Acadia Healthcare Company Annual Report 2019

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FY2019 Annual Report · Acadia Healthcare Company

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2 0 19 A n n u a l R e p o r t t o S t o c k h o l d e r s

About the Company
Acadia is a provider of behavioral healthcare services. At December 31, 2019,

Acadia operated a network of 585 behavioral healthcare facilities with approximately

18,200 beds in 40 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

Year Ended December 31,

2019
(In thousands, except per share amounts)
$ 3,107,462
Revenue
Net income (loss) attributable to Acadia Healthcare Company, Inc. $ 108,923
Adjusted income attributable to Acadia Healthcare
Company, Inc.(1)
Adjusted EBITDA(1)
Per diluted share:
Net income (loss) attributable to Acadia Healthcare

$ 179,129
$ 585,883

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
Stockholders’ equity

1.24

2.04
87,816

$ 124,192
78,635
3,224,034
6,879,142
3,149,099
2,505,381

2018
$ 3,012,442
$ (175,750)

$ 195,378
$ 593,576

(2.01)

2.24
87,415

50,510
34,040
3,107,766
6,172,504
3,193,487
2,333,307

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

Letter to Stockholders

For Acadia, 2019 was a dynamic year of strategic analysis and decisive action, as we implemented numerous
initiatives to respond to the opportunities and challenges in today’s healthcare environment and further our position
as a leading provider of comprehensive behavioral healthcare services.

Our financial and operating results in 2019 reflect steady progress for the year. Total revenue for 2019 was $3.1
billion, up 3.2 percent compared with $3.0 billion in 2018. Our same facility revenue grew 5.1 percent for 2019,
consisting of an increase of 1.5 percent in patient days and 3.5 percent in revenue per patient day.

Purposeful, Best-In-Class Growth Trajectory

Our results for 2019 reflect our continued focus on growth initiatives both through expanding services at our existing
facilities and increasing bed capacity. In 2019, we added 585 beds, and we expect to add approximately 600 beds to
our U.S. operations in 2020. These bed additions include increasing capacity at our existing facilities, opening de novo
facilities, and establishing new facilities through joint venture strategic partnerships in the U.S. Our planned bed
additions for 2020 represent the highest number of beds to be added to our U.S. facilities in the last three years.

Acadia has a strong track record of partnering with health systems and hospitals across the country. We have five
joint ventures operating and three currently in development. We now have a robust pipeline of approximately 30
projects. The market for behavioral healthcare services remains strong, and the value proposition to our provider
partners is very compelling. Acadia is collaborating with health system partners nationwide to improve integration
of behavioral healthcare throughout their organizations, as they focus on population health initiatives and improving
clinical outcomes for their patients. These partnerships provide Acadia access to new markets and the opportunity to
leverage the partner hospital’s reputation. In the near term, we look forward to opening a new joint venture hospital
with Tower Health in Reading, Pennsylvania, planned for the second quarter of 2020 and a new joint venture hospital
with Ascension Saint Thomas in Nashville, Tennessee, planned for the fourth quarter of 2020.

Our growth initiatives are a direct result of the intensive strategic review process that we conducted across our
operations in the first and second quarters of 2019. Working with our senior management team, Board of Directors,
and outside consultants, we thoroughly evaluated our portfolio strategy and the future direction of the entire
business, including the U.K., and identified opportunities for cost savings and operational improvements. We shared
the initial outcomes and proposed action plans derived from this review with our investors in May of 2019.

We want to reiterate our confidence that Acadia has an established platform to build on, with a shared mission
throughout our organization to provide the highest quality, evidence-based patient care. We have a strong leadership
position with a large, diverse portfolio across fragmented and growing markets. Our primary objective is to leverage
these strengths and position Acadia for the long term with increased growth and profitability that deliver greater
value for our stockholders.

Diversified Services Fueling Growth in the U.S.

In the U.S., we have expanded our major service lines through unique strategies that differentiate each service within
our portfolio and the markets they serve. In 2019, we added 359 beds to existing facilities in the U.S., completed
three acquisitions and commenced operations at two de novo facilities, and we intend to further build upon these
initiatives in 2020 and beyond. We are committed to our partnership strategy with the ability to leverage our strong
track record of partnering with health systems and hospitals across the country.

Acadia is a leading provider of high-quality care to patients experiencing acute mental health that are a threat
to themselves or others. The demand for behavioral health treatment in this area is supported by wider social
acceptance, prevalence of mental health illness, and positive legislation that increases coverage and funding. We
believe we have a clear growth path to grow market share through facility bed expansions, de novos and new joint
venture hospitals.

We also operate facilities across the country that provide inpatient care to those suffering from either substance use
or eating disorders. Acadia is well positioned in this market with our highly specialized facilities, consistent high-
quality service offerings, national clinical referral network and cross referrals with acute care facilities. We believe
we have additional opportunities to expand this business with bed additions, as well as the continued development
of outpatient services and the expansion of telehealth to provide alternative treatment options and expand our
continuum of care.

An important focus for Acadia is to meet the critical demand for substance use treatment services, driven by the
unprecedented rise in opioid addiction that has become a national health emergency. We are pleased to see these
services receive the legislative attention they deserve, including expanded funding in Medicaid and new coverage for
Medicare. As the largest provider of addiction and substance use services in the U.S., Acadia will benefit from these
funding measures and continue to play a critical role in the treatment and recovery of patients addicted to opioids.
Going forward, we intend to grow this important business by adding capacity to our existing clinics.

The growth opportunity in behavioral health facilities remains robust, and we are well positioned to leverage our
strong market position across all of our service lines with additional opportunities for operating synergies and
complementary investments that will drive improvement across Acadia. Above all, we are focused on quality in
everything we do with a commitment to maintaining exceptional standards in patient care across our network of
facilities.

Improving Operations and Maximizing Value in the U.K.

With respect to the U.K. operations, we determined, as part of the 2019 strategic review, that the timing was right to
explore strategic alternatives, including a potential sale. Our review confirmed the strength and attractiveness of
the U.K. business with an enviable leadership position in a $19 billion behavioral health market. Acadia is the largest
independent provider in this market with 361 behavioral health facilities with 8,700 beds across England, Wales,
Scotland and Northern Ireland. We offer a full continuum of care, and we are proud of our strong clinical reputation
in these markets.

The Board engaged a financial adviser to run a process to explore the sale of the entirety of our U.K. business.
The formal process was launched in January 2020, following the U.K. elections and preliminary discussions with
prospective buyers at the end of 2019.

Consistent with market practice for U.K. transactions of this nature, and with assistance from our advisers, we
solicited and received initial nonbinding offers to acquire our U.K. business from multiple bidders. While the interest
from potential buyers remains strong, given evolving market dynamics related to the COVID-19 pandemic, we have
decided to temporarily suspend the sale process until market conditions improve. Our objective continues to be
maximizing value for our stockholders. At this time, our focus is on serving our patients in the U.K. to the very best of
our ability and ensuring the safety and health of our employees.

We have also continued to identify operational improvements for the U.K. operations. These initiatives include
working closely to cultivate trusted relationships with the National Health Service (“NHS”) for referrals and preferred
contracts, completing retooling efforts for our facilities to address higher acuity patients by geography, utilizing an
enhanced sales and marketing platform to drive occupancy across all service lines, and building and retaining a
best-in-class workforce with less reliance on higher-cost agency labor.

Strong Financial Performance, Robust Cash Flow Dynamics, Disciplined Capital Allocation

We continue to maintain a solid financial position, providing the flexibility to support our growth strategy in 2020.
Acadia’s operating cash flows from continuing operations were $332.9 million for 2019, and the Company had
$124.2 million in cash and cash equivalents and full availability under our $500 million revolving credit facility as of
December 31, 2019.

As part of our strategic review, we have identified a capital allocation framework designed to advance our growth
initiatives. First, we will continue to make organic growth investments, including expansions of existing facilities
as well as de novo and joint venture projects. Second, we will focus on debt reduction. Finally, we will utilize a
disciplined approach to targeted M&A activities and seek to fund tuck-in acquisition opportunities in select markets
with certain service lines.

Along with this, we have identified areas for operational improvements across the Company, and we expect to
realize an estimated run rate of $20 million in cost savings by the end of 2020, which is in line with our original plans
announced in May of 2019. We are pleased with our progress to date and look forward to the incremental benefits of
this strategy while we support our patients with the highest level of care.

Leading Pure-Play Behavioral Healthcare Company

We are proud of our accomplishments over the past year. With a renewed focus, we are confident we have a
purposeful strategy in place to further enhance our position as the leading, pure-play provider of behavioral
healthcare services. Importantly, we are fortunate to have over 40,000 extraordinary people who represent Acadia
across our operations, and who support our mission to provide our patients with compassionate, high-quality care.
We also recognize the outstanding leadership of a strong senior management team and Board of Directors, with a
shared commitment to our stockholders to pursue operational excellence as we support our patients, families and
the communities we serve.

Setting the stage for 2020 and beyond, we will continue to focus on quality in everything we do, whether it is
maintaining exceptional standards and patient care across our network, investing in new beds, acquiring facilities to
serve the critical needs in our society or aligning ourselves with premier joint venture partners across the U.S. We
are pursuing a purposeful and best-in-class growth trajectory. At the same time, we will continue to reduce our debt
while making prudent investments based on a disciplined return on capital allocation framework.

As we continue to grow our service lines, the synergies, complementary investments and corresponding operating
leverage we can achieve through this approach will become apparent. We believe Acadia is in the ideal position to
meet the tremendous market need that exists.

Today, we face an unprecedented global event with the COVID-19 pandemic. Though we do not know exactly how this
situation will unfold, we are carefully monitoring the impact to our business and believe Acadia is well-positioned
to support our patient population and continue to grow our business. The safety and well-being of our staff, patients
and visitors are always our top priorities. We have strong local leadership and staff in our facilities who continue to
support and provide our patients with high-quality care every day, and we are especially grateful for their dedication
during these extraordinary times.

Thank you for the support your investment provides.

Sincerely,

Debra K. Osteen
Chief Executive Officer

III

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.

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 assumes the
investment on December 31, 2014, 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, 2014, and each subsequent fiscal year end.

$250 –

$200 –

$150 –

$100 –

$50 –

$0 –

12/31/14

12/31/15

12/31/16

12/31/17

12/31/18

12/31/19

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

12/31/14
100.0
100.0
100.0

12/31/15
102.04
100.48
108.29

12/31/16
54.08
113.55
118.13

12/31/17
53.31
137.83
157.12

12/31/18
42.00
133.33
173.52

12/31/19
54.27
170.96
209.72

Acadia Healthcare Company, Inc.

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

Year Ended December 31,

(In thousands)
Net income (loss) attributable to Acadia Healthcare Company, Inc. $ 108,923
1,199
Net income attributable to noncontrolling interests
Provision for income taxes
25,866
187,094
Interest expense, net
164,044
Depreciation and amortization
487,126
EBITDA

2019

Adjustments:
Equity-based compensation expense (a)
Transaction-related expenses (b)
Debt extinguishment costs (c)
Legal settlements expense (d)
Loss on impairment (e)
Adjusted EBITDA

17,307
27,064
–
–
54,386
$ 585,883

2018
$ (175,750)
264
6,532
185,410
158,832
175,288

22,001
34,507
1,815
22,076
337,889
$ 593,576

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

(In thousands, except share and per share amounts)
Net income (loss) attributable to Acadia Healthcare Company, Inc. $ 108,923

2019

2018
$ (175,750)

Year Ended December 31,

Adjustments to income:
Transaction-related expenses (b)
Tax reform impact (f)
Debt extinguishment costs (c)
Legal settlements expense (d)
Loss on impairment (e)

Income tax effect of adjustments to income (g)
Adjusted income attributable to Acadia Healthcare
Company, Inc.

27,064
–
–
–
54,386
(11,244)

34,507
(10,472)
1,815
22,076
337,889
(14,687)

$ 179,129

$ 195,378

Weighted-average shares outstanding – diluted (h)

87,816

87,415

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

2.04

2.24

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 income (loss) attributable to
noncontrolling interests, provision for (benefit from) 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, legal settlements expense and loss on impairment.
We define Adjusted income as net income (loss) adjusted for transaction-related expenses, tax reform
impact, debt extinguishment costs, legal settlements expense, loss on impairment 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 primarily related to termination,

restructuring, strategic review and other acquisition-related costs.

(c) Represents debt extinguishment costs recorded in connection with the repricing amendments to the
Amended and Restated Credit Agreement in March 2018 and the repayment of the 9.0% and 9.5%
Revenue Bonds in December 2018.

(d) Represents $19.0 million related to the Company’s billing for lab services in West Virginia and $3.1 million
related to the resolution of the shareholder class action lawsuit in 2011 in connection with our merger with
PHC.

(e) For the year ended December 31, 2019, represents a non-cash long-lived asset impairment charge
of $27.2 million related to two closed U.S. facilities and $27.2 million related to certain closed U.K.
facilities. For the year ended December 31, 2018, represents a non-cash goodwill impairment charge
of $325.9 million and a non-cash long-lived asset impairment charge of $12.0 million related to certain
U.K. facilities.

(f) Represents tax benefit related to the enactment of the Tax Cuts and Jobs Act.

(g) Represents the income tax effect of adjustments to income based on tax rates of 17.2% and 14.0% for the

year ended December 31, 2019 and 2018, respectively.

(h) For the year ended December 31, 2018, approximately 0.1 million of the outstanding restricted stock and
shares of common stock issuable upon exercise of outstanding stock option awards have been included
in the calculation of weighted-average shares outstanding-diluted. These shares are excluded from the
calculation of diluted earnings per share in the condensed consolidated statement of operations because
the net loss for the respective periods cause such securities to be anti-dilutive.

VII

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

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

ACT OF 1934

For the fiscal year ended December 31, 2019
or

☐ 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

Trading Symbol

ACHC

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 ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth 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
Non-accelerated filer
If an emerging growth company, indicate by check mark of the registrant has elected not to use the extended transition period for

☒ Accelerated filer
☐

Emerging growth company ☐

Smaller reporting company

☐
☐

complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of June 28, 2019, the aggregate market value of the shares of common stock of the registrant held by non-affiliates was approximately

$3.1 billion, based on the closing price of the registrant’s common stock reported on the NASDAQ Global Select Market of $34.95 per share.

As of February 28, 2020, there were 88,493,519 shares of the registrant’s common stock outstanding.

Portions of the registrant’s definitive proxy statement for its 2020 annual meeting of stockholders to be held on May 7, 2020 are

incorporated by reference into Part III of this Form 10-K.

DOCUMENTS INCORPORATED BY REFERENCE

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

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

PART IV

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

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62

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64

65
70

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 high-
quality services, expanding referral networks and marketing initiatives while meeting the increased demand for behavioral healthcare
services through expansion of our current locations as well as developing new services within existing locations. At December 31,
2019, we operated 585 behavioral healthcare facilities with approximately 18,200 beds in 40 states, the United Kingdom (“U.K.”) and
Puerto Rico. During the year ended December 31, 2019, we acquired 11 facilities and added 585 beds (exclusive of acquisitions),
including 425 added to existing facilities and 160 added through the opening of two de novo facilities. For the year ending
December 31, 2020, we expect to add approximately 600 total beds exclusive of acquisitions.

We are the leading publicly traded pure-play provider of behavioral healthcare services, 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. through acquisitions, de novo facilities, joint ventures and bed additions in existing facilities.

During 2019, we commenced a review of strategic alternatives including those related to our U.K. operations and a potential

sale of such operations. In January 2020, we launched a formal process regarding the sale of our U.K. business. Consistent with
market practice for U.K. transactions of this nature, and in conjunction with our advisors, we solicited and have received initial, non-
binding offers to acquire our U.K. business from multiple bidders. We are now in the second phase of the sale process, during which
interested bidders will receive proposed transaction documents and complete their confirmatory due diligence.

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

On April 1, 2019, we completed the acquisition of Bradford Recovery Center (“Bradford”), a specialty treatment facility with 46

beds located in Millerton, Pennsylvania, for cash consideration of approximately $4.5 million.

On February 15, 2019, we completed the acquisition of Whittier Pavilion (“Whittier”), an inpatient psychiatric facility with 71

beds located in Haverhill, Massachusetts, for cash consideration of approximately $17.9 million. Also on February 15, 2019, we
completed the acquisition of Mission Treatment (“Mission Treatment”) for cash consideration of approximately $22.5 million.
Mission Treatment operates nine comprehensive treatment centers in California, Nevada, Arizona and Oklahoma.

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.

Financing Transactions

On December 1, 2018, we exercised the option to redeem in whole $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%
(“9.0% and 9.5% Revenue Bonds”) at a redemption price equal to the sum of 104% of the principal amount of the 9.0% and 9.5%
Revenue Bonds plus accrued and unpaid interest. In connection with the redemption of the 9.0% and 9.5% Revenue Bonds, we
recorded a debt extinguishment charge of $0.9 million, which was recorded in debt extinguishment costs in the consolidated
statements of operations for the year ended December 31, 2018.

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 (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 Securities and Exchange Commission (the “SEC”). 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 February 27, 2019, we entered into the Twelfth Amendment (the “Twelfth Amendment”) to the Amended and Restated

Credit Agreement. The Twelfth Amendment, among other things, modified certain definitions, including “Consolidated EBITDA”,
and increased our permitted Maximum Consolidated Leverage Ratio, thereby providing increased flexibility to us in terms of our
financial covenants.

On February 6, 2019, we entered into the Eleventh Amendment (the “Eleventh Amendment”) to the Amended and Restated

Credit Agreement. The Eleventh Amendment, among other things, amended the definition of “Consolidated EBITDA” to remove the
cap on non-cash charges, losses and expenses related to the impairment of goodwill, which in turn provided increased flexibility to us
in terms of our financial covenants.

On March 29, 2018, we entered into a Third Repricing Facilities Amendment (the “Third Repricing Facilities Amendment”, and

together with the Second Repricing Facilities Amendment, the “Repricing Facilities Amendments”) to the Amended and Restated
Credit Agreement. The Third Repricing Facilities Amendment replaced the existing revolving credit facility and Term Loan A facility
(“TLA Facility”) with a new revolving credit facility and TLA Facility, respectively. The Company’s line of credit on its revolving
credit facility remains at $500.0 million and the Third Repricing Facility Amendment reduced the size of the TLA Facility from
$400.0 million to $380.0 million to reflect the then current outstanding principal. The Third Repricing Facilities Amendment reduced
the Applicable Rate by 25 basis points for the revolving credit facility and the TLA Facility by amending the definition of “Applicable
Rate.”

On March 22, 2018, we entered into a Second Repricing Facilities Amendment (the “Second Repricing Facilities Amendment”)

to the Amended and Restated Credit Agreement. The Second Repricing Facilities Amendment (i) replaced 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”) with a new Term Loan
B facility Tranche B-3 (the “Tranche B-3 Facility”) and a new Term Loan B facility Tranche B-4 (the “Tranche B-4 Facility”),
respectively, and (ii) reduced the Applicable Rate from 2.75% to 2.50% in the case of Eurodollar Rate loans and reduced the
Applicable Rate from 1.75% to 1.50% in the case of Base Rate Loans.

In connection with the Repricing Facilities Amendments, we recorded a debt extinguishment charge of $0.9 million, including

the discount and write-off of deferred financing costs, which was recorded in debt extinguishment costs in the consolidated statements
of operations for the year ended December 31, 2018.

On May 10, 2017, we 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 for the year ended December 31, 2017.

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 200 combined

years of experience in acquiring, integrating and operating a variety of behavioral health facilities. Prior to joining Acadia in
December 2018, our Chief Executive Officer (“CEO”) served as Executive Vice President of Universal Health Services, Inc. (“UHS”)
since 2005, and President of UHS’s behavioral health division since 1999. 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 2018 survey by the Substance Abuse and Mental Health Services
Administration of the U.S. Department of Health and Human Services (“SAMHSA”), 19.1% of adults in the U.S. aged 18 years or

older suffered from a mental illness in the prior year and 4.6% suffered from a serious mental illness. Further, approximately 7.8% of
people aged 12 or older in 2018 needed substance use treatment in the past year. According to the National Institute of Mental Health,
over 20% of adolescents, either currently or at some point in their life, have had a seriously debilitating mental disorder. 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.

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 appropriates substantial
resources for the treatment of behavioral health and substance abuse disorders and contains measures intended to strengthen the
MHPAEA. On October 21, 2018, the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment
(“SUPPORT”) for Patients and Communities Act was signed into law. The SUPPORT for Patients and Communities Act expands
Medicare coverage to include Opioid Treatment Programs for services provided on or after January 2, 2020. It also includes
Individuals in Medicaid Deserve Care that is Appropriate and Responsible in its Execution Act (“IMD CARE Act”), which suspends
the current prohibition on using federal Medicaid funds to pay for substance use disorder treatment at inpatient treatment facilities
with more than 16 beds and limits beneficiaries to no more than 30 days of inpatient treatment per 12 month period.

The mental health hospitals market in the U.K. was estimated at £15.2 billion for 2018-2019. 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 beds
continues to grow as a result of lack of capacity in the National Health Service (the “NHS”) and demand for inpatient mental health
services. Independent sector demand is expected to further increase in light of a shortage of NHS inpatient beds.

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 behavioral
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 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.

Diversified revenue and payor bases. At December 31, 2019, we operated 585 facilities in 40 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
December 31, 2019, we received 32% of our revenue from public funded sources in the U.K. (including the NHS, Clinical
Commissioning Groups (“CCGs”) and local authorities in England, Scotland and Wales), 33% from Medicaid, 18% from commercial
payors, 9% from Medicare and 8% from other payors. As we receive Medicaid payments from 46 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, 2019, and no state or U.S. territory
accounted for more than 8% of revenue for the year ended December 31, 2019. Our U.K. operations accounted for approximately 35%
of our revenue for the year ended December 31, 2019. 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 December 31, 2019, our maintenance capital expenditures
amounted to approximately 3.0% of our revenue.

Business Strategy

We are committed to providing the communities we serve with high-quality, cost-effective behavioral healthcare services, while
growing our business, increasing profitability and creating long-term value for our stockholders. To achieve these objectives, we have
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.

Opportunistically pursue acquisitions and partnerships. We have positioned the 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
industry in the U.K. are highly fragmented, and we selectively seek opportunities to expand and diversify our base of operations by
acquiring additional facilities and entering into partnerships with healthcare providers to acquire and develop additional facilities.
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.

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 integrate
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, 2019, we added 585 beds (exclusive of acquisitions), including 425 added to existing facilities
and 160 added through the opening of two de novo facilities. For the year ending December 31, 2020, we expect to add approximately
600 total beds exclusive of acquisitions. Furthermore, management believes that opportunities exist to leverage out-of-state 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.

U.S. Operations

Our facilities in the U.S. (the “U.S. Facilities”) and services can generally be classified into the following categories: acute
inpatient psychiatric facilities; specialty treatment facilities; residential treatment centers; and outpatient community-based facilities.
The table below presents the percentage of our total U.S. revenue attributed to each category for the year ended December 31, 2019:

Facility/Service
Acute inpatient psychiatric facilities
Specialty treatment facilities
Residential treatment centers
Outpatient community-based facilities

U.S. Revenue for the
Year Ended December 31, 2019

46 %
39 %
14 %
1 %

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, 2019, in our U.S. Facilities, we received 50% of our revenue from Medicaid, 28% from commercial payors, 15% from
Medicare and 7% from other payors.

At December 31, 2019, our U.S. Facilities included 224 behavioral healthcare facilities with approximately 9,500 beds in 40
states and Puerto Rico. Of our U.S. Facilities, excluding comprehensive treatment centers (“CTCs”), approximately 43% are acute
inpatient psychiatric facilities, approximately 41% are specialty treatment facilities, approximately 13% are residential treatment
centers and approximately 3% are outpatient community-based facilities at December 31, 2019. Of the 224 behavioral healthcare
facilities, 127 are CTCs, which is a subset of specialty treatment facilities. Of our CTCs, 17 are owned properties and 110 are leased
properties. Of the 97 facilities that are not CTCs, 76 are owned properties and 21 are leased properties. For the years ended
December 31, 2019 and 2018, our U.S. operations generated revenue of $2.0 billion and $1.9 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 model that

incorporates structured and intensive medical and behavioral therapies with 24-hour monitoring by a psychiatrist, psychiatric trained
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
comprehensive continuum of care for adults with addictive disorders and co-occurring mental disorders. Our detoxification, inpatient,
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 other addictions and behavioral disorders such as
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.

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
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 patient to
patient, but typically ranges from one to three years.

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 an 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 psychiatric 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 Facilities

Our community-based facilities 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

We are the leading independent provider of mental health services in the U.K. operating 361 inpatient behavioral health
facilities with approximately 8,700 beds at December 31, 2019. The facilities are located in England, Wales, Scotland and Northern
Ireland. For both the years ended December 31, 2019 and 2018, our U.K. operations generated revenue of $1.1 billion primarily
through the operation and management of inpatient behavioral health facilities.

United Kingdom Healthcare and Adult Social Care Sectors

In the U.K., central government spending on health for fiscal year 2018-2019 was approximately £153 billion, according to the
U.K. government. 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 2018-2019 was 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 commissioners dominate the U.K. health and social care
markets in terms of the funding of care. With the exception of the elderly residential and nursing care market, private health insurance
and self-payment play a minor role in these sectors.

The mental health market in the U.K. was estimated at £15.2 billion for 2018-2019. The independent mental health market

accounted for roughly £1.8 billion of that amount, or approximately 12% market share. From 2005 to 2015, the independent mental
health market witnessed significant expansion mainly due to NHS outsourcing as the number of NHS in-house beds declined.
However, since 2015, overall independent sector mental health hospital bed capacity has remained largely the same.

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

(“NHS England”), which, via its local area teams commissions specialized healthcare services, includes specialized mental health
secure, eating disorder and Children and Adolescent (“CAMHS”) services, and (ii) locally by approximately 200 local CCGs, which
commission all acute, rehabilitation and community-based healthcare services. In Scotland and Wales, all healthcare services are
commissioned by Local/Regional Health Boards.

