Equibles

10-Q

NATIONAL HEALTHCARE CORP (NHC)

10-Q 2021-05-06 For: 2021-03-31
View Original
Added on April 07, 2026

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, 2021
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to ____________
Commission file number    001-13489
(Exact name of registrant as specified in its Charter)
Delaware 52-2057472
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
100 E. Vine Street
Murfreesboro, TN<br> <br>37130
(Address of principal executive offices)
(Zip Code)
(615) 890–2020
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Trading<br> <br>Symbols(s) Name of each exchange on which registered
--- --- ---
Common, $0.01 par value NHC NYSE American
Indicate by check mark whether the registrant: (1) Has filed all reports required to be filed by Section 13 or 15(d), of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
--- ---
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S–T (§ 232.405 of this chapter) during the preceding 12 months (or for such period that the registrant was required to submit such files).    Yes ☒      No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated filer ☒ Accelerated filer ☐
Non–accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as is defined in Rule 12b–2 of the Exchange Act). Yes ☐   No ☒
15,393,140  shares of common stock of the registrant were outstanding as of May 4, 2021.

Table of Contents

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 23
Item 3. Quantitative and Qualitative Disclosures About Market Risk 33
Item 4. Controls and Procedures 34
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 34
Item 1A Risk Factors 34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 34
Item 3. Defaults Upon Senior Securities 34
Item 4. Mine Safety Disclosures 34
Item 5. Other Information 34
Item 6. Exhibits 34

2

Table of Contents

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<br> <br>March 31
2021 2020
Revenues:
Net patient revenues $ 216,855 $ 244,095
Other revenues 11,369 12,029
Government stimulus income 22,749 -
Net operating revenues and grant income 250,973 256,124
Cost and expenses:
Salaries, wages, and benefits 145,130 147,469
Other operating 70,153 71,668
Facility rent 10,063 10,332
Depreciation and amortization 10,161 10,438
Interest 244 412
Total costs and expenses 235,751 240,319
Income from operations 15,222 15,805
Other income:
Non–operating income 6,260 8,146
Unrealized gains/(losses) on marketable equity securities 7,059 (60,392 )
Income/(loss) before income taxes 28,541 (36,441 )
Income tax (provision)/benefit (7,233 ) 9,625
Net income/(loss) 21,308 (26,816 )
Net income attributable to noncontrolling interest (41 ) (36 )
Net income/(loss) attributable to National HealthCare Corporation $ 21,267 $ (26,852 )
Earnings/(loss) per share attributable to National HealthCare Corporation stockholders:
Basic $ 1.39 $ (1.76 )
Diluted $ 1.38 $ (1.76 )
Weighted average common shares outstanding:
Basic 15,327,520 15,294,777
Diluted 15,390,076 15,294,777
Dividends declared per common share $ 0.52 $ 0.52

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

3

Table of Contents

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Comprehensive Income/(Loss)

(unaudited – in thousands)

Three Months Ended<br> <br>March 31
2021 2020
Net income/(loss) $ 21,308 $ (26,816 )
Other comprehensive loss:
Unrealized losses on investments in marketable debt securities (2,440 ) (2,545 )
Reclassification adjustment for realized gains on sales of marketable debt securities - (2 )
Income tax benefit related to items of other comprehensive income 518 535
Other comprehensive loss, net of tax (1,922 ) (2,012 )
Net income attributable to noncontrolling interest (41 ) (36 )
Comprehensive income/(loss) attributable to National HealthCare Corporation $ 19,345 $ (28,864 )

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

4

Table of Contents

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Balance Sheets

(in thousands)

March 31, 2021 December 31,<br> <br>2020
unaudited
Assets **** **** **** **** **** ****
Current Assets:
Cash and cash equivalents $ 134,107 $ 147,093
Restricted cash and cash equivalents, current portion 20,257 9,673
Marketable equity securities 135,246 128,590
Marketable debt securities 49,492 47,762
Restricted marketable equity securities 5,083 4,680
Restricted marketable debt securities, current portion 5,724 16,601
Accounts receivable 94,292 89,670
Inventories 8,117 8,781
Prepaid expenses and other assets 3,496 2,977
Notes receivable, current portion 8,804 928
Total current assets 464,618 456,755
Property and Equipment:
Property and equipment, at cost 1,034,747 1,030,426
Accumulated depreciation and amortization (520,263 ) (510,108 )
Net property and equipment 514,484 520,318
Other Assets:
Restricted cash and cash equivalents, less current portion 1,727 1,736
Restricted marketable debt securities, less current portion 133,959 125,472
Deposits and other assets 4,661 4,580
Operating lease right-of-use assets 172,764 179,055
Goodwill 21,341 21,341
Notes receivable, less current portion 3,962 12,093
Investments in unconsolidated companies 37,796 40,782
Total other assets 376,210 385,059
Total assets $ 1,355,312 $ 1,362,132

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

5

Table of Contents

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Balance Sheets (continued)

(in thousands, except share and per share amounts)

December 31,<br> <br>2020
Liabilities and Stockholders’ Equity **** **** ****
Current Liabilities:
Trade accounts payable 16,113 $ 21,112
Finance lease obligations, current portion 4,489 4,423
Operating lease liabilities, current portion 25,759 25,451
Accrued payroll 64,406 86,183
Amounts due to third party payors 15,574 16,454
Accrued risk reserves, current portion 31,065 30,953
Other current liabilities 25,674 21,344
Provider relief funds 23,510 16,068
Contract liabilities 51,253 51,253
Dividends payable 8,003 7,987
Total current liabilities 265,846 281,228
Finance lease obligations, less current portion 9,393 10,540
Operating lease liabilities, less current portion 147,005 153,604
Accrued risk reserves, less current portion 70,416 68,584
Refundable entrance fees 7,334 7,462
Deferred income taxes 15,157 14,079
Other noncurrent liabilities 29,973 28,375
Total liabilities 545,124 563,872
Equity:
Common stock, .01 par value; 45,000,000 shares authorized; 15,390,140 and 15,369,745 shares, respectively, issued and outstanding 154 153
Capital in excess of par value 227,487 226,943
Retained earnings 576,288 563,024
Accumulated other comprehensive income 3,135 5,057
Total National HealthCare Corporation stockholders’ equity 807,064 795,177
Noncontrolling interest 3,124 3,083
Total equity 810,188 798,260
Total liabilities and equity 1,355,312 $ 1,362,132

All values are in US Dollars.

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

6

Table of Contents

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Cash Flows

(unaudited – in thousands)

Three Months Ended<br> <br>March 31
2021 2020
Cash Flows From Operating Activities: **** **** **** **** **** ****
Net income/(loss) $ 21,308 $ (26,816 )
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 10,161 10,438
Equity in earnings of unconsolidated investments (2,911 ) (2,811 )
Distributions from unconsolidated investments 5,897 2,349
Unrealized (gains)/losses on marketable equity securities (7,059 ) 60,392
Gains on sale of marketable debt securities - (2 )
Gains on acquisitions of equity method investments - (1,707 )
Deferred income taxes 1,596 (15,008 )
Stock–based compensation 496 466
Changes in operating assets and liabilities:
Accounts receivable (4,622 ) (6,212 )
Federal income tax receivable - 2,560
Inventories 664 (372 )
Prepaid expenses and other assets (601 ) (1,515 )
Trade accounts payable (4,999 ) (1,408 )
Accrued payroll (21,777 ) (21,343 )
Amounts due to third party payors (880 ) 353
Accrued risk reserves 1,945 4,623
Provider relief funds 7,442 -
Other current liabilities 4,331 3,365
Other noncurrent liabilities 1,598 402
Net cash provided by operating activities 12,589 7,754
Cash Flows From Investing Activities: **** **** **** **** **** ****
Purchases of property and equipment (4,327 ) (6,628 )
Acquisition of equity method investment, net of cash acquired - (6,648 )
Investments in unconsolidated companies - (125 )
Investments in notes receivable - (250 )
Collections of notes receivable 255 376
Purchases of marketable securities (7,866 ) (6,360 )
Proceeds from sale of marketable securities 6,086 3,410
Net cash used in investing activities (5,852 ) (16,225 )
Cash Flows From Financing Activities: **** **** **** **** **** ****
Borrowings under credit facility - 40,000
Principal payments under finance lease obligations (1,081 ) (1,019 )
Dividends paid to common stockholders (7,988 ) (7,968 )
Noncontrolling interest contributions - 281
Issuance of common shares 327 400
Repurchase of common shares (278 ) (53 )
Entrance fee refunds (128 ) -
Net cash (used in)/provided by financing activities (9,148 ) 31,641
Net (Decrease)/Increase in Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents (2,411 ) 23,170
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, Beginning of Period 158,502 61,010
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, End of Period $ 156,091 $ 84,180
Balance Sheet Classifications:
Cash and cash equivalents $ 134,107 $ 69,492
Restricted cash and cash equivalents 21,984 14,688
Total Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents $ 156,091 $ 84,180

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

7

Table of Contents

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share and per share amounts)

(unaudited)

Capital in<br> <br>Excess of Retained Accumulated<br> <br>Other<br> <br>Comprehensive Non-<br> <br>controlling Total<br> <br>Stockholders’
Amount Par Value Earnings Income Interest Equity
Balance at January 1, 2020 15,332,206 $ 153 $ 222,787 $ 553,093 $ 2,560 $ 476 $ 779,069
Net income/(loss) – – – (26,852 ) – 36 (26,816 )
Equity contributed by noncontrolling interest – – – – – 281 281
Other comprehensive loss – – – – (2,012 ) – (2,012 )
Stock–based compensation – – 466 – – – 466
Shares sold – options exercised 15,006 – 400 – – – 400
Repurchase of common shares (611 ) – (53 ) – – – (53 )
Dividends declared to common stockholders (0.52 per share) – – – (7,980 ) – – (7,980 )
Balance at March 31, 2020 15,346,601 $ 153 $ 223,600 $ 518,261 $ 548 $ 793 743,355

All values are in US Dollars.

