##### Table of Contents



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 1934for the fiscal year ended December 31, 2005 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934for 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)
 840 Crescent Centre Drive, Suite 460
Franklin, TN 37067
 (615) 312-5700
   Title Of Each Class
    
    Name of Each Exchange On Which RegisteredCommon Stock, $.01 par value
    
    NASDAQ National Market
 þ o
 o þ
  þ o
 o
 þ o o
 o þ
  DOCUMENTS INCORPORATED BY REFERENCE




---



##### Table of Contents



INDEX
 PAGEPART IItem 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    11Item 1B. Unresolved Staff Comments
    
    
    16Item 2. Properties
    
    
    17Item 3. Legal Proceedings
    
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    
    18PART IIItem 5. Market For Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    18Item 6. Selected Financial Data
    
    
    19Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 8. Financial Statements and Supplementary Data
    
    
    28Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    28Item 9A. Controls and Procedures
    
    
    28Item 9B. Other Information
    
    
    28PART IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    28Item 11. Executive Compensation
    
    
    29Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    29Item 13. Certain Relationships and Related Transactions
    
    
    29Item 14. Principal Accountant Fees and Services
    
    
    29PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    30Index to Financial Statements
    
    
    F-1SignaturesEX-3.4 CERTIFICATE OF AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF PSYCHIATRIC SOLUTIONS, INC.EX-10.15 EXECUTIVE OFFICER COMPENSATIONEX-21.1 LIST OF SUBSIDIARIESEX-23.1 CONSENT OF ERNST & YOUNG LLPEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CAOEX-32.1 SECTION 906 CERTIFICATION OF THE CEO & CAO




---



##### Table of Contents



PART I
 Unless the context otherwise requires, all references in this Annual Report on Form 10-K to
Psychiatric Solutions, the Company, we, us or our mean Psychiatric Solutions, Inc. and
its consolidated subsidiaries and all shares and per share amounts have been adjusted to reflect a
2-for-1 stock split that was completed on January 9, 2006.
 
 Item 1. Business
 Overview
    www.psysolutions.com.
 Major Recent Developments
     3 4 3 4 5 8 5 8
 1




---



##### Table of Contents



Our Industry
    Our Competitive Strengths
  
    
    Singular focus on inpatient behavioral health care We
focus exclusively on the provision of inpatient behavioral
health care services. We believe this allows us to operate
more efficiently and provide higher quality care than our
competitors. In addition, we believe our focus and
reputation have helped us to develop important
relationships and extensive referral networks within our
markets and to attract and retain qualified behavioral
health care professionals.
    
    Strong and sustainable market position Our inpatient
facilities have an established presence in each of our
markets, and we believe that the majority of our owned and
leased inpatient facilities have the leading market share
in their respective service areas. Our relationships and
referral networks would be difficult, time- consuming and
expensive for new competitors to replicate. In addition,
many of the states in which we operate require a
certificate of need to open a behavioral health care
facility, which may be difficult to obtain and may further
preclude new market participants.
    
    Demonstrated ability to identify and integrate acquisitions
 We attribute part of our success in integrating acquired
inpatient facilities to our rigorous due diligence review
of these facilities prior to completing the acquisitions as
well as our ability to retain key employees at the acquired
facilities. We employ a disciplined acquisition strategy
that is based on defined criteria including quality of
service, return on invested capital and strategic benefits.
We also have a comprehensive post-acquisition strategic
plan to facilitate the integration of acquired facilities
that includes improving facility operations, retaining and
recruiting psychiatrists and expanding the breadth of
services offered by the facilities.
    
    Diversified payor mix and revenue base As we have grown
our business, we have focused on diversifying our sources
of revenue. For the year ended December 31, 2005, we
received 35% of our revenue from Medicaid, 13% from
Medicare, 29% from HMO/PPO and commercial payors, 9% from
various management contracts and 14% 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, 2005, no single inpatient facility
represented more than 5% 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.
 2




---



##### Table of Contents




    
    Consistent free cash flow and minimal maintenance capital
requirements We generate consistent free cash flow by
profitably operating our business, actively managing our
working capital and having low maintenance capital
expenditure requirements. As the behavioral health care
business does not require the procurement and replacement
of expensive medical equipment, our maintenance capital
expenditure requirements are less than that of other
facility-based health care providers. Historically, our
maintenance capital expenditures have amounted to less than
2% of our revenue. In addition, our accounts receivable
management is less complex than medical/surgical hospital
providers because there are fewer billing codes for
inpatient behavioral health care facilities.
 Our Growth Strategy
  
    
    Continue to Drive Same-Facility Growth We increased our
same-facility revenue by approximately 8% for the year
ended December 31, 2005, as compared to the year ended
December 31, 2004. Same-facility revenue refers to the
comparison of the inpatient facilities we owned during 2004
with the comparable period in 2005. We intend to continue
to increase our same-facility growth by increasing our
admissions and patient days and obtaining annual
reimbursement rate increases. We plan to accomplish these
goals by:
 
    
    building and expanding relationships that enhance our presence in local and regional markets;
    
    developing formal marketing initiatives and expanding referral networks;
    
    continuing to provide high quality service;
    
    expanding our services and developing new services to take advantage of increased demand in
select markets where we operate; and
    
    expanding bed capacity at our facilities to meet demand.
 
    
    Grow Through Strategic Acquisitions Our industry is
highly fragmented and we plan to selectively pursue the
acquisition of additional inpatient behavioral health care
facilities. There are approximately 500 freestanding acute
and residential treatment facilities in the United States
and the top two providers operate less than 25% of these
facilities. We believe there are a number of acquisition
candidates available at attractive valuations, and we have
a number of potential acquisitions that are in various
stages of development and consideration. 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 Division
   3




---



##### Table of Contents



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




---



##### Table of Contents



Seasonality of Services
  Marketing
  Competition
   Reimbursement
  Medicare
    5




---



##### Table of Contents



Medicaid
   Managed Care and Commercial Insurance Carriers
   Annual Cost Reports
  Regulation and Other Factors
 Licensure, Certification and Accreditation
   6




---



##### Table of Contents



Fraud and Abuse Laws
      7




---



##### Table of Contents



Emergency Medical Treatment and Active Labor Act
   8




---



##### Table of Contents



The Federal False Claims Act
   HIPAA Transaction, Privacy and Security Requirements
       9




---



##### Table of Contents



Certificates of Need (CON)
  Corporate Practice of Medicine and Fee Splitting
  Health Care Industry Investigations
  Risk Management
  Conversion Legislation
  Regulatory Compliance Program
  10




---



##### Table of Contents



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




---



##### Table of Contents



If federal or state health care programs or managed care
companies reduce reimbursement rates for services provided, revenues
may decline.
      Other companies within the health care industry continue to be
the subject of federal and state investigations, which increases the
risk that we may become subject to investigations in the future.
  12




---



##### Table of Contents




    
    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.
  As a provider of health care services, we are subject to claims and legal actions by patients and others.
   We may be required to spend substantial amounts to comply with
legislative and regulatory initiative relating to privacy and
security of patient health information and standards for electronic
transactions.
    13




---



##### Table of Contents



If competition decreases our ability to acquire additional
inpatient facilities on favorable terms, we may be unable to execute
our acquisition strategy.
  Our substantial indebtedness could adversely affect our financial condition.
  
    
    increasing our vulnerability to general adverse economic and industry conditions;
    
    requiring that a portion of our cash flow from operations be used for the payment of interest on our debt,
thereby reducing our ability to use our cash flow to fund working capital, capital expenditures, acquisitions
and general corporate requirements;
    
    restricting our ability to sell assets, including capital stock of our restricted subsidiaries, merge or
consolidate with other entities and engage in transactions with our affiliates;
    
    limiting our ability to obtain additional financing to fund future working capital, capital expenditures,
acquisitions and general corporate requirements;
    
    limiting our flexibility in planning for, or reacting to, changes in our business and the health care industry;
    
    restricting our ability or the ability of our restricted subsidiaries to pay dividends or make other payments; and
    
    placing us at a competitive disadvantage to our competitors that have less indebtedness.
 3 4 5 8
 Additional financing may be necessary to fund our acquisition
strategy and capital expenditures, and such financing may not be
available when needed.
   Recently acquired businesses and businesses acquired in the future will expose us to increased operating risks.
  14




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### Table of Contents



Item 2. Properties.
  DateFacility
    
    Location
    
    Beds
    
    Own/Lease
    
    AcquiredCypress Creek Hospital
    
    Houston, TX
    
    
    96
    
    
    Own
    
    9/01West Oaks Hospital
    
    Houston, TX
    
    
    144
    
    
    Own
    
    9/01Texas NeuroRehab Center
    
    Austin, TX
    
    
    151
    
    
    Own
    
    11/01Holly Hill Hospital
    
    Raleigh, NC
    
    
    108
    
    
    Own
    
    12/01Riveredge Hospital
    
    Chicago, IL
    
    
    210
    
    
    Own
    
    7/02Whisper Ridge Behavioral Health System
    
    Charlottesville, VA
    
    
    102
    
    
    Lease
    
    4/03Cedar Springs Behavioral Health System
    
    Colorado Springs, CO
    
    
    110
    
    
    Own
    
    4/03Laurel Ridge Treatment Center
    
    San Antonio, TX
    
    
    196
    
    
    Own
    
    4/03San Marcos Treatment Center
    
    San Marcos, TX
    
    
    265
    
    
    Own
    
    4/03The Oaks Treatment Center
    
    Austin, TX
    
    
    118
    
    
    Own
    
    4/03Shadow Mountain Behavioral Health System
    
    Tulsa, OK
    
    
    124
    
    
    Own
    
    4/03Laurel Oaks Behavioral Health Center
    
    Dothan, AL
    
    
    113
    
    
    Own
    
    6/03Hill Crest Behavioral Health
    
    Birmingham, AL
    
    
    177
    
    
    Own
    
    6/03Gulf Coast Youth Academy
    
    Fort Walton Beach, FL
    
    
    168
    
    
    Own
    
    6/03Manatee Palms Youth Services
    
    Bradenton, FL
    
    
    60
    
    
    Own
    
    6/03Havenwyck Facility
    
    Auburn Hills, MI
    
    
    182
    
    
    Lease
    
    6/03Heartland Behavioral Health
    
    Nevada, MO
    
    
    159
    
    
    Own
    
    6/03Brynn Marr Behavioral Health
    
    Jacksonville, NC
    
    
    88
    
    
    Own
    
    6/03Mission Vista Hospital
    
    San Antonio, TX
    
    
    83
    
    
    Lease
    
    6/03Benchmark Behavioral Health
    
    Woods Cross, UT
    
    
    177
    
    
    Own
    
    6/03Macon Behavioral Health System
    
    Macon, GA
    
    
    155
    
    
    Own
    
    6/03Manatee Adolescent Treatment Services
    
    Bradenton, FL
    
    
    85
    
    
    Own
    
    6/03Alliance Health Center
    
    Meridian, MS
    
    
    193
    
    
    Own
    
    11/03Calvary Center
    
    Phoenix, AZ
    
    
    50
    
    
    Lease
    
    12/03Brentwood Acute Behavioral Health Center
    
    Shreveport, LA
    
    
    200
    
    
    Own
    
    3/04Brentwood Behavioral Health of Mississippi
    
    Flowood, MS
    
    
    107
    
    
    Own
    
    3/04Palmetto Lowcountry Behavioral Health System
    
    North Charleston, SC
    
    
    102
    
    
    Own
    
    5/04Palmetto Pee Dee Behavioral Health System
    
    Florence, SC
    
    
    59
    
    
    Lease
    
    5/04Fort Lauderdale Hospital
    
    Fort Lauderdale, FL
    
    
    100
    
    
    Lease
    
    6/04Millwood Hospital
    
    Arlington, TX
    
    
    120
    
    
    Lease
    
    6/04Pride Institute
    
    Eden Prairie, MN
    
    
    36
    
    
    Own
    
    6/04Summit Oaks Hospital
    
    Summit, NJ
    
    
    126
    
    
    Own
    
    6/04Whisper Ridge at Leesburg
    
    Leesburg, VA
    
    
    77
    
    
    Own
    
    6/04Peak Behavioral Health
    
    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
    
    Greenwood, IN
    
    
    53
    
    
    Own
    
    7/05Cumberland Hospital
    
    New Kent, VA
    
    
    132
    
    
    Own
    
    7/05Fairfax Hospital
    
    Kirkland, WA
    
    
    133
    
    
    Own
    
    7/05Fox Run Hospital
    
    St. Clairsville, OH
    
    
    93
    
    
    Own
    
    7/05Fremont Hospital
    
    Fremont, CA
    
    
    78
    
    
    Own
    
    7/05Heritage Oaks Hospital
    
    Sacramento, CA
    
    
    76
    
    
    Own
    
    7/05Intermountain Hospital
    
    Boise, ID
    
    
    127
    
    
    Own
    
    7/05Meadows Hospital
    
    Bloomington, IN
    
    
    78
    
    
    Own
    
    7/05Mesilla Valley Hospital
    
    Las Cruces, NM
    
    
    125
    
    
    Own
    
    7/05Montevista Hospital
    
    Las Vegas, NV
    
    
    80
    
    
    Own
    
    7/05Pinnacle Pointe
    
    Little Rock, AR
    
    
    102
    
    
    Own
    
    7/05Sierra Vista
    
    Sacramento, CA
    
    
    72
    
    
    Own
    
    7/05Streamwood Hospital
    
    Streamwood, IL
    
    
    249
    
    
    Own
    
    7/05Valle Vista Health System
    
    Greenwood, IN
    
    
    88
    
    
    Own
    
    7/05West Hills Hospital
    
    Reno, NV
    
    
    95
    
    
    Own
    
    7/05
 17




---



##### Table of Contents



DateFacility
    
    Location
    
    Beds
    
    Own/Lease
    
    AcquiredWillow Springs RTC
    
    Reno, NV
    
    
    76
    
    
    Own
    
    7/05Windsor Hospital
    
    Chagrin Falls, OH
    
    
    40
    
    
    Own
    
    7/05Canyon Ridge Hospital
    
    Chino, CA
    
    
    59
    
    
    Own
    
    8/05Atlantic Shores Hospital
    
    Fort Lauderdale, FL
    
    
    72
    
    
    Own
    
    1/06Desert Springs Medical Center
    
    Midland, TX
    
    
    64
    
    
    Own
    
    1/06Wellstone Regional Hospital
    
    Jeffersonville, IN
    
    
    100
    
    
    Own
    
    1/06
  
 Item 3. Legal Proceedings.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  Votes cast for
    
