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

~~Interim Condensed Consolidated Statements of Stockholders~~For the nine months ended September 30, 2021:’ ~~Equity~~ ~~(continued)~~

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

National HealthCare Corporation (“NHC” or the “Company”) is a leading provider of senior health care services. As of September 30, ~~2021,~~2022, we operate or manage, through certain affiliates, 7568 skilled nursing facilities with a total of ~~9,473~~8,726 licensed beds, 2423 assisted living facilities, five independent living facilities, ~~one~~three behavioral health ~~hospital, 34~~hospitals, 35 homecare agencies, and 2829 hospice agencies. We operate specialized care units within certain of our healthcare centers such as Alzheimer's disease care units and sub-acute nursing units. 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 108 states and are located primarily in the southeastern United States.

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~~2021 consolidated financial statements and notes thereto which contain accounting policies and other disclosures required by U.S. GAAP. Our audited December 31, ~~2020~~2021 consolidated financial statements are available at our web site: www.nhccare.com.

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, ~~2020~~2021 consolidated financial statements and that the adequacy of additional disclosure needed for a fair presentation, except in regard to material contingencies, may be determined in that context. Accordingly, footnotes and other disclosures which would substantially duplicate the disclosure contained in our most recent annual report to stockholders have been omitted. This interim financial information is not necessarily indicative of the results that may be expected for a full year for a variety of reasons.

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

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

The Company determines the transaction price based on established billing rates reduced by ~~contractual adjustments~~explicit price concessions provided to third party payors. ~~Contractual adjustments~~Explicit price concessions are based on contractual agreements and historical experience. The Company considers the patient's ability and intent to pay the amount of consideration upon admission. Credit losses are recorded as bad debt expense, which is included as a component of other operating expenses in the interim condensed consolidated statements of operations. Bad debt expense was ~~$1,452,000~~$1,685,000 and ~~$3,473,000~~$6,026,000 for the three and ninemonths ended September 30, 2022. For the three and nine months ended September 30, 2021, ~~respectively. For the~~ ~~three~~ ~~months and~~ ~~nine~~ ~~months ended~~ ~~September 30, 2020,~~ bad debt expense was ~~$1,463,000~~$1,452,000 and ~~$3,538,000,~~$3,473,000, respectively. As of September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, the Company has recorded an allowance for doubtful accounts of ~~$7,396,000~~$7,841,000 and ~~$5,672,000,~~$6,411,000, respectively, as our best estimate of expected losses inherent in the accounts receivable balance.

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.

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

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,~~hospitals, and (2) homecare and hospice services. The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. See Note 87 for further disclosure of the Company’s operating segments.

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.

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 $6,050,000 and $16,636,000 for the three and nine months ended September 30, 2022. General and administrative costs were $5,361,000 and $15,615,000 for the three and nine months ended September 30, 2021, respectively. ~~General and administrative costs were $5,259,000 and $15,649,000 for the~~ ~~three~~ ~~months and~~ ~~nine~~ ~~months ended~~ ~~September 30, 2020,~~ ~~respectively.~~

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

The Company records right-of-use assets and liabilities ~~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.~~term. 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 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.

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

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

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

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.

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~~in our consolidated balance sheets. ~~As of~~ ~~September 30, 2021,~~ ~~and~~ ~~December 31, 2020,~~ ~~we have recorded refundable entrance fees in the amount of $6,868,000 and $7,462,000, respectively.~~

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 September 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, we have recorded a future service obligation liability in the amount of ~~$2,177,000.~~$2,338,000. This obligation is reflected within other noncurrent liabilities in the interim condensed consolidated balance sheets.

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.

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.

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~~unconsolidated companies” in the interim condensed consolidated balance sheets.

Certain accounts in the prior-year financial statements have been reclassified for comparative purposes to conform to the presentation in the current-year financial statements.

In early March 2020, COVID-19, a disease caused by the novel strain of the coronavirus, was characterized as a pandemic by the World Health Organization. The U.S. government enacted several laws beginning in March 2020 designed to help the nation respond to the COVID-19 pandemic. The ~~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 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.

The Provider Relief Fund grants come with terms and condition certifications in which all providers are required to submit documents to ensure the funds ~~will be~~are used for healthcare-related expenses or lost revenue attributable to COVID-19. The Company recorded ~~$10,429,000~~$0 and ~~$12,132,000~~$10,429,000 of government stimulus income from the Provider Relief Funds for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The Company recorded ~~$48,304,000~~$10,940,000 and ~~$36,780,000~~$48,304,000 of government stimulus income from the Provider Relief Funds for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The grant income was determined on a systemic basis in line with the recognition of specific expenses and lost revenues for which the grants are intended to compensate. The Company’s assessment of whether the terms and conditions for amounts received have been met for income recognition and the Company’s related income calculation considered all frequently asked questions and other interpretive guidance issued to date by the U.S. Department of Health and Human Services (“HHS”).

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. WeIn the second quarter of 2020, we received approximately $51,253,000 as part of this program. These funds are 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,~~began, repayment ~~will occur~~occurs through an automatic recoupment of twenty-five percent of Medicare payments. During the succeeding nine months, repayment ~~will occur~~occurs 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. ~~The recoupment~~As of September 30, 2022 and December 31, 2021, $138,000 and $15,022,000, respectively, of the accelerated payments ~~began in the~~ ~~second~~ ~~quarter of~~ ~~2021.~~ At ~~September 30, 2021,~~ ~~we have $27,013,000 of the accelerated payments remaining to be recouped~~remain and ~~this balance is~~are reflected within contract liabilities in the interim condensed consolidated balance sheet.

The CARES Act and subsequent related legislation temporarily suspended Medicare sequestration beginning May 1, 2020 through ~~December~~March 31, ~~2020.~~2022. The Medicare sequestration policy ~~reduces~~reduced fee-for-service Medicare payments by 2 percent. OnBeginning ~~December 27, 2020,~~April 1, 2022, the ~~Consolidated Appropriations~~sequestration reductions were 1% from April 1, 2022 through June 30, 2022. The full 2% reduction went back into effect July 1, 2022. The CARES Act of ~~2021~~ ~~further suspended~~extends the ~~2.0%~~ ~~payment adjustment~~sequestration policy through ~~September 30, 2021.~~ 2030On ~~April 14, 2021,~~ ~~Congress extended~~ in exchange for this temporary suspension, which the ~~Medicare~~ sequestration ~~suspension period~~reduction for 2030 has been increased up to ~~December 31, 2021.~~3%.

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 behave been 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 September 30, 2022 and December 31, 2021, we have deferred ~~$21,153,000~~$10,545,000 of the Company’s share of the social security ~~taxes. At~~ ~~September 30, 2021,~~ ~~half of the payroll tax deferral is~~taxes 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 supplemental Medicaid payments from many of the states in which we operate to help mitigate the incremental costs resulting from the COVID-19 public health emergency. We have recorded ~~$5,053,000~~$4,773,000 and ~~$4,845,000~~$5,053,000 in net patient revenues for these supplemental Medicaid payments for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. We have recorded ~~$16,102,000~~$15,312,000 and ~~$10,378,000~~$16,102,000 in net patient revenues for these supplemental Medicaid payments for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

On ~~June 11, 2021,~~ the Company acquired the remaining 24.9% equity interest in Caris HealthCare, L.P. (“Caris”) for a purchase price of approximately $28,713,000, net of cash acquired. Caris specializes in providing hospice and palliative care to over 1,250 patients per day in 28 locations in Georgia, Missouri, South Carolina, Tennessee, and Virginia. As a leading senior care provider, this acquisition is a strategic advancement of our growth that will provide a continuum of post-acute health care to seniors in our operational footprint.

~~Prior to the~~ ~~June 11, 2021~~ acquisition date, the Company held a 75.1% non-controlling equity interest in Caris, which was accounted for as an equity method investment. The Company accounted for the acquisition of the remaining 24.9% equity interest of Caris as a step acquisition, which required remeasurement of the Company’s previous 75.1% ownership interest to fair value. Using acquisition accounting, the Company increased the value of its previously held equity method investment to its fair value of approximately $133.1 million, which resulted in a gain of $95.2 million. This gain is recorded in the interim condensed consolidated statements of operations under the line item “gains on acquisitions of equity method investments”.

The Company utilized widely accepted income-based, market-based, and cost-based valuation approaches to perform the preliminary purchase price allocation and determine the fair value of the previously held equity method investment.

The Company has performed a preliminary valuation analysis of the fair market value of Caris’ assets acquired and liabilities assumed. The final valuation of the assets acquired, and liabilities assumed was ~~not~~ ~~complete as of~~ ~~September 30, 2021,~~ ~~but will be finalized within the allowable measurement period. The following table summarizes the allocation of the preliminary purchase price as of the transaction’s closing date (~~~~in thousands~~):

The indefinite-lived intangible assets acquired include the trade name of Caris and the certificates of need and licenses. The goodwill is recorded in the homecare and hospice segment and is attributed to the workforce acquired and reputation of the business as part of the transaction. We expect approximately 30%-40% of the goodwill to be deductible for income tax purposes.

~~For the~~ ~~three~~ ~~months ended~~ ~~September 30, 2021,~~ ~~Caris contributed net patient revenues of $17,547,000 and income before income taxes of $4,660,000 that are included in the Company's interim condensed consolidated statements of operations. For the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2021,~~ ~~Caris contributed net patient revenues of $21,259,000 and income before income taxes of $5,643,000 that are included in the Company’s interim condensed consolidated statements of operations.~~

~~The following table contains unaudited pro forma interim condensed consolidated statements of operations information for the~~ ~~three~~ ~~months and~~ ~~nine~~ ~~months ended~~ ~~September 30, 2021~~ ~~and~~ ~~2020,~~ ~~assuming that the Caris acquisition closed on~~ ~~January 1, 2020.~~ The pro forma financial information includes various assumptions, including those related to the preliminary purchase price allocation of assets acquired and liabilities assumed. The pro forma financial information ~~may~~ ~~vary in future quarters based on the final valuations and analysis of the fair value of the assets acquired and liabilities assumed~~ ~~(in thousands)~~.

