Exhibit 4
================================================================================
Highly Confidential
------------------------------------------------------
Presentation to the Special
Committee of the Board of
Directors
APRIL 13, 2001
------------------------------------------------------
------------------------------------------------------
These materials are not intended to constitute an
opinion or appraisal. These materials, which are based
in part on information provided by the Company, are
intended solely to accompany discussion with the
Special Committee of the Board of Directors.
------------------------------------------------------
TABLE OF CONTENTS
================================================================================
I. Transaction Chronology
II. Transaction Overview
III. Overview of NextHealth
A. Historical and Projected Financial Results
B. Historical Stock Price Performance
IV. Valuation Summary
A. Methodology
B. Implied Valuation Matrix
C. Premium Analysis
Appendix
A. Precedent Transaction Analysis: Resorts
B. Precedent Transaction Analysis: Specialized Healthcare
C. Public Company Analysis
D. Discounted Cash Flow Analysis
E. Discount Rate Assumptions
F. Land Rights Valuation Calculation
G. Diluted Share Calculation
2
================================================================================
--------------------------------------------------------
I. Transaction Chronology
--------------------------------------------------------
TRANSACTION CHRONOLOGY
================================================================================
--------------------------------------------------------------------------------
. August 8, 2000: NextHealth, Inc. ("NextHealth" or the
"Company") received a letter from AP NH, LLC
("Apollo") requesting that NextHealth purchase
Apollo's investments in the Company for a cash
price of $5.39 a share or $30.7 million
(the "Apollo Proposal").
. October 16, 2000: NextHealth engaged Prudential Securities
Incorporated ("Prudential Securities" or
"PSI") to serve as its financial advisor to
evaluate the Apollo Proposal and other
strategic alternatives.
. Late December 2000: The Special Committee of NextHealth's Board of
Directors (the "Special Committee") decided
not to pursue the Apollo Proposal.
. January 16, 2001: NextHealth announced that it appointed a
special committee to consider strategic
options, including a possible sale of the
Company, to maximize shareholder value. The
Company also announced that it had retained
Prudential Securities as financial advisor to
the Special Committee.
--------------------------------------------------------------------------------
4
TRANSACTION CHRONOLOGY
================================================================================
--------------------------------------------------------------------------------
. January 18, 2001: NextHealth received an offer from Anam LLC
("Parent" or "Bidder I"), organized by Xxxx X'Xxxxxxx, Xx.,
NextHealth's chief executive officer and Xxxxxx X. Xxxx, a director
of the Company, to buy all outstanding shares and interest for $5.10
per share in cash, subject to financing and other contingencies.
. January 19, 2001 Prudential Securities responded to the 1/18/01
offer. PSI told Bidder I that the price was not sufficient and that
the Company was not willing to accept a financing contingency or a
non-solicitation provision.
. January 24, 2001: Bidder I revised its offer to $5.45 share and
the Company issued a press release announcing the revised offer.
. Mid-Jan. to mid-Feb: Prudential Securities and the Special
Committee received inquiries from seven (7) parties.
. January 25, 2001: Prudential Securities mailed confidentiality
agreements to the interested parties. Subsequently, after the
execution of the confidentiality agreements, Prudential Securities
mailed informational materials (the "Materials") and procedure
letters to such interested parties. Five (5) entities executed
confidentiality agreements and received the Materials.
--------------------------------------------------------------------------------
5
TRANSACTION CHRONOLOGY
================================================================================
--------------------------------------------------------------------------------
. February 14, 2001: Prudential Securities received one preliminary
indication of interest from Bidder II at $5.75 to $6.00 per share.
. February 23, 2001: Prudential Securities received one preliminary
indication of interest from Bidder III, who expressed interest in
acquiring the assets of Sierra Tucson for $50 million free and clear
of any liabilities.
. Late Feb. to Mid-Mar: Bidder II and Bidder III conducted due
diligence at a data room in New York as well as at the Company. All
information that was provided to Bidder I was also made available to
Bidders II and III.
. March 14, 2001: The Company received 4 offers:
. Bidder I submitted a proposal to purchase all
outstanding shares and interest in the Company
for $5.75 per share.
. Bidder II/Bidder III jointly submitted a
proposal to purchase all outstanding shares
and interest in the Company for $5.75 per
share subject to certain conditions and
potential price adjustments related to
Miraval's EBITDA and the Company's projected
cash balance.
--------------------------------------------------------------------------------
6
TRANSACTION CHRONOLOGY
================================================================================
--------------------------------------------------------------------------------
. March 14, 2001: . Bidder II, submitted an offer to purchase
(Continued) the assets of Miraval for $47.0 million.
. Bidder III submitted a proposal to purchase
the assets of Sierra Tucson for $ 35.5
million.
. March 15, 2001: The Special Committee met and decided to continue
negotiations with respect to the two proposals to
acquire the stock of the Company.
. March 19, 2001: The Company received two revised offers:
. Bidder I submitted a revised offer for $6.00
per share.
. Bidder II/Bidder III submitted a revised offer
with a floor of $4.96 per share without
increasing its bid of $5.75 per share.
. March 20, 2001: The Special Committee met and decided to further
investigate Bidder I's proposal, including the
financing of Bidder I's proposal and the potential
for Bidder I to make a cash deposit.
--------------------------------------------------------------------------------
7
TRANSACTION CHRONOLOGY
================================================================================
--------------------------------------------------------------------------------
. March 22, 2001: Prudential Securities told Deutsche Bank, financial
advisor to Bidder II, that Bidder II/Bidder III was
not the high bidder, and encouraged Bidder II/Bidder
III to raise their offer and eliminate the purchase
price adjustments.
. March 30, 2001: Bidder I revised its bid to $5.75 per share due to
lower projections on the Miraval business segment.
Based upon these lower EBITDA projections, Bidder
II/III price adjustment would have resulted in an
offer price of approximately $5.37 per share.
. April 12, 2001: After extensive negotiations (including the
realization that the Company had 300,000 additional
warrants outstanding), Bidder I and the Special
Committee agreed to a $5.65 per share purchase
price.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
At no time during Prudential Securities' engagement did the Special Committee
request nor did Prudential Securities directly solicit any parties in
connection with a potential sale of the Company; however, Prudential
Securities responded to inquiries from interested third parties.
--------------------------------------------------------------------------------
8
================================================================================
----------------------------------------------------
II.Transaction Overview
----------------------------------------------------
TRANSACTION OVERVIEW
================================================================================
--------------------------------------------------------------------------------
Synopsis: It is proposed that Anam LLC, a limited
liability company ("Anam" or "Parent"), NHI
Acquisition Corp., a Delaware Corporation
("Merger Sub"), and the Company ("Target") will
enter into an Agreement and Plan of Merger.
Parent and Merger Sub are sometimes herein
referred to as ("Buyer").
Merger Consideration: Pursuant to the Agreement, each issued and
outstanding share of the Company's common
stock, par value $.01 per share ("Common
Stock"), other than those shares of Common
Stock that, at the Effective Time, are owned by
Buyer or by any subsidiary of Buyer (the
"Excluded Shares") and each issued and
outstanding share of the Company's preferred
stock, par value $.01 (the "Preferred Shares")
shall be converted into and exchanged for the
right to receive an amount of cash equal to
$5.65 per share (the "Merger").
Financing: Parent shall use commercially reasonable
efforts to consummate debt and equity financing
for the transaction.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
This Transaction Overview does not purport to be be all-inclusive and certain
capitalized terms not defined herein have their meanings ascribed to them in the
Merger Agreement. See Merger Agreement for the complete details.
--------------------------------------------------------------------------------
10
TRANSACTION OVERVIEW
================================================================================
--------------------------------------------------------------------------------
Xxxxxxx Money
Deposit: . $2.5 million upon execution of the Agreement
. $500,000 upon receipt at the SEC No Comments
Date
. 2 optional deposits of $1 million each, if
Buyer elects to extend this arrangement past
certain specified dates.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
This Transaction Overview does not purport to be be all-inclusive and certain
capitalized terms not defined herein have their meanings ascribed to them in the
Merger Agreement. See Merger Agreement for the complete details.
--------------------------------------------------------------------------------
11
TRANSACTION OVERVIEW
================================================================================
--------------------------------------------------------------------------------
Termination Fee: The Agreement provides for NextHealth to pay
Buyer a termination fee of $1.65 million,
plus reimbursement of up to $750,000 of all
reasonable and documented, out-of-pocket
expenses incurred by Buyer if the Agreement
is terminated under certain circumstances
detailed in the Agreement.
No Solicitation Provisions: The Company will be prohibited from directly
or indirectly soliciting or initiating, or
participating in negotiations with (or
providing information to), third parties
regarding any possible Takeover Proposal.
However, NextHealth will be expressly
permitted to furnish information to, or enter
into negotiation with, any third party who
makes an unsolicited, written bona fide
Takeover Proposal if the Company's Board
determines that such acquisition is likely to
result in a Superior Proposal (after
consultation with the Special Committee, its
independent financial advisor and legal
counsel).
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
This Transaction Overview does not purport to be be all-inclusive and certain
capitalized terms not defined herein have their meanings ascribed to them in the
Merger Agreement. See Merger Agreement for the complete details.
--------------------------------------------------------------------------------
12
TRANSACTION OVERVIEW
================================================================================
($ in thousands, except share amounts and per share data)
---------------------------------------------------------------
Offer Price per Share $ 5.650
Diluted Shares Outstanding/(1)/ 14,650,973
--------------
Implied Equity Purchase Price $ 82,778
Net Debt/(2)/ 503
--------------
Implied Aggregate Purchase Price $ 83,281
---------------------------------------------------------------
-----------------------------------------------------------------------------------------
Results LTM
of Implied
Operations Multiple
-------------- --------------
2000 Net Revenues $41,292 2.0 x
2000 EBITDA/(3)/ $10,785 7.7 x
2001 Net Revenues $45,913 1.8 x
2001 Projected EBITDA/(4)/ $15,073 5.5 x
2000 Earnings Per Share ("EPS") - Diluted/(5)/ $ 0.47 12.0 x
-----------------------------------------------------------------------------------------
___________________________
(1) Includes all common and preferred stock, all outstanding options and
warrants and all newly issued warrants pursuant to the Transaction.
Calculated pursuant to the treasury stock method and includes all
shares owned by the Buyer. See Appendix E - "Diluted Share
Calculation".
(2) As of December 31, 2000. Net debt includes current portion of long term
debt and minority interest.
(3) For the twelve months ended December 31, 2000.
(4) Source: NextHealth management.
(5) Source: NextHealth form 10K for the twelve months ended December 31,
2000.
