##### 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 1934
 for the fiscal year ended December 31, 2007
 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the transition period from  to
 Commission file number 0-20488
 Psychiatric Solutions, Inc.
  Delaware
    
    23-2491707(State or Other Jurisdiction of Incorporation or 
Organization)
    
    (I.R.S. Employer Identification No.)
 6640 Carothers Parkway, Suite 500
Franklin, TN 37067
 (615) 312-5700
  Title Of Each Class
    
    Name of Each Exchange On Which RegisteredCommon Stock, $.01 par value
    
    NASDAQ Global Select Market
  þ o
 o þ
  þ o
 o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ
  DOCUMENTS INCORPORATED BY REFERENCE




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##### 



INDEX
 PAGEPART IItem 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    13Item 1B. Unresolved Staff Comments
    
    
    19Item 2. Properties
    
    
    19Item 3. Legal Proceedings
    
    
    20Item 4. Submission of Matters to a Vote of Security Holders
    
    
    21PART IIItem 5. Market For Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    21Item 6. Selected Financial Data
    
    
    21Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 8. Financial Statements and Supplementary Data
    
    
    30Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    31Item 9A. Controls and Procedures
    
    
    31Item 9B. Other Information
    
    
    31PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    31Item 11. Executive Compensation
    
    
    32Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    32Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    32Item 14. Principal Accountant Fees and Services
    
    
    32PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    33Index to Financial Statements
    
    
    F-1SignaturesEx-21.1 List of SubsidiariesEx-23.1 Consent of Ernst & Young LLPEx-31.1 Section 302 Certification of the CEOEx-31.2 Section 302 Certification of the CAOEx-32.1 Section 906 Certification of the CEO and CAOEx-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 CFOEx-32.1 Section 906 Certification of the CEO & CFO
  2




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##### 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 effected on January 9, 2006.
 
 Item 1. Business
 Overview
    www.psysolutions.com.
 Recent Development
 5 8 5 8 3 4  3 4  5 8 5 8 5 8
 Our Industry
    3




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Our Competitive Strengths
  
    
    Singular focus on behavioral health care We focus primarily on the
provision of inpatient behavioral health care services. We believe
this allows us to operate more efficiently and provide higher quality
care than our competitors. In addition, we believe our focus and
reputation have helped us to develop important relationships and
extensive referral networks within our markets and to attract and
retain qualified behavioral health care professionals.
    
    Strong and sustainable market position Our inpatient facilities have
an established presence in each of our markets, and many of our owned
and leased inpatient facilities have the leading market share in their
respective service areas. We believe that the relationships and
referral networks we have established will further enhance our
presence within our markets. In addition, many of the states in which
we operate require a certificate of need to open a behavioral health
care facility, which may be difficult to obtain and may further
preclude new market participants.
    
    Demonstrated ability to identify and integrate acquisitions We
attribute part of our success in integrating acquired inpatient
facilities to our rigorous due diligence review of these facilities
prior to completing the acquisitions as well as our ability to retain
key employees at the acquired facilities. We employ a disciplined
acquisition strategy that is based on defined criteria including
quality of service, return on invested capital and strategic benefits.
We also have a comprehensive post-acquisition strategic plan to
facilitate the integration of acquired facilities that includes
improving facility operations, retaining and recruiting psychiatrists
and expanding the breadth of services offered by the facilities.
    
    Diversified payor mix and revenue base As we have grown our
business, we have focused on diversifying our sources of revenue. For
the year ended December 31, 2007, we received 32% of our revenue from
Medicaid, 13% from Medicare, 33% from HMO/PPO, commercial and private
payors, 16% from various state agencies and 6% 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,
2007, no single inpatient facility represented more than 3% of our
revenue.
    
    Experienced management team Our senior management team has extensive
experience in the health care industry. Joey A. Jacobs, our Chairman,
President and Chief Executive Officer, has over 30 years of experience
in various capacities in the health care industry. Our senior
management operates as a cohesive, complementary group and has
extensive operating knowledge of our industry and understanding of the
regulatory environment in which we operate. Our senior managers employ
conservative fiscal policies and have a successful track record in
both operating our core business and integrating acquired assets.
    
    Consistent free cash flow and minimal maintenance capital
requirements We generate consistent free cash flow by profitably
operating our business, actively managing our working capital and
having low maintenance capital expenditure requirements. As the
behavioral health care business does not require the procurement and
replacement of expensive medical equipment, our maintenance capital
expenditure requirements are less than that of other facility-based
health care providers. Historically, our maintenance capital
expenditures have amounted to approximately 2% 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 6.5% for the year ended
December 31, 2007 compared to the year ended December 31, 2006.
Same-facility revenue also increased by approximately 9.0%, 8.0%, and
9.0% for the years ended December 31, 2006, 2005, and 2004,
respectively, compared to the immediately preceding years.
Same-facility revenue refers to the comparison of the inpatient
facilities we owned during a prior period with the comparable period
in the subsequent period, adjusted for closures and combinations for
comparability purposes. We intend to continue to increase our
same-facility growth by increasing our admissions and patient days and
obtaining annual
 4




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reimbursement rate increases. We plan to accomplish these goals by:
 
    
    expanding bed capacity at our facilities to meet demand;
    
    expanding our services and developing new services to take advantage of increased demand in
select markets where we operate;
    
    building and expanding relationships that enhance our presence in local and regional markets;
    
    developing formal marketing initiatives and expanding referral networks; and
    
    continuing to provide high quality service.
 
    
    Grow Through Strategic Acquisitions Our industry is highly
fragmented and we plan to selectively pursue the acquisition of
additional inpatient behavioral health care facilities. There are
approximately 500 freestanding acute and residential treatment
facilities in the United States and the top two providers operate
approximately one-third of these facilities. We believe there are a
number of acquisition candidates available at attractive valuations,
and we have 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
   
    
    bipolar disorder
    
    major depression
    
    schizophrenia
    
    attention deficit/hyperactivity disorder
    
    impulse disorder
    
    oppositional and conduct disorders
    
    partial hospitalization
    
    intensive outpatient
    
    acute eating disorders
    
    reactive attachment disorder
    
    dual diagnosis
    
    rehabilitation care
    
    day treatment
    
    detoxification
    
    developmentally delayed disorders
    
    therapeutic foster care
    
    neurological disorders
    
    rapid adoption services
    
    day treatment
    
    independent living skills
    
    vocational training
    
    chemical dependency
 5




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Other Behavioral Health Care Services
   Seasonality of Services
  Marketing
  6




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Competition
   Reimbursement
     Medicare
   www.cms.hhs.gov/InpatientPsychFacilPPS
  7




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Recovery Audit Contractors
    Medicaid
   Managed Care and Commercial Insurance Carriers
   Annual Cost Reports
  8




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Regulation and Other Factors
 Licensure, Certification and Accreditation
    Fraud and Abuse Laws
      9




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Emergency Medical Treatment and Active Labor Act
   The Federal False Claims Act
  10




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HIPAA Transaction, Privacy and Security Requirements
       11




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Other Medical Record Disclosure Laws
   Certificates of Need (CON)
  Corporate Practice of Medicine and Fee Splitting
  Health Care Industry Investigations
  Risk Management
  Conversion Legislation
  12




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Regulatory Compliance Program
  Insurance
  Employees
  Available Information
 www.psysolutions.com
 Segments
  
 Item 1A. Risk Factors
 If we fail to comply with extensive laws and government regulations, we could
suffer penalties, lose our licenses or be excluded from health care programs.
  
    
    billing for services;
    
    relationships with physicians and other referral sources;
    
    adequacy of medical care;
    
    quality of medical equipment and services;
    
    qualifications of medical and support personnel;
    
    confidentiality, maintenance and security issues associated with health-related information and medical records;
    
    licensure;
 13




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
    
    hospital rate or budget review;
    
    operating policies and procedures; and
    
    addition of facilities and services.
    If federal or state health care programs or managed care companies reduce
reimbursement rates for services provided, revenue may decline.
     14




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Other companies within the health care industry continue to be the subject of
federal and state investigations, which increases the risk that we may become
subject to investigations in the future.
  
    
    cost reporting and billing practices;
    
    quality of care;
    
    financial relationships with referral sources;
    
    medical necessity of services provided; and
    
    treatment of indigent patients, including emergency medical screening and treatment requirements.
  As a provider of health care services, we are subject to claims and legal actions by patients and others.
   We depend on our key management personnel.
  15




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If competition decreases our ability to acquire additional inpatient facilities
on favorable terms, we may be unable to execute our acquisition strategy.
  Covenant restrictions under our senior secured credit facilities and the
indenture governing our 73/4% Senior Subordinated Notes may limit our ability to
operate our business.
 3 4
 
    
    incur additional indebtedness and issue preferred stock;
    
    pay dividends or make other distributions;
    
    make certain restricted payments and investments;
    
    create liens;
    
    incur restrictions on our ability or the ability of our restricted subsidiaries to pay dividends or make other payments;
    
    sell assets, including the capital stock of our restricted subsidiaries;
    
    merge or consolidate with other entities; and
    
    engage in transactions with affiliates.
 3 4
 Additional financing may be necessary to fund our acquisition strategy and
capital expenditures, and such financing may not be available when needed.
   16




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Recently acquired businesses and businesses acquired in the future will expose us to increased operating risks.
 5 8 3 4
  
    
    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 provide services at our inpatient facilities.
   
    
    terminate their relationship with, or reduce their use of, our inpatient facilities;
    
    fail to maintain acceptable quality of care or to otherwise adhere to professional standards;
    
    suffer damage to their reputation; or
    
    exit the market entirely.
 Failure to maintain effective internal controls in accordance with Section 404
of the Sarbanes-Oxley Act could have a material adverse effect on our business
and stock price.
  17




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We may be required to spend substantial amounts to comply with legislative and
regulatory initiatives relating to privacy and security of patient health
information and standards for electronic transactions.
    Forward-Looking Statements
    
    
    our ability to successfully integrate and improve the operations of acquired inpatient facilities;
    
    potential competition that alters or impedes our acquisition strategy by decreasing our ability to acquire additional
inpatient facilities on favorable terms;
    
    our ability to maintain favorable and continuing relationships with physicians and other health care professionals who use our
inpatient facilities;
    
    our substantial indebtedness and our ability to receive timely additional financing on terms acceptable to us to fund our
acquisition strategy and capital expenditure needs;
    
    risks inherent to the health care industry, including the impact of unforeseen changes in regulation and exposure to claims
and legal actions by patients and others;
    
    efforts by federal and state health care programs and managed care companies to reduce reimbursement rates for our services;
    
    our ability to comply with applicable licensure and accreditation requirements;
    
    our ability to comply with extensive laws and government regulations related to billing, physician relationships, adequacy of
medical care and licensure;
    
    our ability to retain key employees who are instrumental to our operations;
    
    our ability to 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;
    
    those risks and uncertainties described from time to time in our filings with the SEC; and
 18




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
    
    future trends for pricing, margins, revenue and profitability that remain difficult to predict in the industries that we serve.
  