    
    20,320,373Votes cast against
    
    
    1,942,419Votes withheld
    
    
    18,643
  
 PART II
 
 Item 5. Market For Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
  High
    
    
    Low2004First Quarter
    
    $
    11.55
    
    
    $
    8.82Second Quarter
    
    $
    13.98
    
    
    $
    8.99Third Quarter
    
    $
    14.52
    
    
    $
    10.62Fourth Quarter
    
    $
    18.67
    
    
    $
    11.172005First Quarter
    
    $
    23.05
    
    
    $
    17.25Second Quarter
    
    $
    24.54
    
    
    $
    18.01Third Quarter
    
    $
    27.70
    
    
    $
    22.46Fourth Quarter
    
    $
    29.95
    
    
    $
    25.50
  3 4 5 8
 18




---



##### Table of Contents



Item 6. Selected Financial Data.
  Psychiatric Solutions, Inc.
Selected Financial Data
As of and for the Years Ended December 31,
 2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(In thousands, except per share amounts)Income Statement Data:Revenue
    
    $
    727,774
    
    
    $
    481,893
    
    
    $
    283,022
    
    
    $
    113,912
    
    
    $
    43,999Costs and expenses:Salaries, wages and employee benefits
    
    
    400,676
    
    
    
    262,039
    
    
    
    145,761
    
    
    
    62,326
    
    
    
    26,183Other operating expenses
    
    
    205,298
    
    
    
    146,541
    
    
    
    96,354
    
    
    
    35,716
    
    
    
    11,322Provision
for doubtful accounts
    
    
    13,544
    
    
    
    10,794
    
    
    
    6,312
    
    
    
    3,681
    
    
    
    662Depreciation and amortization
    
    
    14,815
    
    
    
    9,865
    
    
    
    5,734
    
    
    
    1,770
    
    
    
    945Interest expense
    
    
    27,081
    
    
    
    18,964
    
    
    
    14,781
    
    
    
    5,564
    
    
    
    2,660Other expenses (1)
    
    
    21,871
    
    
    
    6,407
    
    
    
    5,271
    
    
    
    178
    
    
    
    1,237Total costs and expenses
    
    
    683,285
    
    
    
    454,610
    
    
    
    274,213
    
    
    
    109,235
    
    
    
    43,009Income from continuing operations before income taxes
    
    
    44,489
    
    
    
    27,283
    
    
    
    8,809
    
    
    
    4,677
    
    
    
    990Provision for (benefit from) income taxes
    
    
    17,140
    
    
    
    10,368
    
    
    
    3,712
    
    
    
    (1,007
    )
    
    
    Income from continuing operations
    
    $
    27,349
    
    
    $
    16,915
    
    
    $
    5,097
    
    
    $
    5,684
    
    
    $
    990Net income
    
    $
    27,154
    
    
    $
    16,801
    
    
    $
    5,216
    
    
    $
    5,684
    
    
    $
    2,578Basic earnings per share from continuing operations
    
    $
    0.61
    
    
    $
    0.55
    
    
    $
    0.25
    
    
    $
    0.47
    
    
    $
    0.10Basic earnings per share
    
    $
    0.61
    
    
    $
    0.55
    
    
    $
    0.26
    
    
    $
    0.47
    
    
    $
    0.26Shares used in computing basic earnings per share
    
    
    44,792
    
    
    
    29,140
    
    
    
    16,740
    
    
    
    12,222
    
    
    
    10,020Diluted earnings per share from continuing operations
    
    $
    0.59
    
    
    $
    0.48
    
    
    $
    0.22
    
    
    $
    0.43
    
    
    $
    0.09Diluted earnings per share
    
    $
    0.59
    
    
    $
    0.48
    
    
    $
    0.22
    
    
    $
    0.43
    
    
    $
    0.24Shares used in computing diluted earnings per share from continuing
operations
    
    
    46,296
    
    
    
    35,146
    
    
    
    23,498
    
    
    
    13,972
    
    
    
    10,618
 19




---



##### Table of Contents



Psychiatric Solutions, Inc.
Selected Financial Data (continued)
As of and for the Years Ended December 31,
 2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(Dollars in thousands)Balance Sheet Data:Cash
    
    $
    54,554
    
    
    $
    33,314
    
    
    $
    45,003
    
    
    $
    2,392
    
    
    $
    1,262Working capital (deficit)
    
    
    138,848
    
    
    
    39,910
    
    
    
    66,242
    
    
    
    2,369
    
    
    
    (3,624
    )Property and equipment, net
    
    
    378,357
    
    
    
    218,211
    
    
    
    149,581
    
    
    
    33,547
    
    
    
    17,980Total assets
    
    
    1,175,612
    
    
    
    497,519
    
    
    
    347,464
    
    
    
    90,138
    
    
    
    54,294Total debt
    
    
    482,389
    
    
    
    174,336
    
    
    
    175,003
    
    
    
    43,822
    
    
    
    36,338Series A convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    25,316
    
    
    
    
    
    
    
    Stockholders equity
    
    
    539,712
    
    
    
    244,515
    
    
    
    91,328
    
    
    
    30,549
    
    
    
    9,238Operating Data:Number of facilities
    
    
    55
    
    
    
    34
    
    
    
    24
    
    
    
    5
    
    
    
    4Number of licensed beds
    
    
    6,421
    
    
    
    4,337
    
    
    
    3,128
    
    
    
    699
    
    
    
    489Admissions
    
    
    77,130
    
    
    
    49,484
    
    
    
    26,278
    
    
    
    14,737
    
    
    
    3,027Patient days
    
    
    1,400,628
    
    
    
    996,840
    
    
    
    525,055
    
    
    
    145,575
    
    
    
    30,511Average length of stay
    
    
    18
    
    
    
    20
    
    
    
    20
    
    
    
    10
    
    
    
    10
 
 (1)
    
    As a result of our adoption of Statement of Financial Accounting
Standards No. 145, Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections, we have
reclassified certain losses on refinancing of long-term debt
previously reported as an extraordinary item to a component of income
from continuing operations for the year ended December 31, 2001. 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Overview
 3 4 5 8
   20




---



##### Table of Contents



Sources of Revenue
 Patient Service Revenue
  Management Contract Revenue
  Results of Operations
  Results of Operations, Consolidated Psychiatric SolutionsFor the Year Ended December 31,2005
    
    
    2004
    
    
    2003Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Revenue
    
    $
    727,774
    
    
    
    100.0
    %
    
    $
    481,893
    
    
    
    100.0
    %
    
    $
    283,022
    
    
    
    100.0
    %Salaries, wages, and employee benefits
    
    
    400,676
    
    
    
    55.1
    %
    
    
    262,039
    
    
    
    54.4
    %
    
    
    145,761
    
    
    
    51.5
    %Professional fees
    
    
    73,659
    
    
    
    10.1
    %
    
    
    52,933
    
    
    
    11.0
    %
    
    
    32,392
    
    
    
    11.5
    %Supplies
    
    
    44,134
    
    
    
    6.1
    %
    
    
    30,665
    
    
    
    6.4
    %
    
    
    16,215
    
    
    
    5.7
    %Provision
for doubtful accounts
    
    
    13,544
    
    
    
    1.9
    %
    
    
    10,794
    
    
    
    2.2
    %
    
    
    6,312
    
    
    
    2.2
    %Other operating expenses
    
    
    87,505
    
    
    
    12.0
    %
    
    
    62,943
    
    
    
    13.1
    %
    
    
    47,747
    
    
    
    16.9
    %Depreciation and amortization
    
    
    14,815
    
    
    
    2.0
    %
    
    
    9,865
    
    
    
    2.0
    %
    
    
    5,734
    
    
    
    2.0
    %Interest expense, net
    
    
    27,081
    
    
    
    3.7
    %
    
    
    18,964
    
    
    
    3.9
    %
    
    
    14,781
    
    
    
    5.2
    %Other expenses:Loss on refinancing long-term debt
    
    
    21,871
    
    
    
    3.0
    %
    
    
    6,407
    
    
    
    1.3
    %
    
    
    4,856
    
    
    
    1.7
    %Change in valuation of put warrants
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    960
    
    
    
    0.4
    %Change in reserve on stockholder notes
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    (545
    )
    
    
    -0.2
    %Income from continuing operations before
income taxes
    
    
    44,489
    
    
    
    6.1
    %
    
    
    27,283
    
    
    
    5.7
    %
    
    
    8,809
    
    
    
    3.1
    %Provision for income taxes
    
    
    17,140
    
    
    
    2.3
    %
    
    
    10,368
    
    
    
    2.2
    %
    
    
    3,712
    
    
    
    1.3
    %Income from continuing operations
    
    $
    27,349
    
    
    
    3.8
    %
    
    $
    16,915
    
    
    
    3.5
    %
    
    $
    5,097
    
    
    
    1.8
    %
 Year Ended December 31, 2005 Compared To Year Ended December 31, 2004
  21




---



##### Table of Contents



Year Ended December 31,
    
    
    %2005
    
    
    2004
    
    
    ChangeTotal facility results:Revenue
    
    $
    664,367
    
    
    $
    419,701
    
    
    
    58.3
    %Number of facilities at period end
    
    
    55
    
    
    
    34
    
    
    
    61.8
    %Admissions
    
    
    77,130
    
    
    
    49,484
    
    
    
    55.9
    %Patient days
    
    
    1,400,628
    
    
    
    996,840
    
    
    
    40.5
    %Average length of stay
    
    
    18.2
    
    
    
    20.1
    
    
    
    -9.5
    %Revenue per patient day
    
    $
    474
    
    
    $
    421
    
    
    
    12.6
    %Same-facility results:Revenue
    
    $
    453,293
    
    
    $
    419,701
    
    
    
    8.0
    %Number of facilities at period end
    
    
    34
    
    
    
    34
    
    
    
    0.0
    %Admissions
    
    
    50,471
    
    
    
    49,484
    
    
    
    2.0
    %Patient days
    
    
    1,043,053
    
    
    
    996,840
    
    
    
    4.6
    %Average length of stay
    
    
    20.7
    
    
    
    20.1
    
    
    
    3.0
    %Revenue per patient day
    
    $
    435
    
    
    $
    421
    
    
    
    3.3
    %
 Revenue
 Salaries, wages, and employee benefits
 Professional fees
 Supplies.
 Provision
for doubtful accounts
 Other operating expenses
 22




---



##### Table of Contents



Depreciation and amortization
 Interest expense, net 5 8 3 4 5 8
 Other expenses. 5 8
 Loss from discontinued operations, net of taxes
 Year Ended December 31, 2004 Compared To Year Ended December 31, 2003
  Year Ended December 31,
    
    
    %2004
    
    
    2003
    
    
    ChangeTotal facility results:Revenue
    
    $
    419,701
    
    
    $
    223,340
    
    
    
    87.9
    %Number of facilities at period end
    
    
    34
    
    
    
    24
    
    
    
    41.7
    %Admissions
    
    
    49,484
    
    
    
    26,278
    
    
    
    88.3
    %Patient days
    
    
    996,840
    
    
    
    525,055
    
    
    
