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, 2024 and 2023, the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, 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, 2024, 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 27, 2025, 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 $103,616,000 as of December 31, 2024. 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 27, 2025

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 NATIONAL HEALTHCARE CORPORATION 

 Consolidated Statements of Operations 

 (in thousands, except share and per share amounts) 

 Year Ended December 31,
 
 2024
 
 2023
 
 2022
 
 Revenues:
 
 Net patient revenues
 
 $ 
 1,251,759 
 
 $ 
 1,087,614 
 
 $ 
 1,029,085 
 
 Other revenues
 
 46,178 
 
 53,930 
 
 45,196 
 
 Government grant income
 
 9,445 
 
 – 
 
 11,457 
 
 Net operating revenues and grant income
 
 1,307,382 
 
 1,141,544 
 
 1,085,738 
 
 Costs and expenses:
 
 Salaries, wages and benefits
 
 810,930 
 
 712,344 
 
 686,169 
 
 Other operating
 
 321,390 
 
 288,183 
 
 289,372 
 
 Facility rent
 
 43,182 
 
 41,525 
 
 40,977 
 
 Depreciation and amortization
 
 41,985 
 
 42,034 
 
 40,489 
 
 Interest
 
 4,135 
 
 324 
 
 563 
 
 Recovery of note receivable
 
 – 
 
 – 
 
 ( 3,728 
 ) 
 
 Total costs and expenses
 
 1,221,622 
 
 1,084,410 
 
 1,053,842 
 
 Income from operations
 
 85,760 
 
 57,134 
 
 31,896 
 
 Other income:
 
 Non-operating income
 
 19,690 
 
 16,660 
 
 11,141 
 
 Unrealized gains (losses) on marketable equity securities
 
 30,958 
 
 14,944 
 
 ( 15,806 
 ) 
 
 Income before income taxes
 
 136,408 
 
 88,738 
 
 27,231 
 
 Income tax provision
 
 ( 34,322 
 ) 
 
 ( 23,450 
 ) 
 
 ( 7,254 
 ) 
 
 Net income
 
 102,086 
 
 65,288 
 
 19,977 
 
 Net (income) loss attributable to noncontrolling interest
 
 ( 159 
 ) 
 
 1,510 
 
 2,468 
 
 Net income attributable to National HealthCare Corporation
 
 $ 
 101,927 
 
 $ 
 66,798 
 
 $ 
 22,445 
 
 Earnings per share attributable to National HealthCare Corporation stockholders:
 
 Basic
 
 $ 
 6.62 
 
 $ 
 4.36 
 
 $ 
 1.46 
 
 Diluted
 
 $ 
 6.53 
 
 $ 
 4.34 
 
 $ 
 1.45 
 
 Weighted average common shares outstanding:
 
 Basic
 
 15,393,782 
 
 15,310,142 
 
 15,410,222 
 
 Diluted
 
 15,598,528 
 
 15,377,343 
 
 15,447,211 
 
 Dividends declared per common share
 
 $ 
 2.42 
 
 $ 
 2.34 
 
 $ 
 2.26 
 
 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,
 
 2024
 
 2023
 
 2022
 
 Net income
 
 $ 
 102,086 
 
 $ 
 65,288 
 
 $ 
 19,977 
 
 Other comprehensive income (loss):
 
 Unrealized gains (losses) on investments in marketable debt securities
 
 909 
 
 3,434 
 
 ( 12,946 
 ) 
 
 Reclassification adjustment for realized losses (gains) on sale of marketable debt securities
 
 1,388 
 
 17 
 
 ( 129 
 ) 
 
 Income tax (expense) benefit related to items of other comprehensive income (loss)
 
 ( 409 
 ) 
 
 ( 523 
 ) 
 
 1,938 
 
 Other comprehensive income (loss), net of tax
 
 1,888 
 
 2,928 
 
 ( 11,137 
 ) 
 
 Net (income) loss attributable to noncontrolling interest
 
 ( 159 
 ) 
 
 1,510 
 
 2,468 
 
 Comprehensive income attributable to National HealthCare Corporation
 
 $ 
 103,815 
 
 $ 
 69,726 
 
 $ 
 11,308 
 
 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,
 
 2024
 
 2023
 
 Assets
 
 Current Assets:
 
 Cash and cash equivalents
 
 $ 
 76,121 
 
 $ 
 107,076 
 
 Restricted cash and cash equivalents, current portion
 
 19,568 
 
 17,725 
 
 Marketable equity securities
 
 140,064 
 
 111,117 
 
 Marketable debt securities
 
 – 
 
 5,427 
 
 Restricted marketable equity securities
 
 23,190 
 
 26,779 
 
 Restricted marketable debt securities, current portion
 
 11,529 
 
 12,822 
 
 Accounts receivable
 
 135,325 
 
 108,545 
 
 Inventories
 
 9,039 
 
 7,386 
 
 Prepaid expenses and other assets
 
 9,060 
 
 8,855 
 
 Notes receivable
 
 512 
 
 503 
 
 Total current assets
 
 424,408 
 
 406,235 
 
 Property and Equipment:
 
 Property and equipment, at cost
 
 1,281,736 
 
 1,101,681 
 
 Accumulated depreciation and amortization
 
 ( 597,447 
 ) 
 
 ( 608,352 
 ) 
 
 Net property and equipment
 
 684,289 
 
 493,329 
 
 Other Assets:
 
 Restricted cash and cash equivalents, less current portion
 
 1,233 
 
 1,167 
 
 Restricted marketable debt securities, less current portion
 
 108,275 
 
 109,478 
 
 Deposits and other assets
 
 8,837 
 
 14,786 
 
 Operating lease – right-of-use assets
 
 79,167 
 
 94,201 
 
 Goodwill
 
 170,478 
 
 168,295 
 
 Intangible assets
 
 19,864 
 
 7,038 
 
 Investments in unconsolidated companies
 
 27,878 
 
 16,267 
 
 Total other assets
 
 415,732 
 
 411,232 
 
 Total assets
 
 $ 
 1,524,429 
 
 $ 
 1,310,796 
 
 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,
 
 2024
 2023
 
 Liabilities and Equity
 
 Current Liabilities:
 
