nhc20180331_10q.htm
 

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, 2018

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    00113489      

 

 

(Exact name of registrant as specified in its Charter)

   

Delaware

522057472

(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) 8902020

Registrant's telephone number, including area code

   

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 [x] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes  [x]      No  [  ]

 

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

 

Large Accelerated filer [X ]

 

Accelerated filer  [  ]

   

Non–accelerated filer (Do not check if a smaller reporting company) [  ]

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 [x]

 

15,219,633 shares of common stock of the registrant were outstanding as of May 2, 2018.

 



 

 

 

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

26

     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

     

Item 4.

Controls and Procedures

38

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

38

     

Item 1A

Risk Factors

38

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

     

Item 3.

Defaults Upon Senior Securities

38

     

Item 4.

Mine Safety Disclosures

38

     

Item 5.

Other Information

38

     

Item 6.

Exhibits

39

 

 

 

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

 
   

2018

   

2017

 
           

(as adjusted)

 

Revenues:

               

Net patient revenues

  $ 231,692     $ 227,254  

Other revenues

    11,269       11,284  

Net operating revenues

    242,961       238,538  
                 

Cost and expenses:

               

Salaries, wages and benefits

    140,095       138,055  

Other operating

    65,172       63,178  

Facility rent

    10,229       10,088  

Depreciation and amortization

    10,342       10,295  

Interest

    1,240       1,058  

Total costs and expenses

    227,078       222,674  
                 

Income from operations

    15,883       15,864  
                 

Other income (expense):

               

Non–operating income (expense)

    (3,065 )     4,768  

Unrealized losses on marketable equity securities

    (15,517 )     -  
                 

Income (loss) before income taxes

    (2,699 )     20,632  

Income tax provision

    (200 )     (7,999 )

Net income (loss)

    (2,899 )     12,633  

Net loss attributable to noncontrolling interest

    108       95  
                 

Net income (loss) attributable to National HealthCare Corporation

  $ (2,791 )   $ 12,728  
                 

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

               

Basic

  $ (0.18 )   $ 0.84  

Diluted

  $ (0.18 )   $ 0.84  
                 

Weighted average common shares outstanding:

               

Basic

    15,216,635       15,173,491  

Diluted

    15,216,635       15,212,133  
                 

Dividends declared per common share

  $ 0.48     $ 0.45  

 

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 (Loss)

(unaudited – in thousands)

 

 

 

   

Three Months Ended

March 31

 
   

2018

   

2017

 
                 

Net income (loss)

  $ (2,899 )   $ 12,633  
                 

Other comprehensive loss:

               

Unrealized losses on investments in restricted marketable securities

    (2,798 )     (941 )

Reclassification adjustment for realized gains on sale of securities

    (11 )     (34 )

Income tax benefit related to items of other comprehensive income

    590       408  

Other comprehensive loss, net of tax

    (2,219 )     (567 )
                 

Net loss attributable to noncontrolling interest

    108       95  
                 

Comprehensive income (loss) attributable to National HealthCare Corporation

  $ (5,010 )   $ 12,161  

  

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,

2018

   

December 31,

2017

 
   

unaudited

         

Assets

               

Current Assets:

               

Cash and cash equivalents

  $ 54,962     $ 59,118  

Restricted cash and cash equivalents

    9,864       6,397  

Marketable equity securities

    123,568       139,085  

Restricted marketable debt securities

    18,067       21,012  

Accounts receivable, net

    85,006       86,767  

Inventories

    7,266       7,153  

Prepaid expenses and other assets

    3,478       2,864  

Notes receivable, current portion

    1,422       1,450  

Federal income tax receivable

    1,527       5,465  

Total current assets

    305,160       329,311  
                 

Property and Equipment:

               

Property and equipment, at cost

    965,774       958,748  

Accumulated depreciation and amortization

    (419,697 )     (409,429 )

Net property and equipment

    546,077       549,319  
                 

Other Assets:

               

Restricted cash and cash equivalents

    1,914       1,906  

Restricted marketable securities

    144,689       145,383  

Deposits and other assets

    4,884       4,867  

Goodwill

    17,600       17,600  

Notes receivable, less current portion

    11,398       11,801  

Investments in limited liability companies

    27,499       36,339  

Total other assets

    207,984       217,896  

Total assets

  $ 1,059,221     $ 1,096,526  

 

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,

2018

   

December 31,

2017

 
   

unaudited

         

Liabilities and Stockholders’ Equity

               

Current Liabilities:

               

Trade accounts payable

  $ 16,715     $ 15,978  

Capital lease obligations, current portion

    3,751       3,696  

Accrued payroll

    44,483       67,102  

Amounts due to third party payors

    17,155       17,389  

Accrued risk reserves, current portion

    27,931       27,409  

Other current liabilities

    14,312       16,194  

Dividends payable

    7,305       7,297  

Total current liabilities

    131,652       155,065  
                 

Long–term debt

    100,000       100,000  

Capital lease obligations, less current portion

    22,094       23,052  

Accrued risk reserves, less current portion

    68,315       65,866  

Refundable entrance fees

    8,668       8,827  

Obligation to provide future services

    2,887       2,887  

Deferred income taxes

    12,580       18,376  

Other noncurrent liabilities

    16,132       15,795  

Deferred revenue

    5,256       3,226  

Total liabilities

    367,584       393,094  
                 

Equity:

               

Common stock, $.01 par value; 45,000,000 shares authorized; 15,219,533 and 15,212,133 shares, respectively, issued and outstanding

    152       152  

Capital in excess of par value

    216,287       215,659  

Retained earnings

    477,528       419,423  

Accumulated other comprehensive income

    (2,916 )     67,504  

Total National HealthCare Corporation stockholders’ equity

    691,051       702,738  

Noncontrolling interest

    586       694  

Total equity

    691,637       703,432  

Total liabilities and equity

  $ 1,059,221     $ 1,096,526  

  

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

 
   

2018

   

2017

 
           

 

 

Cash Flows From Operating Activities:

               

Net income (loss)

  $ (2,899 )   $ 12,633  

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

               

Depreciation and amortization

    10,342       10,295  

Equity in (earnings) losses of unconsolidated investments

    6,586       (1,526 )

Distributions from unconsolidated investments

    2,254       2,609  

Unrealized losses on marketable securities

    15,517       -  

Gains on sale of restricted marketable securities

    (11 )     (34 )

Deferred income taxes

    (5,206 )     (1,657 )

Stock–based compensation

    428       92  

Changes in operating assets and liabilities:

               

Accounts receivable

    1,761       (808 )

Income tax receivable

    3,938       4,665  

Inventories

    (113 )     188  

Prepaid expenses and other assets

    (631 )     (1,280 )

Trade accounts payable

    737       (14 )

Accrued payroll

    (22,619 )     (23,936 )

Amounts due to third party payors

    (234 )     668  

Accrued risk reserves

    2,971       3,661  

Other current liabilities

    (1,882 )     4,695  

Other noncurrent liabilities

    337       528  

Deferred revenue

    2,030       2,232  

Net cash provided by operating activities

    13,306       13,011  

Cash Flows From Investing Activities:

               

Additions to property and equipment

    (7,100 )     (8,066 )

Investments in unconsolidated companies

    -       (176 )

Collections of notes receivable

    431       2,918  

Purchase of restricted marketable securities

    (2,694 )     (2,291 )

Sale of restricted marketable securities

    3,535       33,887  

Net cash (used in) provided by investing activities

    (5,828 )     26,272  

Cash Flows From Financing Activities:

               

Principal payments under capital lease obligations

    (903 )     (851 )

Dividends paid to common stockholders

    (7,297 )     (6,818 )

Issuance of common shares

    1,067       817  

Repurchase of common shares

    (867 )     -  

Equity attributable to noncontrolling interest

            970  

Entrance fee refunds

    (159 )     (519 )

Change in deposits

    -       (662 )

Net cash used in financing activities

    (8,159 )     (7,063 )

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

    (681 )     32,220  

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

    67,421       31,589  

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

  $ 66,740     $ 63,809  
                 

Balance Sheet Classifications:

