NHC filing — read by section

Item 8. Financial Statements and Supplementary Data

ITEM 8. 
 
 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

 To the Stockholders and the Board of Directors of National HealthCare Corporation 

 Opinion on the 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. 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 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. 

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 Critical Audit Matter 

 The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 Estimation of Professional Liability Claims Reserves 
 
 Description of the Matter 
 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. 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.
 
 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 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
 
 /s/ Ernst & Young LLP 
 
 We have served as the Company's auditor since 2009.

 Nashville, Tennessee 

 February 16, 2024

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 NATIONAL HEALTHCARE CORPORATION 

 Consolidated Statements of Operations 

 (in thousands, except share and per share amounts) 

 Year Ended December 31,
 
 2023
 
 2022
 
 2021
 
 Revenues:
 
 Net patient revenues
 
 $ 
 1,087,614 
 
 $ 
 1,029,085 
 
 $ 
 965,542 
 
 Other revenues
 
 53,930 
 
 45,196 
 
 45,400 
 
 Government stimulus income
 
 – 
 
 11,457 
 
 63,360 
 
 Net operating revenues and grant income
 
 1,141,544 
 
 1,085,738 
 
 1,074,302 
 
 Costs and expenses:
 
 Salaries, wages and benefits
 
 712,344 
 
 686,169 
 
 666,063 
 
 Other operating
 
 288,183 
 
 289,372 
 
 266,754 
 
 Facility rent
 
 41,525 
 
 40,977 
 
 40,818 
 
 Depreciation and amortization
 
 42,034 
 
 40,489 
 
 40,672 
 
 Interest
 
 324 
 
 563 
 
 845 
 
 Impairment (recovery) of assets
 
 – 
 
 ( 3,728 
 )
 
 8,225 
 
 Total costs and expenses
 
 1,084,410 
 
 1,053,842 
 
 1,023,377 
 
 Income from operations
 
 57,134 
 
 31,896 
 
 50,925 
 
 Other income:
 
 Non-operating income
 
 16,660 
 
 11,141 
 
 17,774 
 
 Gain on acquisition of equity method investment
 
 – 
 
 – 
 
 95,202 
 
 Unrealized gains (losses) on marketable equity securities
 
 14,944 
 
 ( 15,806 
 )
 
 ( 13,863 
 )
 
 Income before income taxes
 
 88,738 
 
 27,231 
 
 150,038 
 
 Income tax provision
 
 ( 23,450 
 )
 
 ( 7,254 
 )
 
 ( 10,951 
 )
 
 Net income
 
 65,288 
 
 19,977 
 
 139,087 
 
 Net (income) loss attributable to noncontrolling interest
 
 1,510 
 
 2,468 
 
 ( 497 
 )
 
 Net income attributable to National HealthCare Corporation
 
 $ 
 66,798 
 
 $ 
 22,445 
 
 $ 
 138,590 
 
 Earnings per share attributable to National HealthCare Corporation stockholders:
 
 Basic
 
 $ 
 4.36 
 
 $ 
 1.46 
 
 $ 
 9.03 
 
 Diluted
 
 $ 
 4.34 
 
 $ 
 1.45 
 
 $ 
 8.99 
 
 Weighted average common shares outstanding:
 
 Basic
 
 15,310,142 
 
 15,410,222 
 
 15,347,129 
 
 Diluted
 
 15,377,343 
 
 15,447,211 
 
 15,416,716 
 
 Dividends declared per common share
 
 $ 
 2.34 
 
 $ 
 2.26 
 
 $ 
 2.11 
 
 The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 

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 NATIONAL HEALTHCARE CORPORATION 

 Consolidated Statements of Comprehensive Income 

 (in thousands) 

 Year Ended December 31,
 
 2023
 
 2022
 
 2021
 
 Net income
 
 $ 
 65,288 
 
 $ 
 19,977 
 
 $ 
 139,087 
 
 Other comprehensive income (loss):
 
 Unrealized gains (losses) on investments in marketable debt securities
 
 3,434 
 
 ( 12,946 
 )
 
 ( 4,171 
 )
 
 Reclassification adjustment for realized losses (gains) on sale of marketable debt securities
 
 17 
 
 ( 129 
 )
 
 ( 214 
 )
 
 Income tax (expense) benefit related to items of other comprehensive income (loss)
 
 ( 523 
 )
 
 1,938 
 
 933 
 
 Other comprehensive income (loss), net of tax
 
 2,928 
 
 ( 11,137 
 )
 
 ( 3,452 
 )
 
 Net (income) loss attributable to noncontrolling interest
 
 1,510 
 
 2,468 
 
 ( 497 
 )
 
 Comprehensive income attributable to National HealthCare Corporation
 
 $ 
 69,726 
 
 $ 
 11,308 
 
 $ 
 135,138 
 
 The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 

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 NATIONAL HEALTHCARE CORPORATION 

 Consolidated Balance Sheets 

 (in thousands) 

 December 31,
 
 2023
 
 2022
 
 Assets
 
 Current Assets:
 
 Cash and cash equivalents
 
 $ 
 107,076 
 
 $ 
 58,667 
 
 Restricted cash and cash equivalents, current portion
 
 17,725 
 
 15,121 
 
 Marketable equity securities
 
 111,117 
 
 100,786 
 
 Marketable debt securities
 
 5,427 
 
 23,136 
 
 Restricted marketable equity securities
 
 26,779 
 
 22,358 
 
 Restricted marketable debt securities, current portion
 
 12,822 
 
 16,244 
 
 Accounts receivable
 
 108,545 
 
 99,986 
 
 Inventories
 
 7,386 
 
 7,088 
 
 Prepaid expenses and other assets
 
 8,855 
 
 10,244 
 
 Notes receivable
 
 503 
 
 302 
 
 Total current assets
 
 406,235 
 
 353,932 
 
 Property and Equipment:
 
 Property and equipment, at cost
 
 1,101,681 
 
 1,081,219 
 
 Accumulated depreciation and amortization
 
 ( 608,352 
 )
 
 ( 574,687 
 )
 
 Net property and equipment
 
 493,329 
 
 506,532 
 
 Other Assets:
 
 Restricted cash and cash equivalents, less current portion
 
 1,167 
 
 1,077 
 
 Restricted marketable debt securities, less current portion
 
 109,478 
 
 103,267 
 
 Deposits and other assets
 
 14,786 
 
 12,728 
 
 Operating lease – right-of-use assets
 
 94,201 
 
 120,521 
 
 Goodwill
 
 168,295 
 
 168,295 
 
 Intangible assets
 
 7,038 
 
 7,038 
 
 Investments in unconsolidated companies
 
 16,267 
 
 2,060 
 
 Total other assets
 
 411,232 
 
 414,986 
 
 Total assets
 
 $ 
 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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 NATIONAL HEALTHCARE CORPORATION 

 Consolidated Balance Sheets 

 (in thousands, except share and per share amounts) 

 December 31,
 
 2023
 2022
 
 Liabilities and Equity
 
 Current Liabilities:
 
