EX-99.1 2 ex_99.htm PRESS RELEASE FOR SECOND QUARTER ENDED JUNE 30, 2009 ex_99.htm
Exhibit 99.1
 
 
 
 
 
 
crc logo


NEWS RELEASE
FOR IMMEDIATE RELEASE: August 14, 2009
CRC Health Corporation Reports Operating Results
For the Second Quarter and Six Months Ended June 30, 2009

CUPERTINO, CA, August 14, 2009 - CRC Health Corporation ("CRC" or the "Company"), a leading provider of substance abuse treatment and youth services through its wholly owned consolidated subsidiaries, announced its results for the three months and six months ended June 30, 2009.
 
The Company has two operating divisions: recovery division and healthy living division. The recovery division provides substance abuse and behavioral disorder treatment services through residential treatment facilities and outpatient treatment clinics. The healthy living division includes programs and treatment services for adolescent youth as well as treatment services for eating disorders, obesity, and weight management serving all age groups. Adolescent and youth treatment services include therapeutic boarding schools and educational outdoor programs for children and adolescents struggling with academic, emotional, and behavioral issues.
 
Consolidated net revenue for the three months ended June 30, 2009 decreased $8.7 million or 7.3% to $111.4 million compared to the same period in 2008. For the three months ended June 30, 2009, consolidated operating expenses decreased $7.1 million to $94.5 million, or 6.9% compared to the same period in 2008. For the three months ended June 30, 2009 adjusted pro forma earnings before interest, taxes, depreciation and amortization ("EBITDA") decreased $0.9 million, or 3.4%, to $25.4 million compared to $26.3 million during the same period in 2008.
 
For the six months ended June 30, 2009, consolidated net revenue decreased $16.8 million or 7.2% to $217.2 million compared to the same period in 2008. Consolidated operating expenses for the six months ended June 30, 2009, decreased $10.7 million to $190.7 million, or 5.3% compared to the same period in 2008.  Adjusted pro forma earnings for the six months ended June 30, 2009, adjusted before interest, taxes, depreciation and amortization ("EBITDA") decreased $4.0 million, or 8.3%, to $44.2 million compared to $48.2 million during the same period in 2008.
 
During the three and six months ended June 30, 2009 management continued execution of the restructuring plan initiated in fiscal 2008 (the "FY08 Plan"). The purpose of the plan is to further align the Company's resources with its strategic business plan through workforce reductions, facility consolidations, and facility exit actions. Actions under the FY08 Plan are focused on facilities which have been negatively impacted by the economic crisis and the depressed credit markets. During the three months ended June 30, 2009, the Company implemented additional reductions in employee positions impacting all divisions and closed one facility within the recovery division. For the six months ended June 30, 2009, facility exit activities consisted of one outdoor program in the Company's healthy living division and one facility within its recovery division. Facility exit activities under the FY08 Plan are expected to be substantially complete by the end of 2009.
 
At June 30, 2009, the Company had approximately $4.0 million in liabilities related to the FY08 Plan which consisted of employee related benefits and minimum lease commitments for certain of its facilities. Remaining restructuring actions may include further division consolidations and facility exit actions in future periods. Facilities which have been held for sale, or otherwise disposed as of June 30, 2009 are reflected as discontinued operations in the Company's unaudited condensed consolidated statements of operations and in its unaudited condensed consolidated balance sheets.
 
 
1

 
Historical Financial Results
 
Three Months and Six Months Ended June 30, 2009 Consolidated Financial Results:
 
Recovery Division:
 
Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
 
 
Net revenue increased $0.8 million, or 1.0%, to $78.4 million for the quarter from $77.6 million from the comparable prior-year quarter. Revenue increases were due to an
increase of $1.8 million in comprehensive treatment centers("CTC") offset by decreases of $1.1 million in revenues from residential treatment centers. Same-facility
revenue decreased $0.3 million due to a decrease of $2.2 million in residential treatment centers partially offset by an increase of $1.8 million in CTC revenue.
   
 
Adjusted pro forma revenue decreased $0.5 million, or 0.6%, to $78.5 million for the quarter from $79.0 million from the comparable prior-year quarter. Adjusted
pro forma EBITDA increased $2.5 million, or 9.9%, to $28.2 million for the quarter from $25.7 million from the comparable prior-year quarter.
   