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

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,~~hospitals, and (2) homecare and hospice services (in thousands).

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

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

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:

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.

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.

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

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

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

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

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 September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company has recorded ~~$27,013,000~~$138,000 and ~~$51,253,000,~~$15,022,000, respectively, 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.

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 ~~$17,046,000~~$15,496,000 and ~~$16,454,000~~$17,595,000 as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, for various Medicare, Medicaid, and Managed Care claims reviews and current and prior year cost reports.

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–~~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).

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 98 – Long Term Leases.

We manage five skilled nursing facilities owned by National Health Corporation (“National”). ~~For~~We recognized management fees and interest on management fees from these facilities of $1,029,000 and $970,000 for the three ~~and~~ ~~nine~~ months ended September 30, 2022 and 2021,we respectively. We recognized management fees and interest on management fees of ~~$970,000~~$3,012,000 and $2,806,000 from these ~~centers, respectively. For~~facilities for the~~three~~ ~~months and~~ nine months ended September 30, ~~2020,~~2022 ~~we recognized management fees~~ and ~~interest on management fees of $920,000 and $3,399,000 for these centers,~~2021, respectively.

For workers’ compensation insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months ~~and~~ ~~nine~~ ~~months~~ ended September 30, 2022 and 2021were $496,000 and $780,000, ~~and $2,298,000,~~ respectively. ~~For workers’ compensation insurance services, the~~The premium revenues reflected in the interim condensed consolidated statements of operations for the ~~three~~ ~~months and~~ nine months ended September 30, ~~2020~~2022 and 2021were ~~$779,000~~$1,939,000 and ~~$2,441,000,~~$2,298,000, respectively. Associated losses and expenses including those for self-insurance are ~~reflected~~included 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 ~~and~~ ~~nine~~ ~~months~~ ended September 30, 2022 and 2021were $519,000 and $511,000, ~~and $1,534,000,~~ respectively. ~~For professional liability insurance services, the~~The premium revenues reflected in the interim condensed consolidated statements of operations for the ~~three~~ ~~months and~~ nine months ended September 30, ~~2020~~2022 and 2021were ~~$515,000~~$1,558,000 and ~~$1,633,000,~~$1,534,000, 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".

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).

On June 11, 2021, the Company acquired the remaining 24.9% equity interest in ~~Caris. See Note~~ 4 ~~- “Acquisition of~~ Caris HealthCare, L.P.~~” for further detail describing the acquisition.~~

(“Caris”). Prior to the June 11, 2021 acquisition date, Caris was our most significant equity method investment with a 75.1% non-controlling ownership interest. From the respective acquisition date, Caris’ financial information is now included in the Company’s consolidated financial statements and ~~will~~is no longer be accounted for as an equity method investment.

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

The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. 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):

At September 30, ~~2021,~~2022, we ~~leased~~lease from NHI the real property of 3528 skilled nursing facilities, ~~seven~~five assisted living centers and three independent living centers under ~~two~~ ~~separate~~one lease ~~agreements.~~agreement. As part of the ~~first~~lease agreement, we sublease four Florida skilled nursing facilities to a third-party operator. ~~Base~~The lease includes base rent ~~expense under both NHI lease agreements totals $34,200,000 annually with~~plus a percentage rent. The percentage rent ~~thereafter escalating by 4%~~is based on a quarterly calculation of ~~the increase in facility~~ revenue ~~over~~increases and is payable on a ~~base year.~~quarterly basis. Total facility rent expense to NHI was ~~$9,026,000~~$9,478,000 and ~~$28,336,000~~$9,026,000 for the three ~~and~~ ~~nine~~ months ended September 30, 2022 and 2021,respectively. Total facility rent expense to NHI was ~~$9,655,000~~$28,293,000 and ~~$28,965,000~~$28,336,000 for the~~three~~ ~~months and~~ nine months ended September 30, ~~2020,~~2022 and 2021,respectively.

On September 1, 2022, we transferred the operations of seven skilled nursing facilities located in Massachusetts and New Hampshire to a third-party operator. We leased the real property of these seven facilities from NHI. In conjunction with the transfer of the operations to a third party, we terminated our lease agreement for the seven skilled nursing facilities and amended our master lease agreement with NHI. The amendment was accounted for as a lease modification under ASC 842,Leases. The base rent within the amended master lease agreement increased approximately $8,775,000 over the next four and one-third years. Therefore, for the remainder of 2022 ( September- December), our base rent increased $875,000. The annual base rent in 2023 increased from $30,750,000 to $34,075,000, in 2024 from $30,750,000 to $32,625,000, in 2025 from $30,750,000 to $32,225,000, and in 2026 from $30,750,000 to $31,975,000.

At September 30, ~~2021,~~2022, 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~~– 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.

The following table summarizes the maturity of our finance and operating lease liabilities as of September 30, ~~2021~~2022 (in thousands):

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):

In the above table, options to purchase ~~620,076~~389,781 and ~~698,080~~620,076 shares of our common stock have been excluded for the nine months ended September 30, 2022 ~~31,~~and 2021, ~~and~~ ~~2020,~~ respectively, due to their anti-dilutive impact.

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 1211 for a description of the Company's methodology for determining the fair value of marketable securities.

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

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

Gross unrealized gains related to marketable equity securities are ~~$76,151,000~~$77,991,000 and ~~$98,445,000~~$85,394,000 as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Gross unrealized losses related to marketable equity securities are ~~$1,067,000~~$5,022,000 and ~~$134,000~~$946,000 as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. For the three months ~~and~~ ~~nine~~ ~~months~~ ended September 30, 2022 and 2021,the Company recognized net unrealized losses of ~~$23,797,000~~$11,056,000 and ~~$23,227,000,~~$23,797,000, respectively, for the changes in fair market value of the marketable equity securities in the interim condensed consolidated statements of operations. For the ~~three~~ ~~months and~~ nine months ended September 30, ~~2020,~~2022 and 2021,the Company recognized a net unrealized losses of ~~$241,000~~$11,479,000 and ~~$40,580,000,~~a net unrealized loss of $23,227,000, 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 ~~$4,288,000~~$0 and ~~$6,759,000~~$3,189,000 as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Gross unrealized losses related to available for sale marketable debt securities are ~~$796,000~~$12,099,000 and ~~$361,000~~$1,176,000 as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. As of September 30, 2022, a total of 52 debt securities with a total market value of $45,367,000 have been in an unrealized loss position for greater than 12 months.

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 or~~ nine months ~~ending~~ended September 30, ~~2021~~2022 and ~~2020.~~2021.

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 marketable securities during the nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 were ~~$89,129,000~~$38,114,000 and ~~$28,004,000,~~$89,129,000, respectively. Investment losses of $756,000 and investment gains of $941,000 ~~and $135,000~~ were realized on these sales during the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

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:

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 September 30, ~~2021~~2022 and December 31, ~~2020~~2021 for assets and liabilities measured at fair value on a recurring basis (in thousands):

At September 30, ~~2021,~~2022, 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 0no impairment indicators regarding the Company’s goodwill ~~during the~~ ~~three~~ ~~months ended~~ ~~September 30, 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.

~~See Note~~ 4 – ~~Acquisition of Caris HealthCare, L.P.~~ ~~for further detail describing the goodwill addition in~~ ~~2021.~~At September 30, ~~2021,~~2022, the following table represents the activity related to our goodwill by segment (in thousands):

~~As part of the Caris acquisition, we~~We also have recorded indefinite-lived intangible assets that ~~consisted~~consist of ~~the~~ trade ~~name~~names ($4,340,000) and certificates of need and licenses ($2,698,000).

During the nine months ended September 30, 2022, the Company repurchased 99,547 shares of its common stock for a total cost of $6,907,000. During the nine months ended September 30, 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.

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 ~~$726,000~~$638,000 and ~~$518,000~~$726,000 for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. ~~Stock–based~~Stock-based compensation totaled ~~$1,905,000~~$1,980,000 and ~~$1,807,000~~$1,905,000 for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Stock–based compensation is included in “Salaries, wages and benefits” in the interim condensed consolidated statements of operations.

At September 30, ~~2021,~~2022, the Company had ~~$1,767,000~~$3,846,000 of unrecognized compensation cost related to unvested stock–based compensation awards. This unrecognized compensation cost will be amortized over an approximate ~~one~~two-year period.

The following table summarizes the significant assumptions used to value the options granted for the nine months ended September 30, ~~2021~~2022 and for the year ended December 31, ~~2020.~~2021.

The following table summarizes our outstanding stock options for the nine months ended September 30, ~~2021~~2022 and for the year ended December 31, ~~2020.~~2021.

The Company's income tax benefit as a percentage of our ~~loss~~income before income taxes was 26.8% and 53.6% for the three months ended September 30, ~~2021.~~2022 ~~The Company's income tax provision as a percentage of our income before income taxes was 3.0% for the~~and ~~three~~2021, ~~months ended~~ ~~September 30, 2020.~~ respectively.

The Company's income tax provision as a percentage of our income before income taxes was ~~4.6%~~27.3% and ~~5.2%~~4.6% for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, 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. The tax benefit related to the statute of limitation expirations was $437,000 for the three and nine months ended September 30, 2022. The tax benefit related to the statute of limitation expirations was $1,444,000 for the three and nine months ended September 30, 2021.~~The tax benefit related to the statute of limitation expirations was $2,234,000 for the~~ ~~three~~ ~~and~~ ~~nine~~ ~~months ended~~ ~~September 30, 2020.~~ For the nine months ended September 30, 2021, the income tax provision and effective tax rate were favorably impacted by the nontaxable gain recognized upon re-measurement of our existing equity investment in Caris Healthcare, L.P.

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 ~~2018~~2019 (with certain state exceptions).

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 ~~$103,824,000~~$103,710,000 and ~~$99,537,000~~$98,048,000 at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, 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–~~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.

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.

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.