NHS England has begun the process to delegate the commissioning of specialized mental health secure, eating disorder and

CAMHS services to local provider collaboratives. The formation of each provider collaborative will entail the appointment by NHS
England of a NHS provider trust to serve as the lead provider in their region. The lead provider will be responsible for managing NHS
England’s commissioning budget for that region and will enter into sub-contracts with each of the other providers in the region,
including independent sector providers. NHS England expects all providers to collaborate with each other to develop and improve
services for their local population. The first provider collaboratives are scheduled to become operational in April 2020 with NHS
England intending to roll-out the delegation of the commissioning of all of its specialized mental health services over the following
two years.

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
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,
government reforms to NHS competition rules and an increased focus on quality, the independent mental health market witnessed
significant expansion in the last decade, making it one of the fastest growing sectors in the U.K. healthcare industry.

Over the next five years, the U.K. government has committed to an average real growth rate increase for NHS England’s budget

of 3.4% a year, equating to an overall increase in the NHS budget of £33.9 billion by 2023-2024. Within its Long Term Plan for the
NHS published in January 2019, NHS England set out its commitment to grow investment in mental health services faster than the
NHS budget overall for each of the next five years such that Mental Health will receive a growing share of the NHS budget, worth at
least £2.3 billion a year by 2023-2024.

NHS England plans to set up a network of integrated care systems covering all of England by 2021 to deliver the “triple
integration” of primary and specialist care, physical and mental health service and health with social care. NHS England’s focus is

upon collaboration rather than competition between providers and has recommended the reversal of many of the NHS competition
reforms that had been introduced by the government in 2012.

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 facilities in the U.K. (the “U.K. Facilities”) and services can generally be classified into the following categories: healthcare
facilities, education and children’s services and adult care facilities. The table below presents the percentage of our total U.K. revenue
attributed to each category for the year ended December 31, 2019:

Facility/Service
Healthcare facilities
Education and Children’s Services
Adult Care facilities

U.K. Revenue for the
Year Ended December 31, 2019

55 %
17 %
28 %

We receive payments from approximately 500 public funded sources in the U.K. (including the NHS, CCGs and local
authorities in England, Scotland and Wales) and individual patients and clients. For the year ended December 31, 2019 in our U.K.
Facilities, we received 90% of our revenue from public funded sources in the U.K. (including the NHS, CCGs and local authorities in
England, Scotland and Wales) and 10% from other payors.

At December 31, 2019, our U.K. Facilities included 361 behavioral healthcare facilities with approximately 8,700 beds,
including approximately 1,100 non-residential education places, in the U.K. Of our U.K. Facilities, approximately 22% are healthcare
facilities, approximately 18% are education and children’s services facilities and approximately 60% are adult care facilities at
December 31, 2019. At December 31, 2019, we owned 289 of the properties at our U.K. Facilities and leased 72 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 2007, 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 comprise:



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 health difficulties. These services are
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.



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 social integration services as well as
vocational opportunities.

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
adult autism spectrum disorders. It also includes long-term, short-term and respite nursing care to high-dependency
elderly individuals who are physically frail or suffering from dementia. Care is provided in a number of settings, including
in residential care homes and through supported living.

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 in England, Scotland
and Wales); and (v) individual patients and clients. We determine the transaction price based on established billing rates reduced by
contractual adjustments provided to third-party payors, discounts provided to uninsured patients and implicit price concessions.
Contractual adjustments and discounts are based on contractual agreements, discount policies and historical experience. Implicit price
concessions are based on historical collection experience. See “Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Revenue and Accounts Receivable” 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.

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, services, staff training, personnel and the existence of
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 government
healthcare programs.

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 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 or

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.

Audits

Our healthcare facilities are also subject to federal, state and commercial payor audits to validate the accuracy of claims
submitted to 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
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. The fact that conduct or a
business arrangement does not fall within a safe harbor 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.

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 Law, 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
$25,372 for each prohibited claim, up to $169,153 for circumvention schemes and up to $20,134 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 exceptions to the Stark Law. However, the Stark
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.

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 on
our business, financial condition or results of operations.

Eliminating Kickbacks in Recovery Act

In October 2018, President Trump signed into law the Substance Use-Disorder Prevention that Promotes Opioid Recovery and

Treatment for Patients and Communities Act (the “SUPPORT Act”). The SUPPORT Act contains a number of provisions aimed at
identifying at-risk individuals, increasing access to opioid abuse treatment, reducing overprescribing and promoting data sharing with
the primary goal of reducing the use and abuse of opioids. Additionally, the SUPPORT Act attempts to address the problem of
“patient brokering” in the context of addiction treatment facilities and sober living homes.

One section of the SUPPORT Act, the Eliminating Kickbacks in Recovery Act (“EKRA”), makes it a federal crime to
knowingly and willfully: (1) solicit or receive any remuneration in return for referring a patient to a recovery home, clinical treatment
facility or laboratory; or (2) pay or offer any remuneration to induce such a referral or in exchange for an individual using the services
of a recovery home, clinical treatment facility, or laboratory. Each conviction under the EKRA is punishable by up to $200,000 in
monetary damages, imprisonment for up to ten (10) years, or both. Unlike the Anti-Kickback Statutes, EKRA is not limited to services
reimbursable under a government healthcare program. The EKRA also contains exceptions similar to the Anti-Kickback Statute Safe
Harbors, but those exceptions are more narrow than the Anti-Kickback Statute Safe Harbors such that practices that would be
permissible under the Anti-Kickback Statute may violate EKRA.

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
requests for payment for healthcare items or services. Under the False Claims Act, the government may fine any person or entity that,
among other things, knowingly submits, or causes the submission of, false or fraudulent claims for payment to the federal government
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 $11,181 to $22,363 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, known 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 false or fraudulent claims to the state government or
Medicaid program.

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 and security regulations control the use and
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.

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 and
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
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
requests, an appropriate transfer must be implemented. EMTALA imposes additional obligations on hospitals with specialized
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.

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 21st Century Cures Act appropriated

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. 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
requirement 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 expand 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 eliminated PPACA’s individual health insurance
mandate as of 2018 by reducing to zero the tax penalty associated with failure to maintain health insurance coverage.

During the 2018 election cycle, Democrats regained control of the House of Representatives, effectively eliminating the
possibility that PPACA will be repealed entirely during the next two years. Still, it remains difficult to predict whether PPACA will be
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.

In 2018, a federal district court judge in Texas ruled that PPACA in its entirety is invalid. That decision has been stayed pending

appeal, and will likely remain unresolved until finally decided by the United States Supreme Court.

There have been and likely will continue to be a number of legal challenges to various provisions of the law and President

Trump’s 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.

Corporate Integrity Agreement

During the second quarter of 2019, we entered into a corporate integrity agreement (the “CIA”) with the Office of Inspector

General imposing certain compliance obligations on us and our subsidiary, CRC Health. For further discussion of the background of
this matter and the CIA, see “Risk Factors— We could be subject to increased monetary penalties and other sanctions, including
exclusion from federal healthcare programs, if we fail to comply with the terms of the Corporate Integrity Agreement.”

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 provided for significant changes to the U.S. tax code. Effective January 1, 2018, the Tax Act reduced the U.S.
federal tax rate for corporations from 35% to 21% for U.S. taxable income and included certain other changes.

Further information on the Company’s accounting for any tax effects of the Tax Act can be found in the consolidated financial

statements.

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 2007. 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
initial establishments of new facilities, which are subject to registration and licensing requirements, to the recruitment and
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.

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 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.K. to ensure children are
safeguarded and their welfare is promoted.

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 irrespective 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 statutory
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 rating or a
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. Additionally, the CQC is increasingly looking to
inspect independent provider groups as a whole in relation to their corporate governance arrangements to ensure there is appropriate
supervision and oversight.

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 the
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. In addition,
NHS Counter Fraud Authority (“CFA”) regulations apply to service providers which hold material contracts with the NHS, and they
must submit an annual self-assessment of compliance against a number of standards aimed at fraud detection, prevention and
reporting. The NHS CFA is a Special Health Authority, charged with identifying, investigating and preventing fraud within both
public and private health bodies. 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) the
Health and Safety Executive (“HSE”) for violations of the Health and Safety at Work Act in connection with patient incidents at our
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 became effective 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 “Risk Factors—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 NHS 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 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 adult social care.

HIW. HIW is the independent inspectorate 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 with
its and the NHS’s standards, policies, guidance and regulations. The HIW Review Service for Mental Health monitors the use of the
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 risks are insured through a wholly-owned insurance subsidiary. We are self-insured for professional liability
claims up to $3.0 million per claim and have obtained reinsurance coverage from a third party to cover claims in excess of the
retention limit. The reinsurance policy has a coverage limit of $75.0 million in the aggregate. Our reinsurance receivables are
recognized consistent with the related liabilities and include known claims and any incurred but not reported claims that are covered
by current insurance policies in place.

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 not result in a material liability or cost to achieve
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 required for us to comply with any new or
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.

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

formerly operated facilities that could result in material liability or cost to us under environmental laws or regulations for the
investigation and remediation of such contamination, and we currently are not undertaking any remediation or investigation activities
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.

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 parity legislation and increased demand for
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 there is significant outsourcing to
independent sector providers, whereby the NHS is both a provider and customer of mental healthcare services. NHS in-house beds
accounts for approximately 70% of the total mental health hospital beds providing care in the U.K., with independent providers
accounting for the remaining approximately 30% 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
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

At December 31, 2019, we had approximately 42,800 employees (approximately 20,900 in the U.S. and approximately 21,900

in the U.K), of which 28,400 were employed full-time. At December 31, 2019, labor unions represented approximately 405 of our
U.S. employees at four of our U.S. Facilities through seven 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 SEC. 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, may
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 price of our
common stock. If we are unable to operate our facilities as profitably as we have in the past 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 other 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, outcomes of political elections, 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, managed care contract negotiations and terminations, changes in general
conditions in the economy or the financial markets or other developments affecting the healthcare industry including the U.K. leaving
the European Union.

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

Because many of the patients we treat suffer from severe mental health and chemical dependency disorders, patient incidents,

including deaths, sexual abuse, 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. may be subject to investigations by various governmental agencies. Certain

of our individual facilities have received, and from time to time, other facilities may receive, subpoenas, civil investigative demands,
audit reports and other inquiries from, and may be subject to investigation by, federal and state agencies and regulatory agencies in the
U.K. See “Item 3. Legal Proceedings” for additional information about pending investigations. These investigations can result in
repayment obligations, and violations of the False Claims Act can result in substantial monetary penalties and fines, the imposition of
a corporate integrity agreement and exclusion from participation in governmental health programs. 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 materially 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.

We could be subject to increased monetary penalties and other sanctions, including exclusion from federal healthcare programs, if
we fail to comply with the terms of the Corporate Integrity Agreement.

During the second quarter of 2019, we reached a settlement with the U.S. Attorney’s Office for the Southern District of West
Virginia relating to the manner in which seven of our comprehensive treatment centers in West Virginia had historically billed lab
claims to the West Virginia Medicaid Program. We paid the government $17.0 million during the three months ended June 30, 2019
and entered into the CIA with the Office of Inspector General imposing certain compliance obligations on us and our subsidiary, CRC
Health.

Material, uncorrected violations of the CIA could lead to our suspension or exclusion from participation in Medicare, Medicaid

and other federal and state healthcare programs and repayment obligations. In addition, we are subject to possible civil penalties for
failure to substantially comply with the terms of the CIA, including stipulated penalties ranging between $1,000 to $2,500 per day. We
are also subject to a stipulated penalty of $50,000 for each false certification made by us or on our behalf, pursuant to the reporting
provisions of the CIA. The CIA increases the amount of information we must provide to the federal government regarding our
healthcare practices and our compliance with federal regulations. The reports we provide in connection with the CIA could result in
greater scrutiny by regulatory authorities.

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

A significant portion of our revenue is derived from government healthcare programs. For the year ended December 31, 2019,

we derived approximately 42% 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 in England, Scotland and Wales). 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 recover this increase. In addition, the federal
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 they will
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.

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 are
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 concurrent 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 a
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 U.S.
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.

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

At December 31, 2019, we had approximately $3.2 billion of total debt (net of debt issuance costs, discounts and premiums of
$31.4 million), which included approximately $1.7 billion of debt under our Amended and Restated Senior Credit Facility (including
approximately $346.8 million of Senior Secured Term A Loan and approximately $1.3 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 5.125% Senior
Notes (the “5.125% Senior Notes”), $650.0 million of debt under our 5.625% Senior Notes, $390.0 million of debt under our 6.500%
Senior Notes and other long-term debt of $4.8 million. See “Item 1. Business—Financing Transactions” for additional details
regarding our outstanding indebtedness.

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 which, if not
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 on our
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.

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, and
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 restrictive covenants that could affect our
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
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.

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
additional debt, these restrictions are subject to a number of significant qualifications and exceptions, and under certain circumstances,
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
ability to pay the principal, premium, if any, and interest on the Senior Notes and substantially decrease the market value of the Senior
Notes. If we are unable to generate sufficient cash flows and are otherwise unable to obtain funds necessary to meet required payments
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, the U.K. leaving the European Union, failure to comply with foreign laws
and regulations and adverse changes 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,
significant 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 management
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 operations 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 (“Brexit”). The U.K. formally withdrew from the European Union on January 31, 2020, and is now in a transition
period through December 31, 2020 to, among other things, negotiate an agreement with the European Union governing future
relationships between the European Union and the U.K.

Brexit has created political and economic uncertainty, particularly in the U.K. and the European Union. Uncertainty over the
terms of the U.K.’s departure from the European Union could negatively impact the U.K. and other economies, which could adversely
affect our financial position and results of operations. The outlook for the global economy in 2020 and beyond remains uncertain as
negotiations to determine the future terms of the U.K.’s relationship with the European Union continue. Such global market instability
may hinder future economic growth. Any of these effects of Brexit, among others, could adversely affect our assets, business, cash
flow, condition (financial or otherwise), liquidity, prospects and results of operations.

Changes in the method pursuant to which the LIBOR rates are determined and potential phasing out of LIBOR after 2021 may
affect our financial results.

LIBOR and certain other interest “benchmarks” may be subject to regulatory guidance and/or reform that could cause interest

rates under our current or future debt agreements to perform differently than in the past or cause other unanticipated consequences.
The U.K.’s Financial Conduct Authority, which regulates LIBOR, has announced that it intends to stop encouraging or requiring
banks to submit rates for the calculation of LIBOR rates after 2021, and it is unclear if LIBOR will cease to exist or if new methods of
calculating LIBOR will evolve. If LIBOR ceases to exist or if the methods of calculating LIBOR change from their current form,
interest rates on our current or future debt obligations may be adversely affected.

We have recorded impairment charges and may be required to record additional charges to future earnings if our goodwill,
intangible assets and property and equipment become further impaired.

We are required under U.S. generally accepted accounting principles (“GAAP”) to review annually, or more frequently if events

indicate the carrying value of a reporting unit may not be recoverable, our goodwill and indefinite-lived intangible assets for
impairment. For the year ended December 31, 2019, we recorded impairment charges of $54.4 million relating to an adjustment in the
carrying value of our U.S. Facilities and U.K. Facilities that closed. For the year ended December 31, 2018, we recorded a non-cash
goodwill impairment charge of $325.9 million related to our U.K. Facilities. We may be required to record additional charges to
earnings during any period in which a further impairment of our goodwill, intangible assets and property and equipment is determined
which could adversely affect our results of operations. Our evaluation of goodwill and the need for any further impairment in
subsequent periods is sensitive to revisions to our current projections. See “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations— Critical Accounting Policies — Goodwill and Indefinite-Lived Intangible Assets” for
additional information.

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 intense and has resulted in increases to our labor and recruiting costs, which has adversely affected our operating
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 and care support personnel has been a significant

operating issue facing us and other healthcare providers, particularly for our facilities in the U.K. Such shortages have resulted in
increased utilization of agency staff, which is significantly more expensive than staff we employ. As a result, we have experienced
increased labor costs in the U.K., which has adversely affected our results of operations. We also may be required to enhance wages
and benefits to hire nurses, qualified addiction counselors and other medical and care support personnel, hire more expensive
temporary personnel or increase our recruiting and marketing costs relating to labor. The use of temporary or agency staff 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.

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, counselors, nurses and other medical support
personnel or control our labor costs could have a material adverse effect on our results of operations.

Our efforts to explore a strategic transaction with our U.K. operations may not result in any definitive transaction or enhance
stockholder value and may create uncertainty that could adversely affect our operating results and business.

During 2019, we commenced a review of strategic alternatives including those related to our U.K. operations and a potential

There are various uncertainties and risks relating to our evaluation and negotiation of possible strategic transactions and our

ability to consummate a definitive transaction relating to our U.K. operations, including:



the current market price of our common stock may reflect a market assumption that a transaction will occur, and a failure
to complete the transaction could result in a negative perception by investors in the Company generally and could cause a
decline in the market price of our common stock, which could adversely affect our ability to access the equity and
financial markets, as well as our ability to explore and enter into different strategic alternatives;

the process of evaluating the proposed transaction may be time consuming and expensive and may result in the loss of
business opportunities;

perceived uncertainties as to our future direction may result in increased difficulties in retaining key U.K. employees and
recruiting new U.K. employees, particularly senior management;

perceived uncertainties as to our operations in the U.K. may cause business partners to terminate, or not to renew or enter
into, arrangements with us;

a negotiated transaction price could be below the current carrying value of our U.K. Facilities which could result in
recognition of a material loss or impairment charge following the transaction;

even if the board of directors of the Company negotiates a definitive agreement for a transaction, we may be unable to
complete the transaction due to the failure to obtain regulatory approvals, failure to satisfy other conditions to
consummate the transaction, and we may be subject to litigation regarding the strategic review process or the transaction;
and



there can be no assurance that a transaction will occur, the timing of consummating a transaction or that a transaction will
result in any value being delivered to the Company’s stockholders.

We do not intend to discuss or disclose developments with respect to the strategic review process unless we determine further

disclosure is appropriate or required. As a consequence, the market price of our common stock could be highly volatile during the
period in which we are evaluating and negotiating a transaction, and may continue to be more volatile if we announce that we are no
longer pursuing a proposed transaction.

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,
policies, business cultures and internal controls and compliance. Certain acquisitions involve a capital outlay, and the return that we
achieve on any capital invested may be less than the return that we would achieve on our other projects or investments. If we fail 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
industry, reductions in reimbursement rates from third-party payors, reductions in service levels under our contracts, operating
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 tax

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 for some of our significant acquisitions contain minimal representations and
warranties about the entities and business that we acquired. In addition, we have no indemnification rights against the sellers under
some purchase agreements and all of the purchase price consideration was paid at closing. Therefore, we may incur material 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.

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

Some of the facilities we have acquired or may acquire in the future may have had significantly lower operating margins prior to

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,
some of which may be not-for-profit healthcare systems. If our joint venture partners do not fulfill their obligations, the affected joint
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 joint
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 operations 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 purchasing
or under framework agreements where no volume commitments are given. In addition, there can be no assurance that we can
achieve any fee rate increases in the future or will not suffer any fee rate decreases.

Any decline in demand for our services in the U.K. from publicly funded entities, private (including private medical insurance

(“PMI”)) 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
impact on our business, results of operations and financial condition.

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.
Further, the block contracts may not perform as expected and disputes may arise in relation to contractual terms and service provision
which may result in early termination and liabilities for damages, costs and expenses.

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

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 control public spending 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.

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 the U.K.
Certain services that were historically commissioned centrally by NHS England are moving towards more local commissioning under
NHS-led provider collaboratives in order to better meet patient needs and to enhance local care pathways. The first provider
collaboratives are scheduled to be operational by April 2020 with NHS England intending to complete the roll-out of the delegation of
the commissioning of its specialized mental health services over the following two years. Although we will be participating in all
relevant provider collaboratives, we still face the risk that our ADC will decrease in areas where there is surplus capacity or more
focus on community-based treatment, especially in circumstances where a NHS-led provider trust seeks to put its own interests ahead
of the interests of the whole provider collaborative.

Under its ‘Transforming Care’ agenda, NHS England is engaged in an ongoing process of decommissioning secure inpatient
hospital services for people with learning disabilities with a view to more patients being cared for in alternative community-based
service. Over the course of the last year a number of our secure hospital wards have closed as part of this process and although NHS
England has no immediate plans to decommission any more of our services, it is possible that further decommissioning will take place
in the future. In January 2019, NHS England published its Long Term Plan for the NHS, central to which will be the creation of a
network of integrated care systems. The plan makes little mention of the role of independent sector providers and it is most likely that
the integrated care systems will be dominated by the incumbent NHS provider trusts. The NHS competition reforms introduced in

2012 gave independent sector providers statutory protection against unfair treatment by commissioners. NHS England’s proposed
reversal of these reforms presents a risk that this protection could be lost such that it will become more difficult for independent sector
providers to challenge commissioners’ preferential treatment of NHS provider trusts.

Private payers

Although we have agreements in place with a number of 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 dependent on economic conditions, which impacts the number of people
with sufficient income or capital to pay for insurance coverage or treatment themselves.

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 NHS England of healthcare services has been increasing in recent years, the need of NHS England to

achieve substantial efficiency savings is likely to result in continued funding pressure in the pricing of such services. For instance,
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 NHS Improvement. 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. Should this cap be introduced, it 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
education or elderly care will not emerge. Any such funding or structural change in the markets where we operate 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 are reliant upon maintaining strong relationships with commissioners employed by publicly funded entities, psychiatric and
other medical consultants, and any change in those relationships may adversely affect us.

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, 2019. Should there be a
major reorganization of publicly funded entities including in relation to the provider collaborative program, 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.

Our operating costs are subject to increases, including due to statutorily mandated increases in the wages 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 of
each subsequent year and is scheduled to increase again in April 2020 with further annual increases expected until at least 2024. These
changes to the 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. In 2017
and early 2018 this action extended to 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. In July 2018, the Court of Appeal determined that sleep-in shifts were not subject to NMW legislation
and HMRC stepped back from its enforcement action. However, the Court of Appeal’s judgment has been appealed to the Supreme
Court. We expect the Supreme Court to issue a final ruling in the second quarter of 2020. If the Court of Appeal’s decision is
overturned, it is likely that HMRC would recommence its enforcement activity. In such circumstances, we may be subject to
(i) increased payments to employees for sleep-in shifts on an on-going basis; (ii) payments of up to six years of arrears to employees
or former employees who have carried out sleep-in shifts at our U.K. Facilities; and (iii) payments of 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 deficiencies could adversely impact
our brand, reputation and ability to market our services effectively.

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

new programs and marketing activities, increased demand for our services. Factors such as increased acuity of our patients, health and
safety incidents 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 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
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 collect, 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 our employees or as a result of a breach by a third party to whom we have
provided sensitive personal data, and 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 was introduced in May 2018 and provides heightened data protection requirements including more stringent
consent requirements, data protection and security measures and requirements to appoint a data protection officer. Following a full
scale review of the business’s operations, we have taken appropriate steps to ensure compliance with U.K. data protection laws and
regulations; all internal policies and procedures have been reviewed and a full training module has been rolled out to all staff at all
sites and central functions. Nevertheless we cannot guarantee that our facilities will not be subject to data breaches which could have a
material adverse effect on our business, financial condition, or results of operations.

Liability under data protection laws may result in sanctions, including substantial fines and/or compensation to those affected.
Additionally, liability 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 against 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 our
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, our
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
which the liability for damages and costs falls to us before being met by any insurance underwriter. There may also be claims in
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
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.

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.
Continued uncertainty over Brexit may cause the exchange rate to decline. If the exchange rate 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 that 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.

We incur significant transaction-related costs in connection with acquisitions and other strategic transactions.

We incur substantial costs in connection with acquisitions and other strategic transactions, 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 new facilities or by modifying existing facilities is
dependent upon many factors.

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
is generated on an investment, if at all. We may incur significant capital expenditure but due to a regulatory, planning or other reason,
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,
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 information technology continuity plans
across our business intended to minimize the impact of information technology failures, there can be no assurance that such measures
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.

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 disability
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
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 condition
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.

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.

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 downturn or other 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.

Although we have facilities in 40 states, the U.K. and Puerto Rico, we have substantial operations in the U.K., Pennsylvania,
California, Arizona and Tennessee, which makes us especially sensitive to regulatory, economic, environmental and competitive
conditions and changes in those locations.

For the year ended December 31, 2019, our revenue in the U.K. represented approximately 35% of our total revenue. Revenue

from Pennsylvania, California, Arizona and Tennessee represented approximately 7%, 5%, 4% and 4% of our total revenue for the
year ended December 31, 2019, 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 and economic conditions, our business,
financial condition or results of operations could be adversely affected.

In addition, some of our facilities are located in areas prone to hurricanes or wildfires. Natural disasters have historically had a
disruptive effect on the operations of facilities and the patient populations in such areas. Our business activities could be significantly
disrupted by wildfires, hurricanes or other natural disasters, and our property insurance may not be adequate to cover losses from such
wildfires, storms or other natural disasters.

A pandemic, epidemic or outbreak of an infectious disease in the markets in which we operate or that otherwise impacts our
facilities could adversely impact our business.

If a pandemic, epidemic, outbreak of an infectious disease, such as the coronavirus known as COVID-19, or other public health
crisis were to occur in an area in which we operate, our operations could be adversely affected. Such a crisis could diminish the public
trust in healthcare facilities, especially facilities with patients affected by infectious diseases. If any of our facilities were involved, or
perceived as being involved, in treating such patients, other patients might fail to seek care at our facilities, and our reputation may be
negatively affected. Further, a pandemic, epidemic or outbreak might adversely impact our business by causing a temporary shutdown
or diversion of patients, by disrupting or delaying production and delivery of pharmaceuticals and other medical supplies or by
causing staffing shortages in our facilities. Although we have disaster plans in place and operate pursuant to infectious disease
protocols, the potential impact of a pandemic, epidemic or outbreak of an infectious disease with respect to our markets or our
facilities is difficult to predict and could adversely impact our business, financial condition or results of operations.