 
Recovery division operating expenses decreased $2.1 million year over year primarily due to restructuring related decreases of approximately of $1.0 million in salaries
and $1.0 million in supplies, facilities, and other costs. Recovery division, same-facility operating expenses decreased $2.8 million or $5.7% primarily driven by decreases
of $1.6 million in salaries and benefits with residential treatment centers contributing decreases of $1.3 million and CTCs contributing a decrease of $0.3 million. The
remaining $1.2 million decrease was primarily due to a $1.1 million decrease in supplies, facilities, and other costs within residential treatment centers.
   
Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
 
 
Net revenue decreased $0.2 million, or 0.2%, to $153.5 million for the six months ended June 30, 2009 from $153.7 million from the comparable period. Revenue
decreases were due to a decrease of $4.0 million in residential treatment center revenues partially offset by increases of $3.8 million in revenues from CTCs.
Same-facility revenue decreased $2.3 million due to a decrease of $6.1 million in residential treatment centers partially offset by an increase of $3.8 million in CTCs.
   
 
Adjusted pro forma revenue decreased $2.8 million, or 1.8%, to $153.7 million for the quarter from $156.5 million from the comparable prior-year quarter. Adjusted
pro forma EBITDA increased $2.2 million, or 4.4%, to $51.9 million for the quarter from $49.7 million from the comparable prior-year quarter.
   
 
Recovery division consolidated operating expenses decreased $2.7 million, or 2.4%, to $107.2 million for the six months ended June 30, 2009 from $109.9 million from
the comparable period in the prior year. The decrease in recovery division consolidated operating expenses is primarily due to a $1.0 million decrease in salaries and
a $1.4 million decrease in supplies facilities and other costs resulting from restructuring activities under the FY08 Plan. Recovery division, same-facility decrease in
operating expenses was $4.9 million, or 5.0%, driven by decreases of $2.8 million in salaries and benefits with residential treatment centers and CTCs contributing
decreases of $1.9 million and $0.9 million respectively. The remaining $2.1 million decrease was due to decreases in supplies, facilities, and other costs primarily within
residential treatment centers.
 
Healthy Living Division:
 
Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
 
 
Net revenue decreased $9.4 million, or 22.3%, to $32.9 million for the quarter from $42.4 million from the comparable prior-year quarter. The decrease in revenue was
driven by a lessening of demand as a result of the weak economic environment and the inability of families and individuals to access the credit markets and student
loan markets to fund the tuition. Same-facility net revenue decreased $9.5 million, or 22.5%, to $32.7 million for the quarter from $42.2 million from the comparable
prior-year quarter due primarily to the aforementioned economic conditions.
   
 
Adjusted pro forma revenue decreased $9.4 million, or 22.3%, to $32.9 million for the three months ended June 30, 2009 from $42.3 million from the comparable
period in the prior year. Adjusted pro forma EBITDA decreased $2.1 million, or 42.8%, to $2.7 million for the three months from $4.8 million from the comparable
prior-year period.
 
 
Our healthy living division incurred a decrease of $7.1 million in operating expense, or 17.8%, primarily driven by a $4.5 million decrease in salaries and benefits as
well as a $2.3 million decrease in supplies, facilities, and other costs. Same facility operating expenses decreased $6.2 million or 17.5% from the comparable prior-year
quarter. $4.2 million of the decrease was due to a decreases in salaries and benefits comprised of a $2.0 million decrease in adolescent residential boarding schools,
$1.8 million decrease in adolescent outdoor programs, and $0.4 million decrease in weight management. The remaining $2.0 million decrease in operating expenses
was due to decreased expenditures in supplies, facilities, and other operating costs consisting of a $0.9 million decrease in adolescent residential boarding schools,
$0.8 million decrease in weight management, and 0.3 million in adolescent outdoor programs.
 
Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
 
 
Net revenue decreased $16.5 million, or 20.6%, to $63.6 million for the six months ended June 30, 2009 from $80.1 million from the comparable prior-year period. The
decrease in revenue was driven by lower revenue performance across the division due to a lessening of demand as a result of the weak economic environment and
the inability of families and individuals to access the credit markets and student loan markets to fund the tuition. Same-facility net revenue decreased $16.6 million,
or 20.7%, to $63.4 million for the six months from $80.0 million from the comparable prior-year period. Of the decrease in same-facility net revenue, $7.6 million and
$6.8 million, or 16.4% and 32.7% was attributable to our adolescent residential boarding and our adolescent outdoor programs, respectively. The remaining $2.2 million
or 17.1% decrease was in weight management.
   
 
Adjusted pro forma revenue decreased $16.5 million, or 20.6%, to $63.6 million for the six months ended June 30, 2009 from $80.1 million from the comparable period
in the prior year. Adjusted pro forma EBITDA decreased $4.0 million, or 58.7%, to $2.9 million for the six months from $6.9 million from the comparable prior-year
period.
 
