SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
S QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
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
Indicate by check mark whether the registrant: (1) Has filed all reports required to be filed by Section 13 or 15(d), of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S–T (§232.405 of this chapter) during the preceding 12 months (or for such period that the registrant was required to submit and post such files).
Yes [x] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non–accelerated filer or a smaller reporting company. See the definitions of "large accelerated file," "accelerated filer" and "smaller reporting company" in Rule 12b–2 of the Exchange Act. (Check one):
Large Accelerated filer [ ] / Accelerated filer [x]
Non–accelerated filer (Do not check if a smaller reporting company) [ ] / Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as is defined in Rule 12b–2 of the Exchange
Act). Yes [ ] No [x]
14,098,343 shares of common stock of the registrant were outstanding as of October 30, 2014.
7
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATIONPage
Item 1. / Financial Statements / 3
Item 2. / Management's Discussion and Analysis of Financial Condition and Results of Operations / 24
Item 3. / Quantitative and Qualitative Disclosures About Market Risk / 35
Item 4. / Controls and Procedures / 36
PART II. OTHER INFORMATION
Item 1. / Legal Proceedings / 37
Item 1A / Risk Factors / 37
Item 2. / Unregistered Sales of Equity Securities and Use of Proceeds / 37
Item 3. / Defaults Upon Senior Securities / 37
Item 5. / Other Information / 37
Item 6. / Exhibits / 37
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
NATIONAL HEALTHCARE CORPORATION
Interim Condensed Consolidated Statements of Income
(in thousands, except share and per share amounts)
(unaudited)
Three Months EndedSeptember 30 / Nine Months Ended
September 30
2014 / 2013 / 2014 / 2013
Revenues:
Net patient revenues / $ / 207,772 / $ / 182,966 / $ / 613,173 / $ / 539,797
Other revenues / 10,451 / 12,806 / 32,136 / 42,364
Net operating revenues / 218,223 / 195,772 / 645,309 / 582,161
Cost and Expenses:
Salaries, wages and benefits / 128,938 / 113,739 / 374,277 / 330,160
Other operating / 55,365 / 45,752 / 166,803 / 148,891
Facility rent / 9,913 / 9,889 / 29,712 / 29,627
Depreciation and amortization / 8,639 / 7,045 / 25,144 / 20,973
Interest / 632 / 82 / 1,566 / 248
Total costs and expenses / 203,487 / 176,507 / 597,502 / 529,899
Income Before Non–Operating Income / 14,736 / 19,265 / 47,807 / 52,262
Non–Operating Income / 3,937 / 11,171 / 12,790 / 24,421
Income Before Income Taxes / 18,673 / 30,436 / 60,597 / 76,683
Income Tax Provision / (5,844) / (10,559) / (22,028) / (28,659)
Net Income / 12,829 / 19,877 / 38,569 / 48,024
Dividends to Preferred Stockholders / (2,167) / (2,167) / (6,502) / (6,503)
Net Income Available to Common Stockholders / $ / 10,662 / $ / 17,710 / $ / 32,067 / $ / 41,521
Earnings Per Common Share:
Basic / $ / 0.77 / $ / 1.28 / $ / 2.32 / $ / 3.00
Diluted / $ / 0.75 / $ / 1.19 / $ / 2.25 / $ / 2.88
Weighted Average Common Shares Outstanding:
Basic / 13,805,430 / 13,820,449 / 13,838,891 / 13,832,706
Diluted / 14,236,512 / 16,686,915 / 14,230,031 / 16,701,491
Dividends Declared Per Common Share / $ / 0.34 / $ / 0.32 / $ / 1.00 / $ / 0.94
The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.
NATIONAL HEALTHCARE CORPORATION
Interim Condensed Consolidated Statements of Comprehensive Income
(unaudited – in thousands)
Three Months EndedSeptember 30 / Nine Months Ended
September 30
2014 / 2013 / 2014 / 2013
Net Income / $ / 12,829 / $ / 19,877 / $ / 38,569 / $ / 48,024
Other Comprehensive Income (Loss):
Unrealized gains (losses) on investments in marketable securities / (9,707) / (5,629) / 5,584 / (3,471)
Reclassification adjustment for realized gains on sale of securities / – / 911 / (172) / 527
Income tax (expense) benefit related to items of other comprehensive income / 3,761 / 1,889 / (2,035) / 993
Other comprehensive income (loss), net of tax / (5,946) / (2,829) / 3,377 / (1,951)
Comprehensive Income / $ / 6,883 / $ / 17,048 / $ / 41,946 / $ / 46,073
The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.