    89.9
    %Average length of stay
    
    
    20.1
    
    
    
    20.0
    
    
    
    0.5
    %Revenue per patient day
    
    $
    421
    
    
    $
    425
    
    
    
    -0.9
    %Same-facility results:Revenue
    
    $
    243,424
    
    
    $
    223,340
    
    
    
    9.0
    %Number of facilities at period end
    
    
    24
    
    
    
    24
    
    
    
    0.0
    %Admissions
    
    
    27,773
    
    
    
    26,278
    
    
    
    5.7
    %Patient days
    
    
    565,237
    
    
    
    525,055
    
    
    
    7.7
    %Average length of stay
    
    
    20.4
    
    
    
    20.0
    
    
    
    2.0
    %Revenue per patient day
    
    $
    431
    
    
    $
    425
    
    
    
    1.4
    %
 Revenue
 23




---



##### Table of Contents



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




---



##### Table of Contents



Liquidity and Capital Resources
 5 8
  3 4
 3 4 5 8
    25




---



##### Table of Contents



Obligations and Commitments
 Payments Due by Period (in thousands)Less than
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    5 yearsLong-term debt (1):Senior Credit Facility:Senior Secured Term Loan Facility, expiring on July 1, 2012
and bearing interest of 6.2% at December 31, 2005
    
    $
    200,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    200,0007 3/4% Senior Subordinated Notes due July 15, 2015
    
    
    220,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    220,00010 5/8% Senior Subordinated Notes due June 15, 2013
    
    
    38,681
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,681Mortgage loans on facilities, maturing in 2037 and 2038
bearing fixed interest rates of 5.65% to 5.95%
    
    
    23,377
    
    
    
    248
    
    
    
    542
    
    
    
    608
    
    
    
    21,979482,058
    
    
    
    248
    
    
    
    542
    
    
    
    608
    
    
    
    480,660Lease and other obligations
    
    
    47,053
    
    
    
    15,471
    
    
    
    9,495
    
    
    
    5,584
    
    
    
    16,503Total contractual obligations
    
    $
    529,111
    
    
    $
    15,719
    
    
    $
    10,037
    
    
    $
    6,192
    
    
    $
    497,163
 
 (1)
    
    Excludes capital lease obligations, which are included in lease and other obligations. 3 4 5 8 5 8
 Impact of Inflation and Economic Trends
   Critical Accounting Policies
  Allowance for Doubtful Accounts
  26




---



##### Table of Contents



Allowances for Contractual Discounts
  Professional and General Liability
  Income Taxes
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
 5 8
 27




---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data.
  
 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  
 Item 9B. Other Information.
  
 PART III
 
 Item 10. Directors and Executive Officers of the Registrant.
 Directors
  Executive Officers of the Registrant
  Name
    
    Age
    
    Officer Since
    
    PositionsJoey A. Jacobs
    
    
    52
    
    
    April 1997
    
    President and Chief Executive OfficerSteven T. Davidson
    
    
    48
    
    
    August 1997
    
    Chief Development OfficerJack E. Polson
    
    
    39
    
    
    August 2002
    
    Chief Accounting OfficerBrent Turner
    
    
    40
    
    
    February 2003
    
    Executive Vice President, Finance and AdministrationChristopher L. Howard
    
    
    39
    
    
    September 2005
    
    Executive Vice President, General Counsel and Secretary
 Joey A. Jacobs, President and Chief Executive Officer
 28




---



##### Table of Contents



Steven T. Davidson, Chief Development Officer
 Jack E. Polson, Chief Accounting Officer
 Brent Turner, Executive Vice President, Finance and Administration
 Chris 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.
  
 Item 13. Certain Relationships and Related Transactions.
  
 Item 14. Principal Accountant Fees and Services.
  29




---



##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
 The following documents are filed as part of this Annual Report on Form 10-K :
 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 on Internal Control Over Financial Reporting
    
    F-4Consolidated Balance Sheets
    
    F-5Consolidated Statements of Income
    
    F-6Consolidated Statements of Stockholders Equity
    
    F-7Consolidated Statements of Cash Flows
    
    F-8Notes to Consolidated Financial Statements
    
    F-10
 Financial Statement Schedules.
  Exhibits.
 Exhibits.
 ExhibitNumber
    
    Description2.1
    
    Agreement and Plan of Merger by and among PMR
Corporation, PMR Acquisition Corporation and
Psychiatric Solutions, Inc., dated May 6, 2002, as
amended by Amendment No. 1, dated as of June 10,
2002, and Amendment No. 2, dated as of July 9, 2002
(included as Annex A to Amendment No. 1 to the
Companys Registration Statement on Form S-4, filed
on July 11, 2002 (Reg. No. 333-90372) (the 2002
S-4 Amendment)).2.2
    
    Asset Purchase Agreement, dated February 13, 2003,
by and between The Brown Schools, Inc. and
Psychiatric Solutions, Inc., as amended by
Amendment No. 1 to Asset Purchase Agreement, dated
March 31, 2003, by and between The Brown Schools,
Inc. and Psychiatric Solutions, Inc. (incorporated
by reference to Exhibit 2.1 of the Companys
Current Report on Form 8-K, filed on April 9,
2003).2.3
    
    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).2.4
    
    Amended and Restated Stock Purchase Agreement,
dated June 30, 2005, by and among Ardent Health
Services LLC, Ardent Health Services, Inc. and
Psychiatric Solutions, Inc. (incorporated by
reference to Exhibit 2.1 to the Companys Current
Report on Form 8-K, filed July 8, 2005).3.1
    
    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.
 30




---



##### Table of Contents



ExhibitNumber
    
    Description3.5
    
    Amended and Restated Bylaws (incorporated by
reference to Exhibit 3.2 to the Companys Annual
Report on Form 10-K for the fiscal year ended April
30, 1997 (the 1997 10-K)).4.1
    
    Reference is made to Exhibits 3.1 through 3.5.4.2
    
    Common Stock Specimen Certificate (incorporated by reference to Exhibit 4.2
to the Companys Annual Report on Form 10-K for the fiscal year ended
December 31, 2002 (the 2002 10-K)).4.3
    
    Indenture, dated as of June 30, 2003, among Psychiatric Solutions, Inc.,
the Guarantors named therein and Wachovia Bank, National Association, as
Trustee (incorporated by reference to Exhibit 4.10 to the Companys Registration Statement
on Form S-4, filed on July 30, 2003 (Registration No. 333-107453) (the
2003 S-4)).4.4
    
    Form of Notes (included in Exhibit 4.3).4.5
    
    Purchase Agreement, dated as of June 19, 2003, among Psychiatric Solutions,
Inc., the Guarantors named therein, Lehman Brothers Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Jefferies & Company, Inc.
(incorporated by reference to Exhibit 4.12 to the 2003 S-4).4.6
    
    Indenture, dated as of July 6, 2005, by and among Psychiatric Solutions,
Inc., the Guarantors named therein and Wachovia Bank, National Association,
as Trustee (incorporated by reference to Exhibit 4.1 to the Companys Current
Report on Form 8-K, filed July 8, 2005).4.7
    
    Form of Notes (included in Exhibit 4.6).4.8
    
    Purchase Agreement, dated as of June 30, 2005, among Psychiatric Solutions,
Inc., the Guarantors named therein, Citigroup Global Markets Inc. on behalf
of Banc of America Securities LLC, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, J.P. Morgan Securities Inc. and Lehman Brothers Inc.
(incorporated by reference to Exhibit 4.3 to the Companys Current Report on Form 8-K,
filed on July 8, 2005).4.9
    
    Exchange and Registration Rights Agreement, dated as of July 6, 2005, among
Psychiatric Solutions, Inc., the subsidiary guarantors from time to time
party thereto, and Citigroup Global Markets Inc. on behalf of Banc of
America Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated,
J.P. Morgan Securities Inc. and Lehman Brothers Inc. (incorporated by
reference to Exhibit 4.4 to the Companys Current Report on Form 8-K, filed on July 8,
2005).10.1
    
    Second Amended and Restated Employment Agreement between Joey A. Jacobs and
Psychiatric Solutions, Inc., dated as of August 6, 2002 (incorporated by
reference to Exhibit 10.16 to the 2002 10-K).10.2
    
    Amendment to Second Amended and Restated Employment Agreement between Joey
A. Jacobs and Psychiatric Solutions, Inc., dated as of November 26, 2003
(incorporated by reference to Exhibit 10.14 to Amendment No. 2 to the
Companys Registration Statement on Form S-2, filed on December 18, 2003
(Registration No. 333-110206)).10.3
    
    Form of Indemnification Agreement executed by each director of Psychiatric
Solutions, Inc. and Psychiatric Solutions, Inc. (incorporated by
reference to Exhibit 10.4 to the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 2004).10.4
    
    Second Amended and Restated Credit Agreement, dated as of July 1, 2005, by
and among Psychiatric Solutions, Inc., the subsidiaries named as guarantors
thereto, Citicorp North America, Inc., as term loan facility administrative
agent, co-syndication agent and documentation agent, Bank of America, N.A.,
as revolving loan facility administrative agent, collateral agent swing
line lender and co-syndication agent, and the various other agents and
lenders party thereto. (incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K, filed on July 8, 2005).10.5
    
    Interest Rate Swap Agreement, dated January 28, 2004, between Bank of
America, N.A. and Psychiatric Solutions, Inc. (incorporated by reference to
Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q for the quarter
ended March 31, 2004).10.6
    
    Confirmation of Interest Rate Swap Agreement, dated April 26, 2004, between
Bank of America, N.A. and Psychiatric Solutions, Inc. (incorporated by
reference to Exhibit 10.5 to the Companys Quarterly Report on Form 10-Q
for the quarter ended June 30, 2004).
 31




---



##### Table of Contents



ExhibitNumber
    
    Description10.7
    
    Psychiatric Solutions, Inc. 2006 Long-Term Equity Compensation Plan
(incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K,
filed on February 28, 2006).10.8
    
    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
    
    Form of Incentive Stock Option Agreement under the 1997 Plan (incorporated
by reference to Exhibit 10.2 to the 1997 10-K).10.11
    
    Form of Nonstatutory Stock Option Agreement under the 1997 Plan
(incorporated by reference to Exhibit 10.3 to the 1997 10-K).10.12
    
    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).10.13
    
    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).10.14
    
    Form of Outside Directors Non-Qualified Stock Option Agreement
(incorporated by reference to Exhibit 10.5 to the 1997 10-K).10.15*
    
    Executive Officer Compensation.10.16
    
    Psychiatric Solutions, Inc. 2005 Cash Bonus Policy (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K, filed on April
21, 2005.)10.17
    
    Summary of Director Compensation (incorporated by reference to the Companys Current Report on Form 8-K, filed on April 21, 2005.)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 32




---



##### 



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 on Internal Control over Financial Reporting
    
    
    F-4Consolidated Financial Statements:Consolidated Balance Sheets, December 31, 2005 and 2004
    
    
    F-5Consolidated Statements of Income for the years ended December 31, 2005, 2004 and 2003
    
    
    F-6Consolidated Statements of Stockholders Equity for the years ended December 31, 2005, 2004 and 2003
    
    
    F-7Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003
    
    
    F-8Notes to Consolidated Financial Statements
    
    
    F-10




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




---



##### Table of Contents



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 The Board of Directors and Stockholders of Psychiatric Solutions, Inc.




