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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
  þ
    
    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the fiscal year ended December 31, 2009 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
(State or Other Jurisdiction of Incorporation or 
Organization)
    
    23-2491707
(I.R.S. Employer Identification No.)
 6640 Carothers Parkway, Suite 500
 Franklin, TN 37067
 (615) 312-5700
  Title Of Each Class
    
    Name of Each Exchange On Which RegisteredCommon Stock, $.01 par value
    
    NASDAQ Global Select Market
  þ o
 o þ
  þ o
 o 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 I
    
    
    3Item 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    12Item 1B. Unresolved Staff Comments
    
    
    18Item 2. Properties
    
    
    18Item 3. Legal Proceedings
    
    
    20Item 4. Submission of Matters to a Vote of Security Holders
    
    
    20PART II
    
    
    21Item 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
    
    
    23Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 8. Financial Statements and Supplementary Data
    
    
    31Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    31Item 9A. Controls and Procedures
    
    
    32Item 9B. Other Information
    
    
    32PART III
    
    
    32Item 10. Directors, Executive Officers and Corporate Governance
    
    
    32Item 11. Executive Compensation
    
    
    33Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    33Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    33Item 14. Principal Accountant Fees and Services
    
    
    33PART IV
    
    
    34Item 15. Exhibits and Financial Statement Schedules
    
    
    34Index to Financial Statements
    
    
    34SignaturesEX-21.1EX-23.1EX-31.1EX-31.2EX-32.1
  2




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PART I
 Unless the context otherwise requires, all references in this Annual Report on Form 10-K to
Psychiatric Solutions, the Company, we, us or our mean Psychiatric Solutions, Inc. and
its consolidated subsidiaries.
 
 Item 1. Business
 Overview
    www.psysolutions.com.
 Our Industry
    Our Competitive Strengths
  3




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
    
    Singular focus on behavioral health care We focus
primarily on the provision of inpatient behavioral health
care services. We believe this allows us to operate more
efficiently and provide higher quality care than our
competitors. In addition, we believe our focus and
reputation have helped us to develop important
relationships and extensive referral networks within our
markets and to attract and retain qualified behavioral
health care professionals.
    
    Strong and sustainable market position Our inpatient
facilities have an established presence in each of our
markets, and many of our owned and leased inpatient
facilities have the leading market share in their
respective service areas. We believe that the
relationships and referral networks we have established
will further enhance our presence within our markets. In
addition, many of the states in which we operate require a
certificate of need to open a behavioral health care
facility, which may be difficult to obtain and may further
preclude new market participants.
    
    Demonstrated ability to identify and integrate
acquisitions We attribute part of our success in
integrating acquired inpatient facilities to our 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, 2009, we
received 28.7% of our revenue from Medicaid, 13.5% from
Medicare, 37.5% from HMO/PPO, commercial and private
payors, 14.9% from various state agencies and 5.4% from
other payors. We receive Medicaid payments from more than
30 states. 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, 2009, no single inpatient
facility represented more than 2.2% of our revenue.
    
    Experienced management team Our senior management team
has extensive experience in the health care industry. Joey
A. Jacobs, our Chairman, President and Chief Executive
Officer, has over 30 years of experience in various
capacities in the health care industry. Our senior
management operates as a cohesive, complementary group and
has extensive operating knowledge of our industry and
understanding of the regulatory environment in which we
operate. Our senior managers employ conservative fiscal
policies and have a successful track record in
both operating our core business and integrating acquired
assets.
    
    Consistent free cash flow and minimal maintenance capital
requirements We generate consistent free cash flow by
profitably operating our business, actively managing our
working capital and having low maintenance capital
expenditure requirements. As the behavioral health care
business does not require the procurement and replacement
of expensive medical equipment, our maintenance capital
expenditure requirements are less than that of other
facility-based health care providers. Historically, our
maintenance capital expenditures have amounted to
approximately 2% to 3% of our revenue. In addition, our
accounts receivable management is less complex than
medical/surgical hospital providers because there are
fewer billing codes for inpatient behavioral health care
services.
 Our Growth Strategy
  
    
    Continue to Drive Same-Facility Growth We increased our
same-facility revenue by approximately 5.3% for the year
ended December 31, 2009 compared to the year ended
December 31, 2008. Same-facility revenue also increased by
approximately 8.4%, 6.9%, and 9.0% for the years ended
December 31, 2008, 2007, and 2006, respectively, compared
to the immediately preceding years. Same-facility revenue
refers to the comparison of the inpatient facilities we
owned during a prior period with the comparable period in
the subsequent period, adjusted for closures and
combinations for comparability purposes. We intend to
continue to increase our same-facility revenue by
increasing our admissions and patient days and obtaining
annual reimbursement rate increases. We plan to accomplish
these goals by:
 
    
    continuing to provide high quality service;
    
    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; and
 4




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
    
    developing formal marketing initiatives and expanding referral networks.
 
    
    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.
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 maintaining appropriate
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
    
    developmentally delayed disorders
    
    neurological disorders
    
    acute eating disorders
    
    reactive attachment disorder
    
    dual diagnosis
    
    chemical dependency
 
    
    rehabilitation care
    
    day treatment
    
    detoxification
    
    partial hospitalization
    
    therapeutic foster care
    
    intensive outpatient
    
    rapid adoption services
    
    independent living skills
    
    vocational training
     5




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Other Behavioral Health Care Services
   Seasonality of Services
  Marketing
  Competition
   Reimbursement
  6




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




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




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Fraud and Abuse Laws
        9




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




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




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Regulatory Compliance Program
  Insurance
  Employees
  Available Information
 www.psysolutions.com
 Segments
  Executive Officers
  
 Item 1A.
    
    Risk Factors
  If we fail to comply with extensive laws and government regulations, we could
suffer penalties, lose our licenses or be excluded from health care programs.
Also, any changes to the laws and regulations governing our business, or the
interpretation and enforcement of those laws or regulations, could have a
material adverse effect on our business and consolidated financial condition,
results of operations and cash flows.
  
    
    licensure and certification;
    
    relationships with physicians and other referral sources;
 12




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




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Government investigations may reduce our earnings. Companies within the health
care industry continue to be the subject of federal and state investigations,
which increases the risk that we may become subject to additional
investigations in the future.
  
    
    cost reporting and billing practices;
    
    quality of care;
    
    financial relationships with referral sources;
    
    medical necessity of services provided; and
    
    treatment of indigent patients, including emergency medical screening and treatment requirements.
   The volatility and disruption of the capital and credit markets and adverse
changes in the United States and global economies could impact our ability to
access both available and affordable financing, and without such financing, we
may be unable to achieve our objectives for strategic acquisitions and internal
growth.
   14




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As a provider of health care services, we are subject to claims and legal actions by patients and others.
    We depend on our ability to attract and retain key management personnel.
  The agreements governing our indebtedness contain various covenants that limit
our discretion in the operation of our business and our failure to satisfy
requirements in these agreements could have a material adverse effect on our
business and consolidated financial condition, results of operations and cash
flows.
 3 4 3 4
 
    
    incur additional indebtedness and issue preferred stock;
    
    redeem or repurchase stock, pay dividends or make other distributions;
    
    make certain restricted payments and investments;
    
    create liens;
    
    sell assets, including the capital stock of our restricted subsidiaries;
    
    merge or consolidate with other entities; and
    
    engage in transactions with affiliates.
 15




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3 4
 Our substantial indebtedness could adversely affect our financial condition and our ability to fulfill other obligations.
  
    
    increasing our vulnerability to general adverse economic and industry conditions;
    
    requiring that a portion of our cash flow from operations be used for the payment of
interest on our debt, thereby reducing our ability to use our cash flow to fund working
capital, capital expenditures, acquisitions and general corporate requirements;
    
    limiting our ability to obtain additional financing to fund future capital
expenditures, acquisitions, working capital and general corporate requirements; and
    
    placing us at a competitive disadvantage to our competitors that have less indebtedness.
  Acquired businesses expose us to increased operating risks.
  
    
    our ability to effectively manage the expanded activities;
    
    our ability to realize our investment in the increased number of inpatient facilities and other businesses;
    
    our exposure to unknown liabilities; and
    
    our ability to meet contractual obligations.
  If we fail to integrate or improve, where necessary, the operations of existing
and acquired inpatient facilities, we may be unable to achieve our growth
strategy, which could have a material adverse effect on our business and
consolidated financial condition, results of operations and cash flows.
   16




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We depend on our relationships with physicians and other health care professionals who provide services at our inpatient facilities.
   
    
    terminate their relationship with, or reduce their use of, our inpatient facilities;
    
    fail to maintain acceptable quality of care or to otherwise adhere to professional standards;
    
    suffer damage to their reputation; or
    
    exit the market entirely.
 Failure to maintain effective internal controls in accordance with Section 404
of the Sarbanes-Oxley Act could have a material adverse effect on our business
and stock price.
  We may be required to spend substantial amounts to comply with legislative and
regulatory initiatives relating to privacy and security of patient health
information and standards for electronic transactions.
  Forward-Looking Statements
    
    
    risks inherent to the health care industry, including the impact of unforeseen changes in regulation and the potential adverse
impact of government investigations, liabilities and other claims asserted against us;
    
    uncertainty as to changes in U.S. general economic activity and the impact of these changes on our business;
 17




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
    
    economic downturn resulting in efforts by federal and state health care programs and managed care companies to reduce
reimbursement rates for our services;
    
    health care reform proposals that, if adopted, could adversely impact reimbursement rates for our services;
    
    potential competition that alters or impedes our acquisition strategy by decreasing our ability to acquire additional
inpatient facilities on favorable terms;
    
    our ability to comply with applicable licensure and accreditation requirements;
    
    our ability to comply with extensive laws and government regulations related to billing, physician relationships, adequacy of
medical care and licensure;
    
    our ability to retain key employees who are instrumental to our operations;
    
    our ability to successfully integrate and improve the operations of acquired inpatient facilities;
    
    our ability to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act;
    
    our substantial indebtedness and adverse changes in credit markets impacting our ability to receive timely additional
financing on terms acceptable to us to fund our acquisition strategy and capital expenditure needs;
    
    our ability to maintain favorable and continuing relationships with physicians and other health care professionals who use our
inpatient facilities;
    
    our ability to ensure confidential information is not inappropriately disclosed and that we are in compliance with federal and
state health information privacy standards;
    
    our ability to comply with federal and state governmental regulation covering health care-related products and services
on-line, including the regulation of medical devices and the practice of medicine and pharmacology;
    
    our ability to obtain adequate levels of general and professional liability insurance;
    
    future trends for pricing, margins, revenue and profitability that remain difficult to predict in the industries that we serve;
    
    fluctuations in the market value of our common stock;
    
    negative press coverage of us or our industry that may affect public opinion; and
    
    those risks and uncertainties described from time to time in our filings with the SEC.
  
 Item 1B.
    
    Unresolved Staff Comments.
  
 Item 2.
    
