##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the quarterly period ended June 30, 2005 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.)
 840 Crescent Centre Drive, Suite 460
Franklin, TN 37067
 (615) 312-5700
 þ o
 þ o




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PSYCHIATRIC SOLUTIONS, INC.
 TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of June 30, 2005 and December 31, 2004 (Unaudited)
    
    
    1Condensed Consolidated Statements of Income for the three and six month periods ended June 30, 2005 and 2004 (Unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 2005 and 2004 (Unaudited)
    
    
    3Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    23Item 4. Controls and Procedures
    
    
    23PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    24Item 4. Submission of Matters to a Vote of Security Holders
    
    
    24Item 6. Exhibits
    
    
    25Ex-31.1  Section 302 Certification of the CEOEx-31.2  Section 302 Certification of the CAOEx-32.1  Section 906 Certification of the CEO & CAO




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 PSYCHIATRIC SOLUTIONS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited, in thousands except per share amounts)
 June 30,
    
    December 31,2005
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    7,593
    
    
    $
    33,255Accounts receivable, less allowance for doubtful accounts of
$10,426 and $10,639, respectively
    
    
    82,640
    
    
    
    77,539Prepaids and other
    
    
    17,761
    
    
    
    16,412Total current assets
    
    
    107,994
    
    
    
    127,206Property and equipment, net of accumulated depreciation
    
    
    222,656
    
    
    
    218,231Cost in excess of net assets acquired
    
    
    131,428
    
    
    
    130,079Other assets
    
    
    23,936
    
    
    
    22,330Total assets
    
    $
    486,014
    
    
    $
    497,846LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    10,938
    
    
    $
    10,529Salaries and benefits payable
    
    
    33,604
    
    
    
    27,355Other accrued liabilities
    
    
    23,041
    
    
    
    28,668Current portion of long-term debt
    
    
    427
    
    
    
    20,764Total current liabilities
    
    
    68,010
    
    
    
    87,316Long-term debt, less current portion
    
    
    143,482
    
    
    
    153,572Deferred tax liability
    
    
    11,153
    
    
    
    8,020Other liabilities
    
    
    5,921
    
    
    
    4,423Total liabilities
    
    
    228,566
    
    
    
    253,331Stockholders equity:Common stock, $0.01 par value, 48,000 shares authorized;
20,528 and 20,468 issued and outstanding, respectively
    
    
    205
    
    
    
    205Additional paid-in capital
    
    
    228,942
    
    
    
    228,044Accumulated earnings
    
    
    28,301
    
    
    
    16,266Total stockholders equity
    
    
    257,448
    
    
    
    244,515Total liabilities and stockholders equity
    
    $
    486,014
    
    
    $
    497,846
  1




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited, in thousands except for per share amounts)
 Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Revenue
    
    $
    143,868
    
    
    $
    116,936
    
    
    $
    282,598
    
    
    $
    220,366Salaries, wages and employee benefits
    
    
    77,717
    
    
    
    63,402
    
    
    
    154,084
    
    
    
    119,109Professional fees
    
    
    14,829
    
    
    
    12,977
    
    
    
    29,085
    
    
    
    24,668Supplies
    
    
    9,036
    
    
    
    7,379
    
    
    
    17,620
    
    
    
    13,959Rentals and leases
    
    
    2,461
    
    
    
    2,109
    
    
    
    4,801
    
    
    
    3,876Other operating expenses
    
    
    16,496
    
    
    
    13,043
    
    
    
    32,141
    
    
    
    25,559Provision for doubtful accounts
    
    
    2,676
    
    
    
    2,636
    
    
    
    5,344
    
    
    
    4,663Depreciation and amortization
    
    
    3,058
    
    
    
    2,361
    
    
    
    5,960
    
    
    
    4,468Interest expense
    
    
    3,321
    
    
    
    4,515
    
    
    
    6,844
    
    
    
    8,971Loss on refinancing long-term debt
    
    
    
    
    
    
    
    
    
    
    6,990
    
    
    
    6,407129,594
    
    
    
    108,422
    
    
    
    262,869
    
    
    
    211,680Income from continuing operations before
income taxes
    
    
    14,274
    
    
    
    8,514
    
    
    
    19,729
    
    
    
    8,686Provision for income taxes
    
    
    5,567
    
    
    
    3,237
    
    
    
    7,694
    
    
    
    3,302Income from continuing operations
    
    
    8,707
    
    
    
    5,277
    
    
    
    12,035
    
    
    
    5,384Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (169
    )
    
    
    
    
    
    
    (313
    )Net income
    
    
    8,707
    
    
    
    5,108
    
    
    
    12,035
    
    
    
    5,071Accrued preferred stock dividends
    
    
    
    
    
    
    185
    
    
    
    
    
    
    
    508Net income available to common stockholders
    
    $
    8,707
    
    
    $
    4,923
    
    
    $
    12,035
    
    
    $
    4,563Basic earnings per share:Income from continuing operations
    
    $
    0.42
    
    
    $
    0.36
    
    
    $
    0.59
    
    
    $
    0.37Loss from discontinued operations
    
    
    
    
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.02
    )$
    0.42
    
    
    $
    0.35
    
    
    $
    0.59
    
    
    $
    0.35Diluted earnings per share:Income from continuing operations
    
    $
    0.41
    
    
    $
    0.30
    
    
    $
    0.57
    
    
    $
    0.31Loss from discontinued operations
    
    
    
    
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.02
    )$
    0.41
    
    
    $
    0.29
    
    
    $
    0.57
    
    
    $
    0.29Shares used in computing per share amounts:Basic
    
    
    20,515
    
    
    
    14,120
    
    
    
    20,498
    
    
    
    13,039Diluted
    
    
    21,229
    
    
    
    17,376
    
    
    
    21,201
    
    
    
    17,301
  2




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited, in thousands)
 Six Months Ended June 30,2005
    
    2004Operating Activities:Net income
    
    $
    12,035
    
    
    $
    5,071Adjustments to reconcile net income to net cash
provided by operating activities:Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    313Depreciation and amortization
    
    
    5,960
    
    
    
    4,468Provision for doubtful accounts
    
    
    5,344
    
    
    
    4,663Amortization of loan costs
    
    
    338
    
    
    
    419Loss on refinancing long-term debt
    
    
    6,990
    
    
    
    6,407Change in income tax assets and liabilities
    
    
    1,446
    
    
    
    2,660Changes in operating assets and liabilities:Accounts receivable
    
    
    (10,581
    )
    
    
    (9,464
    )Prepaids and other assets
    
    
    (2,101
    )
    
    
    2,096Accounts payable
    
    
    409
    
    
    
    (1,859
    )Salaries and benefits payable
    
    
    3,830
    
    
    
