Back to GetFilings.com

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

The accompanying notes to interim condensed consolidated financial statements are in integral part of these consolidated balance sheets.

The interim condensed balance sheet at December 31, 2001 is taken from the audited financial statements at that date.

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

Note 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

          The unaudited condensed consolidated financial statements to which these notes are attached include, in our opinion, all adjustments which are necessary to fairly present the financial position, results of operations and cash flows of National HealthCare Corporation ("NHC" or the "Company"). We assume that users of these interim financial statements have read or have access to the audited December 31, 2001 financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations 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 shareowners 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. Our audited December 31, 2001 financial statements are available at our web site: www.nhccare.com.

Note 2 - OTHER REVENUES:

          Revenues from management, accounting and financial services include management and accounting fees and revenues from other services provided to managed and other long-term health care centers. "Other" revenues include non-healthcare related earnings.

Note 3 - GUARANTEES AND CONTINGENCIES:

Guarantees and Related Events

In addition to our primary debt obligations, which are included in our consolidated financial statements, we have guaranteed the debt obligations of certain other entities. Those guarantees, which are not included as debt obligations in our consolidated financial statements, total $39,073,000 at June 30, 2002 and include $23,964,000 of debt of managed and other long-term health care centers and $15,109,000 of debt of National Health Corporation ("National") and the National Health Corporation Employee Stock Ownership Plan ("ESOP").

The $23,964,000 of guarantees of debt of managed and other long-term health care centers relates to first mortgage debt obligations of five long-term health care centers to which we provide management or accounting services. We have agreed to guarantee these obligations in order to obtain management or accounting services agreements. For this service, we charge an annual guarantee fee of 1% to 2% of the outstanding principal balance guaranteed, which fee is in addition to our management or accounting services fee. All of this guaranteed indebtedness is secured by first mortgages, pledges of personal property, accounts receivable, marketable securities and, in certain instances, the personal guarantees of the owners of the facilities.

The $15,109,000 of guarantees of debt of National and the ESOP relates to senior secured notes held by financial institutions. The total outstanding balance of National and the ESOP's obligations under these senior secured notes is $24,368,000. Of this obligation, $9,259,000 has been included in our debt obligations because we owe National this amount. The remaining $15,109,000, which is not included in our debt obligations because we are not a direct obligor, is due from NHI to National and from National to the ESOP. Additionally, under the amended terms of these note agreements, the lending institutions which own this debt have the right to put to us the entire outstanding balance of this debt on March 31, 2005. Upon exercise of this put option by the lending institutions, we would be obligated to purchase the then outstanding balance of these senior secured notes, which is estimated to be approximately $15,116,000. We would then be able to pursue recovery from NHI and National for the respective amounts.

Our long-term debt also includes a bank credit facility (balance of $9,500,000 at June 30, 2002) that matures in November 2002. We currently expect to either retire or refinance that debt when due.

Through a guarantee agreement, our senior secured notes have cross-default provisions with other debt of National and the ESOP. Although we currently believe that National and the ESOP are in compliance with the terms of their debt agreements, under the terms of one of their debt obligations to a financial institution (total balance of $12,313,000 at June 30, 2002), the financial institution has the right to put the entire outstanding balance of the debt to National on March 31, 2005. If the lending institution does exercise that put option on that date and National is unable to purchase or refinance the entire outstanding balance of the debt, National's debt along with a substantial portion of NHC's debt would be in default, which would have a material adverse effect on NHC's financial position and cash flows.

Note 4 - NEW ACCOUNTING PRONOUNCEMENTS:

In July 2001, the FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 supersedes Accounting Principles Board ("APB") Opinion No. 16, "Business Combinations" and requires all business combinations to be accounted for using the purchase method of accounting. In addition, SFAS 141 requires that identifiable intangible assets be recognized apart from goodwill based on meeting certain criteria. SFAS 142 supersedes APB Opinion No. 17, "Intangible Assets" and addresses how intangible assets and goodwill should be accounted for upon and after their acquisition. Specifically, goodwill and intangible assets with indefinite useful lives will not be amortized but will be subject to impairment tests based on their fair value. We have adopted SFAS 141 and 142 on January 1, 2002. The adoption of these pronouncements did not have a material effect on our consolidated financial position, results of operations or cash flows.