13
TRANSACTION OVERVIEW
================================================================================
--------------------------------------
Offer Price: $5.650
--------------------------------------
-----------------------------------------------------------------------------------------
Closing Offer
Stock Price/(1)/ Premium
------------------ ------------------
One Day Prior to Announcement/(2)/
on January 16, 2001 (January 12, 2001): $3.375 67.4%
Price One Week Prior to Announcement
(January 8, 2001): $3.500 61.4%
Price Four Weeks Prior to
Announcement (December 19, 2001): $3.000 88.3%
Price Twelve Weeks Prior to
Announcement (December 22, 2000): $2.938 92.3%
LTM Average Price (April 11, 2001): $3.693 53.0%
Current Price (April 11, 2001): $4.350 29.9%
-----------------------------------------------------------------------------------------
--------------------------------------------
(1) Source: Bloomberg Database.
(2) Special Committee's public announcement that NextHealth is pursuing
strategic alternatives including the sale of the company.
14
================================================================================
---------------------------------------
III. Overview of NextHealth
---------------------------------------
================================================================================
---------------------------------------
A. Historical and Projected
Financial Results
---------------------------------------
HISTORICAL AND PROJECTED FINANCIAL RESULTS
================================================================================
------------------------------------------------------------------------------------------------------------------------------------
($ in thousands, except per share data)
Fiscal Year Ended December 31
-------------------------------------------------------------------------------------------------
1998/(1)/ 1999 2000 E2001/(2)/ E2002/(2)/ E2003/(2)/ E2004/(2)/ E2005/(2)/
-------------------------------------------------------------------------------------------------
Net Revenues $26,284 $30,350 $41,292 $45,913 $51,059 $56,333 $63,909 $70,840
EBITDA 3,229 5,168 10,785 15,073 17,983 20,836 25,614 29,840
Closing Stock Price/(3)/
--------------------------
52 Week High $ 2.50 $ 2.25 $ 4.75 $ 5.22 NM NM NM NM
52 Week Low $ 0.75 $ 0.75 $ 1.28 $ 3.38 NM NM NM NM
52 Week Average $ 1.37 $ 1.20 $ 3.11 $ 4.64 NM NM NM NM
Annual Growth Rates
--------------------------
Net Revenues 27.3% 15.5% 36.1% 11.2% 11.2% 10.3% 13.4% 10.8%
EBITDA NM 56.6% 113.2% 39.8% 19.3% 15.9% 22.9% 16.5%
------------------------------------------------------------------------------------------------------------------------------------
(1) Net Income includes an add back for extraordinary charges of $.26M ($.2M
tax-adjusted).
(2) Sierra Tucson and Corporate projections are from NextHealth's management
as of March 26, 2001. Miraval projections are from NextHealth's
management as of March 29, 2001.
(3) Source: Stock prices from Bloomberg database. Prices are as of January 1
to December 31. 2001 prices are as of January 1, 2000 to April 6, 2001.
17
HISTORICAL AND PROJECTED FINANCIAL RESULTS
================================================================================
---------------------------------------------------------------------------------------------------------------------------------
($ in thousands, except per share data)
Fiscal Year Ended December 31
--------------------------------------------------------------------------------------
1999 2000 E2001/(1)/ E2002/(1)/ E2003/(1)/ E2004/(1)/ E2005/(1)/
--------------------------------------------------------------------------------------
Miraval Revenue Assumptions
---------------------------
Rooms Available 38,690 38,796 38,690 38,690 38,690 38,690 38,690
Rooms Occupied 20,338 25,340 25,695 27,147 28,360 29,134 29,830
% Occupancy 52.6% 65.3% 66.4% 70.2% 73.3% 75.3% 77.1%
Average Room Rate $ 274.65 $ 327.56 $ 348.31 $ 363.25 $ 410.48 $ 488.08 $ 575.34
AIR Rate Per Person $ 297.00 $ 343.66 $ 370.71 $ 400.00 $ 430.00 $ 480.00 $ 530.00
Average Revenues PG $ 451.41 $ 507.82 $ 553.16 $ 587.23 $ 628.20 $ 690.76 $ 753.22
Guest Nights 29,828 37,961 38,552 40,905 43,107 45,157 47,131
Guests Per Room 1.47 1.50 1.50 1.51 1.52 1.55 1.58
Projected Miraval Revenues $ 13,465 $ 19,277 $ 21,325 $ 24,021 $ 27,080 $ 31,193 $ 35,500
Projected Miraval EBITDA $ 179 $ 3,291 $ 4,938 $ 6,406 $ 8,106 $ 10,785 $ 13,583
Sierra Tucson Revenue Assumptions/(2)/
------------------------------
ADC 56.5 63.8 68.8 74.0 79.0 85.0 91.0
Average Daily Net Rate $ 806 $ 932 $ 966 $ 988 $ 1,001 $ 1,041 $ 1,050
Projected Sierra Tucson Revenues $ 16,626 $ 21,714 $ 24,263 $ 26,683 $ 28,867 $ 32,294 $ 34,877
Projected STEM Revenues $ 214 $ 256 $ 277 $ 305 $ 334 $ 367 $ 404
----------- -------- ---------- --------- ---------- --------- ----------
Projected Total ST Revenues $ 16,841 $ 21,970 $ 24,540 $ 26,988 $ 29,201 $ 32,661 $ 35,282
Projected Sierra Tucson EBITDA $ 5,994 $ 9,355 $ 11,129 $ 12,534 $ 13,801 $ 16,026 $ 17,597
Projected STEM EBITDA $ 51 $ 72 $ 75 $ 84 $ 94 $ 106 $ 119
----------- -------- ---------- --------- ---------- --------- ----------
Projected Total ST EBITDA $ 6,045 $ 9,427 $ 11,204 $ 12,618 $ 13,895 $ 16,132 $ 17,716
---------------------------------------------------------------------------------------------------------------------------------
(1) Sierra Tucson projections are from NextHealth's management as of March 26,
2001. Miraval projections are from NextHealth's management as of March 29,
2001.
(2) Sierra Tucson projections exclude Sierra Tucson Education Material ("STEM").
18
HISTORICAL AND PROJECTED FINANCIAL RESULTS
================================================================================
---------------------------------------------------------------------------------------------------------------
($ in thousands)
For the Fiscal Year Ended Decmber 31,
-----------------------------------------
1998 1999 2000
---- ---- ----
Assets
Cash and Marketable Securities $ 843 $ 3,803 $ 12,737
Acounts receivable, net 955 1,174 1,467
Prepaid expenses 313 438 701
Other Current Assets 554 573 708
----------- ------------ ------------
Total Current Assets $ 2,665 $ 5,988 $ 15,613
Property and Equipment, net 34,347 33,327 32,871
Long Term Receivables 135 64 64
Intangible Assets (less amortization) 648 431 214
Other assets 20 21 22
----------- ------------ ------------
Total Assets $ 37,815 $ 39,831 $ 48,784
=========== ============ ============
Liabilities and Equity
Accounts Payable 561 888 1,192
Accrued expenses and other liabilities 3,610 3,835 5,808
----------- ------------ ------------
Total Current Liabilities $ 4,171 $ 4,723 $ 7,000
----------- ------------ ------------
Long-term Debt and financing obligation 12,815 12,724 12,587
----------- ------------ ------------
Total Libilities 16,986 17,447 19,587
Minority Interest - 389 547
Preferred stock - - -
Common stock 86 86 86
Retained earnings 47,997 48,012 48,146
Accumulated deficit (27,254) (26,103) (19,582)
Shareholders' Equity $ 20,829 $ 21,995 $ 28,650
----------- ------------ ------------
Total Liabilities and Shareholders' Equity $ 37,815 $ 39,831 $ 48,784
=========== ============ ============
---------------------------------------------------------------------------------------------------------------
(1) Source: NextHealth's 10K for fiscal year ended December 31, 2000, 1999 and
1998.
19
================================================================================
------------------------------------------------------------
B. Stock Price
Performance
------------------------------------------------------------
STOCK PRICE PERFORMANCE
================================================================================
--------------------------------------------------------------------------------
NEXTHEALTH INC COM (NEXT)
Apr 11, 1996 - Apr 12, 2001 High: 5.44
U.S. Dollar Low: 0.69
Last: 4.48
[GRAPH]
--------------------------------------------------------------------------------
Source: FactSet
21
STOCK PRICE PERFORMANCE
================================================================================
NextHealth - Since Apollo's Investment
--------------------------------------------------------------------------------
Percent of Total Volume Traded at Specified Prices
November 15, 1996 to April 11, 2001
[GRAPH]
Graph shows 21,972,400 cumulative shares 254% of the 8,636,263 shares
outstanding as reported on 12/31/00.
NextHealth - LTM
--------------------------------------------------------------------------------
Percent of Total Volume Traded at Specified Prices
April 11, 2000 to April 11, 2001
[GRAPH]
Graph shows 4,478,400 cumulative shares, 52% of the 8,636,263 shares outstanding
as reported on 12/31/00.
--------------------------------------------------------------------------------
NextHealth - Last 3 Years
--------------------------------------------------------------------------------
Percent of Total Volume Traded at Specified Prices
April 9, 1998 to April 11, 2001
[GRAPH]
Graph shows 15,854,200 cumulative shares, 184% of the 8,636,263 shares
outstanding as reported on 12/31/00.
--------------------------------------------------------------------------------
NextHealth - Since Announcement
--------------------------------------------------------------------------------
Percent of Total Volume Traded at Specified Prices
January 16, 2001 to April 11, 2001
[GRAPH]
Graph shows 1,491,100 of the cumulative shares, 17% of the 8,636,263 shares
outstanding as reported on 12/31/00.
--------------------------------------------------------------------------------
Source: FactSet
22
STOCK PRICE PERFORMANCE
================================================================================
LAST 3 YEARS INDUSTRY STOCK PRICE PERFORMANCE
Comparative Price Performance
--------------------------------------------------------------------------------
______ Healthcare Index
Indexed Prices ______ Resort Index
Apr 9, 1998 - Apr 11, 2001 ______ Amex Xxxxxx Xxxxxxx Xxxx
______ New Standard & Poors 500
______ Nexthealth Inc.
[GRAPH]
--------------------------------------------------------------------------------
Healthcare Index is composed of: KIDS, RYOU and RCSR.
Resort Index is composed of: MTN, SIH and SNSTA
Source: FactSet.
23
STOCK PRICE PERFORMANCE
================================================================================
LTM STOCK PRICE PERFORMANCE
Industry Performance
--------------------------------------------------------------------------------
______ Healthcare Index
______ Resort Index
Indexed Prices ______ Amex Xxxxxx Xxxxxxx Xxxx
Apr 11, 2000 - Apr 11, 2001 ______ New Standard & Poors 500
______ Nexthealth Inc.
[GRAPH]
--------------------------------------------------------------------------------
Healthcare Index is composed of: KIDS, RYOU and RSCR.