Capital in<br> <br>Excess of Retained Accumulated<br> <br>Other<br> <br>Comprehensive Non-<br> <br>controlling Total<br> <br>Stockholders’
Amount Par Value Earnings Income Interest Equity
Balance at January 1, 2021 15,369,745 $ 153 $ 226,943 $ 563,024 $ 5,057 $ 3,083 $ 798,260
Net income – – – 21,267 – 41 21,308
Other comprehensive loss – – – – (1,922 ) – (1,922 )
Stock–based compensation – – 496 – – – 496
Shares sold – options exercised 24,331 1 326 – – – 327
Repurchase of common shares (3,936 ) – (278 ) – – – (278 )
Dividends declared to common stockholders (0.52 per share) - – - (8,003 ) – – (8,003 )
Balance at March 31, 2021 15,390,140 $ 154 $ 227,487 $ 576,288 $ 3,135 $ 3,124 810,188

All values are in US Dollars.

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

8

Table of Contents

NATIONAL HEALTHCARE CORPORATION

Notes to Interim Condensed Consolidated Financial Statements

March 31, 2021

(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, 2021, we operate or manage, through certain affiliates, 75 skilled nursing facilities with a total of 9,463 licensed beds, 24 assisted living facilities, five independent living facilities, one behavioral health hospital, and 35 homecare programs. We operate specialized care units within certain of our healthcare centers such as Alzheimer's disease care units and sub-acute nursing units. We also have a noncontrolling ownership interest in a hospice care business that services NHC-owned skilled nursing facilities and others. In addition, we provide insurance services, management and accounting services, and we lease properties to operators of skilled nursing and assisted living facilities. We operate in 10 states and are located primarily in the southeastern United States.

Note 2 – Summary of Significant Accounting Policies

The listing below is not intended to be a comprehensive list of all our significant accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. generally accepted accounting principles (“GAAP”), with limited need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. See our audited December 31, 2020 consolidated financial statements and notes thereto which contain accounting policies and other disclosures required by U.S. GAAP. Our audited December 31, 2020 consolidated financial statements are available at our web site: www.nhccare.com.

Basis of Presentation

The unaudited interim condensed consolidated financial statements to which these notes are attached include all normal, recurring adjustments which are necessary to fairly present the financial position, results of operations and cash flows of NHC. All significant intercompany transactions and balances have been eliminated in consolidation. The consolidated financial statements include the accounts of all entities controlled by NHC. The Company presents noncontrolling interest within the equity section of its consolidated balance sheets. The Company presents the amount of consolidated net income that is attributable to NHC and the noncontrolling interest in its consolidated statements of operations.

We assume that users of these interim financial statements have read or have access to the audited December 31, 2020consolidated financial statements and that the adequacy of additional disclosure needed for a fair presentation, except in regard to material contingencies, may be determined in that context. Accordingly, footnotes and other disclosures which would substantially duplicate the disclosure contained in our most recent annual report to stockholders have been omitted. This interim financial information is not necessarily indicative of the results that may be expected for a full year for a variety of reasons.

Estimates and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and could cause our reported net income to vary significantly from period to period, including but not limited to, the potential future effects of the novel coronavirus (“COVID-19”).

Net Patient Revenues and Accounts Receivable

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

Table of Contents

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

The Company determines the transaction price based on established billing rates reduced by contractual adjustments provided to third party payors. Contractual adjustments are based on contractual agreements and historical experience. The Company considers the patient's ability and intent to pay the amount of consideration upon admission. Credit losses are recorded as bad debt expense, which is included as a component of other operating expenses in the interim condensed consolidated statements of operations. Bad debt expense was $919,000 and $830,000 for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, and December 31, 2020, the Company has recorded allowance for doubtful accounts of $6,268,000 and $5,672,000, respectively, as our best estimate of expected losses inherent in the accounts receivable balance.

Other Revenues

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

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

Government Grants

In the absence of specific guidance to account for government grants under U.S. GAAP, we have concluded to account for government grants in accordance with International Accounting Standard (“IAS”) 20, Accounting for Government Grants and Disclosure of Government Assistance, and as such, we recognize grant income on a systematic basis in line with the recognition of specific expenses and lost revenues for which the grants are intended to compensate.

Segment Reporting

In accordance with the provisions of Accounting Standards Codification ("ASC") 280, Segment Reporting, the Company is required to report financial and descriptive information about its reportable operating segments. The Company has two reportable operating segments: (1) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and one behavioral health hospital, and (2) homecare services. The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. See Note 7 for further disclosure of the Company’s operating segments.

Other Operating Expenses

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

General and Administrative Costs

With the Company being a healthcare provider, the majority of our expenses are "cost of revenue" items. Costs that could be classified as "general and administrative" by the Company would include its corporate office costs, excluding stock-based compensation, which were $5,369,000 and $5,498,000 for the three months ended March 31, 2021 and 2020, respectively.

Long-Term Leases

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

Table of Contents

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

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

Property and Equipment

Property and equipment are recorded at cost. Depreciation is provided by the straight-line method over the expected useful lives of the assets estimated as follows: buildings and improvements, 20-40 years and equipment and furniture, 3-15 years. Leasehold improvements are amortized over periods that do not exceed the non-cancelable respective lease terms using the straight-line method.

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

Goodwill

We perform our annual goodwill impairment assessment on the first day of the fourth quarter.  At March 31, 2021, the Company reviewed the carrying value of goodwill for impairment indicators, including due to the events and circumstances surrounding the Coronavirus Pandemic ("COVID-19"). As a result of the review, there were no impairment indicators regarding the Company’s goodwill during the three months ended March 31, 2021 that required a quantitative test to be performed. However, our accounting estimates could materially change from period to period due to changing market factors, including those driven by COVID-19. We will continue to monitor future events, changes in circumstances, and the potential impact thereof. If actual results are not consistent with our assumptions and estimates, we may be exposed to future goodwill impairment losses.

Accrued Risk Reserves

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

Professional liability remains an area of particular concern to us. The long-term care industry has seen an increase in personal injury/wrongful death claims based on alleged negligence by skilled nursing facilities and their employees in providing care to residents. The Company has been, and continues to be, subject to claims and legal actions that arise in the ordinary course of business, including potential claims related to patient care and treatment. A significant increase in the number of these claims, or an increase in the amounts due as a result of these claims could have a material adverse effect on our consolidated financial position, results of operations and cash flows. It is also possible that future events could cause us to make significant adjustments or revisions to these reserve estimates and cause our reported net income to vary significantly from period to period.

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

Continuing Care Contracts

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

Non-refundable fees are included as a component of the transaction price and are amortized into revenue over the actuarily determined remaining life of the resident, which is the expected period of occupancy by the resident. We pay the refundable portion of our entry fees to residents when they relocate from our community and the apartment is re-occupied. Refundable entrance fees are not included as part of the transaction price and are classified as noncurrent liabilities section of our consolidated balance sheets. As of March 31, 2021, and December 31, 2020, we have recorded refundable entrance fees in the amount of $7,334,000 and $7,462,000, respectively.

Table of Contents

We also 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 with a corresponding charge to income. As of March 31, 2021, and December 31, 2020, we have recorded a future service obligation liability in the amount of

$2,177,000.

This obligation is reflected within other noncurrent liabilities in the interim condensed consolidated balance sheets.

Other Noncurrent Liabilities

Other noncurrent liabilities include reserves primarily related to various uncertain income tax positions, deferred revenue, and obligations to provide future services to our CCRC residents. Deferred revenue includes the deferred gain on the sale of assets to National Health Corporation (“National”) and the non-refundable portion (10%) of CCRC entrance fees being amortized over the remaining life expectancies of the residents.

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 the subsidiary earnings, contributions, and distributions.

