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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
  þ
    
    Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 2006or
 o
    
    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 0-20488
 Psychiatric Solutions, Inc.
  DELAWARE
(State or Other Jurisdiction of Incorporation or 
Organization)
    
    23-2491707
(I.R.S. Employer Identification No.)
 6640 Carothers Parkway, Suite 500
Franklin, TN 37067
 (615) 312-5700
   Title Of Each Class
    
    Name of Each Exchange On Which RegisteredCommon Stock, $.01 par value
    
    NASDAQ Global Select Market
 þ o
 o þ
  þ o
 þ
  þ o o
 o þ
  DOCUMENTS INCORPORATED BY REFERENCE




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##### 



INDEX
 PAGEPART IItem 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    11Item 1B. Unresolved Staff Comments
    
    
    16Item 2. Properties
    
    
    16Item 3. Legal Proceedings
    
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    
    18PART IIItem 5. Market For Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    18Item 6. Selected Financial Data
    
    
    19Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 8. Financial Statements and Supplementary Data
    
    
    29Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    29Item 9A. Controls and Procedures
    
    
    29Item 9B. Other Information
    
    
    29PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    29Item 11. Executive Compensation
    
    
    30Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    30Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    31Item 14. Principal Accountant Fees and Services
    
    
    31PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    31Index to Financial Statements
    
    
    F-1SignaturesEx-2.5 Agreement and Plan of MergerEx-10.22 Summary of Director CompensationEx-21.1 List of SubsidiariesEx-23.1 Consent of Ernst & Young LLPEx-31.1 Section 302 Certification of the CEOEx-31.2 Section 302 Certification of the CAOEx-32.1 Section 906 Certification of the CEO and CAO




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PART I
 Unless the context otherwise requires, all references in this Annual Report on Form 10-K to
Psychiatric Solutions, the Company, we, us or our mean Psychiatric Solutions, Inc. and
its consolidated subsidiaries and all shares and per share amounts have been adjusted to reflect a
2-for-1 stock split that was completed on January 9, 2006.
 
 Item 1. Business
 Overview
    www.psysolutions.com.
 Major Recent Developments
    Our Industry
  1




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Our Competitive Strengths
  
    
    Singular focus on inpatient behavioral health care We
focus exclusively on the provision of inpatient behavioral
health care services. We believe this allows us to operate
more efficiently and provide higher quality care than our
competitors. In addition, we believe our focus and
reputation have helped us to develop important
relationships and extensive referral networks within our
markets and to attract and retain qualified behavioral
health care professionals.
    
    Strong and sustainable market position Our inpatient
facilities have an established presence in each of our
markets, and many of our inpatient facilities have the leading market share
in their respective service areas. We believe that the relationships and
referral networks we have established will further enhance our
presence within our markets. In addition,
many of the states in which we operate require a
certificate of need to open a behavioral health care
facility, which may be difficult to obtain and may further
preclude new market participants.
    
    Demonstrated ability to identify and integrate acquisitions
 We attribute part of our success in integrating acquired
inpatient facilities to our rigorous due diligence review
of these facilities prior to completing the acquisitions as
well as our ability to retain key employees at the acquired
facilities. We employ a disciplined acquisition strategy
that is based on defined criteria including quality of
service, return on invested capital 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 expanding the breadth of
services offered by the facilities.
    
    Diversified payor mix and revenue base As we have grown
our business, we have focused on diversifying our sources
of revenue. For the year ended December 31, 2006, we
received 36% of our revenue from Medicaid, 13% from
Medicare, 34% from HMO/PPO, commercial and private payors, 13% from
various state agencies and 4% from other payors. As we
receive Medicaid payments from more than 40 states, we do
not believe that we are significantly affected by changes
in reimbursement policies in any one state. Substantially
all of our Medicaid payments relate to the care of children
and adolescents. We believe that children and adolescents
are a patient class that is less susceptible to reductions
in reimbursement rates. For the year ended December 31,
2006, no single inpatient facility represented more than 4%
of our revenue.
    
    Experienced management team Our senior management team
has extensive experience in the health care industry. Joey
A. Jacobs, our Chairman, President and Chief Executive
Officer, has over 30 years of experience in various
capacities in the health care industry. Our senior
management operates as a cohesive, complementary group and
has extensive operating knowledge of our industry and
understanding of the regulatory environment in which we
operate. Our senior managers employ conservative fiscal
policies and have a successful track record in both
operating our core business and integrating acquired
assets.
    
    Consistent free cash flow and minimal maintenance capital
requirements We generate consistent free cash flow by
profitably operating our business, actively managing our
working capital and having low maintenance capital
expenditure requirements. As the behavioral health care
business does not require the procurement and replacement
of expensive medical equipment, our maintenance capital
expenditure requirements are less than that of other
facility-based health care providers. Historically, our
maintenance capital expenditures have amounted to less than
2% of our revenue. In addition, our accounts receivable
management is less complex than medical/surgical hospital
providers because there are fewer billing codes for
inpatient behavioral health care facilities.
 2




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Our Growth Strategy
  
    
    Continue to Drive Same-Facility Growth We increased our
same-facility revenue by approximately 9.0% for the year
ended December 31, 2006, as compared to the year ended
December 31, 2005. Same-facility revenue also increased by
approximately 8%, 9%, and 9% for the years ended December
31, 2005, 2004, and 2003, respectively, as compared to the
immediately preceding years. Same-facility revenue refers to
the comparison of the inpatient facilities we owned during
a prior period with the comparable period in the subsequent
period. We intend to continue to increase our same-facility
growth by increasing our admissions and patient days and
obtaining annual reimbursement rate increases. We plan to
accomplish these goals by:
 
    
    building and expanding relationships that enhance our presence in local and regional markets;
    
    developing formal marketing initiatives and expanding referral networks;
    
    continuing to provide high quality service;
    
    expanding our services and developing new services to take advantage of increased demand in
select markets where we operate; and
    
    expanding bed capacity at our facilities to meet demand.
 
    
    Grow Through Strategic Acquisitions Our industry is
highly fragmented and we plan to selectively pursue the
acquisition of additional inpatient behavioral health care
facilities. There are approximately 500 freestanding acute
and residential treatment facilities in the United States
and the top two providers operate approximately 35% of
these facilities. We believe there are a number of
acquisition candidates available at attractive valuations,
and we have a number of potential acquisitions that are in
various stages of development and consideration. On
December 20, 2006, we entered into a definitive merger
agreement to acquire Horizon Health, which, among other
things, owns or leases 15 inpatient facilities. We believe
our focus on inpatient behavioral health care provides us
with a strategic advantage when assessing a potential
acquisition. We employ a disciplined acquisition strategy
that is based on defined criteria, including quality of
service, return on invested capital and strategic benefits.
    
    Enhance Operating Efficiencies Our management team has
extensive experience in the operation of multi-facility
health care services companies. We intend to focus on
improving our profitability by optimizing staffing ratios,
controlling contract labor costs and reducing supply costs
through group purchasing. We believe that our focus on
efficient operations increases our profitability and will
attract qualified behavioral health care professionals and
patients.
 Services
 Inpatient Behavioral Health Care Facilities
   3




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     bipolar disorder
    
         rehabilitation care     major depression
    
         day treatment     schizophrenia
    
         detoxification     attention deficit/hyperactivity disorder
    
         developmentally delayed disorders     impulse disorder
    
         therapeutic foster care     oppositional and conduct disorders
    
         neurological disorders     partial hospitalization
    
         rapid adoption services     intensive outpatient
    
         day treatment     acute eating disorders
    
         independent living skills     reactive attachment disorder
    
         vocational training     dual diagnosis
    
         chemical dependency
    Inpatient Management Contracts
   Seasonality of Services
  4




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Marketing
  Competition
   Reimbursement
     Medicare
    5




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www.cms.hhs.gov/providers/ipfpps
  Medicaid
   Managed Care and Commercial Insurance Carriers
   Annual Cost Reports
  Regulation and Other Factors
 Licensure, Certification and Accreditation
  6




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Fraud and Abuse Laws
      7




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Emergency Medical Treatment and Active Labor Act
   The Federal False Claims Act
   8




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HIPAA Transaction, Privacy and Security Requirements
        Certificates of Need (CON)
  9




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Corporate Practice of Medicine and Fee Splitting
  Health Care Industry Investigations
  Risk Management
  Conversion Legislation
  Regulatory Compliance Program
  Insurance
  10




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Employees
  Available Information
 www.psysolutions.com
 Segments
  
 Item 1A. Risk Factors
 If we fail to comply with extensive laws and government
regulations, we could suffer penalties, lose our licenses or be
excluded from health care programs.
  
    
    billing for services;
    
    relationships with physicians and other referral sources;
    
    adequacy of medical care;
    
    quality of medical equipment and services;
    
    qualifications of medical and support personnel;
    
    confidentiality, maintenance and security issues associated with health-related information and medical records;
    
    licensure;
    
    hospital rate or budget review;
    
    operating policies and procedures; and
    
    addition of facilities and services.
    11




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If federal or state health care programs or managed care
companies reduce reimbursement rates for services provided, revenues
may decline.
      Other companies within the health care industry continue to be
the subject of federal and state investigations, which increases the
risk that we may become subject to investigations in the future.
  
    
    cost reporting and billing practices;
    
    quality of care;
    
    financial relationships with referral sources;
    
    medical necessity of services provided; and
    
    treatment of indigent patients, including emergency medical screening and treatment requirements.
  12




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As a provider of health care services, we are subject to claims and legal actions by patients and others.
   We may be required to spend substantial amounts to comply with
legislative and regulatory initiative relating to privacy and
security of patient health information and standards for electronic
transactions.
    If competition decreases our ability to acquire additional
inpatient facilities on favorable terms, we may be unable to execute
our acquisition strategy.
  Our substantial indebtedness could adversely affect our financial condition.
  
    
    increasing our vulnerability to general adverse economic and industry conditions;
 13




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
    
    requiring that a portion of our cash flow from operations be used for the payment of interest on our debt,
thereby reducing our ability to use our cash flow to fund working capital, capital expenditures, acquisitions
and general corporate requirements;
    
    restricting our ability to sell assets, including capital stock of our restricted subsidiaries, merge or
consolidate with other entities and engage in transactions with our affiliates;
    
    limiting our ability to obtain additional financing to fund future working capital, capital expenditures,
acquisitions and general corporate requirements;
    
    limiting our flexibility in planning for, or reacting to, changes in our business and the health care industry;
    
    restricting our ability or the ability of our restricted subsidiaries to pay dividends or make other payments; and
    
    placing us at a competitive disadvantage to our competitors that have less indebtedness.
 3 4 3 4 5 8 5 8
 Additional financing may be necessary to fund our acquisition
strategy and capital expenditures, and such financing may not be
available when needed.
   Recently acquired businesses and businesses acquired in the future will expose us to increased operating risks.
     
    
    our ability to effectively manage the expanded activities;
 14




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
    
    our ability to realize our investment in the increased number of inpatient facilities;
    
    our exposure to unknown liabilities; and
    
    our ability to meet contractual obligations.
  If we fail to integrate or improve, where necessary, the
operations of acquired inpatient facilities, we may be unable to
achieve our growth strategy.
   We depend on our relationships with physicians and other health
care professionals who provide services at our inpatient facilities.
   
    
    terminate their relationship with, or reduce their use of, our inpatient facilities;
    
    fail to maintain acceptable quality of care or to otherwise adhere to professional standards;
    
    suffer damage to their reputation; or
    
    exit the market entirely.
 We depend on our key management personnel.
  Failure to maintain effective internal controls in accordance
with Section 404 of the Sarbanes-Oxley Act could have a material
adverse effect on our business and stock price.
  15




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Forward-Looking Statements
    
    
    our ability to complete the acquisition of Horizon Health and successfully integrate Horizon Health operations;
    
    potential competition that alters or impedes our acquisition strategy by decreasing our ability to acquire
additional inpatient facilities on favorable terms;
    
    our ability to successfully integrate and improve the operations of acquired inpatient facilities;
    
    our ability to maintain favorable and continuing relationships with physicians who use our inpatient facilities;
    
    our ability to receive timely additional financing on terms acceptable to us to fund our acquisition strategy
and capital expenditure needs, including financing for the acquisition of Horizon Health;
    
    risks inherent to the health care industry, including the impact of unforeseen changes in regulation,
reimbursement rates from federal and state health care programs or managed care companies and exposure to
claims and legal actions by patients and others;
    
    our ability to comply with extensive laws and government
regulations related to billing, physician relationships, adequacy of
medical care and licensure;
    
    our ability to retain key employees who are instrumental to our successful operations;
    
    our ability to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act;
    
    our ability to ensure confidential information is not inappropriately disclosed and that we are in compliance
with federal and state health information privacy standards;
    
    our ability to comply with federal and state governmental regulation covering health care-related products and
services on-line, including the regulation of medical devices and the practice of medicine and pharmacology;
    
    our ability to obtain adequate levels of general and professional liability insurance; and
    
    those risks and uncertainties described from time to time in our filings with the SEC.
   