Resort Index is composed of: MTN, SIH and SNSTA
Source: FactSet.
24
================================================================================
---------------------------------
III. Valuation Summary
---------------------------------
================================================================================
---------------------------------
A. Methodology
---------------------------------
VALUATION SUMMARY
================================================================================
--------------------------------------------------------------------------------
Methodology
. Discussed the Company's historical results, future growth
opportunities and other matters which we considered relevant to
our analysis with NextHealth's management.
. Analyzed the Company's financial and operational performance
compared to certain publicly traded specialized healthcare and
resort companies.
. Analyzed the Company's financial and operational performance
compared to the targets in selected sales of healthcare and resort
assets.
. Analyzed the stock price premium paid in the Merger compared with
the premia paid in selected acquisitions of publicly traded real
estate and healthcare companies.
. Performed a discount cash flow analysis of the Company's future
cash flows to determine a valuation range.
--------------------------------------------------------------------------------
27
VALUATION SUMMARY
================================================================================
----------------------------------
B. Implied Valuation
Matrix
----------------------------------
VALUATION SUMMARY
================================================================================
--------------------------------------------------------------------------------
NOTE
None of the companies or assets utilized for comparative purposes in
the following publicly-traded companies and precedent transactions
analyses is, of course, identical to NextHealth. Accordingly, a
complete valuation analysis cannot be limited to a quantitative review
of the selected companies or targets and involves complex
considerations and judgments concerning differences in financial and
operating characteristics of such companies or assets, as well as
other factors that could affect their relative value and that of
NextHealth.
Moreover, none of the companies or assets analyzed herein were
comprised of both business segments (healthcare and resorts).
--------------------------------------------------------------------------------
29
VALUATION SUMMARY
================================================================================
Implied Value Ranges Based on Publicly Traded Companies,
Precedent Transactions and DCF
--------------------------------------------------------------------------------
[GRAPH]
--------------------------------------------------------------------------------
30
VALUATION SUMMARY
================================================================================
Public Company Summary Valuation Matrix
(In thousands,
except per share)
----------------------------
Offer Price $ 5.650
----------------------------
---------------------------------------------------------------------------------------------------------------------------------
2000
2000 Corporate Adjusted MULTIPLE RANGE ENTERPRISE VALUE ("EV")
------------------------------ ----------------------------------
EBITDA/(1)/ EBITDA/(1)(2)/ EBITDA/(1)/ Low Mean Median High Low Mean Median High
---------- -------------- ---------- --- ---- ------ ---- --- ---- ------ ----
----------- -------------- ---------- ------------------------------ ----------------------------------
MIRAVAL $ 3,291 $ (646) $ 2,645 3.164x 5.229x 4.847x 7.676x $ 8,369 $13,830 $ 12,819 $20,301
SIERRA TUCSON/(3)/ $ 9,427 $ (1,129) $ 8,298 3.758x 4.826x 3.983x 6.738x $ 31,186 $40,049 $ 33,048 $55,912
----------- -------------- ---------- ------------------------------ ----------------------------------
--------------------------------------------------------------------------------------------------------------------------------
Low Mean Median High
--- ---- ------ ----
----------------------------------
COMBINED ENTERPRISE VALUE $ 39,555 $53,879 $ 45,868 $76,214
----------------------------------
Net Debt
--------
---------
CONSOLIDATED NET DEBT/(4)/ $ (503)
---------
Rights
------
---------
VALUE OF LAND DEVELOPMENTAL RIGHTS/(5)/ $ 820
---------
NOL Value
---------
---------
PRESENT VALUE OF NOLS $ 4,183
---------
Low Mean Median High
--- ---- ------ ----
-----------------------------------
IMPLIED EQUITY VALUE $ 44,055 $58,379 $50,368 $80,714
-----------------------------------
Diluted Shares
--------------
---------
DILUTED SHARES OUTSTANDING/(6)/ 14,651
---------
Low Mean Median High
--- ---- ------ ----
----------------------------------
IMPLIED VALUE PER SHARE $ 3.01 $ 3.98 $ 3.44 $ 5.51
----------------------------------
NOTES
-----
(1) For the twelve months ended December 31, 2000.
(2) Corporate EBITDA prorated based on Miraval and Sierra Tucson
EBITDA.
(3) Sierra Tucson 2000 EBITDA includes STEM EBITDA of $72.0K.
(4) As of December 31, 2000. Net debt includes current portion
of long term debt and minority interest. Source: NextHealth
Management.
(5) See Appendix F - "Land Rights Valuation Calculation".
(6) Diluted shares outstanding calculated using the Treasury
Stock Method.
31
VALUATION SUMMARY
================================================================================
Precedent Transaction Summary Valuation Matrix
(In thousands, except per share)
-----------------------------
Offer Price $ 5.650
-----------------------------
----------------------------------------------------------------------------------------------------------------------------------
2000
2000 Corporate Adjusted MULTIPLE RANGE ENTERPRISE VALUE ("EV")
---------------------------- ---------------------------------
EBITDA/(1)/ EBITDA/(1)(2)/ EBITDA/(1)/ Low Mean Median High Low Mean Median High
------ ------ ------ --- ---- ------ ---- --- ---- ------ ----
-------- ---------- ---------- ------------------------------ ----------------------------------
MIRAVAL $ 3,291 $ (646) $ 2,645 7.300x 9.086x 9.308x 10.563x $19,307 $24,032 $24,618 $ 27,937
SIERRA TUCSON/(3)/ $ 9,427 $ (1,129) $ 8,298 3.889x 6.220x 6.376x 9.285x $32,269 $51,613 $52,906 $ 77,048
-------- ---------- ---------- ------------------------------ ----------------------------------
----------------------------------------------------------------------------------------------------------------------------------
Low Mean Median High
--- ---- ------ ----
----------------------------------
COMBINED ENTERPRISE VALUE $51,576 $75,645 $77,525 $104,985
----------------------------------
Net Debt
--------
---------
CONSOLIDATED NET DEBT/(4)/ $ (503)
---------
Rights
------
---------
VALUE OF LAND DEVELOPMENTAL RIGHTS/(5)/ $ 820
---------
NOL Value
---------
---------
VALUE OF NOLS $ 4,183
---------
Low Mean Median High
--- ---- ------ ----
----------------------------------
IMPLIED EQUITY VALUE $56,076 $80,145 $82,025 $109,485
----------------------------------
Diluted Shares
--------------
---------
DILUTED SHARES OUTSTANDING/(6)/ 14,651
---------
Low Mean Median High
--- ---- ------ ----
----------------------------------
IMPLIED VALUE PER SHARE $ 3.83 $ 5.47 $ 5.60 $ 7.47
----------------------------------
NOTES
-----
(1) For the twelve months ended December 31, 2000.
(2) Corporate EBITDA prorated based on Miraval and Sierra Tucson
EBITDA.
(3) Sierra Tucson 2000 EBITDA includes STEM EBITDA of $72.0K.
(4) As of December 31, 2000. Net debt includes current portion of
long term debt and minority interest. Source: NextHealth
Management.
(5) See Appendix F - "Land Rights Valuation Calculation".
(6) Diluted shares outstanding calculated using the Treasury Stock
Method.
32
VALUATION SUMMARY
================================================================================
--------------------------------------------------------------------------------
Discounted Cash Flow Summary Valuation Matrix
MIRAVAL Unlevered Aggregate Value
---------------------------------
--------------------------------------------------------------------------------
Discount Rate
-------------------------------------------------
25.0% 30.0% 35.0%
---------------------------------------------------------------------
EBITDA 8.0x $ 49,289 $ 41,508 $ 35,265
Exit 9.0x $ 53,740 $ 45,166 $ 38,294
Multiple 10.0x $ 58,191 $ 48,824 $ 41,324
SIERRA TUCSON Unlevered Aggregate Value
---------------------------------------
--------------------------------------------------------------------------------
Discount Rate
--------------------------------------------------
25.0% 30.0% 35.0%
----------------------------------------------------------------------
EBITDA 5.0x $ 53,029 $ 45,636 $ 39,646
Exit 6.0x $ 58,835 $ 50,407 $ 43,597
Multiple 7.0x $ 64,640 $ 55,179 $ 47,548
COMBINED Unlevered Aggregate Value
----------------------------------
--------------------------------------------------------------------------------
-----------------------------------------------------------
Discount Rate
-----------------------------------------------------------
25.0% 30.0% 35.0%
-----------------------------------------------------------
$ 102,319 $ 87,143 $ 74,911
$ 112,575 $ 95,573 $ 81,891
$ 122,831 $ 104,003 $ 88,872
-----------------------------------------------------------
ADJUSTMENTS
-----------
--------------------------------------------------------------------------------
------------
Plus: Net Debt $ (503)
------------
------------
Plus: Development Rights $ 820
------------
------------
Plus: PV of Corporate Expenses $ (1,658)
------------
------------
Diluted Shares Outstanding $14,650,973
------------
Equity Value
------------
--------------------------------------------------------------------------------
-----------------------------------------------------------
Discount Rate
-----------------------------------------------------------
25.0% 30.0% 35.0%
$ 100,978 $ 85,803 $ 73,570
$ 111,234 $ 94,232 $ 80,550
$ 121,490 $ 102,662 $ 87,531
-----------------------------------------------------------
ADJUSTED COMBINED Per Share Equity
----------------------------------
--------------------------------------------------------------------------------
-----------------------------------------------------------
Discount Rate
-----------------------------------------------------------
25.0% 30.0% 35.0%
-----------------------------------------------------------
$ 6.89 $ 5.86 $ 5.02
$ 7.59 $ 6.43 $ 5.50
$ 8.29 $ 7.01 $ 5.97
-----------------------------------------------------------
33
VALUATION SUMMARY
================================================================================
------------------------------------------
D. Premium Analysis
------------------------------------------
VALUATION SUMMARY
================================================================================
--------------------------------------------------------------------------------
Premium Analysis
------------------------------------- --------------------------
Closing Price Prior to Announcement Offer Premium / (Discount)
------------------------------------- --------------------------
Date Date Acquiror Name Offer 1 Day 1 Week 4 Weeks 1 Day 1 Week 4 Weeks
Announced Effective Target Name Price Earlier Earlier Earlier Earlier Earlier Earlier
--------- --------- ------------------------------- ------ ------- ------ ------ ------ ------ -------
-------------------------------------------------------------------------------------------------------------------------------
01/16/01 NA Investor Group $ 5.65 $ 3.38 $ 3.50 $ 3.00 67.4% 61.4% 88.3%
NextHealth
-------------------------------------------------------------------------------------------------------------------------------
11/30/00 NA Investor Group $10.00 $ 8.00 $ 7.75 $ 7.75 25.0% 29.0% 29.0%
G&L Realty Corporation
11/02/00 NA Developers Diversified $13.74 $12.50 $11.44 $13.00 9.9% 20.1% 5.7%
Realty
American Industrial
Properties
10/05/00 XX Xxxxxx Hotel Group Inc. $ 4.50 $ 2.06 $ 2.19 $ 2.78 118.2% 105.7% 61.8%
Interstate Hotels Corp.
