##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2010 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
    
    Smaller Reporting Company o(Do not check if a smaller reporting company)
 o þ




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##### 



TABLE OF CONTENTS
 PAGEPART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009 (Unaudited)
    
    
    1Condensed Consolidated Statements of Income for the three month periods ended March 31, 2010 and 2009 (Unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31, 2010 and 2009 (Unaudited)
    
    
    3Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4. Controls and Procedures
    
    
    21PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    21Item 1A. Risk Factors
    
    
    22Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 6. Exhibits
    
    
    23EX-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)
 March 31,
    
    
    December 31,2010
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    32,645
    
    
    $
    6,815Accounts receivable, less allowance for doubtful accounts of
$53,311 and $51,894, respectively
    
    
    263,874
    
    
    
    249,439Other current assets
    
    
    92,495
    
    
    
    105,166Total current assets
    
    
    389,014
    
    
    
    361,420Property and equipment, net of accumulated depreciation
    
    
    948,092
    
    
    
    931,730Cost in excess of net assets acquired
    
    
    1,153,111
    
    
    
    1,153,111Other assets
    
    
    59,967
    
    
    
    60,979Total assets
    
    $
    2,550,184
    
    
    $
    2,507,240LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    33,272
    
    
    $
    35,397Salaries and benefits payable
    
    
    94,085
    
    
    
    81,129Other accrued liabilities
    
    
    55,083
    
    
    
    62,036Current portion of long-term debt
    
    
    10,552
    
    
    
    4,940Total current liabilities
    
    
    192,992
    
    
    
    183,502Long-term debt, less current portion
    
    
    1,175,980
    
    
    
    1,182,139Deferred tax liability
    
    
    84,074
    
    
    
    81,137Other liabilities
    
    
    31,031
    
    
    
    25,790Total liabilities
    
    
    1,484,077
    
    
    
    1,472,568Redeemable noncontrolling interests
    
    
    4,326
    
    
    
    4,337Stockholders equity:Common stock, $0.01 par value, 125,000 shares authorized;
57,169 and 56,226 issued and outstanding, respectively
    
    
    572
    
    
    
    562Additional paid-in capital
    
    
    630,699
    
    
    
    627,476Retained earnings
    
    
    430,510
    
    
    
    402,297Total stockholders equity
    
    
    1,061,781
    
    
    
    1,030,335Total liabilities and stockholders equity
    
    $
    2,550,184
    
    
    $
    2,507,240
  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 March 31,2010
    
    
    2009Revenue
    
    $
    475,956
    
    
    $
    433,930Salaries, wages and employee benefits (including share-based
compensation of $3,510 and $4,819 for the three
months ended March 31, 2010 and 2009, respectively)
    
    
    259,475
    
    
    
    244,286Professional fees
    
    
    44,928
    
    
    
    39,930Supplies
    
    
    23,678
    
    
    
    22,920Rentals and leases
    
    
    4,835
    
    
    
    5,080Other operating expenses
    
    
    50,895
    
    
    
    41,266Provision for doubtful accounts
    
    
    11,833
    
    
    
    8,462Depreciation and amortization
    
    
    12,390
    
    
    
    10,553Interest expense
    
    
    16,498
    
    
    
    16,609424,532
    
    
    
    389,106Income from continuing operations before income taxes
    
    
    51,424
    
    
    
    44,824Provision for income taxes
    
    
    19,683
    
    
    
    17,164Income from continuing operations
    
    
    31,741
    
    
    
    27,660Loss from discontinued operations, net of benefit from income taxes
of $1,829 and $148 for the three months ended March 31, 2010
and 2009, respectively
    
    
    (3,496
    )
    
    
    (139
    )Net income
    
    
    28,245
    
    
    
    27,521Less: Net income attributable to noncontrolling interests
    
    
    (32
    )
    
    
    (139
    )Net income attributable to PSI stockholders
    
    $
    28,213
    
    
    $
    27,382Basic earnings per share:Income from continuing operations attributable to PSI
stockholders
    
    $
    0.57
    
    
    $
    0.49Loss from discontinued operations, net of taxes
    
    
    (0.06
    )
    
    
    Net income attributable to PSI stockholders
    
    $
    0.51
    
    
    $
    0.49Diluted earnings per share:Income from continuing operations attributable to PSI
stockholders
    
    $
    0.56
    
    
    $
    0.49Loss from discontinued operations, net of taxes
    
    
    (0.06
    )
    
    
    Net income attributable to PSI stockholders
    
    $
    0.50
    
    
    $
    0.49Shares used in computing per share amounts:Basic
    
    
    55,715
    
    
    
    55,495Diluted
    
    
    56,386
    
    
    
    55,968Amounts attributable to PSI stockholders:Income from continuing operations
    
    $
    31,709
    
    
    $
    27,521Loss from discontinued operations, net of taxes
    
    
    (3,496
    )
    
    
    (139
    )Net income
    
    $
    28,213
    
    
    $
    27,382
  2




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PSYCHIATRIC
SOLUTIONS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 Three Months Ended March 31,2010
    
    
    2009Operating activities:Net income
    
    $
    28,245
    
    
    $
    27,521Adjustments to reconcile net income to
net cash provided by continuing
operating activities:Depreciation and amortization
    
    
    12,390
    
    
    
    10,553Amortization of loan costs and bond discount/premium
    
    
    1,564
    
    
    
    715Share-based compensation
    
    
    3,510
    
    
    
    4,819Change in income tax assets and liabilities
    
    
    10,824
    
    
    
