ACADIA HEALTHCARE COMPANY, INC. You should read the following discussion and analysis of our financial condition and results of operations with our audited consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K 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, the following:
• the impact of the COVID-19 pandemic on our inpatient and outpatient
volumes, or disruptions caused by other pandemics, epidemics or outbreaks
of infectious diseases;
• the impact of an increase in uninsured and underinsured patients or the
deterioration in the collectability of the accounts of such patients on our
results of operations, particularly as the unemployment rate and number of
underinsured patients have increased as a result of the COVID-19 pandemic;
• costs of providing care to our patients, including increased staffing,
equipment and supply expenses resulting from the COVID-19 pandemic;
• our significant indebtedness, our ability to meet our debt obligations, and
our ability to incur substantially more debt;
• our ability to implement our business strategies, especially in light of
the COVID-19 pandemic;
• the impact of payments received from the government and third-party payors
on our revenue and results of operations;
• difficulties in successfully integrating the operations of acquired
facilities or realizing the potential benefits and synergies of our
acquisitions and joint ventures;
• our ability to recruit and retain quality psychiatrists and other
physicians, nurses, counselors and other medical support personnel;
• the impact of competition for staffing on our labor costs and profitability;
• the impact of increases to our labor costs;
• the occurrence of patient incidents, which could result in negative media
coverage, adversely affect the price of our securities and result in
incremental regulatory burdens and governmental investigations;
• our future cash flow and earnings;
• our restrictive covenants, which may restrict our business and financing
activities;
• our ability to make payments on our financing arrangements;
• the impact of the economic and employment conditions on our business and
future results of operations;
• the impact of adverse weather conditions, including the effects of
hurricanes;
• compliance with laws and government regulations;
• the impact of claims brought against us or our facilities including claims
for damages for personal injuries, medical malpractice, overpayments,
breach of contract, securities law violations, tort and employee related
claims;
• the impact of governmental investigations, regulatory actions and
whistleblower lawsuits;
• any failure to comply with the terms of the CIA;
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• the impact of healthcare reform in the
potential repeal, replacement or modification of the Patient Protection and
Affordable Care Act;
• the impact of our highly competitive industry on patient volumes;
• our dependence on key management personnel, key executives and local
facility management personnel;
• our acquisition, joint venture and de novo strategies, which expose us to a
variety of operational and financial risks, as well as legal and regulatory
risks;
• the impact of state efforts to regulate the construction or expansion of
healthcare facilities on our ability to operate and expand our operations;
• our potential inability to extend leases at expiration;
• the impact of controls designed to reduce inpatient services on our revenue;
• the impact of different interpretations of accounting principles on our
results of operations or financial condition;
• the impact of environmental, health and safety laws and regulations,
especially in locations where we have concentrated operations;
• the risk of a cyber-security incident and any resulting violation of laws
and regulations regarding information privacy or other negative impact;
• the impact of laws and regulations relating to privacy and security of
patient health information and standards for electronic transactions;
• our ability to cultivate and maintain relationships with referral sources;
• the impact of a change in the mix of our earnings, adverse changes in our
effective tax rate and adverse developments in tax laws generally;• changes in interpretations, assumptions and expectations regarding recent
tax legislation, including provisions of the CARES Act and additional
guidance that may be issued by federal and state taxing authorities;
• failure to maintain effective internal control over financial reporting;
• the impact of fluctuations in our operating results, quarter to quarter
earnings and other factors on the price of our securities;
• the impact of the trend for insurance companies and managed careorganizations to enter into sole source contracts on our ability to obtain
patients;
• the impact of value-based purchasing programs on our revenue; and
• those risks and uncertainties described from time to time in our filings
with the
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 Annual Report on Form 10-K. 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. AtDecember 31, 2020 , we operated 572 behavioral healthcare facilities with approximately 18,100 beds in 40 states, theU.K. andPuerto Rico . During the year endedDecember 31, 2020 , we added 460 beds in theU.S. , consisting of 240 added to existing facilities and 220 added through the opening of two joint venture facilities, and we opened six CTCs. OnJanuary 19, 2021 , we completed the sale of theU.K. business, which included 345 facilities and approximately 8,200 beds. For the year endingDecember 31, 2021 , we expect to add approximately 300 beds to existing facilities, 170 beds through the opening of one wholly-owned facility and one joint venture facility and expect to open 11 CTCs. We are the leading publicly traded pure-play provider of behavioral healthcare services in theU.S. Management believes that we are positioned as a leading platform in a highly fragmented industry under the direction of an experienced management team that 40
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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 of out-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 theU.S. through acquisitions, de novo facilities, joint ventures and bed additions in existing facilities. OnJanuary 19, 2021 , we completed the U.K. Sale pursuant to a Share Purchase Agreement in which we sold all of the securities ofAHC-WW Jersey Limited , a private limited liability company incorporated in Jersey and a subsidiary of the Company, which constitutes the entirety of ourU.K. business operations. The U.K. Sale resulted in approximately$1,525 million of gross proceeds before deducting the settlement of existing foreign currency hedging liabilities of$85 million based on the current GBP to USD exchange rate, cash retained by the buyer of approximately$75 million and transaction costs of$16 million . We used the net proceeds of approximately$1,425 million (or$1,350 million , net of cash retained by the buyer) to repay in full the outstanding balances of our TLA Facility of$312 million and our Tranche B-4 Facility$768 million of the Amended and Restated Credit Agreement and added$345 million of cash on the balance sheet. In addition to reducing our indebtedness, the U.K. Sale allows us to focus on ourU.S. operations. As a result of the U.K. Sale , we reported, for all periods presented, results of operations and cash flows of theU.K. operations as discontinued operations in the accompanying financial statements.
