UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20172018
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.) |
6100 Tower Circle, Suite 1000
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 ☒ 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 RegulationS-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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” inRule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | ☐ | |||
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 26, 2017,At May 3, 2018, there were 87,817,91388,235,019 shares of the registrant’s common stock outstanding.
ACADIA HEALTHCARE COMPANY, INC.
QUARTERLY REPORT ON FORM10-Q
Item 1. | 1 | |||||
1 | ||||||
2 | ||||||
3 | ||||||
Condensed Consolidated Statement of Equity (Unaudited) for the Three Months Ended March 31, | 4 | |||||
5 | ||||||
Notes to Condensed Consolidated Financial Statements (Unaudited) | ||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
Item 3. | 37 | |||||
Item 4. | 37 | |||||
Item 1. | ||||||
Item 1A. | ||||||
Item 2. | ||||||
Item 6. | ||||||
41 |
PART I – FINANCIAL INFORMATION
Item 1. | Financial Statements |
Acadia Healthcare Company, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 | |||||||||||||
(In thousands, except share and per share amounts) | (In thousands, except share and per share amounts) | |||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 43,087 | $ | 57,063 | $ | 57,808 | $ | 67,290 | ||||||||
Accounts receivable, net of allowance for doubtful accounts of $41,121 and $38,916, respectively | 276,089 | 263,327 | ||||||||||||||
Accounts receivable, net | 325,148 | 296,925 | ||||||||||||||
Other current assets | 104,837 | 107,537 | 120,937 | 107,335 | ||||||||||||
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Total current assets | 424,013 | 427,927 | 503,893 | 471,550 | ||||||||||||
Property and equipment, net | 2,749,538 | 2,703,695 | 3,151,529 | 3,048,130 | ||||||||||||
Goodwill | 2,683,787 | 2,681,188 | 2,779,401 | 2,751,174 | ||||||||||||
Intangible assets, net | 83,718 | 83,310 | 91,036 | 87,348 | ||||||||||||
Deferred tax assets – noncurrent | 3,750 | 3,780 | ||||||||||||||
Derivative instruments | 59,257 | 73,509 | ||||||||||||||
Deferred tax assets | 3,698 | 3,731 | ||||||||||||||
Derivative instrument assets | — | 12,997 | ||||||||||||||
Other assets | 61,727 | 51,317 | 55,172 | 49,572 | ||||||||||||
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Total assets | $ | 6,065,790 | $ | 6,024,726 | $ | 6,584,729 | $ | 6,424,502 | ||||||||
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LIABILITIES AND EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current portion of long-term debt | $ | 34,805 | $ | 34,805 | $ | 33,830 | $ | 34,830 | ||||||||
Accounts payable | 92,673 | 80,034 | 122,430 | 102,299 | ||||||||||||
Accrued salaries and benefits | 102,333 | 105,068 | 104,908 | 99,047 | ||||||||||||
Other accrued liabilities | 106,046 | 122,958 | 128,473 | 141,213 | ||||||||||||
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Total current liabilities | 335,857 | 342,865 | 389,641 | 377,389 | ||||||||||||
Long-term debt | 3,246,577 | 3,253,004 | 3,208,088 | 3,205,058 | ||||||||||||
Deferred tax liabilities – noncurrent | 63,858 | 78,520 | ||||||||||||||
Deferred tax liabilities | 76,930 | 80,333 | ||||||||||||||
Derivative instrument liabilities | 15,160 | — | ||||||||||||||
Other liabilities | 165,995 | 164,859 | 168,633 | 166,434 | ||||||||||||
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Total liabilities | 3,812,287 | 3,839,248 | 3,858,452 | 3,829,214 | ||||||||||||
Redeemable noncontrolling interests | 17,570 | 17,754 | 24,658 | 22,417 | ||||||||||||
Equity: | ||||||||||||||||
Preferred stock, $0.01 par value; 10,000,000 shares authorized, no shares issued | — | — | — | — | ||||||||||||
Common stock, $0.01 par value; 180,000,000 shares authorized; 86,916,624 and 86,688,199 issued and outstanding as of March 31, 2017 and December 31, 2016, respectively | 869 | 867 | ||||||||||||||
Common stock, $0.01 par value; 180,000,000 shares authorized; 87,287,865 and 87,060,114 issued and outstanding at March 31, 2018 and December 31, 2017, respectively | 873 | 871 | ||||||||||||||
Additionalpaid-in capital | 2,499,760 | 2,496,288 | 2,522,745 | 2,517,545 | ||||||||||||
Accumulated other comprehensive loss | (528,392 | ) | (549,570 | ) | (301,391 | ) | (374,118 | ) | ||||||||
Retained earnings | 263,696 | 220,139 | 479,392 | 428,573 | ||||||||||||
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Total equity | 2,235,933 | 2,167,724 | 2,701,619 | 2,572,871 | ||||||||||||
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Total liabilities and equity | $ | 6,065,790 | $ | 6,024,726 | $ | 6,584,729 | $ | 6,424,502 | ||||||||
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See accompanying notes.
Acadia Healthcare Company, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||
(In thousands, except per share amounts) | (In thousands, except per share amounts) | |||||||||||||||
Revenue before provision for doubtful accounts | $ | 689,341 | $ | 627,183 | $ | 742,241 | $ | 689,341 | ||||||||
Provision for doubtful accounts | (10,147 | ) | (10,370 | ) | — | (10,147 | ) | |||||||||
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Revenue | 679,194 | 616,813 | 742,241 | 679,194 | ||||||||||||
Salaries, wages and benefits (including equity-based compensation expense of $7,396 and $6,956, respectively) | 376,421 | 341,028 | ||||||||||||||
Salaries, wages and benefits (including equity-based compensation expense of $6,919 and $7,396, respectively) | 411,528 | 376,421 | ||||||||||||||
Professional fees | 43,409 | 39,991 | 54,018 | 43,409 | ||||||||||||
Supplies | 27,709 | 26,685 | 29,364 | 27,709 | ||||||||||||
Rents and leases | 18,971 | 14,806 | 20,288 | 18,971 | ||||||||||||
Other operating expenses | 83,711 | 70,247 | 88,231 | 83,711 | ||||||||||||
Depreciation and amortization | 33,613 | 27,975 | 39,773 | 33,613 | ||||||||||||
Interest expense, net | 42,757 | 37,714 | 45,243 | 42,757 | ||||||||||||
Gain on foreign currency derivatives | — | (410 | ) | |||||||||||||
Debt extinguishment costs | 940 | — | ||||||||||||||
Transaction-related expenses | 4,119 | 26,298 | 4,768 | 4,119 | ||||||||||||
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Total expenses | 630,710 | 584,334 | 694,153 | 630,710 | ||||||||||||
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Income before income taxes | 48,484 | 32,479 | 48,088 | 48,484 | ||||||||||||
Provision for income taxes | 13,711 | 7,110 | ||||||||||||||
(Benefit from) provision for income taxes | (2,786 | ) | 13,711 | |||||||||||||
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Net income | 34,773 | 25,369 | 50,874 | 34,773 | ||||||||||||
Net loss attributable to noncontrolling interests | 185 | 319 | ||||||||||||||
Net (income) loss attributable to noncontrolling interests | (55 | ) | 185 | |||||||||||||
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Net income attributable to Acadia Healthcare Company, Inc. | $ | 34,958 | $ | 25,688 | $ | 50,819 | $ | 34,958 | ||||||||
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Earnings per share attributable to Acadia Healthcare Company, Inc. stockholders: | ||||||||||||||||
Basic | $ | 0.40 | $ | 0.31 | $ | 0.58 | $ | 0.40 | ||||||||
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Diluted | $ | 0.40 | $ | 0.31 | $ | 0.58 | $ | 0.40 | ||||||||
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Weighted-average shares outstanding: | ||||||||||||||||
Basic | 86,762 | 82,943 | 87,121 | 86,762 | ||||||||||||
Diluted | 86,908 | 83,420 | 87,294 | 86,908 |
See accompanying notes.
Acadia Healthcare Company, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
Three Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
(In thousands) | ||||||||
Net income | $ | 34,773 | $ | 25,369 | ||||
Other comprehensive income (loss): | ||||||||
Foreign currency translation gain (loss) | 27,046 | (48,415 | ) | |||||
Loss on derivative instruments, net of tax of $(5.6) million and $0, respectively | (5,868 | ) | — | |||||
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Other comprehensive income (loss) | 21,178 | (48,415 | ) | |||||
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Comprehensive income (loss) | 55,951 | (23,046 | ) | |||||
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Comprehensive loss attributable to noncontrolling interests | 185 | 319 | ||||||
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Comprehensive income (loss) attributable to Acadia Healthcare Company, Inc. | $ | 56,136 | $ | (22,727 | ) | |||
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Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
(In thousands) | ||||||||
Net income | $ | 50,874 | $ | 34,773 | ||||
Other comprehensive income: | ||||||||
Foreign currency translation gain | 92,780 | 27,046 | ||||||
Loss on derivative instruments, net of tax of $(7.3) million and $(5.6) million, respectively | (20,053 | ) | (5,868 | ) | ||||
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Other comprehensive income | 72,727 | 21,178 | ||||||
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Comprehensive income | 123,601 | 55,951 | ||||||
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Comprehensive (gain) loss attributable to noncontrolling interests | (55 | ) | 185 | |||||
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Comprehensive income attributable to Acadia Healthcare Company, Inc. | $ | 123,546 | $ | 56,136 | ||||
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See accompanying notes.
Acadia Healthcare Company, Inc.
Condensed Consolidated Statement of Equity
(Unaudited)
(In thousands)
Accumulated | Common Stock | Additional Paid-in | Accumulated Other Comprehensive | Retained | ||||||||||||||||||||||||||||||||||||||||||||
Additional | Other | Shares | Amount | Capital | Loss | Earnings | Total | |||||||||||||||||||||||||||||||||||||||||
Common Stock | Paid-in | Comprehensive | Retained | |||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Capital | Loss | Earnings | Total | |||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2016 | 86,688 | $ | 867 | $ | 2,496,288 | $ | (549,570 | ) | $ | 220,139 | $ | 2,167,724 | ||||||||||||||||||||||||||||||||||||
Balance at December 31, 2017 | 87,060 | $ | 871 | $ | 2,517,545 | $ | (374,118 | ) | $ | 428,573 | $ | 2,572,871 | ||||||||||||||||||||||||||||||||||||
Common stock issued under stock incentive plans | 228 | 2 | 203 | — | — | 205 | 228 | 2 | 94 | — | — | 96 | ||||||||||||||||||||||||||||||||||||
Common stock withheld for minimum statutory taxes | — | — | (4,439 | ) | — | — | (4,439 | ) | — | — | (2,126 | ) | — | — | (2,126 | ) | ||||||||||||||||||||||||||||||||
Equity-based compensation expense | — | — | 7,396 | — | — | 7,396 | — | — | 6,919 | — | — | 6,919 | ||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | 21,178 | — | 21,178 | — | — | — | 72,727 | — | 72,727 | ||||||||||||||||||||||||||||||||||||
Cumulative effect of change in accounting principle | — | — | — | — | 8,599 | 8,599 | ||||||||||||||||||||||||||||||||||||||||||
Other | — | — | 312 | — | — | 312 | — | — | 313 | — | — | 313 | ||||||||||||||||||||||||||||||||||||
Net income attributable to Acadia Healthcare Company, Inc. | — | — | — | — | 34,958 | 34,958 | — | — | — | — | 50,819 | 50,819 | ||||||||||||||||||||||||||||||||||||
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Balance at March 31, 2017 | 86,916 | $ | 869 | $ | 2,499,760 | $ | (528,392 | ) | $ | 263,696 | $ | 2,235,933 | ||||||||||||||||||||||||||||||||||||
Balance at March 31, 2018 | 87,288 | $ | 873 | $ | 2,522,745 | $ | (301,391 | ) | $ | 479,392 | $ | 2,701,619 | ||||||||||||||||||||||||||||||||||||
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See accompanying notes.
Acadia Healthcare Company, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
(In thousands) | ||||||||
Operating activities: | ||||||||
Net income | $ | 34,773 | $ | 25,369 | ||||
Adjustments to reconcile net income to net cash provided by continuing operating activities: | ||||||||
Depreciation and amortization | 33,613 | 27,975 | ||||||
Amortization of debt issuance costs | 2,396 | 2,147 | ||||||
Equity-based compensation expense | 7,396 | 6,956 | ||||||
Deferred income tax expense | 2,007 | 9,085 | ||||||
Gain on foreign currency derivatives | — | (410 | ) | |||||
Other | 3,825 | 882 | ||||||
Change in operating assets and liabilities, net of effect of acquisitions: | ||||||||
Accounts receivable, net | (12,459 | ) | (3,749 | ) | ||||
Other current assets | 5,886 | (8,075 | ) | |||||
Other assets | (1,710 | ) | (2,402 | ) | ||||
Accounts payable and other accrued liabilities | (16,993 | ) | 7,498 | |||||
Accrued salaries and benefits | (3,437 | ) | (6,347 | ) | ||||
Other liabilities | 2,142 | 354 | ||||||
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Net cash provided by continuing operating activities | 57,439 | 59,283 | ||||||
Net cash used in discontinued operating activities | (425 | ) | (619 | ) | ||||
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Net cash provided by operating activities | 57,014 | 58,664 | ||||||
Investing activities: | ||||||||
Cash paid for acquisitions, net of cash acquired | — | (580,096 | ) | |||||
Cash paid for capital expenditures | (50,549 | ) | (90,089 | ) | ||||
Cash paid for real estate acquisitions | (2,495 | ) | (14,799 | ) | ||||
Settlement of foreign currency derivatives | — | 745 | ||||||
Other | (5,051 | ) | (1,208 | ) | ||||
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Net cash used in investing activities | (58,095 | ) | (685,447 | ) | ||||
Financing activities: | ||||||||
Borrowings on long-term debt | — | 1,480,000 | ||||||
Borrowings on revolving credit facility | — | 58,000 | ||||||
Principal payments on revolving credit facility | — | (166,000 | ) | |||||
Principal payments on long-term debt | (8,638 | ) | (13,669 | ) | ||||
Repayment of assumed debt | — | (1,348,389 | ) | |||||
Payment of debt issuance costs | — | (34,167 | ) | |||||
Issuance of common stock, net | — | 685,097 | ||||||
Common stock withheld for minimum statutory taxes, net | (4,234 | ) | (6,679 | ) | ||||
Other | (865 | ) | (224 | ) | ||||
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Net cash (used in) provided by financing activities | (13,737 | ) | 653,969 | |||||
Effect of exchange rate changes on cash | 842 | (1,819 | ) | |||||
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Net (decrease) increase in cash and cash equivalents | (13,976 | ) | 25,367 | |||||
Cash and cash equivalents at beginning of the period | 57,063 | 11,215 | ||||||
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Cash and cash equivalents at end of the period | $ | 43,087 | $ | 36,582 | ||||
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(continued on next page)
Acadia Healthcare Company, Inc.
Condensed Consolidated Statements of Cash Flows (continued)
Three Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
(In thousands) | ||||||||
Effect of acquisitions: |
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Assets acquired, excluding cash | $ | — | $ | 2,372,358 | ||||
Liabilities assumed | — | (1,575,380 | ) | |||||
Issuance of common stock in connection with acquisition | — | (216,882 | ) | |||||
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Cash paid for acquisitions, net of cash acquired | $ | — | $ | 580,096 | ||||
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Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
(In thousands) | ||||||||
Operating activities: | ||||||||
Net income | $ | 50,874 | $ | 34,773 | ||||
Adjustments to reconcile net income to net cash provided by continuing operating activities: | ||||||||
Depreciation and amortization | 39,773 | 33,613 | ||||||
Amortization of debt issuance costs | 2,525 | 2,396 | ||||||
Equity-based compensation expense | 6,919 | 7,396 | ||||||
Deferred income tax expense | 1,897 | 2,007 | ||||||
Debt extinguishment costs | 940 | — | ||||||
Other | 1,043 | 3,825 | ||||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable, net | (18,793 | ) | (12,459 | ) | ||||
Other current assets | (13,216 | ) | 5,886 | |||||
Other assets | (1,268 | ) | (1,710 | ) | ||||
Accounts payable and other accrued liabilities | (3,368 | ) | (16,993 | ) | ||||
Accrued salaries and benefits | 4,802 | (3,437 | ) | |||||
Other liabilities | 509 | 2,142 | ||||||
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Net cash provided by continuing operating activities | 72,637 | 57,439 | ||||||
Net cash used in discontinued operating activities | (287 | ) | (425 | ) | ||||
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Net cash provided by operating activities | 72,350 | 57,014 | ||||||
Investing activities: | ||||||||
Cash paid for capital expenditures | (70,327 | ) | (50,549 | ) | ||||
Cash paid for real estate acquisitions | (4,293 | ) | (2,495 | ) | ||||
Other | (4,066 | ) | (5,051 | ) | ||||
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Net cash used in investing activities | (78,686 | ) | (58,095 | ) | ||||
Financing activities: | ||||||||
Principal payments on long-term debt | — | (8,638 | ) | |||||
Common stock withheld for minimum statutory taxes, net | (2,030 | ) | (4,234 | ) | ||||
Other | (2,704 | ) | (865 | ) | ||||
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Net cash used in financing activities | (4,734 | ) | (13,737 | ) | ||||
Effect of exchange rate changes on cash | 1,588 | 842 | ||||||
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Net decrease in cash and cash equivalents | (9,482 | ) | (13,976 | ) | ||||
Cash and cash equivalents at beginning of the period | 67,290 | 57,063 | ||||||
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Cash and cash equivalents at end of the period | $ | 57,808 | $ | 43,087 | ||||
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See accompanying notes.
Acadia Healthcare Company, Inc.
Notes to Condensed Consolidated Financial Statements
March 31, 20172018
(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 (“U.S.”), the United Kingdom (“U.K.”) and Puerto Rico. At March 31, 2017,2018, the Company operated 575584 behavioral healthcare facilities with over 17,200approximately 17,800 beds in 3940 states, the U. K.U.K. and Puerto Rico.
Basis of Presentation
The business of the Company is conducted through limited liability companies, partnerships andC-corporations. The Company’s consolidated financial statements include the accounts of the Company and all subsidiaries controlled by the Company through its’ direct or indirect ownership of majority interests and exclusive rights granted to the Company as the controlling member of an entity. All 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, 20162017 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, 20162017 included in the Company’s Annual Report on Form10-K filed with the Securities and Exchange Commission (the “SEC”) on February 24, 2017.27, 2018. 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. | Recently Issued Accounting Standards |
In JanuaryAugust 2017, the Financial Accounting Standards Board (the “FASB”(“FASB”) issued Accounting Standards Update (“ASU”)2017-12,“Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” (“ASU2017-12”). ASU2017-12 amends the hedge accounting model to enable entities to better portray the economics of their risk management activities in the financial statements and simplifies the application of hedge accounting in certain situations. ASU2017-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. Management is evaluating the impact of ASU2017-12 on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU2017-04,“Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU2017-04”). ASU2017-04 simplifies the measurement of goodwill by eliminating the requirement to calculate the implied fair value of goodwill (step 2 of the current impairment test) to measure the goodwill impairment charge. Instead, entities will record impairment charges based on the excess of a reporting unit’s carrying amount over its fair value. ASU2017-04 is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. Management is evaluating the impact ofThe Company has elected to early adopt ASU2017-04 on January 1, 2018, and management does not anticipate a significant impact on the Company’s consolidated financial statements.
In MarchAugust 2016, the FASB issued ASU2016-09,2016-15,“Improvements to Employee Share-Based Payment Accounting”Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU2016-09”2016-15”). ASU2016-092016-15 includes multiple provisions intendedaddresses treatment of how certain cash receipts and cash payments are presented and classified in the statement of cash flows to simplify various aspects ofreduce the accounting for share-based payments.diversity in practice. ASU2016-092016-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016.2017. The Company adopted ASU2016-092016-15 as ofon January 1, 2017 as described in Note 10 – Income Taxes.2018. There is no significant impact on the Company’s consolidated financial statements.
In March 2016, the FASB issued ASU2016-02,“Leases” (“ASU2016-02”). ASU2016-02’s core principle is to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information. ASU2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Additionally, ASU2016-02 would permit both public and nonpublic organizations to adopt the new standard early. Management believes the primary effect of adopting the new standard will be to recordright-of-use assets and obligations for current operating leases.
In March 2018, the FASB approved an alternative transition method to the modified retrospective approach. The alternative transition method eliminates the requirement to restate prior financial statements and requires the cumulative effect of the retrospective application to be recorded as an adjustment to the opening balance of retained earnings at the date of adoption. Management is currently evaluating which transition method the Company will adopt on January 1, 2019 and the impact ASU2016-02 will have on the Company’s consolidated financial statements, internal controls, policies and procedures.In January 2016, the FASB issued ASU2016-01,“Financial Instruments-Overall (Subtopic825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU2016-01”). ASU2016-01 amends how entities recognize, measure, present and disclose certain financial assets and financial liabilities. It requires entities to measure equity investments (except for those accounted for under equity method) at fair value and recognize any changes in fair value in net income. ASU2016-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company adopted ASU2016-01 on January 1, 2018. There is no significant impact on the Company’s consolidated financial statements.
