##### 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 September 30,
2008
 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 for the transition period from  to
 Commission file number 0-20488
 Psychiatric Solutions, Inc.
  Delaware
    
    23-2491707(State or Other Jurisdiction of Incorporation or
    
    (I.R.S. Employer Identification No.)Organization)
 
 
 þ 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 September 30, 2008 and December 31, 2007 (Unaudited)
    
    
    1Condensed Consolidated Statements of Income for the three and nine month periods ended
September 30, 2008 and 2007 (Unaudited)
    
    
    2Condensed Consolidated Statement of Stockholders Equity for the nine month period ended
September 30, 2008 (Unaudited)
    
    
    3Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 30,
2008 and 2007 (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 2. Unregistered Sales of Securities and Use of Proceeds
    
    
    27Item 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)
 September 30,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    44,960
    
    
    $
    39,970Accounts receivable, less allowance for doubtful accounts
of $49,514 and $35,398 for 2008 and 2007, respectively
    
    
    261,531
    
    
    
    230,600Prepaids and other
    
    
    79,968
    
    
    
    68,235Total current assets
    
    
    386,459
    
    
    
    338,805Property and equipment, net of accumulated depreciation
    
    
    802,479
    
    
    
    692,135Cost in excess of net assets acquired
    
    
    1,202,646
    
    
    
    1,071,275Other assets
    
    
    65,740
    
    
    
    75,889Total assets
    
    $
    2,457,324
    
    
    $
    2,178,104LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    36,044
    
    
    $
    30,996Salaries and benefits payable
    
    
    88,478
    
    
    
    82,101Other accrued liabilities
    
    
    67,495
    
    
    
    61,861Current portion of long-term debt
    
    
    6,008
    
    
    
    6,016Total current liabilities
    
    
    198,025
    
    
    
    180,974Long-term debt, less current portion
    
    
    1,312,438
    
    
    
    1,166,008Deferred tax liability
    
    
    57,503
    
    
    
    49,131Other liabilities
    
    
    22,010
    
    
    
    23,090Total liabilities
    
    
    1,589,976
    
    
    
    1,419,203Minority interest
    
    
    4,996
    
    
    
    4,159Stockholders equity:Common stock, $0.01 par value, 125,000 shares authorized;
55,895 and 55,107 issued and outstanding for 2008
and 2007, respectively
    
    
    559
    
    
    
    551Additional paid-in capital
    
    
    602,191
    
    
    
    574,943Accumulated other comprehensive loss
    
    
    (1,057
    )
    
    
    (479
    )Retained earnings
    
    
    260,659
    
    
    
    179,727Total stockholders equity
    
    
    862,352
    
    
    
    754,742Total liabilities and stockholders equity
    
    $
    2,457,324
    
    
    $
    2,178,104
  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 EndedSeptember 30,
    
    

Nine
Months EndedSeptember 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue
    
    $
    448,015
    
    
    $
    396,419
    
    
    $
    1,320,114
    
    
    $
    1,062,565Salaries, wages and employee benefits (including share-based compensation of $4,935,
$4,423, $15,013
and $12,006 for the respective
three and nine month
periods in 2008 and 2007)
    
    
    245,578
    
    
    
    220,853
    
    
    
    725,775
    
    
    
    590,071Professional fees
    
    
    45,022
    
    
    
    39,868
    
    
    
    133,803
    
    
    
    104,530Supplies
    
    
    24,323
    
    
    
    21,317
    
    
    
    71,769
    
    
    
    58,185Rentals and leases
    
    
    5,708
    
    
    
    5,486
    
    
    
    17,653
    
    
    
    14,561Other operating expenses
    
    
    41,484
    
    
    
    38,062
    
    
    
    121,849
    
    
    
    103,627Provision for doubtful accounts
    
    
    10,254
    
    
    
    7,003
    
    
    
    25,976
    
    
    
    20,871Depreciation and amortization
    
    
    10,171
    
    
    
    8,472
    
    
    
    29,570
    
    
    
    21,888Interest expense
    
    
    19,337
    
    
    
    22,252
    
    
    
    59,440
    
    
    
    53,666Loss on refinancing long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,179401,877
    
    
    
    363,313
    
    
    
    1,185,835
    
    
    
    975,578Income from continuing operations before income taxes
    
    
    46,138
    
    
    
    33,106
    
    
    
    134,279
    
    
    
    86,987Provision for income taxes
    
    
    17,533
    
    
    
    12,537
    
    
    
    51,026
    
    
    
    32,783Income from continuing operations
    
    
    28,605
    
    
    
    20,569
    
    
    
    83,253
    
    
    
    54,204Loss from discontinued operations, net of income tax (benefit)
provision of $(8), $(27), $9 and
$(126) for the respective
three and nine month periods in
2008 and 2007
    
    
    (2,228
    )
    
    
    (244
    )
    
    
    (2,321
    )
    
    
    (1,147
    )Net income
    
    $
    26,377
    
    
    $
    20,325
    
    
    $
    80,932
    
    
    $
    53,057Basic earnings per share:Income from continuing operations
    
    $
    0.52
    
    
    $
    0.38
    
    
    $
    1.50
    
    
    $
    1.00Loss from discontinued
operations, net of taxes
    
    
    (0.04
    )
    
    
    (0.01
    )
    
    
    (0.04
    )
    
    
    (0.02
    )Net income
    
    $
    0.48
    
    
    $
    0.37
    
    
    $
    1.46
    
    
    $
    0.98Diluted earnings per share:Income from continuing operations
    
    $
    0.51
    
    
    $
    0.37
    
    
    $
    1.48
    
    
    $
    0.98Loss from discontinued
operations, net of taxes
    
    
    (0.04
    )
    
    
    
    
    
    
    (0.04
    )
    
    
    (0.02
    )Net income
    
    $
    0.47
    
    
    $
    0.37
    
    
    $
    1.44
    
    
    $
    0.96Shares used in computing per share amounts:Basic
    
    
    55,529
    
    
    
    54,278
    
    
    
    55,318
    
    
    
    54,064Diluted
    
    
    56,604
    
    
    
    55,415
    
    
    
    56,213
    
    
    
    55,343
  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, 2007
    
    
    55,107
    
    
    $
    551
    
    
    $
    574,943
    
    
    $
    (479
    )
    
    $
    179,727
    
    
    $
    754,742Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,932
    
    
    
    80,932Change in fair value of interest rate
swap, net of tax
benefit of $387
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (578
    )
    
    
    
    
    
    
    (578
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    80,354Common stock issued in acquisitions
    
