10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
____________________________
FORM 10-K
(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
OR
[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _____________
Commission File No. 001-13489
____________________________
(Exact name of registrant as specified in its Corporate Charter)
Delaware	52-2057472
(State of Incorporation)	(I.R.S. Employer I.D. No.)
100 Vine Street
Murfreesboro, Tennessee 37130
(Address of principal executive offices)
Telephone Number: 615-890-2020
____________________________
Securities registered pursuant to Section 12(b) of the Act.
Title of Each Class	Name of Each Exchange on which Registered
Shares of Common Stock Shares of Preferred Cumulative Convertible Stock	NYSE MKT NYSE MKT
____________________________
Securities registered pursuant to Section 12(g) of the Act:   None
____________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [x]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [x]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:   Yes [x]   No [  ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such period that the registrant was required to submit and post such files). Yes [x]      No [  ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Act).  Large accelerated filer [  ]    Accelerated filer [x]    Non-accelerated filer [  ]   Smaller reporting company [  ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).        Yes [  ]  No [x]
The aggregate market value of Common Stock held by non-affiliates on June 30, 2014 (based on the closing price of such shares on the NYSE MKT) was approximately $435 million.  For purposes of the foregoing calculation only, all directors, named executive officers and persons known to the Registrant to be holders of 5% or more of the Registrant’s Common Stock have been deemed affiliates of the Registrant.
The number of shares of Common Stock outstanding as of February 12, 2015 was 14,110,859.
Documents Incorporated by Reference
The following documents are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this Form 10-K:
The Registrant’s definitive proxy statement for its 2015 shareholder’s meeting.

TABLE OF CONTENTS

PART 1

ITEM 1.

BUSINESS

ITEM 1A.

RISK FACTORS

ITEM 1B.

UNRESOLVED STAFF COMMENTS

ITEM 2.

PROPERTIES

ITEM 3.

LEGAL PROCEEDINGS

ITEM 4.

MINE SAFETY DISCLOSURES

PART II

ITEM 5.

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES    

ITEM 6.

SELECTED FINANCIAL DATA

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS            

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE        

ITEM 9A.

CONTROLS AND PROCEDURES

ITEM 9B.

OTHER INFORMATION

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11.

EXECUTIVE COMPENSATION

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS      

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE            

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULE

SIGNATURES

EXHIBIT INDEX

PART 1

ITEM 1.

BUSINESS

General Development of Business

National HealthCare Corporation, which we also refer to as NHC or the Company, began business in 1971.  Our principal business is the operation of skilled nursing facilities with associated assisted living and independent living centers.  Our business activities include providing sub-acute and post-acute skilled nursing care, intermediate nursing care, rehabilitative care, senior living services, and home health care services.  We have a non-controlling ownership interest in a hospice care business that services NHC owned health care centers and others.  In addition, we provide management services, accounting and financial services, and insurance services to third party owners of health care facilities.  We also own the real estate of thirteen healthcare properties and lease these properties to third party operators.  We operate in 10 states, and our owned and leased properties are located primarily in the southeastern United States.

Narrative Description of the Business

At December 31, 2014, we operate or manage 74 skilled nursing facilities with a total of 9,462 licensed beds.  These numbers include 66 centers with 8,551 beds that we lease or own and eight centers with 911 beds that we manage for others.  Of the 66 leased or owned facilities, 35 are leased from National Health Investors, Inc. ("NHI").

Our 18 assisted living centers (16 leased or owned and two are managed) have 815 units (708 units leased or owned and 107 units managed).  

Our five independent living centers (four leased or owned and one managed) have 475 retirement apartments (338 apartments leased or owned, and 137 apartments managed).

We operate 36 homecare programs licensed in four states (Tennessee, South Carolina, Missouri and Florida) and provided 477,323 homecare patient visits to 19,222 patients in 2014.

We have a partnership agreement and a 75.1% non-controlling ownership interest in Caris Healthcare, LP (“Caris”), a business that specializes in hospice care services in NHC owned health care centers and in other settings.  Caris provides hospice care to over 1,000 patients per day in 25 locations in Missouri, South Carolina, Tennessee, and Virginia.  

We operate specialized care units within certain of our healthcare centers such as Alzheimer's disease care units, sub-acute nursing units and a number of in-house pharmacies.  Similar specialty units are under consideration at a number of our centers, as well as free standing projects.  

Net Patient Revenues. Health care services we provide include a comprehensive range of services.  In fiscal 2014, 95.1% of our net operating revenues were derived from such health care services.  Highlights of health care services activities during 2014 were as follows:

A.

Skilled Nursing Facilities.  The most significant portion of our business and the base for our other health care services is the operation of our skilled nursing facilities.  In our facilities, experienced medical professionals provide medical services prescribed by physicians. Registered nurses, licensed practical nurses and certified nursing assistants provide comprehensive, individualized nursing care 24 hours a day.  In addition, our facilities provide licensed therapy services, quality nutrition services, social services, activities, and housekeeping and laundry services.  We operate 74 skilled nursing facilities as of December 31, 2014. We manage eight facilities for third party owners.  Revenues from the 66 facilities we own or lease are reported as net patient revenues in our financial statements.  Management fee income is recorded as other revenues from the eight facilities that we manage.  We generally charge 6% to 7% of facility net operating revenues for our management services.  Average occupancy in skilled nursing facilities we operate was 88.9% during the year ended December 31, 2014.

B.

Rehabilitative Services.  We provide therapy services through Professional Health Services, a subsidiary of NHC.  Our licensed therapists provide physical, speech, respiratory and occupational therapy for patients recovering from strokes, heart attacks, orthopedic conditions, neurological illnesses, or other illnesses, injuries or disabilities.  We maintained a rehabilitation staff of over 1,600 highly trained, professional therapists in 2014.  The majority of our rehabilitative services are for patients in our owned and managed skilled nursing facilities.  However, we also provide services to over 80 additional health care providers.  Our rates for these services are competitive with other market rates.  

C.

Medical Specialty Units.  All of our long-term care facilities participate in the Medicare program, and we have expanded our range of offerings by the creation of center-specific medical specialty units such as our Alzheimer's disease care units and subacute nursing units.   Our trained staff provides care for Alzheimer’s patients in early, middle and advanced stages of the disease. We provide specialized care and programs for persons with Alzheimer’s or related disorders in dedicated units within many of our skilled nursing facilities.  Our specialized rehabilitation programs are designed to shorten or eliminate hospital stays and help to reduce the cost of quality health care. We develop individualized patient care plans to target appropriate medical and functional planning objectives with a primary goal where feasible for a return to home or a similar environment.

D.

Managed Care Contracts.  We contract with over 60 managed care organizations (MCO's) and insurance carriers for the provision of subacute and other medical specialty services by our owned and managed facilities.  Managed care patient days were 242,621 in 2014; 181,152 in 2013; and 156,827 in 2012.

E.

Assisted Living Centers.  Our assisted living centers are dedicated to providing personal care services and assistance with general activities of daily living such as dressing, bathing, meal preparation and medication management. We perform resident assessments to determine what services are desired or required and our qualified staff encourages residents to participate in a range of activities.  We own or lease 16 and manage two assisted living facilities.  Of these 18 centers, seven are located within the physical structure of a skilled nursing facility or retirement center and eleven are freestanding.  In 2014, the rate of occupancy was 89.6%.  Certificates of Need are not required to build these projects and we believe that overbuilding has occurred in some of our markets.  

F.

Independent Living Centers.  Our four owned or leased and one managed independent living  centers offer specially designed residential units for the active and ambulatory elderly and provide various ancillary services for our residents, including restaurants, activity rooms and social areas.  Charges for services are paid from private sources without assistance from governmental programs.  Independent living centers may be licensed and regulated in some states, but do not require the issuance of a Certificate of Need ("CON") such as is required for skilled nursing facilities.  We have, in several cases, developed independent living centers adjacent to our nursing facilities with an initial construction of 40 to 80 units and which units are rented by the month; thus these centers offer an expansion of our continuum of care.  We believe these independent living units offer a positive marketing aspect of our skilled nursing facilities.

We have one owned retirement center which is a "continuing care community", where the resident pays a substantial entrance fee and a monthly maintenance fee.  The resident then receives a full range of services, including home health nursing, without additional charge.

G.

Homecare Programs.  Our home health care programs (we call them homecares) assist those who wish to stay at home or in assisted living residences but still require some degree of medical care or assistance with daily activities.  Registered and licensed practical nurses and therapy professionals provide skilled services such as infusion therapy, wound care and physical, occupational and speech therapies.  Home health aides may assist with daily activities such as assistance with walking and getting in and out of bed, personal hygiene, medication assistance, light housekeeping and maintaining a safe environment.  NHC operates 36 homecare licensed and Medicare-certified offices in four states (Tennessee, South Carolina, Missouri and Florida) and some of our homecare patients are previously discharged from our skilled nursing facilities.  Medicare reimbursement for homecare services is paid under a prospective payment system.  Under this payment system, we receive a prospectively determined amount per patient per 60 day episode as defined by Medicare guidelines.  Medicare episodes increased from 20,947 in 2013 to

21,736 in 2014.  Patients served increased from 18,995 in 2013 to 19,222 in 2014.  Visits increased from 469,437 in 2013 to 477,323 in 2014.  

H.

Pharmacy Operations.  At December 31, 2014, we operated four regional pharmacy operations (one in east Tennessee, one in central Tennessee, one in South Carolina, and one in Missouri).  These pharmacy operations use a central location to supply pharmaceutical services (consulting and medications) and supplies.  Regional pharmacies bill Medicare Part D Prescription Drug Plans (PDPs) electronically and directly for inpatients who have selected a PDP.  Our regional pharmacies currently serve 53 owned facilities, five managed facilities, and 13 third party entities.

Other Revenues.  We generate revenues from management, accounting and financial services to third party owners of healthcare facilities, from insurance services to our managed healthcare facilities, and from rental income.  In fiscal 2014, 4.9% of our net operating revenues were derived from such other sources.  The significant sources of our other revenues are described as follows:

A.

Management, Accounting and Financial Services.  We provide management services to skilled nursing facilities, assisted living centers and independent living centers operated by third party owners.  We typically charge 6% to 7% of the managed centers’ net operating revenues as a fee for these services.  Additionally, we provide accounting and financial services to other skilled nursing facilities or related types of entities for small operators.  No management services are provided for entities in which we provide accounting and financial services.  As of December 31, 2014, we perform management services for 11 healthcare facilities and accounting and financial services for 20 healthcare facilities.  

B.

Insurance Services.  NHC owns a Tennessee domestic licensed insurance company.  The company is licensed in several states and provides workers’ compensation coverage to the majority of NHC operated and managed facilities in addition to other skilled nursing facilities, assisted living and retirement centers.  A second wholly owned insurance subsidiary is licensed in the Cayman Islands and provides general and professional liability coverage in substantially all of NHC’s owned and managed centers.  This company elects to be taxed as a domestic subsidiary.  We also self-insure our employees’ (referred to as "partners") health insurance benefit program at a cost we believe is less than a commercially obtained policy.  Finally, we operate a long-term care insurance division, which is licensed to sell commercially underwritten long-term care policies.  

C.

Rental Income.  The healthcare properties currently owned and leased to third party operators include nine skilled nursing facilities and four assisted living communities.  

Non-Operating Income.  We generate non-operating income from equity in earnings of unconsolidated investments, from dividends and realized gains and losses on marketable securities, interest income, and other miscellaneous non-operating income.  The significant source of non-operating income is described as follows:

Equity in Earnings of Unconsolidated Investments.  Earnings from investments in entities in which we lack control but have the ability to exercise significant influence over operating and financial policies are accounted for on the equity method.  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 in NHC owned health care centers and in other settings.  Caris currently has twenty-five locations serving four states (Missouri, South Carolina, Tennessee, and Virginia).

Development and Growth

We are undertaking to expand our post-acute and senior health care operations while protecting our existing operations and markets.  The following table lists our recent construction and purchase activities.

Type of Operation	Description	Size	Location	Placed in Service
SNF	Acquisition	106 beds	Columbia, TN	September, 2013
SNF	Acquisition	92 beds	Columbia, TN	September, 2013
SNF	Acquisition	139 beds	Knoxville, TN	September, 2013
SNF	Acquisition	107 beds	Springfield, TN	September, 2013
SNF	Acquisition	94 beds	Madisonville, KY	September, 2013
SNF	Acquisition	112 beds	Rossville, GA	September, 2013
SNF	Leased	120 beds	Greenfield, MA	September, 2013
SNF	Leased	102 beds	Holyoke, MA	September, 2013
SNF	Leased	71 beds	Quincy, MA	September, 2013
SNF	Leased	100 beds	Taunton, MA	September, 2013
SNF	Leased	108 beds	Epsom, NH	September, 2013
SNF	Leased	114 beds	Manchester, NH	September, 2013
SNF	Leased	126 beds	Manchester, NH	September, 2013
SNF	New Facility	90 beds	Tullahoma, TN	October, 2013
SNF	Addition	50 beds	Lexington, SC	December, 2013
SNF/AL	Leased	120 beds / 52 units	Independence, MO	March, 2014
SNF	Leased	70 beds	Independence, MO	March, 2014
SNF/AL	Leased	130 beds / 52 units	St. Peters, MO	March, 2014
AL	Partnership	83 units	Augusta, GA	June, 2014
Psychiatric Hospital	Partnership	14 beds	Osage Beach, MO	June, 2014
SNF	New Facility	52 beds	Kingsport, TN	December 2014
SNF/AL	New Facility	92 beds/60 Units	Sumner County, TN	Under construction
Memory Care	Partnership	60 beds	St. Peters, MO	Under construction
SNF/AL	New Facility	90 beds / 80 Units	Nashville, TN	Under construction

For the development projects under construction at December 31, 2014, we anticipate the 92-bed skilled nursing facility and 60-unit assisted living facility located in Sumner County, Tennessee to begin operations during the first quarter of 2015; the 60-bed memory care facility located in St. Peters, Missouri to begin operations during the fourth quarter of 2015 (we have a 25% ownership interest in this partnership), and the 90-bed skilled nursing facility and 80-unit assisted living facility located in Nashville, Tennessee to begin operations in the second or third quarter of 2016.    

Construction on both an 80-unit assisted living community in Garden City, South Carolina and a 76-unit assisted living community in Bluffton, South Carolina are scheduled to begin in the first quarter of 2015.

During the second quarter of 2015, we anticipate beginning construction on a replacement center (SNF) that will combine the 92 beds of NHC Hillview in Columbia, Tennessee with 20 beds from the existing skilled nursing unit at Maury Regional Medical Center.  The resulting replacement center will be a partnership between NHC and Maury Regional Medical Center.

During 2015, we plan to apply for Certificates of Need for additional beds in certain of our markets.  We also will evaluate the feasibility of expansion into new markets by building private pay health care centers or assisted living communities.

Skilled Nursing Facilities

The skilled nursing facilities operated by our subsidiaries provide in-patient skilled and intermediate nursing care services and in-patient and out-patient rehabilitation services.  Skilled nursing care consists of 24-hour nursing service by registered or licensed practical nurses and related medical services prescribed by the patient's physician.  Intermediate nursing care consists of similar services on a less intensive basis principally provided by non-licensed personnel.  These distinctions are generally found in the health care industry although for Medicaid reimbursement purposes, some states in which we operate have additional classifications, while in other states the Medicaid rate is the same regardless of patient classification.  Rehabilitative services consist of physical, speech, and occupational therapies, which are designed to aid the patient's recovery and enable the patient to resume normal activities.

Each health care facility has a licensed administrator responsible for supervising daily activities, and larger facilities have assistant administrators.  All have medical directors, a director of nurses and full-time registered nurse coverage.  All centers provide physical therapy and most have other rehabilitative programs, such as occupational or speech therapy.  Each facility is located near at least one hospital and is qualified to accept patients discharged from such hospitals.  Each facility has a full dining room, kitchen, treatment and examining room, emergency lighting system, and sprinkler system where required.  Management believes that all facilities are in compliance with the existing fire and life safety codes.

We provide centralized management and support services to NHC operated healthcare facilities.  The management and support services include operational support through the use of regional vice presidents and regional nurses, accounting and financial services, cash management, data processing, legal, consulting and services in the area of rehabilitative care.  Our personnel are employed by our administrative services affiliate, National Health Corporation ("National"), which is also responsible for overall services in the area of personnel, loss control, insurance, education and training.  We reimburse the administrative services contractor by paying all the costs of personnel employed for our benefit as well as a fee.  National is wholly owned by the National Health Corporation Employee Stock Ownership Plan and provides its services only to us.  

We provide management services to centers operated under management contracts and offsite accounting and financial services to other third party owners, all pursuant to separate contracts.  The term of each contract and the amount of the management fee or accounting and financial services fee is determined on a case-by-case basis.  Typically, we charge 6% to 7% of net operating revenues of the managed centers for our management contracts and specific item fees for our accounting and financial service agreements. The initial terms of the contracts range from two years to ten years.  In certain contracts, we maintain a right of first refusal should the owner desire to sell a managed center.

Skilled Nursing Facility Occupancy Rates

The following table shows certain information relating to occupancy rates for our owned and leased skilled nursing facilities:

	Year Ended December 31,
	2014	2013	2012
Overall census	88.9%	89.2%	90.1%

Occupancy rates are calculated by dividing the total number of days of patient care provided by the number of patient days available (which is determined by multiplying the number of licensed beds by 365 or 366).

Customers and Sources of Revenues

No individual customer, or related group of customers, accounts for a significant portion of our revenues. We do not expect the loss of a single customer or group of related customers would have a material adverse effect.

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:

		Year Ended December 31,
Source		2014	2013	2012
Medicare		39%	40%	42%
Medicaid		26%	25%	25%
Private Pay and Other		24%	25%	24%
Managed Care		11%	10%	9%
	Total	100%	100%	100%

The source and amount of the revenues are further dependent upon (i) the licensed bed capacity of our health care facilities, (ii) the occupancy rate of the facilities, (iii) the extent to which the rehabilitative and other skilled ancillary services provided at each facility are utilized by the patients in the centers, (iv) the mix of private pay, Medicare and Medicaid patients, and (v) the rates paid by private paying patients and by the Medicare and Medicaid programs.

We attempt to attract an increased percentage of private and Medicare patients by providing rehabilitative services and increasing the marketing of those services through market areas and "Managed Care Offices", of which five were open at December 31, 2014.  These services are designed to speed the patient's recovery and allow the patient to return home as soon as it is practical.  

Medicare is a health insurance program for the aged and certain other chronically disabled individuals operated by the federal government.  Medicare covers nursing home services for beneficiaries who require nursing care and/or rehabilitation services following a hospitalization of at least three consecutive days.  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 wage index in the particular 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.

Medicaid is a medical assistance program for the indigent, 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 sources include commercial insurance, individual patient funds, managed care plans and the Veterans Administration. Although payment rates vary among these sources, market forces and costs largely determine these rates.  Private paying patients, private insurance carriers and the Veterans Administration generally pay on the basis of the center's charges or specifically negotiated contracts.  

Government reimbursement programs such as Medicare and Medicaid prescribe, by law, the billing methods and amounts that health care providers may charge and be reimbursed to care for patients covered by these programs. Congress continually passes laws that effect major or minor changes in the Medicare and Medicaid programs.

Regulation and Licenses

Health care is an area of extensive regulatory oversight and frequent regulatory change. The federal government and the states in which we operate regulate various aspects of our business. These regulatory bodies, among other things, require us annually to license our skilled nursing facilities, assisted living facilities in some states and other health care businesses, including home health. In particular, to operate nursing facilities and provide health care services we must comply with federal, state and local laws relating to the delivery and adequacy of medical care, distribution of  pharmaceuticals, equipment, personnel, operating policies, fire prevention, rate-setting, building codes and environmental protection.

Governmental and other authorities periodically inspect our skilled nursing facilities and home health agencies to assure that we continue to comply with their various standards. We must pass these inspections to continue our licensing under state law, to obtain certification under the Medicare and Medicaid programs, and to continue our participation in the Veterans Administration program. We can only participate in other third-party programs if our facilities pass these inspections. In addition, these authorities inspect our record keeping and inventory control.

From time to time, we, like others in the health care industry, may receive notices from federal and state regulatory agencies alleging that we failed to comply with applicable standards. These notices may require us to take corrective action, and may impose civil money penalties and/or other operating restrictions. If our skilled nursing facilities and home health agencies fail to comply with these directives or otherwise fail to comply substantially with licensure and certification laws, rules and regulations, we could lose our certification as a Medicare and Medicaid provider and/or lose our licenses.  

Local and state health and social service agencies and other regulatory authorities specific to their location regulate, to varying degrees, our assisted living facilities. Although regulations and licensing requirements vary significantly from state to state, they typically address, among other things, personnel education, training and records; facility services, including administration of medication, assistance with supervision of medication management and limited nursing services; physical plant specifications; furnishing of resident units; food and housekeeping services; emergency evacuation plans; and resident rights and responsibilities. If assisted living facilities fail to comply with licensing requirements, these facilities could lose their licenses. Most states also subject assisted living facilities to state or local building codes, fire codes and food service licensure or certification requirements. In addition, the manner and extent to which the assisted living industry is regulated at federal and state levels are evolving.

Changes in the laws or new interpretations of existing laws as applied to the skilled nursing facilities, the assisted living facilities or other components of our health care businesses, may have a significant impact on our operations.

In all states in which we operate, before a skilled nursing facility can make a capital expenditure exceeding certain specified amounts or construct any new skilled health care beds, approval of the state health care regulatory agency or agencies must be obtained and a Certificate of Need issued.  The appropriate state health planning agency must review the Certificate of Need according to state specific guidelines before a Certificate of Need can be issued.  A Certificate of Need is generally issued for a specific maximum amount of expenditure and the project must be completed within a specific time period.  There is no advance assurance that we will be able to obtain a Certificate of Need in any particular instance.  In some states, approval is also necessary in order to purchase existing health care beds, although the purchaser is normally permitted to avoid a full scale Certificate of Need application procedure by giving advance written notice of the acquisition and giving written assurance to the state regulatory agency that the change of ownership will not result in a change in the number of beds, services offered and, in some cases, reimbursement rates at the facility.

While there are currently no significant legislative proposals to eliminate Certificates of Need pertaining to skilled nursing care in the states in which we do business, deregulation in the Certificate of Need area would likely result in increased competition and could adversely affect occupancy rates and the supply of licensed and certified personnel.

Medicare and Medicaid Participation

All health care centers, owned, leased or managed by us are certified to participate in Medicare.  Health care centers participating in Medicare are known as SNFs ("Skilled Nursing Facilities").  All but six of our affiliated nursing centers participate in Medicaid.  All of our homecares (Home health agencies) participate in Medicare, which comprises over 80% of their revenue.  Homecares also participate in Medicaid.  

During the fiscal years, we received payments from Medicare and, if participating, from Medicaid.  We record as receivables the amounts we ultimately expect to receive under the Medicare and Medicaid programs and record into profit or loss any differences in amounts actually received at the time of interim or final settlements.  Adjustments have not had a material adverse effect within the last three years.

Certifications and Participation Requirements; Efforts to Impose Reduced Payments

Changes in certification and participation requirements of the Medicare and Medicaid programs have restricted, and are likely to continue to restrict further, eligibility for reimbursement under those programs.  Failure to obtain and maintain Medicare and Medicaid certification at our nursing centers would result in denial of Medicare and Medicaid payments which would likely result in a significant loss of revenue.  In addition, private payors, including managed care payors, increasingly are demanding that providers accept discounted payments resulting in lost revenue for specific patients.  Efforts to impose reduced payments, greater discounts and more stringent cost controls by government and other payors are expected to continue.  For the fiscal year ended December 31, 2014, we derived 39% and 26% of our net patient revenues from the Medicare and Medicaid programs, respectively.  Any reforms that significantly limit rates of reimbursement under the Medicare and Medicaid programs could have a material adverse effect on our profitability and cash flows.  We are unable to predict what reform proposals or reimbursement limitations will be adopted in the future or the effect such changes will have on our operations.  No assurance can be given that such reforms will not have a material adverse effect on us.

Medicare Legislation and Regulations

Federal Health Care Reform  

In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act ("PPACA" or, commonly, “ACA”) and the Health Care and Education Reconciliation Act of 2010 ("HCERA"), which represents significant changes to the current U.S. health care system (collectively the "Acts"). The primary goals of the Acts are to: (1) expand coverage to Americans without health insurance, (2) reform the delivery system to improve quality and drive efficiency, (3) and to lower the overall costs of providing health care.  The timeline of the enacted provisions span over several years – some of the provisions were effective immediately in 2010 and others will be phased in through 2020.  

The U.S. Supreme Court has since issued its ruling on the constitutionality of a key provision in the ACA, which is the requirement that every American maintains a minimum level of health coverage or pays a penalty beginning in 2014.  The Supreme Court upheld the constitutionality of the “individual mandate”, holding that the penalty for not doing so could reasonably be interpreted as a tax, which the Constitution permits.  The ruling also permits the federal government to pursue a broad expansion of the Medicaid program, but the ruling gives the states the maximum flexibility on whether to do so.  With Medicaid coverage expansion occurring in some states in 2014, the current Administration may release a host of regulations and an array of new taxes and fees. It is uncertain at this time the effect the Acts, their modifications, or Medicaid expansion will have on our future results of operations or cash flows.  

Skilled Nursing Facilities (SNFs)

SNF PPS - Medicare is uniform nationwide and reimburses nursing centers under a fixed payment methodology named the Skilled Nursing Facility Prospective Payment System ("SNF PPS").  SNF PPS is an acuity based classification system that uses nursing and therapy indexes adjusted by geographical wage indexes to calculate per diem rates for each Medicare patient.  Payment rates are updated annually and are generally increased or decreased each October when the federal fiscal year begins.  The acuity classification system is named RUGs (Resource Utilization Groups IV).  There are currently 66 classifications of RUG groups.  

On April 1, 2013, the automatic 2% cuts (known as "sequestration") began for Medicare providers.  The resulting decrease in revenue to our skilled nursing facilities was approximately $4,500,000 for the 2014 calendar year, or $1,125,000 per quarter.  We are unable to predict the financial impact of other cuts Congress may implement.  However, such impact may be adverse and material to our future results of operations and cash flows.

In July 2013, CMS released its skilled nursing facility PPS update for the fiscal year 2014, which began October 1, 2013.  The notice provided for a 1.3% rate update, which reflects a 2.3% market basket increase less a 0.5% multifactor productivity adjustment and a 0.5% adjustment to correct market basket forecasting errors in fiscal year 2012.  CMS estimated the update increased overall payments to skilled nursing facilities in fiscal year 2014 by $470 million compared to fiscal year 2013 levels.  

In August 2014, CMS released its skilled nursing facility PPS update for the fiscal year 2015, which began October 1, 2014.  The final rule provides for a 2.0% rate update, which reflects a 2.5% market basket increase less a 0.5% multifactor productivity adjustment as required by the ACA.  CMS estimates the update will increase overall payments to skilled nursing facilities in fiscal year 2015 by $750 million compared to fiscal year 2014 levels.  The 2015 final rule also includes wage index updates, revisions to the change of therapy (COT) other Medicare required assessment (OMRA) policy, and comments pertaining to CMS’ observations on therapy utilization trends.  The effect of the 2015 PPS rate update on our revenues will be dependent upon our census and the mix of our patients at the PPS payment rates.

Homecares (HHAs)

HH PPS - Medicare is uniform nationwide and reimburses homecares under a fixed payment methodology named the Home Health Prospective Payment System ("HH PPS").  Generally, Medicare makes payments under the HH PPS on the basis of a national standardized 60-day episode payment, adjusted for case mix and geographical wage index. Payment rates are updated at the beginning of each calendar year.  The acuity classification system is named HHRGs (Home Health Resource Groups).

On April 1, 2013, the automatic 2% Medicare cuts began for homecare providers.  The resulting decrease in revenue to our homecare programs was approximately $1,200,000 for the 2014 calendar year, or $300,000 per quarter.

On November 22, 2013 and effective January 1, 2014, CMS issued the final rule for 2014 home health prospective payment system rates, which included (i) a market basket increase of 2.3 percent, (ii) rebasing of Medicare reimbursement rates, with annual reductions of 3.5 percent for each of the next four years beginning January 2014, (iii) changes in the Wage Index with no overall impact and (iv) rebasing all case mix weights to 1.0 from an average case mix weight of 1.3464 in 2013, as provided for under the Affordable Care Act.  The rule also provided for changes in low utilization payments amounts and the removal of 170 diagnosis codes, among other changes.  In total, CMS predicted that home health agencies would experience an approximate 1.05 percent reduction in reimbursement for 2014.

On October 30, 2014 and effective January 1, 2015, CMS released its final rule for the 2015 home health prospective payment system.  The final rule reduces home health payments overall by 0.3 percent from 2014 payment levels.  The payment decrease reflects the impact of the 2.1% home health payment update ($390 million increase) and the second year of the four-year phase-in of the rebasing adjustments to the national, standardized 60-day episode payment rate, the national per-visit payment rates, and the non-routine medical supplies conversion factor (2.4% or $450 million decrease).  The final rule also makes adjustments to the new home health face-to-face requirements, updates the Home Health Quality Reporting Program, and discusses a potential value-based purchasing model to begin testing in 2016.  

Medicaid Legislation and Regulations

Skilled Nursing Facilities (SNF)

State Medicaid plans subject to budget constraints are of particular concern to us.  Changes in federal funding coupled with state budget problems and Medicaid expansion under the Affordable Care Act have produced an uncertain environment.  States will more likely than not be unable to keep pace with nursing center inflation.  States are under pressure to pursue other alternatives to long term care such as community and home-based services.

Effective July 1, 2013 and for the fiscal year 2014, the state of Tennessee implemented specific individual nursing facility rate increases.  The resulting increase in revenue beginning July 1, 2013 and ending June 30, 2014 was approximately $1,800,000 annually, or $450,000 per quarter.  

Effective July 1, 2014 and for the fiscal year 2015, the state of Tennessee implemented individual skilled nursing facility rate changes.  With new state legislation being passed for the 2015 fiscal year, there are four components that impact Tennessee Medicaid reimbursement for skilled nursing facilities:  a Level I or Level II per diem, a quarterly acuity payment, a quarterly Quality Improvement in Long-Term Services and Supports ("QuILTSS") payment (which are incentives based on qualifying criteria in several categories), and an assessment fee (expense).  Effective July 1, 2014, each facility will now be charged an assessment fee based on 4.5% of net patient revenues.  The assessment fee is replacing the former bed tax fee.  In summary and for the 2015 fiscal year, we expect the Tennessee Medicaid reimbursement changes to increase income before income taxes by approximately $3,000,000 annually, or $750,000 per quarter.  

Effective October 1, 2013 and for the fiscal year 2014, South Carolina implemented specific individual nursing facility rate increases.  The resulting increase in revenue beginning October 1, 2013 was approximately $1,540,000 annually, or $385,000.  

Effective October 1, 2014 and for the fiscal year 2015, South Carolina implemented specific individual nursing facility rate increases.  We estimate the resulting increase in revenue beginning October 1, 2014 will be approximately $1,800,000 annually, or $450,000.

During the first quarter of 2014, the state of Missouri paid a retroactive rate increase back to July 1, 2013.  In the first quarter of 2014, the Company recorded approximately $533,000 of additional net patient revenues for the July 1, 2013 through December 31, 2013 retroactive period.  The resulting increase in revenue was approximately $250,000 per quarter for the 2014 year.   

Competition

In most of the communities in which we operate health care centers, there are other health care centers with which we compete.  We own, lease or manage (through subsidiaries) 74 skilled nursing facilities located in nine states.  Each of these states are certificate of need states which generally requires the state to approve the opening of any new skilled nursing facilities.  There are hundreds of operators of skilled nursing facilities in each of these states and no single operator, including us, dominates any of these state’s skilled nursing care markets, except for some small rural markets which might have only one skilled nursing facility.  In competing for patients and staff with these facilities, we depend upon referrals from acute care hospitals, physicians, residential care facilities, church groups and other community service organizations.  The reputation in the community and the physical appearance of our facilities are important in obtaining patients, since members of the patient’s family generally participate to a greater extent in selecting skilled nursing facilities than in selecting an acute care hospital.  We believe that by providing and emphasizing rehabilitative as well as skilled care services at our facilities, we are able to broaden our patient base and to differentiate our facilities from competing skilled nursing facilities.

As we expand into the assisted living market, we monitor proposed or existing competing assisted living centers.  Our development goal is to link our skilled nursing facilities with our assisted living centers, thereby obtaining a competitive advantage for both.

Our homecares compete with other home health agencies (HHA’s) in most communities we serve.  Competition occurs for patients and employees.  Our homecares depend on hospital and physician referrals and reputation in order to maintain a healthy census.  

We experience competition in employing and retaining nurses, technicians, aides and other high quality professional and non-professional employees.  In order to enhance our competitive position, we have an educational tuition loan program, an American Dietetic Association approved internship program, a specially designed nurse's aide training class, and we make financial scholarship aid available to physical therapy vocational programs.  We support the Foundation for Geriatric Education.  We also conduct an "Administrator in Training" course, 24 months in duration, for the professional training of administrators.  Presently, we have five full-time individuals in this program.   Four of our six regional vice presidents and 51 of our 74 health care center administrators are graduates of this program.

We experience competition in providing management and accounting services to other long-term health care providers.  Those services are provided primarily to owners with whom we have had previous involvement

through ownership or leasing arrangements.  Our insurance services are provided primarily to centers for which we also provide management and/or accounting services.

Our employee benefit package offers a tuition reimbursement program.  The goal of the program is to insure a well-trained qualified work force to meet future demands.  While the program is offered to all disciplines, special emphasis has been placed on supporting students in nursing and physical therapy programs.  Students are reimbursed at the end of each semester after presenting tuition receipts and grades to management.  The program has been successful in providing a means for many bright students to pursue a formal education.

Employees

As of December 31, 2014, our Administrative Services Contractor plus our managed centers had approximately 13,050 full and part time employees, who we call "Partners".  No employees are represented by a bargaining unit.  We believe our current relations with our employees are good.

Investor Information

We file reports with the Securities and Exchange Commission (“SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  We are an electronic filer, and the SEC maintains an internet site at www.sec.gov that contains the reports, proxy and information statements, and other information we have filed electronically.  We maintain an internet site at www.nhccare.com.  We publish to this website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and press releases.  We do not necessarily have these filed the same day as they are filed with the SEC or released to the public, but rather have a policy of placing these on the web site within two (2) business days of public release or SEC filing.   

We also maintain the following documents on the website:

·

The NHC Code of Ethics.  This Code has been adopted for all employees of our Administrative Services Contractor, officers and directors of the Company.  The website will also disclose whether there have been any amendments or waivers to the Code of Ethics and Standards of conduct.  To date there have been none.  

·

Information on our "NHC Valuesline", which allows our staff and investors unrestricted access to our Corporate Compliance Officer, executive officers and directors.  The toll free number is 800-526-4064 and the communications may be incognito, if desired.  

·

The NHC Restated Audit Committee Charter.

·

The NHC Compensation Committee Charter.

·

The NHC Nomination and Corporate Governance Committee Charter

We will furnish, free of charge, a copy of any of the above documents to any interested investor upon receipt of a written request.  

ITEM 1A.

RISK FACTORS

You should carefully consider the risk factors set forth below, as well as the other information contained in this Annual Report on Form 10-K.  These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Annual Report on Form 10-K, because these factors could cause the actual results and conditions to differ materially from those projected in forward-looking statements.  The risks described below are not the only risks facing us.  Additional risks and uncertainties that are not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations.  Any of the following risks could materially adversely affect our business, financial condition or results of operations and cash flows.

Risks Relating to Our Company

We depend on reimbursement from Medicare, Medicaid and other third-party payors and reimbursement rates from such payors may be reduced.  We derive a substantial portion of our revenue from third-party payors, including the Medicare and Medicaid programs.  For the year ended December 31, 2014, we derived approximately 65% of our net patient revenues from the Medicare, Medicaid and other government programs.  Third-party payor programs are highly regulated and are subject to frequent and substantial changes.  Changes in the reimbursement rate or methods of payment from third-party payors, including the Medicare and Medicaid programs, or the implementation of other measures to reduce reimbursements for our services has in the past, and could in the future, result in a substantial reduction in our revenues and operating margins.  Additionally, net revenue realizable under third-party payor agreements can change after examination and retroactive adjustment by payors during the claims settlement processes or as a result of post-payment audits.  Payors may disallow requests for reimbursement based on determinations that certain costs are not reimbursable or reasonable because additional documentation is necessary or because certain services were not covered or were not reasonable and medically necessary.  There also continue to be new legislative and regulatory proposals that could impose further limitations on government and private payments to health care providers.  In some cases, states have enacted or are considering enacting measures designed to reduce their Medicaid expenditures and to make changes to private health care insurance.  We cannot assure you that adequate reimbursement levels will continue to be available for the services provided by us, which are currently being reimbursed by Medicare, Medicaid or private third-party payors.  Further limits on the scope of services reimbursed and on reimbursement rates could have a material adverse effect on our liquidity, financial condition and results of operations.  It is possible that the effects of further refinements to PPS that result in lower payments to us or cuts in state Medicaid funding could have a material adverse effect on our results of operations.  See Item 1, "Business – Regulation and Licenses" and "Medicare Legislation and Regulations" and "Medicaid Legislation and Regulations".  

We conduct business in a heavily regulated industry, and changes in, or violations of regulations may result in increased costs or sanctions that reduce our revenue and profitability. In the ordinary course of our business, we are regularly subject to inquiries, investigations and audits by federal and state agencies to determine whether we are in compliance with regulations governing the operation of, and reimbursement for, skilled nursing, assisted living and independent living facilities, hospice, home health agencies and our other operating areas.  These regulations include those relating to licensure, conduct of operations, ownership of facilities, construction of new and additions to existing facilities, allowable costs, services and prices for services. In particular, various laws, including federal and state anti-kickback and anti-fraud statutes, prohibit certain business practices and relationships that might affect the provision and cost of health care services reimbursable under federal and/or state health care programs such as Medicare and Medicaid, including the payment or receipt of remuneration for the referral of patients whose care will be paid by federal governmental programs. Sanctions for violating the anti-kickback and anti-fraud statutes include criminal penalties and civil sanctions, including fines and possible exclusion from governmental programs such as Medicare and Medicaid.

In addition, the Stark Law broadly defines the scope of prohibited physician referrals under federal health care programs to providers with which they have ownership or other financial arrangements. Many states have adopted, or are considering, legislative proposals similar to these laws, some of which extend beyond federal health care programs, to prohibit the payment or receipt of remuneration for the referral of patients and physician referrals regardless of the source of the payment for the care. These laws and regulations are complex and limited judicial or regulatory interpretation exists. We cannot assure you that governmental officials charged with responsibility for enforcing the provisions of these laws and regulations will not assert that one or more of our arrangements are in violation of the provisions of such laws and regulations.  

The regulatory environment surrounding the post-acute and long-term care industry has intensified, particularly for larger for-profit, multi-facility providers like us. The federal government has imposed extensive enforcement policies resulting in a significant increase in the number of inspections, citations of regulatory deficiencies and other regulatory sanctions, including terminations from the Medicare and Medicaid programs, denials of payment for new Medicare and Medicaid admissions and civil monetary penalties. If we fail to comply, or are perceived as failing to comply, with the extensive laws and regulations applicable to our business, we could become ineligible to receive government program reimbursement, be required to refund amounts received from Medicare, Medicaid or private payors, suffer civil or criminal penalties, suffer damage to our reputation in various markets or be required to make significant changes to our operations. We are also subject to federal and state laws that govern financial and other arrangements between health care providers. These laws often prohibit certain direct and indirect payments or fee-splitting arrangements between health care providers that are designed to induce the referral of patients to a particular provider for medical products and services. Possible sanctions for violation of any of these restrictions or prohibitions include loss of eligibility to participate in reimbursement programs and/or civil and criminal penalties. Furthermore, some states restrict certain business relationships between physicians and other

providers of health care services. Many states prohibit business corporations from providing, or holding themselves out as a provider of, medical care. From time to time, we may seek guidance as to the interpretation of these laws; however, there can be no assurance that such laws will ultimately be interpreted in a manner consistent with our practices. In addition, we could be forced to expend considerable resources responding to an investigation or other enforcement action under these laws or regulations. Furthermore, should we lose licenses or certifications for a number of our facilities as a result of regulatory action or otherwise, we could be deemed in default under some of our agreements, including agreements governing outstanding indebtedness.  We also are subject to potential lawsuits under a federal whistle-blower statute designed to combat fraud and abuse in the health care industry, known as the federal False Claims Act.  These lawsuits can involve significant monetary awards to private plaintiffs who successfully bring these suits.  When a private party brings a qui tam action under the False Claims Act, it files the complaint with the court under seal, and the defendant will generally not be aware of the lawsuit until the government makes a determination whether it will intervene and take a lead in the litigation.  Even if, in the course of an investigation, the court partially unseals a complaint to allow the government and a defendant to work toward a resolution of the complaint's allegations, the defendant is prohibited from revealing to anyone the existence of the compliant or that the partial unsealing has occurred.  

We have established policies and procedures that we believe are sufficient to ensure that our facilities will operate in substantial compliance with these anti-fraud and abuse requirements. While we believe that our business practices are consistent with Medicare and Medicaid criteria, those criteria are often vague and subject to change and interpretation. Aggressive anti-fraud actions, however, have had and could have an adverse effect on our financial position, results of operations and cash flows. See Item 1, "Business - Regulation and Licenses".  

We are unable to predict the future course of federal, state and local regulation or legislation, including Medicare and Medicaid statutes and regulations, or the intensity of federal and state enforcement actions. Our failure to obtain or renew required regulatory approvals or licenses or to comply with applicable regulatory requirements, the suspension or revocation of our licenses or our disqualification from participation in certain federal and state reimbursement programs, or the imposition of other harsh enforcement sanctions could have a material adverse effect upon our operations and financial condition.

We are required to comply with laws governing the transmission and privacy of health information.  The Health Insurance Portability and Accountability Act of 1996, or HIPAA, requires us to comply with standards for the exchange of health information within our Company and with third parties, such as payors, business associates and patients. These include standards for common health care transactions, such as claims information, plan eligibility, payment information and the use of electronic signatures, unique identifiers for providers, employers, health plans and individuals, and security, privacy and enforcement.  If we are found to be in violation of the privacy or security rules under HIPAA or other federal or state laws protecting the confidentiality of patient health information, we could be subject to criminal penalties and civil sanctions, which could increase our liabilities, harm our reputation and have a material adverse effect on our business, financial position, results of operations and liquidity.

We are defendants in significant legal actions, which are commonplace in our industry, and which could subject us to increased operating costs and substantial uninsured liabilities, which would materially and adversely affect our liquidity and financial condition.  As is typical in the health care industry, we are subject to claims that our services have resulted in resident injury or other adverse effects.  We, like our industry peers, have experienced an increasing trend in the frequency and severity of professional liability and workers’ compensation claims and litigation asserted against us.  In some states in which we have significant operations, insurance coverage for the risk of punitive damages arising from professional liability claims and/or litigation may not, in certain cases, be available due to state law prohibitions or limitations of availability.  We cannot assure you that we will not be liable for punitive damage awards that are either not covered or are in excess of our insurance policy limits. We also believe that there have been, and will continue to be, governmental investigations of long-term care providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations.  Insurance is not available to cover such losses.  Any adverse determination in a legal proceeding or governmental investigation, whether currently asserted or arising in the future, could have a material adverse effect on our financial condition.  

Due to the rising cost and limited availability of professional liability and workers’ compensation insurance, we are largely self-insured on all of these programs and as a result, there is no limit on the maximum number of claims or amount for which we or our insurance subsidiaries can be liable in any policy period.  Although we base our loss estimates on independent actuarial analyses using the information we have to date, the amount of the losses could exceed our estimates.  In the event our actual liability exceeds our estimates for any given period, our results of operations and financial condition could be materially adversely impacted.  In addition, our insurance coverage might not cover all claims made against us.  If we are unable to maintain our current insurance coverage, if

judgments are obtained in excess of the coverage we maintain, if we are required to pay uninsured punitive damages, or if the number of claims settled within the self-insured retention currently in place significantly increases, we could be exposed to substantial additional liabilities.  We cannot assure you that the claims we pay under our self-insurance programs will not exceed the reserves we have set aside to pay claims.  The number of claims within the self-insured retention may increase.  

Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could result in a restatement of our financial statements, cause investors to lose confidence in our financial statements and our company and have a material adverse effect on our business and stock price. We produce our consolidated financial statements in accordance with the requirements of GAAP. Effective internal controls are necessary for us to provide reliable financial reports to help mitigate the risk of fraud and to operate successfully as a publicly traded company. As a public company, we are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, which requires annual management assessments of the effectiveness of our internal controls over financial reporting.

Testing and maintaining internal controls can divert our management's attention from other matters that are important to our business. We may not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 or our independent registered public accounting firm may not be able to issue an unqualified report if we conclude that our internal controls over financial reporting are not effective. If either we are unable to conclude that we have effective internal controls over financial reporting or our independent registered public accounting firm is unable to provide us with an unqualified report as required by Section 404, investors could lose confidence in our reported financial information and our company, which could result in a decline in the market price of our common stock, and cause us to fail to meet our reporting obligations in the future, which in turn could impact our ability to raise additional financing if needed in the future.

Increasing costs of being publicly owned are likely to impact our future consolidated financial position and results of operations.  In connection with the Sarbanes-Oxley Act of 2002, we are subject to rules requiring our management to report on the effectiveness of our internal control over financial reporting.  If we fail to have effective internal controls and procedures for financial reporting in place, we could be unable to provide timely and reliable financial information which could, in turn, have an adverse effect on our business, results of operations, financial condition and cash flows.

Significant regulatory changes, including the Sarbanes-Oxley Act and rules and regulations promulgated as a result of the Sarbanes-Oxley Act, have increased, and in the future are likely to further increase, general and administrative costs.  In order to comply with the Sarbanes-Oxley Act of 2002, the listing standards of the NYSE MKT exchange, and rules implemented by the Securities and Exchange Commission (SEC), we have had to hire additional personnel and utilize additional outside legal, accounting and advisory services, and may continue to require such additional resources.  Moreover, in the rapidly changing regulatory environment in which we operate, there is significant uncertainty as to what will be required to comply with many of the regulations.  As a result, we may be required to spend substantially more than we currently estimate, and may need to divert resources from other activities, as we develop our compliance plans.

New accounting pronouncements or new interpretations of existing standards could require us to make adjustments in our accounting policies that could affect our financial statements. The Financial Accounting Standards Board, the SEC, or other accounting organizations or governmental entities issue new pronouncements or new interpretations of existing accounting standards that sometimes require us to change our accounting policies and procedures.  Future pronouncements or interpretations could require us to change our policies or procedures and have a significant impact on our future financial statements.

By undertaking to provide management services, advisory services, and/or financial services to other entities, we become at least partially responsible for meeting the regulatory requirements of those entities. We provide management and/or financial services to skilled nursing facilities, assisting living centers and independent living centers owned by third parties.  At December 31, 2014, we perform management services (which include financial services) for 11 such centers and accounting and financial services for an additional 20 such centers.  The "Risk Factors" contained herein as applying to us may in many instances apply equally to these other entities for which we provide services.  We have in the past and may in the future be subject to claims from the entities to which we provide management, advisory or financial services, or to the claims of third parties to those entities.  Any adverse determination in any legal proceeding regarding such claims could have a material adverse effect on our business, our results of operation, our financial condition and cash flows.

We provide management services to skilled nursing facilities and other healthcare facilities under terms whereby the payments for our services are subject to subordination to other expenditures of the healthcare

facility.  Furthermore, there are certain third parties with whom we have contracted to provide services and which we have determined, based on insufficient historical collections and the lack of expected future collections, that the service revenue realization is uncertain.  We may, therefore, make expenditures related to the provision of services for which we are not paid.  

The cost to replace or retain qualified nurses, health care professionals and other key personnel may adversely affect our financial performance, and we may not be able to comply with certain states’ staffing requirements.  We could experience significant increases in our operating costs due to shortages in qualified nurses, health care professionals and other key personnel. The market for these key personnel is highly competitive. We, like other health care providers, have experienced difficulties in attracting and retaining qualified personnel, especially facility administrators, nurses, certified nurses' aides and other important health care providers.  There is currently a shortage of nurses, and trends indicate this shortage will continue or worsen in the future. The difficulty our skilled nursing facilities are experiencing in hiring and retaining qualified personnel has increased our average wage rate.  We may continue to experience increases in our labor costs due to higher wages and greater benefits required to attract and retain qualified health care personnel. Our ability to control labor costs will significantly affect our future operating results.

Certain states in which we operate skilled nursing facilities have adopted minimum staffing standards and additional states may also establish similar requirements in the future. Our ability to satisfy these requirements will depend upon our ability to attract and retain qualified nurses, certified nurses' assistants and other staff. Failure to comply with these requirements may result in the imposition of fines or other sanctions. If states do not appropriate sufficient additional funds (through Medicaid program appropriations or otherwise) to pay for any additional operating costs resulting from minimum staffing requirements, our profitability may be adversely affected.