    15,908Loss from discontinued operations, net of taxes
    
    
    3,496
    
    
    
    139Changes in operating assets and liabilities,
net of effect of acquisitions:Accounts receivable
    
    
    (14,435
    )
    
    
    (9,776
    )Other current assets
    
    
    893
    
    
    
    2,296Accounts payable
    
    
    (382
    )
    
    
    (2,822
    )Salaries and benefits payable
    
    
    12,956
    
    
    
    (3,391
    )Accrued liabilities and other liabilities
    
    
    (2,977
    )
    
    
    (6,563
    )Net cash provided by continuing operating activities
    
    
    56,084
    
    
    
    39,399Net cash (used in) provided by discontinued operating activities
    
    
    (89
    )
    
    
    781Net cash provided by operating activities
    
    
    55,995
    
    
    
    40,180Investing activities:Capital purchases of leasehold improvements,
equipment and software
    
    
    (29,553
    )
    
    
    (24,368
    )Other assets
    
    
    101
    
    
    
    (158
    )Net cash used in continuing investing activities
    
    
    (29,452
    )
    
    
    (24,526
    )Net cash used in discontinued investing activities
    
    
    (12
    )
    
    
    (321
    )Net cash used in investing activities
    
    
    (29,464
    )
    
    
    (24,847
    )Financing activities:Net decrease in revolving credit facility
    
    
    
    
    
    
    (39,333
    )Principal payments on long-term debt
    
    
    (1,322
    )
    
    
    (1,272
    )Payment of loan and issuance costs
    
    
    (6
    )
    
    
    (5,363
    )Distributions to noncontrolling interests
    
    
    (43
    )
    
    
    Repurchase of common stock upon restricted stock vesting
    
    
    (490
    )
    
    
    (953
    )Proceeds from exercises of common stock options
    
    
    1,160
    
    
    
    342Net cash used in financing activities
    
    
    (701
    )
    
    
    (46,579
    )Net increase
(decrease) in cash and cash equivalents
    
    
    25,830
    
    
    
    (31,246
    )Cash and cash equivalents at beginning of the period
    
    
    6,815
    
    
    
    51,271Cash and cash equivalents at end of the period
    
    $
    32,645
    
    
    $
    20,025
  3




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PSYCHIATRIC SOLUTIONS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 MARCH 31, 2010
 1. Recent Developments
   3 4 3 4
 2. Basis of Presentation
  3. Earnings Per Share
   4




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PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2010
 Three Months EndedMarch 31,2010
    
    
    2009Numerator:Basic and diluted earnings per share:Income from continuing operations attributable to PSI stockholders
    
    $
    31,709
    
    
    $
    27,521Loss from discontinued operations, net of taxes
    
    
    (3,496
    )
    
    
    (139
    )Net income attributable to PSI stockholders
    
    $
    28,213
    
    
    $
    27,382Denominator:Weighted average shares outstanding for basic earnings per share
    
    
    55,715
    
    
    
    55,495Effects of
dilutive stock options and restricted stock outstanding
    
    
    671
    
    
    
    473Shares used in computing diluted earnings per common share
    
    
    56,386
    
    
    
    55,968Basic earnings per share:Income from continuing operations attributable to PSI stockholders
    
    $
    0.57
    
    
    $
    0.49Loss from discontinued operations, net of taxes
    
    
    (0.06
    )
    
    
    Net income attributable to PSI stockholders
    
    $
    0.51
    
    
    $
    0.49Diluted earnings per share:Income from continuing operations attributable to PSI stockholders
    
    $
    0.56
    
    
    $
    0.49Loss from discontinued operations, net of taxes
    
    
    (0.06
    )
    
    
    Net income attributable to PSI stockholders
    
    $
    0.50
    
    
    $
    0.49
 4. Share-Based Compensation
       5. Acquisitions
    5




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PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2010
 6. Long-term debt
  March 31,
    
    
    December 31,2010
    
    
    2009Senior credit facility:Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 2.1% and 2.0% at March 31, 2010
and December 31, 2009, respectively
    
    $
    563,938
    
    
    $
    564,8757 3/4% Notes
    
    
    582,899
    
    
    
    582,666Mortgage loans on facilities, maturing in 2036, 2037 and 2038
bearing fixed interest rates of 5.7% to 7.6%
    
    
    32,741
    
    
    
    32,850Other
    
    
    6,954
    
    
    
    6,6881,186,532
    
    
    
    1,187,079Less current portion
    
    
    10,552
    
    
    
    4,940Long-term debt
    
    $
    1,175,980
    
    
    $
    1,182,139
 Senior Credit Facility
    7 3 / 4 % Notes
 3 4 3 4 3 4 3 4 3 4 3 4 3 4 3 4
 6




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2010
 Mortgage Loans
  7. Income Taxes
  8. Discontinued Operations
   Three Months EndedMarch 31,2010
    
    
    2009Revenue
    
    $
    2,446
    
    
    $
    18,432Operating expenses
    
    
    5,118
    
    
    
    18,719Loss on disposal
    
    
    2,653
    
    
    
    7,771
    
    
    
    18,719Loss from discontinued operations before income taxes
    
    
    (5,325
    )
    
    
    (287
    )Benefit from income taxes
    
    
    (1,829
    )
    
    
    (148
    )Loss from discontinued operations, net of income taxes
    
    $
    (3,496
    )
    
    $
    (139
    )
 9. Disclosures About Reportable Segments
   7




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2010
  Three Months Ended March 31, 2010
 Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    442,769
    