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
  DateAcquired/Facility
    
    Location
    
    Beds
    
    Own/Lease
    
    OpenedCypress Creek Hospital
    
    Houston, TX
    
    
    96
    
    
    Own
    
    9/01West Oaks Hospital
    
    Houston, TX
    
    
    160
    
    
    Own
    
    9/01Texas NeuroRehab Center
    
    Austin, TX
    
    
    151
    
    
    Own
    
    11/01Holly Hill Hospital
    
    Raleigh, NC
    
    
    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
    
    
    160
    
    
    Own
    
    4/03Laurel Oaks Behavioral Health Center
    
    Dothan, AL
    
    
    114
    
    
    Own
    
    6/03Hill Crest Behavioral Health
    
    Birmingham, AL
    
    
    177
    
    
    Own
    
    6/03Gulf Coast Youth Academy
    
    Fort Walton Beach, FL
    
    
    168
    
    
    Own
    
    6/03Manatee Palms Youth Services
    
    Bradenton, FL
    
    
    60
    
    
    Own
    
    6/03Havenwyck Hospital
    
    Auburn Hills, MI
    
    
    182
    
    
    Lease
    
    6/03Heartland Behavioral Health
    
    Nevada, MO
    
    
    159
    
    
    Own
    
    6/03Brynn Marr Behavioral Health
    
    Jacksonville, NC
    
    
    88
    
    
    Own
    
    6/03Mission Vista Hospital
    
    San Antonio, TX
    
    
    83
    
    
    Lease
    
    6/03Benchmark Behavioral Health
    
    Woods Cross, UT
    
    
    145
    
    
    Own
    
    6/03Macon Behavioral Health System
    
    Macon, GA
    
    
    155
    
    
    Own
    
    6/03Manatee Adolescent Treatment Services
    
    Bradenton, FL
    
    
    85
    
    
    Own
    
    6/03Alliance Health Center
    
    Meridian, MS
    
    
    194
    
    
    Own
    
    11/03Calvary Center
    
    Phoenix, AZ
    
    
    50
    
    
    Lease
    
    12/03Brentwood Acute Behavioral Health Center
    
    Shreveport, LA
    
    
    200
    
    
    Own
    
    3/04Brentwood Behavioral Health of Mississippi
    
    Flowood, MS
    
    
    107
    
    
    Own
    
    3/04Palmetto Lowcountry Behavioral Health System
    
    North Charleston, SC
    
    
    102
    
    
    Own
    
    5/04Palmetto Pee Dee Behavioral Health System
    
    Florence, SC
    
    
    59
    
    
    Own
    
    5/04Fort Lauderdale Hospital
    
    Fort Lauderdale, FL
    
    
    100
    
    
    Lease
    
    6/04Millwood Hospital
    
    Arlington, TX
    
    
    120
    
    
    Lease
    
    6/04Pride Institute
    
    Eden Prairie, MN
    
    
    36
    
    
    Own
    
    6/04Summit Oaks Hospital
    
    Summit, NJ
    
    
    126
    
    
    Own
    
    6/04North Spring Behavioral Healthcare
    
    Leesburg, VA
    
    
    77
    
    
    Own
    
    6/04Peak Behavioral Health
    
    Santa Teresa, NM
    
    
    144
    
    
    Own
    
    6/04Alhambra Hospital
    
    Rosemead, CA
    
    
    99
    
    
    Own
    
    7/05Belmont Pines Hospital
    
    Youngstown, OH
    
    
    81
    
    
    Own
    
    7/05Brooke Glen Behavioral Hospital
    
    Fort Washington, PA
    
    
    146
    
    
    Own
    
    7/05Columbus Behavioral Center
    
    Columbus, IN
    
    
    61
    
    
    Own
    
    7/05Cumberland Hospital
    
    New Kent, VA
    
    
    136
    
    
    Own
    
    7/05Fairfax Hospital
    
    Kirkland, WA
    
    
    133
    
    
    Own
    
    7/05
 19




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DateAcquired/Facility
    
    Location
    
    Beds
    
    Own/Lease
    
    OpenedFox Run Hospital
    
    St. Clairsville, OH
    
    
    93
    
    
    Own
    
    7/05Fremont Hospital
    
    Fremont, CA
    
    
    96
    
    
    Own
    
    7/05Heritage Oaks Hospital
    
    Sacramento, CA
    
    
    76
    
    
    Own
    
    7/05Intermountain Hospital
    
    Boise, ID
    
    
    93
    
    
    Own
    
    7/05Meadows Hospital
    
    Bloomington, IN
    
    
    78
    
    
    Own
    
    7/05Mesilla Valley Hospital
    
    Las Cruces, NM
    
    
    121
    
    
    Own
    
    7/05Montevista Hospital
    
    Las Vegas, NV
    
    
    101
    
    
    Own
    
    7/05Pinnacle Pointe
    
    Little Rock, AR
    
    
    102
    
    
    Own
    
    7/05Sierra Vista
    
    Sacramento, CA
    
    
    72
    
    
    Own
    
    7/05Streamwood Hospital
    
    Streamwood, IL
    
    
    276
    
    
    Own
    
    7/05Valle Vista Health System
    
    Greenwood, IN
    
    
    102
    
    
    Own
    
    7/05West Hills Hospital
    
    Reno, NV
    
    
    95
    
    
    Own
    
    7/05Willow Springs RTC
    
    Reno, NV
    
    
    76
    
    
    Own
    
    7/05Canyon Ridge Hospital
    
    Chino, CA
    
    
    59
    
    
    Own
    
    8/05Atlantic Shores Hospital
    
    Fort Lauderdale, FL
    
    
    72
    
    
    Own
    
    1/06Wellstone Regional Hospital
    
    Jeffersonville, IN
    
    
    100
    
    
    Own
    
    1/06Diamond Grove
    
    Louisville, MS
    
    
    50
    
    
    Own
    
    5/06Hickory Trail Hospital
    
    DeSoto, TX
    
    
    86
    
    
    Own
    
    7/06National Deaf Academy
    
    Mount Dora, FL
    
    
    132
    
    
    Own
    
    7/06Windmoor Healthcare
    
    Clearwater, FL
    
    
    100
    
    
    Own
    
    9/06University Behavioral Center
    
    Orlando, FL
    
    
    104
    
    
    Own
    
    9/06Sandy Pines
    
    Tequesta, FL
    
    
    80
    
    
    Own
    
    9/06Cumberland Hall Chattanooga
    
    Chattanooga, TN
    
    
    64
    
    
    Own
    
    12/06Cumberland Hall Hopkinsville
    
    Hopkinsville, KY
    
    
    60
    
    
    Own
    
    12/06Nashville Rehabilitation Hospital
    
    Nashville, TN
    
    
    111
    
    
    Own
    
    12/06Panamericano
    
    Cidra, Puerto Rico
    
    
    195
    
    
    Own
    
    12/06PRATS
    
    Cidra/Bayamon, Puerto Rico
    
    
    48
    
    
    Own
    
    12/06The Pines Residential Treatment Center
    
    Portsmouth, VA
    
    
    424
    
    
    Own
    
    12/06The Pines  Charleston
    
    Summerville, SC
    
    
    60
    
    
    Lease
    
    12/06The Pines  Midlands
    
    West Columbia, SC
    
    
    59
    
    
    Own
    
    12/06Virgin Islands Behavioral Services
    
    St. Croix, U.S. Virgin Islands
    
    
    30
    
    
    Own
    
    12/06Virginia Beach Psychiatric Center
    
    Virginia Beach, VA
    
    
    100
    
    
    Own
    
    12/06Three Rivers Behavioral Health
    
    West Columbia, SC
    
    
    86
    
    
    Own
    
    01/07Copper Hills Youth Center
    
    West Jordan, UT
    
    
    153
    
    
    Own
    
    05/07MeadowWood Behavioral Health System
    
    New Castle, DE
    
    
    53
    
    
    Own
    
    05/07Focus Healthcare of Florida
    
    Cooper City, FL
    
    
    88
    
    
    Own
    
    05/07Focus by the Sea
    
    St. Simons, GA
    
    
    101
    
    
    Own
    
    05/07Arrowhead Behavioral Health
    
    Maumee, OH
    
    
    42
    
    
    Own
    
    05/07Friends Hospital
    
    Philadelphia, PA
    
    
    219
    
    
    Own
    
    05/07Kingwood Pines Hospital
    
    Kingwood, TX
    
    
    78
    
    
    Own
    
    05/07Windsor-Laurelwood Center
    
    Willoughby, OH
    
    
    160
    
    
    Lease
    
    05/07Lighthouse Care Center of Augusta
    
    Augusta, GA
    
    
    106
    
    
    Own
    
    05/07Lighthouse Care Center of Conway
    
    Conway, SC
    
    
    108
    
    
    Own
    
    05/07Lighthouse Care Center of Oconee
    
    Tamassee, SC
    
    
    28
    
    
    Own
    
    05/07Michiana Behavioral Health Center
    
    Plymouth, IN
    
    
    80
    
    
    Own
    
    05/07Poplar Springs Hospital
    
    Petersburg, VA
    
    
    184
    
    
    Own
    
    05/07River Park Hospital
    
    Huntington, WV
    
    
    187
    
    
    Own
    
    05/07Lighthouse Berkley
    
    Summerville, SC
    
    
    *
    
    
    Own
    
    05/07Austin Lakes Hospital
    
    Austin, TX
    
    
    48
    
    
    Lease
    
    08/07The Hughes Center for Exceptional Children
    
    Danville, VA
    
    
    56
    
    
    Own
    
    09/07
 
 *
    
    We acquired a non-operating facility, Lighthouse Berkley, in the acquisition of Horizon Health.
Currently no patients are being served at this facility.  
 Item 3. Legal Proceedings.
  20




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Item 4. Submission of Matters to a Vote of Security Holders.
  
 PART II
 
 Item 5. Market For Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
  High
    
    Low2006First Quarter
    
    $
    34.78
    
    
    $
    29.08Second Quarter
    
    $
    34.48
    
    
    $
    26.14Third Quarter
    
    $
    36.35
    
    
    $
    25.59Fourth Quarter
    
    $
    38.84
    
    
    $
    30.192007First Quarter
    
    $
    42.93
    
    
    $
    35.18Second Quarter
    
    $
    42.75
    
    
    $
    33.96Third Quarter
    
    $
    40.00
    
    
    $
    31.81Fourth Quarter
    
    $
    40.71
    
    
    $
    31.92
  3 4
 
 Item 6. Selected Financial Data.
  21




---



##### Table of Contents



Psychiatric Solutions, Inc.
Selected Financial Data
As of and for the Years Ended December 31,
 2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(In thousands, except per share amounts and operating data)Income Statement Data:Revenue
    
    $
    1,481,952
    
    
    $
    1,022,428
    
    
    $
    715,324
    
    
    $
    470,969
    
    
    $
    277,575Costs and expenses:Salaries, wages and employee benefits
    
    
    824,645
    
    
    
    577,237
    
    
    
    392,309
    
    
    
    254,897
    
    
    
    142,292Other operating expenses
    
    
    389,857
    
    
    
    264,901
    
    
    
    202,229
    
    
    
    143,560
    
    
    
    95,025Provision for doubtful accounts
    
    
    27,554
    
    
    
    19,530
    
    
    
    13,498
    
    
    
    10,794
    
    
    
    6,312Depreciation and amortization
    
    
    31,080
    
    
    
    20,475
    
    
    
    14,738
    
    
    
    9,808
    
    
    
    5,707Interest expense
    
    
    75,100
    
    
    
    40,307
    
    
    
    27,056
    
    
    
    18,964
    
    
    
    14,778Other expenses
    
    
    8,179
    
    
    
    
    
    
    
    21,871
    
    
    
    6,407
    
    
    
    5,271Total costs and expenses
    
    
    1,356,415
    
    
    
    922,450
    
    
    
    671,701
    
    
    
    444,430
    
    
    
    269,385Income from continuing operations before
income taxes
    
    
    125,537
    
    
    
    99,978
    
    
    
    43,623
    
    
    
    26,539
    
    
    
    8,190Provision for income taxes
    
    
    47,779
    
    
    
    37,754
    
    
    
    16,805
    
    
    
    10,085
    
    
    
    3,477Income from continuing operations
    
    $
    77,758
    
    
    $
    62,224
    
    
    $
    26,818
    
    
    $
    16,454
    
    
    $
    4,713Net income
    
    $
    76,208
    
    
    $
    60,632
    
    
    $
    27,154
    
    
    $
    16,801
    
    
    $
    5,216Basic earnings per share from continuing
operations
    
    $
    1.43
    
    
    $
    1.18
    
    
    $
    0.60
    
    
    $
    0.54
    
    
    $
    0.23Basic earnings per share
    
    $
    1.40
    
    
    $
    1.15
    
    
    $
    0.61
    
    
    $
    0.55
    
    
    $
    0.26Shares used in computing basic earnings per
share
    
    
    54,258
    
    
    
    52,953
    
    
    
    44,792
    
    
    
    29,140
    
    
    
    16,740Diluted earnings per share from continuing
operations
    
    $
    1.40
    
    
    $
    1.15
    
    
    $
    0.58
    
    
    $
    0.47
    
    
    $
    0.20Diluted earnings per share
    
    $
    1.37
    
    
    $
    1.12
    
    
    $
    0.59
    
    
    $
    0.48
    
    
    $
    0.22Shares used in computing diluted earnings per
share from continuing operations
    
    
    55,447
    
    
    
    54,169
    
    
    
    46,296
    
    
    
    35,146
    
    
    
    23,498Balance Sheet Data:Cash
    
    $
    39,975
    
    
    $
    18,572
    
    
    $
    54,700
    
    
    $
    33,451
    
    
    $
    44,948Working capital
    
    
    157,831
    
    
    
    103,287
    
    
    
    138,844
    
    
    
    39,843
    
    
    
    66,446Property and equipment, net
    
    
    694,018
    
    
    
    539,758
    
    
    
    378,162
    
    
    
    217,927
    
    
    
    149,275Total assets
    
    
    2,179,523
    
    
    
    1,580,922
    
    
    
    1,175,031
    
    
    
    496,684
    
    
    
    346,202Total debt
    
    
    1,172,024
    
    
    
    743,307
    
    
    
    482,389
    
    
    
    174,336
    
    
    
    175,003Series A convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,316Stockholders equity
    
    
    754,742
    
    
    
    627,779
    
    
    
    539,712
    
    
    
    244,515
    
    
    
    91,328Operating Data:Number of facilities
    
    
    90
    
    
    
    73
    
    
    
    55
    
    
    
    34
    
    
    
    24Number of licensed beds
    
    
    10,155
    
    
    
    8,330
    
    
    
    6,389
    
    
    
    4,295
    
    
    
    3,128Admissions
    
    
    141,331
    
    
    
    107,903
    
    
    
    78,204
    
    
    
    49,484
    
    
    
    26,278Patient days
    
    
    2,471,835
    
    
    
    1,891,685
    
    
    
    1,430,090
    
    
    
    996,840
    
    
    
    525,055Average length of stay
    
    
    18
    
    
    
    18
    
    
    
    18
    
    
    
    20
    
    
    
    20
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Overview
  22




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##### Table of Contents



Sources of Revenue
 Patient Service Revenue
  Other Revenue
  Results of Operations
  Results of Operations, Consolidated Psychiatric SolutionsFor the Year Ended December 31,2007
    
    
    2006
    
    
    2005Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Revenue
    
    $
    1,481,952
    
    
    
    100.0
    %
    
    $
    1,022,428
    
    
    
    100.0
    %
    
    $
    715,324
    
    
    
    100.0
    %Salaries, wages, and employee benefits (including
share-based compensation of
$16,104 and $12,535
in 2007 and 2006, respectively)
    
    
    824,645
    
    
    
    55.6
    %
    
    
    577,237
    
    
    