In May 2014, the FASB and the International Accounting Standards Board issued ASU2014-09,“Revenue from Contracts with Customers (Topic 606)” (“ASU2014-09”). ASU2014-09’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU2014-09 requires companies to exercise more judgment and recognize revenue in accordance with the standard’s core principle by applying the following five steps:
Step 1: Identify the contract with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
ASU2014-09 also includes a cohesive set of quantitative and qualitative disclosure requirements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from the entity’s contracts with customers.
ASU2014-09is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Additionally,The Company adopted ASU2014-09 would permit both public and nonpublic organizations to adopt the new revenue standard early, but not before the original public organization effective date (that is, annual periods beginning after December 15, 2016). on January 1, 2018 as described in Note 3 – Revenue.
3. | Revenue |
ASU2014-09 requires retrospective applicationcompanies to exercise more judgment and recognize revenue using either a full retrospective adoption or afive-step process. The Company adopted ASU2014-09 using the modified retrospective adoption approach. Full retrospective adoption requires entitiesmethod for all contracts effective January 1, 2018 and is using a portfolio approach to apply the standard as if it had been in effect since the inception of all itsgroup contracts with customers presented in the financial statements.similar characteristics and analyze historical cash collections trends. Modified retrospective adoption requires entities to apply the standard retrospectively to the most current period presented in the financial statements, requiring the cumulative effect of the retrospective application as an adjustment to the opening balance of retained earnings at the date of adoption. Management anticipates thatinitial application. Prior periods have not been adjusted. No cumulative-effect adjustment in retained earnings was recorded as the Company will adoptadoption of ASU2014-09 did not significantly impact the full retrospective method and does not plan to early adopt ASU2014-09.Company’s reported historical revenue.
Additionally, the Company anticipates that, asAs a result of certain changes required by ASU2014-09, the majority of itsthe Company’s provision for doubtful accounts will beare recorded as a direct reduction to revenue instead of being presented as a separate line item. Management is continuing to evaluateitem on the impactcondensed consolidated statements of income. The adoption of ASU2014-09 has no impact on the Company’s accounts receivable as it was historically recorded net of allowance for doubtful accounts and contractual adjustments, and the Company has eliminated the presentation of allowance for doubtful accounts on the condensed consolidated financial statements.balance sheets. The adoption of ASU2014-09 did not have a significant impact on the Company’s condensed consolidated statements of income. The impact of adopting ASU2014-09 on our condensed consolidated statements of income for the three months ended March 31, 2018 was as follows:
As Reported | Prior to Adopting ASU2014-09 | |||||||
Revenue before provision for doubtful accounts | $ | 742,241 | $ | 750,501 | ||||
Provision for doubtful accounts | — | (8,260 | ) | |||||
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Revenue | $ | 742,241 | $ | 742,241 | ||||
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The Company evaluated the nature, amount, timing and uncertainty of revenue and cash flows using the five-step process provided within ASU2014-09.
Revenue is primarily derived from services rendered to patients for inpatient psychiatric and substance abuse care, outpatient psychiatric care and adolescent residential treatment. The services provided by the Company have no fixed duration and can be terminated by the patient or the facility at any time, and therefore, each treatment is its own stand-alone contract.
Services ordered by a healthcare provider in an episode of care are not separately identifiable and therefore have been combined into a single performance obligation for each contract. The Company recognizes revenue as its performance obligations are completed. The performance obligation is satisfied over time as the customer simultaneously receives and consumes the benefits of
the healthcare services provided. For inpatient services, the Company recognizes revenue equally over the patient stay on a daily basis. For outpatient services, the Company recognizes revenue equally over the number of treatments provided in a single episode of care. Typically, patients and third-party payors are billed within several days of the service being performed or the patient being discharged, and payments are due based on contract terms.
As our performance obligations relate to contracts with a duration of one year or less, the Company elected the optional exemption in ASC606-10-50-14(a). Therefore, the Company is not required to disclose the transaction price for the remaining performance obligations at the end of the reporting period or when the Company expects to recognize the revenue. The Company has minimal unsatisfied performance obligations at the end of the reporting period as our patients typically are under no obligation to remain admitted in our facilities.
The Company disaggregates revenue from contracts with customers by service type and by payor within each of the Company’s segments.
U.S. Facilities
The Company’s facilities in the United States (the “U.S. Facilities”) and services can generally be classified into the following categories: acute inpatient psychiatric facilities; specialty treatment facilities; residential treatment centers; and outpatient community-based services.
Acute inpatient psychiatric facilities. Acute inpatient psychiatric facilities provide a high level of care in order to stabilize patients that are either a threat to themselves or to others. The acute setting provides24-hour observation, daily intervention and monitoring by psychiatrists.
Specialty treatment facilities. Specialty treatment facilities include residential recovery facilities, eating disorder facilities and comprehensive treatment centers. The Company provides a comprehensive continuum of care for adults with addictive disorders andco-occurring mental disorders. Inpatient, including detoxification and rehabilitation, partial hospitalization and outpatient treatment programs give patients access to the least restrictive level of care.
Residential treatment centers. Residential treatment centers treat patients with behavioral disorders in anon-hospital setting, including outdoor programs. The facilities balance therapy activities with social, academic and other activities.
Outpatient community-based services. Outpatient community-based programs are designed to provide therapeutic treatment to children and adolescents who have a clinically-defined emotional, psychiatric or chemical dependency disorder while enabling the youth to remain at home and within their community.
The table below presents total U.S. revenue attributed to each category (in thousands):
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Acute inpatient psychiatric facilities | $ | 195,891 | $ | 184,687 | ||||
Specialty treatment facilities | 184,535 | 175,197 | ||||||
Residential treatment centers | 71,557 | 69,287 | ||||||
Outpatient community-based services | 10,422 | 11,052 | ||||||
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Revenue | $ | 462,405 | $ | 440,223 | ||||
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The Company receives payments from the following sources for services rendered in our U.S. 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 (“CMS”); and (iv) individual patients and clients. As the period between the time of service and time of payment is typically one year or less, the Company elected the practical expedient under ASC606-10-32-18 and did not adjust for the effects of a significant financing component.
The Company determines the transaction price based on established billing rates reduced by contractual adjustments provided to third-party payors, discounts provided to uninsured patients and implicit price concessions. Contractual adjustments and discounts are based on contractual agreements, discount policies and historical experience. Implicit price concessions are based on historical collection experience. Most of our U.S. Facilities have contracts containing variable consideration. However, it is unlikely a significant reversal of revenue will occur when the uncertainty is resolved, and therefore, the Company has included the variable consideration in the estimated transaction price. Subsequent changes resulting from a patient’s ability to pay are recorded as bad debt expense, which is included as a component of other operating expenses in the condensed consolidating statements of income. Bad debt expense for the three months ended March 31, 2018 was not significant.
The Company derives a significant portion of its revenue from Medicare, Medicaid and other payors that receive discounts from established billing rates. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated are complex, subject to interpretation and adjustment, and may include multiple reimbursement mechanisms for different types of services provided in the Company’s inpatient facilities and cost settlement provisions. Management estimates the transaction price on a payor-specific basis given its interpretation of the applicable regulations or contract terms. The services authorized and provided and related reimbursement are often subject to interpretation that could result in payments that differ from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management.
Settlements under cost reimbursement agreements with third-party payors are estimated and recorded in the period in which the related services are rendered and are adjusted in future periods as final settlements are determined. Final determination of amounts earned under the Medicare and Medicaid programs often occurs in subsequent years because of audits by such programs, rights of appeal and the application of numerous technical provisions. In the opinion of management, adequate provision has been made for any adjustments and final settlements. However, there can be no assurance that any such adjustments and final settlements will not have a material effect on the Company’s financial condition or results of operations. The Company’s cost report receivables were $11.8 million and $9.0 million at March 31, 2018 and December 31, 2017, respectively, and were included in other current assets in the condensed consolidated balance sheets. Management believes that these receivables are properly stated and are not likely to be settled for a significantly different amount. The net adjustments to estimated cost report settlements were not significant for the three months ended March 31, 2018 and 2017.
Management believes that we comply in all material respects with applicable laws and regulations and is not aware of any material pending or threatened investigations involving allegations of wrongdoing. Compliance with such laws and regulations can be subject to future government review and interpretation, as well as significant regulatory action including fines, penalties and exclusion from the Medicare and Medicaid programs.
The Company provides care without charge to patients who are financially unable to pay for the healthcare services they receive based on Company policies and federal and state poverty thresholds. Such amounts determined to qualify as charity care are not reported as revenue. The cost of providing charity care services were $2.0 million and $1.9 million for the three months ended March 31, 2018 and 2017, respectively. The estimated cost of charity care services was determined using a ratio of cost to gross charges determined from our most recently filed Medicare cost reports and applying that ratio to the gross charges associated with providing charity care for the period.
The following table presents revenue generated by each payor type (in thousands):
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Commercial | $ | 137,619 | $ | 139,455 | ||||
Medicare | 67,271 | 67,840 | ||||||
Medicaid | 213,279 | 190,834 | ||||||
Self-Pay | 36,907 | 43,682 | ||||||
Other | 7,329 | 8,553 | ||||||
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Revenue before provision for doubtful accounts | 462,405 | 450,364 | ||||||
Provision for doubtful accounts | — | (10,141 | ) | |||||
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Revenue | $ | 462,405 | $ | 440,223 | ||||
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U.K. Facilities
The Company’s facilities located in the United Kingdom (the “U.K. Facilities”) and services can generally be classified into the following categories: healthcare facilities, education and children’s services, adult care facilities and elderly care facilities.
Healthcare facilities. Healthcare facilities provide psychiatric treatment and nursing for sufferers of mental disorders, including for patients whose risk of harm to others and risk of escape from hospitals cannot be managed safely within other mental health settings. In order to manage the risks involved with treating patients, the facility is managed through the application of a range of security measures depending on the level of dependency and risk exhibited by the patient.
Education and children’s services.Education and children’s services provide specialist education for children and young people with special educational needs, including autism, Asperger’s Syndrome, social, emotional and mental health, and specific learning difficulties, such as dyslexia. The division also offers standalone children’s homes for children that require52-week residential care to support complex and challenging behavior and fostering services.
Adult care facilities. Adult care focuses on care of individuals with a variety of learning difficulties, mental health illnesses and adult autism spectrum disorders. It also includes long-term, short-term and respite nursing care to high-dependency elderly individuals who are physically frail or suffering from dementia. Care is provided in a number of settings, including in residential care homes and through supported living.
The table below presents total U.K. revenue attributed to each category (in thousands):
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Healthcare facilities | $ | 154,800 | $ | 132,098 | ||||
Education and Children’s Services | 49,333 | 39,697 | ||||||
Adult Care facilities | 75,703 | 67,176 | ||||||
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Revenue | $ | 279,836 | $ | 238,971 | ||||
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The Company receives payments from approximately 500 public funded sources in the U.K. (including the National Health Service (“NHS”), Clinical Commissioning Groups (“CCGs”) and local authorities in England, Scotland and Wales) and individual patients and clients. The Company determines the transaction price based on established billing rates by payor and is reduced by implicit price concessions. Implicit price concessions are insignificant in our U.K. Facilities. There is no significant variable consideration in our U.K. Facilities’ contracts. As the period between the time of service and time of payment is typically one year or less, the Company elected the practical expedient under ASC606-10-32-18 and did not adjust for the effects of a significant financing component.
The following table presents revenue generated by each payor type (in thousands):
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
U.K. public funded sources | $ | 253,294 | $ | 215,465 | ||||
Self-Pay | 25,068 | 22,201 | ||||||
Other | 1,474 | 1,311 | ||||||
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Revenue before provision for doubtful accounts | 279,836 | 238,977 | ||||||
Provision for doubtful accounts | — | (6 | ) | |||||
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Revenue | $ | 279,836 | $ | 238,971 | ||||
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The Company’s contract liabilities primarily consist of unearned revenue in our U.K. Facilities. A summary of the activity in unearned revenue in the U.K. Facilities is as follows (in thousands):
Balance at December 31, 2017 | $ | 30,812 | ||
Payments received | 45,349 | |||
Revenue recognized | (38,908 | ) | ||
Foreign currency translation gain | 1,155 | |||
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Balance at March 31, 2018 | $ | 38,408 | ||
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Earnings Per Share |
Basic and diluted earnings per share are calculated in accordance with the FASB 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.
The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 20172018 and 20162017 (in thousands, except per share amounts):
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||
Numerator: | ||||||||||||||||
Net income attributable to Acadia Healthcare Company, Inc. | $ | 34,958 | $ | 25,688 | $ | 50,819 | $ | 34,958 | ||||||||
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Denominator: | ||||||||||||||||
Weighted average shares outstanding for basic earnings per share | 86,762 | 82,943 | 87,121 | 86,762 | ||||||||||||
Effect of dilutive instruments | 146 | 477 | 173 | 146 | ||||||||||||
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Shares used in computing diluted earnings per common share | 86,908 | 83,420 | 87,294 | 86,908 | ||||||||||||
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Earnings per share attributable to Acadia Healthcare Company, Inc. stockholders: | ||||||||||||||||
Basic | $ | 0.40 | $ | 0.31 | $ | 0.58 | $ | 0.40 | ||||||||
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Diluted | $ | 0.40 | $ | 0.31 | $ | 0.58 | $ | 0.40 | ||||||||
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Approximately 1.22.0 million and 0.81.2 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 March 31, 20172018 and 2016,2017, respectively, because their effect would have been anti-dilutive.
2016 U.S. Acquisitions
On June 1, 2016, the Company completed the acquisition of Pocono Mountain Recovery Center (“Pocono Mountain”), an inpatient psychiatric facility with 108 beds located in Henryville, Pennsylvania, for cash consideration of approximately $25.4 million. In addition, the Company may be required to make a cash payment of up to $5.0 million under anearn-out agreement, contingent upon achievement by Pocono Mountain of certain operating performance targets for theone-year period ending May 31, 2017.
On May 1, 2016, the Company completed the acquisition of TrustPoint Hospital (“TrustPoint”), an inpatient psychiatric facility with 100 beds located in Murfreesboro, Tennessee, for cash consideration of approximately $62.7 million.
On April 1, 2016, the Company completed the acquisition of Serenity Knolls (“Serenity Knolls”), an inpatient psychiatric facility with 30 beds located in Forest Knolls, California, for cash consideration of approximately $9.7 million.
Priory
On February 16, 2016, the Company completed the acquisition of Priory Group No. 1 Limited (“Priory”) for a total purchase price of approximately $2.2 billion, including cash consideration of approximately $1.9 billion and the issuance of 4,033,561 shares of its common stock to shareholders of Priory. Priory was the leading independent provider of behavioral healthcare services in the U.K. operating 324 facilities with approximately 7,100 beds at the acquisition date.
The Competition and Markets Authority (the “CMA”) in the U.K. reviewed the Company’s acquisition of Priory. On July 14, 2016, the CMA announced that the Company’s acquisition of Priory was referred for a phase 2 investigation unless the Company offered acceptable undertakings to address the CMA’s competition concerns relating to the provision of behavioral healthcare services in certain markets. On July 28, 2016, the CMA announced that the Company had offered undertakings to address the CMA’s concerns and that, in lieu of a phase 2 investigation, the CMA would consider the Company’s undertakings.
On October 18, 2016, the Company signed a definitive agreement with BC Partners (“BC Partners”) for the sale of 21 existing U.K. behavioral health facilities and one de novo behavioral health facility with an aggregate of approximately 1,000 beds (collectively, the “U.K. Disposal Group”). On November 10, 2016, the CMA accepted the Company’s undertakings to sell the U.K. Disposal Group to BC Partners and confirmed that the divestiture satisfied the CMA’s concerns about the impact of the Company’s acquisition of Priory on competition for the provision of behavioral healthcare services in certain markets in the U.K. As a result of the CMA’s acceptance of the undertakings, the Company’s acquisition of Priory was not referred for a phase 2 investigation. On November 30, 2016, the Company completed the sale of the U.K. Disposal Group to BC Partners for £320 million cash (the “U.K. Divestiture”).
Summary of Acquisitions
The Company selectively seeks opportunities to expand and diversify its base of operations by acquiring additional facilities. Approximately $31.5 million of the goodwill associated with domestic acquisitions completed in 2016 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 real property and intangible assets and certain tax matters as well as certain receivables and assumed liabilities of Pocono Mountain, TrustPoint and Serenity Knolls.
The preliminary fair values of assets acquired and liabilities assumed, at the corresponding acquisition dates, during the year ended December 31, 2016 in connection with the Priory, Serenity Knolls. TrustPoint and Pocono Mountain acquisitions (collectively the “2016 Acquisitions”) were as follows (in thousands):
Priory | Other | Total | ||||||||||
Cash | $ | 10,253 | $ | 2,488 | $ | 12,741 | ||||||
Accounts receivable | 57,832 | 4,076 | 61,908 | |||||||||
Prepaid expenses and other current assets | 7,921 | 143 | 8,064 | |||||||||
Property and equipment | 1,598,156 | 35,400 | 1,633,556 | |||||||||
Goodwill | 679,265 | 95,953 | 775,218 | |||||||||
Intangible assets | 23,200 | 338 | 23,538 | |||||||||
Other assets | 8,862 | 47 | 8,909 | |||||||||
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Total assets acquired | 2,385,489 | 138,445 | 2,523,934 | |||||||||
Accounts payable | 24,203 | 805 | 25,008 | |||||||||
Accrued salaries and benefits | 39,588 | 902 | 40,490 | |||||||||
Other accrued expenses | 48,305 | 380 | 48,685 | |||||||||
Deferred tax liabilities – noncurrent | 56,462 | 269 | 56,731 | |||||||||
Debt | 1,348,389 | — | 1,348,389 | |||||||||
Other liabilities | 61,311 | 30,242 | 91,553 | |||||||||
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Total liabilities assumed | 1,578,258 | 32,598 | 1,610,856 | |||||||||
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Net assets acquired | $ | 807,231 | $ | 105,847 | $ | 913,078 | ||||||
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Other
The qualitative factors comprising the goodwill acquired in the 2016 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 comprised the following costs for the three months ended March 31, 2017 and 2016 (in thousands):
Three Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
Legal, accounting and other costs | $ | 2,455 | $ | 11,448 | ||||
Severance and contract termination costs | 1,664 | — | ||||||
Advisory and financing commitment fees | — | 14,850 | ||||||
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$ | 4,119 | $ | 26,298 | |||||
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5. | Other Intangible Assets |
Other identifiable intangible assets and related accumulated amortization consisted of the following as ofat March 31, 20172018 and December 31, 20162017 (in thousands):
Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||||||||||||||||||||
March 31, 2017 | December 31, 2016 | March 31, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 | March 31, 2018 | December 31, 2017 | |||||||||||||||||||||||||
Intangible assets subject to amortization: | ||||||||||||||||||||||||||||||||
Contract intangible assets | $ | 2,100 | $ | 2,100 | $ | (2,100 | ) | $ | (2,100 | ) | $ | 2,100 | $ | 2,100 | $ | (2,100 | ) | $ | (2,100 | ) | ||||||||||||
Non-compete agreements | 1,147 | 1,147 | (1,147 | ) | (1,147 | ) | 1,147 | 1,147 | (1,147 | ) | (1,147 | ) | ||||||||||||||||||||
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3,247 | 3,247 | (3,247 | ) | (3,247 | ) | 3,247 | 3,247 | (3,247 | ) | (3,247 | ) | |||||||||||||||||||||
Intangible assets not subject to amortization: | ||||||||||||||||||||||||||||||||
Licenses and accreditations | 12,233 | 12,228 | — | — | 12,798 | 12,266 | — | — | ||||||||||||||||||||||||
Trade names | 57,780 | 57,538 | — | — | 61,413 | 60,586 | — | — | ||||||||||||||||||||||||
Certificates of need | 13,705 | 13,544 | — | — | 16,825 | 14,496 | — | — | ||||||||||||||||||||||||
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83,718 | 83,310 | — | — | 91,036 | 87,348 | — | — | |||||||||||||||||||||||||
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Total | $ | 86,965 | $ | 86,557 | $ | (3,247 | ) | $ | (3,247 | ) | $ | 94,283 | $ | 90,595 | $ | (3,247 | ) | $ | (3,247 | ) | ||||||||||||
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Amortization expense related to definite-lived intangible assets was $0.1 million for the three months ended March 31, 2016. As of December 31, 2016, allAll the Company’s defined-lived intangible assets are fully amortized. The Company’s licenses and accreditations, trade names and certificate of need intangible assets have indefinite lives and are, therefore, not subject to amortization.