Acquisitions
OnApril 1, 2019 , we completed the acquisition of Bradford Recovery Center, a specialty treatment facility with 46 beds located inMillerton, Pennsylvania , for cash consideration of approximately$4.5 million . OnFebruary 15, 2019 , we completed the acquisition ofWhittier Pavilion , an inpatient psychiatric facility with 71 beds located inHaverhill, Massachusetts , for cash consideration of approximately$17.9 million . Also onFebruary 15, 2019 , we completed the acquisition of Mission Treatment for cash consideration of approximately$22.5 million . Mission Treatment operates nine comprehensive treatment centers inCalifornia ,Nevada ,Arizona andOklahoma .
Results of Operations
The following table illustrates our consolidated results of operations for the respective periods shown (dollars in thousands):
Year Ended December 31,
2020 2019 2018
Amount % Amount % Amount %
Revenue 2,089,929 100.0 % 2,008,381 100.0 % 1,904,695 100.0 %
Salaries, wages and
benefits 1,154,522 55.2 % 1,107,357 55.1 % 1,049,317 55.1 %
Professional fees 120,489 5.8 % 118,451 5.9 % 110,049 5.8 %
Supplies 87,241 4.2 % 85,534 4.3 % 81,462 4.3 %
Rents and leases 37,362 1.8 % 35,486 1.8 % 34,315 1.8 %
Other operating expenses 262,272 12.5 % 259,536 12.9 % 243,671 12.8 %
Other income (32,819 ) (1.6 )% - 0.0 % - 0.0 %
Depreciation and
amortization 95,256 4.6 % 87,923 4.4 % 80,342 4.2 %
Interest expense, net 158,105 7.6 % 187,325 9.3 % 184,534 9.7 %
Debt extinguishment costs 7,233 0.3 % - 0.0 % 1,815 0.1 %
Legal settlements expense - 0.0 % - 0.0 % 22,076 1.2 %
Loss on impairment 4,751 0.2 % 27,217 1.4 % - 0.0 %
Transaction-related
expenses 11,720 0.6 % 21,157 1.1 % 29,719 1.6 %
1,906,132 91.2 % 1,929,986 96.2 % 1,837,300 96.6 %
Income from continuing
operations
before income taxes 183,797 8.8 % 78,395 3.8 % 67,395 3.4 %
Provision for income taxes 40,606 1.9 % 25,085 1.2 % 9,907 0.5 %
Income (loss) from
continuing operations 143,191 6.8 % 53,310 2.6 % 57,488 2.9 %
(Loss) income from
discontinued
operations, net of taxes (812,390 ) (38.9 )% 56,812 2.8 % (232,974 ) (12.2 )%
Net (loss) income (669,199 ) (32.0 )% 110,122 5.5 % (175,486 ) (9.2 )%
Net income attributable to
noncontrolling interest (2,933 ) (0.1 )% (1,199 ) (0.1 )% (264 ) 0.0 %
Net (loss) income
attributable to Acadia
Healthcare Company, Inc. (672,132 ) (32.2 )% 108,923 5.4 % (175,750 ) (9.2 )%
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At
The following table sets forth percent changes in same facility operating data for ourU.S. Facilities for the years endedDecember 31, 2020 and 2019 compared to the previous years: Year Ended December 31, 2020 2019U.S. Same Facility Results (a) Revenue growth 3.9% 5.8% Patient days growth 2.5% 3.2% Admissions growth (0.6)% 4.0% Average length of stay change (b) 3.2% -0.8% Revenue per patient day growth 1.4% 2.5% Adjusted EBITDA margin change (c) 250 bps -30 bps (a) Results for the periods presented include facilities we have operated more than one year and exclude certain closed services.
(b) Average length of stay is defined as patient days divided by admissions.
(c) Adjusted EBITDA is defined as income before provision for
income taxes, equity-based compensation expense, debt
extinguishment costs, legal settlements expense, loss on
impairment, transaction-related expenses, interest expense and
depreciation and amortization. Management uses Adjusted EBITDA
as an analytical indicator to measure the performance and to
develop strategic objectives and operating plans. Adjusted
EBITDA is commonly used as an analytical indicator within the
health care industry, and also serves as a measure of leverage
capacity and debt service ability. Adjusted EBITDA should not
be considered as a measure of financial performance under
GAAP, and the items excluded from Adjusted EBITDA are
significant components in understanding and assessing
financial performance. Because Adjusted EBITDA is not a
measurement determined in accordance with GAAP and is thus
susceptible to varying calculations, Adjusted EBITDA, as
presented, may not be comparable to other similarly titled
measures of other companies.
Year Ended
Revenue. Revenue increased$81.5 million , or 4.1%, to$2,089.9 million for the year endedDecember 31, 2020 from$2,008.4 million for the year endedDecember 31, 2019 . Same facility revenue increased by$78.5 million , or 3.9%, for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 , resulting from same facility growth in patient days of 2.5% and an increase in same facility revenue per day of 1.4%. Consistent with the same facility patient day growth in 2019, the growth in same facility patient days for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 resulted from the addition of beds to our existing facilities and ongoing demand for our services. Salaries, wages and benefits. Salaries, wages and benefits ("SWB") expense was$1,154.5 million for the year endedDecember 31, 2020 compared to$1,107.4 million for the year endedDecember 31, 2019 , an increase of$47.2 million . SWB expense included$22.5 million and$17.3 million of equity-based compensation expense for the years endedDecember 31, 2020 and 2019, respectively. Excluding equity-based compensation expense, SWB expense was$1,132.0 million , or 54.2% of revenue, for the year endedDecember 31, 2020 , compared to$1,090.1 million , or 54.3% of revenue, for the year endedDecember 31, 2019 . Same facility SWB expense was$1,047.7 million for the year endedDecember 31, 2020 , or 50.5% of revenue, compared to$1,018.3 million for the year endedDecember 31, 2019 , or 51.0% of revenue. Professional fees. Professional fees were$120.5 million for the year endedDecember 31, 2020 , or 5.8% of revenue, compared to$118.5 million for the year endedDecember 31, 2019 , or 5.9% of revenue. Same facility professional fees were$171.9 million for the year endedDecember 31, 2020 , or 8.3% of revenue, compared to$171.2 million , for the year endedDecember 31, 2019 , or 8.6% of revenue. Supplies. Supplies expense was$87.2 million for the year endedDecember 31, 2020 , or 4.2% of revenue, compared to$85.5 million for the year endedDecember 31, 2019 , or 4.3% of revenue. Same facility supplies expense was$86.2 million for the year endedDecember 31, 2020 , or 4.2% of revenue, compared to$84.6 million for the year endedDecember 31, 2019 , or 4.2% of revenue. 42
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Rents and leases. Rents and leases were$37.4 million for the year endedDecember 31, 2020 , or 1.8% of revenue, compared to$35.5 million for the year endedDecember 31, 2019 , or 1.8% of revenue. Same facility rents and leases were$33.8 million for the year endedDecember 31, 2020 , or 1.6% of revenue, compared to$32.3 million for the year endedDecember 31, 2019 , or 1.6% 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$262.3 million for the year endedDecember 31, 2020 , or 12.5% of revenue, compared to$259.5 million for the year endedDecember 31, 2019 , or 12.9% of revenue. Same facility other operating expenses were$189.7 million for the year endedDecember 31, 2020 , or 9.1% of revenue, compared to$184.1 million for the year endedDecember 31, 2019 , or 9.2% of revenue. Other income. For the year endedDecember 31, 2020 , we recorded$32.8 million of other income related to$34.9 million of PHSSE funds received from April throughDecember 2020 . Our recognition of this income in the fourth quarter of 2020 was based on revised guidance in the Consolidated Appropriations Act, 2021 enacted inDecember 2020 .
