nhc20200331_10q.htm
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Table of Contents



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to ____________

 

 

Commission file number    001-13489

 

 

(Exact name of registrant as specified in its Charter)

 

 

Delaware

52-2057472

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization

Identification No.)

 

 

100 E. Vine Street

Murfreesboro, TN

37130

(Address of principal executive offices)

(Zip Code)

 

 

(615) 890–2020

Registrant's telephone number, including area code

   

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

Trading

Symbols(s)

Name of each exchange on which registered
Common, $0.01 par value NHC NYSE American

 

 

 

Indicate by check mark whether the registrant: (1) Has filed all reports required to be filed by Section 13 or 15(d), of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S–T (§ 232.405 of this chapter) during the preceding 12 months (or for such period that the registrant was required to submit such files).    Yes ☒      No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated filer

Accelerated filer  ☐

 

 

Non–accelerated filer  ☐

Smaller reporting company

 

 

 

Emerging growth company 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the registrant is a shell company (as is defined in Rule 12b–2 of the Exchange Act). Yes    No ☒

 

15,357,674 shares of common stock of the registrant were outstanding as of May 4, 2020.

  



 

 
 

 

TABLE OF CONTENTS

 

 

PART I. FINANCIAL INFORMATION

 

Page

Item 1.

Financial Statements

3

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

22

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

 

 

 

Item 4.

Controls and Procedures

33

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

33

 

 

 

Item 1A

Risk Factors

33

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

 

 

 

Item 3.

Defaults Upon Senior Securities

33

 

 

 

Item 4.

Mine Safety Disclosures

34

 

 

 

Item 5.

Other Information

34

 

 

 

Item 6.

Exhibits

35

 

 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(unaudited)

 

   

Three Months Ended

March 31

 
   

2020

   

2019

 

Revenues:

               

Net patient revenues

  $ 244,095     $ 236,111  

Other revenues

    12,029       12,174  

Net operating revenues

    256,124       248,285  
                 

Cost and expenses:

               

Salaries, wages and benefits

    147,469       141,388  

Other operating

    71,668       69,432  

Facility rent

    10,332       10,238  

Depreciation and amortization

    10,438       10,517  

Interest

    412       926  

Total costs and expenses

    240,319       232,501  
                 

Income from operations

    15,805       15,784  
                 

Other income:

               

Non–operating income

    8,146       6,001  

Unrealized gains/(losses) on marketable equity securities

    (60,392

)

    6,838  
                 

Income/(loss) before income taxes

    (36,441

)

    28,623  

Income tax (provision)/benefit

    9,625       (7,392

)

Net income/(loss)

    (26,816

)

    21,231  

(Income)/loss attributable to noncontrolling interest

    (36

)

    38  
                 

Net income/(loss) attributable to National HealthCare Corporation

  $ (26,852

)

  $ 21,269  
                 

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

               

Basic

  $ (1.76

)

  $ 1.39  

Diluted

  $ (1.76

)

  $ 1.39  
                 

Weighted average common shares outstanding:

         

Basic

    15,294,777       15,256,189  

Diluted

    15,294,777       15,324,125  
                 

Dividends declared per common share

  $ 0.52     $ 0.50  

 

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

 

3

 

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Comprehensive Income

(unaudited – in thousands)

 

   

Three Months Ended

March 31

 
   

2020

   

2019

 
                 

Net income/(loss)

  $ (26,816

)

  $ 21,231  
                 

Other comprehensive income/(loss):

               

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

    (2,545

)

    3,225  

Reclassification adjustment for realized gains on sale of securities

    (2

)

    -  

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

    535       (677

)

Other comprehensive income/(loss), net of tax

    (2,012

)

    2,548  
                 

Net (income)/loss attributable to noncontrolling interest

    (36

)

    38  
                 

Comprehensive income/(loss) attributable to National HealthCare Corporation

  $ (28,864

)

  $ 23,817  

 

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

 

4

 

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Balance Sheets

(in thousands)

 

   

March 31,

2020

   

December 31,

2019

 
   

unaudited

         

Assets

               

Current Assets:

               

Cash and cash equivalents

  $ 69,492     $ 50,334  

Restricted cash and cash equivalents, current portion

    12,947       8,944  

Marketable equity securities

    92,061       152,453  

Restricted marketable debt securities, current portion

    16,685       20,576  

Accounts receivable

    100,411       92,975  

Inventories

    7,904       7,441  

Prepaid expenses and other assets

    5,397       4,075  

Notes receivable, current portion

    1,785       1,695  

Federal income tax receivable

    -       2,560  

Total current assets

    306,682       341,053  
                 

Property and Equipment:

               

Property and equipment, at cost

    1,032,795       1,017,204  

Accumulated depreciation and amortization

    (492,175

)

    (481,774

)

Net property and equipment

    540,620       535,430  
                 

Other Assets:

               

Restricted cash and cash equivalents, less current portion

    1,741       1,732  

Restricted marketable debt securities, less current portion

    131,126       126,830  

Deposits and other assets

    5,897       5,124  

Operating lease right-of-use assets

    196,960       202,909  

Goodwill

    21,341       20,995  

Notes receivable, less current portion

    13,168       13,384  

Investments in unconsolidated companies

    38,772       39,191  

Total other assets

    409,005       410,165  

Total assets

  $ 1,256,307     $ 1,286,648  

 

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

 

5

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Balance Sheets (continued)

(in thousands, except share and per share amounts)

 

   

March 31,

2020

   

December 31,

2019

 
   

unaudited

         

Liabilities and Stockholders’ Equity

               

Current Liabilities:

               

Trade accounts payable

  $ 18,275     $ 18,903  

Finance lease obligations, current portion

    4,228       4,166  

Operating lease liabilities, current portion

    24,557       24,243  

Accrued payroll

    48,892       69,826  

Amounts due to third party payors

    15,607       15,108  

Accrued risk reserves, current portion

    29,632       29,520  

Other current liabilities

    18,811       15,029  

Dividends payable

    7,980       7,968  

Current maturities of long-term debt

    50,000       10,000  

Total current liabilities

    217,982       194,763  
                 

Finance lease obligations, less current portion

    13,882       14,963  

Operating lease liabilities, less current portion

    172,403       178,666  

Accrued risk reserves, less current portion

    71,130       66,491  

Refundable entrance fees

    7,455       7,455  

Obligation to provide future services

    2,035       2,035  

Deferred income taxes

    8,469       24,012  

Other noncurrent liabilities

    14,590       16,058  

Deferred revenue

    5,006       3,136  

Total liabilities

    512,952       507,579  
                 

Equity:

               

Common stock, $.01 par value; 45,000,000 shares authorized; 15,346,601 and 15,332,206 shares, respectively, issued and outstanding

    153       153  

Capital in excess of par value

    223,600       222,787  

Retained earnings

    518,261       553,093  

Accumulated other comprehensive income

    548       2,560  

Total National HealthCare Corporation stockholders’ equity

    742,562       778,593  

Noncontrolling interest

    793       476  

Total equity

    743,355       779,069  

Total liabilities and equity

  $ 1,256,307     $ 1,286,648  

 

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

 

6

 

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Cash Flows

(unaudited – in thousands)

 

   

Three Months Ended

March 31

 
   

2020

   

2019

 

Cash Flows From Operating Activities:

               

Net income/(loss)

  $ (26,816

)

  $ 21,231  

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

               

Depreciation and amortization

    10,438       10,517  

Equity in earnings of unconsolidated investments

    (2,811

)

    (2,321

)

Distributions from unconsolidated investments

    2,349       31  

Unrealized (gains)/losses on marketable equity securities

    60,392       (6,838

)

Gains on sale of restricted marketable debt securities

    (2

)

    -  

Gain on acquisition of equity method investment

    (1,707

)

    -  

Deferred income taxes

    (15,008

)

    1,603  

Stock–based compensation

    466       424  

Changes in operating assets and liabilities:

               

Accounts receivable

    (6,212

)

    (3,345

)

Income tax receivable

    2,560       -  

Inventories

    (372

)

    517  

Prepaid expenses and other assets

    (1,515

)

    (1,008

)

Trade accounts payable

    (1,408

)

    (441

)

Accrued payroll

    (21,343

)

    (21,730

)

Amounts due to third party payors

    353       185  

Accrued risk reserves

    4,623       2,498  

Other current liabilities

    3,365       8,158  

Other noncurrent liabilities

    (1,468

)

    102  

Deferred revenue

    1,870       2,018  

Net cash provided by operating activities

    7,754       11,601  

Cash Flows From Investing Activities:

               

Additions to property and equipment

    (6,628

)

    (5,874

)

Acquisition of equity method investment, net of cash acquired

    (6,648

)

    -  

Investments in notes receivable

    (250

)

    (312

)

Investments in unconsolidated companies

    (125

)

    (125

)

Collections of notes receivable

    376       353  

Purchase of restricted marketable debt securities

    (6,360

)

    (3,565

)

Sale of restricted marketable debt securities

    3,410       6,576  

Net cash used in investing activities

    (16,225

)

    (2,947

)

Cash Flows From Financing Activities:

               

Borrowings under credit facility

    40,000       -  

Principal payments under finance lease obligations

    (1,019

)

    (959

)

Dividends paid to common stockholders

    (7,968

)

    (7,623

)

Issuance of common shares

    400       579  

Repurchase of common shares

    (53

)

    (872

)

Equity contributed by noncontrolling entities

    281       -  

Net cash provided by (used in) financing activities

    31,641       (8,875

)

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

    23,170       (221

)

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

    61,010       54,920  

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

  $ 84,180     $ 54,699  
                 

Balance Sheet Classifications:

               

Cash and cash equivalents

  $ 69,492     $ 38,194  

Restricted cash and cash equivalents

    14,688       16,505  

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

  $ 84,180     $ 54,699  

 

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

 

7

 

 

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share and per share amounts)

(unaudited)

 

   

Common Stock

   

Capital in

Excess of

   

Retained

Earnings

   

Accumulated

Other

Comprehensive

   

Non-

controlling

   

Total

Stockholders’

 
   

Shares

   

Amount

   

Par Value

   

Earnings

   

Income (Loss)

   

Interest

   

Equity

 

Balance at January 1, 2019

    15,255,002     $ 153     $ 219,435     $ 516,435     $ (2,745

)

  $ 1,179     $ 734,457  

Net income attributable to National HealthCare Corporation

                      21,269                   21,269  

Net loss attributable to noncontrolling interest

                                  (38

)

    (38

)

Other comprehensive income

                            2,548             2,548  

Stock–based compensation

                424                         424  

Shares sold – options exercised

    59,384             579                         579  

Repurchase of common shares

    (10,396

)

          (872

)

                      (872

)

Dividends declared to common stockholders ($0.50 per share)

                      (7,652

)

                (7,652

)

Balance at March 31, 2019

    15,303,990     $ 153     $ 219,566     $ 530,052     $ (197

)

  $ 1,141       750,715  
                                                         

Balance at January 1, 2020

    15,332,206     $ 153     $ 222,787     $ 553,093     $ 2,560     $ 476     $ 779,069  

Net loss attributable to National HealthCare Corporation

                      (26,852

)

                (26,852

)

Net income attributable to noncontrolling interest

                                  36       36  

Equity contributed by noncontrolling interest

                                  281       281  

Other comprehensive loss

                            (2,012

)

          (2,012

)

Stock–based compensation

                466                         466  

Shares sold – options exercised

    15,006             400                         400  

Repurchase of common shares

    (611

)

          (53

)

                      (53

)

Dividends declared to common stockholders ($0.52 per share)

                      (7,980

)

                (7,980

)

Balance at March 31, 2020

    15,346,601     $ 153     $ 223,600     $ 518,261     $ 548     $ 793       743,355  

 

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

 

8

 

NATIONAL HEALTHCARE CORPORATION

Notes to Interim Condensed Consolidated Financial Statements

March 31, 2020

(unaudited)

 

 

 

 

 

Note 1 – Description of Business

 

National HealthCare Corporation (“NHC” or the “Company”) is a leading provider of senior health care services. As of March 31, 2020, we operate or manage, through certain affiliates, 75 skilled nursing facilities with a total of 9,513 licensed beds, 25 assisted living facilities, five independent living facilities, one behavioral health hospital, and 35 homecare programs. We operate specialized care units within certain of our healthcare centers such as Alzheimer's disease care units and sub-acute nursing units. We also have a noncontrolling ownership interest in a hospice care business that services NHC-owned skilled nursing facilities and others. In addition, we provide insurance services, management and accounting services, and we lease properties to operators of skilled nursing and assisted living facilities. We operate in 10 states and are located primarily in the southeastern United States.

 

 

 

 

Note 2 – Summary of Significant Accounting Policies

 

The listing below is not intended to be a comprehensive list of all our significant accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. generally accepted accounting principles (“GAAP”), with limited need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. See our audited December 31, 2019 consolidated financial statements and notes thereto which contain accounting policies and other disclosures required by GAAP. Our audited December 31, 2019 consolidated financial statements are available at our web site: www.nhccare.com.

 

Basis of Presentation

 

The unaudited interim condensed consolidated financial statements to which these notes are attached include all normal, recurring adjustments which are necessary to fairly present the financial position, results of operations and cash flows of NHC. All significant intercompany transactions and balances have been eliminated in consolidation. The consolidated financial statements include the accounts of all entities controlled by NHC. 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.

 

We assume that users of these interim financial statements have read or have access to the audited December 31, 2019 consolidated financial statements and that the adequacy of additional disclosure needed for a fair presentation, except in regard to material contingencies, may be determined in that context. Accordingly, footnotes and other disclosures which would substantially duplicate the disclosure contained in our most recent annual report to stockholders have been omitted. This interim financial information is not necessarily indicative of the results that may be expected for a full year for a variety of reasons.

 

Estimates and Assumptions

 

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, including but not limited to, the potential future effects of the novel coronavirus (“COVID-19”).

 

 Recently Adopted Accounting Guidance

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 adds to U.S. GAAP an impairment model that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The ASU is also intended to reduce the complexity of U.S. GAAP by decreasing the number of credit impairment models that entities use to account for debt instruments. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those annual periods. The Company adopted the standard as of January 1, 2020. This standard did not have a material impact on our interim condensed consolidated financial statements; however, we did update our processes specifically in how we monitor credit related declines in market value for our available for sale marketable debt securities.

 

 

On December 18, 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU is part of the FASB’s overall simplification initiative to reduce the costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. This ASU removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation, and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU No. 2019-12 is effective for reporting periods beginning after December 15, 2020, with early adoption permitted. On January 1, 2020, the Company early adopted the provisions of ASU No. 2019-12. This standard did not have a material impact on our interim condensed consolidated financial statements.

 

Net Patient Revenues and Accounts Receivable

 

Net patient revenues are derived from services rendered to patients for skilled and intermediate nursing, rehabilitation therapy, assisted living and independent living, and home health care services. Net patient 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 contractual adjustments provided to third party payors. Contractual adjustments are based on contractual agreements and historical experience. The Company considers the patient's ability and intent to pay the amount of consideration upon admission. Credit losses are recorded as bad debt expense, which is included as a component of other operating expenses in the interim condensed consolidated statements of operations. Bad debt expense was $830,000 and $1,047,000 for the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, and December 31, 2019, the Company has recorded allowance for doubtful accounts of $4,929,000 and $4,451,000, respectively, as our best estimate of expected losses inherent in the accounts receivable balance.

 

Other Revenues

 

Other revenues include revenues from the provision of insurance services, management and accounting services to other long–term care providers, and rental income. Our insurance revenues consist of premiums that are generally paid in advance and then amortized into income over the policy period. 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.

 

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 one behavioral health hospital, and (2) homecare services. The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. See Note 6 for further disclosure of the Company’s operating segments.

 

Other Operating Expenses

 

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

 

 

General and Administrative Costs

 

With the Company being a healthcare provider, the majority of our expenses are "cost of revenue" items. Costs that could be classified as "general and administrative" by the Company would include its corporate office costs, excluding stock-based compensation, which were $3,059,000 and $1,813,000 for the three months ended March 31, 2020 and 2019, respectively.

 

Long-Term Leases

 

The Company’s lease portfolio primarily consists of finance and operating real estate leases for certain skilled nursing facilities, assisted and independent living facilities, homecare offices, and pharmacy warehouses. The original terms of the leases typically range from two to fifteen years. 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 on the interim condensed consolidated balance sheets for non-cancelable real estate operating leases with original or remaining lease terms in excess of one year. Leases with a lease term of 12 months or less at inception are not recorded on our interim condensed consolidated balance sheets and are expensed on a straight-line basis over the lease term in our interim condensed consolidated statement of operations.

 

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.

 

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.

 

Finance leases are recorded at cost. Finance leases are amortized in accordance with the provision codified within ASC 842, Leases. Amortization of finance lease assets is included in depreciation and amortization expense.

 

Goodwill

 

We perform our annual goodwill impairment assessment on the first day of the fourth quarter.  At March 31, 2020, the Company reviewed the carrying value of goodwill for impairment indicators due to the events and circumstances surrounding the COVID-19 pandemic. As a result of the review, there were no impairment indicators regarding the Company’s goodwill during the three months ended March 31, 2020 that required a quantitative test to be performed. However, our accounting estimates could materially change from period to period due to changing market factors, including those driven by COVID-19. We will continue to monitor future events, changes in circumstances, and the potential impact thereof. If actual results are not consistent with our assumptions and estimates, we may be exposed to future goodwill impairment losses.

 

 

Accrued Risk Reserves  

 

We are self–insured for risks related to health insurance and have wholly–owned limited purpose insurance companies that insure risks related to workers’ compensation and general and professional liability insurance claims. The accrued risk reserves include a liability for reported claims and estimates for incurred but unreported claims. Our policy is to engage an external, independent actuary to assist in estimating our exposure for claims obligations (for both asserted and unasserted claims). We reassess our accrued risk reserves on a quarterly basis.

 

Professional liability remains an area of particular concern to us. The long-term care industry has seen an increase in personal injury/wrongful death claims based on 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. A significant increase in the number of these claims, or an increase in the amounts due as a result of these claims could have a material adverse effect on our consolidated financial position, results of operations and cash flows. It is also possible that future events could cause us to make significant adjustments or revisions to these reserve estimates and cause our reported net income to vary significantly from period to period.

 

We are principally self-insured for incidents occurring in all centers owned or leased by us. The coverages include both primary policies and excess policies. In all years, settlements, if any, in excess of available insurance policy limits and our own reserves would be expensed by us.

 

Continuing Care Contracts and Refundable Entrance Fee

 

We have one continuing care retirement center (“CCRC”) within our operations. Residents at this retirement center may enter into continuing care contracts with us. The contracts provide that 10% of the resident entry fee becomes non-refundable upon occupancy, and the remaining refundable portion of the entry fee is calculated using the lessor of the price at which the apartment is re-assigned or 90% of the original entry fee, plus 40% of any appreciation if the apartment exceeds the original resident’s entry fee.

 

 

Non-refundable fees are included as a component of the transaction price and are amortized into revenue over the actuarily 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 non-current liabilities in our consolidated balance sheets. As of March 31, 2020, and December 31, 2019, we have recorded a refundable entrance fee in the amount of $7,455,000.

 

Obligation to Provide Future Services

 

We annually estimate the present value of the cost of future services and the use of facilities to be provided to the current CCRC residents and compare that amount with the balance of non-refundable deferred revenue from entrance fees received. If the present value of the cost of future services exceeds the related anticipated revenues, a liability is recorded (obligation to provide future services) with a corresponding charge to income. As of March 31, 2020, and December 31, 2019, we have recorded a future service obligation in the amount of $2,035,000.

 

Other Noncurrent Liabilities

 

Other noncurrent liabilities include reserves primarily related to various uncertain income tax positions.

 

Deferred Revenue

 

Deferred revenue includes the deferred gain on the sale of assets to National Health Corporation (“National”), the non-refundable portion (10%) of CCRC entrance fees being amortized over the remaining life expectancies of the residents, and premiums received within our workers’ compensation and professional liability companies in which the performance obligations have not been satisfied.

 

Noncontrolling Interest

 

The noncontrolling interest in a subsidiary is presented within total equity in the Company's interim condensed consolidated balance sheets. The Company presents the noncontrolling interest and the amount of consolidated net income attributable to NHC in its interim condensed consolidated statements of operations. The Company’s earnings per share is calculated based on net income attributable to NHC’s stockholders. The carrying amount of the noncontrolling interest is adjusted based on an allocation of subsidiary earnings based on ownership interest.

 

 Variable Interest Entities

 

We have equity interests in unconsolidated limited liability companies that operate various post-acute and senior healthcare businesses. We analyze our investments in these limited liability companies to determine if the company is considered a variable interest entity (“VIE”) and would require consolidation. To the extent that we own interests in a VIE and we (i) are the sole entity that has the power to direct the activities of the VIE and (ii) have the obligation or rights to absorb the VIE's losses or receive its benefits, then we would be determined to be the primary beneficiary and would consolidate the VIE. To the extent we own interests in a VIE, then at each reporting period, we re-assess our conclusions as to which, if any, party within the VIE is considered the primary beneficiary.

 

The Company's maximum exposure to losses in its investments in unconsolidated VIEs cannot be quantified and may or may not be limited to its investment in the unconsolidated VIE. The investments in unconsolidated VIEs are classified as “investments in limited liability companies” in the consolidated balance sheets.

 

 

Prior Period Classifications

 

Certain amounts in prior periods have been reclassified to conform with current period presentation.

 

 

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 a behavioral health hospital, and (2) homecare services.

