SEC Company Response from REGIONAL HEALTH PROPERTIES, INC (RHEP, RHEPA, RHEPB, RHEPZ) (CIK 0001004724) (RHEP) — Aug 29, 2013
REGIONAL HEALTH PROPERTIES, INC (RHEP, RHEPA, RHEPB, RHEPZ) (CIK 0001004724)
Date: Aug. 29, 2013 · CIK: 0001004724 · Accession: 0001104659-13-067069
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-33135
Referenced dates: August 16, 2013
Letter
ADCARE HEALTH SYSTEMS, INC.
1145 Hembree Road
Roswell, Georgia 30076
August 29, 2013
VIA EDGAR
Securities and Exchange Commission
Division of Corporation Finance
100 F Street, N.E.
Washington, D.C. 20549-7010
Attention: Mr. Larry Spirgel
Re: AdCare Health Systems, Inc.
Form 10-K for the fiscal year ended December 31, 2012
Filed July 8, 2013
Forms 10-Q/A for the quarterly periods ended March 31, 2012, June 30, 2012 and September 30, 2012
Filed July 8, 2013
File No. 001-33135
Ladies and Gentlemen:
On behalf of AdCare Health Systems, Inc. (the “Company”), the undersigned hereby responds to the comments (the “Comments”) of the staff (the “Staff”) of the United States Securities and Exchange Commission (the “Commission”) set forth in the Staff’s letter to Mr. Boyd P. Gentry, dated August 16, 2013. For the convenience of the Staff, the Company has restated in this letter in italics each of the Comments and numbered each of the Company’s responses to correspond to the number of each of the Comments.
Form 10-K for the fiscal year ended December 31, 2012
Financial Statements
Principles of Consolidation, page 72
1. Please give us your SAB 99 analysis and explain for us why inclusion of the Oklahoma Owners VIEs in the financial statements for the year ended December 31, 2011 was not material to such financial statements. Provide us with an analysis of the forgone adjustments that would have been required to de-consolidate these VIEs at December 31, 2011.
Background
In response to the Staff’s Comment, and in accordance with the Staff Accounting Bulletin No. 99, Materiality (“SAB 99”), the Company has assessed the materiality of including the Oklahoma Owners in the Company’s financial statements as of and for the year ended December 31, 2011. For purposes of this letter, “Oklahoma Owners” means, collectively, the five entities controlled by Christopher Brogdon and his spouse, Connie Brogdon, which acquired five skilled nursing facilities located in Oklahoma (the “Oklahoma Facilities”) effective August 1, 2011. Mr. Brogdon is the Company’s Vice Chairman of the Board and beneficial owner of greater than 10% of the Company’s common stock.
SAB 99 states that a matter is material if there is a substantial likelihood that a reasonable person would consider it important. In addition, pursuant to SAB 99, a registrant should tailor its assessment of materiality to consider factors that are relevant to the registrant’s own facts and surrounding circumstances and should consider company specific trends and performance metrics that may influence investment decisions, including the metrics that a registrant considers important enough to include in its press releases and earnings calls as well as the metrics analysts cover in their reports.
In accordance with the SAB 99’s guidance, the Company has reviewed and set forth below the relevant quantitative and qualitative considerations in formulating its conclusions.
Quantitative and Qualitative Assessment
The attached exhibits are provided in support of the quantitative materiality assessment:
Exhibit 1 — December 31, 2012 Consolidated Balance Sheet in comparison to the December 31, 2011 As Reported and Pro Forma Consolidated Balance Sheets. For purposes of this letter, (i) “As Reported” presents the information as filed with the Commission, which consolidates the Oklahoma Owners in the Company’s consolidated financial statements, and (ii) “Pro Forma” presents the information on a deconsolidated basis, excluding the Oklahoma Owners from the Company’s consolidated financial statements. Also included are the dollar amount and percentage differences between As Reported and Pro Forma.