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. 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. There are also numerous legal challenges to the validity of PPACA.

If PPACA is modified or ruled invalid, 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 eliminated, 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,

EKRA, 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. Even if our arrangements are
found to be in compliance with the Anti-Kickback Statue, they may still face scrutiny under the newly enacted EKRA law. 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 effect 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 be.

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, operating policies and procedures, fire
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 adhere to
these standards, we could be subject to monetary penalties or restrictions on our ability to operate.

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 these costs
may increase in the future.

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 certain comprehensive treatment facilities. If any of
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.

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 licensing

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

new facilities, which are subject to registration and licensing requirements, to the recruitment and appointment of staff, occupational
health and safety, duty of care to service users, clinical and educational standards, conduct of our professional and support staff, 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 and colleges in England are regulated by
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.

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 NHS Improvement 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 compliance 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.

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 regulations requires substantial
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.

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, including criminal penalties. We may also be subject to
substantial reputational harm if we experience a substantial security breach involving PHI.

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
otherwise affect the implementation of PPACA. We cannot predict how these changes to, or the potential repeal, replacement 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 cuts
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 and Local Authorities to reduce funding for the types of services that we
provide. Although the government has announced that revenue funding for NHS England will grow by an average of 3.4% a year over
the next five years from 2019, most of this funding will be needed to cover increases in NHS pay and to meet increased demand,
particularly for acute and emergency services. Such policy changes in the U.K. could lead to fewer services from the independent
sector 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.”

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 standards
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
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, independent operators or physician groups with
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 entities,
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.

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 and customer of mental healthcare services in the U.K. NHS in-house beds account for
approximately 70% of the total mental health hospital beds providing care 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. Under the NHS Long Term Plan,
preferential treatment of NHS providers is likely to increase and while independent operators may have emerged to satisfy the demand
for mental health services not supplied by the NHS, this trend could be reversed. 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 sole-source contracts may limit our ability to
obtain patients.

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
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. At December 31, 2019, labor unions represented

approximately 405 of our employees at four of our U.S. Facilities through seven 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
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
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 have a material adverse effect on our business, results of operations and financial condition

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, operated
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 litigants, relating to our operations, the

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 without
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.

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.

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

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 outsourcing of behavioral healthcare
services could have a material adverse impact on our business, financial condition and results of operations.

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 determine the transaction price based on established billing rates reduced by contractual adjustments provided to
third-party payors, discounts provided to uninsured patients and implicit price concessions. Contractual adjustments and discounts are
based on contractual agreements, discount policies and historical experience. Implicit price concessions are based on historical
collection experience. At December 31, 2019, our estimated implicit price concessions represented approximately 12% of our
accounts receivable balance as of such date. 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, other
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 Section 404 of the Sarbanes-Oxley Act. If we are
unable to maintain adequate internal control over financial reporting, we may be unable to report our financial information on a timely
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.

We are responsible for an underfunded pension liability related to our acquisition of Partnerships in Care. In addition, we may be
required to increase funding of the pension plans and/or be subject to restrictions on the use of excess cash.

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. At December 31, 2019, the net deficit recognized under GAAP in respect of this
plan was £3.2 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 us or our existing stockholders, particularly our
largest stockholders, our directors and executive officers, 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.

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
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
higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and
retain qualified persons to serve on our board of directors, our board committees or as our executive officers. Furthermore, if we are
unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other
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 resolution approved by a majority of our
directors then in office;

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
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 forth in our amended and restated
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.

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 at December 31, 2019:

State
Alaska
Arizona
Arkansas
California
Delaware
Florida
Georgia
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Mississippi
Missouri
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
International

Puerto Rico
United Kingdom

Facilities

Operated Beds
—
469
713
462
120
481
380
192
227
—
—
—
381
—
—
215
406
446
239
134
—
—
46
431
210
108
—
1,515
—
63
126
797
555
147
—
283
137
—
35

1
4
6
25
2
6
5
1
7
1
1
1
6
4
3
14
6
3
2
5
2
1
1
10
5
4
6
32
2
1
1
7
5
6
1
7
8
7
14

1
361
585

172
8,699
18,189

Additionally, we provided outpatient services in Montana at December 31, 2019. See “Business— U.S. Operations” and
“Business— U.K. Operations— Description of U.K. Facilities” for a summary description of our U.S. Facilities 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.

Item 3. Legal Proceedings.

We are, from time to time, subject to various claims, lawsuits, governmental investigations and regulatory actions, including
claims for damages for personal injuries, medical malpractice, overpayments, breach of contract, securities law violations, 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. Certain of our individual facilities have received, and from time to time, other facilities may receive,
subpoenas, civil investigative demands, audit requests and other inquiries from, and may be subject to investigation by, federal and
state agencies. These investigations can result in repayment obligations, and violations of the False Claims Act can result in
substantial monetary penalties and fines, the imposition of a corporate integrity agreement and exclusion from participation in
governmental health programs. In addition, the federal False Claims Act permits private parties 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.

On April 1, 2019, a consolidated complaint was filed against the Company and certain former and current officers in the lawsuit
styled St. Clair County Employees’ Retirement System v. Acadia Healthcare Company, Inc., et al., Case No. 3:19-cv-00988, which is
pending in the United States District Court for the Middle District of Tennessee. The complaint purports to be brought on behalf of a
class consisting of all persons (other than defendants) who purchased securities of the Company between April 30, 2014 and November
15, 2018, and alleges that defendants violated Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder.
At this time, we are not able to quantify any potential liability in connection with this litigation because the case is in its early stages.

On February 21, 2019, a purported stockholder filed a related derivative action on behalf of the Company against certain former
and current officers and directors in the lawsuit styled Davydov v. Joey A. Jacobs, et al., Case No. 3:19-cv-00167, which is pending in
the United States District Court for the Middle District of Tennessee. The complaint alleges claims for violations of Section 10(b) and
14(a) of the Exchange Act, breach of fiduciary duty, waste of corporate assets and unjust enrichment. On May 23, 2019, a purported
stockholder filed a second related derivative action on behalf of the Company against certain former and current officers and directors
in the lawsuit styled Beard v. Jacobs, et al., Case No. 3:19-cv-0441, which is pending the United States District Court for the Middle
District of Tennessee. The complaint alleges claims for violations of Sections 10(b), 14(a) and 21D of the Exchange Act, breach of
fiduciary duty, waste of corporate assets, unjust enrichment, and insider selling. On June 11, 2019, the Davydov and Beard actions were
consolidated and ordered stayed pending a ruling on the motion to dismiss that was filed in the St. Clair County v. Acadia Healthcare
case described above. At this time, we are not able to quantify any potential liability in connection with this litigation because the cases
are in their early stages.

In the fall of 2017, the Office of Inspector General issued subpoenas to three of our facilities requesting certain documents from

January 2013 to the date of the subpoenas. The U.S. Attorney’s Office for the Middle District of Florida issued a civil investigative
demand to one of our facilities in December 2017 requesting certain documents from November 2012 to the date of the demand. In
April 2019, the Office of Inspector General issued subpoenas relating to six additional facilities requesting certain documents and
information from January 2013 to the date of the subpoenas. The government’s investigation of each of these facilities is focused on
claims not eligible for payment because of alleged violations of certain regulatory requirements relating to, among other things,
medical necessity, admission eligibility, discharge decisions, length of stay and patient care issues. We are cooperating with the
government’s investigation but are not able to quantify any potential liability in connection with these investigations.

Item 4. Mine Safety Disclosures

Not applicable.

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

Our common stock is listed for trading on The NASDAQ Global Select Market under the symbol “ACHC.”

PART II

Stockholders

As of February 28, 2020, there were approximately 512 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, 2019, 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

Dividends

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

Total Number
of Shares
Purchased

Average Price
Paid per
Share

620 $
4,888 $
2,289 $
7,797

30.15
30.90
32.15

—
—
—

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 governing 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, 2019, 2018 and 2017, and at December 31, 2019
and 2018, 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, 2016 and 2015, and at December 31, 2017, 2016 and 2015, 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.

2019

2018

Year Ended December 31,
2017
(In thousands, except per share data)

2016

2015

Income Statement Data:
Revenue before provision for doubtful accounts
Provision for doubtful accounts
Revenue
Salaries, wages and benefits (1)
Professional fees
Supplies
Rents and leases
Other operating expenses
Depreciation and amortization
Interest expense, net
Debt extinguishment costs
Legal settlements expense
Loss on impairment
Loss on divestiture
(Gain) loss on foreign currency derivatives
Transaction-related expenses
Income (loss) from continuing operations, before
income taxes
Provision for income taxes
Income (loss) from continuing operations
Income from discontinued operations, net of
income taxes
Net income (loss)
Net (income) loss attributable to noncontrolling
interests
Net income (loss) attributable to Acadia
Healthcare Company, Inc.
Income (loss) from continuing operations per share basic
Income (loss) from continuing operations per share
diluted
Balance Sheet Data (as of end of period):
Cash and cash equivalents
Total assets
Total debt
Total equity

—

80,282

82,229

(41,909 )

(40,918 )

$ 3,107,462 $ 3,012,442 $ 2,877,234 $ 2,852,823 $ 1,829,619
(35,127 )
3,107,462 3,012,442 2,836,316 2,810,914 1,794,492
1,717,180 1,659,348 1,536,160 1,541,854 973,732
240,983 227,425 196,223 185,486 116,463
80,663
123,061 119,314 114,439 117,425
32,528
73,348
375,433 354,498 331,827 312,556 206,746
164,044 158,832 143,010 135,103
63,550
187,094 185,410 176,007 181,325 106,742
10,818
—
—
—
1,926
36,571

1,815
22,076
54,386 337,889
—
—
34,507

4,253
810
—
—
—
—
— 178,809
(523 )
—
48,323
24,267

—
—
27,064

—
—

76,775

135,988 (168,954 ) 236,798
37,209
110,122 (175,486 ) 199,589

25,866

6,532

—
110,122 (175,486 ) 199,589

—

32,955 164,753
28,779
53,388
4,176 111,365

—

111
4,176 111,476

(1,199 )

(264 )

246

1,967

1,078

$ 108,923 $ (175,750 ) $ 199,835 $
2.30 $
$

(2.01 ) $

1.24 $

6,143 $ 112,554
1.65
0.07 $

1.24 $

(2.01 ) $

2.30 $

0.07 $

1.64

50,510 $

$ 124,192 $
11,215
6,879,142 6,172,504 6,424,502 6,024,726 4,279,208
3,149,099 3,193,487 3,239,888 3,287,809 2,240,744
2,505,381 2,333,307 2,572,871 2,167,724 1,683,028

67,290 $

57,063 $

(1) Salaries, wages and benefits for the years ended December 31, 2019, 2018, 2017, 2016 and 2015 include $17.3 million,
$22.0 million, $23.5 million, $28.3 million and $20.5 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
negative thereof. Generally, the words “anticipate,” “believe,” “continue,” “expect,” “intend,” “estimate,” “project,” “plan” and
similar expressions identify forward-looking statements. In particular, statements about our expectations, beliefs, plans, objectives,
assumptions or future events or performance contained are forward-looking statements.

We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we

believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only
predictions and involve known and unknown risks, uncertainties and other factors, many of which are outside of our control, which
could cause our actual results, performance or achievements to differ materially from any results, performance or achievements
expressed or implied by such forward-looking statements. These risks, uncertainties and other factors include, but are not limited to:



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

our ability to implement our business strategies in the U.S. and the U.K.;

potential difficulties operating our business in light of political and economic instability in the U.K. and globally relating to
the U.K.’s departure from the European Union;

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

our ability to enter into and successfully complete any strategic transaction related to our U.K. operations;

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;

difficulties in successfully integrating the operations of acquired facilities or realizing the potential benefits and synergies of
our acquisitions and joint ventures;

our ability to recruit and retain quality psychiatrists and other physicians, nurses, counselors and other medical support
personnel;

the impact of competition for staffing on our labor costs and profitability;

the impact of increases to our labor costs in the U.S. and the U.K.;

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;

the impact of adverse weather conditions, including the effects of hurricanes;

the impact of pandemics, epidemics or outbreaks of infectious diseases, including the coronavirus known as COVID-19;

compliance with laws and government regulations;

the impact of claims brought against us or our facilities including claims for damages for personal injuries, medical
malpractice, overpayments, breach of contract, securities law violations, tort and employee related claims;



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



any failure to comply with the terms of the CIA;

the impact of healthcare reform in the U.S. and abroad, including the potential repeal, replacement or modification of the
Patient Protection and Affordable Care Act;

the impact of our highly competitive industry on patient volumes;

our dependence on key management personnel, key executives and local facility management personnel;

our acquisition, joint venture and de novo strategies, which expose us to a variety of operational and financial risks, as well
as legal and regulatory risks;

the impact of state efforts to regulate the construction or expansion of healthcare facilities on our ability to operate and
expand our operations;

our potential inability to extend leases at expiration;

the impact of controls designed to reduce inpatient services on our revenue;

the impact of different interpretations of accounting principles on our results of operations or financial condition;

the impact of environmental, health and safety laws and regulations, especially in locations where we have concentrated
operations;

the 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
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 undertake
and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such
statements to reflect future events or developments.

Overview

Our business strategy is to acquire and develop behavioral healthcare facilities and improve our operating results within our
facilities and our other behavioral healthcare operations. We strive to improve the operating results of our facilities by providing high-
quality services, expanding referral networks and marketing initiatives while meeting the increased demand for behavioral healthcare
services through expansion of our current locations as well as developing new services within existing locations. At December 31,
2019, we operated 585 behavioral healthcare facilities with approximately 18,200 beds in 40 states, the U.K. and Puerto Rico. During
the year ended December 31, 2019, we acquired 11 facilities and added 585 beds (exclusive of acquisitions), including 425 added to
existing facilities and 160 added through the opening of two de novo facilities. For the year ending December 31, 2020, we expect to
add approximately 600 total beds exclusive of acquisitions.

We are the leading publicly traded pure-play provider of behavioral healthcare services, with operations in the 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. through
acquisitions, de novo facilities, joint ventures and bed additions in existing facilities.

During 2019, we commenced a review of strategic alternatives including those related to our U.K. operations and a potential

Acquisitions

On April 1, 2019, we completed the acquisition of Bradford, a specialty treatment facility with 46 beds located in Millerton,

Pennsylvania, for cash consideration of approximately $4.5 million.

On February 15, 2019, we completed the acquisition of Whittier, an inpatient psychiatric facility with 71 beds located in
Haverhill, Massachusetts, for cash consideration of approximately $17.9 million. Also on February 15, 2019, we completed the
acquisition of Mission Treatment for cash consideration of approximately $22.5 million. Mission Treatment operates nine
comprehensive treatment centers in California, Nevada, Arizona and Oklahoma.

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.

Results of Operations

The following table illustrates our consolidated results of operations for the respective periods shown (dollars in thousands):

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
Legal settlements expense
Loss on impairment
Transaction-related expenses

Income (loss) before income taxes
Provision for income taxes
Net income (loss)
Net (income) loss attributable to
noncontrolling interest
Net income (loss) attributable to Acadia
Healthcare Company, Inc.

2019

Year Ended December 31,
2018

2017

Amount

$ 3,107,462
—
3,107,462
1,717,180
240,983
123,061
82,229
375,433
164,044
187,094
—
—
54,386
27,064
2,971,474
135,988
25,866
110,122

$ 3,012,442
—
100.0 % 3,012,442
55.3 % 1,659,348
7.8 % 227,425
4.0 % 119,314
80,282
2.6 %
12.1 % 354,498
5.3 % 158,832
6.0 % 185,410
1,815
0.0 %
0.0 %
22,076
1.8 % 337,889
34,507
0.9 %
95.8 % 3,181,396
4.2 % (168,954 )
6,532
0.8 %
3.4 % (175,486 )

$ 2,877,234
(40,918 )
100.0 % 2,836,316
55.1 % 1,536,160
7.5 % 196,223
4.0 % 114,439
76,775
2.7 %
11.8 % 331,827
5.3 % 143,010
6.2 % 176,007
810
0.1 %
—
0.7 %
—
11.2 %
24,267
1.1 %
105.7 % 2,599,518
-5.7 % 236,798
37,209
0.2 %
-5.9 % 199,589

100.0 %
54.2 %
6.9 %
4.0 %
2.7 %
11.7 %
5.0 %
6.2 %
0.0 %
0.0 %
0.0 %
0.9 %
91.6 %
8.4 %
1.3 %
7.0 %

(1,199 )

-0.1 %

(264 )

-0.1 %

246

0.0 %

$ 108,923

3.5 % $ (175,750 )

-5.8 % $ 199,835

7.0 %

Segments

At December 31, 2019, the U.S. Facilities segment included 224 behavioral healthcare facilities with approximately 9,500 beds

in 40 states and Puerto Rico, and the U.K. Facilities segment included 361 behavioral healthcare facilities with approximately 8,700
beds in the U.K.

The following table sets forth percent changes in same facility operating data for our U.S. Facilities for the years ended

December 31, 2019 and 2018 compared to same periods in the previous years:

U.S. Same Facility Results (a)

Revenue growth
Patient days growth
Admissions growth
Average length of stay change (b)
Revenue per patient day growth
EBITDA margin change (c)

Year Ended December 31,

2019

5.8%
3.2%
4.0%
-0.8%
2.5%
-30bps

2018

5.4%
2.7%
4.3%
-1.6%
2.7%
-20bps

(a) Results for the periods presented include facilities we have operated more than one year and exclude

certain closed services.

(b) Average length of stay is defined as patient days divided by admissions.
(c) Segment EBITDA is defined as income before provision for income taxes, equity-based

compensation expense, debt extinguishment costs, legal settlements expense, loss on impairment,
transaction-related expenses, interest expense and depreciation and amortization. Management uses
Segment EBITDA as an analytical indicator to measure the performance of our 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 GAAP, and the items excluded from Segment EBITDA are significant
components in understanding and assessing financial performance. Because Segment EBITDA is not
a measurement determined in accordance with GAAP and is thus susceptible to varying calculations,
Segment EBITDA, as presented, may not be comparable to other similarly titled measures of other
companies.

The following table sets forth percent changes in same facility operating data for our U.K. Facilities for the years ended

December 31, 2019 and 2018 compared to the same periods in the previous years:

U.K. Same Facility Results (a,c)

Revenue growth
Patient days growth
Admissions growth
Average length of stay change (b)
Revenue per patient day growth
EBITDA margin change (d,e)

Year Ended December 31,

2019

3.8%
-0.6%
-1.9%
1.3%
4.4%
-220bps

2018

4.7%
1.6%
-0.4%
2.0%
3.1%
-240bps

(a) Results for the periods presented include facilities we have operated more than one year and exclude

the elderly care division and certain closed services.

(b) Average length of stay is defined as patient days divided by admissions.
(c) Revenue and revenue per patient day for the previous year is adjusted to reflect the foreign currency

exchange rate for the comparable period of the current year in order to eliminate the effect of changes
in the exchange rate.

(d) See definition of Segment EBITDA in U.S. Same Facility Results table above.
(e) For the years ended December 31, 2019 and 2018, U.K. EBITDA margin was affected by lower

census and higher operating expenses including labor in particular.

Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018

Revenue. Revenue increased $95.0 million, or 3.2%, to $3.1 billion for the year ended December 31, 2019 from $3.0 billion for

the year ended December 31, 2018 resulting from same facility revenue growth of 5.1% offset by $48.0 million as a result of the
decrease in the exchange rate between USD and GBP. During the year ended December 31, 2019, we generated $2.0 billion of
revenue, or 64.6% of our total revenue, from our U.S. Facilities and $1.1 billion of revenue, or 35.4% of our total revenue, from our
U.K. Facilities. During the year ended December 31, 2018, we generated $1.9 billion of revenue, or 63.2% of our total revenue, from
our U.S. Facilities and $1.1 billion of revenue, or 36.8% of our total revenue, from our U.K. Facilities.

U.S. same facility revenue increased by $106.7 million, or 5.8%, for the year ended December 31, 2019 compared to the year

ended December 31, 2018, resulting from same facility growth in patient days of 3.2% and an increase in same facility revenue per
day of 2.5%. Consistent with the same facility patient day growth in 2018, the growth in same facility patient days for the year ended
December 31, 2019 compared to the year ended December 31, 2018 resulted from the addition of beds to our existing facilities and
ongoing demand for our services. U.K. same facility revenue increased by $36.7 million, or 3.8%, for the year ended December 31,
2019 compared to the year ended December 31, 2018, resulting from an increase in same facility revenue per day of 4.4% offset by a
decline in same facility patient days of 0.6%.

Salaries, wages and benefits. Salaries, wages and benefits (“SWB”) expense was $1.7 billion for the year ended December 31,

2019 compared to $1.7 billion for the year ended December 31, 2018, an increase of $57.8 million. SWB expense included
$17.3 million and $22.0 million of equity-based compensation expense for the years ended December 31, 2019 and 2018, respectively.
Excluding equity-based compensation expense, SWB expense was $1.7 billion, or 54.7% of revenue, for the year ended December 31,
2019, compared to $1.6 billion, or 54.4% of revenue, for the year ended December 31, 2018. Same facility SWB expense was
$1.5 billion for the year ended December 31, 2019, or 51.9% of revenue compared to $1.5 billion for the year ended December 31,
2018, or 51.5% of revenue.

Professional fees. Professional fees were $241.0 million for the year ended December 31, 2019, or 7.8% of revenue, compared
to $227.4 million for the year ended December 31, 2018, or 7.5% of revenue. Same facility professional fees were $209.2 million for
the year ended December 31, 2019, or 7.1% of revenue, compared to $192.6 million, for the year ended December 31, 2018, or 6.8%
of revenue.

Supplies. Supplies expense was $123.1 million for the year ended December 31, 2019, or 4.0% of revenue, compared to
$119.3 million for the year ended December 31, 2018, or 4.0% of revenue. Same facility supplies expense was $114.6 million for the
year ended December 31, 2019, or 3.9% of revenue, compared to $109.4 million for the year ended December 31, 2018, or 3.9% of
revenue.

Rents and leases. Rents and leases were $82.2 million for the year ended December 31, 2019, or 2.6% of revenue, compared to

$80.3 million for the year ended December 31, 2018, or 2.7% of revenue. Same facility rents and leases were $66.6 million for the
year ended December 31, 2019, or 2.3% of revenue, compared to $62.6 million for the year ended December 31, 2018, or 2.2% 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 $375.4 million for the year ended December 31, 2019, or 12.1% of
revenue, compared to $354.5 million for the year ended December 31, 2018, or 11.8% of revenue. Same facility other operating
expenses were $348.7 million for the year ended December 31, 2019, or 11.8% of revenue, compared to $325.2 million for the year
ended December 31, 2018, or 11.6% of revenue.

Depreciation and amortization. Depreciation and amortization expense was $164.0 million for the year ended December 31,

2019, or 5.3% of revenue, compared to $158.8 million for the year ended December 31, 2018, or 5.3% of revenue.

Interest expense. Interest expense was $187.1 million for the year ended December 31, 2019 compared to $185.4 million for the

year ended December 31, 2018. The increase in interest expense was primarily a result of higher interest rates applicable to our
variable-rate debt slightly offset by the lower interest rates as a result of the Second Repricing Facilities Amendments to the Amended
and Restated Credit Agreement.

Legal settlements expense. Legal settlement costs of $22.1 million for the year ended December 31, 2018 represent $19.0
million related to the government investigation of the Company’s billing for lab services in West Virginia and $3.1 million related to
the resolution of the shareholder class action lawsuit filed in 2011 in connection with our merger with PHC, Inc. d/b/a Pioneer
Behavioral Health (“PHC”).

Loss on impairment. Loss on impairment of $54.4 million for the year ended December 31, 2019 represents a non-cash long-
lived asset impairment charge of $27.2 million related to two closed U.S. Facilities and $27.2 million related to certain closed U.K.
Facilities. Loss on impairment of $337.9 million for the year ended December 31, 2018 represents a non-cash goodwill impairment
charge of $325.9 million and a non-cash long-lived asset impairment charge of $12.0 million related to certain U.K. Facilities.

Transaction-related expenses. Transaction-related expenses were $27.1 million for the year ended December 31, 2019

compared to $34.5 million for the year ended December 31, 2018. Transaction-related expenses represent costs incurred in the
respective periods primarily related to termination, restructuring, strategic review, management transition and other acquisition-related
costs.

Transaction-related expenses are as summarized below (in thousands):

Termination, restructuring and strategic review costs
Management transition costs
Legal, accounting and other acquisition-related costs

Year Ended December 31,
2018
2019

18,233 $
5,529
3,302
27,064 $

16,785
14,033
3,689
34,507

Provision for income taxes. For the year ended December 31, 2019, the provision for income taxes was $25.9 million, reflecting

an effective tax rate of 19.0%, compared to $6.5 million, reflecting an effective tax rate of (3.9)%, for 2018. The change in the
effective tax rate for the year ended December 31, 2019 was primarily attributable to the disparity in the accounting treatment and the
tax treatment of the loss on impairment recorded in 2018.

Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017

Revenue. Revenue increased $176.1 million, or 6.2%, to $3.0 billion for the year ended December 31, 2018 from $2.8 billion for
the year ended December 31, 2017 resulting from same facility revenue growth of 5.2% and the increase in the exchange rate between
USD and GBP of $36.2 million. During the year ended December 31, 2018, we generated $1.9 billion of revenue, or 63.2% of our
total revenue, from our U.S. Facilities and $1.1 billion of revenue, or 36.8% of our total revenue, from our U.K. Facilities. During the
year ended December 31, 2017, we generated $1.8 billion of revenue, or 63.8% of our total revenue, from our U.S. Facilities and $1.0
billion of revenue, or 36.2% of our total revenue, from our U.K. Facilities.

