http://www.faqs.org/sec-filings/100514/ ... #tx13761_2First things first: This 10Q is *unaudited*. Are the numbers accurate? There's no way of knowing. That's what unaudited means. They seem to be mostly accurate, save for some wild overvaluings.
For those of you worried that CRC's staying afloat because it managed to make a tiny profit this quarter: Relax. Its total loss was $135M in March 2009, and its total loss in December 2009 was $161M. This means that it managed to piss 26 million dollars away in those 9 months. Also, its "Recovery" division was the cause for most of the gain for 1Q 2010 ($25M); the "Healthy living" division (where the "therapeutic boarding schools" are) lost 4 million dollars this quarter, while its corporate headquarters pissed away $8M. And the remaining $13M was mostly raped by the crushing debt- nearly 11 million dollars of interest for the quarter.
How much crushing debt? Oh, only 650 million dollars of it. And $116 million in deferred income taxes. I'm not even going to pretend to know how they can pull THAT one off.
CRC values its "referral network" at nearly $30M, depreciating over 20 years. I can't figure out why they value it this way or why it depreciates. It's not that kind of asset. Its curriculum and accreditations are valued the same way. This makes strikingly little sense. Its trademarks/trade names it values at $172 million (I wouldn't pay two dollars for them :rofl:) and it values its Certificates of Need and regulatory licenses at $44.6M and $37.5M, respectively. They might be necessary for the company to operate, but what the fuck gives them a book value of 80 million bucks? It's not like CRC paid $80 million to get them!
On the other hand, its contracts, assuming that refers to actual signed contracts with a guarantee of future business, are a real asset- but those total to only $33.5M.
Goodwill isn't really an asset. A thorough discussion of the subject can be found
here. Aspen took a $170M goodwill hit on its "Healthy Living" (residential treatment) from an original $240M on goodwill. This means that even the management agrees that the division is fucked. But either way, it only applies if someone else buys the company, and only if they choose to take it at face value; not likely. Goodwill isn't money and can't be converted to money.
In other words, the bulk of CRC's assets are intangibles and nonexistents; it has maybe $250-300 million in something that could be qualified as a real asset, depending on how much shit you want to believe. On the hand, its liabilities, all $813 million of them, are very, very real.
What Bain Capital is doing can be best described as corporate necromancy; CRC's total loss so far (again, this is money it's actually paid out, not money it owes) is $160 million, and Bain's paid in $456M. The only reason Bain would want to pour money down this rathole is to maintain stockholder equity, funneling money from Bain's corporate coffers into the pockets of CRC's stockholders, whoever they are. If Bain was actually serious about keeping CRC alive for the long term, they'd do something to pay down the crushing debt; Bain isn't about to spend $650M on this turkey in one shot. Way too much risk.
From an assets/debt perspective, the solution is simple. Sell off the money-bleeding "Healthy Living" division in its entirety, using the proceeds to pay down the debt, and start austerity at corporate headquarters to staunch the bleeding there. Make money from the profitable "Recovery" division and, again, pay down the debt with it. Then maybe Bain can step in, finish off the debt, and turn CRC into an actual investment instead of a money pit.
Why
don't they do this? Again, stockholder equity. Because selling off all the "Healthy Living" crap would mean that quite a few of those intangibles/nonexistents would disappear, resulting in a loss of book assets. If Bain had to step in to cover the difference, Bain wouldn't be happy. If the stockholders found themselves holding assets with considerably less book value,
they wouldn't be happy and they aren't about to wait for the company to actually be profitable. So the company is fundamentally at odds with itself; it can't do what it needs to do to survive for the long term. Its current solution seems to be to s-l-o-w-l-y sell off the "Healthy Living" piecemeal, letting Bain's steady influx of cash make up the difference, but every quarter it does this, it pays more and more interest.
Can somebody with some econ experience help me figure out *exactly* what the hell's going on, and how it can defer 116 million bucks in income taxes? (No, not the one we know has a financial interest in CRC/Aspen, thanks)