 Trade accounts payable
 $ 25,493 $ 19,194 

 Finance lease obligations, current portion
 – 860 

 Operating lease liabilities, current portion
 31,841 29,352 

 Accrued payroll
 92,719 84,110 

 Amounts due to third party payors
 15,351 18,369 

 Accrued risk reserves, current portion
 31,096 30,549 

 Other current liabilities
 21,377 22,991 

 Dividends payable
 9,420 9,051 

 Long-term debt due within one year
 7,500 – 

 Total current liabilities
 234,797 214,476 

 Long-term debt
 129,500 – 

 Operating lease liabilities, less current portion
 45,925 63,175 

 Accrued risk reserves, less current portion
 72,520 72,710 

 Refundable entrance fees
 6,063 6,376 

 Deferred income taxes
 35,550 17,200 

 Other noncurrent liabilities
 16,911 26,379 

 Total liabilities
 541,266 400,316 

 Equity:
 
 Common stock, $ .01 par value; 45,000,000 shares authorized; 15,450,003 and 15,350,661 shares, respectively, issued and outstanding
 154 153 

 Capital in excess of par value
 232,530 227,604 

 Retained earnings
 752,193 687,599 

 Accumulated other comprehensive loss
 ( 4,716 ) ( 6,604 ) 

 Total National HealthCare Corporation stockholders’ equity
 980,161 908,752 

 Noncontrolling interest
 3,002 1,728 

 Total equity
 983,163 910,480 

 Total liabilities and equity
 $ 1,524,429 $ 1,310,796 

 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,
 
 2024
 
 2023
 
 2022
 
 Cash Flows From Operating Activities: 
 
 Net income
 
 $ 
 102,086 
 
 $ 
 65,288 
 
 $ 
 19,977 
 
 Adjustments to reconcile net income to net cash provided by operating activities:
 
 Depreciation and amortization
 
 41,985 
 
 42,034 
 
 40,489 
 
 Equity in earnings of unconsolidated investments
 
 ( 589 
 ) 
 
 ( 2,015 
 ) 
 
 ( 477 
 ) 
 
 Distributions from unconsolidated investments
 
 512 
 
 470 
 
 439 
 
 Unrealized (gains) losses on marketable equity securities
 
 ( 30,958 
 ) 
 
 ( 14,944 
 ) 
 
 15,806 
 
 (Gains) losses on sale of marketable securities
 
 ( 1,093 
 ) 
 
 667 
 
 1,326 
 
 Gain on sale of unconsolidated company
 
 ( 1,024 
 ) 
 
 – 
 
 – 
 
 Gain on sale of property and equipment
 
 – 
 
 ( 6,230 
 ) 
 
 – 
 
 Impairment (recovery) of assets
 
 – 
 
 – 
 
 ( 3,728 
 ) 
 
 Deferred income taxes
 
 17,941 
 
 5,768 
 
 5,995 
 
 Stock–based compensation
 
 4,160 
 
 2,782 
 
 2,612 
 
 Changes in operating assets and liabilities:
 
 Accounts receivable
 
 ( 26,441 
 ) 
 
 ( 8,559 
 ) 
 
 ( 3,862 
 ) 
 
 Inventories
 
 ( 599 
 ) 
 
 ( 298 
 ) 
 
 1,494 
 
 Prepaid expenses and other assets
 
 6,283 
 
 ( 669 
 ) 
 
 ( 11,111 
 ) 
 
 Operating lease obligations
 
 273 
 
 ( 1,244 
 ) 
 
 ( 430 
 ) 
 
 Trade accounts payable
 
 6,299 
 
 2,236 
 
 ( 5,530 
 ) 
 
 Accrued payroll
 
 4,951 
 
 11,600 
 
 ( 34,188 
 ) 
 
 Amounts due to third party payors
 
 ( 3,018 
 ) 
 
 1,738 
 
 ( 964 
 ) 
 
 Accrued risk reserves
 
 357 
 
 790 
 
 4,421 
 
 Provider relief funds
 
 – 
 
 – 
 
 ( 9,443 
 ) 
 
 Contract liabilities
 
 – 
 
 – 
 
 ( 15,022 
 ) 
 
 Other current liabilities
 
 ( 3,349 
 ) 
 
 5,376 
 
 ( 2,444 
 ) 
 
 Other noncurrent liabilities
 
 ( 10,473 
 ) 
 
 6,426 
 
 3,382 
 
 Net cash provided by operating activities
 
 107,303 
 
 111,216 
 
 8,742 
 
 Cash Flows From Investing Activities: 
 
 Purchases of property and equipment
 
 ( 27,600 
 ) 
 
 ( 27,901 
 ) 
 
 ( 30,200 
 ) 
 
 Acquisition of White Oak Manor, net of cash acquired
 
 ( 215,896 
 ) 
 
 – 
 
 – 
 
 Acquisition of other businesses, net of cash acquired
 
 2,097 
 
 ( 2,700 
 ) 
 
 – 
 
 Investments in unconsolidated companies
 
 ( 14,298 
 ) 
 
 ( 4,661 
 ) 
 
 – 
 
 Proceeds from sale of assets
 
 2,100 
 
 – 
 
 4,175 
 
 (Investments in) collections of notes receivable
 
 ( 9 
 ) 
 
 ( 201 
 ) 
 
 3,879 
 
 Purchases of marketable securities
 
 ( 35,057 
 ) 
 
 ( 29,501 
 ) 
 
 ( 33,793 
 ) 
 
 Sale of marketable securities
 
 51,970 
 
 47,396 
 
 49,961 
 
 Net cash used in investing activities
 
 ( 236,693 
 ) 
 