 

   

Three Months Ended March 31

 
   

2020

   

2019

 

Net patient revenues:

               

Inpatient services

  $ 230,987     $ 221,635  

Homecare

    13,108       14,476  

Total net patient revenue

  $ 244,095     $ 236,111  

 

 

For inpatient 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 episode 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:

 

   

Three Months Ended

March 31

 

Source

 

2020

   

2019

 

Medicare

    34%       36%  

Managed Care

    11%       12%  

Medicaid

    29%       26%  

Private Pay and Other

    26%       26%  

Total

    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 (there is temporary relief from the three-day hospital stay during the COVID-19 emergency). For each eligible day a Medicare beneficiary is in a skilled nursing facility, Medicare pays the facility a daily payment, subject to adjustment for certain factors such as a wage index in the geographic area. 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 episodes of care. An episode of care is defined as a length of care up to 30 days with multiple continuous episodes allowed. The services covered by the episode payment include all disciplines of care, in addition to medical supplies, within the scope of the home health benefit.

 

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

 

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 $15,607,000 and $15,108,000 as of March 31, 2020 and December 31, 2019, 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.

 

   

Three Months Ended

March 31

 

(in thousands)

 

2020

   

2019

 

Rental income

  $ 5,679     $ 5,608  

Management and accounting services fees

    4,478       4,751  

Insurance services

    1,382       1,524  

Other

    490       291  

Total other revenues

  $ 12,029     $ 12,174  

 

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 interim condensed consolidated statements of operations consisted of the following:

 

 

   

Three Months Ended

March 31

 

(in thousands)

 

2020

   

2019

 

Operating lease payments

  $ 5,503     $ 5,477  

Variable lease payments

    176       131  

Total rental income

  $ 5,679     $ 5,608  

 

 Management Fees from National

 

We manage five skilled nursing facilities owned by National. For the three months ended March 31, 2020 and 2019, we recognized management fees and interest on management fees of $1,537,000 and $1,854,000 from these centers, respectively.

 

Insurance Services

 

For workers’ compensation insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019 were $779,000 and $847,000, respectively. Associated losses and expenses are reflected in the interim condensed consolidated statements of operations as "Salaries, wages and benefits."

 

For professional liability insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019 were $603,000 and $677,000, respectively. Associated losses and expenses including those for self–insurance are included in the interim condensed consolidated statements of operations as "Other operating costs and expenses".

 

 

 

Note 5 – Non–Operating Income

 

Non–operating income includes equity in earnings of unconsolidated investments, dividends and other realized gains and losses on sales of marketable securities, and interest income. Our most significant equity method investment is a 75.1% non–controlling ownership interest in Caris HealthCare L.P. (“Caris”), a business that specializes in hospice care services.

 

   

Three Months Ended

March 31

 

(in thousands)

 

2020

   

2019

 

Equity in earnings of unconsolidated investments

  $ 2,811     $ 2,321  

Dividends and net realized gains and losses on sales of securities

    2,022       1,931  

Interest income

    1,606       1,749  

Gain on acquisition of equity method investment

    1,707       -  

Total non-operating income

  $ 8,146     $ 6,001  

 

Gain on Acquisition of Equity Method Investment

 

Effective February 27, 2020, the Company expanded its controlled operations through an acquisition of the remaining ownership interest of a 166-bed skilled nursing facility in Knoxville, Tennessee. We previously held a 25% noncontrolling interest in the facility and accounted for the investment as an equity method investment. The operating results of the business have been included in the accompanying interim condensed consolidated financial statements since the remaining ownership interest acquisition date.

 

Upon acquiring the remaining ownership interest, the Company recorded and increased its previously held equity interest up to fair value as of the acquisition date. This remeasurement of our equity interest at fair value resulted in a gain of $1,707,000. The gain was recorded in "Non-operating income" in the interim condensed consolidated statement of operations.  Additionally, the excess of the fair value over the amounts assigned to the assets and liabilities of the investee resulted in recording goodwill in the amount of $346,000 on the acquisition date.

 

 

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 our behavioral health hospital; and (2) homecare services. These reportable operating segments are consistent with information used by the Company’s Chief Executive Officer, as chief operating decision maker (“CODM”), to assess performance and allocate resources.

 

The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. For additional information on these reportable segments see Note 2Summary of Significant Accounting Policies.

  

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

 

   

Three Months Ended March 31, 2020

 
   

Inpatient

Services

   

Homecare

   

All Other

   

Total

 

Revenues:

                               

Net patient revenues

  $ 230,987     $ 13,108     $ -     $ 244,095  

Other revenues

    435       -       11,594       12,029  

Net operating revenues

    231,422       13,108       11,594       256,124  
                                 

Costs and expenses:

                               

Salaries, wages and benefits

    135,215       8,316       3,938       147,469  

Other operating

    65,105       3,819       2,744       71,668  

Rent

    8,378       457       1,497       10,332  

Depreciation and amortization

    9,571       54       813       10,438  

Interest

    382       -       30       412  

Total costs and expenses

    218,651       12,646       9,022       240,319  
                                 

Income from operations

    12,771       462       2,572       15,805  
                                 

Non-operating income

    -       -       8,146       8,146  

Unrealized losses on marketable equity securities

    -       -       (60,392

)

    (60,392

)

                                 

Income/(loss) before income taxes

  $ 12,771     $ 462     $ (49,674

)

  $ (36,441

)

 

 

   

Three Months Ended March 31, 2019

 

(As adjusted)

 

Inpatient

Services

   

Homecare

   

All Other

   

Total

 

Revenues:

                               

Net patient revenues

  $ 221,635     $ 14,476     $ -     $ 236,111  

Other revenues

    231       -       11,943       12,174  

Net operating revenues

    221,866       14,476       11,943       248,285  
                                 

Costs and expenses:

                               

Salaries, wages and benefits

    129,059       8,399       3,930       141,388  

Other operating

    62,629       4,252       2,551       69,432  

Rent

    8,291       462       1,485       10,238  

Depreciation and amortization

    9,653       61       803       10,517  

Interest

    348       -       578       926  

Total costs and expenses

    209,980       13,174       9,347       232,501  
                                 

Income from operations

    11,886       1,302       2,596       15,784  
                                 

Non-operating income

    -       -       6,001       6,001  

Unrealized gains on marketable equity securities

    -       -       6,838       6,838  
                                 

Income before income taxes

  $ 11,886     $ 1,302     $ 15,435     $ 28,623  

 

 

 

Note 7 – Long-Term Leases

 

Operating Leases

 

At March 31, 2020, we leased from NHI the real property of 35 skilled nursing facilities, seven assisted living centers and three independent living centers under two separate lease agreements. As part of the first lease agreement, we sublease four Florida skilled nursing facilities to a third-party operator. Base rent expense under both NHI lease agreements totals $34,200,000 annually with rent thereafter escalating by 4% of the increase in facility revenue over a base year. Total facility rent expense to NHI was $9,655,000 and $9,515,000 for the three months ended March 31, 2020 and 2019, respectively.

 

Finance Leases

 

At March 31, 2020, we leased and operated three senior healthcare facilities in the state of Missouri under three separate lease agreements. Two of the healthcare facilities are skilled nursing facilities that also include assisted living facilities and the third healthcare facility is a memory care facility. Each of the leases is a ten-year lease with two five–year renewal options. Under the terms of the leases, base rent totals $5,200,000 annually with rent thereafter escalating by 4% of the increase in facility revenue over the 2014 base year.

 

 

Minimum Lease Payments

 

The following table summarizes the maturity of our finance and operating lease liabilities as of March 31, 2020 (in thousands):

 

   

Finance

Leases

   

Operating

Leases

 

2020

  $ 5,200     $ 35,495  

2021

    5,200       35,169  

2022

    5,200       34,748  

2023

    4,766       34,430  

2024

    -       34,279  

Thereafter

    -       65,600  

Total minimum lease payments

    20,366       239,721  

Less: amounts representing interest

    (2,256

)

    (42,761

)

Present value of future minimum lease payments

    18,110       196,960  

Less: current portion

    (4,228

)

    (24,557

)

Noncurrent lease liabilities

  $ 13,882     $ 172,403  

  

 

 

Note 8 – Earnings per Share

 

Basic net income (loss) per share is computed based on the weighted average number of common shares outstanding for each period presented. Diluted net income (loss) per share reflects the potential dilution that would have occurred if securities to issue common stock were exercised, converted, or resulted in the issuance of common stock that would have then shared in our earnings.

 

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

 

   

Three Months Ended March 31

 
   

2020

   

2019

 

Basic:

               

Weighted average common shares outstanding

    15,294,777       15,256,189  

Net income/(loss) attributable to National HealthCare Corporation

  $ (26,852 )   $ 21,269  

Earnings/(loss) per common share, basic

  $ (1.76 )   $ 1.39  
                 

Diluted:

               

Weighted average common shares outstanding

    15,294,777       15,256,189  

Effects of dilutive instruments

    -       67,936  

Weighted average common shares outstanding

    15,294,777       15,324,125  
                 

Net income/(loss) attributable to National HealthCare Corporation

  $ (26,852 )   $ 21,269  

Earnings/(loss) per common share, diluted

  $ (1.76 )   $ 1.39  

 

The impact of potentially dilutive securities (652,208) for the three months ended March 31, 2020 were not considered because the effect would be anti-dilutive in that period. Options to purchase 8,475 shares of our common stock have been excluded for the quarter ended March 31, 2019 due to their anti–dilutive impact. 

  

 

 

Note 9 – Investments in 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 at each measurement date. Any credit related decline in fair market values of our available for sale debt securities are recorded in our results of operations through an allowance for credit losses. Realized gains and losses from securities sales are recognized in results of operations upon disposition of the securities using the specific identification method on a trade date basis. Refer to Note 10 for a description of the Company's methodology for determining the fair value of marketable securities.

 

 

Marketable securities and restricted marketable securities consist of the following (in thousands):

 

   

March 31, 2020

   

December 31, 2019

 
   

Amortized

Cost

   

Fair

Value

   

Amortized

Cost

   

Fair

Value

 

Investments available for sale:

                               

Marketable equity securities

  $ 30,176     $ 92,061     $ 30,176     $ 152,453  

Restricted investments available for sale:

                               

Corporate debt securities

    66,599       67,151       63,414       65,653  

Asset-based securities

    54,273       53,465       54,451       55,185  

U.S. Treasury securities

    13,372       14,130       13,379       13,410  

State and municipal securities

    12,873       13,065       12,922       13,158  
    $ 177,293     $ 239,872     $ 174,342     $ 299,859  

 

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

 

   

March 31, 2020

   

December 31, 2019

 
   

Shares

   

Cost

   

Fair

Value

   

Shares

   

Cost

   

Fair

Value

 

NHI Common Stock

    1,630,642     $ 24,734     $ 80,749       1,630,642     $ 24,734     $ 132,865  

 

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

 

   

March 31, 2020

   

December 31, 2019

 
   

Cost

   

Fair

Value

   

Cost

   

Fair

Value

 

Maturities:

                               

Within 1 year

  $ 14,754     $ 14,600     $ 15,726     $ 15,767  

1 to 5 years

    94,416       94,603       88,314       90,408  

6 to 10 years

    37,947       38,608       40,126       41,231  

Over 10 years

    -       -       -       -  
    $ 147,117     $ 147,811     $ 144,166     $ 147,406  

 

 

Gross unrealized gains related to marketable equity securities are $62,244,000 and $122,290,000 as of March 31, 2020 and December 31, 2019, respectively. Gross unrealized losses related to marketable equity securities are $359,000 and $13,000 as of March 31, 2020 and December 31, 2019, respectively. For the three months ended March 31, 2020 and 2019, the Company recognized net unrealized losses of $60,392,000 and net unrealized gains of $6,838,000, respectively, for the changes in fair market value of the marketable equity securities in the interim condensed consolidated statement of operations.

 

Gross unrealized gains related to available for sale marketable debt securities are $3,024,000 and $3,407,000 as of March 31, 2020 and December 31, 2019, respectively. Gross unrealized losses related to available for sale marketable debt securities are $2,330,000 and $167,000 as of March 31, 2020 and December 31, 2019, respectively. The Company’s unrealized losses in our available for sale marketable debt securities were determined to be non-credit related.

 

The Company has not recognized any credit related impairments for the three months ending March 31, 2020 and 2019.

 

For the marketable securities in gross unrealized loss positions, (a) it is more likely than not that the Company will not be required to sell the investment securities before recovery of the unrealized losses, and (b) the Company expects that the contractual principal and interest will be received on the investment securities.

 

Proceeds from the sale of available for sale marketable debt securities during the three months ended March 31, 2020 and 2019 were $3,410,000 and $6,576,000, respectively. Investment gains of $2,000 and $-0- were realized on these sales during the three months ended March 31, 2020 and 2019, respectively. No sales were reported for marketable equity securities for the three months ended March 31, 2020 and 2019, 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 following table summarizes fair value measurements by level at March 31, 2020 and December 31, 2019 for assets and liabilities measured at fair value on a recurring basis (in thousands):

 

   

Fair Value Measurements Using

 

March 31, 2020

 

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

  $ 69,492     $ 69,492     $     $  

Restricted cash and cash equivalents

    14,688       14,688              

Marketable equity securities

    92,061       92,061              

Corporate debt securities

    67,151       47,434       19,717        

Mortgage–backed securities

    53,465             53,465        

U.S. Treasury securities

    14,130       14,130              

State and municipal securities

    13,065       1,974       11,091        

Total financial assets

  $ 324,052     $ 239,779     $ 84,273     $  

 

 

   

Fair Value Measurements Using

 

December 31, 2019

 

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

  $ 50,334     $ 50,334     $     $  

Restricted cash and cash equivalents

    10,676       10,676              

Marketable equity securities

    152,453       152,453              

Corporate debt securities

    65,653       48,584       17,069        

Asset - backed securities

    55,185             55,185        

U.S. Treasury securities

    13,410       13,410              

State and municipal securities

    13,158       1,975       11,183        

Total financial assets

  $ 360,869     $ 277,432     $ 83,437     $  

 

 

 

 

Note 11 – Long–Term Debt

 

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

 

   

Weighted

Average

Interest Rate

   

Maturity

   

March 31,

2020

   

December 31,

2019

 
   

Variable

                         

Credit facility, interest payable monthly

    2.4%       2020     $ 50,000     $ 10,000  

Less current portion

                    (50,000

)

    (10,000

)

Total long-term debt

                  $ -     $ -  

 

As of March 31, 2020, the available borrowing capacity for the credit facility is $10 million. The credit facility has a maturity date of October 2020. Loans bear interest at either (i) LIBOR plus 1.40% or (ii) the base rate plus 0.40%.

 

  

 

Note 12 - Stock Repurchase Program

 

 In August 2019, the Board of Directors authorized a common stock purchase program. The program will allow for repurchases of up to $25 million of its common stock. During the quarter ended March 31, 2020, the Company repurchased 611 shares of its common stock for a total cost of $53,000. The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued.

 

  

 

Note 13 – Stock–Based Compensation

 

NHC recognizes stock–based compensation expense for all stock options granted over the requisite service period using the fair value at the date of grant using the Black–Scholes pricing model. Stock–based compensation totaled $466,000 and $424,000 for the three months ended March 31, 2020 and 2019, respectively. Stock–based compensation is included in “Salaries, wages and benefits” in the interim condensed consolidated statements of operations.

 

At March 31, 2020, the Company had $4,077,000 of unrecognized compensation cost related to unvested stock–based compensation awards. This unrecognized compensation cost will be amortized over an approximate two-year period.

 

Stock Options

 

The following table summarizes the significant assumptions used to value the options granted for the three months ended March 31, 2020 and for the year ended December 31, 2019.

 

   

March 31, 2020

   

December 31, 2019

 

Risk–free interest rate

    1.40%       2.30%  

Expected volatility

    16.6%       17.4%  

Expected life, in years

    1.9       2.3  

Expected dividend yield

    2.55%       2.73%  

 

The following table summarizes our outstanding stock options for the three months ended March 31, 2020 and for the year ended December 31, 2019.

 

   

Number of

Shares

   

Weighted

Average

Exercise Price

   

Aggregate

Intrinsic

Value

 

Options outstanding at January 1, 2019

    1,163,381     $ 71.16     $  

Options granted

    53,316       77.89        

Options exercised

    (346,168

)

    71.57        

Options cancelled

    (85,000

)

    72.94        

Options outstanding at December 31, 2019

    785,529       71.24        

Options granted

    57,313       84.46        

Options exercised

    (7,615

)

    65.37        

Options outstanding at March 31, 2020

    835,227     $ 72.20     $ 1,331,000  
                         

Options exercisable at March 31, 2020

    196,414     $ 68.31     $ 1,001,000  

 

Options

Outstanding

March 31, 2020

   

Exercise Prices

   

Weighted Average

Exercise Price

   

Weighted Average

Remaining

Contractual

Life in Years

 
133,958     $52.93  - $62.78       61.80       1.82  
701,269     $72.94  - $86.48       74.19       2.05  
835,227                 72.20       2.01  

 

 

 

Note 14 – Income Taxes

 

The income tax benefit for the three months ended March 31, 2020 is $(9,625,000) (an effective income tax rate of 26.4%). The income tax provision and effective tax rate for the three months ended March 31, 2020 were unfavorably impacted by adjustments to unrecognized tax benefits of $205,000. The income tax provision for the three months ended March 31, 2020 resulted in an overall tax benefit due to an overall pre-tax book loss resulting from the unrealized loss of $60,392,000 for the market value decrease in our marketable equity securities portfolio.  

 

The income tax provision for the three months ended March 31, 2019 was $7,392,000 (an effective income tax rate of 25.8%). The income tax provision and effective tax rate for the three months ended March 31, 2019 were unfavorably impacted by adjustments to unrecognized tax benefits of $200,000 but was favorably impacted by a tax benefit of $228,000 relating to the exercise of stock options. 

 

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 2016 (with certain state exceptions).

 

 

 

Note 15 – Contingencies and Commitments

 

Accrued Risk Reserves

 

We are self–insured for risks related to health insurance and have wholly–owned limited purpose insurance companies that insure risks related to workers’ compensation and general and professional liability insurance claims both for our owned and leased entities and certain of the entities to which we provide management or accounting services. The liability we have recognized for reported claims and estimates for incurred but unreported claims totals $100,762,000 and $96,011,000 at March 31, 2020 and December 31, 2019, respectively. The liability is included in accrued risk reserves in the interim condensed consolidated balance sheets and is subject to adjustment for actual claims incurred. 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 senior care industry. Business is written on a direct basis. Direct business coverage is written for statutory limits and the insurance company’s losses in excess of $1,000,000 per claim are covered by reinsurance.

 

General and Professional Liability Lawsuits and Insurance

 

The senior care industry has experienced increases in both the number of personal injury/wrongful death claims and in the severity of awards based upon alleged negligence by 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 both periods includes both primary policies and excess policies. The primary coverage is in the amount of $1.0 million per incident, $3.0 million per location with an annual primary policy aggregate limit that is adjusted on an annual basis. For 2019 and 2020, the excess coverage is $9.0 million per occurrence. Additional insurance is purchased through third party providers that serve to supplement the coverage provided through our wholly owned captive insurance company.

 

 

Financing Commitments

 

In conjunction with our management contract with National, 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 March 31, 2020, National did not have an outstanding balance on the line of credit.

 

Nutritional Support Services, L.P., Qui Tam Litigation 

 

On June 19, 2018, a First Amended Complaint was filed naming Nutritional Support Services, L.P. (“NSS”), a wholly owned subsidiary of the Company, as a defendant in the action captioned U.S. ex rel. McClain v. Nutritional Support Services, L.P., No. 6:17-cv-2608-AMQ (D.S.C.), which was filed in the United States District Court for the District of South Carolina. The action alleges that NSS violated the False Claims Act by reporting a National Drug Code (“NDC”) number that did not correspond to the NDC for dispensed prescriptions. The plaintiffs were seeking unspecified damages. On April 16, 2018, the United States filed a Notice of Election to Decline Intervention with respect to the allegations asserted in this action. On March 14, 2020, the Court entered an Order granting the Defendant’s Motion to Dismiss.

 

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. There have been several enacted and proposed federal and state relief measures as a result of COVID-19 which should provide support to us during this pandemic; however, the full benefit of any such programs would not be realized until these payments are fully implemented, government agencies issue applicable regulations, or guidance and such relief is provided.

 

 

 

Note 16 – Subsequent Events

 

On March 27, 2020, the United States government passed the Coronavirus Aid, Relief, and Economic Security Act, (the “CARES Act”), which provided $2.2 trillion of economy-wide financial stimulus in the form of financial aid to individuals, businesses, nonprofits, states and municipalities. Within the CARES Act, the legislation set aside under Title VIII in Division B the Public Health and Social Services Emergency Fund, which is referred to as the Provider Relief Fund. This Provider Relief Fund set aside $100 billion to be administered through grants and other mechanisms to skilled nursing providers, home health providers, hospitals, public entities, non-for-profit entities, and Medicare and Medicaid enrolled providers to cover any unreimbursed health care related expenses or lost revenue attributable to the public health emergency resulting from COVID-19.

 

In April 2020, we received two disbursements from the Provider Relief Fund which totaled $19,468,000. These funds come with terms and condition certifications in which all providers will be required to submit documents to ensure the funds will be used for healthcare-related expenses or lost revenue attributable to COVID-19. These funds are not reflected in our first quarter 2020 interim condensed consolidated financial statements.

