Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 001-35331

 

 

ACADIA HEALTHCARE COMPANY, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   45-2492228

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

830 Crescent Centre Drive, Suite 610

Franklin, Tennessee 37067

(Address, including zip code, of registrant’s principal executive offices)

(615) 861-6000

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   þ
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ

As of July 31, 2013, there were 50,513,783 shares of the registrant’s common stock outstanding.

 

 

 


Table of Contents

ACADIA HEALTHCARE COMPANY, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

  

Item 1. Financial Statements

     1   

Condensed Consolidated Balance Sheets (Unaudited) as of June 30, 2013 and December 31, 2012

     1   

Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June  30, 2013 and 2012

     2   

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June  30, 2013 and 2012

     3   

Notes to Condensed Consolidated Financial Statements (Unaudited)

     4   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     23   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     33   

Item 4. Controls and Procedures

     33   

PART II – OTHER INFORMATION

  

Item 1. Legal Proceedings

     34   

Item 1A. Risk Factors

     34   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     34   

Item 6. Exhibits

     34   

SIGNATURES

     36   


Table of Contents

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

Acadia Healthcare Company, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

 

     June 30,
2013
    December 31,
2012
 
     (In thousands, except share and per share
amounts)
 
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 7,399     $ 49,399  

Accounts receivable, net of allowance for doubtful accounts of $11,629 and $7,484, respectively

     85,872       63,870  

Deferred tax assets

     13,830        11,380   

Other current assets

     19,988       16,332  
  

 

 

   

 

 

 

Total current assets

     127,089       140,981  

Property and equipment, net

     312,147       236,942  

Goodwill

     630,749       557,402  

Intangible assets, net

     18,838       15,988  

Other assets

     25,349       32,100  
  

 

 

   

 

 

 

Total assets

   $ 1,114,172     $ 983,413  
  

 

 

   

 

 

 
LIABILITIES AND EQUITY     

Current liabilities:

    

Current portion of long-term debt

   $ 13,305     $ 7,680  

Accounts payable

     28,072       19,081  

Accrued salaries and benefits

     28,131       28,749  

Other accrued liabilities

     17,171       16,341  
  

 

 

   

 

 

 

Total current liabilities

     86,679       71,851  

Long-term debt

     556,276       465,638  

Deferred tax liabilities – noncurrent

     2,267        998   

Other liabilities

     18,110       12,376  
  

 

 

   

 

 

 

Total liabilities

     663,332       550,863  

Equity:

    

Preferred stock, $0.01 par value; 10,000,000 shares authorized; no shares issued

     —          —     

Common stock, $0.01 par value; 90,000,000 shares authorized; 50,037,767 and 49,887,300 shares issued and outstanding as of June 30, 2013 and December 31, 2012, respectively

     500       499  

Additional paid-in capital

     458,582       456,228  

Accumulated deficit

     (8,242     (24,177 )
  

 

 

   

 

 

 

Total equity

     450,840       432,550  
  

 

 

   

 

 

 

Total liabilities and equity

   $ 1,114,172     $ 983,413  
  

 

 

   

 

 

 

See accompanying notes.

 

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Table of Contents

Acadia Healthcare Company, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

     Three Months Ended
June  30,
    Six Months Ended
June  30,
 
     2013     2012     2013     2012  
     (In thousands, except per share amounts)  

Revenue before provision for doubtful accounts

   $ 182,951     $ 102,752      $ 348,656     $ 194,020   

Provision for doubtful accounts

     (5,457     (2,222     (9,949     (3,927
  

 

 

   

 

 

   

 

 

   

 

 

 

Revenue

     177,494        100,530        338,707        190,093   

Salaries, wages and benefits (including equity-based compensation expense of $1,812, $592, $2,413 and $1,170, respectively)

     100,764       58,559        195,115       113,702   

Professional fees

     9,324       4,658        18,338       8,831   

Supplies

     9,613       4,872        18,211       9,317   

Rents and leases

     2,394       2,227        4,721       4,469   

Other operating expenses

     20,096       10,407        37,079       19,388   

Depreciation and amortization

     4,212       1,646        7,834       3,256   

Interest expense, net

     9,445       7,471        18,207       14,753   

Debt extinguishment costs

     —          —          9,350        —     

Transaction-related expenses

     1,355       670        2,829       1,365   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     157,203       90,510        311,684       175,081   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

     20,291        10,020        27,023        15,012   

Provision for income taxes

     8,020       3,919        10,698       5,584   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     12,271        6,101        16,325        9,428   

(Loss) income from discontinued operations, net of income taxes

     (74     (192     (390     160   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 12,197      $ 5,909      $ 15,935      $ 9,588   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share:

        

Income from continuing operations

   $ 0.24      $ 0.17      $ 0.33      $ 0.27   

(Loss) income from discontinued operations

     —          (0.01     (0.01     0.01   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 0.24      $ 0.16      $ 0.32      $ 0.28   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share:

        

Income from continuing operations

   $ 0.24      $ 0.17      $ 0.33      $ 0.27   

(Loss) income from discontinued operations

     —          (0.01     (0.01     0.01   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 0.24      $ 0.16      $ 0.32      $ 0.28   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding:

        

Basic

     50,009        36,507        49,961        34,313   

Diluted

     50,282        36,695        50,196        34,514   

See accompanying notes.

 

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Table of Contents

Acadia Healthcare Company, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

     Six Months Ended June 30,  
     2013     2012  
     (In thousands)  

Operating activities:

    

Net income

   $ 15,935      $ 9,588   

Adjustments to reconcile net income to net cash provided by continuing operating activities:

    

Depreciation and amortization

     7,834       3,256   

Amortization of debt issuance costs

     1,110       1,224   

Equity-based compensation expense

     2,413       1,170   

Deferred income tax expense

     5,392       4,854   

Loss (income) from discontinued operations, net of taxes

     390       (160

Debt extinguishment costs

     9,350        —     

Other

     14        21   

Change in operating assets and liabilities, net of effect of acquisitions:

    

Accounts receivable

     (10,557     (6,692

Other current assets

     107        (2,214

Other assets

     (807     313   

Accounts payable and other accrued liabilities

     1,038       (2,805

Accrued salaries and benefits

     (4,369     327   

Other liabilities

     458        1,860   
  

 

 

   

 

 

 

Net cash provided by continuing operating activities

     28,308       10,742   

Net cash used in discontinued operating activities

     (358     (196
  

 

 

   

 

 

 

Net cash provided by operating activities

     27,950       10,546   

Investing activities:

    

Cash paid for acquisitions, net of cash acquired

     (121,731     (90,466

Cash paid for capital expenditures

     (29,709     (7,619

Cash paid for real estate acquisitions

     (3,959     (13,886

Other

     (554     1,400   
  

 

 

   

 

 

 

Net cash used in investing activities

     (155,953     (110,571

Financing activities:

    

Borrowings on long-term debt

     150,000       25,000   

Principal payments on long-term debt

     (1,875     (4,000

Repayment of long-term debt

     (52,500     —     

Payment of debt issuance costs

     (4,307     (1,138

Payment of premium on note redemption

     (6,759     —     

Issuance of common stock

     —          139,034   

Proceeds from stock option exercises

     233       187   

Excess tax benefit from equity awards

     1,211       —     
  

 

 

   

 

 

 

Net cash provided by financing activities

     86,003       159,083   
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (42,000     59,058   

Cash and cash equivalents at beginning of the period

     49,399       61,118   
  

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   $ 7,399     $ 120,176   
  

 

 

   

 

 

 

Effect of acquisitions:

    

Assets acquired, excluding cash

   $ 146,062     $ 93,299   

Liabilities assumed

     (12,647     (2,833

Prior year deposits paid for acquisitions

     (11,684     —     
  

 

 

   

 

 

 

Cash paid for acquisitions, net of cash acquired

   $ 121,731      $ 90,466   
  

 

 

   

 

 

 

See accompanying notes.

 

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Table of Contents

Acadia Healthcare Company, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2013

(Unaudited)

 

1. Description of Business and Basis of Presentation

Description of Business

Acadia Healthcare Company, Inc. (the “Company”) develops and operates inpatient psychiatric facilities, residential treatment centers, group homes, substance abuse facilities and facilities providing outpatient behavioral healthcare services to serve the behavioral health and recovery needs of communities throughout the United States. At June 30, 2013, the Company operated 46 behavioral healthcare facilities with over 3,700 licensed beds in 21 states and Puerto Rico.

Basis of Presentation

The business of the Company is conducted through limited liability companies and C-corporations, each of which is a direct or indirect wholly-owned subsidiary of the Company. The Company’s consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, all of which are 100% owned. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation of our financial position and results of operations have been included. The Company’s fiscal year ends on December 31 and interim results are not necessarily indicative of results for a full year or any other interim period. The condensed consolidated balance sheet at December 31, 2012 has been derived from the audited financial statements as of that date. The information contained in these condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the fiscal year ended December 31, 2012 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2013. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Certain reclassifications have been made to prior years to conform to the current year presentation.

 

2. Earnings Per Share

Basic and diluted earnings per share are calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 260, “Earnings Per Share,” based on the weighted-average number of shares outstanding in each period and dilutive stock options, unvested shares and warrants, to the extent such securities have a dilutive effect on earnings per share.

 

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Table of Contents

The following table sets forth the computation of basic and diluted earnings per share for the three and six months ended June 30, 2013 and 2012 (in thousands except per share amounts):

 

     Three Months Ended
June  30,
    Six Months Ended
June  30,
 
     2013     2012     2013     2012  

Numerator:

        

Basic and diluted earnings per share:

        

Income from continuing operations

   $ 12,271     $ 6,101      $ 16,325     $ 9,428   

(Loss) income from discontinued operations

     (74     (192     (390     160   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 12,197     $ 5,909      $ 15,935     $ 9,588   
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominator:

        

Weighted average shares outstanding for basic earnings per share

     50,009       36,507        49,961       34,313   

Effects of dilutive instruments

     273       188        235       201   
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in computing diluted earnings per common share

     50,282       36,695        50,196       34,514   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per share:

        

Income from continuing operations

   $ 0.24     $ 0.17      $ 0.33     $ 0.27   

(Loss) income from discontinued operations

     —          (0.01     (0.01     0.01   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 0.24     $ 0.16      $ 0.32     $ 0.28   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share:

        

Income from continuing operations

   $ 0.24     $ 0.17      $ 0.33     $ 0.27   

(Loss) income from discontinued operations

     —          (0.01     (0.01     0.01   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 0.24     $ 0.16      $ 0.32     $ 0.28   
  

 

 

   

 

 

   

 

 

   

 

 

 

Approximately 0.4 million and 0.6 million shares of common stock issuable upon exercise of outstanding stock option awards were excluded from the calculation of diluted earnings per share for the three months ended June 30, 2013 and 2012, respectively, because their effect would have been anti-dilutive. Approximately 0.7 million and 0.6 million shares of common stock issuable upon exercise of outstanding stock option awards were excluded from the calculation of diluted earnings per share for the six months ended June 30, 2013 and 2012, respectively, because their effect would have been anti-dilutive.

