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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, 2008
 or
 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
    
    23-2491707(State or Other Jurisdiction of Incorporation or
    
    (I.R.S. Employer Identification No.)Organization)
 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
 o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting Company o(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



INDEX
 PAGEPART IItem 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    12Item 1B. Unresolved Staff Comments
    
    
    19Item 2. Properties
    
    
    19Item 3. Legal Proceedings
    
    
    20Item 4. Submission of Matters to a Vote of Security Holders
    
    
    21PART IIItem 5. Market For Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    21Item 6. Selected Financial Data
    
    
    21Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 8. Financial Statements and Supplementary Data
    
    
    32Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    32Item 9A. Controls and Procedures
    
    
    32Item 9B. Other Information
    
    
    32PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    32Item 11. Executive Compensation
    
    
    33Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    33Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    34Item 14. Principal Accountant Fees and Services
    
    
    34PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    34Index to Financial Statements
    
    
    F-1SignaturesEX-21.1EX-23.1EX-31.1EX-31.2EX-32.1
  2




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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 effected on January 9, 2006.
 
 Item 1. Business
 Overview
    www.psysolutions.com.
 Our Industry
    Our Competitive Strengths
  3




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
    
    Singular focus on behavioral health care We focus primarily 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 owned
and leased 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 For
the year ended December 31, 2008, we received 29.1% of our revenue
from Medicaid, 12.6% from Medicare, 30.3% from HMO/PPO, commercial and
private payors, 15.2% from various state agencies and 12.8% 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, 2008, no single inpatient facility represented more than
2.8% 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 approximately 2% to 3% 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.
 Our Growth Strategy
  
    
    Continue to Drive Same-Facility Growth We increased our
same-facility revenue by approximately 8.0% for the year ended
December 31, 2008 compared to the year ended December 31, 2007.
Same-facility revenue also increased by approximately 6.7%, 9.0%, and
8.0% for the years ended December 31, 2007, 2006, and 2005,
respectively, 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, adjusted for closures and combinations for
comparability purposes. We intend to continue to increase our
same-facility revenue by increasing our admissions and patient days
and obtaining annual reimbursement rate increases. We plan to
accomplish these goals by:
 
    
    expanding bed capacity at our facilities to meet demand;
    
    expanding our services and developing new services to take advantage of increased demand in
select markets where we operate;
    
    building and expanding relationships that enhance our presence in local and regional markets;
    
    developing formal marketing initiatives and expanding referral networks; and
 4




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
    
    continuing to provide high quality service.
 
    
    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 one-third of these facilities. We believe there are a
number of acquisition candidates available at attractive valuations,
and we have potential acquisitions that are in various stages of
development and consideration. 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
   
    
    bipolar disorder
    
    major depression
    
    schizophrenia
    
    attention deficit/hyperactivity disorder
    
    impulse disorder
    
    oppositional and conduct disorders
    
    partial hospitalization
    
    intensive outpatient
    
    acute eating disorders
    
    reactive attachment disorder
    
    dual diagnosis
    
    rehabilitation care
    
    day treatment
    
    detoxification
    
    developmentally delayed disorders
    
    therapeutic foster care
    
    neurological disorders
    
    rapid adoption services
    
    day treatment
    
    independent living skills
    
    vocational training
    
    chemical dependency
   5




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Other Behavioral Health Care Services
    Seasonality of Services
  Marketing
  Competition
   6




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Reimbursement
     Medicare
   www.cms.hhs.gov/InpatientPsychFacilPPS
  Recovery Audit Contractors
   7




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Medicaid
   Managed Care and Commercial Insurance Carriers
   Annual Cost Reports
  Regulation and Other Factors
 Licensure, Certification and Accreditation
   8




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Fraud and Abuse Laws
       9




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Emergency Medical Treatment and Active Labor Act
   The Federal False Claims Act
   HIPAA Transaction, Privacy and Security Requirements
  10




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Other Medical Record Disclosure Laws
   Certificates of Need (CON)
  Corporate Practice of Medicine and Fee Splitting
  Health Care Industry Investigations
  Risk Management
  Conversion Legislation
  11




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Regulatory Compliance Program
  Insurance
  Employees
  Available Information
 www.psysolutions.com
 Segments
  Executive Officers
  
 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.
Also, any changes to the laws and regulations governing our business, or the
interpretation and enforcement of those laws or regulations, could have a
material adverse effect on our business and consolidated financial condition,
results of operations and cash flows.
 12




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
    
    licensure and certification;
    
    relationships with physicians and other referral sources;
    
    quality of medical services;
    
    qualifications of medical and support personnel;
    
    confidentiality of health-related information and medical records;
    
    billing for services;
    
    cost reporting;
    
    operating policies and procedures; and
    
    addition of facilities and services.
     
    
    increasing our liability;
    
    increasing our administrative and other costs by requiring us to make changes in
our inpatient facilities, equipment or personnel;
    
    increasing or decreasing mandated services;
    
    forcing us to restructure our relationships with referral sources and providers; or
    
    requiring us to implement additional or different programs and systems.
  The economic downturn and continued deficit spending by the federal government
and state budget pressures may result in a reduction in payments and covered
services. Lower reimbursement rates for our services would have an adverse
effect on our business, financial condition and results of operations.
  13




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Government investigations may reduce our earnings. 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 additional
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.
   The volatility and disruption of the capital and credit markets and adverse
changes in the United States and global economies could impact our ability to
access both available and affordable financing, and without such financing, we
may be unable to achieve our objectives for strategic acquisitions and internal
growth.
  14




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As a provider of health care services, we are subject to claims and legal actions by patients and others.
   We depend on our ability to attract and retain key management personnel.
  The agreements governing our indebtedness contain various covenants that limit
our discretion in the operation of our business and our failure to satisfy
requirements in these agreements could have a material adverse effect on our
business and consolidated financial condition, results of operations and cash
flows.
 3 4 3 4
 15




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
    
    incur additional indebtedness and issue preferred stock;
    
    redeem or repurchase stock, pay dividends or make other distributions;
    
    make certain restricted payments and investments;
    
    create liens;
    
    sell assets, including the capital stock of our restricted subsidiaries;
    
    merge or consolidate with other entities; and
    
    engage in transactions with affiliates.
 3 4
 Our substantial indebtedness could adversely affect our financial condition and our ability to fulfill other obligations.
  
    
    increasing our vulnerability to general adverse economic and industry conditions;
    
    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;
    
    limiting our ability to obtain additional financing to fund future working capital,
capital expenditures, acquisitions and general corporate requirements; and
    
    placing us at a competitive disadvantage to our competitors that have less indebtedness.
  Acquired businesses will expose us to increased operating risks.
  
    
    our ability to effectively manage the expanded activities;
    
    our ability to realize our investment in the increased number of inpatient facilities and other businesses;
    
    our exposure to unknown liabilities; and
    
    our ability to meet contractual obligations.
  If we fail to integrate or improve, where necessary, the operations of existing
and acquired inpatient facilities, we may be unable to achieve our growth
strategy, which could have a material adverse effect on our business and
consolidated financial condition,
 16




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results of operations and cash flows.
   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.
 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.
  We may be required to spend substantial amounts to comply with legislative and
regulatory initiatives relating to privacy and security of patient health
information and standards for electronic transactions.
   17




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Forward-Looking Statements
    
    
    our substantial indebtedness and adverse changes in credit markets impacting our ability to receive timely additional
financing on terms acceptable to us to fund our acquisition strategy and capital expenditure needs;
    
    risks inherent to the health care industry, including the impact of unforeseen changes in regulation and the potential adverse
impact of government investigations, liabilities and other claims asserted against us;
    
    economic downturn resulting in efforts by federal and state health care programs and managed care companies to reduce
reimbursement rates for our services;
    
    potential competition that alters or impedes our acquisition strategy by decreasing our ability to acquire additional
inpatient facilities on favorable terms;
    
    our ability to comply with applicable licensure and accreditation requirements;
    
    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 operations;
    
    our ability to successfully integrate and improve the operations of acquired inpatient facilities;
    
    our ability to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act;
    
    our ability to maintain favorable and continuing relationships with physicians and other health care professionals who use our
inpatient facilities;
    
    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;
    
    future trends for pricing, margins, revenue and profitability that remain difficult to predict in the industries that we serve;
    
    negative press coverage of us or our industry that may affect public opinion; and
    
    those risks and uncertainties described from time to time in our filings with the SEC.
  18




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Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
  DateAcquired/Facility
    