    56.5
    %
    
    
    392,309
    
    
    
    54.8
    %Professional fees
    
    
    147,521
    
    
    
    10.0
    %
    
    
    97,116
    
    
    
    9.5
    %
    
    
    73,177
    
    
    
    10.2
    %Supplies
    
    
    82,244
    
    
    
    5.5
    %
    
    
    58,986
    
    
    
    5.8
    %
    
    
    42,993
    
    
    
    6.0
    %Provision for doubtful accounts
    
    
    27,554
    
    
    
    1.9
    %
    
    
    19,530
    
    
    
    1.9
    %
    
    
    13,498
    
    
    
    1.9
    %Other operating expenses
    
    
    160,092
    
    
    
    10.8
    %
    
    
    108,799
    
    
    
    10.6
    %
    
    
    86,059
    
    
    
    12.0
    %Depreciation and amortization
    
    
    31,080
    
    
    
    2.1
    %
    
    
    20,475
    
    
    
    2.0
    %
    
    
    14,738
    
    
    
    2.1
    %Interest expense, net
    
    
    75,100
    
    
    
    5.1
    %
    
    
    40,307
    
    
    
    3.9
    %
    
    
    27,056
    
    
    
    3.8
    %Other expenses:Loss on refinancing long-term debt
    
    
    8,179
    
    
    
    0.5
    %
    
    
    
    
    
    
    0.0
    %
    
    
    21,871
    
    
    
    3.1
    %Income from continuing operations before
income taxes
    
    
    125,537
    
    
    
    8.5
    %
    
    
    99,978
    
    
    
    9.8
    %
    
    
    43,623
    
    
    
    6.1
    %Provision for income taxes
    
    
    47,779
    
    
    
    3.3
    %
    
    
    37,754
    
    
    
    3.7
    %
    
    
    16,805
    
    
    
    2.4
    %Income from continuing operations
    
    $
    77,758
    
    
    
    5.2
    %
    
    $
    62,224
    
    
    
    6.1
    %
    
    $
    26,818
    
    
    
    3.7
    %
 23




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##### Table of Contents



Year Ended December 31, 2007 Compared To Year Ended December 31, 2006
  Year Ended December 31,
    
    %2007
    
    2006
    
    ChangeTotal facility results:Revenue (in thousands)
    
    $
    1,357,827
    
    
    $
    976,324
    
    
    
    39.1
    %Number of facilities at period end
    
    
    90
    
    
    
    73
    
    
    
    21.6
    %Admissions
    
    
    141,331
    
    
    
    107,903
    
    
    
    31.0
    %Patient days
    
    
    2,471,835
    
    
    
    1,891,685
    
    
    
    30.7
    %Average length of stay
    
    
    17.5
    
    
    
    17.5
    
    
    
    0.0
    %Revenue per patient day
    
    $
    549
    
    
    $
    516
    
    
    
    6.4
    %Same-facility results:Revenue (in thousands)
    
    $
    1,017,840
    
    
    $
    955,849
    
    
    
    6.5
    %Number of facilities at period end
    
    
    73
    
    
    
    73
    
    
    
    0.0
    %Admissions
    
    
    108,302
    
    
    
    105,900
    
    
    
    2.3
    %Patient days
    
    
    1,871,557
    
    
    
    1,846,189
    
    
    
    1.4
    %Average length of stay
    
    
    17.3
    
    
    
    17.4
    
    
    
    -0.6
    %Revenue per patient day
    
    $
    544
    
    
    $
    518
    
    
    
    5.0
    %
 Revenue
 Salaries, wages, and employee benefits
 Professional fees
 Supplies.
 Provision for doubtful accounts
 24




---



##### Table of Contents



Other operating expenses
 Depreciation and amortization
 Interest expense, net
 Loss on refinancing of long-term debt. 5 8 5 8
 Loss from discontinued operations, net of taxes
 Year Ended December 31, 2006 Compared To Year Ended December 31, 2005
  Year Ended December 31,
    
    %2006
    
    2005
    
    ChangeTotal facility results:Revenue (in thousands)
    
    $
    976,324
    
    
    $
    669,579
    
    
    
    45.8
    %Number of facilities at period end
    
    
    73
    
    
    
    55
    
    
    
    34.5
    %Admissions
    
    
    107,903
    
    
    
    78,206
    
    
    
    38.0
    %Patient days
    
    
    1,891,685
    
    
    
    1,430,090
    
    
    
    32.3
    %Average length of stay
    
    
    17.5
    
    
    
    18.3
    
    
    
    -4.4
    %Revenue per patient day
    
    $
    516
    
    
    $
    468
    
    
    
    10.3
    %Same-facility results:Revenue (in thousands)
    
    $
    729,602
    
    
    $
    669,579
    
    
    
    9.0
    %Number of facilities at period end
    
    
    55
    
    
    
    55
    
    
    
    0.0
    %Admissions
    
    
    79,981
    
    
    
    78,206
    
    
    
    2.3
    %Patient days
    
    
    1,474,977
    
    
    
    1,430,090
    
    
    
    3.1
    %Average length of stay
    
    
    18.4
    
    
    
    18.3
    
    
    
    0.5
    %Revenue per patient day
    
    $
    495
    
    
    $
    468
    
    
    
    5.8
    %
 Revenue
 Salaries, wages, and employee benefits Share Based Payment
 25




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##### Table of Contents



Accounting for Stock Issued to Employees
 Professional fees
 Supplies.
 Provision for doubtful accounts
 Other operating expenses
 Depreciation and amortization
 Interest expense, net 3 4 5 8
 Other expenses.
 Loss from discontinued operations, net of taxes
 26




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##### Table of Contents



Liquidity and Capital Resources
     3 4  5 8
  5 8
  27




---



##### Table of Contents



Obligations and Commitments
 Payments Due by Period (in thousands)Less than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsLong-term debt (1):Senior Credit Facility:Revolving line of credit facility, expiring on December 21, 2009
and bearing interest of 6.4% and
6.7% at December 31, 2007
and December 31, 2006, respectively
    
    
    80,000
    
    
    $
    
    
    
    $
    80,000
    
    
    $
    
    
    
    $
    Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 6.8% and
7.1% at December 31, 2007
and December 31, 2006, respectively
    
    
    573,313
    
    
    
    4,688
    
    
    
    7,500
    
    
    
    561,125
    
    
    
    7 3/4% Senior Subordinated Notes due July 15, 2015
    
    
    476,508
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    476,508Mortgage loans on facilities, maturing in 2036, 2037 and 2038
bearing fixed interest rates of 5.7% to 7.6%
    
    
    33,671
    
    
    
    397
    
    
    
    873
    
    
    
    988
    
    
    
    31,4131,163,492
    
    
    
    5,085
    
    
    
    88,373
    
    
    
    562,113
    
    
    
    507,921Lease and other obligations
    
    
    91,107
    
    
    
    16,762
    
    
    
    24,990
    
    
    
    13,322
    
    
    
    36,033Total contractual obligations
    
    $
    1,254,599
    
    
    $
    21,847
    
    
    $
    113,363
    
    
    $
    575,435
    
    
    $
    543,954
 
 (1)
    
    Excludes capital lease obligations, fair value of interest rate swap,
and other obligations of $7.7 and $0.8 million, which are included in
lease and other obligations. 3 4 3 4 5 8
 Impact of Inflation and Economic Trends
   Critical Accounting Policies
  Allowance for Doubtful Accounts
  28




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##### Table of Contents



Allowances for Contractual Discounts
    For the Year Ended December 31,2007
    
    
    2006Net
    
    
    Accounts
    
    
    Net
    
    
    AccountsRevenue
    
    
    Receivable
    
    
    Revenue
    
    
    ReceivablePayor mix:Medicaid
    
    
    32
    %
    
    
    27
    %
    
    
    36
    %
    
    
    32
    %Commercial/HMO/Private Pay
    
    
    33
    %
    
    
    36
    %
    
    
    34
    %
    
    
    35
    %Medicare
    
    
    13
    %
    
    
    11
    %
    
    
    13
    %
    
    
    12
    %State agency
    
    
    16
    %
    
    
    18
    %
    
    
    13
    %
    
    
    18
    %Other
    
    
    6
    %
    
    
    8
    %
    
    
    4
    %
    
    
    3
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  At December 31,2007
    
    
    20060 - 30 days
    
    
    64
    %
    
    
    61
    %31 - 60 days
    
    
    15
    %
    
    
    16
    %61 - 90 days
    
    
    8
    %
    
    
    9
    %91 - 120 days
    
    
    5
    %
    
    
    5
    %121 - 150 days
    
    
    3
    %
    
    
    4
    %151 - 180 days
    
    
    3
    %
    
    
    3
    %> 180 days
    
    
    2
    %
    
    
    2
    %Total
    
    
    100
    %
    
    
    100
    %
 29




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##### Table of Contents



Professional and General Liability
  Income Taxes
  Accounting for Uncertainty in Income Taxes -
An Interpretation of FASB Statement No. 109,
 Share-Based Compensation
  
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 8. Financial Statements and Supplementary Data.
  30




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##### Table of Contents



Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  
 Item 9B. Other Information.
    
 PART III
 
 Item 10. Directors and Executive Officers and Corporate Governance.
 Directors
  Executive Officers of the Registrant
  Name
    
    Age
    
    Officer Since
    
    PositionsJoey A. Jacobs
    
    
    54
    
    
    April 1997
    
    President and Chief Executive OfficerTerrance R. Bridges
    
    
    55
    
    
    July 2007
    
    Chief Operating OfficerJack E. Polson
    
    
    41
    
    
    August 2002
    
    Executive Vice President, Chief Accounting OfficerBrent Turner
    
    
    42
    
    
    February 2003
    
    Executive Vice President, Finance and AdministrationChristopher L. Howard
    
    
    41
    
    
    September 2005
    
    Executive Vice President, General Counsel and SecretarySteven T. Davidson
    
    
    50
    
    
    August 1997
    
    Chief Development Officer
 Joey A. Jacobs, President and Chief Executive Officer
 Terrance R. Bridges, Chief Operating Officer
 31




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##### Table of Contents



Jack E. Polson, Executive Vice President, Chief Accounting Officer
 Brent Turner, Executive Vice President, Finance and Administration
 Chris Howard, Executive Vice President, General Counsel and Secretary
 Steven T. Davidson, Chief Development Officer
 Code of Ethics
 www.psysolutions.com
 Section 16(a) Compliance
  
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence.
  
 Item 14. Principal Accountant Fees and Services.
  32




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
  Consolidated Financial Statements
 PageReport of Independent Registered Public Accounting Firm
    
    F-2Managements Report on Internal Control Over Financial Reporting
    
    F-3Report of Independent Registered Public Accounting Firm
    
    F-4Consolidated Balance Sheets
    
    F-5Consolidated Statements of Income
    
    F-6Consolidated Statements of Stockholders Equity
    
    F-7Consolidated Statements of Cash Flows
    
    F-8Notes to Consolidated Financial Statements
    
    F-10
 Financial Statement Schedules.
  Exhibits.
 Exhibits.
 ExhibitNumber
    
    Description2.1
    
    Agreement and Plan of Merger by and among PMR Corporation, PMR
Acquisition Corporation and Psychiatric Solutions, Inc., dated May
6, 2002, as amended by Amendment No. 1, dated as of June 10, 2002,
and Amendment No. 2, dated as of July 9, 2002 (included as Annex A
to Amendment No. 1 to the Companys Registration Statement on Form
S-4, filed on July 11, 2002 (Reg. No. 333-90372)).2.2
    
    Agreement and Plan of Merger, dated April 8, 2003, by and among
Psychiatric Solutions, Inc., PSI Acquisition Sub, Inc. and Ramsay
Youth Services, Inc. (incorporated by reference to Exhibit 2.1 of
the Companys Current Report on Form 8-K, filed on April 10,
2003).2.3
    
    Amended and Restated Stock Purchase Agreement, dated June 30,
2005, by and among Ardent Health Services LLC, Ardent Health
Services, Inc. and Psychiatric Solutions, Inc. (incorporated by
reference to Exhibit 2.1 to the Companys Current Report on Form
8-K, filed July 8, 2005).2.4
    
    Amended and Restated Stock Purchase Agreement, dated as of October
27, 2006, by and between FHC Health Systems, Inc. and Psychiatric
Solutions, Inc. (incorporated by reference to Exhibit 2 to  the
Companys Current Report on Form 8-K, filed on December 7, 2006).2.5
    
    Agreement and Plan of Merger, dated December 20, 2006, by and
among Psychiatric Solutions, Inc., Panther Acquisition Sub, Inc.
and Horizon Health Corporation (incorporated by reference to
Exhibit 2.5 to the Companys Annual Report on Form 10-K for the
year ended December 31, 2006 (the 2006 10-K).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).
 33




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##### Table of Contents



ExhibitNumber
    
    Description3.4
    
    Certificate of Amendment to Amended and Restated Certificate of
Incorporation of Psychiatric Solutions, Inc., filed with the
Delaware Secretary of State on December 15, 2005.3.5
    
    By-Laws (incorporated by reference to Exhibit 3 to the Companys
Current Report on Form 8-K filed on November 6, 2007).4.1
    
    Reference is made to Exhibits 3.1 through 3.5.4.2
    
    Common Stock Specimen Certificate (incorporated by reference to Exhibit 4.2 to the Companys
Annual Report on Form 10-K for the fiscal year ended December 31, 2002).4.3
    
