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, 2020
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 ☒
15,357,674 shares of common stock of the registrant were outstanding as of May 4, 2020.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	33
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	35

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(unaudited)

	Three Months Ended March 31
	2020			2019
Revenues:
Net patient revenues	$	244,095		$	236,111
Other revenues		12,029			12,174
Net operating revenues		256,124			248,285
Cost and expenses:
Salaries, wages and benefits		147,469			141,388
Other operating		71,668			69,432
Facility rent		10,332			10,238
Depreciation and amortization		10,438			10,517
Interest		412			926
Total costs and expenses		240,319			232,501
Income from operations		15,805			15,784
Other income:
Non–operating income		8,146			6,001
Unrealized gains/(losses) on marketable equity securities		(60,392	)		6,838
Income/(loss) before income taxes		(36,441	)		28,623
Income tax (provision)/benefit		9,625			(7,392	)
Net income/(loss)		(26,816	)		21,231
(Income)/loss attributable to noncontrolling interest		(36	)		38
Net income/(loss) attributable to National HealthCare Corporation	$	(26,852	)	$	21,269
Earnings/(loss) per share attributable to National HealthCare Corporation stockholders:
Basic	$	(1.76	)	$	1.39
Diluted	$	(1.76	)	$	1.39
Weighted average common shares outstanding:
Basic		15,294,777			15,256,189
Diluted		15,294,777			15,324,125
Dividends declared per common share	$	0.52		$	0.50

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

3

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Comprehensive Income

(unaudited – in thousands)

	Three Months Ended March 31
	2020			2019
Net income/(loss)	$	(26,816	)	$	21,231
Other comprehensive income/(loss):
Unrealized gains/(losses) on investments in restricted marketable debt securities		(2,545	)		3,225
Reclassification adjustment for realized gains on sale of securities		(2	)		-
Income tax (expense)/benefit related to items of other comprehensive income/(loss)		535			(677	)
Other comprehensive income/(loss), net of tax		(2,012	)		2,548
Net (income)/loss attributable to noncontrolling interest		(36	)		38
Comprehensive income/(loss) attributable to National HealthCare Corporation	$	(28,864	)	$	23,817

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

4

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Balance Sheets

(in thousands)

	March 31, 2020			December 31, 2019
	unaudited
Assets
Current Assets:
Cash and cash equivalents	$	69,492		$	50,334
Restricted cash and cash equivalents, current portion		12,947			8,944
Marketable equity securities		92,061			152,453
Restricted marketable debt securities, current portion		16,685			20,576
Accounts receivable		100,411			92,975
Inventories		7,904			7,441
Prepaid expenses and other assets		5,397			4,075
Notes receivable, current portion		1,785			1,695
Federal income tax receivable		-			2,560
Total current assets		306,682			341,053
Property and Equipment:
Property and equipment, at cost		1,032,795			1,017,204
Accumulated depreciation and amortization		(492,175	)		(481,774	)
Net property and equipment		540,620			535,430
Other Assets:
Restricted cash and cash equivalents, less current portion		1,741			1,732
Restricted marketable debt securities, less current portion		131,126			126,830
Deposits and other assets		5,897			5,124
Operating lease right-of-use assets		196,960			202,909
Goodwill		21,341			20,995
Notes receivable, less current portion		13,168			13,384
Investments in unconsolidated companies		38,772			39,191
Total other assets		409,005			410,165
Total assets	$	1,256,307		$	1,286,648

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

5

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Balance Sheets (continued)

(in thousands, except share and per share amounts)

