##### 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, 2009
 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the transition period from  to
 Commission file number 0-20488
 Psychiatric Solutions, Inc.
  Delaware
(State or Other Jurisdiction of Incorporation or 
Organization)
    
    23-2491707
(I.R.S. Employer Identification No.)
 
 
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ




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##### 



TABLE OF CONTENTS
 PAGEPART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008 (Unaudited)
    
    
    1Condensed Consolidated Statements of Income for the three and six month periods ended June 30, 2009 and 2008
(Unaudited)
    
    
    2Condensed Consolidated Statement of Stockholders Equity for the six month period ended June 30, 2009 (Unaudited)
    
    
    3Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 2009 and 2008
(Unaudited)
    
    
    4Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    26PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    26Item 1A. Risk Factors
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    26Item 6. Exhibits
    
    
    27EX-31.1EX-31.2EX-32.1




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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)
 June 30,
    
    
    December 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    14,256
    
    
    $
    51,271Accounts receivable, less allowance for doubtful
accounts
of $51,877 and $48,791
for 2009 and 2008,
respectively
    
    
    249,305
    
    
    
    247,727Prepaids and other
    
    
    90,880
    
    
    
    101,370Total current assets
    
    
    354,441
    
    
    
    400,368Property and equipment, net of accumulated depreciation
    
    
    881,068
    
    
    
    835,180Cost in excess of net assets acquired
    
    
    1,200,272
    
    
    
    1,200,186Other assets
    
    
    70,707
    
    
    
    68,524Total assets
    
    $
    2,506,488
    
    
    $
    2,504,258LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    36,090
    
    
    $
    35,224Salaries and benefits payable
    
    
    88,518
    
    
    
    85,508Other accrued liabilities
    
    
    60,171
    
    
    
    76,522Current portion of long-term debt
    
    
    5,014
    
    
    
    34,414Total current liabilities
    
    
    189,793
    
    
    
    231,668Long-term debt, less current portion
    
    
    1,244,003
    
    
    
    1,280,006Deferred tax liability
    
    
    77,099
    
    
    
    69,471Other liabilities
    
    
    29,034
    
    
    
    28,271Total liabilities
    
    
    1,539,929
    
    
    
    1,609,416Redeemable noncontrolling interest
    
    
    4,579
    
    
    
    4,957Stockholders equity:Common stock, $0.01 par value, 125,000 shares
authorized;
56,256 and 55,934 issued
and outstanding for 2009
and 2008, respectively
    
    
    563
    
    
    
    559Additional paid-in capital
    
    
    616,905
    
    
    
    608,341Accumulated other comprehensive loss
    
    
    (1,958
    )
    
    
    (3,695
    )Retained earnings
    
    
    346,470
    
    
    
    284,680Total stockholders equity
    
    
    961,980
    
    
    
    889,885Total liabilities and stockholders equity
    
    $
    2,506,488
    
    
    $
    2,504,258
  1




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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 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue
    
    $
    470,922
    
    
    $
    446,327
    
    
    $
    920,751
    
    
    $
    868,010Salaries, wages and employee benefits (including share-based
compensation of $4,457, $4,517, $9,276 and $10,077 for the
respective three and six month periods in 2009 and 2008)
    
    
    257,525
    
    
    
    243,336
    
    
    
    509,304
    
    
    
    477,325Professional fees
    
    
    46,171
    
    
    
    45,705
    
    
    
    89,970
    
    
    
    88,355Supplies
    
    
    23,918
    
    
    
    24,120
    
    
    
    47,296
    
    
    
    47,139Rentals and leases
    
    
    5,622
    
    
    
    5,916
    
    
    
    11,340
    
    
    
    11,908Other operating expenses
    
    
    42,143
    
    
    
    41,398
    
    
    
    84,585
    
    
    
    79,790Provision for doubtful accounts
    
    
    8,372
    
    
    
    8,664
    
    
    
    16,819
    
    
    
    15,759Depreciation and amortization
    
    
    11,397
    
    
    
    10,006
    
    
    
    22,376
    
    
    
    19,351Interest expense
    
    
    18,825
    
    
    
    19,764
    
    
    
    36,102
    
    
    
    40,103413,973
    
    
    
    398,909
    
    
    
    817,792
    
    
    
    779,730Income from continuing operations before income taxes
    
    
    56,949
    
    
    
    47,418
    
    
    
    102,959
    
    
    
    88,280Provision for income taxes
    
    
    21,720
    
    
    
    17,925
    
    
    
    39,301
    
    
    
    33,453Income from continuing operations
    
    
    35,229
    
    
    
    29,493
    
    
    
    63,658
    
    
    
    54,827Loss from discontinued operations, net of income tax (benefit)
provision of $(310), $(121), $(875) and $57 for the
respective three
and six month periods of 2009 and 2008
    
    
    (615
    )
    
    
    (296
    )
    
    
    (1,523
    )
    
    
    (20
    )Net income
    
    
    34,614
    
    
    
    29,197
    
    
    
    62,135
    
    
    
    54,807Less: Net income attributable to noncontrolling interest
    
    
    (206
    )
    
    
    (138
    )
    
    
    (345
    )
    
    
    (252
    )Net income attributable to PSI stockholders
    
    $
    34,408
    
    
    $
    29,059
    
    
    $
    61,790
    
    
    $
    54,555Basic earnings per share:Income from continuing operations attributable to PSI
stockholders
    
    $
    0.63
    
    
    $
    0.53
    
    
    $
    1.14
    
    
    $
    0.99Loss from discontinued operations, net of taxes
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.03
    )
    
    
    Net income attributable to PSI stockholders
    
    $
    0.62
    
    
    $
    0.53
    
    
    $
    1.11
    
    
    $
    0.99Diluted earnings per share:Income from continuing operations attributable to PSI
stockholders
    
    $
    0.63
    
    
    $
    0.52
    
    
    $
    1.13
    
    
    $
    0.97Loss from discontinued operations, net of taxes
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.03
    )
    
    
    Net income attributable to PSI stockholders
    
    $
    0.62
    
    
    $
    0.52
    
    
    $
    1.10
    
    
    $
    0.97Shares used in computing per share amounts:Basic
    
    
    55,559
    
    
    
    55,279
    
    
    
    55,531
    
    
    
    55,211Diluted
    
    
    55,921
    
    
    
    56,233
    
    
    
    55,948
    
    
    
    56,016Amounts attributable to PSI stockholders:Income from continuing operations, net of tax
    
    $
    35,023
    
    
    $
    29,355
    
    
    $
    63,313
    
    
    $
    54,575Loss from discontinued operations, net of taxes
    
    
    (615
    )
    
    
    (296
    )
    
    
    (1,523
    )
    
    
    (20
    )Net income
    
    $
    34,408
    
    
    $
    29,059
    
    
    $
    61,790
    
    
    $
    54,555
  2




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PSYCHIATRIC SOLUTIONS, INC.
 