    Properties.
  DateFacility
    
    Location
    
    Beds
    
    Own/Lease
    
    Acquired/OpenedCypress Creek Hospital
    
    Houston, TX
    
    
    96
    
    
    Own
    
    9/01West Oaks Hospital
    
    Houston, TX
    
    
    160
    
    
    Own
    
    9/01Texas NeuroRehab Center
    
    Austin, TX
    
    
    151
    
    
    Own
    
    11/01Holly Hill Hospital
    
    Raleigh, NC
    
    
    152
    
    
    Own
    
    12/01Riveredge Hospital
    
    Forest Park, IL
    
    
    224
    
    
    Own
    
    7/02
 18




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DateFacility
    
    Location
    
    Beds
    
    Own/Lease
    
    Acquired/OpenedJefferson Trail Treatment Center for Children
    
    Charlottesville, VA
    
    
    100
    
    
    Lease
    
    4/03Cedar Springs Hospital
    
    Colorado Springs, CO
    
    
    110
    
    
    Own
    
    4/03Laurel Ridge Treatment Center
    
    San Antonio, TX
    
    
    252
    
    
    Own
    
    4/03San Marcos Treatment Center
    
    San Marcos, TX
    
    
    265
    
    
    Own
    
    4/03Shadow Mountain Behavioral Health System
    
    Tulsa, OK
    
    
    209
    
    
    Own
    
    4/03Laurel Oaks Behavioral Health Center
    
    Dothan, AL
    
    
    115
    
    
    Own
    
    6/03Hill Crest Behavioral Health Services
    
    Birmingham, AL
    
    
    205
    
    
    Own
    
    6/03Gulf Coast Treatment Center
    
    Fort Walton Beach, FL
    
    
    168
    
    
    Own
    
    6/03Manatee Palms Youth Services
    
    Bradenton, FL
    
    
    60
    
    
    Own
    
    6/03Havenwyck Hospital
    
    Auburn Hills, MI
    
    
    184
    
    
    Own
    
    6/03Heartland Behavioral Health Services
    
    Nevada, MO
    
    
    159
    
    
    Own
    
    6/03Brynn Marr Hospital
    
    Jacksonville, NC
    
    
    88
    
    
    Own
    
    6/03Benchmark Behavioral Health System
    
    Woods Cross, UT
    
    
    151
    
    
    Own
    
    6/03Macon Behavioral Health Treatment Center
    
    Macon, GA
    
    
    155
    
    
    Own
    
    6/03Manatee
Adolescent Treatment Services
    
    Bradenton, FL
    
    
    85
    
    
    Own
    
    6/03Gulf Coast RTCs
    
    Crestview, FL
    
    
    254
    
    
    Lease
    
    6/03Alliance Health Center
    
    Meridian, MS
    
    
    194
    
    
    Own
    
    11/03Calvary Center
    
    Phoenix, AZ
    
    
    50
    
    
    Lease
    
    12/03Brentwood Hospital
    
    Shreveport, LA
    
    
    200
    
    
    Own
    
    3/04Brentwood Behavioral Healthcare of Mississippi
    
    Flowood, MS
    
    
    107
    
    
    Own
    
    3/04Palmetto Lowcountry Behavioral Health
    
    North Charleston, SC
    
    
    112
    
    
    Own
    
    5/04Palmetto Pee Dee Behavioral Health
    
    Florence, SC
    
    
    59
    
    
    Own
    
    5/04Fort Lauderdale Hospital
    
    Fort Lauderdale, FL
    
    
    100
    
    
    Lease
    
    6/04Millwood Hospital
    
    Arlington, TX
    
    
    120
    
    
    Lease
    
    6/04Pride Institute
    
    Eden Prairie, MN
    
    
    42
    
    
    Own
    
    6/04Summit Oaks Hospital
    
    Summit, NJ
    
    
    126
    
    
    Own
    
    6/04North Spring Behavioral Healthcare
    
    Leesburg, VA
    
    
    77
    
    
    Own
    
    6/04Peak Behavioral Health Services
    
    Santa Teresa, NM
    
    
    84
    
    
    Own
    
    6/04Alhambra Hospital
    
    Rosemead, CA
    
    
    97
    
    
    Own
    
    7/05Belmont Pines Hospital
    
    Youngstown, OH
    
    
    102
    
    
    Own
    
    7/05Brooke Glen Behavioral Hospital
    
    Fort Washington, PA
    
    
    146
    
    
    Own
    
    7/05Columbus Behavioral Center
    
    Columbus, IN
    
    
    61
    
    
    Own
    
    7/05Cumberland Hospital
    
    New Kent, VA
    
    
    136
    
    
    Own
    
    7/05Fairfax Hospital
    
    Kirkland, WA
    
    
    133
    
    
    Own
    
    7/05Fox Run Hospital
    
    St. Clairsville, OH
    
    
    100
    
    
    Own
    
    7/05Fremont Hospital
    
    Fremont, CA
    
    
    96
    
    
    Own
    
    7/05Heritage Oaks Hospital
    
    Sacramento, CA
    
    
    76
    
    
    Own
    
    7/05Intermountain Hospital
    
    Boise, ID
    
    
    125
    
    
    Own
    
    7/05Meadows Hospital
    
    Bloomington, IN
    
    
    78
    
    
    Own
    
    7/05Mesilla Valley Hospital
    
    Las Cruces, NM
    
    
    168
    
    
    Own
    
    7/05Montevista Hospital
    
    Las Vegas, NV
    
    
    101
    
    
    Own
    
    7/05Pinnacle Pointe Hospital
    
    Little Rock, AR
    
    
    124
    
    
    Own
    
    7/05Sierra Vista Hospital
    
    Sacramento, CA
    
    
    72
    
    
    Own
    
    7/05Streamwood Behavioral Health
    
    Streamwood, IL
    
    
    371
    
    
    Own
    
    7/05Valle Vista Hospital
    
    Greenwood, IN
    
    
    102
    
    
    Own
    
    7/05West Hills Hospital
    
    Reno, NV
    
    
    95
    
    
    Own
    
    7/05Willow Springs Center
    
    Reno, NV
    
    
    76
    
    
    Own
    
    7/05Canyon Ridge Hospital
    
    Chino, CA
    
    
    106
    
    
    Own
    
    8/05Atlantic Shores Hospital
    
    Fort Lauderdale, FL
    
    
    72
    
    
    Own
    
    1/06Wellstone Regional Hospital
    
    Jeffersonville, IN
    
    
    100
    
    
    Own
    
    1/06Diamond Grove Center
    
    Louisville, MS
    
    
    55
    
    
    Own
    
    5/06Hickory Trail Hospital
    
    DeSoto, TX
    
    
    86
    
    
    Own
    
    7/06National Deaf Academy
    
    Mount Dora, FL
    
    
    132
    
    
    Own
    
    7/06Windmoor Healthcare
    
    Clearwater, FL
    
    
    100
    
    
    Own
    
    9/06University Behavioral Center
    
    Orlando, FL
    
    
    104
    
    
    Own
    
    9/06Sandy Pines Hospital
    
    Tequesta, FL
    
    
    80
    
    
    Own
    
    9/06Cumberland Hall
    
    Hopkinsville, KY
    
    
    64
    
    
    Own
    
    12/06Panamericano
    
    Cidra, Puerto Rico
    
    
    240
    
    
    Own
    
    12/06The Pines Residential Treatment Center
    
    Portsmouth, VA
    
    
    424
    
    
    Own
    
    12/06
 19




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DateFacility
    
    Location
    
    Beds
    
    Own/Lease
    
    Acquired/OpenedPalmetto Summerville
    
    Summerville, SC
    
    
    60
    
    
    Lease
    
    12/06Three Rivers Residential Treatment  Midlands
Campus
    
    West Columbia, SC
    
    
    59
    
    
    Own
    
    12/06Virgin Islands Behavioral Services
    
    St. Croix, U.S. Virgin Islands
    
    
    30
    
    
    Own
    
    12/06Virginia Beach Psychiatric Center
    
    Virginia Beach, VA
    
    
    100
    
    
    Own
    
    12/06Three Rivers Behavioral Health
    
    West Columbia, SC
    
    
    118
    
    
    Own
    
    01/07Copper Hills Youth Center
    
    West Jordan, UT
    
    
    153
    
    
    Own
    
    05/07MeadowWood Behavioral Health System
    
    New Castle, DE
    
    
    58
    
    
    Own
    
    05/07High Point Treatment Center
    
    Cooper City, FL
    
    
    68
    
    
    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
    
    05/07Michiana Behavioral Health Center
    
    Plymouth, IN
    
    
    80
    
    
    Own
    
    05/07Poplar Springs Hospital
    
    Petersburg, VA
    
    
    199
    
    
    Own
    
    05/07River Park Hospital
    
    Huntington, WV
    
    
    187
    
    
    Own
    
    05/07Lighthouse Care Center of Berkley
    
    Summerville, SC
    
    
    *
    
    
    Own
    
    05/07Austin Lakes Hospital
    
    Austin, TX
    
    
    48
    
    
    Lease
    
    08/07The Hughes Center for Exceptional Children
    
    Danville, VA
    
    
    56
    
    
    Own
    
    09/07The Brook  Dupont
    
    Louisville, KY
    
    
    66
    
    
    Own
    
    03/08River Point Behavioral Health
    
    Jacksonville, FL
    
    
    99
    
    
    Own
    
    03/08The Brook  KMI
    
    Louisville, KY
    
    
    106
    
    
    Own
    
    03/08The Vines
    
    Ocala, FL
    
    
    88
    
    
    Own
    
    03/08Wekiva Springs
    
    Jacksonville, FL
    
    
    68
    
    
    Own
    
    03/08Lincoln Prairie Behavioral Health Center
    
    Springfield, IL
    
    
    80
    
    
    Own
    
    05/08Rolling Hills Hospital
    
    Franklin, TN
    
    
    80
    
    
    Own
    
    01/09Prairie St. Johns
    
    Fargo, ND
    
    
    131
    
    
    Own
    
    09/09Emerald Coast Behavioral Hospital
    
    Panama City, FL
    
    
    90
    
    
    Own
    
    09/09
 
 *
    
    We acquired a non-operating facility, Lighthouse Berkley, in the acquisition of Horizon
Health. Currently no patients are being served at this facility.
    
    Operated beds.  
 Item 3.
    
    Legal Proceedings.
   
 Item 4.
    
    Submission of Matters to a Vote of Security Holders.
  20




---



##### Table of Contents



PART II
 
 Item 5. Market For Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
  High
    
    Low2008First Quarter
    
    $
    34.31
    
    
    $
    27.17Second Quarter
    
    $
    39.62
    
    
    $
    30.45Third Quarter
    
    $
    40.90
    
    
    $
    32.89Fourth Quarter
    
    $
    39.00
    
    
    $
    22.862009First Quarter
    
    $
    28.74
    
    
    $
    12.49Second Quarter
    
    $
    23.25
    
    
    $
    13.03Third Quarter
    
    $
    30.14
    
    
    $
    20.98Fourth Quarter
    
    $
    27.99
    
    
    $
    17.63
  3 4
 
 Item 6. Selected Financial Data.
  21




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##### Table of Contents



Psychiatric Solutions, Inc.
Selected Financial Data
As of and for the Years Ended December 31,
 2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(In thousands, except per share amounts and operating data)Income Statement Data:Revenue
    
    $
    1,805,361
    
    
    $
    1,696,116
    
    
    $
    1,414,700
    
    
    $
    991,724
    
    
    $
    689,408Costs and expenses:Salaries, wages and employee benefits
    
    
    1,005,204
    
    
    
    938,363
    
    
    
    787,301
    
    
    
    559,715
    
    
    
    377,762Other operating expenses
    
    
    452,356
    
    
    
    438,499
    
    
    
    365,258
    
    
    
    255,206
    
    
    
    193,851Provision for doubtful accounts
    
    
    36,414
    
    
    
    34,334
    
    
    
    27,343
    
    
    
    19,364
    
    
    
    13,678Depreciation and amortization
    
    
    44,778
    
    
    
    38,843
    
    
    
    30,113
    
    
    
    20,001
    
    
    
    14,335Interest expense
    
    
    71,549
    
    
    
    75,982
    
    
    
    73,887
    
    
    
    39,967
    
    
    
    26,169Other expenses
    
    
    
    
    
    
    
    
    
    
    8,179
    
    
    
    
    
    
    
    21,871Total costs and expenses
    
    
    1,610,301
    
    
    
    1,526,021
    
    
    
    1,292,081
    
    
    
    894,253
    
    
    
    647,666Income from continuing operations before
income taxes
    
    
    195,060
    
    
    
    170,095
    
    
    
    122,619
    
    
    
    97,471
    
    
    
    41,742Provision for income taxes
    
    
    74,889
    
    
    
    64,457
    
    
    
    46,200
    
    
    
    36,785
    
    
    
    16,080Income from continuing operations
    
    $
    120,171
    
    
    $
    105,638
    
    
    $
    76,419
    
    
    $
    60,686
    
    
    $
    25,662Net income attributable to PSI stockholders
    
    $
    117,617
    
    
    $
    104,953
    
    
    $
    76,208
    
    
    $
    60,632
    
    
    $
    27,154Basic earnings per share from continuing
operations attributable to PSI stockholders
    
    $
    2.16
    
    
    $
    1.89
    
    
    $
    1.40
    
    
    $
    1.15
    
    
    $
    0.57Basic earnings per share attributable to PSI
stockholders
    
    $
    2.12
    
    
    $
    1.89
    
    
    $
    1.40
    
    
    $
    1.15
    
    
    $
    0.61Shares used in computing basic earnings per
share
    
    
    55,564
    
    
    
    55,408
    
    
    
    54,258
    
    
    
    52,953
    
    
    
    44,792Diluted earnings per share from continuing
operations attributable to PSI stockholders
    
    $
    2.14
    
    
    $
    1.87
    
    
    $
    1.37
    
    
    $
    1.12
    
    
    $
    0.55Diluted earnings per share attributable to PSI
stockholders
    
    $
    2.10
    
    
    $
    1.87
    
    
    $
    1.37
    
    
    $
    1.12
    
    
    $
    0.59Shares used in computing diluted earnings per
share
    
    
    56,116
    
    
    
    56,267
    
    
    
    55,447
    
    
    
    54,169
    
    
    
    46,296Balance Sheet Data:Cash
    
    $
    6,815
    
    
    $
    51,271
    
    
    $
    39,970
    
    
    $
    18,520
    
    
    $
    54,533Working capital
    
    
    177,918
    
    
    
    233,906
    
    
    
    161,681
    
    
    
    103,287
    
    
    
    138,843Property and equipment, net
    
    
    931,730
    
    
    
    820,453
    
    
    
    678,012
    
    
    
    529,658
    
    
    
    368,977Total assets
    
    
    2,507,240
    
    
    
    2,505,990
    
    
    
    2,179,505
    
    
    
    1,581,746
    
    
    
    1,176,131Total debt
    
    
    1,187,079
    
    
    
    1,314,397
    
    
    
    1,172,024
    
    
    
    743,307
    
    
    
    482,389Stockholders equity
    
    
    1,030,335
    
    
    
    889,885
    
    
    
    754,742
    
    
    
    627,779
    
    
    
    539,712Operating Data:Number of facilities at period end
    
    
    94
    
    
    
    91
    
    
    
    86
    
    
    
    70
    
    
    
    55Number of licensed beds
    
    
    11,290
    
    
    
    10,520
    
    
    
    9,931
    
    
    
    8,114
    
    
    
    6,396Admissions
    
    
    177,967
    
    
    
    163,616
    
    
    
    138,454
    
    
    
    106,451
    
    
    
    76,795Patient days
    
    
    2,881,063
    
    
    
    2,749,658
    
    
    
    2,406,368
    
    
    
    1,875,635
    
    
    
    1,413,231Average length of stay
    
    
    16
    
    
    
    17
    
    
    
    17
    
    
    
    18
    
    
    
    18
 22




---



##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  Overview
    Sources of Revenue
 Patient Service Revenue
  Other Revenue
  Results of Operations
  23




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##### Table of Contents



Results of Operations, Consolidated Psychiatric SolutionsFor the Year Ended December 31,2009
    
    
    2008
    
    
    2007Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Revenue
    
    $
    1,805,361
    
    
    
    100.0
    %
    
    $
    1,696,116
    
    
    