 ( 17,568 
 ) 
 
 ( 5,978 
 ) 
 
 Cash Flows From Financing Activities: 
 
 Borrowings under credit facility
 
 150,000 
 
 – 
 
 – 
 
 Repayments under credit facility
 
 ( 13,000 
 ) 
 
 – 
 
 – 
 
 Debt issuance costs 
 
 ( 400 
 ) 
 
 – 
 
 – 
 
 Principal payments under finance lease obligations
 
 ( 860 
 ) 
 
 ( 4,985 
 ) 
 
 ( 4,695 
 ) 
 
 Dividends paid to common stockholders
 
 ( 36,964 
 ) 
 
 ( 35,560 
 ) 
 
 ( 34,604 
 ) 
 
 Issuance of common shares
 
 14,268 
 
 313 
 
 2,114 
 
 Repurchase of common shares
 
 ( 13,502 
 ) 
 
 ( 2,482 
 ) 
 
 ( 9,903 
 ) 
 
 Noncontrolling interest contributions
 
 1,115 
 
 – 
 
 250 
 
 Entrance fee deposits (refunds)
 
 ( 313 
 ) 
 
 169 
 
 ( 804 
 ) 
 
 Net cash provided by / (used in) financing activities
 
 100,344 
 
 ( 42,545 
 ) 
 
 ( 47,642 
 ) 
 
 Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents 
 
 ( 29,046 
 ) 
 
 51,103 
 
 ( 44,878 
 ) 
 
 Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, Beginning of Period
 
 125,968 
 
 74,865 
 
 119,743 
 
 Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, End of Period 
 
 $ 
 96,922 
 
 $ 
 125,968 
 
 $ 
 74,865 
 
 Balance Sheet Classifications: 
 
 Cash and cash equivalents
 
 $ 
 76,121 
 
 $ 
 107,076 
 
 $ 
 58,667 
 
 Restricted cash and cash equivalents
 
 20,801 
 
 18,892 
 
 16,198 
 
 Total Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents 
 
 $ 
 96,922 
 
 $ 
 125,968 
 
 $ 
 74,865 
 
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 NATIONAL HEALTHCARE CORPORATION 

 Consolidated Statements of Cash Flows 

 (continued, in thousands) 

 Year Ended December 31,
 
 2024
 
 2023
 
 2022
 
 Supplemental Information: 
 
 Cash payments for interest
 
 $ 
 3,416 
 
 $ 
 290 
 
 $ 
 493 
 
 Cash payments for income taxes
 
 $ 
 17,525 
 
 $ 
 14,571 
 
 $ 
 8,765 
 
 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, 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 January 1, 2024
 15,350,661 $ 153 $ 227,604 $ 687,599 $ ( 6,604 ) $ 1,728 $ 910,480 

 Net income
 – – – 101,927 – 159 102,086 

 Contributions attributable to noncontrolling interest
 – – – – – 1,115 1,115 

 Other comprehensive income
 – – – – 1,888 – 1,888 

 Stock–based compensation
 – – 4,160 – – – 4,160 

 Shares sold – options exercised
 232,493 1 14,268 – – – 14,269 

 Repurchase of common shares
 ( 133,151 ) – ( 13,502 ) – – – ( 13,502 ) 

 Dividends declared to common stockholders ($ 2.42 per share)
 – – – ( 37,333 ) – – ( 37,333 ) 

 Balance at December 31, 2024
 15,450,003 $ 154 $ 232,530 $ 752,193 $ ( 4,716 ) $ 3,002 $ 983,163 

 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 9 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. 

 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 $ 8,831,000 , $ 7,424,000 , and $ 4,711,000 for years ended December 31, 2024, 2023, and 2022, respectively. As of December 31, 2024, and 2023, the Company has recorded allowance for doubtful accounts of $ 9,702,000 and $ 8,054,000 , 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 to other healthcare providers, 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.

 For the year ended December 31, 2024, all conditions related to the Employee Retention Credit ("ERC") were met and the credit was recognized as government grant income. The ERC was established by the CARES Act and intended to help businesses retain their workforce and avoid layoffs during the pandemic. The ERC provided a per employee credit to eligible businesses based on a percentage of qualified wages and health insurance benefits paid to employees. The qualified wages and health insurance benefits paid by the Company were related to the second, third and fourth quarters of 2020. 
 
 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 and incentive compensation, which were $ 26,236,000 , $ 21,412,000 , and $ 20,651,000 for the years ended December 31, 2024, 2023, and 2022, respectively. Included in general and administrative costs during 2024 are acquisition-related expenses for the White Oak Senior Living portfolio. See Note 2 - Acquisition of White Oak Senior Living for additional detail regarding the acquisition.
 
 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. The recovery of the note receivable is recorded in the consolidated statements of operations under the line item “recovery of note receivable”. 
 
 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.
 
 Business Combinations 

 We account for transactions that represent business combinations using the acquisition method of accounting in accordance with FASB ASC Topic 805, Business Combinations (Topic 805 ). 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. Such fair values that are not finalized for reporting periods following the acquisition date are estimated and recorded as provisional amounts during the measurement period. The measurement period is defined as the date through which all information required to identify and measure the consideration transferred, the assets acquired, the liabilities assumed and any noncontrolling interests has been obtained, limited to one year from the acquisition date.

 Goodwill generated from business combinations 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. 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. In accordance with ASC Topic 350, Intangibles - Goodwill and Other ("ASC 350" ), the guidance provides the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, based on a review of qualitative factors, it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company performs a goodwill impairment test by comparing the carrying value of each reporting unit to its respective fair value. The Company determines the estimated fair value of each reporting unit using a discounted cash flow analysis. The fair value of the reporting unit is implied fair value of goodwill. In the event a reporting unit's carrying value exceeds its fair value, an impairment loss will be recognized. An impairment loss is measured by the difference between the carrying value of the reporting unit and its fair value. The Company elected to perform a qualitative assessment during both fiscal years 2024 and 2023 and determined for both periods that no indicators of impairment existed.