 

3. Acquisitions

The Refuge

On June 7, 2013, the Company signed a definitive agreement for the purchase of The Refuge, a Healing Place, an inpatient psychiatric facility near Ocala, Florida, licensed for 85 beds. The Company expects to complete the acquisition of the facility on August 1, 2013.

UMC Facilities

On May 1, 2013, the Company completed its acquisition of two facilities from United Medical Corporation (the “UMC Facilities”), including San Juan Capestrano Hospital in San Juan, Puerto Rico, which is licensed for 108 beds and has a certificate of need for 100 additional beds, and a 75-bed inpatient behavioral healthcare hospital in Tampa, Florida, which is scheduled to open in the fourth quarter of 2013, for cash consideration of $99.4 million.

Delta Medical Center

On January 31, 2013, the Company completed its acquisition of DMC-Memphis, Inc. d/b/a Delta Medical Center (“Delta”), a facility with 243 licensed beds located in Memphis, Tennessee with the majority of operating beds dedicated to inpatient psychiatric patients, for cash consideration of $23.1 million.

Greenleaf Center

On January 1, 2013, the Company completed its acquisition of the assets of Greenleaf Center (“Greenleaf”), an inpatient psychiatric facility with 50 licensed beds located in Valdosta, Georgia, for cash consideration of $6.3 million.

 

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Table of Contents

2012 Acquisitions

On December 31, 2012, the Company completed the acquisition of Behavioral Centers of America, LLC (“BCA”) and AmiCare Behavioral Centers, LLC (“AmiCare”). On November 11, 2012, the Company purchased 100% of the membership interests of The Pavilion at HealthPark, LLC (“Park Royal”). On August 31, 2012, the Company completed the acquisition of the assets of Timberline Knolls, LLC (“Timberline Knolls”). On March 1, 2012, the Company completed its acquisition of three inpatient psychiatric hospitals (the “Haven Facilities”) from Haven Behavioral Healthcare Holdings, LLC.

Summary of Acquisitions

The Company selectively seeks opportunities to expand and diversify its base of operations by acquiring additional facilities. The majority of the goodwill associated with the acquisitions completed in 2013 and 2012 is deductible for federal income tax purposes. The fair values assigned to certain assets and liabilities assumed by the Company have been estimated on a preliminary basis and are subject to change as new facts and circumstances emerge that were present at the date of acquisition. Specifically, the Company is further assessing the valuation of certain tax matters as well as certain receivables and assumed liabilities of the UMC Facilities, Delta, Greenleaf, BCA, AmiCare, Park Royal and Timberline Knolls and the valuation of real property and intangible assets of the UMC Facilities and Greenleaf. The Company expects to finalize its analyses as the necessary information becomes available to complete the measurement process. Once finalized, the Company will adjust the application of the acquisition method of accounting to reflect its final valuations.

The preliminary fair values of assets acquired and liabilities assumed during the six months ended June 30, 2013 were as follows (in thousands):

 

                                                                          
     UMC Facilities      Other      Total  

Cash

   $ 63       $ 675       $ 738   

Accounts receivable

     5,965         5,788         11,753   

Prepaid expenses and other current assets

     836         3,067         3,903   

Property and equipment

     22,732         25,581         48,313   

Goodwill

     66,732         7,592         74,324   

Intangible assets

     1,505         1,406         2,911   

Other assets

     4,453         405         4,858   
  

 

 

    

 

 

    

 

 

 

Total assets acquired

     102,286         44,514         146,800   

Accounts payable

     1,615         5,899         7,514   

Accrued salaries and benefits

     590         2,198         2,788   

Other accrued expenses

     609         733         1,342   

Other liabilities

     53         950         1,003   
  

 

 

    

 

 

    

 

 

 

Total liabilities assumed

     2,867         9,780         12,647   
  

 

 

    

 

 

    

 

 

 

Net assets acquired

   $ 99,419       $ 34,734       $ 134,153   
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents

The following table presents the preliminary fair values of assets acquired and liabilities assumed during 2012, at the corresponding acquisition dates (except that information for the Haven Facilities reflects final fair values) (in thousands):

 

     BCA      AmiCare      Park Royal      Timberline
Knolls
     Haven
Facilities
     Total  

Cash

   $ 5       $ 1,596       $ 42       $ —         $ 5       $ 1,648   

Accounts receivable

     6,980         3,684         1,450         2,845         4,138         19,097   

Prepaid expenses and other current assets

     1,170         1,973         1,258         126         803         5,330   

Property and equipment

     23,561         23,150         18,291         590         12,723         78,315   

Goodwill

     116,751         85,938         19,320         72,125         74,435         368,569   

Intangible assets

     1,161         1,267         1,035         3,317         1,200         7,980   

Other assets

     315         99         3,141         —           —           3,555   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets acquired

     149,943         117,707         44,537         79,003         93,304         484,494   

Accounts payable

     3,612         504         695         1,928         1,183         7,922   

Accrued salaries and benefits

     2,207         2,508         443         653         1,523         7,334   

Other accrued expenses

     697         637         1,079         869         127         3,409   

Debt

     —           —           25,600         —           —           25,600   

Other liabilities

     475         1,495         —           —           —           1,970   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities assumed

     6,991         5,144         27,817         3,450         2,833         46,235   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net assets acquired

   $ 142,952       $ 112,563       $ 16,720       $ 75,553       $ 90,471       $ 438,259   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

The qualitative factors comprising the goodwill acquired in the UMC Facilities, Delta, Greenleaf, BCA, AmiCare, Park Royal, Timberline Knolls and the Haven Facilities acquisitions include efficiencies derived through synergies expected by the elimination of certain redundant corporate functions and expenses, the ability to leverage call center referrals to a broader provider base, coordination of services provided across the combined network of facilities, achievement of operating efficiencies by benchmarking performance, and applying best practices throughout the combined companies.

Transaction-related expenses were comprised of the following costs for the three and six months ended June 30, 2013 and 2012 (in thousands):

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2013      2012      2013      2012  

Legal, accounting and other fees

   $ 798       $ 641       $ 1,803       $ 1,329   

Severance and contract termination costs

     557         29         1,026         36   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 1,355       $ 670       $ 2,829       $ 1,365   
  

 

 

    

 

 

    

 

 

    

 

 

 

Pro Forma Information

The condensed consolidated statements of operations for the three and six months ended June 30, 2013 include revenue of $79.6 million and $146.9 million, respectively, and income from continuing operations before income taxes of $8.9 million and $14.9 million, respectively, related to acquisitions completed in 2013 and 2012. The condensed consolidated statements of operations for the three and six months ended June 30, 2012 include revenue of $11.0 million and $14.9 million, respectively, and income from continuing operations before income taxes of $2.0 million and $2.7 million, respectively, related to acquisitions completed in 2012.

 

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The following table provides certain pro forma financial information for the Company as if the acquisitions completed in 2013 and 2012 occurred as of January 1, 2012 (in thousands):

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2013      2012      2013      2012  

Revenue

   $ 179,558       $ 159,027       $ 350,859       $ 311,322   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income from continuing operations, before income taxes

   $ 20,848       $ 17,879       $ 28,614       $ 29,225   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

4. Goodwill and Other Intangible Assets

The following table summarizes changes in goodwill during the six months ended June 30, 2013 (in thousands):

 

Balance at January 1, 2013

   $ 557,402   

Increase from 2013 acquisitions

     74,324   

Other

     (977
  

 

 

 

Balance at June 30, 2013

   $ 630,749   
  

 

 

 

Other identifiable intangible assets and related accumulated amortization consists of the following as of June 30, 2013 and December 31, 2012 (in thousands):

 

     Gross Carrying Amount      Accumulated Amortization  
     June 30,
2013
     December 31,
2012
     June 30,
2013
    December 31,
2012
 

Intangible assets subject to amortization:

          

Contract intangible assets

   $ 2,100       $ 2,100       $ (700   $ (490

Non-compete agreements

     1,247         1,247         (880     (684
  

 

 

    

 

 

    

 

 

   

 

 

 
     3,347         3,347         (1,580     (1,174

Intangible assets not subject to amortization:

          

Licenses and accreditations

     7,430         6,969         —          —     

Trade names

     3,000         3,000         —          —     

Certificates of need

     6,641         3,846         —          —     
  

 

 

    

 

 

    

 

 

   

 

 

 
     17,071         13,815         —          —     
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 20,418       $ 17,162       $ (1,580   $ (1,174
  

 

 

    

 

 

    

 

 

   

 

 

 

In connection with the Greenleaf acquisition, the Company acquired a certificate of need with a fair value of $0.6 million. In connection with the Delta acquisition, the Company acquired intangible assets with a fair value of $0.8 million consisting of licenses and accreditations of $0.2 million and a certificate of need of $0.6 million. In connection with the UMC Facilities’ acquisition, the Company acquired intangible assets with a fair value of $1.5 million consisting of licenses and accreditations of $0.2 million and certificates of need of $1.3 million.

In connection with the Haven Facilities acquisition, the Company acquired intangible assets with a fair value of $1.2 million consisting of non-compete agreements of $0.2 million, licenses and accreditations of $0.8 million and a certificate of need of $0.2 million. In connection with the Timberline Knolls acquisition, the Company acquired intangible assets with a fair value of $3.3 million consisting of non-compete agreements of $0.2 million, licenses and accreditations of $0.1 million and a trade name of $3.0 million. In connection with the Park Royal acquisition, the Company acquired intangible assets with a fair value of $1.0 million consisting of a certificate of need of $0.7 million and licenses and accreditations of $0.3 million. In connection with the AmiCare acquisition, the Company acquired intangible assets with a fair value of $1.3 million consisting of non-compete agreements of $0.3 million, licenses and accreditations of $0.8 million and a certificate of need of $0.2 million. In connection with the BCA acquisition, the Company acquired intangible assets with a fair value of $1.2 million consisting of non-compete agreements of $0.1 million, licenses and accreditations of $1.0 million and a certificate of need of $0.1 million. The Company incurred and capitalized $0.3 million in both the six months ended June 30, 2013 and 2012, related to costs to obtain certificates of need.