    
    27
    
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    1,000Share-based compensation
    
    
    
    
    
    
    
    
    
    
    15,013
    
    
    
    
    
    
    
    
    
    
    
    15,013Exercise of stock options and
grants of restricted stock, net
of issuance costs
    
    
    761
    
    
    
    8
    
    
    
    9,333
    
    
    
    
    
    
    
    
    
    
    
    9,341Income tax benefit of stock option
exercises
    
    
    
    
    
    
    
    
    
    
    1,902
    
    
    
    
    
    
    
    
    
    
    
    1,902Balance at September 30, 2008
    
    
    55,895
    
    
    $
    559
    
    
    $
    602,191
    
    
    $
    (1,057
    )
    
    $
    260,659
    
    
    $
    862,352
  3




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##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited, in thousands)
 Nine Months Ended September 30,2008
    
    
    2007Operating activities:Net income
    
    $
    80,932
    
    
    $
    53,057Adjustments to reconcile net income to net cash provided by
continuing operating activities:Depreciation and amortization
    
    
    29,570
    
    
    
    21,888Amortization of loan costs and bond premium
    
    
    1,660
    
    
    
    1,591Share-based compensation
    
    
    15,013
    
    
    
    12,006Loss on refinancing long-term debt
    
    
    
    
    
    
    8,179Change in income tax assets and liabilities
    
    
    (1,611
    )
    
    
    8,219Loss from discontinued operations, net of taxes
    
    
    2,321
    
    
    
    1,147Changes in operating assets and liabilities,
net of effect of acquisitions:Accounts receivable
    
    
    (30,331
    )
    
    
    (20,803
    )Prepaids and other current assets
    
    
    (1,017
    )
    
    
    1,966Accounts payable
    
    
    5,116
    
    
    
    (6,913
    )Salaries and benefits payable
    
    
    4,638
    
    
    
    (457
    )Accrued liabilities and other liabilities
    
    
    (16,183
    )
    
    
    353Net cash provided by continuing operating activities
    
    
    90,108
    
    
    
    80,233Net cash (used in) provided by discontinued operating activities
    
    
    (2,186
    )
    
    
    504Net cash provided by operating activities
    
    
    87,922
    
    
    
    80,737Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (163,238
    )
    
    
    (462,729
    )Capital purchases of property and equipment
    
    
    (81,773
    )
    
    
    (48,361
    )Other assets
    
    
    280
    
    
    
    (750
    )Net cash used in continuing investing activities
    
    
    (244,731
    )
    
    
    (511,840
    )Net cash provided by discontinued investing activities
    
    
    5,244
    
    
    
    Net cash used in investing activities
    
    
    (239,487
    )
    
    
    (511,840
    )Financing activities:Net increase (decrease) in revolving credit facility
    
    
    149,333
    
    
    
    (11,000
    )Borrowings on long-term debt
    
    
    
    
    
    
    481,875Principal payments on long-term debt
    
    
    (3,963
    )
    
    
    (40,220
    )Payment of loan and issuance costs
    
    
    (39
    )
    
    
    (6,603
    )Refinancing of long-term debt
    
    
    
    
    
    
    (7,127
    )Excess tax benefits from share-based payment arrangements
    
    
    1,902
    
    
    
    4,072Proceeds from exercises of common stock options
    
    
    9,322
    
    
    
    13,935Net cash provided by financing activities
    
    
    156,555
    
    
    
    434,932Net increase in cash
    
    
    4,990
    
    
    
    3,829Cash and cash equivalents at beginning of the period
    
    
    39,970
    
    
    
    18,520Cash and cash equivalents at end of the period
    
    $
    44,960
    
    
    $
    22,349Effect of Acquisitions:Assets acquired, net of cash acquired
    
    $
    171,145
    
    
    $
    533,084Liabilities assumed
    
    
    (6,907
    )
    
    
    (52,653
    )Common stock issued
    
    
    (1,000
    )
    
    
    (9,000
    )Long-term debt assumed
    
    
    
    
    
    
    (8,702
    )Cash paid for acquisitions, net of cash acquired
    
    $
    163,238
    
    
    $
    462,729
  4




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##### Table of Contents



1. Recent Developments
  2. Basis of Presentation
  3. Earnings Per Share
 Earnings per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Numerator:Basic and diluted earnings per share:Income from continuing operations
    
    $
    28,605
    
    
    $
    20,569
    
    
    $
    83,253
    
    
    $
    54,204Loss from discontinued operations, net of taxes
    
    
    (2,228
    )
    
    
    (244
    )
    
    
    (2,321
    )
    
    
    (1,147
    )Net income
    
    $
    26,377
    
    
    $
    20,325
    
    
    $
    80,932
    
    
    $
    53,057Denominator:Weighted average shares outstanding for basic earnings per share
    
    
    55,529
    
    
    
    54,278
    
    
    
    55,318
    
    
    
    54,064Effects of dilutive stock options and restriced stock outstanding
    
    
    1,075
    
    
    
    1,137
    
    
    
    895
    
    
    
    1,279Shares used in computing diluted earnings per common share
    
    
    56,604
    
    
    
    55,415
    
    
    
    56,213
    
    
    
    55,343Basic earnings per share:Income from continuing operations
    
    $
    0.52
    
    
    $
    0.38
    
    
    $
    1.50
    
    
    $
    1.00Loss from discontinued operations, net of taxes
    
    
    (0.04
    )
    
    
    (0.01
    )
    
    
    (0.04
    )
    
    
    (0.02
    )$
    0.48
    
    
    $
    0.37
    
    
    $
    1.46
    
    
    $
    0.98Diluted earnings per share:Income from continuing operations
    
    $
    0.51
    
    
    $
    0.37
    
    
    $
    1.48
    
    
    $
    0.98Loss from discontinued operations, net of taxes
    
    
    (0.04
    )
    
    
    
    
    
    
    (0.04
    )
    
    
    (0.02
    )$
    0.47
    
    
    $
    0.37
    
    
    $
    1.44
    
    
    $
    0.96
 5




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4. Share-Based Compensation
      5. Acquisitions
     6




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##### Table of Contents



6. Long-term debt
  September 30,
    
    
    December 31,2008
    
    
    2007Senior credit facility:Revolving credit facility, expiring on December 21, 2009 and
bearing interest of 4.3% and 6.4% at September 30,
2008
and December 31, 2007, respectively
    
    $
    229,333
    
    
    $
    80,000Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 5.6% and 6.8% at September 30,
2008 and December 31, 2007, respectively
    
    
    570,500
    
    
    
