Acadia Healthcare Company Annual Report 2017

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FY2017 Annual Report · Acadia Healthcare Company

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ACADIA

H E A L T H C A R E

2017
ANNUAL
REPORT

About the Company
Acadia is a provider of behavioral healthcare services. At December 31,

2017, Acadia operated a network of 582 behavioral healthcare facilities with

approximately 17,800 beds in 39 states, the United Kingdom and Puerto Rico.

Acadia provides behavioral health and addiction services to its patients in a variety

of settings, including inpatient psychiatric hospitals, special treatment facilities,

residential treatment centers and outpatient clinics.

Financial Highlights

p p
(In thousands, except per share amounts)

Revenue
Net income attributable to Acadia Healthcare Company, Inc.
Adjusted income attributable to Acadia Healthcare

Company, Inc.(1)
Adjusted EBITDA(1)
Per diluted share:

Net income attributable to Acadia Healthcare
Company, Inc.
Adjusted income attributable to Acadia Healthcare
Company, Inc.(1)

Weighted average diluted shares outstanding

Cash and cash equivalents
Working capital
Property and equipment, net
Total assets
Total debt
Total equity

(1) Please see page V for a reconciliation of GAAP and non-GAAP results.

Year Ended December 31,

2017
$ 2,836,316
199,835
$

2016
$ 2,810,914
6,143
$

$
$

200,232
604,359

2.30

2.30
87,060

67,290
94,161
3,048,130
6,424,502
3,239,888
2,572,871

$
$

210,245
608,590

0.07

2.45
85,972

57,063
85,062
2,703,695
6,024,726
3,287,809
2,167,724

Letter to Stockholders

Fellow Stockholders:
Our revenue for 2017 was $2.84 billion compared with $2.81 billion for 2016. Net income attributable
to Acadia was $199.8 million, or $2.30 per diluted share, compared with $6.1 million, or $0.07 per diluted
share, for 2016. Adjusted net income attributable to Acadia was $200.2 million, or $2.30 per diluted
share, for 2017 compared with $210.2 million, or $2.45 per diluted share, for 2016. Our financial results
for 2017 were negatively affected by the divestiture of 22 facilities in the U.K. on November 30, 2016,
which was required to obtain regulatory approval of our acquisition of Priory Group. These facilities
contributed revenue of approximately $154.7 million, Adjusted EBITDA of $46.3 million, and adjusted
EPS of approximately $0.29 in 2016. See page V for a reconciliation of GAAP and non-GAAP results.

Our same facility revenue grew 5.6% for 2017, consisting of an increase of 3.6% in patient days and 1.9%
in revenue per patient day. This increase reflects, in part, the addition of 750 new beds to both existing
facilities and through the opening of de novo facilities during 2017. Same facility EBITDA margin was
25.3% for 2017 compared with 25.6% for 2016. Total adjusted EBITDA was $604.4 million, or 21.3%
of revenue, compared with $608.6 million, or 21.7% of revenue, for 2016.

Our U.S. operations produced a 6.6% increase in same facility revenue for 2017, which included a 4.8%
increase in patient days and a 1.7% increase in revenue per patient day. Same facility EBITDA margin for
the U.S. was 27.0% for 2017 compared with 27.1% for 2016. Our U.K. same facility revenue grew 3.6% on
increases of 2.1% in patient days and 1.5% in revenue per patient day. Same facility EBITDA margin for
the U.K. was 21.7% for 2017 compared with 22.5% for 2016. Same facility results in the U.K. were affected
by higher agency labor expense in the second half of 2017, primarily for nurses and other clinical staff, due
to a tightening in the U.K. labor market. In addition, we experienced lower census than anticipated in the
U.K. in the second half of the year.

For 2018, organic growth will again be the primary focus of our capital expenditures for expansion in the
U.S. and the U.K. Demand for behavioral health services is rising in both markets and access to these
services is improving. Industry capacity remains constrained, but we have the experience and capital to
continue our significant annual capacity expansions by adding new beds to our existing facilities, opening
de novo facilities and, in the U.S., adding facilities through joint ventures with strategic partners. We will
also continue to evaluate potential acquisitions during 2018 and are fully prepared to act on appropriate
opportunities. However, we will remain disciplined in our valuation of potential transactions.

Driving organic growth through the addition of new beds remains a key growth strategy for Acadia.
We plan to add more than 800 beds for the year, with about 75% scheduled for the U.S. and 25%
for the U.K. Of these beds, 312 will be located in four de novo facilities scheduled to open in 2018,
two of which will be joint ventures with strategic partners. Adding beds to existing facilities represents
one of our best uses of capital, and with increasing demand for behavioral healthcare, it enables us to meet
our local communities’ needs. Given that we have added over 2,500 beds to existing facilities since 2011,
our disciplined approach to adding beds has also become a differentiating core competency for Acadia.
We also have added hundreds of additional beds to our operations through the opening of six de novo
facilities in the past three years, including three facilities owned by joint ventures.

During 2017, the pipeline of potential new joint ventures continued to expand, which we believe represents
an important long-term growth opportunity for Acadia in the U.S. Our partnerships with these primarily
not-for-profit health systems enable them to focus on their medical-surgical operations, and we are an
attractive partner because of our scale, expertise and exclusive focus on behavioral healthcare. These joint
ventures give us strong partners in markets that might be otherwise difficult for us to enter. Our partners
that operate teaching hospitals give us a wonderful opportunity to work with medical students that might
become psychiatrists, nurses and clinical technicians at Acadia. In addition, we believe there will be
opportunities with some partners to introduce other service lines in addition to acute inpatient care.

We are also focused on meeting increasing demand for our substance abuse services, reflecting the
growing opioid addiction crisis. We are currently serving approximately 60,000 patients per day in our
U.S. comprehensive treatment centers. As this crisis has expanded, legislation has increased funding to
provide treatment access, although much more will be required to have a substantial impact on the problem.
The 21st Century Cures Act passed in December 2016 will provide $2 billion to fund programs combatting
opioid use over two years. In addition, Congress approved $3 billion in the federal budgets for both 2018
and 2019 to fund a five-point strategy that includes improved access to prevention, treatment and recovery
services. As the largest provider of addiction services in the U.S., we expect Acadia will continue to play an
important role in the treatment and recovery of patients addicted to opioids.

Based on Acadia’s strong generation of free cash flow, we continue to be well positioned to fund our
strategic plans for 2018. We expect our operating cash flow to be sufficient to fund our maintenance capital
expenditures, as well as our new bed additions for the year. At the end of 2017, we also had $67.3 million
of cash and cash equivalents and full availability under our $500 million revolving credit facility.

In closing, we are confident in Acadia’s prospects for profitable growth in 2018 and of our ability to drive
long-term growth in stockholder value. Acadia is the largest public pure-play behavioral health company
in the U.S. and the U.K. We are very diversified in our geographic presence, our services and our payors.
In a growing, highly fragmented and capacity-constrained industry, we have a strong, long-term record of
growing organically and through strategic acquisitions.

We are very proud of our approximately 40,000 full and part-time employees, who - directly or through
their supporting efforts - provide our patients quality care. Our patients are often very sick when they come
to us, and we strive to help them recover through the compassion, determination and expertise provided by
those who care for them throughout Acadia. Our employees make the difference that improves the lives of
our patients and their families and, thereby, are the ultimate drivers of Acadia’s success.

As a fellow stockholder, thank you for your investment in Acadia.

Best regards,

Joey Jacobs
Chairman and Chief Executive Officer

Safe Harbor

Some of the statements made in this letter constitute 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,” “should,” “could” or the negative thereof.
Generally, the words “anticipate,” “believe,” “continues,” “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 in this
letter 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.

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. Additional risks and uncertainties
are described more fully in “Risk Factors” in periodic reports and other filings with the Securities and
Exchange Commission. These forward-looking statements are made only as of the date of this letter.
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.

III

Comparative Performance Graph

The following graph compares the yearly percentage change in cumulative total stockholder return on the
Company’s common stock with (a) the performance of a broad equity market indicator, the NASDAQ
U.S. Stocks Benchmark Index, and (b) the performance of a published industry index or peer group, the
NASDAQ Health Care Providers Index. The graph assume the investment on December 31, 2012, of
$100 and that all dividends were reinvested at the time they were paid. The table following the graph
presents the corresponding data for December 31, 2012, and each subsequent fiscal year end.

Comparison of Cumulative Total Returns

–
$300 –

–
$250 –

–
$200 –

–
$150 –

––
$100 ––

12/31/12

12/31/13

12/31/14
12/31/14

12/31/15

12/31/16

12/31/17

Acadia Healthcare Company, Inc.

Nasdaq U.S. Stocks Benchmark

Nasdaq Health Care Providers

Acadia Healthcare Company, Inc.
Nasdaq U.S. Stocks Benchmark
Nasdaq Health Care Providers

12/31/2012 12/31/2013 12/31/14
$ 262.1
$ 202.7
$ 150.1
$ 133.5
$ 178.3
$ 138.0

$ 100.0
$ 100.0
$ 100.0

12/31/15
$ 267.5
$ 150.8
$ 193.1

12/31/16
$ 141.8
$ 170.5
$ 210.6

12/31/17
$ 139.7
$ 206.9
$ 280.1

Acadia Healthcare Company, Inc.

Reconciliation of Net Income Attributable to Acadia Healthcare Company, Inc. to Adjusted EBITDA
(Unaudited)

(In thousands)

Net income attributable to Acadia Healthcare Company, Inc.
Net loss attributable to noncontrolling interests
Provision for income taxes
Interest expense, net
Depreciation and amortization
EBITDA

Adjustments:
Equity-based compensation expense (a)
Transaction-related expenses (b)
Debt extinguishment costs (c)
Loss on divestiture (d)

Gain on foreign currency derivatives (e)
Adjusted EBITDA

Year Ended December 31,
2016
6,143
(1,967)
28,779
181,325
135,103
349,383

2017
$ 199,835
(246)
37,209
176,007
143,010
555,815

23,467
24,267
810
–
–
$ 604,359

28,345
48,323
4,253
178,809
(523)
$ 608,590

Reconciliation of Adjusted Income Attributable to Acadia Healthcare Company, Inc. to Net Income
Attributable to Acadia Healthcare Company, Inc. (Unaudited)

(In thousands, except share and per share amounts)

Net income attributable to Acadia Healthcare Company, Inc.

Adjustments to income:
Transaction-related expenses (b)

Tax reform impact (f)t

Debt extinguishment costs (c)

Loss on divestiture (d)
Gain on foreign currency derivatives (e)
Income tax effect of adjustments to income (g)
Adjusted income attributable to Acadia Healthcare
Company, Inc.

Year Ended December 31,
2016
6,143

2017
$ 199,835

24,267
(20,188)
810
–
–
(4,492)

48,323
_
4,253
178,809
(523)
(26,760)

$ 200,232

$ 210,245

Weighted average diluted shares outstanding

87,060

85,972

Adjusted income from continuing operations attributable to
Acadia Healthcare Company, Inc. per diluted share

2.30

2.45

Footnotes

We have included certain financial measures in this annual report, including EBITDA, Adjusted EBITDA,
and Adjusted income, which are “non-GAAP financial measures” as defined under the rules and regulations
promulgated by the SEC. We define EBITDA as net income adjusted for net loss attributable to noncontrolling
interests, provision for income taxes, net interest expense and depreciation and amortization. We define Adjusted
EBITDA as EBITDA adjusted for equity-based compensation expense, transaction-related expenses, debt
extinguishment costs, loss on divestiture and gain on foreign currency derivatives. We define Adjusted income
as net income adjusted for transaction-related expenses, tax reform impact, debt extinguishment costs, loss on
divestiture, gain on foreign currency derivatives and income tax effect of adjustments to income.

EBITDA, Adjusted EBITDA, and Adjusted income are supplemental measures of our performance and are
not required by, or presented in accordance with, generally accepted accounting principles in the United States
(“GAAP”). EBITDA, Adjusted EBITDA, and Adjusted income are not measures of our financial performance
under GAAP and should not be considered as alternatives to net income or any other performance measures
derived in accordance with GAAP or as an alternative to cash flow from operating activities as measures of our
liquidity. Our measurements of EBITDA, Adjusted EBITDA, and Adjusted income may not be comparable
to similarly titled measures of other companies. We have included information concerning EBITDA, Adjusted
EBITDA, and Adjusted income in this annual report because we believe that such information is used by certain
investors as measures of a company’s historical performance. We believe these measures are frequently used by
securities analysts, investors and other interested parties in the evaluation of issuers of equity securities, many of
which present EBITDA, Adjusted EBITDA, and Adjusted income when reporting their results. Our presentation
of EBITDA, Adjusted EBITDA, and Adjusted income should not be construed as an inference that our future
results will be unaffected by unusual or nonrecurring items.

(a) Represents the equity-based compensation expense of Acadia.

(b) Represents transaction-related expenses incurred by Acadia related to acquisitions and integration efforts.

Agreement, including the discount and write-off of deferred financing costs.

(d) As part of divestitures in the U.K. and U.S., the loss on divestiture includes an allocation of goodwill to the

disposal groups of approximately $106.9 million, loss on the sale of properties of approximately $45.0 million,
transaction-related expenses of approximately $26.8 million and write-off of intangible assets of approximately
$0.1 million.

(e) Represents the change in fair value of foreign currency derivatives purchased by Acadia related to (i) acquisitions
in the U.K. and (ii) certain transfers of cash between the U.S. and U.K. under the Company’s cash management
and foreign currency risk management programs.

(f) Represents the Company’s estimate of the one-time remeasurement of deferred taxes pursuant to the

enactment of the Tax Cuts and Jobs Act. The estimate of the tax reform impact may be revised as further
information is evaluated.

(g) Represents the income tax effect of adjustments to income based on tax rates of 19.87% and 17.96% for the
three months ended December 31, 2017 and 2016, respectively, and 23.65% and 20.90% for the year ended
December 31, 2017 and 2016, respectively. The adjusted income tax provision for the year ended December
31, 2017 excludes the impact of adopting ASU 2016-09 “Improvements to Employee Share-Based Payment
Accounting” of approximately $1.7 million.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
(cid:1409) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the fiscal year ended December 31, 2017
or

(cid:1407) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-35331

ACADIA HEALTHCARE COMPANY, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or other jurisdiction of
incorporation or organization)

45-2492228
(I.R.S. Employer
Identification No.)

6100 Tower Circle, Suite 1000
Franklin, Tennessee 37067
(Address, including zip code, of registrant’s principal executive offices)

(615) 861-6000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each Class

Common Stock, $.01 par value

Name of exchange on which registered

NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:1409) No (cid:1407)

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes (cid:1409) No (cid:1407)

or Section 15(d) of the Act. Yes (cid:1407) No (cid:1409)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be

submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes (cid:1409) No (cid:1407)

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not

be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (cid:1407)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the

definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer (cid:1409)
Non-accelerated filer (cid:1407) (Do not check if a smaller reporting company)

Accelerated filer
(cid:1407)
Smaller reporting company (cid:1407)
Emerging growth company (cid:1407)

If an emerging growth company, indicate by check mark of the registrant has elected not to use the extended transition period for complying with any new or

revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:1407)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:1407) No (cid:1409)
As of June 30, 2017, the aggregate market value of the shares of common stock of the registrant held by non-affiliates was approximately $3.9 billion, based on

the closing price of the registrant’s common stock reported on the NASDAQ Global Select Market of $49.38 per share.

As of February 27, 2018, there were 87,950,965 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for its 2018 annual meeting of stockholders to be held on May 3, 2018 are incorporated by reference into

Part III of this Form 10-K.

ACADIA HEALTHCARE COMPANY, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

PART I

Item 1. Business .....................................................................................................................................................................
Item 1A. Risk Factors ..............................................................................................................................................................
Item 1B. Unresolved Staff Comments .....................................................................................................................................
Item 2. Properties ....................................................................................................................................................................
Item 3. Legal Proceedings .......................................................................................................................................................
Item 4. Mine Safety Disclosures .............................................................................................................................................

1
18
38
39
40
40

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

Securities ............................................................................................................................................................................
Item 6. Selected Financial Data..............................................................................................................................
.................
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations .....................................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................................................................................
Item 8. Financial Statements and Supplementary Data ..........................................................................................................
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .....................................
Item 9A. Controls and Procedures ...........................................................................................................................................
Item 9B. Other Information .....................................................................................................................................................

PART III

Item 10. Directors, Executive Officers and Corporate Governance .......................................................................................
.............
Item 11. Executive Compensation..............................................................................................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .................
Item 13. Certain Relationships and Related Transactions, and Director Independence .........................................................
Item 14. Principal Accountant Fees and Services ..................................................................................................................

41
42
42
59
59
59
59
59

60
60
60
61
61

PART IV

Item 15. Exhibits and Financial Statement Schedules ............................................................................................................
Item 16. Form 10-K Summary ................................................................................................................................................

62
66

SIGNATURES

Unless the context otherwise requires, all references in this Annual Report on Form 10-K to “Acadia,” “the Company,” “we,”

“us” or “our” mean Acadia Healthcare Company, Inc. and its consolidated subsidiaries.

PART I

Item 1. Business.

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
quality patient care, 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. At
December 31, 2017, we operated 582 behavioral healthcare facilities with approximately 17,800 beds in 39 states, the United
Kingdom (“U.K.”) and Puerto Rico. During the year ended December 31, 2017, we acquired one facility and added 750 new beds
(exclusive of the acquisition), including 588 added to existing facilities and 162 added through the opening of two de novo facilities.
For the year ending December 31, 2018, we expect to add more than 800 total beds exclusive of acquisitions.

We are the leading publicly traded pure-play provider of behavioral healthcare se

rvices, with operations in the United States
(“U.S.”) and the U.K. Management believes that we are positioned as a leading platform in a highly fragmented industry under the
direction of an experienced management team that 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
the U.S. and U.K.

Acadia was formed as a limited liability company in the State of Delaware in 2005, and converted to a corporation on May 13,

2011. Our common stock is listed for trading on The NASDAQ Global Select Market under the symbol “ACHC.” Our principal
executive offices are located at 6100 Tower Circle, Suite 1000, Franklin, Tennessee 37067, and our telephone number is (615) 861-
6000.

Acquisitions

2017 Acquisition

On November 13, 2017, we completed the acquisition of Aspire Scotland (“Aspire”), an education facility with 36 beds located

in Scotland, for cash consideration of approximately $21.3 million.

2016 U.S. Acquisitions

On June 1, 2016, we completed the acquisition of Pocono Mountain Recovery Center (“Pocono Mountain”), an inpatient
aa

psychiatric facility with 108 beds located in Henryville, Pennsylvania, for cash consideration

of approximately $25.4 million.

On May 1, 2016, we completed the acquisition of TrustPoint Hospital (“TrustPoint”), an inpatient psychiatric facility with 100

beds located in Murfreesboro, Tennessee, for cash consideration of approximately $62.7 million.

On April 1, 2016, we completed the acquisition of Serenity Knolls (“Serenity Knolls”), an inpatient psychiatric facility with 30

beds located in Forest Knolls, California, for cash consideration of approximately $10.0 million.

Priory

On February 16, 2016, we completed the acquisition of Priory Group No. 1 Limited (“Priory”) for a total purchase price of

approximately $2.2 billion, including cash consideration of approximately $1.9 billion and the issuance of 4,033,561 shares of our
common stock to shareholders of Priory. Priory was the leading independent provider of behavioral healthcare services in the U.K.,
operating 324 facilities with approximately 7,100 beds at the acquisition date.

The Competition and Markets Authority (the “CMA”) in the U.K. reviewed our acquisition of Priory. On July 14, 2016, the

CMA announced that our acquisition of Priory was referred for a phase 2 investigation unless we offered acceptable undertakings to
address the CMA’s competition concerns relating to the provision of behavioral healthcare services in certain markets. On July 28,
2016, the CMA announced that we had offered undertakings to address the CMA’s concerns and that, in lieu of a phase 2
investigation, the CMA would consider our undertakings.

On October 18, 2016, we signed a definitive agreement with BC Partners (“BC Partners”) for the sale of 21 existing U.K.
behavioral health facilities and one de novo behavioral health facility with an aggregate of approximately 1,000 beds (collectively, the
“U.K. Disposal Group”). On November 10, 2016, the CMA accepted our undertakings to sell the U.K. Disposal Group to BC Partners
our acquisition of Priory on competition for the
d
and confirmed that the divestiture satisfied the CMA’s concern about the impact of
provision of behavioral healthcare services in certain markets in the U.K. As a result of the CMA’s acceptance of our undertakings,
our acquisition of Priory was not referred for a phase 2 investigation. On November 30, 2016, we completed the sale of the U.K.
Disposal Group to BC Partners for £320 million cash (the “U.K. Divestiture”).

Our completed acquisitions of Priory, Serenity Knolls, TrustPoint, and Pocono Mountain are referred to collectively in this

report as the “2016 Acquisitions”.

2015 Acquisitions

During 2015, we completed the acquisition of CRC Health Group, Inc. (“CRC”), Quality Addition Management Inc., Choice

Lifestyles, Pastoral Care Group, Mildmay Oaks f/k/a Vista Independent Hospital, Care UK Limited, The Manor Clinic, Belmont
Behavioral Health, Southcoast Behavioral, The Danshell Group, Health and Social Care Partnerships, Manor Hall, Meadow View,
Cleveland House, Duffy’s Napa Valley Rebab, Discovery House-Group In
the 2016 Acquisitions , the “2015 and 2016 Acquisitions”).

c and MMO Behavioral Health Systems (collectively with

Financing Transactions

On May 10, 2017, we entered into a Third Repricing Amendment (the “Third Repricing Amendment”) to the Amended and
Restated Credit Agreement, dated as of December 31, 2012 (the “Amended and Restated Credit Agreement”). The Third Repricing
Amendment reduced the Applicable Rate with respect to the Tranche B-1 Term Loan facility (the “Tranche B-1 Facility”) and the
Tranche B-2 Term Loan facility (the “Tranche B-2 Facility”) from 3.0% to 2.75% in the case of Eurodollar Rate loans and from 2.0%
to 1.75% in the case of Base Rate Loans. In connection with the Third Repricing Amendment, the Company recorded a debt
extinguishment charge of $0.8 million, including the discount and write-off of deferred financing costs, which was recorded in debt
extinguishment costs in the consolidated statements of operations.

On November 30, 2016, we entered into a Refinancing Facilities Amendment (the “Refinancing Amendment”) to the Amended

and Restated Credit Agreement. The Refinancing Amendment increased our line of cr
aa
$500.0 million from $300.0 million and reduced our Term Loan A facility (the “TLA Facility”) to $400.0 million from $600.6 million
(together, the “Refinancing Facilities”). In addition, the Refinancing Amendment extended the maturity date for the Refinancing
Facilities to November 30, 2021 from February 13, 2019, and lowered the effective interest rate on our line of credit on our revolving
credit facility and TLA Facility by 50 basis points. In connection with the Refinancing Amendment, we recorded a debt
extinguishment charge of $0.8 million, including the write-off of deferred financing costs, which was recorded in debt extinguishment
costs in the consolidated statements of income.

edit on our revolving credit facility to

On November 22, 2016, we entered into a Tenth Amendment (the “Tenth Amendment”) to the Amended and Restated Credit
Agreement. The Tenth Amendment, among other things, (i) amended the negative covenant regarding dispositions, (ii) modified the
collateral package to release any real property with a fair market value of less than $5.0 milli
on and (iii) changed certain investment,
indebtedness and lien baskets.

On September 21, 2016, we entered into a Tranche B-2 Repricing Amendment to the Amended and Restated Credit Agreement.

The Tranche B-2 Repricing Amendment reduced the Applicable Rate with respect to our Tranche B-2 Facility from 3.75% to 3.00%
in the case of Eurodollar Rate loans and 2.75% to 2.00% in the case of Base Rate Loans. In connection with the Tranche B-2
Repricing Amendment, we recorded a debt extinguishment charge of $3.4 million, including the discount and write-off of deferred
financing costs, which was recorded in debt extinguishment costs in the consolidated statements of income.

On May 26, 2016, we entered into a Tranche B-1 Repricing Amendment to the Amended and Restated Credit Agreement. The

Tranche B-1 Repricing Amendment reduced the Applicable Rate with respect to our Tranche B-1 Facility from 3.5% to 3.0% in the
case of Eurodollar Rate loans and 2.5% to 2.0% in the case of Base Rate Loans.

On February 16, 2016, we issued $390.0 million of 6.500% Senior Notes due 2024 (the “6.500% Senior Notes”). The 6.500%

Senior Notes mature on March 1, 2024 and bear interest at a rate of 6.500% per annum, payable semi-annually in arrears on March 1 h
and September 1 of each year, beginning on September 1, 2016. We used the net proceeds to fund a portion of the purchase price for
the acquisition of Priory and the fees and expenses for such acquisition and the related financing transactions.

On February 16, 2016, we entered into a Second Incremental Facility Amendment (the “Second Incremental Amendment”) to
our Amended and Restated Credit Agreement. The Second Incremental Amendment activated our Tranche B-2 Facility and added
$135.0 million to the TLA Facility to our Amended and Restated Senior Secured Credit Facility (the “Amended and Restated Senior
Credit Facility”), subject to limited conditionality provisions. Borrowings under the Tranche B-2 Facility were used to fund a portion
of the purchase price for the acquisition of Priory and the fees and expenses for su
f
Borrowings under the TLA Facility were used to pay down the majority of our $300.0 million revolving credit facility.

ch acquisition and the related financing transactions.

On January 25, 2016, we entered into the Ninth Amendment (the “Ninth Amendment”) to the Amended and Restated Credit

Agreement. The Ninth Amendment modified certain definitions and provided increased flexibility to us in terms of our financial
covenants. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and
Capital Resources—Amended and Restated Senior Credit Facility” for additional information.

On January 12, 2016, we completed the offering of 11,500,000 shares of common stock (including shares sold pursuant to the

exercise of the over-allotment option that we granted to the underwriters as part of the offering) at a public offering price of $61.00 per
share. The net proceeds to us from the sale of the shares, after deducting the underwriting discount of $15.8 million and additional
offering related costs of $0.7 million, were approximately $685.0 million. We used the net offering proceeds to fund a portion of the
purchase price for the acquisition of Priory.

On September 21, 2015, we issued $275.0 million of additional 5.625% Senior Notes due 2033 (the “5.625% Senior Notes”).
The 5.625% Senior Notes mature on February 15, 2023 and bear interest at a rate of 5.625% per annum, payable semi-annually in
r
August 15, 2015. The additional notes formed a single class of debt
arrears on February 15 and August 15 of each year, beginning on
securities with the 5.625% Senior Notes issued in February 2015. Giving effect to this issuance, we have outstanding an aggregate of
$650.0 million of 5.625% Senior Notes.

On September 21, 2015, we purchased approximately $88.3 million aggregate principal amount of 12.875% Senior Notes due

2018 (the “12.875% Senior Notes”) in connection with a tender offer for any and all of the 12.875% Senior Notes. The notes
purchased represented 90.6% of the outstanding $97.5 million principal amount of 12.875% Senior Notes. The 12.875% Senior Notes
were purchased at a price of 107.875% of the principal amount thereof plus accrued and unpaid interest to, but not including,
September 21, 2015. On September 18, 2015, we delivered a notice to redeem all $9.2 million in principal amount of the 12.875%
Senior Notes remaining outstanding following the consummation of the tender offer. On November 1, 2015, we redeemed all of the
outstanding $9.2 million principal amount of the 12.875% Senior Notes. As a result of this redemption, both the 12.875% Senior
Notes and the indenture governing the 12.875% Senior Notes were satisfied and discharged in accordance with their terms. In
connection with the purchase of notes, the Company recorded a debt extinguishment charge of approximately $10.8 million for the
year ended December 31, 2015, including the premium and write-off of deferred financing costs, which was recorded in debt
extinguishment costs in the consolidated statements of income.

On May 11, 2015, we completed the offering of 5,175,000 shares of common stock (including shares sold pursuant to the
exercise of the over-allotment option that we granted to the underwriters as part of the offering) at a price of $66.50 per share. The net
proceeds to us from the sale of the shares, after deducting the underwriting discount of $12.0 million and additional offering-related
costs of $0.8 million, were $331.3 million. We used the net offering proceeds to repay outstanding indebtedness and fund acquisitions.

t
On April 22, 2015, we entered into an Eighth Amendment (the “Eighth Amendment”) to our Amended and Restated Credit
Agreement. The Eighth Amendment changed the definition of “Change of Control” in part to remove a provision whose purpose was,
when calculating whether a majority of incumbent directors have approved new directors, that any incumbent director that became a
director as a result of a threatened or actual proxy contest was not counted in such calculation.

On February 11, 2015, we issued $375.0 million of 5.625% Senior Notes. We used the net proceeds to fund a portion of the

consideration for the acquisition of CRC.

On February 11, 2015, we entered into a First Incremental Facility Amendment (the “First Incremental Amendment”) to the
Amended and Restated Credit Agreement. The First Incremental Amendment activated our Tranche B-1 Facility that was added to the
Amended and Restated Senior Secured Credit Facility, subject to limited conditionality provisions. Borrowings under the Tranche B-1
Facility were used to fund a portion of the consideration for the acquisition of CRC.

On February 6, 2015, we entered into a Seventh Amendment (the “Seventh Amendment”) to our Amended and Restated Credit
Agreement. The Seventh Amendment added Citibank, N.A. as an “L/C Issuer” under the Amended and Restated Credit Agreement in
order to permit the rollover of CRC’s existing letters of credit into the Amended and Restated Credit Agreement and increased both
the Company’s Letter of Credit Sublimit and Swing Line Sublimit to $20.0 million.

Competitive Strengths

Management believes the following strengths differentiate us from other providers of behavioral healthcare services:

Premier operational management team with track record of success. Our management team has approximately 160 combined

years of experience in acquiring, integrating and operating a variety of behavioral health facilities. Following the sale of Psychiatric
Solutions, Inc. (“PSI”) to Universal Health Services, Inc. (“UHS”) in November 2010, certain of PSI’s key former executive officers
joined Acadia in February 2011. The extensive national experience and operational expertise of our management team give us what
management believes to be the premier leadership team in the behavioral healthcare industry. Our management team strives to use its
years of experience operating behavioral healthcare facilities to generate strong cash flow and grow a profitable business.

Favorable industry and legislative trends. According to a 2014 survey by the Substance Abuse and Mental Health Services
Administration of the U.S. Department of Health and Human Services (“SAMHSA”), 18.1% of adults in the U.S. aged 18 years or
older suffered from a mental illness in the prior year and 4.1% suffered from a serious mental illness. Further, approximately 8.1% of
people aged 12 or older in 2014 were classified with a substance abuse disorder in the past year. According to the National Institute of
Mental Health, over 20% of children, either currently or at some point in their life, have had a seriously debilitating mental
Management believes the market for behavioral services will continue to grow due to increased awareness of mental health and
substance abuse conditions and treatment options. According to a 2014 SAMHSA report, national expenditures at substance abuse
treatment facilities are expected to reach $42.1 billion in 2020, up from $24.3 billion in 2009.

disorder.

While the growing awareness of mental health and substance abuse conditions is expected to accelerate demand for services,
recent healthcare reform in the U.S. is expected to increase access to industry services as more people obtain insurance coverage. A
key aspect of reform legislation is the extension of mental health parity protections established into law by the Paul Wellstone and
Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (the “MHPAEA”). The MHPAEA requires employers who
provide behavioral health and addiction benefits to provide such coverage to the same extent as other medical conditions. On
December 13, 2016, President Obama signed the 21st Century Cures Act. The 21st Century Cures Act ap
propriates substantial
resources for the treatment of behavioral health and substance abuse disorders and contains measures intended to strengthen the
MHPAEA.

The mental health hospitals market in the U.K. was estimated at £15.9 billion for 2014/2015. As a result of government budget
constraints and an increased focus on quality, the independent mental health hospitals market has witnessed significant expansion in
the last decade, making it one of the fastest growing sectors in the U.K. healthcare industry. Demand for independent sector be
ds has
grown significantly as a result of the National Health Service (the “NHS”) reducing its bed capacity and increasing hospitalization
aa
rates. Independent sector demand is expected to further increase in light of additio
nal bed closures and reduction in community
capacity by the NHS.

Leading platform in attractive healthcare niche. We are a leading behavioral healthcare platform in an industry that is

undergoing consolidation in an effort to reduce costs and expand programs to better serve the growing need for inpatient behavi
oral
d
healthcare services. 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 attr
act new patients and referral sources, increasing
n
our volume of out-of-state referrals, providing a broader range of services to new and existing patients and clients and select
pursuing opportunities to expand our facility and bed count in the U.S. and U.K.

ively

Diversified revenue and payor bases. As of December 31, 2017, we operated 582 facilities in 39 states, the U.K. and Puerto

Rico. Our payor, patient and geographic diversity mitigates the potential risk associated with any single facility. For the year ended
aa
December 31, 2017, we received 32% of our revenue from public funded sources in the U.K. (including the NHS, Clinical
Commissioning Groups (“CCGs”) and Local Authorities), 28% from Medicaid, 20% from commercial payors, 10% from Medicare
and 10% from other payors. As we receive Medicaid payments from 45 states, the District of Columbia and Puerto Rico, management
does not believe that we are significantly affected by changes in reimbursement policies in any one state or territory. No facility
accounted for more than 3% of revenue for the year ended December 31, 2017, and no state or U.S. territory accounted for more than
8% of revenue for the year ended December 31, 2017. Our U.K. operations accounted for approximately 36% of our revenue for the
year ended December 31, 2017. We believe that our increased geographic diversity will mitigate the impact of any financial or
budgetary pressure that may arise in a particular state or market where we operate.

Strong cash flow generation and low capital requirements. We generate strong free cash flow by profitably operating our
business and by actively managing our working capital. Moreover, as the behavioral healthcare business does not typically require the
procurement and replacement of expensive medical equipment, our maintenance capital expenditure requirements are generally less
than that of other facility-based healthcare providers. For the year ended Decemb
er 31, 2017, our maintenance capital expenditures
amounted to approximately 3% of our revenue. In addition, our accounts receivable management is less complex than
medical/surgical hospital providers because behavioral healthcare facilities have fewer billing codes and generally are paid on a per
diem basis.

Business Strategy

We are committed to providing the communities we serve with high-quality, cost-effective behavioral healthcare services, while
we have

growing our business, increasing profitability and creating long-term value for our stockholders. To achieve these objectives,
aligned our activities around the following growth strategies:

Increase margins by enhancing programs and improving performance at existing facilities. Management believes we can
improve efficiencies and increase operating margins by utilizing our management’s expertise and experience within existing programs
and their expertise in improving performance at underperforming facilities. Management believes the efficiencies can be realized by
investing in growth in strong markets, addressing capital-constrained facilities that have underperformed and improving management
systems. Furthermore, our recent acquisitions of additional facilities give us an opportunity to develop a marketing strategy in many
markets which should help us increase the geographic footprint from which our existing facilities attract patients and referrals.

Opportunistically pursue acquisitions and partnerships. We have positioned our company as a leading provider of mental
health services in the U.S. and the U.K. The behavioral healthcare industry in the U.S. and the independent behavioral healthcare a
industry in the U.K. are highly fragmented, and we selectively seek opportunities to expand and divers
acquiring additional facilities and entering into partnerships w
Acadia management believes there are a number of acquisition candidates available at attractive valuations, and we have a number of
potential joint ventures and acquisitions in various stages of development and consideration in the U.S.

ith healthcare providers to acquire and develop additional facilities.

ify our base of operations by

Management believes our focus on behavioral healthcare and history of completing acquisitions provides us with a strategic
advantage in sourcing, evaluating and closing acquisitions. We leverage our management team’s expertise to identify and integrateaa
acquisitions based on a disciplined acquisition strategy that focuses on quality of service, return on investment and strategic benefits.
We also have a comprehensive post-acquisition strategic plan to facilitate the integration of acquired facilities that includes improving
facility operations, retaining and recruiting psychiatrists and other healthcare professionals and expanding the breadth of services
offered by the facilities.

Drive organic growth of existing facilities. We seek to increase revenue at our facilities by providing a broader range of

services to new and existing patients and clients. In addition, management intends to increase bed counts in our existing facilities.
During the year ended December 31, 2017, we added 750 new beds (exclusive of the acquisition), including 588 added to existing
facilities and 162 added through the opening of two de novo facilities. For the year ending December 31, 2018, we expect to add more
than 800 total beds exclusive of acquisitions. Furthermore, man
f
referrals to increase volume and minimize payor concentration in the U.S., especially with respect to our youth and adolescent focused
services and our substance abuse services.

d
agement believes that opportunities exist to leverage out-of-state

U.S. Operations

Our U.S. facilities and services can generally be classified into the following categories: acute inpatient psychiatric facilities;
. The table below presents the

specialty treatment facilities; residential treatment centers; and outpatient community-based services
percentage of our total U.S. revenue attributed to each category for the year ended December 31, 2017:

Facility/Service

Acute inpatient psychiatric facilities ..................................
Specialty treatment fac
ilities ..............................................
Residential treatment centers .............................................
Outpatient community-based services ...............................

U.S. Revenue for the
Year Ended December 31, 2017

43%
40%
15%
2%

We receive payments from the following sources for services rendered in our U.S. facilities: (i) state governments under their

respective Medicaid and other programs; (ii) commercial insurers; (iii) the federal government under the Medicare program
administered by the Centers for Medicare and Medicaid Services (“CMS”); and (iv) individual patients and clients. For the year ended
December 31, 2017 in our U.S. facilities, we received 43% of our revenue from Medicaid, 31% from commercial payors, 15% from
Medicare and 11% from other payors.

At December 31, 2017, our U.S. facilities included 209 behavioral healthcare facilities with approximately 8,900 beds in 39
states and Puerto Rico. Of our U.S. facilities, approximately 40% are acute inpatient psychiatric facilities, approximately 41% are
specialty treatment facilities, approximately 14% are residential treatment centers and approximately 5% are outpatient community-
based service facilities at December 31, 2017. Of the 209 behavioral healthcare facilities, 112 are
comprehensive treatment centers
(“CTCs”) which is a subset of specialty treatment facilities. Of our CTCs, 14 are owned properties and 98 are leased properties. Of the
97 facilities that are not CTCs, 77 are owned properties and 20 are leased properties. For the years ended December 31, 2017 and
2016, our U.S. operations generated revenue of $1.8 billion and $1.7 billion, respectively.

Acute Inpatient Psychiatric Facilities

Acute inpatient psychiatric facilities provide a high level of care in order to stabilize patients that are either a threat to

themselves or to others. The acute setting provides 24-hour observation, daily intervention and monitoring by psychiatrists. Generally,
due to shorter lengths of stay, the related higher patient turnover, and the special security and health precautions required, acute
inpatient psychiatric facilities have lower average occupancy than residential treatment centers. Our facilities that offer acute care
services provide evaluation and crisis stabilization of patients with severe psychiatric diagnoses through a medical delivery m
odel that
t
rained
incorporates structured and intensive medical and behavioral therapies with 24-hour monitoring by a psychiatrist, psychiatric t
nurses, therapists and other direct care staff. Lengths of stay for crisis stabilization and acute care range from three to five days and
from five to twelve days, respectively.

Specialty Treatment Facilities

Our specialty treatment facilities include residential recovery facilities, eating disorder facilities and CTCs. We provide a
y
comprehensive continuum of care for adults with addictive disorders and co-occurring mental disorders. Our detoxification, inpatient,
aa
partial hospitalization and outpatient treatment programs are cost-effective and give patients access to the least restrictive level of care.
All programs offer individualized treatment in a supportive and nurturing environment.

The majority of our specialty treatment services are provided to patients who abuse addictive substances such as alcohol, illicit

drugs or opiates, including prescription drugs. Some of our facilities also treat othe
rr
chronic pain, sexual compulsivity, compulsive gambling, mood disorders, emotional trauma and abuse. The goal of our treatment
facilities is to provide the appropriate level of treatment to an individual no matter where they are in the lifecycle of their disease in
order to restore the individual to a healthier, more productive life, free from dependence on illicit substances and destructive
behaviors. Our treatment facilities provide a number of different treatment services such as assessment, detoxification, medication-
assisted treatment, counseling, education, lectures and group therapy. We assess and evaluate the medical, psychological and
emotional needs of the patient and address these needs in the treatment process. Following this assessment, an individualized
treatment program is designed to provide a foundation for a lifelong recovery process. Many modalities are used in our treatment
programs to support the individual, including the twelve step philosophy, cognitive/behavioral therapies, supportive therapies and
continuing care.

r addictions and behavioral disorders such as

Residential Recovery Facilities. Our inpatient facilities house and care for patients over an extended period and typically treat
patients from a broadly defined regional market. We provide three basic levels of residential treatment depending on the severity of
the patient’s addiction and/or behavioral disorder. Patients with the most severe dependencies are typically placed into inpatient
treatment, in which the patient resides at a treatment facility. If a patient’s condition is less severe, he or she will be offered day
treatment, which allows the patient to return home in the evening. The least intensive service is where the patient visits the facility for
just a few hours a week to attend counseling/group sessions.

Following primary treatment, our extended care programs typically offer residential care, which allows patients to develop
healthy and appropriate living skills while remaining in a safe and nurturing setting. Patients are supported in their recovery by a semi-
structured living environment that allows them to begin the process of employment or to pursue educational goals and to take personal
responsibility for their recovery. The structure of this treatment phase is monitored
by a primary therapist who works with each patient
t
to integrate recovery skills and build a foundation of sobriety with a strong support system. Length of stay will vary depending on the
patient’s needs with a minimum stay of 30 days and could be multiple months if needed.

Our outpatient clinics serve patients that do not require inpatient treatment or are transitioning from a residential treatment
program; have employment, family or school commitments; and have stabilized in their substance addiction recovery practices and are
seeking ongoing continuing care.

Eating Disorder Facilities. Our eating disorder facilities provide treatment services for eating disorders and weight
management, each of which may be effectively treated through a combination of medical, psychological and social treatment
programs.

Comprehensive Treatment Centers. Our CTCs specialize in providing medication-assisted and abstinent-based treatment.
Medication-assisted treatment combines behavioral therapy and medication to treat substance use disorders. CTCs utilize medication-
assisted treatment to individuals addicted to opiates such as opioid analgesics (prescription pain medications) and heroin. Medication
is used to normalize brain chemistry to block the euphoric effects of alcohol and opioids allowing our professional staff to provide
behavioral therapy. Patients begin their treatment attending the clinic almost daily. Then, through successfully progressing in
treatment, patients attend less frequently depending on individual treatment plans. The length of treatment differs from patien
patient, but typically ranges from one to three years.

t tonn

Each of our CTCs provide a range of comprehensive substance abuse treatment support services that include medical,

counseling, vocational, educational, and other treatment services. Our behavioral therapies are delivered in array of treatment models
that may include individual and group therapy, intensive outpatient, outpatient, partial hospitalization/day treatment, road to recovery,
and other programs that can be either abstinent or medication assisted based.

Residential Treatment Centers

Residential treatment centers treat patients with behavioral disorders in a non-hospital setting, including outdoor programs. The

facilities balance therapy activities with social, academic and other activities. Because the setting is less intensive, demands on
staffing, security and oversight are generally lower than inpatient psychiatric facilities. In contrast to acute care psychiatr
ic facilities,
occupancy in residential treatment centers can be managed more easily given a longer length of stay. Over time, however, residential
treatment centers have continued to serve increasingly severe patients who would have been treated in acute care facilities in earlier
years.

We provide residential treatment care through a medical model residential treatment facility, which offers intensive, medically-
driven interventions and individualized treatment regimens designed to deal with moderate to high level patient acuity. Children and
adolescents admitted to these facilities typically have had multiple prior failed treatment plans, severe physical, sexual and emotional
abuse, termination of parental custody, substance abuse, marked deficiencies in social, interpersonal and academic skills and a wide
range of psychiatric disorders. Treatment typically is provided by an interdisciplinary team coordinating psychopharmacological,
individual, group and family therapy, along with specialized accredited educational programs in both secure and unlocked
environments. Lengths of stay range from three months to several years.

Certain of our residential treatment centers provide group home, therapeutic group home and therapeutic foster care programs.
Our group home programs provide family-style living for youths in a single house or apartment within residential communities where
supervision and support are provided by 24-hour staff. The goal of a group home program is to teach family living and social skills
through individual and group counseling sessions within a real life environment. The residents are encouraged to take responsibility
for the home and their health as well as actively take part in community functions. Most attend an accredited and licensed on-premises
school or a local public school. We also operate therapeutic group homes that provide comprehensive treatment services for seriously,
emotionally disturbed adolescents. The ultimate goal is to reunite or place these children with their families or prepare them, when
appropriate, for permanent placement with a relative or an adoptive family. We also manage therapeutic foster care programs, which
are considered the least restrictive form of therapeutic placement for children and adolescents with emotional disorders. Children and
adolescents in our therapeutic foster care programs often are part of the child welfare or juvenile justice system. Care is delivered in
private homes with experienced foster parents who are trained to work with children and adolescents with special needs.

Outpatient Community-Based Services

Our community-based services can be divided into two age groups: children and adolescents (seven to 18 years of age) and

young children (three months to six years of age). Community-based programs are designed to provide therapeutic treatment to
children and adolescents who have a clinically-defined emotional, psychiatric or chemical dependency disorder while enabling the
youth to remain at home and within their community. Many patients who participate in community-based programs have transitioned
out of a residential facility or have a disorder that does not require placement in a facility that provides 24-hour care.