 

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The non-compete agreements are being amortized on a straight-line basis over the term of the agreements. The Timberline Knolls and BCA non-compete agreements have a one-year term, and the Haven Facilities and AmiCare non-compete agreements have a three-year term. The contract intangible is amortized on a straight-line basis over the estimated five-year term of the related contract.

Amortization expense related to definite-lived intangible assets was $0.2 million and $0.1 million for the three months ended June 30, 2013 and 2012, respectively, and $0.4 million and $0.3 million for the six months ended June 30, 2013 and 2012, respectively. Estimated amortization expense for the years ending December 31, 2013, 2014, 2015, 2016 and 2017 is $0.8 million, $0.6 million, $0.5 million, $0.3 million and $0, respectively. The Company’s licenses and accreditations, trade names and certificate of need intangible assets have indefinite lives and are, therefore, not subject to amortization.

 

5. Property and Equipment

Property and equipment consists of the following as of June 30, 2013 and December 31, 2012 (in thousands):

 

     June 30,
2013
    December 31,
2012
 

Land

   $ 49,727      $ 39,130   

Building and improvements

     220,568        171,769   

Equipment

     29,793        19,773   

Construction in progress

     32,776        19,300   
  

 

 

   

 

 

 
     332,864        249,972   

Less accumulated depreciation

     (20,717     (13,030
  

 

 

   

 

 

 

Property and equipment, net

   $ 312,147      $ 236,942   
  

 

 

   

 

 

 

 

6. Discontinued Operations

GAAP requires that all components of an entity that have been disposed of (by sale, by abandonment or in a distribution to owners) or are held for sale and whose cash flows can be clearly distinguished from the rest of the entity be presented as discontinued operations. In June 2012, the Company disposed of its PsychSolutions facility located in Miami, Florida. The results of operations of this facility have been reported as discontinued operations in the accompanying consolidated financial statements.

A summary of results from discontinued operations is as follows (in thousands):

 

     Three Months Ended
June  30,
    Six Months Ended
June  30,
 
     2013     2012     2013     2012  

Revenue

   $ —        $ 1,795      $ —        $ 3,570   
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from discontinued operations, net of income taxes

   $ (74   $ (192   $ (390   $ 160   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

7. Long-Term Debt

Long-term debt consisted of the following (in thousands):

 

     June 30,
2013
    December 31,
2012
 

Amended and Restated Senior Credit Facility:

    

Senior Secured Term Loans

   $ 298,125      $ 300,000   

Senior Secured Revolving Line of Credit

     —          —     

12.875% Senior Notes due 2018

     96,126        147,757   

6.125% Senior Notes due 2021

     150,000        —     

9.0% and 9.5% Revenue Bonds

     25,330        25,561   
  

 

 

   

 

 

 
     569,581        473,318   

Less: current portion

     (13,305     (7,680
  

 

 

   

 

 

 

Long-term debt

   $ 556,276      $ 465,638   
  

 

 

   

 

 

 

 

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Table of Contents

Amended and Restated Senior Credit Facility

The Company entered into the senior secured credit facility, administered by Bank of America, N.A., on April 1, 2011 (“Senior Secured Credit Facility”). The Senior Secured Credit Facility initially included $135.0 million of term loans and a revolving line of credit of $30.0 million.

On March 1, 2012, the Company amended the Senior Secured Credit Facility to provide an incremental $25.0 million of term loans and increase the revolving line of credit by $45.0 million, from $30.0 million to $75.0 million. The Company used the incremental term loans of $25.0 million and a $5.0 million borrowing under the revolving line of credit to partially fund the acquisition of the Haven Facilities on March 1, 2012.

On December 31, 2012, the Company amended and restated the Senior Secured Credit Facility (“Amended and Restated Senior Credit Facility”), to provide a revolving line of credit of $100.0 million and term loans of $300.0 million, which resulted in debt proceeds of $151.1 million. The Company used $151.1 million of the term loans partially to fund the acquisition of BCA and AmiCare on December 31, 2012.

On March 11, 2013, the Company entered into a Consent and First Amendment (the “First Amendment”) to the Amended and Restated Senior Credit Facility. The First Amendment modified the definition of Consolidated EBITDA to permit the add-back for financial covenant purposes of certain fees and expenses related to the partial redemption of the Company’s 12.875% Senior Notes on March 12, 2013. In addition, the First Amendment amended the definitions of Consolidated Leverage Ratio and Consolidated Senior Leverage Ratio to permit the Company to test indebtedness on a basis net of cash and cash equivalents for financial covenant purposes.

The Company had $99.6 million of availability under the revolving line of credit as of June 30, 2013. Borrowings under the revolving line of credit are subject to customary conditions precedent to borrowing. The amended term loans require quarterly principal payments of $1.9 million for June 30, 2013 to December 31, 2013, $3.8 million for March 31, 2014 to December 31, 2014, $5.6 million for March 31, 2015 to December 31, 2015, $7.5 million for March 31, 2016 to December 31, 2016, and $9.4 million for March 31, 2017 to September 30, 2017, with the remaining principal balance due on the maturity date of December 31, 2017. The Amended and Restated Senior Credit Facility also provides for a $50.0 million incremental credit facility, subject to customary conditions precedent to borrowing.

Borrowings under the Amended and Restated Senior Credit Facility are guaranteed by each of the Company’s domestic subsidiaries (other than Park Royal) and are secured by a lien on substantially all of the assets of the Company and its domestic subsidiaries (other than Park Royal). Borrowings under the Amended and Restated Senior Credit Facility bear interest at a rate tied to the Company’s consolidated leverage ratio (defined as consolidated funded debt to consolidated EBITDA, in each case as defined in the Amended and Restated Senior Credit Facility). The Applicable Rate (as defined in the Amended and Restated Senior Credit Facility) for borrowings under the Amended and Restated Senior Credit Facility was 3.50% for Eurodollar Rate Loans (as defined in the Amended and Restated Senior Credit Facility) and 2.50% for Base Rate Loans (as defined in the Amended and Restated Senior Credit Facility) at June 30, 2013. Eurodollar Rate Loans bear interest at the Applicable Rate plus the Eurodollar Rate (as defined in the Amended and Restated Senior Credit Facility) (based upon the British Bankers Association LIBOR Rate (as defined in the Amended and Restated Senior Credit Facility) prior to commencement of the interest rate period). Base Rate Loans bear interest at the Applicable Rate plus the highest of (i) the federal funds rate plus 1/2 of 1.0%, (ii) the prime rate and (iii) the Eurodollar Rate plus 1.0%. As of June 30, 2013, borrowings under the Senior Secured Credit Facility bore interest at a rate of 3.50%. In addition, the Company is required to pay a commitment fee on undrawn amounts under the revolving line of credit. The Company paid a commitment fee of 0.50% for undrawn amounts for the period from December 31, 2012 through June 30, 2013.

The Amended and Restated Senior Credit Facility requires the Company and its subsidiaries to comply with customary affirmative, negative and financial covenants, including a fixed charge coverage ratio, consolidated leverage ratio and senior secured leverage ratio. The Company may be required to pay all of its indebtedness immediately if it defaults on any of the numerous financial or other restrictive covenants contained in any of its material debt agreements. As of June 30, 2013, the Company was in compliance with such covenants.

12.875% Senior Notes due 2018

On November 1, 2011, the Company issued $150.0 million of 12.875% Senior Notes due 2018 (the “12.875% Senior Notes”) at 98.323% of the aggregate principal amount of $150.0 million, a discount of $2.5 million. The notes bear interest at a rate of 12.875% per annum. The Company pays interest on the notes semi-annually, in arrears, on November 1 and May 1 of each year.

The indenture governing the 12.875% Senior Notes contains covenants that, among other things, limit the Company’s ability to: (i) incur or guarantee additional debt or issue certain preferred stock; (ii) pay dividends on the Company’s equity interests or redeem, repurchase or retire the Company’s equity interests or subordinated debt; (iii) transfer or sell assets; (iv) make certain investments; (v) incur certain liens; (vi) restrict the Company’s subsidiaries’ ability to pay dividends or make other payments to the Company; (vii) engage in certain transactions with the Company’s affiliates; and (viii) merge or consolidate with other companies or transfer all or substantially all of the Company’s assets.

 

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Table of Contents

The 12.875% Senior Notes issued by the Company are guaranteed by each of the Company’s domestic subsidiaries (other than Park Royal), all of which are wholly-owned subsidiaries. The guarantees are full and unconditional and joint and several and the Company, as the parent issuer of the 12.875% Senior Notes, has no independent assets or operations.

On March 12, 2013, the Company redeemed $52.5 million of the 12.875% Senior Notes using a portion of the net proceeds of its December 2012 equity offering pursuant to the provision in the indenture permitting an optional redemption with equity proceeds of up to 35% of the principal amount of 12.875% Senior Notes. The 12.875% Senior Notes were redeemed at a redemption price of 112.875% of the principal amount thereof plus accrued and unpaid interest to, but not including, the redemption date in accordance with the provisions of the indenture governing the 12.875% Senior Notes. As part of the redemption of 35% of the 12.875% Senior Notes, the Company recorded a debt extinguishment charge of $9.4 million, including the premium and write-off of deferred financing costs, which was recorded in debt extinguishment costs in the condensed consolidated statements of operations.

6.125% Senior Notes due 2021

On March 12, 2013, the Company issued $150.0 million of 6.125% Senior Notes due 2021 (the “6.125% Senior Notes”). The 6.125% Senior Notes mature on March 15, 2021 and bear interest at a rate of 6.125% per annum, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2013.

The indenture governing the 6.125% Senior Notes contains covenants that, among other things, limit the Company’s ability and the ability of its restricted subsidiaries to: (i) pay dividends, redeem stock or make other distributions or investments; (ii) incur additional debt or issue certain preferred stock; (iii) transfer or sell assets; (iv) engage in certain transactions with affiliates; (v) create restrictions on dividends or other payments by the restricted subsidiaries; (vi) merge, consolidate or sell substantially all of the Company’s assets; and (vii) create liens on assets.

The 6.125% Senior Notes issued by the Company are guaranteed by each of the Company’s domestic subsidiaries (other than Park Royal), all of which are wholly-owned subsidiaries. The guarantees are full and unconditional and joint and several and the Company, as the parent issuer of the 6.125% Senior Notes, has no independent assets or operations.