    100.0
    %
    
    $
    1,414,700
    
    
    
    100.0
    %Salaries, wages, and employee benefits (including
share-based compensation of $17,505, $19,913
and $16,104 in 2009, 2008 and 2007, respectively)
    
    
    1,005,204
    
    
    
    55.7
    %
    
    
    938,363
    
    
    
    55.3
    %
    
    
    787,301
    
    
    
    55.7
    %Professional fees
    
    
    166,785
    
    
    
    9.2
    %
    
    
    162,491
    
    
    
    9.6
    %
    
    
    135,803
    
    
    
    9.6
    %Supplies
    
    
    92,572
    
    
    
    5.1
    %
    
    
    92,393
    
    
    
    5.5
    %
    
    
    77,738
    
    
    
    5.5
    %Provision for doubtful accounts
    
    
    36,414
    
    
    
    2.0
    %
    
    
    34,334
    
    
    
    2.0
    %
    
    
    27,343
    
    
    
    1.9
    %Other operating expenses
    
    
    192,999
    
    
    
    10.7
    %
    
    
    183,615
    
    
    
    10.8
    %
    
    
    151,717
    
    
    
    10.7
    %Depreciation and amortization
    
    
    44,778
    
    
    
    2.5
    %
    
    
    38,843
    
    
    
    2.3
    %
    
    
    30,113
    
    
    
    2.1
    %Interest expense, net
    
    
    71,549
    
    
    
    4.0
    %
    
    
    75,982
    
    
    
    4.5
    %
    
    
    73,887
    
    
    
    5.2
    %Other expenses:Loss on refinancing long-term debt
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    8,179
    
    
    
    0.6
    %Income from continuing operations before
income taxes
    
    
    195,060
    
    
    
    10.8
    %
    
    
    170,095
    
    
    
    10.0
    %
    
    
    122,619
    
    
    
    8.7
    %Provision for income taxes
    
    
    74,889
    
    
    
    4.1
    %
    
    
    64,457
    
    
    
    3.8
    %
    
    
    46,200
    
    
    
    3.3
    %Income from continuing operations
    
    
    120,171
    
    
    
    6.7
    %
    
    
    105,638
    
    
    
    6.2
    %
    
    
    76,419
    
    
    
    5.4
    %Less: Net income attributable to noncontrolling interest
    
    
    (93
    )
    
    
    0.0
    %
    
    
    (604
    )
    
    
    0.0
    %
    
    
    (285
    )
    
    
    0.0
    %Income from continuing operations attributable to
PSI stockholders
    
    $
    120,078
    
    
    
    6.7
    %
    
    $
    105,034
    
    
    
    6.2
    %
    
    $
    76,134
    
    
    
    5.4
    %
 Year Ended December 31, 2009 Compared To Year Ended December 31, 2008
  Year Ended December 31,
    
    %2009
    
    2008
    
    ChangeTotal facility results:Revenue (in thousands)
    
    $
    1,678,449
    
    
    $
    1,571,141
    
    
    
    6.8
    %Number of facilities at period end
    
    
    94
    
    
    
    91
    
    
    
    3.3
    %Admissions
    
    
    177,967
    
    
    
    163,616
    
    
    
    8.8
    %Patient days
    
    
    2,881,063
    
    
    
    2,749,658
    
    
    
    4.8
    %Average length of stay
    
    
    16.2
    
    
    
    16.8
    
    
    
    -3.6
    %Revenue per patient day
    
    $
    583
    
    
    $
    571
    
    
    
    2.1
    %Same-facility results:Revenue (in thousands)
    
    $
    1,654,258
    
    
    $
    1,571,141
    
    
    
    5.3
    %Number of facilities at period end
    
    
    91
    
    
    
    91
    
    
    
    0.0
    %Admissions
    
    
    174,874
    
    
    
    163,616
    
    
    
    6.9
    %Patient days
    
    
    2,845,536
    
    
    
    2,749,658
    
    
    
    3.5
    %Average length of stay
    
    
    16.3
    
    
    
    16.8
    
    
    
    -3.0
    %Revenue per patient day
    
    $
    581
    
    
    $
    571
    
    
    
    1.8
    %
 Revenue
 Salaries, wages, and employee benefits
 24




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##### Table of Contents



Professional fees
 Supplies.
 Provision for doubtful accounts
 Other operating expenses
 Depreciation and amortization
 Interest expense, net
 Income attributable to noncontrolling interest
 Loss from discontinued operations, net of taxes
 Year Ended December 31, 2008 Compared To Year Ended December 31, 2007
  25




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##### Table of Contents



Year Ended December 31,
    
    
    %2008
    
    
    2007
    
    
    ChangeTotal facility results:Revenue (in thousands)
    
    $
    1,571,141
    
    
    $
    1,314,203
    
    
    
    19.6
    %Number of facilities at period end
    
    
    91
    
    
    
    86
    
    
    
    5.8
    %Admissions
    
    
    163,616
    
    
    
    138,454
    
    
    
    18.2
    %Patient days
    
    
    2,749,658
    
    
    
    2,406,368
    
    
    
    14.3
    %Average length of stay
    
    
    16.8
    
    
    
    17.4
    
    
    
    -3.4
    %Revenue per patient day
    
    $
    571
    
    
    $
    546
    
    
    
    4.6
    %Same-facility results:Revenue (in thousands)
    
    $
    1,419,904
    
    
    $
    1,309,453
    
    
    
    8.4
    %Number of facilities at period end
    
    
    86
    
    
    
    86
    
    
    
    0.0
    %Admissions
    
    
    144,563
    
    
    
    137,830
    
    
    
    4.9
    %Patient days
    
    
    2,472,292
    
    
    
    2,399,812
    
    
    
    3.0
    %Average length of stay
    
    
    17.1
    
    
    
    17.4
    
    
    
    -1.7
    %Revenue per patient day
    
    $
    574
    
    
    $
    546
    
    
    
    5.1
    %
 Revenue
 Salaries, wages, and employee benefits
 Professional fees
 Supplies.
 Provision for doubtful accounts
 Other operating expenses
 26




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##### Table of Contents



Depreciation and amortization
 Interest expense, net
 Income attributable to noncontrolling interest
 Loss on refinancing of long-term debt. 5 8 5 8 5 8
 (Loss) income from discontinued operations, net of taxes
 Liquidity and Capital Resources
     27




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##### Table of Contents



3 4
  28




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##### Table of Contents



Obligations and Commitments
 Payments Due by Period (in thousands)Less than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsLong-term debt (1):Senior Credit Facility:Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 2.0% at December 31, 2009
    
    $
    564,875
    
    
    $
    3,750
    
    
    $
    561,125
    
    
    $
    
    
    
    $
    7 3/4% Senior Subordinated Notes due July 15, 2015
    
    
    582,666
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    582,666Mortgage loans on facilities, maturing in 2036, 2037 and 2038
bearing fixed interest rates of 5.7% to 7.6%
    
    
    32,850
    
    
    
    450
    
    
    
    988
    
    
    
    1,118
    
    
    
    30,2941,180,391
    
    
    
    4,200
    
    
    
    562,113
    
    
    
    1,118
    
    
    
    612,960Lease and other obligations
    
    
    86,786
    
    
    
    14,872
    
    
    
    20,988
    
    
    
    14,410
    
    
    
    36,516Total contractual obligations
    
    $
    1,267,177
    
    
    $
    19,072
    
    
    $
    583,101
    
    
    $
    15,528
    
    
    $
    649,476
 
 (1)
    
    Excludes capital lease obligations and other obligations of $6.7 million, which are included in lease and other obligations. 3 4 3 4
 Impact of Inflation and Economic Trends
   Critical Accounting Policies
  Allowance for Doubtful Accounts
  29




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##### Table of Contents



Allowances for Contractual Discounts
    For the Year Ended December 31,2009
    
    
    2008Net Revenue
    
    
    Accounts Receivable
    
    
    Net Revenue
    
    
    Accounts ReceivableMedicaid
    
    
    29
    %
    
    
    24
    %
    
    
    30
    %
    
    
    26
    %Commercial/HMO/Private
Pay
    
    
    37
    %
    
    
    42
    %
    
    
    36
    %
    
    
    41
    %Medicare
    
    
    14
    %
    
    
    12
    %
    
    
    13
    %
    
    
    10
    %State agency
    
    
    15
    %
    
    
    16
    %
    
    
    15
    %
    
    
    17
    %Other
    
    
    5
    %
    
    
    6
    %
    
    
    6
    %
    
    
    6
    %100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  At December 31,2009
    
    
    20080 - 30 days
    
    
    64
    %
    
    
    64
    %31 - 60 days
    
    
    14
    %
    
    
    13
    %61 - 90 days
    
    
    8
    %
    
    
    8
    %91 - 120 days
    
    
    5
    %
    
    
    5
    %121 - 150 days
    
    
    3
    %
    
    
    4
    %151 - 180 days
    
    
    3
    %
    
    
    4
    %> 180 days
    
    
    3
    %
    
    
    2
    %Total
    
    
    100
    %
    
    
    100
    %
  30




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##### Table of Contents



Professional and General Liability
  Income Taxes
   Share-Based Compensation
  
 Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk.
   
 Item 8.
    
    Financial Statements and Supplementary Data.
  
 Item 9.
    
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
  31




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##### Table of Contents



Item 9A. Controls and Procedures.
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
  Managements Report on Internal Control Over Financial Reporting
  Changes in Internal Control Over Financial Reporting
  
 Item 9B. Other Information.
  
 PART III
 
 Item 10. Directors and Executive Officers and Corporate Governance.
 Directors
  Executive Officers of the Registrant
  Name
    
    Age
    
    Officer Since
    
    PositionsJoey A. Jacobs
    
    
    56
    
    
    April 1997
    
    President and Chief Executive OfficerRonald M. Fincher
    
    
    56
    
    
    October 2008
    
    Chief Operating OfficerJack E. Polson
    
    
    43
    
    
    August 2002
    
    Executive Vice President, Chief Accounting OfficerBrent Turner
    
    
    44
    
    
    February 2003
    
    Executive Vice President, Finance and AdministrationChristopher L. Howard
    
    
    43
    
    
    September 2005
    
    Executive Vice President, General Counsel and Secretary
 Joey A. Jacobs, President and Chief Executive Officer
 Ronald M. Fincher, Chief Operating Officer
 Jack E. Polson, Executive Vice President, Chief Accounting Officer
 32




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##### Table of Contents



Brent Turner, Executive Vice President, Finance and Administration
 Christopher L. Howard, Executive Vice President, General Counsel and Secretary
 Code of Ethics
 www.psysolutions.com
 Section 16(a) Compliance
  
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
  
 Item 13. Certain Relationships and Related Transactions, and Director Independence.
  
 Item 14. Principal Accountant Fees and Services.
  33




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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
    
    Description3.1
    
    Amended and Restated Certificate of
Incorporation of PMR Corporation, filed
with the Delaware Secretary of State on
March 9, 1998 (incorporated by
reference to Exhibit 3.1 to the
Companys Annual Report on Form 10-K
for the fiscal year ended April 30,
1998).3.2
    
    Certificate of Amendment to Amended and
Restated Certificate of Incorporation
of PMR Corporation, filed with the
Delaware Secretary of State on
August 5, 2002 (incorporated by
reference to Exhibit 3.2 to the
Companys Quarterly Report on Form 10-Q
for the quarter ended July 31, 2002).3.3
    
    Certificate of Amendment to Amended and
Restated Certificate of Incorporation
of Psychiatric Solutions, Inc., filed
with the Delaware Secretary of State on
March 21, 2003 (incorporated by
reference to Appendix A of the
Companys Definitive Proxy Statement,
filed on January 22, 2003).3.4
    
    Certificate of Amendment to Amended and
Restated Certificate of Incorporation
of Psychiatric Solutions, Inc., filed
with the Delaware Secretary of State on
December 15, 2005 (incorporated by
reference to Exhibit 3.4 to the
Companys Annual Report on Form 10-K
for the fiscal year ended December 31,
2005).3.5
    
    By-Laws (incorporated by reference to
Exhibit 3 to the Companys Current
Report on Form 8-K filed on November 6,
2007).4.1
    
    Reference is made to Exhibits 3.1 through 3.5.4.2
    
    Common Stock Specimen Certificate (incorporated by reference to Exhibit 4.2
to the Companys Annual Report on Form 10-K for the fiscal year ended
December 31, 2002).4.3
    
    Indenture, dated as of July 6, 2005, by and among Psychiatric Solutions,
Inc., the Guarantors named therein and Wachovia Bank, National Association,
as Trustee (incorporated by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K, filed on July 8, 2005).4.4
    
    Form of Notes (included in Exhibit 4.3).
 34




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##### Table of Contents



ExhibitNumber
    
    Description4.5
    
    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).4.6
    
    Purchase Agreement, dated as of May 4, 2009, among Psychiatric Solutions,
Inc., the subsidiaries of Psychiatric Solutions, Inc. party thereto as
guarantors, and Banc of America Securities LLC, Barclays Capital Inc.,
Citigroup Global Markets Inc., J.P. Morgan Securities Inc. and RBC Capital
Markets Corporation. (incorporated by reference to Exhibit 4.1 to the
Companys Current Report on Form 8-K, filed on May 8, 2009).4.7
    
    Indenture, dated as of May 7, 2009, 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 4.2 to the Companys Current Report on Form 8-K, filed on May 8,
2009).4.8
    
    Form of Notes (included in Exhibit 4.8) (incorporated by reference to
Exhibit 4.3 to the Companys Current Report on Form 8-K, filed on May 8,
2009).4.9
    