    573,3127 3/4% Notes
    
    
    476,012
    
    
    
    476,508Mortgage loans on facilities, maturing in 2036, 2037 and 2038
bearing fixed interest rates of 5.7% to 7.6%
    
    
    33,375
    
    
    
    33,671Other
    
    
    9,226
    
    
    
    8,5331,318,446
    
    
    
    1,172,024Less current portion
    
    
    6,008
    
    
    
    6,016Long-term debt
    
    $
    1,312,438
    
    
    $
    1,166,008
 Senior Credit Facility
     7




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##### Table of Contents



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 Agreements
  7. Income Taxes
  8. Discontinued Operations
 Accounting for the Impairment or Disposal of Long-Lived Assets
  8




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue
    
    $
    2,261
    
    
    $
    5,778
    
    
    $
    12,579
    
    
    $
    18,329Operating expenses
    
    
    3,015
    
    
    
    6,049
    
    
    
    13,030
    
    
    
    18,835Loss on disposal and assets held for sale
    
    
    1,482
    
    
    
    
    
    
    
    1,861
    
    
    
    7674,497
    
    
    
    6,049
    
    
    
    14,891
    
    
    
    19,602Loss from discontinued operations before income taxes
    
    
    (2,236
    )
    
    
    (271
    )
    
    
    (2,312
    )
    
    
    (1,273
    )(Benefit) provision for income taxes
    
    
    (8
    )
    
    
    (27
    )
    
    
    9
    
    
    
    (126
    )Loss from discontinued operations, net of income taxes
    
    $
    (2,228
    )
    
    $
    (244
    )
    
    $
    (2,321
    )
    
    $
    (1,147
    )
 9. Disclosures About Reportable Segments
 Disclosures About Segments of an Enterprise and
Related Information
  9




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##### Table of Contents



Three
Months Ended September 30, 2008Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    403,936
    
    
    $
    44,079
    
    
    $
    
    
    
    $
    448,015Adjusted EBITDA
    
    $
    82,852
    
    
    $
    9,130
    
    
    $
    (11,401
    )
    
    $
    80,581Interest expense
    
    
    7,178
    
    
    
    136
    
    
    
    12,023
    
    
    
    19,337Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    17,533
    
    
    
    17,533Depreciation and amortization
    
    
    8,349
    
    
    
    1,430
    
    
    
    392
    
    
    
    10,171Inter-segment expenses
    
    
    15,977
    
    
    
    1,926
    
    
    
    (17,903
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    4,935
    
    
    
    4,935Total other expenses
    
    
    
    
    
    
    
    
    
    
    4,935
    
    
    
    4,935Income (loss) from continuing operations
    
    $
    51,348
    
    
    $
    5,638
    
    
    $
    (28,381
    )
    
    $
    28,605Total assets
    
    $
    2,221,853
    
    
    $
    134,206
    
    
    $
    101,265
    
    
    $
    2,457,324
 Three Months Ended September 30, 2007Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    355,425
    
    
    $
    40,994
    
    
    $
    
    
    
    $
    396,419Adjusted EBITDA
    
    $
    70,811
    
    
    $
    7,008
    
    
    $
    (9,566
    )
    
    $
    68,253Interest expense
    
    
    7,629
    
    
    
    (7
    )
    
    
    14,630
    
    
    
    22,252Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    12,537
    
    
    
    12,537Depreciation and amortization
    
    
    7,217
    
    
    
    890
    
    
    
    365
    
    
    
    8,472Inter-segment expenses
    
    
    14,585
    
    
    
    2,457
    
    
    
    (17,042
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    4,423
    
    
    
    4,423Total other expenses
    
    
    
    
    
    
    
    
    
    
    4,423
    
    
    
    4,423Income (loss) from continuing operations
    
    $
    41,380
    
    
    $
    3,668
    
    
    $
    (24,479
    )
    
    $
    20,569Total assets
    
    $
    1,985,666
    
    
    $
    83,438
    
    
    $
    98,842
    
    
    $
    2,167,946
 10




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##### Table of Contents



Nine Months Ended September 30, 2008Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    1,189,374
    
    
    $
    130,740
    
    
    $
    
    
    
    $
    1,320,114Adjusted EBITDA
    
    $
    247,927
    
    
    $
    26,252
    
    
    $
    (35,877
    )
    
    $
    238,302Interest expense
    
    
    21,381
    
    
    
    490
    
    
    
    37,569
    
    
    
    59,440Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    51,026
    
    
    
    51,026Depreciation and amortization
    
    
    24,431
    
    
    
    4,006
    
    
    
    1,133
    
    
    
    29,570Inter-segment expenses
    
    
    47,809
    
    
    
    5,754
    
    
    
    (53,563
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    15,013
    
    
    
    15,013Total other expenses
    
    
    
    
    
    
    
    
    
    
    15,013
    
    
    
    15,013Income (loss) from continuing operations
    
    $
    154,306
    
    
    $
    16,002
    
    
    $
    (87,055
    )
    
    $
    83,253Total assets
    
    $
    2,221,853
    
    
    $
    134,206
    
    
    $
    101,265
    
    
    $
    2,457,324
 Nine Months Ended September 30, 2007Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    980,423
    
    
    $
    82,142
    
    
    $
    
    
    
    $
    1,062,565Adjusted EBITDA
    
    $
    196,509
    
    
    $
    14,603
    
    
    $
    (28,386
    )
    
    $
    182,726Interest expense
    
    
    23,220
    
    
    
    (20
    )
    
    
    30,466
    
    
    
    53,666Provision for income taxes
    
    
    2
    
    
    
    
    
    
    
    32,781
    
    
    
    32,783Depreciation and amortization
    
    
    19,464
    
    
    
    1,351
    
    
    
    1,073
    
    
    
    21,888Inter-segment expenses
    
    
    38,759
    
    
    
    4,325
    
    
    
    (43,084
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    12,006
    
    
    
    12,006Loss on refinancing long-term debt
    
    
    
    
    
    
    
    
    
    
    8,179
    
    
    
    8,179Total other expenses
    
    
    
    
    
    
    
    
    
    
    20,185
    
    
    
    20,185Income (loss) from continuing operations
    
    $
    115,064
    
    
    $
    8,947
    
    
    $
    (69,807
    )
    
    $
    54,204Total assets
    
    $
    1,985,666
    
    
    $
    83,438
    
    
    $
    98,842
    
    
    $
    2,167,946
 10. Financial Information for the Company and Its Subsidiaries
  11




---



##### Table of Contents



Condensed Consolidating Balance Sheet
As of September 30, 2008
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    35,412
    