09/21/00 01/05/01 Investor Group $ 7.38 $ 5.56 $ 5.88 $ 5.94 32.7% 25.6% 24.3%
Sunburst Hospitality Corp
09/19/00 11/30/00 Pritzker Group $ 5.00 $ 4.38 $ 4.38 $ 4.31 14.3% 14.3% 15.9%
US Franchise Systems Inc
07/27/00 12/22/00 Investor Group $ 2.25 $ 1.06 $ 0.88 $ 0.94 111.8% 157.1% 140.0%
BFX Hospitality Group Inc
02/28/00 04/30/00 Bass PLC $ 9.50 $ 5.75 $ 4.88 $ 4.56 65.2% 94.9% 108.2%
Bristol Hotels & Resorts Inc
12/28/99 02/02/00 National Nephrology Associates $10.00 $ 8.25 $ 6.63 $ 6.31 21.2% 50.9% 58.4%
Renex Corp
07/28/98 NA Investor Group $ 5.00 $ 3.81 $ 4.00 $ 4.75 31.1% 25.0% 5.3%
Physicians Resource Group Inc
12/02/98 06/08/99 Irvine Co $34.00 $27.38 $27.13 $26.56 24.2% 25.3% 28.0%
Irvine Apartment Communities
03/13/98 07/31/98 Investor Group $19.00 $16.50 $17.13 $14.13 15.2% 10.9% 34.5%
MedCath Inc
Summary Statistics
-------------------------------------------------------
High 118.2% 157.1% 140.0%
Median 25.0% 25.6% 29.0%
Mean 42.6% 50.8% 46.5%
Low 9.9% 10.9% 5.3%
-------------------------------------------------------
(1) Source: Securities Data Company, Inc. Date: 4/06/01
For all public targets with Primary SIC Codes 6531, 7011, 7991, 8062, 8063,
8069, and 8093.
Includes transactions between 1/1/98 and 4/6/01 that were under $1 billion
where cash was the currency. Excludes repurchases an self tenders.
35
================================================================================
---------------------------------
Appendix
---------------------------------
================================================================================
-------------------------
A. Precedent Transactions
Analysis:
Resorts
-------------------------
RESORT PRECEDENT TRANSACTIONS
================================================================================
--------------------------------------------------------------------------------
(dollars in millions)
Target Date Announced Total Purchase EBITDA
Acquiror (Location) Completed Price TPP/EBITDA
(Symbol) Description Consideration (TPP) Cap Rate TPP/Room
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
KSLRecreation Corp. Arizona Biltmore 12/22/00 $343.3 $36.0/(1)/ $470,274
(Phoenix, AZ) 12/22/00 9.5x
Hotel, Resort 730 rooms cash 10.5%
---------------------------------------------------------------------------------------------------------------------------------
Marriott International Xxxx-Xxxxxxx Kapalua 12/02/00 $143.0 NA $260,949
(Maui, HW) 12/02/00 NA
Hotel, 548 rooms cash NA
---------------------------------------------------------------------------------------------------------------------------------
Raffles Holdings Ltd. L'Ermitage Xxxxxxx Hills
(Prch'd f/LAHOTEL Corp.) 10/06/00 $ 68.0 NA/(2)/ $548,387
(Beverly Hills, CA) 10/06/00 NA
Hotel, 124 rooms cash NA
---------------------------------------------------------------------------------------------------------------------------------
Marriott International Frenchman's Reef Marriott Resort 03/16/00 $ 73.0 $10.0/(3)/ $144,841
(MAR) (St. Xxxxxx, U.S.V.I.) 03/16/00 7.3x
Resort, 504 rooms cash 13.7%
---------------------------------------------------------------------------------------------------------------------------------
Strategic Hotel Capital Incorporated Marriott Lincolnshire Resort 10/04/99 $ 40.8 $ 4.5/(4)/ $104,615
(Outside Chicago, IL) 10/04/99 9.1x
Resort, 390 rooms securitization 11.0%
---------------------------------------------------------------------------------------------------------------------------------
Strategic Hotel Capital Incorporated Ritz Carlton, Laguna Niguel 10/04/99 $212.6 $21.8/(4)/ $540,967
(Laguna Niguel, CA) 10/04/99 9.8x
Resort, 393 rooms securitization 10.3%
---------------------------------------------------------------------------------------------------------------------------------
Wyndham International, Inc. The Buttes 09/20/99 $ 63.6/(5)/ $ 6.4/(6)/ $179,320
(Tempe, AZ) 09/20/99 10.0x
Resort, 353 rooms sale/securitization 10.0%
---------------------------------------------------------------------------------------------------------------------------------
LaSalle Hotel Properties Viking Hotel 06/04/99 $ 28.0 $ 2.8/(7)/ $153,846
(LHO) (Newport, Rhode Island) 06/04/99 10.0x
Resort, 182 rooms cash 10.0%
---------------------------------------------------------------------------------------------------------------------------------
Hilton Hotels Pointe Hilton Resort at Squaw Peak 04/21/99 $ 94.0 $11.6/(8)/ $166,963
(HLT) (Phoenix, AZ) 04/21/99 8.1x
Resort, 563 rooms cash 12.4%
---------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
38
RESORT PRECEDENT TRANSACTIONS
================================================================================
--------------------------------------------------------------------------------
(dollars in millions)
Target Date Announced Total Purchase EBITDA
Acquiror (Location) Completed Price TPP/EBITDA
(Symbol) Description Consideration (TPP) Cap Rate TPP/Room
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
Hilton Hotels Pointe Hilton Tapatio Cliffs Resort 08/18/98 $116.0 NA/(9)/ $198,291
(HLT) (Phoenix, AZ) 08/18/98 NA
Resort, 585 rooms cash, debt/(10)/ NA
---------------------------------------------------------------------------------------------------------------------------------
LaSalle Hotel Properties San Diego Princess Resort 06/01/98 $73.0/(11)/ $ 8.4/(12)/ $158,009
(LHO) (San Diego, CA) 06/01/98 8.7x
Resort, 462 rooms in 129 villas cash 11.5%
---------------------------------------------------------------------------------------------------------------------------------
Patriot American Hospitality WHG Resorts & Casino 01/16/98 $280.0 $26.5/(13)/ $163,743
(PAH) (Puerto Rico) 01/16/98 10.6x
570-room Condado Plaza Hotel, stock swap 9.5%
389-room El San Xxxx Hotel,
751-room El Conquistador Resort
---------------------------------------------------------------------------------------------------------------------------------
Host Marriott Coronado Island Le Meridien Resort 12/17/97 $54.4 $ 6.9/(14)/ $ 23,000
(HMT) (San Diego, CA) 12/17/97 7.9x
Resort, 300 rooms cash 12.7%
---------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------- ---------------------------------------
Key: EBITDA TPP/
TPP (Total Purchase Price) = Stock + Debt - Cash Multiple Room
-------- ----
EBITDA (earnings before interest, taxes, depreciation and
amortization) = Total Revenues - Operating Expenses High: 10.6x $548,387
Cap Rate = EBITDA/TPP Low: 7.3x $ 23,000
Mean: 9.1x $239,477
Median: 9.3x $166,963
-------------------------------------------------------------------------------------- ---------------------------------------
--------------------------------------------------------------------------------
39
RESORT PRECEDENT TRANSACTIONS
================================================================================
--------------------------------------------------------------------------------
Notes:
---------------------------------------------
(1) Source: 8K/A dated December 22, 2000. EBITDA as of October 30, 2000.
(2) PR Newswire press release dated October 6, 2000.
(3) PR Newswire press release dated March 16, 2000 and Duesche Bank research
report dated april 13, 2000.
(4) Xxxxx'x Pre-Sale Report dated October 8, 1999.
(5) PR Newswire press release dated September 19, 1999.
(6) Xxxxx'x Pre-Sale Report dated September 24, 1999. (7) PSI Research Report
dated June 24, 1999.
(8) Xxxxx'x Pre-Sale Report dated October 17, 1999.
(9) PR Newswire press release dated August 18, 1998.
(10) Hilton (acq. of Tapatio) paid $26.3m cash & $80.9m debt for 75% ownership;
partner Xxxxxxx Builders, paid $8.8m for 25%
(11) PR Newswire press release dated June 1, 1998.
(12) Trailing 12 month EBITDA
(13) PR Newswire press release dated January 16, 1998 and Xxxxx'x Pre-Sale
Report dated august 10, 2000.
(14) PR Newswire press release dated December 17, 1997.
--------------------------------------------------------------------------------
40
================================================================================
---------------------------------------
B. Precedent Transactions
Analysis:
Specialized Healthcare
---------------------------------------
SPECIALIZED HEATHCARE PRECEDENT TRANSACTIONS
==============================================================================
---------------------------------------------------------------------------------------------------------------------------
($ in millions, except per bed data)
Date Total EBITDA
Target Announced Purchase TPP/ TPP
Acquirer (Property Type, Location) Completed Price EBITDA Per
(Symbol) # of beds Consideration (TPP) Cap Rate Bed
========================================================================================================================
Undisclosed Acquiror Charter-by-Sea N/A $ 6.8 /(1)/ $ 0.9 /(1)/ NA
(Hospital, GA) N/A 7.2x
309\\(1)\\ 13.8%
------------------------------------------------------------------------------------------------------------------------
RehabCare Group Inc. DiversiCare Rehab Services Inc. 09/20/00 NA NA NA
(14 Outpatient Therapy
Locations, KY, TN) 09/20/00 NA
NA NA
------------------------------------------------------------------------------------------------------------------------
Ramsay Youth Services Inc. Charter Behavioral Health-Bran 08/04/00 $ 7.7 /(2)/ NA $ 34,222
(RYOU) (Service, FL) 08/04/00 NA
225/(2)/ Cash NA
------------------------------------------------------------------------------------------------------------------------
Cita Biomedical Inc. Addiction Medical Group Inc. 06/20/00 NA /(3)/ NA NA
(DTOX) (3 Opiate Detoxification
Centers, CA) Pending NA
NA NA
------------------------------------------------------------------------------------------------------------------------
Universal Health 11 Charter Hospitals (Crescent) 05/31/00 $105.0 /(5)/ $ 27.0 /(5)/ $ 75,000
Service Inc
(UHT) (Hospital, GA PA NJ DE KY SC TN
MS UT TX) 05/31/00 3.9x
1400/(4)/ 25.7%
------------------------------------------------------------------------------------------------------------------------
Benchmark Medical Inc. Northstar Health Services Inc. 03/04/00 $ 36.0 /(6)/ $ 4.7 /(7)/ NA
(Outpatiend Rehabilitation
Clinics, PA OH.) 09/22/00 7.6x
(NHSI) Cash 13.2%
------------------------------------------------------------------------------------------------------------------------
Crescent Real Estate Charter Behavioral Healthcare 02/16/00 $152.6 /(8)/ $ 20.3 /(8)/ NA
Equities
(CRE) (Behavioral healthcare Withdrawn 7.5x
services, U.S.)