    
    $
    33,187
    
    
    $
    
    
    
    $
    475,956Adjusted EBITDA
    
    $
    95,080
    
    
    $
    2,236
    
    
    $
    (13,494
    )
    
    $
    83,822Interest expense
    
    
    7,208
    
    
    
    79
    
    
    
    9,211
    
    
    
    16,498Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    19,683
    
    
    
    19,683Depreciation and amortization
    
    
    10,921
    
    
    
    1,052
    
    
    
    417
    
    
    
    12,390Inter-segment expenses
    
    
    13,469
    
    
    
    1,211
    
    
    
    (14,680
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    3,510
    
    
    
    3,510Total other expenses
    
    
    
    
    
    
    
    
    
    
    3,510
    
    
    
    3,510Income (loss) from continuing operations
    
    
    63,482
    
    
    
    (106
    )
    
    
    (31,635
    )
    
    
    31,741Less: Income
attributable to noncontrolling interests
    
    
    (32
    )
    
    
    
    
    
    
    
    
    
    
    (32
    )Income (loss) from continuing operations attributable toPSI stockholders
    
    $
    63,450
    
    
    $
    (106
    )
    
    $
    (31,635
    )
    
    $
    31,709Total assets
    
    $
    2,377,041
    
    
    $
    55,596
    
    
    $
    117,547
    
    
    $
    2,550,184
 Three Months Ended March 31, 2009
 Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    404,003
    
    
    $
    29,927
    
    
    $
    
    
    
    $
    433,930Adjusted EBITDA
    
    $
    84,202
    
    
    $
    5,033
    
    
    $
    (12,430
    )
    
    $
    76,805Interest expense
    
    
    7,095
    
    
    
    (448
    )
    
    
    9,962
    
    
    
    16,609Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    17,164
    
    
    
    17,164Depreciation and amortization
    
    
    9,019
    
    
    
    1,143
    
    
    
    391
    
    
    
    10,553Inter-segment expenses
    
    
    17,207
    
    
    
    1,546
    
    
    
    (18,753
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    4,819
    
    
    
    4,819Total other expenses
    
    
    
    
    
    
    
    
    
    
    4,819
    
    
    
    4,819Income (loss) from continuing operations
    
    
    50,881
    
    
    
    2,792
    
    
    
    (26,013
    )
    
    
    27,660Less: Income
attributable to noncontrolling interests
    
    
    (139
    )
    
    
    
    
    
    
    
    
    
    
    (139
    )Income (loss) from continuing operations attributable toPSI stockholders
    
    $
    50,742
    
    
    $
    2,792
    
    
    $
    (26,013
    )
    
    $
    27,521Total assets
    
    $
    2,242,528
    
    
    $
    63,862
    
    
    $
    187,394
    
    
    $
    2,493,784
 10. Financial Information for the Company and Its Subsidiaries
  8




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PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2010
  Condensed Consolidating Balance Sheet
As of March 31, 2010
(Dollars in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    26,732
    
    
    $
    5,740
    
    
    $
    173
    
    
    $
    32,645Accounts receivable, net
    
    
    
    
    
    
    254,433
    
    
    
    9,509
    
    
    
    (68
    )
    
    
    263,874Other current assets
    
    
    
    
    
    
    77,496
    
    
    
    12,768
    
    
    
    2,231
    
    
    
    92,495Total current assets
    
    
    
    
    
    
    358,661
    
    
    
    28,017
    
    
    
    2,336
    
    
    
    389,014Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    896,081
    
    
    
    61,148
    
    
    
    (9,137
    )
    
    
    948,092Cost in excess of net assets acquired
    
    
    
    
    
    
    1,153,111
    
    
    
    
    
    
    
    
    
    
    
    1,153,111Investment in subsidiaries
    
    
    1,471,171
    
    
    
    (352,176
    )
    
    
    (16,266
    )
    
    
    (1,102,729
    )
    
    
    Other assets
    
    
    16,222
    
    
    
    38,216
    
    
    
    24,718
    
    
    
    (19,189
    )
    
    
    59,967Total assets
    
    $
    1,487,393
    
    
    $
    2,093,893
    
    
    $
    97,617
    
    
    $
    (1,128,719
    )
    
    $
    2,550,184Current liabilities:Accounts payable
    
    $
    
    
    
    $
    31,963
    
    
    $
    1,377
    
    
    $
    (68
    )
    
    $
    33,272Salaries and benefits payable
    
    
    
    
    
    
    92,666
    
    
    
    1,419
    
    
    
    
    
    
    
    94,085Other accrued liabilities
    
    
    17,539
    
    
    
    37,208
    
    
    
    (495
    )
    
    
    831
    
    
    
    55,083Current portion of long-term debt
    
    
    10,095
    
    
    
    
    
    
    
    457
    
    
    
    
    
    
    
    10,552Total current liabilities
    
    
    27,634
    
    
    
    161,837
    
    
    
    2,758
    
    
    
    763
    
    
    
    192,992Long-term debt, less current portion
    
    
    1,143,696
    
    
    
    
    
    
    
    32,284
    
    
    
    
    
    
    
    1,175,980Deferred tax liability
    
    
    
    
    
    
    84,074
    
    
    
    
    
    
    
    
    
    
    
    84,074Other liabilities
    
    
    5,099
    
    
    
    (5,818
    )
    
    
    35,784
    
    
    
    (4,034
    )
    
    
    31,031Total liabilities
    
    
    1,176,429
    
    
    
    240,093
    
    
    
    70,826
    
    
    
    (3,271
    )
    