Although we currently have no collective bargaining agreements with unions at our facilities, there is no assurance this will continue to be the case.  If any of our facilities enter into collective bargaining agreements with unions, we could experience or incur additional administrative expenses associated with union representation of our employees.  

Our senior management team has extensive experience in the healthcare industry.  We believe they have been instrumental in guiding our business, instituting valuable performance and quality monitoring, and driving innovation.  Accordingly, our future performance is substantially dependent upon the continued services of our senior management team.  The loss of the services of any of these persons could have a material adverse effect upon us.

Future acquisitions may be difficult to complete, use significant resources, or be unsuccessful and could expose us to unforeseen liabilities. We may selectively pursue acquisitions or new developments in our target markets. Acquisitions and new developments may involve significant cash expenditures, debt incurrence, capital expenditures, additional operating losses, amortization of the intangible assets of acquired companies, dilutive issuances of equity securities and other expenses that could have a material adverse effect on our financial condition and results of operations. Acquisitions also involve numerous other risks, including difficulties integrating acquired operations, personnel and information systems, diversion of management's time from existing operations, potential losses of key employees or customers of acquired companies, assumptions of significant liabilities, exposure to unforeseen liabilities of acquired companies and increases in our indebtedness.

We cannot assure that we will succeed in obtaining financing for any acquisitions at a reasonable cost or that any financing will not contain restrictive covenants that limit our operating flexibility. We also may be unable to operate acquired facilities profitably or succeed in achieving improvements in their financial performance.

We also may face competition in acquiring any facilities. Our competitors may acquire or seek to acquire many of the facilities that would be suitable acquisition candidates for us. This could limit our ability to grow by acquisitions or increase the cost of our acquisitions.

Upkeep of healthcare properties is capital intensive, requiring us to continually direct financial resources to the maintenance and enhancement of our physical plant and equipment. As of December 31, 2014, we leased or owned 74 skilled nursing facilities, 18 assisted living centers, and five independent living centers.  Our ability to maintain and enhance our physical plant and equipment in a suitable condition to meet regulatory standards, operate efficiently and remain competitive in our markets requires us to commit a substantial portion of our free cash flow to continued investment in our physical plant and equipment.  Certain of our competitors may operate centers that are not as old as our centers, or may appear more modernized than our centers, and therefore may be more attractive to prospective customers. In addition, the cost to replace our existing centers through acquisition or construction is substantially higher than the carrying value of our centers.  We are undertaking a

process to allocate more aggressively capital spending within our owned and leased facilities in an effort to address issues that arise in connection with an aging physical plant.  

If factors, including factors indicated in these "Risk Factors" and other factors beyond our control render us unable to direct the necessary financial and human resources to the maintenance, upgrade and modernization of our physical plant and equipment, our business, results of operations, financial condition and cash flow could be adversely impacted.

 Our business is subject to a variety of federal, state and local environmental laws and regulations. As a healthcare provider, we face regulatory requirements in areas of air and water quality control, medical and low-level radioactive waste management and disposal, asbestos management, response to mold and lead-based paint in our facilities and employee safety.

 As an operator of healthcare facilities, we also may be required to investigate and remediate hazardous substances that are located on and/or under the property, including any such substances that may have migrated off, or may have been discharged or transported from the property. Part of our operations involves the handling, use, storage, transportation, disposal and discharge of medical, biological, infectious, toxic, flammable and other hazardous materials, wastes, pollutants or contaminants. In addition, we are sometimes unable to determine with certainty whether prior uses of our facilities and properties or surrounding properties may have produced continuing environmental contamination or noncompliance, particularly where the timing or cost of making such determinations is not deemed cost-effective. These activities, as well as the possible presence of such materials in, on and under our properties, may result in damage to individuals, property or the environment; may interrupt operations or increase costs; may result in legal liability, damages, injunctions or fines; may result in investigations, administrative proceedings, penalties or other governmental agency actions; and may not be covered by insurance.

We believe that we are in material compliance with applicable environmental and occupational health and safety requirements. However, we cannot assure you that we will not encounter environmental liabilities in the future, and such liabilities may result in material adverse consequences to our operations or financial condition.

Provision for losses in our financial statements may not be adequate. Loss provisions in our financial statements for self-insured programs are made on an undiscounted basis in the relevant period. These provisions are based on internal and external evaluations of the merits of individual claims, analysis of claims history and independent actuarially determined estimates. Our management reviews the methods of determining these estimates and establishing the resulting accrued liabilities frequently, with any material adjustments resulting therefrom being reflected in current earnings. Although we believe that our provisions for self-insured losses in our financial statements are adequate, the ultimate liability may be in excess of the amounts recorded. In the event the provisions for loss reflected in our financial statements are inadequate, our financial condition and results of operations may be materially affected.

Implementation of new information technology could cause business interruptions and negatively affect our profitability and cash flows.  We continue to refine and implement our information technology to improve customer service, enhance operating efficiencies and provide more effective management of business operations. Implementation of information technology carries risks such as cost overruns, project delays and business interruptions and delays.  If we experience a material business interruption as a result of the implementation of our existing or future information technology infrastructure or are unable to obtain the projected benefits of this new infrastructure, it could adversely affect us and could have a material adverse effect on our business, results of operations, financial condition and cash flows.  

We depend on the proper function and availability of our information systems.  We are dependent on the proper function and availability of our information systems.  Though we have taken steps to protect the safety and security of our information systems and the data maintained within those systems, there can be no assurance that our safety and security measures and disaster recovery plan will prevent damage or interruption of our systems and operations and we may be vulnerable to losses associated with the improper functioning, security breach or unavailability of our information systems.  Failure to maintain proper function and availability of our information systems could have a material adverse effect on our business, financial position, results of operations and liquidity.

In addition, certain software supporting our business and information systems are licensed to us by independent software developers.  Our inability or the inability of these developers, to continue to maintain and upgrade our information systems and software could disrupt or reduce the efficiency of our operations.  In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems also could disrupt or reduce the efficiency

of our operations and could have a material adverse effect on our business, financial position, results of operations and liquidity.

Cybersecurity risks could harm our ability to operate effectively.  Cybersecurity refers to the combination of technologies, processes and procedures established to protect information technology systems and data from unauthorized access, attack, or damage.  We rely on our information systems to provide security for processing, transmission and storage of confidential patient, resident and other customer information, such as individually identifiable information, including information relating to health protected by HIPAA.  Although we have taken steps to protect the security of our information systems and the data maintained in those systems, it is possible that our safety and security measures will not prevent the systems' improper functioning or damage or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks.  Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches can create system disruptions or shutdowns or the unauthorized disclosure of confidential information.  If personal or otherwise protected information of our patients is improperly accessed, tampered with or distributed, we may incur significant costs to remediate possible injury to the affected patients and we may be subject to sanctions and civil or criminal penalties if we are found to be in violation of the privacy or security rules under HIPAA or other similar federal or state laws protecting confidential patient health information.  Any failure to maintain proper functionality and security of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could have a material adverse effect on our business, financial condition and results of operations.  

If we fail to compete effectively with other health care providers, our revenues and profitability may decline.  The health care services industry is highly competitive.  Our skilled nursing facilities, assisted living centers, independent living facilities, home care services and other operations compete on a local and regional basis with other nursing centers, health care providers, and senior living service providers.  Some of our competitors' facilities are located in newer buildings and may offer services not provided by us or are operated by entities having greater financial and other resources than us.  Our skilled nursing facilities face competition from skilled nursing, assisted living, independent living facilities, homecare services, and other operations that provide services comparable to those offered by our skilled nursing facilities.  Many competing general acute care hospitals are larger and more established than our facilities.

The health care industry is divided into a variety of competitive areas that market similar services.  These competitors include skilled nursing, assisted living, independent living facilities, homecare services, hospice providers and other operations.  Our facilities generally operate in communities that also are served by similar facilities operated by our competitors.  Certain of our competitors are operated by not-for-profit, non-taxpaying or governmental agencies that can finance capital expenditures on a tax exempt basis and that receive funds and charitable contributions unavailable to us.  Our facilities compete based on factors such as our reputation for quality care; the commitment and expertise of our staff; the quality and comprehensiveness of our treatment programs; the physical appearance, location and condition of our facilities and to a limited extend, the charges for services.  In addition, we compete with other health care providers for customer referrals from hospitals.  As a result, a failure to compete effectively with respect to referrals may have an adverse impact on our business.  Many of these competing companies have greater financial and other resources than we have.  We cannot assure that increased competition in the future will not adversely affect our financial condition and results of operations.

Possible changes in the case mix of patients as well as payor mix and payment methodologies may significantly affect our profitability.  The sources and amounts of our patient revenues will be determined by a number of factors, including licensed bed capacity and occupancy rates of our facilities, the mix of patients and the rates of reimbursement among payors. Likewise, reimbursement for therapy services will vary based upon payor and payment methodologies.  Changes in the case mix of the patients as well as payor mix among private pay, Medicare and Medicaid will significantly affect our profitability. Particularly, any significant increase in our Medicaid population could have a material adverse effect on our financial position, results of operations and cash flow, especially if states operating these programs continue to limit, or more aggressively seek limits on, reimbursement rates.

Private third-party payors continue to try to reduce health care costs.   Private third-party payors are continuing their efforts to control health care costs through direct contracts with health care providers, increased utilization review and greater enrollment in managed care programs and preferred provider organizations. These private payors increasingly are demanding discounted fee structures and the assumption by health care providers of all or a portion of the financial risk. We could be adversely affected by the continuing efforts of private third-party payors to limit the amount of reimbursement we receive for health care services. We cannot assure you that reimbursement payments under private third-party payor programs will remain at levels comparable to present levels or will be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to such programs.

Future changes in the reimbursement rates or methods of private or third-party payors, including the Medicare and Medicaid programs, or the implementation of other measures to reduce reimbursement for our services could result in a substantial reduction in our net operating revenues.  Finally, as a result of competitive pressures, our ability to maintain operating margins through price increases to private patients is limited.  

We are exposed to market risk due to the fact that outstanding debt and future borrowings are or will be subject to wide fluctuations based on changing interest rates. Market risk is the risk of loss arising from adverse changes in market rates and prices such as interest rates, foreign currency exchange rates and commodity prices.  Our primary exposure to market risk is interest rate risk associated with variable rate borrowings.  We currently have a $75,000,000 revolving credit agreement.  The revolving credit agreement provides for variable rates and if market interest rates rise, so will our required interest payments on any future borrowings under the revolving credit facility.

Although we currently have a modest amount of debt outstanding, we expect to borrow in the future to fund development and acquisitions.  In the event we incur substantial indebtedness, this could have important consequences to you.  For example, it could:

·

make it more difficult for us to satisfy our financial obligations;

·

increase our vulnerability to general adverse economic and industry conditions, including material adverse regulatory changes such as reductions in reimbursement;

·

limit our ability to obtain financing to fund future working capital, capital expenditures and other general corporate requirement, or to carry out other aspects of our business plan;

·

require us to dedicate a substantial portion of our cash flow from operations to payments on indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures or other general corporate purposes, or to carry out other aspects of our business plan;

·

require us to pledge as collateral substantially all of our assets;

·

require us to maintain certain debt coverage and financial ratios at specified levels, thereby reducing our financial flexibility;

·

limit our ability to make material acquisitions or take advantage of business opportunities that may arise;

·

expose us to fluctuations in interest rates, to the extent our borrowings bear variable rates of interest;

·

limit our flexibility in planning for, or reacting to, changes in our business and the industry; and

·

place us at a competitive disadvantage compared to our competitors that have less debt.

In addition, loan agreements governing our debt contain and may in the future contain financial and other restrictive covenants limiting our ability to engage in activities that may be in our long-term best interests.  Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of some or all of our debts.

We are permitted to incur substantially more debt, which could further exacerbate the risks described above.  We and our subsidiaries may be able to incur substantial additional indebtedness in the future.  The terms of our current debt do not completely prohibit us or our subsidiaries from incurring additional indebtedness.  If new debt is added to our current debt levels, the related risks that we now face could intensify.

To service our current as well as anticipated indebtedness and future dividends, we will require a significant amount of cash, the availability of which depends on many factors beyond our control.  Our ability to make payments on and to refinance our indebtedness, including our present indebtedness, to fund planned capital expenditures, and to fund future dividend payments will depend on our ability to generate cash in the future.  This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

We may not be able to meet all of our capital needs.   We cannot assure you that our business will generate cash flow from operations that anticipated revenue growth and improvement of operating efficiencies will be realized or that future borrowings will be available to us in an amount sufficient to enable us to service our

indebtedness or to fund our other liquidity needs.  We may need to refinance all or a portion of our indebtedness on or before maturity, sell assets or certain discretionary capital expenditures.  

The performances of our fixed-income and our equity investment portfolios are subject to a variety of investment risks.  Our investment portfolios are comprised principally of fixed-income securities and common equities.  Our fixed-income portfolio is actively managed by an investment group and includes short-term investments and fixed-maturity securities.  The performances of our fixed-income and our equity portfolios are subject to a number of risks, including:

·

Interest rate risk – the risk of adverse changes in the value of fixed-income securities as a result of increases in market interest rates.

·

Investment credit risk – the risk that the value of certain investments may decrease in value due to the deterioration in financial condition of, or the liquidity available to, one or more issuers of those securities or, in the case of asset-backed securities, due to the deterioration of the loans or other assets that underlie the securities, which, in each case, also includes the risk of permanent loss.

·

Concentration risk – the risk that the portfolio may be too heavily concentrated in the securities of NHI, or certain sectors or industries, which could result in a significant decrease in the value of the portfolio in the event of a deterioration of the financial condition, performance, or outlook of NHI, or those certain sectors or industries.

·

Liquidity risk – the risk that we will not be able to convert investments into cash on favorable terms and on a timely basis or that we will not be able to sell them at all, when we desire to do so.  Disruptions in the financial markets or a lack of buyers for the specific securities that we are trying to sell, could prevent us from liquidating securities or cause a reduction in prices to levels that are not acceptable to us.

In addition, the success of our investment strategies and asset allocations in the fixed-income portfolio may vary depending on the market environment.  The fixed-income portfolio's performance also may be adversely impacted if, among other factors:  there is a lack of transparency regarding the underlying businesses of the issuers of the securities that we purchase; credit ratings assigned to such securities by nationally recognized credit rating agencies are based on incomplete information or prove unwarranted; or our risk mitigation strategies are ineffective for the applicable market conditions.

The common equity portfolio is subject to general movements in the values of equity markets and to the changes in the prices of the securities we hold.  Equity markets, sectors, industries, and individual securities may be subject to high volatility and to long periods of depressed or declining valuations.

If the fixed-income or equity portfolios, or both, were to suffer a decrease in value due to market, sector, or issuer-specific conditions to a substantial degree, our liquidity, financial position, and financial results could be materially adversely affected.

Disasters and similar events may seriously harm our business.  Natural and man-made disasters and similar events, including terrorist attacks and acts of nature such as hurricanes, tornados, earthquakes and wildfires, may cause damage or disruption to us, our employees and our facilities, which could have an adverse impact on our patients and our business.  In order to provide care for our patients, we are dependent on consistent and reliable delivery of food, pharmaceuticals, utilities and other goods to our facilities, and the availability of employees to provide services at our facilities.  If the delivery of goods or the ability of employees to reach our facilities were interrupted in any material respect due to a natural disaster or other reasons, it would have a significant impact on our facilities and our business.  Furthermore, the impact, or impending threat, of a natural disaster has in the past and may in the future require that we evacuate one or more facilities, which would be costly and would involve risks, including potentially fatal risks, for the patients.  The impact of disasters and similar events is inherently uncertain.  Such events could harm our patients and employees, severely damage or destroy one or more of our facilities, harm our business, reputation and financial performance, or otherwise cause our business to suffer in ways that we currently cannot predict.

Our stock price is volatile and fluctuations in our operating results, quarterly earnings and other factors may result in declines in the price of our common stock.  Equity markets are prone to, and in the last few years have experienced, extreme price and volume fluctuations.  Volatility over the past few years has had a significant impact on the market price of securities issued by many companies, including us and other companies in the healthcare industry.  If we are unable to operate our businesses as profitably as we have in the past or as our stockholders expect us to in the future, the market price of our common stock will likely decline as stockholders

could sell shares of our common stock when it becomes apparent that the market expectations may not be realized.  In addition to our operating results, many economic and other factors beyond our control could have an adverse effect on the price of our common stock including:

·

general economic conditions;

·

developments generally affecting the healthcare industry;

·

strategic actions, such as acquisitions or restructurings, or the introduction of new services by us or our competitors;

·

new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

·

litigation and governmental investigations;

·

changes in accounting standards, policies, guidance, interpretations or principles;

·

investor perceptions of us and our business;

·

actions by institutional or other large stockholders;

·

quarterly variations in operating results;

·

changes in financial estimates and recommendations by securities analysts;

·

press releases or negative publicity relating to our competitors or us or relating to trends in health care;

·

sales of stock by insiders;

·

natural disasters, terrorist attacks and pandemics; and

·

additions or departures of key personnel.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

Skilled Nursing Facilities
State	City	Center Name	Affiliation	Licensed Beds	Joined  NHC
Alabama	Anniston	NHC HealthCare, Anniston	Leased(1)	151	1973
	Moulton	NHC HealthCare, Moulton	Leased(1)	136	1973
Georgia	Fort Oglethorpe	NHC HealthCare, Fort Oglethorpe	Owned	135	1989
	Rossville	NHC HealthCare, Rossville	Owned	112	1971
Kentucky	Glasgow	NHC HealthCare, Glasgow	Leased(1)	194	1971
	Madisonville	NHC HealthCare, Madisonville	Owned	94	1973
Massachusetts	Greenfield	Buckley-Greenfield Health Care Center	Leased(1)	120	1999
	Holyoke	Holyoke Health Care Center	Leased(1)	102	1999
	Quincy	John Adams Health Care Center	Leased(1)	71	1999
	Taunton	Longmeadow of Taunton	Leased(1)	100	1999
Missouri	Des Peres	The Quarters at Des Peres	Managed	147	2014
	Desloge	NHC HealthCare, Desloge	Leased(1)	120	1982
	Independence	The Villages of Jackson Creek	Leased	120	2014
	Independence	The Villages of Jackson Creek Memory Care	Leased	70	2014
	Joplin	NHC HealthCare, Joplin	Leased(1)	126	1982
	Kennett	NHC HealthCare, Kennett	Leased(1)	170	1982
	Macon	Macon Health Care Center	Owned	120	1982
	Osage Beach	Osage Beach Rehabilitation and Health Care Center	Owned	120	1982
	St. Charles	NHC HealthCare, St. Charles	Leased(1)	120	1982
	St. Louis	NHC HealthCare, Maryland Heights	Leased(1)	220	1987
	St. Peters	Villages of St. Peters	Leased	130	2014
	Springfield	Springfield Rehabilitation and Health Care Center	Leased	120	1982
	Town & Country	NHC HealthCare, Town & Country	Owned	200	2001
	West Plains	NHC HealthCare, West Plains	Owned	120	1982
New Hampshire	Epsom	Epsom Health Care Center	Leased(1)	108	1999
	Manchester	Maple Leaf Health Care Center	Leased(1)	114	1999
	Manchester	Villa Crest Health Care Center	Leased(1)	126	1999

Skilled Nursing Facilities
(continued)
State	City	Center Name	Affiliation	Total Beds	Joined NHC
South Carolina	Anderson	NHC HealthCare, Anderson	Leased(1)	290	1973
	Bluffton	NHC HealthCare, Bluffton	Owned	120	2010
	Charleston	NHC HealthCare, Charleston	Owned	88	2009
	Clinton	NHC HealthCare, Clinton	Owned	131	1993
	Columbia	NHC HealthCare, Parklane	Owned	180	1997
	Greenwood	NHC HealthCare, Greenwood	Leased(1)	152	1973
	Greenville	NHC HealthCare, Greenville	Owned	176	1992
	Laurens	NHC HealthCare, Laurens	Leased(1)	176	1973
	Lexington	NHC HealthCare, Lexington	Owned	170	1994
	Mauldin	NHC HealthCare, Mauldin	Owned	180	1997
	Murrells Inlet	NHC HealthCare, Garden City	Owned	148	1992
	North Augusta	NHC HealthCare, North Augusta	Owned	192	1991
	Sumter	NHC HealthCare, Sumter	Managed	138	1985
Tennessee	Athens	NHC HealthCare, Athens	Leased(1)	98	1971
	Chattanooga	NHC HealthCare, Chattanooga	Leased(1)	207	1971
	Columbia	Maury Regional Hospital	Managed	20	1996
	Columbia	NHC HealthCare, Columbia	Owned	106	1973
	Columbia	NHC HealthCare, Hillview	Owned	92	1971
	Cookeville	NHC HealthCare, Cookeville	Managed	94	1975
	Dickson	NHC HealthCare, Dickson	Leased(1)	191	1971
	Dunlap	NHC HealthCare, Sequatchie	Leased(1)	120	1976
	Farragut	NHC HealthCare, Farragut	Owned	100	1998
	Franklin	NHC Place, Cool Springs	Owned	180	2004
	Franklin	NHC HealthCare, Franklin	Leased(1)	80	1979
	Hendersonville	NHC HealthCare, Hendersonville	Leased(1)	122	1987
	Johnson City	NHC HealthCare, Johnson City	Leased(1)	160	1971
	Kingsport	NHC HealthCare, Kingsport	Owned	52	2014
	Knoxville	NHC HealthCare, Fort Sanders	Owned(2)	166	1977
	Knoxville	Holston Health & Rehabilitation Center	Owned	109	2009
	Knoxville	NHC HealthCare, Knoxville	Owned	139	1971
	Lawrenceburg	NHC HealthCare, Lawrenceburg	Managed	96	1971
	Lawrenceburg	NHC HealthCare, Scott	Leased(1)	60	1971
	Lewisburg	NHC HealthCare, Lewisburg	Leased(1)	100	1985
	Lewisburg	NHC HealthCare, Oakwood	Leased(1)	60	1973
	McMinnville	NHC HealthCare, McMinnville	Leased(1)	150	1971
	Milan	NHC HealthCare, Milan	Leased(1)	122	1971
	Murfreesboro	AdamsPlace	Owned	90	1997
	Murfreesboro	NHC HealthCare, Murfreesboro	Managed	181	1974
	Nashville	The Health Center of Richland Place	Managed	107	1992
	Oak Ridge	NHC HealthCare, Oak Ridge	Managed	128	1977
	Pulaski	NHC HealthCare, Pulaski	Leased(1)	102	1971
	Smithville	NHC HealthCare, Smithville	Leased(1)	114	1971
	Somerville	NHC HealthCare, Somerville	Leased(1)	72	1976
	Sparta	NHC HealthCare, Sparta	Leased(1)	120	1975
	Springfield	NHC HealthCare, Springfield	Owned	107	1973
	Tullahoma	NHC HealthCare, Tullahoma	Owned	90	2013
Virginia	Bristol	NHC HealthCare, Bristol	Leased(1)	120	1973

Assisted Living Units
State	City	Center	Affiliation	Units
Alabama	Anniston	NHC Place/Anniston	Owned	67
Georgia	Evans	Camellia Walk Assisted Living and Memory Care	Managed	83
Kentucky	Glasgow	NHC HealthCare, Glasgow	Leased(1)	12
Missouri	St. Charles	Lake St. Charles Retirement Center	Leased(1)	26
	Independence	The Villages of Jackson Creek	Leased	52
	St. Peters	Villages of St. Peters	Leased	52
New Hampshire	Manchester	Villa Crest Assisted Living	Leased(1)	29
South Carolina	Charleston	The Palmettos of Charleston	Owned	60
	Columbia	The Palmettos of Parklane	Owned	75
	Greenville	The Palmettos of Mauldin	Owned	45
Tennessee	Dickson	NHC HealthCare, Dickson	Leased(1)	20
	Farragut	NHC Place, Farragut	Owned	84
	Franklin	NHC Place, Cool Springs	Owned	89
	Johnson City	NHC HealthCare, Johnson City	Leased(1)	2
	Murfreesboro	AdamsPlace	Owned	83
	Nashville	Richland Place	Managed	24
	Smithville	NHC HealthCare, Smithville	Leased(1)	6
	Somerville	NHC HealthCare, Somerville	Leased(1)	6
Retirement Apartments
State	City	Retirement Apartments	Affiliation	Units	Est.
Missouri	St. Charles	Lake St. Charles Retirement  Apts.	Leased(1)	152	1984
Tennessee	Chattanooga	Parkwood Retirement Apartments	Leased(1)	30	1986
	Johnson City	Colonial Hill Retirement Apartments	Leased(1)	63	1987
	Murfreesboro	AdamsPlace	Owned	93	1997
	Nashville	Richland Place Retirement Apts.	Managed	137	1993

Homecare Programs
State	City	Homecare Programs	Affiliation	Est.
Florida	Carrabelle	NHC HomeCare of Carrabelle	Owned	1994
	Chipley	NHC HomeCare of Chipley	Owned	1994
	Crawfordville	NHC HomeCare of Crawfordville	Owned	1994
	Merritt Island	NHC HomeCare of Merritt Island	Owned	1999
	Panama City	NHC HomeCare of Panama City	Owned	1994
	Port St. Joe	NHC HomeCare of Port St. Joe	Owned	1994
	Quincy	NHC HomeCare of Quincy	Owned	1994
	Vero Beach	NHC HomeCare of Vero Beach	Owned	1997
Missouri	St. Louis	NHC HomeCare of St. Louis	Owned	2012
South Carolina	Aiken	NHC HomeCare of Aiken	Owned	1996
	Bluffton	NHC HomeCare of Beaufort	Owned	2013
	Greenville	NHC HomeCare of Greenville	Owned	2007
	Greenwood	NHC HomeCare of Greenwood	Owned	1996
	Laurens	NHC HomeCare of Laurens	Owned	1996
	Murrells Inlet	NHC HomeCare of Murrells Inlet	Owned	2013
	Rock Hill	NHC HomeCare of Piedmont	Owned	2010
	Summerville	NHC HomeCare of Low Country	Owned	2010
	West Columbia	NHC HomeCare of Midlands	Owned	2010
Tennessee	Athens	NHC HomeCare of Athens	Owned	1984
	Chattanooga	NHC HomeCare of Chattanooga	Owned	1985
	Columbia	NHC HomeCare of Columbia	Owned	1977
	Cookeville	NHC HomeCare of Cookeville	Owned	1976
	Dickson	NHC HomeCare of Dickson	Owned	1977
	Franklin	NHC HomeCare of Franklin	Owned	2007
	Hendersonville	NHC HomeCare of Hendersonville	Owned	2010
	Johnson City	NHC HomeCare of Johnson City	Owned	1978
	Knoxville	NHC HomeCare of Knoxville	Owned	1977
	Lawrenceburg	NHC HomeCare of Lawrenceburg	Owned	1977
	Lewisburg	NHC HomeCare of Lewisburg	Owned	1977
	McMinnville	NHC HomeCare of McMinnville	Owned	1976
	Milan	NHC HomeCare of Milan	Owned	1977
	Murfreesboro	NHC HomeCare of Murfreesboro	Owned	1976
	Pulaski	NHC HomeCare of Pulaski	Owned	1985
	Somerville	NHC HomeCare of Somerville	Owned	1983
	Sparta	NHC HomeCare of Sparta	Owned	1984
	Springfield	NHC HomeCare of Springfield	Owned	1984

Hospice Programs
State	City	Hospice Programs	Affiliation	Est.
Missouri	St. Louis	Caris Healthcare – St. Louis	Caris	2014
South Carolina	Anderson	Caris Healthcare – Anderson	Caris	2009
	Charleston	Caris Healthcare – Charleston	Caris	2010
	Columbia	Caris Healthcare – Columbia	Caris	2010
	Greenville	Caris Healthcare – Greenville	Caris	2009
	Greenwood	Caris Healthcare – Greenwood	Caris	2011
	Myrtle Beach	Caris Healthcare – Myrtle Beach	Caris	2010
	Sumter	Caris Healthcare – Sumter	Caris	2010
Tennessee	Athens	Caris Healthcare – Athens	Caris	2006
	Chattanooga	Caris Healthcare – Chattanooga	Caris	2005
	Columbia	Caris Healthcare – Columbia	Caris	2004
	Cookeville	Caris Healthcare – Cookeville	Caris	2004
	Crossville	Caris Healthcare – Crossville	Caris	2010
	Dickson	Caris Healthcare – Dickson	Caris	2007
	Greenville	Caris Healthcare – Greenville	Caris	2007
	Johnson City	Caris Healthcare – Johnson City	Caris	2004
	Knoxville	Caris Healthcare – Knoxville	Caris	2004
	Lenoir City	Caris Healthcare – Lenoir City	Caris	2009
	Milan	Caris Healthcare – Milan	Caris	2004
	Murfreesboro	Caris Healthcare – Murfreesboro	Caris	2005
	Nashville	Caris Healthcare – Nashville	Caris	2004
	Sevierville	Caris Healthcare – Sevierville	Caris	2007
	Somerville	Caris Healthcare – Somerville	Caris	2005
	Springfield	Caris Healthcare – Springfield	Caris	2006
Virginia	Bristol	Caris Healthcare – Bristol	Caris	2011

⁽¹⁾Leased from NHI

⁽²⁾NHC HealthCare/Fort Sanders is owned by a separate limited partnership.  The Company owns approximately 25% of the partnership interest in Fort Sanders.

Healthcare Facilities Leased to Others

The following table includes certain information regarding Healthcare Facilities which are owned by us and leased to others:

Name of Facility	Location	No. of Beds
Skilled Nursing Facilities
The Aristocrat	Naples, FL	60
The Health Center at Coconut Creek	Coconut Creek, FL	120
The Health Center of Daytona Beach	Daytona Beach, FL	73
The Imperial Health Care Center	Naples, FL	113
The Health Center of Windermere	Orlando, FL	120
Charlotte Harbor Health Care Center	Port Charlotte, FL	180
The Health Center at Standifer Place	Chattanooga, TN	444
The Health Center of Lake City	Lake City, FL	120
The Health Center of Pensacola	Pensacola, FL	180

Assisted Living		No. of Units
The Place at Vero Beach	Vero Beach, FL	135
The Place at Merritt Island	Merritt Island, FL	95
The Place at Stuart	Stuart, FL	100
Standifer Place Assisted Living	Chattanooga, TN	74

ITEM 3.

LEGAL PROCEEDINGS

General and Professional Liability Insurance and Lawsuits

The health care industry has experienced significant increases in both the number of personal injury/wrongful death claims and in the severity of awards based upon alleged negligence by skilled nursing facilities and their employees in providing care to residents.  As of December 31, 2014, we and/or our managed facilities are currently defendants in 34 such claims covering the years 2006 through December 31, 2014.

In 2002, due to the unavailability and/or prohibitive cost of third-party professional liability insurance coverage, we established and capitalized a wholly-owned licensed liability insurance company incorporated in the Cayman Island, for the purpose of managing our losses related to these risks.  Thus, since 2002, insurance coverage for incidents occurring at all NHC owned providers, and most providers managed by us, is provided through this wholly-owned insurance company.  

Insurance coverage for all years includes both primary policies and excess policies.  Beginning in 2003, both primary and excess coverage is provided through our wholly-owned insurance company.  The primary coverage is in the amount of $1.0 million per incident, $3.0 million per location with an annual primary policy aggregate limit that is adjusted on an annual basis.  The excess coverage is $7.5 million annual excess in the aggregate applicable to years 2005-2007, $9.0 million annual excess in the aggregate for years 2008-2010 and $4.0 million excess per occurrence for 2011 - 2014.

Beginning in 2008 and continuing through 2014, additional insurance is purchased through third party providers that serve to supplement the coverage provided through our wholly-owned captive insurance company.  

As a result of the terms of our insurance policies and our use of a wholly-owned insurance company, we have retained significant self-insured risk with respect to general and professional liability.  We use independent actuaries to estimate our exposures for claims obligations (for both asserted and unasserted claims) related to 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.

General Litigation

Civil Investigation Demand  

On December 19, 2013, the Company was served with a civil investigative demand from the U.S. Department of Justice and the Office of the U.S. Attorney for the Eastern District of Tennessee requesting the production of documents and interrogatory responses regarding the billing and medical necessity of certain rehabilitative therapy services.  Based upon our review, the request appears to relate to services provided at our skilled nursing facilities based in Knoxville, Tennessee.

On October 7, 2014, the Company received a subpoena from the Office of Inspector General of the United Department of Health and Human Services (“OIG Subpoena”) related to the current DOJ Investigation.  The OIG Subpoena requests certain financial and organizational documents from the Company and certain of its subsidiaries and SNFs and medical records from certain of the Company’s Tennessee-based SNFs. 

The Company is cooperating fully with these requests.  Because we are in the early stages of these investigations, we are unable to evaluate the outcomes of these investigations.

Caris HealthCare, L.P. Lawsuit

On December 9, 2014, Caris, a business that specializes in hospice care services in Company-owned health care centers and in other settings, received notice from the U.S. Attorney’s Office for the Eastern District of

Tennessee and the Attorney Generals’ Offices for the State of Tennessee and State of Virginia that those government entities were conducting an investigation regarding patient eligibility for hospice services provided by Caris.  We have a 75.1% non-controlling ownership interest in Caris.  We are cooperating with these government entities in connection with this investigation.  Because Caris and the Company are in the early stages of this investigation, we are unable to evaluate the outcome of this investigation.

There is certain additional litigation incidental to our business, none of which, based upon information available to date, would be material to our financial position, results of operations, or cash flows.  In addition, the long-term care industry is continuously subject to scrutiny by governmental regulators, which could result in litigation or claims related to regulatory compliance matters.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

The shares of common stock of National HealthCare Corporation are listed on the NYSE MKT exchange under the symbol NHC.  The closing price for the NHC common shares on February 12, 2015 was $64.40.  On December 31, 2014, NHC had approximately 5,000 stockholders, comprised of approximately 2,000 stockholders of record and an additional 3,000 stockholders indicated by security position listings.  The following table sets out the quarterly high and low sales prices and cash dividends declared of NHC's common shares.

		Stock Prices				Cash Dividends
		High		Low		Declared
2014
1st Quarter	$	56.91	$	49.06	$	.32
2nd Quarter		58.15		50.91		.32
3rd Quarter		58.92		54.39		.34
4th Quarter		64.66		54.33		.34
2013
1st Quarter	$	50.17	$	45.49	$	.30
2nd Quarter		48.55		44.68		.32
3rd Quarter		50.82		45.30		.32
4th Quarter		56.69		46.82		.32

On August 5, 2014 the Board of Directors of the Company authorized a new stock repurchase program that will allow the Company to repurchase up to $25 million of its common stock.  The program expires on August 31, 2015. Under the stock repurchase program, the Company may repurchase its common stock from time to time, in amounts and at prices the Company deems appropriate, subject to market conditions and other considerations.  The Company’s repurchases may be executed using open market purchases, privately negotiated agreements or other transactions.  The Company intends to fund repurchases under the new stock repurchase program from cash on hand, available borrowings or proceeds from potential debt or other capital market sources. The stock repurchase program may be suspended or discontinued at any time without prior notice.  On August 11, 2014, the Company repurchased 125,000 shares of its common stock for a total cost of $6,995,000.  The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued.

On August 1, 2013, the Board of Directors of the Company authorized a stock repurchase program that allowed the Company to repurchase up to $25 million of its common stock over a one year period.  The program expired on July 31, 2014.  No repurchases of common stock were executed under this program.

On August 1, 2012, the Board of Directors of the Company approved a stock repurchase program authorizing the Company to repurchase up to $25 million of its outstanding shares of common stock.   On February 19, 2013, the Company repurchased 100,000 shares for a total cost of $4.7 million.  The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued. This program expired on July 31, 2013.

Although we intend to declare and pay regular quarterly cash dividends, there can be no assurance that any dividends will be declared, paid or increased in the future.

Since November 1, 2007, the shares of convertible preferred stock of NHC are listed on the NYSE MKT exchange under the symbol NHC.PRA.  The following table sets out the quarterly high and low sales prices and cash dividends declared of NHC’s preferred shares.

		Stock Prices				Cash Dividends
		High		Low		Declared
2014
1st Quarter	$	15.20	$	13.25	$	.20
2nd Quarter		15.18		14.50		.20
3rd Quarter		15.35		14.91		.20
4th Quarter		15.92		15.05		.20
2013
1st Quarter	$	16.00	$	15.10	$	.20
2nd Quarter		16.10		13.71		.20
3rd Quarter		15.14		13.84		.20
4th Quarter		15.97		13.92		.20

The following table sets forth information regarding our equity compensation plans:

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)	(c)
Equity compensation plans approved by security holders	954,678	46.92	619,364
Equity compensation plans not approved by security holders	–	–	–
Total	954,678	46.92	619,364

The following graph and chart compare the cumulative total stockholder return for the period from December 31, 2009 through December 31, 2014 on an investment of $100 in (i) NHC’s common stock, (ii) the Standard & Poor’s 500 Stock Index ("S&P 500 Index") and (iii) the Standard & Poor’s Health Care Index ("S&P Health Care Index").  Cumulative total stockholder return assumes the reinvestment of all dividends.  Stock price performances shown in the graph are not necessarily indicative of future price performances.

ITEM 6.

SELECTED FINANCIAL DATA

The following table represents selected financial information for the five years ended December 31, 2014.  The data for 2014, 2013 and 2012 has been derived from financial statements included elsewhere in this Form 10-K and should be read in conjunction with those financial statements, accompanying footnotes and Management’s Discussion and Analysis.  Certain of the prior period amounts have been reclassified to conform to the 2014 financial data.

		As of and for the Year Ended December 31,
		2014		2013		2012		2011		2010
		(in thousands, except per share data)
Operating Data:
Net operating revenues		$	871,683	$	788,957	$	761,002	$	773,242	$	720,653
Total costs and expenses			(803,672)		(716,876)		(692,766)		(694,391)		(663,026)
Non-operating income			17,182		30,095		25,245		20,533		23,340
Income before income taxes			85,193		102,176		93,481		99,384		80,967
Income tax provision			(31,824)		(37,563)		(34,181)		(34,394)		(28,272)
Net income			53,369		64,613		59,300		64,990		52,695
Dividends to preferred stockholders			(8,670)		(8,671)		(8,671)		(8,671)		(8,673)
Net income available to common stockholders			44,699		55,942		50,629		56,319		44,022
Earnings per common share:
	Basic	$	3.24	$	4.05	$	3.65	$	4.09	$	3.22
	Diluted		3.14		3.87		3.57		3.96		3.22
Cash dividends declared:
	Per preferred share	$	.80	$	.80	$	.80	$	.80	$	.80
	Per common share		1.34		1.26		2.20		1.18		1.10
Balance Sheet Data:
Total assets		$	1,074,123	$	984,358	$	924,700	$	870,424	$	829,505
Accrued risk reserves			106,218		110,557		110,331		98,732		105,549
Long-term debt			10,000		10,000		10,000		10,000		10,000
Stockholders’ equity			734,148		688,112		656,148		606,869		555,361

ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

National HealthCare Corporation, which we also refer to as NHC or the Company, is a leading provider of post-acute care and senior health care services.  At December 31, 2014 we operate or manage 74 skilled nursing facilities with 9,462 licensed beds, 18 assisted living centers, five independent living centers, and 36 homecare programs located in ten states.  These operations are provided by separately funded and maintained subsidiaries.  We have a non-controlling ownership interest in a hospice care business that services NHC owned health care centers and others.  In addition, we provide management services, accounting services and insurance services to third party owners of skilled nursing facilities.  We also own the real estate of thirteen healthcare properties and lease these properties to third party operators.  

Executive Summary

Earnings

To monitor our earnings, we have developed budgets and management reports to monitor labor, census, and the composition of revenues.  Inflationary increases in our costs may cause net earnings from patient services to decline.  

Medicare Reimbursement Rate Changes

On April 1, 2013, the automatic 2% cuts (known as "sequestration") began for Medicare providers.  The resulting decrease in revenue on our consolidated statement of income was approximately $5,700,000 for the 2014 calendar year, or $1,425,000 per quarter (for both SNF's and Homecare).  We are unable to predict the financial impact of other cuts Congress may implement.  However, such impact may be adverse and material to our future results of operations and cash flows.

In July 2013, CMS released its skilled nursing facility PPS update for the fiscal year 2014, which began October 1, 2013.  The notice provided for a 1.3% rate update, which reflects a 2.3% market basket increase less a 0.5% multifactor productivity adjustment and a 0.5% adjustment to correct market basket forecasting errors in fiscal year 2012.  CMS estimated the update increased overall payments to skilled nursing facilities in fiscal year 2014 by $470 million compared to fiscal year 2013 levels.  

In August 2014, CMS released its skilled nursing facility PPS update for the fiscal year 2015, which began October 1, 2014.  The final rule provides for a 2.0% rate update, which reflects a 2.5% market basket increase less a 0.5% multifactor productivity adjustment as required by the ACA.  CMS estimates the update will increase overall payments to skilled nursing facilities in fiscal year 2015 by $750 million compared to fiscal year 2014 levels.  The 2015 final rule also includes wage index updates, revisions to the change of therapy (COT) other Medicare required assessment (OMRA) policy, and comments pertaining to CMS’ observations on therapy utilization trends.  The effect of the 2015 PPS rate update on our revenues will be dependent upon our census and the mix of our patients at the PPS payment rates.

Occupancy

A primary area of management focus continues to be the rates of occupancy within our skilled nursing facilities.  The overall average census in owned and leased skilled nursing facilities for 2014 was 88.9% compared to 89.2% and 90.1% in 2013 and 2012, respectively.  Increased availability of assisted living facilities, as well as the rapid growth of home and community based services, has amplified the challenge of maintaining desirable patient census levels.  Management has undertaken a number of steps in order to best position our current and future health care facilities.  This includes working internally to examine and improve systems to be most responsive to referral sources and payors.  Additionally, NHC is in various stages of partnerships with hospital systems, payors, and other post-acute alliances in positioning ourselves to be an active participant in the health delivery systems as they develop.  

Development and Growth

We are undertaking to expand our long-term care operations while protecting our existing operations and markets.  The following table lists our recent construction and purchase activities.

Type of Operation	Description	Size	Location	Placed in Service
SNF	Acquisition	106 beds	Columbia, TN	September, 2013
SNF	Acquisition	92 beds	Columbia, TN	September, 2013
SNF	Acquisition	139 beds	Knoxville, TN	September, 2013
SNF	Acquisition	107 beds	Springfield, TN	September, 2013
SNF	Acquisition	94 beds	Madisonville, KY	September, 2013
SNF	Acquisition	112 beds	Rossville, GA	September, 2013
SNF	Leased	120 beds	Greenfield, MA	September, 2013
SNF	Leased	102 beds	Holyoke, MA	September, 2013
SNF	Leased	71 beds	Quincy, MA	September, 2013
SNF	Leased	100 beds	Taunton, MA	September, 2013
SNF	Leased	108 beds	Epsom, NH	September, 2013
SNF	Leased	114 beds	Manchester, NH	September, 2013
SNF	Leased	126 beds	Manchester, NH	September, 2013
SNF	New Facility	90 beds	Tullahoma, TN	October, 2013
SNF	Addition	50 beds	Lexington, SC	December, 2013
SNF/AL	Leased	120 beds / 52 units	Independence, MO	March, 2014
SNF	Leased	70 beds	Independence, MO	March, 2014
SNF/AL	Leased	130 beds / 52 units	St. Peters, MO	March, 2014
AL	Partnership	83 units	Augusta, GA	June, 2014
Psychiatric Hospital	Partnership	14 beds	Osage Beach, MO	June, 2014
SNF	New Facility	52 beds	Kingsport, TN	December 2014
SNF/AL	New Facility	92 beds/60 Units	Sumner County, TN	Under construction
Memory Care	Partnership	60 beds	St. Peters, MO	Under construction
SNF/AL	New Facility	90 beds / 80 Units	Nashville, TN	Under construction

For the development projects under construction at December 31, 2014, we anticipate the 92-bed skilled nursing facility and 60-unit assisted living facility located in Sumner County, Tennessee to begin operations during the first quarter of 2015; the 60-bed memory care facility located in St. Peters, Missouri to begin operations during the fourth quarter of 2015 (we have a 25% ownership interest in this partnership), and the 90-bed skilled nursing facility and 80-unit assisted living facility located in Nashville, Tennessee to begin operations in the second or third quarter of 2016.  

Construction on both an 80-unit assisted living community in Garden City, South Carolina and a 76-unit assisted living community in Bluffton, South Carolina are scheduled to begin in the first quarter of 2015.

During the second quarter of 2015, we anticipate beginning construction on a replacement center (SNF) that will combine the 92 beds of NHC Hillview in Columbia, Tennessee with 20 beds from the existing skilled nursing unit at Maury Regional Medical Center.  The resulting replacement center will be a partnership between NHC and Maury Regional Medical Center.

During 2015, we plan to apply for Certificates of Need for additional beds in certain of our markets.  We also will evaluate the feasibility of expansion into new markets by building private pay health care centers or assisted living communities.

Accrued Risk Reserves

Our accrued professional liability reserves, workers’ compensation reserves and health insurance reserves totaled $106,218,000 and $110,557,000 at December 31, 2014 and 2013, respectively, and are a primary area of management focus.  We have set aside restricted cash and marketable securities to fund our professional liability and workers’ compensation reserves.  

As to exposure for professional liability claims, we have developed for our centers performance certification criteria to measure and bring focus to the patient care issues most likely to produce professional liability exposure, including in–house acquired pressure ulcers, significant weight loss and numbers of falls. These programs for certification, which we regularly modify and improve, have produced measurable improvements in reducing these incidents.  Our experience is that achieving goals in these patient care areas improves both patient and employee satisfaction.  

Application of Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 cause our reported net income to vary significantly from period to period.

Our critical accounting policies that are both important to the portrayal of our financial condition and results and require our most difficult, subjective or complex judgments are as follows:  

Revenue Recognition - Third Party Payors

Approximately 65% of our net patient revenues are derived from Medicare, Medicaid, and other government programs.  Amounts earned under these programs are subject to review by the Medicare and Medicaid intermediaries or their agents.  In our opinion, adequate provision has been made for any adjustments that may result from these reviews.  Any differences between our original estimates of reimbursements and subsequent revisions are reflected in operations in the period in which the revisions are made often due to final determination or the period of payment no longer being subject to audit or review.  We have made provisions of approximately $22,931,000 and $21,619,000 as of December 31, 2014 and 2013, respectively, for various Medicare and Medicaid current and prior year cost reports and claims reviews.  

Revenue Recognition - Private Pay

For private pay patients in skilled nursing or assisted living facilities, we bill room and board in advance for the current month with payment being due upon receipt of the statement in the month the services are performed.  Charges for ancillary, pharmacy, therapy and other services to private patients are billed in the month following the performance of services; however, all billings are recognized as revenue when the services are performed.  

Revenue Recognition - Subordination of Fees and Uncertain Collections

We provide management services to certain long-term care facilities and to others we provide accounting and financial services.  We generally charge 6% to 7% of net operating revenues for our management services and a predetermined fixed rate per bed for the accounting and financial services.  Our policy is to recognize revenues associated with both management services and accounting and financial services on an accrual basis as the services are provided.  However, under the terms of our management contracts, payments for our management services are subject to subordination to other expenditures of the long-term care center being managed.  Furthermore, for certain of the third parties with whom we have contracted to provide services and which we have determined, based on insufficient historical collections and the lack of expected future collections, that collection is not reasonably assured, our policy is to recognize revenues only in the period in which the amounts are realized.  We may receive payment for the unpaid and unrecognized management fees in whole or in part in the future only if cash flows from the operating and investing activities of the centers or proceeds from the sale of the centers are sufficient to pay the fees.  There can be no assurance that such future cash flows will occur.  The realization of such previously unrecognized revenue could cause our reported net income to vary significantly from period to period.

We agree to subordinate our fees to the other expenses of a managed center because we believe we know how to improve the quality of patient services and finances of a long-term care center and because subordinating our fees demonstrates to the owner and employees of the managed center how confident we are of the impact we can have in making the center operations successful.  We may continue to provide services to certain managed centers despite not being fully paid currently so that we may be able to collect unpaid fees in the future from improved operating results and because the incremental savings from discontinuing services to a center may be small compared to the potential benefit.  Also, we may benefit from providing other ancillary services to the managed center.  

See Notes 2 and 3 to the consolidated financial statements regarding our relationships with National and the recognition of management fees from healthcare centers owned by third parties.

Accrued Risk Reserves

We are principally self-insured for risks related to employee health insurance, workers’ compensation and professional and general liability claims.  Our accrued risk reserves primarily represent the accrual for self-insured risks associated with employee health insurance, workers’ compensation and professional and general liability claims.  The accrued risk reserves include a liability for reported claims and estimates for incurred but unreported claims.  Our policy with respect to a significant portion of our workers’ compensation and professional and general liability claims is to use an actuary to estimate our exposure for claims obligations (for both asserted and unasserted claims).  Our health insurance reserve is based on our known claims incurred and an estimate of incurred but unreported claims determined by our analysis of historical claims paid.  We reassess our accrued risk reserves on a quarterly basis.