    Indenture, dated as of 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).4.4
    
    Form of Notes (included in Exhibit 4.3).4.5
    
    Indenture, dated as of July 6, 2005, by and among Psychiatric Solutions, Inc., the Guarantors
named therein and Wachovia Bank, National Association, as Trustee (incorporated by reference
to Exhibit 4.1 to the Companys Current Report on Form 8-K, filed July 8, 2005).4.6
    
    Form of Notes (included in Exhibit 4.5).4.7
    
    Thirty-Fifth Supplemental Indenture, dated as of May 21, 2007, by and among Psychiatric
Solutions, Inc., the Guarantors named therein and U.S. Bank National Association, as Trustee
(incorporated by reference to Exhibit 4 to the Companys Current Report on Form 8-K, filed on
May 22, 2007).4.8
    
    Purchase Agreement, dated as of May 24, 2007, among Psychiatric Solutions, Inc., the
subsidiaries named as guarantors thereto, and Citigroup Global Markets Inc. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, as representatives of the initial purchasers named
therein (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K,
filed on May 25, 2007).4.9
    
    Seventeenth Supplemental Indenture, dated as of May 31, 2007, among Psychiatric Solutions,
Inc., the subsidiaries of Psychiatric Solutions, Inc. party thereto as guarantors and U.S.
Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K, filed on June 1, 2007).4.10
    
    Exchange and Registration Rights Agreement, dated as of May 31, 2007, among Psychiatric
Solutions, Inc., the subsidiaries of Psychiatric Solutions, Inc. party thereto as guarantors,
and Citigroup Global Markets Inc., Merrill, Lynch, Pierce, Fenner & Smith Incorporated, Banc
of America Securities LLC, and J.P. Morgan Securities Inc. (incorporated by reference to
Exhibit 4.3 to the Companys Current Report on Form 8-K, filed June on 1, 2007).10.1
    
    Employment Agreement, dated as of May
10, 2007, between Joey A. Jacobs and Psychiatric Solutions, Inc. (incorporated by reference to Exhibit 10 to the Companys Current Report on Form 8-K,
filed on May 15, 2007).10.2
    
    Form of Indemnification Agreement executed by each director of Psychiatric Solutions, Inc. and
Psychiatric Solutions, Inc. (incorporated by reference to Exhibit 10.4 to the Companys Annual
Report on Form 10-K for the fiscal year ended December 31, 2004).10.3
    
    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).
 34




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##### Table of Contents



ExhibitNumber
    
    Description10.4
    
    Amendment No. 1 to Psychiatric Solutions, Inc.s Second Amended and Restated Credit Agreement,
dated as of December 1, 2006, by and between Psychiatric Solutions, Inc., BHC Holdings, Inc.,
Premier Behavioral Solutions, Inc., Alternative Behavioral Services, Inc., the subsidiaries
of Psychiatric Solutions, Inc. party thereto as guarantors, Citicorp North America, Inc., as
Term Loan Facility Administrative Agent, Bank of America, N.A., as Revolving Credit Facility
Administrative Agent, Citigroup Global Markets Inc. and Banc of America Securities LLC, as the
Arrangers (incorporated by reference to Exhibit 10 to the Companys Current Report on Form
8-K, filed on December 7, 2006).10.5
    
    Amendment No. 2 to Second Amended and Restated Credit Agreement, dated as of December 1, 2006,
by and among Psychiatric Solutions, Inc., BHC Holdings, Inc., Premier Behavioral Solutions,
Inc., Alternative Behavioral Services, Inc., Horizon Health Corporation, ABS LINCS PR, Inc.,
First Hospital Panamericano, Inc., FHCHS of Puerto Rico, Inc., First Corrections 
Puerto-Rico, Inc., the subsidiaries of Psychiatric Solutions, Inc. party thereto as
guarantors, Citicorp North America, Inc., as term loan facility administrative agent, Bank of
America, N.A., as revolving credit facility administrative agent, Citigroup Global Markets
Inc. and Merrill, Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arrangers and
joint book-running managers (incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K, filed on June 1, 2007).10.6
    
    Interest Rate Swap Agreement, dated January 28, 2004, between Bank of America, N.A. and
Psychiatric Solutions, Inc. (incorporated by reference to Exhibit 10.2 to the Companys
Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).10.7
    
    Confirmation of Interest Rate Swap Agreement, dated April 26, 2004, between Bank of America,
N.A. and Psychiatric Solutions, Inc. (incorporated by reference to Exhibit 10.5 to the
Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).10.8
    
    Psychiatric Solutions, Inc. 2007 Long-Term Equity Compensation Plan (incorporated by reference
to Exhibit 10.2 to the Companys Current Report on Form 8-K, filed on February 22, 2007).10.9
    
    Psychiatric Solutions, Inc. 2008 Long-Term Equity Compensation Plan (incorporated by reference
to Exhibit 10.2 to the Companys Current Report on Form 8-K, filed on February 27, 2008).10.10
    
    Amended and Restated Psychiatric Solutions, Inc. Equity Incentive Plan, as amended by an
Amendment adopted on May 4, 2004 (incorporated by reference to Appendix A to the Companys
Definitive Proxy Statement, filed on April 9, 2004).10.11
    
    Second Amendment to the Psychiatric Solutions, Inc. Equity Incentive Plan (incorporated by
reference to Appendix A to the Companys Definitive Proxy Statement, filed on April 22, 2005).10.12
    
    Third Amendment to the Psychiatric Solutions, Inc. Equity Incentive Plan (incorporated by
reference to Appendix B of the Companys Definitive Proxy Statement, filed on April 21, 2006).10.13
    
    Psychiatric Solutions, Inc. Executive Performance Incentive Plan (incorporated by reference to
Appendix A of the Companys Definitive Proxy Statement, filed on April 21, 2006).10.14
    
    Form of Nonstatutory Stock Option Agreement under the 1997 Plan (incorporated by reference to
Exhibit 10.3 to the Companys Quarterly Report on Form
10-Q for the quarter ended March 31, 2007).10.15
    
    Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.3 to the Companys
Quarterly Report on Form 10-Q for the quarter ended March 31, 2006).10.16
    
    Amended and Restated Psychiatric Solutions, Inc. Outside Directors Non-Qualified Stock Option
Plan (incorporated by reference to Appendix C to the Companys Definitive Proxy Statement,
filed on April 14, 2003).10.17
    
    Amendment to the Amended and Restated Psychiatric Solutions, Inc. Outside Directors Stock
Option Plan (incorporated by reference to Appendix B to the Companys Definitive Proxy
Statement, filed on April 22, 2005).10.18
    
    Form of Outside Directors Non-Qualified Stock Option Agreement (incorporated by reference to
Exhibit 10.5 to the Companys Annual Report on Form 10-K for
the year ended April 30, 1997).
 35




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##### Table of Contents



ExhibitNumber
    
    Description10.19
    
    2008 Executive Officer Compensation (incorporated by reference to the Companys Current Report
on Form 8-K, filed on October 29, 2007).10.20
    
    Psychiatric Solutions, Inc. 2007 Cash Bonus Plans (incorporated by reference to Exhibit 10.1
to the Companys Current Report on Form 8-K, filed on February 22, 2007).10.21
    
    Psychiatric Solutions, Inc. 2008 Cash Bonus Plans (incorporated by reference to Exhibit 10.1
to the Companys Current Report on Form 8-K, filed on February 27, 2008).10.22
    
    Summary of Director Compensation (incorporated by reference to Exhibit 10.22 to the 2006 10-K).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 36




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PAGEReport of Independent Registered Public Accounting Firm
    
    F-2Managements Report on Internal Control over Financial Reporting
    
    F-3Report of Independent Registered Public Accounting Firm
    
    F-4Consolidated Financial Statements:Consolidated Balance Sheets, December 31, 2007 and 2006
    
    F-5Consolidated Statements of Income for the years ended December 31, 2007, 2006 and 2005
    
    F-6Consolidated Statements of Stockholders Equity for the years ended December 31, 2007, 2006 and 2005
    
    F-7Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005
    
    F-8Notes to Consolidated Financial Statements
    
    F-10
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     Accounting for Uncertainty in Income Taxes-An Interpretation of FASB
Statement No. 109
 Share-Based Payment
   
 F-2




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##### Table of Contents



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




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      .
   
 F-4




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 CONSOLIDATED BALANCE SHEETS
(in thousands)
 December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    39,975
    
    
    $
    18,572Accounts receivable, less allowance for doubtful accounts of
$35,587 and $18,672, respectively
    
    
    233,945
    
    
    
    179,050Prepaids and other
    
    
    66,159
    
    
    
    45,364Total current assets
    
    
    340,079
    
    
    
    242,986Property and equipment:Land
    
    
    153,573
    
    
    
    118,509Buildings
    
    
    541,338
    
    
    
    414,493Equipment
    
    
    76,270
    
    
    
    55,103Less accumulated depreciation
    
    
    (77,163
    )
    
    
    (48,347
    )694,018
    
    
    
    539,758Cost in excess of net assets acquired
    
    
    1,073,583
    
    
    
    760,268Other assets
    
    
    71,843
    
    
    
    37,910Total assets
    
    $
    2,179,523
    
    
    $
    1,580,922LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    31,394
    
    
    $
    25,222Salaries and benefits payable
    
    
    82,899
    
    
    
    66,236Other accrued liabilities
    
    
    61,939
    
    
    
    45,855Current portion of long-term debt
    
    
    6,016
    
    
    
    2,386Total current liabilities
    
    
    182,248
    
    
    
    139,699Long-term debt, less current portion
    
    
    1,166,008
    
    
    
    740,921Deferred tax liability
    
    
    49,131
    
    
    
    44,924Other liabilities
    
    
    23,235
    
    
    
    27,599Total liabilities
    
    
    1,420,622
    
    
    
    953,143Minority Interest
    
    
    4,159
    
    
    
    Stockholders equity:Common stock, $0.01 par value, 125,000 shares authorized;
55,107 and 53,421 issued and outstanding, respectively
    
    
    551
    
    
    
    534Additional paid-in capital
    
    
    574,943
    
    
    
    523,193Accumulated other comprehensive loss
    
    
    (479
    )
    
    
    Retained earnings
    
    
    179,727
    
    
    
    104,052Total stockholders equity
    
    
    754,742
    
    
    
    627,779Total liabilities and stockholders equity
    
    $
    2,179,523
    
    
    $
    1,580,922
  F-5




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for per share amounts)
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Revenue
    
    $
    1,481,952
    
    
    $
    1,022,428
    
    
    $
    715,324Salaries, wages and employee benefits (including share-based compensation of $16,104 and $12,535 for the years
ended December 31, 2006 and 2007)
    
    
    824,645
    
    
    
    577,237
    
    
    
    392,309Professional fees
    
    
    147,521
    
    
    
    97,116
    
    
    
    73,177Supplies
    
    
    82,244
    
    
    
    58,986
    
    
    
    42,993Rentals and leases
    
    
    21,329
    
    
    
    13,662
    
    
    
    11,450Other operating expenses
    
    
    138,763
    
    
    
    95,137
    
    
    
    74,609Provision for doubtful accounts
    
    
    27,554
    
    
    
    19,530
    
    
    
    13,498Depreciation and amortization
    
    
    31,080
    
    
    
    20,475
    
    
    
    14,738Interest expense
    
    
    75,100
    
    
    
    40,307
    
    
    
    27,056Loss on refinancing long-term debt
    
    
    8,179
    
    
    
    
    
    
    
    21,8711,356,415
    
    
    
    922,450
    
    
    
    671,701Income from continuing operations before income taxes
    
    
    125,537
    
    
    
    99,978
    
    
    
    43,623Provision for income taxes
    
    
    47,779
    
    
    
    37,754
    
    
    
    16,805Income from continuing operations
    
    
    77,758
    
    
    
    62,224
    
    
    
    26,818(Loss) income from discontinued operations, net of
income tax (benefit) provision of $(872), $(971) and
$211 for 2007, 2006 and 2005, respectively
    
    
    (1,550
    )
    
    
    (1,592
    )
    
    
    336Net income available to common stockholders
    
    $
    76,208
    
    
    $
    60,632
    
    
    $
    27,154Basic earnings per share:Income from
continuing operations
    
    $
    1.43
    
    
    $
    1.18
    
    
    $
    0.60(Loss) income from discontinued operations, net of taxes
    
    
    (0.03
    )
    
    
    (0.03
    )
    
    
    0.01Net income
    
    $
    1.40
    
    
    $
    1.15
    
    
    $
    0.61Diluted earnings per share:Income from
continuing operations
    
    $
    1.40
    
    
    $
    1.15
    
    
    $
    0.58(Loss) income
from discontinued operations, net of taxes
    
    
    (0.03
    )
    
    
    (0.03
    )
    
    
    0.01Net income
    
    $
    1.37
    
    
    $
    1.12
    
    
    $
    0.59Shares used in computing per share amounts:Basic
    
    
    54,258
    
    
    
    52,953
    
    
    
    44,792Diluted
    
    
    55,447
    
    
    
    54,169
    
    
    
    46,296
  F-6




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands)
 AccumulatedAdditional
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Comprehensive
    
    
    RetainedShares
    
    
    Amount
    
    
    Capital
    
    
    Loss
    
    
    Earnings
    
    
    TotalBalance at December 31, 2004
    
    
    40,935
    
    
    $
    409
    
    
    $
    227,840
    
    
    $
    
    
    