NATIONAL HEALTHCARE CORPORATION
Interim Condensed Consolidated Balance Sheets
(in thousands)
September 30, 2014 / December 31,2013
unaudited
Assets
Current Assets:
Cash and cash equivalents / $ / 76,917 / $ / 81,705
Restricted cash and cash equivalents / 10,075 / 10,298
Marketable securities / 108,529 / 105,009
Restricted marketable securities / 14,235 / 14,027
Accounts receivable, less allowance for doubtful accounts of $6,864 and $4,972, respectively / 73,417 / 79,856
Inventories / 7,362 / 7,146
Prepaid expenses / 1,913 / 1,208
Notes receivable / 435 / 417
Federal income tax receivable / 5,953 / –
Total current assets / 298,836 / 299,666
Property and Equipment:
Property and equipment, at cost / 806,470 / 734,682
Accumulated depreciation and amortization / (299,057) / (277,884)
Net property and equipment / 507,413 / 456,798
Other Assets:
Restricted cash and cash equivalents / 3,631 / 3,631
Restricted marketable securities / 139,138 / 127,976
Deposits and other assets / 7,056 / 6,808
Goodwill / 17,600 / 17,600
Notes receivable / 12,664 / 14,961
Deferred income taxes / 21,438 / 18,164
Investments in limited liability companies / 35,226 / 38,754
Total other assets / 236,753 / 227,894
Total assets / $ / 1,043,002 / $ / 984,358
The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.
NATIONAL HEALTHCARE CORPORATION
Interim Condensed Consolidated Balance Sheets (continued)
(in thousands, except share and per share amounts)
September 30, 2014 / December 31,2013
unaudited
Liabilities and Stockholders’ Equity
Current Liabilities:
Trade accounts payable / $ / 13,607 / $ / 13,050
Capital lease obligations, current portion / 3,042 / –
Accrued payroll / 54,423 / 63,462
Amounts due to third party payors / 24,112 / 21,619
Accrued risk reserves, current portion / 24,310 / 24,325
Deferred income taxes / 25,582 / 24,790
Other current liabilities / 14,269 / 13,784
Dividends payable / 6,998 / 6,730
Total current liabilities / 166,343 / 167,760
Long–term debt / 10,000 / 10,000
Capital lease obligations, less current portion / 34,297 / –
Accrued risk reserves, less current portion / 88,526 / 86,232
Refundable entrance fees / 10,320 / 10,720
Obligation to provide future services / 3,689 / 3,689
Other noncurrent liabilities / 15,631 / 14,525
Deferred revenue / 4,079 / 3,320
Stockholders’ Equity:
Series A Convertible Preferred Stock; $.01 par value; 25,000,000 shares authorized; 10,836,659 and 10,837,665 shares, respectively, issued and outstanding; stated at liquidation value of $15.75 per share / 170,494 / 170,510
Common stock, $.01 par value; 30,000,000 shares authorized; 14,098,343 and 14,078,028 shares, respectively, issued and outstanding / 140 / 140
Capital in excess of par value / 153,819 / 153,061
Retained earnings / 336,102 / 318,216
Accumulated other comprehensive income / 49,562 / 46,185
Total stockholders’ equity / 710,117 / 688,112
Total liabilities and stockholders’ equity / $ / 1,043,002 / $ / 984,358
The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.
