UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended ~~March 31,~~June 30, 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:

Title of each class

Trading

Symbols(s)

Name of each exchange on which

registered

Common, $0.01 par value

NHC

NYSE American

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

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

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

Non–accelerated filer ☐	Smaller reporting company ☐

	Emerging growth company ☐

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

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

~~15,471,431~~15,487,885 shares of common stock of the registrant were outstanding as of ~~May~~August 1, 2022.

Table of Contents

		Three Months Ended March 31							Three Months Ended June 30						Six Months Ended June 30
		2022			2021				2022			2021			2022			2021

Revenues:
Revenues and grant income:
Net patient revenues		$	256,337		$	216,855			$	260,077		$	236,976		$	516,414		$	453,831
Other revenues			12,026			11,369				10,962			11,056			22,988			22,425
Government stimulus income			10,620			22,749				320			15,126			10,940			37,875
Net operating revenues and grant income			278,983			250,973				271,359			263,158			550,342			514,131

Cost and expenses:
Salaries, wages, and benefits			170,694			149,159				174,936			163,868			345,630			313,025
Other operating			74,085			66,124				71,311			64,979			145,396			131,105
Facility rent			10,065			10,063				10,411			10,170			20,476			20,233
Depreciation and amortization			9,757			10,161				10,001			10,131			19,758			20,292
Interest			165			244				149			215			314			459
Total costs and expenses			264,766			235,751				266,808			249,363			531,574			485,114

Income from operations			14,217			15,222				4,551			13,795			18,768			29,017

Other income:
Non–operating income			3,199			6,260				2,521			5,586			5,720			11,846
Unrealized gains on marketable equity securities			3,126			7,059
Gain on acquisition of equity method investment										0			95,202			0			95,202
Unrealized gains/(losses) on marketable equity securities										(3,549	)		(6,489	)		(423	)		570

Income before income taxes			20,542			28,541				3,523			108,094			24,065			136,635
Income tax provision			(5,193	)		(7,233	)			(1,362	)		(2,764	)		(6,555	)		(9,997	)
Net income			15,349			21,308				2,161			105,330			17,510			126,638
Net income attributable to noncontrolling interest			(31	)		(41	)
Net (income)/loss attributable to noncontrolling interest										1,042			(447	)		1,011			(488	)

Net income attributable to National HealthCare Corporation		$	15,318		$	21,267			$	3,203		$	104,883		$	18,521		$	126,150

Earnings per share attributable to National HealthCare Corporation stockholders:
Basic		$	0.99		$	1.39			$	0.21		$	6.83		$	1.20		$	8.22
Diluted		$	0.99		$	1.38			$	0.21		$	6.80		$	1.20		$	8.19

Weighted average common shares outstanding:	Weighted average common shares outstanding:							Weighted average common shares outstanding:
Basic			15,416,836			15,327,520				15,452,402			15,349,162			15,434,718			15,338,400
Diluted			15,463,855			15,390,076				15,487,123			15,419,012			15,475,553			15,404,634

Dividends declared per common share		$	0.55		$	0.52			$	0.57		$	0.52		$	1.12		$	1.04

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

Three Months Ended
March 31

2022

2021

Net income
$ 15,349 $ 21,308

Other comprehensive loss:

Unrealized losses on investments in marketable debt securities
(6,327
)
(2,440
)
Reclassification adjustment for realized gains on sales of marketable debt securities
(107
)
0
Income tax benefit related to items of other comprehensive income
1,374 518
Other comprehensive loss, net of tax
(5,060
)
(1,922
)

Net income attributable to noncontrolling interest
(31
)
(41
)

Comprehensive income attributable to National HealthCare Corporation
$ 10,258 $ 19,345

	Three Months Ended June 30						Six Months Ended June 30
	2022			2021			2022			2021

Net income attributable to National Healthcare Corporation	$	3,203		$	104,883		$	18,521		$	126,150

Other comprehensive income/(loss):
Unrealized gains/(losses) on investments in marketable debt securities		(3,679	)		407			(10,006	)		(2,033	)
Reclassification adjustment for realized gains on sales of marketable debt securities		(15	)		(212	)		(122	)		(212	)
Income tax (expense)/benefit related to items of other comprehensive income		166			(42	)		1,540			476
Other comprehensive income/(loss), net of tax		(3,528	)		153			(8,588	)		(1,769	)

Comprehensive income/(loss) attributable to National HealthCare Corporation	$	(325	)	$	105,036		$	9,933		$	124,381

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

	March 31, 2022			December 31, 2021			June 30, 2022			December 31, 2021
	unaudited						unaudited
Assets
Current Assets:
Cash and cash equivalents	$	56,993		$	107,607		$	75,798		$	107,607
Restricted cash and cash equivalents, current portion		17,187			10,407			13,939			10,407
Marketable equity securities		118,048			113,108			117,917			113,108
Marketable debt securities		30,987			35,310			26,116			35,310
Restricted marketable equity securities		25,249			26,958			21,446			26,958
Restricted marketable debt securities, current portion		13,703			20,727			17,130			20,727
Accounts receivable		101,748			96,124			100,415			96,124
Inventories		8,586			8,582			7,363			8,582
Prepaid expenses and other assets		11,519			7,815			14,657			7,815
Total current assets		384,020			426,638			394,781			426,638

Property and Equipment:
Property and equipment, at cost		1,073,293			1,064,337			1,076,974			1,064,337
Accumulated depreciation and amortization		(553,092	)		(543,341	)		(561,203	)		(543,341	)
Net property and equipment		520,201			520,996			515,771			520,996

Other Assets:
Restricted cash and cash equivalents, less current portion		1,736			1,729			1,831			1,729
Restricted marketable debt securities, less current portion		118,098			116,063			112,725			116,063
Deposits and other assets		4,956			4,499			4,140			4,499
Operating lease right-of-use assets		150,191			156,116			143,841			156,116
Goodwill		168,295			168,295			168,295			168,295
Intangible assets		7,038			7,038			7,038			7,038
Investments in unconsolidated companies		2,476			2,022			2,047			2,022
Total other assets		452,790			455,762			439,917			455,762
Total assets	$	1,357,011		$	1,403,396		$	1,350,469		$	1,403,396

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

	March 31, 2022			December 31, 2021		June 30, 2022			December 31, 2021
	unaudited					unaudited
Liabilities and Stockholders’ Equity
Current Liabilities:
Trade accounts payable	$	25,842		$	22,488	$	26,140		$	22,488
Finance lease obligations, current portion		4,766			4,695		4,838			4,695
Operating lease liabilities, current portion		28,005			27,574		28,358			27,574
Accrued payroll		73,877			106,698		85,661			106,698
Amounts due to third party payors		17,319			17,595		18,019			17,595
Accrued risk reserves, current portion		30,890			31,134		31,069			31,134
Other current liabilities		21,760			20,059		20,350			20,059
Provider relief funds		516			9,443		516			9,443
Contract liabilities		5,003			15,022		586			15,022
Dividends payable		8,509			8,493		8,828			8,493
Total current liabilities		216,487			263,201		224,365			263,201

Finance lease obligations, less current portion		4,627			5,845		3,390			5,845
Operating lease liabilities, less current portion		122,186			128,542		115,483			128,542
Accrued risk reserves, less current portion		70,523			66,914		71,594			66,914
Refundable entrance fees		6,097			7,011		6,304			7,011
Deferred income taxes		8,078			6,852		9,278			6,852
Other noncurrent liabilities		17,957			16,571		17,445			16,571
Total liabilities		445,955			494,936		447,859			494,936

Equity:
Common stock, $.01 par value; 45,000,000 shares authorized; 15,471,331 and 15,452,033 shares, respectively, issued and outstanding		154			154
Common stock, $.01 par value; 45,000,000 shares authorized; 15,487,885 and 15,452,033 shares, respectively, issued and outstanding							154			154
Capital in excess of par value		232,733			232,167		234,482			232,167
Retained earnings		675,887			669,078		670,262			669,078
Accumulated other comprehensive income (loss)		(3,455	)		1,605
Accumulated other comprehensive income/(loss)							(6,983	)		1,605
Total National HealthCare Corporation stockholders’ equity		905,319			903,004		897,915			903,004
Noncontrolling interest		5,737			5,456		4,695			5,456
Total equity		911,056			908,460		902,610			908,460
Total liabilities and equity	$	1,357,011		$	1,403,396	$	1,350,469		$	1,403,396

