CRC Health CORP - FORM 8-K - EX-99.1 - PRESS RELEASE - October 17, 2011

Attached files

file filename
8-K - FORM 8-K - CRC Health CORPd244472d8k.htm

Exhibit 99.1

LOGO

NEWS RELEASE

FOR IMMEDIATE RELEASE: October 17, 2011

CRC Health Corporation Reports Operating Results

For the Three Months and Six Months Ended June 30, 2011

CUPERTINO, CA, October 17, 2011—CRC Health Corporation (“CRC” or the “Company”), a leading provider of substance abuse treatment and adolescent youth services through its wholly owned consolidated subsidiaries, announced its results for the three months and six months ended June 30, 2011. These results include restatements for the three months and six months ended June 30, 2010. See Restatement of Previously Issued Condensed Consolidated Financial Statements for additional detail.

During the three months ended June 30, 2011, the Company changed its managerial and financial reporting structure. As a result of this change, the Company identified its new reportable segments as the recovery, youth and weight management divisions. Prior to this change, the Company had two reportable segments: the recovery and healthy living divisions. The weight management division was previously reported under the healthy living division. The Company has restated the segment presentation for all periods presented.

The recovery division provides substance abuse and behavioral disorder treatment services through residential treatment facilities and outpatient treatment clinics. The youth division provides therapeutic educational programs to underachieving young people through residential schools and wilderness programs. The weight management division provides treatment services through adolescent and adult weight management programs as well as eating disorder facilities.

Consolidated net revenue for the three months ended June 30, 2011 increased $5.7 million, or 5.1%, to $119.3 million compared to the same period in 2010. For the three months ended June 30, 2011, consolidated operating expenses decreased $54.6 million, or 35.6%, to $98.8 million from $153.4 million in the same period of 2010. The decrease was primarily driven by a decrease of non-cash goodwill and asset impairment charges of $60.1million within the youth division. For the three months ended June 30, 2011 adjusted pro forma earnings before interest, taxes, depreciation and amortization (“EBITDA”) increased $1.4 million, or 5.2%, to $29.3 million compared to $27.9 million during the same period in 2010.

Consolidated net revenue for the six months ended June 30, 2011 increased $13.4 million, or 6.2%, to $230.2 million compared to the same period in 2010. For the six months ended June 30, 2011, consolidated operating expenses decreased $43.7 million, or 18.0%, to $199.2 million from $242.8 million in the same period of 2010. The decrease was primarily driven by a decrease in non-cash goodwill and asset impairment charges of $55.8 million within the youth division. For the six months ended June 30, 2011 adjusted pro forma earnings before interest, taxes, depreciation and amortization (“EBITDA”) increased $4.7 million, or 9.6%, to $53.7 million compared to $49.0 million during the same period in 2010.

Three Months Ended June 30, 2011 Operating Results:

The following table presents the Company’s revenue, operating expense and operating income by division for the three months ended June 30, 2011 and 2010 (numbers in thousands, except for percentages):

 

     Three Months Ended June 30,  
                 2011 vs. 2010  
     2011     2010     $ Change     % Change  
           As Restated              

Net revenue

         

Recovery

    $ 89,354      $ 83,298      $ 6,056        7.3 % 

Youth

      22,082        22,776        (694 )      (3.0 )% 

Weight management

      7,781        7,388        393        5.3 % 

Corporate

      36        48        (12 )      (25.0 )% 
  

 

 

    

 

 

    

 

 

    
     119,253        113,510        5,743        5.1 % 

Operating expenses

         

Recovery

      58,688        54,026        4,662        8.6 % 

Youth

      24,060        84,257        (60,197 )      (71.4 )% 

Weight Management

      7,740        7,416        324        4.4 % 

Corporate

      8,273        7,655        618        8.1 % 
  

 

 

    

 

 

    

 

 

    
     98,761        153,354        (54,593 )      (35.6 )% 

Operating income (loss)

         

Recovery

      30,666        29,272        1,394        4.8 % 

Youth

      (1,978 )      (61,481 )      59,503        96.8 % 

Weight Management

      41        (28 )      69        246.4 % 

Corporate

      (8,237 )      (7,607 )      (630 )      (8.3 )% 
  

 

 

    

 

 

    

 

 

    

Operating income

    $ 20,492      $ (39,844 )    $ 60,336        151.4 % 
  

 

 

    

 

 

    

 

 

    