Community-based programs developed for these age groups provide a unique array of therapeutic services to a very high-risk

population of children. These children suffer from severe congenital, neurobiological, speech/motor and early onset psychiatric
disorders. These services are provided in clinics and employ a treatment model that is consistent with our interdisciplinary medical
treatment approach. Depending on their individual needs and treatment plan, children receive speech, physical, occupational and
psychiatric interventions that are coordinated with services provided by their referring primary care physician. The children generally
receive treatment during regular business hours.

U.K. Operations

Overview

With the Priory and Partnerships in Care acquisitions, we are the leading independent provider of mental health services in the

U.K. operating 373 inpatient behavioral health facilities with approximately 8,900 beds as of December 31, 2017. The facilities are
located in England, Wales, Scotland and Northern Ireland. For the years ended December 31, 2017 and 2016, our U.K. operations
generated revenue of $1.0 billion and $1.1 billion, respectively, primarily through the operation and management of inpatient
behavioral health facilities. The year ended December 31, 2016 was impacted by the acquisition of Pr
the U.K. Divestiture on November 30, 2016.

iory on February 16, 2016 and

United Kingdom Healthcare and Adult Social Care Sectors

In the U.K., central government spending on health for fiscal year 2017-2018 is budgeted at approximately £149 billion,
according to the U.K. government budget. This spending is primarily delivered by the NHS, which operates as three separate national
public sector bodies in England, Scotland and Wales as well as the Northern Ireland Health and Social Care Board. Local Government
gross spending on adult social care for the fiscal year 2017-2018 is budgeted at approximately £25 billion and is commissioned by
local authorities in England, Scotland and Wales, which we refer to as Local Authorities and by the Northern Ireland Health and
Social Care Board. The NHS, Local Authorities and Northern Ireland Health and Social Care Board
health and social care markets in terms of the funding of care. With the exception of the elderly residential and nursing care
private health insurance and self-payment play a minor role in these sectors.

commissioners dominate the U.K.

market,

The mental health market in the U.K. was estimated at £15.9 billion for 2014/2015. The independent mental health market

accounted for roughly £1.4 billion of that amount, or approximately 9% market share. As a result of government budget constraints
and an increased focus on quality, the independent mental health market has witnessed significant expansion in the last decade,
making it one of the fastest growing sectors in the U.K. healthcare industry.

Publicly-funded healthcare services in England are commissioned at two levels as follows: (i) nationally by NHS England

which, via its Local Area Teams commissions specialized healthcare services, including specialized Mental Health Secure, Eating
Disorder and Children and Adolescent (CAMHS) services, and (ii) locally by over 200 local CCGs, which commission all acute,
rehabilitation and community-based healthcare services. In Sco
Local/Regional Health Boards.

tland and Wales, all healthcare services are commissioned by

The principal distinction between healthcare and social care relates to an individual’s assessed care needs. If there is a primary

health need, services are commissioned by the NHS under the general NHS principle that the services are free at the point of delivery.
In the case of adult social care, individuals’ healthcare-related needs have been assessed as being of secondary importance with
services being means-tested. Local Authority commissioners of adult social care provided in care homes and other community settings
are responsible for undertaking financial assessments to determine the level of contributions that individuals must pay towards the cost
of their care. Individuals with income or capital above set statutory thresholds must fund the full cost of their care.

In recent years, the U.K. Government has placed increasing emphasis on implementing integrated care pathways across health

and social care services. Integrated care pathways provide patients with highly coordinated and personalized care overseen by relevant
commissioners working together to plan, arrange and monitor patient progression through each stage of the care pathway.

Additionally, mental health commissioning trends toward moving patients more quickly down care pathways, out of higher

acuity, more intensive care settings towards community focused care services have increased the demand for community and
d
rehabilitation services in the independent mental health market. The Department of Health in England recently identified priorities for
essential change in mental health that include, among other things, funding providers based on the quality of their service rather than
volume of patients, allocating funds to support specialized housing for people with mental health problems and adopting a new rating
system and inspection process to improve the quality of care. Increasing political focus on the provision of mental health services in
the U.K. and increasing support for the rights of mental health patients are expected to lead to further increases in the size of the
mental health market in the U.K. In addition, rising demand for mental health services in the U.K. coupled with a constrained mental
healthcare funding environment are increasing pressure to improve operational efficiency and refer patients to single provider
programs with care pathways that more appropriately reflect each patient’s specific mental health needs. As a result of these pressures
and an increased focus on quality, the independent mental health market has witnessed significant expansion in the last decade,
making it one of the fastest growing sectors in the U.K. healthcare industry.

Description of U.K. Facilities

In the U.K., we provide inpatient services through a variety of facilities, including mental health hospitals, clinics, care homes,

schools, colleges and children’s homes. In addition to these services, we also operate a U.K. division that leverages on our clinical
knowledge to provide Employee Assistance Programs (“EAP”) to organizations.

Our U.K. facilities and services can generally be classified into the following categories: healthcare facilities, education and

children’s services, adult care facilities and elderly care facilities. The table below presents the percentage of our total U.K. revenue
attributed to each category for the year ended December 31, 2017:

Facility/Service

Healthcare facilities ..........................................................
Education and Children’s Services ...................................
Adult Care facilities ..........................................................
Elderly Care facilities .......................................................

U. K. Revenue for the
Year Ended December 31, 2017

55%
17%
18%
10%

We receive payments from approximately 500 public funded sources in the U.K. (including the NHS, CCGs and Local
Authorities) and individual patients and clients. For the year ended December 31, 2017 in our U.K. facilities, we received 91% of our
revenue from public funded sources in the U.K. (including the NHS, CCGs and Local Authorities) and 9% from other payors.

At December 31, 2017, our U.K. facilities included 373 behavioral healthcare facilities with approximately 8,900 beds,
including approximately 1,000 non-residential education places, in the U.K. Of our U.K. facilities, approximately 22% are healthcare
facilities, approximately 20% are education and children’s services facilities, approximately 47% are adult care facilities and
approximately 11% are elderly care facilities at December 31, 2017. At December 31, 2017, 291 of our U.K. facilities are owned
properties and 82 are leased properties.

Healthcare

In the U.K., mental health hospitals provide psychiatric treatment and nursing for sufferers of mental disorders, including for

patients detained under a section of the U.K.’s Mental Health Act of 1983, and whose risk of harm to others and risk of escape from
hospitals cannot be managed safely within other mental health settings. In order to manage the risks involved with treating patients,
the facility is managed through the application of a range of security measures depending on the level of dependency and risk
exhibited by the patient. The levels of dependency and risk stemming from the wide range of disorders treated at these hospitals
determine the level of care provided, which are comprised of:

•

Secure Services. Medium and Low secure facilities treat patients who may present a serious danger to others and
themselves but do not need the physical security arrangements of a high security hospital. The purpose of medium secure
services is to provide effective care and treatment to reduce risk, promote recovery and support patients moving through
the care pathway to lower levels of security or to reestablishing themselves successfully in the community. Low secure
facilities provide treatment for patients whom, because of the level of risk or challenge they present, cannot be treated in
open mental health settings. Low secure services deliver intensive, comprehensive and multidisciplinary treatment to
patients demonstrating disturbed behavior in the context of a serious mental disorder and require the provision of security
but pose a lesser risk of harm to themselves and to others.

Specialty Treatment Services. Specialty treatment services provide treatment relating to specific conditions including
eating disorders and addiction. Our eating disorder facilities provide treatment services for eating disorders and weight
management for both adults and adolescents. Our addiction services provide treatment for abuse of addictive substances
such as alcohol and illicit drugs as well as facilities for other addictions and behavioral disorders such as compulsive
gambling.

Child and Adolescent Mental Health Services. Child and adolescent mental health services provide treatment to young
people in need of expert care and support for behavioral, emotional or mental
designed to enable the children and young people within our care to improve their long-term wellbeing and effectively
reintegrate into the community when they are ready.

health difficulties. These services are

Rehabilitation Services. Both locked and open mental health rehabilitation services provide a bridge between secure
hospital facilities and community living by providing relapse prevention and so
vocational opportunities.

cial integration services as well as

Acute Services. Acute services provide treatment relating to emergency admissions for patients at risk to themselves or
others, as well as crisis intervention and treatment of behavioral emergencies.

Care Homes. Care homes provide long-term, non-acute care for adults suffering from a mental illness or addiction, or who
have a learning disability or brain injury and are unable to cope unsupported in the community.

Other Services

•

Education and Children’s Services. Education and children’s services provide specialist education for children and young
people with special educational needs, including autism, Asperger’s Syndrome, social, emotional and mental health, and
specific learning difficulties, such as dyslexia. The division also offers standalone children’s homes for children that
require 52-week residential care to support complex and challenging behavior and fostering services.

Adult Care. Adult Care focuses on care of service users with a variety of learning difficulties, mental health illnesses and
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adult autism spectrum disorders. Care is provided in a number of settings, including in residential care homes and through
supported living.

Elderly Care. Elderly care provides long-term, short-term and respite nursing care to high-dependency elderly individuals
who are physically frail or suffering from dementia.

Care First. Care First leverages our clinical knowledge to provide EAP to organizations. These support services are
designed to help employees manage difficult issues in their professional or personal lives with services that include:

• A call center for telephone counseling available 24-hours a day, seven days a week;

• A national network of counselors available for live, face-to-face support;

•

Interactive health and wellness programs;

• Debt management advice services; and

• Management training.

Sources of Revenue

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) public funded sources in the U.K. (including the NHS, CCGs and Local Authorities); and (v) individual
patients and clients. Revenue is recorded in the period in which services are provided at established billing rates less contractual
adjustments based on amounts reimbursable by Medicare or Medicaid under provisions of cost or prospective reimbursement formulas
or amounts due from other third-party payors at contractually determined rates. See “Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Revenue” for additional disclosure. Other information related to our revenue,
income and other operating information is provided in our Consolidated Financial Statements.

Regulation

U.S. Overview

The healthcare industry is subject to numerous laws, regulations and rules including, among others, those related to government

healthcare program participation requirements, various licensure and accreditation standards, reimbursement for patient services,
health information privacy and security rules, and government healthcare program fraud and abuse provisions. Providers that are
found to have violated any of these laws and regulations may be excluded from participating in government healthcare programs,
subjected to loss or limitation of licenses to operate, subjected to significant fines or penalties and/or required to repay amounts
received from the government for previously billed patient services. Management believes that we are in substantial compliance with
all applicable laws and regulations and is not aware of any material pending or threatened investigations involving allegations of
wrongdoing.

Licensing, Certification and Accreditation

All of our facilities must comply with various federal, state and local licensing and certification regulations and undergo
periodic inspection by licensing agencies to certify compliance with such regulations. The initial and continued licensure of our
facilities and certification to participate in government healthcare programs depends upon many factors including various state
licensure regulations relating to quality of care, environment of care, equipment, se
adequate policies, procedures and controls. Federal, state and local agencies survey our facilities on a regular basis to determine
whether the facilities are in compliance with regulatory operating and health standards and conditions for participating in gov
healthcare programs.

rvices, staff training, personnel and the existence of

ernment

Most of our inpatient and residential facilities maintain accreditation from private entities, such as The Joint Commission or the
Commission on Accreditation of Rehabilitation Facilities (“CARF”). The Joint Commission and CARF are private organizations that
have accreditation programs for a broad spectrum of healthcare facilities. The Joint Commission accredits a broad variety of
healthcare organizations, including hospitals and behavioral health organizations. CARF accredits behavioral health organizations

providing mental health and alcohol and drug use and addiction services, as well as opiate treatment programs, and many other types
of healthcare programs. These accreditation programs are intended generally to improve the quality, safety, outcomes and value of
healthcare services provided by accredited facilities. Certain federal and state licensing agencies as well as many in government and
private healthcare payment programs require that providers be accredited as a condition of licensure, certification or participation.
Accreditation is typically granted for a specified period, ranging from one to three years, and renewals of accreditation generally
require completion of a renewal application and an on-site renewal survey.

Certificates of Need

Many of the states in which we operate facilities have enacted certificate of need (“CON”) laws that regulate the construction
expansion of certain healthcare facilities, certain capital expenditures or changes in services or bed capacity. Failure to obtain CON
approval of certain activities can result in: our inability to complete an acquisition, expansion or replacement; the imposition of civil
penalties; the inability to receive Medicare or Medicaid reimbursement; or the revocation of a facility’s license, any of which could
harm our business.

Quality Improvement

Services provided to Medicare beneficiaries are subject to review by Quality Improvement Organizations (“QIOs”), which aim

to improve the effectiveness, efficiency, economy and quality of services furnished within the Medicare program. QIOs are
independent organizations that contract with CMS to perform several functions, including reviewing the appropriateness of patient
admissions and discharges, the quality of care provided, the validity
of length of stay, as well as investigating beneficiary complaints. QIOs may recommend the imposition of sanctions against a
Medicare provider found to have, among other things, provided services deemed medically unnecessary or not of a quality that me
ets
professionally recognized standards of care. Such sanctions may include monetary assessments and exclusion from participation i
n
government healthcare programs.

of diagnosis related group classifications, and the appropriateness

Audits

Our healthcare facilities are also subject to federal, state and commercial payor audits to

validate the accuracy of claims

submitted to the government healthcare programs and commercial payors. If these audits identify overpayments, we could be required
to make substantial repayments, subject to various appeal rights. Several of our facilities have undergone claims audits related to their
receipt of payments during the last several years with no material overpayments identified. However, potential liability from future
audits could ultimately exceed established reserves, and any excess could potentially be substantial. Further, Medicare and Medicaid
regulations, as well as commercial payor contracts, also provide for withholding or suspending payments in certain circumstances,
which could adversely affect our cash flow.

The Anti-Kickback Statute and Stark Law

The Anti-Kickback Statute prohibits healthcare providers and others from directly or indirectly soliciting, receiving, offering or
paying any remuneration, in cash or in kind, as an inducement or reward for using, referring, ordering, recommending or arranging for
such referrals or orders of services or other items paid for by a government healthcare program. The Anti-Kickback Statute may be
found to have been violated if at least one purpose of the remuneration is to induce or reward referrals. A provider is not required to
have actual knowledge or specific intent to commit a violation of the Anti-Kickback Statute to be found guilty of violating the law.

The Office of Inspector General of the Department of Health and Human Services has issued safe harbor regulations that protect

certain types of common arrangements from prosecution or sanction under the Anti-Kickback Statute and there are also several
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statutory exceptions toward that end. The fact that conduct or a business arra
ngement does not fall within a safe harbor or exc
does not automatically render the conduct or business arrangement illegal under the Anti-Kickback Statute. However, conduct and
business arrangements falling outside the safe harbors may lead to increased scrutiny by government enforcement authorities.

eption

Although management believes that our arrangements with physicians and other referral sources comply with current law and

available interpretative guidance, as a practical matter it is not always possible to structure our arrangements so as to fall squarely
within an available safe harbor. Where that is the case, we cannot guarantee that applicable regulatory authorities will determine these
financial arrangements do not violate the Anti-Kickback Statute or other applicable laws, including state anti-kickback laws.

In addition to the Anti-Kickback Statute, the federal Physician Self-Referral La

w, also known as the Stark Law, prohibits

physicians from referring Medicare patients to healthcare entities with which they or any of their immediate family members have a
financial relationship for the furnishing of any “designated health services” unless certain exceptions apply. A violation of the Stark
Law may result in a denial of payment; required refunds to the Medicare program; imposition of civil monetary penalties of up to
$24,253 for each prohibited claim, up to $161,692 for circumvention schemes, and up to $19,246 for each day the entity fails to report

required information; exclusion from government healthcare programs; and liability under the False Claims Act. There are ownership
and compensation arrangement exceptions for many customary financial arrangements between physicians and facilities, including the
employment exception, personal services exception, lease exception and certain recruitment exceptions. Management believes that our
financial arrangements with physicians are structured to comply with the regulatory ex
Law is a strict liability statute, meaning that no intent is required to violate the law, and even a technical violation may lead to
significant penalties.

ceptions to the Stark Law. However, the Stark

These laws and regulations are extremely complex and, in many cases, we do not have the benefit of regulatory or judicial
interpretation. It is possible that different interpretations or enforcement of these laws and regulations could subject our current or past
practices to allegations of impropriety or illegality or could require us to make changes in our arrangements relating to facilities,
equipment, personnel, services, capital expenditure programs and operating expenses. A determination that we have violated one or
more of these laws, or the public announcement that we are being investigated for possible violations of one or more of these laws,
could have a material adverse effect on our business, financial condition or results of operations. In addition, we cannot predict
whether other federal or state legislation or regulations will be adopted, what form such legislation or regulations may take or what
their impact on us may be.

If we are deemed to have failed to comply with the Anti-Kickback Statute, the Stark Law or other applicable laws and
regulations, we could be subjected to liabilities, including criminal penalties, civil penalties, and exclusion of one or more facilities
from participation in the government healthcare programs. The imposition of such penalties could have a material adverse effect
ont
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our business, financial condition or results of operations.

Federal False Claims Act and Other Fraud and Abuse Provisions

The federal False Claims Act provides the government a tool to pursue healthcare providers for submitting false claims or

government may fine any person or entity that,
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requests for payment for healthcare items or services. Under the False Claims Act, the
among other things, knowingly submits, or causes the submission of, false or fraudulent claims for payment to the federal gover
rr
nment
or knowingly and improperly avoids or decreases an obligation to pay money to the federal government. The federal government has
widely used the False Claims Act to prosecute Medicare and other federal healthcare program fraud such as coding errors, billing for
services not provided, submitting false cost reports, and providing care that is not medically necessary or that is substandard in quality.
Claims for services or items rendered in violation of the Anti-Kickback Statute or the Stark Law can provide a basis for liability under
the False Claims Act as well. The False Claims Act is also implicated by the knowing failure to report and return an overpayment
within 60 days of identifying the overpayment or by the date a corresponding cost report is due, whichever is later.

Violations of the False Claims Act are punishable by significant penalties totaling $10,957 to $21,916 for each fraudulent claim
plus three times the amount of damages sustained by the government. In addition, under the qui tam, or whistleblower, provisions of
the False Claims Act, private parties may bring actions under the False Claims Act on behalf of the federal government. These private
parties, often referred to as relators, are entitled to share in any amounts recovered by the government, and, as a result, whistleblower
lawsuits have increased significantly in recent years. Many states have similar false claims statutes that impose liability for the types
of acts prohibited by the False Claims Act or that otherwise prohibit the submission of
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government or Medicaid program.

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false or fraudulent claims to the state

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In addition to the False Claims Act, the federal government may use several criminal laws, such as the federal mail fraud, wire
fraud, or health care fraud statutes, to prosecute the submission of false or fraudulent claims for payment to the federal government.
Most states have also adopted generally applicable insurance fraud statutes and regulations that prohibit healthcare providers from
submitting inaccurate, incorrect, or misleading claims to private insurance companies. Management believes our healthcare facilities
have implemented appropriate safeguards and procedures to complete claim forms and requests for payment in an accurate manner
and to operate in compliance with applicable laws. However, the possibility of billing or other errors can never be completely
eliminated, and we cannot guarantee that the government or a qui tam plaintiff, upon audit or review, would not take the position that
billing or other errors, should they occur, are violations of the False Claims Act.

HIPAA Administrative Simplification and Privacy and Security Requirements

The administrative simplification provisions of the Health Insurance Portability and Accountability Act (“HIPAA”), as amended

by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), require the use of uniform electronic data
transmission standards for healthcare claims and payment transactions submitted or received electronically. These provisions are
intended to encourage electronic commerce in the healthcare industry. HIPAA also established federal rules protecting the privacy and
security of individually identifiable protected health information (“PHI”). The privacy
disclosure of PHI and the rights of patients to be informed about and control how such PHI is used and disclosed. Violations of
HIPAA can result in both criminal and civil fines and penalties.

and security regulations control the use and

The HIPAA security regulations require healthcare providers to implement administrative, physical and technical safeguards to

protect the confidentiality, integrity and availability of PHI. HITECH has strengthened certain HIPAA rules regarding the use a
aa
nd
disclosure of PHI, extended certain HIPAA provisions to business associates, and created security breach notification requirements
including notifications to the individuals affected by the breach, the Department of Health and Human Services, and in certain cases,
the media. HITECH has also increased maximum penalties for violations of HIPAA privacy rules. Management believes that we have
been in material compliance with the HIPAA regulations and have developed our policies and procedures to ensure ongoing
compliance, although we cannot guarantee that our facilities will not be subject to security incidents or breaches which could have a
material adverse effect on our business, financial condition, or results of operations.

The Emergency Medical Treatment & Labor Act

The Emergency Medical Treatment & Labor Act (“EMTALA”) is intended to ensure public access to emergency services

regardless of ability to pay. Section 1867 of the Social Security Act imposes specific
obligations on Medicare-participating hospitals
f
that offer emergency services to provide a medical screening examination when a request is made for examination or treatment for an
emergency medical condition regardless of an individual’s ability to pay. Hospitals are then required to provide stabilizing treatment
for patients with emergency medical conditions. If a hospital is unable to stabilize a patient within its capability, or if the patient
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requests, an appropriate transfer must be implemented. EMTALA imposes additional obligations
capabilities, such as ours, to accept the transfer of patients in need of such specialized capabilities if those patients present in the
emergency room of a hospital that does not possess the specialized capabilities.

on hospitals with specialized

Mental Health Parity Legislation

The MHPAEA was signed into law in October 2008 and requires health insurance plans that offer mental health and addiction
coverage to provide that coverage on par with financial and treatment coverage offered for other illnesses. The MHPAEA has some
limitations because health plans that do not already cover mental health treatments are not required to do so, and health plans are not
required to provide coverage for every mental health condition published in the Diagnostic and Statistical Manual of Mental Disorders
by the American Psychiatric Association. The MHPAEA also contains a cost exemption which operates to exempt a group health plan
from the MHPAEA’s requirements if compliance with the MHPAEA becomes too costly.

On December 13, 2016, then President Obama signed the 21st Century Cures Act. The 21

st Century Cures Act appropriated
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substantial resources for the treatment of behavioral health and substance abuse disorders and contained measures intended to
strengthen the MHPAEA.

Patient Protection and Affordable Care Act

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively,

“PPACA”) dramatically altered the U.S. health care system. PPACA sought to provide coverage and access to substantially all
Americans, to increase the quality of care provided, and to reduce the rate of growth in health care expenditures. PPACA attempted to
achieve these goals by, among other things, requiring most Americans to obtain health insurance, expanding the Medicare program’s
use of value-based purchasing programs, bundling payments to hospitals and other providers, reducing Medicare and Medicaid
payments to providers, expanding Medicaid eligibility, and tying reimbursement to the satisfaction of certain quality criteria.

On January 20, 2017, Donald Trump became President of the United States. During the 2016 election cycle, Republicans also

assumed control of both the United States Senate and House of Representatives. Shortly after his inauguration, President Trump issued
an executive order that, among other things, stated that it was the intent of his administration to repeal PPACA and, pending that
repeal, instructed the executive branch of the federal government to defer or delay the implementation of any provision or requ
irement
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of PPACA that would impose a fiscal burden on any state or a cost, fee, tax, or penalty on any individual, family, health care provider,
or health insurer. Several bills have been introduced and voted upon in the House of Representatives and United States Senate that
would either repeal and replace or simply repeal PPACA, although none have been enacted to-date.

On October 12, 2017, President Trump signed an executive order intending to expa

nd the availability of so-called association

health plans and short-term plans outside PPACA’s requirements. President Trump also announced that the administration would
cease making cost-sharing reduction payments to health insurance companies that help cover out-of-pocket costs for low-income
individuals. Finally, the Tax Act (as defined and described below) effectively eliminates PPACA’s individual health insurance
mandate as of 2018 by reducing to zero the tax penalty associated with failure to maintain health insurance coverage.

It is difficult to predict whether PPACA will be repealed, replaced, or modified; what the effect will be of the health care-related
provisions in the Tax Act; or the impact that the President’s executive actions will have on the implementation and enforcement of the
provisions of PPACA or the regulations adopted or to be adopted to implement the law or the President’s executive orders. In
addition, if PPACA is replaced or modified, it remains unclear what the replacement plan or modifications would be, when the

changes would become effective, or whether any of the existing provisions of PPACA would remain in place. Even if the current
administration is not successful in its efforts to repeal and replace PPACA, there have been and likely will continue to be a number of
legal challenges to various provisions of the law and President Trump’s recent executive actions. Limitations on the availability of
adequate insurance coverage for patients seeking services at our facilities; any reductions in government healthcare spending; and the
possible repeal, replacement or modification of PPACA could have a material adverse effect on our business, financial condition, or
results of operations.

U.S. Tax Reform

On December 22, 2017, Public Law 115-97, informally referred to as the Tax Cuts and Jobs Act (the “Tax Act”) was enacted

into law. The Tax Act provides for significant changes to the U.S. tax code that impact businesses. Effective January 1, 2018,
Act reduces the U.S. federal tax rate for corporations from 35% to 21% for U.S. taxable income. The Tax Act requires a one-time
remeasurement of deferred taxes to reflect their value at a lower tax rate of 21%. The Tax Act includes other changes, including, but
not limited to, requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that is payable over eight
years, a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries, a new provision designed to tax
global intangible low-taxed income, a limitation of the deduction for net operating losses, elimination of net operating loss carrybacks,
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immediate deductions for certain new investments instead of deductions for deprecia
additional limitations on the deductibility of executive compensation and limitations on
f
Tax Act on the Company are still being evaluated.

the deductibility of interest. The effects of the

tion expense for certain qualified property,

the Tax

U.K. Overview

The regulatory environment applicable to facilities in the U.K. is complex and multifaceted. The regulatory regime is made up
of multiple statutes, regulations and minimum standards that are subject to continuous change. The laws and regulations applicable to
the U.K. facilities include, without limitation, the Mental Capacity Act of 2005, Safeguarding Vulnerable Groups Act of 2006, Mental
Health Act of 2007, Health and Social Care Act of 2008 and Corporate Manslaughter and Corporate Homicide Act of 2008. These
laws and regulations are predominantly protective in nature and share the same general underlying purpose to protect vulnerable
persons from exploitation or harm. The regulatory requirements relevant to our facilities in the U.K. cover our operations from the m
initial establishments of new facilities, which are subject to registration and licensing requiremen
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appointment of staff, occupational health and safety, duty of care to service users, clinical and educational standards, conduct of our
professional and support staff and other areas.

ts, to the recruitment and

Mental Capacity Act of 2005. The Mental Capacity Act of 2005 establishes the process for determining whether a person lacks

mental capacity at a particular time and also sets out who can make decisions in those circumstances and how they should go about
this. The Act sets out when liability may arise for actions in connection with the care or treatment of persons who lack capacity to
consent to such actions.

Safeguarding Vulnerable Groups Act of 2006. The Safeguarding Vulnerable Groups Act of 2006 created the Independent

Safeguarding Authority (“ISA”). In December 2012, the ISA merged with the Criminal Records Bureau to form the Discharge and
Barring Service (“DBS”) and is required to establish and maintain lists of persons barred from working with children and adults. It is a
criminal offense for a barred person to seek to work, or work in, activities from which they are barred. It is also generally a
a
criminal
offense for an employer to allow a barred person, or person who is not appropriately registered, to work in any regulated activity. The
Children Act 1989 also allocates duties to Local Authorities, courts, parents, and other agencies in the U.
safeguarded and their welfare is promoted.

K. to ensure children are

The Mental Health Act of 2007. The Mental Health Act of 2007 regulates the manner in which an individual can be committed

or detained against his or her will. The main purpose of the legislation is to ensure that people with serious mental disorders which
threaten their health or safety or the safety of the public can be treated irrespectiv
e of their consent where it is necessary to prevent
them from harming themselves or others. The Act places the burden on the entity detaining a person to prove that the entity has the
right to hold the detainee. This places a substantial regulatory burden on service providers to ensure compliance with the law. There is
similar legislation in Scotland, Wales and Northern Ireland.

The Health and Social Care Act of 2008. The Health and Social Care Act of 2008 (“HSCA”), as amended by the Care Act 2014,

established the Care Quality Commission (“CQC”) as the registration and regulatory body for health and adult social care in England.
Under the HSCA, service providers carrying out “regulated activities” must be registered with the CQC for each separate regulated
activity provided. Where the service provider is a company, each regulated activity/location must also have an individual registered as
the registered manager. Registration depends both on an assessment of the fitness of the registered provider and also the individual
registered manager. Regulated activities include the provision of residential accommodation together with nursing or personal care
and the provision of treatment for a disease, disorder or injury by or under the supervision of a social worker or a multidisciplinary
team which includes a social worker where the treatment is for a mental disorder.

The Care Act 2014. The Care Act 2014 came into force on April 1, 2015 along with a range of supporting regulations and a

single set of statutory guidance. The Care Act 2014 requires Local Authorities to set personal budgets for individuals that are
appropriate to meeting those individuals’ assessed eligible care and support needs. The Care Act 2014 also imposes new statutor
duties upon Local Authorities to ensure the supply of diverse, good quality, local services, including a duty to plan for future demand
and to ensure that services are high quality and sustainable.

The regulated activities regulations and the registration regulations issued pursuant to the HSCA place legally binding
obligations on health and social care providers. Breach of certain provisions of the HSCA or the regulations is a criminal offense. In
addition, a breach may lead to the CQC taking action to suspend, cancel or vary the conditions of registration of a service provider or
impose a substantial fine.

Inspections by regulators in the U.K. can be carried out on both an announced and an unannounced basis depending on the
specific regulatory provisions relating to the different services provided and also depending upon whether the inspection is routine or
as a result of specific information regarding the service that has been provided to the regulator. Generally, however, a majority of
inspections tend to be unannounced. A failure to comply with laws and regulations, the receipt of a poor inspection report rati
lower rating, or the receipt of a negative report that leads to a determination of regulatory non-compliance or a failure to cure any
defect noted in an inspection report may result in reputational damage, fines, the revocation or suspension of the registration of any
facility or a decrease in, or cessation of, the services provided at any given location.

ng or a

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n

Corporate Manslaughter and Corporate Homicide Act of 2007.

The Corporate Manslaughter and Corporate Homicide Act of

2007 provides liability if the way in which a provider’s activities are managed or organized causes a person’s death and amounts to a
gross breach of a relevant duty of care owed to the deceased person.

Regulatory and Enforcement Bodies in the U.K.

The primary healthcare regulatory enforcement bodies in the U.K. are NHS Improvement, the CQC, Healthcare Inspectorate

Wales (“HIW”), Care Inspectorate Wales (“CIW”), Healthcare Improvement Scotland (“HIS”), Social Care and Social Work
Improvement Scotland (“SCSWIS”) and Regulation and Quality Improvement Authority (“RQIA”). In addition, the Office for
Standards in Education, Children’s Services and Skills (“OFSTED”), Estyn, Education Scotland and other regulatory bodies regulate
and inspect education services in England, Wales and Scotland, as applicable. These enforcement bodies control and administer thett
registration, inspection and complaints procedures set out under the applicable laws and regulations. The enforcement bodies have the
power to terminate a facility’s registration, refuse to register a facility, impose admissions holds, or impose significant fines if a
service provider fails to meet the key minimum standards and requirements prescribed under the various laws and regulations. See
“Risk Factors— If we fail to comply with extensive laws and government regulations, we could suffer penalties or be required to
make significant changes to our operations.”

Our primary regulators continually review their regulatory regimes and may extend their enforcement powers with the intention

of holding parent companies and senior executives accountable for material breaches of regulations depending on the
circumstances. Additionally, there are other regulators in the U.K. who may take enforcement action against us, including (i) thett
Health and Safety Executive (“HSE”) for violations of the Health and Safety at Work Act in connection with patient incidents at our
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facilities; (ii) the Information Commissioners Office (“ICO”) for breaches of data protection legislation (and following the
introduction of the General Data Protection Regulations (the “GDPR”) which come into force in May 2018, fines for material
breaches may be as high as 4% of global turnover); and (iii) Her Majesty’s Revenue and Customs (“HMRC”) who in November 2017
established the Social Care Compliance Scheme (the “SCCS”) for social care providers in the U.K. with the aim of addressing the
issue of potential underpayments of the National Minimum Wage (“NMW”) to workers who are paid a fixed allowance to undertake
“sleep-in shifts” at care homes and other facilities at night. See “—Our operating costs are subject to increases, including due to
statutorily mandated increases in the wages and salaries of our staff” for further details on U.K. staffing risks to which we are subject.

NHS Improvement. NHS Improvement now incorporates Monitor, the former economic regulator for the NHS in England. NHS

Improvement is responsible for regulating the market for NHS funded services in England. It fulfills this role through licensing NHS
Foundation Trusts and certain other healthcare providers and, together with the NHS England, sets the Tariff Rules for national and
local pricing of NHS services. NHS Improvement’s role is to oversee the NHS healthcare market, at all times protecting and
promoting patients’ interests, tackling abuses by commissioners and/or providers and dealing with unjustifiable restrictions on
competition.

The CQC. The CQC is the independent regulator for health and adult social care in England. The CQC is distinct from NHS
Improvement in that it focuses on quality and ensuring the maintenance of standards in health and social care practices. The CQC
licenses NHS and adult social care service providers to enable it to keep a check on safety and quality standards. The CQC also carries
out facility inspections. Care homes for young adults (including specialist college accommodation) are registered and inspected by the
CQC. In addition, the CQC is responsible for monitoring the financial viability of corporate providers of social care.

HIW. HIW is the independent insp

ectorate and regulator of all health care in Wales. Certain independent healthcare services are

required to register with HIW. HIW also inspects NHS and independent healthcare organizations in Wales to ensure compliance witht
its and the NHS’s standards, policies, guidance and regulations. The HIW Review Service for Mental Health monitors the use of thet
Mental Health Act 1983 to ensure that it is being used properly on behalf of Welsh Ministers.

CIW. Social care and social services in Wales are regulated by the CIW. CIW carries out unannounced inspections and measure

against regulations. Children’s homes in Wales are inspected by CIW.

HIS. HIS is the independent regulator for healthcare services in Scotland. HIS inspects healthcare providers in Scotland to

ensure compliance with its standards, policies, guidance and regulations.

SCSWIS. Care services in Scotland are regulated by the Care Inspectorate Scotland (also known as SCSWIS) and all care
services in Scotland must be registered with them. As well as registration, SCSWIS inspects services against the National Care
Standards and they can take action to force services to improve and can close services if necessary. Independent schools with boarding
facilities must register their boarding provision with SCSWIS for the regulation of care as a school care accommodation service.

RQIA. In Northern Ireland, RQIA is Northern Ireland’s independent health and social care regulator. RQIA is responsible for
registering, inspecting and encouraging improvement in a range of health and social care services in accordance with the Health and
Personal Social Services (Quality, Improvement and Regulation) (Northern Ireland) Order 2003 and its supporting regulations. RQIA
inspections are based on certain minimum care standards.

OFSTED. OFSTED was established under the Education (Schools) Act of 1992 and regulates and inspects services in England

that care for children and young people, and services providing education and skills for learners of all ages. OFSTED carries out
routine day school and further education college inspections to ensure compliance with inspection frameworks.

Estyn. In Wales, Estyn is led by Her Majesty’s Chief Inspector of Education and Training and inspects quality standards in all

education provisions in Wales including children’s homes, independent and residential schools and colleges.

Education Scotland. In Scotland, the education provision for independent schools with boarding facilities is regulated by

Education Scotland.

Risk Management and Insurance

The healthcare industry in general continues to experience an increase in the frequency and severity of litigation and claims. As
is typical in the healthcare industry, we could be subject to claims that our services have resulted in injury to our patients or clients or
other adverse effects. In addition, resident, visitor and employee injuries could also subject us to the risk of litigation. While
management believes that quality care is provided to patients and clients in our facilities and that we materially comply with all
applicable regulatory requirements, an adverse determination in a legal proceeding or government investigation could have a material
adverse effect on our business, financial condition or results of operations.

Our statutory workers’ compensation program is fully insured with a $0.5 million deductible per accident. A portion of our
professional liability risk is insured through a wholly-owned insurance subsidiary. Our wholly-owned insurance subsidiary insures us
for professional liability losses up to $78.0 million in the aggregate. The insurance subsidiary has obtained reinsurance with
unrelated
commercial insurers for professional liability risks of $75.0 million in excess of a retention level of $3.0 million.

Environmental Matters

We are subject to various federal, state and local environmental laws that: (i) regulate certain activities and operations that may
have environmental or health and safety effects, such as the handling, storage, transportation, treatment and disposal of medical waste
products generated at our facilities, the identification and warning of the presence of asbestos-containing materials in buildings, as
well as the removal of such materials, the presence of other hazardous substances in the indoor environment, and protection of the
environment and natural resources in connection with the development or construction of our facilities; (ii) impose liability for costs
of cleaning up, and damages to natural resources from, past spills, waste disposals on and off-site, or other releases of hazardous
materials or regulated substances; and (iii) regulate workplace safety. Some of our facilities generate infectious or other hazardous
medical waste due to the illness or physical condition of our patients. The management of infectious medical waste is subject to
regulation under various federal, state and local environmental laws, which establish management requirements for such waste. These
requirements include record-keeping, notice and reporting obligations. Each of our facilities has an agreement with a waste
management company for the disposal of medical waste. The use of such companies, however, does not completely protect us from
violations of medical waste laws or from related third-party claims for clean-up costs.

From time to time, our operations have resulted in, or may result in, non-compliance with, or liability pursuant to, environmental
or health and safety laws or regulations. Management believes that our operations are generally in compliance with environmental and
health and safety regulatory requirements or that any non-compliance will
compliance. Historically, the costs of achieving and maintaining compliance with environmental laws and regulations at our facilities
have not been material. However, we cannot assure you that future costs and expenses
t
changes in existing environmental and health and safety laws and regulations or new or discovered environmental conditions will not
have a material adverse effect on our business, financial condition or results of operations.

required for us to comply with any new or
l

not result in a material liability or cost to achieve

We have not been notified of and management is otherwise currently not aware of any contamination at our currently or
r

formerly operated facilities that could result in material liability or cost to us under environmental laws or regulations for
investigation and remediation of such contamination, and we currently are not undertaking any remediation or investigation acti
in connection with any such contamination conditions. There may, however, be environmental conditions currently unknown to us
relating to our prior, existing or future sites or operations or those of predecessor companies whose liabilities we may have assumed or
acquired which could have a material adverse effect on our business.

vities

the

New laws, regulations or policies or changes in existing laws, regulations or policies or their enforcement, future spills or

accidents or the discovery of currently unknown conditions or non-compliances may give rise to investigation and remediation
liabilities, compliance costs, fines and penalties, or liability and claims for alleged personal injury or property damage due to
substances or materials used in our operations, any of which may have a material adverse effect on our business, financial condition or
results of operations.

Competition

The healthcare industry is highly competitive. Our principal competitors include other behavioral healthcare service companies,
including UHS, private equity firms, and the NHS in the U.K. We also compete against hospitals and general healthcare facilities that
provide mental health services. An important part of our business strategy is to continue making targeted acquisitions of other
behavioral health facilities. However, reduced capacity, the passage of mental health pa
ff
or
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rity legislation and increased demand f
mental health services are likely to attract other potential buyers, including diversified healthcare companies and possibly other pure-
play behavioral healthcare companies.

The mental health services sector in the U.K. comprises hospitals or establishments that provide psychiatric treatment for illness
or mental disorder at all security and treatment levels. We operate in several highly competitive markets in the U.K. with a variety of
for-profit, the NHS and other not-for-profit groups in each of our markets. Most competition is regional or local, based on relevant
catchment areas and procurement initiatives. The NHS is often the dominant provider, although the trend has been towards increased
outsourcing, whereby the NHS is both a provider and customer of mental healthcare services. NHS in-house beds accounts for
approximately 71% of the total mental health hospital beds providing care in the U.K., with independent providers accounting for the
remaining approximately 29% of beds.

In addition to the competition we face for acquisitions, we must also compete for patients. Patients are referred to our behavioral

healthcare facilities through a number of different sources, including healthcare practitioners, public programs, other treatment
facilities, managed care organizations, unions, emergency departments, judicial officials, social workers, police departments and word
aa
of mouth from previously treated patients and their families, among others. These referral sources may instead refer patients to
hospitals that are able to provide a full suite of medical services or to other behavioral healthcare centers.

Employees

As of December 31, 2017, we had approximately 40,600 employees (approximately 20,000 in the U.S. and approximately
20,600 in the U.K), of which 27,500 were employed full-time. As of December 31, 2017, labor unions represented approximately 460
of our U.S. employees at five of our U.S. facilities through eight collective bargaining agreements. Organizing activities by labor
unions and certain potential changes in federal labor laws and regulations could increase the likelihood of employee unionization in
the future. The Royal College of Nursing is the trade union for full and part-time nurses, nursing cadets and healthcare assistants in the
U.K.

Typically, our inpatient facilities are staffed by a chief executive officer, medical director, director of nursing, chief financial

officer, clinical director and director of performance improvement. Psychiatrists and other physicians working in our facilities are
licensed medical professionals who are generally not employed by us and work in our facilities as independent contractors or medical
staff members.

Seasonality of Demand for Services

Our residential recovery and other inpatient facilities typically experience lower patient volumes and revenue during the
holidays, and our child and adolescent facilities typically experience lower patient volumes and revenue during the summer months,
holidays and other periods when school is out of session.

Available Information

Our Internet website address is www.acadiahealthcare.com. We make available our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports free of charge on our website on the Investors
webpage under the caption “SEC Filings” as soon as reasonably practicable after such material is electronically filed with, or
furnished to, the Securities and Exchange Commission (the “SEC”). The public may read and copy materials filed with the SEC at the
Public Reference Room of the SEC at 100 F Street, NE, Washington, D. C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-732-0330. The SEC maintains a website that contains reports,
proxy and information statements, and other information regarding issuers that file or furnish information electronically with the SEC
at www.sec.gov. Our website and the information contained therein or linked thereto are not intended to be incorporated into this
Annual Report on Form 10-K.

Item 1A. Risk Factors

Any of the following risks could materially and adversely affect our business, financial condition or results of operations. These
risks should be carefully considered before making an investment decision regarding us. The risks and uncertainties described below
are not the only ones we face and there may be additional risks that we are not presently aware of or that we currently consider not
likely to have a significant impact. If any of the following risks actually occurred, our business, financial condition and operating
results could suffer, and the trading price of our common stock could decline.

Fluctuations in our operating results, quarter to quarter earnings and other factors, including factors outside our control, maya
result in significant decreases in the price of our common stock.

The stock markets experience volatility, in some cases unrelated to operating performance. These broad market fluctuations may

adversely affect the trading price of our common stock and, as a result, there may be significant volatility in the market pric
common stock. If we are unable to operate our facilities as profitably as we have in the pa
st or as our investors expect us to in the
future, the market price of our common stock will likely decline when it becomes apparent that the market expectations may not be
realized. In addition to our operating results, many economic and seasonal factors outside of our control could have an adverse effect
on the price of our common stock and increase fluctuations in our quarterly earnings. These factors include certain of the risks
discussed herein, demographic changes, operating results of other healthcare companies, changes in our financial estimates or
recommendations of securities analysts, speculation in the press or investment community, the possible effects of war, terrorist and
other hostilities, adverse weather conditions, the level of seasonal illnesses, managed care contract negotiations and terminations,
changes in general conditions in the economy or the financial markets or other developments affecting the healthcare industry.

e of our

An incident involving one or more of our patients or the failure by one or more of our facilities
result in increased regulatory burdens, governmental investigations, negative publicity and adversely affect the trading price
common stock.

to provide appropriate care could

of our

Because the patients we treat suffer from severe mental health and chemical dependency disorders, patient incidents, including
deaths, assaults and elopements, occur from time to time. If one or more of our facilities experiences an adverse patient incident or is
found to have failed to provide appropriate patient care, an admissions hold, loss of accreditation, license revocation or other adverse
regulatory action could be taken against us. Any such patient incident or adverse regulatory action could result in governmental
investigations, judgments or fines and have a material adverse effect on our business, financial condition and results of operations. In
addition, we have been and could become the subject of negative publicity or unfavorable media attention, whether warranted or
unwarranted, that could have a significant, adverse effect on the trading price of our common stock or adversely impact our reputation
and how our referral sources and payors view us.

We have been and could become the subject of governmental investigations, regulatory actions and whistleblower lawsuits.

Healthcare companies in both the U.S. and the U.K. are subject to numerous investigations by various governmental agencies.

Certain of our facilities have received, and other facilities may receive, government inquiries from, and may be subject to investigation
by, governmental agencies. If we incur significant costs responding to or resolving these or future inquiries or investigations, our
business, financial condition and results of operations could be adversely affected.

Further, under the False Claims Act, private parties are permitted to bring qui tam or “whistleblower” lawsuits against

companies that submit false claims for payments to, or improperly retain overpayments from, the government. Because qui tam
lawsuits are filed under seal, we could be named in one or more such lawsuits of which we are not aware. We may also be subject to
substantial reputational harm as a result of the public announcement of any investigation into such claims.

Our revenue and results of operations are significantly affected by payments received from the government and third-party payors.rr

A significant portion of our revenue is derived from government healthcare programs. For the year ended December 31, 2017,

we derived approximately 38% of our revenue from the Medicare and Medicaid programs and 32% of our revenue from public funded
sources in the U.K. (including the NHS, CCGs and Local Authorities). See “— Structural shifts in the U.K. behavioral healthcare
market may adversely affect us” for further details on U.K. funding risks to which we are subject.