	March 31, 2020		December 31, 2019
	unaudited
Liabilities and Stockholders’ Equity
Current Liabilities:
Trade accounts payable	$	18,275	$	18,903
Finance lease obligations, current portion		4,228		4,166
Operating lease liabilities, current portion		24,557		24,243
Accrued payroll		48,892		69,826
Amounts due to third party payors		15,607		15,108
Accrued risk reserves, current portion		29,632		29,520
Other current liabilities		18,811		15,029
Dividends payable		7,980		7,968
Current maturities of long-term debt		50,000		10,000
Total current liabilities		217,982		194,763
Finance lease obligations, less current portion		13,882		14,963
Operating lease liabilities, less current portion		172,403		178,666
Accrued risk reserves, less current portion		71,130		66,491
Refundable entrance fees		7,455		7,455
Obligation to provide future services		2,035		2,035
Deferred income taxes		8,469		24,012
Other noncurrent liabilities		14,590		16,058
Deferred revenue		5,006		3,136
Total liabilities		512,952		507,579
Equity:
Common stock, $.01 par value; 45,000,000 shares authorized; 15,346,601 and 15,332,206 shares, respectively, issued and outstanding		153		153
Capital in excess of par value		223,600		222,787
Retained earnings		518,261		553,093
Accumulated other comprehensive income		548		2,560
Total National HealthCare Corporation stockholders’ equity		742,562		778,593
Noncontrolling interest		793		476
Total equity		743,355		779,069
Total liabilities and equity	$	1,256,307	$	1,286,648

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

6

NATIONAL HEALTHCARE CORPORATION

Interim Condensed Consolidated Statements of Cash Flows

(unaudited – in thousands)

	Three Months Ended March 31
	2020			2019
Cash Flows From Operating Activities:
Net income/(loss)	$	(26,816	)	$	21,231
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		10,438			10,517
Equity in earnings of unconsolidated investments		(2,811	)		(2,321	)
Distributions from unconsolidated investments		2,349			31
Unrealized (gains)/losses on marketable equity securities		60,392			(6,838	)
Gains on sale of restricted marketable debt securities		(2	)		-
Gain on acquisition of equity method investment		(1,707	)		-
Deferred income taxes		(15,008	)		1,603
Stock–based compensation		466			424
Changes in operating assets and liabilities:
Accounts receivable		(6,212	)		(3,345	)
Income tax receivable		2,560			-
Inventories		(372	)		517
Prepaid expenses and other assets		(1,515	)		(1,008	)
Trade accounts payable		(1,408	)		(441	)
Accrued payroll		(21,343	)		(21,730	)
Amounts due to third party payors		353			185
Accrued risk reserves		4,623			2,498
Other current liabilities		3,365			8,158
Other noncurrent liabilities		(1,468	)		102
Deferred revenue		1,870			2,018
Net cash provided by operating activities		7,754			11,601
Cash Flows From Investing Activities:
Additions to property and equipment		(6,628	)		(5,874	)
Acquisition of equity method investment, net of cash acquired		(6,648	)		-
Investments in notes receivable		(250	)		(312	)
Investments in unconsolidated companies		(125	)		(125	)
Collections of notes receivable		376			353
Purchase of restricted marketable debt securities		(6,360	)		(3,565	)
Sale of restricted marketable debt securities		3,410			6,576
Net cash used in investing activities		(16,225	)		(2,947	)
Cash Flows From Financing Activities:
Borrowings under credit facility		40,000			-
Principal payments under finance lease obligations		(1,019	)		(959	)
Dividends paid to common stockholders		(7,968	)		(7,623	)
Issuance of common shares		400			579
Repurchase of common shares		(53	)		(872	)
Equity contributed by noncontrolling entities		281			-
Net cash provided by (used in) financing activities		31,641			(8,875	)
Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents		23,170			(221	)
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, Beginning of Period		61,010			54,920
Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents, End of Period	$	84,180		$	54,699
Balance Sheet Classifications:
Cash and cash equivalents	$	69,492		$	38,194
Restricted cash and cash equivalents		14,688			16,505
Total Cash, Cash Equivalents, Restricted Cash, and Restricted Cash Equivalents	$	84,180		$	54,699

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)