    4,303Accrued liabilities and other liabilities
    
    
    3,351
    
    
    
    (1,095
    )Net cash provided by operating activities
    
    
    27,021
    
    
    
    17,982Investing activities:Acquisitions, net of cash acquired
    
    
    (5,793
    )
    
    
    (112,194
    )Capital purchases of property and equipment
    
    
    (10,029
    )
    
    
    (6,874
    )Investment in equity method investee
    
    
    (840
    )
    
    
    Other
    
    
    (883
    )
    
    
    (2,260
    )Net cash used in investing activities
    
    
    (17,545
    )
    
    
    (121,328
    )Financing activities:Net principal (payments) borrowings on long-term debt
    
    
    (30,427
    )
    
    
    74,445Refinancing of long-term debt
    
    
    (5,316
    )
    
    
    (3,844
    )Payment of loan and issuance costs
    
    
    (487
    )
    
    
    (1,603
    )Proceeds from issuance of common stock
    
    
    1,092
    
    
    
    1,564Net cash (used in) provided by financing activities
    
    
    (35,138
    )
    
    
    70,562Net decrease in cash and cash equivalents
    
    
    (25,662
    )
    
    
    (32,784
    )Cash and cash equivalents at beginning of the period
    
    
    33,255
    
    
    
    44,954Cash and cash equivalents at end of the period
    
    $
    7,593
    
    
    $
    12,170Significant Non-cash Transactions:Loss on refinancing long-term debt
    
    $
    1,674
    
    
    $
    2,563Effect of Acquisitions:Assets acquired, net of cash acquired
    
    $
    
    
    
    $
    119,657Cash payment for prior-year acquisitions
    
    
    5,793
    
    
    
    Liabilities assumed
    
    
    
    
    
    
    (7,463
    )Acquisitions, net of cash acquired
    
    $
    5,793
    
    
    $
    112,194
  3




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2005
 1. Recent Developments
  2. Basis of Presentation
  3. Earnings Per Share
   4




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PSYCHIATRIC SOLUTIONS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2005
 Three months ended June 30,
    
    Six months ended June 30,2005
    
    2004
    
    2005
    
    2004Numerator:Basic earnings per share:Income from continuing operations
    
    $
    8,707
    
    
    $
    5,277
    
    
    $
    12,035
    
    
    $
    5,384Accrued dividends on series A convertible preferred stock
    
    
    
    
    
    
    185
    
    
    
    
    
    
    
    508Income from continuing operations used in computing basic
earnings per common share
    
    
    8,707
    
    
    
    5,092
    
    
    
    12,035
    
    
    
    4,876Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (169
    )
    
    
    
    
    
    
    (313
    )Net income available to common stockholders
    
    $
    8,707
    
    
    $
    4,923
    
    
    $
    12,035
    
    
    $
    4,563Diluted earnings per share:Income from continuing operations
    
    $
    8,707
    
    
    $
    5,277
    
    
    $
    12,035
    
    
    $
    5,384Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (169
    )
    
    
    
    
    
    
    (313
    )Net income
    
    $
    8,707
    
    
    $
    5,108
    
    
    $
    12,035
    
    
    $
    5,071Denominator:Weighted average shares outstanding for basic earnings per share
    
    
    20,515
    
    
    
    14,120
    
    
    
    20,498
    
    
    
    13,039Effect of dilutive series A convertible preferred stock outstanding
    
    
    
    
    
    
    2,700
    
    
    
    
    
    
    
    3,714Effects of dilutive stock options and warrants outstanding
    
    
    714
    
    
    
    556
    
    
    
    703
    
    
    
    548Shares used in computing diluted earnings per common share
    
    
    21,229
    
    
    
    17,376
    
    
    
    21,201
    
    
    
    17,301Basic earnings per share:Income from continuing operations
    
    $
    0.42
    
    
    $
    0.36
    
    
    $
    0.59
    
    
    $
    0.37Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.02
    )$
    0.42
    
    
    $
    0.35
    
    
    $
    0.59
    
    
    $
    0.35Diluted earnings per share:Income from continuing operations
    
    $
    0.41
    
    
    $
    0.30
    
    
    $
    0.57
    
    
    $
    0.31Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.02
    )$
    0.41
    
    
    $
    0.29
    
    
    $
    0.57
    
    
    $
    0.29
 4. Stock-Based Compensation
     5




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2005
 For the three months ended June 30,
    
    For the six months ended June 30,2005
    
    2004
    
    2005
    
    2004Net income available to common stockholders
    
    $
    8,707
    
    
    $
    4,923
    
    
    $
    12,035
    
    
    $
    4,563Pro forma compensation expense from stock options, net of taxes
    
    
    864
    
    
    
    336
    
    
    
    1,339
    
    
    
    608Pro forma net income available to common stockholders
    
    $
    7,843
    
    
    $
    4,587
    
    
    $
    10,696
    
    
    $
    3,955Basic earnings per share, as reported
    
    $
    0.42
    
    
    $
    0.35
    
    
    $
    0.59
    
    
    $
    0.35Diluted earnings per share, as reported
    
    $
    0.41
    
    
    $
    0.29
    
    
    $
    0.57
    
    
    $
    0.29Basic pro forma earnings per share
    
    $
    0.38
    
    
    $
    0.32
    
    
    $
    0.52
    
    
    $
    0.30Diluted pro forma earnings per share
    
    $
    0.37
    
    
    $
    0.27
    
    
    $
    0.50
    
    
    $
    0.26
 5. Mergers and Acquisitions
       6. Long-term debt
  June 30,
    
    December 31,2005
    
    2004Senior credit facility:Revolving line of credit, expiring on December 21, 2009
and bearing interest of 4.7% at June 30, 2005
    
    $
    20,000
    
    
    $
    10 5/8% senior subordinated notes
    
    
    100,000
    
    
    
    150,000Mortgage loans on facilities, maturing in 2037 and 2038
bearing fixed interest rates of 5.65% to 5.95%
    
    
    23,496
    
    
    
    23,611Subordinated seller notes with varying maturities
    
    
    144
    
    
    
    369Other
    
    
    269
    
    
    
    356143,909
    
    
    
    174,336Less current portion
    
    
    427
    
    
    
    20,764Long-term debt
    
    $
    143,482
    
    
    $
    153,572
 6




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PSYCHIATRIC SOLUTIONS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2005
 Senior Credit Facility
   10 5/8% Senior Subordinated Notes
   Mortgage Loans
  Subordinated Seller Notes
  7




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2005
  7. Income Taxes
  8. Discontinued Operations
   Three Months Ended
    
    Six Months EndedJune 30, 2004
    
    June 30, 2004Revenue
    
    $
    3,572
    
    
    $
    7,727Salaries, wages and employee benefits
    
    
    2,749
    
    
    