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
  16




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DateFacility
    
    Location
    
    Beds
    
    Own/Lease
    
    AcquiredCypress Creek Hospital
    
    Houston, TX
    
    
    96
    
    
    Own
    
    9/01West Oaks Hospital
    
    Houston, TX
    
    
    160
    
    
    Own
    
    9/01Texas NeuroRehab Center
    
    Austin, TX
    
    
    151
    
    
    Own
    
    11/01Holly Hill Hospital
    
    Raleigh, NC
    
    
    108
    
    
    Own
    
    12/01Riveredge Hospital
    
    Chicago, IL
    
    
    210
    
    
    Own
    
    7/02Whisper Ridge Behavioral Health System
    
    Charlottesville, VA
    
    
    102
    
    
    Lease
    
    4/03Cedar Springs Behavioral Health System
    
    Colorado Springs, CO
    
    
    110
    
    
    Own
    
    4/03Laurel Ridge Treatment Center
    
    San Antonio, TX
    
    
    196
    
    
    Own
    
    4/03San Marcos Treatment Center
    
    San Marcos, TX
    
    
    265
    
    
    Own
    
    4/03The Oaks Treatment Center
    
    Austin, TX
    
    
    118
    
    
    Own
    
    4/03Shadow Mountain Behavioral Health System
    
    Tulsa, OK
    
    
    140
    
    
    Own
    
    4/03Laurel Oaks Behavioral Health Center
    
    Dothan, AL
    
    
    113
    
    
    Own
    
    6/03Hill Crest Behavioral Health
    
    Birmingham, AL
    
    
    177
    
    
    Own
    
    6/03Gulf Coast Youth Academy
    
    Fort Walton Beach, FL
    
    
    168
    
    
    Own
    
    6/03Manatee Palms Youth Services
    
    Bradenton, FL
    
    
    60
    
    
    Own
    
    6/03Havenwyck
Hospital
    
    Auburn Hills, MI
    
    
    182
    
    
    Lease
    
    6/03Heartland Behavioral Health
    
    Nevada, MO
    
    
    159
    
    
    Own
    
    6/03Brynn Marr Behavioral Health
    
    Jacksonville, NC
    
    
    88
    
    
    Own
    
    6/03Mission Vista Hospital
    
    San Antonio, TX
    
    
    83
    
    
    Lease
    
    6/03Benchmark Behavioral Health
    
    Woods Cross, UT
    
    
    145
    
    
    Own
    
    6/03Macon Behavioral Health System
    
    Macon, GA
    
    
    155
    
    
    Own
    
    6/03Manatee Adolescent Treatment Services
    
    Bradenton, FL
    
    
    85
    
    
    Own
    
    6/03Alliance Health Center
    
    Meridian, MS
    
    
    194
    
    
    Own
    
    11/03Calvary Center
    
    Phoenix, AZ
    
    
    50
    
    
    Lease
    
    12/03Brentwood Acute Behavioral Health Center
    
    Shreveport, LA
    
    
    200
    
    
    Own
    
    3/04Brentwood Behavioral Health of Mississippi
    
    Flowood, MS
    
    
    107
    
    
    Own
    
    3/04Palmetto Lowcountry Behavioral Health System
    
    North Charleston, SC
    
    
    102
    
    
    Own
    
    5/04Palmetto Pee Dee Behavioral Health System
    
    Florence, SC
    
    
    59
    
    
    Lease
    
    5/04Fort Lauderdale Hospital
    
    Fort Lauderdale, FL
    
    
    100
    
    
    Lease
    
    6/04Millwood Hospital
    
    Arlington, TX
    
    
    120
    
    
    Lease
    
    6/04Pride Institute
    
    Eden Prairie, MN
    
    
    36
    
    
    Own
    
    6/04Summit Oaks Hospital
    
    Summit, NJ
    
    
    126
    
    
    Own
    
    6/04North
Spring Behavioral Healthcare
    
    Leesburg, VA
    
    
    77
    
    
    Own
    
    6/04Peak Behavioral Health
    
    Santa Teresa, NM
    
    
    144
    
    
    Own
    
    6/04Alhambra Hospital
    
    Rosemead, CA
    
    
    99
    
    
    Own
    
    7/05Belmont Pines Hospital
    
    Youngstown, OH
    
    
    81
    
    
    Own
    
    7/05Brooke Glen Behavioral Hospital
    
    Fort Washington, PA
    
    
    146
    
    
    Own
    
    7/05Columbus Behavioral Center
    
    Greenwood, IN
    
    
    53
    
    
    Own
    
    7/05Cumberland Hospital
    
    New Kent, VA
    
    
    142
    
    
    Own
    
    7/05Fairfax Hospital
    
    Kirkland, WA
    
    
    133
    
    
    Own
    
    7/05Fox Run Hospital
    
    St. Clairsville, OH
    
    
    93
    
    
    Own
    
    7/05Fremont Hospital
    
    Fremont, CA
    
    
    80
    
    
    Own
    
    7/05Heritage Oaks Hospital
    
    Sacramento, CA
    
    
    76
    
    
    Own
    
    7/05Intermountain Hospital
    
    Boise, ID
    
    
    77
    
    
    Own
    
    7/05Meadows Hospital
    
    Bloomington, IN
    
    
    78
    
    
    Own
    
    7/05Mesilla Valley Hospital
    
    Las Cruces, NM
    
    
    125
    
    
    Own
    
    7/05Montevista Hospital
    
    Las Vegas, NV
    
    
    101
    
    
    Own
    
    7/05Pinnacle Pointe
    
    Little Rock, AR
    
    
    102
    
    
    Own
    
    7/05Sierra Vista
    
    Sacramento, CA
    
    
    72
    
    
    Own
    
    7/05Streamwood Hospital
    
    Streamwood, IL
    
    
    261
    
    
    Own
    
    7/05Valle Vista Health System
    
    Greenwood, IN
    
    
    100
    
    
    Own
    
    7/05West Hills Hospital
    
    Reno, NV
    
    
    95
    
    
    Own
    
    7/05Willow Springs RTC
    
    Reno, NV
    
    
    76
    
    
    Own
    
    7/05Windsor Hospital
    
    Chagrin Falls, OH
    
    
    40
    
    
    Own
    
    7/05Canyon Ridge Hospital
    
    Chino, CA
    
    
    59
    
    
    Own
    
    8/05Atlantic Shores Hospital
    
    Fort Lauderdale, FL
    
    
    72
    
    
    Own
    
    1/06Desert Springs Medical Center
    
    Midland, TX
    
    
    64
    
    
    Own
    
    1/06Wellstone Regional Hospital
    
    Jeffersonville, IN
    
    
    100
    
    
    Own
    
    1/06
 17




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DateFacility
    
    Location
    
    Beds
    
    Own/Lease
    
    AcquiredDiamond Grove
    
    Louisville, MS
    
    
    50
    
    
    Own
    
    5/06Hickory Trail Hospital
    
    DeSoto, TX
    
    
    76
    
    
    Own
    
    7/06National Deaf Academy
    
    Mount Dora, FL
    
    
    84
    
    
    Own
    
    7/06Windmoor Healthcare
    
    Clearwater, FL
    
    
    100
    
    
    Own
    
    9/06University Behavioral Center
    
    Orlando, FL
    
    
    104
    
    
    Own
    
    9/06Sandy Pines
    
    Tequesta, FL
    
    
    80
    
    
    Own
    
    9/06Cumberland Hall Chattanooga
    
    Chattanooga, TN
    
    
    64
    
    
    Own
    
    12/06Cumberland Hall Hopkinsville
    
    Hopkinsville, KY
    
    
    60
    
    
    Own
    
    12/06Nashville Rehabilitation Hospital
    
    Nashville, TN
    
    
    111
    
    
    Own
    
    12/06Panamericano
    
    Cidra, Puerto Rico
    
    
    195
    
    
    Own
    
    12/06PRATS
    
    Cidra, Puerto Rico
    
    
    48
    
    
    Own
    
    12/06The Pines Residential Treatment Center
    
    Portsmouth, VA
    
    
    402
    
    
    Own
    
    12/06The Pines  Charleston
    
    Summerville, SC
    
    
    60
    
    
    Lease
    
    12/06The Pines  Midlands
    
    West Columbia, SC
    
    
    59
    
    
    Own
    
    12/06Virgin Islands Behavioral Services
    
    St. Croix, U.S. Virgin Islands
    
    
    30
    
    
    Own
    
    12/06Virginia Beach Psychiatric Center
    
    Virginia Beach, VA
    
    
    100
    
    
    Own
    
    12/06Three Rivers Behavioral Health
    
    West Columbia, SC
    
    
    86
    
    
    Own
    
    01/07
  
 Item 3. Legal Proceedings.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 PART II
 
 Item 5. Market For Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
  High
    
    Low2005First Quarter
    
    $
    23.05
    
    
    $
    17.25Second Quarter
    
    $
    24.54
    
    
    $
    18.01Third Quarter
    
    $
    27.70
    
    
    $
    22.46Fourth Quarter
    
    $
    29.95
    
    
    $
    25.502006First Quarter
    
    $
    34.78
    
    
    $
    29.08Second Quarter
    
    $
    34.48
    
    
    $
    26.14Third Quarter
    
    $
    36.35
    
    
    $
    25.59Fourth Quarter
    
    $
    38.84
    
    
    $
    30.19
  3 4 5 8
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Item 6. Selected Financial Data.
  Psychiatric Solutions, Inc.
Selected Financial Data
As of and for the Years Ended December 31,
 2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(In thousands, except per share amounts)Income Statement Data:Revenue
    
    $
    1,026,490
    
    
    $
    715,324
    
    
    $
    470,969
    
    
    $
    277,575
    
    
    $
    113,912Costs and expenses:Salaries, wages and employee benefits
    
    
    580,223
    
    
    
    392,309
    
    
    
    254,897
    
    
    
    142,292
    
    
    
    62,326Other operating expenses
    
    
    266,367
    
    
    
    202,229
    
    
    
    143,560
    
    
    
    95,025
    
    
    
    35,716Provision for doubtful accounts
    
    
    19,586
    
    
    
    13,498
    
    
    
    10,794
    
    
    
    6,312
    
    
    
    3,681Depreciation and amortization
    
    
    20,619
    
    
    
    14,738
    
    
    
    9,808
    
    
    
    5,707
    
    
    
    1,770Interest expense
    
    
    40,307
    
    
    
    27,056
    
    
    
    18,964
    
    
    
    14,778
    
    
    
    5,564Other expenses
    
    
    
    
    
    
    21,871
    
    
    
    6,407
    
    
    
    5,271
    
    
    
    178Total costs and expenses
    
    
    927,102
    
    
    
    671,701
    
    
    
    444,430
    
    
    
    269,385
    
    
    
    109,235Income from continuing operations before
income taxes
    
    
    99,388
    
    
    
    43,623
    
    
    
    26,539
    
    
    
    8,190
    
    
    
    4,677Provision for (benefit from) income taxes
    
    
    37,507
    
    
    
    16,805
    
    
    
    10,085
    
    
    
    3,477
    
    
    
    (1,007
    )Income from continuing operations
    
    $
    61,881
    
    
    $
    26,818
    
    
    $
    16,454
    
    
    $
    4,713
    
    
    $
    5,684Net income
    
    $
    60,632
    
    
    $
    27,154
    
    
    $
    16,801
    
    
    $
    5,216
    
    
    $
    5,684Basic earnings per share from continuing operations
    
    $
    1.17
    
    
    $
    0.60
    
    
    $
    0.54
    
    
    $
    0.23
    
    
    $
    0.47Basic earnings per share
    
    $
    1.15
    
    
    $
    0.61
    
    
    $
    0.55
    
    
    $
    0.26
    
    
    $
    0.47Shares used in computing basic earnings per
share
    
    
    52,953
    
    
    
    44,792
    
    
    
    29,140
    
    
    
    16,740
    
    
    
    12,222Diluted earnings per share from continuing
operations
    
    $
    1.14
    
    
    $
    0.58
    
    
    $
    0.47
    
    
    $
    0.20
    
    
    $
    0.43Diluted earnings per share
    
    $
    1.12
    
    
    $
    0.59
    
    
    $
    0.48
    
    
    $
    0.22
    
    
    $
    0.43Shares used in computing diluted earnings per
share from continuing operations
    
    
    54,169
    
    
    
    46,296
    
    
    
    35,146
    
    
    
    23,498
    
    
    
    13,972
 19




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##### Table of Contents



Psychiatric Solutions, Inc.
Selected Financial Data (continued)
As of and for the Years Ended December 31,
 2006
    
    2005
    
    2004
    
    2003
    
    2002(In thousands, except operating data)Balance Sheet Data:Cash
    
    $
    18,541
    
    
    $
    54,700
    
    
    $
    33,451
    
    
    $
    44,948
    
    
    $
    2,392Working capital
    
    
    103,287
    
    
    
    138,844
    
    
    
    39,843
    
    
    
    66,446
    
    
    
    2,369Property and equipment, net
    
    
    543,806
    
    
    
    378,162
    
    
    
    217,927
    
    
    
    149,275
    
    
    
    33,547Total assets
    
    
    1,581,196
    
    
    
    1,175,031
    
    
    
    496,684
    
    
    
    346,202
    
    
    
    90,138Total debt
    
    
    743,307
    
    
    
    482,389
    
    
    
    174,336
    
    
    
    175,003
    
    
    
    43,822Series A convertible
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,316
    
    
    
    Stockholders equity
    
    
    627,779
    
    
    
    539,712
    
    
    
    244,515
    
    
    
    91,328
    
    
    
    30,549Operating Data:Number of facilities
    
    
    74
    
    
    
    55
    
    
    
    34
    
    
    
    24
    
    
    
    5Number of licensed beds
    
    
    8,394
    
    
    
    6,389
    
    
    
    4,295
    
    
    
    3,128
    
    
    
    699Admissions
    
    
    107,199
    
    
    
    77,097
    
    
    
    49,484
    
    
    
    26,278
    
    
    
    14,737Patient days
    
    
    1,871,244
    
    
    
    1,392,877
    
    
    
    996,840
    
    
    
    525,055
    
    
    
    145,575Average length of stay
    
    
    17
    
    
    
    18
    
    
    
    20
    
    
    
    20
    
    
    