During August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 is effective for fiscal years beginning after December 15, 2001 and supersedes certain existing accounting literature, which literature NHC currently uses to evaluate the recoverability of its real estate properties. NHC adopted the provisions of SFAS 144 effective January 1, 2002. The adoption of SFAS 144 did not have a material effect on our financial position, results of operations or cash flows.

Note 5 - LEGAL PROCEEDINGS:

General Liability Lawsuits

The entire long term care industry has seen a dramatic increase in personal injury/wrongful death claims based on alleged negligence by nursing homes and their employees in providing care to residents. As of June 30, 2002, we and/or our managed centers are currently defendants in 110 such claims covering 1996 through 2001. Sixty-three of these claims are filed in Florida and 47 in all other states. We terminated long-term care center operations in Florida effective September 30, 2000.

During the current fiscal year, insurance coverage for incidents occurring in all providers that are owned, leased or managed by us is primarily maintained through a self-funded captive insurance company which is a Cayman Island corporation qualified and taxed as a domestic NHC subsidiary. The coverage provided through the self-funded captive insurance company includes a reimbursement provision for losses up to $1,000,000 per claim. The Company has also obtained an umbrella policy that provides coverage in excess of this $1,000,000 per claim. Certain managed centers have a separate policy purchased from a commercial carrier.

The 1999 through 2001 policies we purchased contain a per incident deductible. The 1999 policy has an aggregate limit on our potential deductible obligations. The 2000 and 2001 policies also contain a per incident deductible, however, there is no aggregate limit on our potential deductible obligations.

We use actuaries to estimate 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. It is possible that claims against us could exceed our coverage limits and our reserves, which would have a material adverse effect on our financial position, results of operations and cash flows.

Note 6. NOTES RECEIVABLE

We have various notes receivable totaling $20,345,000, primarily from long-term health care centers to which we provide management or accounting services. During the three months ended March 31, 2002, we wrote-off a $2,760,000 note receivable due from a 120-bed long-term health care center in Missouri that we manage. The write-off was recorded during the three months ended March 31, 2002. As a result of the lack of increase in reimbursement rates, the cash flows of this center had declined and the center has not made a principal payment on this note since December 31, 2001. Based on an analysis consistent with the provisions of Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan - an Amendment of FASB Statements No. 5 and 15", we concluded that the write-off of $2,760,000 was required. We continue to monitor closely our other notes receivable from centers to which we provide management or accounting services.

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

Overview

National HealthCare Corporation ("NHC" or the "Company") operates or manages 82 long-term health care centers with 10,499 beds in 11 states. We provide nursing care as well as ancillary therapy services to patients in a variety of settings including long-term care nursing centers (82), subacute care units (9), Alzheimer's care units (6), homecare programs (32), assisted living centers (21) and independent living centers (7). In addition, we provide accounting and financial services to owners of 37 long-term health care centers and investment advisory services to National Health Investors, Inc. ("NHI") and National Health Realty, Inc. ("NHR").

Critical Accounting Policies

In December 2001, the SEC requested all registrants list their three to five most "critical accounting policies" in MD&A. The SEC indicated that a "critical accounting policy" is one which is both important to the portrayal of the Company's financial condition and results and requires management's most difficult, subjective or complex judgements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. In our Form 10-K annual report for the fiscal year ended December 31, 2001, we identified in MD&A the following critical accounting policies as fitting this definition.

             1)          Revenue recognition - third party payors

             2)          Accrued risk reserves

             3)          Revenue recognition of uncertain collections

             4)          Revenue recognition - mortgage interest

             5)          Potential recognition of deferred income

             6)          Tax contingencies

Please refer to MD&A in the 2001 Form 10-K for a more complete discussion of these policies. There are no additional critical accounting policies identified in the first or second quarter of 2002.

Results of Operations

Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001.

Results for the three month period ended June 30, 2002 include an 10.3% increase compared to the same period in 2001 in net revenues and a 30.3% increase in net income.

The increase in net patient revenues is primarily due to improved Medicare, Medicaid and private pay rates and improved census mix.

Revenues from management or accounting and financial services fees, which are included in the Statements of Income in Other Revenues, increased $3.8 million or 83.8% in 2002 from $4.5 million in 2001 to $8.3 million in 2002. The increase is primarily due to the recognition of management fees and accounting and financial fees which have been paid and earned in 2002 but which were not received and were doubtful of collection in the prior year. During the three months ended June 30, 2002, NHC provided financial and accounting services for 37 facilities as compared to 31 facilities during the three months ended June 30, 2001.

