Full Press Release Details
Consolidated Financial Statements as of
Year Ended December 31, 2014 and
Report of Independent Registered Public Accounting Firm
CRC Health Group, Inc.
| Page | ||||
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 1 | |||
| CONSOLIDATED FINANCIAL STATEMENTS: | ||||
| Consolidated Balance Sheet as of December 31, 2014 | 2 | |||
| Consolidated Statement of Operations for the year ended December 31, 2014 | 3 | |||
| Consolidated Statement of Comprehensive Loss for the year ended December 31, 2014 | 4 | |||
| Consolidated Statement of Changes in Equity (Deficit) for the year ended December 31, 2014 | 5 | |||
| Consolidated Statement of Cash Flows for the year ended December 31, 2014 | 6 | |||
| Notes to Consolidated Financial Statements | 7 32 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To Acadia Healthcare Company, Inc.:
accompanying consolidated balance sheet of CRC Health Group, Inc. and subsidiaries (the Company ) as of December 31, 2014, and the related consolidated statements of operations, comprehensive loss, changes in equity (deficit), and cash
flows for the year ended December 31, 2014. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Company s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of CRC Health Group, Inc. and
subsidiaries as of December 31, 2014, and the results of their operations and their cash flows for the year ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, the Company was acquired by Acadia Healthcare Company, Inc. on February 11, 2015.
/s/ Deloitte & Touche LLP
San Francisco, California
CRC HEALTH GROUP, INC.
CONSOLIDATED BALANCE SHEET
thousands, except share amounts)
| December 31, 2014 | ||||
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 15,343 | ||
| Accounts receivable, net | 51,954 | |||
| Prepaid expenses | 5,667 | |||
| Other current assets | 2,614 | |||
| Income taxes receivable | 1,963 | |||
| Deferred income taxes | 264 | |||
| Current assets of discontinued operations and facilities held-for-sale | 60 | |||
| Total current assets | 77,865 | |||
| Property and equipment, net | 131,364 | |||
| Goodwill | 559,613 | |||
| Other intangible assets, net | 265,645 | |||
| Other assets, net | 19,526 | |||
| Total assets | $ | 1,054,013 | ||
| Liabilities and stockholders deficit | ||||
| Current liabilities: | ||||
| Accounts payable | $ | 4,585 | ||
| Accrued payroll and related expenses | 19,998 | |||
| Accrued interest | 3,935 | |||
| Accrued expenses | 13,333 | |||
| Current portion of long-term debt | 4,750 | |||
| Deferred revenue | 5,045 | |||
| Other current liabilities | 925 | |||
| Current liabilities of discontinued operations and facilities held-for-sale | 5,809 | |||
| Total current liabilities | 58,380 | |||
| Long-term debt | 881,092 | |||
| Other long-term liabilities | 9,255 | |||
| Long-term liabilities of discontinued operations and facilities held-for-sale | 9,993 | |||
| Deferred income taxes | 145,000 | |||
| Total liabilities | 1,103,720 | |||
| Commitments and contingencies | ||||
| Stockholders deficit | ||||
| Class A Common stock, $0.001 par value authorized, 50,000,000 shares; issued and outstanding, 33,162,620 shares | 33 | |||
| Class L Common stock, $0.001 par value authorized, 5,555,555 shares; issued and outstanding, 3,684,736 shares | 4 | |||
| Additional paid-in capital | 370,683 | |||
| Accumulated deficit | (420,099 | ) | ||
| Accumulated other comprehensive loss | (328 | ) | ||
| Total stockholders deficit | (49,707 | ) | ||
| Total liabilities and stockholders deficit | $ | 1,054,013 |
See notes to consolidated financial statements
CRC HEALTH GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
| Year Ended December 31, 2014 | ||||
| Net client service revenues | $ | 460,040 | ||
| Operating expenses: | ||||
| Salaries and benefits | 227,692 | |||
| Facilities and other operating costs | 138,151 | |||
| Provision for doubtful accounts | 7,872 | |||
| Depreciation and amortization | 21,290 | |||
| Goodwill and asset impairments | 1,089 | |||
| Total operating expenses | 396,094 | |||
| Operating income | 63,946 | |||
| Interest expense | (72,718 | ) | ||
| Loss on debt extinguishment | (11,622 | ) | ||
| Loss from continuing operations before income taxes | (20,394 | ) | ||
| Income tax expense | 6,576 | |||
| Loss from continuing operations, net of tax | (26,970 | ) | ||
| Loss from discontinued operations, net of tax | (4,471 | ) | ||
| Net loss | $ | (31,441 | ) |
See notes to consolidated financial statements
CRC HEALTH GROUP, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
| Year Ended December 31, 2014 | ||||
| Net loss | $ | (31,441 | ) | |
| Other comprehensive income (loss): | ||||
| Net change in unrealized gain (loss) on cash flow hedges (net of tax of $95 in 2014) | (310 | ) | ||
| Total comprehensive loss | $ | (31,751 | ) |
See notes to consolidated financial statements
CRC HEALTH GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (DEFICIT)
(In thousands, except share amounts)