Exhibit 2 — December 31, 2012 Consolidated Statement of Operations in comparison to December 31, 2011 As Reported and Pro Forma Statement of Operations. Also included are the dollar amount and percentage differences between As Reported and Pro Forma and reconciliations to Adjusted EBITDAR from continuing operations.
Balance Sheet (Dollar Amounts in 000’s):
The consolidation of the Oklahoma Owners results in the overstatement at December 31, 2011 of current assets by $1,015, or 3.5%, and current liabilities by $1,004, or 2.9%. The differences in individual line items are all less than 5.0%, except for prepaid expenses at 5.3%, and are not deemed material. The Company believes the dollar amount of the overstatement of prepaid expenses ($35) is not material. The working capital ratio at December 31, 2011 is 0.84 on both an As Reported and Pro Forma basis (no change). Based on the above, the Company has concluded that the unrecorded adjustments are not material to current assets and current liabilities.
The overstatement of total assets due to the consolidation of the Oklahoma Owners is $12,733, or 8.0%, and total liabilities are overstated by $13,393, or 9.3%. These differences primarily result from the property and equipment, net, deferred loan costs, net and the long-term debt incurred by the Oklahoma Owners to acquire the Oklahoma Facilities. Although these differences are quantitatively more than inconsequential, the Company has concluded they are not material for the qualitative considerations addressed below. The summarized balance sheet of the Oklahoma Owners at December 31, 2011 is included in Note 20 to the Company’s financial statements as of and for the year ended December 31, 2012.
Statement of Operations (Dollar Amounts in 000’s):
Year ended December 31, 2011:
As Reported 2011 total revenues are overstated by $4,847, or 3.5%, due to the consolidation of the Oklahoma Owners. The Company does not believe the overstatement of total revenues at 3.5% is material, and the difference does not materially impact revenue due to the sizable increase in revenue from 2011 to 2012 from acquisition growth.
As Reported 2011 total expenses are overstated by $4,279, or 3.1%, due to the consolidation of the Oklahoma Owners, which the Company does not believe is material. As Reported 2011 total other expense, net, which consists of interest expense, net, and acquisition costs, net of gains, is overstated by $1,228, or 16.8%. The Company does not believe this is material as these expenses do not impact Adjusted EBITDAR from continuing operations, which is the operating performance measurement reported by the Company.
As Reported 2011 operating income is overstated by $568, or 51.2%, due to the consolidation of the Oklahoma Owners. The 2011 loss from continuing operations is overstated by $660, or 10.3%, and net loss by $660, or 8.7%. Adjusted EBITDAR from continuing operations is overstated by $781, or 5.6%, due to the consolidation of the Oklahoma Owners. There is no tax impact related to the Oklahoma Owners. The Company believes that the unrecorded adjustments on operating income, loss from continuing
operations, net loss and Adjusted EBITDAR from continuing operations are not material because the dollar amounts of such adjustments are quantitatively immaterial.
Company Specific Trends and Performance Metrics that May Influence Investment Decisions and the Company’s Own Facts and Circumstances
As stated in the Company’s earnings releases, earnings calls and filings with the Commission, since mid-2010 the Company has initiated an acquisition and integration strategy. With respect to this strategy, the Company believes that its investors and analysts have been interested in revenue growth, same-facility revenue trends, income from operations, Adjusted EBITDAR from continuing operations, the percentage of Adjusted EBITDAR from continuing operations to total revenues, payer census trends, the nature of and quantity of acquisitions closed, and the pipeline of pending acquisitions.
Although the Company has not described or commented to any significant extent on working capital ratios or debt leverage ratios, the Company believes these are balance sheet metrics that may be relevant to readers of its financial statements.
The unrecorded differences due to the consolidation of the Oklahoma Owners do not materially understate revenue growth trends. Revenue growth in 2012 relative to 2011 is 1.46x As Reported and 1.51x on a Pro Forma basis. In context to the relative large increase in year-over-year revenue, this variance is not material.
