operations at that time.

Fixed assets recorded under the finance leases, which are included in property and equipment in the consolidated balance sheets, are as follows (in thousands) :

Buildings and personal property

$ 39,011  

$ 39,014  

$ 39,001 $ 39,011

Accumulated amortization

( 34,482 )  

$ 4,529  

$ 8,410  

$ 647 $ 4,529

Lease Classification

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Net property and equipment

$ 4,529  

$ 8,410  

$ 647 $ 4,529

Operating lease right-of use assets

Operating lease right-of-use assets

120,521  

156,116  

$ 125,050  

$ 164,526  

94,201 120,521

$ 94,848 $ 125,050

Lease Liabilities

2 unchanged sentences

Finance lease obligations, current portion

$ 4,985  

$ 4,695  

$ 860 $ 4,985

Operating lease liabilities

Operating lease liabilities, current portion

29,075  

27,574  

29,352 29,075

Finance lease liabilities

2 unchanged sentences

Operating lease liabilities, less current portion

91,016  

128,542  

$ 125,936  

$ 166,656  

63,175 91,016

$ 93,387 $ 125,936

Weighted-average remaining lease terms and discount rates were as follows:

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Weighted-average discount rate

Lease Costs  

Lease costs recorded in the consolidated statement of operations are as follows (in thousands):

1 unchanged sentence

Depreciation of leased assets

$ 3,878  

$ 3,905  

$ 3,906  

$ 3,882 $ 3,878 $ 3,905

Interest of lease liabilities

Total finance lease costs

4,097 4,412 4,712

Operating lease costs:

Operating lease costs

36,051  

36,079  

35,656  

34,953 36,051 36,079

Variable lease costs

5,549 3,887 3,721

Short-term lease costs

1,023 1,039 1,018

Total operating lease costs

40,977  

40,818  

40,494  

41,525 40,977 40,818

Total lease costs

$ 45,389  

$ 45,530  

$ 45,464  

$ 45,622 $ 45,389 $ 45,530

Minimum Lease Payments

The following table summarizes the maturity of our finance and operating lease liabilities as of December 31, 2023 ( in thousands ):

$ 5,200  

$ 35,973  

34,013  

33,224  

32,589  

$ 867 $ 34,442

Total minimum lease payments

$ 6,067  

$ 136,007  

$ 867 $ 101,768

amounts representing interest

Present value of future minimum lease payments

120,091  

current portion

Noncurrent lease liabilities

$ 91,016  

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

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Operating cash flows for operating leases

$ 36,051  

$ 36,079  

$ 35,656  

$ 36,198 $ 36,051 $ 36,079

Operating cash flows for finance leases

Financing cash flows for finance leases

Note 8 –

Earning Per Share

4,985 4,695 4,423

Note 8 – Earning Per Share

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 share and per share amounts) :

1 unchanged sentence

Weighted average common shares outstanding

15,410,222  

15,347,129  

15,306,174  

15,310,142 15,410,222 15,347,129

Net income attributable to common stockholders of National Healthcare Corporation

$ 22,445  

$ 138,590  

$ 41,871  

$ 66,798 $ 22,445 $ 138,590

Earnings per common share, basic

$ 1.46  

$ 9.03  

$ 2.74  

$ 4.36 $ 1.46 $ 9.03

Weighted average common shares outstanding

15,410,222  

15,347,129  

15,306,174  

15,310,142 15,410,222 15,347,129

Dilutive effect of stock options

36,989  

69,587  

63,349  

67,201 36,989 69,587

Assumed average common shares outstanding

15,447,211  

15,416,716  

15,369,523  

15,377,343 15,447,211 15,416,716

Net income attributable to common stockholders of National Healthcare Corporation

$ 22,445  

$ 138,590  

$ 41,871  

$ 66,798 $ 22,445 $ 138,590

Earnings per common share, diluted

$ 1.45  

$ 8.99  

$ 2.72  

$ 4.34 $ 1.45 $ 8.99

In the above table, options to purchase 588,534 , 375,638 , and 291,946 shares of our common stock have been excluded for the years ended December 31, 2023, 2022, and 2021, respectively, due to their anti-dilutive impact.

