##### 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, 2009
 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the transition period from  to
 Commission file number 0-20488
 Psychiatric Solutions, Inc.
  Delaware
    
    23-2491707(State or Other Jurisdiction of Incorporation or
    
    (I.R.S. Employer Identification No.)Organization)
 
 
 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




---



##### 



TABLE OF CONTENTS
 PAGEPART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008 (Unaudited)
    
    
    1Condensed Consolidated Statements of Income for the three and nine month periods ended
September 30, 2009 and 2008 (Unaudited)
    
    
    2Condensed Consolidated Statement of Stockholders Equity for the nine month period ended
September 30, 2009 (Unaudited)
    
    
    3Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 30,
2009 and 2008 (Unaudited)
    
    
    4Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    27PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 6. Exhibits
    
    
    27EX-10.1EX-31.1EX-31.2EX-32.1




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 PSYCHIATRIC SOLUTIONS, INC. 
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
 September 30,
    
    
    December 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    13,366
    
    
    $
    51,271Accounts receivable, less allowance for doubtful accounts
of $54,093 and $48,623 for 2009 and 2008, respectively
    
    
    252,005
    
    
    
    243,346Prepaids and other
    
    
    175,589
    
    
    
    184,364Total current assets
    
    
    440,960
    
    
    
    478,981Property and equipment, net of accumulated depreciation
    
    
    911,174
    
    
    
    825,144Cost in excess of net assets acquired
    
    
    1,154,054
    
    
    
    1,139,242Other assets
    
    
    65,936
    
    
    
    62,623Total assets
    
    $
    2,572,124
    
    
    $
    2,505,990LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    35,220
    
    
    $
    34,747Salaries and benefits payable
    
    
    88,308
    
    
    
    83,866Other accrued liabilities
    
    
    59,898
    
    
    
    80,577Current portion of long-term debt
    
    
    4,982
    
    
    
    34,414Total current liabilities
    
    
    188,408
    
    
    
    233,604Long-term debt, less current portion
    
    
    1,274,017
    
    
    
    1,280,006Deferred tax liability
    
    
    79,057
    
    
    
    69,471Other liabilities
    
    
    29,578
    
    
    
    28,067Total liabilities
    
    
    1,571,060
    
    
    
    1,611,148Redeemable noncontrolling interest
    
    
    4,583
    
    
    
    4,957Stockholders equity:Common stock, $0.01 par value, 125,000 shares authorized;
56,262 and 55,934 issued and outstanding for 2009
and 2008, respectively
    
    
    563
    
    
    
    559Additional paid-in capital
    
    
    622,124
    
    
    
    608,341Accumulated other comprehensive loss
    
    
    (828
    )
    
    
    (3,695
    )Retained earnings
    
    
    374,622
    
    
    
    284,680Total stockholders equity
    
    
    996,481
    
    
    
    889,885Total liabilities and stockholders equity
    
    $
    2,572,124
    
    
    $
    2,505,990
  1




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands except for per share amounts)
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue
    
    $
    455,310
    
    
    $
    431,713
    
    
    $
    1,348,534
    
    
    $
    1,273,408Salaries, wages and employee benefits (including share-based
compensation of $4,249, $4,935,
$13,525 and
$15,013 for the
respective three and nine month periods in 2009 and 2008)
    
    
    254,333
    
    
    
    238,479
    
    
    
    751,878
    
    
    
    705,778Professional fees
    
    
    42,258
    
    
    
    41,117
    
    
    
    125,017
    
    
    
    121,964Supplies
    
    
    23,358
    
    
    
    23,784
    
    
    
    70,063
    
    
    
    70,228Rentals and leases
    
    
    5,073
    
    
    
    5,078
    
    
    
    15,273
    
    
    
    15,846Other operating expenses
    
    
    44,881
    
    
    
    39,737
    
    
    
    127,439
    
    
    
    117,505Provision for doubtful accounts
    
    
    9,798
    
    
    
    10,129
    
    
    
    26,542
    
    
    
    25,830Depreciation and amortization
    
    
    11,498
    
    
    
    9,792
    
    
    
    33,084
    
    
    
    28,687Interest expense
    
    
    18,607
    
    
    
    18,648
    
    
    
    53,432
    
    
    
    57,688409,806
    
    
    
    386,764
    
    
    
    1,202,728
    
    
    
    1,143,526Income from continuing operations before income taxes
    
    
    45,504
    
    
    
    44,949
    
    
    
    145,806
    
    
    
    129,882Provision for income taxes
    
    
    17,431
    
    
    
    16,958
    
    
    
    55,714
    
    
    
    49,188Income from continuing operations
    
    
    28,073
    
    
    
    27,991
    
    
    
    90,092
    
    
    
    80,694Income (loss) from discontinued operations, net of income tax
(benefit from) provision for of $(57), $566, $85 and $1,847 for the
respective three and nine month periods of 2009 and 2008
    
    
    72
    
    
    
    (1,224
    )
    
    
    188
    
    
    
    880Net income
    
    
    28,145
    
    
    
    26,767
    
    
    
    90,280
    
    
    
    81,574Less: Net income attributable to noncontrolling interest
    
    
    7
    
    
    
    (390
    )
    
    
    (338
    )
    
    
    (642
    )Net income attributable to PSI stockholders
    
    $
    28,152
    
    
    $
    26,377
    
    
    $
    89,942
    
    
    $
    80,932Basic earnings per share:Income from continuing operations attributable to PSI stockholders
    
    $
    0.51
    
    
    $
    0.50
    
    
    $
    1.62
    
    
    $
    1.45Income (loss) from discontinued operations, net of taxes
    
    
    
    
    
    
    (0.02
    )
    
    
    
    
    
    
    0.01Net income attributable to PSI stockholders
    
    $
    0.51
    
    
    $
    0.48
    
    
    $
    1.62
    
    
    $
    1.46Diluted earnings per share:Income from continuing operations attributable to PSI stockholders
    
    $
    0.50
    
    
    $
    0.49
    
    
    $
    1.60
    
    
    $
    1.42Income (loss) from discontinued operations, net of taxes
    
    
    
    
    
    
    (0.02
    )
    
    
    
    
    
    
    0.02Net income attributable to PSI stockholders
    
    $
    0.50
    
    
    $
    0.47
    
    
    $
    1.60
    
    
    $
    1.44Shares used in computing per share amounts:Basic
    
    
    55,579
    
    
    
    55,529
    
    
    
    55,545
    
    
    
    55,318Diluted
    
    
    56,340
    
    
    
    56,604
    
    
    
    56,077
    
    
    
    56,213Amounts attributable to PSI stockholders:Income from continuing operations, net of taxes
    
    $
    28,080
    
    
    $
    27,601
    
    
    $
    89,754
    
    
    $
    80,052Income (loss) from discontinued operations, net of taxes
    
    
    72
    
    
    
    (1,224
    )
    
    
    188
    
    
    
    880Net income
    
    $
    28,152
    
    
    $
    26,377
    
    
    $
    89,942
    
    
    $
    80,932
  2




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(Unaudited, in thousands)
 AccumulatedAdditional
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Comprehensive
    