    10
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Overview
    20




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##### Table of Contents



Sources of Revenue
 Patient Service Revenue
  Management Contract and Other Revenue
  Results of Operations
  Results of Operations, Consolidated Psychiatric SolutionsFor the Year Ended December 31,2006
    
    
    2005
    
    
    2004Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Revenue
    
    $
    1,026,490
    
    
    
    100.0
    %
    
    $
    715,324
    
    
    
    100.0
    %
    
    $
    470,969
    
    
    
    100.0
    %Salaries,
wages, and employee benefits (including share-based compensation of $12,535 in 2006)
    
    
    580,223
    
    
    
    56.5
    %
    
    
    392,309
    
    
    
    54.8
    %
    
    
    254,897
    
    
    
    54.1
    %Professional fees
    
    
    97,613
    
    
    
    9.5
    %
    
    
    73,177
    
    
    
    10.2
    %
    
    
    52,200
    
    
    
    11.1
    %Supplies
    
    
    59,310
    
    
    
    5.8
    %
    
    
    42,993
    
    
    
    6.0
    %
    
    
    29,717
    
    
    
    6.3
    %Provision for doubtful accounts
    
    
    19,586
    
    
    
    1.9
    %
    
    
    13,498
    
    
    
    1.9
    %
    
    
    10,794
    
    
    
    2.3
    %Other operating expenses
    
    
    109,444
    
    
    
    10.7
    %
    
    
    86,059
    
    
    
    12.0
    %
    
    
    61,643
    
    
    
    13.1
    %Depreciation and amortization
    
    
    20,619
    
    
    
    2.0
    %
    
    
    14,738
    
    
    
    2.1
    %
    
    
    9,808
    
    
    
    2.1
    %Interest expense, net
    
    
    40,307
    
    
    
    3.9
    %
    
    
    27,056
    
    
    
    3.8
    %
    
    
    18,964
    
    
    
    4.0
    %Other expenses:Loss on refinancing long-term debt
    
    
    
    
    
    
    
    
    
    
    21,871
    
    
    
    3.1
    %
    
    
    6,407
    
    
    
    1.4
    %Income from continuing operations before
income taxes
    
    
    99,388
    
    
    
    9.7
    %
    
    
    43,623
    
    
    
    6.1
    %
    
    
    26,539
    
    
    
    5.6
    %Provision for income taxes
    
    
    37,507
    
    
    
    3.7
    %
    
    
    16,805
    
    
    
    2.4
    %
    
    
    10,085
    
    
    
    2.1
    %Income from continuing operations
    
    $
    61,881
    
    
    
    6.0
    %
    
    $
    26,818
    
    
    
    3.7
    %
    
    $
    16,454
    
    
    
    3.5
    %
 Year Ended December 31, 2006 Compared To Year Ended December 31, 2005
  21




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##### Table of Contents



Year Ended December 31,
    
    %2006
    
    2005
    
    ChangeTotal facility results:Revenue
    
    $
    973,535
    
    
    $
    663,236
    
    
    
    46.8
    %Number of facilities at period end
    
    
    74
    
    
    
    55
    
    
    
    34.5
    %Admissions
    
    
    107,199
    
    
    
    77,097
    
    
    
    39.0
    %Patient days
    
    
    1,871,244
    
    
    
    1,392,877
    
    
    
    34.3
    %Average length of stay
    
    
    17.5
    
    
    
    18.1
    
    
    
    -3.3
    %Revenue per patient day
    
    $
    520
    
    
    $
    476
    
    
    
    9.2
    %Same-facility results:Revenue
    
    $
    722,750
    
    
    $
    663,236
    
    
    
    9.0
    %Number of facilities at period end
    
    
    55
    
    
    
    55
    
    
    
    0.0
    %Admissions
    
    
    78,961
    
    
    
    77,097
    
    
    
    2.4
    %Patient days
    
    
    1,442,570
    
    
    
    1,392,877
    
    
    
    3.6
    %Average length of stay
    
    
    18.3
    
    
    
    18.1
    
    
    
    1.1
    %Revenue per patient day
    
    $
    501
    
    
    $
    476
    
    
    
    5.3
    %
 Revenue
 Salaries, wages, and employee benefits Share Based Payment Accounting for Stock Issued to Employees
 Professional fees
 Supplies.
 Provision for doubtful accounts
 22




---



##### Table of Contents



Other operating expenses
 Depreciation and amortization
 Interest expense, net 3 4 5 8
 Other expenses. 5 8
 Loss from discontinued operations, net of taxes
 Year Ended December 31, 2005 Compared To Year Ended December 31, 2004
  Year Ended December 31,
    
    %2005
    
    2004
    
    ChangeTotal facility results:Revenue
    
    $
    663,236
    
    
    $
    419,701
    
    
    
    58.0
    %Number of facilities at period end
    
    
    55
    
    
    
    34
    
    
    
    61.8
    %Admissions
    
    
    77,097
    
    
    
    49,484
    
    
    
    55.8
    %Patient days
    
    
    1,392,877
    
    
    
    996,840
    
    
    
    39.7
    %Average length of stay
    
    
    18.1
    
    
    
    20.1
    
    
    
    -10.0
    %Revenue per patient day
    
    $
    476
    
    
    $
    421
    
    
    
    13.1
    %Same-facility results:Revenue
    
    $
    452,161
    
    
    $
    419,701
    
    
    
    7.7
    %Number of facilities at period end
    
    
    34
    
    
    
    34
    
    
    
    0.0
    %Admissions
    
    
    50,438
    
    
    
    49,484
    
    
    
    1.9
    %Patient days
    
    
    1,035,302
    
    
    
    996,840
    
    
    
    3.9
    %Average length of stay
    
    
    20.5
    
    
    
    20.1
    
    
    
    2.0
    %Revenue per patient day
    
    $
    437
    
    
    $
    421
    
    
    
    3.8
    %
 Revenue
 23




---



##### Table of Contents



Salaries, wages, and employee benefits
 Professional fees
 Supplies.
 Provision for doubtful accounts
 Other operating expenses
 Depreciation and amortization
 Interest expense, net 5 8 3 4 5 8
 Other expenses.
 Income from discontinued operations, net of taxes
 24




---



##### Table of Contents



Liquidity and Capital Resources
          25




---



##### Table of Contents



Obligations and Commitments
 Payments Due by Period (in thousands)Less than
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsLong-term debt (1):Senior Credit Facility:Revolving line of credit facility, expiring on December 21, 2009
and bearing interest of 6.7% at December 31, 2006
    
    $
    101,000
    
    
    $
    
    
    
    $
    101,000
    
    
    $
    
    
    
    $
    Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 7.1% at December 31, 2006
    
    
    350,000
    
    
    
    1,500
    
    
    
    3,000
    
    
    
    3,000
    
    
    
    342,5007 3/4% Senior Subordinated Notes due July 15, 2015
    
    
    220,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    220,00010 5/8% Senior Subordinated Notes due June 15, 2013
    
    
    38,681
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,681Mortgage loans on facilities, maturing in 2036, 2037, and 2038
bearing fixed interest rates of 5.7% to 7.6%
    
    
    27,062
    
    
    
    302
    
    
    
    660
    
    
    
    745
    
    
    
    25,355736,743
    
    
    
    1,802
    
    
    
    104,660
    
    
    
    3,745
    
    
    
    626,536Lease and other obligations
    
    
    57,822
    
    
    
    10,989
    
    
    
    17,617
    
    
    
    8,770
    
    
    
    20,446Total contractual obligations
    
    $
    794,565
    
    
    $
    12,791
    
    
    $
    122,277
    
    
    $
    12,515
    
    
    $
    646,982
 
 (1)
    
    Excludes capital lease obligations, which are included in lease and other obligations. 3 4 5 8 3 4 5 8
 Impact of Inflation and Economic Trends
   Critical Accounting Policies
  26




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##### Table of Contents



Allowance for Doubtful Accounts
    Allowances for Contractual Discounts
    For the Year Ended December 31,2006
    
    2005Net
    
    Accounts
    
    Net
    
    AccountsRevenue
    
    Receivable
    
    Revenue
    
    Receivable%
    
    %
    
    %
    
    %Payor mix:Medicaid
    
    
    36
    %
    
    
    32
    %
    
    
    35
    %
    
    
    36
    %Commercial/HMO/Private
Pay
    
    
    34
    %
    
    
    35
    %
    
    
    33
    %
    
    
    38
    %Medicare
    
    
    13
    %
    
    
    12
    %
    
    
    13
    %
    
    
    10
    %State agency
    
    
    13
    %
    
    
    18
    %
    
    
    13
    %
    
    
    13
    %Other
    
    
    4
    %
    
    
    3
    %
    
    
    6
    %
    
    
    3
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  27




---



##### Table of Contents



At December 31,2006
    
    2005%
    
    %0 - 30 days
    
    
    61
    %
    
    
    61
    %31 - 60 days
    
    
    16
    %
    
    
    17
    %61 - 90 days
    
    
    9
    %
    
    
    9
    %91 - 120 days
    
    
    5
    %
    
    
    6
    %121 - 150 days
    
    
    4
    %
    
    
    4
    %151 - 180 days
    
    
    3
    %
    
    
    2
    %> 180 days
    
    
    2
    %
    
    
    1
    %Total
    
    
    100
    %
    
    
    100
    %
  Professional and General Liability
  Income Taxes
  Accounting for Uncertainty in Income Taxes Accounting for Income Taxes
 Stock-Based
Compensation
 Accounting for Stock-Based
Compensation Accounting for Stock
Issued to Employees
 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
 5 8
 28




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##### Table of Contents



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.
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
    Changes in Internal Control Over Financial Reporting
  
 Item 9B. Other Information.
  
 PART III
 
 Item 10. Directors and Executive Officers and Corporate Governance.
 Directors
  Executive Officers of the Registrant
  Name
    
    Age
    
    Officer Since
    
    PositionsJoey A. Jacobs
    
    
    53
    
    
    April 1997
    
    President and Chief Executive OfficerWilliam B. Rutherford
    
    
    43
    
    
    March 2006
    
    Chief Operating OfficerJack E. Polson
    
    
    40
    
    
    August 2002
    
    Executive Vice President, Chief Accounting OfficerBrent Turner
    
    
    41
    
    
    February 2003
    
    Executive Vice President, Finance and AdministrationChristopher L. Howard
    
    
    40
    
    
    September 2005
    
    Executive Vice President, General Counsel and SecretarySteven T. Davidson
    
    
    49
    
    
    August 1997
    
    Chief Development Officer
 29




---



##### Table of Contents



Joey A. Jacobs, President and Chief Executive Officer
 William B. Rutherford, Chief Operating Officer
 Jack E. Polson,Executive Vice President, Chief Accounting Officer
 Brent Turner, Executive Vice President, Finance and Administration
 Chris Howard, Executive Vice President, General Counsel and Secretary
 Steven T. Davidson, Chief Development Officer
 Code of Ethics
 www.psysolutions.com
 Section 16(a) Compliance
  
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
  30




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##### Table of Contents



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.
  Consolidated Financial Statements
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Managements Report on Internal Control Over Financial Reporting
    
    
    F-3Report of Independent Registered Public Accounting Firm
    
    
    F-4Consolidated Balance Sheets
    
    
    F-5Consolidated Statements of Income
    
    
    F-6Consolidated Statements of Stockholders Equity
    
    
    F-7Consolidated Statements of Cash Flows
    
    
    F-8Notes to Consolidated Financial Statements
    
    
    F-10
 Financial Statement Schedules.
  Exhibits.
 Exhibits.
 ExhibitNumber
    
    Description2.1
    
    Agreement and Plan of Merger by and
among PMR Corporation, PMR Acquisition
Corporation and Psychiatric Solutions,
Inc., dated May 6, 2002, as amended by
Amendment No. 1, dated as of June 10,
2002, and Amendment No. 2, dated as of
July 9, 2002 (included as Annex A to
Amendment No. 1 to the Companys
Registration Statement on Form S-4,
filed on July 11, 2002 (Reg. No.
333-90372) (the 2002 S-4 Amendment)).2.2
    
    Agreement and Plan of Merger, dated
April 8, 2003, by and among Psychiatric
Solutions, Inc., PSI Acquisition Sub,
Inc. and Ramsay Youth Services, Inc.
(incorporated by reference to Exhibit
2.1 of the Companys Current Report on
Form 8-K, filed on April 10, 2003).2.3
    
    Amended and Restated Stock Purchase
Agreement, dated June 30, 2005, by and
among Ardent Health Services LLC,
Ardent Health Services, Inc. and
Psychiatric Solutions, Inc.
(incorporated by reference to Exhibit
2.1 to the Companys Current Report on
Form 8-K, filed July 8, 2005).2.4
    
    Amended and Restated Stock Purchase
Agreement, dated as of October 27,
2006, by and between FHC Health
Systems, Inc. and Psychiatric
Solutions, Inc. (incorporated by
reference to Exhibit 2 of the Companys
Current Report on Form 8-K, filed on
December 7, 2006).2.5*
    
    Agreement and Plan of Merger, dated
December 20, 2006, by and among
Psychiatric Solutions, Inc., Panther
Acquisition Sub, Inc. and Horizon
Health Corporation.
 31




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##### Table of Contents



ExhibitNumber
    
    Description3.1
    
    Amended and Restated Certificate of
Incorporation of PMR Corporation, filed
with the Delaware Secretary of State on
March 9, 1998 (incorporated by
reference to Exhibit 3.1 to the
Companys Annual Report on Form 10-K
for the fiscal year ended April 30,
1998).3.2
    
    Certificate of Amendment to Amended and
Restated Certificate of Incorporation
of PMR Corporation, filed with the
Delaware Secretary of State on August
5, 2002 (incorporated by reference to
Exhibit 3.2 to the Companys Quarterly
Report on Form 10-Q for the quarter
ended July 31, 2002).3.3
    