    Location
    
    Beds
    
    Own/Lease
    
    OpenedCypress 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
    
    
    152
    
    
    Own
    
    12/01Riveredge Hospital
    
    Forest Park, IL
    
    
    224
    
    
    Own
    
    7/02Whisper Ridge Behavioral Health System
    
    Charlottesville, VA
    
    
    96
    
    
    Lease
    
    4/03Cedar Springs Hospital
    
    Colorado Springs, CO
    
    
    110
    
    
    Own
    
    4/03Laurel Ridge Treatment Center
    
    San Antonio, TX
    
    
    194
    
    
    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
    
    
    192
    
    
    Own
    
    4/03Laurel Oaks Behavioral Health Center
    
    Dothan, AL
    
    
    115
    
    
    Own
    
    6/03Hill Crest Behavioral Health Services
    
    Birmingham, AL
    
    
    191
    
    
    Own
    
    6/03Gulf Coast Treatment Center
    
    Fort Walton Beach, FL
    
    
    168
    
    
    Own
    
    6/03Manatee Palms Youth Services
    
    Bradenton, FL
    
    
    60
    
    
    Own
    
    6/03Havenwyck Hospital
    
    Auburn Hills, MI
    
    
    184
    
    
    Own
    
    6/03Heartland Behavioral Health Services
    
    Nevada, MO
    
    
    159
    
    
    Own
    
    6/03Brynn Marr Hospital
    
    Jacksonville, NC
    
    
    88
    
    
    Own
    
    6/03Benchmark Behavioral Health System
    
    Woods Cross, UT
    
    
    151
    
    
    Own
    
    6/03Macon Behavioral Health Treatment Center
    
    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 Hospital
    
    Shreveport, LA
    
    
    200
    
    
    Own
    
    3/04Brentwood Behavioral Healthcare of Mississippi
    
    Flowood, MS
    
    
    107
    
    
    Own
    
    3/04Palmetto Lowcountry Behavioral Health
    
    North Charleston, SC
    
    
    112
    
    
    Own
    
    5/04Palmetto Pee Dee Behavioral Health
    
    Florence, SC
    
    
    59
    
    
    Own
    
    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 Services
    
    Santa Teresa, NM
    
    
    144
    
    
    Own
    
    6/04Alhambra Hospital
    
    Rosemead, CA
    
    
    85
    
    
    Own
    
    7/05Belmont Pines Hospital
    
    Youngstown, OH
    
    
    81
    
    
    Own
    
    7/05Brooke Glen Behavioral Hospital
    
    Fort Washington, PA
    
    
    146
    
    
    Own
    
    7/05Columbus Behavioral Center
    
    Columbus, IN
    
    
    61
    
    
    Own
    
    7/05Cumberland Hospital
    
    New Kent, VA
    
    
    136
    
    
    Own
    
    7/05Fairfax Hospital
    
    Kirkland, WA
    
    
    133
    
    
    Own
    
    7/05Fox Run Hospital
    
    St. Clairsville, OH
    
    
    100
    
    
    Own
    
    7/05Fremont Hospital
    
    Fremont, CA
    
    
    96
    
    
    Own
    
    7/05Heritage Oaks Hospital
    
    Sacramento, CA
    
    
    76
    
    
    Own
    
    7/05Intermountain Hospital
    
    Boise, ID
    
    
    95
    
    
    Own
    
    7/05Meadows Hospital
    
    Bloomington, IN
    
    
    78
    
    
    Own
    
    7/05Mesilla Valley Hospital
    
    Las Cruces, NM
    
    
    127
    
    
    Own
    
    7/05Montevista Hospital
    
    Las Vegas, NV
    
    
    101
    
    
    Own
    
    7/05Pinnacle Pointe Hospital
    
    Little Rock, AR
    
    
    102
    
    
    Own
    
    7/05Sierra Vista Hospital
    
    Sacramento, CA
    
    
    72
    
    
    Own
    
    7/05Streamwood Behavioral Health
    
    Streamwood, IL
    
    
    314
    
    
    Own
    
    7/05
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DateAcquired/Facility
    
    Location
    
    Beds
    
    Own/Lease
    
    OpenedValle Vista Hospital
    
    Greenwood, IN
    
    
    102
    
    
    Own
    
    7/05West Hills Hospital
    
    Reno, NV
    
    
    95
    
    
    Own
    
    7/05Willow Springs Center
    
    Reno, NV
    
    
    76
    
    
    Own
    
    7/05Canyon Ridge Hospital
    
    Chino, CA
    
    
    59
    
    
    Own
    
    8/05Atlantic Shores Hospital
    
    Fort Lauderdale, FL
    
    
    72
    
    
    Own
    
    1/06Wellstone Regional Hospital
    
    Jeffersonville, IN
    
    
    100
    
    
    Own
    
    1/06Diamond Grove Center
    
    Louisville, MS
    
    
    50
    
    
    Own
    
    5/06Hickory Trail Hospital
    
    DeSoto, TX
    
    
    86
    
    
    Own
    
    7/06National Deaf Academy
    
    Mount Dora, FL
    
    
    132
    
    
    Own
    
    7/06Windmoor Healthcare
    
    Clearwater, FL
    
    
    100
    
    
    Own
    
    9/06University Behavioral Center
    
    Orlando, FL
    
    
    104
    
    
    Own
    
    9/06Sandy Pines Hospital
    
    Tequesta, FL
    
    
    80
    
    
    Own
    
    9/06Cumberland Hall of Chattanooga
    
    Chattanooga, TN
    
    
    64
    
    
    Own
    
    12/06Cumberland Hall
    
    Hopkinsville, KY
    
    
    60
    
    
    Own
    
    12/06Nashville Rehabilitation Hospital
    
    Nashville, TN
    
    
    31
    
    
    Own
    
    12/06Panamericano
    
    Cidra, Puerto Rico
    
    
    195
    
    
    Own
    
    12/06The Pines Residential Treatment Center
    
    Portsmouth, VA
    
    
    424
    
    
    Own
    
    12/06Palmetto Summerville
    
    Summerville, SC
    
    
    60
    
    
    Lease
    
    12/06Three Rivers Residential Treatment  Midlands
Campus
    
    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
    
    01/07Copper Hills Youth Center
    
    West Jordan, UT
    
    
    153
    
    
    Own
    
    05/07MeadowWood Behavioral Health System
    
    New Castle, DE
    
    
    58
    
    
    Own
    
    05/07High Point Treatment Center
    
    Cooper City, FL
    
    
    66
    
    
    Own
    
    05/07Focus by the Sea
    
    St. Simons, GA
    
    
    101
    
    
    Own
    
    05/07Arrowhead Behavioral Health
    
    Maumee, OH
    
    
    42
    
    
    Own
    
    05/07Friends Hospital
    
    Philadelphia, PA
    
    
    219
    
    
    Own
    
    05/07Kingwood Pines Hospital
    
    Kingwood, TX
    
    
    78
    
    
    Own
    
    05/07Windsor-Laurelwood Center
    
    Willoughby, OH
    
    
    160
    
    
    Lease
    
    05/07Lighthouse Care Center of Augusta
    
    Augusta, GA
    
    
    106
    
    
    Own
    
    05/07Lighthouse Care Center of Conway
    
    Conway, SC
    
    
    108
    
    
    Own
    
    05/07Lighthouse Care Center of Oconee
    
    Tamassee, SC
    
    
    28
    
    
    Own
    
    05/07Michiana Behavioral Health Center
    
    Plymouth, IN
    
    
    80
    
    
    Own
    
    05/07Poplar Springs Hospital
    
    Petersburg, VA
    
    
    199
    
    
    Own
    
    05/07River Park Hospital
    
    Huntington, WV
    
    
    187
    
    
    Own
    
    05/07Lighthouse Care Center of Berkley
    
    Summerville, SC
    
    
    *
    
    
    Own
    
    05/07Austin Lakes Hospital
    
    Austin, TX
    
    
    48
    
    
    Lease
    
    08/07The Hughes Center for Exceptional Children
    
    Danville, VA
    
    
    56
    
    
    Own
    
    09/07The Brook  Dupont
    
    Louisville, KY
    
    
    66
    
    
    Own
    
    03/08River Point Behavioral Health
    
    Jacksonville, FL
    
    
    99
    
    
    Own
    
    03/08The Brook  KMI
    
    Louisville, KY
    
    
    106
    
    
    Own
    
    03/08The Vines
    
    Ocala, FL
    
    
    78
    
    
    Own
    
    03/08Wekiva Springs
    
    Jacksonville, FL
    
    
    44
    
    
    Own
    
    03/08Lincoln Prairie Behavioral Health Center
    
    Springfield, IL
    
    
    120
    
    
    Own
    
    05/08Rolling Hills Hospital
    
    Franklin, TN
    
    
    80
    
    
    Own
    
    01/09
 
 *
    
    We acquired a non-operating facility, Lighthouse Berkley, in the acquisition of Horizon Health.
Currently no patients are being served at this facility.
    
    Lincoln Prairie currently has 120 beds constructed, of which
80 beds are currently licensed. We expect the additional 40 beds to
be licensed in 2009.  
 Item 3. Legal Proceedings.
  20




---



##### Table of Contents



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
    
    Low2007First Quarter
    
    $
    42.93
    
    
    $
    35.18Second Quarter
    
    $
    42.75
    
    
    $
    33.96Third Quarter
    
    $
    40.00
    
    
    $
    31.81Fourth Quarter
    
    $
    40.71
    
    
    $
    31.922008First Quarter
    
    $
    34.31
    
    
    $
    27.17Second Quarter
    
    $
    39.62
    
    
    $
    30.45Third Quarter
    
    $
    40.90
    
    
    $
    32.89Fourth Quarter
    
    $
    39.00
    
    
    $
    22.86
  3 4
 
 Item 6. Selected Financial Data.
  21




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##### Table of Contents



Psychiatric Solutions, Inc.
Selected Financial Data
As of and for the Years Ended December 31,
 2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(In thousands, except per share amounts and operating data)Income Statement Data:Revenue
    
    $
    1,765,977
    
    
    $
    1,460,679
    
    
    $
    1,004,422
    
    
    $
    698,190
    
    
    $
    455,151Costs and expenses:Salaries, wages and employee benefits
    
    
    971,284
    
    
    
    812,505
    
    
    
    567,762
    
    
    
    383,342
    
    
    
    246,233Other operating expenses
    
    
    467,138
    
    
    
    382,381
    
    
    
    258,567
    
    
    
    196,251
    
    
    
    137,924Provision for doubtful accounts
    
    
    34,606
    
    
    
    27,482
    
    
    
    19,437
    
    
    
    13,640
    
    
    
    10,581Depreciation and amortization
    
    
    40,309
    
    
    
    30,756
    
    
    
    20,333
    
    
    
    14,607
    
    
    
    9,693Interest expense
    
    
    78,648
    
    
    
    74,978
    
    
    
    40,303
    
    
    
    27,056
    
    
    
    18,964Other expenses
    
    
    
    
    
    
    8,179
    
    
    
    
    
    
    
    21,871
    
    
    
    6,407Total costs and expenses
    
    
    1,591,985
    
    
    
    1,336,281
    
    
    
    906,402
    
    
    
    656,767
    
    
    
    429,802Income from
continuing operations before income taxes
    
    
    173,992
    
    
    
    124,398
    
    
    
    98,020
    
    
    
    41,423
    
    
    
    25,349Provision for income taxes
    
    
    66,117
    
    
    
    47,034
    
    
    
    37,011
    
    
    
    15,956
    
    
    
    9,633Income from continuing operations
    
    $
    107,875
    
    
    $
    77,364
    
    
    $
    61,009
    
    
    $
    25,467
    
    
    $
    15,716Net income
    
    $
    104,953
    
    
    $
    76,208
    
    
    $
    60,632
    
    
    $
    27,154
    
    
    $
    16,801Basic earnings per share from continuing
operations
    
    $
    1.94
    
    
    $
    1.42
    
    
    $
    1.15
    
    
    $
    0.57
    
    
    $
    0.52Basic earnings per share
    
    $
    1.89
    
    
    $
    1.40
    
    
    $
    1.15
    
    
    $
    0.61
    
    
    $
    0.55Shares used in computing basic earnings per
share
    
    
    55,408
    
    
    
    54,258
    
    
    
    52,953
    
    
    
    44,792
    
    
    
    29,140Diluted earnings per share from continuing
operations
    
    $
    1.92
    
    
    $
    1.39
    
    
    $
    1.13
    
    
    $
    0.55
    
    
    $
    0.45Diluted earnings per share
    
    $
    1.87
    
    
    $
    1.37
    
    
    $
    1.12
    
    
    $
    0.59
    
    
    $
    0.48Shares used in computing diluted earnings per
share from continuing operations
    
    
    56,267
    
    
    
    55,447
    
    
    
    54,169
    
    
    
    46,296
    
    
    
    35,146Balance Sheet Data:Cash
    
    $
    51,271
    
    
    $
    39,970
    
    
    $
    18,520
    
    
    $
    54,533
    
    
    $
    33,228Working capital
    
    
    168,700
    
    
    
    157,831
    
    
    
    103,287
    
    
    
    138,843
    
    
    
    44,791Property and equipment, net
    
    
    836,223
    
    
    
    692,135
    
    
    
    537,468
    
    
    
    376,739
    
    
    
    216,565Total assets
    
    
    2,504,760
    
    
    
    2,178,104
    
    
    
    1,579,321
    
    
    
    1,174,313
    
    
    
    496,522Total debt
    
    
    1,314,420
    
    
    
    1,172,024
    
    
    
    743,307
    
    
    
    482,389
    
    
    
    174,336Stockholders equity
    
    
    889,885
    
    
    
    754,742
    
    
    
    627,779
    
    
    
    539,712
    
    
    
    244,515Operating Data:Number of
facilities at period end
    
    
    94
    
    
    
    89
    
    
    
    72
    
    
    
    55
    
    
    
    34Number of licensed beds
    
    
    10,677
    
    
    
    10,092
    
    
    
    8,247
    
    
    
    6,354
    
    
    
    4,260Admissions
    
    
    164,675
    
    
    
    139,825
    
    
    
    106,529
    
    
    
    76,752
    
    
    
    49,123Patient days
    
    
    2,749,643
    
    
    
    2,415,042
    
    
    
    1,848,675
    
    
    
    1,383,440
    
    
    
    987,798Average length of stay
    
    
    17
    
    
    
    17
    
    
    
    17
    
    
    
    18
    
    
    
    20
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Overview
  22




---



##### Table of Contents




    
    operating results from the May 31, 2007 acquisition of Horizon Health and the March 1, 2008 acquisition of five
behavioral health care facilities from UMC;
    
    same-facility growth at our behavioral health care facilities in patient days of 2.6%
and revenue per patient day of 5.2%; and
    
    a reduction in interest expense as a percentage of revenue to 4.4% in
2008 compared to 5.1% in 2007 due primarily to a decrease in
our overall effective interest rate.
  
    
    one of our behavioral health care hospitals in Chicago experienced a
decline in operating results in 2008 as compared to 2007 primarily due
to a hold on admissions placed on this facility by the
Illinois Department of Children and Family Services and costs of professional
services related to the United States Department of Justice
investigation.
    
    our self-insured reserves for general and professional
liability risks increased approximately $4.9 million at December 31,
2008 compared to December 31, 2007, primarily as a result of the
revised assessment of certain claims at amounts higher than originally
anticipated and the actuarial implications of such revisions; and
    
    an increase in share-based compensation expense of $3.8 million.
 Sources of Revenue
 Patient Service Revenue
  Other Revenue
  23