    
    1,484,077Redeemable noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,326
    
    
    
    4,326Total stockholders equity
    
    
    310,964
    
    
    
    1,853,800
    
    
    
    26,791
    
    
    
    (1,129,774
    )
    
    
    1,061,781Total liabilities and stockholders equity
    
    $
    1,487,393
    
    
    $
    2,093,893
    
    
    $
    97,617
    
    
    $
    (1,128,719
    )
    
    $
    2,550,184
 9




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2010
 Condensed Consolidating Balance Sheet
As of December 31, 2009
(Dollars in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    2,111
    
    
    $
    4,704
    
    
    $
    
    
    
    $
    6,815Accounts receivable, net
    
    
    
    
    
    
    241,211
    
    
    
    8,296
    
    
    
    (68
    )
    
    
    249,439Other current assets
    
    
    
    
    
    
    90,259
    
    
    
    16,284
    
    
    
    (1,377
    )
    
    
    105,166Total current assets
    
    
    
    
    
    
    333,581
    
    
    
    29,284
    
    
    
    (1,445
    )
    
    
    361,420Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    879,453
    
    
    
    61,491
    
    
    
    (9,214
    )
    
    
    931,730Cost in excess of net assets acquired
    
    
    
    
    
    
    1,153,111
    
    
    
    
    
    
    
    
    
    
    
    1,153,111Investment in subsidiaries
    
    
    1,486,852
    
    
    
    (368,332
    )
    
    
    (16,964
    )
    
    
    (1,101,556
    )
    
    
    Other assets
    
    
    17,536
    
    
    
    37,420
    
    
    
    25,372
    
    
    
    (19,349
    )
    
    
    60,979Total assets
    
    $
    1,504,388
    
    
    $
    2,035,233
    
    
    $
    99,183
    
    
    $
    (1,131,564
    )
    
    $
    2,507,240Current liabilities:Accounts payable
    
    $
    
    
    
    $
    34,467
    
    
    $
    998
    
    
    $
    (68
    )
    
    $
    35,397Salaries and benefits payable
    
    
    
    
    
    
    80,255
    
    
    
    874
    
    
    
    
    
    
    
    81,129Other accrued liabilities
    
    
    28,901
    
    
    
    32,783
    
    
    
    1,610
    
    
    
    (1,258
    )
    
    
    62,036Current portion of long-term debt
    
    
    4,490
    
    
    
    
    
    
    
    450
    
    
    
    
    
    
    
    4,940Total current liabilities
    
    
    33,391
    
    
    
    147,505
    
    
    
    3,932
    
    
    
    (1,326
    )
    
    
    183,502Long-term debt, less current portion
    
    
    1,149,738
    
    
    
    
    
    
    
    32,401
    
    
    
    
    
    
    
    1,182,139Deferred tax liability
    
    
    
    
    
    
    81,137
    
    
    
    
    
    
    
    
    
    
    
    81,137Other liabilities
    
    
    127
    
    
    
    (6,324
    )
    
    
    36,069
    
    
    
    (4,082
    )
    
    
    25,790Total liabilities
    
    
    1,183,256
    
    
    
    222,318
    
    
    
    72,402
    
    
    
    (5,408
    )
    
    
    1,472,568Redeemable
noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,337
    
    
    
    4,337Total stockholders equity
    
    
    321,132
    
    
    
    1,812,915
    
    
    
    26,781
    
    
    
    (1,130,493
    )
    
    
    1,030,335Total liabilities and stockholders equity
    
    $
    1,504,388
    
    
    $
    2,035,233
    
    
    $
    99,183
    
    
    $
    (1,131,564
    )
    
    $
    2,507,240Condensed Consolidating Statement of Income
For the Three Months Ended March 31, 2010
(Dollars in thousands)CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    464,855
    
    
    $
    12,543
    
    
    $
    (1,442
    )
    
    $
    475,956Salaries, wages and employee benefits
    
    
    
    
    
    
    253,095
    
    
    
    6,380
    
    
    
    
    
    
    
    259,475Professional fees
    
    
    
    
    
    
    43,784
    
    
    
    1,733
    
    
    
    (589
    )
    
    
    44,928Supplies
    
    
    
    
    
    
    23,010
    
    
    
    668
    
    
    
    
    
    
    
    23,678Rentals and leases
    
    
    
    
    
    
    5,914
    
    
    
    145
    
    
    
    (1,224
    )
    
    
    4,835Other operating expenses
    
    
    
    
    
    
    49,671
    
    
    
    1,993
    
    
    
    (769
    )
    
    
    50,895Provision for doubtful accounts
    
    
    
    
    
    
    11,315
    
    
    
    518
    
    
    
    
    
    
    
    11,833Depreciation and amortization
    
    
    
    
    
    
    11,850
    
    
    
    617
    
    
    
    (77
    )
    
    
    12,390Interest expense
    
    
    16,025
    
    
    
    
    
    
    
    473
    
    
    
    
    
    
    
    16,49816,025
    
    
    
    398,639
    
    
    
    12,527
    
    
    
    (2,659
    )
    
    
    424,532(Loss) income from continuing operations before
income taxes
    
    
    (16,025
    )
    
    
    66,216
    
    
    
    16
    
    
    
    1,217
    
    
    
    51,424(Benefit from) provision for income taxes
    
    
    (6,134
    )
    
    
    25,345
    
    
    
    6
    
    
    
    466
    
    
    
    19,683(Loss) income from continuing operations
    
    
    (9,891
    )
    
    
    40,871
    
    
    