	Common Stock					Capital in Excess of			Retained Earnings			Accumulated Other Comprehensive			Non- controlling			Total Stockholders’
	Shares			Amount		Par Value			Earnings			Income (Loss)			Interest			Equity
Balance at January 1, 2019		15,255,002		$	153	$	219,435		$	516,435		$	(2,745	)	$	1,179		$	734,457
Net income attributable to National HealthCare Corporation		–			–		–			21,269			–			–			21,269
Net loss attributable to noncontrolling interest		–			–		–			–			–			(38	)		(38	)
Other comprehensive income		–			–		–			–			2,548			–			2,548
Stock–based compensation		–			–		424			–			–			–			424
Shares sold – options exercised		59,384			–		579			–			–			–			579
Repurchase of common shares		(10,396	)		–		(872	)		–			–			–			(872	)
Dividends declared to common stockholders ($0.50 per share)		–			–		–			(7,652	)		–			–			(7,652	)
Balance at March 31, 2019		15,303,990		$	153	$	219,566		$	530,052		$	(197	)	$	1,141			750,715
Balance at January 1, 2020		15,332,206		$	153	$	222,787		$	553,093		$	2,560		$	476		$	779,069
Net loss attributable to National HealthCare Corporation		–			–		–			(26,852	)		–			–			(26,852	)
Net income attributable to noncontrolling interest		–			–		–			–			–			36			36
Equity contributed by noncontrolling interest		–			–		–			–			–			281			281
Other comprehensive loss		–			–		–			–			(2,012	)		–			(2,012	)
Stock–based compensation		–			–		466			–			–			–			466
Shares sold – options exercised		15,006			–		400			–			–			–			400
Repurchase of common shares		(611	)		–		(53	)		–			–			–			(53	)
Dividends declared to common stockholders ($0.52 per share)		–			–		–			(7,980	)		–			–			(7,980	)
Balance at March 31, 2020		15,346,601		$	153	$	223,600		$	518,261		$	548		$	793			743,355

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

8

NATIONAL HEALTHCARE CORPORATION

Notes to Interim Condensed Consolidated Financial Statements

March 31, 2020

(unaudited)

Note 1 – Description of Business

National HealthCare Corporation (“NHC” or the “Company”) is a leading provider of senior health care services. As of March 31, 2020, we operate or manage, through certain affiliates, 75 skilled nursing facilities with a total of 9,513 licensed beds, 25 assisted living facilities, five independent living facilities, one behavioral health hospital, and 35 homecare programs. We operate specialized care units within certain of our healthcare centers such as Alzheimer's disease care units and sub-acute nursing units. We also have a noncontrolling ownership interest in a hospice care business that services NHC-owned skilled nursing facilities and others. In addition, we provide insurance services, management and accounting services, and we lease properties to operators of skilled nursing and assisted living facilities. We operate in 10 states and are located primarily in the southeastern United States.

Note 2 – Summary of Significant Accounting Policies

The listing below is not intended to be a comprehensive list of all our significant accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. generally accepted accounting principles (“GAAP”), with limited need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. See our audited December 31, 2019 consolidated financial statements and notes thereto which contain accounting policies and other disclosures required by GAAP. Our audited December 31, 2019 consolidated financial statements are available at our web site: www.nhccare.com.

Basis of Presentation

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

We assume that users of these interim financial statements have read or have access to the audited December 31, 2019 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.

Estimates and Assumptions

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

 Recently Adopted Accounting Guidance

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13 adds to U.S. GAAP an impairment model that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The ASU is also intended to reduce the complexity of U.S. GAAP by decreasing the number of credit impairment models that entities use to account for debt instruments. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those annual periods. The Company adopted the standard as of January 1, 2020. This standard did not have a material impact on our interim condensed consolidated financial statements; however, we did update our processes specifically in how we monitor credit related declines in market value for our available for sale marketable debt securities.

9

On December 18, 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU is part of the FASB’s overall simplification initiative to reduce the costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. This ASU removes certain exceptions for recognizing deferred taxes for investments, performing intra-period allocation, and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU No. 2019-12 is effective for reporting periods beginning after December 15, 2020, with early adoption permitted. On January 1, 2020, the Company early adopted the provisions of ASU No. 2019-12. This standard did not have a material impact on our interim condensed consolidated financial statements.

Net Patient Revenues and Accounts Receivable

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

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.

