SunLink Health Systems third quarter net earnings increases to $2,683,000

May 11 2011

SunLink Health Systems, Inc. (NYSE Amex Equities: SSY) today announced earnings from continuing operations for its fiscal quarter ended March 31, 2011 of $2,515,000, or $0.31 per fully diluted share, compared to earnings from continuing operations of $469,000, or $0.06 per fully diluted share, for the comparable quarter ended March 31, 2010. For the nine months ended March 31, 2011, SunLink reported a loss from continuing operations of $1,849,000, or a loss of $0.23 per fully diluted share, compared to earnings from continuing operations of $691,000, or $0.09 per fully diluted share, for the nine months ended March 31, 2010. Net revenues for the quarter and nine months ended March 31, 2011 include $4,810,000 from Medicare and certain Medicaid Electronic Health Records Incentive Programs ("EHR Incentive Programs"). The results for the nine months ended March 31, 2010 included a pre-tax gain of $2,342,000 from the sale of three home health businesses.

SunLink reported net earnings of $2,683,000, or $0.33 per fully diluted share, for the quarter ended March 31, 2011, compared to net earnings of $1,646,000, or $0.20 per fully diluted share, for the comparable quarter a year ago. For the nine months ended March 31, 2011, SunLink reported a net loss of $1,851,000, or a loss of $0.23 per fully diluted share, compared to net earnings of $1,618,000, or $0.20 per fully diluted share for the comparable period last year.

Consolidated net revenues from continuing operations for the quarter ended March 31, 2011 increased by 7.4% to $52,028,000 compared to $48,462,000 in the comparable period a year ago. The Healthcare Facilities Segment net revenues of $39,337,000 in the current quarter increased $2,797,000, or 7.7%, from the prior year and included $4,810,000 from Medicare and certain Medicaid EHR Incentive Programs. Additional reimbursement under the EHR Incentive Programs is expected to be received through fiscal 2014 if the annual requirements of the programs are met. Also included in net revenues of the Healthcare Facilities Segment for the quarter ended March 31, 2011 is $1,948,000 from state indigent care programs and positive prior year third-party payor settlements compared to $2,614,000 in the quarter ended March 31, 2010. The Specialty Pharmacy Segment net revenues of $12,691,000 in the quarter ended March 31, 2011 increased $769,000, or 6.5% from the prior year. Consolidated net revenues from continuing operations for the nine months ended March 31, 2011 decreased by 1.1% to $137,947,000 compared to $139,551,000 in the comparable period a year ago. The Healthcare Facilities Segment had net revenues in the nine months ended March 31, 2011 of $104,871,000 compared to $105,369,000 last year. The Specialty Pharmacy Segment had $33,076,000 of net revenue for the nine months ended March 31, 2011 compared to $34,182,000 in the comparable period a year ago.

The company reported operating profit from continuing operations for the quarter ended March 31, 2011 of $5,687,000 compared to an operating profit for the quarter ended March 31, 2010 of $1,720,000. The operating profit in the current year increased $3,967,000, primarily due to increased earnings of the Healthcare Facilities Segment's which included the reimbursement of $4,810,000 under EHR Incentive Programs.

Operating profit from continuing operations for the nine months ended March 31, 2011 was $3,746,000 compared to $3,973,000 for the comparable period last year. Included in operating profit last year is the pre-tax gain of $2,342,000 on the September 2009 sale of the home health businesses. Included in the earnings from discontinued operations for the quarter and nine months ended March 31, 2011 and 2010 are the results of the company's former hospital Chilton Medical Center which was leased on March 1, 2011 to a new operator.

Adjusted EBITDA for SunLink's Healthcare Facilities Segment (a non-GAAP measure of the liquidity of a company) increased to $8,116,000 in the current quarter, primarily due to the EHR Incentive Programs, from $4,333,000 in the comparable quarter a year ago. Adjusted EBITDA for SunLink's Specialty Pharmacy Segment in the quarter ended March 31, 2011 increased slightly to $254,000. Adjusted EBITDA for the nine-month period ended March 31, 2011 was $12,257,000 compared to $9,971,000. SunLink's Healthcare Facilities Segment Adjusted EBITDA increased to $11,434,000 compared to $8,741,000, and its Specialty Pharmacy Segment's Adjusted EBITDA was $823,000 versus $1,230,000.

On April 8, 2011, the company announced that it reached a preliminary agreement and executed a letter of intent with Foundation HealthCare Affiliates, LLC ("Foundation"), New Age Fuel, Inc. ("New Age"), and Foundation Investment Affiliates I, LLC ("FIA") for the non-cash merger of certain Foundation, New Age and FIA, subsidiaries and affiliates with and into newly formed acquisition subsidiaries of SunLink.