    Certificate of Amendment to Amended and
Restated Certificate of Incorporation
of Psychiatric Solutions, Inc., filed
with the Delaware Secretary of State on
March 21, 2003 (incorporated by
reference to Appendix A of the
Companys Definitive Proxy Statement,
filed on January 22, 2003).3.4
    
    Certificate of Amendment to Amended and
Restated Certificate of Incorporation
of Psychiatric Solutions, Inc., filed
with the Delaware Secretary of State on
December 15, 2005.3.5
    
    Amended and Restated Bylaws
(incorporated by reference to Exhibit
3.2 to the Companys Annual Report on
Form 10-K for the fiscal year ended
April 30, 1997 (the 1997 10-K)).4.1
    
    Reference is made to Exhibits 3.1 through 3.5.4.2
    
    Common Stock Specimen Certificate (incorporated by reference to Exhibit 4.2
to the Companys Annual Report on Form 10-K for the fiscal year ended
December 31, 2002 (the 2002 10-K)).4.3
    
    Indenture, dated as of June 30, 2003, among Psychiatric Solutions, Inc.,
the Guarantors named therein and Wachovia Bank, National Association, as
Trustee (incorporated by reference to Exhibit 4.10 to the Companys
Registration Statement on Form S-4, filed on July 30, 2003 (Registration
No. 333-107453) (the 2003 S-4)).4.4
    
    Form of Notes (included in Exhibit 4.3).4.5
    
    Indenture, dated as of July 6, 2005, by and among Psychiatric Solutions,
Inc., the Guarantors named therein and Wachovia Bank, National Association,
as Trustee (incorporated by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K, filed July 8, 2005).4.6
    
    Form of Notes (included in Exhibit 4.5).4.7
    
    Exchange and Registration Rights Agreement, dated as of July 6, 2005, among
Psychiatric Solutions, Inc., the subsidiary guarantors from time to time
party thereto, and Citigroup Global Markets Inc. on behalf of Banc of
America Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated,
J.P. Morgan Securities Inc. and Lehman Brothers Inc. (incorporated by
reference to Exhibit 4.4 to the Companys Current Report on Form 8-K, filed
on July 8, 2005).10.1
    
    Second Amended and Restated Employment Agreement between Joey A. Jacobs and
Psychiatric Solutions, Inc., dated as of August 6, 2002 (incorporated by
reference to Exhibit 10.16 to the 2002 10-K).10.2
    
    Amendment to Second Amended and Restated Employment Agreement between Joey
A. Jacobs and Psychiatric Solutions, Inc., dated as of November 26, 2003
(incorporated by reference to Exhibit 10.14 to Amendment No. 2 to the
Companys Registration Statement on Form S-2, filed on December 18, 2003
(Registration No. 333-110206)).10.3
    
    Form of Indemnification Agreement executed by each director of Psychiatric
Solutions, Inc. and Psychiatric Solutions, Inc. (incorporated by reference
to Exhibit 10.4 to the Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2004).10.4
    
    Second Amended and Restated Credit Agreement, dated as of July 1, 2005, by
and among Psychiatric Solutions, Inc., the subsidiaries named as guarantors
thereto, Citicorp North America, Inc., as term loan facility administrative
agent, co-syndication agent and documentation agent, Bank of America, N.A.,
as revolving loan facility administrative agent, collateral agent swing
line lender and co-syndication agent, and the various other agents and
lenders party thereto. (incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K, filed on July 8, 2005).
 32




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##### Table of Contents



ExhibitNumber
    
    Description10.5
    
    Amendment No. 1 to Psychiatric Solutions, Inc.s Second Amended and
Restated Credit Agreement, dated as of December 1, 2006, by and between
Psychiatric Solutions, Inc., BHC Holdings, Inc., Premier Behavioral
Solutions, Inc., Alternative Behavioral Services, Inc., the subsidiaries
of Psychiatric Solutions, Inc. party thereto as guarantors, Citicorp North
America, Inc., as Term Loan Facility Administrative Agent, Bank of America,
N.A., as Revolving Credit Facility Administrative Agent, Citigroup Global
Markets Inc. and Banc of America Securities LLC, as the Arrangers
(incorporated by reference to Exhibit 10 to the Companys Current Report on
Form 8-K, filed on December 7, 2006).10.6
    
    Interest Rate Swap Agreement, dated January 28, 2004, between Bank of
America, N.A. and Psychiatric Solutions, Inc. (incorporated by reference to
Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q for the quarter
ended March 31, 2004).10.7
    
    Confirmation of Interest Rate Swap Agreement, dated April 26, 2004, between
Bank of America, N.A. and Psychiatric Solutions, Inc. (incorporated by
reference to Exhibit 10.5 to the Companys Quarterly Report on Form 10-Q
for the quarter ended June 30, 2004).10.8
    
    Psychiatric Solutions, Inc. 2006 Long-Term Equity Compensation Plan
(incorporated by reference to Exhibit 10.2 to the Companys Current Report
on Form 8-K, filed on February 28, 2006).10.9
    
    Psychiatric Solutions, Inc. 2007
Long-Term Equity Compensation Plan (incorporated by reference to
Exhibit 10.2 to the Companys Current Report on Form 8-K, filed
on February 22, 2007).10.10
    
    Amended and Restated Psychiatric Solutions, Inc. Equity Incentive Plan, as
amended by an Amendment adopted on May 4, 2004 (incorporated by reference
to Appendix A to the Companys Definitive Proxy Statement, filed on April
9, 2004).10.11
    
    Second Amendment to the Psychiatric Solutions, Inc. Equity Incentive Plan
(incorporated by reference to Appendix A to the Companys Definitive Proxy
Statement, filed on April 22, 2005).10.12
    
    Third Amendment to the Psychiatric Solutions, Inc. Equity Incentive Plan
(incorporated by reference to Appendix B of the Companys Definitive Proxy
Statement, filed on April 21, 2006).10.13
    
    Psychiatric Solutions, Inc. Executive Performance Incentive Plan
(incorporated by reference to Appendix A of the Companys Definitive Proxy
Statement, filed on April 21, 2006).10.14
    
    Form of Incentive Stock Option Agreement under the 1997 Plan (incorporated
by reference to Exhibit 10.2 to the 1997 10-K).10.15
    
    Form of Nonstatutory Stock Option Agreement under the 1997 Plan
(incorporated by reference to Exhibit 10.3 to the 199710-K).10.16
    
    Amended and Restated Psychiatric Solutions, Inc. Outside Directors
Non-Qualified Stock Option Plan (incorporated by reference to Appendix C to
the Companys Definitive Proxy Statement, filed on April 14, 2003).10.17
    
    Amendment to the Amended and Restated Psychiatric Solutions, Inc. Outside
Directors Stock Option Plan (incorporated by reference to Appendix B to
the Companys Definitive Proxy Statement, filed on April 22, 2005).10.18
    
    Form of Outside Directors Non-Qualified Stock Option Agreement
(incorporated by reference to Exhibit 10.5 to the 199710-K).10.19
    
    2007 Executive Officer Compensation (incorporated by reference to the
Companys Current Report on Form 8-K, filed on November 8, 2006).10.20
    
    Psychiatric Solutions, Inc. 2006 Cash Bonus Plans (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K, filed on February
28, 2006).10.21
    
    Psychiatric Solutions, Inc. 2007 Cash Bonus Plans (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K, filed on February
22, 2007).10.22*
    
    Summary of Director Compensation.10.23
    
    Form of Restricted Stock Agreement
(incorporated by reference to Exhibit 10.3 to the Companys
Quarterly Report on Form 10-Q for the quarter ended March 31, 2006).21.1*
    
    List of Subsidiaries.23.1*
    
    Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
 33




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##### Table of Contents



ExhibitNumber
    
    Description31.1*
    
    Certification of the Chief Executive Officer of Psychiatric Solutions, Inc.
Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.31.2*
    
    Certification of the Chief Accounting Officer of Psychiatric Solutions,
Inc. Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.32.1*
    
    Certifications of the Chief Executive Officer and Chief Accounting Officer
of Psychiatric Solutions, Inc. Pursuant to Rule 13a-14(b) of the Securities
Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith
    
    Management contract or compensatory plan or arrangement 34




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PAGEReport of Independent Registered Public Accounting Firm
    
    
    F-2Managements Report on Internal Control over Financial Reporting
    
    
    F-3Report of Independent Registered Public Accounting Firm
    
    
    F-4Consolidated Financial Statements:Consolidated Balance Sheets, December 31, 2006 and 2005
    
    
    F-5Consolidated Statements of Income for the years ended December 31, 2006, 2005 and 2004
    
    
    F-6Consolidated Statements of Stockholders Equity for the years ended December 31, 2006, 2005 and 2004
    
    
    F-7Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004
    
    
    F-8Notes to Consolidated Financial Statements
    
    
    F-10
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     Share-Based Payment
   
 F-2




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##### Table of Contents



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
    F-3




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
          
 F-4




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (in thousands)
 December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    18,541
    
    
    $
    54,700Accounts receivable, less allowance for doubtful accounts of
$18,903 and $15,355, respectively
    
    
    180,137
    
    
    
    132,288Prepaids and other
    
    
    44,582
    
    
    
    52,142Total current assets
    
    
    243,260
    
    
    
    239,130Property and equipment:Land
    
    
    118,787
    
    
    
    79,139Buildings
    
    
    418,174
    
    
    
    289,946Equipment
    
    
    55,328
    
    
    
    37,968Less accumulated depreciation
    
    
    (48,483
    )
    
    
    (28,891
    )543,806
    
    
    
    378,162Cost in excess of net assets acquired
    
    
    761,026
    
    
    
    526,536Other assets
    
    
    33,104
    
    
    
    31,203Total assets
    
    $
    1,581,196
    
    
    $
    1,175,031LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    25,294
    
    
    $
    18,726Salaries and benefits payable
    
    
    66,438
    
    
    
    46,872Other accrued liabilities
    
    
    45,855
    
    
    
    34,363Current portion of long-term debt
    
    
    2,386
    
    
    
    325Total current liabilities
    
    
    139,973
    
    
    
    100,286Long-term debt, less current portion
    
    
    740,921
    
    
    
    482,064Deferred tax liability
    
    
    44,924
    
    
    
    32,151Other liabilities
    
    
    27,599
    
    
    
    20,818Total liabilities
    
    
    953,417
    
    
    
    635,319Stockholders equity:Common stock, $0.01 par value, 125,000 shares authorized;
53,421 and 52,430 issued and outstanding, respectively
    
    
    534
    
    
    
    524Additional paid-in capital
    
    
    523,193
    
    
    
    495,768Retained earnings
    
    
    104,052
    
    
    
    43,420Total stockholders equity
    
    
    627,779
    
    
    
    539,712Total liabilities and stockholders equity
    
    $
    1,581,196
    
    
    $
    1,175,031
  F-5




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
 (in thousands, except for per share amounts)
 Year Ended December 31,2006
    
    
    2005
    
    
    2004Revenue
    
    $
    1,026,490
    
    
    $
    715,324
    
    
    $
    470,969Salaries, wages and employee benefits (including share-
based compensation of $12,535 for the year ended
December 31, 2006
    
    
    580,223
    
    
    
    392,309
    
    
    
    254,897Professional fees
    
    
    97,613
    
    
    
    73,177
    
    
    
    52,200Supplies
    
    
    59,310
    
    
    
    42,993
    
    
    
    29,717Rentals and leases
    
    
    13,685
    
    
    
    11,450
    
    
    
    8,876Other operating expenses
    
    
    95,759
    
    
    
    74,609
    
    
    
    52,767Provision for doubtful accounts
    
    
    19,586
    
    
    
    13,498
    
    
    
    10,794Depreciation and amortization
    
    
    20,619
    
    
    
    14,738
    
    
    
    9,808Interest expense
    
    
    40,307
    
    
    
    27,056
    
    
    
    18,964Loss on refinancing long-term debt
    
    
    
    
    
    
    21,871
    
    
    
    6,407927,102
    
    
    
    671,701
    
    
    
    444,430Income from continuing operations before income taxes
    
    
    99,388
    
    
    
    43,623
    
    
    
    26,539Provision for income taxes
    
    
    37,507
    
    
    
    16,805
    
    
    
    10,085Income from continuing operations
    
    
    61,881
    
    
    
    26,818
    
    
    
    16,454(Loss) income from discontinued operations, net of
income tax (benefit) provision of $(724), $211 and
$213 for 2006, 2005 and 2004, respectively
    
    
    (1,249
    )
    
    
    336
    
    
    
    347Net income
    
    
    60,632
    
    
    
    27,154
    
    
    
    16,801Accrued preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    663Net income available to common stockholders
    
    $
    60,632
    
    
    $
    27,154
    
    
    $
    16,138Basic earnings per share:Income from continuing operations
    
    $
    1.17
    
    
    $
    0.60
    
    
    $
    0.54(Loss) income from discontinued operations, net of taxes
    
    
    (0.02
    )
    
    
    0.01
    
    
    
    0.01Net income
    
    $
    1.15
    
    
    $
    0.61
    
    
    $
    0.55Diluted earnings per share:Income from continuing operations
    
    $
    1.14
    
    
    $
    0.58
    
    
    $
    0.47(Loss) income from discontinued operations, net of taxes
    
    
    (0.02
    )
    
    
    0.01
    
    
    
    0.01Net income
    
    $
    1.12
    
    
    $
    0.59
    
    
    $
    0.48Shares used in computing per share amounts:Basic
    
    
    52,953
    
    
    
    44,792
    
    
    
    29,140Diluted
    
    
    54,169
    
    
    
    46,296
    
    
    