 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 is below its carrying amount.
 
 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 continuing care retirement centers (“CCRC”) within our operations. Residents may enter into continuing care contracts with us. 

 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, 2024 and December 31, 2023 were $ 6,063,000 and $ 6,376,000 , 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, 2024 and 2023, we have recorded a future service obligation in the amounts of $ 1,474,000 and $ 1,606,000 , 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 the subsidiary earnings, contributions, and distributions.
 
 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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 Recently Adopted Accounting Guidance 

 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. The Company has adopted the standard and has included the appropriate disclosures in our notes to the financial statements.

 Recent Accounting Guidance Not Yet Adopted 

 In October 2023, the FASB issued ASU 2023 - 06, " Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative ," which amends U.S. GAAP to include certain disclosure requirements that are currently required under SEC Regulation S- X or Regulation S-K. each amendment will be effective on the date on which the SEC removes the related disclosure requirement from SEC Regulation S- X or Regulation S-K. The adoption is not expected to have a material impact on the Company's financial statements as these requirements were previously incorporated under the SEC Regulations.

 In December 2023, the FASB issued ASU 2023 - 09 " Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures ," which requires companies to disclose disaggregated jurisdictional and categorical information for the tax rate reconciliation, income taxes paid and other income tax related amounts. ASU 2023 - 09 is effective for annual periods beginning with the Company's fiscal year 2025, with early adoption permitted. We are currently evaluating the impact this ASU will have on our disclosures.

 In November 2024, the FASB issued ASU 2024 - 03 " Disaggregation of Income Statement Expenses ," which requires the Company to disaggregate key expense categories such as employee compensation and depreciation within its financial statements. ASU 2024 - 03 is effective for annual periods beginning with the Company's fiscal year 2027, and interim periods with the Company's fiscal year 2028, with early adoption permitted. We are currently evaluating the impact this ASU will have on the company's financial statements and related disclosures.
 
 Reclassifications 

 Certain accounts in the prior-year financial statements have been reclassified for comparative purposes to conform to the presentation in the current-year financial statements.
 
 Note 2 – Acquisition of White Oak Senior Living 

 On August 1, 2024, the Company purchased certain assets and assumed certain liabilities of the White Oak Senior Living (“White Oak”) portfolio for a purchase price of $ 221,400,000 , subject to the adjustments set forth in the agreement. The White Oak portfolio consists of 22 healthcare operations, which includes 15 skilled nursing facilities, two assisted living facilities, four independent living facilities, and a long-term care pharmacy. The operations have 1,928 licensed skilled nursing beds, 48 assisted living units, and 302 independent living units in the states of South Carolina and North Carolina ( 2,278 total beds/units). The acquisition represents both an expansion of NHC’s operations into a new state (North Carolina) and a strategic advancement of its growth in its existing operational footprint. 

 The Company utilized widely accepted income-based, market-based, and cost-based valuation approaches to perform the purchase price allocation.

 The Company has performed a valuation analysis of the fair market value of White Oak’s assets acquired and liabilities assumed. The following table summarizes the allocation of the purchase price as of the transaction’s closing date ( in thousands ):

 Amount
 
 Cash and cash equivalents
 $ 9 

 Inventories
 1,054 

 Prepaid expenses and other assets
 137 

 Property and equipment
 205,345 

 Operating lease right-of-use assets
 11,380 

 Intangible assets
 12,826 

 Total assets acquired
 230,751 

 Operating lease liabilities, current portion
 424 

 Accrued payroll
 3,559 

 Other current liabilities
 1,085 

 Operating lease liabilities, less current portion
 10,956 

 Other noncurrent liabilities
 1,005 

 Total liabilities assumed
 17,029 

 Net identifiable assets acquired
 213,722 

 Goodwill
 2,183 

 Total estimated fair value of the acquisition
 $ 215,905 

 The indefinite-lived intangible assets acquired include the trade name of White Oak and the skilled nursing certificates of need and licenses. The goodwill is recorded in the inpatient services segment and is attributed to the workforce acquired and reputation of the business as part of the transaction. We expect the goodwill to be deductible for income tax purposes.

 For the year ended December 31, 2024, White Oak contributed net operating revenues of $ 96,065,000 and income before income taxes of $ 4,974,000 that are included in the Company’s statements of operations. The Company recognized $ 3,266,000 in acquisition-related expenses for the year ended December 31, 2024 in connection with the White Oak acquisition. These costs related to legal and other professional fees, which were included as a component of other operating expenses in the consolidated statements of operations.

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 The following table contains unaudited pro forma consolidated statements of operations information for the years ended December 31, 2024, 2023, and 2022, assuming the White oak acquisition closed on January 1, 2022 (in thousands) .

 Year Ended December 31,
 
 2024
 2023
 2022
 
 Net operating revenues and grant income
 $ 1,434,768 $ 1,342,207 $ 1,273,974 

 Income before income taxes
 140,779 86,698 22,213 

 Net income attributable to NHC
 $ 105,321 $ 63,778 $ 16,264 

 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,
 
 2024
 2023
 2022
 
 Inpatient services
 $ 1,111,300 $ 956,077 $ 900,231 

 Homecare and hospice services
 140,459 131,537 128,854 

 Total net patient revenues
 $ 1,251,759 $ 1,087,614 $ 1,029,085 

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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
 2024
 2023
 2022
 
 Medicare
 33 % 34 % 37 % 

 Managed Care
 10 % 10 % 10 % 

 Medicaid
 29 % 30 % 28 % 

 Private Pay and Other
 28 % 26 % 25 % 

 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.