U.S. same facility revenue increased by $96.7 million, or 5.4%, for the year ended December 31, 2018 compared to the year
ended December 31, 2017, resulting from same facility growth in patient days of 2.7% and an increase in same facility revenue per
day of 2.7%. U.S. same facility revenue was impacted by a fourth quarter 2018 accounts receivable adjustment of approximately $8.0
million primarily related to our CTCs and the state Medicaid programs in Wisconsin. U.K. same facility revenue increased by
$45.2 million, or 4.7%, for the year ended December 31, 2018 compared to the year ended December 31, 2017, resulting from same
facility growth in patient days of 1.6% and an increase in same facility revenue per day of 3.1%. Consistent with the same facility
patient day growth in 2017, the growth in same facility patient days for the year ended December 31, 2018 compared to the year ended
December 31, 2017 resulted from the addition of beds to our existing facilities and ongoing demand for our services.

Salaries, wages and benefits. Salaries, wages and benefits (“SWB”) expense was $1.7 billion for the year ended December 31,

2018 compared to $1.5 billion for the year ended December 31, 2017, an increase of $123.2 million. SWB expense included
$22.0 million and $23.5 million of equity-based compensation expense for the years ended December 31, 2018 and 2017, respectively.
Excluding equity-based compensation expense, SWB expense was $1.6 billion, or 54.4% of revenue, for the year ended December 31,
2018, compared to $1.5 billion, or 53.3% of revenue, for the year ended December 31, 2017. Same facility SWB expense was
$1.5 billion for the year ended December 31, 2018, or 51.6% of revenue compared to $1.4 billion for the year ended December 31,
2017, or 51.1% of revenue.

Professional fees. Professional fees were $227.4 million for the year ended December 31, 2018, or 7.5% of revenue, compared
to $196.2 million for the year ended December 31, 2017, or 6.9% of revenue. The $31.2 million increase was primarily attributable to
higher contract labor costs in our U.K. Facilities. Contract labor costs in our U.K. Facilities were higher primarily due to the ongoing
nursing and clinical labor shortage and our dependence on higher cost agency labor. Same facility professional fees were

$196.7 million for the year ended December 31, 2018, or 6.8% of revenue, compared to $169.4 million, for the year ended
December 31, 2017, or 6.2% of revenue.

Supplies. Supplies expense was $119.3 million for the year ended December 31, 2018, or 4.0% of revenue, compared to
$114.4 million for the year ended December 31, 2017, or 4.0% of revenue. Same facility supplies expense was $111.1 million for the
year ended December 31, 2018, or 3.9% of revenue, compared to $107.7 million for the year ended December 31, 2017, or 3.9% of
revenue.

Rents and leases. Rents and leases were $80.3 million for the year ended December 31, 2018, or 2.7% of revenue, compared to

$76.8 million for the year ended December 31, 2017, or 2.7% of revenue. Same facility rents and leases were $64.5 million for the
year ended December 31, 2018, or 2.2% of revenue, compared to $62.7 million for the year ended December 31, 2017, 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 $354.5 million for the year ended December 31, 2018, or 11.8% of
revenue, compared to $331.8 million for the year ended December 31, 2017, or 11.7% of revenue. Same facility other operating
expenses were $329.1 million for the year ended December 31, 2018, or 11.5% of revenue, compared to $314.8 million for the year
ended December 31, 2017, or 11.5% of revenue.

Depreciation and amortization. Depreciation and amortization expense was $158.8 million for the year ended December 31,
2018, or 5.3% of revenue, compared to $143.0 million for the year ended December 31, 2017, or 5.0% of revenue. The increase in
depreciation and amortization was attributable to depreciation associated with capital expenditures and real estate acquisitions during
2017 and 2018.

Interest expense. Interest expense was $185.4 million for the year ended December 31, 2018 compared to $176.0 million for the

year ended December 31, 2017. The increase in interest expense was primarily a result of higher interest rates applicable to our
variable-rate debt slightly offset by the lower interest rates as a result of the Repricing Facilities Amendments to the Amended and
Restated Credit Agreement.

Debt extinguishment costs. Debt extinguishment costs for the year ended December 31, 2018 represented $0.6 million of cash
charges and $0.3 million of non-cash charges recorded in connection with the Repricing Facilities Amendments to the Amended and
Restated Credit Agreement and $0.9 million of cash charges in connection with the redemption of the 9.0% and 9.5% Revenue Bonds.
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.

Loss on impairment. Loss on impairment of $337.9 million for the year ended December 31, 2018 represents a non-cash
goodwill impairment charge of $325.9 million and a non-cash long-lived asset impairment charge of $12.0 million related to our U.K.
Facilities.

Transaction-related expenses. Transaction-related expenses were $34.5 million for the year ended December 31, 2018

compared to $24.3 million for the year ended December 31, 2017. Transaction-related expenses represent costs incurred in the
respective periods primarily related to termination, restructuring, strategic review, management transition and other acquisition-related
costs.

Transaction-related expenses are as summarized below (in thousands):

Termination, restructuring and strategic review costs
Management transition costs
Legal, accounting and other acquisition-related costs

Year Ended December 31,
2017
2018

16,785 $
14,033
3,689
34,507 $

19,469
—
4,798
24,267

Provision for income taxes. For the year ended December 31, 2018, the provision for income taxes was $6.5 million, reflecting

an effective tax rate of (3.9)%, compared to $37.2 million, reflecting an effective tax rate of 15.7%, for 2017. The change in the
effective tax rate for the year ended December 31, 2018 was primarily attributable to the disparity in the accounting treatment and the
tax treatment of the loss on impairment recorded in 2018.

Liquidity and Capital Resources

Cash provided by continuing operating activities for the year ended December 31, 2019 was $332.9 million compared to
$416.6 million for the year ended December 31, 2018. The decrease in cash provided by continuing operating activities was primarily
attributable to the decline in earnings in our U.K. Facilities, legal settlement payments and an increase in net cash paid for taxes. Days
sales outstanding at December 31, 2019 was 40 compared to 39 at December 31, 2018. At December 31, 2019 and December 31,
2018, we had working capital of $78.6 million and $34.0 million, respectively.

Cash used in investing activities for the year ended December 31, 2019 was $201.1 million compared to $361.0 million for the

year ended December 31, 2018. Cash used in investing activities for the year ended December 31, 2019 primarily consisted of cash
paid for acquisitions of $45.7 million, $284.7 million of cash paid for capital expenditures and $7.6 million of cash paid for real estate
offset by settlement of foreign currency derivatives of $105.0 million, proceeds from sale of property and equipment of $18.1 million
and other of $13.8 million. Cash paid for capital expenditures for the year ended December 31, 2019 consisted of $94.7 million of
routine capital expenditures and $190.0 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 3.0% of revenue for the year ended December 31, 2019. Cash used in investing activities for the year ended
December 31, 2018 primarily consisted of $341.5 million of cash paid for capital expenditures, $18.4 million of cash paid for real
estate acquisitions and other of $9.4 million offset by $8.3 million from sale of property and equipment. Cash paid for capital
expenditures for the year ended December 31, 2018 consisted of $74.1 million of routine capital expenditures and $267.4 million of
expansion capital expenditures.

Cash used in financing activities for the year ended December 31, 2019 was $61.6 million compared to $67.3 million for the

year ended December 31, 2018. Cash used in financing activities for the year ended December 31, 2019 primarily consisted of
principal payments on revolving credit facility of $76.6 million, principal payments on long-term debt of $53.0 million, other of $6.8
million, common stock withheld for minimum statutory taxes of $1.6 million and distributions to noncontrolling interests of $0.2
million offset by borrowings on revolving credit facility of $76.6 million. Cash provided by financing activities for the year ended
December 31, 2018 primarily consisted of principal payments on long-term debt of $39.7 million, repayment of long-term debt of
$21.9 million, common stock withheld for minimum statutory taxes of $3.4 million and other of $2.3 million.

We had total available cash and cash equivalents of $124.2 million, $50.5 million and $67.3 million at December 31, 2019, 2018

and 2017, respectively, of which approximately $23.2 million, $18.0 million and $20.4 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 equivalents outside of the U.S.

Amended and Restated Senior Credit Facility

We entered into a 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 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.

On March 22, 2018, we entered into a Second Repricing Facilities Amendment to the Amended and Restated Credit Agreement.

The Second Repricing Facilities Amendment (i) replaced the Tranche B-1 Facility and the Tranche B-2 Facility with a new Tranche
B-3 Facility and a new Tranche B-4 Facility, respectively, and (ii) reduced the Applicable Rate from 2.75% to 2.50% in the case of
Eurodollar Rate loans and reduced the Applicable Rate from 1.75% to 1.50% in the case of Base Rate Loans.

On March 29, 2018, we entered into a Third Repricing Facilities Amendment to the Amended and Restated Credit Agreement.

The Third Repricing Facilities Amendment replaced the existing revolving credit facility and TLA Facility with a new revolving credit

facility and TLA Facility, respectively. Our line of credit on the revolving credit facility remains at $500.0 million and the Third
Repricing Facility Amendment reduced the size of the TLA Facility from $400.0 million to $380.0 million to reflect the then current
outstanding principal. The Third Repricing Facilities Amendment reduced the Applicable Rate for the revolving credit facility and the
TLA Facility by amending the definition of “Applicable Rate” and replacing the rate table therein with the table set forth below.

In connection with the Repricing Facilities Amendments, we recorded a debt extinguishment charge of $0.9 million, including

the discount and write-off of deferred financing costs, which was recorded in debt extinguishment costs in the consolidated statements
of operations.

On February 6, 2019, we entered into the Eleventh Amendment to the Amended and Restated Credit Agreement. The Eleventh
Amendment, among other things, amended the definition of “Consolidated EBITDA” to remove the cap on non-cash charges, losses
and expenses related to the impairment of goodwill, which in turn provided increased flexibility to us in terms of our financial
covenants.

On February 27, 2019, we entered into the Twelfth Amendment to the Amended and Restated Credit Agreement. The Twelfth

Amendment, among other things, modified certain definitions, including “Consolidated EBITDA”, and increased our permitted
Maximum Consolidated Leverage Ratio, thereby providing increased flexibility to us in terms of our financial covenants.

We had $485.1 million of availability under the revolving line of credit and had standby letters of credit outstanding of
$14.9 million related to security for the payment of claims required by our workers’ compensation insurance program at December 31,
2019. 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 $7.1 million for March 31, 2020
to December 31, 2020, and $9.5 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-3 Facility in equal quarterly
installments of $1.2 million on the last business day of each March, June, September and December, with the outstanding principal
balance of the Tranche B-3 Facility due on February 11, 2022. We are required to repay the Tranche B-4 Facility in equal quarterly
installments of approximately $2.3 million on the last business day of each March, June, September and December, with the
outstanding principal balance of the Tranche B-4 Facility due 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. On April 17, 2018, we made an additional payment of $15.0 million, including $5.1 million on the Tranche B-3 Facility and
$9.9 million on the Tranche B-4 Facility. On November 15, 2019, we made an additional payment of $20.0 million, including $7.0
million on the Tranche B-3 Facility and $13.0 million on the Tranche B-4 Facility.

Borrowings under the Amended and Restated Credit Agreement are guaranteed by each of our wholly-owned domestic

subsidiaries (other than certain excluded subsidiaries) and are secured by a lien on substantially all of our and such subsidiaries’
assets. Borrowings with respect to the TLA Facility and our revolving credit facility (collectively, “Pro Rata Facilities”) under the
Amended and Restated Credit Agreement bear interest at a rate tied to Acadia’s Consolidated Leverage Ratio (defined as consolidated
funded debt net of up to $50.0 million of unrestricted and unencumbered cash to consolidated EBITDA, 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 2.5% for Eurodollar Rate Loans (as defined in the Amended and Restated Credit Agreement) and 1.5% for
Base Rate Loans (as defined in the Amended and Restated Credit Agreement) at December 31, 2019. 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%. At December 31, 2019, the Pro Rata
Facilities bore interest at a rate of LIBOR plus 2.5%. In addition, we are required to pay a commitment fee on undrawn amounts under
our revolving credit facility.

The interest rates and the unused line fee on unused commitments related to the Pro Rata Facilities are based upon the following

pricing tiers:

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

1.50 %
1.75 %
2.00 %
2.25 %
2.50 %

0.50 %
0.75 %
1.00 %
1.25 %
1.50 %

0.20 %
0.25 %
0.30 %
0.35 %
0.40 %

Eurodollar Rate Loans with respect to the Tranche B-3 Facility bear interest at the Tranche B-3 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-3 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-3 Facility Applicable
Rate” means, with respect to Eurodollar Rate Loans, 2.50%, and with respect to Base Rate Loans, 1.50%. The Tranche B-4 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 plus 0.50%,
(ii) the prime rate and (iii) the Eurodollar Rate plus 1.0%. As used herein, the term “Applicable Rate” means, with respect to
Eurodollar Rate Loans, 2.50%, and with respect to Base Rate Loans, 1.50%.

The lenders who provided the Tranche B-3 Facility and Tranche B-4 Facility are not entitled to benefit from our 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 respect to the Tranche B-
3 Facility or Tranche B-4 Facility until and unless the Amended and Restated Senior Credit Facility is accelerated or the commitment
of the lenders to make further loans is terminated.

The Amended and Restated Credit Agreement requires us and our subsidiaries to comply with customary affirmative, negative
and financial covenants, including a fixed charge coverage ratio, consolidated leverage ratio and consolidated senior secured leverage
ratio. We may be required to pay all of our indebtedness immediately if we default on any of the numerous financial or other
restrictive covenants contained in any of our material debt agreements. Set forth below is a brief description of such covenants, all of
which are subject to customary exceptions, materiality thresholds and qualifications:

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:



2019
2020
2021

the fixed charge coverage ratio may not be less than 1.25:1.00 as of the end of any fiscal quarter;

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

March 31

June 30

September 30

December 31

6.25x
5.75x
5.25x

6.25x
5.75x
5.00x

6.00x
5.50x
5.00x

•

the consolidated senior secured leverage ratio may not be greater than 3.50x as of the end of each fiscal quarter.

At December 31, 2019, we were 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 arrears on March 1 and September 1 of each
year, beginning on September 1, 2016.

The indentures governing the Senior Notes contain covenants that, among other things, limit the Company’s ability and the
ability of its restricted subsidiaries to: (i) pay dividends, redeem stock or make other distributions or investments; (ii) incur additional
debt or issue certain preferred stock; (iii) transfer or sell assets; (iv) engage in certain transactions with affiliates; (v) create restrictions
on dividends or other payments by the restricted subsidiaries; (vi) merge, consolidate or sell substantially all of the Company’s assets;
and (vii) create liens on assets.

The Senior Notes issued by the Company are guaranteed by each of the Company’s subsidiaries that guarantee the Company’s
obligations under the Amended and Restated Senior Credit Facility. The guarantees are full and unconditional and joint and several.

The Company may redeem the Senior Notes at its option, in whole or part, at the dates and amounts set forth in the indentures.

9.0% and 9.5% Revenue Bonds

On 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 9.0% and 9.5% Revenue Bonds,
respectively.

On December 1, 2018, we exercised the option to redeem in whole the 9.0% and 9.5% Revenue Bonds at a redemption price

equal to the sum of 104% of the principal amount of the 9.0% and 9.5% Revenue Bonds plus accrued and unpaid interest. In
connection with the redemption of the 9.0% and 9.5% Revenue Bonds, we recorded a debt extinguishment charge of $0.9 million,
which was recorded in debt extinguishment costs in the consolidated statements of operations.

Contractual Obligations

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

Less Than
1 Year

1-3 Years

3-5 Years

More Than
5 Years

Total

Payments Due by Period

Long-term debt (1)
Operating leases
Purchase and other obligations (2)
Total obligations and commitments

$ 203,006 $ 1,501,834 $ 1,944,487 $

— $ 3,649,327
97,219 689,931 960,681
73,263
2,376
$ 272,357 $ 1,651,813 $ 2,044,082 $ 715,019 $ 4,683,271

61,857 111,674
38,305
7,494

25,088

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

variable-rate debt at December 31, 2019.

(2) Amounts exclude variable components of lease payments.

Off-Balance Sheet Arrangements

At December 31, 2019, we had standby letters of credit outstanding of $14.9 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, 2019 was

composed of $1.6 billion of fixed-rate debt and $1.5 billion of variable-rate debt with interest based on LIBOR plus an applicable
margin. A hypothetical 10% increase in interest rates (which would equate to a 0.43% higher rate on our variable-rate debt) would
decrease our net income and cash flows by $4.4 million on an annual basis based upon our borrowing level at December 31, 2019.

LIBOR and certain other interest “benchmarks” may be subject to regulatory guidance and/or reform that could cause interest

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 in the exchange rate (which would equate
to an increase or decrease in the exchange rate of 0.13) would cause a change in our net income of approximately $7.3 million on an
annual basis.

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. In August 2019, we terminated
our existing net investment cross currency swap derivatives of $105.0 million. Cash received from the termination of the cross
currency swap derivatives is included in investing activities in the consolidated statement of cash flows. The related gain from this
termination is included in accumulated other comprehensive loss in accordance with ASC 815-30-40-1.

In August 2019, we also 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 our fixed-rate USD-denominated senior notes,
including the semi-annual interest payments thereunder, to fixed-rate GBP-denominated debt of £538.1 million. During the term of the
swap agreements, we will receive semi-annual interest payments in USD from the counterparties at fixed interest rates, and we 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 £25.4 million of annual cash flows from our U.K. business being converted to $35.8 million. The
cross currency swap agreements limit the impact of changes in the exchange rate on our cash flows and leverage.

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
our financial condition and operating performance and involve highly subjective and complex assumptions and assessments:

Revenue and Accounts Receivable

In May 2014, the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board issued

Accounting Standards Update (“ASU”) 2014-09. ASU 2014-09’s core principle is that a company will recognize revenue when it
transfers promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in
exchange for those goods or services. We adopted ASU 2014-09 using the modified retrospective method effective January 1, 2018.
As a result of certain changes required by ASU 2014-09, the majority of our provision for doubtful accounts are recorded as a direct
reduction to revenue instead of being presented as a separate line item on the consolidated statements of operations. The adoption of
ASU 2014-09 did not have a significant impact on our consolidated financial statements.

Our revenue is primarily derived from services rendered to patients for inpatient psychiatric and substance abuse care, outpatient

psychiatric care and adolescent residential treatment. We receive payments from the following sources for services rendered in our
facilities: (i) state governments under their respective Medicaid and other programs; (ii) commercial insurers; (iii) the federal
government under the Medicare program administered by CMS; (iv) publicly funded sources in the U.K. (including the NHS, CCGs
and local authorities in England, Scotland and Wales) and (v) individual patients and clients. We determine the transaction price based
on established billing rates reduced by contractual adjustments provided to third-party payors, discounts provided to uninsured
patients and implicit price concessions. Contractual adjustments and discounts are based on contractual agreements, discount policies
and historical experience. Implicit price concessions are based on historical collection experience.

We derive a significant portion of our revenue from Medicare, Medicaid and other payors that receive discounts from
established billing rates. The Medicare and Medicaid regulations and various managed care contracts under which these discounts
must be calculated are complex, subject to interpretation and adjustment, and may include multiple reimbursement mechanisms for
different types of services provided in the Company’s inpatient facilities and cost settlement provisions. Management estimates the
transaction price on a payor-specific basis given its interpretation of the applicable regulations or contract terms. The services
authorized and provided and related reimbursement are often subject to interpretation that could result in payments that differ from our
estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment
of the estimation process by management.

Settlements under cost reimbursement agreements with third-party payors are estimated and recorded in the period in which the

related services are rendered and are adjusted in future periods as final settlements are determined. Final determination of amounts
earned under the Medicare and Medicaid programs often occurs in subsequent years because of audits by such programs, rights of
appeal and the application of numerous technical provisions. In the opinion of management, adequate provision has been made for any
adjustments and final settlements. However, there can be no assurance that any such adjustments and final settlements will not have a
material effect on the Company’s financial condition or results of operations. Our cost report receivables were $13.7 million and $10.3
million at December 31, 2019 and 2018, 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 a decrease to revenue of $0.4 million for the year ended December 31,
2019 and increase of $0.5 million and $0.2 million for the years ended December 31, 2018 and 2017, respectively.

The following table presents revenue by payor type and as a percentage of revenue in our U.S. Facilities for the years ended

December 31, 2019, 2018 and 2017 (in thousands):

2019

Year Ended December 31,
2018

2017

Commercial
Medicare
Medicaid
Self-Pay
Other
Revenue before provision for doubtful
accounts
Provision for doubtful accounts
Revenue

Amount
$ 565,350
294,691
1,007,102
118,716
22,522

Amount
28.2 % $ 573,089
14.7 % 280,340
50.1 % 893,644
5.9 % 134,054
23,568
1.1 %

Amount
30.1 % $ 569,242
14.7 % 281,270
46.9 % 796,375
7.1 % 169,727
33,942
1.2 %

30.8 %
15.2 %
43.0 %
9.2 %
1.8 %

2,008,381 100.0 % 1,904,695 100.0 % 1,850,556 100.0 %
—
$ 1,904,695

(40,712 )
$ 1,809,844

—
$ 2,008,381

The following table presents revenue by payor type and as a percentage of revenue in our U.K. Facilities for the years ended

December 31, 2019, 2018 and 2017 (in thousands):

2019

Year Ended December 31,
2018

2017

U.K. public funded sources
Self-Pay
Other
Revenue before provision for doubtful
accounts
Provision for doubtful accounts
Revenue

Amount
$ 991,353
105,430
2,298

Amount
90.2 % $ 1,000,828
9.6 % 104,824
2,095
0.2 %

Amount
90.3 % $ 922,159
95,687
8,832

9.5 %
0.2 %

89.8 %
9.3 %
0.9 %

1,099,081 100.0 % 1,107,747 100.0 % 1,026,678 100.0 %
—
$ 1,107,747

(206 )
$ 1,026,472

—
$ 1,099,081

The following tables present a summary of our aging of accounts receivable at December 31, 2019 and 2018:

December 31, 2019

Commercial
Medicare
Medicaid
NHS
Self-Pay
Other
Total

December 31, 2018

Commercial
Medicare
Medicaid
NHS
Self-Pay
Other
Total

Current

30-90

90-150

>150

Total

15.2 %
10.3 %
23.3 %
6.3 %
1.8 %
0.6 %
57.5 %

6.2 %
1.4 %
5.9 %
1.6 %
1.4 %
0.2 %
16.7 %

3.9 %
0.4 %
3.4 %
0.0 %
1.4 %
0.1 %
9.2 %

6.3 %
0.9 %
6.8 %
0.0 %
2.5 %
0.1 %
16.6 %

31.6 %
13.0 %
39.4 %
7.9 %
7.1 %
1.0 %
100.0 %

Current

30-90

90-150

>150

Total

14.8 %
9.8 %
22.4 %
6.0 %
1.8 %
0.4 %
55.2 %

6.3 %
1.8 %
6.4 %
2.4 %
1.7 %
0.3 %
18.9 %

2.7 %
0.6 %
3.4 %
0.0 %
1.7 %
0.2 %
8.6 %

5.3 %
0.9 %
7.4 %
0.0 %
3.2 %
0.5 %
17.3 %

29.1 %
13.1 %
39.6 %
8.4 %
8.4 %
1.4 %
100.0 %

Medicaid accounts receivable at December 31, 2019 and 2018 included approximately $1.4 million and $1.5 million,

respectively, of accounts pending Medicaid approval.

Insurance

We are subject to medical malpractice and other lawsuits due to the nature of the services we provide. A portion of our
professional liability risks are insured through a wholly-owned insurance subsidiary. We are self-insured for professional liability
claims up to $3.0 million per claim and have obtained reinsurance coverage from a third party to cover claims in excess of the
retention limit. The reinsurance policy has a coverage limit of $75.0 million in the aggregate. Our reinsurance receivables are
recognized consistent with the related liabilities and include known claims and any incurred but not reported claims that are covered
by current insurance policies in place. The reserve for professional and general liability risks was estimated based on historical claims,
demographic factors, industry trends, severity factors, and other actuarial assumptions. The estimated accrual for professional and
general liabilities could be significantly affected should current and future occurrences differ from historical claim trends and
expectations. While claims are monitored closely when estimating professional and general liability accruals, the complexity of the
claims and wide range of potential outcomes often hampers timely adjustments to the assumptions used in these estimates. The
professional and general liability reserve was $52.6 million at December 31, 2019, of which $4.7 million was included in other
accrued liabilities and $47.9 million was included in other long-term liabilities. The professional and general liability reserve was
$42.8 million at December 31, 2018, of which $5.0 million was included in other accrued liabilities and $37.8 million was included in
other long-term liabilities. We estimate receivables for the portion of professional and general liability reserves that are recoverable
under our insurance policies. Such receivable was $8.5 million at December 31, 2019, of which $3.0 million was included in other
current assets and $5.5 million was included in other assets, and such receivable was $8.2 million at December 31, 2018, of which
$2.1 million was included in other current assets and $6.1 million was included in other assets.

Our statutory workers’ compensation program is fully insured with a $0.5 million deductible per accident. The workers’
compensation liability was $20.8 million at December 31, 2019, of which $10.0 million was included in accrued salaries and benefits
and $10.8 million was included in other long-term liabilities, and such liability was $19.3 million at December 31, 2018, of which
$10.0 million was included in accrued salaries and benefits and $9.3 million was included in other long-term liabilities. The reserve
for workers compensation claims was based upon independent actuarial estimates of future amounts that will be paid to claimants.
Management believes that adequate provisions have been made for workers’ compensation and professional and general liability risk
exposures.

Property and Equipment and Other Long-Lived Assets

Property and equipment are recorded at cost. Depreciation is calculated on the straight-line basis over the estimated useful lives

of the assets, which typically range from 10 to 50 years for buildings and improvements, three to seven years for equipment and the
shorter of the lease term or estimated useful lives for leasehold improvements. When assets are sold or retired, the corresponding cost
and accumulated depreciation are removed from the related accounts and any gain or loss is recorded in the period of sale or
retirement. Repair and maintenance costs are expensed as incurred. Depreciation expense was $164.0 million, $158.8 million and
$143.0 million for the years ended years ended December 31, 2019, 2018 and 2017, respectively.