    6,038Professional fees
    
    
    368
    
    
    
    733Supplies
    
    
    305
    
    
    
    666Rentals and leases
    
    
    45
    
    
    
    61Other operating expenses
    
    
    374
    
    
    
    720Depreciation and amortization
    
    
    4
    
    
    
    143,845
    
    
    
    8,232Loss from discontinued operations before income taxes
    
    
    (273
    )
    
    
    (505
    )Benefit from income taxes
    
    
    (104
    )
    
    
    (192
    )Loss from discontinued operations, net of income taxes
    
    $
    (169
    )
    
    $
    (313
    )
 9. Disclosures About Reportable Segments
   8




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2005
  Owned andLeased
    
    Management
    
    CorporateFacilities
    
    Contracts
    
    and Other
    
    ConsolidatedThree months ended June 30, 2005Revenue
    
    $
    126,972
    
    
    $
    16,896
    
    
    $
    
    
    
    $
    143,868Adjusted EBITDA
    
    $
    23,230
    
    
    $
    2,423
    
    
    $
    (5,000
    )
    
    $
    20,653Interest expense
    
    
    8,362
    
    
    
    11
    
    
    
    (5,052
    )
    
    
    3,321Depreciation and amortization
    
    
    2,717
    
    
    
    184
    
    
    
    157
    
    
    
    3,058Provision for income taxes
    
    
    825
    
    
    
    
    
    
    
    4,742
    
    
    
    5,567Inter-segment expenses
    
    
    3,844
    
    
    
    805
    
    
    
    (4,649
    )
    
    
    Income (loss) from continuing operations
    
    $
    7,482
    
    
    $
    1,423
    
    
    $
    (198
    )
    
    $
    8,707Segment assets
    
    $
    419,945
    
    
    $
    30,683
    
    
    $
    35,386
    
    
    $
    486,014
 Owned andLeased
    
    Management
    
    CorporateFacilities
    
    Contracts
    
    and Other
    
    ConsolidatedSix months ended June 30, 2005Revenue
    
    $
    248,654
    
    
    $
    33,944
    
    
    $
    
    
    
    $
    282,598Adjusted EBITDA
    
    $
    43,825
    
    
    $
    5,172
    
    
    $
    (9,474
    )
    
    $
    39,523Interest expense
    
    
    16,660
    
    
    
    30
    
    
    
    (9,846
    )
    
    
    6,844Depreciation and amortization
    
    
    5,283
    
    
    
    376
    
    
    
    301
    
    
    
    5,960Provision for income taxes
    
    
    1,224
    
    
    
    
    
    
    
    6,470
    
    
    
    7,694Inter-segment expenses
    
    
    7,381
    
    
    
    1,420
    
    
    
    (8,801
    )
    
    
    Other expenses:Loss on refinancing long-term debt
    
    
    
    
    
    
    
    
    
    
    6,990
    
    
    
    6,990Total other expenses
    
    
    
    
    
    
    
    
    
    
    6,990
    
    
    
    6,990Income (loss) from continuing operations
    
    $
    13,277
    
    
    $
    3,346
    
    
    $
    (4,588
    )
    
    $
    12,035Segment assets
    
    $
    419,945
    
    
    $
    30,683
    
    
    $
    35,386
    
    
    $
    486,014
 9




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2005
 Owned andLeased
    
    Management
    
    CorporateFacilities
    
    Contracts
    
    and Other
    
    ConsolidatedThree months ended June 30, 2004Revenue
    
    $
    100,095
    
    
    $
    16,841
    
    
    $
    
    
    
    $
    116,936Adjusted EBITDA
    
    $
    16,069
    
    
    $
    2,772
    
    
    $
    (3,451
    )
    
    $
    15,390Interest expense
    
    
    4,567
    
    
    
    (5
    )
    
    
    (47
    )
    
    
    4,515Depreciation and amortization
    
    
    1,986
    
    
    
    298
    
    
    
    77
    
    
    
    2,361Provision for income taxes
    
    
    692
    
    
    
    
    
    
    
    2,545
    
    
    
    3,237Inter-segment expenses
    
    
    3,173
    
    
    
    165
    
    
    
    (3,338
    )
    
    
    Income (loss) from continuing operations
    
    $
    5,651
    
    
    $
    2,314
    
    
    $
    (2,688
    )
    
    $
    5,277Segment assets
    
    $
    379,007
    
    
    $
    35,855
    
    
    $
    27,273
    
    
    $
    442,135
 Owned andLeased
    
    Management
    
    CorporateFacilities
    
    Contracts
    
    and Other
    
    ConsolidatedSix months ended June 30, 2004Revenue
    
    $
    186,655
    
    
    $
    33,711
    
    
    $
    
    
    
    $
    220,366Adjusted EBITDA
    
    $
    29,571
    
    
    $
    5,338
    
    
    $
    (6,377
    )
    
    $
    28,532Interest expense
    
    
    8,126
    
    
    
    (11
    )
    
    
    856
    
    
    
    8,971Depreciation and amortization
    
    
    3,731
    
    
    
    600
    
    
    
    137
    
    
    
    4,468Provision for income taxes
    
    
    1,354
    
    
    
    
    
    
    
    1,948
    
    
    
    3,302Inter-segment expenses
    
    
    5,360
    
    
    
    863
    
    
    
    (6,223
    )
    
    
    Other expenses:Loss on refinancing long-term debt
    
    
    
    
    
    
    
    
    
    
    6,407
    
    
    
    6,407Total other expenses
    
    
    
    
    
    
    
    
    
    
    6,407
    
    
    
    6,407Income (loss) from continuing operations
    
    $
    11,000
    
    
    $
    3,886
    
    
    $
    (9,502
    )
    
    $
    5,384Segment assets
    
    $
    379,007
    
    
    $
    35,855
    
    
    $
    27,273
    
    
    $
    442,135
 10. Recent Pronouncements
  11. Financial Information for Psychiatric Solutions and Its Subsidiaries
  10




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2005
 Condensed Consolidating Balance Sheet
As of June 30, 2005
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    Combined Non-
    
    Consolidating
    
    ConsolidatedParent
    
    Guarantors
    
    Guarantors
    
    Adjustments
    
    AmountsCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    6,304
    
    
    $
    1,289
    
    
    $
    
    
    
    $
    7,593Accounts receivable, net
    
    
    
    
    
    
    82,640
    
    
    
    
    
    
    
    
    
    
    
    82,640Prepaids and other
    
    
    
    
    
    
    14,927
    
    
    
    2,834
    
    
    
    
    
    
    
    17,761Total current assets
    
    
    
    
    
    
    103,871
    
    
    
    4,123
    
    
    
    
    
    
    
    107,994Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    200,946
    
    
    
    29,664
    
    
    