    10
    
    
    
    751
    
    
    
    31,741(Loss) income from discontinued operations, net of tax
    
    
    
    
    
    
    (3,496
    )
    
    
    
    
    
    
    
    
    
    
    (3,496
    )Net (loss) income
    
    
    (9,891
    )
    
    
    37,375
    
    
    
    10
    
    
    
    751
    
    
    
    28,245Less: Net
income attributable to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32
    )
    
    
    (32
    )Net (loss) income attributable to PSI stockholders
    
    $
    (9,891
    )
    
    $
    37,375
    
    
    $
    10
    
    
    $
    719
    
    
    $
    28,213
 10




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2010
 Condensed Consolidating Statement of Income
For the Three Months Ended March 31, 2009
(Dollars in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    423,585
    
    
    $
    11,639
    
    
    $
    (1,294
    )
    
    $
    433,930Salaries, wages and employee benefits
    
    
    
    
    
    
    237,826
    
    
    
    6,460
    
    
    
    
    
    
    
    244,286Professional fees
    
    
    
    
    
    
    39,124
    
    
    
    2,086
    
    
    
    (1,280
    )
    
    
    39,930Supplies
    
    
    
    
    
    
    22,347
    
    
    
    573
    
    
    
    
    
    
    
    22,920Rentals and leases
    
    
    
    
    
    
    6,129
    
    
    
    24
    
    
    
    (1,073
    )
    
    
    5,080Other operating expenses
    
    
    
    
    
    
    40,233
    
    
    
    1,620
    
    
    
    (587
    )
    
    
    41,266Provision for doubtful accounts
    
    
    
    
    
    
    8,200
    
    
    
    262
    
    
    
    
    
    
    
    8,462Depreciation and amortization
    
    
    
    
    
    
    10,090
    
    
    
    540
    
    
    
    (77
    )
    
    
    10,553Interest expense
    
    
    16,193
    
    
    
    
    
    
    
    416
    
    
    
    
    
    
    
    16,60916,193
    
    
    
    363,949
    
    
    
    11,981
    
    
    
    (3,017
    )
    
    
    389,106(Loss) income from continuing operations before
income taxes
    
    
    (16,193
    )
    
    
    59,636
    
    
    
    (342
    )
    
    
    1,723
    
    
    
    44,824(Benefit from) provision for income taxes
    
    
    (6,201
    )
    
    
    22,836
    
    
    
    (131
    )
    
    
    660
    
    
    
    17,164(Loss) income from continuing operations
    
    
    (9,992
    )
    
    
    36,800
    
    
    
    (211
    )
    
    
    1,063
    
    
    
    27,660(Loss) income from discontinued operations, net
of tax
    
    
    
    
    
    
    (460
    )
    
    
    321
    
    
    
    
    
    
    
    (139
    )Net (loss) income
    
    
    (9,992
    )
    
    
    36,340
    
    
    
    110
    
    
    
    1,063
    
    
    
    27,521Less: Net income attributable to noncontrolling
interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (139
    )
    
    
    (139
    )Net (loss) income attributable to PSI stockholders
    
    $
    (9,992
    )
    
    $
    36,340
    
    
    $
    110
    
    
    $
    924
    
    
    $
    27,382
 11




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2010
 Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 2010
(Dollars in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating activities:Net (loss) income
    
    $
    (9,891
    )
    
    $
    37,375
    
    
    $
    10
    
    
    $
    751
    
    
    $
    28,245Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    11,850
    
    
    
    617
    
    
    
    (77
    )
    
    
    12,390Amortization of loan costs and bond premium
    
    
    1,553
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    1,564Share-based compensation
    
    
    
    
    
    
    3,510
    
    
    
    
    
    
    
    
    
    
    
    3,510Change in income tax assets and liabilities
    
    
    
    
    
    
    10,824
    
    
    
    
    
    
    
    
    
    
    
    10,824Loss (income) from discontinued operations, net of
taxes
    
    
    
    
    
    
    3,496
    
    
    
    
    
    
    
    
    
    
    
    3,496Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (13,222
    )
    
    
    (1,213
    )
    
    
    
    
    
    
    (14,435
    )Other current assets
    
    
    
    
    
    
    (2,623
    )
    
    
    3,516
    
    
    
    
    
    
    
    893Accounts payable
    
    
    
    
    
    
    (761
    )
    
    
    379
    
    
    
    
    
    
    
    (382
    )Salaries and benefits payable
    
    
    
    
    
    
    12,411
    
    
    
    545
    
    
    
    
    
    
    
    12,956Accrued liabilities and other liabilities
    
    
    
    
    
    
    (587
    )
    
    
    (2,390
    )
    
    
    
    
    
    
    (2,977
    )Net cash (used in) provided by continuing operating activities
    
    
    (8,338
    )
    
    
    62,273
    
    
    
    1,475
    
    
    
    674
    
    
    
    56,084Net cash used in discontinued operating activities
    
    
    
    
    
    
    (89
    )
    
    
    
    
    
    
    
    
    
    
    (89
    )Net cash (used in) provided by operating activities
    
    
    (8,338
    )
    
    
    62,184
    
    
    
    1,475
    
    
    
    674
    
    
    
    55,995Investing activities:Capital purchases of leasehold improvements,
equipment and software
    
    
    
    
    
    
    (29,279
    )
    
    
    (274
    )
    
    
    
    
    
    
    (29,553
    )Other assets
    
    
    
    
    
    
    156
    
    
    
    (55
    )
    
    
    
    
    