 Trade accounts payable
 $ 19,194 $ 16,958 

 Finance lease obligations, current portion
 860 4,985 

 Operating lease liabilities, current portion
 29,352 29,075 

 Accrued payroll
 84,110 72,510 

 Amounts due to third party payors
 18,369 16,631 

 Accrued risk reserves, current portion
 30,549 31,365 

 Other current liabilities
 22,991 17,615 

 Dividends payable
 9,051 8,748 

 Total current liabilities
 214,476 197,887 

 Finance lease obligations, less current portion
 – 860 

 Operating lease liabilities, less current portion
 63,175 91,016 

 Accrued risk reserves, less current portion
 72,710 71,104 

 Refundable entrance fees
 6,376 6,207 

 Deferred income taxes
 17,200 10,909 

 Other noncurrent liabilities
 26,379 19,953 

 Total liabilities
 400,316 397,936 

 Equity:
 
 Common stock, $ .01 par value; 45,000,000 shares authorized; 15,350,661 and 15,357,746 shares, respectively, issued and outstanding
 153 153 

 Capital in excess of par value
 227,604 226,991 

 Retained earnings
 687,599 656,664 

 Accumulated other comprehensive loss
 ( 6,604 )
 ( 9,532 )
 
 Total National HealthCare Corporation stockholders’ equity
 908,752 874,276 

 Noncontrolling interest
 1,728 3,238 

 Total equity
 910,480 877,514 

 Total liabilities and equity
 $ 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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 NATIONAL HEALTHCARE CORPORATION 

 Consolidated Statements of Cash Flows 

 (in thousands) 

 Year Ended December 31,
 
 2023
 
 2022
 
 2021
 
 Cash Flows From Operating Activities: 
 
 Net income
 
 $ 
 65,288 
 
 $ 
 19,977 
 
 $ 
 139,087 
 
 Adjustments to reconcile net income to net cash provided by operating activities:
 
 Depreciation and amortization
 
 42,034 
 
 40,489 
 
 40,672 
 
 Equity in earnings of unconsolidated investments
 
 ( 2,015 
 )
 
 ( 477 
 )
 
 ( 5,111 
 )
 
 Distributions from unconsolidated investments
 
 470 
 
 439 
 
 6,314 
 
 Unrealized (gains) losses on marketable equity securities
 
 ( 14,944 
 )
 
 15,806 
 
 13,863 
 
 (Gains) losses on sale of marketable securities
 
 667 
 
 1,326 
 
 ( 1,042 
 )
 
 Gain on acquisition of equity method investment
 
 – 
 
 – 
 
 ( 95,202 
 )
 
 Gain on sale of property and equipment
 
 ( 6,230 
 )
 
 – 
 
 – 
 
 Impairment (recovery) of assets
 
 – 
 
 ( 3,728 
 )
 
 8,225 
 
 Deferred income taxes
 
 5,768 
 
 5,995 
 
 ( 6,294 
 )
 
 Stock–based compensation
 
 2,782 
 
 2,612 
 
 2,620 
 
 Changes in operating assets and liabilities:
 
 Accounts receivable
 
 ( 8,559 
 )
 
 ( 3,862 
 )
 
 4,090 
 
 Inventories
 
 ( 298 
 )
 
 1,494 
 
 199 
 
 Prepaid expenses and other assets
 
 ( 669 
 )
 
 ( 11,111 
 )
 
 ( 3,298 
 )
 
 Operating lease obligations
 
 ( 1,244 
 )
 
 ( 430 
 )
 
 – 
 
 Trade accounts payable
 
 2,236 
 
 ( 5,530 
 )
 
 ( 2,083 
 )
 
 Accrued payroll
 
 11,600 
 
 ( 34,188 
 )
 
 17,292 
 
 Amounts due to third party payors
 
 1,738 
 
 ( 964 
 )
 
 649 
 
 Accrued risk reserves
 
 790 
 
 4,421 
 
 ( 1,489 
 )
 
 Provider relief funds
 
 – 
 
 ( 9,443 
 )
 
 ( 6,625 
 )
 
 Contract liabilities
 
 – 
 
 ( 15,022 
 )
 
 ( 36,231 
 )
 
 Other current liabilities
 
 5,376 
 
 ( 2,444 
 )
 
 ( 1,380 
 )
 
 Other noncurrent liabilities
 
 6,426 
 
 3,382 
 
 ( 11,862 
 )
 
 Net cash provided by operating activities
 
 111,216 
 
 8,742 
 
 62,394 
 
 Cash Flows From Investing Activities: 
 
 Purchases of property and equipment
 
 ( 27,901 
 )
 
 ( 30,200 
 )
 
 ( 39,399 
 )
 
 Proceeds from the sale of property and equipment
 
 – 
 
 4,175 
 
 – 
 
 Acquisition of skilled nursing facility
 
 ( 2,700 
 )
 
 – 
 
 – 
 
 Investments in unconsolidated companies
 
 ( 4,661 
 )
 
 – 
 
 ( 350 
 )
 
 Acquisition of equity method investment
 
 – 
 
 – 
 
 ( 28,713 
 )
 
 (Investments in) collections of notes receivable
 
 ( 201 
 )
 
 3,879 
 
 8,840 
 
 Purchases of marketable securities
 
 ( 29,501 
 )
 
 ( 33,793 
 )
 
 ( 108,187 
 )
 
 Sale of marketable securities
 
 47,396 
 
 49,961 
 
 101,920 
 
 Net cash used in investing activities
 
 ( 17,568 
 )
 
 ( 5,978 
 )
 
 ( 65,889 
 )
 
 Cash Flows From Financing Activities: 
 
 Principal payments under finance lease obligations
 
 ( 4,985 
 )
 
 ( 4,695 
 )
 
 ( 4,423 
 )
 
 Dividends paid to common stockholders
 
 ( 35,560 
 )
 
 ( 34,604 
 )
 
 ( 32,030 
 )
 
 Issuance of common shares
 
 313 
 
 2,114 
 
 3,441 
 
 Repurchase of common shares
 
 ( 2,482 
 )
 
 ( 9,903 
 )
 
 ( 836 
 )
 
 Noncontrolling interest contributions (distributions)
 
 – 
 
 250 
 
 ( 964 
 )
 
 Entrance fee deposits (refunds)
 
 169 
 
 ( 804 
 )
 
 ( 452 
 )
 
 Net cash used in financing activities
 
 ( 42,545 
 )
 
 ( 47,642 
 )
 
 ( 35,264 
 )
 
 Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents 
 
 51,103 
 
 ( 44,878 
 )
 
 ( 38,759 
 )
 
 Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, Beginning of Period
 
 74,865 
 
 119,743 
 
 158,502 
 
 Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, End of Period 
 
 $ 
 125,968 
 
 $ 
 74,865 
 
 $ 
 119,743 
 
 Balance Sheet Classifications: 
 