    
    $
    9,548
    
    
    $
    
    
    
    $
    44,960Accounts receivable, net
    
    
    
    
    
    
    253,400
    
    
    
    8,244
    
    
    
    (113
    )
    
    
    261,531Prepaids and other
    
    
    
    
    
    
    64,678
    
    
    
    17,966
    
    
    
    (2,676
    )
    
    
    79,968Total current assets
    
    
    
    
    
    
    353,490
    
    
    
    35,758
    
    
    
    (2,789
    )
    
    
    386,459Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    754,777
    
    
    
    57,303
    
    
    
    (9,601
    )
    
    
    802,479Cost in excess of net assets acquired
    
    
    
    
    
    
    1,202,646
    
    
    
    
    
    
    
    
    
    
    
    1,202,646Investment in subsidiaries
    
    
    1,161,063
    
    
    
    
    
    
    
    
    
    
    
    (1,161,063
    )


    
    
    Other assets
    
    
    13,333
    
    
    
    45,686
    
    
    
    22,772
    
    
    
    (16,051
    )
    
    
    65,740Total assets
    
    $
    1,174,396
    
    
    $
    2,356,599
    
    
    $
    115,833
    
    
    $
    (1,189,504
    )
    
    $
    2,457,324Current Liabilities:Accounts payable
    
    $
    
    
    
    $
    35,234
    
    
    $
    879
    
    
    $
    (69
    )
    
    $
    36,044Salaries and benefits payable
    
    
    
    
    
    
    86,963
    
    
    
    1,495
    
    
    
    20
    
    
    
    88,478Other accrued liabilities
    
    
    13,849
    
    
    
    53,402
    
    
    
    4,939
    
    
    
    (4,695
    )
    
    
    67,495Current portion of long-term debt
    
    
    5,592
    
    
    
    
    
    
    
    416
    
    
    
    
    
    
    
    6,008Total current liabilities
    
    
    19,441
    
    
    
    175,599
    
    
    
    7,729
    
    
    
    (4,744
    )
    
    
    198,025Long-term debt, less current portion
    
    
    1,279,479
    
    
    
    
    
    
    
    32,959
    
    
    
    
    
    
    
    1,312,438Deferred tax liability
    
    
    
    
    
    
    57,503
    
    
    
    
    
    
    
    
    
    
    
    57,503Other liabilities
    
    
    4,268
    
    
    
    (15,457
    )
    
    
    25,625
    
    
    
    7,574
    
    
    
    22,010Total liabilities
    
    
    1,303,188
    
    
    
    217,645
    
    
    
    66,313
    
    
    
    2,830
    
    
    
    1,589,976Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,996
    
    
    
    4,996Total stockholders (deficit) equity
    
    
    (128,792
    )
    
    
    2,138,954
    
    
    
    49,520
    
    
    
    (1,197,330
    )
    
    
    862,352Total liabilities and stockholders (deficit) equity
    
    $
    1,174,396
    
    
    $
    2,356,599
    
    
    $
    115,833
    
    
    $
    (1,189,504
    )
    
    $
    2,457,324
 Condensed Consolidating Balance Sheet
As of December 31, 2007
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    19,154
    
    
    $
    20,816
    
    
    $
    
    
    
    $
    39,970Accounts receivable, net
    
    
    
    
    
    
    223,527
    
    
    
    7,444
    
    
    
    (371
    )
    
    
    230,600Prepaids and other
    
    
    
    
    
    
    77,360
    
    
    
    1,555
    
    
    
    (10,680
    )
    
    
    68,235Total current assets
    
    
    
    
    
    
    320,041
    
    
    
    29,815
    
    
    
    (11,051
    )
    
    
    338,805Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    642,016
    
    
    
    57,526
    
    
    
    (7,407
    )
    
    
    692,135Cost in excess of net assets acquired
    
    
    
    
    
    
    1,071,275
    
    
    
    
    
    
    
    
    
    
    
    1,071,275Investment in subsidiaries
    
    
    1,058,235
    
    
    
    
    
    
    
    
    
    
    
    (1,058,235
    )


    
    
    Other assets
    
    
    15,441
    
    
    
    56,761
    
    
    
    22,359
    
    
    
    (18,672
    )
    
    
    75,889Total assets
    
    $
    1,073,676
    
    
    $
    2,090,093
    
    
    $
    109,700
    
    
    $
    (1,095,365
    )
    
    $
    2,178,104Current Liabilities:Accounts payable
    
    $
    
    
    
    $
    30,264
    
    
    $
    1,059
    
    
    $
    (327
    )
    
    $
    30,996Salaries and benefits payable
    
    
    
    
    
    
    80,424
    
    
    
    1,657
    
    
    
    20
    
    
    
    82,101Other accrued liabilities
    
    
    25,171
    
    
    
    41,336
    
    
    
    242
    
    
    
    (4,888
    )
    
    
    61,861Current portion of long-term debt
    
    
    5,619
    
    
    
    
    
    
    
    397
    
    
    
    
    
    
    
    6,016Total current liabilities
    
    
    30,790
    
    
    
    152,024
    
    
    
    3,355
    
    
    
    (5,195
    )
    
    
    180,974Long-term debt, less current portion
    
    
    1,132,735
    
    
    
    
    
    
    
    33,273
    
    
    
    
    
    
    
    1,166,008Deferred tax liability
    
    
    
    
    
    
    49,131
    
    
    
    
    
    
    
    
    
    
    
    49,131Other liabilities
    
    
    2,659
    
    
    
    (17,089
    )
    
    
    31,096
    
    
    
    6,424
    
    
    
    23,090Total liabilities
    
    
    1,166,184
    
    
    
    184,066
    
    
    
    67,724
    
    
    
    1,229
    
    
    
    1,419,203Minority interest
    
    
    
    
    
    
    (274
    )
    
    
    
    
    
    
    4,433
    
    
    
    4,159Total stockholders (deficit) equity
    
    
    (92,508
    )
    
    
    1,906,301
    
    
    
    41,976
    
    
    
    (1,101,027
    )
    
    
    754,742Total liabilities and stockholders (deficit) equity
    
    $
    1,073,676
    
    
    $
    2,090,093
    
    
    $
    109,700
    
    
    $
    (1,095,365
    )
    
    $
    2,178,104
 12




---



##### Table of Contents



Condensed Consolidating Statement of Income
For the Three Months Ended September 30, 2008
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    433,965
    
    
    $
    16,987
    
    
    $
    (2,937
    )
    
    $
    448,015Salaries, wages and employee benefits
    
    
    
    
    