The unrecorded differences due to the consolidation of the Oklahoma Owners do not significantly impact same-facility revenue trends because the Oklahoma Facilities were acquired by the Oklahoma Owners in August 2011 and are excluded in the “same facility revenue” metrics.
Given the high growth through acquisition strategy, a metric often used by the Company (and monitored by investors) is the percentage of Adjusted EBITDAR from continuing operations to total revenues, which is 10.1% and 9.8% on an As Reported and Pro Forma basis, respectively. This 0.3% variance is not material and does not materially impact the Adjusted EBITDAR from continuing operations to total revenues trend.
From a balance sheet perspective, the current ratio at December 31, 2011 is 0.84 on both an As Reported and Pro Forma basis (no change). The debt to equity ratio at December 31, 2011 is 7.16x As Reported and 6.39x on a Pro Forma basis (i.e. the Company is heavily leveraged with or without Oklahoma Facilities debt). This variance is not material and does not materially impact the debt leverage ratio trend.
The largest effect of the unrecorded differences due to the consolidation of the Oklahoma Owners is the overstatement of total assets ($12,733, or 8%) and total liabilities ($13,393, or 9.3%). Although the differences are more than inconsequential, the Company believes that these
differences are not material because they do not impact Adjusted EBITDAR from continuing operations in a material manner (i.e., the assets and liabilities of the Oklahoma Owners which contribute to the differences primarily result in depreciation and interest expense which are not elements of Adjusted EBITDAR from continuing operations). The Company believes that Adjusted EBITDAR from continuing operations provides a meaningful and consistent comparison of the Company’s business between periods by eliminating certain items required by GAAP which have little or no significance in the Company’s day-to-day operations. Accordingly, the Company believes that Adjusted EBITDAR from continuing operations is a measure which is useful to investors in evaluating the Company’s performance. As noted above, the percentage of Adjusted EBITDAR from continuing operations to total revenues is relatively unchanged at 10.1% and 9.8% on an As Reported and Pro Forma basis, respectively.
Evaluating the significance placed by an investor on the Oklahoma Facilities acquisition is difficult to evaluate. However, it is noted that in the months leading up to the acquisition of the Oklahoma Facilities by the Oklahoma Owners (June and July 2011) the per share closing price of the Company’s common stock ranged between $4.73 and $5.90. In the month after such acquisition, the per share closing price of the Company’s common stock ranged between $4.50 and $5.37. Based on the foregoing market data, it would appear that the Oklahoma Facilities acquisition did not have a significant impact on the price of the Company’s common stock and that such acquisition was not viewed by investors and analysts as a significant event in the valuation of the Company.
Considerations Referenced in SAB 99
SAB 99 identifies a number of specific quantitative and qualitative factors often assessed in evaluating the materiality of a misstatement of the financial statements. These factors are set forth below in italics followed by the Company’s response to each factor.
· Whether the misstatement arises from an item capable of precise measurement or whether it arises from an estimate and, if so, the degree of imprecision inherent in the estimate.
This matter relates to the application and interpretation of accounting guidance.
· Whether the misstatement masks a change in earnings or other trends.
As discussed above and illustrated in Exhibits 1 and 2 attached hereto, the differences due to the consolidation of the Oklahoma Owners do not significantly change or mask any trends of significance.
· Whether the misstatement hides a failure to meet analysts’ consensus expectations for the enterprise.
No. Similar to most small CAP or smaller reporting companies, the Company does not have a significant following by analysts. In fact, only two or three analysts follow the Company currently and there were no analysts’ expectations prior to 2012.
· Whether the misstatement changes a loss into income or vice versa.
The differences due to the consolidation of the Oklahoma Owners do not directionally change operating income, net loss from continuing operations, or net loss.
· Whether the misstatement concerns a segment.