Variable Interest Entities

We have equity interests in unconsolidated limited liability companies that operate various post-acute and senior healthcare businesses. We analyze our investments in these limited liability companies to determine if the company is considered a variable interest entity (“VIE”) and would require consolidation. To the extent that we own interests in a VIE and we (i) have 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 Classification

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

Note 3 – Coronavirus Pandemic

In early March 2020, COVID-19, a disease caused by the novel strain of the coronavirus, was characterized as a pandemic by the World Health Organization. The COVID-19 virus spread rapidly, with every state in the United States (“U.S.”) having confirmed cases. The rapid spread resulted in authorities around the U.S. implementing various measures to contain the virus, such as quarantines, shelter-in-place orders and business shutdowns. The pandemic and these containment measures had an adverse impact on the Company's results of operations in 2020 and for the three months ended March 31, 2021. For the first time since the beginning of the COVID-19 pandemic, the census in our skilled nursing facilities increased approximately 3.5% from January 1, 2021 through  March 31, 2021.We began our first vaccination clinics in our skilled nursing facilities around the middle of December 2020. As of  March 31, 2021, each of our 75 skilled nursing facilities had hosted at least three vaccination clinics onsite for our patients and partners (employees). As the vaccination clinics progressed and as the vaccine became more accessible, we began to see a significant decline in COVID-19 cases among our operations.

The U.S. government enacted several laws beginning in March 2020 designed to help the nation respond to the COVID-19 pandemic. The new laws impacted healthcare providers in a variety of ways, but the largest legislation from a monetary relief perspective is the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). Through the CARES Act, as well as the Paycheck Protection Program and Health Care Enhancement Act ("PPPCHE"), the federal government has allocated $178 billion to the Public Health and Social Services Emergency Fund, which is referred to as the Provider Relief Fund. The Provider Relief Fund is administered through grants and other mechanisms to skilled nursing providers, home health providers, hospitals, and other Medicare and Medicaid enrolled providers to cover any unreimbursed health care related expenses or lost revenue attributable to the public health emergency resulting from COVID-19.

During the three months ending March 31, 2021, we received additional disbursements from the Provider Relief Fund which totaled $30,191,000. These funds come with terms and condition certifications in which all providers are required to submit documents to ensure the funds will be used for healthcare-related expenses or lost revenue attributable to COVID-19. The Company recorded $22,749,000 of government stimulus income from the Provider Relief Funds for the three months ended March 31, 2021. The grant income was determined on a systemic basis in line with the recognition of specific expenses and lost revenues for which the grants are intended to compensate. The Company’s assessment of whether the terms and conditions for amounts received have been met for income recognition and the Company’s related income calculation considered all frequently asked questions and other interpretive guidance issued to date by the U.S. Department of Health and Human Services (“HHS”).

Table of Contents

As of March 31, 2021, amounts not recognized as income are $23,510,000 and are reflected in the current liability section of our interim condensed consolidated balance sheet (provider relief funds). We anticipate incurring additional COVID-19 related expenses or lost revenues in the future; therefore, at this time, we believe that we will fully utilize the remaining $23,510,000 of provider relief funds before the reporting requirement deadlines outlined by HHS.

Additionally, as part of the CARES Act, the legislation included an expansion of the Medicare Accelerated and Advance Payment Program. The expanded Medicare Accelerated and Advance Payment Program is a streamlined version of existing policy that allows the Medicare Administrative Contractors (“MAC’s”) to issue up to three months of advance Medicare payments to help increase cash flow and liquidity to Medicare Part A and Part B providers in certain circumstances that include national emergencies. We received approximately $51,253,000 as part of this program. These funds will begin to be applied against claims for services provided to Medicare patients after approximately one year from the date we received the funds. During the first eleven months after repayment begins, repayment will occur through an automatic recoupment of twenty-five percent of Medicare payments. During the succeeding six months, repayment will occur through an automatic recoupment of fifty percent of Medicare payments. Any remaining balance that was not paid through the recoupment process within twenty-nine months of receipt of the funds will be required to be paid on-demand, subject to an interest rate of four percent. Recoupment of the accelerated payments began in the second quarter of 2021. As of March 31, 2021, the accelerated payments are reflected within contract liabilities in the interim condensed consolidated balance sheet as the related performance obligations have not been completed.

The CARES Act temporarily suspended Medicare sequestration beginning May 1, 2020 through December 31, 2020. The Medicare sequestration policy reduces fee-for-service Medicare payments by 2 percent. On December 27, 2020, the Consolidated Appropriations Act of 2021 further suspended the 2.0% payment adjustment through March 31, 2021. On April 14, 2021, Congress extended the Medicare sequestration suspension period to December 31, 2021.

The CARES Act also temporarily permitted employers to defer the deposit and payment of the employer’s portion of the social security taxes (6.2% of employee wages) that otherwise would be due between March 27, 2020 and December 31, 2020. The provision requires that the deferred taxes be paid over a two-year period with half the amount required to be paid by December 31, 2021, and the other half by December 31, 2022. At March 31, 2021, we have deferred $21,153,000 of the Company’s share of the social security taxes.  At March 31, 2021, half of the payroll tax deferral is included in accrued payroll in the current liabilities section of the consolidated balance sheet and the other half of the payroll tax deferral is included in other noncurrent liabilities within our consolidated balance sheet.

We have also received from many of the states in which we operate a supplemental Medicaid payment to help mitigate the incremental costs resulting from the COVID-19 public health emergency. For the three months ended March 31, 2021, we have recorded $3,955,000 in net patient revenues in our interim condensed consolidated statements of operations for these supplemental Medicaid payments.

Note 4 – Net Patient Revenues

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

Revenue by Service Type

The Company’s net patient services can generally be classified into the following two categories: (1) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and a behavioral health hospital, and (2) homecare services (in thousands).

Three Months Ended<br> <br>March 31
2021 2020
Net patient revenues:
Inpatient services $ 203,242 $ 230,987
Homecare 13,613 13,108
Total net patient revenue $ 216,855 $ 244,095

Table of Contents

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 period of care or on a per-visit basis. Typically, patients and third-party payors are billed monthly after services are performed or the patient is discharged, and payments are due based on contract terms.

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

Revenue by Payor

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

Three Months Ended<br> <br>March 31
Source 2021 2020
Medicare 35% 34%
Managed Care 12% 11%
Medicaid 29% 29%
Private Pay and Other 24% 26%
Total 100% 100%

Medicare covers skilled nursing services for beneficiaries who require nursing care and/or rehabilitation services following a hospitalization of at least three consecutive days (there is temporary relief from the three-day hospital stay during the COVID-19 emergency). For each eligible day a Medicare beneficiary is in a skilled nursing facility, Medicare pays the facility a daily payment, subject to adjustment for certain factors such as a wage index in the geographic area. The payment covers all services provided by the skilled nursing facility for the beneficiary that day, including room and board, nursing, therapy and drugs, as well as an estimate of capital–related costs to deliver those services.

For homecare services, Medicare pays based on the acuity level of the patient and based on periods of care. A period of care is defined as a length of care up to 30 days with multiple continuous periods allowed. The services covered by the payment include all disciplines of care, in addition to medical supplies, within the scope of the home health benefit.

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

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

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

Contract Liabilities

Included in the Company’s interim condensed consolidated balance sheets are contract liabilities, which represent payments the Company receives in advance of services provided. As of March 31, 2021 and December 31, 2020, the Company has recorded $51,253,000 in contract liabilities related to receipts from the Medicare Accelerated and Advance Payment Program.  Recoupment of the accelerated payments began in the second quarter of 2021.

Table of Contents

A summary of the contract liabilities are follows (in thousands):

Balance at December 31, 2020 $ 51,253
Payments received -
Payments recognized -
Balance at March 31, 2021 $ 51,253

Third Party Payors

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

Medicare and Medicaid program revenues, as well as certain Managed Care program revenues, are subject to audit and retroactive adjustment by government representatives or their agents. Settlements with third-party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and the Company’s historical settlement activity, including an assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustment is subsequently resolved. Estimated settlements are adjusted in future periods as adjustments become known, or as years are settled or are no longer subject to such audits, reviews, and investigations. We believe that any differences between the net revenues recorded and final determination will not materially affect the consolidated financial statements. We have made provisions of approximately $15,574,000 and $16,454,000 as of March 31, 2021 and December 31, 2020, respectively, for various Medicare, Medicaid, and Managed Care claims reviews and current and prior year cost reports.