 

In April 2020, the Company also submitted requests and received funding as part of the Centers for Medicare and Medicaid Services (“CMS”) COVID-19 Accelerated Payment Program. The CMS COVID-19 Accelerated Payment Program is a streamlined version of existing policy that allows the Medicare Administrative Contractors (“MAC’s”) to issue up to three months of advance Medicare payments to help increase cash flow and liquidity to Medicare Part A and Part B providers in certain circumstances that include national emergencies. We received $50,744,000 as part of this Medicare Accelerated Payment Program. These funds will begin to be applied against claims for services provided to Medicare patients after approximately 120 days from the date we received the funds. The payback period will be for approximately 90 days; therefore, any remaining unapplied Accelerated Payment Program proceeds will be repaid within 210 days from the April 2020 receipt of the funds.

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward–Looking Statements

 

References throughout this document to the Company include National HealthCare Corporation and its wholly owned subsidiaries. In accordance with the Securities and Exchange Commissions “Plain English” guidelines, this Quarterly Report on Form 10–Q has been written in the first person. In this document, the words “we”, “our”, “ours” and “us” refer only to National HealthCare Corporation and its wholly–owned subsidiaries and not any other person.

 

This Quarterly Report on Form 10–Q and other information we provide from time to time, contains certain “forward–looking” statements as that term is defined by the Private Securities Litigation Reform Act of 1995. All statements regarding our expected future financial position, results of operations or cash flows, continued performance improvements, ability to service and refinance our debt obligations, ability to finance growth opportunities, ability to control our patient care liability costs, ability to respond to changes in government regulations, ability to execute our three–year strategic plan, and similar statements including, without limitations, those containing words such as “believes”, “anticipates”, “expects”, “intends”, “estimates”, “plans”, and other similar expressions are forward–looking statements.

 

22

 

Forward–looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from those projected or contemplated in the forward–looking statements as a result of, but not limited to, the following factors:

 

 

national and local economic conditions, including their effect on the availability and cost of labor, utilities and materials;

 

 

 

 

the effect of government regulations and changes in regulations governing the healthcare industry, including our compliance with such regulations;

 

 

 

 

changes in Medicare and Medicaid payment levels and methodologies and the application of such methodologies by the government and its fiscal intermediaries;

 

 

 

 

liabilities and other claims asserted against us, including patient care liabilities, as well as the resolution of current litigation (see Note 15: Contingencies and Commitments);

 

 

 

 

the uncertainty of the extent, duration and effects of the COVID-19 pandemic and the response of governments

 

 

 

 

the ability to attract and retain qualified personnel;

 

 

 

 

the availability and terms of capital to fund acquisitions and capital improvements;

 

 

 

 

the ability to refinance existing debt on favorable terms;

 

 

 

 

the competitive environment in which we operate;

 

 

 

 

the ability to maintain and increase census levels; and

 

 

 

 

demographic changes.

 

See the notes to the quarterly financial statements, and “Item 1. Business” in our 2019 Annual Report on Form 10–K for a discussion of various governmental regulations and other operating factors relating to the healthcare industry and the risk factors inherent in them. This may be found on our web site at www.nhccare.com. You should carefully consider these risks before making any investment in the Company. These risks and uncertainties are not the only ones facing us. There may be additional risks that we do not presently know of or that we currently deem immaterial. If any of the risks occur, our business, financial condition or results of operations could be materially adversely affected. In that case, the trading price of our shares of stock could decline, and you may lose all or part of your investment. Given these risks and uncertainties, we can give no assurances that these forward–looking statements will, in fact, transpire and, therefore, caution investors not to place undue reliance on them.

 

 

Overview

 

National HealthCare Corporation (“NHC” or the “Company”) is a leading provider of senior health care services. We operate or manage, through certain affiliates, 75 skilled nursing facilities with a total of 9,513 licensed beds, 25 assisted living facilities, five independent living facilities, one behavioral health hospital and 35 homecare programs. We operate specialized care units within certain of our healthcare centers such as Alzheimer's disease care units and sub-acute nursing units. We also have a non-controlling ownership interest in a hospice care business that services NHC owned health care centers and others. In addition, we provide insurance services, management and accounting services, and we lease properties to operators of skilled nursing and assisted living facilities. We operate in 10 states and are located primarily in the southeastern United States.

 

Impact of COVID-19

 

In early March 2020, COVID-19, a disease caused by the novel strain of the coronavirus, was characterized as a pandemic by the World Health Organization. The COVID-19 virus has spread rapidly, with every state in the United States (“U.S.”) having confirmed cases. The rapid spread has resulted in authorities around the U.S. implementing various measures to contain the virus, such as quarantines, shelter-in-place orders and business shutdowns. The pandemic and these containment measures have had, and are expected to continue to have, a substantial negative impact on most businesses.

 

23

 

NHC’s primary objective has remained the same throughout the COVID-19 pandemic: that is to protect the health and safety of our patients, residents, and partners (employees). We continue to follow all guidance from Centers for Medicare and Medicaid Services (“CMS”), the Centers for Disease Control and Prevention (“CDC”), and state and local health departments to prevent the spread of the disease within our operations. The financial results for the three months ended March 31, 2020 were not significantly impacted by COVID-19, due to the virus not impacting the first two months of 2020. Although our census was strong for most of the first quarter of 2020, during the second half of March, our census began to decline due to the lack of new admissions from our acute care providers and referral partners. Our operating expenses also increased with incentive compensation being paid to our frontline partners, as well as increased costs of nursing supplies, personal protective equipment (“PPE”), sanitizers and cleaning supplies, and food and dietary products. Besides the incentive compensation being paid to our tireless partners on the frontlines, we continue to take every possible action to support our partners with free meals on their shifts, a one-month health insurance premium holiday in April, as well as extended paid sick leave days. All of the operational trends that impacted the second half of March have continued to impact operations in the months of April and the beginning of May. Despite COVID-19 impacting operations, our capital and financial resources, including our overall liquidity, remain strong. Our liquidity and low debt levels provide us with significant flexibility to maintain the strength of our balance sheet in periods of uncertainty or stress.

 

Legislation and Government Stimulus Due to COVID-19

 

The U.S. government has passed four new laws beginning in March 2020 designed to help the nation respond to the COVID-19 pandemic. Although all four of the new laws impact healthcare providers in a variety of ways, the largest legislation from a monetary relief perspective is the CARES Act, which provided $2.2 trillion of economy-wide financial stimulus in the form of financial aid to individuals, businesses, nonprofits, states and municipalities. Within the CARES Act, the legislation set aside under Title VIII in Division B the Public Health and Social Services Emergency Fund, which is referred to as the Provider Relief Fund. This Provider Relief Fund set aside $100 billion to be administered through grants and other mechanisms to skilled nursing providers, home health providers, hospitals, and other Medicare and Medicaid enrolled providers to cover any unreimbursed health care related expenses or lost revenue attributable to the public health emergency resulting from COVID-19.

 

In April 2020, we received two disbursements from the Provider Relief Fund which totaled $19,468,000. These funds come with terms and condition certifications in which all providers will be required to submit documents to ensure the funds were used for healthcare-related expenses or lost revenue attributable to COVID-19. These funds are not reflected in our first quarter 2020 interim condensed consolidated financial statements.

 

The CARES Act temporarily suspended Medicare sequestration beginning May 1, 2020 through December 31, 2020. The Medicare sequestration policy reduces fee-for-service Medicare payments by 2 percent. The CARES Act extends the sequestration policy through 2030 in exchange for this temporary suspension. We expect our net patient revenues to increase by approximately $2,700,000 in 2020 (2nd, 3rd, and 4th quarter impact) due to sequestration being temporarily suspended for the eight-month period.

 

The CARES Act also temporarily permits employers to defer the deposit and payment of the employer’s portion of the social security taxes (6.2% of employee wages) that otherwise would be due between March 27, 2020 and December 31, 2020. The provision requires that the deferred taxes be paid over a two-year period with half the amount required to be paid by December 31, 2021, and the other half by December 31, 2022. Currently, we expect the deferral of these payroll taxes to improve our liquidity and cash available for operations during 2020 by approximately $21 million to $26 million, or $7 million to $8.5 million per quarter (2nd, 3rd, and 4th quarter impact).

 

In April 2020, the Company also submitted requests and received funding as part of the CMS COVID-19 Accelerated Payment Program. The CMS COVID-19 Accelerated Payment Program is a streamlined version of existing policy that allows the Medicare Administrative Contractors (“MAC’s”) to issue up to three months of advance Medicare payments to help increase cash flow and liquidity to Medicare Part A and Part B providers in certain circumstances that include national emergencies. We received $50,744,000 as part of this Medicare Accelerated Payment Program. These funds will begin to be applied against claims for services provided to Medicare patients after approximately 120 days from the date we received the funds. The payback period will be for approximately 90 days; therefore, any remaining unapplied Accelerated Payment Program proceeds will be repaid within 210 days from the April 2020 receipt of the funds.

 

On April 24, 2020, the fourth and most recent Federal legislation (Paycheck Protection Program and Health Care Enactment Act) was passed that provided an additional $484 billion for COVID-19 relief, focusing primarily on health care and small businesses. This legislation adds an additional $75 billion in funding to the Provider Relief Fund, adding to the original $100 billion from the CARES Act. At this time, we do not have any insight into how these additional funds will be distributed from the Provider Relief Fund.

 

We have also received notification from many of the states in which we operate that a supplemental Medicaid payment is being provided to help mitigate the incremental costs resulting from the COVID-19 emergency. At this time, we expect our net patient revenues to increase by approximately $7,000,000 in 2020 due to these supplemental Medicaid payments, of which $1,675,000 was recorded in our first quarter 2020 interim condensed consolidated statement of income.

 

24

 

Summary of Goals and Areas of Focus

 

Occupancy

 

A primary area of management focus continues to be the rates of occupancy within our skilled nursing facilities. The overall census in owned and leased skilled nursing facilities for the three months ending March 31, 2020 was 91.4% compared to 90.2% for the same period a year ago. Although our census was strong for most of the first quarter of 2020, during the second half of March, our census began to decline due to COVID-19 and the lack of new admissions from our acute care providers and referral partners.

 

With the average length of stay decreasing for a skilled nursing patient, as well as the increased availability of assisted living facilities and home and community-based services, the challenge of maintaining desirable patient census levels has been amplified. Management has undertaken a number of steps in order to best position our current and future health care facilities. This includes working internally to examine and improve systems to be most responsive to referral sources and payors. Additionally, NHC is in various stages of partnerships with hospital systems, payors, and other post–acute alliances to better position ourselves so we are an active participant in the delivery of post-acute healthcare services.

 

Quality of Patient Care

 

CMS introduced the Five-Star Quality Rating System to help consumers, their families and caregivers compare skilled nursing facilities more easily. The Five-Star Quality Rating System gives each skilled nursing operation a rating ranging between one and five stars in various categories (five stars being the best). The Company has always strived for patient-centered care and quality outcomes as precursors to outstanding financial performance.

 

 The tables below summarize NHC's overall performance in these Five-Star ratings versus the skilled nursing industry as of March 31, 2020:

 

   

NHC Ratings

   

Industry Ratings

 

Total number of skilled nursing facilities, end of period

    75          

Number of 4 and 5-star rated skilled nursing facilities

    54          

Percentage of 4 and 5-star rated skilled nursing facilities

    72%       44%  

Average rating for all skilled nursing facilities, end of period

    3.99       3.12  

  

Development and Growth

 

We are undertaking to expand our senior care operations while protecting our existing operations and markets. The following table lists our recent development activities.

 

Type of

Operation

 

Description

 

Size

 

Location

 

Placed in Service

Memory Care

 

New Facility

 

60 beds

 

Farragut, TN

 

January, 2019

Memory Care

 

Acquisition

 

60 beds

 

St. Peters, MO

 

June, 2019

Skilled Nursing

 

Acquisition

 

166 beds

 

Knoxville, TN

 

February, 2020

Assisted Living

 

Bed Addition

 

20 beds

 

Gallatin, TN

 

Under Construction

 

 

Accrued Risk Reserves

 

Our accrued professional liability and workers’ compensation reserves totaled $100,762,000 at March 31, 2020 and are a primary area of management focus. We have set aside restricted cash and cash equivalents and marketable securities to fund our estimated professional liability and workers’ compensation liabilities.

 

As to exposure for professional liability claims, we have developed performance certification criteria to measure and bring focus to the patient care issues most likely to produce professional liability exposure, including in–house acquired pressure ulcers, significant weight loss and numbers of falls. These programs for certification, which we regularly modify and improve, have produced measurable improvements in reducing these incidents. Our experience is that achieving goals in these patient care areas improves both patient and employee satisfaction.

 

 

Government Reimbursement Programs

 

Medicare – Skilled Nursing Facilities

 

 In July 2019, CMS released its final rule outlining fiscal year 2020 Medicare payment rates and policy changes for skilled nursing facilities, which began October 1, 2019. The fiscal year 2020 final rule provided for an approximate net 2.4% increase, or $851 million, compared to fiscal year 2019 levels. This included a 2.8% market-basket update, offset by a statutorily required 0.4% productivity reduction. 

 

25

 

For the first three months of 2020, our average Medicare per diem rate for skilled nursing facilities increased 9.7% as compared to the same period in 2019.

 

Medicaid – Skilled Nursing Facilities

 

Effective July 1, 2019 and for the fiscal year 2020, the state of Tennessee implemented specific individual nursing facility rate increases. We estimate the resulting increase in revenue for the 2020 fiscal year will be approximately $1,280,000 annually, or $320,000 per quarter.

 

Effective October 1, 2019 and for the fiscal year 2020, South Carolina implemented specific individual nursing facility rate changes. We estimate the resulting increase in revenue for the 2020 fiscal year will be approximately $2,012,000 annually, or $503,000 per quarter.

  

For the first three months of 2020, our average Medicaid per diem increased 2.7% compared to the same period in 2019.

 

We face challenges with respect to states’ Medicaid payments, because many currently do not cover the total costs incurred in providing care to those patients. States will continue to control Medicaid expenditures and also look for adequate funding sources, including provider assessments. There are several pieces of legislation that include provisions designed to reduce Medicaid spending. These provisions include, among others, provisions strengthening the Medicaid asset transfer restrictions for persons seeking to qualify for Medicaid long-term care coverage, which could, due to the timing of the penalty period, increase facilities’ exposure to uncompensated care. Other provisions could increase state funding for home and community-based services, potentially having an impact on funding for nursing facilities.

 

Medicare – Homecare Programs

 

In November 2019, CMS released a final rule that sets forth the implementation of the PDGM and a 30-day unit of payment as mandated by the Bipartisan Budget Act of 2018 (“BBA”). CMS projects payments to home health agencies in fiscal year 2020 will increase in aggregate by 1.3%, or $250 million, based on proposed policies. The increase reflects the effects of the 1.5% home health payment update percentage as mandated by the BBA and a 0.2% decrease in aggregate payments due to reductions made by the new rural add-on policy, also mandated by the BBA.

 

 

Segment Reporting

 

The Company has two reportable operating segments: (1) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and our behavioral health hospital; and (2) homecare services. These reportable operating segments are consistent with information used by the Company’s Chief Executive Officer, as chief operating decision maker (“CODM”), to assess performance and allocate resources.

 

The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. For additional information on these reportable segments see Note 2 – Summary of Significant Accounting Policies.   

 

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.

 

26

 

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

 

   

Three Months Ended March 31, 2020

 
   

Inpatient

Services

   

Homecare

   

All Other

   

Total

 

Revenues:

                               

Net patient revenues

  $ 230,987     $ 13,108     $ -     $ 244,095  

Other revenues

    435       -       11,594       12,029  

Net operating revenues

    231,422       13,108       11,594       256,124  
                                 

Costs and expenses:

                               

Salaries, wages and benefits

    135,215       8,316       3,938       147,469  

Other operating

    65,105       3,819       2,744       71,668  

Rent

    8,378       457       1,497       10,332  

Depreciation and amortization

    9,571       54       813       10,438  

Interest

    382       -       30       412  

Total costs and expenses

    218,651       12,646       9,022       240,319  
                                 

Income from operations

    12,771       462       2,572       15,805  
                                 

Non-operating income

    -       -       8,146       8,146  

Unrealized losses on marketable equity securities

    -       -       (60,392

)

    (60,392

)

                                 

Income/(loss) before income taxes

  $ 12,771     $ 462     $ (49,674

)

  $ (36,441

)

 

 

 

   

Three Months Ended March 31, 2019

 

(As adjusted)

 

Inpatient

Services

   

Homecare

   

All Other

   

Total

 

Revenues:

                               

Net patient revenues

  $ 221,635     $ 14,476     $ -     $ 236,111  

Other revenues

    231       -       11,943       12,174  

Net operating revenues

    221,866       14,476       11,943       248,285  
                                 

Costs and expenses:

                               

Salaries, wages and benefits

    129,059       8,399       3,930       141,388  

Other operating

    62,629       4,252       2,551       69,432  

Rent

    8,291       462       1,485       10,238  

Depreciation and amortization

    9,653       61       803       10,517  

Interest

    348       -       578       926  

Total costs and expenses

    209,980       13,174       9,347       232,501  
                                 

Income from operations

    11,886       1,302       2,596       15,784  
                                 

Non-operating income

    -       -       6,001       6,001  

Unrealized gains on marketable equity securities

    -       -       6,838       6,838  
                                 

Income before income taxes

  $ 11,886     $ 1,302     $ 15,435     $ 28,623  

 

 

 Non-GAAP Financial Presentation

 

The Company is providing certain non-GAAP financial measures as the Company believes that these figures are helpful in allowing investors to more accurately assess the ongoing nature of the Company’s operations and measure the Company’s performance more consistently across periods. Therefore, the Company believes this information is meaningful in addition to the information contained in the GAAP presentation of financial information. The presentation of this additional non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

  

27

 

Specifically, the Company believes the presentation of non-GAAP financial information that excludes the unrealized gains or losses on our marketable equity securities, operating results for the newly constructed healthcare facilities not at full capacity, share-based compensation expense, and any gains on the acquisitions of equity method investments is helpful in allowing investors to more accurately access the Company’s operations.

 

The operating results for the newly constructed healthcare facilities not at full capacity for the three months ended March 31, 2020 include facilities that began operations from 2018 to 2020 (one memory care facility). For the three months ended March 31, 2019, included are facilities that began operations from 2017 to 2019 (one skilled nursing facility, two assisted living facilities, and one memory care facility).

 

The tables below provide reconciliations of GAAP to non-GAAP items (dollars in thousands, except per share data):

 

   

Three Months Ended

March 31

 
   

2020

   

2019

 
                 

Net income/(loss) attributable to National Healthcare Corporation

  $ (26,852 )   $ 21,269  

Non-GAAP adjustments

               

Unrealized (gains)/losses on marketable equity securities

    60,392       (6,838

)

Operating results for newly opened facilities not at full capacity

    203       595  

Gain on acquisition of equity method investment

    (1,707

)

    -  

Share-based compensation expense

    466       424  

Income tax provision/(benefit) on non-GAAP adjustments

    (15,432

)

    1,501  

Non-GAAP Net income

  $ 17,070     $ 16,951  
                 

GAAP diluted earnings/(loss) per share

  $ (1.76

)

  $ 1.39  

Non-GAAP adjustments

               

Unrealized (gains)/losses on marketable equity securities

    2.92       (0.33

)

Operating results for newly opened facilities not at full capacity

    0.01       0.03  

Gain on acquisition of equity method investment

    (0.08

)

    -  

Share-based compensation expense

    0.02       0.02  

Non-GAAP diluted earnings per share

  $ 1.11     $ 1.11  

 

 

Results of Operations

 

The following table and discussion set forth items from the interim condensed consolidated statements of income as a percentage of net operating revenues for the three months ended March 31, 2020 and 2019.

 

Percentage of Net Operating Revenues

 

   

Three Months Ended

March 31

 
   

2020

   

2019

 

Net operating revenues

    100.0

%

    100.0

%

Costs and expenses:

               

Salaries, wages and benefits

    57.5       56.9  

Other operating

    28.0       28.0  

Facility rent

    4.0       4.1  

Depreciation and amortization

    4.1       4.2  

Interest

    0.2       0.4  

Total costs and expenses

    93.8       93.6  

Income from operations

    6.2       6.4  

Non–operating income

    3.2       2.4  

Unrealized gains/(losses) on marketable equity securities

    (23.6

)

    2.8  

Income/(loss) before income taxes

    (14.2

)

    11.6  

Income tax provision/(benefit)

    3.7       (3.0

)

Net income/(loss)

    (10.5

)

    8.6  

(Income)/loss attributable to noncontrolling interest

    0.0       0.0  

Net income/(loss) attributable to common stockholders of NHC

    (10.5

%)

    8.6

%

 

28

 

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

 

Results for the quarter ended March 31, 2020 compared to the first quarter of 2019 include a 3.2% increase in net operating revenues and a 0.1% increase in income from operations. Excluding the unrealized losses in our marketable equity securities portfolio and the other non-GAAP adjustments, non-GAAP net income for the three months ended March 31, 2020 was $17,070,000 compared to $16,951,000 for the first quarter of 2019, which is an increase of 0.7%.

 

Net operating revenues

 

Net patient revenues increased $7,984,000, or 3.4%, compared to the same period last year.

 

Despite COVID-19 impacting the second half of March 2020, the total census at owned and leased skilled nursing facilities for the quarter averaged 91.4% compared to an average of 90.2% for the same quarter a year ago. Medicare per diem rates increased 9.7%, and managed care per diem rates increased 1.8% compared to the same quarter a year ago. Medicaid and private pay per diem rates increased 2.7% and 2.4%, respectively, compared to the same quarter a year ago. Overall, the composite skilled nursing facility per diem at our owned and leased skilled nursing facilities increased 2.5% compared to the same quarter a year ago.

