CRC Health Corporation second quarter 2010 net revenue increases 5.3%

CRC Health Corporation ("CRC" or the "Company"), a leading provider of substance abuse treatment and adolescent youth services through its wholly owned consolidated subsidiaries, announced its results for the three months and six months ended June 30, 2010.

The Company has two operating divisions: recovery division and healthy living division. The recovery division provides substance abuse and behavioral disorder treatment services through residential treatment facilities and outpatient treatment clinics. The healthy living division includes programs and treatment services for adolescent youth as well as treatment services for eating disorders, obesity, and weight management serving all age groups. Adolescent and youth treatment services include therapeutic boarding schools and educational outdoor programs for children and adolescents struggling with academic, emotional, and behavioral issues.

During the second quarter of 2010, the Company lowered its view of forecasted future cash flows, compared to a forecast prepared in the fourth quarter of 2009, for the healthy living division. This was based upon the Company's recent reassessment of economic conditions and lack of available credit for families of potential students of the healthy living division each of which affect both admissions and pricing. As a result, for the quarter and six months ended June 30, 2010, the Company recognized a $43.7 million non-cash impairment charge for goodwill and an $18.0 million non-cash impairment charge related to asset impairment.

Consolidated net revenue for the three months ended June 30, 2010 increased $5.8 million, or 5.3%, to $114.7 million compared to the same period in 2009. For the three months ended June 30, 2010, consolidated operating expenses increased $64.2 million, of which $61.7 million is related to goodwill and asset impairment charges, to $155.9 million, or 70.0%, compared to the same period in 2009. The three months ended June 30, 2010 adjusted pro forma earnings before interest, taxes, depreciation and amortization ("EBITDA") increased $2.4 million, or 9.3%, to $28.1 million compared to $25.7 million during the same period in 2009.

Consolidated net revenue for the six months ended June 30, 2010 increased $7.0 million, or 3.3%, to $218.7 million compared to the same period in 2009. For the six months ended June 30, 2010, consolidated operating expenses increased $62.0 million, of which $61.7 million is related to goodwill and asset impairment charges, to $247.2 million, or 33.5%, compared to the same period in 2009. The six months ended June 30, 2010 adjusted pro forma earnings before interest, taxes, depreciation and amortization ("EBITDA") increased $4.7 million, or 10.6%, to $48.9 million compared to $44.2 million during the same period in 2009.

Three Months Ended June 30, 2010 Financial Results:

The following table presents our operating income by division for the three months ended June 30, 2010 and 2009 (numbers in thousands, except for percentages).

Recovery Division:

Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009

• Net revenue increased $5.7 million, or 7.3%, to $84.1 million for the quarter from $78.4 million from the comparable prior-year quarter. Revenue increases were primarily driven by an increase of $3.9 million in residential facilities and an increase of $1.8 million within comprehensive treatment centers ("CTCs"). Same-facility net revenue increases were similar to total-facility net revenue increases for the quarter compared to the comparable prior-year quarter.
• For the comparable quarters in 2010 and 2009, adjusted pro forma revenue was the same as revenue measured on the basis of Generally Accepted Accounting Principles of the United States (US "GAAP"). Thus, the above explanations related to changes in GAAP revenue also apply to adjusted pro forma revenue.
• Adjusted pro forma EBITDA increased $4.0 million, or 14.2%, to $32.2 million for the quarter from $28.2 million from the comparable prior-year quarter.
• Recovery division operating expenses increased $1.7 million for the comparable quarters in 2010 and 2009 due primarily to increases in supplies, facilities and other operating costs.
• Recovery division same-facility operating expenses increased $1.9 million driven by an increase of $1.4 million in residential facilities and an increase of $0.5 million in CTCs.

Healthy Living Division:

Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009

• Net revenue increased $0.1 million, or 0.4%, to $30.6 million for the quarter from $30.5 million from the comparable prior-year quarter. The increase in revenue was driven by increases of $1.1 million and $0.1 million within weight management and outdoor programs, respectively, offset by a decrease of $1.1 million in residential facilities. Same-facility net revenue increases were similar to total facility net revenue decreases for the quarter compared to the comparable prior-year quarter.
• For the comparable quarters in 2010 and 2009, adjusted pro forma revenue was the same as revenue measured on a U.S. GAAP basis. Thus, the above explanations related to changes in GAAP revenue also apply to adjusted pro forma revenue.
• Adjusted pro forma EBITDA decreased $2.5 million to $0.5 million for the quarter from $3.0 million from the comparable prior-year quarter.
• Healthy living division incurred an increase of $63.4 million in operating expense, or 209.8%, primarily driven by non-cash goodwill and asset impairment charges of $61.7 million.
• Healthy living division same-facility operating expenses increased $19.6 million primarily due to asset impairment charges of $17.9 million.