    
    RetainedShares
    
    
    Amount
    
    
    Capital
    
    
    Loss
    
    
    Earnings
    
    
    TotalBalance at December 31, 2008
    
    
    55,934
    
    
    $
    559
    
    
    $
    608,341
    
    
    $
    (3,695
    )
    
    $
    284,680
    
    
    $
    889,885Comprehensive income:Net income attributable to PSI stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89,942
    
    
    
    89,942Change in fair value of interest rate
swap, net of tax expense of $1,920
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,867
    
    
    
    
    
    
    
    2,867Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    92,809Share-based compensation
    
    
    
    
    
    
    
    
    
    
    13,525
    
    
    
    
    
    
    
    
    
    
    
    13,525Repurchase of common stock upon restricted
stock vesting
    
    
    (37
    )
    
    
    
    
    
    
    (992
    )
    
    
    
    
    
    
    
    
    
    
    (992
    )Exercise of stock options and
grants of restricted stock, net
of issuance costs
    
    
    365
    
    
    
    4
    
    
    
    1,042
    
    
    
    
    
    
    
    
    
    
    
    1,046Income tax effect of stock option
exercises
    
    
    
    
    
    
    
    
    
    
    208
    
    
    
    
    
    
    
    
    
    
    
    208Balance at September 30, 2009
    
    
    56,262
    
    
    $
    563
    
    
    $
    622,124
    
    
    $
    (828
    )
    
    $
    374,622
    
    
    $
    996,481
  3




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 Nine Months Ended September 30,2009
    
    
    2008Operating activities:Net income
    
    $
    90,280
    
    
    $
    81,574Adjustments to reconcile net income to net cash provided by
continuing operating activities:Depreciation and amortization
    
    
    33,084
    
    
    
    28,687Amortization of loan costs and bond discount
    
    
    3,574
    
    
    
    1,660Share-based compensation
    
    
    13,525
    
    
    
    15,013Change in income tax assets and liabilities
    
    
    15,624
    
    
    
    (1,611
    )Income from discontinued operations, net of taxes
    
    
    (188
    )
    
    
    (880
    )Changes in operating assets and liabilities,
net of effect of acquisitions:Accounts receivable
    
    
    (4,570
    )
    
    
    (30,400
    )Prepaids and other current assets
    
    
    808
    
    
    
    2,907Accounts payable
    
    
    (1,716
    )
    
    
    5,244Salaries and benefits payable
    
    
    3,383
    
    
    
    4,083Accrued liabilities and other liabilities
    
    
    1,057
    
    
    
    (21,220
    )Net cash provided by continuing operating activities
    
    
    154,861
    
    
    
    85,057Net cash provided by discontinued operating activities
    
    
    127
    
    
    
    2,865Net cash provided by operating activities
    
    
    154,988
    
    
    
    87,922Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (32,708
    )
    
    
    (118,468
    )Cash paid for real estate acquisition
    
    
    (18,996
    )
    
    
    Capital purchases of property and equipment
    
    
    (95,611
    )
    
    
    (80,558
    )Other assets
    
    
    387
    
    
    
    280Net cash used in continuing investing activities
    
    
    (146,928
    )
    
    
    (198,746
    )Net cash used in discontinued investing activities
    
    
    
    
    
    
    (40,741
    )Net cash used in investing activities
    
    
    (146,928
    )
    
    
    (239,487
    )Financing activities:Net (decrease) increase in revolving credit facility
    
    
    (138,374
    )
    
    
    149,333Borrowings on long-term debt
    
    
    106,500
    
    
    
    Principal payments on long-term debt
    
    
    (3,823
    )
    
    
    (3,963
    )Payment of loan and issuance costs
    
    
    (9,826
    )
    
    
    (39
    )Distributions to noncontrolling interests
    
    
    (723
    )
    
    
    Excess tax benefits from share-based payment arrangements
    
    
    208
    
    
    
    1,902Repurchase of common stock upon restricted stock vesting
    
    
    (992
    )
    
    
    (271
    )Proceeds from exercises of common stock options
    
    
    1,065
    
    
    
    9,593Net cash (used in) provided by financing activities
    
    
    (45,965
    )
    
    
    156,555Net (decrease) increase in cash
    
    
    (37,905
    )
    
    
    4,990Cash and cash equivalents at beginning of the period
    
    
    51,271
    
    
    
    39,970Cash and cash equivalents at end of the period
    
    $
    13,366
    
    
    $
    44,960Effect of Acquisitions:Assets acquired, net of cash acquired
    
    $
    38,936
    
    
    $
    123,231Liabilities assumed
    
    
    (6,228
    )
    
    
    (4,763
    )Cash paid for acquisitions, net of cash acquired
    
    $
    32,708
    
    
    $
    118,468
  4




---



##### Table of Contents



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




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2009
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator:Basic and diluted earnings per share:Income from continuing operations attributable to PSI stockholders
    
    $
    28,080
    
    
    $
    27,601
    
    
    $
    89,754
    
    
    $
    80,052Income (loss) from discontinued operations, net of taxes
    
    
    72
    
    
    
    (1,224
    )
    
    
    188
    
    
    
    880Net income attributable to PSI stockholders
    
    $
    28,152
    
    
    $
    26,377
    
    
    $
    89,942
    
    
    $
    80,932Denominator:Weighted average shares outstanding for basic earnings per share
    
    
    55,579
    
    
    
    55,529
    
    
    
    55,545
    
    
    
    55,318Effects of dilutive stock options and restriced stock outstanding
    
    
    761
    
    
    
    1,075
    
    
    
    532
    
    
    
    895Shares used in computing diluted earnings per common share
    
    
    56,340
    
    
    
    56,604
    
    
    
    56,077
    
    
    
    56,213Basic earnings per share:Income from continuing operations attributable to PSI stockholders
    
    $
    0.51
    
    
    $
    0.50
    
    
    $
    1.62
    
    
    $
    1.45Income (loss) from discontinued operations, net of taxes
    
    
    
    
    
    
    (0.02
    )
    
    
    
    
    
    
    0.01Net income attributable to PSI stockholders
    
    $
    0.51
    
    
    $
    0.48
    
    
    $
    1.62
    
    
    $
    1.46Diluted earnings per share:Income from continuing operations attributable to PSI stockholders
    
    $
    0.50
    
    
    $
    0.49
    
    
    $
    1.60
    
    
    $
    1.42Income (loss) from discontinued operations, net of taxes
    
    
    
    
    
    
    (0.02
    )
    
    
    
    
    
    
    0.02Net income attributable to PSI stockholders
    
    $
    0.50
    
    
    $
    0.47
    
    
    $
    1.60
    
    
    $
    1.44
 4. Share-Based Compensation
      5. Acquisitions
  6




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2009
     6. Long-term debt
  September 30,
    
    
    December 31,2009
    
    
    2008Senior credit facility:Revolving line of credit facility, expiring on December 31, 2011
and bearing interest of 5.6% and 3.4% at September 30, 2009
and December 31, 2008, respectively
    
    $
    90,959
    
    
    $
    229,333Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 2.0% and 3.1% at September 30, 2009
and December 31, 2008, respectively
    
