CRC Health Corporation Reports Operating Results for the Third Quarter and Nine Months Ended September 30, 2009 (Business Wire via Yahoo! Finance)

CUPERTINO, Calif.–(BUSINESS WIRE)–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 nine months ended September 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 September 30, 2009
decreased $8.8 million or 7.1% to $114.7 million compared to the same
period in 2008. For the three months ended September 30, 2009,
consolidated operating expenses decreased $124.5 million to $119.9
million, or 50.9% compared to the same period in 2008. For the three
months ended September 30, 2009 adjusted pro forma earnings before
interest, taxes, depreciation and amortization (”EBITDA”) increased $1.1
million, or 3.7%, to $30.6 million compared to $29.5 million during the
same period in 2008.

For the nine months ended September 30, 2009, consolidated net revenue
decreased $25.2 million or 7.1% to $330.9 million compared to the same
period in 2008. Consolidated operating expenses for the nine months
ended September 30, 2009, decreased $135.0 million to $309.4 million, or
30.4% compared to the same period in 2008. Adjusted pro forma earnings
for the nine months ended September 30, 2009, adjusted before interest,
taxes, depreciation and amortization (”EBITDA”) decreased $2.6 million,
or 3.4%, to $75.0 million compared to $77.6 million during the same
period in 2008.

During the three and nine months ended September 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 September 30, 2009, the Company implemented
additional reductions in employee positions impacting all divisions and
closed one facility within the healthy living division. For the nine
months ended September 30, 2009 facility exit activities consisted
of two programs 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 September 30, 2009, the Company had approximately $4.1 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 which are expected to be
substantially complete by the end of 2009. Facilities which have been
held for sale, or otherwise disposed as of September 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.

Historical Financial Results

Three Months and Nine Months Ended September 30, 2009 Consolidated
Financial Results:

Recovery Division:

Three Months Ended September 30, 2009 Compared to Three Months Ended
September 30, 2008

Net revenue decreased $0.3 million, or 0.4%, to $78.5 million for the
quarter from $78.8 million from the comparable period in the prior year.
Revenue decreases were due to an increase of $1.4 million in
comprehensive treatment centers(”CTC”) offset by decreases of $1.7
million in revenues from residential treatment centers. Same-facility
revenue decreased $0.7 million due to a decrease of $2.2 million in
residential treatment centers partially offset by an increase of $1.5
million in CTC revenue.

Adjusted pro forma revenue decreased $0.9 million, or 1.1%, to $78.6
million for the quarter from $79.5 million from the comparable period in
the prior year. Adjusted pro forma EBITDA increased $2.2 million, or
8.2%, to $28.9 million for the quarter from $26.7 million from the
comparable period in the prior year.

Recovery division operating expenses decreased $2.1 million year over
year primarily due to restructuring related decreases of approximately
of $1.1 million in salaries and $1.0 million in supplies, facilities,
and other costs. Recovery division, same-facility operating expenses
decreased $1.8 million or 3.6% primarily driven by decreases of $0.7
million in salaries and benefits. The remaining $1.1 million decrease
was due to decreases in supplies, facilities, and other costs within
residential treatment centers.

Nine Months Ended September 30, 2009 Compared to Nine Months Ended
September 30, 2008

Net revenue decreased $0.5 million, or 0.2%, to $232.0 million for the
nine months ended September 30, 2009 from $232.5 million from the
comparable period in the prior year. Revenue decreases were due to a
decrease of $5.7 million in residential treatment center revenues
partially offset by increases of $5.2 million in revenues from CTCs.
Same-facility revenue decreased $3.0 million due to a decrease of $8.3
million in residential treatment centers partially offset by an increase
of $5.3 million in CTCs.

Adjusted pro forma revenue decreased $3.7 million, or 1.6%, to $232.3
million for the quarter from $236.0 million from the comparable period
in the prior year. Adjusted pro forma EBITDA increased $4.4 million, or
5.8%, to $80.8 million for the quarter from $76.4 million from the
comparable period in the prior year.

Recovery division consolidated operating expenses decreased $4.8
million, or 2.9%, to $159.9 million for the nine months ended September
30, 2009 from $164.7 million from the comparable period in the prior
year. The decrease in recovery division consolidated operating expenses
is primarily due to a $2.0 million decrease in salaries and a $2.5
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 $6.7 million, or 4.5%,
driven by decreases of $3.4 million in salaries and benefits with
residential treatment centers and CTCs contributing decreases of $2.7
million and $0.7 million respectively. The remaining $3.3 million
decrease was due to decreases in supplies, facilities, and other costs
primarily within residential treatment centers.