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (in thousands)
 December 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    54,554
    
    
    $
    33,314Accounts receivable, less allowance for doubtful accounts of
$15,355 and $10,662, respectively
    
    
    134,323
    
    
    
    76,984Prepaids and other
    
    
    50,838
    
    
    
    16,601Total current assets
    
    
    239,715
    
    
    
    126,899Property and equipment:Land
    
    
    79,139
    
    
    
    30,461Buildings
    
    
    290,100
    
    
    
    182,855Equipment
    
    
    38,212
    
    
    
    20,185Less accumulated depreciation
    
    
    (29,094
    )
    
    
    (15,290
    )378,357
    
    
    
    218,211Cost in excess of net assets acquired
    
    
    527,655
    
    
    
    130,079Other assets
    
    
    29,885
    
    
    
    22,330Total assets
    
    $
    1,175,612
    
    
    $
    497,519LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    18,836
    
    
    $
    10,355Salaries and benefits payable
    
    
    47,284
    
    
    
    27,205Other accrued liabilities
    
    
    34,422
    
    
    
    28,665Current portion of long-term debt
    
    
    325
    
    
    
    20,764Total current liabilities
    
    
    100,867
    
    
    
    86,989Long-term debt, less current portion
    
    
    482,064
    
    
    
    153,572Deferred tax liability
    
    
    32,151
    
    
    
    8,020Other liabilities
    
    
    20,818
    
    
    
    4,423Total liabilities
    
    
    635,900
    
    
    
    253,004Stockholders equity:Common stock, $0.01 par value, 125,000 shares authorized;
52,430 and 40,935 issued and outstanding, respectively
    
    
    524
    
    
    
    409Additional paid-in capital
    
    
    495,768
    
    
    
    227,840Accumulated earnings
    
    
    43,420
    
    
    
    16,266Total stockholders equity
    
    
    539,712
    
    
    
    244,515Total liabilities and stockholders equity
    
    $
    1,175,612
    
    
    $
    497,519




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
 (In thousands except for per share amounts)
 Year Ended December 31,2005
    
    
    2004
    
    
    2003Revenue
    
    $
    727,774
    
    
    $
    481,893
    
    
    $
    283,022Salaries, wages and employee benefits
    
    
    400,676
    
    
    
    262,039
    
    
    
    145,761Professional fees
    
    
    73,659
    
    
    
    52,933
    
    
    
    32,392Supplies
    
    
    44,134
    
    
    
    30,665
    
    
    
    16,215Rentals and leases
    
    
    11,695
    
    
    
    8,981
    
    
    
    4,041Other operating expenses
    
    
    75,810
    
    
    
    53,962
    
    
    
    43,706Provision
for doubtful accounts
    
    
    13,544
    
    
    
    10,794
    
    
    
    6,312Depreciation and amortization
    
    
    14,815
    
    
    
    9,865
    
    
    
    5,734Interest expense
    
    
    27,081
    
    
    
    18,964
    
    
    
    14,781Loss on refinancing long-term debt
    
    
    21,871
    
    
    
    6,407
    
    
    
    4,856Change in valuation of put warrants
    
    
    
    
    
    
    
    
    
    
    960Change in reserve of stockholder notes
    
    
    
    
    
    
    
    
    
    
    (545
    )683,285
    
    
    
    454,610
    
    
    
    274,213Income from continuing operations
before income taxes
    
    
    44,489
    
    
    
    27,283
    
    
    
    8,809Provision for income taxes
    
    
    17,140
    
    
    
    10,368
    
    
    
    3,712Income from continuing operations
    
    
    27,349
    
    
    
    16,915
    
    
    
    5,097(Loss) income from discontinued operations, net of
income tax benefit (provision) of $125,$70 and $(73) for 2005, 2004 and 2003, respectively
    
    
    (195
    )
    
    
    (114
    )
    
    
    119Net income
    
    
    27,154
    
    
    
    16,801
    
    
    
    5,216Accrued preferred stock dividends
    
    
    
    
    
    
    663
    
    
    
    811Net income available to common stockholders
    
    $
    27,154
    
    
    $
    16,138
    
    
    $
    4,405Basic earnings per share:Income from continuing operations
    
    $
    0.61
    
    
    $
    0.55
    
    
    $
    0.25(Loss) income from discontinued operations,
net of taxes
    
    
    
    
    
    
    
    
    
    
    0.01Net income
    
    $
    0.61
    
    
    $
    0.55
    
    
    $
    0.26Diluted earnings per share:Income from continuing operations
    
    $
    0.59
    
    
    $
    0.48
    
    
    $
    0.22(Loss) income from discontinued operations,
net of taxes
    
    
    
    
    
    
    
    
    
    
    Net income
    
    $
    0.59
    
    
    $
    0.48
    
    
    $
    0.22Shares used in computing per share amounts:Basic
    
    
    44,792
    
    
    
    29,140
    
    
    
    16,740Diluted
    
    
    46,296
    
    
    
    35,146
    
    
    
    23,498




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 (in thousands)
 Additional
    
    
    Notes
    
    
    Accumulated
    
    
    AccumulatedCommon Stock
    
    
    Paid-In
    
    
    Receivable from
    
    
    Unrealized
    
    
    EarningsShares
    
    
    Amount
    
    
    Capital
    
    
    Stockholders
    
    
    Losses
    
    
    (Deficit)
    
    
    TotalBalance at December 31, 2002
    
    
    15,477
    
    
    $
    155
    
    
    $
    34,930
    
    
    $
    (259
    )
    
    $
    
    
    
    $
    (4,277
    )
    
    $
    30,549Issuance of common stock
    
    
    6,543
    
    
    
    65
    
    
    
    48,832
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,897Conversion of convertible debt
    
    
    1,076
    
    
    
    11
    
    
    
    4,574
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,585Payment of notes receivable from
stockholders with stock
    
    
    (96
    )
    
    
    (1
    )
    
    
    (482
    )
    
    
    466
    
    
    
    
    
    
    
    
    
    
    
    (17
    )Change in reserve on stockholder
notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (545
    )
    
    
    
    
    
    
    
    
    
    
    (545
    )Exercise of stock options and
warrants
    
    
    873
    
    
    
    9
    
    
    
    3,263
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,272Income tax benefit of stock option
exercises
    
    
    
    
    
    
    
    
    
    
    186
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    186Unrealized loss on investments
available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Net income available to
common stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,405
    
    
    
    4,405Balance at December 31, 2003
    
    
    23,873
    
    
    
    239
    
    
    
    91,303
    
    
    
    (338
    )
    
    
    (4
    )
    
    
    128
    
    
    
    91,328Issuance of common stock
    
    
    6,570
    
    
    
    66
    
    
    
    104,625
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,691Conversion of series A
convertible preferred stock
    
    
    9,627
    
    
    
    96
    
    
    
    25,819
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,915Payment on notes receivable
from stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    338
    
    
    
    
    
    
    
    
    
    
    
    338Exercise of stock options and
warrants
    
    
    865
    
    
    
    8
    
    
    
    4,420
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,428Income tax benefit of stock option
exercises
    
    
    
    
    
    
    
    
    
    
    1,673
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,673Unrealized gain on investments
available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Net income available to
common stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,138
    
    
    
    16,138Balance at December 31, 2004
    
    
    40,935
    
    
    
    409
    
    
    
    227,840
    
    
    
    
    
    
    
    
    
    
    
    16,266
    
    
    
    244,515Issuance of common stock,
net of issuance costs
    
    
    8,050
    
    
    
    81
    
    
    
    191,917
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    191,998Common stock issued in
acquisition
    
    
    2,726
    
    
    
    27
    
    
    
    64,738
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,765Exercise of stock options
    
    
    719
    
    
    
    7
    
    
    
    6,378
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,385Income tax benefit of stock option
exercises
    
    
    
    
    
    
    
    
    
    
    4,895
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,895Net income available to
common stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,154
    
    
    
    27,154Balance at December 31, 2005
    
    
    52,430
    
    
    $
    524
    
    
    $
    495,768
    
    
    $
    
    
    
    $
    
    
    
    $
    43,420
    
    
    $
    539,712




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Year Ended December 31,2005
    
    
    2004
    
    
    2003Operating activities:Net income
    
    $
    27,154
    
    
    $
    16,801
    
    
    $
    5,216Adjustments to reconcile net income to
net cash provided by continuing
operating activities:Depreciation and amortization
    
    
    14,815
    
    
    
    9,865
    
    
    
    5,734Provision for doubtful accounts
    
    
    13,544
    
    
    
    10,794
    
    
    
    6,312Amortization of loan costs
    
    
    1,187
    
    
    
    691
    
    
    
    1,478Loss on refinancing long-term debt
    
    
    21,871
    
    
    
    6,407
    
    
    
    4,856Change in income tax assets and liabilities
    
    
    9,494
    
    
    
    6,920
    
    
    
    2,809Change in valuation of put warrants
    
    
    
    
    
    
    
    
    
    
    960(Release of) additional reserve on stockholder notes
    
    
    
    
    
    
    
    
    
    
    (545
    )Loss (income) from discontinued operations, net of taxes
    
    
    195
    
    
    
    114
    
    
    
    (119
    )Changes in operating assets and liabilities,
net of effect of acquisitions:Accounts receivable
    
    
    (23,323
    )
    
    
    (13,938
    )
    
    
    (11,207
    )Prepaids and other current assets
    
    
    (3,434
    )
    
    
    2,495
    
    
    
    2,333Accounts payable
    
    
    1,929
    
    
    
    (5,302
    )
    
    
    (2,027
    )Salaries and benefits payable
    
    
    2,556
    
    
    
    5,247
    
    
    
    1,724Accrued liabilities and other liabilities
    
    
    13,315
    
    
    
    (126
    )
    
    
    799Other
    
    
    463
    
    
    
    
    
    
    
    286Net cash provided by continuing operating activities
    
    
    79,766
    
    
    
    39,968
    
    
    
    18,609Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (514,525
    )
    
    
    (136,495
    )
    
    
    (100,424
    )Capital purchases of leasehold improvements,
equipment and software
    
    
    (21,750
    )
    
    
    (17,201
    )
    
    
    (5,747
    )Purchases of short-term investments
    
    
    (29,400
    )
    
    
    
    
    
    
    Sales of short-term investments
    
    
    29,400
    
    
    
    
    
    
    
    Sale (purchase) of long-term securities
    
    
    
    
    
    
    953
    
    
    
    (971
    )Cash paid for investments in equity method investees
    
    
    (1,340
    )
    
    
    
    
    
    
    Other assets
    
    
    1,219
    
    
    
    (1,417
    )
    
    
    (1,148
    )Net cash used in investing activities
    
    
    (536,396
    )
    
    
    (154,160
    )
    
    
    (108,290
    )




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Year Ended December 31,2005
    
    
    2004
    
    
    2003Financing activities:Net decrease in revolving credit facility, less acquisitions
    
    $
    
    
    
    $
    
    
    
    $
    (34,148
    )Borrowings on long-term debt
    
    
    545,000
    
    
    
    
    
    
    
    159,981Principal payments on long-term debt
    
    
    (236,822
    )
    
    
    (810
    )
    
    
    (63,853
    )Payment of loan and issuance costs
    
    
    (13,932
    )
    
    
    (2,300
    )
    
    
    (1,998
    )Refinancing of long-term debt
    
    
    (15,398
    )
    
    
    (3,844
    )
    
    
    (1,410
    )Proceeds from issuance of series A convertible
preferred stock, net of issuance costs
    
    
    
    
    
    
    
    
    
    
    24,505Proceeds from public offering of common stock
    
    
    192,637
    
    
    
    104,691
    
    
    
    48,897Proceeds from exercises of common stock options
    
    
    6,385
    
    
    
    4,428
    
    
    
    318Proceeds from repayment of stockholder notes
    
    
    
    
    
    
    338
    
    
    
    Net cash provided by financing activities
    
    
    477,870
    
    
    
    102,503
    
    
    
    132,292Net increase (decrease) in cash
    
    
    21,240
    
    
    
    (11,689
    )
    
    
    42,611Cash and cash equivalents at beginning of the year
    
    
    33,314
    
    
    
    45,003
    
    
    
    2,392Cash and cash equivalents at end of the year
    
    $
    54,554
    
    
    $
    33,314
    
    
    $
    45,003Supplemental Cash Flow Information:Interest paid
    
    $
    16,718
    
    
    $
    18,821
    
    
    $
    13,017Income taxes paid
    
    $
    7,490
    
    
    $
    3,354
    
    
    $
    318Effect of Acquisitions:Assets acquired, net of cash acquired
    
    $
    624,821
    
    
    $
    148,345
    
    
    $
    201,525Cash paid for prior year acquisitions
    
    
    5,793
    
    
    
    
    
    
    
    Liabilities assumed
    
    
    (51,324
    )
    
    
    (11,850
    )
    
    
    (37,336
    )Common stock issued
    
    
    (64,765
    )
    
    
    
    
    
    
    Long-term debt issued
    
    
    
    
    
    
    
    
    
    
    (63,765
    )Cash paid for acquisitions, net of cash acquired
    
    $
    514,525
    
    
    $
    136,495
    
    
    $
    100,424Significant Non-cash Transactions:Refinancing of long-term debt
    
    $
    6,473
    
    
    $
    2,563
    
    
    $
    3,446Issuance of common stock upon conversion of series A
convertible preferred stock
    
    $
    
    
    
    $
    25,915
    
    
    $
    Financing of loan costs
    
    $
    
    
    
    $
    
    
    
    $
    9,172Issuance of common stock upon conversion
of convertible debt
    
    $
    
    
    
    $
    
    
    
    $
    4,585Issuance of common stock upon exercise of warrants
    
    $
    
    
    
    $
    
    
    
    $
    2,979




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2005
 1. Summary of Significant Accounting Policies
 Description of Business
  Basis of Presentation
    Cash and Cash Equivalents
  Accounts Receivable
   Allowance for Doubtful Accounts




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 Allowances for Contractual Discounts
  Income Taxes
  Long-Lived Assets
 Property and Equipment
  Cost in Excess of Net Assets Acquired (Goodwill)
   Balance at December 31, 2003
    
