##### 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 September 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
    
    23-2491707(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 840 Crescent Centre Drive, Suite 460
Franklin, TN 37067
 (615) 312-5700
 þ o
 þ o
 o þ




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PSYCHIATRIC SOLUTIONS, INC.
 TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004 (Unaudited)
    
    
    1Condensed Consolidated Statements of Income for the three and nine month periods ended
September 30, 2005 and 2004 (Unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 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
    
    
    18Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    25PART II. OTHER INFORMATIONItem 6. Exhibits
    
    
    25EX-31.1  SECTION 302 CEO CERTIFICATIONEX-31.2  SECTION 302 CFO CERTIFICATIONEX-32.1  SECTION 906 CEO AND CFO CERTIFICATION




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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)
 September 30,
    
    
    December 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    29,972
    
    
    $
    33,314Accounts receivable, less allowance for doubtful accounts of
$16,860 and $10,662, respectively
    
    
    134,319
    
    
    
    76,984Prepaids and other
    
    
    45,349
    
    
    
    16,601Total current assets
    
    
    209,640
    
    
    
    126,899Property and equipment, net of accumulated depreciation
    
    
    374,796
    
    
    
    218,211Cost in excess of net assets acquired
    
    
    527,742
    
    
    
    130,079Other assets
    
    
    30,724
    
    
    
    22,330Total assets
    
    $
    1,142,902
    
    
    $
    497,519LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    18,231
    
    
    $
    10,355Salaries and benefits payable
    
    
    46,744
    
    
    
    27,205Other accrued liabilities
    
    
    32,408
    
    
    
    28,665Current portion of long-term debt
    
    
    321
    
    
    
    20,764Total current liabilities
    
    
    97,704
    
    
    
    86,989Long-term debt, less current portion
    
    
    482,081
    
    
    
    153,572Deferred tax liability
    
    
    22,603
    
    
    
    8,020Other liabilities
    
    
    21,784
    
    
    
    4,423Total liabilities
    
    
    624,172
    
    
    
    253,004Stockholders equity:Common stock, $0.01 par value, 48,000 shares authorized;
25,989 and 20,468 issued and outstanding, respectively
    
    
    260
    
    
    
    205Additional paid-in capital
    
    
    488,990
    
    
    
    228,044Accumulated earnings
    
    
    29,480
    
    
    
    16,266Total stockholders equity
    
    
    518,730
    
    
    
    244,515Total liabilities and stockholders equity
    
    $
    1,142,902
    
    
    $
    497,519
  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 September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue
    
    $
    223,572
    
    
    $
    130,219
    
    
    $
    503,624
    
    
    $
    348,020Salaries, wages and employee benefits
    
    
    123,731
    
    
    
    71,310
    
    
    
    275,982
    
    
    
    188,663Professional fees
    
    
    22,642
    
    
    
    13,875
    
    
    
    51,462
    
    
    
    38,422Supplies
    
    
    13,541
    
    
    
    8,563
    
    
    
    30,985
    
    
    
    22,283Rentals and leases
    
    
    3,447
    
    
    
    2,553
    
    
    
    8,218
    
    
    
    6,407Other operating expenses
    
    
    22,631
    
    
    
    14,221
    
    
    
    54,250
    
    
    
    39,522Provision for doubtful accounts
    
    
    4,957
    
    
    
    3,396
    
    
    
    10,301
    
    
    
    8,051Depreciation and amortization
    
    
    4,370
    
    
    
    2,628
    
    
    
    10,326
    
    
    
    7,094Interest expense
    
    
    11,386
    
    
    
    5,105
    
    
    
    18,213
    
    
    
    14,077Loss on refinancing long-term debt
    
    
    14,881
    
    
    
    
    
    
    
    21,871
    
    
    
    6,407221,586
    
    
    
    121,651
    
    
    
    481,608
    
    
    
    330,926Income from continuing operations before
income taxes
    
    
    1,986
    
    
    
    8,568
    
    
    
    22,016
    
    
    
    17,094Provision for income taxes
    
    
    774
    
    
    
    3,254
    
    
    
    8,586
    
    
    
    6,496Income from continuing operations
    
    
    1,212
    
    
    
    5,314
    
    
    
    13,430
    
    
    
    10,598(Loss) income from discontinued operations, net of taxes
    
    
    (33
    )
    
    
    50
    
    
    
    (216
    )
    
    
    (164
    )Net income
    
    
    1,179
    
    
    
    5,364
    
    
    
    13,214
    
    
    
    10,434Accrued preferred stock dividends
    
    
    
    
    
    
    149
    
    
    
    
    
    
    
    656Net income available to common stockholders
    
    $
    1,179
    
    
    $
    5,215
    
    
    $
    13,214
    
    
    $
    9,778Basic earnings per share:Income from continuing operations
    
    $
    0.05
    
    
    $
    0.35
    
    
    $
    0.64
    
    
    $
    0.73(Loss) income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )$
    0.05
    
    
    $
    0.35
    
    
    $
    0.63
    
    
    $
    0.72Diluted earnings per share:Income from continuing operations
    
    $
    0.05
    
    
    $
    0.31
    
    
    $
    0.61
    
    
    $
    0.61(Loss) income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )$
    0.05
    
    
    $
    0.31
    
    
    $
    0.60
    
    
    $
    0.60Shares used in computing per share amounts:Basic
    
    
    22,410
    
    
    
    14,796
    
    
    
    21,142
    
    
    
    13,629Diluted
    
    
    23,202
    
    
    
    17,535
    
    
    
    21,875
    
    
    
    17,383
  2




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##### Table of Contents



PSYCHIATRIC
SOLUTIONS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 Nine Months Ended September 30,2005
    
    
    2004Operating Activities:Net income
    
    $
    13,214
    
    
    $
    10,434Adjustments to reconcile net income to net cash
provided by continuing operating activities:Loss from discontinued operations, net of taxes
    
    
    216
    
    
    
    164Depreciation and amortization
    
    
    10,326
    
    
    
    7,094Provision for doubtful accounts
    
    
    10,301
    
    
    
    8,051Amortization of loan costs
    
    
    818
    
    
    
    706Loss on refinancing long-term debt
    
    
    21,871
    
    
    
    6,407Change in income tax assets and liabilities
    
    
    1,715
    
    
    
    5,979Changes in operating assets and liabilities, net of effect of acquisitions:Accounts receivable
    
    
    (20,075
    )
    
    
    (10,331
    )Prepaids and other assets
    
    
    (4,160
    )
    