United States of America, ex rel. Jennifer Cook and Sally Gaither v. Integrated Behavioral Health, Inc., NHC HealthCare/Moulton, LLC, et al., Case No. 2:20-CV-00877-AMM (N.D. Ala.) This is a qui tam case originally filed under seal on June 22, 2020. The United States declined intervention on March 1, 2021. Thereafter, the Plaintiff filed an amended Complaint ~~and then a~~ ~~second~~ ~~amended complaint (the "Complaint")~~ against Dr. Sanja Malhotra, Integrated Behavioral Health, Inc. and other entities that Dr. Malhotra is alleged to own or in which he has a financial interest. The Complaint also named multiple skilled nursing facilities as Defendants, including NHC Healthcare/Moulton, LLC, an affiliate of National HealthCare Corporation. The ~~gravamen of the~~ Complaint ~~against the facilities is~~alleges that nurse practitioners affiliated with Dr. Malhotra ~~had nurse practitioners providing~~provided free services into the facilities in exchange for referrals to entities he owned by or in which heDr. Malhotra had a financial interest in violation of the False Claims Act and Anti-Kickback Statute. NHC Healthcare/Moulton, LLC denies the allegations and is vigorously defending the claim. A motion to dismiss was filed on November 4, 2021. On January 28, 2022, the district court stayed this matter and administratively terminated the motion to dismiss pending the U.S. Supreme Court's review of a petition for certiorari filed in an unrelated matter, but involving one of the legal arguments raised in the motion to dismiss. The U.S. Supreme Court has recently denied the petition for certiorari, but the district court has not yet lifted the stay in this matter. We expect that the motion to dismiss will be renewed once the stay is lifted. There is no expected timeline for the lifting of the stay.

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~~have provided substantial 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.~~pandemic.

Note 17 – Massachusetts and New Hampshire Skilled Nursing Facilities

On September 1, 2022, we transferred the operations of seven skilled nursing facilities located in Massachusetts and New Hampshire to a third-party operator. NHC leased the real property of these seven facilities from NHI. In conjunction with the transfer of the operations to a third party, we terminated our lease agreement with NHI for the seven skilled nursing facilities and amended our master lease agreement with NHI, see Note 8 – Long-Term Leases.

The seven skilled nursing facilities had net patient revenues of $13,214,000 and $17,907,000 for the three months ended September 30, 2022 and 2021, respectively. The seven skilled nursing facilities had net patient revenues of $48,697,000 and $50,149,000 for the nine months ended September 30, 2022 and 2021, respectively. Excluding stimulus funds, the seven skilled nursing facilities had losses before income taxes of $259,000 and $1,360,000 for the three months ended September 30, 2022 and 2021, respectively. Excluding stimulus funds, the seven skilled nursing facilities had losses before income taxes of $2,831,000 and $7,257,000 for the nine months ended September 30, 2022 and 2021, respectively.

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.

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

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

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

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

●	liabilities and other claims asserted against us, including patient care liabilities, as well as the resolution of current litigation (see Note ~~17:~~16: 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;

●	our need to make investments continually in our processes and information systems to protect the privacy of patients, partners and other persons and reduce the risk of successful cybersecurity attacks;

●	damage to our reputation, regulatory penalties, legal claims and liability under state and federal laws that we could suffer upon any cybersecurity or privacy breaches;

●	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~~2021 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.

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Overview

National HealthCare Corporation (“NHC” or the “Company”) is a leading provider of senior health care services. WeAs of September 30, 2022, we operate or manage, through certain affiliates, 7568 skilled nursing facilities with a total of ~~9,473~~8,726 licensed beds, 2423 assisted living facilities, five independent living facilities, ~~one~~three behavioral health ~~hospital, 34~~hospitals, 35 homecare agencies, and 2829 hospice agencies. We operate specialized care units within certain of our healthcare centers such as Alzheimer's disease care units and sub-acute nursing units. 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 108 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. 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.

We began our first vaccination clinics in our skilled nursing facilities ~~around the middle of~~in December 2020. 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. With the COVID-19 cases significantly declining during the first and second quarters of 2021, the census in our skilled nursing facilities began to increase. Although our census continued to increaseoperations, as well as a significant decrease in the ~~third quarter of 2021, the trajectory of our census was slowed during the third quarter of 2021 due~~adverse health events related to the spike in delta variant cases during the period. The delta variant spike during the third quarter of 2021 timeframe was the second highest number of positive COVID cases across the country since the beginning of the pandemic (December 2020/January 2021 peak was the highest).

COVID. Despite the COVID-19 cases ~~decreasing in 2021,~~and adverse health events from COVID declining, our operating expenses ~~remain~~have remained elevated with incentive compensation being paid to ~~our~~attract and retain 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 the continued disruption of COVID-19 to our 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.

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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 ~~have~~to adversely ~~affected~~affect our financial performance in ~~2021.~~2022. 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 the 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 CARES Act. Through the CARES Act, as well as the PPPCHE, the federal government allocated $178 billion to the Public Health and Social Services Emergency Fund, which is referred to as the Provider Relief Fund. The Provider Relief Fund is administered through grants and other mechanisms to skilled nursing providers, home health providers, hospitals, and other Medicare and Medicaid enrolled providers to cover ~~any~~ unreimbursed health care related expenses or lost revenue attributable to the public health emergency resulting from COVID-19.

The Provider Relief Fund grants come with terms and condition certifications in which all providers are required to submit documents to ensure the funds ~~will be~~are used for healthcare-related expenses or lost revenue attributable to COVID-19. The Company recorded ~~$10,429,000~~$0 and ~~$12,132,000~~$10,429,000 of government stimulus income from the Provider Relief Funds for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The Company recorded ~~$48,304,000~~$10,940,000 and ~~$36,780,000~~$48,304,000 of government stimulus income from the Provider Relief Funds for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The grant income was determined on a systemic basis in line with the recognition of specific expenses and lost revenues for which the grants are intended to compensate. The Company’s assessment of whether the terms and conditions for amounts received have been met for income recognition and the Company’s related income calculation considered all frequently asked questions and other interpretive guidance issued to date by HHS.

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Additionally, as part of the CARES Act, the legislation included an expansion of the Medicare Accelerated and Advance Payment Program. WeIn the second quarter of 2020, we received approximately $51,253,000 as part of this program. These funds ~~are~~began to be applied against claims for services provided to Medicare patients after approximately one year from the date we received the funds. ~~The recoupment~~As of September 30, 2022, $138,000 of the accelerated payments ~~began in the second quarter of 2021. At September 30, 2021, we have $27,013,000 of the accelerated payments remaining to be recouped~~remain and ~~this balance~~ is reflected within contract liabilities in the interim condensed consolidated balance sheet.

The CARES Act and subsequent related legislation temporarily suspended Medicare sequestration beginning May 1, 2020 through ~~December~~March 31, ~~2020.~~2022. The Medicare sequestration policy reduces fee-for-service Medicare payments by 2 percent. ~~On December 27, 2020,~~Beginning April 1, 2022, the ~~Consolidated Appropriations~~sequestration reductions were 1% from April 1, 2022 through June 30, 2022. The full 2% reduction went back into effect July 1, 2022. The CARES Act ~~of 2021 further suspended~~extends the ~~2.0% payment adjustment~~sequestration policy through ~~September 30, 2021. On April 14, 2021, Congress extended~~2030 in exchange for this temporary suspension, which the ~~Medicare~~ sequestration ~~suspension period~~reduction for 2030 has been increased up to ~~December 31, 2021.~~3%.

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 behave been 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 September 30, ~~2021,~~2022, we have deferred ~~$21,153,000~~$10,545,000 of the Company’s share of the social security ~~taxes.~~taxes included in the current liabilities section of the consolidated balance sheet.

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. For the three months ended September 30, 2021, overall census in our owned and leased skilled nursing facilities was 82.0% compared to 81.3% in the third quarter of 2020. Our census for the third quarter of 2021 increased approximately 90 basis points when compared sequentially to the census in the second quarter of 2021. Although our census continues to rebound, the trajectory of our census was slowed during the third quarter of 2021 due to the spike in delta variant cases during the period. The overall census in owned and leased skilled nursing facilities for the nine months ending September 30, ~~2021~~2022 was ~~80.0%~~83.4% compared to ~~85.7%~~80.0% for the same period a year ago. For the three months ended September 30, 2022, overall census in our owned and leased skilled nursing facilities was 83.7% compared to 82.0% in the third quarter of 2021.

Due to the pandemic, as well as the increased ~~availability of assisted living facilities and home and community-based services,~~strain the pandemic has caused on America's healthcare labor shortage, 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.~~payors, as well as find creative initiatives to retain and attract qualified healthcare professionals. 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.

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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.

In July 2022, CMS launched its enhanced Five-Star Quality Rating System which integrates data nursing homes report on their weekend staffing rates for nurses and information on annual turnover among nurses and administrators. Through this enhancement, CMS will hold facilities to a higher standard and incentivize more robust staffing by strengthening personnel’s impact on overall star ratings.

The tables below summarize NHC's overall performance in these Five-Star ratings versus the skilled nursing industry as of September 30, ~~2021:~~2022:

NHC Ratings

Industry Ratings

Total number of skilled nursing facilities, end of period
75
Number of 4 and 5-star rated skilled nursing facilities
58
Percentage of 4 and 5-star rated skilled nursing facilities
77 % 47 %
Average rating for all skilled nursing facilities, end of period
4.08 3.21

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	NHC Ratings		Industry Ratings
Total number of skilled nursing facilities, end of period		68
Number of 4 and 5-star rated skilled nursing facilities		42
Percentage of 4 and 5-star rated skilled nursing facilities		62%		37%
Average rating for all skilled nursing facilities, end of period		3.8		2.9

Development and Growth

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

Type of

Operation

Description

Size

Location

Placed in Service

~~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~~

Hospice

Acquisition

28 ~~agencies~~offices

Various

June 2021

Homecare

New Office

1 office

Anderson, SC

January 2022

Hospice

New Office

1 office

Tullahoma, TN

March 2022

Behavioral Health Hospital

New Facility

64 beds

Knoxville, TN

April 2022

Behavioral Health Hospital

New Facility

16 beds

St. Louis, MO

~~Under Construction~~June 2022

~~Behavioral Health Hospital~~

~~New Facility~~

~~64 beds~~

~~Knoxville, TN~~

~~Under Construction~~

Accrued Risk Reserves

Our accrued professional liability and workers’ compensation reserves totaled ~~$103,824,000~~$103,710,000 at September 30, ~~2021~~2022 and are a primary area of management focus. We have set aside restricted cash and cash equivalents and marketable securities to fund our estimated professional liability and workers’ compensation liabilities.