    $
    68,970Acquisition of Brentwood
    
    
    3,956Acquisition of Palmetto
    
    
    5,349Acquisition of Heartland
    
    
    44,714Acquisition of Piedmont
    
    
    5,703Acquisition of Alliance Behavioral
    
    
    7,552Release of deferred tax asset valuation allowance
    
    
    (6,684
    )Other
    
    
    519Balance at December 31, 2004
    
    
    130,079Acquisition of Ardent Behavioral
    
    
    393,017Release of deferred tax asset valuation allowance
    
    
    (395
    )Other
    
    
    4,954Balance at December 31, 2005
    
    $
    527,655
 Other Assets




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 
  Stock-Based Compensation
 Accounting for Stock-Based Compensation-Transition and Disclosure, an
Amendment of FASB Statement No. 123 Accounting for Stock -Based Compensation
 Accounting for Stock Issued to
Employees Share
Based Payment
   2005
    
    
    2004
    
    
    2003Risk-free interest rate
    
    
    4.16
    %
    
    
    3.17
    %
    
    
    2.79
    %Expected volatility
    
    
    32.65
    %
    
    
    31.87
    %
    
    
    51.99
    %Expected life
    
    
    5.0
    
    
    
    5.2
    
    
    
    5.6Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
  2005
    
    
    2004
    
    
    2003Exercise Price equal to Market Price
    
    $
    7.83
    
    
    $
    3.67
    
    
    $
    2.53Exercise Price less than Market Price
    
    $
    
    
    
    $
    
    
    
    $
    Exercise Price greater than Market Price
    
    $
    
    
    
    $
    
    
    
    $
    2.52
   F-12




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 2005
    
    
    2004
    
    
    2003Net income available to common stockholders
    
    $
    27,154
    
    
    $
    16,138
    
    
    $
    4,405Pro forma compensation expense from stock
options, net of tax
    
    
    3,144
    
    
    
    1,467
    
    
    
    605Pro forma net income
    
    $
    24,010
    
    
    $
    14,671
    
    
    $
    3,800Basic earnings per share:As reported
    
    $
    0.61
    
    
    $
    0.55
    
    
    $
    0.26Pro forma
    
    $
    0.54
    
    
    $
    0.50
    
    
    $
    0.23Diluted earnings per share:As reported
    
    $
    0.59
    
    
    $
    0.48
    
    
    $
    0.22Pro forma
    
    $
    0.52
    
    
    $
    0.44
    
    
    $
    0.20
 Derivatives
 Accounting for Derivative Instruments and Hedging
Activities
 Risk Management
   Fair Value of Financial Instruments
 3 4 3 4 5 8 5 8 5 8
 Reclassifications
  Recent
Accounting Pronouncements
  F-13




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
  2. Revenue
  December 31,2005
    
    
    2004
    
    
    2003Patient service revenue
    
    $
    664,367
    
    
    $
    419,701
    
    
    $
    223,340Management fee revenue
    
    
    63,407
    
    
    
    62,192
    
    
    
    59,682Total revenue
    
    $
    727,774
    
    
    $
    481,893
    
    
    $
    283,022
 Net Patient Service Revenue
    Management Contract Revenue
  3. Earnings Per Share
 Earnings per Share
  F-14




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 Year ended December 31,2005
    
    
    2004
    
    
    2003Numerator:Basic earnings per share:Income from continuing operations
    
    $
    27,349
    
    
    $
    16,915
    
    
    $
    5,097Accrued dividends on series A convertible preferred stock
    
    
    
    
    
    
    663
    
    
    
    811Income from continuing operations used in computing basic
earnings per share
    
    
    27,349
    
    
    
    16,252
    
    
    
    4,286(Loss) income from discontinued operations, net of taxes
    
    
    (195
    )
    
    
    (114
    )
    
    
    119Net income available to common stockholders
    
    $
    27,154
    
    
    $
    16,138
    
    
    $
    4,405Diluted earnings per share:Income from continuing operations
    
    $
    27,349
    
    
    $
    16,915
    
    
    $
    5,097(Loss) income from discontinued operations, net of taxes
    
    
    (195
    )
    
    
    (114
    )
    
    
    119Net income used in computing diluted earnings per share
    
    $
    27,154
    
    
    $
    16,801
    
    
    $
    5,216Denominator:Weighted average shares outstanding for basic earnings per share
    
    
    44,792
    
    
    
    29,140
    
    
    
    16,740Effects of dilutive stock options and warrants outstanding
    
    
    1,504
    
    
    
    1,139
    
    
    
    862Effect of dilutive series A convertible preferred stock outstanding
    
    
    
    
    
    
    4,867
    
    
    
    5,896Shares used in computing diluted earnings per common share
    
    
    46,296
    
    
    
    35,146
    
    
    
    23,498Basic earnings per share:Income from continuing operations
    
    $
    0.61
    
    
    $
    0.55
    
    
    $
    0.25(Loss) income from discontinued operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    0.01$
    0.61
    
    
    $
    0.55
    
    
    $
    0.26Diluted earnings per share:Income from continuing operations
    
    $
    0.59
    
    
    $
    0.48
    
    
    $
    0.22(Loss) income from discontinued operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    $
    0.59
    
    
    $
    0.48
    
    
    $
    0.22
  4. Discontinued Operations
   F-15




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 Year Ended December 31,2005
    
    
    2004
    
    
    2003Revenue
    
    $
    2,461
    
    
    $
    15,980
    
    
    $
    10,643Salaries, wages and employee benefits
    
    
    1,964
    
    
    
    11,504
    
    
    
    7,738Professional fees
    
    
    355
    
    
    
    1,306
    
    
    
    901Supplies
    
    
    177
    
    
    
    1,382
    
    
    
    859Rentals and leases
    
    
    11
    
    
    
    189
    
    
    
    68Other operating expenses
    
    
    219
    
    
    
    1,682
    
    
    
    864Provision for bad debts
    
    
    24
    
    
    
    80
    
    
    
    2Depreciation and amortization
    
    
    31
    
    
    
    21
    
    
    
    192,781
    
    
    
    16,164
    
    
    
    10,451(Loss)
income from discontinued operations before income taxes
    
    
    (320
    )
    
    
    (184
    )
    
    
    192(Benefit
from) provision for income taxes
    
    
    (125
    )
    
    
    (70
    )
    
    
    73(Loss)
income from discontinued operations, net of income taxes
    
    $
    (195
    )
    
    $
    (114
    )
    
    $
    119
 5.Acquisitions
 2005 ACQUISITIONS
   ArdentBehavioralAssets acquired:Accounts receivable
    
    $
    47,670Other current assets
    
    
    23,436Fixed assets
    
    
    152,355Costs in excess of net assets acquired
    
    
    393,017Other assets
    
    
    4,601621,079Liabilities assumed
    
    
    50,114Common stock issued
    
    
    64,765Cash paid, net of cash acquired
    
    $
    506,200
  2004 ACQUISITIONS
  F-16




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
   AllianceBrentwood
    
    
    Palmetto
    
    
    Heartland
    
    
    Piedmont
    
    
    Behavioral
    
    
    TotalAssets acquired:Accounts receivable
    
    $
    4,086
    
    
    $
    1,703
    
    
    $
    8,637
    
    
    $
    748
    
    
    $
    2,548
    
    
    $
    17,722Other current assets
    
    
    214
    
    
    
    593
    
    
    
    166
    
    
    
    65
    
    
    
    34
    
    
    
    1,072Fixed assets
    
    
    27,868
    
    
    
    4,877
    
    
    
    17,563
    
    
    
    4,970
    
    
    
    4,328
    
    
    
    59,606Costs in excess of net assets acquired
    
    
    3,956
    
    
    
    5,349
    
    
    
    44,714
    
    
    
    5,703
    
    
    
    7,552
    
    
    
    67,274Other assets
    
    
    1,899
    
    
    
    4
    
    
    
    30
    
    
    
    
    
    
    
    111
    
    
    
    2,04438,023
    
    
    
    12,526
    
    
    
    71,110
    
    
    
    11,486
    
    
    
    14,573
    
    
    
    147,718Liabilities assumed
    
    
    7,087
    
    
    
    1,774
    
    
    
    4,481
    
    
    
    505
    
    
    
    1,353
    
    
    
    15,200Cash paid, net of cash acquired
    
    $
    30,936
    
    
    $
    10,752
    
    
    $
    66,629
    
    
    $
    10,981
    
    
    $
    13,220
    
    
    $
    132,518
 2003 ACQUISITIONS
   The BrownRamsay
    
    
    Schools
    
    
    Alliance
    
    
    Calvary
    
    
    TotalAssets acquired:Accounts receivable
    
    $
    18,396
    
    
    $
    11,367
    
    
    $
    1,901
    
    
    $
    70
    
    
    $
    31,734Other current assets
    
    
    7,228
    
    
    
    1,046
    
    
    
    139
    
    
    
    20
    
    
    
    8,433Fixed assets
    
    
    53,050
    
    
    
    43,756
    
    
    
    14,460
    
    
    
    36
    
    
    
    111,302Costs in excess of net assets acquired
    
    
    19,161
    
    
    
    17,377
    
    
    
    1,755
    
    
    
    4,114
    
    
    
    42,407Other assets
    
    
    1,496
    
    
    
    591
    
    
    
    
    
    
    
    9
    
    
    
    2,09699,331
    
    
    
    74,137
    
    
    
    18,255
    
    
    
    4,249
    
    
    
    195,972Liabilities assumed
    
    
    18,536
    
    
    
    9,601
    
    
    
    4,229
    
    
    
    3,591
    
    
    
    35,957Long-term debt issued
    
    
    
    
    
    
    51,171
    
    
    
    12,594
    
    
    
    
    
    
    
    63,765Cash paid, net of cash acquired
    
    $
    80,795
    
    
    $
    13,365
    
    
    $
    1,432
    
    
    $
    658
    
    
    $
    96,250
 Other Information
  F-17




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 2005
    
    2004
    
    2003Revenues
    
    $
    889,725
    
    
    $
    827,096
    
    
    $
    502,507Net income available to common stockholders
    
    
    34,515
    
    
    
    25,430
    
    
    
    11,688Earnings per common share, basic
    
    $
    0.75
    
    
    $
    0.80
    
    
    $
    0.70
  6. Long-term debt
  December 31,2005
    
    
    2004Senior credit facility:Senior Secured Term Loan Facility, expiring on July 1, 2012
and bearing interest of 6.2% at December 31, 2005
    
    $
    200,000
    
    
    $
    7 3/4% Notes
    
    
    220,000
    
    
    
    10 5/8% Notes
    
    
    38,681
    
    
    
    150,000Mortgage loans on facilities, maturing in 2037 and 2038
bearing fixed interest rates of 5.65% to 5.95%
    
    
    23,377
    
    
    
    23,611Other
    
    
    331
    
    
    
    725482,389
    
    
    
    174,336Less current portion
    
    
    325
    
    
    
    20,764Long-term debt
    
    $
    482,064
    
    
    $
    153,572
 Senior Credit Facility
    F-18




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
  7 3 / 4 % Notes
 3 4 5 8 3 4 3 4
 10 5 / 8 % Notes
 5 8 5 8 5 8
 5 8 5 8 5 8 5 8 3 4
 Mortgage Loans
  Other
   2006
    
    $
    3252007
    
    
    3672008
    
    
    3782009
    
    
    3382010
    
    
    322Thereafter
    
    
    480,659Total
    
    $
    482,389
 7. Series A Convertible Preferred Stock
  F-19




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 8. Leases
  2006
    
    $
    7,5942007
    
    
    5,3212008
    
    
    3,9722009
    
    
    3,4692010
    
    
    2,063Thereafter
    
    
    16,503Total
    
    $
    38,922
 9. Income Taxes
 2005
    
    
    2004
    
    
    2003Provision for income taxes attributable
to income from continuing operations
    
    $
    17,140
    
    
    $
    10,368
    
    
    $
    3,712(Benefit
from) provision for income taxes attributable to
loss from discontinued operations
    
    
    (125
    )
    
    
    (70
    )
    
    
    73Total provision for income taxes
    
    $
    17,015
    
    
    $
    10,298
    
    
    $
    3,785
   2005
    
    
    2004
    
    
    2003Current:Federal
    
  $
    (1,516
    )
    
    $
    10,061
    
    
    $
    State
    
    
    2,750
    
    
    
    1,651
    
    
    
    4101,234
    
    
    
    11,712
    
    
    
    410Deferred:Federal
    
    
    16,580
    
    
    
    (1,279
    )
    
    
    3,295State
    
    
    (908
    )
    
    
    (244
    )
    
    
    7Foreign
    
    
    234
    
    
    
    179
    
    
    
    15,906
    
    
    
    (1,344
    )
    
    
    3,302Provision for income taxes
    
    $
    17,140
    
    
    $
    10,368
    
    
    $
    3,712
   2005
    
    
    2004
    
    
    2003Federal tax
    
    $
    15,571
    
    
    $
    9,549
    
    
    $
    2,995State income taxes (net of federal)
    