    
    2,019Accounts payable
    
    
    2,037
    
    
    
    (5,258
    )Salaries and benefits payable
    
    
    1,634
    
    
    
    6,488Accrued liabilities and other liabilities
    
    
    13,280
    
    
    
    4,405Net cash provided by continuing operating activities
    
    
    51,177
    
    
    
    36,158Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (514,732
    )
    
    
    (115,842
    )Capital purchases of property and equipment
    
    
    (14,285
    )
    
    
    (11,155
    )Investment in equity method investees
    
    
    (1,340
    )
    
    
    Other
    
    
    1,013
    
    
    
    (2,063
    )Net cash used in investing activities
    
    
    (529,344
    )
    
    
    (129,060
    )Financing activities:Net increase in revolving credit facility
    
    
    
    
    
    
    70,000Issuances of long-term debt
    
    
    545,000
    
    
    
    Repayments of long-term debt
    
    
    (236,735
    )
    
    
    (794
    )Loss on refinancing long-term debt
    
    
    (15,398
    )
    
    
    (3,844
    )Payment of loan and issuance costs
    
    
    (13,294
    )
    
    
    (2,027
    )Proceeds from repayment of stockholder notes
    
    
    
    
    
    
    338Proceeds from public offering of common stock, net of issuance costs
    
    
    192,637
    
    
    
    Proceeds from exercises of stock options
    
    
    2,615
    
    
    
    2,108Net cash provided by financing activities
    
    
    474,825
    
    
    
    65,781Net decrease in cash and cash equivalents
    
    
    (3,342
    )
    
    
    (27,121
    )Cash and cash equivalents at beginning of the period
    
    
    33,314
    
    
    
    44,954Cash and cash equivalents at end of the period
    
    $
    29,972
    
    
    $
    17,833Significant Non-cash Transactions:Loss on refinancing long-term debt
    
    $
    6,473
    
    
    $
    2,563Issuance of common stock upon conversion of series A
convertible preferred stock
    
    $
    
    
    
    $
    15,791Effect of Acquisitions:Assets acquired, net of cash acquired
    
    $
    623,000
    
    
    $
    122,902Cash payment for prior-year acquisitions
    
    
    5,793
    
    
    
    3,350Liabilities assumed
    
    
    (49,296
    )
    
    
    (10,410
    )Issuance of common stock used for acquisitions
    
    
    (64,765
    )
    
    
    Cash paid for acquisitions, net of cash acquired
    
    $
    514,732
    
    
    $
    115,842
  3




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##### Table of Contents



PSYCHIATRIC
SOLUTIONS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2005
 1. Recent Developments
 3 4 5 8
  2. Basis of Presentation
  3. Earnings Per Share
   4




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PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2005
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Numerator:Basic earnings per share:Income from continuing operations
    
    $
    1,212
    
    
    $
    5,314
    
    
    $
    13,430
    
    
    $
    10,598Accrued dividends on series A convertible preferred stock
    
    
    
    
    
    
    149
    
    
    
    
    
    
    
    656Income from continuing operations used in computing basic
earnings per common share
    
    
    1,212
    
    
    
    5,165
    
    
    
    13,430
    
    
    
    9,942(Loss) income from discontinued operations, net of taxes
    
    
    (33
    )
    
    
    50
    
    
    
    (216
    )
    
    
    (164
    )Net income available to common stockholders
    
    $
    1,179
    
    
    $
    5,215
    
    
    $
    13,214
    
    
    $
    9,778Diluted earnings per share:Income from continuing operations
    
    $
    1,212
    
    
    $
    5,314
    
    
    $
    13,430
    
    
    $
    10,598(Loss) income from discontinued operations, net of taxes
    
    
    (33
    )
    
    
    50
    
    
    
    (216
    )
    
    
    (164
    )Net income
    
    $
    1,179
    
    
    $
    5,364
    
    
    $
    13,214
    
    
    $
    10,434Denominator:Weighted average shares outstanding for basic earnings per share
    
    
    22,410
    
    
    
    14,796
    
    
    
    21,142
    
    
    
    13,629Effect of dilutive series A convertible preferred stock outstanding
    
    
    
    
    
    
    2,179
    
    
    
    
    
    
    
    3,202Effects of dilutive stock options and warrants outstanding
    
    
    792
    
    
    
    560
    
    
    
    733
    
    
    
    552Shares used in computing diluted earnings per common share
    
    
    23,202
    
    
    
    17,535
    
    
    
    21,875
    
    
    
    17,383Basic earnings per share:Income from continuing operations
    
    $
    0.05
    
    
    $
    0.35
    
    
    $
    0.64
    
    
    $
    0.73(Loss) income from discontinued operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )$
    0.05
    
    
    $
    0.35
    
    
    $
    0.63
    
    
    $
    0.72Diluted earnings per share:Income from continuing operations
    
    $
    0.05
    
    
    $
    0.31
    
    
    $
    0.61
    
    
    $
    0.61(Loss) income from discontinued operations, net of taxes
    
    
    
    
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )$
    0.05
    
    
    $
    0.31
    
    
    $
    0.60
    
    
    $
    0.60
 4. Stock-Based Compensation
     5




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2005
 For the three months ended
    
    
    For the nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income available to common stockholders
    
    $
    1,179
    
    
    $
    5,215
    
    
    $
    13,214
    
    
    $
    9,778Pro forma compensation expense from stock options, net of taxes
    
    
    1,008
    
    
    
    422
    
    
    
    2,347
    
    
    
    1,048Pro forma net income available to common stockholders
    
    $
    171
    
    
    $
    4,793
    
    
    $
    10,867
    
    
    $
    8,730Basic earnings per share, as reported
    
    $
    0.05
    
    
    $
    0.35
    
    
    $
    0.63
    
    
    $
    0.72Diluted earnings per share, as reported
    
    $
    0.05
    
    
    $
    0.31
    
    
    $
    0.60
    
    
    $
    0.60Basic pro forma earnings per share
    
    $
    0.01
    
    
    $
    0.32
    
    
    $
    0.51
    
    
    $
    0.64Diluted pro forma earnings per share
    
    $
    0.01
    
    
    $
    0.28
    
    
    $
    0.50
    
    
    $
    0.54
 5. Mergers and Acquisitions
           6




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2005
 For the three months
    
    
    For the nine monthsended September 30,
    
    
    ended September 30,2004
    
    
    2005
    
    
    2004Revenue
    
    $
    209,218
    
    
    $
    665,575
    
    
    $
    573,439Net income available to common stockholders
    
    $
    8,237
    
    
    $
    20,575
    
    
    $
    18,169Earnings per common share, basic
    
    $
    0.51
    
    
    $
    0.93
    
    
    $
    1.21Earnings per common share, diluted
    
    $
    0.44
    
    
    $
    0.90
    
    
    $
    1.00
  6. Long-term debt
  September 30,
    
    
    December 31,2005
    
    
    2004Senior credit facility:Senior
Secured Term Loan Facility, expiring on July 1, 2012 and bearing
interest of 5.7% at September 30, 2005
    