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

	Three Months Ended March 31						Six Months Ended June 30
	2022			2021			2022			2021
Cash Flows From Operating Activities:
Net income	$	15,349		$	21,308		$	17,510		$	126,638
Adjustments to reconcile net income to net cash (used in)/provided by operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,757			10,161			19,758			20,292
Equity in earnings of unconsolidated investments		(454	)		(2,911	)		(464	)		(5,306	)
Distributions from unconsolidated investments		0			5,897			439			6,314
Unrealized gains on marketable equity securities		(3,126	)		(7,059	)
Gains on sale of marketable securities		(45	)		0
Unrealized (gains)/losses on marketable equity securities								423			(570	)
(Gains)/losses on sale of marketable securities								364			(212	)
Gain on acquisition of equity method investment								0			(95,202	)
Deferred income taxes		2,600			1,596			3,966			(140	)
Stock–based compensation		712			496			1,341			1,179
Changes in operating assets and liabilities:
Accounts receivable		(5,624	)		(4,622	)		(4,291	)		2,402
Inventories		(4	)		664			1,219			842
Prepaid expenses and other assets		(4,385	)		(601	)		(6,936	)		(2,278	)
Trade accounts payable		3,354			(4,999	)		3,652			(2,325	)
Accrued payroll		(32,821	)		(21,777	)		(21,037	)		3,858
Amounts due to third party payors		(276	)		(880	)		424			(15	)
Accrued risk reserves		3,365			1,945			4,615			2,313
Provider relief funds		(8,927	)		7,442			(8,927	)		(5,639	)
Contract liabilities		(10,019	)		0			(14,436	)		(11,132	)
Other current liabilities		1,701			4,331			291			(1,800	)
Other noncurrent liabilities		1,386			1,598			874			903
Net cash (used in)/provided by operating activities		(27,457	)		12,589
Net cash provided by/(used in) operating activities								(1,215	)		40,122
Cash Flows From Investing Activities:
Purchases of property and equipment		(8,962	)		(4,327	)		(17,033	)		(13,143	)
Acquisition of equity method investment, net of cash acquired								0			(28,713	)
Proceeds from sale of real estate								2,500			0
Collections of notes receivable		224			255			453			8,405
Purchases of marketable securities		(14,128	)		(7,866	)		(24,897	)		(43,483	)
Proceeds from sale of marketable securities		16,946			6,086			30,814			44,939
Net cash used in investing activities		(5,920	)		(5,852	)		(8,163	)		(31,995	)
Cash Flows From Financing Activities:
Principal payments under finance lease obligations		(1,147	)		(1,081	)		(2,312	)		(2,178	)
Dividends paid to common stockholders		(8,493	)		(7,988	)		(17,002	)		(15,990	)
Noncontrolling interest contributions		250			0			250			0
Issuance of common shares		0			327			1,120			2,405
Repurchase of common shares		(146	)		(278	)		(146	)		(278	)
Entrance fee refunds		(914	)		(128	)		(707	)		(1	)
Net cash used in financing activities		(10,450	)		(9,148	)		(18,797	)		(16,042	)
Net Decrease in Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents		(43,827	)		(2,411	)		(28,175	)		(7,915	)
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, Beginning of Period		119,743			158,502			119,743			158,502
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, End of Period	$	75,916		$	156,091		$	91,568		$	150,587

Balance Sheet Classifications:
Cash and cash equivalents	$	56,993		$	134,107		$	75,798		$	134,692
Restricted cash and cash equivalents		18,923			21,984			15,770			15,895
Total Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents	$	75,916		$	156,091		$	91,568		$	150,587

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

	Common Stock					Capital in Excess of			Retained			Accumulated Other Comprehensive			Non- controlling		Total Stockholders’			Common Stock					Capital in Excess of			Retained			Accumulated Other Comprehensive			Non- controlling			Total Stockholders’
	Shares			Amount		Par Value			Earnings			Income (Loss)			Interest		Equity			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
Balance at December 31, 2021																					15,452,033		$	154	$	232,167		$	669,078		$	1,605		$	5,456		$	908,460
Net income		–			0		0			21,267			0			41		21,308			–			0		0			15,318			0			31			15,349
Equity contributed by noncontrolling interest																					–			0		0			0			0			250			250
Other comprehensive loss		–			0		0			0			(1,922	)		0		(1,922	)		–			0		0			0			(5,060	)		0			(5,060	)
Stock–based compensation		–			0		496			0			0			0		496			–			0		712			0			0			0			712
Shares sold – options exercised		24,331			1		326			0			0			0		327			21,463			0		0			0			0			0			0
Repurchase of common shares		(3,936	)		0		(278	)		0			0			0		(278	)		(2,165	)		0		(146	)		0			0			0			(146	)
Dividends declared to common stockholders ($0.52 per share)		-			0		0			(8,003	)		0			0		(8,003	)
Balance at March 31, 2021		15,390,140		$	154	$	227,487		$	576,288		$	3,135		$	3,124		810,188
Dividends declared to common stockholders ($0.55 per share)																					–			0		0			(8,509	)		0			0			(8,509	)
Balance at March 31, 2022																					15,471,331		$	154	$	232,733		$	675,887		$	(3,455	)	$	5,737			911,056
Net income/(loss)																					–			0		0			3,203			0			(1,042	)		2,161
Other comprehensive loss																					–			0		–			0			(3,528	)		0			(3,528	)
Stock–based compensation																					–			0		629			0			0			0			629
Shares sold – options exercised																					16,554			0		1,120			0			0			0			1,120
Dividends declared to common stockholders ($0.57 per share)																					–			0		0			(8,828	)		0			0			(8,828	)
Balance at June 30, 2022																					15,487,885			154		234,482			670,262			(6,983	)		4,695			902,610

	Common Stock					Capital in Excess of			Retained			Accumulated Other Comprehensive			Non- controlling		Total Stockholders’			Common Stock					Capital in Excess of			Retained			Accumulated Other Comprehensive			Non- controlling		Total Stockholders’
	Shares			Amount		Par Value			Earnings			Income (Loss)			Interest		Equity			Shares			Amount		Par Value			Earnings			Income (Loss)			Interest		Equity
Balance at January 1, 2022		15,452,033		$	154	$	232,167		$	669,078		$	1,605		$	5,456	$	908,460
Balance at December 31, 2020																					15,369,745		$	153	$	226,943		$	563,024		$	5,057		$	3,083	$	798,260
Net income		–			0		0			15,318			0			31		15,349			–			0		0			21,267			0			41		21,308
Equity contributed by noncontrolling interest		–			0		0			0			0			250		250
Other comprehensive loss		–			0		0			0			(5,060	)		0		(5,060	)		–			0		0			0			(1,922	)		0		(1,922	)
Stock–based compensation		–			0		712			0			0			0		712			–			0		496			0			0			0		496
Shares sold – options exercised		21,463			0		0			0			0			0		0			24,331			1		326			0			0			0		327
Repurchase of common shares		(2,165	)		0		(146	)		0			0			0		(146	)		(3,936	)		0		(278	)		0			0			0		(278	)
Dividends declared to common stockholders ($0.55 per share)		–			0		0			(8,509	)		0			0		(8,509	)
Balance at March 31, 2022		15,471,331		$	154	$	232,733		$	675,887		$	(3,455	)	$	5,737		911,056
Dividends declared to common stockholders ($0.52 per share)																					–			0		0			(8,003	)		0			0		(8,003	)
Balance at March 31, 2021																					15,390,140		$	154	$	227,487		$	576,288		$	3,135		$	3,124	$	810,188
Net income																					–			0		0			104,883			0			447		105,330
Contributions attributable to noncontrolling interest																					–			0		0			0			0			2,840		2,840
Other comprehensive income																					–			0		0			0			153			0		153
Stock–based compensation																					–			0		683			0			0			0		683
Shares sold – options exercised																					33,100			0		2,078			0			0			0		2,078
Dividends declared to common stockholders ($0.52 per share)																					–			0		0			(8,020	)		0			0		(8,020	)
Balance at June 30, 2021																					15,423,240		$	154	$	230,248		$	673,151		$	3,288		$	6,411	$	913,252

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 ~~March 31,~~June 30, 2022, we operate or manage, through certain affiliates, 75 skilled nursing facilities with a total of ~~9,456~~9,447 licensed beds, 24 assisted living facilities, 5 independent living facilities, 13 behavioral health ~~hospital,~~hospitals, 35 homecare agencies, and 29 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 10 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, 2021 consolidated financial statements and notes thereto which contain accounting policies and other disclosures required by U.S. GAAP. Our audited December 31, 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, 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 ~~$2,536,000~~$1,805,000 and ~~$919,000~~$4,341,000 for the three and sixmonths ended ~~March 31, 2022~~June 30, 2022. For the threeand six months ended June 30, 2021,bad debt expense was $1,102,000 and $2,021,000, respectively. As of ~~March 31,~~June 30, 2022, and December 31, 2021, the Company has recorded allowance for doubtful accounts of ~~$6,726,000~~$7,405,000 and $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 2 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 7 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 ~~$5,787,000~~$4,799,000 and ~~$5,369,000~~$10,586,000 for the three and sixmonths ended ~~March 31, 2022~~June 30, 2022. General and administrative costs were $4,885,000 and $10,254,000 for the threeand ~~2021,~~six months ended June 30, 2021, 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 for non-cancelable real estate operating leases with original or remaining lease terms in excess of one year. Leases with a lease term of 12 months or less at inception are not recorded and are expensed on a straight-line basis over the lease term. We recognize lease components and non-lease components together and not as separate parts of a lease for real estate leases.