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(Unaudited, in thousands)
 AccumulatedAdditional
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Comprehensive
    
    
    RetainedShares
    
    
    Amount
    
    
    Capital
    
    
    Loss
    
    
    Earnings
    
    
    TotalBalance at December 31, 2008
    
    
    55,934
    
    
    $
    559
    
    
    $
    608,341
    
    
    $
    (3,695
    )
    
    $
    284,680
    
    
    $
    889,885Comprehensive income:Net income
attributable to PSI stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,790
    
    
    
    61,790Change in fair value of interest rate
swap, net of tax expense of $1,163
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,737
    
    
    
    
    
    
    
    1,737Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    63,527Share-based compensation
    
    
    
    
    
    
    
    
    
    
    9,276
    
    
    
    
    
    
    
    
    
    
    
    9,276Repurchase of common stock upon restricted
stock vesting
    
    
    (35
    )
    
    
    
    
    
    
    (953
    )
    
    
    
    
    
    
    
    
    
    
    (953
    )Exercise of stock options and
grants of restricted stock, net
of issuance costs
    
    
    357
    
    
    
    4
    
    
    
    368
    
    
    
    
    
    
    
    
    
    
    
    372Income tax effect of stock option
exercises
    
    
    
    
    
    
    
    
    
    
    (127
    )
    
    
    
    
    
    
    
    
    
    
    (127
    )Balance at June 30, 2009
    
    
    56,256
    
    
    $
    563
    
    
    $
    616,905
    
    
    $
    (1,958
    )
    
    $
    346,470
    
    
    $
    961,980
  3




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PSYCHIATRIC SOLUTIONS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 Six Months Ended June 30,2009
    
    
    2008Operating activities:Net income
    
    $
    62,135
    
    
    $
    54,807Adjustments to reconcile net income to net cash provided by
continuing operating activities:Depreciation and amortization
    
    
    22,376
    
    
    
    19,351Amortization of loan costs and bond discount
    
    
    2,034
    
    
    
    1,105Share-based compensation
    
    
    9,276
    
    
    
    10,077Change in income tax assets and liabilities
    
    
    21,579
    
    
    
    432Loss from discontinued operations, net of taxes
    
    
    1,523
    
    
    
    20Changes in operating assets and liabilities,
net of effect of acquisitions:Accounts receivable
    
    
    (1,584
    )
    
    
    (30,084
    )Prepaids and other current assets
    
    
    463
    
    
    
    385Accounts payable
    
    
    (2,689
    )
    
    
    (1,448
    )Salaries and benefits payable
    
    
    3,010
    
    
    
    2,608Accrued liabilities and other liabilities
    
    
    2,100
    
    
    
    (3,357
    )Net cash provided by continuing operating activities
    
    
    120,223
    
    
    
    53,896Net cash used in discontinued operating activities
    
    
    (1,973
    )
    
    
    (1,693
    )Net cash provided by operating activities
    
    
    118,250
    
    
    
    52,203Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    
    
    
    
    (157,953
    )Cash paid for real estate acquisition
    
    
    (18,996
    )
    
    
    Capital purchases of property and equipment
    
    
    (62,629
    )
    
    
    (48,769
    )Other assets
    
    
    419
    
    
    
    (481
    )Net cash used in continuing investing activities
    
    
    (81,206
    )
    
    
    (207,203
    )Net cash provided by discontinued investing activities
    
    
    
    
    
    
    1,276Net cash used in investing activities
    
    
    (81,206
    )
    
    
    (205,927
    )Financing activities:Net (decrease) increase in revolving credit facility
    
    
    (169,333
    )
    
    
    130,000Borrowings on long-term debt
    
    
    106,500
    
    
    
    Principal payments on long-term debt
    
    
    (2,553
    )
    
    
    (2,487
    )Payment of loan and issuance costs
    
    
    (8,110
    )
    
    
    (30
    )Excess tax benefits from share-based payment arrangements
    
    
    
    
    
    
    815Repurchase of common stock upon restricted stock vesting
    
    
    (953
    )
    
    
    (209
    )Proceeds from exercises of common stock options
    
    
    390
    
    
    
    4,445Net cash (used in) provided by financing activities
    
    
    (74,059
    )
    
    
    132,534Net decrease in cash
    
    
    (37,015
    )
    
    
    (21,190
    )Cash and cash equivalents at beginning of the period
    
    
    51,271
    
    
    
    39,970Cash and cash equivalents at end of the period
    
    $
    14,256
    
    
    $
    18,780Effect of Acquisitions:Assets acquired, net of cash acquired
    
    $
    
    
    
    $
    164,558Liabilities assumed
    
    
    
    
    
    
    (6,605
    )Cash paid for acquisitions, net of cash acquired
    
    $
    
    
    
    $
    157,953
  4




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PSYCHIATRIC SOLUTIONS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2009
 1. Recent Developments
  3 4 3 4
 2. Basis of Presentation
  3. Earnings Per Share
   5




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PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2009
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator:Basic and diluted earnings per share:Income from continuing operations attributable
to PSI stockholders
    
    $
    35,023
    
    
    $
    29,355
    
    
    $
    63,313
    
    
    $
    54,575Loss from discontinued operations, net of taxes
    
    
    (615
    )
    
    
    (296
    )
    
    
    (1,523
    )
    
    
    (20
    )Net income attributable to PSI stockholders
    
    $
    34,408
    
    
    $
    29,059
    
    
    $
    61,790
    
    
    $
    54,555Denominator:Weighted average shares outstanding for basic earnings per share
    
    
    55,559
    
    
    
    55,279
    
    
    
    55,531
    
    
    
    55,211Effects of dilutive stock options and restriced stock outstanding
    
    
    362
    
    
    
    954
    
    
    
    417
    
    
    
    805Shares used in computing diluted earnings per common share
    
    
    55,921
    
    
    
    56,233
    
    
    
    55,948
    
    
    
    56,016Basic earnings per share:Income from continuing operations attributable to PSI stockholders
    
    $
    0.63
    
    
    $
    0.53
    
    
    $
    1.14
    
    
    $
    0.99Loss from discontinued operations, net of taxes
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.03
    )
    
    
    Net income attributable to PSI stockholders
    
    $
    0.62
    
    
    $
    0.53
    
    
    $
    1.11
    
    
    $
    0.99Diluted earnings per share:Income from continuing operations attributable to PSI stockholders
    
    $
    0.63
    
    
    $
    0.52
    
    
    $
    1.13
    
    
    $
    0.97Loss from discontinued operations, net of taxes
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.03
    )
    
    
    Net income attributable to PSI stockholders
    
    $
    0.62
    
    
    $
    0.52
    
    
    $
    1.10
    
    
    $
    0.97
 4. Share-Based Compensation
      5. Acquisitions
  6




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PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2009
   6. Long-term debt
  June 30,
    
    
    December 31,2009
    
    
    2008Senior credit facility:Revolving line of credit facility, expiring on December 31, 2011
and bearing interest of 5.8% and 3.4% at June 30, 2009
and December 31, 2008, respectively
    
    $
    60,000
    
    
    $
    229,333Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 2.1% and 3.1% at June 30, 2009
and December 31, 2008, respectively
    
    
    566,750
    
    
    
    568,62573/4% Senior Subordinated Notes
    
    
    582,223
    
    
    
    475,841Mortgage loans on facilities, maturing in 2036, 2037 and 2038
bearing fixed interest rates of 5.7% to 7.6%
    
    
    33,065
    
    
    
    33,273Other
    
    
    6,979
    
    
    
    7,3481,249,017
    
    
    
    1,314,420Less current portion
    
    
    5,014
    
    
    
    34,414Long-term debt
    
    $
    1,244,003
    
    
    $
    1,280,006
 Senior Credit Facility
    7




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PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2009
   7 3 / 4 % Notes
 3 4 3 4 3 4 3 4 3 4 3 4 3 4 3 4
 Mortgage Loans
  Interest Rate Swap Agreement
  7. Income Taxes
  8. Discontinued Operations
   8




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PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2009
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue
    
    $
    2,642
    
    
    $
    6,419
    
    
    $
    5,175
    
    
    $
    14,406Operating expenses
    
    
    3,567
    
    
    
    6,457
    
    
    
    7,573
    
    
    
    13,990Loss on disposal and assets held for sale
    
    
    
    
    
    
    379
    
    
    
    
    
    
    
    3793,567
    
    
    
    6,836
    
    
    
    7,573
    
    
    