    $
    16,266
    
    
    $
    244,515Issuance of common stock,
net of issuance costs
    
    
    8,050
    
    
    
    81
    
    
    
    191,917
    
    
    
    
    
    
    
    
    
    
    
    191,998Common stock issued in
acquisition
    
    
    2,726
    
    
    
    27
    
    
    
    64,738
    
    
    
    
    
    
    
    
    
    
    
    64,765Exercise of stock options
    
    
    719
    
    
    
    7
    
    
    
    6,378
    
    
    
    
    
    
    
    
    
    
    
    6,385Income tax benefit of stock option
exercises
    
    
    
    
    
    
    
    
    
    
    4,895
    
    
    
    
    
    
    
    
    
    
    
    4,895Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,154
    
    
    
    27,154Balance at December 31, 2005
    
    
    52,430
    
    
    
    524
    
    
    
    495,768
    
    
    
    
    
    
    
    43,420
    
    
    
    539,712Share-based compensation
    
    
    
    
    
    
    
    
    
    
    12,535
    
    
    
    
    
    
    
    
    
    
    
    12,535Common stock issued in
acquisition
    
    
    130
    
    
    
    1
    
    
    
    4,276
    
    
    
    
    
    
    
    
    
    
    
    4,277Exercise of stock options and
grant of restricted stock, net
of issuance costs
    
    
    861
    
    
    
    9
    
    
    
    6,260
    
    
    
    
    
    
    
    
    
    
    
    6,269Income tax benefit of stock option
exercises
    
    
    
    
    
    
    
    
    
    
    4,354
    
    
    
    
    
    
    
    
    
    
    
    4,354Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,632
    
    
    
    60,632Balance at December 31, 2006
    
    
    53,421
    
    
    
    534
    
    
    
    523,193
    
    
    
    
    
    
    
    104,052
    
    
    
    627,779Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,208
    
    
    
    76,208Change in fair value of interest rate
swap, net of tax
benefit of $308
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (479
    )
    
    
    
    
    
    
    (479
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,729Share-based compensation
    
    
    
    
    
    
    
    
    
    
    16,104
    
    
    
    
    
    
    
    
    
    
    
    16,104Common stock issued in
acquisition
    
    
    243
    
    
    
    2
    
    
    
    8,998
    
    
    
    
    
    
    
    
    
    
    
    9,000Exercise of stock options and
grants of restricted stock, net
of issuance costs
    
    
    1,443
    
    
    
    15
    
    
    
    17,220
    
    
    
    
    
    
    
    
    
    
    
    17,235Cumulative adjustment for
adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (533
    )
    
    
    (533
    )Income tax benefit of stock option
exercises
    
    
    
    
    
    
    
    
    
    
    9,428
    
    
    
    
    
    
    
    
    
    
    
    9,428Balance at December 31, 2007
    
    
    55,107
    
    
    $
    551
    
    
    $
    574,943
    
    
    $
    (479
    )
    
    $
    179,727
    
    
    $
    754,742
  F-7




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Operating activities:Net income
    
    $
    76,208
    
    
    $
    60,632
    
    
    $
    27,154Adjustments to reconcile net income to
net cash provided by continuing
operating activities:Depreciation and amortization
    
    
    31,080
    
    
    
    20,475
    
    
    
    14,738Amortization of loan costs and bond premium
    
    
    2,151
    
    
    
    1,672
    
    
    
    1,187Share-based compensation
    
    
    16,104
    
    
    
    12,535
    
    
    
    Loss on refinancing long-term debt
    
    
    8,179
    
    
    
    
    
    
    
    21,871Change in income tax assets and liabilities
    
    
    8,639
    
    
    
    35,322
    
    
    
    9,494Loss (income) from discontinued operations, net of taxes
    
    
    1,550
    
    
    
    1,592
    
    
    
    (336
    )Changes in operating assets and liabilities,
net of effect of acquisitions:Accounts receivable
    
    
    (10,725
    )
    
    
    (11,636
    )
    
    
    (9,399
    )Prepaids and other current assets
    
    
    4,175
    
    
    
    (8,712
    )
    
    
    (3,673
    )Accounts payable
    
    
    (7,560
    )
    
    
    240
    
    
    
    2,116Salaries and benefits payable
    
    
    2,185
    
    
    
    5,584
    
    
    
    2,598Accrued liabilities and other liabilities
    
    
    (6,319
    )
    
    
    5,839
    
    
    
    13,340Other
    
    
    
    
    
    
    
    
    
    
    463Net cash provided by continuing operating activities
    
    
    125,667
    
    
    
    123,543
    
    
    
    79,553Net cash (used in) provided by discontinued operating activities
    
    
    (193
    )
    
    
    195
    
    
    
    222Net cash provided by operating activities
    
    
    125,474
    
    
    
    123,738
    
    
    
    79,775Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (462,820
    )
    
    
    (385,078
    )
    
    
    (514,525
    )Capital purchases of leasehold improvements,
equipment and software
    
    
    (73,222
    )
    
    
    (33,816
    )
    
    
    (21,750
    )Purchases of short-term investments
    
    
    
    
    
    
    
    
    
    
    (29,400
    )Sales of short-term investments
    
    
    
    
    
    
    
    
    
    
    29,400Cash paid for investments in equity method investees
    
    
    
    
    
    
    
    
    
    
    (1,340
    )Other assets
    
    
    (2,451
    )
    
    
    (594
    )
    
    
    1,219Net cash used in continuing investing activities
    
    
    (538,493
    )
    
    
    (419,488
    )
    
    
    (536,396
    )Net cash provided by discontinued investing activities
    
    
    1,909
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (536,584
    )
    
    
    (419,488
    )
    
    
    (536,396
    )
  F-8




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Financing activities:Net (decrease) increase in revolving credit facility, less acquisitions
    
    $
    (21,000
    )
    
    $
    101,000
    
    
    $
    Borrowings on long-term debt
    
    
    481,875
    
    
    
    150,000
    
    
    
    545,000Principal payments on long-term debt
    
    
    (41,281
    )
    
    
    (465
    )
    
    
    (236,822
    )Payment of loan and issuance costs
    
    
    (6,661
    )
    
    
    (1,576
    )
    
    
    (13,932
    )Refinancing of long-term debt
    
    
    (7,127
    )
    
    
    
    
    
    
    (15,398
    )Excess tax benefit from share based payment arrangements
    
    
    9,428
    
    
    
    4,354
    
    
    
    Proceeds from public offering of common stock
    
    
    
    
    
    
    
    
    
    
    192,637Proceeds from exercises of common stock options
    
    
    17,279
    
    
    
    6,309
    
    
    
    6,385Net cash provided by financing activities
    
    
    432,513
    
    
    
    259,622
    
    
    
    477,870Net increase (decrease) in cash
    
    
    21,403
    
    
    
    (36,128
    )
    
    
    21,249Cash and cash equivalents at beginning of the year
    
    
    18,572
    
    
    
    54,700
    
    
    
    33,451Cash and cash equivalents at end of the year
    
    $
    39,975
    
    
    $
    18,572
    
    
    $
    54,700Supplemental Cash Flow Information:Interest paid
    
    $
    62,864
    
    
    $
    40,177
    
    
    $
    16,694Income taxes
paid (refunded)
    
    $
    29,924
    
    
    $
    (2,656
    )
    
    $
    7,490Effect of Acquisitions:Assets
acquired, net of cash acquired
    
    $
    518,348
    
    
    $
    432,533
    
    
    $
    624,821Cash paid
for prior year acquisitions
    
    
    
    
    
    
    
    
    
    
    5,793Liabilities assumed
    
    
    (37,826
    )
    
    
    (32,819
    )
    
    
    (51,324
    )Common stock issued
    
    
    (9,000
    )
    
    
    (4,277
    )
    
    
    (64,765
    )Long-term
debt assumed
    
    
    (8,702
    )
    
    
    (10,359
    )
    
    
    Cash paid
for acquisitions, net of cash acquired
    
    $
    462,820
    
    
    $
    385,078
    
    
    $
    514,525
  F-9




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2007
 1. Summary of Significant Accounting Policies
 Description of Business
  Recent Developments
 5 8 5 8 3 4  3 4
 Basis of Presentation
   Cash and Cash Equivalents
  Accounts Receivable
   F-10




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
 Allowance for Doubtful Accounts
   Allowances for Contractual Discounts
  Income Taxes
 Accounting for
Uncertainty in Income Taxes - An Interpretation of FASB Statement No.
109,
 Long-Lived Assets
 Property and Equipment
  Cost in Excess of Net Assets Acquired (Goodwill)
   Balance at December 31, 2005
    
    $
    526,536Acquisition of National Deaf Academy
    
    
    32,524Acquisition of Alternative Behavioral Services
    
    
    148,332Other Acquisitions
    
    
    52,876Balance at December 31, 2006
    
    
    760,268Acquisition of Horizon Health
    
    
    284,446Other Acquisitions
    
    
    28,869Balance at December 31, 2007
    
    $
    1,073,583
 Other Assets
  F-11




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
    Other Accrued Liabilities
  Share-Based Compensation
 Share Based
Payment Accounting for Stock-Based Compensation , Accounting for Stock Issued to Employees
 Derivatives
 Accounting for Derivative Instruments and Hedging Activities
 Risk Management
  F-12




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
   Fair Value of Financial Instruments
 3 4 3 4 5 8
 Reclassifications
  Recent Accounting Pronouncements
 Business Combinations Business Combinations
 Noncontrolling Interests in Consolidated Financial Statementsan Amendment of ARB No. 51
 Fair Value Measurements
 The Fair
Value Option for Financial Assets and Financial LiabilitiesIncluding an Amendment of SFAS 115
 2. Revenue
  December 31,2007
    
    
    2006
    
    
    2005Patient service revenue
    
    $
    1,357,827
    
    
    $
    976,324
    
    
    $
    669,579Other revenue
    
    
    124,125
    
    
    
    46,104
    
    
    
    45,745Total revenue
    
    $
    1,481,952
    
    
    $
    1,022,428
    
    
    $
    715,324
 F-13




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
 Patient Service Revenue
    Other Revenue
  3. Earnings Per Share
 Earnings per Share
  F-14




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
 Year ended December 31,2007
    
    
    2006
    
    
    2005Numerator:Basic and diluted earnings per share:Income from continuing operations
    
    $
    77,758
    
    
    $
    62,224
    
    
    $
    26,818(Loss) income from discontinued operations, net of taxes
    
    
    (1,550
    )
    
    
    (1,592
    )
    
    
    336Net income
    
    $
    76,208
    
    
    $
    60,632
    
    
    $
    27,154Denominator:Weighted average shares outstanding for basic earnings per share
    
    
    54,258
    
    
    
    52,953
    
    
    
    44,792Effects of dilutive stock options and restriced stock outstanding
    
    
    1,189
    
    
    
    1,216
    
    
    
    1,504Shares used in computing diluted earnings per common share
    
    
    55,447
    
    
    
    54,169
    
    
    
    46,296Basic earnings per share:Income from continuing operations
    
    $
    1.43
    
    
    $
    1.18
    
    
    $
    0.60(Loss) income from discontinued operations, net of taxes
    
    
    (0.03
    )
    
    
    (0.03
    )
    
    
    0.01$
    1.40
    
    
    $
    1.15
    
    
    $
    0.61Diluted earnings per share:Income from continuing operations
    
    $
    1.40
    
    
    $
    1.15
    
    
    $
    0.58(Loss) income from discontinued operations, net of taxes
    
    
    (0.03
    )
    
    
    (0.03
    )
    
    
    0.01$
    1.37
    
    
    $
    1.12
    
    
    $
    0.59
 4. Discontinued Operations
 Accounting for the Impairment or Disposal of Long-Lived Assets
  Year Ended December 31,2007
    
    
    2006
    
    
    2005Revenue
    
    $
    2,217
    
    
    $
    6,149
    
    
    $
    14,911Operating expenses
    
    
    3,872
    
    
    
    7,287
    
    
    
    14,364Loss on disposal
    
    
    767
    
    
    
    1,425
    
    
    
    4,639
    
    
    
    8,712
    
    
    
    14,364(Loss) income from discontinued operations before income taxes
    
    
    (2,422
    )
    
    
    (2,563
    )
    
    
    547(Benefit) provision for income taxes
    
    
    (872
    )
    
    
    (971
    )
    
    
    211(Loss) income from discontinued operations, net of income taxes
    
    $
    (1,550
    )
    
    $
    (1,592
    )
    
    $
    336
 F-15




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
 5. Acquisitions
 2007 Acquisitions
   Horizon HealthAssets acquired:Accounts receivable
    
    $
    42,201Other current assets
    
    
    15,079Fixed assets
    
    
    96,190Costs in excess of net assets acquired
    
    
    284,446Other assets
    
    
    33,528471,444Liabilities assumed
    
    
    35,469Long-term debt assumed
    
    
    6,998Cash paid, net of cash acquired
    
    $
    428,977
  2006 Acquisitions
   ABSAssets acquired:Accounts receivable
    
    $
    23,420Other current assets
    
    
    9,129Fixed assets
    
    
    65,438Costs in excess of net assets acquired
    
    
    149,077Other assets
    
    
    240247,304Liabilities assumed
    
    
    31,313Common stock issued
    
    
    4,277Cash paid, net of cash acquired
    
    $
    211,714
 F-16




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
 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
 Other Information
  Year Ended December 31,2007
    