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##### Table of Contents



Results of Operations
  Results of Operations, Consolidated Psychiatric SolutionsFor the Year Ended December 31,2008
    
    
    2007
    
    
    2006Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Revenue
    
    $
    1,765,977
    
    
    
    100.0
    %
    
    $
    1,460,679
    
    
    
    100.0
    %
    
    $
    1,004,422
    
    
    
    100.0
    %Salaries, wages, and employee benefits (including
share-based compensation of
$19,913, $16,104
and $12,535 in 2008, 2007 and 2006, respectively)
    
    
    971,284
    
    
    
    55.0
    %
    
    
    812,505
    
    
    
    55.6
    %
    
    
    567,762
    
    
    
    56.6
    %Professional fees
    
    
    179,307
    
    
    
    10.1
    %
    
    
    144,895
    
    
    
    9.9
    %
    
    
    94,907
    
    
    
    9.4
    %Supplies
    
    
    95,088
    
    
    
    5.4
    %
    
    
    80,170
    
    
    
    5.5
    %
    
    
    57,207
    
    
    
    5.7
    %Provision for doubtful accounts
    
    
    34,606
    
    
    
    2.0
    %
    
    
    27,482
    
    
    
    1.9
    %
    
    
    19,437
    
    
    
    1.9
    %Other operating expenses
    
    
    192,743
    
    
    
    10.9
    %
    
    
    157,316
    
    
    
    10.8
    %
    
    
    106,453
    
    
    
    10.6
    %Depreciation and amortization
    
    
    40,309
    
    
    
    2.3
    %
    
    
    30,756
    
    
    
    2.1
    %
    
    
    20,333
    
    
    
    2.0
    %Interest expense, net
    
    
    78,648
    
    
    
    4.4
    %
    
    
    74,978
    
    
    
    5.1
    %
    
    
    40,303
    
    
    
    4.0
    %Other expenses:Loss on refinancing long-term debt
    
    
    
    
    
    
    0.0
    %
    
    
    8,179
    
    
    
    0.6
    %
    
    
    
    
    
    
    0.0
    %Income from continuing operations before
income taxes
    
    
    173,992
    
    
    
    9.9
    %
    
    
    124,398
    
    
    
    8.5
    %
    
    
    98,020
    
    
    
    9.8
    %Provision for income taxes
    
    
    66,117
    
    
    
    3.8
    %
    
    
    47,034
    
    
    
    3.2
    %
    
    
    37,011
    
    
    
    3.7
    %Income from continuing operations
    
    $
    107,875
    
    
    
    6.1
    %
    
    $
    77,364
    
    
    
    5.3
    %
    
    $
    61,009
    
    
    
    6.1
    %
 Year Ended December 31, 2008 Compared To Year Ended December 31, 2007
  Year Ended December 31,
    
    %2008
    
    2007
    
    ChangeTotal facility results:Revenue (in thousands)
    
    $
    1,589,903
    
    
    $
    1,336,554
    
    
    
    19.0
    %Number of facilities at period end
    
    
    94
    
    
    
    89
    
    
    
    5.6
    %Admissions
    
    
    164,675
    
    
    
    139,825
    
    
    
    17.8
    %Patient days
    
    
    2,749,643
    
    
    
    2,415,042
    
    
    
    13.9
    %Average length of stay
    
    
    16.7
    
    
    
    17.3
    
    
    
    -3.5
    %Revenue per patient day
    
    $
    578
    
    
    $
    553
    
    
    
    4.5
    %Same-facility results:Revenue (in thousands)
    
    $
    1,437,569
    
    
    $
    1,331,141
    
    
    
    8.0
    %Number of facilities at period end
    
    
    89
    
    
    
    89
    
    
    
    0.0
    %Admissions
    
    
    145,567
    
    
    
    139,175
    
    
    
    4.6
    %Patient days
    
    
    2,466,223
    
    
    
    2,404,421
    
    
    
    2.6
    %Average length of stay
    
    
    16.9
    
    
    
    17.3
    
    
    
    -2.3
    %Revenue per patient day
    
    $
    583
    
    
    $
    554
    
    
    
    5.2
    %
 Revenue
 Salaries, wages, and employee benefits
 24




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##### Table of Contents



Professional fees
 Supplies.
 Provision for doubtful accounts
 Other operating expenses
 Depreciation and amortization
 Interest expense, net
 Loss on refinancing of long-term debt. 5 8 5 8 5 8
 Loss from discontinued operations, net of taxes
 25




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##### Table of Contents



Year Ended December 31, 2007 Compared To Year Ended December 31, 2006
  Year Ended December 31,
    
    %2007
    
    2006
    
    ChangeTotal facility results:Revenue (in thousands)
    
    $
    1,336,554
    
    
    $
    958,318
    
    
    
    39.5
    %Number of facilities at period end
    
    
    89
    
    
    
    72
    
    
    
    23.6
    %Admissions
    
    
    139,825
    
    
    
    106,529
    
    
    
    31.3
    %Patient days
    
    
    2,415,042
    
    
    
    1,848,675
    
    
    
    30.6
    %Average length of stay
    
    
    17.3
    
    
    
    17.4
    
    
    
    -0.6
    %Revenue per patient day
    
    $
    553
    
    
    $
    518
    
    
    
    6.8
    %Same-facility results:Revenue (in thousands)
    
    $
    1,000,874
    
    
    $
    937,843
    
    
    
    6.7
    %Number of facilities at period end
    
    
    72
    
    
    
    72
    
    
    
    0.0
    %Admissions
    
    
    106,828
    
    
    
    104,526
    
    
    
    2.2
    %Patient days
    
    
    1,826,108
    
    
    
    1,803,179
    
    
    
    1.3
    %Average length of stay
    
    
    17.1
    
    
    
    17.3
    
    
    
    -1.2
    %Revenue per patient day
    
    $
    548
    
    
    $
    520
    
    
    
    5.4
    %
 Revenue
 Salaries, wages, and employee benefits
 Professional fees
 Supplies.
 Provision for doubtful accounts
 Other operating expenses
 26




---



##### Table of Contents



Depreciation and amortization
 Interest expense, net
 Loss on refinancing of long-term debt. 5 8 5 8
 Loss from discontinued operations, net of taxes
 Liquidity and Capital Resources
   
    
    extend the maturity of $200 million capacity to December 31, 2011 with
the remaining $100 million capacity to mature on December 21, 2009, as
originally scheduled;
    
    revise the interest rate on borrowings to LIBOR plus a spread ranging from 5.0%
to 5.75% or prime plus a spread ranging from 4.0% to
4.75%, depending upon a leverage ratio; and
    
    revise the commitment fee on the unused portion of our revolving
credit facility to fluctuate between 0.75% and 1.0%, based upon a
leverage ratio.
    27




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##### Table of Contents



28




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##### Table of Contents



Obligations and Commitments
 Payments Due by Period (in thousands)Less than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    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
(extended to December 31, 2011
for $200,000 in February 2009)
and bearing interest of 3.4% at December 31, 2008
    
    $
    229,333
    
    
    $
    29,333
    
    
    $
    200,000
    
    
    $
    
    
    
    $
    Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 3.1% at December 31, 2008
    
    
    568,625
    
    
    
    3,750
    
    
    
    7,500
    
    
    
    557,375
    
    
    
    7 3/4% Senior Subordinated Notes due July 15, 2015
    
    
    475,841
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    475,841Mortgage loans on facilities, maturing in 2036, 2037 and 2038
bearing fixed interest rates of 5.7% to 7.6%
    
    
    33,273
    
    
    
    423
    
    
    
    928
    
    
    
    1,051
    
    
    
    30,8711,307,072
    
    
    
    33,506
    
    
    
    208,428
    
    
    
    558,426
    
    
    
    506,712Lease and other obligations
    
    
    105,558
    
    
    
    40,113
    
    
    
    19,796
    
    
    
    11,360
    
    
    
    34,289Total contractual obligations
    
    $
    1,412,630
    
    
    $
    73,619
    
    
    $
    228,224
    
    
    $
    569,786
    
    
    $
    541,001
 
 (1)
    
    Excludes capital lease obligations and other obligations of $7.3 million, which are included in lease and other obligations. 3 4
 Impact of Inflation and Economic Trends
   Critical Accounting Policies
  29




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##### Table of Contents



Allowance for Doubtful Accounts
    Allowances for Contractual Discounts
    For the Year Ended December 31,2008
    
    
    2007Net
    
    
    Accounts
    
    
    Net
    
    
    AccountsRevenue
    
    
    Receivable
    
    
    Revenue
    
    
    ReceivableMedicaid
    
    
    29
    %
    
    
    26
    %
    
    
    32
    %
    
    
    28
    %Commercial/HMO/Private Pay
    
    
    35
    %
    
    
    41
    %
    
    
    34
    %
    
    
    36
    %Medicare
    
    
    13
    %
    
    
    9
    %
    
    
    12
    %
    
    
    11
    %State agency
    
    
    15
    %
    
    
    17
    %
    
    
    16
    %
    
    
    17
    %Other
    
    
    8
    %
    
    
    7
    %
    
    
    6
    %
    
    
    8
    %100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  30




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##### Table of Contents



At December 31,2008
    
    
    20070 - 30 days
    
    
    64
    %
    
    
    64
    %31 - 60 days
    
    
    13
    %
    
    
    14
    %61 - 90 days
    
    
    8
    %
    
    
    8
    %91 - 120 days
    
    
    5
    %
    
    
    5
    %121 - 150 days
    
    
    4
    %
    
    
    4
    %151 - 180 days
    
    
    4
    %
    
    
    3
    %> 180 days
    
    
    2
    %
    
    
    2
    %Total
    
    
    100
    %
    
    
    100
    %
  Professional and General Liability
  Income Taxes
  Accounting for Uncertainty in Income Taxes -
An Interpretation of FASB Statement No. 109,
 Share-Based Compensation
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
  31




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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
  Managements
Report on Internal Control Over Financial Reporting
  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
    
    
    55
    
    
    April 1997
    
    President and Chief Executive OfficerTerrance R. Bridges
    
    
    56
    
    
    July 2007
    
    Co-Chief Operating OfficerRonald M. Fincher
    
    
    55
    
    
    October 2008
    
    Co-Chief Operating OfficerJack E. Polson
    
    
    42
    
    
    August 2002
    
    Executive Vice President, Chief Accounting OfficerBrent Turner
    
    
    43
    
    
    February 2003
    
    Executive Vice President, Finance and AdministrationChristopher L. Howard
    
    
    42
    
    
    September 2005
    
    Executive Vice President, General Counsel and Secretary
 32




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##### Table of Contents



Joey A. Jacobs, President and Chief Executive Officer
 Terrance R. Bridges, Co-Chief Operating Officer
 Ronald M. Fincher, Co-Chief Operating Officer
 Jack E. Polson, Executive Vice President, Chief Accounting Officer
 Brent Turner, Executive Vice President, Finance and Administration
 Christopher L. Howard, Executive Vice President, General Counsel and Secretary
 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.
  33




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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)).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 on 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 to 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 (incorporated by reference to
Exhibit 2.5 to the Companys Annual Report on Form 10-K for the
year ended December 31, 2006.
 34




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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 (incorporated by
reference to Exhibit 3.4 to the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 2005).3.5
    
    By-Laws (incorporated by reference to Exhibit 3 to the Companys
Current Report on Form 8-K filed on November 6, 2007).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).4.3
    
    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 on July 8, 2005).4.4
    
    Form of Notes (included in Exhibit 4.3).4.5
    
    Thirty-Fifth Supplemental Indenture, dated as of May 21, 2007, by and among
Psychiatric Solutions, Inc., the Guarantors named therein and U.S. Bank
National Association, as Trustee (incorporated by reference to Exhibit 4 to
the Companys Current Report on Form 8-K, filed on May 22, 2007).4.6
    
    Purchase Agreement, dated as of May 24, 2007, among Psychiatric Solutions,
Inc., the subsidiaries named as guarantors thereto, and Citigroup Global
Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as
representatives of the initial purchasers named therein (incorporated by
reference to Exhibit 4.1 to the Companys Current Report on Form 8-K, filed
on May 25, 2007).4.7
    