The following table presents the Company’s net revenue, adjusted pro forma operating expenses, adjusted pro forma EBITDA and adjusted pro forma EBITDA margins by division for the three months ended June 30, 2011 and 2010 (numbers in thousands, except for percentages):

 

     Three Months Ended June 30,  
                 2011 vs. 2010  
     2011     2010     $ Change     % Change  
           As Restated              

Net Revenue

         

Recovery

    $ 89,354      $ 83,298      $ 6,056        7.3 % 

Youth

      22,082        22,776        (694 )      (3.0 )% 

Weight Management

      7,781        7,388        393        5.3 % 

Corporate

      36        48        (12 )      (25.0 )% 
  

 

 

    

 

 

    

 

 

    
     119,253        113,510        5,743        5.1 % 

Adjusted Pro Forma Operating Expenses

         

Recovery

      55,752        51,405        4,347        8.5 % 

Youth

      22,193        22,670        (477 )      (2.1 )% 

Weight Management

      6,513        6,819        (306 )      (4.5 )% 

Corporate

      5,482        4,754        728        15.3 % 
  

 

 

    

 

 

    

 

 

    
     89,940        85,648        4,292        5.0 % 

Adjusted Pro Forma EBITDA

         

Recovery

      33,602        31,893        1,709        5.4 % 

Youth

      (111 )      106        (217 )      (204.7 )% 

Weight Management

      1,268        569        699        122.8 % 

Corporate

      (5,446 )      (4,706 )      (740 )      (15.8 )% 
  

 

 

    

 

 

    

 

 

    
   $ 29,313      $ 27,862      $ 1,451        5.2 % 
  

 

 

    

 

 

    

 

 

    

Adjusted Pro Forma Operating Margins

         

Recovery

      37.6 %      38.3 %     

Youth

      (0.5 )%      0.5 %     

Weight Management

      16.3 %      7.7 %     

CRC Health Corporation

      24.6 %      24.5 %     

Recovery Division:

Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010

 

  •  

Net revenue increased $6.1 million, or 7.3%, to $89.4 million for the quarter from $83.3 million from the comparable prior-year quarter. Revenue increases were primarily driven by an increase of $5.3 million in residential facilities and an increase of $0.8 million within comprehensive treatment centers (“CTCs”). Same-facility net revenue increases were similar to total-facility net revenue increases.

 

  •  

Adjusted pro forma EBITDA increased $1.7 million, or 5.4%, to $33.6 million for the quarter from $31.9 million from the comparable prior-year quarter.

  •  

Operating expenses increased $4.7 million for the comparable quarters in 2011 and 2010 due primarily to an increase of $2.6 million in supplies, facilities and other operating costs, an increase of $1.9 million in salaries and benefits, and an increase of $0.1 million in provision for doubtful accounts.

 

  •  

Same-facility operating expenses increased $3.7 million driven by an increase of $3.3 million in residential facilities and an increase of $0.4 million in CTCs.

Youth Division:

Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010

 

  •  

Net revenue decreased $0.7 million, or 3.0%, to $22.1 million for the quarter from $22.8 million from the comparable prior-year quarter. The decrease in revenue was driven by a decrease of $2.0 million in residential facilities, offset by increases of $1.3 million in outdoor programs. Same-facility net revenue decreases were similar to total facility net revenue decreases.

 

  •  

Adjusted pro forma EBITDA decreased $0.2 million to $(0.1) million for the quarter from $0.1 million from the comparable prior-year quarter.

 

  •  

Operating expenses decreased $60.2 million, or 71.4%, primarily driven by a decrease of non-cash goodwill and asset impairment charges of $60.1 million and $0.6 million, respectively, offset by a $0.5 million increase in salaries and benefits.

 

  •  

Same-facility operating expenses decreased $14.9 million primarily due to a decrease of asset impairment charges of $14.9 million.

Weight Management Division:

Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010

 

  •  

Net revenue increased $0.4 million, or 5.3%, to $7.8 million for the quarter from $7.4 million from the comparable prior-year quarter. The increase in revenue was primarily driven by the summer camps.

 

  •  

Adjusted pro forma EBITDA increased $0.7 million to $1.3 million for the quarter from $0.6 million from the comparable prior-year quarter.

 

  •  

Operating expenses increased $0.3 million, or 4.4%, primarily driven by a $0.9 million increase in supplies, facilities and other operating costs, offset by a decrease of $0.3 million in asset impairment and a decrease of $0.2 million in salaries and benefits.