Professional liability remains an area of particular concern to us.  The entire health 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 December 31, 2014, we and/or our managed centers are defendants in 34 such claims inclusive of years 2006 through 2014.  It remains possible that those pending matters plus potential unasserted claims could exceed our reserves, which could have a material adverse effect on our 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 maintain insurance coverage for incidents occurring in all healthcare facilities owned or leased by us, and most healthcare facilities managed 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.

Credit Losses

Certain of our accounts receivable from private paying patients and certain of our notes receivable are subject to credit losses.  We have attempted to reserve for expected accounts receivable credit losses based on our past experience with similar accounts receivable and believe our reserves to be adequate.  

We continually monitor and evaluate the carrying amount of our notes receivable in accordance with ASC Topic 310, Receivables.  It is possible, however, that the accuracy of our estimation process could be materially impacted as the composition of the receivables changes over time.  We continually review and refine our estimation process to make it as reactive to these changes as possible.  However, we cannot guarantee that we will be able to accurately estimate credit losses on these balances.  It is possible that future events could cause us to make significant adjustments or revisions to these estimates and cause our reported net income to vary significantly from period to period.

Uncertain Tax Positions

Uncertain tax positions may arise where tax laws may allow for alternative interpretations or where the timing of recognition of income is subject to judgment.  We believe we have made adequate provision for unrecognized tax benefits related to uncertain tax positions including related penalties and interest.

The above listing is not intended to be a comprehensive list of all of our accounting policies.  In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, 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 consolidated financial statements and notes thereto which contain accounting policies and other disclosures required by generally accepted accounting principles.  

Results of Operations

The following table and discussion sets forth items from the consolidated statements of income as a percentage of net revenues for the audited years ended December 31, 2014, 2013 and 2012.

Percentage of Net Revenues

			Year Ended December 31,
			2014	2013	2012
Revenues:
	Net patient revenues		95.1%	93.3%	92.7%
	Other revenues		4.9	6.7	7.3
		Net operating revenues	100.0	100.0	100.0
Costs and Expenses:
	Salaries, wages and benefits		58.5	57.5	56.1
	Other operating		24.9	24.7	25.8
	Rent		4.7	5.0	5.2
	Depreciation and amortization		3.9	3.6	3.8
	Interest		0.2	0.0	0.1
		Total costs and expenses	92.2	90.8	91.0
Income before non-operating income			7.8	9.2	9.0
Non-operating income			2.0	3.8	3.3
Income before income taxes			9.8	13.0	12.3
Income tax provision			(3.7)	(4.8)	(4.5)
Net income			6.1	8.2	7.8
Dividends to preferred stockholders			(1.0)	(1.1)	(1.1)
Net income available to common stockholders			5.1	7.1	6.7

The following table sets forth the increase or (decrease) in certain items from the consolidated statements of income as compared to the prior period.

Period to Period Increase (Decrease)

			2014 vs. 2013			2013 vs. 2012
(dollars in thousands)			Amount		Percent	Amount		Percent
Revenues:
	Net patient revenues		$	93,450	12.7	$	30,451	4.3
	Other revenues			(10,724)	(20.2)		(2,496)	(4.5)
		Net operating revenues		82,726	10.5		27,955	3.7
Costs and Expenses:
	Salaries, wages and benefits			56,689	12.5		26,626	6.2
	Other operating			22,154	11.4		(1,241)	(0.6)
	Rent			282	0.7		94	0.2
	Depreciation and amortization			5,837	20.4		(1,245)	(4.2)
	Interest			1,834	554.1		(124)	(27.3)
		Total costs and expenses		86,796	12.1		24,110	3.5
Income before non-operating income				(4,070)	(5.6)		3,845	5.6
Non-operating income				(12,913)	(42.9)		4,850	19.2
Income before income taxes				(16,983)	(16.6)		8,695	9.3
Income tax provision				5,739	(15.3)		3,382	9.9
Net income				(11,244)	(17.4)		5,313	9.0
Dividends paid to preferred stockholders				1	0.0		–	–
Net income available to common stockholders			$	(11,243)	(20.1)	$	5,313	10.5

Approximately 65% of our net patient revenues are derived from Medicare, Medicaid, and other government programs.  As discussed above in the Application of Critical Accounting Policies section, amounts earned under these programs are subject to review by the Medicare and Medicaid intermediaries.  See Application of Critical Accounting Policies for discussion of the effects that this revenue concentration and the uncertainties related to such revenues have on our revenue recognition policies.  

Government Program Financial Changes

Cost containment will continue to be a priority for Federal and State governments for health care services, including the types of services we provide.  Government reimbursement programs such as Medicare and Medicaid prescribe, by law, the billing methods and amounts that health care providers may charge and be reimbursed to care for patients covered by these programs. Congress has passed a number of laws that have effected major changes in the Medicare and Medicaid programs. The Balanced Budget Act of 1997 sought to achieve a balanced federal budget by, among other things, reducing federal spending on Medicare and Medicaid to various providers.  The Balanced Budget Act of 1997 defined the Medicare Prospective Payment System ("PPS") and this system has subsequently been refined in 1999, 2000, 2005, 2006 and 2010.

Federal Health Care Reform

In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act ("PPACA" or, commonly, “ACA”) and the Health Care and Education Reconciliation Act of 2010 ("HCERA"), which represents significant changes to the current U.S. health care system (collectively the "Acts"). The primary goals of the Acts are to: (1) expand coverage to Americans without health insurance, (2) reform the delivery system to improve quality and drive efficiency, (3) and to lower the overall costs of providing health care.  The timeline of the enacted provisions span over several years – some of the provisions were effective immediately in 2010 and others will be phased in through 2020.  

The U.S. Supreme Court has since issued its ruling on the constitutionality of a key provision in the ACA, which is the requirement that every American maintains a minimum level of health coverage or pays a penalty beginning in 2014.  The Supreme Court upheld the constitutionality of the “individual mandate”, holding that the penalty for not doing so could reasonably be interpreted as a tax, which the Constitution permits.  The ruling also permits the federal government to pursue a broad expansion of the Medicaid program, but the ruling gives the states the maximum flexibility on whether to do so.  With Medicaid coverage expansion occurring in some states in 2014, the current Administration may release a host of regulations and an array of new taxes and fees. It is uncertain at this time the effect the Acts, their modifications, or Medicaid expansion will have on our future results of operations or cash flows.  

Medicare – Skilled Nursing Facilities

On April 1, 2013, the automatic 2% cuts (known as "sequestration") began for Medicare providers.  The resulting decrease in revenue to our skilled nursing facilities was approximately $4,500,000 for the 2014 calendar year, or $1,125,000 per quarter.  We are unable to predict the financial impact of other cuts Congress may implement.  However, such impact may be adverse and material to our future results of operations and cash flows.

In July 2013, CMS released its skilled nursing facility PPS update for the fiscal year 2014, which began October 1, 2013.  The notice provided for a 1.3% rate update, which reflects a 2.3% market basket increase less a 0.5% multifactor productivity adjustment and a 0.5% adjustment to correct market basket forecasting errors in fiscal year 2012.  CMS estimated the update increased overall payments to skilled nursing facilities in fiscal year 2014 by $470 million compared to fiscal year 2013 levels.

In August 2014, CMS released its skilled nursing facility PPS update for the fiscal year 2015, which began October 1, 2014.  The final rule provides for a 2.0% rate update, which reflects a 2.5% market basket increase less a 0.5% multifactor productivity adjustment as required by the ACA.  CMS estimates the update will increase overall payments to skilled nursing facilities in fiscal year 2015 by $750 million compared to fiscal year 2014 levels.  The 2015 final rule also includes wage index updates, revisions to the change of therapy (COT) other Medicare required assessment (OMRA) policy, and comments pertaining to CMS’ observations on therapy utilization trends.  The effect of the 2015 PPS rate update on our revenues will be dependent upon our census and the mix of our patients at the PPS payment rates.

For 2014, our average Medicare per diem rate for skilled nursing facilities increased 1.5% compared to the same period in 2013.  No assurances can be given as to whether Congress will increase or decrease reimbursement in the future, the timing of any action or the form of relief, if any, that may be enacted.

Medicare – Homecare Programs

On April 1, 2013, the automatic 2% Medicare cuts began for homecare providers.  The resulting decrease in revenue to our homecare programs was approximately $1,200,000 for the 2014 calendar year, or $300,000 per quarter.  

On November 22, 2013 and effective January 1, 2014, CMS issued the final rule for 2014 home health prospective payment system rates, which included (i) a market basket increase of 2.3 percent, (ii) rebasing of Medicare reimbursement rates, with annual reductions of 3.5 percent for each of the next four years beginning January 2014, (iii) changes in the Wage Index with no overall impact and (iv) rebasing all case mix weights to 1.0 from an average case mix weight of 1.3464 in 2013, as provided for under the Affordable Care Act.  The rule also provided for changes in low utilization payments amounts and the removal of 170 diagnosis codes, among other changes.  In total, CMS predicted that home health agencies would experience an approximate 1.05 percent reduction in reimbursement for 2014.

On October 30, 2014 and effective January 1, 2015, CMS released its final rule for the 2015 home health prospective payment system.  The final rule reduces home health payments overall by 0.3 percent from 2014 payment levels.  The payment decrease reflects the impact of the 2.1% home health payment update ($390 million increase) and the second year of the four-year phase-in of the rebasing adjustments to the national, standardized 60-day episode payment rate, the national per-visit payment rates, and the non-routine medical supplies conversion factor (2.4% or $450 million decrease).  The final rule also makes adjustments to the new home health face-to-face requirements, updates the Home Health Quality Reporting Program, and discusses a potential value-based purchasing model to begin testing in 2016.  

Medicaid – Skilled Nursing Facilities

Effective July 1, 2013 and for the fiscal year 2014, the state of Tennessee implemented specific individual nursing facility rate increases.  The resulting increase in revenue beginning July 1, 2013 and ending June 30, 2014 was approximately $1,800,000 annually, or $450,000 per quarter.  

Effective July 1, 2014 and for the fiscal year 2015, the state of Tennessee implemented individual skilled nursing facility rate changes.  With new state legislation being passed for the 2015 fiscal year, there are four components that impact Tennessee Medicaid reimbursement for skilled nursing facilities:  a Level I or Level II per diem, a quarterly acuity payment, a quarterly Quality Improvement in Long-Term Services and Supports ("QuILTSS") payment (which are incentives based on qualifying criteria in several categories), and an assessment fee (expense).  Effective July 1, 2014, each facility will now be charged an assessment fee based on 4.5% of net patient revenues.  The assessment fee is replacing the former bed tax fee.  In summary and for the 2015 fiscal year, we expect the Tennessee Medicaid reimbursement changes to increase income before income taxes by approximately $3,000,000 annually, or $750,000 per quarter.  

Effective October 1, 2013 and for the fiscal year 2014, South Carolina implemented specific individual nursing facility rate increases.  The resulting increase in revenue beginning October 1, 2013 was approximately $1,540,000 annually, or $385,000.  

Effective October 1, 2014 and for the fiscal year 2015, South Carolina implemented specific individual nursing facility rate increases.  We estimate the resulting increase in revenue beginning October 1, 2014 will be approximately $1,800,000 annually, or $450,000.

During the first quarter of 2014, the state of Missouri paid a retroactive rate increase back to July 1, 2013.  In the first quarter of 2014, the Company recorded approximately $533,000 of additional net patient revenues for the July 1, 2013 through December 31, 2013 retroactive period.  The resulting increase in revenue was approximately $250,000 per quarter for the 2014 year.   

Overall our average Medicaid per diem increased 2.4% in 2014 compared to 2013. We face challenges with respect to states’ Medicaid payments, because many currently do not cover the total costs incurred in providing care to those patients. States will continue to control Medicaid expenditures and also look for adequate funding sources, including provider assessments.  The Deficit Reduction Act includes several provisions designed to reduce Medicaid spending. These provisions include, among others, provisions strengthening the Medicaid asset transfer restrictions for persons seeking to qualify for Medicaid long-term care coverage, which could, due to the timing of the penalty period, increase facilities’ exposure to uncompensated care. Other provisions could increase state funding for home and community-based services, potentially having an impact on funding for nursing facilities. There is no assurance that the funding for our services will increase or decrease in the future.

2014 Compared to 2013

Results for 2014 compared to 2013 include a 10.5% increase in net operating revenues, a 5.6% decrease in income before non-operating income, and a 16.6% decrease in income before income taxes.

The overall average census in owned and leased skilled nursing facilities for 2014 was 88.9% compared to 89.2% in 2013.  The composite skilled nursing facility per diem increased 0.8% in 2014 compared to 2013.  The composite per diem increase consisted of:  Medicare, Medicaid and private pay per diem rates increased 1.5%, 2.4% and 3.5%, respectively, in 2014 compared to 2013.  Managed care per diem rates decreased 1.9% in 2014 compared to 2013.

Net patient revenues increased $93,450,000, or 12.7%, compared to the prior year.  The majority of the increase in net patient revenues consisted of the twelve newly constructed or leased skilled nursing facilities compared to the 2013 year.  We began operating four of the skilled nursing facilities during the 2014 year (three in Missouri and one in Tennessee) and we began operating eight of the skilled nursing facilities during the second half of the 2013 year (four in Massachusetts, three in New Hampshire, and one in Tennessee).  These twelve newly constructed or leased facilities helped increase net patient revenues by $77,394,000 over the 2013 year.  We also had an increase in net patient revenues from our same facility skilled nursing facilities in the amount of $8,278,000 compared to the prior year.   

Other revenues this year decreased $10,724,000, or 20.2%, to $42,396,000, as further detailed in Note 3 of the consolidated financial statements.  Other revenues in 2014 include management and accounting service fees of $15,184,000 ($18,160,000 in 2013) and insurance services revenue of $7,215,000 ($15,143,000 in 2013).  Rental income was $19,123,000 in 2014 ($19,132,000 in 2013).  

At December 31, 2014, NHC provides management services for eight skilled nursing centers, two assisted living centers, and one independent living community.  During the 2014 year, we began managing two new healthcare facilities.  In February 2014, we assumed management of a 147-bed skilled nursing facility located in Des Peres, Missouri.  In June 2014, we began managing an 83-unit assisted living facility located in Augusta, Georgia.  

As discussed in Notes 4 and 16 of the Company’s 2013 Form 10-K, we discontinued our relationship with the SeniorTrust and ElderTrust non-profit organizations during 2013.  The discontinuation of management and insurance services to the SeniorTrust and ElderTrust organizations caused other revenues to decrease by approximately $8,253,000 in 2014 compared to 2013.  Other revenues also decreased in the 2014 year compared to the prior year by approximately $2,769,000 as a result of a 2013 favorable workers compensation insurance settlement.

At December 31, 2014, the Company provides accounting and financial services to 20 healthcare facilities (compared to 27 at December 31, 2013).  No management services are provided for entities in which we provide accounting and financial services.  Effective October 1, 2014, the Company is no longer providing accounting and financial services to seven healthcare facilities.  We expect other revenues in the consolidated statements of income

to decrease by approximately $1,200,000 in 2015, or $400,000 per quarter for the first three quarters of 2015, from the discontinuation of these services.

Total costs and expenses for 2014 increased $86,796,000 or 12.1%, to $803,672,000 from $716,876,000 in 2013. Salaries, wages and benefits, the largest operating costs of the company, increased $56,689,000, or 12.5%, to $510,249,000 from $453,560,000.  Other operating expenses increased $22,154,000, or 11.4%, to $217,143,000 for 2014 compared to $194,989,000 in 2013.  Rent expense increased $282,000, or 0.7%, to $39,731,000.  Depreciation and amortization increased 20.4% to $34,384,000.  Interest expense increased to $2,165,000.  

Salaries, wages and benefits as a percentage of net operating revenues was 58.5% and 57.5% for the years ended December 31, 2014 and 2013, respectively.  The increase in salaries, wages and benefits is primarily due to the new operations of the twelve newly constructed or leased healthcare facilities compared to the prior year ($43,319,000).  We also had increased costs for therapist services of $4,864,000, increased cost related to our self-insured health insurance plan of $3,168,000 compared to the 2013 year, and inflationary wage increases for the Company’s partners.

Other operating expense as a percentage of net operating revenues was 24.9% and 24.7% for the years ended December 31, 2014 and 2013, respectively.  The increase in other operating expenses is primarily due to the new operations of the twelve newly constructed or leased healthcare facilities compared to the prior year ($28,973,000).  The 2014 increase in other operating expenses was offset in part by the 2013 expenses incurred by providing management and insurance services for the SeniorTrust and ElderTrust non-profit organizations.  Since the Company was no longer providing these services in 2014, other operating expenses decreased by approximately $6,398,000 compared to the 2013 year.

Rent expense in 2014 increased by approximately $282,000 compared to the prior year.  The seven new healthcare facilities we began leasing and operating from NHI on September 1, 2013 increased rent expense $2,300,000 in 2014 compared to 2013.  In a separate transaction on September 1, 2013, we purchased six skilled nursing facilities from NHI for $21 million, which lowered rent expense in 2014 by approximately $2,215,000 compared to 2013.  The net of the two transactions leaves a slight increase in rent expense for 2014 when compared to the prior year.   

The increase in depreciation expense is due to the new operations of the skilled nursing facilities and the increase in interest expense is due to the capital leases recorded for the three Missouri healthcare facilities we began operating during the first quarter of 2014.  

Non-operating income in 2014 decreased $12,913,000, or 42.9%, to $17,182,000, as further detailed in Note 4 of the consolidated financial statements.  The decrease is primarily due to our equity method investment in Caris, a hospice provider, which decreased $6,196,000 in 2014 compared to the prior year.  The decrease is also due to the 2013 event in which a gain was recorded in the prior year on the recovery of notes receivable ($5,454,000) from the collection of certain notes receivable.  The Company also has two new equity method investments in 2014:  a 60% non-controlling ownership interests in a 14-bed geriatric psychiatric hospital in Osage Beach, Missouri and 10% ownership interest in an 83-unit assisted living facility in Augusta, Georgia.  These two equity method investments decreased non-operating income by $1,222,000 in 2014 compared to 2013.

The income tax provision for 2014 is $31,824,000 (an effective income tax rate of 37.4%).  The income tax provision and effective tax rate for 2014 were unfavorably impacted by adjustments to unrecognized tax benefits of $512,000 and permanent differences of $829,000 including nondeductible expenses resulting in an increase in the provision.  The income tax provision and effective tax rate for 2014 were favorably impacted by statute of limitation expirations resulting in a benefit to the provision of $1,542,000 or 1.8% of income before taxes in 2014.

The income tax provision for 2013 is $37,563,000 (an effective income tax rate of 36.8%).  The income tax provision and effective tax rate for 2013 were unfavorably impacted by adjustments to unrecognized tax benefits of $1,107,000 and permanent differences of $(26,000) including nondeductible expenses resulting in an increase in the provision.  The income tax provision and effective tax rate for 2013 were favorably impacted by statute of limitation expirations resulting in a benefit to the provision of $1,605,000 or 1.6% of income before taxes in 2013.

The effective tax rate for 2015 is expected to be in the range of 35% to 39%.

2013 Compared to 2012

Results for 2013 compared to 2012 include a 3.7% increase in net operating revenues, a 5.6% increase in

income before non-operating income, and a 9.3% increase in income before income taxes.

The overall average census in owned and leased skilled nursing facilities for 2013 was 89.2% compared to 90.1% in 2012.  The composite skilled nursing facility per diem increased 2.9% in 2013 compared to 2012.  The composite per diem increase consisted of:  Medicare and Managed Care per diem rates decreased 0.2% and 0.5%, respectively, in 2013 compared to 2012.  Medicaid and private pay per diem rates increased 3.5% and 6.3%, respectively, in 2013 compared to 2012.  

Net patient revenues increased $30,451,000, or 4.3%, compared to the prior year.  In addition to our average skilled nursing facility per diem increasing, we began leasing and operating seven skilled nursing facilities in Massachusetts and New Hampshire on September 1, 2013.  NHC was previously managing these seven facilities prior to the Company leasing and operating them.  We also opened a newly constructed skilled nursing facility in Tullahoma, Tennessee during the fourth quarter of 2013.  These nine newly acquired or constructed facilities helped increase net patient revenues by $21,370,000.  Homecare services, which had increased Medicare episodes and patient visits in 2013, also helped increase net patient revenues by approximately $5,340,000.

Other revenues this year decreased $2,496,000, or 4.5%, to $53,120,000.  Other revenues in 2013 include management and accounting service fees of $18,160,000 ($20,042,000 in 2012) and insurance services revenue of $15,143,000 ($15,671,000 in 2012).  Rental income was $19,132,000 in 2013 ($19,314,000 in 2012).  

At December 31, 2013, NHC provides management services for seven skilled nursing centers, one assisted living community, and one independent living community.  At December 31, 2012, NHC provided management services for twenty-one skilled nursing centers, four assisted living communities, and two independent living communities.  Of the healthcare facilities the Company is no longer managing, seven skilled nursing facilities transitioned from management services contracts to the Company operating the facilities on September 1, 2013.  As of September 1, 2013 and thereafter, the revenues from these seven facilities are shown in net patient revenues and not in other revenues where management services are classified.  Therefore and as of December 31, 2013, NHC is no longer providing management services to fourteen skilled nursing facilities, two assisted living communities, and one independent living community; all of which were part of the SeniorTrust and ElderTrust non-profit organizations and were sold to third parties.    

The discontinuation of management and insurance services to the SeniorTrust and ElderTrust facilities caused other revenues to decrease by approximately $5,047,000 in 2013 compared to 2012.  Other revenues increased by approximately $2,769,000 as a result of a workers compensation insurance settlement with one of the states in which we insure third party operators.

Other revenues are further detailed in Note 3 of the consolidated financial statements.  With the discontinuation of our relationship with SeniorTrust and ElderTrust non-profit organizations, we estimate our future results of operations and cash flows to be adversely affected.  The Company's discontinuation of management fees and insurance services decreased income before income taxes by approximately $2,200,000 annually, or $1,350,000 net of income taxes annually.

Total costs and expenses for 2013 increased $24,110,000 or 3.5%, to $716,876,000 from $692,766,000 in 2012. Salaries, wages and benefits, the largest operating costs of the company, increased $26,626,000, or 6.2%, to $453,560,000 from $426,934,000.  Other operating expenses decreased $1,241,000, or 0.6%, to $194,989,000 for 2013 compared to $196,230,000 in 2012.  Rent expense increased $94,000, or 0.2%, to $39,449,000.  Depreciation and amortization decreased 4.2% to $28,547,000.  Interest costs decreased to $331,000.  

Salaries, wages and benefits as a percentage of net operating revenue was 57.5% and 56.1% for the years ended December 31, 2013 and 2012, respectively.  The increase in salaries, wages and benefits is primarily due to the new operations of the seven leased healthcare facilities in Massachusetts and New Hampshire, along with the newly constructed Tullahoma, Tennessee skilled nursing facility ($14,966,000).  We also had increased numbers of employees for certain of our patient care services and inflationary wage increases for the Company’s partners.

Other operating expense as a percentage of net operating revenues was 24.7% and 25.8% for the years ended December 31, 2013 and 2012, respectively.  The decrease in other operating expenses for 2013 is primarily due to the favorable results within our accrued risk reserves of $9,634,000 and the cost saving measures that continue to be implemented at our skilled nursing facilities ($4,519,000).  These decreases were offset by the increased cost of the new operations of the seven leased healthcare facilities in Massachusetts and New Hampshire and the newly constructed Tullahoma, Tennessee skilled nursing facility in the amount of $6,575,000.  We also had an unfavorable future service obligation adjustment in our continuing care retirement center of $4,359,000.

Rent expense in 2013 increased by approximately $94,000 compared to the prior year.  The eight new healthcare facilities we began leasing and operating from NHI on September 1, 2013 increased rent expense $1,150,000 compared to 2012.  In a separate transaction on September 1, 2013, we purchased six skilled nursing facilities from NHI for $21 million, which lowered rent expense by approximately $1,107,000 compared to 2012.  The net of the two transactions leaves a slight increase in rent expense for 2013 when compared to the prior year.   

Non-operating income in 2013 increased $4,850,000, or 19.2%, to $30,095,000, as further detailed in Note 4 of the consolidated financial statements.  The increase is primarily due to the gain on the recovery of notes receivable ($5,454,000) from the collection of certain notes receivable NHC had previously written down.  We also acquired an additional 7.5% non-controlling ownership interest in Caris effective June 1, 2012; therefore, we have twelve months of equity in earnings for the 2013 period related to the additional 7.5% ownership interest compared to seven months for the 2012 period.

The income tax provision for 2013 is $37,563,000 (an effective income tax rate of 36.8%).  The income tax provision and effective tax rate for 2013 were unfavorably impacted by adjustments to unrecognized tax benefits of $1,107,000 and permanent differences of $(26,000) including nondeductible expenses resulting in an increase in the provision.  The income tax provision and effective tax rate for 2013 were favorably impacted by statute of limitation expirations resulting in a benefit to the provision of $1,605,000 or 1.6% of income before taxes in 2013.

The income tax provision for 2012 is $34,181,000 (an effective tax rate of 36.6%).  The income tax provision and effective tax rate for 2012 were favorably impacted by statute of limitations expirations resulting in a benefit to the provision of $3,187,000 or 3.4% of income before taxes in 2012.  The income tax provision and effective tax rate for 2012 were unfavorably impacted by adjustments to unrecognized tax benefits resulting in an increase in the tax provision of $409,000 composed of $55,000 tax and $354,000 interest and penalties or 0.4% of income before taxes in 2012.  The income tax provision and effective tax rate for 2012 were also unfavorably impacted by nondeductible expenses and permanent differences of $980,000 or 1.0% of income before taxes in 2012.

Liquidity, Capital Resources and Financial Condition

Sources and Uses of Funds

Our primary sources of cash include revenues from the healthcare and senior living facilities we operate, homecare services, insurance services, management services and accounting services.  Our primary uses of cash include salaries, wages and benefits, operating costs of the healthcare facilities we operate, the cost of additions to and acquisitions of real property, rent expenses, and dividend distributions.  These sources and uses of cash are reflected in our consolidated statements of cash flows and are discussed in further detail below.  The following is a summary of our sources and uses of cash flows (dollars in thousands):

		Year Ended				One Year Change			Year Ended		Two Year Change
		12/31/14		12/31/13		$	%		12/31/12		$	%
Cash and cash equivalents at beginning of period	$	81,705	$	66,701	$	15,004	22.5	$	61,008	$	20,697	33.9
Cash provided by  operating activities		75,694		102,348		(26,654)	(26.0)		64,373		11,321	17.6
Cash used in investing activities		(57,508)		(56,300)		(1,208)	(2.1)		(31,225)		(26,283)	(84.2)
Cash used in financing activities		(30,124)		(31,044)		920	3.0		(27,455)		(2,669)	(9.7)
Cash and cash equivalents at end of period	$	69,767	$	81,705	$	(11,938)	(14.6)	$	66,701	$	3,066	4.6

Operating Activities

Net cash provided by operating activities for the year ended December 31, 2014 was $75,694,000 as compared to $102,348,000 and $64,373,000 for the years ended December 31, 2013 and 2012, respectively.  In 2014, cash provided by operating activities consisted of net income of $53,369,000, adjustments for non-cash items of $41,199,000, cash distributions from equity method investments exceeding equity method earnings of $3,613,000, subtract gains on the sale of marketable securities of $379,000, and $22,108,000 was used for working capital.  Working capital primarily consisted of an increase in restricted cash and cash equivalents of $6,245,000, an

increase in accounts receivable of $5,215,000, a decrease in accrued payroll of $3,603,000, and a decrease in accrued risk reserves of $4,339,000.

The increase in restricted cash and cash equivalents is from NHC and other healthcare facilities paying insurance premiums into NHC insurance companies, which restrict the cash payment.  The increase in accounts receivable is primarily from the new operations of the four skilled nursing facilities that we began operating during the 2014 year.  The decrease in payroll is due to the timing of payroll and incentive compensation payments.  The decrease in accrued risk reserves is due to the activity within our self-insured workers’ compensation and professional liability companies.  

Investing Activities

Cash used in investing activities totaled $57,508,000 for the year ended December 31, 2014, as compared to $56,300,000 and $31,225,000 for the years ended December 31, 2013 and 2012, respectively.  Cash used for property and equipment additions was $53,298,000, $43,438,000, and $22,003,000 for the years ended December 31, 2014 and 2013 and 2012, respectively.  In 2014, cash was used to make investments into partnerships or was used to acquire additional ownership interest in partnerships in which we already had an ownership stake in the amount of $2,743,000.  Net cash provided by collections of notes receivable was $2,389,000 in 2014 compared to $11,865,000 and $660,000 in 2013 and 2012, respectively.  Purchases and sales of marketable securities resulted in a net use of cash of $3,856,000 compared to $3,727,000 and $2,382,000 in 2013 and 2012, respectively.    

Construction costs included in additions to property and equipment in 2014 include $20,710,000 for the construction of a 92-bed skilled nursing facility and 60-unit assisted living facility in Sumner County, Tennessee, $7,902,000 for the renovation of a 52-bed skilled nursing facility in Kingsport, Tennessee, and $2,674,000 for the renovation and construction of a 14-bed geriatric psychiatric hospital in Osage Beach, Missouri.

The most significant partnership investment made in 2014 was $1,247,000 involving the 60% non-controlling ownership interest in the 14-bed geriatric psychiatric hospital in Osage Beach, Missouri.  The purchases of marketable securities were funded from restricted cash and cash equivalents to earn a better rate of return.  In 2013, the collections of notes receivable increased substantially due to the payoff of four promissory notes in the amount of $10,587,000.

Financing Activities

Net cash used in financing activities totaled $30,124,000, $31,044,000 and $27,455,000 for the years ended December 31, 2014, 2013, and 2012, respectively.  Dividends paid to common stockholders for the 2014 year were $18,704,000 compared to $17,469,000 and $30,849,000 in 2013 and 2012, respectively.  On December 21, 2012, the Company paid a special cash dividend of $1.00 per share, which used approximately $14,137,000 of cash.  Dividends paid to preferred stockholders were $8,670,000 in 2014 and $8,671,000 in 2013 and 2012.  On August 11, 2014, the Company repurchased 125,000 shares of common stock for a total cost of $6,995,000.  On February 19, 2013, the Company repurchased 100,000 shares of common stock for a total cost of $4,700,000.  Proceeds from the issuance of common stock, primarily from the exercise of stock options, totaled $7,429,000 in 2014 compared to $991,000 and $13,412,000 for 2013 and 2012, respectively.  Our continuing care retirement center issued entrance fee deposit refunds of $501,000 in 2014, compared to taking deposits of $40,000 in 2013 and refunds of $1,310,000 in 2012.  On March 1, 2014, the Company entered into capital lease agreements to operate three skilled nursing facilities in the state of Missouri.  The principal payments under the capital lease obligations were $2,436,000 for the 2014 year.   

Table of Contractual Cash Obligations

Our contractual cash obligations for periods subsequent to December 31, 2014 are as follows (in 000’s):

		Total		Less than 1 year		1-3 Years		3-5 Years		After 5 Years
Long-term debt principal	$	10,000	$	–	$	–	$	10,000	$	–
Long-term debt – interest		828		276		552		–		–
Construction obligations		25,541		25,541		–		–		–
Operating and capital leases		463,817		39,400		78,800		78,800		266,817
Total contractual cash obligations	$	500,186	$	65,217	$	79,352	$	88,800	$	266,817

Income taxes payable for uncertain tax positions under ASC 740 of $4,895,000 attributable to permanent differences, at December 31, 2014 has not been included in the above table because of the inability to estimate the

period in which payment is expected to occur.  See Note 12 of the consolidated financial statements for a discussion on income taxes.

Short-term liquidity

Effective October 22, 2014, we extended the maturity of our $75,000,000 revolving credit agreement to October 21, 2015.  At December 31, 2014, we do not have any funds borrowed against the credit agreement.  The entire amount of $75,000,000 is available to be drawn for general corporate purposes, including working capital and acquisitions.

We expect to meet our short-term liquidity requirements primarily from our cash flows from operating activities. In addition to cash flows from operations, our current cash on hand of $69,767,000, marketable securities of $132,535,000 and as needed, our borrowing capacity, are expected to be adequate to meet our contractual obligations and to finance our operating requirements and our growth and development plans in the next twelve months.

Long-term liquidity

Our $75,000,000 revolving credit agreement matures on October 21, 2015.  We currently anticipate renewing the credit agreement at that time.  While we have had no indication from the lender there is any question about renewal, there has been no commitment at this time.  We entered into this loan originally on October 30, 2007, and have renewed the loan six times, with a one year maturity.  At the inception and at each renewal, the lender offered alternative notes with longer maturities, but the Company chose a one-year maturity because of the terms.  If we have an outstanding balance and are not able to refinance our debt as it matures, we will be required to use our cash and marketable securities to meet our debt obligations.  This will limit our ability to fund future growth opportunities.

Our ability to refinance the credit agreement, to meet our long-term contractual obligations and to finance our operating requirements, growth and development plans will depend upon our future performance, which will be affected by business, economic, financial and other factors, including potential changes in state and federal government payment rates for health care, customer demand, success of our marketing efforts, pressures from competitors, and the state of the economy, including the state of financial and credit markets.

Contingencies

Impact of Inflation

Inflation has remained relatively low during the past three years.  However, rates paid under the Medicare and Medicaid programs do not necessarily reflect all inflationary changes and are subject to cuts unrelated to inflationary costs.  Therefore, there can be no assurance that future rate increases will be sufficient to offset future inflation increases in our labor and other health care service costs.

See Note 15 to the consolidated financial statements for additional information on pending litigation and other contingencies.

Guarantees

We started paying quarterly dividends in the second quarter of 2004.  Although we intend to declare and pay regular quarterly cash dividends, there can be no assurance that any dividends will be declared, paid or increased in the future.  

At December 31, 2014, we have no agreements to guarantee the debt obligations of other parties.

We have no outstanding letters of credit.  We may or may not in the future elect to use financial derivative instruments to hedge interest rate exposure in the future. At December 31, 2014, we did not participate in any such financial investments.

New Accounting Pronouncements

See Note 1 to the consolidated financial statements for the impact of new accounting standards.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Market risk represents the potential economic loss arising from adverse changes in the fair value of financial instruments.  Currently, our exposure to market risk relates primarily to our fixed-income and equity portfolios.  These investment portfolios are exposed primarily to, but not limited to, interest rate risk, credit risk, equity price risk, and concentration risk.  We also have exposure to market risk that includes our cash and cash equivalents, notes receivable, revolving credit facility, and long-term debt.  The Company's senior management has established comprehensive risk management policies and procedures to manage these market risks.  

Interest Rate Risk

The fair values of our fixed-income investments fluctuate in response to changes in market interest rates.  Increases and decreases in prevailing interest rates generally translate into decreases and increases, respectively, in the fair values of those instruments.  Additionally, the fair values of interest rate sensitive instruments may be affected by the creditworthiness of the issuer, prepayment options, the liquidity of the instrument and other general market conditions.  At December 31, 2014, we have available for sale debt marketable securities in the amount of $158,273,000.  The fixed maturity portfolio is comprised of investments with primarily short-term and intermediate-term maturities.  The portfolio composition allows flexibility in reacting to fluctuations of interest rates.  The fixed maturity portfolio allows our insurance company subsidiaries to achieve an adequate risk-adjusted return while maintaining sufficient liquidity to meet obligations.  At December 31, 2014, our debt marketable securities had gross realized gains of $1,454,000 and gross unrealized losses of $824,000.

As of December 31, 2014, both our long-term debt and revolving credit facility bear interest at variable interest rates.  Currently, we have long-term debt outstanding of $10.0 million and there are no amounts due under our revolving credit facility.  However, we do intend to borrow funds on our credit facility in the future.  Based on a hypothetical credit facility borrowing of $75 million and our outstanding long-term debt, a 1% change in interest rates would change our interest cost by approximately $850,000.

Approximately $4.5 million of our notes receivable bear interest at variable rates (generally at the prime rate plus 2%).  Because the interest rates of these instruments are variable, a hypothetical 1% change in interest rates would result in a related increase or decrease in interest income of approximately $45,000.  

Our cash and cash equivalents consist of highly liquid investments with a maturity of less than three months when purchased.  As a result of the short-term nature of our cash instruments, a hypothetical 1% change in interest rates would have minimal impact on our future earnings and cash flows related to these instruments.

We do not currently use any derivative instruments to hedge our interest rate exposure.  We have not used derivative instruments for trading purposes and the use of such instruments in the future would be subject to approvals by the Investment Committee of the Board.

Credit Risk

Credit risk is managed by diversifying the fixed maturity portfolio to avoid concentrations in any single industry group or issuer and by limiting investments in securities with lower credit ratings.  Corporate debt securities and commercial mortgage-backed securities comprise approximately 83.5% of the fair value of the fixed maturity portfolio.  At December 31, 2014, the credit quality ratings for our fixed maturity portfolio consisted of the following investment grades (as a percent of fair value): 22.1% AAA rated, 14.7% AA rated, 53.7% A rated, and 9.5% BBB rated.

Equity Price and Concentration Risk

Our available for sale equity securities are recorded at their fair market value based on quoted market prices.  Thus, there is exposure to equity price risk, which is the potential change in fair value due to a change in quoted market prices.  At December 31, 2014, the fair value of our equity marketable securities is approximately $132,535,000.  Of the $132.5 million equity securities portfolio, our investment in National Health Investors, Inc. (“NHI”) comprises approximately $114,080,000, or 86.1%, of the total fair value.  We manage our exposure to NHI by closely monitoring the financial condition, performance, and outlook of the company.  Hypothetically, a 10% change in quoted market prices would result in a related increase or decrease in the fair value of our equity investments of approximately $13,250,000.  At December 31, 2014, our equity marketable securities had unrealized gains of $102,359,000.  Of the $102,359,000 unrealized gains, $89,345,000 is related to NHI.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

National HealthCare Corporation

We have audited the accompanying consolidated balance sheets of National HealthCare Corporation as of December 31, 2014 and 2013 and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2014.  Our audits also included the financial statement schedule listed in the Index and Item 15(a).  These financial statements and schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of National HealthCare Corporation at December 31, 2014 and 2013 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.  Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), National HealthCare Corporation’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 20, 2015, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Nashville, Tennessee

February 20, 2015

NATIONAL HEALTHCARE CORPORATION

Consolidated Statements of Income

(in thousands, except share and per share amounts)

				Year Ended December 31,
				2014		2013		2012
Revenues:
	Net patient revenues		$		829,287	$	735,837	$	705,386
	Other revenues				42,396		53,120		55,616
		Net operating revenues			871,683		788,957		761,002
Costs and Expenses:
	Salaries, wages and benefits				510,249		453,560		426,934
	Other operating				217,143		194,989		196,230
	Facility rent				39,731		39,449		39,355
	Depreciation and amortization				34,384		28,547		29,792
	Interest				2,165		331		455
		Total costs and expenses			803,672		716,876		692,766
Income Before Non-Operating Income					68,011		72,081		68,236
Non-Operating Income					17,182		30,095		25,245
Income Before Income Taxes					85,193		102,176		93,481
Income Tax Provision					(31,824)		(37,563)		(34,181)
Net Income					53,369		64,613		59,300
Dividends to Preferred Stockholders					(8,670)		(8,671)		(8,671)
Net Income Available to Common Stockholders			$		44,699	$	55,942	$	50,629
Earnings Per Common Share:
	Basic		$		3.24	$	4.05	$	3.65
	Diluted		$		3.14	$	3.87	$	3.57
Weighted Average Common Shares Outstanding:
	Basic				13,816,095		13,829,626		13,852,709
	Diluted				14,222,133		16,698,803		16,598,816
Dividends Declared Per Common Share			$		1.34	$	1.26	$	2.20

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

NATIONAL HEALTHCARE CORPORATION

Consolidated Statements of Comprehensive Income

(in thousands)

			Year Ended December 31,
			2014		2013		2012
Net Income		$	53,369	$	64,613	$	59,300
Other Comprehensive Income (Loss):
	Unrealized gains (losses) on investments in marketable securities		30,416		(7,211)		24,739
	Reclassification adjustment for realized gains on sale of securities		(379)		(39)		(1,640)
	Income tax (expense) benefit  related to items of other comprehensive income (loss)		(11,614)		2,627		(8,993)
Other comprehensive income (loss), net of tax			18,423		(4,623)		14,106
Comprehensive Income		$	71,792	$	59,990	$	73,406

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

NATIONAL HEALTHCARE CORPORATION

Consolidated Balance Sheets

(in thousands)

				December 31,
				2014		2013
Assets						(as adjusted)
	Current Assets:
		Cash and cash equivalents		$	69,767	$	81,705
		Restricted cash and cash equivalents			7,020		10,298
		Marketable securities			132,535		105,009
		Restricted marketable securities			19,805		14,027
		Accounts receivable, less allowance for doubtful
			accounts of $5,738 and $4,972, respectively		78,843		79,856
		Inventories			7,127		7,146
		Prepaid expenses and other assets			2,260		1,208
		Notes receivable, current portion			441		417
		Federal income tax receivable			4,727		-
			Total current assets		322,525		299,666
	Property and Equipment:
		Property and equipment, at cost			821,792		734,682
		Accumulated depreciation and amortization			(307,048)		(277,884)
			Net property and equipment		514,744		456,798
	Other Assets:
		Restricted cash and cash equivalents			3,631		3,631
		Restricted marketable securities			138,468		127,976
		Deposits and other assets			8,791		6,808
		Goodwill			17,600		17,600
		Notes receivable, less current portion			12,548		14,961
		Deferred income taxes			18,700		18,164
		Investments in limited liability companies			37,116		38,754
			Total other assets		236,854		227,894
			Total assets	$	1,074,123	$	984,358

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

NATIONAL HEALTHCARE CORPORATION

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

					December 31,
					2014		2013
Liabilities and Stockholders’ Equity							(as adjusted)
	Current Liabilities:
		Trade accounts payable		$	15,877	$	13,050
		Capital lease obligations, current portion			3,088		-
		Accrued payroll			59,859		63,462
		Amounts due to third party payors			22,931		21,619
		Accrued risk reserves, current portion			26,825		24,325
		Deferred income taxes			35,506		24,790
		Other current liabilities			12,472		13,784
		Dividends payable			7,000		6,730
			Total current liabilities		183,558		167,760
	Long-term debt				10,000		10,000
	Capital lease obligations, less current portion				33,508		-
	Accrued risk reserves, less current portion				79,393		86,232
	Refundable entrance fees				10,219		10,720
	Obligation to provide future services				3,927		3,689
	Other noncurrent liabilities				16,011		14,525
	Deferred revenue				3,359		3,320
	Stockholders' Equity:
		Series A convertible preferred stock; $.01 par value; 25,000,000 shares authorized; 10,836,659 and 10,837,665 shares, respectively,  issued and outstanding; stated at liquidation value of $15.75 per share			170,494		170,510
		Common stock, $.01 par value; 30,000,000 shares authorized; 14,110,859 and 14,078,028 shares, respectively, issued and outstanding			140		140
		Capital in excess of par value			154,965		153,061
		Retained earnings			343,941		318,216
		Accumulated other comprehensive income			64,608		46,185
			Total stockholders’ equity		734,148		688,112
			Total liabilities and stockholders’ equity	$	1,074,123	$	984,358

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

NATIONAL HEALTHCARE CORPORATION

Consolidated Statements of Cash Flows

(in thousands)

						Year Ended December 31,
						2014		2013		2012
Cash Flows From Operating Activities:
	Net income				$	53,369	$	64,613	$	59,300
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization				34,384		28,547		29,792
		Provision for doubtful accounts				6,228		5,226		2,455
		Equity in earnings of unconsolidated investments				(6,675)		(14,188)		(13,616)
		Distributions from unconsolidated investments				10,288		15,473		6,317
		Gains on sale of marketable securities				(379)		(39)		(1,640)
		Gain on recovery of notes receivable				–		(5,454)		–
		Deferred income taxes				(1,434)		(2,404)		1,416
		Stock-based compensation				2,021		2,298		2,366
		Changes in operating assets and liabilities, net of the effect of acquisitions:
			Restricted cash and cash equivalents			(6,245)		(10,405)		(7,636)
			Accounts receivable			(5,215)		(13,778)		(7,263)
			Income tax receivable			(4,727)		5,933		537
			Inventories			19		(486)		759
			Prepaid expenses and other assets			(2,587)		(76)		(77)
			Trade accounts payable			2,827		2,495		831
			Accrued payroll			(3,603)		26,219		(16,418)
			Amounts due to third party payors			1,312		2,352		481
			Other current liabilities and accrued risk reserves			(5,652)		(6,401)		11,675
			Obligation to provide future services			238		1,898		(2,461)
			Other noncurrent liabilities			1,486		635		(2,354)
			Deferred revenue			39		(110)		(91)
				Net cash provided by operating activities		75,694		102,348		64,373
Cash Flows From Investing Activities:
		Additions to property and equipment				(53,298)		(43,438)		(22,003)
		Investments in unconsolidated limited liability companies				(1,975)		–		–
		Acquisition of real estate of six skilled nursing facilities				–		(21,000)		–
		Acquisition of non-controlling interest				(768)		–		(7,500)
		Investments in notes receivable				(767)		–		(600)
		Collections of notes receivable				3,156		11,865		1,260
		Decrease in restricted cash and cash equivalents				9,523		8,039		46,660
		Purchases of marketable securities				(62,165)		(93,155)		(111,691)
		Sale of marketable securities				48,786		81,389		62,649
				Net cash used in investing activities		(57,508)		(56,300)		(31,225)
Cash Flows From Financing Activities:
		Tax benefit (expense) from stock-based compensation				201		(225)		(267)
		Principal payments under capital lease obligations				(2,436)		–		–
		Dividends paid to preferred stockholders				(8,670)		(8,671)		(8,671)
		Dividends paid to common stockholders				(18,704)		(17,469)		(30,849)
		Issuance of common shares				7,429		991		13,412
		Repurchase of common shares				(6,995)		(4,700)		–
		Entrance fee deposits (refunds)				(501)		40		(1,310)
		(Increase) decrease in deposits				(448)		(1,010)		230
				Net cash used in financing activities		(30,124)		(31,044)		(27,455)
Net Increase (Decrease) in Cash and Cash Equivalents						(11,938)		15,004		5,693
Cash and Cash Equivalents, Beginning of Period						81,705		66,701		61,008
Cash and Cash Equivalents, End of Period					$	69,767	$	81,705	$	66,701

NATIONAL HEALTHCARE CORPORATION

Consolidated Statements of Cash Flows

(continued)

			Year Ended December 31,
(in thousands)			2014		2013		2012
Supplemental Information:
Cash payments for interest		$	2,242	$	497	$	383
Cash payments for income taxes			36,642		34,273		34,142
Non-cash financing and investing activities include:
Buildings, personal property, and obligations recorded under capital lease agreements			39,032		–		–
NHC assigned the assets and liabilities of eight Solaris Hospice programs to Caris in exchange for an additional limited partnership interest.
	Current assets assigned		–		–		1,862
	Property and equipment assigned		–		–		303
	Current liabilities assigned		–		–		(799)
	Goodwill		–		–		2,945
	Investment in limited liability company		–		–		(4,311)

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

NATIONAL HEALTHCARE CORPORATION

Consolidated Statements of Stockholders’ Equity

(in thousands, except for share and per share amounts)

Preferred Stock

Common Stock

Capital in Excess of

Retained

Accumulated Other Comprehensive

Total Stockholders’

Shares

Amount

Shares

Amount

Par Value

Earnings

Income (Loss)

Equity

Balance at January 1, 2012

10,838,490

$

170,515

13,862,738

$

138

$

139,183

$

260,331

$

36,702

$

606,869

Net income

–

–

–

–

–

59,300

–

59,300

Other comprehensive income

–

–

–

–

–

–

14,106

14,106

Stock-based compensation

–

–

–

–

2,366

–

–

2,366

Tax expense from exercise of stock options

–

–

–

–

(267)

–

–

(267)

Shares sold - options exercised

–

–

295,371

3

13,409

–

–

13,412

Shares issued in conversion of preferred stock to common stock

(78)

(1)

18

–

1

–

–

–

Dividends declared to preferred stockholders ($0.80 per share)

–

–

–

–

–

(8,671)

–

(8,671)

Dividends declared to common stockholders ($2.20 per share)

–

–

–

–

–

(30,967)

–

(30,967)

Balance at December 31, 2012

10,838,412

$

170,514

14,158,127

$

141

$

154,692

$

279,993

$

50,808

$

656,148

Net income

–

–

–

–

–

64,613

–

64,613

Other comprehensive loss

–

–

–

–

–

–

(4,623)

(4,623)

Stock-based compensation

–

–

–

–

2,298

–

–

2,298

Tax expense from exercise of stock options

–

–

–

–

(225)

–

–

(225)

Shares sold – options exercised

–

–

19,722

–

991

–

–

991

Repurchase of common shares

–

–

(100,000)

(1)

(4,699)

–

–

(4,700)

Shares issued in conversion of preferred stock to common stock

(747)

(4)

179

–

4

–

–

–

Dividends declared to preferred stockholders ($0.80 per share)

–

–

–

–

–

(8,671)

–

(8,671)

Dividends declared to common stockholders ($1.26 per share)

–

–

–

–

–

(17,719)

–

(17,719)

Balance at December 31, 2013

10,837,665

$

170,510

14,078,028

$

140

$

153,061

$

318,216

$

46,185

$

688,112

Net income

–

–

–

–

–

53,369

–

53,369

Other comprehensive income

–

–

–

–

–

–

18,423

18,423

Stock-based compensation

–

–

–

–

2,021

–

–

2,021

Tax benefit from exercise of stock options

–

–

–

–

201

–

–

201

Shares sold – options exercised

–

–

157,590

1

7,428

–

–

7,429

Repurchase of common shares

–

–

(125,000)

(1)

(6,994)

–

–

(6,995)

Shares issued in conversion of preferred stock to common stock

(1,006)

(16)

241

–

16

–

–

–

Acquisition of noncontrolling interest

–

–

–

(768)

–

–

(768)

Dividends declared to preferred stockholders ($0.80 per share)

–

–

–

–

–

(8,670)

–

(8,670)

Dividends declared to common stockholders ($1.34 per share)

–

–

–

–

–

(18,974)

–

(18,974)

Balance at December 31, 2014

10,836,659

$

170,494

14,110,859

$

140

$

154,965

$

343,941

$

64,608

$

734,148

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

Notes to Consolidated Financial Statements

Note 1 - Summary of Significant Accounting Policies

Nature of Operations

National HealthCare Corporation ("NHC" or "the Company") operates, manages or provides services to skilled nursing facilities and associated assisted living centers, retirement centers and home health care programs located in 10 Southeastern, Northeastern and Midwestern states in the United States.  The most significant part of our business relates to skilled and intermediate nursing care in which setting we provide assisted living and retirement services, rehabilitative therapy services, and home health care.  We also have a non-controlling ownership interest in a hospice care business that services NHC owned health care centers and others.  The health care environment has continually undergone changes with regard to Federal and state reimbursement programs and other payor sources, compliance regulations, competition among other health care providers and patient care litigation issues.  We continually monitor these industry developments as well as other factors that affect our business.  