6. | Property and Equipment |
Property and equipment consists of the following as ofat March 31, 20172018 and December 31, 20162017 (in thousands):
March 31, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 | |||||||||||||
Land | $ | 417,369 | $ | 411,331 | $ | 466,913 | $ | 450,342 | ||||||||
Building and improvements | 2,097,801 | 2,031,819 | 2,475,543 | 2,370,918 | ||||||||||||
Equipment | 335,944 | 318,020 | 440,189 | 400,596 | ||||||||||||
Construction in progress | 146,508 | 157,114 | 165,720 | 173,693 | ||||||||||||
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2,997,622 | 2,918,284 | 3,548,365 | 3,395,549 | |||||||||||||
Less accumulated depreciation | (248,084 | ) | (214,589 | ) | (396,836 | ) | (347,419 | ) | ||||||||
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Property and equipment, net | $ | 2,749,538 | $ | 2,703,695 | $ | 3,151,529 | $ | 3,048,130 | ||||||||
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7. | Long-Term Debt |
Long-term debt consisted of the following (in thousands):
March 31, 2017 | December 31, 2016 | |||||||
Amended and Restated Senior Credit Facility: | ||||||||
Senior Secured Term A Loans | $ | 395,000 | $ | 400,000 | ||||
Senior Secured Term B Loans | 1,431,813 | 1,435,450 | ||||||
Senior Secured Revolving Line of Credit | — | — | ||||||
6.125% Senior Notes due 2021 | 150,000 | 150,000 | ||||||
5.125% Senior Notes due 2022 | 300,000 | 300,000 | ||||||
5.625% Senior Notes due 2023 | 650,000 | 650,000 | ||||||
6.500% Senior Notes due 2024 | 390,000 | 390,000 | ||||||
9.0% and 9.5% Revenue Bonds | 22,175 | 22,175 | ||||||
Less: unamortized debt issuance costs, discount and premium | (57,606 | ) | (59,816 | ) | ||||
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3,281,382 | 3,287,809 | |||||||
Less: current portion | (34,805 | ) | (34,805 | ) | ||||
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Long-term debt | $ | 3,246,577 | $ | 3,253,004 | ||||
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Amended and Restated Senior Credit Facility: Senior Secured Term A Loans Senior Secured Term B Loans Senior Secured Revolving Line of Credit 6.125% Senior Notes due 2021 5.125% Senior Notes due 2022 5.625% Senior Notes due 2023 6.500% Senior Notes due 2024 9.0% and 9.5% Revenue Bonds Less: unamortized debt issuance costs, discount and premium Less: current portion Long-term debt March 31, 2018 December 31, 2017 $ 380,000 $ 380,000 1,398,400 1,398,400 — — 150,000 150,000 300,000 300,000 650,000 650,000 390,000 390,000 21,920 21,920 (48,402 ) (50,432 ) 3,241,918 3,239,888 (33,830 ) (34,830 ) $ 3,208,088 $ 3,205,058
Amended and Restated Senior Credit Facility
The Company entered into a senior secured credit facility (the “Senior Secured Credit Facility”) on April 1, 2011. On December 31, 2012, the Company entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) which amended and restated the Senior Secured Credit Facility (the “Amended and Restated Senior Credit Facility”). The Company has amended the Amended and Restated Credit Agreement from time to time as described in the Company’s prior filings with the SEC.
On January 25, 2016, the Company entered into the Ninth Amendment (the “Ninth Amendment”) to the Amended and Restated Credit Agreement. The Ninth Amendment modified certain definitions and provided increased flexibility to the Company in terms of its financial covenants. The Company’s baskets for permitted investments were also increased to provide increased flexibility for it to invest innon-wholly owned subsidiaries, joint ventures and foreign subsidiaries. The Company may now invest innon-wholly owned subsidiaries and joint ventures up to 10.0% of the Company and its subsidiaries’ total assets in any four consecutive fiscal quarter period, and up to 12.5% of the Company and its subsidiaries’ total assets during the term of the Amended and Restated Credit Agreement. The Company may also invest in foreign subsidiaries that are not loan parties up to 10% of the Company and its subsidiaries’ total assets in any consecutive four fiscal quarter period, and up to 15% of the Company and its subsidiaries’ total assets during the term of the Amended and Restated Credit Agreement. The foregoing permitted investments are subject to an aggregate cap of 25% of the Company and its subsidiaries’ total assets in any fiscal year.
On February 16, 2016,May 10, 2017, the Company entered into a Second Incremental Facility Amendment (the “Second Incremental Amendment”) to the Amended and Restated Credit Agreement. The Second Incremental Amendment activated a new $955.0 million incremental Term Loan B facility (the “New TLB Facility”) and added $135.0 million to the Term Loan A facility (the “TLA Facility”) to the Amended and Restated Senior Credit Facility, subject to limited conditionality provisions. Borrowings under the New TLB Facility were used to fund a portion of the purchase price for the acquisition of Priory and the fees and expenses for such acquisition and the related financing transactions. Borrowings under the TLA Facility were used to pay down the majority of our $300.0 million revolving credit facility.
On May 26, 2016, the Company entered into a TrancheB-1Third Repricing Amendment (the “TrancheB-1“Third Repricing Amendment”) to the Amended and Restated Credit Agreement. The TrancheB-1Third Repricing Amendment reduced the Applicable Rate with respect to the $500.0 million incremental Term Loan B facility TrancheB-1(the “Existing TLB“TrancheB-1 Facility”) and the Term Loan B facility TrancheB-2 (the “TrancheB-2 Facility”) from 3.5%3.00% to 3.0%2.75% in the case of Eurodollar Rate loans and 2.5%from 2.00% to 2.0% in the case of Base Rate Loans.
On September 21, 2016, the Company entered into a TrancheB-2 Repricing Amendment (the “TrancheB-2 Repricing Amendment”) to the Amended and Restated Credit Agreement. The TrancheB-2 Repricing Amendment reduced the Applicable Rate with respect to the New TLB Facility from 3.75% to 3.0% in the case of Eurodollar Rate loans and 2.75% to 2.0%1.75% in the case of Base Rate Loans. In connection with the TrancheB-2Third Repricing Amendment, the Company recorded a debt extinguishment charge of $3.4$0.8 million, including the discount andwrite-off of deferred financing costs, which was recorded in debt extinguishment costs in the condensed consolidated statements of income.
On NovemberMarch 22, 2016,2018, the Company entered into a TenthSecond Repricing Facilities Amendment (the “Tenth“Second Repricing Facilities Amendment”) to the Amended and Restated Credit Agreement. The TenthSecond Repricing Facilities Amendment among other things, (i) amendedreplaced the negative covenant regarding dispositions, (ii) modifiedTrancheB-1 Facility and the collateral package to release any real propertyTrancheB-2 Facility with a fair market valuenew Term Loan B facility TrancheB-3 (the “TrancheB-3 Facility”) and a new Term Loan B facility TrancheB-4 (the “TrancheB-4 Facility”), respectively, and (ii) reduced the Applicable Rate from 2.75% to 2.50% in the case of less than $5.0 millionEurodollar Rate loans and (iii) changed certain investment, indebtedness and lien baskets.reduced the Applicable Rate from 1.75% to 1.50% in the case of Base Rate Loans.
On November 30, 2016,March 29, 2018, the Company entered into a RefinancingThird Repricing Facilities Amendment (the “Refinancing Amendment”) to the Amended and Restated Credit Agreement.Agreement (the “Third Repricing Facilities Amendment”, and together with the Second Repricing Facilities Amendment, the “Repricing Facilities Amendments”). The RefinancingThird Repricing Facilities Amendment increasedreplaced the existing revolving credit facility and Term Loan A facility (“TLA Facility”) with a new revolving credit facility and TLA Facility, respectively. The Company’s line of
credit on its revolving credit facility toremains at $500.0 million from $300.0 million and the Third Repricing Facility Amendment reduced itsthe size of the TLA Facility tofrom $400.0 million from $600.6to $380.0 million (together,to reflect the “Refinancing Facilities”). In addition,then current outstanding principal. The Third Repricing Facilities Amendment reduced the Refinancing Amendment extended the maturity dateApplicable Rate by 25 basis points for the Refinancing Facilities to November 30, 2021 from February 13, 2019, and lowered the Company’s effective interest rate on the line of credit on its revolving credit facility and the TLA Facility by 50 basis points. amending the definition of “Applicable Rate.”
In connection with the Refinancing Amendment,Repricing Facilities Amendments, the Company recorded a debt extinguishment charge of $0.8$0.9 million, including the discount andwrite-off of deferred financing costs, which was recorded in debt extinguishment costs in the condensed consolidated statements of income.
The Company had $493.4$495.8 million of availability under the revolving line of credit and had standby letters of credit outstanding of $6.6$4.2 million related to security for the payment of claims required by its workers’ compensation insurance program as ofat March 31, 2017.2018. Borrowings under the revolving line of credit are subject to customary conditions precedent to borrowing. The Amended and Restated Credit Agreement requires quarterly term loan principal repayments of our TLA Facility of $5.0$4.8 million for March 31, 2017June 30, 2018 to December 31, 2019, $7.5$7.1 million for March 31, 2020 to December 31, 2020, and $10.0$9.5 million for March 31, 2021 to September 30, 2021, with the remaining principal balance of the TLA Facility due on the maturity date of November 30, 2021. The Company is required to repay the Existing TLBTrancheB-3 Facility in equal quarterly installments of $1.3 million on the last business day of each
March, June, September and December, with the outstanding principal balance of the Existing TLB Facility due on February 11, 2022. The Company is required to repay the New TLB Facility in equal quarterly installments of approximately $2.4$1.2 million on the last business day of each March, June, September and December, with the outstanding principal balance of the TLBTrancheB-3 Facility due on February 11, 2022. The Company is required to repay the TrancheB-4 Facility in equal quarterly installments of approximately $2.3 million on the last business day of each March, June, September and December, with the outstanding principal balance of the TrancheB-4 Facility due on February 16, 2023. On December 29, 2017, the Company made an additional payment of $22.5 million, including $7.7 million on the TrancheB-1 Facility and $14.8 million on the TrancheB-2 Facility. On April 17, 2018, the Company made an additional payment of $15.0 million, including $5.1 million on the TrancheB-3 Facility and $9.9 million on the TrancheB-4 Facility.
Borrowings under the Amended and Restated Senior Credit Facility are guaranteed by each of the Company’s wholly-owned domestic subsidiaries (other than certain excluded subsidiaries) and are secured by a lien on substantially all of the assets of the Company and such subsidiaries. Borrowings with respect to the TLA Facility and the Company’s revolving credit facility (collectively, “Pro Rata Facilities”) under the Amended and Restated Credit Agreement bear interest at a rate tied to the Company’sAcadia’s Consolidated Leverage Ratio (defined as consolidated funded debt net of up to $40.0 million of unrestricted and unencumbered cash to consolidated EBITDA, in each case as defined in the Amended and Restated Credit Agreement). The Applicable Rate (as defined in the Amended and Restated Credit Agreement) for the Pro Rata Facilities was 2.75%2.50% for Eurodollar Rate Loans (as defined in the Amended and Restated Credit Agreement) and 1.75%1.50% for Base Rate Loans (as defined in the Amended and Restated Credit Agreement) at March 31, 2017.2018. Eurodollar Rate Loans with respect to the Pro Rata Facilities bear interest at the Applicable Rate plus the Eurodollar Rate (as defined in the Amended and Restated Credit Agreement) (based upon the LIBOR Rate (as defined in the Amended and Restated Credit Agreement) prior to commencement of the interest rate period). Base Rate Loans with respect to the Pro Rata Facilities bear interest at the Applicable Rate plus the highest of (i) the federal funds rate plus 0.50%, (ii) the prime rate and (iii) the Eurodollar Rate plus 1.0%1.00%. As ofAt March 31, 2017,2018, the Pro Rata Facilities bore interest at a rate of LIBOR plus 2.75%2.50%. In addition, the Company is required to pay a commitment fee on undrawn amounts under the revolving line of credit.
The Amended and Restated Credit Agreement 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 ofAt March 31, 2017,2018, the Company was in compliance with such covenants.
Senior Notes
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.
5.125% Senior Notes due 2022
On July 1, 2014, the Company issued $300.0 million of 5.125% Senior Notes due 2022 (the “5.125% Senior Notes”). The 5.125% Senior Notes mature on July 1, 2022 and bear interest at a rate of 5.125% per annum, payable semi-annually in arrears on January 1 and July 1 of each year.
5.625% Senior Notes due 2023
On February 11, 2015, the Company issued $375.0 million of 5.625% Senior Notes due 2023 (the “5.625% Senior Notes”). On September 21, 2015, the Company issued $275.0 million of additional 5.625% Senior Notes. The additional notes formed a single class of debt securities with the 5.625% Senior Notes issued in February 2015. Giving effect to this issuance, the Company has outstanding an aggregate of $650.0 million of 5.625% Senior Notes. The 5.625% Senior Notes mature on February 15, 2023 and bear interest at a rate of 5.625% per annum, payable semi-annually in arrears on February 15 and August 15 of each year.
6.500% Senior Notes due 2024
On February 16, 2016, the Company issued $390.0 million of 6.500% Senior Notes due 2024 (the “6.500% Senior Notes”). The 6.500% Senior Notes mature on March 1, 2024 and bear interest at a rate of 6.500% per annum, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2016.
The indentures governing the 6.125% Senior Notes, 5.125% Senior Notes, 5.625% Senior Notes and 6.500% Senior Notes (together, the “Senior Notes”) contain 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 Senior Notes issued by the Company are guaranteed by each of the Company’s subsidiaries that guarantee the Company’s obligations under the Amended and Restated Senior Credit Facility. The guarantees are full and unconditional and joint and several.
The Company may redeem the Senior Notes at its option, in whole or part, at the dates and amounts set forth in the indentures.
9.0% and 9.5% Revenue Bonds
On November 11, 2012, in connection with the acquisition of The Pavilion at HealthPark, LLC (“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 ofAt March 31, 20172018 and December 31, 2016,2017, $2.3 million was recorded within other assets on the condensed consolidated balance sheets 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. |
Common Stock
On March 3, 2016, the Company held a Special Meeting of Stockholders, where the Company’s stockholders approved an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of Common Stock from 90,000,000 to 180,000,000 (the “Amendment”). On March 3, 2016, the Company filed the Amendment with the Secretary of State of the State of Delaware.
Equity Offerings
On January 12, 2016, the Company completed the offering of 11,500,000 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 $61.00 per share. The net proceeds to the Company from the sale of the shares, after deducting the underwriting discount of $15.8 million and additional offering-related costs of $0.7 million, were $685.0 million. The Company used the net offering proceeds to fund a portion of the purchase price for the acquisition of Priory.
On February 16, 2016, the Company completed its acquisition of Priory for a total purchase price of approximately $2.2 billion, including total cash consideration of approximately $1.9 billion and the issuance of 4,033,561 shares of common stock.
Equity-Based Compensation |
Equity Incentive Plans
The Company issues stock-based awards, including stock options, restricted stock and restricted stock units, to certain officers, employees andnon-employee directors under the Acadia Healthcare Company, Inc. Incentive Compensation Plan (the “Equity Incentive Plan”). As ofAt March 31, 2017,2018, a maximum of 8,200,000 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, of which 4,281,2133,236,556 were available for future grant. 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 $7.4$6.9 million and $7.0$7.4 million in equity-based compensation expense for the three months ended March 31, 2018 and 2017, and 2016, respectively. As ofAt March 31, 2017,2018, there was $65.2$62.5 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 1.4 years.
At March 31, 2018, there were no warrants outstanding. The Company recognized a deferred income tax benefit of $2.9$1.9 million and $2.8$2.9 million for the three months ended March 31, 20172018 and 2016,2017, respectively, related to equity-based compensation expense.
Stock Options
Stock option activity during 20162017 and 20172018 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 | Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | |||||||||||||||||||||||||
Options outstanding at January 1, 2016 | 694,743 | $ | 42.87 | 7.70 | $ | 20,717 | ||||||||||||||||||||||||||
Options outstanding at January 1, 2017 | 1,000,946 | $ | 49.42 | 7.80 | $ | 8,166 | ||||||||||||||||||||||||||
Options granted | 503,850 | 57.98 | 9.28 | 297 | 259,300 | 42.25 | 9.30 | 205 | ||||||||||||||||||||||||
Options exercised | (57,397 | ) | 31.92 | N/A | 1,530 | (87,367 | ) | 25.92 | N/A | 1,636 | ||||||||||||||||||||||
Options cancelled | (140,250 | ) | 57.13 | N/A | N/A | (198,313 | ) | 54.71 | N/A | N/A | ||||||||||||||||||||||
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Options outstanding at December 31, 2016 | 1,000,946 | 49.42 | 7.80 | 8,166 | ||||||||||||||||||||||||||||
Options outstanding at December 31, 2017 | 974,566 | 47.89 | 7.46 | 3,802 | ||||||||||||||||||||||||||||
Options granted | 197,400 | 42.77 | 9.96 | 78 | 323,500 | 37.46 | 7.86 | 112 | ||||||||||||||||||||||||
Options exercised | (11,350 | ) | 20.50 | N/A | 228 | (4,689 | ) | 20.60 | N/A | 97 | ||||||||||||||||||||||
Options cancelled | (52,888 | ) | 54.87 | N/A | N/A | (36,475 | ) | 51.41 | N/A | N/A | ||||||||||||||||||||||
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Options outstanding at March 31, 2017 | 1,134,108 | $ | 48.08 | 8.00 | $ | 4,402 | ||||||||||||||||||||||||||
Options outstanding at March 31, 2018 | 1,256,902 | $ | 45.17 | 7.60 | $ | 2,730 | ||||||||||||||||||||||||||
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Options exercisable at December 31, 2016 | 288,959 | $ | 42.81 | 6.22 | $ | 6,111 | ||||||||||||||||||||||||||
Options exercisable at December 31, 2017 | 405,634 | $ | 41.20 | 6.05 | $ | 3,549 | ||||||||||||||||||||||||||
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Options exercisable at March 31, 2017 | 466,320 | $ | 46.59 | 6.52 | $ | 4,298 | ||||||||||||||||||||||||||
Options exercisable at March 31, 2018 | 538,884 | $ | 44.41 | 6.27 | $ | 2,485 | ||||||||||||||||||||||||||
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Restricted stock activity during 2016 and 2017 was as follows:
Number of Shares | Weighted Average Grant-Date Fair Value | |||||||
Unvested at January 1, 2016 | 944,562 | $ | 52.74 | |||||
Granted | 387,347 | 55.38 | ||||||
Cancelled | (122,178 | ) | 57.02 | |||||
Vested | (365,312 | ) | 47.18 | |||||
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Unvested at December 31, 2016 | 844,419 | $ | 55.76 | |||||
Granted | 285,008 | 42.98 | ||||||
Cancelled | (34,026 | ) | 59.89 | |||||
Vested | (199,764 | ) | 53.82 | |||||
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Unvested at March 31, 2017 | 895,637 | $ | 51.97 | |||||
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Restricted stock unit activity during 2016 and 2017 was as follows:
Number of Units | Weighted Average Grant-Date Fair Value | |||||||
Unvested at January 1, 2016 | 218,084 | $ | 56.97 | |||||
Granted | 230,750 | 56.95 | ||||||
Cancelled | — | — | ||||||
Vested | (175,235 | ) | 52.71 | |||||
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Unvested at December 31, 2016 | 273,599 | $ | 59.68 | |||||
Granted | 219,840 | 43.23 | ||||||
Cancelled | — | — | ||||||
Vested | (132,530 | ) | 58.67 | |||||
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Unvested at March 31, 2017 | 360,909 | $ | 50.04 | |||||
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The grant-date fair value of the Company’s stock options isFair values are 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 three months ended March 31, 20172018 and year ended December 31, 2016:2017:
March 31, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 | |||||||||||||
Weighted average grant-date fair value of options | $ | 14.57 | $ | 18.96 | $ | 13.66 | $ | 14.39 | ||||||||
Risk-free interest rate | 2.0 | % | 1.4 | % | 2.2 | % | 2.0 | % | ||||||||
Expected volatility | 33 | % | 35 | % | 37 | % | 33 | % | ||||||||
Expected life (in years) | 5.5 | 5.5 | 5.1 | 5.5 |
The Company’s estimate of expected volatility for stock options is based upon the volatility of guideline companies givenour stock price over the lack of sufficient historical trading experienceexpected life of the Company’s common stock.award. The risk-free interest rate is the approximate yield on U. S. 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.
Other Stock-Based Awards
Restricted stock activity during 2017 and 2018 was as follows:
Number of Shares | Weighted Average Grant-Date Fair Value | |||||||
Unvested at January 1, 2017 | 844,419 | $ | 55.76 | |||||
Granted | 404,224 | 42.38 | ||||||
Cancelled | (145,981 | ) | 55.03 | |||||
Vested | (292,794 | ) | 53.07 | |||||
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Unvested at December 31, 2017 | 809,868 | $ | 50.19 | |||||
Granted | 370,162 | 36.67 | ||||||
Cancelled | (30,177 | ) | 50.52 | |||||
Vested | (197,992 | ) | 53.66 | |||||
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Unvested at March 31, 2018 | 951,861 | $ | 44.20 | |||||
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Restricted stock unit activity during 2017 and 2018 was as follows:
Number of Units | Weighted Average Grant-Date Fair Value | |||||||
Unvested at January 1, 2017 | 273,599 | $ | 59.68 | |||||
Granted | 219,840 | 43.23 | ||||||
Cancelled | — | — | ||||||
Vested | (132,530 | ) | 58.67 | |||||
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Unvested at December 31, 2017 | 360,909 | $ | 50.04 | |||||
Granted | 285,358 | 42.26 | ||||||
Cancelled | (89,713 | ) | 55.44 | |||||
Vested | (72,983 | ) | 49.64 | |||||
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Unvested at March 31, 2018 | 484,111 | $ | 44.52 | |||||
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Restricted stock awards are time-based vesting awards that vest over a period of three or four years and are subject to continuing service of the employee ornon-employee director over the ratable vesting periods. The fair values of the restricted stock awards were determined based on the closing price of the Company’s common stock on the trading date immediately prior to the grant date.