    (7,954
    )
    
    
    222,656Cost in excess of net assets acquired
    
    
    
    
    
    
    131,428
    
    
    
    
    
    
    
    
    
    
    
    131,428Investment in subsidiaries
    
    
    121,789
    
    
    
    
    
    
    
    
    
    
    
    (121,789
    )
    
    
    Other assets
    
    
    4,896
    
    
    
    10,546
    
    
    
    8,494
    
    
    
    
    
    
    
    23,936Total assets
    
    $
    126,685
    
    
    $
    446,791
    
    
    $
    42,281
    
    
    $
    (129,743
    )
    
    $
    486,014Current Liabilities:Accounts payable
    
    $
    
    
    
    $
    10,938
    
    
    $
    
    
    
    $
    
    
    
    $
    10,938Salaries and benefits payable
    
    
    
    
    
    
    33,604
    
    
    
    
    
    
    
    
    
    
    
    33,604Other accrued liabilities
    
    
    978
    
    
    
    19,188
    
    
    
    7,126
    
    
    
    (4,251
    )
    
    
    23,041Current portion of long-term debt
    
    
    186
    
    
    
    
    
    
    
    241
    
    
    
    
    
    
    
    427Total current liabilities
    
    
    1,164
    
    
    
    63,730
    
    
    
    7,367
    
    
    
    (4,251
    )
    
    
    68,010Long-term debt, less current portion
    
    
    120,228
    
    
    
    
    
    
    
    23,254
    
    
    
    
    
    
    
    143,482Deferred tax liability
    
    
    
    
    
    
    11,153
    
    
    
    
    
    
    
    
    
    
    
    11,153Other liabilities
    
    
    1,654
    
    
    
    16
    
    
    
    
    
    
    
    4,251
    
    
    
    5,921Total liabilities
    
    
    123,046
    
    
    
    74,899
    
    
    
    30,621
    
    
    
    
    
    
    
    228,566Stockholders equity:Total stockholders equity
    
    
    3,639
    
    
    
    371,892
    
    
    
    11,660
    
    
    
    (129,743
    )
    
    
    257,448Total liabilities and stockholders equity
    
    $
    126,685
    
    
    $
    446,791
    
    
    $
    42,281
    
    
    $
    (129,743
    )
    
    $
    486,014
 11




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2005
 Condensed Consolidating Balance Sheet
As of December 31, 2004
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    Combined Non-
    
    Consolidating
    
    ConsolidatedParent
    
    Guarantors
    
    Guarantors
    
    Adjustments
    
    AmountsCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    30,792
    
    
    $
    2,463
    
    
    $
    
    
    
    $
    33,255Accounts receivable, net
    
    
    
    
    
    
    77,539
    
    
    
    
    
    
    
    
    
    
    
    77,539Prepaids and other
    
    
    
    
    
    
    15,437
    
    
    
    975
    
    
    
    
    
    
    
    16,412Total current assets
    
    
    
    
    
    
    123,768
    
    
    
    3,438
    
    
    
    
    
    
    
    127,206Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    196,152
    
    
    
    30,155
    
    
    
    (8,076
    )
    
    
    218,231Cost in excess of net assets acquired
    
    
    
    
    
    
    130,079
    
    
    
    
    
    
    
    
    
    
    
    130,079Investment in subsidiaries
    
    
    160,065
    
    
    
    
    
    
    
    
    
    
    
    (160,065
    )
    
    
    Other assets
    
    
    6,791
    
    
    
    11,974
    
    
    
    3,565
    
    
    
    
    
    
    
    22,330Total assets
    
    $
    166,856
    
    
    $
    461,973
    
    
    $
    37,158
    
    
    $
    (168,141
    )
    
    $
    497,846Current Liabilities:Accounts payable
    
    $
    
    
    
    $
    10,529
    
    
    $
    
    
    
    $
    
    
    
    $
    10,529Salaries and benefits payable
    
    
    
    
    
    
    27,355
    
    
    
    
    
    
    
    
    
    
    
    27,355Other accrued liabilities
    
    
    1,162
    
    
    
    27,383
    
    
    
    1,682
    
    
    
    (1,559
    )
    
    
    28,668Current portion of long-term debt
    
    
    20,529
    
    
    
    
    
    
    
    235
    
    
    
    
    
    
    
    20,764Total current liabilities
    
    
    21,691
    
    
    
    65,267
    
    
    
    1,917
    
    
    
    (1,559
    )
    
    
    87,316Long-term debt, less current portion
    
    
    130,195
    
    
    
    
    
    
    
    23,377
    
    
    
    
    
    
    
    153,572Deferred tax liability
    
    
    
    
    
    
    8,020
    
    
    
    
    
    
    
    
    
    
    
    8,020Other liabilities
    
    
    3,325
    
    
    
    (461
    )
    
    
    
    
    
    
    1,559
    
    
    
    4,423Total liabilities
    
    
    155,211
    
    
    
    72,826
    
    
    
    25,294
    
    
    
    
    
    
    
    253,331Stockholders equity:Total stockholders equity
    
    
    11,645
    
    
    
    389,147
    
    
    
    11,864
    
    
    
    (168,141
    )
    
    
    244,515Total liabilities and stockholders equity
    
    $
    166,856
    
    
    $
    461,973
    
    
    $
    37,158
    
    
    $
    (168,141
    )
    
    $
    497,846
 Condensed Consolidating Statement of Income
For the Three Months Ended June 30, 2005
(Unaudited, dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    Combined Non-
    
    Consolidating
    
    ConsolidatedParent
    
    Guarantors
    
    Guarantors
    
    Adjustments
    
    AmountsRevenue
    
    $
    
    
    
    $
    143,868
    
    
    $
    2,542
    
    
    $
    (2,542
    )
    
    $
    143,868Salaries, wages and employee benefits
    
    
    
    
    
    
    77,717
    
    
    
    
    
    
    
    
    
    
    
    77,717Professional fees
    
    
    
    
    
    
    14,814
    
    
    
    15
    
    
    
    
    
    
    
    14,829Supplies
    
    
    
    
    
    
    9,036
    
    
    
    
    
    
    
    
    
    
    
    9,036Rentals and leases
    
    
    
    
    
    
    2,461
    
    
    
    
    
    
    
    
    
    
    
    2,461Other operating expenses
    
    
    
    
    
    
    15,812
    
    
    
    2,488
    
    
    
    (1,804
    )
    
    
    16,496Provision for doubtful accounts
    
    
    
    
    
    
    2,676
    
    
    
    
    
    
    
    
    
    
    
    2,676Depreciation and amortization
    
    
    
    
    
    
    2,873
    
    
    
    246
    
    
    
    (61
    )
    
    
    3,058Interest expense
    
    
    2,986
    
    
    