    2006Revenue
    
    $
    1,603,868
    
    
    $
    1,316,298Net income
    
    
    77,297
    
    
    
    61,853Earnings per common share, basic
    
    
    1.42
    
    
    
    1.17Earnings per common share, diluted
    
    
    1.39
    
    
    
    1.14
  F-17




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
 6. Long-term debt
  December 31,2007
    
    
    2006Senior credit facility:Revolving line of credit facility, expiring on December 21, 2009
and bearing interest of 6.4% and
6.7% at December 31, 2007
and December 31, 2006, respectively
    
    $
    80,000
    
    
    $
    101,000Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 6.8% and
7.1% at December 31, 2007
and December 31, 2006, respectively
    
    
    573,312
    
    
    
    350,0007 3/4% Notes
    
    
    476,508
    
    
    
    220,00010 5/8% Notes
    
    
    34
    
    
    
    38,681Mortgage loans on facilities, maturing in 2036, 2037 and 2038
bearing fixed interest rates of 5.7% to 7.6%
    
    
    33,671
    
    
    
    27,062Other
    
    
    8,499
    
    
    
    6,5641,172,024
    
    
    
    743,307Less current portion
    
    
    6,016
    
    
    
    2,386Long-term debt
    
    $
    1,166,008
    
    
    $
    740,921
 Senior Credit Facility
 5 8
   F-18




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
 7 3 / 4 % Notes
 3 4 3 4 5 8 3 4 3 4 3 4 3 4 3 4
 10 5 / 8 % Notes
 5 8 5 8 5 8
 5 8 5 8 5 8 3 4
 3 4 5 8
 Mortgage Loans
  Interest Rate Swap Agreements
  Other
  2008
    
    $
    6,0162009
    
    
    85,6922010
    
    
    4,7172011
    
    
    4,6782012
    
    
    558,369Thereafter
    
    
    512,552Total
    
    $
    1,172,024
 F-19




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
 7. Leases
  2008
    
    
    
    
    
    $
    15,8312009
    
    
    
    
    
    
    13,1412010
    
    
    
    
    
    
    9,8122011
    
    
    
    
    
    
    7,0772012
    
    
    
    
    
    
    5,311Thereafter
    
    
    
    
    
    
    31,403Total
    
    
    
    $
    82,575
 8. Income Taxes
  2007
    
    
    2006
    
    
    2005Provision for income taxes attributable
to income from continuing operations
    
    $
    47,779
    
    
    $
    37,754
    
    
    $
    16,805(Benefit from) provision for income taxes attributable
to income from discontinued operations
    
    
    (872
    )
    
    
    (971
    )
    
    
    211Total provision for income taxes
    
    $
    46,907
    
    
    $
    36,783
    
    
    $
    17,016
  2007
    
    
    2006
    
    
    2005Current:Federal
    
    $
    32,035
    
    
    $
    10,327
    
    
    $
    (1,802
    )State
    
    
    4,930
    
    
    
    2,441
    
    
    
    2,701Foreign
    
    
    4,121
    
    
    
    219
    
    
    
    41,086
    
    
    
    12,987
    
    
    
    899Deferred:Federal
    
    
    8,078
    
    
    
    24,132
    
    
    
    16,580State
    
    
    (460
    )
    
    
    342
    
    
    
    (908
    )Foreign
    
    
    (925
    )
    
    
    293
    
    
    
    2346,693
    
    
    
    24,767
    
    
    
    15,906Provision for income taxes
    
    $
    47,779
    
    
    $
    37,754
    
    
    $
    16,805
   2007
    
    
    2006
    
    
    2005Federal tax
    
    $
    43,938
    
    
    $
    34,992
    
    
    $
    15,268State income taxes (net of federal)
    
    
    2,906
    
    
    
    1,809
    
    
    
    1,165Other
    
    
    935
    
    
    
    953
    
    
    
    372Provision for income taxes
    
    $
    47,779
    
    
    $
    37,754
    
    
    $
    16,805
  F-20




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
 2007
    
    
    2006Deferred tax assets:Net operating loss carryforwards
    
    $
    10,210
    
    
    $
    11,708Allowance for doubtful accounts
    
    
    11,218
    
    
    
    3,562Alternative minimum tax credit carryovers
    
    
    1,150
    
    
    
    1,150Accrued liabilities
    
    
    24,757
    
    
    
    14,027Total gross deferred tax assets
    
    
    47,335
    
    
    
    30,447Less: Valuation allowance
    
    
    (5,640
    )
    
    
    (2,988
    )Total deferred tax assets
    
    
    41,695
    
    
    
    27,459Deferred tax liabilities:Intangible assets
    
    
    (16,611
    )
    
    
    (16,404
    )Property and equipment
    
    
    (51,509
    )
    
    
    (43,690
    )Net deferred tax liability
    
    $
    (26,425
    )
    
    $
    (32,635
    )
      F-21




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
  Balance as of January 1, 2007
    
    $
    1,594Increases for tax positions taken in the current year
    
    
    274Increases for tax positions taken in prior years
    
    
    430Reductions due to lapse of statute of limitations
    
    
    (43
    )Settlements
    
    
    (983
    )Balance as of December 31, 2007
    
    $
    1,272
     9. Stock Option Plans
   F-22




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
  WeightedWeighted
    
    AverageNumber
    
    Average
    
    Remaining
    
    Aggregateof
    
    Exercise
    
    Contractual
    
    IntrinsicOptions
    
    Price
    
    Term (in years)
    
    ValueOutstanding at December
31, 2006
    
    
    5,655
    
    
    $
    20.76
    
    
    
    n/a
    
    
    
    n/aGranted
    
    
    2,668
    
    
    $
    39.65
    
    
    
    n/a
    
    
    
    n/aCanceled
    
    
    (1,023
    )
    
    $
    28.31
    
    
    
    n/a
    
    
    
    n/aExercised
    
    
    (1,245
    )
    
    $
    14.01
    
    
    
    n/a
    
    
    
    n/aOutstanding at December
31, 2007
    
    
    6,055
    
    
    $
    28.41
    
    
    
    8.0
    
    
    $
    40,978Exercisable at December
31, 2007
    
    
    2,415
    
    
    $
    18.75
    
    
    
    6.9
    
    
    $
    33,568
   WeightedNumber
    
    Averageof
    
    Grant-Restricted
    
    Date FairShares
    
    ValueUnvested at December 31, 2006
    
    
    55
    
    
    $
    33.11Granted
    
    
    253
    
    
    $
    41.02Canceled
    
    
    (52
    )
    
    $
    38.56Vested
    
    
    (14
    )
    
    $
    33.11Unvested at December 31, 2007
    
    
    242
    
    
    $
    40.20
  F-23




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
  Net income
    
    $
    27,154Pro forma compensation expense from
stock options, net of tax
    
    
    4,361Pro forma net income
    
    $
    22,793Basic earnings per share:As reported
    
    $
    0.61Pro forma
    
    $
    0.51Diluted earnings per share:As reported
    
    $
    0.59Pro forma
    
    $
    0.49
  2007
    
    2006
    
    2005Weighted average grant-date fair value of options
    
    $
    14.25
    
    
    $
    9.96
    
    
    $
    7.73Risk-free interest rate
    
    
    5
    %
    
    
    5
    %
    
    
    4
    %Expected volatility
    
    
    35
    %
    
    
    31
    %
    
    
    33
    %Expected life
    
    
    5
    
    
    
    4
    
    
    
    5Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    10. Employee Benefit Plan
 
 11. Contingencies and Health Care Regulation
 Contingencies
  Employment Agreements
  F-24




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
     Current Operations
    12. Related Party Transactions
  F-25




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
 13. Disclosures About Reportable Segments
 Disclosures About Segments of an Enterprise and
Related Information
  Year Ended December 31, 2007
 Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    1,357,827
    
    
    $
    124,125
    
    
    $
    
    
    
    $
    1,481,952Adjusted EBITDA
    
    $
    272,782
    
    
    $
    21,850
    
    
    $
    (38,632
    )
    
    $
    256,000Interest expense, net
    
    
    30,470
    
    
    
    513
    
    
    
    44,117
    
    
    
    75,100Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    47,779
    
    
    
    47,779Depreciation and amortization
    
    
    27,094
    
    
    
    2,526
    
    
    
    1,460
    
    
    
    31,080Inter-segment expenses
    
    
    56,032
    
    
    
    4,914
    
    
    
    (60,946
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    16,104
    
    
    
    16,104Loss on refinancing long-term debt
    
    
    
    
    
    
    
    
    
    
    8,179
    
    
    
    8,179Total other expenses
    
    
    
    
    
    
    
    
    
    
    24,283
    
    
    
    24,283Income (loss) from continuing operations
    
    $
    159,186
    
    
    $
    13,897
    
    
    $
    (95,325
    )
    
    $
    77,758Total assets
    
    $
    1,862,117
    
    
    $
    210,645
    
    
    $
    106,761
    
    
    $
    2,179,523Capital expenditures
    
    $
    50,431
    
    
    $
    159
    
    
    $
    22,632
    
    
    $
    73,222Cost in excess of net assets acquired
    
    $
    922,353
    
    
    $
    151,230
    
    
    $
    
    
    
    $
    1,073,583
 F-26




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
 Year Ended December 31, 2006
 Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    976,324
    
    
    $
    46,104
    
    
    $
    
    
    
    $
    1,022,428Adjusted EBITDA
    
    $
    193,790
    
    
    $
    8,074
    
    
    $
    (28,569
    )
    
    $
    173,295Interest expense, net
    
    
    13,429
    
    
    
    (1
    )
    
    
    26,879
    
    
    
    40,307Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    37,754
    
    
    
    37,754Depreciation and amortization
    
    
    18,538
    
    
    
    677
    
    
    
    1,260
    
    
    
    20,475Inter-segment expenses
    
    
    28,834
    
    
    
    1,668
    
    
    
    (30,502
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    12,535
    
    
    
    12,535Total other expenses
    
    
    
    
    
    
    
    
    
    
    12,535
    
    
    
    12,535Income (loss) from continuing operations
    
    $
    132,989
    
    
    $
    5,730
    
    
    $
    (76,495
    )
    
    $
    62,224Total assets
    
    $
    1,454,466
    
    
    $
    48,003
    
    
    $
    78,453
    
    
    $
    1,580,922Capital expenditures
    
    $
    28,858
    
    
    $
    69
    
    
    $
    4,889
    
    
    $
    33,816Cost in excess of net assets acquired
    
    $
    730,237
    
    
    $
    30,031
    
    
    $
    
    
    
    $
    760,268
 Year Ended December 31, 2005
 Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    669,579
    
    
    $
    45,745
    
    
    $
    
    
    
    $
    715,324Adjusted EBITDA
    
    $
    121,803
    
    
    $
    9,202
    
    
    $
    (23,717
    )
    
    $
    107,288Interest expense, net
    
    
    16,406
    
    
    
    
    
    
    
    10,650
    
    
    
    27,056Provision for income taxes
    
    
    2,142
    
    
    
    
    
    
    
    14,663
    
    
    
    16,805Depreciation and amortization
    
    
    13,334
    
    
    
    654
    
    
    
    750
    
    
    
    14,738Inter-segment expenses
    
    
    25,963
    
    
    
    2,672
    
    
    
    (28,635
    )
    
    
    Other expenses:Loss on refinancing long-term debt
    
    
    
    
    
    
    
    
    
    
    21,871
    
    
    
    21,871Total other expenses
    
    
    
    
    
    
    
    
    
    
    21,871
    
    
    
    21,871Income (loss) from continuing operations
    
    $
    63,958
    
    
    $
    5,876
    
    
    $
    (43,016
    )
    
    $
    26,818Total assets
    
    $
    1,019,037
    
    
    $
    27,595
    
    
    $
    128,399
    
    
    $
    1,175,031Capital expenditures
    
    $
    17,592
    
    
    $
    52
    
    
    $
    4,106
    
    
    $
    21,750Cost in excess of net assets acquired
    
    $
    506,160
    
    
    $
    20,376
    
    
    $
    
    
    
    $
    526,536
 14. Other Information
  Balances
    
    Additions
    
    Additions
    
    Accounts written
    
    Balancesat beginning
    
    charged to costs
    
    charged to
    
    off, net of
    
    at endof period
    
    and expenses
    
    other accounts (1)
    
    recoveries
    
    of periodAllowance for doubtful
accounts:Year ended December 31, 2005
    
    $
    10,662
    
    
    $
    13,498
    
    
    $
    5,844
    
    
    $
    14,649
    
    
    $
    15,355Year ended December 31, 2006
    
    
    15,355
    
    
    
    19,530
    
    
    
    12,023
    
    
    
    28,236
    
    
    
    18,672Year ended December 31, 2007
    
    
    18,672
    
    
    
    27,554
    
    
    
    12,982
    
    
    
    23,621
    
    
    
    35,587
 
 (1)
    
    Allowances as a result of acquisitions. F-27




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
 15. Quarterly Information (Unaudited)
  1st Quarter
    
