##### 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 June 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
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



TABLE OF CONTENTS
 PAGEPART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007 (Unaudited)
    
    
    1Condensed Consolidated Statements of Income for the three and six month periods ended June 30, 2008 and 2007
(Unaudited)
    
    
    2Condensed Consolidated Statement of Stockholders Equity for the six month period ended June 30, 2008 (Unaudited)
    
    
    3Condensed Consolidated Statements of Cash Flows for the six month periods ended June 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 4. Submission of Matters to a Vote of Security Holders
    
    
    26Item 6. Exhibits
    
    
    27EX-31.1 Section 302 Certification of the CEOEX-31.2 Section 302 Certification of the CFOEX-32.1 Section 906 Certification of the CEO & CFO




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 PSYCHIATRIC SOLUTIONS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited, in thousands)
 June 30,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    18,780
    
    
    $
    39,970Accounts receivable, less allowance for doubtful accounts
of $44,678 and $35,587 for 2008 and 2007,
respectively
    
    
    263,552
    
    
    
    231,993Prepaids and other
    
    
    78,467
    
    
    
    67,382Total current assets
    
    
    360,799
    
    
    
    339,345Property and equipment, net of accumulated depreciation
    
    
    760,065
    
    
    
    693,677Cost in excess of net assets acquired
    
    
    1,198,598
    
    
    
    1,073,583Other assets
    
    
    65,755
    
    
    
    72,039Total assets
    
    $
    2,385,217
    
    
    $
    2,178,644LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    29,656
    
    
    $
    31,246Salaries and benefits payable
    
    
    86,688
    
    
    
    82,458Other accrued liabilities
    
    
    60,640
    
    
    
    61,794Current portion of long-term debt
    
    
    6,052
    
    
    
    6,016Total current liabilities
    
    
    183,036
    
    
    
    181,514Long-term debt, less current portion
    
    
    1,294,909
    
    
    
    1,166,008Deferred tax liability
    
    
    56,418
    
    
    
    49,131Other liabilities
    
    
    22,667
    
    
    
    23,090Total liabilities
    
    
    1,557,030
    
    
    
    1,419,743Minority Interest
    
    
    4,606
    
    
    
    4,159Stockholders equity:Common stock, $0.01 par value, 125,000 shares authorized;
55,608 and 55,107 issued and outstanding for 2008
and 2007, respectively
    
    
    556
    
    
    
    551Additional paid-in capital
    
    
    590,095
    
    
    
    574,943Accumulated other comprehensive loss
    
    
    (1,352
    )
    
    
    (479
    )Retained earnings
    
    
    234,282
    
    
    
    179,727Total stockholders equity
    
    
    823,581
    
    
    
    754,742Total liabilities and stockholders equity
    
    $
    2,385,217
    
    
    $
    2,178,644
  1




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PSYCHIATRIC SOLUTIONS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (Unaudited, in thousands, except for per share amounts)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue
    
    $
    450,965
    
    
    $
    351,223
    
    
    $
    877,744
    
    
    $
    670,791Salaries, wages and employee benefits (including share-
based compensation of $4,517, $3,910, $10,077 and $7,583
for the respective three and six month periods in 2008
and 2007)
    
    
    246,231
    
    
    
    193,364
    
    
    
    483,118
    
    
    
    371,797Professional fees
    
    
    46,385
    
    
    
    35,000
    
    
    
    89,724
    
    
    
    65,643Supplies
    
    
    24,773
    
    
    
    19,398
    
    
    
    48,358
    
    
    
    37,571Rentals and leases
    
    
    6,112
    
    
    
    4,951
    
    
    
    12,296
    
    
    
    9,531Other operating expenses
    
    
    41,833
    
    
    
    34,631
    
    
    
    80,641
    
    
    
    65,839Provision for doubtful accounts
    
    
    8,623
    
    
    
    7,275
    
    
    
    15,782
    
    
    
    13,939Depreciation and amortization
    
    
    10,069
    
    
    
    7,245
    
    
    
    19,478
    
    
    