    
    
    
    
    335
    
    
    
    
    
    
    
    3,3212,986
    
    
    
    125,389
    
    
    
    3,084
    
    
    
    (1,865
    )
    
    
    129,594(Loss) income from continuing operations before
income taxes
    
    
    (2,986
    )
    
    
    18,479
    
    
    
    (542
    )
    
    
    (677
    )
    
    
    14,274(Benefit from) provision for income taxes
    
    
    (1,165
    )
    
    
    6,732
    
    
    
    
    
    
    
    
    
    
    
    5,567Net (loss) income
    
    $
    (1,821
    )
    
    $
    11,747
    
    
    $
    (542
    )
    
    $
    (677
    )
    
    $
    8,707
 12




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2005
 Condensed Consolidating Statement of Income
For the Six Months Ended June 30, 2005
(Unaudited, dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    Combined Non-
    
    Consolidating
    
    ConsolidatedParent
    
    Guarantors
    
    Guarantors
    
    Adjustments
    
    AmountsRevenue
    
    $
    
    
    
    $
    282,598
    
    
    $
    4,168
    
    
    $
    (4,168
    )
    
    $
    282,598Salaries, wages and employee benefits
    
    
    
    
    
    
    154,084
    
    
    
    
    
    
    
    
    
    
    
    154,084Professional fees
    
    
    
    
    
    
    29,030
    
    
    
    55
    
    
    
    
    
    
    
    29,085Supplies
    
    
    
    
    
    
    17,620
    
    
    
    
    
    
    
    
    
    
    
    17,620Rentals and leases
    
    
    
    
    
    
    4,801
    
    
    
    
    
    
    
    
    
    
    
    4,801Other operating expenses
    
    
    
    
    
    
    31,453
    
    
    
    3,380
    
    
    
    (2,692
    )
    
    
    32,141Provision for doubtful accounts
    
    
    
    
    
    
    5,344
    
    
    
    
    
    
    
    
    
    
    
    5,344Depreciation and amortization
    
    
    
    
    
    
    5,591
    
    
    
    491
    
    
    
    (122
    )
    
    
    5,960Interest expense
    
    
    6,135
    
    
    
    
    
    
    
    709
    
    
    
    
    
    
    
    6,844Loss on refinancing of long-term debt
    
    
    6,990
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,99013,125
    
    
    
    247,923
    
    
    
    4,635
    
    
    
    (2,814
    )
    
    
    262,869(Loss) income from continuing operations before
income taxes
    
    
    (13,125
    )
    
    
    34,675
    
    
    
    (467
    )
    
    
    (1,354
    )
    
    
    19,729(Benefit from) provision for income taxes
    
    
    (5,119
    )
    
    
    12,813
    
    
    
    
    
    
    
    
    
    
    
    7,694Net (loss) income
    
    $
    (8,006
    )
    
    $
    21,862
    
    
    $
    (467
    )
    
    $
    (1,354
    )
    
    $
    12,035
 Condensed Consolidating Statement of Income
For the Three Months Ended June 30, 2004
(Unaudited, dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    Combined Non-
    
    Consolidating
    
    ConsolidatedParent
    
    Guarantors
    
    Guarantors
    
    Adjustments
    
    AmountsRevenue
    
    $
    
    
    
    $
    116,936
    
    
    $
    969
    
    
    $
    (969
    )
    
    $
    116,936Salaries, wages and employee benefits
    
    
    
    
    
    
    63,402
    
    
    
    
    
    
    
    
    
    
    
    63,402Professional fees
    
    
    
    
    
    
    12,943
    
    
    
    34
    
    
    
    
    
    
    
    12,977Supplies
    
    
    
    
    
    
    7,379
    
    
    
    
    
    
    
    
    
    
    
    7,379Rentals and leases
    
    
    
    
    
    
    2,109
    
    
    
    
    
    
    
    
    
    
    
    2,109Other operating expenses
    
    
    444
    
    
    
    13,570
    
    
    
    (2
    )
    
    
    (969
    )
    
    
    13,043Provision for doubtful accounts
    
    
    
    
    
    
    2,636
    
    
    
    
    
    
    
    
    
    
    
    2,636Depreciation and amortization
    
    
    
    
    
    
    2,117
    
    
    
    244
    
    
    
    
    
    
    
    2,361Interest expense
    
    
    4,137
    
    
    
    
    
    
    
    378
    
    
    
    
    
    
    
    4,5154,581
    
    
    
    104,156
    
    
    
    654
    
    
    
    (969
    )
    
    
    108,422(Loss) income from continuing operations before
income taxes
    
    
    (4,581
    )
    
    
    12,780
    
    
    
    315
    
    
    
    
    
    
    
    8,514(Benefit from) provision for income taxes
    
    
    (1,741
    )
    
    
    4,978
    
    
    
    
    
    
    
    
    
    
    
    3,237(Loss) income from continuing operations
    
    
    (2,840
    )
    
    
    7,802
    
    
    
    315
    
    
    
    
    
    
    
    5,277Loss from discontinued operations
    
    
    
    
    
    
    (169
    )
    
    
    
    
    
    
    
    
    
    
    (169
    )Net (loss) income
    
    
    (2,840
    )
    
    
    7,633
    
    
    
    315
    
    
    
    
    
    
    
    5,108Accrued preferred stock dividends
    
    
    185
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185Net (loss) income available to common shareholders
    
    $
    (3,025
    )
    
    $
    7,633
    
    
    $
    315
    
    
    $
    
    
    
    $
    4,923
 13




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2005
 Condensed Consolidating Statement of Income
For the Six Months Ended June 30, 2004
(Unaudited, dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    Combined Non-
    
    Consolidating
    
    ConsolidatedParent
    
    Guarantors
    
    Guarantors
    
    Adjustments
    
    AmountsRevenue
    
    $
    
    
    
    $
    220,366
    
    
    $
    1,860
    
    
    $
    (1,860
    )
    
    $
    220,366Salaries, wages and employee benefits
    
    
    
    
    
    
    119,109
    
    
    
    
    
    
    
    
    
    
    
    119,109Professional fees
    
    
    
    
    
    
    24,633
    
    
    
    35
    
    
    
    
    
    
    
    24,668Supplies
    
    
    
    
    
    
    13,959
    
    
    
    
    
    
    
    
    
    
    
    13,959Rentals and leases
    
    
    
    
    
    
    3,876
    
    
    
    
    
    
    
    
    
    
    
    3,876Other operating expenses
    
    
    2,913
    
    
    
    24,508
    
    
    
    (2
    )
    
    
    (1,860
    )
    
    
    25,559Provision for doubtful accounts
    
    
    
    
    
    
    4,663
    
    
    
    
    
    
    
    
    
    
    