Healthy Living Division:

Three Months Ended September 30, 2009 Compared to Three Months Ended
September 30, 2008

Net revenue decreased $8.5 million, or 19.1%, to $36.1 million for the
quarter from $44.6 million from the comparable prior-year period. 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 $9.2 million, or
20.8%, to $35.0 million for the quarter from $44.2 million from the
comparable prior-year quarter due primarily to the aforementioned
economic conditions.

Adjusted pro forma revenue decreased $8.5 million, or 19.0%, to $36.1
million for the three months ended September 30, 2009 from $44.6 million
from the comparable period in the prior year. Adjusted pro forma EBITDA
decreased $1.3 million, or 19.0%, to $5.7 million for the three months
from $7.0 million from the comparable prior-year period.

Excluding non-cash impairment charges of $27.8 million and $142.3
million recognized during the three months ended September 30, 2009 and
2008 respectively, our healthy living division incurred a decrease of
$7.3 million in operating expense, or 18.3%, primarily driven by a $4.6
million decrease in salaries and benefits as well as a $2.4 million
decrease in supplies, facilities, and other costs. Same facility
operating expenses decreased $5.7 million or 16.1% from the comparable
prior-year period. $3.4 million of the decrease was due to decreases in
salaries and benefits with decreases of $1.5 million decrease in
adolescent outdoor programs, $1.6 million decrease in adolescent
residential boarding schools, and $0.3 million decrease in weight
management. The remaining $2.3 million decrease in operating expenses
was due to decreased expenditures within supplies, facilities, and other
operating costs of a $0.7 million decrease in adolescent residential
boarding schools, a $0.7 million decrease in adolescent outdoor
programs, and a $0.8 million decrease in weight management.

Nine Months Ended September 30, 2009 Compared to Nine Months Ended
September 30, 2008

Net revenue decreased $24.6 million, or 19.9%, to $98.7 million for the
nine months ended September 30, 2009 from $123.3 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 $25.4
million, or 20.7%, to $97.3 million for the nine months from $122.7
million from the comparable prior-year period. Of the decrease in
same-facility net revenue, $12.1 million and $10.3 million, or 17.9% and
30.9% was attributable to our adolescent residential boarding and our
adolescent outdoor programs, respectively. The remaining $3.0 million or
13.7% decrease was in weight management.

Adjusted pro forma revenue decreased $24.6 million, or 19.9%, to $98.7
million for the nine months ended September 30, 2009 from $123.3 million
from the comparable period in the prior year. Adjusted pro forma EBITDA
decreased $5.1 million, or 37.1%, to $8.7 million for the nine months
from $13.8 million from the comparable prior-year period.

Excluding non-cash impairment charges of $29.3 million and $142.3
million recognized during the nine months ended September 30, 2009 and
2008 respectively, our healthy living division incurred a decrease of
$18.7 million in operating expense, or 16.0%, primarily driven by a
$11.8 million decrease in salaries and benefits as well as a $6.0
million decrease in supplies, facilities, and other costs. Same facility
operating expenses decreased $15.9 million or 15.5% from the comparable
prior-year period. $10.1 million of the decrease was due to decreases in
salaries and benefits comprised of a $4.4 million decrease in adolescent
residential boarding schools, $4.5 million decrease in adolescent
outdoor programs, and $1.2 million decrease in weight management. The
remaining $5.8 million decrease in operating expenses was due to
decreased expenditures in supplies, facilities, and other operating
costs consisting of a $2.4 million decrease in adolescent residential
boarding schools, $1.8 million decrease in weight management, and 1.6
million in adolescent outdoor programs.

Corporate:

Three Months Ended September 30, 2009 Compared to Three Months Ended
September 30, 2008

Corporate operating expenses of $7.2 million remained flat year over
year.

Adjusted pro forma EBITDA negative contribution decreased $0.3 million,
or 6.4%, to ($4.0) million from ($4.3) million year over year.

Nine Months Ended September 30, 2009 Compared to Nine Months Ended
September 30, 2008

Corporate operating expenses increased $3.4 million or 16.7% year over
year due in part to restructuring activities inclusive of the
consolidation of our administrative functions.

Adjusted pro forma EBITDA negative contribution increased $1.9 million,
or 14.9%, to ($14.6) million from ($12.7) 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 10 3/4% 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.