37 core facilities/(9)/ 13.30%
------------------------------------------------------------------------------------------------------------------------
Xxxxxx Xxxxxx Inc New Life Treatment Centers Inc 11/08/99 $ 15.0 /(10)/ NA NA
(TNM) (Hospital) 11/08/99 NA
NA
------------------------------------------------------------------------------------------------------------------------
BI Inc Behavioral Careoptions Inc 10/05/99 NA /(11)/ NA NA
(BIAC) (Drug Treatment) 10/05/99 NA
NA
------------------------------------------------------------------------------------------------------------------------
Select Medical Corp. NovaCare Inc. 10/04/99 $200.0 /(12)/ $ 36.2 /(12)/ NA
(Outpatiend Physical
Rehabilitation. TK: NAHC) 11/19/99 5.5x
Cash 18.1%
------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------
42
SPECIALIZED HEATHCARE PRECEDENT TRANSACTIONS
==============================================================================
-----------------------------------------------------------------------------------------------------------------------------
($ in millions, except per bed data)
Date Total EBITDA
Target Announced Purchase TPP/ TPP
Acquirer (Property Type, Location) Completed Price EBITDA Per
(Symbol) # of beds Consideration (TPP) Cap Rate Bed
========================================================================================================================
Texas Pacific Group, Inc Magellan Health Services Inc 07/19/99 $ 75.4 /(13)/ NA NA
(Hospital, MD) 12/16/99 NA
Cash NA
------------------------------------------------------------------------------------------------------------------------
Universal Health Hospital Group-Psychiatric 03/15/99 $ 30.0 /(14)/ $ 7.2 /(14)/ $ 10,714
Services Inc Bus
(UHS) (Hospital, PA) 04/18/99 4.2x
280\\(14)\\ 24.0%
------------------------------------------------------------------------------------------------------------------------
Focus Healthcare LLC Meadowwood Behavioral Health 11/18/98 $ 5.0 NA NA
(Hospital, DE) 11/18/98 NA
Cash NA
------------------------------------------------------------------------------------------------------------------------
Medical Industries of Santera Rehabilitation Inc. 09/16/98 $ 7.7 /(15)/ $ 1.7 /(16)/ NA
America
(Cyber Care Inc.: CYBR) (Hospitals/ Ass. living, VA, Withdrawn 4.6x
WV, GA, KY, OH) Cash / Stock 22.0%
------------------------------------------------------------------------------------------------------------------------
Alexian Brother Health Xxxxxxx Estates, Woodland Hosp 08/20/98 $254.0 /(18)/ NA NA
System (Hospital, IL) 02/01/99 NA
344/(17)/ NA
------------------------------------------------------------------------------------------------------------------------
West Virginia University Chestnut Ridge Hospital 07/06/98 $ 14.8 /(19)/ NA $211,429
(Hospital, WV) 10/02/98 NA
70 Cash NA
------------------------------------------------------------------------------------------------------------------------
Undisclosed Acquiror Greenbriar Psychiatric Hosp 06/05/98 $ 1.6 /(20)/ NA NA
(Hospital, LA) 06/05/98 NA
NA
------------------------------------------------------------------------------------------------------------------------
Horizon Health Corp FPM Behavioral Health Inc 05/01/98 $ 20.0 /(21)/ NA NA
(HORC) (HC Service, MN) 06/02/98 NA
Cash NA
------------------------------------------------------------------------------------------------------------------------
National Mentor, Inc. Rehabilitation Achievement 04/17/98 NA /(22)/ NA NA
(Magellan Health Svs.: (Outpatient clinic, IL) 04/17/98 NA
MGL) NA NA NA
------------------------------------------------------------------------------------------------------------------------
MD Network, L.P. Sun Healthcare 02/26/98 NA /(23)/ $159.5 /(23)/ NA
(Outpatient rehab.
facilities, FL) 02/26/98 NA
NA NA NA
---------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------
43
SPECIALIZED HEATHCARE PRECEDENT TRANSACTIONS
===============================================================================
-----------------------------------------------------------------------------------------------------------------------------
($ in millions, except per bed data)
Date Total EBITDA
Target Announced Purchase TPP/ TPP
Acquirer (Property Type, Location) Completed Price EBITDA Per
(Symbol) # of beds Consideration (TPP) Cap Rate Bed
========================================================================================================================
Horizon Mental Health Acorn Behavioral Healthcare 10/20/97 $ 12.7 /(24)/ $ 0.7 /(24)/ NA
Mgmt
(HORC) (Clinic, PA) 11/03/97 18.4x *
Cash NA
------------------------------------------------------------------------------------------------------------------------
Atlantic Shores Undisclosed Psychiatric 07/21/97 $ 6.0 /(25)/ NA NA
Healthcare Hosp
(WHC) Wackenhut 07/21/97 NA
subsidiary NA
------------------------------------------------------------------------------------------------------------------------
Vencor Inc Transitional Hospitals Corp 05/07/97 $639.0 /(27)/ $ 16.4 /(27)/ NA
(VCRI) (Hospital, NV 16 hospitals 08/26/97 39.0x *
in 13 states)
1340/(25)/ Cash 2.6%
------------------------------------------------------------------------------------------------------------------------
Wackenhut Corrections Coral Ridge Psychiatric 04/24/97 $ 6.0 /(28)/ NA NA
Corp Hosp
(WHC) (Hospital, FL) 05/06/97 NA
86/(27)/ NA
------------------------------------------------------------------------------------------------------------------------
Children's Comprehensive Vendell Healthcare Inc 02/27/97 $ 25.6 /(29)/ ($2.8) /(30)/ NA
(KIDS) (Hospital, AK, KY, MI, MT, 06/02/97 NA
UT, FL, TX)
564 /(28)/ Stock/Cash NA
------------------------------------------------------------------------------------------------------------------------
Crescent Real Estate Magellan Health Svcs-Hosp 01/29/97 $387.2 /(31)/ $ 41.7 /(31)/ NA
Equities
(CRE) (Hospital, U.S., UK and
Switz.) 06/17/97 93x
Cash 10.77%
------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------- ------------------------------------------------
Key: EBITDA TPP/
TPP (Total Purchase Price) = Stock + Debt - Cash Multiple Room
-------- ----
EBITDA (earnings before interest, taxes, depreciation and High: 9.3x $ 211,429
amortization) = Total Revenues - Operating Expenses Median: 6.4x $ 34,222
Cap Rate = EBITDA/ TPP Mean: 6.2x $ 39,979
* Excluded from ranges for High, Median, Mean and Low Low: 3.9x $ 10,714
calculations because they are outliers.
---------------------------------------------------------------------------- ------------------------------------------------
-------------------------------------------------------------------------------
44
SPECIALIZED HEATHCARE PRECEDENT TRANSACTIONS
===============================================================================
-------------------------------------------------------------------------------
Notes:
------------------------------
(1) Information from RYOU 8-K dated August 18, 2000.
(2) Information from RYOU 8-K dated August 18, 2000.
(3) PR Newswire press release dated June 20, 2000.
(4) PR Newswire press release dated August 4, 2000.
(5) PR Newswire press release dated May 30, 2000.
(6) Press Releases dated 3/4/00 and 9/25/00.
(7) LTM EBITDA for year end 12/31/99 from 10K dated 3/27/00.
(8) PR Newswire press release dated Febraury 16, 2000.
Charter (tenant of Crescent) arranged this deal in bankruptcy hoping
to restructure operations. Subsequently, bankruptcy prevailed and they
asked Crescent to auction the facilites. Had they stayed in business,
Crescent would have demanded a rental payment of $20.3m (or a 13.3%
return on appraised value), with an annual increase of 5% over the
10-year lease term, which represents an approximate 16.7% return on
appraised value.
(9) PR Newswire press release dated May 19, 2000.
(10) Information from TNM 10-Q dated February 15, 2000.
(11) PR Newswire press release dated October 5, 1999.
(12) Purchase price source Press Release dated 10/04/99. LTM EBITDA based
on EBITDA for 9 months ended 3/31/99, annualized. Source: Proxy dated
8/31/99, pg. 13.
(13) Information from MGL 8 -K dated July 21, 1999.
(14) Purchase Price source PR Newswire press release dated April 15, 1999
(includes $3 million of future contingency payments) and LTM EBITDAR
and units from Xxxxxx Xxxxx Associates Inc. Transaction Report.
(15) Press release dated September 16, 1998.
(16) Represents fiscal year 1997 earnings due to lack of available data.
Source: press release dated September 16, 1998.
(17) PR Newswire press release dated August 19, 1998.
(18) PR Newswire press release dated February 2, 1998.
(19) Xxxxxx Xxxxx Associates Inc. Transaction Report.
(20) Investext
(21) Information from HORC 8-K dated June 17, 1998.
(22) Press release dated April 17, 1998. Terms not disclosed.
(23) Press release dated February 26, 1998.
(24) Information from HORC 8-K dated November 5, 1997.
(25) PR Newswire press release dated August 19, 1998.
(26) Xxxxxx.xxx company overview as of November 1996.
(27) Hostile offer. PR Newswire press release dated May 7, 1997.
(28) Information from news article dated July 18, 1997 posted on
xxxx://xxx.xxxxxxxxxxx.xxx.
(29) PR Newswire press release dated June 2, 1997.
(30) Information from KIDS 8-K/A dated August 18, 1997.
(31) Information from CEI 8-K/A dated July 2, 1997.