Depreciation and amortization. Depreciation and amortization expense was
Interest expense. Interest expense was$158.1 million for the year endedDecember 31, 2020 compared to$187.3 million for the year endedDecember 31, 2019 . The decrease in interest expense was primarily a result of lower interest rates applicable to our variable-rate debt. Debt extinguishment costs. Debt extinguishment costs were$7.2 million for the year endedDecember 31, 2020 represented$1.4 million of cash charges and$5.8 million of non-cash charges recorded in connection with the redemption of the 6.125% Senior Notes and the 5.125% Senior Notes, the issuance of 5.000% Senior Notes and the Fourth Repricing Facilities Amendment. Loss on impairment. Loss on impairment of$4.8 million for the year endedDecember 31, 2020 represents a non-cash long-lived asset impairment charge of$4.2 million and$0.6 million related to indefinite-lived asset impairment related to closed facilities in theU.S. Loss on impairment of$27.2 million for the year endedDecember 31, 2019 represents a non-cash long-lived asset impairment charge of$27.2 million related to two closedU.S. Facilities . Transaction-related expenses. Transaction-related expenses were$11.7 million for the year endedDecember 31, 2020 compared to$21.2 million for the year endedDecember 31, 2019 . Transaction-related expenses represent costs incurred in the respective periods primarily related to termination, restructuring, strategic review, management transition and other similar costs incurred in the respective periods, as summarized below (in thousands): Year Ended
2020 2019
Legal, accounting and other acquisition-related costs
12,598
Management transition costs - 5,529
$ 11,720 $ 21,157
Discontinued Operations. Loss from discontinued operations for the year ended
December 31, 2020 was $812.4 million compared to income from discontinued
operations of $56.8 million for the year ended December 31, 2019 . The year ended
December 31, 2020 included a loss on sale of $867.3 million and a non-cash
long-lived asset impairment charge of $20.2 million related to the decision to
close certain U.K. elderly care facilities. The year ended December 31, 2019
included a non-cash long-lived asset impairment charge of $27.2 million related
to the closure of certain U.K. facilities.
Provision for income taxes. For the year ended December 31, 2020 , the provision
for income taxes was $40.6 million , reflecting an effective tax rate of 22.1%,
compared to $25.1 million , reflecting an effective tax rate of 32.0%, for the
year ended December 31, 2019 . The decrease in the effective tax rate for the
year ended December 31, 2020 was primarily attributable to the release of a
state valuation allowance related and permitting benefits generated from the
application of federal net operating loss carryback provisions within the CARES
Act. The federal net operating loss legislation within the CARES Act allows net
operating losses generated in tax years 2018 through 2020 to be carried back at
a 35% tax rate to offset income in tax years prior to 2018 (21% for tax years
after 2017), resulting in a permanent benefit.
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Year Ended
Revenue. Revenue increased$103.7 million , or 5.4%, to$2,008.4 million for the year endedDecember 31, 2019 from$1,904.7 million for the year endedDecember 31, 2018 . The increase related primarily to additions to beds in our existing facilities and ongoing demand for our services. Same facility revenue increased by$106.7 million , or 5.8%, for the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 , resulting from same facility growth in patient days of 3.2% and an increase in same facility revenue per day of 2.5%, Consistent with the same facility patient day growth in 2018, the growth in same facility patient days for the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 resulted from the addition of beds to our existing facilities and ongoing demand for our services. Salaries, wages and benefits. Salaries, wages and benefits ("SWB") expense was$1,107.4 million for the year endedDecember 31, 2019 compared to$1,049.3 million for the year endedDecember 31, 2018 , an increase of$58.2 million . SWB expense included$17.3 million and$22.0 million of equity-based compensation expense for the years endedDecember 31, 2019 and 2018, respectively. Excluding equity-based compensation expense, SWB expense was$1,090.1 million , or 54.2% of revenue, for the year endedDecember 31, 2019 , compared to$1,027.3 million , or 53.8% of revenue, for the year endedDecember 31, 2018 . Same facility SWB expense was$986.3 million for the year endedDecember 31, 2019 , or 50.4% of revenue compared to$926.4 million for the year endedDecember 31, 2018 , or 50.1% of revenue. Professional fees. Professional fees were$118.5 million for the year endedDecember 31, 2019 , or 5.9% of revenue, compared to$110.0 million for the year endedDecember 31, 2018 , or 5.8% of revenue. Same facility professional fees were$99.1 million for the year endedDecember 31, 2019 , or 5.1% of revenue, compared to$93.5 million , for the year endedDecember 31, 2018 , or 5.1% of revenue. Supplies. Supplies expense was$85.5 million for the year endedDecember 31, 2019 , or 4.3% of revenue, compared to$81.5 million for the year endedDecember 31, 2018 , or 4.3% of revenue. Same facility supplies expense was$82.1 million for the year endedDecember 31, 2019 , or 4.2% of revenue, compared to$78.3 million for the year endedDecember 31, 2018 , or 4.2% of revenue. Rents and leases. Rents and leases were$35.5 million for the year endedDecember 31, 2019 , or 1.8% of revenue, compared to$34.3 million for the year endedDecember 31, 2018 , or 1.8% of revenue. Same facility rents and leases were$31.7 million for the year endedDecember 31, 2019 , or 1.6% of revenue, compared to$30.6 million for the year endedDecember 31, 2018 , or 1.7% 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$259.5 million for the year endedDecember 31, 2019 , or 12.9% of revenue, compared to$243.7 million for the year endedDecember 31, 2018 , or 12.8% of revenue. Same facility other operating expenses were$242.2 million for the year endedDecember 31, 2019 , or 12.4% of revenue, compared to$228.7 million for the year endedDecember 31, 2018 , or 12.3% of revenue.