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

Government Reimbursement Programs

Medicare – Skilled Nursing Facilities

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 reflected the commitment to shifting Medicare payments from volume to value, with the continued implementation of the patient driven payment model (“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 September 30, 2021. On April 14, 2021, Congress extended the Medicare sequestration suspension period to December 31, 2021.

~~On July~~ 29, 2021, CMS released its final rule outlining fiscal year 2022 Medicare payment rates and policy changes for skilled nursing facilities, which began October 1, 2021. The fiscal year 2022 ~~proposed~~ rule provided for an approximate 1.2% increase, or $410 million, compared to 2021 levels. The net increase ~~includes~~included a 2.7% market-basket update that ~~will be~~was offset by a 0.7% productivity adjustment and a 0.8% market-basket forecast error adjustment ~~for FY2022~~ since the difference between the projected and actual market basket for FY2020 exceeded its threshold.

In July 2022, CMS released its final rule outlining fiscal year 2023 Medicare payment rates and policy changes for skilled nursing facilities, which began on October 1, 2022. The fiscal year 2023 rule provided for an approximate 2.7% increase, or $904 million, compared to 2022 levels. The net increase includes a 3.9% market-basket increase plus a 1.5% market basket forecast error adjustment, less a 0.3% productivity adjustment and a 2.3% decrease in the FY 2023 SNF PPS rates as a result of the recalibrated parity adjustment. The recalibrated parity adjustment is a total of 4.6% and is being phased in over the next two years (2.3% annually).

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For the first nine months of ~~2021,~~2022, our average Medicare per diem rate for skilled nursing facilities increased ~~3.0%~~2.2% as compared to the same period in ~~2020.~~2021.

Medicaid – Skilled Nursing Facilities

Effective July 1, ~~2021~~2022 and for the fiscal year ~~2022,~~2023, the state of Tennessee implemented specific individual nursing facility increases. We estimate the resulting increase in revenue for the ~~2022~~2023 fiscal year will be approximately ~~$3,500,000~~$3,200,000 annually, or ~~$875,000~~$800,000 per quarter.

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Effective October 1, ~~2020~~2022 and for the fiscal year ~~2021,~~2023, the state of South Carolina implemented specific individual nursing facility ~~rate changes. The~~increases. We estimate the resulting increase in revenue for the ~~2021~~2023 fiscal year ~~was~~will be approximately ~~$3,600,000~~$3,735,000 annually, or ~~$900,000~~$934,000 per quarter.

Effective July 1, 2021 and for the fiscal year 2022, the state of Missouri implemented specific individual nursing facility increases. We estimate the resulting increase in revenue for the 2022 fiscal year will be approximately $2,000,000 annually, or $500,000 per quarter.

We have also received from many of the states in which we operate supplemental Medicaid payments to help mitigate the incremental costs resulting from the COVID-19 public health emergency. We have recorded ~~$5,053,000~~$4,736,000 and ~~$4,845,000~~$5,053,000 in net patient revenues for these supplemental Medicaid payments for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. We have recorded ~~$16,102,000~~$15,275,000 and ~~$10,378,000~~$16,102,000 in net patient revenues for these supplemental Medicaid payments for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

For the first nine months of ~~2021,~~2022, our average Medicaid per diem increased ~~7.8%~~2.3% compared to the same period in ~~2020.~~2021.

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,~~2021, 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.

~~In June 2021, CMS released its proposed~~ rule outlining fiscal year 2022 Medicare payment rates. CMS projects payments to home health agencies in fiscal year 2022 will increase in aggregate by ~~1.7%~~3.2%, or ~~$310 million, based on proposed policies. Additionally, CMS proposed plans~~$570 million. The increase reflects the effects of the home health payment update percentage of 2.6%, an estimated 0.7% increase that reflects the effects of the updated fixed-dollar loss ratio, and an estimated 0.1% decrease in payments due to ~~expand~~ the ~~Home Health Value-Based Purchasing (“HHVBP") model nationwide by~~changes in the ~~start of~~rural add-on percentages for 2022. ~~The CMS Innovation Center developed the HHVBP demonstration in an effort to create financial incentives for better quality of care.~~

~~Medicare~~ – ~~Hospice~~

In ~~July 2020,~~October 2022, CMS released its final rule outlining fiscal year ~~2021~~2023 Medicare payment rates. CMS ~~issued a rate~~projects payments to home health agencies in fiscal year 2023 will increase ~~of 2.4%~~in aggregate by 0.7%, or ~~$540 million, effective October 1, 2020.~~$125 million. The ~~hospice cap amount for~~increase reflects the ~~2021 cap year is equal to~~effects of the ~~FY 2020 cap amount updated by the FY 2021 hospice~~home health payment update percentage of ~~2.4 percent, or $30,683.93.~~4.0%, a permanent behavioral assumption adjustment resulting in a decrease of 3.5%, and an estimated 0.2% increase that reflects the effects of an update to the fixed-dollar loss ratio used in determining outlier payments.

Medicare – Hospice

In July 2021, CMS released its final rule outlining fiscal year 2022 Medicare payment rates. CMS issued a rate increase of 2.0%, or $480 million, effective October 1, 2021. The increase is the result of a 2.7% market basket increase reduced by a 0.7% productivity adjustment. The FY2022 hospice payment updates also include an update to the statutory aggregate cap amount, which limits the overall payments per patient that are made annually. The cap amount for FY2022 is ~~$31,297.61~~$31,298.

In July 2022, CMS released its final rule outlining fiscal year 2023 Medicare payment rates. CMS issued a rate increase of 3.8%, or $825 million, effective October 1, 2022. The increase is the result of a 4.1% inpatient hospital market basket increase reduced by a 0.3% productivity adjustment. The FY2023 hospice payment update also includes an update to the statutory aggregate cap amount, which limits the overall payments per patient that are made annually. The cap amount for FY2023 would be $32,487.

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Segment Reporting

~~Table of Contents~~

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 September 30, 2021										Three Months Ended September 30, 2022
	Inpatient Services		Homecare and Hospice		All Other			Total			Inpatient Services			Homecare and Hospice		All Other			Total
Revenues:
Revenues and grant income:
Net patient revenues	$	222,884	$	31,933	$	-		$	254,817		$	228,138		$	32,109	$	-		$	260,247
Other revenues		128		-		11,363			11,491			(198	)		-		10,794			10,596
Government stimulus income		10,429		-		-			10,429
Net operating revenues and grant income		233,441		31,933		11,363			276,737			227,940			32,109		10,794			270,843

Costs and expenses:
Salaries, wages, and benefits		131,567		17,592		10,146			159,305			144,047			19,581		9,570			173,198
Other operating		74,506		6,797		2,736			84,039			66,522			6,310		51			72,883
Rent		8,169		594		1,441			10,204			8,088			575		1,631			10,294
Depreciation and amortization		9,300		118		811			10,229			9,198			248		807			10,253
Interest		198		-		-			198			137			-		-			137
Total costs and expenses		223,740		25,101		15,134			263,975			227,992			26,714		12,059			266,765

Income (loss) from operations		9,701		6,832		(3,771	)		12,762
Income/(loss) from operations												(52	)		5,395		(1,265	)		4,078
Non-operating income		-		-		3,399			3,399			-			-		2,731			2,731
Unrealized losses on marketable equity securities		-		-		(23,797	)		(23,797	)		-			-		(11,056	)		(11,056	)

Income (loss) before income taxes	$	9,701	$	6,832	$	(24,169	)	$	(7,636	)
Income/(loss) before income taxes											$	(52	)	$	5,395	$	(9,590	)	$	(4,247	)

	Three Months Ended September 30, 2020										Three Months Ended September 30, 2021
	Inpatient Services		Homecare		All Other			Total			Inpatient Services		Homecare and Hospice		All Other			Total
Revenues and grant income:
Revenues:
Net patient revenues	$	214,211	$	13,172	$	-		$	227,383		$	222,884	$	31,933	$	-		$	254,817
Other revenues		84		-		11,027			11,111			128		-		11,363			11,491
Government stimulus income		12,132		-		-			12,132			10,429		-		-			10,429
Net operating revenues and grant income		226,427		13,172		11,027			250,626			233,441		31,933		11,363			276,737

Costs and expenses:
Salaries, wages, and benefits		132,245		8,210		11,109			151,564			141,318		18,771		10,146			170,235
Other operating		65,066		3,311		2,510			70,887			64,755		5,618		2,736			73,109
Rent		8,377		448		1,495			10,320			7,998		594		1,612			10,204
Depreciation and amortization		9,629		106		813			10,548			9,300		118		811			10,229
Interest		325		-		(40	)		285			198		-		-			198
Total costs and expenses		215,642		12,075		15,887			243,604			223,569		25,101		15,305			263,975

Income (loss) from operations		10,785		1,097		(4,860	)		7,022
Income/(loss) from operations												9,872		6,832		(3,942	)		12,762
Non-operating income		-		-		6,478			6,478			-		-		3,399			3,399
Unrealized losses on marketable equity securities		-		-		(241	)		(241	)		-		-		(23,797	)		(23,797	)

Income before income taxes	$	10,785	$	1,097	$	1,377		$	13,259
Income/(loss) before income taxes											$	9,872	$	6,832	$	(24,340	)	$	(7,636	)

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Nine Months Ended September 30, 2021

Inpatient
Services

Homecare
and Hospice

All Other

Total

Revenues and grant income:

Net patient revenues
$ 644,986 $ 63,662 $ - $ 708,648
Other revenues
324 - 33,592 33,916
Government stimulus income
48,304 - - 48,304
Net operating revenues and grant income
693,614 63,662 33,592 790,868

Costs and expenses:

Salaries, wages, and benefits
388,949 36,483 35,807 461,239
Other operating
204,445 13,730 8,060 226,235
Rent
24,641 1,478 4,318 30,437
Depreciation and amortization
27,790 299 2,432 30,521
Interest
657 - - 657
Total costs and expenses
646,482 51,990 50,617 749,089

Income (loss) from operations
47,132 11,672 (17,025
)
41,779
Non-operating income
- - 15,245 15,245
Gain on acquisition of equity method investment
- - 95,202 95,202
Unrealized losses on marketable equity securities
- - (23,227
)
(23,227
)

Income before income taxes
$ 47,132 $ 11,672 $ 70,195 $ 128,999

	Nine Months Ended September 30, 2020										Nine Months Ended September 30, 2022
	Inpatient Services		Homecare		All Other			Total			Inpatient Services		Homecare and Hospice		All Other			Total
Revenues and grant income:
Revenues:
Net patient revenues	$	659,585	$	37,564	$	-		$	697,149		$	680,776	$	95,885	$	-		$	776,661
Other revenues		645		-		33,818			34,463			15		-		33,569			33,584
Government stimulus income		34,754		2,026		-			36,780			10,940		-		-			10,940
Net operating revenues and grant income		694,984		39,590		33,818			768,392			691,731		95,885		33,569			821,185

Costs and expenses:
Salaries, wages, and benefits		403,840		24,490		27,617			455,947			435,322		58,007		25,499			518,828
Other operating		194,170		11,471		7,775			213,416			192,791		19,848		5,640			218,279
Rent		25,134		1,351		4,487			30,972			24,498		1,759		4,513			30,770
Depreciation and amortization		28,826		266		2,439			31,531			27,120		472		2,419			30,011
Interest		1,073		-		77			1,150			451		-		-			451
Total costs and expenses		653,043		37,578		42,395			733,016			680,182		80,086		38,071			798,339

Income (loss) from operations		41,941		2,012		(8,577	)		35,376
Income/(loss) from operations												11,549		15,799		(4,502	)		22,846
Non-operating income		-		-		18,870			18,870			-		-		8,451			8,451
Gain on acquisition of equity method investment		-		-		1,708			1,708
Unrealized losses on marketable equity securities		-		-		(40,580	)		(40,580	)		-		-		(11,479	)		(11,479	)

Income (loss) before income taxes	$	41,941	$	2,012	$	(28,579	)	$	15,374
Income/(loss) before income taxes											$	11,549	$	15,799	$	(7,530	)	$	19,818

	Nine Months Ended September 30, 2021
	Inpatient Services		Homecare and Hospice		All Other			Total
Revenues and grant income:
Net patient revenues	$	644,986	$	63,662	$	-		$	708,648
Other revenues		324		-		33,592			33,916
Government stimulus income		48,304		-		-			48,304
Net operating revenues and grant income		693,614		63,662		33,592			790,868

Costs and expenses:
Salaries, wages, and benefits		407,534		39,922		35,807			483,263
Other operating		185,860		10,291		8,060			204,211
Rent		24,129		1,478		4,830			30,437
Depreciation and amortization		27,790		299		2,432			30,521
Interest		657		-		-			657
Total costs and expenses		645,970		51,990		51,129			749,089

Income/(loss) from operations		47,644		11,672		(17,537	)		41,779
Non-operating income		-		-		15,245			15,245
Gain on acquisition of equity method investment		-		-		95,202			95,202
Unrealized losses on marketable equity securities		-		-		(23,227	)		(23,227	)

Income before income taxes	$	47,644	$	11,672	$	69,683		$	128,999

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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 or start-up operations not at full capacity, share-based compensation expense, and any gains on the acquisitions of equity method investments is helpful in allowing investors to assess the Company’s operations more accurately.

The operating results for the newly constructed healthcare facilities or agencies not at full capacity for the three and nine months ended September 30, 2022 include facilities or offices that began operations from 2020 to 2022, which is two behavioral health hospitals, one homecare agency, and one hospice agency. For the three months and nine months ended September 30, 2021, included are facilities that began operations from 2019 to 2021, which is one memory care facility.

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

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~~ and nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021.

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 and nine months ended September 30, 2021 include facilities that began operations from 2019 to 2021. For the three and nine months ended September 30, 2020, included are facilities that began operations from 2018 to 2020. For all of the 2021 and 2020 periods presented, there is one memory care facility that is included in the reconciliation.

In June 2021, the gain on the acquisition of an equity method investment is from the acquisition of Caris HealthCare, L.P. See Note 4 for additional detail describing the Caris acquisition. In February 2020, the gain on the acquisition of an equity method investment is from the acquisition of a skilled nursing facility in Knoxville, Tennessee where we owned a prior 25% non-controlling ownership interest before acquiring the remaining 75% ownership interest.

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

Three Months Ended September 30, ~~2021~~2022 Compared to Three Months Ended September 30, ~~2020~~2021

Results for the quarter ended September 30, ~~2021~~2022 compared to the third quarter of ~~2020~~2021 include a ~~10.4% increase~~2.1% decrease in net operating revenues and ~~grant~~government stimulus income. The net operating revenues and government stimulus income ~~and an 81.7% increase~~decrease was primarily driven by the reduction in government stimulus income ~~from operations.~~ of $10.4 million during the third quarter of 2022 compared to the same period a year ago. Excluding the government stimulus income, same-facility net operating revenues increased 3.8% during the third quarter of 2022 compared to the same period a year ago.

For the quarter ended September 30, ~~2021,~~2022, the GAAP net loss attributable to NHC was ~~$3,348,000~~$2,429,000 compared to a net ~~income~~loss of ~~$12,849,000~~$3,348,000 for the same period in ~~2020.~~

~~The decrease~~2021. Excluding the unrealized losses in our ~~reported GAAP~~marketable equity securities portfolio and other non-GAAP adjustments, adjusted net income for the ~~third~~ quarter ~~of 2021 is~~ended September 30, 2022 was $7,783,000 compared to $14,884,000 for the same period in 2021. The adjusted net income decrease was primarily due to the ~~unrealized losses on our marketable equity securities. Excluding~~following three items: (1) the ~~unrealized losses on our marketable equity securities and the other non-GAAP adjustments, non-GAAP net income for the three months ended September 30, 2021 was $14,884,000 compared to $13,475,000 for~~$10.4 million less Provider Relief Funds recorded during the third quarter of ~~2020, which is an increase of 10.5%.~~2022; (2) the $1.5 million negative impact on our net patient revenues from Medicare sequestration that went into effect July 1, 2022; and (3) we are incurring higher inflationary pressures on our nursing labor costs.

Net patient revenues increased ~~$27,434,000,~~$5,430,000, or ~~12.1%~~2.1%, compared to the same period last year.

The total census at owned and leased skilled nursing facilities for the quarter averaged ~~82.0%~~83.7%, compared to an average of ~~81.3%~~82.0% for the same quarter a year ago. Our census for the third quarter of 2021 increased approximately 90 basis points when compared sequentially to the census in the second quarter of 2021. Although our census continues to rebound, the trajectory of our census was slowed during the third quarter of 2021 due to the spike in delta variant cases during the period.

Overall, the composite skilled nursing facility per diem increased 2.4% compared to the same quarter a year ago. Our Medicare per diem rates increased ~~0.5%~~2.2% and managed care per diem rates ~~decreased 2.1%~~increased 6.1% compared to the same quarter a year ago. Medicaid and private pay per diem rates increased ~~6.0%~~2.7% and ~~3.4%~~3.3%, respectively, compared to the same quarter a year ago. ~~The Medicaid per diem rate increased due to the supplemental COVID-19 payments that we received from various states to help mitigate the incremental costs in fighting the pandemic.~~ For the three months ~~ending~~ended September 30, 2022 and 2021, respectively, $4,773,000 and ~~2020, respectively,~~ $5,053,000 ~~and $4,845,000~~ have been included in our net patient revenues for ~~these~~ supplemental COVID-19 Medicaid payments.

The CARES Act temporarily suspended Medicare sequestration beginning May 1, 2020 through March 31, 2022. The Medicare sequestration policy reduces fee-for-service Medicare payments by 2 percent. The full 2% reduction went back into effect July 1, 2022 and this reduced our net patient revenues approximately $1,500,000 during the third quarter of 2022 compared to the same quarter a year ago.

In ~~June 2021,~~September 2022, the Company ~~acquired~~transferred the ~~remaining ownership interest~~operations of seven skilled nursing facilities located in ~~Caris, which resulted~~Massachusetts and New Hampshire resulting in net patient revenues ~~increasing of $17,547,000~~decreasing $5,102,000 for the three months ended September 30, ~~2021~~2022 compared to the ~~third~~same quarter of 2020. Our homecare operations had an increase in net patient revenues of approximately $1,215,000 for the three months ended September 30, 2021 compared to the third quarter of 2020. In November 2020, the Company sold a skilled nursing facility located in Town & Country, Missouri. For the three months ended September 30, 2021, the sale of this facility decreased net patient revenue by $1,824,000 compared to the third quarter of 2020.last year.

Other revenues ~~increased $380,000,~~decreased $895,000, or ~~3.4%~~7.8%, compared to the same quarter last year, as further detailed in Note 65 to our interim condensed consolidated financial statements.

During the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, we recorded $0 and $10,429,000, ~~and $12,132,000~~respectively, in government stimulus income related to funds received from the CARES Act Provider Relief Fund. See Note 3 - Coronavirus Pandemic for additional information.

Total costs and expenses for the three months ended September 30, ~~2021~~2022 compared to the same period of ~~2020~~2021 increased ~~$20,371,000,~~$2,790,000, or ~~8.4%,~~1.1% to ~~$263,975,000~~$266,765,000 from ~~$243,604,000.~~$263,975,000.