 

The Company opened a memory care facility in 2019 that continues to stabilize and increased net patient revenues approximately $584,000 for the three months ended March 31, 2020 compared to the same quarter a year ago.  Our homecare operations had a decline in net patient revenues of approximately $1,368,000 in the first quarter of 2020 compared to the third quarter of 2019. Our homecare net patient revenue decline was primarily due to volume declines.

 

In February 2020, the Company acquired the remaining 75% ownership interest in a 166-bed skilled nursing facility in Knoxville, Tennessee. For the three months ended March 31, 2020, this skilled nursing facility increased net patient revenues approximately $1,435,000 compared to the same quarter in the prior year.

 

Other revenues decreased $145,000, or 1.2%, compared to the same quarter last year, as further detailed in Note 4 to our interim condensed consolidated financial statements.

 

Total costs and expenses

 

Total costs and expenses for the first quarter of 2020 compared to the first quarter of 2019 increased $7,818,000 or 3.4%, to $240,319,000 from $232,501,000.

 

Salaries, wages and benefits increased $6,081,000, or 4.3%, to $147,469,000 from $141,388,000. Salaries, wages and benefits as a percentage of net operating revenues was 57.5% compared to 56.9% for the three months ended March 31, 2020 and 2019, respectively. The primary reason for salaries, wages and benefits increasing as a percentage of net operating revenues is due to our existing skilled nursing facilities and the continued wage pressure in most of the markets in which we operate. We also incurred $827,000 in incentive compensation during the month of March 2020 that was paid to our frontline partners in fighting the COVID-19 virus. Besides the incentive compensation being paid to our tireless partners on the frontlines, we continue to take every possible action to support our partners with added employee benefits, such as a one-month health insurance premium holiday in April and extended paid sick leave days.

 

Other operating expenses increased $2,236,000, or 3.2%, to $71,668,000 for the 2020 period compared to $69,432,000 for the 2019 period. Other operating expenses as a percentage of net operating revenue was 28.0% for both the three months ended March 31, 2020 and 2019. During the first quarter and specifically March 2020, we incurred $948,000 in COVID-19 related expenses in purchasing personal protective equipment, additional nursing supplies, food and dietary supplies.

 

The decrease in interest expense is due from our long-term debt being lower during the first quarter of 2020 than in the same quarter a year ago. As a precautionary measure at the end of March 2020, we drew an additional $40,000,000 on our credit facility. At March 31, 2020, we have $50 million outstanding on our credit facility.

 

Other income

 

Non–operating income increased by $2,145,000 compared to the same period last year, as further detailed in Note 5 to our interim condensed consolidated financial statements. The increase in non-operating income is primarily due from the gain on the acquisition of an equity method investment. In February 2020, a gain of $1,707,000 was recorded on the acquisition of the remaining 75% financial interest in a 166-bed skilled nursing facility in Knoxville, Tennessee. We previously held a 25% noncontrolling ownership interest and equity method investment in this facility. Upon acquiring the remaining 75% financial interest, we had to value the business and our previously held equity position based upon the facility’s fair value.

 

29

 

Income taxes

      

The income tax benefit for the three months ended March 31, 2020 is $9,625,000 (an effective income tax rate of 26.4%). Excluding nondeductible expenses, we expect our corporate income tax rate for 2020 to be approximately 26.0%.

 

Noncontrolling interest

 

The noncontrolling interest in a subsidiary is presented within total equity of the Company’s consolidated balance sheets. The company presents the noncontrolling interest and the amount of consolidated net income attributable to NHC in its consolidated statements of operations. The Company’s earnings per share is calculated based on net income attributable to NHC’s stockholders. The carrying amount of the noncontrolling interest is adjusted based on an allocation of subsidiary earnings based on ownership interest.

 

 

Liquidity, Capital Resources, and Financial Condition

 

Our primary sources of cash include revenues from the operations of our healthcare and senior living facilities, management and accounting services, rental income, and investment income. Our primary uses of cash include salaries, wages and other operating costs of our healthcare and senior living facilities, the cost of additions to and acquisitions of real property, facility rent expenses, and dividend distributions. These sources and uses of cash are reflected in our interim condensed consolidated statements of cash flows and are discussed in further detail below.

 

The following is a summary of our sources and uses of cash flows (dollars in thousands):

 

   

Three Months Ended

March 31

   

Three Month Change

 
   

2020

   

2019

   

$

   

%

 

Cash, cash equivalents, restricted cash and restricted cash equivalents, at beginning of period

  $ 61,010     $ 54,920     $ 6,090       11.1  
                                 

Cash provided by operating activities

    7,754       11,601       (3,847

)

    (33.2

)

                                 

Cash used in investing activities

    (16,225

)

    (2,947

)

    (13,278

)

    (450.6

)

                                 

Cash provided by/(used in) financing activities

    31,641       (8,875

)

    40,516       456.5  
                                 

Cash, cash equivalents, restricted cash and restricted cash equivalents, at end of period

  $ 84,180     $ 54,699     $ 29,481       53.9  

 

Operating Activities

 

Net cash provided by operating activities for the three months ended March 31, 2020 was $7,754,000 as compared to $11,601,000 in the same period last year. Cash provided by operating activities consisted of a net loss of $26,816,000 and adjustments for non–cash items of $51,768,000. There was cash used for working capital needs in the amount of $19,547,000 for the three months ended March 31, 2020 compared to $13,046,000 for the same period a year ago. We also received cash distributions from our unconsolidated investments of $2,349,000 during the three months ended March 31, 2020 compared to $31,000 for the same period a year ago.

 

Included in the adjustments for non-cash items are depreciation expense, equity in earnings of unconsolidated investments, unrealized gains/losses on our marketable equity securities, deferred taxes, stock compensation, and a gain on the acquisition of a 166-bed skilled nursing facility in Knoxville, Tennessee in which we previously held a noncontrolling ownership interest.

 

Investing Activities

 

Net cash used in investing activities totaled $16,225,000 for the three months ended March 31, 2020 compared to $2,947,000 for the three months ended March 31, 2019. Cash used for property and equipment additions was $6,628,000 and $5,874,000 for the three months ended March 31, 2020 and 2019, respectively. The acquisition of the 166-bed skilled nursing facility in Knoxville, Tennessee resulted in cash used of $6,648,000 for the three months ended March 31, 2020. The Company collected notes receivable of $376,000 and $353,000 for the three months ended March 31, 2020 and 2019, respectively. Purchases of restricted marketable debt securities, net of sales, resulted in cash used of $2,950,000 for the three months ended March 31, 2020. Sales of restricted marketable debt securities, net of purchases, resulted in positive cash flow of $3,011,000 for the three months ended March 31, 2019.

 

30

 

Financing Activities 

 

Net cash provided by financing activities totaled $31,641,000 compared to net cash used of $8,875,000 for the three months ending March 31, 2020 and 2019, respectively. Borrowings under our credit facility resulted in an increase of cash of $40,000,000 for the three months ended March 31, 2020. We made principal payments under our finance lease obligations in the amount of $1,019,000 and $959,000 for the three months ended March 31, 2020 and 2019, respectively. Cash used for dividend payments to common stockholders totaled $7,968,000 in the current year period compared to $7,623,000 for the same period a year ago. In the current period, $400,000 was provided by the issuance of common stock compared to $579,000 in the prior year period.

 

Short–term liquidity

 

We expect to meet our short-term liquidity requirements primarily from our cash flows from operating activities. In addition to cash flows from operations, our current cash on hand of $69,492,000, marketable equity securities of $92,061,000, and as needed, our borrowing capacity on the credit facility, are expected to be adequate to meet our contractual obligations, operating liquidity, and our growth and development plans in the next twelve months.

 

In April 2020, the Company also submitted requests and received funding as part of the CMS COVID-19 Accelerated Payment Program. The CMS COVID-19 Accelerated Payment Program is a streamlined version of existing policy that allows the MAC's to issue up to three months of advance Medicare payments to help increase cash flow and liquidity to Medicare Part A and Part B providers in certain circumstances that include national emergencies. We received $50,744,000 as part of this Medicare Accelerated Payment Program. These funds will begin to be applied against claims for services provided to Medicare patients after approximately 120 days from the date we received the funds. The payback period will be for approximately 90 days; therefore, any remaining unapplied Accelerated Payment Program proceeds will be repaid within 210 days from the April 2020 receipt of the funds. These funds are not reflected in our first quarter 2020 interim condensed consolidated financial statements.

 

The CARES Act also temporarily permits employers to defer the deposit and payment of the employer’s portion of the social security taxes (6.2% of employee wages) that otherwise would be due between March 27, 2020 and December 31, 2020. The provision requires that the deferred taxes be paid over a two-year period with half the amount required to be paid by December 31, 2021, and the other half by December 31, 2022. Currently, we expect the deferral of these payroll taxes to improve our liquidity and cash available for operations during 2020 by approximately $21 million to $26 million, or $7 million to $8.5 million per quarter (2nd, 3rd, and 4th quarter impact).

  

Long–term liquidity

 

We expect to meet our long-term liquidity requirements primarily from our cash flows from operating activities, our current cash on hand of $69,492,000, marketable equity securities of $92,061,000 and our borrowing capacity on the credit facility. We also have substantial value in our unencumbered real estate assets which could potentially be used as collateral in future borrowing opportunities. At March 31, 2020, the outstanding balance on the credit facility is $50,000,000; therefore, leaving $10,000,000 available for future borrowings. The maturity date on the credit facility is October 7, 2020. The credit facility is available for general corporate purposes, including working capital and acquisitions.

 

Our ability to refinance the credit agreement, to meet our long–term contractual obligations, and to finance our operating requirements and growth plans will depend upon our future performance. Our future performance will be affected by business, economic, financial and other factors, including potential changes in state and federal government payment rates for healthcare, customer demand, success of our marketing efforts, pressures from competitors, and the state of the economy, including the state of financial and credit markets, as well as many unforeseen factors.

 

 

Commitment and Contingencies

 

 Nutritional Support Services, L.P., Qui Tam Litigation

 

On June 19, 2018, a First Amended Complaint was filed naming Nutritional Support Services, L.P. (“NSS”), a wholly owned subsidiary of the Company, as a defendant in the action captioned U.S. ex rel. McClain v. Nutritional Support Services, L.P., No. 6:17-cv-2608-AMQ (D.S.C.), which was filed in the United States District Court for the District of South Carolina. The action alleges that NSS violated the False Claims Act by reporting a National Drug Code (“NDC”) number that did not correspond to the NDC for dispensed prescriptions. The plaintiffs are seeking unspecified damages. On April 16, 2018, the United States filed a Notice of Election to Decline Intervention with respect to the allegations asserted in this action. On March 14, 2020, the Court entered an Order granting the Defendant’s Motion to Dismiss.

 

31

 

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. There have been several enacted and proposed federal and state relief measures as a result of COVID-19 which should provide support to us during this pandemic; however, the full benefit of any such programs would not be realized until these payments are fully implemented, government agencies issue applicable regulations, or guidance and such relief is provided.

 

 

New Accounting Pronouncements

 

See Note 2 to the interim condensed consolidated financial statements for the impact of new accounting standards.

 

   

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

 

Market risk represents the potential economic loss arising from adverse changes in the fair value of financial instruments. Currently, our exposure to market risk relates primarily to our fixed–income and equity portfolios. These investment portfolios are exposed primarily to, but not limited to, interest rate risk, credit risk, equity price risk, and concentration risk. We also have exposure to market risk that includes our cash and cash equivalents, notes receivable, revolving credit facility, and long–term debt. The Company's senior management has established comprehensive risk management policies and procedures to manage these market risks.

 

 

Interest Rate Risk

 

The fair values of our fixed–income investments fluctuate in response to changes in market interest rates. Increases and decreases in prevailing interest rates generally translate into decreases and increases, respectively, in the fair values of those instruments. Additionally, the fair values of interest rate sensitive instruments may be affected by the creditworthiness of the issuer, prepayment options, the liquidity of the instrument and other general market conditions. At March 31, 2020, we have available for sale marketable debt securities in the amount of $147,811,000. The fixed maturity portfolio is comprised of investments with primarily short–term and intermediate–term maturities. The portfolio composition allows flexibility in reacting to fluctuations of interest rates. The fixed maturity portfolio allows our insurance company subsidiaries to achieve an adequate risk–adjusted return while maintaining sufficient liquidity to meet obligations.

 

As of March 31, 2020, our credit facility bears interest at a variable interest rate. Currently, we have an outstanding balance of $50.0 million on the credit facility, all due within a year. Based on our outstanding balance, a 1% change in interest rates would change our annual interest cost by approximately $500,000.

 

Our cash and cash equivalents consist of highly liquid investments with a maturity of less than three months when purchased. As a result of the short–term nature of our cash instruments, a hypothetical 1% change in interest rates would have minimal impact on our future earnings and cash flows related to these instruments.

 

We do not currently use any derivative instruments to hedge our interest rate exposure. We have not used derivative instruments for trading purposes and the use of such instruments in the future would be subject to approvals by the Investment Committee of the Board of Directors.

 

Credit Risk

 

Credit risk is managed by diversifying the fixed maturity portfolio to avoid concentrations in any single industry group or issuer and by limiting investments in securities with lower credit ratings.

 

Equity Price and Concentration Risk

 

Our marketable equity securities are recorded at their fair market value based on quoted market prices. Thus, there is exposure to equity price risk, which is the potential change in fair value due to a change in quoted market prices. At March 31, 2020, the fair value of our marketable equity securities is approximately $92,061,000. Of the $92.1 million equity securities portfolio, our investment in NHI comprises approximately $80.7 million, or 87.7%, of the total fair value. We manage our exposure to NHI by closely monitoring the financial condition, performance, and outlook of the company. Hypothetically, a 10% change in quoted market prices would result in a related increase or decrease in the fair value of our equity investments of approximately $9.2 million. At March 31, 2020, our equity securities had unrealized gains of $61.9 million. Of the $61.9 million of unrealized gains, $56.0 million is related to our investment in NHI.

 

32

 

Item 4.

Controls and Procedures.

 

As of March 31, 2020, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Principal Accounting Officer (“PAO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the CEO and PAO, concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2020.

  

PART II. OTHER INFORMATION

 

 

Item 1.

Legal Proceedings.

 

For a discussion of prior, current and pending litigation of material significance to NHC, please see Note 15 of this Form 10–Q.

 

 

Item 1A.

Risk Factors.

 

We are providing the disclosure below and supplementing the risk factors disclosed in Item 1A of National HealthCare Corporation’s Annual Report on Form 10–K for the year ended December 31, 2019 based on information currently known to us and recent developments since the date of the 2019 From 10-K filing. The additional risk factor identified should be read in conjunction with the risk factors described in the 2019 Annual Report.

 

COVID-19 and other pandemics, epidemics, or outbreaks of a contagious illness may adversely affect our operating results, cash flows and financial condition. COVID-19 coronavirus outbreak and other pandemics, epidemics, or outbreaks of a contagious illness, and similar events, may cause harm to us, our partners (employees), our patients, our vendors and supply chain partners, and financial institutions, which could have a material adverse effect on our results of operations, financial condition and cash flows. The impacts may include, but would not be limited to:

 

Disruption to operations due to the unavailability of partners due to illness, quarantines, risk of illness, travel restrictions or factors that limit our existing or potential workforce.

Decreased availability and increased cost of supplies due to increased demand around essential personal protective equipment (“PPE”), sanitizers and cleaning supplies including disinfecting agents, and food and food-related products due to increased global demand and disruptions along the global supply chains of these manufactures and distributors.

Decreased census across all our operations, which could negatively impact our operating cash flows and financial condition.

Elevated partner turnover which may increase payroll expense, increase third party agency nurse staffing, and recruiting-related expenses.

Significant disruption of the global financial markets, which could have a negative impact on our ability to access capital in the future.

 

The further spread of COVID-19, and the requirements to take action to help limit the spread of the virus, could impact the resources required to carry out our business as usual and may have a material adverse effect on our results of operations, financial condition and cash flows. The extent to which COVID-19 will impact our business and our financial results will depend on future developments, which are highly uncertain and cannot be predicted. Such developments may include the ongoing geographic spread of the virus, the severity of the virus, the duration of the outbreak and the type and duration of actions that may be taken by various governmental authorities in response to the outbreak. Any of these developments, individually or in aggregate, could materially impact our business and our financial results and condition.

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

Not applicable

 

 

Item 3.

Defaults Upon Senior Securities.

 

None

 

33

 

Item 4.

Mine Safety Disclosures.

 

Not applicable

 

 

Item 5.

Other Information.

 

None

 

34

 

Item 6.

Exhibits.

 

 

(a)        List of exhibits

 

EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

3.1

 

Certificate of Incorporation of National HealthCare Corporation (Incorporated by reference to Exhibit 3.1 to the Registrant’s registration statement on Form S-4 (File No. 333-37185) dated October 3, 1997.)

 

 

 

3.2

 

Certificate of Amendment to the Certificate of Incorporation of National HealthCare Corporation (Incorporated by reference to Exhibit 3.5 to the quarterly report on Form 10-Q filed on August 3, 2017.)

 

 

 

3.3

 

Certificate of Designation Series B Junior Participating Preferred Stock (Incorporated by reference to Exhibit 3.1 to the Registrant’s registration statement on Form 8-A, dated August 3, 2007.)

 

 

 

3.4

 

Restated Bylaws as amended February 14, 2013 (Incorporated by reference to Exhibit 3.5 to the quarterly report on Form 10-Q filed on May 8, 2013.)

 

 

 

4.1

 

Form of Common Stock (Incorporated by reference to Exhibit 4.1 to the quarterly report on Form 10-Q filed on August 3, 2017.)

 

 

 

31.1

 

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

 

 

 

31.2

 

Rule 13a-14(a)/15d-14(a) Certification of Principal Accounting Officer

 

 

 

32

 

Certification pursuant to 18 U.S.C. Section 1350 by Chief Executive Officer and Principal Accounting Officer

 

 

 

101.INS

 

XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

     

104

 

Cover Page Interactive File (embedded within the Inline XBRL document and include in Exhibit 101)

  

35

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

NATIONAL HEALTHCARE CORPORATION

 

(Registrant)

 

 

Date: May 7, 2020

/s/ Stephen F. Flatt                   

 

Stephen F. Flatt

 

Chief Executive Officer

 

 

 

 

Date: May 7, 2020

/s/ Brian F. Kidd                     

 

Brian F. Kidd

 

Senior Vice President and Controller

 

(Principal Accounting Officer)

 

36
ex_183943.htm

EXHIBIT 31.1

 

CERTIFICATION

 

I, Stephen F. Flatt, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of National HealthCare Corporation;

 

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

c.

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

d.

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function);

 

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

Date: May 7, 2020

 

 

 /s/ Stephen F. Flatt 

 

Stephen F. Flatt

 

Chief Executive Officer

 

 
ex_183944.htm

EXHIBIT 31.2

 

CERTIFICATION

 

I, Brian F. Kidd, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of National HealthCare Corporation;

 

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

 

c.

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

 

d.

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function);

 

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

 

Date: May 7, 2020

 

 /s/ Brian F. Kidd 

 
 

Brian F. Kidd

 
 

Senior Vice President and Controller

 
 

(Principal Financial Officer)

 

 

 
ex_183945.htm

Exhibit 32

 

Certification of Quarterly Report on Form 10-Q

of National HealthCare Corporation

For the Quarter Ended March 31, 2020

 

 

The undersigned hereby certify, pursuant to 18 U.S.C. Section 906 of the Sarbanes-Oxley Act of 2002, that, to the undersigned's best knowledge and belief, the Quarterly Report on Form 10-Q for National HealthCare Corporation ("Issuer") for the period ending March 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the "Report"):

 

 

(a)

fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     
 

(b)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

 

This Certification accompanies the Quarterly Report on Form 10-Q of the Issuer for the quarterly period ended March 31, 2020.

 

This Certification is executed as of May 7, 2020.