    $
    200,000
    
    
    $
    7 3/4% Senior Subordinated Notes
    
    
    220,000
    
    
    
    10 5/8% Senior Subordinated Notes
    
    
    38,681
    
    
    
    150,000Mortgage loans on facilities, maturing in 2037 and 2038
bearing fixed interest rates of 5.65% to 5.95%
    
    
    23,436
    
    
    
    23,611Other
    
    
    285
    
    
    
    725482,402
    
    
    
    174,336Less current portion
    
    
    321
    
    
    
    20,764Long-term debt
    
    $
    482,081
    
    
    $
    153,572
 Senior Credit Facility
    7




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2005
  7 3/4% Senior Subordinated Notes
 3 4 5 8 3 4 3 4
 10 5 / 8 % Senior Subordinated Notes
 5 8 5 8 5 8
 5 8 5 8 5 8 5 8 3 4
 Mortgage Loans
  7. Income Taxes
  8. Discontinued Operations
   8




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2005
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue
    
    $
    203
    
    
    $
    4,508
    
    
    $
    2,462
    
    
    $
    14,801Salaries, wages and employee benefits
    
    
    139
    
    
    
    2,933
    
    
    
    1,971
    
    
    
    10,728Professional fees
    
    
    9
    
    
    
    447
    
    
    
    337
    
    
    
    1,302Supplies
    
    
    9
    
    
    
    384
    
    
    
    179
    
    
    
    1,288Rentals and leases
    
    
    19
    
    
    
    88
    
    
    
    12
    
    
    
    172Other operating expenses
    
    
    58
    
    
    
    549
    
    
    
    272
    
    
    
    1,527Provision for doubtful accounts
    
    
    5
    
    
    
    21
    
    
    
    5
    
    
    
    29Depreciation and amortization
    
    
    13
    
    
    
    5
    
    
    
    17
    
    
    
    20Interest expense
    
    
    5
    
    
    
    
    
    
    
    23
    
    
    
    257
    
    
    
    4,427
    
    
    
    2,816
    
    
    
    15,066(Loss) income from discontinued operations before income taxes
    
    
    (54
    )
    
    
    81
    
    
    
    (354
    )
    
    
    (265
    )(Benefit from) provision for income taxes
    
    
    (21
    )
    
    
    31
    
    
    
    (138
    )
    
    
    (101
    )(Loss) income from discontinued operations, net of taxes
    
    $
    (33
    )
    
    $
    50
    
    
    $
    (216
    )
    
    $
    (164
    )
 9. Disclosures About Reportable Segments
   9




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2005
 Owned andLeased
    
    
    Management
    
    
    CorporateFacilities
    
    
    Contracts
    
    
    and Other
    
    
    ConsolidatedThree months ended September 30, 2005Revenue
    
    $
    207,534
    
    
    $
    16,038
    
    
    $
    
    
    
    $
    223,572Adjusted EBITDA
    
    $
    36,047
    
    
    $
    2,831
    
    
    $
    (6,255
    )
    
    $
    32,623Interest expense
    
    
    8,281
    
    
    
    10
    
    
    
    3,095
    
    
    
    11,386Depreciation and amortization
    
    
    3,988
    
    
    
    184
    
    
    
    198
    
    
    
    4,370Provision for income taxes
    
    
    131
    
    
    
    
    
    
    
    643
    
    
    
    774Inter-segment expenses
    
    
    5,556
    
    
    
    1,179
    
    
    
    (6,735
    )
    
    
    Loss on refinancing long-term debt
    
    
    
    
    
    
    
    
    
    
    14,881
    
    
    
    14,881Total other expenses
    
    
    
    
    
    
    
    
    
    
    14,881
    
    
    
    14,881Income (loss) from continuing operations
    
    $
    18,091
    
    
    $
    1,458
    
    
    $
    (18,337
    )
    
    $
    1,212Segment assets
    
    $
    1,018,035
    
    
    $
    30,983
    
    
    $
    93,884
    
    
    $
    1,142,902
 Owned andLeased
    
    
    Management
    
    
    CorporateFacilities
    
    
    Contracts
    
    
    and Other
    
    
    ConsolidatedNine months ended September 30, 2005Revenue
    
    $
    456,188
    
    
    $
    47,436
    
    
    $
    
    
    
    $
    503,624Adjusted EBITDA
    
    $
    79,872
    
    
    $
    8,281
    
    
    $
    (15,727
    )
    
    $
    72,426Interest expense
    
    
    24,942
    
    
    
    23
    
    
    
    (6,752
    )
    
    
    18,213Depreciation and amortization
    
    
    9,272
    
    
    
    556
    
    
    
    498
    
    
    
    10,326Provision for income taxes
    
    
    1,355
    
    
    
    
    
    
    
    7,231
    
    
    
    8,586Inter-segment expenses
    
    
    12,937
    
    
    
    2,499
    
    
    
    (15,436
    )
    
    
    Other expenses:Loss on refinancing long-term debt
    
    
    
    
    
    
    
    
    
    
    21,871
    
    
    
    21,871Total other expenses
    
    
    
    
    
    
    
    
    
    
    21,871
    
    
    
    21,871Income (loss) from continuing operations
    
    $
    31,366
    
    
    $
    5,203
    
    
    $
    (23,139
    )
    
    $
    13,430Segment assets
    
    $
    1,018,035
    
    
    $
    30,983
    
    
    $
    93,884
    
    
    $
    1,142,902
 Owned andLeased
    
    
    Management
    
    
    CorporateFacilities
    
    
    Contracts
    
    
    and Other
    
    
    ConsolidatedThree months ended September 30, 2004Revenue
    
    $
    114,487
    
    
    $
    15,732
    
    
    $
    
    
    
    $
    130,219Adjusted EBITDA
    
    $
    17,012
    
    
    $
    3,039
    
    
    $
    (3,750
    )
    
    $
    16,301Interest expense
    
    
    5,745
    
    
    
    (4
    )
    
    
    (636
    )
    