    
    565,812
    
    
    
    568,6257 3/4% Notes
    
    
    582,442
    
    
    
    475,841Mortgage loans on facilities, maturing in 2036, 2037 and 2038
bearing fixed interest rates of 5.7% to 7.6%
    
    
    32,959
    
    
    
    33,273Other
    
    
    6,827
    
    
    
    7,3481,278,999
    
    
    
    1,314,420Less current portion
    
    
    4,982
    
    
    
    34,414Long-term debt
    
    $
    1,274,017
    
    
    $
    1,280,006
 Senior Credit Facility
    7




---



##### Table of Contents



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




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2009
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue
    
    $
    15,294
    
    
    $
    18,563
    
    
    $
    47,996
    
    
    $
    59,285Operating expenses
    
    
    15,279
    
    
    
    17,739
    
    
    
    47,723
    
    
    
    54,697Loss on disposal and assets held for sale
    
    
    
    
    
    
    1,482
    
    
    
    
    
    
    
    1,86115,279
    
    
    
    19,221
    
    
    
    47,723
    
    
    
    56,558Income (loss) from discontinued operations before income taxes
    
    
    15
    
    
    
    (658
    )
    
    
    273
    
    
    
    2,727(Benefit from) provision for income taxes
    
    
    (57
    )
    
    
    566
    
    
    
    85
    
    
    
    1,847Income (loss) from discontinued operations, net of income taxes
    
    $
    72
    
    
    $
    (1,224
    )
    
    $
    188
    
    
    $
    880
  9. Disclosures About Reportable Segments
   9




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2009
 Three Months Ended September 30, 2009
 Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    422,544
    
    
    $
    32,766
    
    
    $
    
    
    
    $
    455,310Adjusted EBITDA
    
    $
    86,724
    
    
    $
    2,856
    
    
    $
    (9,722
    )
    
    $
    79,858Interest expense
    
    
    7,138
    
    
    
    79
    
    
    
    11,390
    
    
    
    18,607Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    17,431
    
    
    
    17,431Depreciation and amortization
    
    
    10,077
    
    
    
    1,014
    
    
    
    407
    
    
    
    11,498Inter-segment expenses
    
    
    12,974
    
    
    
    1,182
    
    
    
    (14,156
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    4,249
    
    
    
    4,249Income (loss) from continuing operations
    
    
    56,535
    
    
    
    581
    
    
    
    (29,043
    )
    
    
    28,073Less: Income attributable to noncontrolling interest
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    7Income (loss) from continuing operations attributable to
PSI stockholders
    
    $
    56,542
    
    
    $
    581
    
    
    $
    (29,043
    )
    
    $
    28,080Total assets
    
    $
    2,329,700
    
    
    $
    60,184
    
    
    $
    182,240
    
    
    $
    2,572,124
 Three Months Ended September 30, 2008
 Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    401,321
    
    
    $
    30,392
    
    
    $
    
    
    
    $
    431,713Adjusted EBITDA
    
    $
    84,184
    
    
    $
    5,550
    
    
    $
    (11,410
    )
    
    $
    78,324Interest expense
    
    
    7,078
    
    
    
    (453
    )
    
    
    12,023
    
    
    
    18,648Provision for income taxes
    
    
    
    
    
    
    (844
    )
    
    
    17,802
    
    
    
    16,958Depreciation and amortization
    
    
    8,241
    
    
    
    1,159
    
    
    
    392
    
    
    
    9,792Inter-segment expenses
    
    
    15,850
    
    
    
    1,445
    
    
    
    (17,295
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    4,935
    
    
    
    4,935Income (loss) from continuing operations
    
    
    53,015
    
    
    
    4,243
    
    
    
    (29,267
    )
    
    
    27,991Less: Income attributable to noncontrolling interest
    
    
    (390
    )
    
    
    
    
    
    
    
    
    
    
    (390
    )Income (loss) from continuing operations attributable to
PSI stockholders
    
    $
    52,625
    
    
    $
    4,243
    
    
    $
    (29,267
    )
    
    $
    27,601Total assets
    
    $
    2,203,581
    
    
    $
    70,929
    
    
    $
    179,392
    
    
    $
    2,453,902
 10




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2009
 Nine Months Ended September 30, 2009
 Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    1,254,444
    
    
    $
    94,090
    
    
    $
    
    
    
    $
    1,348,534Adjusted EBITDA
    
    $
    267,702
    
    
    $
    11,897
    
    
    $
    (33,752
    )
    
    $
    245,847Interest expense
    
    
    21,486
    
    
    
    (866
    )
    
    
    32,812
    
    
    
    53,432Provision for income taxes
    
    
    
    
    
    
    (1,229
    )
    
    
    56,943
    
    
    
    55,714Depreciation and amortization
    
    
    28,624
    
    
    
    3,260
    
    
    
    1,200
    
    
    
    33,084Inter-segment expenses
    
    
    44,793
    
    
    
    3,994
    
    
    
    (48,787
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    13,525
    
    
    
    13,525Income (loss) from continuing operations
    
    
    172,799
    
    
    
    6,738
    
    
    
    (89,445
    )
    
    
    90,092Less: Income attributable to noncontrolling interest
    
    
    (338
    )
    
    
    
    
    
    
    
    
    
    
    (338
    )Income (loss) from continuing operations attributable to
PSI stockholders
    
    $
    172,461
    
    
    $
    6,738
    
    
    $
    (89,445
    )
    
    $
    89,754Total assets
    
    $
    2,329,700
    
    
    $
    60,184
    
    
    $
    182,240
    
    
    $
    2,572,124
 Nine Months Ended September 30, 2008
 Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    1,180,209
    
    
    $
    93,199
    
    
    $
    
    
    
    $
    1,273,408Adjusted EBITDA
    
    $
    250,401
    
    
    $
    17,154
    
    
    $
    (36,285
    )
    
    $
    231,270Interest expense
    
    
    21,067
    
    
    
    (948
    )
    
    
    37,569
    
    
    
    57,688Provision for income taxes
    
    
    
    
    
    
    (2,106
    )
    
    
    51,294
    
    
    
    49,188Depreciation and amortization
    
    
    24,119
    
    
    
    3,435
    
    
    
    1,133
    
    
    
    28,687Inter-segment expenses
    
    
    47,407
    
    
    
    4,409
    
    
    
    (51,816
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    15,013
    
    
    
    15,013Income (loss) from continuing operations
    
    
    157,808
    
    
    
    12,364
    
    
    
    (89,478
    )
    
    
    80,694Less: Income attributable to noncontrolling interest
    
    
    (642
    )
    
    
    
    
    
    
    
    
    
    
    (642
    )Income (loss) from continuing operations attributable to
PSI stockholders
    
    $
    157,166
    
    
    $
    12,364
    
    
    $
    (89,478
    )
    
    $
    80,052Total assets
    
    $
    2,203,581
    
    
    $
    70,929
    
    
    $
    179,392
    
    
    $
    2,453,902
 10. Financial Information for the Company and Its Subsidiaries
  11




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2009
 Condensed Consolidating Balance Sheet
As of September 30, 2009
(in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    3,801
    