Principles of Consolidation and Basis of Presentation

The consolidated financial statements which are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) include our wholly owned and controlled subsidiaries and affiliates. Variable interest entities (“VIEs”) in which we have an interest have been consolidated when we have been identified as the primary beneficiary. Investments in ventures in which we have the ability to exercise significant influence but do not have control over are accounted for using the equity method. Equity method investments are initially recorded at cost and subsequently are adjusted for our share of the venture’s earnings or losses and cash distributions.  Our most significant equity method investment is a 75.1% non-controlling ownership interest in Caris Healthcare, LP (“Caris”), a business that specializes in hospice care services.  Investments in entities in which we lack the ability to exercise significant influence are included in the consolidated financial statements at cost unless there has been a decline in the market value of our investment that is deemed to be other than temporary.  All material intercompany transactions and balances have been eliminated in consolidation.

During the second quarter of 2014, the Company revised the presentation of its accrued risk reserves to present only the amount expected to be settled within the next twelve month period as a current liability. Previously, the Company had presented the entire accrued risk reserve balance as a current liability. The Company also recorded a related reclassification to its restricted cash and cash equivalents and restricted marketable securities to reflect its previous and continued expectation to use these assets held by its wholly-owned limited purpose insurance companies to settle the accrued risk reserves. The impact of these adjustments also resulted in an impact on the classification of our deferred tax balances. Accordingly, the Company's accompanying consolidated balance sheet as of December 31, 2013 has been adjusted to reflect these reclassifications. The table below presents the affected balance sheet line items, the respective previously-reported balances, the reclassification amount and the adjusted balances as of December 31, 2013 (in thousands).  The reclassifications were not material to the financial conditions, results of operations or liquidity for any periods presented.

		Previously Reported Balance		Reclassification Amount		As-Adjusted Balance
Restricted cash and cash equivalents (current assets section)	$	13,929	$	(3,631)	$	10,298
Restricted cash and cash equivalents (other assets section)		-		3,631		3,631
Restricted marketable securities (current assets section)		142,003		(127,976)		14,027
Restricted marketable securities (other assets section)		-		127,976		127,976
Accounts receivable (current assets section)		85,511		(5,655)		79,856
Deposits and other assets (other assets section)		1,153		5,655		6,808
Accrued risk reserves (current liability section)		110,557		(86,232)		24,325
Accrued risk reserves (non-current liability section)		-		86,232		86,232
Deferred income taxes (other assets section)		14,531		3,633		18,164
Deferred income taxes (current liabilities section)		21,157		3,633		24,790

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management 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.

Net Patient Revenues and Accounts Receivable

Revenues are derived from services rendered to patients for skilled and intermediate nursing, rehabilitation therapy, hospice, assisted living and retirement and home health care services.

Revenues are recorded when services are provided based on established rates adjusted to amounts expected to be received under governmental programs and other third-party contractual arrangements based on contractual terms. These revenues and receivables are stated at amounts estimated by management to be at their net realizable value.

For private pay patients in skilled nursing, assisted living and independent living facilities, the Company bills one month in advance 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. A portion of the episodic Medicare payments for home health services are also received in advance of the services being rendered.  All advance billings are initially deferred and then are recognized as revenue when the services are performed.

We receive payments from the Medicare program under a prospective payment system ("PPS").  For skilled nursing services, Medicare pays a fixed fee per Medicare patient per day, based on the acuity level of the patient, to cover all post-hospital extended care routine service costs, ancillary costs and capital related costs.

Medicaid program payments for long-term care services are generally based on fixed per diem rates subject to program cost ceilings.

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 60 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.  We are allowed to make a request for anticipated payment at the start of care equal to 60% of the expected payment for the initial episode.  The remaining balance due is paid following the submission of the final claim at the end of the episode.  Revenues are recognized when services are provided based on the number of days of service rendered in the episode.  Deferred revenue is recorded for payments received for which the related services have not yet been provided.

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 in compliance with all applicable laws and regulations.

Medicare program revenues, as well as certain Medicaid program revenues, are subject to audit and retroactive adjustment by government representatives.  The Medicare PPS methodology requires that patients be assigned to Resource Utilization Groups ("RUGs") based on the acuity level of the patient to determine the amount paid to us for patient services.  The assignment of patients to the various RUG categories is subject to post-payment review by Medicare intermediaries or their agents.  In our opinion, adequate provision has been made for any adjustments that may result from these reviews.  Retroactive adjustments are estimated in the recording of revenues in the period the related services are rendered.  Any differences between our original estimates of reimbursements and subsequent revisions are reflected in operations in the period in which the revisions are made often due to final determination or the period of payment no longer being subject to audit or review.  We believe currently 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 $22,931,000 and $21,619,000 as of December 31, 2014 and 2013, respectively, for various Medicare and Medicaid current and prior year cost reports and claims reviews.   

Approximately 65% of our net patient revenues are derived from participation in Medicare and Medicaid programs and other government programs.

Other Revenues

As discussed in Note 3 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 as earned over the related 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 long-term care center under contract.  We generally record other revenues on the accrual basis based on the terms of our contractual arrangements.  However, with respect to management and accounting services revenue from certain long-term care providers, including but not limited to National Health Corporation ("National")  as discussed in Note 3, where collection is not reasonably assured based on insufficient historical collections and the lack of expected future collections, our policy is to recognize income only in the period in which collection is assured and the amounts at question are believed by management to be fixed and determined.  

Certain management contracts, including, but not limited to contracts with National, subordinate the payment of management fees earned under those contracts to other expenditures of the long-term care center and to the availability of cash provided by the facility’s operations.  Revenues from management services provided to the facilities that generate insufficient cash flow to pay the management fee, as prioritized under the contractual arrangement, are not recognized until such time as the amount of revenue earned is fixed or determinable and collectability is reasonably assured.  This recognition policy could cause our reported revenues and net income from management services to vary significantly from period to period.

We recognize rental income based on the terms of our operating leases.  Under certain of our leases, we receive contingent rent, which is based on the increase in revenues of a lessee over a base year.  We recognize contingent rent annually or monthly, as applicable, when, based on the actual revenue of the lessee, receipt of such income is assured.  We identify leased real estate properties as nonperforming if a required payment is not received within 30 days of the date it is due.  Our policy related to rental income on non-performing leased real estate properties is to recognize rental income in the period when the income is received.  

Provision for Doubtful Accounts

We evaluate the collectability of our accounts receivable based on factors such as payor type, historical collection trends and aging categories.  We review these factors and determine an estimated provision for doubtful accounts.  Historically, bad debts have resulted primarily from uncollectible private balances or from uncollectible coinsurance and deductibles.  Receivables that are deemed to be uncollectible are written off against the allowance.  

The allowance for doubtful accounts balance is assessed on a quarterly basis, with changes in estimated losses being recorded in the consolidated statements of income in the period first identified.  

The Company includes provisions for doubtful accounts in operating expenses in its consolidated statements of income.  The provisions for doubtful accounts were $6,228,000, $5,226,000, and $2,455,000 for 2014, 2013 and 2012, respectively.  

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, professional insurance and licensing fees.  The primary facility costs include utilities and property insurance.

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, which were $36.2 million, $40.9 million, and $39.3 million for the years ended December 31, 2014, 2013, and 2012, respectively.

Cash and Cash Equivalents

Cash equivalents include highly liquid investments with an original maturity of three months or less when purchased.

Restricted Cash and Cash Equivalents and Restricted Marketable Securities

Restricted cash and cash equivalents and restricted marketable securities primarily represent assets that are held by our wholly-owned limited purpose insurance companies for workers' compensation and professional liability claims.

Investments in Marketable Securities and Restricted Marketable Securities

Our investments in marketable securities and restricted marketable securities include available for sale securities, which are recorded at fair value.  Unrealized gains and losses on available for sale securities that are deemed temporary are recorded as a separate component of stockholders’ equity.  If any adjustment to fair value reflects a significant decline in the value of the security, we consider all available evidence to evaluate the extent to which the decline is "other than temporary".  Credit losses are identified when we do not expect to receive cash flows sufficient to recover the amortized cost basis of a security.  In the event of a credit loss, only the amount associated with the credit loss is recognized in earnings, with the amount of loss relating to other factors recorded as a separate component of stockholders’ equity.  

Inventories

Inventories consist generally of food and supplies and are valued at the lower of cost or market, with cost determined on a first-in, first-out (FIFO) basis.

Mortgage and Other Notes Receivable

In accordance with Accounting Standards Codification ("ASC") Topic 310, Receivables, NHC evaluates the carrying values of its mortgage and other notes receivable on an instrument by instrument basis.  On a quarterly

basis, NHC reviews its notes receivable for recoverability when events or circumstances, including the non-receipt of contractual principal and interest payments, significant deteriorations of the financial condition of the borrower and significant adverse changes in general economic conditions, indicate that the carrying amount of the note receivable may not be recoverable.  If necessary, impairment is measured as the amount by which the carrying amount exceeds the discounted cash flows expected to be received under the note receivable or, if foreclosure is probable, the fair value of the collateral securing the note receivable.

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.

Expenditures for repairs and maintenance are charged against income as incurred.  Betterments, which significantly extend the useful life, are capitalized.  We remove the costs and related allowances for accumulated depreciation or amortization from the accounts for properties sold or retired, and any resulting gains or losses are included in income.  

In accordance with ASC Topic 360, Property, Plant, and Equipment, we evaluate the recoverability of the carrying values of our properties on a property by property basis.  We review our properties for recoverability when events or circumstances, including significant physical changes in the property, significant adverse changes in general economic conditions, and significant deteriorations of the underlying cash flows of the property, indicate that the carrying amount of the property may not be recoverable.  The need to recognize impairment is based on estimated future undiscounted cash flows from a property over the remaining useful life compared to the carrying value of that property.  If recognition of impairment is necessary, it is measured as the amount by which the carrying amount of the property exceeds the estimated fair value of the property.

Goodwill

The Company accounts for goodwill under ASC Topic 350, Intangibles – Goodwill and Other.  Under the provisions of this guidance, goodwill and intangible assets with indefinite useful lives are not amortized but are subject to impairment tests based on their estimated fair value. Unamortized goodwill is continually reviewed for impairment in accordance with ASC.  The Company performs its annual impairment assessment on the first day of the fourth quarter.

Accrued Risk Reserves

We are principally self-insured for risks related to employee health insurance and utilize wholly-owned limited purpose insurance companies for workers’ compensation and professional liability claims.  Accrued risk reserves primarily represent the accrual for risks associated with employee health insurance, workers’ compensation and professional liability claims.  The accrued risk reserves include a liability for unpaid reported claims and estimates for incurred but unreported claims.  Our policy with respect to a significant portion of our workers’ compensation and professional and general liability claims is to use an actuary to estimate our exposure for claims obligation (for both asserted and unasserted claims).  Our health insurance reserve is based on our known claims incurred and an estimate of incurred but unreported claims determined by our analysis of historical claims paid.  We reassess our accrued risk reserves on a quarterly basis, with changes in estimated losses being recorded in the consolidated statements of income in the period first identified.

Other Current Liabilities

Other current liabilities primarily represent accruals for current federal and state income taxes, real estate taxes and other current liabilities.

Continuing Care Contracts and Refundable Entrance Fees   

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 contract provides 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. In each case, we amortize the non-refundable part of these fees into revenue over the actuarially 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 when residents relocate from our community and the apartment is re-occupied. Refundable entrance fees are classified as non-current liabilities and non-refundable entrance fees are classified as deferred revenue in the Company's consolidated balance sheets.  The balances of refundable entrance fees as of December 31, 2014 and December 31, 2013 were $10,219,000 and $10,720,000, respectively.

Obligation to Provide Future Services

We annually estimate the present value of the net 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 net cost of future services exceeds the related anticipated revenues, a liability is recorded (obligation to provide future services) with a corresponding charge to income.  At December 31, 2014 and 2013, we have recorded a future service obligation in the amounts of $3,927,000 and $3,689,000, respectively.   

Other Noncurrent Liabilities

Other noncurrent liabilities include reserves primarily related to various uncertain income tax positions (see Note 12).

Deferred Revenue

Deferred revenue includes the deferred gain on the sale of assets to National (as discussed in Note 2) and entrance fees that have been and are currently being received upon reservation and occupancy in the independent living centers we operate.  The non-refundable portion (10%) of the entrance fee is included in deferred revenue and is being recognized over the remaining life expectancies of the residents.  

Income Taxes

We utilize ASC Topic 740, Income Taxes, which requires an asset and liability approach for financial accounting and reporting for income taxes.  Under this guidance, deferred tax assets and liabilities are determined based upon differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax laws that will be in effect when the differences are expected to reverse.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  See Note 12 for further discussion of our accounting for income taxes.

Also under ASC Topic 740, Income Taxes, tax positions are evaluated for recognition using a more-likely-than-not threshold, and those tax positions requiring recognition are measured at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.  Liabilities for income tax matters include amounts for income taxes,

applicable penalties, and interest thereon and are the result of the potential alternative interpretations of tax laws and the judgmental nature of the timing of recognition of taxable income.  

Stock-Based Compensation

Stock-based awards granted include stock options, restricted stock units, and stock purchased under our employee stock purchase plan.  Stock-based compensation cost is measured at the grant date, based on the fair value of the awards, and is recognized as expense over the requisite service period only for those equity awards expected to vest.

The fair value of the restricted stock units is determined based on the stock price on the date of grant. We estimated the fair value of stock options and stock purchased under our employee stock purchase plan using the Black-Scholes model. This model utilizes the estimated fair value of common stock and requires that, at the date of grant, we use the expected term of the grant, the expected volatility of the price of our common stock, risk-free interest rates and expected dividend yield of our common stock. The fair value is amortized on a straight-line basis over the requisite service periods of the awards.

Concentration of Credit Risks

Our credit risks primarily relate to cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, marketable securities, restricted marketable securities and notes receivable.  Cash and cash equivalents are primarily held in bank accounts and overnight investments.  Restricted cash and cash equivalents is primarily invested in commercial paper and certificates of deposit with financial institutions and other interest bearing accounts.  Accounts receivable consist primarily of amounts due from patients (funded through Medicare, Medicaid, other contractual programs and through private payors) and from other health care companies for management, accounting and other services.  We perform continual credit evaluations of our clients and maintain allowances for doubtful accounts on these accounts receivable.  Marketable securities and restricted marketable securities are held primarily in accounts with brokerage institutions.  Notes receivable relate primarily to secured loans with health care facilities (recorded as notes receivable in the consolidated balance sheets) as discussed in Note 10.  

At any point in time we have funds in our operating accounts and restricted cash accounts that are with third party financial institutions.  These balances in the U.S. may exceed the Federal Deposit Insurance Corporation (FDIC) insurance limits.  While we monitor the cash balances in our operating accounts, these cash and restricted cash balances could be impacted if the underlying financial institutions fail or could be subject to other adverse conditions in the financial markets.  

Our financial instruments, principally our notes receivable, are subject to the possibility of loss of the carrying values as a result of the failure of other parties to perform according to their contractual obligations.  We obtain various collateral and other protective rights, and continually monitor these rights in order to reduce such possibilities of loss.  We evaluate the need to provide reserves for potential losses on our financial instruments based on management's periodic review of the portfolio on an instrument by instrument basis.  See Note 10 for additional information on the notes receivable.

Comprehensive Income

ASC Topic 220, Comprehensive Income, requires that changes in the amounts of certain items, including unrealized gains and losses on marketable securities, be shown in the consolidated financial statements as comprehensive income.  We report comprehensive income in the consolidated statements of comprehensive income and also in the consolidated statements of stockholders’ equity.

Segment Disclosures

ASC Topic 280, Segment Reporting, establishes standards for the way that public business enterprises report information about operating segments in annual and interim financial reports issued to stockholders.  Management believes that substantially all of our operations are part of the long-term health care industry segment. See Note 3 for a detail of other revenues provided within the long-term health care industry segment.  Information about the costs and expenses associated with each of the components of other revenues is not separately identifiable.  

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers”. This update is the result of a collaborative effort by the FASB and the International Accounting Standards Board to simplify revenue recognition guidance, remove inconsistencies in the application of revenue recognition, and to improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. The FASB is amending the Accounting Standards Codification and creating a new Topic 606, “Revenue from Contracts with Customers”. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For a public entity, the amendments in this update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The Company is currently evaluating the impact of this guidance on our consolidated financial statements and control framework.

In April 2014, the FASB issued ASU No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.”  This standard changes the requirements for reporting discontinued operations by raising the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation.  The standard limits discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results.  This standard is effective for the Company on a prospective basis for annual periods beginning on January 1, 2015 and interim periods within that year.  Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued.  When adopted, the Company does not expect this standard to have a material impact on our consolidated financial statements.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current financial statement presentation, with no effect on the Company’s consolidated financial position, results of operations, or cash flows.

Note 2 - Relationship with National Health Corporation

National Health Corporation ("National"), which is wholly-owned by the National Health Corporation Leveraged Employee Stock Ownership Plan ("ESOP"), was formed in 1986 and is our administrative services affiliate and contractor.  As discussed below, all of the personnel conducting our business, including our executive management team, are employees of National and may have ownership interests in National only through their participation as employees in the ESOP.

Management Contracts

We currently manage five skilled nursing facilities for National under a management contract.  We manage the centers for management fees that are comparable to those in the industry.  The management contract has been

extended until January 1, 2018.  See Note 3 for additional information regarding management services fees recognized from National.

Financing Activities

During 1991, we borrowed $10,000,000 from National.  The term note payable currently requires quarterly interest payments at the prime rate minus .85 percent.  The entire principal is due at maturity in 2018.

In conjunction with our management contract, we have entered into a line of credit arrangement whereby we may have amounts due from National from time to time.  The maximum loan commitment under the line of credit is $2,000,000.  The interest rate on the line of credit is prime plus one percent and the final maturity is January 20, 2018.  At December 31, 2014, National did not have an outstanding balance on the line of credit.

The maximum line of credit commitment amount of $2,000,000 is also the amount of a deferred gain that has been outstanding since NHC sold certain assets to National in 1988.  The amount of the deferred gain is expected to remain deferred until the management contract with National expires, currently scheduled in January 2018.  The deferred gain is included in deferred revenue in the consolidated balance sheets.

Payroll and Related Services

The personnel conducting our business, including our executive management team, are employees of National and may have ownership interests in National only through their participation in the ESOP.  National provides payroll services to NHC, provides employee fringe benefits, and maintains certain liability insurance.  We pay to National all the costs of personnel employed for our benefit, as well as an administrative fee equal to 1% of payroll costs.  Such costs of personnel totaling approximately $510,249,000, $453,560,000, and $426,934,000, for 2014, 2013 and 2012 respectively, are reflected as salaries, wages and benefits in the accompanying consolidated statements of income.  The administrative fee paid to National for 2014, 2013, and 2012 was $4,395,000, $3,693,000, and $3,862,000, respectively.  National owes us $2,155,000 and $5,785,000 at December 31, 2014 and 2013, respectively, as a result of the differences between interim payments for payroll and benefits services costs made during the current and previous years and such actual costs.  The amounts are included in accounts receivable in the consolidated balance sheets.  

National’s Ownership of Our Stock

At December 31, 2014, National owns 1,046,147 shares (or approximately 7.4%) of our outstanding common stock and 1,271,147 shares (or approximately 11.7%) of our outstanding preferred stock.  

Consolidation Considerations

Because of the contractual and management relationships between NHC and National as described in this note above, we have considered whether National should be consolidated by NHC under the guidance provided in ASC Topic 810, Consolidation.  We do not consolidate National because (1) NHC does not have any obligation or rights (current or future) to absorb losses or to receive benefits from National.  The ESOP participants bear the current and future financial gain or burden of National, (2) National’s equity at risk is sufficient to finance its activities without past or future subordinated support from NHC or other parties, and (3) the equity holders of National (that is collectively the ESOP, its trustees, and the ESOP participants) possess the characteristics of a controlling financial interest, including voting rights that are proportional to their economic interests.  Supporting the assertions above is the following:  (1) substantive independent trustees are appointed for the benefit of the ESOP participants when decisions must be made that may create the appearance of a conflict of interest between NHC and the ESOP, and (2) National was designed, formed and is operated for the purpose of creating variability and passing that variability along to the ESOP participants—that is, to provide retirement benefits and value to the employees of NHC and NHC’s affiliates.  The contractual and management relationships between NHC and National are with the

skilled nursing facilities that are substantially less than 50% of the fair value of the total assets of National.  NHC does not have a variable interest in National as a whole.

Note 3 - Other Revenues

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

		Year Ended December 31,
		2014		2013		2012
		(in thousands)
Insurance services	$	7,215	$	15,143	$	15,671
Management and accounting service fees		15,184		18,160		20,042
Rental income		19,123		19,132		19,314
Other		874		685		589
	$	42,396	$	53,120	$	55,616

Management Fees from National

We have managed skilled nursing facilities for National since 1988, and we currently manage five centers.  See Note 2 regarding our relationship with National.

During 2014, 2013 and 2012, National paid and we recognized approximately $3,544,000, $3,491,000, and $3,397,000, respectively, of management fees and interest on management fees, which amounts are included in management and accounting service fees.  Unrecognized and unpaid management fees and interest on management fees from National total $21,338,000, $21,349,000, and $21,333,000 at December 31, 2014, 2013 and 2012, respectively.  We have recognized approximately $41,165,000 of management fees and interest from these facilities since 1988.

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

Management Fees and Financial and Accounting Services for Other Healthcare Centers

In February 2014, we assumed management of a 147-bed skilled nursing facility located in Des Peres, Missouri.  In June 2014, we began managing an 83-unit assisted living facility located in Augusta, Georgia.  As of December 31, 2014, we provide management services to six healthcare centers (other than the five National centers)

operated by third party owners.  For the year ended December 31, 2014, we recognized management fees of $2,205,000 from these centers.  For the years ended December 31, 2013 and 2012, we recognized management fees of $4,413,000 and $6,999,000, respectively, from the 21 healthcare centers we managed during these years.  The decrease in management services revenues is due to the discontinuation of management services to the non-profit entities SeniorTrust and ElderTrust that occurred in the second and third quarters of 2013.  Effective September 1, 2013, we began leasing and operating the former ElderTrust facilities from National Health Investors, Inc. ("NHI").  Effective September 1, 2013 and thereafter, the revenues from these seven facilities have been included in net patient revenues in the consolidated statements of income.

Effective October 1, 2014, the Company no longer provides accounting and financial services to seven healthcare facilities.  At December 31, 2014, we provided accounting and financial services to 20 healthcare facilities.  No management services are provided for entities in which we provide accounting and financial services.    

Insurance Services

For workers’ compensation insurance services, the premium revenues reflected in the consolidated statements of income for the years ended December 31, 2014, 2013 and 2012 were $4,434,000, $7,720,000, and $5,438,000, respectively.  For the year ended December 31, 2013, there was a positive insurance settlement reached with one of the states in which we provide workers' compensation insurance in the amount of $2,769,000.  Associated losses and expenses are reflected in the interim condensed consolidated statements of income as "Salaries, wages and benefits."

For professional liability insurance services, the premium revenues reflected in the consolidated statements of income for the years ended December 31, 2014, 2013 and 2012 were $2,781,000, $3,418,000, and $4,203,000, respectively.  Associated losses and expenses including those for self–insurance are included in the interim condensed consolidated statements of income as "Other operating costs and expenses".

Rental Income

In 2007, NHC acquired all of the net assets of National Health Realty, Inc., which was a health care real estate investment trust.  The properties acquired in the acquisition are the properties that have generated the majority of the rental income for NHC for the years ended December 31, 2014, 2013, and 2012.  The health care properties currently owned and leased to third party operators include nine skilled nursing facilities and four assisted living communities.  We renewed the rental agreements in 2011 for a five year period, which ends on December 31, 2015.

Note 4 – Non-Operating Income

Non-operating income is outlined in the table below.  Non-operating income includes equity in earnings of unconsolidated investments, dividends and other realized gains and losses on securities, interest income, and other miscellaneous non-operating income.  Our most significant equity method investment is a 75.1% non-controlling ownership interest in Caris, a business that specializes in hospice care services.  See Note 16 for additional disclosures regarding Caris.  For the year ended December 31, 2013, the gain on the recovery of notes receivable was due to the collection of certain notes receivable.  NHC had previously written down these notes due to their deteriorated credit qualities.

		Year Ended December 31,
		2014		2013		2012
		(in thousands)
Equity in earnings of unconsolidated investments	$	6,675	$	14,188	$	13,616
Dividends and net realized gains on sales of securities		5,957		5,216		7,006
Interest income		4,550		5,237		4,623
Gain on the recovery of notes receivable		–		5,454		–
	$	17,182	$	30,095	$	25,245

Note 5 – Long-Term Leases

Capital Leases

Effective March 1, 2014, NHC began leasing and operating 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. The leases also contain certain non-performance default provisions which result in capital lease classification.  However, the initial measurement and recording of the capital lease assets and obligations does not include any expected payments under such default provisions, as the Company does not expect to incur an obligation for such payments.

Fixed assets recorded under the capital leases, which are included in property and equipment in the consolidated balance sheets, are as follows:

		December 31, 2014		December 31, 2013
		(in thousands)
Buildings and personal property	$	39,032	$	−
Accumulated amortization		(3,271)		−
	$	35,761	$	−

Operating Leases

At December 31, 2014, we lease from National Health Investors, Inc. ("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 four separate corporations, none of which we own or control.

On January 1, 2007, a 15-year lease extension began which included three additional five-year renewal options.  On December 26, 2012, NHC extended the lease agreement through the first of the three additional five-year renewal options, which extended the lease date through 2026.  The two additional five-year renewal options on the lease still remain.  Under the terms of the lease, base rent totals $30,750,000 with rent thereafter escalating by 4% of the increase in facility revenue over a 2007 base year.  The percentage rent is based on a quarterly calculation of revenue increases and is payable on a quarterly basis.  Percentage rent expense for 2014, 2013, and 2012 was approximately $2,334,000, $2,526,000, and $2,591,000, respectively.

On September 1, 2013 and under the second lease agreement, NHC began operating seven skilled nursing facilities in New Hampshire and Massachusetts.  The 15 year lease term consists of base rent of $3,450,000 annually with rent escalating by 4% of the increase in facility revenue over a 2014 base year.  Additionally, NHC has the option to purchase the seven facilities from NHI in the 13^th year of the lease for a purchase price of $49,000,000.

Each lease with NHI is a "triple net lease" under which we are responsible for paying all taxes, utilities, insurance premium costs, repairs and other charges relating to the ownership of the facilities.  We are obligated at our expense to maintain adequate insurance on the facilities' assets.

We have a right of first refusal with NHI to purchase any of the properties transferred from us should NHI receive an offer from an unrelated party during the term of the lease or up to 180 days after termination of the related lease.

Base rent expense under both NHI lease agreements totals $34,200,000.  

Minimum Lease Payments

The approximate future minimum lease payments required under all leases that have remaining non-cancelable lease terms at December 31, 2014 are as follows:

		Operating Leases		Capital Leases
		(in thousands)
2015	$	34,200	$	5,200
2016		34,200		5,200
2017		34,200		5,200
2018		34,200		5,200
2019		34,200		5,200
Thereafter		245,150		21,667
Total minimum lease payments	$	416,150	$	47,667
Less:  Amounts representing interest				(11,071)
Present value of minimum lease payments				36,596
Less:  Current portion				(3,088)
Long-term capital lease obligations			$	33,508

Note 6 - Earnings Per Share

 The following table summarizes the earnings and the weighted average number of common shares used in the calculation of basic and diluted earnings per share.  

			Year Ended December 31,
			2014		2013		2012
			(dollars in thousands, except share and per share amounts)
Basic:
	Weighted average common shares outstanding		13,816,095		13,829,626		13,852,709
	Net income	$	53,369	$	64,613	$	59,300
	Dividends to preferred stockholders		8,670		8,671		8,671
	Net income available to common stockholders	$	44,699	$	55,942	$	50,629
	Earnings per common share, basic	$	3.24	$	4.05	$	3.65
Diluted:
	Weighted average common shares outstanding		13,816,095		13,829,626		13,852,709
	Dilutive effect of stock options		73,678		9,091		8,019
	Dilutive effect of restricted stock		3,691		4,740		5,526
	Dilutive effect of contingent issuable stock		328,669		232,118		109,233
	Convertible preferred stock		–		2,623,228		2,623,329
	Assumed average common shares outstanding		14,222,133		16,698,803		16,598,816
	Net income available to common stockholders	$	44,699	$	55,942	$	50,629
	Add dilutive preferred stock dividends for effect of assumed conversion of preferred stock		–		8,671		8,671
	Net income for diluted earnings per common share	$	44,699	$	64,613	$	59,300
	Earnings per common share, diluted	$	3.14	$	3.87	$	3.57

Excluded in the above table are -0-; 929,000; and 1,068,302 shares associated with stock options for 2014, 2013, and 2012, respectively, due to their antidilutive impact.  We have also excluded 2,622,956 of common shares issuable upon the conversation of preferred stock for the year ended December 31, 2014 due to their anti-dilutive impact.

Note 7 - Investments in Marketable Securities

Our investments in marketable securities include available for sale securities.  Realized gains and losses from securities sales are determined on the specific identification of the securities.  Marketable securities and restricted marketable securities consist of the following:

			December 31, 2014				December 31, 2013
(in thousands)			Amortized Cost		Fair Value		Amortized   Cost		Fair Value
Investments available for sale:
	Marketable equity securities	$	30,176	$	132,535	$	30,176	$	105,009
Restricted investments available for sale:
	Corporate debt securities		68,594		68,916		65,852		65,006
	Commercial mortgage-backed securities		63,351		63,252		46,977		45,856
	U.S. Treasury securities		14,623		14,728		22,932		22,841
	State and municipal securities		11,074		11,377		8,123		8,300
		$	187,818	$	290,808	$	174,060	$	247,012

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

	December 31, 2014					December 31, 2013
	Shares		Cost		Fair Value	Shares		Cost		Fair Value
NHI Common Stock	1,630,642	$	24,734	$	114,080	1,630,642	$	24,734	$	91,479

The amortized cost and estimated fair value of debt securities classified as available for sale, by contractual maturity, are as follows:

		December 31, 2014				December 31, 2013
(in thousands)		Cost		Fair Value		Cost		Fair Value
Maturities:
Within 1 year	$	11,161	$	11,190	$	9,279	$	9,324
1 to 5 years		83,542		84,028		91,787		92,011
6 to 10 years		58,863		58,872		40,387		38,335
Over 10 years		4,076		4,183		2,431		2,333
	$	157,642	$	158,273	$	143,884	$	142,003

Gross unrealized gains related to available for sale securities are $103,814,000 and $75,702,000 as of December 31, 2014 and 2013, respectively.  Gross unrealized losses related to available for sale securities were $824,000 and $2,750,000 as of December 31, 2014 and 2013, respectively.  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.  As a result, the Company recognized no other-than-temporary impairments for the years ended December 31, 2014 and 2013.

Proceeds from the sale of investments in marketable securities during the years ended December 31, 2014, 2013 and 2012 were $48,786,000, $81,389,000, and $62,649,000, respectively.  Net investment gains of $379,000, $39,000, and $1,640,000 were realized on these sales during the years ended December 31, 2014, 2013, and 2012, respectively.

Note 8 – 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.

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.  

Valuation of Marketable Securities

The Company determines fair value for marketable securities with Level 1 inputs through quoted market prices.  The Company determines fair value for marketable securities with Level 2 inputs through broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency.  Our Level 2 marketable securities have been initially valued at the transaction price and subsequently valued, at the end of each month, typically utilizing third party pricing services or other market observable data.  The pricing services utilize industry standard valuation models, including both income and market based approaches and observable market inputs to determine value.  These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, and other industry and economic events.  

We validated the prices provided by our broker by reviewing their pricing methods, obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming that the relevant markets are active.  After completing our validation procedures, we did not adjust or override any fair value measurements provided by our broker as of December 31, 2014 or 2013.  We did not have any transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy during the twelve months ended December 31, 2014 or 2013.  

Other

The carrying amounts of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to their short-term nature.  The estimated fair value of notes receivable approximates the carrying value based principally on their underlying interest rates and terms, maturities, collateral and credit status of the receivables.  Our long-term debt approximates fair value due to variable interest rates.  At December 31, 2014 and 2013, there were no material differences between the carrying amounts and fair values of NHC’s financial instruments.    

The following table summarizes fair value measurements by level at December 31, 2014 and December 31, 2013 for assets and liabilities measured at fair value on a recurring basis (in thousands):

		Fair Value Measurements Using
December 31, 2014		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	$	69,767	$	69,767	$	–	$	–
Restricted cash and cash equivalents		10,651		10,651		–		–
Marketable equity securities		132,535		132,535		–		–
Corporate debt securities		68,916		39,909		29,007		–
Commercial mortgage-backed securities		63,252		–		63,252		–
U.S. Treasury securities		14,728		14,728		–		–
State and municipal securities		11,377		2,216		9,161		–
Total financial assets	$	371,226	$	269,806	$	101,420	$	–

		Fair Value Measurements Using
December 31, 2013		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	$	81,705	$	81,705	$	–	$	–
Restricted cash and cash equivalents		13,929		13,929		–		–
Marketable equity securities		105,009		105,009		–		–
Corporate debt securities		65,006		–		65,006		–
Commercial mortgage-backed securities		45,856		–		45,856		–
U.S. Treasury securities		22,841		22,841		–		–
State and municipal securities		8,300		–		8,300		–
Total financial assets	$	342,646	$	223,484	$	119,162	$	–

Note 9 - Property and Equipment

Property and equipment, at cost, consists of the following:

		December 31,
		2014		2013
		(in thousands)
Land	$	58,672	$	57,272
Leasehold improvements		98,302		94,066
Buildings and improvements		487,021		427,471
Furniture and equipment		142,110		134,255
Construction in progress		35,687		21,618
		821,792		734,682
Less:  Accumulated depreciation		(307,048)		(277,884)
	$	514,744	$	456,798

The Company is obligated to complete construction in progress of approximately $25,541,000 at December 31, 2014.  

Note 10 - Notes Receivable

At December 31, 2014 and 2013, we have notes receivable from managed and other skilled nursing facilities totaling $12,989,000 and $15,378,000, respectively, reflected in the accompanying consolidated balance sheets.  The notes are first and second mortgages with interest rates ranging from prime plus 2% to 8.5% fixed rate with periodic payments required prior to maturity.  The notes mature in the years from 2016 through 2022.  The proceeds of the notes were used by the skilled nursing facilities for construction costs, development costs incurred during construction, and working capital.  

Note 11 - Long-Term Debt

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

	Weighted
	Average			December 31,
	Interest Rate	Maturities		2014		2013
Revolving Credit Facility, interest payable monthly	Variable, 0.9%	2015	$	–	$	–
Unsecured term note payable to National, interest payable quarterly, principal payable at maturity	Variable, 2.8%	2018		10,000		10,000
				10,000		10,000
Less current portion				–		–
			$	10,000	$	10,000

$75,000,000 Revolving Credit Agreement

 Effective October 22, 2014, we extended the maturity of our Credit Agreement (the "Credit Agreement") with Bank of America, N.A., as lender (the "Lender").  The Credit Agreement provides for a $75,000,000 revolving credit facility (the "Credit Facility"), of which up to $5,000,000 may be utilized for letters of credit.  

Borrowings bear interest at either (i) the Eurodollar rate plus 0.70% or (ii) the base rate.  Letter of credit fees are equal to 0.10% times the maximum amount available to be drawn under outstanding letters of credit.  The rates and fees are unchanged from those in effect prior to the extension.  

Commitment fees are payable on the daily unused portion of the Credit Facility at a rate of twenty (20) basis points per annum.  NHC is permitted to prepay the loans outstanding under the Credit Facility at any time, without penalty.

The Credit Facility matures on October 21, 2015.  Between 90 and 120 days prior to the maturity date, NHC may request the extension of the maturity date.  If the Lender elects to consent to such extension, subject to certain conditions, the maturity date will be extended to the date which is 364 days after the then maturity date.

NHC’s obligations under the Credit Agreement are guaranteed by certain NHC subsidiaries and are secured by pledges by NHC and the guarantors of (i) 100% of the equity interests of domestic subsidiaries and (ii) up to 65% of the voting equity interests and 100% of the non-voting equity interests of foreign subsidiaries, in each case, held by NHC or the guarantors.

The Credit Agreement contains customary representations and warranties, and covenants, including covenants that restrict, among other things, asset dispositions, mergers and acquisitions, dividends, restricted payments, debt, liens, investments and affiliate transactions.  The Credit Agreement contains customary events of default.

The Credit Facility is available for general corporate purposes, including working capital and acquisitions.

The aggregate maturities of long-term debt for the five years subsequent to December 31, 2014 are as follows:

			Long-Term Debt
			(in thousands)
2015		$	−
2016			−
2017			−
2018			10,000
2019			−
	Total	$	10,000

Note 12 - Income Taxes

The provision for income taxes is comprised of the following components:

				Year Ended December 31,
				2014		2013		2012
				(in thousands)
Current Tax Provision
	Federal		$	30,235	$	34,680	$	29,147
	State			3,095		5,588		4,010
				33,330		40,268		33,157
Deferred Tax Provision
	Federal			(1,172)		(2,226)		892
	State			(334)		(479)		132
				(1,506)		(2,705)		1,024
		Income Tax Provision	$	31,824	$	37,563	$	34,181

The deferred tax assets and liabilities, consisting of temporary differences tax effected at the respective income tax rates, are as follows:

				December 31,
				2014		2013
				(in thousands)
Current deferred tax asset:
	Allowance for doubtful accounts receivable		$	2,138	$	1,802
	Accrued risk reserves			964		857
	Accrued expenses			3,635		3,593
				6,737		6,252
Current deferred tax liability:
	Unrealized gains on marketable securities			(39,958)		(29,120)
	Other			(2,284)		(1,922)
				(42,242)		(31,042)
		Net current deferred tax liability	$	(35,505)	$	(24,790)
Noncurrent deferred tax asset:
	Unrealized gains on marketable securities		$	(183)	$	593
	Financial reporting depreciation in excess of tax depreciation			7,191		5,872
	Deferred gain on sale of assets (net)			(3,135)		(3,135)
	Tax basis intangible asset in excess of financial reporting basis			(409)		127
	Stock-based compensation			2,879		2,214
	Long-term investments			(2,445)		(2,276)
	Nonrefundable entrance fees			129		45
	Refundable entrance fees			1,739		1,647
	Obligation to provide future services			1,532		1,439
	Accrued risk reserves, less current portion			2,295		3,040
	Accrued expenses			2,910		2,502
	Deferred revenue			6,197		6,096
		Net noncurrent deferred tax asset	$	18,700	$	18,164

A reconciliation of income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes is as follows:

				Year Ended December 31,
				2014		2013		2012
				(in thousands)
Tax provision at federal statutory rate			$	29,818	$	35,762	$	32,718
Increase (decrease) in income taxes
	resulting from:
	State, net of federal benefit			2,207		2,325		3,261
	Nondeductible expenses			363		197		118
	Insurance expense			27		35		39
	Other, net			439		(258)		823
	Unrecognized tax benefits			512		1,107		409
	Expiration of statute of limitations			(1,542)		(1,605)		(3,187)
				2,006		1,801		1,463
		Effective income tax expense	$	31,824	$	37,563	$	34,181

The exercise of non-qualified stock options results in state and federal income tax benefits to the Company related to the difference between the market price at the date of exercise and the option exercise price.  During 2014, 2013 and 2012, $201,000, $(225,000), and $(267,000), respectively, attributable to the tax benefit of stock options exercised and restricted stock, was credited to additional paid-in capital.  

Our deferred tax assets have been evaluated for realization based on historical taxable income, tax planning strategies, the expected timing of reversals of existing temporary differences and future taxable income anticipated.  Our deferred tax assets are more likely than not to be realized in full due to the existence of sufficient taxable income of the appropriate character under the tax law.  As such, there is no need for a valuation allowance.

Uncertain tax positions may arise where tax laws may allow for alternative interpretations or where the timing of recognition of income is subject to judgment.  We believe we have adequate provisions for unrecognized tax benefits related to uncertain tax positions.  However, because of uncertainty of interpretation by various tax authorities and the possibility that there are issues that have not been recognized by management, we cannot guarantee we have accurately estimated our tax liabilities.  We believe that our liabilities reflect the anticipated outcome of known uncertain tax positions in conformity with ASC Topic 740 Income Taxes.  Our liabilities for unrecognized tax benefits are presented in the consolidated balance sheets within other noncurrent liabilities.

Also under ASC Topic 740, tax positions are evaluated for recognition using a more–likely–than–not threshold, and those tax positions requiring recognition are measured at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.  

In accordance with current guidance, the Company has established a liability for unrecognized tax benefits, which are differences between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured.  Generally a liability is created for an unrecognized tax benefit because it represents a company’s potential future obligation to a taxing authority for a tax position that was not recognized per above.  

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

		Deferred Tax Asset		Liability For Unrecognized Tax Benefits		Liability For Interest and Penalties		Liability Total
Balance, January 1, 2012	$	9,926	$	13,765	$	2,479	$	16,244
Additions based on tax positions related to the current year		−		1,695		185		1,880
Additions for tax positions of prior years		728		845		170		1,015
Reductions for statute of limitation expirations		(1,999)		(4,309)		(940)		(5,249)
Balance, December 31, 2012		8,655		11,996		1,894		13,890
Additions based on tax positions related to the current year		−		1,832		198		2,030
Additions for tax positions of prior years		2,120		1,427		641		2,068
Reductions for statute of limitation expirations		(2,177)		(2,802)		(661)		(3,463)
Balance, December 31, 2013		8,598		12,453		2,072		14,525
Additions based on tax positions related to the current year		−		2,008		216		2,224
Additions for tax positions of prior years		2,032		1,218		706		1,924
Reductions for statute of limitation expirations		(1,523)		(2,059)		(603)		(2,662)
Balance, December 31, 2014	$	9,107	$	13,620	$	2,391	$	16,011

During the year ended December 31, 2014, we have recognized a $2,059,000 decrease in unrecognized tax benefits (including $1,120,000 of temporary differences and $939,000 of permanent differences) and an accompanying $603,000 decrease of related interest and penalties due to the effect of statute of limitations lapse.  The favorable impact on our tax provision was $1,542,000 composed of $939,000 tax and $492,000 interest and penalties on permanent differences and $111,000 interest and penalties on temporary differences.  

At December 31, 2014, we had $13,620,000 of unrecognized tax benefits, composed of $8,725,000 of deferred tax assets and $4,895,000 of permanent differences.  Accrued interest and penalties of $2,391,000 related to unrecognized tax benefits at December 31, 2014.  Unrecognized tax benefits of $4,895,000, net of federal benefit, at December 31, 2014, attributable to permanent differences, would favorably impact our effective tax rate if recognized.  Accrued interest and penalties of $2,118,000 relate to these permanent differences at December 31, 2014.  We do not expect to recognize significant increases or decreases in unrecognized tax benefits within the twelve months beginning December 31, 2014, except for the effect of decreases related to the lapse of statute of limitations estimated at $2,585,000, composed of temporary differences of $1,520,000, and permanent differences of $1,065,000.  Interest and penalties of $615,000 relate to these temporary and permanent difference changes within 12 months beginning December 31, 2014.

During the year ended December 31, 2013, we have recognized a $2,802,000 decrease in unrecognized tax benefits (including $1,817,000 of temporary differences and $985,000 of permanent differences) and an accompanying $661,000 decrease of related interest and penalties due to the effect of statute of limitations lapse.  The favorable impact on our tax provision was $1,605,000 composed of $976,000 tax and $451,000 interest and penalties on permanent differences and $178,000 interest and penalties on temporary differences.  

At December 31, 2013, we had $12,453,000 of unrecognized tax benefits, composed of $8,253,000 of deferred tax assets and $4,200,000 of permanent differences.  Accrued interest and penalties of $2,072,000 related to unrecognized tax benefits at December 31, 2013.  Unrecognized tax benefits of $4,200,000, net of federal benefit, at December 31, 2013, attributable to permanent differences, would favorably impact our effective tax rate if recognized.  Accrued interest and penalties of $1,835,000 relate to these permanent differences at December 31, 2013.  We do not expect to recognize significant increases or decreases in unrecognized tax benefits within the twelve months beginning December 31, 2013, except for the effect of decreases related to the lapse of statute of limitations estimated at $2,330,000, composed of temporary differences of $1,390,000, and permanent differences of $940,000.  Interest and penalties of $566,000 relate to these temporary and permanent difference changes within 12 months beginning December 31, 2013.  

During the year ended December 31, 2012, we have recognized a $4,309,000 decrease in unrecognized tax benefits (including $1,999,000 of temporary differences and $2,310,000 of permanent differences) and an accompanying $940,000 decrease of related interest and penalties due to the effect of statute of limitations lapse.  The favorable impact on our tax provision was $3,187,000 composed of $2,310,000 tax and $707,000 interest and penalties on permanent differences and $170,000 interest and penalties on temporary differences.

At December 31, 2012, we had $11,996,000 of unrecognized tax benefits, composed of $8,292,000 of deferred tax assets and $3,704,000 of permanent differences.  Accrued interest and penalties of $1,894,000 related to unrecognized tax benefits at December 31, 2012.  Unrecognized tax benefits of $3,704,000, net of federal benefit, at December 31, 2012, attributable to permanent differences, would favorably impact our effective tax rate if recognized.  Accrued interest and penalties of $1,531,000 relate to these permanent differences at December 31, 2012.  

Interest and penalties expense related to U.S. federal and state income tax returns are included within income tax expense.  Interest and penalties expense (benefit) was $319,000, $178,000 and ($585,000) for the years ended December 31, 2014, 2013, and 2012, respectively.

The Company is no longer subject to U.S. federal and state examinations by tax authorities for years before 2011 (with few state exceptions).  Currently, there are no U.S. federal and state returns under examination.

Note 13 - Stock Repurchase Program

On August 5, 2014 the Board of Directors of the Company authorized a new stock repurchase program that will allow the Company to repurchase up to $25 million of its common stock.  The program expires on August 31, 2015. Under the stock repurchase program, the Company may repurchase its common stock from time to time, in amounts and at prices the Company deems appropriate, subject to market conditions and other considerations.  The Company’s repurchases may be executed using open market purchases, privately negotiated agreements or other transactions.  The Company intends to fund repurchases under the new stock repurchase program from cash on hand, available borrowings or proceeds from potential debt or other capital market sources. The stock repurchase program may be suspended or discontinued at any time without prior notice.  On August 11, 2014, the Company repurchased 125,000 shares of its common stock for a total cost of $6,995,000.  The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued.

On August 1, 2013, the Board of Directors of the Company authorized a stock repurchase program that allowed the Company to repurchase up to $25 million of its common stock over a one year period.  The program expired on July 31, 2014.  No repurchases of common stock were executed under this program.

On August 1, 2012, the Board of Directors of the Company approved a stock repurchase program authorizing the Company to repurchase up to $25 million of its outstanding shares of common stock.   On February 19, 2013, the Company repurchased 100,000 shares for a total cost of $4.7 million.  These were the only shares

repurchased pursuant to the program’s authorization.  The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued. This program expired on July 31, 2013.