 Cash and cash equivalents
 
 $ 
 107,076 
 
 $ 
 58,667 
 
 $ 
 107,607 
 
 Restricted cash and cash equivalents
 
 18,892 
 
 16,198 
 
 12,136 
 
 Total Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents 
 
 $ 
 125,968 
 
 $ 
 74,865 
 
 $ 
 119,743 
 
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 Table of Contents 
 
 NATIONAL HEALTHCARE CORPORATION 

 Consolidated Statements of Cash Flows 

 (continued, in thousands) 

 Year Ended December 31,
 
 2023
 
 2022
 
 2021
 
 Supplemental Information: 
 
 Cash payments for interest
 
 $ 
 290 
 
 $ 
 493 
 
 $ 
 845 
 
 Cash payments for income taxes
 
 14,571 
 
 8,765 
 
 22,881 
 
 Non-cash activities include:
 
 Noncontrolling interest contribution of land
 
 – 
 
 – 
 
 2,840 
 
 The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 

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 NATIONAL HEALTHCARE CORPORATION 

 Consolidated Statements of Equity 

 (in thousands, except for share and per share amounts) 

 Common Stock
 Capital in
 Excess of
 Retained
 Accumulated
 Other
 Comprehensive
 Non-
 controlling
 Total
 
 Shares
 Amount
 Par Value
 Earnings
 Income (Loss)
 Interest
 Equity
 
 Balance at January 1, 2021
 15,369,745 $ 153 $ 226,943 $ 563,024 $ 5,057 $ 3,083 $ 798,260 

 Net income
 – – – 138,590 – 497 139,087 

 Contributions attributable to noncontrolling interest
 – – – – – 1,876 1,876 

 Other comprehensive loss
 – – – – ( 3,452 )
 – ( 3,452 )
 
 Stock–based compensation
 – – 2,620 – – – 2,620 

 Shares sold – options exercised
 90,725 1 3,440 – – – 3,441 

 Repurchase of common shares
 ( 8,437 )
 – ( 836 )
 – – – ( 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 

 Net income
 – – – 22,445 – ( 2,468 )
 19,977 

 Contributions attributable to noncontrolling interest
 – – – – – 250 250 

 Other comprehensive loss
 – – – ( 11,137 )
 – ( 11,137 )
 
 Stock–based compensation
 – – 2,612 – – – 2,612 

 Shares sold – options exercised
 54,260 – 2,114 – – – 2,114 

 Repurchase of common shares
 ( 148,547 )
 ( 1 )
 ( 9,902 )
 – – – ( 9,903 )
 
 Dividends declared to common stockholders ($ 2.26 per share)
 – – – ( 34,859 )
 – – ( 34,859 )
 
 Balance at January 1, 2023
 15,357,746 $ 153 $ 226,991 $ 656,664 $ ( 9,532 )
 $ 3,238 $ 877,514 

 Net income
 – – – 66,798 – ( 1,510 )
 65,288 

 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
 ( 44,349 )
 – ( 2,482 )
 – – – ( 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. 

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 Notes to Consolidated Financial Statements 

 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. The health care environment has continually undergone changes with regard to federal and state reimbursement programs and other payor sources, compliance regulations, competition among other health care providers and patient care litigation issues. We continually monitor these industry developments as well as other factors that affect our business.

 Principles of Consolidation and Basis of Presentation 

 The consolidated financial statements, which are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), include our wholly owned and controlled subsidiaries and affiliates. All significant intercompany transactions and balances have been eliminated in consolidation. The Company presents noncontrolling interest within the equity section of its consolidated balance sheets. The Company presents the amount of consolidated net income that is attributable to NHC and the noncontrolling interest in its consolidated statements of operations.

 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.

 Use of Estimates 

 The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and could cause our reported net income to vary significantly from period to period.

 Net Patient Revenues and Accounts Receivable 

 Net patient revenues are derived from services rendered to patients for skilled and intermediate nursing, rehabilitation therapy, assisted living and independent living, home health care services, hospice services, and behavioral health services. Net patient revenue is reported at the amount that reflects the consideration to which the Company expects to be entitled in exchange for providing patient services. These amounts are due from patients, governmental programs, and other third -party payors, and include variable consideration for retroactive revenue adjustments due to settlement of audits, reviews, and investigations.

 The Company recognizes revenue as its performance obligations are completed. Routine services are treated as a single performance obligation satisfied over time as services are rendered. These routine services represent a bundle of services that are not capable of being distinct. The performance obligations are satisfied over time as the patient simultaneously receives and consumes the benefits of the healthcare services provided. Additionally, there may be ancillary services which are not included in the daily rates for routine services, but instead are treated as separate performance obligations satisfied at a point in time when those services are rendered. Contract liabilities are recorded for payments the Company receives in which performance obligations have not been completed. 

 The Company determines the transaction price based on established billing rates reduced by explicit price concessions provided to third party payors. Explicit price concessions are based on contractual agreements and historical experience. The Company considers the patient's ability and intent to pay the amount of consideration upon admission. Credit losses are recorded as bad debt expense, which is included as a component of other operating expenses in the consolidated statements of operations. Bad debt expense was $ 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.

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 Other Revenues 

 Other revenues include revenues from the provision of insurance services, management and accounting services to other long–term care providers, and rental income. Our insurance revenues consist of premiums that are generally paid in advance and then amortized into income over the policy period. We charge for management services based on a percentage of net revenues. We charge for accounting services based on a monthly fee or a fixed fee per bed of the healthcare center under contract. We record other revenues as the performance obligations are satisfied based on the terms of our contractual arrangements.

 We recognize rental income based on the terms of our operating leases. Under certain of our leases, we receive variable rent, which is based on the increase in revenues of a lessee over a base year. We recognize variable rent annually or monthly, as applicable, when 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 

 In accordance with the provisions of Accounting Standards Codification ("ASC") 280, Segment Reporting , the Company is required to report financial and descriptive information about its reportable operating segments. The Company has two reportable operating segments: ( 1 ) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and 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. 

 Other Operating Expenses 

 Other operating expenses include the costs of care and services that we provide to the residents of our facilities and the costs of maintaining our facilities. Our primary patient care costs include drugs, medical supplies, purchased professional services, food, and professional liability insurance and licensing fees. The primary facility costs include utilities and property insurance. 

 General and Administrative Costs 

 With the Company being a healthcare provider, the majority of our expenses are "cost of revenue" items. Costs that could be classified as "general and administrative" by the Company would include its corporate office costs, excluding stock-based compensation, which were $ 21,412,000 , $ 20,651,000 , and $ 20,160,000 for the years ended December 31, 2023, 2022, and 2021, respectively.

 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 

 Restricted cash and cash equivalents and restricted marketable securities represent assets that are primarily held by our wholly owned limited purpose insurance companies for workers' compensation and professional liability claims.

 Investments in Marketable Securities and Restricted Marketable Securities 

 Our investments in marketable equity securities are carried at fair value with the changes in unrealized gains and losses recognized in our results of operations at each measurement date. Our investments in marketable debt securities are classified as available for sale securities and carried at fair value with the unrealized gains and losses recognized through accumulated other comprehensive income/loss 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.

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 Inventories 

 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”. 

 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.