Restricted stock units are granted to employees and are subject to Company performance compared topre-established targets and, in the case of the 2018 awards, Company performance compared to peers. In addition to Company performance, these performance-based restricted stock units are subject to the continuing service of the employee during thetwo- or three-year period covered by the awards. The performance condition for the restricted stock units is based on the Company’s achievement of annually established targets for diluted earnings per share. Additionally, the number of shares issuable pursuant to restricted stock units granted during 2018 is subject to adjustment based on the Company’s three-year annualized total stockholder return relative to a peer group consisting of S&P 1500 companies within the Healthcare Providers & Services 6 digit GICS industry group and selected other companies deemed to be peers. The number of shares issuable at the end of the applicable vesting period of restricted stock units ranges from 0% to 200% of the targeted units based on the Company’s actual performance compared to the targets and, for 2018 awards, performance compared to peers.
The fair values of restricted stock units were determined based on the closing price of the Company’s common stock on the trading date immediately prior to the grant date for units subject to performance conditions, or at its Monte-Carlo simulation value for units subject to market conditions.
Income Taxes |
The (benefit from) provision for income taxes for the three months ended March 31, 2018 and 2017 reflects effective tax rates of (5.8)% and 28.3%, respectively. The decrease in the effective tax rate for the three months ended March 31, 2018 was primarily attributable to the application of Public Law 115-97, informally referred to as the Tax Cuts and Jobs Act (the “Tax Act”) and a discrete benefit of $10.5 million recorded in the three months ended March 31, 2018 related to a change in the Company’s provisional amount recorded at December 31, 2017.
The Company adopted ASU2016-09, as of“Improvements to Employee Share-Based Payment Accounting” on January 1, 2017, which changeschanged how the Company accounts for share-based awards for tax purposes. Income tax effects of share-based awards are now recognized in the income statement, instead of through equity, when the awards vest.
Excess tax benefits/deficiencies are generated when the deduction for tax purposes is greater/less than the compensation cost for financial reporting purposes. Upon adoption of ASU2016-09, the Company no longer records excess tax benefits/deficiencies in additionalpaid-in capital as a component of equity. Instead, excess tax benefits/deficiencies are included in the provision for income taxes on the condensed consolidated statements of income. These changes are recorded prospectively as of January 1, 2017, which resulted in an increase in our income tax provision of $1.5 million and $1.7 million, or an increase in the effective tax rate of 3.1% and 3.6%, for the three months ended March 31, 2017. Prior periods have2018 and 2017, respectively.
U.S. Tax Reform
On December 22, 2017, the Tax Act was enacted into law. The Tax Act provides for significant changes to the U.S. tax code that impact businesses. Effective January 1, 2018, the Tax Act reduces the U.S. federal tax rate for corporations from 35% to 21%, for U.S. taxable income. The Tax Act requires aone-time remeasurement of deferred taxes to reflect their value at a lower tax rate of 21%. The Tax Act includes other changes, including, but not limited to, requiring aone-time transition tax on certain repatriated earnings of foreign subsidiaries that is payable over eight years, a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries, a new provision designed to tax global intangiblelow-taxed income, a limitation of the deduction for net operating losses, elimination of net operating loss carrybacks, immediate deductions for depreciation expense for certain qualified property, additional limitations on the deductibility of executive compensation and limitations on the deductibility of interest.
Accounting Standards Codification (“ASC”) 740“Income Taxes” (“ASC 740”) requires the Company to recognize the effect of tax law changes in the period of enactment. However, the SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”) which will allow the Company to record provisional amounts during a measurement period similarly to the measurement period used when accounting for business combinations. The Company will continue to assess the impact of the Tax Act on its business and consolidated financial statements.
At March 31, 2018, the Company had not completed its accounting for the tax effects of enactment of the Tax Act; however, in certain cases, as described below, the Company has made a reasonable estimate of the effects on our existing deferred tax balances. In other cases, the Company has not been adjusted. An adjustmentable to make a reasonable estimate and continues to account for those items based on its existing accounting under ASC 740 and the provisions of the tax laws that were in effect immediately prior period excess tax benefitsto enactment of $8.6the Tax Act. The Company has recognized a cumulative provisional amount of $19.3 million is recorded as a cumulative-effect adjustment in retained earnings at March 31, 2017 as the Company adopted this amendment using the modified transition method. Excess tax benefits were previously required to be included in financing activities on the condensed consolidated statement of cash flows and are now required to be included in operating activities. The changes2018 related to the condensed consolidated statementremeasurement of cash flows are recorded prospectively as of January 1, 2017. Additionally,our deferred tax balance. In addition, the Company has elected notrecorded aone-time transition tax lability in relation to adjust its policy on accounting for forfeituresforeign subsidiaries of $0.0 million at March 31, 2018. The amount may change when the calculation of post-1986 foreign earnings and will continue to estimate forfeiture rates.profits previously deferred from U.S. federal taxation is finalized.
Provisional Amounts
Deferred Tax Assets and Liabilities
The provisionCompany remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. As a result of the reduction in the corporate income tax rate, the Company is required to revalue its net deferred tax assets and liabilities to account for the future impact of lower corporate tax rates on this deferred amount and record any change in the value of such asset or liability as aone-timenon-cash charge or benefit on its income taxesstatement. However, the Company is still analyzing certain aspects of the Tax Act, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The Company has recognized a cumulative provisional amount of $19.3 million at March 31, 2018 related to the remeasurement of our deferred tax balance.
U.S. Tax on Foreign Earnings
Theone-time transition tax is based on total post-1986 earnings and profits that the Company previously deferred from U.S. income taxes. The Company has made sufficient progress on the earnings and profits analysis for its foreign subsidiaries to reasonably estimate the effects of theone-time transition tax and has recorded a provisional amount of $0.0 million at March 31, 2018. This amount may change when the Company finalizes the calculation of post -1986 foreign earnings and profit. As part of our analysis of the Tax Act, the Company made an adjustment regarding the treatment of foreign dividends of $10.9 million during the three months ended March 31, 2017 and 2016 reflects effective tax rates of 28.3% and 21.9%, respectively.2018. The increasechange in the effective tax rate for the three months ended Marchprovisional estimate recorded at December 31, 2017 was primarily attributablerecognized under the law that existed prior to December 22, 2017.
The Company has estimated the adoptionimpacts for Global IntangibleLow-Taxed Income, Foreign-Derived Intangible Income, the Base Erosion and Anti-Abuse Tax and any remaining impacts of ASU2016-09,the reduction in earnings relatedforeign income provisions of the Tax Act. The Company has made sufficient progress to reasonably estimate the U.K. Divestitureeffects of the aforementioned items and the decline in the exchange rate between U.S. dollars (“USD”) and British pounds (“GBP”).has recorded a provisional amount of $0.0 million at March 31, 2018.
Derivatives |
The Company entered into foreign currency forward contracts during the three months ended March 31, 20172018 and 20162017 in connection with (i) acquisitions in the U.K. and (ii)certain transfers of cash between the U.S. and U.K. under the Company’s cash management and foreign currency risk management programs. Foreign currency forward contracts limit the economic risk of changes in the exchange rate between USDU.S. Dollars (“USD”) and GBPBritish Pounds (“GBP”) associated with cash transfers.
The foreign currency forward contracts entered into during the three months ended March 31, 2016 resulted in gains of $0.4 million for the three months ended March 31, 2016, which have been recorded in the condensed consolidated statements of income.
In May 2016, the Company entered into multiple cross currency swap agreements with an aggregate notional amount of $650.0 million to manage foreign currency risk by effectively converting a portion of its fixed-rateUSD-denominated senior notes, including the semi-annual interest payments thereunder, to fixed-rateGBP-denominated debt of £449.3 million. The senior notes effectively converted include $150.0 million aggregate principal amount of 6.125% Senior Notes, $300.0 million aggregate principal amount of 5.125% Senior Notes and $200.0 million aggregate principal amount of 5.625% Senior Notes. During the term of the swap agreements, the Company will receive semi-annual interest payments in USD from the counterparties at fixed interest rates, and the Company will make semi-annual interest payments in GBP to the counterparties at fixed interest rates. The interest payments under the cross-currency swap agreements result in £24.7 million of annual cash flows, from the Company’s U.K. business being converted to $35.8 million (at a 1.45 exchange rate). The interest rates applicable to the GBP interest payments are substantially the same as the interest rates in place for the existingUSD-denominated debt. At maturity, the Company will repay the principal amounts listed above in GBP and receive the principal amount in USD.
The Company has designated the cross currency swap agreements and certain forward contracts entered into during 20162017 and the three months ended March 31, 20172018 as qualifying hedging instruments and is accounting for these as net investment hedges. The fair value of these derivatives of $59.3$15.2 million is recorded as derivative instruments liabilities on the condensed consolidated balance sheets. The gains and losses resulting from fair value adjustments to these derivativesthe cross currency swap agreements are recorded in accumulated other comprehensive loss as the swaps are effective in hedging the designated risk. Cash flows related to thesethe cross currency swap derivatives are included in operating activities in the condensed consolidated statements of cash flows.
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, 6.125% Senior Notes, 5.125% Senior Notes, 5.625% Senior Notes, 6.500% Senior Notes, 9.0% and 9.5% Revenue Bonds and derivative instruments and contingent consideration liabilities as ofat March 31, 20172018 and December 31, 20162017 were as follows (in thousands):
Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||||||||||||||||||
March 31, 2017 | December 31, 2016 | March 31, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 | March 31, 2018 | December 31, 2017 | |||||||||||||||||||||||||
Amended and Restated Senior Credit Facility | $ | 1,792,800 | $ | 1,799,993 | $ | 1,792,800 | $ | 1,799,993 | $ | 1,750,391 | $ | 1,749,185 | $ | 1,750,391 | $ | 1,749,185 | ||||||||||||||||
6.125% Senior Notes due 2021 | $ | 147,701 | $ | 147,574 | $ | 151,024 | $ | 152,186 | $ | 148,234 | $ | 148,098 | $ | 149,716 | $ | 150,134 | ||||||||||||||||
5.125% Senior Notes due 2022 | $ | 295,622 | $ | 295,442 | $ | 298,578 | $ | 293,595 | $ | 296,364 | $ | 296,174 | $ | 296,364 | $ | 296,914 | ||||||||||||||||
5.625% Senior Notes due 2023 | $ | 640,896 | $ | 640,574 | $ | 663,725 | $ | 640,574 | $ | 642,233 | $ | 641,891 | $ | 650,261 | $ | 651,519 | ||||||||||||||||
6.500% Senior Notes due 2024 | $ | 381,507 | $ | 381,268 | $ | 401,536 | $ | 389,847 | $ | 382,507 | $ | 382,251 | $ | 397,807 | $ | 397,541 | ||||||||||||||||
9.0% and 9.5% Revenue Bonds | $ | 22,855 | $ | 22,959 | $ | 22,855 | $ | 22,959 | $ | 22,188 | $ | 22,289 | $ | 22,188 | $ | 22,289 | ||||||||||||||||
Derivative instruments | $ | 59,257 | $ | 73,509 | $ | 59,257 | $ | 73,509 | ||||||||||||||||||||||||
Contingent consideration liabilities | $ | — | $ | 107 | $ | — | $ | 107 | ||||||||||||||||||||||||
Derivative instrument (liabilities) assets | $ | (15,160 | ) | $ | 12,997 | $ | (15,160 | ) | $ | 12,997 |
The Company’s Amended and Restated Senior Credit Facility, 6.125% Senior Notes, 5.125% Senior Notes, 5.625% Senior Notes, 6.500% 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 values of the derivative instruments were categorized as Level 2 in the GAAP fair value hierarchy and were based on observable market inputs including applicable exchange rates and interest rates.
The fair value of the contingent consideration liabilities were categorized as Level 3 in the GAAP fair value hierarchy. The contingent consideration liabilities were 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.
Commitments and Contingencies |
Professional and General Liability
Effective September 1, 2016, aA portion of the Company’s professional liability risks is insured through a wholly-owned insurance subsidiary. The Company’s wholly-owned insurance subsidiary insures the Company for professional liability losses up to $52.0$78.0 million in the aggregate. The insurance subsidiary has obtained reinsurance with unrelated commercial insurers for professional liability risks of $50.0$75.0 million in excess of a retention level of $2.0$3.0 million.
Legal Proceedings
The Company is, from time to time, subject to various claims, governmental investigations and legalregulatory actions, that arise in the ordinary course of the Company’s business, including claims for damages for personal injuries, medical malpractice, overpayments, breach of contract, securities law violations, 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 addition, healthcare companies are subject to numerous investigations by various governmental agencies. Under the federal False Claims Act, private parties have the right to bringqui tam,or “whistleblower,” suits against companies that submit false claims for payments to, or improperly retain overpayments from, the government. Some states have adopted similar state whistleblower and false claims provisions. Certain of our individual facilities have received, and from time to time, other facilities may receive, government inquiries from, and may be subject to investigation by, federal and state agencies. 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.
Noncontrolling Interests |
On May 2, 2016,Noncontrolling interests in the consolidated financial statements represents the portion of equity held by noncontrolling partners innon-wholly owned subsidiaries the Company opened Crestwyn Behavioral Health, a de novo inpatient psychiatric facility located in Memphis, Tennessee.controls. At March 31, 2018, certain of thesenon-wholly owned subsidiaries operated three facilities. The Company owns between 60% and 75% of the equity interests in the entity that owns thiseach facility, and two noncontrolling partners each own 20%.the remaining equity interests. The initial value of the 40% noncontrolling interests is approximately $6.0 million and is based on the fair value of contributions. Thecontributions, and the Company consolidates the operations of theeach facility based on its 60% equity ownership and its control of the entity. The noncontrolling interests are reflected as redeemable noncontrolling interests on the accompanying condensed consolidated balance sheets based on a put rightrights that could require the Company to purchase the noncontrolling interests upon the occurrence of a change in control.
The components of redeemable noncontrolling interests are as follows (in thousands):
Balance at December 31, 2017 | $ | 22,417 | ||
Acquisition of redeemable noncontrolling interests | 2,186 | |||
Net income attributable to noncontrolling interests | 55 | |||
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Balance at March 31, 2018 | $ | 24,658 | ||
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Other Current Assets |
Other current assets consisted of the following (in thousands):
March 31, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 | |||||||||||||
Other receivables | $ | 45,766 | $ | 44,975 | $ | 32,867 | $ | 30,455 | ||||||||
Prepaid expenses | 28,423 | 27,455 | 28,930 | 27,320 | ||||||||||||
Insurance receivable-current portion | 17,588 | 17,588 | ||||||||||||||
Income taxes receivable | 24,405 | 15,056 | ||||||||||||||
Workers’ compensation deposits – current portion | 10,000 | 10,000 | 10,000 | 10,000 | ||||||||||||
Income taxes receivable | 7,182 | 11,714 | ||||||||||||||
Insurance receivable-current portion | 6,472 | 6,472 | ||||||||||||||
Inventory | 4,723 | 4,633 | 4,772 | 4,787 | ||||||||||||
Other | 2,271 | 2,288 | 2,375 | 2,129 | ||||||||||||
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Other current assets | $ | 104,837 | $ | 107,537 | $ | 120,937 | $ | 107,335 | ||||||||
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Other Accrued Liabilities |
Other accrued liabilities consisted of the following (in thousands):
March 31, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 | |||||||||||||
Unearned income | $ | 38,956 | $ | 31,342 | ||||||||||||
Accrued expenses | $ | 41,887 | $ | 37,323 | 35,955 | 37,268 | ||||||||||
Unearned income | 22,260 | 28,805 | ||||||||||||||
Insurance liability – current portion | 22,788 | 22,788 | ||||||||||||||
Accrued interest | 12,350 | 33,616 | 12,257 | 36,370 | ||||||||||||
Insurance liability – current portion | 11,672 | 11,672 | ||||||||||||||
Income taxes payable | 7,542 | 527 | 4,439 | 1,012 | ||||||||||||
Accrued property taxes | 2,658 | 2,732 | 3,666 | 3,945 | ||||||||||||
Other | 7,677 | 8,283 | 10,412 | 8,488 | ||||||||||||
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Other accrued liabilities | $ | 106,046 | $ | 122,958 | $ | 128,473 | $ | 141,213 | ||||||||
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Segment Information |
The Company operates in one line of business, which is operating acute inpatient psychiatric facilities, specialty treatment facilities, residential treatment centers and facilities providing outpatient behavioral healthcare services. As management reviews the operating results of its facilities in the United States (the “U.S. Facilities”)U.S. and its facilities in the United Kingdom (the “U.K. Facilities”)U.K. separately to assess performance and make decisions, the Company’s operating segments include itsour U.S. Facilities and U.K. Facilities. At March 31, 2017,2018, the U.S. Facilities included 208212 behavioral healthcare facilities with approximately 8,5009,000 beds in 3940 states and Puerto Rico, and the U.K. Facilities included 367372 behavioral healthcare facilities with approximately 8,7008,800 beds in the U.K.
The following tables set forth the financial information by operating segment, including a reconciliation of Segment EBITDA to income before income taxes (in thousands):
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||
Revenue: | ||||||||||||||||
U.S. Facilities | $ | 440,223 | $ | 408,264 | $ | 462,405 | $ | 440,223 | ||||||||
U.K. Facilities | 238,971 | 206,975 | 279,836 | 238,971 | ||||||||||||
Corporate and Other | — | 1,574 | — | — | ||||||||||||
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$ | 679,194 | $ | 616,813 | $ | 742,241 | $ | 679,194 | |||||||||
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Segment EBITDA (1): | ||||||||||||||||
U.S. Facilities | $ | 112,145 | $ | 106,840 | $ | 117,124 | $ | 112,145 | ||||||||
U.K. Facilities | 44,186 | 44,931 | 51,152 | 44,186 | ||||||||||||
Corporate and Other | (19,962 | ) | (20,759 | ) | (22,545 | ) | (19,962 | ) | ||||||||
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$ | 136,369 | $ | 131,012 | $ | 145,731 | $ | 136,369 | |||||||||
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Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||
Segment EBITDA (1) | $ | 136,369 | $ | 131,012 | $ | 145,731 | $ | 136,369 | ||||||||
Plus (less): | ||||||||||||||||
Equity-based compensation expense | (7,396 | ) | (6,956 | ) | (6,919 | ) | (7,396 | ) | ||||||||
Gain on foreign currency derivatives | — | 410 | ||||||||||||||
Transaction-related expenses | (4,119 | ) | (26,298 | ) | (4,768 | ) | (4,119 | ) | ||||||||
Debt extinguishment costs | (940 | ) | — | |||||||||||||
Interest expense, net | (42,757 | ) | (37,714 | ) | (45,243 | ) | (42,757 | ) | ||||||||
Depreciation and amortization | (33,613 | ) | (27,975 | ) | (39,773 | ) | (33,613 | ) | ||||||||
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Income before income taxes | $ | 48,484 | $ | 32,479 | $ | 48,088 | $ | 48,484 | ||||||||
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Goodwill: Balance at January 1, 2018 Foreign currency translation gain Prior year purchase price adjustments Balance at March 31, 2018 U.S. Facilities U.K. Facilities Corporate
and Other Consolidated $ 2,042,592 $ 708,582 $ — $ 2,751,174 — 27,465 — 27,465 — 762 — 762 $ 2,042,592 $ 736,809 $ — $ 2,779,401
U.S. Facilities | U.K. Facilities | Corporate and Other | Consolidated | |||||||||||||
Goodwill: | ||||||||||||||||
Balance at January 1, 2017 | $ | 2,041,795 | $ | 639,393 | $ | — | $ | 2,681,188 | ||||||||
Foreign currency translation gain | — | 8,782 | — | 8,782 | ||||||||||||
Prior year purchase price adjustments | 700 | (6,883 | ) | — | (6,183 | ) | ||||||||||
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Balance at March 31, 2017 | $ | 2,042,495 | $ | 641,292 | $ | — | $ | 2,683,787 | ||||||||
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March 31, 2017 | December 31, 2016 | March 31, 2018 | December 31, 2017 | |||||||||||||
Assets (2): | ||||||||||||||||
U.S. Facilities | $ | 3,417,655 | $ | 3,382,167 | $ | 3,635,834 | $ | 3,567,126 | ||||||||
U.K. Facilities | 2,465,671 | 2,441,018 | 2,765,246 | 2,647,150 | ||||||||||||
Corporate and Other | 182,464 | 201,541 | 183,649 | 210,226 | ||||||||||||
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$ | 6,065,790 | $ | 6,024,726 | $ | 6,584,729 | $ | 6,424,502 | |||||||||
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(1) | Segment EBITDA is defined as income before provision for income taxes, equity-based compensation expense, |
(2) | Assets include property and equipment for the U.S. Facilities of |
Accumulated Other Comprehensive Loss |
The components of accumulated other comprehensive loss are as follows (in thousands):
Foreign Currency Translation Adjustments | Change in Fair Value of Derivative Instruments | Pension Plan | Total | |||||||||||||
Balance at December 31, 2016 | (584,081 | ) | 40,598 | (6,087 | ) | (549,570 | ) | |||||||||
Foreign currency translation gain | 27,046 | — | — | 27,046 | ||||||||||||
Loss on derivative instruments, net of tax of $(5.6) million | — | (5,868 | ) | — | (5,868 | ) | ||||||||||
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Balance at March 31, 2017 | $ | (557,035 | ) | $ | 34,730 | $ | (6,087 | ) | $ | (528,392 | ) | |||||
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Foreign Currency Translation Adjustments | Change in Fair Value of Derivative Instruments | Pension Plan | Total | |||||||||||||
Balance at December 31, 2017 | $ | (376,740 | ) | $ | 7,167 | $ | (4,545 | ) | $ | (374,118 | ) | |||||
Foreign currency translation gain | 92,954 | — | (174 | ) | 92,780 | |||||||||||
Loss on derivative instruments, net of tax of $(7.3) million | — | (20,053 | ) | — | (20,053 | ) | ||||||||||
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Balance at March 31, 2018 | $ | (283,786 | ) | $ | (12,886 | ) | $ | (4,719 | ) | $ | (301,391 | ) | ||||
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Financial Information for the Company and Its Subsidiaries |
The Company conducts substantially all of its business through its subsidiaries. The 6.125% Senior Notes, 5.125% Senior Notes, 5.625% Senior Notes and 6.500% Senior Notes are jointly and severally guaranteed on an unsecured senior basis by all of the Company’s subsidiaries that guarantee the Company’s obligations under the Amended and Restated Senior Credit Facility. Presented below is condensed consolidating financial information for the Company and its subsidiaries as ofat March 31, 20172018 and December 31, 2016,2017, and for the three months ended March 31, 20172018 and 2016.2017. The information segregates the parent company (Acadia Healthcare Company, Inc.), the combined wholly-owned subsidiary guarantors, the combinednon-guarantor subsidiaries and eliminations.