Note 5 – Other Revenues

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

Three Months Ended<br> <br>March 31
2021 2020
Rental income $ 5,647 $ 5,679
Management and accounting services fees 4,324 4,478
Insurance services 1,264 1,382
Other 134 490
Total other revenues $ 11,369 $ 12,029

Rental Income

The Company leases real estate assets consisting of skilled nursing facilities and assisted living facilities to third party operators. Additionally, we sublease four Florida skilled nursing facilities included in our lease from National Health Investors (“NHI”) as noted in Note 8 – Long Term Leases. Rental income reflected in the interim condensed consolidated statements of operations consisted of the following (in thousands):

Three Months Ended<br> <br>March 31
2021 2020
Operating lease payments $ 5,506 $ 5,503
Variable lease payments 141 176
Total rental income $ 5,647 $ 5,679

Table of Contents

Management Fees from National

We manage five skilled nursing facilities owned by National. For the three months ended March 31, 2021 and 2020, we recognized management fees and interest on management fees of $896,000 and $1,537,000 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, 2021 and 2020 were $753,000 and $779,000, 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, 2021 and 2020 were $511,000 and $603,000, 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 6 – Non–Operating Income

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

Three Months Ended<br> <br>March 31
2021 2020
Equity in earnings of unconsolidated investments $ 2,911 $ 2,811
Dividends and net realized gains on sales of securities 1,962 2,022
Interest income 1,387 1,606
Gains on acquisitions of equity method investments - 1,707
Total non-operating income $ 6,260 $ 8,146

Caris HealthCare, L.P. ("Caris")

Our most significant equity method investment is a 75.1% non–controlling ownership interest in Caris, a business that specializes in hospice care services. The carrying value of our investment is $35,480,000 and $38,916,000 at March 31, 2021 and December 31, 2020, respectively. The carrying amounts are included in investments in unconsolidated companies in the consolidated balance sheets. Summarized financial information of Caris for the three months ended March 31, 2021 and 2020 is provided below (in thousands):

Three Months Ended<br> <br>March 31
2021 2020
Net revenue $ 15,228 $ 15,826
Expenses 11,946 12,356
Net income $ 3,282 $ 3,470

Gains on Acquisitions of Equity Method Investments

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

Upon acquiring the remaining ownership interest, the Company recorded and increased its previously held equity interest up to fair value as of the acquisition date. This remeasurement of our equity interest at fair value resulted in a gain of $1,707,000. The gain was recorded in "Non-operating income" in the interim condensed consolidated statements of operations.  ****

Table of Contents

Note 7 – Business Segments

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

The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. For additional information on these reportable segments see Note 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, 2021
Inpatient<br> Services Homecare All Other Total
Revenues:
Net patient revenues $ 203,242 $ 13,613 $ - $ 216,855
Other revenues 98 - 11,271 11,369
Government stimulus income 22,749 - - 22,749
Net operating revenues and grant income 226,089 13,613 11,271 250,973
Costs and expenses:
Salaries, wages, and benefits 128,809 8,408 7,913 145,130
Other operating 64,810 2,942 2,401 70,153
Rent 8,194 431 1,438 10,063
Depreciation and amortization 9,263 87 811 10,161
Interest 244 - - 244
Total costs and expenses 211,320 11,868 12,563 235,751
Income/(loss) from operations 14,769 1,745 (1,292 ) 15,222
Non-operating income - - 6,260 6,260
Unrealized gains on marketable equity securities - - 7,059 7,059
Income before income taxes $ 14,769 $ 1,745 $ 12,027 $ 28,541
Three Months Ended March 31, 2020
--- --- --- --- --- --- --- --- --- --- ---
Inpatient<br> <br>Services Homecare All Other Total
Revenues:
Net patient revenues $ 230,987 $ 13,108 $ - $ 244,095
Other revenues 435 - 11,594 12,029
Net operating revenues 231,422 13,108 11,594 256,124
Costs and expenses:
Salaries, wages and benefits 135,215 8,316 3,938 147,469
Other operating 65,105 3,819 2,744 71,668
Rent 8,378 457 1,497 10,332
Depreciation and amortization 9,571 54 813 10,438
Interest 382 - 30 412
Total costs and expenses 218,651 12,646 9,022 240,319
Income from operations 12,771 462 2,572 15,805
Non-operating income - - 8,146 8,146
Unrealized losses on marketable equity securities - - (60,392 ) (60,392 )
Income/(loss) before income taxes $ 12,771 $ 462 $ (49,674 ) $ (36,441 )

Table of Contents

Note 8 – Long-Term Leases

Operating Leases

At March 31, 2021, we leased from NHI the real property of 35 skilled nursing facilities, seven assisted living centers and three independent living centers under two separate lease agreements. As part of the first lease agreement, we sublease four Florida skilled nursing facilities to a third-party operator. Base rent expense under both NHI lease agreements totals $34,200,000 annually with rent thereafter escalating by 4% of the increase in facility revenue over a base year. Total facility rent expense to NHI was $9,411,000 and $9,655,000 for the three months ended March 31, 2021 and 2020, respectively.

Finance Leases

At March 31, 2021, we leased and operated three senior healthcare facilities in the state of Missouri under three separate lease agreements. Two of the healthcare facilities are skilled nursing facilities that also include assisted living facilities and the third healthcare facility is a memory care facility. Each of the leases is a ten-year lease with two five–year renewal options. Under the terms of the leases, base rent totals $5,200,000 annually with rent thereafter escalating by 4% of the increase in facility revenue over the 2014 base year.

Minimum Lease Payments

The following table summarizes the maturity of our finance and operating lease liabilities as of March 31, 2021 ( in thousands):

Finance<br> <br>Leases Operating<br> <br>Leases
2022 $ 5,200 $ 35,224
2023 5,200 34,855
2024 4,767 34,554
2025 - 34,370
2026 - 34,233
Thereafter - 31,400
Total minimum lease payments 15,167 204,636
Less: amounts representing interest (1,285 ) (31,872 )
Present value of future minimum lease payments 13,882 172,764
Less: current portion (4,489 ) (25,759 )
Noncurrent lease liabilities $ 9,393 $ 147,005

Note 9 – Earnings per Share

Basic net income per share is computed based on the weighted average number of common shares outstanding for each period presented. Diluted net income 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 and the weighted average number of common shares used in the calculation of basic and diluted earnings per share (in thousands, except for share and per share amounts):

Three Months Ended<br> <br>March 31
2021 2020
Basic:
Weighted average common shares outstanding 15,327,520 15,294,777
Net income/(loss) attributable to National HealthCare Corporation $ 21,267 $ (26,852 )
Earnings/(loss) per common share, basic $ 1.39 $ (1.76 )
Diluted:
Weighted average common shares outstanding 15,327,520 15,294,777
Effects of dilutive instruments 62,556 -
Weighted average common shares outstanding 15,390,076 15,294,777
Net income/(loss) attributable to National HealthCare Corporation $ 21,267 $ (26,852 )
Earnings/(loss) per common share, diluted $ 1.38 $ (1.76 )

In the above table, options to purchase 634,780 shares of our common stock have been excluded for the three months ended March 31, 2021 due to their anti-dilutive impact.

Table of Contents

Note 10 – Investments in Marketable Securities

Our investments in marketable equity securities are carried at fair value with the changes in unrealized gains and losses recognized in our results of operations at each measurement date. Our investments in marketable debt securities are classified as available for sale securities and carried at fair value with the unrealized gains and losses recognized through accumulated other comprehensive income at each measurement date. Any credit related decline in fair market values of our available for sale debt securities are recorded in our results of operations through an allowance for credit losses. Realized gains and losses from securities sales are recognized in results of operations upon disposition of the securities using the specific identification method on a trade date basis. Refer to Note 11 for a description of the Company's methodology for determining the fair value of marketable securities.

Marketable securities consist of the following (in thousands):

March 31, 2021 December 31, 2020
Amortized<br> <br>Cost Fair<br> <br>Value Amortized<br> <br>Cost Fair<br> <br>Value
Investments available for sale:
Marketable equity securities $ 30,176 $ 135,246 $ 30,176 $ 128,590
Corporate debt securities 26,540 26,420 25,812 25,778
Asset-backed securities 3,961 3,949 2,485 2,480
U.S. Treasury securities 19,148 19,123 19,519 19,504
Restricted investments available for sale:
Marketable equity securities 4,783 5,083 4,783 4,680
Corporate debt securities 63,907 67,205 61,709 66,247
Asset-based securities 38,156 39,140 40,655 41,769
U.S. Treasury securities 22,723 22,241 20,760 21,159
State and municipal securities 10,782 11,097 12,497 12,898
$ 220,176 $ 329,504 $ 218,396 323,105

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

March 31, 2021 December 31, 2020
Shares Cost Fair<br> <br>Value Shares Cost Fair<br> <br>Value
NHI Common Stock 1,630,642 $ 24,734 $ 117,863 1,630,642 $ 24,734 $ 112,792

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, 2021 December 31, 2020
Cost Fair<br> <br>Value Cost Fair<br> <br>Value
Maturities:
Within 1 year $ 50,615 $ 50,855 $ 49,694 $ 49,863
1 to 5 years 98,320 101,326 99,143 103,002
6 to 10 years 36,282 36,994 34,326 36,685
Over 10 years - - 274 285
$ 185,217 $ 189,175 $ 183,437 $ 189,835

Table of Contents

Gross unrealized gains related to marketable equity securities are $105,464,000 and $98,445,000 as of March 31, 2021 and December 31, 2020, respectively. Gross unrealized losses related to marketable equity securities are $94,000 and $134,000 as of March 31, 2021 and December 31, 2020, respectively. For the three months ended March 31, 2021 and 2020, the Company recognized a net unrealized gain of $7,059,000 and a net unrealized loss of $60,392,000, respectively, for the changes in fair market value of the marketable equity securities in the interim condensed consolidated statements of operations.