    
    238,464
    
    
    
    7,114
    
    
    
    
    
    
    
    245,578Professional fees
    
    
    
    
    
    
    43,209
    
    
    
    1,839
    
    
    
    (26
    )
    
    
    45,022Supplies
    
    
    
    
    
    
    23,695
    
    
    
    628
    
    
    
    
    
    
    
    24,323Rentals and leases
    
    
    
    
    
    
    6,652
    
    
    
    100
    
    
    
    (1,044
    )
    
    
    5,708Other operating expenses
    
    
    
    
    
    
    39,912
    
    
    
    2,686
    
    
    
    (1,114
    )
    
    
    41,484Provision for doubtful accounts
    
    
    
    
    
    
    9,898
    
    
    
    356
    
    
    
    
    
    
    
    10,254Depreciation and amortization
    
    
    
    
    
    
    9,737
    
    
    
    511
    
    
    
    (77
    )
    
    
    10,171Interest expense
    
    
    19,449
    
    
    
    
    
    
    
    (112
    )
    
    
    
    
    
    
    19,33719,449
    
    
    
    371,567
    
    
    
    13,122
    
    
    
    (2,261
    )
    
    
    401,877(Loss) income from continuing operations
before
income taxes
    
    
    (19,449
    )
    
    
    62,398
    
    
    
    3,865
    
    
    
    (676
    )
    
    
    46,138(Benefit from) provision for income taxes
    
    
    (7,391
    )
    
    
    23,712
    
    
    
    1,469
    
    
    
    (257
    )
    
    
    17,533(Loss) income from continuing operations
    
    
    (12,058
    )
    
    
    38,686
    
    
    
    2,396
    
    
    
    (419
    )
    
    
    28,605Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (2,228
    )
    
    
    
    
    
    
    
    
    
    
    (2,228
    )Net (loss) income
    
    $
    (12,058
    )
    
    $
    36,458
    
    
    $
    2,396
    
    
    $
    (419
    )
    
    $
    26,377
 Condensed Consolidating Statement of Income
For the Three Months Ended September 30, 2007
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    384,116
    
    
    $
    12,588
    
    
    $
    (285
    )
    
    $
    396,419Salaries, wages and employee benefits
    
    
    
    
    
    
    214,254
    
    
    
    6,599
    
    
    
    
    
    
    
    220,853Professional fees
    
    
    
    
    
    
    38,208
    
    
    
    1,735
    
    
    
    (75
    )
    
    
    39,868Supplies
    
    
    
    
    
    
    20,780
    
    
    
    525
    
    
    
    12
    
    
    
    21,317Rentals and leases
    
    
    
    
    
    
    6,367
    
    
    
    212
    
    
    
    (1,093
    )
    
    
    5,486Other operating expenses
    
    
    
    
    
    
    36,317
    
    
    
    (1,677
    )
    
    
    3,422
    
    
    
    38,062Provision for doubtful accounts
    
    
    
    
    
    
    6,753
    
    
    
    250
    
    
    
    
    
    
    
    7,003Depreciation and amortization
    
    
    
    
    
    
    7,903
    
    
    
    630
    
    
    
    (61
    )
    
    
    8,472Interest expense
    
    
    21,909
    
    
    
    
    
    
    
    343
    
    
    
    
    
    
    
    22,25221,909
    
    
    
    330,582
    
    
    
    8,617
    
    
    
    2,205
    
    
    
    363,313(Loss) income from continuing operations before
income taxes
    
    
    (21,909
    )
    
    
    53,534
    
    
    
    3,971
    
    
    
    (2,490
     )
   
    
    33,106(Benefit from) provision for income taxes
    
    
    (8,297
    )
    
    
    20,273
    
    
    
    1,504
    
    
    
    (943
    )
    
    
    12,537(Loss) income from continuing operations
    
    
    (13,612
    )
    
    
    33,261
    
    
    
    2,467
    
    
    
    (1,547
    )
    
    
    20,569Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (244
    )
    
    
    
    
    
    
    
    
    
    
    (244
    )Net (loss) income
    
    $
    (13,612
    )
    
    $
    33,017
    
    
    $
    2,467
    
    
    $
    (1,547
    )
    
    $
    20,325
 13




---



##### Table of Contents



Condensed Consolidating Statement of Income
For the Nine Months Ended September 30, 2008
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    1,281,145
    
    
    $
    46,240
    
    
    $
    (7,271
    )
    
    $
    1,320,114Salaries, wages and employee benefits
    
    
    
    
    
    
    704,325
    
    
    
    21,450
    
    
    
    
    
    
    
    725,775Professional fees
    
    
    
    
    
    
    128,118
    
    
    
    5,741
    
    
    
    (56
    )
    
    
    133,803Supplies
    
    
    
    
    
    
    69,934
    
    
    
    1,835
    
    
    
    
    
    
    
    71,769Rentals and leases
    
    
    
    
    
    
    20,540
    
    
    
    298
    
    
    
    (3,185
    )
    
    
    17,653Other operating expenses
    
    
    
    
    
    
    117,732
    
    
    
    6,932
    
    
    
    (2,815
    )
    
    
    121,849Provision for doubtful accounts
    
    
    
    
    
    
    25,179
    
    
    
    797
    
    
    
    
    
    
    
    25,976Depreciation and amortization
    
    
    
    
    
    
    28,055
    
    
    
    1,745
    
    
    
    (230
    )
    
    
    29,570Interest expense
    
    
    58,523
    
    
    
    
    
    
    
    917
    
    
    
    
    
    
    
    59,44058,523
    
    
    
    1,093,883
    
    
    
    39,715
    
    
    
    (6,286
    )
    
    
    1,185,835(Loss) income from continuing operations
before
income taxes
    
    
    (58,523
    )
    
    
    187,262
    
    
    
    6,525
    
    
    
    (985
    )
    
    
    134,279(Benefit from) provision for income taxes
    
    
    (22,239
    )
    
    
    71,160
    
    
    
    2,479
    
    
    
    (374
    )
    
    
    51,026(Loss) income from continuing operations
    
    
    (36,284
    )
    
    
    116,102
    
    
    
    4,046
    
    
    
    (611
    )
    
    
    83,253Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (2,321
    )
    
    
    
    
    
    
    
    
    
    
    (2,321
    )Net (loss) income
    
    $
    (36,284
    )
    
    $
    113,781
    
    
    $
    4,046
    
    
    $
    (611
    )
    
    $
    80,932
 Condensed Consolidating Statement of Income
For the Nine Months Ended September 30, 2007
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    1,046,322
    