Note 9 –

Investments in Marketable Securities

Note 9 – Investments in Marketable Securities

Marketable securities consist of the following (in thousands) :

3 unchanged sentences

Marketable equity securities

$ 30,176  

$ 100,786  

$ 30,176  

$ 113,108  

$ 30,176 $ 111,117 $ 30,176 $ 100,786

Corporate debt securities

14,317  

13,885  

19,038  

18,843  

2,497 2,441 14,317 13,885

Asset-backed securities

Treasury securities

15,082  

14,998  

2,990 2,986 9,009 8,757

Restricted investments available for sale:

Marketable equity securities

24,326  

22,358  

25,442  

26,958  

24,134 26,779 24,326 22,358

Corporate debt securities

54,412  

51,009  

60,816  

62,936  

Asset–backed securities

24,605  

22,437  

32,918  

33,301  

59,586 57,731 54,412 51,009

Asset–backed securities

19,388 17,659 24,605 22,437

Treasury securities

45,989  

41,294  

33,052  

32,630  

46,771 42,863 45,989 41,294

State and municipal securities

$ 208,211  

265,791  

$ 225,705  

$ 312,166  

4,106 4,047 4,877 4,771

$ 189,648 265,623 $ 208,211 $ 265,791

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

2 unchanged sentences

NHI Common Stock

1,630,642  

$ 24,734  

$ 85,152  

1,630,642  

$ 24,734  

$ 93,713  

1,630,642 $ 24,734 $ 91,071 1,630,642 $ 24,734 $ 85,152

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

2 unchanged sentences

Within 1 year

$ 33,662  

$ 33,037  

$ 32,718  

$ 32,843  

81,500  

76,394  

95,293  

96,937  

$ 19,664 $ 19,328 $ 33,662 $ 33,037

81,517 77,118 81,500 76,394

6 to 10 years

38,547  

33,216  

41,580  

41,835  

33,515 30,802 38,547 33,216

Over 10 years

$ 153,709  

$ 142,647  

$ 170,087  

$ 172,100  

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

and 2021, respectively.

$ 135,338 $ 127,727 $ 153,709 $ 142,647

Gross unrealized gains related to marketable equity securities are $ 84,514,000 and $ 71,869,000 as of December 31, 2023 and 2022, respectively.

Gross unrealized losses related to marketable equity securities are $ 928,000 and $ 3,227,000 as of December 31, 2023 and 2022, respectively.

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.

For the year ended December 31, 2023, the Company recognized net unrealized gains of $ 14,944,000 .

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

Gross unrealized gains related to available for sale marketable debt securities are $ 326,000 and $ 9,000 as of December 31, 2023 and 2022, 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.

Gross unrealized losses related to available for sale marketable debt securities are $ 7,937,000 and $ 11,071,000 as of December 31, 2023 and 2022, 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, 2023 and 2022.

For the marketable debt 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.

For the marketable debt 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 nor does the Company have the intent to sell before recovery of 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 securities during the years ended December 31, 2023, 2022, and 2021 were $ 47,396,000 , $ 49,961,000 , and $ 101,920,000 , 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 –

Fair Value Measurements

Net investment losses of $ 667,000 and $ 1,326,000 and net investment gains of $ 1,042,000 were realized on these sales during the years ended December 31, 2023, 2022, and 2021, respectively.

Note 10 – Fair Value Measurements

The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements.

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The following summarizes the three levels of inputs that may be used to measure fair value:

Level 1 –

The valuation is based on quoted prices in active markets for identical instruments.

Level 2 –

The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model–based valuation techniques for which all significant assumptions are observable in the market.

Level 3 –

The valuation is based on unobservable inputs that are supported by minimal or no market activity and that are significant to the fair value of the instrument.

Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies, or similar techniques that incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument, or valuations that require significant management judgment or estimation.

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

Level 1 – The valuation is based on quoted prices in active markets for identical instruments.

Level 2 – The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model–based valuation techniques for which all significant assumptions are observable in the market.

Level 3 – The valuation is based on unobservable inputs that are supported by minimal or no market activity and that are significant to the fair value of the instrument.

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 Company's non-financial assets, which includes goodwill, intangible assets, property and equipment and right-of-use assets, are not required to be measured at fair value on a recurring basis.

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After completing our validation procedures, we did not adjust or override any fair value measurements provided by our broker as of December 31, 2023 or 2022.

The carrying amounts of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to their short–term nature.

The estimated fair value of notes receivable approximates the carrying value based principally on their underlying interest rates and terms, maturities, collateral and credit status of the receivables.

At December 31, 2022 and 2021, there were no material differences between the carrying amounts and fair values of NHC’s financial instruments.

At December 31, 2023 and 2022, there were no material differences between the carrying amounts and fair values of NHC’s financial instruments.