    4,663Depreciation and amortization
    
    
    
    
    
    
    3,983
    
    
    
    485
    
    
    
    
    
    
    
    4,468Interest expense
    
    
    8,222
    
    
    
    
    
    
    
    749
    
    
    
    
    
    
    
    8,971Loss on refinancing of long-term debt
    
    
    6,407
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,40717,542
    
    
    
    194,731
    
    
    
    1,267
    
    
    
    (1,860
    )
    
    
    211,680(Loss) income from continuing operations before
income taxes
    
    
    (17,542
    )
    
    
    25,635
    
    
    
    593
    
    
    
    
    
    
    
    8,686(Benefit from) provision for income taxes
    
    
    (6,666
    )
    
    
    9,743
    
    
    
    225
    
    
    
    
    
    
    
    3,302(Loss) income from continuing operations
    
    
    (10,876
    )
    
    
    15,892
    
    
    
    368
    
    
    
    
    
    
    
    5,384Loss from discontinued operations
    
    
    
    
    
    
    (313
    )
    
    
    
    
    
    
    
    
    
    
    (313
    )Net (loss) income
    
    
    (10,876
    )
    
    
    15,579
    
    
    
    368
    
    
    
    
    
    
    
    5,071Accrued preferred stock dividends
    
    
    508
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    508Net (loss) income available to common shareholders
    
    $
    (11,384
    )
    
    $
    15,579
    
    
    $
    368
    
    
    $
    
    
    
    $
    4,563
 14




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2005
 Condensed Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 2005
(Unaudited, dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    Combined Non-
    
    Consolidating
    
    ConsolidatedParent
    
    Guarantors
    
    Guarantors
    
    Adjustments
    
    AmountsOperating ActivitiesNet (loss) income
    
    $
    (8,006
    )
    
    
    21,862
    
    
    $
    (467
    )
    
    $
    (1,354
    )
    
    $
    12,035Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    5,591
    
    
    
    491
    
    
    
    (122
    )
    
    
    5,960Provision for doubtful accounts
    
    
    
    
    
    
    5,344
    
    
    
    
    
    
    
    
    
    
    
    5,344Amortization of loan costs
    
    
    316
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    338Loss on refinancing long-term debt
    
    
    6,990
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,990Change in income tax assets and liabilities
    
    
    
    
    
    
    1,446
    
    
    
    
    
    
    
    
    
    
    
    1,446Changes in operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (10,581
    )
    
    
    
    
    
    
    
    
    
    
    (10,581
    )Prepaids and other current assets
    
    
    
    
    
    
    (242
    )
    
    
    (1,859
    )
    
    
    
    
    
    
    (2,101
    )Accounts payable
    
    
    
    
    
    
    409
    
    
    
    
    
    
    
    
    
    
    
    409Accrued liabilities and other liabilities
    
    
    (1,855
    )
    
    
    3,593
    
    
    
    5,443
    
    
    
    
    
    
    
    7,181Net cash (used in) provided by operating activities
    
    
    (2,555
    )
    
    
    27,422
    
    
    
    3,630
    
    
    
    (1,476
    )
    
    
    27,021Investing Activities:Acquisitions, net of cash acquired
    
    
    (5,793
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,793
    )Capital purchases of property and equipment
    
    
    
    
    
    
    (10,029
    )
    
    
    
    
    
    
    
    
    
    
    (10,029
    )Capital purchases of property and equipment
    
    
    (840
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (840
    )Other assets
    
    
    
    
    
    
    4,068
    
    
    
    (4,951
    )
    
    
    
    
    
    
    (883
    )Net used in investing activities
    
    
    (6,633
    )
    
    
    (5,961
    )
    
    
    (4,951
    )
    
    
    
    
    
    
    (17,545
    )Financing Activities:Net principal payments on long-term debt
    
    
    (30,311
    )
    
    
    
    
    
    
    (116
    )
    
    
    
    
    
    
    (30,427
    )Net transfers to and from members
    
    
    44,210
    
    
    
    (45,949
    )
    
    
    263
    
    
    
    1,476
    
    
    
    Refinancing of long-term debt
    
    
    (5,316
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,316
    )Payment of loan and issuance costs
    
    
    (487
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (487
    )Proceeds from issuance of common stock
    
    
    1,092
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,092Net cash provided by (used in) financing activities
    
    
    9,188
    
    
    
    (45,949
    )
    
    
    147
    
    
    
    1,476
    
    
    
    (35,138
    )Net (decrease) increase in cash
    
    
    
    
    
    
    (24,488
    )
    
    
    (1,174
    )
    
    
    
    
    
    
    (25,662
    )Cash at beginning of year
    
    
    
    
    
    
    30,792
    
    
    
    2,463
    
    
    
    
    
    
    
    33,255Cash at end of year
    
    $
    
    
    
    $
    6,304
    
    
    $
    1,289
    
    
    $
    
    
    
    $
    7,593
 15




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2005
 Condensed Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 2004
(Unaudited, dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    Combined Non-
    
    Consolidating
    
    ConsolidatedParent
    
    Guarantors
    
    Guarantors
    
    Adjustments
    
    AmountsOperating ActivitiesNet (loss) income
    
    $
    (10,876
    )
    
    $
    15,579
    
    
    $
    368
    
    
    $
    
    
    
    $
    5,071Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    313
    
    
    
    
    
    
    
    
    
    
    
    313Depreciation and amortization
    
    
    
    
    
    
    3,983
    
    
    
    485
    
    
    
    
    
    
    
    4,468Provision for doubtful accounts
    
    
    
    
    
    
    4,663
    
    
    
    
    
    
    
    
    
    
    
    4,663Amortization of loan costs
    
    
    410
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    419Loss on refinancing long-term debt
    
    
    6,407
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,407Change in income tax assets and liabilities
    
    
    
    
    
    
    2,660
    
    
    
    
    
    
    
    
    
    
    
    2,660Changes in operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (9,464
    )
    
    
    
    
    
    
    
    
    
    
    (9,464
    )Prepaids and other current assets
    
    
    
    
    
    
    1,501
    
    
    
    595
    
    
    
    
    
    
    
    2,096Accounts payable
    
    
    
    
    
    
    (1,859
    )
    
    
    
    
    
    
    
    
    
    
    (1,859
    )Accrued liabilities and other liabilities
    
    
    47
    
    
    
    3,162
    
    
    
    (1
    )
    
    
    
    
    
    
    3,208Net cash (used in) provided by operating activities
    
    
    (4,012
    )
    
    
    20,538
    
    
    
    1,456
    
    
    
    
    
    
    
    17,982Investing Activities:Acquisitions, net of cash acquired
    
    
    (112,194
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (112,194
    )Capital purchases of property and equipment
    
    
    
    
    
    
    (6,874
    )
    