    2nd Quarter
    
    3rd Quarter
    
    4th Quarter
    
    Total Year2007Revenue
    
    $
    322,438
    
    
    $
    354,126
    
    
    $
    402,021
    
    
    $
    403,367
    
    
    $
    1,481,952Income from continuing operations
    
    $
    18,249
    
    
    $
    15,266
    
    
    $
    20,842
    
    
    $
    23,401
    
    
    $
    77,758Net income
    
    $
    18,125
    
    
    $
    14,607
    
    
    $
    20,325
    
    
    $
    23,151
    
    
    $
    76,208Earnings per share:Basic
    
    $
    0.34
    
    
    $
    0.27
    
    
    $
    0.37
    
    
    $
    0.42
    
    
    $
    1.40Diluted
    
    $
    0.33
    
    
    $
    0.26
    
    
    $
    0.37
    
    
    $
    0.42
    
    
    $
    1.372006Revenue
    
    $
    241,601
    
    
    $
    247,237
    
    
    $
    253,696
    
    
    $
    279,894
    
    
    $
    1,022,428Income from continuing operations
    
    $
    12,534
    
    
    $
    15,884
    
    
    $
    15,651
    
    
    $
    18,155
    
    
    $
    62,224Net income
    
    $
    12,192
    
    
    $
    15,361
    
    
    $
    15,524
    
    
    $
    17,555
    
    
    $
    60,632Earnings per share:Basic
    
    $
    0.23
    
    
    $
    0.29
    
    
    $
    0.29
    
    
    $
    0.33
    
    
    $
    1.15Diluted
    
    $
    0.23
    
    
    $
    0.28
    
    
    $
    0.29
    
    
    $
    0.32
    
    
    $
    1.12
   16. Financial Information for the Company and Its Subsidiaries
  F-28




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
 Condensed Consolidating Balance Sheet
As of December 31, 2007
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    19,159
    
    
    $
    20,816
    
    
    $
    
    
    
    $
    39,975Accounts receivable, net
    
    
    
    
    
    
    226,501
    
    
    
    7,444
    
    
    
    
    
    
    
    233,945Prepaids and other
    
    
    
    
    
    
    64,604
    
    
    
    1,555
    
    
    
    
    
    
    
    66,159Total current assets
    
    
    
    
    
    
    310,264
    
    
    
    29,815
    
    
    
    
    
    
    
    340,079Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    643,838
    
    
    
    57,526
    
    
    
    (7,346
    )
    
    
    694,018Cost in excess of net assets acquired
    
    
    
    
    
    
    1,073,583
    
    
    
    
    
    
    
    
    
    
    
    1,073,583Investment in subsidiaries
    
    
    1,058,235
    
    
    
    
    
    
    
    
    
    
    
    (1,058,235
    )
    
    
    Other assets
    
    
    15,441
    
    
    
    52,298
    
    
    
    22,359
    
    
    
    (18,255
    )
    
    
    71,843Total assets
    
    $
    1,073,676
    
    
    $
    2,079,983
    
    
    $
    109,700
    
    
    $
    (1,083,836
    )
    
    $
    2,179,523Current Liabilities:Accounts payable
    
    $
    
    
    
    $
    30,335
    
    
    $
    1,059
    
    
    $
    
    
    
    $
    31,394Salaries and benefits payable
    
    
    
    
    
    
    81,242
    
    
    
    1,657
    
    
    
    
    
    
    
    82,899Other accrued liabilities
    
    
    25,171
    
    
    
    36,526
    
    
    
    242
    
    
    
    
    
    
    
    61,939Current portion of long-term debt
    
    
    5,619
    
    
    
    
    
    
    
    397
    
    
    
    
    
    
    
    6,016Total current liabilities
    
    
    30,790
    
    
    
    148,103
    
    
    
    3,355
    
    
    
    
    
    
    
    182,248Long-term debt, less current portion
    
    
    1,132,735
    
    
    
    
    
    
    
    33,273
    
    
    
    
    
    
    
    1,166,008Deferred tax liability
    
    
    
    
    
    
    49,131
    
    
    
    
    
    
    
    
    
    
    
    49,131Other liabilities
    
    
    2,659
    
    
    
    10,912
    
    
    
    31,096
    
    
    
    (21,432
    )
    
    
    23,235Total liabilities
    
    
    1,166,184
    
    
    
    208,146
    
    
    
    67,724
    
    
    
    (21,432
    )
    
    
    1,420,622Minority Interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,159
    
    
    
    4,159Total stockholders (deficit) equity
    
    
    (92,508
    )
    
    
    1,871,837
    
    
    
    41,976
    
    
    
    (1,066,563
    )
    
    
    754,742Total liabilities and stockholders (deficit) equity
    
    $
    1,073,676
    
    
    $
    2,079,983
    
    
    $
    109,700
    
    
    $
    (1,083,836
    )
    
    $
    2,179,523
 Condensed Consolidating Balance Sheet
As of December 31, 2006
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    1,149
    
    
    $
    17,423
    
    
    $
    
    
    
    $
    18,572Accounts receivable, net
    
    
    
    
    
    
    179,050
    
    
    
    
    
    
    
    
    
    
    
    179,050Prepaids and other
    
    
    
    
    
    
    44,154
    
    
    
    1,210
    
    
    
    
    
    
    
    45,364Total current assets
    
    
    
    
    
    
    224,353
    
    
    
    18,633
    
    
    
    
    
    
    
    242,986Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    511,263
    
    
    
    36,085
    
    
    
    (7,590
    )
    
    
    539,758Cost in excess of net assets acquired
    
    
    
    
    
    
    760,268
    
    
    
    
    
    
    
    
    
    
    
    760,268Investment in subsidiaries
    
    
    681,856
    
    
    
    
    
    
    
    
    
    
    
    (681,856
    )
    
    
    Other assets
    
    
    12,349
    
    
    
    21,856
    
    
    
    3,705
    
    
    
    
    
    
    
    37,910Total assets
    
    $
    694,205
    
    
    $
    1,517,740
    
    
    $
    58,423
    
    
    $
    (689,446
    )
    
    $
    1,580,922Current Liabilities:Accounts payable
    
    $
    
    
    
    $
    25,222
    
    
    $
    
    
    
    $
    
    
    
    $
    25,222Salaries and benefits payable
    
    
    
    
    
    
    66,236
    
    
    
    
    
    
    
    
    
    
    
    66,236Other accrued liabilities
    
    
    13,247
    
    
    
    32,461
    
    
    
    1,737
    
    
    
    (1,590
    )
    
    
    45,855Current portion of long-term debt
    
    
    2,084
    
    
    
    
    
    
    
    302
    
    
    
    
    
    
    
    2,386Total current liabilities
    
    
    15,331
    
    
    
    123,919
    
    
    
    2,039
    
    
    
    (1,590
    )
    
    
    139,699Long-term debt, less current portion
    
    
    714,061
    
    
    
    
    
    
    
    26,860
    
    
    
    
    
    
    
    740,921Deferred tax liability
    
    
    
    
    
    
    44,924
    
    
    
    
    
    
    
    
    
    
    
    44,924Other liabilities
    
    
    6,539
    
    
    
    12,140
    
    
    
    8,920
    
    
    
    
    
    
    
    27,599Total liabilities
    
    
    735,931
    
    
    
    180,983
    
    
    
    37,819
    
    
    
    (1,590
    )
    
    
    953,143Total stockholders (deficit) equity
    
    
    (41,726
    )
    
    
    1,336,757
    
    
    
    20,604
    
    
    
    (687,856
    )
    
    
    627,779Total liabilities and stockholders (deficit) equity
    
    $
    694,205
    
    
    $
    1,517,740
    
    
    $
    58,423
    
    
    $
    (689,446
    )
    
    $
    1,580,922
 F-29




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
 Condensed Consolidating Statement of Income
For the Year Ended December 31, 2007
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    1,481,952
    
    
    $
    39,903
    
    
    $
    (39,903
    )
    
    $
    1,481,952Salaries, wages and employee benefits
    
    
    
    
    
    
    809,577
    
    
    
    15,068
    
    
    
    
    
    
    
    824,645Professional fees
    
    
    
    
    
    
    142,666
    
    
    
    4,855
    
    
    
    
    
    
    
    147,521Supplies
    
    
    
    
    
    
    81,017
    
    
    
    1,227
    
    
    
    
    
    
    
    82,244Rentals and leases
    
    
    
    
    
    
    21,108
    
    
    
    221
    
    
    
    
    
    
    
    21,329Other operating expenses
    
    
    
    
    
    
    134,184
    
    
    
    13,079
    
    
    
    (8,500
    )
    
    
    138,763Provision for doubtful accounts
    
    
    
    
    
    
    26,890
    
    
    
    664
    
    
    
    
    
    
    
    27,554Depreciation and amortization
    
    
    
    
    
    
    29,430
    
    
    
    1,893
    
    
    
    (243
    )
    
    
    31,080Interest expense
    
    
    73,860
    
    
    
    
    
    
    
    1,240
    
    
    
    
    
    
    
    75,100Loss on refinancing long-term debt
    
    
    8,179
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,17982,039
    
    
    
    1,244,872
    
    
    
    38,247
    
    
    
    (8,743
    )
    
    
    1,356,415(Loss) income from continuing operations before
income taxes
    
    
    (82,039
    )
    
    
    237,080
    
    
    
    1,656
    
    
    
    (31,160
    )
    
    
    125,537(Benefit from) provision for income taxes
    
    
    (31,257
    )
    
    
    78,856
    
    
    
    180
    
    
    
    
    
    
    
    47,779(Loss) income from continuing operations
    
    
    (50,782
    )
    
    
    158,224
    
    
    
    1,476
    
    
    
    (31,160
    )
    
    
    77,758Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (1,550
    )
    
    
    
    
    
    
    
    
    
    
    (1,550
    )Net (loss) income
    
    $
    (50,782
    )
    
    $
    156,674
    
    
    $
    1,476
    
    
    $
    (31,160
    )
    
    $
    76,208
 Condensed Consolidating Statement of Income
For the Year Ended December 31, 2006
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    1,022,428
    
    
    $
    11,601
    
    
    $
    (11,601
    )
    
    $
    1,022,428Salaries, wages and employee benefits
    
    
    
    
    
    
    577,237
    
    
    
    
    
    
    
    
    
    
    
    577,237Professional fees
    
    
    
    
    
    
    96,093
    
    
    
    1,023
    
    
    
    
    
    
    
    97,116Supplies
    
    
    
    
    
    
    58,986
    
    
    
    
    
    
    
    
    
    
    
    58,986Rentals and leases
    
    
    
    
    
    
    13,662
    
    
    
    
    
    
    
    
    
    
    
    13,662Other operating expenses
    
    
    
    
    
    
    94,326
    
    
    
    2,504
    
    
    
    (1,693
    )
    
    
    95,137Provision for doubtful accounts
    
    
    
    
    
    
    19,530
    
    
    
    
    
    
    
    
    
    
    
    19,530Depreciation and amortization
    
    
    
    
    
    
    19,629
    
    
    
    1,089
    
    
    
    (243
    )
    
    
    20,475Interest expense
    
    
    39,105
    
    
    
    
    
    
    
    1,202
    
    
    
    
    
    
    
    40,30739,105
    
    
    
    879,463
    
    
    
    5,818
    
    
    
    (1,936
    )
    
    
    922,450(Loss) income from continuing operations before
income taxes
    
    
    (39,105
    )
    
    
    142,965
    
    
    
    5,783
    
    
    
    (9,665
    )
    
    
    99,978(Benefit from) provision for income taxes
    
    
    (15,067
    )
    
    
    52,704
    
    
    
    117
    
    
    
    
    
    
    
    37,754(Loss) income from continuing operations
    
    
    (24,038
    )
    
    
    90,261
    
    
    
    5,666
    
    
    
    (9,665
    )
    
    
    62,224(Loss) income from discontinued operations, net of taxes
    
    
    
    
    
    
    (1,592
    )
    
    
    
    
    
    
    
    
    
    
    (1,592
    )Net (loss) income
    
    $
    (24,038
    )
    
    $
    88,669
    
    
    $
    5,666
    
    
    $
    (9,665
    )
    
    $
    60,632
 F-30




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
 Condensed Consolidating Statement of Income
For the Year Ended December 31, 2005
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    715,324
    
    
    $
    11,073
    
    
    $
    (11,073
    )
    
    $
    715,324Salaries, wages and employee benefits
    
    
    
    
    
    
    392,309
    
    
    
    
    
    
    
    
    
    
    
    392,309Professional fees
    
    
    
    
    
    
    72,703
    
    
    
    474
    
    
    
    
    
    
    
    73,177Supplies
    
    
    
    
    
    
    42,993
    
    
    
    
    
    
    
    
    
    
    
    42,993Rentals and leases
    
    
    
    
    
    
    11,450
    
    
    
    
    
    
    
    
    
    
    
    11,450Other operating expenses
    
    
    
    
    
    
    73,808
    
    
    
    8,313
    
    
    
    (7,512
    )
    
    
    74,609Provision for doubtful accounts
    
    
    
    
    
    
    13,498
    
    
    
    
    
    
    
    
    
    
    
    13,498Depreciation and amortization
    
    
    
    
    
    
    14,005
    
    
    
    976
    
    
    
    (243
    )
    
    
    14,738Interest expense
    
    
    25,823
    
    
    
    
    
    
    
    1,233
    
    
    
    
    
    
    
    27,056Loss on refinancing long-term debt
    
    
    21,871
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,87147,694
    
    
    
    620,766
    
    
    
    10,996
    
    
    
    (7,755
    )
    
    
    671,701(Loss) income from continuing operations before
income taxes
    
    
    (47,694
    )
    
    
    94,558
    
    
    
    77
    
    
    
    (3,318
    )
    
    
    43,623(Benefit from) provision for income taxes
    
    
    (18,376
    )
    
    
    35,181
    
    
    