 

 

 

/s/Stephen F. Flatt

 
 

Stephen F. Flatt

 
 

Chief Executive Officer

 
     
     
 

/s/ Brian F. Kidd

 
 

Brian F. Kidd

 
 

Principal Accounting Officer

 

 

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

 
v3.20.1
Note 5 - Non-operating Income (Details Textual) - USD ($)
3 Months Ended
Feb. 27, 2020
Mar. 31, 2020
Mar. 31, 2019
Feb. 26, 2020
Gain (Loss) on Acquisition of Equity Method Investment   $ 1,707,000 $ (0)  
Skilled Nursing Facility in Knoxville, Tennessee [Member]        
Goodwill, Acquired During Period $ 346,000      
Nonoperating Income (Expense) [Member]        
Gain (Loss) on Acquisition of Equity Method Investment $ 1,707,000      
Caris [Member]        
Equity Method Investment, Ownership Percentage   75.10%    
Skilled Nursing Facility in Knoxville, Tennessee [Member]        
Equity Method Investment, Ownership Percentage       25.00%
v3.20.1
Note 7 - Long-term Leases (Details Textual)
3 Months Ended
Mar. 31, 2020
USD ($)
Mar. 31, 2019
USD ($)
Two Leases with NHI [Member]    
Number of Skilled Nursing Centers Leased from NHI 35  
Number of Assisted Living Centers Leased from NHI 7  
Number of Independent Living Centers Leased from NHI 3  
Number of Lease Agreements with NHI 2  
Lessee, Operating Lease, Annual Base Rent Expense $ 34,200,000  
Lessee, Operating Lease Additional Percentage Rent Percentage 4.00%  
Operating Lease, Expense $ 9,655,000 $ 9,515,000
Lease One With NHI [Member]    
Number of Skilled Nursing Facilities Subleased 4  
Senior Healthcare Facilities [Member]    
Number of Facilities under Finance Leases 3  
Number of Finance Lease Agreements 3  
Lessee, Finance Lease, Term of Contract (Year) 10 years  
Number of Additional Lease Options 2  
Lessee, Finance Lease, Annual Base Rent Expense $ 5,200,000  
Lessee, Finance Lease Additional Percentage Rent Percentage 4.00%  
Lessee, Finance Lease, Renewal Term (Year) 5 years  
v3.20.1
Note 15 - Contingencies and Commitments (Details Textual) - USD ($)
3 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Self Insurance Reserve $ 100,762,000 $ 96,011,000
Direct Business Coverage Statutory Limits 1,000,000  
Primary Insurance Coverage, Amount Per Incident 1,000,000.0  
Primary Insurance Coverage, Amount Per Location 3,000,000.0  
Annual Excess Coverage 9,000,000.0  
National [Member]    
Line of Credit Facility, Maximum Borrowing Capacity 2,000,000  
Long-term Line of Credit, Total $ 0  
v3.20.1
Note 13 - Stock-based Compensation - Summary of Assumptions Used to Value Options Granted (Details)
3 Months Ended 12 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Risk–free interest rate 1.40% 2.30%
Expected volatility 16.60% 17.40%
Expected life (Year) 1 year 10 months 24 days 2 years 3 months 18 days
Expected dividend yield 2.55% 2.73%
v3.20.1
Note 3 - Net Patient Revenues (Tables)
3 Months Ended
Mar. 31, 2020
Notes Tables  
Disaggregation of Revenue [Table Text Block]
   

Three Months Ended March 31

 
   

2020

   

2019

 

Net patient revenues:

               

Inpatient services

  $ 230,987     $ 221,635  

Homecare

    13,108       14,476  

Total net patient revenue

  $ 244,095     $ 236,111  
   

Three Months Ended

March 31

 

Source

 

2020

   

2019

 

Medicare

    34%       36%  

Managed Care

    11%       12%  

Medicaid

    29%       26%  

Private Pay and Other

    26%       26%  

Total

    100%       100%  
v3.20.1
Note 14 - Income Taxes
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

Note 14 – Income Taxes

 

The income tax benefit for the three months ended March 31, 2020 is $(9,625,000) (an effective income tax rate of 26.4%). The income tax provision and effective tax rate for the three months ended March 31, 2020 were unfavorably impacted by adjustments to unrecognized tax benefits of $205,000. The income tax provision for the three months ended March 31, 2020 resulted in an overall tax benefit due to an overall pre-tax book loss resulting from the unrealized loss of $60,392,000 for the market value decrease in our marketable equity securities portfolio.  

 

The income tax provision for the three months ended March 31, 2019 was $7,392,000 (an effective income tax rate of 25.8%). The income tax provision and effective tax rate for the three months ended March 31, 2019 were unfavorably impacted by adjustments to unrecognized tax benefits of $200,000 but was favorably impacted by a tax benefit of $228,000 relating to the exercise of stock options. 

 

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 2016 (with certain state exceptions).

 

 

v3.20.1
Note 10 - Fair Value Measurements
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Fair Value Disclosures [Text Block]

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 following table summarizes fair value measurements by level at March 31, 2020 and December 31, 2019 for assets and liabilities measured at fair value on a recurring basis (in thousands):

 

   

Fair Value Measurements Using

 

March 31, 2020

 

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

  $ 69,492     $ 69,492     $     $  

Restricted cash and cash equivalents

    14,688       14,688              

Marketable equity securities

    92,061       92,061              

Corporate debt securities

    67,151       47,434       19,717        

Mortgage–backed securities

    53,465             53,465        

U.S. Treasury securities

    14,130       14,130              

State and municipal securities

    13,065       1,974       11,091        

Total financial assets

  $ 324,052     $ 239,779     $ 84,273     $  

 

 

   

Fair Value Measurements Using

 

December 31, 2019

 

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

  $ 50,334     $ 50,334     $     $  

Restricted cash and cash equivalents

    10,676       10,676              

Marketable equity securities

    152,453       152,453              

Corporate debt securities

    65,653       48,584       17,069        

Asset - backed securities

    55,185             55,185        

U.S. Treasury securities

    13,410       13,410              

State and municipal securities

    13,158       1,975       11,183        

Total financial assets

  $ 360,869     $ 277,432     $ 83,437     $  

 

 

v3.20.1
Note 6 - Business Segments
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Segment Reporting Disclosure [Text Block]

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 our behavioral health hospital; and (2) homecare services. These reportable operating segments are consistent with information used by the Company’s Chief Executive Officer, as chief operating decision maker (“CODM”), to assess performance and allocate resources.

 

The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. For additional information on these reportable segments see Note 2Summary of Significant Accounting Policies.

  

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

 

   

Three Months Ended March 31, 2020

 
   

Inpatient

Services

   

Homecare

   

All Other

   

Total

 

Revenues:

                               

Net patient revenues

  $ 230,987     $ 13,108     $ -     $ 244,095  

Other revenues

    435       -       11,594       12,029  

Net operating revenues

    231,422       13,108       11,594       256,124  
                                 

Costs and expenses:

                               

Salaries, wages and benefits

    135,215       8,316       3,938       147,469  

Other operating

    65,105       3,819       2,744       71,668  

Rent

    8,378       457       1,497       10,332  

Depreciation and amortization

    9,571       54       813       10,438  

Interest

    382       -       30       412  

Total costs and expenses

    218,651       12,646       9,022       240,319  
                                 

Income from operations

    12,771       462       2,572       15,805  
                                 

Non-operating income

    -       -       8,146       8,146  

Unrealized losses on marketable equity securities

    -       -       (60,392

)

    (60,392

)

                                 

Income/(loss) before income taxes

  $ 12,771     $ 462     $ (49,674

)

  $ (36,441

)

 

 

   

Three Months Ended March 31, 2019

 

(As adjusted)

 

Inpatient

Services

   

Homecare

   

All Other

   

Total

 

Revenues:

                               

Net patient revenues

  $ 221,635     $ 14,476     $ -     $ 236,111  

Other revenues

    231       -       11,943       12,174  

Net operating revenues

    221,866       14,476       11,943       248,285  
                                 

Costs and expenses:

                               

Salaries, wages and benefits

    129,059       8,399       3,930       141,388  

Other operating

    62,629       4,252       2,551       69,432  

Rent

    8,291       462       1,485       10,238  

Depreciation and amortization

    9,653       61       803       10,517  

Interest

    348       -       578       926  

Total costs and expenses

    209,980       13,174       9,347       232,501  
                                 

Income from operations

    11,886       1,302       2,596       15,784  
                                 

Non-operating income

    -       -       6,001       6,001  

Unrealized gains on marketable equity securities

    -       -       6,838       6,838  
                                 

Income before income taxes

  $ 11,886     $ 1,302     $ 15,435     $ 28,623  

 

 

v3.20.1
Interim Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Revenues:    
Net patient revenues $ 244,095,000 $ 236,111,000
Other revenues 12,029,000 12,174,000
Net operating revenues 256,124,000 248,285,000
Cost and expenses:    
Salaries, wages and benefits 147,469,000 141,388,000
Other operating 71,668,000 69,432,000
Facility rent 10,332,000 10,238,000
Depreciation and amortization 10,438,000 10,517,000
Interest 412,000 926,000
Total costs and expenses 240,319,000 232,501,000
Income from operations 15,805,000 15,784,000
Other income:    
Non–operating income 8,146,000 6,001,000
Unrealized gains/(losses) on marketable equity securities (60,392,000) 6,838,000
Income/(loss) before income taxes (36,441,000) 28,623,000
Income tax (provision)/benefit 9,625,000 (7,392,000)
Net income/(loss) (26,816,000) 21,231,000
(Income)/loss attributable to noncontrolling interest (36,000) 38,000
Net income/(loss) attributable to National HealthCare Corporation $ (26,852,000) $ 21,269,000
Earnings/(loss) per share attributable to National HealthCare Corporation stockholders:    
Basic (in dollars per share) $ (1.76) $ 1.39
Diluted (in dollars per share) $ (1.76) $ 1.39
Basic (in shares) 15,294,777 15,256,189
Diluted (in shares) 15,294,777 15,324,125
Dividends declared per common share (in dollars per share) $ 0.52 $ 0.50
v3.20.1
Interim Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Cash Flows From Operating Activities:    
Net income/(loss) $ (26,816,000) $ 21,231,000
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 10,438,000 10,517,000
Equity in earnings of unconsolidated investments (2,811,000) (2,321,000)
Distributions from unconsolidated investments 2,349,000 31,000
Unrealized (gains)/losses on marketable equity securities 60,392,000 (6,838,000)
Gains on sale of restricted marketable debt securities (2,000) 0
Gain on acquisition of equity method investment (1,707,000) 0
Deferred income taxes 15,008,000 (1,603,000)
Stock–based compensation 466,000 424,000
Changes in operating assets and liabilities:    
Accounts receivable (6,212,000) (3,345,000)
Income tax receivable 2,560,000 0
Inventories (372,000) 517,000
Prepaid expenses and other assets (1,515,000) (1,008,000)
Trade accounts payable (1,408,000) (441,000)
Accrued payroll (21,343,000) (21,730,000)
Amounts due to third party payors 353,000 185,000
Accrued risk reserves 4,623,000 2,498,000
Other current liabilities 3,365,000 8,158,000
Other noncurrent liabilities (1,468,000) 102,000
Deferred revenue 1,870,000 2,018,000
Net cash provided by operating activities 7,754,000 11,601,000
Cash Flows From Investing Activities:    
Additions to property and equipment (6,628,000) (5,874,000)
Acquisition of equity method investment, net of cash acquired (6,648,000) 0
Investments in notes receivable (250,000) (312,000)
Investments in unconsolidated companies (125,000) (125,000)
Collections of notes receivable 376,000 353,000
Purchase of restricted marketable debt securities (6,360,000) (3,565,000)
Sale of restricted marketable debt securities 3,410,000 6,576,000
Net cash used in investing activities (16,225,000) (2,947,000)
Cash Flows From Financing Activities:    
Borrowings under credit facility 40,000,000 0
Principal payments under finance lease obligations (1,019,000) (959,000)
Dividends paid to common stockholders (7,968,000) (7,623,000)
Issuance of common shares 400,000 579,000
Repurchase of common shares (53,000) (872,000)
Equity contributed by noncontrolling entities 281,000 0
Net cash provided by (used in) financing activities 31,641,000 (8,875,000)
Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents 23,170,000 (221,000)
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, Beginning of Period 61,010,000 54,920,000
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, End of Period 84,180,000 54,699,000
Balance Sheet Classifications:    
Cash and cash equivalents 69,492,000 38,194,000
Restricted Cash and Cash Equivalents 14,688,000 16,505,000
Total Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents $ 84,180,000 $ 54,699,000
v3.20.1
Note 2 - Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Significant Accounting Policies [Text Block]

Note 2 – Summary of Significant Accounting Policies

 

The listing below is not intended to be a comprehensive list of all our significant accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. generally accepted accounting principles (“GAAP”), with limited need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. See our audited December 31, 2019 consolidated financial statements and notes thereto which contain accounting policies and other disclosures required by GAAP. Our audited December 31, 2019 consolidated financial statements are available at our web site: www.nhccare.com.

 

Basis of Presentation

 

The unaudited interim condensed consolidated financial statements to which these notes are attached include all normal, recurring adjustments which are necessary to fairly present the financial position, results of operations and cash flows of NHC. All significant intercompany transactions and balances have been eliminated in consolidation. The consolidated financial statements include the accounts of all entities controlled by NHC. 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.

 

We assume that users of these interim financial statements have read or have access to the audited December 31, 2019 consolidated financial statements and that the adequacy of additional disclosure needed for a fair presentation, except in regard to material contingencies, may be determined in that context. Accordingly, footnotes and other disclosures which would substantially duplicate the disclosure contained in our most recent annual report to stockholders have been omitted. This interim financial information is not necessarily indicative of the results that may be expected for a full year for a variety of reasons.

 

Estimates and Assumptions

 

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, including but not limited to, the potential future effects of the novel coronavirus (“COVID-19”).

 

 Recently Adopted Accounting Guidance

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 adds to U.S. GAAP an impairment model that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The ASU is also intended to reduce the complexity of U.S. GAAP by decreasing the number of credit impairment models that entities use to account for debt instruments. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those annual periods. The Company adopted the standard as of January 1, 2020. This standard did not have a material impact on our interim condensed consolidated financial statements; however, we did update our processes specifically in how we monitor credit related declines in market value for our available for sale marketable debt securities.

 

On December 18, 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU is part of the FASB’s overall simplification initiative to reduce the costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. This ASU removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation, and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU No. 2019-12 is effective for reporting periods beginning after December 15, 2020, with early adoption permitted. On January 1, 2020, the Company early adopted the provisions of ASU No. 2019-12. This standard did not have a material impact on our interim condensed consolidated financial statements.

 

Net Patient Revenues and Accounts Receivable

 

Net patient revenues are derived from services rendered to patients for skilled and intermediate nursing, rehabilitation therapy, assisted living and independent living, and home health care services. Net patient 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 contractual adjustments provided to third party payors. Contractual adjustments are based on contractual agreements and historical experience. The Company considers the patient's ability and intent to pay the amount of consideration upon admission. Credit losses are recorded as bad debt expense, which is included as a component of other operating expenses in the interim condensed consolidated statements of operations. Bad debt expense was $830,000 and $1,047,000 for the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, and December 31, 2019, the Company has recorded allowance for doubtful accounts of $4,929,000 and $4,451,000, respectively, as our best estimate of expected losses inherent in the accounts receivable balance.

 

Other Revenues

 

Other revenues include revenues from the provision of insurance services, management and accounting services to other long–term care providers, and rental income. Our insurance revenues consist of premiums that are generally paid in advance and then amortized into income over the policy period. 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.

 

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 one behavioral health hospital, and (2) homecare services. The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. See Note 6 for further disclosure of the Company’s operating segments.

 

Other Operating Expenses

 

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

 

General and Administrative Costs

 

With the Company being a healthcare provider, the majority of our expenses are "cost of revenue" items. Costs that could be classified as "general and administrative" by the Company would include its corporate office costs, excluding stock-based compensation, which were $3,059,000 and $1,813,000 for the three months ended March 31, 2020 and 2019, respectively.

 

Long-Term Leases

 

The Company’s lease portfolio primarily consists of finance and operating real estate leases for certain skilled nursing facilities, assisted and independent living facilities, homecare offices, and pharmacy warehouses. The original terms of the leases typically range from two to fifteen years. 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 on the interim condensed consolidated balance sheets for non-cancelable real estate operating leases with original or remaining lease terms in excess of one year. Leases with a lease term of 12 months or less at inception are not recorded on our interim condensed consolidated balance sheets and are expensed on a straight-line basis over the lease term in our interim condensed consolidated statement of operations.

 

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.

 

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.

 

Finance leases are recorded at cost. Finance leases are amortized in accordance with the provision codified within ASC 842, Leases. Amortization of finance lease assets is included in depreciation and amortization expense.

 

Goodwill

 

We perform our annual goodwill impairment assessment on the first day of the fourth quarter.  At March 31, 2020, the Company reviewed the carrying value of goodwill for impairment indicators due to the events and circumstances surrounding the COVID-19 pandemic. As a result of the review, there were no impairment indicators regarding the Company’s goodwill during the three months ended March 31, 2020 that required a quantitative test to be performed. However, our accounting estimates could materially change from period to period due to changing market factors, including those driven by COVID-19. We will continue to monitor future events, changes in circumstances, and the potential impact thereof. If actual results are not consistent with our assumptions and estimates, we may be exposed to future goodwill impairment losses.

 

 

Accrued Risk Reserves  

 

We are self–insured for risks related to health insurance and have wholly–owned limited purpose insurance companies that insure risks related to workers’ compensation and general and professional liability insurance claims. The accrued risk reserves include a liability for reported claims and estimates for incurred but unreported claims. Our policy is to engage an external, independent actuary to assist in estimating our exposure for claims obligations (for both asserted and unasserted claims). We reassess our accrued risk reserves on a quarterly basis.

 

Professional liability remains an area of particular concern to us. The long-term care industry has seen an increase in personal injury/wrongful death claims based on 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. A significant increase in the number of these claims, or an increase in the amounts due as a result of these claims could have a material adverse effect on our consolidated financial position, results of operations and cash flows. It is also possible that future events could cause us to make significant adjustments or revisions to these reserve estimates and cause our reported net income to vary significantly from period to period.

 

We are principally self-insured for incidents occurring in all centers owned or leased by us. The coverages include both primary policies and excess policies. In all years, settlements, if any, in excess of available insurance policy limits and our own reserves would be expensed by us.

 

Continuing Care Contracts and Refundable Entrance Fee

 

We have one continuing care retirement center (“CCRC”) within our operations. Residents at this retirement center may enter into continuing care contracts with us. The contracts provide that 10% of the resident entry fee becomes non-refundable upon occupancy, and the remaining refundable portion of the entry fee is calculated using the lessor of the price at which the apartment is re-assigned or 90% of the original entry fee, plus 40% of any appreciation if the apartment exceeds the original resident’s entry fee.

 

Non-refundable fees are included as a component of the transaction price and are amortized into revenue over the actuarily 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 non-current liabilities in our consolidated balance sheets. As of March 31, 2020, and December 31, 2019, we have recorded a refundable entrance fee in the amount of $7,455,000.

 

Obligation to Provide Future Services

 

We annually estimate the present value of the cost of future services and the use of facilities to be provided to the current CCRC residents and compare that amount with the balance of non-refundable deferred revenue from entrance fees received. If the present value of the cost of future services exceeds the related anticipated revenues, a liability is recorded (obligation to provide future services) with a corresponding charge to income. As of March 31, 2020, and December 31, 2019, we have recorded a future service obligation in the amount of $2,035,000.

 

Other Noncurrent Liabilities

 

Other noncurrent liabilities include reserves primarily related to various uncertain income tax positions.

 

Deferred Revenue

 

Deferred revenue includes the deferred gain on the sale of assets to National Health Corporation (“National”), the non-refundable portion (10%) of CCRC entrance fees being amortized over the remaining life expectancies of the residents, and premiums received within our workers’ compensation and professional liability companies in which the performance obligations have not been satisfied.

 

Noncontrolling Interest

 

The noncontrolling interest in a subsidiary is presented within total equity in the Company's interim condensed consolidated balance sheets. The Company presents the noncontrolling interest and the amount of consolidated net income attributable to NHC in its interim condensed consolidated statements of operations. The Company’s earnings per share is calculated based on net income attributable to NHC’s stockholders. The carrying amount of the noncontrolling interest is adjusted based on an allocation of subsidiary earnings based on ownership interest.

 

 Variable Interest Entities

 

We have equity interests in unconsolidated limited liability companies that operate various post-acute and senior healthcare businesses. We analyze our investments in these limited liability companies to determine if the company is considered a variable interest entity (“VIE”) and would require consolidation. To the extent that we own interests in a VIE and we (i) are the sole entity that has the power to direct the activities of the VIE and (ii) have the obligation or rights to absorb the VIE's losses or receive its benefits, then we would be determined to be the primary beneficiary and would consolidate the VIE. To the extent we own interests in a VIE, then at each reporting period, we re-assess our conclusions as to which, if any, party within the VIE is considered the primary beneficiary.

 

The Company's maximum exposure to losses in its investments in unconsolidated VIEs cannot be quantified and may or may not be limited to its investment in the unconsolidated VIE. The investments in unconsolidated VIEs are classified as “investments in limited liability companies” in the consolidated balance sheets.