               

Cash and cash equivalents

  $ 54,962     $ 47,096  

Restricted cash and cash equivalents

    11,778       16,713  

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

  $ 66,740     $ 63,809  

 

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

   

Accumulated Other Comprehensive

   

Non-controlling

   

Total

Stockholders’

 
   

Shares

   

Amount

    Par Value     Earnings     Income     Interest     Equity  

Balance at January 1, 2017

    15,162,938     $ 152     $ 211,457     $ 391,934     $ 66,068     $     $ 669,611  

Net income attributable to National HealthCare Corporation

                      12,728                   12,728  

Net loss attributable to noncontrolling interest

                                  (95 )     (95 )

Equity contributed by noncontrolling interest

                                  970       970  

Other comprehensive loss

                            (567 )           (567 )

Stock–based compensation

                92                         92  

Shares sold – options exercised

    16,992             817                         817  

Dividends declared to common stockholders ($0.45 per share)

                      (6,831 )                 (6,831 )

Balance at March 31, 2017

    15,179,930     $ 152     $ 212,366     $ 397,831     $ 65,501     $ 875     $ 676,725  
                                                         

Balance at January 1, 2018

    15,212,133     $ 152     $ 215,659     $ 419,423     $ 67,504     $ 694     $ 703,432  

Reclassification due to new accounting standards

                      68,201       (68,201 )            

Net loss attributable to National HealthCare Corporation

                      (2,791 )                 (2,791 )

Net loss attributable to noncontrolling interest

                                  (108 )     (108 )

Other comprehensive income

                            (2,219 )           (2,219 )

Stock–based compensation

                428                         428  

Shares sold – options exercised

    21,906             1,067                         1,067  

Repurchase of common shares

    (14,506 )           (867 )                       (867 )

Dividends declared to common stockholders ($0.48 per share)

                      (7,305 )                 (7,305 )

Balance at March 31, 2018

    15,219,533     $ 152     $ 216,287     $ 477,528     $ (2,916 )   $ 586       691,637  

  

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, 2018

(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, 2018, we operate or manage, through certain affiliates, 76 skilled nursing facilities with a total of 9,623 licensed beds, 24 assisted living facilities, five independent living facilities, and 36 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 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 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, 2017 consolidated financial statements and notes thereto which contain accounting policies and other disclosures required by generally accepted accounting principles. Our audited December 31, 2017 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 (loss) 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, 2017 consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 accounting principles generally accepted in the United States 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.

 

 

Recently Adopted Accounting Guidance

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2014–09 “Revenue from Contracts with Customers”, also known as the “New Revenue Standard”. This update is the result of a collaborative effort by the FASB and the International Accounting Standards Board to simplify revenue recognition guidance, remove inconsistencies in the application of revenue recognition, and to improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to receive for those goods or services. The New Revenue Standard is applied through the following five-step process:

 

1. Identify the contract(s) with a customer.

2. Identify the performance obligation in the contract.

3. Determine the transaction price.

4. Allocate the transaction price to the performance obligations in the contract.

5. Recognize revenue when (or as) the entity satisfies a performance obligation.

 

For a public entity, this update is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period by applying either the full retrospective method or the cumulative catch-up transition method.

 

On January 1, 2018, the Company adopted the provisions of ASU No. 2014-09 using the full retrospective method, which requires us to restate each prior reporting period presented. The most significant impact to NHC relates to the recording of revenue for patients that have individual copayment responsibilities and are eligible for both Medicare and Medicaid benefits (also known as dual eligible patients). As such with these patients, net patient revenues will only include the amounts expected to be collected from the patients in accordance with ASU No. 2014-09. Under the prior accounting guidance, we recorded the price stated in the contract as net patient revenue, and the amounts not collected from our patients were recorded as bad debts in other operating expenses. The adoption of ASU No. 2014-09 has no impact on the Company’s accounts receivable as it was historically recorded net of allowance for doubtful accounts and contractual adjustments. The following table presents the effect on the interim condensed consolidated statement of operations for the three months ending March 31, 2017 for the accounting change that was retrospectively adopted on January 1, 2018:

 

Consolidated Statement of Operations

(in thousands)

 

   

Three Months Ended March 31, 2017

 
   

As

Previously

Reported

   

Effect of

Accounting

Change

   

As

Adjusted

 
                         

Net patient revenues

  $ 227,959     $ (705 )   $ 227,254  

Net operating revenues

    239,243       (705 )     238,538  

Other operating expenses

    63,883       (705 )     63,178  

Total costs and expenses

    223,379       (705 )     222,674  

Net income

  $ 12,633     $ -     $ 12,633  

 

 

In January 2016, the FASB issued ASU No. 2016–01, “Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825)”. ASU No. 2016–01 revises the classification and measurement of investments in certain equity investments and the presentation of certain fair value changes for certain financial liabilities measured at fair value. ASU No. 2016–01 requires the change in fair value of many equity investments to be recognized in net income.  On January 1, 2018, the Company adopted the provisions of ASU No. 2016-01 using the modified retrospective method as required by the standard. The adoption of ASU No. 2016-01 resulted in a $68,073,000 reclassification of net unrealized gains from accumulated other comprehensive income (“AOCI”) to the opening balance of retained earnings. For the three months ended March 31, 2018, the Company recognized a loss of $15,517,000 in our interim condensed consolidated statement of operations related to the change in fair value of our equity securities.  The adoption of ASU No. 2016-01 increases the volatility of non-operating income due to the market fluctuation of our marketable equity securities.

 

In August 2016, the FASB issued ASU No. 2016-15, “Clarification on Classification of Certain Cash Receipts and Cash Payments on the Statements of Cash Flows”. ASU No. 2016-15 was issued to create consistency in the classification of eight specific cash flow items and provides an accounting policy election for classifying distributions received from equity method investments. Such equity method investment distributions are now classified using a 1) cumulative earnings approach, or 2) nature of distribution approach. On January 1, 2018, the Company adopted the provisions of ASU No. 2016-15 and this standard did not have a material impact on our consolidated financial statements.

 

In May 2017, the FASB issued ASU No. 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting”. ASU No. 2017-09 amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Accounting Standards Cofification ("ASC") 718. On January 1, 2018, the Company adopted the provisions of ASU No. 2017-09 and this standard did not have a material impact on our consolidated financial statements.

 

In February 2018, the FASB issued ASU No. 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. ASU No. 2018-02 permits a company to reclassify disproportionate tax effects in accumulated other comprehensive income caused by the Tax Cuts and Jobs Act of 2017 to retained earnings. The FASB refers to these amounts as “stranded tax effects.” On January 1, 2018, the Company early adopted the provisions of ASU No. 2018-02. The adoption of this standard resulted in an adjustment of accumulated other comprehensive income, with a corresponding adjustment to the opening balance of retained earnings in the amount of $128,000, related to the stranded tax effects of the unrealized losses in our restricted marketable debt securities.

 

Recent Accounting Guidance Not Yet Adopted      

 

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." The objective of this update is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods and is to be applied utilizing a modified retrospective approach. We anticipate this standard will have a material impact on our consolidated financial statements and results in an increase to total assets and total liabilities. Additionally, we are currently evaluating the impact this standard will have on our policies and procedures and internal control framework.

 

 

Segment Reporting

 

In accordance with the provisions of 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 and assisted and independent living facilities, 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 - Business Segments 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, which were $7,106,000 and $8,965,000 for the three months ended March 31, 2018 and 2017, respectively.

 

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.

 

Capital leases are recorded at the lower of fair market value or the present value of future minimum lease payments. Capital leases are amortized in accordance with the provision codified within ASC Subtopic 840-30, Leases – Capital Leases. Amortization of capital lease assets is included in depreciation and amortization expense.

 

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. As of March 31, 2018, we and/or our managed centers are defendants in 63 such claims. It remains possible that those pending matters plus potential unasserted claims could exceed our reserves, which 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 Community ("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 actuarially determined remaining life of the resident, which is the expected period of occupancy by the resident. We pay the refundable portion of our entry fees to residents when they relocate from our community and the apartment is re-occupied. Refundable entrance fees are not included as part of the transaction price and are classified as non-current liabilities in the Company's consolidated balance sheets. The balances of refundable entrance fees as of March 31, 2018 and December 31, 2017 were $8,668,000 and $8,827,000, respectively.