    
    101Net cash used in continuing investing activities
    
    
    
    
    
    
    (29,123
    )
    
    
    (329
    )
    
    
    
    
    
    
    (29,452
    )Net cash used in discontinued investing activities
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    (12
    )Net cash used in investing activities
    
    
    
    
    
    
    (29,135
    )
    
    
    (329
    )
    
    
    
    
    
    
    (29,464
    )Financing activities:Principal payments on long-term debt
    
    
    (1,212
    )
    
    
    
    
    
    
    (110
    )
    
    
    
    
    
    
    (1,322
    )Payment of loan and issuance costs
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )Distributions to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    (43
    )
    
    
    
    
    
    
    (43
    )Repurchase of common stock upon restricted stock vesting
    
    
    (490
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (490
    )Net transfers to and from members
    
    
    8,886
    
    
    
    (8,428
    )
    
    
    43
    
    
    
    (501
    )
    
    
    Proceeds from exercises of common stock options
    
    
    1,160
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,160Net cash provided by (used in) financing activities
    
    
    8,338
    
    
    
    (8,428
    )
    
    
    (110
    )
    
    
    (501
    )
    
    
    (701
    )Net increase
in cash and cash equivalents
    
    
    
    
    
    
    24,621
    
    
    
    1,036
    
    
    
    173
    
    
    
    25,830Cash and cash equivalents at beginning of the period
    
    
    
    
    
    
    2,111
    
    
    
    4,704
    
    
    
    
    
    
    
    6,815Cash and cash equivalents at end of the period
    
    $
    
    
    
    $
    26,732
    
    
    $
    5,740
    
    
    $
    173
    
    
    $
    32,645
 12




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2010
 Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 2009
(Dollars in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating activities:Net (loss) income
    
    $
    (9,992
    )
    
    $
    36,340
    
    
    $
    110
    
    
    $
    1,063
    
    
    $
    27,521Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    10,090
    
    
    
    540
    
    
    
    (77
    )
    
    
    10,553Amortization of loan costs and bond premium
    
    
    704
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    715Share-based compensation
    
    
    
    
    
    
    4,819
    
    
    
    
    
    
    
    
    
    
    
    4,819Change in income tax assets and liabilities
    
    
    
    
    
    
    15,908
    
    
    
    
    
    
    
    
    
    
    
    15,908Loss (income) from discontinued operations, net of
taxes
    
    
    
    
    
    
    460
    
    
    
    (321
    )
    
    
    
    
    
    
    139Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (9,016
    )
    
    
    (760
    )
    
    
    
    
    
    
    (9,776
    )Other current assets
    
    
    
    
    
    
    2,319
    
    
    
    (23
    )
    
    
    
    
    
    
    2,296Accounts payable
    
    
    
    
    
    
    (2,923
    )
    
    
    101
    
    
    
    
    
    
    
    (2,822
    )Salaries and benefits payable
    
    
    
    
    
    
    (3,190
    )
    
    
    (201
    )
    
    
    
    
    
    
    (3,391
    )Accrued liabilities and other liabilities
    
    
    
    
    
    
    (5,551
    )
    
    
    (1,012
    )
    
    
    
    
    
    
    (6,563
    )Net cash (used in) provided by continuing operating activities
    
    
    (9,288
    )
    
    
    49,256
    
    
    
    (1,555
    )
    
    
    986
    
    
    
    39,399Net cash provided by discontinued operating activities
    
    
    
    
    
    
    54
    
    
    
    727
    
    
    
    
    
    
    
    781Net cash (used in) provided by operating activities
    
    
    (9,288
    )
    
    
    49,310
    
    
    
    (828
    )
    
    
    986
    
    
    
    40,180Investing activities:Capital purchases of leasehold improvements,equipment and software
    
    
    
    
    
    
    (24,368
    )
    
    
    
    
    
    
    
    
    
    
    (24,368
    )Other assets
    
    
    
    
    
    
    2,370
    
    
    
    (2,528
    )
    
    
    
    
    
    
    (158
    )Net cash used in continuing investing activities
    
    
    
    
    
    
    (21,998
    )
    
    
    (2,528
    )
    
    
    
    
    
    
    (24,526
    )Net cash used in discontinued investing activities
    
    
    
    
    
    
    (321
    )
    
    
    
    
    
    
    
    
    
    
    (321
    )Net cash used in investing activities
    
    
    
    
    
    
    (22,319
    )
    
    
    (2,528
    )
    
    
    
    
    
    
    (24,847
    )Financing activities:Net increase in revolving credit facility, less acquisitions
    
    
    (39,333
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39,333
    )Principal payments on long-term debt
    
    
    (1,169
    )
    
    
    
    
    
    
    (103
    )
    
    
    
    
    
    
    (1,272
    )Payment of loan and issuance costs
    
    
    (5,363
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,363
    )Repurchase of common stock upon restricted stock vesting
    
    
    (953
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (953
    )Net transfers to and from members
    
    
    55,764
    
    
    
    (54,372
    )
    
    
    (406
    )
    
    
    (986
    )
    
    
    Proceeds from exercises of common stock options
    
    
    342
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    342Net cash provided by (used in) financing activities
    
    
    9,288
    
    
    
    (54,372
    )
    
    
    (509
    )
    
    
    (986
    )
    
    
    (46,579
    )Net decrease
in cash and cash equivalents
    
    
    
    
    
    
    (27,381
    )
    
    
    (3,865
    )
    
    
    
    
    
    
    (31,246
    )Cash and cash equivalents at beginning of the period
    
    
    