    Registration Rights Agreement, dated as of May 7, 2009, among Psychiatric
Solutions, Inc., the subsidiaries of Psychiatric Solutions, Inc. party
thereto as guarantors, and Banc of America Securities LLC, Barclays Capital
Inc., Citigroup Global Markets Inc., J.P. Morgan Securities Inc. and RBC
Capital Markets Corporation (incorporated by reference to Exhibit 4.4 to
the Companys Current Report on Form 8-K, filed on May 8, 2009).10.1
    
    Employment Agreement, dated as of May 10, 2007, between Joey A. Jacobs and
Psychiatric Solutions, Inc. (incorporated by reference to Exhibit 10 to the
Companys Current Report on Form 8-K, filed on May 15, 2007).10.2
    
    Form of Indemnification Agreement executed by each director of Psychiatric
Solutions, Inc. and Psychiatric Solutions, Inc. (incorporated by reference
to Exhibit 10.4 to the Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2004).10.3
    
    ISDA Master Agreement, dated as of November 29, 2007, between Merrill Lynch
Capital Services, Inc. and Psychiatric Solutions, Inc. (incorporated by
reference to Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q,
filed on May 6, 2008).10.4
    
    Second Amended and Restated Credit Agreement, dated as of July 1, 2005, by
and among Psychiatric Solutions, Inc., the subsidiaries named as guarantors
thereto, Citicorp North America, Inc., as term loan facility administrative
agent, co-syndication agent and documentation agent, Bank of America, N.A.,
as revolving loan facility administrative agent, collateral agent swing
line lender and co-syndication agent, and the various other agents and
lenders party thereto. (incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K, filed on July 8, 2005).10.5
    
    Amendment No. 1 to Psychiatric Solutions, Inc.s Second Amended and
Restated Credit Agreement, dated as of December 1, 2006, by and between
Psychiatric Solutions, Inc., BHC Holdings, Inc., Premier Behavioral
Solutions, Inc., Alternative Behavioral Services, Inc., the subsidiaries
of Psychiatric Solutions, Inc. party thereto as guarantors, Citicorp North
America, Inc., as Term Loan Facility Administrative Agent, Bank of America,
N.A., as Revolving Credit Facility Administrative Agent, Citigroup Global
Markets Inc. and Banc of America Securities LLC, as the Arrangers
(incorporated by reference to Exhibit 10 to the Companys Current Report on
Form 8-K, filed on December 7, 2006).10.6
    
    Amendment No. 2 to Second Amended and Restated Credit Agreement, dated as
of December 1, 2006, by and among Psychiatric Solutions, Inc., BHC
Holdings, Inc., Premier Behavioral Solutions, Inc., Alternative Behavioral
Services, Inc., Horizon Health Corporation, ABS LINCS PR, Inc., First
Hospital Panamericano, Inc., FHCHS of Puerto Rico, Inc., First Corrections
 Puerto-Rico, Inc., the subsidiaries of Psychiatric Solutions, Inc. party
thereto as guarantors, Citicorp North America, Inc., as term loan facility
administrative agent, Bank of America, N.A., as revolving credit facility
administrative agent, Citigroup Global Markets Inc. and Merrill, Lynch,
Pierce, Fenner & Smith Incorporated, as joint lead arrangers and joint
book-running managers (incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K, filed on June 1, 2007).
 35




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##### Table of Contents



ExhibitNumber
    
    Description10.7
    
    Incremental Facility Amendment, dated as of February 25, 2009, to the
Second Amended and Restated Credit Agreement, as amended, by and among
Psychiatric Solutions, Inc., BHC Holdings, Inc., Premier Behavioral
Solutions, Inc., Alternative Behavioral Services, Inc., Horizon Health
Corporation, Community Cornerstones, Inc., FHP  Puerto Rico, Inc., First
Hospital Panamericano, Inc., FHCHS of Puerto Rico, Inc., the subsidiaries
of Psychiatric Solutions, Inc. party thereto as guarantors, the incremental
revolving credit lenders party thereto, Citicorp North America, Inc., as
term loan facility administrative agent, Bank of America, N.A., as
revolving credit facility administrative agent, Barclays Bank PLC, as
syndication agent, and General Electric Capital Corporation, JPMorgan Chase
Bank, N.A. and Fifth Third Bank, as documentation agents, (incorporated by
reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q
for the quarter ended March 31, 2009).10.8
    
    Amendment No. 4 to Second Amended and Restated Credit Agreement, as
amended, dated as of September 25, 2009, by and among Psychiatric
Solutions, Inc., BHC Holdings, Inc., Premier Behavioral Solutions, Inc.,
Alternative Behavioral Services, Inc., Horizon Health Corporation,
Community Cornerstones, Inc., First Corrections Puerto Rico, Inc., First
Hospital Panamericano, Inc., FHCHS of Puerto Rico, Inc., the subsidiaries
of Psychiatric Solutions, Inc. party thereto as guarantors, the incremental
revolving credit lenders party thereto, Citicorp North America, Inc. as
term loan facility administrative agent, and Bank of America, N.A., as
revolving credit facility administrative agent. (incorporated by reference
to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the
quarter ended September 30, 2009).10.9
    
    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).10.10
    
    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).10.11
    
    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).10.12
    
    Fourth Amendment to the Psychiatric Solutions, Inc. Equity Incentive Plan
(incorporated by reference to Appendix A to the Companys Definitive Proxy
Statement, filed on April 10, 2008).10.13
    
    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).10.19
    
    Summary of Director Compensation (incorporated by reference to Exhibit
10.22 to the Companys Annual Report on Form 10-K for the year ended
December 31, 2006).10.20
    
    Outside Director Retainer Increase (incorporated by reference to the
Companys Current Report on Form 8-K, filed on October 20, 2008).10.21
    
    Psychiatric Solutions, Inc. Outside Directors Stock Incentive Plan
(incorporated by reference to Appendix A to the Companys Definitive Proxy
Statement, filed on April 9, 2009).
 36




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##### Table of Contents



ExhibitNumber
    
    Description10.22
    
    Psychiatric Solutions, Inc. 2009 Long-Term Equity Compensation Plan
(incorporated by reference to Exhibit 10.2 to the Companys Current Report
on Form 8-K, filed on March 6, 2009).10.23
    
    Psychiatric Solutions, Inc. Amended 2009 Long-Term Equity Compensation Plan
(incorporated by reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K, filed on December 24, 2009).10.24
    
    Psychiatric Solutions, Inc. 2009 Cash Bonus Plans (incorporated by
reference to Exhibit 10.1 to the Companys Current Report on Form 8-K,
filed on March 6, 2009).10.25
    
    Psychiatric Solutions, Inc. 2010 Long-Term Equity Compensation Plan
(incorporated by reference to Exhibit 10.2 to the Companys Current Report
on Form 8-K, filed on December 24, 2009).21.1*
    
    List of Subsidiaries.23.1*
    
    Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.31.1*
    
    Certification of the Chief Executive Officer of Psychiatric Solutions, Inc.
Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.31.2*
    
    Certification of the Chief Accounting Officer of Psychiatric Solutions,
Inc. Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.32.1*
    
    Certifications of the Chief Executive Officer and Chief Accounting Officer
of Psychiatric Solutions, Inc. Pursuant to Rule 13a-14(b) of the Securities
Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith
    
    Management contract or compensatory plan or arrangement 37




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PAGEReport of Independent Registered Public Accounting Firm
    
    F-2Managements Report on Internal Control over Financial Reporting
    
    F-3Report of Independent Registered Public Accounting Firm
    
    F-4Consolidated Financial Statements:Consolidated Balance Sheets, December 31, 2009 and 2008
    
    F-5Consolidated Statements of Income for the years ended December 31, 2009, 2008 and 2007
    
    F-6Consolidated Statements of Stockholders Equity for the years ended December 31, 2009, 2008 and 2007
    
    F-7Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007
    
    F-8Notes to Consolidated Financial Statements
    
    F-10
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
       
 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 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    6,815
    
    
    $
    51,271Accounts receivable, less allowance for doubtful accounts of
$51,894 and $48,383, respectively
    
    
    249,439
    
    
    
    241,459Other current assets
    
    
    105,166
    
    
    
    174,780Total current assets
    
    
    361,420
    
    
    
    467,510Property and equipment:Land
    
    
    188,097
    
    
    
    172,184Buildings
    
    
    775,887
    
    
    
    662,513Equipment
    
    
    117,434
    
    
    
    95,509Less accumulated depreciation
    
    
    (149,688
    )
    
    
    (109,753
    )931,730
    
    
    
    820,453Cost in excess of net assets acquired
    
    
    1,153,111
    
    
    
    1,139,242Other assets
    
    
    60,979
    
    
    
    78,785Total assets
    
    $
    2,507,240
    
    
    $
    2,505,990LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    35,397
    
    
    $
    34,609Salaries and benefits payable
    
    
    81,129
    
    
    
    83,539Other accrued liabilities
    
    
    62,036
    
    
    
    81,065Current portion of long-term debt
    
    
    4,940
    
    
    
    34,391Total current liabilities
    
    
    183,502
    
    
    
    233,604Long-term debt, less current portion
    
    
    1,182,139
    
    
    
    1,280,006Deferred tax liability
    
    
    81,137
    
    
    
    69,471Other liabilities
    
    
    25,790
    
    
    
    28,067Total liabilities
    
    
    1,472,568
    
    
    
    1,611,148Redeemable noncontrolling interests
    
    
    4,337
    
    
    
    4,957Stockholders equity:Common stock, $0.01 par value, 125,000 shares authorized;
56,226 and 55,934 issued and outstanding, respectively
    
    
    562
    
    
    
    559Additional paid-in capital
    
    
    627,476
    
    
    
    608,341Accumulated other comprehensive loss
    
    
    
    
    
    
    (3,695
    )Retained earnings
    
    
    402,297
    
    
    
    284,680Total stockholders equity
    
    
    1,030,335
    
    
    
    889,885Total liabilities and stockholders equity
    
    $
    2,507,240
    
    
    $
    2,505,990
  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 31,2009
    
    
    2008
    
    
    2007Revenue
    
    $
    1,805,361
    
    
    $
    1,696,116
    
    
    $
    1,414,700Salaries, wages and employee benefits (including share-based
compensation of $17,505, $19,913 and $16,104 for the years
ended December 31, 2009, 2008 and 2007, respectively)
    
    
    1,005,204
    
    
    
    938,363
    
    
    
    787,301Professional fees
    
    
    166,785
    
    
    
    162,491
    
    
    
    135,803Supplies
    
    
    92,572
    
    
    
    92,393
    
    
    
    77,738Rentals and leases
    
    
    20,131
    
    
    
    20,635
    
    
    
    18,939Other operating expenses
    
    
    172,868
    
    
    
    162,980
    
    
    
    132,778Provision for doubtful accounts
    
    
    36,414
    
    
    
    34,334
    
    
    
    27,343Depreciation and amortization
    
    
    44,778
    
    
    
    38,843
    
    
    
    30,113Interest expense
    
    
    71,549
    
    
    
    75,982
    
    
    
    73,887Loss on refinancing long-term debt
    
    
    
    
    
    
    
    
    
    
    8,1791,610,301
    
    
    
    1,526,021
    
    
    
    1,292,081Income from continuing operations before income taxes
    
    
    195,060
    
    
    
    170,095
    
    
    
    122,619Provision for income taxes
    
    
    74,889
    
    
    
    64,457
    
    
    
    46,200Income from continuing operations
    
    
    120,171
    
    
    
    105,638
    
    
    
    76,419(Loss) income from discontinued operations, net of (benefit from)
provision for income taxes of $(3,239), $1,528 and $707
for 2009,
2008 and 2007, respectively
    
    
    (2,461
    )
    
    
    (81
    )
    
    
    74Net income
    
    
    117,710
    
    
    
    105,557
    
    
    
    76,493Less: Net income attributable to noncontrolling interests
    
    
    (93
    )
    
    
    (604
    )
    
    
    (285
    )Net income attributable to PSI stockholders
    
    $
    117,617
    
    
    $
    104,953
    
    
    $
    76,208Basic earnings per share:Income from continuing operations attributable to PSI
stockholders
    
    $
    2.16
    
    
    $
    1.89
    
    
    $
    1.40(Loss) income from discontinued operations, net of taxes
    
    
    (0.04
    )
    
    
    
    
    
    
    Net income attributable to PSI stockholders
    
    $
    2.12
    
    
    $
    1.89
    
    
    $
    1.40Diluted earnings per share:Income from continuing operations attributable to PSI
stockholders
    
    $
    2.14
    
    
    $
    1.87
    
    
    $
    1.37(Loss) income from discontinued operations, net of taxes
    
    
    (0.04
    )
    
    
    
    
    
    
    Net income attributable to PSI stockholders
    
    $
    2.10
    
    
    $
    1.87
    
    
    $
    1.37Shares used in computing per share amounts:Basic
    
    
    55,564
    
    
    
    55,408
    
    
    
    54,258Diluted
    
    
    56,116
    
    
    
    56,267
    
    
    
    55,447Amounts attributable to PSI stockholders:Income from continuing operations, net of taxes
    
    $
    120,078
    
    
    $
    105,034
    
    
    $
    76,134(Loss) income from discontinued operations, net of taxes
    
    
    (2,461
    )
    
    
    (81
    )
    
    
    74Net income attributable to PSI stockholders
    
    $
    117,617
    
    
    $
    104,953
    
    
    $
    76,208
  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, 2006
    
    
    53,421
    
    
    $
    534
    
    
    $
    523,193
    
    
    $
    
    
    
    $
    104,052
    
    
    $
    627,779Comprehensive income:Net income attributable to PSI stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76,208
    
    
    