    
    
    
    
    
    
    
    
    
    (6,874
    )Other assets
    
    
    
    
    
    
    (2,616
    )
    
    
    356
    
    
    
    
    
    
    
    (2,260
    )Net used in investing activities
    
    
    (112,194
    )
    
    
    (9,490
    )
    
    
    356
    
    
    
    
    
    
    
    (121,328
    )Financing Activities:Net principal borrowings on long-term debt
    
    
    74,554
    
    
    
    
    
    
    
    (109
    )
    
    
    
    
    
    
    74,445Net transfers to and from members
    
    
    45,535
    
    
    
    (44,023
    )
    
    
    (1,512
    )
    
    
    
    
    
    
    Refinancing of long-term debt
    
    
    (3,844
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,844
    )Payment of loan and issuance costs
    
    
    (1,603
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,603
    )Proceeds from issuance of common stock
    
    
    1,564
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,564Net cash provided by (used in) financing activities
    
    
    116,206
    
    
    
    (44,023
    )
    
    
    (1,621
    )
    
    
    
    
    
    
    70,562Net (decrease) increase in cash
    
    
    
    
    
    
    (32,975
    )
    
    
    191
    
    
    
    
    
    
    
    (32,784
    )Cash at beginning of year
    
    
    
    
    
    
    43,456
    
    
    
    1,498
    
    
    
    
    
    
    
    44,954Cash at end of year
    
    $
    
    
    
    $
    10,481
    
    
    $
    1,689
    
    
    $
    
    
    
    $
    12,170
 12. Subsequent Event
  16




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995.
 This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These forward-looking statements include statements regarding the intent,
belief or current expectations of Psychiatric Solutions and its management. Such forward-looking
statements are not guarantees of future performance and involve risks and uncertainties that may
cause our actual results to differ materially from the results discussed in the forward-looking
statements. Risks and uncertainties that might cause such differences include, but are not limited
to: (1) potential competition that alters or impedes our acquisition strategy by decreasing our
ability to acquire additional facilities on favorable terms; (2) our ability to improve the
operations of acquired facilities, including the 20 inpatient psychiatric facilities acquired from
Ardent Health Services LLC; (3) our ability to maintain favorable and continuing relationships with
physicians who use our facilities; (4) our ability to receive timely additional financing on terms
acceptable to us to fund our acquisition strategy and capital expenditure needs; (5) risks inherent
to the health care industry, including the impact of unforeseen changes in regulation,
reimbursement rates from federal and state health care programs or managed care companies and
exposure to claims and legal actions by patients and others; and (6) potential difficulties in
integrating our operations with recently acquired operations, including the inpatient psychiatric
facilities acquired from Ardent Health Services LLC. The forward-looking statements herein are
qualified in their entirety by the risk factors set forth in our filings with the Securities and
Exchange Commission, including the factors listed in our Annual Report on Form 10-K filed on March
15, 2005 under the caption Risk Factors. A copy of our filings may be obtained from the Public
Reference Room of the Securities and Exchange Commission at 450 Fifth Street NW, Washington, D.C.
at prescribed rates.
 Overview
    17




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##### Table of Contents



Sources of Revenue
 Patient Service Revenue
  Management Fee Revenue
  Results of Operations
  Three Months Ended June 30,
    
    Six Months Ended June,2005
    
    2004
    
    2005
    
    2004Amount
    
    %
    
    Amount
    
    %
    
    Amount
    
    %
    
    Amount
    
    %Revenue
    
    $
    143,868
    
    
    
    100.0
    %
    
    $
    116,936
    
    
    
    100.0
    %
    
    $
    282,598
    
    
    
    100.0
    %
    
    $
    220,366
    
    
    
    100.0
    %Salaries, wages, and employee benefits
    
    
    77,717
    
    
    
    54.0
    %
    
    
    63,402
    
    
    
    54.2
    %
    
    
    154,084
    
    
    
    54.5
    %
    
    
    119,109
    
    
    
    54.1
    %Professional fees
    
    
    14,829
    
    
    
    10.3
    %
    
    
    12,977
    
    
    
    11.1
    %
    
    
    29,085
    
    
    
    10.3
    %
    
    
    24,668
    
    
    
    11.2
    %Supplies
    
    
    9,036
    
    
    
    6.3
    %
    
    
    7,379
    
    
    
    6.3
    %
    
    
    17,620
    
    
    
    6.2
    %
    
    
    13,959
    
    
    
    6.3
    %Provision for bad debts
    
    
    2,676
    
    
    
    1.9
    %
    
    
    2,636
    
    
    
    2.2
    %
    
    
    5,344
    
    
    
    1.9
    %
    
    
    4,663
    
    
    
    2.1
    %Other operating expenses
    
    
    18,957
    
    
    
    13.2
    %
    
    
    15,152
    
    
    
    13.0
    %
    
    
    36,942
    
    
    
    13.1
    %
    
    
    29,435
    
    
    
    13.4
    %Depreciation and amortization
    
    
    3,058
    
    
    
    2.1
    %
    
    
    2,361
    
    
    
    2.0
    %
    
    
    5,960
    
    
    
    2.1
    %
    
    
    4,468
    
    
    
    2.0
    %Interest expense
    
    
    3,321
    
    
    
    2.3
    %
    
    
    4,515
    
    
    
    3.9
    %
    
    
    6,844
    
    
    
    2.4
    %
    
    
    8,971
    
    
    
    4.1
    %Other expenses:Loss on refinancing long-term debt
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    6,990
    
    
    
    2.5
    %
    
    
    6,407
    
    
    
    2.9
    %Income from continuing operations
before income taxes
    
    
    14,274
    
    
    
    9.9
    %
    
    
    8,514
    
    
    
    7.3
    %
    
    
    19,729
    
    
    
    7.0
    %
    
    
    8,686
    
    
    
    3.9
    %Provision for income taxes
    
    
    5,567
    
    
    
    3.8
    %
    
    
    3,237
    
    
    
    2.8
    %
    
    
    7,694
    
    
    
    2.7
    %
    
    
    3,302
    
    
    
    1.5
    %Income from continuing operations
    
    $
    8,707
    
    
    
    6.1
    %
    
    $
    5,277
    
    
    
    4.5
    %
    
    $
    12,035
    
    
    
    4.3
    %
    
    $
    5,384
    
    
    
    2.4
    %
 Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    % Change
    
    2005
    
    2004
    
    % ChangeConsolidated:Number of facilities at period end
    
    
    34
    
    
    
    34
    
    
    
    0.0
    %
    
    
    34
    
    
    
    34
    
    
    
    0.0
    %Admissions
    
    
    14,700
    
    
    
    11,822
    
    
    
    24.3
    %
    
    
    29,536
    
    
    