The differences due to the consolidation of the Oklahoma Owners all impact the Company’s Skilled Nursing Facility segment. Effective in the fourth quarter of 2012, after the disposition of the majority of the Company’s assisted living facilities, the Company no longer maintains multiple reporting segments. Thus, relevance to segment reporting is not significant.
· Whether the misstatement affects the registrant’s compliance with regulatory requirements.
The misstatement due to the consolidation of the Oklahoma Owners did not affect the Company’s compliance with regulatory requirements.
· Whether the misstatement affects the registrant’s compliance with loan covenants or other contractual requirements.
The misstatement due to the consolidation of the Oklahoma Owners did not affect the Company’s compliance with loan covenants or other contractual requirements.
· Whether the misstatement has the effect of increasing management’s compensation.
The misstatement due to the consolidation of the Oklahoma Owners did not have the effect of increasing management’s compensation in 2011.
· Whether the misstatement involves concealment of an unlawful transaction.
The misstatement due to the consolidation of the Oklahoma Owners did not involve the concealment of an unlawful transaction.
Conclusion
Based on both the quantitative and qualitative considerations discussed above, the Company believes that the consolidation of the Oklahoma Owners in the Company’s consolidated financial statements as of and for the year ending December 31, 2011 is not material and, therefore, restatement of such financial statements is not required. Furthermore, a reader of the Company’s consolidated financial statements is able to completely assess the Company’s results, with and without the consolidation of the Oklahoma Owners, because the summarized balance sheet of the Oklahoma Owners for 2011 is included in Note 20 to the Company’s financial statements as of and for the year ended December 31, 2012. Moreover, due to the Company’s continued growth by acquisition, a comparison of the Company’s consolidated financial statements for the year ended December 31, 2012 and 2011 is not overly meaningful.
Non-GAAP Financial Information
The Company defines: (i) “Adjusted EBITDA from continuing operations “ as net income (loss) from continuing operations before interest expense, income tax expense; depreciation and amortization (including amortization of non-cash stock-based compensation), acquisition costs (net of gains), loss on extinguishment of debt, derivative loss or gain and other non-routine adjustments; and (ii) “Adjusted EBITDAR from continuing operations” as net income (loss) from continuing operations before interest expense; income tax expense, depreciation
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CORRESP 1 filename1.htm ADCARE HEALTH SYSTEMS, INC. 1145 Hembree Road Roswell, Georgia 30076 August 29, 2013 VIA EDGAR Securities and Exchange Commission Division of Corporation Finance 100 F Street, N.E. Washington, D.C. 20549-7010 Attention: Mr. Larry Spirgel Re: AdCare Health Systems, Inc. Form 10-K for the fiscal year ended December 31, 2012 Filed July 8, 2013 Forms 10-Q/A for the quarterly periods ended March 31, 2012, June 30, 2012 and September 30, 2012 Filed July 8, 2013 File No. 001-33135 Ladies and Gentlemen: On behalf of AdCare Health Systems, Inc. (the “Company”), the undersigned hereby responds to the comments (the “Comments”) of the staff (the “Staff”) of the United States Securities and Exchange Commission (the “Commission”) set forth in the Staff’s letter to Mr. Boyd P. Gentry, dated August 16, 2013. For the convenience of the Staff, the Company has restated in this letter in italics each of the Comments and numbered each of the Company’s responses to correspond to the number of each of the Comments. Form 10-K for the fiscal year ended December 31, 2012 Financial Statements Principles of Consolidation, page 72 1. Please give us your SAB 99 analysis and explain for us why inclusion of the Oklahoma Owners VIEs in the financial statements for the year ended December 31, 2011 was not material to such financial statements. Provide us with an analysis of the forgone adjustments that would have been required to de-consolidate these VIEs at December 31, 2011. Background In response to the Staff’s Comment, and in accordance with the Staff Accounting Bulletin No. 99, Materiality (“SAB 99”), the Company has assessed the materiality of including the Oklahoma Owners in the Company’s financial statements as of and for the year ended December 31, 2011. For purposes