     
Our healthy living division incurred a decrease of $11.4 million in operating expense, or 14.6%, primarily driven by a $7.4 million decrease in salaries and benefits as
well as a $3.6 million decrease in supplies, facilities, and other costs. Same facility operating expenses decreased $10.3 million or 15.1% from the comparable prior-year
period. $6.8 million of the decrease was due to a decreases in salaries and benefits with decreases of $3.0 million decrease in adolescent outdoor programs, $2.9 million
decrease in adolescent residential boarding schools, and $0.9 million decrease in weight management. The remaining $3.5 million decrease in operating expenses was
due to decreased expenditures within supplies, facilities, and other operating costs of a $1.6 million decrease in adolescent residential boarding schools, $1.1 million
decrease in weight management, and $0.8 million decrease in adolescent outdoor programs.
 
 
2

 
Corporate:
 
Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
 
 
Corporate operating expenses increased $2.2 million or 33.2% year over year reflecting the consolidation of our administrative
functions.
   
 
Adjusted pro forma operating expenses increased $1.4 million, or 33.8%, to $5.6 million from $4.2 million
year over year.
 
Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
 
 
Corporate operating expenses increased $3.4 million or 25.8% year over year due in part to restructuring activities inclusive of the
consolidation of our administrative functions.
   
 
Adjusted pro forma operating expenses increased $2.2 million, or 25.9%, to $10.6 million from $8.4 million
year over year.
 
The unaudited adjusted pro forma revenue and EBITDA for the periods presented give effect to all acquisitions as if they had occurred on January 1, 2008. The pro forma adjustments are based upon available information and certain assumptions that CRC believes are reasonable. The pro forma adjusted EBITDA is for informational purposes only and does not purport to represent what CRC's result of operations or financial position would have been if the acquisitions in 2008 occurred at any date, nor does such information purport to project the results of operations for any future period.
 
In order to supplement its condensed consolidated financial statements presented in accordance with GAAP, CRC is providing a summary to show the computation of EBITDA, as well as adjusted pro forma EBITDA. Adjusted pro forma EBITDA takes into account certain adjustments which are excluded from EBITDA for purposes of various covenants in the indenture governing CRC's 10¾% senior subordinated notes due 2016 and its senior secured credit facility, as amended to date. CRC believes that the adjusted pro forma EBITDA information presented provides useful information to both management and investors concerning its ability to meet its future debt obligations and to comply with certain covenants in its borrowing arrangements that are tied to these measures. 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. The presentation of this additional information is not meant to be considered in isolation of, or as a substitute for, results prepared in accordance with GAAP.

 
3

 


CRC HEALTH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, 2009 AND DECEMBER 31, 2008
(In thousands, except share amounts)
   
June 30, 2009
   
Dec. 31, 2008
 
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 15,517     $ 2,540  
        Restricted cash     1,521       -  
Accounts receivable, net of allowance for doubtful accounts of $5,284 in 2009 and $5,409 in 2008
    32,531       30,826  
Prepaid expenses
    6,414       7,703  
Other current assets
    1,023       1,618  
Deferred income taxes
    4,029       4,029  
Current assets of discontinued operations, facility exits
    14,897       14,125  
Total current assets
    75,932       60,841  
PROPERTY AND EQUIPMENT - Net
    126,225       129,728  
GOODWILL
    603,981       604,078  
INTANGIBLE ASSETS - Net
    349,066       354,463  
OTHER ASSETS
    18,425       20,065  
TOTAL ASSETS
  $ 1,173,629     $ 1,169,175  
LIABILITIES AND EQUITY
               
CURRENT LIABILITIES:
               
Accounts payable
  $ 5,402     $ 6,165  
Accrued liabilities
    38,598       29,061  
Income taxes payable
    824       1,201  
Current portion of long-term debt
    6,145       6,522  
Other current liabilities
    32,857       31,657  
Current liabilities of discontinued operations, facility exits
    644       703  
Total current liabilities
    84,470       75,309  
LONG-TERM DEBT - Less current portion
    636,110       646,630  
OTHER LONG-TERM LIABILITIES
    7,566       7,553  
OTHER LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS, FACILITY EXITS
    1,796       1,909  
DEFERRED INCOME TAXES
    134,234       134,331  
Total liabilities
    864,176       865,732  
EQUITY:
               
CRC HEALTH CORPORATION STOCKHOLDER'S EQUITY:
               