 

 

Prior Period Classifications

 

Certain amounts in prior periods have been reclassified to conform with current period presentation.

v3.20.1
Note 10 - Fair Value Measurements (Tables)
3 Months Ended
Mar. 31, 2020
Notes Tables  
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]
   

Fair Value Measurements Using

 

March 31, 2020

 

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

  $ 69,492     $ 69,492     $     $  

Restricted cash and cash equivalents

    14,688       14,688              

Marketable equity securities

    92,061       92,061              

Corporate debt securities

    67,151       47,434       19,717        

Mortgage–backed securities

    53,465             53,465        

U.S. Treasury securities

    14,130       14,130              

State and municipal securities

    13,065       1,974       11,091        

Total financial assets

  $ 324,052     $ 239,779     $ 84,273     $  
   

Fair Value Measurements Using

 

December 31, 2019

 

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

  $ 50,334     $ 50,334     $     $  

Restricted cash and cash equivalents

    10,676       10,676              

Marketable equity securities

    152,453       152,453              

Corporate debt securities

    65,653       48,584       17,069        

Asset - backed securities

    55,185             55,185        

U.S. Treasury securities

    13,410       13,410              

State and municipal securities

    13,158       1,975       11,183        

Total financial assets

  $ 360,869     $ 277,432     $ 83,437     $  
v3.20.1
Note 2 - Summary of Significant Accounting Policies (Details Textual)
3 Months Ended
Mar. 31, 2020
USD ($)
Mar. 31, 2019
USD ($)
Dec. 31, 2019
USD ($)
Accounts Receivable, Credit Loss Expense (Reversal) $ 830,000 $ 1,047,000  
Accounts Receivable, Allowance for Credit Loss, Ending Balance $ 4,929,000 4,451,000  
Number of Reportable Segments 2    
General and Administrative Expense, Total $ 3,059,000 $ 1,813,000  
Contract with Customer, Refund Liability, Total 7,455,000   $ 7,455,000
Continuing Care Retirement Communities, Refund Obligation $ 2,035,000   $ 2,035,000
Refundable Advance Fees [Member]      
Nonrefundable Resident Entry Fee Percentage 10.00%    
Original Entry Fee [Member]      
Refundable Resident Entry Fee Percentage 90.00%    
Appreciation [Member]      
Appreciation of Apartment Over Original Residents Entry Fee Percentage 40.00%    
Minimum [Member]      
Lessee, Operating Lease, Term of Contract (Year) 2 years    
Minimum [Member] | Building and Building Improvements [Member]      
Property, Plant and Equipment, Useful Life (Year) 20 years    
Minimum [Member] | Equipment and Furniture [Member]      
Property, Plant and Equipment, Useful Life (Year) 3 years    
Maximum [Member]      
Lessee, Operating Lease, Term of Contract (Year) 15 years    
Maximum [Member] | Building and Building Improvements [Member]      
Property, Plant and Equipment, Useful Life (Year) 40 years    
Maximum [Member] | Equipment and Furniture [Member]      
Property, Plant and Equipment, Useful Life (Year) 15 years    
v3.20.1
Note 11 - Long-term Debt (Details Textual) - Bank of America [Member]
$ in Millions
3 Months Ended
Mar. 31, 2020
USD ($)
Line of Credit Facility, Remaining Borrowing Capacity $ 10
London Interbank Offered Rate (LIBOR) [Member]  
Debt Instrument, Basis Spread on Variable Rate 1.40%
Base Rate [Member]  
Debt Instrument, Basis Spread on Variable Rate 0.40%
v3.20.1
Note 9 - Investments in Marketable Securities - Marketable Securities and Restricted Marketable Securities (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Restricted investments available for sale, amortized cost $ 147,117 $ 144,166
Restricted investments available for sale, fair value 147,811 147,406
Investments available for sale, amortized cost 177,293 174,342
Investments available for sale, fair value 239,872 299,859
Equity Securities [Member]    
Unrestricted investments available for sale, amortized cost 30,176 30,176
Unrestricted investments available for sale, fair value 92,061 152,453
Corporate Debt Securities [Member]    
Restricted investments available for sale, amortized cost 66,599 63,414
Restricted investments available for sale, fair value 67,151 65,653
Asset-backed Securities [Member]    
Restricted investments available for sale, amortized cost 54,273 54,451
Restricted investments available for sale, fair value 53,465 55,185
US Government Corporations and Agencies Securities [Member]    
Restricted investments available for sale, amortized cost 13,372 13,379
Restricted investments available for sale, fair value 14,130 13,410
US States and Political Subdivisions Debt Securities [Member]    
Restricted investments available for sale, amortized cost 12,873 12,922
Restricted investments available for sale, fair value $ 13,065 $ 13,158
v3.20.1
Interim Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Net income/(loss) $ (26,816) $ 21,231
Other comprehensive income/(loss):    
Unrealized gains/(losses) on investments in restricted marketable debt securities (2,545) 3,225
Reclassification adjustment for realized gains on sale of securities (2) 0
Income tax (expense)/benefit related to items of other comprehensive income/(loss) 535 (677)
Other comprehensive income/(loss), net of tax (2,012) 2,548
Net (income)/loss attributable to noncontrolling interest (36) 38
Comprehensive income/(loss) attributable to National HealthCare Corporation $ (28,864) $ 23,817
v3.20.1
Note 7 - Long-term Leases
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Leases of Lessee Disclosure [Text Block]

Note 7 – Long-Term Leases

 

Operating Leases

 

At March 31, 2020, we leased from NHI the real property of 35 skilled nursing facilities, seven assisted living centers and three independent living centers under two separate lease agreements. As part of the first lease agreement, we sublease four Florida skilled nursing facilities to a third-party operator. Base rent expense under both NHI lease agreements totals $34,200,000 annually with rent thereafter escalating by 4% of the increase in facility revenue over a base year. Total facility rent expense to NHI was $9,655,000 and $9,515,000 for the three months ended March 31, 2020 and 2019, respectively.

 

Finance Leases

 

At March 31, 2020, we leased and operated three senior healthcare facilities in the state of Missouri under three separate lease agreements. Two of the healthcare facilities are skilled nursing facilities that also include assisted living facilities and the third healthcare facility is a memory care facility. Each of the leases is a ten-year lease with two five–year renewal options. Under the terms of the leases, base rent totals $5,200,000 annually with rent thereafter escalating by 4% of the increase in facility revenue over the 2014 base year.

 

Minimum Lease Payments

 

The following table summarizes the maturity of our finance and operating lease liabilities as of March 31, 2020 (in thousands):

 

   

Finance

Leases

   

Operating

Leases

 

2020

  $ 5,200     $ 35,495  

2021

    5,200       35,169  

2022

    5,200       34,748  

2023

    4,766       34,430  

2024

    -       34,279  

Thereafter

    -       65,600  

Total minimum lease payments

    20,366       239,721  

Less: amounts representing interest

    (2,256

)

    (42,761

)

Present value of future minimum lease payments

    18,110       196,960  

Less: current portion

    (4,228

)

    (24,557

)

Noncurrent lease liabilities

  $ 13,882     $ 172,403  

  

v3.20.1
Note 3 - Net Patient Revenues
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Revenue from Contract with Customer [Text Block]

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 a behavioral health hospital, and (2) homecare services.

 

   

Three Months Ended March 31

 
   

2020

   

2019

 

Net patient revenues:

               

Inpatient services

  $ 230,987     $ 221,635  

Homecare

    13,108       14,476  

Total net patient revenue

  $ 244,095     $ 236,111  

 

For inpatient 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 episode 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:

 

   

Three Months Ended

March 31

 

Source

 

2020

   

2019

 

Medicare

    34%       36%  

Managed Care

    11%       12%  

Medicaid

    29%       26%  

Private Pay and Other

    26%       26%  

Total

    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 (there is temporary relief from the three-day hospital stay during the COVID-19 emergency). For each eligible day a Medicare beneficiary is in a skilled nursing facility, Medicare pays the facility a daily payment, subject to adjustment for certain factors such as a wage index in the geographic area. 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 episodes of care. An episode of care is defined as a length of care up to 30 days with multiple continuous episodes allowed. The services covered by the episode payment include all disciplines of care, in addition to medical supplies, within the scope of the home health benefit.

 

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

 

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 $15,607,000 and $15,108,000 as of March 31, 2020 and December 31, 2019, respectively, for various Medicare, Medicaid, and Managed Care claims reviews and current and prior year cost reports.

 

  

v3.20.1
Interim Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($)
$ in Thousands
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
AOCI Attributable to Parent [Member]
Noncontrolling Interest [Member]
Total
Balance (in shares) at Dec. 31, 2018 15,255,002          
Balance at Dec. 31, 2018 $ 153 $ 219,435 $ 516,435 $ (2,745) $ 1,179 $ 734,457
Net income attributable to National HealthCare Corporation     21,269     21,269
Net loss attributable to noncontrolling interest         (38) (38)
Other comprehensive income (loss)       2,548   2,548
Stock–based compensation   424       424
Shares sold – options exercised (in shares) 59,384          
Shares sold – options exercised   579       579
Repurchase of common shares (in shares) (10,396)          
Repurchase of common shares   (872)       (872)
Dividends declared to common stockholders     (7,652)     (7,652)
Net income/(loss) attributable to National HealthCare Corporation     21,269     21,269
Net income attributable to noncontrolling interest         (38) (38)
Balance (in shares) at Mar. 31, 2019 15,303,990          
Balance at Mar. 31, 2019 $ 153 219,566 530,052 (197) 1,141 750,715
Balance (in shares) at Dec. 31, 2018 15,255,002          
Balance at Dec. 31, 2018 $ 153 219,435 516,435 (2,745) 1,179 $ 734,457
Shares sold – options exercised (in shares)           346,168
Balance (in shares) at Dec. 31, 2019 15,332,206          
Balance at Dec. 31, 2019 $ 153 222,787 553,093 2,560 476 $ 779,069
Net income attributable to National HealthCare Corporation     (26,852)     (26,852)
Net loss attributable to noncontrolling interest         36 36
Other comprehensive income (loss)       (2,012)   (2,012)
Stock–based compensation   466       $ 466
Shares sold – options exercised (in shares) 15,006         7,615
Shares sold – options exercised   400       $ 400
Repurchase of common shares (in shares) (611)          
Repurchase of common shares   (53)       (53)
Dividends declared to common stockholders     (7,980)     (7,980)
Net income/(loss) attributable to National HealthCare Corporation     (26,852)     (26,852)
Net income attributable to noncontrolling interest         36 36
Equity contributed by noncontrolling interest         281 281
Balance (in shares) at Mar. 31, 2020 15,346,601          
Balance at Mar. 31, 2020 $ 153 $ 223,600 $ 518,261 $ 548 $ 793 $ 743,355
v3.20.1
Note 11 - Long-term Debt
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Debt Disclosure [Text Block]

Note 11 – Long–Term Debt

 

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

 

   

Weighted

Average

Interest Rate

   

Maturity

   

March 31,

2020

   

December 31,

2019

 
   

Variable

                         

Credit facility, interest payable monthly

    2.4%       2020     $ 50,000     $ 10,000  

Less current portion

                    (50,000

)

    (10,000

)

Total long-term debt

                  $ -     $ -  

 

As of March 31, 2020, the available borrowing capacity for the credit facility is $10 million. The credit facility has a maturity date of October 2020. Loans bear interest at either (i) LIBOR plus 1.40% or (ii) the base rate plus 0.40%.

 

v3.20.1
Note 9 - Investments in Marketable Securities (Tables)
3 Months Ended
Mar. 31, 2020
Notes Tables  
Available-for-sale Securities [Table Text Block]
   

March 31, 2020

   

December 31, 2019

 
   

Amortized

Cost

   

Fair

Value

   

Amortized

Cost

   

Fair

Value

 

Investments available for sale:

                               

Marketable equity securities

  $ 30,176     $ 92,061     $ 30,176     $ 152,453  

Restricted investments available for sale:

                               

Corporate debt securities

    66,599       67,151       63,414       65,653  

Asset-based securities

    54,273       53,465       54,451       55,185  

U.S. Treasury securities

    13,372       14,130       13,379       13,410  

State and municipal securities

    12,873       13,065       12,922       13,158  
    $ 177,293     $ 239,872     $ 174,342     $ 299,859  
Schedule of Available-for-sale Securities Reconciliation [Table Text Block]
   

March 31, 2020

   

December 31, 2019

 
   

Shares

   

Cost

   

Fair

Value

   

Shares

   

Cost

   

Fair

Value

 

NHI Common Stock

    1,630,642     $ 24,734     $ 80,749       1,630,642     $ 24,734     $ 132,865  
Investments Classified by Contractual Maturity Date [Table Text Block]
   

March 31, 2020

   

December 31, 2019

 
   

Cost

   

Fair

Value

   

Cost

   

Fair

Value

 

Maturities:

                               

Within 1 year

  $ 14,754     $ 14,600     $ 15,726     $ 15,767  

1 to 5 years

    94,416       94,603       88,314       90,408  

6 to 10 years

    37,947       38,608       40,126       41,231  

Over 10 years

    -       -       -       -  
    $ 147,117     $ 147,811     $ 144,166     $ 147,406  
v3.20.1
Note 1 - Description of Business (Details Textual)
Mar. 31, 2020
Number of Skilled Nursing Centers 75
Number of Beds 9,513
Number of Assisted Living Facilities 25
Number of Independent Living Facilities 5
Number of Geriatric Psychiatric Hospitals 1
Number of Homecare Programs 35
Number of States in which Entity Operates 10
v3.20.1
Note 11 - Long-term Debt - Summary of Long-term Debt (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Less current portion $ (50,000) $ (10,000)
Total long-term debt $ 0 0
Line of Credit [Member]    
Long-term debt, weighted average interest rate 2.40%  
Long-term debt, maturities 2020  
Long-term debt $ 50,000 $ 10,000
v3.20.1
Note 9 - Investments in Marketable Securities - Available for Sale Marketable Equity Securities (Details) - NHI Common Stock [Member] - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
NHI Common Stock, Shares (in shares) 1,630,642 1,630,642
NHI Common Stock, Cost $ 24,734 $ 24,734
NHI Common Stock, Fair Value $ 80,749 $ 132,865
v3.20.1
Note 4 - Other Revenues - Rental Income (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Operating lease payments $ 5,503 $ 5,477
Variable lease payments 176 131
Total rental income $ 5,679 $ 5,608
v3.20.1
Note 6 - Business Segments - Summary of Financial Information by Reporting Segment (Details) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Revenues:    
Net patient revenues $ 244,095,000 $ 236,111,000
Other revenues 12,029,000 12,174,000
Net operating revenues 256,124,000 248,285,000
Cost and expenses:    
Salaries, wages and benefits 147,469,000 141,388,000
Other operating 71,668,000 69,432,000
Rent 10,332,000 10,238,000
Depreciation and amortization 10,438,000 10,517,000
Interest 412,000 926,000
Total costs and expenses 240,319,000 232,501,000
Income from operations 15,805,000 15,784,000
Non-operating income (loss) 8,146,000 6,001,000
Unrealized gains/(losses) on marketable equity securities (60,392,000) 6,838,000
Income/(loss) before income taxes (36,441,000) 28,623,000
Inpatient Services Segment [Member]    
Revenues:    
Net patient revenues 230,987,000 221,635,000
Other revenues 435,000 231,000
Net operating revenues 231,422,000 221,866,000
Cost and expenses:    
Salaries, wages and benefits 135,215,000 129,059,000
Other operating 65,105,000 62,629,000
Rent 8,378,000 8,291,000
Depreciation and amortization 9,571,000 9,653,000
Interest 382,000 348,000
Total costs and expenses 218,651,000 209,980,000
Income from operations 12,771,000 11,886,000
Non-operating income (loss) 0 0
Unrealized gains/(losses) on marketable equity securities 0 0
Income/(loss) before income taxes 12,771,000 11,886,000
Homecare Services Segment [Member]    
Revenues:    
Net patient revenues 13,108,000 14,476,000
Other revenues 0 0
Net operating revenues 13,108,000 14,476,000
Cost and expenses:    
Salaries, wages and benefits 8,316,000 8,399,000
Other operating 3,819,000 4,252,000
Rent 457,000 462,000
Depreciation and amortization 54,000 61,000
Interest 0 0
Total costs and expenses 12,646,000 13,174,000
Income from operations 462,000 1,302,000
Non-operating income (loss) 0 0
Unrealized gains/(losses) on marketable equity securities 0 0
Income/(loss) before income taxes 462,000 1,302,000
Other Segments [Member]    
Revenues:    
Net patient revenues 0 0
Other revenues 11,594,000 11,943,000
Net operating revenues 11,594,000 11,943,000
Cost and expenses:    
Salaries, wages and benefits 3,938,000 3,930,000
Other operating 2,744,000 2,551,000
Rent 1,497,000 1,485,000
Depreciation and amortization 813,000 803,000
Interest 30,000 578,000
Total costs and expenses 9,022,000 9,347,000
Income from operations 2,572,000 2,596,000
Non-operating income (loss) 8,146,000 6,001,000
Unrealized gains/(losses) on marketable equity securities (60,392,000) 6,838,000
Income/(loss) before income taxes $ (49,674,000) $ 15,435,000
v3.20.1
Note 16 - Subsequent Events (Details Textual) - Subsequent Event [Member]
1 Months Ended
Apr. 30, 2020
USD ($)
Proceeds from Provider Relief Fund Under CARES Act $ 19,468,000
Proceeds from Short-term Debt, Total $ 50,744,000
v3.20.1
Note 13 - Stock-based Compensation - Summary of Options Outstanding (Details) - USD ($)
3 Months Ended 12 Months Ended
Mar. 31, 2020
Dec. 31, 2019
Options outstanding, shares (in shares) 785,529 1,163,381
Options outstanding, weighted average exercise price (in dollars per share) $ 71.24 $ 71.16
Options granted, shares (in shares) 57,313 53,316
Options granted, weighted average exercise price (in dollars per share) $ 84.46 $ 77.89
Options exercised, shares (in shares) (7,615) (346,168)
Options exercised, weighted average exercise price (in dollars per share) $ 65.37 $ 71.57
Options cancelled, shares (in shares)   (85,000)
Options cancelled, weighted average exercise price (in dollars per share)   $ 72.94
Options outstanding, shares (in shares) 835,227 785,529
Options outstanding, weighted average exercise price (in dollars per share) $ 72.20 $ 71.24
Options outstanding, aggregate intrinsic value $ 1,331,000  
Options exercisable, shares (in shares) 196,414  
Options exercisable, weighted average exercise price (in dollars per share) $ 68.31  
Options exercisable, aggregate intrinsic value $ 1,001,000  
v3.20.1
Note 4 - Other Revenues (Tables)
3 Months Ended
Mar. 31, 2020
Notes Tables  
Schedule of Other Revenues [Table Text Block]
   

Three Months Ended

March 31

 

(in thousands)

 

2020

   

2019

 

Rental income

  $ 5,679     $ 5,608  

Management and accounting services fees

    4,478       4,751  

Insurance services

    1,382       1,524  

Other

    490       291  

Total other revenues

  $ 12,029     $ 12,174  
Operating Lease, Lease Income [Table Text Block]
   

Three Months Ended

March 31

 

(in thousands)

 

2020

   

2019

 

Operating lease payments

  $ 5,503     $ 5,477  

Variable lease payments

    176       131  

Total rental income

  $ 5,679     $ 5,608  
v3.20.1
Note 15 - Contingencies and Commitments
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Commitments and Contingencies Disclosure [Text Block]

Note 15 – Contingencies and Commitments

 

Accrued Risk Reserves

 

We are self–insured for risks related to health insurance and have wholly–owned limited purpose insurance companies that insure risks related to workers’ compensation and general and professional liability insurance claims both for our owned and leased entities and certain of the entities to which we provide management or accounting services. The liability we have recognized for reported claims and estimates for incurred but unreported claims totals $100,762,000 and $96,011,000 at March 31, 2020 and December 31, 2019, respectively. The liability is included in accrued risk reserves in the interim condensed consolidated balance sheets and is subject to adjustment for actual claims incurred. 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 senior care industry. Business is written on a direct basis. Direct business coverage is written for statutory limits and the insurance company’s losses in excess of $1,000,000 per claim are covered by reinsurance.

 

General and Professional Liability Lawsuits and Insurance

 

The senior care industry has experienced increases in both the number of personal injury/wrongful death claims and in the severity of awards based upon alleged negligence by 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 both periods includes both primary policies and excess policies. The primary coverage is in the amount of $1.0 million per incident, $3.0 million per location with an annual primary policy aggregate limit that is adjusted on an annual basis. For 2019 and 2020, the excess coverage is $9.0 million per occurrence. Additional insurance is purchased through third party providers that serve to supplement the coverage provided through our wholly owned captive insurance company.

 

Financing Commitments

 

In conjunction with our management contract with National, 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 March 31, 2020, National did not have an outstanding balance on the line of credit.

 

Nutritional Support Services, L.P., Qui Tam Litigation 

 

On June 19, 2018, a First Amended Complaint was filed naming Nutritional Support Services, L.P. (“NSS”), a wholly owned subsidiary of the Company, as a defendant in the action captioned U.S. ex rel. McClain v. Nutritional Support Services, L.P., No. 6:17-cv-2608-AMQ (D.S.C.), which was filed in the United States District Court for the District of South Carolina. The action alleges that NSS violated the False Claims Act by reporting a National Drug Code (“NDC”) number that did not correspond to the NDC for dispensed prescriptions. The plaintiffs were seeking unspecified damages. On April 16, 2018, the United States filed a Notice of Election to Decline Intervention with respect to the allegations asserted in this action. On March 14, 2020, the Court entered an Order granting the Defendant’s Motion to Dismiss.

 

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. There have been several enacted and proposed federal and state relief measures as a result of COVID-19 which should provide support to us during this pandemic; however, the full benefit of any such programs would not be realized until these payments are fully implemented, government agencies issue applicable regulations, or guidance and such relief is provided.