The following table summarizes fair value measurements by level at December 31, 2023 and December 31, 2022 for assets and liabilities measured at fair value on a recurring basis (in thousands) :

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December 31, 2023

Quoted Prices in

Active Markets

For Identical

Cash and cash equivalents

$ 107,076 $ 107,076 $ – $ –

Restricted cash and cash equivalents

18,892 18,892 – –

Marketable equity securities

137,896 137,896 – –

Corporate debt securities

Asset–backed securities

60,171 42,860 17,311 –

Asset–backed securities

17,659 − 17,210 449

Treasury securities

45,850 45,850 – –

State and municipal securities

4,047 − 4,047 –

Total financial assets

$ 391,591 $ 352,574 $ 38,568 $ 449

Fair Value Measurements Using

December 31, 2022

Quoted Prices in

Active Markets

For Identical

Cash and cash equivalents

$ 58,667 $ 58,667 $ – $ –

Restricted cash and cash equivalents

16,198 16,198 – –

Marketable equity securities

123,144 123,144 – –

Corporate debt securities

Asset–backed securities

64,894 48,525 16,369 –

Asset–backed securities

22,931 – 22,931 –

Treasury securities

50,051 50,051 – –

State and municipal securities

4,771 1,337 3,434 –

Total financial assets

Note 11 –

Property and Equipment

$ 340,656 $ 297,922 $ 42,734 $ –

Note 11 – Property and Equipment

Property and equipment, at cost, consists of the following (in thousands) :

$ 67,165  

$ 66,267  

$ 65,579 $ 67,165

Leasehold improvements

125,142  

122,391  

129,801 125,142

Buildings and improvements

688,433  

654,656  

700,044 688,433

Furniture and equipment

187,743  

185,320  

195,159 187,743

Construction in progress

12,736  

35,703  

11,098 12,736

Property and equipment, at cost

1,081,219  

1,064,337  

1,101,681 1,081,219

Accumulated depreciation

Net property and equipment

$ 506,532  

$ 520,996  

Note 12 –

Goodwill and Other Intangible Assets

As of December 31, 

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

$ 493,329 $ 506,532

Note 12 – Goodwill and Other Intangible Assets

As of December 31, 2023, 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, 2022, 2021, and 2020.

No goodwill or intangible asset impairments were recorded during the years ended December 31, 2023, 2022, and 2021.

The following table represents activity in goodwill by segment as of and for the year ended December 31, 2023 ( in thousands ):

Year Ended December 31, 2023

Homecare and Hospice

January 1, 2022

$ 3,395  

$ 17,600  

$ 20,995  

December 31, 2020

17,600  

21,341  

146,954  

3,741 164,554 – 168,295

December 31, 2022

164,554  

168,295  

3,741 164,554 – 168,295

December 31, 2023

$ 3,741  

$ 164,554  

$ 168,295  

$ 3,741 $ 164,554 $ – $ 168,295

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  

Note 13 – Income Taxes

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

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Current tax provision

$ 15,072  

$ 19,054  

$ 14,520 $ 717 $ 15,072

3,137 251 1,164

Total current tax provision

16,236  

21,391  

17,657 968 16,236

Deferred tax provision

4,142 4,595 ( 3,866 )

1,651 1,691 ( 1,419 )

Total deferred tax provision

5,793 6,286 ( 5,285 )

Income tax provision

$ 7,254  

$ 10,951  

$ 10,433  

$ 23,450 $ 7,254 $ 10,951

The deferred tax assets and liabilities, consisting of temporary differences tax effected at the respective income tax rates, are as follows (in thousands) :

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Accrued risk reserves

$ 2,209  

$ 1,803  

$ 1,898 $ 2,209

Accrued expenses

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Operating lease liabilities

30,558  

39,629  

23,658 30,558

Total gross deferred tax assets

50,559  

67,242  

45,040 50,559

valuation allowance

Deferred tax assets less valuation allowance

$ 49,581  

$ 67,242  

$ 44,446 $ 49,581

Deferred tax liabilities:

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Book basis in excess of tax basis of securities

Long–term investments

Operating lease assets

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Tax provision at federal statutory rate

$ 5,719  

$ 31,508  

$ 11,009  

$ 18,635 $ 5,719 $ 31,508

Increase (decrease) in income taxes resulting from:

State, net of federal benefit

4,600 1,034 1,113

Nontaxable revaluation gain

– – ( 19,758 )

Unrecognized tax benefits

1,227 730 ( 158 )

Expiration of statute of limitations

Tax (expense) benefit of minority interest

Tax (expense) benefit of noncontrolling interest

317 518 ( 104 )

Total increases (decreases)

4,815 1,535 ( 20,557 )

Effective income tax expense

$ 7,254  

$ 10,951  

$ 10,433  

$ 23,450 $ 7,254 $ 10,951

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, 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. 