    
    
    
    39,881
    
    
    
    11,390
    
    
    
    
    
    
    
    51,271Cash and cash equivalents at end of the period
    
    $
    
    
    
    $
    12,500
    
    
    $
    7,525
    
    
    $
    
    
    
    $
    20,025
 11. Recent Accounting Pronouncements
 Subsequent Events
 12.
Contingencies and Other
  13




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2010
      14




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Forward-Looking Statements
    
    
    risks inherent to the health care industry, including the impact of unforeseen changes in regulation and the potential adverse
impact of government investigations, liabilities and other claims asserted against us;
    
    uncertainty as to changes in U.S. general economic activity and the impact of these changes on our business;
    
    economic downturn resulting in efforts by federal and state health care programs and managed care companies to reduce
reimbursement rates for our services;
    
    implementation and effect of newly-adopted federal health care legislation and potential state health care legislation;
    
    potential competition that alters or impedes our acquisition strategy by decreasing our ability to acquire additional
inpatient facilities on favorable terms;
    
    our ability to comply with applicable licensure and accreditation requirements;
    
    our ability to comply with extensive laws and government regulations related to billing, physician relationships, adequacy of
medical care and licensure;
    
    our ability to retain key employees who are instrumental to our operations;
    
    our ability to successfully integrate and improve the operations of acquired inpatient facilities;
    
    our ability to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act;
    
    our substantial indebtedness and adverse changes in credit markets impacting our ability to receive timely additional
financing on terms acceptable to us to fund our acquisition strategy and capital expenditure needs;
    
    our ability to maintain favorable and continuing relationships with physicians and other health care professionals who use our
inpatient facilities;
    
    our ability to ensure confidential information is not inappropriately disclosed and that we are in compliance with federal and
state health information privacy standards;
    
    our ability to comply with federal and state governmental regulation covering health care-related products and services
on-line, including the regulation of medical devices and the practice of medicine and pharmacology;
    
    our ability to obtain adequate levels of general and professional liability insurance;
    
    future trends for pricing, margins, revenue and profitability that remain difficult to predict in the industries that we serve;
    
    risks that speculation about a proposed transaction disrupts current plans and operations and the potential difficulties in
employee retention as a result of such speculation;
    
    fluctuations in the market value of our common stock, including fluctuations resulting from announcements by us or our
competitors of significant contracts or acquisitions or other corporate events;
    
    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.
 15




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##### Table of Contents



Overview
    Sources of Revenue
 Patient Service Revenue
  Other Revenue
  Results of Operations
  16




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##### Table of Contents



For the Three Months Ended March 31,2010
    
    
    2009Amount
    
    
    %
    
    
    Amount
    
    
    %Revenue
    
    $
    475,956
    
    
    
    100.0
    %
    
    $
    433,930
    
    
    
    100.0
    %Salaries, wages, and employee benefits (including
share-based compensation of $3,510 and
$4,819 in 2010 and 2009, respectively)
    
    
    259,475
    
    
    
    54.5
    %
    
    
    244,286
    
    
    
    56.3
    %Professional fees
    
    
    44,928
    
    
    
    9.4
    %
    
    
    39,930
    
    
    
    9.2
    %Supplies
    
    
    23,678
    
    
    
    5.0
    %
    
    
    22,920
    
    
    
    5.3
    %Provision for doubtful accounts
    
    
    11,833
    
    
    
    2.5
    %
    
    
    8,462
    
    
    
    2.0
    %Other operating expenses
    
    
    55,730
    
    
    
    11.7
    %
    
    
    46,346
    
    
    
    10.7
    %Depreciation and amortization
    
    
    12,390
    
    
    
    2.6
    %
    
    
    10,553
    
    
    
    2.4
    %Interest expense, net
    
    
    16,498
    
    
    
    3.5
    %
    
    
    16,609
    
    
    
    3.8
    %Income from continuing operations before
income taxes
    
    
    51,424
    
    
    
    10.8
    %
    
    
    44,824
    
    
    
    10.3
    %Provision for income taxes
    
    
    19,683
    
    
    
    4.1
    %
    
    
    17,164
    
    
    
    3.9
    %Income from continuing operations
    
    
    31,741
    
    
    
    6.7
    %
    
    
    27,660
    
    
    
    6.4
    %Less: Net income attributable to
noncontrolling interest
    
    
    (32
    )
    
    
    0.0
    %
    
    
    (139
    )
    
    
    -0.1
    %Income from continuing operations attributable to
PSI stockholders
    
    $
    31,709
    
    
    
    6.7
    %
    
    $
    27,521
    
    
    
    6.3
    %
 Three Months Ended March 31, 2010 Compared To Three Months Ended March 31, 2009
  For
the Three Months Ended March 31,
    
    %2010
    
    2009
    
    ChangeSame-facility results:Revenue (in thousands)
    
    $
    432,445
    
    
    $
    404,003
    
    
    
    7.0
    %Admissions
    
    
    47,487
    
    
    
    43,261
    
    
    
    9.8
    %Patient days
    
    
    740,145
    
    
    
    699,233
    
    
    
    5.9
    %Average length of stay (in days)
    
    
    15.6
    
    
    
    16.2
    
    
    
    -3.7
    %Revenue per patient day
    
    $
    584
    
    
    $
    578
    
    
    
    1.0
    %Total facility results:Revenue (in thousands)
    
    $
    442,769
    
    
    $
    404,003
    
    
    
    9.6
    %Admissions
    
    
    48,805
    
    
    
    43,261
    
    
    