of this letter, “Oklahoma Owners” means, collectively, the five entities controlled by Christopher Brogdon and his spouse, Connie Brogdon, which acquired five skilled nursing facilities located in Oklahoma (the “Oklahoma Facilities”) effective August 1, 2011. Mr. Brogdon is the Company’s Vice Chairman of the Board and beneficial owner of greater than 10% of the Company’s common stock. SAB 99 states that a matter is material if there is a substantial likelihood that a reasonable person would consider it important. In addition, pursuant to SAB 99, a registrant should tailor its assessment of materiality to consider factors that are relevant to the registrant’s own facts and surrounding circumstances and should consider company specific trends and performance metrics that may influence investment decisions, including the metrics that a registrant considers important enough to include in its press releases and earnings calls as well as the metrics analysts cover in their reports. In accordance with the SAB 99’s guidance, the Company has reviewed and set forth below the relevant quantitative and qualitative considerations in formulating its conclusions. Quantitative and Qualitative Assessment The attached exhibits are provided in support of the quantitative materiality assessment: Exhibit 1 — December 31, 2012 Consolidated Balance Sheet in comparison to the December 31, 2011 As Reported and Pro Forma Consolidated Balance Sheets. For purposes of this letter, (i) “As Reported” presents the information as filed with the Commission, which consolidates the Oklahoma Owners in the Company’s consolidated financial statements, and (ii) “Pro Forma” presents the information on a deconsolidated basis, excluding the Oklahoma Owners from the Company’s consolidated financial statements. Also included are the dollar amount and percentage differences between As Reported and Pro Forma. Exhibit 2 — December 31, 2012 Consolidated Statement of Operations in comparison to December 31, 2011 As Reported and Pro Forma Statement of Operations. Also included are the dollar amount and percentage differences between As Reported and Pro Forma and reconciliations to Adjusted EBITDAR from continuing operations. 2 Balance Sheet (Dollar Amounts in 000’s): The consolidation of the Oklahoma Owners results in the overstatement at December 31, 2011 of current assets by $1,015, or 3.5%, and current liabilities by $1,004, or 2.9%. The differences in individual line items are all less than 5.0%, except for prepaid expenses at 5.3%, and are not deemed material. The Company believes the dollar amount of the overstatement of prepaid expenses ($35) is not material. The working capital ratio at December 31, 2011 is 0.84 on both an As Reported and Pro Forma basis (no change). Based on the above, the Company has concluded that the unrecorded adjustments are not material to current assets and current liabilities. The overstatement of total assets due to the consolidation of the Oklahoma Owners is $12,733, or 8.0%, and total liabilities are overstated by $13,393, or 9.3%. These differences primarily result from the property and equipment, net, deferred loan costs, net and the long-term debt incurred by the Oklahoma Owners to acquire the Oklahoma Facilities. Although these differences are quantitatively more than inconsequential, the Company has concluded they are not material for the qualitative considerations addressed below. The summarized balance sheet of the Oklahoma Owners at December 31, 2011 is included in Note 20 to the Company’s financial statements as of and for the year ended December 31, 2012. Statement of Operations (Dollar Amounts in 000’s): Year ended December 31, 2011: As Reported 2011 total revenues are overstated by $4,847, or 3.5%, due to the consolidation of the Oklahoma Owners. The Company does not believe the overstatement of total revenues at 3.5% is material, and the difference does not materially impact revenue due to the sizable increase in revenue from 2011 to 2012 from acquisition growth. As Reported 2011 total expenses are overstated by $4,279, or 3.1%, due to the consolidation of the Oklahoma Owners, which the Company does not believe is material. As Reported 2011 total other expense, net, which consists of interest expense, net, and acquisition costs, net of gains, is overstated by $1,228, or 16.8%. The Company does not believe this is material as these expenses do not impact Adjusted EBITDAR from continuing operations, which is the operating performance measurement reported by the Company. As Reported 2011 operating income is overstated by $568, or 51.2%, due