 

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, 2018, and December 31, 2017, we have recorded a future service obligation in the amount of $2,887,000.

 

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 that are not yet earned.

 

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 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

 

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 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 and assisted and independent living facilities, and (2) homecare services.

 

   

Three Months Ended March 31

 
(in thousands)  

2018

   

2017

 

Net patient revenues:

               

Inpatient services

  $ 216,351     $ 211,597  

Homecare

    15,341       15,657  

Total net patient revenue

  $ 231,692     $ 227,254  

 

The Company recognizes revenue as its performance obligations are completed. The performance obligations are satisfied over time as the patient simultaneously receives and consumes the benefits of the healthcare services provided. 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. 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 has elected to apply the optional exemption provided in FASB ASC 606-10-50-14(a) and, therefore, 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 elected as a practical expedient under ASC 606-10-32-18 to 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

 

2018

   

2017

 

Medicare

    36 %     36 %

Managed Care

    13 %     13 %

Medicaid

    25 %     26 %

Private Pay and Other

    26 %     25 %

Total

    100 %     100 %

 

The Company determines the transaction price based on established billing rates reduced by contractual adjustments provided to third party payors.  Contractual adjustments are based on contractual agreements and historical experience.  The Company considers the patient's ability and intent to pay the amount of consideration upon admission.  Subsequent changes resulting from a patient’s ability to pay are recorded as bad debt expense, which is included as a component of other operating expenses in the interim condensed consolidated statements of operations. The provision for doubtful accounts was $959,000 and $1,178,000 for the three months ended March 31, 2018 and 2017, respectively.

 

Medicare covers skilled nursing services for beneficiaries who require nursing care and/or rehabilitation services following a hospitalization of at least three consecutive days. For each eligible day a Medicare beneficiary is in a skilled nursing facility, Medicare pays the facility a daily payment, subject to adjustment for certain factors such as a wage index in the geographic area. The payment covers all services provided by the skilled nursing facility for the beneficiary that day, including room and board, nursing, therapy and drugs, as well as an estimate of capital–related costs to deliver those services.

 

For homecare services, Medicare pays based on the acuity level of the patient and based on episodes of care. An episode of care is defined as a length of care up to 60 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. We are allowed to make a request for anticipated payment at the start of care equal to 60% of the expected payment for the initial episode. The remaining balance due is paid following the submission of the final claim at the end of the episode. Deferred revenue is recorded for payments received for which the related services have not yet been provided

 

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 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 in compliance with 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. The Medicare PPS methodology requires that patients be assigned to Resource Utilization Groups ("RUGs") based on the acuity level of the patient to determine the amount paid to us for patient services. The assignment of patients to the various RUG categories is subject to post–payment review by Medicare intermediaries 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 currently 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 $17,155,000 and $17,389,000 as of March 31, 2018 and December 31, 2017, respectively, for various Medicare, Medicaid, and Managed Care claims reviews and current and prior year cost reports.

 

 

Note 4 Other Revenues

 

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 fees are generated by providing management and accounting services to third-party post-acute healthcare facilities. Revenues from insurance services include premiums for workers’ compensation and professional liability insurance policies that our wholly–owned insurance subsidiaries have written for third-party post-acute health care facilities to which we provide management or accounting services. "Other" revenues include miscellaneous health care related earnings.

 

Other revenues include the following:

 

   

Three Months Ended

March 31

 

(in thousands)

 

2018

   

2017

 

Rental income

  $ 5,532     $ 5,485  

Management and accounting services fees

    3,708       3,859  

Insurance services

    1,692       1,559  

Other

    337       381  

Total other revenues

  $ 11,269     $ 11,284  

 

Management Fees from National

 

We manage five skilled nursing facilities owned by National. For the three months ended March 31, 2018 and 2017, we recognized management fees and interest on management fees of $1,014,000 and $936,000 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, 2018 and 2017 were $1,019,000 and $1,280,000, 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, 2018 and 2017 were $673,000 and $279,000, 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 NonOperating Income

 

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

 

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. As of and for the three months ended March 31, 2018, Caris recorded an expense and estimated liability of $8,500,000 for the potential settlement of their Qui Tam legal matter. Please see Note 15 Contingencies and Commitments for further detail describing the status of Caris’ legal investigation.

 

   

Three Months Ended

March 31

 

(in thousands)

 

2018

   

2017

 

Equity in earnings (losses) of unconsolidated investments

  $ (6,586 )   $ 1,526  

Dividends and other net realized gains and losses on sales of securities

    1,803       1,724  

Interest income

    1,718       1,518  

Total non-operating income

  $ (3,065 )   $ 4,768  

 

 

 

Note 6 – Business Segments

 

The Company has two reportable operating segments: (1) inpatient services, which includes the operation of skilled nursing facilities and assisted and independent living facilities, and (2) homecare services. These reportable operating segments are consistent with information used by the Company’s Chief Executive Officer, as 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.

 

 

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, 2018

 
   

Inpatient

Services

   

Homecare

   

All Other

   

Total

 

Revenues:

                               

Net patient revenues

  $ 216,351     $ 15,341     $ -     $ 231,692  

Other revenues

    271       -       10,998       11,269  

Net operating revenues

    216,622       15,341       10,998       242,961  
                                 

Costs and expenses:

                               

Salaries, wages and benefits

    123,380       8,030       8,685       140,095  

Other operating

    57,835       5,279       2,058       65,172  

Rent

    8,258       487       1,484       10,229  

Depreciation and amortization

    9,461       38       843       10,342  

Interest

    396       -       844       1,240  

Total costs and expenses

    199,330       13,834       13,914       227,078  
                                 

Income (loss) from operations

    17,292       1,507       (2,916 )     15,883  
                                 

Non-operating income (loss)

    -       -       (3,065 )     (3,065 )

Unrealized losses on marketable equity securities

    -       -       (15,517 )     (15,517 )
                                 

Income (loss) before income taxes

  $ 17,292     $ 1,507     $ (21,498 )   $ (2,699 )

 

 

   

Three Months Ended March 31, 2017

 
(As adjusted)  

Inpatient

Services

   

Homecare

   

All Other

   

Total

 

Revenues:

                               

Net patient revenues

  $ 211,597     $ 15,657     $ -     $ 227,254  

Other revenues

    226       -       11,058       11,284  

Net operating revenues

    211,823       15,657       11,058       238,538  
                                 

Costs and expenses:

                               

Salaries, wages and benefits

    119,623       7,828       10,604       138,055  

Other operating

    56,165       5,135       1,878       63,178  

Rent

    8,166       489       1,433       10,088  

Depreciation and amortization

    9,209       40       1,046       10,295  

Interest

    449       -       609       1,058  

Total costs and expenses

    193,612       13,492       15,570       222,674  
                                 

Income (loss) from operations

    18,211       2,165       (4,512 )     15,864  
                                 

Non-operating income

    -       -       4,768       4,768  
                                 

Income before income taxes

  $ 18,211     $ 2,165     $ 256     $ 20,632  

 

 

 

Note 7 – Long-Term Leases

 

Capital Leases

 

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

 

   

March 31, 2018

   

December 31, 2017

 

Buildings and personal property

  $ 39,032     $ 39,032  

Accumulated amortization

    (16,026 )     (15,045 )
    $ 23,006     $ 23,987  

 

Operating Leases

 

The Company leases from National Health Investors, Inc. (“NHI”) the real property of 35 skilled nursing facilities, seven assisted living facilities and three independent living facilities under two separate lease agreements. Base rent expense under both lease agreements totals $34,200,000 annually with rent thereafter escalating by 4% of the increase in facility revenue over the base year. Total facility rent expense to NHI was $9,478,000 and $9,314,000 for the three months ended March 31, 2018 and 2017, respectively.