    35,146
  F-6




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 (in thousands)
 Additional
    
    
    Notes
    
    
    AccumulatedCommon Stock
    
    
    Paid-In
    
    
    Receivable from
    
    
    Unrealized
    
    
    RetainedShares
    
    
    Amount
    
    
    Capital
    
    
    Stockholders
    
    
    Losses
    
    
    Earnings
    
    
    TotalBalance at December 31, 2003
    
    
    23,873
    
    
    $
    239
    
    
    $
    91,303
    
    
    $
    (338
    )
    
    $
    (4
    )
    
    $
    128
    
    
    $
    91,328Issuance of common stock
    
    
    6,570
    
    
    
    66
    
    
    
    104,625
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,691Conversion of series A
convertible preferred stock
    
    
    9,627
    
    
    
    96
    
    
    
    25,819
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,915Payment of notes receivable from
stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    338
    
    
    
    
    
    
    
    
    
    
    
    338Exercise of stock options and
warrants
    
    
    865
    
    
    
    8
    
    
    
    4,420
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,428Income tax benefit of stock option
exercises
    
    
    
    
    
    
    
    
    
    
    1,673
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,673Unrealized gain on investments
available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Net income available to
common stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,138
    
    
    
    16,138Balance at December 31, 2004
    
    
    40,935
    
    
    
    409
    
    
    
    227,840
    
    
    
    
    
    
    
    
    
    
    
    16,266
    
    
    
    244,515Issuance of common stock,
net of issuance costs
    
    
    8,050
    
    
    
    81
    
    
    
    191,917
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    191,998Common stock issued in
acquisition
    
    
    2,726
    
    
    
    27
    
    
    
    64,738
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,765Exercise of stock options
    
    
    719
    
    
    
    7
    
    
    
    6,378
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,385Income tax benefit of stock option
exercises
    
    
    
    
    
    
    
    
    
    
    4,895
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,895Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,154
    
    
    
    27,154Balance at December 31, 2005
    
    
    52,430
    
    
    
    524
    
    
    
    495,768
    
    
    
    
    
    
    
    
    
    
    
    43,420
    
    
    
    539,712Share-based compensation
    
    
    
    
    
    
    
    
    
    
    12,535
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,535Common stock issued in
acquisition
    
    
    130
    
    
    
    1
    
    
    
    4,276
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,277Exercise of stock options and
grant of restricted stock, net
of issuance costs
    
    
    861
    
    
    
    9
    
    
    
    6,260
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,269Income tax benefit of stock option
exercises
    
    
    
    
    
    
    
    
    
    
    4,354
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,354Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,632
    
    
    
    60,632Balance at December 31, 2006
    
    
    53,421
    
    
    $
    534
    
    
    $
    523,193
    
    
    $
    
    
    
    $
    
    
    
    $
    104,052
    
    
    $
    627,779
  F-7




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Year Ended December 31,2006
    
    
    2005
    
    
    2004Operating activities:Net income
    
    $
    60,632
    
    
    $
    27,154
    
    
    $
    16,801Adjustments to reconcile net income to
net cash provided by continuing
operating activities:Depreciation and amortization
    
    
    20,619
    
    
    
    14,738
    
    
    
    9,808Amortization of loan costs
    
    
    1,672
    
    
    
    1,187
    
    
    
    691Stock based compensation
    
    
    12,535
    
    
    
    
    
    
    
    Loss on refinancing long-term debt
    
    
    
    
    
    
    21,871
    
    
    
    6,407Change in income tax assets and liabilities
    
    
    35,322
    
    
    
    9,494
    
    
    
    6,920Loss (income) from discontinued operations, net of taxes
    
    
    1,249
    
    
    
    (336
    )
    
    
    (347
    )Changes in operating assets and liabilities,
net of effect of acquisitions:Accounts receivable
    
    
    (12,723
    )
    
    
    (9,399
    )
    
    
    (3,066
    )Prepaids and other current assets
    
    
    (9,243
    )
    
    
    (3,673
    )
    
    
    2,388Accounts payable
    
    
    312
    
    
    
    2,116
    
    
    
    (5,327
    )Salaries and benefits payable
    
    
    5,786
    
    
    
    2,598
    
    
    
    5,199Accrued liabilities and other liabilities
    
    
    5,839
    
    
    
    13,340
    
    
    
    391Other
    
    
    
    
    
    
    463
    
    
    
    Net cash provided by continuing operating activities
    
    
    122,000
    
    
    
    79,553
    
    
    
    39,865Net cash provided by discontinued operating activities
    
    
    1,707
    
    
    
    222
    
    
    
    295Net cash provided by operating activities
    
    
    123,707
    
    
    
    79,775
    
    
    
    40,160Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (385,078
    )
    
    
    (514,525
    )
    
    
    (136,495
    )Capital purchases of leasehold improvements,
equipment and software
    
    
    (33,816
    )
    
    
    (21,750
    )
    
    
    (17,201
    )Purchases of short-term investments
    
    
    
    
    
    
    (29,400
    )
    
    
    Sales of short-term investments
    
    
    
    
    
    
    29,400
    
    
    
    Sale of long-term securities
    
    
    
    
    
    
    
    
    
    
    953Cash paid for investments in equity method investees
    
    
    
    
    
    
    (1,340
    )
    
    
    Other assets
    
    
    (594
    )
    
    
    1,219
    
    
    
    (1,417
    )Net cash used in investing activities
    
    
    (419,488
    )
    
    
    (536,396
    )
    
    
    (154,160
    )
  F-8




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Year Ended December 31,2006
    
    
    2005
    
    
    2004Financing activities:Net increase in revolving credit facility, less acquisitions
    
    $
    101,000
    
    
    $
    
    
    
    $
    Borrowings on long-term debt
    
    
    150,000
    
    
    
    545,000
    
    
    
    Principal payments on long-term debt
    
    
    (465
    )
    
    
    (236,822
    )
    
    
    (810
    )Payment of loan and issuance costs
    
    
    (1,576
    )
    
    
    (13,932
    )
    
    
    (2,300
    )Refinancing of long-term debt
    
    
    
    
    
    
    (15,398
    )
    
    
    (3,844
    )Excess tax benefit from share based payment arrangements
    
    
    4,354
    
    
    
    
    
    
    
    Proceeds from public offering of common stock
    
    
    
    
    
    
    192,637
    
    
    
    104,691Proceeds from exercises of common stock options
    
    
    6,309
    
    
    
    6,385
    
    
    
    4,428Proceeds from repayment of stockholder notes
    
    
    
    
    
    
    
    
    
    
    338Net cash provided by financing activities
    
    
    259,622
    
    
    
    477,870
    
    
    
    102,503Net (decrease) increase in cash
    
    
    (36,159
    )
    
    
    21,249
    
    
    
    (11,497
    )Cash and cash equivalents at beginning of the year
    
    
    54,700
    
    
    
    33,451
    
    
    
    44,948Cash and cash equivalents at end of the year
    
    $
    18,541
    
    
    $
    54,700
    
    
    $
    33,451Supplemental Cash Flow Information:Interest paid
    
    $
    40,177
    
    
    $
    16,694
    
    
    $
    18,821Income taxes (refunded) paid
    
    $
    (2,656
    )
    
    $
    7,490
    
    
    $
    3,354Effect of Acquisitions:Assets acquired, net of cash acquired
    
    $
    432,533
    
    
    $
    624,821
    
    
    $
    148,345Cash paid for prior year acquisitions
    
    
    
    
    
    
    5,793
    
    
    
    Liabilities assumed
    
    
    (32,819
    )
    
    
    (51,324
    )
    
    
    (11,850
    )Common stock issued
    
    
    (4,277
    )
    
    
    (64,765
    )
    
    
    Long-term debt assumed
    
    
    (10,359
    )
    
    
    
    
    
    
    Cash paid for acquisitions, net of cash acquired
    
    $
    385,078
    
    
    $
    514,525
    
    
    $
    136,495Significant Non-cash Transactions:Refinancing of long-term debt
    
    $
    
    
    
    $
    6,473
    
    
    $
    2,563Issuance of common stock upon conversion of series A
convertible preferred stock
    
    $
    
    
    
    $
    
    
    
    $
    25,915
  F-9




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2006
 1. Summary of Significant Accounting Policies
 Description of Business
  Recent Developments
  Basis of Presentation
    Cash and Cash Equivalents
  Accounts Receivable
   F-10




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
 Allowance for Doubtful Accounts
   Allowances for Contractual Discounts
  Income Taxes
  Long-Lived Assets
 Property and Equipment
  Cost in Excess of Net Assets Acquired (Goodwill)
   Balance at December 31, 2004
    
    $
    128,962Acquisition of Ardent Behavioral
    
    
    393,017Release of deferred tax asset valuation allowance
    
    
    (395
    )Other
    
    
    4,952Balance at December 31, 2005
    
    
    526,536Acquisition of National Deaf Academy
    
    
    32,524Acquisition of Alternative Behavioral Services
    
    
    148,332Other
Acquisitions
    
    
    53,634Balance at December 31, 2006
    
    $
    761,026
 Other Assets
  F-11




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
    Other Accrued Liabilities
  Stock-Based Compensation
 Share Based
Payment Accounting for Stock-Based Compensation , Accounting for Stock Issued to Employees
 Derivatives
 Accounting for Derivative Instruments and Hedging Activities
 Risk Management
  F-12




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
   Fair Value of Financial Instruments
 3 4 3 4 5 8 5 8 3 4 5 8
 Reclassifications
  Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes
 Fair Value Measurements
 2. Revenue
  December 31,2006
    
    
    2005
    
    
    2004Patient service revenue
    
    $
    973,535
    
    
    $
    663,236
    
    
    $
    419,701Management contract and other revenue
    
    
    52,955
    
    
    
    52,088
    
    
    
    51,268Total revenue
    
    $
    1,026,490
    
    
    $
    715,324
    
    
    $
    470,969
 Patient Service Revenue
   F-13




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
   Management Contract and Other Revenue
  3. Earnings Per Share
 Earnings per Share
  F-14




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
 Year ended December 31,2006
    
    
    2005
    
    
    2004Numerator:Basic earnings per share:Income from continuing operations
    
    $
    61,881
    
    
    $
    26,818
    
    
    $
    16,454Accrued dividends on series A convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    663Income from continuing operations used in computing basic
earnings per share
    
    
    61,881
    
    
    
    26,818
    
    
    
    15,791(Loss) income from discontinued operations, net of taxes
    
    
    (1,249
    )
    
    
    336
    
    
    
    347Net income available to common stockholders
    
    $
    60,632
    
    
    $
    27,154
    
    
    $
    16,138Diluted earnings per share:Income from continuing operations
    
    $
    61,881
    
    
    $
    26,818
    
    
    $
    16,454(Loss) income from discontinued operations, net of taxes
    
    
    (1,249
    )
    
    
    336
    
    
    
    347Net income used in computing diluted earnings per share
    
    $
    60,632
    
    
    $
    27,154
    
    
    $
    16,801Denominator:Weighted average shares outstanding for basic earnings per share
    
    
    52,953
    
    
    
    44,792
    
    
    
    29,140Effects of dilutive stock options and warrants outstanding
    
    
    1,216
    
    
    
    1,504
    
    
    
    1,139Effect of dilutive series A convertible preferred stock outstanding
    
    
    
    
    
    
    
    
    
    
    4,867Shares used in computing diluted earnings per common share
    
    
    54,169
    
    
    
    46,296
    
    
    
    35,146Basic earnings per share:Income from continuing operations
    
    $
    1.17
    
    
    $
    0.60
    
    
    $
    0.54(Loss) income from discontinued operations, net of taxes
    
    
    (0.02
    )
    
    
    0.01
    
    
    
    0.01$
    1.15
    
    
    $
    0.61
    
    
    $
    0.55Diluted earnings per share:Income from continuing operations
    
    $
    1.14
    
    
    $
    0.58
    
    
    $
    0.47(Loss) income from discontinued operations, net of taxes
    
    
    (0.02
    )
    
    
    0.01
    
    
    
    0.01$
    1.12
    
    
    $
    0.59
    
    
    $
    0.48
 4. Discontinued Operations
 Accounting for the Impairment or Disposal of Long-Lived Assets
  F-15




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
 Year Ended December 31,2006
    
    
    2005
    
    
    2004Revenue
    
    $
    2,085
    
    
    $
    14,911
    
    
    $
    26,904Salaries, wages and employee benefits
    
    
    1,597
    
    
    
    10,331
    
    
    
    18,646Professional fees
    
    
    116
    
    
    
    836
    
    
    
    2,039Supplies
    
    
    226
    
    
    
    1,318
    
    
    
    2,329Rentals and leases
    
    
    97
    
    
    
    256
    
    
    
    295Other operating expenses
    
    
    1,882
    
    
    
    1,398
    
    
    
    2,877Provision for doubtful accounts
    
    
    118
    
    
    
    68
    
    
    
    80Depreciation and amortization
    
    
    22
    
    
    
    109
    
    
    
    78Interest expense
    
    
    
    
    
    
    48
    
    
    
    4,058
    
    
    
    14,364
    
    
    
    26,344(Loss) income from discontinued operations before income taxes
    
    
    (1,973
    )
    
    
    547
    
    
    
    560(Benefit) provision for income taxes
    
    
    (724
    )
    
    
    211
    
    
    
    213(Loss) income from discontinued operations, net of income taxes
    
    $
    (1,249
    )
    
    $
    336
    
    
    $
    347
 5. Acquisitions
 2006 ACQUISITIONS
   ABSAssets acquired:Accounts receivable
    
    $
    23,579Other current assets
    
    
    7,542Fixed assets
    
    
    62,852Costs in excess of net assets acquired
    
    
    148,332Other assets
    
    
    2,249244,554Liabilities assumed
    
    
    26,848Common stock issued
    
    
    4,277Cash paid, net of cash acquired
    
    $
    213,429
 2005 ACQUISITIONS
  F-16




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
   ArdentBehavioralAssets acquired:Accounts receivable
    