CRC HEALTH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
(In thousands, except share amounts)
		September 30, 2009				December 31, 2008
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	6,454			$	2,540
Restricted cash			875				—
Accounts receivable, net of allowance for doubtful accounts of $5,410 in 2009 and $5,409 in 2008			32,569				30,826
Prepaid expenses			5,613				7,703
Other current assets			1,263				1,618
Deferred income taxes			4,029				4,029
Current assets of discontinued operations, facility exits			16,170				14,125
Total current assets			66,973				60,841
PROPERTY AND EQUIPMENT-Net			124,276				129,728
GOODWILL			579,262				604,078
INTANGIBLE ASSETS-Net			344,306				354,463
OTHER ASSETS			19,426				20,065
TOTAL ASSETS		$	1,134,243			$	1,169,175
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable		$	4,642			$	6,165
Accrued liabilities			30,519				29,061
Income taxes payable			6,102				1,201
Current portion of long-term debt			6,014				6,522
Other current liabilities			26,386				31,657
Current liabilities of discontinued operations, facility exits			1,428				703
Total current liabilities			75,091				75,309
LONG-TERM DEBT-Less current portion			629,042				646,630
OTHER LONG-TERM LIABILITIES			7,419				7,553
LIABILITIES OF DISCONTINUED OPERATIONS, FACILITY EXITS			1,738				1,909
DEFERRED INCOME TAXES			126,487				134,331
Total liabilities			839,777				865,732
CRC HEALTH CORPORATION STOCKHOLDER’S EQUITY:
Common stock, $0.001 par value-1,000 shares authorized; 1,000 shares issued and outstanding at September 30, 2009 and December 31, 2008			—				—
Additional paid-in capital			451,578				444,275
Accumulated deficit			(152,496	)			(134,764	)
Accumulated other comprehensive (loss)			(4,861	)			(6,289	)
Total CRC Health Corporation stockholder’s equity			294,221				303,222
NONCONTROLLING INTEREST			245				221
Total equity			294,466				303,443
TOTAL LIABILITIES AND EQUITY		$	1,134,243			$	1,169,175

CRC HEALTH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(In thousands)
		Three Months Ended September 30, 2009				Three Months Ended September 30, 2008				Nine Months Ended September 30, 2009				Nine Months Ended September 30, 2008
NET REVENUE:
Net client service revenue		$	113,074			$	121,325			$	325,464			$	349,908
Other revenue			1,650				2,146				5,417				6,125
Total net revenue			114,724				123,471				330,881				356,033
OPERATING EXPENSES:
Salaries and benefits			53,056				59,155				165,450				176,968
Supplies, facilities and other operating costs			32,438				35,647				95,126				103,525
Provision for doubtful accounts			1,558				1,663				4,614				4,909
Depreciation and amortization			5,678				5,690				17,005				16,778
Asset impairment			2,257				—				2,257				—
Goodwill impairment			24,919				142,238				24,919				142,238
Total operating expenses			119,906				244,393				309,371				444,418
OPERATING (LOSS) INCOME			(5,182	)			(120,922	)			21,510				(88,385	)
INTEREST EXPENSE, NET			(11,519	)			(13,110	)			(35,337	)			(40,132	)
OTHER EXPENSE			—				(1	)			(82	)			(34	)
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES			(16,701	)			(134,033	)			(13,909	)			(128,551	)
INCOME TAX EXPENSE (BENEFIT)			993				(10,604	)			1,171				(8,357	)
LOSS FROM CONTINUING OPERATIONS, NET OF TAX			(17,694	)			(123,429	)			(15,080	)			(120,194	)
LOSS FROM DISCONTINUED OPERATIONS (net of tax benefit of ($429) and ($8,618) in the three months ended September 30, 2009 and 2008, and ($1,197) and ($9,342) in the nine months ended September 30, 2009 and 2008, respectively)			(1,027	)			(16,204	)			(2,623	)			(17,564	)
NET LOSS			(18,721	)			(139,633	)			(17,703	)			(137,758	)
LESS: NET INCOME (LOSS) ATTRIBUTABLE TO THE NONCONTROLLING INTEREST			148				301				29				(57	)
NET LOSS ATTRIBUTABLE TO CRC HEALTH CORPORATION		$	(18,869	)		$	(139,934	)		$	(17,732	)		$	(137,701	)
AMOUNTS ATTRIBUTABLE TO CRC HEALTH CORPORATION:
LOSS FROM CONTINUING OPERATIONS, NET OF TAX		$	(17,842	)		$	(123,718	)		$	(15,113	)		$	(120,116	)
DISCONTINUED OPERATIONS, NET OF TAX			(1,027	)			(16,216	)			(2,619	)			(17,585	)
NET LOSS ATTRIBUTABLE TO CRC HEALTH CORPORATION		$	(18,869	)		$	(139,934	)		$	(17,732	)		$	(137,701	)