    13,484Interest expense
    
    
    19,765
    
    
    
    17,029
    
    
    
    40,103
    
    
    
    31,414Loss on refinancing long-term debt
    
    
    
    
    
    
    8,179
    
    
    
    
    
    
    
    8,179403,791
    
    
    
    327,072
    
    
    
    789,500
    
    
    
    617,397Income from continuing operations before income taxes
    
    
    47,174
    
    
    
    24,151
    
    
    
    88,244
    
    
    
    53,394Provision for income taxes
    
    
    17,844
    
    
    
    8,961
    
    
    
    33,533
    
    
    
    20,198Income from continuing operations
    
    
    29,330
    
    
    
    15,190
    
    
    
    54,711
    
    
    
    33,196Loss from discontinued operations, net of income tax benefit
of $39, $64, $23 and $51 for the respective three and six
month periods in 2008 and 2007
    
    
    (271
    )
    
    
    (583
    )
    
    
    (156
    )
    
    
    (464
    )Net income
    
    $
    29,059
    
    
    $
    14,607
    
    
    $
    54,555
    
    
    $
    32,732Basic earnings per share:Income from continuing operations
    
    $
    0.53
    
    
    $
    0.28
    
    
    $
    0.99
    
    
    $
    0.62Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.01
    )Net income
    
    $
    0.53
    
    
    $
    0.27
    
    
    $
    0.99
    
    
    $
    0.61Diluted earnings per share:Income from continuing operations
    
    $
    0.52
    
    
    $
    0.27
    
    
    $
    0.98
    
    
    $
    0.60Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.01
    )Net income
    
    $
    0.52
    
    
    $
    0.26
    
    
    $
    0.97
    
    
    $
    0.59Shares used in computing per share amounts:Basic
    
    
    55,279
    
    
    
    54,104
    
    
    
    55,211
    
    
    
    53,955Diluted
    
    
    56,233
    
    
    
    55,372
    
    
    
    56,016
    
    
    
    55,305
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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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54,555
    
    
    
    54,555Change in fair value of interest rate
swap, net of tax benefit of $585
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (873
    )
    
    
    
    
    
    
    (873
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    53,682Share-based compensation
    
    
    
    
    
    
    
    
    
    
    10,077
    
    
    
    
    
    
    
    
    
    
    
    10,077Exercise of stock options and
grants of restricted stock, net
of issuance costs
    
    
    501
    
    
    
    5
    
    
    
    4,260
    
    
    
    
    
    
    
    
    
    
    
    4,265Income tax benefit of stock option
exercises
    
    
    
    
    
    
    
    
    
    
    815
    
    
    
    
    
    
    
    
    
    
    
    815Balance at June 30, 2008
    
    
    55,608
    
    
    $
    556
    
    
    $
    590,095
    
    
    $
    (1,352
    )
    
    $
    234,282
    
    
    $
    823,581
  3




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PSYCHIATRIC SOLUTIONS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited, in thousands)
 Six Months Ended June 30,2008
    
    
    2007Operating activities:Net income
    
    $
    54,555
    
    
    $
    32,732Adjustments to reconcile net income to net cash provided by
continuing operating activities:Depreciation and amortization
    
    
    19,478
    
    
    
    13,484Amortization of loan costs and bond premium
    
    
    1,105
    
    
    
    1,038Share-based compensation
    
    
    10,077
    
    
    
    7,583Loss on refinancing long-term debt
    
    
    
    
    
    
    8,179Change in income tax assets and liabilities
    
    
    432
    
    
    
    (716
    )Loss from discontinued operations, net of taxes
    
    
    156
    
    
    
    464Changes in operating assets and liabilities,
net of effect of acquisitions:Accounts receivable
    
    
    (30,529
    )
    
    
    (16,365
    )Prepaids and other current assets
    
    
    379
    
    
    
    (1,253
    )Accounts payable
    
    
    (1,453
    )
    
    
    (5,437
    )Salaries and benefits payable
    
    
    2,604
    
    
    
    (4,693
    )Accrued liabilities and other liabilities
    
    
    (3,133
    )
    