    Seventeenth Supplemental Indenture, dated as of May 31, 2007, among
Psychiatric Solutions, Inc., the subsidiaries of Psychiatric Solutions,
Inc. party thereto as guarantors and U.S. Bank National Association, as
Trustee (incorporated by reference to Exhibit 4.1 to the Companys Current
Report on Form 8-K, filed on June 1, 2007).4.8
    
    Exchange and Registration Rights Agreement, dated as of May 31, 2007, among
Psychiatric Solutions, Inc., the subsidiaries of Psychiatric Solutions,
Inc. party thereto as guarantors, and Citigroup Global Markets Inc.,
Merrill, Lynch, Pierce, Fenner & Smith Incorporated, Banc of America
Securities LLC, and J.P. Morgan Securities Inc. (incorporated by reference
to Exhibit 4.3 to the Companys Current Report on Form 8-K, filed June on
1, 2007).10.1
    
    Employment Agreement, dated as of May 10, 2007, between Joey A. Jacobs and
Psychiatric Solutions, Inc. (incorporated by reference to Exhibit 10 to the
Companys Current Report on Form 8-K, filed on May 15, 2007).10.2
    
    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).10.3
    
    ISDA Master Agreement, dated as of November 29, 2007, between Merrill Lynch
Capital Services, Inc. and Psychiatric Solutions, Inc. (incorporated by
reference to Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q,
filed on May 6, 2008).
 35




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##### Table of Contents



ExhibitNumber
    
    Description10.4
    
    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).10.5
    
    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
    
    Amendment No. 2 to Second Amended and Restated Credit Agreement, dated as
of December 1, 2006, by and among Psychiatric Solutions, Inc., BHC
Holdings, Inc., Premier Behavioral Solutions, Inc., Alternative Behavioral
Services, Inc., Horizon Health Corporation, ABS LINCS PR, Inc., First
Hospital Panamericano, Inc., FHCHS of Puerto Rico, Inc., First Corrections
 Puerto-Rico, 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 Merrill, Lynch,
Pierce, Fenner & Smith Incorporated, as joint lead arrangers and joint
book-running managers (incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K, filed on June 1, 2007).10.7
    
    Psychiatric Solutions, Inc. 2008 Long Term Equity Compensation Plan
(incorporated by reference to Exhibit 10.2 to the Companys Current Report
on Form 8-K, filed February 27, 2008).10.8
    
    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).10.9
    
    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).10.10
    
    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).10.11
    
    Fourth 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 10, 2008).10.12
    
    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).10.13
    
    Form of Nonstatutory Stock Option Agreement under the 1997 Plan
(incorporated by reference to Exhibit 10.3 to the Companys Quarterly
Report on Form 10-Q for the quarter ended March 31, 2007).10.14
    
    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).10.15
    
    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).10.16
    
    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).10.17
    
    Form of Outside Directors Non-Qualified Stock Option Agreement
(incorporated by reference to Exhibit 10.5 to the Companys Annual Report
on Form 10-K for the year ended April 30, 1997).
 36




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##### Table of Contents



ExhibitNumber
    
    Description10.18
    
    2008 Executive Officer Compensation (incorporated by reference to the
Companys Current Report on Form 8-K, filed on October 29, 2007).10.19
    
    Psychiatric Solutions, Inc. 2008 Cash Bonus Plans (incorporated by
reference to Exhibit 10.1 to the Companys Current Report on Form 8-K,
filed on February 27, 2008).10.20
    
    Summary of Director Compensation (incorporated by reference to Exhibit
10.22 to the Companys Annual Report on Form 10-K for the year ended
December 31, 2006).10.21
    
    Outside Director Retainer Increase (incorporated by reference to the
Companys Current Report on Form 8-K, filed on October 20, 2008).21.1*
    
    List of Subsidiaries.23.1*
    
    Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.31.1*
    
    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 37




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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, 2008 and 2007
    
    F-5Consolidated Statements of Income for the years ended December 31, 2008, 2007 and 2006
    
    F-6Consolidated Statements of Stockholders Equity for the years ended December 31, 2008, 2007 and 2006
    
    F-7Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006
    
    F-8Notes to Consolidated Financial Statements
    
    F-10
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     Accounting for Uncertainty in Income Taxes-An Interpretation of FASB
Statement No. 109
   
 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 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    51,271
    
    
    $
    39,970Accounts receivable, less allowance for doubtful accounts of
$48,882 and $35,398, respectively
    
    
    248,236
    
    
    
    230,600Prepaids and other
    
    
    101,363
    
    
    
    68,235Total current assets
    
    
    400,870
    
    
    
    338,805Property and equipment:Land
    
    
    176,933
    
    
    
    153,550Buildings
    
    
    673,071
    
    
    
    540,081Equipment
    
    
    98,503
    
    
    
    74,921Less accumulated depreciation
    
    
    (112,284
    )
    
    
    (76,417
    )836,223
    
    
    
    692,135Cost in excess of net assets acquired
    
    
    1,201,492
    
    
    
    1,071,275Other assets
    
    
    66,175
    
    
    
    75,889Total assets
    
    $
    2,504,760
    
    
    $
    2,178,104LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    35,401
    
    
    $
    30,996Salaries and benefits payable
    
    
    85,813
    
    
    
    82,101Other accrued liabilities
    
    
    76,542
    
    
    
    61,861Current portion of long-term debt
    
    
    34,414
    
    
    
    6,016Total current liabilities
    
    
    232,170
    
    
    
    180,974Long-term debt, less current portion
    
    
    1,280,006
    
    
    
    1,166,008Deferred tax liability
    
    
    69,471
    
    
    
    49,131Other liabilities
    
    
    28,271
    
    
    
    23,090Total liabilities
    
    
    1,609,918
    
    
    
    1,419,203Minority interest
    
    
    4,957
    
    
    
    4,159Stockholders equity:Common stock, $0.01 par value, 125,000 shares authorized;
55,934 and 55,107 issued and outstanding, respectively
    
    
    559
    
    
    
    551Additional paid-in capital
    
    
    608,341
    
    
    
    574,943Accumulated other comprehensive loss
    
    
    (3,695
    )
    
    
    (479
    )Retained earnings
    
    
    284,680
    
    
    
    179,727Total stockholders equity
    
    
    889,885
    
    
    
    754,742Total liabilities and stockholders equity
    
    $
    2,504,760
    
    
    $
    2,178,104
  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 31,2008
    
    
    2007
    
    
    2006Revenue
    
    $
    1,765,977
    
    
    $
    1,460,679
    
    
    $
    1,004,422Salaries, wages and employee benefits (including share-based
compensation of $19,913, $16,104 and $12,535 for the
years
ended December 31, 2008, 2007 and 2006, respectively)
    
    
    971,284
    
    
    
    812,505
    
    
    
    567,762Professional fees
    
    
    179,307
    
    
    
    144,895
    
    
    
    94,907Supplies
    
    
    95,088
    
    
    
    80,170
    
    
    
    57,207Rentals and leases
    
    
    23,181
    
    
    
    20,404
    
    
    
    12,801Other operating expenses
    
    
    169,562
    
    
    
    136,912
    
    
    
    93,652Provision for doubtful accounts
    
    
    34,606
    
    
    
    27,482
    
    
    
    19,437Depreciation and amortization
    
    
    40,309
    
    
    
    30,756
    
    
    
    20,333Interest expense
    
    
    78,648
    
    
    
    74,978
    
    
    
    40,303Loss on refinancing long-term debt
    
    
    
    
    
    
    8,179
    
    
    
    1,591,985
    
    
    
    1,336,281
    
    
    
    906,402Income from continuing operations before income taxes
    
    
    173,992
    
    
    
    124,398
    
    
    
    98,020Provision for income taxes
    
    
    66,117
    
    
    
    47,034
    
    
    
    37,011Income from continuing operations
    
    
    107,875
    
    
    
    77,364
    
    
    
    61,009Loss from discontinued operations, net of income tax benefit
of $131, $127 and $228 for 2008, 2007 and 2006,
respectively
    
    
    (2,922
    )
    
    
    (1,156
    )
    
    
    (377
    )Net income
    
    $
    104,953
    
    
    $
    76,208
    
    
    $
    60,632Basic earnings per share:Income from continuing operations
    
    $
    1.94
    
    
    $
    1.42
    
    
    $
    1.15Loss from discontinued operations, net of taxes
    
    
    (0.05
    )
    
    
    (0.02
    )
    
    
    Net income
    
    $
    1.89
    
    
    $
    1.40
    
    
    $
    1.15Diluted earnings per share:Income from continuing operations
    
    $
    1.92
    
    
    $
    1.39
    
    
    $
    1.13Loss from discontinued operations, net of taxes
    
    
    (0.05
    )
    
    
    (0.02
    )
    
    
    (0.01
    )Net income
    
    $
    1.87
    
    
    $
    1.37
    
    
    $
    1.12Shares used in computing per share amounts:Basic
    
    
    55,408
    
    
    
    54,258
    
    
    
    52,953Diluted
    
    
    56,267
    
    
    
    55,447
    
    
    
    54,169
  F-6




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 (in thousands)
 AccumulatedAdditional
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Comprehensive
    
    
    RetainedShares
    
    
    Amount
    
    
    Capital
    
    
    Loss
    
    
    Earnings
    
    
    TotalBalance 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
    
    
    
    627,779Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,208
    
    
    
    76,208Change in fair value of interest rate
swap, net of tax benefit of $308
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (479
    )
    
    
    
    
    
    
    (479
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,729Share-based compensation
    
    
    
    
    
    
    
    
    
    
    16,104
    
    
    
    
    
    
    
    
    
    
    
    16,104Common stock issued in
acquisition
    
    
    243
    
    
    
    2
    
    
    
    8,998
    
    
    
    
    
    
    
    
    
    
    
    9,000Exercise of stock options and
grants of restricted stock, net
of issuance costs
    
    
    1,443
    
    
    
    15
    
    
    
    17,220
    
    
    
    
    
    
    
    
    
    
    
    17,235Cumulative adjustment for
adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (533
    )
    
    
    (533
    )Income tax benefit of stock option
exercises
    
    
    
    
    
    
    
    
    
    
    9,428
    
    
    
    
    
    
    
    
    
    
    
    9,428Balance at December 31, 2007
    
    
    55,107
    
    
    
    551
    
    
    
    574,943
    
    
    
    (479
    )
    
    
    179,727
    
    
    
    754,742Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,953
    
    
    
    104,953Change in fair value of interest rate
swap, net of tax benefit of $2,154
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,216
    )
    
    
    
    
    
    
    (3,216
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,737Share-based compensation
    
    
    
    
    
    
    
    
    
    
    19,913
    
    
    
    
    
    
    
    
    
    
    
    19,913Common stock issued in
acquisition
    
    
    27
    
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    1,000Exercise of stock options and
grants of restricted stock, net
of issuance costs
    
    
    800
    
    
    
    8
    
    
    
    9,433
    
    
    
    
    
    
    
    
    
    
    
    9,441Income tax benefit of stock option
exercises
    
    
    
    
    
    
    
    
    
    
    3,052
    
    
    
    
    
    
    
    
    
    
    
    3,052Balance at December 31, 2008
    
    
    55,934
    
    
    $
    559
    
    
    $
    608,341
    
    
    $
    (3,695
    )
    
    $
    284,680
    
    
    $
    889,885
  F-7




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Operating activities:Net income
    
    $
    104,953
    
    
    $
    76,208
    
    
    $
    60,632Adjustments to reconcile net income to
net cash provided by continuing
operating activities:Depreciation and amortization
    
    
    40,309
    
    
    
    30,756
    
    
    
    20,333Amortization of loan costs and bond premium
    
    
    2,213
    
    
    
    2,151
    
    
    
    1,672Share-based compensation
    
    
    19,913
    
    
    
    16,104
    
    
    
    12,535Loss on refinancing long-term debt
    
    
    
    
    
    
    8,179
    
    
    
    Change in income tax assets and liabilities
    
    
    (5,034
    )
    