    
    $
    25,587
    
    
    $
    (9,344
    )
    
    $
    1,062,565Salaries, wages and employee benefits
    
    
    
    
    
    
    581,401
    
    
    
    8,671
    
    
    
    (1
    )
    
    
    590,071Professional fees
    
    
    
    
    
    
    102,380
    
    
    
    2,281
    
    
    
    (131
    )
    
    
    104,530Supplies
    
    
    
    
    
    
    57,469
    
    
    
    733
    
    
    
    (17
    )
    
    
    58,185Rentals and leases
    
    
    
    
    
    
    17,245
    
    
    
    244
    
    
    
    (2,928
    )
    
    
    14,561Other operating expenses
    
    
    
    
    
    
    101,420
    
    
    
    5,910
    
    
    
    (3,703
    )
    
    
    103,627Provision for doubtful accounts
    
    
    
    
    
    
    20,336
    
    
    
    535
    
    
    
    
    
    
    
    20,871Depreciation and amortization
    
    
    
    
    
    
    20,784
    
    
    
    1,286
    
    
    
    (182
    )
    
    
    21,888Interest expense
    
    
    52,824
    
    
    
    
    
    
    
    842
    
    
    
    
    
    
    
    53,666Loss on refinancing long-term debt
    
    
    8,179
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,17961,003
    
    
    
    901,035
    
    
    
    20,502
    
    
    
    (6,962
    )
    
    
    975,578(Loss) income from continuing operations
before
income taxes
    
    
    (61,003
    )
    
    
    145,287
    
    
    
    5,085
    
    
    
    (2,382
    )
    
    
    86,987(Benefit from) provision for income taxes
    
    
    (22,990
    )
    
    
    54,755
    
    
    
    1,916
    
    
    
    (898
    )
    
    
    32,783(Loss) income from continuing operations
    
    
    (38,013
    )
    
    
    90,532
    
    
    
    3,169
    
    
    
    (1,484
    )
    
    
    54,204Loss from discontinued operations, net
of taxes
    
    
    
    
    
    
    (1,147
    )
    
    
    
    
    
    
    
    
    
    
    (1,147
    )Net (loss) income
    
    $
    (38,013
    )
    
    $
    89,385
    
    
    $
    3,169
    
    
    $
    (1,484
    )
    
    $
    53,057
 14




---



##### Table of Contents



Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2008
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating activities:Net (loss) income
    
    $
    (36,284
    )
    
    $
    113,781
    
    
    $
    4,046
    
    
    $
    (611
    )
    
    $
    80,932Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    28,055
    
    
    
    1,745
    
    
    
    (230
    )
    
    
    29,570Amortization of loan costs and bond premium
    
    
    1,626
    
    
    
    
    
    
    
    34
    
    
    
    
    
    
    
    1,660Share-based compensation
    
    
    
    
    
    
    15,013
    
    
    
    
    
    
    
    
    
    
    
    15,013Change in income tax assets and liabilities
    
    
    
    
    
    
    (1,611
    )
    
    
    
    
    
    
    
    
    
    
    (1,611
    )Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    2,321
    
    
    
    
    
    
    
    
    
    
    
    2,321Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (29,531
    )
    
    
    (800
    )
    
    
    
    
    
    
    (30,331
    )Prepaids and other current assets
    
    
    
    
    
    
    15,394
    
    
    
    (16,411
    )
    
    
    
    
    
    
    (1,017
    )Accounts payable
    
    
    
    
    
    
    5,296
    
    
    
    (180
    )
    
    
    
    
    
    
    5,116Salaries and benefits payable
    
    
    
    
    
    
    4,800
    
    
    
    (162
    )
    
    
    
    
    
    
    4,638Accrued liabilities and other liabilities
    
    
    2,589
    
    
    
    (17,998
    )
    
    
    (774
    )
    
    
    
    
    
    
    (16,183
    )Net cash (used in) provided by continuing operating activities
    
    
    (32,069
    )
    
    
    135,520
    
    
    
    (12,502
    )
    
    
    (841
    )
    
    
    90,108Net cash used in discontinued operating activities
    
    
    
    
    
    
    (2,186
    )
    
    
    
    
    
    
    
    
    
    
    (2,186
    )Net cash (used in) provided by operating activities
    
    
    (32,069
    )
    
    
    133,334
    
    
    
    (12,502
    )
    
    
    (841
    )
    
    
    87,922Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (163,238
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (163,238
    )Capital purchases of property and equipment
    
    
    
    
    
    
    (80,251
    )
    
    
    (1,522
    )
    
    
    
    
    
    
    (81,773
    )Other assets
    
    
    
    
    
    
    727
    
    
    
    (447
    )
    
    
    
    
    
    
    280Net cash used in continuing investing activities
    
    
    (163,238
    )
    
    
    (79,524
    )
    
    
    (1,969
    )
    
    
    
    
    
    
    (244,731
    )Net cash provided by discontinued investing activities
    
    
    
    
    
    
    5,244
    
    
    
    
    
    
    
    
    
    
    
    5,244Net cash used in investing activities
    
    
    (163,238
    )
    
    
    (74,280
    )
    
    
    (1,969
    )
    
    
    
    
    
    
    (239,487
    )Financing activities:Net increase in revolving credit facility
    
    
    149,333
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    149,333Principal payments on long-term debt
    
    
    (3,668
    )
    
    
    
    
    
    
    (295
    )
    
    
    
    
    
    
    (3,963
    )Payment of loan and issuance costs
    
    
    (39
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39
    )Excess tax benefits from share-based payment arrangements
    
    
    1,902
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,902Net transfers to and from members
    
    
    38,457
    
    
    
    (42,796
    )
    
    
    3,498
    
    
    
    841
    
    
    
    Proceeds from exercises of common stock options
    
    
    9,322
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,322Net cash provided by (used in) financing activities
    
    
    195,307
    
    
    
    (42,796
    )
    
    
    3,203
    
    
    
    841
    
    
    
    156,555Net decrease in cash
    
    
    
    
    
    
    16,258
    
    
    
    (11,268
    )
    
    
    
    
    
    
    4,990Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    19,154
    
    
    
    20,816
    
    
    
    
    
    
    
    39,970Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    35,412
    
    
    $
    9,548
    
    
    $
    
    
    
    $
    44,960
 15




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##### Table of Contents



Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2007
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating activities:Net (loss) income
    
    $
    (38,013
    )
    
    $
    89,385
    
    
    $
    3,169
    
    
    $
    (1,484
    )
    
    $
    53,057Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    20,784
    
    
    
    1,286
    
    
    
    (182
    )
    