    76,208Change in
fair value of interest rate swap, net of tax benefit of $308
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (479
    )
    
    
    
    
    
    
    (479
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,729Share-based compensation
    
    
    
    
    
    
    
    
    
    
    16,104
    
    
    
    
    
    
    
    
    
    
    
    16,104Common stock issued in
acquisition
    
    
    243
    
    
    
    2
    
    
    
    8,998
    
    
    
    
    
    
    
    
    
    
    
    9,000Exercise of stock options and
grants of restricted stock, net
of issuance costs
    
    
    1,443
    
    
    
    15
    
    
    
    17,220
    
    
    
    
    
    
    
    
    
    
    
    17,235Cumulative adjustment for
adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (533
    )
    
    
    (533
    )Income tax benefit of stock option
exercises
    
    
    
    
    
    
    
    
    
    
    9,428
    
    
    
    
    
    
    
    
    
    
    
    9,428Balance at December 31, 2007
    
    
    55,107
    
    
    
    551
    
    
    
    574,943
    
    
    
    (479
    )
    
    
    179,727
    
    
    
    754,742Comprehensive income:Net income attributable to PSI stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,953
    
    
    
    104,953Change in fair value of interest rate
swap, net of tax benefit of $2,154
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,216
    )
    
    
    
    
    
    
    (3,216
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,737Share-based compensation
    
    
    
    
    
    
    
    
    
    
    19,913
    
    
    
    
    
    
    
    
    
    
    
    19,913Common stock issued in acquisition of
discontinued operation
    
    
    27
    
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    1,000Exercise of stock options and
grants of restricted stock, net
of issuance costs
    
    
    800
    
    
    
    8
    
    
    
    9,433
    
    
    
    
    
    
    
    
    
    
    
    9,441Income tax benefit of stock option
exercises
    
    
    
    
    
    
    
    
    
    
    3,052
    
    
    
    
    
    
    
    
    
    
    
    3,052Balance at December 31, 2008
    
    
    55,934
    
    
    
    559
    
    
    
    608,341
    
    
    
    (3,695
    )
    
    
    284,680
    
    
    
    889,885Comprehensive income:Net income attributable to PSI stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    117,617
    
    
    
    117,617Change in fair value of interest rate
swap, net of tax provision of $2,466
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,695
    
    
    
    
    
    
    
    3,695Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121,312Share-based compensation
    
    
    
    
    
    
    
    
    
    
    17,505
    
    
    
    
    
    
    
    
    
    
    
    17,505Exercise of stock options and
grants of restricted stock, net
of issuance costs
    
    
    292
    
    
    
    3
    
    
    
    (48
    )
    
    
    
    
    
    
    
    
    
    
    (45
    )Income tax benefit of stock option
exercises
    
    
    
    
    
    
    
    
    
    
    1,678
    
    
    
    
    
    
    
    
    
    
    
    1,678Balance at December 31, 2009
    
    
    56,226
    
    
    $
    562
    
    
    $
    627,476
    
    
    $
    
    
    
    $
    402,297
    
    
    $
    1,030,335
  F-7




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Year Ended December 31,2009
    
    
    2008
    
    
    2007Operating activities:Net income
    
    $
    117,710
    
    
    $
    105,557
    
    
    $
    76,493Adjustments to reconcile net income to
net cash provided by continuing
operating activities:Depreciation and amortization
    
    
    44,778
    
    
    
    38,843
    
    
    
    30,113Amortization of loan costs and bond discount/premium
    
    
    5,300
    
    
    
    2,213
    
    
    
    2,151Share-based compensation
    
    
    17,505
    
    
    
    19,913
    
    
    
    16,104Loss on refinancing long-term debt
    
    
    
    
    
    
    
    
    
    
    8,179Change in income tax assets and liabilities
    
    
    20,050
    
    
    
    (5,034
    )
    
    
    8,639Loss (income) from discontinued operations, net of taxes
    
    
    2,461
    
    
    
    81
    
    
    
    (74
    )Changes in operating assets and liabilities,
net of effect of acquisitions:Accounts receivable
    
    
    (3,911
    )
    
    
    (17,755
    )
    
    
    (12,592
    )Other current assets
    
    
    8,024
    
    
    
    (4,612
    )
    
    
    6,298Accounts payable
    
    
    (1,391
    )
    
    
    2,891
    
    
    
    (7,939
    )Salaries and benefits payable
    
    
    (6,219
    )
    
    
    1,731
    
    
    
    1,876Accrued liabilities and other liabilities
    
    
    1,104
    
    
    
    (4,567
    )
    
    
    (5,676
    )Net cash provided by continuing operating activities
    
    
    205,411
    
    
    
    139,261
    
    
    
    123,572Net cash provided by discontinued operating activities
    
    
    983
    
    
    
    2,522
    
    
    
    1,949Net cash provided by operating activities
    
    
    206,394
    
    
    
    141,783
    
    
    
    125,521Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (32,910
    )
    
    
    (121,156
    )
    
    
    (444,899
    )Cash paid for real estate acquisitions
    
    
    (19,341
    )
    
    
    
    
    
    
    Capital purchases of leasehold improvements,
equipment and software
    
    
    (130,674
    )
    
    
    (121,930
    )
    
    
    (71,260
    )Other assets
    
    
    1,229
    
    
    
    (1,318
    )
    
    
    (2,451
    )Net cash used in continuing investing activities
    
    
    (181,696
    )
    
    
    (244,404
    )
    
    
    (518,610
    )Net cash provided by (used in) discontinued investing activities
    
    
    67,692
    
    
    
    (41,811
    )
    
    
    (17,974
    )Net cash used in investing activities
    
    
    (114,004
    )
    
    
    (286,215
    )
    
    
    (536,584
    )
  F-8




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)
 Year Ended December 31,2009
    
    
    2008
    
    
    2007Financing activities:Net (decrease) increase in revolving credit facility
    
    $
    (229,333
    )
    
    $
    149,333
    
    
    $
    (21,000
    )Borrowings on long-term debt
    
    
    106,500
    
    
    
    
    
    
    
    481,875Principal payments on long-term debt
    
    
    (5,093
    )
    
    
    (6,067
    )
    
    
    (41,281
    )Payment of loan and issuance costs
    
    
    (9,903
    )
    
    
    (59
    )
    
    
    (6,661
    )Refinancing of long-term debt
    
    
    
    
    
    
    
    
    
    
    (7,127
    )Excess tax benefit from share-based payment arrangements
    
    
    1,678
    
    
    
    3,052
    
    
    
    9,428Distributions to noncontrolling interests
    
    
    (723
    )
    
    
    
    
    
    
    Repurchase of common stock upon restricted stock vesting
    
    
    (1,057
    )
    
    
    (271
    )
    
    
    (122
    )Proceeds from exercises of common stock options
    
    
    1,085
    
    
    
    9,745
    
    
    
    17,401Net cash (used in) provided by financing activities
    
    
    (136,846
    )
    
    
    155,733
    
    
    
    432,513Net (decrease) increase in cash
    
    
    (44,456
    )
    
    
    11,301
    
    
    
    21,450Cash and cash equivalents at beginning of the year
    
    
    51,271
    
    
    
    39,970
    
    
    
    18,520Cash and cash equivalents at end of the year
    
    $
    6,815
    
    
    $
    51,271
    
    
    $
    39,970Supplemental Cash Flow Information:Interest paid
    
    $
    61,971
    
    
    $
    79,824
    
    
    $
    62,864Income taxes paid
    
    $
    49,934
    
    
    $
    68,151
    
    
    $
    29,924Effect of Acquisitions:Assets acquired, net of cash acquired
    
    $
    39,147
    
    
    $
    124,687
    
    
    $
    497,354Liabilities assumed
    
    
    (6,162
    )
    
    
    (3,531
    )
    
    
    (34,753
    )Common stock issued
    
    
    
    
    
    
    
    
    
    
    (9,000
    )Long-term debt assumed
    
    
    (75
    )
    
    
    
    
    
    
    (8,702
    )Cash paid for acquisitions, net of cash acquired
    
    $
    32,910
    
    
    $
    121,156
    
    
    $
    444,899
  F-9




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##### Table of Contents



PSYCHIATRIC
SOLUTIONS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
 1. Summary of Significant Accounting Policies
 Description of Business
  Recent Developments
  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, 2009
 Allowance for Doubtful Accounts
   Allowances for Contractual Discounts
  Income Taxes
  Long-Lived Assets
 Property and Equipment
  Cost in Excess of Net Assets Acquired (Goodwill)
   F-11




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
 Owned andLeasedFacilities
    
    
    Other
    
    
    TotalBalance at December 31, 2007
    
    $
    1,035,606
    
    
    $
    16,176
    
    
    $
    1,051,782Acquisition of UMC facilities
    
    
    85,459
    
    
    
    
    
    
    
    85,459Other Acquisitions
    
    
    2,001
    
    
    
    
    
    
    
    2,001Balance at December 31, 2008
    
    
    1,123,066
    
    
    
    16,176
    
    
    
    1,139,242Acquisitions
    
    
    13,869
    
    
    
    
    
    
    
    13,869Balance at December 31, 2009
    
    $
    1,136,935
    
    
    $
    16,176
    
    
    $
    1,153,111
 Other Assets
    Other Accrued Liabilities
  Share-Based Compensation
 Compensation  Stock Compensation ,
 Derivatives
  F-12




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
 Risk Management
   Fair Value of Financial Instruments
 3 4 3 4 3 4
 Reclassifications
  Recent Accounting Pronouncements
  Subsequent Events
 Business Combinations
 Consolidation
  Subsequent Events
  F-13




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
 2. Revenue
  December 31,2009
    
    
    2008
    
    
    2007Patient service revenue
    
    $
    1,678,449
    
    
    $
    1,571,141
    
    
    $
    1,314,203Other revenue
    
    
    126,912
    
    
    
    124,975
    
    
    
    100,497Total revenue
    
    $
    1,805,361
    
    
    $
    1,696,116
    
    
    $
    1,414,700
 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, 2009
 Year ended December 31,2009
    
    
    2008
    
    
    2007Numerator:Basic and diluted earnings per share:Income from continuing operations attributable to PSI
stockholders
    
    $
    120,078
    
    
    $
    105,034
    
    
    $
    76,134(Loss) income from discontinued operations, net of taxes
    
    
    (2,461
    )
    
    
    (81
    )
    
    
    74Net income attributable to PSI stockholders
    
    $
    117,617
    
    
    $
    104,953
    
    
    $
    76,208Denominator:Weighted average shares outstanding for basic earnings per share
    
    
    55,564
    
    
    
    55,408
    
    
    
    54,258Effects of dilutive stock options and restriced stock outstanding
    
    
    552
    
    
    
    859
    
    
    
    1,189Shares used in computing diluted earnings per common share
    
    
    56,116
    
    
    
    56,267
    
    
    
    55,447Basic earnings per share:Income from continuing operations attributable to PSI stockholders
    
    $
    2.16
    
    
    $
    1.89
    
    
    $
    1.40(Loss) income from discontinued operations, net of taxes
    
    
    (0.04
    )
    
    
    
    
    
    
    Net income attributable to PSI stockholders
    
    $
    2.12
    
    
    $
    1.89
    
    
    $
    1.40Diluted earnings per share:Income from continuing operations attributable to PSI stockholders
    
    $
    2.14
    
    
    $
    1.87
    
    
    $
    1.37(Loss) income from discontinued operations, net of taxes
    
    
    (0.04
    )
    
    
    
    
    
    
    Net income attributable to PSI stockholders
    
    $
    2.10
    
    
    $
    1.87
    
    
    $
    1.37
 4. Discontinued Operations
   Year Ended December 31,2009
    
    
    2008
    
    
    2007Revenue
    
    $
    61,775
    
    
    $
    84,660
    
    
    $
    69,469Operating expenses
    
    
    65,273
    
    
    
    81,296
    
    
    
    67,921Loss on disposal
    
    
    2,202
    
    
    
    1,917
    
    
    
    76767,475
    
    
    
    83,213
    
    
    
    68,688(Loss) income from discontinued
operations before income taxes
    
    
    (5,700
    )
    
    
    1,447
    
    
    
    781(Benefit from) provision for income taxes
    
    
    (3,239
    )
    
    
    1,528
    
    
    
    707(Loss) income from discontinued
operations, net of income taxes
    
    $
    (2,461
    )
    
    $
    (81
    )
    
    $
    74
   F-15




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
  5. Acquisitions
  2009 Acquisitions
  2008 Acquisition
  2007 Acquisitions
   Horizon HealthAssets acquired:Accounts receivable
    
    $
    40,590Other current assets
    
    
    15,102Fixed assets
    
    
    96,664Costs in excess of net assets acquired
    
    
    285,068Other assets
    
    
    24,039461,463Liabilities assumed
    
    
    35,446Long-term debt assumed
    
    
    6,998Cash paid, net of cash acquired and discontinued operations
    
    
    419,019Assets and liabilities of discontinued operations
    
    
    10,124Cash paid, net of cash acquired
    
    $
    429,143
  F-16




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
 6. Long-term debt
  December 31,2009
    
    
    2008Senior credit facility:Revolving line of credit facility, expiring on December 31, 2011
and bearing interest of 3.4% at December 31, 2008
    
    $
    
    
    
    $
    229,333Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 2.0% and 3.1% at
December 31, 2009
and December 31, 2008, respectively
    
    
    564,875
    
    
    
    568,6257 3/4% Notes
    
    
    582,666
    
    
    
    475,841Mortgage loans on facilities, maturing in 2036, 2037 and 2038
bearing fixed interest rates of 5.7% to 7.6%
    
    
    32,850
    
    
    
    33,273Other
    
    
    6,688
    
    
    