    
    8,639
    
    
    
    35,322Loss from discontinued operations, net of taxes
    
    
    2,922
    
    
    
    1,156
    
    
    
    377Changes in operating assets and liabilities,
net of effect of acquisitions:Accounts receivable
    
    
    (16,756
    )
    
    
    (13,387
    )
    
    
    (8,475
    )Prepaids and other current assets
    
    
    (4,175
    )
    
    
    6,093
    
    
    
    (10,294
    )Accounts payable
    
    
    2,388
    
    
    
    (7,517
    )
    
    
    227Salaries and benefits payable
    
    
    1,723
    
    
    
    2,351
    
    
    
    5,294Accrued liabilities and other liabilities
    
    
    (5,866
    )
    
    
    (6,346
    )
    
    
    5,259Net cash provided by continuing operating activities
    
    
    142,590
    
    
    
    124,387
    
    
    
    122,882Net cash (used in) provided by discontinued operating activities
    
    
    (807
    )
    
    
    1,134
    
    
    
    971Net cash provided by operating activities
    
    
    141,783
    
    
    
    125,521
    
    
    
    123,853Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (166,156
    )
    
    
    (462,820
    )
    
    
    (385,078
    )Capital purchases of leasehold improvements,
equipment and software
    
    
    (123,985
    )
    
    
    (73,222
    )
    
    
    (33,816
    )Other assets
    
    
    (1,318
    )
    
    
    (2,451
    )
    
    
    (594
    )Net cash used in continuing investing activities
    
    
    (291,459
    )
    
    
    (538,493
    )
    
    
    (419,488
    )Net cash provided by discontinued investing activities
    
    
    5,244
    
    
    
    1,909
    
    
    
    Net cash used in investing activities
    
    
    (286,215
    )
    
    
    (536,584
    )
    
    
    (419,488
    )
  F-8




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Financing activities:Net increase (decrease) in revolving credit facility, less acquisitions
    
    $
    149,333
    
    
    $
    (21,000
    )
    
    $
    101,000Borrowings on long-term debt
    
    
    
    
    
    
    481,875
    
    
    
    150,000Principal payments on long-term debt
    
    
    (6,067
    )
    
    
    (41,281
    )
    
    
    (465
    )Payment of loan and issuance costs
    
    
    (59
    )
    
    
    (6,661
    )
    
    
    (1,576
    )Refinancing of long-term debt
    
    
    
    
    
    
    (7,127
    )
    
    
    Excess tax benefit from share based payment arrangements
    
    
    3,052
    
    
    
    9,428
    
    
    
    4,354Proceeds from exercises of common stock options
    
    
    9,474
    
    
    
    17,279
    
    
    
    6,309Net cash provided by financing activities
    
    
    155,733
    
    
    
    432,513
    
    
    
    259,622Net increase (decrease) in cash
    
    
    11,301
    
    
    
    21,450
    
    
    
    (36,013
    )Cash and cash equivalents at beginning of the year
    
    
    39,970
    
    
    
    18,520
    
    
    
    54,533Cash and cash equivalents at end of the year
    
    $
    51,271
    
    
    $
    39,970
    
    
    $
    18,520Supplemental Cash Flow Information:Interest paid
    
    $
    82,704
    
    
    $
    62,864
    
    
    $
    40,177Income taxes paid (refunded)
    
    $
    68,151
    
    
    $
    29,924
    
    
    $
    (2,656
    )Effect of Acquisitions:Assets acquired, net of cash acquired
    
    $
    172,875
    
    
    $
    518,348
    
    
    $
    432,533Liabilities assumed
    
    
    (5,719
    )
    
    
    (37,826
    )
    
    
    (32,819
    )Common stock issued
    
    
    (1,000
    )
    
    
    (9,000
    )
    
    
    (4,277
    )Long-term debt assumed
    
    
    
    
    
    
    (8,702
    )
    
    
    (10,359
    )Cash paid for acquisitions, net of
cash acquired
    
    $
    166,156
    
    
    $
    462,820
    
    
    $
    385,078
  F-9




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##### Table of Contents



PSYCHIATRIC
SOLUTIONS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
 1. Summary of Significant Accounting Policies
 Description of Business
  Recent Developments
  Basis of Presentation
   Cash and Cash Equivalents
  Accounts Receivable
   Allowance for Doubtful Accounts
   F-10




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
  Allowances for Contractual Discounts
  Income Taxes
 Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109,
 Long-Lived Assets
 Property and Equipment
  Cost in Excess of Net Assets Acquired (Goodwill)
   Balance at December 31, 2006
    
    $
    757,021Acquisition of Horizon Health
    
    
    284,446Other Acquisitions
    
    
    29,808Balance at December 31, 2007
    
    
    1,071,275Acquisition of UMC facilities
    
    
    85,459Other Acquisitions
    
    
    44,758Balance at December 31, 2008
    
    $
    1,201,492
 Other Assets
  F-11




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
   Other Accrued Liabilities
  Share-Based Compensation
 Share Based
Payment Accounting for Stock-Based Compensation ,
 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, 2008
  Fair Value of Financial Instruments
 3 4 3 4
 Reclassifications
  Recent Accounting Pronouncements
 Disclosures about Derivative Instruments and Hedging
Activities  An Amendment of SFAS 133
 Business Combinations Business Combinations
 Noncontrolling Interests in Consolidated Financial
Statementsan Amendment of ARB No. 51
 The Fair Value Option for Financial Assets and
Financial LiabilitiesIncluding an Amendment of SFAS 115
 2. Revenue
  December 31,2008
    
    
    2007
    
    
    2006Patient service revenue
    
    $
    1,589,903
    
    
    $
    1,336,554
    
    
    $
    958,318Other revenue
    
    
    176,074
    
    
    
    124,125
    
    
    
    46,104Total revenue
    
    $
    1,765,977
    
    
    $
    1,460,679
    
    
    $
    1,004,422
 Patient Service Revenue
  F-13




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
   Other Revenue
  3. Earnings Per Share
 Earnings per Share
  Year ended December 31,2008
    
    
    2007
    
    
    2006Numerator:Basic and diluted earnings per share:Income from continuing operations
    
    $
    107,875
    
    
    $
    77,364
    
    
    $
    61,009Loss from discontinued operations, net of taxes
    
    
    (2,922
    )
    
    
    (1,156
    )
    
    
    (377
    )Net income
    
    $
    104,953
    
    
    $
    76,208
    
    
    $
    60,632Denominator:Weighted average shares outstanding for basic earnings per share
    
    
    55,408
    
    
    
    54,258
    
    
    
    52,953Effects of dilutive stock options and restriced stock outstanding
    
    
    859
    
    
    
    1,189
    
    
    
    1,216Shares used in computing diluted earnings per common share
    
    
    56,267
    
    
    
    55,447
    
    
    
    54,169Basic earnings per share:Income from continuing operations
    
    $
    1.94
    
    
    $
    1.42
    
    
    $
    1.15Loss from discontinued operations, net of taxes
    
    
    (0.05
    )
    
    
    (0.02
    )
    
    
    $
    1.89
    
    
    $
    1.40
    
    
    $
    1.15Diluted earnings per share:Income from continuing operations
    
    $
    1.92
    
    
    $
    1.39
    
    
    $
    1.13Loss from discontinued operations, net of taxes
    
    
    (0.05
    )
    
    
    (0.02
    )
    
    
    (0.01
    )$
    1.87
    
    
    $
    1.37
    
    
    $
    1.12
 4. Discontinued Operations
 Accounting for the Impairment or Disposal of Long-Lived Assets
 F-14




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
   Year Ended December 31,2008
    
    
    2007
    
    
    2006Revenue
    
    $
    14,799
    
    
    $
    23,490
    
    
    $
    24,154Operating expenses
    
    
    15,935
    
    
    
    24,006
    
    
    
    23,334Loss on disposal
    
    
    1,917
    
    
    
    767
    
    
    
    1,42517,852
    
    
    
    24,773
    
    
    
    24,759Loss from discontinued operations before income taxes
    
    
    (3,053
    )
    
    
    (1,283
    )
    
    
    (605
    )Benefit from income taxes
    
    
    (131
    )
    
    
    (127
    )
    
    
    (228
    )Loss from discontinued operations, net of income taxes
    
    $
    (2,922
    )
    
    $
    (1,156
    )
    
    $
    (377
    )
  5. Acquisitions
 2008 Acquisition
  2007 Acquisitions
   Horizon HealthAssets acquired:Accounts receivable
    
    $
    42,025Other current assets
    
    
    15,178Fixed assets
    
    
    96,664Costs in excess of net assets acquired
    
    
    296,068Other assets
    
    
    24,102474,037Liabilities assumed
    
    
    37,896Long-term debt assumed
    
    
    6,998Cash paid, net of cash acquired
    
    $
    429,143
  F-15




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
 2006 Acquisitions
   ABSAssets acquired:Accounts receivable
    
    $
    23,420Other current assets
    
    
    9,129Fixed assets
    
    
    65,438Costs in excess of net assets acquired
    
    
    148,312Other assets
    
    
    413246,712Liabilities assumed
    
    
    30,721Common stock issued
    
    
    4,277Cash paid, net of cash acquired
    
    $
    211,714
 6. Long-term debt
  December 31,2008
    
    
    2007Senior credit facility:Revolving line of credit facility, expiring on December 21, 2009
(extended to December 31, 2011 for
$200,000 in February 2009)
and bearing interest of 3.4% and
6.4% at December 31, 2008
and December 31, 2007, respectively
    
    $
    229,333
    
    
    $
    80,000Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 3.1% and
6.8% at December 31, 2008
and December 31, 2007, respectively
    
    
    568,625
    
    
    
    573,3127 3/4% Notes
    
    
    475,841
    
    
    
    476,508Mortgage loans on facilities, maturing in 2036, 2037 and 2038
bearing fixed interest rates of 5.7% to 7.6%
    
    
    33,273
    
    
    
    33,671Other
    
    
    7,348
    
    
    
    8,5331,314,420
    
    
    
    1,172,024Less current portion
    
    
    34,414
    
    
    
    6,016Long-term debt
    
    $
    1,280,006
    
    
    $
    1,166,008
 Senior Credit Facility
  F-16




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
     7 3 / 4 % Notes
 3 4 3 4 3 4 3 4
 Mortgage Loans
  Interest Rate Swap Agreements
  F-17




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
 Other
  2009
    
    
    34,4142010
    
    
    4,8772011
    
    
    204,8332012
    
    
    558,4262013
    
    
    1,079Thereafter
    
    
    510,791Total
    
    $
    1,314,420
 7. Leases
  2009
    
    $
    13,3282010
    
    
    10,4502011
    
    
    7,9682012
    
    
    5,4632013
    
    
    4,812Thereafter
    
    
    30,210Total
    
    $
    72,231
  8. Income Taxes
  2008
    
    
    2007
    
    
    2006Provision for income taxes attributable
to income from continuing operations
    
    $
    66,117
    
    
    $
    47,034
    
    
    $
    37,011Benefit from income taxes attributable
to loss from discontinued operations
    
    
    (131
    )
    
    
    (127
    )
    
    
    (228
    )Total provision for income taxes
    
    $
    65,986
    
    
    $
    46,907
    
    
    $
    36,783
  2008
    
    
    2007
    
    
    2006Current:Federal
    
    $
    43,338
    
    
    $
    31,899
    
    
    $
    9,684State
    
    
    4,983
    
    
    
    4,937
    
    
    
    2,341Foreign
    
    
    2,178
    
    
    
    4,121
    
    
    
    21950,499
    
    
    
    40,957
    
    
    
    12,244Deferred:Federal
    
    
    13,371
    
    
    
    8,078
    
    
    
    24,132State
    
    
    2,044
    
    
    
    (460
    )
    
    
    342Foreign
    
    
    203
    
    
    
    (1,541
    )
    
    
    29315,618
    
    
    
    6,077
    
    
    