Gross unrealized gains related to available for sale marketable debt securities are $4,973,000 and $6,759,000 as of March 31, 2021 and December 31, 2020, respectively. Gross unrealized losses related to available for sale marketable debt securities are $1,015,000 and $361,000 as of March 31, 2021 and December 31, 2020, respectively. The Company’s unrealized losses in our available for sale marketable debt securities were determined to be non-credit related.

The Company has not recognized any credit related impairments for the three months ending March 31, 2021 and 2020.

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

Proceeds from the sale of available for sale marketable debt securities during the three months ended March 31, 2021 and 2020 were $6,086,000 and $3,410,000, respectively. No investment gains were reported on these sales during the three months ended March 31, 2021 and $2,000 of investment gains were realized on these sales during the three months ended March 31, 2020. No sales were reported for marketable equity securities for the three months ended March 31, 2021 and 2020, respectively.

Note 11 – 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, 2021 and December 31, 2020 for assets and liabilities measured at fair value on a recurring basis (in thousands):

Fair Value Measurements Using
March 31, 2021 Fair<br> <br>Value Quoted<br> <br>Prices<br> in<br> <br>Active<br> Markets<br> <br>For Identical<br> <br>Assets<br> <br>(Level 1) Significant<br> <br>Other<br> <br>Observable<br> <br>Inputs<br> <br>(Level 2) Significant<br> <br>Unobservable<br> <br>Inputs<br> <br>(Level 3)
Cash and cash equivalents $ 134,107 $ 134,107 $ – $ –
Restricted cash and cash equivalents 21,984 21,984 – –
Marketable equity securities 140,329 140,329 – –
Corporate debt securities 93,625 51,961 41,664 –
Mortgage–backed securities 43,089 – 43,089 –
U.S. Treasury securities 41,364 41,364 – –
State and municipal securities 11,097 – 11,097 –
Total financial assets $ 485,595 $ 389,745 $ 95,850 $ –

Table of Contents

Fair Value Measurements Using
December 31, 2020 Fair<br> <br>Value Quoted Prices in<br> <br>Active Markets<br> <br>For Identical<br> <br>Assets<br> <br>(Level 1) Significant<br> <br>Other<br> <br>Observable<br> <br>Inputs<br> <br>(Level 2) Significant<br> <br>Unobservable<br> <br>Inputs<br> <br>(Level 3)
Cash and cash equivalents $ 147,093 $ 147,093 $ – $ –
Restricted cash and cash equivalents 11,409 11,409 – –
Marketable equity securities 133,270 133,270 – –
Corporate debt securities 92,025 56,772 35,253 –
Asset–backed securities 44,249 – 44,249 –
U.S. Treasury securities 40,663 40,663 – –
State and municipal securities 12,898 – 12,898 –
Total financial assets $ 481,607 $ 389,207 $ 92,400 $ –

Note 12 - Stock Repurchase Program

During the three months ended March 31, 2021, the Company repurchased 3,936 shares of its common stock for a total cost of $278,000. The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued.

Note 13 – Stock–Based Compensation

NHC recognizes stock–based compensation expense for all stock options granted over the requisite service period using the fair value at the date of grant using the Black–Scholes pricing model. Stock–based compensation totaled $496,000 and $466,000 for the three months ended March 31, 2021 and 2020, respectively. Stock–based compensation is included in “Salaries, wages and benefits” in the interim condensed consolidated statements of operations.

At March 31, 2021, the Company had $2,637,000 of unrecognized compensation cost related to unvested stock–based compensation awards. This unrecognized compensation cost will be amortized over an approximate two-year period.

Stock Options

The following table summarizes the significant assumptions used to value the options granted for the three months ended March 31, 2021 and for the year ended December 31, 2020.

March 31, 2021 December 31,<br> 2020
Risk–free interest rate 0.10% 0.87%
Expected volatility 44.74% 20.1%
Expected life, in years 1.0 2.2
Expected dividend yield 3.15% 2.91%

The following table summarizes our outstanding stock options for the three months ended March 31, 2021 and for the year ended December 31, 2020.

Number of<br> <br>Shares Weighted<br> <br>Average<br> <br>Exercise Price Aggregate<br> <br>Intrinsic<br> <br>Value
Options outstanding at January 1, 2020 809,529 $ 71.24 $ –
Options granted 104,057 73.98 –
Options exercised (43,630 ) 63.37 –
Options cancelled (3,000 ) 72.94 –
Options outstanding at December 31, 2020 866,956 72.11 –
Options granted 10,704 67.28 –
Options exercised (115,900 ) 70.01 –
Options cancelled (6,000 ) 72.94 –
Options outstanding at March 31, 2021 755,760 $ 72.36 $ 4,541,600
Options exercisable at March 31, 2021 210,686 $ 68.35 $ 767,000

Table of Contents

Options<br> <br>Outstanding<br> <br>March 31, 2021 Exercise Prices Weighted Average<br> <br>Exercise Price Weighted Average<br> <br>Remaining<br> <br>Contractual<br> <br>Life in Years
135,684 60.73 - 67.28 63.41 2.1
620,076 72.94 - 84.30 74.32 1.1
755,760 72.36 1.3

Note 14 – Income Taxes

The Company's income tax provision as a percentage of our income before income taxes was 25.3% and 26.4% for the three months ended March 31, 2021 and 2020, respectively.

Typically, these percentages vary from the U.S. federal statutory income tax rate of 21% primarily due to state income taxes, excess tax benefits from stock-based compensation, benefits resulting from the lapsing of statute of limitations of items in our tax contingency reserve, and non-deductible expenses. For the three months ended March 31, 2021 and 2020, the accrual of state income taxes was the only significant reconciling item.

Our quarterly income tax provision, and our estimate of our annual effective income tax rate, is subject to variation due to several factors, including volatility based on the amount of pre-tax income or loss.

The Company is no longer subject to U.S. federal and state examinations by tax authorities for years before 2017 (with certain state exceptions).

Note 15 – Contingencies and Commitments

Accrued Risk Reserves

We are self–insured for risks related to health insurance and have wholly–owned limited purpose insurance companies that insure risks related to workers’ compensation and general and professional liability insurance claims both for our owned and leased entities and certain of the entities to which we provide management or accounting services. The liability we have recognized for reported claims and estimates for incurred but unreported claims totals $101,481,000 and $99,537,000 at March 31, 2021 and December 31, 2020, 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.

Table of Contents

General and Professional Liability Insurance and Lawsuits

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

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

Governmental Regulations

Laws and regulations governing the Medicare, Medicaid and other federal healthcare programs are complex and subject to interpretation. Management believes that it is following all applicable laws and regulations in all material respects. However, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusions from the Medicare, Medicaid and other federal healthcare programs. There have been several enacted and proposed federal and state relief measures as a result of COVID-19 which should provide support to us during this pandemic; however, the full benefit of any such programs would not be realized until these payments are fully implemented, government agencies issue applicable regulations, or guidance and such relief is provided.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward–Looking Statements

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

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

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;

23

Table of Contents

● liabilities and other claims asserted against us, including patient care liabilities, as well as the resolution of current litigation (see Note 15: Contingencies and Commitments);
● the uncertainty of the extent, duration and effects of the COVID-19 pandemic and the response of governments
● the ability to attract and retain qualified personnel;
● the availability and terms of capital to fund acquisitions and capital improvements;
● the ability to refinance existing debt on favorable terms;
● the competitive environment in which we operate;
● the ability to maintain and increase census levels; and
● demographic changes.

See the notes to the quarterly financial statements, and “Item 1. Business” in our 2020 Annual Report on Form 10–K for a discussion of various governmental regulations and other operating factors relating to the healthcare industry and the risk factors inherent in them. This may be found on our web site at www.nhccare.com. You should carefully consider these risks before making any investment in the Company. These risks and uncertainties are not the only ones facing us. There may be additional risks that we do not presently know of or that we currently deem immaterial. If any of the risks occur, our business, financial condition or results of operations could be materially adversely affected. In that case, the trading price of our shares of stock could decline, and you may lose all or part of your investment. Given these risks and uncertainties, we can give no assurances that these forward–looking statements will, in fact, transpire and, therefore, caution investors not to place undue reliance on them.

Overview

National HealthCare Corporation (“NHC” or the “Company”) is a leading provider of senior health care services. We operate or manage, through certain affiliates, 75 skilled nursing facilities with a total of 9,463 licensed beds, 24 assisted living facilities, five independent living facilities, one behavioral health hospital and 35 homecare programs. We operate specialized care units within certain of our healthcare centers such as Alzheimer's disease care units and sub-acute nursing units. We also have a non-controlling ownership interest in a hospice care business that services NHC owned health care centers and others. In addition, we provide insurance services, management and accounting services, and we lease properties to operators of skilled nursing and assisted living facilities. We operate in 10 states and are located primarily in the southeastern United States.