Salaries, wages, and benefits increased ~~$7,741,000,~~$2,963,000, or ~~5.1%~~1.7%, to ~~$159,305,000~~$173,198,000 from ~~$151,564,000.~~$170,235,000. Salaries, wages, and benefits as a percentage of net operating revenues and grant income was ~~57.6%~~63.9% compared to ~~60.5%~~61.5% for the three months ended September 30, 2022 and 2021, ~~and 2020,~~ respectively. ~~Our Caris acquisition increased salaries, wages, and benefits $8,946,000 in the third quarter of 2021 compared to the same quarter a year ago.~~ We continue to face ~~tremendous~~ workforce and labor shortages within all of our operations, which increases wage pressure ~~and inflation~~ in regards to retaining and attracting qualified healthcare partners (employees). ~~With the~~The labor and workforce ~~environment being so challenging, the largest expense increase from a labor standpoint is~~shortages have resulted in ~~our~~us contracting with agency nurse ~~staffing. But, since~~staffing companies. The agency nurse staffing companies charge inflated hourly rates; therefore, we are working diligently to find solutions to reduce and eliminate the agency nurse staffing ~~personnel are not~~within our ~~employees (partners), this expense is categorized below~~healthcare operations.

In September 2022, the Company transferred the operations of seven skilled nursing facilities located in ~~"other operating expenses".~~ Massachusetts and New Hampshire resulting in salaries, wages, and benefits decreasing $4,587,000 for the three months ended September 30, 2022 compared to the same quarter last year.

Other operating expenses ~~increased $13,152,000,~~decreased $226,000, or ~~18.6%~~0.3%, to ~~$84,039,000~~$72,883,000 for the 2022 period compared to $73,109,000 for the 2021 ~~period compared to $70,887,000 for the 2020~~ period. Other operating expenses as a percentage of net operating revenues and grant income was ~~30.3%~~26.9% and ~~28.3%~~26.4% for the three months ended September 30, 2022 and 2021, ~~and 2020,~~ respectively. ~~Our Caris acquisition increased~~We continue to face inflationary pressures in certain categories within other operating expenses $3,698,000 in the third quarter of 2021 compared to the same quarter a year ago. As mentioned in the previous paragraph, we continue to use additional agency nurse staffing due to the challenging workforce environment. For the third quarter of 2021, our agency nurse staffing expenses increased $8,169,000 for the third quarter of 2021 compared to the same quarter a year ago.as well, such as food/dietary supplies and drugs/pharmaceutical supplies.

Non–operating income decreased by ~~$3,079,000~~$668,000 compared to the same period last year, as further detailed in Note 76 to our interim condensed consolidated financial statements. The decrease is due to our June 2021 acquisition of Caris. Therefore, from the respective acquisition date, we no longer record any equity in earnings from our Caris investment. Caris' financial information (revenues and expenses) is now included in the Company's consolidated financial statements.

The income tax benefit for the three months ended September 30, ~~2021~~2022 is ~~$4,090,000~~$1,140,000 (an effective income tax rate of ~~53.6%~~26.8%). ~~Excluding certain items, we~~We expect our corporate (federal and state) effective income tax rate for ~~2021~~2022 to be approximately 26.0%.

The noncontrolling interest in subsidiaries is presented within total equity of the Company’s consolidated balance sheets. The ~~company~~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.

Nine Months Ended September 30, ~~2021~~2022 Compared to Nine Months Ended September 30, ~~2020~~2021

Results for the nine months ended September 30, ~~2021~~2022 compared to the ~~first nine months~~same period of ~~2020~~2021 include a ~~2.9%~~3.8% increase in net operating revenues and grant income. The net operating revenues and grant income increase is primarily driven by the June 2021 acquisition of Caris hospice and ~~a 18.1%~~the continued occupancy increase in our skilled nursing facilities. But, these increases were offset by the reduction in government stimulus income ~~from operations.~~ of $37.4 million for the first nine months of 2022 compared to the same period a year ago.

For the nine months ended September 30, ~~2021,~~2022, GAAP net income attributable to NHC was ~~$122,802,000~~$16,092,000 compared to ~~$14,321,000~~net income of $122,802,000 for the same period in ~~2020.~~

2021. The large increase in our reported GAAP net income for the 2021 nine-month period ~~compared to the same period in 2020 is~~was primarily due to the $95.2 million gain recorded from the acquisition of ~~Caris, a hospice provider.~~Caris. Excluding the gain on ~~the~~ Caris, ~~acquisition,~~ as well as excluding the unrealized gains and losses in our marketable equity securities portfolio and ~~the~~ other non-GAAP adjustments, ~~non-GAAP~~adjusted net income for the nine months ended September 30, ~~2021~~2022 was ~~$46,843,000~~$29,036,000 compared to ~~$44,721,000~~$46,843,000 for the ~~first nine months~~same period in 2021. The decrease in adjusted net income for the nine-month period of ~~2020, which~~2022 compared to the same period of 2021 is ~~an increase~~primarily due to the $37.4 million less government stimulus income recorded during the 2022 period. We also continue to incur inflationary wage pressures within all areas of ~~4.7%.~~our operations.

Net patient revenues increased ~~$11,499,000,~~$68,013,000, or ~~1.6%~~9.6%, compared to the same period last year.

The total census at owned and leased skilled nursing facilities for the ~~nine months~~nine-month period averaged ~~80.0%~~83.4%, compared to an average of ~~85.7%~~80.0% for the same period a year ago. With the COVID-19 cases significantly declining during the first and second quarters of 2021, the census in our skilled nursing facilities began to increase. Although our census continued to increase in the third quarter of 2021, the trajectory of our census was slowed during the third quarter of 2021 due to the spike in delta variant cases during the period. The delta variant spike during the third quarter of 2021 timeframe was the second highest number of positive COVID cases across the country since the beginning of the pandemic (December 2020/January 2021 peak was the highest).

Overall, the composite skilled nursing facility per diem ~~at our owned and leased skilled nursing facilities~~ increased ~~5.5%~~1.6% compared to the same period a year ago. Our Medicare per diem rates increased ~~3.0%~~2.2% and managed care per diem rates increased ~~0.2%~~4.7% compared to the ~~same~~nine-month period a year ago. Medicaid and private pay per diem rates increased ~~7.8%~~2.3% and ~~1.9%~~5.6%, respectively, compared to the same period a year ago. ~~The Medicaid per diem rate increased due to the supplemental COVID-19 payments that we received from various states to help mitigate the incremental costs in fighting the pandemic.~~ For the nine months ~~ending~~ended September 30, 2022 and 2021, $15,312,000 and ~~2020,~~$16,102,000, respectively, ~~$16,102,000 and $10,378,000~~ have been included in our net patient revenues for ~~these~~ supplemental COVID-19 Medicaid ~~payments~~payments.

In June 2021, the Company acquired the remaining ownership interest in Caris, which resulted in net patient revenues increasing ~~$21,259,000~~$32,114,000 for the nine months ended September 30, ~~2021~~2022 compared to the same period ~~a year ago. Our homecare~~of 2021. In September 2022, the Company transferred the operations ~~had an increase~~of seven skilled nursing facilities located in Massachusetts and New Hampshire resulting in net patient revenues ~~of approximately $4,839,000~~decreasing $2,375,000 for the nine months ended September 30, ~~2021,~~2022 compared to the same ~~period a year ago. In November 2020, the Company sold a skilled nursing facility located in Town & Country, Missouri. For the nine months ended September 30, 2021, the sale~~quarter last year.

Other revenues decreased ~~$547,000,~~$332,000, or ~~1.6%~~1.0%, compared to the same period last year, as further detailed in Note 65 to our interim condensed consolidated financial statements.

During the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, we recorded ~~$48,304,000~~$10,940,000 and ~~$36,780,000~~$48,304,000 in government stimulus income related to funds received from the CARES Act Provider Relief Fund. See Note 3 - Coronavirus Pandemic for additional information.

Total costs and expenses for the nine months ended September 30, ~~2021~~2022 compared to the same period of ~~2020~~2021 increased ~~$16,073,000,~~$49,250,000, or ~~2.2%,~~6.6% to ~~$749,089,000~~$798,339,000 from ~~$733,016,000.~~$749,089,000.

Salaries, wages, and benefits increased ~~$5,292,000,~~$35,565,000, or ~~1.2%~~7.4%, to ~~$461,239,000~~$518,828,000 from ~~$455,947,000.~~$483,263,000. Salaries, wages, and benefits as a percentage of net operating revenues and grant income was ~~58.3%~~63.2% compared to ~~59.3%~~61.1% for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Our Caris acquisition ~~in June 2021~~ increased salaries, wages, and benefits $10,851,000 for the nine month period ended September 30, 2021 compared to the nine-month period a year ago. With the COVID-19 cases declining during the first nine months of 2021, the COVID-related incentive pay (or combat pay) was significantly reduced for$18,962,000 in the nine-month period of ~~2021~~2022 compared to the same period a year ~~ago ($5,527,000).~~ago. We continue to face ~~tremendous~~ workforce and labor shortages within all of our operations, which increases wage pressure ~~and inflation~~ in regards to retaining and attracting qualified healthcare partners (employees). ~~With the~~The labor and workforce ~~environment being so challenging, the largest expense increase from a labor standpoint is~~challenges have resulted in ~~our~~us contracting with agency nurse ~~staffing. But, since~~staffing companies. The agency nurse staffing companies charge inflated hourly rates; therefore, we are working diligently to find solutions to reduce and eliminate the agency nurse staffing ~~personnel are not~~within our ~~employees (partners), this expense is categorized below~~healthcare operations.

In September 2022, the Company transferred the operations of seven skilled nursing facilities located in ~~"other operating expenses".~~ Massachusetts and New Hampshire resulting in salaries, wages, and benefits decreasing $5,150,000 for the nine months ended September 30, 2022 compared to the same period last year.