--------------------------------------------------------------------------------
45
================================================================================
------------------------------------------------
C.Public Company Analysis
------------------------------------------------
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES
================================================================================
------------------------------------------------------------------------------------------------------------------------------------
(in millions, except per share data)
Current 52 Week Diluted Equity Total
LTM Share Price Stock Price Shares Market Net Enterprise
Company Name Ticker Exchange Date 4/11/01 High Low Outstanding Value Debt/(1)/ Value
-----------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
NEXTHEALTH INC. - Current Price NEXT NASDAQ 12/31/00 $ 4.350 $ 5.44 $ 2.00 14.2 $ 61.8 0.50 $ 62.3
NEXTHEALTH INC. - Offer Price NEXT NASDAQ 12/31/00 $ 5.650 NA NA 14.7 $ 82.8 0.50 $ 83.3
---------------------------------------------------------------------------------------------------------------------------------
Resorts
-----------------------------------
SONESTA INTL HOTELS -CL A/(2)(3)/ SNSTA NASDAQ 12/31/00 $ 9.180 $10.63 $ 6.75 3.7 $ 34.0 $ 53.16 $ 87.5
SUN INTERNATIONAL HOTELS LTD
/(4)(5)(6)(7)(8)/ SIH NYSE 12/31/00 $23.050 23.88 16.25 27.6 637.06 597.48 1,234.5
VAIL RESORTS INC/(9)(10)/ MTN NYSE 01/31/01 $18.840 24.75 14.75 35.2 663.65 373.92 1,037.6
Specialized Healthcare Companies
-------------------------------------
CHILDREN'S COMPREHENSIVE SERVICES INC.
/(11)(12)(13)(14)/ KIDS NASDAQ 12/31/00 $ 3.250 $ 4.38 $ 2.00 7.2 $ 23.4 $ 25.5 $ 48.9
RAMSAY YOUTH SERVICES INC /(15)(16)/ RYOU NASDAQ 12/31/00 $ 1.175 2.25 0.38 9.1 10.72 25.97 36.69
RES CARE INC./(17)(18)(19)/ RSCR NASDAQ 12/31/00 $ 4.000 14.13 3.56 24.3 97.40 238.86 336.26
------------------------------------------------------------------------------------------------------------------------------------
47
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES
================================================================================
------------------------------------------------------------------------------------------------------------------------------------
(in millions, except per share data)
LTM Total Equity Value Multiples LTM LTM Equity
----------------------------
EBITDA LTM 2001E 2002E Net LTM EBITDA Book Market/
Company Name Ticker MULTIPLE EPS EPS EPS Revenues EBITDA Margin Value Book
------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
NEXTHEALTH INC. - Current Price NEXT 5.8x 9.3x NA NA $ 41.3 $ 10.8 26.1% $ 28.7 2.2x
NEXTHEALTH INC. - Offer Price NEXT 7.7x 12.0x NA NA $ 41.3 $ 10.8 26.1% $ 28.7 2.9x
-----------------------------------------------------------------------------------------------------------------------------------
Resorts
-----------------------------------
SONESTA INTL HOTELS -CL A/(2)(3)/ SNSTA 4.8x 7.4x NA NA $107.0 $ 18.0 16.9% $ 29.9 1.1x
SUN INTERNATIONAL HOTELS LTD
/(4)(5)(6)(7)(8)/ SIH 3.2 17.7 12.1 10.2 884.7 390.1 44.1% 884.2 0.7
VAIL RESORTS INC /(9)(10)/ MTN 7.7 30.4 33.6 17.9x 584.2 135.2 23.1% 491.9 1.3
Resorts (excludes indicated outliers)
------------------------------------------------------------------------------------------------
Mean 5.2x 18.5x 22.9x 14.0x $525.3 181.1 28.0% $468.7 1.1x
Median 4.8 17.7 22.9 14.0 584.2 135.2 23.1% 491.9 1.1
High 7.7 30.4 33.6 17.9 884.7 390.1 44.1% 884.2 1.3
Low 3.2 7.4 12.1 10.2 107.0 18.0 16.9% 29.9 0.7
-----------------------------------------------------------------------------------------------
Specialized Healthcare Companies
-----------------------------------
CHILDREN'S COMPREHENSIVE SERVICES
INC. /(11)(12)(13)(14)/ KIDS 3.8x 6.8x NA NA $128.1 $ 13.0 2.7% $ 55.6 7.2x
RAMSAY YOUTH SERVICES INC/(15)(16)/ RYOU 4.0 4.8 NA NA 108.4 9.2 8.5% 20.8 9.1
RES CARE INC. /(17)(18)(19)/ RSCR 6.7 5.8 7.4 10.8 102.2 49.9 48.8% 178.1 24.3 *
Specialized Healthcare Companies (excludes indicated outliers)
-----------------------------------------------------------------------------------------------
Mean 4.8x 5.8x 7.4x 10.8x $112.9 $ 24.0 20.0% $ 84.8 8.2x
Median 4.0 5.8 7.4 10.8 108.4 13.0 8.5% 55.6 8.2
High 6.7 6.8 7.4 10.8 128.1 49.9 48.8% 178.1 9.1
Low 3.8 4.8 7.4 10.8 102.2 9.2 2.7% 20.8 7.2
-----------------------------------------------------------------------------------------------
Composite Valuation (excludes indicated outliers)
-----------------------------------------------------------------------------------------------
Mean 5.0x 12.1x 17.7x 13.0x $369.2 $145.1 27.5% $342.1 3.9x
Median 4.4 7.1 12.1 10.8 118.2 34.0 30.5% 116.9 1.3
High 7.7 30.4 33.6 17.98 884.7 390.1 48.8% 884.2 9.1
Low 3.2 4.8 7.4 10.2 102.2 9.2 2.7% 20.8 0.7
-----------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
48
ANALYSIS OF SELECTED PUBLIC TRADED COMPANIES
================================================================================
--------------------------------------------------------------------------------
Resort Public Company Notes
* Summary statistics exclude outliers.
(1) Financial data excludes the results of discontinued operations,
extraordinary gains and one-time charges. Fully-diluted shares
outstanding calculated using the treasury stock method.
SONESTA INTL HOTELS-CL A (2)(3)
(2) LTM Net Income for fiscal year ended December 31, 2000 excludes $.006M
($.004M tax adjusted) of gains on sales of assets and $1.7M ($1.0M tax
adjusted) of gain from casualty.
(3) LTM EPS Multiple calculated using LTM Net Income which excludes $.006M
($.004M tax adjusted) of gains on sales of assets and $1.7M ($1.0M tax
adjusted) of gain from casualty.
SUN INTERNATIONAL HOTELS LTD (4)(5)(6)(7)(8)
(4) Weighted average shares outstanding for three months ended December 31,
2000.
(5) Source: Income Statement from form 6K dated February 6, 2001, Balance
Sheet and Cash Flow from form 6K dated September 30, 2000 and Options
data from form 20F dated December 31, 1999.
(6) LTM EBIT, LTM EBITDA and LTM Net income include add-back of non-recurring
pre-opening expenses of $7.6M ($4.6M tax adjusted), write-off of Desert
Inn costs of $11.2M ($6.7M tax adjusted), transactions costs of $7.0M
($4.2M tax adjusted) and write down of assets to be sold of $229.2M
($137.5M tax adjusted).
(7) LTM EPS Multiple calculated using LTM Net Income which includes add-back
of non-recurring pre-opening expenses of $7.6M ($4.6M tax adjusted),
write-off of Desert Inn costs of $11.2M ($6.7M tax adjusted),
transactions costs of $7.0M ($4.2M tax adjusted) and write down of assets
to be sold of $229.2M ($137.5M tax adjusted).
(8) Hurricane repair expenditures are included in capital expenditures for
both 1999 and 2000. CapEx was 18% of Gross Revenues in 1999.
VAIL RESORTS INC (9)(10)
(9) LTM Net Income for six months ended January 31, 2001 and January 31, 2000
exclude loss on disposal of fixed assets of $.17M ($.1M tax adjusted) and
$.7M($.4M tax adjusted) respectively.
(10) LTM EPS Multiple calculated using LTM Net Income which includes an add-
back for loss on disposal of fixed assets of $.17M ($.1M tax adjusted)
and $.7M($.4M tax adjusted) for six months ended January 31, 2001 and
January 31, 2000 respectively.
--------------------------------------------------------------------------------
49
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES
================================================================================
--------------------------------------------------------------------------------
Specialized Healthcare Public Company Notes
* Summary statistics exclude outliers.
CHILDREN'S COMPREHENSIVE SERVICES INC.
(11) LTM EBIT and LTM EBITDA include $6.2M inpairment of loss on Helicon
facility and $2.4M loss on Helicon receivables and loan guarantee.
(12) LTM EBITDA excludes $.2M in Amortization of deferred loan costs.
(13) LTM Net Income includes $6.2M ($3.72M tax adjusted) inpariment of
loss on Helicon facility and $2.4M ($1.4M tax adjusted) loss on
Helicon receivables and loan guarantee.
(14) LTM EPS Multiple is calculated using LTM Net Income which includes
$6.2M ($3.72M tax adjusted) inpariment of loss on Helicon facility
and $2.4M ($1.4M tax adjusted) loss on Helicon receivables and loan
guarantee.
RAMSAY YOUTH SERVICES INC
(15) LTM Net Income includes an add-back of $.7M ($.4M tax adjusted) for
losses related to asset sales and closed businesses.
(16) LTM EPS Multiple is calculated using LTM Net Income which includes an
add-back of $.7M ($.4M tax adjusted) for losses related to asset
sales and closed businesses.
RES CARE INC.
(17) LTM EBIT and LTM EBITDA include $4.1M of special charges.
(18) LTM Net Income includes an add-back of $4.1M of special charges.
Special charges consist of $1.7M ($1.0M tax adjusted) in
restructuring charges, $1.8M ($1.1M tax adjusted) in transaction
costs and $.6M in other ($.4M tax adjusted).
(19) Total Debt includes $.6M in current portion of obligations under
capital leases and $7.9M in obligations under capital leases.
--------------------------------------------------------------------------------
50
================================================================================
______________________________
Resort
Companies
______________________________
APPENDIX (RESORT COMPANIES)
================================================================================
Company Descriptions
Sonesta International Hotels Corporation
Sonesta International Hotels Corporation ("Sonesta") owns or operates 22 hotels
in Bermuda, the Caribbean, Egypt, Italy, Peru and the United States. Sonesta's
luxury properties cater to upscale business and leisure travelers and are
designed to showcase the culture and history of their exotic locales. The
Company also licenses its name to several hotels in Italy and Peru and operates
two cruise vessels that sail the Nile River. Sonesta is planning to expand
throughout the US, targeting cities such as Atlanta, Houston and New York City.
The founding Xxxxxxxxx family (including Chairman and CEO Xxxxx Xxxxxxxxx and
President Xxxxxxxxx Xxxxxxxxx) owns approximately 75% of Sonesta.