The carrying values of long-lived assets are reviewed for possible impairment whenever events, circumstances or operating

results indicate that the carrying amount of an asset may not be recoverable. If this review indicates that the asset will not be
recoverable, as determined based upon the undiscounted cash flows of the operating asset over the remaining useful lives, the carrying
value of the asset will be reduced to its estimated fair value. Fair value estimates are based on independent appraisals, market values of
comparable assets or internal evaluations of future net cash flows.

We performed an impairment review of long-lived assets in the fourth quarter of 2019, which indicated the carrying amounts of

long-lived assets in two closed U.S. Facilities and certain U.K. Facilities may not be recoverable. This created a non-cash loss on
impairment of $54.4 million for the year ended December 31, 2019. A 2018 impairment review resulted in a non-cash loss on
impairment of $12.0 million for the year ended December 31, 2018 related to certain U.K. Facilities. These items were recorded in
loss on impairment on our consolidated statements of operations. No impairment was recorded for the year ended December 31, 2017.

Goodwill and Indefinite-Lived Intangible Assets

Our goodwill and other indefinite-lived intangible assets, which consist of license and accreditations, trade names and

certificates of need intangible assets that are not amortized, are evaluated for impairment annually during the fourth quarter or more
frequently if events indicate the carrying value of a reporting unit may not be recoverable. We have two operating segments for
segment reporting purposes, U.S. Facilities and U.K. Facilities, each of which represents a reporting unit for purposes of the
Company’s goodwill impairment test.

Our annual goodwill impairment and other indefinite-lived intangible assets test performed as of October 1, 2019 resulted in no

impairment charges. Our annual goodwill impairment test performed as of October 1, 2018 considered the recent financial

performance, including the labor market pressures faced by our U.K. Facilities. The 2018 impairment test for the U.S. Facilities
indicated estimated fair value exceeded carrying value, and therefore no impairment was recorded. The 2018 impairment test for the
U.K. Facilities indicated carrying value exceeded the estimated fair value. The difference was recorded as a non-cash loss on
impairment of $325.9 million for the year ended December 31, 2018 within loss on impairment in the consolidated statements of
operations. Our annual impairment tests of goodwill and other indefinite-lived intangible assets in 2017 resulted in no impairment
charges.

In performing the goodwill impairment test, we used a combination of the income and market approaches to estimate fair value

of our reporting units. Determining fair value requires substantial judgement and use of significant unobservable inputs, which are
categorized as Level 3 fair value measurements. For the income approach, we used a discounted cash flow model in which cash flows
are projected using internal forecasts over future periods, plus a terminal value, and are discounted to present value using a risk-
adjusted rate of return. Our internal forecasts include estimates of growth rates and profitability based on our current views of the
long-term outlook of each reporting unit and may materially differ from actual results. Discount rate assumptions are based on an
assessment of the risk inherent in the future cash flows of each reporting unit. The discount rates used in our analysis range from
10.0% to 10.5% and correspond to the risks inherent in each reporting unit. For the market approach, we compared our reporting units
to guideline companies actively traded in public markets and included a control premium, which was based on acquisition premiums
of selected companies similar to our reporting units. Estimating fair values of our reporting units includes substantial judgement and
significant estimates and may materially differ from actual results. Changes in assumptions, industry or peer groups could negatively
impact estimated fair value.

Income Taxes

We use the asset and liability method of accounting for income taxes. Under this method, deferred income taxes reflect the net

tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes and net operating loss and tax credit carryforwards. The amount of deferred taxes on these
temporary differences is determined using the tax rates that are expected to apply in the period when the asset is realized or the
liability is settled, as applicable, based on tax rates and laws in the respective tax jurisdiction enacted as of the balance sheet date.

We review our deferred tax assets for recoverability and establish a valuation allowance based on historical taxable income,

projected future taxable income, applicable tax strategies, and the expected timing of the reversals of existing temporary differences.
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.

The Tax Act was enacted on December 22, 2017. The Tax Act reduced the U.S. federal corporate tax rate from 35% to 21% and

included certain other changes.

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,
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 accounting firm
also reported on the effectiveness of internal control over financial reporting. Management’s report and the independent registered
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.”

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, 2019 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 7, 2020 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 7, 2020 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 7, 2020 is incorporated herein by reference.

Section 16(a) Compliance

The information with respect to compliance with Section 16(a) of the Exchange Act set forth under the caption “Security
Ownership of Certain Beneficial Owners and Management—Delinquent Section 16(a) Reports” in our Definitive Proxy Statement for
the Annual Meeting of Stockholders to be held May 7, 2020 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 7, 2020 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 7, 2020 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 7, 2020 is incorporated herein by reference.

Equity Compensation Plan Information

The following table provides information at December 31, 2019 with respect to compensation plans (including individual

compensation arrangements) under which shares of Common Stock are authorized for issuance:

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)

2,607,560 (3)

$ 39.40

2,903,059

5,000
2,612,560

6.60

—
2,903,059

(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 the Acadia Healthcare Company, Inc. Incentive Compensation Plan.
(3)
Includes 447,357 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.

(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 7, 2020 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 7, 2020 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:
1. 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.

2. 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.

3. Exhibits :

Exhibit
No.

Exhibit Description

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

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. (bb)

2.14

3.1

3.2

4.1

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. (cc)

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. (jj)

Amended and Restated Bylaws of the Company, as amended May 25, 2017. (jj)

Indenture, dated as of March 12, 2013, among the Company, the Guarantors named therein and U.S. Bank National
Association, as Trustee. (l)

4.2

Form of 6.125% Senior Note due 2021. (Included in Exhibit 4.1)

4.3

4.4

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)

4.5

Form of 5.125% Senior Note due 2022. (Included in Exhibit 4.3)

4.6

Indenture, dated February 11, 2015, by and among the Company, the Guarantors named therein and U.S. Bank
National Association, as Trustee. (o)

4.7

Form of 5.625% Senior Note due 2023. (Included in Exhibit 4.6)

4.8

Indenture, dated February 16, 2016, by and among the Company, the Guarantors named therein and U.S. Bank
National Association, as Trustee. (ee)

4.9

Form of 6.500% Senior Note due 2024. (Included in Exhibit 4.8)

4.10

4.11

4.12

4.13

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. (bb)

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. (ee)

4.14*

Description of the Company’s Securities.

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

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)

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)

10.10

Eighth Amendment, dated April 22, 2015, to the Credit Agreement. (aa)

10.11

Ninth Amendment, dated January 25, 2016, to the Credit Agreement. (dd)

10.12

Second Incremental Facility Amendment, dated February 16, 2016, to the Credit Agreement. (ee)

10.13

Tranche B-1 Repricing Amendment, dated May 26, 2016, to the Credit Agreement. (ff)

10.14

Tranche B-2 Repricing Amendment, dated September 21, 2016, to the Credit Agreement. (gg)

10.15

Tenth Amendment, dated November 22, 2016, to the Credit Agreement. (hh)

10.16

Refinancing Facilities Amendment, dated November 30, 2016, to the Credit Agreement. (hh)

10.17

Third Repricing Amendment, dated May 10, 2017, to the Amended and Restated Credit Agreement. (ii)

10.18

Second Refinancing Facilities Amendment, dated March 22, 2018, to the Credit Agreement. (kk)

10.19

Third Refinancing Facilities Amendment, dated March 29, 2018, to the Credit Agreement. (ll)

10.20

Eleventh Amendment, dated February 6, 2019, to the Credit Agreement. (oo)

10.21

Twelfth Amendment, dated February 27, 2019, to the Credit Agreement. (oo)

†10.22

†10.23

†10.24

†10.25

†10.26

Employment Agreement, dated as of December 16, 2018, by and between Acadia Management Company, Inc. and
Debra K. Osteen. (mm)

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 July 31, 2019, by and between Acadia Management Company, Inc. and John S.
Hollinsworth. (pp)

Employment Agreement, dated August 6, 2019, by and between Acadia Management Company, Inc. and Laurence
L. Harrod. (qq)

†10.27

PHC, Inc.’s 2004 Non-Employee Director Stock Option Plan. (w)

†10.28

Acadia Healthcare Company, Inc. Incentive Compensation Plan, effective May 23, 2013. (x)

†10.29

First Amendment, effective May 19, 2016, to the Acadia Healthcare Company, Inc. Incentive Compensation Plan.
(y)

†10.30

Form of Restricted Stock Unit Agreement. (nn)

†10.31

Form of Incentive Stock Option Agreement. (b)

†10.32

Form of Non-Qualified Stock Option Agreement. (b)

†10.33

Form of Restricted Stock Agreement. (nn)

†10.34

Form of Stock Appreciation Rights Agreement. (b)

†10.35

Acadia Healthcare Company, Inc. Nonqualified Deferred Compensation Plan, effective February 1, 2013. (z)

†10.36

Nonmanagement Director Compensation Program, effective January 1, 2013. (z)

10.37

10.38

21*

23*

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.

31.1*

31.2*

32.1*

32.2*

Rule 13a-14(a) Certification of the Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002.

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 - the instance document does not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL document.

101.SCH** Inline XBRL Taxonomy Extension Schema Document.

101.CAL** Inline XBRL Taxonomy Calculation Linkbase Document.

101.DEF** Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB** Inline XBRL Taxonomy Labels Linkbase Document.

101.PRE** Inline XBRL Taxonomy Presentation Linkbase Document.

104

The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, has been
formatted in Inline XBRL.

†
*
**

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

(k)

(l)

(m)

(n)

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).

(o)

(p)

(q)

(r)

(s)

(t)

(u)

(v)

(w)

(x)

(y)

(z)

(aa)

(bb)

(cc)

(dd)

(ee)

(ff)

(gg)

(hh)

(ii)

(jj)

(kk)

(ll)

(mm)

(nn)

(oo)

(pp)

(qq)

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 on Form 10-Q for the three months
ended September 30, 2013 (File No. 001-35331).
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).
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).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed January 4, 2016
(File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed January 8, 2016
(File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed January 27, 2016
(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).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed May 26, 2016
(File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed September 21,
2016 (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).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed May 25, 2017
(File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed March 27, 2018
(File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed April 2, 2018 (File
No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed December 17,
2018 (File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 10-Q for the three months
ended March 31, 2018 (File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Annual Report on Form 10-K for the year ended
December 31, 2018 (File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Amendment No. 1 to the Current Report on Form 8-
K filed August 6, 2019 (File No. 001-35331).
Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed August 6, 2019
(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 at December 31, 2019 and 2018
Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Equity for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements

PAGE
F-2
F-3
F-5
F-6
F-7
F-8
F-9
F-10
F-11

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 at December 31, 2019 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 at December 31, 2019.

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

To the Stockholders and the Board of Directors of
Acadia Healthcare Company, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Acadia Healthcare Company, Inc. (the Company) as of
December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity
and cash flows for each of the three years in the period ended December 31, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2019, 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, 2019, 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 28, 2020 expressed an unqualified opinion thereon.

Adoption of ASU No. 2016-02

As discussed in Note 2 and Note 8 to the consolidated financial statements, the Company changed its method of accounting for leases
as of January 1, 2019 due to the adoption of ASU No. 2016-02, Leases (Topic 842).

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not,
by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or
disclosures to which they relate.

Description of
the Matter

Revenue Recognition

For the year ended December 31, 2019 the Company recognized $3.1 billion of revenue, of which $2.0
billion was recognized from services in its U.S. Facilities and $1.1 billion was recognized from services in
its U.K. Facilities. As discussed in Note 3 of the consolidated financial statements, the Company
determines the transaction price for services to patients in its U.S. Facilities based on established billing
rates reduced by contractual adjustments provided to third-party payors, discounts provided to uninsured
patients and implicit price concessions. Contractual adjustments and discounts are based on contractual
agreements, discount policies and historical experience. Implicit price concessions are based primarily on
historical collection experience.

For the U.S. Facilities, auditing management’s revenue recognition and its estimates of contractual
adjustments, discounts and implicit price concessions was complex and judgmental due to the significant

F-3

data inputs and subjective assumptions utilized in estimating the related amounts. Various reimbursement
programs under which these amounts must be estimated are complex and subject to interpretation and
adjustment. Additionally, updated regulations and contract renegotiations occur frequently, necessitating
regular review and assessment of the estimation process by management.

How We
Addressed the
Matter in Our
Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over
the Company’s revenue recognition, including controls over key data inputs to the contractual adjustment,
discount and implicit price concession estimates and management’s review and consideration of
retrospective analyses of historical expected cash collections compared to subsequent actual collections.

Description of
the Matter

How We
Addressed the
Matter in Our
Audit

To test the revenue recognized, we performed audit procedures that included, among others, testing the
validity of a sample of revenue transactions and the completeness and accuracy of data inputs to the
estimates of contractual adjustments, discounts and implicit price concessions, including payor contractual
terms, historical collection experience, subsequent collection experience and correspondence with payors.
We assessed the historical accuracy of management’s estimates based on subsequent collection experience
and used the assessment as a source of potential corroborative or contrary evidence supporting
management’s assumptions of future collections of existing accounts receivable.

Valuation of Goodwill

At December 31, 2019, the Company’s goodwill was $2.4 billion. As discussed in Note 2 of the
consolidated financial statements, impairment of goodwill is evaluated at least annually at the reporting
unit level or more 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 evaluation. The Company’s goodwill is initially assigned to its reporting units as of the
acquisition date and, at December 31, 2019, the Company’s goodwill was assigned $2.1 billion to the U.S.
Facilities reporting unit and $364.0 million to the U.K. reporting unit.

Auditing management’s annual goodwill impairment evaluation was complex and judgmental due to the
significant estimation required in determining the fair value of the reporting units. In particular, the fair
value estimates were sensitive to significant assumptions around (i) internal forecast of future cash flows,
which included estimates of growth rates and profitability over future periods, plus a terminal value,
discounted to present value using a risk-adjusted rate of return, and (ii) comparisons to trading multiples of
guideline companies actively traded in public markets, which included estimates of control premiums
based on acquisition premiums of similar companies.

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over
the Company’s goodwill impairment review process, including controls over management’s review of the
significant assumptions described above. To test the estimated fair value of the Company’s reporting units,
we performed audit procedures that included, among others, involving our valuation specialists to assist in
assessing the appropriateness of the valuation methodologies utilized and testing the significant
assumptions discussed above. We tested the completeness and accuracy of the underlying data used by the
Company in its evaluation. We compared the significant assumptions used by management to past
performance and assessed the historical accuracy of management’s forecasts. We performed sensitivity
analyses of the impact of changes to the assumptions on the resulting estimate of the fair value of the
reporting units. Additionally, we tested management’s reconciliation of the fair value of the reporting units
to the market capitalization of the Company to evaluate the reasonableness of the fair value estimates.

/s/ Ernst & Young LLP

We have served as the Company's auditor since 2006.
Nashville, Tennessee
February 28, 2020

F-4

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of
Acadia Healthcare Company, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Acadia Healthcare Company, Inc.’s internal control over financial reporting as of December 31, 2019, 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, 2019, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of Acadia Healthcare Company, Inc. as of December 31, 2019 and 2018, and the related
consolidated statements of operations, comprehensive income (loss), shareholders' equity and cash flows for each of the three years in
the period ended December 31, 2019, and the related notes and our report dated February 28, 2020 expressed an unqualified opinion
thereon.

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 Exchange
Commission and the PCAOB.

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 in
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
conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Nashville, Tennessee
February 28, 2020

F-5

Acadia Healthcare Company, Inc.
Consolidated Balance Sheets

ASSETS

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
Derivative instrument assets
Operating lease right-of-use assets
Other assets
Total assets

LIABILITIES AND EQUITY

Current liabilities:

Current portion of long-term debt
Accounts payable
Accrued salaries and benefits
Current portion of operating lease liabilities
Other accrued liabilities

Total current liabilities

Long-term debt
Deferred tax liabilities
Operating lease liabilities
Derivative instrument liabilities
Other liabilities
Total liabilities
Redeemable noncontrolling interests
Equity:

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;
87,715,591 and 87,444,473 issued and outstanding as of
December 31, 2019 and 2018, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings

Total equity
Total liabilities and equity

December 31,

2019

2018

(In thousands, except share and per
share amounts)

124,192 $
339,775
78,244
542,211
3,224,034
2,449,131
90,357
3,339
—
501,837
68,233
6,879,142 $

43,679 $

127,045
122,552
29,140
141,160
463,576
3,105,420
71,860
502,252
68,915
128,587
4,340,610
33,151

50,510
318,087
81,820
450,417
3,107,766
2,396,412
88,990
3,468
60,524
—
64,927
6,172,504

34,112
117,740
113,299
—
151,226
416,377
3,159,375
80,372
—
—
154,267
3,810,391
28,806

—

877
2,557,642
(414,884 )
361,746
2,505,381
6,879,142 $

874
2,541,987
(462,377 )
252,823
2,333,307
6,172,504

See accompanying notes.

F-6

Acadia Healthcare Company, Inc.
Consolidated Statements of Operations

2019

Year Ended December 31,
2018
(In thousands, except per share amounts)

2017

Revenue before provision for doubtful accounts
Provision for doubtful accounts
Revenue
Salaries, wages and benefits (including equity-based compensation
expense of $17,307, $22,001 and $23,467, respectively)
Professional fees
Supplies
Rents and leases
Other operating expenses
Depreciation and amortization
Interest expense, net
Debt extinguishment costs
Legal settlements expense
Loss on impairment
Transaction-related expenses

Total expenses

Income (loss) before income taxes
Provision for income taxes
Net income (loss)
Net (income) loss attributable to noncontrolling interests
Net income (loss) attributable to Acadia Healthcare Company, Inc.
Earnings per share attributable to Acadia Healthcare Company,
Inc. stockholders:

Basic
Diluted

Weighted-average shares outstanding:

Basic
Diluted

3,107,462 $
—
3,107,462

3,012,442 $
—
3,012,442

2,877,234
(40,918 )
2,836,316

1,717,180
240,983
123,061
82,229
375,433
164,044
187,094
—
—
54,386
27,064
2,971,474
135,988
25,866
110,122
(1,199 )
108,923 $

1,659,348
227,425
119,314
80,282
354,498
158,832
185,410
1,815
22,076
337,889
34,507
3,181,396
(168,954 )
6,532
(175,486 )
(264 )
(175,750 ) $

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
246
199,835

1.24 $
1.24 $

(2.01 ) $
(2.01 ) $

2.30
2.30

87,612
87,816

87,288
87,288

86,948
87,060

$
$

See accompanying notes.

F-7

Acadia Healthcare Company, Inc.
Consolidated Statements of Comprehensive Income (Loss)

Net income (loss)
Other comprehensive income (loss):

Foreign currency translation gain (loss)
(Loss) gain on derivative instruments, net of tax of $(3.6)
million, $12.7 million and $(22.9) million, respectively
Pension liability adjustment, net of tax of $(0.6) million, $0.3
million and $0.4 million, respectively

Other comprehensive income (loss)
Comprehensive income (loss)
Comprehensive (income) loss attributable to noncontrolling interests
Comprehensive income (loss) attributable to Acadia Healthcare
Company, Inc.

2019

Year Ended December 31,
2018
(In thousands)

2017

110,122 $

(175,486 ) $

199,589

69,811

(127,521 )

206,784

(19,008 )

36,799

(33,431 )

(3,310 )
47,493
157,615
(1,199 )

2,463
(88,259 )
(263,745 )
(264 )

2,099
175,452
375,041
246

156,416 $

(264,009 ) $

375,287

See accompanying notes.

F-8

Acadia Healthcare Company, Inc.
Consolidated Statements of Equity
(In thousands)

Balance at January 1, 2017

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 income
Other
Net income attributable to Acadia Healthcare
Company, Inc. stockholders

Balance at December 31, 2017

Common stock issued under stock incentive plans
Common stock withheld for minimum statutory
taxes
Equity-based compensation expense
Other comprehensive loss
Other
Net loss attributable to Acadia Healthcare
Company, Inc. stockholders

Balance at December 31, 2018

Common stock issued under stock incentive plans
Common stock withheld for minimum statutory
taxes
Equity-based compensation expense
Other comprehensive income
Net income attributable to Acadia Healthcare
Company, Inc. stockholders

Balance at December 31, 2019

Common Stock

Amount

86,688 $
372

Additional
Paid-
in Capital
867 $ 2,496,288 $
2,065

Comprehensive Retained
Earnings

Loss
(549,570 ) $ 220,139 $ 2,167,724
2,069

—

Total

Accumulated
Other

—
—
—
—
—

(5,524 )
23,467
—
—
1,249

—
—
—
175,452
—

—
—
8,599

(5,524 )
23,467
8,599
— 175,452
1,249
—

—
87,060
384

—
—
871 2,517,545
371

— 199,835 199,835
(374,118 ) 428,573 2,572,871
374

—

—
—
—
—

(3,781 )
22,001
—
5,851

—
—
(88,259 )
—

—
—
—
—

(3,781 )
22,001
(88,259 )
5,851

—
87,444
271

—
—
874 2,541,987
566

— (175,750 ) (175,750 )
(462,377 ) 252,823 2,333,307
569

—

—
—
—

(2,218 )
17,307
—

—
—
47,493

—
—
—

(2,218 )
17,307
47,493

—
87,715 $

—
—
877 $ 2,557,642 $

— 108,923 108,923
(414,884 ) $ 361,746 $ 2,505,381

See accompanying notes.

F-9

Acadia Healthcare Company, Inc.
Consolidated Statements of Cash Flows

2019

Year Ended December 31,
2018
(In thousands)

2017

110,122 $

(175,486 ) $

199,589

164,044
11,987
17,307
1,780
—
—
54,386
4,035

(19,060 )
(1,344 )
(73 )
(21,354 )
7,820
3,254
332,904
—
332,904

(45,677 )
(284,682 )
(7,618 )
105,008
18,076
13,752
(201,141 )

76,573
(76,573 )
(52,984 )
—
(1,649 )
(154 )
(6,840 )
(61,627 )
3,546
73,682
50,510
124,192 $

173,239 $

35,463 $

49,715 $
(4,038 )
45,677 $

158,832
10,456
22,001
(9,714 )
1,815
22,076
337,889
12,371

(16,821 )
13,864
2,762
26,054
15,748
(5,219 )
416,628
(2,548 )
414,080

—
(341,462 )
(18,383 )
—
8,248
(9,367 )
(360,964 )

—
—
(39,738 )
(21,920 )
(3,407 )
—
(2,265 )
(67,330 )
(2,566 )
(16,780 )
67,290
50,510 $

175,204 $

6,720 $

— $
—
— $

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 )
—
5,252
(8,353 )
(336,526 )

—
—
(57,305 )
—
(3,455 )
—
686
(60,074 )
7,250
10,227
57,063
67,290

159,098

10,291

19,649
(1,458 )
18,191

Operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by continuing
operating activities:

Depreciation and amortization
Amortization of debt issuance costs
Equity-based compensation expense
Deferred income taxes
Debt extinguishment costs
Legal settlements expense
Loss on impairment
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 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
Proceeds from sale of property and equipment
Other
Net cash used in investing activities
Financing activities:
Borrowings on revolving credit facility
Principal payments on revolving credit facility
Principal payments on long-term debt
Repayment of long-term debt
Common stock withheld for minimum statutory taxes, net
Distributions to noncontrolling interests
Other
Net cash used in financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period

Supplemental Cash Flow Information:
Cash paid for interest

Cash paid for income taxes

Effect of acquisitions:
Assets acquired, excluding cash
Liabilities assumed
Cash paid for acquisitions, net of cash acquired

See accompanying notes.

F-10

Acadia Healthcare Company, Inc.
Notes to Consolidated Financial Statements
December 31, 2019

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, 2019, the Company operated 585 behavioral healthcare facilities with approximately 18,200 beds in 40 states,
the U.K. and Puerto Rico.

During 2019, the Company commenced a review of strategic alternatives including those related to its U.K. operations and a
potential sale of such operations. In January 2020, the Company launched a formal process regarding the sale of its U.K. business.
Consistent with market practice for U.K. transactions of this nature, and in conjunction with its advisors, the Company solicited and
has received initial, non-binding offers to acquire its U.K. business from multiple bidders. The Company is now in the second phase of
the sale process, during which interested bidders will receive proposed transaction documents and complete their confirmatory due
diligence.

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
general and administrative expenses include the Company’s corporate office costs, which were $90.4 million, $86.6 million and
$76.4 million for the years ended December 31, 2019, 2018 and 2017, 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 any
risks by depositing cash and investing in cash equivalents with major financial institutions.

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 risks are insured through a wholly-owned insurance subsidiary. The Company is self-
insured for professional liability claims up to $3.0 million per claim and has obtained reinsurance coverage from a third party to cover
claims in excess of the retention limit. The reinsurance policy has a coverage limit of $75.0 million in the aggregate. The Company’s
reinsurance receivables are recognized consistent with the related liabilities and include known claims and any incurred but not
reported claims that are covered by current insurance policies in place. The reserve for professional and general liability risks was
estimated based on historical claims, demographic factors, industry trends, severity factors, and other actuarial assumptions. The
estimated accrual for professional and general liabilities could be significantly affected should current and future occurrences differ
from historical claim trends and expectations. While claims are monitored closely when estimating professional and general liability
accruals, the complexity of the claims and wide range of potential outcomes often hampers timely adjustments to the assumptions used
in these estimates. The professional and general liability reserve was $52.6 million at December 31, 2019, of which $4.7 million was
included in other accrued liabilities and $47.9 million was included in other long-term liabilities. The professional and general liability
reserve was $42.8 million at December 31, 2018, of which $5.0 million was included in other accrued liabilities and $37.8 million was
included in other long-term liabilities. The Company estimates receivables for the portion of professional and general liability reserves

F-11

that are recoverable under the Company’s insurance policies. Such receivable was $8.5 million at December 31, 2019, of which
$3.0 million was included in other current assets and $5.5 million was included in other assets, and such receivable was $8.2 million at
December 31, 2018, of which $2.1 million was included in other current assets and $6.1 million was included in other assets.