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.

Under ASC Topic 740, 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.

In accordance with current guidance, the Company has established a liability for unrecognized tax benefits, which are differences between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured.

Generally, a liability is created for an unrecognized tax benefit because it represents a company’s potential future obligation to a taxing authority for a tax position that was not recognized per above.

We believe that our liabilities reflect the anticipated outcome of known uncertain tax positions in conformity with ASC Topic 740 Income Taxes .

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Balance, January 1, 2021

$ 7,413  

$ 12,749  

$ 3,309  

$ 16,058  

$ 5,666 $ 9,893 $ 2,614 $ 12,507

Additions based on tax positions related to the current year

665 665 – 665

Additions (reductions) for tax positions of prior years

1 unchanged sentence

Balance, December 31, 2021

12,507  

5,455 8,902 2,290 11,192

Additions based on tax positions related to the current year

636 636 – 636

Additions (reductions) for tax positions of prior years

1 unchanged sentence

Balance, December 31, 2022

11,192  

4,754 8,505 2,678 11,183

Additions based on tax positions related to the current year

1,454 1,454 – 1,454

Additions (reductions) for tax positions of prior years

324 1,583 1,907

Reductions for statute of limitation expirations

Balance, December 31, 2023

$ 4,754  

$ 8,505  

$ 2,678  

$ 11,183  

$ 5,649 $ 9,253 $ 3,438 $ 12,691

Unrecognized tax benefits of $ 4,149,000 , net of federal benefit at December 31, 2023, attributable to permanent differences, would favorably impact our effective tax rate if recognized.

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Interest and penalties expense related to U.S.

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 2020 (with few state exceptions).

Note 14  

Stock Repurchases

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 –

Based Compensation

NHC recognizes stock–based compensation for all stock options and restricted stock granted over the requisite service period using the fair value for these grants as estimated at the date of grant either using the Black–Scholes pricing model for stock options or the quoted market price for restricted stock.

Note 14 – Stock Repurchases

During 2023, the Company purchased 44,349 shares of its common stock for a total cost of $ 2,482,000 .

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

Note 15 – Stock – Based Compensation

The Compensation Committee of the Board of Directors ("the Committee") has the authority to select the participants to be granted options;

to designate whether the option granted is an incentive stock option ("ISO"), a non–qualified option, or a stock appreciation right;

to establish the number of shares of common stock that may be issued upon exercise of the option;

1 unchanged sentence

and to establish the term any award may be outstanding.

The exercise price of any ISO’s granted will not be less than 100% of the fair market value of the shares of common stock on the date granted and the term of an ISO may not be any more than ten years.

The exercise price of any non–qualified options granted will not be less than 100% of the fair market value of the shares of common stock on the date granted unless so determined by the Committee.

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

The exercise price of any non–qualified options granted will not be less than 100% of the fair market value of the shares of common stock on the date granted unless so determined by the Committee.

At December 31, 2023, 1,751,461 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.

2 unchanged sentences

The Company accounts for forfeitures when they occur.

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. 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. 

Stock–based compensation totaled $ 2,782,000 , $ 2,612,000 , and $ 2,620,000 , for the years ended December 31, 2023, 2022, and 2021, 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 $ 2,769,000 , $ 583,000 , and $ 2,844,000 for the years ended December 31, 2023, 2022 and 2021, respectively.

At December 31, 2023, the Company had $ 3,351,000 of unrecognized compensation cost related to unvested stock-based compensation awards.

1 unchanged sentence

Stock Options

The Company is required to estimate the fair value of stock–based awards on the date of grant.

The fair value of each option award is estimated using the Black–Scholes option valuation model with the weighted average assumptions indicated in the following table.

The Company is required to estimate the fair value of stock–based awards on the date of grant.

The fair value of each option award is estimated using the Black–Scholes option valuation model with the weighted average assumptions indicated in the following table.

Each grant is valued as a single award with an expected term based upon expected employment and termination behavior.

Compensation cost is recognized over the requisite service period in a manner consistent with the option vesting provisions.

The straight–line attribution method requires that compensation expense is recognized at least equal to the portion of the grant–date fair value that is vested at that date.

The expected volatility is derived using weekly historical data for periods immediately preceding the date of grant.