 

Minimum Lease Payments

 

The approximate future minimum lease payments required under all leases that have remaining non-cancelable lease terms at March 31, 2018 are as follows (in thousands):

 

   

Operating

Leases

   

Capital

Leases

 

2019

  $ 34,200     $ 5,200  

2020

    34,200       5,200  

2021

    34,200       5,200  

2022

    34,200       5,200  

2023

    34,200       5,200  

Thereafter

    134,000       4,767  

Total minimum lease payments

  $ 305,000     $ 30,767  

Less: Amounts representing interest

            (4,922 )

Present value of minimum lease payments

            25,845  

Less: Current portion

            (3,751 )

Long-term capital lease obligations

          $ 22,094  

 

 

 

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

 
   

2018

   

2017

 

Basic:

               

Weighted average common shares outstanding

    15,216,635       15,173,491  

Net income (loss) attributable to National HealthCare Corporation

  $ (2,791 )   $ 12,728  

Earnings (loss) per common share, basic

  $ (0.18 )   $ 0.84  
                 

Diluted:

               

Weighted average common shares outstanding

    15,216,635       15,173,491  

Dilutive effect of stock options

    --       38,642  

Weighted average common shares outstanding

    15,216,635       15,212,133  
                 

Net income (loss) attributable to National HealthCare Corporation

  $ (2,791 )   $ 12,728  

Earnings (loss) per common share, diluted

  $ (0.18 )   $ 0.84  

 

The impact of potentially dilutive securities (1,238,855) for the three months ended March 31, 2018 were not considered because the effect would be anti-dilutive in that period.  Options to purchase 1,072,425 shares of our common stock have been excluded for the quarter ended March 31, 2017 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. 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 10Fair Value Measurements 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, 2018

   

December 31, 2017

 
   

Amortized

Cost

   

Fair

Value

   

Amortized

Cost

   

Fair

Value

 

Non-restricted investments:

                               

Marketable equity securities

  $ 30,176     $ 123,568     $ 30,176     $ 139,085  

Restricted investments:

                               

Corporate debt securities

    67,505       66,291       65,107       65,461  

Commercial mortgage–backed securities

    52,589       51,488       54,030       53,544  

U.S. Treasury securities

    21,512       20,740       21,685       21,172  

State and municipal securities

    24,841       24,237       26,455       26,218  
    $ 196,623     $ 286,324     $ 197,453     $ 305,480  

 

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

 

   

March 31, 2018

   

December 31, 2017

 
   

Shares

   

Cost

   

Fair

Value

   

Shares

   

Cost

   

Fair

Value

 

NHI Common Stock

    1,630,642     $ 24,734     $ 109,726       1,630,642     $ 24,734     $ 122,918  

 

 

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, 2018

   

December 31, 2017

 
   

Cost

   

Fair

Value

   

Cost

   

Fair

Value

 

Maturities:

                               

Within 1 year

  $ 17,222     $ 17,187     $ 18,492     $ 18,499  

1 to 5 years

    77,295       76,171       70,331       70,157  

6 to 10 years

    71,931       69,398       77,657       76,943  

Over 10 years

    --       --       797       796  
    $ 166,448     $ 162,756     $ 167,277     $ 166,395  

 

Gross unrealized gains related to marketable equity securities are $93,421,000 and $108,934,000 as of March 31, 2018 and December 31, 2017, respectively. Gross unrealized losses related to marketable equity securities are $29,000 and $24,000 as of March 31, 2018 and December 31, 2017, respectively. For the three months ended March 31, 2018, the Company recognized net unrealized losses for the decreased market value of the marketable equity securities in the amount of $15,517,000 in the interim condensed consolidated statements of operations.

 

Gross unrealized gains related to available for sale debt securities are $179,000 and $885,000 as of March 31, 2018 and December 31, 2017, respectively. Gross unrealized losses related to available for sale debt securities are $3,870,000 and $3,149,000 as of March 31, 2018 and December 31, 2017, respectively.

 

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. As a result, the Company recognized no other-than-temporary impairment during the three months ended March 31, 2018 or for the year ended December 31, 2017.

 

Proceeds from the sale of available for sale debt securities during the three months ended March 31, 2018 and 2017 were $3,535,000 and $33,887,000, respectively. Investment gains of $11,000 and $34,000 were realized on these sales during the three months ended March 31, 2018 and 2017, respectively. No sales were reported for marketable equity securities for the three months ended March 31, 2018 and 2017, 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, 2018 and December 31, 2017 for assets and liabilities measured at fair value on a recurring basis (in thousands):

 

   

Fair Value Measurements Using

 

March 31, 2018

 

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

  $ 54,962     $ 54,962     $     $  

Restricted cash and cash equivalents

    11,778       11,778              

Marketable equity securities

    123,568       123,568              

Corporate debt securities

    66,291       43,619       22,672        

Mortgage–backed securities

    51,488             51,488        

U.S. Treasury securities

    20,740       20,740              

State and municipal securities

    24,237             24,237        

Total financial assets

  $ 353,064     $ 254,667     $ 98,397     $  

 

 

   

Fair Value Measurements Using

 

December 31, 2017

 

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

  $ 59,118     $ 59,118     $     $  

Restricted cash and cash equivalents

    8,303       8,303              

Marketable equity securities

    139,085       139,085              

Corporate debt securities

    65,461       43,073       22,388        

Mortgage-backed securities

    53,544             53,544        

U.S. Treasury securities

    21,172       21,172              

State and municipal securities

    26,218             26,218        

Total financial assets

  $ 372,901     $ 270,751     $ 102,150     $  

 

 

 

Note 11 LongTerm Debt

 

Long–term debt consists of the following:

 

   

Weighted

Average

Interest Rate

   

Maturities

   

March 31,

2018

   

December 31,

2017

 
   

Variable

           

(dollars in thousands)

 

Credit Facility, interest payable monthly

    3.2 %     2020     $ 90,000     $ 90,000  
                                 

Unsecured term note payable to National, interest payable quarterly, principal payable at maturity

    4.0 %     2028       10,000       10,000  
                      100,000       100,000  

Less current portion

                           
                    $ 100,000     $ 100,000  

 

 

$175,000,000 Credit Facility

 

The $175 million credit facility has a five-year maturity date ( 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 2017, 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, 2018, the Company repurchased 14,506 shares of its common stock for a total cost of $867,000. The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued.

 

 

 

Note 13StockBased 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 $428,000 and $92,000 for the three months ended March 31, 2018 and 2017, respectively. Stock–based compensation is included in “Salaries, wages and benefits” in the interim condensed consolidated statements of operations.

 

At March 31, 2018, the Company had $6,917,000 of unrecognized compensation cost related to unvested stock–based compensation awards. This unrecognized compensation cost will be amortized over an approximate four-year period.

 

Stock Options

 

The following table summarizes the significant assumptions used to value the options granted for the three months ended March 31, 2018 and for the year ended December 31, 2017.

 

   

2018

   

2017

 

Risk–free interest rate

    2.37 %     2.08 %

Expected volatility

    15.84 %     16.6 %

Expected life, in years

    3.4       4.8  

Expected dividend yield

    3.17 %     3.10 %

 

The following table summarizes our outstanding stock options for the three months ended March 31, 2018 and for the year ended December 31, 2017.