The Company’s statutory workers’ compensation program is fully insured with a $0.5 million deductible per accident. The
workers’ compensation liability was $20.8 million at December 31, 2019, of which $10.0 million was included in accrued salaries and
benefits and $10.8 million was included in other long-term liabilities, and such liability was $19.3 million at December 31, 2018, of
which $10.0 million was included in accrued salaries and benefits and $9.3 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

The carrying values of long-lived assets are reviewed for possible impairment whenever events, circumstances or operating

The Company performed an impairment review of long-lived assets in the fourth quarter of 2019, which indicated the carrying

amounts of certain long-lived assets in the Company’s facilities in the U.S. (the “U.S. Facilities”) and its facilities in the U.K. (the
“U.K. Facilities”) may not be recoverable. This created a non-cash loss on impairment of $54.4 million for the year ended December
31, 2019. A 2018 impairment review resulted in a non-cash impairment of $12.0 million for the year ended December 31, 2018 related
to certain U.K. Facilities. These items were recorded in loss on impairment on our consolidated statements of operations. No
impairment was recorded for the year ended December 31, 2017.

Goodwill and Indefinite-Lived Intangible Assets

The Company’s goodwill and other indefinite-lived intangible assets, which consist of license and accreditations, trade names
and certificates of need intangible assets that are not amortized, are evaluated for impairment annually during the fourth quarter or
more frequently if events indicate the carrying value of a reporting unit may not be recoverable. The Company has two operating
segments for segment reporting purpose, U.S. Facilities and U.K. Facilities, each of which represents a reporting unit for purposes of
the Company’s goodwill impairment test.

Our annual goodwill impairment and other indefinite-lived intangible assets test performed as of October 1, 2019 resulted in no

impairment charges. The Company’s annual goodwill impairment test performed as of October 1, 2018 considered the recent financial
performance, including the labor market pressures faced by the U.K. Facilities. The 2018 impairment test for the U.S. Facilities
indicated estimated fair value exceeded carrying value, and therefore no impairment was recorded. The 2018 impairment test for the
U.K. Facilities indicated carrying value exceeded the estimated fair value. The difference was recorded as a non-cash loss on
impairment of $325.9 million for the year ended December 31, 2018 within loss on impairment in the consolidated statements of
operations. The Company’s annual impairment tests of goodwill and other indefinite-lived intangible assets in 2017 resulted in no
impairment charges.

In performing the goodwill impairment test, the Company used a combination of the income and market approaches to estimate

fair value of our reporting units. Determining fair value requires substantial judgement and use of significant unobservable inputs,
which are categorized as Level 3 fair value measurements. For the income approach, the Company used a discounted cash flow model
in which cash flows are projected using internal forecasts over future periods, plus a terminal value, and are discounted to present
value using a risk-adjusted rate of return. The Company’s internal forecasts include estimates of growth rates and profitability based
on our current views of the long-term outlook of each reporting unit and may materially differ from actual results. Discount rate
assumptions are based on an assessment of the risk inherent in the future cash flows of each reporting unit. The discount rates used in
its analysis range from 10.0% to 10.5% and correspond to the risks inherent in each reporting unit. For the market approach, we
compared our reporting units to guideline companies actively traded in public markets and included a control premium, which was

F-12

based on acquisition premiums of selected companies similar to our reporting units. Estimating fair values of our reporting units
includes substantial judgement and significant estimates and may materially differ from actual results. Changes in assumptions,
industry or peer groups could negatively impact estimated fair value.

Other Current Assets

Other current assets consisted of the following (in thousands):

Prepaid expenses
Other receivables
Cost report receivable
Workers’ compensation deposits – current portion
Income taxes receivable
Inventory
Insurance receivable – current portion
Other
Other current assets

Other Accrued Liabilities

Other accrued liabilities consisted of the following (in thousands):

Accrued expenses
Accrued interest
Unearned income
Finance lease liabilities
Insurance liability – current portion
Accrued property taxes
Income taxes payable
Accrued legal settlements
Other
Other accrued liabilities

December 31,

2019

2018

23,708 $
16,097
13,723
10,000
5,579
4,759
3,030
1,348
78,244 $

30,802
19,205
10,340
10,000
2,380
5,055
2,049
1,989
81,820

December 31,

2019

2018

50,614 $
33,323
38,475
6,819
4,731
4,755
—
—
2,443
141,160 $

44,938
32,838
32,154
—
4,956
4,136
3,041
22,076
7,087
151,226

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
requisite service period of the respective awards. The fair values of restricted stock units are determined based on the closing price of
the Company’s common stock on the trading date immediately prior to the grant date for units subject to performance conditions, or at
their Monte-Carlo simulation value for units subject to market conditions.

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 and non-vested shares, 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

F-13

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.

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 tax
expense.

The Company has accruals for taxes and associated interest that may become payable in future years as a result of audits by tax

authorities. The Company accrues 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 Management believes 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.

The Tax Act was enacted on December 22, 2017. The Tax Act reduced the U.S. federal corporate tax rate from 35% to 21% and

included certain other changes. See additional disclosure described in Note 12 – Income Taxes.

Recent Accounting Pronouncements

In August 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-15, “Intangibles—Goodwill and Other—

Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement That Is a Service Contract” (“ASU 2018-15”). ASU 2018-15 requires a customer in a cloud computing arrangement that
is a service contract to follow the internal-use software guidance in ASC 350-402 to determine which implementation costs to
capitalize as assets. ASU 2018-15 is effective for fiscal years, and interim periods within those years, beginning after December 15,
2019. Early adoption is permitted. Management is evaluating the impact of ASU 2018-15 on the Company’s consolidated financial
statements.

In August 2017, FASB issued 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 activities in the financial statements and simplifies the 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. The Company adopted ASU 2017-12 on January 1, 2019. There is no significant impact on the Company’s
consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 replaces the current incurred loss impairment methodology with a
new methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable
information to inform credit loss estimates. ASU 2016-13 is effective for fiscal years, and interim periods within those years,
beginning after December 15, 2019. Early adoption is permitted. Management is evaluating the impact of ASU 2016-13 on the
Company’s consolidated financial statements

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.
ASU 2016-02 requires application either retrospectively to each prior reporting period presented in the financial statements or
retrospectively at the beginning of the period of adoption. The Company adopted ASU 2016-02 retrospectively at the beginning of the
period of adoption. Prior periods have not been adjusted. On January 1, 2019, the Company recorded right-of-use assets and lease
liabilities of $500.3 million and $526.6 million, respectively, as described in Note 8 – Leases.

F-14

3. Revenue

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 requires companies to exercise more judgment and recognize revenue using
a five-step process. The Company adopted ASU 2014-09 using the modified retrospective method for all contracts effective January 1,
2018 and is using a portfolio approach to group contracts with similar characteristics and analyze historical cash collections trends.
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. Prior periods have not been adjusted. No cumulative-effect adjustment in retained
earnings was recorded as the adoption of ASU 2014-09 did not significantly impact the Company’s reported historical revenue.

As a result of certain changes required by ASU 2014-09, the majority of the Company’s provision for doubtful accounts are

recorded as a direct reduction to revenue instead of being presented as a separate line item on the consolidated statements of
operations. The adoption of ASU 2014-09 has no impact on the Company’s accounts receivable as it was historically recorded net of
allowance for doubtful accounts and contractual adjustments, and the Company has eliminated the presentation of allowance for
doubtful accounts on the consolidated balance sheets. At December 31, 2019 and 2018, estimated implicit price concessions of $47.4
million and $47.0 million, respectively, had been recorded as reductions to our accounts receivable balances to enable us to record our
revenues and accounts receivable at the estimated amounts we expected to collect. The adoption of ASU 2014-09 did not have a
significant impact on the Company’s consolidated statements of operations.

The Company evaluated the nature, amount, timing and uncertainty of revenue and cash flows using the five-step process

provided within ASU 2014-09.

Revenue is primarily derived from services rendered to patients for inpatient psychiatric and substance abuse care, outpatient

psychiatric care and residential treatment. The services provided by the Company have no fixed duration and can be terminated by the
patient or the facility at any time, and therefore, each treatment is its own stand-alone contract.

Services ordered by a healthcare provider in an episode of care are not separately identifiable and therefore have been combined

into a single performance obligation for each contract. The Company recognizes revenue as its performance obligations are
completed. The performance obligation is satisfied over time as the customer simultaneously receives and consumes the benefits of
the healthcare services provided. For inpatient services, the Company recognizes revenue equally over the patient stay on a daily basis.
For outpatient services, the Company recognizes revenue equally over the number of treatments provided in a single episode of care.
Typically, patients and third-party payors are billed within several days of the service being performed or the patient being discharged,
and payments are due based on contract terms.

As our performance obligations relate to contracts with a duration of one year or less, the Company elected the optional
exemption in ASC 606-10-50-14(a). Therefore, the Company is not required to disclose the transaction price for the remaining
performance obligations at the end of the reporting period or when the Company expects to recognize the revenue. The Company has
minimal unsatisfied performance obligations at the end of the reporting period as our patients typically are under no obligation to
remain admitted in our facilities.

The Company disaggregates revenue from contracts with customers by service type and by payor within each of the Company’s

segments.

U.S. Facilities

The Company’s U.S. Facilities and services provided by the U.S. Facilities can generally be classified into the following
categories: acute inpatient psychiatric facilities; specialty treatment facilities; residential treatment centers; and outpatient community-
based facilities.

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.

Specialty treatment facilities. Specialty treatment facilities include residential recovery facilities, eating disorder facilities and
comprehensive treatment centers. The Company provides a comprehensive continuum of care for adults with addictive disorders and
co-occurring mental disorders. Inpatient, including detoxification and rehabilitation, partial hospitalization and outpatient treatment
programs give patients access to the least restrictive level of care.

F-15

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.

Outpatient community-based facilities. Outpatient 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.

The table below presents total U.S. revenue attributed to each category (in thousands):

Acute inpatient psychiatric facilities
Specialty treatment facilities
Residential treatment centers
Outpatient community-based facilities
Revenue

2019

Year Ended December 31,
2018

912,097 $
788,232
286,959
21,093
2,008,381 $

814,124 $
761,017
293,053
36,501
1,904,695 $

2017

757,211
725,151
284,637
42,845
1,809,844

The Company receives 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. As the
period between the time of service and time of payment is typically one year or less, the Company elected the practical expedient
under ASC 606-10-32-18 and did not adjust for the effects of a significant financing component.

The Company determines the transaction price based on established billing rates reduced by contractual adjustments provided to
third-party payors, discounts provided to uninsured patients and implicit price concessions. Contractual adjustments and discounts are
based on contractual agreements, discount policies and historical experience. Implicit price concessions are based on historical
collection experience. Most of our U.S. Facilities have contracts containing variable consideration. However, it is unlikely a
significant reversal of revenue will occur when the uncertainty is resolved, and therefore, the Company has included the variable
consideration in the estimated transaction price. Subsequent changes resulting from a patient’s ability to pay are recorded as bad debt
expense, which is included as a component of other operating expenses in the consolidated statements of operations. Bad debt expense
for the years ended December 31, 2019 and 2018 was not significant.

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 estimated are complex, subject to interpretation and adjustment, and may include multiple reimbursement mechanisms for
different types of services provided in the Company’s facilities and cost settlement provisions. Management estimates the transaction
price on a payor-specific basis given its interpretation of the applicable regulations or contract terms. The services authorized and
provided and related reimbursement are often subject to interpretation that could result in payments that differ from the Company’s
estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment
of the estimation process by management.

Settlements under cost reimbursement agreements with third-party payors are estimated and recorded in the period in which the

related services are rendered and are adjusted in future periods as final settlements are determined. Final determination of amounts
earned under the Medicare and Medicaid programs often occurs in subsequent years because of audits by such programs, rights of
appeal and the application of numerous technical provisions. In the opinion of management, adequate provision has been made for any
adjustments and final settlements. However, there can be no assurance that any such adjustments and final settlements will not have a
material effect on the Company’s financial condition or results of operations. The Company’s cost report receivables were
$13.7 million and $10.3 million for the years ended December 31, 2019 and 2018, 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 a decreases to revenue
of $0.4 million for the year ended December 31, 2019 and increases to revenue of $0.5 million and $0.2 million for the years ended
December 31, 2018 and 2017, respectively.

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. Such amounts determined to qualify as charity care are not
reported as revenue. The cost of providing charity care services were $4.3 million, $4.7 million and $5.3 million for the years ended
December 31, 2019, 2018 and 2017, respectively. The estimated cost of charity care 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-16

The following table presents revenue by payor type and as a percentage of revenue in our U.S. Facilities for the years ended

December 31, 2019, 2018 and 2017 (in thousands):

2019

Year Ended December 31,
2018

2017

Commercial
Medicare
Medicaid
Self-Pay
Other
Revenue before provision for doubtful
accounts
Provision for doubtful accounts
Revenue

U.K. Facilities

Amount
$ 565,350
294,691
1,007,102
118,716
22,522

Amount
28.2 % $ 573,089
14.7 % 280,340
50.1 % 893,644
5.9 % 134,054
23,568
1.1 %

Amount
30.1 % $ 569,242
14.7 % 281,270
46.9 % 796,375
7.1 % 169,727
33,942
1.2 %

30.8 %
15.2 %
43.0 %
9.2 %
1.8 %

2,008,381 100.0 % 1,904,695 100.0 % 1,850,556 100.0 %
—
$ 1,904,695

(40,712 )
$ 1,809,844

—
$ 2,008,381

The Company’s U.K. Facilities and services provided by the U.K. Facilities can generally be classified into the following

categories: healthcare facilities, education and children’s services; and adult care facilities.

Healthcare facilities. Healthcare facilities provide psychiatric treatment and nursing for sufferers of mental disorders, including

for patients 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.

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 facilities. Adult care focuses on care of individuals with a variety of learning difficulties, mental health illnesses and
adult autism spectrum disorders. It also includes long-term, short-term and respite nursing care to high-dependency elderly individuals
who are physically frail or suffering from dementia. Care is provided in a number of settings, including in residential care homes and
through supported living.

The table below presents total U.K. revenue attributed to each category (in thousands):

Healthcare facilities
Education and Children’s Services
Adult Care facilities
Revenue

Year Ended December 31,
2018
614,994 $
187,306
305,447

2017
566,482
165,874
294,116
$ 1,099,081 $ 1,107,747 $ 1,026,472

2019
607,053 $
183,195
308,833

The Company receives payments from approximately 500 public funded sources in the U.K. (including the National Health
Service (“NHS”), Clinical Commissioning Groups (“CCGs”) and local authorities in England, Scotland and Wales) and individual
patients and clients. The Company determines the transaction price based on established billing rates by payor and is reduced by
implicit price concessions. Implicit price concessions are insignificant in our U.K. Facilities. There is no significant variable
consideration in our U.K. Facilities’ contracts. As the period between the time of service and time of payment is typically one year or
less, the Company elected the practical expedient under ASC 606-10-32-18 and did not adjust for the effects of a significant financing
component.

F-17

The following table presents revenue by payor type and as a percentage of revenue in our U.K. Facilities for the years ended

December 31, 2019, 2018 and 2017 (in thousands):

2019

Year Ended December 31,
2018

2017

U.K. public funded sources
Self-Pay
Other
Revenue before provision for doubtful
accounts
Provision for doubtful accounts
Revenue

Amount
$ 991,353
105,430
2,298

Amount
90.2 % $ 1,000,828
9.6 % 104,824
2,095
0.2 %

Amount
90.3 % $ 922,159
95,687
8,832

9.5 %
0.2 %

89.8 %
9.3 %
0.9 %

1,099,081 100.0 % 1,107,747 100.0 % 1,026,678 100.0 %
—
$ 1,107,747

(206 )
$ 1,026,472

—
$ 1,099,081

The Company’s contract liabilities primarily consist of unearned revenue in our U.K. Facilities due to the timing of payments

received mainly in our education and children’s services and healthcare facilities. Contract liabilities are included in other accrued
liabilities on the consolidated balance sheets. A summary of the activity in unearned revenue in the U.K. Facilities is as follows (in
thousands):

Balance at December 31, 2018

Payments received
Revenue recognized
Foreign currency translation loss

Balance at December 31, 2019

31,239
172,666
(167,811 )
485
36,579

4. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2019,

2018 and 2017 (in thousands, except per share amounts):

Numerator:

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

Denominator:

Weighted average shares outstanding for basic
earnings per share
Effects of dilutive instruments
Shares used in computing diluted earnings per
common share

Earnings per share attributable to Acadia Healthcare
Company, Inc. stockholders:

Basic
Diluted

Year Ended December 31,
2018

2017

2019

108,923 $

(175,750 ) $

199,835

87,612
204

87,288
—

86,948
112

87,816

87,288

87,060

$
$

1.24 $
1.24 $

(2.01 ) $
(2.01 ) $

2.30
2.30

Approximately 2.2 million, 1.9 million and 1.4 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, 2019, 2018 and 2017,
respectively, because their effect would have been anti-dilutive. For the year ended December 31, 2018, approximately 0.1 million of
the outstanding restricted stock and shares of common stock issuable upon exercise of outstanding stock option awards have been
excluded from the calculation of diluted earnings per share because the net loss for the year ended December 31, 2018 causes such
securities to be anti-dilutive.

F-18

5. Acquisitions

The Company’s strategy is to acquire and develop behavioral healthcare facilities and improve operating results within its

facilities and its other behavioral healthcare operations.

On April 1, 2019, the Company completed the acquisition of Bradford Recovery Center (“Bradford”), a specialty treatment

facility with 46 beds located in Millerton, Pennsylvania, for cash consideration of approximately $4.5 million.

On February 15, 2019, the Company completed the acquisition of Whittier Pavilion (“Whittier”), an inpatient psychiatric facility

with 71 beds located in Haverhill, Massachusetts, for cash consideration of approximately $17.9 million. Also on February 15, 2019,
the Company completed the acquisition of Mission Treatment (“Mission Treatment”) for cash consideration of approximately $22.5
million and a working capital settlement. Mission Treatment operates nine comprehensive treatment centers in California, Nevada,
Arizona and Oklahoma.

On November 13, 2017, the Company completed the acquisition of Aspire Scotland, an education facility with 36 beds located

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

Transaction-related expenses

Transaction-related expenses represent costs primarily related to termination, restructuring, strategic review, management

transition and other acquisition-related costs. Transaction-related expenses comprised the following costs for the years ended years
ended December 31, 2019, 2018 and 2017 (in thousands):

Termination, restructuring and strategic review costs
Management transition costs
Legal, accounting and other acquisition-related costs

Year Ended December 31,
2018
16,785
$
14,033
3,689
34,507 $

2019
18,233 $
5,529
3,302
27,064 $

2017
19,469
—
4,798
24,267

6. Property and Equipment

Property and equipment consisted of the following at December 31, 2019 and 2018 (in thousands):

Land
Building and improvements
Equipment
Construction in progress

Less: accumulated depreciation
Property and equipment, net

December 31,

2019

2018

448,716 $
2,746,111
516,769
254,213
3,965,809
(741,775 )
3,224,034 $

430,771
2,423,594
444,538
294,848
3,593,751
(485,985 )
3,107,766

During the first quarter of 2019, the Company closed a 168-bed residential treatment center in Albuquerque, New Mexico.
During the third quarter of 2019, the Company closed a 108-bed residential treatment center in Butte, Montana. During the fourth
quarter of 2019, the Company determined the carrying amounts of these properties may not be recoverable, and a loss on impairment
of $27.2 million was recorded related to these closed U.S. Facilities. Additionally, the Company recorded a loss on impairment of
$27.2 million in the fourth quarter of 2019 related to certain closed U.K. Facilities. The closed properties are being actively marketed
and are included in assets held for sale within other assets on the consolidated balance sheets at December 31, 2019. The Company has
recorded assets held for sale of $31.1 million and $17.0 million at December 31, 2019 and December 31, 2018, respectively.

F-19

7. Other Intangible Assets

Other identifiable intangible assets and related accumulated amortization consisted of the following at December 31, 2019 and

2018 (in thousands):

Intangible assets subject to amortization:
Contract intangible assets
Non-compete agreements

Intangible assets not subject to amortization:
Licenses and accreditations
Trade names
Certificates of need

Total

Gross Carrying Amount

Accumulated Amortization

December 31,
2019

December 31,
2018

December 31,
2019

December 31,
2018

2,100 $
1,131
3,231

2,100 $
1,147
3,247

(2,100 ) $
(1,131 )
(3,231 )

12,455
60,831
17,071
90,357
93,588 $

12,343
60,109
16,538
88,990
92,237 $

—
—
—
—
(3,231 ) $

(2,100 )
(1,147 )
(3,247 )

—
—
—
—
(3,247 )

All the Company’s definite-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.

8. Leases

The Company’s lease portfolio primarily consists of finance and operating real estate leases integral for facility operations. The
original terms of the leases typically range from five to 30 years with optional renewal periods. A minimal portion of the Company’s
lease portfolio consists of non-real estate leases, including copiers and equipment, which generally have lease terms of one to three
years and have insignificant lease obligations.

In March 2016, the FASB issued 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. The Company
adopted ASU 2016-02 retrospectively at the beginning of the period of adoption. Prior periods have not been adjusted.

The Company has elected the package of practical expedients offered in the transition guidance which allows management not to

reassess lease identification, lease classification and initial direct costs. The Company also elected the accounting policy practical
expedients by class of underlying asset to: (i) combine associated lease and non-lease components into a single lease component; and
(ii) exclude recording short-term leases as right-of-use assets and liabilities on the consolidated balance sheets. Non-lease components,
which are not significant overall, are combined with lease components.

On January 1, 2019, the Company recorded right-of-use assets and lease liabilities on the consolidated balance sheet of $500.3

million and $526.6 million, respectively, for non-cancelable real estate operating leases with original lease terms in excess of one
year. Finance leases remained on the consolidated balance sheets as required by previous accounting guidance. The Company reviews
service agreements for embedded leases and records right-of-use assets and liabilities as necessary.

Operating lease liabilities were recorded as the present value of remaining lease payments not yet paid for the lease term
discounted using the incremental borrowing rate associated with each lease. Operating lease right-of-use assets represent operating
lease liabilities adjusted for prepayments, accrued lease payments, lease incentives and initial direct costs. Certain of the Company’s
leases include renewal or termination options. Calculation of operating lease right-of-use assets and liabilities include the initial lease
term unless it is reasonably certain a renewal or termination option will be exercised. Variable components of lease payments
fluctuating with a future index or rate, as well as those related to common area maintenance costs, are not included in determining
lease payments and are expensed as incurred. Most of the Company’s leases do not contain implicit borrowing rates, and therefore,
incremental borrowing rates were calculated based on information available at the later of the lease commencement date or January 1,
2019. Incremental borrowing rates reflect the Company’s estimated interest rates for collateralized borrowings over similar lease
terms.

F-20

Lease Position

At December 31, 2019, the Company recorded the following on the consolidated balance sheet (in thousands):

Right-of-Use Assets

Finance lease right-of-use assets
Operating lease right-of-use assets

Total

Balance Sheet Classification

Property and equipment, net
Operating lease right-of-use assets

December 31, 2019
44,370
$
501,837
546,207

Lease Liabilities

Current:

Finance lease liabilities
Operating lease liabilities

Noncurrent:

Finance lease liabilities
Operating lease liabilities

Total

Balance Sheet Classification

December 31, 2019

Other accrued liabilities
Current portion of operating lease liabilities

Other liabilities
Operating lease liabilities

6,819
29,140

43,662
502,252
581,873

Weighted-average remaining lease terms and discount rates at December 31, 2019 were as follows:

Weighted-average remaining lease term (in years):

Finance
Operating

Weighted-average discount rate:

Finance
Operating

6.9
19.4

6.4 %
6.3 %

Lease Costs

The Company recorded the following lease costs for the year ended December 31, 2019 (in thousands):

Finance lease costs:

Depreciation of leased assets
Interest of lease liabilities
Total finance lease costs

Operating lease costs
Variable lease costs
Short term lease costs
Other lease costs

Total rents and leases

Total lease costs

4,526
3,991
8,517

64,958
5,407
5,497
6,367
82,229

90,746

F-21

Other

Undiscounted cash flows for finance and operating leases recorded on the consolidated balance sheet were as follows at

December 31, 2019 (in thousands):

Finance Leases

Operating Leases

2020
2021
2022
2023
2024
Thereafter
Total minimum lease payments
Less: amount of lease payments representing interest
Present value of future minimum lease payments
Less: Current portion of lease liabilities
Noncurrent lease liabilities

7,494
35,624
2,681
1,369
1,007
25,088
73,263
22,782
50,481
6,819
43,662

61,857
58,279
53,395
49,714
47,505
689,931
960,681
429,289
531,392
29,140
502,252

Supplemental data for the year ended December 31, 2019 was as follows (in thousands):

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows for operating leases
Operating cash flows for finance leases
Financing cash flows for finance leases

Right-of-use assets obtained in exchange for lease obligations:

Operating leases
Finance leases

$
$
$

$
$

62,122
3,991
3,270

21,809
3,234

9. Long-Term Debt

Long-term debt consisted of the following (in thousands):

Amended and Restated Senior Credit Facility:

Senior Secured Term A Loan
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
Other long-term debt
Less: unamortized debt issuance costs, discount and
premium

Less: current portion
Long-term debt

December 31,
2019

December 31,
2018

346,750 $

$
365,750
1,338,928 1,372,912
—
—
150,000
150,000
300,000
300,000
650,000
650,000
390,000
390,000
5,953
4,821

(31,400 )

(41,128 )
3,149,099 3,193,487
(34,112 )
$ 3,105,420 $ 3,159,375

(43,679 )

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-22

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 Term
Loan B facility Tranche B-1 (the “Tranche B-1 Facility”) and the Term Loan B facility Tranche B-2 (the “Tranche B-2 Facility”) from
3.00% to 2.75% in the case of Eurodollar Rate loans and from 2.00% 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 March 22, 2018, the Company entered into a Second Repricing Facilities Amendment (the “Second Repricing Facilities
Amendment”) to the Amended and Restated Credit Agreement. The Second Repricing Facilities Amendment (i) replaced the Tranche
B-1 Facility and the Tranche B-2 Facility with a new Term Loan B facility Tranche B-3 (the “Tranche B-3 Facility”) and a new Term
Loan B facility Tranche B-4 (the “Tranche B-4 Facility”), respectively, and (ii) reduced the Applicable Rate from 2.75% to 2.50% in
the case of Eurodollar Rate loans and reduced the Applicable Rate from 1.75% to 1.50% in the case of Base Rate Loans.