Other operating expenses increased ~~$12,819,000,~~$14,068,000, or ~~6.0%~~6.9%, to ~~$226,235,000~~$218,279,000 for the 2022 period compared to $204,211,000 for the 2021 ~~period compared to $213,416,000 for the 2020~~ period. Other operating expenses as a percentage of net operating revenues and grant income was ~~28.6%~~26.6% and ~~27.8%~~25.8% for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Our Caris acquisition increased other operating expenses ~~$4,469,000~~$9,601,000 in the ~~nine-month period~~first nine months of ~~2021~~2022 compared to the same period a year ago. ~~As mentioned in the previous paragraph, we~~We continue to ~~use additional agency nurse staffing due to the challenging workforce environment. For the nine months ending September 30, 2021, our agency nurse staffing~~face inflationary pressures in certain categories within other operating expenses increased $13,127,000 for the nine-month period of 2021 compared to the same period a year ago. With the COVID-19 cases declining during the first nine months of 2021, the expense for personal protective equipment, testing,as well, such as food/dietary supplies and ~~other COVID-related medical supplies has decreased $5,421,000 when compared to the same period a year ago.~~drugs/pharmaceutical supplies.

Non–operating income decreased by ~~$3,625,000~~$6,794,000 compared to the same period last year, as further detailed in Note 76 to our interim condensed consolidated financial statements. The large decrease in our non-operating income is due to ~~our~~the June 2021 acquisition of Caris. ~~Therefore, from~~Prior to the June 2021 acquisition date, Caris was our most significant equity method investment with a 75.1% non-controlling ownership interest. From the respective acquisition date, ~~we no longer record any equity in earnings from our Caris investment. Caris'~~Caris’ financial information ~~(revenues and expenses)~~ is now included in the ~~Company's~~Company’s consolidated financial ~~statements.~~

~~Gain on acquisition of~~statements and is no longer accounted for as an equity method ~~investments~~investment.

In June 2021, a gain of $95,202,000 was recorded on the acquisition of the remaining ownership interest of Caris. We previously held a noncontrolling interest in the partnership. See Note 4 for additional detail describing the Caris acquisition.

In February 2020, a gain of $1,708,000 was recorded on the acquisition of the remaining ownership interest of a 166-bed skilled nursing facility in Knoxville, Tennessee. We previously held a noncontrolling interest in the facility. Upon acquiring the remaining ownership interest, we valued the business and our previously held equity position based upon the facility’s fair value.

The income tax provision for the nine months ended September 30, ~~2021~~2022 is ~~$5,907,000~~$5,415,000 (an effective income tax rate of ~~4.6%~~27.3%). ~~The $95.2 million gain from the Caris acquisition is a mostly a non-taxable event and is the primary driver of our effective tax rate being lower than expected. Excluding certain items, we~~We expect our corporate (federal and state) effective income tax rate for ~~2021~~2022 to be approximately 26.0%.

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):

Net cash ~~provided by~~used in operating activities for the nine months ended September 30, ~~2021~~2022 was ~~$46,871,000~~$3,192,000 as compared to ~~$183,900,000~~cash provided by operating activities of $46,871,000 in the same period last year. Cash ~~provided by~~used in operating activities consisted of net income of ~~$123,092,000~~$14,403,000 and adjustments for non–cash items of ~~$51,238,000.~~$44,221,000. There was cash used for working capital needs in the amount of ~~$31,297,000~~$63,011,000 for the nine months ended September 30, ~~2021~~2022 compared to ~~cash provided by working capital needs in the amount $106,053,000~~$31,297,000 for the same period a year ago. The large swings in working capital between the 2021 and 2020 nine-month periods are primarily from the liquidity that we received from the CARES Act/Provider Relief Fund payments and the Medicare Accelerated Payment Program in 2020. For the nine-month period in 2021, the government began recouping the Medicare Accelerated Payments in April 2021, as well as us receiving substantially less funding from the Provider Relief Fund in 2021. We also received cash distributions from our unconsolidated investments of ~~$6,314,000~~$439,000 during the nine months ended September 30, ~~2021,~~2022, compared to ~~$10,050,000~~$6,314,000 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 losses on our marketable equity securities, deferred taxes, and stock ~~compensation, and gains on the acquisitions of equity method investments.~~compensation.

Net cash used in investing activities totaled $8,810,000 for the nine months ended September 30, 2022, compared to $52,837,000 for the nine months ended September 30, ~~2021 compared to $15,273,000 for the nine months ended September 30, 2020.~~2021. Cash used for property and equipment additions was ~~$25,774,000~~$24,563,000 and ~~$17,717,000~~$25,774,000 for the nine months ended September 30, 2022, and 2021, ~~and 2020,~~ respectively. ~~The acquisition~~In the prior period, we used cash of ~~Caris~~$28,713,000 to acquire Caris. Proceeds from the sale of marketable securities, net of purchases, resulted in cash ~~used~~provided by investing activity of ~~$28,713,000~~$9,397,000 for the nine months ended September 30, ~~2021.~~2022. The Company also collected notes receivable of ~~$8,620,000~~$4,181,000 and ~~$1,572,000~~received proceeds from the sale of property and equipment of $4,175,000 for the nine months ended September 30, 2021 and 2020, respectively. Purchases of marketable securities, net of proceeds from sales, resulted in cash used of $6,620,000 for the nine months ended September 30, 2021 compared to proceeds from sales of marketable securities, net of purchases, resulting in positive cash flow of $8,250,000 for the nine months ended September 30, 2020.2022.

Net cash used in financing activities totaled $35,541,000 for the nine months ended September 30, 2022 compared to $25,769,000 for the nine months ended September 30, ~~2021 compared to net cash used in financing activities of $33,519,000 for the nine months ended September 30, 2020.~~2021. We made principal payments under our finance lease obligations in the amount of ~~$3,292,000~~$3,495,000 and ~~$3,101,000~~$3,292,000 for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Cash used for dividend payments to common stockholders totaled ~~$24,010,000~~$25,830,000 in the current year period compared to ~~$23,935,000~~$24,010,000 for the same period a year ago. We repurchased common shares outstanding in the amount of $6,907,000 in the current year period compared to $278,000 for the same period a year ago.

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 ~~$112,462,000~~$44,515,000 and our marketable equity and debt securities of ~~$142,483,000~~$132,214,000 are expected to be adequate to meet our contractual obligations, operating liquidity, and our growth and development plans in the next twelve months.

We expect to meet our long-term liquidity requirements primarily from our cash flows from operating activities, our current cash on hand of ~~$112,462,000~~$44,515,000 and our marketable equity and debt securities of ~~$142,483,000.~~$132,214,000. We also have substantial value in our unencumbered real estate assets which could potentially be used as collateral in future borrowing opportunities. At September 30, ~~2021,~~2022, 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.

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.

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.~~equivalents. The Company's senior management has established comprehensive risk management policies and procedures to manage these market risks.

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 September 30, ~~2021,~~2022, we have available for sale marketable debt securities in the amount of ~~$174,121,000.~~$148,431,000. 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 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.

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 September 30, ~~2021,~~2022, the fair value of our marketable equity securities is approximately ~~$130,413,000.~~$127,996,000. Of the ~~$130.4~~$128.0 million equity securities portfolio, our investment in NHI comprises approximately ~~$87.2~~$92.2 million, or ~~66.9%~~72.0%, 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 ~~$13.0~~$12.8 million. At September 30, ~~2021,~~2022, our equity securities had net unrealized gains of ~~$75.1~~$73.0 million. Of the ~~$75.1~~$73.0 million of unrealized gains, ~~$62.5~~$67.4 million is related to our investment in NHI.

As of September 30, ~~2021,~~2022, 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 September 30, ~~2021.~~2022.

For a discussion of prior, current, and pending litigation of material significance to NHC, please see Note 1716 of this Form 10–Q.

During the nine months ended September 30, ~~2021,~~2022, 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.~~

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.

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, ~~2021~~2022
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ~~_____~~ to ~~____________~~

Commission file number 001-13489



(Exact name of registrant as specified in its Charter)

Delaware	52-2057472
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization	Identification No.)

100 E. Vine Street
Murfreesboro, TN 37130
(Address of principal executive offices)
(Zip Code)

(615) 890–2020
Registrant's telephone number, including area code

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

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 ☐

PART I. FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements	3

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27 25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40 37

Item 4.	Controls and Procedures	41 37

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	4138

Item 1A	Risk Factors	41 38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41 38

Item 3.	Defaults Upon Senior Securities	41 38

Item 4.	Mine Safety Disclosures	42 38

Item 5.	Other Information	42 38

Item 6.	Exhibits	42 39

	Three Months Ended September 30						Nine Months Ended September 30						Three Months Ended September 30						Nine Months Ended September 30
	2021			2020			2021			2020			2022			2021			2022			2021

Net income/(loss)	$	(3,546	)	$	12,868		$	123,092		$	14,574		$	(3,107	)	$	(3,546	)	$	14,403		$	123,092

Other comprehensive income/(loss):
Unrealized gains/(losses) on investments in marketable debt securities		(658	)		632			(2,691	)		2,883
Other comprehensive loss:
Unrealized losses on investments in marketable debt securities														(3,979	)		(658	)		(13,985	)		(2,691	)
Reclassification adjustment for realized gains on sales of marketable debt securities		(2	)		(122	)		(214	)		(135	)		-			(2	)		(122	)		(214	)
Income tax (expense)/benefit related to items of other comprehensive income		138			(107	)		614			(577	)
Other comprehensive income/(loss), net of tax		(522	)		403			(2,291	)		2,171
Income tax benefit related to items of other comprehensive income														539			138			2,079			614
Other comprehensive loss, net of tax														(3,440	)		(522	)		(12,028	)		(2,291	)

Net (income)/loss attributable to noncontrolling interest		198			(19	)		(290	)		(253	)		678			198			1,689			(290	)

Comprehensive income/(loss) attributable to National HealthCare Corporation	$	(3,870	)	$	13,252		$	120,511		$	16,492		$	(5,869	)	$	(3,870	)	$	4,064		$	120,511

	Sept. 30, 2021			December 31, 2020			September 30, 2022			December 31, 2021
	unaudited						unaudited
Assets
Current Assets:
Cash and cash equivalents	$	112,462		$	147,093		$	44,515		$	107,607
Restricted cash and cash equivalents, current portion		12,506			9,673			25,838			10,407
Marketable equity securities		105,893			128,590			107,655			113,108
Marketable debt securities		36,590			47,762			24,559			35,310
Restricted marketable equity securities		24,520			4,680			20,341			26,958
Restricted marketable debt securities, current portion		18,794			16,601			5,014			20,727
Accounts receivable		99,019			89,670			99,003			96,124
Inventories		8,696			8,781			7,298			8,582
Prepaid expenses and other assets		5,450			2,977			10,306			7,815
Notes receivable, current portion		899			928
Total current assets		424,829			456,755			344,529			426,638