 

  •  

Same-facility operating expenses decreased $0.4 million primarily due to a decrease of asset impairment charges of $0.2 million and a decrease of $0.2 million in salaries and benefits.

Corporate:

Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010

 

  •  

Corporate operating expenses increased $0.6 million or 8.1% for the comparable quarters in 2011 and 2010 due primarily to an increase of $1.2 million in supplies, facilities and other operating costs, offset by a decrease of $0.7 million in salaries and benefits.

Six Months Ended June 30, 2011 Operating Results:

The following table presents the Company’s revenue, operating expense and operating income by division for the six months ended June 30, 2011 and 2010 (numbers in thousands, except for percentages).

 

     Six Months Ended June 30,  
                   2011 vs. 2010  
     2011      2010      $ Change     % Change  
            As Restated               

Net revenue

           

Recovery

    $ 175,076       $ 161,965       $ 13,111        8.1 % 

Youth

      41,103         42,317         (1,214 )      (2.9 )% 

Weight Management

      13,909         12,405         1,504        12.1 % 

Corporate

      78         98         (20 )      (20.4 )% 
  

 

 

     

 

 

     

 

 

    

 

 

  
     230,166         216,785         13,381        6.2 % 

     Six Months Ended June 30,  
                 2011 vs. 2010  
     2011     2010     $ Change     % Change  
           As Restated              

Operating expenses

         

Recovery

      116,244        107,289        8,955        8.3 % 

Youth

      52,296        107,176        (54,880 )      (51.2 )% 

Weight Management

      13,093        12,983        110        0.8 % 

Corporate

      17,540        15,378        2,162        14.1 % 
  

 

 

    

 

 

    

 

 

    
     199,173        242,826        (43,653 )      (18.0 )% 

Operating income (loss)

         

Recovery

      58,832        54,676        4,156        7.6 % 

Youth

      (11,193 )      (64,859 )      53,666        82.7 % 

Weight Management

      816        (578 )      1,394        241.2 % 

Corporate

      (17,462 )      (15,280 )      (2,182 )      (14.3 )% 
  

 

 

    

 

 

    

 

 

    

Operating income

    $ 30,993      $ (26,041 )    $ 57,034        219.0 % 
  

 

 

    

 

 

    

 

 

    

The following table presents the Company’s net revenue, adjusted pro forma operating expenses, adjusted pro forma EBITDA and adjusted pro forma EBITDA margins by division for the six months ended June 30, 2011 and 2010 (numbers in thousands, except for percentages):

 

     Six Months Ended June 30,  
                 2011 vs. 2010  
     2011     2010     $ Change     % Change  
           As Restated              

Net Revenue

         

Recovery

    $ 175,076      $ 161,965      $ 13,111        8.1 % 

Youth

      41,103        42,317        (1,214 )      (2.9 )% 

Weight Management

      13,909        12,405        1,504        12.1 % 

Corporate

      78        98        (20 )      (20.4 )% 
  

 

 

    

 

 

    

 

 

    
     230,166        216,785        13,381        6.2 % 

Adjusted Pro Forma Operating Expenses

         

Recovery

      110,174        102,083        8,091        7.9 % 

Youth

      43,644        43,840        (196 )      (0.4 )% 

Weight Management

      11,606        12,128        (522 )      (4.3 )% 

Corporate

      11,048        9,742        1,306        13.4 % 
  

 

 

    

 

 

    

 

 

    
     176,472        167,793        8,679        5.2 % 

Adjusted Pro Forma EBITDA

         

Recovery

      64,902        59,881        5,021        8.4 % 

Youth

      (2,541 )      (1,523 )      (1,018 )      (66.8 )% 

Weight Management

      2,303        277        2,026        731.4 % 

Corporate

      (10,970 )      (9,644 )      (1,326 )      (13.7 )% 
  

 

 

    

 

 

    

 

 

    
   $ 53,694      $ 48,991      $ 4,703        9.6 % 
  

 

 

    

 

 

    

 

 

    

Adjusted Pro Forma Operating Margins

         

Recovery

      37.1 %      37.0 %     

Youth

      (6.2 )%      (3.6 )%     

Weight Management

      16.6 %      2.2 %     

CRC Health Corporation

      23.3 %      22.6 %     

Recovery Division:

Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010

 

  •  

Net revenue increased $13.1 million, or 8.1%, to $175.1 million for the six months ended June 30, 2011 from $162.0 million from the comparable prior-year period. Revenue increases were primarily driven by increases of $11.0 million and $2.2 million within residential facilities and CTCs, respectively. Same-facility net revenue increases were similar to total-facility net revenue increases for the six months ended June 30, 2011.