Government payors in the U.S., such as Medicaid, generally reimburse us on a fee-for-service basis based on predetermined

reimbursement rate schedules. As a result, we are limited in the amount we can record as revenue for our services from these
government programs, and if we have a cost increase, we typically will not be able to
ff
t
government and many state governments, are operating under significant budgetary pressures, and they may seek to reduce payments
under their Medicaid programs for services such as those we provide. Government payors also tend to pay on a slower schedule. In
addition to limiting the amounts they will pay for the services we provide their members, government payors may, among other
things, impose prior authorization and concurrent utilization review programs that may further limit the services for which the
w
pay and shift patients to lower levels of care and reimbursement. Therefore, if governmental entities reduce the amounts they will pay
for our services, or if they elect not to continue paying for such services altogether, or if a total or partial repeal of PPACA results in
significant contraction of the number of individuals covered by state Medicaid programs, our business, financial condition or results of
operations could be adversely affected. In addition, if governmental entities slow their payment cycles further, our cash flow from
operations could be negatively affected.

recover this increase. In addition, the federal

y will

Commercial payors such as managed care organizations, private health insurance programs and labor unions generally
reimburse us for the services rendered to insured patients based upon contractually determined rates. These commercial payors areaa
under significant pressure to control healthcare costs. In addition to limiting the amounts they will pay for the services we provide
their members, commercial payors may, among other things, impose prior authorization and concur
rr
rent utilization review programs
that may further limit the services for which they will pay and shift patients to lower levels of care and reimbursement. These actions
may reduce the amount of revenue we derive from commercial payors.

Changes in these government programs in recent years have resulted in limitations on reimbursement and, in some cases,
reduced levels of reimbursement for healthcare services. Payments from federal and state government healthcare programs are subject
to statutory and regulatory changes, administrative rulings, interpretations and determinations, requirements for utilization review, and
federal and state funding restrictions, all of which could materially increase or decrease program payments, as well as affect the cost
of providing service to patients and the timing of payments to facilities. We are unable to predict the effect of recent and future policy
changes on our operations. In addition, since most states operate with balanced budgets and since the Medicaid program is often
state’s largest program, some states can be expected to enact or consider enacting legislation formulated to reduce their Medicaid
expenditures. Furthermore, the potential repeal, replacement or modification of PPACA, may negatively affect the availability of
taxpayer funds for Medicare and Medicaid programs. If the rates paid or the scope of services covered by government payors are
reduced, there could be a material adverse effect on our business, financial condition and results of operations.

In addition to changes in government reimbursement programs, our ability to negotiate

favorable contracts with private payors,

including managed care providers, significantly affects the financial condition and operating results of our facilities in the
Management expects third-party payors to aggressively manage reimbursement levels and cost controls. Reductions in reimbursement
amounts received from third-party payors could have a material adverse effect on our business, financial condition and results of
operations.

U.S.

Our substantial debt could adversely affect our financial health and prevent us from fulfilling our obligations under our financing
arrangements.

As of December 31, 2017, we had approximately $3.2 billion of total debt (net of debt issuance costs, discounts and premiums

of $50.4 million), which included approximately $1.8 billion of debt under our Amended and
(including approximately $380.0 million of Senior Secured Term A Loans and approximately $1.4 billion of Senior Secured Term B
Loans), $150.0 million of debt under our 6.125% Senior Notes (the “6.125% Senior Notes”), $300.0 million of debt under our 5.12
5%
Senior Notes (the “5.125% Senior Notes”), $650.0 million of debt under our 5.625% Senior Notes, $390.0 million of debt under ou
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6.500% Senior Notes and $21.9 million of Lee County (Florida) Industrial Development Authority Healthcare Facilities Revenue
Bonds, Series 2010 with stated interest rates of 9.0% and 9.5% (the “9.0% and 9.
Financing Transactions” for additional details regarding our outstanding indebtedness.

5% Revenue Bonds”). See “Item 1. Business—

Restated Senior Credit Facility

Our substantial debt could have important consequences to our business. For example, it could:

•

increase our vulnerability to general adverse economic and industry conditions;

• make it more difficult for us to satisfy our other financial obligations;

•

restrict us from making strategic acquisitions or cause us to make non-strategic divestitures;

require us to dedicate a substantial portion of our cash flow from operations to payments on our debt (including scheduled
repayments on our outstanding term loan borrowings under the Amended and Restated Senior Credit Facility), thereby
reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate
purposes;

expose us to interest rate fluctuations because the interest on the Amended and Restated Senior Credit Facility is imposed
at variable rates;

• make it more difficult for us to satisfy our obligations to our lenders, resulting in possible defaults on and acceleration of

such debt;

•

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

place us at a competitive disadvantage compared to our competitors that have less debt;

limit our ability to borrow additional funds; and

limit our ability to pay dividends, redeem stock or make other distributions.

In addition, the terms of our financing arrangements contain restrictive covenants that limit our ability to engage in activities

that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default whi
ch, if not
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cured or waived, could result in the acceleration of all of our debts, including the Amended and Restated Senior Credit Facility and the
Senior Notes.

Servicing our debt will require a significant amount of cash. Our ability to generate sufficient cash to service our debt depends on
many factors beyond our control.

Our ability to make payments on and to refinance our debt, to fund planned capital expenditures and to maintain sufficient
working capital will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are beyond our control.

We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be

available to us under the Amended and Restated Senior Credit Facility or from other sources in an amount sufficient to enable us to
service our debt or to fund our other liquidity needs. If our cash flow and capital resources are insufficient to allow us to make
scheduled payments on our debt, we may need to reduce or delay capital expenditures, sell assets, seek additional capital or restructure
or refinance all or a portion of our debt on or before the maturity thereof, any of which could have a material adverse effect
business, financial condition or results of operations. We cannot assure you that we will be able to refinance any of our debt on
commercially reasonable terms or at all, or that the terms of that debt will allow any of the above alternative measures or that these
measures would satisfy our scheduled debt service obligations. If we are unable to generate sufficient cash flow to repay or refinance
our debt on favorable terms, it could significantly adversely affect our financial condition and the value of our outstanding debt. Our
ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition. Any
refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could
further restrict our business operations.

on our

We are subject to a number of restrictive covenants, which may restrict our business and financing activities.

Our financing arrangements impose, and the terms of any future debt may impose, operating and other restrictions on us. Such

restrictions affect, and in many respects limit or prohibit, among other things, our and our subsidiaries’ ability to:

•

incur or guarantee additional debt and issue certain preferred stock;

pay dividends on our common stock or redeem, repurchase or retire our equity interests or subordinated debt;

transfer or sell our assets;

• make certain payments or investments;

• make capital expenditures;

•

create certain liens on assets;

•

create restrictions on the ability of our subsidiaries to pay dividends or make other payments to us;

engage in certain transactions with our affiliates; and

• merge or consolidate with other companies.

The Amended and Restated Senior Credit Facility also requires us to meet certain financial ratios, including a fixed charge
coverage ratio and a consolidated leverage ratio. See “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Liquidity and Capital Resources —Amended and Restated Senior Credit Facility”

The restrictions may prevent us from taking actions that management believes would be in the best interests of our business, an
d
may make it difficult for us to successfully execute our business strategy or effectively compete with companies that are not similarly
restricted. We also may incur future debt obligations that might subject us to additional rest
financial and operational flexibility. Our ability to comply with these covenants in future periods will largely depend on the pricing of
our products and services, our success at implementing cost reduction initiatives and our ability to successfully implement our overall
business strategy. We cannot assure you that we will be granted waivers or amendments to our financing arrangements if for any
reason we are unable to comply with our financial covenants. The breach of any of these covenants and restrictions could result in a
t
default under the indentures governing the Senior Notes or under the Amended and Restated Senior Credit Facility, which could result
in an acceleration of our debt.

rictive covenants that could affect our

Despite our current debt level, we may incur significant additional amounts of debt, which could further exacerbate the risks
associated with our substantial debt.

We may incur substantial additional debt, including additional notes and other debt, in the future. Although the indentures
governing our outstanding Senior Notes and our Amended and Restated Senior Credit Facility contain restrictions on the incurrence of
exceptions, and under certain circumstances,
additional debt, these restrictions are subject to a number of significant qualifications and
the amount of debt that could be incurred in compliance with these restrictions could be substantial. If new debt is added to our
existing debt levels, the related risks that we now face would intensify and we may not be able to meet all our debt obligations.

If we default on our obligations to pay our debt, we may not be able to make payments on our financing arrangements.

Any default under the agreements governing our debt, including a default under the Amended and Restated Senior Credit
Facility or the indentures governing our Senior Notes, and the remedies sought by the holders of such debt, could adversely affect our
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ability to pay the principal, premium, if any, and interest on the Senior Notes and substantially decrease the market value of the Senior
ayments
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Notes. If we are unable to generate sufficient cash flows and are otherwise unable to obtain funds necessary to meet required p
of principal, premium, if any, and interest on our debt, or if we otherwise fail to comply with the various covenants, including
financial and operating covenants, in the instruments governing our debt (including the Amended and Restated Senior Credit Facility
and the indentures governing the Senior Notes), we would be in default under the terms of the agreements governing such debt. In the
event of such default, the holders of such debt could elect to declare all the funds borrowed thereunder to be due and payable, the
lenders under the Amended and Restated Senior Credit Facility could elect to terminate their commitments or cease making further
loans and institute foreclosure proceedings against our assets, or we could be forced to apply all available cash flows to repay such
debt, and, in any such case, we could ultimately be forced into bankruptcy or liquidation. Because the indentures governing the Senior
Notes and the agreement governing the Amended and Restated Senior Credit Facility have customary cross-default provisions, if the
debt under the Senior Notes or the Amended and Restated Senior Credit Facility is accelerated, we may be unable to repay or
refinance the amounts due.

Expanding our international operations poses additional risks to our business.

Our business or financial performance may be adversely affected due to the risks of operating internationally, including but not

limited to the following: economic and political instability, failure to comply with foreign laws and regulations and adverse c
hanges in
the health care policy of the U.K. (including decreases in funding for the services provided by our U.K. facilities), adverse changes in
law and regulations affecting our operations in the U.K., difficulties and costs of staffing and managing our operations in the U.K. If
any of these events were to materialize, they could lead to disruption of our business, signifi
cant expenditures and/or damages to our
reputation, which could have a material adverse effect on our results of operations, financial condition or prospects.

As a company based outside of the U.K., we need to take certain actions to be more easily accepted in the U.K. For example, we
may need to engage in a public relations campaign to emphasize service quality and company philosophy, preserve local managementnn
continuity and business practices and be transparent in our dealings with local governments and taxing authorities. Such efforts require
significant time and effort on the part of our management team. Our results of operation could suffer if these efforts are not successful.

With significant operations in the U.K., our business and operations may be adversely affected by economic and political
conditions in the U.K.

The global financial markets continue to experience significant volatility as a result of, among other things, economic and

political instability in the wake of the referendum in the U.K. on June 23, 2016, in which the voters approved an exit from the
European Union, or Brexit. Following the vote on Brexit, stock markets worldwide experienced significant declines and certain
currency exchange rates fluctuated substantially, and the outlook for the global economy in 2018
k
negotiations commence to determine the future terms of the U.K.’s relationship with the European Union. Such global market
instability may hinder future economic growth, which could adversely affect our assets, business, cash flow, condition (financial or
otherwise), liquidity, prospects and results of operations.

and beyond remains uncertain as

Our facilities face competition for staffing that may increase our labor costs and reduce our profitability.

Our operations depend on the efforts, abilities, and experience of our management and medical support personnel, including our

addiction counselors, therapists, nurses, pharmacists, licensed counselors, clinical technicians, and mental health technicians, as well
as our psychiatrists and other professionals. We compete with other healthcare providers in recruiting and retaining qualified
management, program directors, physicians (including psychiatrists) and support personnel responsible for the daily operations of our
business, financial condition or results of operations.

With respect to our facilities in the U.K., we compete with various providers, including the NHS, staffing agencies and other

employers, in attracting and retaining qualified management, medical, nursing, care and teaching personnel. Competition for such
employees is growing and could lead to increases in our personnel and recruiting costs, which would in turn adversely impact our
operating costs and margins. Competitors, in particular the NHS, may offer more attractive wages, pension plans or other benefits than
us and we may not be able to provide similar offerings to our prospective employees as a result of cost or other reasons.

A shortage of nurses, qualified addiction counselors, and other medical support personnel has been a significant operating issue

facing us and other healthcare providers, particularly for our facilities in the U.K. Such shortages may require us to enhance
benefits to recruit and retain nurses, qualified addiction counselors, and other medical support personnel or require us to hire more
expensive temporary or contract personnel. The use of temporary or contract personnel could also heighten the risk one of our
facilities experiences an adverse patient incident. Further, because we generally recruit our personnel from the local area where the
relevant facility is located, the availability in certain areas of suitably qualified personnel can be limited, particularly care home
management, qualified teaching personnel and nurses. In addition, certain of our facilities are required to maintain specified staffing
levels. To the extent we cannot meet those levels, we may be required to limit the services provided by these facilities, which would
have a corresponding adverse effect on our net operating revenue. Certain of our treatment facilities are located in remote
geographical areas, far from population centers, which increases this risk.

wages and

We cannot predict the degree to which we will be affected by the future availability or cost of attracting and retaining talented
medical support staff. If our general labor and related expenses increase, we may not be able to raise our rates correspondingly. Our
failure either to recruit and retain qualified management, psychiatrists, therapists,
personnel or control our labor costs could have a material adverse effect on our results of operations.

counselors, nurses and other medical support

Our acquisition strategy exposes us to a variety of operational and financial risks.

A principal element of our business strategy is to grow by acquiring other companies and assets in the behavioral healthcare

industry. Growth, especially rapid growth, through acquisitions exposes us to a variety of operational and financial risks. We
summarize the most significant of these risks below.

Integration risks

We must integrate our acquisitions with our existing operations. This process includes the integration of the various components

of our business and of the businesses we have acquired or may acquire in the future, including the following:

•

additional psychiatrists, other physicians and employees who are not familiar with our operations;

patients who may elect to switch to another behavioral healthcare provider;

regulatory compliance programs; and

disparate operating, information and record keeping systems and technology platforms.

Integrating a new facility could be expensive and time consuming and could disrupt our ongoing business, negatively affect cash

flow and distract management and other key personnel from day-to-day operations.

We may not be able to successfully combine the operations of acquired facilities with our operations, and even if such
integration is accomplished, we may never realize the potential benefits of the acquisition. The integration of acquisitions with our
operations requires significant attention from management, may impose substantial demands on our operations or other projects and
may impose challenges on the combined business including, but not limited to, consistencies in business standards, procedures,
involve a capital outlay, and the return that we
policies, business cultures and internal controls and compliance. Certain acquisitions
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achieve on any capital invested may be less than the return that we would achieve on our other projects or investments. If we f
ff
ail to
complete the integration of acquired facilities, we may never fully realize the potential benefits of the related acquisitions.

Successful integration depends on the ability to effect any required changes in operations or personnel, which may entail

unforeseen liabilities. The integration of acquired businesses may expose us to certain risks, including the following: difficulty in
integrating these businesses in a cost-effective manner, including the establishment of effective management information and financial
control systems; unforeseen legal, regulatory, contractual, employment or other issues arising out of the combination; combining
corporate cultures; maintaining employee morale and retaining key employees; potential disruptions to our on-going business caused
by our senior management’s focus on integrating these businesses; and performance of the combined assets not meeting our
expectations or plans. A failure to properly integrate these businesses could have a corresponding material adverse effect on our
business, results of operations, financial condition or prospects.

Benefits may not materialize

When evaluating potential acquisition targets, we identify potential synergies and cost savings that we expect to realize upon the
successful completion of the acquisition and the integration of the related operations. We may, however, be unable to achieve or may
otherwise never realize the expected benefits. Our ability to realize the expected benefits from potential cost savings and revenue
improvement opportunities is subject to significant business, economic and competitive uncertainties and contingencies, many of
which are beyond our control, such as changes to government regulation governing or otherwise impacting the behavioral healthcare aa
s under our contracts, operating
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industry, reductions in reimbursement rates from third-party payors, reductions in service level
difficulties, client preferences, changes in competition and general economic or industry conditions. If we are unsuccessful in
implementing these improvements or if we do not achieve our expected results, it may adversely impact our business, financial
condition or results of operations.

Assumptions of unknown liabilities

Facilities that we acquire may have unknown or contingent liabilities, including, but not limited to, liabilities for uncertain taxn
positions, liabilities for failure to comply with healthcare laws and regulations and liabilities for unresolved litigation or regulatory
reviews. Although we typically attempt to exclude significant liabilities from our acquisition transactions and seek indemnification
from the sellers of such facilities, the purchase agreement with Priory contained minimal representations and warranties about
the
entities and business that we acquired. In addition, we have no indemnification rights against the sellers under the Priory purchase
agreement and all of the purchase price consideration was paid at closing of the Priory acquisition. Therefore, we may incur ma
t
liabilities for the past activities of acquired entities and facilities. Even in those acquisitions in which we have such rights, we may
experience difficulty enforcing the sellers’ obligations, or we may incur material liabilities for the past activities of acquired facilities.
Such liabilities and related legal or other costs and/or resulting damage to a facility’s reputation could negatively impact our business,
financial condition or results of operations.

terial

Competing for acquisitions

We face competition for acquisition candidates primarily from other for-profit healthcare companies, as well as from not-for-

profit entities. Some of our competitors may have greater resources than we do. As a result, we may pay more to acquire a target
business or may agree to less favorable deal terms than we would have otherwise. Our principal competitors for acquisitions have
included Universal Health Services and private equity firms. Also, suitable acquisitions may not be accomplished due to unfavorable
terms. Further, the cost of an acquisition could result in a dilutive effect on our results of operations, depending on various factors,
including the amount paid for an acquired facility, the acquired facility’s results of operations, the fair value of assets acquired and
liabilities assumed, effects of subsequent legislation and limits on rate increases. In addition, we may have to pay cash, incur debt, or
issue equity securities to pay for any such acquisition, which could adversely affect our financial results, result in dilution to our
stockholders, result in increased fixed obligations or impede our ability to manage our operations. There can be no assurances that we
will be able to acquire facilities at historical or expected rates or on favorable terms.

Managing growth

o
Some of the facilities we have acquired or may acquire in the future may have had significantly lower operating margins prior t
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the time of our acquisition or may have had operating losses prior to such acquisition. If we fail to improve the operating margins of
the facilities we acquire, operate such facilities profitably or effectively integrate the operations of the acquired facilities, our results of
operations could be negatively impacted.

Joint ventures may use significant resources, may be unsuccessful and could expose us to unforeseen liabilities.

As part of our growth strategy, we have completed, or have announced plans to complete, a number of joint ventures and
strategic alliances. These joint ventures may involve significant cash expenditures, debt incurrence, additional operating losses and
expenses, and compliance risks that could negatively impact our business, financial condition or results of operations. Further, there is
often a significant delay between our formation of a joint venture and the time that a de novo facility can be constructed and have a
positive financial impact on our results of operations.

The nature of a joint venture requires us to consult with and share certain decision-making powers with unaffiliated third parties,
eir obligations, the affected joint

some of which may be not-for-profit healthcare systems. If our joint venture part
tt
ners do not fulfill th
venture may not be able to operate according to its business or strategic plans. In that case, our financial condition and results of
operations may be materially adversely affected or we may be required to increase our level of financial commitment to the jointnn
venture. Moreover, differences in economic or business interests or goals among joint venture participants could result in delayed
decisions, failures to agree on major issues and even litigation. If these differences cause the joint ventures to deviate from their
business or strategic plans, or if our joint venture partners take actions contrary to our policies, objectives or the best interests of the
joint venture, our business, financial condition and results of operation could be negatively impacted. In addition, our relationships
with not-for-profit healthcare systems and the joint venture agreements that govern these relationships are intended to be structured to
comply with current revenue rulings published by the Internal Revenue Service (“IRS”), as well as case law relevant to joint ventures
between for-profit and not-for-profit healthcare entities. Material changes in these authorities could adversely affect our relationships
with not-for-profit healthcare systems and related joint venture arrangements.

The majority of our revenue from our operations in the U.K. is not guaranteed and is being generated either from spot purchasingn
or under framework agreements where no volume commitments are given. In addition, there can be
e
achieve any fee rate increases in the future or will not suffer any fee rate decreases.

no assurance that we can

Any decline in demand for our services in the U.K. from publicly funded entities or private payers or any failure by us to extend

current agreements or enter into alternative agreements on comparable terms with such entities could have an adverse effect on our
average daily census (“ADC”), which would have a corresponding negative impact on our business, results of operations and financial
condition. Further, there can be no assurances that we will be able to implement fee rate increases, which are a driver of our revenue
from our operations, or not suffer from any decline in fee rates in the future. Should the effect of any increase in annual wages or other
operating costs of the business exceed the effect of any increase in our fee rates or should our fee rates suffer a decline, we would have
to absorb any costs that cannot be offset by our fees, which could have a negative im
mm
financial condition.

pact on our business, results of operation

s and

Publicly funded entities

A significant portion of our services funded by U.K. publicly funded entities are commissioned on a spot-purchase basis at

prices determined by prevailing market conditions. It is generally a matter for the relevant commissioner to determine whether to use
our services, and there is no guarantee that previous spot market purchasing activity by a commissioner will continue in the future or
at all. We also have a number of fixed-term framework agreements which grant us preferred provider status with Local Authorities or
the NHS typically lasting between one to three years. While we and the commissioners typically agree on pricing for 12 months, at
times with discounts related to the number of beds purchased, the commissioners do not make minimum purchasing commitments
under such agreements. As such, commissioners may decide to place existing and new service users with our competitors, including
their own in-house service providers, on short notice. We also have a small number of fixed-period block contracts, where a set
number of beds are paid for at a discount to spot prices regardless of occupancy. While we may have flexibility to increase spot rates
for new admissions, any fee increases under our block contracts are restricted by the terms and conditions of those block contracts.

d
The rates that we charge publicly-funded entities for our services are negotiated
individually with commissioners and
d

historically have been subject to annual review on April 1 of each year, with customary adjustments based on the Retail Prices Index
(“RPI”), Consumer Price Index (“CPI”) or sector specific costs indices. However, the current economic climate and the U.K.
government’s overriding economic policy to reduce the budget deficit means that, in the short term at least, commissioners are
resistant to fee increases, often expecting that efficiency savings be made to offset inflationary cost increases in accordance with
national policy. As a result, there can be no assurance that we can maintain the payment terms of our arrangements with publicly
funded entities, including with respect to the timing of payments.

Further, following expiration of contracts there can be no assurance that negotiations with commissioners will result in the
extension or renewal of existing arrangements or the entering into of alternative arrangements for those services. Commissioners may
also require that following the expiration date of current agreements with us, they contract with us on a spot basis rather than through a
block arrangement or reduce the number of beds subject to block arrangements. Even if we are successful in extending current
agreements or in entering into alternative arrangements, the duration of such extensions or arrangements is uncertain, and we may be
unsuccessful in implementing rate increases under such agreements.

tt
In addition, changing commissioning structures and practices, such as those under the

Health and Social Care Act 2012, involve

tendering processes that could result in failing to remain or become an approved provider. There are currently a number of
commissioning initiatives involving public and independent providers that could change the distribution of in-patient beds in t
tt
he U.K.
Certain services that were historically commissioned centrally by NHS England are moving towards more local commissioning to
better meet patient needs and to enhance local care pathways. These initiatives could cause our ADC to decrease in areas where there
is surplus capacity or more focus on community-based treatment. Further, if we are not invited to participate in initiatives or do not
meet the local commissioning standards, our ADC could be adversely affected.

Private payers

Although we have agreements in place with a number of private medical insurance (“PMI”) plans where pricing is generally

agreed annually, there is no obligation on the PMI plans to refer its members to us or to pay for its members to use our services.
Further, we may not be able to renew our existing arrangements with PMI plans on terms comparable to what it has achieved in the
past. Fee rates for self-paying individuals are adjusted on January 1 of each year depending on capacity and demand in the relevant
service markets. Fees paid or reimbursed by PMI plans are typically adjusted in line with specific contract terms and are generally
based on RPI and specific wage indices. Demand in both the PMI market and the self-pay is depe
impacts the number of people with sufficient income or capital to pay for insurance coverage or treatment themselves.

ndent on economic conditions, which

Structural shifts in the U.K. behavioral healthcare market may adversely affect us.

Publicly funded entities

Payments for our services by publicly funded entities in the U.K., particularly the NHS and Local Authorities, account for the
vast majority of our U.K. revenue. We expect publicly funded entities in the U.K. to continue to generate the significant majority of
our revenue from our operations in the U.K. Budget constraints, public spending cuts or other financial pressures could cause such
publicly funded entities to spend less money on the type of services that we provide, or political or U.K. government policy changes
could mean that fewer of such services are purchased by publicly funded entities from independent sector providers in favor of
protecting NHS and Local Authority in-house services.

While the outsourcing by the NHS in England of healthcare services has been increasing in recent years, the need of the NHS in

England to achieve substantial efficiency savings is likely to result in continued funding pressure in the pricing of such services. For
instance, Monitor (now part of NHS Improvement), the NHS economic regulator, has, under NHS Tariff Rules, determined national
prices across a range of NHS services and has issued extensive guidance on how they are to be applied, including provision for local
variations to national tariffs, subject to approval by Monitor. While none of our services are currently subject to national prices, the
future application of any national prices regime upon our services could have a material adverse impact on our revenue.

In addition, the allocation of funding responsibility for adult social care may be subject to change at some time in the future
under the provisions of the Care Act 2014 under which individuals identified as being required to pay for their own care under the
relevant means test will be required to take funding responsibility up to a specified lifetime monetary cap, with Local Authorities
responsible for the remainder of expenses for personal care, excluding “daily living” expenses. This would potentially place greater
funding responsibility with public sector bodies over the longer term, which would potentially exacerbate the current funding
challenges faced by such bodies.

Private payers

Payments for our services in the U.K. by PMI plans account for a small portion of our U.K. revenue. In addition, payments for
our services in the U.K. by self-pay patients, who purchase treatment on a spot basis account for a small portion of our U.K. revenue.
Many of the patients who use our acute healthcare services in the U.K. do so because their PMI plan recognizes our facilities as being
an appropriate provider of the psychiatric treatment services required by the patient. Our ability to attract patients who are funded by
PMI plans could be adversely impacted if one or more PMI plans withdraws recognition status from our facilities, for example, as a
result of a change in a PMI plan’s recognition status standards. In addition, many PMI plans have been changing the terms of their
policies and shortening the length of time they will cover a stay at one of our U.K. facilities.

There can be no assurance that the entities or individuals who fund our services will not reduce or cease spending on the types

of services that we provide or that alternative service or funding models for mental healthcare, learning disabilities care, specialist
tt
education or elderly care will not emerge. Any such funding or structural change in the markets
material adverse effect on our ADC, which would have a corresponding negative impact on our business, results of operations and
financial condition.

where we operate could have a

by publicly funded entities, psychiatric and
We are reliant upon maintaining strong relationships with commissioners employed
other medical consultants, and any reorganization of such publicly funded entities may result in the loss of those relationships.

The relationships that we have with commissioners is a key driver of referrals for our facilities in the U.K. Referrals to our U.K.

business by the NHS accounted for a significant percentage of our revenue for the year ended December 31, 2017. Should there be a
major reorganization of publicly funded entities, such as the NHS reorganization an
nounced in 2010 and implemented between 2012
and 2013, we may need to rebuild such relationships which could result in a decrease in the number of referrals made to our facilities,
which could have a corresponding material adverse effect on our business, results of operations, financial condition or prospects. Any
actual or perceived deterioration in service quality, any serious incidents at our facilities or any other event that could cause
commissioners to prefer other service providers over us could also adversely impact referrals from commissioners. Further, our
business also depends, in part, on psychiatric and other medical consultants referring their patients to us for treatment either as in-
patients or day patients. From time to time, consultants may decide to relocate or reposition their practices, retire or refer patients
elsewhere with the result that there is a decrease in the number of referrals made to our facilities. A deterioration in relationships with
commissioners or consultants or the decision by one or more commissioners or consultants to refer patients to our competitors or to
stop all referrals would have an adverse effect on the ADC at our facilities in the U.K., which would have a corresponding negative
impact on our business, results of operations and financial condition.

ee
Our operating costs are subject to increases, including due to statutorily mandated increases in the wage
s and salaries of our

staff.

The most significant operating expense for our facilities is wage costs, which represent the staff costs incurred in providing our

services and running our facilities, and which are primarily driven by the number of employees and pay rates. The number of
employees employed by us is primarily linked to the number of facilities we operate and the number of individuals cared for by us.
While we can reduce the number of employees should occupancy rates decrease at our facilities, there is a limit on the extent to which
this can be done without impacting quality of our services.

Furthermore, in April 2016, a new “National Living Wage” was introduced across the U.K. which was increased in April 2017

and is scheduled to increase again in April 2018 with further annual increases expected until at least 2020. These changes to thet
National Living Wage have and will increase our operating costs and, unless we can increase revenue or reduce other costs, will
reduce our margins.

In the U.K., there has been an increase in enforcement action by HMRC against employers who do not pay the NMW,
particularly for fixed allowance payments for sleep-in shifts in the care sector. The industry standard practice has been to pay a fixed
allowance to employees who sleep at sites at night with a “top-up” if an employee is woken and provides care to residents during the
night. Our U.K. facilities have elected to join the SCCS established by HMRC to mitigate our exposure to potential back-pay liability.
Nevertheless, we may be subject to (i) increased payments to employees for sleep-in shifts on an on-going basis; (ii) payments of up to
ents of
aa
6 years of arrears to employees or former employees who have carried out sleep-in shifts at our U.K. facilities; and (iii) paym
interest and penalties to HMRC, all of which would have a corresponding negative impact on our business, results of operations and
financial condition.

We also have a number of recurring costs including insurance, utilities and rental costs, and may face increases to other
recurring costs such as regulatory compliance costs. There can be no assurance that any of our recurring costs will not grow at a faster
rate than our revenue. As a result, any increase in our operating costs could have a material adverse effect on our business, results of
operations and financial condition.

We care for a large number of vulnerable individuals with complex needs and any care quality defic
our brand, reputation and ability to market our services effectively.

iencies could adversely impact

Our future growth will partly depend on our ability to maintain our reputation for providing quality patient care and, through

successful sales and marketing activities, increased demand for our services. Factors such as health and safety incidents, problems at
our facilities, regulatory enforcement actions, negative press or general customer dissatisfaction could lead to deterioration in the level
of our quality ratings or the public perception of the quality of our services (including as a result of negative publicity about our
industry generally), which in turn could lead to a loss of patient placements, referrals and self-pay patients or service users. Any
impairment of our reputation, loss of goodwill or damage to the value of our brand name could have a material adverse effect on our
n
business, results of operations and financial condition.

Many of our service users have complex medical conditions or special needs, are vulnerable and often require a substantial level

of care and supervision. There is a risk that one or more service users could be harmed by one or more of our employees, either
intentionally, through negligence or by accident. Further, individuals cared for by us have in the past engaged, and may in the future
engage, in behavior that results in harm to themselves, our employees or to one or more other individuals, including members of the
public. A serious incident involving harm to one or more service users or other individuals could result in negative publicity. Such
aa
negative publicity could have a material adverse effect on our brand, reputation and ADC, which would have a corresponding negative
impact on our business, results of operations and financial condition. Furthermore, the damage to our reputation or to the reputation of
the relevant facility from any such incident could be exacerbated by any failure on our part to respond effectively to such incident.

We are and in the future may become involved in legal proceedings based on negligence or breach of a contractual or statutory
duty from service users or their family members or from employees or former employees.

From time to time, we are subject to complaints and claims from service users and their family members alleging professional

negligence, medical malpractice or mistreatment. We are also subject to claims for unlawful detention from time to time when patients
allege they should not have been detained under the Mental Health Act or where the appropriate procedures were not correctly
followed.

Similarly, there may be substantial claims from employees in respect of personal injuries sustained in the performance of their

duties, particularly in respect of incidents involving patients detained under the Mental Health Act and where future employment
prospects are impaired. Current or former employees may also make claims against us in relation to breaches of employment
legislation.

We may also be involved in coroner’s inquests (or the Scottish equivalent) where there is a fatality at one of our facilities in the

U.K. resulting in an adverse coroner’s verdict or civil claims by individuals or criminal prosecutions by regulatory authorities. Any
fines imposed by the courts are likely to be substantial in view of the Sentencing Council guidelines published in November 2015,
which materially increase fines for corporate manslaughter and certain health and safety offenses. There may also be safeguarding
incidents at our facilities which, depending on the circumstances, may result in custodial sentences or other criminal sanctions for the
member of staff involved.

The incurrence of any legal fees, damage awards or other fines as summarized above as well as any impact on our brand or
reputation as a result of being involved in any legal proceedings are likely to have a material adverse impact on our business, results of
operations and financial condition.

We handle sensitive personal data which are protected by numerous U.S. and U.K. laws in the ordinary course of business and any
failure to maintain the confidentiality of such data could result in legal liability and reputational harm.

We process and store sensitive personal data as part of our business. In the event of a security breach, sensitive personal data

could become public. We are currently not aware of any material incidences of potential data breach; however, there can be no
assurance that such breaches will not arise in future. Although we have in place policies and procedures to prevent such breaches,
breaches could occur either as a result of a breach by us or as a result of a breach by a third party to whom we have provided sensitive
personal data, and as a result, we could face liability under data protection laws.

In addition to U.S. data protection laws, we are subject to similar, and in some cases more restrictive, U.K. data protection laws.

For example, the GDPR will provide heightened data protection requirements once effective in May 2018, including more stringent
consent requirements, data protection and security measures and requirements to appoint a data protection officer. While we are taking
appropriate steps to ensure compliance with U.K. data protection laws and regulations,
we cannot guarantee that our facilities will not
h
aa
be subject to data breaches which could have a material adverse effect on our busine

ss, financial condition, or results of operations.

Liability under data protection laws may result in sanctions, including substantial fines and/or may cause us to suffer damage to

our brand and reputation, which could have a material adverse effect on our business, results of operations and financial condition.

We may be subject to liabilities from claims brought agains

t us or our facilities.

We are subject to medical malpractice lawsuits and other legal actions in the ordinary course of business. Some of these actions

may involve large claims, as well as significant defense costs. We cannot predict the outcome of these lawsuits or the effect that
findings in such lawsuits may have on us. All professional and general liability insurance we purchase is subject to policy limitations
and in some cases, an insurance company may defend us subject to a reservation of rights. Management believes that, based on ouruu
past experience and actuarial estimates, our insurance coverage is adequate considering the claims arising from the operations of our
facilities. While we continuously monitor our coverage, our ultimate liability for professional and general liability claims could
change materially from our current estimates. If such policy limitations should be partially or fully exhausted in the future, or
payments of claims exceed our estimates or are not covered by our insurance, it could have a material adverse effect on our business,
financial condition or results of operations. Further, insurance premiums have increased year over year and insurance coverage may
not be available at a reasonable cost, especially given the significant increase in insurance premiums generally experienced in the
healthcare industry.

We carry a large self-insured retention and may be responsible for significant amounts not covered by insurance. In addition, o
insurance may be inadequate, premiums may increase and, if there is a significant deterioration in our claims experience,
insurance may not be available on acceptable terms.

We maintain liability insurance intended to cover service user, third-party and employee personal injury claims. Due to the

structure of our insurance program under which we carry a large self-insured retention, there may be substantial claims in respect of
ff
which the liability for damages and costs falls to us before being met by any insura
excess of our insurance coverage or claims which are not covered by our insurance due to other policy limitations or exclusions or
where we have failed to comply with the terms of the policy. Furthermore, there can be
no assurance that we will be able to obtain
rr
liability insurance coverage in the future on acceptable terms, or without substantial premium increases or at all, particularly if there is
a deterioration in our claim experience history. A successful claim against us not covered by or in excess of our insurance coverage
could have a material adverse effect on our business, results of operations and financial condition.

nce underwriter. There may also be claims in

Foreign currency exchange rate fluctuations could materially impact our consolidated financial position and results of operations.

We have significant U.K. operations. Accordingly, we translate revenue and other results denominated in a foreign currency into

U.S. dollars (“USD”) for our consolidated financial statements. During periods of a strengthening USD or weakening British pound
(“GBP”), our reported international revenue and expenses could be reduced because foreign currencies may translate into fewer USD.
Following the Brexit vote and subsequent developments, the GBP dropped to its lowest level against the USD in more than 30 years.
If the exchange rate further declines, our results of operations will be negatively impacted in future periods.

In all jurisdictions in which we operate, we are also subject to laws and regulations th

at govern foreign investment, foreign trade

and currency exchange transactions. These laws and regulations may limit our ability to repatriate cash as dividends or otherwise to
the U.S. and may limit our ability to convert foreign currency cash flows into USD.

d
We incur significant transaction related costs in connection with acquisitions.

We incur substantial costs in connection with acquisitions, including transaction-related expenses. In addition, we may incur

additional costs to maintain employee morale, retain key employees, and to formulate and execute integration plans. Although we
expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of acquired
businesses, should allow us to more than offset incremental transaction and acquisition-related costs over time, this net benefit may
not be achieved in the near term, or at all.

Our ability to grow our business through organic expansion either by developing ne
dependent upon many factors.

w facilities or by modifying existing facilities is

Our ability to grow our business through organic expansion is dependent on capacity and occupancy at our facilities. Should our

facilities reach maximum occupancy, we may need to implement other growth strategies either by developing new facilities or by
modifying existing facilities.

Our facilities typically need to be purpose-designed in order to enable the type and quality of service that we provide.
Consequently, we must either develop sites to create facilities or purchase or lease existing facilities, which may require substantial
modification. We must be able to identify suitable sites and there is no guarantee that such sites will be available at all, or at an
economically viable cost or in areas of sufficient demand for our services. The subsequent successful development and construction of
a new facility is contingent upon, among other things, negotiation of construction contracts, regulatory permits and planning consents
and satisfactory completion of construction. Similarly, our ability to expand existing facilities is also dependent upon various factors,
including identification of appropriate expansion projects, permitting, licensure, financing, integration into our relationships with
payors and referral sources, and margin pressure as new facilities are filled with patients.

Delays caused by difficulties in respect of any of the above factors may lead to cost overruns and longer periods before a return uu
to a regulatory, planning or other reason,

is generated on an investment, if at all. We may incur significant capital expenditure but due
may find that we are prevented from opening a new facility or modifying an existing facility. Moreover, even when incurring such
development capital expenditure, there is no guarantee that we can fill beds when they become available. Upon operational
commencement of a new facility, we typically expect that it will take approximately 12-18 months to reach our targeted occupancy
level. Any delays or stoppages in our projects, the unsatisfactory completion or construction of such projects or the failure of such
projects to increase our occupancy levels could have a material adverse effect on our ADC, which would have a corresponding
negative impact on our business, results of operations and financial condition.

We may fail to deal with clinical waste in accordance with applicable regulations or otherwise be in breach of relevant medical,ll
health and safety or environmental laws and regulations.

As part of our normal business activities, we produce and store clinical waste which may produce effects harmful to the

environment or human health. The storage and transportation of such waste is strictly regulated. Our waste disposal services are
outsourced and should the relevant service provider fail to comply with relevant regulations, we could face sanctions or fines which
could adversely affect our brand, reputation, business or financial condition. Health and safety risks are inherent in the services that
we provide and are constantly present in our facilities, primarily in respect of food and water quality, as well as fire safety and the risk
that service users may cause harm to themselves, other service users or employees. From time to time, we have experienced, like other
providers of similar services, undesirable health and safety incidents. Some of our activities are particularly exposed to significant
medical risks relating to the transmission of infections or the prescription and administration of drugs for residents and patients. If any
of the above medical or health and safety risks were to materialize, we may be held liable, fined and any registration certificate could
be suspended or withdrawn for failure to comply with applicable regulations, which may have a material adverse impact on our
business, results of operations and financial condition.

The value of our real estate assets will be subject to fluctuations in the U.K. real estate market.

We hold a large portfolio of real estate assets, including significant real estate assets in the U.K. The value of our U.K. property
portfolio is subject to, among other things, the conditions of the real estate market in the U.K. The average values of real estate in the
U.K., as in other European countries, experienced sharp declines from 2007 as a result of the credit crisis, economic recession and
reduced confidence in global financial markets. Although real estate asset values have recovered and stabilized in recent years in the
U.K., there can be no assurance that this improvement will continue or be sustainable. Real estate asset values could decline
substantially, particularly if the U.K. economy or the Eurozone economy as a whole were to suffer a further recession or debt crisis,
and could result in declines in the carrying values of our real estate assets (and the value at which we could dispose of such assets).
Any of the above may have a material adverse effect on our business, results of operations and financial condition.

Our business could be disrupted if our information systems fail or if our databases are destroyed or damaged.

Our information technology platform supports, among other things, management control of patient administration, billing and

financial information and reporting processes. For example, patients in our U.K. facilities and some of our U.S. facilities have an
Electronic Patient Record that allows our caregivers and nurses to see all information about a patient’s care and treatment. Although
we have taken measures to mitigate potential information technology security risks and have informati
across our business intended to minimize the impact of information technology failures, th
and plans will be effective. Any failure in or breach of our information technology systems could adversely impact our business,
results of operations and financial condition.

on technology continuity plans
ere can be no assurance that such measures

We are subject to volatility in the global capital and credit markets as well as significant developments in macroeconomic and
political conditions that are out of our control.

Our business can be affected by a number of factors that are beyond our control, such as general macroeconomic conditions,
conditions in the financial services markets, geopolitical conditions and other general political and economic developments. These
conditions and developments may continue to put pressure on the economy in the U.K., which could have a negative effect on our
business. There may be a shortage of liquidity and credit in the U.K. or worldwide and this can be exacerbated by adverse
developments in global or national political and/or macroeconomic conditions. In particular, we have historically financed the
development of new facilities and the modification of our existing facilities through a variety of sources, including our own cash
reserves and debt financing. While we intend to seek to finance new and existing developments from similar sources in the future,
there may be insufficient cash reserves to fund the budgeted capital expenditure and market conditions and other factors may prevent
us from obtaining debt financing on appropriate terms or at all. In addition, market conditions may limit the number of financial
institutions that are willing to provide financing to landlords with whom we wish to contract to build homes for learning disab
ility
h
services, new schools or new mental health facilities which can then be made available to us under a long-term operating lease. If
conditions in the U.K. or the global economy remain uncertain or weaken further, this could materially adversely impact our ADC,
which would have a corresponding negative impact on our business, results of operations and financial condition.

Failure to comply with the international and U.S. laws and regulations applicable to our international operations could subject us
to penalties and other adverse consequences.

We face several risks inherent in conducting business internationally, including compliance with international and U.S. laws and

regulations that apply to our international operations. These laws and regulations include U.S. laws such as the Foreign Corrupt
Practices Act and other U.S. federal laws and regulations established by the Office of Foreign Asset Control, local laws such as the
U.K. Bribery Act 2010 or other local laws which prohibit corrupt payments to governmental officials or certain payments or
remunerations to customers. Given the high level of complexity of these laws, however, there is a risk that some provisions may be
inadvertently breached by us, for example through fraudulent or negligent behavior of individual employees, our failure to comply
with certain formal documentation requirements, or otherwise. Violations of these laws and regulations could result in fines, criminal
sanctions against us, our officers or our employees, implementation of compliance programs, and prohibitions on the conduct of our
business. Any such violations could include prohibitions on our ability to conduct business in the U.K. and could materially damage
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our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, our business and our
operating results. Our success depends, in part, on our ability to

anticipate these risks and manage these challenges.

We are subject to taxation in the U.S. and certain foreign jurisdictions. Any adverse development in the tax laws of such
jurisdictions or any disagreement with our tax positions could have a material adverse effect on our business, financial condit
or results of operations. In addition, our effective tax rate could change materially as a result of certain changes in our mix of U.S.
and foreign earnings and other factors, including changes in tax laws.

iontt

We are subject to taxation in, and to the tax laws and regulations of, the U.S. and certain foreign jurisdictions as a result of our

operations and our corporate and financing structure. Adverse developments in these tax laws or regulations, or any change in position
regarding the application, administration or interpretation thereof, in any applicable jurisdiction, could have a material adverse effect
on our business, financial condition or results of operations. In addition, the tax authorities in any applicable jurisdiction may disagree
with the tax treatment or characterization of any of our transactions, which, if successfully challenged by such tax authorities, could
have a material adverse effect on our business, financial condition or results of operations. Certain changes in the mix of our earnings
between jurisdictions and assumptions used in the calculation of income taxes, among other factors, could have a material adverse
effect on our overall effective tax rate. In addition, the Tax Act makes significant changes to the rules applicable to the taxation of
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corporations. The Company is currently in the process of analyzing the effects of the Tax Act on the Company. It is uncertain at this
time whether the application of these new rules will have any material and adverse impact on our operating results, cash flows
and
financial condition.

A worsening of the economic and employment conditions in the geographies in which we operate could materially affect our
business and future results of operations.

