Note 3 - Other Revenues

3 Months Ended

Mar. 31, 2013

Note 3 – Other Revenues

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

Other revenues include the following:

	Three Months Ended March 31
(in thousands)	2013		2012
Management and accounting services fees	$	4,832	$	4,962
Rental income		4,737		4,761
Insurance services		6,127		3,925
Other		252		289
	$	15,948	$	13,937

Management Fees from National

We manage five long–term care centers owned by National Health Corporation ("National"). During the three months ended March 31, 2013 and 2012, we recognized management fees and interest on management fees of $912,000 and $861,000, respectively, from these centers.

Because the amount collectable could not be reasonably determined when the management services were provided, and because we cannot estimate the timing or amount of expected future collections, the unpaid fees from the five centers owned by National will be recognized as revenues only when the collectability of these fees can be reasonably assured. Under the terms of our management agreement with National, the payment of these fees to us may be subordinated to other expenditures of the five long–term care centers. We continue to manage these centers so that we may be able to collect our fees in the future and because the incremental savings from discontinuing services to a center may be small compared to the potential benefit. We may receive payment for the unrecognized management fees in whole or in part in the future only if cash flows from the operating and investing activities of the five centers or the proceeds from the sale of the centers are sufficient to pay the fees. There can be no assurance that such future improved cash flows will occur.

Management Fees from Other Nursing Centers

During the three months ended March 31, 2013, we managed fourteen long-term health care centers (excluding the five National centers) for two non-profit organizations (ElderTrust and SeniorTrust) where a court-appointed receiver was custodian over the assets of the organizations. For the three months ended March 31, 2013 and 2012, we recognized $1,360,000 and $1,406,000, respectively, of management fees from these fourteen long-term health care centers.

In conjunction with the litigation settlement between us and the two non-profit organizations as described in Note 16, we will no longer manage seven of the long-term health care centers located in the states of Massachusetts and New Hampshire. We have agreed to lease and operate the seven long-term health care centers from National Health Investors (“NHI”). NHI is purchasing the seven health care centers from ElderTrust and will then subsequently lease the facilities to us. We are expected to lease and operate the facilities as soon we receive court approval and state licensure is obtained. At the time of this settlement agreement, ElderTrust was paying approximately $3,200,000 annually in management fees to NHC. We do not anticipate a material change to our future results of operations and cash flows from the transition of us managing the seven long-term health care centers to us leasing and operating the seven health care facilities.

We are no longer providing management services to the two Missouri health care centers that were sold in February 2013 and will no longer provide management services to the remaining five Kansas health care centers after May 1, 2013. At the time of this settlement agreement, the Missouri and Kansas health care centers were paying approximately $2,200,000 annually in management fees to NHC. We anticipate the loss of management fee revenue from the Missouri and Kansas health care centers to be adverse to our future results of operations and cash flows.

Rental Income and Accounting Services Fees

As part of the negotiated resolution with the receiver regarding our relationship with non-profit organizations, we have agreed to no longer sublease The Health Center at Standifer Place and Standifer Place Assisted Living facility in Chattanooga, Tennessee to a third party non-profit organization. At the termination of the sublease, we may then operate, sell, or re-lease the two health care facilities. At the time of this settlement agreement, the third party non-profit organization was paying approximately $2,200,000 annually in lease payments and $1,400,000 annually in accounting services fees. We anticipate the terminating sublease with the third party non-profit organization to have an adverse effect on our future results of operations and cash flows of approximately $1,500,000 annually.