CRC Health 8-K Results of Operations and Financial Condition

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

January 25, 2012

Date of report (Date of earliest event reported)

CRC HEALTH CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Delaware	333-135172	73-1650429
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)
20400 Stevens Creek Boulevard, Suite 600, Cupertino, California		95014
(Address of Principal Executive Offices)		(Zip code)

(877) 272-8668

(Registrant’s Telephone Number, including Area Code)

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (See General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition

As previously reported, during the three months ended June 30, 2011, CRC Health Corporation (“CRC” or “the Company”) changed its managerial and financial reporting structure. As a result of this change, the Company identified its new reportable segments as the recovery, youth and weight management divisions. Prior to this change, the Company had two reportable segments: the recovery and healthy living divisions. The weight management division was previously reported under the healthy living division. In addition, as previously reported in October 2011, the Company restated its financial statements for certain periods. The following presentation contains the Company’s operating segment results and selected financial data from 2008 to September 30, 2011 by quarter in accordance with the revised segments based on its continuing operations as of September 30, 2011.

Non-GAAP Financial Measures

Adjusted Pro Forma EBITDA and EBITDA are supplemental non-GAAP financial measures that CRC believes provide useful information to both management and investors concerning its ability to comply with certain covenants tied to these measures in its borrowing arrangements and to meet its future debt obligations. CRC also believes that reporting of these items allows management and investors to better compare CRC’s financial performance from period-to-period, and to better compare CRC’s financial performance with that of its competitors.

Adjusted Pro Forma EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) from continuing operations, further adjusted for the items listed in the tables titled “Reconciliation of consolidated net income (loss) to EBITDA and Adjusted Pro Forma EBITDA”. Adjusted Pro Forma EBITDA takes into account all adjustments which are excluded from EBITDA for purposes of various covenants in the indenture governing CRC’s 10 ^3/4 % senior subordinated notes due 2016 and its senior secured credit facility, as amended to date. Additionally, Adjusted Pro Forma EBITDA is calculated on a consolidated basis and does not give effect to discontinued operations presentation.

When CRC completes acquisitions during a reporting period, it presents its results of operations on a Pro Forma basis assuming that the acquisition had been completed at the beginning of each period. The Pro Forma adjustments are based upon available information and certain assumptions that CRC believes are reasonable. CRC’s Pro Forma results are for informational purposes only and do not purport to represent what CRC’s results of operations or financial position would have been if the acquisitions had actually been completed at the beginning of such period, nor does such information purport to project the results of operations for any future period.

The presentation of these supplemental non-GAAP financial measures is not meant to be considered in isolation of, or as a substitute for, net income (loss) or other financial results prepared in accordance with GAAP.

2

Net Revenue for 2011 (in thousands):

	Quarter Ended						Year to Date
	March 31, 2011		June 30, 2011		September 30, 2011		September 30, 2011
Recovery	$	85,722	$	89,354	$	86,636	$	261,712
Youth		14,258		19,036		20,708		54,002
Weight Management		6,128		7,781		11,909		25,818
Corporate		43		36		33		112
Total	$	106,151	$	116,207	$	119,286	$	341,644

Operating Income (Loss) for 2011 (in thousands):

	Quarter Ended									Year to date
	March 31, 2011			June 30, 2011			September 30, 2011			September 30, 2011
Recovery	$	28,167		$	30,665		$	25,937		$	84,769
Youth		(5,347	)		75			2,440			(2,832	)
Weight Management		775			41			3,037			3,853
Corporate		(9,224	)		(8,237	)		(7,179	)		(24,640	)
Total	$	14,371		$	22,544		$	24,235		$	61,150

Adjusted Pro Forma EBITDA for 2011 (in thousands):

	Quarter Ended									Year to date
	March 31, 2011			June 30, 2011			September 30, 2011			September 30, 2011
Recovery	$	30,844		$	33,598		$	28,708		$	93,150
Youth		(2,088	)		1,165			2,902			1,979
Weight Management		1,035			1,271			3,348			5,654
Corporate		(5,522	)		(5,447	)		(4,796	)		(15,765	)
Total	$	24,269		$	30,587		$	30,162		$	85,018