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 our consolidated balance sheets. As of ~~March 31,~~June 30, 2022, and December 31, 2021, we have recorded refundable entrance fees in the amount of ~~$6,097,000~~$6,304,000 and $7,011,000, 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 ~~March 31,~~June 30, 2022, and December 31, 2021, we have recorded a future service obligation liability in the amount of $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 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 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 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 are used for healthcare-related expenses or lost revenue attributable to COVID-19. The Company recorded ~~$10,620,000~~$320,000 and ~~$22,749,000~~$15,126,000 of government stimulus income from the Provider Relief Funds for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. The Company recorded $10,940,000 and $37,875,000 of government stimulus income from the Provider Relief Funds for the six months ended June 30, 2022 and 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 began, repayment ~~occurs~~will occur through an automatic recoupment of twenty-five percent of Medicare payments. During the succeeding nine months, repayment will occur through an automatic recoupment of fifty percent of Medicare payments. Any remaining balance that was not paid through the recoupment process within twenty-nine months of receipt of the funds will be required to be paid on-demand, subject to an interest rate of four percent. ~~Recoupment of the accelerated payments began in the~~ ~~second~~ ~~quarter of~~ ~~2021.~~As of ~~March 31,~~June 30, 2022 and December 31, 2021, $~~5,003,000~~586,000 and $15,022,000, respectively, of the accelerated payments remain and 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 March 31, 2022. The Medicare sequestration policy ~~reduces~~reduced fee-for-service Medicare payments by 2 percent. Beginning April 1, 2022, the sequestration reductions ~~will then be~~were 1% from April 1, 2022 through June 30, 2022. The full 2% reduction ~~is scheduled to go~~went back into effect July 1, 2022. The CARES Act extends the sequestration policy through 2030 in exchange for this temporary suspension, which the sequestration reduction for 2030 has been increased up to 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 have 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 ~~March 31,~~June 30, 2022 and December 31, 2021, we have deferred $10,545,000 of the Company’s share of the social security taxes included in the current liabilities section of the 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 ~~$5,538,000~~$5,001,000 and ~~$3,955,000~~$7,094,000 in net patient revenues for these supplemental Medicaid payments for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. We have recorded $10,539,000 and $11,049,000 in net patient revenues for these supplemental Medicaid payments for the six months ended June 30, 2022 and 2021, respectively.

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).

	Three Months Ended March 31				Three Months Ended June 30				Six Months Ended June 30
	2022		2021		2022		2021		2022		2021
Net patient revenues:
Inpatient services	$	224,842	$	203,242	$	227,796	$	222,572	$	452,638	$	422,103
Homecare and hospice		31,495		13,613		32,281		14,404		63,776		31,728
Total net patient revenue	$	256,337	$	216,855	$	260,077	$	236,976	$	516,414	$	453,831

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:

	Three Months Ended March 31				Three Months Ended June 30						Six Months Ended June 30
Source	2021		2020		2022			2021			2022			2021
Medicare		37%		35%		36	%		34	%		37	%		34	%
Managed Care		10%		12%		10	%		12	%		10	%		13	%
Medicaid		28%		29%		29	%		29	%		28	%		29	%
Private Pay and Other		25%		24%		25	%		25	%		25	%		24	%
Total		100%		100%		100	%		100	%		100	%		100	%

Medicare covers skilled nursing services for beneficiaries who require nursing care and/or rehabilitation services following a hospitalization of at least three consecutive days (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.

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

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

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

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

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

Included in the Company’s interim condensed consolidated balance sheets are contract liabilities, which represent payments the Company receives in advance of services provided. As of ~~March 31,~~June 30, 2022 and December 31, 2021, the Company has recorded ~~$5,003,000~~$586,000 and $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.

Balance at December 31, 2021	$	15,022		$	15,022
Payments received		0			0
Payments recouped		(10,019	)		(14,436	)
Balance at March 31, 2022	$	5,003
Balance at June 30, 2022				$	586

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 ~~$17,319,000~~$18,019,000 and $17,595,000 as of ~~March 31,~~June 30, 2022 and December 31, 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 owned insurance subsidiaries have written for certain healthcare operators to which we provide management or accounting services. "Other" revenues include miscellaneous health care related earnings (in thousands).

	Three Months Ended March 31				Three Months Ended June 30				Six Months Ended June 30
	2022		2021		2022		2021		2022		2021
Rental income	$	5,982	$	5,647	$	5,830	$	5,514	$	11,812	$	11,161
Management and accounting services fees		4,304		4,324		3,767		4,136		8,071		8,460
Insurance services		1,247		1,264		1,235		1,277		2,482		2,541
Other		493		134		130		129		623		263
Total other revenues	$	12,026	$	11,369	$	10,962	$	11,056	$	22,988	$	22,425

The Company leases real estate assets consisting of skilled nursing facilities and assisted living facilities to third party operators. Additionally, we sublease 4 Florida skilled nursing facilities included in our lease from National Health Investors (“NHI”) as noted in Note 8 – Long Term Leases.

We manage 5 skilled nursing facilities owned by National Health Corporation (“National”). ~~For~~We recognized management fees and interest on management fees from these facilities of $1,002,000 and $940,000 for the three months ended ~~March 31,~~June 30, 2022 and 2021, werespectively. We recognized management fees and interest on management fees of ~~$981,000~~$1,983,000 and ~~$896,000, respectively,~~$1,837,000 from these facilities for ~~these centers.~~the six months ended June 30, 2022 and 2021, respectively.

For workers’ compensation insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months ended ~~March 31,~~June 30, 2022 and 2021 were ~~$728,000~~$716,000 and ~~$753,000,~~$766,000, respectively. The premium revenues reflected in the interim condensed consolidated statements of operations for the six months ended June 30, 2022 and 2021 were $1,443,000 and $1,518,000, 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 ended ~~March 31,~~June 30, 2022 and 2021 were $519,000 and $511,000, respectively. The premium revenues reflected in the interim condensed consolidated statements of operations for the six months ended June 30, 2022 and 2021 were $1,039,000 and $1,023,000, 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).

	Three Months Ended March 31				Three Months Ended June 30				Six Months Ended June 30
	2022		2021		2022		2021		2022		2021
Dividends and net realized gains and losses on sales of securities					$	1,304	$	1,915	$	3,057	$	3,877
Interest income						1,207		1,276		2,199		2,663
Equity in earnings of unconsolidated investments	$	454	$	2,911		10		2,395		464		5,306
Dividends and net realized gains on sales of securities		1,753		1,962
Interest income		992		1,387
Total non-operating income	$	3,199	$	6,260	$	2,521	$	5,586	$	5,720	$	11,846

On June 11, 2021, the Company acquired the remaining 24.9% equity interest in Caris HealthCare, L.P. (“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 2 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):

	Three Months Ended March 31, 2022									Three Months Ended June 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	$	224,842	$	31,495	$	0		$	256,337	$	227,796		$	32,281	$	0		$	260,077
Other revenues		114		0		11,912			12,026		100			0		10,862			10,962
Government stimulus income		10,620		0		0			10,620		320			0		0			320
Net operating revenues and grant income		235,576		31,495		11,912			278,983		228,216			32,281		10,862			271,359

Costs and expenses:
Salaries, wages, and benefits		142,185		19,401		9,108			170,694		149,092			19,024		6,820			174,936
Other operating		64,383		7,095		2,607			74,085		61,886			6,444		2,981			71,311
Rent		8,347		592		1,126			10,065		8,392			592		1,427			10,411
Depreciation and amortization		8,838		113		806			9,757		9,084			111		806			10,001
Interest		165		0		0			165		149			0		0			149
Total costs and expenses		223,918		27,201		13,647			264,766		228,603			26,171		12,034			266,808

Income (loss) from operations		11,658		4,294		(1,735	)		14,217
Income/(loss) from operations											(387	)		6,110		(1,172	)		4,551
Non-operating income		0		0		3,199			3,199		0			0		2,521			2,521
Unrealized gains on marketable equity securities		0		0		3,126			3,126
Unrealized losses on marketable equity securities											0			0		(3,549	)		(3,549	)