The Company determines the transaction price based on established billing rates reduced by contractual adjustments provided to third party payors. Contractual adjustments are based on contractual agreements and historical experience. The Company considers the patient's ability and intent to pay the amount of consideration upon admission. Credit losses are recorded as bad debt expense, which is included as a component of other operating expenses in the interim condensed consolidated statements of operations. Bad debt expense was $830,000 and $1,047,000 for the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, and December 31, 2019, the Company has recorded allowance for doubtful accounts of $4,929,000 and $4,451,000, respectively, as our best estimate of expected losses inherent in the accounts receivable balance.

Other Revenues

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

Segment Reporting

In accordance with the provisions of Accounting Standards Codification ("ASC") 280, Segment Reporting, the Company is required to report financial and descriptive information about its reportable operating segments. The Company has two reportable operating segments: (1) inpatient services, which includes the operation of skilled nursing facilities, assisted and independent living facilities, and one behavioral health hospital, and (2) homecare services. The Company also reports an “all other” category that includes revenues from rental income, management and accounting services fees, insurance services, and costs of the corporate office. See Note 6 for further disclosure of the Company’s operating segments.

Other Operating Expenses

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

10

General and Administrative Costs

With the Company being a healthcare provider, the majority of our expenses are "cost of revenue" items. Costs that could be classified as "general and administrative" by the Company would include its corporate office costs, excluding stock-based compensation, which were $3,059,000 and $1,813,000 for the three months ended March 31, 2020 and 2019, respectively.

Long-Term Leases

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

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

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

Property and Equipment

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

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

Goodwill

We perform our annual goodwill impairment assessment on the first day of the fourth quarter.  At March 31, 2020, the Company reviewed the carrying value of goodwill for impairment indicators due to the events and circumstances surrounding the COVID-19 pandemic. As a result of the review, there were no impairment indicators regarding the Company’s goodwill during the three months ended March 31, 2020 that required a quantitative test to be performed. However, our accounting estimates could materially change from period to period due to changing market factors, including those driven by COVID-19. We will continue to monitor future events, changes in circumstances, and the potential impact thereof. If actual results are not consistent with our assumptions and estimates, we may be exposed to future goodwill impairment losses.

Accrued Risk Reserves  

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

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

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

Continuing Care Contracts and Refundable Entrance Fee

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 exceeds the original resident’s entry fee.

11

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 non-current liabilities in our consolidated balance sheets. As of March 31, 2020, and December 31, 2019, we have recorded a refundable entrance fee in the amount of $7,455,000.

Obligation to Provide Future Services

We 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 (obligation to provide future services) with a corresponding charge to income. As of March 31, 2020, and December 31, 2019, we have recorded a future service obligation in the amount of $2,035,000.

Other Noncurrent Liabilities

Other noncurrent liabilities include reserves primarily related to various uncertain income tax positions.

Deferred Revenue

Deferred revenue includes the deferred gain on the sale of assets to National Health Corporation (“National”), the non-refundable portion (10%) of CCRC entrance fees being amortized over the remaining life expectancies of the residents, and premiums received within our workers’ compensation and professional liability companies in which the performance obligations have not been satisfied.

Noncontrolling Interest

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

 Variable Interest Entities

We have equity interests in unconsolidated limited liability companies that operate various post-acute and senior healthcare businesses. We analyze our investments in these limited liability companies to determine if the company is considered a variable interest entity (“VIE”) and would require consolidation. To the extent that we own interests in a VIE and we (i) are the sole entity that has the power to direct the activities of the VIE and (ii) have the obligation or rights to absorb the VIE's losses or receive its benefits, then we would be determined to be the primary beneficiary and would consolidate the VIE. To the extent we own interests in a VIE, then at each reporting period, we re-assess our conclusions as to which, if any, party within the VIE is considered the primary beneficiary.

The Company's maximum exposure to losses in its investments in unconsolidated VIEs cannot be quantified and may or may not be limited to its investment in the unconsolidated VIE. The investments in unconsolidated VIEs are classified as “investments in limited liability companies” in the consolidated balance sheets.