    14,369(Loss) income from discontinued operations before
income taxes
    
    
    (925
    )
    
    
    (417
    )
    
    
    (2,398
    )
    
    
    37(Benefit) provision for income taxes
    
    
    (310
    )
    
    
    (121
    )
    
    
    (875
    )
    
    
    57Loss from discontinued operations, net of income taxes
    
    $
    (615
    )
    
    $
    (296
    )
    
    $
    (1,523
    )
    
    $
    (20
    )
 9. Disclosures About Reportable Segments
   9




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2009
 Three Months Ended June 30, 2009Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    425,862
    
    
    $
    45,060
    
    
    $
    
    
    
    $
    470,922Adjusted EBITDA
    
    $
    96,346
    
    
    $
    6,881
    
    
    $
    (11,599
    )
    
    $
    91,628Interest expense
    
    
    7,286
    
    
    
    79
    
    
    
    11,460
    
    
    
    18,825Provision for income taxes
    
    
    (18
    )
    
    
    
    
    
    
    21,738
    
    
    
    21,720Depreciation and amortization
    
    
    9,559
    
    
    
    1,435
    
    
    
    403
    
    
    
    11,397Inter-segment expenses
    
    
    14,534
    
    
    
    1,672
    
    
    
    (16,206
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    4,457
    
    
    
    4,457Total other expenses
    
    
    
    
    
    
    
    
    
    
    4,457
    
    
    
    4,457Income (loss) from continuing operations
    
    
    64,985
    
    
    
    3,695
    
    
    
    (33,451
    )
    
    
    35,229Less: Income attributable to
noncontrolling interest
    
    
    (206
    )
    
    
    
    
    
    
    
    
    
    
    (206
    )Income (loss) from continuing operations attributable to
PSI stockholders
    
    $
    64,779
    
    
    $
    3,695
    
    
    $
    (33,451
    )
    
    $
    35,023Total assets
    
    $
    2,268,662
    
    
    $
    142,747
    
    
    $
    95,079
    
    
    $
    2,506,488
 Three Months Ended June 30, 2008Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    401,049
    
    
    $
    45,278
    
    
    $
    
    
    
    $
    446,327Adjusted EBITDA
    
    $
    85,441
    
    
    $
    9,162
    
    
    $
    (12,898
    )
    
    $
    81,705Interest expense
    
    
    7,126
    
    
    
    140
    
    
    
    12,498
    
    
    
    19,764Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    17,925
    
    
    
    17,925Depreciation and amortization
    
    
    8,234
    
    
    
    1,392
    
    
    
    380
    
    
    
    10,006Inter-segment expenses
    
    
    16,045
    
    
    
    1,876
    
    
    
    (17,921
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    4,517
    
    
    
    4,517Total other expenses
    
    
    
    
    
    
    
    
    
    
    4,517
    
    
    
    4,517Income (loss) from continuing operations
    
    
    54,036
    
    
    
    5,754
    
    
    
    (30,297
    )
    
    
    29,493Less: Income attributable to
noncontrolling interest
    
    
    (138
    )
    
    
    
    
    
    
    
    
    
    
    (138
    )Income (loss) from continuing operations attributable to
PSI stockholders
    
    $
    53,898
    
    
    $
    5,754
    
    
    $
    (30,297
    )
    
    $
    29,355Total assets
    
    $
    2,146,483
    
    
    $
    147,829
    
    
    $
    89,363
    
    
    $
    2,383,675
 10




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2009
 Six Months Ended June 30, 2009Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    832,339
    
    
    $
    88,412
    
    
    $
    
    
    
    $
    920,751Adjusted EBITDA
    
    $
    179,611
    
    
    $
    15,133
    
    
    $
    (24,031
    )
    
    $
    170,713Interest expense
    
    
    14,522
    
    
    
    158
    
    
    
    21,422
    
    
    
    36,102Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    39,301
    
    
    
    39,301Depreciation and amortization
    
    
    18,725
    
    
    
    2,858
    
    
    
    793
    
    
    
    22,376Inter-segment expenses
    
    
    31,849
    
    
    
    3,740
    
    
    
    (35,589
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    9,276
    
    
    
    9,276Total other expenses
    
    
    
    
    
    
    
    
    
    
    9,276
    
    
    
    9,276Income (loss) from continuing operations
    
    
    114,515
    
    
    
    8,377
    
    
    
    (59,234
    )
    
    
    63,658Less: Income attributable to
noncontrolling interest
    
    
    (345
    )
    
    
    
    
    
    
    
    
    
    
    (345
    )Income (loss) from continuing operations attributable to
 PSI stockholders
    
    $
    114,170
    
    
    $
    8,377
    
    
    $
    (59,234
    )
    
    $
    63,313Total assets
    
    $
    2,268,662
    
    
    $
    142,747
    
    
    $
    95,079
    
    
    $
    2,506,488
 Six Months Ended June 30, 2008Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    781,349
    
    
    $
    86,661
    
    
    $
    
    
    
    $
    868,010Adjusted EBITDA
    
    $
    165,566
    
    
    $
    17,120
    
    
    $
    (24,875
    )
    
    $
    157,811Interest expense
    
    
    14,202
    
    
    
    355
    
    
    
    25,546
    
    
    
    40,103Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    33,453
    
    
    
    33,453Depreciation and amortization
    
    
    16,034
    
    
    
    2,576
    
    
    
    741
    
    
    
    19,351Inter-segment expenses
    
    
    31,652
    
    
    
    3,827
    
    
    
    (35,479
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    10,077
    
    
    
    10,077Total other expenses
    
    
    
    
    
    
    
    
    
    
    10,077
    
    
    
    10,077Income (loss) from continuing operations
    
    
    103,678
    
    
    
    10,362
    
    
    
    (59,213
    )
    
    
    54,827Less: Income attributable to
noncontrolling interest
    
    
    (252
    )
    
    
    
    
    
    
    
    
    
    
    (252
    )Income (loss) from continuing operations attributable to
 PSI stockholders
    
    $
    103,426
    
    
    $
    10,362
    
    
    $
    (59,213
    )
    
    $
    54,575Total assets
    
    $
    2,146,483
    
    
    $
    147,829
    
    
    $
    89,363
    
    
    $
    2,383,675
 10. Financial Information for the Company and Its Subsidiaries
  11




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2009
 Condensed Consolidating Balance Sheet
As of June 30, 2009
(Dollars in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    3,293
    
    
    $
    10,963
    
    
    $
    
    
    
    $
    14,256Accounts receivable, net
    
    
    
    
    
    
    241,227
    
    
    
    8,147
    
    
    
    (69
    )
    
    
    249,305Prepaids and other
    
    
    
    
    
    
    75,739
    
    
    
    17,993
    
    
    
    (2,852
    )
    
    
    90,880Total current assets
    
    
    
    
    
    
    320,259
    
    
    
    37,103
    
    
    
    (2,921
    )
    
    
    354,441Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    834,170
    
    
    
    56,267
    
    
    
    (9,369
    )
    
    
    881,068Cost in excess of net assets acquired
    
    
    
    
    
    
    1,200,272
    
    
    
    
    
    
    
    
    
    
    
    1,200,272Investment in subsidiaries
    
    
    1,568,601
    
    
    
    (446,804
    )
    
    
    (19,493
    )
    
    
    (1,102,304
    )
    
    
    Other assets
    
    
    18,596
    
    
    
    1,422
    
    
    
    27,680
    
    
    
    23,009
    
    
    
    70,707Total assets
    
    $
    1,587,197
    
    
    $
    1,909,319
    
    
    $
    101,557
    
    
    $
    (1,091,585
    )
    
    $
    2,506,488Current liabilities:Accounts payable
    
    $
    
    
    