    7,3251,187,079
    
    
    
    1,314,397Less current portion
    
    
    4,940
    
    
    
    34,391Long-term debt
    
    $
    1,182,139
    
    
    $
    1,280,006
 Senior Credit Facility
    7 3 / 4 % Notes
 3 4 3 4 3 4 3 4 3 4 3 4 3 4 3 4
 F-17




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
December 31, 2009
 Mortgage Loans
  Interest Rate Swap Agreements
  Other
  2010
    
    $
    4,9402011
    
    
    4,9152012
    
    
    558,4942013
    
    
    1,1062014
    
    
    1,148Thereafter
    
    
    616,476Total
    
    $
    1,187,079
 7. Leases
  2010
    
    $
    14,0892011
    
    
    11,4102012
    
    
    8,2232013
    
    
    6,9492014
    
    
    6,323Thereafter
    
    
    33,001Total
    
    $
    79,995
 8. Income Taxes
  2009
    
    
    2008
    
    
    2007Provision for income taxes attributable
to income from continuing operations
    
    $
    74,889
    
    
    $
    64,457
    
    
    $
    46,200(Benefit from) provision for income taxes attributable
to (loss) income from discontinued
operations
    
    
    (3,239
    )
    
    
    1,528
    
    
    
    707Total provision for income taxes
    
    $
    71,650
    
    
    $
    65,985
    
    
    $
    46,907
 F-18




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
  2009
    
    
    2008
    
    
    2007Current:Federal
    
    $
    54,580
    
    
    $
    45,202
    
    
    $
    31,153State
    
    
    6,388
    
    
    
    5,568
    
    
    
    4,838Foreign
    
    
    2,547
    
    
    
    2,338
    
    
    
    3,50563,515
    
    
    
    53,108
    
    
    
    39,496Deferred:Federal
    
    
    11,200
    
    
    
    9,819
    
    
    
    8,086State
    
    
    638
    
    
    
    1,487
    
    
    
    (457
    )Foreign
    
    
    (464
    )
    
    
    43
    
    
    
    (925
    )11,374
    
    
    
    11,349
    
    
    
    6,704Provision for income taxes
    
    $
    74,889
    
    
    $
    64,457
    
    
    $
    46,200
   2009
    
    
    2008
    
    
    2007Federal tax
    
    $
    68,239
    
    
    $
    59,322
    
    
    $
    42,817State income taxes (net of federal)
    
    
    4,567
    
    
    
    4,586
    
    
    
    2,848Other
    
    
    2,083
    
    
    
    549
    
    
    
    535Provision for income taxes
    
    $
    74,889
    
    
    $
    64,457
    
    
    $
    46,200
  2009
    
    
    2008Deferred tax assets:Net operating loss carryforwards
    
    $
    9,038
    
    
    $
    9,146Allowance for doubtful accounts
    
    
    18,474
    
    
    
    13,488Alternative minimum tax credit carryovers
    
    
    
    
    
    
    794Accrued liabilities
    
    
    42,349
    
    
    
    39,293Total gross deferred tax assets
    
    
    69,861
    
    
    
    62,721Less: Valuation allowance
    
    
    (4,272
    )
    
    
    (4,748
    )Total deferred tax assets
    
    
    65,589
    
    
    
    57,973Deferred tax liabilities:Intangible assets
    
    
    (52,938
    )
    
    
    (37,567
    )Property and equipment
    
    
    (66,537
    )
    
    
    (57,415
    )Other
    
    
    (1,985
    )
    
    
    (2,658
    )Net deferred tax liability
    
    $
    (55,871
    )
    
    $
    (39,667
    )
   F-19




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
December 31, 2009
      Balance as of January 1, 2009
    
    $
    1,724Increases for tax positions taken in the current year
    
    
    408Reductions due to lapse of statute of limitations
    
    
    (383
    )Balance as of December 31, 2009
    
    $
    1,749
     9. Stock Option Plans
   F-20




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
December 31, 2009
  WeightedWeighted
    
    AverageAverage
    
    Remaining
    
    AggregateNumber of
    
    Exercise
    
    Contractual
    
    IntrinsicOptions
    
    Price
    
    Term (in years)
    
    ValueOutstanding at December 31, 2008
    
    
    6,512
    
    
    $
    28.98
    
    
    
    7.5
    
    
    $
    24,448Granted
    
    
    396
    
    
    $
    18.65
    
    
    
    n/a
    
    
    
    n/aCanceled
    
    
    (823
    )
    
    $
    33.17
    
    
    
    n/a
    
    
    
    n/aExercised
    
    
    (86
    )
    
    $
    12.66
    
    
    
    n/a
    
    
    
    n/aOutstanding at December 31, 2009
    
    
    5,999
    
    
    $
    27.84
    
    
    
    6.6
    
    
    $
    12,667Exercisable at December 31, 2009
    
    
    4,095
    
    
    $
    26.17
    
    
    
    5.9
    
    
    $
    11,586
  WeightedAverageNumber of
    
    Grant-Restricted
    
    Date FairShares
    
    ValueUnvested at December 31, 2008
    
    
    498
    
    
    $
    33.23Granted
    
    
    327
    
    
    $
    17.14Canceled
    
    
    (82
    )
    
    $
    24.64Vested
    
    
    (142
    )
    
    $
    33.97Unvested at December 31, 2009
    
    
    601
    
    
    $
    25.47
   2009
    
    2008
    
    2007Weighted average grant-date fair value of options
    
    $
    6.20
    
    
    $
    11.02
    
    
    $
    14.25Risk-free interest rate
    
    
    2
    %
    
    
    3
    %
    
    
    5
    %Expected volatility
    
    
    36
    %
    
    
    34
    %
    
    
    35
    %Expected life (in years)
    
    
    5
    
    
    
    5
    
    
    
    5Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    F-21




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
December 31, 2009
 10. Employee Benefit Plan
  11. Contingencies and Health Care Regulation
 Contingencies
    Employment Agreement
     Current Operations
  F-22




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
December 31, 2009
   12. Related Party Transactions
  13. Disclosures About Reportable Segments
   F-23




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009
 Year Ended December 31, 2009
 Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    1,678,449
    
    
    $
    126,912
    
    
    $
    
    
    
    $
    1,805,361Adjusted EBITDA
    
    $
    361,078
    
    
    $
    14,945
    
    
    $
    (47,131
    )
    
    $
    328,892Interest expense, net
    
    
    28,494
    
    
    
    (788
    )
    
    
    43,843
    
    
    
    71,549Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    74,889
    
    
    
    74,889Depreciation and amortization
    
    
    38,894
    
    
    
    4,288
    
    
    
    1,596
    
    
    
    44,778Inter-segment expenses
    
    
    57,538
    
    
    
    5,117
    
    
    
    (62,655
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    17,505
    
    
    
    17,505Total other expenses
    
    
    
    
    
    
    
    
    
    
    17,505
    
    
    
    17,505Income (loss) from continuing operations
    
    
    236,152
    
    
    
    6,328
    
    
    
    (122,309
    )
    
    
    120,171Less: Income attributable to noncontrolling interest
    
    
    (93
    )
    
    
    
    
    
    
    
    
    
    
    (93
    )Income (loss) from continuing operations attributable to
PSI stockholders
    
    $
    236,059
    
    
    $
    6,328
    
    
    $
    (122,309
    )
    
    $
    120,078Total assets
    
    $
    2,341,778
    
    
    $
    58,438
    
    
    $
    107,024
    
    
    $
    2,507,240Capital expenditures
    
    $
    127,285
    
    
    $
    339
    
    
    $
    3,050
    
    
    $
    130,674Cost in excess of net assets acquired
    
    $
    1,136,935
    
    
    $
    16,176
    
    
    $
    
    
    
    $
    1,153,111
 Year Ended December 31, 2008
 Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    1,571,141
    
    
    $
    124,975
    
    
    $
    
    
    
    $
    1,696,116Adjusted EBITDA
    
    $
    327,124
    
    
    $
    22,866
    
    
    $
    (45,157
    )
    
    $
    304,833Interest expense, net
    
    
    27,920
    
    
    
    (1,391
    )
    
    
    49,453
    
    
    
    75,982Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    64,457
    
    
    
    64,457Depreciation and amortization
    
    
    32,668
    
    
    
    4,633
    
    
    
    1,542
    
    
    
    38,843Inter-segment expenses
    
    
    63,054
    
    
    
    5,840
    
    
    
    (68,894
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    19,913
    
    
    
    19,913Total other expenses
    
    
    
    
    
    
    
    
    
    
    19,913
    
    
    
    19,913Income (loss) from continuing operations
    
    
    203,482
    
    
    
    13,784
    
    
    
    (111,628
    )
    
    
    105,638Less: Income attributable to noncontrolling interest
    
    
    (604
    )
    
    
    
    
    
    
    
    
    
    
    (604
    )Income (loss) from continuing operations attributable to
PSI stockholders
    
    $
    202,878
    
    
    $
    13,784
    
    
    $
    (111,628
    )
    
    $
    105,034Total assets
    
    $
    2,213,462
    
    
    $
    62,965
    
    
    $
    229,563
    
    
    $
    2,505,990Capital expenditures
    
    $
    116,719
    
    
    $
    876
    
    
    $
    4,335
    
    
    $
    121,930Cost in excess of net assets acquired
    
    $
    1,123,066
    
    
    $
    16,176
    
    
    $
    
    
    
    $
    1,139,242
 F-24




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009
 Year Ended December 31, 2007
 Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    1,314,203
    
    
    $
    100,497
    
    
    $
    
    
    
    $
    1,414,700Adjusted EBITDA
    
    $
    272,672
    
    
    $
    16,862
    
    
    $
    (38,632
    )
    
    $
    250,902Interest expense, net
    
    
    29,670
    
    
    
    100
    
    
    
    44,117
    
    
    
    73,887Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    46,200
    
    
    
    46,200Depreciation and amortization
    
    
    26,240
    
    
    
    2,413
    
    
    
    1,460
    
    
    
    30,113Inter-segment expenses
    
    
    54,578
    
    
    
    4,503
    
    
    
    (59,081
    )
    
    
    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
    
    
    162,184
    
    
    
    9,846
    
    
    
    (95,611
    )
    
    
    76,419Less: Income attributable to
noncontrolling interest
    
    
    (285
    )
    
    
    
    
    
    
    
    
    
    
    (285
    )Income (loss) from continuing operations attributable to
PSI stockholders
    
    $
    161,899
    
    
    $
    9,846
    
    
    $
    (95,611
    )
    
    $
    76,134Total assets
    
    $
    1,950,999
    
    
    $
    69,333
    
    
    $
    159,173
    
    
    $
    2,179,505Capital expenditures
    
    $
    66,828
    
    
    $
    354
    
    
    $
    4,078
    
    
    $
    71,260Cost in excess of net assets acquired
    
    $
    1,035,606
    
    
    $
    16,176
    
    
    $
    
    
    
    $
    1,051,782
 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, 2007
    
    $
    18,468
    
    
    
    27,343
    
    
    
    12,982
    
    
    
    23,827
    
    
    $
    34,966Year ended December
31, 2008
    
    $
    34,966
    
    
    
    34,334
    
    
    
    
    
    
    
    20,917
    
    
    $
    48,383Year ended December
31, 2009
    
    $
    48,383
    
    
    
    36,414
    
    
    
    
    
    
    
    32,903
    
    
    $
    51,894
 
 (1)
    
    Allowances as a result of acquisitions. F-25




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
 15. Quarterly Information (Unaudited)
  1st
    
    2nd
    
    3rd
    
    4thQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Total Year2009Revenue
    
    $
    433,930
    
    
    $
    455,287
    
    
    $
    453,187
    
    
    $
    462,957
    
    
    $
    1,805,361Income from continuing operations
attributable to PSI stockholders
    
    $
    27,521
    
    
    $
    34,580
    
    
    $
    28,305
    
    
    $
    29,672
    
    
    $
    120,078Net income attributable to PSI stockholders
    
    $
    27,382
    
    
    $
    34,408
    
    
    $
    28,152
    
    
    $
    27,675
    
    
    $
    117,617Earnings per share:Basic
    
    $
    0.49
    
    
    $
    0.62
    
    
    $
    0.51
    
    
    $
    0.50
    
    
    $
    2.12Diluted
    
    $
    0.49
    
    
    $
    0.62
    
    
    $
    0.50
    
    
    $
    0.49
    
    
    $
    2.102008Revenue
    
    $
    408,602
    
    
    $
    429,200
    
    
    $
    429,878
    
    
    $
    428,436
    
    
    $
    1,696,116Income from continuing operations
attributable to PSI stockholders
    
    $
    24,566
    
    
    $
    28,338
    
    
    $
    27,977
    
    
    $
    24,153
    
    
    $
    105,034Net income attributable to PSI stockholders
    
    $
    25,496
    
    
    $
    29,059
    
    
    $
    26,377
    
    
    $
    24,021
    
    
    $
    104,953Earnings per share:Basic
    
    $
    0.46
    
    
    $
    0.53
    
    
    $
    0.48
    
    
    $
    0.43
    
    
    $
    1.89Diluted
    
    $
    0.46
    
    
    $
    0.52
    
    
    $
    0.47
    
    
    $
    0.43
    
    
    $
    1.87
  16. Financial Information for the Company and Its Subsidiaries
  F-26




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
 Condensed Consolidating Balance Sheet
As of December 31, 2009
(in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    2,111
    
    
    $
    4,704
    
    
    $
    
    
    
    $
    6,815Accounts receivable, net
    
    
    
    
    
    
    241,211
    
    
    
    8,296
    
    
    
    (68
    )
    
    
    249,439Other Current Assets
    
    
    