    12.8
    %Patient days
    
    
    752,240
    
    
    
    699,233
    
    
    
    7.6
    %Average length of stay (in days)
    
    
    15.4
    
    
    
    16.2
    
    
    
    -4.9
    %Revenue per patient day
    
    $
    589
    
    
    $
    578
    
    
    
    1.9
    %
 Revenue
 Salaries, wages, and employee benefits
 17




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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
 Liquidity and Capital Resources
  18




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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:Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 2.1% at March 31, 2010
    
    $
    563,938
    
    
    $
    9,250
    
    
    $
    554,688
    
    
    $
    
    
    
    $
    7 3/4% Senior Subordinated Notes due July 15, 2015
    
    
    582,899
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    582,899Mortgage loans on facilities, maturing in 2036, 2037 and 2038
bearing fixed interest rates of 5.7% to 7.6%
    
    
    32,741
    
    
    
    457
    
    
    
    1,003
    
    
    
    1,136
    
    
    
    30,1451,179,578
    
    
    
    9,707
    
    
    
    555,691
    
    
    
    1,136
    
    
    
    613,044Lease and other obligations
    
    
    79,381
    
    
    
    13,639
    
    
    
    18,607
    
    
    
    12,114
    
    
    
    35,021Total contractual obligations
    
    $
    1,258,959
    
    
    $
    23,346
    
    
    $
    574,298
    
    
    $
    13,250
    
    
    $
    648,065
 
 (1)
    
    Excludes capital lease obligations and other obligations of $7.0 million, which are included in lease and other obligations. 19




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##### Table of Contents



3 4
 Critical Accounting Policies
  Allowance for Doubtful Accounts
    Allowances for Contractual Discounts
  Professional and General Liability
  20




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##### Table of Contents



Income TaxesAs part of our process for preparing our consolidated financial statements, our management is
required to compute income taxes in each of the jurisdictions in which we operate. This process
involves estimating the current tax benefit or expense of future deductible and taxable temporary
differences. The tax effects of future deductible and taxable temporary differences are recorded as
deferred tax assets and liabilities which are components of our balance sheet. Management then
assesses our ability to realize the deferred tax assets based on reversals of deferred tax
liabilities and, if necessary, estimates of future taxable income. A valuation allowance for
deferred tax assets is established when we believe that it is more likely than not that the
deferred tax asset will not be realized. Management must also assess the impact of our acquisitions
on the realization of deferred tax assets subject to a valuation allowance to determine if all or a
portion of the valuation allowance will be offset by reversing taxable differences or future
taxable income of the acquired entity. To the extent the valuation allowance can be reversed due to
the estimated future taxable income of an acquired entity, then our valuation allowance is reduced
accordingly as an adjustment to income tax expense.GAAP requires us to make significant judgments regarding the recognition and measurement of
each tax position. Changes in these judgments may materially affect the estimate of our effective
tax rate and our operating results.Share-Based CompensationWe record share-based compensation expense for the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value of such awards. We
utilize the Black-Scholes option pricing model to estimate the grant-date fair value of our stock
options. The Black-Scholes model includes certain variables and assumptions that require judgment,
such as the expected volatility of our stock price and the expected term of our stock options.
Additionally, we use judgment in the estimation of forfeitures over the vesting period of
share-based awards.
 
 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.
  21




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##### Table of Contents



Item 1A.
    
    Risk Factors.
  We cannot predict the effect that health care reform and other changes in government programs may
have on our business, financial condition or results of operations.
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds.
 Issuer Purchases of Equity Securities
  22




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##### Table of Contents



Total Number of
    
    Maximum NumberShares Purchased
    
    of Shares that Mayas Part of Publicly
    
    Yet Be PurchasedTotal Number of
    
    Average Price
    
    Announced Plans or
    
    Under the Plans orPeriod
    
    Shares Purchased (1)
    
    Paid Per Share
    
    Programs
    
    ProgramsJanuary 1, 2010 through
January 31, 2010
    
    
    
    
    
    $
    
    
    
    
    N/A
    
    
    
    N/AFebruary 1, 2010
through
February 28, 2010
    
    
    22,399
    
    
    
    21.86
    
    
    
    N/A
    
    
    
    N/AMarch 1, 2010 through
March 31, 2010
    
    
    
    
    
    
    
    
    
    
    N/A
    
    
    
    N/ATotal
    
    
    22,399
    
    
    $
    21.86
    
    
    
    N/A
    
    
    
    N/A
 
 (1)
    
    All of the shares were surrendered by our employees in satisfaction of the employees tax
liabilities related to the vesting of restricted stock. The surrender of shares by our
employees was made in accordance with the terms of restricted stock agreements between the
employees and us and did not involve any payments by us. We currently do not have a stock
repurchase program. 
 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).10.1
    
    Amendment to Employment Agreement, dated April 15,
2010, by and between Joey A. Jacobs and
Psychiatric Solutions, Inc. (incorporated by
reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K, filed April 20, 2010).10.2
    
    Form of Change in Control Severance Agreement,
dated April 15, 2010, by and between certain of
the Companys officers and Psychiatric Solutions,
Inc. (incorporated by reference to Exhibit 10.2 to
the Companys Current Report on Form 8-K, filed on
April 20, 2010).10.3
    
    Psychiatric Solutions, Inc. 2010 Cash Bonus Plans
(incorporated by reference to Exhibit 10 to the
Companys Current Report on Form 8-K, filed on
April 1, 2010).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 or furnished herewith 23




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##### Table of Contents



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