On March 29, 2018, the Company entered into a Third Repricing Facilities Amendment to the Amended and Restated Credit

Agreement (the “Third Repricing Facilities Amendment”, and together with the Second Repricing Facilities Amendment, the
“Repricing Facilities Amendments”). The Third Repricing Facilities Amendment replaced the existing revolving credit facility and
Term Loan A facility (“TLA Facility”) with a new revolving credit facility and TLA Facility, respectively. The Company’s line of
credit on its revolving credit facility remains at $500.0 million and the Third Repricing Facility Amendment reduced the size of the
TLA Facility from $400.0 million to $380.0 million to reflect the then current outstanding principal. The Third Repricing Facilities
Amendment reduced the Applicable Rate by 25 basis points for the revolving credit facility and the TLA Facility by amending the
definition of “Applicable Rate.”

In connection with the Repricing Facilities Amendments, the Company recorded a debt extinguishment charge of $0.9 million,
including the discount and write-off of deferred financing costs, which was recorded in debt extinguishment costs in the consolidated
statements of operations.

On February 6, 2019, the Company entered into the Eleventh Amendment (the “Eleventh Amendment”) to the Amended and
Restated Credit Agreement. The Eleventh Amendment, among other things, amended the definition of “Consolidated EBITDA” to
remove the cap on non-cash charges, losses and expenses related to the impairment of goodwill, which in turn provided increased
flexibility to the Company in terms of the Company’s financial covenants.

On February 27, 2019, the Company entered into the Twelfth Amendment (the “Twelfth Amendment”) to the Amended and

Restated Credit Agreement. The Twelfth Amendment, among other things, modified certain definitions, including “Consolidated
EBITDA”, and increased our permitted Maximum Consolidated Leverage Ratio, thereby providing increased flexibility to the
Company in terms of the Company’s financial covenants.

The Company had $485.1 million of availability under the revolving line of credit and had standby letters of credit outstanding

of $14.9 million related to security for the payment of claims required by its workers’ compensation insurance program at
December 31, 2019. 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 $7.1 million for
March 31, 2020 to December 31, 2020, and $9.5 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-3
Facility in equal quarterly installments of $1.2 million on the last business day of each March, June, September and December, with
the outstanding principal balance of the Tranche B-3 Facility due on February 11, 2022. The Company is required to repay the
Tranche B-4 Facility in equal quarterly installments of approximately $2.3 million on the last business day of each March, June,
September and December, with the outstanding principal balance of the Tranche B-4 Facility due 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. On April 17, 2018, the Company made an additional payment of $15.0 million,
including $5.1 million on the Tranche B-3 Facility and $9.9 million on the Tranche B-4 Facility. On November 15, 2019, the
Company made an additional payment of $20.0 million, including $7.0 million on the Tranche B-3 Facility and $13.0 million on the
Tranche B-4 Facility.

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 $50.0 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 2.5% for Eurodollar Rate Loans (as defined in the

F-23

Amended and Restated Credit Agreement) and 1.5% for Base Rate Loans (as defined in the Amended and Restated Credit Agreement)
at December 31, 2019. 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%. At December 31, 2019, the Pro Rata Facilities bore interest at a rate of LIBOR plus 2.5%. 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, 2019, 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

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, 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 effect to this issuance, the Company has
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, 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 on
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.

The Company may redeem the Senior Notes at its option, in whole or part, at the dates and amounts set forth in the indentures.

F-24

9.0% and 9.5% Revenue Bonds

On November 11, 2012, in connection with the acquisition of The Pavilion at HealthPark, LLC (“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
Development Authority Healthcare Facilities Revenue Bonds, Series 2010 with stated interest rates of 9.0% and 9.5% (“9.0% and
9.5% Revenue Bonds”), respectively.

On December 1, 2018, the Company exercised the option to redeem in whole the 9.0% and 9.5% Revenue Bonds at a
redemption price equal to the sum of 104% of the principal amount of the 9.0% and 9.5% Revenue Bonds plus accrued and unpaid
interest. In connection with the redemption of the 9.0% and 9.5% Revenue Bonds, the Company recorded a debt extinguishment
charge of $0.9 million, which was recorded in debt extinguishment costs in the consolidated statements of operations.

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, 2019 were $29.0 million, net of accumulated amortization of $46.2 million. Debt issuance costs at December 31, 2018
were $37.8 million, net of accumulated amortization of $36.5 million. Amortization expense related to debt issuance costs, which is
included in interest expense on the consolidated statements of operations, was $9.7 million, $9.0 million and $8.6 million,
respectively, for the years ended December 31, 2019, 2018 and 2017.

Other

The aggregate maturities of long-term debt at December 31, 2019 were as follows (in thousands):

2020
2021
2022
2023
2024
Thereafter
Total

10. Equity
Preferred Stock

43,675
483,501
757,855
1,505,468
390,000
—
$ 3,180,499

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, optional or other special rights and
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.

Common Stock

The Company’s amended and restated certificate of incorporation provides that up to 180,000,000 shares of common stock may

be issued. 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 stock then
outstanding. Delaware law prohibits the Company from paying any dividends unless it has capital surplus or net profits available for
this purpose. In addition, the Amended and Restated Senior Credit Facility imposes restrictions on the Company’s ability to pay
dividends.

F-25

11. 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”). At December 31, 2019, 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 2,903,059 were available for future grant. Stock options may be granted for terms of up to ten years. The Company
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 $17.3 million, $22.0 million and $23.5 million in equity-based compensation expense for the years
ended December 31, 2019, 2018 and 2017, respectively. Stock compensation expense for the years ended December 31, 2019, 2018
and 2017 included forfeiture adjustments and restricted stock unit adjustments based on actual performance compared to vesting
targets of $(6.4) million, $(5.5) million and $(5.7) million, respectively. At December 31, 2019, there was $34.3 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.

At December 31, 2019, there were no warrants outstanding and exercisable. The Company recognized a deferred income tax

benefit of $4.2 million and $7.0 million for the years ended December 31, 2019 and 2018, respectively, related to equity-based
compensation expense.

Stock Options

Stock option activity during 2017, 2018 and 2019 was as follows (aggregate intrinsic value in thousands):

Options outstanding at January 1, 2017
Options granted
Options exercised
Options cancelled
Options outstanding at December 31, 2017
Options granted
Options exercised
Options cancelled
Options outstanding at December 31, 2018
Options granted
Options exercised
Options cancelled
Options outstanding at December 31, 2019
Options exercisable at December 31, 2018
Options exercisable at December 31, 2019

Number of
Options

Weighted
Average
Exercise Price

Weighted
Average
Remaining
Contractual
Term (in years)

Aggregate
Intrinsic
Value

1,000,946 $
259,300
(87,367 )
(198,313 )
974,566
374,700
(20,989 )
(128,737 )
1,199,540
605,200
(55,671 )
(389,001 )
1,360,068 $
534,164 $
513,290 $

48.42
42.25
25.92
54.71
47.89
37.54
17.83
50.83
44.64
28.50
19.05
40.84
39.40
44.98
48.08

7.46 $
9.30
N/A
N/A
7.46
9.21
N/A
N/A
7.26
9.21
N/A
N/A
7.57 $
5.73 $
5.88 $

8,166
205
1,636
N/A
3,802
246
383
N/A
2,717
1,343
658
N/A
1,650
2,386
512

Fair values are 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,
2019, 2018 and 2017:

Weighted average grant-date fair value of options
Risk-free interest rate
Expected volatility
Expected life (in years)

F-26

2017

2019

Year Ended December 31,
2018
$ 17.59 $ 13.67 $ 14.39
2.0 %
33 %
5.5

2.4 %
38 %
5.0

2.2 %
37 %
5.1

The Company’s estimate of expected volatility for stock options is based upon the volatility of our stock price over the expected
life of the award. 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.

Other Stock-Based Awards

Restricted stock activity during 2017, 2018 and 2019 was as follows:

Unvested at January 1, 2017
Granted
Cancelled
Vested
Unvested at December 31, 2017
Granted
Cancelled
Vested
Unvested at December 31, 2018
Granted
Cancelled
Vested
Unvested at December 31, 2019

Restricted stock unit activity during 2017, 2018 and 2019 was as follows:

Unvested at January 1, 2017
Granted
Cancelled
Vested
Unvested at December 31, 2017
Granted
Cancelled
Vested
Unvested at December 31, 2018
Granted
Cancelled
Vested
Unvested at December 31, 2019

Number of
Shares
844,419 $
404,224
(145,981 )
(292,794 )
809,868 $
480,137
(88,989 )
(395,959 )
805,057 $
700,937
(389,684 )
(311,174 )
805,136 $

Number of
Units
273,599 $
219,840
—
(132,530 )
360,909 $
285,358
(89,173 )
(72,983 )
484,111 $
234,408
(271,162 )
—
447,357 $

Weighted
Average
Grant-Date
Fair Value

55.76
42.38
55.03
53.07
50.19
36.84
47.57
50.41
42.40
28.77
33.50
44.23
34.14

59.68
43.23
—
58.67
50.04
42.26
55.44
49.64
44.52
34.54
45.17
—
38.89

Weighted
Average
Grant-Date
Fair Value

Restricted stock awards are time-based vesting awards that vest over a period of three or four years and are subject to continuing

service of the employee or non-employee director over the ratable vesting periods. The fair values of the restricted stock awards were
determined based on the closing price of the Company’s common stock on the trading date immediately prior to the grant date.

Restricted stock units are granted to employees and are subject to Company performance compared to pre-established targets
and Company performance compared to peers. In addition to Company performance, these performance-based restricted stock units
are subject to the continuing service of the employee during the two- or three-year period covered by the awards. The performance
condition for the restricted stock units is based on the Company’s achievement of annually established targets for diluted earnings per
share. Additionally, the number of shares issuable pursuant to restricted stock units granted during 2019 and 2018 are subject to
adjustment based on the Company’s three-year annualized total stockholder return relative to a peer group consisting of S&P 1500
companies within the Healthcare Providers & Services 6 digit GICS industry group and selected other companies deemed to be
peers. The number of shares issuable at the end of the applicable vesting period of restricted stock units ranges from 0% to 200% of

F-27

the targeted units based on the Company’s actual performance compared to the targets and, for 2019 and 2018 awards, performance
compared to peers.

The fair values of restricted stock units were determined based on the closing price of the Company’s common stock on the
trading date immediately prior to the grant date for units subject to performance conditions, or at its Monte-Carlo simulation value for
units subject to market conditions.

12. Income Taxes

Provision for income taxes consists of the following for the periods presented (in thousands):

Current:

Federal
State
Foreign
Total current
Deferred:

Federal
State
Foreign

Total deferred provision
Provision for income taxes

Year Ended December 31,
2018

2017

2019

18,954 $
3,440
1,692
24,086

(1,573 )
2,509
844
1,780
25,866 $

13,961 $
1,113
1,172
16,246

(7,176 )
(10 )
(2,528 )
(9,714 )
6,532 $

3,325
680
1,832
5,837

27,179
4,408
(215 )
31,372
37,209

A reconciliation of the U.S. federal statutory rate 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
Impacts of SAB 118
Effects of statutory rate change
State income taxes, net of federal tax effect
Permanent differences
Goodwill impairment
Change in valuation allowance
Unrecognized tax benefit release
Interest disallowance
Federal tax credits
Other
Effective income tax rate

Year Ended December 31,
2018

2019

2017

21.0 %
(15.3 )
—
—
3.3
2.4
—
2.9
0.3
4.2
(1.3 )
1.5
19.0 %

21.0 %
9.5
6.7
—
(1.4 )
(4.1 )
(36.6 )
(1.4 )
3.1
(2.2 )
1.0
0.5
(3.9 )%

35.0 %
(14.1 )
—
(8.5 )
2.1
1.8
—
1.6
(0.8 )
—
—
(1.4 )
15.7 %

The domestic and foreign components of income (loss) before income taxes are as follows (in thousands):

2019

Year Ended December 31,
2018
(228,350 ) $
59,396
(168,954 ) $

61,921 $
74,067
135,988 $

2017
120,905
115,893
236,798

Foreign
Domestic
Total

F-28

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities of the

Company at December 31, 2019 and December 31, 2018 were as follows (in thousands):

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
Lease liabilities
Other assets

Total gross deferred tax assets

Less: valuation allowance
Deferred tax assets

Deferred tax liabilities:

Fixed asset basis difference
Prepaid items
Intangible assets
Lease right-of-use assets
Other liabilities

Total deferred tax liabilities

Total net deferred tax liability

December 31,

2019

2018

25,118 $
996
14,645
724
16,485
3,436
1,496
59,413
98,419
2,562
223,294
(28,648 )
194,646

(43,992 )
(2,163 )
(104,542 )
(99,677 )
(12,793 )
(263,167 )
(68,521 ) $

27,294
898
15,229
595
13,994
5,374
4,231
32,272
—
2,284
102,171
(24,079 )
78,092

(48,698 )
(1,728 )
(87,628 )
—
(16,942 )
(154,996 )
(76,904 )

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. At December 31, 2019 and 2018, the Company carried a valuation allowance against deferred tax assets of $28.6 million and
$24.1 million, respectively.

As of December 31, 2019 and 2018, the Company had no domestic net operating loss carryforwards. The foreign net operating

loss carryforwards at December 31, 2019 and 2018 are approximately $70.0 million and $81.0 million, respectively, and have no
expiration.

The Company has state net operating loss carryforwards at December 31, 2019 and 2018 of approximately $220.8 million and

$236.0 million, respectively. These net operating loss carryforwards, if not used to offset future taxable income, will expire from 2020
to 2038. In addition, the Company has certain state tax credits of $0.8 million which will begin to expire in 2029 if not utilized.

Income taxes receivable was $5.6 million and $2.4 million at December 31, 2019 and 2018, respectively, and was included in
other current assets in the consolidated balance sheets. Income taxes payable of $3.0 million at December 31, 2018 was included in
other accrued liabilities in the consolidated balance sheets.

The Company has recorded income taxes payable related to unrecognized tax benefits of $3.1 million and $0.9 million at
December 31, 2019 and 2018, 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
Reductions as a result of the lapse of applicable
statutes of limitations and settlements with tax authorities
Balance at December 31

2019

2018

713 $

6,104

3,001

(1,273 )
2,441 $

(5,443 )
713

F-29

The Company recognizes interest and penalties related to unrecognized tax benefits in its consolidated balance sheets. At
December 31, 2019 and 2018, the cumulative amounts recognized were $0.6 million and $0.1 million, respectively. Unrecognized tax
benefits of $1.0 million would affect the effective rate if recognized. 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 2016
through 2018. 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. The Company is subject to inquiry, for calendar years 2014 through 2018, by foreign taxing authorities
within the U. K. While no other foreign jurisdictions are presently under examination, the Company may be subject to examination for
calendar years 2015 through 2018. Generally, for state tax purposes, the Company’s 2013 through 2018 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 credit of up to 15% of eligible

payroll expenses is available to offset up to 50% of the income taxes attributed to that entity.

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 provided for significant changes to the U.S. tax code that has impacted businesses. Effective January 1, 2018,
the Tax Act reduced the U.S. federal tax rate for corporations from 35% to 21%, for U.S. taxable income. The Tax Act included other
changes, including, but not limited to, 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.

ASC 740 “Income Taxes” (“ASC 740”) requires the Company to recognize the effect of tax law changes in the period of

enactment. However, the SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”) which allowed the Company to record
provisional amounts during a measurement period similar to the measurement period used when accounting for business
combinations.

The Tax Act required a one-time remeasurement of deferred taxes to reflect their value at a lower tax rate of 21% and a one-

time transition tax on certain repatriated earnings of foreign subsidiaries that is payable over eight years. At December 31, 2018, the
Company has completed its accounting for the tax effects of the enactment of the Tax Act. At December 31, 2018, the Company has
recorded a reduction in net deferred taxes of $20.6 million related to the remeasurement of its deferred tax balance. In addition, the
Company has recorded a one-time transition tax liability in relation to its foreign subsidiaries of $0.0 million at December 31, 2018.
The Company continues to assess the impact of the Tax Act on its business.

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 was 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. The
Company recorded a reduction in net deferred taxes of $20.2 million as of December 31, 2017 and an additional reduction of $0.4
million as of December 31, 2018 for a total reduction in net deferred taxes of $20.6 million related to the remeasurement of its
deferred tax balance.

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. At December 31, 2018, the Company has completed the earnings and profits analysis for its foreign subsidiaries to
calculate the effects of the one-time transition tax and has recorded a one-time transition tax liability amount of $0.0 million. As part
of the analysis of the Tax Act, the Company made an adjustment regarding the treatment of foreign dividends of $10.9 million during
the twelve months ended December 31, 2018. The change in the provisional estimate recorded at December 31, 2017 was recognized
under the law that existed prior to December 22, 2017.

F-30

The Company has continued to analyze the impacts for Global Intangible Low-Taxed Income (“GILTI”), Foreign-Derived
Intangible Income, the Base Erosion and Anti-Abuse Tax and any remaining impacts of the foreign income provisions of the Tax Act.
At December 31, 2019, the Company has recorded a tax liability amount of $0.0 million relating to such items.

The Tax Act subjects a U.S. shareholder to tax on GILTI earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic

740, No. 5, “Accounting for Global Intangible Low-Taxed Income”, states that an entity can make an accounting policy election to
either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax
expense related to GILTI in the year the tax is incurred as a period expense only. The Company elects to account for GILTI in the year
the tax is incurred.

13. Derivatives

The Company entered into foreign currency forward contracts during the years ended December 31, 2019 and 2018 in

connection with 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.

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. In August 2019, the
Company terminated its existing net investment cross currency swap derivatives of $105.0 million. Cash received from the
termination of the cross currency swap derivatives is included in investing activities in the consolidated statements of cash flows. The
related gain from this termination is included in accumulated other comprehensive loss in accordance with ASC 815-30-40-1.

In August 2019, the Company also 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 £538.1 million. 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 £25.4 million of annual cash flows from the Company’s U.K. business being
converted to $35.8 million.

The Company has designated the cross currency swap agreements and certain forward contracts entered into during 2018 and
2019 as qualifying hedging instruments and is accounting for these as net investment hedges. The fair values of these derivatives at
December 31, 2019 and 2018 of $(68.9) million and $60.5 million, respectively, are recorded as derivative instrument liabilities and
derivative instrument assets, respectively, on the consolidated balance sheets. During the year ended 2019, the Company elected the
spot method for recording its net investment hedges. Gains and losses resulting from the settlement of the excluded components are
recorded in interest expense on the consolidated statements of operations. Gains and losses resulting from fair value adjustments to the
cross currency swap agreements are recorded in accumulated other comprehensive loss as the swaps are effective in hedging the
designated risk. Cash flows related to the cross currency swap derivatives are included in operating activities in the consolidated
statements of cash flows.

F-31

14. 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, other long-term debt and derivative instruments at December 31,
2019 and 2018 were as follows (in thousands):

Carrying Amount
December 31,

Fair Value
December 31,

2019

2018

2019

2018

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
Other long-term debt
Derivative instrument (liabilities) assets

$ 1,668,062 $ 1,715,338 $ 1,668,062 $ 1,715,338
$ 149,254 $ 148,657 $ 149,441 $ 147,542
$ 297,761 $ 296,946 $ 299,994 $ 283,583
$ 644,771 $ 643,289 $ 655,249 $ 609,516
$ 384,430 $ 383,304 $ 398,366 $ 369,888
5,953
$
60,524
$

4,821 $
(68,915 ) $

5,953 $
60,524 $

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 other long-term debt 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.

15. Commitments and Contingencies

The Company is, from time to time, subject to various claims, lawsuits, governmental investigations and regulatory actions,

including claims for damages for personal injuries, medical malpractice, overpayments, breach of contract, securities law violations,
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. Certain of the Company’s individual facilities have received, and from time to time,
other facilities may receive, subpoenas, civil investigative demands, audit requests and other inquiries from, and may be subject to
investigation by, federal and state agencies. These investigations can result in repayment obligations, and violations of the False
Claims Act can result in substantial monetary penalties and fines, the imposition of a corporate integrity agreement and exclusion from
participation in governmental health programs. In addition, the federal False Claims Act permits private parties 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.

On April 1, 2019, a consolidated complaint was filed against the Company and certain former and current officers in the lawsuit
styled St. Clair County Employees’ Retirement System v. Acadia Healthcare Company, Inc., et al., Case No. 3:19-cv-00988, which is
pending in the United States District Court for the Middle District of Tennessee. The complaint purports to be brought on behalf of a
class consisting of all persons (other than defendants) who purchased securities of the Company between April 30, 2014 and November
15, 2018, and alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”)
and Rule 10b-5 promulgated thereunder. At this time, we are not able to quantify any potential liability in connection with this litigation
because the case is in its early stages.

On February 21, 2019, a purported stockholder filed a related derivative action on behalf of the Company against certain former
and current officers and directors in the lawsuit styled Davydov v. Joey A. Jacobs, et al., Case No. 3:19-cv-00167, which is pending in
the United States District Court for the Middle District of Tennessee. The complaint alleges claims for violations of Section 10(b) and
14(a) of the Exchange Act, breach of fiduciary duty, waste of corporate assets, and unjust enrichment. On May 23, 2019, a purported
stockholder filed a second related derivative action on behalf of the Company against certain former and current officers and directors
in the lawsuit styled Beard v. Jacobs, et al., Case No. 3:19-cv-0441, which is pending the United States District Court for the Middle
District of Tennessee. The complaint alleges claims for violations of Sections 10(b), 14(a), and 21D of the Exchange Act, breach of
fiduciary duty, waste of corporate assets, unjust enrichment, and insider selling. On June 11, 2019, the Davydov and Beard actions were
consolidated and ordered stayed pending a ruling on the motion to dismiss that was filed in the St. Clair County v. Acadia Healthcare

F-32

case described above. At this time, we are not able to quantify any potential liability in connection with this litigation because the cases
are in their early stages.

During the second quarter of 2019, the Company reached a settlement with the U.S. Attorney’s Office for the Southern District

of West Virginia relating to the manner in which seven of our comprehensive treatment centers in West Virginia had historically billed
lab claims to the West Virginia Medicaid Program. The Company paid the government $17.0 million during the three months ended
June 30, 2019 and entered into a corporate integrity agreement with the Office of Inspector General imposing customary compliance
obligations on us and our subsidiary, CRC Health.

In the fall of 2017, the Office of Inspector General issued subpoenas to three of the Company’s facilities requesting certain
documents from January 2013 to the date of the subpoenas. The U.S. Attorney’s Office for the Middle District of Florida issued a civil
investigative demand to one of the Company’s facilities in December 2017 requesting certain documents from November 2012 to the
date of the demand. In April 2019, the Office of Inspector General issued subpoenas relating to six additional facilities requesting
certain documents and information from January 2013 to the date of the subpoenas. The government’s investigation of each of these
facilities is focused on claims not eligible for payment because of alleged violations of certain regulatory requirements relating to,
among other things, medical necessity, admission eligibility, discharge decisions, length of stay and patient care issues. The Company
is cooperating with the government’s investigation but is not able to quantify any potential liability in connection with these
investigations.

16. Noncontrolling Interests

Noncontrolling interests in the consolidated financial statements represents the portion of equity held by noncontrolling partners

in the Company’s non-wholly owned subsidiaries. At December 31, 2019, the Company operated five facilities and owns between
approximately 60% and 86% of the equity interests, 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, 2018

Acquisition of redeemable noncontrolling interests
Net income attributable to noncontrolling interests

Balance at December 31, 2018

Acquisition of redeemable noncontrolling interests
Net income attributable to noncontrolling interests
Distributions to noncontrolling interests

Balance at December 31, 2019

22,417
6,125
264
28,806
3,300
1,199
(154 )
33,151

17. 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 healthcare services. As management reviews the
operating results of its U.S. Facilities and its 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, 2019, the U.S. Facilities included 224 behavioral
healthcare facilities with approximately 9,500 beds in 40 states and Puerto Rico, and the U.K. Facilities included 361 behavioral
healthcare facilities with approximately 8,700 beds in the U.K.

F-33

The following tables set forth the financial information by operating segment, including a reconciliation of Segment EBITDA to

income before income taxes (in thousands):

Year Ended December 31,
2018

2017

2019

Revenue:

U.S. Facilities
U.K. Facilities
Corporate and Other

Segment EBITDA (1) :
U.S. Facilities
U.K. Facilities
Corporate and Other

Segment EBITDA(1)
Plus (less):

Equity-based compensation expense
Debt extinguishment costs
Legal settlements expense
Loss on impairment
Transaction-related expenses
Interest expense, net
Depreciation and amortization
Income (loss) before income taxes

Goodwill:

Balance at January 1, 2018

Goodwill
Accumulated impairment loss
Net goodwill at January 1, 2018

Loss on impairment
Increase from contribution of redeemable
noncontrolling interests
Foreign currency translation loss
Prior year purchase price adjustments

Balance at December 31, 2018

Goodwill
Accumulated impairment loss
Net goodwill at December 31, 2018

Increase from contribution of redeemable
noncontrolling interests
Increase from 2019 acquisitions
Foreign currency translation gain

Balance at December 31, 2019

Goodwill
Accumulated impairment loss
Net goodwill at December 31, 2019

$ 2,008,381 $ 1,904,695 $ 1,809,844
1,099,081 1,107,747 1,026,472
—
$ 3,107,462 $ 3,012,442 $ 2,836,316

—

503,358 $
166,693
(84,168 )
585,883 $

488,207 $
185,755
(80,386 )
593,576 $

475,260
198,566
(69,467 )
604,359

Year Ended December 31,
2018
593,576 $

2019
585,883 $

2017
604,359

(17,307 )
—
—
(54,386 )
(27,064 )
(187,094 )
(164,044 )
135,988 $

(22,001 )
(1,815 )
(22,076 )
(337,889 )
(34,507 )
(185,410 )
(158,832 )
(168,954 ) $

(23,467 )
(810 )
—
—
(24,267 )
(176,007 )
(143,010 )
236,798

U.S.
Facilities

U.K.
Facilities

Corporate
and Other

Consolidated

$ 2,042,592 $ 708,582 $
—
708,582
(325,875 )

—
2,042,592
—

2,245
—
—

—
(31,894 )
762

2,044,837
—
2,044,837

677,450
(325,875 )
351,575

3,300
36,967
—

—
—
12,452

— $ 2,751,174
—
—
— 2,751,174
(325,875 )
—

—
—
—

2,245
(31,894 )
762

— 2,722,287
(325,875 )
—
— 2,396,412

—
—
—

3,300
36,967
12,452

2,085,104
—

689,902
(325,875 )
$ 2,085,104 $ 364,027 $

— 2,775,006
(325,875 )
—
— $ 2,449,131

F-34

Assets (2) :

U.S. Facilities
U.K. Facilities
Corporate and Other

December 31,

2019

2018

$ 4,037,968 $ 3,779,040
2,610,357 2,175,809
217,655
$ 6,879,142 $ 6,172,504

230,817

(1) Segment EBITDA is defined as income before provision for income taxes, equity-based compensation expense, debt

extinguishment costs, legal settlements expense, loss on impairment, transaction-related expenses, interest expense and
depreciation and amortization. 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 GAAP, and the
items excluded from Segment EBITDA are significant components in understanding and assessing financial performance.
Because Segment EBITDA is not a measurement determined in accordance with GAAP 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 $1.4 billion, U.K. Facilities of $1.7 billion and corporate and

other of $50.9 million at December 31, 2019. Assets include property and equipment for the U.S. Facilities of $1.4 billion, U.K.
Facilities of $1.7 billion and corporate and other of $44.9 million at December 31, 2018.