The Company may redeem the 6.125% Senior Notes at its option, in whole or part, at any time prior to March 15, 2016, at a price equal to 100% of the principal amount of the 6.125% Senior Notes redeemed, plus accrued and unpaid interest to the redemption date and plus an applicable premium. The Company may redeem the 6.125% Senior Notes, in whole or in part, on or after March 15, 2016, at the redemption prices set forth in the indenture governing the 6.125% Senior Notes plus accrued and unpaid interest to the redemption date. At any time on or before March 15, 2016, the Company may elect to redeem up to 35% of the aggregate principal amount of the 6.125% Senior Notes at a redemption price equal to 106.125% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net proceeds of one or more equity offerings.

9.0% and 9.5% Revenue Bonds

On November 11, 2012, in connection with the acquisition of Park Royal, the Company assumed debt of $23.0 million. The fair market value of the debt assumed was $25.6 million and resulted in a debt premium balance being recorded as of the acquisition date. The debt consisted of $7.5 million and $15.5 million of Lee County (Florida) Industrial Development Authority Healthcare Facilities Revenue Bonds, Series 2010 with stated interest rates of 9.0% and 9.5% (“9.0% and 9.5% Revenue Bonds”), respectively. The 9.0% bonds in the amount of $7.5 million have a maturity date of December 1, 2030 and require yearly principal payments beginning in 2013. The 9.5% bonds in the amount of $15.5 million have a maturity date of December 1, 2040 and require yearly principal payments beginning in 2031. The principal payments establish a bond sinking fund to be held with the trustee and shall be sufficient to redeem the principal amounts of the 9.0% and 9.5% Revenue Bonds on their respective maturity dates. As of June 30, 2013 and December 31, 2012, $2.3 million was recorded within other assets on the balance sheet related to the debt service reserve fund requirements. The yearly principal payments, which establish a bond sinking fund, will increase the debt service reserve fund requirements. The bond premium amount of $2.6 million is amortized as a reduction of interest expense over the life of the revenue bonds using the effective interest method.

 

8. Equity

Preferred Stock

The Company’s amended and restated certificate of incorporation provides that up to 10,000,000 shares of preferred stock may be issued. The Board of Directors has the authority to issue preferred stock in one or more series and to fix for each series the voting powers (full, limited or none), and the designations, preferences and relative participating, optional or other special rights and qualifications, limitations or restrictions on the stock and the number of shares constituting any series and the designations of this series, without any further vote or action by the stockholders.

 

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Table of Contents

Common Stock

The Company’s amended and restated certificate of incorporation provides that up to 90,000,000 shares of common stock may be issued. Holders of the Company’s common stock are entitled to one vote for each share held of record on all matters on which stockholders may vote. There are no preemptive, conversion, redemption or sinking fund provisions applicable to shares of the Company’s common stock. In the event of liquidation, dissolution or winding up, holders of the Company’s common stock are entitled to share ratably in the assets available for distribution, subject to any prior rights of any holders of preferred stock then outstanding. Delaware law prohibits the Company from paying any dividends unless it has capital surplus or net profits available for this purpose. In addition, the Amended and Restated Senior Credit Facility imposes restrictions on the Company’s ability to pay dividends.

Equity Offerings

On December 12, 2012, the Company completed the offering of 7,000,000 shares of common stock and on December 24, 2012, the Company completed the offering of 1,050,000 shares of common stock pursuant to the exercise of the over-allotment option that the Company granted to the underwriters as part of the offering at a price of $22.50 per share. The net proceeds to the Company from the sale of the shares, after deducting the underwriting discount of $7.3 million and additional offering-related expenses of $1.0 million, were $172.8 million. The Company used the net proceeds partially to fund the acquisitions of AmiCare and BCA on December 31, 2012 and to redeem $52.5 million of the Company’s 12.875% Senior Notes.

On May 21, 2012, the Company completed the offering of 9,487,500 shares of common stock (including shares sold pursuant to the exercise of the over-allotment option that the Company granted to the underwriters as part of the offering) at a price of $15.50 per share. The net proceeds to the Company from the sale of the shares, after deducting the underwriting discount of $7.4 million and additional offering-related expenses of $0.7 million, were $139.0 million. The Company used the net offering proceeds to fund the acquisition of Timberline Knolls and acquisitions of certain facilities previously leased.

 

9. Equity-Based Compensation

The Company issues stock-based awards, including stock options, restricted stock and restricted stock units, to certain officers, employees and non-employee directors under the Acadia Healthcare Company, Inc. Incentive Compensation Plan (the “Equity Incentive Plan”). As of June 30, 2013, a maximum of 4,700,000 shares of the Company’s common stock were authorized for issuance as stock options, restricted stock and restricted stock units or other share-based compensation under the Equity Incentive Plan. Stock options may be granted for terms of up to ten years. The Company recognizes expense on all share-based awards on a straight-line basis over the requisite service period of the entire award. Grants to employees generally vest in annual increments of 25% each year, commencing one year after the date of grant. The exercise prices of stock options are equal to the most recent closing price of the Company’s common stock on the date of grant.

The Company recognized $1.8 million and $2.4 million in equity-based compensation expense for the three and six months ended June 30, 2013, respectively, and $0.6 million and $1.2 million in equity-based compensation expense for the three and six months ended June 30, 2012, respectively. On April 30, 2013, certain non-employee directors affiliated with Waud Capital Partners, L.L.C. resigned from the Company’s Board of Directors in connection with the Company’s efforts to comply with NASDAQ’s board independence requirements. The Company recorded incremental equity-based compensation expense of $0.6 million related to the vesting of 20,090 shares of restricted stock that would have been forfeited had the awards not been modified to accelerate vesting.

As of June 30, 2013, there was $15.7 million of unrecognized compensation expense related to unvested options, restricted stock and restricted stock units, which is expected to be recognized over the remaining weighted average vesting period of 1.64 years. The total intrinsic value of options exercised during the three and six months ended June 30, 2013 was $1.7 million and $2.1 million, respectively.

As of June 30, 2013, there were 8,250 warrants outstanding and exercisable with a weighted average exercise price of $14.00. The weighted average grant date fair value of unvested restricted stock awards as of June 30, 2013 was $22.97. The Company recognized a deferred income tax benefit of $0.7 million and $0.9 million for the three and six months ended June 30, 2013, respectively, related to equity-based compensation expense. The actual tax benefit realized from stock options exercised during the three and six months ended June 30, 2013 was $0.6 million and $1.2 million, respectively. No tax benefits were recognized or realized during the three and six months ended June 30, 2012.

 

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Stock option activity during 2012 and 2013 was as follows (aggregate intrinsic value in thousands):

 

     Number
of
Options
    Weighted
Average
Exercise Price
     Weighted
Average
Remaining
Contractual
Term (in years)
     Aggregate
Intrinsic
Value
 

Options outstanding at January 1, 2012

     346,821      $ 7.74         4.50       $ 947   

Options granted

     429,498        16.36         9.22         2,960   

Options exercised

     (124,194     8.01         N/A         N/A   

Options cancelled

     (97,028     14.70         N/A         N/A   
  

 

 

   

 

 

    

 

 

    

 

 

 

Options outstanding at December 31, 2012

     555,097        13.13         7.53         5,632   

Options granted

     372,400        29.34         9.59         1,357   

Options exercised

     (108,538     10.13         N/A         1,886   

Options cancelled

     (13,350     20.39         N/A         N/A   
  

 

 

   

 

 

    

 

 

    

 

 

 

Options outstanding at June 30, 2013

     805,609        20.70         8.43         10,040   
  

 

 

   

 

 

    

 

 

    

 

 

 

Options exercisable at December 31, 2012

     164,062      $ 6.63         3.59       $ 2,707   
  

 

 

   

 

 

    

 

 

    

 

 

 

Options exercisable at June 30, 2013

     126,746      $ 8.83         4.17       $ 3,300   
  

 

 

   

 

 

    

 

 

    

 

 

 

Restricted stock activity during 2012 and 2013 was as follows:

 

     Number of
Shares
    Weighted
Average
Grant-Date
Fair Value
 

Unvested at January 1, 2012

     138,321      $ 9.40   

Granted

     318,170        13.04   

Cancelled

     (42,107     14.25   

Vested

     (96,321     9.40   
  

 

 

   

 

 

 

Unvested at December 31, 2012

     318,063      $ 15.73   

Granted

     249,245        29.64   

Cancelled

     (27,480     17.72   

Vested

     (71,712     16.06   
  

 

 

   

 

 

 

Unvested at June 30, 2013

     468,116      $ 22.97   
  

 

 

   

 

 

 

Restricted stock unit activity during 2012 and 2013 was as follows:

 

     Number of
Shares
    Weighted
Average
Grant-Date
Fair Value
 

Unvested at January 1, 2012

     —        $ —     

Granted

     86,485        16.11   

Cancelled

     (17,857     15.96   

Vested

     —          —     
  

 

 

   

 

 

 

Unvested at December 31, 2012

     68,628      $ 16.11   

Granted

     72,876        29.39   

Cancelled

     —          —     

Vested

     (45,753     16.11   
  

 

 

   

 

 

 

Unvested at June 30, 2013

     95,751      $ 23.05   
  

 

 

   

 

 

 

 

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Table of Contents

The grant-date fair value of the Company’s stock options is estimated using the Black-Scholes option pricing model. The following table summarizes the grant-date fair value of options and the assumptions used to develop the fair value estimates for options granted during the six months ended June 30, 2013 and year ended December 31, 2012:

 

     June 30,
2013
    December 31,
2012
 

Weighted average grant-date fair value of options

   $ 11.13      $ 6.93   

Risk-free interest rate

     0.9     1.2

Expected volatility

     40     42

Expected life (in years)

     5.5        6.3   

The Company’s estimate of expected volatility for stock options is based upon the volatility of guideline companies given the lack of sufficient historical trading experience of the Company’s common stock. The risk-free interest rate is the approximate yield on United States Treasury Strips having a life equal to the expected option life on the date of grant. The expected life is an estimate of the number of years an option will be held before it is exercised.

 

10. Income Taxes

The provision for income taxes for continuing operations for the three and six months ended June 30, 2013 reflects effective tax rates of 39.5% and 39.6%, respectively. The provision for income taxes for continuing operations for the three and six months ended June 30, 2012 reflects effective tax rates of 39.1% and 37.2%, respectively. The increase in the tax rate in 2013 was primarily attributable to changes in state tax rates associated with the Company’s expansions and acquisitions and a change in the federal statutory rate recorded during 2012.

 

11. Fair Value Measurements

The carrying amounts reported for cash and cash equivalents, accounts receivable, other current assets, accounts payable and other current liabilities approximate fair value because of the short-term maturity of these instruments.