  •  

Adjusted pro forma EBITDA increased $5.0 million, or 8.4%, to $64.9 million for the six months ended June 30, 2011 from $59.9 million from the comparable prior-year period.

 

  •  

Operating expenses increased $9.0 million for the comparable periods in 2011 and 2010 due primarily to an increase of $4.7 million in supplies, facilities and other operating costs, an increase of $3.7 million in salaries and benefits, and an increase of $0.3 million in provision for doubtful accounts.

 

  •  

Same-facility operating expenses increased $8.0 million driven by an increase of $6.6 million in residential facilities and an increase of $1.4 million in CTCs.

Youth Division:

Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010

 

  •  

Net revenue decreased $1.2 million, or 2.9%, to $41.1 million for the six months ended June 30, 2011 from $42.3 million from the comparable prior-year period. The decrease in revenue was driven by increases of $1.9 million in outdoor programs, offset by a decrease of $3.1 million in residential facilities. Same-facility net revenue increases were similar to total facility net revenue decreases for the six months ended June 30, 2011.

 

  •  

Adjusted pro forma EBITDA decreased $1.0 million to ($2.5) million for the six months ended June 30, 2011 from ($1.5) million of the comparable prior-year period.

 

  •  

Operating expenses decreased $54.9 million, or 51.2%, primarily driven by a decrease of non-cash goodwill and asset impairment charges of $55.8 million, offset by an increase of $2.4 million in salaries and benefits.

 

  •  

Same-facility operating expenses decreased $11.3 million primarily due to a decrease in asset impairment charges of $12.6 million and a decrease of $0.9 million in depreciation and amortization, offset by an increase of $1.9 million in salaries and benefits.

Weight Management Division:

Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010

 

  •  

Net revenue increased $1.5 million, or 12.1%, to $13.9 million for the six months ended June 30, 2011 from $12.4 million from the comparable prior-year period. The increase in revenue was due to higher patient days and favorable pricing.

 

  •  

Adjusted pro forma EBITDA increased $2.0 million to $2.3 million for the six months ended June 30, 2011 from $0.3 million of the comparable prior-year period.

 

  •  

Operating expenses increased $0.1 million, or 0.8%, primarily driven by an increase of $0.9 million in supplies, facilities and other operating costs, offset by a decrease of asset impairment charges of $0.3 million, a decrease of $0.3 million in salaries and benefits, and a decrease of $0.2 million in provision for doubtful accounts.

 

  •  

Same-facility operating expenses decreased $0.6 million primarily due to a decrease of $0.2 million in asset impairment charges, a decrease of $0.3 million in salaries and benefits, and a decrease of $0.2 million in provision for doubtful accounts, offset by an increase of $0.2 million in supplies, facilities and other operating costs.

Corporate:

Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010

 

  •  

Corporate operating expenses increased $2.2 million or 14.1% for the comparable periods in 2011 and 2010 due primarily to an increase of $1.9 million in supplies, facilities and other operating costs and an increase of $0.2 million in depreciation and amortization.

EBITDA, Adjusted pro forma operating expenses, Adjusted pro forma operating margins and Adjusted pro forma EBITDA are supplemental non-GAAP financial measures that CRC believes provide useful information to both management and investors concerning its ability to comply with certain covenants in its borrowing arrangements that are tied to these measures and to meet its future debt obligations. CRC also believes that including the effect of these items allows management and investors to better compare CRC’s financial performance from period-to-period, and to better compare CRC’s financial performance with that of its competitors.

Adjusted pro forma EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) from continuing operations, further adjusted for the items listed below in the table entitled “Reconciliation of Net Income (Loss) Attributable to CRC Health Corporation to Adjusted Pro Forma EBITDA for the Three Months and Six Months Ended June 30, 2011 and 2010.” Adjusted pro forma EBITDA takes into account all adjustments which are excluded from EBITDA for purposes of various covenants in the indenture governing CRC’s 10 3/4% senior subordinated notes due 2016 and its senior secured credit facility, as amended to date. Additionally, adjusted pro forma EBITDA is calculated on a consolidated basis and does not give effect to discontinued operations presentation.