    
    5,105Depreciation and amortization
    
    
    2,261
    
    
    
    275
    
    
    
    92
    
    
    
    2,628Provision for income taxes
    
    
    545
    
    
    
    
    
    
    
    2,709
    
    
    
    3,254Inter-segment expenses
    
    
    3,295
    
    
    
    821
    
    
    
    (4,116
    )
    
    
    Income (loss) from continuing operations
    
    $
    5,166
    
    
    $
    1,947
    
    
    $
    (1,799
    )
    
    $
    5,314Segment assets
    
    $
    383,029
    
    
    $
    34,789
    
    
    $
    35,711
    
    
    $
    453,529
 10




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2005
 Owned andLeased
    
    
    Management
    
    
    CorporateFacilities
    
    
    Contracts
    
    
    and Other
    
    
    ConsolidatedNine months ended September 30, 2004Revenue
    
    $
    301,142
    
    
    $
    46,878
    
    
    $
    
    
    
    $
    348,020Adjusted EBITDA
    
    $
    46,583
    
    
    $
    8,212
    
    
    $
    (10,123
    )
    
    $
    44,672Interest expense
    
    
    13,872
    
    
    
    (15
    )
    
    
    220
    
    
    
    14,077Depreciation and amortization
    
    
    5,992
    
    
    
    874
    
    
    
    228
    
    
    
    7,094Provision for income taxes
    
    
    1,898
    
    
    
    
    
    
    
    4,598
    
    
    
    6,496Inter-segment expenses
    
    
    8,655
    
    
    
    1,632
    
    
    
    (10,287
    )
    
    
    Other expenses:Loss on refinancing long-term debt
    
    
    
    
    
    
    
    
    
    
    6,407
    
    
    
    6,407Total other expenses
    
    
    
    
    
    
    
    
    
    
    6,407
    
    
    
    6,407Income (loss) from continuing operations
    
    $
    16,166
    
    
    $
    5,721
    
    
    $
    (11,289
    )
    
    $
    10,598Segment assets
    
    $
    383,029
    
    
    $
    34,789
    
    
    $
    35,711
    
    
    $
    453,529
 10. Recent Pronouncements
  11. Financial Information for Psychiatric Solutions and Its Subsidiaries
  11




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##### Table of Contents



PSYCHLATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2005
 Condensed Consolidating Balance Sheet
As of September 30, 2005
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    AmountsCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    26,318
    
    
    $
    3,654
    
    
    $
    
    
    
    $
    29,972Accounts receivable, net
    
    
    
    
    
    
    134,319
    
    
    
    
    
    
    
    
    
    
    
    134,319Prepaids and other
    
    
    
    
    
    
    42,285
    
    
    
    3,064
    
    
    
    
    
    
    
    45,349Total current assets
    
    
    
    
    
    
    202,922
    
    
    
    6,718
    
    
    
    
    
    
    
    209,640Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    353,271
    
    
    
    29,419
    
    
    
    (7,894
    )
    
    
    374,796Cost in excess of net assets acquired
    
    
    
    
    
    
    527,742
    
    
    
    
    
    
    
    
    
    
    
    527,742Investment in subsidiaries
    
    
    452,050
    
    
    
    
    
    
    
    
    
    
    
    (452,050
    )
    
    
    Other assets
    
    
    12,500
    
    
    
    9,949
    
    
    
    8,275
    
    
    
    
    
    
    
    30,724Total assets
    
    $
    464,550
    
    
    $
    1,093,884
    
    
    $
    44,412
    
    
    $
    (459,944
    )
    
    $
    1,142,902Current Liabilities:Accounts payable
    
    $
    
    
    
    $
    18,231
    
    
    $
    
    
    
    $
    
    
    
    $
    18,231Salaries and benefits payable
    
    
    
    
    
    
    46,732
    
    
    
    12
    
    
    
    
    
    
    
    46,744Other accrued liabilities
    
    
    10,494
    
    
    
    18,073
    
    
    
    3,841
    
    
    
    
    
    
    
    32,408Current portion of long-term debt
    
    
    76
    
    
    
    
    
    
    
    245
    
    
    
    
    
    
    
    321Total current liabilities
    
    
    10,570
    
    
    
    83,036
    
    
    
    4,098
    
    
    
    
    
    
    
    97,704Long-term debt, less current portion
    
    
    458,889
    
    
    
    
    
    
    
    23,192
    
    
    
    
    
    
    
    482,081Deferred tax liability
    
    
    
    
    
    
    22,603
    
    
    
    
    
    
    
    
    
    
    
    22,603Other liabilities
    
    
    7,321
    
    
    
    8,535
    
    
    
    5,928
    
    
    
    
    
    
    
    21,784Total liabilities
    
    
    476,780
    
    
    
    114,174
    
    
    
    33,218
    
    
    
    
    
    
    
    624,172Stockholders (deficit) equity:Total stockholders (deficit) equity
    
    
    (12,230
    )
    
    
    979,710
    
    
    
    11,194
    
    
    
    (459,944
    )
    
    
    518,730Total liabilities and stockholders (deficit) equity
    
    $
    464,550
    
    
    $
    1,093,884
    
    
    $
    44,412
    
    
    $
    (459,944
    )
    
    $
    1,142,902
 12




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2005
 Condensed Consolidating Balance Sheet
As of December 31, 2004
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    AmountsCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    30,851
    
    
    $
    2,463
    
    
    $
    
    
    
    $
    33,314Accounts receivable, net
    
    
    
    
    
    
    76,984
    
    
    
    
    
    
    
    
    
    
    
    76,984Prepaids and other
    
    
    
    
    
    
    15,626
    
    
    
    975
    
    
    
    
    
    
    
    16,601Total current assets
    
    
    
    
    
    
    123,461
    
    
    
    3,438
    
    
    
    
    
    
    
    126,899Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    196,132
    
    
    
    30,155
    
    
    
    (8,076
    )
    
    
    218,211Cost in excess of net assets acquired
    
    
    
    
    
    
    130,079
    
    
    
    
    
    
    
    
    
    
    
    130,079Investment in subsidiaries
    
    
    160,065
    
    
    
    
    
    
    
    
    
    
    
    (160,065
    )
    
    
    Other assets
    
    
    6,791
    
    
    
    11,974
    
    
    
    3,565
    
    
    
    
    
    
    
    22,330Total assets
    
    $
    166,856
    
    
    $
    461,646
    
    
    $
    37,158
    
    
    $
    (168,141
    )
    
    $
    497,519Current Liabilities:Accounts payable
    
    $
    
    
    