 State Relief Supplemental Funding 

 The Company received supplemental Medicaid payments from various states, including healthcare relief funding under the American Rescue Plan Act ("ARPA") and other state specific relief programs. The funding generally incorporates specific use requirements primarily for direct patient care including labor related expenses or various patient care related expenses. We have recorded $ 12,749,000 , $ 20,214,000 and $ 19,442,000 in net patient revenues for these supplemental Medicaid payments for the years ended December 31, 2024, 2023, and 2022, respectively.

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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 $ 15,351,000 and $ 18,369,000 as of December 31, 2024 and 2023, 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,
 
 2024
 2023
 2022
 
 Rental income
 $ 24,042 $ 23,926 $ 23,451 

 Management and accounting service fees
 17,237 18,544 16,160 

 Insurance services
 3,344 3,857 4,766 

 Other
 1,555 1,373 819 

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

 Total other revenues
 $ 46,178 $ 53,930 $ 45,196 

 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,
 
 2024
 2023
 2022
 
 Operating lease payments
 $ 22,994 $ 22,928 $ 23,039 

 Variable lease payments
 1,048 998 412 

 Total rental income
 $ 24,042 $ 23,926 $ 23,451 

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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, 2024 ( in thousands ):

 2025
 $ 22,921 

 2026
 20,407 

 2027
 73 

 2028
 6 

 2029
 – 

 Thereafter
 – 

 Total future minimum lease payments
 $ 43,407 

 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 2024, 2023 and 2022, we recognized approximately $ 5,643,000 , $ 5,200,000 , and $ 4,332,000 , respectively, of management fees and interest on management fees. Unrecognized and unpaid management fees and interest on management fees from National total $ 18,975,000 and $ 19,049,000 at December 31, 2024 and 2023, 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, 2024, 2023 and 2022, we recognized management fees and financial and accounting fees of $ 11,594,000 , $ 13,344,000 , and $ 11,828,000 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, 2024, 2023 and 2022 were $ 2,186,000 , $ 2,611,000 , and $ 2,689,000 , 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, 2024, 2023 and 2022 were $ 1,158,000 , $ 1,246,000 , and $ 2,077,000 , 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 December 2023, we contributed land to a newly-formed limited liability company resulting in an equity interest in the new joint venture 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,
 
 2024
 2023
 2022
 
 Equity in earnings of unconsolidated investments
 $ 589 $ 2,015 $ 477 

 Dividends and net realized gains or losses on the sale of securities
 7,973 6,262 5,530 

 Interest income
 10,104 8,383 5,134 

 Gain on sale of unconsolidated company
 1,024 – – 

 Total non-operating income
 $ 19,690 $ 16,660 $ 11,141 

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 Gain on sale of unconsolidated company 

 In January 2024, the Company sold its 50 % joint venture ownership interest in a homecare agency located in Nashville, Tennessee. The total consideration paid to the Company was $ 2,100,000 , which resulted in a gain of $ 1,024,000 .

 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, 2024
 
 Inpatient
 Services
 Homecare
 and Hospice
 All Other
 Total
 
 Revenues:
 
 Net patient revenues
 $ 1,111,300 $ 140,459 $ – $ 1,251,759 

 Other revenues
 1,315 – 44,863 46,178 

 Government grant income
 – – 9,445 9,445 

 Net operating revenues and grant income
 1,112,615 140,459 54,308 1,307,382 

 Costs and Expenses:
 
 Salaries, wages and benefits
 668,029 85,712 57,189 810,930 

 Other operating
 280,867 25,927 14,596 321,390 

 Facility rent
 33,787 2,295 7,100 43,182 

 Depreciation and amortization
 37,988 737 3,260 41,985 

 Interest
 4,135 – – 4,135 

 Total costs and expenses
 1,024,806 114,671 82,145 1,221,622 

 Income (loss) before non-operating income
 87,809 25,788 ( 27,837 ) 85,760 

 Non-operating income
 – – 19,690 19,690 

 Unrealized gains on marketable equity securities
 – – 30,958 30,958 

 Income before income taxes
 $ 87,809 $ 25,788 $ 22,811 $ 136,408 

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 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
 32,542 2,172 6,811 41,525 

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

 Interest
 324 – – 324 

 Total costs and expenses
 914,876 107,097 62,437 1,084,410 

 Income (loss) before non-operating income
 42,342 24,440 ( 9,648 ) 57,134 

 Non-operating income
 – – 16,660 16,660 

 Unrealized gains on marketable equity securities
 – – 14,944 14,944 

 Income before income taxes
 $ 42,342 $ 24,440 $ 21,956 $ 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 grant 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
 32,526 2,327 6,124 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
 901,673 107,025 45,144 1,053,842 

 Income before non-operating income
 10,151 21,829 ( 84 ) 31,896 

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

 Unrealized losses on marketable equity securities
 – – ( 15,806 ) ( 15,806 ) 

 Income (loss) before income taxes
 $ 10,151 $ 21,829 $ ( 4,749 ) $ 27,231 

 Note 7 – Long – Term Leases 

 Operating Leases 

 At December 31, 2024, 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 $ 32,625,000 in 2024. The annual base rent is $ 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 2024, 2023, and 2022 was $ 6,289,000 , $ 5,549,000 and $ 3,887,000 , 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.

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 Minimum Lease Payments 

 The following table summarizes the maturity of our operating lease liabilities as of December 31, 2024 ( in thousands ):

 Operating
 Leases
 
 2025
 $ 35,873 

 2026
 35,195 

 2027
 2,420 

 2028
 1,825 

 2029
 1,565 

 Thereafter
 11,788 

 Total minimum lease payments
 $ 88,666 

 Less: amounts representing interest
 ( 10,900 ) 

 Present value of future minimum lease payments
 77,766 

 Less: current portion
 ( 31,841 ) 

 Noncurrent lease liabilities
 $ 45,925 

 As of December 31, 2024 and 2023, the weighted average remaining lease term is 3.7 years and 3.0 years, respectively. As of December 31, 2024 and 2023, the weighted average discount rate used to determine lease liabilities is 7.0 % and 6.6 %, respectively.