Common stock, $0.001 par value-1,000 shares authorized; 1,000 shares issued and outstanding at June 30, 2009 and December 31, 2008
    -       -  
Additional paid-in capital
    447,733       444,275  
Accumulated deficit
    (133,628 )     (134,764 )
Accumulated other comprehensive (loss)
    (4,749 )     (6,289 )
Total CRC Health Corporation stockholder's equity
    309,356       303,222  
NONCONTROLLING INTEREST     97       221  
Total equity
    309,453       303,443  
TOTAL LIABILITIES AND EQUITY
  $ 1,173,629     $ 1,169,175  
                 

 
4

CRC HEALTH CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(In thousands)
 
   
Three Months Ended June 30, 2009
   
Three Months Ended June 30, 2008
   
Six Months Ended June 30, 2009
   
Six Months Ended June 30, 2008
 
NET REVENUE:
                       
Net client service revenue
 
$
109,488
   
$
118,067
   
$
213,449
   
$
230,020
 
Other revenue
   
1,879
     
2,009
     
3,767
     
3,979
 
Total net revenue
   
111,367
     
120,076
     
217,216
     
233,999
 
OPERATING EXPENSES:
                               
Salaries and benefits
   
55,719
     
59,367
     
113,162
     
118,723
 
Supplies, facilities and other operating costs
   
31,588
     
34,881
     
63,077
     
68,258
 
Provision for doubtful accounts
   
1,551
     
1,607
     
3,084
     
3,258
 
Depreciation and amortization
   
5,652
     
5,706
     
11,410
     
11,166
 
Total operating expenses
   
94,510
     
101,561
     
190,733
     
201,405
 
OPERATING INCOME
   
16,857
     
18,515
     
26,483
     
32,594
 
INTEREST EXPENSE, NET
   
(11,866
)
   
(12,505
)
   
(23,818
)
   
(27,022
)
OTHER INCOME (EXPENSE)
   
-
     
1,585
     
(82
)
   
(33
)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
   
4,991
     
7,595
     
2,583
     
5,539
 
INCOME TAX EXPENSE
   
2,372
     
3,207
     
178
     
2,266
 
INCOME FROM CONTINUING OPERATIONS, NET OF TAX
   
2,619
     
4,388
     
2,405
     
3,273
 
LOSS FROM DISCONTINUED OPERATIONS (net of tax benefit of ($119) and ($365) in the three months ended June 30, 2009 and 2008, and ($768) and ($743) in the six months ended June 30, 2009 and 2008, respectively)
   
(288
)
   
(685
)
   
(1,388
)
   
(1,397
)
NET INCOME
   
2,331
     
3,703
     
1,017
     
1,876
 
LESS: NET INCOME (LOSS) ATTRIBUTABLE TO THE NONCONTROLLING INTEREST
   
9
     
(54
)
   
(119
)
   
(357
)
NET INCOME ATTRIBUTABLE TO CRC HEALTH CORPORATION
 
$
2,322
   
$
3,757
   
$
1,136
   
$
2,233
 
                                 
                                 
AMOUNTS ATTRIBUTABLE TO CRC HEALTH CORPORATION:
                               
INCOME FROM CONTINUING OPERATIONS, NET OF TAX
 
$
2,610
   
$
4,451
   
$
2,520
   
$
3,639
 
DISCONTINUED OPERATIONS, NET OF TAX
   
(288
)
   
(694
)
   
(1,384
)
   
(1,406
)
NET INCOME ATTRIBUTABLE TO CRC HEALTH CORPORATION
 
$
2,322
   
$
3,757
   
$
1,136
   
$
2,233
 
 
 
5

 


Reconciliation of GAAP "Cash Flows Provided By Operating Activities" to non-GAAP "EBITDA from
continuing operations" and Reconciliation of non-GAAP "EBITDA from continuing operations to GAAP Net Income attributable to CRC Health Corporation"
(In thousands) (unaudited)
           
   
Three Months Ended June 30, 2009
   
Three Months Ended June 30, 2008
   
Six Months Ended June 30, 2009
   
Six Months Ended June 30, 2008
 
Cash flows provided by operating activities
  $ 25,786     $ 26,880     $ 28,476     $ 20,831  
Write-off of prior year acquisition costs
    (62 )    
-
      (62 )    
-
 