    
    6,311Net cash provided by continuing operating activities
    
    
    53,671
    
    
    
    41,327Net cash (used in) provided by discontinued operating activities
    
    
    (1,468
    )
    
    
    824Net cash provided by operating activities
    
    
    52,203
    
    
    
    42,151Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (157,953
    )
    
    
    (452,361
    )Capital purchases of property and equipment
    
    
    (48,769
    )
    
    
    (28,929
    )Other assets
    
    
    (481
    )
    
    
    (744
    )Net cash used in continuing investing activities
    
    
    (207,203
    )
    
    
    (482,034
    )Net cash provided by discontinued investing activities
    
    
    1,276
    
    
    
    Net cash used in investing activities
    
    
    (205,927
    )
    
    
    (482,034
    )Financing activities:Net increase in revolving credit facility
    
    
    130,000
    
    
    
    9,000Borrowings on long-term debt
    
    
    
    
    
    
    481,875Principal payments on long-term debt
    
    
    (2,487
    )
    
    
    (39,918
    )Payment of loan and issuance costs
    
    
    (30
    )
    
    
    (6,173
    )Refinancing long-term debt
    
    
    
    
    
    
    (7,127
    )Excess tax benefits from share-based payment arrangements
    
    
    815
    
    
    
    3,566Proceeds from exercises of common stock options
    
    
    4,236
    
    
    
    7,850Net cash provided by financing activities
    
    
    132,534
    
    
    
    449,073Net (decrease) increase in cash
    
    
    (21,190
    )
    
    
    9,190Cash and cash equivalents at beginning of the period
    
    
    39,970
    
    
    
    18,520Cash and cash equivalents at end of the period
    
    $
    18,780
    
    
    $
    27,710Effect of Acquisitions:Assets acquired, net of cash acquired
    
    $
    164,558
    
    
    $
    513,674Liabilities assumed
    
    
    (6,605
    )
    
    
    (43,609
    )Common stock issued
    
    
    
    
    
    
    (9,000
    )Long-term debt assumed
    
    
    
    
    
    
    (8,704
    )Cash paid for acquisitions, net of cash acquired
    
    $
    157,953
    
    
    $
    452,361
  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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Numerator:Basic and diluted earnings per share:Income from continuing operations
    
    $
    29,330
    
    
    $
    15,190
    
    
    $
    54,711
    
    
    $
    33,196Loss from discontinued operations, net of taxes
    
    
    (271
    )
    
    
    (583
    )
    
    
    (156
    )
    
    
    (464
    )Net income
    
    $
    29,059
    
    
    $
    14,607
    
    
    $
    54,555
    
    
    $
    32,732Denominator:Weighted average shares outstanding for basic earnings per share
    
    
    55,279
    
    
    
    54,104
    
    
    
    55,211
    
    
    
    53,955Effects of dilutive stock options and restriced stock outstanding
    
    
    954
    
    
    
    1,268
    
    
    
    805
    
    
    
    1,350Shares used in computing diluted earnings per common share
    
    
    56,233
    
    
    
    55,372
    
    
    
    56,016
    
    
    
    55,305Basic earnings per share:Income from continuing operations
    
    $
    0.53
    
    
    $
    0.28
    
    
    $
    0.99
    
    
    $
    0.62Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.01
    )$
    0.53
    
    
    $
    0.27
    
    
    $
    0.99
    
    
    $
    0.61Diluted earnings per share:Income from continuing operations
    
    $
    0.52
    
    
    $
    0.27
    
    
    $
    0.98
    
    
    $
    0.60Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.01
    )$
    0.52
    
    
    $
    0.26
    
    
    $
    0.97
    
    
    $
    0.59
 5




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4. Share-Based Compensation
      5. Acquisitions
     6




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##### Table of Contents



6. Long-term debt
  June 30,
    
    
    December 31,2008
    
    
    2007Senior credit facility:Revolving line of credit facility, expiring on December 21, 2009
and bearing interest of 4.3% and 6.4% at June 30, 2008
and December 31, 2007, respectively
    