Impact of COVID-19

In early March 2020, COVID-19, a disease caused by the novel strain of the coronavirus, was characterized as a pandemic by the World Health Organization. The COVID-19 virus spread rapidly, with every state in the United States (“U.S.”) having confirmed cases. The rapid spread resulted in authorities around the U.S. implementing various measures to contain the virus, such as quarantines, shelter-in-place orders and business shutdowns. As a provider of healthcare services, we are significantly exposed to the public health and economic effects of the COVID-19 pandemic.  NHC’s primary objective has remained the same throughout the COVID-19 pandemic: that is to protect the health and safety of our patients, residents, and partners (employees). We continue to follow all guidance from the Centers for Medicare and Medicaid Services (“CMS”), the Centers for Disease Control and Prevention (“CDC”), and state and local health departments to prevent the spread of the disease within our operations.

The financial results for the three months ending March 31, 2021 have been materially impacted by COVID-19 with census in our skilled nursing facilities averaging 76.8% during the first quarter of 2021 compared with 91.4% for the three months ending March 31, 2020. For the first time since the beginning of the COVID-19 pandemic, the census in our skilled nursing facilities increased approximately 3.5% from January 1, 2021 through March 31, 2021. We began our first vaccination clinics in our skilled nursing facilities around the middle of December 2020. As of March 31, 2021, each of our 75 skilled nursing facilities have hosted at least three vaccination clinics onsite for our patients and partners (employees). As the vaccination clinics progressed and as the vaccine became more accessible, we began to see a significant decline in COVID-19 cases among our operations.  Despite the COVID-19 cases significantly declining during the first quarter of 2021, our operating expenses remained elevated with incentive compensation being paid to our frontline partners, as well as increased costs of personal protective equipment (“PPE”), sanitizers and cleaning supplies, and COVID-19 testing of our patients and partners. Despite COVID-19 disrupting operations, our capital and financial resources, including our overall liquidity, remain strong. Our liquidity provides us with significant flexibility to maintain the strength of our balance sheet in periods of uncertainty or stress.

24

Table of Contents

At this time, we are not able to quantify the impact that the COVID-19 pandemic will have on our future financial results, but we expect the developments related to COVID-19 to adversely affect our financial performance in 2021.  The ultimate impact of the pandemic on our financial results will depend on, among other factors, the duration and severity of the pandemic, the volume of acute and post-acute healthcare patients cared for across the broader health care systems, the timing and availability of effective medical treatments and vaccines, and the impact of government actions and administrative regulations on our industry and broader economy, including future government stimulus efforts.  We have received and may continue to receive payments and advances from the various federal and state initiatives. These legislative initiatives have been beneficial to partially mitigate the impact of the COVID-19 pandemic on our results of operations and financial position to date.  The federal and state governments may consider additional stimulus and relief efforts, but we are unable to predict whether any of the additional stimulus measures will be enacted or their impact.

Legislation and Government Stimulus Due to COVID-19

The U.S. government enacted several laws beginning in March 2020 designed to help the nation respond to the COVID-19 pandemic. The new laws impacted healthcare providers in a variety of ways, but the largest legislation from a monetary relief perspective is the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). Through the CARES Act, as well as the Paycheck Protection Program and Health Care Enhancement Act ("PPPCHE"), the federal government has allocated $178 billion to the Public Health and Social Services Emergency Fund, which is referred to as the Provider Relief Fund. The Provider Relief Fund is administered through grants and other mechanisms to skilled nursing providers, home health providers, hospitals, and other Medicare and Medicaid enrolled providers to cover any unreimbursed health care related expenses or lost revenue attributable to the public health emergency resulting from COVID-19.

During the three months ending March 31, 2021, we received additional disbursements from the Provider Relief Fund which totaled $30,191,000. These funds come with terms and condition certifications in which all providers are required to submit documents to ensure the funds will be used for healthcare-related expenses or lost revenue attributable to COVID-19. The Company recorded $22,749,000 of government stimulus income from the Provider Relief Funds for the three months ended March 31, 2021.  The grant income was determined on a systemic basis in line with the recognition of specific expenses and lost revenues for which the grants are intended to compensate. The Company’s assessment of whether the terms and conditions for amounts received have been met for income recognition and the Company’s related income calculation considered all frequently asked questions and other interpretive guidance issued to date by the U.S. Department of Health and Human Services (“HHS”).

As of March 31, 2021, amounts not recognized as income are $23,510,000 and are reflected in the current liability section of our interim condensed consolidated balance sheet (provider relief funds). We anticipate incurring additional COVID-19 related expenses or lost revenues in the future; therefore, at this time, we believe that we will fully utilize the remaining $23,510,000 of provider relief funds before the reporting requirement deadlines outlined by HHS.

Additionally, as part of the CARES Act, the legislation included an expansion of the Medicare Accelerated and Advance Payment Program. The expanded Medicare Accelerated and Advance Payment Program is a streamlined version of existing policy that allows the Medicare Administrative Contractors (“MAC’s”) to issue up to three months of advance Medicare payments to help increase cash flow and liquidity to Medicare Part A and Part B providers in certain circumstances that include national emergencies. We received approximately $51,253,000 as part of this program. These funds will begin to be applied against claims for services provided to Medicare patients after approximately one year from the date we received the funds. During the first eleven months after repayment begins, repayment will occur through an automatic recoupment of twenty-five percent of Medicare payments. During the succeeding six months, repayment will occur through an automatic recoupment of fifty percent of Medicare payments. Any remaining balance that was not paid through the recoupment process within twenty-nine months of receipt of the funds will be required to be paid on-demand, subject to an interest rate of four percent. Recoupment of the accelerated payments began in the second quarter of 2021. As of March 31, 2021, the accelerated payments are reflected within contract liabilities in the interim condensed consolidated balance sheet as the related performance obligations have not been completed.

The CARES Act temporarily suspended Medicare sequestration beginning May 1, 2020 through December 31, 2020. The Medicare sequestration policy reduces fee-for-service Medicare payments by 2 percent. On December 27, 2020, the Consolidated Appropriations Act of 2021 further suspended the 2.0% payment adjustment through March 31, 2021. On April 14, 2021, Congress extended the Medicare sequestration suspension period to December 31, 2021.

The CARES Act also temporarily permitted employers to defer the deposit and payment of the employer’s portion of the social security taxes (6.2% of employee wages) that otherwise would be due between March 27, 2020 and December 31, 2020. The provision requires that the deferred taxes be paid over a two-year period with half the amount required to be paid by December 31, 2021, and the other half by December 31, 2022. At March 31, 2021, we have deferred $21,153,000 of the Company’s share of the social security taxes.  At March 31, 2021, half of the payroll tax deferral is included in accrued payroll in the current liabilities section of the consolidated balance sheet and the other half of the payroll tax deferral is included in other noncurrent liabilities within our consolidated balance sheet.

We have also received from many of the states in which we operate a supplemental Medicaid payment to help mitigate the incremental costs resulting from the COVID-19 public health emergency. For the three months ended March 31, 2021, we have recorded $3,955,000 in net patient revenues in our interim condensed consolidated statements of operations for these supplemental Medicaid payments.

25

Table of Contents

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, 2021 was 76.8% compared to 91.4% for the same period a year ago. For the first time since the beginning of the COVID-19 pandemic, the census in our skilled nursing facilities increased approximately 3.5% from January 1, 2021 through March 31, 2021.

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

Quality of Patient Care

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

The tables below summarize NHC's overall performance in these Five-Star ratings versus the skilled nursing industry as of March 31, 2021:

NHC Ratings Industry Ratings
Total number of skilled nursing facilities, end of period 75
Number of 4 and 5-star rated skilled nursing facilities 59
Percentage of 4 and 5-star rated skilled nursing facilities 79% 49%
Average rating for all skilled nursing facilities, end of period 4.14 3.27

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<br> <br>Operation Description Size Location Placed in Service
Skilled Nursing Acquisition 166 beds Knoxville, TN February 2020
Assisted Living Bed Addition 20 beds Gallatin, TN September 2020
Skilled Nursing Bed Addition 30 beds Kingsport, TN December 2020
Behavioral Health Hospital New Facility 16 beds St. Louis, MO Under Construction
Behavioral Health Hospital New Facility 64 beds Knoxville, TN Under Construction

Accrued Risk Reserves

Our accrued professional liability and workers’ compensation reserves totaled $101,481,000 at March 31, 2021 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.

26

Table of Contents

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

Government Reimbursement Programs

Medicare – Skilled Nursing Facilities

On July 31, 2020, CMS released its final rule outlining fiscal year 2021 Medicare payment rates and policy changes for skilled nursing facilities, which began October 1, 2020. The fiscal year 2021 final rule provided for an approximate 2.2% increase, or $750 million, compared to fiscal year 2020 levels. The final rule continues to reflect the commitment to shifting Medicare payments from volume to value, with the continued implementation of PDPM and value-based purchasing to improve interoperability, operational quality, and safety.