    
    1,198
    
    
    
    915
    
    
    
    275Other
    
    
    371
    
    
    
    (96
    )
    
    
    442Provision for income taxes
    
    $
    17,140
    
    
    $
    10,368
    
    
    $
    3,712
  F-20




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 2005
    
    
    2004Deferred tax assets:Net operating loss carryforwards
    
    $
    34,370
    
    
    $
    15,491Allowance for doubtful accounts
    
    
    5,067
    
    
    
    2,550Alternative minimum tax credit carryovers
    
    
    1,601
    
    
    
    1,244Accrued liabilities
    
    
    12,603
    
    
    
    8,270Other
    
    
    
    
    
    
    18Total gross deferred tax assets
    
    
    53,641
    
    
    
    27,573Less: Valuation allowance
    
    
    (4,053
    )
    
    
    (3,435
    )Total deferred tax assets
    
    
    49,588
    
    
    
    24,138Deferred tax liabilities:Intangible assets
    
    
    (11,092
    )
    
    
    (8,048
    )Property and equipment
    
    
    (40,252
    )
    
    
    (15,002
    )Other
    
    
    
    
    
    
    (453
    )Net deferred tax asset (liability)
    
    $
    (1,756
    )
    
    $
    635
    10. Stock Option Plans
    F-21




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
  WeightedNumber
    
    
    
    
    
    
    Averageof
    
    
    Option
    
    
    ExerciseOptions
    
    
    Exercise Price
    
    
    PriceBalance at December 31, 2002
    
    
    2,146
    
    
    $
    0.44 to $15.00
    
    
    $
    4.61Granted
    
    
    1,426
    
    
    $
    2.53 to $6.88
    
    
    $
    5.39Canceled
    
    
    (166
    )
    
    $
    0.44 to $15.00
    
    
    $
    5.69Exercised
    
    
    (128
    )
    
    $
    0.44 to $4.78
    
    
    $
    2.46Balance at December 31, 2003
    
    
    3,278
    
    
    $
    0.44 to $15.00
    
    
    $
    4.97Granted
    
    
    1,420
    
    
    $
    9.98 to $13.10
    
    
    $
    10.65Canceled
    
    
    (248
    )
    
    $
    1.52 to $15.00
    
    
    $
    6.81Exercised
    
    
    (918
    )
    
    $
    0.44 to $15.00
    
    
    $
    5.86Balance at December 31, 2004
    
    
    3,532
    
    
    $
    0.44 to $15.00
    
    
    $
    6.89Granted
    
    
    2,154
    
    
    $
    19.31 to $27.35
    
    
    $
    21.75Canceled
    
    
    (495
    )
    
    $
    1.52 to $23.28
    
    
    $
    13.36Exercised
    
    
    (719
    )
    
    $
    0.44 to $20.69
    
    
    $
    8.88Balance at December 31, 2005
    
    
    4,472
    
    
    $
    0.44 to $27.35
    
    
    $
    13.01
  Options Outstanding
    
    
    Options ExercisableWeighted Avg.
    
    
    WeightedRemaining
    
    
    AverageNumber
    
    
    Contractual Life
    
    
    Exercise
    
    
    NumberExercise Prices
    
    Outstanding
    
    
    (in years)
    
    
    Price
    
    
    Exercisable$0.44 to $4.99
    
    
    1,059
    
    
    6.3
    
    
    $
    2.60
    
    
    
    743$5.00 to $9.99
    
    
    776
    
    
    7.8
    
    
    $
    7.07
    
    
    
    275$10.00 to $14.99
    
    
    742
    
    
    8.1
    
    
    $
    10.52
    
    
    
    255$15.00 to $19.99
    
    
    201
    
    
    9.2
    
    
    $
    18.96
    
    
    
    41$20.00 to $24.99
    
    
    1,580
    
    
    9.4
    
    
    $
    21.08
    
    
    
    234$25.00 to $27.35
    
    
    114
    
    
    9.8
    
    
    $
    27.35
    
    
    
    4,472
    
    
    8.2
    
    
    $
    7.92
    
    
    
    1,548
 11. Employee Benefit Plan
  12. Contingencies and Health Care Regulation
 Contingencies
  Employment Agreements
  F-22




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
   Current Operations
    13. Related Party Transactions
     F-23




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
   14. Disclosures About Reportable Segments
   F-24




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 Year ended December 31, 2005
 Owned andLeased
    
    
    Management
    
    
    CorporateFacilities
    
    
    Contracts
    
    
    and Other
    
    
    ConsolidatedRevenue
    
    $
    664,367
    
    
    $
    63,407
    
    
    $
    
    
    
    $
    727,774Adjusted EBITDA
    
    $
    120,807
    
    
    $
    11,166
    
    
    $
    (23,717
    )
    
    $
    108,256Interest expense, net
    
    
    16,406
    
    
    
    25
    
    
    
    10,650
    
    
    
    27,081Provision for income taxes
    
    
    2,142
    
    
    
    
    
    
    
    14,998
    
    
    
    17,140Depreciation and amortization
    
    
    13,308
    
    
    
    758
    
    
    
    749
    
    
    
    14,815Inter-segment expenses
    
    
    25,716
    
    
    
    3,401
    
    
    
    (29,117
    )
    
    
    Other expenses:Loss on refinancing long-term debt
    
    
    
    
    
    
    
    
    
    
    21,871
    
    
    
    21,871Total other expenses
    
    
    
    
    
    
    
    
    
    
    21,871
    
    
    
    21,871Income (loss) from continuing operations
    
    $
    63,235
    
    
    $
    6,982
    
    
    $
    (42,868
    )
    
    $
    27,349Total assets
    
    $
    1,019,651
    
    
    $
    31,195
    
    
    $
    124,766
    
    
    $
    1,175,612Capital expenditures
    
    $
    17,592
    
    
    $
    52
    
    
    $
    4,106
    
    
    $
    21,750Cost in excess of net assets acquired
    
    $
    507,279
    
    
    $
    20,376
    
    
    $
    
    
    
    $
    527,655
 Year ended December 31, 2004
 Owned andLeased
    
    
    Management
    
    
    CorporateFacilities
    
    
    Contracts
    
    
    and Other
    
    
    ConsolidatedRevenue
    
    $
    419,701
    
    
    $
    62,192
    
    
    $
    
    
    
    $
    481,893Adjusted EBITDA
    
    $
    66,350
    
    
    $
    10,808
    
    
    $
    (14,639
    )
    
    $
    62,519Interest expense, net
    
    
    19,645
    
    
    
    (15
    )
    
    
    (666
    )
    
    
    18,964Provision for income taxes
    
    
    2,737
    
    
    
    
    
    
    
    7,631
    
    
    
    10,368Depreciation and amortization
    
    
    8,366
    
    
    
    1,139
    
    
    
    360
    
    
    
    9,865Inter-segment expenses
    
    
    11,471
    
    
    
    3,215
    
    
    
    (14,686
    )
    
    
    Other expenses:Loss on refinancing long-term debt
    
    
    
    
    
    
    
    
    
    
    6,407
    
    
    
    6,407Total other expenses
    
    
    
    
    
    
    
    
    
    
    6,407
    
    
    
    6,407Income (loss) from continuing operations
    
    $
    24,131
    
    
    $
    6,469
    
    
    $
    (13,685
    )
    
    $
    16,915Total assets
    
    $
    402,977
    
    
    $
    32,962
    
    
    $
    61,580
    
    
    $
    497,519Capital expenditures
    
    $
    15,632
    
    
    $
    
    
    
    $
    1,569
    
    
    $
    17,201Cost in excess of net assets acquired
    
    $
    106,238
    
    
    $
    23,841
    
    
    $
    
    
    
    $
    130,079
 F-25




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 Year ended December 31, 2003
 Owned andLeased
    
    
    Management
    
    
    CorporateFacilities
    
    
    Contracts
    
    
    and Other
    
    
    ConsolidatedRevenue
    
    $
    223,340
    
    
    $
    59,682
    
    
    $
    
    
    
    $
    283,022Adjusted EBITDA
    
    $
    32,408
    
    
    $
    11,142
    
    
    $
    (8,955
    )
    
    $
    34,595Interest expense, net
    
    
    6,996
    
    
    
    92
    
    
    
    7,693
    
    
    
    14,781Provision for income taxes
    
    
    2,165
    
    
    
    73
    
    
    
    1,474
    
    
    
    3,712Depreciation and amortization
    
    
    4,410
    
    
    
    1,135
    
    
    
    189
    
    
    
    5,734Inter-segment expenses
    
    
    5,639
    
    
    
    1,432
    
    
    
    (7,071
    )
    
    
    Other expenses:Loss on refinancing long-term debt
    
    
    
    
    
    
    
    
    
    
    4,856
    
    
    
    4,856Change in valuation of put warrants
    
    
    
    
    
    
    
    
    
    
    960
    
    
    
    960Change in reserve of stockholder notes
    
    
    
    
    
    
    (545
    )
    
    
    
    
    
    
    (545
    )Total other expenses
    
    
    
    
    
    
    (545
    )
    
    
    5,816
    
    
    
    5,271Income (loss) from continuing operations
    
    $
    13,198
    
    
    $
    8,955
    
    
    $
    (17,056
    )
    
    $
    5,097Total assets
    
    $
    254,703
    
    
    $
    34,937
    
    
    $
    57,824
    
    
    $
    347,464Capital expenditures
    
    $
    5,516
    
    
    $
    
    
    
    $
    231
    
    
    $
    5,747Cost in excess of net assets acquired
    
    $
    47,108
    
    
    $
    22,781
    
    
    $
    
    
    
    $
    69,889
 15. Other Information
  Balances
    
    Additions
    
    Additions
    
    Accounts written
    
    Balancesat beginning
    
    charged to costs
    
    charged to
    
    off, net of
    
    at endof period
    
    and expenses
    
    other accounts (1)
    
    recoveries
    
    of periodAllowance for doubtful accounts:Year ended December 31, 2003
    
    
    5,284
    
    
    
    6,312
    
    
    
    4,321
    
    
    
    8,834
    
    
    
    7,083Year ended December 31, 2004
    
    
    7,083
    
    
    
    10,794
    
    
    
    3,253
    
    
    
    10,468
    
    
    
    10,662Year ended December 31, 2005
    
    
    10,662
    
    
    
    13,544
    
    
    
    5,844
    
    
    
    14,695
    
    
    
    15,355
 
 (1)
    
    Allowances as a result of acquisition. 16.
Quarterly Information (Unaudited)
  F-26




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 1st Quarter
    
    2nd Quarter
    
    3rd Quarter
    
    4th Quarter2005Revenue
    
    $
    137,406
    
    
    $
    142,646
    
    
    $
    223,572
    
    
    $
    224,150Income from continuing operations
    
    $
    3,312
    
    
    $
    8,906
    
    
    $
    1,212
    
    
    $
    13,919Net income available to common stockholders
    
    $
    3,328
    
    
    $
    8,707
    
    
    $
    1,179
    
    
    $
    13,940Earnings per share:Basic
    
    $
    0.08
    
    
    $
    0.22
    
    
    $
    0.03
    
    
    $
    0.27Diluted
    
    $
    0.08
    
    
    $
    0.21
    
    
    $
    0.03
    
    
    $
    0.262004Revenue
    
    $
    102,125
    
    
    $
    115,676
    
    
    $
    130,219
    
    
    $
    133,873Income from continuing operations
    
    $
    40
    
    
    $
    5,245
    
    
    $
    5,313
    
    
    $
    6,317Net (loss) income available to common stockholders
    
    $
    (360
    )
    
    $
    4,923
    
    
    $
    5,215
    
    
    $
    6,360Earnings per share:Basic
    
    $
    (0.01
    )
    
    $
    0.17
    
    
    $
    0.17
    
    
    $
    0.18Diluted
    
    $
    (0.01
    )
    
    $
    0.15
    
    
    $
    0.15
    
    
    $
    0.17
   17. Financial Information for the Company and Its Subsidiaries
  F-27




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 Condensed Consolidating Balance Sheet
As of December 31, 2005
(Dollars in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    TotalParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    Consolidated AmountsCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    43,969
    
    
    $
    10,585
    
    
    $
    
    
    
    $
    54,554Accounts receivable, net
    
    
    
    
    
    
    134,323
    
    
    
    
    
    
    
    
    
    
    
    134,323Prepaids and other
    
    
    
    
    
    
    50,838
    
    
    
    
    
    
    
    
    
    
    
    50,838Total current assets
    
    
    
    
    
    
    229,130
    
    
    
    10,585
    
    
    
    
    
    
    
    239,715Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    357,011
    
    
    
    29,179
    
    
    
    (7,833
    )
    
    
    378,357Cost in excess of net assets acquired
    
    
    
