DISCONTINUED OPERATIONS

All of the businesses discussed below are reported as discontinued operations and the consolidated financial statements for all prior periods have been adjusted to reflect this presentation.

Dexter Hospital—On December 31, 2012, the Company completed the sale of substantially all the assets and the leasehold interest of its subsidiary, Dexter Hospital, LLC (“Dexter”), to Southeast Health Center of Stoddard County, LLC, an indirect subsidiary of Southeast Missouri Hospital Association (“SoutheastHEALTH”). The assets of Dexter consisted of a leased 50-bed acute care hospital and related clinics, equipment, and home health services in Dexter, Missouri. Subsequent to the sale, Dexter has managed the hospital and related businesses for Southeast Health Center of Stoddard County, LLC and have done so through a transition period that ended June 30, 2013. Dexter retained accounts receivable and certain other assets, including the right to Medicare and Medicaid incentive payments (“EHR Funds”) for meaningful use of electronic health record technology and substantially all liabilities of the hospital as of December 31, 2012. The sale of the assets, including the right to EHR Funds, and leasehold interest of Dexter for approximately $9,930, less sale expenses and taxes, resulted in net proceeds of approximately $7,400. Approximately $5,200 of the net proceeds was used to pay off the outstanding balance of the Company’s senior credit facility under the Term Loan of the Company’s then outstanding Credit Facility. Dexter’s operations have been reclassified as discontinued operations in our consolidated financial statements for the fiscal years ended June 30, 2013, 2012 and 2011.

Memorial Hospital of Adel—On July 2, 2012, the Company and its HealthMont of Georgia, Inc. subsidiary completed the sale of substantially of all the assets of Memorial Hospital of Adel and Memorial Convalescent Center (collectively “Memorial”) to the Hospital of Authority of Tift County, Georgia (“Tift”) for approximately $8,350. The net proceeds from the sale of approximately $7,500 were used to repay a portion of the Company’s senior debt under the Term Loan under the Company’s then outstanding Credit Facility.

Memorial’s operations have been reclassified as discontinued operations in our consolidated financial statements as of and for the fiscal years ended June 30, 2013, 2012 and 2011.

Chilton Medical Center—On March 1, 2011, SunLink entered into an agreement to sell its 83% membership interest in its Clanton Hospital LLC (“Clanton”) subsidiary, which operated Chilton Medical Center (“Chilton”), to Carraway Medical Systems, Inc. (“Carraway”) and to lease the physical facility to Carraway. The lease agreement was for a six-year term with monthly rent of $37 and includes an option under which Carraway can purchase the physical facility from SunLink. The option purchase price is $3,700, less the amount paid to purchase the 17% membership interest of Clanton that Carraway did not currently own, up to a maximum of $615. The purchase price of SunLink’s 83% membership interest in Clanton was a $1,000 six-year zero-coupon note plus a six-year 6% note for the net working capital of Clanton at purchase. On October 29, 2012, the Alabama Department of Public Health issued an emergency order to suspend the operating license of the former lease/operator and for the cessation of all operations in an orderly manner due to the former lease/operator’s inability to meet its financial obligations and failure to have an effective governing authority. Carraway defaulted on the lease due to non-payment. As a result, the note at June 30, 2013 and 2012 was recorded on the consolidated balance sheet at net $0. On December 6, 2012, CAMA entered into an option agreement with the Chilton County (Alabama) Hospital Board (“CCHB”) under which CCHB had the option through March 15, 2013 to acquire CAMA’s real and personal property relating to Chilton Medical Center in Clanton, Alabama, for $1,500. CCHB and CAMA applied jointly for a receiver which has taken over operations of the third-party operator. However, the option period expired without CCHB exercising the option and CAMA had the receivership terminated. The operating license for use of the property as a hospital has been revoked and CAMA has terminated the real property lease with the third-party operator. The property reverted back to CAMA and is being repurposed as a multi-tenant medical park.

Pursuant to the terms of the sale and lease agreement, SunLink was entitled to receive 75% of the Electronic Health Records Medicare incentive reimbursement received with respect to Chilton. The Company received $188 of Medicaid EHR funds with respect to Chilton in the fourth fiscal quarter of 2012 and $790 of Medicare EHR incentive payments in the fourth fiscal quarter of 2011.

Mountainside Medical Center—On June 1, 2004, SunLink sold its Mountainside Medical Center (“Mountainside”) hospital in Jasper, Georgia, for approximately $40,000 pursuant to the terms of an asset sale agreement. In connection with this sale, claims by the buyer and counter claims by SunLink were litigated which resulted in a judgment for SunLink. The judgment, which included damages, prejudgment interest and certain losses, was collected by SunLink in the amount of $1,246 in May 2010 and $540 in December 2010, and the parties executed a mutual release. Included in the pre-tax earnings of Mountainside for the fiscal year ended June 30, 2011 is the judgment of $540 related to the litigation. Also included in pre-tax earnings for the fiscal year ended June 30, 2011 were legal expenses of $194 related to the litigation.

Life Sciences and Engineering Segment—SunLink retained a defined benefit retirement plan which covered substantially all of the employees of this segment when the segment was sold in fiscal 1998. Effective February 28, 1997, the plan was amended to freeze participant benefits and close the plan to new participants. Pension expense and related tax benefit or expense is reflected in the results of operations for this segment for the fiscal years ended June 30, 2013, 2012 and 2011.

Discontinued Operations Reserves—SunLink has discontinued operations carried on by its former life sciences and engineering segment as well as certain of our healthcare operations. SunLink’s reserves related to discontinued operations of these segments represent management’s best estimate of SunLink and its subsidiaries’ possible liability for claims for which SunLink or its subsidiaries may incur liability. No reserve for discontinued operations is included in discontinued operations at June 30, 2013.

Results for all the businesses included in discontinued operations are presented in the following table:

Discontinued Operations—Summary Statement of Earnings Information


	Years Ended June 30,
	2013			2012			2011
Net Revenues:
Dexter Hospital	$	9,634		$	20,066		$	18,458
Memorial of Adel		114			14,643			15,007
Chilton Medical Center		0			0			6,905

	$	9,748		$	34,709		$	40,370

Earnings Before Income Taxes:
Dexter Hospital	$	542		$	3,750		$	1,322
Memorial of Adel		(26	)		445			(783	)
Chilton Medical Center		0			0			(724	)
Life sciences and engineering		(253	)		(88	)		(83	)
Mountainside		0			1			347

Earnings before income taxes		263			4,108			79

Gain on Sale:
Dexter Hospital		9,289			0			0
Memorial of Adel		1,161			0			0
Chilton Medical Center		0			0			438

Gain on Sale		10,450			0			438
Income tax expense		4,640			1,351			344

Earnings from discontinued operations	$	6,073		$	2,757		$	173