Prior Period Classifications

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

Note 3 – Net Patient Revenues

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

Revenue by Service Type

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

	Three Months Ended March 31
	2020		2019
Net patient revenues:
Inpatient services	$	230,987	$	221,635
Homecare		13,108		14,476
Total net patient revenue	$	244,095	$	236,111

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

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

 Revenue by Payor

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

	Three Months Ended March 31
Source	2020		2019
Medicare		34%		36%
Managed Care		11%		12%
Medicaid		29%		26%
Private Pay and Other		26%		26%
Total		100%		100%

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

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

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

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

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

Third Party Payors

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

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Medicare and Medicaid program revenues, as well as certain Managed Care program revenues, are subject to audit and retroactive adjustment by government representatives or their agents. Settlements with third-party payors for retroactive adjustments due to audits, reviews or investigations are considered variable consideration and are included in the determination of the estimated transaction price for providing patient care. These settlements are estimated based on the terms of the payment agreement with the payor, correspondence from the payor and the Company’s historical settlement activity, including an assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustment is subsequently resolved. Estimated settlements are adjusted in future periods as adjustments become known, or as years are settled or are no longer subject to such audits, reviews, and investigations. We believe that any differences between the net revenues recorded and final determination will not materially affect the consolidated financial statements. We have made provisions of approximately $15,607,000 and $15,108,000 as of March 31, 2020 and December 31, 2019, respectively, for various Medicare, Medicaid, and Managed Care claims reviews and current and prior year cost reports.

Note 4 – Other Revenues

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

	Three Months Ended March 31
(in thousands)	2020		2019
Rental income	$	5,679	$	5,608
Management and accounting services fees		4,478		4,751
Insurance services		1,382		1,524
Other		490		291
Total other revenues	$	12,029	$	12,174

Rental Income

The Company leases real estate assets consisting of skilled nursing facilities and assisted living facilities to third party operators. Additionally, we sublease four Florida skilled nursing facilities included in our lease from National Health Investors (“NHI”) as noted in Note 7 – Long Term Leases. Rental income reflected in the interim condensed consolidated statements of operations consisted of the following:

	Three Months Ended March 31
(in thousands)	2020		2019
Operating lease payments	$	5,503	$	5,477
Variable lease payments		176		131
Total rental income	$	5,679	$	5,608

 Management Fees from National

We manage five skilled nursing facilities owned by National. For the three months ended March 31, 2020 and 2019, we recognized management fees and interest on management fees of $1,537,000 and $1,854,000 from these centers, respectively.

Insurance Services

For workers’ compensation insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019 were $779,000 and $847,000, respectively. Associated losses and expenses are reflected in the interim condensed consolidated statements of operations as "Salaries, wages and benefits."

For professional liability insurance services, the premium revenues reflected in the interim condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019 were $603,000 and $677,000, 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".

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Note 5 – Non–Operating Income

Non–operating income includes equity in earnings of unconsolidated investments, dividends and other realized gains and losses on sales of marketable securities, and interest income. Our most significant equity method investment is a 75.1% non–controlling ownership interest in Caris HealthCare L.P. (“Caris”), a business that specializes in hospice care services.

	Three Months Ended March 31
(in thousands)	2020		2019
Equity in earnings of unconsolidated investments	$	2,811	$	2,321
Dividends and net realized gains and losses on sales of securities		2,022		1,931
Interest income		1,606		1,749
Gain on acquisition of equity method investment		1,707		-
Total non-operating income	$	8,146	$	6,001

Gain on Acquisition of Equity Method Investment

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

Upon acquiring the remaining ownership interest, the Company recorded and increased its previously held equity interest up to fair value as of the acquisition date. This remeasurement of our equity interest at fair value resulted in a gain of $1,707,000. The gain was recorded in "Non-operating income" in the interim condensed consolidated statement of operations.  Additionally, the excess of the fair value over the amounts assigned to the assets and liabilities of the investee resulted in recording goodwill in the amount of $346,000 on the acquisition date.