Depreciation and amortization. Depreciation and amortization expense was
Interest expense. Interest expense was$187.3 million for the year endedDecember 31, 2019 compared to$185.4 million for the year endedDecember 31, 2018 . The increase in interest expense was primarily a result of higher interest rates applicable to our variable-rate debt slightly offset by the lower interest rates as a result of the Second Repricing Facilities Amendment to the Amended and Restated Credit Agreement. Debt extinguishment costs. Debt extinguishment costs for the year endedDecember 31, 2018 represented$0.6 million of cash charges and$0.3 million of non-cash charges recorded in connection with the Repricing Facilities Amendments to the Amended and Restated Credit Agreement and$0.9 million of cash charges in connection with the redemption of the 9.0% and 9.5% Revenue Bonds. Legal settlements expense. Legal settlement costs of$22.1 million for the year endedDecember 31, 2018 represent$19.0 million related to the government investigation of the Company's billing for lab services inWest Virginia and$3.1 million related to the resolution of the shareholder class action lawsuit filed in 2011 in connection with our merger withPHC, Inc. d/b/aPioneer Behavioral Health .
Loss on impairment. Loss on impairment of
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Transaction-related expenses. Transaction-related expenses were$21.2 million for the year endedDecember 31, 2019 compared to$29.7 million for the year endedDecember 31, 2018 . Transaction-related expenses represent costs incurred in the respective periods primarily related to termination, restructuring, strategic review, management transition and other similar costs incurred in the respective periods, as summarized below (in thousands): Year Ended
2019 2018
Termination, restructuring and strategic review costs
5,529 14,033
Legal, accounting and other acquisition-related costs 3,030
3,152
$ 21,157 $ 29,719
Discontinued Operations. Income from discontinued operations for the year ended
December 31, 2019 was $56.8 million compared to loss from discontinued
operations of $233.0 million for the year ended December 31, 2018 . The year
ended December 31, 2019 included a non-cash long-lived asset impairment charge
of $27.2 million related to the closure of certain U.K. facilities. The year
ended December 31, 2018 included a non-cash goodwill impairment charge of $325.9
million and a non-cash long-lived asset impairment charge of $12.0 million
related to certain U.K. facilities.
Provision for income taxes. For the year ended December 31, 2019 , the provision
for income taxes was $25.1 million , reflecting an effective tax rate of 32.0%,
compared to $9.9 million , reflecting an effective tax rate of 14.7%, for 2018.
The change in the effective tax rate for the year ended December 31, 2019 was
primarily attributable to the disparity in the accounting treatment and the tax
treatment of the loss on impairment recorded in 2018.
Liquidity and Capital Resources
Cash provided by continuing operating activities for the year endedDecember 31, 2020 was$502.8 million compared to$183.4 million for the year endedDecember 31, 2019 . The increase in cash provided by continuing operating activities primarily attributable to an increase in earnings, benefits related to the CARES Act and a decrease in net cash paid for taxes and interest. Days sales outstanding atDecember 31, 2020 was 47 compared to 53 atDecember 31, 2019 . Cash used in continuing investing activities for the year endedDecember 31, 2020 was$238.2 million compared to$147.8 million for the year endedDecember 31, 2019 . Cash used in continuing investing activities for the year endedDecember 31, 2020 primarily consisted of$216.6 million of cash paid for capital expenditures,$8.3 million of cash paid for real estate and other of$13.4 million offset by proceeds from the sale of property and equipment of$0.1 million . Cash paid for capital expenditures for the year endedDecember 31, 2020 consisted of$40.7 million of routine capital expenditures and$175.9 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 approximately 2% of revenue for the year endedDecember 31, 2020 . Cash used in continuing investing activities for the year endedDecember 31, 2019 primarily consisted of$225.1 million of cash paid for capital expenditures,$44.9 million of cash paid for acquisitions and$7.6 cash paid for real estate acquisitions offset by$105.0 million from settlement of foreign currency derivatives,$11.8 million from proceeds from sale of property and equipment and other of$13.0 million . Cash paid for capital expenditures for the year endedDecember 31, 2019 consisted of$41.5 million of routine capital expenditures and$183.6 million of expansion capital expenditures. Cash used in continuing financing activities for the year endedDecember 31, 2020 was$48.2 million compared to$59.2 million for the year endedDecember 31, 2019 . Cash used in continuing financing activities for the year endedDecember 31, 2020 primarily consisted of repayment of long-term debt of$909.8 million , principal payments on revolving credit facility of$100.0 million , principal payments on long-term debt of$41.3 million , payment of debt issuance costs of$18.3 million , other of$3.1 million and distributions to noncontrolling interests of$0.9 million offset by borrowing on long-term debt of$925.0 million , borrowings on revolving credit facility of$100.0 million and common stock withheld for minimum statutory taxes of$0.2 million . Cash used in continuing financing activities for the year endedDecember 31, 2019 primarily consisted of principal payments on long-term debt of$53.0 million , principal payments on revolving credit facility of$76.6 million , common stock withheld for minimum statutory taxes of$1.6 million , distributions to noncontrolling interest of$1.7 and other of$4.4 million offset by borrowings on revolving credit facility of$76.6 million . We had total available cash and cash equivalents of$378.7 million ,$99.5 million and$50.5 million atDecember 31, 2020 , 2019 and 2018, respectively, of which approximately$17.0 million ,$4.2 million and$4.5 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 theU.S. , and it is our current intention to permanently reinvest our foreign cash and cash equivalents outside of theU.S. 45
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Amended and Restated Senior Credit Facility