    24,767Provision for income taxes
    
    $
    66,117
    
    
    $
    47,034
    
    
    $
    37,011
  F-18




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
  2008
    
    
    2007
    
    
    2006Federal tax
    
    $
    60,897
    
    
    $
    43,539
    
    
    $
    34,307State income taxes (net of federal)
    
    
    4,568
    
    
    
    2,910
    
    
    
    1,744Other
    
    
    652
    
    
    
    585
    
    
    
    960Provision for income taxes
    
    $
    66,117
    
    
    $
    47,034
    
    
    $
    37,011
  2008
    
    
    2007Deferred tax assets:Net operating loss carryforwards
    
    $
    9,146
    
    
    $
    10,210Allowance for doubtful accounts
    
    
    13,488
    
    
    
    11,218Alternative minimum tax credit
carryovers
    
    
    794
    
    
    
    1,150Accrued liabilities
    
    
    39,293
    
    
    
    24,757Total gross deferred tax assets
    
    
    62,721
    
    
    
    47,335Less: Valuation allowance
    
    
    (4,748
    )
    
    
    (5,640
    )Total deferred tax assets
    
    
    57,973
    
    
    
    41,695Deferred tax liabilities:Intangible assets
    
    
    (37,567
    )
    
    
    (16,611
    )Property and equipment
    
    
    (57,415
    )
    
    
    (51,509
    )Other
    
    
    (2,658
    )
    
    
    Net deferred tax liability
    
    $
    (39,667
    )
    
    $
    (26,425
    )
      F-19




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
  Balance as of January 1, 2008
    
    $
    1,272Increases for tax positions taken in the current year
    
    
    698Reductions due to lapse of statute of limitations
    
    
    (246
    )Balance as of December 31, 2008
    
    $
    1,724
     9. Stock Option Plans
    WeightedWeighted
    
    AverageAverage
    
    Remaining
    
    AggregateNumber
    
    Exercise
    
    Contractual
    
    Intrinsicof Options
    
    Price
    
    Term (in years)
    
    ValueOutstanding at December
31, 2007
    
    
    6,055
    
    
    $
    28.41
    
    
    
    n/a
    
    
    
    n/aGranted
    
    
    1,590
    
    
    $
    30.60
    
    
    
    n/a
    
    
    
    n/aCanceled
    
    
    (643
    )
    
    $
    33.61
    
    
    
    n/a
    
    
    
    n/aExercised
    
    
    (490
    )
    
    $
    19.25
    
    
    
    n/a
    
    
    
    n/aOutstanding at December
31, 2008
    
    
    6,512
    
    
    $
    28.98
    
    
    
    7.5
    
    
    $
    24,448Exercisable at December
31, 2008
    
    
    3,223
    
    
    $
    23.59
    
    
    
    6.4
    
    
    $
    23,959
  F-20




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
  WeightedNumber
    
    Averageof
    
    Grant-Restricted
    
    Date FairShares
    
    ValueUnvested at December 31, 2007
    
    
    242
    
    
    $
    40.20Granted
    
    
    318
    
    
    $
    29.24Canceled
    
    
    
    
    
    $
    0.00Vested
    
    
    (62
    )
    
    $
    39.99Unvested at December 31, 2008
    
    
    498
    
    
    $
    33.23
   2008
    
    2007
    
    2006Weighted average grant-date fair value of
options
    
    $
    11.02
    
    
    $
    14.25
    
    
    $
    9.96Risk-free interest rate
    
    
    3
    %
    
    
    5
    %
    
    
    5
    %Expected volatility
    
    
    34
    %
    
    
    35
    %
    
    
    31
    %Expected life
    
    
    5
    
    
    
    5
    
    
    
    4Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    10. Employee Benefit Plan
  F-21




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
 11. Contingencies and Health Care Regulation
 Contingencies
  Employment Agreements
     Current Operations
    F-22




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
  12. Related Party Transactions
  13. Disclosures About Reportable Segments
 Disclosures About Segments of an Enterprise and
Related Information
  F-23




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
 Year Ended December 31, 2008
 Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    1,589,903
    
    
    $
    176,074
    
    
    
    
    
    
    $
    1,765,977Adjusted EBITDA
    
    $
    322,175
    
    
    $
    35,440
    
    
    $
    (44,753
    )
    
    $
    312,862Interest expense, net
    
    
    28,557
    
    
    
    638
    
    
    
    49,453
    
    
    
    78,648Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    66,117
    
    
    
    66,117Depreciation and amortization
    
    
    33,299
    
    
    
    5,468
    
    
    
    1,542
    
    
    
    40,309Inter-segment expenses
    
    
    63,855
    
    
    
    7,659
    
    
    
    (71,514
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    19,913
    
    
    
    19,913Total other expenses
    
    
    
    
    
    
    
    
    
    
    19,913
    
    
    
    19,913Income (loss) from continuing operations
    
    $
    196,464
    
    
    $
    21,675
    
    
    $
    (110,264
    )
    
    $
    107,875Total assets
    
    $
    2,222,072
    
    
    $
    146,146
    
    
    $
    136,542
    
    
    $
    2,504,760Capital expenditures
    
    $
    118,269
    
    
    $
    1,381
    
    
    $
    4,335
    
    
    $
    123,985Cost in excess of net assets acquired
    
    $
    1,113,161
    
    
    $
    88,331
    
    
    $
    
    
    
    $
    1,201,492
 Year Ended December 31, 2007
 Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    1,336,554
    
    
    $
    124,125
    
    
    $
    
    
    
    $
    1,460,679Adjusted EBITDA
    
    $
    271,197
    
    
    $
    21,850
    
    
    $
    (38,632
    )
    
    $
    254,415Interest expense, net
    
    
    30,347
    
    
    
    513
    
    
    
    44,118
    
    
    
    74,978Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    47,034
    
    
    
    47,034Depreciation and amortization
    
    
    26,770
    
    
    
    2,526
    
    
    
    1,460
    
    
    
    30,756Inter-segment expenses
    
    
    55,393
    
    
    
    4,914
    
    
    
    (60,307
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    16,104
    
    
    
    16,104Loss on refinancing long-term debt
    
    
    
    
    
    
    
    
    
    
    8,179
    
    
    
    8,179Total other expenses
    
    
    
    
    
    
    
    
    
    
    24,283
    
    
    
    24,283Income (loss) from continuing operations
    
    $
    158,687
    
    
    $
    13,897
    
    
    $
    (95,220
    )
    
    $
    77,364Total assets
    
    $
    1,959,077
    
    
    $
    104,989
    
    
    $
    114,038
    
    
    $
    2,178,104Capital expenditures
    
    $
    68,719
    
    
    $
    425
    
    
    $
    4,078
    
    
    $
    73,222Cost in excess of net assets acquired
    
    $
    1,025,702
    
    
    $
    45,573
    
    
    $
    
    
    
    $
    1,071,275
 F-24




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
 Year Ended December 31, 2006
 Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    958,318
    
    
    $
    46,104
    
    
    $
    
    
    
    $
    1,004,422Adjusted EBITDA
    
    $
    191,684
    
    
    $
    8,075
    
    
    $
    (28,568
    )
    
    $
    171,191Interest expense, net
    
    
    13,426
    
    
    
    (2
    )
    
    
    26,879
    
    
    
    40,303Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    37,011
    
    
    
    37,011Depreciation and amortization
    
    
    18,396
    
    
    
    677
    
    
    
    1,260
    
    
    
    20,333Inter-segment expenses
    
    
    28,190
    
    
    
    1,668
    
    
    
    (29,858
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    12,535
    
    
    
    12,535Total other expenses
    
    
    
    
    
    
    
    
    
    
    12,535
    
    
    
    12,535Income (loss) from continuing operations
    
    $
    131,672
    
    
    $
    5,732
    
    
    $
    (76,395
    )
    
    $
    61,009Total assets
    
    $
    1,454,607
    
    
    $
    35,285
    
    
    $
    89,429
    
    
    $
    1,579,321Capital expenditures
    
    $
    28,858
    
    
    $
    69
    
    
    $
    4,889
    
    
    $
    33,816Cost in excess of net assets acquired
    
    $
    736,599
    
    
    $
    20,422
    
    
    $
    
    
    
    $
    757,021
 14. 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, 2006
    
    $
    15,061
    
    
    $
    19,437
    
    
    $
    12,023
    
    
    $
    27,974
    
    
    $
    18,547Year ended December
31, 2007
    
    
    18,547
    
    
    
    27,482
    
    
    
    12,982
    
    
    
    23,613
    
    
    
    35,398Year ended December
31, 2008
    
    
    35,398
    
    
    
    34,606
    
    
    
    
    
    
    
    21,122
    
    
    
    48,882
 
 (1)
    
    Allowances as a result of acquisitions. 15. Quarterly Information (Unaudited)
  1stQuarter
    
    2ndQuarter
    
    3rdQuarter
    
    4thQuarter
    
    Total Year2008Revenue
    
    $
    423,829
    
    
    $
    448,270
    
    
    $
    448,015
    
    
    $
    445,863
    
    
    $
    1,765,977Income from continuing operations
    
    $
    25,289
    
    
    $
    29,359
    
    
    $
    28,605
    
    
    $
    24,622
    
    
    $
    107,875Net income
    
    $
    25,496
    
    
    $
    29,059
    
    
    $
    26,377
    
    
    $
    24,021
    
    
    $
    104,953Earnings per share:Basic
    
    $
    0.46
    
    
    $
    0.53
    
    
    $
    0.48
    
    
    $
    0.43
    
    
    $
    1.89Diluted
    
    $
    0.46
    
    
    $
    0.52
    
    
    $
    0.47
    
    
    $
    0.43
    
    
    $
    1.872007Revenue
    
    $
    317,475
    
    
    $
    348,671
    
    
    $
    396,419
    
    
    $
    398,114
    
    
    $
    1,460,679Income from continuing operations
    
    $
    18,327
    
    
    $
    15,308
    
    
    $
    20,569
    
    
    $
    23,160
    
    
    $
    77,364Net income
    
    $
    18,125
    
    
    $
    14,607
    
    
    $
    20,325
    
    
    $
    23,151
    
    
    $
    76,208Earnings per share:Basic
    
    $
    0.34
    
    
    $
    0.27
    
    
    $
    0.37
    
    
    $
    0.42
    
    
    $
    1.40Diluted
    
    $
    0.33
    
    
    $
    0.26
    
    
    $
    0.37
    
    
    $
    0.42
    
    
    $
    1.37
  F-25




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
    16. Financial Information for the Company and Its Subsidiaries
  Condensed Consolidating Balance Sheet
As of December 31, 2008
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    39,881
    
    
    $
    11,390
    
    
    $
    
    
    
    $
    51,271Accounts receivable, net
    
    
    
    
    
    
    240,513
    
    
    
    7,792
    
    
    
    (69
    )
    
    
    248,236Prepaids and other
    
    
    
    
    
    
    86,203
    
    
    
    15,595
    
    
    
    (435
    )
    
    
    101,363Total current assets
    
    
    
    
    
    
    366,597
    
    
    
    34,777
    
    
    
    (504
    )
    
    
    400,870Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    788,100
    
    
    
    57,647
    
    
    
    (9,524
    )
    
    
    836,223Cost in excess of net assets acquired
    
    
    
    
    
    
    1,201,492
    
    
    
    
    
    
    
    
    
    
    
    1,201,492Investment in subsidiaries
    
    
    1,665,813
    
    
    
    (545,345
    )
    
    
    (23,526
    )
    
    
    (1,096,942
    )
    
    
    Other assets
    
    
    12,633
    
    
    
    2,506
    
    
    
    27,971
    
    
    
    23,065
    
    
    
    66,175Total assets
    
    $
    1,678,446
    
    
    $
    1,813,350
    
    
    $
    96,869
    
    
    $
    (1,083,905
    )
    
    $
    2,504,760Current Liabilities:Accounts payable
    
    $
    
    
    
    $
    34,605
    
    
    $
    865
    
    
    $
    (69
    )
    
    $
    35,401Salaries and benefits payable
    
    
    
    
    
    
    87,617
    
    
    
    1,727
    
    
    
    (3,531
    )
    
    
    85,813Other accrued liabilities
    
    
    28,786
    
    
    