    
    21,888Amortization of loan costs and bond premium
    
    
    1,557
    
    
    
    
    
    
    
    34
    
    
    
    
    
    
    
    1,591Share-based compensation
    
    
    
    
    
    
    12,006
    
    
    
    
    
    
    
    
    
    
    
    12,006Loss on refinancing long-term debt
    
    
    8,179
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,179Change in income tax assets and liabilities
    
    
    
    
    
    
    8,219
    
    
    
    
    
    
    
    
    
    
    
    8,219Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    1,147
    
    
    
    
    
    
    
    
    
    
    
    1,147Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (20,862
    )
    
    
    59
    
    
    
    
    
    
    
    (20,803
    )Prepaids and other current assets
    
    
    
    
    
    
    9,500
    
    
    
    (10,028
    )
    
    
    2,494
    
    
    
    1,966Accounts payable
    
    
    
    
    
    
    (6,812
    )
    
    
    (101
    )
    
    
    
    
    
    
    (6,913
    )Salaries and benefits payable
    
    
    
    
    
    
    (243
    )
    
    
    (214
    )
    
    
    
    
    
    
    (457
    )Accrued liabilities and other liabilities
    
    
    7,860
    
    
    
    (11,533
    )
    
    
    6,520
    
    
    
    (2,494
    )
    
    
    353Net cash provided by (used in) continuing operating activities
    
    
    (20,417
    )
    
    
    101,591
    
    
    
    725
    
    
    
    (1,666
    )
    
    
    80,233Net cash used in discontinued operating activities
    
    
    
    
    
    
    504
    
    
    
    
    
    
    
    
    
    
    
    504Net cash provided by (used in) operating activities
    
    
    (20,417
    )
    
    
    102,095
    
    
    
    725
    
    
    
    (1,666
    )
    
    
    80,737Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (462,729
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (462,729
    )Capital purchases of property and equipment
    
    
    
    
    
    
    (48,030
    )
    
    
    (331
    )
    
    
    
    
    
    
    (48,361
    )Other assets
    
    
    
    
    
    
    (1,016
    )
    
    
    266
    
    
    
    
    
    
    
    (750
    )Net cash used in investing activities
    
    
    (462,729
    )
    
    
    (49,046
    )
    
    
    (65
    )
    
    
    
    
    
    
    (511,840
    )Financing activities:Net increase in revolving credit facility
    
    
    (11,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,000
    )Borrowings on long-term debt
    
    
    481,875
    
    
    
    

    
    
    
    
    
    
    
    
    
    
    
    481,875Principal payments on long-term debt
    
    
    (39,971
    )
    
    
    
    
    
    
    (249
    )
    
    
    
    
    
    
    (40,220
    )Payment of loan and issuance costs
    
    
    (6,603
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,603
    )Refinancing of long-term debt
    
    
    (7,127
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,127
    )Excess tax benefits from share-based payment arrangements
    
    
    4,072
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,072Net transfers to and from members
    
    
    47,965
    
    
    
    (52,210
    )
    
    
    2,579
    
    
    
    1,666
    
    
    
    Proceeds from exercises of common stock options
    
    
    13,935
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,935Net cash provided by (used in) financing activities
    
    
    483,146
    
    
    
    (52,210
    )
    
    
    2,330
    
    
    
    1,666
    
    
    
    434,932Net (decrease) increase in cash
    
    
    
    
    
    
    839
    
    
    
    2,990
    
    
    
    
    
    
    
    3,829Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    1,097
    
    
    
    17,423
    
    
    
    
    
    
    
    18,520Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    1,936
    
    
    $
    20,413
    
    
    $
    
    
    
    $
    22,349
 11 Fair Value Measurements
 Fair
Value Measurements
   16




---



##### Table of Contents



12. Recently Issued Accounting Pronouncements
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of SFAS 115
 Business Combinations Business Combinations
 Noncontrolling Interests in Consolidated Financial
Statementsan Amendment of ARB No. 51
 Disclosures about Derivative Instruments and Hedging
Activities  An Amendment of FASB Statement 133
 13. Riveredge Investigation
  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 ability to successfully integrate and improve the operations of acquired inpatient facilities;
    
    potential competition that alters or impedes our acquisition strategy by decreasing our ability to acquire additional
inpatient facilities on favorable terms;
    
    our substantial indebtedness and our ability to receive timely additional financing and refinance our revolving credit
facility 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 exposure to
claims and legal actions by patients and others;
    
    efforts by federal and state health care programs and managed care companies to reduce reimbursement rates for our
services;
    
    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;
    
    the potential adverse impact of government investigations and liabilities and other claims asserted against us;
    
    our ability to retain key employees who are instrumental to our successful operations;
    
    our ability to maintain favorable and continuing relationships with physicians who use our inpatient facilities;
    
    our ability to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act;
    
    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 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




---



##### Table of Contents



Overview
     Sources of Revenue
 Patient Service Revenue
  Other Revenue
  19




---



##### Table of Contents



Results of Operations
  For the Three Months Ended September 30,
    
    
    For the Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Revenue
    
    $
    448,015
    
    
    
    100.0
    %
    
    $
    396,419
    
    
    
    100.0
    %
    
    $
    1,320,114
    
    
    
    100.0
    %
    
    $
    1,062,565
    
    
    
    100.0
    %Salaries, wages, and employee benefits
(including share-based
compensation of
$4,935, $4,423, $15,013 and $12,006
for 2008 and 2007, respectively)
    
    
    245,578
    
    
    
    54.8
    %
    
    
    220,853
    
    
    
    55.7
    %
    
    
    725,775
    
    
    
    55.0
    %
    
    
    590,071
    
    
    
    55.5
    %Professional fees
    
    
    45,022
    
    
    
    10.1
    %
    
    
    39,868
    
    
    
    10.0
    %
    
    
    133,803
    
    
    
    10.1
    %
    
    
    104,530
    
    
    
    9.8
    %Supplies
    
    
    24,323
    
    
    
    5.4
    %
    
    
    21,317
    
    
    
    5.4
    %
    
    
    71,769
    
    
    
    5.4
    %
    
    
    58,185
    
    
    
    5.5
    %Provision for doubtful accounts
    
    
    10,254
    
    
    
    2.3
    %
    
    
    7,003
    
    
    
    1.8
    %
    
    
    25,976
    
    
    
    2.0
    %
    
    
    20,871
    
    
    
    2.0
    %Other operating expenses
    
    
    47,192
    
    
    
    10.5
    %
    
    
    43,548
    
    
    
    11.0
    %
    
    
    139,502
    
    
    