    
    $
    9,565
    
    
    $
    
    
    
    $
    13,366Accounts receivable, net
    
    
    
    
    
    
    243,833
    
    
    
    8,172
    
    
    
    
    
    
    
    252,005Prepaids and other
    
    
    
    
    
    
    160,424
    
    
    
    19,251
    
    
    
    (4,086
    )
    
    
    175,589Total current assets
    
    
    
    
    
    
    408,058
    
    
    
    36,988
    
    
    
    (4,086
    )
    
    
    440,960Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    858,710
    
    
    
    61,755
    
    
    
    (9,291
    )
    
    
    911,174Cost in excess of net assets acquired
    
    
    
    
    
    
    1,154,054
    
    
    
    
    
    
    
    
    
    
    
    1,154,054Investment in subsidiaries
    
    
    1,607,232
    
    
    
    (485,154
    )
    
    
    (21,330
    )
    
    
    (1,100,748
    )
    
    
    Other assets
    
    
    19,002
    
    
    
    39,626
    
    
    
    26,644
    
    
    
    (19,336
    )
    
    
    65,936Total assets
    
    $
    1,626,234
    
    
    $
    1,975,294
    
    
    $
    104,057
    
    
    $
    (1,133,461
    )
    
    $
    2,572,124Current liabilities:Accounts payable
    
    $
    
    
    
    $
    34,280
    
    
    $
    1,008
    
    
    $
    (68
    )
    
    $
    35,220Salaries and benefits payable
    
    
    
    
    
    
    86,771
    
    
    
    1,537
    
    
    
    
    
    
    
    88,308Other accrued liabilities
    
    
    18,392
    
    
    
    40,903
    
    
    
    6,759
    
    
    
    (6,156
    )
    
    
    59,898Current portion of long-term debt
    
    
    4,539
    
    
    
    
    
    
    
    443
    
    
    
    
    
    
    
    4,982Total current liabilities
    
    
    22,931
    
    
    
    161,954
    
    
    
    9,747
    
    
    
    (6,224
    )
    
    
    188,408Long-term debt, less current portion
    
    
    1,274,017
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,274,017Deferred tax liability
    
    
    
    
    
    
    79,057
    
    
    
    
    
    
    
    
    
    
    
    79,057Other liabilities
    
    
    2,296
    
    
    
    (38,362
    )
    
    
    67,210
    
    
    
    (1,566
    )
    
    
    29,578Total liabilities
    
    
    1,299,244
    
    
    
    202,649
    
    
    
    76,957
    
    
    
    (7,790
    )
    
    
    1,571,060Redeemable noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,583
    
    
    
    4,583Total stockholders equity
    
    
    326,990
    
    
    
    1,772,645
    
    
    
    27,100
    
    
    
    (1,130,254
    )
    
    
    996,481Total liabilities and stockholders equity
    
    $
    1,626,234
    
    
    $
    1,975,294
    
    
    $
    104,057
    
    
    $
    (1,133,461
    )
    
    $
    2,572,124
 Condensed Consolidating Balance Sheet
As of December 31, 2008
(in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    39,881
    
    
    $
    11,390
    
    
    $
    
    
    
    $
    51,271Accounts receivable, net
    
    
    
    
    
    
    235,623
    
    
    
    7,792
    
    
    
    (69
    )
    
    
    243,346Prepaids and other
    
    
    
    
    
    
    169,204
    
    
    
    15,595
    
    
    
    (435
    )
    
    
    184,364Total current assets
    
    
    
    
    
    
    444,708
    
    
    
    34,777
    
    
    
    (504
    )
    
    
    478,981Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    777,021
    
    
    
    57,647
    
    
    
    (9,524
    )
    
    
    825,144Cost in excess of net assets acquired
    
    
    
    
    
    
    1,139,242
    
    
    
    
    
    
    
    
    
    
    
    1,139,242Investment in subsidiaries
    
    
    1,665,813
    
    
    
    (545,345
    )
    
    
    (23,526
    )
    
    
    (1,096,942
    )
    
    
    Other assets
    
    
    12,633
    
    
    
    (1,046
    )
    
    
    27,971
    
    
    
    23,065
    
    
    
    62,623Total assets
    
    $
    1,678,446
    
    
    $
    1,814,580
    
    
    $
    96,869
    
    
    $
    (1,083,905
    )
    
    $
    2,505,990Current liabilities:Accounts payable
    
    $
    
    
    
    $
    33,951
    
    
    $
    865
    
    
    $
    (69
    )
    
    $
    34,747Salaries and benefits payable
    
    
    
    
    
    
    82,139
    
    
    
    1,727
    
    
    
    
    
    
    
    83,866Other accrued liabilities
    
    
    28,786
    
    
    
    51,524
    
    
    
    3,798
    
    
    
    (3,531
    )
    
    
    80,577Current portion of long-term debt
    
    
    33,991
    
    
    
    
    
    
    
    423
    
    
    
    
    
    
    
    34,414Total current liabilities
    
    
    62,777
    
    
    
    167,614
    
    
    
    6,813
    
    
    
    (3,600
    )
    
    
    233,604Long-term debt, less current portion
    
    
    1,247,156
    
    
    
    
    
    
    
    32,850
    
    
    
    
    
    
    
    1,280,006Deferred tax liability
    
    
    
    
    
    
    69,471
    
    
    
    
    
    
    
    
    
    
    
    69,471Other liabilities
    
    
    12,433
    
    
    
    (62,056
    )
    
    
    31,688
    
    
    
    46,002
    
    
    
    28,067Total liabilities
    
    
    1,322,366
    
    
    
    175,029
    
    
    
    71,351
    
    
    
    42,402
    
    
    
    1,611,148Redeemable noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,957
    
    
    
    4,957Total stockholders equity
    
    
    356,080
    
    
    
    1,639,551
    
    
    
    25,518
    
    
    
    (1,131,264
    )
    
    
    889,885Total liabilities and stockholders equity
    
    $
    1,678,446
    
    
    $
    1,814,580
    
    
    $
    96,869
    
    
    $
    (1,083,905
    )
    
    $
    2,505,990
 12




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2009
 Condensed Consolidating Statement of Income
For the Three Months Ended September 30, 2009
(in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    443,134
    
    
    $
    17,009
    
    
    $
    (4,833
    )
    
    $
    455,310Salaries, wages and employee benefits
    
    
    
    
    
    
    247,171
    
    
    
    7,162
    
    
    
    
    
    
    
    254,333Professional fees
    
    
    
    
    
    
    40,275
    
    
    
    2,021
    
    
    
    (38
    )
    
    
    42,258Supplies
    
    
    
    
    
    
    22,783
    
    
    
    575
    
    
    
    
    
    
    
    23,358Rentals and leases
    
    
    
    
    
    
    6,031
    
    
    
    125
    
    
    
    (1,083
    )
    
    
    5,073Other operating expenses
    
    
    
    
    
    
    43,927
    
    
    
    3,948
    
    
    
    (2,994
    )
    
    
    44,881Provision for doubtful accounts
    
    
    
    
    
    
    9,477
    
    
    
    321
    
    
    
    
    
    
    
    9,798Depreciation and amortization
    
    
    