18. 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 recorded expense of $4.1 million, $3.5 million, and
$0.2 million related to the 401(k) plan for the years ended December 31, 2019, 2018 and 2017, 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 using actuarial calculations that
incorporate discount rates, rate of compensation increases, when applicable, expected long-term returns on plan assets and consider
expected age of retirement and mortality. Expected return on plan assets is determined by using the specific asset distribution at the
measurement date.

The following table summarizes the funded status (unfunded liability) of the Partnerships in Care Pension Plan based upon

actuarial valuations prepared at December 31, 2019 and 2018 (in thousands):

Projected benefit obligation
Fair value of plan assets
Unfunded liability

2019

2018

66,468 $
62,207
4,261 $

57,993
54,491
3,502

F-35

The following table summarizes changes in the Partnerships in Care Pension Plan net pension liability at December 31, 2019

and 2018 (in thousands):

Net pension liability at beginning of period
Employer contributions
Net pension expense
Pension liability adjustment
Foreign currency translation (loss) gain
Net pension liability at end of period

2019

2018

3,502 $
(2,413 )
(933 )
4,012
93
4,261 $

8,795
(2,267 )
283
(2,803 )
(506 )
3,502

A pension liability of $4.3 million and $3.5 million were recorded within other liabilities on the consolidated balance sheets at

December 31, 2019 and 2018. The following assumptions were used to determine the plan benefit obligation:

Discount rate
Compensation increase rate
Measurement date

1.9 %
2.9 %
December 31, 2019 December 31, 2018

2.8 %
3.3 %

A summary of the components of net pension plan expense for the years ended December 31, 2019 and 2018 is as follows (in

thousands):

Interest cost on projected benefit obligation
Expected return on assets
Net pension expense

2019

2018

1,605 $
(2,538 )
(933 ) $

1,602
(1,319 )
283

Assumptions used to determine the net periodic pension plan expense for the years ended December 31, 2019 and 2018 were as

follows:

Discount rate
Expected long-term rate of return on plan assets

2019

2018

1.9 %
1.9 %

2.8 %
2.8 %

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, net of taxes, for the years ended December 31, 2019, 2018 and 2017 was $(5.2) million,
$(1.8) million and $(4.5) million, 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 at December 31, 2019 and 2018 were as
follows:

Cash and cash equivalents
U.K. government obligation
Annuity contracts
Equity securities
Debt securities
Other

December 31,
2019

December 31,
2018

1.4 %
16.2 %
35.1 %
28.8 %
12.5 %
6.0 %

1.3 %
15.0 %
38.6 %
25.4 %
15.8 %
3.9 %

At December 31, 2019 and 2018, 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-36

19. Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are as follows (in thousands):

Balance at January 1, 2017

Foreign currency translation gain (loss)
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 (loss) gain
Gain on derivative instruments, net of tax
of $12.7 million
Pension liability adjustment, net of tax
of $0.3 million

Balance at December 31, 2018

Foreign currency translation gain (loss)
Loss on derivative instruments, net of tax
of $(3.6) million
Pension liability adjustment, net of tax
of $(0.6) million

Balance at December 31, 2019

Foreign
Currency
Translation
Adjustments

Change in
Fair
Value of
Derivative
Instruments

Pension
Plan

(584,081 ) $
207,341

40,598 $
—

(6,087 ) $
(557 )

Total
(549,570 )
206,784

—

(33,431 )

—

(33,431 )

—
(376,740 )
(127,788 )

—
7,167
—

2,099
(4,545 )
267

2,099
(374,118 )
(127,521 )

—

36,799

—

36,799

—
(504,528 )
69,895

—
43,966
—

2,463
(1,815 )
(84 )

2,463
(462,377 )
69,811

—

(19,008 )

—

(19,008 )

—
(434,633 ) $

—
24,958 $

(3,310 )
(5,209 ) $

(3,310 )
(414,884 )

F-37

20. Quarterly Information (Unaudited)

The tables below present summarized unaudited quarterly results of operations for the years ended December 31, 2019 and

2018. 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, 2019 and 2018. 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.

March 31,

June 30,

September 30, December 31,

(In thousands except per share amounts)

Quarter Ended

2019:
Revenue
Income before income taxes
Net income attributable to Acadia
Healthcare Company, Inc. stockholders
Basic earnings per share attributable to Acadia
Healthcare Company, Inc. stockholders
Diluted earnings per share attributable to Acadia
Healthcare Company, Inc. stockholders
2018:
Revenue
Income (loss) before income taxes
Net income (loss) attributable to Acadia
Healthcare Company, Inc. stockholders
Basic earnings per share attributable to Acadia
Healthcare Company, Inc. stockholders
Diluted earnings per share attributable to Acadia
Healthcare Company, Inc. stockholders

$ 760,617 $ 789,362 $ 777,251 $ 780,232
(10,248 )
$

49,560 $

36,871 $

59,805 $

29,471 $

48,140 $

42,566 $

(11,254 ) (1)

0.34 $

0.55 $

0.49 $

(0.13 ) (1)

0.34 $

0.55 $

0.48 $

(0.13 ) (1)

$ 742,241 $ 765,738 $ 760,916 $ 743,547
55,036 $ (341,336 )
$

48,088 $

69,258 $

50,819 (2) $

58,836 $

46,232 $ (331,637 ) (3)

0.58 (2) $

0.67 $

0.53 $

(3.80 ) (3)

0.58 (2) $

0.67 $

0.53 $

(3.80 ) (3)

(1)
(2)

(3)

Includes a loss on impairment of $54.4 million.
Includes tax benefits of $10.5 million pursuant to a change in the Company’s provisional amounts recorded at December 31,
2017 related to the enactment of the Tax Act.
Includes loss on impairment of $337.9 million and legal settlements expense of $22.1 million.

F-38

21. 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
Notes, 5.625% Senior Notes and 6.500% Senior Notes are jointly and severally guaranteed on an unsecured senior basis by all of the
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 at December 31, 2019 and 2018, and for
the years ended December 31, 2019, 2018 and 2017. The information segregates the parent company (Acadia Healthcare Company,
Inc.), the combined wholly-owned subsidiary guarantors, the combined non-guarantor subsidiaries and eliminations.

Acadia Healthcare Company, Inc.
Condensed Consolidating Balance Sheets
December 31, 2019
(In thousands)

Combined
Subsidiary
Guarantors

Combined
Non-

Guarantors

Consolidating
Adjustments

Total
Consolidated
Amounts

Parent

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
Operating lease right-of-use assets
Investment in subsidiaries
Other assets
Total assets
Current liabilities:

Current portion of long-term debt
Accounts payable
Accrued salaries and benefits
Current portion of operating lease liabilities
Other accrued liabilities

Total current liabilities

Long-term debt
Deferred tax liabilities – noncurrent
Operating lease liabilities
Derivative instrument liabilities
Other liabilities
Total liabilities
Redeemable noncontrolling interests
Total equity
Total liabilities and equity

— $ 124,192
25,249 $
— $
98,943 $
— 339,775
72,911
— 266,864
—
78,244
—
16,736
61,508
— 542,211
— 427,315 114,896
— 3,224,034
— 1,313,830 1,910,204
— 2,449,131
— 1,992,344 456,787
90,357
—
32,066
—
3,339
(1,403 )
1,403
3,339
— 501,837
97,396 404,441
—
—
5,521,340
233,975
68,233
$ 5,756,718 $ 3,938,125 $ 2,934,860 $ (5,750,561 ) $ 6,879,142

— (5,521,340 )
(227,818 )

58,291
—

—
48,949

13,127

43,679 $
— $
— $
—
87,165
39,880
—
89,483
33,069
—
17,967
11,173
85,165
22,672
33,323
77,002 217,287 169,287
— 227,818
21,858
51,405
85,365 416,887
—
18,142
3,251,337 434,955 883,539
33,151

43,679
— $
— 127,045
— 122,552
—
29,140
— 141,160
— 463,576
(227,818 ) 3,105,420
71,860
— 502,252
—
68,915
— 128,587
(229,221 ) 4,340,610
33,151
2,505,381 3,503,170 2,018,170 (5,521,340 ) 2,505,381
$ 5,756,718 $ 3,938,125 $ 2,934,860 $ (5,750,561 ) $ 6,879,142

3,105,420
—
—
68,915

—
— 110,445

(1,403 )

—

F-39

Acadia Healthcare Company, Inc.
Condensed Consolidating Balance Sheets
December 31, 2018
(In thousands)

Combined
Subsidiary
Guarantors

Combined
Non-

Guarantors

Consolidating
Adjustments

Total
Consolidated
Amounts

Parent

— $
50,510
18,039 $
— $
32,471 $
— 318,087
69,869
— 248,218
—
81,820
—
21,660
60,160
— 450,417
— 340,849 109,568
— 3,107,766
— 1,219,803 1,887,963
— 2,396,412
— 1,936,057 460,355
88,990
—
32,379
—
3,468
(1,841 )
3,468
1,841
60,524
—
—
60,524
—
— (5,190,771 )
5,190,771
306,495
64,927
(303,940 )
$ 5,559,631 $ 3,606,144 $ 2,503,281 $ (5,496,552 ) $ 6,172,504

56,611
—
—
—
52,824

9,548

— $
— $
34,112 $
38,277
79,463
—
29,149
84,150
—
32,837
76,327
42,062
66,949 205,675 143,753
— 303,940
50,339
46,401
3,226,324 345,415 544,433
28,806

34,112
— $
— 117,740
— 113,299
— 151,226
— 416,377
(303,940 ) 3,159,375
80,372
— 154,267
(305,781 ) 3,810,391
28,806
2,333,307 3,260,729 1,930,042 (5,190,771 ) 2,333,307
$ 5,559,631 $ 3,606,144 $ 2,503,281 $ (5,496,552 ) $ 6,172,504

3,159,375
—
31,874
— 107,866

(1,841 )

—

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
Total assets
Current liabilities:

Current portion of long-term debt
Accounts payable
Accrued salaries and benefits
Other accrued liabilities

Total current liabilities

Long-term debt
Deferred tax liabilities – noncurrent
Other liabilities
Total liabilities
Redeemable noncontrolling interests
Total equity
Total liabilities and equity

F-40

Acadia Healthcare Company, Inc.
Condensed Consolidating Statement of Comprehensive Income (Loss)
Year Ended December 31, 2019
(In thousands)

Combined
Subsidiary
Guarantors

Combined
Non-

Guarantors

Consolidating
Adjustments

Total
Consolidated
Amounts

Parent

Revenue
Salaries, wages and benefits
Professional fees
Supplies
Rents and leases
Other operating expenses
Depreciation and amortization
Interest expense, net
Loss on impairment
Transaction-related expenses
Total expenses

Income (loss) before income taxes
Equity in earnings of subsidiaries
(Benefit from) provision for income taxes
Net income (loss)
Net income attributable to noncontrolling interests
Net income (loss) attributable to Acadia Healthcare
Company, Inc.
Other comprehensive income:

Foreign currency translation loss
Gain on derivative instruments
Pension liability adjustment, net
Other comprehensive income (loss)
Comprehensive income (loss) attributable to Acadia
Healthcare Company, Inc.

80,137
34,443

— $ 1,882,518 $ 1,224,944 $
17,307 1,018,267 681,606
— 107,115 133,868
42,924
—
—
47,786
— 243,478 131,955
82,939
—
81,105
18,418
76,138
92,538
27,169
—
27,217
5,908
—
21,156
93,445 1,705,456 1,172,573
(93,445 ) 177,062
52,371
—
52,903
110,122 124,159
—

— 3,107,462
— 1,717,180
— 240,983
— 123,061
—
82,229
— 375,433
— 164,044
— 187,094
54,386
—
—
27,064
— 2,971,474
— 135,988
—
2,314
25,866
50,057 (174,216 ) 110,122
(1,199 )
(1,199 )

— (174,216 )
—

174,216
(29,351 )

—

$ 110,122 $ 124,159 $

48,858 $ (174,216 ) $ 108,923

—
(19,008 )
—
(19,008 )

—
—
—
—

69,811
—
(3,310 )
66,501

—
—
—
—

69,811
(19,008 )
(3,310 )
47,493

91,114 $ 124,159 $ 115,359 $ (174,216 ) $ 156,416

F-41

Acadia Healthcare Company, Inc.
Condensed Consolidating Statement of Comprehensive Income (Loss)
Year Ended December 31, 2018
(In thousands)

Combined
Subsidiary
Guarantors

Combined
Non-

Guarantors

Consolidating
Adjustments

Total
Consolidated
Amounts

Parent

Revenue
Salaries, wages and benefits
Professional fees
Supplies
Rents and leases
Other operating expenses
Depreciation and amortization
Interest expense, net
Debt extinguishment costs
Legal settlements expense
Loss on impairment
Transaction-related expenses
Total expenses

(Loss) income before income taxes
Equity in earnings of subsidiaries
(Benefit from) provision for income taxes
Net (loss) income
Net income attributable to noncontrolling interests
Net (loss) income attributable to Acadia Healthcare
Company, Inc.
Other comprehensive income:

Foreign currency translation loss
Gain on derivative instruments
Pension liability adjustment, net
Other comprehensive income (loss)
Comprehensive (loss) income attributable to Acadia
Healthcare Company, Inc.

— $ 1,788,757 $ 1,223,685 $
22,001 965,419 671,928
98,441 128,984
—
42,788
76,526
—
—
47,181
33,101
— 225,446 129,052
84,491
—
26,839
65,588
875
940
—
—
— 337,889
—
4,787
—
29,720
88,529 1,618,053 1,474,814
(88,529 ) 170,704 (251,129 )
—
(98,669 )
(801 )
(11,712 )
(175,486 ) 151,659 (250,328 )
(264 )

74,341
92,983
—
22,076

—
19,045

—

— 3,012,442
— 1,659,348
— 227,425
— 119,314
—
80,282
— 354,498
— 158,832
— 185,410
1,815
—
—
22,076
— 337,889
—
34,507
— 3,181,396
— (168,954 )
—
6,532
98,669 (175,486 )
(264 )

98,669
—

—

$ (175,486 ) $ 151,659 $ (250,592 ) $

98,669 $ (175,750 )

—
36,799
—
36,799

— (127,521 )
—
—
2,463
—
— (125,058 )

— (127,521 )
36,799
—
2,463
—
(88,259 )
—

$ (138,687 ) $ 151,659 $ (375,650 ) $

98,669 $ (264,009 )

F-42

Acadia Healthcare Company, Inc.
Condensed Consolidating Statement of Comprehensive Income (Loss)
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 before income taxes
Equity in earnings of subsidiaries
(Benefit from) provision for income taxes
Net income (loss)
Net loss attributable to noncontrolling interests
Net income (loss) attributable to Acadia Healthcare
Company, Inc.
Other comprehensive income:

Foreign currency translation gain
Loss on derivative instruments
Pension liability adjustment, net
Other comprehensive (loss) income
Comprehensive income (loss) attributable to Acadia
Healthcare Company, Inc.

(35,636 )

— $ 1,746,656 $ 1,130,578 $
—
(5,282 )
— 1,711,020 1,125,296
23,467 902,180 610,513
93,991 102,232
—
39,191
75,248
—
43,410
33,365
—
— 217,900 113,927
76,528
—
66,482
32,861
61,872
81,274
—
810
—
13,031
—
11,236
86,149 1,481,676 1,031,693
(86,149 ) 229,344
93,603
—
69,882
199,589 159,462
—

— $ 2,877,234
—
(40,918 )
— 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
(6,217 )
99,820 (259,282 ) 199,589
246

— (259,282 )
—

259,282
(26,456 )

246

—

$ 199,589 $ 159,462 $ 100,066 $ (259,282 ) $ 199,835

—
(33,431 )
—
(33,431 )

— 206,784
—
—
2,099
—
— 208,883

— 206,784
—
(33,431 )
2,099
—
— 175,452

$ 166,158 $ 159,462 $ 308,949 $ (259,282 ) $ 375,287

F-43

Operating activities:
Net (loss) income
Adjustments to reconcile net (loss) income 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 taxes
Loss on impairment
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
Proceeds from sale of property and equipment
Other
Net cash used in investing activities
Financing activities:
Borrowings on revolving credit facility
Principal payments on revolving credit facility
Principal payments on long-term debt
Common stock withheld for minimum statutory taxes, net
Distributions to noncontrolling interests
Other
Cash provided by (used in) intercompany activity
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period

Acadia Healthcare Company, Inc.
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2019
(In thousands)

Combined
Subsidiary
Guarantors

Combined
Non-

Guarantors

Consolidating
Adjustments

Total
Consolidated
Amounts

Parent

110,122 $

124,159 $

50,057 $

(174,216 ) $

110,122

(174,216 )
—
11,987
17,307
441
—
1,814

—
81,105
—
—
86
27,217
2,100

—
82,939
—
—
1,253
27,169
121

174,216
—
—
—
—
—
—

—
164,044
11,987
17,307
1,780
54,386
4,035

(19,060 )
(1,344 )
(73 )
(21,354 )
7,820
3,254
332,904
—
332,904

—
—
(3,929 )
—
—
—
(3,929 )
—
(3,929 )

—
—
—
—
—
—
—

(45,677 )
(284,682 )
(7,618 )
105,008
18,076
13,752
(201,141 )

—
—
3,929
—
—
—
—
3,929
—
—
—
— $

76,573
(76,573 )
(52,984 )
(1,649 )
(154 )
(6,840 )
—
(61,627 )
3,546
73,682
50,510
124,192

—
—
3,929
—
—
—
(28,616 )
—
(28,616 )

(13,380 )
776
(2,501 )
(5,391 )
4,283
15,110
233,564
—
233,564

—
—
—
105,008
—
—
105,008

(45,677 )
(188,161 )
(7,618 )
—
11,765
13,752
(215,939 )

76,573
(76,573 )
(52,984 )
(1,649 )
—
(2,375 )
(19,384 )
(76,392 )
—
—
—
— $

—
—
—
—
—
(1,993 )
50,840
48,847
—
66,472
32,471
98,943 $

(5,680 )
(2,120 )
2,428
(15,963 )
3,537
(11,856 )
131,885
—
131,885

—
(96,521 )
—
—
6,311
—
(90,210 )

—
—
(3,929 )
—
(154 )
(2,472 )
(31,456 )
(38,011 )
3,546
7,210
18,039
25,249 $

F-44

Acadia Healthcare Company, Inc.
Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2018
(In thousands)

Operating activities:
Net (loss) income
Adjustments to reconcile net (loss) income 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 taxes
Debt extinguishment costs
Legal settlements expense
Loss on impairment
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 capital expenditures
Cash paid for real estate acquisitions
Proceeds from sale of property and equipment
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 provided by (used in) financing activities
Effect of exchange rate changes on cash
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period

Combined
Subsidiary
Guarantors

Combined
Non-

Guarantors

Consolidating
Adjustments

Total
Consolidated
Amounts

Parent

(175,486 ) $

151,659 $

(250,328 ) $

98,669 $

(175,486 )

98,669
—
10,825
22,001
529
940
—
—
6,981

—
74,341
—
—
(8,795 )
—
22,076
—
5,457

—
—
4,596
—
—
—
(30,945 )
—
(30,945 )

(17,328 )
14,881
118
15,743
15,094
3,014
276,260
(2,548 )
273,712

—
84,491
(369 )
—
(1,448 )
875
—
337,889
(67 )

507
(1,017 )
2,644
10,311
654
(8,233 )
175,909
—
175,909

—
—
—
—
—

(210,023 )
(14,096 )
5,168
(9,367 )
(228,318 )

(131,439 )
(4,287 )
3,080
—
(132,646 )

(39,738 )
—
(3,407 )
(1,742 )
75,832
30,945
—
—
—
— $

(169 )
—
—
2,094
(61,708 )
(59,783 )
—
(14,389 )
46,860
32,471 $

(4,427 )
(21,920 )
—
(2,617 )
(14,124 )
(43,088 )
(2,566 )
(2,391 )
20,430
18,039 $

(98,669 )
—
—
—
—
—
—
—
—

—
—
(4,596 )
—
—
—
(4,596 )
—
(4,596 )

—
158,832
10,456
22,001
(9,714 )
1,815
22,076
337,889
12,371

(16,821 )
13,864
2,762
26,054
15,748
(5,219 )
416,628
(2,548 )
414,080

—
—
—
—
—

(341,462 )
(18,383 )
8,248
(9,367 )
(360,964 )

4,596
—
—
—
—
4,596
—
—
—
— $

(39,738 )
(21,920 )
(3,407 )
(2,265 )
—
(67,330 )
(2,566 )
(16,780 )
67,290
50,510

F-45

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 taxes
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
Proceeds from sale of property and equipment
Other
Net cash used in investing activities
Financing activities:
Principal payments on 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 (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period

Parent

Combined
Subsidiary
Guarantors

Combined
Non-

Guarantors

Consolidating
Adjustments

Total
Consolidated
Amounts

199,589 $

159,462 $

99,820 $

(259,282 ) $

199,589

(259,282 )
—
10,270
23,467
1,236
810
4,189

—
66,482
—
—
28,882
—
2,498

—
76,528
(415 )
—
1,254
—
4,725

259,282
—
—
—
—
—
—

—
—

24,549

—
—
—
4,828
—
4,828

(21,791 )
(6,429 )
(3,277 )
4,909
(3,974 )
8,794
235,556
(1,693 )
233,863

(6,779 )
27,237
101
(15,022 )
(5,014 )
3,000
185,435
—
185,435

—
—
(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

—
—
—
—
—
—

—
(161,312 )
(37,047 )
2,415
(10,359 )
(206,303 )

(18,191 )
(112,865 )
(4,010 )
2,837
2,006
(130,223 )

—
—
—
—
—
—

(18,191 )
(274,177 )
(41,057 )
5,252
(8,353 )
(336,526 )

(57,050 )
(3,455 )
(539 )
56,216
(4,828 )
—
—
—
— $

(14,250 )
—
1,225
16,644
3,619
—
31,179
15,681
46,860 $

(10,554 )
—
—
(72,860 )
(83,414 )
7,250
(20,952 )
41,382
20,430 $

24,549
—
—
—
24,549
—
—
—
— $

(57,305 )
(3,455 )
686
—
(60,074 )
7,250
10,227
57,063
67,290

F-46

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/ DEBRA K. OSTEEN

Debra K. Osteen
Chief Executive Officer and Director

Dated: February 28, 2020

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/ DEBRA K. OSTEEN
Debra K. Osteen

Chief Executive Officer and Director
(Principal Executive Officer)

February 28, 2020

/s/ DAVID M. DUCKWORTH
David M. Duckworth

Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)

February 28, 2020

/s/ REEVE B. WAUD
Reeve B. Waud

/s/JASON R. BERNHARD
Jason R. Bernhard

/s/ E. PEROT BISSELL
E. Perot Bissell

/s/ VICKY B. GREGG
Vicky B. Gregg

/s/ WILLIAM F. GRIECO
William F. Grieco

/s/ WADE D. MIQUELON
Wade D. Miquelon

/s/ WILLIAM M. PETRIE
William M. Petrie

Chairman of the Board

February 28, 2020

Director

February 28, 2020

Executive Officers and Board of Directors

Reeve B. Waud
Chairman;
Founder and Managing Partner,
Waud Capital Partners

Debra K. Osteen
Chief Executive Officer and Director

David M. Duckworth
Chief Financial Officer

Christopher L. Howard
Executive Vice President, General Counsel
and Secretary

John S. Hollinsworth
Executive Vice President of Operations

Larry Harrod
Executive Vice President of Finance

Jason R. Bernhard
Director;
Managing Director, Lazard

E. Perot Bissell
Director;
Managing Partner, Egis Capital Partners, LLC

Vicky B. Gregg
Director;
Co-Founder and Partner, Guidon Partners

William F. Grieco
Director;
Vice President and Chief Compliance Officer
NX Development Corporation
Managing Director, Arcadia Strategies, LLC

Wade D. Miquelon
Director;
Chief Executive Officer and
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

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

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 7, 2020, at 9:00 a.m.
(CDT) 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 year
2019 filed with the Securities and Exchange
Commission is available on the Company’s

Independent Auditors
Ernst & Young LLP
Nashville, TN

Acadia Healthcare Company, Inc.
6100 Tower Circle, Suite 1000
Franklin, TN 37067
(615) 861-6000
www.acadiahealthcare.com