CRC Health Reports Operating Results for the Quarter & Year Ended December 31

Posted at March 22, 2007 | Categories : 2007,Investor Press | 0 Comment

NEWS RELEASE  FOR IMMEDIATE RELEASE: March 22, 2007
Contact: Bob Weiner/Rebecca VanderLinde 301-283-0821 or 202-329-1700

CRC Health Reports Operating Results  for the Quarter & Year Ended December 31, 2006

CUPERTINO, CA,  March 22, 2007 — CRC Health Corporation (formerly known as CRC Health Group, Inc.) (“CRC” or the “Company”), the nation’s largest substance abuse treatment and youth treatment provider, announced its results for the fourth quarter and the year ended December 31, 2006, reflecting contributions from the acquisition of Aspen Education Group, Inc. (“Aspen”) in the fourth quarter of 2006 and other acquisitions in 2006, its acquisition of Sierra Tucson in May 2005 and other acquisitions in 2005, collectively (the “2005-06 acquisitions”), and continued organic growth. A new reportable segment youth treatment division (“youth”) has been formed as a result of the acquisition of Aspen.

CRC’s acquisition of Aspen
On November 17, 2006 CRC acquired all the outstanding capital stock of Aspen for approximately $ 273.9 million in cash purchase consideration and the assumption of approximately $20.6 million in Aspen’s indebtedness as defined per the merger agreement (includes the buy-out of minority interest of $4.2 million).

Bain Capital Partners’ acquisition of CRC
On February 6, 2006, investment funds managed by Bain Capital Partners, LLC (“Bain”) completed the acquisition of CRC for approximately $723 million. As part of the transaction, certain members of the CRC management team partnered with Bain by retaining an equity stake in CRC. The acquisition resulted in several large merger-related expenses during the year ended 2006. CRC’s pro forma results excluding these unusual items can be derived from the reconciliation of non-GAAP “EBITDA from continuing operations” to non-GAAP “Adjusted Pro Forma EBITDA”, presented below.  CRC refers to the February 6, 2006 Bain acquisition, the related mergers and related financings as the “Transactions.”

The date of the Bain acquisition was February 6, 2006, but for accounting purposes and to coincide with its normal financial closing, CRC has utilized January 31, 2006 as the effective date of the Bain acquisition. As a result, CRC has reported operating results and 1financial position for all periods presented prior to January 31, 2006 as those of the Predecessor Company and for all periods from and after February 1, 2006 as those of the Successor Company due to the resulting change in the basis of accounting. CRC’s operating results for the year ended December 31, 2006 are presented as the mathematical addition of CRC’s operating results for the one month ended January 31, 2006 to the operating results for the eleven months ended December 31, 2006.  This approach is not consistent with accounting principles generally accepted in the United States of America (“GAAP”) and may yield results that are not strictly comparable on a period-to-period basis primarily due to the impact of purchase accounting entries recorded as a result of the Transactions. However, CRC’s management believes that it is a meaningful way to present CRC’s results of operations for the year ended December 31, 2006.  In addition, due to differences in the basis of accounting, results for the year ended December 31, 2006 are not comparable to results of the year ended December 31, 2005.

Historical Financial Results
Fourth Quarter and Year Ended December 31, 2006 Financial Results

· Net revenue for the fourth quarter of 2006 increased by $27.1 million, or 46.9%, to $85.1 million as compared to $57.9 million in the fourth quarter of 2005. Of the $27.1 million increase, the youth treatment division contributed $15.2 million and the remaining net revenue growth was driven by net revenue increases of $9.0 million, or 25.0% and $3.0 million, or 14.1%, in CRC’s residential and outpatient treatment divisions, respectively. The net revenue growth in the residential and outpatient treatment divisions was mainly driven by same-facility revenue increases of $3.3 million or 9.3% and $ 1.1 million or 5.4%, respectively, which was the result of increases in average daily census and net revenue per patient day.  In addition, $5.5 million and $1.4 million of the residential and outpatient treatment divisions’ revenue growth, respectively, is attributable to the 2005-06 acquisitions that were not included in the fourth quarter of 2005.