to the consolidation of the Oklahoma Owners. The 2011 loss from continuing operations is overstated by $660, or 10.3%, and net loss by $660, or 8.7%. Adjusted EBITDAR from continuing operations is overstated by $781, or 5.6%, due to the consolidation of the Oklahoma Owners. There is no tax impact related to the Oklahoma Owners. The Company believes that the unrecorded adjustments on operating income, loss from continuing 3 operations, net loss and Adjusted EBITDAR from continuing operations are not material because the dollar amounts of such adjustments are quantitatively immaterial. Company Specific Trends and Performance Metrics that May Influence Investment Decisions and the Company’s Own Facts and Circumstances As stated in the Company’s earnings releases, earnings calls and filings with the Commission, since mid-2010 the Company has initiated an acquisition and integration strategy. With respect to this strategy, the Company believes that its investors and analysts have been interested in revenue growth, same-facility revenue trends, income from operations, Adjusted EBITDAR from continuing operations, the percentage of Adjusted EBITDAR from continuing operations to total revenues, payer census trends, the nature of and quantity of acquisitions closed, and the pipeline of pending acquisitions. Although the Company has not described or commented to any significant extent on working capital ratios or debt leverage ratios, the Company believes these are balance sheet metrics that may be relevant to readers of its financial statements. The unrecorded differences due to the consolidation of the Oklahoma Owners do not materially understate revenue growth trends. Revenue growth in 2012 relative to 2011 is 1.46x As Reported and 1.51x on a Pro Forma basis. In context to the relative large increase in year-over-year revenue, this variance is not material. The unrecorded differences due to the consolidation of the Oklahoma Owners do not significantly impact same-facility revenue trends because the Oklahoma Facilities were acquired by the Oklahoma Owners in August 2011 and are excluded in the “same facility revenue” metrics. Given the high growth through acquisition strategy, a metric often used by the Company (and monitored by investors) is the percentage of Adjusted EBITDAR from continuing operations to total revenues, which is 10.1% and 9.8% on an As Reported and Pro Forma basis, respectively. This 0.3% variance is not material and does not materially impact the Adjusted EBITDAR from continuing operations to total revenues trend. From a balance sheet perspective, the current ratio at December 31, 2011 is 0.84 on both an As Reported and Pro Forma basis (no change). The debt to equity ratio at December 31, 2011 is 7.16x As Reported and 6.39x on a Pro Forma basis (i.e. the Company is heavily leveraged with or without Oklahoma Facilities debt). This variance is not material and does not materially impact the debt leverage ratio trend. The largest effect of the unrecorded differences due to the consolidation of the Oklahoma Owners is the overstatement of total assets ($12,733, or 8%) and total liabilities ($13,393, or 9.3%). Although the differences are more than inconsequential, the Company believes that these 4 differences are not material because they do not impact Adjusted EBITDAR from continuing operations in a material manner (i.e., the assets and liabilities of the Oklahoma Owners which contribute to the differences primarily result in depreciation and interest expense which are not elements of Adjusted EBITDAR from continuing operations). The Company believes that Adjusted EBITDAR from continuing operations provides a meaningful and consistent comparison of the Company’s business between periods by eliminating certain items required by GAAP which have little or no significance in the Company’s day-to-day operations. Accordingly, the Company believes that Adjusted EBITDAR from continuing operations is a measure which is useful to investors in evaluating the Company’s performance. As noted above, the percentage of Adjusted EBITDAR from continuing operations to total revenues is relatively unchanged at 10.1% and 9.8% on an As Reported and Pro Forma basis, respectively. Evaluating the significance placed by an investor on the Oklahoma Facilities acquisition is difficult to evaluate. However, it is noted that in the months leading up to the acquisition of the Oklahoma Facilities by the Oklahoma Owners (June and July 2011) the per share closing price of the Company’s common stock ranged between $4.73 and $5.90. In the month after such acquisition, the