During periods of high unemployment, governmental entities often experience budget deficits as a result of increased costs and

lower than expected tax collections. These budget deficits at the federal, state and local levels have decreased, and may continue to
decrease, spending for health and human service programs, including Medicare and Medicaid in the U.S., which are significant payor
sources for our facilities. In periods of high unemployment, we also face the risk of potential declines in the population covered under
private insurance, patient decisions to postpone or decide against receiving behavioral healthcare services, potential increases in the
uninsured and underinsured populations we serve and further difficulties in collecting patient co-payment and deductible receivables.

A sizable portion of our revenue from certain residential recovery, eating disorder facilities, comprehensive treatment centers

and youth programs is from self-payors. Accordingly, a sustained downturn in the U.S. economy could restrain the ability of our
patients and the families of our students to pay for services.

Furthermore, the availability of liquidity and capital resources to fund the continuation and expansion of many business
operations worldwide has been limited in recent years. Our ability to access the capital markets on acceptable terms may be severely
restricted at a time when we would like, or need, access to those markets, which could have a negative impact on our growth plans,
our flexibility to react to changing economic and business conditions and our ability to refinance existing debt (including debt under
our Amended and Restated Senior Credit Facility and the Senior Notes). A sustained economic
conditions could also adversely affect the counterparties to our agreements, including the lenders under the Amended and Restated
Senior Credit Facility, causing them to fail to meet their obligations to us.

downturn or other economic

Our reimbursement may be adversely affected by the repeal, replacement or modification of PPACA.

On January 20, 2017, Donald Trump became President of the United States. During the 2016 election cycle, Republicans also

assumed control of both the United States Senate and House of Representatives. Shortly after his inauguration, President Trump issued
an executive order that, among other things, stated that it was the intent of his administration to repeal PPACA. Several bills have
been introduced and voted upon in the House of Representatives and United States Senate that would either repeal and replace or
simply repeal PPACA, although no such comprehensive legislation has been enacted to-date. The Tax Act does, however, effectively
repeal the individual mandate to obtain and maintain health insurance by eliminating the tax penalty associated with failing to do so.

If PPACA is repealed, with or without a replacement, we may experience a significant decrease in reimbursement from state

Medicaid programs. We may also experience a significant increase in uncompensated care if many of our patients who currently
obtain private health insurance coverage or Medicaid coverage under the provisions of PPACA are no longer able to maintain that
coverage. Finally, PPACA currently works in conjunction with MHPAEA to require that third-party payors reimburse providers of
certain mental health and substance abuse treatment services on an out-of-network basis. If PPACA or this particular provision thereof
is repealed, we may experience a significant decrease in out-of-network reimbursement at certain of our facilities.

If we fail to comply with extensive laws and government regulations, we could suffer penalties or be required to make significant
changes to our operations.

Companies operating in the behavioral healthcare industry in the U.S. are required to comply with extensive and complex laws

and regulations at the federal, state and local government levels relating to, among other things: billing practices and prices for
services; relationships with physicians and other referral sources; necessity and quality of medical care; condition and adequacy of
facilities; qualifications of medical and support personnel; confidentiality, privacy and security issues associated with health-related
information and PHI; EMTALA compliance; handling of controlled substances; certification, licensure and accreditation of our
facilities; operating policies and procedures; activities regarding competitors; state and local land use and zoning requirements; and
addition or expansion of facilities and services.

Among the laws applicable to our operations are the federal Anti-Kickback Statute, the Stark Law, the federal False Claims Act,

and similar state laws. These laws impact the relationships that we may have with physicians and other potential referral sources. We
have a variety of financial relationships with physicians and other professionals who refer patients to our facilities, including
employment contracts, leases and professional service agreements. The OIG has issued certain safe harbor regulations that outline
practices that are deemed acceptable under the Anti-Kickback Statute, and similar regulatory exceptions have been promulgated by
CMS under the Stark Law. While we endeavor to ensure that our arrangements with referral sources comply with an applicable safe
harbor to the Anti-Kickback Statute where possible, certain of our current arrangements with physicians and other potential referral
sources may not qualify for such protection. Failure to meet a safe harbor does not mean that the arrangement automatically violates
the Anti-Kickback Statute, but may subject the arrangement to greater scrutiny. Moreover, while we believe that our arrangements
with physicians comply with applicable Stark Law exceptions, the Stark Law is a strict liability statute for which no intent to violate
the law is required.

These laws and regulations are extremely complex, and, in many cases, we do not have the benefit of regulatory or judicial
interpretation. In the future, it is possible that different interpretations of these laws and regulations could subject our current or past
practices to allegations of impropriety or illegality or could require us to make changes in our arrangements for facilities, equipment,
personnel, services, capital expenditure programs and operating expenses. A determination that we have violated one or more of these
laws could subject us to liabilities, including civil penalties, exclusion of one or more facilities from participation in the government
healthcare programs and, for violations of certain laws and regulations, criminal penalties. Even the public announcement that we are
being investigated for possible violations of these laws could cause our reputation to suffer and have a material adverse effec
t on our
business, financial condition or results of operations. In addition, we cannot predict whether other similar legislation or regulations at
the federal or state level will be adopted, what form such legislation or regulations may take or what their impact on us may b

The construction and operation of healthcare facilities in the U.S. are subject to extensive federal, state and local regulation

relating to, among other things, the adequacy of medical care, equipment, personnel,
prevention, rate-setting, compliance with building codes and environmental protection. Additionally, such facilities are subject to
periodic inspection by government authorities to assure their continued compliance with these various standards. If we fail to
these standards, we could be subject to monetary penalties or restrictions on our ability to operate.

operating policies and procedures, fire

adhere to

All of our facilities that handle and dispense controlled substances must comply with strict federal and state regulations
regarding the purchase, storage, distribution and disposal of such controlled substances. The potential for theft or diversion of such
controlled substances for illegal uses has led the federal government as well as a number of states and localities to adopt stringent
regulations not applicable to many other types of healthcare providers. Compliance with these regulations is expensive and thes
may increase in the future.

e costs

Property owners and local authorities have attempted, and may in the future attempt, to use or enact zoning ordinances to

eliminate our ability to operate a given treatment facility or program. Local governmental authorities in some cases also have
attempted to use litigation and the threat of prosecution to force the closure of cer
rr
tain comprehensive treatment facilities. I
these attempts were to succeed or if their frequency were to increase, our revenue would be adversely affected and our operating
results might be harmed. In addition, such actions may require us to litigate which would increase our costs.

f any of

Many of our U.S. facilities are also accredited by third-party accreditation agencies such as The Joint Commission or CARF. If
any of our existing healthcare facilities lose their accreditation or any of our new facilities fail to receive accreditation, such facilities
could become ineligible to receive reimbursement under Medicare or Medicaid.

Federal, state and local regulations determine the capacity at which many of our U.S. facilities may be operated. State licensi

standards require many of our U.S. facilities to have minimum staffing levels; minimum amounts of residential space per student or
patient and adhere to other minimum standards. Local regulations require us to follow land use guidelines at many of our U.S.
facilities, including those pertaining to fire safety, sewer capacity and other physical plant matters.

Similarly, providers of behavioral healthcare services in the U.K. are also subject to a highly regulated business environment.

Failure to comply with regulations, lapses in the standards of care, the receipt of poor ratings or lower ratings, the receipt of a negative
report that leads to a determination of regulatory noncompliance, or the failure to cure any defect noted in an inspection report could
lead to substantial penalties, including the loss of registration or closure of one or more facilities as well as damage to reputation.

Our operations in the U.K. are subject to a high level of regulation and supervision, ranging from the initial establishment of

uu
pational
new facilities, which are subject to registration and licensing requirements, to the recruitment and appointment of staff, occu
health and safety, duty of care to service users, clinical and educational standards, conduct of our professional and support s
taff, the
environment, public health and other areas. The regulatory requirements differ across our divisions, though almost all of our activity in
England in relation to mental healthcare, elderly care and learning disability care are regulated by the CQC and in Scotland, Wales and
Northern Ireland, its local equivalent. In addition, our children’s homes, residential schools
OFSTED, and in Scotland and Wales by their local equivalent, and all of our schools must be licensed by the Department for
Education. See “Item 1. Business—Regulation—U.K. Overview” for further details on the key U.K. regulations to which we are
subject.

and colleges in England are regulated by

Inspections by CQC, OFSTED, and other regulators can be carried out on both an announced and unannounced basis depending

on the specific regulatory provisions relating to the different healthcare, social care and specialist education services we provide.

A failure to comply with regulations, the receipt of a poor rating or a lower rating, or the receipt of a negative report that leads to
a determination of regulatory non-compliance or our failure to cure any defect noted in an inspection report could result in reputational
damage, fines, the revocation or suspension of the registration of any facility or service or a decrease in, or cessation of, the services
provided by us at any given facility. Additionally, where placements are funded by Local Authorities, most Local Authorities monitor
performance and where there are shortcomings may impose punitive measures. These can, for example, include the suspension of new
placements (known in the industry as “embargoes”) and, in extreme cases, removal of all residents placed by that authority, which in
turn may affect the level of referrals from other publicly funded entities and our occupancy levels.

Furthermore, new regulations or regulatory bodies may be introduced in the future or existing regulations and regulatory bodies

may be amended or replaced and we may not adapt to such changes quickly enough, or in a cost-efficient manner. For example, the
U.K. government appointed Monitor (now part of NHS Improvement) as the market regulator for healthcare providers in 2012 by way
of a licensing regime. Any failure by us to comply with the licensing regime could result in Monitor revoking our license, which
would mean we would be unable to operate. In addition, such regulatory changes may preclude management from executing its
business plan as intended, including the timing for new developments and openings.

We cannot guarantee that current laws, regulations and regulatory assessment methodologies will not be modified or replaced in
the future. There can be no assurance that our business, results of operations and financial condition will not be adversely affected by
any future regulatory developments or that the cost of comp

liance with new regulations will not be material.

If we fail to cultivate new or maintain established relationships with referral sources, our business, financial condition or results of
operations could be adversely affected.

Our ability to grow or even to maintain our existing level of business depends significantly on our ability to establish and

maintain close working relationships with physicians, managed care companies, insurance companies, educational consultants and
other referral sources. We may not be able to maintain our existing referral source relationships or develop and maintain new
relationships in existing or new markets. If we lose existing relationships with our referral sources, the number of people to whom we
provide services may decline, which may adversely affect our revenue. If we fail to develop new referral relationships, our growth
may be restrained.

We may be required to spend substantial amounts to comply with statutes and regulations relating to privacy and security of PHI.II

There are currently numerous legislative and regulatory initiatives in both the U.S. and the U.K. addressing patient privacy and

information security concerns. In particular, federal regulations issued under HIPAA require our U.S. facilities to comply with
standards to protect the privacy, security and integrity of PHI. These requirements include the adoption of certain administrative,
physical, and technical safeguards; development of adequate policies and procedures, training programs and other initiatives to ensure
the privacy of PHI is maintained; entry into appropriate agreements with so-called business associates; and affording patients certain
rights with respect to their PHI, including notification of any breaches. Compliance with these
expenditures, which could negatively impact our business, financial condition or results of operations. In addition, our management
has spent, and may spend in the future, substantial time and effort on compliance measures.

regulations requires substantial

In addition to HIPAA, we are subject to similar, and in some cases more restrictive, state and federal privacy regulations. For
example, the federal government and some states impose laws governing the use and disclosure of health information pertaining to
mental health and/or substance abuse treatment that are more stringent than the rules that apply to healthcare information generally. As
public attention is drawn to the issues of the privacy and security of medical information, states may revise or expand their laws
concerning the use and disclosure of health information, or may adopt new laws addressing these subjects.

Violations of the privacy and security regulations could subject our operations to substantial civil monetary penalties and

substantial other costs and penalties associated with a breach of data security, incl
d
substantial reputational harm if we experience a substantial security breach involving PHI.

uding criminal penalties. We may also be subject to

We are subject to uncertainties regarding recent health reform and budget legislation.

Recent developments with respect to the implementation of PPACA have created uncertainty for many healthcare providers. For

example, the Tax Act will effectively repeal the individual health insurance mandate imposed under PPACA by eliminating the tax
penalty associated with failure to obtain and maintain coverage. Additionally, President Trump’s administration has taken certain
executive actions that may promote the availability of alternative forms of health insurance outside PPACA’s requirements and
the potential repeal, replacement or
otherwise affect the implementation of PPACA. We cannot predict how these changes to, or
further modification of, PPACA will affect our business, results of operations, cash flow, capital resources and liquidity, or whether
we will be able to adapt successfully thereto.

We are similarly unable to guarantee that current U.K. laws, regulations and regulatory assessment methodologies will not be

modified or replaced in the future. Additionally, there is a risk that budget constraints, public spending cuts (such as the cutsuu
announced by the U.K. government in the 2010 Comprehensive Spending Review and implemented in the 2011 and 2012 government
budgets) or other financial pressures could cause the NHS to reduce funding for the types of services that we provide. Such policy
changes in the U.K. could lead to fewer services being purchased by publicly funded entities or material changes being made to
their
procurement practices, any of which could materially reduce our revenue. These and other future developments and amendments may
negatively impact our operations, which could have a material adverse effect on our business, financial condition or results of
operations. See “—Expanding our operations internationally poses additional risks to our business.”

Finally, the allocation of funding responsibility for adult social care will be subject to change over the next few years under the
provisions of the Care Act 2014 with individuals identified as being required to pay for their own care under the relevant means test
being required to take funding responsibility up to a specified lifetime monetary cap, with Local Authorities then becoming
responsible for the continued funding of personal care, but not ‘daily living’ expenses. This will potentially place greater funding
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responsibility with public sector bodies over the longer term, which will potentially exacerbate the current funding challenges faced by
such bodies.

The industry trend on value-based purchasing may negatively impact our revenue.

There is a trend in the healthcare industry toward value-based purchasing of healthcare services. These value-based purchasing

programs include both public reporting of quality data and preventable adverse events tied to the quality and efficiency of care
provided by facilities. Governmental programs including Medicare and Medicaid currently require hospitals to report certain quality
data to receive full reimbursement updates. In addition, Medicare does not reimburse for care related to certain preventable adverse
events. Many large commercial payors currently require hospitals to report quality data, and several commercial payors do not
reimburse hospitals for certain preventable adverse events.

We expect value-based purchasing programs, including programs that condition reimbursement on patient outcome measures, to

become more common and to involve a higher percentage of reimbursement amounts. We are unable at this time to predict how this
trend will affect our results of operations, but it could negatively impact our revenue if we are unable to meet quality standardsaa
established by both governmental and private payers.

We operate in a highly competitive industry, and competition may lead to declines in patient volumes.

The healthcare industry is highly competitive, and competition among healthcare providers (including hospitals) for patients,

physicians and other healthcare professionals has intensified in recent years. There are other healthcare facilities that provide
behavioral and other mental health services comparable to those offered by our facilities in each of the geographical areas in which we
operate. Some of our competitors are owned by tax-supported governmental agencies or by non-profit corporations and may have
mm
certain financial advantages not available to us, including endowments, charitable contributions, tax-exempt financing and exemptions
from sales, property and income taxes. Some of our for-profit competitors are local, independen
strong established reputations within the surrounding communities, which may adversely affect our ability to attract a sufficiently
large number of patients in markets where we compete with such providers. We also face competition from other for-profit entiti
who may possess greater financial, marketing or research and development resources than us or may invest more funds in renovating
their facilities or developing technology.

t operators or physician groups with

es,

If our competitors are better able to attract patients, recruit and retain physicians and other healthcare professionals, expand
services or obtain favorable managed care contracts at their facilities, we may experience a decline in patient volume and our results of
operations may be adversely affected.

The NHS is the principal provider of secure mental healthcare services in the U.K., with approximately 70% of the total beds in

secure mental healthcare services in the U.K. As the preferred provider, there is often a bias toward referrals to NHS, and therefore
NHS facilities have maintained high occupancy rates. As a result of budget constraints, independent operators have emerged to satisfy
the demand for mental health services not supplied by the NHS. In addition to the NHS, we face competition in the U.K. from
independent sector providers and other publicly funded entities for individuals requiring care and for appropriate sites on which to
develop or expand facilities in the U.K. Should we fail to compete effectively with our peers and competitors in the industry, or if the
competitive environment intensifies, individuals may be referred elsewhere for services that we provide, negatively impacting our
ability to secure referrals and limiting the expansion of our business.

The trend by insurance companies and managed care organizations to enter into
obtain patients.

sole-source contracts may limit our ability to

Insurance companies and managed care organizations in the U.S. are entering into sole-source contracts with healthcare

providers, which could limit our ability to obtain patients since we do not offer the range of services required for these contracts.
Moreover, private insurers, managed care organizations and, to a lesser extent, Medicaid and Medicare, are beginning to carve-out
specific services, including mental health and substance abuse services, and establish small, specialized networks of providers for such
services at fixed reimbursement rates. Continued growth in the use of carve-out arrangements could materially adversely affect our
business to the extent we are not selected to participate in such networks or if the reimbursement rate in such networks is not adequate
to cover the cost of providing the service.

Our performance depends on our ability to recruit and retain quality psychiatrists and other physicians.

The success and competitive advantage of our facilities depends, in part, on the number and quality of the psychiatrists and other
physicians on the medical staffs of our facilities and our maintenance of good relations with those medical professionals. Although we
employ psychiatrists and other physicians at many of our facilities, psychiatrists and other physicians generally are not employees of
our facilities, and, in a number of our markets, they have admitting privileges at competing hospitals providing acute or inpatient
behavioral healthcare services. Such physicians (including psychiatrists) may terminate their affiliation with us at any time or admit
their patients to competing healthcare facilities or hospitals. If we are unable to attract and retain sufficient numbers of quality
psychiatrists and other physicians by providing adequate support personnel and facilities that meet the needs of those psychiatrists and
tt
other physicians, they may stop referring patients to our facilities and our results of operations may decline.

It may become difficult for us to attract and retain an adequate number of psychiatrists and other physicians to practice in certain
of the communities in which our facilities are located. Our failure to recruit psychiatrists and other physicians to these communities or
the loss of such medical professionals in these communities could make it more difficult to attract patients to our facilities and thereby
may have a material adverse effect on our business, financial condition or results of operations. Additionally, our ability to recruit
psychiatrists and other physicians is closely regulated. The form, amount and duration of assistance we can provide to recruited
psychiatrists and other physicians is limited by the Stark Law, the Anti-Kickback Statute, state anti-kickback statutes, and related
regulations.

Some of our employees are represented by labor unions and any work stoppage could adversely affect our business.

Increased labor union activity could adversely affect our labor costs. As of December 31, 2017, labor unions represented
approximately 460 of our employees at five of our U.S. facilities through eight collective bargaining agreements. The Royal College
of Nursing represents nursing employees at our facilities in the U.K. We cannot assure you that employee relations will remain stable.
Furthermore, there is a possibility that work stoppages could occur as a result of union activity, which could increase our labor costs
and adversely affect our business, financial condition or results of operations. To the extent that a greater portion of our employee base
unionizes and the terms of any collective bargaining agreements are significantly different from our current compensation
arrangements, it is possible that our labor costs could increase materially and our business, financial condition or results of operations
f
could be adversely affected.

We depend on key management personnel, and the departure of one or more of our key executives or a significant portion of our
local facility management personnel could harm our business.

The expertise and efforts of our senior executives and the chief executive officer, chief financial officer, medical directors,
physicians and other key members of our facility management personnel are important to the success of our business. The loss of the
f
services of one or more of our senior executives, including our U.K. senior management team, or of a significant portion of our facility
management personnel could significantly undermine our management expertise and our ability to provide efficient, quality healthcare
services at our facilities, which could harm our business.

We could face risks associated with, or arising out of environmental, health and

safety laws and regulations.

We are subject to various federal, foreign, state and local laws and regulations that:

•

regulate certain activities and operations that may have environmental or health and safety effects, such as the generation,
handling and disposal of medical wastes;

impose liability for costs of cleaning up, and damages to natural resources from, past spills, waste disposals on and off-
site, or other releases of hazardous materials or regulated substances; and

regulate workplace safety.

Compliance with these laws and regulations could increase our costs of operation. Violation of these laws may subject us to
significant fines, penalties or disposal costs, which could negatively impact our results of operations, financial condition or cash flows.
We could be responsible for the investigation and remediation of environmental conditions at currently or formerly owned, operatedaa
or leased sites, as well as for associated liabilities, including liabilities for natural resource damages, third-party property damage or
personal injury resulting from lawsuits that could be brought by the government or private litigan
operations of facilities or the land on which our facilities are located. We may be subject to these liabilities regardless of whether we
operate, lease or own the facility, and regardless of whether such environmental conditions were created by us or by a prior owner or
tenant, or by a third party or a neighboring facility whose operations may have affected such facility or land. That is because liability
for contamination under certain environmental laws can be imposed on current or past owners, lessors or operators of a site wit
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hout
regard to fault. We cannot assure you that environmental conditions relating to our prior, existing or future sites or those of
predecessor companies whose liabilities we may have assumed or acquired will not have a material adverse effect on our business,
financial condition or results of operations.

ts, relating to our operations, the

State efforts to regulate the construction or expansion of healthcare facilities in the U.S. could impair our ability to operate and
expand our operations.

A majority of the states in which we operate facilities in the U.S. have enacted certificate of need (“CON”) laws that regulate the

construction or expansion of healthcare facilities, certain capital expenditures or changes in services or bed capacity. In giving
approval for these actions, these states consider the need for additional or expanded healthcare facilities or services. Our failure to
obtain necessary state approval could (i) result in our inability to acquire a targeted facility, complete a desired expansion or make a
desired replacement, (ii) make a facility ineligible to receive reimbursement under the Medicare or Medicaid programs or (iii) result in
the revocation of a facility’s license or imposition of civil or criminal penalties, any of which could harm our business.

In addition, significant CON reforms have been proposed in a number of states that would increase the capital spending
thresholds and provide exemptions of various services from review requirements. In the past, we have not experienced any material
adverse effects from such requirements, but we cannot predict the impact of these changes upon our operations.

ii
We may be unable to extend leases at expiration, which could harm our business, fi
nancial condition or results of operations.
ii

We lease the real property on which a number of our facilities are located. Our lease agreements generally give us the right to
renew or extend the term of the leases and, in certain cases, purchase the real property. These renewal and purchase rights generally
are based upon either prescribed formulas or fair market value. Management expects to renew, extend or exercise purchase options
with respect to our leases in the normal course of business; however, there can be no assurance that these rights will be exercised in
the future or that we will be able to satisfy the conditions precedent to exercising any such renewal, extension or purchase options.
Furthermore, the terms of any such options that are based on fair market value are inherently uncertain and could be unacceptable or
unfavorable to us depending on the circumstances at the time of exercise. If we are not able to renew or extend our existing leases, or
purchase the real property subject to such leases, at or prior to the end of the existing lease terms, or if the terms of such options are
unfavorable or unacceptable to us, our business, financial condition or results of operations could be adversely affected.

Controls designed to reduce inpatient services may reduce our revenue.

Controls imposed by Medicare, Medicaid and commercial third-party payors designed to reduce admissions and lengths of stay,

commonly referred to as “utilization review,” have affected and are expected to continue to affect our facilities. Inpatient utilization,
average lengths of stay and occupancy rates continue to be negatively affected by payor-required preadmission authorization and
utilization review and by payor pressure to maximize outpatient and alternative healthcare delivery services for less acutely ill
patients. Efforts to impose more stringent cost controls are expected to continue. For example, PPACA expanded the potential use of
prepayment review by Medicare contractors by eliminating certain statutory restrictions on its use. Utilization review is also a
requirement of most non-governmental managed-care organizations and other third-party payors. Although we are
unable to predict the effect these controls and changes will have on our operations, significant limits on the scope of services
reimbursed and on reimbursement rates and fees could have a material adverse effect on our financial condition and results of
operations.

Additionally, the outsourcing of behavioral healthcare to the private sector is a relatively recent development in the U.K. There
has been some opposition to outsourcing. While we anticipate that the NHS will continue to rely increasingly upon outsourcing, we
cannot assure you that the outsourcing trend will continue. The absence of future growth in the outs
ourcing of behavioral healthcare
services could have a material adverse impact on our business, financial condition and results of operations.

Although we have facilities in 39 states, the U.K. and Puerto Rico, we have substantial operations in the U.K., Pennsylvania,
California and Arkansas, which makes us especially sensitive to regulatory, economic, environmental and competitive conditions
and changes in those locations.

For the year ended December 31, 2017, our revenue in the U.K. represented approximately 36% of our total revenue. Revenue

from Pennsylvania, California and Arkansas represented approximately 7%, 5% and 5% of our total revenue for the year ended
December 31, 2017, respectively. This concentration makes us particularly sensitive to legislative, regulatory, economic,
environmental and competition changes in those locations. Any material change in the current payment programs or regulatory,
economic, environmental or competitive conditions in these locations could have a disproportionate effect on our overall business
results. If our facilities in these locations are adversely affected by changes in regulatory an
financial condition or results of operations could be adversely affected.

d economic conditions, our business,

In addition, some of our facilities are located in hurricane-prone areas. In 2017 and at other times in the past, hurricanes haveaa
had a disruptive effect on the operations of facilities and the patient populations in hurricane-prone areas. Our business activities could
be significantly disrupted by a particularly active hurricane season or even a single storm, and our property insurance may not bet
adequate to cover losses from such storms or other natural disasters.

We are required to treat patients with emergency medical conditions regardless of ability to pay.

In accordance with our internal policies and procedures, as well as EMTALA, we provide a medical screening examination to
any individual who comes to one of our hospitals seeking medical treatment (whether or not such individual is eligible for insurance
benefits and regardless of ability to pay) to determine if such individual has an emergency medical condition. If it is determined that
such person has an emergency medical condition, we provide such further medical examination and treatment as is required to
stabilize the patient’s medical condition, within the facility’s capability, or arrange for the transfer of the individual to another medical
facility in accordance with applicable law and the treating hospital’s written procedures. Our hospitals may face substantial civil
penalties if we fail to provide appropriate screening and stabilizing treatment or fail to facilitate other appropriate transfers as required
by EMTALA.

An increase in uninsured or underinsured patients or the deterioration in the collectability of the accounts of such patients could
harm our results of operations.

Collection of receivables from third-party payors and patients is critical to our operating performance. Our primary collection
risks relate to uninsured patients and the portion of the bill that is the patient’s responsibility, which primarily includes co-payments
and deductibles. We estimate our provisions for doubtful accounts based on general factors such as payor source, the aging of the
receivables and historical collection experience. At December 31, 2017, our allowance for doubtful accounts represented
approximately 12% of our accounts receivable balance as of such date. We routinely review accounts receivable balances in
conjunction with these factors and other economic conditions that might ultimately affect the collectability of the patient accounts and
make adjustments to our allowances as warranted. Significant changes in business office operations, payor mix, economic conditions
or trends in federal and state governmental health coverage (including the repeal, replacement or modification of PPACA) could affect
our collection of accounts receivable, cash flow and results of operations. If we experience unexpected increases in the growth of
uninsured and underinsured patients or in bad debt expenses, our results of operations will be harmed.

A cyber security incident could cause a violation of HIPAA and other privacy laws and regulations or result in a loss of
confidential data.

A cyber-attack that bypasses our information technology (“IT”) security systems causing an IT security breach, loss of PHI or
other data subject to privacy laws, loss of proprietary business information, or a material disruption of our IT business systems, could
have a material adverse impact on our business, financial condition or results of operations. In addition, our future results of
operations, as well as our reputation, could be adversely impacted by theft, destruction, loss, or misappropriation of PHI, oth
confidential data or proprietary business information.

Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of
2002 (the “Sarbanes-Oxley Act”), could have a material adverse effect on our business.

We are required to maintain internal control over financial reporting under Sec

tion 404 of the Sarbanes-Oxley Act. If we are

unable to maintain adequate internal control over financial reporting, we may be unabl
basis, may suffer adverse regulatory consequences or violations of NASDAQ listing rules and may breach the covenants under our
financing arrangements. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and
the reliability of our financial statements. If we or our independent registered public accounting firm identify any material weakness in
our internal control over financial reporting in the future (including any material weakness in the controls of businesses we have
acquired), their correction could require additional remedial measures which could be costly, time-consuming and could have a
material adverse effect on our business.

e to report our financial information on a timely

We are responsible for an underfunded pension liability related to our acquisition
required to increase funding of the pension plans and/or be subject to restrictions on the use of excess cash.

of Partnerships in Care. In addition, we may be

Partnerships in Care is the sponsor of a defined benefit pension plan (the Partnerships in Care Limited Pension and Life
Assurance Plan) that covers approximately 180 members in the U.K., most of whom are inactive and retired former employees. As of
May 1, 2005, this plan was closed to new participants but then-current participants continue to accrue benefits, and effective May
2015, active participants no longer accrued benefits. As of December 31, 2017, the net deficit recognized under U.S. GAAP in respect
of this plan was £6.5 million.

Future sales of common stock by our existing stockholders may cause our stock price to fall.

The market price of our common stock could decline as a result of sales by our existing stockholders in the market, or the
perception that these sales could occur. These sales might also make it more difficult for us to sell equity securities at a time and price
that we deem appropriate. Certain current and former members of our management and stockholders have demand and piggyback
registration rights with respect to shares of our common stock beneficially owned by them. The presence of additional shares of our
common stock trading in the public market, as a result of the exercise of such registration rights, may have an adverse effect on the
market price of our securities.

If securities or industry analysts do not publish research or reports about our business, if they were to change their
recommendations regarding our stock adversely or if our operating results do not meet their expectations, our stock price and
trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts
publish about us. If one or more of these analysts cease coverage of us or fail to publish regular reports on us, we could lose visibility
in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the
analysts who cover us downgrade our stock or if our operating results do not meet their expectations, our stock price could decline.

We incur substantial costs as a result of being a public company.

As a public company, we incur significant legal, accounting, insurance and other expenses, including costs associated with

public company reporting requirements. We incur costs associated with complying with the requirements of the Sarbanes-Oxley Act,
the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), and related rules implemented by the SEC
tt
and NASDAQ. Enacted in July 2010, the Dodd-Frank Act contains significant corporate governance and executive compensation-
related provisions, some of which the SEC has implemented by adopting additional rules and regulations in areas such as executive
compensation. The expenses incurred by public companies generally for reporting and corporate governance purposes have been
increasing. Management expects these laws and regulations to increase our legal and financial compliance costs and to make some
activities more time-consuming and costly, although management is currently unable to
estimate these costs with any degree of
certainty. These laws and regulations could make it more difficult or costly for us to obtain certain types of insurance, including
director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially
tt
higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and
we are
retain qualified persons to serve on our board of directors, our board committees or as our executive officers. Furthermore, if
f
unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other
aa
regulatory action and potentially civil litigation.

Provisions of our charter documents or Delaware law could delay or prevent an acquisition of us, even if the acquisition would be
beneficial to our stockholders, and could make it more difficult for stockholders to change management.

Provisions of our amended and restated certificate of incorporation and amended and restated bylaws may discourage, delay or

prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which
stockholders might otherwise receive a premium for their shares. This is because these provisions may prevent or frustrate attempts by
stockholders to replace or remove our management. These provisions include:

•

a classified board of directors;

a prohibition on stockholder action through written consent;

a requirement that special meetings of stockholders be called only upon a reso
directors then in office;

lution approved by a majority of our

advance notice requirements for stockholder proposals and nominations; and

the authority of the board of directors to issue preferred stock with such terms as the board of directors may determine.

Section 203 of the Delaware General Corporation Law (“DGCL”) prohibits a publicly-held Delaware corporation from
engaging in a business combination with an interested stockholder, generally a person that together with its affiliates owns or within
r
the last three years has owned 15% of voting stock, for a period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in a prescribed manner. Although we have elected not
to be subject to Section 203 of the DGCL, our amended and restated certificate of incorporation contains provisions that have the same
effect as Section 203, except that they provide that Waud Capital Partners, L.L.C. (“WCP”), its affiliates and any investment fund
managed by WCP and any persons to whom WCP sells at least five percent (5%) of our outstanding voting stock will be deemed to
have been approved by our board of directors, and thereby not subject to the restrictions set fo
u
certificate of incorporation that have the same effect as Section 203 of the DGCL. Accordingly, the provision in our amended and
restated certificate of incorporation that adopts a modified version of Section 203 of the DGCL may discourage, delay or prevent a
change in control of us.

rth in our amended and restated

As a result of these provisions in our charter documents and Delaware law, the price investors may be willing to pay in the

future for shares of our common stock may be limited.

We do not anticipate paying any cash dividends in the foreseeable future.

We intend to retain our future earnings, if any, for use in our business or for other corporate

purposes and do not anticipate that

cash dividends with respect to common stock will be paid in the foreseeable future. Any decision as to the future payment of
dividends will depend on our results of operations, financial position and such other factors as our board of directors, in its discretion,
deems relevant. In addition, the terms of our debt substantially limit our ability to pay dividends. As a result, capital appreciation, if
any, of our common stock will be a stockholder’s sole source of gain for the foreseeable future.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

The following table lists, by state or country, the number of behavioral healthcare facilities directly or indirectly owned and

operated by us as of December 31, 2017:

State

Facilities

Operated Beds

Alaska ..................................................................................................
Arizona .................................................................................................
Arkansas ...............................................................................................
California .............................................................................................
Delaware ..............................................................................................
Florida ..................................................................................................
Georgia .................................................................................................
Illinois ..................................................................................................
Indiana ..................................................................................................
Iowa ......................................................................................................
Kansas ..................................................................................................
Louisiana ..............................................................................................
Maine ...................................................................................................
Maryland ..............................................................................................
Massachusetts .......................................................................................
Michigan ..............................................................................................
Mississippi ...........................................................................................
Missouri ...............................................................................................
Montana ...............................................................................................
Nevada .................................................................................................
New Hampshire ....................................................................................
New Jersey ...........................................................................................
New Mexico .........................................................................................
North Carolina ......................................................................................
Ohio ......................................................................................................
Oklahoma .............................................................................................
Oregon ..................................................................................................
Pennsylvania ........................................................................................
Rhode Island ........................................................................................
South Carolina ......................................................................................
South Dakota ........................................................................................
Tennessee .............................................................................................
Texas ....................................................................................................
Utah ......................................................................................................
Vermont ...............................................................................................
Virginia ................................................................................................
Washington ..........................................................................................
West Virginia .......................................................................................
Wisconsin .............................................................................................

1
3
7
22
2
6
5
1
8
1
1
6
4
3
13
6
3
2
1
4
2
1
2
11
2
1
6
31
2
1
1
6
4
6
1
6
6
7
13

International

Puerto Rico ...........................................................................................
United Kingdom...................................................................................

1
373

—
425
713
462
93
482
332
164
303
—
—
372
—
—
120
343
412
313
108
144
—
—
207
477
146
108
—
1,413
—
42
126
533
397
147
—
215
135
—
35

172
8,865

See “Business— U.S. Operations” and “Business— U.K. Operations— Description of U.K. Facilities” for a summary

description of our U.S. and U.K. facilities that we own and lease. We currently lease approximately 61,000 square feet of office space
at 6100 Tower Circle, Franklin, Tennessee, for our corporate headquarters. Our headquarters and facilities are generally well
maintained and in good operating condition.

582

17,804

Item 3. Legal Proceedings.

We are, from time to time, subject to various claims and legal actions that arise in the ordinary course of our business, inclu

ding

claims for damages for personal injuries, medical malpractice, breach of contract, tort and employment related claims. In these
actions, plaintiffs request a variety of damages, including, in some instances, punitive and other types of damages that may not be
covered by insurance. In addition, healthcare companies are subject to numerous investigations by various governmental agencies.
Under the federal False Claims Act, private parties have the right to bring qui tam, or “whistleblower,” suits against companies that
submit false claims for payments to, or improperly retain overpayments from, the government. Some states have adopted similar state
whistleblower and false claims provisions. Certain of our individual facilities have received, and from time to time, other facilities
may receive, government inquiries from, and may be subject to investigation by, federal and state agencies. In the opinion of
management, we are not currently a party to any proceeding that would have a material adverse effect on our business, financial
condition or results of operations.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Price Range of Common Stock

Our common stock is listed for trading on The NASDAQ Global Select Market under the symbol “ACHC.” The following table
sets forth the high and low sales prices per share of our common stock as reported on The NASDAQ Global Select Market for the two
most recent fiscal years:

High

Low

Year ended December 31, 2016:
First Quarter ........................................................................... $
Second Quarter ....................................................................... $
Third Quarter .......................................................................... $
Fourth Quarter ........................................................................ $
Year ended December 31, 2017:
First Quarter ........................................................................... $
Second Quarter ....................................................................... $
Third Quarter .......................................................................... $
Fourth Quarter ........................................................................ $

65.89
65.00
57.29
50.18

47.39
49.99
54.34
48.35

$
$
$
$

49.77
50.30
46.99
32.54

32.69
40.37
44.26
26.92

Stockholders

As of February 27, 2018, there were approximately 495 holders of record of our common stock.

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

During the three months ended December 31, 2017, the Company withheld shares of Company common stock to satisfy

employee minimum statutory tax withholding obligations payable upon the vesting of restricted stock, as follows:

Period

October 1 – October 31 ..........................
November 1 – November 30 ..................
December 1 – December 31 ...................

Total .......................................................

Total Number
of Shares
Purchased

Average Price
Paid per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

Maximum Number of
Shares that May
Yet Be Purchased
Under the Plans
or Programs

590 $
4,670 $
893

6,153

33.25
29.42
31.83

—
—
—

Dividends

We have never declared or paid dividends on our common stock. We currently intend to retain all available funds and any future
earnings to fund the development and growth of our business and to repay indebtedness, and therefore we do not anticipate paying any
cash dividends in the foreseeable future. Additionally, because we are a holding company, our ability to pay dividends on our common
stock is limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions to us, including restrictions
under the terms of the agreements governing our indebtedness. Any future determination to pay dividends will be at the discretion of
our board of directors, subject to compliance with covenants in current and future agreements go
verning our indebtedness (including
our Amended and Restated Senior Credit Facility and the indenture governing our Senior Notes), and will depend upon our results of
operations, financial condition, capital requirements and other factors that our board of directors deems relevant.

Item 6. Selected Financial Data.

The selected financial data presented below for the years ended December 31, 2017, 2016 and 2015, and as of December 31,

2017 and 2016, is derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
The selected financial data for the years ended December 31, 2014 and 2013, and as of December 31, 2015, 2014 and 2013, is derived
from our audited consolidated financial statements not included herein. The selected consolidated financial data below should be read
in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with our
consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. The selected financial
data presented below does not give effect to our acquisitions prior to the respective date of such acquisitions.

Year Ended December 31,

2017

2016

2015

2014

2013

(In thousands, except per share data)

Income Statement Data:
Revenue before provision for doubtful accounts ........ $ 2,877,234 $ 2,852,823 $ 1,829,619 $ 1,030,784 $
Provision for doubtful accounts ..................................

(35,127)

(26,183)

(40,918)

(41,909)

Revenue ......................................................................
Salaries, wages and benefits(1) .....................................
Professional fees .........................................................
Supplies .......................................................................
Rents and leases ..........................................................
Other operating expenses ............................................
Depreciation and amortization ....................................
Interest expense, net ....................................................
Debt extinguishment costs ..........................................
Loss on divestiture ......................................................
(Gain) loss on foreign currency derivatives ................
Transaction-related expenses ......................................

Income from continuing operations, before income

taxes .......................................................................
Provision for income taxes ..........................................

Income from continuing operations ............................
Income (loss) from discontinued operations, net of

income taxes ...........................................................
Net income ..................................................................
Net loss attributable to noncontrolling interests ..........

Net income attributable to Acadia Healthcare

2,836,316
1,536,160
196,223
114,439
76,775
331,827
143,010
176,007
810
—
—
24,267

236,798
37,209

199,589

—

199,589
246

2,810,914
1,541,854
185,486
117,425
73,348
312,556
135,103
181,325
4,253
178,809
(523)
48,323

32,955
28,779

4,176

—

4,176
1,967

1,794,492
973,732
116,463
80,663
32,528
206,746
63,550
106,742
10,818
—
1,926
36,571

164,753
53,388

111,365

111

111,476
1,078

1,004,601
575,412
52,482
48,422
12,201
110,654
32,667
48,221
—
—
(15,262)
13,650

126,154
42,922

83,232

(192)

83,040
—

735,109
(21,701)

713,408
407,962
37,171
37,569
10,049
80,572
17,090
37,250
9,350
—
—
7,150

69,245
25,975

43,270

(691)

42,579
—

Company, Inc. ........................................................ $

199,835 $

6,143 $

112,554 $

83,040 $

42,579

Income from continuing operations per share basic .... $
Income from continuing operations per share

diluted .................................................................... $

Balance Sheet Data (as of end of period):
Cash and cash equivalents .......................................... $
Total assets ..................................................................
Total debt ....................................................................
Total equity .................................................................

2.30 $

0.07 $

1.65 $

1.51 $

2.30 $

0.07 $

1.64 $

1.50 $

0.87

0.86

67,290 $

57,063 $

11,215 $

94,040 $

6,424,502
3,239,888
2,572,871

6,024,726
3,287,809
2,167,724

4,279,208
2,240,744
1,683,028

2,206,955
1,079,635
880,965

4,569
1,213,623
606,100
480,710

(1) Salaries, wages and benefits for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 include $23.5 million,
$28.3 million, $20.5 million, $10.1 million and $5.2 million, respectively, of equity-based compensation expense.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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.

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
aa
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, obje
ctives,
rr
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:

•

our significant indebtedness, our ability to meet our debt obligations, and our ability to incur substantially more debt;

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 implement our business strategies in the U.S. and the U.K. and adapt to the regulatory and business
environment in the U.K.;

potential difficulties operating our business in light of political and economic instability in the U.K. and globally
following the referendum in the U.K. on June 23, 2016, in which voters approved an exit from the European Union, or
Brexit;

the impact of fluctuations in foreign exchange rates, including the devaluations of the GBP relative to the USD following
the Brexit vote;

the impact of payments received from the government and third-party payors on our revenue and results of operations
including the significant dependence of our U.K. facilities on payments received from the NHS;

our ability to recruit and retain quality psychiatrists and other physicians;

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 in the U.S. and the U.K. on our business and future results of
operations;

compliance with laws and government regulations;

the impact of claims brought against us or our facilities;

the impact of governmental investigations, regulatory actions and whistleblower lawsuits;

the impact of healthcare reform in the U.S. and abroad, including the potential repeal, replacement or modification of
PPACA;

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 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;

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 U.S. and U.K. earnings, adverse changes in our effective tax rate and adverse
rr
developments in tax laws generally;

changes in interpretations, assumptions and expectations regarding the Tax Act, including 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 care organizations 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 SEC.

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 undertakea
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 increase
d demand for behavioral healthcare
aa
services through expansion of our current locations as well as developing new services within existing locations. At December 31,
2017, we operated 582 behavioral healthcare facilities with approximately 17,800 beds in 39 states, the U.K. and Puerto Rico. During
the year ended December 31, 2017, we acquired one facility and added 750 new beds (exclusive of the acquisition), including 588
added to existing facilities and 162 added through the opening of two de novo facilities. For the year ending December 31, 2018, we
expect to add more than 800 total beds exclusive of acquisitions.

We are the leading publicly traded pure-play provider of behavioral healthcare serv
tt
Management believes that we are positioned as a leading platform in a highly fragmented indust
ry under the direction of an
experienced management team that has significant industry expertise. Management expect
s to take advantage of several strategies that
ff
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 the U.S. and U.K.

ices, with operations in the U.S. and the U.K.

Acquisitions

2017 Acquisition

On November 13, 2017, we completed the acquisition of Aspire, an education facility with 36 beds located in Scotland, for cash

consideration of approximately $21.3 million.

2016 U.S. Acquisitions

On June 1, 2016, we completed the acquisition of Pocono Mountain, an inpatient psychiatric facility with 108 beds located in

Henryville, Pennsylvania, for cash consideration of approximately $25.4 million.

On May 1, 2016, we completed the acquisition of TrustPoint, an inpatient psychiatric facility with 100 beds located in

Murfreesboro, Tennessee, for cash consideration of approximately $62.7 million.

On April 1, 2016, we completed the acquisition of Serenity Knolls, an inpatient psychiatric facility with 30 beds located in

Forest Knolls, California, for cash consideration of approximately $10.0 million.

Priory

On February 16, 2016, we completed the acquisition of Priory for a total purchase price of approximately $2.2 billion, including
cash consideration of approximately $1.9 billion and the issuance of 4,033,561 shares of our common stock to shareholders of Priory.
Priory was the leading independent provider of be
havioral healthcare services in the U.K. operating 324 facilities with approximately
t
7,100 beds at the acquisition date.

The CMA in the U.K. reviewed our acquisition of Priory. On July 14, 2016, the CMA announced that our acquisition of Priory

was referred for a phase 2 investigation unless we offered acceptable undertakings to address the CMA’s competition concerns
relating to the provision of behavioral healthcare services in certain markets. On July 28, 2016, the CMA announced that we had
offered undertakings to address the CMA’s concerns and that, in lieu of a phase 2 investigation, the CMA would consider our
undertakings.

On October 18, 2016, we signed a definitive agreement with BC Partners for the sale of 21 existing U.K. behavioral health
facilities and one de novo behavioral health facility with an aggregate of approximately 1,000 beds. On November 10, 2016, the CMA
accepted our undertakings to sell the U.K. Disposal Group to BC Partners and confirmed that the divestiture satisfied the CMA’s
concerns about the impact of our acquisition of Priory on competition for the provision of behavioral healthcare services in certain
markets in the U.K. As a result of the CMA’s acceptance of our undertakings, our acquisition of Priory was not referred for a phase 2
investigation. On November 30, 2016, we completed the sale of the U.K. Disposal Group to BC Partners for £320 million cash.