· Net revenue for the year ended December 31, 2006 increased by $62.2 million, or 29.7%, to $271.2 million compared to $209.0 million in 2005. The net revenue growth was driven by net revenue increases of $39.0 million, or 31.3% and $7.7 million, or 9.2%, in CRC’s residential and outpatient treatment divisions, respectively. The youth treatment division contributed $15.2 million to net revenue in 2006. The residential treatment division revenue growth was mainly driven by 2005-06 acquisitions growth of $26.1 million and partially due to the same-facility increase of $12.6 million or 10.3%, which was the result of increases in average daily census and net revenue per patient day.  The outpatient treatment division revenue growth was mainly driven by same-facility revenue increase of $4.3 million or 5.2%, which was the result of increases in average daily census and net revenue per patient day. The remaining $3.7 million of the outpatient treatment division revenue growth was the result of start ups and 2006 acquisitions.

· CRC’s operating margins declined to 15.0% during the fourth quarter of 2006 compared to 22.1% in the fourth quarter of 2005. The decline was due primarily to an increase of $2.8 million in depreciation and amortization expense resulting from an increase in the fair value of CRC’s assets recorded in connection with the Transactions and acquisition of Aspen and a non-cash charge of $0.9 million relating to stock option-based employee compensation expense. On a samefacility basis, CRC’s operating margins increased to 34.4% during the fourth quarter of 2006, as compared to 33.8% in the fourth quarter of 2005.

· CRC’s operating margins declined to 3.5% in the year ended December 31, 2006 as compared to 23.3% in 2005. The decline was due primarily to one-time expenses of $43.7 million related to the Transactions, and to a lesser extent, from the increase of $6.7 million in depreciation and amortization expense resulting from an increase in the fair value of CRC’s assets recorded in connection with the Transactions and Aspen acquisition. In addition, non-cash charge of $3.5 million relating to stock option-based employee compensation expense contributed to the overall operating margin decline in 2006. On a same-facility basis, CRC’s operating margins increased to 35.5% in 2006 compared to 34.6% in 2005.

· Net income for the fourth quarter of 2006 was $0.3 million compared to $4.9 million in the fourth quarter of 2005. The decrease in net income of $4.5 million in 2006 was mainly attributable to a $7.3 million increase in interest expense resulting from the issuance of new senior and subordinated debt related to the Transactions and to fund the acquisition of Aspen, offset by an income tax benefit of $0.7 million in 2006 versus an income tax expense of $2.5 million for a total change in income tax (benefit) expense of $3.1 million.

· Net loss for the year ended December 31, 2006 was $35.5 million compared to net income of $18.0 million in 2005. In addition, to the factors described above in the 2006 operating margin decline, the net loss in 2006 was attributable to a $32.6 million increase in interest and other financing expense resulting from the issuances of new senior and subordinated debt related to the Transactions and to fund the acquisition of Aspen. The increase in expenses were offset by an income tax benefit of $9.4 million versus an income tax expense of $10.9 million for a total change in income tax (benefit) expense of $20.3 million. In addition, interest and other income in 2006 includes a gain of $0.1 million in fair value of interest rate swap agreement compared to a gain of $1.6 million in 2005.

Pro Forma Financial Results
Adjusted pro forma EBITDA was $22.1 million for the quarter ended December 31, 2006, compared to $16.1 million for the quarter ended December 31, 2005, an increase of $6.1 million, or 37.9%. Adjusted pro forma EBITDA was $97.0 million for the year ended December 31, 2006, compared to $65.5 million in 2005, an increase of $31.5 million, or 48.1%.

In order to supplement its condensed consolidated financial statements presented in accordance with GAAP, CRC is providing a summary to show the computation of earnings before interest, taxes, depreciation and amortization (“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 amended and restated credit agreement dated November 17, 2006.  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 service 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.

The unaudited adjusted pro forma EBITDA for the periods presented gives effect to the 2005 acquisitions as if they had occurred on January 1, 2005 and 2006 acquisitions as if they had occurred on January 1, 2006. The pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable. The pro forma adjusted EBITDA is for informational purposes only and does not purport to represent what CRC’s results of operations or financial position would actually be if the 2005-06 acquisitions occurred at any date, nor does such information purport to project the results of operations for any future period.

Click here to download the complete CRC Health Group Reports Operating Results for the Quarter and Year Ended December 31, 2006

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