The risk–free interest rate is the approximate yield on the United States Treasury Strips having a life equal to the expected option life on the date of grant.

The expected life is an estimate of the number of years an option will be held before it is exercised.

1 unchanged sentence

Year Ended December 31,

Risk–free interest rate

1.83 %  

0.21 %  

0.87 %  

Risk–free interest rate

4.52 % 1.83 % 0.21 %

Expected volatility

31.4 %  

34.9 %  

20.1 %  

29.3 % 31.4 % 34.9 %

Expected life, in years

Expected dividend yield

3.57 %  

3.00 %  

2.91 %  

4.41 % 3.57 % 3.00 %

The following table summarizes option activity:

1 unchanged sentence

Options outstanding at January 1, 2021

809,529  

$ 71.24  

866,956 $ 72.11 −

Options granted

104,057  

55,706 70.80 −

Options exercised

1 unchanged sentence

Options outstanding at December 31, 2021

866,956  

374,926 72.95 −

Options granted

55,706  

302,266 64.72 −

Options exercised

( 541,736  

Options cancelled

( 6,000 )  

Options outstanding at December 31, 2022

374,926  

445,144 66.62 −

Options granted

302,266  

299,278 54.44 −

Options exercised

( 32,597 )  

Options cancelled

( 199,451 )  

Options outstanding at December 31, 2023

445,144  

588,534 61.30 18,315,405

Options exercisable at December 31, 2023

157,901  

$ 69.78  

162,781 $ 70.87 $ 3,507,939

Exercise Prices

356,749  

$ 61.90 –

$ 69.19  

$ 64.61  

88,395  

$ 71.64 –

$ 77.92  

445,144  

$ 66.62  

Note 16  

Contingencies and Guarantees

507,639 $ 53.94 – $ 69.19 $ 59.21 3.6

80,895 $ 71.64 – $ 77.92 74.43 1.5

588,534 $ 61.30 3.3

Note 16 – Credit Facility

In May 2023, we entered into an unsecured $ 50,000,000 credit facility that has a 364 -day maturity date.

Loans bear interest at the one -month secured overnight financing rate (“SOFR”) plus 1.25 %.

If we maintain certain aggregate deposit levels within the financial institution, the credit facility shall bear interest at one -month SOFR plus 1.10 %.

The credit facility is available for general corporate purposes, including working capital and acquisitions.

The credit facility agreement contains customary representations and financial covenants, including covenants that restrict, among other things, asset dispositions, additional indebtedness, investments, sale-leasebacks, and certain contingent liabilities.

The credit facility contains customary events of default and remedies.

As of December 31, 2023, we have no outstanding balance on the credit facility.

Note 17 – 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 and leased entities and certain of the entities to which we provide management or accounting services.

We are self–insured for risks related to workers’ compensation and general and professional liability insurance.

We have two 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 $ 103,259,000 and $ 102,469,000 at December 31, 2023 and 2022, respectively.

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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.

As a result of the terms of our insurance policies and our use of wholly owned limited purpose insurance companies, we have retained significant insurance risk with respect to workers’ compensation and general and professional liability.

We consider the professional services of independent actuaries to assist us in estimating our exposures for claims obligations (for both asserted and unasserted claims) related to deductibles and exposures in excess of coverage limits, and we maintain reserves for these obligations.

Such estimates are based on many variables including historical and statistical information and other factors.

Workers ’

For workers’

compensation, we utilize a wholly owned Tennessee domiciled property/casualty insurance company to write coverage for NHC affiliates and for third–party customers.

Policies are written for a duration of twelve months and cover only risks related to workers’

compensation losses.

All customers are companies which operate in the long–term care industry.

Workers ’ Compensation

For workers’ compensation, we utilize a wholly owned Tennessee domiciled property/casualty insurance company to write coverage for NHC affiliates and for third–party customers.

Policies are written for a duration of twelve months and cover only risks related to workers’ compensation losses.

All customers are companies which operate in the long–term care industry.

Business is written on a direct basis.

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There is certain additional litigation incidental to our business, none of which, based upon information available to date, would be material to our financial position, results of operations, or cash flows.

In addition, the long–term care industry is continuously subject to scrutiny by governmental regulators, which could result in litigation or claims related to regulatory compliance matters.

Qui Tam Litigation

5 unchanged sentences

The United States declined intervention on March 1, 2021.

Thereafter, the Plaintiff filed an amended Complaint against Dr.

Thereafter, the Plaintiffs filed an amended Complaint against Dr.

Sanja Malhotra, Integrated Behavioral Health, Inc.

and other entities that Dr.