per share closing price of the Company’s common stock ranged between $4.50 and $5.37. Based on the foregoing market data, it would appear that the Oklahoma Facilities acquisition did not have a significant impact on the price of the Company’s common stock and that such acquisition was not viewed by investors and analysts as a significant event in the valuation of the Company. Considerations Referenced in SAB 99 SAB 99 identifies a number of specific quantitative and qualitative factors often assessed in evaluating the materiality of a misstatement of the financial statements. These factors are set forth below in italics followed by the Company’s response to each factor. · Whether the misstatement arises from an item capable of precise measurement or whether it arises from an estimate and, if so, the degree of imprecision inherent in the estimate. This matter relates to the application and interpretation of accounting guidance. · Whether the misstatement masks a change in earnings or other trends. As discussed above and illustrated in Exhibits 1 and 2 attached hereto, the differences due to the consolidation of the Oklahoma Owners do not significantly change or mask any trends of significance. · Whether the misstatement hides a failure to meet analysts’ consensus expectations for the enterprise. 5 No. Similar to most small CAP or smaller reporting companies, the Company does not have a significant following by analysts. In fact, only two or three analysts follow the Company currently and there were no analysts’ expectations prior to 2012. · Whether the misstatement changes a loss into income or vice versa. The differences due to the consolidation of the Oklahoma Owners do not directionally change operating income, net loss from continuing operations, or net loss. · Whether the misstatement concerns a segment. The differences due to the consolidation of the Oklahoma Owners all impact the Company’s Skilled Nursing Facility segment. Effective in the fourth quarter of 2012, after the disposition of the majority of the Company’s assisted living facilities, the Company no longer maintains multiple reporting segments. Thus, relevance to segment reporting is not significant. · Whether the misstatement affects the registrant’s compliance with regulatory requirements. The misstatement due to the consolidation of the Oklahoma Owners did not affect the Company’s compliance with regulatory requirements. · Whether the misstatement affects the registrant’s compliance with loan covenants or other contractual requirements. The misstatement due to the consolidation of the Oklahoma Owners did not affect the Company’s compliance with loan covenants or other contractual requirements. · Whether the misstatement has the effect of increasing management’s compensation. The misstatement due to the consolidation of the Oklahoma Owners did not have the effect of increasing management’s compensation in 2011. · Whether the misstatement involves concealment of an unlawful transaction. The misstatement due to the consolidation of the Oklahoma Owners did not involve the concealment of an unlawful transaction. 6 Conclusion Based on both the quantitative and qualitative considerations discussed above, the Company believes that the consolidation of the Oklahoma Owners in the Company’s consolidated financial statements as of and for the year ending December 31, 2011 is not material and, therefore, restatement of such financial statements is not required. Furthermore, a reader of the Company’s consolidated financial statements is able to completely assess the Company’s results, with and without the consolidation of the Oklahoma Owners, because the summarized balance sheet of the Oklahoma Owners for 2011 is included in Note 20 to the Company’s financial statements as of and for the year ended December 31, 2012. Moreover, due to the Company’s continued growth by acquisition, a comparison of the Company’s consolidated financial statements for the year ended December 31, 2012 and 2011 is not overly meaningful. Non-GAAP Financial Information The Company defines: (i) “Adjusted EBITDA from continuing operations “ as net income (loss) from continuing operations before interest expense, income tax expense; depreciation and amortization (including amortization of non-cash stock-based compensation), acquisition costs (net of gains), loss on extinguishment of debt, derivative loss or gain and other non-routine adjustments; and (ii) “Adjusted EBITDAR from continuing operations” as net income (loss) from continuing operations before interest expense; income tax expense, depreciation