Note 2. – Business Operations

Business Operations

SunLink owns businesses which are providers of healthcare services in certain markets in the United States. SunLink’s business is composed of the ownership of two business segments:

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The Healthcare Facilities Segments, which is composed of:

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A subsidiary which owns and operates an 84-licensed-bed, acute care hospital, which includes an 18-bed GPU, and a 66-bed nursing home.

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A subsidiary which owns and operates a 100-bed nursing home. This subsidiary also owns a hospital building and leases the portion of that building occupied by the emergency department to an unaffiliated healthcare provider.

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Two separate subsidiaries which own medical buildings, which are leased to unaffiliated healthcare providers.

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A subsidiary which owns a closed hospital building and a medical office building which it currently rents office space to one unaffiliated healthcare provider.

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The Specialty Pharmacy Segment, which is composed of four operational areas:

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Retail pharmacy products and services, all of which are conducted in rural markets;

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Institutional pharmacy services;

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Specialty pharmacy services; and

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Durable medical equipment.

Our Specialty Pharmacy Segment currently is operated through Carmichael’s Cashway Pharmacy, Inc. (“Carmichael”), a subsidiary of our SunLink ScriptsRx, LLC subsidiary.

The business strategy of SunLink is to focus its efforts on improving internal operations of the existing pharmacy business and healthcare facilities subsidiaries and on the sale or disposition of its subsidiaries’ underperforming assets. The Company considers the disposition of facilities and operations based on a variety of factors in addition to under-performance, including asset values, return on investments and competition from existing and potential competitors, capital improvement needs, prevailing reimbursement rates for drugs and medical services under various Federal and state programs (e.g., Medicare and Medicaid) and by private payors, corporate strategy and other corporate objectives. The Company also is considering potential upgrades and improvements to certain of its healthcare facilities. The Company believes its Healthcare Facilities Segment and its Pharmacy Segment continues to under-perform, and the Company has engaged advisors to assist it in evaluating the possible sale of its specialty pharmacy business. The Company also has an agreement, subject to various conditions, to sell a medical office building. The Company has used cash proceeds from recent dispositions of assets to pay off certain liabilities and may use a portion of its existing cash assets, as well as any net proceeds from future dispositions, to prepay long-term debt, return capital to shareholders via a repurchase of shares or a dividend, make improvements to existing facilities, and for other general corporate purposes. There can be no assurance that any further dispositions will be authorized by the Company’s Board of Directors or, if authorized, that any such transactions will be completed or, if completed, will result in net cash proceeds to the Company on a before or after tax basis.

Throughout these notes to the consolidated financial statements, SunLink Health Systems, Inc., and its consolidated subsidiaries are referred to on a collective basis as “SunLink”, “we”, “our”, “ours”, “us” or the “Company.” This drafting style is not meant to indicate that the publicly traded Company or any particular subsidiary of the Company owns or operates any asset, business or property. The Trace Hospital, pharmacy operations and businesses described in this filing are owned and operated by distinct and indirect subsidiaries of SunLink Health System, Inc.