Note 6 – Business Segments

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

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

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

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

	Three Months Ended March 31, 2020
	Inpatient Services		Homecare		All Other			Total
Revenues:
Net patient revenues	$	230,987	$	13,108	$	-		$	244,095
Other revenues		435		-		11,594			12,029
Net operating revenues		231,422		13,108		11,594			256,124
Costs and expenses:
Salaries, wages and benefits		135,215		8,316		3,938			147,469
Other operating		65,105		3,819		2,744			71,668
Rent		8,378		457		1,497			10,332
Depreciation and amortization		9,571		54		813			10,438
Interest		382		-		30			412
Total costs and expenses		218,651		12,646		9,022			240,319
Income from operations		12,771		462		2,572			15,805
Non-operating income		-		-		8,146			8,146
Unrealized losses on marketable equity securities		-		-		(60,392	)		(60,392	)
Income/(loss) before income taxes	$	12,771	$	462	$	(49,674	)	$	(36,441	)

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	Three Months Ended March 31, 2019
(As adjusted)	Inpatient Services		Homecare		All Other		Total
Revenues:
Net patient revenues	$	221,635	$	14,476	$	-	$	236,111
Other revenues		231		-		11,943		12,174
Net operating revenues		221,866		14,476		11,943		248,285
Costs and expenses:
Salaries, wages and benefits		129,059		8,399		3,930		141,388
Other operating		62,629		4,252		2,551		69,432
Rent		8,291		462		1,485		10,238
Depreciation and amortization		9,653		61		803		10,517
Interest		348		-		578		926
Total costs and expenses		209,980		13,174		9,347		232,501
Income from operations		11,886		1,302		2,596		15,784
Non-operating income		-		-		6,001		6,001
Unrealized gains on marketable equity securities		-		-		6,838		6,838
Income before income taxes	$	11,886	$	1,302	$	15,435	$	28,623

Note 7 – Long-Term Leases

Operating Leases

At March 31, 2020, we leased from NHI the real property of 35 skilled nursing facilities, seven assisted living centers and three independent living centers under two separate lease agreements. As part of the first lease agreement, we sublease four Florida skilled nursing facilities to a third-party operator. Base rent expense under both NHI lease agreements totals $34,200,000 annually with rent thereafter escalating by 4% of the increase in facility revenue over a base year. Total facility rent expense to NHI was $9,655,000 and $9,515,000 for the three months ended March 31, 2020 and 2019, respectively.

Finance Leases

At March 31, 2020, we leased and operated three senior healthcare facilities in the state of Missouri under three separate lease agreements. Two of the healthcare facilities are skilled nursing facilities that also include assisted living facilities and the third healthcare facility is a memory care facility. Each of the leases is a ten-year lease with two five–year renewal options. Under the terms of the leases, base rent totals $5,200,000 annually with rent thereafter escalating by 4% of the increase in facility revenue over the 2014 base year.

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Minimum Lease Payments

The following table summarizes the maturity of our finance and operating lease liabilities as of March 31, 2020 (in thousands):

	Finance Leases			Operating Leases
2020	$	5,200		$	35,495
2021		5,200			35,169
2022		5,200			34,748
2023		4,766			34,430
2024		-			34,279
Thereafter		-			65,600
Total minimum lease payments		20,366			239,721
Less: amounts representing interest		(2,256	)		(42,761	)
Present value of future minimum lease payments		18,110			196,960
Less: current portion		(4,228	)		(24,557	)
Noncurrent lease liabilities	$	13,882		$	172,403

Note 8 – Earnings per Share

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

	Three Months Ended March 31
	2020			2019
Basic:
Weighted average common shares outstanding		15,294,777			15,256,189
Net income/(loss) attributable to National HealthCare Corporation	$	(26,852	)	$	21,269
Earnings/(loss) per common share, basic	$	(1.76	)	$	1.39
Diluted:
Weighted average common shares outstanding		15,294,777			15,256,189
Effects of dilutive instruments		-			67,936
Weighted average common shares outstanding		15,294,777			15,324,125
Net income/(loss) attributable to National HealthCare Corporation	$	(26,852	)	$	21,269
Earnings/(loss) per common share, diluted	$	(1.76	)	$	1.39

The impact of potentially dilutive securities (652,208) for the three months ended March 31, 2020 were not considered because the effect would be anti-dilutive in that period. Options to purchase 8,475 shares of our common stock have been excluded for the quarter ended March 31, 2019 due to their anti–dilutive impact. 