    
    
    
    527,655
    
    
    
    
    
    
    
    
    
    
    
    527,655Investment in subsidiaries
    
    
    444,888
    
    
    
    
    
    
    
    
    
    
    
    (444,888
    )
    
    
    Other assets
    
    
    12,441
    
    
    
    14,029
    
    
    
    3,415
    
    
    
    
    
    
    
    29,885Total assets
    
    $
    457,329
    
    
    $
    1,127,825
    
    
    $
    43,179
    
    
    $
    (452,721
    )
    
    $
    1,175,612Current Liabilities:Accounts payable
    
    $
    
    
    
    $
    18,836
    
    
    $
    
    
    
    $
    
    
    
    $
    18,836Salaries and benefits payable
    
    
    
    
    
    
    47,284
    
    
    
    
    
    
    
    
    
    
    
    47,284Other accrued liabilities
    
    
    12,994
    
    
    
    21,115
    
    
    
    313
    
    
    
    
    
    
    
    34,422Current portion of long-term debt
    
    
    77
    
    
    
    
    
    
    
    248
    
    
    
    
    
    
    
    325Total current liabilities
    
    
    13,071
    
    
    
    87,235
    
    
    
    561
    
    
    
    
    
    
    
    100,867Long-term debt, less current portion
    
    
    458,935
    
    
    
    
    
    
    
    23,129
    
    
    
    
    
    
    
    482,064Deferred tax liability
    
    
    
    
    
    
    32,151
    
    
    
    
    
    
    
    
    
    
    
    32,151Other liabilities
    
    
    3,011
    
    
    
    9,544
    
    
    
    8,263
    
    
    
    
    
    
    
    20,818Total liabilities
    
    
    475,017
    
    
    
    128,930
    
    
    
    31,953
    
    
    
    
    
    
    
    635,900Stockholders (deficit) equity:Total stockholders (deficit) equity
    
    
    (17,688
    )
    
    
    998,895
    
    
    
    11,226
    
    
    
    (452,721
    )
    
    
    539,712Total liabilities and stockholders (deficit) equity
    
    $
    457,329
    
    
    $
    1,127,825
    
    
    $
    43,179
    
    
    $
    (452,721
    )
    
    $
    1,175,612
 F-28




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 Condensed Consolidating Balance Sheet
As of December 31, 2004
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    30,851
    
    
    $
    2,463
    
    
    $
    
    
    
    $
    33,314Accounts receivable, net
    
    
    
    
    
    
    76,984
    
    
    
    
    
    
    
    
    
    
    
    76,984Prepaids and other
    
    
    
    
    
    
    15,626
    
    
    
    975
    
    
    
    
    
    
    
    16,601Total current assets
    
    
    
    
    
    
    123,461
    
    
    
    3,438
    
    
    
    
    
    
    
    126,899Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    196,132
    
    
    
    30,155
    
    
    
    (8,076
    )
    
    
    218,211Cost in excess of net assets acquired
    
    
    
    
    
    
    130,079
    
    
    
    
    
    
    
    
    
    
    
    130,079Investment in subsidiaries
    
    
    160,065
    
    
    
    
    
    
    
    
    
    
    
    (160,065
    )
    
    
    Other assets
    
    
    6,791
    
    
    
    11,974
    
    
    
    3,565
    
    
    
    
    
    
    
    22,330Total assets
    
    $
    166,856
    
    
    $
    461,646
    
    
    $
    37,158
    
    
    $
    (168,141
    )
    
    $
    497,519Current Liabilities:Accounts payable
    
    $
    
    
    
    $
    10,355
    
    
    $
    
    
    
    $
    
    
    
    $
    10,355Salaries and benefits payable
    
    
    
    
    
    
    27,205
    
    
    
    
    
    
    
    
    
    
    
    27,205Other accrued liabilities
    
    
    1,162
    
    
    
    27,380
    
    
    
    1,682
    
    
    
    (1,559
    )
    
    
    28,665Current portion of long-term debt
    
    
    20,529
    
    
    
    
    
    
    
    235
    
    
    
    
    
    
    
    20,764Total current liabilities
    
    
    21,691
    
    
    
    64,940
    
    
    
    1,917
    
    
    
    (1,559
    )
    
    
    86,989Long-term debt, less current portion
    
    
    130,195
    
    
    
    
    
    
    
    23,377
    
    
    
    
    
    
    
    153,572Deferred tax liability
    
    
    
    
    
    
    8,020
    
    
    
    
    
    
    
    
    
    
    
    8,020Other liabilities
    
    
    3,325
    
    
    
    (461
    )
    
    
    
    
    
    
    1,559
    
    
    
    4,423Total liabilities
    
    
    155,211
    
    
    
    72,499
    
    
    
    25,294
    
    
    
    
    
    
    
    253,004Stockholders equity:Total stockholders equity
    
    
    11,645
    
    
    
    389,147
    
    
    
    11,864
    
    
    
    (168,141
    )
    
    
    244,515Total liabilities and stockholders equity
    
    $
    166,856
    
    
    $
    461,646
    
    
    $
    37,158
    
    
    $
    (168,141
    )
    
    $
    497,519
 Condensed Consolidating Statement of Income
For the Year Ended December 31, 2005
(Unaudited, dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    727,774
    
    
    $
    11,073
    
    
    $
    (11,073
    )
    
    $
    727,774Salaries, wages and employee benefits
    
    
    
    
    
    
    400,676
    
    
    
    
    
    
    
    
    
    
    
    400,676Professional fees
    
    
    
    
    
    
    73,185
    
    
    
    474
    
    
    
    
    
    
    
    73,659Supplies
    
    
    
    
    
    
    44,134
    
    
    
    
    
    
    
    
    
    
    
    44,134Rentals and leases
    
    
    
    
    
    
    11,695
    
    
    
    
    
    
    
    
    
    
    
    11,695Other operating expenses
    
    
    
    
    
    
    75,009
    
    
    
    8,313
    
    
    
    (7,512
    )
    
    
    75,810Provision for doubtful accounts
    
    
    
    
    
    
    13,544
    
    
    
    
    
    
    
    
    
    
    
    13,544Depreciation and amortization
    
    
    
    
    
    
    14,082
    
    
    
    976
    
    
    
    (243
    )
    
    
    14,815Interest expense
    
    
    25,848
    
    
    
    
    
    
    
    1,233
    
    
    
    
    
    
    
    27,081Loss on refinancing long-term debt
    
    
    21,871
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,87147,719
    
    
    
    632,325
    
    
    
    10,996
    
    
    
    (7,755
    )
    
    
    683,285(Loss) income from continuing operations
before
income taxes
    
    
    (47,719
    )
    
    
    95,449
    
    
    
    77
    
    
    
    (3,318
    )
    
    
    44,489(Benefit from) provision for income taxes
    
    
    (18,386
    )
    
    
    35,526
    
    
    
    
    
    
    
    
    
    
    
    17,140(Loss) income from continuing operations
    
    
    (29,333
    )
    
    
    59,923
    
    
    
    77
    
    
    
    (3,318
    )
    
    
    27,349(Loss) income from discontinued
operations, net of taxes
    
    
    
    
    
    
    (195
    )
    
    
    
    
    
    
    
    
    
    
    (195
    )Net (loss) income
    
    $
    (29,333
    )
    
    $
    59,728
    
    
    $
    77
    
    
    $
    (3,318
    )
    
    $
    27,154
 F-29




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 Condensed Consolidating Statement of Income
For the Year Ended December 31, 2004
(Unaudited, dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    481,893
    
    
    $
    3,702
    
    
    $
    (3,702
    )
    
    $
    481,893Salaries, wages and employee benefits
    
    
    
    
    
    
    262,039
    
    
    
    
    
    
    
    
    
    
    
    262,039Professional fees
    
    
    
    
    
    
    52,875
    
    
    
    58
    
    
    
    
    
    
    
    52,933Supplies
    
    
    
    
    
    
    30,665
    
    
    
    
    
    
    
    
    
    
    
    30,665Rentals and leases
    
    
    
    
    
    
    8,981
    
    
    
    
    
    
    
    
    
    
    
    8,981Other operating expenses
    
    
    
    
    
    
    53,952
    
    
    
    618
    
    
    
    (608
    )
    
    
    53,962Provision for doubtful accounts
    
    
    
    
    
    
    10,794
    
    
    
    
    
    
    
    
    
    
    
    10,794Depreciation and amortization
    
    
    
    
    
    
    9,133
    
    
    
    975
    
    
    
    (243
    )
    
    
    9,865Interest expense
    
    
    17,469
    
    
    
    
    
    
    
    1,495
    
    
    
    
    
    
    
    18,964Loss on refinancing long-term debt
    
    
    6,407
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,40723,876
    
    
    
    428,439
    
    
    
    3,146
    
    
    
    (851
    )
    
    
    454,610(Loss) income from continuing operations
before
income taxes
    
    
    (23,876
    )
    
    
    53,454
    
    
    
    556
    
    
    
    (2,851
    )
    
    
    27,283(Benefit from) provision for income taxes
    
    
    (9,073
    )
    
    
    19,441
    
    
    
    
    
    
    
    
    
    
    
    10,368(Loss) income from continuing operations
    
    
    (14,803
    )
    
    
    34,013
    
    
    
    556
    
    
    
    (2,851
    )
    
    
    16,915(Loss) income from discontinued
operations, net of taxes
    
    
    
    
    
    
    (114
    )
    
    
    
    
    
    
    
    
    
    
    (114
    )Net (loss) income
    
    
    (14,803
    )
    
    
    33,899
    
    
    
    556
    
    
    
    (2,851
    )
    
    
    16,801Accrued preferred stock dividends
    
    
    663
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    663Net (loss) income available to common
shareholders
    
    $
    (15,466
    )
    
    $
    33,899
    
    
    $
    556
    
    
    $
    (2,851
    )
    
    $
    16,138
 Condensed Consolidating Statement of Income
For the Year Ended December 31, 2003
(Unaudited, dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    283,022
    
    
    $
    1,802
    
    
    $
    (1,802
    )
    
    
    283,022Salaries, wages and employee benefits
    
    
    
    
    
    
    145,761
    
    
    
    
    
    
    
    
    
    
    
    145,761Professional fees
    
    
    
    
    
    
    32,298
    
    
    
    94
    
    
    
    
    
    
    
    32,392Supplies
    
    
    
    
    
    
    16,215
    
    
    
    
    
    
    
    
    
    
    
    16,215Rentals and leases
    
    
    
    
    
    
    4,041
    
    
    
    
    
    
    
    
    
    
    
    4,041Other operating expenses
    
    
    545
    
    
    
    44,960
    
    
    
    903
    
    
    
    (2,702
    )
    
    
    43,706Provision for doubtful accounts
    
    
    
    
    
    
    6,312
    
    
    
    
    
    
    
    
    
    
    
    6,312Depreciation and amortization
    
    
    
    
    
    
    5,287
    
    
    
    447
    
    
    
    
    
    
    
    5,734Interest expense
    
    
    14,089
    
    
    
    124
    
    
    
    568
    
    
    
    
    
    
    
    14,781Loss on refinancing long-term debt
    
    
    4,856
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,856Change in valuation of put warrants
    
    
    960
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    960Change in reserve of stockholder notes
    
    
    (545
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (545
    )19,905
    
    
    
    254,998
    
    
    
    2,012
    
    
    
    (2,702
    )
    
    
    274,213(Loss) income from continuing operations
before
income taxes
    
    
    (19,905
    )
    
    
    28,024
    
    
    
    (210
    )
    
    
    900
    
    
    
    8,809(Benefit from) provision for income taxes
    
    
    (7,357
    )
    
    
    11,068
    
    
    
    1
    
    
    
    
    
    
    
    3,712(Loss) income from continuing operations
    
    
    (12,548
    )
    
    
    16,956
    
    
    
    (211
    )
    
    
    900
    
    
    
    5,097(Loss) income from discontinued
operations, net of taxes
    
    
    
    
    
    
    119
    
    
    
    
    
    
    
    
    
    
    
    119Net (loss) income
    
    
    (12,548
    )
    
    
    17,075
    
    
    
    (211
    )
    
    
    900
    
    
    
    5,216Accrued preferred stock dividends
    
    
    811
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    811Net (loss) income available to common
shareholders
    
    $
    (13,359
    )
    
    $
    17,075
    
    
    $
    (211
    )
    
    $
    900
    
    
    $
    4,405
 F-30




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2005
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating activities:Net (loss) income
    
    $
    (29,333
    )
    
    $
    59,728
    
    
    $
    77
    
    
    $
    (3,318
    )
    
    $
    27,154Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    14,082
    
    
    
    976
    
    
    
    (243
    )
    
    
    14,815Provision for doubtful accounts
    
    
    
    
    
    
    13,544
    
    
    
    
    
    
    
    
    
    
    