    $
    10,355
    
    
    $
    
    
    
    $
    
    
    
    $
    10,355Salaries and benefits payable
    
    
    
    
    
    
    27,205
    
    
    
    
    
    
    
    
    
    
    
    27,205Other accrued liabilities
    
    
    1,162
    
    
    
    27,380
    
    
    
    1,682
    
    
    
    (1,559
    )
    
    
    28,665Current portion of long-term debt
    
    
    20,529
    
    
    
    
    
    
    
    235
    
    
    
    
    
    
    
    20,764Total current liabilities
    
    
    21,691
    
    
    
    64,940
    
    
    
    1,917
    
    
    
    (1,559
    )
    
    
    86,989Long-term debt, less current portion
    
    
    130,195
    
    
    
    
    
    
    
    23,377
    
    
    
    
    
    
    
    153,572Deferred tax liability
    
    
    
    
    
    
    8,020
    
    
    
    
    
    
    
    
    
    
    
    8,020Other liabilities
    
    
    3,325
    
    
    
    (461
    )
    
    
    
    
    
    
    1,559
    
    
    
    4,423Total liabilities
    
    
    155,211
    
    
    
    72,499
    
    
    
    25,294
    
    
    
    
    
    
    
    253,004Stockholders equity:Total stockholders equity
    
    
    11,645
    
    
    
    389,147
    
    
    
    11,864
    
    
    
    (168,141
    )
    
    
    244,515Total liabilities and stockholders equity
    
    $
    166,856
    
    
    $
    461,646
    
    
    $
    37,158
    
    
    $
    (168,141
    )
    
    $
    497,519
 Condensed Consolidating Statement of Income
For the Three Months Ended September 30, 2005
(Unaudited, dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    223,572
    
    
    $
    3,663
    
    
    $
    (3,663
    )
    
    $
    223,572Salaries, wages and employee benefits
    
    
    
    
    
    
    123,731
    
    
    
    
    
    
    
    
    
    
    
    123,731Professional fees
    
    
    
    
    
    
    22,249
    
    
    
    393
    
    
    
    
    
    
    
    22,642Supplies
    
    
    
    
    
    
    13,541
    
    
    
    
    
    
    
    
    
    
    
    13,541Rentals and leases
    
    
    
    
    
    
    3,447
    
    
    
    
    
    
    
    
    
    
    
    3,447Other operating expenses
    
    
    
    
    
    
    22,529
    
    
    
    2,566
    
    
    
    (2,464
    )
    
    
    22,631Provision for doubtful accounts
    
    
    
    
    
    
    4,957
    
    
    
    
    
    
    
    
    
    
    
    4,957Depreciation and amortization
    
    
    
    
    
    
    4,186
    
    
    
    245
    
    
    
    (61
    )
    
    
    4,370Interest expense
    
    
    11,150
    
    
    
    
    
    
    
    236
    
    
    
    
    
    
    
    11,386Loss on refinancing long-term debt
    
    
    14,881
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,88126,031
    
    
    
    194,640
    
    
    
    3,440
    
    
    
    (2,525
    )
    
    
    221,586(Loss) income from continuing operations before
income taxes
    
    
    (26,031
    )
    
    
    28,932
    
    
    
    223
    
    
    
    (1,138
    )
    
    
    1,986(Benefit from) provision for income taxes
    
    
    (10,152
    )
    
    
    10,926
    
    
    
    
    
    
    
    
    
    
    
    774(Loss) income from continuing operations
    
    
    (15,879
    )
    
    
    18,006
    
    
    
    223
    
    
    
    (1,138
    )
    
    
    1,212(Loss) income from discontinued operations, net of taxes
    
    
    
    
    
    
    (33
    )
    
    
    
    
    
    
    
    
    
    
    (33
    )Net income
    
    $
    (15,879
    )
    
    $
    17,973
    
    
    $
    223
    
    
    $
    (1,138
    )
    
    $
    1,179
 13




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2005
 Condensed Consolidating Statement of Income
For the Nine Months Ended September 30, 2005
(Unaudited, dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    503,624
    
    
    $
    7,831
    
    
    $
    (7,831
    )
    
    $
    503,624Salaries, wages and employee benefits
    
    
    
    
    
    
    275,982
    
    
    
    
    
    
    
    
    
    
    
    275,982Professional fees
    
    
    
    
    
    
    51,014
    
    
    
    448
    
    
    
    
    
    
    
    51,462Supplies
    
    
    
    
    
    
    30,985
    
    
    
    
    
    
    
    
    
    
    
    30,985Rentals and leases
    
    
    
    
    
    
    8,218
    
    
    
    
    
    
    
    
    
    
    
    8,218Other operating expenses
    
    
    
    
    
    
    53,460
    
    
    
    5,945
    
    
    
    (5,155
    )
    
    
    54,250Provision for doubtful accounts
    
    
    
    
    
    
    10,301
    
    
    
    
    
    
    
    
    
    
    
    10,301Depreciation and amortization
    
    
    
    
    
    
    9,772
    
    
    
    736
    
    
    
    (182
    )
    
    
    10,326Interest expense
    
    
    17,268
    
    
    
    
    
    
    
    945
    
    
    
    
    
    
    
    18,213Loss on refinancing of long-term debt
    
    
    21,871
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,87139,139
    
    
    
    439,732
    
    
    
    8,074
    
    
    
    (5,337
    )
    
    
    481,608(Loss) income from continuing operations before
income taxes
    
    
    (39,139
    )
    
    
    63,892
    
    
    
    (243
    )
    
    
    (2,494
    )
    
    
    22,016(Benefit from) provision for income taxes
    
    
    (15,264
    )
    
    
    23,850
    
    
    
    
    
    
    
    
    
    
    
    8,586(Loss) income from continuing operations
    
    
    (23,875
    )
    
    
    40,042
    
    
    
    (243
    )
    
    
    (2,494
    )
    
    
    13,430(Loss) income from discontinued operations, net of taxes
    
    
    
    
    
    
    (216
    )
    
    
    
    
    
    
    
    
    
    
    (216
    )Net income
    
    $
    (23,875
    )
    
    $
    39,826
    
    
    $
    (243
    )
    
    $
    (2,494
    )
    
    $
    13,214
 Condensed Consolidating Statement of Income
For the Three Months Ended September 30, 2004
(Unaudited, dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    130,219
    
    
    $
    878
    
    
    $
    (878
    )
    
    $
    130,219Salaries, wages and employee benefits
    
    
    
    
    
    
    71,310
    
    
    