    $
    35,045
    
    
    $
    1,114
    
    
    $
    (69
    )
    
    $
    36,090Salaries and benefits payable
    
    
    
    
    
    
    86,518
    
    
    
    2,000
    
    
    
    
    
    
    
    88,518Other accrued liabilities
    
    
    28,229
    
    
    
    32,062
    
    
    
    6,355
    
    
    
    (6,475
    )
    
    
    60,171Current portion of long-term debt
    
    
    4,578
    
    
    
    
    
    
    
    436
    
    
    
    
    
    
    
    5,014Total current liabilities
    
    
    32,807
    
    
    
    153,625
    
    
    
    9,905
    
    
    
    (6,544
    )
    
    
    189,793Long-term debt, less current portion
    
    
    1,211,374
    
    
    
    
    
    
    
    32,629
    
    
    
    
    
    
    
    1,244,003Deferred tax liability
    
    
    
    
    
    
    77,099
    
    
    
    
    
    
    
    
    
    
    
    77,099Other liabilities
    
    
    2,890
    
    
    
    (47,161
    )
    
    
    33,060
    
    
    
    40,245
    
    
    
    29,034Total liabilities
    
    
    1,247,071
    
    
    
    183,563
    
    
    
    75,594
    
    
    
    33,701
    
    
    
    1,539,929Redeemable noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,579
    
    
    
    4,579Total stockholders equity
    
    
    340,126
    
    
    
    1,725,756
    
    
    
    25,963
    
    
    
    (1,129,865
    )
    
    
    961,980Total liabilities and stockholders equity
    
    $
    1,587,197
    
    
    $
    1,909,319
    
    
    $
    101,557
    
    
    $
    (1,091,585
    )
    
    $
    2,506,488
 Condensed Consolidating Balance Sheet
As of December 31, 2008
(Dollars in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    39,881
    
    
    $
    11,390
    
    
    $
    
    
    
    $
    51,271Accounts receivable, net
    
    
    
    
    
    
    240,004
    
    
    
    7,792
    
    
    
    (69
    )
    
    
    247,727Prepaids and other
    
    
    
    
    
    
    86,210
    
    
    
    15,595
    
    
    
    (435
    )
    
    
    101,370Total current assets
    
    
    
    
    
    
    366,095
    
    
    
    34,777
    
    
    
    (504
    )
    
    
    400,368Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    787,057
    
    
    
    57,647
    
    
    
    (9,524
    )
    
    
    835,180Cost in excess of net assets acquired
    
    
    
    
    
    
    1,200,186
    
    
    
    
    
    
    
    
    
    
    
    1,200,186Investment in subsidiaries
    
    
    1,665,813
    
    
    
    (545,345
    )
    
    
    (23,526
    )
    
    
    (1,096,942
    )
    
    
    Other assets
    
    
    12,633
    
    
    
    4,855
    
    
    
    27,971
    
    
    
    23,065
    
    
    
    68,524Total assets
    
    $
    1,678,446
    
    
    $
    1,812,848
    
    
    $
    96,869
    
    
    $
    (1,083,905
    )
    
    $
    2,504,258Current liabilities:Accounts payable
    
    $
    
    
    
    $
    34,428
    
    
    $
    865
    
    
    $
    (69
    )
    
    $
    35,224Salaries and benefits payable
    
    
    
    
    
    
    83,781
    
    
    
    1,727
    
    
    
    
    
    
    
    85,508Other accrued liabilities
    
    
    28,786
    
    
    
    47,469
    
    
    
    3,798
    
    
    
    (3,531
    )
    
    
    76,522Current portion of long-term debt
    
    
    33,991
    
    
    
    
    
    
    
    423
    
    
    
    
    
    
    
    34,414Total current liabilities
    
    
    62,777
    
    
    
    165,678
    
    
    
    6,813
    
    
    
    (3,600
    )
    
    
    231,668Long-term debt, less current portion
    
    
    1,247,156
    
    
    
    
    
    
    
    32,850
    
    
    
    
    
    
    
    1,280,006Deferred tax liability
    
    
    
    
    
    
    69,471
    
    
    
    
    
    
    
    
    
    
    
    69,471Other liabilities
    
    
    12,433
    
    
    
    (61,852
    )
    
    
    31,688
    
    
    
    46,002
    
    
    
    28,271Total liabilities
    
    
    1,322,366
    
    
    
    173,297
    
    
    
    71,351
    
    
    
    42,402
    
    
    
    1,609,416Redeemable noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,957
    
    
    
    4,957Total stockholders equity
    
    
    356,080
    
    
    
    1,639,551
    
    
    
    25,518
    
    
    
    (1,131,264
    )
    
    
    889,885Total liabilities and stockholders equity
    
    $
    1,678,446
    
    
    $
    1,812,848
    
    
    $
    96,869
    
    
    $
    (1,083,905
    )
    
    $
    2,504,258
 12




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2009
 Condensed Consolidating Statement of Income
For the Three Months Ended June 30, 2009
(Dollars in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    458,568
    
    
    $
    15,291
    
    
    $
    (2,937
    )
    
    $
    470,922Salaries, wages and employee benefits
    
    
    
    
    
    
    250,791
    
    
    
    6,734
    
    
    
    
    
    
    
    257,525Professional fees
    
    
    
    
    
    
    44,240
    
    
    
    3,614
    
    
    
    (1,683
    )
    
    
    46,171Supplies
    
    
    
    
    
    
    23,306
    
    
    
    612
    
    
    
    
    
    
    
    23,918Rentals and leases
    
    
    
    
    
    
    6,567
    
    
    
    99
    
    
    
    (1,044
    )
    
    
    5,622Other operating expenses
    
    
    
    
    
    
    40,990
    
    
    
    2,524
    
    
    
    (1,371
    )
    
    
    42,143Provision for doubtful accounts
    
    
    
    
    
    
    8,167
    
    
    
    205
    
    
    
    
    
    
    
    8,372Depreciation and amortization
    
    
    
    
    
    
    10,928
    
    
    
    546
    
    
    
    (77
    )
    
    
    11,397Interest expense
    
    
    18,395
    
    
    
    
    
    
    
    430
    
    
    
    
    
    
    
    18,82518,395
    
    
    
    384,989
    
    
    
    14,764
    
    
    
    (4,175
    )
    
    
    413,973(Loss) income from continuing operations before income
taxes
    
    
    (18,395
    )
    
    
    73,579
    
    
    
    527
    
    
    
    1,238
    
    
    
    56,949(Benefit from) provision for income taxes
    
    
    (7,016
    )
    
    
    28,063
    
    
    
    201
    
    
    
    472
    
    
    
    21,720(Loss) income from continuing operations
    
    
    (11,379
    )
    
    
    45,516
    
    
    
    326
    
    
    
    766
    
    
    
    35,229Loss from discontinued operations, net of tax benefit
    
    
    
    
    
    
    (615
    )
    
    
    
    
    
    
    
    
    
    
    (615
    )Net (loss) income
    
    
    (11,379
    )
    
    
    44,901
    
    
    
    326
    
    
    
    766
    
    
    
    34,614Less: Net income attributable to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (206
    )
    
    
    (206
    )Net (loss) income attributable to PSI stockholders
    
    $
    (11,379
    )
    
    $
    44,901
    
    
    $
    326
    
    
    $
    560
    
    
    $
    34,408
 Condensed Consolidating Statement of Income
For the Three Months Ended June 30, 2008
(Dollars in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    433,730
    
    
    $
    15,657
    
    
    $
    (3,060
    )
    
    $
    446,327Salaries, wages and employee benefits
    
    
    
    
    
    
    236,200
    
    
    
    7,136
    
    
    
    
    
    
    
    243,336Professional fees
    
    
    
    
    