 Lease Costs 

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

 December 31,
 
 2024
 2023
 2022
 
 Operating lease costs:
 
 Operating lease costs
 35,669 34,953 36,051 

 Variable lease costs
 6,289 5,549 3,887 

 Short-term lease costs
 1,224 1,023 1,039 

 Total operating lease costs
 43,182 41,525 40,977 

 Cash paid for amounts included in the measurement of lease liabilities were $ 35,394,000 , $ 36,198,000 and $ 36,051,000 for the years ended December 31, 2024, 2023 and 2022, respectively.

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 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,
 
 2024
 2023
 2022
 
 Basic:
 
 Weighted average common shares outstanding
 15,393,782 15,310,142 15,410,222 

 Net income attributable to common stockholders of National Healthcare Corporation
 $ 101,927 $ 66,798 $ 22,445 

 Earnings per common share, basic
 $ 6.62 $ 4.36 $ 1.46 

 Diluted:
 
 Weighted average common shares outstanding
 15,393,782 15,310,142 15,410,222 

 Dilutive effect of stock options
 204,746 67,201 36,989 

 Assumed average common shares outstanding
 15,598,528 15,377,343 15,447,211 

 Net income attributable to common stockholders of National Healthcare Corporation
 $ 101,927 $ 66,798 $ 22,445 

 Earnings per common share, diluted
 $ 6.53 $ 4.34 $ 1.45 

 For the years ended December 31, 2024 and 2023, there were no stock options excluded from the calculation of diluted weighted average shares of common stock outstanding. For the year ended December 31, 2022, 375,638 stock options were excluded from the calculation of diluted weighted average shares of common stock outstanding because the inclusion of these securities would have an anti-dilutive effect.

 Note 9 – Investments in Marketable Securities 

 Marketable securities consist of the following (in thousands) :

 December 31, 2024
 December 31, 2023
 
 Amortized
 Cost
 Fair
 Value
 Amortized
 Cost
 Fair
 Value
 
 Investments available for sale:
 
 Marketable equity securities
 $ 30,176 $ 140,064 $ 30,176 $ 111,117 

 Corporate debt securities
 – – 2,497 2,441 

 U.S. Treasury securities
 – – 2,990 2,986 

 Restricted investments available for sale: 
 
 Marketable equity securities
 18,534 23,190 24,134 26,779 

 Corporate debt securities
 58,927 57,471 59,586 57,731 

 Asset–backed securities
 15,593 14,410 19,388 17,659 

 U.S. Treasury securities
 46,811 44,186 46,771 42,863 

 State and municipal securities
 3,787 3,737 4,106 4,047 

 $ 173,828 283,058 $ 189,648 $ 265,623 

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

 December 31, 2024
 December 31, 2023
 
 Shares
 Cost
 Fair
 Value
 Shares
 Cost
 Fair
 Value
 
 NHI Common Stock
 1,630,642 $ 24,734 $ 113,003 1,630,642 $ 24,734 $ 91,071 

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

 December 31, 2024
 December 31, 2023
 
 Cost
 Fair
 Value
 Cost
 Fair
 Value
 
 Maturities:
 
 Within 1 year
 $ 25,707 $ 25,317 $ 19,664 $ 19,328 

 1 to 5 years
 66,117 63,379 81,517 77,118 

 6 to 10 years
 32,648 30,606 33,515 30,802 

 Over 10 years
 646 502 642 479 

 $ 125,118 $ 119,804 $ 135,338 $ 127,727 

 Gross unrealized gains related to marketable equity securities are $ 115,259,000 and $ 84,514,000 as of December 31, 2024 and 2023, respectively. Gross unrealized losses related to marketable equity securities are $ 715,000 and $ 928,000 as of December 31, 2024 and 2023, respectively. For the years ended December 31, 2024 and 2023, the Company recognized net unrealized gains of $ 30,958,000 and $ 14,944,000 , respectively, in the consolidated statements of operations. For the year ended December 31, 2022, the Company recognized net unrealized losses of $ 15,806,000 in the consolidated statements of operations.

 Gross unrealized gains related to available for sale marketable debt securities are $ 135,000 and $ 326,000 as of December 31, 2024 and 2023, respectively. Gross unrealized losses related to available for sale marketable debt securities are $ 5,449,000 and $ 7,937,000 as of December 31, 2024 and 2023, 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, 2024 and 2023. 

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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, 2024, 2023, and 2022 were $ 51,970,000 , $ 47,396,000 , and $ 49,961,000 , respectively. Net investment gains of $ 1,093,000 and net investment losses of $ 667,000 and $ 1,326,000 were realized on these sales during the years ended December 31, 2024, 2023, and 2022, 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, 2024 or 2023. 

 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, 2024 and 2023, 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, 2024 and December 31, 2023 for assets and liabilities measured at fair value on a recurring basis (in thousands) :

 Fair Value Measurements Using
 
 December 31, 2024
 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
 $ 76,121 $ 76,121 $ – $ – 

 Restricted cash and cash equivalents
 20,801 20,801 – – 

 Marketable equity securities
 163,254 163,254 – – 

 Corporate debt securities
 57,471 43,656 13,815 – 

 Asset–backed securities
 14,410 − 14,410 – 

 U.S. Treasury securities
 44,186 44,186 – – 

 State and municipal securities
 3,737 806 2,931 – 

 Total financial assets
 $ 379,980 $ 348,824 $ 31,156 

 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 

 Note 11 – Property and Equipment 

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

 December 31,
 
 2024
 2023
 
 Land
 $ 99,815 $ 65,579 

 Leasehold improvements
 133,049 129,801 

 Buildings and improvements
 835,851 700,044 

 Furniture and equipment
 200,872 195,159 

 Construction in progress
 12,149 11,098 

 Property and equipment, at cost
 1,281,736 1,101,681 

 Less: Accumulated depreciation
 ( 597,447 ) ( 608,352 ) 

 Net property and equipment
 $ 684,289 $ 493,329 

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 Note 12 – Goodwill and Other Intangible Assets 

 As of December 31, 2024, 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, 2024, 2023, and 2022. 