 

   

Number of

Shares

   

Weighted

Average

Exercise Price

   

Aggregate

Intrinsic

Value

 

Options outstanding at January 1, 2017

    177,959     $ 55.48     $  

Options granted

    1,125,443       72.96        

Options exercised

    (48,995 )     51.25        

Options cancelled

    (15,000 )     72.94        

Options outstanding at December 31, 2017

    1,239,407       71.19        

Options granted

    58,854       60.95        

Options exercised

    (21,906 )     48.74        

Options cancelled

                 

Options outstanding at March 31, 2018

    1,276,355     $ 71.10     $ 251,000  
                         

Options vested at March 31, 2018

    37,500     $ 52.93     $ 251,000  

 

 

Options

Outstanding

March 31, 2018

 

Exercise Prices

   

Weighted Average

Exercise Price

   

Weighted Average

Remaining Contractual

Life in Years

 

178,080

 

$52.93

- $62.78     $ 59.77       2.6  

1,098,275

    $72.94         72.94       3.9  

1,276,355

            $ 71.10       3.7  

 

 

 

Note 14 – Income Taxes

 

The income tax provision for the three months ended March 31, 2018 is $200,000 (an effective income tax rate of -7.42%). The income tax provision and effective tax rate for the three months ended March 31, 2018 were unfavorably impacted by nondeductible expenses of $855,000 (primarily the non-deductible portion of the estimated potential settlement of the Caris HealthCare, L.P. Qui Tam legal matter) or -31.68% of income before taxes for the quarter. The income tax provision for the three months ended March 31, 2018 was also unfavorably impacted by the lower pre-tax book income resulting from the unrealized loss of $15,517,000 for the market value decrease in our marketable equity securities portfolio.  Prior to 2018, such market value changes ran through the balance sheet and did not impact our income statement.  The income tax provision for the three months ended March 31, 2017 was $7,999,000 (an effective income tax rate of 38.8%). The income tax provision and effective tax rate for the three months ended March 31, 2017 were unfavorably impacted by adjustments to unrecognized tax benefits of $175,000 and nondeductible expenses of $49,000 but was favorably impacted by a tax benefit of $124,000 relating to the exercise of stock options, resulting in a net increase in the provision.

 

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 ("2017 Tax Act") was signed into law making significant changes to the Internal Revenue Code.  The SEC issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides guidance on accounting for the tax effects of the 2017 Tax Act.  As of December 31, 2017, we made a reasonable estimate that the revaluation of our net deferred tax liability using the new federal corporate tax rates resulted in a provisional net tax benefit of $8,488,000, which reduced our net deferred tax liability balance.  This amount continues to be a provisional adjustment as of March 31, 2018.  We will recognize any changes to provisional amounts as we continue to analyze the existing statute or as additional guidance becomes available.  We expect to complete our analysis of the provisional amounts by the end of 2018.  

 

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 2014 (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 or leased entities and certain of the entities to which we provide management or accounting services. The liability we have recognized for reported claims and estimates for incurred but unreported claims totals $96,246,000 and $93,275,000 at March 31, 2018 and December 31, 2017, 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. As of March 31, 2018, we and/or our managed centers are currently defendants in 63 such claims.

 

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 2017 and 2018, 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.

 

Civil Investigative Demand

 

On December 19, 2013, the Company was served with a civil investigative demand (“CID”) from the U.S. Department of Justice and the Office of the U.S. Attorney for the Eastern District of Tennessee (“DOJ Investigation”) requesting the production of documents and interrogatory responses regarding the billing for and medical necessity of certain rehabilitative therapy services.

 

                On October 7, 2014, the Company received a subpoena from the Office of Inspector General of the United Department of Health and Human Services (“OIG Subpoena”) related to the current DOJ Investigation.  The OIG Subpoena requests certain financial and organizational documents from the Company and certain of its subsidiaries and SNFs and medical records from certain of the Company’s Tennessee–based SNFs. 

 

The DOJ Investigation and the OIG Subpoena resulted from the filing of two qui tam lawsuits under seal in the United States District Court for the Eastern District of Tennessee captioned U.S. ex rel. Forsythe v. National Healthcare Corp., No. 3:12-cv-00102 (E.D. Tenn.), and U.S. ex rel. Byrd v. National Healthcare Corp., No. 3:12-cv-00500 (E.D. Tenn.) (the “Lawsuits”), which asserted claims under the False Claims Act (“FCA”) against the Company based on allegations that the Company provided medically unnecessary skilled services to patients. The Lawsuits also alleged that the plaintiffs in the Lawsuits were terminated in violation of the FCA’s anti-retaliation provisions (the “Retaliation Claims”).  Following the DOJ Investigation, on July 31, 2017, the United States filed a Notice of Election to Decline Intervention with respect to the Lawsuits.  On March 22, 2018, the district court entered a Memorandum and Order in the Lawsuits, which, among other things, unsealed the Lawsuits, dismissed the qui tam actions without prejudice, and provided the plaintiffs in the Lawsuits leave to file amended complaints with respect to the plaintiffs’ employment-related claims.  On April 5, 2018, the plaintiffs filed Amended Complaints in cases captioned Byrd v. National Health Corp., No. 3:18-cv-00123 (E.D. Tenn.), and Forsythe v. National Health Corp., No. 3:18-cv-00122 (E.D. Tenn.), which assert employment-related claims.  The Company intends to defend itself vigorously against the allegations asserted in the Amended Complaints when and if the Amended Complaints are served. 

 

Caris HealthCare, L.P. Investigation

 

                On December 9, 2014, Caris Healthcare, L.P., a business that specializes in hospice care services in Company–owned health care centers and in other settings, received notice from the U.S. Attorney’s Office for the Eastern District of Tennessee and the Attorney Generals’ Offices for the State of Tennessee and State of Virginia that those government entities were conducting an investigation regarding patient eligibility for hospice services provided by Caris precipitated by a qui tam lawsuit.  We have a 75.1% non–controlling ownership interest in Caris.

 

                A qui tam lawsuit was filed on May 22, 2014, in the U.S. District Court for the Eastern District of Tennessee by a former Caris employee, Barbara Hinkle, and is captioned United States of America, State of Tennessee, and State of Virginia ex rel. Barbara Hinkle v. Caris Healthcare, L.P., No. 3:14–cv–212 (E.D. Tenn.).

 

                On June 16, 2016, the State of Tennessee and the State of Virginia declined to intervene in the qui tam lawsuit.  On June 20, 2016, the Court ordered that the complaint be unsealed.  On October 11, 2016, the United States filed a Complaint in Intervention against Caris Healthcare, L.P. and Caris Healthcare, LLC, a wholly owned subsidiary of Caris Healthcare, L.P.  The United States' complaint alleges that Caris billed the government for ineligible hospice patients between June 2013 and December 2013 and retained overpayments regarding ineligible hospice patients from April 2010 through June 2013.  It seeks treble damages and civil penalties under the Federal False Claims Act and asserts claims for payment under mistake of fact, unjust enrichment, and conversion.  The relator has filed a notice of voluntary dismissal without prejudice of the non–intervened claims asserted in her qui tam complaint.  On May 30, 2017, the district court denied Caris’ motion to dismiss, and the parties have engaged in discovery.  This matter is set for trial in March 2019. 

 

 

                On March 9, 2018, Caris and the United States jointly moved for a partial 90-day stay of the case to allow the parties to finalize a settlement in principle of the action.  On March 12, 2018, the district court entered an order granting a partial stay of 90 days from the date of the order.  On March 22, 2018, Caris and the relator jointly moved for a full stay of the case.  On March 23, 2018, the district court entered an order staying all proceedings in the matter for the same time period set forth in the court’s March 12, 2018 order.  The parties are ordered to file a joint status report regarding the outcome of their settlement negotiations and any other pertinent matters at the conclusion of that time period. 

 

As of and for the three months ended March 31, 2018, Caris has recorded an expense and an estimated liability in the amount of $8,500,000 regarding this legal matter, of which 75.1% is included in the Company's interim condensed consolidated statements of operations. Although the parties have reached an agreement in principle to settle the case, until the action is fully resolved, it is possible that this claim could continue to have material adverse effect on our consolidated financial position, results of operations and cash flows.

 

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, 2018, National did not have an outstanding balance on the line of credit.

 

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 in compliance with 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.

 

 

 

Item 2.

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

 

Overview

 

National HealthCare Corporation (“NHC” or the “Company”) is a leading provider of senior health care services. We operate or manage, through certain affiliates, 76 skilled nursing facilities with a total of 9,623 licensed beds, 24 assisted living facilities, five independent living facilities, and 36 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 centers. We operate in 10 states and are located primarily in the southeastern United States.

 

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, 2018 was 89.6% compared to 90.2% for the same period a year ago. 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.