    
    
    
    
    
    
    
    
    71,310Professional fees
    
    
    
    
    
    
    13,870
    
    
    
    5
    
    
    
    
    
    
    
    13,875Supplies
    
    
    
    
    
    
    8,563
    
    
    
    
    
    
    
    
    
    
    
    8,563Rentals and leases
    
    
    
    
    
    
    2,553
    
    
    
    
    
    
    
    
    
    
    
    2,553Other operating expenses
    
    
    (397
    )
    
    
    15,492
    
    
    
    4
    
    
    
    (878
    )
    
    
    14,221Provision for doubtful accounts
    
    
    
    
    
    
    3,396
    
    
    
    
    
    
    
    
    
    
    
    3,396Depreciation and amortization
    
    
    
    
    
    
    2,383
    
    
    
    245
    
    
    
    
    
    
    
    2,628Interest expense
    
    
    4,731
    
    
    
    
    
    
    
    374
    
    
    
    
    
    
    
    5,1054,334
    
    
    
    117,567
    
    
    
    628
    
    
    
    (878
    )
    
    
    121,651(Loss) income from continuing operations before
income taxes
    
    
    (4,334
    )
    
    
    12,652
    
    
    
    250
    
    
    
    
    
    
    
    8,568(Benefit from) provision for income taxes
    
    
    (1,647
    )
    
    
    4,901
    
    
    
    
    
    
    
    
    
    
    
    3,254(Loss) income from continuing operations
    
    
    (2,687
    )
    
    
    7,751
    
    
    
    250
    
    
    
    
    
    
    
    5,314Income from discontinued operations
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50Net (loss) income
    
    
    (2,687
    )
    
    
    7,801
    
    
    
    250
    
    
    
    
    
    
    
    5,364Accrued preferred stock dividends
    
    
    149
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    149Net (loss) income available to common shareholders
    
    $
    (2,836
    )
    
    $
    7,801
    
    
    $
    250
    
    
    $
    
    
    
    $
    5,215
 14




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2005
 Condensed Consolidating Statement of Income
For the Nine Months Ended September 30, 2004
(Unaudited, dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    348,020
    
    
    $
    2,738
    
    
    $
    (2,738
    )
    
    $
    348,020Salaries, wages and employee benefits
    
    
    
    
    
    
    188,663
    
    
    
    
    
    
    
    
    
    
    
    188,663Professional fees
    
    
    
    
    
    
    38,383
    
    
    
    39
    
    
    
    
    
    
    
    38,422Supplies
    
    
    
    
    
    
    22,283
    
    
    
    
    
    
    
    
    
    
    
    22,283Rentals and leases
    
    
    
    
    
    
    6,407
    
    
    
    
    
    
    
    
    
    
    
    6,407Other operating expenses
    
    
    357
    
    
    
    41,901
    
    
    
    2
    
    
    
    (2,738
    )
    
    
    39,522Provision for doubtful accounts
    
    
    
    
    
    
    8,051
    
    
    
    
    
    
    
    
    
    
    
    8,051Depreciation and amortization
    
    
    
    
    
    
    6,364
    
    
    
    730
    
    
    
    
    
    
    
    7,094Interest expense
    
    
    12,954
    
    
    
    
    
    
    
    1,123
    
    
    
    
    
    
    
    14,077Loss on refinancing of long-term debt
    
    
    6,407
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,40719,718
    
    
    
    312,052
    
    
    
    1,894
    
    
    
    (2,738
    )
    
    
    330,926(Loss) income from continuing operations before
income taxes
    
    
    (19,718
    )
    
    
    35,968
    
    
    
    844
    
    
    
    
    
    
    
    17,094(Benefit from) provision for income taxes
    
    
    (7,493
    )
    
    
    13,989
    
    
    
    
    
    
    
    
    
    
    
    6,496(Loss) income from continuing operations
    
    
    (12,225
    )
    
    
    21,979
    
    
    
    844
    
    
    
    
    
    
    
    10,598Loss from discontinued operations
    
    
    
    
    
    
    (164
    )
    
    
    
    
    
    
    
    
    
    
    (164
    )Net (loss) income
    
    
    (12,225
    )
    
    
    21,815
    
    
    
    844
    
    
    
    
    
    
    
    10,434Accrued preferred stock dividends
    
    
    656
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    656Net (loss) income available to common shareholders
    
    $
    (12,881
    )
    
    $
    21,815
    
    
    $
    844
    
    
    $
    
    
    
    $
    9,778
 15




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2005
 Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2005
(Unaudited, dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    AmountsOperating ActivitiesNet (loss) income
    
    $
    (23,875
    )
    
    $
    39,826
    
    
    $
    (243
    )
    
    $
    (2,494
    )
    
    $
    13,214Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    216
    
    
    
    
    
    
    
    
    
    
    
    216Depreciation and amortization
    
    
    
    
    
    
    9,772
    
    
    
    736
    
    
    
    (182
    )
    
    
    10,326Provision for doubtful accounts
    
    
    
    
    
    
    10,301
    
    
    
    
    
    
    
    
    
    
    
    10,301Amortization of loan costs
    
    
    783
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    818Loss on refinancing long-term debt
    
    
    21,871
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,871Change in income tax assets and liabilities
    
    
    
    
    
    
    1,715
    
    
    
    
    
    
    
    
    
    
    
    1,715Changes in operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (20,075
    )
    
    
    
    
    
    
    
    
    
    
    (20,075
    )Prepaids and other current assets
    
    
    
    
    
    
    (2,070
    )
    
    
    (2,090
    )
    
    
    
    
    
    
    (4,160
    )Accounts payable
    
    
    
    
    
    
    2,037
    
    
    
    
    
    
    
    
    
    
    
    2,037Accrued liabilities and other liabilities
    
    
    4,744
    
    
    
    1,909
    
    
    
    8,261
    
    
    
    
    
    
    
    14,914Net cash (used in) provided by operating activities
    
    
    3,523
    
    
    
    43,631
    
    
    
    6,699
    
    
    
    (2,676
    )
    
    
    51,177Investing Activities:Acquisitions, net of cash acquired
    
    
    (514,732
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (514,732
    )Capital purchases of property and equipment
    
    
    
    
    
    
    (14,285
    )
    
    
    
    
    
    
    
    
    
    
    (14,285
    )Investment in equity method investees
    
    
    (1,340
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,340
    )Other assets
    
    
    
    
    
    
    6,346
    
    
    
    (5,333
    )
    
    
    
    
    