 The following table represents activity in goodwill by segment as of and for the year ended December 31, 2024 ( in thousands ):

 Year Ended December 31, 2024
 
 Inpatient
 Services
 Homecare
 and Hospice
 All Other
 Total
 
 January 1, 2023
 3,741 164,554 – 168,295 

 Additions
 – – – – 

 December 31, 2023
 3,741 164,554 – 168,295 

 Additions
 2,183 – – 2,183 

 December 31, 2024
 $ 5,924 $ 164,554 $ – $ 170,478 

 As part of the White Oak acquisition (Note 2 ) in 2024, we recorded goodwill in the amount of $ 2,183,000 . 

 Indefinite-lived intangible assets consist of the following (in thousands) :

 December 31,
 2024
 December 31,
 2023
 
 Trade names
 $ 15,896 $ 4,340 

 Certificates of need
 1,756 532 

 Licenses
 2,212 2,166 

 Total
 $ 19,864 $ 7,038 

 As part of the White Oak acquisition (Note 2 ) in 2024, we recorded indefinite-lived intangible assets that consisted of the trade name ($ 11,556,000 ) and certificates of need and licenses ($ 1,270,000 ).

 Note 13 – Income Taxes 

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

 Year Ended December 31,
 
 2024
 2023
 2022
 
 Current tax provision
 
 Federal
 $ 12,900 $ 14,520 $ 717 

 State
 3,490 3,137 251 

 Total current tax provision
 16,390 17,657 968 

 Deferred tax provision
 
 Federal
 13,841 4,142 4,595 

 State
 4,091 1,651 1,691 

 Total deferred tax provision
 17,932 5,793 6,286 

 Income tax provision
 $ 34,322 $ 23,450 $ 7,254 

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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,
 
 2024
 2023
 
 Deferred tax assets:
 
 Accrued risk reserves
 $ 2,012 $ 1,898 

 Accrued expenses
 7,695 7,346 

 Tax basis in excess of book basis of fixed assets
 – 5,653 

 Stock based compensation
 1,181 931 

 Deferred revenue
 3,154 4,987 

 Operating lease liabilities
 19,896 23,658 

 Other
 847 567 

 Total gross deferred tax assets
 34,785 45,050 

 Less: valuation allowance
 ( 517 ) ( 594 ) 

 Deferred tax assets less valuation allowance
 $ 34,268 $ 44,446 

 Deferred tax liabilities:
 
 Unrealized gains on marketable securities
 $ ( 28,581 ) $ ( 19,971 ) 

 Deferred gain on sale of assets, net
 ( 2,055 ) ( 2,055 ) 

 Book basis in excess of tax basis of intangible assets
 ( 5,655 ) ( 3,387 ) 

 Book basis in excess of tax basis of securities
 ( 4,042 ) ( 3,393 ) 

 Book basis in excess of tax basis of fixed assets
 ( 6,579 ) – 

 Long–term investments
 ( 2,652 ) ( 8,753 ) 

 Operating lease assets
 ( 20,254 ) ( 24,087 ) 

 Total deferred tax liabilities
 $ ( 69,818 ) $ ( 61,646 ) 

 Net deferred tax liability
 $ ( 35,550 ) $ ( 17,200 ) 

 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,
 
 2024
 2023
 2022
 
 Tax provision at federal statutory rate
 $ 28,646 $ 18,635 $ 5,719 

 Increase in income taxes resulting from:
 
 State, net of federal benefit
 6,349 4,600 1,034 

 Unrecognized tax benefits
 690 1,227 730 

 Expiration of statute of limitations
 ( 932 ) ( 1,491 ) ( 1,032 ) 

 Tax (expense) benefit of noncontrolling interest
 ( 34 ) 317 518 

 Other
 ( 397 ) 162 285 

 Total increases
 5,676 4,815 1,535 

 Effective income tax expense
 $ 34,322 $ 23,450 $ 7,254 

 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, 2022
 $ 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 

 Additions based on tax positions related to the current year
 835 835 – 835 

 Additions (reductions) for tax positions of prior years
 ( 1,380 ) ( 1,097 ) 859 ( 238 ) 

 Reductions for statute of limitation expirations
 ( 232 ) ( 592 ) ( 572 ) ( 1,164 ) 

 Balance, December 31, 2024
 $ 4,872 $ 8,399 $ 3,725 $ 12,124 

 Unrecognized tax benefits of $ 4,150,000 , net of federal benefit at December 31, 2024, 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 2025 year, except for the effect of decreases related to the lapse of statute of limitations estimated at $ 1,113,000 .

 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 2021 (with few state exceptions).

 Note 14 – Stock Repurchases 

 During 2024, the Company purchased 133,151 shares of its common stock for a total cost of $ 13,502,000 . During 2023, the Company purchased 44,349 shares of its common stock for a total cost of $ 2,482,000 . During 2022, the Company purchased 148,547 shares of its common stock for a total cost of $ 9,903,000 . The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued. 

 Note 15 – Stock – Based Compensation 

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

 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 an employee stock purchase plan. The employee stock purchase plan allows employees to purchase our shares of stock through payroll deductions. At December 31, 2024, 1,503,127 shares were available for future grants under the 2020 Equity Incentive Plan.

 Compensation expense is recognized only for the awards that ultimately vest. The Company accounts for forfeitures when they occur. Stock–based compensation totaled $ 4,160,000 , $ 2,782,000 , and $ 2,612,000 , for the years ended December 31, 2024, 2023, and 2022, 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 $ 9,143,000 , $ 2,769,000 , and $ 583,000 for the years ended December 31, 2024, 2023 and 2022, respectively. 