Total costs and expenses for the 2002 second quarter increased $9.0 million or 9.3% to $106.7 million from $97.6 million. Salaries, wages and benefits, the largest operating costs of this service company, increased $5.4 million or 10.0% to $59.8 million from $54.4 million. Other operating expenses increased $4.0 million or 13.9% to $32.6 million for the 2002 period compared to $28.6 million in the 2001 period. Rent increased $.3 million or 3.2% to $10.4 million from $10.0 million. Depreciation and amortization decreased 6.3% to $3.0 million. Interest costs decreased $.5 million to $.8 million.

Increases in salaries, wages and benefits are due primarily to increased bonus and benefit programs compared to the quarter a year ago. The increases result both from inflationary increases and from changes in the benefit programs.

Increases in other operating costs and expenses are due to inflationary increases and higher occupancies in assisted living and independent living services. Also contributing to the increase was the write-off of development costs related to the construction of a new retirement and nursing home community.

The total census at owned and leased centers for the quarter averaged 92.9% compared to an average of 93.5% for the same quarter a year ago.

Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001.

Results for the six month period ended June 30, 2002 include an 11.2% increase compared to the same period in 2001 in net revenues and a 29.8% increase in net income.

The increase in revenues is primarily due to improved Medicare, Medicaid and private pay rates and improved census mix.

Revenues from management or accounting and financial services fees, which are included in the Statements of Income in Other Revenues, increased $4.2 million or 39.5% in 2002 from $10.7 million in 2001 to $14.9 million in 2002. The increase is primarily due to the recognition of management fees and accounting and financial fees which have been paid and earned in 2002 but which were not received and were doubtful of collection in the prior year. During the six months ended June 30, 2002, NHC provided financial and accounting services for 33 facilities as compared to 31 facilities during the six months ended June 30, 2001.

Total costs and expenses for the 2002 first six months increased $19.8 million or 10.3% to $212.8 million from $193.0 million. Salaries, wages and benefits, the largest operating costs of this service company, increased $10.7 million or 9.8% to $119.8 million from $109.0 million. Other operating expenses increased $7.6 million or 14.0% to $61.7 million for the 2002 period compared to $54.1 million in the 2001 period. Rent increased $.2 million or 1.1% to $20.8 million from $20.5 million. Depreciation and amortization decreased 5.7% to $6.0 million. Interest costs decreased $1.1 million to $1.8 million.

Increases in salaries, wages and benefits are due primarily to increased bonus and benefit programs compared to the quarter a year ago. The increases result both from inflationary increases and from changes in the benefit programs.

Increases in other operating costs and expenses are due to inflationary increases and higher occupancies in assisted living and independent living services. Also contributing to the increase was the write-off of development costs related to the construction of a new retirement and nursing home community.

Expenses this year included a loss of $2,760,000 for the write-off of a note receivable. This note receivable is due from a 120-bed long-term health care center in Missouri that we manage. The write-off was recorded during the three months ended March 31, 2002, as a result of the lack of increase in reimbursement rates, the cash flows of this center declined and the center has not made a principal payment on this note since December 31, 2001. Based on an analysis consistent with the provisions of Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan - an Amendment of FASB Statements No. 5 and 15", we concluded that the write-offs of $2,760,000 was required. We continue to monitor closely our other notes receivable from centers to which we provide management or accounting services.

The total census at owned and leased centers for the six months averaged 93.0% compared to an average of 93.4% for the same period a year ago.

Liquidity and Capital Resources

Net cash provided by operating activities during the first six months of 2002 totaled $22.0 million compared to $6.8 million provided by operating activities in the prior year period. The increase in cash generated from operating activities is due primarily to increases in net income, and the changes in working capital, including the recognition of accrued risk reserves in excess of current cash requirements.

Cash flows used in investing activities during the first six months of 2002 totaled $5.9 million compared to $8.0 million provided by investing activities in the same period in 2001. Cash used for additions to and acquisitions of property totaled $6.7 million in 2002 compared to $2.6 million in 2001. Cash used for investment in notes receivable totaled $2.1 million in the first six months this year compared to $4.2 million in the six months last year. Collections of notes receivable generated $2.3 million in 2002 compared to $7.8 million in 2001. Cash provided by the sale of marketable securities totaled $.07 million compared to $6.9 million in 2001.