    $
    47,670Other current assets
    
    
    23,436Fixed assets
    
    
    152,355Costs in excess of net assets acquired
    
    
    393,017Other assets
    
    
    4,601621,079Liabilities assumed
    
    
    50,114Common stock issued
    
    
    64,765Cash paid, net of cash acquired
    
    $
    506,200
 2004 ACQUISITIONS
   Brentwood
    
    
    Heartland
    
    
    Other
    
    
    TotalAssets acquired:Accounts receivable
    
    $
    4,086
    
    
    $
    8,637
    
    
    $
    4,999
    
    
    $
    17,722Other current assets
    
    
    214
    
    
    
    166
    
    
    
    692
    
    
    
    1,072Fixed assets
    
    
    27,868
    
    
    
    17,563
    
    
    
    14,175
    
    
    
    59,606Costs in excess of net assets acquired
    
    
    3,956
    
    
    
    44,714
    
    
    
    18,604
    
    
    
    67,274Other assets
    
    
    1,899
    
    
    
    30
    
    
    
    115
    
    
    
    2,04438,023
    
    
    
    71,110
    
    
    
    38,585
    
    
    
    147,718Liabilities assumed
    
    
    7,087
    
    
    
    4,481
    
    
    
    3,632
    
    
    
    15,200Cash paid, net of cash acquired
    
    $
    30,936
    
    
    $
    66,629
    
    
    $
    34,953
    
    
    $
    132,518
 Other Information
  2005
    
    2004Revenue
    
    $
    877,275
    
    
    $
    810,875Net income available to common stockholders
    
    
    34,515
    
    
    
    25,430Earnings per common share, basic
    
    $
    0.75
    
    
    $
    0.80
  F-17




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
 6. Long-term debt
  December 31,2006
    
    
    2005Senior credit facility:Revolving line of credit facility, expiring on December 21, 2009
and bearing interest of 6.7% at December 31, 2006
    
    $
    101,000
    
    
    $
    Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 7.1% at December 31, 2006
    
    
    350,000
    
    
    
    200,0007 3/4% Notes
    
    
    220,000
    
    
    
    220,00010 5/8% Notes
    
    
    38,681
    
    
    
    38,681Mortgage loans on facilities, maturing in 2036, 2037 and 2038
bearing fixed interest rates of 5.7% to 7.6%
    
    
    27,062
    
    
    
    23,377Other
    
    
    6,564
    
    
    
    331743,307
    
    
    
    482,389Less current portion
    
    
    2,386
    
    
    
    325Long-term debt
    
    $
    740,921
    
    
    $
    482,064
 Senior Credit Facility
    F-18




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
 7 3 / 4 % Notes
 3 4 5 8 3 4 3 4
 10 5 / 8 % Notes
 5 8 5 8 5 8
 5 8 5 8 5 8 5 8 3 4
 Mortgage Loans
  Other
  2007
    
    $
    2,3862008
    
    
    2,4312009
    
    
    103,3452010
    
    
    2,1682011
    
    
    2,155Thereafter
    
    
    630,822Total
    
    $
    743,307
 7. Series A Convertible Preferred Stock
  8. Leases
  F-19




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
  2007
    
    $
    10,4052008
    
    
    8,8252009
    
    
    7,6762010
    
    
    5,0192011
    
    
    3,173Thereafter
    
    
    16,160Total
    
    $
    51,258
 9. Income Taxes
  2006
    
    
    2005
    
    
    2004Provision for income taxes attributable
to income from continuing operations
    
    $
    37,507
    
    
    $
    16,805
    
    
    $
    10,085(Benefit from) provision for income taxes attributable
to income from discontinued operations
    
    
    (724
    )
    
    
    211
    
    
    
    213Total provision for income taxes
    
    $
    36,783
    
    
    $
    17,016
    
    
    $
    10,298
  2006
    
    
    2005
    
    
    2004Current:Federal
    
    $
    10,127
    
    
    $
    (1,802
    )
    
    $
    9,820State
    
    
    2,394
    
    
    
    2,701
    
    
    
    1,609Foreign
    
    
    219
    
    
    
    
    
    
    
    12,740
    
    
    
    899
    
    
    
    11,429Deferred:Federal
    
    
    24,132
    
    
    
    16,580
    
    
    
    (1,279
    )State
    
    
    342
    
    
    
    (908
    )
    
    
    (244
    )Foreign
    
    
    293
    
    
    
    234
    
    
    
    17924,767
    
    
    
    15,906
    
    
    
    (1,344
    )Provision for income taxes
    
    $
    37,507
    
    
    $
    16,805
    
    
    $
    10,085
   2006
    
    
    2005
    
    
    2004Federal tax
    
    $
    34,786
    
    
    $
    15,268
    
    
    $
    9,289State income taxes (net of federal)
    
    
    1,779
    
    
    
    1,165
    
    
    
    887Other
    
    
    942
    
    
    
    372
    
    
    
    (91
    )Provision for income taxes
    
    $
    37,507
    
    
    $
    16,805
    
    
    $
    10,085
  F-20




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
 2006
    
    
    2005Deferred tax assets:Net operating loss carryforwards
    
    $
    11,708
    
    
    $
    34,370Allowance for doubtful accounts
    
    
    3,562
    
    
    
    5,067Alternative minimum tax credit
carryovers
    
    
    1,150
    
    
    
    1,601Accrued liabilities
    
    
    14,027
    
    
    
    12,603Total gross deferred tax assets
    
    
    30,447
    
    
    
    53,641Less: Valuation allowance
    
    
    (2,988
    )
    
    
    (4,053
    )Total deferred tax assets
    
    
    27,459
    
    
    
    49,588Deferred tax liabilities:Intangible assets
    
    
    (16,404
    )
    
    
    (11,092
    )Property and equipment
    
    
    (43,690
    )
    
    
    (40,252
    )Net deferred tax liability
    
    $
    (32,635
    )
    
    $
    (1,756
    )
    10. Stock Option Plans
    F-21




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
 WeightedWeighted
    
    AverageNumber
    
    Average
    
    Remaining
    
    Aggregateof
    
    Exercise
    
    Contractual
    
    IntrinsicOptions
    
    Price
    
    Term (in years)
    
    ValueOutstanding at December 31, 2005
    
    
    4,472
    
    
    $
    13.01
    
    
    
    n/a
    
    
    
    n/aGranted
    
    
    2,134
    
    
    $
    32.75
    
    
    
    n/a
    
    
    
    n/aCanceled
    
    
    (144
    )
    
    $
    17.31
    
    
    
    n/a
    
    
    
    n/aExercised
    
    
    (807
    )
    
    $
    7.82
    
    
    
    n/a
    
    
    
    n/aOutstanding at December 31, 2006
    
    
    5,655
    
    
    $
    20.76
    
    
    
    8.0
    
    
    $
    94,780Exercisable at December 31, 2006
    
    
    2,355
    
    
    $
    14.34
    
    
    
    7.3
    
    
    $
    54,579
   2005
    
    
    2004Net income available to common stockholders
    
    $
    27,154
    
    
    $
    16,138Pro forma compensation expense from stock
options, net of tax
    
    
    4,361
    
    
    
    1,691Pro forma net income
    
    $
    22,793
    
    
    $
    14,447Basic earnings per share:As reported
    
    $
    0.61
    
    
    $
    0.55Pro forma
    
    $
    0.51
    
    
    $
    0.50Diluted earnings per share:As reported
    
    $
    0.59
    
    
    $
    0.48Pro forma
    
    $
    0.49
    
    
    $
    0.43
  2006
    
    2005
    
    2004Weighted average grant-date fair value of options
    
    $
    9.96
    
    
    $
    7.73
    
    
    $
    3.66Risk-free interest rate
    
    
    5
    %
    
    
    4
    %
    
    
    3
    %Expected volatility
    
    
    31
    %
    
    
    33
    %
    
    
    32
    %Expected life
    
    
    4
    
    
    
    5
    
    
    
    5Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
  F-22




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
     11. Employee Benefit Plan
  12. Contingencies and Health Care Regulation
 Contingencies
  Employment Agreements
   Current Operations
    F-23




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
  13. Related Party Transactions
    14. Disclosures About Reportable Segments
 Disclosures About Segments of an Enterprise and
Related Information
  F-24




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
 Year Ended December 31, 2006
 Owned and
    
    
    ManagementLeased
    
    
    ContractsFacilities
    
    
    and Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    973,535
    
    
    $
    52,955
    
    
    $
    
    
    
    $
    1,026,490Adjusted EBITDA
    
    $
    192,328
    
    
    $
    9,090
    
    
    $
    (28,569
    )
    
    $
    172,849Interest expense, net
    
    
    13,426
    
    
    
    2
    
    
    
    26,879
    
    
    
    40,307Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    37,507
    
    
    
    37,507Depreciation and amortization
    
    
    18,666
    
    
    
    693
    
    
    
    1,260
    
    
    
    20,619Inter-segment expenses
    
    
    28,770
    
    
    
    1,913
    
    
    
    (30,683
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    12,535
    
    
    
    12,535Total other expenses
    
    
    
    
    
    
    
    
    
    
    12,535
    
    
    
    12,535Income (loss) from continuing operations
    
    $
    131,466
    
    
    $
    6,482
    
    
    $
    (76,067
    )
    
    $
    61,881Total assets
    
    $
    1,457,449
    
    
    $
    50,934
    
    
    $
    72,813
    
    
    $
    1,581,196Capital expenditures
    
    $
    28,838
    
    
    $
    89
    
    
    $
    4,889
    
    
    $
    33,816Cost in excess of net assets acquired
    
    $
    730,995
    
    
    $
    30,031
    
    
    $
    
    
    
    $
    761,026
 Year Ended December 31, 2005
 Owned and
    
    
    ManagementLeased
    
    
    ContractsFacilities
    
    
    and Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    663,236
    
    
    $
    52,088
    
    
    $
    
    
    
    $
    715,324Adjusted EBITDA
    
    $
    120,930
    
    
    $
    10,074
    
    
    $
    (23,716
    )
    
    $
    107,288Interest expense, net
    
    
    16,406
    
    
    
    
    
    
    
    10,650
    
    
    
    27,056Provision for income taxes
    
    
    2,142
    
    
    
    
    
    
    
    14,663
    
    
    
    16,805Depreciation and amortization
    
    
    13,308
    
    
    
    680
    
    
    
    750
    
    
    
    14,738Inter-segment expenses
    
    
    25,716
    
    
    
    2,919
    
    
    
    (28,635
    )
    
    
    Other expenses:Loss on refinancing long-term debt
    
    
    
    
    
    
    
    
    
    
    21,871
    
    
    
    21,871Total other expenses
    
    
    
    
    
    
    
    
    
    
    21,871
    
    
    
    21,871Income (loss) from continuing operations
    
    $
    63,358
    
    
    $
    6,475
    
    
    $
    (43,015
    )
    
    $
    26,818Total assets
    
    $
    1,017,347
    
    
    $
    29,285
    
    
    $
    128,399
    
    
    $
    1,175,031Capital expenditures
    
    $
    17,592
    
    
    $
    52
    
    
    $
    4,106
    
    
    $
    21,750Cost in excess of net assets acquired
    
    $
    506,160
    
    
    $
    20,376
    
    
    $
    
    
    
    $
    526,536
 F-25




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
 Year Ended December 31, 2004
 Owned and
    
    
    ManagementLeased
    
    
    ContractsFacilities
    
    
    and Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    419,701
    
    
    $
    51,268
    
    
    $
    
    
    
    $
    470,969Adjusted EBITDA
    
    $
    66,351
    
    
    $
    10,007
    
    
    $
    (14,640
    )
    
    $
    61,718Interest expense, net
    
    
    19,645
    
    
    
    (15
    )
    
    
    (666
    )
    
    
    18,964Provision for income taxes
    
    
    2,737
    
    
    
    
    
    
    
    7,348
    
    
    
    10,085Depreciation and amortization
    
    
    8,366
    
    
    
    1,082
    
    
    
    360
    
    
    
    9,808Inter-segment expenses
    
    
    11,471
    
    
    
    2,968
    
    
    
    (14,439
    )
    
    
    Other expenses:Loss on refinancing long-term debt
    
    
    
    
    
    
    
    
    
    
    6,407
    
    
    
    6,407Total other expenses
    
    
    
    
    
    
    
    
    
    
    6,407
    
    
    
    6,407Income (loss) from continuing operations
    
    $
    24,132
    
    
    $
    5,972
    
    
    $
    (13,650
    )
    
    $
    16,454Total assets
    
    $
    401,633
    
    
    $
    31,217
    
    
    $
    63,834
    
    
    $
    496,684Capital expenditures
    
    $
    15,632
    
    
    $
    
    
    
    $
    1,569
    
    
    $
    17,201Cost in excess of net assets acquired
    
    $
    105,121
    
    
    $
    23,841
    
    
    $
    
    
    
    $
    128,962
 15. Other Information
  Balances
    
    Additions
    
    Additions
    
    Accounts written
    
    Balancesat beginning
    
    charged to costs
    
    charged to
    
    off, net of
    
    at endof period
    
    and expenses
    
    other accounts(1)
    
    recoveries
    
    of periodAllowance for doubtful accounts:Year ended December 31, 2004
    
    $
    7,083
    
    
    $
    10,794
    
    
    $
    3,253
    
    
    $
    10,468
    
    
    $
    10,662Year ended December 31, 2005
    
    
    10,662
    
    
    
    13,498
    
    
    
    5,844
    
    
    
    14,649
    
    
    