    
    43,670
    
    
    
    2,052
    
    
    
    (17
    )
    
    
    45,705Supplies
    
    
    
    
    
    
    23,483
    
    
    
    637
    
    
    
    
    
    
    
    24,120Rentals and leases
    
    
    
    
    
    
    6,887
    
    
    
    106
    
    
    
    (1,077
    )
    
    
    5,916Other operating expenses
    
    
    
    
    
    
    40,218
    
    
    
    2,539
    
    
    
    (1,359
    )
    
    
    41,398Provision for doubtful accounts
    
    
    
    
    
    
    8,493
    
    
    
    171
    
    
    
    
    
    
    
    8,664Depreciation and amortization
    
    
    
    
    
    
    9,463
    
    
    
    620
    
    
    
    (77
    )
    
    
    10,006Interest expense
    
    
    19,253
    
    
    
    
    
    
    
    511
    
    
    
    
    
    
    
    19,76419,253
    
    
    
    368,414
    
    
    
    13,772
    
    
    
    (2,530
    )
    
    
    398,909(Loss) income from continuing operations before income
taxes
    
    
    (19,253
    )
    
    
    65,316
    
    
    
    1,885
    
    
    
    (530
    )
    
    
    47,418(Benefit from) provision for income taxes
    
    
    (7,278
    )
    
    
    24,690
    
    
    
    713
    
    
    
    (200
    )
    
    
    17,925(Loss) income from continuing operations
    
    
    (11,975
    )
    
    
    40,626
    
    
    
    1,172
    
    
    
    (330
    )
    
    
    29,493Loss from discontinued operations, net of tax benefit
    
    
    
    
    
    
    (296
    )
    
    
    
    
    
    
    
    
    
    
    (296
    )Net (loss) income
    
    
    (11,975
    )
    
    
    40,330
    
    
    
    1,172
    
    
    
    (330
    )
    
    
    29,197Less: Net income attributable to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (138
    )
    
    
    (138
    )Net (loss) income attributable to PSI stockholders
    
    $
    (11,975
    )
    
    $
    40,330
    
    
    $
    1,172
    
    
    $
    (468
    )
    
    $
    29,059
 13




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2009
 Condensed Consolidating Statement of Income
For the Six Months Ended June 30, 2009
(Dollars in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    896,152
    
    
    $
    28,830
    
    
    $
    (4,231
    )
    
    $
    920,751Salaries, wages and employee benefits
    
    
    
    
    
    
    495,741
    
    
    
    13,563
    
    
    
    
    
    
    
    509,304Professional fees
    
    
    
    
    
    
    86,356
    
    
    
    6,577
    
    
    
    (2,963
    )
    
    
    89,970Supplies
    
    
    
    
    
    
    46,088
    
    
    
    1,208
    
    
    
    
    
    
    
    47,296Rentals and leases
    
    
    
    
    
    
    13,252
    
    
    
    205
    
    
    
    (2,117
    )
    
    
    11,340Other operating expenses
    
    
    
    
    
    
    82,195
    
    
    
    4,207
    
    
    
    (1,817
    )
    
    
    84,585Provision for doubtful accounts
    
    
    
    
    
    
    16,402
    
    
    
    417
    
    
    
    
    
    
    
    16,819Depreciation and amortization
    
    
    
    
    
    
    21,438
    
    
    
    1,093
    
    
    
    (155
    )
    
    
    22,376Interest expense
    
    
    35,262
    
    
    
    
    
    
    
    840
    
    
    
    
    
    
    
    36,10235,262
    
    
    
    761,472
    
    
    
    28,110
    
    
    
    (7,052
    )
    
    
    817,792(Loss) income from continuing operations before income
taxes
    
    
    (35,262
    )
    
    
    134,680
    
    
    
    720
    
    
    
    2,821
    
    
    
    102,959(Benefit from) provision for income taxes
    
    
    (13,460
    )
    
    
    51,409
    
    
    
    275
    
    
    
    1,077
    
    
    
    39,301(Loss) income from continuing operations
    
    
    (21,802
    )
    
    
    83,271
    
    
    
    445
    
    
    
    1,744
    
    
    
    63,658Loss from discontinued operations, net of tax benefit
    
    
    
    
    
    
    (1,523
    )
    
    
    
    
    
    
    
    
    
    
    (1,523
    )Net (loss) income
    
    
    (21,802
    )
    
    
    81,748
    
    
    
    445
    
    
    
    1,744
    
    
    
    62,135Less: Net income attributable to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (345
    )
    
    
    (345
    )Net (loss) income attributable to PSI stockholders
    
    $
    (21,802
    )
    
    $
    81,748
    
    
    $
    445
    
    
    $
    1,399
    
    
    $
    61,790
 Condensed Consolidating Statement of Income
For the Six Months Ended June 30, 2008
(Dollars in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    843,092
    
    
    $
    29,253
    
    
    $
    (4,335
    )
    
    $
    868,010Salaries, wages and employee benefits
    
    
    
    
    
    
    462,989
    
    
    
    14,336
    
    
    
    
    
    
    
    477,325Professional fees
    
    
    
    
    
    
    84,483
    
    
    
    3,902
    
    
    
    (30
    )
    
    
    88,355Supplies
    
    
    
    
    
    
    45,932
    
    
    
    1,207
    
    
    
    
    
    
    
    47,139Rentals and leases
    
    
    
    
    
    
    13,851
    
    
    
    198
    
    
    
    (2,141
    )
    
    
    11,908Other operating expenses
    
    
    
    
    
    
    77,246
    
    
    
    4,245
    
    
    
    (1,701
    )
    
    
    79,790Provision for doubtful accounts
    
    
    
    
    
    
    15,318
    
    
    
    441
    
    
    
    
    
    
    
    15,759Depreciation and amortization
    
    
    
    
    
    
    18,268
    
    
    
    1,235
    
    
    
    (152
    )
    
    
    19,351Interest expense
    
    
    39,074
    
    
    
    
    
    
    
    1,029
    
    
    
    
    
    
    
    40,10339,074
    
    
    
    718,087
    
    
    
    26,593
    
    
    
    (4,024
    )
    
    
    779,730(Loss) income from continuing operations before income
taxes
    
    
    (39,074
    )
    
    
    125,005
    
    
    
    2,660
    
    
    
    (311
    )
    
    
    88,280(Benefit from) provision for income taxes
    
    
    (14,807
    )
    
    
    47,370
    
    
    
    1,008
    
    
    
    (118
    )
    
    
    33,453(Loss) income from continuing operations
    
    
    (24,267
    )
    
    
    77,635
    
    
    
    1,652
    
    
    
    (193
    )
    
    
    54,827Loss from discontinued operations, net of tax (benefit)
provision
    
    
    
    
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    (20
    )Net (loss) income
    
    
    (24,267
    )
    
    
    77,615
    
    
    
    1,652
    
    
    
    (193
    )
    
    
    54,807Less: Net income attributable to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (252
    )
    
    
    (252
    )Net (loss) income attributable to PSI stockholders
    
    $
    (24,267
    )
    
    $
    77,615
    
    
    $
    1,652
    
    
    $
    (445
    )
    
    $
    54,555
 14




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2009
 Condensed Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 2009
(Dollars in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating activities:Net (loss) income
    
    $
    (21,802
    )
    
    $
    81,748
    
    
    $
    445
    
    
    $
    1,744
    
    
    $
    62,135Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    21,438
    
    
    
    1,093
    
    
    
    (155
    )
    
    
    22,376Amortization of loan costs and bond discount
    
    
    2,034
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,034Share-based compensation
    
    
    
    
    
    
    9,276
    
    
    
    
    
    
    
    
    
    
    