When we complete acquisitions during a reporting period, we present our results of operations on a pro forma basis assuming that the acquisition had been completed at the beginning of each period. The pro forma adjustments are based upon available information and certain assumptions that CRC believes are reasonable. Our pro forma results are for informational purposes only and do not purport to represent what CRC’s result of operations or financial position would have been if the acquisitions had actually been completed at the beginning of such period, nor does such information purport to project the results of operations for any future period. We did not complete any acquisitions with a material effect during the periods presented in this press release.

The presentation of these supplemental non-GAAP financial measures is not meant to be considered in isolation of, or as a substitute for net income (loss) or other financial results prepared in accordance with GAAP.

Restatement of Previously Issued Condensed Consolidated Financial Statements

On August 16, 2011, we announced that we were conducting a review of inconsistencies in the accounts at one of our recovery residential treatment facilities (the “Facility”). In 2009 and 2010, such Facility accounted for approximately 2.9% and 3.2%, respectively, of the Company’s total revenue. On October 4, 2011, the Board of Directors of the Company (the “Board”), in consultation with the Audit Committee of the Board (the “Audit Committee”) and management, adopted the conclusions of the investigation and concluded that our previously issued consolidated financial statements for the years ended December 31, 2008, 2009 and 2010, along with the accompanying independent auditors’ reports and our previously issued condensed consolidated financial statements for the fiscal quarter ended March 31, 2011 should not be relied upon because of errors identified in such financial statements.

Management initially identified certain errors upon initiating an internal investigation after noting inconsistencies in accounting for certain transactions at the Facility. Following a briefing by management on the issues, the Audit Committee hired independent counsel to conduct a review of accounting transactions at the Facility. The investigation is complete and the Audit Committee identified issues related to misconduct by a former employee of the Facility as well as errors in accounting for revenue, accounts receivable, bad debt expenses and general expenses. The investigation did not identify any instances in which patients or third party payors were incorrectly billed for services. As a result of these errors, we have restated our previously issued consolidated financial statements for the years ended December 31, 2008, December 31, 2009 and December 31, 2010, including the quarterly data for the years 2009 and 2010, and for the fiscal quarter ended March 31, 2011.

We have also restated our previously issued consolidated financial statements for the years ended December 31, 2008, December 31, 2009, and December 31, 2010, including the quarterly data for the years 2009 and 2010, and for the fiscal quarter ended March 31, 2011to correct other immaterial adjustments that had been previously recorded so such immaterial adjustments are recorded in the proper period.

We have self-reported information concerning our review to the Securities and Exchange Commission (the “SEC”) and will cooperate with the SEC’s review of this matter.

The following tables summarize the restatements for the applicable periods:

 

     Year Ended  
     December 31,     December 31,     December 31,  
     2010     2009     2008  
     (in thousands)  

Net loss attributable to CRC Health Corporation, as previously reported

    $ (43,660 )    $ (26,599 )    $ (141,905 ) 
  

 

 

    

 

 

    

 

 

  

Adjustments related to the Facility

       

Net client service revenues

      (377 )      81        —     

Provision for doubtful accounts

      (197 )      (340 )      —     

Supplies, facilities and other operating costs

      (139 )      (44 )      —     

Income tax effects

      295        127        —     
  

 

 

    

 

 

    

 

 

  

Facility adjustments after tax

      (418 )      (176 )      —     
  

 

 

    

 

 

    

 

 

  

Other adjustments:

       

Net client service revenues

      (323 )      323        —     

Goodwill

      —          (1,692 )      1,692   

Stock compensation

      (1,045 )      575        308   

Supplies, facilities and other operating costs

      423        (95 )      (100 ) 

Depreciation and amortization

      580        (164 )      (280 ) 

Interest expense

      —          (1,121 )      —     

Income tax effects

      (1,660 )      1,872        151   
  

 

 

    

 

 

    

 

 

  

Other adjustments after tax

      (2,025 )      (302 )      1,771   
  

 

 

    

 

 

    

 

 

  

Total adjustments

      (2,443 )      (478 )      1,771   
  

 

 

    

 

 

    

 

 

  

Net loss attributable to CRC Health Corporation, as restated

    $ (46,103 )    $ (27,077 )    $ (140,134 ) 
  

 

 

    

 

 

    

 

 

  

 

     Three Months Ended March 31,  
     2011     2010  
     (in thousands)     (in thousands)  

Net (loss) income attributable to CRC Health Corporation, as previously reported

    $ (753 )    $ 861   
  

 

 

    

 

 

  

Adjustments related to the Facility

     

Net client service revenues

      (418 )      59   

Provision for doubtful accounts

      (185 )      (85 ) 