Revenue

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) public funded sources in the U.K. (including the NHS, CCGs and
Local Authorities in England, Scotland and Wales); and (v) individual patients and clients. Revenue is recorded in the period in which
services are provided at established billing rates less contractual adjustments based on amounts reimbursable by Medicare or Medicaid
under provisions of cost or prospective reimbursement formulas or amounts due from other third-party payors at contractually
determined rates.

Results of Operations

The following table illustrates our consolidated results of operations from continuing operations for the respective periods

shown (dollars in thousands):

Revenue before provision for doubtful accounts ... $ 2,877,234
Provision for doubtful accounts .............................
(40,918)

2017

Amount

Year Ended December 31,

2016

Amount
$ 2,852,823
(41,909)

2015

Amount
$ 1,829,619
(35,127)

Revenue .................................................................
Salaries, wages and benefits ..................................
Professional fees ....................................................
Supplies ..................................................................
Rents and leases .....................................................
Other operating expenses .......................................
Depreciation and amortization ...............................
Interest expense, net ...............................................
Debt extinguishment costs .....................................
Loss on divestiture .................................................
(Gain) loss on foreign currency derivatives ...........
Transaction related expenses .................................

2,836,316
1,536,160
196,223
114,439
76,775
331,827
143,010
176,007
810
—
—
24,267

100.0%
54.2%
6.9%
4.0%
2.7%
11.7%
5.0%
6.2%
0.0%
— %
— %
0.9%

2,810,914
1,541,854
185,486
117,425
73,348
312,556
135,103
181,325
4,253
178,809
(523)
48,323

100.0%
54.9%
6.6%
4.2%
2.6%
11.1%
4.8%
6.4%
0.1%
6.4%
— %
1.7%

1,794,492
973,732
116,463
80,663
32,528
206,746
63,550
106,742
10,818
—
1,926
36,571

100.0%
54.3%
6.5%
4.5%
1.8%
11.5%
3.5%
6.0%
0.6%
— %
0.1%
2.0%

2,599,518

91.6%

2,777,959

98.8%

1,629,739

90.8%

Income from continuing operations, before

income taxes ......................................................
Provision for income taxes .....................................

236,798
37,209

8.4%
1.3%

Income from continuing operations ....................... $

199,589

7.1% $

32,955
28,779

4,176

1.2%
1.0%

164,753
53,388

0.2% $

111,365

9.2%
3.0%

6.2%

Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016

Revenue before provision for doubtful accounts. Revenue before provision for doubtful accounts increased $24.4 million, or
0.9%, to $2.9 billion for the year ended December 31, 2017 from $2.9 billion for the year ended December 31, 2016. The increase
related primarily to revenue generated during the year ended December 31, 2017 from the facilities acquired in our 2016 Acquisitions,
particularly the acquisition of Priory, offset by the reduction in revenue before provision for doubtful accounts related to the U.K.
Divestiture of $154.7 million and the decline in the exchange rate between USD and GBP of $45.5 million. Same-facility revenue
t
before provision for doubtful accounts increased by $138.2 million, or 5.5%, for the year ended December 31, 2017 compared to the
year ended December 31, 2016, resulting from same-facility growth in patient days of 3.6% and an increase in same-facility revenue
per day of 1.9%. Consistent with the same-facility patient day growth in 2016, the grow
ff
ended December 31, 2017 compared to the year ended December 31, 2016 resulted from the addition of beds to our existing facilities
and ongoing demand for our services.

th in same-facility patient days for the year

Provision for doubtful accounts. The provision for doubtful accounts was $40.9 million for the year ended December 31, 2017,
or 1.4% of revenue before provision for doubtful accounts, compared to $41.9 million for the year ended December 31, 2016, or 1.5%
of revenue before provision for doubtful accounts.

Salaries, wages and benefits. Salaries, wages and benefits (“SWB”) expense was $1.5 billion for the year ended December 31,

2017 compared to $1.5 billion for the year ended December 31, 2016, a decrease of $5.7 million. SWB expense included
$23.5 million and $28.3 million of equity-based compensation expense for the years ended December 31, 2017 and 2016, respectively.
Excluding equity-based compensation expense, SWB expense was $1.5 billion, or 53.3% of revenue, for the year ended December 31,
2017, compared to $1.5 billion, or 53.8% of revenue, for the year ended December 31, 2016. The slight decrease in SWB expense,
excluding equity-based compensation expense, was primarily attributable to the reduction in expense related to the U.K. Divestiture
and the decline in the exchange rate between USD and GBP offset by SWB expense incurred by the facilities acquired in our 2016
Acquisitions, particularly the acquisition of Priory. Same-facility SWB expense was $1.3 billion for the year ended December 31,
2017, or 50.9% of revenue compared to $1.3 billion for the year ended December 31, 2016, or 51.0% of revenue.

Professional fees. Professional fees were $196.2 million for the year ended December 31, 2017, or 6.9% of revenue, compared

to $185.5 million for the year ended December 31, 2016, or 6.6% of revenue. The $10.7 million increase was primarily attributable
professional fees incurred by the facilities acquired in our 2016 Acquisitions, particularly the acquisition of Priory, and higher contract
labor costs in our U.K. Facilities offset by the reduction in expense related to the U.K. Divestiture and the decline in the exchange rate
between USD and GBP. Same-facility professional fees were $160.1 million for the year ended December 31, 2017, or 6.2% of
r
revenue, compared to $145.0 million, for the year ended December 31, 2016, or 5.9% of revenue.

Supplies. Supplies expense was $114.4 million for the year ended December 31, 2017, or 4.0% of revenue, compared to
$117.4 million for the year ended December 31, 2016, or 4.2% of revenue. The $3.0 million decrease was primarily attributable to the
reduction in expense related to the U.K. Divestiture and the decline in the exchange rate between USD and GBP offset by supplies
expense incurred by the facilities acquired in our 2016 Acquisitions, particularly the acquisition of Priory. Same-facility supplies
expense was $103.5 million for the year ended December 31, 2017, or 4.0% of revenue, compared to $100.2 million for the year
ended December 31, 2016, or 4.1% of revenue.

Rents and leases. Rents and leases were $76.8 million for the year ended December 31, 2017, or 2.7% of revenue, compared to

$73.3 million for the year ended December 31, 2016, or 2.6% of revenue. The $3.4 million increase was primarily attributable to rents
and leases incurred by the facilities acquired in our 2016 Acquisitions, particularly the acquisition of Priory slightly offset by the
reduction in expense related to the U.K. Divestiture and the decline in the exchange rate between USD and GBP. Same-facility rents
and leases were $58.0 million for the year ended December 31, 2017, or 2.2% of revenue, compared to $57.5 million for the year
ended December 31, 2016, or 2.3% 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 $331.8 million for the year ended December 31, 2017, or 11.7% of
revenue, compared to $312.6 million for the year ended December 31, 2016, or 11.1% of revenue. The $19.2 million increase was
primarily attributable to other operating expenses incurred by the facilities acquired in our 2016 Acquisitions, particularly the
acquisition of Priory slightly offset by the reduction in expense related to the U.K. Divestiture and the decline in the exchange rate
between USD and GBP. Same-facility other operating expenses were $297.8 million for the year ended December 31, 2017, or 11.4%
of revenue, compared to $273.3 million for the year ended December 31, 2016, or 11.1% of revenue.

Depreciation and amortization. Depreciation and amortization expense was $143.0 million for the year ended December 31,
2017, or 5.0% of revenue, compared to $135.1 million for the year ended December 31, 2016, or 4.8% of revenue. The increase in
depreciation and amortization was attributable to depreciation associated with capital expenditures during 2016 and 2017 and real
estate acquired as part of the 2016 Acquisitions, particularly the acquisition of Priory, offset by reduction in expense related to the
U.K. Divestiture and the decline in the exchange rate between USD and GBP.

Interest expense. Interest expense was $176.0 million for the year ended December 31, 2016 compared to $181.3 million for the

year ended December 31, 2016. The decrease in interest expense was primarily a result of the lower interest rates in connection with
amendments to the Amended and Restated Senior Credit Facility and the debt paydown on November 30, 2016 using proceeds from
the U.K. Divestiture. Interest expense was also impacted by higher interest rates applicable to our variable rate debt, borrowings under
the Amended and Restated Senior Credit Facility and the issuance of the 6.500% Senior Notes on February 16, 2016.

Debt extinguishment costs. Debt extinguishment costs for the year ended December 30, 2017 represent $0.5 million of charges

and $0.3 of non-cash charges recorded in connection with the Third Repricing Amendment to the Amended and Restated Senior
Credit Facility. Debt extinguishment costs for the year ended December 31, 2016 represent $1.1 million of cash charges and
$3.2 million of non-cash charges recorded in connection with the Tranche B-2 Re
d
Amendment.

pricing Amendment and the Refinancing

Loss on divestiture. As part of our divestitures in the U.K. and U.S., we recorded $178.8 million of loss on divestiture for the

year ended December 31, 2016, which included an allocation of goodwill to the disposal groups of approximately $106.9 million, loss
on the sale of properties of approximately $45.0 million, transaction-related expenses of approximately $26.8 million and write-off of
intangible assets of approximately $0.1 million.

Gain on foreign currency derivatives. We entered into foreign currency forward contracts during the year ended December 31,

2016 in connection with (i) acquisitions in the U.K. and (ii) certain transfers of cash between the U.S. and the U.K. under our cash
management and foreign currency risk management programs. Exchange rate changes between the contract date and the settlement
date resulted in a gain on foreign currency derivatives of $0.5 million for the year ended December 31, 2016.

Transaction-related expenses. Transaction-related expenses were $24.3 million for the year ended December 31, 2017

compared to $48.3 million for the year ended December 31, 2016. Transaction-related expenses represent costs incurred in the
respective periods, primarily related to the 2016 Acquisitions, the U.K. Divestiture and the related integration efforts, as summarized
below (in thousands):

Severance and contract termination costs............................ $
Legal, accounting and other fees .........................................
Advisory and financing commitment fees ...........................

Year Ended December 31,

2017
14,709
9,558
—

2016
12,415
21,058
14,850

24,267

48,323

Provision for income taxes. For the year ended December 31, 2017, the provision for income taxes was $37.2 million, reflecting

an effective tax rate of 15.7%, compared to $28.8 million, reflecting an effective tax rate of 87.3%, for 2016. The decrease in the
effective tax rate for the year ended December 31, 2017 was primarily attributable to the Company’s estimate of the one-time tax
benefit on revaluation of deferred tax items pursuant to the enactment of the Tax Act as well as changes in the foreign exchange rate
between USD and GBP in 2017 and the disparity between the accounting treatment and the tax treatment of the U.K. Divestiture on
November 30, 2016. The Company will continue to analyze the effects of the Tax Act on its financial statements and operations.
Additional impacts from the enactment of the Tax Act will be recorded as they are identified during the measurement period as
provided for in Staff Accounting Bulletin 118 (“SAB 118”).

Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015

Revenue before provision for doubtful accounts. Revenue before provision for doubtful accounts increased $1.0 billion, or

55.9%, to $2.9 billion for the year ended December 31, 2016 from $1.8 billion for the year ended December 31, 2015. The increase
related primarily to revenue generated during the year ended December 31, 2016 from the facilities acquired in our 2015 and 2016
Acquisitions, particularly the acquisition of Priory. The decrease in the GBP to USD exchange rate had an unfavorable impact on
revenue before provision for doubtful accounts of $35.6 million for the year ended December 31, 2016. Same-facility revenue beforeff
provision for doubtful accounts increased by $127.2 million, or 7.5%, for the year ended December 31, 2016 compared to the year
ended December 31, 2015, primarily resulting from same-facility growth in patient days of 7.2%. Consistent with the same-facility
patient day growth in 2015, the growth in same-facility patient days for the year ended December 31, 2016 compared to the year
ended December 31, 2015 resulted from the addition of beds to our existing facilities and ongoing demand for our services.

Provision for doubtful accounts. The provision for doubtful accounts was $41.9 million for the year ended December 31, 2016,

or 1.5 % of revenue before provision for doubtful accounts, compared to $35.1 million for the year ended December 31, 2015, or 1.9%
of revenue before provision for doubtful accounts. The same-facility provision for doubtful accounts was $35.3 million for the year
ended December 31, 2016, or 1.9% of revenue before provision for doubtful accounts, compared to $31.5 million for the year ended
December 31, 2015, or 1.9% of revenue before provision for doubtful accounts.

Salaries, wages and benefits. Salaries, wages and benefits expense was $1.5 billion for the year ended December 31, 2016

compared to $973.7 million for the year ended December 31, 2015, an increase of $568.1 million. SWB expense included
$28.3 million and $20.5 million of equity-based compensation expense for the years ended December 31, 2016 and 2015, respectively.
Excluding equity-based compensation expense, SWB expense was $1.5 billion, or 53.8% of revenue, for the year ended December 31,
2016, compared to $953.3 million, or 53.1% of revenue, for the year ended December 31, 2015. The $560.3 million increase in SWB
expense, excluding equity-based compensation expense, was primarily attributab
le to SWB expense incurred by the facilities acquired
in our 2015 and 2016 Acquisitions, particularly the acquisition of Priory. Same-facility SWB expense was $895.0 million for the year
ended December 31, 2016, or 50.2% of revenue, compared to $830.8 million for the year ended December 31, 2015, or 50.0% of
revenue.

Professional fees. Professional fees were $185.5 million for the year ended December 31, 2016, or 6.6 % of revenue, compared
to $116.5 million for the year ended December 31, 2015, or 6.5% of revenue. The $69.0 million increase was primarily attributable to
professional fees incurred by the facilities acquired in our 2015 and 2016 Acquisitions, particularly the acquisition of Priory. Same-
facility professional fees were $92.8 million for the year ended December 31, 2016, or 5.2% of revenue, compared to $95.0 million,
for the year ended December 31, 2015, or 5.7% of revenue.

Supplies. Supplies expense was $117.4 million for the year ended December 31, 2016, or 4.2% of revenue, compared to

$80.7 million for the year ended December 31, 2015, or 4.5% of revenue. The $36.7 million increase was primarily attributable to
supplies expense incurred by the facilities acquired in our 2015 and 2016 Acquisitions, particularly the acquisition of Priory. Same-
facility supplies expense was $79.5 million for the year ended December 31, 2016, or 4.5% of revenue, compared to $74.2 million for
the year ended December 31, 2015, or 4.5% of revenue.

Rents and leases. Rents and leases were $73.3 million for the year ended December 31, 2016, or 2.6% of revenue, compared to

$32.5 million for the year ended December 31, 2015, or 1.8% of revenue. The $40.8 million increase was primarily attributable to
rents and leases incurred by the facilities acquired in our 2015 and 2016 Acquisitions, particularly the acquisition of Priory. Same-
facility rents and leases were $31.5 million for the year ended December 31, 2016, or 1.8% of revenue, compared to $29.6 million for
the year ended December 31, 2015, or 1.8% 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 $312.6 million for the year ended December 31, 2016, or 11.1% of
revenue, compared to $206.7 million for the year ended December 31, 2015, or 11.5% of revenue. The $105.9 million increase was
primarily attributable to other operating expenses incurred by the facilities acquired in our 2015 and 2016 Acquisitions, particularly
the acquisition of Priory. Same-facility other operating expenses were $202.6 million for the year ended December 31, 2016, or 11.4%
of revenue, compared to $188.4 million for the year ended December 31, 2015, or 11.3% of revenue.

Depreciation and amortization. Depreciation and amortization expense was $135.1 million for the year ended December 31,

2016, or 4.8% of revenue, compared to $63.6 million for the year ended December 31, 2015, or 3.5% of revenue. The increase in
r
depreciation and amortization was attributable to depreciation associated with capital expenditures during 2015 and 2016 and real
estate acquired as part of the 2015 and 2016 Acquisitions, particularly the acquisition of Priory.

Interest expense. Interest expense was $181.3 million for the year ended December 31, 2016 compared to $106.7 million for the

year ended December 31, 2015. The increase in interest expense was primarily a result of borrowings under the Amended and
Restated Senior Credit Facility, the issuance of the 5.625% Senior Notes on February 11
issuance of the 6.500% Senior Notes on February 16, 2016.

, 2015 and September 21, 2015 and the

Debt extinguishment costs. Debt extinguishment costs for the year ended December 31, 2016 represent $1.1 million of cash

charges and $3.2 million of non-cash charges recorded in connection with the Tranche B-2 Repricing Amendment and the
Refinancing Amendment. Debt extinguishment costs for the year ended December 31, 2015 represent $7.5 million of cash charges and
$3.3 million of non-cash charges recorded in connection with the repayment of $97.5 million of 12.875% Senior Notes.

Loss on divestiture. As part of our divestitures in the U.K. and U.S., we recorded $178.8 million of loss on divestiture for the

(Gain) loss on foreign currency derivatives. We entered into foreign currency forward contracts during the years ended
December 31, 2016 and 2015 in connection with (i) acquisitions in the U.K. and (ii) certain transfers of cash between the U.S. and the
U.K. under our cash management and foreign currency risk management programs. Exchange rate changes between the contract date
and the settlement date resulted in a gain on foreign currency derivatives of $0.5 million for the year ended December 31, 2016,
compared to a loss of $1.9 million for the year ended December 31, 2015.

Transaction-related expenses. Transaction-related expenses were $48.3 million for the year ended December 31, 2016

compared to $36.6 million for the year ended December 31, 2015. Transaction-related expenses represent costs incurred in the
respective periods, primarily related to the 2015 and 2016 Acquisitions, as summarized below (in thousands):

Legal, accounting and other fees ......................................... $
Advisory and financing commitment fees ...........................
Severance and contract termination costs............................

Year Ended December 31,

2016
21,058
14,850
12,415

2015
17,768
10,337
8,466

48,323

36,571

Provision for income taxes. For the year ended December 31, 2016, the provision for income taxes was $28.8 million, reflecting

an effective tax rate of 87.3%, compared to $53.4 million, reflecting an effective tax rate of 32.4%, for 2015. The change in the tax
rate for the year ended December 31, 2016 is primarily attributable to the disparity between the accounting treatment and the tax
treatment of the U.K. Divestiture on November 30, 2016.

Liquidity and Capital Resources

Cash provided by continuing operating activities for the year ended December 31, 2017 was $401.3 million compared to
$371.7 million for the year ended December 31, 2016. The increase in cash provided by continuing operating activities was primarilyaa
attributable to cash provided by continuing operating activities from our 2016 Acquisitions offset by the U.K. Divestiture and the
decline in the exchange rate between USD and GBP. Days sales outstanding as of December 31, 2017 was 38 compared to 34 as of
December 31, 2016. As of December 31, 2017 and December 31, 2016, we had working capital of $94.2 million and $85.1 million,
respectively.

Cash used in investing activities for the year ended December 31, 2017 was $336.5 million compared to $660.4 million for the

year ended December 31, 2016. Cash used in investing activities for the year ended December 31, 2017 primarily consisted of
$274.2 million of cash paid for capital expenditures and $41.1 million of cash paid for real estate. Cash paid for capital expenditures
for the year ended December 31, 2017 consisted of $70.8 million of routine capital expenditures and $203.4 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 2.5% of revenue for the year ended December 31,
2017. Cash used in investing activities for the year ended December 31, 2016 primarily consisted of $683.5 million of cash paid for
d
acquisitions, $307.5 million of cash paid for capital expenditures and $40.8 million of cash paid for real estate acquisitions
partially
offset by cash received on divestitures of $373.3 million.

Cash used in financing activities for the year ended December 31, 2017 was $60.1 million compared to cash provided by

financing activities of $358.8 million for the year ended December 31, 2016. Cash used in financing activities for the year ended
December 31, 2017 primarily consisted of principal payments on long-term debt of $34.8 million, repayment of long-term debt of
$22.5 million and common stock withheld for minimum statutory taxes of $3.5 million. Cash provided by financing activities for the
year ended December 31, 2016 primarily consisted of long-term debt borrowings of $1.5 billion, borrowings on our revolving credit
facility of $179.0 million and an issuance of common stock of $685.1 million, partially offset by repayment of assumed Priory d
$1.4 billion, payment on revolving credit facility of $337.0 million, repayment of long-term debt of $200.6 million, principal
payments on long-term debt of $49.9 million, payment of debt issuance costs of $36.6 milli
t
minimum statutory taxes of $8.8 million.

on and common stock withheld for

ebt of

We had total available cash and cash equivalents of $67.3 million, $57.1 million and $11.2 million as of December 31, 2017,

2016 and 2015, respectively, of which approximately $20.4 million, $41.4 million and $9.2 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 the
U.S., and it is our current intention to permanently reinvest our foreign cash and cash equivalent
2017, the Tax Act was enacted into law. The Tax Act provides for significant changes to the U.S. tax code that impact businesses.
Effective January 1, 2018, the Tax Act reduces the U.S. federal tax rate for corporations from 35% to 21% for U.S. taxable income
and requires a one-time remeasurement of deferred taxes to reflect their value at a lower tax r
the full impact of the legislation, we expect the substantial reduction of the federal corporate tax rate to benefit our financial results
and cash flow in future periods. We believe the change will not result in a U.S. tax liability on those foreign earnings which have not
previously been repatriated to the U.S., with future foreign earnings potentially not subject to U.S. income taxes when repatriated.

ate of 21%. While we are still evaluating

s outside of the U.S. On December 22,

Amended and Restated Senior Credit Facility

We entered into a Senior Secured Credit Facility (the “Senior Secured Credit Facility”) on April 1, 2011. On December 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 the SEC.

On February 6, 2015, we entered into the Seventh Amendment to our Amended and Restated Credit Agreement. The Seventh

Amendment added Citibank, N.A. as an “L/C Issuer” under the Amended and Restated Credit Agreement in order to permit the
rollover of CRC’s existing letters of credit into the Amended and Restated Credit Agreement and increased both the Company’s Letter
of Credit Sublimit and Swing Line Sublimit to $20.0 million.

On February 11, 2015, we entered into the First Incremental Amendment to our Amended and Restated Credit Agreement. The

First Incremental Amendment activated a new $500.0 million incremental Tranche B-1 Facility that was added to the Amended and
Restated Senior Secured Credit Facility, subject to limited conditionality provisions. Borrowings under the Tranche B-1 Facility were
used to fund a portion of the purchase price for our acquisition of CRC.

On April 22, 2015, we entered into an Eighth Amendment to our Amended and Restated Credit Agreement. The Eighth
t
Amendment changed the definition of “Change of Control” in part to remove a provision whose purpose was, when calculating
whether a majority of incumbent directors have approved new directors, that any incumbent director that became a director as a result
of a threatened or actual proxy contest was not counted in such calculation.

On January 25, 2016, we entered into the Ninth Amendment to our Amended and Restated Credit Agreement. The Ninth
Amendment modified certain definitions and provides increased flexibility to us in terms of our financial covenants. Our baskets for
permitted investments were also increased to provide increased flexibility for us to invest in non-wholly owned subsidiaries, j
oint
ff
ventures and foreign subsidiaries. As a result of the Ninth Amendment, we may invest in non-wholly owned subsidiaries and joint
ventures up to 10.0% of our and our subsidiaries’ total assets in any consecutive four fiscal quarter period, and up to 12.5% of our and
our subsidiaries’ total assets during the term of the Amended and Restated Credit Agreement. We may also invest in foreign
subsidiaries that are not loan parties up to 10% of our and our subsidiaries’ total assets in any consecutive four fiscal quarter period,
and up to 15% of our and our subsidiaries’ total assets during the term of the Amended and Restated Credit Agreement. The foregoing
permitted investments are subject to an aggregate cap of 25% of our and our subsidiaries’ total a

ssets in any fiscal year.

On February 16, 2016, we entered into the Second Incremental Facility Amendment to our Amended and Restated Credit
Agreement. The Second Incremental Amendment activated a new $955.0 million incremental Term Loan B facility and added
$135.0 million to the Term Loan A facility to our Amended and Restated Senior Secured Credit Facility, subject to limited
conditionality provisions. Borrowings under the Tranche B-2 Facility were used to fund a portion of the purchase price for the
acquisition of Priory and the fees and expenses for such acquisition and the related financing transactions. Borrowings under the TLA
Facility were used to pay down the majority of our $300.0 million revolving credit facility.

On May 26, 2016, we entered into a Tranche B-1 Repricing Amendment to the Amended and Restated Credit Agreement. The

Tranche B-1 Repricing Amendment reduced the Applicable Rate with respect to the Tranche B-1 Facility from 3.5% to 3.0% in the
case of Eurodollar Rate loans and 2.5% to 2.0% in the case of Base Rate Loans.

On September 21, 2016, we entered into a Tranche B-2 Repricing Amendment to the Amended and Restated Credit Agreement.
The Tranche B-2 Repricing Amendment reduced the Applicable Rate with respect to the Tranche B-2 Facility from 3.75% to 3.00% in
the case of Eurodollar Rate loans and 2.75% to 2.00% in the case of Base Rate Loans. In connection with the Tranche B-2 Repricing
Amendment, we recorded a debt extinguishment charge of $3.4 million, including the discount and write-off of deferred financing
costs, which was recorded in debt extinguishment costs in the consolidated statements of income.

On November 22, 2016, we entered into a Tenth Amendment to the Amended and Restated Credit Agreement. The Tenth

Amendment, among other things, (i) amended the negative covenant regarding dispositions, (ii) modified the collateral package to
release any real property with a fair market value of less than $5.0 million and (iii) changed certain investment, indebtedness and lien
baskets.

On November 30, 2016, we entered into a Refinancing Facilities Amendment to the Amended and Restated Credit Agreement.
The Refinancing Amendment increased our line of credit on our revolving credit facility to $500.0 million from $300.0 million and
reduced our TLA Facility to $400.0 million from $600.6 million. In addition, the Refinancing Amendment extended the maturity dateaa
y
for the Refinancing Facilities to November 30, 2021 from February 13, 2019, and lowered our effe
credit on our revolving credit facility and TLA Facility by 50 basis points. In connection with the Refinancing Amendment, we
recorded a debt extinguishment charge of $0.8 million, including the write-off of deferred financing costs, which was recorded in debt
extinguishment costs in the consolidated statements of income.

ctive interest rate on our line of

On May 10, 2017, we entered into the Third Repricing Amendment to the Amended and Restated Credit Agreement. The Third

Repricing Amendment reduced the Applicable Rate with respect to the Tranche B-1 Facility and the Tranche B-2 Facility from 3.0%
to 2.75% in the case of Eurodollar Rate loans and 2.0% to 1.75% in the case of Base Rate Loans. In connection with the Third
Repricing Amendment, we recorded a debt extinguishment charge of $0.8 million, including the discount and write-off of deferred
financing costs, which was recorded in debt extinguishment costs in the consolidated statements of operations.

We had $493.4 million of availability under the revolving line of credit and had standby letters of credit outstanding of

$6.6 million related to security for the payment of claims required by our workers’ compensation insurance program as of
December 31, 2017. 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 $5.0 million for
March 31, 2018 to December 31, 2019, $7.5 million for March 31, 2020 to December 31, 2020, and $10.0 million for March 31, 2021
to September 30, 2021, with the remaining principal balance of the TLA Facility due on the maturity date of November 30, 2021. We
are required to repay the Tranche B-1 Facility in equal quarterly installments of $1.3 million on the last business day of each March,
June, September and December, with the outstanding principal balance of the Tranche B-1 Facility due on February 11, 2022. We areaa
required to repay the Tranche B-2 Facility in equal quarterly installments of approximately $2.4 million on the last business d
each March, June, September and December, with the outstanding principal balance of the Tranche B-2 Facility due on February 16,
2023. On December 29, 2017, the Company made an additional payment of $22.5 million, including $7.7 million on the Tranche B-1
n
Facility and $14.8 million on the Tranche B-2 Facility.

ay of

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 $40.0 million of unrestricted and unencumbered cash to consolidated EBITDA, in each case as defined in the
Amended and Restated Credit Agreement). The Applicable Rate (as defined in the Amended and Restated Credit Agreement) for the
Pro Rata Facilities was 2.75% for Eurodollar Rate Loans (as defined in the Amended and Restated Credit Agreement) and 1.75% for
Base Rate Loans (as defined in the Amended and Restated Credit Agreement) at December 31, 2017. Eurodollar Rate Loans with
respect to the Pro Rata Facilities bear interest at the Applicable Rate plus the Eurodollar Rate (as defined in the Amended and Restated
Credit Agreement) (based upon the LIBOR Rate (as defined in the Amended and Restated Credit Agreement) 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%. As of December 31, 2017, the Pro
Rata Facilities bore interest at a rate of LIBOR plus 2.75%. 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 P

ro Rata Facilities are based upon the following

pricing tiers:

Pricing Tier

1
2
3
4
5

Consolidated Leverage Ratio

< 3.50:1.0
>3.50:1.0 but < 4.00:1.0
>4.00:1.0 but < 4.50:1.0
>4.50:1.0 but < 5.25:1.0
>5.25:1.0

Eurodollar Rate
Loans

Base Rate
Loans

Commitment
Fee

1.75%
2.00%
2.25%
2.50%
2.75%

0.75%
1.00%
1.25%
1.50%
1.75%

0.20%
0.25%
0.30%
0.35%
0.40%

Eurodollar Rate Loans with respect to the Tranche B-1 Facility bear interest at the Tranche B-1 Facility Applicable Rate (as

defined below) plus the Eurodollar Rate (subject to a floor of 0.75% and based upon the LIBOR Rate prior to commencement of the
interest rate period). Base Rate Loans bear interest at the Tranche B-1 Facility 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 “Tranche B-1 Facility Applicable
Rate” means, with respect to Eurodollar Rate Loans, 3.0%, and with respect to Base Rate Loans, 2.0%. The Tranche B-2 Facility bears
interest as follows: Eurodollar Rate Loans bear interest at the Applicable Rate (as defined in the Amended and Restated Credit
Agreement) plus the Eurodollar Rate (subject to a floor of 0.75% and based upon the LIBOR Rate prior to commencement of the
interest rate period) and Base Rate Loans bear interest at the Applicable Rate plus the highest of (i) the federal funds rate p
A
(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, 3.0%, and with respect to Base Rate Loans, 2.0%.

lus 0.50%,

The lenders who provided the Tranche B-1 Facility and Tranche B-2 Facility are not entitled to benefit

from the Company’s
maintenance of its financial covenants under the Amended and Restated Credit Agreement. Accordingly, if we fail to maintain its
financial covenants, such failure shall not constitute an event of default under the Amended and Restated Credit Agreement with
tt
respect to the Tranche B-1 Facility or the Tranche B-2 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 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 its material debt agreements. 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.
forth below is a brief description of such covenants, all of which are subject to customary exceptions, materiality thresholds and
qualifications:

d
Set

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) further assurances; and (ix) additional collateral and guarantor requirements.

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 of business; (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 $500,000 in any fiscal year and compliance with
certain other 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.

The financial covenants include maintenance of the following:

•

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:

2017 ...................
2018 ...................
2019 ...................
2020 ...................

March 31
6.75x
6.50x
5.75x
5.25x

June 30

6.75x
6.25x
5.75x
5.25x

September 30
6.50x
6.00x
5.50x
5.25x

December 31
6.50x
6.00x
5.50x
5.00x

•

the secured leverage ratio may not be greater than the following levels as of the end of each fiscal quarter listed
below:

December 31, 2017- June 30, 2018 ...................................
September 30, 2018 and each fiscal quarter thereafter ......

3.75x
3.50x

As of December 31, 2017, the Company was in compliance with all of the above covenants.

Senior Notes

6.125% Senior Notes Due 2021

On March 12, 2013, we issued $150.0 million of 6.125% Senior Notes due 2021. The 6.125% Senior Notes mature on
March 15, 2021 and bear interest at a rate of 6.125% per annum, payable semi-annually in arrears on March 15 and September 15 of
each year.

5.125% Senior Notes due 2022

On July 1, 2014, we issued $300.0 million of 5.125% Senior Notes due 2022. The 5.125% Senior Notes mature on July 1, 2022

and bear interest at a rate of 5.125% per annum, payable semi-annually in arrears on January 1 and July 1 of each year.

5.625% Senior Notes due 2023

On February 11, 2015, we issued $375.0 million of 5.625% Senior Notes due 2023. On September 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 in February 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 on February 15, 2023 and bear interest at a rate of 5.625% per annum, payable semi-
annually in arrears on February 15 and August 15 of each year.

6.500% Senior Notes due 2024

On February 16, 2016, we issued $390.0 million of 6.500% Senior Notes due 2024. The 6.500% Senior Notes mature on

March 1, 2024 and bear interest at a rate of 6.500% per annum, payable semi-annually in
n
year, beginning on September 1, 2016.

arrears on March 1 and September 1 of e

ach

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 distribu
tions 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 November 11, 2012, in connection with the acquisition of The Pavilion at HealthPark, LLC (“Park Royal”), we assumed

debt of $23.0 million. The fair market value of the debt assumed was $25.6 million and resulted in a debt premium balance being
recorded as of the acquisition date. The debt consisted of $7.5 million and $15.5 million of Lee County (Florida) Industrial
Development Authority Healthcare Facilities Revenue Bonds, Series 2010 with stated interest rates of 9.0% and 9.5%, respectively.
The 9.0% bonds in the amount of $7.5 million have a maturity date of December 1, 2030 and require yearly principal payments
beginning in 2013. The 9.5% bonds in the amount of $15.5 million have a maturity date of December 1, 2040 and require yearly
principal payments beginning in 2031. The principal payments establish a bond-sinking fund to be held with the trustee and shall be
sufficient to redeem the principal amounts of the 9.0% and 9.5% Revenue Bonds on their respective maturity dates. As of
December 31, 2017 and 2016, $2.3 million was recorded within other assets on the consolidated balance sheets related to the debt
service reserve fund requirements. The yearly principal payments, which establish a bond sinking fund, will increase the debt service
reserve fund requirements. The bond premium amount of $2.6 million is amortized as a reduction of interest expense over the life of
the 9.0% and 9.5% Revenue Bonds using the effective interest method.

Contractual Obligations

The following table presents a summary of contractual obligations (dollars in thousands):

Payments Due by Period

Less Than
1 Year
Long-term debt(1) .................................................................. $ 199,973 $ 405,354 $ 1,508,021 $ 2,006,944 $ 4,120,292
Operating leases ...................................................................
1,137,385
Purchase and other obligations(2) ..........................................
72,695

69,613
4,307

124,712
7,404

835,369
27,085

107,691
33,899

More Than
5 Years

3-5 Years

1-3 Years

Total

Total obligations and commitments ..................................... $ 273,893 $ 537,470 $ 1,649,611 $ 2,869,398 $ 5,330,372

(1) Amounts include required principal and interest payments. The projected interest payments reflect interest rates in place on our

variable-rate debt as of December 31, 2017.

(2) Amounts relate to purchase obligations, including capital lease payments.

Off-Balance Sheet Arrangements

As of December 31, 2017, we had standby letters of credit outstanding of $6.6 million related to security for the payment of

claims as required by our workers’ compensation insurance program.

Market Risk

Interest Rate Risk

Our interest expense is sensitive to changes in market interest rates. Our long-term debt outstanding at December 31, 2017 was

composed of $1.5 billion of fixed-rate debt and $1.7 billion of variable-rate debt with interest based on LIBOR plus an applicablea
margin. A hypothetical 10% increase in interest rates (which would equate to a 0.42% higher rate on our variable rate debt) would
decrease our net income and cash flows by $5.0 million on an annual basis based upon our borrowing level at December 31, 2017.

Foreign Currency Risk

The functional currency for our U.K. facilities is the British pound or GBP. Our revenue and earnings are sensitive to changes in

the GBP to USD exchange rate from the translation of our earnings into USD at exchange rates that may fluctuate. Based upon the
level of our U.K. operations relative to the Company as a whole, a hypothetical 10% change (which would equate to an increase or
decrease in the exchange rate of 0.13) would cause a change in our net income of $10.1 million for the year ended December 31, 2017.

In May 2016, we entered into multiple cross currency swap agreements with an aggregate notional amount of $650.0 million to
manage foreign currency exchange risk by effectively converting a portion of our fixed-rate USD denominated senior notes, including
the semi-annual interest payments thereunder, to fixed-rate, GBP-denominated debt of £449.3 million. The cross currency swap
agreements limit the impact of changes in the exchange rate on our cash flows and leverage. Following the Brexit vote, the GBP
dropped to its lowest level against the USD in more than 30 years. If the exchange rate remains low, our results of operations will be
negatively impacted in future periods.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the

U.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
rr
our financial condition and operating performance and involve highly subjective and

complex assumptions and assessments:

Revenue and Accounts Receivable

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) public funded sources in the U.K. (including the NHS, CCGs and
local authorities in England, Scotland and Wales); and (v) individual patients and clients. Revenue is recorded in the period i
services are provided at established billing rates less contractual adjustments based on amounts reimbursable by Medicare or Medicaid
under provisions of cost or prospective reimbursement formulas or amounts due from other third-party payors at contractually
determined rates.

n which

The following table presents revenue by payor type and as a percentage of revenue before provision for doubtful accounts for

the years ended December 31, 2017, 2016 and 2015 (in thousands):

Year Ended December 31,

2017

2016

Amount

Commercial ............................................................ $
Medicare ................................................................
Medicaid ................................................................
NHS .......................................................................
Self-Pay ..................................................................
Other ......................................................................

569,242
281,270
796,375
937,595
249,978
42,774

Revenue before provision for doubtful accounts ...
Provision for doubtful accounts .............................

2,877,234
(40,918)

19.8% $

9.8%
27.7%
32.6%
8.7%
1.4%

100.0%

534,468
266,868
725,508
1,021,888
268,160
35,931

2,852,823
(41,909)

%
18.7% $
9.4%
25.4%
35.8%
9.4%
1.3%

2015

Amount

423,077
214,125
609,805
356,965
174,850
50,797

%
23.1%
11.7%
33.3%
19.5%
9.6%
2.8%

100.0%

1,829,619
(35,127)

100.0%

Revenue ................................................................. $ 2,836,316

$ 2,810,914

$ 1,794,492

The following tables present a summary of our aging of accounts receivable as of December 31, 2017 and 2016:

December 31, 2017

Commercial ......................................................................................................
Medicare ..........................................................................................................
Medicaid ..........................................................................................................
NHS .................................................................................................................
Self-Pay ............................................................................................................
Other ................................................................................................................

Current

30-90

90-150

>150

15.3%
9.4%
19.8%
7.0%
1.8%
0.3%

8.7%
1.6%
6.4%
3.4%
1.4%
0.3%

3.2%
0.5%
2.5%
0.2%
1.4%
0.2%

6.9%
1.1%
5.2%
0.0%
3.2%
0.2%

Total
34.1%
12.6%
33.9%
10.6%
7.8%
1.0%

Total .................................................................................................................

53.6% 21.8%

8.0% 16.6% 100.0%

December 31, 2016

Current

30-90

90-150

>150

15.8%
12.0%
18.7%
5.1%
1.8%
0.1%

8.5%
1.6%
6.5%
3.4%
1.5%
0.1%

3.0%
0.8%
2.9%
0.6%
1.5%
0.1%

5.3%
1.2%
5.5%
0.4%
3.3%
0.3%

Total
32.6%
15.6%
33.6%
9.5%
8.1%
0.6%

Total .................................................................................................................

53.5% 21.6%

8.9% 16.0% 100.0%

Medicaid accounts receivable as of December 31, 2017 and 2016 included approximately $0.9 million and $1.2 million,

respectively, of accounts pending Medicaid approval.

Allowance for Contractual Discounts

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 our inpatient facilities and cost settlement provisions. Management estimates the allowance for
contractual discounts 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
r
from our
u
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 am
ounts
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
r
adjustments and final settlements. However, there can be no assurance that any such adjustments and final settlements will not have a
material effect on our financial condition or results of operations. Our cost report receivables were $9.0 million and $7.4 million at
December 31, 2017 and 2016, 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 net
adjustments to estimated cost report settlements resulted in increases to revenue of $0.2 million, $0.7 million and $1.9 million for the
years ended December 31, 2017, 2016 and 2015, respectively.

Management believes that we are in substantial compliance with all applicable laws and regulations and is not aware of any
aa

material pending or threatened investigations involving allegations of wrongdoing. Compliance with such laws and regulations can be
subject to future government review and interpretation, as well as significant regulatory action including fines, penalties and exclusion
from the Medicare and Medicaid programs.

Allowance for Doubtful Accounts

Our ability to collect outstanding patient receivables from third-party payors is critical to our operating performance and cash

flows. The primary collection risk with regard to patient receivables relates to uninsured patient accounts or patient accounts for which
primary insurance has paid, but the portion owed by the patient remains outstanding. We estimate uncollectible accounts and establish
an allowance for doubtful accounts in order to adjust accounts receivable to estimated net realizable value. In evaluating the
collectability of accounts receivable, we consider a number of factors, including the age of the accounts, historical collection
experience, current economic conditions, and other relevant factors. Accounts receivable that are determined to be uncollectible based
on our policies are written off to the allowance for doubtful accounts. Significant changes in payor mix or business office operations
could have a significant impact on our results of operations and cash flows.

Insurance

The Company is subject to medical malpractice and other lawsuits due to the nature of the services the Company provides. A

portion of the Company’s professional liability risk is insured through a wholly-owned insurance subsidiary. The Company’s wholly-
owned insurance subsidiary insures the Company for professional liability losses up to $78.0 million in the aggregate. The insurance
subsidiary has obtained reinsurance with unrelated commercial insurers for professional liability risks of $75.0 million in excess of a
retention level of $3.0 million. 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 occurrenc
ff
expectations. While claims are monitored closely when estimating professional and general liability accruals, the complexity of the
f
y
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 $55.0 million as of December 31, 2017, of which $22.8 million was included in other
tt
accrued liabilities and $32.2 million was included in other long-term liabilities. The professional and general liability reserve was
$52.3 million as of December 31, 2016, of which $11.7 million was included in other accrued liabilities and $40.6 million was
included in other long-term liabilities. The Company estimates receivables for the portion of professional and general liability reserves
that are recoverable under the Company’s insurance policies. Such receivable was $22.7 million as of December 31, 2017, of which
$17.6 million was included in other current assets and $5.1 million was included in other assets, and such receivable was $25.9 million
as of December 31, 2016, of which $6.5 million was included in other current assets and $19.4 million was included in other assets.

es differ from historical claim trends andaa

The Company’s statutory workers’ compensation program is fully insured with a $0.5 million deductible per accident. The
workers’ compensation liability was $18.5 million as of December 31, 2017, of which $10.0 million was included in accrued salaries
and benefits and $8.5 million was included in other long-term liabilities, and such liability was $16.6 million as of December 31,
2016, of which $10.0 million was included in accrued salaries and benefits and $6.6 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
uu
retirement. Repair and maintenance costs are expensed as incurred. Depreciation expense was $143.0 million, $134.8 million and
$63.0 million for the years ended December 31, 2017, 2016 and 2015, 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.

Goodwill and Indefinite-Lived Intangible Assets

Our goodwill and other indefinite-lived intangible assets, which consist of licenses and accreditations 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 that the carrying value of a reporting unit may not be recoverable. We have two operating segments, U.S. Facilities and U.K.
Facilities, for segment reporting purposes, each of which represents a reporting unit for purposes of the Company’s goodwill
impairment test. Potential impairment is noted for a reporting unit if its carrying value exceeds the fair value of the reporting unit. For
a reporting unit with potential impairment of goodwill, we determine the implied fair value of goodwill. If the carrying value of
goodwill exceeds its implied fair value, an impairment loss is recorded. Our annual impairment tests of goodwill and other indefinite-
lived intangibles in 2017, 2016 and 2015 resulted in no impairment charges.

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 jurisd

iction 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.
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.

Financial Accounting Standards Board Accounting Standards Codification 740 requires us to recognize the effect of tax law
changes in the period of enactment. However, the SEC staff issued SAB 118 which will allow us to record provisional amounts during
a measurement period similarly to the measurement period used when accounting for business combinations. We will continue to
assess the impact of the recently enacted tax law on our business and consolidated financial statements.

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.”

Item 8. Financial Statements and Supplementary Data.

Information with respect to this Item is contained in our consolidated financial statements beginning on Page F-1 of this Annual

Report on Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, our management conducted an evaluation, with the participation of our chief

executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-
15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, our
chief executive officer and chief financial officer have concluded that our disclosure controls and procedures are effective to ensure
that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed,
d
summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and
communicated to management, including our chief executive officer and chief financial officer, as appropriate to allow timely
decisions regarding required disclosure.

Reports on Internal Control Over Financial Reporting

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we have included a report of management’s assessment of the

design and operating effectiveness of our internal controls as part of this report. Our independent registered public accountin
also reported on the effectiveness of internal cont
tt
rol over financial reportin
public accounting firm’s report are included in our consolidated financial statements beginning on page F-1 of this report under the
captions entitled “Management’s Report on Internal Control Over Financial Reporting” and “Report of Independent Registered Public
Accounting Firm.”

g firm
g. Management’s report and the independent registered

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2017 that

have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Item 9B. Other Information.

None.

Item 10. Directors, Executive Officers and Corporate Governance.

Directors

PART III

The information with respect to our directors set forth under the caption “Election of Directors” in our Definitive Proxy

Statement for the Annual Meeting of Stockholders to be held May 3, 2018 is incorporated herein by reference.