The carrying amounts and fair values of the Company’s Amended and Restated Senior Credit Facility, 12.875% Senior Notes, 6.125% Senior Notes, 9.0% and 9.5% Revenue Bonds and contingent consideration liability as of June 30, 2013 and December 31, 2012 were as follows (in thousands):

 

     Carrying Amount      Fair Value  
     June 30,
2013
     December 31,
2012
     June 30,
2013
     December 31,
2012
 

Amended and Restated Senior Credit Facility

   $ 298,125       $ 300,000       $ 298,125       $ 300,000   

12.875% Senior Notes due 2018

   $ 96,126       $ 147,757       $ 117,000       $ 181,500   

6.125% Senior Notes due 2021

   $ 150,000       $ —         $ 150,000       $ —     

9.0% and 9.5% Revenue Bonds

   $ 25,330       $ 25,561       $ 25,330       $ 25,561   

Contingent consideration liability

   $ 6,120       $ 6,120       $ 6,120       $ 6,120   

The Company’s Amended and Restated Senior Credit Facility, 12.875% Senior Notes, 6.125% Senior Notes and 9.0% and 9.5% Revenue Bonds were categorized as Level 2 in the GAAP fair value hierarchy. Fair values were based on trading activity among the Company’s lenders and the average bid and ask price as determined using published rates.

The fair value of the contingent consideration liability at June 30, 2013 was categorized as Level 3 in the GAAP fair value hierarchy. The contingent consideration liability was valued using a probability-weighted discounted cash flow method. This analysis reflected the contractual terms of the purchase agreements and utilized assumptions with regard to future earnings, probabilities of achieving such future earnings and a discount rate. Significant increases with respect to assumptions as to future earnings and probabilities of achieving such future earnings would result in higher fair value measurement while an increase in the discount rate would result in a lower fair value measurement. During the six months ended June 30, 2013, there were no changes to the assumptions used to value the contingent consideration liability.

 

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Table of Contents
12. Commitments and Contingencies

The Company is, from time to time, subject to various claims and legal actions that arise in the ordinary course of the Company’s business, including claims for damages for personal injuries, medical malpractice, breach of contract, tort and employment related claims. In these actions, plaintiffs request a variety of damages, including, in some instances, punitive and other types of damages that may not be covered by insurance. In the opinion of management, the Company is not currently a party to any proceeding that would individually or in the aggregate have a material adverse effect on the Company’s business, financial condition or results of operations.

 

13. Financial Information for the Company and Its Subsidiaries

The Company conducts substantially all of its business through its subsidiaries. Presented below is consolidating financial information for the Company and its subsidiaries as of June 30, 2013 and December 31, 2012, and for the three and six months ended June 30, 2013 and 2012. The information segregates the parent company (Acadia Healthcare Company, Inc.), the combined wholly-owned subsidiary guarantors, the combined non-guarantor subsidiaries and eliminations. All of the subsidiary guarantees are full and unconditional and joint and several.

Acadia Healthcare Company, Inc.

Condensed Consolidating Balance Sheets

June 30, 2013

(In thousands)

 

     Parent     Combined
Subsidiary
Guarantors
     Combined
Subsidiary
Non-
Guarantors
    Consolidating
Adjustments
    Total
Consolidated
Amounts
 

Current assets:

           

Cash and cash equivalents

   $ —        $ 6,121       $ 1,278      $ —        $ 7,399   

Accounts receivable, net

     —          77,583         8,289        —          85,872   

Deferred tax assets

     —          13,722         108        —          13,830   

Other current assets

     —          18,842         1,146        —          19,988   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total current assets

     —          116,268         10,821        —          127,089   

Property and equipment, net

     —          281,473         30,674        —          312,147   

Goodwill

     —          534,273         96,476        —          630,749   

Intangible assets, net

     —          16,848         1,990        —          18,838   

Investment in subsidiaries

     950,577        —           —          (950,577     —     

Other assets

     14,805        8,223         2,321        —          25,349   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 965,382      $ 957,085       $ 142,282      $ (950,577   $ 1,114,172   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Current liabilities:

           

Current portion of long-term debt

   $ 13,125      $ —         $ 180      $ —        $ 13,305   

Accounts payable

     —          26,176         1,896        —          28,072   

Accrued salaries and benefits

     —          27,042         1,089        —          28,131   

Other accrued liabilities

     4,947        11,307         917        —          17,171   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total current liabilities

     18,072        64,525         4,082        —          86,679   

Long-term debt

     498,202        —           58,074        —          556,276   

Deferred tax liabilities – noncurrent

     (1,732     9,666         (5,667     —          2,267   

Other liabilities

     —          18,110         —          —          18,110   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities

     514,542        92,301         56,489        —          663,332   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total equity

     450,840        864,784         85,793        (950,577     450,840   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 965,382      $ 957,085       $ 142,282      $ (950,577   $ 1,114,172   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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Acadia Healthcare Company, Inc.

Condensed Consolidating Balance Sheets

December 31, 2012

(In thousands)

 

     Parent     Combined
Subsidiary
Guarantors
     Combined
Subsidiary
Non-
Guarantors
    Consolidating
Adjustments
    Total
Consolidated
Amounts
 

Current assets:

           

Cash and cash equivalents

   $ —        $ 49,307       $ 92      $ —        $ 49,399   

Accounts receivable, net

     —          61,359         2,511        —          63,870   

Deferred tax assets

     —          11,323         57        —          11,380   

Other current assets

     —          16,074         258        —          16,332   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total current assets

     —          138,063         2,918        —          140,981   

Property and equipment, net

     —          218,716         18,226        —          236,942   

Goodwill

     —          537,296         20,106        —          557,402   

Intangible assets, net

     —          14,953         1,035        —          15,988   

Investment in subsidiaries

     868,165        —           —          (868,165     —     

Other assets

     13,562        16,217         2,321        —          32,100   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 881,727      $ 925,245       $ 44,606      $ (868,165   $ 983,413   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Current liabilities:

           

Current portion of long-term debt

   $ 7,500      $ —         $ 180      $ —        $ 7,680   

Accounts payable

     —          18,048         1,033        —          19,081   

Accrued salaries and benefits

     —          28,285         464        —          28,749   

Other accrued liabilities

     3,259        12,853         229        —          16,341   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total current liabilities

     10,759        59,186         1,906          71,851   

Long-term debt

     440,257        —           25,381        —          465,638   

Deferred tax liabilities – noncurrent

     (1,839     3,793         (956     —          998   

Other liabilities

     —          12,376         —          —          12,376   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities

     449,177        75,355         26,331        —          550,863   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total equity

     432,550        849,890         18,275        (868,165     432,550   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 881,727      $ 925,245       $ 44,606      $ (868,165   $ 983,413   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Acadia Healthcare Company, Inc.

Condensed Consolidating Statement of Operations

Three Months Ended June 30, 2013

(In thousands)

 

     Parent     Combined
Subsidiary
Guarantors
    Combined
Subsidiary
Non-
Guarantors
    Consolidating
Adjustments
    Total
Consolidated
Amounts
 

Revenue before provision for doubtful accounts

   $ —        $ 174,901      $ 8,050      $ —        $ 182,951   

Provision for doubtful accounts

     —          (4,922     (535     —          (5,457
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenue

     —          169,979        7,515        —          177,494   

Salaries, wages and benefits

     1,812        95,609        3,343        —          100,764   

Professional fees

     —          8,787        537        —          9,324   

Supplies

     —          9,139        474        —          9,613   

Rents and leases

     —          2,207        187        —          2,394   

Other operating expenses

     —          18,148        1,948        —          20,096   

Depreciation and amortization

     —          3,881        331        —          4,212   

Interest expense, net

     8,688        —          757        —          9,445   

Transaction-related expenses

     —          1,355        —          —          1,355   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     10,500        139,126        7,577        —          157,203   

(Loss) income from continuing operations before income taxes

     (10,500     30,853        (62     —          20,291   

Equity in earnings of subsidiaries

     18,500        —          —          (18,500     —     

(Benefit from) provision for income taxes

     (4,197     12,316        (99     —          8,020   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     12,197        18,537        37        (18,500     12,271   

Loss from discontinued operations, net of income taxes

     —          (74     —          —          (74
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 12,197      $ 18,463      $ 37      $ (18,500   $ 12,197   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Acadia Healthcare Company, Inc.

Condensed Consolidating Statement of Operations

Three Months Ended June 30, 2012

(In thousands)

 

     Parent     Combined
Subsidiary
Guarantors
    Combined
Subsidiary
Non-
Guarantors
     Consolidating
Adjustments
    Total
Consolidated
Amounts
 

Revenue before provision for doubtful accounts

   $ —        $ 102,752      $ —         $ —        $ 102,752   

Provision for doubtful accounts

     —          (2,222     —           —          (2,222
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Revenue

     —          100,530        —           —          100,530   

Salaries, wages and benefits

     592        57,967        —           —          58,559   

Professional fees

     —          4,658        —           —          4,658   

Supplies

     —          4,872        —           —          4,872   

Rents and leases

     —          2,227        —           —          2,227   

Other operating expenses

     —          10,407        —           —          10,407   

Depreciation and amortization

     —          1,646        —           —          1,646   

Interest expense, net

     7,471        —          —           —          7,471   

Transaction-related expenses

     —          670        —           —          670   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total expenses

     8,063        82,447        —           —          90,510   

(Loss) income from continuing operations before income taxes

     (8,063     18,083        —           —          10,020   

Equity in earnings of subsidiaries

     10,818        —          —           (10,818  

(Benefit from) provision for income taxes

     (3,154     7,073        —           —          3,919   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Income (loss) from continuing operations

     5,909        11,010        —           (10,818     6,101   

Loss from discontinued operations, net of income taxes

     —          (192     —           —          (192
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss)

   $ 5,909      $ 10,818      $ —         $ (10,818   $ 5,909   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

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Table of Contents

Acadia Healthcare Company, Inc.