Note 9 – Investments in Marketable Securities

Our investments in marketable equity securities are carried at fair value with the changes in unrealized gains and losses recognized in our results of operations at each measurement date. Our investments in marketable debt securities are classified as available for sale securities and carried at fair value with the unrealized gains and losses recognized through accumulated other comprehensive income at each measurement date. Any credit related decline in fair market values of our available for sale debt securities are recorded in our results of operations through an allowance for credit losses. Realized gains and losses from securities sales are recognized in results of operations upon disposition of the securities using the specific identification method on a trade date basis. Refer to Note 10 for a description of the Company's methodology for determining the fair value of marketable securities.

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Marketable securities and restricted marketable securities consist of the following (in thousands):

	March 31, 2020				December 31, 2019
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Investments available for sale:
Marketable equity securities	$	30,176	$	92,061	$	30,176	$	152,453
Restricted investments available for sale:
Corporate debt securities		66,599		67,151		63,414		65,653
Asset-based securities		54,273		53,465		54,451		55,185
U.S. Treasury securities		13,372		14,130		13,379		13,410
State and municipal securities		12,873		13,065		12,922		13,158
	$	177,293	$	239,872	$	174,342	$	299,859

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

	March 31, 2020						December 31, 2019
	Shares		Cost		Fair Value		Shares		Cost		Fair Value
NHI Common Stock		1,630,642	$	24,734	$	80,749		1,630,642	$	24,734	$	132,865

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, 2020				December 31, 2019
	Cost		Fair Value		Cost		Fair Value
Maturities:
Within 1 year	$	14,754	$	14,600	$	15,726	$	15,767
1 to 5 years		94,416		94,603		88,314		90,408
6 to 10 years		37,947		38,608		40,126		41,231
Over 10 years		-		-		-		-
	$	147,117	$	147,811	$	144,166	$	147,406

Gross unrealized gains related to marketable equity securities are $62,244,000 and $122,290,000 as of March 31, 2020 and December 31, 2019, respectively. Gross unrealized losses related to marketable equity securities are $359,000 and $13,000 as of March 31, 2020 and December 31, 2019, respectively. For the three months ended March 31, 2020 and 2019, the Company recognized net unrealized losses of $60,392,000 and net unrealized gains of $6,838,000, respectively, for the changes in fair market value of the marketable equity securities in the interim condensed consolidated statement of operations.

Gross unrealized gains related to available for sale marketable debt securities are $3,024,000 and $3,407,000 as of March 31, 2020 and December 31, 2019, respectively. Gross unrealized losses related to available for sale marketable debt securities are $2,330,000 and $167,000 as of March 31, 2020 and December 31, 2019, respectively. The Company’s unrealized losses in our available for sale marketable debt securities were determined to be non-credit related.

The Company has not recognized any credit related impairments for the three months ending March 31, 2020 and 2019.

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

Proceeds from the sale of available for sale marketable debt securities during the three months ended March 31, 2020 and 2019 were $3,410,000 and $6,576,000, respectively. Investment gains of $2,000 and $-0- were realized on these sales during the three months ended March 31, 2020 and 2019, respectively. No sales were reported for marketable equity securities for the three months ended March 31, 2020 and 2019, respectively.

Note 10 – Fair Value Measurements

The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels of inputs that may be used to measure fair value:

Level 1 – The valuation is based on quoted prices in active markets for identical instruments.

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Level 2 – The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model–based valuation techniques for which all significant assumptions are observable in the market.