Amortization of debt discount and other financing costs
    (1,097 )     (1,124 )     (2,175 )     (2,225 )
Stock-based compensation
    (1,393 )     (1,065 )     (2,788 )     (2,303 )
Deferred income taxes
    556       512       1,111       1,029  
Net effect of changes in non-current net assets
    427       (468 )     399       78  
Net effect of working capital changes
    (16,237 )     (15,138 )     (12,396 )     (3,763 )
Interest expense and other financing costs
    11,868       12,505       23,823       27,022  
Income tax benefit (expense)
    2,253       2,842       (591 )     1,523  
EBITDA from continuing operations
    22,101       24,944       35,797       42,192  
Interest expense and other financing costs
    (11,868 )     (12,505 )     (23,823 )     (27,022 )
Income tax expense (benefit)
    (2,253 )     (2,842 )     591       (1,523 )
Depreciation and amortization
    (5,658 )     (5,840 )     (11,429 )     (11,414 )
Net income attributable to CRC Health Corporation
  $ 2,322     $ 3,757     $ 1,136     $ 2,233  
 
 
6

 

Reconciliation of non-GAAP "EBITDA from continuing operations" to non-GAAP "Adjusted pro forma EBITDA"
(In thousands) (unaudited)
           
             
   
Three Months Ended June 30, 2009
   
Three Months Ended June 30, 2008
   
Six Months Ended June 30, 2009
   
Six Months Ended June 30, 2008
 
EBITDA from continuing operations
  $ 22,101     $ 24,944     $ 35,797     $ 42,192  
Acquisition adjustments
   
-
     
369
     
-
     
846
 
Adjustments for discontinued operations
   
279
     
915
     
532
     
1,893
 
Asset impairment
   
-
     
-
     
1,417
     
-
 
Non-impairment restructuring activities
    711       -       2,153       -  
Stock-based compensation expense
   
1,393
     
1,065
     
2,788
     
2,303
 
Additional stock-based compensation expense
   
-
     
(6
)    
-
     
-
 
(Gain) loss on interest rate swap    
-
      (1,585 )     -       33  
Foreign exchange translation
   
(8
)    
-
     
(7
)    
-
 
Other nonrecurring costs
   
-
     
-
     
85
     
-
 
Loss (gain) on fixed asset disposal
   
99
     
45
     
171
     
(1
)
Management fees to Sponsor
   
680
     
555
     
1,238
     
1,101
 
Transaction expense
   
136
     
-
     
117
     
-
 
Write-off of cancelled acquisitions
   
84
     
38
     
62
     
124
 
Noncontrolling interest in loss of subsidiaries
   
9
     
(54
)    
(119
)    
(357
)
Franchise taxes
   
(55
)    
44
     
(9
)    
88
 
Write-off of miscellaneous accounts (non-cash)
   
-
     
7
     
-
     
8
 
Adjusted Pro forma EBITDA   $ 25,429     $ 26,337     $ 44,225     $ 48,230  



 
7

 
 
CRC Health Corporation
Selected Statistics
 
Six Months Ended
June 30, 2009
   
Six Months Ended
June 30, 2008
 
Recovery Division:
           
Number of inpatient facilities - end of period
   
29
     
28
 
Number of outpatient facilities - end of period
    15      
15
 
Number of comprehensive treatment clinics (CTC) - end of period
   
54
     
63
 
Available beds - end of period
   
1,910
     
1,884
 
Patient days - Inpatient
   
274,230
     
277,900
 
Net revenue per patient day - inpatient
 
$
352.41
   
$
362.15
 
Patient days - CTC
   
4,658,976
     
4,413,451
 
Net revenue per patient day - CTC
 
$
11.90
   
$
11.71
 
                 
Aspen Programs:
               
Number of facilities - end of period
   
27
     
29
 
Patient days
   
185,394
     
227,357
 
Net revenue per patient day
 
$
284.16
   
$
294.97
 
                 
Weight Management:
               
Number of facilities - end of period
    15      
14
 
Patient days
   
34,471
     
41,702
 
Net revenue per patient day
 
$
317.30
   
$
312.14
 
 
 
Conference Call
 
CRC Health Corporation will host a conference call, open to all interested parties, on Thursday, August 20, 2009 beginning at 8:30 AM Pacific Time (11:30 AM Eastern Time) . The number to call within the United States is (888) 708-5678. Participants outside the United States should call 913-312-1400. The conference ID is 2378408.
 
A replay of the conference call will be available starting at 11:30 AM Pacific Time ( 2:30 PM Eastern Time) on Thursday August 20, 2009 until 11:30 AM Pacific Time (2:30 PM Eastern Time) Thursday August 27, 2009. 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 2378408.
 
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: changes in government reimbursement for CRC's services; 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 facilities; 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; and certain restrictive covenants in CRC's debt documents.

Contact:
CRC Health Corporation
Kevin Hogge, 877-272-8668
Chief Financial Officer
 
 
 
8