Acadia Healthcare Company, Inc.
Condensed Consolidating Balance Sheets
March 31, 20172018
(In thousands)
Parent | Combined Subsidiary Guarantors | Combined Non- Guarantors | Consolidating Adjustments | Total Consolidated Amounts | Parent | Combined Subsidiary Guarantors | Combined Non- Guarantors | Consolidating Adjustments | Total Consolidated Amounts | |||||||||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 2,929 | $ | 40,158 | $ | — | $ | 43,087 | $ | — | $ | 25,212 | $ | 32,596 | $ | — | $ | 57,808 | ||||||||||||||||||||
Accounts receivable, net | — | 219,325 | 56,764 | — | 276,089 | — | 251,938 | 73,210 | — | 325,148 | ||||||||||||||||||||||||||||||
Other current assets | — | 59,283 | 45,554 | — | 104,837 | — | 93,378 | 27,559 | — | 120,937 | ||||||||||||||||||||||||||||||
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Total current assets | — | 281,537 | 142,476 | — | 424,013 | — | 370,528 | 133,365 | — | 503,893 | ||||||||||||||||||||||||||||||
Property and equipment, net | — | 964,605 | 1,784,933 | — | 2,749,538 | — | 1,113,401 | 2,038,128 | — | 3,151,529 | ||||||||||||||||||||||||||||||
Goodwill | — | 1,935,960 | 747,827 | — | 2,683,787 | — | 1,936,057 | 843,344 | — | 2,779,401 | ||||||||||||||||||||||||||||||
Intangible assets, net | — | 56,837 | 26,881 | — | 83,718 | — | 58,285 | 32,751 | — | 91,036 | ||||||||||||||||||||||||||||||
Deferred tax assets – noncurrent | 13,692 | — | 4,548 | (14,490 | ) | 3,750 | ||||||||||||||||||||||||||||||||||
Derivative instruments | 59,257 | — | — | — | 59,257 | |||||||||||||||||||||||||||||||||||
Deferred tax assets | 1,427 | — | 3,698 | (1,427 | ) | 3,698 | ||||||||||||||||||||||||||||||||||
Investment in subsidiaries | 4,942,294 | — | — | (4,942,294 | ) | — | 5,590,670 | — | — | (5,590,670 | ) | — | ||||||||||||||||||||||||||||
Other assets | 490,873 | 49,539 | 8,726 | (487,411 | ) | 61,727 | 355,984 | 44,507 | 7,453 | (352,772 | ) | 55,172 | ||||||||||||||||||||||||||||
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Total assets | $ | 5,506,116 | $ | 3,288,478 | $ | 2,715,391 | $ | (5,444,195 | ) | $ | 6,065,790 | $ | 5,948,081 | $ | 3,522,778 | $ | 3,058,739 | $ | (5,944,869 | ) | $ | 6,584,729 | ||||||||||||||||||
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Current liabilities: | ||||||||||||||||||||||||||||||||||||||||
Current portion of long-term debt | $ | 34,550 | $ | — | $ | 255 | $ | — | $ | 34,805 | $ | 33,550 | $ | — | $ | 280 | $ | — | $ | 33,830 | ||||||||||||||||||||
Accounts payable | — | 66,085 | 26,588 | — | 92,673 | — | 78,622 | 43,808 | — | 122,430 | ||||||||||||||||||||||||||||||
Accrued salaries and benefits | — | 71,053 | 31,280 | — | 102,333 | — | 74,265 | 30,643 | — | 104,908 | ||||||||||||||||||||||||||||||
Other accrued liabilities | 11,656 | 24,319 | 70,071 | — | 106,046 | 11,572 | 29,302 | 87,599 | — | 128,473 | ||||||||||||||||||||||||||||||
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Total current liabilities | 46,206 | 161,457 | 128,194 | — | 335,857 | 45,122 | 182,189 | 162,330 | — | 389,641 | ||||||||||||||||||||||||||||||
Long-term debt | 3,223,977 | — | 510,011 | (487,411 | ) | 3,246,577 | 3,186,180 | — | 374,680 | (352,772 | ) | 3,208,088 | ||||||||||||||||||||||||||||
Deferred tax liabilities – noncurrent | — | 28,435 | 49,913 | (14,490 | ) | 63,858 | ||||||||||||||||||||||||||||||||||
Deferred tax liabilities | — | 21,772 | 56,585 | (1,427 | ) | 76,930 | ||||||||||||||||||||||||||||||||||
Derivative instrument liabilities | 15,160 | — | — | — | 15,160 | |||||||||||||||||||||||||||||||||||
Other liabilities | — | 103,897 | 62,098 | — | 165,995 | — | 103,280 | 65,353 | — | 168,633 | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Total liabilities | 3,270,183 | 293,789 | 750,216 | (501,901 | ) | 3,812,287 | 3,246,462 | 307,241 | 658,948 | (354,199 | ) | 3,858,452 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Redeemable noncontrolling interests | — | — | 17,570 | — | 17,570 | — | — | 24,658 | — | 24,658 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total equity | 2,235,933 | 2,994,689 | 1,947,605 | (4,942,294 | ) | 2,235,933 | 2,701,619 | 3,215,537 | 2,375,133 | (5,590,670 | ) | 2,701,619 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total liabilities and equity | $ | 5,506,116 | $ | 3,288,478 | $ | 2,715,391 | $ | (5,444,195 | ) | $ | 6,065,790 | $ | 5,948,081 | $ | 3,522,778 | $ | 3,058,739 | $ | (5,944,869 | ) | $ | 6,584,729 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Acadia Healthcare Company, Inc.
Condensed Consolidating Balance Sheets
December 31, 20162017
(In thousands)
Parent | Combined Subsidiary Guarantors | Combined Non- Guarantors | Consolidating Adjustments | Total Consolidated Amounts | Parent | Combined Subsidiary Guarantors | Combined Non- Guarantors | Consolidating Adjustments | Total Consolidated Amounts | |||||||||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 15,681 | $ | 41,382 | $ | — | $ | 57,063 | $ | — | $ | 46,860 | $ | 20,430 | $ | — | $ | 67,290 | ||||||||||||||||||||
Accounts receivable, net | — | 209,124 | 54,203 | — | 263,327 | — | 230,890 | 66,035 | — | 296,925 | ||||||||||||||||||||||||||||||
Other current assets | — | 61,724 | 45,813 | — | 107,537 | — | 85,746 | 21,589 | — | 107,335 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total current assets | — | 286,529 | 141,398 | — | 427,927 | — | 363,496 | 108,054 | — | 471,550 | ||||||||||||||||||||||||||||||
Property and equipment, net | — | 940,880 | 1,762,815 | — | 2,703,695 | — | 1,086,802 | 1,961,328 | — | 3,048,130 | ||||||||||||||||||||||||||||||
Goodwill | — | 1,935,260 | 745,928 | — | 2,681,188 | — | 1,936,057 | 815,117 | — | 2,751,174 | ||||||||||||||||||||||||||||||
Intangible assets, net | — | 56,676 | 26,634 | — | 83,310 | — | 57,628 | 29,720 | — | 87,348 | ||||||||||||||||||||||||||||||
Deferred tax assets – noncurrent | 13,522 | — | 4,606 | (14,348 | ) | 3,780 | ||||||||||||||||||||||||||||||||||
Derivative instruments | 73,509 | — | — | — | 73,509 | |||||||||||||||||||||||||||||||||||
Deferred tax assets | 2,370 | — | 3,731 | (2,370 | ) | 3,731 | ||||||||||||||||||||||||||||||||||
Derivative instruments assets | 12,997 | — | — | — | 12,997 | |||||||||||||||||||||||||||||||||||
Investment in subsidiaries | 4,885,865 | — | — | (4,885,865 | ) | — | 5,429,386 | — | — | (5,429,386 | ) | — | ||||||||||||||||||||||||||||
Other assets | 493,294 | 40,480 | 7,189 | (489,646 | ) | 51,317 | 381,913 | 38,860 | 7,807 | (379,008 | ) | 49,572 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total assets | $ | 5,466,190 | $ | 3,259,825 | $ | 2,688,570 | $ | (5,389,859 | ) | $ | 6,024,726 | $ | 5,826,666 | $ | 3,482,843 | $ | 2,925,757 | $ | (5,810,764 | ) | $ | 6,424,502 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||||||||||||||
Current portion of long-term debt | $ | 34,550 | $ | — | $ | 255 | $ | — | $ | 34,805 | $ | 34,550 | $ | — | $ | 280 | $ | — | $ | 34,830 | ||||||||||||||||||||
Accounts payable | — | 49,205 | 30,829 | — | 80,034 | — | 70,767 | 31,532 | — | 102,299 | ||||||||||||||||||||||||||||||
Accrued salaries and benefits | — | 72,835 | 32,233 | — | 105,068 | — | 69,057 | 29,990 | — | 99,047 | ||||||||||||||||||||||||||||||
Other accrued liabilities | 33,616 | 24,375 | 64,967 | — | 122,958 | 36,196 | 27,676 | 77,341 | — | 141,213 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total current liabilities | 68,166 | 146,415 | 128,284 | — | 342,865 | 70,746 | 167,500 | 139,143 | — | 377,389 | ||||||||||||||||||||||||||||||
Long-term debt | 3,230,300 | — | 512,350 | (489,646 | ) | 3,253,004 | 3,183,049 | — | 401,017 | (379,008 | ) | 3,205,058 | ||||||||||||||||||||||||||||
Deferred tax liabilities – noncurrent | — | 40,574 | 52,294 | (14,348 | ) | 78,520 | ||||||||||||||||||||||||||||||||||
Deferred tax liabilities | — | 27,975 | 54,728 | (2,370 | ) | 80,333 | ||||||||||||||||||||||||||||||||||
Other liabilities | — | 101,938 | 62,921 | — | 164,859 | — | 103,112 | 63,322 | — | 166,434 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total liabilities | 3,298,466 | 288,927 | 755,849 | (503,994 | ) | 3,839,248 | 3,253,795 | 298,587 | 658,210 | (381,378 | ) | 3,829,214 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Redeemable noncontrolling interests | — | — | 17,754 | — | 17,754 | — | — | 22,417 | — | 22,417 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total equity | 2,167,724 | 2,970,898 | 1,914,967 | (4,885,865 | ) | 2,167,724 | 2,572,871 | 3,184,256 | 2,245,130 | (5,429,386 | ) | 2,572,871 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total liabilities and equity | $ | 5,466,190 | $ | 3,259,825 | $ | 2,688,570 | $ | (5,389,859 | ) | $ | 6,024,726 | $ | 5,826,666 | $ | 3,482,843 | $ | 2,925,757 | $ | (5,810,764 | ) | $ | 6,424,502 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Acadia Healthcare Company, Inc.
Condensed Consolidating Statement of Comprehensive Income (Loss)
Three Months Ended March 31, 2018
(In thousands)
Parent | Combined Subsidiary Guarantors | Combined Non- Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
Revenue | $ | — | $ | 435,625 | $ | 306,616 | $ | — | $ | 742,241 | ||||||||||
Salaries, wages and benefits | 6,919 | 239,052 | 165,557 | — | 411,528 | |||||||||||||||
Professional fees | — | 24,271 | 29,747 | — | 54,018 | |||||||||||||||
Supplies | — | 18,712 | 10,652 | — | 29,364 | |||||||||||||||
Rents and leases | — | 8,239 | 12,049 | — | 20,288 | |||||||||||||||
Other operating expenses | — | 56,170 | 32,061 | — | 88,231 | |||||||||||||||
Depreciation and amortization | — | 18,172 | 21,601 | — | 39,773 | |||||||||||||||
Interest expense, net | 14,617 | 23,584 | 7,042 | — | 45,243 | |||||||||||||||
Debt extinguishment costs | 940 | — | — | — | 940 | |||||||||||||||
Transaction-related expenses | — | 4,009 | 759 | — | 4,768 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total expenses | 22,476 | 392,209 | 279,468 | — | 694,153 | |||||||||||||||
(Loss) income before income taxes | (22,476 | ) | 43,416 | 27,148 | — | 48,088 | ||||||||||||||
Equity in earnings of subsidiaries | 67,598 | — | — | (67,598 | ) | — | ||||||||||||||
(Benefit from) provision for income taxes | (5,752 | ) | (123 | ) | 3,089 | — | (2,786 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) | 50,874 | 43,539 | 24,059 | (67,598 | ) | 50,874 | ||||||||||||||
Net gain attributable to noncontrolling interests | — | — | (55 | ) | — | (55 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) attributable to Acadia Healthcare Company, Inc. | $ | 50,874 | $ | 43,539 | $ | 24,004 | $ | (67,598 | ) | $ | 50,819 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive (loss) income: | ||||||||||||||||||||
Foreign currency translation gain | — | — | 92,780 | —�� | 92,780 | |||||||||||||||
Loss on derivative instruments | (20,053 | ) | — | — | — | (20,053 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive (loss) income | (20,053 | ) | — | 92,780 | — | 72,727 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Comprehensive income (loss) | $ | 30,821 | $ | 43,539 | $ | 116,784 | $ | (67,598 | ) | $ | 123,546 | |||||||||
|
|
|
|
|
|
|
|
|
|
Acadia Healthcare Company, Inc.
Condensed Consolidating Statement of Comprehensive Income (Loss)
Three Months Ended March 31, 2017
(In thousands)
Parent | Combined Subsidiary Guarantors | Combined Non- Guarantors | Consolidating Adjustments | Total Consolidated Amounts | Parent | Combined Subsidiary Guarantors | Combined Non- Guarantors | Consolidating Adjustments | Total Consolidated Amounts | |||||||||||||||||||||||||||||||
Revenue before provision for doubtful accounts | $ | — | $ | 426,796 | $ | 262,545 | $ | — | $ | 689,341 | $ | — | $ | 426,796 | $ | 262,545 | $ | — | $ | 689,341 | ||||||||||||||||||||
Provision for doubtful accounts | — | (9,214 | ) | (933 | ) | — | (10,147 | ) | — | (9,214 | ) | (933 | ) | — | (10,147 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Revenue | — | 417,582 | 261,612 | — | 679,194 | — | 417,582 | 261,612 | — | 679,194 | ||||||||||||||||||||||||||||||
Salaries, wages and benefits | 7,396 | 224,430 | 144,595 | — | 376,421 | 7,396 | 224,430 | 144,595 | — | 376,421 | ||||||||||||||||||||||||||||||
Professional fees | — | 22,074 | 21,335 | — | 43,409 | — | 22,074 | 21,335 | — | 43,409 | ||||||||||||||||||||||||||||||
Supplies | — | 18,609 | 9,100 | — | 27,709 | — | 18,609 | 9,100 | — | 27,709 | ||||||||||||||||||||||||||||||
Rents and leases | — | 8,511 | 10,460 | — | 18,971 | — | 8,511 | 10,460 | — | 18,971 | ||||||||||||||||||||||||||||||
Other operating expenses | — | 55,031 | 28,680 | — | 83,711 | — | 55,031 | 28,680 | — | 83,711 | ||||||||||||||||||||||||||||||
Depreciation and amortization | — | 15,551 | 18,062 | — | 33,613 | — | 15,551 | 18,062 | — | 33,613 | ||||||||||||||||||||||||||||||
Interest expense, net | 15,368 | 18,485 | 8,904 | — | 42,757 | 15,368 | 18,485 | 8,904 | — | 42,757 | ||||||||||||||||||||||||||||||
Transaction-related expenses | — | 1,438 | 2,681 | — | 4,119 | — | 1,438 | 2,681 | — | 4,119 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total expenses | 22,764 | 364,129 | 243,817 | — | 630,710 | 22,764 | 364,129 | 243,817 | — | 630,710 | ||||||||||||||||||||||||||||||
(Loss) income before income taxes | (22,764 | ) | 53,453 | �� | 17,795 | — | 48,484 | (22,764 | ) | 53,453 | 17,795 | — | 48,484 | |||||||||||||||||||||||||||
Equity in earnings of subsidiaries | 46,553 | — | — | (46,553 | ) | — | 46,553 | — | — | (46,553 | ) | — | ||||||||||||||||||||||||||||
(Benefit from) provision for income taxes | (10,984 | ) | 21,070 | 3,625 | — | 13,711 | (10,984 | ) | 21,070 | 3,625 | — | 13,711 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net income (loss) | 34,773 | 32,383 | 14,170 | (46,553 | ) | 34,773 | 34,773 | 32,383 | 14,170 | (46,553 | ) | 34,773 | ||||||||||||||||||||||||||||
Net loss attributable to noncontrolling interests | — | — | 185 | — | 185 | — | — | 185 | — | 185 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net income (loss) attributable to Acadia Healthcare | $ | 34,773 | $ | 32,383 | $ | 14,355 | $ | (46,553 | ) | $ | 34,958 | $ | 34,773 | $ | 32,383 | $ | 14,355 | $ | (46,553 | ) | $ | 34,958 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||||||
Other comprehensive (loss) income: | ||||||||||||||||||||||||||||||||||||||||
Foreign currency translation gain | — | — | 27,046 | — | 27,046 | — | — | 27,046 | — | 27,046 | ||||||||||||||||||||||||||||||
Loss on derivative instruments | (5,868 | ) | — | — | — | (5,868 | ) | (5,868 | ) | — | — | — | (5,868 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Other comprehensive income (loss) | (5,868 | ) | — | 27,046 | — | 21,178 | ||||||||||||||||||||||||||||||||||
Other comprehensive (loss) income | (5,868 | ) | — | 27,046 | — | 21,178 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Comprehensive income (loss) | $ | 28,905 | $ | 32,383 | $ | 41,401 | $ | (46,553 | ) | $ | 56,136 | $ | 28,905 | $ | 32,383 | $ | 41,401 | $ | (46,553 | ) | $ | 56,136 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Acadia Healthcare Company, Inc.