We entered into a Senior Secured Credit Facility onApril 1, 2011 . OnDecember 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 theSEC . OnMarch 22, 2018 , we entered into a Second Repricing Facilities Amendment to the Amended and Restated Credit Agreement. The Second Repricing Facilities Amendment (i) replaced the Tranche B-1 Facility and the Tranche B-2 Facility with a new Tranche B-3 Facility and a new Tranche B-4 Facility, respectively, and (ii) reduced the Applicable Rate from 2.75% to 2.50% in the case of Eurodollar Rate loans and reduced the Applicable Rate from 1.75% to 1.50% in the case of Base Rate Loans. OnMarch 29, 2018 , we entered into a Third Repricing Facilities Amendment to the Amended and Restated Credit Agreement. The Third Repricing Facilities Amendment replaced the existing 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 amending the definition of "Applicable Rate" and replacing the rate table therein with the table set forth below. In connection with the Repricing Facilities Amendments, we recorded a debt extinguishment charge of$0.9 million , including the discount and write-off of deferred financing costs, which was recorded in debt extinguishment costs in the consolidated statements of operations. OnFebruary 6, 2019 , we entered into the Eleventh Amendment to the Amended and Restated Credit Agreement. The Eleventh Amendment, among other things, amended the definition of "Consolidated EBITDA" to remove the cap on non-cash charges, losses and expenses related to the impairment of goodwill, which in turn provided increased flexibility to us in terms of our financial covenants. OnFebruary 27, 2019 , we entered into the Twelfth Amendment to the Amended and Restated Credit Agreement. The Twelfth Amendment, among other things, modified certain definitions, including "Consolidated EBITDA", and increased our permitted Maximum Consolidated Leverage Ratio, thereby providing increased flexibility to us in terms of our financial covenants. OnApril 21, 2020 , we entered into the Thirteenth Amendment to the Amended and Restated Credit Agreement. The Thirteenth Amendment amended the Consolidated Leverage Ratio in the existing covenant to increase the leverage ratio for the rest of 2020. OnNovember 13, 2020 , we entered into the Fourth Repricing Facilities Amendment to the Amended and Restated Credit Agreement. The Fourth Repricing Facilities Amendment extended the maturity date of each of the existing revolving line of credit and the existing TLA Facility fromNovember 30, 2021 toNovember 30, 2022 . The Fourth Repricing Facilities Amendment also (1) replaced the revolving line of credit in an aggregate committed amount of$500.0 million to an aggregate committed amount of approximately$459.0 million and (2) replaced the TLA Facility aggregate outstanding principal amount of approximately$352.4 million to an aggregate principal amount of approximately$318.9 million . The interest rate margin applicable to both facilities remains unchanged from the prior facilities, and the commitment fee applicable to the new revolving line of credit also remains unchanged from the prior revolving line of credit. In connection with the Fourth Repricing Facilities Amendment, we recorded a debt extinguishment charge of$1.0 million , including the write-off of discount and deferred financing costs, which was recorded in debt extinguishment costs in the consolidated statements of operations. OnJanuary 5, 2021 , we made a voluntary payment of$105.0 million on our Tranche B-4 Facility. OnJanuary 19, 2021 , we used a portion of the net proceeds from the U.K. Sale to repay$311.7 million of our TLA Facility and$767.9 million of our Tranche B-4 Facility of the Amended and Restated Credit Agreement. Such repayments served to repay in full the outstanding balances of the TLA Facility and the Tranche B-4 Facility, at which point we had no variable-rate debt. We had$441.6 million of availability under the revolving line of credit and had standby letters of credit outstanding of$17.4 million related to security for the payment of claims required by our workers' compensation insurance program atDecember 31, 2020 . 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$9.5 million forMarch 31, 2021 toSeptember 30, 2022 , with the remaining principal balance of the TLA Facility due on the maturity date ofNovember 30, 2022 . We are required to repay the Tranche B-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 Tranche B-4 Facility due onFebruary 16, 2023 . OnApril 17, 2018 , we made an additional payment of$15.0 million , including$5.1 million on the Tranche B-3 Facility and$9.9 million on the Tranche B-4 Facility. OnNovember 15, 2019 , we made an additional payment of$20.0 million , including$7.0 million on the Tranche B-3 Facility and$13.0 million on the Tranche B-4 Facility. 46
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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 our 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 Acadia's Consolidated Leverage Ratio (defined as consolidated funded debt net of up to$50.0 million of unrestricted and unencumbered cash to consolidated EBITDA). The Applicable Rate for the Pro Rata Facilities was 2.5% for Eurodollar Rate Loans and 1.5% for Base Rate Loans atDecember 31, 2020 . Eurodollar Rate Loans with respect to the Pro Rata Facilities bear interest at the Applicable Rate plus the Eurodollar Rate (based upon the LIBOR Rate 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%. AtDecember 31, 2020 , the Pro Rata Facilities bore interest at a rate of LIBOR plus 2.5%. 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:
Consolidated Eurodollar Base Rate Commitment
Pricing Tier Leverage Ratio Rate Loans Loans Fee
1 < 3.50:1.0 1.50 % 0.50 % 0.20 %
2 >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 2.00 % 1.00 % 0.30 %
4 >4.50:1.0 but < 5.25:1.0 2.25 % 1.25 % 0.35 %
5 >5.25:1.0 2.50 % 1.50 % 0.40 %
The Tranche B-4 Facility bore interest as follows: Eurodollar Rate Loans bore
interest at the Applicable Rate (as defined below) plus the Eurodollar Rate
(based upon the LIBOR Rate prior to commencement of the interest rate period)
and Base Rate Loans bore 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, 2.50%, and with respect to Base Rate
Loans, 1.50%. At December 31, 2020 , the Tranche B-4 bore interest rate at a rate
of LIBOR plus 2.5%.