Income before income taxes	$	11,658	$	4,294	$	4,590		$	20,542
Income/(loss) before income taxes										$	(387	)	$	6,110	$	(2,200	)	$	3,523

	Three Months Ended March 31, 2021									Three Months Ended June 30, 2021
	Inpatient Services		Homecare		All Other			Total		Inpatient Services		Homecare and Hospice		All Other			Total
Revenues:
Net patient revenues	$	203,242	$	13,613	$	0		$	216,855	$	218,860	$	18,116	$	0		$	236,976
Other revenues		98		0		11,271			11,369		97		0		10,959			11,056
Government stimulus income		22,749		0		0			22,749		15,126		0		0			15,126
Net operating revenues and grant income		226,089		13,613		11,271			250,973		234,083		18,116		10,959			263,158

Costs and expenses:
Salaries, wages, and benefits		131,811		9,435		7,913			149,159		134,406		11,713		17,749			163,868
Other operating		61,808		1,915		2,401			66,124		59,296		2,760		2,923			64,979
Rent		8,194		431		1,438			10,063		8,278		454		1,438			10,170
Depreciation and amortization		9,263		87		811			10,161		9,227		94		810			10,131
Interest		244		0		0			244		215		0		0			215
Total costs and expenses		211,320		11,868		12,563			235,751		211,422		15,021		22,920			249,363

Income/(loss) from operations		14,769		1,745		(1,292	)		15,222		22,661		3,095		(11,961	)		13,795
Non-operating income		0		0		6,260			6,260		0		0		5,586			5,586
Unrealized gains on marketable equity securities		0		0		7,059			7,059
Gain on acquisition of equity method investment											0		0		95,202			95,202
Unrealized losses on marketable equity securities											0		0		(6,489	)		(6,489	)

Income before income taxes	$	14,769	$	1,745	$	12,027		$	28,541	$	22,661	$	3,095	$	82,338		$	108,094

At ~~March 31,~~June 30, 2022, we ~~leased~~lease from NHI the real property of 35 skilled nursing facilities, 7 assisted living centers and 3 independent living centers under 2 separate lease agreements. As part of the first lease agreement, we sublease 4 Florida skilled nursing facilities to a third-party operator. Base rent expense under both NHI lease agreements totals $34,200,000 annually with rent thereafter escalating by 4% of the increase in facility revenue over a base year. Total facility rent expense to NHI was ~~$9,252,000~~$9,563,000 and ~~$9,411,000~~$9,492,000 for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. Total facility rent expense to NHI was $18,815,000 and $18,903,000 for the six months ended June 30, 2022 and 2021, respectively.

At ~~March 31,~~June 30, 2022, we leased and operated 3 senior healthcare facilities in the state of Missouri under 3 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 2 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 ~~March 31,~~June 30, 2022 (in thousands):

	Finance Leases			Operating Leases			Finance Leases			Operating Leases
2023	$	5,200		$	36,046		$	5,200		$	36,013
2024		4,767			35,489			3,467			35,517
2025		0			35,033			0			35,095
2026		0			34,756			0			34,826
2027		0			26,704			0			19,009
Thereafter		0			4,888			0			4,025
Total minimum lease payments		9,967			172,916			8,667			164,485
Less: amounts representing interest		(574	)		(22,725	)		(439	)		(20,644	)
Present value of future minimum lease payments		9,393			150,191			8,228			143,841
Less: current portion		(4,766	)		(28,005	)		(4,838	)		(28,358	)
Noncurrent lease liabilities	$	4,627		$	122,186		$	3,390		$	115,483

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

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

	Three Months Ended March 31				Three Months Ended June 30				Six Months Ended June 30
	2022		2021		2022		2021		2022		2021
Basic:
Weighted average common shares outstanding		15,416,836		15,327,520		15,452,402		15,349,162		15,434,718		15,338,400
Net income attributable to National HealthCare Corporation	$	15,318	$	21,267	$	3,203	$	104,883	$	18,521	$	126,150
Earnings per common share, basic	$	0.99	$	1.39	$	0.21	$	6.83	$	1.20	$	8.22

Diluted:
Weighted average common shares outstanding		15,416,836		15,327,520		15,452,402		15,349,162		15,434,718		15,338,400
Effects of dilutive instruments		47,019		62,556		34,721		69,850		40,835		66,234
Weighted average common shares outstanding		15,463,855		15,390,076		15,487,123		15,419,012		15,475,553		15,404,634

Net income attributable to National HealthCare Corporation	$	15,318	$	21,267	$	3,203	$	104,883	$	18,521	$	126,150
Earnings per common share, diluted	$	0.99	$	1.38	$	0.21	$	6.80	$	1.20	$	8.19

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

	March 31, 2022				December 31, 2021				June 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	$	118,048	$	30,176	$	113,108	$	30,176	$	117,917	$	30,176	$	113,108
Corporate debt securities		17,030		16,554		19,038		18,843		15,508		14,972		19,038		18,843
Asset-backed securities		501		493		1,481		1,469		501		490		1,481		1,469
U.S. Treasury securities		14,189		13,940		15,082		14,998		10,943		10,654		15,082		14,998
Restricted investments available for sale:
Marketable equity securities		25,546		25,249		25,442		26,958		25,162		21,446		25,442		26,958
Corporate debt securities		62,399		61,699		60,816		62,936		60,296		57,790		60,816		62,936
Asset-based securities		30,715		29,982		32,918		33,301		28,853		27,391		32,918		33,301
U.S. Treasury securities		37,403		35,181		33,052		32,630		43,045		39,807		33,052		32,630
State and municipal securities		4,972		4,939		7,700		7,923		4,940		4,867		7,700		7,923
	$	222,931	$	306,085	$	225,705		312,166	$	219,424	$	295,334	$	225,705		312,166

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):

	March 31, 2022				December 31, 2021				June 30, 2022				December 31, 2021
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
Maturities:
Within 1 year	$	34,236	$	34,159	$	32,718	$	32,843	$	33,703	$	33,385	$	32,718	$	32,843
1 to 5 years		89,482		87,771		95,293		96,937		87,303		83,858		95,293		96,937
6 to 10 years		43,491		40,858		41,580		41,835		43,080		38,728		41,580		41,835
Over 10 years		0		0		496		485		0		0		496		485
	$	167,209	$	162,788	$	170,087	$	172,100	$	164,086	$	155,971	$	170,087	$	172,100

Gross unrealized gains related to marketable equity securities are ~~$88,514,000~~$88,463,000 and $85,394,000 as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively. Gross unrealized losses related to marketable equity securities are ~~$939,000~~$4,438,000 and $946,000 as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively. For the three months ended ~~March 31,~~June 30, 2022 and 2021, the Company recognized net unrealized ~~gains~~losses of ~~$3,126,000~~$3,549,000 and ~~$7,059,000,~~$6,489,000, respectively, for the changes in fair market value of the marketable equity securities in the interim condensed consolidated statements of operations. For the six months ended June 30, 2022 and 2021, the Company recognized a net unrealized loss of $423,000 and a net unrealized gain of $570,000, 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 ~~$484,000~~$25,000 and $3,189,000 as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively. Gross unrealized losses related to available for sale marketable debt securities are ~~$4,905,000~~$8,140,000 and $1,176,000 as of ~~March 31,~~June 30, 2022 and December 31, 2021, respectively.

The Company’s unrealized losses in our available for sale marketable debt securities were determined to be non-credit related.

The Company has not recognized any credit related impairments for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 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 ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021 were ~~$16,946,000~~$30,814,000 and ~~$6,086,000,~~$44,939,000, respectively. Investment losses of $364,000 and investment gains of ~~$45,000~~$212,000 were realized on these sales during the ~~three~~six months ended ~~March 31, 2022.~~June 30, 2022 ~~NaN investment gains were realized on these sales during the~~and ~~three~~2021, ~~months ended~~ ~~March 31, 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 ~~March 31,~~June 30, 2022 and December 31, 2021 for assets and liabilities measured at fair value on a recurring basis (in thousands):

	Fair Value Measurements Using								Fair Value Measurements Using
March 31, 2022	Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 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	$	56,993	$	56,993	$	0	$	–	$	75,798	$	75,798	$	0	$	–
Restricted cash and cash equivalents		18,923		18,923		0		–		15,770		15,770		0		–
Marketable equity securities		143,297		143,297		0		–		139,363		139,363		0		–
Corporate debt securities		78,253		43,059		35,194		–		72,762		37,393		35,369		–
Mortgage–backed securities		30,475		0		30,475		–		27,881		0		27,881		–
U.S. Treasury securities		49,121		49,121		0		–		50,461		50,461		0		–
State and municipal securities		4,939		0		4,939		–		4,867		0		4,867		–
Total financial assets	$	382,001	$	311,393	$	70,608	$	–	$	386,902	$	318,785	$	68,117	$	–

At ~~March 31,~~June 30, 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 0 impairment indicators regarding the Company’s goodwill ~~during the~~ ~~three~~ ~~months ended~~ ~~March 31, 2022~~ 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.