Condensed Consolidating Statement of Operations

Six Months Ended June 30, 2013

(In thousands)

 

     Parent     Combined
Subsidiary
Guarantors
    Combined
Subsidiary
Non-
Guarantors
    Consolidating
Adjustments
    Total
Consolidated
Amounts
 

Revenue before provision for doubtful accounts

   $ —        $ 336,907      $ 11,749      $ —        $ 348,656   

Provision for doubtful accounts

     —          (9,272     (677     —          (9,949
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenue

     —          327,635        11,072        —          338,707   

Salaries, wages and benefits

     2,413        187,593        5,109        —          195,115   

Professional fees

     —          17,494        844        —          18,338   

Supplies

     —          17,548        663        —          18,211   

Rents and leases

     —          4,478        243        —          4,721   

Other operating expenses

     —          34,026        3,053        —          37,079   

Depreciation and amortization

     —          7,307        527        —          7,834   

Interest expense, net

     17,028        —          1,179        —          18,207   

Debt extinguishment costs

     9,350        —          —          —          9,350   

Transaction-related expenses

     —          2,829        —          —          2,829   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     28,791        271,275        11,618        —          311,684   

(Loss) income from continuing operations before income taxes

     (28,791     56,360        (546     —          27,023   

Equity in earnings of subsidiaries

     33,253        —          —          (33,253     —     

(Benefit from) provision for income taxes

     (11,473     22,463        (292     —          10,698   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     15,935        33,897        (254     (33,253     16,325   

Loss from discontinued operations, net of income taxes

     —          (390     —          —          (390
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 15,935      $ 33,507      $ (254   $ (33,253   $ 15,935   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Acadia Healthcare Company, Inc.

Condensed Consolidating Statement of Operations

Six Months Ended June 30, 2012

(In thousands)

 

     Parent     Combined
Subsidiary
Guarantors
    Combined
Subsidiary
Non-
Guarantors
     Consolidating
Adjustments
    Total
Consolidated
Amounts
 

Revenue before provision for doubtful accounts

   $ —        $ 194,020      $ —         $ —        $ 194,020   

Provision for doubtful accounts

     —          (3,927     —           —          (3,927
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Revenue

     —          190,093        —           —          190,093   

Salaries, wages and benefits

     1,170        112,532        —           —          113,702   

Professional fees

     —          8,831        —           —          8,831   

Supplies

     —          9,317        —           —          9,317   

Rents and leases

     —          4,469        —           —          4,469   

Other operating expenses

     —          19,388        —           —          19,388   

Depreciation and amortization

     —          3,256        —           —          3,256   

Interest expense, net

     14,753        —          —           —          14,753   

Transaction-related expenses

     —          1,365        —           —          1,365   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Total expenses

     15,923        159,158        —           —          175,081   

(Loss) income from continuing operations before income taxes

     (15,923     30,935        —           —          15,012   

Equity in earnings of subsidiaries

     19,588        —          —           (19,588     —     

(Benefit from) provision for income taxes

     (5,923     11,507        —           —          5,584   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Income (loss) from continuing operations

     9,588        19,428        —           (19,588     9,428   

Income from discontinued operations, net of income taxes

     —          160        —           —          160   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss)

   $ 9,588      $ 19,588      $ —         $ (19,588   $ 9,588   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

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Table of Contents

Acadia Healthcare Company, Inc.

Condensed Consolidating Statement of Cash Flows

Six Months Ended June 30, 2013

(In thousands)

 

     Parent     Combined
Subsidiary
Guarantors
    Combined
Subsidiary
Non-
Guarantors
    Consolidating
Adjustments
    Total
Consolidated
Amounts
 

Operating activities:

          

Net income (loss)

   $ 15,935      $ 33,507      $ (254   $ (33,253   $ 15,935   

Adjustments to reconcile net income (loss) to net cash provided by (used in) continuing operating activities:

          

Depreciation and amortization

     —          7,307        527        —          7,834   

Amortization of debt issuance costs

     1,110        —          —          —          1,110   

Equity-based compensation expense

     2,413        —          —          —          2,413   

Deferred income tax expense

     108        5,011        273        —          5,392   

Loss from discontinued operations, net of taxes

     —          390        —          —          390   

Debt extinguishment costs

     9,350        —          —          —          9,350   

Other

     —          14        —          —          14   

Change in operating assets and liabilities, net of effect of acquisitions:

          

Equity in earnings of subsidiaries

     33,253        —          —          (33,253     —     

Accounts receivable

     —          (10,745     188        —          (10,557

Other current assets

     —          219        (112     —          107   

Other assets

     —          (807     —          —          (807

Accounts payable and other accrued liabilities

     —          1,568        (530     —          1,038   

Accrued salaries and benefits

     —          (4,368     (1     —          (4,369

Other liabilities

     —          871        (413     —          458   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) continuing operating activities

     62,169        32,967        (322     (66,506     28,308   

Net cash used in discontinued operating activities

     —          (358     —          —          (358
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     62,169        32,609        (322     (66,506     27,950   

Investing activities:

          

Cash paid for acquisitions, net of cash acquired

     —          (121,731     —          —          (121,731

Cash paid for capital expenditures

     —          (29,592     (117     —          (29,709

Cash paid for real estate acquisitions

     —          (3,959     —          —          (3,959

Other

     —          (554     —          —          (554
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     —          (155,836     (117     —          (155,953

Financing activities:

          

Borrowings on long-term debt

     150,000        —          —          —          150,000   

Principal payments on long-term debt

     (1,875     —          —          —          (1,875

Repayment of long-term debt

     (52,500     —          —          —          (52,500

Payment of debt issuance costs

     (4,307     —          —          —          (4,307

Payment of premium on note redemption

     (6,759     —          —          —          (6,759

Proceeds from stock option exercises

     233        —          —          —          233   

Excess tax benefit from equity awards

     1,211        —          —          —          1,211   

Cash (used in) provided by intercompany activity

     (148,172     80,041        1,625        66,506        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by financing activities

     (62,169     80,041        1,625        66,506        86,003   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     —          (43,186     1,186        —          (42,000

Cash and cash equivalents at beginning of the period

     —          49,307        92        —          49,399   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   $ —        $ 6,121      $ 1,278      $ —        $ 7,399   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Acadia Healthcare Company, Inc.

Condensed Consolidating Statement of Cash Flows

Six Months Ended June 30, 2012

(In thousands)

 

     Parent     Combined
Subsidiary
Guarantors
    Combined
Subsidiary
Non-
Guarantors
     Consolidating
Adjustments
    Total
Consolidated
Amounts
 

Operating activities:

           

Net income (loss)

   $ 9,588      $ 19,588      $ —         $ (19,588   $ 9,588   

Adjustments to reconcile net income (loss) to net cash provided by (used in) continuing operating activities:

           

Depreciation and amortization

     —          3,256        —           —          3,256   

Amortization of debt issuance costs

     1,224        —          —           —          1,224   

Equity-based compensation expense

     1,170        —          —           —          1,170   

Deferred income tax (benefit) expense

     (260     5,114        —           —          4,854   

Income from discontinued operations, net of taxes

     —          (160     —           —          (160

Other

     —          21        —           —          21   

Change in operating assets and liabilities, net of effect of acquisitions:

           

Equity in earnings of subsidiaries

     19,588        —          —           (19,588     —     

Accounts receivable

     —          (6,692     —           —          (6,692

Other current assets

     —          (2,214     —           —          (2,214

Other assets

     —          313        —           —          313   

Accounts payable and other accrued liabilities

     —          (2,805     —           —          (2,805

Accrued salaries and benefits

     —          327        —           —          327   

Other liabilities

     —          1,860        —           —          1,860   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net cash provided by (used in) continuing operating activities

     31,310        18,608        —           (39,176     10,742   

Net cash used in discontinued operating activities

     —          (196     —           —          (196
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     31,310        18,412        —           (39,176     10,546   

Investing activities:

           

Cash paid for acquisitions, net of cash acquired

     —          (90,466     —           —          (90,466

Cash paid for capital expenditures

     —          (7,619     —           —          (7,619

Cash paid for real estate acquisitions

     —          (13,886     —           —          (13,886

Other

     —          1,400        —           —          1,400   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net cash used in investing activities

     —          (110,571     —           —          (110,571

Financing activities:

           

Borrowings on long-term debt

     25,000        —          —           —          25,000   

Principal payments on long-term debt

     (4,000     —          —           —          (4,000

Payment of debt issuance costs

     (1,138     —          —           —          (1,138

Issuance of common stock

     139,034        —          —           —          139,034   

Proceeds from stock option exercises

     187        —          —           —          187   

Cash (used in) provided by intercompany activity

     (190,393     151,217        —           39,176        —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (31,310     151,217        —           39,176        159,083   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net increase in cash and cash equivalents

     —          59,058        —           —          59,058   

Cash and cash equivalents at beginning of the period

     —          61,118        —           —          61,118   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Cash and cash equivalents at end of the period

   $ —        $ 120,176      $ —         $ —        $ 120,176   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

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Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statements that address future results or occurrences. In some cases you can identify forward-looking statements by terminology such as “may,” “might,” “will,” “would,” “should,” “could” or the negative thereof. Generally, the words “anticipate,” “believe,” “continue,” “expect,” “intend,” “estimate,” “project,” “plan” and similar expressions identify forward-looking statements. In particular, statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance contained are forward-looking statements.

We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors, many of which are outside of our control, which could cause our actual results, performance or achievements to differ materially from any results, performance or achievements expressed or implied by such forward-looking statements. These risks, uncertainties and other factors include, but are not limited to:

 

   

negative media coverage relating to patient incidents, which could adversely affect the price of our common stock and result in incremental regulatory burdens and governmental investigations;

 

   

the impact of payments received from the government and third-party payors on our revenues and results of operations;

 

   

our significant indebtedness, our ability to meet our debt obligations, and ability to incur substantially more debt;

 

   

our future cash flow and earnings;

 

   

our restrictive covenants, which may restrict our business and financing activities;

 

   

our ability to make payments on our financing arrangements;

 

   

the impact of the economic and employment conditions in the United States on our business and future results of operations;

 

   

compliance with laws and government regulations;

 

   

the impact of claims brought against our facilities;

 

   

the impact of governmental investigations, regulatory actions and whistleblower lawsuits;

 

   

the impact of recent healthcare reform;

 

   

the impact of our highly competitive industry on patient volumes;

 

   

the impact of the trend by insurance companies and managed care organizations entering into sole source contracts;

 

   

the impact of recruitment and retention of quality psychiatrists and other physicians on our performance;

 

   

the impact of competition for staffing on our labor costs and profitability;

 

   

our dependence on key management personnel, key executives and our local facility management personnel;

 

   

our acquisition strategy, which exposes us to a variety of operational and financial risk;

 

   

difficulties in successfully integrating the operations of acquired facilities or realizing the potential benefits and synergies of these acquisitions;

 

   

the impact of state efforts to regulate the construction or expansion of healthcare facilities on our ability to operate and expand our operations;

 

   

our potential inability to extend leases at expiration;

 

   

the impact of controls designed to reduce inpatient services on our revenues;

 

   

the impact of different interpretations of accounting principles on our results of operations or financial condition;

 

   

the impact of environmental, health and safety laws and regulations, especially in states where we have concentrated operations;

 

   

the impact of an increase in uninsured and underinsured patients or the deterioration in the collectability of the accounts of such patients on our results of operations;

 

   

the risk of a cyber-security incident and any resulting violation of HIPAA, breach of privacy or other negative impact;

 

   

the impact of legislative and regulatory initiatives relating to privacy and security of patient health information and standards for electronic transactions;

 

   

failure to maintain effective internal control over financial reporting;

 

   

the impact of fluctuations in our operating results, quarter to quarter earnings and other factors on the price of our common stock;

 

   

the cessation of our status as a “controlled company”;

 

   

the impact of our sponsor’s rights over certain company matters;

 

   

the impact of the trend for insurance companies and managed care organizations to enter into sole source contracts on our ability to obtain patients; and

 

   

those risks and uncertainties described from time to time in our filings with the Securities and Exchange Commission.

