Treatment Abuse, Behavior Modification, Thought Reform > Aspen Education Group

CRC's 10Q, March 2010 (They're FUCKED!)

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Pile of Dead Kids:
http://www.faqs.org/sec-filings/100514/ ... #tx13761_2

First 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)

Troll Control:
Pile, the deferred income tax is an easy one (the rest of their valuation is not).  This deferrment simply means that CRC has realized an income that is expected to be taxed at the standard corporate rate which is generally assumed to be 35% (for projection purposes).  So, that deferred amount is what they estimate they will have to pay, but this is calculated before their actual taxable income is determined.  Once the accounting process is complete, they may pay that amount, more or less, depending on how the numbers shake out.  Right now it's simply an estimated liability on their books.

Now, the rest of their value statement is not so straightforward.  Typically a company like CRC will be valued based on its book-to-market ratio; that is, what it's worth on CRC's books versus how the market values the company.  An accurate valuation would be 1:1 for a company like CRC.  If they were heavy on "intellectual capital" like Oracle or Microsoft the book value would be below the market value because of "intangible assets."  CRC doesn't really have any intellectual capital.  It's a service business.  It's worth what it's services bring in plus the value of its plant.  It looks like they're making a big value statement based on branding, which you rightly stated is currently in the toilet.  To me, it looks awfully inflated.

However...this type of value self-statement (with no audit, of course) is typical for companies looking to sell.  Right now they are shopping CRC Youth Care which is taking an absolute pounding in value.  To me, this just looks like confirmation of what I have already heard rumblings about - CRC Youth is dead in the water.  CRC Youth is Aspen Education.

Pile of Dead Kids:

--- Quote from: "Dysfunction Junction" ---Pile, the deferred income tax is an easy one (the rest of their valuation is not).  This deferrment simply means that CRC has realized an income that is expected to be taxed at the standard corporate rate which is generally assumed to be 35% (for projection purposes).  So, that deferred amount is what they estimate they will have to pay, but this is calculated before their actual taxable income is determined.
--- End quote ---

Now I'm even more confused. In what universe has CRC realized $330 million dollars in income not yet taxed? Over what time period? With what revenue?!


--- Quote from: "Dysfunction Junction" ---However...this type of value self-statement (with no audit, of course) is typical for companies looking to sell. Right now they are shopping CRC Youth Care which is taking an absolute pounding in value. To me, this just looks like confirmation of what I have already heard rumblings about - CRC Youth is dead in the water. CRC Youth is Aspen Education.
--- End quote ---

This doesn't surprise me in the slightest, but I'm just curious who'd be dumb enough to buy it. A blatantly overvalued money-losing enterprise, sold at considerably more than its tangible assets and which cost the last buyer (Bain Capital) a considerable chunk of change? Oh boy! Sure, I'll open my checkbook for that one! Where do I sign?

Pile of Dead Kids:
Also I should clarify what I meant by sell in its entirety. Unless CRC finds some real dumbshits with a couple hundred million to waste, they're not going to sell its "Healthy Living" division/CRC Youth as itself. The fastest way to recoup anything would be to sell the tangibles: the land with buildings on it, to be repurposed or scrapped as the buyer wishes. Which is what they've been doing, but again, piecemeal.

What, guys? Do you think the Child Abuse Fairy is going to descend from Heaven and suddenly make CRC Youth profitable long enough for you to sell it? Every day you keep it open is another day you risk another closure, another dead kid, another lawsuit. It's a loss. Take it as what it is, eat the pain, and be done with it instead of slowly bleeding your cash and risking major corporate damage.

Pile of Dead Kids:
Both the co-founder of the company, Dr. Barry Karlin, and a Board of Directors member, Elliot Sainer (Wait, isn't that the President of Aspen?), decided to GTFO. They just finished up Barry's contract of termination and Elliot just announced his resignation.

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