Corporate:

Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009

• Corporate operating expenses decreased $0.8 million or 9.4% for the comparable quarters in 2010 and 2009 reflecting primarily cost savings from restructuring activities from 2009.

Six Months Ended June 30, 2010 Financial Results:

The following table presents our operating income by division for the six months ended June 30, 2010 and 2009 (numbers in thousands, except for percentages).

Recovery Division:

Six months Ended June 30, 2010 Compared to Six months Ended June 30, 2009

• Net revenue increased $9.7 million, or 6.3%, to $163.1 million for the six months ended June 30, 2010 from $153.4 million from the comparable prior-year period. Revenue increases were primarily driven by an increase of $6.7 million in residential facilities and an increase of $3.0 million within CTCs. Same-facility net revenue increases were similar to total-facility net revenue increases for the six months ended June 30, 2010 compared to the comparable prior-year period.
• For the comparable periods in 2010 and 2009, adjusted pro forma revenue was the same as revenue measured on the basis of Generally Accepted Accounting Principles of the United States (US "GAAP"). Thus, the above explanations related to changes in GAAP revenue also apply to adjusted pro forma revenue.
• Adjusted pro forma EBITDA increased $8.2 million, or 15.9%, to $60.1 million for the six months ended June 30, 2010 from $51.9 million of the comparable prior-year period.
• Recovery division operating expenses increased $1.0 million for the comparable periods in 2010 and 2009 due primarily to an increase of $0.8 million in provision for doubtful accounts, and an increase of $0.9 million in supplies, facilities and other costs, offset by a decrease of $0.9 million in administrative expenses primarily from restructuring activities from 2009.

Recovery division same-facility operating expenses increased $2.0 million for the six months ended June 30, 2010 compared to the comparable prior-year period. Operating expense increases were primarily driven by an increase of $1.7 million in residential facilities and an increase of $0.3 million within CTCs.

Healthy Living Division:

Six months Ended June 30, 2010 Compared to Six months Ended June 30, 2009

• Net revenue decreased $2.7 million, or 4.6%, to $55.5 million for the six months ended June 30, 2010 from $58.2 million of the comparable prior-year period. The decrease in revenue was driven by negative economic conditions including lack of availability of student loans, census reductions, and other factors. Same-facility net revenue decreases were similar to total facility net revenue decreases for the period compared to the comparable prior-year period.
• For the comparable periods in 2010 and 2009, adjusted pro forma revenue was the same as revenue measured on a U.S. GAAP basis. Thus, the above explanations related to changes in GAAP revenue also apply to adjusted pro forma revenue.
• Adjusted pro forma EBITDA decreased $4.4 million to $(1.6) million for the six months ended June 30, 2010 from $2.8 million from the comparable prior-year period.
• Healthy living division incurred an increase of $61.5 million in operating expense, or 100.5%, primarily driven by non-cash goodwill and asset impairment charges of $61.7 million, offset by a decrease of $0.4 million in salaries and benefits.
• Healthy living division same-facility operating expenses increased $18.9 million, or 35.6%, for the comparable periods in 2010 and 2009 primarily due to asset impairment charges of $17.9 million.

Corporate:

Six months Ended June 30, 2010 Compared to Six months Ended June 30, 2009

• Corporate operating expenses decreased $0.5 million or 2.8% for the comparable periods in 2010 and 2009 reflecting cost savings primarily in salaries and benefits from restructuring activities from 2009.

EBITDA and Adjusted pro forma 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 in its borrowing arrangements that are tied to these measures and to meet its future debt obligations. CRC also believes that including the effect of these items allows management and investors to better compare CRC's financial performance from period-to-period, and to better compare CRC's financial performance with that of its competitors.

Adjusted pro forma EBITDA is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) from continuing operations, further adjusted for the items listed below in the table entitled "Reconciliation of Net Income (Loss) Attributable to CRC Health Corporation to Adjusted Pro Forma EBITDA for the Three Months and Six Months Ended June 30, 2010 and 2009." 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.

The pro forma adjustments are based upon available information and certain assumptions that CRC believes are reasonable. Adjusted pro forma EBITDA is for informational purposes only and does not purport to represent what CRC's result of operations or financial position would have been if the acquisitions 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.