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||
| Balance January 1, 2014 | 36,308,974 | $ | 36 | $ | 358,171 | $ | (388,658 | ) | $ | (18 | ) | $ | (30,469 | ) | ||||||||||
| Exercise of stock options | 818,686 | 1 | 270 | 271 | ||||||||||||||||||||
| Repurchase of CRC Health Group, Inc. Class A common stock | (252,274 | ) | (200 | ) | (200 | ) | ||||||||||||||||||
| Repurchase of CRC Health Group, Inc. Class L common stock | (28,030 | ) | (1,804 | ) | (1,804 | ) | ||||||||||||||||||
| Stock-based compensation | 14,246 | 14,246 | ||||||||||||||||||||||
| Net loss | (31,441 | ) | (31,441 | ) | ||||||||||||||||||||
| Unrealized loss on cash flow hedges, net of tax | (310 | ) | (310 | ) | ||||||||||||||||||||
| Balance December 31, 2014 | 36,847,356 | $ | 37 | $ | 370,683 | $ | (420,099 | ) | $ | (328 | ) | $ | (49,707 | ) |
See notes to consolidated financial statements
CRC HEALTH GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
| Year Ended December 31, 2014 | ||||
| Cash flows from operating activities | ||||
| Net loss | $ | (31,441 | ) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||
| Depreciation and amortization | 21,314 | |||
| Accretion of non-cash interest on PIK loan | 16,566 | |||
| Amortization of debt discount and capitalized financing costs | 5,085 | |||
| Goodwill and asset impairments | 1,089 | |||
| Loss on debt extinguishment | 11,622 | |||
| Loss on sale of property and equipment | 1,504 | |||
| Loss on sale of discontinued operations | 3,139 | |||
| Provision for doubtful accounts | 7,943 | |||
| Stock-based compensation | 14,246 | |||
| Deferred income taxes | 5,746 | |||
| Changes in assets and liabilities: | ||||
| Accounts receivable | (20,664 | ) | ||
| Prepaid expenses | (1,066 | ) | ||
| Income taxes receivable and payable | (834 | ) | ||
| Accounts payable | (1,274 | ) | ||
| Accrued liabilities | (20,240 | ) | ||
| Other current assets | (327 | ) | ||
| Other current liabilities | 161 | |||
| Other long-term assets | 285 | |||
| Other long-term liabilities | (7,621 | ) | ||
| Net cash provided by operating activities | 5,233 | |||
| Cash flows from investing activities | ||||
| Additions of property and equipment | (18,943 | ) | ||
| Proceeds from sale of property and equipment | 119 | |||
| Acquisition of businesses, net of cash acquired | (56,442 | ) | ||
| Proceeds from sale of discontinued operations, net of cash disposed | 1,064 | |||
| Net cash used in investing activities | (74,202 | ) | ||
| Cash flows from financing activities | ||||
| Borrowings of long-term debt | 813,875 | |||
| Repayment of long-term debt | (700,361 | ) | ||
| Borrowings under revolving line of credit | 15,000 | |||
| Repayments under revolving line of credit | (34,000 | ) | ||
| Capitalized financing costs | (24,027 | ) | ||
| Repurchase of common stock | (2,004 | ) | ||
| Proceeds from exercise of stock options | 270 | |||
| Net cash provided by financing activities | 68,753 | |||
| Net decrease in cash and cash equivalents | (216 | ) | ||
| Cash and cash equivalents Beginning of year | 15,559 | |||
| Cash and cash equivalents End of year | $ | 15,343 | ||
| Supplemental disclosure of noncash investing and financing activities: | ||||
| Purchases of property and equipment included in accounts payable and accrued liabilities | $ | 1,836 | ||
| Supplemental disclosure of cash flow information: | ||||
| Cash paid for interest | $ | 60,336 | ||
| Cash paid for income taxes, net of refunds | $ | 3,362 |
See notes to consolidated financial statements
CRC HEALTH GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
Presentation CRC Health Group, Inc. ( the Company or the Group or the Parent ) is headquartered in Cupertino, California, and through its wholly owned subsidiaries provides rehabilitation and
treatment services related to substance abuse, addiction diseases and other behavioral disorders.
These consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in the United States of America ( GAAP ). The Company s consolidated financial statements include the accounts of CRC Health Group, Inc. and its consolidated
subsidiaries, including CRC Health Corporation. All intercompany accounts and transactions have been eliminated in consolidation.
Estimates Preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company s consolidated financial statements and accompanying
notes. Actual results could differ materially from those estimates.
Acquisition of the Company On February 11, 2015, the
Company was acquired by Acadia Healthcare Company, Inc. ( Acadia ). The total consideration was approximately $1.2 billion, consisting of approximately 6.0 million shares of Acadia s common stock and the assumption of the
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents Cash includes amounts in demand accounts. At December 31, 2014 substantially all cash was on deposit with
financial institutions. Cash equivalents are short-term investments with original maturities of three months or less.