Condensed Consolidating Statement of Comprehensive Income (Loss)Cash Flows
Three Months Ended March 31, 20162018
(In thousands)
Parent | Combined Subsidiary Guarantors | Combined Non- Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
Revenue before provision for doubtful accounts | $ | — | $ | 402,934 | $ | 224,249 | $ | — | $ | 627,183 | ||||||||||
Provision for doubtful accounts | — | (9,342 | ) | (1,028 | ) | — | (10,370 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Revenue | — | 393,592 | 223,221 | — | 616,813 | |||||||||||||||
Salaries, wages and benefits | 6,956 | 211,033 | 123,039 | — | 341,028 | |||||||||||||||
Professional fees | — | 22,677 | 17,314 | — | 39,991 | |||||||||||||||
Supplies | — | 18,462 | 8,223 | — | 26,685 | |||||||||||||||
Rents and leases | — | 8,577 | 6,229 | — | 14,806 | |||||||||||||||
Other operating expenses | — | 48,849 | 21,398 | — | 70,247 | |||||||||||||||
Depreciation and amortization | — | 12,751 | 15,224 | — | 27,975 | |||||||||||||||
Interest expense, net | 13,433 | 16,093 | 8,188 | — | 37,714 | |||||||||||||||
Gain on foreign currency derivatives | (410 | ) | — | — | — | (410 | ) | |||||||||||||
Transaction-related expenses | — | 21,435 | 4,863 | — | 26,298 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total expenses | 19,979 | 359,877 | 204,478 | — | 584,334 | |||||||||||||||
(Loss) income before income taxes | (19,979 | ) | 33,715 | 18,743 | — | 32,479 | ||||||||||||||
Equity in earnings of subsidiaries | 40,869 | — | — | (40,869 | ) | — | ||||||||||||||
(Benefit from) provision for income taxes | (4,479 | ) | 7,407 | 4,182 | — | 7,110 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) | 25,369 | 26,308 | 14,561 | (40,869 | ) | 25,369 | ||||||||||||||
Net loss attributable to noncontrolling interests | — | — | 319 | — | 319 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income (loss) attributable to Acadia Healthcare | $ | 25,369 | $ | 26,308 | $ | 14,880 | $ | (40,869 | ) | $ | 25,688 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive loss: | ||||||||||||||||||||
Foreign currency translation loss | — | — | (48,415 | ) | — | (48,415 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive loss | — | — | (48,415 | ) | — | (48,415 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Comprehensive income (loss) | $ | 25,369 | $ | 26,308 | $ | (33,535 | ) | $ | (40,869 | ) | $ | (22,727 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
Parent | Combined Subsidiary Guarantors | Combined Non- Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
Operating activities: | ||||||||||||||||||||
Net income (loss) | $ | 50,874 | $ | 43,539 | $ | 24,059 | $ | (67,598 | ) | $ | 50,874 | |||||||||
Adjustments to reconcile net income (loss) to net cash (used in) provided by continuing operating activities: | ||||||||||||||||||||
Equity in earnings of subsidiaries | (67,598 | ) | — | — | 67,598 | — | ||||||||||||||
Depreciation and amortization | — | 18,172 | 21,601 | — | 39,773 | |||||||||||||||
Amortization of debt issuance costs | 2,626 | — | (101 | ) | — | 2,525 | ||||||||||||||
Equity-based compensation expense | 6,919 | — | — | — | 6,919 | |||||||||||||||
Deferred income tax (benefit) expense | 942 | 1,104 | (149 | ) | — | 1,897 | ||||||||||||||
Debt extinguishment costs | 940 | — | — | — | 940 | |||||||||||||||
Other | 794 | 315 | (66 | ) | — | 1,043 | ||||||||||||||
Change in operating assets and liabilities: | ||||||||||||||||||||
Accounts receivable, net | — | (21,049 | ) | 2,256 | — | (18,793 | ) | |||||||||||||
Other current assets | — | (7,980 | ) | (5,236 | ) | — | (13,216 | ) | ||||||||||||
Other assets | 4,432 | (1,305 | ) | 37 | (4,432 | ) | (1,268 | ) | ||||||||||||
Accounts payable and other accrued liabilities | — | (11,417 | ) | 8,049 | — | (3,368 | ) | |||||||||||||
Accrued salaries and benefits | — | 5,208 | (406 | ) | — | 4,802 | ||||||||||||||
Other liabilities | — | 1,204 | (695 | ) | — | 509 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash (used in) provided by continuing operating activities | (71 | ) | 27,791 | 49,349 | (4,432 | ) | 72,637 | |||||||||||||
Net cash used in discontinued operating activities | — | (287 | ) | — | — | (287 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash (used in) provided by operating activities | (71 | ) | 27,504 | 49,349 | (4,432 | ) | 72,350 | |||||||||||||
Investing activities: | ||||||||||||||||||||
Cash paid for capital expenditures | — | (40,879 | ) | (29,448 | ) | — | (70,327 | ) | ||||||||||||
Cash paid for real estate acquisitions | — | (4,293 | ) | — | — | (4,293 | ) | |||||||||||||
Other | — | (4,799 | ) | 733 | — | (4,066 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash used in investing activities | — | (49,971 | ) | (28,715 | ) | — | (78,686 | ) | ||||||||||||
Financing activities: | ||||||||||||||||||||
Principal payments on long-term debt | — | (169 | ) | (4,263 | ) | 4,432 | — | |||||||||||||
Common stock withheld for minimum statutory taxes, net | (2,030 | ) | — | — | — | (2,030 | ) | |||||||||||||
Other | (1,742 | ) | (962 | ) | — | — | (2,704 | ) | ||||||||||||
Cash provided by (used in) intercompany activity | 3,843 | 1,950 | (5,793 | ) | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net provided by (used in) in financing activities | 71 | 819 | (10,056 | ) | 4,432 | (4,734 | ) | |||||||||||||
|
|
|
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| |||||||||||
Effect of exchange rate changes on cash | — | — | 1,588 | — | 1,588 | |||||||||||||||
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|
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|
|
|
|
| |||||||||||
Net (decrease) increase in cash and cash equivalents | — | (21,648 | ) | 12,166 | — | (9,482 | ) | |||||||||||||
Cash and cash equivalents at beginning of the period | — | 46,860 | 20,430 | — | 67,290 | |||||||||||||||
|
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|
|
|
|
|
|
|
| |||||||||||
Cash and cash equivalents at end of the period | $ | — | $ | 25,212 | $ | 32,596 | $ | — | $ | 57,808 | ||||||||||
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Acadia Healthcare Company, Inc.
Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2017
(In thousands)
Parent | Combined Subsidiary Guarantors | Combined Non- Guarantors | Consolidating Adjustments | Total Consolidated Amounts | Parent | Combined Subsidiary Guarantors | Combined Non- Guarantors | Consolidating Adjustments | Total Consolidated Amounts | |||||||||||||||||||||||||||||||
Operating activities: | ||||||||||||||||||||||||||||||||||||||||
Net income (loss) | $ | 34,773 | $ | 32,383 | $ | 14,170 | $ | (46,553 | ) | $ | 34,773 | $ | 34,773 | $ | 32,383 | $ | 14,170 | $ | (46,553 | ) | $ | 34,773 | ||||||||||||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) continuing operating activities: | ||||||||||||||||||||||||||||||||||||||||
Equity in earnings of subsidiaries | (46,553 | ) | — | — | 46,553 | — | (46,553 | ) | — | — | 46,553 | — | ||||||||||||||||||||||||||||
Depreciation and amortization | — | 15,551 | 18,062 | — | 33,613 | — | 15,551 | 18,062 | — | 33,613 | ||||||||||||||||||||||||||||||
Amortization of debt issuance costs | 2,500 | — | (104 | ) | — | 2,396 | 2,500 | — | (104 | ) | — | 2,396 | ||||||||||||||||||||||||||||
Equity-based compensation expense | 7,396 | — | — | — | 7,396 | 7,396 | — | — | — | 7,396 | ||||||||||||||||||||||||||||||
Deferred income tax (benefit) expense | (171 | ) | 2,754 | (576 | ) | — | 2,007 | (171 | ) | 2,754 | (576 | ) | — | 2,007 | ||||||||||||||||||||||||||
Other | 2,732 | 506 | 587 | — | 3,825 | 2,732 | 506 | 587 | — | 3,825 | ||||||||||||||||||||||||||||||
Change in operating assets and liabilities, net of effect of acquisitions: | ||||||||||||||||||||||||||||||||||||||||
Change in operating assets and liabilities: | ||||||||||||||||||||||||||||||||||||||||
Accounts receivable, net | — | (10,412 | ) | (2,047 | ) | — | (12,459 | ) | — | (10,412 | ) | (2,047 | ) | — | (12,459 | ) | ||||||||||||||||||||||||
Other current assets | — | 5,097 | 789 | — | 5,886 | — | 5,097 | 789 | — | 5,886 | ||||||||||||||||||||||||||||||
Other assets | 2,927 | (1,778 | ) | 68 | (2,927 | ) | (1,710 | ) | 2,927 | (1,778 | ) | 68 | (2,927 | ) | (1,710 | ) | ||||||||||||||||||||||||
Accounts payable and other accrued liabilities | — | (9,224 | ) | (7,769 | ) | — | (16,993 | ) | — | (9,224 | ) | (7,769 | ) | — | (16,993 | ) | ||||||||||||||||||||||||
Accrued salaries and benefits | — | (1,961 | ) | (1,476 | ) | — | (3,437 | ) | — | (1,961 | ) | (1,476 | ) | — | (3,437 | ) | ||||||||||||||||||||||||
Other liabilities | — | (304 | ) | 2,446 | — | 2,142 | — | (304 | ) | 2,446 | — | 2,142 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Net cash provided by (used in) continuing operating activities | 3,604 | 32,612 | 24,150 | (2,927 | ) | 57,439 | 3,604 | 32,612 | 24,150 | (2,927 | ) | 57,439 | ||||||||||||||||||||||||||||
Net cash used in discontinued operating activities | — | (425 | ) | — | — | (425 | ) | — | (425 | ) | — | — | (425 | ) | ||||||||||||||||||||||||||
|
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| |||||||||||||||||||||||||||||||
Net cash provided by (used in) operating activities | 3,604 | 32,187 | 24,150 | (2,927 | ) | 57,014 | 3,604 | 32,187 | 24,150 | (2,927 | ) | 57,014 | ||||||||||||||||||||||||||||
Investing activities: | ||||||||||||||||||||||||||||||||||||||||
Cash paid for capital expenditures | — | (30,018 | ) | (20,531 | ) | — | (50,549 | ) | — | (30,018 | ) | (20,531 | ) | — | (50,549 | ) | ||||||||||||||||||||||||
Cash paid for real estate acquisitions | — | (2,495 | ) | — | — | (2,495 | ) | — | (2,495 | ) | — | — | (2,495 | ) | ||||||||||||||||||||||||||
Other | — | (6,531 | ) | 1,480 | — | (5,051 | ) | — | (6,531 | ) | 1,480 | — | (5,051 | ) | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Net cash used in investing activities | — | (39,044 | ) | (19,051 | ) | — | (58,095 | ) | — | (39,044 | ) | (19,051 | ) | — | (58,095 | ) | ||||||||||||||||||||||||
Financing activities: | ||||||||||||||||||||||||||||||||||||||||
Principal payments on long-term debt | (8,638 | ) | — | (2,927 | ) | 2,927 | (8,638 | ) | (8,638 | ) | — | (2,927 | ) | 2,927 | (8,638 | ) | ||||||||||||||||||||||||
Common stock withheld for minimum statutory taxes, net | (4,234 | ) | — | — | — | (4,234 | ) | (4,234 | ) | — | — | — | (4,234 | ) | ||||||||||||||||||||||||||
Other | — | (865 | ) | — | — | (865 | ) | — | (865 | ) | — | — | (865 | ) | ||||||||||||||||||||||||||
Cash provided by (used in) intercompany activity | 9,268 | (5,030 | ) | (4,238 | ) | — | — | 9,268 | (5,030 | ) | (4,238 | ) | — | — | ||||||||||||||||||||||||||
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|
|
|
|
| |||||||||||||||||||||||||||||||
Net (used in) provided by in financing activities | (3,604 | ) | (5,895 | ) | (7,165 | ) | 2,927 | (13,737 | ) | (3,604 | ) | (5,895 | ) | (7,165 | ) | 2,927 | (13,737 | ) | ||||||||||||||||||||||
|
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|
|
|
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|
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| |||||||||||||||||||||||||||||||
Effect of exchange rate changes on cash | — | — | 842 | — | 842 | — | — | 842 | — | 842 | ||||||||||||||||||||||||||||||
|
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|
|
|
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|
|
| |||||||||||||||||||||||||||||||
Net decrease in cash and cash equivalents | — | (12,752 | ) | (1,224 | ) | — | (13,976 | ) | — | (12,752 | ) | (1,224 | ) | — | (13,976 | ) | ||||||||||||||||||||||||
Cash and cash equivalents at beginning of the period | — | 15,681 | 41,382 | — | 57,063 | — | 15,681 | 41,382 | — | 57,063 | ||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||
Cash and cash equivalents at end of the period | $ | — | $ | 2,929 | $ | 40,158 | $ | — | $ | 43,087 | $ | — | $ | 2,929 | $ | 40,158 | $ | — | $ | 43,087 | ||||||||||||||||||||
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|
Acadia Healthcare Company, Inc.
Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2016
(In thousands)
Parent | Combined Subsidiary Guarantors | Combined Non- Guarantors | Consolidating Adjustments | Total Consolidated Amounts | ||||||||||||||||
Operating activities: | ||||||||||||||||||||
Net income (loss) | $ | 25,369 | $ | 26,308 | $ | 14,561 | $ | (40,869 | ) | $ | 25,369 | |||||||||
Adjustments to reconcile net income (loss) to net cash (used in) provided by continuing operating activities: | ||||||||||||||||||||
Equity in earnings of subsidiaries | (40,869 | ) | — | — | 40,869 | — | ||||||||||||||
Depreciation and amortization | — | 12,751 | 15,224 | — | 27,975 | |||||||||||||||
Amortization of debt issuance costs | 2,254 | — | (107 | ) | — | 2,147 | ||||||||||||||
Equity-based compensation expense | 6,956 | — | — | — | 6,956 | |||||||||||||||
Deferred income tax expense | — | 8,846 | 239 | — | 9,085 | |||||||||||||||
Gain on foreign currency derivatives | (410 | ) | — | — | — | (410 | ) | |||||||||||||
Other | — | 896 | (14 | ) | — | 882 | ||||||||||||||
Change in operating assets and liabilities, net of effect of acquisitions: | ||||||||||||||||||||
Accounts receivable, net | — | (13,560 | ) | 9,811 | — | (3,749 | ) | |||||||||||||
Other current assets | — | (3,596 | ) | (4,479 | ) | — | (8,075 | ) | ||||||||||||
Other assets | — | (1,992 | ) | (410 | ) | — | (2,402 | ) | ||||||||||||
Accounts payable and other accrued liabilities | — | 7,564 | (66 | ) | — | 7,498 | ||||||||||||||
Accrued salaries and benefits | — | 6,388 | (12,735 | ) | — | (6,347 | ) | |||||||||||||
Other liabilities | — | 4,416 | (4,062 | ) | — | 354 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash (used in) provided by continuing operating activities | (6,700 | ) | 48,021 | 17,962 | — | 59,283 | ||||||||||||||
Net cash used in discontinued operating activities | — | (619 | ) | — | — | (619 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash (used in) provided by operating activities | (6,700 | ) | 47,402 | 17,962 | — | 58,664 | ||||||||||||||
Investing activities: | ||||||||||||||||||||
Cash paid for acquisitions, net of cash acquired | — | — | (580,096 | ) | — | (580,096 | ) | |||||||||||||
Cash paid for capital expenditures | — | (64,272 | ) | (25,817 | ) | — | (90,089 | ) | ||||||||||||
Cash paid for real estate acquisitions | — | (2,998 | ) | (11,801 | ) | — | (14,799 | ) | ||||||||||||
Settlement of foreign currency derivatives | — | 745 | — | — | 745 | |||||||||||||||
Other | — | (1,208 | ) | — | — | (1,208 | ) | |||||||||||||
|
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|
|
|
|
|
|
|
| |||||||||||
Net cash used in investing activities | — | (67,733 | ) | (617,714 | ) | — | (685,447 | ) | ||||||||||||
Financing activities: | ||||||||||||||||||||
Borrowings on long-term debt | 1,480,000 | — | — | — | 1,480,000 | |||||||||||||||
Borrowings on revolving credit facility | 58,000 | — | — | — | 58,000 | |||||||||||||||
Principal payments on revolving credit facility | (166,000 | ) | — | — | — | (166,000 | ) | |||||||||||||
Principal payments on long-term debt | (13,669 | ) | — | — | — | (13,669 | ) | |||||||||||||
Repayment of assumed debt | (1,348,389 | ) | — | — | — | (1,348,389 | ) | |||||||||||||
Payment of debt issuance costs | (34,167 | ) | — | — | — | (34,167 | ) | |||||||||||||
Issuance of common stock | 685,097 | — | — | — | 685,097 | |||||||||||||||
Common stock withheld for minimum statutory taxes, net | (6,679 | ) | — | — | — | (6,679 | ) | |||||||||||||
Other | — | (224 | ) | — | — | (224 | ) | |||||||||||||
Cash (used in) provided by intercompany activity | (647,493 | ) | 35,637 | 611,856 | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net cash provided by financing activities | 6,700 | 35,413 | 611,856 | — | 653,969 | |||||||||||||||
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|
|
|
|
|
|
| |||||||||||
Effect of exchange rate changes on cash | — | — | (1,819 | ) | — | (1,819 | ) | |||||||||||||
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|
|
|
|
|
|
| |||||||||||
Net increase in cash and cash equivalents | — | 15,082 | 10,285 | — | 25,367 | |||||||||||||||
Cash and cash equivalents at beginning of the period | — | 1,987 | 9,228 | — | 11,215 | |||||||||||||||
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|
|
|
|
|
|
| |||||||||||
Cash and cash equivalents at end of the period | $ | — | $ | 17,069 | $ | 19,513 | $ | — | $ | 36,582 | ||||||||||
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
This Quarterly Report on Form10-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:
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 Form10-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.
Overview
Our business strategy is to acquire and develop behavioral healthcare facilities and improve our operating results within our 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 March 31, 2017,2018, we operated 575584 behavioral healthcare facilities with over 17,200approximately 17,800 beds in 3940 states, the U.K. and Puerto Rico. During the three months ended March 31, 2017,2018, we added 82 new121 beds, including 57 added to existing facilities.facilities and 64 added through the opening of one de novo facility. For the year endingended December 31, 2017,2018, we expect to add approximatelymore than 800 total beds exclusive of acquisitions.
We are the leading publicly traded pure-play provider of behavioral healthcare services, with operations in the U.S. and the U.K. Management believes that we are positioned 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 ofout-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 in the U.S and U.K. though acquisitions, joint ventures and bed additions in existing facilities.
Acquisitions
2016 U.S. Acquisitions
On June 1, 2016,November 13, 2017, we completed the acquisition of Pocono Mountain,Aspire, an inpatient psychiatriceducation facility with 10836 beds located in Henryville, Pennsylvania,Scotland, for cash consideration of approximately $25.4 million. In addition, we may be required to make a cash payment of up to $5.0 million under anearn-out agreement, contingent upon achievement by Pocono Mountain of certain operating performance targets for theone-year period ending May 31, 2017.
On May 1, 2016, we completed the acquisition of TrustPoint, an inpatient psychiatric facility with 100 beds located in Murfreesboro, Tennessee, for cash consideration of approximately $62.7$21.3 million.
On April 1, 2016, we completedRevenue
In May 2014, the acquisition of Serenity Knolls, an inpatient psychiatric facility with 30 beds located in Forest Knolls, California, for cash consideration of approximately $9.7 million.
Priory
On February 16, 2016, we completed the acquisition of Priory for a total purchase price of approximately $2.2 billion, including cash consideration of approximately $1.9 billionFASB and the issuance of 4,033,561 shares of our common stockInternational Accounting Standards Board issued ASU2014-09. ASU2014-09’s core principle is that a company will recognize revenue when it transfers promised goods or services to shareholders of Priory. Priory wascustomers in an amount that reflects the leading independent provider of behavioral healthcare servicesconsideration to which we expect to be entitled in exchange for those goods or services. We adopted ASU2014-09 using the U.K. operating 324 facilities with approximately 7,100 beds at the acquisition date.
The CMA in the U.K. reviewed our acquisition of Priory. On July 14, 2016, the CMA announced that our acquisition of Priory was referred for a phase 2 investigation unless we offered acceptable undertakings to address the CMA’s competition concerns relating to the provision of behavioral healthcare services in certain markets. On July 28, 2016, the CMA announced that we had offered undertakings to address the CMA’s concerns and that, in lieu of a phase 2 investigation, the CMA would consider our undertakings.
On October 18, 2016, we signed a definitive agreement with BC Partners for the sale of 21 existing U.K. behavioral health facilities and one de novo behavioral health facility with an aggregate of approximately 1,000 beds. On November 10, 2016, the CMA accepted our undertakings to sell the U.K. Disposal Group to BC Partners and confirmed that the divestiture satisfied the CMA’s concerns about the impact of our acquisition of Priory on competition for the provision of behavioral healthcare services in certain markets in the U.K.modified retrospective method effective January 1, 2018. As a result of certain changes required by ASU2014-09,the CMA’s acceptancemajority of our undertakings,provision for doubtful accounts are recorded as a direct reduction to revenue instead of being presented as a separate line item on the condensed consolidated statements of income. The adoption of ASU2014-09 did not have a significant impact on our acquisition of Priory was not referred for a phase 2 investigation. On November 30, 2016, we completed the sale of the U.K. Disposal Group to BC Partners for £320 million cash.
Revenueconsolidated financial statements.
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 CMS; (iv) publicly funded sources in the U.K. (including the NHS, Clinical Commissioning GroupsCCGs and local authorities in England, Scotland and Wales) and (v) individual patients and clients. Revenue is recorded inWe determine the period in which services are provided attransaction price based on established billing rates lessreduced by contractual adjustments provided to third-party payors, discounts provided to uninsured patients and implicit price concessions. Contractual adjustments and discounts are 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.contractual agreements, discount policies and historical experience. Implicit price concessions are based on historical collection experience.