    9,276Change in income tax assets and liabilities
    
    
    
    
    
    
    21,579
    
    
    
    
    
    
    
    
    
    
    
    21,579Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    1,523
    
    
    
    
    
    
    
    
    
    
    
    1,523Changes in operating assets and liabilities, net ofeffect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (1,229
    )
    
    
    (355
    )
    
    
    
    
    
    
    (1,584
    )Prepaids and other current assets
    
    
    
    
    
    
    2,861
    
    
    
    (2,398
    )
    
    
    
    
    
    
    463Accounts payable
    
    
    
    
    
    
    (2,938
    )
    
    
    249
    
    
    
    
    
    
    
    (2,689
    )Salaries and benefits payable
    
    
    
    
    
    
    2,737
    
    
    
    273
    
    
    
    
    
    
    
    3,010Accrued liabilities and other liabilities
    
    
    
    
    
    
    (1,852
    )
    
    
    3,952
    
    
    
    
    
    
    
    2,100Net cash (used in) provided by continuing operating activities
    
    
    (19,768
    )
    
    
    135,143
    
    
    
    3,259
    
    
    
    1,589
    
    
    
    120,223Net cash used in discontinued operating activities
    
    
    
    
    
    
    (1,973
    )
    
    
    
    
    
    
    
    
    
    
    (1,973
    )Net cash (used in) provided by operating activities
    
    
    (19,768
    )
    
    
    133,170
    
    
    
    3,259
    
    
    
    1,589
    
    
    
    118,250Investing activities:Cash paid for real estate acquisition
    
    
    
    
    
    
    (18,996
    )
    
    
    
    
    
    
    
    
    
    
    (18,996
    )Capital purchases of property and equipment
    
    
    
    
    
    
    (62,916
    )
    
    
    287
    
    
    
    
    
    
    
    (62,629
    )Other assets
    
    
    
    
    
    
    151
    
    
    
    268
    
    
    
    
    
    
    
    419Net cash (used in) provided by investing activities
    
    
    
    
    
    
    (81,761
    )
    
    
    555
    
    
    
    
    
    
    
    (81,206
    )Financing activities:Net decrease in revolving credit facility
    
    
    (169,333
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (169,333
    )Borrowings on long-term debt
    
    
    106,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106,500Principal payments on long-term debt
    
    
    (2,346
    )
    
    
    
    
    
    
    (207
    )
    
    
    
    
    
    
    (2,553
    )Payment of loan and issuance costs
    
    
    (8,110
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,110
    )Repurchase of common stock upon restricted stock vesting
    
    
    (953
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (953
    )Net transfers to and from members
    
    
    93,620
    
    
    
    (87,997
    )
    
    
    (4,034
    )
    
    
    (1,589
    )
    
    
    Proceeds from exercises of common stock options
    
    
    390
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    390Net cash provided by (used in) financing activities
    
    
    19,768
    
    
    
    (87,997
    )
    
    
    (4,241
    )
    
    
    (1,589
    )
    
    
    (74,059
    )Net decrease in cash
    
    
    
    
    
    
    (36,588
    )
    
    
    (427
    )
    
    
    
    
    
    
    (37,015
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    39,881
    
    
    
    11,390
    
    
    
    
    
    
    
    51,271Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    3,293
    
    
    $
    10,963
    
    
    $
    
    
    
    $
    14,256
 15




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2009
 Condensed Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 2008
(Dollars in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating activities:Net (loss) income
    
    $
    (24,267
    )
    
    
    77,615
    
    
    $
    1,652
    
    
    $
    (193
    )
    
    $
    54,807Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    18,268
    
    
    
    1,235
    
    
    
    (152
    )
    
    
    19,351Amortization of loan costs and bond discount
    
    
    1,082
    
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    1,105Share-based compensation
    
    
    
    
    
    
    10,077
    
    
    
    
    
    
    
    
    
    
    
    10,077Change in income tax assets and liabilities
    
    
    
    
    
    
    432
    
    
    
    
    
    
    
    
    
    
    
    432Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    20Changes in operating assets and liabilities, net ofeffect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (29,845
    )
    
    
    (239
    )
    
    
    
    
    
    
    (30,084
    )Prepaids and other current assets
    
    
    
    
    
    
    20,767
    
    
    
    (20,382
    )
    
    
    
    
    
    
    385Accounts payable
    
    
    
    
    
    
    (1,395
    )
    
    
    (53
    )
    
    
    
    
    
    
    (1,448
    )Salaries and benefits payable
    
    
    
    
    
    
    2,434
    
    
    
    174
    
    
    
    
    
    
    
    2,608Accrued liabilities and other liabilities
    
    
    
    
    
    
    (7,336
    )
    
    
    3,979
    
    
    
    
    
    
    
    (3,357
    )Net cash (used in) provided by continuing operating activities
    
    
    (23,185
    )
    
    
    91,037
    
    
    
    (13,611
    )
    
    
    (345
    )
    
    
    53,896Net cash used in discontinued operating activities
    
    
    
    
    
    
    (1,693
    )
    
    
    
    
    
    
    
    
    
    
    (1,693
    )Net cash (used in) provided by operating activities
    
    
    (23,185
    )
    
    
    89,344
    
    
    
    (13,611
    )
    
    
    (345
    )
    
    
    52,203Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (157,953
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (157,953
    )Capital purchases of property and equipment
    
    
    
    
    
    
    (47,767
    )
    
    
    (1,002
    )
    
    
    
    
    
    
    (48,769
    )Other assets
    
    
    
    
    
    
    (362
    )
    
    
    (119
    )
    
    
    
    
    
    
    (481
    )Net cash used in continuing investing activities
    
    
    (157,953
    )
    
    
    (48,129
    )
    
    
    (1,121
    )
    
    
    
    
    
    
    (207,203
    )Net cash provided by discontinued investing activities
    
    
    
    
    
    
    1,276
    
    
    
    
    
    
    
    
    
    
    
    1,276Net cash used in investing activities
    
    
    (157,953
    )
    
    
    (46,853
    )
    
    
    (1,121
    )
    
    
    
    
    
    
    (205,927
    )Financing activities:Net increase in revolving credit facility
    
    
    130,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    130,000Principal payments on long-term debt
    
    
    (2,292
    )
    
    
    
    
    
    
    (195
    )
    
    
    
    
    
    
    (2,487
    )Payment of loan and issuance costs
    
    
    (30
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )Excess tax benefits from share-based payment arrangements
    
    
    815
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    815Repurchase of common stock upon restricted stock vesting
    
    
    (209
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (209
    )Net transfers to and from members
    
    
    48,409
    
    
    
    (71,877
    )
    
    
    23,123
    
    
    
    345
    
    
    
    Proceeds from exercises of common stock options
    
    
    4,445
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,445Net cash provided by (used in) financing activities
    
    
    181,138
    
    
    
    (71,877
    )
    
    
    22,928
    
    
    
    345
    
    
    
    132,534Net decrease in cash
    
    
    
    
    
    
    (29,386
    )
    
    
    8,196
    
    
    
    
    
    
    
    (21,190
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    39,970
    
    
    
    
    
    
    
    
    
    
    
    39,970Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    10,584
    
    
    $
    8,196
    
    
    $
    
    
    
    $
    18,780
 11 Fair Value Measurements
  12. Recent Accounting Pronouncements
 Subsequent Events
 Disclosures about Derivative Instruments and Hedging
Activities  An Amendment of SFAS 133
 16




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2009
 Business Combinations Business Combinations
 Noncontrolling Interests in Consolidated Financial
Statements  an Amendment of ARB No. 51
 17