    10.6
    %
    
    
    118,188
    
    
    
    11.1
    %Depreciation and amortization
    
    
    10,171
    
    
    
    2.3
    %
    
    
    8,472
    
    
    
    2.1
    %
    
    
    29,570
    
    
    
    2.2
    %
    
    
    21,888
    
    
    
    2.1
    %Interest expense, net
    
    
    19,337
    
    
    
    4.3
    %
    
    
    22,252
    
    
    
    5.6
    %
    
    
    59,440
    
    
    
    4.5
    %
    
    
    53,666
    
    
    
    5.0
    %Loss on refinancing long-term debt
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    8,179
    
    
    
    0.8
    %Income from continuing operations before
income taxes
    
    
    46,138
    
    
    
    10.3
    %
    
    
    33,106
    
    
    
    8.4
    %
    
    
    134,279
    
    
    
    10.2
    %
    
    
    86,987
    
    
    
    8.2
    %Provision for income taxes
    
    
    17,533
    
    
    
    3.9
    %
    
    
    12,537
    
    
    
    3.2
    %
    
    
    51,026
    
    
    
    3.9
    %
    
    
    32,783
    
    
    
    3.1
    %Income from continuing operations
    
    $
    28,605
    
    
    
    6.4
    %
    
    $
    20,569
    
    
    
    5.2
    %
    
    $
    83,253
    
    
    
    6.3
    %
    
    $
    54,204
    
    
    
    5.1
    %
 Three Months Ended September 30, 2008 Compared To Three Months Ended September 30, 2007
  Three Months Ended September 30,
    
    %2008
    
    2007
    
    ChangeSame-facility results:Revenue (in thousands)
    
    $
    386,443
    
    
    $
    355,425
    
    
    
    8.7
    %Admissions
    
    
    39,555
    
    
    
    36,634
    
    
    
    8.0
    %Patient days
    
    
    660,703
    
    
    
    637,318
    
    
    
    3.7
    %Average length of stay
(in days)
    
    
    16.7
    
    
    
    17.4
    
    
    
    -4.0
    %Revenue per patient day
    
    $
    585
    
    
    $
    558
    
    
    
    4.8
    %Total facility results:Revenue (in thousands)
    
    $
    403,936
    
    
    $
    355,425
    
    
    
    13.6
    %Admissions
    
    
    41,816
    
    
    
    36,634
    
    
    
    14.1
    %Patient days
    
    
    691,147
    
    
    
    637,318
    
    
    
    8.4
    %Average length of stay
(in days)
    
    
    16.5
    
    
    
    17.4
    
    
    
    -5.2
    %Revenue per patient day
    
    $
    584
    
    
    $
    558
    
    
    
    4.7
    %
 Revenue
 Salaries, wages and employee benefits
 20




---



##### Table of Contents



Professional fees
 Supplies.
 Provision for doubtful accounts
 Other operating expenses
 Depreciation and amortization
 Interest expense, net
 Loss from discontinued operations, net of taxes
 21




---



##### Table of Contents



Nine Months Ended September 30, 2008 Compared To Nine Months Ended September 30, 2007
  Nine Months Ended September 30,
    
    %2008
    
    2007
    
    ChangeSame-facility results:Revenue (in thousands)
    
    $
    1,053,632
    
    
    $
    975,010
    
    
    
    8.1
    %Admissions
    
    
    107,832
    
    
    
    102,606
    
    
    
    5.1
    %Patient days
    
    
    1,814,171
    
    
    
    1,760,748
    
    
    
    3.0
    %Average length of stay
(in days)
    
    
    16.8
    
    
    
    17.2
    
    
    
    -2.3
    %Revenue per patient day
    
    $
    581
    
    
    $
    554
    
    
    
    4.9
    %Total facility results:Revenue (in thousands)
    
    $
    1,189,374
    
    
    $
    980,423
    
    
    
    21.3
    %Admissions
    
    
    124,837
    
    
    
    103,256
    
    
    
    20.9
    %Patient days
    
    
    2,068,166
    
    
    
    1,771,369
    
    
    
    16.8
    %Average length of stay
(in days)
    
    
    16.6
    
    
    
    17.2
    
    
    
    -3.5
    %Revenue per patient day
    
    $
    575
    
    
    $
    553
    
    
    
    4.0
    %
 Revenue
 Salaries, wages and employee benefits
 Professional fees
 Supplies.
 Provision for doubtful accounts
 22




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##### Table of Contents



Other operating expenses
 Depreciation and amortization
 Interest expense, net
 Loss from discontinued operations, net of taxes
 Liquidity and Capital Resources
     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 credit facility, expiring on December 21, 2009 and
bearing interest of 4.3% and 6.4% at September 30, 2008
and December 31, 2007, respectively
    
    $
    229,333
    
    
    $
    
    
    
    $
    229,333
    
    
    $
    
    
    
    $
    Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 5.6% and 6.8% at September 30,
2008
and December 31, 2007, respectively
    
    
    570,500
    
    
    
    4,687
    
    
    
    7,500
    
    
    
    558,313
    
    
    
    7 3/4% Notes
    
    
    476,012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    476,012Mortgage loans on facilities, maturing in 2036, 2037 and 2038
bearing fixed interest rates of 5.7% to 7.6%
    
    
    33,375
    
    
    
    416
    
    
    
    914
    
    
    
    1,035
    
    
    
    31,0101,309,220
    
    
    
    5,103
    
    
    
    237,747
    
    
    
    559,348
    
    
    
    507,022Lease and other obligations
    
    
    104,649
    
    
    
    34,407
    
    
    
    23,071
    
    
    
    12,263
    
    
    
    34,908Total contractual obligations
    
    $
    1,413,869
    
    
    $
    39,510
    
    
    $
    260,818
    
    
    $
    571,611
    
    
    $
    541,930
 
 (1)
    
    Excludes capital lease obligations, fair value of interest rate swap,
and other obligations totaling $9.2 million, which are included in
lease and other obligations. 3 4
 24




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##### Table of Contents



Critical Accounting Policies
  Allowance for Doubtful Accounts
    Allowances for Contractual Discounts
  Professional and General Liability
  25




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##### Table of Contents



Income Taxes
  Accounting for
Uncertainty in Income Taxes An
Interpretation of FASB Statement No. 109 ,
 Share-Based Compensation
 Share Based Payment
 
 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.
  26




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 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, 2005.3.5
    
    By-laws (incorporated by reference to Exhibit 3 to the Companys
Current Report on Form 8-K filed on November 6, 2007).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 27




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##### Table of Contents



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