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. These risks and uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. These forward-looking statements are made only as of the date of this Quarterly Report on Form 10-Q. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments.

 

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Table of Contents

Overview

Our business strategy is to acquire and develop inpatient behavioral healthcare facilities and improve our operating results within our inpatient facilities and our other behavioral healthcare operations. We strive to improve the operating results of our facilities by providing high quality services, expanding referral networks and marketing initiatives while meeting the increased demand for behavioral healthcare services through expansion of our current locations as well as developing new services within existing locations. At June 30, 2013, we operated 46 behavioral healthcare facilities with over 3,700 licensed beds in 21 states and Puerto Rico. During the six months ended June 30, 2013, we acquired three facilities with an aggregate of 401 licensed beds and a 75-bed facility under construction, which is expected to open in the fourth quarter of 2013. We also added 152 beds to our existing facilities and opened a 60-bed facility during the six months ended June 30, 2013. We expect to add approximately 300 total beds during 2013 (exclusive of acquisitions).

We are the leading publicly traded pure-play provider of inpatient behavioral healthcare services based upon number of licensed beds in the United States. Management believes that the Company’s recent acquisitions position the Company as a leading platform in a highly fragmented industry under the direction of an experienced management team that has significant industry expertise. Management expects to take advantage of several strategies that are more accessible as a result of our increased size and geographic scale, including continuing a national marketing strategy to attract new patients and referral sources, increasing our volume of out-of-state referrals, providing a broader range of services to new and existing patients and clients and selectively pursuing opportunities to expand our facility and bed count.

Acquisitions

On June 7, 2013, we signed a definitive agreement for the purchase of The Refuge, a Healing Place, an inpatient psychiatric facility near Ocala, Florida, licensed for 85 beds. The Company expects to complete the acquisition of the facility on August 1, 2013.

On May 1, 2013, we completed the acquisition of two facilities from United Medical Corporation, including San Juan Capestrano Hospital in San Juan, Puerto Rico, which is licensed for 108 beds and has a certificate of need for 100 additional beds, and a 75-bed inpatient behavioral healthcare hospital in Tampa, Florida, which is scheduled to open in the fourth quarter of 2013, for cash consideration of $99.4 million.

On January 31, 2013, we completed the acquisition of Delta, a facility with 243 licensed beds located in Memphis, Tennessee with the majority of operating beds dedicated to inpatient psychiatric patients, for cash consideration of $23.1 million.

On January 1, 2013, we completed the acquisition of the assets of Greenleaf, an inpatient psychiatric facility with 50 licensed beds located in Valdosta, Georgia, for cash consideration of $6.3 million.

On December 31, 2012, we completed the acquisition of BCA and AmiCare. On November 11, 2012, we purchased 100% of the membership interests of Park Royal. On August 31, 2012, we completed the acquisition of the assets of Timberline Knolls. On March 1, 2012, we completed the acquisition of the Haven Facilities.

Revenue

Our revenue is primarily derived from services rendered to patients for inpatient psychiatric and substance abuse care, outpatient psychiatric care and adolescent residential treatment. We receive payments from the following sources for services rendered in our facilities: (i) state governments under their respective Medicaid and other programs; (ii) commercial insurers; (iii) the federal government under the Medicare program administered by the Centers for Medicare and Medicaid Services; and (iv) individual patients and clients. Revenue is recorded in the period in which services are provided at established billing rates less contractual adjustments based on amounts reimbursable by Medicare or Medicaid under provisions of cost or prospective reimbursement formulas or amounts due from other third-party payors at contractually determined rates.

 

24


Table of Contents

The following table presents revenue by payor type and as a percentage of revenue before provision for doubtful accounts for the three and six months ended June 30, 2013 and 2012 (in thousands):

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2013     2012     2013     2012  
     Amount     %     Amount     %     Amount     %     Amount     %  

Self-Pay

   $ 4,766        2.6   $ 1,511        1.5   $ 8,450       2.4 %   $ 2,894       1.5 %

Commercial

     46,019        25.2     21,300        20.7     88,394        25.4 %     40,586        20.9 %

Medicare

     38,854        21.2     12,329        12.0     71,301        20.5 %     20,859        10.8 %

Medicaid

     89,197        48.8     64,267        62.5     172,390        49.4 %     123,494        63.6 %

Other

     4,115        2.2     3,345        3.3     8,121        2.3     6,187        3.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenue before provision for doubtful accounts

     182,951        100.0     102,752        100.0     348,656        100.0     194,020        100.0

Provision for doubtful accounts

     (5,457       (2,222       (9,949       (3,927  
  

 

 

     

 

 

     

 

 

     

 

 

   

Revenue

   $ 177,494        $ 100,530        $ 338,707       $ 190,093    
  

 

 

     

 

 

     

 

 

     

 

 

   

The following tables present a summary of our aging of accounts receivable as of June 30, 2013 and December 31, 2012:

June 30, 2013

 

     Current     30-90
Days
    90-150
Days
    >150
Days
    Total  

Self-Pay

     1.2     2.6     2.5     4.0     10.3

Commercial

     15.9     6.7     2.7     1.4     26.7

Medicare

     20.1     4.8     2.1     2.4     29.4

Medicaid

     23.0     5.2     2.2     3.2     33.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     60.2     19.3     9.5     11.0     100.0

December 31, 2012

 

     Current     30-90
Days
    90-150
Days
    >150
Days
    Total  

Self-Pay

     1.3     2.2     2.2     3.5     9.2

Commercial

     16.2     6.5     2.4     3.1     28.2

Medicare

     14.4     2.0     0.6     0.9     17.9

Medicaid

     26.6     10.2     3.8     4.1     44.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     58.5     20.9     9.0     11.6     100.0

 

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Table of Contents

Results of Operations

The following table illustrates our consolidated results of operations from continuing operations for the respective periods shown (dollars in thousands):

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2013     2012     2013     2012  
     Amount     %     Amount     %     Amount     %     Amount     %  

Revenue before provision for doubtful accounts

   $ 182,951       $ 102,752        $ 348,656       $ 194,020     

Provision for doubtful accounts

     (5,457       (2,222       (9,949       (3,927  
  

 

 

     

 

 

     

 

 

     

 

 

   

Revenue

     177,494        100.0     100,530        100.0     338,707        100.0     190,093        100.0

Salaries, wages and benefits

     100,764       56.8     58,559        58.3     195,115       57.6     113,702        59.8

Professional fees

     9,324       5.3     4,658        4.6     18,338       5.4     8,831        4.6

Supplies

     9,613       5.4     4,872        4.8     18,211       5.4     9,317        4.9

Rents and leases

     2,394       1.3     2,227        2.2     4,721       1.4     4,469        2.4

Other operating expenses

     20,096       11.3     10,407        10.4     37,079       10.9     19,388        10.2

Depreciation and amortization

     4,212       2.4     1,646        1.6     7,834       2.3     3,256        1.7

Interest expense

     9,445       5.3     7,471        7.4     18,207       5.4     14,753        7.8

Debt extinguishment costs

     —          —          —          —          9,350       2.8     —          —     

Transaction-related expenses

     1,355       0.8     670        0.7     2,829       0.8     1,365        0.7
  

 

 

     

 

 

     

 

 

     

 

 

   

Total expenses

     157,203       88.6 %     90,510        90.0 %     311,684       92.0     175,081        92.1
  

 

 

     

 

 

     

 

 

     

 

 

   

Income from continuing operations before income taxes

     20,291        11.4 %     10,020        10.0 %     27,023        8.0 %     15,012        7.9

Provision for income taxes

     8,020       4.5 %     3,919        3.9 %     10,698       3.2 %     5,584        2.9
  

 

 

     

 

 

     

 

 

     

 

 

   

Income from continuing operations

   $ 12,271        6.9 %   $ 6,101        6.1 %   $ 16,325        4.8 %   $ 9,428        5.0
  

 

 

     

 

 

     

 

 

     

 

 

   

Three months ended June 30, 2013 compared to the three months ended June 30, 2012

Revenue before provision for doubtful accounts. Revenue before provision for doubtful accounts increased $80.2 million, or 78.1%, to $183.0 million for the three months ended June 30, 2013 from $102.8 million for the three months ended June 30, 2012. The increase related primarily to revenue generated during the three months ended June 30, 2013 from the Haven Facilities acquired on March 1, 2012, Timberline Knolls acquired on August 31, 2012, Park Royal acquired on November 11, 2012, BCA and AmiCare acquired on December 31, 2012, Greenleaf acquired on January 1, 2013, Delta acquired on January 31, 2013 and the UMC Facilities acquired on May 1, 2013 (collectively the “2012 and 2013 Acquisitions”), which were not included in our results for periods prior to the acquisitions. Same-facility revenue before provision for doubtful accounts increased by $10.8 million, or 10.6%, for the three months ended June 30, 2013 compared to the three months ended June 30, 2012, resulting from same-facility growth in patient days of 8.2% and same-facility revenue per day of 2.7%.

Provision for doubtful accounts. The provision for doubtful accounts was $5.5 million for the three months ended June 30, 2013, or 3.0% of revenue before provision for doubtful accounts, compared to $2.2 million for the three months ended June 30, 2012, or 2.2% of revenue before provision for doubtful accounts. The increase as a percentage of revenue related primarily to the changes in our payor mix from the 2012 and 2013 Acquisitions. The same-facility provision for doubtful accounts was $1.9 million for the three months ended June 30, 2013, or 1.7% of revenue before provision for doubtful accounts, compared to $2.2 million for the three months ended June 30, 2012, or 2.2% of revenue before provision for doubtful accounts.