Note 14 - Stock-Based Compensation

NHC recognizes stock-based compensation for all stock options and restricted stock granted over the requisite service period using the fair value for these grants as estimated at the date of grant either using the Black-Scholes pricing model for stock options or the quoted market price for restricted stock.

The 2005 and 2010 Stock-Based Compensation Plans

The Compensation Committee of the Board of Directors ("the Committee") has the authority to select the participants to be granted options; to designate whether the option granted is an incentive stock option ("ISO"), a non–qualified option, or a stock appreciation right; to establish the number of shares of common stock that may be issued upon exercise of the option; to establish the vesting provision for any award; and to establish the term any award may be outstanding.  The exercise price of any ISO’s granted will not be less than 100% of the fair market value of the shares of common stock on the date granted and the term of an ISO may not be any more than ten years.  The exercise price of any non–qualified options granted will not be less than 100% of the fair market value of the shares of common stock on the date granted unless so determined by the Committee.

In May 2005, our stockholders approved the 2005 Stock Option, Employee Stock Purchase, Physician Stock Purchase and Stock Appreciation Rights Plan ("the 2005 Plan") pursuant to which 1,200,000 shares of our common stock were available to grant as stock-based payments to key employees, directors, and non-employee consultants.  At December 31, 2014, 220,620 shares were available for future grants under the 2005 Plan.

In May 2010, our stockholders approved the 2010 Omnibus Equity Incentive Plan ("the 2010 Plan") pursuant to which 1,200,000 shares of our common stock were available to grant as stock-based payments to key employees, directors, and non-employee consultants.  At December 31, 2014, 398,744 shares were available for future grants under the 2010 Plan.

Under both the 2005 and 2010 Plans, the individual restricted stock and option grant awards vest over periods up to five years.  The term of the options outstanding under both Plans is five years from the date of the grant.  Our policy is to issue new shares to satisfy option exercises.  

Additionally, we have an employee stock purchase plan that allows employees to purchase our shares of stock through payroll deductions.  The plan allows employees to terminate participation at any time.  

Compensation expense is recognized only for the awards that ultimately vest.  Stock-based compensation totaled $2,021,000, $2,298,000, and $2,366,000, for the years ended December 31, 2014, 2013, and 2012, respectively.  The expense for the 2014 year consisted of $1,814,000 for stock options and $207,000 for restricted stock.  Stock-based compensation is included in salaries, wages and benefits in the consolidated statements of income.  Tax deductions for the options exercised and restricted stock vested totaled $697,000, $196,000, and $404,000 for the years ended December 31, 2014, 2013, and 2012, respectively.  The total intrinsic value of shares exercised during the year ended December 31, 2014 was $855,000.  

At December 31, 2014, we had $2,005,000 of unrecognized compensation cost related to unvested stock-based compensation awards, which consisted of $1,933,000 for stock options and $72,000 for restricted stock.  This expense will be recognized over the remaining weighted average vesting period, which is approximately 1.2 years for stock options and 0.3 years for restricted stock.  

Stock Options

The Company is required to estimate the fair value of stock-based awards on the date of grant.  The fair value of each option award is estimated using the Black–Scholes option valuation model with the weighted average assumptions indicated in the following table.  Each grant is valued as a single award with an expected term based upon expected employment and termination behavior.  Compensation cost is recognized over the requisite service period in a manner consistent with the option vesting provisions.  The straight–line attribution method requires that compensation expense is recognized at least equal to the portion of the grant–date fair value that is vested at that date.  The expected volatility is derived using weekly historical data for periods immediately preceding the date of grant.  The risk–free interest rate is the approximate yield on the United States Treasury Strips having a life equal to the expected option life on the date of grant.  The expected life is an estimate of the number of years an option will be held before it is exercised.  The following table summarizes the assumptions used to value the options granted in the periods shown.

	Year Ended December 31,
	2014	2013	2012
Risk-free interest rate	0.52%	0.25%	0.28%
Expected volatility	17.3%	31.3%	38.8%
Expected life, in years	2.2 years	2.1 years	2.1 years
Expected dividend yield	2.68%	2.81%	2.91%

The following table summarizes option activity:

	Number of Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value
Options outstanding at January 1, 2012	1,482,077	$	46.92	$	−
Options granted	63,516		44.28		−
Options exercised	(295,371)		45.41		−
Options cancelled	(115,620)		50.99		−
Options outstanding at December 31, 2012	1,134,602		46.75		−
Options granted	57,672		47.95		−
Options exercised	(19,722)		45.63		−
Options cancelled	(98,000)		51.11		−
Options outstanding at December 31, 2013	1,074,552		46.44		−
Options granted	57,716		53.10		−
Options exercised	(157,590)		45.97		−
Options cancelled	(20,000)		46.69		−
Options outstanding at December 31, 2014	954,678	$	46.92	$	15,202,000
Options exercisable at December 31, 2014	158,573	$	48.06	$	2,344,000

Options Outstanding December 31, 2014	Exercise Prices	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life in Years
909,678	$44.80 - $47.45	$46.62	1.3
45,000	$52.93	$52.93	4.3
954,678		$46.92	1.5

Restricted Stock

The following table summarizes restricted stock activity:

	Number of Shares		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Unvested restricted shares at January 1, 2012	24,000	$	34.46	$	–
Award shares granted	–		–		–
Award shares vested	6,000		34.46		–
Unvested restricted shares at December 31, 2012	18,000		34.46		–
Award shares granted	–		–		–
Award shares vested	6,000		34.46		–
Unvested restricted shares at December 31, 2013	12,000		34.46		−
Award shares granted	−		−		−
Award shares vested	6,000		34.46		−
Unvested restricted shares at December 31, 2014	6,000	$	34.46	$	170,000

The weighted average remaining contractual life of restricted stock at December 31, 2014 is 0.3 years.

Note 15 - Contingencies and Guarantees

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 both for our owned or leased entities and certain of the entities to which we provide management or accounting services.  The liability we have recognized for reported claims and estimates for incurred but unreported claims totals $106,218,000 and $110,557,000 at December 31, 2014 and 2013, respectively.  The liability is included in accrued risk reserves in the consolidated balance sheets.  The amounts are subject to adjustment for actual claims incurred.  It is possible that these claims plus unasserted claims could exceed our insurance coverages and our reserves, which would have a material adverse effect on our financial position, results of operations and cash flows.

As a result of the terms of our insurance policies and our use of wholly-owned limited purpose insurance companies, we have retained significant insurance risk with respect to workers’ compensation and general and professional liability.  We use independent 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.  Such estimates are based on many variables including historical and statistical information and other factors.  

Workers’ Compensation

For workers’ compensation, we utilize a wholly-owned Tennessee domiciled property/casualty insurance company to write coverage for NHC affiliates and for third-party customers.  Policies are written for a duration of twelve months and cover only risks related to workers’ compensation losses.  All customers are companies which operate in the long-term care industry.  Business is written on a direct basis.  For direct business, coverage is written for statutory limits and the insurance company’s losses in excess of $1,000,000 per claim are covered by reinsurance.  

General and Professional Liability Insurance and Lawsuits

The long term care industry has experienced significant increases in both the number of personal injury/wrongful death claims and in the severity of awards based upon alleged negligence by nursing facilities and their employees in providing care to residents.  As of December 31, 2014, we and/or our managed centers are currently defendants in 34 such claims covering the years 2006 through December 31, 2014.

In 2002, due to the unavailability and/or prohibitive cost of third-party professional liability insurance coverage, we established and capitalized a wholly-owned licensed liability insurance company incorporated in the Cayman Island, for the purpose of managing our losses related to these risks.  Thus, since 2002, insurance coverage for incidents occurring at all NHC owned providers, and most providers managed by us, is provided through this wholly-owned insurance company.  

Insurance coverage for all years includes both primary policies and excess policies.  Beginning in 2003, both primary and excess coverage is provided through our wholly-owned insurance company.  The primary coverage is in the amount of $1.0 million per incident, $3.0 million per location with an annual primary policy aggregate limit that is adjusted on an annual basis.  The excess coverage is $7.5 million annual excess in the aggregate applicable to years 2005-2007, $9.0 million annual excess in the aggregate for years 2008-2010 and $4.0 million excess per occurrence for 2011-2014.

Beginning in 2008 and continuing through 2014, additional insurance is purchased through third party providers that serve to supplement the coverage provided through our wholly-owned captive insurance company.  

Civil Investigation Demand  

On December 19, 2013, the Company was served with a civil investigative demand from the U.S. Department of Justice and the Office of the U.S. Attorney for the Eastern District of Tennessee requesting the production of documents and interrogatory responses regarding the billing and medical necessity of certain rehabilitative therapy services.  Based upon our review, the request appears to relate to services provided at our facilities based in Knoxville, Tennessee.

On October 7, 2014, the Company received a subpoena from the Office of Inspector General of the United Department of Health and Human Services (“OIG Subpoena”) related to the current DOJ Investigation.  The OIG Subpoena requests certain financial and organizational documents from the Company and certain of its subsidiaries and SNFs and medical records from certain of the Company’s Tennessee-based SNFs. 

The Company is cooperating fully with these requests. Because we are in the early stages of these investigations, we are unable to evaluate the outcomes of these investigations.

Caris HealthCare, L.P. Lawsuit

On December 9, 2014, Caris Healthcare, L.P. (“Caris”), a business that specializes in hospice care services in Company-owned health care centers and in other settings in Missouri, Tennessee, South Carolina and Virginia, received notice from the U.S. Attorney’s Office for the Eastern District of Tennessee and the Attorney Generals’ Offices for the State of Tennessee and State of Virginia that those government entities were conducting an investigation regarding patient eligibility for hospice services provided by Caris.  We have a 75.1% non-controlling ownership interest in Caris.  We are cooperating with these government entities in connection with this investigation.  Because Caris and the Company are in the early stages of this investigation, we are unable to evaluate the outcome of this investigation.

There is certain additional litigation incidental to our business, none of which, based upon information available to date, would be material to our financial position, results of operations, or cash flows.  In addition, the long-term care industry is continuously subject to scrutiny by governmental regulators, which could result in litigation or claims related to regulatory compliance matters.

Debt Guarantees

At December 31, 2014, no agreement to guarantee the debt of other parties exists.  

Note 16 – Equity Method Investment in Caris HealthCare, L.P.

As of December 31, 2014, we have a 75.1% non-controlling ownership interest in Caris, a business that specializes in hospice care services in NHC owned health care centers and in other settings.  The carrying value of our investment is $35,020,000 and $37,185,000 at December 31, 2014 and 2013, respectively.  The carrying amounts are included in investments in limited liability companies in the consolidated balance sheets.  The difference between the carrying value of our investment and our capital account balance in Caris is due to the additional limited partner ownership interest the Company acquired from current and former partners.  Summarized financial information of Caris for the years ended December 31, 2014, 2013, and 2012 is provided below.  

		December 31,
		2014		2013		2012
		( in thousands)
Current assets	$	20,922	$	25,212	$	30,731
Noncurrent assets		11,540		11,685		9,051
Liabilities		7,305		8,879		9,365
Partners’ capital		25,157		28,018		30,417
Revenue		51,441		58,918		59,422
Expenses		40,908		40,112		40,341
Net income		10,533		18,806		19,081

Consolidation Considerations

Due to our ownership percentage in Caris, we have considered whether Caris should be consolidated by NHC under the guidance provided in ASC Topic 810, Consolidation.  We do not consolidate Caris because (1) Caris’ equity at risk is sufficient to finance its activities without additional subordinated financial support, (2) the general partner of the Partnership has the power to direct the activities that most significantly impact the economic performance of Caris, and (3) the equity holders of Caris possess the characteristics of a controlling financial interest, including voting rights that are proportional to their economic interests.  Supporting the assertions above is the following:  (1) the ownership percentage of the general partner remains equally divided between NHC and another party, (2) the general partner manages and controls the Partnership with full and complete discretion, and (3) the limited partners have no right or power to take part in the control of the business of the Partnership, which is where our ownership percentage increases have occurred.   

Note 17 – Variable Interest Entity

Accounting guidance requires that a variable interest entity (“VIE”), according to the provisions of ASC Topic 810, Consolidation, must be consolidated by the primary beneficiary.  The primary beneficiary is the party that has both the power to direct activities of a VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE.  We perform ongoing qualitative analysis to determine if we are the primary beneficiary of a VIE.  At December 31, 2014, we are the primary beneficiary of one VIE and therefore consolidate that entity.

Springfield, Missouri Lease

In December 2010, we signed an operating agreement to lease Springfield Rehabilitation and Health Care Center, a 120-bed skilled nursing facility located in Springfield, Missouri.  The terms of the lease include a ten year lease and include five additional, five year lease options as well as a purchase option.  The operating lease agreement was established on the same date third party owners purchased the real estate of the 120-bed skilled nursing facility.  The third party owners purchased the real estate for $4,500,000, which is the amount NHC loaned the owners to purchase the facility under the terms of the lease agreement and the mortgage note.  The risks and rewards associated with the operations of the facility and any appreciation or deprecation in the value of the real estate of the facility is borne by NHC.  At December 31, 2014 and 2013, the $4,500,000 mortgage note receivable from the third party owners is eliminated in our consolidated financial statements.  Land and buildings and improvements of $4,500,000 have been recorded in our consolidated financial statements, as well as the operations of the facility since December 1, 2010, because we are the primary beneficiary in the relationship.

Note 18 - Series A Convertible Preferred Stock

On October 31, 2007, NHC issued $170,555,000 of NHC Series A Convertible Preferred Stock (the "Preferred Stock") with a liquidation preference of $15.75.  Each share of the Preferred Stock is entitled to annual preferred dividends of $0.80 per share.  Dividends on the Preferred Stock are cumulative.

The Preferred Stock, which is listed on the NYSE MKT exchange with the symbol "NHC.PRA", is convertible at any time at the option of the stockholder into NHC common stock at a conversion price of $65.07.  Each share of the Preferred Stock will be convertible into 0.24204 of a share of NHC common stock.  After the fifth anniversary of the closing date, NHC will have the option to redeem the Preferred Stock, in whole or in part, for $15.75 cash per share (plus accrued but unpaid dividends); provided that the Preferred Stock will not be redeemable prior to the eighth anniversary of the closing date unless the average closing price for NHC common stock for 20 trading sessions equals or exceeds the conversion price.  The conversion price will be adjusted to reflect any future NHC common stock splits or stock dividends.

Note 19 – Series B Junior Participating Preferred Stock

On August 2, 2007, the NHC Board of Directors approved the adoption of a stockholder rights plan and declared a dividend distribution of one right (a "Right") for each outstanding share of NHC common stock to stockholders of record at the close of business on August 2, 2007. Each Right entitles the registered holder to purchase from NHC a unit consisting of one one-ten thousandth of a share of Series B Junior Participating Preferred Stock, $0.01 par value at a purchase price of $250 per Unit, subject to adjustment. The description and terms of the Rights are set forth in a rights agreement between NHC and Computershare Trust Company, N.A., as rights agent, dated as of August 2, 2007, as may be amended, restated or otherwise modified from time to time.  No shares have been issued pursuant to this stockholder rights plan.  

Note 20 - Selected Quarterly Financial Data

(unaudited, in thousands, except per share amounts)

The following table sets forth selected quarterly financial data for the two most recent fiscal years.

2014		1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Net Operating Revenues	$	210,531	$	216,555	$	218,223	$	226,374
Income Before Non-Operating Income		16,988		16,083		14,736		20,204
Non-Operating Income		4,572		4,281		3,937		4,392
Net Income		13,229		12,511		12,829		14,800
Preferred Dividends		2,168		2,167		2,167		2,168
Net Income Available to Common Stockholders		11,061		10,344		10,662		12,632
Basic Earnings Per Share		0.80		0.75		0.77		0.92
Diluted Earnings Per Share		0.78		0.72		0.75		0.88
2013		1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Net Operating Revenues	$	194,378	$	192,011	$	195,772	$	206,796
Income Before Non-Operating Income		15,996		17,001		19,265		19,819
Non-Operating Income		6,618		6,632		11,171		5,674
Net Income		13,805		14,342		19,877		16,589
Preferred Dividends		2,168		2,168		2,167		2,168
Net Income Available to Common Stockholders		11,637		12,174		17,710		14,421
Basic Earnings Per Share		0.84		0.88		1.28		1.04
Diluted Earnings Per Share		0.82		0.86		1.19		0.99

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Based on their evaluation as of December 31, 2014, the Chief Executive Officer and Principal Accounting Officer of the Company have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective to ensure that the information required to be disclosed by us in this Annual Report on Form 10-K was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and instructions for Form 10-K.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

We are responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended).   We assessed the effectiveness of our internal control over financial reporting as of December 31, 2014.  In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework (2013 Framework).  We have concluded that, as of December 31, 2014, our internal control over financial reporting is effective based on these criteria.  Our independent registered public accounting firm, Ernst & Young, LLP, has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting included herein.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

National HealthCare Corporation

We have audited National HealthCare Corporation’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria). National HealthCare Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting.  Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, National HealthCare Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of National HealthCare Corporation as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2014 and our report dated February 20, 2015, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Nashville, Tennessee

February 20, 2015

Changes in Internal Control

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2014 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

ITEM 9B.

OTHER INFORMATION

None.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information in our definitive 2015 proxy statement set forth under the captions Directors of the Company and Executive Officers of the Company is hereby incorporated by reference.

ITEM 11.

EXECUTIVE COMPENSATION

The information in our definitive 2015 proxy statement set forth under the caption Compensation Discussion & Analysis is hereby incorporated by reference.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information in our definitive 2015 proxy statement set forth under the captions Section 16(A) Beneficial Ownership Reporting Compliance is hereby incorporated by reference.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information in our definitive 2015 proxy statement set forth under the caption Certain Relationships and Related Transactions is hereby incorporated by reference.   

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information in our definitive 2015 proxy statement set forth under the caption Report of the Audit Committee is hereby incorporated by reference (which will be filed within 120 days of the end of the fiscal year to which this report relates).

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULE

The following documents are filed as a part of this report:

(a)

(1)

Financial Statements:

The Financial Statements are included in Item 8 and are filed as part of this report.

(2)

Financial Statement Schedule:

NATIONAL HEALTHCARE CORPORATION

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(in thousands)

Column A			Column B		Column C				Column D			Column E
					Additions
Description			Balance- Beginning of Period		Charged to Costs and Expenses		Charged to other Accounts		Deductions			Balance- End of Period
For the year ended December 31, 2012
	Allowance for doubtful accounts	$	3,713	$	2,455	$	−	$	3,002	(1)	$	3,166
	Accrued risk reserves	$	98,732	$	67,900	$	−	$	56,301		$	110,331
For the year ended December 31, 2013
	Allowance for doubtful accounts	$	3,166	$	5,226	$	−	$	3,420	(1)	$	4,972
	Accrued risk reserves	$	110,331	$	57,515	$	−	$	57,289		$	110,557
For the year ended December 31, 2014
	Allowance for doubtful accounts	$	4,972	$	6,228	$	−	$	5,462	(1)	$	5,738
	Accrued risk reserves	$	110,557	$	61,557	$	−	$	65,896		$	106,218
(1)  Amounts written off, net of recoveries

All other financial statement schedules are not required under the related instructions or are inapplicable and therefore have been omitted.  

(3)

Exhibits:

(a)

Reference is made to the Exhibit Index, which is found within this Form 10-K Annual Report.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	NATIONAL HEALTHCARE CORPORATION
Date:  February 20, 2015	BY: /s/ Robert G. Adams
	Robert G. Adams
	Chairman
	Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date:  February 20, 2015	/s/ Robert G. Adams
	Robert G. Adams
	Chief Executive Officer and Director
	(Principal Executive Officer)
Date: February 20, 2015	/s/ Donald K. Daniel
	Donald K. Daniel
	Senior Vice President and Controller
	(Principal Accounting Officer)
	(Principal Financial Officer)
Date: February 20, 2015	/s/ J. Paul Abernathy
	J. Paul Abernathy
	Director
Date: February 20, 2015	/s/ W. Andrew Adams
	W. Andrew Adams
	Director
Date: February 20, 2015	/s/ Ernest G. Burgess
	Ernest G. Burgess
	Director
Date: February 20, 2015	/s/ Emil E. Hassan
	Emil E. Hassan
	Director
Date: February 20, 2015	/s/ Richard F. LaRoche, Jr.
	Richard F. LaRoche, Jr.
	Director
Date: February 20, 2015	/s/ Lawrence C. Tucker
	Lawrence C. Tucker
	Director

NATIONAL HEALTHCARE CORPORATION AND SUBSIDIARIES
FORM 10-K FOR THE FISCAL YEAR ENDING DECEMBER 31, 2014
EXHIBIT INDEX
Exhibit No.	Description	Page No. or Location
3.1	Certificate of Incorporation of National HealthCare Corporation	Incorporated by reference to Exhibit 3.1 to the Registrant’s registration statement on Form S-4 (File No. 333-37185) dated October 3, 1997)
3.2	Certificate of Amendment to the Certificate of Incorporation of National HealthCare Corporation	Incorporated by reference to Exhibit 3.2 to the Registrant’s registration statement on Form 8-A, dated October 31, 2007)
3.3	Certificate of Designations of Series A Convertible Preferred Stock of National HealthCare Corporation	Incorporated by reference to Exhibit 2.1 to the current report on Form 8-K filed on December 20, 2006
3.4	Certificate of Designation Series B Junior Participating Preferred Stock	Incorporated by reference to Exhibit 3.1 to the Registrant’s registration statement on Form 8-A, dated August 3, 2007
3.5	Restated Bylaws as amended February 14, 2013	Specifically incorporated by reference to Exhibit 3.5 to the quarterly report on Form 10-Q filed on May 8, 2013.
4.1	Form of Common Stock	Specifically incorporated by reference to Exhibit A attached to Form S-4, (Proxy Statement- Prospectus), amended, Registration No. 333- 37185, (December 5, 1997)
4.2	Form of Series A Convertible Preferred Stock Certificate	Incorporated by reference to Exhibit A to Exhibit 3.5 to the Registrant’s registration statement on Form 8-A, dated October 31, 2007)

Exhibit No.	Description	Page No. or Location
4.3	Rights Agreement, dated as of August 2, 2007, between National HealthCare Corporation and Computershare Trust Company, N.A.	Incorporated by reference to Exhibit 4.1 to the Registrant’s registration statement on Form 8-A, dated August 3, 2007
10.1	Master Agreement of Lease dated as of October 17, 1991 by and among National Health Investors, Inc. and National HealthCorp, L.P.	Incorporated by reference to Exhibit 10.1 to the Registrant's registration statement on Form S-4 filed October 3, 1997
10.2	Form of Service Agreement by and between National Health Corporation and National HealthCare Corporation	Incorporated by reference to Exhibit 10.5.1 to the Registrant's registration statement on Form S-4 filed October 3, 1997
10.3	Amended and Restated Revolving Credit Note dated as of September 1, 1995 by and between National Health Corporation and National HealthCare L.P.	Incorporated by reference to Exhibit 10.7 to the Registrant's registration statement on Form S-4 filed October 3, 1997
10.4	Amended and Restated Revolving Credit Agreement dated as of September 1, 1995 by and between National Health Corporation and National HealthCare L.P.	Incorporated by reference to Exhibit 10.8 to the Registrant's registration statement on Form S-4 filed October 3, 1997
10.5	Employee Stock Purchase Plan	Incorporated by reference to Exhibit A attached to Form S-4), Proxy Statement-Prospectus), amended, Registration No. 333- 37185, (December 5, 1997)
10.6	2004 Non-Qualified Stock Option Plan	Incorporated by reference to Appendix B to 2005 Proxy Statement filed on March 28, 2005
10.7	2005 Stock Option, Employee Stock Purchase, Physician Stock Purchase and Stock Appreciation Rights Plan	Incorporated by reference to Appendix A to 2005 Proxy Statement filed on March 28, 2005
10.8	Amendment No. 1 to Master Agreement to Lease between National Health Investors, Inc. and National HealthCorp L.P.	Incorporated by reference to Exhibit 10.19 from 2005 Form 10-K filed March 16, 2006
Exhibit No.	Description	Page No. or Location
10.9	Amendment No. 2 to Master Agreement to Lease between National Health Investors, Inc. and National HealthCare L.P.	Incorporated by reference to Exhibit 10.20 from 2005 Form 10-K filed March 16, 2006
10.10	Amendment No. 3 to Master Agreement to Lease between National Health Investors, Inc. and National HealthCare L.P.	Incorporated by reference to Exhibit 10.21 from 2005 Form 10-K filed March 16, 2006
10.11	Amendment No. 4 to Master Agreement to Lease between National Health Investors, Inc. and National HealthCare L.P.	Incorporated by reference to Exhibit 10.22 from 2005 Form 10-K filed March 16, 2006
10.12	Amendment No. 5 to Master Agreement to Lease between National Health Investors, Inc. and National HealthCare Corporation	Incorporated by reference to Exhibit 10.23 from 2005 Form 10-K filed March 16, 2006
10.13	Credit Agreement, dated October 30, 2007, between National HealthCare Corporation and Bank of America, N.A	Incorporated by reference to Exhibit 10.1 of National HealthCare Corporation’s current report on Form 8-K filed on November 2, 2007
10.14	First Amendment to Credit Agreement dated October 28, 2008 between National HealthCare Corporation and Bank of America, N.A.	Incorporated by reference to Exhibit 10.1 of National HealthCare Corporation’s current report on Form 8-K filed on October 17, 2008
10.15	Second Amendment to Credit Agreement dated October 27, 2009 between National HealthCare Corporation and Bank of America, N.A.	Incorporated by reference to Exhibit 10.1 of National HealthCare Corporation’s current report on Form 8-K filed on October 27, 2009.
10.16	National HealthCare Corporation's 2010 Omnibus Equity Incentive Plan	Incorporated by reference to Exhibit A to 2010 Proxy Statement filed April 1, 2010.
10.17	Amended NHC Executive Officer Performance Based Compensation Plan	Incorporated by reference to Exhibit A to 2013 Proxy Statement filed April 2, 2013.
10.18	Third Amendment to Credit Agreement dated October 26, 2010 between National HealthCare Corporation and Bank of America, N.A.	Incorporated by reference to Exhibit 10.1 of National HealthCare Corporation's current report on Form 8-K filed on October 26, 2010
Exhibit No.	Description	Page No. or Location
10.19	Fourth Amendment to Credit Agreement dated October 25, 2011 between National HealthCare Corporation and Bank of America, N.A.	Incorporated by reference to Exhibit 10.1 of National HealthCare Corporation's current report on Form 8-K filed on October 25, 2011
10.20	Fifth Amendment to Credit Agreement dated October 24, 2012 between National HealthCare Corporation and Bank of America, N.A.	Incorporated by reference to Exhibit 10.1 of National HealthCare Corporation's current report on Form 8-K filed on October 25, 2012
10.21	Amendment to Purchase and Sale Agreement with Modifications to Master Agreement to Lease between National Health Investors, Inc. and National HealthCare Corporation	Incorporated by reference to Exhibit 10.1 of National HealthCare Corporation's Form 10-Q filed on November 5, 2013
10.22	Agreement to Lease between NHI-REIT of Northeast, LLC, Landlord and NHC/OP, L.P. and National HealthCare Corporation, Co-Tenants	Incorporated by reference to Exhibit 10.4 of National HealthCare Corporation's Form 10-Q filed on November 5, 2013
10.23	Sixth Amendment to Credit Agreement dated October 23, 2013 between National HealthCare Corporation and Bank of America, N.A.	Incorporated by reference to Exhibit 10.1 of National HealthCare Corporation's current report on Form 8-K filed on October 23, 2013
10.24	Amended and Restated Amendment No. 6 to Master Agreement to Lease between National Health Investors, Inc. and National HealthCare Corporation	Incorporated by reference to Exhibit 10.2 of National HealthCare Corporation's Form 10-Q filed on November 5, 2013
10.25	Amendment No. 7 to Master Agreement to Lease between National Health Investors, Inc. and National HealthCare Corporation	Incorporated by reference to Exhibit 10.3 of National HealthCare Corporation's Form 10-Q filed on November 5, 2013
10.26	Seventh Amendment to Credit Agreement dated October 22, 2014 between National HealthCare Corporation and Bank of America, N.A.	Incorporated by reference to Exhibit 10.1 of National HealthCare Corporation's current report on Form 8-K filed on October 23, 2014

Exhibit No.	Description	Page No. or Location
10.27	Contribution Agreement dated December 29, 2011 between National HealthCare Corporation and Caris HealthCare, L.P. pursuant to which NHC acquired a 7.5% interest in Caris from McRae in exchange for $7,500,000	Filed herewith
10.28	Assignment of membership interest in Solaris Hospice, LLC dated December 29, 2011 and effective on January 1, 2012, whereby NHC assigned its membership interest to Caris in exchange for an additional 2.7% limited partnership interest in Caris.	Filed herewith
10.29	Stock Purchase Agreement dated August 9, 2010, between The 1818 Fund II, L.P. and National HealthCare Corporation	Incorporated by reference to Exhibit 10.0 to National HealthCare Corporation's current report on Form 8-K filed on August 10, 2010
10.30	Purchase and Sale Agreement and Extension of Master Lease dated December 26, 2012 between National Health Investors, Inc. and National HealthCare Corporation	Incorporated by reference to Exhibit 10.29 to National HealthCare Corporation's annual report on Form 10-K filed on February 21, 2014
14	Code of Ethics of National HealthCare Corporation	Available at NHC’s website www.nhccare.com or in print upon request to: National HealthCare Corp. Attn:  Investor Relations P. O. Box 1398 Murfreesboro, TN  37133-1398 Telephone (615) 890-2020
21	Subsidiaries of Registrant	Filed Herewith
23	Consent of Independent Registered Public Accounting Firm – Ernst & Young LLP	Filed Herewith
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer	Filed Herewith
31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Accounting Officer	Filed Herewith
32	Certification pursuant to 18 U.S.C. Section 1350 by Chief Executive Officer and Principal Accounting Officer	Filed Herewith

Exhibit No.	Description
*101.INS	XBRL Instance Document
*101.SCH	XBRL Taxonomy Extension Schema Document
*101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
*101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
*101.LAB	XBRL Taxonomy Extension Label Linkbase Document
*101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
*As provided in Rule 406T of Regulation S-T, this information shall not be deemed "filed" for purposes of Sections 11 and 12 of the Securities Act and Section 18 of the Securities Exchange Act or otherwise subject to liability under those sections.

EX-21

EXHIBIT 21

Subsidiaries of the Registrant

Name	States
National HealthCare Corporation	AL, DE, FL, GA, KY, MA, MO, NH, SC, TN, VA
NHC/Delaware, Inc.	AL, DE, FL, GA, KY, MA, MO, NH, SC, TN, VA
NHC/OP, L.P.	AL, DE, FL, GA, KY, MA, MO, NH, SC, TN, VA
National Health Realty, LLC	AL, DE, FL, IN, MO, SC, TN
Medical Personnel Services, LLC	TN
NHC Delaware Investments Inc.	DE
NHC HealthCare/Lake City, Inc.	FL
NHC HealthCare/Pensacola, Inc.	FL
Premier Group Ins. Co.	AL, AZ, FL, GA, KS, KY, MA, MO, NH, SC, TN, VA
Premier Plus Insurance Co.	Cayman Islands
City Corporation	TN
City Center, Ltd.	TN
Knoxville Health Care Center, L.P.	TN
National Healthcare Center of Fort Oglethorpe, L.P.	TN, GA
Nutritional Support Services, L.P.	TN, AL, FL, MO, SC
Caris HealthCare L.P.	TN
Caris HealthCare, LLC	TN
National Hospice, Inc.	TN
NHC HealthCare/Anniston, LLC	AL
NHC Place/Anniston, LLC	AL
NHC HealthCare/Moulton, LLC	AL
NHC HealthCare/Rossville, LLC	GA
NHC HealthCare/Glasgow, LLC	KY
NHC HealthCare/Madisonville, LLC	KY
Buckley HealthCare Center, LLC	MA
Holyoke HealthCare Center, LLC	MA
John Adams HealthCare Center, LLC	MA
Taunton HealthCare Center, LLC	MA
NHC HealthCare/Desloge, LLC	MO
NHC HealthCare/Joplin, LLC	MO
NHC HealthCare/Kennett, LLC	MO
NHC Place/Lake St. Charles, LLC	MO
NHC HealthCare-Macon, LLC	MO
NHC HealthCare/Maryland Heights, LLC	MO
NHC HealthCare-Osage Beach, LLC	MO
NHC HealthCare-Springfield Missouri, LLC	MO
NHC HealthCare/St. Charles, LLC	MO
NHC HealthCare/West Plains, LLC	MO
NHC HealthCare/Town & Country, LLC	MO
Quarters at Des Peres, LLC	MO
South County Senior Care, LLC	MO
Villages of St. Peters, LLC	MO
Villages of Jackson Creek, LLC	MO
Villages of Jackson Creek Memory Care, LLC	MO
Heartland HealthCare Center, LLC	NH
Pearl Street HealthCare Center, LLC	NH
Villa Crest HealthCare Center, LLC	NH
Anderson HealthCare Center, LLC	SC
NHC HealthCare/Aiken, LLC	SC
NHC HealthCare/Anderson, LLC	SC
NHC HealthCare/Bluffton, LLC	SC
NHC HealthCare-Charleston, LLC	SC
NHC HealthCare/Clinton, LLC	SC
NHC HealthCare/Garden City, LLC	SC
NHC HealthCare/Greenville, LLC	SC
NHC HealthCare/Greenwood, LLC	SC
NHC HealthCare/Laurens, LLC	SC
NHC HealthCare/Lexington, LLC	SC
NHC HealthCare/Mauldin, LLC	SC
NHC HealthCare/North Augusta, LLC	SC
NHC HealthCare/Parklane, LLC	SC
NHC Place-Charleston, LLC	SC
Palmettos of Bluffton, LLC	SC
Palmettos of Garden City, LLC	SC
The Palmettos of Parklane, LLC	SC
AdamsPlace, LLC	TN
NHC HealthCare/Athens, LLC	TN
NHC HealthCare/Chattanooga, LLC	TN
NHC HealthCare/Columbia, LLC	TN
NHC HealthCare/Cool Springs, LLC	TN
NHC HealthCare/Dickson, LLC	TN
NHC HealthCare/Farragut, LLC	TN
NHC HealthCare/Franklin, LLC	TN
NHC HealthCare/Hendersonville, LLC	TN
NHC HealthCare/Hillview, LLC	TN
NHC HealthCare/Holston Hills, LLC	TN
NHC HealthCare/Johnson City, LLC	TN
NHC HealthCare/Kingsport, LLC	TN
NHC HealthCare/Knoxville, LLC	TN
NHC HealthCare/Lewisburg, LLC	TN
NHC HealthCare/McMinnville, LLC	TN
NHC HealthCare/Milan, LLC	TN
NHC HealthCare/Oakwood, LLC	TN
NHC HealthCare/Pulaski, LLC	TN
NHC HealthCare/Scott, LLC	TN
NHC HealthCare/Sequatchie, LLC	TN
NHC HealthCare/Smithville, LLC	TN
NHC HealthCare/Somerville, LLC	TN
NHC HealthCare/Sparta, LLC	TN
NHC HealthCare/Springfield, LLC	TN
Standifer Place Properties, LLC	TN
NHC HealthCare-Sumner, LLC	TN
NHC HealthCare/Tullahoma, LLC	TN
The Health Center of Nashville, LLC	DE
The Health Center of Hermitage, LLC	DE
NHC-Maury Regional HealthCare, LLC	TN
NHC HealthCare/Bristol, LLC	VA
Georgia HealthCare Advisors, LLC	GA
Hudson HealthCare Advisors, LLC	FL
Kansas HealthCare Advisors, LLC	KS
Massachusetts HealthCare Advisors, LLC	MA
Missouri HealthCare Advisors, LLC	MO
New Hampshire HealthCare Facilities Advisors, LLC	NH
South Carolina HealthCare Advisors, LLC	SC
Tennessee HealthCare Advisors, LLC	TN
NHC Homecare Missouri, LLC	MO
NHC Homecare – South Carolina, LLC	SC
HealthCare Transition Center, LLC	TN

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements (Forms S-8 No. 333-129462 and No. 333-167685) pertaining to National HealthCare Corporation’s 2005 Stock Option, Employee Stock Purchase, Physician Stock Purchase & Stock Appreciation Rights Plan and 2004 Non-Qualified Stock Option Plan and 2010 Omnibus Equity Incentive Plan of our reports dated February 20, 2015, with respect to the consolidated financial statements and schedule of National HealthCare Corporation, and the effectiveness of internal control over financial reporting of National HealthCare Corporation, included in this Annual Report (Form 10-K) for the year ended December 31, 2014.

Nashville, Tennessee

February 20, 2015

EX-31

EXHIBIT 31.1

CERTIFICATION

I, Robert G. Adams, certify that:

1.

I have reviewed this annual report on Form 10-K of National HealthCare Corporation;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and  

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function);

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 20, 2015

/s/ Robert G. Adams                                 

Robert G. Adams

Chief Executive Officer

EX-31

EXHIBIT 31.2

CERTIFICATION

I, Donald K. Daniel, certify that:

1.

I have reviewed this annual report on Form 10-K of National HealthCare Corporation;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and  

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function);

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February, 20, 2015

 /s/ Donald K. Daniel                                          

Donald K. Daniel

Senior Vice President and Controller

(Principal Financial Officer)

EX-32

Exhibit 32

Certification of Annual Report on Form 10-K

of National HealthCare Corporation

For The Year Ended December 31, 2014

The undersigned hereby certify, pursuant to 18 U.S.C. Section 906 of the Sarbanes-Oxley Act of 2002, that, to the undersigned's best knowledge and belief, the Annual Report on Form 10-K for National HealthCare Corporation ("Issuer") for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the "Report"):

(a)	fully complies with the requirements of section 13(a) or 15(d) of the Securities
	Exchange Act of 1934; and
(b)	the information contained in the Report fairly presents, in all material respects,
	the financial condition and results of operations of the Issuer.

This Certification accompanies the Annual Report on Form 10-K of the Issuer for the annual period ended December 31, 2014.

This Certification is executed as of February 20, 2015.

/s/Robert G. Adams                            

Robert G. Adams

Chief Executive Officer

 /s/ Donald K. Daniel                              

Donald K. Daniel

Principal Accounting Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.  

XML

Note 11 - Long-term Debt (Tables)

12 Months Ended

Dec. 31, 2014

Debt Disclosure [Abstract]

Schedule of Debt [Table Text Block]

	Weighted
	Average		December 31,
	Interest Rate	Maturities	2014		2013
Revolving Credit Facility, interest payable monthly	Variable, 0.9%	2015	$	-	$	-
Unsecured term note payable to National, interest payable quarterly, principal payable at maturity	Variable, 2.8%	2018		10,000		10,000
				10,000		10,000
Less current portion				-		-
			$	10,000	$	10,000

Schedule of Maturities of Long-term Debt [Table Text Block]

	Long-Term Debt
	(in thousands)
2015	$	−
2016		−
2017		−
2018		10,000
2019		−
Total	$	10,000

XML

Note 5 - Long-term Leases (Details) - Future Minimum Lease Payments (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014
Future Minimum Lease Payments [Abstract]
2015	$ 34,200
2015	5,200
2016	34,200
2016	5,200
2017	34,200
2017	5,200
2018	34,200
2018	5,200
2019	34,200
2019	5,200
Thereafter	245,150
Thereafter	21,667
Total minimum lease payments	416,150
Total minimum lease payments	47,667
Less: Amounts representing interest	(11,071)
Present value of minimum lease payments	36,596
Less: Current portion	(3,088)
Long-term capital lease obligations	$ 33,508

XML

Note 3 - Other Revenues (Details) (USD $)	12 Months Ended			324 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2014	Oct. 01, 2014
Cancelled Accounting and Financial Servicies [Member]
Note 3 - Other Revenues (Details) [Line Items]
Number of Healthcare Facilities					7
Accounting and Financial Services Provided [Member]
Note 3 - Other Revenues (Details) [Line Items]
Number of Healthcare Facilities	20			20
Workers Compensation Premium Revenue [Member]
Note 3 - Other Revenues (Details) [Line Items]
Health Care Organization, Premium Revenue	$ 4,434,000	$ 7,720,000	$ 5,438,000
Proceeds from Insurance Settlement, Operating Activities		2,769,000
Professional Liability Insurance [Member]
Note 3 - Other Revenues (Details) [Line Items]
Health Care Organization, Premium Revenue	2,781,000	3,418,000	4,203,000
National [Member]
Note 3 - Other Revenues (Details) [Line Items]
Number of Skilled Nursing Centers	5			5
Management Fees Revenue	3,544,000	3,491,000	3,397,000	41,165,000
Unbilled Receivables, Current	21,338,000	21,349,000	21,333,000	21,338,000
Other Nursing Centers [Member]
Note 3 - Other Revenues (Details) [Line Items]
Number of Skilled Nursing Centers		21
Management Fees Revenue	$ 2,205,000	$ 4,413,000	$ 6,999,000
Number of Skilled Nursing Centers Leased From NHI	7			7

XML

Note 12 - Income Taxes (Details) - Deferred Tax Assets and Liabilities (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Current deferred tax asset:
Allowance for doubtful accounts receivable	$ 2,138	$ 1,802
Accrued risk reserves	964	857
Accrued expenses	3,635	3,593
	6,737	6,252
Current deferred tax liability:
Unrealized gains on marketable securities	(39,958)	(29,120)
Other	(2,284)	(1,922)
	(42,242)	(31,042)
Net current deferred tax liability	(35,505)	(24,790)
Noncurrent deferred tax asset:
Unrealized gains on marketable securities	(183)	593
Financial reporting depreciation in excess of tax depreciation	7,191	5,872
Deferred gain on sale of assets (net)	(3,135)	(3,135)
Tax basis intangible asset in excess of financial reporting basis	(409)	127
Stock-based compensation	2,879	2,214
Long-term investments	(2,445)	(2,276)
Obligation to provide future services	1,532	1,439
Accrued risk reserves, less current portion	2,295	3,040
Accrued expenses	2,910	2,502
Deferred revenue	6,197	6,096
Net noncurrent deferred tax asset	18,700	18,164
Nonrefundable Entrance Fees [Member]
Noncurrent deferred tax asset:
Entrance fees	129	45
Refundable Entrance Fees [Member]
Noncurrent deferred tax asset:
Entrance fees	$ 1,739	$ 1,647

XML

Note 6 - Earnings Per Share (Details)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Incentive Stock Option [Member]
Note 6 - Earnings Per Share (Details) [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0	929,000	1,068,302
Common Shares Issuable Upon Conversion Of Preferred Stock [Member]
Note 6 - Earnings Per Share (Details) [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	2,622,956

XML

Note 14 - Stock-based Compensation (Details) - Summary of Restricted Stock Activity (Restricted Stock [Member], USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Restricted Stock [Member]
Note 14 - Stock-based Compensation (Details) - Summary of Restricted Stock Activity [Line Items]
Unvested restricted shares at January 1, 2012	12,000	18,000	24,000
Unvested restricted shares at January 1, 2012	$ 34.46	$ 34.46	$ 34.46
Number of Shares, Vested	6,000	6,000	6,000
Weighted Average Grant Date Fair Value, Vested	$ 34.46	$ 34.46	$ 34.46
Number of Shares	6,000	12,000	18,000
Weighted Average Grant Date Fair Value	$ 34.46	$ 34.46	$ 34.46
Aggregate Intrinsic Value	$ 170,000

XML

Note 1 - Summary of Significant Accounting Policies (Details) - Reclassified Balance Sheet Items (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Restricted cash and cash equivalents (current assets section)	$ 7,020	$ 10,298
Restricted cash and cash equivalents (other assets section)	3,631	3,631
Restricted marketable securities (current assets section)	19,805	14,027
Restricted marketable securities (other assets section)	138,468	127,976
Accounts receivable (current assets section)	78,843	79,856
Deposits and other assets (other assets section)	8,791	6,808
Accrued risk reserves (current liability section)	26,825	24,325
Accrued risk reserves (non-current liability section)	79,393	86,232
Deferred income taxes (other assets section)	18,700	18,164
Deferred income taxes (current liabilities section)	35,506	24,790
Scenario, Previously Reported [Member]
Restricted cash and cash equivalents (current assets section)		13,929
Restricted marketable securities (current assets section)		142,003
Accounts receivable (current assets section)		85,511
Deposits and other assets (other assets section)		1,153
Accrued risk reserves (current liability section)		110,557
Deferred income taxes (other assets section)		14,531
Deferred income taxes (current liabilities section)		21,157
Restatement Adjustment [Member]
Restricted cash and cash equivalents (current assets section)		(3,631)
Restricted cash and cash equivalents (other assets section)		3,631
Restricted marketable securities (current assets section)		(127,976)
Restricted marketable securities (other assets section)		127,976
Accounts receivable (current assets section)		(5,655)
Deposits and other assets (other assets section)		5,655
Accrued risk reserves (current liability section)		(86,232)
Accrued risk reserves (non-current liability section)		86,232
Deferred income taxes (other assets section)		3,633
Deferred income taxes (current liabilities section)		$ 3,633

XML

Note 4 - Non-operating Income (Tables)

12 Months Ended

Dec. 31, 2014

Disclosure Text Block [Abstract]

Schedule of Other Nonoperating Income, by Component [Table Text Block]

	Year Ended December 31,
	2014		2013		2012
	(in thousands)
Equity in earnings of unconsolidated investments	$	6,675	$	14,188	$	13,616
Dividends and net realized gains on sales of securities		5,957		5,216		7,006
Interest income		4,550		5,237		4,623
Gain on the recovery of notes receivable		−		5,454		−
	$	17,182	$	30,095	$	25,245

XML

Note 15 - Contingencies and Guarantees (Details) (USD $)	12 Months Ended	36 Months Ended		48 Months Ended
	Dec. 31, 2014	Dec. 31, 2010	Dec. 31, 2007	Dec. 31, 2014	Dec. 31, 2013
Note 15 - Contingencies and Guarantees (Details) [Line Items]
Self Insurance Reserve	$ 106,218,000			$ 106,218,000	$ 110,557,000
Direct Business Coverage Statutory Limits	1,000,000
Malpractice Loss Contingency, Number of Claims	34			34
Annual Excess Coverage		9,000,000	7,500,000	4,000,000
Coverage Amount per Incident [Member]
Note 15 - Contingencies and Guarantees (Details) [Line Items]
Primary Insurance Coverage Amount Per Incident	1,000,000
Coverage Amount per Location [Member]
Note 15 - Contingencies and Guarantees (Details) [Line Items]
Primary Insurance Coverage Amount Per Location	$ 3,000,000
Caris [Member]
Note 15 - Contingencies and Guarantees (Details) [Line Items]
Equity Method Investment, Ownership Percentage	75.10%			75.10%

XML

Note 13 - Stock Repurchase Program (Details) (USD $)	0 Months Ended			12 Months Ended
	Aug. 11, 2014	Aug. 01, 2013	Feb. 19, 2013	Dec. 31, 2014	Dec. 31, 2013	Aug. 05, 2014	Aug. 01, 2013	Aug. 01, 2012
Disclosure Text Block Supplement [Abstract]
Stock Repurchase Program, Authorized Amount						$ 25,000,000	$ 25,000,000	$ 25,000,000
Stock Repurchased During Period, Shares (in Shares)	125,000
Stock Repurchased During Period, Value	6,995,000
Treasury Stock, Shares, Acquired (in Shares)		0	100,000
Treasury Stock, Value, Acquired, Cost Method			$ 4,700,000	$ 6,995,000	$ 4,700,000

XML

Note 7 - Investments in Marketable Securities (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Investments, Debt and Equity Securities [Abstract]
Available-for-sale Securities, Gross Unrealized Gain	$ 103,814,000	$ 75,702,000
Available-for-sale Securities, Gross Unrealized Loss	824,000	2,750,000
Proceeds from Sale and Maturity of Marketable Securities	48,786,000	81,389,000	62,649,000
Realized Investment Gains (Losses)	$ 379,000	$ 39,000	$ 1,640,000

XML

Note 14 - Stock-based Compensation (Details) - Summary of Outstanding Stock Options (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Summary of Outstanding Stock Options [Abstract]
Number of Shares - Options Outstanding	1,074,552	1,134,602	1,482,077
Weighted Average Exercise Price - Options Outstanding	$ 46.44	$ 46.75	$ 46.92
Options exercisable at December 31, 2014	158,573
Options exercisable at December 31, 2014	$ 48.06
Options exercisable at December 31, 2014	$ 2,344,000
Number of Shares - Options Granted	57,716	57,672	63,516
Weighted Average Exercise Price - Options Granted	$ 53.10	$ 47.95	$ 44.28
Number of Shares - Options Exercised	(157,590)	(19,722)	(295,371)
Weighted Average Exercise Price - Options Exercised	$ 45.97	$ 45.63	$ 45.41
Number of Shares, Cancelled	(20,000)	(98,000)	(115,620)
Weighted Average Exercise Price, Cancelled	$ 46.69	$ 51.11	$ 50.99
Number of Shares - Options Outstanding	954,678	1,074,552	1,134,602
Weighted Average Exercise Price - Options Outstanding	$ 46.92	$ 46.44	$ 46.75
Aggregate Intrinsic Value - Options Outstanding	$ 15,202,000

XML

Schedule II - Valuation and Qualifying Accounts (Details) - Summary of Valuation and Qualifying Accounts (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014		Dec. 31, 2013		Dec. 31, 2012
Allowance for Doubtful Accounts [Member]
Valuation Allowance [Line Items]
Balance	$ 4,972		$ 3,166		$ 3,713
Charged to Costs and Expenses	6,228		5,226		2,455
Charged to other Accounts	5,462	[1]	3,420	[1]	3,002	[1]
Balance	5,738		4,972		3,166
Accrued Risk Reserves [Member]
Valuation Allowance [Line Items]
Balance	110,557		110,331		98,732
Charged to Costs and Expenses	62,083		57,515		67,900
Charged to other Accounts	65,896		57,289		56,301
Balance	$ 106,744		$ 110,557		$ 110,331

[1] Amounts written off, net of recoveries

XML

Note 16 - Equity Method Investment in Caris HealthCare, L.P. (Details) - Summary of Financial Information of Caris (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Summary of Financial Information of Caris [Abstract]
Current assets	$ 20,922	$ 25,212	$ 30,731
Noncurrent assets	11,540	11,685	9,051
Liabilities	7,305	8,879	9,365
Partners’ capital	25,157	28,018	30,417
Revenue	51,441	58,918	59,422
Expenses	40,908	40,112	40,341
Net income	$ 10,533	$ 18,806	$ 19,081

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Note 14 - Stock-based Compensation (Details) - Options Outstanding (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Dec. 31, 2014
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options Outstanding (in Shares)		954,678
Weighted Average Exercise Price		$ 46.92
Weighted Average Remaining Contractual Life		1 year 6 months
Exercise Price Range 1 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options Outstanding (in Shares)		909,678
Lower Exercise Prices	$ 44.80
Upper Exercise Prices	$ 47.45
Weighted Average Exercise Price		$ 46.62
Weighted Average Remaining Contractual Life		1 year 109 days
Exercise Price Range 2 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options Outstanding (in Shares)		45,000
Lower Exercise Prices	$ 52.93
Weighted Average Exercise Price		$ 52.93
Weighted Average Remaining Contractual Life		4 years 109 days

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Note 12 - Income Taxes (Details) - Reconciliation of Income Tax Expense (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Reconciliation of Income Tax Expense [Abstract]
Tax provision at federal statutory rate	$ 29,818,000	$ 35,762,000	$ 32,718,000
Increase (decrease) in income taxes resulting from:
State, net of federal benefit	2,207,000	2,325,000	3,261,000
Nondeductible expenses	363,000	197,000	118,000
Insurance expense	27,000	35,000	39,000
Other, net	439,000	(258,000)	823,000
Unrecognized tax benefits	512,000	1,107,000	409,000
Expiration of statute of limitations	(1,542,000)	(1,605,000)	(3,187,000)
	2,006,000	1,801,000	1,463,000
Effective income tax expense	$ 31,824,000	$ 37,563,000	$ 34,181,000

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Note 17 - Variable Interest Entity

12 Months Ended

Dec. 31, 2014

Variable Interest Entity [Abstract]

Variable Interest Entity [Text Block]

Note 17 - Variable Interest Entity

Accounting guidance requires that a variable interest entity (“VIE”), according to the provisions of ASC Topic 810, Consolidation, must be consolidated by the primary beneficiary. The primary beneficiary is the party that has both the power to direct activities of a VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. We perform ongoing qualitative analysis to determine if we are the primary beneficiary of a VIE. At December 31, 2014, we are the primary beneficiary of one VIE and therefore consolidate that entity.