    13,544Amortization of loan costs
    
    
    1,140
    
    
    
    
    
    
    
    47
    
    
    
    
    
    
    
    1,187Loss on refinancing long-term debt
    
    
    21,871
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,871Change in income tax assets and liabilities
    
    
    
    
    
    
    9,494
    
    
    
    
    
    
    
    
    
    
    
    9,494Loss from discontinued operations
    
    
    
    
    
    
    195
    
    
    
    
    
    
    
    
    
    
    
    195Changes in operating assets and liabilities,
net of
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (23,323
    )
    
    
    
    
    
    
    
    
    
    
    (23,323
    )Prepaids and other current assets
    
    
    
    
    
    
    (4,408
    )
    
    
    974
    
    
    
    
    
    
    
    (3,434
    )Accounts payable
    
    
    
    
    
    
    1,929
    
    
    
    
    
    
    
    
    
    
    
    1,929Salaries and benefits payable
    
    
    
    
    
    
    2,556
    
    
    
    
    
    
    
    
    
    
    
    2,556Accrued liabilities and other liabilities
    
    
    10,965
    
    
    
    (4,544
    )
    
    
    6,894
    
    
    
    
    
    
    
    13,315Other
    
    
    
    
    
    
    463
    
    
    
    
    
    
    
    
    
    
    
    463Net cash provided by (used in) continuing operating activities
    
    
    4,643
    
    
    
    69,716
    
    
    
    8,968
    
    
    
    (3,561
    )
    
    
    79,766Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (514,525
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (514,525
    )Capital purchases of property and equipment
    
    
    
    
    
    
    (21,750
    )
    
    
    
    
    
    
    
    
    
    
    (21,750
    )Purchases of short-term investments
    
    
    (29,400
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29,400
    )Sales of short-term investments
    
    
    29,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,400Sale of long-term securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash paid for investments in equity method investees
    
    
    
    
    
    
    (1,340
    )
    
    
    
    
    
    
    
    
    
    
    (1,340
    )Other assets
    
    
    
    
    
    
    1,115
    
    
    
    104
    
    
    
    
    
    
    
    1,219Net cash (used in) provided by investing activities
    
    
    (514,525
    )
    
    
    (21,975
    )
    
    
    104
    
    
    
    
    
    
    
    (536,396
    )Financing activities:Borrowings on long-term debt
    
    
    545,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    545,000Principal payments on long-term debt
    
    
    (236,587
    )
    
    
    
    
    
    
    (235
    )
    
    
    
    
    
    
    (236,822
    )Net transfers to and from members
    
    
    31,777
    
    
    
    (34,623
    )
    
    
    (715
    )
    
    
    3,561
    
    
    
    Payment of loan and issuance costs
    
    
    (13,932
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,932
    )Refinancing of long-term debt
    
    
    (15,398
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,398
    )Proceeds from secondary offering of common stock,
    
    
    
    
    
    
    net of issuance costs
    
    
    192,637
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    192,637Proceeds from exercises of common stock options
    
    
    6,385
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,385Net cash provided by (used in) financing activities
    
    
    509,882
    
    
    
    (34,623
    )
    
    
    (950
    )
    
    
    3,561
    
    
    
    477,870Net increase in cash
    
    
    
    
    
    
    13,118
    
    
    
    8,122
    
    
    
    
    
    
    
    21,240Cash and cash equivalents at beginning of year
    
    
    
    
    
    
    30,851
    
    
    
    2,463
    
    
    
    
    
    
    
    33,314Cash and cash equivalents at end of year
    
    $
    
    
    
    $
    43,969
    
    
    $
    10,585
    
    
    $
    
    
    
    $
    54,554
 F-31




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2004
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating Activities:Net (loss) income
    
    $
    (14,803
    )
    
    $
    33,899
    
    
    $
    556
    
    
    $
    (2,851
    )
    
    $
    16,801Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    9,133
    
    
    
    975
    
    
    
    (243
    )
    
    
    9,865Provision for doubtful accounts
    
    
    
    
    
    
    10,794
    
    
    
    
    
    
    
    
    
    
    
    10,794Amortization of loan costs
    
    
    691
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    691Loss on refinancing long-term debt
    
    
    6,407
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,407Change in income tax assets and liabilities
    
    
    
    
    
    
    6,920
    
    
    
    
    
    
    
    
    
    
    
    6,920Loss from discontinued operations
    
    
    
    
    
    
    114
    
    
    
    
    
    
    
    
    
    
    
    114Changes in operating assets and liabilities,
net of
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (12,982
    )
    
    
    (956
    )
    
    
    
    
    
    
    (13,938
    )Prepaids and other current assets
    
    
    
    
    
    
    2,495
    
    
    
    
    
    
    
    
    
    
    
    2,495Accounts payable
    
    
    
    
    
    
    (5,302
    )
    
    
    
    
    
    
    
    
    
    
    (5,302
    )Salaries and benefits payable
    
    
    
    
    
    
    5,247
    
    
    
    
    
    
    
    
    
    
    
    5,247Accrued liabilities and other liabilities
    
    
    (363
    )
    
    
    (368
    )
    
    
    605
    
    
    
    
    
    
    
    (126
    )Net cash (used in) provided by continuing operating activities
    
    
    (8,068
    )
    
    
    49,950
    
    
    
    1,180
    
    
    
    (3,094
    )
    
    
    39,968Investing Activities:Cash paid for acquisitions, net of cash acquired
    
    
    (136,495
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (136,495
    )Capital purchases of property and equipment
    
    
    
    
    
    
    (17,100
    )
    
    
    (101
    )
    
    
    
    
    
    
    (17,201
    )Sale of long-term securities
    
    
    
    
    
    
    
    
    
    
    953
    
    
    
    
    
    
    
    953Other assets
    
    
    
    
    
    
    (2,758
    )
    
    
    1,341
    
    
    
    
    
    
    
    (1,417
    )Net cash (used in) provided by investing activities
    
    
    (136,495
    )
    
    
    (19,858
    )
    
    
    2,193
    
    
    
    
    
    
    
    (154,160
    )Financing Activities:Principal payments on long-term debt
    
    
    (810
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (810
    )Net transfers to and from members
    
    
    42,060
    
    
    
    (42,746
    )
    
    
    (2,408
    )
    
    
    3,094
    
    
    
    Payment of loan and issuance costs
    
    
    (2,300
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,300
    )Refinancing of long-term debt
    
    
    (3,844
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,844
    )Proceeds from secondary offering of common stock,
net of issuance costs
    
    
    104,691
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,691Proceeds from issuance of common stock
    
    
    4,428
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,428Proceeds from repayment of stockholder notes
    
    
    338
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    338Net cash provided by (used in) financing activities
    
    
    144,563
    
    
    
    (42,746
    )
    
    
    (2,408
    )
    
    
    3,094
    
    
    
    102,503Net (decrease) increase in cash
    
    
    
    
    
    
    (12,654
    )
    
    
    965
    
    
    
    
    
    
    
    (11,689
    )Cash and cash equivalents at beginning of year
    
    
    
    
    
    
    43,505
    
    
    
    1,498
    
    
    
    
    
    
    
    45,003Cash and cash equivalents at end of year
    
    $
    
    
    
    $
    30,851
    
    
    $
    2,463
    
    
    $
    
    
    
    $
    33,314
 F-32




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
 Condensed Consolidating Statement of Cash Flows
For the Twelve Months Ended December 31, 2003
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating Activities:Net (loss) income
    
    $
    (12,548
    )
    
    $
    17,075
    
    
    $
    (211
    )
    
    $
    900
    
    
    $
    5,216Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    5,287
    
    
    
    447
    
    
    
    
    
    
    
    5,734Provision for doubtful accounts
    
    
    
    
    
    
    6,312
    
    
    
    
    
    
    
    
    
    
    
    6,312Amortization of loan costs
    
    
    1,454
    
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    1,478Loss on refinancing long-term debt
    
    
    4,856
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,856Change in valuation of put warrants
    
    
    960
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    960Change in income tax assets and liabilities
    
    
    
    
    
    
    2,809
    
    
    
    
    
    
    
    
    
    
    
    2,809Release of reserve on stockholder notes
    
    
    (545
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (545
    )Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (119
    )
    
    
    
    
    
    
    
    
    
    
    (119
    )Changes in operating assets and liabilities,
net of
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (11,207
    )
    
    
    
    
    
    
    
    
    
    
    (11,207
    )Prepaids and other current assets
    
    
    (7,731
    )
    
    
    10,068
    
    
    
    (4
    )
    
    
    
    
    
    
    2,333Accounts payable
    
    
    
    
    
    
    (2,027
    )
    
    
    
    
    
    
    
    
    
    
    (2,027
    )Salaries and benefits payable
    
    
    
    
    
    
    1,724
    
    
    
    
    
    
    
    
    
    
    
    1,724Accrued liabilities and other liabilities
    
    
    (58
    )
    
    
    (140
    )
    
    
    997
    
    
    
    
    
    
    
    799Other
    
    
    162
    
    
    
    124
    
    
    
    
    
    
    
    
    
    
    
    286Net cash (used in) provided by continuing operating activities
    
    
    (13,450
    )
    
    
    29,906
    
    
    
    1,253
    
    
    
    900
    
    
    
    18,609Investing Activities:Cash paid for acquisitions, net of cash acquired
    
    
    (100,424
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100,424
    )Capital purchases of property and equipment
    
    
    
    
    
    
    (5,747
    )
    
    
    (25,487
    )
    
    
    25,487
    
    
    
    (5,747
    )Purchase of long-term securities
    
    
    
    
    
    
    
    
    
    
    (971
    )
    
    
    
    
    
    
    (971
    )Other assets
    
    
    
    
    
    
    (1,144
    )
    
    
    (4
    )
    
    
    
    
    
    
    (1,148
    )Net cash (used in) provided by investing activities
    
    
    (100,424
    )
    
    
    (6,891
    )
    
    
    (26,462
    )
    
    
    25,487
    
    
    
    (108,290
    )Financing Activities:Net decrease in revolving credit facility, less acquisitions
    
    
    (34,148
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34,148
    )Borrowings on long-term deft
    
    
    159,981
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159,981Principal payments on long-term debt
    
    
    (63,853
    )
    
    
    
    
    
    
    18,962
    
    
    
    (18,962
    )
    
    
    (63,853
    )Net transfers to and from members
    
    
    (18,418
    )
    
    
    19,315
    
    
    
    6,528
    
    
    
    (7,425
    )
    
    
    Payment of loan and issuance costs
    
    
    (1,998
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,998
    )Refinancing of long-term debt
    
    
    (1,410
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,410
    )Proceeds from issuance of series A convertible preferred stock,
net of issuance costs
    
    
    24,505
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,505Proceeds from secondary offering of common stock,
net of issuance costs
    
    
    48,897
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,897Proceeds from issuance of common stock
    
    
    318
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    318Net cash provided by (used in) financing activities
    
    
    113,874
    
    
    
    19,315
    
    
    
    25,490
    
    
    
    (26,387
    )
    
    
    132,292Net increase in cash
    
    
    
    
    
    
    42,330
    
    
    
    281
    
    
    
    
    
    
    
    42,611Cash and cash equivalents at beginning of year
    
    
    
    
    
    
    1,175
    
    
    
    1,217
    
    
    
    
    
    
    
    2,392Cash and cash equivalents at end of year
    
    $
    
    
    
    $
    43,505
    
    
    $
    1,498
    
    
    $
    
    
    
    $
    45,003
 18. Subsequent Events
   F-33




---



##### Table of Contents



Psychiatric Solutions, Inc.By:
    
    /s/ Joey A. JacobsJoey A. JacobsChief Executive Officer
   Signature
    
    Title
    
    Date/s/ Joey A. Jacobs
    
    Chairman of the Board, President
    
    March 2, 2006Joey A. Jacobs
    
    and
Chief Executive Officer(Principal Executive Officer)/s/ Jack E. Polson
    
    Chief Accounting Officer
    
    March 2, 2006Jack E. Polson
    
    (Principal
Financial andAccounting Officer)/s/ William F. Carpenter III
William F. Carpenter III
    
    Director
    
    March 2, 2006/s/ Mark P. Clein
Mark P. Clein
    
    Director
    
    March 2, 2006/s/ David M. Dill
David M. Dill
    
    Director
    
    March 2, 2006/s/ Richard D. Gore
Richard D. Gore
    
    Director
    
    March 2, 2006/s/ Christopher Grant, Jr.
Christopher Grant, Jr.
    
    Director
    
    March 2, 2006/s/ Ann H. Lamont
Ann H. Lamont
    
    Director
    
    March 2, 2006/s/ William M. Petrie, M.D.
William M. Petrie, M.D.
    
    Director
    
    March 2, 2006/s/ Edward K. Wissing
    
    Director
    
    March 2, 2006Edward K. Wissing