    15,355Year ended December 31, 2006
    
    
    15,355
    
    
    
    19,586
    
    
    
    12,224
    
    
    
    28,262
    
    
    
    18,903
 
 (1)
    
    Allowances as a result of acquisition. 16. Quarterly Information (Unaudited)
  1stQuarter
    
    2ndQuarter
    
    3rdQuarter
    
    4thQuarter2006Revenue
    
    $
    242,312
    
    
    $
    248,404
    
    
    $
    254,814
    
    
    $
    280,960Income from continuing operations
    
    $
    12,398
    
    
    $
    15,869
    
    
    $
    15,570
    
    
    $
    18,044Net income
    
    $
    12,192
    
    
    $
    15,361
    
    
    $
    15,524
    
    
    $
    17,555Earnings per share:Basic
    
    $
    0.23
    
    
    $
    0.29
    
    
    $
    0.29
    
    
    $
    0.33Diluted
    
    $
    0.23
    
    
    $
    0.28
    
    
    $
    0.29
    
    
    $
    0.322005Revenue
    
    $
    134,268
    
    
    $
    139,490
    
    
    $
    220,458
    
    
    $
    221,108Income from continuing operations
    
    $
    3,196
    
    
    $
    8,746
    
    
    $
    1,076
    
    
    $
    13,800Net income
    
    $
    3,328
    
    
    $
    8,707
    
    
    $
    1,179
    
    
    $
    13,940Earnings per share:Basic
    
    $
    0.08
    
    
    $
    0.21
    
    
    $
    0.03
    
    
    $
    0.27Diluted
    
    $
    0.08
    
    
    $
    0.21
    
    
    $
    0.03
    
    
    $
    0.26
 F-26




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
   17. Financial Information for the Company and Its Subsidiaries
  Condensed Consolidating Balance Sheet
As of December 31, 2006
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    1,118
    
    
    $
    17,423
    
    
    $
    
    
    
    $
    18,541Accounts receivable, net
    
    
    
    
    
    
    180,137
    
    
    
    
    
    
    
    
    
    
    
    180,137Prepaids and other
    
    
    
    
    
    
    43,372
    
    
    
    1,210
    
    
    
    
    
    
    
    44,582Total current assets
    
    
    
    
    
    
    224,627
    
    
    
    18,633
    
    
    
    
    
    
    
    243,260Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    515,311
    
    
    
    36,085
    
    
    
    (7,590
    )
    
    
    543,806Cost in excess of net assets acquired
    
    
    
    
    
    
    761,026
    
    
    
    
    
    
    
    
    
    
    
    761,026Investment in subsidiaries
    
    
    681,856
    
    
    
    
    
    
    
    
    
    
    
    (681,856
    )
    
    
    Other assets
    
    
    12,349
    
    
    
    17,050
    
    
    
    3,705
    
    
    
    
    
    
    
    33,104Total assets
    
    $
    694,205
    
    
    $
    1,518,014
    
    
    $
    58,423
    
    
    $
    (689,446
    )
    
    $
    1,581,196Current Liabilities:Accounts payable
    
    $
    
    
    
    $
    25,294
    
    
    $
    
    
    
    $
    
    
    
    $
    25,294Salaries and benefits payable
    
    
    
    
    
    
    66,438
    
    
    
    
    
    
    
    
    
    
    
    66,438Other accrued liabilities
    
    
    13,247
    
    
    
    32,461
    
    
    
    1,737
    
    
    
    (1,590
    )
    
    
    45,855Current portion of long-term debt
    
    
    2,084
    
    
    
    
    
    
    
    302
    
    
    
    
    
    
    
    2,386Total current liabilities
    
    
    15,331
    
    
    
    124,193
    
    
    
    2,039
    
    
    
    (1,590
    )
    
    
    139,973Long-term debt, less current portion
    
    
    714,061
    
    
    
    
    
    
    
    26,860
    
    
    
    
    
    
    
    740,921Deferred tax liability
    
    
    
    
    
    
    44,924
    
    
    
    
    
    
    
    
    
    
    
    44,924Other liabilities
    
    
    6,539
    
    
    
    12,140
    
    
    
    8,920
    
    
    
    
    
    
    
    27,599Total liabilities
    
    
    735,931
    
    
    
    181,257
    
    
    
    37,819
    
    
    
    (1,590
    )
    
    
    953,417Stockholders (deficit) equity:Total stockholders (deficit) equity
    
    
    (41,726
    )
    
    
    1,336,757
    
    
    
    20,604
    
    
    
    (687,856
    )
    
    
    627,779Total liabilities and stockholders (deficit) equity
    
    $
    694,205
    
    
    $
    1,518,014
    
    
    $
    58,423
    
    
    $
    (689,446
    )
    
    $
    1,581,196
 F-27




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
 Condensed Consolidating Balance Sheet
As of December 31, 2005
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    44,115
    
    
    $
    10,585
    
    
    $
    
    
    
    $
    54,700Accounts receivable, net
    
    
    
    
    
    
    132,288
    
    
    
    
    
    
    
    
    
    
    
    132,288Prepaids and other
    
    
    
    
    
    
    52,142
    
    
    
    
    
    
    
    
    
    
    
    52,142Total current assets
    
    
    
    
    
    
    228,545
    
    
    
    10,585
    
    
    
    
    
    
    
    239,130Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    356,816
    
    
    
    29,179
    
    
    
    (7,833
    )
    
    
    378,162Cost in excess of net assets acquired
    
    
    
    
    
    
    526,536
    
    
    
    
    
    
    
    
    
    
    
    526,536Investment in subsidiaries
    
    
    444,888
    
    
    
    
    
    
    
    
    
    
    
    (444,888
    )
    
    
    Other assets
    
    
    12,441
    
    
    
    15,347
    
    
    
    3,415
    
    
    
    
    
    
    
    31,203Total assets
    
    $
    457,329
    
    
    $
    1,127,244
    
    
    $
    43,179
    
    
    $
    (452,721
    )
    
    $
    1,175,031Current Liabilities:Accounts payable
    
    $
    
    
    
    $
    18,726
    
    
    $
    
    
    
    $
    
    
    
    $
    18,726Salaries and benefits payable
    
    
    
    
    
    
    46,872
    
    
    
    
    
    
    
    
    
    
    
    46,872Other accrued liabilities
    
    
    12,994
    
    
    
    21,056
    
    
    
    313
    
    
    
    
    
    
    
    34,363Current portion of long-term debt
    
    
    77
    
    
    
    
    
    
    
    248
    
    
    
    
    
    
    
    325Total current liabilities
    
    
    13,071
    
    
    
    86,654
    
    
    
    561
    
    
    
    
    
    
    
    100,286Long-term debt, less current portion
    
    
    458,935
    
    
    
    
    
    
    
    23,129
    
    
    
    
    
    
    
    482,064Deferred tax liability
    
    
    
    
    
    
    32,151
    
    
    
    
    
    
    
    
    
    
    
    32,151Other liabilities
    
    
    3,011
    
    
    
    9,544
    
    
    
    8,263
    
    
    
    
    
    
    
    20,818Total liabilities
    
    
    475,017
    
    
    
    128,349
    
    
    
    31,953
    
    
    
    
    
    
    
    635,319Stockholders (deficit) equity:Total stockholders (deficit) equity
    
    
    (17,688
    )
    
    
    998,895
    
    
    
    11,226
    
    
    
    (452,721
    )
    
    
    539,712Total liabilities and stockholders (deficit) equity
    
    $
    457,329
    
    
    $
    1,127,244
    
    
    $
    43,179
    
    
    $
    (452,721
    )
    
    $
    1,175,031
 Condensed Consolidating Statement of Income
For the Year Ended December 31, 2006
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    1,026,490
    
    
    $
    11,601
    
    
    $
    (11,601
    )
    
    $
    1,026,490Salaries, wages and employee benefits
    
    
    
    
    
    
    580,223
    
    
    
    
    
    
    
    
    
    
    
    580,223Professional fees
    
    
    
    
    
    
    96,590
    
    
    
    1,023
    
    
    
    
    
    
    
    97,613Supplies
    
    
    
    
    
    
    59,310
    
    
    
    
    
    
    
    
    
    
    
    59,310Rentals and leases
    
    
    
    
    
    
    13,685
    
    
    
    
    
    
    
    
    
    
    
    13,685Other operating expenses
    
    
    
    
    
    
    94,948
    
    
    
    2,504
    
    
    
    (1,693
    )
    
    
    95,759Provision for doubtful accounts
    
    
    
    
    
    
    19,586
    
    
    
    
    
    
    
    
    
    
    
    19,586Depreciation and amortization
    
    
    
    
    
    
    19,773
    
    
    
    1,089
    
    
    
    (243
    )
    
    
    20,619Interest expense
    
    
    39,105
    
    
    
    
    
    
    
    1,202
    
    
    
    
    
    
    
    40,30739,105
    
    
    
    884,115
    
    
    
    5,818
    
    
    
    (1,936
    )
    
    
    927,102(Loss) income from continuing operations before
income taxes
    
    
    (39,105
    )
    
    
    142,375
    
    
    
    5,783
    
    
    
    (9,665
    )
    
    
    99,388(Benefit from) provision for income taxes
    
    
    (15,067
    )
    
    
    52,457
    
    
    
    117
    
    
    
    
    
    
    
    37,507(Loss) income from continuing operations
    
    
    (24,038
    )
    
    
    89,918
    
    
    
    5,666
    
    
    
    (9,665
    )
    
    
    61,881(Loss) income from discontinued operations, net of taxes
    
    
    
    
    
    
    (1,249
    )
    
    
    
    
    
    
    
    
    
    
    (1,249
    )Net (loss) income
    
    $
    (24,038
    )
    
    $
    88,669
    
    
    $
    5,666
    
    
    $
    (9,665
    )
    
    $
    60,632
 F-28




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
 Condensed Consolidating Statement of Income
For the Year Ended December 31, 2005
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    715,324
    
    
    $
    11,073
    
    
    $
    (11,073
    )
    
    $
    715,324Salaries, wages and employee benefits
    
    
    
    
    
    
    392,309
    
    
    
    
    
    
    
    
    
    
    
    392,309Professional fees
    
    
    
    
    
    
    72,703
    
    
    
    474
    
    
    
    
    
    
    
    73,177Supplies
    
    
    
    
    
    
    42,993
    
    
    
    
    
    
    
    
    
    
    
    42,993Rentals and leases
    
    
    
    
    
    
    11,450
    
    
    
    
    
    
    
    
    
    
    
    11,450Other operating expenses
    
    
    
    
    
    
    73,808
    
    
    
    8,313
    
    
    
    (7,512
    )
    
    
    74,609Provision for doubtful accounts
    
    
    
    
    
    
    13,498
    
    
    
    
    
    
    
    
    
    
    
    13,498Depreciation and amortization
    
    
    
    
    
    
    14,005
    
    
    
    976
    
    
    
    (243
    )
    
    
    14,738Interest expense
    
    
    25,823
    
    
    
    
    
    
    
    1,233
    
    
    
    
    
    
    
    27,056Loss on refinancing long-term debt
    
    
    21,871
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,87147,694
    
    
    
    620,766
    
    
    
    10,996
    
    
    
    (7,755
    )
    
    
    671,701(Loss) income from continuing operations before
income taxes
    
    
    (47,694
    )
    
    
    94,558
    
    
    
    77
    
    
    
    (3,318
    )
    
    
    43,623(Benefit from) provision for income taxes
    
    
    (18,376
    )
    
    
    35,181
    
    
    
    
    
    
    
    
    
    
    
    16,805(Loss) income from continuing operations
    
    
    (29,318
    )
    
    
    59,377
    
    
    
    77
    
    
    
    (3,318
    )
    
    
    26,818Income from discontinued operations, net of taxes
    
    
    
    
    
    
    336
    
    
    
    
    
    
    
    
    
    
    
    336Net (loss) income
    
    $
    (29,318
    )
    
    $
    59,713
    
    
    $
    77
    
    
    $
    (3,318
    )
    
    $
    27,154
 Condensed Consolidating Statement of Income
For the Year Ended December 31, 2004
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    470,969
    
    
    $
    3,702
    
    
    $
    (3,702
    )
    
    $
    470,969Salaries, wages and employee benefits
    
    
    
    
    
    
    254,897
    
    
    
    
    
    
    
    
    
    
    
    254,897Professional fees
    
    
    
    
    
    
    52,142
    
    
    
    58
    
    
    
    
    
    
    
    52,200Supplies
    
    
    
    
    
    
    29,717
    
    
    
    
    
    
    
    
    
    
    
    29,717Rentals and leases
    
    
    
    
    
    
    8,876
    
    
    
    
    
    
    
    
    
    
    
    8,876Other operating expenses
    
    
    
    
    
    
    52,757
    
    
    
    618
    
    
    
    (608
    )
    
    
    52,767Provision for doubtful accounts
    
    
    
    
    
    
    10,794
    
    
    
    
    
    
    
    
    
    
    
    10,794Depreciation and amortization
    
    
    
    
    
    
    9,076
    
    
    
    975
    
    
    
    (243
    )
    
    
    9,808Interest expense
    
    
    17,469
    
    
    
    
    
    
    
    1,495
    
    
    
    
    
    
    
    18,964Loss on refinancing long-term debt
    
    
    6,407
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,40723,876
    
    
    
    418,259
    
    
    
    3,146
    
    
    
    (851
    )
    
    
    444,430(Loss) income from continuing operations before
income taxes
    
    
    (23,876
    )
    
    
    52,710
    
    
    
    556
    
    
    
    (2,851
    )
    
    
    26,539(Benefit from) provision for income taxes
    
    
    (9,073
    )
    
    
    19,158
    
    
    
    
    
    
    