Supplies, facilities and other operating costs

      (95 )      (22 ) 

Income tax effects

      289        20   
  

 

 

    

 

 

  

Facility adjustments after tax

      (409 )      (28 ) 
  

 

 

    

 

 

  

Other Adjustments:

     

Salaries and benefits

      —          254   

Supplies, facilities and other operating costs

      455        422   

Income tax effects

      (180 )      (267 ) 
  

 

 

    

 

 

  

Other adjustments after tax

      275        409   
  

 

 

    

 

 

  

Total Adjustments

      (134 )      381   
  

 

 

    

 

 

  

Net (loss) income attributable to CRC Health Corporation, as restated

    $ (887 )    $ 1,242   
  

 

 

    

 

 

  

     Three Months Ended June 30,     Six Months Ended June 30,  
     2010     2010  
     (in thousands)  

Net loss attributable to CRC Health Corporation, as previously reported

    $ (44,454 )    $ (43,593 ) 
  

 

 

    

 

 

  

Adjustments related to the Facility

     

Net client service revenues

      9        68   

Provision for doubtful accounts

      (83 )      (168 ) 

Supplies, facilities and other operating costs

      (39 )      (62 ) 

Income tax effects

      47        67   
  

 

 

    

 

 

  

Facility adjustments after tax

      (66 )      (95 ) 
  

 

 

    

 

 

  

Other adjustments:

     

Net client service revenues

      (323 )      (323 ) 

Stock compensation

      254        510   

Supplies, facilities and other operating costs

      —          423   

Income tax effects

      27        (240 ) 
  

 

 

    

 

 

  

Other adjustments after tax

      (42 )      370   
  

 

 

    

 

 

  

Total adjustments

      (108 )      275   
  

 

 

    

 

 

  

Net loss attributable to CRC Health Corporation, as restated

    $ (44,562 )    $ (43,318 ) 
  

 

 

    

 

 

  

CRC HEALTH CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

JUNE 30, 2011 AND DECEMBER 31, 2010

(In thousands, except share amounts)

 

     June 30,
2011		     December 31,
2010		  
           As Restated  

ASSETS

     

CURRENT ASSETS:

     

Cash and cash equivalents

    $ 11,469      $ 7,111   

Restricted cash

      716        546   

Accounts receivable, net of allowance for doubtful accounts of $6,089 in 2011 and $5,408 in 2010

      36,303        31,873   

Prepaid expenses

      6,964        8,530   

Other current assets

      2,028        1,921   

Income taxes receivable

      —          470   

Deferred income taxes

      6,761        6,761   

Current assets of discontinued operations

      1,806        1,635   
  

 

 

    

 

 

  

Total current assets

      66,047        58,847   

PROPERTY AND EQUIPMENT-Net

      126,687        125,626   

GOODWILL

      521,807        521,807   

INTANGIBLE ASSETS-Net

      307,185        314,032   

OTHER ASSETS-Net

      21,991        19,411   
  

 

 

    

 

 

  

TOTAL ASSETS

    $ 1,043,717      $ 1,039,723   
  

 

 

    

 

 

  

LIABILITIES AND STOCKHOLDERS’ EQUITY

     

CURRENT LIABILITIES:

     

Accounts payable

    $ 4,751      $ 4,937   

Accrued liabilities

      34,528        30,856   

Income taxes payable

      1,735        —     

Current portion of long-term debt

      13,784        11,111   

Other current liabilities

      21,589        18,305   

Current liabilities of discontinued operations

      1,321        3,619   
  

 

 

    

 

 

  

Total current liabilities

      77,708        68,828   

LONG-TERM DEBT-Less current portion

      587,780        598,915   

OTHER LONG-TERM LIABILITIES

      8,474        8,786   

LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS

      3,038        3,142   

DEFERRED INCOME TAXES

      105,933        105,079   
  

 

 

    

 

 

  

Total liabilities

      782,933        784,750   
  

 

 

    

 

 

  

COMMITMENTS AND CONTINGENCIES

     

STOCKHOLDERS’ EQUITY:

     

Common stock, $0.001 par value-1,000 shares authorized, issued and outstanding at June 30, 2011 and December 31, 2010

      —          —     

Additional paid-in capital

      463,209        462,970   

Accumulated deficit

      (202,425 )      (205,891 ) 

Accumulated other comprehensive loss

      —          (2,106 ) 
  

 

 

    

 

 

  

Total stockholders’ equity

      260,784        254,973   
  

 

 

    

 

 

  