    
    
    
    11,009
    
    
    
    566
    
    
    
    (77
    )
    
    
    11,498Interest expense
    
    
    18,157
    
    
    
    
    
    
    
    450
    
    
    
    
    
    
    
    18,60718,157
    
    
    
    380,673
    
    
    
    15,168
    
    
    
    (4,192
    )
    
    
    409,806(Loss) income from continuing operations before income taxes
    
    
    (18,157
    )
    
    
    62,461
    
    
    
    1,841
    
    
    
    (641
    )
    
    
    45,504(Benefit from) provision for income taxes
    
    
    (6,955
    )
    
    
    23,927
    
    
    
    705
    
    
    
    (246
    )
    
    
    17,431(Loss) income from continuing operations
    
    
    (11,202
    )
    
    
    38,534
    
    
    
    1,136
    
    
    
    (395
    )
    
    
    28,073Income from discontinued operations, net of tax benefit
    
    
    
    
    
    
    72
    
    
    
    
    
    
    
    
    
    
    
    72Net (loss) income
    
    
    (11,202
    )
    
    
    38,606
    
    
    
    1,136
    
    
    
    (395
    )
    
    
    28,145Less: Net income attributable to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    7Net (loss) income attributable to PSI stockholders
    
    $
    (11,202
    )
    
    $
    38,606
    
    
    $
    1,136
    
    
    $
    (388
    )
    
    $
    28,152
 Condensed Consolidating Statement of Income
For the Three Months Ended September 30, 2008
(in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    417,663
    
    
    $
    16,987
    
    
    $
    (2,937
    )
    
    $
    431,713Salaries, wages and employee benefits
    
    
    
    
    
    
    231,365
    
    
    
    7,114
    
    
    
    
    
    
    
    238,479Professional fees
    
    
    
    
    
    
    39,304
    
    
    
    1,839
    
    
    
    (26
    )
    
    
    41,117Supplies
    
    
    
    
    
    
    23,156
    
    
    
    628
    
    
    
    
    
    
    
    23,784Rentals and leases
    
    
    
    
    
    
    6,022
    
    
    
    100
    
    
    
    (1,044
    )
    
    
    5,078Other operating expenses
    
    
    
    
    
    
    38,166
    
    
    
    2,686
    
    
    
    (1,115
    )
    
    
    39,737Provision for doubtful accounts
    
    
    
    
    
    
    9,773
    
    
    
    356
    
    
    
    
    
    
    
    10,129Depreciation and amortization
    
    
    
    
    
    
    9,358
    
    
    
    511
    
    
    
    (77
    )
    
    
    9,792Interest expense
    
    
    18,760
    
    
    
    
    
    
    
    (112
    )
    
    
    
    
    
    
    18,64818,760
    
    
    
    357,144
    
    
    
    13,122
    
    
    
    (2,262
    )
    
    
    386,764(Loss) income from continuing operations before income taxes
    
    
    (18,760
    )
    
    
    60,519
    
    
    
    3,865
    
    
    
    (675
    )
    
    
    44,949(Benefit from) provision for income taxes
    
    
    (7,078
    )
    
    
    22,833
    
    
    
    1,458
    
    
    
    (255
    )
    
    
    16,958(Loss) income from continuing operations
    
    
    (11,682
    )
    
    
    37,686
    
    
    
    2,407
    
    
    
    (420
    )
    
    
    27,991Loss from discontinued operations, net of tax benefit
    
    
    
    
    
    
    (1,224
    )
    
    
    
    
    
    
    
    
    
    
    (1,224
    )Net (loss) income
    
    
    (11,682
    )
    
    
    36,462
    
    
    
    2,407
    
    
    
    (420
    )
    
    
    26,767Less: Net income attributable to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (390
    )
    
    
    (390
    )Net (loss) income attributable to PSI stockholders
    
    $
    (11,682
    )
    
    $
    36,462
    
    
    $
    2,407
    
    
    $
    (810
    )
    
    $
    26,377
 13




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2009
 Condensed Consolidating Statement of Income
For the Nine Months Ended September 30, 2009
(in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    1,311,759
    
    
    $
    45,839
    
    
    $
    (9,064
    )
    
    $
    1,348,534Salaries, wages and employee benefits
    
    
    
    
    
    
    731,152
    
    
    
    20,726
    
    
    
    
    
    
    
    751,878Professional fees
    
    
    
    
    
    
    119,420
    
    
    
    8,598
    
    
    
    (3,001
    )
    
    
    125,017Supplies
    
    
    
    
    
    
    68,280
    
    
    
    1,783
    
    
    
    
    
    
    
    70,063Rentals and leases
    
    
    
    
    
    
    17,982
    
    
    
    491
    
    
    
    (3,200
    )
    
    
    15,273Other operating expenses
    
    
    
    
    
    
    124,257
    
    
    
    7,994
    
    
    
    (4,812
    )
    
    
    127,439Provision for doubtful accounts
    
    
    
    
    
    
    25,804
    
    
    
    738
    
    
    
    
    
    
    
    26,542Depreciation and amortization
    
    
    
    
    
    
    31,657
    
    
    
    1,659
    
    
    
    (232
    )
    
    
    33,084Interest expense
    
    
    52,143
    
    
    
    
    
    
    
    1,290
    
    
    
    (1
    )
    
    
    53,43252,143
    
    
    
    1,118,552
    
    
    
    43,279
    
    
    
    (11,246
    )
    
    
    1,202,728(Loss) income from continuing operations before income taxes
    
    
    (52,143
    )
    
    
    193,207
    
    
    
    2,560
    
    
    
    2,182
    
    
    
    145,806(Benefit from) provision for income taxes
    
    
    (19,924
    )
    
    
    73,826
    
    
    
    978
    
    
    
    834
    
    
    
    55,714(Loss) income from continuing operations
    
    
    (32,219
    )
    
    
    119,381
    
    
    
    1,582
    
    
    
    1,348
    
    
    
    90,092Income from discontinued operations, net of tax benefit
    
    
    
    
    
    
    188
    
    
    
    
    
    
    
    
    
    
    
    188Net (loss) income
    
    
    (32,219
    )
    
    
    119,569
    
    
    
    1,582
    
    
    
    1,348
    
    
    
    90,280Less: Net income attributable to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (338
    )
    
    
    (338
    )Net (loss) income attributable to PSI stockholders
    
    $
    (32,219
    )
    
    $
    119,569
    
    
    $
    1,582
    
    
    $
    1,010
    
    
    $
    89,942
 Condensed Consolidating Statement of Income
For the Nine Months Ended September 30, 2008
(in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    1,234,439
    
    
    $
    46,240
    
    
    $
    (7,271
    )
    
    $
    1,273,408Salaries, wages and employee benefits
    
    
    
    
    
    
    684,328
    
    
    
    21,450
    
    
    
    
    
    
    
    705,778Professional fees
    
    
    
    
    
    
    116,279
    
    
    
    5,741
    
    
    
    (56
    )
    
    
    121,964Supplies
    
    
    
    
    
    
    68,393
    
    
    
    1,835
    
    
    
    
    
    
    
    70,228Rentals and leases
    
    
    