    
    1,013Net used in investing activities
    
    
    (516,072
    )
    
    
    (7,939
    )
    
    
    (5,333
    )
    
    
    
    
    
    
    (529,344
    )Financing Activities:Net principal borrowings (payments) on long-term debt
    
    
    308,440
    
    
    
    
    
    
    
    (175
    )
    
    
    
    
    
    
    308,265Net transfers to and from members
    
    
    37,549
    
    
    
    (40,225
    )
    
    
    
    
    
    
    2,676
    
    
    
    Loss on refinancing long-term debt
    
    
    (15,398
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,398
    )Payment of loan and issuance costs
    
    
    (13,294
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,294
    )Proceeds from issuance of common stock
    
    
    195,252
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    195,252Net cash provided by (used in) financing activities
    
    
    512,549
    
    
    
    (40,225
    )
    
    
    (175
    )
    
    
    2,676
    
    
    
    474,825Net (decrease) increase in cash
    
    
    
    
    
    
    (4,533
    )
    
    
    1,191
    
    
    
    
    
    
    
    (3,342
    )Cash at beginning of year
    
    
    
    
    
    
    30,851
    
    
    
    2,463
    
    
    
    
    
    
    
    33,314Cash at end of year
    
    $
    
    
    
    $
    26,318
    
    
    $
    3,654
    
    
    $
    
    
    
    $
    29,972
 16




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2005
 Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2004
(Unaudited, dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Adjustments
    
    
    AmountsOperating ActivitiesNet (loss) income
    
    $
    (12,225
    )
    
    $
    21,815
    
    
    $
    844
    
    
    $
    
    
    
    $
    10,434Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    164
    
    
    
    
    
    
    
    
    
    
    
    164Depreciation and amortization
    
    
    
    
    
    
    6,364
    
    
    
    730
    
    
    
    
    
    
    
    7,094Provision for doubtful accounts
    
    
    
    
    
    
    8,051
    
    
    
    
    
    
    
    
    
    
    
    8,051Amortization of loan costs
    
    
    674
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    706Loss on refinancing long-term debt
    
    
    6,407
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,407Change in income tax assets and liabilities
    
    
    
    
    
    
    5,979
    
    
    
    
    
    
    
    
    
    
    
    5,979Changes in operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (10,331
    )
    
    
    
    
    
    
    
    
    
    
    (10,331
    )Prepaids and other current assets
    
    
    
    
    
    
    2,754
    
    
    
    (735
    )
    
    
    
    
    
    
    2,019Accounts payable
    
    
    
    
    
    
    (5,258
    )
    
    
    
    
    
    
    
    
    
    
    (5,258
    )Accrued liabilities and other liabilities
    
    
    3,655
    
    
    
    7,239
    
    
    
    (1
    )
    
    
    
    
    
    
    10,893Net cash (used in) provided by operating activities
    
    
    (1,489
    )
    
    
    36,777
    
    
    
    870
    
    
    
    
    
    
    
    36,158Investing Activities:Acquisitions, net of cash acquired
    
    
    (115,842
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (115,842
    )Capital purchases of property and equipment
    
    
    
    
    
    
    (11,155
    )
    
    
    
    
    
    
    
    
    
    
    (11,155
    )Other assets
    
    
    
    
    
    
    (1,676
    )
    
    
    (387
    )
    
    
    
    
    
    
    (2,063
    )Net used in investing activities
    
    
    (115,842
    )
    
    
    (12,831
    )
    
    
    (387
    )
    
    
    
    
    
    
    (129,060
    )Financing Activities:Net principal borrowings on long-term debt
    
    
    69,370
    
    
    
    
    
    
    
    (164
    )
    
    
    
    
    
    
    69,206Net transfers to and from members
    
    
    51,386
    
    
    
    (51,280
    )
    
    
    (106
    )
    
    
    
    
    
    
    Loss on refinancing long-term debt
    
    
    (3,844
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,844
    )Payment of loan and issuance costs
    
    
    (2,027
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,027
    )Proceeds from repayment of stockholder notes
    
    
    338
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    338Proceeds from issuance of common stock
    
    
    2,108
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,108Net cash provided by (used in) financing activities
    
    
    117,331
    
    
    
    (51,280
    )
    
    
    (270
    )
    
    
    
    
    
    
    65,781Net (decrease) increase in cash
    
    
    
    
    
    
    (27,334
    )
    
    
    213
    
    
    
    
    
    
    
    (27,121
    )Cash at beginning of year
    
    
    
    
    
    
    43,456
    
    
    
    1,498
    
    
    
    
    
    
    
    44,954Cash at end of year
    
    $
    
    
    
    $
    16,122
    
    
    $
    1,711
    
    
    $
    
    
    
    $
    17,833
 12. Subsequent Event
  17




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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. 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. 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
 3 4 5 8
   18




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##### Table of Contents



Sources of Revenue
 Patient Service Revenue
  Management Fee Revenue
  Results of Operations
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Revenue
    
    $
    223,572
    
    
    
    100.0
    %
    
    $
    130,219
    
    
    
    100.0
    %
    
    $
    503,624
    
    
    
    100.0
    %
    
    $
    348,020
    
    
    
    100.0
    %Salaries, wages, and employee benefits
    
    
    123,731
    
    
    
    55.3
    %
    
    
    71,310
    
    
    
    54.8
    %
    
    
    275,982
    
    
    
    54.8
    %
    
    
    188,663
    
    
    
    54.2
    %Professional fees
    
    
    22,642
    
    
    
    10.1
    %
    
    
    13,875
    
    
    
    10.6
    %
    
    
    51,462
    
    
    
    10.2
    %
    
    
    38,422
    
    
    
    11.1
    %Supplies
    
    
    13,541
    
    
    
    6.1
    %
    
    
    8,563
    
    
    
    6.6
    %
    
    
    30,985
    
    
    
    6.2
    %
    
    
    22,283
    
    
    
    6.4
    %Provision for doubtful accounts
    
    
    4,957
    
    
    
    2.2
    %
    
    
    3,396
    
    
    
    2.6
    %
    
    
    10,301
    
    
    
    2.0
    %
    
    
    8,051
    
    
    
    2.3
    %Other operating expenses
    
    
    26,078
    
    
    
    11.7
    %
    
    
    16,774
    
    
    
    12.9
    %
    
    
    62,468
    
    
    
    12.4
    %
    
    
    45,929
    
    
    
    13.2
    %Depreciation and amortization
    
    
    4,370
    
    
    
    1.9
    %
    
    
    2,628
    
    
    