 

26

 

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 of 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 average Five-Star rating for all of our skilled nursing facilities was 4.25 for 2017. The table below summarizes our performance in these quality ratings for the most recent three periods:

 

 

As of

 

 

March 31, 2018

   

December 31, 2017

   

December 31, 2016

 

Total number of skilled nursing facilities, end of period

76

   

76

   

74

 

Number of 4 and 5-star rated skilled nursing facilities

64

   

62

   

54

 

Percentage of 4 and 5-star rated skilled nursing facilities

84

%  

82

%  

73

%

 

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

SNF

 

New Facility

 

112 beds

 

Columbia, TN

 

January, 2017

ALF

 

New Facility

 

78 units

 

Bluffton, SC

 

March, 2017

ALF

 

New Facility

 

80 units

 

Garden City, SC

 

June, 2017

Memory Care

 

Bed Addition

 

23 units

 

Murfreesboro, TN

 

July, 2017

SNF

 

Bed Addition

 

30 beds

 

Springfield, MO

 

April, 2018

Memory Care

 

Bed Addition

 

60 beds

 

Farragut, TN

 

Under construction

 

For the project under construction at March 31, 2018, the 60-bed memory care addition in Farragut, Tennessee is expected to open in the fourth quarter of 2018.

 

Accrued Risk Reserves

 

Our accrued professional liability and workers’ compensation reserves totaled $96,246,000 at March 31, 2018 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 Program Financial Changes

 

Medicare – Skilled Nursing Facilities

 

In July 2017, CMS released its final rule outlining the fiscal year 2018 Medicare payments and policy changes for skilled nursing facilities. The 2018 final rule provided for an approximate 1.0% rate update, which began October 1, 2017. CMS estimated a 2.7% market basket increase reduced by 0.4% for a multifactor productivity adjustment required by the ACA; however, the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) mandated that all post-acute care providers receive a maximum market basket update of 1% in fiscal year 2018 to offset part of the cost of the legislation. CMS estimates the update will increase overall payments to skilled nursing facilities in fiscal year 2018 by $370 million compared to fiscal year 2017 levels. CMS also revised and rebased the market basket index by updating the base year from fiscal year 2010 to fiscal year 2014.

 

27

 

For the first three months of 2018, our average Medicare per diem rate for skilled nursing facilities decreased 0.3% compared to the same period in 2017.

 

Medicaid – Skilled Nursing Facilities

 

Effective July 1, 2017 and for the fiscal year 2018, the state of Tennessee implemented specific individual nursing facility rate increases. The resulting increase in revenue beginning July 1, 2017 was approximately $3,600,000 annually, or $900,000 per quarter

 

Effective October 1, 2017 and for the fiscal year 2018, South Carolina implemented specific individual nursing facility rate changes. The resulting increase in revenue beginning October 1, 2017 was approximately $1,100,000 annually, or $275,000 per quarter.           

 

Effective August 1, 2017 and for the fiscal year 2018, the state of Missouri approved a Medicaid rate decrease of $5.37 per patient day, or an approximate 3.5% decrease, to Missouri skilled nursing providers. The resulting decrease in revenue beginning August 1, 2017 was approximately $1,400,000 annually, or $350,000 per quarter.

 

For the first three months of 2018, our average Medicaid per diem increased 2.1% compared to the same period in 2017. 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

 

Effective January 1, 2018, CMS estimated the net impact of the 2018 home health PPS rates would result in a 0.4% decrease ($80 million) for home health agencies. This decrease reflects the effects of a 1.0% home health payment update percentage; a -0.97% percent adjustment to the national, standardized 60-day episode payment rate to account for nominal case-mix growth; and the sunset of the rural add-on provision for an impact of -0.5%. The rule also finalizes proposals for the Home Health Value-Based Purchasing (HHVBP) Model and the Home Health Quality Reporting Program (HH QRP).

 

Segment Reporting

 

The Company has two reportable operating segments: (1) inpatient services, which includes the operation of skilled nursing facilities and assisted and independent living facilities, and (2) homecare services. These reportable operating segments are consistent with information used by the Company’s Chief Executive Officer, as 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 enhance the quality of patient care and profitability of the Company while enhancing long-term shareholder value. Our CODM does not review assets by segment in his resource allocation and therefore, assets by segment are not disclosed below.

 

28

 

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

 

   

Three Months Ended March 31, 2018

 
   

Inpatient

Services

   

Homecare

   

All Other

   

Total

 

Revenues:

                               

Net patient revenues

  $ 216,351     $ 15,341     $ -     $ 231,692  

Other revenues

    271       -       10,998       11,269  

Net operating revenues

    216,622       15,341       10,998       242,961  
                                 

Costs and expenses:

                               

Salaries, wages and benefits

    123,380       8,030       8,685       140,095  

Other operating

    57,835       5,279       2,058       65,172  

Rent

    8,258       487       1,484       10,229  

Depreciation and amortization

    9,461       38       843       10,342  

Interest

    396       -       844       1,240  

Total costs and expenses

    199,330       13,834       13,914       227,078  
                                 

Income (loss) from operations

    17,292       1,507       (2,916 )     15,883  

Non-operating income/(loss)

    -       -       (3,065 )     (3,065 )

Unrealized losses on marketable equity securities

    -       -       (15,517 )     (15,517 )
                                 

Income (loss) before income taxes

  $ 17,292     $ 1,507     $ (21,498 )   $ (2,699 )

 

 

   

Three Months Ended March 31, 2017

 
(As adjusted)  

Inpatient

Services

   

Homecare

   

All Other

   

Total

 

Revenues:

                               

Net patient revenues

  $ 211,597     $ 15,657     $ -     $ 227,254  

Other revenues

    226       -       11,058       11,284  

Net operating revenues

    211,823       15,657       11,058       238,538  
                                 

Costs and expenses:

                               

Salaries, wages and benefits

    119,623       7,828       10,604       138,055  

Other operating

    56,165       5,135       1,878       63,178  

Rent

    8,166       489       1,433       10,088  

Depreciation and amortization

    9,209       40       1,046       10,295  

Interest

    449       -       609       1,058  

Total costs and expenses

    193,612       13,492       15,570       222,674  
                                 

Income (loss) from operations

    18,211       2,165       (4,512 )     15,864  
                                 

Non-operating income

    -       -       4,768       4,768  
                                 

Income before income taxes

  $ 18,211     $ 2,165     $ 256     $ 20,632  

 

 

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.

 

29

 

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 the legal costs and charges related to the estimated settlement of a Qui Tam investigation within our Caris hospice partnership.

 

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

 

   

Three Months Ended

March 31

 
   

2018

   

2017

 
                 

Net income (loss) attributable to National Healthcare Corporation

  $ (2,791 )   $ 12,728  

Non-GAAP adjustments

               

Unrealized losses on marketable equity securities

    15,517       -  
           Legal costs and charges related to Caris' legal investigation     8,228       123  

Operating results for newly opened facilities not at full capacity (*)

    192       838  

Stock-based compensation expense

    428       92  

Provision of income taxes on non-GAAP adjustments

    (5,481 )     (411 )

Non-GAAP Net income

  $ 16,093     $ 13,370  
                 
                 

GAAP diluted earnings per share

  $ (0.18 )   $ 0.84  

Non-GAAP adjustments

               

Unrealized losses on marketable equity securities

    0.76       -  

Legal costs and charges related to Caris' legal investigation

    0.45       0.01  

Operating results for newly opened facilities not at full capacity (*)

    0.01       0.03  

Stock-based compensation expense

    0.02       -  

Non-GAAP diluted earnings per share

  $ 1.06     $ 0.88  

 

(*) - The newly opened facilities consist of one skilled nursing facility and two assisted living facilities that opened during 2017.  

 

 

30

 

Results of Operations

 

The following table and discussion sets forth items from the interim condensed consolidated statements of operations as a percentage of net operating revenues for the three months ended March 31, 2018 and 2017.