52
APPENDIX (RESORT COMPANIES)
================================================================================
--------------------------------------------------------------------------------
SONESTA INTL HOTELS CORP CLA (SNSTA)
Apr 11, 2000 - Apr 12, 2001 High: 10.63
U.S. Dollar Low: 6.75
Last: 9.18
[PRICE/VOLUME GRAPH]
--------------------------------------------------------------------------------
Source: XxxxXxx
00
XXXXXXXX (XXXXXX COMPANIES)
================================================================================
Company Descriptions
Sun International Hotels
Sun International Hotels Limited ("SUN"), established in 1993, is an
international resort and gaming company that develops and manages premier resort
and casino properties. The Company, through its subsidiaries, currently operates
resort hotels and/or casinos in The Bahamas, Atlantic City, the Indian Ocean and
Dubai. In addition, SUN earns income based on the gross revenues of a casino in
Connecticut. The Company's largest property is the Atlantis Resort and Casino, a
2,317- room resort and casino located on Paradise Island, The Bahamas.
54
APPENDIX (RESORT COMPANIES)
================================================================================
--------------------------------------------------------------------------------
SUN INTL HOTELS LTD ORD (SIH)
Apr 11, 2000 - Apr 12, 2001 High: 23.88
U.S. Dollar Low: 16.25
Last: 23.05
[PRICE/VOLUME GRAPH]
--------------------------------------------------------------------------------
Source: XxxxXxx
00
XXXXXXXX (XXXXXX COMPANIES)
================================================================================
Company Descriptions
Vail Resorts Inc.
Vail Resorts ("VAIL") operates four ski resorts in Colorado (Beaver Creek
Resort, Breckenridge Mountain Resort, Keystone Resort, and Vail Mountain), and
three in Wyoming's Grand Teton National Park. The Company also operates
Wyoming's Xxxxxxx Hole Golf & Tennis Club and owns 51% of the Renaissance Resort
& Spa (also in Xxxxxxx Hole). The Company's ski resorts offer summer activities
such as golf and fishing. Investor Xxxxxx Xxxxx controls 34% of Vail Resorts;
cereal maker Ralcorp Holdings and investment firm Apollo Advisors control about
22% and 21% of the company, respectively.
56
APPENDIX (RESORT COMPANIES)
================================================================================
--------------------------------------------------------------------------------
VAIL RESORTS INC COM (MIN)
Apr 11, 2000 - Apr 12, 2001 High: 24.75
U.S. Dollar Low: 14.75
Last: 19.00
[PRICE/VOLUME GRAPH]
--------------------------------------------------------------------------------
Source: FactSet
57
================================================================================
----------------------------------------------------------
Specialized Healthcare
Companies
----------------------------------------------------------
APPENDIX (SPECIALZED HEALTHCARE COMPANIES)
================================================================================
Company Descriptions
Children's Comprehensive Services Inc.
Children's Comprehensive Services Inc. ("CCS") provides a continuum of services
to at-risk and troubled youth. The Company emphasizes education, treatment and
juvenile justice services, primarily to federal, state and local governmental
entities charged with the responsibility for providing such services. CCS offers
these services through the operation and management of education and treatment
programs and both open and secured residential treatment centers in Alabama,
Arkansas, California, Florida, Hawaii, Kentucky, Louisiana, Michigan, Montana,
Ohio, Pennsylvania, Tennessee, Texas and Utah. In addition, CCS also provides
management services to community mental health centers, behavioral units in
medical facilities and third parties for a fixed fee.
59
APPENDIX (SPECIALZED HEALTHCARE COMPANIES)
================================================================================
CHILDRENS COMPREHENSIVE SVCS COM NEW (KIDS)
Apr 11, 2000 - Apr 12, 2001 High: 4.38
U.S. Dollar Low: 2.00
Last: 3.23
[PRICE/VOLUME GRAPH]
Source: FactSet
60
APPENDIX (SPECIALZED HEALTHCARE COMPANIES)
================================================================================
Company Descriptions
Ramsay Youth Services
Xxxxxx Youth Services ("Xxxxxx") offers youth services, primarily through
contracts with state and local government agencies trying to cut costs by
privatizing juvenile social-services programs. Xxxxxx'x rehabilitation programs
for young people with behavioral or psychiatric disorders, substance-abuse
problems, and developmental difficulties are offered through inpatient
facilities, group homes, and charter schools, as well as through outpatient and
day treatment programs. The Company has operations in nine states (primarily in
the South) and Puerto Rico. Chairman Xxxx Xxxxxx owns more than half of the
company.
61
APPENDIX (SPECIALZED HEALTHCARE COMPANIES)
================================================================================
RAMSAY YOUTH SVCS INC COM NEW (RYOU)
Apr 11, 2000 - Apr 12, 2001 High: 2.25
U.S. Dollar Low: 0.38
Last: 1.19
[PRICE/VOLUME GRAPH]
Source: FactSet
62
APPENDIX (SPECIALZED HEALTHCARE COMPANIES)
================================================================================
Company Descriptions
Res Care Inc.
Res Care Inc. ("RES") is a leading provider of residential, training,
educational and support services to populations with special needs, including
persons with developmental and other disabilities. The services provided by the
Company have historically been provided by state and local government agencies
and not-for-profit organizations. RES's programs include an array of services
provided in both residential and non-residential settings for adults and youths
with mental retardation or other developmental disabilities and disabilities
caused by acquired brain injury, and youths who have special educational or
support needs, are from disadvantaged backgrounds, or have severe emotional
disorders.
63
APPENDIX (SPECIALZED HEALTHCARE COMPANIES)
================================================================================
RES-CARE INC COM (RSCR)
Apr 11, 2000 - Apr 12, 2001 High: 14.13
U.S. Dollar Low: 3.56
Last: 4.20
[PRICE/VOLUME GRAPH]
Source: FactSet
64
================================================================================
-------------------------------
D. Discounted Cash Flow
Analysis
-------------------------------
APPENDIX - DISCOUNTED CASH FLOW ANALYSIS
================================================================================
--------------------------------------------------------------------------------
Discounted Cash Flow Summary Valuation Matrix
MIRAVAL Unlevered Aggregate Value
---------------------------------
---------------------------------------------------------------------
Discount Rate
-------------------------------------------
25.0% 30.0% 35.0%
-------------------------------------------------------------
EBITDA 8.0x $ 49,289 $ 41,508 $ 35,265
Exit 9.0x $ 53,740 $ 45,166 $ 38,294
Multiple 10.0x $ 58,191 $ 48,824 $ 41,324
---------------------------------------------------------------------
SIERRA TUCSON Unlevered Aggregate Value
---------------------------------------
---------------------------------------------------------------------
Discount Rate
-------------------------------------------
25.0% 30.0% 35.0%
------------------------------------------------------------
EBITDA 5.0x $ 53,029 $ 45,636 $ 39,646
Exit 6.0x $ 58,835 $ 50,407 $ 43,597
Multiple 7.0x $ 64,640 $ 55,179 $ 47,548
---------------------------------------------------------------------
ADJUSTMENTS
-----------
---------------------------------------------------------------------
-----------------
Plus: Net Debt $ (503)
-----------------
-----------------
Plus: Development Rights $ 820
-----------------
-----------------
Plus: PV of Corporate Expenses $ (1,658)
-----------------
-----------------
Diluted Shares Outstanding $14,650,973
-----------------
---------------------------------------------------------------------
COMBINED Unlevered Aggregate Value
----------------------------------
---------------------------------------------------------------------
---------------------------------------------------
Discount Rate
---------------------------------------------------
25.0% 30.0% 35.0%
---------------------------------------------------
$ 102,319 $ 87,143 $ 74,911
$ 112,575 $ 95,573 $ 81,891
$ 122,831 $ 104,003 $ 88,872
---------------------------------------------------
---------------------------------------------------------------------
Equity Value
------------
---------------------------------------------------------------------
---------------------------------------------------
Discount Rate
---------------------------------------------------
25.0% 30.0% 35.0%
---------------------------------------------------
$ 100,978 $ 85,803 $ 73,570
$ 111,234 $ 94,232 $ 80,550
$ 121,490 $ 102,662 $ 87,531
---------------------------------------------------
---------------------------------------------------------------------
ADJUSTED COMBINED Per Share Equity
----------------------------------
---------------------------------------------------------------------
---------------------------------------------------
Discount Rate
---------------------------------------------------
25.0% 30.0% 35.0%
---------------------------------------------------
$ 6.89 $ 5.86 $ 5.02
$ 7.59 $ 6.43 $ 5.50
$ 8.29 $ 7.01 $ 5.97
---------------------------------------------------
---------------------------------------------------------------------
--------------------------------------------------------------------------------
66
APPENDIX - DISCOUNTED CASH FLOW ANALYSIS
================================================================================
------------------------------------------------------------------------------------------------------------------------
Miraval Free Cash Flow Projections
Projections/(1)/
2001 2002 2003 2004 2005
---------- ---------- --------- ---------- -----------
EBIT $ 3,222 $ 4,654 $ 6,303 $ 8,931 $ 11,676
Less: Taxes (41%) 1,321 1,908 2,584 3,662 4,787
---------- ---------- --------- ---------- -----------
Tax-adjusted Operating Income $ 1,901 $ 2,746 $ 3,719 $ 5,269 $ 6,889
Plus: NOL Tax Credit $ 1,321 $ 1,239 - - -
Plus: Depreciation & Amoritization $ 1,715 $ 1,752 $ 1,802 $ 1,854 $ 1,907
Less: Capex (745) (1,472) (797) (825) (860)
Changes in Working Capital - - - - -
---------- ---------- --------- ---------- -----------
Free Cash Flow $ 4,193 $ 4,265 $ 4,724 $ 6,298 $ 7,936
/(1)/ All projections provided by NextHealth's management as of March 29, 2001.