At ~~March 31,~~June 30, 2022, the following table represents the activity related to our goodwill by segment (in thousands):

	Inpatient Services		Homecare and Hospice		All Other		Total		Inpatient Services		Homecare and Hospice		All Other		Total
January 1, 2022	$	3,741	$	164,554	$	–	$	168,295	$	3,741	$	164,554	$	–	$	168,295
Additions		0		0		–		0		0		0		–		0
March 31, 2022	$	3,741	$	164,554	$	–	$	168,295
June 30, 2022									$	3,741	$	164,554	$	–	$	168,295

We also have recorded indefinite-lived intangible assets that consist of trade names ($4,340,000) and certificates of need and licenses ($2,698,000).

During the ~~three~~six months ended ~~March 31,~~June 30, 2022, the Company repurchased 2,165 shares of its common stock for a total cost of $146,000. During the ~~three~~six months ended ~~March 31,~~June 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 ~~$712,000~~$629,000 and ~~$496,000~~$683,000 for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. Stock-based compensation totaled $1,341,000 and $1,179,000 for the six months ended June 30, 2022 and 2021, respectively. Stock–based compensation is included in “Salaries, wages and benefits” in the interim condensed consolidated statements of operations.

At ~~March 31,~~June 30, 2022, the Company had ~~$4,432,000~~$4,492,000 of unrecognized compensation cost related to unvested stock–based compensation awards. This unrecognized compensation cost will be amortized over an approximate three-year period.

The following table summarizes the significant assumptions used to value the options granted for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and for the year ended December 31, 2021.

	March 31, 2022		December 31, 2021		June 30, 2022			December 31, 2021
Risk–free interest rate		1.63%		0.21%		1.83	%		0.21	%
Expected volatility		30.95%		34.90%		31.43	%		34.90	%
Expected life, in years		2.9		2.2		2.9			2.2
Expected dividend yield		3.62%		3.00%		3.57	%		3.00	%

The following table summarizes our outstanding stock options for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and for the year ended December 31, 2021.

	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, 2021		866,956		$	72.11	$	–		866,956		$	72.11	$	–
Options granted		55,706			70.80		–		55,706			70.80		–
Options exercised		(541,736	)		71.39		–		(541,736	)		71.39		–
Options cancelled		(6,000	)		72.94		–		(6,000	)		72.94		–
Options outstanding at December 31, 2021		374,926			72.95		–		374,926			72.95		–
Options granted		249,640			64.15		–		302,655			65.03		–
Options exercised									(16,454	)		67.67		–
Options cancelled		(157,240	)		76.99		–		(196,051	)		76.19		–
Options outstanding at March 31, 2022		467,326			66.88	$	2,085,879
Options outstanding at June 30, 2022									465,076			66.61	$	1,954,452

Options exercisable at March 31, 2022		172,686			69.60	$	567,923
Options exercisable at June 30, 2022									162,421			69.56	$	481,057

The Company's income tax provision as a percentage of our income before income taxes was ~~25.3%~~38.7% and 2.6% for the three months ended ~~March 31,~~June 30, 2022 and ~~2021.~~2021, respectively.

The Company's income tax provision as a percentage of our income before income taxes was 27.2% and 7.3% for the six months ended June 30, 2022 and 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. For the three months and six months ended ~~March 31,~~June 30, 2022, ~~and~~ ~~2021,~~the accrual of state income tax was the only significant reconciling item. For the three months and six months ended June 30, 2021, the income tax provision and effective tax rate were favorably impacted by the nontaxable gain recognized upon remeasurement 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 (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 ~~$101,413,000~~$102,663,000 and $98,048,000 at ~~March 31,~~June 30, 2022 and December 31, 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 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 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 Complaint alleges that nurse practitioners affiliated with Dr. Malhotra provided free services to the facilities in exchange for referrals to entities owned by or in which Dr. Malhotra had a financial interest in violation of the False Claims Act and Anti-Kickback Statute. NHC Healthcare/Moulton, LLC 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. 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 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.

Note 17– ~~Subsequent Event~~Massachusetts and New Hampshire Skilled Nursing Facilities

On May 3, 2022, we signed operations transfer agreements ("OTAs") for the ~~seven~~7 skilled nursing facilities located in Massachusetts and New Hampshire. After a period of ~~up to~~ 90 ~~days after the signing of the OTAs,~~due diligence, the operations of the seven facilities are expected to be transferred to a third-party skilled nursing operator. We expect to transfer the operations during the third or fourthquarter of 2022.

The seven skilled nursing facilities had net patient revenues of ~~$17,801,000~~$17,683,000 and ~~$15,377,000~~$16,866,000 for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. The seven skilled nursing facilities had net patient revenues of $35,483,000 and $32,243,000 for the six months ended June 30, 2022 and 2021, respectively. The seven skilled nursing facilities had losses before income taxes of ~~$635,000~~$219,000 and ~~$2,769,000~~$1,223,000 for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. The seven skilled nursing facilities had losses before income taxes of $854,000 and $3,992,000 for the six months ended June 30, 2022 and 2021, respectively. For the year ended December 31, 2021, the seven skilled nursing facilities had net patient revenues of $67,161,000 and losses before income taxes of $3,741,000.

In conjunction with the OTAs, we have signed an acknowledgement agreement with NHI that will terminate our lease agreement with the seven skilled nursing facilities and amend our master lease agreement. The lease termination agreement and amendment to the master lease are subject to the operations being transferred.

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

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

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

See the notes to the quarterly financial statements, and “Item 1. Business” in our 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.

National HealthCare Corporation (“NHC” or the “Company”) is a leading provider of senior health care services. We operate or manage, through certain affiliates, 75 skilled nursing facilities with a total of ~~9,456~~9,447 licensed beds, 24 assisted living facilities, five independent living facilities, ~~one~~three behavioral health ~~hospital,~~hospitals, 35 homecare agencies, and 29 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 10 states and are located primarily in the southeastern United States.

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, as well as a significant decrease in ~~2021.~~the adverse health events related to COVID. Despite the COVID-19 cases ~~significantly~~and adverse health events from COVID declining, ~~during 2021,~~ 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.

At this time, we are not able to quantify the impact that the COVID-19 pandemic will have on our future financial results, but we expect the developments related to COVID-19 to adversely affect our financial performance in 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.

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 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 ~~$10,620,000~~$320,000 and ~~$22,749,000~~$15,126,000 of government stimulus income from the Provider Relief Funds for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. The Company recorded $10,940,000 and $37,875,000 of government stimulus income from the Provider Relief Funds for the six months ended June 30, 2022 and 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.

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 in 2020 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. ~~Recoupment of the accelerated payments began in the second quarter of 2021.~~ As of ~~March 31,~~June 30, 2022, ~~$5,003,000~~$586,000 of the accelerated payments remain and 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 March 31, 2022. The Medicare sequestration policy reduces fee-for-service Medicare payments by 2 percent. Beginning April 1, 2022, the sequestration reductions ~~will then be~~were 1% from April 1, 2022 through June 30, 2022. The full 2% reduction ~~is scheduled to go~~went back into effect July 1, 2022. The CARES Act extends the sequestration policy through 2030 in exchange for this temporary suspension, which the sequestration reduction for 2030 has been increased up to 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 have 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 ~~March 31,~~June 30, 2022, we have deferred $10,545,000 of the Company’s share of the social security taxes included in the current liabilities section of the consolidated balance sheet.

A primary area of management focus continues to be the rates of occupancy within our skilled nursing facilities. The overall census in owned and leased skilled nursing facilities for the ~~three~~six months ending ~~March 31,~~June 30, 2022 was ~~82.7%~~83.3% compared to ~~76.8%~~78.9% for the same period a year ago. For the three months ended June 30, 2022, overall census in our owned and leased skilled nursing facilities was 84.0% compared to 81.1% in the second quarter of 2021.

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

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

The tables below summarize NHC's overall performance in these Five-Star ratings versus the skilled nursing industry as of ~~March 31,~~June 30, 2022:

	NHC Ratings		Industry Ratings		NHC Ratings			Industry Ratings
Total number of skilled nursing facilities, end of period		75				75
Number of 4 and 5-star rated skilled nursing facilities		58				54
Percentage of 4 and 5-star rated skilled nursing facilities		77%		44%		72	%		43	%
Average rating for all skilled nursing facilities, end of period		4.1		3.1		4.0			3.1

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

Our accrued professional liability and workers’ compensation reserves totaled ~~$101,413,000~~$102,663,000 at ~~March 31,~~June 30, 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.