 

 

v3.20.1
Note 7 - Long-term Leases (Tables)
3 Months Ended
Mar. 31, 2020
Notes Tables  
Lessee, Lease, Liability, Maturity [Table Text Block]
   

Finance

Leases

   

Operating

Leases

 

2020

  $ 5,200     $ 35,495  

2021

    5,200       35,169  

2022

    5,200       34,748  

2023

    4,766       34,430  

2024

    -       34,279  

Thereafter

    -       65,600  

Total minimum lease payments

    20,366       239,721  

Less: amounts representing interest

    (2,256

)

    (42,761

)

Present value of future minimum lease payments

    18,110       196,960  

Less: current portion

    (4,228

)

    (24,557

)

Noncurrent lease liabilities

  $ 13,882     $ 172,403  
v3.20.1
Note 11 - Long-term Debt (Tables)
3 Months Ended
Mar. 31, 2020
Notes Tables  
Schedule of Debt [Table Text Block]
   

Weighted

Average

Interest Rate

   

Maturity

   

March 31,

2020

   

December 31,

2019

 
   

Variable

                         

Credit facility, interest payable monthly

    2.4%       2020     $ 50,000     $ 10,000  

Less current portion

                    (50,000

)

    (10,000

)

Total long-term debt

                  $ -     $ -  
v3.20.1
Note 3 - Net Patient Revenues (Details Textual) - USD ($)
Mar. 31, 2020
Dec. 31, 2019
Mar. 31, 2019
Accounts Receivable, Allowance for Credit Loss, Ending Balance $ 4,929,000   $ 4,451,000
Medicare and Medicaid [Member]      
Accounts Receivable, Allowance for Credit Loss, Ending Balance $ 15,607,000 $ 15,108,000  
v3.20.1
Document And Entity Information - shares
3 Months Ended
Mar. 31, 2020
May 04, 2020
Document Information [Line Items]    
Entity Central Index Key 0001047335  
Entity Registrant Name NATIONAL HEALTHCARE CORP  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2020  
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Mar. 31, 2020  
Document Transition Report false  
Entity File Number 001-13489  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 52-2057472  
Entity Address, Address Line One 100 E. Vine Street  
Entity Address, City or Town Murfreesboro  
Entity Address, State or Province TN  
Entity Address, Postal Zip Code 37130  
City Area Code 615  
Local Phone Number 890–2020  
Title of 12(b) Security Common, $0.01 par value  
Trading Symbol NHC  
Security Exchange Name NYSEAMER  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   15,357,674
v3.20.1
Note 9 - Investments in Marketable Securities
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

Note 9 – Investments in 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 at each measurement date. Any credit related decline in fair market values of our available for sale debt securities are recorded in our results of operations through an allowance for credit losses. Realized gains and losses from securities sales are recognized in results of operations upon disposition of the securities using the specific identification method on a trade date basis. Refer to Note 10 for a description of the Company's methodology for determining the fair value of marketable securities.

 

Marketable securities and restricted marketable securities consist of the following (in thousands):

 

   

March 31, 2020

   

December 31, 2019

 
   

Amortized

Cost

   

Fair

Value

   

Amortized

Cost

   

Fair

Value

 

Investments available for sale:

                               

Marketable equity securities

  $ 30,176     $ 92,061     $ 30,176     $ 152,453  

Restricted investments available for sale:

                               

Corporate debt securities

    66,599       67,151       63,414       65,653  

Asset-based securities

    54,273       53,465       54,451       55,185  

U.S. Treasury securities

    13,372       14,130       13,379       13,410  

State and municipal securities

    12,873       13,065       12,922       13,158  
    $ 177,293     $ 239,872     $ 174,342     $ 299,859  

 

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

 

   

March 31, 2020

   

December 31, 2019

 
   

Shares

   

Cost

   

Fair

Value

   

Shares

   

Cost

   

Fair

Value

 

NHI Common Stock

    1,630,642     $ 24,734     $ 80,749       1,630,642     $ 24,734     $ 132,865  

 

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

 

   

March 31, 2020

   

December 31, 2019

 
   

Cost

   

Fair

Value

   

Cost

   

Fair

Value

 

Maturities:

                               

Within 1 year

  $ 14,754     $ 14,600     $ 15,726     $ 15,767  

1 to 5 years

    94,416       94,603       88,314       90,408  

6 to 10 years

    37,947       38,608       40,126       41,231  

Over 10 years

    -       -       -       -  
    $ 147,117     $ 147,811     $ 144,166     $ 147,406  

 

 

Gross unrealized gains related to marketable equity securities are $62,244,000 and $122,290,000 as of March 31, 2020 and December 31, 2019, respectively. Gross unrealized losses related to marketable equity securities are $359,000 and $13,000 as of March 31, 2020 and December 31, 2019, respectively. For the three months ended March 31, 2020 and 2019, the Company recognized net unrealized losses of $60,392,000 and net unrealized gains of $6,838,000, respectively, for the changes in fair market value of the marketable equity securities in the interim condensed consolidated statement of operations.

 

Gross unrealized gains related to available for sale marketable debt securities are $3,024,000 and $3,407,000 as of March 31, 2020 and December 31, 2019, respectively. Gross unrealized losses related to available for sale marketable debt securities are $2,330,000 and $167,000 as of March 31, 2020 and December 31, 2019, respectively. The Company’s unrealized losses in our available for sale marketable debt securities were determined to be non-credit related.

 

The Company has not recognized any credit related impairments for the three months ending March 31, 2020 and 2019.

 

For the marketable securities in gross unrealized loss positions, (a) it is more likely than not that the Company will not be required to sell the investment securities before recovery of the unrealized losses, and (b) the Company expects that the contractual principal and interest will be received on the investment securities.

 

Proceeds from the sale of available for sale marketable debt securities during the three months ended March 31, 2020 and 2019 were $3,410,000 and $6,576,000, respectively. Investment gains of $2,000 and $-0- were realized on these sales during the three months ended March 31, 2020 and 2019, respectively. No sales were reported for marketable equity securities for the three months ended March 31, 2020 and 2019, respectively.

 

 

v3.20.1
Note 5 - Non-operating Income
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Other Nonoperating Income and Expense [Text Block]

Note 5 – Non–Operating Income

 

Non–operating income includes equity in earnings of unconsolidated investments, dividends and other realized gains and losses on sales of marketable securities, and interest income. Our most significant equity method investment is a 75.1% non–controlling ownership interest in Caris HealthCare L.P. (“Caris”), a business that specializes in hospice care services.

 

   

Three Months Ended

March 31

 

(in thousands)

 

2020

   

2019

 

Equity in earnings of unconsolidated investments

  $ 2,811     $ 2,321  

Dividends and net realized gains and losses on sales of securities

    2,022       1,931  

Interest income

    1,606       1,749  

Gain on acquisition of equity method investment

    1,707       -  

Total non-operating income

  $ 8,146     $ 6,001  

 

Gain on Acquisition of Equity Method Investment

 

Effective February 27, 2020, the Company expanded its controlled operations through an acquisition of the remaining ownership interest of a 166-bed skilled nursing facility in Knoxville, Tennessee. We previously held a 25% noncontrolling interest in the facility and accounted for the investment as an equity method investment. The operating results of the business have been included in the accompanying interim condensed consolidated financial statements since the remaining ownership interest acquisition date.

 

Upon acquiring the remaining ownership interest, the Company recorded and increased its previously held equity interest up to fair value as of the acquisition date. This remeasurement of our equity interest at fair value resulted in a gain of $1,707,000. The gain was recorded in "Non-operating income" in the interim condensed consolidated statement of operations.  Additionally, the excess of the fair value over the amounts assigned to the assets and liabilities of the investee resulted in recording goodwill in the amount of $346,000 on the acquisition date.

v3.20.1
Interim Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares
Mar. 31, 2020
Dec. 31, 2019
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 45,000,000 45,000,000
Common stock, shares issued (in shares) 15,346,601 15,332,206
Common stock, shares outstanding (in shares) 15,346,601 15,332,206
v3.20.1
Note 1 - Description of Business
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

Note 1 – Description of Business

 

National HealthCare Corporation (“NHC” or the “Company”) is a leading provider of senior health care services. As of March 31, 2020, we operate or manage, through certain affiliates, 75 skilled nursing facilities with a total of 9,513 licensed beds, 25 assisted living facilities, five independent living facilities, one behavioral health hospital, and 35 homecare programs. We operate specialized care units within certain of our healthcare centers such as Alzheimer's disease care units and sub-acute nursing units. We also have a noncontrolling ownership interest in a hospice care business that services NHC-owned skilled nursing facilities and others. In addition, we provide insurance services, management and accounting services, and we lease properties to operators of skilled nursing and assisted living facilities. We operate in 10 states and are located primarily in the southeastern United States.

 

 

v3.20.1
Note 13 - Stock-based Compensation (Details Textual) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Share-based Payment Arrangement, Expense $ 466,000 $ 424,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total $ 4,077,000  
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year) 2 years  
v3.20.1
Note 10 - Fair Value Measurements - Summary of Fair Value Measurements by Level (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Mar. 31, 2019
Restricted cash and cash equivalents $ 14,688   $ 16,505
Available-for-sale securities 147,811 $ 147,406  
Corporate Debt Securities [Member]      
Available-for-sale securities 67,151 65,653  
Asset-backed Securities [Member]      
Available-for-sale securities 53,465 55,185  
US States and Political Subdivisions Debt Securities [Member]      
Available-for-sale securities 13,065 13,158  
Fair Value, Recurring [Member]      
Cash and cash equivalents 69,492 50,334  
Restricted cash and cash equivalents 14,688 10,676  
Total financial assets 324,052 360,869  
Fair Value, Recurring [Member] | Equity Securities [Member]      
Available-for-sale securities 92,061 152,453  
Fair Value, Recurring [Member] | Corporate Debt Securities [Member]      
Available-for-sale securities 67,151 65,653  
Fair Value, Recurring [Member] | Collateralized Mortgage Backed Securities [Member]      
Available-for-sale securities 53,465    
Fair Value, Recurring [Member] | Asset-backed Securities [Member]      
Available-for-sale securities   55,185  
Fair Value, Recurring [Member] | US Treasury Securities [Member]      
Available-for-sale securities 14,130 13,410  
Fair Value, Recurring [Member] | US States and Political Subdivisions Debt Securities [Member]      
Available-for-sale securities 13,065 13,158  
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]      
Cash and cash equivalents 69,492 50,334  
Restricted cash and cash equivalents 14,688 10,676  
Total financial assets 239,779 277,432  
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Equity Securities [Member]      
Available-for-sale securities 92,061 152,453  
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Corporate Debt Securities [Member]      
Available-for-sale securities 47,434 48,584  
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Collateralized Mortgage Backed Securities [Member]      
Available-for-sale securities 0    
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Asset-backed Securities [Member]      
Available-for-sale securities   0  
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | US Treasury Securities [Member]      
Available-for-sale securities 14,130 13,410  
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | US States and Political Subdivisions Debt Securities [Member]      
Available-for-sale securities 1,974 1,975  
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]      
Cash and cash equivalents 0 0  
Restricted cash and cash equivalents 0 0  
Total financial assets 84,273 83,437  
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Equity Securities [Member]      
Available-for-sale securities 0 0  
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Corporate Debt Securities [Member]      
Available-for-sale securities 19,717 17,069  
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Collateralized Mortgage Backed Securities [Member]      
Available-for-sale securities 53,465    
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Asset-backed Securities [Member]      
Available-for-sale securities   55,185  
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | US Treasury Securities [Member]      
Available-for-sale securities 0 0  
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | US States and Political Subdivisions Debt Securities [Member]      
Available-for-sale securities $ 11,091 $ 11,183  
v3.20.1
Note 9 - Investments in Marketable Securities (Details Textual) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Equity Securities Fv Ni Gross Unrealized Gain $ 62,244,000   $ 122,290,000
Equity Securities Fv Ni Gross Unrealized Loss 359,000   13,000
Equity Securities, FV-NI, Unrealized Gain (Loss), Total (60,392,000) $ 6,838,000  
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Gain, before Tax 3,024,000   3,407,000
Debt Securities, Available-for-sale, Accumulated Gross Unrealized Loss, before Tax 2,330,000   $ 167,000
Other-than-temporary Impairment Loss, Debt Securities, Available-for-sale, Total 0 0  
Proceeds from Sale of Debt Securities, Available-for-sale 3,410,000 6,576,000  
Realized Investment Gains (Losses), Total 2,000 0  
Proceeds from Sale and Maturity of Marketable Securities, Total $ 0 $ 0  
v3.20.1
Note 14 - Income Taxes (Details Textual) - USD ($)
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Income Tax Expense (Benefit), Total $ (9,625,000) $ 7,392,000
Effective Income Tax Rate Reconciliation, Percent, Total 26.40% 25.80%
Effective Income Tax Rate Reconciliation, Tax Contingency, Amount, Total $ 205,000 $ 200,000
Equity Securities, FV-NI, Unrealized Gain (Loss), Total $ (60,392,000) 6,838,000
Effective Income Tax Rate Reconciliation, Tax Expense (Benefit), Share-based Payment Arrangement, Amount   $ (228,000)
v3.20.1
Note 4 - Other Revenues (Details Textual)
3 Months Ended
Mar. 31, 2020
USD ($)
Mar. 31, 2019
USD ($)
Number of Assisted Living Facilities 25  
Number of Skilled Nursing Centers 75  
Insurance Services Revenue, Total $ 1,382,000 $ 1,524,000
Workers Compensation Revenue [Member]    
Insurance Services Revenue, Total 779,000 847,000
Professional Liability Insurance [Member]    
Insurance Services Revenue, Total $ 603,000 $ 677,000
National [Member]    
Number of Skilled Nursing Centers 5 5
Property Management Fee Revenue $ 1,537,000 $ 1,854,000
FLORIDA    
Number of Assisted Living Facilities 4  
v3.20.1
Note 5 - Non-operating Income - Summary of Non-operating Income (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Equity in earnings of unconsolidated investments $ 2,811 $ 2,321
Dividends and net realized gains and losses on sales of securities 2,022 1,931
Interest income 1,606 1,749
Gain on acquisition of equity method investment 1,707 (0)
Total non-operating income $ 8,146 $ 6,001
v3.20.1
Note 7 - Long-term Leases - Maturity of Lease Liabilities (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
2020, finance leases $ 5,200  
2020, operating leases 35,495  
2021, finance leases 5,200  
2021, operating leases 35,169  
2022, finance leases 5,200  
2022, operating leases 34,748  
2023, finance leases 4,766  
2023, operating leases 34,430  
2024, finance leases 0  
2024, operating leases 34,279  
Thereafter, finance leases 0  
Thereafter, operating leases 65,600  
Total minimum lease payments, finance leases 20,366  
Total minimum lease payments, operating leases 239,721  
Less: amounts representing interest, finance leases (2,256)  
Less: amounts representing interest, operating leases (42,761)  
Present value of future minimum lease payments, finance leases 18,110  
Present value of future minimum lease payments, operating leases 196,960  
Less: current portion, finance leases (4,228) $ (4,166)
Less: current portion, operating leases (24,557) (24,243)
Noncurrent lease liabilities, finance leases 13,882 14,963
Noncurrent lease liabilities, operating leases $ 172,403 $ 178,666
v3.20.1
Note 6 - Business Segments (Tables)
3 Months Ended
Mar. 31, 2020
Notes Tables  
Schedule of Segment Reporting Information, by Segment [Table Text Block]
   

Three Months Ended March 31, 2020

 
   

Inpatient

Services

   

Homecare

   

All Other

   

Total

 

Revenues:

                               

Net patient revenues

  $ 230,987     $ 13,108     $ -     $ 244,095  

Other revenues

    435       -       11,594       12,029  

Net operating revenues

    231,422       13,108       11,594       256,124  
                                 

Costs and expenses:

                               

Salaries, wages and benefits

    135,215       8,316       3,938       147,469  

Other operating

    65,105       3,819       2,744       71,668  

Rent

    8,378       457       1,497       10,332  

Depreciation and amortization

    9,571       54       813       10,438  

Interest

    382       -       30       412  

Total costs and expenses

    218,651       12,646       9,022       240,319  
                                 

Income from operations

    12,771       462       2,572       15,805  
                                 

Non-operating income

    -       -       8,146       8,146  

Unrealized losses on marketable equity securities

    -       -       (60,392

)

    (60,392

)

                                 

Income/(loss) before income taxes

  $ 12,771     $ 462     $ (49,674

)

  $ (36,441

)

   

Three Months Ended March 31, 2019

 

(As adjusted)

 

Inpatient

Services

   

Homecare

   

All Other

   

Total

 

Revenues:

                               

Net patient revenues

  $ 221,635     $ 14,476     $ -     $ 236,111  

Other revenues

    231       -       11,943       12,174  

Net operating revenues

    221,866       14,476       11,943       248,285  
                                 

Costs and expenses:

                               

Salaries, wages and benefits

    129,059       8,399       3,930       141,388  

Other operating

    62,629       4,252       2,551       69,432  

Rent

    8,291       462       1,485       10,238  

Depreciation and amortization

    9,653       61       803       10,517  

Interest

    348       -       578       926  

Total costs and expenses

    209,980       13,174       9,347       232,501  
                                 

Income from operations

    11,886       1,302       2,596       15,784  
                                 

Non-operating income

    -       -       6,001       6,001  

Unrealized gains on marketable equity securities

    -       -       6,838       6,838  
                                 

Income before income taxes

  $ 11,886     $ 1,302     $ 15,435     $ 28,623  
v3.20.1
Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

 

The unaudited interim condensed consolidated financial statements to which these notes are attached include all normal, recurring adjustments which are necessary to fairly present the financial position, results of operations and cash flows of NHC. All significant intercompany transactions and balances have been eliminated in consolidation. The consolidated financial statements include the accounts of all entities controlled by NHC. 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.

 

We assume that users of these interim financial statements have read or have access to the audited December 31, 2019 consolidated financial statements and that the adequacy of additional disclosure needed for a fair presentation, except in regard to material contingencies, may be determined in that context. Accordingly, footnotes and other disclosures which would substantially duplicate the disclosure contained in our most recent annual report to stockholders have been omitted. This interim financial information is not necessarily indicative of the results that may be expected for a full year for a variety of reasons.

 

Use of Estimates, Policy [Policy Text Block]

Estimates and Assumptions

 

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, including but not limited to, the potential future effects of the novel coronavirus (“COVID-19”).

 

New Accounting Pronouncements, Policy [Policy Text Block]

 Recently Adopted Accounting Guidance

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 adds to U.S. GAAP an impairment model that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The ASU is also intended to reduce the complexity of U.S. GAAP by decreasing the number of credit impairment models that entities use to account for debt instruments. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those annual periods. The Company adopted the standard as of January 1, 2020. This standard did not have a material impact on our interim condensed consolidated financial statements; however, we did update our processes specifically in how we monitor credit related declines in market value for our available for sale marketable debt securities.

 

On December 18, 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU is part of the FASB’s overall simplification initiative to reduce the costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. This ASU removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation, and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU No. 2019-12 is effective for reporting periods beginning after December 15, 2020, with early adoption permitted. On January 1, 2020, the Company early adopted the provisions of ASU No. 2019-12. This standard did not have a material impact on our interim condensed consolidated financial statements.

 

Revenue [Policy Text Block]

Net Patient Revenues and Accounts Receivable

 

Net patient revenues are derived from services rendered to patients for skilled and intermediate nursing, rehabilitation therapy, assisted living and independent living, and home health care services. Net patient 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 contractual adjustments provided to third party payors. Contractual adjustments are based on contractual agreements and historical experience. The Company considers the patient's ability and intent to pay the amount of consideration upon admission. Credit losses are recorded as bad debt expense, which is included as a component of other operating expenses in the interim condensed consolidated statements of operations. Bad debt expense was $830,000 and $1,047,000 for the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, and December 31, 2019, the Company has recorded allowance for doubtful accounts of $4,929,000 and $4,451,000, respectively, as our best estimate of expected losses inherent in the accounts receivable balance.

 

Revenue Recognition for Alternative Revenue Programs, Policy [Policy Text Block]

Other Revenues

 

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

 

Segment Reporting, Policy [Policy Text Block]

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 one behavioral health hospital, and (2) homecare 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 Policy [Policy Text Block]

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.

 

Selling, General and Administrative Expenses, Policy [Policy Text Block]

General and Administrative Costs

 

With the Company being a healthcare provider, the majority of our expenses are "cost of revenue" items. Costs that could be classified as "general and administrative" by the Company would include its corporate office costs, excluding stock-based compensation, which were $3,059,000 and $1,813,000 for the three months ended March 31, 2020 and 2019, respectively.

 

Lessee, Leases [Policy Text Block]

Long-Term Leases

 

The Company’s lease portfolio primarily consists of finance and operating real estate leases for certain skilled nursing facilities, assisted and independent living facilities, homecare offices, and pharmacy warehouses. The original terms of the leases typically range from two to fifteen years. Several of the real estate leases include renewal options which vary in length and may not include specific rent renewal amounts. We determine if an arrangement is a lease at 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 on the interim condensed consolidated balance sheets for non-cancelable real estate operating leases with original or remaining lease terms in excess of one year. Leases with a lease term of 12 months or less at inception are not recorded on our interim condensed consolidated balance sheets and are expensed on a straight-line basis over the lease term in our interim condensed consolidated statement of operations.

 

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.

 

Property, Plant and Equipment, Policy [Policy Text Block]

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.

 

Finance leases are recorded at cost. Finance leases are amortized in accordance with the provision codified within ASC 842, Leases. Amortization of finance lease assets is included in depreciation and amortization expense.

 

Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block]

Goodwill

 

We perform our annual goodwill impairment assessment on the first day of the fourth quarter.  At March 31, 2020, the Company reviewed the carrying value of goodwill for impairment indicators due to the events and circumstances surrounding the COVID-19 pandemic. As a result of the review, there were no impairment indicators regarding the Company’s goodwill during the three months ended March 31, 2020 that required a quantitative test to be performed. However, our accounting estimates could materially change from period to period due to changing market factors, including those driven by COVID-19. We will continue to monitor future events, changes in circumstances, and the potential impact thereof. If actual results are not consistent with our assumptions and estimates, we may be exposed to future goodwill impairment losses.

 

Liability Reserve Estimate, Policy [Policy Text Block]

Accrued Risk Reserves  

 

We are self–insured for risks related to health insurance and have wholly–owned limited purpose insurance companies that insure risks related to workers’ compensation and general and professional liability insurance claims. The accrued risk reserves include a liability for reported claims and estimates for incurred but unreported claims. Our policy is to engage an external, independent actuary to assist in estimating our exposure for claims obligations (for both asserted and unasserted claims). We reassess our accrued risk reserves on a quarterly basis.