The lenders who provided the Tranche B-3 Facility and Tranche B-4 Facility are
not entitled to benefit from our maintenance of the financial covenants under
the Amended and Restated Credit Agreement. Accordingly, if we fail to maintain
the financial covenants, such failure shall not constitute an event of default
under the Amended and Restated Credit Agreement with respect to the Tranche B-3
Facility or Tranche B-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 total 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) furtherassurances; 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 ofbusiness; (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. The Company is 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
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.
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• the fixed charge coverage ratio may not be less than 1.25:1.00 as of
the end of any fiscal quarter;
• the total leverage ratio may not be greater than the following levels
as of the end of each fiscal quarter listed below:
March 31 June 30 September 30 December 31
2020 5.75x 6.50x 6.50x 6.25x
2021 5.25x 5.25x 5.00x 5.00x
2022 5.00x 5.00x 5.00x 5.00x
• the consolidated senior secured leverage ratio may not be greater than
3.50x as of the end of each fiscal quarter.
At
Senior Notes
6.125% Senior Notes Due 2021
OnMarch 12, 2013 , we issued$150.0 million of 6.125% Senior Notes due 2021. The 6.125% Senior Notes mature onMarch 15, 2021 and bear interest at a rate of 6.125% per annum, payable semi-annually in arrears onMarch 15 andSeptember 15 of each year. 5.125% Senior Notes due 2022 OnJuly 1, 2014 , we issued$300.0 million of 5.125% Senior Notes due 2022. The 5.125% Senior Notes mature onJuly 1, 2022 and bear interest at a rate of 5.125% per annum, payable semi-annually in arrears onJanuary 1 andJuly 1 of each year.
Redemption of 6.125% Senior Notes and 5.125% Senior Notes
OnJune 10, 2020 , we issued conditional notices of full redemption providing for the redemption in full of the 6.125% Senior Notes and 5.125% Senior Notes on the Redemption Date, in each case at Redemption Price. OnJune 24, 2020 , we satisfied and discharged the indentures governing the 6.125% Senior Notes and the 5.125% Senior Notes by irrevocably depositing with a trustee sufficient funds equal to the Redemption Price for the 6.125% Senior Notes and the 5.125% Senior Notes and otherwise complying with the terms in the indentures relating to the satisfaction and discharge of the 6.125% Senior Notes and the 5.125% Senior Notes. In connection with the redemption of the 6.125% Senior Notes and the 5.125% Senior Notes, we recorded a debt extinguishment charge of$3.3 million , including the write-off of the deferred financing and other costs in the consolidated statements of operations.
5.625% Senior Notes due 2023
OnFebruary 11, 2015 , we issued$375.0 million of 5.625% Senior Notes due 2023. OnSeptember 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 inFebruary 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 onFebruary 15, 2023 and bear interest at a rate of 5.625% per annum, payable semi-annually in arrears onFebruary 15 andAugust 15 of each year. 6.500% Senior Notes due 2024 OnFebruary 16, 2016 , we issued$390.0 million of 6.500% Senior Notes due 2024. The 6.500% Senior Notes mature onMarch 1, 2024 and bear interest at a rate of 6.500% per annum, payable semi-annually in arrears onMarch 1 andSeptember 1 of each year, beginning onSeptember 1, 2016 .
Redemption of 5.265% Senior Notes and 6.500% Senior Notes
OnJanuary 29, 2021 , we issued conditional notices of full redemption providing for the redemption in full of$650 million of 5.265% Senior Notes and$390 million of 6.500% Senior Notes to the holders of such notes. The redemption of this$1,040 million of additional debt, along with the payment of breakage costs of$6 million and estimated transaction costs of$9 million , is expected to be completed in earlyMarch 2021 and to be funded from cash from the balance sheet of$430 million and proceeds from a new senior secured credit facility of$625 million . We expect to enter into a new term loan and revolver as part of a five-year senior secured credit facility. 48
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5.500% Senior Notes due 2028
OnJune 24, 2020 , we issued$450.0 million of 5.500% Senior Notes due 2028. The 5.500% Senior Notes mature onJuly 1, 2028 and bear interest at a rate of 5.500% per annum, payable semi-annually in arrears onJanuary 1 andJuly 1 of each year, commencing onJanuary 1, 2021 .
5.000% Senior Notes due 2029
OnOctober 14, 2020 , we issued$475.0 million of 5.000% Senior Notes due 2029. The 5.000% Senior Notes mature onApril 15, 2029 and bear interest at a rate of 5.000% per annum, payable semi-annually in arrears onApril 15 andOctober 15 of each year, commencing onApril 15, 2021 . We used the net proceeds of the 5.000% Senior Note to prepay approximately$453.3 million of the outstanding borrowings on our existing Tranche B-3 Facility and used the remaining net proceeds for general corporate purposes and to pay related fees and expenses in connection with the offering. In connection with the 5.000% Senior Notes, we recorded a debt extinguishment charge of$2.9 million , including the write-off of discount and deferred financing cost, which was recorded in debt extinguishment costs in the consolidated statements of operations. The indentures governing 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
OnDecember 1, 2018 , we exercised the option to redeem in whole the 9.0% and 9.5% Revenue Bonds at a redemption price equal to the sum of 104% of the principal amount of the 9.0% and 9.5% Revenue Bonds plus accrued and unpaid interest. In connection with the redemption of the 9.0% and 9.5% Revenue Bonds, we recorded a debt extinguishment charge of$0.9 million , which was recorded in debt extinguishment costs in the consolidated statements of operations.