 

Percentage of Net Operating Revenues

 

   

Three Months Ended March 31

 
   

2018

   

2017

 

Net operating revenues:

    100.0 %     100.0 %

Costs and expenses:

               

Salaries, wages and benefits

    57.7       57.9  

Other operating

    26.8       26.5  

Facility rent

    4.2       4.2  

Depreciation and amortization

    4.3       4.3  

Interest

    0.5       0.4  

Total costs and expenses

    93.5       93.3  

Income from operations

    6.5       6.7  

Non–operating income (expense)

    (1.3 )     1.9  

Unrealized losses on marketable equity securities

    (6.3 )     0.0  

Income (loss) before income taxes

    (1.1 )     8.6  

Income tax provision

    0.0       (3.3 )

Net income (loss)

    (1.1 )     5.3  

Net loss attributable to noncontrolling interest

    0.0       0.0  

Net income (loss) attributable to common stockholders of NHC

    (1.1 )%     5.3 %

 

 

Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017

 

Results for the quarter ended March 31, 2018 compared to the first quarter of 2017 include a 1.9% increase in net operating revenues and a 0.1% increase in income from operations.

 

Net operating revenues

 

Net patient revenues increased $4,438,000, or 2.0%, compared to the same period last year. There are three newly constructed healthcare facilities (1 skilled nursing facility and 2 assisted living facilities) placed in service during 2017 that continue to stabilize during 2018. These new healthcare facilities increased net patient revenues $1,803,000 compared to the same period a year ago. The remaining increase in our net patient revenues is primarily due to the average per diem increase in our existing skilled nursing facility operations.

 

The total census at owned and leased skilled nursing facilities for the quarter averaged 89.6% compared to an average of 90.2% for the same quarter a year ago. Medicare per diem rates decreased 0.3% and Managed Care per diem rates decreased 2.4% compared to the quarter a year ago. Medicaid and private pay per diem rates increased 2.1% and 3.1%, respectively, compared to the quarter a year ago. Overall, the composite skilled nursing facility per diem at our owned and leased skilled nursing facilities increased 1.6% compared to the quarter a year ago.

 

Other revenues decreased $15,000, or 0.1%, 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 2018 compared to the first quarter of 2017 increased $4,404,000 or 2.0%, to $227,078,000 from $222,674,000.

 

31

 

Salaries, wages and benefits increased $2,040,000, or 1.5%, to $140,095,000 from $138,055,000. Salaries, wages and benefits as a percentage of net operating revenue was 57.7% compared to 57.9% for the three months ended March 31, 2018 and 2017, respectively. The newly constructed healthcare facilities placed in service during 2017 increased salaries, wages and benefits by $433,000 compared to the same period a year ago. The Company continues to put substantial effort into retaining and recruiting talented partners and we continue to address the wage pressures we feel in most of our markets in which we operate.

 

Other operating expenses increased $1,994,000, or 3.2%, to $65,172,000 for the 2018 period compared to $63,178,000 for the 2017 period. Other operating expenses as a percentage of net operating revenue was 26.8% compared to 26.5% for the three months ended March 31, 2018 and 2017, respectively. The newly constructed healthcare facilities also increased other operating expenses compared to the quarter a year ago ($333,000).

 

The increase in interest expense is due to the increased interest rate on the line of credit borrowings compared to the same period a year ago. At March 31, 2018, we have $90 million outstanding on our credit facility.

 

Other income (expense)

 

Non–operating income decreased by $7,833,000 compared to the same period last year, as further detailed in Note 5 to our interim condensed consolidated financial statements. The decrease in non-operating income is due from our equity in earnings investment in our Caris hospice operations. During the first quarter of 2018, Caris recorded a charge to earnings and an estimated liability of $8,500,000 for the potential Qui Tam settlement, of which 75.1% is included in the Company's earnings. In total, with the $8.5 million estimated liability and legal expenses, Caris’ earnings negatively impacted NHC’s non-operating income by $8,228,000.

 

Effective January 1, 2018 with the new accounting pronouncement of ASU No. 2016–01, “Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825)”, this guidance requires that the change in the fair value of our marketable equity securities be recognized in net income. Therefore, we recorded unrealized losses in the amount of $15,517,000 for the decrease in our marketable equity securities portfolio during the first quarter of 2018. The marketable equity securities portfolio consists of publicly-traded healthcare REIT’s, with NHI comprising approximately 88% of the market value of the portfolio at March 31, 2018.

 

Income taxes and noncontrolling interest      

 

The income tax provision for the three months ended March 31, 2018 is $200,000 (an effective income tax rate of -7.42%). The income tax provision and effective tax rate for the three months ended March 31, 2018 were unfavorably impacted by nondeductible expenses of $855,000 or -31.68%. Excluding nondeductible expenses, we expect our corporate income tax rate for 2018 to be approximately 26%, which is down from approximately 39% in 2017.

 

The noncontrolling interest in a subsidiary is the joint venture operations of a skilled nursing facility in Columbia, Tennessee. This facility opened and began operating in January 2017 in which NHC owns 80% of the operating entity and Maury Regional Medical Center owns 20% of the entity.

 

 

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.

 

32

 

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

 

   

Three Months Ended

March 31

   

Three Month Change

 
   

2018

   

2017

   

$

   

%

 

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

  $ 67,421     $ 31,589     $ 35,832       113.4  
                                 

Cash provided by operating activities

    13,306       13,011       295       2.3  
                                 

Cash provided by (used in) investing activities

    (5,828 )     26,272       (32,100 )     (122.2 )
                                 

Cash used in financing activities

    (8,159 )     (7,063 )     (1,096 )     (15.5 )
                                 

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

  $ 66,740     $ 63,809     $ 2,931       4.6  

 

Operating Activities

 

Net cash provided by operating activities for the three months ended March 31, 2018 was $13,306,000 as compared to $13,011,000 in the same period last year. Cash provided by operating activities consisted of a net loss of $2,899,000, adjustments for non–cash items of $21,081,000, cash distributions from unconsolidated investments of $2,254,000, and equity in earnings of unconsolidated investments of $6,586,000. Equity in earnings of unconsolidated investments was impacted by the Caris qui tam settlement, including legal fees, of $8,228,000. The adjustments for non-cash items include unrealized losses on equity marketable securities of $15,517,000. There was cash used for working capital needs in the amount of $13,705,000 for the three months ended March 31, 2018 compared to $9,401,000 for the same period a year ago.

 

Investing Activities

 

Net cash used in investing activities totaled $5,828,000 for the three months ended March 31, 2018 compared to cash provided by investing activities of $26,272,000 for the three months ended March 31, 2017. Cash used for property and equipment additions was $7,100,000 for the three months ended March 31, 2018. The Company collected notes receivable of $431,000 and $2,918,000 for the three months ended March 31, 2018 and 2017, respectively. Sales of restricted marketable securities, net of purchases, resulted in cash of $841,000 and $31,596,000 for the three months ended March 31, 2018 and 2017, respectively. During the first quarter of 2017, $30 million of the proceeds from the sales of restricted marketable securities were transferred out of our insurance companies to our unrestricted cash position.

 

In 2018, construction and development costs included in additions to property and equipment include $1,385,000 for the construction of the 60-unit memory care addition located in Farragut, Tennessee and $1,753,000 for the 30-bed addition to a skilled nursing facility in Springfield, Missouri.

 

Financing Activities 

 

Net cash used in financing activities totaled $8,159,000 and $7,063,000 for the three months ending March 31, 2018 and 2017, respectively. Cash used for dividend payments to common stockholders totaled $7,297,000 in the current year period compared to $6,818,000 for the same period a year ago. In the current period, $1,067,000 was provided by the issuance of common stock compared to $817,000 in the prior year period. In the current period, repurchases of common stock totaled $867,000 compared to none in the prior period.

 

33

 

Table of Contractual Obligations

 

Our contractual obligations as of March 31, 2018 are as follows (in thousands):

 

   

Total

   

1 year

   

2–3

Years

   

4–5

Years

   

After

5 Years

 

Long–term debt – principal

  $ 100,000     $     $ 90,000     $     $ 10,000  

Long–term debt – interest

    11,230       3,286       5,211       808       1,925  

Operating leases

    305,000       34,200       68,400       68,400       134,000  

Construction obligations

    8,514       8,514                    

Capital lease obligations

    30,767       5,200       10,400       10,400       4,767  

Total contractual cash obligations

  $ 455,511     $ 51,200     $ 174,011     $ 79,608     $ 150,692  

 

We started paying quarterly dividends on our common shares outstanding in 2004. We anticipate the continuation of the dividend payment as approved quarterly by the Board of Directors.