3

The following is a reconciliation of CRC’s consolidated net income (loss) to EBITDA and Adjusted Pro Forma EBITDA for 2011 (in thousands):

	Quarter Ended									Year to Date
	March 31, 2011			June 30, 2011			September 30, 2011			September 30, 2011
Net income (loss)	$	(887	)	$	4,352		$	2,750		$	6,215
Depreciation and amortization		4,903			4,842			5,008			14,753
Income tax expense (benefit)		(687	)		3,355			4,014			6,682
Interest expense		11,757			12,165			10,237			34,159
EBITDA		15,086			24,714			22,009			61,809
ADJUSTMENTS TO EBITDA:
Discontinued operations		776			1,622			1,637			4,035
Asset impairment		4,401			—			—			4,401
Non-impairment restructuring activities		1,905			1,386			5,383			8,674
Stock-based compensation expense		736			621			703			2,060
Foreign exchange translation		1			2			32			35
Loss (gain) on fixed asset disposal		(29	)		(3	)		(94	)		(126	)
Management fees		891			665			399			1,955
Debt refinancing costs		542			1,368			98			2,008
Other non-recurring costs		(40	)		212			(5	)		167
Total adjustments to EBITDA		9,183			5,873			8,153			23,209
ADJUSTED PRO FORMA EBITDA	$	24,269		$	30,587		$	30,162		$	85,018

4

Net Revenue for 2010 (in thousands):

	Quarter Ended								Year Ended
	March 31, 2010		June 30, 2010		September 30, 2010		December 31, 2010		December 31, 2010
Recovery	$	78,666	$	83,298	$	82,963	$	81,617	$	326,544
Youth		14,902		17,761		19,104		14,688		66,455
Weight Management		5,017		7,388		11,304		4,863		28,572
Corporate		51		49		51		42		193
Total	$	98,636	$	108,496	$	113,422	$	101,210	$	421,764

Operating Income (Loss) for 2010 (in thousands):

	Quarter Ended												Year Ended
	March 31, 2010			June 30, 2010			September 30, 2010			December 31, 2010			December 31, 2010
Recovery	$	25,403		$	29,272		$	28,198		$	25,761		$	108,634
Youth		(2,892	)		(51,869	)		(10,209	)		(2,825	)		(67,795	)
Weight Management		(550	)		(28	)		2,809			(393	)		1,838
Corporate		(7,672	)		(7,607	)		(8,891	)		(7,455	)		(31,625	)
Total	$	14,289		$	(30,232	)	$	11,907		$	15,088		$	11,052

Adjusted Pro Forma EBITDA for 2010 (in thousands):

	Quarter Ended												Year Ended
	March 31, 2010			June 30, 2010			September 30, 2010			December 31, 2010			December 31, 2010
Recovery	$	27,965		$	31,893		$	30,908		$	28,909		$	119,675
Youth		(1,291	)		410			1,611			(1,589	)		(859	)
Weight Management		(293	)		569			3,093			(236	)		3,133
Corporate		(4,937	)		(4,706	)		(4,583	)		(4,613	)		(18,839	)
Total	$	21,444		$	28,166		$	31,029		$	22,471		$	103,110

5

The following is a reconciliation of CRC’s consolidated net income (loss) to EBITDA and Adjusted Pro Forma EBITDA for 2010 (in thousands):

	Quarter Ended												Year Ended
	March 31, 2010			June 30, 2010			September 30, 2010			December 31, 2010			December 31, 2010
Net income (loss)	$	1,242		$	(44,562	)	$	(5,099	)	$	2,316		$	(46,103	)
Depreciation and amortization		5,561			5,322			5,044			5,018			20,945
Income tax expense (benefit)		954			(8,030	)		(33	)		779			(6,330	)
Interest expense		10,806			10,712			10,736			10,530			42,784
EBITDA		18,563			(36,558	)		10,648			18,643			11,296
ADJUSTMENTS TO EBITDA:
Discontinued operations		1,022			862			1,214			815			3,913
Asset impairment		—			18,009			2,494			660			21,163
Goodwill impairment		—			43,671			9,052			—			52,723
Non-impairment restructuring activities		82			200			6,160			439			6,881
Stock-based compensation expense		1,172			1,173			99			878			3,322
Foreign exchange translation		(3	)		2			13			3			15
Loss (gain) on fixed asset disposal		(5	)		(9	)		56			116			158
Management fees		545			674			1,240			1,031			3,490
Debt costs		70			71			65			65			271
Non-cash rent adjustments		—			(17	)		(12	)		(15	)		(44	)
Franchise taxes		(2	)		—			—			(164	)		(166	)
Settlement of insurance brokerage antitrust litigation		—			88			—			—			88
Total adjustments to EBITDA		2,881			64,724			20,381			3,828			91,814
ADJUSTED PRO FORMA EBITDA	$	21,444		$	28,166		$	31,029		$	22,471		$	103,110