Audit Committee

The information with respect to our Audit Committee and our audit committee financial experts serving on the Audit Committee

is set forth under the caption “Corporate Governance – Committees of the Board of Directors – Audit Committee” in our Definitive
Proxy Statement for the Annual Meeting of Stockholders to be held May 3, 2018 is incorporated herein by reference.

Executive Officers

The information with respect to our executive officers set forth under the caption “Management – Executive Officers” in our

Definitive Proxy Statement for the Annual Meeting of Stockholders to be held May 3, 2018 is incorporated herein by reference.

Section 16(a) Compliance

The information with respect to compliance with Section 16(a) of the Exchange Act set fort

h under the caption “Security
Ownership of Certain Beneficial Owners and Management—Section 16(a) Beneficial Ownership Reporting Compliance” in our
Definitive Proxy Statement for the Annual Meeting of Stockholders to be held May 3, 2018 is incorporated herein by reference.

Stockholder Nominees

The information with respect to the procedures by which stockholders may recommend nominees to the Board of Directors set

forth under the caption “Corporate Governance – Nomination of Directors – Nominations by Our Stockholders” in our Definitive
Proxy Statement for the Annual Meeting of Stockholders to be held May 3, 2018 is incorporated herein by reference.

Corporate Governance Documents

We have adopted a Code of Conduct that applies to all of our directors, officers and employees and a Code of Ethics for Senior
Financial Officers. These documents, as well as the charters of the Audit Committee, Compensation Committee and Nominating and
Governance Committee, are available on our website at www.acadiahealthcare.com on the Investors webpage under the caption
“Corporate Governance.” Upon the written request of any person, we will furnish, without charge, a copy of any of these documents.
Requests should be directed to Acadia Healthcare Company, Inc., 6100 Tower Circle, Suite 1000, Franklin, Tennessee 37067,
Attention: Christopher L. Howard, Esq. We intend to disclose any amendments to our Code of Ethics and any waiver from a provision
of our code, as required by the SEC, on our website.

Item 11. Executive Compensation

The information with respect to the compensation of our executive officers set forth under the captions “Executive
Compensation” and “Compensation Discussion and Analysis” and the information set forth under the captions “Director
Compensation,” “Corporate Governance – Compensation Committee Interlocks and Insider Participation,” and “Compensation
Committee Report” in our Definitive Proxy Statement for the Annual Meeting of Stockholders to be held May 3, 2018 is incorporated
herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information with respect to security ownership of certain beneficial owners and management and related stockholder

matters set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in our Definitive Proxy
Statement for the Annual Meeting of Stockholders to be held May 3, 2018 is incorporated herein by reference.

The following table provides information as of December 31, 2017 with respect to compensation plans (including individual

compensation arrangements) under which shares of Common Stock are authorized for issuance:

Equity Compensation Plan Information

Plan Category

Equity Compensation Plans

Approved by Stockholders(2) ........

Equity Compensation Plans Not

Approved by Stockholders(4) ........
Total ..................................................

Number of Securities
to be Issued upon
Exercise of
Outstanding Options,
Warrants and Rights

Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights

Number of Securities
Remaining Available for
Future Issuance under
Equity Compensation
Plans(1)

2,491,252(3) $

15,000

2,506,252

53.44

5.64

47.89

4,498,687

—

4,498,687

(1) Excludes shares to be issued upon exercise of outstanding options and vesting of outstanding restricted stock units.
(2) Represents securities issued or available for issuance under
d
(3)

Includes 721,818 shares that may be issued upon vesting of outstanding restricted stock units that vest over three years,
assuming that maximum performance goals are attained in all three years.
Includes stock options issued pursuant to the PHC, Inc. 2004 Non-Employee Director Stock Option Plan. On November 1,
2011, we issued options to purchase shares of our Common Stock as replacements for PHC, Inc. options.

the Acadia Healthcare Company, Inc. Incentive Compensation Plan.

(4)

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information with respect to certain relationships and related transactions and director independence set forth under the
captions “Certain Relationships and Related Transactions” and “Corporate Governance – Independence of the Board of Directors” in
our Definitive Proxy Statement for the Annual Meeting of Stockholders to be held May 3, 2018 is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

The information with respect to the fees paid to and services provided by our principal accountants set forth under the caption
“Ratification of Appointment of Independent Registered Public Accounting Firm” in our Definitive Proxy Statement for the Annual
Meeting of Stockholders to be held May 3, 2018 is incorporated herein by reference.

Item 15. Exhibits and Financial Statement Schedules.

(a) The following documents are filed as part of this Annual Report on Form 10-K:

Consolidated Financial Statements:

PART IV

The consolidated financial statements required to be included in Part II, Item 8, Financial Statements and Supplementary Data,
begin on Page F-1 and are submitted as a separate section of this report.

Financial Statement Schedules:

All schedules are omitted because they are not applicable or are not required, or because the required information is included in
the consolidated financial statements or notes in this report.

Exhibits:

Exhibit
No.

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

2.9

2.10

2.11

2.12

2.13

2.14

Exhibit Description

Agreement and Plan of Merger, dated May 23, 2011, by and among Acadia Healthcare Company, Inc.
(the “Company”), Acadia Merger Sub, LLC and PHC, Inc. (a)

Agreement and Plan of Merger, dated February 17, 2011, by and among the Company (f/k/a Acadia Healthcare
Company, LLC), Acadia—YFCS Acquisition Company, Inc., Acadia—YFCS Holdings, Inc., Youth & Family
Centered Services, Inc., each of the stockholders who are signatories thereto, and TA Associates, Inc., solely in the
capacity as Stockholders’ Representative. (b)

Asset Purchase Agreement, dated as of March 15, 2011, between Universal Health Services, Inc. and PHC, Inc. for the
acquisition of MeadowWood Behavioral Health System. (c)

Membership Interest Purchase Agreement, dated December 30, 2011, by and among Hermitage Behavioral, LLC,
Haven Behavioral Healthcare Holdings, LLC and Haven Behavioral Healthcare, Inc. (d)

Asset Purchase Agreement, dated August 28, 2012, by and between Timberline Knolls, LLC, and TK Behavioral,
LLC. (e)

Acquisition Agreement, dated November 21, 2012, by and among (i) Behavioral Centers of America, LLC,
(ii) Behavioral Centers of America Holdings, LLC, (iii) Linden BCA Blocker Corp., (iv) SBOF-BCA Holdings
Corporation, (v) HEP BCA Holdings Corp. (vi) Siguler Guff Small Buyout Opportunities Fund, LP, and Siguler Guff
Small Buyout Opportunities Fund (F), LP, (vii) Health Enterprise Partners, L.P., HEP BCA Co-Investors, LLC, (viii)
Linden Capital Partners A, LP, (ix) Commodore Acquisition Sub, LLC, and (x) the Company (the “BCA Purchase
Agreement”). (f)

Amendment No. 1, dated as of December 31, 2012, to the BCA Purchase Agreement. (g)

Membership Interest Purchase Agreement, dated November 23, 2012 by and among 2C4K, L.P., ARTC Acquisitions,
Inc., Acadia Vista, LLC and the Company. (f)

Amendment, dated as of December 31, 2012, to Membership Interest Purchase Agreement by and among 2C4K, LP,
ARTC Acquisitions, Inc., Acadia Vista, LLC and the Company. (g)

Stock Purchase Agreement, dated as of March 29, 2013, by and among First Ten Broeck Tampa, Inc., UMC Ten
Broeck, Inc., Capestrano Holding 12, Inc., Donald R. Dizney, David A. Dizney and Acadia Merger Sub, LLC. (h)

Agreement, dated June 3, 2014, by and among Partnerships in Care Holdings Limited, The Royal Bank of Scotland
plc, Piper Holdco 2, Ltd. and the Company. (i)

Agreement and Plan of Merger, dated as of October 29, 2014, by and among the Company, Copper Acquisition Co.,
Inc. and CRC Health Group, Inc. (j)

Sale and Purchase Deed, dated as of December 31, 2015, by and among Whitewell UK Investments 1 Limited, the
institutional sellers named therein, Appleby Trust (Jersey) Limited, the management sellers named therein, and the
Company. (cc)

Amendment to Sale and Purchase Deed, by and among Whitewell UK Investments 1 Limited, the institutional sellers
named therein, Appleby Trust (Jersey) Limited, the management sellers named therein, and the Company. (dd)

Exhibit
No.

3.1

3.2

4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9

4.10

4.11

4.12

4.13

4.14

4.15

4.16

4.17

4.18

10.1

10.2

10.3

10.4

10.5

Exhibit Description

Amended and Restated Certificate of Incorporation, as filed on October 28, 2011 with the Secretary of State of the
State of Delaware, as amended by the Certificate of Amendment filed on May 25, 2017. (kk)

Amended and Restated Bylaws of the Company, as amended May 25, 2017. (kk)

Indenture, dated as of March 12, 2013, among the Company, the Guarantors named therein and U.S. Bank National
Association, as Trustee. (l)

Form of 6.125% Senior Note due 2021. (Included in Exhibit 4.1)

Registration Rights Agreement, dated March 12, 2013, among the Company, the Guarantors named therein and
Merrill Lynch, Pierce, Fenner & Smith Incorporated. (l)

Indenture, dated as of July 1, 2014, among the Company, the Guarantors named therein and U.S. Bank National
Association, as Trustee. (m)

Supplemental Indenture, dated as of August 4, 2014, to the Indenture, dated as of July 1, 2014, among the Company,
the Guarantors named therein and U.S. Bank National Association, as Trustee. (n)

Form of 5.125% Senior Note due 2022. (Included in Exhibit 4.4)

Registration Rights Agreement, dated July 1, 2014, among the Company, the Guarantors named therein and Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Jefferies LLC. (m)

Indenture, dated February 11, 2015, by and among the Company, the Guarantors named therein and U.S. Bank
National Association, as Trustee. (o)

Form of 5.625% Senior Note due 2023. (Included in Exhibit 4.8)

Registration Rights Agreement, dated February 11, 2015, by and among the Company, the Guarantors named therein
and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Jefferies LLC, as Representatives of the Initial
Purchasers. (o)

Registration Rights Agreement, dated September 21, 2015, by and among the Company, the Guarantors named therein
and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Jefferies LLC, as Representatives of the Initial
Purchasers. (bb)

Indenture, dated February 16, 2016, by and among the Company, the Guarantors named therein and U.S. Bank
National Association, as Trustee. (ff)

Form of 6.500% Senior Note due 2024. (Included in Exhibit 4.12)

Registration Rights Agreement, dated February 16, 2016, by and among the Company, the Guarantors named therein
and Merrill Lynch, Pierce, Fenner & Smith Incorporated and Jefferies LLC, as Representatives of the Initial
Purchasers. (ff)

Amended and Restated Stockholders Agreement, dated as of October 29, 2014, by and among the Company and each
of the stockholders named therein. (j)

Specimen Acadia Healthcare Company, Inc. Common Stock Certificate to be issued to holders of Acadia Healthcare
Company, Inc. Common Stock. (p)

Third Amended and Restated Registration Rights Agreement, dated as of December 31, 2015, by and among the
Company and each of the parties named therein. (cc)

Joinder, dated February 16, 2016, to the Third Amended and Restated Registration Rights Agreement dated as of
December 31, 2015, by and among the Company and each of the parties named therein. (ff)

Amended and Restated Credit Agreement, dated December 31, 2012, by and among Bank of America, NA
(Administrative Agent, Swing Line Lender and L/C Issuer) and the Company (f/k/a Acadia Healthcare Company,
LLC), the guarantors listed on the signature pages thereto, and the lenders listed on the signature pages thereto
(the “Credit Agreement”). (g)

First Amendment, dated March 11, 2013, to the Credit Agreement. (l)

Second Amendment, dated June 28, 2013, to the Credit Agreement. (q)

Third Amendment, dated September 30, 2013, to the Credit Agreement. (r)

Fourth Amendment, dated February 13, 2014, to the Credit Agreement. (s)

Exhibit
No.

10.6

10.7

10.8

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

†10.18

†10.19

†10.20

†10.21

†10.22

†10.23

†10.24

†10.25

†10.26

†10.27

†10.28

†10.29

†10.30

†10.31

†10.32

†10.33

10.34

10.35

21*

23*

31.1*

Exhibit Description
Fifth Amendment, dated June 16, 2014, to the Credit Agreement. (t)

Sixth Amendment, dated December 15, 2014, to the Credit Agreement. (u)

Seventh Amendment, dated February 6, 2015, to the Credit Agreement. (o)

First Incremental Facility Amendment, dated February 11, 2015, to the Credit Agreement. (o)

Eighth Amendment, dated April 22, 2015, to the Credit Agreement. (aa)

Ninth Amendment, dated January 25, 2016, to the Credit Agreement. (ee)

Second Incremental Facility Amendment, dated February 16, 2016, to the Credit Agreement. (ff)

Tranche B-1 Repricing Amendment, dated May 26, 2016, to the Credit Agreement. (gg)

Tranche B-2 Repricing Amendment, dated September 21, 2016, to the Credit Agreement. (hh)

Tenth Amendment, dated November 22, 2016, to the Credit Agreement. (ii)

Refinancing Facilities Amendment, dated November 30, 2016, to the Credit Agreement. (ii)

Third Repricing Amendment, dated May 10, 2017, to the Amended and Restated Credit Agreement. (jj)

Amended and Restated Employment Agreement, dated April 7, 2014, among the Company, Acadia Management
Company, Inc. and Joey A. Jacobs. (v)

Amended and Restated Employment Agreement, dated April 7, 2014, among the Company, Acadia Management
Company, Inc. and Brent Turner. (v)

Amended and Restated Employment Agreement, dated April 7, 2014, among the Company, Acadia Management
Company, Inc. and Ronald M. Fincher. (v)

Amended and Restated Employment Agreement, dated April 7, 2014, among the Company, Acadia Management
Company, Inc. and Christopher L. Howard. (v)

Employment Agreement, dated April 7, 2014, by and among the Company, Acadia Management Company, Inc. and
David M. Duckworth. (v)

Employment Agreement, dated as of May 23, 2011, by and between the Company and Bruce A. Shear. (b)

PHC, Inc.’s 2004 Non-Employee Director Stock Option Plan. (w)

Acadia Healthcare Company, Inc. Incentive Compensation Plan, effective May 23, 2013. (x)

First Amendment, effective May 19, 2016, to the Acadia Healthcare Company, Inc. Incentive Compensation Plan. (y)

Form of Restricted Stock Unit Agreement. (b)

Form of Incentive Stock Option Agreement. (b)

Form of Non-Qualified Stock Option Agreement. (b)

Form of Restricted Stock Agreement. (b)

Form of Stock Appreciation Rights Agreement. (b)

Acadia Healthcare Company, Inc. Nonqualified Deferred Compensation Plan, effective February 1, 2013. (z)

Nonmanagement Director Compensation Program, effective January 1, 2013. (z)

Form of Indemnification Agreement (for directors and officers affiliated with Waud Capital Partners or Bain
Capital). (k)

Form of Indemnification Agreement (for directors and officers not affiliated with Waud Capital Partners or Bain
Capital). (k)

Subsidiaries of the Company.

Consent of Independent Registered Public Accounting Firm.

Rule 13a-14(a) Certification of the Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.

Exhibit
No.

31.2*

32.1*

32.2*

Exhibit Description
Rule 13a-14(a) Certification of the Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.

Section 1350 Certification of Chairman of the Board and Chief Executive Officer of the Company pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

Section 1350 Certification of Chief Financial Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.

101.INS** XBRL Instance Document.

101.SCH** XBRL Taxonomy Extension Schema Document.

101.CAL** XBRL Taxonomy Calculation Linkbase Document.

101.LAB** XBRL Taxonomy Labels Linkbase Document.

101.PRE** XBRL Taxonomy Presentation Linkbase Document.

(f)

(e)

(a)

(c)

(b)

(h)

(d)

(g)

Indicates management contract or compensatory plan or arrangement.
Filed herewith.

†
*
** The XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed “filed” for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be
incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall
be expressly set forth by specific reference in such filing or document.
Incorporated by reference to exhibits filed with PHC, Inc.’s Current Report on Form 8-K filed May 25, 2011
(File No. 001-33323).
Incorporated by reference to exhibits filed with the Company’s registration statement on Form S-4, as amended
(File No. 333-175523), originally filed with the SEC on July 13, 2011.
Incorporated by reference to exhibits filed with PHC, Inc.’s Current Report on Form 8-K filed March 18, 2011
(File No. 001-33323).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed January 5, 2012
(File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed September 4, 2012
(File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed November 27, 2012
(File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed January 2, 2013
(File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed April 4, 2013
(File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed June 6, 2014
(File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed October 30, 2014
(File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed November 1, 2011
(File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed March 12, 2013
(File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed July 2, 2014
(File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s registration statement on Form S-4 filed August 8, 2014
(File No. 333-198004).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed February 12, 2015
(File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s registration statement on Form S-1, as amended
(File No. 333-175523), originally filed with the SEC on November 23, 2011.
Incorporated by reference to exhibits filed with the Company’s Quarterly Report on Form 10-Q for the three months ended
June 30, 2013 (File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Quarterly Report
September 30, 2013 (File No. 001-35331).

on Form 10-Q for the three months ended

(m)

(k)

(n)

(o)

(q)

(p)

(r)

(l)

(i)

(j)

(s)

(t)

(u)

(v)

(w)

(x)

(y)

(z)

Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed February 19, 2014
(File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed June 17, 2014
(File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed December 15, 2014
(File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed April 11, 2014
(File No. 001-35331).
Incorporated by reference to exhibits filed with PHC, Inc.’s registration statement on Form S-8 filed April 5, 2005
(File No. 333-123842).
Incorporated by reference to exhibits filed with the Company’s registration statement on Form S-8 filed July 30, 2013
(File No. 333-190232).
Incorporated by reference to exhibits filed with the Company’s Quarterly Report on Form 10-Q for the three months ended
June 30, 2016 (File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Quarterly Report on Form 10-Q for the three months ended
March 31, 2013 (File No. 001-35331).

(aa) Incorporated by reference to exhibits filed with the Company’s Quarterly Report on Form 10-Q for the three months ended

March 31, 2015 (File No. 001-35331).

(bb) Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed September 21, 2015

(File No. 001-35331).

(cc) Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed January 4, 2016

(File No. 001-35331).

(dd) Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed January 8, 2016

(File No. 001-35331).

(ee) Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed January 27, 2016

(ff)

(File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed February 16, 2016
(File No. 001-35331).

(gg) Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed May 26, 2016

(File No. 001-35331).

(hh) Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed September 21, 2016

(ii)

(jj)

(File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed November 30, 2016
(File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed May 10, 2017
(File No. 001-35331).

(kk) Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed May 25, 2017

(File No. 001-35331).

Item 16. Form 10-K Summary.

None.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Management’s Report on Internal Control Over Financial Reporting .........................................................................................
Report of Independent Registered Public Accounting Firm ........................................................................................................
Report of Independent Registered Public Accounting Firm ........................................................................................................
Consolidated Balance Sheets as of December 31, 2017 and 2016 ..............................................................................................
Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015 ....................................................
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015 ..........................
Consolidated Statements of Equity for the years ended December 31, 2017, 2016 and 2015 .....................................................
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 .............................................
Notes to Consolidated Financial Statements ................................................................................................................................

m
m

PAGE

F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-9
F-10

F-1

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term

is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal
control over financial reporting as of December 31, 2017 based on the framework in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO). Based on that evaluation,
our management concluded that our internal control over financial reporting was effective as of December 31, 2017.

Our accompanying consolidated financial statements have been audited by the independent registered public accounting firm of

Ernst & Young LLP. Reports of the independent registered public accounting firm, including the independent registered public
accounting firm’s report on our internal control over financial reporting, are included in this report.

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Acadia Healthcare Company, Inc.

Opinion on Internal Control over Financial Reporting

tt
We have audited Acadia Healthcare Company, Inc.’s internal control over financial reporting as of December 31, 2017, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). In our opinion, Acadia Healthcare Company, Inc. (the Company) maintained, in
all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Comp
(PCAOB), the consolidated balance sheets as of December 31, 2017 and 2016, the related consolidated statements of income,
comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2017, and
the related notes and our report dated February 27, 2018 expressed an unqualified opinion thereon.

any Accounting Oversight Board (United States)

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control
Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based
on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exch
Commission and the PCAOB.

ange

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only iny
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
f
conditions, or that the degree of compliance with the policies or

procedures may deteriorate.

Nashville, Tennessee
February 27, 2018

/s/ Ernst & Young LLP

F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Acadia Healthcare Company, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Acadia Company, Inc. (the Company) as of December 31, 2017
and 2016, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the
three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company at December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework), and our report dated February 27, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thett
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2006.
Nashville, Tennessee
February 27, 2018

F-4

Acadia Healthcare Company, Inc.
Consolidated Balance Sheets

December 31,

2017

2016

(In thousands, except share and per
share amounts)

ASSETS
Current assets: ...........................................................................................................................................

Cash and cash equivalents ............................................................................................................... $
Accounts receivable, net of allowance for doubtful accounts of $39,803 and $38,916,

respectively .................................................................................................................................
Other current assets .........................................................................................................................

Total current assets ................................................................................................................
Property and equipment: ...........................................................................................................................
Land .................................................................................................................................................
Building and improvements ............................................................................................................
Equipment .......................................................................................................................................
Construction in progress ..................................................................................................................
Less accumulated depreciation ........................................................................................................

Property and equipment, net ..................................................................................................
Goodwill ...................................................................................................................................................
Intangible assets, net .................................................................................................................................
Deferred tax assets – noncurrent ...............................................................................................................
Derivative instruments ..............................................................................................................................
Other assets ...............................................................................................................................................

67,290 $

57,063

296,925
107,335

471,550

450,342
2,370,918
400,596
173,693
(347,419)

3,048,130
2,751,174
87,348
3,731
12,997
49,572

263,327
107,537

427,927

411,331
2,031,819
318,020
157,114
(214,589)

2,703,695
2,681,188
83,310
3,780
73,509
51,317

Total assets ................................................................................................................................................ $ 6,424,502 $ 6,024,726

LIABILITIES AND EQUITY

Current liabilities

: .....................................................................................................................................

Current portion of long-term debt ................................................................................................... $
Accounts payable ............................................................................................................................
Accrued salaries and benefits ..........................................................................................................
Other accrued liabilities ...................................................................................................................

t
Total current liabilities

...........................................................................................................
Long-term debt .........................................................................................................................................
Deferred tax liabilities – noncurrent .........................................................................................................
............................
Other liabilities .............................................................................................................

Total liabilities ..........................................................................................................................................
Redeemable noncontrolling interests ........................................................................................................
Equity:

34,830 $

102,299
99,047
141,213

377,389
3,205,058
80,333
166,434

3,829,214
22,417

34,805
80,034
105,068
122,958

342,865
3,253,004
78,520
164,859

3,839,248
17,754

Preferred stock, $0.01 par value; 10,000,000 shares authorized, no shares issued ..........................
Common stock, $0.01 par value; 180,000,000 shares authorized; 87,060,114 and 86,688,199

issued and outstanding as of December 31, 2017 and 2016, respectively ..................................
Additional paid-in capital ................................................................................................................
Accumulated other comprehensive loss ..........................................................................................
Retained earnings ............................................................................................................................

—

871
2,517,545
(374,118)
428,573

867
2,496,288
(549,570)
220,139

Total equity ...............................................................................................................................................

2,572,871

2,167,724

Total liabilities and equity ........................................................................................................................ $ 6,424,502 $ 6,024,726

See accompanying notes.

F-5

Acadia Healthcare Company, Inc.
Consolidated Statements of Income

Year Ended December 31,

2017

2016

2015

(In thousands, except per share amounts)

Revenue before provision for doubtful accounts ............................................................ $ 2,877,234 $ 2,852,823 $ 1,829,619
(35,127)
Provision for doubtful accounts ......................................................................................

(40,918)

(41,909)

Revenue ..........................................................................................................................
Salaries, wages and benefits (including equity-based compensation expense of

$23,467, $28,345 and $20,472, respectively) .............................................................
Professional fees .............................................................................................................
Supplies ...........................................................................................................................
Rents and leases ..............................................................................................................
Other operating expenses ................................................................................................
Depreciation and amortization ........................................................................................
Interest expense, net ........................................................................................................
Debt extinguishment costs ..............................................................................................
Loss on divestiture ..........................................................................................................
(Gain) loss on foreign currency derivatives ....................................................................
Transaction-related expenses ..........................................................................................

2,836,316

2,810,914

1,794,492

1,536,160
196,223
114,439
76,775
331,827
143,010
176,007
810
—
—
24,267

1,541,854
185,486
117,425
73,348
312,556
135,103
181,325
4,253
178,809
(523)
48,323

973,732
116,463
80,663
32,528
206,746
63,550
106,742
10,818
—
1,926
36,571

Total expenses .......................................................................................................

2,599,518

2,777,959

1,629,739

Income from continuing operations before income taxes ...............................................
Provision for income taxes ..............................................................................................

Income from continuing operations ................................................................................
Income from discontinued operations, net of income taxes ............................................

Net income ......................................................................................................................
Net loss attributable to noncontrolling interests ..............................................................

236,798
37,209

199,589
—

199,589
246

32,955
28,779

4,176
—

4,176
1,967

164,753
53,388

111,365
111

111,476
1,078

Net income attributable to Acadia Healthcare Company, Inc. ........................................ $

199,835 $

6,143 $

112,554

Basic earnings attributable to Acadia Healthcare Company, Inc. stockholders: .............

Income from continuing operations ....................................................................... $
Income from discontinued operations ...................................................................

Net income ............................................................................................................ $

Diluted earnings attributable to Acadia Healthcare Company, Inc. stockholders: ..........

Net income ............................................................................................................ $

Weighted-average shares outstanding: ............................................................................
Basic ......................................................................................................................
Diluted ...................................................................................................................

2.30 $
—

2.30 $

2.30 $
—

2.30 $

0.07 $
—

0.07 $

0.07 $
—

0.07 $

1.65
—

1.65

1.64
—

1.64

86,948
87,060

85,701
85,972

68,085
68,391

See accompanying notes.

F-6

Acadia Healthcare Company, Inc.
Consolidated Statements of Comprehensive Income

Year Ended December 31,

2017

2016

2015

(In thousands)

Net income .............................................................................................................................. $ 199,589 $
Other comprehensive loss: ......................................................................................................
Foreign currency translation gain (loss) ........................................................................
(Loss) gain on derivative instruments, net of tax of $(22.9) million, $29.1 million

207,341

4,176 $ 111,476

(477,772)

(40,103)

and $0, respectively ..................................................................................................

(33,431)

40,598

—

Pension liability adjustment, net of tax of $0.4 million, $(1.3) million and

$0.9 million, respectively .........................................................................................
Other comprehensive gain (loss) .............................................................................................

1,542

(7,749)

3,826

175,452

(444,923)

(36,277)

Comprehensive income (loss) .................................................................................................
Comprehensive loss attributable to noncontrolling interests ..................................................

375,041
246

(440,747)
1,967

75,199
1,078

Comprehensive income (loss) attributable to Acadia Healthcare Company, Inc. ................... $ 375,287 $

(438,780) $

76,277

See accompanying notes.

F-7

Balance at January 1, 2015 ..............................
Common stock issued under stock

incentive plans ...................................

Common stock withheld for minimum

statutory taxes ....................................
Equity-based compensation ....................
expense ...................................................
Excess tax benefit from equity ...............
awards ....................................................
Issuance of common stock, net ...............
Other comprehensive loss ......................
Other .......................................................
Net income attributable to Acadia
Healthcare Company, Inc.
stockholders .......................................
Balance at December 31, 2015 ........................
Common stock issued under stock

incentive plans ...................................

Common stock withheld for minimum

statutory taxes ....................................
Equity-based compensation ....................
expense ...................................................
Issuance of common stock, net ...............
Other comprehensive loss ......................
Other .......................................................
Net income attributable to Acadia
Healthcare Company, Inc.
stockholders .......................................
Balance at December 31, 2016 ........................
Common stock issued under stock

incentive plans ...................................

Common stock withheld for minimum

statutory taxes ....................................
Equity-based compensation ....................
expense ...................................................
Cumulative effect of change in

accounting principle ..........................
Other comprehensive gain ......................
Other .......................................................
Net income attributable to Acadia
Healthcare Company, Inc.
stockholders .......................................
Balance at December 31, 2017 ........................

—

—
11,150
—
—

—

70,746

—
15,534
—
—

—

86,688

Acadia Healthcare Company, Inc.
Consolidated Statements of Equity
(In thousands)

Common Stock

Amount

Additional
Paid-
in Capital

Other
Comprehensive
Loss

Retained
Earnings

59,212 $

592 $

847,301 $

(68,370) $ 101,442 $

384

1,811

—

—
111
—
—

(9,577)

20,472

309
711,406
—
1,250

—

—
—
(36,277)
—

—

—
—
—
—

Total
880,965

1,815

(9,577)

20,472

309
711,517
(36,277)
1,250

—

112,554

707

1,572,972

(104,647)

213,996

1,683,028

408

1,379

—

(10,230)

—
155
—
—

28,345
901,824
—
1,998

—

—
—

(444,923)

—

—
—
—
—

1,384

(10,230)

28,345
901,979
(444,923)
1,998

—

6,143

867

2,496,288

(549,570)

220,139

2,167,724

372

2,065

—

—
—
—

—

—
—
—

(5,524)

23,467

—
—
1,249

—

2,069

(5,524)

23,467

—
175,452
—

8,599
—
—

8,599
175,452
1,249

—

199,835

87,060 $

871 $ 2,517,545 $

(374,118) $ 428,573 $ 2,572,871

See accompanying notes.

F-8

Acadia Healthcare Company, Inc.
Consolidated Statements of Cash Flows

Operating activities:
Net income ............................................................................................................................................ $
Adjustments to reconcile net income to net cash provided by continuing operating activities:

Year Ended December 31,

2017

2016

2015

(In thousands)

199,589 $

4,176 $

111,476

Depreciation and amortization ...................................................................................................
Amortization of debt issuance costs ...........................................................................................
Equity-based compensation expense .........................................................................................
Deferred income tax expense .....................................................................................................
(Income) loss from discontinued operations, net of taxes ..........................................................
Debt extinguishment costs .........................................................................................................
Loss on divestiture .....................................................................................................................
(Gain) loss on foreign currency derivatives ...............................................................................
Other ..........................................................................................................................................
Change in operating assets and liabilities, net of effect of acquisitions: ....................................
Accounts receivable, net .................................................................................................
Other current assets ........................................................................................................
Other assets.....................................................................................................................
Accounts payable and other accrued liabilities ...............................................................
Accrued salaries and benefits .........................................................................................
s ...............................................................................................................
a
Other liabilitie
Net cash provided by continuing operating activities ...........................................................................
Net cash used in discontinued operating activities ................................................................................
Net cash provided by operating activities .............................................................................................
Investing activities:
Cash paid for acquisitions, net of cash acquired ...................................................................................
Cash paid for capital expenditures ........................................................................................................
Cash paid for real estate acquisitions ....................................................................................................
Settlement of foreign currency derivatives ...........................................................................................
titures ................................................................................................................
Cash received on dives
Other .....................................................................................................................................................
Net cash used in investing activities .....................................................................................................
Financing activities:
Borrowings on long-term debt ..............................................................................................................
Borrowings on revolving credit facility ................................................................................................
Principal payments on revolving credit facility .....................................................................................
Principal payments on long-term debt ..................................................................................................
Repayment of assumed debt .................................................................................................................
Repayment of long-term debt ...............................................................................................................
Payment of debt issuance costs .............................................................................................................
Payment of premium on senior notes ....................................................................................................
Issuances of common stock, net ............................................................................................................
Common stock withheld for minimum statutory taxes, net ...................................................................
Excess tax benefit from equity awards ..................................................................................................
Other .....................................................................................................................................................

Net cash (used in) provided by financing activities ..............................................................................
Effect of exchange rate changes on cash ...............................................................................................
Net increase (decrease) in cash and cash equivalents ............................................................................
the period ...........................................................................
Cash and cash equivalents at beginning of

143,010
9,855
23,467
31,372
—
810
—
—
11,412

(28,570)
20,808
(3,176)
(10,113)
(8,988)
11,794
401,270
(1,693)
399,577

(18,191)
(274,177)
(41,057)
—
—
(3,101)
(336,526)

—
—
—
(34,805)
—
(22,500)
—
—
—
(3,455)
—
686

(60,074)
7,250

10,227
57,063

135,103
10,324
28,345
28,647
—
4,253
178,809
(523)
4,715

(15,718)
(20,648)
(4,354)
22,693
(8,572)
4,484
371,734
(10,256)
361,478

(683,455)
(307,472)
(40,757)
523
373,266
(2,470)
(660,365)

1,480,000
179,000
(337,000)
(49,941)
(1,348,389)
(200,594)
(36,649)
—
685,097
(8,846)
—
(3,837)

358,841
(14,106)

45,848
11,215

Cash and cash equivalents at end of the period ..................................................................................... $

67,290 $

57,063 $

63,550
6,709
20,472
43,613
(111)
10,818
—
1,926
1,615

(24,954)
(2,717)
(8,021)
6,868
1,658
9,236
242,138
(1,735)
240,403

(574,777)
(276,047)
(26,622)
(1,926)
—
(5,099)
(884,471)

1,150,000
468,000
(310,000)
(31,965)
(904,467)
(97,500)
(26,421)
(7,480)
331,308
(7,762)
309
(420)

563,602
(2,359)

(82,825)
94,040

11,215

Supplemental Cash Flow Information:
Cash paid for interest ............................................................................................................................ $

159,098

Cash paid for income taxes ................................................................................................................... $

10,291

Effect of acquisitions:
Assets acquired, excluding cash ............................................................................................................ $
Liabilities assumed ...............................................................................................................................
Issuance of common stock in connection with acquisition ...................................................................
Redeemable noncontrolling interest resulting from acquisitions...........................................................
Cash paid for acquisitions, net of cash acquired ................................................................................... $

19,649
(1,458)
—
—
18,191

161,146 $

15,483 $

87,034

6,911

2,516,880 $
(1,616,543)
(216,882)
—
683,455 $

1,988,634
(1,024,515)
(380,210)
(9,132)
574,777

See accompanying notes.

F-9

Acadia Healthcare Company, Inc.
Notes to Consolidated Financial Statements
December 31, 2017

1. Description of Business and Basis of Presentation

Description of Business

Acadia Healthcare Company, Inc. (the “Company”) develops and operates inpatient psychiatric facilities, residential treatment

centers, group homes, substance abuse facilities and facilities providing outpatient behavioral healthcare services to serve the
behavioral health and recovery needs of communities throughout the United States (“U.S.”), the United Kingdom (“U.K.”) and Puerto
Rico. At December 31, 2017, the Company operated 582 behavioral healthcare facilities with approximately 17,800 beds in 39 states,
the U.K. and Puerto Rico.

Basis of Presentation

The business of the Company is conducted through limited liability companies, partnerships and C-corporations. The
Company’s consolidated financial statements include the accounts of the Company and all subsidiaries controlled by the Company
through its’ direct or indirect ownership of majority interests and exclusive rights granted to the Company as the controlling member
of an entity. All intercompany accounts and transactions have been eliminated in consolidation.

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting

principles (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements
and accompanying notes. Actual results could
differ from those estimates. The majority of the Company’s expenses are “cost of revenue” items. Costs that could be classified as
d
general and administrative expenses include the Company’s corporate office costs, which were $76.4 million, $86.8 million and
$68.3 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Certain reclassifications have been made to prior years to conform to the current year presentation.

2. Summary of Significant Accounting Policies

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. At
times, cash and cash equivalent balances may exceed federally insured limits. Management believes that the Company mitigates anynn
risks by depositing cash and investing in cash equivalents with major financial institutions.

Revenue and Accounts Receivable

Revenue is primarily derived from services rendered to patients for inpatient psychiatric and substance abuse care, outpatient

psychiatric care and adolescent residential treatment. The Company receives 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) public funded sources in the U.K. (including the NHS,
Clinical Commissioning Groups (“CCGs”) and local authorities in England, Scotland and Wales); and (v) individual patients and
clients. Revenue is recorded in the period in which services are prov
on amounts reimbursable by Medicare or Medicaid under provisions of cost or prospective reimbursement formulas or amounts due
from other third-party payors at contractually determined rates.

ided at established billing rates less contractual adjustments based

The following table presents the percentage of revenue before provision for doubtful accounts generated by each payor type:

Commercial ...............................................................................................
Medicare ....................................................................................................
Medicaid ....................................................................................................
U.K. public funded sources ........................................................................
Self-Pay .....................................................................................................
Other ..........................................................................................................

Revenue before provision for doubtful accounts .......................................

F-10

Year Ended December 31,

2017
19.8%
9.8
27.7
32.6
8.7
1.4

100%

2016
18.7%
9.4
25.4
35.8
9.4
1.3

100%

2015
23.1%
11.7
33.3
19.5
9.6
2.8

100%

On a combined basis, revenue related to the Medicare and Medicaid programs were 38%, 35% and 45% of all revenue before
provision for doubtful accounts for the years ended December 31, 2017, 2016 and 2015, respectively. The Company’s concentration
of credit risk from other payors is reduced by the large number of payors and their geographic
approximately 36%, 38% and 20% of its revenue for the years ended December 31, 2017, 2016 and 2015, respectively, from facilities
located in the U.K.

dispersion. The Company generated

Allowance for Contractual Discounts

The Company derives a significant portion of its 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
allowance for contractual discounts on a payor-specific basis given its interpretation of
t terms.
f
the applicable regulations or contrac
aa
The services authorized and provided and related reimbursement are often subject to interpretation that could result in payments that
differ from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitat
aa
regular review and assessment of the estimation process by management.

ing

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 am
ounts
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
r
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. The Company’s cost report receivables were
$9.0 million and $7.4 million at December 31, 2017 and 2016, 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 net adjustments to estimated cost report settlements resulted in increases to revenue of
$0.2 million, $0.7 million and $1.9 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Management believes that we are in substantial compliance with all applicable laws and regulations and is not aware of any
material pending or threatened investigations involving allegations of wrongdoing. Compliance with such laws and regulations can be
aa
subject to future government review and interpretation, as well as significant regulatory action including fines, penalties and exclusion
from the Medicare and Medicaid programs.

Allowance for Doubtful Accounts

The Company’s ability to collect outstanding patient receivables from third-party payors is critical to its operating performance
and cash flows. The primary collection risk with regard to patient receivables relates to uninsured patient accounts or patient accounts
for which primary insurance has paid, but the portion owed by the patient remains outstanding. The Company estimates uncollectible
accounts and establishes an allowance for doubtful accounts in order to adjust accounts receivable to estimated net realizable value. In
evaluating the collectability of accounts receivable, the Company considers a number of factors, including the age of the accounts,
historical collection experience, current economic conditions, and other relevant factors. Accounts receivable that are determined to be
uncollectible based on the Company’s policies are written off to the allowance for doubtful accounts. Significant changes in payor mix
or business office operations could have a significant impact on the Company’s results of operations and cash flows.

A summary of activity in the Company’s allowance for doubtful accounts is as follows (in thousands):

Year ended December 31, 2015 .............................. $
Year ended December 31, 2016 ..............................
Year ended December 31, 2017 ..............................

22,449 $
29,332
38,916

35,127 $
41,909
40,918

(28,244) $
(32,325)
(40,031)

29,332
38,916
39,803

Balance at
Beginning of
Period

Additions
Charged to Costs
and Expenses

Accounts
Written Off, Net
of Recoveries

Balance at
End of
Period

Charity Care

The Company provides care without charge to patients who are financially unable to pay for the healthcare services they receive

based on Company policies and federal and state poverty thresholds. The costs of providing charity care services were $6.6 million,
$7.1 million and $4.6 million for the years ended December 31, 2017, 2016 and 2015, respectively. The estimated cost of charity care
y
services was determined using a ratio of cost to gross charges determined from our most recently filed Medicare cost reports and
applying that ratio to the gross charges associated with providing charity care for the period.

F-11

Insurance

The Company is subject to medical malpractice and other lawsuits due to the nature of the services the Company provides. A

portion of the Company’s professional liability risk is insured through a wholly-owned insurance subsidiary. The Company’s wholly-
owned insurance subsidiary insures the Company for professional liability losses up to $78.0 million in the aggregate. The insurance
subsidiary has obtained reinsurance with unrelated commercial insurers for professional liability risks of $75.0 million in excess of a
retention level of $3.0 million. 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
expectations. While claims are monitored closely when estimating professional and general liability accruals, the complexity of the
f
claims and wide range of potential outcomes often hampers timely adjustments to the assumptions used in these estimates. The
y
professional and general liability reserve was $55.0 million as of December 31, 2017, of which $22.8 million was included in other
tt
accrued liabilities and $32.2 million was included in other long-term liabilities. The professional and general liability reserve was
$52.3 million as of December 31, 2016, of which $11.7 million was included in other accrued liabilities and $40.6 million was
included in other long-term liabilities. The Company estimates receivables for the portion of professional and general liability reserves
that are recoverable under the Company’s insurance policies. Such receivable was $22.7 million as of December 31, 2017, of which
$17.6 million was included in other current assets and $5.1 million was included in other assets, and such receivable was $25.9 million
as of December 31, 2016, of which $6.5 million was included in other current assets and $19.4 million was included in other assets.

differ from historical claim trends andaa

The Company’s statutory workers’ compensation program is fully insured with a $0.5 million deductible per accident. The
workers’ compensation liability was $18.5 million as of December 31, 2017, of which $10.0 million was included in accrued salaries
and benefits and $8.5 million was included in other long-term liabilities, and such liability was $16.6 million as of December
2016, of which $10.0 million was included in accrued salaries and benefits and $6.6 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.

31,
a

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 correspond
and accumulated depreciation are removed from the related accounts and any gain or loss is recorded in the period of sale or
uu
retirement. Repair and maintenance costs are expensed as incurred. Depreciation expense was $143.0 million, $134.8 million and
$63.0 million for the years ended December 31, 2017, 2016 and 2015, respectively.

d
ing cost

The carrying values of long-lived assets are reviewed for possible impairment whenever events, circumstances or operating

Goodwill and Indefinite-Lived Intangible Assets

The Company’s goodwill and other indefinite-lived intangible assets, which consist of licenses and accreditations and
certificates of need intangible assets that are not amortized, are evaluated for impairment annually during the fourth quarter
frequently if events indicate that the carrying value of a reporting unit may not be recoverable. The Company has two operating
segments, U.S. Facilities and U.K. Facilities, for segment reporting purposes, each of which represents a reporting unit for purposes of
the Company’s goodwill impairment test. Potential impairment is noted for a reporting unit if its carrying value exceeds the fair value
of the reporting unit. For a reporting unit with potential impairment of goodwill, the Company determines the implied fair value of
goodwill. If the carrying value of goodwill exceeds its implied fair value, an impairment loss is recorded. The Company’s annual
impairment tests of goodwill and other indefinite-lived intangibles in 2017, 2016 and 2015 resulted in no impairment charges.

or more

F-12

Other Current Assets

Other current assets consisted of the following (in thousands):

Other receivables ................................................................. $
Prepaid expenses .................................................................
Insurance receivable – current portion ................................
Income taxes receivable ......................................................
Workers’ compensation deposits – current portion .............
Inventory .............................................................................
Other ...................................................................................

As of December 31,

2017
30,455
27,320
17,588
15,056
10,000
4,787
2,129

2016
44,975
27,455
6,472
11,714
10,000
4,633
2,288

Other current assets ............................................................. $

107,335

107,537

Other Accrued Liabilities

Other accrued liabilities consisted of the following (in thousands):

Accrued expenses ................................................................ $
Accrued interest ..................................................................
Unearned income ................................................................
Insurance liability – current portion ....................................
Accrued property taxes .......................................................
Income taxes payable ..........................................................
Other ...................................................................................

As of December 31,

2017
37,268
36,370
31,342
22,788
3,945
1,012
8,488

2016
37,323
33,616
28,805
11,672
2,732
527
8,283

Other accrued liabilities ...................................................... $

141,213

122,958

Stock Compensation

The Company measures and recognizes the cost of employee services received in exchange for awards of equity instruments

based on the grant-date fair value in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 718, “Compensation—Stock Compensation.” The Company uses the Black-Scholes valuation model to
determine grant-date fair value for equity awards and uses straight-line amortization of share-based compensation expense over the
f
requisite service period of the respective awards.

Earnings Per Share

Basic and diluted earnings per share are calculated in accordance with FASB ASC 260, “Earnings Per Share

“

,” based on the

weighted-average number of shares outstanding in each period and dilutive stock options, non-vested shares and warrants, to the
extent such securities have a dilutive effect on earnings per share.

Income Taxes

The Company uses 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.

The Company reviews its deferred tax assets for recoverability and establishes 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. 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.

F-13

The Company records a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be

taken in a tax return. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income ta
xaa
expense.

The Tax Act was enacted on December 22, 2017. The Tax Act reduces the U.S. federal corporate tax rate from 35% to 21%,

requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and
creates new taxes on certain foreign sourced earnings. See additional disclosure described in Note 9 – Income Taxes. ASC 740
“Income Taxes” (“ASC 740”) requires the Company to recognize the effect of the tax law changes in the period of enactment.
However, the Securities and Exchange Commission (the “SEC”) staff issued Staff Accounting Bulletin 118 (“SAB 118”) which will
allow the Company to record provisional amounts during a measurement period similarly to the measurement period used when
accounting for business combinations. The Company will continue to assess the impact of the recently enacted tax law on its business
and consolidated financial statements.