Malhotra is alleged to own or in which he has a financial interest.

Malhotra was alleged to own or in which he allegedly had 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.

The Complaint alleged 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.

NHC Healthcare/Moulton, LLC denies the allegations and is vigorously defending the claim.

A motion to dismiss was filed on November 4, 2021.

NHC Healthcare/Moulton, LLC denied the allegations and filed a motion to dismiss 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.

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.

Thereafter, the U.S.

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

As a result, NHC Healthcare/Moulton, LLC renewed its motion to dismiss.

The District Court granted NHC Healthcare/Moulton’s Motion to Dismiss, along with other pending Motions to Dismiss, and entered an Order of Dismissal on March 23, 2023 and an Amended Order of Dismissal on April 4, 2023, which dismissed the case in its entirety with prejudice with respect to the claims asserted by the Plaintiffs.

The Plaintiffs filed a Notice of Appeal on April 20, 2023 to appeal the dismissal to the United States Court of Appeals for the Eleventh Circuit.

On December 21, 2023, the Eleventh Circuit entered an Order affirming the District Court’s dismissal of the claims.

The Plaintiffs have 90 days from the entry of the dismissal Order to file a Petition for a Writ of Certiorari with the United States Supreme Court requesting a review;

otherwise, the Order affirming dismissal issued by the Eleventh Circuit will be final.

Governmental Regulations

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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 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, 2023, no agreement to guarantee the debt of other parties exists.

Note 17  

Relationship with National Health Corporation

Note 18 – Relationship with National Health Corporation

National Health Corporation ("National"), which is wholly owned by the National Health Corporation Leveraged Employee Stock Ownership Plan ("ESOP"), was formed in 1986 and is our administrative services affiliate and contractor.

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At December 31, 2023 and 2022, the Company has recorded $ 1,499,000 and $ 74,000 , respectively, in accounts payable in the consolidated balance sheets as a result of the timing differences between interim payments for payroll and employee benefits services costs.

National ’

s Ownership of Our 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. 

National ’ s Ownership of Our Stock

At December 31, 2023 and 2022, National owns 1,084,763 shares, or approximately 7.1 %, of our outstanding common stock.

Consolidation Considerations

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We do not consolidate National because ( 1 ) NHC does not have any obligation or rights (current or future) to absorb losses or to receive benefits from National.

The ESOP participants bear the current and future financial gain or burden of National, ( 2 ) National’s equity at risk is sufficient to finance its activities without past or future subordinated support from NHC or other parties, and ( 3 ) the equity holders of National (that is collectively the ESOP, its trustees, and the ESOP participants) possess the characteristics of a controlling financial interest, including voting rights that are proportional to their economic interests.

Supporting the assertions above is the following:

( 1 ) substantive independent trustees are appointed for the benefit of the ESOP participants when decisions must be made that may create the appearance of a conflict of interest between NHC and the ESOP, and ( 2 ) National was designed, formed and is operated for the purpose of creating variability and passing that variability along to the ESOP participants—that is, to provide retirement benefits and value to the employees of NHC and NHC’s affiliates.

The contractual and management relationships between NHC and National are with the skilled nursing facilities that are substantially less than 50% of the fair value of the total assets of National.

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

Note 18  

Variable Interest Entity

Accounting guidance requires that a variable interest entity (“VIE”), according to the provisions of ASC Topic 810, Consolidation , must be consolidated by the primary beneficiary.

The primary beneficiary is the party that has both the power to direct activities of a VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE.

Note 19 – Variable Interest Entity

Accounting guidance requires that a variable interest entity (“VIE”), according to the provisions of ASC Topic 810, Consolidation , must be consolidated by the primary beneficiary.

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

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Springfield, Missouri Lease

In December 2010, we signed an operating agreement to lease Springfield Rehabilitation and Health Care Center, a 120–bed skilled nursing facility located in Springfield, Missouri.

The terms of the lease include a ten -year lease and include five additional, five -year lease options as well as a purchase option.

The operating lease agreement was established on the same date third party owners purchased the real estate of the 120–bed skilled nursing facility.

The third -party owners purchased the real estate for $ 4,500,000 , which is the amount NHC loaned the owners to purchase the facility under the terms of the lease agreement and the mortgage note.

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A mortgage note receivable from the third -party owners of $ 11,047,000 at December 31, 2023 and 2022 is eliminated in our consolidated financial statements.

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. 

Land and buildings and improvements of $ 11,047,000 at December 31, 2023 and 2022 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.

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