    
    
    
    18,733
    
    
    
    298
    
    
    
    (3,185
    )
    
    
    15,846Other operating expenses
    
    
    
    
    
    
    113,387
    
    
    
    6,932
    
    
    
    (2,814
    )
    
    
    117,505Provision for doubtful accounts
    
    
    
    
    
    
    25,033
    
    
    
    797
    
    
    
    
    
    
    
    25,830Depreciation and amortization
    
    
    
    
    
    
    27,172
    
    
    
    1,745
    
    
    
    (230
    )
    
    
    28,687Interest expense
    
    
    56,771
    
    
    
    
    
    
    
    917
    
    
    
    
    
    
    
    57,68856,771
    
    
    
    1,053,325
    
    
    
    39,715
    
    
    
    (6,285
    )
    
    
    1,143,526(Loss) income from continuing operations before income taxes
    
    
    (56,771
    )
    
    
    181,114
    
    
    
    6,525
    
    
    
    (986
    )
    
    
    129,882(Benefit from) provision for income taxes
    
    
    (21,500
    )
    
    
    68,590
    
    
    
    2,471
    
    
    
    (373
    )
    
    
    49,188(Loss) income from continuing operations
    
    
    (35,271
    )
    
    
    112,524
    
    
    
    4,054
    
    
    
    (613
    )
    
    
    80,694Income from discontinued operations, net of tax (benefit) provision
    
    
    
    
    
    
    880
    
    
    
    
    
    
    
    
    
    
    
    880Net (loss) income
    
    
    (35,271
    )
    
    
    113,404
    
    
    
    4,054
    
    
    
    (613
    )
    
    
    81,574Less: Net income attributable to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (642
    )
    
    
    (642
    )Net (loss) income attributable to PSI stockholders
    
    $
    (35,271
    )
    
    $
    113,404
    
    
    $
    4,054
    
    
    $
    (1,255
    )
    
    $
    80,932
 14




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2009
 Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2009
(in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating activities:Net (loss) income
    
    $
    (32,219
    )
    
    $
    119,569
    
    
    $
    1,582
    
    
    $
    1,348
    
    
    $
    90,280Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    
    
    
    
    31,657
    
    
    
    1,659
    
    
    
    (232
    )
    
    
    33,084Amortization of loan costs and bond discount
    
    
    3,574
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,574Share-based compensation
    
    
    
    
    
    
    13,525
    
    
    
    
    
    
    
    
    
    
    
    13,525Change in income tax assets and liabilities
    
    
    
    
    
    
    15,624
    
    
    
    
    
    
    
    
    
    
    
    15,624Income from discontinued operations, net of taxes
    
    
    
    
    
    
    (188
    )
    
    
    
    
    
    
    
    
    
    
    (188
    )Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (4,923
    )
    
    
    353
    
    
    
    
    
    
    
    (4,570
    )Prepaids and other current assets
    
    
    
    
    
    
    354
    
    
    
    454
    
    
    
    
    
    
    
    808Accounts payable
    
    
    
    
    
    
    (1,632
    )
    
    
    (84
    )
    
    
    
    
    
    
    (1,716
    )Salaries and benefits payable
    
    
    
    
    
    
    3,718
    
    
    
    (335
    )
    
    
    
    
    
    
    3,383Accrued liabilities and other liabilities
    
    
    
    
    
    
    4,242
    
    
    
    (3,185
    )
    
    
    
    
    
    
    1,057Net cash (used in) provided by continuing operating activities
    
    
    (28,645
    )
    
    
    181,946
    
    
    
    444
    
    
    
    1,116
    
    
    
    154,861Net cash provided by discontinued operating activities
    
    
    
    
    
    
    127
    
    
    
    
    
    
    
    
    
    
    
    127Net cash (used in) provided by operating activities
    
    
    (28,645
    )
    
    
    182,073
    
    
    
    444
    
    
    
    1,116
    
    
    
    154,988Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (32,708
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,708
    )Cash paid for real estate acquisition
    
    
    
    
    
    
    (18,996
    )
    
    
    
    
    
    
    
    
    
    
    (18,996
    )Capital purchases of property and equipment
    
    
    
    
    
    
    (104,694
    )
    
    
    9,083
    
    
    
    
    
    
    
    (95,611
    )Other assets
    
    
    
    
    
    
    (18,294
    )
    
    
    18,681
    
    
    
    
    
    
    
    387Net cash (used in) provided by investing activities
    
    
    (32,708
    )
    
    
    (141,984
    )
    
    
    27,764
    
    
    
    
    
    
    
    (146,928
    )Financing activities:Net decrease in revolving credit facility
    
    
    (138,374
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (138,374
    )Borrowings on long-term debt
    
    
    106,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106,500Principal payments on long-term debt
    
    
    (3,510
    )
    
    
    
    
    
    
    (313
    )
    
    
    
    
    
    
    (3,823
    )Payment of loan and issuance costs
    
    
    (9,826
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,826
    )Distributions to noncontrolling interests
    
    
    (723
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (723
    )Excess tax benefits from share-based payment arrangements
    
    
    208
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    208Repurchase of common stock upon restricted stock vesting
    
    
    (992
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (992
    )Net transfers to and from members
    
    
    107,005
    
    
    
    (76,169
    )
    
    
    (29,720
    )
    
    
    (1,116
    )
    
    
    Proceeds from exercises of common stock options
    
    
    1,065
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,065Net cash provided by (used in) financing activities
    
    
    61,353
    
    
    
    (76,169
    )
    
    
    (30,033
    )
    
    
    (1,116
    )
    
    
    (45,965
    )Net decrease in cash
    
    
    
    
    
    
    (36,080
    )
    
    
    (1,825
    )
    
    
    
    
    
    
    (37,905
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    39,881
    
    
    
    11,390
    
    
    
    
    
    
    
    51,271Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    3,801
    
    
    $
    9,565
    
    
    $
    
    
    
    $
    13,366
 15




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2009
 Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2008
(in thousands)
 CombinedSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    Total ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating activities:Net (loss) income
    
    $
    (35,271
    )
    
    $
    113,404
    
    
    $
    4,054
    
    
    $
    (613
    )
    
    $
    81,574Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    27,172
    
    
    
    1,745
    
    
    
    (230
    )
    
    
    28,687Amortization of loan costs and bond discount
    
    
    1,626
    
    
    
    
    
    
    
    34
    
    
    
    
    
    
    
    1,660Share-based compensation
    
    
    
    
    
    
    15,013
    
    
    
    
    
    
    
    
    
    
    
    15,013Change in income tax assets and liabilities
    
    
    
    
    
    
    (1,611
    )
    
    
    
    
    
    
    
    
    
    
    (1,611
    )Income from discontinued operations, net of taxes
    
    
    
    
    
    
    (880
    )
    
    
    
    
    
    
    
    
    
    
    (880
    )Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (29,600
    )
    
    
    (800
    )
    
    
    
    
    
    
    (30,400
    )Prepaids and other current assets
    
    
    
    
    
    
    19,318
    
    
    
    (16,411
    )
    
    
    
    
    
    
    2,907Accounts payable
    
    
    
    
    