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Forward-Looking Statements
    
    
    our substantial indebtedness and adverse changes in credit markets impacting our ability to receive timely additional
financing on terms acceptable to us to fund our acquisition strategy and capital expenditure needs;
    
    risks inherent to the health care industry, including the impact of unforeseen changes in regulation and the potential adverse
impact of government investigations, liabilities and other claims asserted against us;
    
    economic downturn resulting in efforts by federal and state health care programs and managed care companies to reduce
reimbursement rates for our services;
    
    potential competition that alters or impedes our acquisition strategy by decreasing our ability to acquire additional
inpatient facilities on favorable terms;
    
    our ability to comply with applicable licensure and accreditation requirements;
    
    our ability to comply with extensive laws and government regulations related to billing, physician relationships, adequacy of
medical care and licensure;
    
    our ability to retain key employees who are instrumental to our operations;
    
    our ability to successfully integrate and improve the operations of acquired inpatient facilities;
    
    our ability to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act;
    
    our ability to maintain favorable and continuing relationships with physicians and other health care professionals who use our
inpatient facilities;
    
    our ability to ensure confidential information is not inappropriately disclosed and that we are in compliance with federal and
state health information privacy standards;
    
    our ability to comply with federal and state governmental regulation covering health care-related products and services
on-line, including the regulation of medical devices and the practice of medicine and pharmacology;
    
    our ability to obtain adequate levels of general and professional liability insurance;
    
    future trends for pricing, margins, revenue and profitability that remain difficult to predict in the industries that we serve;
    
    negative press coverage of us or our industry that may affect public opinion; and
    
    those risks and uncertainties described from time to time in our filings with the SEC.
  18




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##### Table of Contents



Overview
    
    
    same-facility growth at our behavioral health care facilities in revenue of 6.0% and 4.9% for the three
and six months ended June 30, 2009 compared to the same periods in 2008;
    
    operating results from the March 1, 2008 acquisition of five behavioral health care facilities from UMC;
    
    a reduction in interest expense as a percentage of revenue to 3.9% for the six months ended June 30,
2009 compared to 4.6% in the same period of 2008 due primarily to a decrease in interest rates on our
variable rate debt; and
    
    a decrease in share-based compensation expense of $0.8 million for the six months ended June 30, 2009
compared to the same period of 2008.
  
    
    one of our behavioral health care hospitals in Chicago,
Illinois experienced a decline in operating results
primarily due to a hold on admissions placed on this
facility by the Illinois Department of Children and Family
Services that began in 2008 and certain costs of professional
services related to a United States Department of Justice
investigation.
 Sources of Revenue
 Patient Service Revenue
  Other Revenue
  19




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##### Table of Contents



Results of Operations
  For the Three Months Ended June 30,
    
    
    For the Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Revenue
    
    $
    470,922
    
    
    
    100.0
    %
    
    $
    446,327
    
    
    
    100.0
    %
    
    $
    920,751
    
    
    
    100.0
    %
    
    $
    868,010
    
    
    
    100.0
    %Salaries, wages, and employee benefits (including share-based compensation of $4,457, $4,517, $9,276, and
$10,077 for the respective three and six month
periods
in 2009 and 2008)
    
    
    257,525
    
    
    
    54.7
    %
    
    
    243,336
    
    
    
    54.5
    %
    
    
    509,304
    
    
    
    55.4
    %
    
    
    477,325
    
    
    
    55.0
    %Professional fees
    
    
    46,171
    
    
    
    9.8
    %
    
    
    45,705
    
    
    
    10.2
    %
    
    
    89,970
    
    
    
    9.8
    %
    
    
    88,355
    
    
    
    10.2
    %Supplies
    
    
    23,918
    
    
    
    5.1
    %
    
    
    24,120
    
    
    
    5.4
    %
    
    
    47,296
    
    
    
    5.1
    %
    
    
    47,139
    
    
    
    5.4
    %Provision for doubtful accounts
    
    
    8,372
    
    
    
    1.8
    %
    
    
    8,664
    
    
    
    1.9
    %
    
    
    16,819
    
    
    
    1.8
    %
    
    
    15,759
    
    
    
    1.8
    %Other operating expenses
    
    
    47,765
    
    
    
    10.1
    %
    
    
    47,314
    
    
    
    10.6
    %
    
    
    95,925
    
    
    
    10.4
    %
    
    
    91,698
    
    
    
    10.6
    %Depreciation and amortization
    
    
    11,397
    
    
    
    2.4
    %
    
    
    10,006
    
    
    
    2.3
    %
    
    
    22,376
    
    
    
    2.4
    %
    
    
    19,351
    
    
    
    2.2
    %Interest expense, net
    
    
    18,825
    
    
    
    4.0
    %
    
    
    19,764
    
    
    
    4.5
    %
    
    
    36,102
    
    
    
    3.9
    %
    
    
    40,103
    
    
    
    4.6
    %Income from continuing operations before
income taxes
    
    
    56,949
    
    
    
    12.1
    %
    
    
    47,418
    
    
    
    10.6
    %
    
    
    102,959
    
    
    
    11.2
    %
    
    
    88,280
    
    
    
    10.2
    %Provision for income taxes
    
    
    21,720
    
    
    
    4.7
    %
    
    
    17,925
    
    
    
    4.0
    %
    
    
    39,301
    
    
    
    4.3
    %
    
    
    33,453
    
    
    
    3.9
    %Income from continuing operations
    
    
    35,229
    
    
    
    7.4
    %
    
    
    29,493
    
    
    
    6.6
    %
    
    
    63,658
    
    
    
    6.9
    %
    
    
    54,827
    
    
    
    6.3
    %Less: Income attributable to noncontrolling interest
    
    
    (206
    )
    
    
    0.0
    %
    
    
    (138
    )
    
    
    0.0
    %
    
    
    (345
    )
    
    
    0.0
    %
    
    
    (252
    )
    
    
    0.0
    %Income from
continuing operations attributable to PSI stockholders
    
    $
    35,023
    
    
    
    7.4
    %
    
    $
    29,355
    
    
    
    6.6
    %
    
    $
    63,313
    
    
    
    6.9
    %
    
    $
    54,575
    
    
    
    6.3
    %
 Three Months Ended June 30, 2009 Compared To Three Months Ended June 30, 2008
  Three Months Ended June 30,
    
    %2009
    
    2008
    
    ChangeSame-facility results:Revenue (in thousands)
    
    $
    425,079
    
    
    $
    401,049
    
    
    
    6.0
    %Admissions
    
    
    44,842
    
    
    
    42,357
    
    
    
    5.9
    %Patient days
    
    
    721,843
    
    
    
    702,782
    
    
    
    2.7
    %Average length of stay
(in days)
    
    
    16.1
    
    
    
    16.6
    
    
    
    -3.0
    %Revenue per patient day
    
    $
    589
    
    
    $
    571
    
    
    
    3.2
    %Total facility results:Revenue (in thousands)
    
    $
    425,862
    
    
    $
    401,049
    
    
    
    6.2
    %Admissions
    
    
    44,965
    
    
    
    42,357
    
    
    
    6.2
    %Patient days
    
    
    723,153
    
    
    
    702,782
    
    
    
    2.9
    %Average length of stay
(in days)
    
    
    16.1
    
    
    
    16.6
    
    
    
    -3.0
    %Revenue per patient day
    
    $
    589
    
    
    $
    571
    
    
    
    3.2
    %
 Revenue
 Salaries, wages, and employee benefits
 20




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##### Table of Contents



Professional fees
 Supplies.
 Provision for doubtful accounts
 Other operating expenses
 Depreciation and amortization
 Interest expense, net
 Income attributable to noncontrolling interest
 Loss  from discontinued operations, net of taxes
 Six Months Ended June 30, 2009 Compared To Six Months Ended June 30, 2008
  21