 Expenditures for repairs and maintenance are charged to expense as incurred. Betterments, which significantly extend the useful life, are capitalized. We remove the costs and related allowances for accumulated depreciation or amortization from the accounts for properties sold or retired, and any resulting gains or losses are included in income.

 In accordance with ASC Topic 360, Property, Plant, and Equipment , we evaluate the recoverability of the carrying values of our properties on a property-by-property basis. We review our properties for recoverability when events or circumstances, including significant physical changes in the property, significant adverse changes in general economic conditions, and significant deteriorations of the underlying cash flows of the property, indicate that the carrying amount of the property may not be recoverable. The need to recognize impairment is based on estimated future undiscounted cash flows from a property over the remaining useful life compared to the carrying value of that property. If recognition of impairment is necessary, it is measured as the amount by which the carrying amount of the property exceeds the estimated fair value of the property. 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.

 Business Combinations 

 We account for acquisitions using the acquisition method of accounting in accordance with ASC 805, Business Combinations . Acquisitions are accounted for as purchases and are included in our consolidated financial statements from their respective acquisition dates. Assets acquired and liabilities assumed, if any, are measured at fair value on the acquisition date using the appropriate valuation method. Goodwill generated from acquisitions is recognized for the excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed. In determining the fair value of identifiable assets, we use various valuation techniques. These valuation methods require us to make estimates and assumptions surrounding projected revenues and costs, future growth, and discount rates.

 Long-Term Leases 

 The Company’s lease portfolio primarily consists of finance and operating real estate leases for certain skilled nursing facilities, assisted and independent living facilities, homecare and hospice offices, and pharmacy warehouses. The original terms of the leases typically range from two to fifteen years. Several of the real estate leases include renewal options which vary in length and may not include specific rent renewal amounts. We determine if an arrangement is a lease at inception of a contract. We determine the lease term by assuming exercise of renewal options that are reasonably certain.

 The Company records right-of-use assets and liabilities for non-cancelable real estate operating leases with original or remaining lease terms in excess of one year. Leases with a lease term of 12 months or less at inception are not recorded and are expensed on a straight-line basis over the lease term. We recognize lease components and non-lease components together and not as separate parts of a lease for real estate leases. 

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 Operating lease right-of-use assets and liabilities are recorded at the present value of the lease payments over the lease term. The present value of the lease payments are discounted using the incremental borrowing rate associated with each lease. The variable components of the lease payment that fluctuate with the operations of a health facility are not included in determining the right-of-use assets and lease liabilities. Rather, these variable components are expensed as incurred.

 Goodwill and Other Intangible Assets 

 Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. Goodwill is not amortized but is subject to an annual impairment test. We perform our annual goodwill impairment assessment on the first day of the fourth quarter. Tests are performed more frequently if events occur, or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount.

 The Company’s indefinite-lived intangible assets consist of trade names and certificates of need and licenses. The Company reviews indefinite-lived intangible assets for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount of the intangible asset may not be recoverable. 

 Accrued Risk Reserves 

 We are self–insured for risks related to 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). 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. 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. We pay the refundable portion of our entry fees to residents when they relocate from our community and the apartment is re-occupied. Refundable entrance fees are not included as part of the transaction price and are classified as refundable entrance fees in the Company's consolidated balance sheets. 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, 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 of CCRC entrance fees being amortized over the remaining life expectancies of the residents.

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 Income Taxes 

 We utilize ASC Topic 740, Income Taxes , which requires an asset and liability approach for financial accounting and reporting for income taxes. Under this guidance, deferred tax assets and liabilities are determined based upon differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax laws that will be in effect when the differences are expected to reverse. 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. 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.

 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.

 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’ equity.

 Concentration of Credit Risks 

 Our credit risks primarily relate to cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, marketable securities, restricted marketable securities and notes receivable. Cash and cash equivalents are primarily held in bank accounts and overnight investments. Restricted cash and cash equivalents are primarily invested in commercial paper and certificates of deposit with financial institutions and other interest-bearing accounts. Accounts receivable consist primarily of amounts due from patients (funded through Medicare, Medicaid, other contractual programs and through private payors) and from other health care companies for management, accounting and other services. We perform continual credit evaluations of our clients and maintain appropriate allowances for doubtful accounts on any accounts receivable proving uncollectible, and continually monitor and adjust these allowances as necessary. Marketable securities and restricted marketable securities are held primarily in accounts with brokerage institutions. Notes receivable relate primarily to secured loans with health care facilities.

 At any point in time we have funds in our operating accounts and restricted cash accounts that are with third party financial institutions. 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.

 Our financial instruments, principally our notes receivable, are subject to the possibility of loss of the carrying values as a result of the failure of other parties to perform according to their contractual obligations. We obtain various collateral and other protective rights, and continually monitor these rights in order to reduce such possibilities of credit loss. 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.

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 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. The U.S. 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 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 $ 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”).

 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: ( 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 (in thousands). 

 Year Ended December 31,
 
 2023
 2022
 2021
 
 Inpatient services
 $ 956,077 $ 900,231 $ 868,687 

 Homecare and hospice services
 131,537 128,854 96,855 

 Total net patient revenues
 $ 1,087,614 $ 1,029,085 $ 965,542 

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 For inpatient and hospice services, revenue is recognized on a daily basis as each day represents a separate contract and performance obligation. For homecare, revenue is recognized when services are provided based on the number of days of service rendered in the period of care or on a per-visit basis. Typically, patients and third -party payors are billed monthly after services are performed or the patient is discharged, and payments are due based on contract terms.

 As our performance obligations relate to contracts with a duration of one year or less, the Company is not required to disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The Company has minimal unsatisfied performance obligations at the end of the reporting period as our patients are typically under no obligation to remain admitted in our facilities or under our care. As the period between the time of service and time of payment is typically one year or less, the Company did not adjust for the effects of a significant financing component. 

 Revenue by Payor 

 Certain groups of patients receive funds to pay the cost of their care from a common source. The following table sets forth sources of net patient revenues for the periods indicated:

 Year Ended December 31,
 
 Source
 2023
 2022
 2021
 
 Medicare
 34 % 37 % 36 % 

 Managed Care
 10 % 10 % 11 % 

 Medicaid
 30 % 28 % 29 % 

 Private Pay and Other
 26 % 25 % 24 % 

 Total
 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. A period of care is defined as a length of care up to 30 days with multiple continuous periods allowed. The services covered by the payment include all disciplines of care, in addition to medical supplies, within the scope of the home health benefit.

 For hospice services, Medicare pays a daily rate to cover the hospice’s costs for providing services included in the patient care plan. Medicare makes daily payments based on 1 of 4 levels of hospice care. All hospice care and services offered to patients and their families must follow an individualized written plan of care that meets the patient’s needs.

 Our hospice service revenue is subject to certain limitations on payments from Medicare. We are subject to an inpatient cap limit and an overall Medicare payment cap for each provider number. We monitor these caps on a provider-by-provider basis and estimate amounts due back to Medicare if we estimate a cap has been exceeded. If applicable, we record these cap adjustments as a reduction to revenue.