    2.0
    %
    
    
    10,326
    
    
    
    2.1
    %
    
    
    7,094
    
    
    
    2.0
    %Interest expense, net
    
    
    11,386
    
    
    
    5.1
    %
    
    
    5,105
    
    
    
    3.9
    %
    
    
    18,213
    
    
    
    3.6
    %
    
    
    14,077
    
    
    
    4.1
    %Other expenses:Loss on refinancing long-term debt
    
    
    14,881
    
    
    
    6.7
    %
    
    
    
    
    
    
    0.0
    %
    
    
    21,871
    
    
    
    4.3
    %
    
    
    6,407
    
    
    
    1.8
    %Income from continuing operations
before income taxes
    
    
    1,986
    
    
    
    0.9
    %
    
    
    8,568
    
    
    
    6.6
    %
    
    
    22,016
    
    
    
    4.4
    %
    
    
    17,094
    
    
    
    4.9
    %Provision for income taxes
    
    
    774
    
    
    
    0.4
    %
    
    
    3,254
    
    
    
    2.5
    %
    
    
    8,586
    
    
    
    1.7
    %
    
    
    6,496
    
    
    
    1.9
    %Income from continuing operations
    
    $
    1,212
    
    
    
    0.5
    %
    
    $
    5,314
    
    
    
    4.1
    %
    
    $
    13,430
    
    
    
    2.7
    %
    
    $
    10,598
    
    
    
    3.0
    %
 Three Months Ended September 30,
    
    Nine Months Ended September 30,2005
    
    2004
    
    % Change
    
    2005
    
    2004
    
    % ChangeConsolidated:Number of facilities at period end
    
    
    55
    
    
    
    34
    
    
    
    61.8
    %
    
    
    55
    
    
    
    34
    
    
    
    61.8
    %Admissions
    
    
    24,212
    
    
    
    13,849
    
    
    
    74.8
    %
    
    
    53,748
    
    
    
    35,897
    
    
    
    49.7
    %Patient days
    
    
    416,962
    
    
    
    270,142
    
    
    
    54.3
    %
    
    
    983,262
    
    
    
    722,801
    
    
    
    36.0
    %Same-facility (1):Number of facilities at period end
    
    
    34
    
    
    
    34
    
    
    
    0.0
    %
    
    
    34
    
    
    
    34
    
    
    
    0.0
    %Admissions
    
    
    14,397
    
    
    
    13,849
    
    
    
    4.0
    %
    
    
    36,893
    
    
    
    35,897
    
    
    
    2.8
    %Patient days
    
    
    281,541
    
    
    
    270,142
    
    
    
    4.2
    %
    
    
    761,711
    
    
    
    722,801
    
    
    
    5.4
    %
 
 (1)
    
    Includes statistics of inpatient facilities that had operations in the comparable period of 2004. 19




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##### Table of Contents



Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004
 Revenue
 Salaries, wages, and employee benefits
 Professional fees
 Supplies.
 Provision for doubtful accounts
 Other operating expenses
 Depreciation and amortization
 Interest expense 5 8
 20




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##### Table of Contents



Other expenses. 5 8
 (Loss) income from discontinued operations, net of taxes
 Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004
 Revenue
 Salaries, wages, and employee benefits
 Professional fees
 Supplies.
 Provision for doubtful accounts
 Other operating expenses
 21




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##### Table of Contents



Depreciation and amortization
 Interest expense 5 8
 Other expenses. 5 8 5 8
 Loss from discontinued operations, net of taxes
 Liquidity and Capital Resources
 5 8
      3 4 5 8 5 8
 22




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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):Senior Credit Facility:Senior
Secured Term Loan Facility, expiring on July 1, 2012 and bearing
interest of 5.7% at September 30, 2005
    
    $
    200,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    200,0007 3/4% Senior Subordinated Notes due July 15, 2015
    
    
    220,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    220,00010 5/8% Senior Subordinated Notes due June 15, 2013
    
    
    38,681
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,681Mortgage loans on facilities, maturing in 2037 and 2038
bearing fixed interest rates of 5.65% to 5.95%
    
    
    23,436
    
    
    
    245
    
    
    
    534
    
    
    
    599
    
    
    
    22,058482,117
    
    
    
    245
    
    
    
    534
    
    
    
    599
    
    
    
    480,739Lease obligations
    
    
    64,911
    
    
    
    9,450
    
    
    
    11,988
    
    
    
    7,911
    
    
    
    35,562Total contractual obligations
    
    $
    547,028
    
    
    $
    9,695
    
    
    $
    12,522
    
    
    $
    8,510
    
    
    $
    516,301
 
 (1)
    
    Long-term debt excludes capital lease obligations, which have been included in lease obligations above. 3 4 5 8 5 8
 23




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##### Table of Contents



Critical Accounting Policies
  Allowance for doubtful accounts
    Allowances for contractual discounts
  Professional and General Liability
  Income taxes
  24




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##### Table of Contents



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
  
 PART
II  OTHER INFORMATION
 
 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).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).
 25




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##### Table of Contents



ExhibitNumber
    
    
    Description4.3
    
    
    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 the Companys
Current Report on Form 8-K, filed on July 8, 2005).4.4
    
    
    Form of Notes (included in Exhibit 4.3)
(incorporated by reference to the Companys Current
Report on Form 8-K, filed on July 8, 2005).4.5
    
    
    Purchase Agreement, dated as of June 30, 2005,
among Psychiatric Solutions, Inc., the Guarantors
named therein, Citigroup Global Markets Inc. on
behalf of Banc of America Securities LLC, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, J.P.
Morgan Securities Inc. and Lehman Brothers Inc.
(incorporated by reference to the Companys Current
Report on Form 8-K, filed on July 8, 2005).4.6
    
    
    Exchange and Registration Rights Agreement, dated
as of July 6, 2005, among Psychiatric Solutions,
Inc., the subsidiary guarantors from time to time
party thereto, and Citigroup Global Markets Inc. on
behalf of Banc of America Securities LLC, Merrill,
Lynch, Pierce, Fenner & Smith Incorporated, J.P.
Morgan Securities Inc. and Lehman Brothers Inc.
(incorporated by reference to the Companys Current
Report on Form 8-K, filed on July 8, 2005).10.1
    
    
    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 the Companys Current
Report on Form 8-K, filed on July 8, 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. 26




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SIGNATURES
  PSYCHIATRIC SOLUTIONS, INC.Dated: November 4, 2005
    
    /s/ Jack E. PolsonJack E. Polson
Chief Accounting Officer