Springfield, Missouri Lease

In December 2010, we signed an operating agreement to lease Springfield Rehabilitation and Health Care Center, a 120-bed skilled nursing facility located in Springfield, Missouri. The terms of the lease include a ten year lease and include five additional, five year lease options as well as a purchase option. The operating lease agreement was established on the same date third party owners purchased the real estate of the 120-bed skilled nursing facility. The third party owners purchased the real estate for $4,500,000, which is the amount NHC loaned the owners to purchase the facility under the terms of the lease agreement and the mortgage note. The risks and rewards associated with the operations of the facility and any appreciation or deprecation in the value of the real estate of the facility is borne by NHC. At December 31, 2014 and 2013, the $4,500,000 mortgage note receivable from the third party owners is eliminated in our consolidated financial statements. Land and buildings and improvements of $4,500,000 have been recorded in our consolidated financial statements, as well as the operations of the facility since December 1, 2010, because we are the primary beneficiary in the relationship.

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Note 4 - Non-operating Income (Details) (Caris [Member])	Dec. 31, 2014
Caris [Member]
Note 4 - Non-operating Income (Details) [Line Items]
Equity Method Investment, Ownership Percentage	75.10%

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Note 16 - Equity Method Investment in Caris HealthCare, L.P. (Tables)

12 Months Ended

Dec. 31, 2014

Disclosure Text Block Supplement [Abstract]

Equity Method Investments [Table Text Block]

	December 31,
	2014		2013		2012
	( in thousands)
Current assets	$	20,922	$	25,212	$	30,731
Noncurrent assets		11,540		11,685		9,051
Liabilities		7,305		8,879		9,365
Partners’ capital		25,157		28,018		30,417
Revenue		51,441		58,918		59,422
Expenses		40,908		40,112		40,341
Net income		10,533		18,806		19,081

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Note 14 - Stock-based Compensation (Details) - Summary of Assumptions Used to Value Options Granted	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Summary of Assumptions Used to Value Options Granted [Abstract]
Risk-free interest rate	0.52%	0.25%	0.28%
Expected volatility	17.30%	31.30%	38.80%
Expected life, in years	2 years 73 days	2 years 36 days	2 years 36 days
Expected dividend yield	2.68%	2.81%	2.91%

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Note 8 - Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2014

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

	Fair Value Measurements Using
December 31, 2014	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	$	69,767	$	69,767	$	-	$	-
Restricted cash and cash equivalents		10,651		10,651		-		-
Marketable equity securities		132,535		132,535		-		-
Corporate debt securities		68,916		39,909		29,007		-
Commercial mortgage-backed securities		63,252		-		63,252		-
U.S. Treasury securities		14,728		14,728		-		-
State and municipal securities		11,377		2,216		9,161		-
Total financial assets	$	371,226	$	269,806	$	101,420	$	-

	Fair Value Measurements Using
December 31, 2013	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	$	81,705	$	81,705	$	-	$	-
Restricted cash and cash equivalents		13,929		13,929		-		-
Marketable equity securities		105,009		105,009		-		-
Corporate debt securities		65,006		-		65,006		-
Commercial mortgage-backed securities		45,856		-		45,856		-
U.S. Treasury securities		22,841		22,841		-		-
State and municipal securities		8,300		-		8,300		-
Total financial assets	$	342,646	$	223,484	$	119,162	$	-

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Note 5 - Long-term Leases (Details) (USD $)	1 Months Ended	12 Months Ended	0 Months Ended		12 Months Ended		1 Months Ended
	Dec. 31, 2010	Dec. 31, 2014	Dec. 26, 2012	Jan. 01, 2007	Dec. 31, 2013	Dec. 31, 2012	Sep. 30, 2013
Note 5 - Long-term Leases (Details) [Line Items]
Number of Additional Lease Options	5
Lessee Leasing Arrangements, Operating Leases, Term of Contract	10 years
Skilled Nursing Facility [Member] | Capital Lease [Member]
Note 5 - Long-term Leases (Details) [Line Items]
Number of Facilities Under Capitalized Lease		2
Capital Lease [Member]
Note 5 - Long-term Leases (Details) [Line Items]
Number of Facilities Under Capitalized Lease		3
Number of Capitalized Lease Agreements		3
Initial Lease Term		10 years
Number of Additional Lease Options		2
Term of Additional Lease Option		5 years
Capital Leases, Future Minimum Payments, Net Minimum Payments (in Dollars)		$ 5,200,000
Capital Lease Additional Percentage Rent Percentage		4.00%
Two Leases with NHI [Member]
Note 5 - Long-term Leases (Details) [Line Items]
Number of Skilled Nursing Centers Leased From NHI		35
Number of Assisted Living Centers Leased From NHI		7
Number of Independent Living Centers Leased From NHI		3
Number of Lease Agreements with NHI		2
Operating Leases, Rent Expense, Minimum Rentals (in Dollars)		34,200,000
Lease One with NHI [Member]
Note 5 - Long-term Leases (Details) [Line Items]
Number of Additional Lease Options			2	3
Term of Additional Lease Option				5 years
Number of Skilled Nursing Facilities Subleased		4
Number of Corporations Subleased To		4
Lessee Leasing Arrangements, Operating Leases, Term of Contract				15 years
Operating Leases, Year of Expiration			2026
Operating Leases, Rent Expense, Minimum Rentals (in Dollars)			30,750,000
Operating Lease Additional Percentage Rent Percentage			4.00%
Operating Leases, Percentage Rent Expense (in Dollars)		2,334,000			2,526,000	2,591,000
Lease 2 with NHI [Member]
Note 5 - Long-term Leases (Details) [Line Items]
Lessee Leasing Arrangements, Operating Leases, Term of Contract							15 years
Operating Leases, Rent Expense, Minimum Rentals (in Dollars)							3,450,000
Operating Lease Additional Percentage Rent Percentage							4.00%
Number of Skilled Nursing Centers							7
Facility Purchase Price (in Dollars)							$ 49,000,000,000

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Note 11 - Long-term Debt (Details) - Aggregate Maturities of Long-term Debt (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014
Aggregate Maturities of Long-term Debt [Abstract]
2018	$ 10,000
Total	$ 10,000

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Note 8 - Fair Value Measurements (Details) - Summary of Fair Value Measurements by Level (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Note 8 - Fair Value Measurements (Details) - Summary of Fair Value Measurements by Level [Line Items]
Cash and cash equivalents	$ 69,767	$ 81,705
Restricted cash and cash equivalents	10,651	13,929
Available for sale securities	290,808	247,012
Total financial assets	371,226	342,646
Equity Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Note 8 - Fair Value Measurements (Details) - Summary of Fair Value Measurements by Level [Line Items]
Available for sale securities	132,535	105,009
Equity Securities [Member]
Note 8 - Fair Value Measurements (Details) - Summary of Fair Value Measurements by Level [Line Items]
Available for sale securities	132,535	105,009
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Note 8 - Fair Value Measurements (Details) - Summary of Fair Value Measurements by Level [Line Items]
Available for sale securities	39,909
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Note 8 - Fair Value Measurements (Details) - Summary of Fair Value Measurements by Level [Line Items]
Available for sale securities	29,007	65,006
Corporate Debt Securities [Member]
Note 8 - Fair Value Measurements (Details) - Summary of Fair Value Measurements by Level [Line Items]
Available for sale securities	68,916	65,006
Commercial Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Note 8 - Fair Value Measurements (Details) - Summary of Fair Value Measurements by Level [Line Items]
Available for sale securities	63,252	45,856
Commercial Mortgage Backed Securities [Member]
Note 8 - Fair Value Measurements (Details) - Summary of Fair Value Measurements by Level [Line Items]
Available for sale securities	63,252	45,856
US Treasury Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Note 8 - Fair Value Measurements (Details) - Summary of Fair Value Measurements by Level [Line Items]
Available for sale securities	14,728	22,841
US Treasury Securities [Member]
Note 8 - Fair Value Measurements (Details) - Summary of Fair Value Measurements by Level [Line Items]
Available for sale securities	14,728	22,841
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Note 8 - Fair Value Measurements (Details) - Summary of Fair Value Measurements by Level [Line Items]
Available for sale securities	2,216
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Note 8 - Fair Value Measurements (Details) - Summary of Fair Value Measurements by Level [Line Items]
Available for sale securities	9,161	8,300
US States and Political Subdivisions Debt Securities [Member]
Note 8 - Fair Value Measurements (Details) - Summary of Fair Value Measurements by Level [Line Items]
Available for sale securities	11,377	8,300
Fair Value, Inputs, Level 1 [Member]
Note 8 - Fair Value Measurements (Details) - Summary of Fair Value Measurements by Level [Line Items]
Cash and cash equivalents	69,767	81,705
Restricted cash and cash equivalents	10,651	13,929
Total financial assets	269,806	223,484
Fair Value, Inputs, Level 2 [Member]
Note 8 - Fair Value Measurements (Details) - Summary of Fair Value Measurements by Level [Line Items]
Total financial assets	$ 101,420	$ 119,162

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Note 2 - Relationship with National Health Corporation (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
National [Member] | Common Stock [Member]
Note 2 - Relationship with National Health Corporation (Details) [Line Items]
Shares, Outstanding (in Shares)	1,046,147
Equity Owned by Related Parties	7.40%
National [Member] | Preferred Stock [Member]
Note 2 - Relationship with National Health Corporation (Details) [Line Items]
Shares, Outstanding (in Shares)	1,271,147
Equity Owned by Related Parties	11.70%
National [Member] | Loans Payable [Member]
Note 2 - Relationship with National Health Corporation (Details) [Line Items]
Notes Payable, Related Parties	$ 10,000,000
Debt Instrument, Basis Spread on Variable Rate	0.85%
National [Member]
Note 2 - Relationship with National Health Corporation (Details) [Line Items]
Deferred Revenue	2,000,000
Payroll and Related Services, Administrative Fee, Percentage	1.00%
Salaries, Wages and Officers' Compensation	510,249,000	453,560,000	426,934,000
Payment for Administrative Fees	4,395,000	3,693,000	3,862,000
Due from Related Parties	2,155,000	5,785,000
National HealthCare [Member] | Line of Credit [Member] | Prime Rate [Member] | National [Member]
Note 2 - Relationship with National Health Corporation (Details) [Line Items]
Debt Instrument, Basis Spread on Variable Rate	1.00%
Long-term Line of Credit	0
National HealthCare [Member] | Line of Credit [Member] | National [Member]
Note 2 - Relationship with National Health Corporation (Details) [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity	$ 2,000,000
National [Member]
Note 2 - Relationship with National Health Corporation (Details) [Line Items]
Number of Skilled Nursing Centers	5

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Note 1 - Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2014

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

Note 1 - Summary of Significant Accounting Policies

Nature of Operations

National HealthCare Corporation ("NHC" or "the Company") operates, manages or provides services to skilled nursing facilities and associated assisted living centers, retirement centers and home health care programs located in 10 Southeastern, Northeastern and Midwestern states in the United States. The most significant part of our business relates to skilled and intermediate nursing care in which setting we provide assisted living and retirement services, rehabilitative therapy services, and home health care. We also have a non-controlling ownership interest in a hospice care business that services NHC owned health care centers and others. The health care environment has continually undergone changes with regard to Federal and state reimbursement programs and other payor sources, compliance regulations, competition among other health care providers and patient care litigation issues. We continually monitor these industry developments as well as other factors that affect our business.

Principles of Consolidation and Basis of Presentation

The consolidated financial statements which are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) include our wholly owned and controlled subsidiaries and affiliates. Variable interest entities (“VIEs”) in which we have an interest have been consolidated when we have been identified as the primary beneficiary. Investments in ventures in which we have the ability to exercise significant influence but do not have control over are accounted for using the equity method. Equity method investments are initially recorded at cost and subsequently are adjusted for our share of the venture’s earnings or losses and cash distributions. Our most significant equity method investment is a 75.1% non-controlling ownership interest in Caris Healthcare, LP (“Caris”), a business that specializes in hospice care services. Investments in entities in which we lack the ability to exercise significant influence are included in the consolidated financial statements at cost unless there has been a decline in the market value of our investment that is deemed to be other than temporary. All material intercompany transactions and balances have been eliminated in consolidation.

During the second quarter of 2014, the Company revised the presentation of its accrued risk reserves to present only the amount expected to be settled within the next twelve month period as a current liability. Previously, the Company had presented the entire accrued risk reserve balance as a current liability. The Company also recorded a related reclassification to its restricted cash and cash equivalents and restricted marketable securities to reflect its previous and continued expectation to use these assets held by its wholly-owned limited purpose insurance companies to settle the accrued risk reserves. The impact of these adjustments also resulted in an impact on the classification of our deferred tax balances. Accordingly, the Company's accompanying consolidated balance sheet as of December 31, 2013 has been adjusted to reflect these reclassifications. The table below presents the affected balance sheet line items, the respective previously-reported balances, the reclassification amount and the adjusted balances as of December 31, 2013 (in thousands). The reclassifications were not material to the financial conditions, results of operations or liquidity for any periods presented.

	Previously Reported Balance		Reclassification Amount			As-Adjusted Balance
Restricted cash and cash equivalents (current assets section)	$	13,929	$	(3,631	)	$	10,298
Restricted cash and cash equivalents (other assets section)		-		3,631			3,631
Restricted marketable securities (current assets section)		142,003		(127,976	)		14,027
Restricted marketable securities (other assets section)		-		127,976			127,976
Accounts receivable (current assets section)		85,511		(5,655	)		79,856
Deposits and other assets (other assets section)		1,153		5,655			6,808
Accrued risk reserves (current liability section)		110,557		(86,232	)		24,325
Accrued risk reserves (non-current liability section)		-		86,232			86,232
Deferred income taxes (other assets section)		14,531		3,633			18,164
Deferred income taxes (current liabilities section)		21,157		3,633			24,790

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management 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.

Net Patient Revenues and Accounts Receivable

Revenues are derived from services rendered to patients for skilled and intermediate nursing, rehabilitation therapy, hospice, assisted living and retirement and home health care services.

Revenues are recorded when services are provided based on established rates adjusted to amounts expected to be received under governmental programs and other third-party contractual arrangements based on contractual terms. These revenues and receivables are stated at amounts estimated by management to be at their net realizable value.

For private pay patients in skilled nursing, assisted living and independent living facilities, the Company bills one month in advance 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. A portion of the episodic Medicare payments for home health services are also received in advance of the services being rendered. All advance billings are initially deferred and then are recognized as revenue when the services are performed.

We receive payments from the Medicare program under a prospective payment system ("PPS"). For skilled nursing services, Medicare pays a fixed fee per Medicare patient per day, based on the acuity level of the patient, to cover all post-hospital extended care routine service costs, ancillary costs and capital related costs.

Medicaid program payments for long-term care services are generally based on fixed per diem rates subject to program cost ceilings.

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 60 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. We are allowed to make a request for anticipated payment at the start of care equal to 60% of the expected payment for the initial episode. The remaining balance due is paid following the submission of the final claim at the end of the episode. Revenues are recognized when services are provided based on the number of days of service rendered in the episode. Deferred revenue is recorded for payments received for which the related services have not yet been provided.

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 in compliance with all applicable laws and regulations.

Medicare program revenues, as well as certain Medicaid program revenues, are subject to audit and retroactive adjustment by government representatives. The Medicare PPS methodology requires that patients be assigned to Resource Utilization Groups ("RUGs") based on the acuity level of the patient to determine the amount paid to us for patient services. The assignment of patients to the various RUG categories is subject to post-payment review by Medicare intermediaries or their agents. In our opinion, adequate provision has been made for any adjustments that may result from these reviews. Retroactive adjustments are estimated in the recording of revenues in the period the related services are rendered. Any differences between our original estimates of reimbursements and subsequent revisions are reflected in operations in the period in which the revisions are made often due to final determination or the period of payment no longer being subject to audit or review. We believe currently 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 $22,931,000 and $21,619,000 as of December 31, 2014 and 2013, respectively, for various Medicare and Medicaid current and prior year cost reports and claims reviews.

Approximately 65% of our net patient revenues are derived from participation in Medicare and Medicaid programs and other government programs.

Other Revenues

As discussed in Note 3 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 as earned over the related 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 long-term care center under contract. We generally record other revenues on the accrual basis based on the terms of our contractual arrangements. However, with respect to management and accounting services revenue from certain long-term care providers, including but not limited to National Health Corporation ("National") as discussed in Note 3, where collection is not reasonably assured based on insufficient historical collections and the lack of expected future collections, our policy is to recognize income only in the period in which collection is assured and the amounts at question are believed by management to be fixed and determined.

Certain management contracts, including, but not limited to contracts with National, subordinate the payment of management fees earned under those contracts to other expenditures of the long-term care center and to the availability of cash provided by the facility’s operations. Revenues from management services provided to the facilities that generate insufficient cash flow to pay the management fee, as prioritized under the contractual arrangement, are not recognized until such time as the amount of revenue earned is fixed or determinable and collectability is reasonably assured. This recognition policy could cause our reported revenues and net income from management services to vary significantly from period to period.

We recognize rental income based on the terms of our operating leases. Under certain of our leases, we receive contingent rent, which is based on the increase in revenues of a lessee over a base year. We recognize contingent rent annually or monthly, as applicable, when, based on the actual revenue of the lessee, receipt of such income is assured. We identify leased real estate properties as nonperforming if a required payment is not received within 30 days of the date it is due. Our policy related to rental income on non-performing leased real estate properties is to recognize rental income in the period when the income is received.

Provision for Doubtful Accounts

We evaluate the collectability of our accounts receivable based on factors such as payor type, historical collection trends and aging categories. We review these factors and determine an estimated provision for doubtful accounts. Historically, bad debts have resulted primarily from uncollectible private balances or from uncollectible coinsurance and deductibles. Receivables that are deemed to be uncollectible are written off against the allowance. The allowance for doubtful accounts balance is assessed on a quarterly basis, with changes in estimated losses being recorded in the consolidated statements of income in the period first identified.

The Company includes provisions for doubtful accounts in operating expenses in its consolidated statements of income. The provisions for doubtful accounts were $6,228,000, $5,226,000, and $2,455,000 for 2014, 2013 and 2012, respectively.

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, professional insurance and licensing fees. The primary facility costs include utilities and property insurance.

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, which were $36.2 million, $40.9 million, and $39.3 million for the years ended December 31, 2014, 2013, and 2012, respectively.

Cash and Cash Equivalents

Cash equivalents include highly liquid investments with an original maturity of three months or less when purchased.

Restricted Cash and Cash Equivalents and Restricted Marketable Securities

Restricted cash and cash equivalents and restricted marketable securities primarily represent assets that are held by our wholly-owned limited purpose insurance companies for workers' compensation and professional liability claims.

Investments in Marketable Securities and Restricted Marketable Securities

Our investments in marketable securities and restricted marketable securities include available for sale securities, which are recorded at fair value. Unrealized gains and losses on available for sale securities that are deemed temporary are recorded as a separate component of stockholders’ equity. If any adjustment to fair value reflects a significant decline in the value of the security, we consider all available evidence to evaluate the extent to which the decline is "other than temporary". Credit losses are identified when we do not expect to receive cash flows sufficient to recover the amortized cost basis of a security. In the event of a credit loss, only the amount associated with the credit loss is recognized in earnings, with the amount of loss relating to other factors recorded as a separate component of stockholders’ equity.

Inventories

Inventories consist generally of food and supplies and are valued at the lower of cost or market, with cost determined on a first-in, first-out (FIFO) basis.

Mortgage and Other Notes Receivable

In accordance with Accounting Standards Codification ("ASC") Topic 310, Receivables, NHC evaluates the carrying values of its mortgage and other notes receivable on an instrument by instrument basis. On a quarterly basis, NHC reviews its notes receivable for recoverability when events or circumstances, including the non-receipt of contractual principal and interest payments, significant deteriorations of the financial condition of the borrower and significant adverse changes in general economic conditions, indicate that the carrying amount of the note receivable may not be recoverable. If necessary, impairment is measured as the amount by which the carrying amount exceeds the discounted cash flows expected to be received under the note receivable or, if foreclosure is probable, the fair value of the collateral securing the note receivable.

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.

Expenditures for repairs and maintenance are charged against income as incurred. Betterments, which significantly extend the useful life, are capitalized. We remove the costs and related allowances for accumulated depreciation or amortization from the accounts for properties sold or retired, and any resulting gains or losses are included in income.

In accordance with ASC Topic 360, Property, Plant, and Equipment, we evaluate the recoverability of the carrying values of our properties on a property by property basis. We review our properties for recoverability when events or circumstances, including significant physical changes in the property, significant adverse changes in general economic conditions, and significant deteriorations of the underlying cash flows of the property, indicate that the carrying amount of the property may not be recoverable. The need to recognize impairment is based on estimated future undiscounted cash flows from a property over the remaining useful life compared to the carrying value of that property. If recognition of impairment is necessary, it is measured as the amount by which the carrying amount of the property exceeds the estimated fair value of the property.

Goodwill

The Company accounts for goodwill under ASC Topic 350, Intangibles - Goodwill and Other. Under the provisions of this guidance, goodwill and intangible assets with indefinite useful lives are not amortized but are subject to impairment tests based on their estimated fair value. Unamortized goodwill is continually reviewed for impairment in accordance with ASC. The Company performs its annual impairment assessment on the first day of the fourth quarter.

Accrued Risk Reserves

We are principally self-insured for risks related to employee health insurance and utilize wholly-owned limited purpose insurance companies for workers’ compensation and professional liability claims. Accrued risk reserves primarily represent the accrual for risks associated with employee health insurance, workers’ compensation and professional liability claims. The accrued risk reserves include a liability for unpaid reported claims and estimates for incurred but unreported claims. Our policy with respect to a significant portion of our workers’ compensation and professional and general liability claims is to use an actuary to estimate our exposure for claims obligation (for both asserted and unasserted claims). Our health insurance reserve is based on our known claims incurred and an estimate of incurred but unreported claims determined by our analysis of historical claims paid. We reassess our accrued risk reserves on a quarterly basis, with changes in estimated losses being recorded in the consolidated statements of income in the period first identified.

Other Current Liabilities

Other current liabilities primarily represent accruals for current federal and state income taxes, real estate taxes and other current liabilities.

Continuing Care Contracts and Refundable Entrance Fees   

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 contract provides 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. In each case, we amortize the non-refundable part of these fees into revenue over the actuarially 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 when residents relocate from our community and the apartment is re-occupied. Refundable entrance fees are classified as non-current liabilities and non-refundable entrance fees are classified as deferred revenue in the Company's consolidated balance sheets. The balances of refundable entrance fees as of December 31, 2014 and December 31, 2013 were $10,219,000 and $10,720,000, respectively.

Obligation to Provide Future Services

We annually estimate the present value of the net 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 net cost of future services exceeds the related anticipated revenues, a liability is recorded (obligation to provide future services) with a corresponding charge to income. At December 31, 2014 and 2013, we have recorded a future service obligation in the amounts of $3,927,000 and $3,689,000, respectively.

Other Noncurrent Liabilities

Other noncurrent liabilities include reserves primarily related to various uncertain income tax positions (see Note 12).

Deferred Revenue

Deferred revenue includes the deferred gain on the sale of assets to National (as discussed in Note 2) and entrance fees that have been and are currently being received upon reservation and occupancy in the independent living centers we operate. The non-refundable portion (10%) of the entrance fee is included in deferred revenue and is being recognized over the remaining life expectancies of the residents.

Income Taxes

We utilize ASC Topic 740, Income Taxes, which requires an asset and liability approach for financial accounting and reporting for income taxes. Under this guidance, deferred tax assets and liabilities are determined based upon differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax laws that will be in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. See Note 12 for further discussion of our accounting for income taxes.

Also under ASC Topic 740, Income Taxes, tax positions are evaluated for recognition using a more-likely-than-not threshold, and those tax positions requiring recognition are measured at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Liabilities for income tax matters include amounts for income taxes, applicable penalties, and interest thereon and are the result of the potential alternative interpretations of tax laws and the judgmental nature of the timing of recognition of taxable income.

Stock-Based Compensation

Stock-based awards granted include stock options, restricted stock units, and stock purchased under our employee stock purchase plan. Stock-based compensation cost is measured at the grant date, based on the fair value of the awards, and is recognized as expense over the requisite service period only for those equity awards expected to vest.

The fair value of the restricted stock units is determined based on the stock price on the date of grant. We estimated the fair value of stock options and stock purchased under our employee stock purchase plan using the Black-Scholes model. This model utilizes the estimated fair value of common stock and requires that, at the date of grant, we use the expected term of the grant, the expected volatility of the price of our common stock, risk-free interest rates and expected dividend yield of our common stock. The fair value is amortized on a straight-line basis over the requisite service periods of the awards.

Concentration of Credit Risks

Our credit risks primarily relate to cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, marketable securities, restricted marketable securities and notes receivable. Cash and cash equivalents are primarily held in bank accounts and overnight investments. Restricted cash and cash equivalents is primarily invested in commercial paper and certificates of deposit with financial institutions and other interest bearing accounts. Accounts receivable consist primarily of amounts due from patients (funded through Medicare, Medicaid, other contractual programs and through private payors) and from other health care companies for management, accounting and other services. We perform continual credit evaluations of our clients and maintain allowances for doubtful accounts on these accounts receivable. Marketable securities and restricted marketable securities are held primarily in accounts with brokerage institutions. Notes receivable relate primarily to secured loans with health care facilities (recorded as notes receivable in the consolidated balance sheets) as discussed in Note 10.

At any point in time we have funds in our operating accounts and restricted cash accounts that are with third party financial institutions. These balances in the U.S. may exceed the Federal Deposit Insurance Corporation (FDIC) insurance limits. While we monitor the cash balances in our operating accounts, these cash and restricted cash balances could be impacted if the underlying financial institutions fail or could be subject to other adverse conditions in the financial markets.

Our financial instruments, principally our notes receivable, are subject to the possibility of loss of the carrying values as a result of the failure of other parties to perform according to their contractual obligations. We obtain various collateral and other protective rights, and continually monitor these rights in order to reduce such possibilities of loss. We evaluate the need to provide reserves for potential losses on our financial instruments based on management's periodic review of the portfolio on an instrument by instrument basis. See Note 10 for additional information on the notes receivable.

Comprehensive Income

ASC Topic 220, Comprehensive Income, requires that changes in the amounts of certain items, including unrealized gains and losses on marketable securities, be shown in the consolidated financial statements as comprehensive income. We report comprehensive income in the consolidated statements of comprehensive income and also in the consolidated statements of stockholders’ equity.

Segment Disclosures

ASC Topic 280, Segment Reporting, establishes standards for the way that public business enterprises report information about operating segments in annual and interim financial reports issued to stockholders. Management believes that substantially all of our operations are part of the long-term health care industry segment. See Note 3 for a detail of other revenues provided within the long-term health care industry segment. Information about the costs and expenses associated with each of the components of other revenues is not separately identifiable.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers”. This update is the result of a collaborative effort by the FASB and the International Accounting Standards Board to simplify revenue recognition guidance, remove inconsistencies in the application of revenue recognition, and to improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. The FASB is amending the Accounting Standards Codification and creating a new Topic 606, “Revenue from Contracts with Customers”. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For a public entity, the amendments in this update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The Company is currently evaluating the impact of this guidance on our consolidated financial statements and control framework.

In April 2014, the FASB issued ASU No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” This standard changes the requirements for reporting discontinued operations by raising the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The standard limits discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. This standard is effective for the Company on a prospective basis for annual periods beginning on January 1, 2015 and interim periods within that year. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued. When adopted, the Company does not expect this standard to have a material impact on our consolidated financial statements.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current financial statement presentation, with no effect on the Company’s consolidated financial position, results of operations, or cash flows.

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Note 9 - Property and Equipment (Details) (USD $)	Dec. 31, 2014	Dec. 31, 2013
Note 9 - Property and Equipment (Details) [Line Items]
Construction in Progress, Gross	$ 35,687,000	$ 21,618,000
Obligation to Complete [Member]
Note 9 - Property and Equipment (Details) [Line Items]
Construction in Progress, Gross	$ 25,541,000

XML

Note 20 - Selected Quarterly Financial Data (Tables)

12 Months Ended

Dec. 31, 2014

Quarterly Financial Information Disclosure [Abstract]

Schedule of Quarterly Financial Information [Table Text Block]

2014	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Net Operating Revenues	$	210,531	$	216,555	$	218,223	$	226,374
Income Before Non-Operating Income		16,988		16,083		14,736		20,204
Non-Operating Income		4,572		4,281		3,937		4,392
Net Income		13,229		12,511		12,829		14,800
Preferred Dividends		2,168		2,167		2,167		2,168
Net Income Available to Common Stockholders		11,061		10,344		10,662		12,632
Basic Earnings Per Share		0.80		0.75		0.77		0.92
Diluted Earnings Per Share		0.78		0.72		0.75		0.88

2013	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Net Operating Revenues	$	194,378	$	192,011	$	195,772	$	206,796
Income Before Non-Operating Income		15,996		17,001		19,265		19,819
Non-Operating Income		6,618		6,632		11,171		5,674
Net Income		13,805		14,342		19,877		16,589
Preferred Dividends		2,168		2,168		2,167		2,168
Net Income Available to Common Stockholders		11,637		12,174		17,710		14,421
Basic Earnings Per Share		0.84		0.88		1.28		1.04
Diluted Earnings Per Share		0.82		0.86		1.19		0.99

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Schedule II - Valuation and Qualifying Accounts

12 Months Ended

Dec. 31, 2014

Valuation and Qualifying Accounts [Abstract]

Schedule of Valuation and Qualifying Accounts Disclosure [Text Block]

NATIONAL HEALTHCARE CORPORATION

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012

(in thousands)

Column A	Column B		Column C				Column D			Column E
			Additions
Description	Balance- Beginning of Period		Charged to Costs and Expenses		Charged to other Accounts		Deductions			Balance- End of Period
For the year ended December 31, 2012
Allowance for doubtful accounts	$	3,713	$	2,455	$	−	$	3,002	(1)	$	3,166
Accrued risk reserves	$	98,732	$	67,900	$	−	$	56,301		$	110,331
For the year ended December 31, 2013
Allowance for doubtful accounts	$	3,166	$	5,226	$	−	$	3,420	(1)	$	4,972
Accrued risk reserves	$	110,331	$	57,515	$	−	$	57,289		$	110,557
For the year ended December 31, 2014
Allowance for doubtful accounts	$	4,972	$	6,228	$	−	$	5,462	(1)	$	5,738
Accrued risk reserves	$	110,557	$	62,083	$	−	$	65,896		$	106,744

⁽¹⁾ Amounts written off, net of recoveries

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Note 20 - Selected Quarterly Financial Data

12 Months Ended

Dec. 31, 2014

Quarterly Financial Information Disclosure [Abstract]

Quarterly Financial Information [Text Block]

Note 20 - Selected Quarterly Financial Data

(unaudited, in thousands, except per share amounts)

The following table sets forth selected quarterly financial data for the two most recent fiscal years.

2014	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Net Operating Revenues	$	210,531	$	216,555	$	218,223	$	226,374
Income Before Non-Operating Income		16,988		16,083		14,736		20,204
Non-Operating Income		4,572		4,281		3,937		4,392
Net Income		13,229		12,511		12,829		14,800
Preferred Dividends		2,168		2,167		2,167		2,168
Net Income Available to Common Stockholders		11,061		10,344		10,662		12,632
Basic Earnings Per Share		0.80		0.75		0.77		0.92
Diluted Earnings Per Share		0.78		0.72		0.75		0.88

2013	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Net Operating Revenues	$	194,378	$	192,011	$	195,772	$	206,796
Income Before Non-Operating Income		15,996		17,001		19,265		19,819
Non-Operating Income		6,618		6,632		11,171		5,674
Net Income		13,805		14,342		19,877		16,589
Preferred Dividends		2,168		2,168		2,167		2,168
Net Income Available to Common Stockholders		11,637		12,174		17,710		14,421
Basic Earnings Per Share		0.84		0.88		1.28		1.04
Diluted Earnings Per Share		0.82		0.86		1.19		0.99

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Note 6 - Earnings Per Share (Details) - Summary of Earnings and Weighted Average Number of Common Shares Used in Calculation of Basic and Diluted Earnings Per Share (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Note 6 - Earnings Per Share (Details) - Summary of Earnings and Weighted Average Number of Common Shares Used in Calculation of Basic and Diluted Earnings Per Share [Line Items]
Weighted average common shares outstanding, basic									13,816,095	13,829,626	13,852,709
Dilutive effect of contingent issuable stock									328,669	232,118	109,233
Convertible preferred stock										2,623,228	2,623,329
Assumed average common shares outstanding									14,222,133	16,698,803	16,598,816
Net income (in Dollars)	$ 14,800	$ 12,829	$ 12,511	$ 13,229	$ 16,589	$ 19,877	$ 14,342	$ 13,805	$ 53,369	$ 64,613	$ 59,300
Dividends to preferred stockholders (in Dollars)									8,670	8,671	8,671
Net income available to common stockholders (in Dollars)	12,632	10,662	10,344	11,061	14,421	17,710	12,174	11,637	44,699	55,942	50,629
Add dilutive preferred stock dividends for effect of assumed conversion of preferred stock (in Dollars)										8,671	8,671
Net income for diluted earnings per common share (in Dollars)									$ 44,699	$ 64,613	$ 59,300
Earnings per common share, diluted (in Dollars per share)	$ 0.88	$ 0.75	$ 0.72	$ 0.78	$ 0.99	$ 1.19	$ 0.86	$ 0.82	$ 3.14	$ 3.87	$ 3.57
Earnings per common share, basic (in Dollars per share)	$ 0.92	$ 0.77	$ 0.75	$ 0.80	$ 1.04	$ 1.28	$ 0.88	$ 0.84	$ 3.24	$ 4.05	$ 3.65
Equity Option [Member]
Note 6 - Earnings Per Share (Details) - Summary of Earnings and Weighted Average Number of Common Shares Used in Calculation of Basic and Diluted Earnings Per Share [Line Items]
Dilutive effect of securities									73,678	9,091	8,019
Restricted Stock [Member]
Note 6 - Earnings Per Share (Details) - Summary of Earnings and Weighted Average Number of Common Shares Used in Calculation of Basic and Diluted Earnings Per Share [Line Items]
Dilutive effect of securities									3,691	4,740	5,526

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Schedule II - Valuation and Qualifying Accounts (Tables)

12 Months Ended

Dec. 31, 2014

Valuation and Qualifying Accounts [Abstract]

Summary of Valuation Allowance [Table Text Block]

Column A	Column B		Column C				Column D			Column E
			Additions
Description	Balance- Beginning of Period		Charged to Costs and Expenses		Charged to other Accounts		Deductions			Balance- End of Period
For the year ended December 31, 2012
Allowance for doubtful accounts	$	3,713	$	2,455	$	−	$	3,002	(1)	$	3,166
Accrued risk reserves	$	98,732	$	67,900	$	−	$	56,301		$	110,331
For the year ended December 31, 2013
Allowance for doubtful accounts	$	3,166	$	5,226	$	−	$	3,420	(1)	$	4,972
Accrued risk reserves	$	110,331	$	57,515	$	−	$	57,289		$	110,557
For the year ended December 31, 2014
Allowance for doubtful accounts	$	4,972	$	6,228	$	−	$	5,462	(1)	$	5,738
Accrued risk reserves	$	110,557	$	62,083	$	−	$	65,896		$	106,744

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Accounting Policies, by Policy (Policies)

12 Months Ended

Dec. 31, 2014

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Principles of Consolidation and Basis of Presentation

The consolidated financial statements which are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) include our wholly owned and controlled subsidiaries and affiliates. Variable interest entities (“VIEs”) in which we have an interest have been consolidated when we have been identified as the primary beneficiary. Investments in ventures in which we have the ability to exercise significant influence but do not have control over are accounted for using the equity method. Equity method investments are initially recorded at cost and subsequently are adjusted for our share of the venture’s earnings or losses and cash distributions. Our most significant equity method investment is a 75.1% non-controlling ownership interest in Caris Healthcare, LP (“Caris”), a business that specializes in hospice care services. Investments in entities in which we lack the ability to exercise significant influence are included in the consolidated financial statements at cost unless there has been a decline in the market value of our investment that is deemed to be other than temporary. All material intercompany transactions and balances have been eliminated in consolidation.

During the second quarter of 2014, the Company revised the presentation of its accrued risk reserves to present only the amount expected to be settled within the next twelve month period as a current liability. Previously, the Company had presented the entire accrued risk reserve balance as a current liability. The Company also recorded a related reclassification to its restricted cash and cash equivalents and restricted marketable securities to reflect its previous and continued expectation to use these assets held by its wholly-owned limited purpose insurance companies to settle the accrued risk reserves. The impact of these adjustments also resulted in an impact on the classification of our deferred tax balances. Accordingly, the Company's accompanying consolidated balance sheet as of December 31, 2013 has been adjusted to reflect these reclassifications. The table below presents the affected balance sheet line items, the respective previously-reported balances, the reclassification amount and the adjusted balances as of December 31, 2013 (in thousands). The reclassifications were not material to the financial conditions, results of operations or liquidity for any periods presented.

	Previously Reported Balance		Reclassification Amount			As-Adjusted Balance
Restricted cash and cash equivalents (current assets section)	$	13,929	$	(3,631	)	$	10,298
Restricted cash and cash equivalents (other assets section)		-		3,631			3,631
Restricted marketable securities (current assets section)		142,003		(127,976	)		14,027
Restricted marketable securities (other assets section)		-		127,976			127,976
Accounts receivable (current assets section)		85,511		(5,655	)		79,856
Deposits and other assets (other assets section)		1,153		5,655			6,808
Accrued risk reserves (current liability section)		110,557		(86,232	)		24,325
Accrued risk reserves (non-current liability section)		-		86,232			86,232
Deferred income taxes (other assets section)		14,531		3,633			18,164
Deferred income taxes (current liabilities section)		21,157		3,633			24,790

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management 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.

Revenue Recognition, Policy [Policy Text Block]

Net Patient Revenues and Accounts Receivable

Revenues are derived from services rendered to patients for skilled and intermediate nursing, rehabilitation therapy, hospice, assisted living and retirement and home health care services.

Revenues are recorded when services are provided based on established rates adjusted to amounts expected to be received under governmental programs and other third-party contractual arrangements based on contractual terms. These revenues and receivables are stated at amounts estimated by management to be at their net realizable value.

For private pay patients in skilled nursing, assisted living and independent living facilities, the Company bills one month in advance 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. A portion of the episodic Medicare payments for home health services are also received in advance of the services being rendered. All advance billings are initially deferred and then are recognized as revenue when the services are performed.

We receive payments from the Medicare program under a prospective payment system ("PPS"). For skilled nursing services, Medicare pays a fixed fee per Medicare patient per day, based on the acuity level of the patient, to cover all post-hospital extended care routine service costs, ancillary costs and capital related costs.

Medicaid program payments for long-term care services are generally based on fixed per diem rates subject to program cost ceilings.

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 60 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. We are allowed to make a request for anticipated payment at the start of care equal to 60% of the expected payment for the initial episode. The remaining balance due is paid following the submission of the final claim at the end of the episode. Revenues are recognized when services are provided based on the number of days of service rendered in the episode. Deferred revenue is recorded for payments received for which the related services have not yet been provided.

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 in compliance with all applicable laws and regulations.

Medicare program revenues, as well as certain Medicaid program revenues, are subject to audit and retroactive adjustment by government representatives. The Medicare PPS methodology requires that patients be assigned to Resource Utilization Groups ("RUGs") based on the acuity level of the patient to determine the amount paid to us for patient services. The assignment of patients to the various RUG categories is subject to post-payment review by Medicare intermediaries or their agents. In our opinion, adequate provision has been made for any adjustments that may result from these reviews. Retroactive adjustments are estimated in the recording of revenues in the period the related services are rendered. Any differences between our original estimates of reimbursements and subsequent revisions are reflected in operations in the period in which the revisions are made often due to final determination or the period of payment no longer being subject to audit or review. We believe currently 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 $22,931,000 and $21,619,000 as of December 31, 2014 and 2013, respectively, for various Medicare and Medicaid current and prior year cost reports and claims reviews.

Approximately 65% of our net patient revenues are derived from participation in Medicare and Medicaid programs and other government programs.

Revenue Recognition for Alternative Revenue Programs, Policy [Policy Text Block]

Other Revenues

As discussed in Note 3 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 as earned over the related 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 long-term care center under contract. We generally record other revenues on the accrual basis based on the terms of our contractual arrangements. However, with respect to management and accounting services revenue from certain long-term care providers, including but not limited to National Health Corporation ("National") as discussed in Note 3, where collection is not reasonably assured based on insufficient historical collections and the lack of expected future collections, our policy is to recognize income only in the period in which collection is assured and the amounts at question are believed by management to be fixed and determined.

Certain management contracts, including, but not limited to contracts with National, subordinate the payment of management fees earned under those contracts to other expenditures of the long-term care center and to the availability of cash provided by the facility’s operations. Revenues from management services provided to the facilities that generate insufficient cash flow to pay the management fee, as prioritized under the contractual arrangement, are not recognized until such time as the amount of revenue earned is fixed or determinable and collectability is reasonably assured. This recognition policy could cause our reported revenues and net income from management services to vary significantly from period to period.

We recognize rental income based on the terms of our operating leases. Under certain of our leases, we receive contingent rent, which is based on the increase in revenues of a lessee over a base year. We recognize contingent rent annually or monthly, as applicable, when, based on the actual revenue of the lessee, receipt of such income is assured. We identify leased real estate properties as nonperforming if a required payment is not received within 30 days of the date it is due. Our policy related to rental income on non-performing leased real estate properties is to recognize rental income in the period when the income is received.

Premiums Receivable, Allowance for Doubtful Accounts, Estimation Methodology, Policy [Policy Text Block]

Provision for Doubtful Accounts

We evaluate the collectability of our accounts receivable based on factors such as payor type, historical collection trends and aging categories. We review these factors and determine an estimated provision for doubtful accounts. Historically, bad debts have resulted primarily from uncollectible private balances or from uncollectible coinsurance and deductibles. Receivables that are deemed to be uncollectible are written off against the allowance. The allowance for doubtful accounts balance is assessed on a quarterly basis, with changes in estimated losses being recorded in the consolidated statements of income in the period first identified.

The Company includes provisions for doubtful accounts in operating expenses in its consolidated statements of income. The provisions for doubtful accounts were $6,228,000, $5,226,000, and $2,455,000 for 2014, 2013 and 2012, respectively.

Other Operating Expenses, Policy [Policy Text Block]

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, professional insurance and licensing fees. The primary facility costs include utilities and property insurance.

Selling, General and Administrative Expenses, Policy [Policy Text Block]

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, which were $36.2 million, $40.9 million, and $39.3 million for the years ended December 31, 2014, 2013, and 2012, respectively.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents

Cash equivalents include highly liquid investments with an original maturity of three months or less when purchased.

Cash and Restricted Cash and Cash Equivalents and Restricted Marketable Securities [Policy Text Block]

Restricted Cash and Cash Equivalents and Restricted Marketable Securities

Restricted cash and cash equivalents and restricted marketable securities primarily represent assets that are held by our wholly-owned limited purpose insurance companies for workers' compensation and professional liability claims.

Marketable Securities, Policy [Policy Text Block]

Investments in Marketable Securities and Restricted Marketable Securities

Our investments in marketable securities and restricted marketable securities include available for sale securities, which are recorded at fair value. Unrealized gains and losses on available for sale securities that are deemed temporary are recorded as a separate component of stockholders’ equity. If any adjustment to fair value reflects a significant decline in the value of the security, we consider all available evidence to evaluate the extent to which the decline is "other than temporary". Credit losses are identified when we do not expect to receive cash flows sufficient to recover the amortized cost basis of a security. In the event of a credit loss, only the amount associated with the credit loss is recognized in earnings, with the amount of loss relating to other factors recorded as a separate component of stockholders’ equity.

Inventory, Policy [Policy Text Block]

Inventories

Inventories consist generally of food and supplies and are valued at the lower of cost or market, with cost determined on a first-in, first-out (FIFO) basis.

Finance, Loans and Leases Receivable, Policy [Policy Text Block]

Mortgage and Other Notes Receivable

In accordance with Accounting Standards Codification ("ASC") Topic 310, Receivables, NHC evaluates the carrying values of its mortgage and other notes receivable on an instrument by instrument basis. On a quarterly basis, NHC reviews its notes receivable for recoverability when events or circumstances, including the non-receipt of contractual principal and interest payments, significant deteriorations of the financial condition of the borrower and significant adverse changes in general economic conditions, indicate that the carrying amount of the note receivable may not be recoverable. If necessary, impairment is measured as the amount by which the carrying amount exceeds the discounted cash flows expected to be received under the note receivable or, if foreclosure is probable, the fair value of the collateral securing the note receivable.

Property, Plant and Equipment, Policy [Policy Text Block]

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.

Expenditures for repairs and maintenance are charged against income as incurred. Betterments, which significantly extend the useful life, are capitalized. We remove the costs and related allowances for accumulated depreciation or amortization from the accounts for properties sold or retired, and any resulting gains or losses are included in income.

In accordance with ASC Topic 360, Property, Plant, and Equipment, we evaluate the recoverability of the carrying values of our properties on a property by property basis. We review our properties for recoverability when events or circumstances, including significant physical changes in the property, significant adverse changes in general economic conditions, and significant deteriorations of the underlying cash flows of the property, indicate that the carrying amount of the property may not be recoverable. The need to recognize impairment is based on estimated future undiscounted cash flows from a property over the remaining useful life compared to the carrying value of that property. If recognition of impairment is necessary, it is measured as the amount by which the carrying amount of the property exceeds the estimated fair value of the property.

Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block]

Goodwill

The Company accounts for goodwill under ASC Topic 350, Intangibles - Goodwill and Other. Under the provisions of this guidance, goodwill and intangible assets with indefinite useful lives are not amortized but are subject to impairment tests based on their estimated fair value. Unamortized goodwill is continually reviewed for impairment in accordance with ASC. The Company performs its annual impairment assessment on the first day of the fourth quarter.

Liability Reserve Estimate, Policy [Policy Text Block]

Accrued Risk Reserves

We are principally self-insured for risks related to employee health insurance and utilize wholly-owned limited purpose insurance companies for workers’ compensation and professional liability claims. Accrued risk reserves primarily represent the accrual for risks associated with employee health insurance, workers’ compensation and professional liability claims. The accrued risk reserves include a liability for unpaid reported claims and estimates for incurred but unreported claims. Our policy with respect to a significant portion of our workers’ compensation and professional and general liability claims is to use an actuary to estimate our exposure for claims obligation (for both asserted and unasserted claims). Our health insurance reserve is based on our known claims incurred and an estimate of incurred but unreported claims determined by our analysis of historical claims paid. We reassess our accrued risk reserves on a quarterly basis, with changes in estimated losses being recorded in the consolidated statements of income in the period first identified.

Other Current Liabilities, Policy [Policy Text Block]

Other Current Liabilities

Other current liabilities primarily represent accruals for current federal and state income taxes, real estate taxes and other current liabilities.

Continuing Care Retirement Communities, Advance Fees, Policy [Policy Text Block]

Continuing Care Contracts and Refundable Entrance Fees   

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 contract provides 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. In each case, we amortize the non-refundable part of these fees into revenue over the actuarially 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 when residents relocate from our community and the apartment is re-occupied. Refundable entrance fees are classified as non-current liabilities and non-refundable entrance fees are classified as deferred revenue in the Company's consolidated balance sheets. The balances of refundable entrance fees as of December 31, 2014 and December 31, 2013 were $10,219,000 and $10,720,000, respectively.

Obligation to Provide Future Services

We annually estimate the present value of the net 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 net cost of future services exceeds the related anticipated revenues, a liability is recorded (obligation to provide future services) with a corresponding charge to income. At December 31, 2014 and 2013, we have recorded a future service obligation in the amounts of $3,927,000 and $3,689,000, respectively.

Income Tax Uncertainties, Policy [Policy Text Block]

Other Noncurrent Liabilities

Other noncurrent liabilities include reserves primarily related to various uncertain income tax positions (see Note 12).

Revenue Recognition, Deferred Revenue [Policy Text Block]

Deferred Revenue

Deferred revenue includes the deferred gain on the sale of assets to National (as discussed in Note 2) and entrance fees that have been and are currently being received upon reservation and occupancy in the independent living centers we operate. The non-refundable portion (10%) of the entrance fee is included in deferred revenue and is being recognized over the remaining life expectancies of the residents.

Income Tax, Policy [Policy Text Block]

Income Taxes

We utilize ASC Topic 740, Income Taxes, which requires an asset and liability approach for financial accounting and reporting for income taxes. Under this guidance, deferred tax assets and liabilities are determined based upon differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax laws that will be in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. See Note 12 for further discussion of our accounting for income taxes.

Also under ASC Topic 740, Income Taxes, tax positions are evaluated for recognition using a more-likely-than-not threshold, and those tax positions requiring recognition are measured at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Liabilities for income tax matters include amounts for income taxes, applicable penalties, and interest thereon and are the result of the potential alternative interpretations of tax laws and the judgmental nature of the timing of recognition of taxable income.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-Based Compensation

Stock-based awards granted include stock options, restricted stock units, and stock purchased under our employee stock purchase plan. Stock-based compensation cost is measured at the grant date, based on the fair value of the awards, and is recognized as expense over the requisite service period only for those equity awards expected to vest.

The fair value of the restricted stock units is determined based on the stock price on the date of grant. We estimated the fair value of stock options and stock purchased under our employee stock purchase plan using the Black-Scholes model. This model utilizes the estimated fair value of common stock and requires that, at the date of grant, we use the expected term of the grant, the expected volatility of the price of our common stock, risk-free interest rates and expected dividend yield of our common stock. The fair value is amortized on a straight-line basis over the requisite service periods of the awards.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Concentration of Credit Risks

Our credit risks primarily relate to cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, marketable securities, restricted marketable securities and notes receivable. Cash and cash equivalents are primarily held in bank accounts and overnight investments. Restricted cash and cash equivalents is primarily invested in commercial paper and certificates of deposit with financial institutions and other interest bearing accounts. Accounts receivable consist primarily of amounts due from patients (funded through Medicare, Medicaid, other contractual programs and through private payors) and from other health care companies for management, accounting and other services. We perform continual credit evaluations of our clients and maintain allowances for doubtful accounts on these accounts receivable. Marketable securities and restricted marketable securities are held primarily in accounts with brokerage institutions. Notes receivable relate primarily to secured loans with health care facilities (recorded as notes receivable in the consolidated balance sheets) as discussed in Note 10.

At any point in time we have funds in our operating accounts and restricted cash accounts that are with third party financial institutions. These balances in the U.S. may exceed the Federal Deposit Insurance Corporation (FDIC) insurance limits. While we monitor the cash balances in our operating accounts, these cash and restricted cash balances could be impacted if the underlying financial institutions fail or could be subject to other adverse conditions in the financial markets.

Our financial instruments, principally our notes receivable, are subject to the possibility of loss of the carrying values as a result of the failure of other parties to perform according to their contractual obligations. We obtain various collateral and other protective rights, and continually monitor these rights in order to reduce such possibilities of loss. We evaluate the need to provide reserves for potential losses on our financial instruments based on management's periodic review of the portfolio on an instrument by instrument basis. See Note 10 for additional information on the notes receivable.

Comprehensive Income, Policy [Policy Text Block]

Comprehensive Income

ASC Topic 220, Comprehensive Income, requires that changes in the amounts of certain items, including unrealized gains and losses on marketable securities, be shown in the consolidated financial statements as comprehensive income. We report comprehensive income in the consolidated statements of comprehensive income and also in the consolidated statements of stockholders’ equity.

Segment Reporting, Policy [Policy Text Block]

Segment Disclosures

ASC Topic 280, Segment Reporting, establishes standards for the way that public business enterprises report information about operating segments in annual and interim financial reports issued to stockholders. Management believes that substantially all of our operations are part of the long-term health care industry segment. See Note 3 for a detail of other revenues provided within the long-term health care industry segment. Information about the costs and expenses associated with each of the components of other revenues is not separately identifiable.

New Accounting Pronouncements, Policy [Policy Text Block]

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 “Revenue from Contracts with Customers”. This update is the result of a collaborative effort by the FASB and the International Accounting Standards Board to simplify revenue recognition guidance, remove inconsistencies in the application of revenue recognition, and to improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. The FASB is amending the Accounting Standards Codification and creating a new Topic 606, “Revenue from Contracts with Customers”. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For a public entity, the amendments in this update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The Company is currently evaluating the impact of this guidance on our consolidated financial statements and control framework.

In April 2014, the FASB issued ASU No. 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” This standard changes the requirements for reporting discontinued operations by raising the threshold for a disposal to qualify as a discontinued operation and requires new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. The standard limits discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. This standard is effective for the Company on a prospective basis for annual periods beginning on January 1, 2015 and interim periods within that year. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued. When adopted, the Company does not expect this standard to have a material impact on our consolidated financial statements.

Reclassification, Policy [Policy Text Block]

Reclassifications

Certain prior period amounts have been reclassified to conform to the current financial statement presentation, with no effect on the Company’s consolidated financial position, results of operations, or cash flows.

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Note 1 - Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2014

Accounting Policies [Abstract]

Schedule of Error Corrections and Prior Period Adjustments [Table Text Block]

	Previously Reported Balance		Reclassification Amount			As-Adjusted Balance
Restricted cash and cash equivalents (current assets section)	$	13,929	$	(3,631	)	$	10,298
Restricted cash and cash equivalents (other assets section)		-		3,631			3,631
Restricted marketable securities (current assets section)		142,003		(127,976	)		14,027
Restricted marketable securities (other assets section)		-		127,976			127,976
Accounts receivable (current assets section)		85,511		(5,655	)		79,856
Deposits and other assets (other assets section)		1,153		5,655			6,808
Accrued risk reserves (current liability section)		110,557		(86,232	)		24,325
Accrued risk reserves (non-current liability section)		-		86,232			86,232
Deferred income taxes (other assets section)		14,531		3,633			18,164
Deferred income taxes (current liabilities section)		21,157		3,633			24,790

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Consolidated Statements of Stockholders’ Equity (Parentheticals) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Dividends declared to common stockholders per share	$ 1.34	$ 1.26	$ 2.20
Preferred Stock [Member]
Dividends declared to preferred stockholders per share	$ 0.80	$ 0.80	$ 0.80
Common Stock [Member]
Dividends declared to common stockholders per share	$ 1.34	$ 1.26	$ 2.20

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Note 3 - Other Revenues (Tables)

12 Months Ended

Dec. 31, 2014

Other Revenues [Abstract]

Schedule of Other Revenues [Table Text Block]

	Year Ended December 31,
	2014		2013		2012
	(in thousands)
Insurance services	$	7,215	$	15,143	$	15,671
Management and accounting service fees		15,184		18,160		20,042
Rental income		19,123		19,132		19,314
Other		874		685		589
	$	42,396	$	53,120	$	55,616

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Note 18 - Series A Convertible Preferred Stock (Details) (USD $)	1 Months Ended
	Oct. 31, 2007	Dec. 31, 2014	Dec. 31, 2013
Note 18 - Series A Convertible Preferred Stock (Details) [Line Items]
Preferred Stock, Value, Issued (in Dollars)		$ 170,494,000	$ 170,510,000
Preferred Stock, Liquidation Preference Per Share		$ 15.75	$ 15.75
Convertible Preferred Stock [Member]
Note 18 - Series A Convertible Preferred Stock (Details) [Line Items]
Preferred Stock, Value, Issued (in Dollars)	$ 170,555,000
Preferred Stock, Liquidation Preference Per Share	$ 15.75
Preferred Stock, Dividend Rate, Per-Dollar-Amount	$ 0.80
Preferred Stock Conversion Price	$ 65.07
Convertible Preferred Stock, Shares Issued upon Conversion (in Shares)	0.24204
Preferred Stock, Redemption Price Per Share	$ 15.75

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Note 12 - Income Taxes (Tables)

12 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

	Year Ended December 31,
	2014			2013			2012
	(in thousands)
Current Tax Provision
Federal	$	30,235		$	34,680		$	29,147
State		3,095			5,588			4,010
		33,330			40,268			33,157
Deferred Tax Provision
Federal		(1,172	)		(2,226	)		892
State		(334	)		(479	)		132
		(1,506	)		(2,705	)		1,024
Income Tax Provision	$	31,824		$	37,563		$	34,181

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

	December 31,
	2014			2013
	(in thousands)
Current deferred tax asset:
Allowance for doubtful accounts receivable	$	2,138		$	1,802
Accrued risk reserves		964			857
Accrued expenses		3,635			3,593
		6,737			6,252
Current deferred tax liability:
Unrealized gains on marketable securities		(39,958	)		(29,120	)
Other		(2,284	)		(1,922	)
		(42,242	)		(31,042	)
Net current deferred tax liability	$	(35,505	)	$	(24,790	)
Noncurrent deferred tax asset:
Unrealized gains on marketable securities	$	(183	)	$	593
Financial reporting depreciation in excess of tax depreciation		7,191			5,872
Deferred gain on sale of assets (net)		(3,135	)		(3,135	)
Tax basis intangible asset in excess of financial reporting basis		(409	)		127
Stock-based compensation		2,879			2,214
Long-term investments		(2,445	)		(2,276	)
Nonrefundable entrance fees		129			45
Refundable entrance fees		1,739			1,647
Obligation to provide future services		1,532			1,439
Accrued risk reserves, less current portion		2,295			3,040
Accrued expenses		2,910			2,502
Deferred revenue		6,197			6,096
Net noncurrent deferred tax asset	$	18,700		$	18,164

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

	Year Ended December 31,
	2014			2013			2012
	(in thousands)
Tax provision at federal statutory rate	$	29,818		$	35,762		$	32,718
Increase (decrease) in income taxes resulting from:
State, net of federal benefit		2,207			2,325			3,261
Nondeductible expenses		363			197			118
Insurance expense		27			35			39
Other, net		439			(258	)		823
Unrecognized tax benefits		512			1,107			409
Expiration of statute of limitations		(1,542	)		(1,605	)		(3,187	)
		2,006			1,801			1,463
Effective income tax expense	$	31,824		$	37,563		$	34,181

Schedule of Unrecognized Tax Benefits Roll Forward [Table Text Block]

	Deferred Tax Asset			Liability For Unrecognized Tax Benefits			Liability For Interest and Penalties			Liability Total
Balance, January 1, 2012	$	9,926		$	13,765		$	2,479		$	16,244
Additions based on tax positions related to the current year		−			1,695			185			1,880
Additions for tax positions of prior years		728			845			170			1,015
Reductions for statute of limitation expirations		(1,999	)		(4,309	)		(940	)		(5,249	)
Balance, December 31, 2012		8,655			11,996			1,894			13,890
Additions based on tax positions related to the current year		−			1,832			198			2,030
Additions for tax positions of prior years		2,120			1,427			641			2,068
Reductions for statute of limitation expirations		(2,177	)		(2,802	)		(661	)		(3,463	)
Balance, December 31, 2013		8,598			12,453			2,072			14,525
Additions based on tax positions related to the current year		−			2,008			216			2,224
Additions for tax positions of prior years		2,032			1,218			706			1,924
Reductions for statute of limitation expirations		(1,523	)		(2,059	)		(603	)		(2,662	)
Balance, December 31, 2014	$	9,107		$	13,620		$	2,391		$	16,011

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Note 5 - Long-term Leases (Details) - Fixed Assets Recorded under Capital Leases (Buildings and Personal Property [Member], USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Buildings and Personal Property [Member]
Capital Leased Assets [Line Items]
Buildings and personal property	$ 39,032	$ 0
Accumulated amortization	(3,271)	0
	$ 35,761	$ 0

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Note 12 - Income Taxes (Details) - Reconciliation of Unrecognized Tax Benefits (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2012	Jan. 01, 2012
Note 12 - Income Taxes (Details) - Reconciliation of Unrecognized Tax Benefits [Line Items]
Balance,	$ 13,620,000	$ 13,620,000	$ 12,453,000	$ 12,453,000	$ 11,996,000	$ 11,996,000
Reductions for statute of limitation expirations		(1,542,000)		(1,605,000)		(3,187,000)
Deferred Tax Assets [Member]
Note 12 - Income Taxes (Details) - Reconciliation of Unrecognized Tax Benefits [Line Items]
Balance,	8,725,000	8,725,000	8,253,000	8,253,000	8,292,000	8,292,000	9,926,000
Additions for tax positions of prior years	2,032,000		2,120,000		728,000
Reductions for statute of limitation expirations	(1,523,000)		(2,177,000)		(1,999,000)
Liability for Unrecognized Tax Benefits [Member]
Note 12 - Income Taxes (Details) - Reconciliation of Unrecognized Tax Benefits [Line Items]
Balance,	13,620,000	13,620,000	12,453,000	12,453,000	11,996,000	11,996,000	13,765,000
Additions based on tax positions related to the current year	2,008,000		1,832,000		1,695,000
Additions for tax positions of prior years	1,218,000		1,427,000		845,000
Reductions for statute of limitation expirations	(2,059,000)		(2,802,000)		(4,309,000)
Liability For Interest And Penalties [Member]
Note 12 - Income Taxes (Details) - Reconciliation of Unrecognized Tax Benefits [Line Items]
Balance,	2,391,000	2,391,000	2,072,000	2,072,000	1,894,000	1,894,000	2,479,000
Additions based on tax positions related to the current year	216,000		198,000		185,000
Additions for tax positions of prior years	706,000		641,000		170,000
Reductions for statute of limitation expirations	(603,000)	(603,000)	(661,000)	(661,000)	(940,000)	(940,000)
Total Liability [Member]
Note 12 - Income Taxes (Details) - Reconciliation of Unrecognized Tax Benefits [Line Items]
Balance,	16,011,000	16,011,000	14,525,000	14,525,000	13,890,000	13,890,000	16,244,000
Additions based on tax positions related to the current year	2,224,000		2,030,000		1,880,000
Additions for tax positions of prior years	1,924,000		2,068,000		1,015,000
Reductions for statute of limitation expirations	$ (2,662,000)		$ (3,463,000)		$ (5,249,000)

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Consolidated Statements of Income (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Revenues:
Net patient revenues	$ 829,287	$ 735,837	$ 705,386
Other revenues	42,396	53,120	55,616
Net operating revenues	871,683	788,957	761,002
Costs and Expenses:
Salaries, wages and benefits	510,249	453,560	426,934
Other operating	217,143	194,989	196,230
Facility rent	39,731	39,449	39,355
Depreciation and amortization	34,384	28,547	29,792
Interest	2,165	331	455
Total costs and expenses	803,672	716,876	692,766
Income Before Non-Operating Income	68,011	72,081	68,236
Non-Operating Income	17,182	30,095	25,245
Income Before Income Taxes	85,193	102,176	93,481
Income Tax Provision	(31,824)	(37,563)	(34,181)
Net Income	53,369	64,613	59,300
Dividends to Preferred Stockholders	(8,670)	(8,671)	(8,671)
Net Income Available to Common Stockholders	$ 44,699	$ 55,942	$ 50,629
Earnings Per Common Share:
Basic (in Dollars per share)	$ 3.24	$ 4.05	$ 3.65
Diluted (in Dollars per share)	$ 3.14	$ 3.87	$ 3.57
Weighted Average Common Shares Outstanding:
Basic (in Shares)	13,816,095	13,829,626	13,852,709
Diluted (in Shares)	14,222,133	16,698,803	16,598,816
Dividends Declared Per Common Share (in Dollars per share)	$ 1.34	$ 1.26	$ 2.20

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Note 1 - Summary of Significant Accounting Policies (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Note 1 - Summary of Significant Accounting Policies (Details) [Line Items]
Number of States in which Entity Operates	10
Homecare Services Anticipated Payment Deferred RevenuePercentage	60.00%
Provision for Doubtful Accounts	$ 6,228,000	$ 5,226,000	$ 2,455,000
General and Administrative Expense	36,200,000	40,900,000	39,300,000
Continuing Care Retirement Communities Advance Fees, Obligation for Future Services, Amount	3,927,000	3,689,000
Medicare and Medicaid [Member]
Note 1 - Summary of Significant Accounting Policies (Details) [Line Items]
Allowance for Doubtful Accounts Receivable	22,931,000	21,619,000
Building and Building Improvements [Member] | Minimum [Member]
Note 1 - Summary of Significant Accounting Policies (Details) [Line Items]
Property, Plant and Equipment, Useful Life	20 years
Building and Building Improvements [Member] | Maximum [Member]
Note 1 - Summary of Significant Accounting Policies (Details) [Line Items]
Property, Plant and Equipment, Useful Life	40 years
Equipment and Furniture [Member] | Minimum [Member]
Note 1 - Summary of Significant Accounting Policies (Details) [Line Items]
Property, Plant and Equipment, Useful Life	3 years
Equipment and Furniture [Member] | Maximum [Member]
Note 1 - Summary of Significant Accounting Policies (Details) [Line Items]
Property, Plant and Equipment, Useful Life	15 years
Caris [Member]
Note 1 - Summary of Significant Accounting Policies (Details) [Line Items]
Equity Method Investment, Ownership Percentage	75.10%
Refundable Advance Fees [Member]
Note 1 - Summary of Significant Accounting Policies (Details) [Line Items]
Nonrefundable Resident Entry Fee Percentage	10.00%
Customer Refundable Fees	$ 10,219,000	$ 10,720,000
Original Entry Fee [Member]
Note 1 - Summary of Significant Accounting Policies (Details) [Line Items]
Refundable Resident Entry Fee Percentage	90.00%
Appreciation [Member]
Note 1 - Summary of Significant Accounting Policies (Details) [Line Items]
Appreciation of Apartment Over Original Resident's Entry Fee, Percentage	40.00%
Percent of Revenues Derived from Medicare, Medicaid, and Other Government Programs [Member]
Note 1 - Summary of Significant Accounting Policies (Details) [Line Items]
Concentration Risk, Percentage	65.00%

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Consolidated Statements of Cash Flows (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Cash Flows From Operating Activities:
Net income	$ 53,369,000	$ 64,613,000	$ 59,300,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	34,384,000	28,547,000	29,792,000
Provision for doubtful accounts	6,228,000	5,226,000	2,455,000
Equity in earnings of unconsolidated investments	(6,675,000)	(14,188,000)	(13,616,000)
Distributions from unconsolidated investments	10,288,000	15,473,000	6,317,000
Gains on sale of marketable securities	(379,000)	(39,000)	(1,640,000)
Gain on recovery of notes receivable		(5,454,000)
Deferred income taxes	(1,434,000)	(2,404,000)	1,416,000
Stock-based compensation	2,021,000	2,298,000	2,366,000
Changes in operating assets and liabilities, net of the effect of acquisitions:
Restricted cash and cash equivalents	(6,245,000)	(10,405,000)	(7,636,000)
Accounts receivable	(5,215,000)	(13,778,000)	(7,263,000)
Income tax receivable	(4,727,000)	5,933,000	537,000
Inventories	19,000	(486,000)	759,000
Prepaid expenses and other assets	(2,587,000)	(76,000)	(77,000)
Trade accounts payable	2,827,000	2,495,000	831,000
Accrued payroll	(3,603,000)	26,219,000	(16,418,000)
Amounts due to third party payors	1,312,000	2,352,000	481,000
Other current liabilities and accrued risk reserves	(5,652,000)	(6,401,000)	11,675,000
Obligation to provide future services	238,000	1,898,000	(2,461,000)
Other noncurrent liabilities	1,486,000	635,000	(2,354,000)
Deferred revenue	39,000	(110,000)	(91,000)
Net cash provided by operating activities	75,694,000	102,348,000	64,373,000
Cash Flows From Investing Activities:
Additions to property and equipment	(53,298,000)	(43,438,000)	(22,003,000)
Investments in unconsolidated limited liability companies	(1,975,000)
Acquisition of real estate of six skilled nursing facilities		(21,000,000)
Acquisition of non-controlling interest	(768,000)		(7,500,000)
Investments in notes receivable	(767,000)		(600,000)
Collections of notes receivable	3,156,000	11,865,000	1,260,000
Decrease in restricted cash and cash equivalents	9,523,000	8,039,000	46,660,000
Purchases of marketable securities	(62,165,000)	(93,155,000)	(111,691,000)
Sale of marketable securities	48,786,000	81,389,000	62,649,000
Net cash used in investing activities	(57,508,000)	(56,300,000)	(31,225,000)
Cash Flows From Financing Activities:
Tax benefit (expense) from stock-based compensation	201,000	(225,000)	(267,000)
Principal payments under capital lease obligations	(2,436,000)
Dividends paid to preferred stockholders	(8,670,000)	(8,671,000)	(8,671,000)
Dividends paid to common stockholders	(18,704,000)	(17,469,000)	(30,849,000)
Issuance of common shares	7,429,000	991,000	13,412,000
Repurchase of common shares	(6,995,000)	(4,700,000)
Entrance fee deposits (refunds)	(501,000)	40,000	(1,310,000)
(Increase) decrease in deposits	(448,000)	(1,010,000)	230,000
Net cash used in financing activities	(30,124,000)	(31,044,000)	(27,455,000)
Net Increase (Decrease) in Cash and Cash Equivalents	(11,938,000)	15,004,000	5,693,000
Cash and Cash Equivalents, Beginning of Period	81,705,000	66,701,000	61,008,000
Cash and Cash Equivalents, End of Period	69,767,000	81,705,000	66,701,000
Supplemental Information:
Cash payments for interest	2,242,000	497,000	383,000
Cash payments for income taxes	36,642,000	34,273,000	34,142,000
Non-cash financing and investing activities include:
Buildings, personal property, and obligations recorded under capital lease agreements	39,032,000
NHC assigned the assets and liabilities of eight Solaris Hospice programs to Caris in exchange for an additional limited partnership interest.
Current assets assigned			1,862,000
Property and equipment assigned			303,000
Current liabilities assigned			(799,000)
Goodwill			2,945,000
Investment in limited liability company			$ (4,311,000)

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Note 7 - Investments in Marketable Securities (Details) - Available for Sale Marketable Equity Securities (NHI Common Stock [Member], USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
NHI Common Stock [Member]
Note 7 - Investments in Marketable Securities (Details) - Available for Sale Marketable Equity Securities [Line Items]
NHI Common Stock (in Shares)	1,630,642	1,630,642
NHI Common Stock	$ 24,734	$ 24,734
NHI Common Stock	$ 114,080	$ 91,479

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Note 6 - Earnings Per Share (Tables)

12 Months Ended

Dec. 31, 2014

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Year Ended December 31,
	2014		2013		2012
	(dollars in thousands, except share and per share amounts)
Basic:
Weighted average common shares outstanding		13,816,095		13,829,626		13,852,709
Net income	$	53,369	$	64,613	$	59,300
Dividends to preferred stockholders		8,670		8,671		8,671
Net income available to common stockholders	$	44,699	$	55,942	$	50,629
Earnings per common share, basic	$	3.24	$	4.05	$	3.65
Diluted:
Weighted average common shares outstanding		13,816,095		13,829,626		13,852,709
Dilutive effect of stock options		73,678		9,091		8,019
Dilutive effect of restricted stock		3,691		4,740		5,526
Dilutive effect of contingent issuable stock		328,669		232,118		109,233
Convertible preferred stock		−		2,623,228		2,623,329
Assumed average common shares outstanding		14,222,133		16,698,803		16,598,816
Net income available to common stockholders	$	44,699	$	55,942	$	50,629
Add dilutive preferred stock dividends for effect of assumed conversion of preferred stock		−		8,671		8,671
Net income for diluted earnings per common share	$	44,699	$	64,613	$	59,300
Earnings per common share, diluted	$	3.14	$	3.87	$	3.57

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Note 11 - Long-term Debt (Details) (USD $)	12 Months Ended
	Dec. 31, 2014
Revolving Credit Facility [Member] | Eurodollar [Member]
Note 11 - Long-term Debt (Details) [Line Items]
Debt Instrument, Basis Spread on Variable Rate	0.70%
Revolving Credit Facility [Member]
Note 11 - Long-term Debt (Details) [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity	75,000,000
Line of Credit Facility, Unused Capacity, Commitment Fee Percentage	0.20%
Line of Credit Facility, Expiration Date	Oct. 21, 2015
Letter of Credit [Member]
Note 11 - Long-term Debt (Details) [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity	5,000,000
Line of Credit Facility, Commitment Fee Percentage	0.10%

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Note 14 - Stock-based Compensation

12 Months Ended

Dec. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note 14 - Stock-Based Compensation

NHC recognizes stock-based compensation for all stock options and restricted stock granted over the requisite service period using the fair value for these grants as estimated at the date of grant either using the Black-Scholes pricing model for stock options or the quoted market price for restricted stock.

The 2005 and 2010 Stock-Based Compensation Plans

The Compensation Committee of the Board of Directors ("the Committee") has the authority to select the participants to be granted options; to designate whether the option granted is an incentive stock option ("ISO"), a non-qualified option, or a stock appreciation right; to establish the number of shares of common stock that may be issued upon exercise of the option; to establish the vesting provision for any award; and to establish the term any award may be outstanding. The exercise price of any ISO’s granted will not be less than 100% of the fair market value of the shares of common stock on the date granted and the term of an ISO may not be any more than ten years. The exercise price of any non-qualified options granted will not be less than 100% of the fair market value of the shares of common stock on the date granted unless so determined by the Committee.

In May 2005, our stockholders approved the 2005 Stock Option, Employee Stock Purchase, Physician Stock Purchase and Stock Appreciation Rights Plan ("the 2005 Plan") pursuant to which 1,200,000 shares of our common stock were available to grant as stock-based payments to key employees, directors, and non-employee consultants. At December 31, 2014, 220,620 shares were available for future grants under the 2005 Plan.

In May 2010, our stockholders approved the 2010 Omnibus Equity Incentive Plan ("the 2010 Plan") pursuant to which 1,200,000 shares of our common stock were available to grant as stock-based payments to key employees, directors, and non-employee consultants. At December 31, 2014, 398,744 shares were available for future grants under the 2010 Plan.

Under both the 2005 and 2010 Plans, the individual restricted stock and option grant awards vest over periods up to five years. The term of the options outstanding under both Plans is five years from the date of the grant. Our policy is to issue new shares to satisfy option exercises.

Additionally, we have an employee stock purchase plan that allows employees to purchase our shares of stock through payroll deductions. The plan allows employees to terminate participation at any time.

Compensation expense is recognized only for the awards that ultimately vest. Stock-based compensation totaled $2,021,000, $2,298,000, and $2,366,000, for the years ended December 31, 2014, 2013, and 2012, respectively. The expense for the 2014 year consisted of $1,814,000 for stock options and $207,000 for restricted stock. Stock-based compensation is included in salaries, wages and benefits in the consolidated statements of income. Tax deductions for the options exercised and restricted stock vested totaled $697,000, $196,000, and $404,000 for the years ended December 31, 2014, 2013, and 2012, respectively. The total intrinsic value of shares exercised during the year ended December 31, 2014 was $855,000.

At December 31, 2014, we had $2,005,000 of unrecognized compensation cost related to unvested stock-based compensation awards, which consisted of $1,933,000 for stock options and $72,000 for restricted stock. This expense will be recognized over the remaining weighted average vesting period, which is approximately 1.2 years for stock options and 0.3 years for restricted stock.

Stock Options

The Company is required to estimate the fair value of stock-based awards on the date of grant. The fair value of each option award is estimated using the Black-Scholes option valuation model with the weighted average assumptions indicated in the following table. Each grant is valued as a single award with an expected term based upon expected employment and termination behavior. Compensation cost is recognized over the requisite service period in a manner consistent with the option vesting provisions. The straight-line attribution method requires that compensation expense is recognized at least equal to the portion of the grant-date fair value that is vested at that date. The expected volatility is derived using weekly historical data for periods immediately preceding the date of grant. The risk-free interest rate is the approximate yield on the United States Treasury Strips having a life equal to the expected option life on the date of grant. The expected life is an estimate of the number of years an option will be held before it is exercised. The following table summarizes the assumptions used to value the options granted in the periods shown.

	Year Ended December 31,
	2014			2013			2012
Risk-free interest rate		0.52	%		0.25	%		0.28	%
Expected volatility		17.3	%		31.3	%		38.8	%
Expected life, in years		2.2			2.1			2.1
Expected dividend yield		2.68	%		2.81	%		2.91	%

The following table summarizes option activity:

	Number of Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value
Options outstanding at January 1, 2012		1,482,077		$	46.92	$	−
Options granted		63,516			44.28		−
Options exercised		(295,371	)		45.41		−
Options cancelled		(115,620	)		50.99		−
Options outstanding at December 31, 2012		1,134,602			46.75		−
Options granted		57,672			47.95		−
Options exercised		(19,722	)		45.63		−
Options cancelled		(98,000	)		51.11		−
Options outstanding at December 31, 2013		1,074,552			46.44		−
Options granted		57,716			53.10		−
Options exercised		(157,590	)		45.97		−
Options cancelled		(20,000	)		46.69		−
Options outstanding at December 31, 2014		954,678		$	46.92	$	15,202,000
Options exercisable at December 31, 2014		158,573		$	48.06	$	2,344,000

Options Outstanding December 31, 2014		Exercise Prices	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years
	909,678	$44.80 - $47.45	$	46.62		1.3
	45,000	$52.93	$	52.93		4.3
	954,678		$	46.92		1.5

Restricted Stock

The following table summarizes restricted stock activity:

	Number of Shares		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Unvested restricted shares at January 1, 2012		24,000	$	34.46	$	−
Award shares granted		−		−		−
Award shares vested		6,000		34.46		−
Unvested restricted shares at December 31, 2012		18,000		34.46		−
Award shares granted		−		−		−
Award shares vested		6,000		34.46		−
Unvested restricted shares at December 31, 2013		12,000		34.46		−
Award shares granted		−		−		−
Award shares vested		6,000		34.46		−
Unvested restricted shares at December 31, 2014		6,000	$	34.46	$	170,000

The weighted average remaining contractual life of restricted stock at December 31, 2014 is 0.3 years.

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Note 7 - Investments in Marketable Securities (Tables)

12 Months Ended

Dec. 31, 2014

Investments, Debt and Equity Securities [Abstract]

Available-for-sale Securities [Table Text Block]

	December 31, 2014				December 31, 2013
(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Investments available for sale:
Marketable equity securities	$	30,176	$	132,535	$	30,176	$	105,009
Restricted investments available for sale:
Corporate debt securities		68,594		68,916		65,852		65,006
Commercial mortgage-backed securities		63,351		63,252		46,977		45,856
U.S. Treasury securities		14,623		14,728		22,932		22,841
State and municipal securities		11,074		11,377		8,123		8,300
	$	187,818	$	290,808	$	174,060	$	247,012

Schedule of Available-for-sale Securities Reconciliation [Table Text Block]

	December 31, 2014						December 31, 2013
	Shares		Cost		Fair Value		Shares		Cost		Fair Value
NHI Common Stock		1,630,642	$	24,734	$	114,080		1,630,642	$	24,734	$	91,479

Investments Classified by Contractual Maturity Date [Table Text Block]

	December 31, 2014				December 31, 2013
(in thousands)	Cost		Fair Value		Cost		Fair Value
Maturities:
Within 1 year	$	11,161	$	11,190	$	9,279	$	9,324
1 to 5 years		83,542		84,028		91,787		92,011
6 to 10 years		58,863		58,872		40,387		38,335
Over 10 years		4,076		4,183		2,431		2,333
	$	157,642	$	158,273	$	143,884	$	142,003

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Note 16 - Equity Method Investment in Caris HealthCare, L.P.

12 Months Ended

Dec. 31, 2014

Disclosure Text Block Supplement [Abstract]

Cost and Equity Method Investments Disclosure [Text Block]

Note 16 - Equity Method Investment in Caris HealthCare, L.P.

As of December 31, 2014, we have a 75.1% non-controlling ownership interest in Caris, a business that specializes in hospice care services in NHC owned health care centers and in other settings. The carrying value of our investment is $35,020,000 and $37,185,000 at December 31, 2014 and 2013, respectively. The carrying amounts are included in investments in limited liability companies in the consolidated balance sheets. The difference between the carrying value of our investment and our capital account balance in Caris is due to the additional limited partner ownership interest the Company acquired from current and former partners. Summarized financial information of Caris for the years ended December 31, 2014, 2013, and 2012 is provided below.

	December 31,
	2014		2013		2012
	( in thousands)
Current assets	$	20,922	$	25,212	$	30,731
Noncurrent assets		11,540		11,685		9,051
Liabilities		7,305		8,879		9,365
Partners’ capital		25,157		28,018		30,417
Revenue		51,441		58,918		59,422
Expenses		40,908		40,112		40,341
Net income		10,533		18,806		19,081

Consolidation Considerations

Due to our ownership percentage in Caris, we have considered whether Caris should be consolidated by NHC under the guidance provided in ASC Topic 810, Consolidation. We do not consolidate Caris because (1) Caris’ equity at risk is sufficient to finance its activities without additional subordinated financial support, (2) the general partner of the Partnership has the power to direct the activities that most significantly impact the economic performance of Caris, and (3) the equity holders of Caris possess the characteristics of a controlling financial interest, including voting rights that are proportional to their economic interests. Supporting the assertions above is the following: (1) the ownership percentage of the general partner remains equally divided between NHC and another party, (2) the general partner manages and controls the Partnership with full and complete discretion, and (3) the limited partners have no right or power to take part in the control of the business of the Partnership, which is where our ownership percentage increases have occurred.

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Note 12 - Income Taxes (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2012	Jan. 01, 2012
Note 12 - Income Taxes (Details) [Line Items]
Adjustment to Additional Paid in Capital, Income Tax Effect from Share-based Compensation, Net		$ 201,000		$ (225,000)		$ (267,000)
Unrecognized Tax Benefits, Period Increase (Decrease)		(2,059,000)		(2,802,000)		(4,309,000)
Unrecognized Tax Benefits, Reduction Resulting from Lapse of Applicable Statute of Limitations		1,542,000		1,605,000		3,187,000
Unrecognized Tax Benefits	13,620,000	13,620,000	12,453,000	12,453,000	11,996,000	11,996,000
Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued	2,391,000	2,391,000	2,072,000	2,072,000	1,894,000	1,894,000
Unrecognized Tax Benefits that Would Impact Effective Tax Rate	4,895,000	4,895,000	4,200,000	4,200,000	3,704,000	3,704,000
Income Tax Examination, Penalties and Interest Expense		319,000		178,000		(585,000)
Temporary Difference [Member]
Note 12 - Income Taxes (Details) [Line Items]
Unrecognized Tax Benefits, Period Increase (Decrease)		(1,120,000)		(1,817,000)		(1,999,000)
Unrecognized Tax Benefits, Reduction Resulting from Lapse of Applicable Statute of Limitations		111,000		178,000		170,000
Significant Change in Unrecognized Tax Benefits is Reasonably Possible, Amount of Unrecorded Benefit	(1,520,000)	(1,520,000)	(1,390,000)	(1,390,000)
Permanent Differences [Member]
Note 12 - Income Taxes (Details) [Line Items]
Unrecognized Tax Benefits, Period Increase (Decrease)		(939,000)		(985,000)		(2,310,000)
Unrecognized Tax Benefits, Reduction Resulting from Lapse of Applicable Statute of Limitations		492,000		451,000		707,000
Unrecognized Tax Benefits	4,895,000	4,895,000	4,200,000	4,200,000	3,704,000	3,704,000
Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued	2,118,000	2,118,000	1,835,000	1,835,000	1,531,000	1,531,000
Significant Change in Unrecognized Tax Benefits is Reasonably Possible, Amount of Unrecorded Benefit	(1,065,000)	(1,065,000)	(940,000)	(940,000)
Liability For Interest And Penalties [Member]
Note 12 - Income Taxes (Details) [Line Items]
Unrecognized Tax Benefits, Reduction Resulting from Lapse of Applicable Statute of Limitations	603,000	603,000	661,000	661,000	940,000	940,000
Unrecognized Tax Benefits	2,391,000	2,391,000	2,072,000	2,072,000	1,894,000	1,894,000	2,479,000
Portion Composed of Tax [Member]
Note 12 - Income Taxes (Details) [Line Items]
Unrecognized Tax Benefits, Reduction Resulting from Lapse of Applicable Statute of Limitations		939,000		976,000		2,310,000
Deferred Tax Assets [Member]
Note 12 - Income Taxes (Details) [Line Items]
Unrecognized Tax Benefits, Reduction Resulting from Lapse of Applicable Statute of Limitations	1,523,000		2,177,000		1,999,000
Unrecognized Tax Benefits	8,725,000	8,725,000	8,253,000	8,253,000	8,292,000	8,292,000	9,926,000
Lapse of Statute of Limitations [Member]
Note 12 - Income Taxes (Details) [Line Items]
Significant Change in Unrecognized Tax Benefits is Reasonably Possible, Amount of Unrecorded Benefit	(2,585,000)	(2,585,000)	(2,330,000)	(2,330,000)
Permanent and Temporary Differences [Member]
Note 12 - Income Taxes (Details) [Line Items]
Unrecognized Tax Benefits, Income Tax Penalties and Interest Accrued	$ 615,000	$ 615,000	$ 566,000	$ 566,000

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Consolidated Statements of Stockholders’ Equity (USD $)	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member] Employee Stock Option [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Employee Stock Option [Member]	Total
Balance at Dec. 31, 2011	$ 170,515,000	$ 138,000		$ 139,183,000	$ 260,331,000	$ 36,702,000		$ 606,869,000
Balance (in Shares) at Dec. 31, 2011	10,838,490	13,862,738
Net income					59,300,000			59,300,000
Other comprehensive income						14,106,000		14,106,000
Stock-based compensation				2,366,000				2,366,000
Tax expense (benefit) from exercise of stock options				(267,000)				(267,000)
Shares sold – options exercised		3,000		13,409,000				13,412,000
Shares sold – options exercised (in Shares)		295,371						295,371
Shares issued in conversion of preferred stock to common stock	(1,000)			1,000
Shares issued in conversion of preferred stock to common stock (in Shares)	(78)	18
Dividends declared to preferred stockholders					(8,671,000)			(8,671,000)
Dividends declared to common stockholders					(30,967,000)			(30,967,000)
Balance at Dec. 31, 2012	170,514,000	141,000		154,692,000	279,993,000	50,808,000		656,148,000
Balance (in Shares) at Dec. 31, 2012	10,838,412	14,158,127
Net income					64,613,000			64,613,000
Other comprehensive income						(4,623,000)		(4,623,000)
Stock-based compensation				2,298,000				2,298,000
Tax expense (benefit) from exercise of stock options				(225,000)				(225,000)
Shares sold – options exercised				991,000				991,000
Shares sold – options exercised (in Shares)		19,722						19,722
Repurchase of common stock		(1,000)		(4,699,000)				(4,700,000)
Repurchase of common stock (in Shares)		(100,000)
Shares issued in conversion of preferred stock to common stock	(4,000)			4,000
Shares issued in conversion of preferred stock to common stock (in Shares)	(747)	179
Dividends declared to preferred stockholders					(8,671,000)			(8,671,000)
Dividends declared to common stockholders					(17,719,000)			(17,719,000)
Balance at Dec. 31, 2013	170,510,000	140,000		153,061,000	318,216,000	46,185,000		688,112,000
Balance (in Shares) at Dec. 31, 2013	10,837,665	14,078,028
Net income					53,369,000			53,369,000
Other comprehensive income						18,423,000		18,423,000
Stock-based compensation				2,021,000				2,021,000
Tax expense (benefit) from exercise of stock options			201,000				201,000	201,000
Shares sold – options exercised		1,000		7,428,000				7,429,000
Shares sold – options exercised (in Shares)		157,590						157,590
Repurchase of common stock		(1,000)		(6,994,000)				(6,995,000)
Repurchase of common stock (in Shares)		(125,000)
Shares issued in conversion of preferred stock to common stock	(16,000)			16,000
Shares issued in conversion of preferred stock to common stock (in Shares)	(1,006)	241
Acquisition of noncontrolling interest				(768,000)				(768,000)
Dividends declared to preferred stockholders					(8,670,000)			(8,670,000)
Dividends declared to common stockholders					(18,974,000)			(18,974,000)
Balance at Dec. 31, 2014	$ 170,494,000	$ 140,000		$ 154,965,000	$ 343,941,000	$ 64,608,000		$ 734,148,000
Balance (in Shares) at Dec. 31, 2014	10,836,659	14,110,859

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Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Net Income	$ 53,369	$ 64,613	$ 59,300
Other Comprehensive Income (Loss):
Unrealized gains (losses) on investments in marketable securities	30,416	(7,211)	24,739
Reclassification adjustment for realized gains on sale of securities	(379)	(39)	(1,640)
Income tax (expense) benefit related to items of other comprehensive income (loss)	(11,614)	2,627	(8,993)
Other comprehensive income (loss), net of tax	18,423	(4,623)	14,106
Comprehensive Income	$ 71,792	$ 59,990	$ 73,406

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Note 9 - Property and Equipment

12 Months Ended

Dec. 31, 2014

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

Note 9 - Property and Equipment

Property and equipment, at cost, consists of the following:

	December 31,
	2014			2013
	(in thousands)
Land	$	58,672		$	57,272
Leasehold improvements		98,302			94,066
Buildings and improvements		487,021			427,471
Furniture and equipment		142,110			134,255
Construction in progress		35,687			21,618
		821,792			734,682
Less: Accumulated depreciation		(307,048	)		(277,884	)
	$	514,744		$	456,798

The Company is obligated to complete construction in progress of approximately $25,541,000 at December 31, 2014.

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Document And Entity Information (USD $)	12 Months Ended
	Dec. 31, 2014	Feb. 12, 2015	Jun. 30, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	NATIONAL HEALTHCARE CORP
Document Type	10-K
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		14,110,859
Entity Public Float			$ 435,000,000
Amendment Flag	false
Entity Central Index Key	0001047335
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Well-known Seasoned Issuer	No
Document Period End Date	Dec. 31, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	FY

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Note 10 - Notes Receivable

12 Months Ended

Dec. 31, 2014

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note 10 - Notes Receivable

At December 31, 2014 and 2013, we have notes receivable from managed and other skilled nursing facilities totaling $12,989,000 and $15,378,000, respectively, reflected in the accompanying consolidated balance sheets. The notes are first and second mortgages with interest rates ranging from prime plus 2% to 8.5% fixed rate with periodic payments required prior to maturity. The notes mature in the years from 2016 through 2022. The proceeds of the notes were used by the skilled nursing facilities for construction costs, development costs incurred during construction, and working capital.

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Note 16 - Equity Method Investment in Caris HealthCare, L.P. (Details) (Caris [Member], USD $)	Dec. 31, 2014	Dec. 31, 2013
Caris [Member]
Note 16 - Equity Method Investment in Caris HealthCare, L.P. (Details) [Line Items]
Equity Method Investment, Ownership Percentage	75.10%
Equity Method Investments	$ 35,020,000	$ 37,185,000

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Current Assets:
Cash and cash equivalents	$ 69,767	$ 81,705
Restricted cash and cash equivalents	7,020	10,298
Marketable securities	132,535	105,009
Restricted marketable securities	19,805	14,027
Accounts receivable, less allowance for doubtful accounts of $5,738 and $4,972, respectively	78,843	79,856
Inventories	7,127	7,146
Prepaid expenses and other assets	2,260	1,208
Notes receivable, current portion	441	417
Federal income tax receivable	4,727
Total current assets	322,525	299,666
Property and Equipment:
Property and equipment, at cost	821,792	734,682
Accumulated depreciation and amortization	(307,048)	(277,884)
Net property and equipment	514,744	456,798
Other Assets:
Restricted cash and cash equivalents	3,631	3,631
Restricted marketable securities	138,468	127,976
Deposits and other assets	8,791	6,808
Goodwill	17,600	17,600
Notes receivable, less current portion	12,548	14,961
Deferred income taxes	18,700	18,164
Investments in limited liability companies	37,116	38,754
Total other assets	236,854	227,894
Total assets	1,074,123	984,358
Current Liabilities:
Trade accounts payable	15,877	13,050
Capital lease obligations, current portion	3,088
Accrued payroll	59,859	63,462
Amounts due to third party payors	22,931	21,619
Accrued risk reserves, current portion	26,825	24,325
Deferred income taxes	35,506	24,790
Other current liabilities	12,472	13,784
Dividends payable	7,000	6,730
Total current liabilities	183,558	167,760
Long-term debt	10,000	10,000
Capital lease obligations, less current portion	33,508
Accrued risk reserves, less current portion	79,393	86,232
Refundable entrance fees	10,219	10,720
Obligation to provide future services	3,927	3,689
Other noncurrent liabilities	16,011	14,525
Deferred revenue	3,359	3,320
Stockholders' Equity:
Series A convertible preferred stock; $.01 par value; 25,000,000 shares authorized; 10,836,659 and 10,837,665 shares, respectively, issued and outstanding; stated at liquidation value of $15.75 per share	170,494	170,510
Common stock, $.01 par value; 30,000,000 shares authorized; 14,110,859 and 14,078,028 shares, respectively, issued and outstanding	140	140
Capital in excess of par value	154,965	153,061
Retained earnings	343,941	318,216
Accumulated other comprehensive income	64,608	46,185
Total stockholders’ equity	734,148	688,112
Total liabilities and stockholders’ equity	$ 1,074,123	$ 984,358

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Note 4 - Non-operating Income

12 Months Ended

Dec. 31, 2014

Disclosure Text Block [Abstract]

Other Nonoperating Income and Expense [Text Block]

Note 4 - Non-Operating Income

Non-operating income is outlined in the table below. Non-operating income includes equity in earnings of unconsolidated investments, dividends and other realized gains and losses on securities, interest income, and other miscellaneous non-operating income. Our most significant equity method investment is a 75.1% non-controlling ownership interest in Caris, a business that specializes in hospice care services. See Note 16 for additional disclosures regarding Caris. For the year ended December 31, 2013, the gain on the recovery of notes receivable was due to the collection of certain notes receivable. NHC had previously written down these notes due to their deteriorated credit qualities.

	Year Ended December 31,
	2014		2013		2012
	(in thousands)
Equity in earnings of unconsolidated investments	$	6,675	$	14,188	$	13,616
Dividends and net realized gains on sales of securities		5,957		5,216		7,006
Interest income		4,550		5,237		4,623
Gain on the recovery of notes receivable		−		5,454		−
	$	17,182	$	30,095	$	25,245

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Note 3 - Other Revenues

12 Months Ended

Dec. 31, 2014

Other Revenues [Abstract]

Other Revenues [Text Block]

Note 3 - Other Revenues

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

	Year Ended December 31,
	2014		2013		2012
	(in thousands)
Insurance services	$	7,215	$	15,143	$	15,671
Management and accounting service fees		15,184		18,160		20,042
Rental income		19,123		19,132		19,314
Other		874		685		589
	$	42,396	$	53,120	$	55,616

Management Fees from National

We have managed skilled nursing facilities for National since 1988, and we currently manage five centers. See Note 2 regarding our relationship with National.