    
    5,424
    
    
    
    (180
    )
    
    
    
    
    
    
    5,244Salaries and benefits payable
    
    
    
    
    
    
    4,245
    
    
    
    (162
    )
    
    
    
    
    
    
    4,083Accrued liabilities and other liabilities
    
    
    2,589
    
    
    
    (23,035
    )
    
    
    (774
    )
    
    
    
    
    
    
    (21,220
    )Net cash (used in) provided by continuing operating activities
    
    
    (31,056
    )
    
    
    129,450
    
    
    
    (12,494
    )
    
    
    (843
    )
    
    
    85,057Net cash provided by discontinued operating activities
    
    
    
    
    
    
    2,865
    
    
    
    
    
    
    
    
    
    
    
    2,865Net cash (used in) provided by operating activities
    
    
    (31,056
    )
    
    
    132,315
    
    
    
    (12,494
    )
    
    
    (843
    )
    
    
    87,922Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (118,468
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (118,468
    )Capital purchases of property and equipment
    
    
    
    
    
    
    (79,036
    )
    
    
    (1,522
    )
    
    
    
    
    
    
    (80,558
    )Other assets
    
    
    
    
    
    
    727
    
    
    
    (447
    )
    
    
    
    
    
    
    280Net cash used in continuing investing activities
    
    
    (118,468
    )
    
    
    (78,309
    )
    
    
    (1,969
    )
    
    
    
    
    
    
    (198,746
    )Net cash used in discontinued investing activities
    
    
    
    
    
    
    (40,741
    )
    
    
    
    
    
    
    
    
    
    
    (40,741
    )Net cash used in investing activities
    
    
    (118,468
    )
    
    
    (119,050
    )
    
    
    (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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,902Repurchase of common stock upon restricted stock vesting
    
    
    (271
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (271
    )Net transfers to and from members
    
    
    (7,326
    )
    
    
    2,993
    
    
    
    3,490
    
    
    
    843
    
    
    
    Proceeds from exercises of common stock options
    
    
    9,593
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,593Net cash provided by financing activities
    
    
    149,524
    
    
    
    2,993
    
    
    
    3,195
    
    
    
    843
    
    
    
    156,555Net increase (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
 11 Fair Value Measurements
  12. Recent Accounting Pronouncements
   16




---



##### Table of Contents



PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2009
    13. Contingencies
  14.
Subsequent Event
  17




---



##### 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;
    
    health care reform proposals that, if adopted, could adversely impact reimbursement rates for our services;
    
    economic downturn resulting in efforts by federal and state health care programs and managed care companies to reduce
reimbursement rates for our services;
    
    potential competition that alters or impedes our acquisition strategy by decreasing our ability to acquire additional
inpatient facilities on favorable terms;
    
    our ability to comply with applicable licensure and accreditation requirements;
    
    our ability to comply with extensive laws and government regulations related to billing, physician relationships, adequacy of
medical care and licensure;
    
    our ability to retain key employees who are instrumental to our operations;
    
    our ability to successfully integrate and improve the operations of acquired inpatient facilities;
    
    our ability to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act;
    
    our 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;
    
    fluctuations in the market value of our common stock;
    
    negative press coverage of us or our industry that may affect public opinion; and
 18




---



##### Table of Contents




    
    those risks and uncertainties described from time to time in our filings with the SEC.
  Overview
     
    
    same-facility revenue growth at our behavioral health care
facilities of 4.7% and 5.0% for the three and nine months
ended September 30, 2009, respectively, compared to the
same periods in 2008;
    
    a reduction in interest expense as a percentage of revenue
to 4.0% for the nine months ended
September 30, 2009 compared to 4.5% in the same period of 2008 due
primarily to a decrease in interest rates on our variable
rate debt; and
    
    a decrease in share-based compensation expense of $0.7
million and $1.5 million for the three and nine months
ended September 30, 2009, respectively, compared to the
same periods of 2008.
  19




---



##### Table of Contents




    
    charity care provided by our inpatient behavioral health
care facilities increased $4.2 million for the three
months ended September 30, 2009 compared to the same
period of 2008, which was concentrated in two markets
that we serve;
    
    the non-renewal of several contracts and start up
losses on new contracts within our contract management
business negatively affected our operating results. We
expect the contract management business to stabilize in
future quarters;
    
    a new at-risk contract within our managed care plan in
Puerto Rico contributed higher other operating expenses
and lower profitability for our other operations. This
contract was renegotiated to an administration services
only contract in the fourth quarter of 2009; and
    
    an increase in salaries, wages and employee benefits
expense as a percentage of revenue for our same-facility
owned and leased inpatient facilities to 54.7% for the
three months ended September 30, 2009 compared to 53.4%
in the same period of 2008, due primarily to an increase
in health insurance claims for health insurance coverage
of our employees and their dependents.
 Sources of Revenue
 Patient Service Revenue
  Other Revenue
  Results of Operations
  For the Three Months Ended September 30,
    
    
    For the Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Revenue
    
    $
    455,310
    
    
    
    100.0
    %
    
    $
    431,713
    
    
    
    100.0
    %
    
    $
    1,348,534
    
    
    
    100.0
    %
    
    $
    1,273,408
    
    
    
    100.0
    %Salaries, wages, and employee benefits (including share-
based compensation of $4,249, $4,935, $13,525, and
$
15,013 for the respective three and nine month periods
in 2009 and 2008)
    
    
    254,333
    
    
    
    55.8
    %
    
    
    238,479
    
    
    
    55.2
    %
    
    
    751,878
    
    
    
    55.7
    %
    
    
    705,778
    
    
    
    55.4
    %Professional fees
    
    
    42,258
    
    
    
    9.3
    %
    
    
    41,117
    
    
    
    9.5
    %
    
    
    125,017
    
    
    
    9.3
    %
    
    
    121,964
    
    
    
    9.6
    %Supplies
    
    
    23,358
    
    
    
    5.1
    %
    
    
    23,784
    
    
    
    5.6
    %
    
    
    70,063
    
    
    
    5.2
    %
    
    
    70,228
    
    
    
    5.5
    %Provision for doubtful accounts
    
    
    9,798
    
    
    
    2.2
    %
    
    
    10,129
    
    
    
    2.3
    %
    
    
    26,542
    
    
    
    2.0
    %
    
    
    25,830
    
    
    
    2.0
    %Other operating expenses
    
    
    49,954
    
    
    
    11.0
    %
    
    
    44,815
    
    
    
    10.4
    %
    
    
    142,712
    
    
    
    10.6
    %
    
    
    133,351
    
    
    
    10.5
    %Depreciation and amortization
    
    
    11,498
    
    
    
    2.5
    %
    
    
    9,792
    
    
    
    2.3
    %
    
    
    33,084
    
    
    
    2.4
    %
    
    
    28,687
    
    
    
    2.3
    %Interest expense, net
    
    
    18,607
    
    
    
    4.1
    %
    
    
    18,648
    
    
    
    4.3
    %
    
    
    53,432
    
    
    
    4.0
    %
    
    
    57,688
    
    
    
    4.5
    %Income from continuing operations before
income taxes
    
    
    45,504
    
    
    