    
    
    
    
    10,085(Loss) income from continuing operations
    
    
    (14,803
    )
    
    
    33,552
    
    
    
    556
    
    
    
    (2,851
    )
    
    
    16,454Income from discontinued operations, net of taxes
    
    
    
    
    
    
    347
    
    
    
    
    
    
    
    
    
    
    
    347Net (loss) income
    
    
    (14,803
    )
    
    
    33,899
    
    
    
    556
    
    
    
    (2,851
    )
    
    
    16,801Accrued preferred stock dividends
    
    
    663
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    663Net (loss) income available to common stockholders
    
    $
    (15,466
    )
    
    $
    33,899
    
    
    $
    556
    
    
    $
    (2,851
    )
    
    $
    16,138
 F-29




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
 Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2006
(Dollars in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating activities:Net (loss) income
    
    $
    (24,038
    )
    
    $
    88,669
    
    
    $
    5,666
    
    
    $
    (9,665
    )
    
    $
    60,632Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    19,773
    
    
    
    1,089
    
    
    
    (243
    )
    
    
    20,619Amortization of loan costs
    
    
    1,627
    
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    1,672Stock based compensation
    
    
    
    
    
    
    12,535
    
    
    
    
    
    
    
    
    
    
    
    12,535Change in income tax assets and liabilities
    
    
    
    
    
    
    35,205
    
    
    
    117
    
    
    
    
    
    
    
    35,322Loss from discontinued operations
    
    
    
    
    
    
    1,249
    
    
    
    
    
    
    
    
    
    
    
    1,249Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (12,723
    )
    
    
    
    
    
    
    
    
    
    
    (12,723
    )Prepaids and other current assets
    
    
    
    
    
    
    (10,453
    )
    
    
    1,210
    
    
    
    
    
    
    
    (9,243
    )Accounts payable
    
    
    
    
    
    
    312
    
    
    
    
    
    
    
    
    
    
    
    312Salaries and benefits payable
    
    
    
    
    
    
    5,786
    
    
    
    
    
    
    
    
    
    
    
    5,786Accrued liabilities and other liabilities
    
    
    (1,366
    )
    
    
    5,050
    
    
    
    2,155
    
    
    
    
    
    
    
    5,839Net cash (used in) provided by continuing operating activities
    
    
    (23,777
    )
    
    
    145,403
    
    
    
    10,282
    
    
    
    (9,908
    )
    
    
    122,000Net cash provided by discontinued operating activities
    
    
    
    
    
    
    1,707
    
    
    
    
    
    
    
    
    
    
    
    1,707Net cash (used in) provided by operating activities
    
    
    (23,777
    )
    
    
    147,110
    
    
    
    10,282
    
    
    
    (9,908
    )
    
    
    123,707Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (385,078
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (385,078
    )Capital purchases of leasehold improvements,
equipment and software
    
    
    
    
    
    
    (33,816
    )
    
    
    
    
    
    
    
    
    
    
    (33,816
    )Other assets
    
    
    
    
    
    
    (611
    )
    
    
    17
    
    
    
    
    
    
    
    (594
    )Net cash (used in) provided by investing activities
    
    
    (385,078
    )
    
    
    (34,427
    )
    
    
    17
    
    
    
    
    
    
    
    (419,488
    )Financing activities:Net increase in revolving credit facility, less acquisitions
    
    
    101,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,000Borrowings on long-term debt
    
    
    150,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,000Principal payments on long-term debt
    
    
    (187
    )
    
    
    
    
    
    
    (278
    )
    
    
    
    
    
    
    (465
    )Net transfers to and from members
    
    
    153,309
    
    
    
    (160,034
    )
    
    
    (3,183
    )
    
    
    9,908
    
    
    
    Payment of loan and issuance costs
    
    
    (1,576
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,576
    )Excess tax benefits from share-based payment arrangements
    
    
    
    
    
    
    4,354
    
    
    
    
    
    
    
    
    
    
    
    4,354Proceeds from exercises of common stock options
    
    
    6,309
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,309Net cash provided by (used in) financing activities
    
    
    408,855
    
    
    
    (155,680
    )
    
    
    (3,461
    )
    
    
    9,908
    
    
    
    259,622Net (decrease) increase in cash
    
    
    
    
    
    
    (42,997
    )
    
    
    6,838
    
    
    
    
    
    
    
    (36,159
    )Cash and cash equivalents at beginning of year
    
    
    
    
    
    
    44,115
    
    
    
    10,585
    
    
    
    
    
    
    
    54,700Cash and cash equivalents at end of year
    
    $
    
    
    
    $
    1,118
    
    
    $
    17,423
    
    
    $
    
    
    
    $
    18,541
 F-30




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
 Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2005
(Dollars in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating activities:Net (loss) income
    
    $
    (29,318
    )
    
    $
    59,713
    
    
    $
    77
    
    
    $
    (3,318
    )
    
    $
    27,154Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    14,005
    
    
    
    976
    
    
    
    (243
    )
    
    
    14,738Amortization of loan costs
    
    
    1,140
    
    
    
    
    
    
    
    47
    
    
    
    
    
    
    
    1,187Loss on refinancing long-term debt
    
    
    21,871
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,871Change in income tax assets and liabilities
    
    
    
    
    
    
    9,494
    
    
    
    
    
    
    
    
    
    
    
    9,494Income from discontinued operations
    
    
    
    
    
    
    (336
    )
    
    
    
    
    
    
    
    
    
    
    (336
    )Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (9,399
    )
    
    
    
    
    
    
    
    
    
    
    (9,399
    )Prepaids and other current assets
    
    
    
    
    
    
    (4,647
    )
    
    
    974
    
    
    
    
    
    
    
    (3,673
    )Accounts payable
    
    
    
    
    
    
    2,116
    
    
    
    
    
    
    
    
    
    
    
    2,116Salaries and benefits payable
    
    
    
    
    
    
    2,598
    
    
    
    
    
    
    
    
    
    
    
    2,598Accrued liabilities and other liabilities
    
    
    10,965
    
    
    
    (4,519
    )
    
    
    6,894
    
    
    
    
    
    
    
    13,340Other
    
    
    
    
    
    
    463
    
    
    
    
    
    
    
    
    
    
    
    463Net cash provided by (used in) continuing operating activities
    
    
    4,658
    
    
    
    69,488
    
    
    
    8,968
    
    
    
    (3,561
    )
    
    
    79,553Net cash provided by discontinued operating activities
    
    
    
    
    
    
    222
    
    
    
    
    
    
    
    
    
    
    
    222Net cash provded by (used in) operating activities
    
    
    4,658
    
    
    
    69,710
    
    
    
    8,968
    
    
    
    (3,561
    )
    
    
    79,775Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (514,525
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (514,525
    )Capital purchases of property and equipment
    
    
    
    
    
    
    (21,750
    )
    
    
    
    
    
    
    
    
    
    
    (21,750
    )Purchases of short-term investments
    
    
    (29,400
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29,400
    )Sales of short-term investments
    
    
    29,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,400Cash paid for investments in equity method investees
    
    
    
    
    
    
    (1,340
    )
    
    
    
    
    
    
    
    
    
    
    (1,340
    )Other assets
    
    
    
    
    
    
    1,115
    
    
    
    104
    
    
    
    
    
    
    
    1,219Net cash (used in) provided by investing activities
    
    
    (514,525
    )
    
    
    (21,975
    )
    
    
    104
    
    
    
    
    
    
    
    (536,396
    )Financing activities:Borrowings on long-term debt
    
    
    545,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    545,000Principal payments on long-term debt
    
    
    (236,587
    )
    
    
    
    
    
    
    (235
    )
    
    
    
    
    
    
    (236,822
    )Net transfers to and from members
    
    
    31,762
    
    
    
    (34,608
    )
    
    
    (715
    )
    
    
    3,561
    
    
    
    Payment of loan and issuance costs
    
    
    (13,932
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,932
    )Refinancing of long-term debt
    
    
    (15,398
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,398
    )Proceeds from public offering of common stock
    
    
    192,637
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    192,637Proceeds from exercises of common stock options
    
    
    6,385
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,385Net cash provided by (used in) financing activities
    
    
    509,867
    
    
    
    (34,608
    )
    
    
    (950
    )
    
    
    3,561
    
    
    
    477,870Net increase in cash
    
    
    
    
    
    
    13,127
    
    
    
    8,122
    
    
    
    
    
    
    
    21,249Cash and cash equivalents at beginning of year
    
    
    
    
    
    
    30,988
    
    
    
    2,463
    
    
    
    
    
    
    
    33,451Cash and cash equivalents at end of year
    
    $
    
    
    
    $
    44,115
    
    
    $
    10,585
    
    
    $
    
    
    
    $
    54,700
 F-31




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
 Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2004
(Dollars in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating Activities:Net (loss) income
    
    $
    (14,803
    )
    
    $
    33,899
    
    
    $
    556
    
    
    $
    (2,851
    )
    
    $
    16,801Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    9,076
    
    
    
    975
    
    
    
    (243
    )
    
    
    9,808Amortization of loan costs
    
    
    691
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    691Loss on refinancing long-term debt
    
    
    6,407
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,407Change in income tax assets and liabilities
    
    
    
    
    
    
    6,920
    
    
    
    
    
    
    
    
    
    
    
    6,920Income from discontinued operations, net of taxes
    
    
    
    
    
    
    (347
    )
    
    
    
    
    
    
    
    
    
    
    (347
    )Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (2,110
    )
    
    
    (956
    )
    
    
    
    
    
    
    (3,066
    )Prepaids and other current assets
    
    
    
    
    
    
    2,388
    
    
    
    
    
    
    
    
    
    
    
    2,388Accounts payable
    
    
    
    
    
    
    (5,327
    )
    
    
    
    
    
    
    
    
    
    
    (5,327
    )Salaries and benefits payable
    
    
    
    
    
    
    5,199
    
    
    
    
    
    
    
    
    
    
    
    5,199Accrued liabilities and other liabilities
    
    
    (363
    )
    
    
    149
    
    
    
    605
    
    
    
    
    
    
    
    391Net cash (used in) provided by continuing operating activities
    
    
    (8,068
    )
    
    
    49,847
    
    
    
    1,180
    
    
    
    (3,094
    )
    
    
    39,865Net cash provided by discontinued operating activities
    
    
    
    
    
    
    295
    
    
    
    
    
    
    
    
    
    
    
    295Net cash (used in) provided by operating activities
    
    
    (8,068
    )
    
    
    50,142
    
    
    
    1,180
    
    
    
    (3,094
    )
    
    
    40,160Investing Activities:Cash paid for acquisitions, net of cash acquired
    
    
    (136,495
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (136,495
    )Capital purchases of property and equipment
    
    
    
    
    
    
    (17,100
    )
    
    
    (101
    )
    
    
    
    
    
    
    (17,201
    )Sale of long-term securities
    
    
    
    
    
    
    
    
    
    
    953
    
    
    
    
    
    
    
    953Other assets
    
    
    
    
    
    
    (2,758
    )
    
    
    1,341
    
    
    
    
    
    
    
    (1,417
    )Net cash (used in) provided by continuing investing activities
    
    
    (136,495
    )
    
    
    (19,858
    )
    
    
    2,193
    
    
    
    
    
    
    
    (154,160
    )Financing Activities:Principal payments on long-term debt
    
    
    (810
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (810
    )Net transfers to and from members
    
    
    42,060
    
    
    
    (42,746
    )
    
    
    (2,408
    )
    
    
    3,094
    
    
    
    Payment of loan and issuance costs
    
    
    (2,300
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,300
    )Refinancing of long-term debt
    
    
    (3,844
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,844
    )Proceeds from public offering of common stock
    
    
    104,691
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,691Proceeds from exercises of common stock options
    
    
    4,428
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,428Proceeds from repayment of stockholder notes
    
    
    338
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    338Net cash provided by (used in) financing activities
    
    
    144,563
    
    
    
    (42,746
    )
    
    
    (2,408
    )
    
    
    3,094
    
    
    
    102,503Net (decrease) increase in cash
    
    
    
    
    
    
    (12,462
    )
    
    
    965
    
    
    
    
    
    
    
    (11,497
    )Cash and cash equivalents at beginning of year
    
    
    
    
    
    
    43,450
    
    
    
    1,498
    
    
    
    
    
    
    
    44,948Cash and cash equivalents at end of year
    
    $
    
    
    
    $
    30,988
    
    
    $
    2,463
    
    
    $
    
    
    
    $
    33,451
 18. Subsequent Events
  F-32




---



##### Table of Contents



Psychiatric Solutions, Inc.By:
    /s/ Joey A. JacobsJoey A. JacobsChief Executive Officer   Signature
    
    Title
    
    Date/s/ Joey A. Jacobs

Joey A. Jacobs
    
    Chairman of the Board, President
and Chief Executive Officer (Principal
Executive Officer)
    
    February 27, 2007/s/ Jack E. Polson

Jack E. Polson
    
    Executive Vice President, Chief
Accounting Officer (Principal
Financial and Accounting
Officer)
    
    February 27, 2007/s/ William F. Carpenter III

William F. Carpenter III
    
    Director
    
    February 27, 2007/s/ Mark P. Clein

Mark P. Clein
    
    Director
    
    February 27, 2007/s/ David M. Dill

David M. Dill
    
    Director
    
    February 27, 2007/s/ Richard D. Gore

Richard D. Gore
    
    Director
    
    February 27, 2007/s/ Christopher Grant, Jr.

Christopher Grant, Jr.
    
    Director
    
    February 27, 2007/s/ William M. Petrie, M.D.

William M. Petrie, M.D.
    
    Director
    
    February 27, 2007/s/ Edward K. Wissing

Edward K. Wissing
    
    Director
    
    February 27, 2007