Recent Accounting Pronouncements

In August 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-12, “Derivatives and Hedging (Topic 815):

Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017-12”). ASU 2017-12 amends the hedge accounting model
to enable entities to better portray the economics of their risk management
t
application of hedge accounting in certain situations. ASU 2017-12 is effective for fiscal years, and interim periods within those years,
beginning after December 15, 2018. Early adoption is permitted. Management is evaluating the impact of ASU 2017-12 on the
Company’s consolidated financial statements.

activities in the financial statements and simplifi

es the

”

In January 2017, the FASB issued ASU 2017-04, “Goodwill and Other (Topic 350): Simplifying the Test for Goodwill

Impairment” (“ASU 2017-04”). ASU 2017-04 simplifies the measurement of goodwill by eliminating the requirement to calculate the
implied fair value of goodwill (step 2 of the current impairment test) to measure the goodwill impairment charge. Instead, entities will
record impairment charges based on the excess of a reporting unit’s carrying amount over its fair value. ASU 2017-04 is effective for
fiscal years beginning after December 15, 2019. Early adoption is permitted. Management is evaluating the impact of ASU 2017-04
on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-

”

09”). ASU 2016-09 includes multiple provisions intended to simplify various aspects of the accounting for share-based payments.
ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company
a
adopted ASU 2016-09 as of January 1, 2017 as described in Note 9 – Income Taxes.

In March 2016, the FASB issued ASU 2016-02, “Leases” (“ASU 2016-02”). ASU 2016-02’s core principle is to increase
transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key
information. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018.
Additionally, ASU 2016-02 would permit both public and nonpublic organizations to adopt the new standard early. Management
believes the primary effect of adopting the new standard will be to record right-of-use assets and obligations for current operating
leases. Management is evaluating the impact ASU 2016-02 will have on the Company’s consolidated financial statements, internal
controls, policies and procedures.

In May 2014, the FASB and the International Accounting Standards Board issued ASU 2014-09, “Revenue from Contracts with

Customers (Topic 606)” (“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 the company expects to be entitled in
exchange for those goods or services. ASU 2014-09 requires companies to exercise more judgment and recognize revenue in
accordance with the standard’s core principle by applying the following five steps:

Step 1: Identify the contract with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

ASU 2014-09 also includes a cohesive set of quantitative and qualitative disclosure requirements about the nature, amount,

timing, and uncertainty of revenue and cash flows arising from the entity’s contracts with customers.

ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017.
Additionally, ASU 2014-09 would permit both public and nonpublic organizations to adopt the new revenue standard early, but not
before the original public organization effective date (that is, annual periods beginning after December 15, 2016). ASU 2014-09
requires retrospective application using either a full retrospective adoption or a modified retrospective adoption approach. Full

F-14

retrospective adoption requires entities to apply the standard as if it had been in effect since the inception of all its contracts with
customers presented in the financial statements. Modified retrospective adoption requires entities to apply the standard retrospectively
to the most current period presented in the financial statements, requiring the cumulative effect of the retrospective application as an
adjustment to the opening balance of retained earnings at the date of initial application.

The Company will adopt ASU 2014-09 using the modified retrospective method effective January 1, 2018 and will use a
portfolio approach to group contracts with similar characteristics and analyze historical cash collections trends. The Company
anticipates that, as a result of certain changes required by ASU 2014-09, the majority of its provision for doubtful accounts will be
recorded as a direct reduction to revenue instead of being presented as a separate line item. Management does not anticipate ASU
2014-09 will have a significant impact on the Company’s consolidated financial statements.

3. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2017,

2016 and 2015 (in thousands except per share amounts):

Year Ended December 31,

2017

2016

2015

Numerator: .............................................................................

Basic and diluted earnings per share attributable to

Acadia Healthcare Company, Inc.: ..........................

Income from continuing operations .................... $
Income from discontinued operations .................

199,835
—

6,143
—

112,443
111

Net income attributable to Acadia Healthcare

Company, Inc. ................................................ $

199,835

6,143

112,554

Denominator: .........................................................................
Weighted average shares outstanding for basic

earnings per share ....................................................
Effects of dilutive instruments .....................................

Shares used in computing diluted earnings per

86,948
112

85,701
271

68,085
306

common share ..........................................................

87,060

85,972

68,391

Basic earnings per share attributable to Acadia Healthcare

Company, Inc.: ..................................................................

Income from continuing operations .................... $
Income from discontinued operations .................

2.30
—

0.07
—

1.65
—

Net income attributable to Acadia Healthcare

Company, Inc.: ............................................... $

2.30

0.07

1.65

Diluted earnings per share attributable to Acadia Healthcare
Company, Inc.: ..................................................................

Income from continuing operations .................... $
Income from discontinued operations .................

2.30
—

0.07
—

1.64
—

Net income attributable to Acadia Healthcare

Company, Inc.: ............................................... $

2.30

0.07

1.64

Approximately 1.4 million, 1.1 million and 0.8 million shares of common stock issuable upon exercise of outstanding stock
options were excluded from the calculation of diluted earnings per share for the years ended December 31, 2017, 2016 and 2015,
respectively, because their effect would have been anti-dilutive.

4. Acquisitions

2017 Acquisition

On November 13, 2017, we completed the acquisition of Aspire Scotland, an education facility with 36 beds located in

Scotland, for cash consideration of approximately $21.3 million.

F-15

2016 U.S. Acquisitions

On June 1, 2016, the Company completed the acquisition of Pocono Mountain Recovery Center (“Pocono Mountain”), an
inpatient psychiatric facility with 108 beds located in Henryville, Pennsylvania, for cash consideration of approximately $25.4 million.

On May 1, 2016, the Company completed the acquisition of TrustPoint Hospital (“TrustPoint”), an inpatient psychiatric facility

with 100 beds located in Murfreesboro, Tennessee, for cash consideration of approximately $62.7 million.

On April 1, 2016, the Company completed the acquisition of Serenity Knolls (“Serenity Knolls”), an inpatient psychiatric

facility with 30 beds located in Forest Knolls, California, for cash consideration of approximately $10.0 million.

Priory

On February 16, 2016, the Company completed the acquisition of Priory Group No. 1 Limited (“Priory”) for a total purchase

price of approximately $2.2 billion, including cash consideration of approximately $1.9 billion and the issuance of 4,033,561 s
its common stock to shareholders of Priory. Priory was the leading independent provider of behavioral healthcare services in th
operating 324 facilities with approximately 7,100 beds at February 16, 2016.

hares of
e U.K.

The Competition and Markets Authority (the “CMA”) in the U.K. reviewed the Company’s acquisition of Priory. On July 14,

2016, the CMA announced that the Company’s acquisition of Priory was referred for a phase 2 investigation unless the Company
offered acceptable undertakings to address the CMA’s competition concerns relating to the provision of behavioral healthcare services
in certain markets. On July 28, 2016, the CMA announced that the Company had offered undertakings to address the CMA’s concerns
and that, in lieu of a phase 2 investigation, the CMA would consider the Company’s undertakings.

On October 18, 2016, the Company signed a definitive agreement with BC Partners (“BC Partners”) for the sale of 21 existing

U.K. behavioral health facilities and one de novo behavioral health facility with an aggregate of ap
(collectively, the “U.K. Disposal Group”). On November 10, 2016, the CMA accepted the Company’s undertakings to sell the U.K.
Disposal Group to BC Partners and confirmed that the divestiture satisfied the CMA’s concerns about the impact of the Company’s
acquisition of Priory on competition for the provision of behavioral healthcare services in certain markets in the U.K. As a result of the
CMA’s acceptance of the undertakings, the Company’s acquisition of Priory was not referred for a phase 2 investigation. On
November 30, 2016, the Company completed the sale of the U.K. Disposal Group to BC Partners for £320 million cash (the “U.K.
Divestiture”).

proximately 1,000 beds

In conjunction with the sale, the Company recorded a loss on divestiture of $175.0 million in the consolidated statements of
income for the year ended December 31, 2016. The loss on divestiture consisted of an allocation of goodwill to the U.K. Disposal
Group of $106.9 million, loss on the sale of properties of $42.0 million and estimated transaction-related expenses of $26.1 million.
The allocation of goodwill was based on the fair value of the U.K. Disposal Group relativ
e to the total fair value of the Company’s
ff
U.K. Facilities segment.

The consolidated statements of income for the year ended December 31, 2016 include revenue of $154.7 million and income

from continuing operations before income taxes of $81.2 million related to the U.K. Disposal Group excluding the loss on divestiture.
The consolidated statements of income for the year ended December 31, 2015 include revenue of $58.5 million and income from
continuing operations before income taxes of $17.0 million related to the U.K. Disposal Group excluding the loss on divestiture.

F-16

Summary of Acquisitions

The Company selectively seeks opportunities to expand and diversify its base of operations by acquiring additional facilities.

Approximately $31.4 million of the goodwill associated with domestic acquisitions completed in 2016 is deductible for federal i
tax purposes. The fair values assigned to certain assets and liabilities assumed, at the date of acquisition dates, during the year ended
December 31, 2016 in connection with Priory, Serenity Knolls, Trustpoint and Pocono Mountain acquisitions (collectively the “2016
Acquisitions”) were as follows (in thousands):

ncome

Cash ................................................................................ $
Accounts receivable ........................................................
Prepaid expenses and other current assets ......................
Property and equipment ..................................................
Goodwill .........................................................................
Intangible assets ..............................................................
Other assets .....................................................................

Total assets acquired .............................................
Accounts payable ............................................................
Accrued salaries and benefits .........................................
Other accrued expenses ..................................................
Deferred tax liabilities – noncurrent ...............................
Debt ................................................................................
.
Other liabilities ..............................................................

Total liabilities assumed ........................................

Priory

10,253
57,832
7,921
1,598,156
679,265
23,200
8,862

2,385,489
24,203
39,588
48,305
56,462
1,348,389
61,311

1,578,258

Other

2,488
4,264
103
35,400
96,052
338
47

138,692
749
918
391
269
—
30,243

32,570

Total

12,741
62,096
8,024
1,633,556
775,317
23,538
8,909

2,524,181
24,952
40,506
48,696
56,731
1,348,389
91,554

1,610,828

Net assets acquired ......................................................... $

807,231

106,122

913,353

Other

The qualitative factors comprising the goodwill acquired in the 2016 Acquisitions include efficiencies derived through synergies

expected by the elimination of certain redundant corporate functions and expenses, the ability to leverage call center referrals to a
broader provider base, coordination of services provided across the combined network of facilities, achievement of operating
efficiencies by benchmarking performance, and applying best practices throughout the combined companies.

Transaction-related expenses comprised the following costs for the years ended December 31, 2017, 2016 and 2015 (in

thousands):

Severance and contract termination costs .................................. $
Legal, accounting and other fees ...............................................
Advisory and financing commitment fees .................................

Year Ended December 31,

2017
14,709
9,558
—

2016
12,415
21,058
14,850

2015
8,466
17,768
10,337

$24,267

$48,323

$36,571

F-17

5. Other Intangible Assets

Other identifiable intangible assets and related accumulated amortization consisted of the following as of December 31, 2017

and 2016 (in thousands):

Intangible assets subject to amortization:
b
Contract intangible assets ............................................ $
Non-compete agreements ............................................

Intangible assets not subject to amortization:
Licenses and accreditations .........................................
Trade names ................................................................
.
Certificates of need .....................................................

Gross Carrying Amount

Accumulated Amortization

December 31,
2017

December 31,
2016

December 31,
2017

December 31,
2016

2,100 $
1,147

3,247

2,100 $
1,147

3,247

(2,100) $
(1,147)

(3,247)

12,266
60,586
14,496

87,348

12,228
57,538
13,544

83,310

—
—
—

—

(2,100)
(1,147)

(3,247)

—
—
—

—

Total ............................................................................ $

90,595 $

86,557 $

(3,247) $

(3,247)

Amortization expense related to definite-lived intangible assets was $0.4 million and $0.5 million for the years ended
December 31, 2016 and 2015, respectively. All the Company’s defined-lived intangible assets are fully amortized. The Company’s
licenses and accreditations, trade names and certificate of need intangible assets have indefinite lives and are, therefore, not subject to
amortization.

6. Long-Term Debt

Long-term debt consisted of the following (in thousands):

Amended and Restated Senior Credit

Facility:

Senior Secured Term A Loans .............. $
Senior Secured Term B Loans ..............
Senior Secured Revolving Line of

Credit ...............................................
6.125% Senior Notes due 2021 ......................
5.125% Senior Notes due 2022 ......................
5.625% Senior Notes due 2023 ......................
6.500% Senior Notes due 2024 ......................
9.0% and 9.5% Revenue Bonds .....................
Less: unamortized debt issuance costs,

discount and premium ...............................

Less: current portion ......................................

Long-term debt ............................................... $

December 31, 2017

December 31, 2016

380,000
1,398,400

400,000
1,435,450

—
150,000
300,000
650,000
390,000
21,920

(50,432)

3,239,888
(34,830)

3,205,058

—
150,000
300,000
650,000
390,000
22,175

(59,816)

3,287,809
(34,805)

3,253,004

Amended and Restated Senior Credit Facility

The Company entered into a senior secured credit facility (the “Senior Secured Credit Facility”) on April 1, 2011. On
December 31, 2012, the Company entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit
Agreement”) which amended and restated the Senior Secured Credit Facility (the “Amended and Restated Senior Credit Facility”).
The Company has amended the Amended and Restated Credit Agreement from time to time as described in the Company’s prior
filings with the SEC.

F-18

On January 25, 2016, the Company entered into the Ninth Amendment (the “Ninth Amendment”) to the Amended and Restated

Credit Agreement. The Ninth Amendment modified certain definitions and provided increased flexibility to the Company in terms of
ff
its financial covenants. The Company’s baskets for permitted investments were also increased to provide increased flexibility f
or it to
t
invest in non-wholly owned subsidiaries, joint ventures and foreign subsidiaries. The Company may now invest in non-wholly owned
subsidiaries and joint ventures up to 10.0% of the Company and its subsidiaries’ total assets in any four consecutive fiscal quarter
period, and up to 12.5% of the Company and its subsidiaries’ total assets during the term of the Amended and Restated Credit
Agreement. The Company may also invest in foreign subsidiaries that are not loan parties up to 10% of the Company and its
subsidiaries’ total assets in any consecutive four fiscal quarter period, and up to 15% of the Company and its subsidiaries’ total assets
during the term of the Amended and Restated Credit Agreement. The foregoing permitted investments are subject to an aggregate cap
of 25% of the Company and its subsidiaries’ total assets in any fiscal year.

On February 16, 2016, the Company entered into a Second Incremental Facility Amendment (the “Second Incremental

Amendment”) to the Amended and Restated Credit Agreement. The Second Incremen
d
incremental Term Loan B facility Tranche B-2 (the “Tranche B-2 Facility”) and added $135.0 million to the Term Loan A facility (the
“TLA Facility”) to the Amended and Restated Senior Credit Facility, subject to limited conditionality provisions. Borrowings under
ses for
the Tranche B-2 Facility were used to fund a portion of the purchase price for the acquisition of Priory and the fees and expen
such acquisition and the related financing transactions. Borrowings under the TLA Facility were used to pay down the majority of our
$300.0 million revolving credit facility.

tal Amendment activated a new $955.0 million

On May 26, 2016, the Company entered into a Tranche B-1 Repricing Amendment (the “Tranche B-1 Repricing Amendment”)

to the Amended and Restated Credit Agreement. The Tranche B-1 Repricing Amendment reduced the Applicable Rate with respect to
the Term Loan B facility Tranche B-1 (the “Tranche B-1 Facility”) from 3.5% to 3.0% in the case of Eurodollar Rate loans and 2.5%
to 2.0% in the case of Base Rate Loans.

On September 21, 2016, the Company entered into a Tranche B-2 Repricing Amendment (the “Tranche B-2 Repricing

Amendment”) to the Amended and Restated Credit Agreement. The Tranche B-2 Repricing Amendment reduced the Applicable Rate
with respect to the Tranche B-2 Facility from 3.75% to 3.0% in the case of Eurodollar Rate loans and 2.75% to 2.0% in the case of
Base Rate Loans. In connection with the Tranche B-2 Repricing Amendment, the Company recorded a debt extinguishment charge of
$3.4 million, including the discount and write-off of deferred financing costs, which was recorded in debt extinguishment costs in the
consolidated statements of income.

On November 22, 2016, the Company entered into a Tenth Amendment (the “Tenth Amendment”) to the Amended and
Restated Credit Agreement. The Tenth Amendment, among other things, (i) amended the negative covenant regarding dispositions,
(ii) modified the collateral package to release any real property with a fair market value of less than $5.0 million and (iii) changed
certain investment, indebtedness and lien baskets.

On November 30, 2016, the Company entered into a Refinancing Facilities Amendment (the “Refinancing Amendment”) to the
Amended and Restated Credit Agreement. The Refinancing Amendment increased the Company’s line of credit on its revolving credit
facility to $500.0 million from $300.0 million and reduced its TLA Facility to $400.0 million from $600.6 million (together, the
“Refinancing Facilities”). In addition, the Refinancing Amendment extended the maturity date for the Refinancing Facilities to
November 30, 2021 from February 13, 2019, and lowered the Company’s effective interest rate on the line of credit on its revolving
credit facility and TLA Facility by 50 basis points. In connection with the Refinancing Amendment, the Company recorded a debt
extinguishment charge of $0.8 million, including the write-off of deferred financing costs, which was recorded in debt extinguishment
in the consolidated statements of income.

On May 10, 2017, the Company entered into a Third Repricing Amendment (the “Third Repricing Amendment”) to the
Amended and Restated Credit Agreement. The Third Repricing Amendment reduced the Applicable Rate with respect to the Tranche
B-1 Facility and the Tranche B-2 Facility from 3.0% to 2.75% in the case of Eurodollar Rate loans and from 2.0% to 1.75% in the
case of Base Rate Loans. In connection with the Third Repricing Amendment, the Company recorded a debt extinguishment charge of
$0.8 million, including the discount and write-off of deferred financing costs, which was recorded in debt extinguishment costs in the
consolidated statements of operations.

The Company had $493.4 million of availability under the revolving line of credit and had standby letters of credit outstanding

of $6.6 million related to security for the payment of claims required by its workers’ compensation insurance program as of
December 31, 2017. 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 $5.0 million for
March 31, 2018 to December 31, 2019, $7.5 million for March 31, 2020 to December 31, 2020, and $10.0 million for March 31, 2021
to September 30, 2021, with the remaining principal balance of the TLA Facility due on the maturity date of November 30, 2021. The
Company is required to repay the Tranche B-1 Facility in equal quarterly installments of $1.3 million on the last business day of each

F-19

March, June, September and December, with the outstanding principal balance of the Tranche B-1 Facility due on February 11, 2022.
The Company is required to repay the Tranche B-2 Facility in equal quarterly installments of approximately $2.4 million on the last
business day of each March, June, September and December, with the outstanding principal balance of the Tranche B-2 Facility due
on February 16, 2023. On December 29, 2017, the Company made an additional payment of $22.5 million, including $7.7 million on
the Tranche B-1 Facility and $14.8 million on the Tranche B-2 Facility.

Borrowings under the Amended and Restated Senior Credit Facility are guaranteed by each of the Company’s wholly-owned

domestic subsidiaries (other than certain excluded subsidiaries) and are secured by a lien on substantially all of the assets of the
Company and such subsidiaries. Borrowings with respect to the TLA Facility and the Company’s 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 $40.0 million of unrestricted and unencumbered cash
to consolidated EBITDA, in each case as defined in the Amended and Restated Credit Agreement). The Applicable Rate (as defined in
the Amended and Restated Credit Agreement) for the Pro Rata Facilities was 2.75% for Eurodollar Rate Loans (as defined in the
Amended and Restated Credit Agreement) and 1.75% for Base Rate Loans (as defined in the Amended and Restated Credit
Agreement) at December 31, 2017. Eurodollar Rate Loans with respect to the Pro Rata Facilities bear interest at the Applicable Rate
plus the Eurodollar Rate (as defined in the Amended and Restated Credit Agreement) (based upon the LIBOR Rate (as defined in the
Amended and Restated Credit Agreement) 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%. As of December 31, 2017, the Pro Rata Facilities bore interest at a rate of LIBOR plus 2.75%. In
addition, the Company is required to pay a commitment fee on undrawn amounts under the revolving line of credit.

The Amended and Restated Credit Agreement requires the Company and its subsidiaries to comply with customary affirmative,

negative and financial covenants, including a fixed charge coverage ratio, consolidated leverage ratio and senior secured leverage
ratio. The Company may be required to pay all of its indebtedness immediately if it defaults on any of the numerous financial or other
restrictive covenants contained in any of its material debt agreements. As of December 31, 2017, the Company was in compliance
with such covenants.

Senior Notes

6.125% Senior Notes due 2021

On March 12, 2013, the Company issued $150.0 million of 6.125% Senior Notes due 2021 (the “6.125% Senior Notes”). The
on

6.125% Senior Notes mature on March 15, 2021 and bear interest at a rate of 6.125% per annum, payable semi-annually in arrears
t
March 15 and September 15 of each year.

5.125% Senior Notes due 2022

On July 1, 2014, the Company issued $300.0 million of 5.125% Senior Notes due 2022 (the “5.125% Senior Notes”). The

5.125% Senior Notes mature on July 1, 2022 and bear interest at a rate of 5.125% per annum, payable semi-annually in arrears on
January 1 and July 1 of each year.

5.625% Senior Notes due 2023

On February 11, 2015, the Company issued $375.0 million of 5.625% Senior Notes due 2023 (the “5.625% Senior Notes”). On

September 21, 2015, the Company 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 in February 2015. Giving
outstanding an aggregate of $650.0 million of 5.625% Senior Notes. The 5.625% Senior Notes mature on February 15, 2023 and bear
interest at a rate of 5.625% per annum, payable semi-annually in arrears on February 15 and August 15 of each year.

effect to this issuance, the Company has

6.500% Senior Notes due 2024

On February 16, 2016, the Company issued $390.0 million of 6.500% Senior Notes due 2024 (the “6.500% Senior Notes”). The

6.500% Senior Notes mature on March 1, 2024 and bear interest at a rate of 6.500% per annum, payable semi-annually in arrears o
n
t
March 1 and September 1 of each year, beginning on September 1, 2016.

The indentures governing the 6.125% Senior Notes, 5.125% Senior Notes, 5.625% Senior Notes and 6.500% Senior Notes
(together, 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.

F-20

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 November 11, 2012, in connection with the acquisition of Park Royal, the Company assumed debt of $23.0 million. The fair
market value of the debt assumed was $25.6 million and resulted in a debt premium balance being recorded as of the acquisition date.
The debt consisted of $7.5 million and $15.5 million of Lee County (Florida) Industrial Developm
ent Authority Healthcare Facilities
tt
Revenue Bonds, Series 2010 with stated interest rates of 9.0% and 9.5% (“9.0% and 9.5% Revenue Bonds”), respectively. The 9.0%
bonds in the amount of $7.5 million have a maturity date of December 1, 2030 and require yearly principal payments beginning in
2013. The 9.5% bonds in the amount of $15.5 million have a maturity date of December 1, 2040 and require yearly principal payments
beginning in 2031. The principal payments establish a bond sinking fund to be held with the trustee and shall be sufficient to redeem
the principal amounts of the 9.0% and 9.5% Revenue Bonds on their respective maturity dates. As of December 30, 2017 and
December 31, 2016, $2.3 million was recorded within other assets on the consolidated balance sheets related to the debt service
reserve fund requirements. The yearly principal payments, which establish a bond sinking fund, will increase the debt service reserve
fund requirements. The bond premium amount of $2.6 million is amortized as a reduction of interest expense over the life of the
revenue bonds using the effective interest method.

Debt Issuance Costs

Debt issuance costs are deferred and amortized to interest expense over the term of the related debt. Debt issuance costs at
December 31, 2017 were $46.5 million, net of accumulated amortization of $27.5 million. Debt issuance costs at December 31, 2016
were $55.3 million, net of accumulated amortization of $18.9 million. Amortization expense related to debt issuance costs, which is
included in interest expense on the consolidated statements of operations, was $8.6 million, $8.6 million and $5.1 million,
respectively, for the years ended December 31, 2017, 2016 and 2015.

Other

The aggregate maturities of long-term debt as of December 31, 2017 were as follows (in thousands):

2018 ........................................................................................ $
2019 ........................................................................................
2020 ........................................................................................
2021 ........................................................................................
2022 ........................................................................................
Thereafter ...............................................................................

34,830
34,855
44,880
474,910
767,240
1,933,605

Total ........................................................................................ $

3,290,320

7. Equity

Preferred Stock

The Company’s amended and restated certificate of incorporation provides that up to 10,000,000 shares of preferred stock may
be issued. The Board of Directors has the authority to issue preferred stock in one or more series and to fix for each series the voting
powers (full, limited or none), and the designations, preferences and relative participating,
qualifications, limitations or restrictions on the stock and the number of shares constituting any series and the designations of this
series, without any further vote or action by the stockholders.

optional or other special rights and

Common Stock

On March 3, 2016, the Company held a Special Meeting of Stockholders, where the Company’s stockholders approved an
amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the number of authorized shares of
Common Stock from 90,000,000 to 180,000,000 (the “Amendment”). On March 3, 2016, the Company filed the Amendment with the
Secretary of State of the State of Delaware. Holders of the Company’s common stock are entitled to one vote for each share held of
record on all matters on which stockholders may vote. There are no preemptive, conversion, redemption or sinking fund provisions
applicable to shares of the Company’s common stock. In the event of liquidation, dissolution or winding up, holders of the Company’s
common stock are entitled to share ratably in the assets available for distribution, subject to any prior rights of any holders of preferred

F-21

stock then outstanding. Delaware law prohibits the Company from paying any dividends unless it has capital surplus or net profi
available for this purpose. In addition, the Amended and Restated Senior Credit Facility imposes restrictions on the Company’s ability
to pay dividends.

Equity Offerings

On January 12, 2016, the Company completed the offering of 11,500,000 shares of common stock (including shares sold
pursuant to the exercise of the over-allotment option that the Company granted to the underwriters as part of the offering) at a price of
$61.00 per share. The net proceeds to the Company from the sale of the shares, after deducting the underwriting discount of
$15.8 million and additional offering-related costs of $0.7 million, were $685.0 million. The Company used the net offering proceeds
to fund a portion of the purchase price for the acquisition of Priory.

On February 16, 2016, the Company completed the acquisition of Priory for a total purchase price of approximately $2.2 billion

including cash consideration of approximately $1.9 billion and the issuance of 4,033,561 shares of common stock to shareholders of
Priory.

8. Equity-Based Compensation

Equity Incentive Plans

The Company issues stock-based awards, including stock options, restricted stock and restricted stock units, to certain officers,

employees and non-employee directors under the Acadia Healthcare Company, Inc. Incentive Compensation Plan (the “Equity
Incentive Plan”). As of December 31, 2017, a maximum of 8,200,000 shares of the Company’s common stock were authorized for
issuance as stock options, restricted stock and restricted stock units or other share-based compensation under the Equity Incentive
Plan, of which 4,498,687 were available for future grant. Stock options may be granted for terms of up to ten years. The Companynn
recognizes expense on all share-based awards on a straight-line basis over the requisite service period of the entire award. Grants to
employees generally vest in annual increments of 25% each year, commencing one year after the date of grant. The exercise prices of
stock options are equal to the closing price of the Company’s common stock on the most recent trading date prior to the date of grant.

The Company recognized $23.5 million, $28.3 million and $20.5 million in equity-based compensation expense for the years

ended December 31, 2017, 2016 and 2015, respectively. Stock compensation expense for the year ended December 31, 2017 included
forfeiture adjustments and restricted stock unit adjustments based on actual performance compared to vesting targets of $(5.7) million.
As of December 31, 2017, there was $42.5 million of unrecognized compensation expense related to unvested options, restricted stock
and restricted stock units, which is expected to be recognized over the remaining weighted average vesting period of 1.2 years.

As of December 31, 2017, there were no warrants outstanding and exercisable. The Company recognized a deferred income tax

benefit of $9.2 million and $10.7 million for the years ended December 31, 2017 and 2016, respectively, related to equity-based
compensation expense.

Stock option activity during 2016 and 2017 was as follows (aggregate intrinsic value in thousands):

Number of
Options

Weighted
Average
Exercise Price

Weighted
Average
Remaining
Contractual
Term (in years)

Aggregate
Intrinsic
Value

Options outstanding at January 1, 2016 .........................
Options granted ..............................................................
Options exercised ...........................................................
Options cancelled ...........................................................

694,743 $
503,850
(57,397)
(140,250)

Options outstanding at December 31, 2016 ....................
Options granted ..............................................................
Options exercised ...........................................................
Options cancelled ...........................................................

1,000,946
259,300
(87,367)
(198,313)

Options outstanding at December 31, 2017 ....................

974,566 $

Options exercisable at December 31, 2016 ....................

288,959 $

Options exercisable at December 31, 2017 ....................

405,634 $

42.87
57.98
31.92
57.13

49.42
42.25
25.92
54.71

47.89

42.81

41.20

7.70 $
9.28
N/A
N/A

7.80
9.30
N/A
N/A

7.46 $

6.22 $

6.05 $

20,717
297
1,530
N/A

8,166
205
1,636
N/A

3,802

6,111

3,549

F-22

Restricted stock activity during 2016 and 2017 was as follows:

Unvested at January 1, 2016 .............................................
Granted ..............................................................................
Cancelled...........................................................................
Vested ...............................................................................

Unvested at December 31, 2016 .......................................
Granted ..............................................................................
Cancelled...........................................................................
Vested ...............................................................................

Number of
Shares
944,562
387,347
(122,178)
(365,312)

844,419
404,224
(145,981)
(292,794)

Unvested at December 31, 2017 .......................................

809,868

Restricted stock unit activity during 2016 and 2017 was as follows:

Unvested at January 1, 2016 .............................................
Granted ..............................................................................
Cancelled ...........................................................................
Vested ...............................................................................

Unvested at December 31, 2016 .......................................
Granted ..............................................................................
Cancelled ...........................................................................
Vested ...............................................................................

Number of
Units
218,084
230,750
—
(175,235)

273,599
219,840
—
(132,530)

Unvested at December 31, 2017 .......................................

360,909

Weighted
Average
Grant-Date
Fair Value
52.74
55.38
57.02
47.18

55.76
42.38
55.03
53.07

50.19

Weighted
Average
Grant-Date
Fair Value
56.97
56.95
—
52.71

59.68
43.23
—
58.67

50.04

The grant-date fair value of the Company’s stock options is estimated using the Black-Scholes option pricing model. The
following table summarizes the grant-date fair value of options and the assumptions used to develop the fair value estimates for
options granted during the years ended December 31, 2017 and 2016:

Weighted average grant-date fair value of

options ....................................................... $

Risk-free interest rate .....................................
Expected volatility .........................................
Expected life (in years) ..................................

December 31, 2017

December 31, 2016

14.39

18.96

2.0%
33%
5.5

1.4%
33%
5.5

The Company’s estimate of expected volatility for stock options is based upon the volatility of guideline companies given the

lack of sufficient historical trading experience of the Company’s common stock. The risk-free interest rate is the approximate yield on
U.S. Treasury Strips having a life equal to the expected option life on the date of grant. The expected life is an estimate of the number
of years an option will be held before it is exercised.

9. Income Taxes

The Company adopted ASU 2016-09 as of January 1, 2017, which changes how the Company accounts for share-based awards

for tax purposes. Income tax effects of share-based awards are now recognized in the income statement, instead of through equity,tt
when the awards vest.

Excess tax benefits/deficiencies are generated when the deduction for tax purposes is greater/less than the compensation cost for

financial reporting purposes. Upon adoption of ASU 2016-09, the Company no longer records excess tax benefits/deficiencies in
additional paid-in capital as a component of equity. Instead, excess tax benefits/deficiencies are included in the provision for income

F-23

taxes on the consolidated statements of operations. These changes are recorded prospectively as of January 1, 2017, which resulted in
an increase in our income tax provision of $1.7 million, or an increase in the effective tax rate of 0.7%, for the year ended
December 31, 2017. Prior periods have not been adjusted. An adjustment for prior period excess tax benefits of $8.6 million is
recorded as a cumulative-effect adjustment in retained earnings at December 31, 2017 as the Company adopted ASU 2016-09 using
the modified retrospective transition method. Excess tax benefits were previously required to be included in financing activities on the
consolidated statement of cash flows and are now required to be included in operating activities. The changes to the consolidated
statement of cash flows are recorded prospectively as of January 1, 2017. Additionally, the Company has elected not to adjust i
ts
rr
policy on accounting for forfeitures and will continue to estimate forfeiture rates.

Income tax expense (benefit) from continuing operations consists of the following for the periods presented (in thousands):

Current:

Federal .............................................................................. $
State ..................................................................................
Foreign .............................................................................

Total current ..............................................................................
Deferred:

Federal ..............................................................................
State ..................................................................................
Foreign .............................................................................

Total deferred provision.............................................................

Year Ended December 31,

2017

2016

2015

3,325
680
1,832

5,837

27,179
4,408
(215)

31,372

572
(863)
423

132

45,077
1,491
(17,921)

28,647

(218)
4,078
5,915

9,775

40,635
5,349
(2,371)

43,613

Provision for income taxes ........................................................ $

37,209

28,779

53,388

A reconciliation of the U.S. federal statutory rate, from continuing operations, to the effective tax rate is as follows for the

periods presented:

U.S. federal statutory rate on income before income taxes ....................
Impact of foreign operations ..................................................................
Impact of foreign divestiture ..................................................................
Effects of statutory rate change..............................................................
State income taxes, net of federal tax effect ..........................................
Permanent differences ...........................................................................
Transaction related items .......................................................................
Change in valuation allowance ..............................................................
Unrecognized tax benefit release ...........................................................
Other ......................................................................................................

Year Ended December 31,

2017
35.0%
(14.1)
—
(8.5)
2.1
1.8
—
1.6
(0.8)
(1.4)

2016
35.0%
(13.5)
39.2
(14.5)
7.5
8.3
25.9
2.8
(7.2)
3.8

2015
35.0%
(10.0)
—
—
4.8
4.2
—
1.2
—
(2.8)

Effective income tax rate .......................................................................

15.7%

87.3%

32.4%

The domestic and foreign components of income (loss) from continuing operations before income taxes are as follows (in

thousands):

Foreign................................................................................. $
Domestic ..............................................................................

2017
120,905
115,893

Total ..................................................................................... $

236,798

Year Ended December 31,

2016

(144,717)
177,672

2015
28,316
136,437

32,955

164,753

F-24

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities of thett

Company at December 31, 2017 and December 31, 2016 were as follows (in thousands):

December 31,

2017

2016

Deferred tax assets:

Net operating losses and tax credit carryforwards –

federal and state .................................................. $

Bad debt allowance ..................................................
Accrued compensation and severance .....................
Pension reserves ......................................................
Insurance reserves ....................................................
Leases ......................................................................
Accrued expenses ....................................................
Interest carryforwards ..............................................
Other assets ..............................................................

Total gross deferred tax assets .......................
Less: valuation allowance ........................................

Deferred tax assets .........................................

Deferred tax liabilities:

Fixed asset basis difference .....................................
Prepaid items ...........................................................
Intangible assets .......................................................
Accrued expenses ....................................................
.
Other liabilities .......................................................

29,409
827
14,179
1,494
13,483
5,332
3,114
5,074
1,747

74,659
(21,155)

53,504

(54,214)
(1,490)
(70,820)
—
(3,582)

37,638
15,381
23,379
697
17,468
2,926
—
—
2,038

99,527
(16,031)

83,496

(45,510)
(1,324)
(77,655)
(4,531)
(29,216)

Total deferred tax liabilities ...........................

(130,106)

(158,236)

Total net deferred tax liability ........................................... $

(76,602)

(74,740)

The Company records a valuation allowance to reduce its net deferred tax assets to the amount that is more likely than not to be
realized. As of December 31, 2017 and 2016, the Company carried a valuation allowance against deferred tax assets of $21.2 million
and $16.0 million, respectively.

The domestic net operating loss carryforwards are approximately $28.4 million as of December 31, 2016. There are no domestic
y

net operating loss carryforwards at December 31, 2017. The foreign net operating loss carryforwards as of December 31, 2017 and
2016 are approximately $93.9 million and $92.2 million, respectively, and have no expiration.

The Company has state net operating loss carryforwards at December 31, 2017 and 2016 of approximately $256.9 million and

$223.3 million, respectively. These net operating loss carryforwards, if not used to offset future taxable income, will expire from 2018
to 2036. In addition, the Company has certain state tax credits of $0.9 million which will begin to expire in 2026 if not utilized.

Income taxes receivable was $15.1 million and $11.7 million at December 31, 2017 and 2016, respectively, and was included in

other current assets in the consolidated balance sheets. Income taxes payable of $1.0 million and $0.5 million at December 31, 2017
and 2016 was included in other accrued liabilities in the consolidated balance sheets.

The Company has recorded income taxes payable related to unrecognized tax benefits of $6.4 million and $7.8 million at
December 31, 2017 and 2016, respectively, in other liabilities in the consolidated balance sheets. A reconciliation of the beginning and
ending amount of unrecognized income tax benefits net of the federal benefit is as follows (in thousands):

Balance at January 1 ................................................................... $
Additions based on tax positions related to the current

year ...............................................................................
Additions for tax positions of prior years ..........................
Reductions as a result of the lapse of applicable statutes

of limitations .................................................................

2017
6,949

5,488
95

2016
4,511

—
5,427

2015
2,923

1,516
2,874

(6,428)

(2,989)

(2,802)

Balance at December 31 ............................................................. $

6,104

6,949

4,511

F-25

The Company recognizes interest and penalties related to unrecognized tax benefits in its consolidated balance sheets. As of

December 31, 2017 and 2016, the cumulative amounts recognized were $0.1 million and $0.9 million, respectively. It is possible the
amount of unrecognized tax benefit could change in the next twelve months as a result of a lapse of the statute of limitations and
settlements with taxing authorities; however, management does not anticipate the change will have a material impact on the
Company’s consolidated financial statements.

The Company’s uncertain tax positions are related to tax years that remain subject to examination by the relevant taxing
authorities. The Company and its subsidiaries file income tax returns in federal and in many state and local jurisdictions as well as
foreign jurisdictions. The Company may be subject to examination by the Internal Revenue Service (“IRS”) for calendar year 2014
through 2016. Additionally, any net operating losses that were generated in prior years and utilized in these years may also be subject
to examination by the IRS. In foreign jurisdictions, the Company may be subject to examination for calendar years 2013 through
2016. Generally, for state tax purposes, the Company’s 2011 through 2016 tax years remain open for examination by the tax
authorities. At the date of this report there were no audits or inquires that had progressed sufficiently to predict their ultimate outcome.

One of the Company’s Puerto Rico subsidiaries was granted a tax exemption for which a tax cred

it of up to 15% of eligible

ff
payroll expenses is available to offset up to 50% of the income taxes

aa
attributed to that entity.

It is the Company’s intention to utilize its earnings in the foreign operations for an indefinite period of time. At December 31,

2017, there were no undistributed earnings of the foreign subsidiaries as the cumulative net loss of its foreign subsidiaries exceeds the
cumulative earnings from its foreign subsidiaries. The cumulative net loss of the Company’s foreign subsidiaries includes a loss on
divestiture of $175.0 million related to the U.K. Divestiture on November 30, 2016. If a deferred tax liability for undistributed foreign
earnings becomes required, it would be significantly impacted by the Tax Act, the source location and amount of the distribution, the
underlying tax rate already paid on the earnings, foreign withholding taxes, foreign currency translation adjustment and the
opportunity to use foreign tax credits.

U.S. Tax Reform

On December 22, 2017, Public Law 115-97, informally referred to as The Tax Cuts and Jobs Act (the “Tax Act”) was enacted
into law. The Tax Act provides for significant changes to the U.S. tax code that impact businesses. Effective January 1, 2018, the Tax
Act reduces the U.S. federal tax rate for corporations from 35% to 21%, for U.S. taxable income. The Tax Act requires a one-time
remeasurement of deferred taxes to reflect their value at a lower tax rate of 21%. The Tax Act includes other changes, including, but
not limited to, requiring a one-time transition tax on certain repatriated earnings of foreign subsidiaries that is payable ove
r eight
years, a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries, a new provision designed to tax
global intangible low-taxed income, a limitation of the deduction for net operating losses, elimination of net operating loss carrybacks,
immediate deductions for depreciation expense for certain qualified property, additional limitations on the deductibility of executive
compensation and limitations on the deductibility of interest.

At December 31, 2017, the Company has not completed its accounting for the tax effects of enactment of the Tax Act; however,
in certain cases, as described below, the Company has made a reasonable estimate of the effects on our existing deferred tax balances.
In other cases, the Company has not been able to make a reasonable estimate and continues to account for those items based on its
existing accounting under ASC 740 and the provisions of the tax laws that were in effect immediately prior to enactment of the Tax
Act. For the items for which the Company was able to determine a reasonable estimate, the Company recognized a provisional amount
of $20.2 million, which is included as a component of income tax expense from continuing operations.

ASC 740 requires the Company to recognize the effect of tax law changes in the period of enactment. However, the SEC staff

issued SAB 118 which will allow the Company to record provisional amounts during a measurement period similarly to the
measurement period used when accounting for business combinations. The Company will continue to assess the impact of the recently
enacted tax law on its business and consolidated financial statements.

Provisional Amounts

Deferred Tax Assets and Liabilities

The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in

the future, which is generally 21%. As a result of the reduction in the corporate income tax rate, the Company is required to revalue its
net deferred tax assets and liabilities to account for the future impact of lower corporate tax rates on this deferred amount and record
any change in the value of such asset or liability as a one-time non-cash charge or benefit on its income statement. However, thett
Company is still analyzing certain aspects of the Tax Act and refining its calculations
, which could potentially affect the measurement
of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the remeasurement
of our deferred tax balance was $20.2 million.

F-26

U.S. Tax on Foreign Earnings

The one-time transition tax is based on total post-1986 earnings and profits that the Company previously deferred from U.S.

income taxes. The Company has not made sufficient progress on the earnings and profits analysis for its foreign subsidiaries to
reasonably estimate the effects of the one-time transition tax and, therefore, has not recorded provisional amounts. The Company
continues to apply ASC 740 based on the provisions of the tax laws in effect immediately prior to the Tax Act being enacted. Since
the Company had previously determined these amounts were indefinitely reinvested, no deferred taxes have been recorded at
December 31, 2017.

The Company’s accounting for Global Intangible Low-Taxed Income, Foreign-Derived Intangible Income, the Base Erosion

and Anti-Abuse Tax and any remaining impacts of the foreign income provisions of the Tax Act is incomplete. The Company has not
yet been able to make reasonable estimates of the effects of these items. Therefore, no provisional amounts have been recorded as of
December 31, 2017.

10. Derivatives

The Company entered into foreign currency forward contracts during the years ended December 31, 2017 and 2016 in
connection with (i) acquisitions in the U.K. and (ii) certain transfers of cash between the U.S. and U.K. under the Company’s cash
management and foreign currency risk management programs. Foreign currency forward contracts limit the economic risk of changes
in the exchange rate between US Dollars (“USD”) and British Pounds (“GBP”) associated with cash transfers.

The foreign currency contracts entered into during the year ended December 31, 2016 resulted in gains of $0.5 million which

have been recorded in the consolidated statements of income.

In May 2016, the Company entered into multiple cross currency swap agreements with an aggregate notional amount of
$650.0 million to manage foreign currency risk by effectively converting a portion of its fixed-rate USD-denominated senior notes,
including the semi-annual interest payments thereunder, to fixed-rate GBP-denominated debt of £449.3 million. The senior notes
effectively converted include $150.0 million aggregate principal amount of 6.125% Senior Notes, $300.0 million aggregate principal
amount of 5.125% Senior Notes and $200.0 million aggregate principal amount of 5.625% Senior Notes. During the term of the swap
agreements, the Company will receive semi-annual interest payments in USD from the counterparties at fixed interest rates, and the
Company will make semi-annual interest payments in GBP to the counterparties at fixed interest rates. The interest payments under
the cross-currency swap agreements result in £24.7 million of annual cash flows, from the Company’s U.K. business being converted
to $35.8 million (at a 1.45 exchange rate). The interest rates applicable to the GBP interest payments are substantially the same as the
interest rates in place for the existing USD-denominated debt. At maturity, the Company will repay the principal amounts listed above
in GBP and receive the principal amount in USD.

The Company has designated the cross currency swap agreements and certain forward contracts entered into during 2016 and

2017 as qualifying hedging instruments and is accounting for these as net investment hedges. At December 31, 2017 and 2016, the fair
value of these derivatives are $13.0 million and $73.5 million, respectively, and are recorded as an asset within derivative instruments
on the consolidated balance sheets. The gains and losses resulting from fair value adjustments to the cross currency swap agreements
are recorded in accumulated other comprehensive income as the swaps are effective in hedging the designated risk. Cash flows related
to the cross currency swaps are included in operating activities in the consolidated statements of cash flows.