    22,048
    
    
    
    34.0
    %Patient days
    
    
    288,773
    
    
    
    241,096
    
    
    
    19.8
    %
    
    
    566,300
    
    
    
    452,659
    
    
    
    25.1
    %Same-facility (1):Number of facilities at period end
    
    
    33
    
    
    
    33
    
    
    
    0.0
    %
    
    
    33
    
    
    
    33
    
    
    
    0.0
    %Admissions
    
    
    12,267
    
    
    
    11,822
    
    
    
    3.8
    %
    
    
    22,496
    
    
    
    22,048
    
    
    
    2.0
    %Patient days
    
    
    257,235
    
    
    
    241,096
    
    
    
    6.7
    %
    
    
    480,170
    
    
    
    452,659
    
    
    
    6.1
    %
 
 (1)
    
    For the three and six months ended June 30, 2005, includes statistics
of inpatient facilities that had operations in the comparable period
of 2004. 18




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##### Table of Contents



Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004
 Revenue
 Salaries, wage, and employee benefits
 Professional fees
 Supplies.
 Provision for bad debts
 Other operating expenses
 Depreciation and amortization
 Interest expense
 Loss from discontinued operations, net of taxes
 19




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##### Table of Contents



Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
 Revenue
 Salaries, wage, and employee benefits
 Professional fees
 Supplies.
 Provision for bad debts
 Other operating expenses
 Depreciation and amortization
 Interest expense
 Other expenses.
 20




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##### Table of Contents



Loss from discontinued operations, net of taxes
 Liquidity and Capital Resources
           21




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##### Table of Contents



Contractual Obligations
 Payments Due by Period (in thousands)Less than
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    1 year
    
    1-3 years
    
    4-5 years
    
    5 yearsLong-term debt (1)
    
    $
    143,640
    
    
    $
    386
    
    
    $
    527
    
    
    $
    20,591
    
    
    $
    122,136Lease obligations
    
    
    37,395
    
    
    
    5,709
    
    
    
    8,572
    
    
    
    6,205
    
    
    
    16,909$
    181,035
    
    
    $
    6,095
    
    
    $
    9,099
    
    
    $
    26,796
    
    
    $
    139,045
 
 (1)
    
    Long-term debt excludes capital lease obligations which have been included in lease obligations above.  Critical Accounting Policies
  Allowance for doubtful accounts
    Allowances for contractual discounts
  22




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##### Table of Contents



Professional and General Liability
  Income taxes
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
  
 ITEM 4. CONTROLS AND PROCEDURES
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  23




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Joey A. JacobsVotes cast for
Votes withheld
    
    17,126,318
1,679,490William M. Petrie, M.D.Votes cast for
Votes withheld
    
    17,114,297
1,691,511Edward K. WissingVotes cast for
Votes withheld
    
    18,091,541
714,267
  Votes cast for
    
    
    11,511,083Votes cast against
Abstentions
Broker non-votes
    
    
    3,857,336
188,864
3,248,525
  Votes cast for
Votes cast against
Abstentions
Broker non-votes
    
    
    13,629,724
1,739,481
   188,078
3,248,525
  Votes cast for
Votes cast against
Abstentions
    
    
    18,055,767
606,462
143,579
 24




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##### Table of Contents



ITEM 6. EXHIBITS
  ExhibitNumber
    
    Description2.1
    
    Amended and Restated Stock Purchase
Agreement, dated June 30, 2005, by
and among Ardent Health Services LLC, Ardent Health
Services, Inc. and Psychiatric Solutions, Inc., (incorporated by
reference to Exhibit 2.1 to the Companys Current Report on Form
8-K filed on July 8, 2005).3.1
    
    Amended and Restated Certificate of Incorporation of
PMR Corporation, filed with the Delaware Secretary
of State on March 9, 1998 (incorporated by reference
to Exhibit 3.1 to the Companys Annual Report on
Form 10-K for the fiscal year ended April 30, 1998).3.2
    
    Certificate of Amendment to Amended and Restated
Certificate of Incorporation of PMR Corporation,
filed with the Delaware Secretary of State on August
5, 2002 (incorporated by reference to Exhibit 3.2 to
the Companys Quarterly Report on Form 10-Q for the
quarter ended July 31, 2002).3.3
    
    Certificate of Amendment to Amended and Restated
Certificate of Incorporation of Psychiatric
Solutions, Inc., filed with the Delaware Secretary
of State on March 21, 2003 (incorporated by
reference to Appendix A of the Companys Definitive
Proxy Statement, filed on January 22, 2003).3.4
    
    Amended and Restated Bylaws (incorporated by
reference to Exhibit 3.2 to the Companys Annual
Report on Form 10-K for the fiscal year ended April
30, 1997) (the 1997 10-K)).4.1
    
    Reference is made to Exhibits 3.1
through 3.4.4.2
    
    Common Stock Specimen Certificate (incorporated by
reference to Exhibit 4.2 to the Companys Annual
Report on Form 10-K for the fiscal year ended
December 31, 2002) (the 2002 10-K)).4.3
    
    Certificate of Designations, Preferences and Rights
of Series A Convertible Preferred Stock, filed with
the Delaware Secretary of State on March 24, 2003
(incorporated by reference to Appendix D of the
Companys Definitive Proxy Statement, filed January
22, 2003).4.4
    
    Indenture, dated as of June 30, 2003, among
Psychiatric Solutions, Inc., the Guarantors named
therein and Wachovia Bank, National Association, as
Trustee (incorporated by reference to the Companys
Registration Statement on Form S-4, filed on July
30, 2003 (Registration No. 333-107453) (the 2003
S-4)).4.5
    
    Form of Notes (included in Exhibit 4.4).4.6
    
    Purchase Agreement, dated as of June 19, 2003, among
Psychiatric Solutions, Inc., the Guarantors named
therein, Lehman Brothers Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Jefferies &
Company, Inc. (incorporated by reference to Exhibit
4.12 to the 2003 S-4).10.1
    
    Psychiatric Solutions, Inc. Cash Bonus Policy
(incorporated by reference to the Companys Current
Report on Form 8-K, filed on April 22, 2005).10.2
    
    Second Amendment to the Psychiatric
Solutions, Inc. Equity Incentive Plan (incorporated by reference to
Appendix A of the Companys Definitive Proxy Statement filed
April 22, 2005).10.3
    
    Amendment to the Psychiatric
Solutions, Inc. Outside Directors Stock Option Plan
(incorporated by reference to Appendix B of the Companys
Definitive Proxy Statement filed April 22, 2005).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. 25




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##### Table of Contents



SIGNATURES
  PSYCHIATRIC SOLUTIONS, INC.Dated: August 9, 2005

/s/
Jack E. PolsonJack E. PolsonChief Accounting Officer