Contractual Obligations
The following table presents a summary of contractual obligations (dollars in
thousands):
Payments Due by Period
Less Than More Than
1 Year 1-3 Years 3-5 Years 5 Years Total
Long-term debt (1) $ 191,888 $ 2,020,499 $ 469,088 $ 1,094,250 $ 3,775,725
Operating leases 25,015 38,368 26,932 52,867 143,182
Purchase and other obligations (2) 32,909 1,980
2,096 24,000 60,985
Total obligations and commitments
(1) Amounts include required principal and interest payments. The projected
interest payments reflect interest rates in place on our variable-rate debt
at
(2) Amounts exclude variable components of lease payments.
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Off-Balance Sheet Arrangements
At
Market Risk
Interest Rate Risk
Our interest expense is sensitive to changes in market interest rates. Our long-term debt outstanding atDecember 31, 2020 was composed of$1,947.0 million of fixed-rate debt and$1,175.4 million 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 0.27% higher rate on our variable-rate debt) would decrease our net income and cash flows by$2.6 million on an annual basis based upon our borrowing level atDecember 31, 2020 . OnJanuary 5, 2021 we made a voluntary payment of$105.0 million on our Tranche B-4 Facility. OnJanuary 19, 2021 we paid in full balances of the TLA Facility and Tranche B-4 Facility, at which point we had no variable-rate debt.
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in theU.S. In preparing our financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses included in the financial statements. Estimates are based on historical experience and other available information, the results of which form the basis of such estimates. While management believes our estimation processes are reasonable, actual results could differ from our estimates. The following accounting policies are considered critical to the portrayal of our financial condition and operating performance and involve highly subjective and complex assumptions and assessments:
Revenue and Accounts Receivable
InMay 2014 , theFinancial Accounting Standards Board ("FASB") and theInternational Accounting Standards Board issued Accounting Standards Update ("ASU") 2014-09. ASU 2014-09'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 a company expects to be entitled in exchange for those goods or services. We adopted ASU 2014-09 using the modified retrospective method effectiveJanuary 1, 2018 . As a result of certain changes required by ASU 2014-09, the majority of our provision for doubtful accounts are recorded as a direct reduction to revenue instead of being presented as a separate line item on the consolidated statements of operations. The adoption of ASU 2014-09 did not have a significant impact on our consolidated 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 theU.K. (including theNHS , CCGs and local authorities inEngland ,Scotland andWales ) and (v) individual patients and clients. We determine 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. We derive a significant portion of our 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 our 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. Our cost report receivables were$5.8 million and$13.7 million atDecember 31, 2020 and 2019, respectively, and were included in other current assets in the consolidated balance sheets. Management believes that these receivables are properly stated and are not likely to be settled for a significantly different amount. The 50
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net adjustments to estimated cost report settlements resulted in a decrease to revenue of$1.3 million and$0.4 million , respectively, for the years endedDecember 31, 2020 and 2019 and an increase of$0.5 million for the year endedDecember 31, 2018 . The following table presents revenue by payor type and as a percentage of revenue in ourU.S. Facilities for the years endedDecember 31, 2020 , 2019 and 2018 (in thousands): Year Ended December 31, 2020 2019 2018 Amount % Amount % Amount % Commercial$ 596,698 28.5 %$ 565,350 28.2 %$ 573,089 30.1 % Medicare 330,070 15.8 % 294,691 14.7 % 280,340 14.7 % Medicaid 1,037,852 49.7 % 1,007,102 50.1 % 893,644 46.9 % Self-Pay 98,302 4.7 % 118,716 5.9 % 134,054 7.1 % Other 27,007 1.3 % 22,522 1.1 % 23,568 1.2 % Revenue$ 2,089,929 100.0 %$ 2,008,381 100.0 %$ 1,904,695 100.0 %
The following tables present a summary of our aging of accounts receivable at
December 31, 2020 Current 30-90 90-150 >150 Total Commercial 19.8 % 5.6 % 2.2 % 6.3 % 33.9 % Medicare 12.0 % 1.2 % 0.6 % 1.5 % 15.3 % Medicaid 27.4 % 4.7 % 2.7 % 8.6 % 43.4 % Self-Pay 1.5 % 1.4 % 1.3 % 2.5 % 6.7 % Other 0.0 % 0.3 % 0.1 % 0.3 % 0.7 % Total 60.7 % 13.2 % 6.9 % 19.2 % 100.0 % December 31, 2019 Current 30-90 90-150 >150 Total Commercial 16.7 % 6.8 % 4.3 % 6.9 % 34.7 % Medicare 11.3 % 1.6 % 0.5 % 1.0 % 14.4 % Medicaid 25.6 % 6.4 % 3.7 % 7.4 % 43.1 % Self-Pay 1.7 % 1.5 % 1.5 % 2.7 % 7.4 % Other 0.1 % 0.1 % 0.1 % 0.1 % 0.4 % Total 55.4 % 16.4 % 10.1 % 18.1 % 100.0 %
Medicaid accounts receivable at
Insurance We are subject to medical malpractice and other lawsuits due to the nature of the services we provide. A portion of our professional liability risks are insured through a wholly-owned insurance subsidiary. We are self-insured for professional liability claims up to$3.0 million per claim and have obtained reinsurance coverage from a third party to cover claims in excess of the retention limit. The reinsurance policy has a coverage limit of$75.0 million in the aggregate. Our reinsurance receivables are recognized consistent with the related liabilities and include known claims and any incurred but not reported claims that are covered by current insurance policies in place. The reserve for professional and general liability risks was estimated based on historical claims, demographic factors, industry trends, severity factors, and other actuarial assumptions. The estimated accrual for professional and general liabilities could be significantly affected should current and future occurrences differ from historical claim trends and expectations. While claims are monitored closely when estimating professional and general liability accruals, the complexity of the claims and wide range of potential outcomes often hampers timely adjustments to the assumptions used in these estimates. The professional and general liability reserve was$77.5 million atDecember 31, 2020 , of which$9.7 million was included in other accrued liabilities and$67.8 million was included in other long-term liabilities. The professional and general liability reserve was$52.6 million atDecember 31, 2019 , of which$4.7 million was included in other accrued liabilities and$47.9 million was included in other long-term liabilities. We estimate receivables for the portion of professional and general liability reserves that are recoverable under our insurance policies. Such receivable was$27.2 million atDecember 31, 2020 , of which$6.8 million was included in other current assets and$20.4 million was included in other assets, and such receivable was$8.5 million atDecember 31, 2019 , of which$3.0 million was included in other current assets and$5.5 million was included in other assets. 51
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Our statutory workers' compensation program is fully insured with a$0.5 million deductible per accident. The workers' compensation liability was$23.0 million atDecember 31, 2020 , of which$12.0 million was included in accrued salaries and benefits and$11.0 million was included in other long-term liabilities, and such liability was$20.8 million atDecember 31, 2019 , of which$10.0 million was included in accrued salaries and benefits and$10.8 million was included in other long-term liabilities. The reserve for workers compensation claims was based upon independent actuarial estimates of future amounts that will be paid to claimants. Management believes that adequate provisions have been made for workers' compensation and professional and general liability risk exposures.