Cash used in financing activities totaled $0.7 million in the first six months of 2002 compared to $6.0 million for the same period in 2001. Proceeds from debt issuance, none this year, totaled $3.5 million in the first six months last year. Increases in cash held by trustees totaled $1.0 million compared to $3.2 million in the six months last year. Collections of receivables totaled $4.1 million compared to none last year. Cash used for payments on debt totaled $4.1 million this year compared to $6.4 million last year.

Reduction of Long-Term Debt

At June 30, 2002, our ratio of total debt to total capitalization (total debt plus deferred income plus shareholders equity) is 27.8%.

Our current cash on hand, marketable securities, short-term notes receivable, operating cash flows and, as needed, our borrowing capacity are expected to be adequate to finance any scheduled debt reductions plus our operating requirements and growth and development plans for 2002 and into 2003.

Guarantees and Contingencies

In addition to our primary debt obligations, which are included in our consolidated financial statements, we have guaranteed the debt obligations of certain other entities. Those guarantees, which are not included as debt obligations in our consolidated financial statements, total $39,073,000 at June 30, 2002 and include $23,964,000 of debt of managed and other long-term health care centers and $15,109,000 of debt of National and the ESOP.

The $23,964,000 of guarantees of debt of managed and other long-term health care centers relates to first mortgage debt obligations of five long-term health care centers to which we provide management or accounting services. We have agreed to guarantee these obligations in order to obtain management or accounting services agreements. For this service, we charge an annual guarantee fee of 1% to 2% of the outstanding principal balance guaranteed, which fee is in addition to our management or accounting services fee. All of this guaranteed indebtedness is secured by first mortgages, pledges of personal property, accounts receivable, marketable securities and, in certain instances, the personal guarantees of the owners of the facilities.

The $15,109,000 of guarantees of debt of National and the ESOP relates to senior secured notes held by financial institutions. The total outstanding balance of National and the ESOP's obligations under these senior secured notes is $24,638,000. Of this obligation, $9,259,000 has been included in our debt obligations because we owe National this amount. The remaining $15,109,000, which is not included in our debt obligations because we are not a direct obligor, is due from NHI to National and from National to the ESOP. Additionally, under the amended terms of one of these note agreements and an oral extension currently being documented in the other, the lending institutions have the right to put to us the entire outstanding balance of this debt on March 31, 2005. Upon exercise of this put option by the lending institutions, we would be obligated to purchase the then outstanding balance of these senior secured notes, which is estimated to be approximately $15,116,000. We would then be able to pursue recovery from NHI and National for the respective amounts.

Our long-term debt also includes a bank credit facility (total balance of $9,500,000 at June 30, 2002) that matures in November 2002. We currently expect to either retire or refinance that debt when due.

Through a guarantee agreement, our senior secured notes have cross-default provisions with other debt of National and the ESOP. Although we currently believe that National and the ESOP are in compliance with the terms of their debt agreements, under the terms of one of their debt obligations to a financial institution (total balance of $12,313,000 at June 30, 2002), the financial institution has the right to put the entire outstanding balance of the debt to National on March 31, 2005. If the lending institution does exercise that put option on that date and National is unable to purchase or refinance the entire outstanding balance of the debt, National's debt along with a substantial portion of NHC's debt would be in default, which would have a material adverse effect on NHC's financial position and cash flows.

New Accounting Pronouncements

In July 2001, the FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 supersedes Accounting Principles Board ("APB") Opinion No. 16, "Business Combinations" and requires all business combinations to be accounted for using the purchase method of accounting. In addition, SFAS 141 requires that identifiable intangible assets be recognized apart from goodwill based on meeting certain criteria. SFAS 142 supersedes APB Opinion No. 17, "Intangible Assets" and addresses how intangible assets and goodwill should be accounted for upon and after their acquisition. Specifically, goodwill and intangible assets with indefinite useful lives will not be amortized but will be subject to impairment tests based on their fair value. We have adopted SFAS 141 and 142 on January 1, 2002. The adoption of these pronouncements did not have a material effect on our consolidated financial position, results of operations or cash flows.

During August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 is effective for fiscal years beginning after December 15, 2001 and supersedes certain existing accounting literature, which literature NHC currently uses to evaluate the recoverability of its real estate properties. NHC adopted the provisions of SFAS 144 effective January 1, 2002. The adoption of SFAS 144 did not have a material effect on our financial position, results of operations or cash flows.

Health Care Legislation

We continue to be concerned with proposed October 2002 changes in Medicare reimbursement which would, if implemented, negatively affect future operating results of our industry.