    
    
    
    90,259
    
    
    
    16,284
    
    
    
    (1,377
    )
    
    
    105,166Total current assets
    
    
    
    
    
    
    333,581
    
    
    
    29,284
    
    
    
    (1,445
    )
    
    
    361,420Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    879,453
    
    
    
    61,491
    
    
    
    (9,214
    )
    
    
    931,730Cost in excess of net assets acquired
    
    
    
    
    
    
    1,153,111
    
    
    
    
    
    
    
    
    
    
    
    1,153,111Investment in subsidiaries
    
    
    1,486,852
    
    
    
    (368,332
    )
    
    
    (16,964
    )
    
    
    (1,101,556
    )
    
    
    Other assets
    
    
    17,536
    
    
    
    37,420
    
    
    
    25,372
    
    
    
    (19,349
    )
    
    
    60,979Total assets
    
    $
    1,504,388
    
    
    $
    2,035,233
    
    
    $
    99,183
    
    
    $
    (1,131,564
    )
    
    $
    2,507,240Current Liabilities:Accounts payable
    
    $
    
    
    
    $
    34,467
    
    
    $
    998
    
    
    $
    (68
    )
    
    $
    35,397Salaries and benefits payable
    
    
    
    
    
    
    80,255
    
    
    
    874
    
    
    
    
    
    
    
    81,129Other accrued liabilities
    
    
    28,901
    
    
    
    32,783
    
    
    
    1,610
    
    
    
    (1,258
    )
    
    
    62,036Current portion of long-term debt
    
    
    4,490
    
    
    
    
    
    
    
    450
    
    
    
    
    
    
    
    4,940Total current liabilities
    
    
    33,391
    
    
    
    147,505
    
    
    
    3,932
    
    
    
    (1,326
    )
    
    
    183,502Long-term debt, less current portion
    
    
    1,149,738
    
    
    
    
    
    
    
    32,401
    
    
    
    
    
    
    
    1,182,139Deferred tax liability
    
    
    
    
    
    
    81,137
    
    
    
    
    
    
    
    
    
    
    
    81,137Other liabilities
    
    
    127
    
    
    
    (6,324
    )
    
    
    36,069
    
    
    
    (4,082
    )
    
    
    25,790Total liabilities
    
    
    1,183,256
    
    
    
    222,318
    
    
    
    72,402
    
    
    
    (5,408
    )
    
    
    1,472,568Redeemable noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,337
    
    
    
    4,337Total stockholders equity (deficit)
    
    
    321,132
    
    
    
    1,812,915
    
    
    
    26,781
    
    
    
    (1,130,493
    )
    
    
    1,030,335Total liabilities and stockholders equity (deficit)
    
    $
    1,504,388
    
    
    $
    2,035,233
    
    
    $
    99,183
    
    
    $
    (1,131,564
    )
    
    $
    2,507,240
 Condensed Consolidating Balance Sheet
As of December 31, 2008
(in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    39,881
    
    
    $
    11,390
    
    
    $
    
    
    
    $
    51,271Accounts receivable, net
    
    
    
    
    
    
    234,197
    
    
    
    7,331
    
    
    
    (69
    )
    
    
    241,459Other Current Assets
    
    
    
    
    
    
    158,305
    
    
    
    16,910
    
    
    
    (435
    )
    
    
    174,780Total current assets
    
    
    
    
    
    
    432,383
    
    
    
    35,631
    
    
    
    (504
    )
    
    
    467,510Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    772,377
    
    
    
    57,600
    
    
    
    (9,524
    )
    
    
    820,453Cost in excess of net assets acquired
    
    
    
    
    
    
    1,139,242
    
    
    
    
    
    
    
    
    
    
    
    1,139,242Investment in subsidiaries
    
    
    1,668,515
    
    
    
    (547,165
    )
    
    
    (23,521
    )
    
    
    (1,097,829
    )
    
    
    Other assets
    
    
    12,633
    
    
    
    15,923
    
    
    
    27,164
    
    
    
    23,065
    
    
    
    78,785Total assets
    
    $
    1,681,148
    
    
    $
    1,812,760
    
    
    $
    96,874
    
    
    $
    (1,084,792
    )
    
    $
    2,505,990Current Liabilities:Accounts payable
    
    $
    
    
    
    $
    33,853
    
    
    $
    825
    
    
    $
    (69
    )
    
    $
    34,609Salaries and benefits payable
    
    
    
    
    
    
    81,970
    
    
    
    1,569
    
    
    
    
    
    
    
    83,539Other accrued liabilities
    
    
    28,786
    
    
    
    51,475
    
    
    
    4,335
    
    
    
    (3,531
    )
    
    
    81,065Current portion of long-term debt
    
    
    33,968
    
    
    
    
    
    
    
    423
    
    
    
    
    
    
    
    34,391Total current liabilities
    
    
    62,754
    
    
    
    167,298
    
    
    
    7,152
    
    
    
    (3,600
    )
    
    
    233,604Long-term debt, less current portion
    
    
    1,247,156
    
    
    
    
    
    
    
    32,850
    
    
    
    
    
    
    
    1,280,006Deferred tax liability
    
    
    
    
    
    
    69,471
    
    
    
    
    
    
    
    
    
    
    
    69,471Other liabilities
    
    
    12,433
    
    
    
    (61,717
    )
    
    
    31,349
    
    
    
    46,002
    
    
    
    28,067Total liabilities
    
    
    1,322,343
    
    
    
    175,052
    
    
    
    71,351
    
    
    
    42,402
    
    
    
    1,611,148Redeemable noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,957
    
    
    
    4,957Total stockholders equity (deficit)
    
    
    358,805
    
    
    
    1,637,708
    
    
    
    25,523
    
    
    
    (1,132,151
    )
    
    
    889,885Total liabilities and stockholders equity (deficit)
    
    $
    1,681,148
    
    
    $
    1,812,760
    
    
    $
    96,874
    
    
    $
    (1,084,792
    )
    
    $
    2,505,990
 F-27




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
 Condensed Consolidating Statement of Income
For the Twelve Months Ended December 31, 2009
(in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    1,764,827
    
    
    $
    56,180
    
    
    $
    (15,646
    )
    
    $
    1,805,361Salaries, wages and employee benefits
    
    
    
    
    
    
    979,106
    
    
    
    26,098
    
    
    
    
    
    
    
    1,005,204Professional fees
    
    
    
    
    
    
    162,862
    
    
    
    6,840
    
    
    
    (2,917
    )
    
    
    166,785Supplies
    
    
    
    
    
    
    90,222
    
    
    
    2,350
    
    
    
    
    
    
    
    92,572Rentals and leases
    
    
    
    
    
    
    24,234
    
    
    
    257
    
    
    
    (4,360
    )
    
    
    20,131Other operating expenses
    
    
    
    
    
    
    168,965
    
    
    
    14,804
    
    
    
    (10,901
    )
    
    
    172,868Provision for doubtful accounts
    
    
    
    
    
    
    35,303
    
    
    
    1,111
    
    
    
    
    
    
    
    36,414Depreciation and amortization
    
    
    
    
    
    
    42,831
    
    
    
    2,257
    
    
    
    (310
    )
    
    
    44,778Interest expense
    
    
    69,799
    
    
    
    
    
    
    
    1,750
    
    
    
    
    
    
    
    71,54969,799
    
    
    
    1,503,523
    
    
    
    55,467
    
    
    
    (18,488
    )
    
    
    1,610,301(Loss) income from continuing operations before
income taxes
    
    
    (69,799
    )
    
    
    261,304
    
    
    
    713
    
    
    
    2,842
    
    
    
    195,060(Benefit from) provision for income taxes
    
    
    (26,798
    )
    
    
    100,322
    
    
    
    274
    
    
    
    1,091
    
    
    
    74,889(Loss) income from continuing operations
    
    
    (43,001
    )
    
    
    160,982
    
    
    
    439
    
    
    
    1,751
    
    
    
    120,171(Loss) income from discontinued operations, net of tax
    
    
    
    
    
    
    (3,280
    )
    
    
    819
    
    
    
    
    
    
    
    (2,461
    )Net (loss) income
    
    
    (43,001
    )
    
    
    157,702
    
    
    
    1,258
    
    
    
    1,751
    
    
    
    117,710Less: Net income attributable to noncontrolling
interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (93
    )
    
    
    (93
    )Net (loss) income attributable to PSI stockholders
    
    $
    (43,001
    )
    
    $
    157,702
    
    
    $
    1,258
    
    
    $
    1,658
    
    
    $
    117,617
 Condensed Consolidating Statement of Income
For the Twelve Months Ended December 31, 2008
(in thousands)
 Combined Subsidiary
    
    
    Combined
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    1,651,496
    
    
    $
    56,499
    
    
    $
    (11,879
    )
    
    $
    1,696,116Salaries, wages and employee benefits
    
    
    
    
    
    
    911,145
    
    
    
    27,238
    
    
    
    (20
    )
    
    
    938,363Professional fees
    
    
    
    
    
    
    158,005
    
    
    
    4,586
    
    
    
    (100
    )
    
    
    162,491Supplies
    
    
    
    
    
    
    90,069
    
    
    
    2,324
    
    
    
    
    
    
    
    92,393Rentals and leases
    
    
    
    
    
    
    24,768
    
    
    
    97
    
    
    
    (4,230
    )
    
    
    20,635Other operating expenses
    
    
    
    
    
    
    158,046
    
    
    
    13,116
    
    
    
    (8,182
    )
    
    
    162,980Provision for doubtful accounts
    
    
    
    
    
    
    33,496
    
    
    
    838
    
    
    
    
    
    
    
    34,334Depreciation and amortization
    
    
    
    
    
    
    36,898
    
    
    
    2,252
    
    
    
    (307
    )
    
    
    38,843Interest expense
    
    
    74,663
    
    
    
    
    
    
    
    1,319
    
    
    
    
    
    
    
    75,98274,663
    
    
    
    1,412,427
    
    
    
    51,770
    
    
    
    (12,839
    )
    
    
    1,526,021(Loss) income from continuing operations before
income taxes
    
    
    (74,663
    )
    
    
    239,069
    
    
    
    4,729
    
    
    
    960
    
    
    
    170,095(Benefit from) provision for income taxes
    
    
    (28,293
    )
    
    
    90,635
    
    
    
    1,751
    
    
    
    364
    
    
    
    64,457(Loss) income from continuing operations
    
    
    (46,370
    )
    
    
    148,434
    
    
    
    2,978
    
    
    
    596
    
    
    
    105,638(Loss) income from discontinued operations, net of tax
    
    
    
    
    
    
    (992
    )
    
    
    911
    
    
    
    
    
    
    
    (81
    )Net (loss) income
    
    
    (46,370
    )
    
    
    147,442
    
    
    
    3,889
    
    
    
    596
    
    
    
    105,557Less: Net income attributable to noncontrolling
interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (604
    )
    
    
    (604
    )Net (loss) income attributable to PSI stockholders
    
    $
    (46,370
    )
    
    $
    147,442
    
    
    $
    3,889
    
    
    $
    (8
    )
    
    $
    104,953
 F-28




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
 Condensed Consolidating Statement of Income
For the Twelve Months Ended December 31, 2007
(in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    1,390,521
    
    
    $
    37,257
    
    
    $
    (13,078
    )
    
    $
    1,414,700Salaries, wages and employee benefits
    
    
    
    
    
    
    772,765
    
    
    
    14,533
    
    
    
    3
    
    
    
    787,301Professional fees
    
    
    
    
    
    
    132,757
    
    
    
    4,178
    
    
    
    (1,132
    )
    
    
    135,803Supplies
    
    
    
    
    
    
    76,563
    
    
    
    1,192
    
    
    
    (17
    )
    
    
    77,738Rentals and leases
    
    
    
    
    
    
    22,890
    
    
    
    55
    
    
    
    (4,006
    )
    
    
    18,939Other operating expenses
    
    
    
    
    
    
    130,185
    
    
    
    12,292
    
    
    
    (9,699
    )
    
    
    132,778Provision for doubtful accounts
    
    
    
    
    
    
    26,633
    
    
    
    710
    
    
    
    
    
    
    
    27,343Depreciation and amortization
    
    
    
    
    
    
    28,517
    
    
    
    1,872
    
    
    
    (276
    )
    
    
    30,113Interest expense
    
    
    72,642
    
    
    
    
    
    
    
    1,245
    
    
    
    
    
    
    
    73,887Loss on refinancing long-term debt
    
    
    8,179
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,17980,821
    
    
    
    1,190,310
    
    
    
    36,077
    
    
    
    (15,127
    )
    
    
    1,292,081(Loss) income from continuing operations before
income taxes
    
    
    (80,821
    )
    
    
    200,211
    
    
    
    1,180
    
    
    
    2,049
    
    
    
    122,619(Benefit from) provision for income taxes
    
    
    (30,451
    )
    
    
    75,432
    
    
    
    446
    
    
    
    773
    
    
    
    46,200(Loss) income from continuing operations
    
    
    (50,370
    )
    
    
    124,779
    
    
    
    734
    
    
    
    1,276
    
    
    
    76,419(Loss) income from discontinued operations, net
of taxes
    
    
    
    
    
    
    (222
    )
    
    
    296
    
    
    
    
    
    
    
    74Net (loss) income
    
    
    (50,370
    )
    
    
    124,557
    
    
    
    1,030
    
    
    
    1,276
    
    
    
    76,493Less: Net income attributable to noncontrolling
interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (285
    )
    
    
    (285
    )Net (loss) income attributable to PSI stockholders
    
    $
    (50,370
    )
    