Property and Equipment:
Property and equipment, at cost		1,062,620			1,030,426			1,076,116			1,064,337
Accumulated depreciation and amortization		(540,601	)		(510,108	)		(564,743	)		(543,341	)
Net property and equipment		522,019			520,318			511,373			520,996

Other Assets:
Restricted cash and cash equivalents, less current portion		1,799			1,736			1,847			1,729
Restricted marketable debt securities, less current portion		118,737			125,472			118,858			116,063
Deposits and other assets		4,798			4,580			13,039			4,499
Operating lease right-of-use assets		162,550			179,055			126,499			156,116
Goodwill		168,295			21,341			168,295			168,295
Intangible assets		7,038			0			7,038			7,038
Notes receivable, less current portion		3,502			12,093
Notes receivable								2,000			-
Investments in unconsolidated companies		2,231			40,782			2,081			2,022
Total other assets		468,950			385,059			439,657			455,762
Total assets	$	1,415,798		$	1,362,132		$	1,295,559		$	1,403,396

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

Net income		–			–		–			104,883			–			447			105,330
Contributions attributable to noncontrolling interest		–			–		–			–			–			2,840			2,840
Other comprehensive income		–			–		–			–			153			–			153
Stock–based compensation		–			–		683			–			–			–			683
Shares sold – options exercised		33,100			–		2,078			–			–			–			2,078
Dividends declared to common stockholders ($0.52 per share)		–			–		–			(8,020	)		–			–			(8,020	)
Balance at June 30, 2021		15,423,240		$	154	$	230,248		$	673,151		$	3,288		$	6,411		$	913,252

Net loss		–			0		0			(3,348	)		0			(198	)		(3,546	)
Other comprehensive loss		–			0		0			0			(522	)		0			(522	)
Stock–based compensation		–			0		726			0			0			0			726
Dividends declared to common stockholders ($0.52 per share)		–			0		0			(8,020	)		0			0			(8,020	)
Balance at September 30, 2021		15,423,240		$	154	$	230,974		$	661,783		$	2,766		$	6,213		$	901,890

	Amount
Cash and cash equivalents	$	15,515
Restricted cash and cash equivalents		58
Accounts receivable		10,544
Prepaid expenses and other assets		1,006
Property and equipment		3,608
Operating lease – right-of-use assets		2,122
Intangible assets		7,038
Total assets acquired		39,891

Trade accounts payable		3,459
Accrued payroll		3,223
Other current liabilities		587
Operating lease liabilities		2,122
Other noncurrent liabilities		58
Total liabilities assumed		9,449

Net identifiable assets acquired		30,442
Goodwill		146,954
Total estimated fair value of the acquisition	$	177,396

Balance at December 31, 2020	$	51,253
Balance at December 31, 2021				$	15,022
Payments received		0			-
Payments recouped		(24,240	)		(14,884	)
Balance at September 30, 2021	$	27,013
Balance at September 30, 2022				$	138

	Finance Leases			Operating Leases			Finance Leases			Operating Leases
2022	$	5,200		$	36,086
2023		5,200			35,416		$	5,200		$	35,950
2024		2,167			34,943			2,167			34,353
2025		0			34,586			-			33,278
2026		0			34,387			-			32,613
2027								-			8,148
Thereafter		0			14,300			-			-
Total minimum lease payments		12,567			189,718			7,367			144,342
Less: amounts representing interest		(896	)		(27,168	)		(322	)		(17,843	)
Present value of future minimum lease payments		11,671			162,550			7,045			126,499
Less: current portion		(4,626	)		(27,289	)		(4,911	)		(28,611	)
Noncurrent lease liabilities	$	7,045		$	135,261		$	2,134		$	97,888

	September 30, 2021				December 31, 2020				September 30, 2022				December 31, 2021
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Investments available for sale:
Marketable equity securities	$	30,176	$	105,893	$	30,176	$	128,590	$	30,176	$	107,655	$	30,176	$	113,108
Corporate debt securities		20,005		19,905		25,812		25,778		15,457		14,912		19,038		18,843
Asset-backed securities		2,467		2,456		2,485		2,480		501		490		1,481		1,469
U.S. Treasury securities		14,251		14,229		19,519		19,504		9,464		9,157		15,082		14,998
Restricted investments available for sale:
Marketable equity securities		25,153		24,520		4,783		4,680		24,851		20,341		25,442		26,958
Corporate debt securities		64,796		67,786		61,709		66,247		60,262		56,273		60,816		62,936
Asset-based securities		33,804		34,512		40,655		41,769		26,855		24,746		32,918		33,301
U.S. Treasury securities		26,067		25,736		20,760		21,159		43,083		38,149		33,052		32,630
State and municipal securities		9,239		9,497		12,497		12,898		4,908		4,704		7,700		7,923
	$	225,958	$	304,534	$	218,396		323,105	$	215,557	$	276,427	$	225,705		312,166

	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.

	Fair Value Measurements Using								Fair Value Measurements Using
September 30, 2021	Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2022									Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	112,462	$	112,462	$	0	$	–	$	44,515	$	44,515	$	–	$	–
Restricted cash and cash equivalents		14,305		14,305		0		–		27,685		27,685		–		–
Marketable equity securities		130,413		130,413		0		–		127,996		127,996		–		–
Corporate debt securities		87,691		45,640		42,051		–		71,185		36,516		34,669		–
Mortgage–backed securities		36,968		0		36,968		–		25,236		–		25,236		–
U.S. Treasury securities		39,965		39,965		0		–		47,306		47,306		–		–
State and municipal securities		9,497		0		9,497		–		4,704		–		4,704		–
Total financial assets	$	431,301	$	342,785	$	88,516	$	–	$	348,627	$	284,018	$	64,609	$	–

	September 30, 2021			December 31, 2020			September 30, 2022			December 31, 2021
Risk–free interest rate		0.21	%		0.87	%		1.84	%		0.21	%
Expected volatility		35.1	%		20.1	%		31.46	%		34.90	%
Expected life, in years		2.2			2.2			2.9			2.2
Expected dividend yield		3.01	%		2.91	%		3.57	%		3.00	%

	Number of Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value		Number of Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value
Options outstanding at January 1, 2020		809,529		$	71.24	$	–
Options outstanding at January 1, 2021									866,956		$	72.11	$	–
Options granted		104,057			73.98		–		55,706			70.80		–
Options exercised		(43,630	)		63.37		–		(541,736	)		71.39		–
Options cancelled		(3,000	)		72.94		–		(6,000	)		72.94		–
Options outstanding at December 31, 2020		866,956			72.11		–
Options outstanding at December 31, 2021									374,926			72.95		–
Options granted		56,795			70.73		–		301,386			65.02		–
Options exercised		(148,900	)		68.41		–		(18,954	)		66.91		–
Options cancelled		(6,000	)		72.94		–		(196,051	)		76.19		–
Options outstanding at September 30, 2021		768,851		$	72.72	$	656,425
Options outstanding at September 30, 2022									461,307			66.63	$	44,582

Options exercisable at September 30, 2021		177,686		$	69.38	$	587,578
Options exercisable at September 30, 2022									159,921			69.68	$	44,582

Options Outstanding September 30, 2021	Exercise Prices			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years
103,775	60.73	-	67.28		63.65		2.3
665,076	71.64	-	84.30		74.14		0.9
768,851					72.72		1.0

	September 30, 2021				December 31, 2020				September 30, 2022				December 31, 2021
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
Maturities:
Within 1 year	$	34,690	$	34,792	$	49,694	$	49,863	$	39,584	$	38,955	$	32,718	$	32,843
1 to 5 years		97,382		99,947		99,143		103,002		78,047		72,953		95,293		96,937
6 to 10 years		38,060		38,901		34,326		36,685		42,899		36,523		41,580		41,835
Over 10 years		497		481		274		285		-		-		496		485
	$	170,629	$	174,121	$	183,437	$	189,835	$	160,530	$	148,431	$	170,087	$	172,100

Options Outstanding September 30, 2022	Exercise Prices				Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years
372,912		61.90	-	69.19		64.72		3.8
88,395		71.64	-	77.92		74.72		2.6
461,307						66.63		3.6

	Nine Months Ended September 31						Nine Month Change						Nine Months Ended September 31						Nine Month Change
	2021			2020			$			%			2022			2021			$			%
Cash, cash equivalents, restricted cash, and restricted cash equivalents, at beginning of period	$	158,502		$	61,010		$	97,492			159.8		$	119,743		$	158,502		$	(38,759	)		(24.5	)

Cash provided by operating activities		46,871			183,900			(137,029	)		(74.5	)
Cash (used in)/provided by operating activities														(3,192	)		46,871			(50,063	)		(106.8	)

Cash used in investing activities		(52,837	)		(15,273	)		(37,564	)		(246.0	)		(8,810	)		(52,837	)		44,027			83.3

Cash used in financing activities		(25,769	)		(33,519	)		7,750			23.1			(35,541	)		(25,769	)		(9,772	)		(37.9	)

Cash, cash equivalents, restricted cash, and restricted cash equivalents, at end of period	$	126,767		$	196,118		$	(69,351	)		(35.4	)	$	72,200		$	126,767		$	(54,567	)		(43.0	)

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.)

10.1		Amendment No. 9 to Master Agreement to Lease between National Health Investors, Inc. and National HealthCare Corporation

10.2		Amendment No. 10 to Master Agreement to Lease between National Health Investors, Inc. and National HealthCare Corporation

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)

	NATIONAL HEALTHCARE CORPORATION
	(Registrant)

Date: November ~~4, 2021~~3, 2022	/s/ Stephen F. Flatt
	Stephen F. Flatt
	Chief Executive Officer


Date: November ~~4, 2021~~3, 2022	/s/ Brian F. Kidd
	Brian F. Kidd
	Senior Vice President and Controller
	(Principal Accounting Officer)