 Medicaid is operated by individual states with the financial participation of the federal government. The states in which we operate currently use prospective cost–based reimbursement systems. Under cost–based reimbursement systems, the skilled nursing facility is reimbursed for the reasonable direct and indirect allowable costs it incurred in a base year in providing routine resident care services as defined by the program.

 Private pay, managed care, and other payment sources include commercial insurance, individual patient funds, managed care plans and the Veterans Administration. Private paying patients, private insurance carriers and the Veterans Administration generally pay based on the healthcare center's charges or specifically negotiated contracts. For private pay patients in skilled nursing, assisted living and independent living facilities, the Company bills for room and board charges, with the remittance being due on receipt of the statement and generally by the 10th day of the month the services are performed.

 Certain managed care payors for homecare services pay on a per-visit basis. This revenue is recorded on an accrual basis based upon the date of services at amounts equal to its established or estimated per-visit rates.

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 Third Party Payors 

 Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. Noncompliance with such laws and regulations can be subject to regulatory actions including fines, penalties, and exclusion from the Medicare and Medicaid programs. We believe that we are following all applicable laws and regulations.

 Medicare and Medicaid program revenues, as well as certain Managed Care program revenues, are subject to audit and retroactive adjustment by government representatives or their agents. Settlements with third -party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and the Company’s historical settlement activity, including an assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustment is subsequently resolved. Estimated settlements are adjusted in future periods as adjustments become known, or as years are settled or are no longer subject to such audits, reviews, and investigations. We believe that any differences between the net revenues recorded, and final determination will not materially affect the consolidated financial statements. We have made provisions of approximately $ 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 

 Other revenues are outlined in the table below. Revenues from rental income include health care real estate properties owned by us and leased to third party operators. Revenues from management and accounting services include fees provided to manage and provide accounting services to other healthcare operators. Revenues from insurance services include premiums for workers’ compensation and professional liability insurance policies that our wholly owned insurance subsidiaries have written for certain healthcare operators to which we provide management or accounting services. "Other" revenues include miscellaneous health care related earnings ( in thousands ). 

 Year Ended December 31,
 
 2023
 2022
 2021
 
 Rental income
 $ 23,926 $ 23,451 $ 22,717 

 Management and accounting service fees
 18,544 16,160 17,139 

 Insurance services
 3,857 4,766 5,019 

 Other
 1,373 819 525 

 Gain on sale of property and equipment
 6,230 – – 

 Total other revenues
 $ 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) :

 Year Ended December 31,
 
 2023
 2022
 2021
 
 Operating lease payments
 $ 22,928 $ 23,039 $ 22,609 

 Variable lease payments
 998 412 108 

 Total rental income
 $ 23,926 $ 23,451 $ 22,717 

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 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 ):

 2024
 $ 22,933 

 2025
 22,824 

 2026
 20,314 

 2027
 73 

 2028
 6 

 Thereafter
 – 

 Total future minimum lease payments
 $ 66,150 

 Management Fees from National 

 We have managed skilled nursing facilities for National since 1988, and we currently manage five facilities. 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. Unrecognized and unpaid management fees and interest on management fees from National total $ 19,049,000 and $ 18,843,000 at December 31, 2023 and 2022, respectively.

 The unpaid fees from these five facilities, because collection of substantially all of the contract consideration was not probable when the performance obligation was satisfied, will be recognized as revenues only in the period in which the amounts are received. Under the terms of our management agreement with National, the payment of these fees to us may be subordinated to other expenditures of the five skilled nursing facilities. We continue to manage these facilities so that we may be able to collect our fees in the future and because the incremental savings from discontinuing services to a facility may be small compared to the potential benefit. We may receive payment for the unrecognized management fees in whole or in part in the future only if cash flows from the operating and investing activities of centers or proceeds from the sale of the centers are sufficient to pay the fees. There can be no assurance that such future improved cash flows will occur.

 Management Fees and Financial and Accounting Services for Other Healthcare Centers 

 We provide management services and financial and accounting services to certain healthcare facilities (in addition to the five National centers) operated by third party owners. For the years ended December 31, 2023, 2022 and 2021, we recognized management fees and financial and accounting fees of $ 13,344,000 , $ 11,828,000 , and $ 13,224,000 from these centers, respectively.

 Insurance Services 

 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".

 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,
 
 2023
 2022
 2021
 
 Equity in earnings of unconsolidated investments
 $ 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
 $ 16,660 $ 11,141 $ 17,774 

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 Caris HealthCare, L.P. ( “ 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 

 The Company has two reportable operating segments: ( 1 ) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and behavioral health hospitals; and ( 2 ) homecare and hospice services. These reportable operating segments are consistent with information used by the Company’s Chief Executive Officer, as chief operating decision maker (“CODM”), to assess performance and allocate resources. The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. 

 The Company’s CODM evaluates performance and allocates capital resources to each segment based on an operating model that is designed to improve the quality of patient care and profitability of the Company while enhancing long-term shareholder value. The CODM does not review assets by segment in his resource allocation and therefore, assets by segment are not disclosed below. 

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

 Year Ended December 31, 2023
 
 Inpatient
 Services
 Homecare
 and Hospice
 All Other
 Total
 
 Revenues:
 
 Net patient revenues
 $ 956,077 $ 131,537 $ – $ 1,087,614 

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

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

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

 Depreciation and amortization
 38,172 786 3,076 42,034 

 Interest
 324 – – 324 

 Total costs and expenses
 916,121 107,097 61,192 1,084,410 

 Income (loss) before non-operating income
 41,097 24,440 ( 8,043 )
 57,134 

 Non-operating income
 – – 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 

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 Year Ended December 31, 2022
 
 Inpatient
 Services
 Homecare
 and Hospice
 All Other
 Total
 
 Revenues:
 
 Net patient revenues
 $ 900,231 $ 128,854 $ – $ 1,029,085 

 Other revenues
 136 – 45,060 45,196 

 Government stimulus income
 11,457 – – 11,457 

 Net operating revenues and grant income
 911,824 128,854 45,060 1,085,738 

 Costs and Expenses:
 
 Salaries, wages and benefits
 580,707 77,688 27,774 686,169 

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

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

 Depreciation and amortization
 36,522 691 3,276 40,489 

 Interest
 563 – – 563 

 Recovery of assets
 – – ( 3,728 )
 ( 3,728 )
 
 Total costs and expenses
 902,103 107,025 44,714 1,053,842 

 Income before non-operating income
 9,721 21,829 346 31,896 

 Non-operating income
 – – 11,141 11,141 

 Unrealized losses on marketable equity securities
 – – ( 15,806 )
 ( 15,806 )
 
 Income (loss) before income taxes
 $ 9,721 $ 21,829 $ ( 4,319 )
 $ 27,231 

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 Year Ended December 31, 2021
 
 Inpatient
 Services
 Homecare
 and Hospice
 All Other
 Total
 
 Revenues:
 