    $
    124,557
    
    
    $
    1,030
    
    
    $
    991
    
    
    $
    76,208
 F-29




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
 Condensed Consolidating Statement of Cash Flows
For the Twelve Months Ended December 31, 2009
(in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating activities:Net (loss) income
    
    $
    (43,001
    )
    
    $
    157,702
    
    
    $
    1,258
    
    
    $
    1,751
    
    
    $
    117,710Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    42,831
    
    
    
    2,257
    
    
    
    (310
    )
    
    
    44,778Amortization of loan costs and bond premium
    
    
    5,255
    
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    5,300Share-based compensation
    
    
    
    
    
    
    17,505
    
    
    
    
    
    
    
    
    
    
    
    17,505Change in income tax assets and liabilities
    
    
    
    
    
    
    20,050
    
    
    
    
    
    
    
    
    
    
    
    20,050Loss (income) from discontinued operations, net of taxes
    
    
    
    
    
    
    3,280
    
    
    
    (819
    )
    
    
    
    
    
    
    2,461Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (2,946
    )
    
    
    (965
    )
    
    
    
    
    
    
    (3,911
    )Other current assets
    
    
    
    
    
    
    7,398
    
    
    
    626
    
    
    
    
    
    
    
    8,024Accounts payable
    
    
    
    
    
    
    (1,564
    )
    
    
    173
    
    
    
    
    
    
    
    (1,391
    )Salaries and benefits payable
    
    
    
    
    
    
    (5,524
    )
    
    
    (695
    )
    
    
    
    
    
    
    (6,219
    )Accrued liabilities and other liabilities
    
    
    4,773
    
    
    
    4,008
    
    
    
    (7,677
    )
    
    
    
    
    
    
    1,104Net cash (used in) provided by continuing operating activities
    
    
    (32,973
    )
    
    
    242,740
    
    
    
    (5,797
    )
    
    
    1,441
    
    
    
    205,411Net cash (used in) provided by discontinued operating activities
    
    
    
    
    
    
    (602
    )
    
    
    1,585
    
    
    
    
    
    
    
    983Net cash (used in) provided by operating activities
    
    
    (32,973
    )
    
    
    242,138
    
    
    
    (4,212
    )
    
    
    1,441
    
    
    
    206,394Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (32,910
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,910
    )Cash paid for real estate acquisitions
    
    
    
    
    
    
    (19,341
    )
    
    
    
    
    
    
    
    
    
    
    (19,341
    )Capital purchases of leasehold improvements,
equipment and software
    
    
    
    
    
    
    (130,167
    )
    
    
    (507
    )
    
    
    
    
    
    
    (130,674
    )Other assets
    
    
    
    
    
    
    2,008
    
    
    
    (779
    )
    
    
    
    
    
    
    1,229Net cash (used in) provided by continuing investing activities
    
    
    (32,910
    )
    
    
    (147,500
    )
    
    
    (1,286
    )
    
    
    
    
    
    
    (181,696
    )Net cash provided by discontinued investing activities
    
    
    
    
    
    
    67,692
    
    
    
    
    
    
    
    
    
    
    
    67,692Net cash (used in) provided by investing activities
    
    
    (32,910
    )
    
    
    (79,808
    )
    
    
    (1,286
    )
    
    
    
    
    
    
    (114,004
    )Financing activities:Net increase in revolving credit facility, less acquisitions
    
    
    (229,333
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (229,333
    )Borrowings on long-term debt
    
    
    106,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106,500Principal payments on long-term debt
    
    
    (4,671
    )
    
    
    
    
    
    
    (422
    )
    
    
    
    
    
    
    (5,093
    )Payment of loan and issuance costs
    
    
    (9,903
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,903
    )Excess tax benefits from share-based payment arrangements
    
    
    1,678
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,678Distributions to noncontrolling interests
    
    
    (723
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (723
    )Repurchase of common stock upon restricted stock vesting
    
    
    (1,057
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,057
    )Net transfers to and from members
    
    
    202,307
    
    
    
    (200,100
    )
    
    
    (766
    )
    
    
    (1,441
    )
    
    
    Proceeds from exercises of common stock options
    
    
    1,085
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,085Net cash provided by (used in) financing activities
    
    
    65,883
    
    
    
    (200,100
    )
    
    
    (1,188
    )
    
    
    (1,441
    )
    
    
    (136,846
    )Net decrease in cash
    
    
    
    
    
    
    (37,770
    )
    
    
    (6,686
    )
    
    
    
    
    
    
    (44,456
    )Cash and cash equivalents at beginning of the year
    
    
    
    
    
    
    39,881
    
    
    
    11,390
    
    
    
    
    
    
    
    51,271Cash and cash equivalents at end of the year
    
    $
    
    
    
    $
    2,111
    
    
    $
    4,704
    
    
    $
    
    
    
    $
    6,815
 F-30




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
 Condensed Consolidating Statement of Cash Flows
For the Twelve Months Ended December 31, 2008
(in thousands)
 Combined
    
    
    CombinedSubsidiary
    
    
    Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating activities:Net (loss) income
    
    $
    (46,370
    )
    
    $
    147,442
    
    
    $
    3,889
    
    
    $
    596
    
    
    $
    105,557Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    36,898
    
    
    
    2,252
    
    
    
    (307
    )
    
    
    38,843Amortization of loan costs and bond premium
    
    
    2,168
    
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    2,213Share-based compensation
    
    
    
    
    
    
    19,913
    
    
    
    
    
    
    
    
    
    
    
    19,913Change in income tax assets and liabilities
    
    
    
    
    
    
    (5,034
    )
    
    
    
    
    
    
    
    
    
    
    (5,034
    )Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    992
    
    
    
    (911
    )
    
    
    
    
    
    
    81Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (17,649
    )
    
    
    (106
    )
    
    
    
    
    
    
    (17,755
    )Other current assets
    
    
    
    
    
    
    10,523
    
    
    
    (15,135
    )
    
    
    
    
    
    
    (4,612
    )Accounts payable
    
    
    
    
    
    
    3,098
    
    
    
    (207
    )
    
    
    
    
    
    
    2,891Salaries and benefits payable
    
    
    
    
    
    
    1,679
    
    
    
    52
    
    
    
    
    
    
    
    1,731Accrued liabilities and other liabilities
    
    
    (3,599
    )
    
    
    861
    
    
    
    (1,829
    )
    
    
    
    
    
    
    (4,567
    )Net cash (used in) provided by continuing operating activities
    
    
    (47,801
    )
    
    
    198,723
    
    
    
    (11,950
    )
    
    
    289
    
    
    
    139,261Net cash provided by discontinued operating activities
    
    
    
    
    
    
    739
    
    
    
    1,783
    
    
    
    
    
    
    
    2,522Net cash (used in) provided by operating activities
    
    
    (47,801
    )
    
    
    199,462
    
    
    
    (10,167
    )
    
    
    289
    
    
    
    141,783Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (121,156
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (121,156
    )Capital purchases of leasehold improvements,
equipment and software
    
    
    
    
    
    
    (119,540
    )
    
    
    (2,390
    )
    
    
    
    
    
    
    (121,930
    )Other assets
    
    
    
    
    
    
    (1,668
    )
    
    
    350
    
    
    
    
    
    
    
    (1,318
    )Net cash used in continuing investing activities
    
    
    (121,156
    )
    
    
    (121,208
    )
    
    
    (2,040
    )
    
    
    
    
    
    
    (244,404
    )Net cash (used in) provided by discontinued investing activities
    
    
    (45,000
    )
    
    
    3,189
    
    
    
    
    
    
    
    
    
    
    
    (41,811
    )Net cash used in investing activities
    
    
    (166,156
    )
    
    
    (118,019
    )
    
    
    (2,040
    )
    
    
    
    
    
    
    (286,215
    )Financing activities:Net increase in revolving credit facility, less acquisitions
    
    
    149,333
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    149,333Principal payments on long-term debt
    
    
    (5,669
    )
    
    
    
    
    
    
    (398
    )
    
    
    
    
    
    
    (6,067
    )Payment of loan and issuance costs
    
    
    (59
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (59
    )Excess tax benefits from share-based payment arrangements
    
    
    3,052
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,052Repurchase of common stock upon restricted stock vesting
    
    
    (271
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (271
    )Net transfers to and from members
    
    
    57,826
    
    
    
    (60,716
    )
    
    
    3,179
    
    
    
    (289
    )
    
    
    Proceeds from exercises of common stock options
    
    
    9,745
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,745Net cash provided by (used in) financing activities
    
    
    213,957
    
    
    
    (60,716
    )
    
    
    2,781
    
    
    
    (289
    )
    
    
    155,733Net increase (decrease) in cash
    
    
    
    
    
    
    20,727
    
    
    
    (9,426
    )
    
    
    
    
    
    
    11,301Cash and cash equivalents at beginning of the year
    
    
    
    
    
    
    19,154
    
    
    
    20,816
    
    
    
    
    
    
    
    39,970Cash and cash equivalents at end of the year
    
    $
    
    
    
    $
    39,881
    
    
    $
    11,390
    
    
    $
    
    
    
    $
    51,271
 F-31




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
 Condensed Consolidating Statement of Cash Flows
For the Twelve Months Ended December 31, 2007
(in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating activities:Net (loss) income
    
    $
    (50,370
    )
    
    $
    124,557
    
    
    $
    1,030
    
    
    $
    1,276
    
    
    $
    76,493Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    28,517
    
    
    
    1,872
    
    
    
    (276
    )
    
    
    30,113Amortization of loan costs and bond premium
    
    
    2,106
    
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    2,151Share-based compensation
    
    
    
    
    
    
    16,104
    
    
    
    
    
    
    
    
    
    
    
    16,104Loss on refinancing long-term debt
    
    
    8,179
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,179Change in income tax assets and liabilities
    
    
    
    
    
    
    8,193
    
    
    
    446
    
    
    
    
    
    
    
    8,639Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    222
    
    
    
    (296
    )
    
    
    
    
    
    
    (74
    )Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (13,158
    )
    
    
    566
    
    
    
    
    
    
    
    (12,592
    )Other current assets
    
    
    
    
    
    
    6,626
    
    
    
    (328
    )
    
    
    
    
    
    
    6,298Accounts payable
    
    
    
    
    
    
    (7,499
    )
    
    
    (440
    )
    
    
    
    
    
    
    (7,939
    )Salaries and benefits payable
    
    
    
    
    
    
    1,633
    
    
    
    243
    
    
    
    
    
    
    
    1,876Accrued liabilities and other liabilities
    
    
    10,965
    
    
    
    (20,307
    )
    
    
    3,666
    
    
    
    
    
    
    
    (5,676
    )Net cash (used in) provided by continuing operating activities
    
    
    (29,120
    )
    
    
    144,888
    
    
    
    6,804
    
    
    
    1,000
    
    
    
    123,572Net cash provided by discontinued operating activities
    
    
    
    
    
    
    3,185
    
    
    
    (1,236
    )
    
    
    
    
    
    
    1,949Net cash (used in) provided by operating activities
    
    
    (29,120
    )
    
    
    148,073
    
    
    
    5,568
    
    
    
    1,000
    
    
    
    125,521Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (444,899
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (444,899
    )Capital purchases of leasehold improvements,
equipment and software
    
    
    
    
    
    
    (70,693
    )
    
    
    (567
    )
    
    
    
    
    
    
    (71,260
    )Other assets
    
    
    
    
    
    
    (2,866
    )
    
    
    415
    
    
    
    
    
    
    
    (2,451
    )Net cash used in continuing investing activites
    
    
    (444,899
    )
    
    
    (73,559
    )
    
    
    (152
    )
    
    
    
    
    
    
    (518,610
    )Net cash used in discontinued investing activities
    
    
    (17,921
    )
    
    
    (53
    )
    
    
    
    
    
    
    
    
    
    
    (17,974
    )Net cash used in investing activities
    
    
    (462,820
    )
    
    
    (73,612
    )
    
    
    (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
    )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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,428Repurchase of common stock upon restricted stock vesting
    
    
    (122
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (122
    )Net transfers to and from members
    
    
    59,082
    
    
    
    (58,471
    )
    
    
    389
    
    
    
    (1,000
    )
    
    
    Proceeds from exercises of common stock options
    
    
    17,401
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,401Net cash provided by (used in) financing activities
    
    
    491,940
    
    
    
    (58,471
    )
    
    
    44
    
    
    
    (1,000
    )
    
    
    432,513Net increase in cash
    
    
    
    
    
    
    15,990
    
    
    
    5,460
    
    
    
    
    
    
    
    21,450Cash and cash equivalents at beginning of the year
    
    
    
    
    
    
    3,164
    
    
    
    15,356
    
    
    
    
    
    
    
    18,520Cash and cash equivalents at end of the year
    
    $
    
    
    
    $
    19,154
    
    
    $
    20,816
    
    
    $
    
    
    
    $
    39,970
 F-32




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##### Table of Contents



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

Joey A. Jacobs
    
    Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
    
    February 25, 2010/s/ Jack E. Polson

Jack E. Polson
    
    Executive Vice President, Chief
Accounting Officer (Principal
Financial and Accounting
Officer)
    
    February 25, 2010/s/ Mark P. Clein
    
    Director
    
    February 25, 2010Mark P. Clein/s/ David M. Dill
    
    Director
    
    February 25, 2010David M. Dill/s/ Richard D. Gore
    
    Director
    
    February 25, 2010Richard D. Gore/s/ Christopher Grant, Jr.
    
    Director
    
    February 25, 2010Christopher Grant, Jr./s/ William M. Petrie, M.D.
    
    Director
    
    February 25, 2010William M. Petrie, M.D./s/ Edward K. Wissing
    
    Director
    
    February 25, 2010Edward K. Wissing