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 rule provided for an approximate 1.2% increase, or $410 million, compared to 2021 levels. The net increase includes a 2.7% market-basket update that is offset by a 0.7% productivity adjustment and a 0.8% market-basket forecast error adjustment since the difference between the projected and actual market basket for FY2020 exceeded its threshold.

In ~~April~~July 2022, CMS released its ~~proposed~~final rule outlining fiscal year 2023 Medicare payment rates and policy changes for skilled nursing facilities, which will begin on October 1, 2022. The fiscal year 2023 ~~proposed~~ rule ~~equates to a net decrease of 0.7%,~~provided for an approximate 2.7% increase, or ~~approximately $320~~$904 million, ~~in Medicare Part A payments to SNFs in fiscal year 2023~~ compared to 2022 levels. The ~~proposed rule~~net increase includes a ~~2.8%~~3.9% market-basket increase plus a 1.5% market basket ~~rate increase, a 1.5% increase for~~ forecast error adjustment, ~~and~~less a ~~0.4% decrease for multifactor~~0.3% productivity adjustment, ~~for~~less a ~~net update~~2.3% decrease in the FY 2023 SNF PPS rates as a result of ~~3.9%. But, CMS also proposes to offset~~ the ~~3.9% increase with a downward~~recalibrated parity adjustment, ~~to payment rates by 4.6%, or $1.7 billion, to achieve budget neutrality from the aggregate fiscal year 2020 Medicare payments under the new Patient Driven Payment Model.~~which is being phased in over two years.

For the first ~~three~~six months of 2022, our average Medicare per diem rate for skilled nursing facilities increased ~~1.2%~~2.2% as compared to the same period in 2021.

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.

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 ~~$5,538,000~~$5,001,000 and ~~$3,955,000~~$7,094,000 in net patient revenues for these supplemental Medicaid payments for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. We have recorded $10,539,000 and $11,049,000 in net patient revenues for these supplemental Medicaid payments for the six months ended June 30, 2022 and 2021, respectively.

For the first six months of 2022, our average Medicaid per diem increased 2.2% compared to the same period in 2021.

~~For the first three months of 2022, our average Medicaid per diem increased 4.8% compared to the same period in 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.

In November 2021, CMS released its final rule outlining fiscal year 2022 Medicare payment rates. CMS projects payments to home health agencies in fiscal year 2022 will increase in aggregate by 3.2%, or $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 the changes in the rural add-on percentages for 2022.

In June 2022, CMS released its proposed rule outlining fiscal year 2023 Medicare payment rates. CMS projects payments to home health agencies in fiscal year 2023 will decrease in aggregate by 4.2%, or $810 million. The decrease reflects the effects of the home health payment update percentage of 2.9%, permanent behavioral assumption adjustment resulting in a decrease of 7.7%, and an estimated 0.2% decrease that reflects the effects of a proposed update to the fixed-dollar loss ratio used in determining outlier payments.

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 $31,298.

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.

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

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

	Three Months Ended March 31, 2022									Three Months Ended June 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	$	224,842	$	31,495	$	-		$	256,337	$	227,796		$	32,281	$	-		$	260,077
Other revenues		114		-		11,912			12,026		100			-		10,862			10,962
Government stimulus income		10,620		-		-			10,620		320			-		-			320
Net operating revenues and grant income		235,576		31,495		11,912			278,983		228,216			32,281		10,862			271,359

Costs and expenses:
Salaries, wages, and benefits		142,185		19,401		9,108			170,694		149,092			19,024		6,820			174,936
Other operating		64,383		7,095		2,607			74,085		61,886			6,444		2,981			71,311
Rent		8,347		592		1,126			10,065		8,392			592		1,427			10,411
Depreciation and amortization		8,838		113		806			9,757		9,084			111		806			10,001
Interest		165		-		-			165		149			-		-			149
Total costs and expenses		223,918		27,201		13,647			264,766		228,603			26,171		12,034			266,808

Income (loss) from operations		11,658		4,294		(1,735	)		14,217
Income/(loss) from operations											(387	)		6,110		(1,172	)		4,551
Non-operating income		-		-		3,199			3,199		-			-		2,521			2,521
Unrealized gains on marketable equity securities		-		-		3,126			3,126
Unrealized losses on marketable equity securities											-			-		(3,549	)		(3,549	)

Income before income taxes	$	11,658	$	4,294	$	4,590		$	20,542
Income/(loss) before income taxes										$	(387	)	$	6,110	$	(2,200	)	$	3,523

	Three Months Ended March 31, 2021									Six Months Ended June 30, 2022
	Inpatient Services		Homecare		All Other			Total		Inpatient Services		Homecare and Hospice		All Other			Total
Revenues:
Net patient revenues	$	203,242	$	13,613	$	-		$	216,855	$	452,638	$	63,776	$	-		$	516,414
Other revenues		98		-		11,271			11,369		213		-		22,775			22,988
Government stimulus income		22,749		-		-			22,749		10,940		-		-			10,940
Net operating revenues and grant income		226,089		13,613		11,271			250,973		463,791		63,776		22,775			550,342

Costs and expenses:
Salaries, wages, and benefits		131,811		9,435		7,913			149,159		291,276		38,426		15,928			345,630
Other operating		61,808		1,915		2,401			66,124		126,269		13,539		5,588			145,396
Rent		8,194		431		1,438			10,063		16,739		1,184		2,553			20,476
Depreciation and amortization		9,263		87		811			10,161		17,922		223		1,613			19,758
Interest		244		-		-			244		314		-		-			314
Total costs and expenses		211,320		11,868		12,563			235,751		452,520		53,372		25,682			531,574

Income/(loss) from operations		14,769		1,745		(1,292	)		15,222		11,271		10,404		(2,907	)		18,768
Non-operating income		-		-		6,260			6,260		-		-		5,720			5,720
Unrealized gains on marketable equity securities		-		-		7,059			7,059
Unrealized losses on marketable equity securities											-		-		(423	)		(423	)

Income before income taxes	$	14,769	$	1,745	$	12,027		$	28,541	$	11,271	$	10,404	$	2,390		$	24,065

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, ~~and~~ 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 six months ended ~~March 31,~~June 30, 2022 include facilities or offices that began operations from 2020 to 2022, which is two behavioral health hospitals, ~~that will be licensed~~one homecare agency, and ~~operating during the second quarter of 2022.~~one hospice agency. For the three months and six months ended ~~March 31,~~June 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 and six months ended ~~March 31,~~June 30, 2022 and 2021.

	Three Months Ended March 31						Three Months Ended June 30						Six Months Ended June 30
	2022			2021			2022			2021			2022			2021
Net operating revenues and grant income		100.0	%		100.0	%		100.0	%		100.0	%		100	%		100	%
Costs and expenses:
Salaries, wages, and benefits		61.2			59.4			64.5			62.3			62.8			60.9
Other operating		26.6			26.3			26.3			24.7			26.4			25.5
Facility rent		3.5			4.0			3.7			3.9			3.7			4.0
Depreciation and amortization		3.5			4.1			3.7			3.8			3.6			3.9
Interest		0.1			0.1			0.1			0.1			0.1			0.1
Total costs and expenses		94.9			93.9			98.3			94.8			96.6			94.4
Income from operations		5.1			6.1			1.7			5.2			3.4			5.6
Non–operating income		1.2			2.5			0.9			2.2			1.1			2.4
Unrealized gains on marketable equity securities		1.1			2.8
Gain on acquisition of equity method investment								-			36.2			-			18.5
Unrealized gains/(losses) on marketable equity securities								(1.3	)		(2.5	)		(0.1	)		0.1
Income before income taxes		7.4			11.4			1.3			41.1			4.4			26.6
Income tax provision		(1.9	)		(2.9	)		(0.5	)		(1.1	)		(1.2	)		(2.0	)
Net income		5.5			8.5			0.8			40.0			3.2			24.6
Net income attributable to noncontrolling interest		0.0			0.0
Net (income)/loss attributable to noncontrolling interest								0.4			(0.1	)		0.2			(0.1	)
Net income attributable to stockholders of NHC		5.5	%		8.5	%		1.2			39.9			3.4			24.5

Three Months Ended ~~March 31,~~June 30, 2022 Compared to Three Months Ended ~~March 31,~~June 30, 2021

Results for the quarter ended ~~March 31,~~June 30, 2022 compared to the ~~first~~second quarter of 2021 include ~~an 11.2%~~a 3.1% increase in net operating revenues and ~~grant~~government stimulus income and a ~~6.6%~~65.7% decrease in income from operations. The net patient revenue increase was driven by the continued occupancy increase in our skilled nursing facilities and the June 2021 Caris hospice acquisition. But, the net patient revenue increases were offset by the reduction in government stimulus income of $14.8 million during the second quarter of 2022 compared to the same period a year ago.