The following table presents revenue by payor type and as a percentage of revenue before provision for doubtful accountsin our U.S. Facilities for the three months ended March 31, 20172018 and 20162017 (dollars in thousands):
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||||||||||||||||||
Amount | % | Amount | % | Amount | % | Amount | % | |||||||||||||||||||||||||
Commercial | $ | 139,455 | 20.2 | % | $ | 125,719 | 20.0 | % | $ | 137,619 | 29.8 | % | $ | 139,455 | 31.0 | % | ||||||||||||||||
Medicare | 67,840 | 9.8 | % | 60,006 | 9.6 | % | 67,271 | 14.5 | % | 67,840 | 15.0 | % | ||||||||||||||||||||
Medicaid | 190,834 | 27.7 | % | 178,273 | 28.4 | % | 213,279 | 46.1 | % | 190,834 | 42.4 | % | ||||||||||||||||||||
U.K. public funded sources | 223,128 | 32.4 | % | 194,017 | 30.9 | % | ||||||||||||||||||||||||||
Self-Pay | 58,220 | 8.5 | % | 59,348 | 9.5 | % | 36,907 | 8.0 | % | 43,682 | 9.7 | % | ||||||||||||||||||||
Other | 9,864 | 1.4 | % | 9,820 | 1.6 | % | 7,329 | 1.6 | % | 8,553 | 1.9 | % | ||||||||||||||||||||
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| |||||||||||||||||||||||||
Revenue before provision for doubtful accounts | 689,341 | 100.0 | % | 627,183 | 100.0 | % | 462,405 | 100.0 | % | 450,364 | 100.0 | % | ||||||||||||||||||||
Provision for doubtful accounts | (10,147 | ) | (10,370 | ) | — | (10,141 | ) | |||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||
Revenue | $ | 679,194 | $ | 616,813 | $ | 462,405 | $ | 440,223 | ||||||||||||||||||||||||
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|
The following table presents revenue by payor type and as a percentage of revenue in our U.K. Facilities for the three months ended March 31, 2018 and 2017 (dollars in thousands):
Three Months Ended March 31, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
U.K. public funded sources | $ | 253,294 | 90.5 | % | $ | 215,465 | 90.2 | % | ||||||||
Self-Pay | 25,068 | 9.0 | % | 22,201 | 9.3 | % | ||||||||||
Other | 1,474 | 0.5 | % | 1,311 | 0.5 | % | ||||||||||
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|
|
|
|
|
| |||||||||
Revenue before provision for doubtful accounts | 279,836 | 100.0 | % | 238,977 | 100.0 | % | ||||||||||
Provision for doubtful accounts | — | (6 | ) | |||||||||||||
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|
|
| |||||||||||||
Revenue | $ | 279,836 | $ | 238,971 | ||||||||||||
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|
The following tables present a summary of our aging of accounts receivable as ofat March 31, 20172018 and December 31, 2016:2017:
March 31, 2018
Current | 30-90 | 90-150 | >150 | Total | ||||||||||||||||
Commercial | 17.4 | % | 7.1 | % | 2.7 | % | 6.0 | % | 33.2 | % | ||||||||||
Medicare | 9.8 | % | 1.4 | % | 0.4 | % | 1.0 | % | 12.6 | % | ||||||||||
Medicaid | 21.6 | % | 6.0 | % | 3.1 | % | 5.8 | % | 36.5 | % | ||||||||||
U.K. public funded sources | 3.1 | % | 6.1 | % | 0.2 | % | 0.0 | % | 9.4 | % | ||||||||||
Self-Pay | 1.6 | % | 1.8 | % | 1.2 | % | 2.9 | % | 7.5 | % | ||||||||||
Other | 0.3 | % | 0.3 | % | 0.1 | % | 0.1 | % | 0.8 | % | ||||||||||
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| |||||||||||
Total | 53.8 | % | 22.7 | % | 7.7 | % | 15.8 | % | 100.0 | % |
December 31, 2017
Current | 30-90 | 90-150 | >150 | Total | ||||||||||||||||
Commercial | 18.2 | % | 7.6 | % | 2.8 | % | 5.5 | % | 34.1 | % | ||||||||||
Medicare | 11.5 | % | 1.7 | % | 0.7 | % | 1.1 | % | 15.0 | % | ||||||||||
Medicaid | 19.3 | % | 6.2 | % | 1.9 | % | 5.8 | % | 33.2 | % | ||||||||||
U.K. public funded sources | 3.6 | % | 5.2 | % | 0.3 | % | 0.1 | % | 9.2 | % | ||||||||||
Self-Pay | 1.2 | % | 1.6 | % | 1.3 | % | 2.7 | % | 6.8 | % | ||||||||||
Other | 0.4 | % | 0.5 | % | 0.2 | % | 0.6 | % | 1.7 | % | ||||||||||
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| |||||||||||
Total | 54.2 | % | 22.8 | % | 7.2 | % | 15.8 | % | 100.0 | % |
December 31, 2016
Current | 30-90 | 90-150 | >150 | Total | ||||||||||||||||
Commercial | 15.8 | % | 8.5 | % | 3.0 | % | 5.3 | % | 32.6 | % | ||||||||||
Medicare | 12.0 | % | 1.6 | % | 0.8 | % | 1.2 | % | 15.6 | % | ||||||||||
Medicaid | 18.7 | % | 6.5 | % | 2.9 | % | 5.5 | % | 33.6 | % | ||||||||||
U.K. public funded sources | 5.1 | % | 3.4 | % | 0.6 | % | 0.4 | % | 9.5 | % | ||||||||||
Self-Pay | 1.8 | % | 1.5 | % | 1.5 | % | 3.3 | % | 8.1 | % | ||||||||||
Other | 0.1 | % | 0.1 | % | 0.1 | % | 0.3 | % | 0.6 | % | ||||||||||
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Total | 53.5 | % | 21.6 | % | 8.9 | % | 16.0 | % | 100.0 | % |
Commercial Medicare Medicaid U.K. public funded sources Self-Pay Other Total Current 30-90 90-150 >150 Total 15.3 % 8.7 % 3.2 % 6.9 % 34.1 % 9.4 % 1.6 % 0.5 % 1.1 % 12.6 % 19.8 % 6.4 % 2.5 % 5.2 % 33.9 % 7.0 % 3.4 % 0.2 % 0.0 % 10.6 % 1.8 % 1.4 % 1.4 % 3.2 % 7.8 % 0.3 % 0.3 % 0.2 % 0.2 % 1.0 % 53.6 % 21.8 % 8.0 % 16.6 % 100.0 %
Results of Operations
The following table illustrates our consolidated results of operations for the respective periods shown (dollars in thousands):
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||||||||||||||||||
Amount | % | Amount | % | Amount | % | Amount | % | |||||||||||||||||||||||||
Revenue before provision for doubtful accounts | $ | 689,341 | $ | 627,183 | $ | 742,241 | $ | 689,341 | ||||||||||||||||||||||||
Provision for doubtful accounts | (10,147 | ) | (10,370 | ) | — | (10,147 | ) | |||||||||||||||||||||||||
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Revenue | 679,194 | 100.0 | % | 616,813 | 100.0 | % | 742,241 | 100.0 | % | 679,194 | 100.0 | % | ||||||||||||||||||||
Salaries, wages and benefits | 376,421 | 55.4 | % | 341,028 | 55.3 | % | 411,528 | 55.4 | % | 376,421 | 55.4 | % | ||||||||||||||||||||
Professional fees | 43,409 | 6.4 | % | 39,991 | 6.5 | % | 54,018 | 7.3 | % | 43,409 | 6.4 | % | ||||||||||||||||||||
Supplies | 27,709 | 4.1 | % | 26,685 | 4.3 | % | 29,364 | 4.0 | % | 27,709 | 4.1 | % | ||||||||||||||||||||
Rents and leases | 18,971 | 2.8 | % | 14,806 | 2.4 | % | 20,288 | 2.7 | % | 18,971 | 2.8 | % | ||||||||||||||||||||
Other operating expenses | 83,711 | 12.3 | % | 70,247 | 11.4 | % | 88,231 | 11.9 | % | 83,711 | 12.3 | % | ||||||||||||||||||||
Depreciation and amortization | 33,613 | 4.9 | % | 27,975 | 4.5 | % | 39,773 | 5.4 | % | 33,613 | 4.9 | % | ||||||||||||||||||||
Interest expense | 42,757 | 6.3 | % | 37,714 | 6.1 | % | 45,243 | 6.1 | % | 42,757 | 6.3 | % | ||||||||||||||||||||
Gain on foreign currency derivatives | — | 0.0 | % | (410 | ) | (0.1 | )% | |||||||||||||||||||||||||
Debt extinguishment costs | 940 | 0.1 | % | — | — | % | ||||||||||||||||||||||||||
Transaction-related expenses | 4,119 | 0.6 | % | 26,298 | 4.3 | % | 4,768 | 0.6 | % | 4,119 | 0.6 | % | ||||||||||||||||||||
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Total expenses | 630,710 | 92.8 | % | 584,334 | 94.7 | % | 694,153 | 93.5 | % | 630,710 | 92.8 | % | ||||||||||||||||||||
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Income before income taxes | 48,484 | 7.2 | % | 32,479 | 5.3 | % | 48,088 | 6.5 | % | 48,484 | 7.2 | % | ||||||||||||||||||||
Provision for income taxes | 13,711 | 2.0 | % | 7,110 | 1.2 | % | ||||||||||||||||||||||||||
(Benefit from) provision for income taxes | (2,786 | ) | (0.4 | )% | 13,711 | 2.0 | % | |||||||||||||||||||||||||
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Net income | $ | 34,773 | 5.2 | % | $ | 25,369 | 4.1 | % | $ | 50,874 | 6.9 | % | $ | 34,773 | 5.2 | % | ||||||||||||||||
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Three months ended March 31, 20172018 compared to the three months ended March 31, 20162017
Revenue before provision for doubtful accounts.Revenue. Revenue before provision for doubtful accounts increased $62.1$63.0 million, or 9.9%9.3%, to $689.3$742.2 million for the three months ended March 31, 2018 from $679.2 million for the three months ended March 31, 2017 resulting from $627.2 million fortotal facility revenue growth of 4.8% and the three months ended March 31, 2016. The increase related primarily to revenue generated during the three months ended March 31, 2017 from the facilities acquired in our 2016 Acquisitions, particularly the acquisition of Priory. The decrease in the GBP to USD exchange rate had an unfavorable impact onbetween USD and GBP of $29.5 million. Same-facility revenue before provision for doubtful accounts ofincreased by $37.5 million, for the three months ended March 31, 2017. Same-facility revenue before provision for doubtful accounts increased by $25.1 million, or 4.7%5.6%, for the three months ended March 31, 20172018 compared to the three months ended March 31, 2016,2017, resulting from same-facility growth in patient days of 3.7%2.0% and an increase in same-facility revenue per day of 1.0%3.5%. Consistent with the same-facility patient day growth in 2016,2017, the growth in same-facility patient days for the three months ended March 31, 20172018 compared to the three months ended March 31, 20162017 resulted from the addition of beds to our existing facilities and ongoing demand for our services.
Provision for doubtful accounts. The provision for doubtful accounts was $10.1 million for the three months ended March 31, 2017, or 1.5% of revenue before provision for doubtful accounts, compared to $10.4 million for the three months ended March 31, 2016, or 1.7% of revenue before provision for doubtful accounts.
Salaries, wages and benefits. Salaries, wages and benefits (“SWB”) expense was $411.5 million for the three months ended March 31, 2018 compared to $376.4 million for the three months ended March 31, 2017, compared to $341.0 million for the three months ended March 31, 2016, an increase of $35.4$35.1 million. SWB expense included $7.4$6.9 million and $7.0$7.4 million of equity-based compensation expense for the three months ended March 31, 20172018 and 2016,2017, respectively. Excluding equity-based compensation expense, SWB expense was $404.6 million, or 54.5% of revenue, for the three months ended March 31, 2018, compared to $369.0 million, or 54.3% of revenue, for the three months ended March 31, 2017, compared to $334.02017. Same-facility SWB expense was $366.1 million or 54.2% of revenue, for the three months ended March 31, 2016. The $35.0 million increase in SWB expense, excluding equity-based compensation expense, was primarily attributable2018, or 51.6% of revenue, compared to SWB expense incurred by the facilities acquired in our 2016 Acquisitions, particularly the acquisition of Priory. Same-facility SWB expense was $278.5$348.4 million for the three months ended March 31, 2017, or 50.8%51.8% of revenue, compared to $266.1revenue.
Professional fees. Professional fees were $54.0 million for the three months ended March 31, 2016,2018, or 50.9%7.3% of revenue.
Professional fees. Professional fees wererevenue, compared to $43.4 million for the three months ended March 31, 2017, or 6.4% of revenue, comparedrevenue. The $10.6 million increase was primarily attributable to $40.0higher contract labor costs in our U.K. Facilities. Same-facility professional fees were $46.0 million for the three months ended March 31, 2016,2018, or 6.5%6.4% of revenue. The $3.4 million increase was primarily attributablerevenue, compared to professional fees incurred by the facilities acquired in our 2016 Acquisitions, particularly the acquisition of Priory. Same-facility professional fees were $30.4$38.9 million, for the three months ended March 31, 2017, or 5.5%5.8% of revenue, compared to $29.3revenue.
Supplies.Supplies expense was $29.4 million for the three months ended March 31, 2016,2018, or 5.6%4.0% of revenue.
Supplies.Supplies expense wasrevenue, compared to $27.7 million for the three months ended March 31, 2017, or 4.1% of revenue. Same-facility supplies expense was $27.3 million for the three months ended March 31, 2018, or 3.9% of revenue, compared to $26.7 million for the three months ended March 31, 2016, or 4.3% of revenue. The $1.0 million increase was primarily attributable to supplies expense incurred by the facilities acquired in our 2016 Acquisitions, particularly the acquisition of Priory. Same-facility supplies expense was $23.0 million for the three months ended March 31, 2017, or 4.2% of revenue, compared to $22.2 million for the three months ended March 31, 2016, or 4.2%4.0% of revenue.
Rents and leases. Rents and leases were $20.3 million for the three months ended March 31, 2018, or 2.7% of revenue, compared to $19.0 million for the three months ended March 31, 2017, or 2.8% of revenue, compared to $14.8revenue. Same-facility rents and leases were $16.2 million for the three months ended March 31, 2016,2018, or 2.4%2.3% of revenue. The $4.2 million increase was primarily attributablerevenue, compared to rents and leases incurred by the facilities acquired in our 2016 Acquisitions, particularly the acquisition of Priory. Same-facility rents and leases were $11.9$16.2 million for the three months ended March 31, 2017, or 2.2% of revenue, compared to $11.8 million for the three months ended March 31, 2016, or 2.3%2.4% 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 $88.2 million for the three months ended March 31, 2018, or 11.9% of revenue, compared to $83.7 million for the three months ended March 31, 2017, or 12.3% of revenue, compared to $70.2revenue. Same-facility other operating expenses were $82.2 million for the three months ended March 31, 2016,2018, or 11.4%11.6% of revenue. The $13.5 million increase was primarily attributablerevenue, compared to other operating expenses incurred by the facilities acquired in our 2016 Acquisitions, particularly the acquisition of Priory. Same-facility other operating expenses were $66.3$81.5 million for the three months ended March 31, 2017, or 12.0% of revenue, compared to $59.6 million for the three months ended March 31, 2016, or 11.4%12.1% of revenue.
Depreciation and amortization. Depreciation and amortization expense was $39.8 million for the three months ended March 31, 2018, or 5.4% of revenue, compared to $33.6 million for the three months ended March 31, 2017, or 4.9% of revenue, compared to $28.0 million for the three months ended March 31, 2016, or 4.5% of revenue. The increase in depreciation and amortization was attributable to depreciation associated with capital expenditures during 2016 and 2017 and real estate acquired as part of the 2016 Acquisitions, particularly the acquisition of Priory.acquisitions during 2017 and 2018.
Interest expense. Interest expense was $45.2 million for the three months ended March 31, 2018 compared to $42.8 million for the three months ended March 31, 2017 compared to $37.7 million for the three months ended March 31, 2016.2017. The increase in interest expense was primarily a result of borrowings underhigher interest rates applicable to our variable rate debt slightly offset by the lower interest rates in connection with amendments to the Amended and Restated Senior Credit Facility and the issuance of the 6.500% Senior Notes on February 16, 2016.Agreement.
Gain on foreign currency derivatives.Debt extinguishment costs. We entered into foreign currency forward contracts duringDebt extinguishment costs for the three months ended March 31, 20162018 represent $0.6 million of cash charges and $0.3 million ofnon-cash charges recorded in connection with (i) acquisitions in the U.K.Repricing Facilities Amendments to the Amended and (ii) transfers of cash between the U.S. and U.K. under our cash management and foreign currency risk management programs. Exchange rate changes between the contract date and the settlement date resulted in a gain on foreign currency derivatives of $0.4Restated Credit Agreement.
Transaction-related expenses. Transaction-related expenses were $4.8 million for the three months ended March 31, 2016.
Transaction-related expenses. Transaction-related expenses were2018 compared to $4.1 million for the three months ended March 31, 2017 compared to $26.3 million for the three months ended March 31, 2016.2017. Transaction-related expenses represent costs incurred in the respective periods primarily related to our acquisitions and related integrated efforts, as summarized below (in thousands):
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||
Legal, accounting and other costs | $ | 2,455 | $ | 11,448 | $ | 1,414 | $ | 1,486 | ||||||||
Severance and contract termination costs | 1,664 | — | 3,354 | 2,633 | ||||||||||||
Advisory and financing commitment fees | — | 14,850 | ||||||||||||||
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$ | 4,119 | $ | 26,298 | $ | 4,768 | $ | 4,119 | |||||||||
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Provision(Benefit from) provision for income taxes. For the three months ended March 31, 2017,2018, the (benefit from) provision for income taxes was $(2.8) million, reflecting an effective tax rate of (5.8)%, compared to $13.7 million, reflecting an effective tax rate of 28.3%, compared to $7.1 million, reflecting an effective tax rate of 21.9%, for the three months ended March 31, 2016.2017. The increasedecrease in the effective tax rate for the three months ended March 31, 20172018 was primarily attributable to the adoptionapplication of ASU2016-09,the reductionTax Act and a discrete benefit of $10.5 million recorded in earningsthe three months ended March 31, 2018 related to the U.K. Divestiture and the declinea change in the exchange rate between USD and GBP.provisional amount recorded at December 31, 2017.
Liquidity and Capital Resources
Cash provided by continuing operating activities for the three months ended March 31, 20172018 was $57.4$72.6 million compared to $59.3$57.4 million for the three months ended March 31, 2016.2017. The decreaseincrease in cash provided by continuing operating activities was primarily attributable to the U.K. Divestiture and the declinegrowth in the exchange rate between USD and GBP.same-facility operations. Days sales outstanding were 3740 days at March 31, 20172018 compared to 3438 days at December 31, 2016. As of2017. At March 31, 20172018 and December 31, 2016,2017, we had working capital of $88.2$114.3 million and $85.1$94.2 million, respectively.
Cash used in investing activities for the three months ended March 31, 20172018 was $58.1$78.7 million compared to $685.4$58.1 million for the three months ended March 31, 2016.2017. Cash used in investing activities for the three months ended March 31, 2018 primarily consisted of $70.3 million of cash paid for capital expenditures and $4.3 million of cash paid for real estate. Cash paid for capital expenditures for the three months ended March 31, 2018 consisted of $18.1 million of routine capital expenditures and $52.2 million of expansion capital expenditures. We define expansion capital expenditures as those that increase the capacity of our facilities or otherwise enhance revenue. Routine or maintenance capital expenditures were 2.4% of revenue for the three months ended March 31, 2018. Cash used in investing activities for the three months ended March 31, 2017 primarily consisted of $50.5 million of cash paid for capital expenditures and $2.5 million of cash paid for real estate. Cash paid for capital expenditures for the three months ended March 31, 2017 consisted of $15.8 million of routine capital expenditures and $34.7 million of expansion capital expenditures. We define expansion capital expenditures as those that increase the capacity of our facilities or otherwise enhance revenue. Routine or maintenance capital expenditures were 2.3% of revenue for the three months ended March 31, 2017. Cash used in investing activities for the three months ended March 31, 2016 primarily consisted of $580.1 million of cash paid for acquisitions, $90.1 million of cash paid for capital expenditures and $14.8 million of cash paid for real estate acquisitions.
Cash used in financing activities for the three months ended March 31, 20172018 was $13.7$4.7 million compared to cash provided byused in financing activities of $654.0$13.7 million for the three months ended March 31, 2016.2017. Cash used in financing activities for the three months ended March 31, 2018 consisted of common stock withheld for minimum statutory taxes of $2.0 million and other of $2.7 million. Cash used in financing activities for the three months ended March 31, 2017 primarily consisted of principal payments on long-term debt of $8.6 million and common stock withheld for minimum statutory taxes of $4.2 million. Cash provided by financing activities for the three months ended March 31, 2016 primarily consisted of borrowings on long-term debt borrowings of $1.5 billion, borrowings on our revolving credit facility of $58.0 million and an issuance of common stock of $685.1 million, partially offset by repayment of assumed Priory debt of $1.3 billion, payment of revolving credit facility of $166.0 million, payment of debt issuance costs of $34.2 million, principal payments on long-term debt of $13.7 million and common stock withheld for minimum statutory taxes of $6.7 million.
We had total available cash and cash equivalents of $43.1$57.8 million and $57.1$67.3 million as ofat March 31, 20172018 and December 31, 2016,2017, respectively, of which approximately $40.2$32.6 million and $41.4$20.4 million was held by our foreign subsidiaries, respectively. Our strategic plan does not require the repatriation of foreign cash in order to fund our operations in the U.S., and it is our current intention to permanently reinvest our foreign cash and cash equivalents outside of the U.S. IfWhile we wereare still evaluating the full impact of the Tax Act on the Company, we expect the substantial reduction of the federal corporate tax rate to repatriatebenefit our financial results and cash flow in future periods. We believe the change will not result in a U.S. tax liability on those foreign cashearnings which have not previously been repatriated to the U.S., we would be requiredwith future foreign earnings potentially not subject to accrue and pay U.S. income taxes in accordance with applicable U.S. tax rules and regulations as a result of the repatriation.when repatriated.
Amended and Restated Senior Credit Facility
We entered into the Senior Secured Credit Facility on April 1, 2011. On December 31, 2012, we entered into the Amended and Restated Credit Agreement which amended and restated the Senior Secured Credit Facility. We have amended the Amended and Restated Credit Agreement from time to time as described in our prior filings with the SEC.