6

Net Revenue for 2009 (in thousands):

	Quarter Ended								Year Ended
	March 31, 2009		June 30, 2009		September 30, 2009		December 31, 2009		December 31, 2009
Recovery	$	74,647	$	77,982	$	78,105	$	79,657	$	310,391
Youth		17,021		18,238		19,658		14,550		69,467
Weight Management		4,704		6,233		9,459		5,097		25,493
Corporate		66		63		59		53		241
Total	$	96,438	$	102,516	$	107,281	$	99,357	$	405,592

Operating Income (Loss) for 2009 (in thousands):

	Quarter Ended												Year Ended
	March 31, 2009			June 30, 2009			September 30, 2009			December 31, 2009			December 31, 2009
Recovery	$	20,474		$	25,533		$	25,755		$	26,245		$	98,007
Youth		(2,161	)		(110	)		(24,884	)		(8,588	)		(35,743	)
Weight Management		(925	)		110			2,305			(119	)		1,371
Corporate		(7,803	)		(8,512	)		(7,019	)		(7,857	)		(31,191	)
Total	$	9,585		$	17,021		$	(3,843	)	$	9,681		$	32,444

Adjusted Pro Forma EBITDA for 2009 (in thousands):

	Quarter Ended												Year Ended
	March 31, 2009			June 30, 2009			September 30, 2009			December 31, 2009			December 31, 2009
Recovery	$	23,584		$	28,266		$	28,921		$	29,272		$	110,043
Youth		429			2,003			3,522			(1,156	)		4,798
Weight Management		(611	)		496			2,660			99			2,644
Corporate		(4,992	)		(5,543	)		(4,037	)		(3,633	)		(18,205	)
Total	$	18,410		$	25,222		$	31,066		$	24,582		$	99,280

7

The following is a reconciliation of CRC’s consolidated net income (loss) to EBITDA and Adjusted Pro Forma EBITDA for 2009 (in thousands):

	Quarter Ended												Year Ended
	March 31, 2009			June 30, 2009			September 30, 2009			December 31, 2009			December 31, 2009
Net income (loss)	$	(1,271	)	$	2,287		$	(20,470	)	$	(7,623	)	$	(27,077	)
Depreciation and amortization		5,911			5,799			5,860			5,734			23,304
Income tax expense (benefit)		(2,904	)		2,229			369			(2,638	)		(2,944	)
Interest expense		11,954			11,869			11,522			9,943			45,288
EBITDA		13,690			22,184			(2,719	)		5,416			38,571
ADJUSTMENTS TO EBITDA:
Discontinued operations		15			136			782			1,365			2,298
Asset impairment		1,417			—			3,143			6,940			11,500
Goodwill impairment		—			—			26,611			5,578			32,189
Non-impairment restructuring activities		1,442			709			468			1,105			3,724
Stock-based compensation expense		1,251			1,249			1,232			1,234			4,966
Foreign exchange translation		1			(8	)		28			(29	)		(8	)
Loss (gain) on fixed asset disposal		72			98			429			706			1,305
Management fees		559			680			806			1,431			3,476
Transaction expenses		(19	)		136			—			(33	)		84
Write-off of cancelled acquisitions		(22	)		84			—			—			62
Non-cash rent adjustments		—			—			—			402			402
Non-cash charge for insurance adjustment		—			—			—			494			494
Noncontrolling interest		(128	)		9			147			(90	)		(62	)
Franchise taxes		47			(55	)		44			44			80
Other non-recurring costs		3			—			95			19			117
Settlement of insurance brokerage antitrust litigation		82			—			—			—			82
Total adjustments to EBITDA		4,720			3,038			33,785			19,166			60,709
ADJUSTED PRO FORMA EBITDA	$	18,410		$	25,222		$	31,066		$	24,582		$	99,280