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

    $ 1,043,717      $ 1,039,723   
  

 

 

    

 

 

  

CRC HEALTH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010

(In thousands)

 

     Three Months
Ended June 30,
2011		     Three Months
Ended June 30,
2010		     Six Months
Ended June 30,
2011		     Six Months
Ended June 30,
2010		  
           As Restated           As Restated  

NET REVENUE:

         

Net client service revenue

    $ 119,253      $ 113,510      $ 230,166      $ 216,785   
  

 

 

    

 

 

    

 

 

    

 

 

  

OPERATING EXPENSES:

         

Salaries and benefits

      54,775        53,269        111,535        106,074   

Supplies, facilities and other operating costs

      37,053        32,494        69,693        61,733   

Provision for doubtful accounts

      2,092        1,694        3,942        3,869   

Depreciation and amortization

      4,841        5,285        9,741        10,808   

Asset impairment

      —          16,671        4,262        16,671   

Goodwill impairment

      —          43,671        —          43,671   
  

 

 

    

 

 

    

 

 

    

 

 

  

Total operating expenses

      98,761        153,354        199,173        242,826   
  

 

 

    

 

 

    

 

 

    

 

 

  

OPERATING INCOME (LOSS)

      20,492        (39,844 )      30,993        (26,041 ) 

INTEREST EXPENSE-Net

      (12,166 )      (10,712 )      (23,922 )      (21,517 ) 

OTHER (EXPENSE) INCOME

      —          (88 )     31        (88 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

      8,326        (50,644 )      7,102        (47,646 ) 

INCOME TAX EXPENSE( BENEFIT)

      3,588        (7,276 )      3,033        (6,013 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

INCOME (LOSS) FROM CONTINUING OPERATIONS, NET OF TAX

      4,738        (43,368 )      4,069        (41,633 ) 

LOSS FROM DISCONTINUED OPERATIONS (net of tax benefit of ($233) and ($754) in the three months ended June 30, 2011 and 2010, and ($365) and ($1,064) in the six months ended June 30, 2011 and 2010, respectively)

      (386 )      (1,194 )      (604 )      (1,685 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

NET INCOME (LOSS)

    $ 4,352      $ (44,562 )    $ 3,465      $ (43,318 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Reconciliation of Net Income (Loss) Attributable to CRC Health Corporation to

Adjusted Pro Forma EBITDA for the Three Months and Six Months

Ended June 30, 2011 and 2010 (in thousands):

 

     Three Months
Ended June 30,
2011		     Three Months
Ended June 30,
2010		     Six Months
Ended June 30,
2011		     Six Months
Ended June 30,
2010		  
           As Restated           As Restated  

NET INCOME (LOSS):

         

Net income (loss)

    $ 4,352      $ (44,562 )    $ 3,465      $ (43,318 ) 
  

 

 

    

 

 

    

 

 

    

 

 

  

Depreciation and amortization

      4,842        5,322        9,745        10,884   

Income tax expense (benefit)

      3,355        (8,030 )      2,668        (7,077 ) 

Interest expense

      12,166        10,713        23,922        21,520   
  

 

 

    

 

 

    

 

 

    

 

 

  

EBITDA

      24,715        (36,557 )      39,800        (17,991 ) 

ADJUSTMENTS TO EBITDA:

         

Discontinued operations

      347        556        780        1,241   

Asset impairment

      —          18,009        4,401        18,009   

Goodwill impairment

      —          43,671        —          43,671   

Non-impairment restructuring activities

      1,385        200        3,289        281   

Stock-based compensation expense

      621        1,173        1,357        2,345   

Foreign exchange translation

      2        3        3        (2 ) 

Gain on fixed asset disposal

      (2 )      (9 )      (31 )      (15 ) 

Management fees

      665        674        1,556        1,241   

Transaction expenses

      934        —          934        —     

Debt costs

      282        71        348        141   

Non-cash rent adjustment

      (8 )      (17 )      (19 )      (17 ) 

Legal and other third party fees related to modification of term loans

      152       —          628       —     

Prior year Medicare/Medicaid adjustment

      218       —          673       —     

Franchise taxes

      2       —          4        (1 ) 

Gain on investment

      —          —          (10 )      —     

Settlement of insurance brokerage antitrust litigation

      —          —          (21 )      —     

Other non-recurring costs

      —          88       2        88  
  

 

 

    

 

 

    

 

 

    

 

 

  

Total pro forma adjustments to EBITDA

      4,598        64,419        13,894        66,982   
  

 