 Net patient revenues
 $ 868,687 $ 96,855 $ – $ 965,542 

 Other revenues
 386 – 45,014 45,400 

 Government stimulus income
 63,360 – – 63,360 

 Net operating revenues and grant income
 932,433 96,855 45,014 1,074,302 

 Costs and Expenses:
 
 Salaries, wages and benefits
 557,604 59,226 49,233 666,063 

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

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

 Depreciation and amortization
 36,890 443 3,339 40,672 

 Interest
 845 – – 845 

 Impairment of assets
 4,497 – 3,728 8,225 

 Total costs and expenses
 871,009 77,786 74,582 1,023,377 

 Income (loss) before non-operating income
 61,424 19,069 ( 29,568 )
 50,925 

 Non-operating income
 – – 17,774 17,774 

 Gain on acquisition of equity method investment
 – – 95,202 95,202 

 Unrealized losses on marketable equity securities
 – – ( 13,863 )
 ( 13,863 )
 
 Income before income taxes
 $ 61,424 $ 19,069 $ 69,545 $ 150,038 

 Note 7 – Long – Term Leases 

 Operating Leases 

 At December 31, 2023, we lease from NHI the real property of 28 skilled nursing facilities, five assisted living centers and three independent living centers under one master lease agreement. As part of the lease agreement, we sublease four Florida skilled nursing facilities to a third -party operator. The lease includes base rent plus a percentage rent.

 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.

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

 Finance Leases 

 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) :

 December 31,
 
 2023
 2022
 
 Buildings and personal property
 $ 39,001 $ 39,011 

 Accumulated amortization
 ( 38,354 )
 ( 34,482 )
 
 $ 647 $ 4,529 

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 Lease Classification 

 The Company recorded the following on the consolidated balance sheets ( in thousands ):

 December 31,
 
 Right-of-Use Assets
 Balance Sheet Classification
 2023
 2022
 
 Finance lease assets
 Net property and equipment 
 $ 647 $ 4,529 

 Operating lease right-of use assets
 Operating lease right-of-use assets 
 94,201 120,521 

 Total 
 $ 94,848 $ 125,050 

 December 31,
 
 Lease Liabilities
 Balance Sheet Classification
 2023
 2022
 
 Current:
 
 Finance lease liabilities
 Finance lease obligations, current portion 
 $ 860 $ 4,985 

 Operating lease liabilities
 Operating lease liabilities, current portion 
 29,352 29,075 

 Noncurrent:
 
 Finance lease liabilities
 Finance lease obligations, less current portion 
 – 860 

 Operating lease liabilities
 Operating lease liabilities, less current portion 
 63,175 91,016 

 Total 
 $ 93,387 $ 125,936 

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

 December 31,
 
 2023
 2022
 
 Weighted-average remaining lease terms (in years)
 
 Finance
 0.2 1.2 

 Operating
 3.0 4.0 

 Weighted-average discount rate
 
 Finance
 6.0 % 6.0 % 

 Operating
 6.6 % 6.6 % 

 Lease Costs 

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

 December 31,
 
 2023
 2022
 2021
 
 Finance lease costs:
 
 Depreciation of leased assets
 $ 3,882 $ 3,878 $ 3,905 

 Interest of lease liabilities
 215 534 807 

 Total finance lease costs
 4,097 4,412 4,712 

 Operating lease costs:
 
 Operating lease costs
 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
 41,525 40,977 40,818 

 Total lease costs
 $ 45,622 $ 45,389 $ 45,530 

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 Minimum Lease Payments 

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

 Finance
 Leases
 Operating
 Leases
 
 2024
 $ 867 $ 34,442 

 2025
 − 33,645 

 2026
 – 32,955 

 2027
 – 496 

 2028
 – 198 

 Thereafter
 – 32 

 Total minimum lease payments
 $ 867 $ 101,768 

 Less: amounts representing interest
 ( 7 )
 ( 9,241 )
 
 Present value of future minimum lease payments
 860 92,527 

 Less: current portion
 ( 860 )
 ( 29,352 )
 
 Noncurrent lease liabilities
 $ – $ 63,175 

 Other 

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

 December 31,
 
 2023
 2022
 2021
 
 Cash paid for amounts included in the measurement of lease liabilities:
 
 Operating cash flows for operating leases
 $ 36,198 $ 36,051 $ 36,079 

 Operating cash flows for finance leases
 215 534 807 

 Financing cash flows for finance leases
 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) :

 Year Ended December 31,
 
 2023
 2022
 2021
 
 Basic:
 
 Weighted average common shares outstanding
 15,310,142 15,410,222 15,347,129 

 Net income attributable to common stockholders of National Healthcare Corporation
 $ 66,798 $ 22,445 $ 138,590 

 Earnings per common share, basic
 $ 4.36 $ 1.46 $ 9.03 

 Diluted:
 
 Weighted average common shares outstanding
 15,310,142 15,410,222 15,347,129 

 Dilutive effect of stock options
 67,201 36,989 69,587 

 Assumed average common shares outstanding
 15,377,343 15,447,211 15,416,716 

 Net income attributable to common stockholders of National Healthcare Corporation
 $ 66,798 $ 22,445 $ 138,590 

 Earnings per common share, diluted
 $ 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.

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 Note 9 – Investments in Marketable Securities 

 Marketable securities consist of the following (in thousands) :

 December 31, 2023
 December 31, 2022
 
 Amortized
 Cost
 Fair
 Value
 Amortized
 Cost
 Fair
 Value
 
 Investments available for sale:
 
 Marketable equity securities
 $ 30,176 $ 111,117 $ 30,176 $ 100,786 

 Corporate debt securities
 2,497 2,441 14,317 13,885 

 Asset-backed securities
 − − 500 494 

 U.S. Treasury securities
 2,990 2,986 9,009 8,757 

 Restricted investments available for sale: 
 
 Marketable equity securities
 24,134 26,779 24,326 22,358 

 Corporate debt securities
 59,586 57,731 54,412 51,009 

 Asset–backed securities
 19,388 17,659 24,605 22,437 

 U.S. Treasury securities
 46,771 42,863 45,989 41,294 

 State and municipal securities
 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) :

 December 31, 2023
 December 31, 2022
 
 Shares
 Cost
 Fair
 Value
 Shares
 Cost
 Fair
 Value
 
 NHI Common Stock
 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) :

 December 31, 2023
 December 31, 2022
 
 Cost
 Fair
 Value
 Cost
 Fair
 Value
 
 Maturities:
 
 Within 1 year
 $ 19,664 $ 19,328 $ 33,662 $ 33,037 

 1 to 5 years
 81,517 77,118 81,500 76,394 

 6 to 10 years
 33,515 30,802 38,547 33,216 

 Over 10 years
 642 479 – – 

 $ 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 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 $ 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. 

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 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 $ 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. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs that may be used to measure fair value:

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

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

 Level 3 – The valuation is based on unobservable inputs that are supported by minimal or no market activity and that are significant to the fair value of the instrument. Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies, or similar techniques that incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument, or valuations that require significant management judgment or estimation.