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##### Table of Contents



Six Months Ended June 30,
    
    %2009
    
    2008
    
    ChangeSame-facility results:Revenue (in thousands)
    
    $
    819,867
    
    
    $
    781,349
    
    
    
    4.9
    %Admissions
    
    
    86,628
    
    
    
    82,656
    
    
    
    4.8
    %Patient days
    
    
    1,396,668
    
    
    
    1,372,795
    
    
    
    1.7
    %Average length of stay
(in days)
    
    
    16.1
    
    
    
    16.6
    
    
    
    -3.0
    %Revenue per patient day
    
    $
    587
    
    
    $
    569
    
    
    
    3.2
    %Total facility results:Revenue (in thousands)
    
    $
    832,339
    
    
    $
    781,349
    
    
    
    6.5
    %Admissions
    
    
    88,337
    
    
    
    82,656
    
    
    
    6.9
    %Patient days
    
    
    1,418,745
    
    
    
    1,372,795
    
    
    
    3.3
    %Average length of stay
(in days)
    
    
    16.1
    
    
    
    16.6
    
    
    
    -3.0
    %Revenue per patient day
    
    $
    587
    
    
    $
    569
    
    
    
    3.2
    %
 Revenue
 Salaries, wages, and employee benefits
 Professional fees
 Supplies.
 Provision for doubtful accounts
 Other operating expenses
 Depreciation and amortization
 22




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##### Table of Contents



Interest expense, net
 Income attributable to noncontrolling interest
 Loss  from discontinued operations, net of taxes
 Liquidity and Capital Resources
    3 4
  23




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##### Table of Contents



Contractual Obligations
 Payments Due by Period (in thousands)Less than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsLong-term debt (1):Senior Credit Facility:Revolving line of credit facility, expiring on December 31, 2011
and bearing interest of 5.8% at June 30, 2009
    
    $
    60,000
    
    
    $
    
    
    
    $
    60,000
    
    
    $
    
    
    
    $
    Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 2.1% at June 30, 2009
    
    
    566,750
    
    
    
    3,750
    
    
    
    7,500
    
    
    
    555,500
    
    
    
    73/4% Senior Subordinated Notes due July 15, 2015
    
    
    582,223
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    582,223Mortgage loans on facilities, maturing in 2036, 2037 and 2038
bearing fixed interest rates of 5.7% to 7.6%
    
    
    33,065
    
    
    
    436
    
    
    
    958
    
    
    
    1,084
    
    
    
    30,5871,242,038
    
    
    
    4,186
    
    
    
    68,458
    
    
    
    556,584
    
    
    
    612,810Lease and other obligations
    
    
    90,868
    
    
    
    17,865
    
    
    
    20,353
    
    
    
    13,029
    
    
    
    39,621Total contractual obligations
    
    $
    1,332,906
    
    
    $
    22,051
    
    
    $
    88,811
    
    
    $
    569,613
    
    
    $
    652,431
 
 (1)
    
    Excludes capital lease obligations and other obligations of $7.0 million, which are included in lease and other obligations. 3 4 3 4
 Critical Accounting Policies
  24




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##### Table of Contents



Allowance for Doubtful Accounts
    Allowances for Contractual Discounts
  Professional and General Liability
  Income Taxes
   Share-Based Compensation
  25




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 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 1. Legal Proceedings
  
 Item 1A. Risk Factors.
  Health care reform measures could adversely affect our business
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  (1)
    
    The stockholders elected Christopher Grant, Jr. and David M. Dill as Class I directors of
the Company. The votes were as follows:
 Christopher Grant, Jr.Votes cast for
    
    
    49,215,828Votes withheld
    
    
    1,500,366David M. DillVotes cast for
    
    
    50,184,073Votes withheld
    
    
    532,121
 26




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##### Table of Contents



(2)
    
    The stockholders approved an amendment and restatement of the Psychiatric Solutions, Inc.
Outside Directors Non-Qualified Stock Option Plan. The votes were as follows:
 Votes cast for
    
    
    43,623,949Votes cast against
    
    
    3,966,054Abstentions
    
    
    81,746Broker non-votes
    
    
    3,044,445
 (3)
    
    The stockholders ratified the appointment of Ernst & Young LLP as our independent
registered public accounting firm for the fiscal year ending December 31, 2009. The votes
were as follows:
 Votes cast for
    
    
    49,700,689Votes cast against
    
    
    949,555Abstentions
    
    
    65,949
 
 Item 6. Exhibits.
 ExhibitNumber
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation of PMR
Corporation, filed with the Delaware Secretary of State on
March 9, 1998 (incorporated by reference to Exhibit 3.1 to the
Companys Annual Report on Form 10-K for the fiscal year ended
April 30, 1998).3.2
    
    Certificate of Amendment to Amended and Restated Certificate of
Incorporation of PMR Corporation, filed with the Delaware
Secretary of State on August 5, 2002 (incorporated by reference to
Exhibit 3.2 to the Companys Quarterly Report on Form 10-Q for the
quarter ended July 31, 2002).3.3
    
    Certificate of Amendment to Amended and Restated Certificate of
Incorporation of Psychiatric Solutions, Inc., filed with the
Delaware Secretary of State on March 21, 2003 (incorporated by
reference to Appendix A to the Companys Definitive Proxy
Statement, filed on January 22, 2003).3.4
    
    Certificate of Amendment to Amended and Restated Certificate of
Incorporation of Psychiatric Solutions, Inc., filed with the
Delaware Secretary of State on December 15, 2005 (incorporated by
reference to Exhibit 3.4 to the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 2005).3.5
    
    By-laws (incorporated by reference to Exhibit 3 to the Companys
Current Report on Form 8-K filed on November 6, 2007).4.1
    
    Purchase Agreement, dated as of May 4, 2009,
among Psychiatric Solutions, Inc., the
subsidiaries of Psychiatric Solutions, Inc. party
thereto as guarantors, and Banc of America
Securities LLC, Barclays Capital Inc., Citigroup
Global Markets Inc., J.P. Morgan Securities Inc.
and RBC Capital Markets Corporation (incorporated
by reference to Exhibit 4.1 to the Companys
Current Report on Form 8-K, filed on May 8,
2009).4.2
    
    Indenture, dated as of May 7, 2009, among
Psychiatric Solutions, Inc., the subsidiaries of
Psychiatric Solutions, Inc. party thereto as
guarantors and U.S. Bank National Association, as
Trustee (incorporated by reference to Exhibit 4.2
to the Companys Current Report on Form 8-K,
filed on May 8, 2009).4.3
    
    Form of Notes (included in Exhibit 4.2)
(incorporated by reference to Exhibit 4.3 to the
Companys Current Report on Form 8-K, filed on
May 8, 2009).4.4
    
    Registration Rights Agreement, dated as of May 7,
2009, among Psychiatric Solutions, Inc., the
subsidiaries of Psychiatric Solutions, Inc. party
thereto as guarantors, and Banc of America
Securities LLC, Barclays Capital Inc., Citigroup
Global Markets Inc., J.P. Morgan Securities Inc.
and RBC Capital Markets Corporation (incorporated
by reference to Exhibit 4.4 to the Companys
Current Report on Form 8-K, filed on May 8,
2009).10.1
    
    Psychiatric Solutions, Inc. Outside Directors
Stock Incentive Plan (incorporated by reference
to Appendix A to the Companys Definitive Proxy
Statement, filed on April 9, 2009).
 27




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##### Table of Contents



ExhibitNumber
    
    Description31.1*
    
    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 or furnished herewith 28




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##### Table of Contents



Signatures
  Psychiatric Solutions, Inc.By:
    /s/ Jack E. PolsonJack E. PolsonExecutive Vice President, Chief Accounting Officer