Property and Equipment and Other Long-Lived Assets
Property and equipment are recorded at cost. Depreciation is calculated on the straight-line basis over the estimated useful lives of the assets, which typically range from 10 to 50 years for buildings and improvements, three to seven years for equipment and the shorter of the lease term or estimated useful lives for leasehold improvements. When assets are sold or retired, the corresponding cost and accumulated depreciation are removed from the related accounts and any gain or loss is recorded in the period of sale or retirement. Repair and maintenance costs are expensed as incurred. Depreciation expense was$95.3 million ,$87.9 million and$80.3 million for the years ended years endedDecember 31, 2020 , 2019 and 2018, respectively. The carrying values of long-lived assets are reviewed for possible impairment whenever events, circumstances or operating results indicate that the carrying amount of an asset may not be recoverable. If this review indicates that the asset will not be recoverable, as determined based upon the undiscounted cash flows of the operating asset over the remaining useful lives, the carrying value of the asset will be reduced to its estimated fair value. Fair value estimates are based on independent appraisals, market values of comparable assets or internal evaluations of future net cash flows. We performed an impairment review of long-lived assets in the fourth quarter of 2020, which indicated the carrying amounts of certain of our long-lived assets in theU.S. Facilities may not be recoverable. This created a non-cash impairment of$4.2 million for the year endedDecember 31, 2020 . A 2019 impairment review resulted in a non-cash loss on impairment of$27.2 million for the year endedDecember 31, 2019 . These items were recorded in loss on impairment on our consolidated statements of operations. No impairment was recorded for the year endedDecember 31, 2018 .
Our goodwill and other indefinite-lived intangible assets, which consist of licenses and accreditations, trade names and certificates of need intangible assets that are not amortized, are evaluated for impairment annually during the fourth quarter or more frequently if events indicate the carrying value of a reporting unit may not be recoverable. As of our annual impairment test onOctober 1, 2020 , we had two operating segments for segment reporting purposes,U.S. Facilities andU.K. Facilities, each of which represents a reporting unit for purposes of our goodwill impairment test. Our annual goodwill impairment and other indefinite-lived intangible assets test performed as ofOctober 1, 2020 considered recent financial performance, including the impacts of COVID-19 on certain portions of theU.K. business. The 2020 impairment test of theU.K. Facilities indicated carrying value of the reporting unit exceeded the estimated fair value and resulted in a non-cash loss on impairment of the remaining goodwill of theU.K. Facilities of$356.2 million . The non-cash loss on impairment is included in loss on sale within discontinued operations in the consolidated statements of operations. As of our impairment test onOctober 1, 2020 , the fair value of ourU.S Facilities reporting unit substantially exceeded its carrying value, and therefore no impairment was recorded. Additionally, for the year endedDecember 31, 2020 , we recorded a non-cash impairment charge of$0.6 million related to indefinite-lived assets related to closed facilities in theU.S. , which is included in loss on impairment in the consolidated statements of operations. Due to the classification of theU.K. Facilities in discontinued operations atDecember 31, 2020 , we have one operating segment, behavioral health services, for segment reporting purposes. The behavioral healthcare services operating segment represents one reporting unit for future goodwill impairment tests.
Income Taxes
We use the asset and liability method of accounting for income taxes. Under this
method, deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes and net
operating loss and tax credit carryforwards. The amount of deferred taxes on
these temporary differences is determined using the tax rates that are expected
to apply in the period when the asset is realized or the liability is settled,
as applicable, based on tax rates and laws in the respective tax jurisdiction
enacted as of the balance sheet date.
We review our deferred tax assets for recoverability and establish a valuation
allowance based on historical taxable income, projected future taxable income,
applicable tax strategies, and the expected timing of the reversals of existing
temporary differences.
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A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense. We also have accruals for taxes and associated interest that may become payable in future years as a result of audits by tax authorities. We accrue for tax contingencies when it is more likely than not that a liability to a taxing authority has been incurred and the amount of the contingency can be reasonably estimated. Although we believe that the positions taken on previously filed tax returns are reasonable, we nevertheless have established tax and interest reserves in recognition that various taxing authorities may challenge the positions taken by us resulting in additional liabilities for taxes and interest. These amounts are reviewed as circumstances warrant and adjusted as events occur that affect our potential liability for additional taxes, such as lapsing of applicable statutes of limitations, conclusion of tax audits, additional exposure based on current calculations, identification of new issues, release of administrative guidance, or rendering of a court decision affecting a particular tax issue.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Information with respect to this Item is provided under the caption "Market Risk" under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
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