Accounts Receivable and
Allowance for Doubtful Accounts The Company s ability to collect outstanding patient receivables from third party payors is critical to its operating performance and cash flows. The primary collection risk with regard to patient
receivables relates to uninsured patient accounts or patient accounts for which primary insurance has paid, but the portion owed by the patient remains outstanding. The Company estimates uncollectible amounts and establishes an allowance for
doubtful accounts in order to adjust accounts receivable to estimated net realizable value. In evaluating the collectability of accounts receivable, the Company considers a number of factors, including the age of the accounts, historical collection
experience, current economic conditions, and other relevant factors. Accounts receivable that are determined to be uncollectible based on the Company s policies are written off to the allowance for doubtful accounts. The following schedule
reflects activity associated with the Company s allowance for doubtful accounts for the year ended December 31, 2014 (in thousands):
| Year Ended December 31, | ||||
| 2014 | ||||
| Balance beginning of the period | $ | 4,861 | ||
| Provision for doubtful accounts | 7,872 | |||
| Write-off of uncollectible accounts | (7,499 | ) | ||
| Balance end of the period | $ | 5,234 |
Property and Equipment Property and equipment are stated at cost less accumulated depreciation.
Depreciation expense is computed on a straight-line basis over the estimated useful lives of the assets, generally three to seven years, except for buildings, which are depreciated over thirty years. Leasehold improvements are amortized using the
straight-line method over the life of the lease, or the estimated useful life of the asset, whichever is shorter. Maintenance and repairs are charged to operations as incurred.
Segments The focus of all Company operations is centered on a single service, substance abuse/behavioral healthcare treatment. The
Company has three operating segments. The Company is organized and operates, aggregated, as one reportable segment, comprised of various treatment facilities located in the United States. The treatment facilities operate in the same industry and
have similar economic characteristics, services and clients.
Goodwill and Intangible Assets not Subject to Amortization The
Company tests goodwill for impairment annually, at the beginning of its fourth quarter or more frequently if evidence of possible impairment arises. The Company performs a two-step impairment test on goodwill. In the first step, the
Company compares the fair value of the reporting unit being tested, defined as an operating segment or one level below an operating segment, to its carrying value.
The Company determines the fair value of its reporting units using a combination of the income approach and the
market approach. Under the income approach, the fair value of a reporting unit is based on the present value of estimated future cash flows. Under the market approach, estimated fair value is based on what investors have paid for similar interests
in comparable companies through the development of ratios of market prices to various earnings indications of comparable companies taking into consideration adjustments for growth prospects, debt levels and overall size. If the fair value of the
reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and the Company is not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit
exceeds the fair value of the reporting unit, then the Company must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit s goodwill. If the carrying value of a reporting
unit s goodwill exceeds its implied fair value, then the Company records an impairment loss equal to the difference.
The process of evaluating the
potential impairment of goodwill is subjective and requires significant estimates and assumptions at many points during the analysis. The Company s estimated future cash flows are based on assumptions that are consistent with its
annual planning process and include estimates for revenue and operating margins and future economic and market conditions. Actual future results may differ significantly from those estimates. In addition, the Company makes certain
judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of its reporting units tested. Changes in assumptions or circumstances could result in an additional impairment in the period in
which the change occurs and in future years. Factors that could cause the Company to record additional goodwill impairment include, but are not limited to:
The Company s intangible assets not subject to
amortization consist of trademarks and trade names, certificates of need, and regulatory licenses. The Company tests these assets for impairment annually, at the beginning of its fourth quarter or more frequently if evidence of possible
impairment arises. The Company applies a fair value-based impairment test similar to the goodwill impairment test described above to the net book value of the assets using a combination of income and market approaches.
Impairment charges related to goodwill and intangible assets not subject to amortization are included in the consolidated statement of operations
under goodwill and asset impairments and loss from discontinued operations, net of tax (see Note 5).
and Intangible Assets Subject to Amortization The Company tests its long-lived and intangible assets subject to amortization for impairment whenever events or changes in circumstances indicate that the carrying value of
those assets may not be recoverable. The assets are tested for impairment at the facility level which represents the lowest level at which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities.
If the undiscounted future cash flows from the asset tested are less than the carrying value, a loss equal to the difference between the carrying value and the fair market value of the asset is recorded. Fair value is determined using
discounted cash flow methods.
The process of evaluating the potential impairment of long-lived assets and intangible assets subject to amortization is
subjective and requires significant estimates and assumptions. The Company s estimated future cash flows are based on assumptions that are consistent with its annual planning process and include estimates
for revenue and operating margins and future economic and market conditions. It is possible that the Company s estimates of undiscounted cash flows may change in the future resulting in
the need to reassess the carrying value of its long-lived and intangible assets subject to amortization for impairment.
Impairment charges related to
long-lived assets and intangible assets subject to amortization are included in the consolidated statement of operations under goodwill and asset impairments and loss from discontinued operations, net of tax (see Notes 4
Capitalized Financing Costs Costs to obtain long-term debt financing are capitalized and amortized over the expected life of
the debt instrument (see Note 7).