------------------------------------------------------------------------------------------------------------------------
67
APPENDIX - DISCOUNTED CASH FLOW ANALYSIS
================================================================================
------------------------------------------------------------------------------------------------------------------------------------
Miraval Free DCF
(in thousands, except per share data)
For the Year Ended December 31,
2001 2002 2003 2004 2005
---- ---- ---- ---- ----
Free Cash Flow $ 4,193 $ 4,265 $ 4,724 $ 6,298 $ 7,936
Present Value of Free Cash Flows Discounted at 30.0% 3,225 2,524 2,150 2,205 2,137
Total Present Value of FCF for years 2000-2005 $ 12,242
Terminal Value Calculation
Projected 2005 EBITDA $ 13,583
Exit Multiple 9.0x
----------
Terminal Value at EBITDA Exit Multiple of 9.0x 122,245
Present Value of Terminal Value 32,924
Aggregate Present Value of Equity $ 45,166
----------------------------------------------------------
Aggregate Unlevered Value
Discount Rate
------------------------------------
25.0% 30.0% 35.0%
----------------------------------------------
EBITDA 8.0x $ 49,289 $ 41,508 $ 35,265
Exit 9.0x $ 53,740 $ 45,166 $ 38,294
Multiple 10.0x $ 58,191 $ 48,824 $ 41,324
---------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
68
APPENDIX - DISCOUNTED CASH FLOW ANALYSIS
================================================================================
------------------------------------------------------------------------------------------------------------------------
Sierra Tucson Free Cash Flow Projections
Projections/(1)(2)/
2001 2002 2003 2004 2005
---------- ---------- ---------- ---------- ----------
EBIT $10,807 $12,146 $13,895 $15,524 $17,050
Less: Taxes (41%) 4,431 4,980 5,697 6,365 6,991
---------- ---------- ---------- ---------- ----------
Tax-adjusted Operating Income $ 6,376 $ 7,166 $ 8,198 $ 9,159 $10,060
Plus: NOL Tax Credit $ 4,431 $ 1,239 - - -
Plus: Depreciation & Amoritization $ 397 $ 472 $ 525 $ 608 $ 666
Less: Capex (486) (1,770) (825) (1,280) (475)
Changes in Working Capital - - - - -
---------- ---------- ---------- ---------- ----------
Free Cash Flow 10,718 7,108 7,898 8,487 10,251
(1) All projections provided by NextHealth's management as of March 26, 2001.
(2) Projections include all revenue and expenses generated by Sierra Tucson Educational Materials ("STEM").
------------------------------------------------------------------------------------------------------------------------
69
APPENDIX - DISCOUNTED CASH FLOW ANALYSIS
================================================================================
-------------------------------------------------------------------------------------------------------------------------
Sierra Tucson DCF
(in thousands, except per share data)
For the Year Ended December 31,
2001 2002 2003 2004 2005
---- ---- ---- ---- ----
Free Cash Flow $ 10,718 $ 7,108 $ 7,898 $ 8,487 $ 10,251
Present Value of Free Cash Flows Discounted at 30.0% 8,245 4,206 3,595 2,972 2,761
Total Present Value of FCF for years 2000-2005 $ 21,778
Terminal Value Calculation
Projected 2005 EBITDA $ 17,716
Exit Multiple 6.0x
-----------
Terminal Value at EBITDA Exit Multiple of 6.0x 106,299
Present Value of Terminal Value 28,629
Aggregate Present Value of Equity $ 50,407
Aggregate Unlevered Value
Discount Rate
---------------------------------
25.0% 30.0% 35.0%
---------------------------------------------
EBITDA 5.0x $ 53,029 $ 45,636 $ 39,646
Exit 6.0x $ 58,835 $ 50,407 $ 43,597
Multiple 7.0x $ 64,640 $ 55,179 $ 47,548
--------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
70
APPENDIX - DISCOUNTED CASH FLOW ANALYSIS
================================================================================
----------------------------------------------------------------------------------------------------------------------
Corporate Expenses Present Value
(in thousands, except per share data)
Projections/(1)/
2001 2002 2003 2004 2005
--------- --------- --------- --------- ---------
EBIT/(2)/ (1,070) (1,047) (1,169) (1,308) (1,464)
Plus: Tax Benefit (41%) 439 429 479 536 600
--------- --------- --------- --------- ---------
Tax-adjusted Operating Income (631) (618) (690) (771) (864)
Less: Capex - - - - -
Plus: Depreciation and Amortization 1 6 5 5 5
Changes in Working Capital - - - - -
--------- --------- --------- --------- ---------
Free Cash Flow (630) (612) (685) (767) (859)
Present Value of Free Cash Flows Discounted at 30.0% (485) (362) (312) (268) (231)
Total Present Value of FCF for years 2000-2005 (1,658)
(1) All projections provided by NextHealth's management
(2) EBIT includes an add-back of minoirty interest.
----------------------------------------------------------------------------------------------------------------------
71
APPENDIX - DISCOUNTED CASH FLOW ANALYSIS
================================================================================
--------------------------------------------------------------------------------
NOL Adjustments
NOL Adjustments
2001 2002
---- ----
Beginning Federal NOL Balance/(1)/ $20,500 $6,470
Assumed Federal Tax Rate 34% 34%
-------- -------
Total NOL Federal Tax Credits Available $ 6,970 $2,200
Combined 2001 Federal Taxes for Miraval and ST $ 4,770 $5,712
-------- -------
Ending Federal Tax Credit Balance @ 34% Tax Rate $ 2,200 $ 0
Ending Federal NOL Balance $ 6,470 $ 0
Beginning State NOL Balance/(1)/ $18,000 $3,970
Assumed State Tax Rate 7% 7%
-------- -------
Total NOL State Tax Credits Available $ 1,260 $ 278
Combined 2001 State Taxes for Miraval and ST $ 982 $1,176
-------- -------
Ending State Tax Credit Balance @ 7% Tax Rate $ 278 $ 0
Ending State NOL Balance $ 3,970 $ 0
--------------------------------------------------------------------------------
72
APPENDIX - DISCOUNTED CASH FLOW ANALYSIS
================================================================================
--------------------------------------------------------------------------------
NOL Utilization
NOL Cap and Available Federal Tax Credits
2001 2002 2003 2004 2005
---- ---- ---- ---- ----
NOL CAP
30 Year Treasury Yield as of 4/11/01/(2)/ 5.60%
NextHealth Stock Offer Price 5.65
Diluted Shares Outstanding 14,651
-------
NOL Cap Per Year $ 4,636 $ 4,636 $4,636 $4,636 $1,958
Assumed Federal Tax Rate 34% 34% 34% 34% 34%
------- ------- ------ ------ ------
Maximum Tax Credits Available Per Year $ 1,576 $ 1,576 $1,576 $1,576 $ 666
Ending NOL Outstanding balance $15,864 $11,229 $6,593 $1,958 $ 0
PV of Tax Credits/(3)/: 1,212 933 717 552 179
Total Present Value of Tax Credits: 3,593
NOL Cap and Available State Tax Credits
2001 2002 2003 2004 2005
---- ---- ---- ---- ----
NOL CAP
30 Year Treasury Yield as of 4/11/01/(2)/ 5.60%
NextHealth Stock Offer Price 5.65
Diluted Shares Outstanding 14,651
-------
NOL Cap Per Year $ 4,636 $ 4,636 $4,636 $4,636 $4,636
Assumed State Tax Rate 7% 7% 7% - -
------- ------- ------ ------ ------
Maximum Tax Credits Available Per Year $ 324 $ 324 $ 324 $ 0 $ 0
Ending NOL Outstanding balance $17,676 $13,040 $8,404 $3,769 $ 0
PV of Tax Credits/(3)/: 250 192 148 - -
Total Present Value of Tax Credits: 589
(1) As of 12/31/01, per NextHealth 10K dated 3/16/01.
(2) Source: FactSet
(3) Present Value of Tax Credits are discounted at 30.0%.
--------------------------------------------------------------------------------
73
================================================================================
----------------------------
E. Discount Rate
Assumptions
----------------------------
APPENDIX--DISCOUNT RATE ASSUMPTIONS
================================================================================
---------------------------------------------------------------------------
Discount Rate Assumption
. Prudential Securities utilized a range of discount rates between
25.0% and 35.0% based upon:
. The historical volatility in NextHealth's earnings and five-plus
year period prior to 2000 where NextHealth generated operating
losses.
. NextHealth's and other small capitalized companies' inability to
raise equity in the public market.
. Rates of return required by opportunity and private equity funds
for investment in small capitalized companies (such as
NextHealth) of generally at least 20% - 25%.
. Risks associated with the Company's projections:
. Aggressive assumptions
. (i.e. 40% EBITDA growth in 2001)
. The Company's actual results are behind the original
2001 budget.
---------------------------------------------------------------------------
75
================================================================================
----------------------------------
F. Land Rights Valuation
Calculation
----------------------------------
APPENDIX - LAND RIGHTS VALUATION CALCULATION
================================================================================
--------------------------------------------------------------------------------
Land Development Rights Present Value
(in thousands, land area and per share data)
Projections /(1)/
Low Range Mid Range High Range
---------- ---------- ----------
Sale Price per Acre $ 100.00 $ 125.00 $ 150.00
Number of Acres 21.6 21.6 21.6
---------- ---------- ----------
Total Sale Contibutions $ 2,160.00 $ 2,700.00 $ 3,240.00
Less: Development Costs per Lot $ 25.00 $ 25.00 $ 25.00
Number of Lots 26 26 26
---------- ---------- ----------
Total Development Costs $ 650.00 $ 650.00 $ 650.00
========== ========== ==========
Contibutions less Devlopment Costs $ 1,510.0 $ 2,050.0 $ 2,590.0
Sewer Infrastructure Costs per sq. ft. $ 0.05 $ 0.05 $ 0.05
Total Number of Square Feet 13,200 13,200 13,200
---------- ---------- ----------
Total Sewer Infrastructure Costs $ 660.00 $ 660.00 $ 660.00
Total Value of Land Development Rights $ 850.0 $ 1,390.0 $ 1,930.0
Less: Taxes (40%) $ 340.0 $ 556.0 $ 772.0
---------- ---------- ----------
Tax adjusted Value of Land Development Rights $ 510.0 $ 834.0 $ 1,158.0
Total Cash Received from Sale of Rights $ 510.0 $ 834.0 $ 1,158.0
Low Mid High Assumed Value
--- --- ---- -------------
------------------------------------------- -------------
Range of Land Development Rights Values $ 510.0 $ 834.0 $ 1,158.0 $ 834.0
------------------------------------------- -------------
(1) Based upon conversations with NextHealth outside legal counsel/land use plan
consultant.
--------------------------------------------------------------------------------
77
DRAFT
================================================================================
---------------------------------
G. Diluted Share
Calculation
---------------------------------
APPENDIX - DILUTED SHARE CALCULATION
================================================================================
--------------------------------------------------------------------------------
-----------------------------------------------------------------------
Cash Price per Share $ 5.650
-----------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Net Common/(1)/ Diluted
Repurchased Additional Shares Shares
Option Plan Options/(1)/ Exercise Price Cash to Company Shares Shares Outstanding Outstanding
------------------------------------------------------------------------------------------------------------------------------------
Warrants 900,000 $ 1.00 $ 900,000 159,292 740,708
Series A Convertible
Preferred 4,606,500 - - - 4,606,500
DSO Plan 364,000 $ 2.10 $ 765,098 135,416 228,584
1990 Plan 254,800 $ 2.10 $ 535,772 94,827 159,973
1992 Plan 605,000 $ 3.04 $ 1,842,213 326,055 278,945
---------------------------------------------------------------------- --------- -----------
6,730,300 $ 4,043,083 715,590 6,014,710 8,636,263 14,650,973
===========
(1) Source: NextHealth management.
--------------------------------------------------------------------------------
79