During 2014, 2013 and 2012, National paid and we recognized approximately $3,544,000, $3,491,000, and $3,397,000, respectively, of management fees and interest on management fees, which amounts are included in management and accounting service fees. Unrecognized and unpaid management fees and interest on management fees from National total $21,338,000, $21,349,000, and $21,333,000 at December 31, 2014, 2013 and 2012, respectively. We have recognized approximately $41,165,000 of management fees and interest from these facilities since 1988.

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

Management Fees and Financial and Accounting Services for Other Healthcare Centers

In February 2014, we assumed management of a 147-bed skilled nursing facility located in Des Peres, Missouri. In June 2014, we began managing an 83-unit assisted living facility located in Augusta, Georgia. As of December 31, 2014, we provide management services to six healthcare centers (other than the five National centers) operated by third party owners. For the year ended December 31, 2014, we recognized management fees of $2,205,000 from these centers. For the years ended December 31, 2013 and 2012, we recognized management fees of $4,413,000 and $6,999,000, respectively, from the 21 healthcare centers we managed during these years. The decrease in management services revenues is due to the discontinuation of management services to the non-profit entities SeniorTrust and ElderTrust that occurred in the second and third quarters of 2013. Effective September 1, 2013, we began leasing and operating the former ElderTrust facilities from National Health Investors, Inc. ("NHI"). Effective September 1, 2013 and thereafter, the revenues from these seven facilities have been included in net patient revenues in the consolidated statements of income.

Effective October 1, 2014, the Company no longer provides accounting and financial services to seven healthcare facilities. At December 31, 2014, we provided accounting and financial services to 20 healthcare facilities. No management services are provided for entities in which we provide accounting and financial services.

Insurance Services

For workers’ compensation insurance services, the premium revenues reflected in the consolidated statements of income for the years ended December 31, 2014, 2013 and 2012 were $4,434,000, $7,720,000, and $5,438,000, respectively. For the year ended December 31, 2013, there was a positive insurance settlement reached with one of the states in which we provide workers' compensation insurance in the amount of $2,769,000. Associated losses and expenses are reflected in the interim condensed consolidated statements of income as "Salaries, wages and benefits."

For professional liability insurance services, the premium revenues reflected in the consolidated statements of income for the years ended December 31, 2014, 2013 and 2012 were $2,781,000, $3,418,000, and $4,203,000, respectively. Associated losses and expenses including those for self-insurance are included in the interim condensed consolidated statements of income as "Other operating costs and expenses".

Rental Income

In 2007, NHC acquired all of the net assets of National Health Realty, Inc., which was a health care real estate investment trust. The properties acquired in the acquisition are the properties that have generated the majority of the rental income for NHC for the years ended December 31, 2014, 2013, and 2012. The health care properties currently owned and leased to third party operators include nine skilled nursing facilities and four assisted living communities. We renewed the rental agreements in 2011 for a five year period, which ends on December 31, 2015.

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Note 15 - Contingencies and Guarantees

12 Months Ended

Dec. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

Note 15 - Contingencies and Guarantees

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 both for our owned or leased entities and certain of the entities to which we provide management or accounting services. The liability we have recognized for reported claims and estimates for incurred but unreported claims totals $106,218,000 and $110,557,000 at December 31, 2014 and 2013, respectively. The liability is included in accrued risk reserves in the consolidated balance sheets. The amounts are subject to adjustment for actual claims incurred. It is possible that these claims plus unasserted claims could exceed our insurance coverages and our reserves, which would have a material adverse effect on our financial position, results of operations and cash flows.

As a result of the terms of our insurance policies and our use of wholly-owned limited purpose insurance companies, we have retained significant insurance risk with respect to workers’ compensation and general and professional liability. We use independent 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. Such estimates are based on many variables including historical and statistical information and other factors.

Workers’ Compensation

For workers’ compensation, we utilize a wholly-owned Tennessee domiciled property/casualty insurance company to write coverage for NHC affiliates and for third-party customers. Policies are written for a duration of twelve months and cover only risks related to workers’ compensation losses. All customers are companies which operate in the long-term care industry. Business is written on a direct basis. For direct business, coverage is written for statutory limits and the insurance company’s losses in excess of $1,000,000 per claim are covered by reinsurance.

General and Professional Liability Insurance and Lawsuits

The long term care industry has experienced significant increases in both the number of personal injury/wrongful death claims and in the severity of awards based upon alleged negligence by nursing facilities and their employees in providing care to residents. As of December 31, 2014, we and/or our managed centers are currently defendants in 34 such claims covering the years 2006 through December 31, 2014.

In 2002, due to the unavailability and/or prohibitive cost of third-party professional liability insurance coverage, we established and capitalized a wholly-owned licensed liability insurance company incorporated in the Cayman Island, for the purpose of managing our losses related to these risks. Thus, since 2002, insurance coverage for incidents occurring at all NHC owned providers, and most providers managed by us, is provided through this wholly-owned insurance company.

Insurance coverage for all years includes both primary policies and excess policies. Beginning in 2003, both primary and excess coverage is provided through our wholly-owned insurance company. The primary coverage is in the amount of $1.0 million per incident, $3.0 million per location with an annual primary policy aggregate limit that is adjusted on an annual basis. The excess coverage is $7.5 million annual excess in the aggregate applicable to years 2005-2007, $9.0 million annual excess in the aggregate for years 2008-2010 and $4.0 million excess per occurrence for 2011-2014.

Beginning in 2008 and continuing through 2014, additional insurance is purchased through third party providers that serve to supplement the coverage provided through our wholly-owned captive insurance company.

Civil Investigation Demand  

On December 19, 2013, the Company was served with a civil investigative demand from the U.S. Department of Justice and the Office of the U.S. Attorney for the Eastern District of Tennessee requesting the production of documents and interrogatory responses regarding the billing and medical necessity of certain rehabilitative therapy services.  Based upon our review, the request appears to relate to services provided at our facilities based in Knoxville, Tennessee.

On October 7, 2014, the Company received a subpoena from the Office of Inspector General of the United Department of Health and Human Services (“OIG Subpoena”) related to the current DOJ Investigation.  The OIG Subpoena requests certain financial and organizational documents from the Company and certain of its subsidiaries and SNFs and medical records from certain of the Company’s Tennessee-based SNFs. 

The Company is cooperating fully with these requests. Because we are in the early stages of these investigations, we are unable to evaluate the outcomes of these investigations.

Caris HealthCare, L.P. Lawsuit

On December 9, 2014, Caris Healthcare, L.P. (“Caris”), a business that specializes in hospice care services in Company-owned health care centers and in other settings in Missouri, Tennessee, South Carolina and Virginia, received notice from the U.S. Attorney’s Office for the Eastern District of Tennessee and the Attorney Generals’ Offices for the State of Tennessee and State of Virginia that those government entities were conducting an investigation regarding patient eligibility for hospice services provided by Caris. We have a 75.1% non-controlling ownership interest in Caris. We are cooperating with these government entities in connection with this investigation. Because Caris and the Company are in the early stages of this investigation, we are unable to evaluate the outcome of this investigation.

There is certain additional litigation incidental to our business, none of which, based upon information available to date, would be material to our financial position, results of operations, or cash flows. In addition, the long-term care industry is continuously subject to scrutiny by governmental regulators, which could result in litigation or claims related to regulatory compliance matters.

Debt Guarantees

At December 31, 2014, no agreement to guarantee the debt of other parties exists.

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Note 11 - Long-term Debt

12 Months Ended

Dec. 31, 2014

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

Note 11 - Long-Term Debt

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

	Weighted
	Average		December 31,
	Interest Rate	Maturities	2014		2013
Revolving Credit Facility, interest payable monthly	Variable, 0.9%	2015	$	-	$	-
Unsecured term note payable to National, interest payable quarterly, principal payable at maturity	Variable, 2.8%	2018		10,000		10,000
				10,000		10,000
Less current portion				-		-
			$	10,000	$	10,000

$75,000,000 Revolving Credit Agreement

Effective October 22, 2014, we extended the maturity of our Credit Agreement (the "Credit Agreement") with Bank of America, N.A., as lender (the "Lender"). The Credit Agreement provides for a $75,000,000 revolving credit facility (the "Credit Facility"), of which up to $5,000,000 may be utilized for letters of credit.

Borrowings bear interest at either (i) the Eurodollar rate plus 0.70% or (ii) the base rate. Letter of credit fees are equal to 0.10% times the maximum amount available to be drawn under outstanding letters of credit. The rates and fees are unchanged from those in effect prior to the extension.

Commitment fees are payable on the daily unused portion of the Credit Facility at a rate of twenty (20) basis points per annum. NHC is permitted to prepay the loans outstanding under the Credit Facility at any time, without penalty.

The Credit Facility matures on October 21, 2015. Between 90 and 120 days prior to the maturity date, NHC may request the extension of the maturity date. If the Lender elects to consent to such extension, subject to certain conditions, the maturity date will be extended to the date which is 364 days after the then maturity date.

NHC’s obligations under the Credit Agreement are guaranteed by certain NHC subsidiaries and are secured by pledges by NHC and the guarantors of (i) 100% of the equity interests of domestic subsidiaries and (ii) up to 65% of the voting equity interests and 100% of the non-voting equity interests of foreign subsidiaries, in each case, held by NHC or the guarantors.

The Credit Agreement contains customary representations and warranties, and covenants, including covenants that restrict, among other things, asset dispositions, mergers and acquisitions, dividends, restricted payments, debt, liens, investments and affiliate transactions. The Credit Agreement contains customary events of default.

The Credit Facility is available for general corporate purposes, including working capital and acquisitions.

The aggregate maturities of long-term debt for the five years subsequent to December 31, 2014 are as follows:

	Long-Term Debt
	(in thousands)
2015	$	−
2016		−
2017		−
2018		10,000
2019		−
Total	$	10,000

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Note 19 - Series B Junior Participating Preferred Stock (Details) (USD $)	Dec. 31, 2014	Dec. 31, 2013	Aug. 02, 2007
Note 19 - Series B Junior Participating Preferred Stock (Details) [Line Items]
Dividend Distribution Rights (in Shares)			1
Preferred Stock, Par or Stated Value Per Share	$ 0.01	$ 0.01
Series B Junior Participating Preferred Stock [Member]
Note 19 - Series B Junior Participating Preferred Stock (Details) [Line Items]
Preferred Stock, Par or Stated Value Per Share			0.01
Preferred Stock, Redemption Price Per Share			250

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Note 7 - Investments in Marketable Securities

12 Months Ended

Dec. 31, 2014

Investments, Debt and Equity Securities [Abstract]

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

Note 7 - Investments in Marketable Securities

Our investments in marketable securities include available for sale securities. Realized gains and losses from securities sales are determined on the specific identification of the securities. Marketable securities and restricted marketable securities consist of the following:

	December 31, 2014				December 31, 2013
(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Investments available for sale:
Marketable equity securities	$	30,176	$	132,535	$	30,176	$	105,009
Restricted investments available for sale:
Corporate debt securities		68,594		68,916		65,852		65,006
Commercial mortgage-backed securities		63,351		63,252		46,977		45,856
U.S. Treasury securities		14,623		14,728		22,932		22,841
State and municipal securities		11,074		11,377		8,123		8,300
	$	187,818	$	290,808	$	174,060	$	247,012

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

	December 31, 2014						December 31, 2013
	Shares		Cost		Fair Value		Shares		Cost		Fair Value
NHI Common Stock		1,630,642	$	24,734	$	114,080		1,630,642	$	24,734	$	91,479

The amortized cost and estimated fair value of debt securities classified as available for sale, by contractual maturity, are as follows:

	December 31, 2014				December 31, 2013
(in thousands)	Cost		Fair Value		Cost		Fair Value
Maturities:
Within 1 year	$	11,161	$	11,190	$	9,279	$	9,324
1 to 5 years		83,542		84,028		91,787		92,011
6 to 10 years		58,863		58,872		40,387		38,335
Over 10 years		4,076		4,183		2,431		2,333
	$	157,642	$	158,273	$	143,884	$	142,003

Gross unrealized gains related to available for sale securities are $103,814,000 and $75,702,000 as of December 31, 2014 and 2013, respectively. Gross unrealized losses related to available for sale securities were $824,000 and $2,750,000 as of December 31, 2014 and 2013, respectively. 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. As a result, the Company recognized no other-than-temporary impairments for the years ended December 31, 2014 and 2013.

Proceeds from the sale of investments in marketable securities during the years ended December 31, 2014, 2013 and 2012 were $48,786,000, $81,389,000, and $62,649,000, respectively. Net investment gains of $379,000, $39,000, and $1,640,000 were realized on these sales during the years ended December 31, 2014, 2013, and 2012, respectively.

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Note 7 - Investments in Marketable Securities (Details) - Amortized Cost and Estimated Fair Value of Debt Securities as Available for Sale (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Maturities:
Within 1 year	$ 11,161	$ 9,279
Within 1 year	11,190	9,324
1 to 5 years	83,542	91,787
1 to 5 years	84,028	92,011
6 to 10 years	58,863	40,387
6 to 10 years	58,872	38,335
Over 10 years	4,076	2,431
Over 10 years	4,183	2,333
	157,642	143,884
	$ 158,273	$ 142,003

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Note 5 - Long-term Leases

12 Months Ended

Dec. 31, 2014

Leases [Abstract]

Leases of Lessee Disclosure [Text Block]

Note 5 - Long-Term Leases

Capital Leases

Effective March 1, 2014, NHC began leasing and operating 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. The leases also contain certain non-performance default provisions which result in capital lease classification. However, the initial measurement and recording of the capital lease assets and obligations does not include any expected payments under such default provisions, as the Company does not expect to incur an obligation for such payments.

Fixed assets recorded under the capital leases, which are included in property and equipment in the consolidated balance sheets, are as follows:

	December 31, 2014			December 31, 2013
	(in thousands)
Buildings and personal property	$	39,032		$	−
Accumulated amortization		(3,271	)		−
	$	35,761		$	−

Operating Leases

At December 31, 2014, we lease from National Health Investors, Inc. ("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 four separate corporations, none of which we own or control.

On January 1, 2007, a 15-year lease extension began which included three additional five-year renewal options. On December 26, 2012, NHC extended the lease agreement through the first of the three additional five-year renewal options, which extended the lease date through 2026. The two additional five-year renewal options on the lease still remain. Under the terms of the lease, base rent totals $30,750,000 with rent thereafter escalating by 4% of the increase in facility revenue over a 2007 base year. The percentage rent is based on a quarterly calculation of revenue increases and is payable on a quarterly basis. Percentage rent expense for 2014, 2013, and 2012 was approximately $2,334,000, $2,526,000, and $2,591,000, respectively.

On September 1, 2013 and under the second lease agreement, NHC began operating seven skilled nursing facilities in New Hampshire and Massachusetts. The 15 year lease term consists of base rent of $3,450,000 annually with rent escalating by 4% of the increase in facility revenue over a 2014 base year. Additionally, NHC has the option to purchase the seven facilities from NHI in the 13^th year of the lease for a purchase price of $49,000,000.

Each lease with NHI is a "triple net lease" under which we are responsible for paying all taxes, utilities, insurance premium costs, repairs and other charges relating to the ownership of the facilities. We are obligated at our expense to maintain adequate insurance on the facilities' assets.

We have a right of first refusal with NHI to purchase any of the properties transferred from us should NHI receive an offer from an unrelated party during the term of the lease or up to 180 days after termination of the related lease.

Base rent expense under both NHI lease agreements totals $34,200,000.

Minimum Lease Payments

The approximate future minimum lease payments required under all leases that have remaining non-cancelable lease terms at December 31, 2014 are as follows:

	Operating Leases		Capital Leases
	(in thousands)
2015	$	34,200	$	5,200
2016		34,200		5,200
2017		34,200		5,200
2018		34,200		5,200
2019		34,200		5,200
Thereafter		245,150		21,667
Total minimum lease payments	$	416,150	$	47,667
Less: Amounts representing interest				(11,071	)
Present value of minimum lease payments				36,596
Less: Current portion				(3,088	)
Long-term capital lease obligations			$	33,508

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Note 6 - Earnings Per Share

12 Months Ended

Dec. 31, 2014

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

Note 6 - Earnings Per Share

The following table summarizes the earnings and the weighted average number of common shares used in the calculation of basic and diluted earnings per share.

	Year Ended December 31,
	2014		2013		2012
	(dollars in thousands, except share and per share amounts)
Basic:
Weighted average common shares outstanding		13,816,095		13,829,626		13,852,709
Net income	$	53,369	$	64,613	$	59,300
Dividends to preferred stockholders		8,670		8,671		8,671
Net income available to common stockholders	$	44,699	$	55,942	$	50,629
Earnings per common share, basic	$	3.24	$	4.05	$	3.65
Diluted:
Weighted average common shares outstanding		13,816,095		13,829,626		13,852,709
Dilutive effect of stock options		73,678		9,091		8,019
Dilutive effect of restricted stock		3,691		4,740		5,526
Dilutive effect of contingent issuable stock		328,669		232,118		109,233
Convertible preferred stock		−		2,623,228		2,623,329
Assumed average common shares outstanding		14,222,133		16,698,803		16,598,816
Net income available to common stockholders	$	44,699	$	55,942	$	50,629
Add dilutive preferred stock dividends for effect of assumed conversion of preferred stock		−		8,671		8,671
Net income for diluted earnings per common share	$	44,699	$	64,613	$	59,300
Earnings per common share, diluted	$	3.14	$	3.87	$	3.57

Excluded in the above table are -0-; 929,000; and 1,068,302 shares associated with stock options for 2014, 2013, and 2012, respectively, due to their antidilutive impact. We have also excluded 2,622,956 of common shares issuable upon the conversation of preferred stock for the year ended December 31, 2014 due to their anti-dilutive impact.

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Note 8 - Fair Value Measurements

12 Months Ended

Dec. 31, 2014

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

Note 8 - 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.

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.

Valuation of Marketable Securities

The Company determines fair value for marketable securities with Level 1 inputs through quoted market prices. The Company determines fair value for marketable securities with Level 2 inputs through broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Our Level 2 marketable securities have been initially valued at the transaction price and subsequently valued, at the end of each month, typically utilizing third party pricing services or other market observable data. The pricing services utilize industry standard valuation models, including both income and market based approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, and other industry and economic events.

We validated the prices provided by our broker by reviewing their pricing methods, obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming that the relevant markets are active. After completing our validation procedures, we did not adjust or override any fair value measurements provided by our broker as of December 31, 2014 or 2013. We did not have any transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy during the twelve months ended December 31, 2014 or 2013.

Other

The carrying amounts of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to their short-term nature. The estimated fair value of notes receivable approximates the carrying value based principally on their underlying interest rates and terms, maturities, collateral and credit status of the receivables. Our long-term debt approximates fair value due to variable interest rates. At December 31, 2014 and 2013, there were no material differences between the carrying amounts and fair values of NHC’s financial instruments.      

The following table summarizes fair value measurements by level at December 31, 2014 and December 31, 2013 for assets and liabilities measured at fair value on a recurring basis (in thousands):

	Fair Value Measurements Using
December 31, 2014	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	$	69,767	$	69,767	$	-	$	-
Restricted cash and cash equivalents		10,651		10,651		-		-
Marketable equity securities		132,535		132,535		-		-
Corporate debt securities		68,916		39,909		29,007		-
Commercial mortgage-backed securities		63,252		-		63,252		-
U.S. Treasury securities		14,728		14,728		-		-
State and municipal securities		11,377		2,216		9,161		-
Total financial assets	$	371,226	$	269,806	$	101,420	$	-

	Fair Value Measurements Using
December 31, 2013	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	$	81,705	$	81,705	$	-	$	-
Restricted cash and cash equivalents		13,929		13,929		-		-
Marketable equity securities		105,009		105,009		-		-
Corporate debt securities		65,006		-		65,006		-
Commercial mortgage-backed securities		45,856		-		45,856		-
U.S. Treasury securities		22,841		22,841		-		-
State and municipal securities		8,300		-		8,300		-
Total financial assets	$	342,646	$	223,484	$	119,162	$	-

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Note 10 - Notes Receivable (Details) (USD $)	Dec. 31, 2014	Dec. 31, 2013
Note 10 - Notes Receivable (Details) [Line Items]
Financing Receivable, Gross	$ 12,989,000	$ 15,378,000
Prime Rate [Member] | Minimum [Member]
Note 10 - Notes Receivable (Details) [Line Items]
Loans Receivable, Basis Spread on Variable Rate	2.00%
Prime Rate [Member] | Maximum [Member]
Note 10 - Notes Receivable (Details) [Line Items]
Loans Receivable, Basis Spread on Variable Rate	8.50%

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Note 20 - Selected Quarterly Financial Data (Details) - Selected Quarterly Financial Data (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2014	Sep. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Selected Quarterly Financial Data [Abstract]
Net Operating Revenues	$ 226,374	$ 218,223	$ 216,555	$ 210,531	$ 206,796	$ 195,772	$ 192,011	$ 194,378	$ 871,683	$ 788,957	$ 761,002
Income Before Non-Operating Income	20,204	14,736	16,083	16,988	19,819	19,265	17,001	15,996	68,011	72,081	68,236
Non-Operating Income	4,392	3,937	4,281	4,572	5,674	11,171	6,632	6,618
Net Income	14,800	12,829	12,511	13,229	16,589	19,877	14,342	13,805	53,369	64,613	59,300
Preferred Dividends	2,168	2,167	2,167	2,168	2,168	2,167	2,168	2,168	8,670	8,671	8,671
Net Income Available to Common Stockholders	$ 12,632	$ 10,662	$ 10,344	$ 11,061	$ 14,421	$ 17,710	$ 12,174	$ 11,637	$ 44,699	$ 55,942	$ 50,629
Basic Earnings Per Share (in Dollars per share)	$ 0.92	$ 0.77	$ 0.75	$ 0.80	$ 1.04	$ 1.28	$ 0.88	$ 0.84	$ 3.24	$ 4.05	$ 3.65
Diluted Earnings Per Share (in Dollars per share)	$ 0.88	$ 0.75	$ 0.72	$ 0.78	$ 0.99	$ 1.19	$ 0.86	$ 0.82	$ 3.14	$ 3.87	$ 3.57

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Note 11 - Long-term Debt (Details) - Long-term Debt (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Note 11 - Long-term Debt (Details) - Long-term Debt [Line Items]
Long-term Debt	$ 10,000
	10,000	10,000
Unsecured Term Note Payable [Member]
Note 11 - Long-term Debt (Details) - Long-term Debt [Line Items]
Maturities	2018
Long-term Debt	$ 10,000
Revolving Credit Facility [Member]
Note 11 - Long-term Debt (Details) - Long-term Debt [Line Items]
Maturities	2015

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Note 9 - Property and Equipment (Details) - Property and Equipment at Cost (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Property and Equipment at Cost [Abstract]
Land	$ 58,672	$ 57,272
Leasehold improvements	98,302	94,066
Buildings and improvements	487,021	427,471
Furniture and equipment	142,110	134,255
Construction in progress	35,687	21,618
	821,792	734,682
Less: Accumulated depreciation	(307,048)	(277,884)
	$ 514,744	$ 456,798

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Note 5 - Long-term Leases (Tables)

12 Months Ended

Dec. 31, 2014

Leases [Abstract]

Schedule of Capital Leased Assets [Table Text Block]

	December 31, 2014			December 31, 2013
	(in thousands)
Buildings and personal property	$	39,032		$	−
Accumulated amortization		(3,271	)		−
	$	35,761		$	−

Schedule of Future Minimum Lease Payments for Capital Leases [Table Text Block]

	Operating Leases		Capital Leases
	(in thousands)
2015	$	34,200	$	5,200
2016		34,200		5,200
2017		34,200		5,200
2018		34,200		5,200
2019		34,200		5,200
Thereafter		245,150		21,667
Total minimum lease payments	$	416,150	$	47,667
Less: Amounts representing interest				(11,071	)
Present value of minimum lease payments				36,596
Less: Current portion				(3,088	)
Long-term capital lease obligations			$	33,508

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Note 4 - Non-operating Income (Details) - Non-operating Income (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Note 4 - Non-operating Income (Details) - Non-operating Income [Line Items]
Non-operating Income	$ 17,182	$ 30,095	$ 25,245
Equity in Earnings of Unconsolidated Investments [Member]
Note 4 - Non-operating Income (Details) - Non-operating Income [Line Items]
Non-operating Income	6,675	14,188	13,616
Dividends and Other Net Realized Gains and Losses on Sales of Securities [Member]
Note 4 - Non-operating Income (Details) - Non-operating Income [Line Items]
Non-operating Income	5,957	5,216	7,006
Interest Income [Member]
Note 4 - Non-operating Income (Details) - Non-operating Income [Line Items]
Non-operating Income	4,550	5,237	4,623
Gain on Recovery of Notes Receivable [Member]
Note 4 - Non-operating Income (Details) - Non-operating Income [Line Items]
Non-operating Income		$ 5,454

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Note 13 - Stock Repurchase Program

12 Months Ended

Dec. 31, 2014

Disclosure Text Block Supplement [Abstract]

Treasury Stock [Text Block]

Note 13 - Stock Repurchase Program

On August 5, 2014 the Board of Directors of the Company authorized a new stock repurchase program that will allow the Company to repurchase up to $25 million of its common stock. The program expires on August 31, 2015. Under the stock repurchase program, the Company may repurchase its common stock from time to time, in amounts and at prices the Company deems appropriate, subject to market conditions and other considerations. The Company’s repurchases may be executed using open market purchases, privately negotiated agreements or other transactions. The Company intends to fund repurchases under the new stock repurchase program from cash on hand, available borrowings or proceeds from potential debt or other capital market sources. The stock repurchase program may be suspended or discontinued at any time without prior notice. On August 11, 2014, the Company repurchased 125,000 shares of its common stock for a total cost of $6,995,000. The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued.

On August 1, 2013, the Board of Directors of the Company authorized a stock repurchase program that allowed the Company to repurchase up to $25 million of its common stock over a one year period. The program expired on July 31, 2014. No repurchases of common stock were executed under this program.

On August 1, 2012, the Board of Directors of the Company approved a stock repurchase program authorizing the Company to repurchase up to $25 million of its outstanding shares of common stock. On February 19, 2013, the Company repurchased 100,000 shares for a total cost of $4.7 million. These were the only shares repurchased pursuant to the program’s authorization. The shares were funded from cash on hand and were cancelled and returned to the status of authorized but unissued. This program expired on July 31, 2013.

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Note 18 - Series A Convertible Preferred Stock

12 Months Ended

Dec. 31, 2014

Disclosure Text Block Supplement [Abstract]

Preferred Stock [Text Block]

Note 18 - Series A Convertible Preferred Stock

On October 31, 2007, NHC issued $170,555,000 of NHC Series A Convertible Preferred Stock (the "Preferred Stock") with a liquidation preference of $15.75. Each share of the Preferred Stock is entitled to annual preferred dividends of $0.80 per share. Dividends on the Preferred Stock are cumulative.

The Preferred Stock, which is listed on the NYSE MKT exchange with the symbol "NHC.PRA", is convertible at any time at the option of the stockholder into NHC common stock at a conversion price of $65.07. Each share of the Preferred Stock will be convertible into 0.24204 of a share of NHC common stock. After the fifth anniversary of the closing date, NHC will have the option to redeem the Preferred Stock, in whole or in part, for $15.75 cash per share (plus accrued but unpaid dividends); provided that the Preferred Stock will not be redeemable prior to the eighth anniversary of the closing date unless the average closing price for NHC common stock for 20 trading sessions equals or exceeds the conversion price. The conversion price will be adjusted to reflect any future NHC common stock splits or stock dividends.

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Note 3 - Other Revenues (Details) - Summary of Other Revenues (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Note 3 - Other Revenues (Details) - Summary of Other Revenues [Line Items]
Other Revenues	$ 42,396	$ 53,120	$ 55,616
Insurance Services [Member]
Note 3 - Other Revenues (Details) - Summary of Other Revenues [Line Items]
Other Revenues	7,215	15,143	15,671
Management and Accounting Services Fees [Member]
Note 3 - Other Revenues (Details) - Summary of Other Revenues [Line Items]
Other Revenues	15,184	18,160	20,042
Rental Income [Member]
Note 3 - Other Revenues (Details) - Summary of Other Revenues [Line Items]
Other Revenues	19,123	19,132	19,314
Other Income [Member]
Note 3 - Other Revenues (Details) - Summary of Other Revenues [Line Items]
Other Revenues	$ 874	$ 685	$ 589

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Note 14 - Stock-based Compensation (Tables)

12 Months Ended

Dec. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Year Ended December 31,
	2014			2013			2012
Risk-free interest rate		0.52	%		0.25	%		0.28	%
Expected volatility		17.3	%		31.3	%		38.8	%
Expected life, in years		2.2			2.1			2.1
Expected dividend yield		2.68	%		2.81	%		2.91	%

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

	Number of Shares			Weighted Average Exercise Price		Aggregate Intrinsic Value
Options outstanding at January 1, 2012		1,482,077		$	46.92	$	−
Options granted		63,516			44.28		−
Options exercised		(295,371	)		45.41		−
Options cancelled		(115,620	)		50.99		−
Options outstanding at December 31, 2012		1,134,602			46.75		−
Options granted		57,672			47.95		−
Options exercised		(19,722	)		45.63		−
Options cancelled		(98,000	)		51.11		−
Options outstanding at December 31, 2013		1,074,552			46.44		−
Options granted		57,716			53.10		−
Options exercised		(157,590	)		45.97		−
Options cancelled		(20,000	)		46.69		−
Options outstanding at December 31, 2014		954,678		$	46.92	$	15,202,000
Options exercisable at December 31, 2014		158,573		$	48.06	$	2,344,000

Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range [Table Text Block]

Options Outstanding December 31, 2014		Exercise Prices	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years
	909,678	$44.80 - $47.45	$	46.62		1.3
	45,000	$52.93	$	52.93		4.3
	954,678		$	46.92		1.5

Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity [Table Text Block]

	Number of Shares		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Unvested restricted shares at January 1, 2012		24,000	$	34.46	$	−
Award shares granted		−		−		−
Award shares vested		6,000		34.46		−
Unvested restricted shares at December 31, 2012		18,000		34.46		−
Award shares granted		−		−		−
Award shares vested		6,000		34.46		−
Unvested restricted shares at December 31, 2013		12,000		34.46		−
Award shares granted		−		−		−
Award shares vested		6,000		34.46		−
Unvested restricted shares at December 31, 2014		6,000	$	34.46	$	170,000

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Consolidated Balance Sheets (Parentheticals) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Allowance for doubtful accounts (in Dollars)	$ 5,738	$ 4,972
Series A Convertible Preferred Stock; par value (in Dollars per share)	$ 0.01	$ 0.01
Series A Convertible Preferred Stock; shares authorized	25,000,000	25,000,000
Series A Convertible Preferred Stock; shares issued	10,836,659	10,837,665
Series A Convertible Preferred Stock; shares outstanding	10,836,659	10,837,665
Series A Convertible Preferred Stock; liquidation value (in Dollars per share)	$ 15.75	$ 15.75
Common stock, par value (in Dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	30,000,000	30,000,000
Common stock, shares issued	14,110,859	14,078,028
Common stock, shares outstanding	14,110,859	14,078,028

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Note 2 - Relationship with National Health Corporation

12 Months Ended

Dec. 31, 2014

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

Note 2 - Relationship with National Health Corporation

National Health Corporation ("National"), which is wholly-owned by the National Health Corporation Leveraged Employee Stock Ownership Plan ("ESOP"), was formed in 1986 and is our administrative services affiliate and contractor. As discussed below, all of the personnel conducting our business, including our executive management team, are employees of National and may have ownership interests in National only through their participation as employees in the ESOP.

Management Contracts

We currently manage five skilled nursing facilities for National under a management contract. We manage the centers for management fees that are comparable to those in the industry. The management contract has been extended until January 1, 2018. See Note 3 for additional information regarding management services fees recognized from National.

Financing Activities

During 1991, we borrowed $10,000,000 from National. The term note payable currently requires quarterly interest payments at the prime rate minus .85 percent. The entire principal is due at maturity in 2018.

In conjunction with our management contract, we have entered into a line of credit arrangement whereby we may have amounts due from National from time to time. The maximum loan commitment under the line of credit is $2,000,000. The interest rate on the line of credit is prime plus one percent and the final maturity is January 20, 2018. At December 31, 2014, National did not have an outstanding balance on the line of credit.

The maximum line of credit commitment amount of $2,000,000 is also the amount of a deferred gain that has been outstanding since NHC sold certain assets to National in 1988. The amount of the deferred gain is expected to remain deferred until the management contract with National expires, currently scheduled in January 2018. The deferred gain is included in deferred revenue in the consolidated balance sheets.

Payroll and Related Services

The personnel conducting our business, including our executive management team, are employees of National and may have ownership interests in National only through their participation in the ESOP. National provides payroll services to NHC, provides employee fringe benefits, and maintains certain liability insurance. We pay to National all the costs of personnel employed for our benefit, as well as an administrative fee equal to 1% of payroll costs. Such costs of personnel totaling approximately $510,249,000, $453,560,000, and $426,934,000, for 2014, 2013 and 2012 respectively, are reflected as salaries, wages and benefits in the accompanying consolidated statements of income. The administrative fee paid to National for 2014, 2013, and 2012 was $4,395,000, $3,693,000, and $3,862,000, respectively. National owes us $2,155,000 and $5,785,000 at December 31, 2014 and 2013, respectively, as a result of the differences between interim payments for payroll and benefits services costs made during the current and previous years and such actual costs. The amounts are included in accounts receivable in the consolidated balance sheets.

National’s Ownership of Our Stock

At December 31, 2014, National owns 1,046,147 shares (or approximately 7.4%) of our outstanding common stock and 1,271,147 shares (or approximately 11.7%) of our outstanding preferred stock.

Consolidation Considerations

Because of the contractual and management relationships between NHC and National as described in this note above, we have considered whether National should be consolidated by NHC under the guidance provided in ASC Topic 810, Consolidation. We do not consolidate National because (1) NHC does not have any obligation or rights (current or future) to absorb losses or to receive benefits from National. The ESOP participants bear the current and future financial gain or burden of National, (2) National’s equity at risk is sufficient to finance its activities without past or future subordinated support from NHC or other parties, and (3) the equity holders of National (that is collectively the ESOP, its trustees, and the ESOP participants) possess the characteristics of a controlling financial interest, including voting rights that are proportional to their economic interests. Supporting the assertions above is the following: (1) substantive independent trustees are appointed for the benefit of the ESOP participants when decisions must be made that may create the appearance of a conflict of interest between NHC and the ESOP, and (2) National was designed, formed and is operated for the purpose of creating variability and passing that variability along to the ESOP participants—that is, to provide retirement benefits and value to the employees of NHC and NHC’s affiliates. The contractual and management relationships between NHC and National are with the skilled nursing facilities that are substantially less than 50% of the fair value of the total assets of National. NHC does not have a variable interest in National as a whole.

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Note 7 - Investments in Marketable Securities (Details) - Marketable Securities and Restricted Marketable Securities (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Restricted investments available for sale:
Amortized Cost	$ 157,642	$ 143,884
	187,818	174,060
	290,808	247,012
Equity Securities [Member]
Investments available for sale:
Marketable equity securities	30,176	30,176
Marketable equity securities	132,535	105,009
Restricted investments available for sale:
	132,535	105,009
Corporate Debt Securities [Member]
Restricted investments available for sale:
Amortized Cost	68,594	65,852
Fair Value	68,916	65,006
	68,916	65,006
Commercial Mortgage Backed Securities [Member]
Restricted investments available for sale:
Amortized Cost	63,351	46,977
Fair Value	63,252	45,856
	63,252	45,856
US Government Corporations and Agencies Securities [Member]
Restricted investments available for sale:
Amortized Cost	14,623	22,932
Fair Value	14,728	22,841
US States and Political Subdivisions Debt Securities [Member]
Restricted investments available for sale:
Amortized Cost	11,074	8,123
Fair Value	11,377	8,300
	$ 11,377	$ 8,300

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Note 17 - Variable Interest Entity (Details) (USD $)	1 Months Ended	12 Months Ended
	Dec. 31, 2010	Dec. 31, 2014	Dec. 31, 2013
Variable Interest Entity [Abstract]
Number Of Variable Interest Entities		1
Number Of Patient Beds In Facility	120
Lessee Leasing Arrangements, Operating Leases, Term of Contract	10 years
Number of Additional Lease Options	5
Lessee Leasing Arrangements, Operating Leases, Renewal Term	5 years
Notes, Loans and Financing Receivable, Gross, Current	$ 4,500,000
Increase (Decrease) in Notes Payable, Current		4,500,000	4,500,000
Land and Land Improvements		$ 4,500,000

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Note 12 - Income Taxes (Details) - Provision for Income Taxes (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Current Tax Provision
Federal	$ 30,235	$ 34,680	$ 29,147
State	3,095	5,588	4,010
	33,330	40,268	33,157
Deferred Tax Provision
Federal	(1,172)	(2,226)	892
State	(334)	(479)	132
	(1,506)	(2,705)	1,024
Income Tax Provision	$ 31,824	$ 37,563	$ 34,181

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Note 19 - Series B Junior Participating Preferred Stock

12 Months Ended

Dec. 31, 2014

Stockholder Rights Plan Disclosure [Abstract]

Stockholder Rights Plan Disclosure [Text Block]

Note 19 - Series B Junior Participating Preferred Stock

On August 2, 2007, the NHC Board of Directors approved the adoption of a stockholder rights plan and declared a dividend distribution of one right (a "Right") for each outstanding share of NHC common stock to stockholders of record at the close of business on August 2, 2007. Each Right entitles the registered holder to purchase from NHC a unit consisting of one one-ten thousandth of a share of Series B Junior Participating Preferred Stock, $0.01 par value at a purchase price of $250 per Unit, subject to adjustment. The description and terms of the Rights are set forth in a rights agreement between NHC and Computershare Trust Company, N.A., as rights agent, dated as of August 2, 2007, as may be amended, restated or otherwise modified from time to time. No shares have been issued pursuant to this stockholder rights plan.

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Note 14 - Stock-based Compensation (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012	May 31, 2005	May 31, 2010
Note 14 - Stock-based Compensation (Details) [Line Items]
Allocated Share-based Compensation Expense	$ 2,021,000	$ 2,298,000	$ 2,366,000
Employee Service Share-based Compensation, Tax Benefit Realized from Exercise of Stock Options	697,000	196,000	404,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Intrinsic Value	855,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	2,005,000
Incentive Stock Option [Member] | Minimum [Member]
Note 14 - Stock-based Compensation (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period	10 years
Restricted Stock and Option Grant Awards [Member] | Plans 2005 and 2010 [Member]
Note 14 - Stock-based Compensation (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	5 years
Employee Stock Option [Member]
Note 14 - Stock-based Compensation (Details) [Line Items]
Allocated Share-based Compensation Expense	1,814,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	1,933,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	1 year 73 days
Restricted Stock [Member]
Note 14 - Stock-based Compensation (Details) [Line Items]
Allocated Share-based Compensation Expense	207,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 72,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition	109 days
2005 Plan [Member]
Note 14 - Stock-based Compensation (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in Shares)				1,200,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in Shares)	220,620
2010 Plan [Member]
Note 14 - Stock-based Compensation (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in Shares)					1,200,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in Shares)	398,744
Plans 2005 and 2010 [Member]
Note 14 - Stock-based Compensation (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term	5 years

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Note 9 - Property and Equipment (Tables)

12 Months Ended

Dec. 31, 2014

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment [Table Text Block]

	December 31,
	2014			2013
	(in thousands)
Land	$	58,672		$	57,272
Leasehold improvements		98,302			94,066
Buildings and improvements		487,021			427,471
Furniture and equipment		142,110			134,255
Construction in progress		35,687			21,618
		821,792			734,682
Less: Accumulated depreciation		(307,048	)		(277,884	)
	$	514,744		$	456,798

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Note 12 - Income Taxes

12 Months Ended

Dec. 31, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Note 12 - Income Taxes

The provision for income taxes is comprised of the following components:

	Year Ended December 31,
	2014			2013			2012
	(in thousands)
Current Tax Provision
Federal	$	30,235		$	34,680		$	29,147
State		3,095			5,588			4,010
		33,330			40,268			33,157
Deferred Tax Provision
Federal		(1,172	)		(2,226	)		892
State		(334	)		(479	)		132
		(1,506	)		(2,705	)		1,024
Income Tax Provision	$	31,824		$	37,563		$	34,181

The deferred tax assets and liabilities, consisting of temporary differences tax effected at the respective income tax rates, are as follows:

	December 31,
	2014			2013
	(in thousands)
Current deferred tax asset:
Allowance for doubtful accounts receivable	$	2,138		$	1,802
Accrued risk reserves		964			857
Accrued expenses		3,635			3,593
		6,737			6,252
Current deferred tax liability:
Unrealized gains on marketable securities		(39,958	)		(29,120	)
Other		(2,284	)		(1,922	)
		(42,242	)		(31,042	)
Net current deferred tax liability	$	(35,505	)	$	(24,790	)
Noncurrent deferred tax asset:
Unrealized gains on marketable securities	$	(183	)	$	593
Financial reporting depreciation in excess of tax depreciation		7,191			5,872
Deferred gain on sale of assets (net)		(3,135	)		(3,135	)
Tax basis intangible asset in excess of financial reporting basis		(409	)		127
Stock-based compensation		2,879			2,214
Long-term investments		(2,445	)		(2,276	)
Nonrefundable entrance fees		129			45
Refundable entrance fees		1,739			1,647
Obligation to provide future services		1,532			1,439
Accrued risk reserves, less current portion		2,295			3,040
Accrued expenses		2,910			2,502
Deferred revenue		6,197			6,096
Net noncurrent deferred tax asset	$	18,700		$	18,164

A reconciliation of income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes is as follows:

	Year Ended December 31,
	2014			2013			2012
	(in thousands)
Tax provision at federal statutory rate	$	29,818		$	35,762		$	32,718
Increase (decrease) in income taxes resulting from:
State, net of federal benefit		2,207			2,325			3,261
Nondeductible expenses		363			197			118
Insurance expense		27			35			39
Other, net		439			(258	)		823
Unrecognized tax benefits		512			1,107			409
Expiration of statute of limitations		(1,542	)		(1,605	)		(3,187	)
		2,006			1,801			1,463
Effective income tax expense	$	31,824		$	37,563		$	34,181

The exercise of non-qualified stock options results in state and federal income tax benefits to the Company related to the difference between the market price at the date of exercise and the option exercise price. During 2014, 2013 and 2012, $201,000, $(225,000), and $(267,000), respectively, attributable to the tax benefit of stock options exercised and restricted stock, was credited to additional paid-in capital.

Our deferred tax assets have been evaluated for realization based on historical taxable income, tax planning strategies, the expected timing of reversals of existing temporary differences and future taxable income anticipated. Our deferred tax assets are more likely than not to be realized in full due to the existence of sufficient taxable income of the appropriate character under the tax law. As such, there is no need for a valuation allowance.

Uncertain tax positions may arise where tax laws may allow for alternative interpretations or where the timing of recognition of income is subject to judgment. We believe we have adequate provisions for unrecognized tax benefits related to uncertain tax positions. However, because of uncertainty of interpretation by various tax authorities and the possibility that there are issues that have not been recognized by management, we cannot guarantee we have accurately estimated our tax liabilities. We believe that our liabilities reflect the anticipated outcome of known uncertain tax positions in conformity with ASC Topic 740 Income Taxes. Our liabilities for unrecognized tax benefits are presented in the consolidated balance sheets within other noncurrent liabilities.

Also under ASC Topic 740, tax positions are evaluated for recognition using a more-likely-than-not threshold, and those tax positions requiring recognition are measured at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.

In accordance with current guidance, the Company has established a liability for unrecognized tax benefits, which are differences between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured. Generally a liability is created for an unrecognized tax benefit because it represents a company’s potential future obligation to a taxing authority for a tax position that was not recognized per above.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	Deferred Tax Asset			Liability For Unrecognized Tax Benefits			Liability For Interest and Penalties			Liability Total
Balance, January 1, 2012	$	9,926		$	13,765		$	2,479		$	16,244
Additions based on tax positions related to the current year		−			1,695			185			1,880
Additions for tax positions of prior years		728			845			170			1,015
Reductions for statute of limitation expirations		(1,999	)		(4,309	)		(940	)		(5,249	)
Balance, December 31, 2012		8,655			11,996			1,894			13,890
Additions based on tax positions related to the current year		−			1,832			198			2,030
Additions for tax positions of prior years		2,120			1,427			641			2,068
Reductions for statute of limitation expirations		(2,177	)		(2,802	)		(661	)		(3,463	)
Balance, December 31, 2013		8,598			12,453			2,072			14,525
Additions based on tax positions related to the current year		−			2,008			216			2,224
Additions for tax positions of prior years		2,032			1,218			706			1,924
Reductions for statute of limitation expirations		(1,523	)		(2,059	)		(603	)		(2,662	)
Balance, December 31, 2014	$	9,107		$	13,620		$	2,391		$	16,011

During the year ended December 31, 2014, we have recognized a $2,059,000 decrease in unrecognized tax benefits (including $1,120,000 of temporary differences and $939,000 of permanent differences) and an accompanying $603,000 decrease of related interest and penalties due to the effect of statute of limitations lapse. The favorable impact on our tax provision was $1,542,000 composed of $939,000 tax and $492,000 interest and penalties on permanent differences and $111,000 interest and penalties on temporary differences.

At December 31, 2014, we had $13,620,000 of unrecognized tax benefits, composed of $8,725,000 of deferred tax assets and $4,895,000 of permanent differences. Accrued interest and penalties of $2,391,000 related to unrecognized tax benefits at December 31, 2014. Unrecognized tax benefits of $4,895,000, net of federal benefit, at December 31, 2014, attributable to permanent differences, would favorably impact our effective tax rate if recognized. Accrued interest and penalties of $2,118,000 relate to these permanent differences at December 31, 2014. We do not expect to recognize significant increases or decreases in unrecognized tax benefits within the twelve months beginning December 31, 2014, except for the effect of decreases related to the lapse of statute of limitations estimated at $2,585,000, composed of temporary differences of $1,520,000, and permanent differences of $1,065,000. Interest and penalties of $615,000 relate to these temporary and permanent difference changes within 12 months beginning December 31, 2014.

During the year ended December 31, 2013, we have recognized a $2,802,000 decrease in unrecognized tax benefits (including $1,817,000 of temporary differences and $985,000 of permanent differences) and an accompanying $661,000 decrease of related interest and penalties due to the effect of statute of limitations lapse. The favorable impact on our tax provision was $1,605,000 composed of $976,000 tax and $451,000 interest and penalties on permanent differences and $178,000 interest and penalties on temporary differences.

At December 31, 2013, we had $12,453,000 of unrecognized tax benefits, composed of $8,253,000 of deferred tax assets and $4,200,000 of permanent differences. Accrued interest and penalties of $2,072,000 related to unrecognized tax benefits at December 31, 2013. Unrecognized tax benefits of $4,200,000, net of federal benefit, at December 31, 2013, attributable to permanent differences, would favorably impact our effective tax rate if recognized. Accrued interest and penalties of $1,835,000 relate to these permanent differences at December 31, 2013. We do not expect to recognize significant increases or decreases in unrecognized tax benefits within the twelve months beginning December 31, 2013, except for the effect of decreases related to the lapse of statute of limitations estimated at $2,330,000, composed of temporary differences of $1,390,000, and permanent differences of $940,000. Interest and penalties of $566,000 relate to these temporary and permanent difference changes within 12 months beginning December 31, 2013.

During the year ended December 31, 2012, we have recognized a $4,309,000 decrease in unrecognized tax benefits (including $1,999,000 of temporary differences and $2,310,000 of permanent differences) and an accompanying $940,000 decrease of related interest and penalties due to the effect of statute of limitations lapse. The favorable impact on our tax provision was $3,187,000 composed of $2,310,000 tax and $707,000 interest and penalties on permanent differences and $170,000 interest and penalties on temporary differences.

At December 31, 2012, we had $11,996,000 of unrecognized tax benefits, composed of $8,292,000 of deferred tax assets and $3,704,000 of permanent differences. Accrued interest and penalties of $1,894,000 related to unrecognized tax benefits at December 31, 2012. Unrecognized tax benefits of $3,704,000, net of federal benefit, at December 31, 2012, attributable to permanent differences, would favorably impact our effective tax rate if recognized. Accrued interest and penalties of $1,531,000 relate to these permanent differences at December 31, 2012.

Interest and penalties expense related to U.S. federal and state income tax returns are included within income tax expense. Interest and penalties expense (benefit) was $319,000, $178,000 and ($585,000) for the years ended December 31, 2014, 2013, and 2012, respectively.

The Company is no longer subject to U.S. federal and state examinations by tax authorities for years before 2011 (with few state exceptions). Currently, there are no U.S. federal and state returns under examination.