 

Shortterm 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 $54,962,000, marketable securities of $123,568,000, 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.

 

Longterm liquidity

 

We expect to meet our long-term liquidity requirements primarily from our cash flows from operating activities, our current cash on hand of $54,962,000, marketable securities of $123,568,000, and our borrowing capacity on the credit facility. At March 31, 2018, the outstanding balance on the credit facility is $90,000,000; therefore, leaving $85,000,000 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 and development plans will depend upon our future performance, which 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.

 

 

Commitment and Contingencies

 

Civil Investigative Demand

 

On December 19, 2013, the Company was served with a civil investigative demand (“CID”) from the U.S. Department of Justice and the Office of the U.S. Attorney for the Eastern District of Tennessee (“DOJ Investigation”) requesting the production of documents and interrogatory responses regarding the billing for and medical necessity of certain rehabilitative therapy services. Based upon our review, the CID appears to relate to services provided at our facilities based in Knoxville, Tennessee.

 

                On October 7, 2014, the Company received a subpoena from the Office of Inspector General of the United Department of Health and Human Services (“OIG Subpoena”) related to the current DOJ Investigation.  The OIG Subpoena requests certain financial and organizational documents from the Company and certain of its subsidiaries and SNFs and medical records from certain of the Company’s Tennessee–based SNFs. 

 

34

 

The DOJ Investigation and the OIG Subpoena resulted from the filing of two qui tam lawsuits under seal in the United States District Court for the Eastern District of Tennessee captioned U.S. ex rel. Forsythe v. National Healthcare Corp., No. 3:12-cv-00102 (E.D. Tenn.), and U.S. ex rel. Byrd v. National Healthcare Corp., No. 3:12-cv-00500 (E.D. Tenn.) (the “Lawsuits”), which asserted claims under the False Claims Act (“FCA”) against the Company based on allegations that the Company provided medically unnecessary skilled services to patients. The Lawsuits also alleged that the plaintiffs in the Lawsuits were terminated in violation of the FCA’s anti-retaliation provisions (the “Retaliation Claims”).  Following the DOJ Investigation, on July 31, 2017, the United States filed a Notice of Election to Decline Intervention with respect to the Lawsuits.  On March 22, 2018, the district court entered a Memorandum and Order in the Lawsuits, which, among other things, unsealed the Lawsuits, dismissed the qui tam actions without prejudice, and provided the plaintiffs in the Lawsuits leave to file amended complaints with respect to the plaintiffs’ employment-related claims.  On April 5, 2018, the plaintiffs filed Amended Complaints in cases captioned Byrd v. National Health Corp., No. 3:18-cv-00123 (E.D. Tenn.), and Forsythe v. National Health Corp., No. 3:18-cv-00122 (E.D. Tenn.), which assert employment-related claims.  The Company intends to defend itself vigorously against the allegations asserted in the Amended Complaints when and if the Amended Complaints are served. 

 

Caris HealthCare, L.P. Investigation

 

                On December 9, 2014, Caris Healthcare, L.P., a business that specializes in hospice care services in Company–owned health care centers and in other settings, received notice from the U.S. Attorney’s Office for the Eastern District of Tennessee and the Attorney Generals’ Offices for the State of Tennessee and State of Virginia that those government entities were conducting an investigation regarding patient eligibility for hospice services provided by Caris precipitated by a qui tam lawsuit.  We have a 75.1% non–controlling ownership interest in Caris.

 

                A qui tam lawsuit was filed on May 22, 2014, in the U.S. District Court for the Eastern District of Tennessee by a former Caris employee, Barbara Hinkle, and is captioned United States of America, State of Tennessee, and State of Virginia ex rel. Barbara Hinkle v. Caris Healthcare, L.P., No. 3:14–cv–212 (E.D. Tenn.).

 

                On June 16, 2016, the State of Tennessee and the State of Virginia declined to intervene in the qui tam lawsuit.  On June 20, 2016, the Court ordered that the complaint be unsealed.  On October 11, 2016, the United States filed a Complaint in Intervention against Caris Healthcare, L.P. and Caris Healthcare, LLC, a wholly owned subsidiary of Caris Healthcare, L.P.  The United States' complaint alleges that Caris billed the government for ineligible hospice patients between June 2013 and December 2013 and retained overpayments regarding ineligible hospice patients from April 2010 through June 2013.  It seeks treble damages and civil penalties under the Federal False Claims Act and asserts claims for payment under mistake of fact, unjust enrichment, and conversion.  The relator has filed a notice of voluntary dismissal without prejudice of the non–intervened claims asserted in her qui tam complaint.  On May 30, 2017, the district court denied Caris’ motion to dismiss, and the parties have engaged in discovery.  This matter is set for trial in March 2019. 

 

                On March 9, 2018, Caris and the United States jointly moved for a partial 90-day stay of the case to allow the parties to finalize a settlement in principle of the action.  On March 12, 2018, the district court entered an order granting a partial stay of 90 days from the date of the order.  On March 22, 2018, Caris and the relator jointly moved for a full stay of the case.  On March 23, 2018, the district court entered an order staying all proceedings in the matter for the same time period set forth in the court’s March 12, 2018 order.  The parties are ordered to file a joint status report regarding the outcome of their settlement negotiations and any other pertinent matters at the conclusion of that time period. 

 

As of and for the three months ended March 31, 2018, Caris has recorded an expense and an estimated liability in the amount of $8,500,000 regarding this legal matter, of which 75.1% is included in the Company's interim condensed consolidated statements of operations.  Although the parties have reached an agreement in principle to settle the case, until the action is fully resolved, it is possible that this claim could continue to have material adverse effect on our consolidated financial position, results of operations and cash flows.

 

 

New Accounting Pronouncements

 

See Note 2 - Summary of Significant Accounting Policies to the interim condensed consolidated financial statements for the impact of new accounting standards.

 

35

 

ForwardLooking 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.

 

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 ability of third parties for whom we have guaranteed debt, if any, to refinance certain short term debt obligations;

 

 

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 2017 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 actually 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.

 

36

 

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, 2018, we have available for sale debt securities in the amount of $162,756,000. 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, 2018, the Company has $100,000,000 of long–term debt that bears interest at variable interest rates. Based on our outstanding long–term debt, a 1% change in interest rates would change our annual interest cost by approximately $1,000,000.

 

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.

 

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, 2018, the fair value of our marketable equity securities is approximately $123,568,000. Of the $123.6 million equity securities portfolio, our investment in National Health Investors, Inc. (“NHI”) comprises approximately $109.7 million, or 88%, 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 $12.3 million. At March 31, 2018, our equity securities had unrealized gains of $93.4 million. Of the $93.4 million of unrealized gains, $85.0 million is related to our investment in NHI.

  

37

 

Item 4.   Controls and Procedures.

 

As of March 31, 2018, 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, 2018. There have been no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

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 - Contingencies and Commitments of this Form 10–Q.

 

 

Item 1A.   Risk Factors.

 

During the three months ended March 31, 2018, there were no material changes to the risk factors that were disclosed in Item 1A of National HealthCare Corporation’s Annual Report on Form 10–K for the year ended December 31, 2017.

 

 

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.

 

Not applicable

 

 

Item 3.   Defaults Upon Senior Securities.

 

None

 

 

Item 4.   Mine Safety Disclosures.

 

Not applicable

 

 

Item 5.   Other Information.

 

None

  

38

 

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

   
         

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

   

  

39

 

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 4, 2018

/s/ Stephen F. Flatt

 
 

Stephen F. Flatt

 

Chief Executive Officer

   
   

Date: May 4, 2018

/s/ Brian F. Kidd

 
 

Brian F. Kidd

 

Senior Vice President and Controller

 

(Principal Accounting Officer)

 

 

40