National HealthCare Corporation (NHC) Marnie Georges Daniel Kleeman Jason Mudrock May 1, 2014

Agenda Screening process Company overview Recent financial performance Macroeconomic and industry overview Management focus Financial analysis Financial projections Valuation Recommendation

Our screening process Major US Exchanges United States and Canada Primary industry classification is not a financial company P/BV between 0.5 and 1.5 Market Cap between $80MM and $800MM Analysts < 3 Revenue growth since last year > 3% Net Income Margin > 3% LTM P/E < 16 Utilizing CapitalIQ for the entire process

Business overview NHC Skilled Nursing Centers Net Patient Revenues Assisted Living Independent Living Rehabilitation Pharmacy HomeCare Hospice Accounting & Financial Services Net Patient Revenues Skilled Nursing Facilities Rehabilitative Services Medical Specialty Units Managed Care Contracts Assisted Living Centers Independent Living Centers Homecare Programs Pharmacy Operations Other Revenues Insurance Services Rental Income Management, Accounting, and Financial Services Source: 2013 10-k.

Business capabilities 13 3 78 2 31 10 4 Manage 69 skilled nursing facilities with a total of 8,943 licensed beds Manages 7 centers for others Leases 35 centers from National Health Investors Originally spun off from NHC Source: 2013 10-k.

Market power analysis Strengths Weaknesses Opportunities Threats Strong profitability Ability to renew leased facilities All managed centers are Medicare certified Weaknesses Dependence on Medicare and Medicaid Excess capacity Opportunities Aging population Increasing insurance coverage Threats Heavy industry regulation Wrongful death lawsuits Source: 2013 10-k.

Recent financial performance Solid yearly growth overall Year-to-year variability from business risks 2013 benefitted from opening new facilities Several still under construction Profitability can vary with risk reserves Sources: 2013 10-k, 2012 10-k, 2011 10-k, 2010 10-k.

Stock market performance Sources: Yahoo! Finance.

Industry drivers Aging Population Federal Funding for Medicaid & Medicare Increased Private Insurance Ownership 5.9% CAGR Sources: 1. “Number of adults aged 65 and older.“ IBISWorld Business Environment Profiles. IBISWorld. Jan. 2014. 2. “Federal funding for Medicare and Medicaid.“ IBISWorld Business Environment Profiles. IBISWorld. Jan. 2014. 3.. “Number of people with private health insurance.“ IBISWorld Business Environment Profiles. IBISWorld. Jan. 2014.

Porter’s Five Forces HIGH MEDIUM LOW HIGH LOW Bargaining Power of Buyers Numerous competitors and alternatives available to buyers Alternatives to skilled nursing Consumer choice limited by insurance plans Bargaining Power of Suppliers Dominant medical suppliers serve all competitors Schools with top nursing talent attract multiple industry players May customize facilities and use multiple vendors for common goods/services Entry of New Competitors High barriers include specified skills, capital expenditures, and government regulations Necessary payor relationships deter entrants Rivalry Among Existing Competitors Numerous players competing in growing industry for limited payout funds Branding becomes important due to sensitive nature of services performed Threat of Substitutes Low use of alternative medicines and healing Skilled care is difficult to replicate HIGH MEDIUM LOW HIGH LOW Sources: 1. Diment, Dmitry. “Nursing Care Facilities in the US.” IBISWorld Industry Report. IBISWorld. Feb. 2014. 2. Diment, Dmitry. “Elderly & Disabled Services in the US.” IBISWorld Industry Report. IBISWorld. Feb. 2014. 3. Phillips, Jocelyn. “Specialty Hospitals in the US.” IBISWorld Industry Report. IBISWorld. Feb. 2014.

Health insurance overview Private Insurance Affordable Care Act Medicare & Medicaid Sources: 1. “HMOs.” Illinois Department of Insurance. Jun. 2009. http://insurance.illinois.gov/HealthInsurance/HMOs.asp. 2. “Preferred Provider Organization (PPO) Plans.” Medicare.gov. http://www.medicare.gov/sign-up-change-plans/medicare-health-plans/medicare-advantage-plans/preferred-provider-organization-plans.html 3. About the Law.” HHS.gov/HealthCare. U.S. Department of Health & Human Services. http://www.hhs.gov/healthcare/rights/ Sources: 1. “HMOs.” Illinois Department of Insurance. Jun. 2009. 2. “Preferred Provider Organization (PPO) Plans.” Medicare.gov. 3. About the Law.” HHS.gov/HealthCare. U.S. Department of Health & Human Services.

Management focus Improve occupancy rates with existing facilities Diversify revenue streams to include more private payors Open facilities currently under construction in a timely manner Source: 2013 10-k.

Financial analysis

Financial analysis

Discount rate

Projections

Comparable valuation Source: Yahoo! Finance.

Projections

DCF

DCF

Price Weighting

Performance relative to comps Source: Yahoo! Finance.

Buy Recommendation Market Price - $54.73 as of 4/30 market close Buy 100 shares with a limit order @ 54.50 $5,450 position size Limit order will be good until cancelled