    43,958
    
    
    
    3,798
    
    
    
    
    
    
    
    76,542Current portion of long-term debt
    
    
    33,991
    
    
    
    
    
    
    
    423
    
    
    
    
    
    
    
    34,414Total current liabilities
    
    
    62,777
    
    
    
    166,180
    
    
    
    6,813
    
    
    
    (3,600
    )
    
    
    232,170Long-term debt, less current portion
    
    
    1,247,156
    
    
    
    
    
    
    
    32,850
    
    
    
    
    
    
    
    1,280,006Deferred tax liability
    
    
    
    
    
    
    69,471
    
    
    
    
    
    
    
    
    
    
    
    69,471Other liabilities
    
    
    12,433
    
    
    
    (61,852
    )
    
    
    31,688
    
    
    
    46,002
    
    
    
    28,271Total liabilities
    
    
    1,322,366
    
    
    
    173,799
    
    
    
    71,351
    
    
    
    42,402
    
    
    
    1,609,918Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,957
    
    
    
    4,957Total stockholders equity (deficit)
    
    
    356,080
    
    
    
    1,639,551
    
    
    
    25,518
    
    
    
    (1,131,264
    )
    
    
    889,885Total liabilities and stockholders equity (deficit)
    
    $
    1,678,446
    
    
    $
    1,813,350
    
    
    $
    96,869
    
    
    $
    (1,083,905
    )
    
    $
    2,504,760
 F-26




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
 Condensed Consolidating Balance Sheet
As of December 31, 2007
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    19,154
    
    
    $
    20,816
    
    
    $
    
    
    
    $
    39,970Accounts receivable, net
    
    
    
    
    
    
    223,265
    
    
    
    7,444
    
    
    
    (109
    )
    
    
    230,600Prepaids and other
    
    
    
    
    
    
    67,124
    
    
    
    1,555
    
    
    
    (444
    )
    
    
    68,235Total current assets
    
    
    
    
    
    
    309,543
    
    
    
    29,815
    
    
    
    (553
    )
    
    
    338,805Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    644,106
    
    
    
    57,526
    
    
    
    (9,497
    )
    
    
    692,135Cost in excess of net assets acquired
    
    
    
    
    
    
    1,071,275
    
    
    
    
    
    
    
    
    
    
    
    1,071,275Investment in subsidiaries
    
    
    1,544,533
    
    
    
    (424,137
    )
    
    
    (20,342
    )
    
    
    (1,100,054
    )
    
    
    Other assets
    
    
    15,441
    
    
    
    72,062
    
    
    
    4,813
    
    
    
    (16,427
    )
    
    
    75,889Total assets
    
    $
    1,559,974
    
    
    $
    1,672,849
    
    
    $
    71,812
    
    
    $
    (1,126,531
    )
    
    $
    2,178,104Current Liabilities:Accounts payable
    
    $
    
    
    
    $
    30,385
    
    
    $
    1,059
    
    
    $
    (448
    )
    
    $
    30,996Salaries and benefits payable
    
    
    
    
    
    
    80,424
    
    
    
    1,657
    
    
    
    20
    
    
    
    82,101Other accrued liabilities
    
    
    25,171
    
    
    
    36,095
    
    
    
    242
    
    
    
    353
    
    
    
    61,861Current portion of long-term debt
    
    
    5,619
    
    
    
    
    
    
    
    397
    
    
    
    
    
    
    
    6,016Total current liabilities
    
    
    30,790
    
    
    
    146,904
    
    
    
    3,355
    
    
    
    (75
    )
    
    
    180,974Long-term debt, less current portion
    
    
    1,132,735
    
    
    
    
    
    
    
    33,273
    
    
    
    
    
    
    
    1,166,008Deferred tax liability
    
    
    
    
    
    
    49,131
    
    
    
    
    
    
    
    
    
    
    
    49,131Other liabilities
    
    
    2,659
    
    
    
    5,636
    
    
    
    13,550
    
    
    
    1,245
    
    
    
    23,090Total liabilities
    
    
    1,166,184
    
    
    
    201,671
    
    
    
    50,178
    
    
    
    1,170
    
    
    
    1,419,203Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,159
    
    
    
    4,159Total stockholders equity (deficit)
    
    
    393,790
    
    
    
    1,471,178
    
    
    
    21,634
    
    
    
    (1,131,860
    )
    
    
    754,742Total liabilities and stockholders equity (deficit)
    
    $
    1,559,974
    
    
    $
    1,672,849
    
    
    $
    71,812
    
    
    $
    (1,126,531
    )
    
    $
    2,178,104
 Condensed Consolidating Statement of Income
For the Twelve Months Ended December 31, 2008
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    1,714,726
    
    
    $
    63,130
    
    
    $
    (11,879
    )
    
    $
    1,765,977Salaries, wages and employee benefits
    
    
    
    
    
    
    942,784
    
    
    
    28,520
    
    
    
    (20
    )
    
    
    971,284Professional fees
    
    
    
    
    
    
    171,686
    
    
    
    7,721
    
    
    
    (100
    )
    
    
    179,307Supplies
    
    
    
    
    
    
    92,678
    
    
    
    2,410
    
    
    
    
    
    
    
    95,088Rentals and leases
    
    
    
    
    
    
    27,014
    
    
    
    397
    
    
    
    (4,230
    )
    
    
    23,181Other operating expenses
    
    
    
    
    
    
    164,347
    
    
    
    13,397
    
    
    
    (8,182
    )
    
    
    169,562Provision for doubtful accounts
    
    
    
    
    
    
    33,705
    
    
    
    901
    
    
    
    
    
    
    
    34,606Depreciation and amortization
    
    
    
    
    
    
    38,347
    
    
    
    2,269
    
    
    
    (307
    )
    
    
    40,309Interest expense
    
    
    77,398
    
    
    
    
    
    
    
    1,250
    
    
    
    
    
    
    
    78,64877,398
    
    
    
    1,470,561
    
    
    
    56,865
    
    
    
    (12,839
    )
    
    
    1,591,985(Loss) income from continuing operations before
income taxes
    
    
    (77,398
    )
    
    
    244,165
    
    
    
    6,265
    
    
    
    960
    
    
    
    173,992(Benefit from) provision for income taxes
    
    
    (29,411
    )
    
    
    92,783
    
    
    
    2,381
    
    
    
    364
    
    
    
    66,117(Loss) income from continuing operations
    
    
    (47,987
    )
    
    
    151,382
    
    
    
    3,884
    
    
    
    596
    
    
    
    107,875Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (2,922
    )
    
    

    
    
    
    
    
    
    
    
    (2,922
    )Net (loss) income
    
    $
    (47,987
    )
    
    $
    148,460
    
    
    $
    3,884
    
    
    $
    596
    
    
    $
    104,953
 F-27




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
 Condensed Consolidating Statement of Income
For the Twelve Months Ended December 31, 2007
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    1,433,854
    
    
    $
    39,903
    
    
    $
    (13,078
    )
    
    $
    1,460,679Salaries, wages and employee benefits
    
    
    
    
    
    
    794,907
    
    
    
    15,068
    
    
    
    2,530
    
    
    
    812,505Professional fees
    
    
    
    
    
    
    141,172
    
    
    
    4,855
    
    
    
    (1,132
    )
    
    
    144,895Supplies
    
    
    
    
    
    
    78,960
    
    
    
    1,227
    
    
    
    (17
    )
    
    
    80,170Rentals and leases
    
    
    
    
    
    
    24,189
    
    
    
    221
    
    
    
    (4,006
    )
    
    
    20,404Other operating expenses
    
    
    
    
    
    
    136,058
    
    
    
    13,079
    
    
    
    (12,225
    )
    
    
    136,912Provision for doubtful accounts
    
    
    
    
    
    
    26,818
    
    
    
    664
    
    
    
    
    
    
    
    27,482Depreciation and amortization
    
    
    
    
    
    
    29,139
    
    
    
    1,893
    
    
    
    (276
    )
    
    
    30,756Interest expense
    
    
    73,738
    
    
    
    
    
    
    
    1,240
    
    
    
    
    
    
    
    74,978Loss on refinancing long-term debt
    
    
    8,179
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,17981,917
    
    
    
    1,231,243
    
    
    
    38,247
    
    
    
    (15,126
    )
    
    
    1,336,281(Loss) income from continuing operations before
income taxes
    
    
    (81,917
    )
    
    
    202,611
    
    
    
    1,656
    
    
    
    2,048
    
    
    
    124,398(Benefit from) provision for income taxes
    
    
    (30,972
    )
    
    
    76,606
    
    
    
    626
    
    
    
    774
    
    
    
    47,034(Loss) income from continuing operations
    
    
    (50,945
    )
    
    
    126,005
    
    
    
    1,030
    
    
    
    1,274
    
    
    
    77,364Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (1,156
    )
    
    
    
    
    
    
    
    
    
    
    (1,156
    )Net (loss) income
    
    $
    (50,945
    )
    
    $
    124,849
    
    
    $
    1,030
    
    
    $
    1,274
    
    
    $
    76,208
 Condensed Consolidating Statement of Income
For the Three Months Ended December 31, 2006
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    1,004,422
    
    
    $
    11,601
    
    
    $
    (11,601
    )
    
    $
    1,004,422Salaries, wages and employee benefits
    
    
    
    
    
    
    567,762
    
    
    
    
    
    
    
    
    
    
    
    567,762Professional fees
    
    
    
    
    
    
    94,889
    
    
    
    1,023
    
    
    
    (1,005
    )
    
    
    94,907Supplies
    
    
    
    
    
    
    57,207
    
    
    
    
    
    
    
    
    
    
    
    57,207Rentals and leases
    
    
    
    
    
    
    12,801
    
    
    
    
    
    
    
    
    
    
    
    12,801Other operating expenses
    
    
    
    
    
    
    97,115
    
    
    
    2,504
    
    
    
    (5,967
    )
    
    
    93,652Provision for doubtful accounts
    
    
    
    
    
    
    19,437
    
    
    
    
    
    
    
    
    
    
    
    19,437Depreciation and amortization
    
    
    
    
    
    
    19,487
    
    
    
    1,089
    
    
    
    (243
    )
    
    
    20,333Interest expense
    
    
    39,101
    
    
    
    
    
    
    
    1,202
    
    
    
    
    
    
    
    40,30339,101
    
    
    
    868,698
    
    
    
    5,818
    
    
    
    (7,215
    )
    
    
    906,402(Loss) income from continuing operations before
income taxes
    
    
    (39,101
    )
    
    
    135,724
    
    
    
    5,783
    
    
    
    (4,386
    )
    
    
    98,020(Benefit from) provision for income taxes
    
    
    (14,764
    )
    
    
    51,247
    
    
    
    2,184
    
    
    
    (1,656
    )
    
    
    37,011(Loss) income from continuing operations
    
    
    (24,337
    )
    
    
    84,477
    
    
    
    3,599
    
    
    
    (2,730
    )
    
    
    61,009Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (377
    )
    
    
    
    
    
    
    
    
    
    
    (377
    )Net (loss) income
    
    $
    (24,337
    )
    
    $
    84,100
    
    
    $
    3,599
    
    
    $
    (2,730
    )
    
    $
    60,632
 F-28




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
 Condensed Consolidating Statement of Cash Flows
For the Twelve Months Ended December 31, 2008
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating activities:Net (loss) income
    
    $
    (47,987
    )
    
    $
    148,086
    
    
    $
    3,884
    
    
    $
    596
    
    
    $
    104,953Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    38,347
    
    
    
    2,269
    
    
    
    (307
    )
    
    
    40,309Amortization of loan costs and bond premium
    
    
    2,168
    
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    2,213Share-based compensation
    
    
    
    
    
    
    19,913
    
    
    
    
    
    
    
    
    
    
    
    19,913Change in income tax assets and liabilities
    
    
    
    
    
    
    (5,034
    )
    
    
    
    
    
    
    
    
    
    
    (5,034
    )Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    2,922
    
    
    
    
    
    
    
    
    
    
    
    2,922Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (16,408
    )
    
    
    (348
    )
    