Level 3 – The valuation is based on unobservable inputs that are supported by minimal or no market activity and that are significant to the fair value of the instrument. Level 3 valuations are typically performed using pricing models, discounted cash flow methodologies, or similar techniques that incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument, or valuations that require significant management judgment or estimation.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following table summarizes fair value measurements by level at March 31, 2020 and December 31, 2019 for assets and liabilities measured at fair value on a recurring basis (in thousands):

	Fair Value Measurements Using
March 31, 2020	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	$	69,492	$	69,492	$	–	$	–
Restricted cash and cash equivalents		14,688		14,688		–		–
Marketable equity securities		92,061		92,061		–		–
Corporate debt securities		67,151		47,434		19,717		–
Mortgage–backed securities		53,465		–		53,465		–
U.S. Treasury securities		14,130		14,130		–		–
State and municipal securities		13,065		1,974		11,091		–
Total financial assets	$	324,052	$	239,779	$	84,273	$	–

	Fair Value Measurements Using
December 31, 2019	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	$	50,334	$	50,334	$	–	$	–
Restricted cash and cash equivalents		10,676		10,676		–		–
Marketable equity securities		152,453		152,453		–		–
Corporate debt securities		65,653		48,584		17,069		–
Asset - backed securities		55,185		–		55,185		–
U.S. Treasury securities		13,410		13,410		–		–
State and municipal securities		13,158		1,975		11,183		–
Total financial assets	$	360,869	$	277,432	$	83,437	$	–

Note 11 – Long–Term Debt

Long–term debt consists of the following (dollars in thousands) :

	Weighted Average Interest Rate		Maturity		March 31, 2020			December 31, 2019
	Variable
Credit facility, interest payable monthly		2.4%		2020	$	50,000		$	10,000
Less current portion						(50,000	)		(10,000	)
Total long-term debt					$	-		$	-

As of March 31, 2020, the available borrowing capacity for the credit facility is $10 million. The credit facility has a maturity date of October 2020. Loans bear interest at either (i) LIBOR plus 1.40% or (ii) the base rate plus 0.40%.

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Note 12 - Stock Repurchase Program

 In August 2019, the Board of Directors authorized a common stock purchase program. The program will allow for repurchases of up to $25 million of its common stock. During the quarter ended March 31, 2020, the Company repurchased 611 shares of its common stock for a total cost of $53,000. The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued.

Note 13 – Stock–Based Compensation

NHC recognizes stock–based compensation expense for all stock options granted over the requisite service period using the fair value at the date of grant using the Black–Scholes pricing model. Stock–based compensation totaled $466,000 and $424,000 for the three months ended March 31, 2020 and 2019, respectively. Stock–based compensation is included in “Salaries, wages and benefits” in the interim condensed consolidated statements of operations.

At March 31, 2020, the Company had $4,077,000 of unrecognized compensation cost related to unvested stock–based compensation awards. This unrecognized compensation cost will be amortized over an approximate two-year period.

Stock Options

The following table summarizes the significant assumptions used to value the options granted for the three months ended March 31, 2020 and for the year ended December 31, 2019.

	March 31, 2020		December 31, 2019
Risk–free interest rate		1.40%		2.30%
Expected volatility		16.6%		17.4%
Expected life, in years		1.9		2.3
Expected dividend yield		2.55%		2.73%

The following table summarizes our outstanding stock options for the three months ended March 31, 2020 and for the year ended December 31, 2019.

	Number of Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value
Options outstanding at January 1, 2019		1,163,381		$	71.16	$	–
Options granted		53,316			77.89		–
Options exercised		(346,168	)		71.57		–
Options cancelled		(85,000	)		72.94		–
Options outstanding at December 31, 2019		785,529			71.24		–
Options granted		57,313			84.46		–
Options exercised		(7,615	)		65.37		–
Options outstanding at March 31, 2020		835,227		$	72.20	$	1,331,000
Options exercisable at March 31, 2020		196,414		$	68.31	$	1,001,000

Options Outstanding March 31, 2020	Exercise Prices			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years
133,958	$52.93	-	$62.78		61.80		1.82
701,269	$72.94	-	$86.48		74.19		2.05
835,227					72.20		2.01

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Note 14 – Income Taxes

The income tax benefit for the three months ended March 31, 2020 is $(9,625,000) (an effective income tax rate of 26.4%). The income tax provision and effective tax rate for the three months ended March 31, 2020 were unfavorably impacted by adjustments to unrecognized tax benefits of $