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

 The 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. However, on a periodic basis, or whenever events or changes in circumstances indicate that their carrying value may not be recoverable, the Company assesses its long-lived assets for impairment. When impairment has occurred, such long-lived assets are written down to fair value.

 Valuation of Marketable Securities 

 The Company determines fair value for marketable securities with Level 1 inputs through quoted market prices. The Company determines fair value for marketable securities with Level 2 inputs through broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Our Level 2 marketable securities have been initially valued at the transaction price and subsequently valued, at the end of each month, typically utilizing third party pricing services or other market observable data. The pricing services utilize industry standard valuation models, including both income and market-based approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, and other industry and economic events.

 We validated the prices provided by our broker by reviewing their pricing methods, obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming that the relevant markets are active. 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. 

 Other 

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

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 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) :

 Fair Value Measurements Using
 
 December 31, 2023
 Fair
 Value
 Quoted
 Prices in
 Active
 Markets
 For Identical
 Assets
 (Level 1)
 Significant
 Other
 Observable
 Inputs
 (Level 2)
 Significant
 Unobservable
 Inputs
 (Level 3)
 
 Cash and cash equivalents
 $ 107,076 $ 107,076 $ – $ – 

 Restricted cash and cash equivalents
 18,892 18,892 – – 

 Marketable equity securities
 137,896 137,896 – – 

 Corporate debt securities
 60,171 42,860 17,311 – 

 Asset–backed securities
 17,659 − 17,210 449 

 U.S. 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
 Fair
 Value
 Quoted
 Prices in
 Active
 Markets
 For Identical
 Assets
 (Level 1)
 Significant
 Other
 Observable
 Inputs
 (Level 2)
 Significant
 Unobservable
 Inputs
 (Level 3)
 
 Cash and cash equivalents
 $ 58,667 $ 58,667 $ – $ – 

 Restricted cash and cash equivalents
 16,198 16,198 – – 

 Marketable equity securities
 123,144 123,144 – – 

 Corporate debt securities
 64,894 48,525 16,369 – 

 Asset–backed securities
 22,931 – 22,931 – 

 U.S. Treasury securities
 50,051 50,051 – – 

 State and municipal securities
 4,771 1,337 3,434 – 

 Total financial assets
 $ 340,656 $ 297,922 $ 42,734 $ – 

 Note 11 – Property and Equipment 

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

 December 31,
 
 2023
 2022
 
 Land
 $ 65,579 $ 67,165 

 Leasehold improvements
 129,801 125,142 

 Buildings and improvements
 700,044 688,433 

 Furniture and equipment
 195,159 187,743 

 Construction in progress
 11,098 12,736 

 Property and equipment, at cost
 1,101,681 1,081,219 

 Less: Accumulated depreciation
 ( 608,352 )
 ( 574,687 )
 
 Net property and equipment
 $ 493,329 $ 506,532 

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 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, 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
 
 Inpatient
 Services
 Homecare and Hospice
 All Other
 Total
 
 January 1, 2022
 3,741 164,554 – 168,295 

 Additions
 – – – – 

 December 31, 2022
 3,741 164,554 – 168,295 

 Additions
 – – – – 

 December 31, 2023
 $ 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 – Income Taxes 

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

 Year Ended December 31,
 
 2023
 2022
 2021
 
 Current tax provision
 
 Federal
 $ 14,520 $ 717 $ 15,072 

 State
 3,137 251 1,164 

 Total current tax provision
 17,657 968 16,236 

 Deferred tax provision
 
 Federal
 4,142 4,595 ( 3,866 )
 
 State
 1,651 1,691 ( 1,419 )
 
 Total deferred tax provision
 5,793 6,286 ( 5,285 )
 
 Income tax provision
 $ 23,450 $ 7,254 $ 10,951 

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

 December 31,
 
 2023
 2022
 
 Deferred tax assets:
 
 Accrued risk reserves
 $ 1,898 $ 2,209 

 Accrued expenses
 7,346 6,441 

 Financial reporting depreciation in excess of tax depreciation
 5,653 5,505 

 Stock based compensation
 931 742 

 Deferred revenue
 4,987 3,393 

 Operating lease liabilities
 23,658 30,558 

 Other
 567 1,711 

 Total gross deferred tax assets
 45,040 50,559 

 Less: valuation allowance
 ( 594 )
 ( 978 )
 
 Deferred tax assets less valuation allowance
 $ 44,446 $ 49,581 

 Deferred tax liabilities:
 
 Unrealized gains on marketable securities
 $ ( 19,971 )
 $ ( 15,396 )
 
 Deferred gain on sale of assets, net
 ( 2,055 )
 ( 2,045 )
 
 Book basis in excess of tax basis of intangible assets
 ( 3,387 )
 ( 3,063 )
 
 Book basis in excess of tax basis of securities
 ( 3,393 )
 ( 3,164 )
 
 Long–term investments
 ( 8,753 )
 ( 6,155 )
 
 Operating lease assets
 ( 24,087 )
 ( 30,667 )
 
 Total deferred tax liabilities
 $ ( 61,646 )
 $ ( 60,490 )
 
 Net deferred tax liability
 $ ( 17,200 )
 $ ( 10,909 )
 
 A reconciliation of income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes is as follows (in thousands) :

 Year Ended December 31,
 
 2023
 2022
 2021
 
 Tax provision at federal statutory rate
 $ 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
 ( 1,491 )
 ( 1,032 )
 ( 1,901 )
 
 Tax (expense) benefit of noncontrolling interest
 317 518 ( 104 )
 
 Other
 162 285 251 

 Total increases (decreases)
 4,815 1,535 ( 20,557 )
 
 Effective income tax expense
 $ 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. 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 . Our liabilities for unrecognized tax benefits are presented in the consolidated balance sheets within other noncurrent liabilities.

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 A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands) :

 Deferred
 Tax
 Asset
 Liability For
 Unrecognized
 Tax Benefits
 Liability
 For
 Interest
 and
 Penalties
 Liability
 Total
 
 Balance, January 1, 2021
 $ 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
 ( 441 )
 ( 187 )
 543 356 

 Reductions for statute of limitation expirations
 ( 435 )
 ( 1,469 )
 ( 867 )
 ( 2,336 )
 
 Balance, December 31, 2021
 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
 ( 1,097 )
 ( 273 )
 900 627 

 Reductions for statute of limitation expirations
 ( 240 )
 ( 760 )
 ( 512 )
 ( 1,272 )
 
 Balance, December 31, 2022
 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
 ( 198 )
 324 1,583 1,907 

 Reductions for statute of limitation expirations
 ( 361 )
 ( 1,030 )
 ( 823 )
 ( 1,853 )
 
 Balance, December 31, 2023
 $ 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. We do not expect significant increases or decreases in unrecognized tax benefits for the 2024 year, except for the effect of decreases related to the lapse of statute of limitations estimated at $ 1,102,000 .

 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 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 

 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.

 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; to establish the vesting provision for any award; 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.

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 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, 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. The plan allows employees to terminate participation at any time.