    
    
    
    
    
    
    
    
    16,805(Loss) income from continuing operations
    
    
    (29,318
    )
    
    
    59,377
    
    
    
    77
    
    
    
    (3,318
    )
    
    
    26,818Income from discontinued operations, net of taxes
    
    
    
    
    
    
    336
    
    
    
    
    
    
    
    
    
    
    
    336Net (loss) income
    
    $
    (29,318
    )
    
    $
    59,713
    
    
    $
    77
    
    
    $
    (3,318
    )
    
    $
    27,154
 F-31




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
 Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2007
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating activities:Net (loss) income
    
    $
    (50,782
    )
    
    $
    156,674
    
    
    $
    1,476
    
    
    $
    (31,160
    )
    
    $
    76,208Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    29,430
    
    
    
    1,893
    
    
    
    (243
    )
    
    
    31,080Amortization of loan costs and bond premium
    
    
    2,106
    
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    2,151Share-based compensation
    
    
    
    
    
    
    16,104
    
    
    
    
    
    
    
    
    
    
    
    16,104Loss on refinancing of long-term debt
    
    
    8,179
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,179Change in income tax assets and liabilities
    
    
    
    
    
    
    8,639
    
    
    
    
    
    
    
    
    
    
    
    8,639Loss (income) from discontinued operations, net of taxes
    
    
    
    
    
    
    1,550
    
    
    
    
    
    
    
    
    
    
    
    1,550Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (11,303
    )
    
    
    578
    
    
    
    
    
    
    
    (10,725
    )Prepaids and other current assets
    
    
    
    
    
    
    3,798
    
    
    
    377
    
    
    
    
    
    
    
    4,175Accounts payable
    
    
    
    
    
    
    (7,069
    )
    
    
    (491
    )
    
    
    
    
    
    
    (7,560
    )Salaries and benefits payable
    
    
    
    
    
    
    1,921
    
    
    
    264
    
    
    
    
    
    
    
    2,185Accrued liabilities and other liabilities
    
    
    (345
    )
    
    
    (7,400
    )
    
    
    1,426
    
    
    
    
    
    
    
    (6,319
    )Net cash (used in) provided by continuing operating activities
    
    
    (40,842
    )
    
    
    192,344
    
    
    
    5,568
    
    
    
    (31,403
    )
    
    
    125,667Net cash (used in) provided by discontinued operating activities
    
    
    
    
    
    
    (193
    )
    
    
    
    
    
    
    
    
    
    
    (193
    )Net cash (used in) provided by operating activities
    
    
    (40,842
    )
    
    
    192,151
    
    
    
    5,568
    
    
    
    (31,403
    )
    
    
    125,474Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (462,820
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (462,820
    )Capital purchases of leasehold improvements,
equipment and software
    
    
    
    
    
    
    (72,655
    )
    
    
    (567
    )
    
    
    
    
    
    
    (73,222
    )Other assets
    
    
    
    
    
    
    (2,866
    )
    
    
    415
    
    
    
    
    
    
    
    (2,451
    )Net cash used in continuing investing activities
    
    
    (462,820
    )
    
    
    (75,521
    )
    
    
    (152
    )
    
    
    
    
    
    
    (538,493
    )Net Cash provided by discontinued investing activities
    
    
    1,909
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,909Net cash used in investing activities
    
    
    (460,911
    )
    
    
    (75,521
    )
    
    
    (152
    )
    
    
    
    
    
    
    (536,584
    )Financing activities:Net decrease in revolving credit facility, less acquisitions
    
    
    (21,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,000
    )Borrowings on long-term debt
    
    
    481,875
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    481,875Principal payments on long-term debt
    
    
    (40,936
    )
    
    
    
    
    
    
    (345
    )
    
    
    
    
    
    
    (41,281
    )Net transfers to and from members
    
    
    68,895
    
    
    
    (98,620
    )
    
    
    (1,678
    )
    
    
    31,403
    
    
    
    Payment of loan and issuance costs
    
    
    (6,661
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,661
    )Refinancing of long-term debt
    
    
    (7,127
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,127
    )Excess tax benefits from share-based payment arrangements
    
    
    9,428
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,428Proceeds from exercises of common stock options
    
    
    17,279
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,279Net cash provided by financing activities
    
    
    501,753
    
    
    
    (98,620
    )
    
    
    (2,023
    )
    
    
    31,403
    
    
    
    432,513Net increase in cash
    
    
    
    
    
    
    18,010
    
    
    
    3,393
    
    
    
    
    
    
    
    21,403Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    1,149
    
    
    
    17,423
    
    
    
    
    
    
    
    18,572Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    19,159
    
    
    $
    20,816
    
    
    $
    
    
    
    $
    39,975
 F-32




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
 Condensed Consolidating Statement of Cash Flows
For the Year Ended December 31, 2006
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating activities:Net (loss) income
    
    $
    (24,038
    )
    
    $
    88,669
    
    
    $
    5,666
    
    
    $
    (9,665
    )
    
    $
    60,632Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    19,629
    
    
    
    1,089
    
    
    
    (243
    )
    
    
    20,475Amortization of loan costs
    
    
    1,627
    
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    1,672Stock based compensation
    
    
    
    
    
    
    12,535
    
    
    
    
    
    
    
    
    
    
    
    12,535Change in income tax assets and liabilities
    
    
    
    
    
    
    35,205
    
    
    
    117
    
    
    
    
    
    
    
    35,322Loss (income) from discontinued operations, net of taxes
    
    
    
    
    
    
    1,592
    
    
    
    
    
    
    
    
    
    
    
    1,592Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (11,636
    )
    
    
    
    
    
    
    
    
    
    
    (11,636
    )Prepaids and other current assets
    
    
    
    
    
    
    (9,922
    )
    
    
    1,210
    
    
    
    
    
    
    
    (8,712
    )Accounts payable
    
    
    
    
    
    
    240
    
    
    
    
    
    
    
    
    
    
    
    240Salaries and benefits payable
    
    
    
    
    
    
    5,584
    
    
    
    
    
    
    
    
    
    
    
    5,584Accrued liabilities and other liabilities
    
    
    (1,366
    )
    
    
    5,050
    
    
    
    2,155
    
    
    
    
    
    
    
    5,839Net cash (used in) provided by continuing operating activities
    
    
    (23,777
    )
    
    
    146,946
    
    
    
    10,282
    
    
    
    (9,908
    )
    
    
    123,543Net cash provided by discontinued operating activities
    
    
    
    
    
    
    195
    
    
    
    
    
    
    
    
    
    
    
    195Net cash (used in) provided by operating activities
    
    
    (23,777
    )
    
    
    147,141
    
    
    
    10,282
    
    
    
    (9,908
    )
    
    
    123,738Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (385,078
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (385,078
    )Capital purchases of leasehold improvements,
equipment and software
    
    
    
    
    
    
    (33,816
    )
    
    
    
    
    
    
    
    
    
    
    (33,816
    )Other assets
    
    
    
    
    
    
    (611
    )
    
    
    17
    
    
    
    
    
    
    
    (594
    )Net cash (used in) provided by investing activities
    
    
    (385,078
    )
    
    
    (34,427
    )
    
    
    17
    
    
    
    
    
    
    
    (419,488
    )Financing activities:Net increase in revolving credit facility
    
    
    101,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,000Borrowings on long-term debt
    
    
    150,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,000Principal payments on long-term debt
    
    
    (187
    )
    
    
    
    
    
    
    (278
    )
    
    
    
    
    
    
    (465
    )Net transfers to and from members
    
    
    153,309
    
    
    
    (160,034
    )
    
    
    (3,183
    )
    
    
    9,908
    
    
    
    Payment of loan and issuance costs
    
    
    (1,576
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,576
    )Excess tax benefits from share-based payment arrangements
    
    
    
    
    
    
    4,354
    
    
    
    
    
    
    
    
    
    
    
    4,354Proceeds from exercises of common stock options
    
    
    6,309
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,309Net cash provided by (used in) financing activities
    
    
    408,855
    
    
    
    (155,680
    )
    
    
    (3,461
    )
    
    
    9,908
    
    
    
    259,622Net (decrease) increase in cash
    
    
    
    
    
    
    (42,966
    )
    
    
    6,838
    
    
    
    
    
    
    
    (36,128
    )Cash and cash equivalents at beginning of year
    
    
    
    
    
    
    44,115
    
    
    
    10,585
    
    
    
    
    
    
    
    54,700Cash and cash equivalents at end of year
    
    $
    
    
    
    $
    1,149
    
    
    $
    17,423
    
    
    $
    
    
    
    $
    18,572
 F-33




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
 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
    
    $
    (29,318
    )
    
    $
    59,713
    
    
    $
    77
    
    
    $
    (3,318
    )
    
    $
    27,154Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    14,005
    
    
    
    976
    
    
    
    (243
    )
    
    
    14,738Amortization of loan costs
    
    
    1,140
    
    
    
    
    
    
    
    47
    
    
    
    
    
    
    
    1,187Loss on refinancing long-term debt
    
    
    21,871
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,871Change in income tax assets and liabilities
    
    
    
    
    
    
    9,494
    
    
    
    
    
    
    
    
    
    
    
    9,494Income from discontinued operations
    
    
    
    
    
    
    (336
    )
    
    
    
    
    
    
    
    
    
    
    (336
    )Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (9,399
    )
    
    
    
    
    
    
    
    
    
    
    (9,399
    )Prepaids and other current assets
    
    
    
    
    
    
    (4,647
    )
    
    
    974
    
    
    
    
    
    
    
    (3,673
    )Accounts payable
    
    
    
    
    
    
    2,116
    
    
    
    
    
    
    
    
    
    
    
    2,116Salaries and benefits payable
    
    
    
    
    
    
    2,598
    
    
    
    
    
    
    
    
    
    
    
    2,598Accrued liabilities and other liabilities
    
    
    10,965
    
    
    
    (4,519
    )
    
    
    6,894
    
    
    
    
    
    
    
    13,340Other
    
    
    
    
    
    
    463
    
    
    
    
    
    
    
    
    
    
    
    463Net cash provided by (used in) continuing operating activities
    
    
    4,658
    
    
    
    69,488
    
    
    
    8,968
    
    
    
    (3,561
    )
    
    
    79,553Net cash provided by discontinued operating activities
    
    
    
    
    
    
    222
    
    
    
    
    
    
    
    
    
    
    
    222Net cash provided by (used in) operating activities
    
    
    4,658
    
    
    
    69,710
    
    
    
    8,968
    
    
    
    (3,561
    )
    
    
    79,775Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (514,525
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (514,525
    )Capital purchases of property and equipment
    
    
    
    
    
    
    (21,750
    )
    
    
    
    
    
    
    
    
    
    
    (21,750
    )Purchases of short-term investments
    
    
    (29,400
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29,400
    )Sales of short-term investments
    
    
    29,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,400Cash paid for investments in equity method investees
    
    
    
    
    
    
    (1,340
    )
    
    
    
    
    
    
    
    
    
    
    (1,340
    )Other assets
    
    
    
    
    
    
    1,115
    
    
    
    104
    
    
    
    
    
    
    
    1,219Net cash (used in) provided by investing activities
    
    
    (514,525
    )
    
    
    (21,975
    )
    
    
    104
    
    
    
    
    
    
    
    (536,396
    )Financing activities:Borrowings on long-term debt
    
    
    545,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    545,000Principal payments on long-term debt
    
    
    (236,587
    )
    
    
    
    
    
    
    (235
    )
    
    
    
    
    
    
    (236,822
    )Net transfers to and from members
    
    
    31,762
    
    
    
    (34,608
    )
    
    
    (715
    )
    
    
    3,561
    
    
    
    Payment of loan and issuance costs
    
    
    (13,932
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,932
    )Refinancing of long-term debt
    
    
    (15,398
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,398
    )Proceeds from public offering of common stock
    
    
    192,637
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    192,637Proceeds from exercises of common stock options
    
    
    6,385
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,385Net cash provided by (used in) financing activities
    
    
    509,867
    
    
    
    (34,608
    )
    
    
    (950
    )
    
    
    3,561
    
    
    
    477,870Net increase in cash
    
    
    
    
    
    
    13,127
    
    
    
    8,122
    
    
    
    
    
    
    
    21,249Cash and cash equivalents at beginning of year
    
    
    
    
    
    
    30,988
    
    
    
    2,463
    
    
    
    
    
    
    
    33,451Cash and cash equivalents at end of year
    
    $
    
    
    
    $
    44,115
    
    
    $
    10,585
    
    
    $
    
    
    
    $
    54,700
 F-34




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##### 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
    
    February 26, 2008Joey A. Jacobs
    
    and Chief Executive Officer(Principal Executive Officer)/s/ Jack E. Polson
    
    Executive Vice President, Chief
    
    February 26, 2008Jack E. Polson
    
    Accounting Officer (Principal Financialand Accounting Officer)/s/ Mark P. Clein
    
    Director
    
    February 26, 2008Mark P. Clein/s/ David M. Dill
    
    Director
    
    February 26, 2008David M. Dill/s/ Richard D. Gore
    
    Director
    
    February 26, 2008Richard D. Gore/s/ Christopher Grant, Jr.
    
    Director
    
    February 26, 2008Christopher Grant, Jr./s/ William M. Petrie, M.D.
    
    Director
    
    February 26, 2008William M. Petrie, M.D./s/ Edward K. Wissing
    
    Director
    
    February 26, 2008Edward K. Wissing