 

Professional liability remains an area of particular concern to us. The long-term care industry has seen an increase in personal injury/wrongful death claims based on 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. A significant increase in the number of these claims, or an increase in the amounts due as a result of these claims could have a material adverse effect on our consolidated financial position, results of operations and cash flows. It is also possible that future events could cause us to make significant adjustments or revisions to these reserve estimates and cause our reported net income to vary significantly from period to period.

 

We are principally self-insured for incidents occurring in all centers owned or leased by us. The coverages include both primary policies and excess policies. In all years, settlements, if any, in excess of available insurance policy limits and our own reserves would be expensed by us.

 

Continuing Care Contracts and Refundable Entrance Fees, Policy [Policy Text Block]

Continuing Care Contracts and Refundable Entrance Fee

 

We have one continuing care retirement center (“CCRC”) within our operations. Residents at this retirement center may enter into continuing care contracts with us. The contracts provide that 10% of the resident entry fee becomes non-refundable upon occupancy, and the remaining refundable portion of the entry fee is calculated using the lessor of the price at which the apartment is re-assigned or 90% of the original entry fee, plus 40% of any appreciation if the apartment exceeds the original resident’s entry fee.

 

Non-refundable fees are included as a component of the transaction price and are amortized into revenue over the actuarily 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 non-current liabilities in our consolidated balance sheets. As of March 31, 2020, and December 31, 2019, we have recorded a refundable entrance fee in the amount of $7,455,000.

 

Deferred Revenue, Policy [Policy Text Block]

Obligation to Provide Future Services

 

We annually estimate the present value of the cost of future services and the use of facilities to be provided to the current CCRC residents and compare that amount with the balance of non-refundable deferred revenue from entrance fees received. If the present value of the cost of future services exceeds the related anticipated revenues, a liability is recorded (obligation to provide future services) with a corresponding charge to income. As of March 31, 2020, and December 31, 2019, we have recorded a future service obligation in the amount of $2,035,000.

 

Income Tax Uncertainties, Policy [Policy Text Block]

Other Noncurrent Liabilities

 

Other noncurrent liabilities include reserves primarily related to various uncertain income tax positions.

 

Contract with Customer Liability, Policy [Policy Text Block]

Deferred Revenue

 

Deferred revenue includes the deferred gain on the sale of assets to National Health Corporation (“National”), the non-refundable portion (10%) of CCRC entrance fees being amortized over the remaining life expectancies of the residents, and premiums received within our workers’ compensation and professional liability companies in which the performance obligations have not been satisfied.

 

Noncontrolling Interest, Policy [Policy Text Block]

Noncontrolling Interest

 

The noncontrolling interest in a subsidiary is presented within total equity in the Company's interim condensed consolidated balance sheets. The Company presents the noncontrolling interest and the amount of consolidated net income attributable to NHC in its interim condensed consolidated statements of operations. The Company’s earnings per share is calculated based on net income attributable to NHC’s stockholders. The carrying amount of the noncontrolling interest is adjusted based on an allocation of subsidiary earnings based on ownership interest.

 

Consolidation, Variable Interest Entity, Policy [Policy Text Block]

 Variable Interest Entities

 

We have equity interests in unconsolidated limited liability companies that operate various post-acute and senior healthcare businesses. We analyze our investments in these limited liability companies to determine if the company is considered a variable interest entity (“VIE”) and would require consolidation. To the extent that we own interests in a VIE and we (i) are the sole entity that has the power to direct the activities of the VIE and (ii) have the obligation or rights to absorb the VIE's losses or receive its benefits, then we would be determined to be the primary beneficiary and would consolidate the VIE. To the extent we own interests in a VIE, then at each reporting period, we re-assess our conclusions as to which, if any, party within the VIE is considered the primary beneficiary.

 

The Company's maximum exposure to losses in its investments in unconsolidated VIEs cannot be quantified and may or may not be limited to its investment in the unconsolidated VIE. The investments in unconsolidated VIEs are classified as “investments in limited liability companies” in the consolidated balance sheets.

 

Reclassification, Comparability Adjustment [Policy Text Block]

Prior Period Classifications

 

Certain amounts in prior periods have been reclassified to conform with current period presentation.

v3.20.1
Note 13 - Stock-based Compensation
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Share-based Payment Arrangement [Text Block]

Note 13 – Stock–Based Compensation

 

NHC recognizes stock–based compensation expense for all stock options granted over the requisite service period using the fair value at the date of grant using the Black–Scholes pricing model. Stock–based compensation totaled $466,000 and $424,000 for the three months ended March 31, 2020 and 2019, respectively. Stock–based compensation is included in “Salaries, wages and benefits” in the interim condensed consolidated statements of operations.

 

At March 31, 2020, the Company had $4,077,000 of unrecognized compensation cost related to unvested stock–based compensation awards. This unrecognized compensation cost will be amortized over an approximate two-year period.

 

Stock Options

 

The following table summarizes the significant assumptions used to value the options granted for the three months ended March 31, 2020 and for the year ended December 31, 2019.

 

   

March 31, 2020

   

December 31, 2019

 

Risk–free interest rate

    1.40%       2.30%  

Expected volatility

    16.6%       17.4%  

Expected life, in years

    1.9       2.3  

Expected dividend yield

    2.55%       2.73%  

 

The following table summarizes our outstanding stock options for the three months ended March 31, 2020 and for the year ended December 31, 2019.

 

   

Number of

Shares

   

Weighted

Average

Exercise Price

   

Aggregate

Intrinsic

Value

 

Options outstanding at January 1, 2019

    1,163,381     $ 71.16     $  

Options granted

    53,316       77.89        

Options exercised

    (346,168

)

    71.57        

Options cancelled

    (85,000

)

    72.94        

Options outstanding at December 31, 2019

    785,529       71.24        

Options granted

    57,313       84.46        

Options exercised

    (7,615

)

    65.37        

Options outstanding at March 31, 2020

    835,227     $ 72.20     $ 1,331,000  
                         

Options exercisable at March 31, 2020

    196,414     $ 68.31     $ 1,001,000  

 

Options

Outstanding

March 31, 2020

   

Exercise Prices

   

Weighted Average

Exercise Price

   

Weighted Average

Remaining

Contractual

Life in Years

 
133,958     $52.93  - $62.78       61.80       1.82  
701,269     $72.94  - $86.48       74.19       2.05  
835,227                 72.20       2.01  

 

v3.20.1
Note 13 - Stock-based Compensation - Options Outstanding by Exercise Price Range (Details)
3 Months Ended
Mar. 31, 2020
$ / shares
shares
Options outstanding (in shares) | shares 835,227
Weighted average exercise price (in dollars per share) $ 72.20
Weighted average remaining contractual life (Year) 2 years 3 days
Exercise Price Range 1 [Member]  
Options outstanding (in shares) | shares 133,958
Exercise price, lower range (in dollars per share) $ 52.93
Exercise price, upper range (in dollars per share) 62.78
Weighted average exercise price (in dollars per share) $ 61.80
Weighted average remaining contractual life (Year) 1 year 9 months 25 days
Exercise Price Range 2 [Member]  
Options outstanding (in shares) | shares 701,269
Exercise price, lower range (in dollars per share) $ 72.94
Exercise price, upper range (in dollars per share) 86.48
Weighted average exercise price (in dollars per share) $ 74.19
Weighted average remaining contractual life (Year) 2 years 18 days
v3.20.1
Note 8 - Earnings Per Share (Details Textual) - shares
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares) 652,208  
Share-based Payment Arrangement, Option [Member]    
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares)   8,475
v3.20.1
Note 4 - Other Revenues - Summary of Other Revenues (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Rental income $ 5,679 $ 5,608
Management and accounting services fees 4,478 4,751
Insurance services 1,382 1,524
Other 490 291
Total other revenues $ 12,029 $ 12,174
v3.20.1
Note 6 - Business Segments (Details Textual)
3 Months Ended
Mar. 31, 2020
Number of Operating Segments 2
v3.20.1
Note 16 - Subsequent Events
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Subsequent Events [Text Block]

Note 16 – Subsequent Events

 

On March 27, 2020, the United States government passed the Coronavirus Aid, Relief, and Economic Security Act, (the “CARES Act”), which provided $2.2 trillion of economy-wide financial stimulus in the form of financial aid to individuals, businesses, nonprofits, states and municipalities. Within the CARES Act, the legislation set aside under Title VIII in Division B the Public Health and Social Services Emergency Fund, which is referred to as the Provider Relief Fund. This Provider Relief Fund set aside $100 billion to be administered through grants and other mechanisms to skilled nursing providers, home health providers, hospitals, public entities, non-for-profit entities, and Medicare and Medicaid enrolled providers to cover any unreimbursed health care related expenses or lost revenue attributable to the public health emergency resulting from COVID-19.

 

In April 2020, we received two disbursements from the Provider Relief Fund which totaled $19,468,000. These funds come with terms and condition certifications in which all providers will be required to submit documents to ensure the funds will be used for healthcare-related expenses or lost revenue attributable to COVID-19. These funds are not reflected in our first quarter 2020 interim condensed consolidated financial statements.

 

In April 2020, the Company also submitted requests and received funding as part of the Centers for Medicare and Medicaid Services (“CMS”) COVID-19 Accelerated Payment Program. The CMS COVID-19 Accelerated Payment Program is a streamlined version of existing policy that allows the Medicare Administrative Contractors (“MAC’s”) to issue up to three months of advance Medicare payments to help increase cash flow and liquidity to Medicare Part A and Part B providers in certain circumstances that include national emergencies. We received $50,744,000 as part of this Medicare Accelerated Payment Program. These funds will begin to be applied against claims for services provided to Medicare patients after approximately 120 days from the date we received the funds. The payback period will be for approximately 90 days; therefore, any remaining unapplied Accelerated Payment Program proceeds will be repaid within 210 days from the April 2020 receipt of the funds.

 

 

v3.20.1
Note 12 - Stock Repurchase Program
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Treasury Stock [Text Block]

Note 12 - Stock Repurchase Program

 

 In August 2019, the Board of Directors authorized a common stock purchase program. The program will allow for repurchases of up to $25 million of its common stock. During the quarter ended March 31, 2020, the Company repurchased 611 shares of its common stock for a total cost of $53,000. The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued.

 

  

v3.20.1
Note 5 - Non-operating Income (Tables)
3 Months Ended
Mar. 31, 2020
Notes Tables  
Schedule of Other Nonoperating Income, by Component [Table Text Block]
   

Three Months Ended

March 31

 

(in thousands)

 

2020

   

2019

 

Equity in earnings of unconsolidated investments

  $ 2,811     $ 2,321  

Dividends and net realized gains and losses on sales of securities

    2,022       1,931  

Interest income

    1,606       1,749  

Gain on acquisition of equity method investment

    1,707       -  

Total non-operating income

  $ 8,146     $ 6,001  
v3.20.1
Note 3 - Net Patient Revenues - Revenue Disaggregation (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Net patient revenues $ 244,095 $ 236,111
Revenue, concentration percentage 100.00% 100.00%
Medicare [Member]    
Revenue, concentration percentage 34.00% 36.00%
Inpatient Services [Member]    
Net patient revenues $ 230,987 $ 221,635
Managed Care [Member]    
Revenue, concentration percentage 11.00% 12.00%
Homecare [Member]    
Net patient revenues $ 13,108 $ 14,476
Medicaid [Member]    
Revenue, concentration percentage 29.00% 26.00%
Private Pay and Other [Member]    
Revenue, concentration percentage 26.00% 26.00%
v3.20.1
Note 8 - Earnings Per Share (Tables)
3 Months Ended
Mar. 31, 2020
Notes Tables  
Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]
   

Three Months Ended March 31

 
   

2020

   

2019

 

Basic:

               

Weighted average common shares outstanding

    15,294,777       15,256,189  

Net income/(loss) attributable to National HealthCare Corporation

  $ (26,852 )   $ 21,269  

Earnings/(loss) per common share, basic

  $ (1.76 )   $ 1.39  
                 

Diluted:

               

Weighted average common shares outstanding

    15,294,777       15,256,189  

Effects of dilutive instruments

    -       67,936  

Weighted average common shares outstanding

    15,294,777       15,324,125  
                 

Net income/(loss) attributable to National HealthCare Corporation

  $ (26,852 )   $ 21,269  

Earnings/(loss) per common share, diluted

  $ (1.76 )   $ 1.39  
v3.20.1
Note 13 - Stock-based Compensation (Tables)
3 Months Ended
Mar. 31, 2020
Notes Tables  
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]
   

March 31, 2020

   

December 31, 2019

 

Risk–free interest rate

    1.40%       2.30%  

Expected volatility

    16.6%       17.4%  

Expected life, in years

    1.9       2.3  

Expected dividend yield

    2.55%       2.73%  
Share-based Payment Arrangement, Option, Activity [Table Text Block]
   

Number of

Shares

   

Weighted

Average

Exercise Price

   

Aggregate

Intrinsic

Value

 

Options outstanding at January 1, 2019

    1,163,381     $ 71.16     $  

Options granted

    53,316       77.89        

Options exercised

    (346,168

)

    71.57        

Options cancelled

    (85,000

)

    72.94        

Options outstanding at December 31, 2019

    785,529       71.24        

Options granted

    57,313       84.46        

Options exercised

    (7,615

)

    65.37        

Options outstanding at March 31, 2020

    835,227     $ 72.20     $ 1,331,000  
                         

Options exercisable at March 31, 2020

    196,414     $ 68.31     $ 1,001,000  
Share-based Payment Arrangement, Option, Exercise Price Range [Table Text Block]

Options

Outstanding

March 31, 2020

   

Exercise Prices

   

Weighted Average

Exercise Price

   

Weighted Average

Remaining

Contractual

Life in Years

 
133,958     $52.93  - $62.78       61.80       1.82  
701,269     $72.94  - $86.48       74.19       2.05  
835,227                 72.20       2.01  
v3.20.1
Interim Condensed Consolidated Statements of Stockholders' Equity (Unaudited) (Parentheticals) - $ / shares
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dividends declared to common stockholders, per share (in dollars per share) $ 0.52 $ 0.50
v3.20.1
Note 8 - Earnings Per Share
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Earnings Per Share [Text Block]

Note 8 – Earnings per Share

 

Basic net income (loss) per share is computed based on the weighted average number of common shares outstanding for each period presented. Diluted net income (loss) per share reflects the potential dilution that would have occurred if securities to issue common stock were exercised, converted, or resulted in the issuance of common stock that would have then shared in our earnings.

 

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

 

   

Three Months Ended March 31

 
   

2020

   

2019

 

Basic:

               

Weighted average common shares outstanding

    15,294,777       15,256,189  

Net income/(loss) attributable to National HealthCare Corporation

  $ (26,852 )   $ 21,269  

Earnings/(loss) per common share, basic

  $ (1.76 )   $ 1.39  
                 

Diluted:

               

Weighted average common shares outstanding

    15,294,777       15,256,189  

Effects of dilutive instruments

    -       67,936  

Weighted average common shares outstanding

    15,294,777       15,324,125  
                 

Net income/(loss) attributable to National HealthCare Corporation

  $ (26,852 )   $ 21,269  

Earnings/(loss) per common share, diluted

  $ (1.76 )   $ 1.39  

 

The impact of potentially dilutive securities (652,208) for the three months ended March 31, 2020 were not considered because the effect would be anti-dilutive in that period. Options to purchase 8,475 shares of our common stock have been excluded for the quarter ended March 31, 2019 due to their anti–dilutive impact. 

  

v3.20.1
Interim Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($)
Mar. 31, 2020
Dec. 31, 2019
Current Assets:    
Cash and cash equivalents $ 69,492,000 $ 50,334,000
Restricted cash and cash equivalents, current portion 12,947,000 8,944,000
Marketable equity securities 92,061,000 152,453,000
Restricted marketable debt securities, current portion 16,685,000 20,576,000
Accounts receivable 100,411,000 92,975,000
Inventories 7,904,000 7,441,000
Prepaid expenses and other assets 5,397,000 4,075,000
Notes receivable, current portion 1,785,000 1,695,000
Federal income tax receivable 0 2,560,000
Total current assets 306,682,000 341,053,000
Property and Equipment:    
Property and equipment, at cost 1,032,795,000 1,017,204,000
Accumulated depreciation and amortization (492,175,000) (481,774,000)
Net property and equipment 540,620,000 535,430,000
Other Assets:    
Restricted cash and cash equivalents, less current portion 1,741,000 1,732,000
Restricted marketable debt securities, less current portion 131,126,000 126,830,000
Deposits and other assets 5,897,000 5,124,000
Operating lease right-of-use assets 196,960,000 202,909,000
Goodwill 21,341,000 20,995,000
Notes receivable, less current portion 13,168,000 13,384,000
Investments in unconsolidated companies 38,772,000 39,191,000
Total other assets 409,005,000 410,165,000
Total assets 1,256,307,000 1,286,648,000
Current Liabilities:    
Trade accounts payable 18,275,000 18,903,000
Finance lease obligations, current portion 4,228,000 4,166,000
Operating lease liabilities, current portion 24,557,000 24,243,000
Accrued payroll 48,892,000 69,826,000
Amounts due to third party payors 15,607,000 15,108,000
Accrued risk reserves, current portion 29,632,000 29,520,000
Other current liabilities 18,811,000 15,029,000
Dividends payable 7,980,000 7,968,000
Current maturities of long-term debt 50,000,000 10,000,000
Total current liabilities 217,982,000 194,763,000
Finance lease obligations, less current portion 13,882,000 14,963,000
Operating lease liabilities, less current portion 172,403,000 178,666,000
Accrued risk reserves, less current portion 71,130,000 66,491,000
Refundable entrance fees 7,455,000 7,455,000
Obligation to provide future services 2,035,000 2,035,000
Deferred income taxes 8,469,000 24,012,000
Other noncurrent liabilities 14,590,000 16,058,000
Deferred revenue 5,006,000 3,136,000
Total liabilities 512,952,000 507,579,000
Equity:    
Common stock, $.01 par value; 45,000,000 shares authorized; 15,346,601 and 15,332,206 shares, respectively, issued and outstanding 153,000 153,000
Capital in excess of par value 223,600,000 222,787,000
Retained earnings 518,261,000 553,093,000
Accumulated other comprehensive income 548,000 2,560,000
Total National HealthCare Corporation stockholders’ equity 742,562,000 778,593,000
Noncontrolling interest 793,000 476,000
Total equity 743,355,000 779,069,000
Total liabilities and equity $ 1,256,307,000 $ 1,286,648,000
v3.20.1
Note 4 - Other Revenues
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Other Revenues [Text Block]

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.

 

   

Three Months Ended

March 31

 

(in thousands)

 

2020

   

2019

 

Rental income

  $ 5,679     $ 5,608  

Management and accounting services fees

    4,478       4,751  

Insurance services

    1,382       1,524  

Other

    490       291  

Total other revenues

  $ 12,029     $ 12,174  

 

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 interim condensed consolidated statements of operations consisted of the following:

 

 

   

Three Months Ended

March 31

 

(in thousands)

 

2020

   

2019

 

Operating lease payments

  $ 5,503     $ 5,477  

Variable lease payments

    176       131  

Total rental income

  $ 5,679     $ 5,608  

 

 Management Fees from National

 

We manage five skilled nursing facilities owned by National. For the three months ended March 31, 2020 and 2019, we recognized management fees and interest on management fees of $1,537,000 and $1,854,000 from these centers, respectively.

 

Insurance Services

 

For workers’ compensation insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019 were $779,000 and $847,000, respectively. Associated losses and expenses are reflected in the interim condensed consolidated statements of operations as "Salaries, wages and benefits."

 

For professional liability insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019 were $603,000 and $677,000, respectively. Associated losses and expenses including those for self–insurance are included in the interim condensed consolidated statements of operations as "Other operating costs and expenses".

 

v3.20.1
Note 9 - Investments in Marketable Securities - Amortized Cost and Estimated Fair Value of Debt Securities as Available for Sale (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Within 1 year, cost $ 14,754 $ 15,726
Within 1 year, fair value 14,600 15,767
1 to 5 years, cost 94,416 88,314
1 to 5 years, fair value 94,603 90,408
6 to 10 years, cost 37,947 40,126
6 to 10 years, fair value 38,608 41,231
Over 10 years, cost 0 0
Over 10 years, fair value 0 0
Cost 147,117 144,166
Fair Value $ 147,811 $ 147,406
v3.20.1
Note 8 - Earnings Per Share - Summary of Earnings and Weighted Average Number of Common Shares Used in Calculation of Basic and Diluted Earnings Per Share (Details) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Basic:    
Weighted average common shares outstanding (in shares) 15,294,777 15,256,189
Net income/(loss) attributable to National HealthCare Corporation $ (26,852) $ 21,269
Earnings/(loss) per common share, basic (in dollars per share) $ (1.76) $ 1.39
Diluted:    
Weighted average common shares outstanding (in shares) 15,294,777 15,256,189
Effects of dilutive instruments (in shares) 0 67,936
Weighted average common shares outstanding (in shares) 15,294,777 15,324,125
Net income/(loss) attributable to National HealthCare Corporation $ (26,852) $ 21,269
Earnings/(loss) per common share, diluted (in dollars per share) $ (1.76) $ 1.39
v3.20.1
Note 12 - Stock Repurchase Program (Details Textual) - Common Stock [Member] - Share Repurchase Program 2019 [Member] - USD ($)
3 Months Ended
Mar. 31, 2020
Aug. 31, 2019
Stock Repurchase Program, Authorized Amount   $ 25,000,000
Stock Repurchased and Retired During Period, Shares (in shares) 611  
Stock Repurchased and Retired During Period, Value $ 53,000