The CARES Act temporarily suspended Medicare sequestration beginning May 1, 2020 through December 31, 2020. The Medicare sequestration policy reduces fee-for-service Medicare payments by 2 percent. The CARES Act extends the sequestration policy through 2030 in exchange for this temporary suspension. On December 27, 2020, the Consolidated Appropriations Act of 2021 further suspended the 2.0% payment adjustment through March 31, 2021. On April 14, 2021, Congress extended the Medicare sequestration suspension period to December 31, 2021.

On April 8, 2021, CMS released a proposed rule outlining fiscal year 2022 Medicare payment rates and policy changes for skilled nursing facilities, which would begin October 1, 2021. The fiscal year 2022 proposed rule provided for an approximate 1.3% increase, or $444 million, compared to 2021 levels.

For the first three months of 2021, our average Medicare per diem rate for skilled nursing facilities increased 6.3% as compared to the same period in 2020.

Medicaid – Skilled Nursing Facilities

Effective July 1, 2020 and for the fiscal year 2021, the state of Tennessee implemented specific individual nursing facility increases. We estimate the resulting increase in revenue for the 2021 fiscal year will be approximately $1,500,000, or $375,000 per quarter.

Effective October 1, 2020 and for the fiscal year 2021, the state of South Carolina implemented specific individual nursing facility rate changes. We estimate the resulting increase in revenue for the 2021 fiscal year will be approximately $3,600,000 annually, or $900,000 per quarter.

We have also received from many of the states in which we operate a supplemental Medicaid payment to help mitigate the incremental costs resulting from the COVID-19 public health emergency. For the three months ended March 31, 2021, we have recorded $3,955,000 in net patient revenues in our interim condensed consolidated statements of operations for these supplemental Medicaid payments.

For the first three months of 2021, our average Medicaid per diem increased 8.5% compared to the same period in 2020.

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

Medicare – Homecare Programs

In November 2020, CMS released its final rule outlining fiscal year 2021 Medicare payment rates. CMS projects payments to home health agencies in fiscal year 2021 will increase in aggregate by 1.9%, or $390 million. The increase reflects the effects of the 2.0% home health payment update percentage and a 0.1% decrease due to reductions made by the rural add-on policy. The rule also updates the home health wage index, limiting any decrease in a geographic area’s wage index value to no more than 5% next year.

27

Table of Contents

Segment Reporting

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

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

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

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, 2021
Inpatient<br> Services Homecare All Other Total
Revenues:
Net patient revenues $ 203,242 $ 13,613 $ - $ 216,855
Other revenues 98 - 11,271 11,369
Government stimulus income 22,749 - - 22,749
Net operating revenues and grant income 226,089 13,613 11,271 250,973
Costs and expenses:
Salaries, wages, and benefits 128,809 8,408 7,913 145,130
Other operating 64,810 2,942 2,401 70,153
Rent 8,194 431 1,438 10,063
Depreciation and amortization 9,263 87 811 10,161
Interest 244 - - 244
Total costs and expenses 211,320 11,868 12,563 235,751
Income/(loss) from operations 14,769 1,745 (1,292 ) 15,222
Non-operating income - - 6,260 6,260
Unrealized gains on marketable equity securities - - 7,059 7,059
Income before income taxes $ 14,769 $ 1,745 $ 12,027 $ 28,541
Three Months Ended March 31, 2020
--- --- --- --- --- --- --- --- --- --- ---
Inpatient<br> <br>Services Homecare All Other Total
Revenues:
Net patient revenues $ 230,987 $ 13,108 $ - $ 244,095
Other revenues 435 - 11,594 12,029
Net operating revenues 231,422 13,108 11,594 256,124
Costs and expenses:
Salaries, wages and benefits 135,215 8,316 3,938 147,469
Other operating 65,105 3,819 2,744 71,668
Rent 8,378 457 1,497 10,332
Depreciation and amortization 9,571 54 813 10,438
Interest 382 - 30 412
Total costs and expenses 218,651 12,646 9,022 240,319
Income from operations 12,771 462 2,572 15,805
Non-operating income - - 8,146 8,146
Unrealized losses on marketable equity securities - - (60,392 ) (60,392 )
Income/(loss) before income taxes $ 12,771 $ 462 $ (49,674 ) $ (36,441 )

28

Table of Contents

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.

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

The operating results for the newly constructed healthcare facilities not at full capacity for the three months ended March 31, 2021 include facilities that began operations from 2019 to 2021, which is one memory care facility. For the three months ended March 31, 2020, included are facilities that began operations from 2018 to 2020, which is one memory care facility.

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

Three Months Ended<br> <br>March 31
2021 2020
Net income/(loss) attributable to National Healthcare Corporation $ 21,267 $ (26,852 )
Non-GAAP adjustments:
Unrealized (gains)/losses on marketable equity securities (7,059 ) 60,392
Gain on acquisitions of equity method investments - (1,707 )
Operating results for newly opened facilities not at full capacity 245 203
Share-based compensation expense 496 466
Provision (benefit) of income taxes on non-GAAP adjustments 1,643 (15,432 )
Non-GAAP Net income $ 16,592 $ 17,070
GAAP diluted earnings per share $ 1.38 $ (1.76 )
Non-GAAP adjustments:
Unrealized (gains)/losses on marketable equity securities (0.33 ) 2.92
Gain on acquisitions of equity method investments - (0.08 )
Operating results for newly opened facilities not at full capacity 0.01 0.01
Share-based compensation expense 0.02 0.02
Non-GAAP diluted earnings per share $ 1.08 $ 1.11

29

Table of Contents

Results of Operations

The following table and discussion set forth items from the interim condensed consolidated statements of operations as a percentage of net operating revenues and grant income for the three months ended March 31, 2021 and 2020.

Percentage of Net Operating Revenues and Grant Income

Three Months Ended<br> March 31
2021 2020
Net operating revenues and grant income 100.0 % 100.0 %
Costs and expenses:
Salaries, wages, and benefits 57.8 57.5
Other operating 28.0 28.0
Facility rent 4.0 4.0
Depreciation and amortization 4.0 4.1
Interest 0.1 0.2
Total costs and expenses 93.9 93.8
Income from operations 6.1 6.2
Non–operating income 2.5 3.2
Unrealized gains/(losses) on marketable equity securities 2.8 (23.6 )
Income/(loss) before income taxes 11.4 (14.2 )
Income tax (provision) benefit (2.9 ) 3.7
Net income/(loss) 8.5 (10.5 )
Net income attributable to noncontrolling interest 0.0 0.0
Net income/(loss) attributable to stockholders of NHC 8.5 % (10.5 %)

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Results for the quarter ended March 31, 2021 compared to the first quarter of 2020 include a 2.0% decrease in net operating revenues and grant income and a 3.7% decrease in income from operations. Excluding the unrealized gains in our marketable equity securities portfolio and the other non-GAAP adjustments, non-GAAP net income for the three months ended March 31, 2021 was $16,592,000 compared to $17,070,000 for the first quarter of 2020, which is a decrease of 2.8%.

Net operating revenues and grant income

Net patient revenues decreased $27,240,000, or 11.2%, compared to the same period last year. Included in net patient revenues for the three months ending March 31, 2021 and 2020 is $3,955,000 and $1,674,000, respectively, of COVID-19 supplemental Medicaid payments that were received to help mitigate the incremental costs in fighting the public health emergency.

The total census at owned and leased skilled nursing facilities for the quarter averaged 76.8%, compared to an average of 91.4% for the same quarter a year ago. For the first time since the beginning of the COVID-19 pandemic, the census in our skilled nursing facilities increased approximately 3.5% from January 1, 2021 through March 31, 2021. Our Medicare per diem rates increased 6.3% and managed care per diem rates increased 3.1% compared to the same quarter a year ago. Medicaid and private pay per diem rates increased 8.5% and decreased 1.6%, respectively, compared to the same quarter a year ago. Overall, the composite skilled nursing facility per diem at our owned and leased skilled nursing facilities increased 6.9% compared to the same quarter a year ago.

In February 2020, the Company acquired the remaining 75% ownership interest in a 166-bed skilled nursing facility in Knoxville, Tennessee. For the three months ended March 31, 2021, this skilled nursing facility increased net patient revenues approximately $1,670,000 compared to the first quarter of 2020. In November 2020, the Company sold a skilled nursing facility located in Town & Country, Missouri. For the three months ended March 31, 2021, the sale of this facility decreased net patient revenue by $2,233,000 compared to the first quarter of 2020.

Other revenues decreased $660,000, or 5.5%, compared to the same quarter last year, as further detailed in Note 5 to our interim condensed consolidated financial statements.

During the three months ended March 31, 2021, we recorded $22,749,000 in government stimulus income related to funds received from the CARES Act Provider Relief Fund. See Note 3 - Coronavirus Pandemic for additional information.

30

Table of Contents

Total costs and expenses

Total costs and expenses for the three months ended March 31, 2021 compared to the same period of 2020 decreased $4,568,000, or 1.9%, to $235,751,000 from $240,319,000.