For the quarter ended ~~March 31,~~June 30, 2022, GAAP net income attributable to NHC was ~~$15,318,000~~$3,203,000 compared to net income of ~~$21,267,000~~$104,883,000 for the same period in 2021.

The large increase in our reported GAAP net income for the second quarter of 2021 was primarily due to the gain recorded from the acquisition of Caris. Excluding the gain on Caris, as well as excluding the unrealized ~~gains~~losses in our marketable equity securities portfolio and other non-GAAP adjustments, adjusted net income for the quarter ended ~~March 31,~~June 30, 2022 was ~~$14,081,000~~$7,172,000 compared to ~~$16,592,000~~$15,077,000 for the same period in 2021. The decrease in adjusted net income for the ~~first~~second quarter of 2022 compared to the ~~first~~second quarter of 2021 was primarily due to less government stimulus income recorded during the current ~~quarter, as well as higher~~quarter. We also continue to incur inflationary wage pressures ~~on labor costs.~~within all areas of our operations.

Net patient revenues increased ~~$39,482,000,~~$23,101,000, or ~~18.2%~~9.7%, compared to the same period last year.

The total census at owned and leased skilled nursing facilities for the quarter averaged ~~82.7%~~84.0%, compared to an average of ~~76.8%~~81.1% for the same quarter a year ago. Overall, the composite skilled nursing facility per diem ~~increased 2.9%~~decreased 0.3% compared to the same quarter a year ago. Our Medicare per diem rates increased ~~1.2%~~3.1% and managed care per diem rates increased ~~6.9%~~1.2% compared to the same quarter a year ago. Medicaid and private pay per diem rates decreased 0.2% and increased ~~4.8% and 9.2%~~4.7%, respectively, compared to the same quarter a year ago. For the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively, ~~$5,538,000~~$5,001,000 and ~~$3,955,000~~$7,094,000 have been included in our net patient revenues for ~~these~~ supplemental COVID-19 Medicaid payments.

In June 2021, the Company acquired the remaining ownership interest in Caris, which resulted in net patient revenues increasing ~~$17,785,000~~$14,137,000 for the three months ended ~~March 31,~~June 30, 2022 compared to the ~~first~~same quarter ~~of 2021.~~last year.

Other revenues ~~increased $657,000,~~decreased $94,000, or ~~5.8%~~0.9%, compared to the same quarter last year, as further detailed in Note 5 to our interim condensed consolidated financial statements.

During the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively, we recorded ~~$10,620,000~~$320,000 and ~~$22,749,000~~$15,126,000, 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 ~~March 31,~~June 30, 2022 compared to the same period of 2021 increased ~~$29,015,000,~~$17,445,000, or ~~12.3%~~7.0% to ~~$264,766,000~~$266,808,000 from ~~$235,751,000.~~$249,363,000.

Salaries, wages, and benefits increased ~~$21,535,000,~~$11,068,000, or ~~14.4%~~6.8%, to ~~$170,694,000~~$174,936,000 from ~~$149,159,000.~~$163,868,000. Salaries, wages, and benefits as a percentage of net operating revenues and grant income was ~~61.2%~~64.5% compared to ~~59.4%~~62.3% for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. Our Caris acquisition increased salaries, wages, and benefits ~~$10,224,000~~$7,946,000 in the ~~first~~second quarter of 2022 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 regard 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 agency nurse staffing. Our~~us contracting with agency nurse staffing ~~expense increased $12,435,000 for~~companies. The agency nurse staffing companies charge inflated hourly rates; therefore, we are working diligently to find solutions to reduce and eliminate the ~~first quarter of 2022 compared to the same quarter a year ago.~~agency nurse staffing within our healthcare operations.

Other operating expenses increased ~~$7,961,000,~~$6,332,000, or ~~12.0%~~9.7%, to ~~$74,085,000~~$71,311,000 for the 2022 period compared to ~~$66,124,000~~$64,979,000 for the 2021 period. Other operating expenses as a percentage of net operating revenues and grant income was ~~26.6%~~26.3% and ~~26.3%~~24.7% for the three months ended ~~March 31,~~June 30, 2022 and 2021, respectively. Our Caris acquisition increased other operating expenses ~~$5,104,000~~$3,691,000 in the ~~first~~second quarter of 2022 compared to the same quarter a year ago. We continue to face inflationary pressures in certain categories within other operating expenses as well, such as food/dietary supplies and drugs/pharmaceutical supplies.

Non–operating income decreased by ~~$3,061,000~~$3,065,000 compared to the same period last year, as further detailed in Note 6 to our interim condensed consolidated financial statements.

The income tax provision for the three months ended ~~March 31,~~June 30, 2022 is ~~$5,193,000~~$1,362,000 (an effective income tax rate of ~~25.3%~~38.7%). ~~Excluding certain items, we~~We expect our corporate (federal and state) effective income tax rate for 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.

Results for the six months ended June 30, 2022 compared to the same period of 2021 include a 7.0% increase in net operating revenues and grant income and a 34.7% decrease in income from operations. The net patient revenue increase was driven by the continued occupancy increase in our skilled nursing facilities and the June 2021 Caris hospice acquisition. But, the net patient revenue increases were offset by the reduction in government stimulus income of $26.9 million for the first six months of 2022 compared to the same period a year ago.

For the six months ended June 30, 2022, GAAP net income attributable to NHC was $18,521,000 compared to net income of $126,150,000 for the same period in 2021. The large increase in our reported GAAP net income for the 2021 six-month period was primarily due to the gain recorded from the acquisition of Caris. Excluding the gain on Caris, as well as excluding the unrealized gains and losses in our marketable equity securities portfolio and other non-GAAP adjustments, adjusted net income for the six months ended June 30, 2022 was $21,253,000 compared to $31,669,000 for the same period in 2021. The decrease in adjusted net income for the six-month period of 2022 compared to the same period of 2021 was primarily due to less government stimulus income recorded during the year. We also continue to incur inflationary wage pressures within all areas of our operations.

Net patient revenues increased $62,583,000, or 13.8%, compared to the same period last year.

The total census at owned and leased skilled nursing facilities for the six-month period averaged 83.3%, compared to an average of 78.9% for the same period a year ago. Overall, the composite skilled nursing facility per diem increased 1.3% compared to the same period a year ago. Our Medicare per diem rates increased 2.2% and managed care per diem rates increased 4.0% compared to the six-month period a year ago. Medicaid and private pay per diem rates increased 2.2% and 6.8%, respectively, compared to the same period a year ago. For the six months ended June 30, 2022 and 2021, $10,539,000 and $11,049,000, respectively, have been included in our net patient revenues for supplemental COVID-19 Medicaid payments.

In June 2021, the Company acquired the remaining ownership interest in Caris, which resulted in net patient revenues increasing $31,922,000 for the six months ended June 30, 2022 compared to the same period of 2021.

Other revenues increased $563,000, or 2.5%, compared to the same period last year, as further detailed in Note 5 to our interim condensed consolidated financial statements.

During the six months ended June 30, 2022 and 2021, respectively, we recorded $10,940,000 and $37,875,000 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 six months ended June 30, 2022 compared to the same period of 2021 increased $46,460,000, or 9.6% to $531,574,000 from $485,114,000.

Salaries, wages, and benefits increased $32,605,000, or 10.4%, to $345,630,000 from $313,025,000. Salaries, wages, and benefits as a percentage of net operating revenues and grant income was 62.8% compared to 60.9% for the six months ended June 30, 2022 and 2021, respectively. Our Caris acquisition increased salaries, wages, and benefits $18,170,000 in the six-month period of 2022 compared to the same period a year ago. We continue to face workforce and labor shortages within all of our operations, which increases wage pressure and inflation in regard to retaining and attracting qualified healthcare partners (employees). The labor and workforce challenges have resulted in us contracting with agency nurse 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 within our healthcare operations.

Other operating expenses increased $14,291,000, or 10.9%, to $145,396,000 for the 2022 period compared to $131,105,000 for the 2021 period. Other operating expenses as a percentage of net operating revenues and grant income was 26.4% and 25.5% for the six months ended June 30, 2022 and 2021, respectively. Our Caris acquisition increased other operating expenses $8,795,000 in the first six months of 2022 compared to the same period a year ago. We continue to face inflationary pressures in certain categories within other operating expenses as well, such as food/dietary supplies and drugs/pharmaceutical supplies.

Non–operating income decreased by $6,126,000 compared to the same period last year, as further detailed in Note 6 to our interim condensed consolidated financial statements.

The income tax provision for the six months ended June 30, 2022 is $6,555,000 (an effective income tax rate of 27.2%). We expect our corporate (federal and state) effective income tax rate for 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 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.