    
    
    
    
    
    (16,756
    )Prepaids and other current assets
    
    
    
    
    
    
    9,865
    
    
    
    (14,040
    )
    
    
    
    
    
    
    (4,175
    )Accounts payable
    
    
    
    
    
    
    2,582
    
    
    
    (194
    )
    
    
    
    
    
    
    2,388Salaries and benefits payable
    
    
    
    
    
    
    1,653
    
    
    
    70
    
    
    
    
    
    
    
    1,723Accrued liabilities and other liabilities
    
    
    (3,599
    )
    
    
    (409
    )
    
    
    (1,858
    )
    
    
    
    
    
    
    (5,866
    )Net cash (used in) provided by continuing operating activities
    
    
    (49,418
    )
    
    
    201,891
    
    
    
    (10,172
    )
    
    
    289
    
    
    
    142,590Net cash used in discontinued operating activities
    
    
    
    
    
    
    (807
    )
    
    
    
    
    
    
    
    
    
    
    (807
    )Net cash (used in) provided by operating activities
    
    
    (49,418
    )
    
    
    201,084
    
    
    
    (10,172
    )
    
    
    289
    
    
    
    141,783Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (166,156
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (166,156
    )Capital purchases of property and equipment
    
    
    
    
    
    
    (121,595
    )
    
    
    (2,390
    )
    
    
    
    
    
    
    (123,985
    )Other assets
    
    
    
    
    
    
    (1,668
    )
    
    
    350
    
    
    
    
    
    
    
    (1,318
    )Net cash used in continuing investing activities
    
    
    (166,156
    )
    
    
    (123,263
    )
    
    
    (2,040
    )
    
    
    
    
    
    
    (291,459
    )Net cash provided by discontinued investing activities
    
    
    
    
    
    
    5,244
    
    
    
    
    
    
    
    
    
    
    
    5,244Net cash used in investing activities
    
    
    (166,156
    )
    
    
    (118,019
    )
    
    
    (2,040
    )
    
    
    
    
    
    
    (286,215
    )Financing activities:Net increase in revolving credit facility
    
    
    149,333
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    149,333Principal payments on long-term debt
    
    
    (5,669
    )
    
    
    
    
    
    
    (398
    )
    
    
    
    
    
    
    (6,067
    )Payment of loan and issuance costs
    
    
    (59
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59
    )Excess tax benefits from share-based payment arrangements
    
    
    3,052
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,052Net transfers to and from members
    
    
    59,443
    
    
    
    (62,338
    )
    
    
    3,184
    
    
    
    (289
    )
    
    
    Proceeds from exercises of common stock options
    
    
    9,474
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,474Net cash provided by (used in) financing activities
    
    
    215,574
    
    
    
    (62,338
    )
    
    
    2,786
    
    
    
    (289
    )
    
    
    155,733Net decrease in cash
    
    
    
    
    
    
    20,727
    
    
    
    (9,426
    )
    
    
    
    
    
    
    11,301Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    19,154
    
    
    
    20,816
    
    
    
    
    
    
    
    39,970Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    39,881
    
    
    $
    11,390
    
    
    $
    
    
    
    $
    51,271
 F-29




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
 Condensed Consolidating Statement of Cash Flows
For the Twelve Months Ended December 31, 2007
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating activities:Net (loss) income
    
    $
    (50,945
    )
    
    $
    124,849
    
    
    $
    1,030
    
    
    $
    1,274
    
    
    $
    76,208Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    29,139
    
    
    
    1,893
    
    
    
    (276
    )
    
    
    30,756Amortization of loan costs and bond premium
    
    
    2,106
    
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    2,151Share-based compensation
    
    
    
    
    
    
    16,104
    
    
    
    
    
    
    
    
    
    
    
    16,104Loss on refinancing long-term debt
    
    
    8,179
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,179Change in income tax assets and liabilities
    
    
    
    
    
    
    8,193
    
    
    
    446
    
    
    
    
    
    
    
    8,639Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    1,156
    
    
    
    
    
    
    
    
    
    
    
    1,156Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (13,965
    )
    
    
    578
    
    
    
    
    
    
    
    (13,387
    )Prepaids and other current assets
    
    
    
    
    
    
    5,716
    
    
    
    377
    
    
    
    
    
    
    
    6,093Accounts payable
    
    
    
    
    
    
    (7,026
    )
    
    
    (491
    )
    
    
    
    
    
    
    (7,517
    )Salaries and benefits payable
    
    
    
    
    
    
    2,087
    
    
    
    264
    
    
    
    
    
    
    
    2,351Accrued liabilities and other liabilities
    
    
    10,965
    
    
    
    (18,737
    )
    
    
    1,426
    
    
    
    
    
    
    
    (6,346
    )Net cash provided by (used in) continuing operating activities
    
    
    (29,695
    )
    
    
    147,516
    
    
    
    5,568
    
    
    
    998
    
    
    
    124,387Net cash used in discontinued operating activities
    
    
    
    
    
    
    1,134
    
    
    
    
    
    
    
    
    
    
    
    1,134Net cash provided by (used in) operating activities
    
    
    (29,695
    )
    
    
    148,650
    
    
    
    5,568
    
    
    
    998
    
    
    
    125,521Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (462,820
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (462,820
    )Capital purchases of property and equipment
    
    
    
    
    
    
    (72,655
    )
    
    
    (567
    )
    
    
    
    
    
    
    (73,222
    )Other assets
    
    
    
    
    
    
    (2,866
    )
    
    
    415
    
    
    
    
    
    
    
    (2,451
    )Net cash used in continuing investing activites
    
    
    (462,820
    )
    
    
    (75,521
    )
    
    
    (152
    )
    
    
    
    
    
    
    (538,493
    )Net cash provided by discontinued investing activities
    
    
    
    
    
    
    1,909
    
    
    
    
    
    
    
    
    
    
    
    1,909Net cash used in investing activities
    
    
    (462,820
    )
    
    
    (73,612
    )
    
    
    (152
    )
    
    
    
    
    
    
    (536,584
    )Financing activities:Net increase in revolving credit facility
    
    
    (21,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,000
    )Borrowings on long-term debt
    
    
    481,875
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    481,875Principal payments on long-term debt
    
    
    (40,936
    )
    
    
    
    
    
    
    (345
    )
    
    
    
    
    
    
    (41,281
    )Payment of loan and issuance costs
    
    
    (6,661
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,661
    )Refinancing of long-term debt
    
    
    (7,127
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,127
    )Excess tax benefits from share-based payment arrangements
    
    
    9,428
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,428Net transfers to and from members
    
    
    59,657
    
    
    
    (59,048
    )
    
    
    389
    
    
    
    (998
    )
    
    
    Proceeds from exercises of common stock options
    
    
    17,279
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,279Net cash provided by (used in) financing activities
    
    
    429,515
    
    
    
    (59,048
    )
    
    
    44
    
    
    
    (998
    )
    
    
    432,513Net (decrease) increase in cash
    
    
    
    
    
    
    15,990
    
    
    
    5,460
    
    
    
    
    
    
    
    21,450Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    3,164
    
    
    
    15,356
    
    
    
    
    
    
    
    18,520Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    19,154
    
    
    $
    20,816
    
    
    $
    
    
    
    $
    39,970
 F-30




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
 Condensed Consolidating Statement of Cash Flows
For the Twelve Months Ended December 31, 2006
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating activities:Net (loss) income
    
    $
    (24,337
    )
    
    $
    84,100
    
    
    $
    3,599
    
    
    $
    (2,730
    )
    
    $
    60,632Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    19,487
    
    
    
    1,089
    
    
    
    (243
    )
    
    
    20,333Amortization of loan costs and bond premium
    
    
    1,627
    
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    1,672Share-based compensation
    
    
    
    
    
    
    12,535
    
    
    
    
    
    
    
    
    
    
    
    12,535Loss on refinancing long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in income tax assets and liabilities
    
    
    
    
    
    
    35,205
    
    
    
    117
    
    
    
    
    
    
    
    35,322Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    377
    
    
    
    
    
    
    
    
    
    
    
    377Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (8,475
    )
    
    
    
    
    
    
    
    
    
    
    (8,475
    )Prepaids and other current assets
    
    
    
    
    
    
    (11,504
    )
    
    
    1,210
    
    
    
    
    
    
    
    (10,294
    )Accounts payable
    
    
    
    
    
    
    227
    
    
    
    
    
    
    
    
    
    
    
    227Salaries and benefits payable
    
    
    
    
    
    
    5,294
    
    
    
    
    
    
    
    
    
    
    
    5,294Accrued liabilities and other liabilities
    
    
    (289
    )
    
    
    3,393
    
    
    
    2,155
    
    
    
    
    
    
    
    5,259Net cash provided by (used in) continuing operating activities
    
    
    (22,999
    )
    
    
    140,639
    
    
    
    8,215
    
    
    
    (2,973
    )
    
    
    122,882Net cash used in discontinued operating activities
    
    
    
    
    
    
    971
    
    
    
    
    
    
    
    
    
    
    
    971Net cash provided by (used in) operating activities
    
    
    (22,999
    )
    
    
    141,610
    
    
    
    8,215
    
    
    
    (2,973
    )
    
    
    123,853Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (385,078
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (385,078
    )Capital purchases of property and equipment
    
    
    
    
    
    
    (33,816
    )
    
    
    
    
    
    
    
    
    
    
    (33,816
    )Other assets
    
    
    
    
    
    
    (611
    )
    
    
    17
    
    
    
    
    
    
    
    (594
    )Net cash used in investing activities
    
    
    (385,078
    )
    
    
    (34,427
    )
    
    
    17
    
    
    
    
    
    
    
    (419,488
    )Financing activities:Net increase in revolving credit facility
    
    
    101,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,000Borrowings on long-term debt
    
    
    150,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,000Principal payments on long-term debt
    
    
    (187
    )
    
    
    
    
    
    
    (278
    )
    
    
    
    
    
    
    (465
    )Payment of loan and issuance costs
    
    
    (1,576
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,576
    )Refinancing of long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Excess tax benefits from share-based payment arrangements
    
    
    4,354
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,354Net transfers to and from members
    
    
    148,177
    
    
    
    (147,967
    )
    
    
    (3,183
    )
    
    
    2,973
    
    
    
    Proceeds from exercises of common stock options
    
    
    6,309
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,309Net cash provided by (used in) financing activities
    
    
    408,077
    
    
    
    (147,967
    )
    
    
    (3,461
    )
    
    
    2,973
    
    
    
    259,622Net (decrease) increase in cash
    
    
    
    
    
    
    (40,784
    )
    
    
    4,771
    
    
    
    
    
    
    
    (36,013
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    43,948
    
    
    
    10,585
    
    
    
    
    
    
    
    54,533Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    3,164
    
    
    $
    15,356
    
    
    $
    
    
    
    $
    18,520
 17 Fair Value Measurements
 Fair
Value Measurements
   18. Subsequent Event
  F-31




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
  F-32




---



##### Table of Contents



Signatures
  Psychiatric Solutions, Inc.By:
    /s/ Joey A. JacobsJoey A. JacobsChief Executive Officer   Signature
    
    Title
    
    Date/s/ Joey A. Jacobs
    
    Chairman of the Board, President
    
    February 25, 2009Joey A. Jacobs
    
    and Chief Executive Officer
(Principal Executive Officer)/s/ Jack E. Polson
    
    Executive Vice President, Chief
    
    February 25, 2009Jack E. Polson
    
    Accounting Officer (Principal
Financial and Accounting
Officer)/s/ Mark P. Clein
    
    Director
    
    February 25, 2009Mark P. Clein/s/ David M. Dill
    
    Director
    
    February 25, 2009David M. Dill/s/ Richard D. Gore
    
    Director
    
    February 25, 2009Richard D. Gore/s/ Christopher Grant, Jr.
    
    Director
    
    February 25, 2009Christopher Grant, Jr./s/ William M. Petrie, M.D.
    
    Director
    
    February 25, 2009William M. Petrie, M.D./s/ Edward K. Wissing
    
    Director
    
    February 25, 2009Edward K. Wissing