    10.0
    %
    
    
    44,949
    
    
    
    10.4
    %
    
    
    145,806
    
    
    
    10.8
    %
    
    
    129,882
    
    
    
    10.2
    %Provision for income taxes
    
    
    17,431
    
    
    
    3.8
    %
    
    
    16,958
    
    
    
    3.9
    %
    
    
    55,714
    
    
    
    4.1
    %
    
    
    49,188
    
    
    
    3.9
    %Income from continuing operations
    
    
    28,073
    
    
    
    6.2
    %
    
    
    27,991
    
    
    
    6.5
    %
    
    
    90,092
    
    
    
    6.7
    %
    
    
    80,694
    
    
    
    6.3
    %Less: Net income attributable to noncontrolling interest
    
    
    7
    
    
    
    0.0
    %
    
    
    (390
    )
    
    
    -0.1
    %
    
    
    (338
    )
    
    
    0.0
    %
    
    
    (642
    )
    
    
    0.0
    %Income from continuing operations attributable to
PSI stockholders
    
    $
    28,080
    
    
    
    6.2
    %
    
    $
    27,601
    
    
    
    6.4
    %
    
    $
    89,754
    
    
    
    6.7
    %
    
    $
    80,052
    
    
    
    6.3
    %
 Three Months Ended September 30, 2009 Compared To Three Months Ended September 30, 2008
  20




---



##### Table of Contents



Three Months Ended September 30,
    
    %2009
    
    2008
    
    ChangeSame-facility results:Revenue (in thousands)
    
    $
    420,292
    
    
    $
    401,321
    
    
    
    4.7
    %Admissions
    
    
    44,694
    
    
    
    41,631
    
    
    
    7.4
    %Patient days
    
    
    719,024
    
    
    
    696,317
    
    
    
    3.3
    %Average length of stay (in days)
    
    
    16.1
    
    
    
    16.7
    
    
    
    -3.6
    %Revenue per patient day
    
    $
    585
    
    
    $
    576
    
    
    
    1.6
    %Total facility results:Revenue (in thousands)
    
    $
    422,544
    
    
    $
    401,321
    
    
    
    5.3
    %Admissions
    
    
    44,914
    
    
    
    41,631
    
    
    
    7.9
    %Patient days
    
    
    721,465
    
    
    
    696,317
    
    
    
    3.6
    %Average length of stay (in days)
    
    
    16.1
    
    
    
    16.7
    
    
    
    -3.6
    %Revenue per patient day
    
    $
    586
    
    
    $
    576
    
    
    
    1.7
    %
 Revenue
 Salaries, wages, and employee benefits
 Professional fees
 Supplies.
 Provision for doubtful accounts
 Other operating expenses
 21




---



##### Table of Contents



Depreciation and amortization
 Interest expense, net
 Income attributable to noncontrolling interest
 Income (loss) from discontinued operations, net of taxes
 Nine Months Ended September 30, 2009 Compared To Nine Months Ended September 30, 2008
  Nine Months Ended September 30,
    
    %2009
    
    2008
    
    ChangeSame-facility results:Revenue (in thousands)
    
    $
    1,239,720
    
    
    $
    1,180,209
    
    
    
    5.0
    %Admissions
    
    
    131,303
    
    
    
    124,263
    
    
    
    5.7
    %Patient days
    
    
    2,133,338
    
    
    
    2,076,905
    
    
    
    2.7
    %Average length of stay (in days)
    
    
    16.2
    
    
    
    16.7
    
    
    
    -3.0
    %Revenue per patient day
    
    $
    581
    
    
    $
    568
    
    
    
    2.3
    %Total facility results:Revenue (in thousands)
    
    $
    1,254,444
    
    
    $
    1,180,209
    
    
    
    6.3
    %Admissions
    
    
    133,232
    
    
    
    124,263
    
    
    
    7.2
    %Patient days
    
    
    2,157,856
    
    
    
    2,076,905
    
    
    
    3.9
    %Average length of stay (in days)
    
    
    16.2
    
    
    
    16.7
    
    
    
    -3.0
    %Revenue per patient day
    
    $
    581
    
    
    $
    568
    
    
    
    2.3
    %
 Revenue
 Salaries, wages, and employee benefits
 22




---



##### Table of Contents



Professional fees
 Supplies.
 Provision for doubtful accounts
 Other operating expenses
 Depreciation and amortization
 Interest expense, net
 Income attributable to noncontrolling interest
 Income from discontinued operations, net of taxes
 Liquidity and Capital Resources
  23




---



##### Table of Contents



3 4
    24




---



##### Table of Contents



Contractual Obligations
 Payments Due by Period (in thousands)Less than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsLong-term debt (1):Senior Credit Facility:Revolving line of credit facility, expiring on December 31, 2011
and bearing interest of 5.6% at September 30, 2009
    
    $
    90,959
    
    
    $
    
    
    
    $
    90,959
    
    
    $
    
    
    
    $
    Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 2.04% at September 30, 2009
    
    
    565,812
    
    
    
    3,750
    
    
    
    562,062
    
    
    
    
    
    
    
    73/4% Senior Subordinated Notes due July 15, 2015
    
    
    582,442
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    582,442Mortgage loans on facilities, maturing in 2036, 2037 and 2038
bearing fixed interest rates of 5.7% to 7.6%
    
    
    32,959
    
    
    
    443
    
    
    
    973
    
    
    
    1,101
    
    
    
    30,4421,272,172
    
    
    
    4,193
    
    
    
    653,994
    
    
    
    1,101
    
    
    
    612,884Lease and other obligations
    
    
    90,396
    
    
    
    16,279
    
    
    
    21,539
    
    
    
    14,074
    
    
    
    38,504Total contractual obligations
    
    $
    1,362,568
    
    
    $
    20,472
    
    
    $
    675,533
    
    
    $
    15,175
    
    
    $
    651,388
 
 (1)
    
    Excludes capital lease obligations and other obligations of $6.8 million, which are included in lease and other obligations. 3 4 3 4
 Critical Accounting Policies
  Allowance for Doubtful Accounts
    25




---



##### Table of Contents



Allowances for Contractual Discounts
  Professional and General Liability
  Income Taxes
   Share-Based Compensation
  
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk.
   26




---



##### Table of Contents



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.
  
 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).
 27




---



##### Table of Contents



ExhibitNumber
    
    Description10.1*
    
    Fourth Amendment, dated as of September 25, 2009,
to the Second Amended and Restated Credit
Agreement, as amended, by and among Psychiatric
Solutions, Inc., BHC Holdings, Inc., Premier
Behavioral Solutions, Inc., Alternative
Behavioral Services, Inc., Horizon Health
Corporation, Community Cornerstones, Inc., First
Corrections Puerto Rico, Inc., First Hospital
Panamericano, Inc., FHCHS of Puerto Rico, Inc.,
the subsidiaries of Psychiatric Solutions, Inc.
party thereto as guarantors, the incremental
revolving credit lenders party thereto, Citicorp
North America, Inc. as term loan facility
administrative agent, and Bank of America, N.A.,
as revolving credit facility administrative
agent.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 28




---



##### Table of Contents



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