Reconciliation of GAAP “Cash Flows Provided By Operating Activities” to non-GAAP “EBITDA from continuing operations” and Reconciliation of non-GAAP “EBITDA attributable to CRC Health Corporation” to GAAP “Net Loss attributable to CRC Health Corporation”
(In thousands) (unaudited)
		Three Months Ended September 30, 2009				Three Months Ended September 30, 2008				Nine Months Ended September 30, 2009				Nine Months Ended September 30, 2008
Cash flows provided by operating activities		$	1,082			$	259			$	29,559			$	21,090
Write-off of prior year acquisition costs			-				-				(62	)			-
Amortization of debt discount and other financing costs			(1,104	)			(1,132	)			(3,279	)			(3,357	)
Stock-based compensation			(1,376	)			(1,544	)			(4,164	)			(3,847	)
Deferred income taxes			4,786				25,645				5,897				26,674
Net effect of changes in non-current net assets			2,219				(207	)			2,618				(129	)
Goodwill impairment			(24,919	)			(142,238	)			(24,919	)			(142,238	)
Asset impairment			(3,143	)			(23,880	)			(4,560	)			(23,880	)
Net effect of working capital changes			9,305				9,092				(1,675	)			5,329
Interest expense and other financing costs			11,521				13,125				35,344				40,148
Income tax benefit (expense)			565				(19,222	)			(26	)			(17,699	)
EBITDA attributable to CRC Health Corporation			(1,064	)			(140,102	)			34,734				(97,909	)
Interest expense and other financing costs			(11,521	)			(13,125	)			(35,344	)			(40,148	)
Income tax expense (benefit)			(565	)			19,222				26				17,699
Depreciation and amortization			(5,719	)			(5,929	)			(17,148	)			(17,343	)
Net loss attributable to CRC Health Corporation		$	(18,869	)		$	(139,934	)		$	(17,732	)		$	(137,701	)

Reconciliation of non-GAAP “EBITDA attributable to CRC Health Corporation” to non-GAAP “Adjusted pro forma EBITDA”
(In thousands) (unaudited)
		Three Months Ended September 30, 2009				Three Months Ended September 30, 2008					Nine Months Ended September 30, 2009						Nine Months Ended September 30, 2008
EBITDA attributable to CRC Health Corporation		$	(1,064	)		$	(140,102		)		$	34,734					$	(97,909	)
Acquisition adjustments			—				236					117						1,083
Unrecognized profit on deferred revenue			—				13					—						13
Adjustments for discontinued operations			236				687					894						2,446
Asset impairment			3,143				23,880					4,560						23,880
Goodwill impairment			24,919				142,238					24,919						142,238
Non-impairment restructuring activities			468				—					2,481						—
Stock-based compensation expense			1,376				1,543					4,164						3,847
(Gain) loss on interest rate swap			—				1					—						34
Foreign exchange translation			28				35					21						35
Other nonrecurring costs			94				—					319						—
Loss (gain) on fixed asset disposal			428				(20		)			599						(21	)
Management fees to Sponsor			806				530					2,044						1,630
Write-off of cancelled acquisitions			—				116					62						240
Noncontrolling interest in loss of subsidiaries			148				301					29						(57	)
Franchise taxes			44				40					35						128
Write-off of miscellaneous accounts (non-cash)			—				—					—						8
Adjusted Pro forma EBITDA		$	30,626			$	29,498				$	74,978					$	77,595

						CRC Health Corporation Selected Statistics		Nine Months Ended September 30, 2009				Nine Months Ended September 30, 2008
						Recovery Division:
						Number of inpatient facilities – end of period			29				30
						Number of outpatient facilities – end of period			15				15
						Number of comprehensive treatment clinics (CTC) – end of period			54				64
						Available beds – end of period			1,904				1,910
						Patient days – Inpatient			416,355				417,918
						Net revenue per patient day – inpatient		$	350.83			$	363.20
						Patient days – CTC			7,041,552				6,695,627
						Net revenue per patient day – CTC		$	11.91			$	11.75
						Aspen Programs:
						Number of facilities – end of period			25				29
						Patient days			270,214				329,766
						Net revenue per patient day		$	289.73			$	305.20
						Weight Management:
						Number of facilities – end of period			18				17
						Patient days			71,165				80,345
						Net revenue per patient day		$	286.61			$	281.09

Conference Call

CRC Health Corporation will host a conference call, open to all
interested parties, on Thursday, November 19, 2009 beginning at 10:00 AM
Pacific Time (1:00 PM Eastern Time). The number to call within the
United States is (800) 218-2154. Participants outside the United States
should call 913-312-0822. The conference ID is 6486033.

A replay of the conference call will be available starting at 1:00 PM
Pacific Time (4:00 PM Eastern Time) on Thursday, November 19, 2009 until
1:00 PM Pacific Time (4:00 PM Eastern Time) Thursday, November 26, 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 6486033.

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.