 At December 31, 2024, the Company had $ 4,625,000 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,
 
 2024
 2023
 2022
 
 Risk–free interest rate
 4.40 % 4.52 % 1.83 % 

 Expected volatility
 24.1 % 29.3 % 31.4 % 

 Expected life, in years
 2.9 2.9 2.9 

 Expected dividend yield
 2.63 % 4.41 % 3.57 % 

 The following table summarizes option activity:

 Number of
 Shares
 Weighted
 Average
 Exercise Price
 Aggregate
 Intrinsic
 Value
 
 Options outstanding at January 1, 2022
 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 − 

 Options granted
 297,783 94.42 − 

 Options exercised
 ( 219,973 ) 64.73 − 

 Options cancelled
 ( 35,102 ) 79.20 − 

 Options outstanding at December 31, 2024
 631,242 $ 74.73 $ 20,720,547 

 Options exercisable at December 31, 2024
 151,439 $ 63.80 $ 6,627,473 

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 Options
 Outstanding
 December 31,
 2024
 Exercise Prices
 Weighted
 Average
 Exercise
 Price
 Weighted
 Average
 Remaining
 Contractual
 Life in
 Years
 
 328,137 $ 53.94 – $ 69.19 $ 58.82 2.7 

 303,105 $ 71.64 – $ 96.03 91.96 3.9 

 631,242 $ 74.73 3.3 

 Note 16 – Long-Term Debt 

 Long–term debt consists of the following ( dollars in thousands ):

 Interest rate
 at
 December 31,
 2024
 Maturity
 September 30,
 2024
 December 31,
 2023
 
 Credit facility, interest payable monthly
 Variable, 6.1% 
 2029 
 $ 137,000 $ – 

 Less current portion
 ( 7,500 ) – 

 Long-term debt, less current portion
 $ 129,500 $ – 

 On August 1, 2024, the Company entered into a $ 200,000,000 senior credit facility with a five -year term consisting of a $ 150,000,000 term facility and a $ 50,000,000 revolving line of credit (the “Credit Facility”). The Credit Facility is for general corporate purposes, including working capital and acquisitions. The loans bear interest at either (i) Term Secured Overnight Financing Rate (“SOFR”) for interest periods of one, three or six months, plus the applicable margin or, at NHC’s option, (ii) the Base Rate plus the applicable margin. The applicable margin is an interest rate per annum between 1.30 % and 1.65 % for Term SOFR loans and between .30% and .65% for Base Rate loans, depending upon the Company meeting certain conditions. The revolving line of credit contains a commitment fee equal to 0.25 % of the unused borrowing capacity. There are no amounts outstanding on the revolving line of credit at December 31, 2024. 

 NHC’s obligations under the Credit Facility are unsecured. The Credit Facility contains customary representations and warranties, financial covenants, and other customary affirmative and negative covenants. The Credit Facility also contains customary events of default. As of December 31, 2024, the Company is compliant with all financial covenants. Based on level 2 inputs, the carrying value of the Company's long-term debt is considered to approximate the fair value of such debt based upon the interest rates that the Company believes it can currently obtain for similar debt.

 The aggregate maturities of long–term debt for the five years subsequent to December 31, 2024 are as follows (in thousands) :

 Long–Term Debt
 
 2025
 $ 7,500 

 2026
 7,500 

 2027
 7,500 

 2028
 7,500 

 2029
 107,000 

 Total
 $ 137,000 

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 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 $ 103,616,000 and $ 103,259,000 at December 31, 2024 and 2023, 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 time period for the Plaintiffs to file a Petition for a Writ of Certiorari with the United States Supreme Court has expired making the Order affirming dismissal issued by the Eleventh Circuit final. 

 Civil Investigative Demand 

 On or about May 21, 2024, Caris Healthcare, L.P. (“Caris”) received a Civil Investigative Demand (“CID”) from the U.S. Attorney’s Office for the Eastern District of Tennessee. The CID requests the production of certain medical records for patients at Caris’ Nashville office and other documents related to the billing for hospice services for the period of January 1, 2019, through the date of the CID. The Company is cooperating with respect to the requests and remains in the process of responding to the CID.

 Indemnities 

 From time to time, the Company enters into certain types of contracts that contingently require it to indemnify parties against third -party claims. These contracts primarily include (i) certain real estate leases, under which the Company may be required to indemnify property owners or prior facility operators for post-transfer liabilities and other claims arising from the Company’s use of the applicable premises, (ii) operations transfer agreements, in which the Company agrees to indemnify past operators of facilities against certain liabilities arising from the transfer of the operation and/or the operation thereof after the transfer to the Company or its subsidiary, (iii) certain lending agreements, under which the Company may be required to indemnify the lender against various claims and liabilities, (iv) certain agreements by and between the Company and/or its subsidiaries or affiliates, and (v) certain agreements with the Company officers, directors and others, under which the Company may be required to indemnify such persons for liabilities arising out of the nature of their relationship to the Company and/or its subsidiaries and affiliates. The terms of such obligations vary by contract and, in most instances, do not expressly state or include a specific or maximum dollar amount. Generally, amounts under these contracts cannot be reasonably estimated until a specific claim is asserted. Consequently, because no specific indemnity claims have been asserted, no liabilities have been recorded for these obligations on the consolidated balance sheets for any of the periods presented.

 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, 2024, 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, 2024 and 2023, 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, 2024, 2023, and 2022 was $ 5,878,000 , $ 5,431,000 , and $ 5,074,000 , respectively. At December 31, 2024 and 2023, the Company has recorded $ 2,933,000 and $ 1,499,000 , 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, 2024 and 2023, National owns 1,030,887 and 1,084,763 shares, respectively, of our outstanding common stock. This accounts for 6.7 % and 7.1 %, respectively, of the total outstanding shares of 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. 

 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