 

    

 

 

    

 

 

    

 

 

  

ADJUSTED PRO FORMA EBITDA

    $ 29,313      $ 27,862      $ 53,694      $ 48,991   
  

 

 

    

 

 

    

 

 

    

 

 

  

CRC Health Corporation    Six Months Ended June 30,  

Selected Statistics

    2011      2010  

Recovery Division:

      

Residential facilities:

      

Number of facilities - end of period

      50         46   

Available beds - end of period

      2,085         1,929   

Patient days

      303,191         284,038   

Net revenue per patient day (As Restated for 2010)

    $ 377.54       $ 364.43   

CTCs:

      

Number of clinics - end of period

      54         54   

Patient days

      4,832,428         4,755,255   

Net revenue per patient day (As Restated for 2010)

    $ 12.54       $ 12.29   

Youth Division:

      

Residential facilities:

      

Number of facilities - end of period

      15         16   

Patient days

      74,704         91,165   

Net revenue per patient day

    $ 369.04       $ 336.21   

Outdoor programs:

      

Number of facilities - end of period

      7         7   

Patient days

      24,997         20,921   

Net revenue per patient day

    $ 541.42       $ 557.62   

Weight Management Division:

      

Number of facilities - end of period

      18         18   

Patient days

      40,797         38,815   

Net revenue per patient day

    $ 340.93       $ 319.59   

Conference Call

CRC Health Corporation will host a conference call, open to all interested parties, on Friday, October 21, 2011 beginning at 4:00 PM Eastern Time (1:00 PM Pacific Time). The number to call within the United States is (888) 554-1431. Participants outside the United States should call (719) 325-2419. The conference ID is 1143852.

A replay of the conference call will be available starting at 7:00 PM Eastern Time on Friday, October 21, 2011 until 7:00 PM Eastern Time Friday, October 28, 2011. The replay number for callers within the United States is (888) 203-1112 or (719) 457-0820 from outside the United States and the conference ID for all callers is 1143852.

Forward-Looking Statements

This press release includes or may include “forward-looking statements.” All statements included herein, other than statements of historical fact, may constitute forward-looking statements. Although CRC believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, among others, the following factors: effect of healthcare reform and other changes in government reimbursement for CRC’s services; reductions in the availability of governmental and private financial aid for CRC’s youth treatment programs; CRC’s substantial indebtedness; changes in applicable regulations or a government investigation or assertion that CRC has violated applicable regulations; attempts by local residents to force our closure or relocation; the potentially difficult, unsuccessful or costly integration of recently acquired operations and future acquisitions; the potentially difficult, unsuccessful or costly opening and operating of new treatment programs; implementation of the strategic plan for improving performance of the Aspen business may not be successful; the possibility that commercial payors for CRC’s services may undertake future cost containment initiatives; the limited number of national suppliers of methadone used in CRC’s outpatient treatment clinics; the failure to maintain established relationships or cultivate new relationships with patient referral sources; shortages in qualified healthcare workers; natural disasters such as hurricanes, earthquakes and floods; competition that limits CRC’s ability to grow; the potentially costly implementation of new information systems to comply with federal and state initiatives relating to patient privacy, security of medical information and electronic transactions; the potentially costly implementation of accounting and other management systems and resources in response to financial reporting and other requirements; the loss of key members of CRC’s management; claims asserted against CRC or lack of adequate available insurance; Securities and Exchange Commission review of financial restatements; a material weakness in our internal controls over financial reporting; and certain restrictive covenants in CRC’s debt documents and other risks including but not limited to the items discussed in “Risk Factors” in CRC’s Annual Report on Form 10-K/A for the year ended December 31, 2011 filed on October 17, 2011, and that are otherwise described from time to time in CRC’s Securities and Exchange Commission filings after this press release.

About CRC Health Group

CRC Health Group is the most comprehensive network of addiction treatment and related behavioral health services in the nation. CRC offers the largest array of personalized treatment options, allowing individuals, families and professionals to choose the most appropriate treatment setting for their behavioral, addiction, weight management or therapeutic education needs. CRC is committed to making its services widely and easily available, while maintaining a passion for delivering advanced treatment. Since 1995, CRC has been helping individuals and families reclaim and enrich their lives. For more information, visit www.crchealth.com or call (877) 637-6237.

Contact:

CRC Health Corporation

LeAnne M. Stewart, 408 645 3160

Chief Financial Officer

CRC Health CORP Reports