 Compensation expense is recognized only for the awards that ultimately vest. The Company accounts for forfeitures when they occur. 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. This unrecognized compensation cost will be amortized over an approximate two and a half year period.

 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. 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. The following table summarizes the assumptions used to value the options granted in the periods shown.

 Year Ended December 31,
 
 2023
 2022
 2021
 
 Risk–free interest rate
 4.52 % 1.83 % 0.21 % 

 Expected volatility
 29.3 % 31.4 % 34.9 % 

 Expected life, in years
 2.9 2.9 2.2 

 Expected dividend yield
 4.41 % 3.57 % 3.00 % 

 The following table summarizes option activity:

 Number of
 Shares
 Weighted
 Average
 Exercise Price
 Aggregate
 Intrinsic
 Value
 
 Options outstanding at January 1, 2021
 866,956 $ 72.11 − 

 Options granted
 55,706 70.80 − 

 Options exercised
 ( 541,736 )
 71.39 − 

 Options cancelled
 ( 6,000 )
 72.94 − 

 Options outstanding at December 31, 2021
 374,926 72.95 − 

 Options granted
 302,266 64.72 − 

 Options exercised
 ( 32,597 )
 64.49 − 

 Options cancelled
 ( 199,451 )
 75.98 − 

 Options outstanding at December 31, 2022
 445,144 66.62 − 

 Options granted
 299,278 54.44 − 

 Options exercised
 ( 103,481 )
 64.72 − 

 Options cancelled
 ( 52,407 )
 60.58 − 

 Options outstanding at December 31, 2023
 588,534 61.30 18,315,405 

 Options exercisable at December 31, 2023
 162,781 $ 70.87 $ 3,507,939 

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 Options
 Outstanding
 December 31,
 2023
 Exercise Prices
 Weighted
 Average
 Exercise
 Price
 Weighted
 Average
 Remaining
 Contractual
 Life in
 Years
 
 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 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. The liability is included in accrued risk reserves in the consolidated balance sheets and is subject to adjustment for actual claims incurred. It is possible that these claims plus unasserted claims could exceed our insurance coverages and our reserves, which could have a material adverse effect on our consolidated financial position, results of operations and cash flows.

 As a result of the terms of our insurance policies and our use of wholly owned limited purpose insurance companies, we have retained significant insurance risk with respect to workers’ compensation and general and professional liability. We consider the professional services of independent actuaries to assist us in estimating our exposures for claims obligations (for both asserted and unasserted claims) related to deductibles and exposures in excess of coverage limits, and we maintain reserves for these obligations. Such estimates are based on many variables including historical and statistical information and other factors.

 Workers ’ Compensation 

 For workers’ compensation, we utilize a wholly owned Tennessee domiciled property/casualty insurance company to write coverage for NHC affiliates and for third–party customers. Policies are written for a duration of twelve months and cover only risks related to workers’ compensation losses. All customers are companies which operate in the long–term care industry. Business is written on a direct basis.

 General and Professional Liability Insurance and Lawsuits 

 The senior care industry has experienced significant increases in both the number of personal injury/wrongful death claims and in the severity of awards based upon alleged negligence by skilled nursing facilities and their employees in providing care to residents. The Company has been, and continues to be, subject to claims and legal actions that arise in the ordinary course of business, including potential claims related to patient care and treatment. The defense of these lawsuits may result in significant legal costs, regardless of the outcome, and can result in large settlement amounts or damage awards.

 Insurance coverage for all years includes primary policies and excess policies. The primary coverage is in the amount of a per incident claim and a per location claim with an annual primary policy aggregate limit that is adjusted on an annual basis. Additional insurance is purchased through third party providers that serve to supplement the coverage provided through our wholly owned captive insurance company.

 There is certain additional litigation incidental to our business, none of which, based upon information available to date, would be material to our financial position, results of operations, or cash flows. In addition, the long–term care industry is continuously subject to scrutiny by governmental regulators, which could result in litigation or claims related to regulatory compliance matters.

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 Qui Tam Litigation 

 United States of America, ex rel. Jennifer Cook and Sally Gaither v. Integrated Behavioral Health, Inc., NHC HealthCare/Moulton, LLC, et al., Case No. 2:20 -CV- 00877 -AMM (N.D. Ala.) This is a qui tam case originally filed under seal on June 22, 2020. The United States declined intervention on March 1, 2021. Thereafter, the Plaintiffs filed an amended Complaint against Dr. Sanja Malhotra, Integrated Behavioral Health, Inc. and other entities that Dr. 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 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 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. 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 

 Laws and regulations governing the Medicare, Medicaid and other federal healthcare programs are complex and subject to interpretation. Management believes that it is following all applicable laws and regulations in all material respects. However, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusions from the Medicare, Medicaid and other federal healthcare programs.

 Debt Guarantees 

 At December 31, 2023, no agreement to guarantee the debt of other parties exists.

 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. As discussed below, all of the personnel conducting our business, including our executive management team, are employees of National and may have ownership interests in National only through their participation as employees in the ESOP.

 Management Contracts 

 We currently manage five skilled nursing facilities for National under a management contract. The management contract has been extended until January 1, 2028. See Note 4 for additional information regarding management services fees recognized from National.

 Financing Activities 

 In conjunction with our management contract, we have entered into a line of credit arrangement whereby we may have amounts due from National from time to time. The maximum loan commitment under the line of credit is $ 2,000,000 . At December 31, 2023 and 2022, National did not have an outstanding balance on the line of credit.

 The maximum line of credit commitment amount of $ 2,000,000 is also the amount of a deferred gain that has been outstanding since NHC sold certain assets to National in 1988. The amount of the deferred gain is expected to remain deferred until the management contract with National expires, currently scheduled in January 2028. The deferred gain is included in deferred revenue in the consolidated balance sheets.

 Payroll and Related Services 

 The personnel conducting our business, including our executive management team, are employees of National and may have ownership interests in National only through their participation in the ESOP. National provides payroll services to NHC, provides employee fringe benefits, and maintains certain liability insurance. We pay to National all the costs of personnel employed for our benefit, as well as an administrative fee equal to 1 % of payroll costs. The administrative fee paid to National for the years ended December 31, 2023, 2022, and 2021 was $ 5,431,000 , $ 5,074,000 , and $ 5,112,000 , respectively. 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, 2023 and 2022, National owns 1,084,763 shares, or approximately 7.1 %, of our outstanding common stock. 

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 Consolidation Considerations 

 Because of the contractual and management relationships between NHC and National as described in this note above, we have considered whether National should be consolidated by NHC under the guidance provided in ASC Topic 810, Consolidation . 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 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. 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. We perform ongoing qualitative analysis to determine if we are the primary beneficiary of a VIE. At December 31, 2023 and 2022, we are the primary beneficiary of one VIE and therefore consolidate that entity.

 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. The risks and rewards associated with the operations of the facility and any appreciation or deprecation in the value of the real estate of the facility is borne by NHC. 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, 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. 

 ITEM 9. 
 
 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
 
 None.
NATIONAL HEALTHCARE CORP 10-K

Item 8. Financial Statements and Supplementary Data