Salaries, wages and benefits. Salaries, wages and benefits (“SWB”) expense was $100.8 million for the three months ended June 30, 2013 compared to $58.6 million for the three months ended June 30, 2012, an increase of $42.2 million. SWB expense included $1.8 million and $0.6 million of equity-based compensation expense for the three months ended June 30, 2013 and 2012, respectively. Excluding equity-based compensation expense, SWB expense was $99.0 million, or 55.7% of revenue, for the three months ended June 30, 2013, compared to $58.0 million, or 57.7% of revenue, for the three months ended June 30, 2012. The $41.0 million increase in SWB expense, excluding equity-based compensation expense, was primarily attributable to the hiring of additional employees in connection with the 2012 and 2013 Acquisitions. The decrease in SWB expense, excluding equity-based compensation expense, as a percentage of revenue was primarily the result of lower SWB expense incurred by Timberline Knolls acquired on August 31, 2012 and BCA acquired on December 31, 2012. Same-facility SWB expense was $58.4 million for the three months ended June 30, 2013, or 52.7% of revenue, compared to $55.1 million for the three months ended June 30, 2012, or 55.2% of revenue.

 

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Table of Contents

Professional fees. Professional fees were $9.3 million for the three months ended June 30, 2013, or 5.3% of revenue, compared to $4.7 million for the three months ended June 30, 2012, or 4.6% of revenue. The increase in professional fees as a percentage of revenue was primarily attributable to higher professional fees incurred by the facilities acquired in our 2012 and 2013 Acquisitions, which had higher professional fees as a percentage of revenue than our existing facilities. Same-facility professional fees were $3.7 million for the three months ended June 30, 2013, or 3.3% of revenue, compared to $3.6 million, for the three months ended June 30, 2012, or 3.6% of revenue.

Supplies. Supplies expense was $9.6 million for the three months ended June 30, 2013, or 5.4% of revenue, compared to $4.9 million for the three months ended June 30, 2012, or 4.8% of revenue. The $4.7 million increase in supplies expense was primarily attributable to the 2012 and 2013 Acquisitions, which had higher supplies expense as a percentage of revenue than our existing facilities. Same-facility supplies expense was $5.2 million for the three months ended June 30, 2013, or 4.7% of revenue, compared to $4.8 million for the three months ended June 30, 2012, or 4.9% of revenue.

Rents and leases. Rents and leases were $2.4 million for the three months ended June 30, 2013, or 1.3% of revenue, compared to $2.2 million for the three months ended June 30, 2012, or 2.2% of revenue. The decrease in rents and leases as a percentage of revenue was primarily attributable to the purchase of six facilities during 2012 that were previously leased. Same-facility rents and leases were $1.4 million for the three months ended June 30, 2013, or 1.3% of revenue, compared to $2.2 million for the three months ended June 30, 2012, or 2.2% of revenue.

Other operating expenses. Other operating expenses consisted primarily of purchased services, utilities, insurance, travel and repairs and maintenance expenses. Other operating expenses were $20.1 million for the three months ended June 30, 2013, or 11.3% of revenue, compared to $10.4 million for the three months ended June 30, 2012, or 10.4% of revenue. The increase in other operating expenses as a percentage of revenue was primarily attributable to higher other operating expenses incurred by the facilities acquired in our 2012 and 2013 Acquisitions, which had higher other operating expenses as a percentage of revenue than our existing facilities. Same-facility other operating expenses were $11.6 million for the three months ended June 30, 2013, or 10.5% of revenue, compared to $9.4 million for the three months ended June 30, 2012, or 9.5% of revenue.

Depreciation and amortization. Depreciation and amortization expense was $4.2 million for the three months ended June 30, 2013, or 2.4% of revenue, compared to $1.6 million for the three months ended June 30, 2012, or 1.6% of revenue. The increase in depreciation and amortization was attributable to depreciation associated with real estate purchases of $53.2 million and capital expenditures during 2012 and real estate acquired as part of the 2012 and 2013 Acquisitions.

Interest expense. Interest expense was $9.4 million for the three months ended June 30, 2013 compared to $7.5 million for the three months ended June 30, 2012. The increase in interest expense was primarily a result of increased borrowings under the Amended and Restated Senior Credit Facility and the issuance of the 6.125% Senior Notes offset by a reduction related to the redemption of $52.5 million of the 12.875% Senior Notes on March 12, 2013.

Transaction-related expenses. Transaction-related expenses were $1.4 million for the three months ended June 30, 2013 compared to $0.7 million for the three months ended June 30, 2012. Transaction-related expenses represent costs incurred in the respective periods, primarily related to the 2012 and 2013 Acquisitions, as summarized below (in thousands):

 

     Three Months Ended
June 30,
 
     2013      2012  

Legal, accounting and other fees

   $ 798       $ 641   

Severance and contract termination costs

     557         29   
  

 

 

    

 

 

 
   $ 1,355       $ 670   
  

 

 

    

 

 

 

Provision for income taxes. For the three months ended June 30, 2013, the provision for income taxes was $8.0 million, reflecting an effective tax rate of 39.5%, compared to $3.9 million, reflecting an effective tax rate of 39.1%, for the same period of 2012. The increase in rate in 2013 was primarily attributable to changes in state tax rates associated with the Company’s expansions and acquisitions and a change in the federal statutory rate during 2012.

Six months ended June 30, 2013 compared to the six months ended June 30, 2012

Revenue before provision for doubtful accounts. Revenue before provision for doubtful accounts increased $154.6 million, or 79.7%, to $348.7 million for the six months ended June 30, 2013 from $194.0 million for the six months ended June 30, 2012. The increase related primarily to revenue generated during the six months ended June 30, 2013 from the 2012 and 2013 Acquisitions, which were not included in our results for periods prior to the acquisitions. Same-facility revenue before provision for doubtful

accounts increased by $19.3 million, or 10.0%, for the six months ended June 30, 2013 compared to the six months ended June 30, 2012, resulting from same-facility growth in patient days of 8.5% and same-facility revenue per day of 1.5%.

 

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Provision for doubtful accounts. The provision for doubtful accounts was $9.9 million for the six months ended June 30, 2013, or 2.9% of revenue before provision for doubtful accounts, compared to $3.9 million for the six months ended June 30, 2012, or 2.0% of revenue before provision for doubtful accounts. The increase as a percentage of revenue related primarily to the changes in our payor mix from the 2012 and 2013 Acquisitions. The same-facility provision for doubtful accounts was $4.2 million for the six months ended June 30, 2013, or 2.0% of revenue before provision for doubtful accounts, compared to $3.9 million for the six months ended June 30, 2012, or 2.0% of revenue before provision for doubtful accounts.

Salaries, wages and benefits. SWB expense was $195.1 million for the six months ended June 30, 2013 compared to $113.7 million for the six months ended June 30, 2012, an increase of $81.4 million. SWB expense included $2.4 million and $1.2 million of equity-based compensation expense for the six months ended June 30, 2013 and 2012, respectively. Excluding equity-based compensation expense, SWB expense was $192.7 million, or 56.9% of revenue, for the six months ended June 30, 2013, compared to $112.5 million, or 59.2% of revenue, for the six months ended June 30, 2012. The $80.2 million increase in SWB expense, excluding equity-based compensation expense, was primarily attributable to the hiring of additional employees in connection with the 2012 and 2013 Acquisitions. The decrease in SWB expense, excluding equity-based compensation expense, as a percentage of revenue was primarily the result of lower SWB expense incurred by the Haven Facilities acquired on March 1, 2012, Timberline Knolls acquired on August 31, 2012 and BCA acquired on December 31, 2012. Same-facility SWB expense was $112.7 million for the six months ended June 30, 2013, or 54.1% of revenue, compared to $106.8 million for the six months ended June 30, 2012, or 56.4% of revenue.

Professional fees. Professional fees were $18.3 million for the six months ended June 30, 2013, or 5.4% of revenue, compared to $8.8 million for the six months ended June 30, 2012, or 4.6% of revenue. The increase in professional fees as a percentage of revenue was primarily attributable to higher professional fees incurred by the facilities acquired in our 2012 and 2013 Acquisitions, which had higher professional fees as a percentage of revenue than our existing facilities. Same-facility professional fees were $7.2 million for the six months ended June 30, 2013, or 3.4% of revenue, compared to $6.9 million, for the six months ended June 30, 2012, or 3.6% of revenue.

Supplies. Supplies expense was $18.2 million for the six months ended June 30, 2013, or 5.4% of revenue, compared to $9.3 million for the six months ended June 30, 2012, or 4.9% of revenue. The $8.9 million increase in supplies expense was primarily attributable to the 2012 and 2013 Acquisitions, which had higher supplies expense as a percentage of revenue than our existing facilities. Same-facility supplies expense was $9.9 million for the six months ended June 30, 2013, or 4.7% of revenue, compared to $9.3 million for the six months ended June 30, 2012, or 4.9% of revenue.

Rents and leases. Rents and leases were $4.7 million for the six months ended June 30, 2013, or 1.4% of revenue, compared to $4.5 million for the six months ended June 30, 2012, or 2.4% of revenue. The decrease in rents and leases as a percentage of revenue was primarily attributable to the purchase of six facilities during 2012 that were previously leased. Same-facility rents and leases were $2.8 million for the six months ended June 30, 2013, or 1.4% of revenue, compared to $4.3 million for the six months ended June 30, 2012, or 2.3% of revenue.

Other operating expenses. Other operating expenses consisted primarily of purchased services, utilities, insurance, travel and repairs and maintenance expenses. Other operating expenses were $37.1 million for the six months ended June 30, 2013, or 10.9% of revenue, compared to $19.4 million for the six months ended June 30, 2012, or 10.2% of revenue. The increase in other operating expenses as a percentage of revenue was primarily attributable to higher other operating expenses incurred by the facilities acquired in our 2012 and 2013 Acquisitions, which had higher other operating expenses as a percentage of revenue than our existing facilities. Same-facility other operating expenses were $20.9 million for the six months ended June 30, 2013, or 10.0% of revenue, compared to $18.5 million for the six months ended June 30, 2012, or 9.7% of revenue.

Depreciation and amortization. Depreciation and amortization expense was $7.8 million for the six months ended June 30, 2013, or 2.3% of revenue, compared to $3.3 million for the six months ended June 30, 2012, or 1.7% of revenue. The increase in depreciation and amortization was attributable to depreciation associated with real estate purchases of $53.2 million and capital expenditures during 2012 and real estate acquired as part of th