F-27

11. Fair Value Measurements

The carrying amounts reported for cash and cash equivalents, accounts receivable, other current assets, accounts payable and

other current liabilities approximate fair value because of the short-term maturity of these instruments.

The carrying amounts and fair values of the Company’s Amended and Restated Senior Credit Facility, 6.125% Senior Notes,

5.125% Senior Notes, 5.625% Senior Notes, 6.500% Senior Notes, 9.0% and 9.5% Revenue Bonds, derivative instruments and
contingent consideration liability as of December 31, 2017 and 2016 were as follows (in thousands):

Amended and Restated Senior Credit Facility .............. $
6.125% Senior Notes due 2021 ..................................... $
5.125% Senior Notes due 2022 ..................................... $
5.625% Senior Notes due 2023 ..................................... $
6.500% Senior Notes due 2024 ..................................... $
9.0% and 9.5% Revenue Bonds .................................... $
Derivative instruments .................................................. $
Contingent consideration liabilities ............................... $

Carrying Amount

December 31,

Fair Value

December 31,

2017
1,749,185 $
148,098 $
296,174 $
641,891 $
382,251 $
22,289 $
12,997 $
— $

2016
1,799,993 $
147,574 $
295,442 $
640,574 $
381,268 $
22,959 $
73,509 $
107 $

2017
1,749,185 $
150,134 $
296,914 $
651,519 $
397,541 $
22,289 $
12,997 $
— $

2016
1,799,993
152,186
293,595
640,574
389,847
22,959
73,509
107

The Company’s Amended and Restated Senior Credit Facility, 6.125% Senior Notes, 5.125% Senior Notes, 5.625% Senior

Notes, 6.500% Senior Notes and 9.0% and 9.5% Revenue Bonds were categorized as Level 2 in the GAAP fair value hierarchy. Fair
values were based on trading activity among the Company’s lenders and the average bid and ask price as determined using published
rates.

The fair values of the derivative instruments were categorized as Level 2 in the GAAP fair value hierarchy and were based on

observable market inputs including applicable exchange rates and interest rates.

The fair value of the contingent consideration liabilities were categorized as Level 3 in the GAAP fair value hierarchy. The
contingent consideration liabilities were valued using a probability-weighted discounted cash flow method. This analysis reflected the
contractual terms of the purchase agreements and utilized assumptions with regard to future earnings, probabilities of achievin
future earnings and a discount rate.

g such

12. Leases

The Company is obligated under certain operating leases to rent space for its facilities and other office space. The original terms

of the leases typically range from five to 30 years, with optional renewal periods.

Aggregate minimum lease payments under non-cancelable operating leases with original or remaining lease terms in excess of

one year were as follows as of December 31, 2017 (in thousands):

2018 ............................................................................................................. $
2019 .............................................................................................................
2020 .............................................................................................................
2021 .............................................................................................................
2022 .............................................................................................................
Thereafter ....................................................................................................

69,613
64,556
60,156
56,620
51,071
835,369

Total minimum rental obligations ............................................................... $

1,137,385

During the years ended December 31, 2017, 2016 and 2015, rent expense was $76.8 million, $73.3 million and $32.5 million,

respectively.

F-28

13. Commitments and Contingencies

The Company is, from time to time, subject to various claims, governmental investigations and regulatory actions that arise in

the ordinary course of the Company’s business, including claims for damages for personal injuries, medical malpractice,
overpayments, breach of contract, tort and employment related claims. In these actions, plaintiffs request a variety of damages,
including, in some instances, punitive and other types of damages that may not be cove
red by insurance. In addition, healthcare
t
companies are subject to numerous investigations by various governmental agencies. Under the federal False Claims Act, private
parties have the right to bring qui tam, or “whistleblower,” suits against companies that submit false claims for payments to, or
improperly retain overpayments from, the government. Some states have adopted similar state whistleblower and false claims
provisions. Certain of our individual facilities have received, and from time to time, other facilities may receive, government inquiries
from, and may be subject to investigation by, federal and state agencies. In the opinion of management, the Company is not currently a
party to any proceeding that would individually or in the aggregate have a material adverse effect on the Company’s business,
financial condition or results of operations.

14. Noncontrolling Interests

d
Noncontrolling interests in the consolidated financial statements represents the portion

of equity held by noncontrolling partners

in non-wholly owned subsidiaries the Company controls. At December 31, 2017, certain of these non-wholly owned subsidiaries
operated three facilities. The Company owns between 60% and 75% of the equity interests in th
e entity that owns each facility, and
noncontrolling partners own the remaining equity interests. The initial value of the noncontrolling interests is based on the fair value
of contributions, and the Company consolidates the operations of each facility based on its equity ownership and its control of the
entity. The noncontrolling interests are reflected as redeemable noncontrolling interests on the accompanying consolidated balance
sheets based on put rights that could require the Company to purchase the noncontrolling interests upon the occurrence of a change in
control.

The components of redeemable noncontrolling interests are as follows (in thousands):

Balance at January 1, 2016 ......................................................................... $
Acquisition of redeemable noncontrolling interests ..........................
Net loss attributable to noncontrolling interests ................................

Balance at December 31, 2016

...................................................................
Acquisition of redeemable noncontrolling interests ..........................
Net loss attributable to noncontrolling interests ................................

8,055
11,666
(1,967)

17,754
4,909
(246)

Balance at December 31, 2017

................................................................... $

22,417

15. Segment Information

The Company operates in one line of business, which is operating acute inpatient psychiatric facilities, specialty treatment

facilities, residential treatment centers and facilities providing outpatient behavioral he
ff
operating results of its facilities in the United States (the “U.S. Facilities”) and its facilities in the United Kingdom (the “U.K.
Facilities”) separately to assess performance and make decisions, the Company’s operating segments include its U.S. Facilities and
U.K. Facilities. At December 31, 2017, the U.S. Facilities included 209 behavioral healthcare facilities with approximately 8,900 beds
in 39 states and Puerto Rico, and the U.K. Facilities included 373 behavioral healthcare facilities with approximately 8,900 beds in the
U.K.

althcare services. As management reviews the

F-29

The following tables set forth the financial information by operating segment, including a reconciliation of Segment EBITDA to

income from continuing operations before income taxes (in thousands):

Year Ended December 31,

2017

2016

2015

Revenue:

U.S. Facilities ...................................................... $
U.K. Facilities .....................................................
Corporate and Other ............................................

1,809,844
1,026,472
—

1,698,525
1,110,361
2,028

1,426,205
360,698
7,589

2,836,316

2,810,914

1,794,492

Segment EBITDA(1):

475,260
198,566
(69,467)

443,341
245,046
(79,797)

377,587
90,035
(62,790)

604,359

608,590

404,832

Segment EBITDA(1) ........................................................ $
Plus (less):

Year Ended December 31,

2017
604,359

2016
608,590

2015
404,832

Equity-based compensation expense .......................
Debt extinguishment costs ......................................
Loss on divestiture ..................................................
Gain (loss) on foreign currency derivatives ............
Transaction-related expenses ..................................
Interest expense, net ................................................
Depreciation and amortization ................................

(23,467)
(810)
—
—
(24,267)
(176,007)
(143,010)

(28,345)
(4,253)
(178,809)
523
(48,323)
(181,325)
(135,103)

(20,472)
(10,818)
—
(1,926)
(36,571)
(106,742)
(63,550)

Income from continuing operations before income

taxes ............................................................................. $

236,798

32,955

164,753

U.S. Facilities

U.K. Facilities

Corporate and
Other

Consolidated

Goodwill:

Balance at January 1, 2017 .............................. $
Increase from 2017 acquisition ........................
Foreign currency translation ............................
Purchase price allocation and other .................

2,041,795 $

639,393 $

—
—
797

15,302
60,770
(6,883)

— $
—
—
—

2,681,188
15,302
60,770
(6,086)

Balance at December 31, 2017 ........................ $

2,042,592 $

708,582 $

— $

2,751,174

December 31,

2017

2016

Assets(2):

U.S. Facilities .................................................... $
U.K. Facilities ....................................................
Corporate and Other ..........................................

3,567,126
2,647,150
210,226

3,382,167
2,441,018
201,541

6,424,502

6,024,726

(1) Segment EBITDA is defined as income from continuing operations before provision for income taxes, equity-based

compensation expense, debt extinguishment costs, gain on foreign currency derivatives, transaction-related expenses, interest
expense and depreciation and amortization. The Company uses Segment EBITDA as an analytical indicator to measure the
performance of the Company’s segments and to develop strategic objectives and operating plans for those segments. Segment
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. Segment EBITDA should not be considered as a measure of financial performance under
generally accepted accounting principles, and the items excluded from Segment EBITDA are significant components in

F-30

understanding and assessing financial performance. Because Segment EBITDA is not a measurement determined in accordance
with generally accepted accounting principles and is thus susceptible to varying calculations, Segment EBITDA, as presented,
may not be comparable to other similarly titled measures of other companies.

(2) Assets include property and equipment for the U.S. Facilities of $1.2 billion, U.K. Facilities of $1.8 billion and corporate and

other of $49.2 million at December 31, 2017. Assets include property and equipment for the U.S. Facilities of $1.0 billion, U.K.
Facilities of $1.7 billion and corporate and other of $27.1 million at December 31, 2016.

16. Employee Benefit Plans

Defined Contribution Plan

The Company maintains a qualified defined contribution 401(k) plan covering

substantially all of its employees in the U.S. The
Company may, at its discretion, make contributions to the plan. The Company contributed $0.2 million, $0.1 million, and $0.1 million
to the 401(k) plan for the years ended December 31, 2017, 2016 and 2015, respectively.

Partnerships in Care Pension Plan

As part of the acquisition of Partnerships in Care on July 1, 2014, the Company assumed a frozen contributory defined benefit

retirement plan (“Partnerships in Care Pension Plan”) covering substantially all of the employees of Partnerships in Care and its
subsidiaries prior to May 1, 2005 at which time, the Partnerships in Care Plan was frozen to new participants. Effective May 2015, the
active participants no longer accrue benefits. The benefits under the Partnerships in Care Pension Plan were primarily based on years
of service and final average earnings.

The Company accounts for the Partnerships in Care Pension Plan in accordance with ASC 715-30 “Compensation — Defined
Benefit Plans”, (“ASC 715-30”). In accordance with ASC 715-30, the Company recognizes the unfunded liability of the Partnerships
in Care Pension Plan on the Company’s consolidated balance sheet and unrecognized gains (losses) and prior service credits (costs) as
changes in other comprehensive income (loss). The measurement date of the Partnerships in Care Pension Plan’s assets and liabilities
coincides with the Company’s year-end. The Company’s pension benefit obligation is measured
incorporate discount rates, rate of compensation increases, when applicable, expected long-term returns on plan assets and consider
n
expected age of retirement and mortality. Expected return on plan assets is determined by using the specific asset distribution
at the
measurement date.

using actuarial calculations that

The following table summarizes the funded status (unfunded liability) of the Partnerships in Care Pension Plan based upon

actuarial valuations prepared as of December 31, 2017 and 2016 (in thousands):

Projected benefit obligation ................................................ $
Fair value of plan assets ......................................................

2017
67,288
58,493

2016
64,162
53,462

Unfunded liability ............................................................... $

8,795

10,700

The following table summarizes changes in the Partnerships in Care Pension Plan net pension liability as of December 31, 2017

and 2016 (in thousands):

Net pension liability at beginning of period ........................ $
Employer contributions .......................................................
Net pension expense (benefit) .............................................
Pension liability adjustment ................................................
Foreign currency translation gain (loss) ..............................

2017
10,700
(809)
426
(2,544)
1,022

2016
2,821
(740)
339
8,781
(501)

Net pension liability at end of period .................................. $

8,795

10,700

A pension liability of $8.8 million and $10.7 million were recorded within other liabilities on the consolidated balance sheets as

of December 31, 2017 and 2016. The following assumptions were used to determine the plan benefit obligation:

Discount rate ..........................................
Compensation increase rate ....................
Measurement date ..................................

2.5%
2.3%

2.7%
2.4%

December 31, 2017

December 31, 2016

F-31

A summary of the components of net pension plan expense for the year ended December 31, 2017 and 2016 is as follows (in

thousands):

Interest cost on projected benefit obligation ....................... $
ff
Expected return on assets ....................................................

2017
1,738
(1,312)

Total pension plan expense (benefit) ................................... $

426

2016
1,964
(1,625)

339

Assumptions used to determine the net periodic pension plan expense for the year ended December 31, 2017 and 2016 were as

follows:

Discount rate .................................................................................
Expected long-term rate of return on plan assets ..........................

2017
2.5%
2.5%

2016
2.7%
2.7%

The Company recognizes changes in the funded status of the pension plan as a direct increase or decrease to stockholders’

equity through accumulated other comprehensive income. The accumulated other comprehensive income (loss) related to the
Partnerships in Care Pension Plan for the years ended December 31, 2017, 2016 and 2015 was $(4.1) million ($(4.5) million net of
taxes), $(7.4) million ($6.1 million net of taxes) and $2.6 million ($(1.7) million net of taxes), respectively.

The trustees of the Partnerships in Care Pension Plan are required to invest assets in the best interest of the Partnerships in Care
Pension Plan’s members and also ensure liquid assets are available to make benefit payments as they become due. Performance of the
Partnerships in Care Pension Plan’s assets are monitored quarterly, at a minimum, and asset allocations are adjusted as needed. The
Partnerships in Care Pension Plan’s weighted-average asset allocations by asset category as of December 31, 2017 and 2016 were as
follows:

Cash and cash equivalents ...............................
U.K. government obligation ............................
Annuity contracts ............................................
Equity securities ..............................................
Debt securities .................................................
Other ...............................................................

December 31, 2017
0.7%
19.0%
38.6%
29.4%
9.9%
2.4%

December 31, 2016
1.5%
14.5%
41.6%
26.3%
12.1%
4.0%

As of December 31, 2017 and 2016, the Partnerships in Care Pension Plan cash and cash equivalents were classified as Level 1

in the GAAP fair value hierarchy. Fair values were based on utilizing quoted prices (unadjusted) in active markets for identical assets.
The U.K. government obligations, annuity contracts, equity securities, debt securities
and other investments were classified as Level 2
in the GAAP fair value hierarchy. Fair values were based on data points that are observable, such as quoted prices, interest rates and
yield curves.

F-32

17. Other Comprehensive Loss

The components of accumulated other comprehensive loss are as follows (in thousands):

Balance at January 1, 2015 .................................... $

Foreign currency translation loss .................
Pension liability adjustment, net of tax of

$0.9 million .............................................
Balance at December 31, 2015 ..............................
Foreign currency translation loss .................
Gain on derivative instruments, net of tax

of $29.1 million .......................................

Pension liability adjustment, net of tax of

$(1.3) million ..........................................
Balance at December 31, 2016 ..............................
Foreign currency translation gain ................
Loss on derivative instruments, net of tax

of $(22.9) million ....................................

Pension liability adjustment, net of tax of

$0.4 million .............................................

Balance at December 31, 2017 .............................. $

Foreign Currency
Translation
Adjustments

Change in Fair
Value of
Derivative
Instruments

Pension Plan

(66,206) $
(40,103)

— $
—

(2,164) $
—

—
(106,309)
(477,772)

—

—
(584,081)
207,341

—
—
—

40,598

—
40,598
—

Total
(68,370)
(40,103)

3,826
(104,647)
(477,772)

3,826
1,662
—

—

40,598

(7,749)
(6,087)
—

(7,749)
(549,570)
207,341

—

(33,431)

—

(33,431)

—
(376,740) $

—
7,167 $

1,542
(4,545) $

1,542
(374,118)

18. Quarterly Information (Unaudited)

The tables below present summarized unaudited quarterly results of operations for the years ended December 31, 2017 and
n

2016. Management believes that all necessary adjustments have been included in the amounts stated below for a fair presentation of
the results of operations for the periods presented when read in conjunction with the Company’s consolidated financial statements for
the years ended December 31, 2017 and 2016. Results of operations for a particular quarter are not necessarily indicative of results of
operations for an annual period and are not predictive of future periods.

Quarter Ended

March 31,

June 30,

September 30,

December 31,

(In thousands except per share amounts)

2017:
Revenue ......................................................................... $
Income from continuing operations before income

679,194 $

715,896 $

716,714

taxes .......................................................................... $

48,484 $

66,216 $

61,459

Net income attributable to Acadia Healthcare

Company, Inc. stockholders ..................................... $

34,958 $

49,630 $

45,618

Basic earnings per share attributable to Acadia

Healthcare Company, Inc. stockholders ................... $

0.40 $

0.57 $

Diluted earnings per share attributable to Acadia

Healthcare Company, Inc. stockholders ................... $

0.40 $

0.57 $

0.52

2016:
Revenue ......................................................................... $
Income from continuing operations before income

616,813 $

756,548 $

734,665

724,512

60,639

69,629(1)

0.80(1)

702,888

taxes .......................................................................... $

32,479 $

73,852 $

(115,814)(2) $

42,438(3)

Net income attributable to Acadia Healthcare

Company, Inc. stockholders ..................................... $

25,688 $

56,445 $

(117,808)(2) $

41,818(3)

Basic earnings per share attributable to Acadia

Healthcare Company, Inc. stockholders ................... $

0.31 $

0.65 $

(1.36)(2) $

Diluted earnings per share attributable to Acadia

Healthcare Company, Inc. stockholders ................... $

0.31 $

0.65 $

(1.36)(2) $

0.48(3)

(1)
(2)

(3)

Includes a one-time tax benefit of $20.2 million on revaluation of deferred tax items pursuant to the enactment of the Tax Act.
Includes loss on divestiture of $174.7 million and debt extinguishment costs of $3.4 million, or $142.0 million net of taxes, in
connection with the U.K. Divestiture and the repricing of our Tranche B-2 Facility.
Includes loss on divestiture of $4.0 million and debt extinguishment costs of $0.8 million, or $3.1 million net of taxes, in
connection with the Company’s divestitures and the Refinancing Amendment.

F-33

19. Financial Information for the Company and Its Subsidiaries

The Company conducts substantially all of its business through its subsidiaries. The 6.125% Senior Notes, 5.125% Senior
aa
Notes, 5.625% Senior Notes and 6.500% senior notes are jointly and severally guaranteed on an unsecured senior basis by all of
Company’s subsidiaries that guarantee the Company’s obligations under the Amended and Restated Senior Credit Facility. Presented
below is condensed consolidating financial information for the Company and its subsidiaries as of December 31, 2017 and 2016, and
for the years ended December 31, 2017, 2016 and 2015. The information segregates the parent company (Acadia Healthcare
Company, Inc.), the combined wholly-owned subsidiary guarantors, the combined non-guarantor subsidiaries and eliminations.

the

Acadia Healthcare Company, Inc.
Condensed Consolidating Balance Sheets
December 31, 2017
(In thousands)

Parent

Combined
Subsidiary
Guarantors

Combined
Non-
Guarantors

Consolidating
Adjustments

Total
Consolidated
Amounts

Current assets:

Cash and cash equivalents .................................. $
Accounts receivable, net .....................................
Other current assets ............................................

— $
—
—

Total current assets ...................................
Property and equipment, net ........................................
Goodwill ......................................................................
Intangible assets, net ....................................................
Deferred tax assets – noncurrent ..................................
Derivative instruments .................................................
Investment in subsidiaries ............................................
Other assets ..................................................................

—
—
—
—
2,370
12,997
5,429,386
381,913

46,860 $

230,890
85,746

363,496
1,086,802
1,936,057
57,628
—
—
—
38,860

20,430 $
66,035
21,589

— $
—
—

67,290
296,925
107,335

108,054
1,961,328
815,117
29,720
3,731
—
—
7,807

—
—
—
—
(2,370)
—
(5,429,386)
(379,008)

471,550
3,048,130
2,751,174
87,348
3,731
12,997
—
49,572

Total assets ................................................................... $ 5,826,666 $ 3,482,843 $ 2,925,757 $

(5,810,764) $ 6,424,502

Current liabilities:

Current portion of long-term debt ...................... $
Accounts payable ...............................................
Accrued salaries and benefits .............................
Other accrued liabilities ......................................

34,550 $
—
—
36,196

Total current liabilities ..............................
Long-term debt ............................................................
Deferred tax liabilities – noncurrent ............................
.
Other liabilities ...........................................................

70,746
3,183,049
—
—

Total liabilities .............................................................

3,253,795

Redeemable noncontrolling interests ...........................

—

— $

280 $

70,767
69,057
27,676

167,500
—
27,975
103,112

298,587

—

31,532
29,990
77,341

139,143
401,017
54,728
63,322

658,210

22,417

— $
—
—
—

—
(379,008)
(2,370)
—

(381,378)

34,830
102,299
99,047
141,213

377,389
3,205,058
80,333
166,434

3,829,214

—

22,417

Total equity ..................................................................

2,572,871

3,184,256

2,245,130

(5,429,386)

2,572,871

Total liabilities and equity ........................................... $ 5,826,666 $ 3,482,843 $ 2,925,757 $

(5,810,764) $ 6,424,502

F-34

Acadia Healthcare Company, Inc.
Condensed Consolidating Balance Sheets
December 31, 2016
(In thousands)

Parent

Combined
Subsidiary
Guarantors

Combined
Non-
Guarantors

Consolidating
Adjustments

Total
Consolidated
Amounts

Current assets:

Cash and cash equivalents .................................. $
Accounts receivable, net .....................................
Other current assets ............................................

— $
—
—

—
—
—
—
13,522
73,509
4,885,865
493,294

15,681 $

209,124
61,724

286,529
940,880
1,935,260
56,676
—
—
—
40,480

41,382 $
54,203
45,813

— $
—
—

57,063
263,327
107,537

141,398
1,762,815
745,928
26,634
4,606
—
—
7,189

—
—
—
—
(14,348)
—
(4,885,865)
(489,646)

427,927
2,703,695
2,681,188
83,310
3,780
73,509
—
51,317

Total assets ................................................................... $ 5,466,190 $ 3,259,825 $ 2,688,570 $

(5,389,859) $ 6,024,726

Current liabilities:

34,550 $
—
—
33,616

68,166
3,230,300
—
—

Total liabilities .............................................................

3,298,466

Redeemable noncontrolling interests ...........................

—

— $

255 $

49,205
72,835
24,375

146,415
—
40,574
101,938

288,927

—

30,829
32,233
64,967

128,284
512,350
52,294
62,921

755,849

17,754

— $
—
—
—

—
(489,646)
(14,348)
—

(503,994)

34,805
80,034
105,068
122,958

342,865
3,253,004
78,520
164,859

3,839,248

—

17,754

Total equity ..................................................................

2,167,724

2,970,898

1,914,967

(4,885,865)

2,167,724

Total liabilities and equity ........................................... $ 5,466,190 $ 3,259,825 $ 2,688,570 $

(5,389,859) $ 6,024,726

F-35

Acadia Healthcare Company, Inc.
Condensed Consolidating Statement of Comprehensive Income
Year Ended December 31, 2017
(In thousands)

Combined
Subsidiary
Guarantors

Combined
Non-
Guarantors

Consolidating
Adjustments

Total
Consolidated
Amounts

Parent

Revenue before provision for doubtful accounts .......... $
Provision for doubtful accounts ....................................

Revenue ........................................................................
Salaries, wages and benefits .........................................
Professional fees ...........................................................
Supplies .........................................................................
Rents and leases ............................................................
Other operating expenses ..............................................
Depreciation and amortization ......................................
Interest expense, net ......................................................
Debt extinguishment costs ............................................
Transaction-related expenses ........................................

Total expenses ...........................................

(Loss) income from continuing operations before

income taxes .............................................................
Equity in earnings of subsidiaries .................................
(Benefit from) provision for income taxes ....................

Income (loss) from continuing operations ....................
Income from discontinued operations, net of income

taxes .........................................................................
Net income (loss) ..........................................................
Net loss attributable to noncontrolling interests ............

Net income attributable to Acadia Healthcare

— $ 1,746,656 $ 1,130,578 $
—

(5,282)

(35,636)

— $ 2,877,234
(40,918)
—

—
23,467
—
—
—
—
—
61,872
810
—

86,149

(86,149)
259,282
(26,456)

199,589

—

199,589
—

1,711,020
902,180
93,991
75,248
33,365
217,900
66,482
81,274
—
11,236

1,125,296
610,513
102,232
39,191
43,410
113,927
76,528
32,861
—
13,031

1,481,676

1,031,693

—
—
—
—
—
—
—
—
—
—

—

229,344
—
69,882

159,462

—

159,462
—

93,603
—
(6,217)

99,820

—

99,820
246

—
(259,282)
—

(259,282)

—

(259,282)
—

2,836,316
1,536,160
196,223
114,439
76,775
331,827
143,010
176,007
810
24,267

2,599,518

236,798
—
37,209

199,589

—

199,589
246

Company, Inc. .......................................................... $ 199,589 $

159,462 $

100,066 $

(259,282) $

199,835

Other comprehensive income:

Foreign currency translation gain ........................
Loss on derivative instruments ............................
Pension liability adjustment, net ..........................

Other comprehensive income........................................

—
(33,431)
—

(33,431)

—
—
—

—

207,341
—
1,542

208,883

—
—
—

—

207,341
(33,431)
1,542

175,452

Comprehensive income (loss) ....................................... $ 166,158 $

159,462 $

308,949 $

(259,282) $

375,287

F-36

Acadia Healthcare Company, Inc.
Condensed Consolidating Statement of Comprehensive Income
Year Ended December 31, 2016
(In thousands)

Combined
Subsidiary
Guarantors

Combined
Non-
Guarantors

Consolidating
Adjustments

Total
Consolidated
Amounts

Parent

Revenue before provision for doubtful accounts ........... $
Provision for doubtful accounts .....................................

Revenue .........................................................................
Salaries, wages and benefits ..........................................
Professional fees ............................................................
Supplies ..........................................................................
Rents and leases .............................................................
Other operating expenses ...............................................
Depreciation and amortization .......................................
Interest expense, net .......................................................
Debt extinguishment costs .............................................
Loss on divestiture .........................................................
Gain on foreign currency derivatives .............................
Transaction-related expenses .........................................

Total expenses ............................................

(Loss) income from continuing operations before

income taxes ..............................................................
Equity in earnings of subsidiaries ..................................
(Benefit from) provision for income taxes .....................

Income (loss) from continuing operations .....................
Income from discontinued operations, net of income

taxes ..........................................................................
Net income (loss) ...........................................................
Net loss attributable to noncontrolling interests .............

Net income attributable to Acadia Healthcare

— $ 1,662,734 $ 1,190,089 $
—

(3,560)

(38,349)

— $ 2,852,823
(41,909)
—

—
28,345
—
—
—
—
—
50,921
4,253
—
(523)
—

82,996

(82,996)
65,560
(21,612)

4,176

—

4,176
—

1,624,385
865,104
89,062
76,246
34,540
206,308
58,018
75,848
—
778
—
32,173

1,186,529
648,405
96,424
41,179
38,808
106,248
77,085
54,556
—
178,031
—
16,150

1,438,077

1,256,886

—
—
—
—
—
—
—
—
—
—
—
—

—

186,308
—
68,335

117,973

—

117,973
—

(70,357)
—
(17,944)

(52,413)

—

(52,413)
1,967

—
(65,560)
—

(65,560)

—

(65,560)
—

2,810,914
1,541,854
185,486
117,425
73,348
312,556
135,103
181,325
4,253
178,809
(523)
48,323

2,777,959

32,955
—
28,779

4,176

—

4,176
1,967

Company, Inc. ........................................................... $

4,176 $

117,973 $

(50,446) $

(65,560) $

6,143

Other comprehensive income:

Foreign currency translation loss ..........................
Gain on derivative instruments .............................
Pension liability adjustment, net ...........................

Other comprehensive income.........................................

—
40,598
—

40,598

—
—
—

—

(477,772)

—
(7,749)

(485,521)

—
—
—

—

(477,772)
40,598
(7,749)

(444,923)

Comprehensive income (loss) ........................................ $

44,774 $

117,973 $

(535,967) $

(65,560) $

(438,780)

F-37

Acadia Healthcare Company, Inc.
Condensed Consolidating Statement of Comprehensive Income
Year Ended December 31, 2015
(In thousands)

Combined
Subsidiary
Guarantors

Combined
Non-
Guarantors

Consolidating
Adjustments

Total
Consolidated
Amounts

Parent

— $ 1,415,016 $ 414,603 $
—

(2,513)

(32,614)

Revenue before provision for doubtful accounts ........... $
Provision for doubtful accounts .....................................

Revenue .........................................................................
Salaries, wages and benefits ..........................................
Professional fees ............................................................
Supplies ..........................................................................
Rents and leases .............................................................
Other operating expenses ...............................................
Depreciation and amortization .......................................
Interest expense, net .......................................................
Debt extinguishment costs .............................................
Loss on foreign currency derivatives .............................
Transaction-related expenses .........................................

—
20,472
—
—
—
—
—
68,533
10,818
1,926
—

1,382,402
726,215
83,422
65,077
29,094
170,018
41,768
17,476
—
—
24,914

Total expenses ............................................

101,749

1,157,984

(Loss) income from continuing operations before

Income (loss) from continuing operations .....................
Income from discontinued operations, net of income

Net income attributable to Acadia Healthcare

(101,749)
176,178
(37,047)

111,476

—

111,476
—

224,418
—
85,765

138,653

111

138,764
—

— $ 1,829,619
(35,127)
—

—
—
—
—
—
—
—
—
—
—
—

—

—
(176,178)
—

(176,178)

—

(176,178)
—

1,794,492
973,732
116,463
80,663
32,528
206,746
63,550
106,742
10,818
1,926
36,571

1,629,739

164,753
—
53,388

111,365

111

111,476
1,078

412,090
227,045
33,041
15,586
3,434
36,728
21,782
20,733
—
—
11,657

370,006

42,084
—
4,670

37,414

—

37,414
1,078

Company, Inc. ........................................................... $ 111,476 $

138,764 $

38,492 $

(176,178) $

112,554

Other comprehensive income:

Foreign currency translation loss ..........................
Pension liability adjustment, net ...........................

Other comprehensive income.........................................

—
—

—

—
—

—

(40,103)
3,826

(36,277)

—
—

—

(40,103)
3,826

(36,277)

Comprehensive income (loss) ........................................ $ 111,476 $

138,764 $

2,215 $

(176,178) $

76,277

F-38

Acadia Healthcare Company, Inc.
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2017
(In thousands)

Operating activities:
Net income (loss) ............................................................. $
Adjustments to reconcile net income (loss) to net

cash (used in) provided by continuing operating
activities:

Equity in earnings of subsidiaries ...........................
Depreciation and amortization ...............................
Amortization of debt issuance costs .......................
Equity-based compensation expense ......................
Deferred income tax expense .................................
Debt extinguishment costs ......................................
Other .......................................................................
Change in operating assets and liabilities, net of

effect of acquisitions:

Accounts receivable, net ...............................
Other current assets .......................................
Other assets ...................................................
Accounts payable and other accrued

liabilities ...................................................
Accrued salaries and benefits........................
Other liabilities .............................................

Net cash provided by (used in) continuing operating

activities ......................................................................
Net cash used in discontinued operating activities ...........

Net cash provided by (used in) operating activities .........
Investing activities:
Cash paid for acquisitions, net of cash acquired ..............
Cash paid for capital expenditures ...................................
Cash paid for real estate acquisitions ...............................
Other ................................................................................

Net cash used in investing activities ................................
Financing activities:
Principal payments on long-term debt .............................
Repayment of long-term debt ..........................................
Common stock withheld for minimum statutory taxes,

net ................................................................................
Other ................................................................................
Cash provided by (used in) intercompany activity ...........

Net cash (used in) provided by financing activities .........

Effect of exchange rate changes on cash..........................

Net increase in cash and cash equivalents ........................
Cash and cash equivalents at beginning of the period .....

Combined
Subsidiary
Guarantors

Combined
Non-
Guarantors

Consolidating
Adjustments

Total
Consolidated
Amounts

Parent

199,589 $ 159,462 $

99,820 $

(259,282) $

199,589

(259,282)
—
10,270
23,467
1,236
810
4,189

—
—
24,549

—
—
—

4,828
—

4,828

—
—
—
—

—

—
66,482
—
—
28,882
—
2,498

(21,791)
(6,429)
(3,277)

4,909
(3,974)
8,794

235,556
(1,693)

233,863

—
(161,312)
(37,047)
(7,944)

—
76,528

(415)
—
1,254
—
4,725

(6,779)
27,237
101

(15,022)
(5,014)
3,000

185,435
—

185,435

(18,191)
(112,865)
(4,010)
4,843

(206,303)

(130,223)

(34,550)
(22,500)

(14,250)
—

(3,455)
(539)
56,216

(4,828)

—

—
—

—
1,225
16,644

3,619

—

31,179
15,681

(10,554)
—

—
—
(72,860)

(83,414)

7,250

(20,952)
41,382

259,282
—
—
—
—
—
—

—
—
(24,549)

—
—
—

(24,549)
—

(24,549)

—
—
—
—

—

24,549
—

—
—
—

—
143,010
9,855
23,467
31,372
810
11,412

(28,570)
20,808
(3,176)

(10,113)
(8,988)
11,794

401,270
(1,693)

399,577

(18,191)
(274,177)
(41,057)
(3,101)

(336,526)

(34,805)
(22,500)

(3,455)
686
—

24,549

(60,074)

—

—
—

7,250

10,227
57,063

Cash and cash equivalents at end of the period ................ $

— $

46,860 $

20,430 $

— $

67,290

F-39

Acadia Healthcare Company, Inc.
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2016
(In thousands)

Parent

Combined
Subsidiary
Guarantors

Combined
Non-
Guarantors

Consolidating
Adjustments

Total
Consolidated
Amounts

4,176 $

117,973 $

(52,413) $

(65,560) $

4,176

Operating activities:
Net income (loss) .................................................................. $
Adjustments to reconcile net income (loss) to net cash

(used in) provided by continuing operating
activities:

Equity in earnings of subsidiaries ..............................
Depreciation and amortization ...................................
Amortization of debt issuance costs ...........................
Equity-based compensation expense ..........................
Deferred income tax (benefit) expense ......................
Loss from discontinued operations, net of taxes ........
Debt extinguishment costs .........................................
Loss on divestiture .....................................................
(Gain) loss on foreign currency derivatives ...............
Other ..........................................................................
Change in operating assets and liabilities, net of

effect of acquisitions:

Accounts receivable, net ..................................
Other current assets .........................................
Other assets .....................................................
Accounts payable and other accrued

liabilities .....................................................
Accrued salaries and benefits ..........................
Other liabilities ................................................

Net cash (used in) provided by continuing operating

activities ..........................................................................
Net cash used in discontinued operating activities ...............
Net cash (used in) provided by operating activities ..............
Investing activities:
Cash paid for acquisitions, net of cash acquired ...................
Cash paid for capital expenditures........................................
Cash paid for real estate acquisitions ....................................
Settlement of foreign currency derivatives ...........................
Cash received for divestiture ................................................
Other .....................................................................................
Net cash used in investing activities .....................................
Financing activities:
t
Borrowings on long-term debt..............................................
Borrowings on revolving credit facility ................................
Principal payments on revolving credit facility ....................
Principal payments on long-term debt ..................................
Repayment of assumed debt .................................................
Repayment of long-term debt ...............................................
Payment of debt issuance costs .............................................
Issuance of common stock ....................................................
Common stock withheld for minimum statutory taxes,

(65,560)
—
10,751
28,345
(2,172)
—
4,253
—
(523)
—

—
—
(3,109)

—
—
—

(23,839)
—
(23,839)

—
—
—
—
370,000
—
370,000

1,480,000
179,000
(337,000)
(49,706)
(1,348,389)
(200,594)
(36,649)
685,097

—
58,018
—
—
50,611
—
—
778
—
4,022

(24,017)
(3,138)
(4,048)

(45,552)
3,844
4,050

162,541
(10,256)
152,285

(103,359)
(177,593)
(28,956)
523
7,859
(1,573)
(303,099)

—
—
—
(293,000)
—
—
—
—

—
77,085
(427)
—
(19,792)
—
—
178,031
—
693

8,299
(17,510)
(306)

68,245
(12,416)
434

229,923
—
229,923

(580,096)
(129,879)
(11,801)
—
(4,593)
(897)
(727,266)

—
—
—
(3,344)
—
—
—
—

65,560
—
—
—
—
—
—
—
—
—

—
—
3,109

—
—
—

3,109
—
3,109

—
—
—
—
—
—
—

—
—
—
296,109
—
—
—
—

net ...................................................................................
Other .....................................................................................
Cash (used in) provided by intercompany activity ...............
Net cash provided by (used in) financing activities ..............
Effect of exchange rate changes on cash ..............................
Net increase in cash and cash equivalents ............................
Cash and cash equivalents at beginning of the period ..........
Cash and cash equivalents at end of the period..................... $

(8,846)
(1,149)
(707,925)
(346,161)
—
—
—
— $

—
(2,688)
460,196
164,508
—
13,694
1,987
15,681 $

—
—
546,947
543,603
(14,106)
32,154
9,228
41,382 $

—
—
(299,218)
(3,109)
—
—
—
— $

F-40

—
135,103
10,324
28,345
28,647
—
4,253
178,809
(523)
4,715

(15,718)
(20,648)
(4,354)

22,693
(8,572)
4,484

371,734
(10,256)
361,478

(683,455)
(307,472)
(40,757)
523
373,266
(2,470)
(660,365)

1,480,000
179,000
(337,000)
(49,941)
(1,348,389)
(200,594)
(36,649)
685,097

(8,846)
(3,837)
—
358,841
(14,106)
45,848
11,215
57,063

Acadia Healthcare Company, Inc.
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2015
(In thousands)

Operating activities:
Net income (loss) ..................................................................... $
Adjustments to reconcile net income (loss) to net cash

(used in) provided by continuing operating activities:

Combined
Subsidiary
Guarantors

Combined
Non-
Guarantors

Consolidating
Adjustments

Total
Consolidated
Amounts

Parent

111,476 $

138,764 $

37,414 $

(176,178) $

111,476

Equity in earnings of subsidiaries .................................
Depreciation and amortization ......................................
Amortization of debt issuance costs ..............................
Equity-based compensation expense .............................
Deferred income tax (benefit) expense .........................
Loss from discontinued operations, net of taxes ...........
Debt extinguishment costs ............................................
Loss (gain) on foreign currency derivatives ..................
Other .............................................................................
Change in operating assets and liabilities, net of effect

of acquisitions:

Accounts receivable, net .....................................
Other current assets ............................................
Other assets ........................................................
Accounts payable and other accrued liabilities ...
Accrued salaries and benefits .............................
Other liabilities ...................................................

(176,178)
—
7,147
20,472
617
—
10,818
1,926
—

—
—
(1,100)
—
—
—

—
41,768
—
—
42,246
(111)
—
—
1,582

(18,632)
(1,152)
(8,567)
(7,583)
312
9,350

—
21,782
(438)
—
750
—
—
—
33

(6,322)
(1,565)
546
14,451
1,346
(114)

Net cash (used in) provided by continuing operating

activities .............................................................................

(24,822)

197,977

67,883

Net cash provided by discontinued operating

activities .............................................................................
Net cash (used in) provided by operating activities .................
Investing activities:
Cash paid for acquisitions, net of cash acquired ......................
Cash paid for capital expenditures ...........................................
Cash paid for real estate acquisitions .......................................
Settlement of foreign currency derivatives ..............................
Other ........................................................................................

Net cash used in investing activities ........................................
Financing activities:
Borrowings on long-term debt .................................................
Borrowings on revolving credit facility ...................................
Principal payments on revolving credit facility .......................
Principal payments on long-term debt .....................................
Repayment of assumed debt ....................................................
Repayment of long-term debt ..................................................
Payment of debt issuance costs ................................................
Payment of premium on senior notes.......................................
Issuance of common stock, net ................................................
Common stock withheld for minimum statutory taxes, net .....
Excess tax benefit from equity awards ....................................
Other ........................................................................................
Cash (used in) provided by intercompany activity ..................

Net cash provided by (used in) financing activities .................

Effect of exchange rate changes on cash .................................

Net (decrease) increase in cash and cash equivalents ..............
Cash and cash equivalents at beginning of the period .............

—

(24,822)

—
—
—
—
—

—

1,150,000
468,000
(310,000)
(31,965)
(904,467)
(97,500)
(26,421)
(7,480)
331,308
(7,762)
309
—
(539,200)

24,822

—

—
—

(1,735)

196,242

(254,848)
(172,329)
(25,293)
(1,926)
(5,099)

(459,495)

—
—
—
—
—
—
—
—
—
—
—
(420)
191,334

190,914

(2,359)

(74,698)
76,685

—

67,883

(319,929)
(103,718)
(1,329)
—
—

(424,976)

—
—
—
(1,315)
—
—
—
—
—
—
—
—
350,281

348,966

—

(8,127)
17,355

176,178
—
—
—
—
—
—
—
—

—
—
1,100
—
—
—

1,100

—

1,100

—
—
—
—
—

—

—
—
—
1,315
—
—
—
—
—
—
—
—
(2,415)

(1,100)

—

—
—

Cash and cash equivalents at end of the period........................ $

— $

1,987 $

9,228 $

— $

F-41

—
63,550
6,709
20,472
43,613
(111)
10,818
1,926
1,615

(24,954)
(2,717)
(8,021)
6,868
1,658
9,236

242,138

(1,735)

240,403

(574,777)
(276,047)
(26,622)
(1,926)
(5,099)

(884,471)

1,150,000
468,000
(310,000)
(31,965)
(904,467)
(97,500)
(26,421)
(7,480)
331,308
(7,762)
309
(420)
—

563,602

(2,359)

(82,825)
94,040

11,215

Pursuant to the requirements of Section 13 or 15(d) 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.

SIGNATURES

Acadia Healthcare Company, Inc.

By: /s/ JOEY A. JACOBS

Joey A. Jacobs
Chairman of the Board and Chief Executive Officer

Dated: February 27, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons

on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Date

/s/ JOEY A. JACOBS

Chairman of the Board and Chief Executive Officer

February 27, 2018

Joey A. Jacobs

(Principal Executive Officer)

/s/ DAVID M. DUCKWORTH

Chief Financial Officer (Principal Financial Officer and

February 27, 2018

David M. Duckworth

Principal Accounting Officer)

/s/ E. PEROT BISSELL

Director

February 27, 2018

E. Perot Bissell

/s/ CHRISTOPHER R. GORDON

Director

February 27, 2018

Christopher R. Gordon

/s/ VICKY B. GREGG

Director

February 27, 2018

Vicky B. Gregg

/s/ WILLIAM F. GRIECO

Director

February 27, 2018

William F. Grieco

/s/ WADE D. MIQUELON

Director

February 27, 2018

Wade D. Miquelon

/s/ WILLIAM M. PETRIE

Director

February 27, 2018

William M. Petrie

/s/ HARTLEY R. ROGERS

Director

February 27, 2018

Hartley R. Rogers

/s/ REEVE B. WAUD

Director

February 27, 2018

Reeve B. Waud

Executive Ofﬁcers and Board of Directors

Joey A. Jacobs
Chairman and Chief Executive Officer

Brent Turner
President

Ronald M. Fincher
Chief Operating Officer

David M. Duckworth
Chief Financial Officer

Christopher L. Howard
Executive Vice President, General Counsel
and Secretary

Steve Davidson
Chief Development Officer

E. Perot Bissell
Director;
Managing Partner, Egis Capital Partners, LLC

Christopher R. Gordon
Director;
Managing Director, Bain Capital Partners, LLC

Corporate Information
Corporate Office
Acadia Healthcare Company, Inc.
6100 Tower Circle, Suite 1000
Franklin, TN 37067
(615) 861-6000
www.acadiahealthcare.com

Registrar and Transfer Agent
Broadridge Corporate Issuer Solutions, Inc.
51 Mercedes Way
Edgewood, NY 11717
(631) 254-7400

Vicky B. Gregg
Director;
Co-Founder and Partner, Guidon Partners

William F. Grieco
Director;
Managing Director, Arcadia Strategies, LLC

Wade D. Miquelon
Director;
Chief Financial Officer and
Executive Vice President, Jo-Ann Stores, LLC

William M. Petrie, M.D.
Director;
Professor of Clinical Psychiatry,
Director, Vanderbilt Senior Assessment Clinic,
Department of Psychiatry,
Vanderbilt University School of Medicine

Hartley R. Rogers
Director;
Chairman, Hamilton Lane Advisors, LLC

Reeve B. Waud
Director;
Founder and Managing Partner,
Waud Capital Partners

is available on the Company’s website at www.
acadiahealthcare.com. It is also available (without
exhibits) from the Company at no charge. These
requests and other investor contacts should be
directed to Gretchen Hommrich, Director, Investor
Relations at the Company’s corporate office.

Annual Meeting
The annual meeting of stockholders will be
held on Thursday, May 3, 2018, at 9:30 a.m.
(Central Time) at the Company’s headquarters
located at 6100 Tower Circle, Suite 1000,
Franklin, TN 37067

Form 10-K/Investor Contact
A copy of the Acadia Healthcare Company, Inc.
Annual Report on Form 10-K for fiscal 2017 filed
with the Securities and Exchange Commission

Independent Auditors
Ernst & Young LLP
Nashville, TN

ACADIA

H E A L T H C A R E

6100 Tower Circle, Suite 1000
Franklin, TN 37067
(615) 861-6000
www.acadiahealthcare.com