Under the current skilled nursing prospective payment system, established by the Balanced Budget Act of 1997, each of our nursing centers are paid a daily rate for each Medicare patient, which rate is based on the relative needs of the individual patient, adjusted for local labor costs. The individual classification groups are called Resource Utilization Groups (RUGS).

Two temporary add-on payments for skilled nursing centers added by the Benefits Improvement and Protection Act of 2000 are scheduled to expire on October 1, 2002.

A 15% reduction in home health payments is also scheduled to begin October 1, 2002. After being offset by inflation updates and other provisions, a net 4.9% estimated reduction in payment rates is expected if implemented.

If these changes go into effect, they will have a material adverse effect on our operating results.

Litigation

The entire long term care industry has seen a dramatic increase in personal injury/wrongful death claims based on alleged negligence by nursing homes and their employees in providing care to residents. As of June 30, 2002, we and/or our managed centers are currently defendants in 110 such claims covering 1996 through 2001. Sixty-three of these claims are filed in Florida and 47 in all other states. We terminated long-term care center operations in Florida effective September 30, 2000.

During the current fiscal year, insurance coverage for incidents occurring in all providers that are owned, leased or managed by us is maintained through a self-funded captive insurance company which is a Cayman Island corporation qualified and taxed as a domestic NHC subsidiary. The coverage provided through the self-funded captive insurance company includes a reimbursement provision for losses up to $1,000,000 per claim. The Company has also obtained an umbrella policy that provides coverage in excess of this $1,000,000 per claim.

The 1999 through 2001 policies we purchased contain a per incident deductible. The 1999 policy has an aggregate limit on our potential deductible obligations. The 2000 and 2001 policies also contain a per incident deductible, however, there is no aggregate limit on our potential deductible obligations.

Forward-Looking Statements

References throughout this document to the Company include National HealthCare Corporation and its wholly-owned subsidiaries. In accordance with the Securities and Exchange Commission's "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:

• 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 5: Legal Proceedings);
• the ability of third parties for whom we have guaranteed debt to refinance certain short term debt obligations;
• 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;
• the ability to maintain and increase census levels; and
• demographic changes.

See the notes to the quarterly financial statement, and "Item 1. Business" as is found in our 2001 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 side 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 actually 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.

Item 3. Quantitative and Qualitative Information About Market Risk

Interest Rate Risk--

Our cash and cash equivalents consist of highly liquid investments with a maturity of less than three months. As a result of the short-term nature of our cash instruments, a hypothetical 10% change in interest rates would have no impact on our future earnings and cash flows related to these instruments. Approximately $32.3 million of our notes receivable bear interest at fixed interest rates. As the interest rates on these notes receivable are fixed, a hypothetical 10% change in interest rates would have no impact on our future earnings and cash flows related to these instruments. Approximately $15.9 million of our notes receivable bear interest at variable rates (generally at prime plus 2%). Because the interest rates of these instruments are variable, a hypothetical 10% change in interest rates would result in a related increase or decrease in annual interest income of approximately $92,000. As of June 30, 2002, $26.6 million of our long-term debt and debt serviced by other parties bear interest at fixed interest rates. Because the interest rates of these instruments are fixed, a hypothetical 10% change in interest rates would have no impact on our future earnings and cash flows related to these instruments. The remaining $24.9 million of our long-term debt and debt serviced by other parties bear interest at variable rates. Because the interest rates of these instruments are variable, a hypothetical 10% change in interest rates would result in a related increase or decrease in annual interest expense of approximately $119,000.

Equity Price Risk--

We consider our investments in marketable securities as "available for sale" securities and unrealized gains and losses are recorded in stockholders' equity in accordance with Statement of Financial Accounting Standards No. 115. The investments in marketable 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 price. Hypothetically, a 10% change in quoted market prices would result in a related 10% change in the fair value of our investments in marketable securities.

Item 1. Legal Proceedings.

For a discussion of prior, current and pending litigation of material significance to NHC, please see Note 5 of this Form 10-Q.

Item 2. Changes in Securities. Not applicable

Item 3. Defaults Upon Senior Securities. None

Item 4. Submission of Matters to Vote of Security Holders. None

Item 5. Other Information. None

Item 6. Exhibits and Reports on Form 8-K.

(a) List of exhibits - None required

(b) Reports on Form 8-K. Form 8-K filed July 2, 2002.

SIGNATURES

Pursuant to the requirements of the Security Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.