On January 25, 2016, we entered into the Ninth Amendment to our Amended and Restated Credit Agreement. The Ninth Amendment modified certain definitions and provides increased flexibility to us in terms of our financial covenants. Our baskets for permitted investments were also increased to provide increased flexibility for us to invest innon-wholly owned subsidiaries, joint ventures and foreign subsidiaries. As a result of the Ninth Amendment, we may invest innon-wholly owned subsidiaries and joint ventures up to 10.0% of our and our subsidiaries’ total assets in any consecutive four fiscal quarter period, and up to 12.5% of our and our subsidiaries’ total assets during the term of the Amended and Restated Credit Agreement. We may also invest in foreign subsidiaries that are not loan parties up to 10% of our and our subsidiaries’ total assets in any consecutive four fiscal quarter period, and up to 15% of our and our subsidiaries’ total assets during the term of the Amended and Restated Credit Agreement. The foregoing permitted investments are subject to an aggregate cap of 25% of our and our subsidiaries’ total assets in any fiscal year.
On February 16, 2016, we entered into the Second Incremental Facility Amendment to our Amended and Restated Credit Agreement. The Second Incremental Amendment activated a new $955.0 million incremental Term Loan B facility and added $135.0 million to the Term Loan A facility to our Amended and Restated Senior Secured Credit Facility, subject to limited conditionality provisions. Borrowings under the New TLB Facility were used to fund a portion of the purchase price for the acquisition of Priory and the fees and expenses for such acquisition and the related financing transactions. Borrowings under the TLA Facility were used to pay down the majority of our $300.0 million revolving credit facility.
On May 26, 2016,10, 2017, we entered into a TrancheB-1Third Repricing Amendment to the Amended and Restated Credit Agreement. The TrancheB-1Third Repricing Amendment reduced the Applicable Rate with respect to the Existing TLBTrancheB-1 Facility and the TrancheB-2 Facility from 3.5%3.0% to 3.0%2.75% in the case of Eurodollar Rate loans and 2.5%from 2.0% to 2.0% in the case of Base Rate Loans.
On September 21, 2016, we entered into a TrancheB-2 Repricing Amendment to the Amended and Restated Credit Agreement. The TrancheB-2 Repricing Amendment reduced the Applicable Rate with respect to the New TLB Facility from 3.75% to 3.00% in the case of Eurodollar Rate loans and 2.75% to 2.00%1.75% in the case of Base Rate Loans. In connection with the TrancheB-2Third Repricing Amendment, we recorded a debt extinguishment charge of $3.4$0.8 million, including the discount andwrite-off of deferred financing costs, which was recorded in debt extinguishment costs in the condensed consolidated statements of income.
On NovemberMarch 22, 2016,2018, we entered into a Tenth Amendment to the Amended and Restated Credit Agreement. The Tenth Amendment, among other things, (i) amended the negative covenant regarding dispositions, (ii) modified the collateral package to release any real property with a fair market value of less than $5.0 million and (iii) changed certain investment, indebtedness and lien baskets.
On November 30, 2016, we entered into a RefinancingSecond Repricing Facilities Amendment to the Amended and Restated Credit Agreement. The RefinancingSecond Repricing Facilities Amendment increased our line(i) replaced the TrancheB-1 Facility and the TrancheB-2 Facility with a new TrancheB-3 Facility and a new TrancheB-4 Facility, respectively, and (ii) reduced the Applicable Rate from 2.75% to 2.50% in the case of credit on our revolving credit facility to $500.0 million from $300.0 millionEurodollar Rate loans and reduced our TLA Facilitythe Applicable Rate from 1.75% to $400.0 million from $600.6 million. In addition,1.50% in the Refinancingcase of Base Rate Loans.
On March 29, 2018, we entered into a Third Repricing Facilities Amendment extendedto the maturity date forAmended and Restated Credit Agreement. The Third Repricing Facilities Amendment replaced the Refinancing Facilities to November 30, 2021 from February 13, 2019, and lowered our effective interest rate on our line of credit on ourexisting revolving credit facility and TLA Facility with a new revolving credit facility and TLA Facility, respectively. Our line of credit on the revolving credit facility remains at $500.0 million and the Third Repricing Facility Amendment reduced the size of the TLA Facility from $400.0 million to $380.0 million to reflect the then current outstanding principal. The Third Repricing Facilities Amendment reduced the Applicable Rate for the revolving credit facility and the TLA Facility by 50 basis points. amending the definition of “Applicable Rate” and replacing the rate table therein with the table set forth below.
In connection with the Refinancing Amendment,Repricing Facilities Amendments, we recorded a debt extinguishment charge of $0.8$0.9 million, including the discount andwrite-off of deferred financing costs, which was recorded in debt extinguishment costs in the condensed consolidated statements of income.
We had $493.4$495.8 million of availability under the revolving line of credit and had standby letters of credit outstanding of $6.6$4.2 million related to security for the payment of claims required by our workers’ compensation insurance program as ofat March 31, 2017.2018. Borrowings under the revolving line of credit are subject to customary conditions precedent to borrowing. The Amended and Restated Credit Agreement requires quarterly term loan principal repayments of our TLA Facility of $5.0$4.8 million for March 31, 2017June 30, 2018 to December 31, 2019, $7.5$7.1 million for March 31, 2020 to December 31, 2020, and $10.0$9.5 million for March 31, 2021 to September 30, 2021, with the remaining principal balance of the TLA Facility due on the maturity date of November 30, 2021. We are required to repay the Existing TLBTrancheB-3 Facility in equal quarterly installments of $1.3$1.2 million on the last business day of each March, June, September and December, with the outstanding principal balance of the Existing TLBTrancheB-3 Facility due on February 11, 2022. We are required to repay the New TLBTrancheB-4 Facility in equal quarterly installments of approximately $2.4$2.3 million on the last business day of each March, June, September and December, with the outstanding principal balance of the New TLBTrancheB-4 Facility due on February 16, 2023. On December 29, 2017, we made an additional payment of $22.5 million, including $7.7 million on the TrancheB-1 Facility and $14.8 million on the TrancheB-2 Facility. On April 17, 2018, we made an additional payment of $15.0 million, including $5.1 million on the TrancheB-3 Facility and $9.9 million on the TrancheB-4 Facility.
Borrowings under the Amended and Restated Credit Agreement are guaranteed by each of our wholly-owned domestic subsidiaries (other than certain excluded subsidiaries) and are secured by a lien on substantially all of ourthe Company and such subsidiaries’ assets. Borrowings with respect to the TLA Facility and our revolving credit facility (collectively, “Pro Rata Facilities”) under the Amended and Restated Credit Agreement bear interest at a rate tied to our Consolidated Leverage Ratio (defined as consolidated funded debt net of up to $40.0 million of unrestricted and unencumbered cash to consolidated EBITDA, in each case as defined in the Amended and Restated Credit Agreement). The Applicable Rate (as defined in the Amended and Restated Credit Agreement) for the Pro Rata Facilities was 2.75%2.50% for Eurodollar Rate Loans (as defined in the Amended and Restated Credit Agreement) and 1.75%1.50% for Base Rate Loans (as defined in the Amended and Restated Credit Agreement) at March 31, 2017.2018. Eurodollar Rate Loans with respect to the Pro Rata Facilities bear interest at the Applicable Rate plus the Eurodollar Rate (as defined in the Amended and Restated Credit Agreement) (based upon the LIBOR Rate (as defined in the Amended and Restated Credit Agreement) prior to commencement of the interest rate period). Base Rate Loans with respect to the Pro Rata Facilities bear interest at the Applicable Rate plus the highest of (i) the federal funds rate plus 0.50%, (ii) the prime rate and (iii) the Eurodollar Rate plus 1.0%. As ofAt March 31, 2017,2018, the Pro Rata Facilities bore interest at a rate of LIBOR plus 2.75%2.50%. In addition, we are required to pay a commitment fee on undrawn amounts under our revolving credit facility.
The interest rates and the unused line fee on unused commitments related to the Pro Rata Facilities are based upon the following pricing tiers:
Pricing Tier | Consolidated Leverage Ratio | Eurodollar Rate Loans | Base Rate Loans | Commitment Fee | Consolidated Leverage Ratio | Eurodollar Rate Loans | Base Rate Loans | Commitment Fee | ||||||||||||||||||||
1 | < 3.50:1.0 | 1.75 | % | 0.75 | % | 0.20 | % | < 3.50:1.0 | 1.50 | % | 0.50 | % | 0.20 | % | ||||||||||||||
2 | >3.50:1.0 but < 4.00:1.0 | 2.00 | % | 1.00 | % | 0.25 | % | >3.50:1.0 but < 4.00:1.0 | 1.75 | % | 0.75 | % | 0.25 | % | ||||||||||||||
3 | >4.00:1.0 but < 4.50:1.0 | 2.25 | % | 1.25 | % | 0.30 | % | >4.00:1.0 but < 4.50:1.0 | 2.00 | % | 1.00 | % | 0.30 | % | ||||||||||||||
4 | >4.50:1.0 but < 5.25:1.0 | 2.50 | % | 1.50 | % | 0.35 | % | >4.50:1.0 but < 5.25:1.0 | 2.25 | % | 1.25 | % | 0.35 | % | ||||||||||||||
5 | >5.25:1.0 | 2.75 | % | 1.75 | % | 0.40 | % | >5.25:1.0 | 2.50 | % | 1.50 | % | 0.40 | % |
Eurodollar Rate Loans with respect to the Existing TLBTrancheB-3 Facility bear interest at the Existing TLBTrancheB-3 Facility Applicable Rate (as defined below) plus the Eurodollar Rate (subject to a floor of 0.75% and based upon the LIBOR Rate prior to commencement of the interest rate period). Base Rate Loans bear interest at the Existing TLBTrancheB-3 Facility Applicable Rate plus the highest of (i) the federal funds rate plus 0.50%, (ii) the prime rate and (iii) the Eurodollar Rate plus 1.0%. As used herein, the term “Existing TLB“TrancheB-3 Facility Applicable Rate” means, with respect to Eurodollar Rate Loans, 3.0%2.50%, and with respect to Base Rate Loans, 2.0%1.50%. The New TLBTrancheB-4 Facility bears interest as follows: Eurodollar Rate Loans bear interest at the Applicable Rate (as defined in the Amended and Restated Credit Agreement) plus the Eurodollar Rate (subject to a floor of 0.75% and based upon the LIBOR Rate prior to commencement of the interest rate period) and Base Rate Loans bear interest at the Applicable Rate plus the highest of (i) the federal funds rate plus 0.50%, (ii) the prime rate and (iii) the Eurodollar Rate plus 1.0%. As used herein, the term “Applicable Rate” means, with respect to Eurodollar Rate Loans, 3.0%2.50%, and with respect to Base Rate Loans, 2.0%1.50%.
The lenders who provided the Existing TLBTrancheB-3 Facility and New TLBTrancheB-4 Facility are not entitled to benefit from our maintenance of its financial covenants under the Amended and Restated Credit Agreement. Accordingly, if we fail to maintain its financial covenants, such failure shall not constitute an event of default under the Amended and Restated Credit Agreement with respect to the Existing TLBTrancheB-3 Facility or the New TLBTrancheB-4 Facility until and unless the Amended and Restated Senior Credit Facility is accelerated or the commitment of the lenders to make further loans is terminated.
The Amended and Restated Credit Agreement requires us and our subsidiaries to comply with customary affirmative, negative and financial covenants, including a fixed charge coverage ratio, consolidated leverage ratio and consolidated senior secured leverage ratio. We may be required to pay all of our indebtedness immediately if we default on any of the numerous financial or other restrictive covenants contained in any of our material debt agreements. Set forth below is a brief description of such covenants, all of which are subject to customary exceptions, materiality thresholds and qualifications:
a) | the affirmative covenants include the following: (i) delivery of financial statements and other customary financial information; (ii) notices of events of default and other material events; (iii) maintenance of existence, ability to conduct business, properties, insurance and books and records; (iv) payment of taxes; (v) lender inspection rights; (vi) compliance with laws; (vii) use of proceeds; (viii) further assurances; and (ix) additional collateral and guarantor requirements. |
b) | the negative covenants include limitations on the following: (i) liens; (ii) debt (including guaranties); (iii) investments; (iv) fundamental changes (including mergers, consolidations and liquidations); (v) dispositions; (vi) sale leasebacks; (vii) affiliate transactions; (viii) burdensome agreements; (ix) restricted payments; (x) use of proceeds; (xi) ownership of subsidiaries; (xii) changes to line of business; (xiii) changes to organizational documents, legal name, state of formation, form of entity and fiscal year; (xiv) prepayment or redemption of certain senior unsecured debt; and (xv) amendments to certain material agreements. We are generally not permitted to issue dividends or distributions other than with respect to the following: (w) certain tax distributions; (x) the repurchase of equity held by employees, officers or directors upon the occurrence of death, disability or termination subject to cap of $500,000 in any fiscal year and compliance with certain other conditions; (y) in the form of capital stock; and (z) scheduled payments of deferred purchase price, working capital adjustments and similar payments pursuant to the merger agreement or any permitted acquisition. |
c) | The financial covenants include maintenance of the following: |
March 31 | June 30 | September 30 | December 31 | |||||||||||||
2018 | 6.50x | 6.25x | 6.00x | 6.00x | ||||||||||||
2019 | 5.75x | 5.75x | 5.50x | 5.50x | ||||||||||||
2020 | 5.25x | 5.25x | 5.25x | 5.00x |
June 30, | ||||
| 3.75x | |||
September 30, 2018 and each fiscal quarter thereafter | 3.50x |
As ofAt March 31, 2017,2018, we were in compliance with all of the above covenants.
Senior Notes
6.125% Senior Notes Due 2021
On March 12, 2013, we issued $150.0 million of 6.125% Senior Notes due 2021. 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.
5.125% Senior Notes due 2022
On July 1, 2014, we issued $300.0 million of 5.125% Senior Notes due 2022. The 5.125% Senior Notes mature on July 1, 2022 and bear interest at a rate of 5.125% per annum, payable semi-annually in arrears on January 1 and July 1 of each year.
5.625% Senior Notes due 2023
On February 11, 2015, we issued $375.0 million of 5.625% Senior Notes due 2023. On September 21, 2015, we issued $275.0 million of additional 5.625% Senior Notes. The additional notes formed a single class of debt securities with the 5.625% Senior Notes issued in February 2015. Giving effect to this issuance, we have outstanding an aggregate of $650.0 million of 5.625% Senior Notes. The 5.625% Senior Notes mature on February 15, 2023 and bear interest at a rate of 5.625% per annum, payable semi-annually in arrears on February 15 and August 15 of each year.
6.500% Senior Notes due 2024
On February 16, 2016, we issued $390.0 million of 6.500% Senior Notes due 2024. The 6.500% Senior Notes mature on March 1, 2024 and bear interest at a rate of 6.500% per annum, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2016.
The indentures governing the Senior Notes contain covenants that, among other things, limit our 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 our assets; and (vii) create liens on assets.
The Senior Notes issued by us are guaranteed by each of our subsidiaries that guarantee our obligations under the Amended and Restated Senior Credit Facility. The guarantees are full and unconditional and joint and several.
We may redeem the Senior Notes at its option, in whole or part, at the dates and amounts set forth in the indentures.
9.0% and 9.5% Revenue Bonds
On November 11, 2012, in connection with the acquisition of Park Royal, we 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%, 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 ofAt March 31, 20172018 and December 31, 2016,2017, $2.3 million was recorded within other assets on the condensed consolidated balance sheets 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 9.0% and 9.5% Revenue Bonds using the effective interest method.
Contractual Obligations
The following table presents a summary of contractual obligations as ofat March 31, 20172018 (dollars in thousands):
Payments Due by Period | Payments Due by Period | |||||||||||||||||||||||||||||||||||||||
Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | Total | |||||||||||||||||||||||||||||||
Long-term debt (a) | $ | 192,393 | $ | 383,549 | $ | 1,269,251 | $ | 2,405,415 | $ | 4,250,608 | $ | 201,631 | $ | 562,840 | $ | 2,870,032 | $ | 458,597 | $ | 4,093,100 | ||||||||||||||||||||
Operating leases | 64,461 | 112,720 | 96,088 | 770,542 | 1,043,811 | 71,750 | 128,627 | 109,042 | 846,095 | 1,155,514 | ||||||||||||||||||||||||||||||
Purchase and other obligations (b) | 3,489 | 30,128 | 1,980 | 27,827 | 63,424 | 4,177 | 7,453 | 33,195 | 26,837 | 71,662 | ||||||||||||||||||||||||||||||
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Total obligations and commitments | $ | 260,343 | $ | 526,397 | $ | 1,367,319 | $ | 3,203,784 | $ | 5,357,843 | $ | 277,558 | $ | 698,920 | $ | 3,012,269 | $ | 1,331,529 | $ | 5,320,276 | ||||||||||||||||||||
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(a) | Amounts include required principal and interest payments. The projected interest payments reflect the interest rates in place on our variable-rate debt |
(b) | Amounts relate to purchase obligations, including capital lease payments. |
Off-Balance Sheet Arrangements
As ofAt March 31, 2017,2018, we had standby letters of credit outstanding of $6.6$4.2 million related to security for the payment of claims as required by our workers’ compensation insurance program.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Interest Rate Risk
Our interest expense is sensitive to changes in market interest rates. Our long-term debt outstanding at March 31, 20172018 was composed of $1.5 billion of fixed-rate debt and $1.8$1.7 billion of variable-rate debt with interest based on LIBOR plus an applicable margin. A hypothetical 10% increase in interest rates (which would equate to a 0.39%0.44% higher rate on our variable rate debt) would decrease our net income and cash flows by $4.5$6.1 million on an annual basis based upon our borrowing level at March 31, 2017.2018.
Foreign Currency Risk
The functional currency for our U.K. facilities is the British pound or GBP. Our revenue and earnings are sensitive to changes in the GBP to USD exchange rate from the translation of our earnings into USD at exchange rates that may fluctuate. Based upon the level of our U.K. operations relative to the Company as a whole, a hypothetical 10% change in the exchange rate (which would equate to an increase or decrease in the exchange rate of 0.13) would cause a change in our net income of $11.3$10.4 million on an annual basis.
In May 2016, we entered into multiple cross currency swap agreements with an aggregate notional amount of $650.0 million to manage foreign currency exchange risk by effectively converting a portion of our fixed-rate USD denominated senior notes, including the semi-annual interest payments thereunder, to fixed-rate,GBP-denominated debt of £449.3 million. The cross currency swap agreements limit the impact of changes in the exchange rate on our cash flows and leverage. Following the Brexit vote, the GBP dropped to its lowest level against the USD in more than 30 years. If the exchange rate remains low, our results of operations will be negatively impacted in future periods.
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, our management conducted an evaluation, with the participation of our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the three months ended March 31, 20172018 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Item 1. | Legal Proceedings |
We are, from time to time, subject to various claims, governmental investigations and legalregulatory actions, that arise in the ordinary course of our business, including claims for damages for personal injuries, medical malpractice, overpayments, breach of contract, securities law violations, 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 addition, healthcare companies are subject to numerous investigations by various governmental agencies. Under the federal False Claims Act, private parties have the right to bringqui tam,or “whistleblower,” suits against companies that submit false claims for payments to, or improperly retain overpayments from, the government. Some states have adopted similar state whistleblower and false claims provisions. Certain of our individual facilities have received, and from time to time, other facilities may receive, government inquiries from, and may be subject to investigation by, federal and state agencies. In the opinion of management, we are not currently a party to any proceeding that would individually or in the aggregate have a material adverse effect on our business, financial condition or results of operations.
Item 1A. | Risk Factors |
In addition to the other information set forth in this report, an investor should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form10-K for the year ended December 31, 2016.2017. The risks, as described in the Company’s Annual Report on Form10-K for the year ended December 31, 2016,2017, are not the only risks facing the Company. Additional risks and uncertainties not currently known to management or that management currently deems immaterial also may materially, adversely affect the Company’s business, financial condition, operating results or cash flows.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
During the three months ended March 31, 2017,2018, the Company withheld shares of Company common stock to satisfy employee minimum statutory tax withholding obligations payable upon the vesting of restricted stock, as follows:
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||||||
January 1 – January 31 | — | $ | — | — | — | — | $ | — | — | — | ||||||||||||||||||||||
February 1 – February 28 | 58,081 | 42.43 | — | — | 32,598 | 37.58 | — | — | ||||||||||||||||||||||||
March 1 – March 31 | 57,138 | 42.27 | — | — | 15,315 | 41.61 | — | — | ||||||||||||||||||||||||
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Total | 115,219 | 47,913 | ||||||||||||||||||||||||||||||
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Item 6. | Exhibits |
(1) | Incorporated by reference to exhibits filed with the Company’s Current Report on Form8-K filed |
(2) | Incorporated by reference to exhibits filed with the Company’s Current Report on Form8-K filed |
(3) | Incorporated by reference to exhibits filed with the Company’s Current Report on Form8-K filed April 2, 2018 (FileNo. 001-35331). |
* | Filed herewith. |
** | The XBRL related information in Exhibit 101 to this quarterly report on Form10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document. |
Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Acadia Healthcare Company, Inc. | ||
By: | /s/ David M. Duckworth | |
David M. Duckworth | ||
Chief Financial Officer |
Dated: April 26, 2017May 3, 2018
EXHIBIT INDEX
41 |
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