Salaries, wages, and benefits decreased $2,339,000, or 1.6%, to $145,130,000 from $147,469,000. Salaries, wages, and benefits as a percentage of net operating revenues and grant income was 57.8% compared to 57.6% for the three months ended March 31, 2021 and 2020, respectively. The primary reason for salaries and wages decreasing was the continued initiative of controlling expenses among our operations to mitigate our occupancy decline among our skilled nursing and assisted living facilities. The expense controlling measures were offset by the incentive compensation, or "combat pay", paid to our frontline partners in fighting the COVID-19 pandemic. We incurred approximately $3,348,000 and $827,000 in incentive compensation related to COVID-19 for the three months ended March 31, 2021 and 2020, respectively. Excluding the COVID-19 related compensation, our salaries, wages, and benefits decreased 3.3% for the three months ended March 31, 2021 compared to the first quarter of 2020.

Other operating expenses decreased $1,515,000, or 2.1%, to $70,153,000 for the 2021 period compared to $71,668,000 for the 2020 period. Other operating expenses as a percentage of net operating revenues and grant income was 28.0% for the three months ended March 31, 2021 and 2020, respectively. During the first quarter of 2021 and 2020, we incurred approximately $5,153,000 and $948,000, respectively, in COVID-19 related expenses in purchasing personal protective equipment, nursing supplies, and lab and testing supplies.  The expense controlling efforts have helped mitigate the increase in other operating expenses due to COVID-19.  Excluding the COVID-19 related expenses, other operating expenses decreased $5,720,000, or 8.1%, for the three months ended March 31, 2021 compared to the first quarter of 2020.

Other income

Non–operating income decreased by $1,886,000 compared to the same period last year, as further detailed in Note 6 to our interim condensed consolidated financial statements.

Income taxes

The income tax provision for the three months ended March 31, 2021 is $7,233,000 (an effective income tax rate of 25.3%). Excluding certain items, we expect our corporate (federal and state) income tax rate for 2021 to be approximately 26.0%.

Noncontrolling interest

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

Liquidity, Capital Resources, and Financial Condition

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

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

Three Months Ended<br> <br>March 31 Three Month Change
2021 2020 %
Cash, cash equivalents, restricted cash, and restricted cash equivalents, at beginning of period $ 158,502 $ 61,010 $ 97,492 159.8
Cash provided by operating activities 12,589 7,754 4,835 62.4
Cash used in investing activities (5,852 ) (16,225 ) 10,373 63.9
Cash used in/(provided by) financing activities (9,148 ) 31,641 (40,789 ) (128.9 )
Cash, cash equivalents, restricted cash, and restricted cash equivalents, at end of period $ 156,091 $ 84,180 $ 71,911 85.4

31

Table of Contents

Operating Activities

Net cash provided by operating activities for the three months ended March 31, 2021 was $12,589,000 as compared to $7,754,000 in the same period last year. Cash provided by operating activities consisted of net income of $21,308,000 and adjustments for non–cash items of $2,283,000. There was cash used for working capital needs in the amount of $16,899,000 for three months ended March 31, 2021 compared to $19,547,000 for the same period a year ago. We also received cash distributions from our unconsolidated investments of $5,897,000 during the three months ended March 31, 2021, compared to $2,349,000 for the same period a year ago.

Included in the adjustments for non-cash items are depreciation expense, equity in earnings of unconsolidated investments, unrealized gains/losses on our marketable equity securities, deferred taxes, stock compensation, and a gain on the acquisition of a 166-bed skilled nursing facility in Knoxville, Tennessee during the first quarter of 2020 in which we previously held a noncontrolling ownership interest.

Investing Activities

Net cash used in investing activities totaled $5,852,000 for the three months ended March 31, 2021 compared to $16,225,000 for the three months ended March 31, 2020. Cash used for property and equipment additions was $4,327,000 and $6,628,000 for the three months ended March 31, 2021 and 2020, respectively. The Company collected notes receivable of $255,000 and $376,000 for the three months ended March 31, 2021 and 2020, respectively. Purchases of marketable securities, net of sales, resulted in cash used of $1,780,000 and $2,950,000 for the three months ended March 31, 2021 and 2020. The acquisition of the 166-bed skilled nursing facility in Knoxville, Tennessee resulted in cash used of $6,648,000 for the three months ended March 31, 2020.

Financing Activities

Net cash used in financing activities totaled $9,148,000 for the three months ended March 31, 2021 compared to net cash provided by financing activities of $31,641,000 for the three months ended March 31, 2020. We made principal payments under our finance lease obligations in the amount of $1,081,000 and $1,019,000 for the three months ended March 31, 2021 and 2020, respectively. Cash used for dividend payments to common stockholders totaled $7,987,000 in the current year period compared to $7,968,000 for the same period a year ago. We made borrowings under our credit facility of $40,000,000 during the three months ended March 31, 2020.

Short–term liquidity

We expect to meet our short-term liquidity requirements primarily from our cash flows from operating activities. In addition to cash flows from operations, our current cash on hand of $134,107,000 and our marketable securities of $184,738,000 are expected to be adequate to meet our contractual obligations, operating liquidity, and our growth and development plans in the next twelve months.

Long–term liquidity

We expect to meet our long-term liquidity requirements primarily from our cash flows from operating activities, our current cash on hand of $134,107,000 and our marketable securities of $184,738,000. We also have substantial value in our unencumbered real estate assets which could potentially be used as collateral in future borrowing opportunities. At March 31, 2021, we do not have any long-term debt.

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

Commitment and Contingencies

Governmental Regulations

Laws and regulations governing the Medicare, Medicaid and other federal healthcare programs are complex and subject to interpretation. Management believes that it is following all applicable laws and regulations in all material respects. However, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusions from the Medicare, Medicaid, and other federal healthcare programs. There have been several enacted and proposed federal and state relief measures as a result of COVID-19 which should provide support to us during this pandemic; however, the full benefit of any such programs would not be realized until these payments are fully implemented, government agencies issue applicable regulations, or guidance and such relief is provided.

32

Table of Contents

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, 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, 2021, we have available for sale marketable debt securities in the amount of $189,175,000. 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.

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

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

Credit Risk

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

Equity Price and Concentration Risk

Our marketable equity securities are recorded at their fair market value based on quoted market prices. Thus, there is exposure to equity price risk, which is the potential change in fair value due to a change in quoted market prices. At March 31, 2021, the fair value of our marketable equity securities is approximately $140,329,000. Of the $140.3 million equity securities portfolio, our investment in NHI comprises approximately $117.9 million, or 84.0%, 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 $14.0 million. At March 31, 2021, our equity securities had unrealized gains of $105.4 million. Of the $105.4 million of unrealized gains, $93.1 million is related to our investment in NHI.

33

Table of Contents

Item 4. Controls and Procedures.

As of March 31, 2021, 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, 2021.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

During the three months ended March 31, 2021, 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, 2020.

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

Item 6. Exhibits.
(a)        List of exhibits
---

34

Table of Contents

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 Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive File (embedded within the Inline XBRL document and include in Exhibit 101)

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 6, 2021 /s/ Stephen F. Flatt
Stephen F. Flatt
Chief Executive Officer
Date: May 6, 2021 /s/ Brian F. Kidd
Brian F. Kidd
Senior Vice President and Controller
(Principal Accounting Officer)

35

ex_245141.htm

EXHIBIT 31.1

CERTIFICATION

I, Stephen F. Flatt, certify that:

1. I have reviewed this quarterly report on Form 10-Q of National HealthCare Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
--- ---
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
--- ---
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
--- ---
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
--- ---
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
--- ---
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
--- ---
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
--- ---
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function);
--- ---
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
--- ---
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
--- ---

Date: May 6, 2021

/s/ Stephen F. Flatt
Stephen F. Flatt
Chief Executive Officer

ex_245142.htm

EXHIBIT 31.2

CERTIFICATION

I, Brian F. Kidd, certify that:

1. I have reviewed this quarterly report on Form 10-Q of National HealthCare Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
--- ---
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
--- ---
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
--- ---
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
--- ---
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
--- ---
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
--- ---
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
--- ---
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):
--- ---
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
--- ---
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
--- ---

Date: May 6, 2021

/s/ Brian F. Kidd
Brian F. Kidd
Senior Vice President and Controller
(Principal Financial Officer)

ex_245143.htm

Exhibit 32

Certification of Quarterly Report on Form 10-Q

of National HealthCare Corporation

For the Quarter Ended March 31, 2021

The undersigned hereby certify, pursuant to 18 U.S.C. Section 906 of the Sarbanes-Oxley Act of 2002, that, to the undersigned's best knowledge and belief, the Quarterly Report on Form 10-Q for National HealthCare Corporation ("Issuer") for the period ending March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the "Report"):

(a) fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(b) the information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Issuer.

This Certification accompanies the Quarterly Report on Form 10-Q of the Issuer for the quarterly period ended March 31, 2021.

This Certification is executed as of May 6, 2021.

/s/Stephen F. Flatt
Stephen F. Flatt
Chief Executive Officer
/s/ Brian F. Kidd
Brian F. Kidd
Principal Accounting Officer

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

Report a Problem

Category
Description
Email (optional, for follow-up)