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 used in operating activities for the ~~three~~six months ended ~~March 31,~~June 30, 2022 was ~~$27,457,000~~$1,215,000 as compared to cash provided by operating activities of ~~$12,589,000~~$40,122,000 in the same period last year. Cash used in operating activities consisted of net income of ~~$15,349,000~~$17,510,000 and adjustments for non–cash items of ~~$9,444,000.~~$25,388,000. There was cash used for working capital needs in the amount of ~~$52,250,000~~$44,552,000 for the ~~three~~six months ended ~~March 31,~~June 30, 2022 compared to ~~$16,899,000~~$12,871,000 for the same period a year ago. We also received cash distributions from our unconsolidated investments of $439,000 during the six months ended June 30, 2022, compared to $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.

Net cash used in investing activities totaled ~~$5,920,000~~$8,163,000 for the ~~three~~six months ended ~~March 31,~~June 30, 2022, compared to ~~$5,852,000~~$31,995,000 for the ~~three~~six months ended ~~March 31,~~June 30, 2021. Cash used for property and equipment additions was ~~$8,962,000~~$17,033,000 and ~~$4,327,000~~$13,143,000 for the ~~three~~six months ended ~~March 31,~~June 30, 2022, and 2021, respectively. ~~The two behavioral health hospitals that are opening during the second quarter of 2022 were $4,430,000 of the property additions for the first quarter of 2022.~~ Proceeds from the sale of marketable securities, net of purchases, resulted in cash provided by investing activity of ~~$2,818,000~~$5,917,000 for the ~~three~~six months ended ~~March 31,~~June 30, 2022. For the ~~three~~six months ended ~~March 31,~~June 30, 2021, proceeds from the sale of marketable securities, net of purchases, resulting in cash used in investing activities of ~~$1,780,000.~~$1,456,000.

Net cash used in financing activities totaled ~~$10,450,000~~$18,797,000 for the ~~three~~six months ended ~~March 31,~~June 30, 2022 compared to ~~$9,148,000~~$16,042,000 for the ~~three~~six months ended ~~March 31,~~June 30, 2021. We made principal payments under our finance lease obligations in the amount of ~~$1,147,000~~$2,312,000 and ~~$1,081,000~~$2,178,000 for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021, respectively. Cash used for dividend payments to common stockholders totaled ~~$8,493,000~~$17,002,000 in the current year period compared to ~~$7,988,000~~$15,990,000 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 ~~$56,993,000~~$75,798,000 and our marketable equity and debt securities of ~~$149,035,000~~$144,033,000 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 ~~$56,993,000~~$75,798,000 and our marketable equity and debt securities of ~~$149,035,000.~~$144,033,000. We also have substantial value in our unencumbered real estate assets which could potentially be used as collateral in future borrowing opportunities. At ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2022, we have available for sale marketable debt securities in the amount of ~~$162,788,000.~~$155,971,000. 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 ~~March 31,~~June 30, 2022, the fair value of our marketable equity securities is approximately ~~$143,297,000.~~$139,363,000. Of the ~~$143.3~~$139.4 million equity securities portfolio, our investment in NHI comprises approximately ~~$96.2~~$98.8 million, or ~~67.2%~~70.9%, of the total fair value. We manage our exposure to NHI by closely monitoring the financial condition, performance, and outlook of the company. Hypothetically, a 10% change in quoted market prices would result in a related increase or decrease in the fair value of our equity investments of approximately ~~$14.3~~$13.9 million. At ~~March 31,~~June 30, 2022, our equity securities had net unrealized gains of ~~$88.5~~$84.0 million. Of the ~~$88.5~~$84.0 million of unrealized gains, ~~$71.5~~$74.1 million is related to our investment in NHI.

As of ~~March 31,~~June 30, 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 ~~March 31,~~June 30, 2022.

For a discussion of prior, current, and pending litigation of material significance to NHC, please see Note 17 of this Form 10–Q.

During the ~~three~~six months ended ~~March 31,~~June 301, 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, 2021.

On May 3, 2022, we signed operations transfer agreements ("OTAs") for the seven skilled nursing facilities located in Massachusetts and New Hampshire. After a period of up to 90 days after the signing of the OTAs, the operations of the seven facilities are expected to be transferred to a third-party skilled nursing operator. We expect to transfer the operations during the third quarter of 2022.

The seven skilled nursing facilities had net patient revenues of $17,801,000 and $15,377,000 for the three months ended March 31, 2022 and 2021, respectively. The seven skilled nursing facilities had losses before income taxes of $635,000 and $2,769,000 for the three months ended March 31, 2022 and 2021, respectively. For the year ended December 31, 2021, the seven skilled nursing facilities had net patient revenues of $67,161,000 and losses before income taxes of $3,741,000.

In conjunction with the OTAs, we have signed an acknowledgement agreement with NHI that will terminate our lease agreement with the seven skilled nursing facilities and amend our master lease agreement. The lease termination agreement and amendment to the master lease are subject to the operations being transferred.

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.

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

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2425

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3337

Item 4.	Controls and Procedures	3338

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	3338

Item 1A	Risk Factors	3338

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3338

Item 3.	Defaults Upon Senior Securities	3438

Item 4.	Mine Safety Disclosures	34 38

Item 5.	Other Information	3438

Item 6.	Exhibits	3438

Options Outstanding March 31, 2022	Exercise Prices			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years
332,620	61.90	-	68.84		63.96		4.1
134,706	71.64	-	77.92		74.11		2.1
467,326			0		66.88		3.5

Options Outstanding June 30, 2022	Exercise Prices				Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years
376,681		61.90	-	69.19		64.71		4.0
88,395		71.64	-	77.92		74.72		2.9
465,076						66.61		3.8

●	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 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 competitive environment in which we operate;

●	our need to make investments continually in our processes and information systems to protect the ~~ability to maintain~~privacy of patients, partners and ~~increase census levels;~~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.

	Six Months Ended June 30, 2021
	Inpatient Services		Homecare and Hospice		All Other			Total
Revenues and grant income:
Net patient revenues	$	422,103	$	31,728	$	0		$	453,831
Other revenues		195		0		22,230			22,425
Government stimulus income		37,875		0		0			37,875
Net operating revenues and grant income		460,173		31,728		22,230			514,131

Costs and expenses:
Salaries, wages, and benefits		266,216		21,148		25,661			313,025
Other operating		121,105		4,676		5,324			131,105
Rent		16,472		884		2,877			20,233
Depreciation and amortization		18,490		181		1,621			20,292
Interest		459		0		0			459
Total costs and expenses		422,742		26,889		35,483			485,114

Income/(loss) from operations		37,431		4,839		(13,253	)		29,017
Non-operating income		0		0		11,846			11,846
Gain on acquisition of equity method investment		0		0		95,202			95,202
Unrealized gains on marketable equity securities		0		0		570			570

Income before income taxes	$	37,431	$	4,839	$	94,365		$	136,635

	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.

	Three Months Ended March 31						Three Month Change
	2022			2021						%
Cash, cash equivalents, restricted cash, and restricted cash equivalents, at beginning of period	$	119,743		$	158,502		$	(38,759	)		(24.5	)

Cash (used in)/provided by operating activities		(27,457	)		12,589			(40,046	)		(318.1	)

Cash used in investing activities		(5,920	)		(5,852	)		(68	)		(1.2	)

Cash used in financing activities		(10,450	)		(9,148	)		(1,302	)		(14.2	)

Cash, cash equivalents, restricted cash, and restricted cash equivalents, at end of period	$	75,916		$	156,091		$	(80,175	)		(51.4	)

	Six Months Ended June 31						Six Month Change
	2022			2021			$			%
Cash, cash equivalents, restricted cash, and restricted cash equivalents, at beginning of period	$	119,743		$	158,502		$	(38,759	)		(24.5	)

Cash (used in)/provided by operating activities		(1,215	)		40,122			(41,337	)		(103.0	)

Cash used in investing activities		(8,163	)		(31,995	)		23,832			74.5

Cash used in financing activities		(18,797	)		(16,042	)		(2,755	)		(17.2	)

Cash, cash equivalents, restricted cash, and restricted cash equivalents, at end of period	$	91,568		$	150,587		$	(59,019	)		(39.2	)

Exhibit No.		Description

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

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

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

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

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

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

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

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

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

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

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

	NATIONAL HEALTHCARE CORPORATION
	(Registrant)

Date: ~~May 5,~~August 4, 2022	/s/ Stephen F. Flatt
	Stephen F. Flatt
	Chief Executive Officer


Date: ~~May 5,~~August 4, 2022	/s/ Brian F. Kidd
	Brian F. Kidd
	Senior Vice President and Controller
	(Principal Accounting Officer)