8

Net Revenue for 2008 (in thousands):

	Quarter Ended								Year Ended
	March 31, 2008		June 30, 2008		September 30, 2008		December 31, 2008		December 31, 2008
Recovery	$	76,067	$	77,626	$	78,248	$	76,389	$	308,330
Youth		20,417		23,354		25,146		18,132		87,049
Weight Management		5,784		7,232		9,570		4,830		27,416
Corporate		98		86		56		64		304
Total	$	102,366	$	108,298	$	113,020	$	99,415	$	423,099

Operating Income (Loss) for 2008 (in thousands):

	Quarter Ended												Year Ended
	March 31, 2008			June 30, 2008			September 30, 2008			December 31, 2008			December 31, 2008
Recovery	$	21,066		$	22,704		$	23,840		$	17,087		$	84,697
Youth		(928	)		1,198			(139,789	)		809			(138,710	)
Weight Management		(561	)		1			1,733			(413	)		760
Corporate		(6,577	)		(6,384	)		(7,088	)		(8,468	)		(28,517	)
Total	$	13,000		$	17,519		$	(121,304	)	$	9,015		$	(81,770	)

Adjusted Pro Forma EBITDA for 2008 (in thousands):

	Quarter Ended												Year Ended
	March 31, 2008			June 30, 2008			September 30, 2008			December 31, 2008			December 31, 2008
Recovery	$	23,774		$	25,536		$	26,608		$	24,062		$	99,980
Youth		1,025			3,158			4,431			1,035			9,649
Weight Management		(322	)		205			2,010			(136	)		1,757
Corporate		(4,224	)		(4,142	)		(4,326	)		(4,160	)		(16,852	)
Total	$	20,253		$	24,757		$	28,723		$	20,801		$	94,534

9

The following is a reconciliation of CRC’s consolidated net income (loss) to EBITDA and Adjusted Pro Forma EBITDA for 2008 (in thousands):

	Quarter Ended												Year Ended
	March 31, 2008			June 30, 2008			September 30, 2008			December 31, 2008			December 31, 2008
Net income (loss)	$	(1,476	)	$	3,791		$	(139,894	)	$	(2,555	)	$	(140,134	)
Depreciation and amortization		5,610			5,877			5,967			5,636			23,090
Income tax expense (benefit)		(1,319	)		2,842			(19,222	)		417			(17,282	)
Interest expense		14,517			12,505			13,126			13,975			54,123
EBITDA		17,332			25,015			(140,023	)		17,473			(80,203	)
ADJUSTMENTS TO EBITDA:
Discontinued operations		(416	)		(519	)		(52	)		326			(661	)
Asset impairment		—			—			23,880			6,956			30,836
Goodwill impairment		—			—			142,238			(1,068	)		141,170
Non-impairment restructuring activities		—			—			—			1,584			1,584
Stock-based compensation expense		1,155			989			1,466			2,109			5,719
Foreign exchange translation		—			—			35			(7	)		28
Loss (gain) on fixed asset disposal		(46	)		45			(20	)		89			68
Management fees		545			555			530			545			2,175
Transaction expenses		—			—			—			854			854
Write-off of cancelled acquisitions		86			38			116			—			240
Noncontrolling interest		(303	)		(54	)		301			(97	)		(153	)
Franchise taxes		44			44			39			44			171
(Gain) loss on sale of interest rate swap		1,618			(1,585	)		1			(35	)		(1	)
(Gain) on debt retirement		—			—			—			(8,086	)		(8,086	)
Other non-recurring costs		—			8			—			114			122
Pre-acquisition Adjusted EBITDA from acquisitions		238			221			212			—			671
Settlement of insurance brokerage antitrust litigation														—
Total adjustments to EBITDA		2,921			(258	)		168,746			3,328			174,737
ADJUSTED PRO FORMA EBITDA	$	20,253		$	24,757		$	28,723		$	20,801		$	94,534

10

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: January 25, 2012

CRC HEALTH CORPORATION
By:	/s/ LEANNE M. STEWART
Name:	LeAnne M. Stewart
Title:	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

11