7
NATIONAL HEALTHCARE CORPORATION
Interim Condensed Consolidated Statements of Cash Flows
(unaudited – in thousands)
Nine Months EndedSeptember 30
2014 / 2013
Cash Flows From Operating Activities:
Net income / $ / 38,569 / $ / 48,024
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization / 25,144 / 20,973
Provision for doubtful accounts receivable / 5,001 / 2,331
Equity in earnings of unconsolidated investments / (5,069) / (11,542)
Distributions from unconsolidated investments / 10,272 / 15,456
Gain on recovery of notes receivable / – / (5,454)
(Gains) losses on sale of restricted marketable securities / (172) / 527
Deferred income taxes / (4,517) / (2,130)
Stock–based compensation / 1,547 / 1,812
Changes in operating assets liabilities, net of the effect of acquisitions:
Restricted cash and cash equivalents / (6,033) / (8,721)
Accounts receivable / 1,438 / (5,199)
Income tax receivable / (5,953) / 5,933
Inventories / (216) / (418)
Prepaid expenses / (705) / (884)
Trade accounts payable / 557 / 1,967
Accrued payroll / (9,039) / 19,402
Amounts due to third party payors / 2,493 / 1,742
Other current liabilities and accrued risk reserves / 2,764 / 5,662
Other noncurrent liabilities / 1,106 / 136
Deferred revenue / 759 / 547
Net cash provided by operating activities / 57,946 / 90,164
Cash Flows From Investing Activities:
Additions to property and equipment / (36,727) / (33,981)
Investments in unconsolidated limited liability companies / (1,675) / –
Acquisition of non-controlling interest / (768) / –
Acquisition of six skilled nursing facilities / – / (21,000)
Investments in notes receivable / (767) / –
Collections of notes receivable / 3,046 / 13,813
Change in restricted cash and cash equivalents / 6,256 / 8,135
Purchase of restricted marketable securities / (36,947) / (68,978)
Sale of restricted marketable securities / 27,641 / 57,904
Net cash used in investing activities / (39,941) / (44,107)
Cash Flows From Financing Activities:
Tax benefit (expense) from stock–based compensation / 201 / (225)
Principal payments under capital lease obligations / (1,693) / –
Dividends paid to preferred stockholders / (6,502) / (6,503)
Dividends paid to common stockholders / (13,913) / (12,973)
Issuance of common shares / 6,757 / 270
Repurchase of common shares / (6,995) / (4,700)
Entrance fee refunds / (400) / (80)
Change in deposits / (248) / (137)
Net cash used in financing activities / (22,793) / (24,348)
Net (Decrease) Increase in Cash and Cash Equivalents / (4,788) / 21,709
Cash and Cash Equivalents, Beginning of Period / 81,705 / 66,701
Cash and Cash Equivalents, End of Period / $ / 76,917 / $ / 88,410
Supplemental disclosure of non-cash investing and financing activities:
Buildings, personal property, and obligations recorded under capital lease agreements / $ / 39,032 / $ / –
The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.
7
NATIONAL HEALTHCARE CORPORATION
Interim Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except share and per share amounts)
(unaudited)
Preferred Stock / Common Stock / Capital inExcess of
Par Value / Retained
Earnings / Accumulated Other Comprehensive Income / Total
Stockholders’
Equity
Shares / Amount / Shares / Amount
Balance at January 1, 2013 / 10,838,412 / $ / 170,514 / 14,158,127 / $ / 141 / $ / 154,692 / $ / 279,993 / $ / 50,808 / $ / 656,148
Net income / – / – / – / – / – / 48,024 / – / 48,024
Other comprehensive loss / – / – / – / – / – / – / (1,951) / (1,951)
Stock–based compensation / – / – / – / – / 1,812 / – / – / 1,812
Tax expense from exercise of stock options / – / – / – / – / (225) / – / – / (225)
Shares sold – options exercised / – / – / 5,150 / – / 270 / – / – / 270
Repurchase of common stock / – / – / (100,000) / (1) / (4,699) / – / – / (4,700)
Shares issued in conversion of preferred stock to common stock / (717) / (4) / 172 / – / 4 / – / – / –
Dividends declared to preferred stockholders ($0.60 per share) / – / – / – / – / – / (6,503) / – / (6,503)
Dividends declared to common stockholders ($0.94 per share) / – / – / – / – / – / (13,219) / – / (13,219)
Balance at September 30, 2013 / 10,837,695 / $ / 170,510 / 14,063,449 / $ / 140 / $ / 151,854 / $ / 308,295 / $ / 48,857 / $ / 679,656
Balance at January 1, 2014 / 10,837,665 / $ / 170,510 / 14,078,028 / $ / 140 / $ / 153,061 / $ / 318,216 / $ / 46,185 / $ / 688,112
Net income / – / – / – / – / – / 38,569 / – / 38,569
Other comprehensive income / – / – / – / – / – / – / 3,377 / 3,377
Stock–based compensation / – / – / – / – / 1,547 / – / – / 1,547
Tax expense from exercise of stock options / – / – / – / – / 201 / – / – / 201
Shares sold – options exercised / – / – / 145,074 / 1 / 6,756 / – / – / 6,757
Repurchase of common stock / – / – / (125,000) / (1) / (6,994) / – / – / (6,995)
Shares issued in conversion of preferred stock to common stock / (1,006) / (16) / 241 / – / 16 / – / – / –
Acquisition of non-controlling interest / – / – / – / – / (768) / – / – / (768)
Dividends declared to preferred stockholders ($0.60 per share) / – / – / – / – / – / (6,502) / – / (6,502)
Dividends declared to common stockholders ($1.00 per share) / – / – / – / – / – / (14,181) / – / (14,181)
Balance at September 30, 2014 / 10,836,659 / $ / 170,494 / 14,098,343 / $ / 140 / $ / 153,819 / $ / 336,102 / $ / 49,562 / $ / 710,117
The accompanying notes to interim condensed consolidated financial statements are an integral part of these consolidated statements.