    $
    210,000
    
    
    $
    80,000Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 4.3% and 6.8% at June 30, 2008
and December 31, 2007, respectively
    
    
    571,438
    
    
    
    573,3127 3/4% Notes
    
    
    476,180
    
    
    
    476,508Mortgage loans on facilities, maturing in 2036, 2037 and 2038
bearing fixed interest rates of 5.7% to 7.6%
    
    
    33,475
    
    
    
    33,671Other
    
    
    9,868
    
    
    
    8,5331,300,961
    
    
    
    1,172,024Less current portion
    
    
    6,052
    
    
    
    6,016Long-term debt
    
    $
    1,294,909
    
    
    $
    1,166,008
 Senior Credit Facility
    7 3 / 4 % Notes
 3 4 3 4 3 4 3 4 3 4 3 4
 7




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Mortgage Loans
  Interest Rate Swap Agreements
  7. Income Taxes
  8. Discontinued Operations
 Accounting for the Impairment or Disposal of Long-Lived Assets
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue
    
    $
    1,781
    
    
    $
    3,757
    
    
    $
    4,672
    
    
    $
    7,906Operating expenses
    
    
    1,712
    
    
    
    3,637
    
    
    
    4,472
    
    
    
    7,654Loss on disposal
    
    
    379
    
    
    
    767
    
    
    
    379
    
    
    
    7672,091
    
    
    
    4,404
    
    
    
    4,851
    
    
    
    8,421Loss from discontinued operations before income taxes
    
    
    (310
    )
    
    
    (647
    )
    
    
    (179
    )
    
    
    (515
    )Benefit for income taxes
    
    
    (39
    )
    
    
    (64
    )
    
    
    (23
    )
    
    
    (51
    )Loss from discontinued operations, net of income taxes
    
    $
    (271
    )
    
    $
    (583
    )
    
    $
    (156
    )
    
    $
    (464
    )
 9. Disclosures About Reportable Segments
 Disclosures About Segments of an Enterprise and
Related Information
 8




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##### Table of Contents



Three Months Ended June 30, 2008
 Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    405,687
    
    
    $
    45,278
    
    
    $
    
    
    
    $
    450,965Adjusted EBITDA
    
    $
    84,925
    
    
    $
    9,163
    
    
    $
    (12,563
    )
    
    $
    81,525Interest expense
    
    
    7,127
    
    
    
    140
    
    
    
    12,498
    
    
    
    19,765Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    17,844
    
    
    
    17,844Depreciation and amortization
    
    
    8,296
    
    
    
    1,393
    
    
    
    380
    
    
    
    10,069Inter-segment expenses
    
    
    16,242
    
    
    
    1,876
    
    
    
    (18,118
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    4,517
    
    
    
    4,517Total other expenses
    
    
    
    
    
    
    
    
    
    
    4,517
    
    
    
    4,517Income (loss) from continuing operations
    
    $
    53,260
    
    
    $
    5,754
    
    
    $
    (29,684
    )
    
    $
    29,330Total assets
    
    $
    2,060,032
    
    
    $
    243,867
    
    
    $
    81,318
    
    
    $
    2,385,217
 9




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##### Table of Contents



Three Months Ended June 30, 2007
 Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    325,651
    
    
    $
    25,572
    
    
    $
    
    
    
    $
    351,223Adjusted EBITDA
    
    $
    64,394
    
    
    $
    5,413
    
    
    $
    (9,293
    )
    
    $
    60,514Interest expense
    
    
    6,563
    
    
    
    (7
    )
    
    
    10,473
    
    
    
    17,029Provision for income taxes
    
    
    2
    
    
    
    
    
    
    
    8,959
    
    
    
    8,961Depreciation and amortization
    
    
    6,602
    
    
    
    279
    
    
    
    364
    
    
    
    7,245Inter-segment expenses
    
    
    13,166
    
    
    
    1,147
    
    
    
    (14,313
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    3,910
    
    
    
    3,910Loss on refinancing long-term debt
    
    
    
    
    
    
    
    
    
    
    8,179
    
    
    
    8,179Total other expenses
    
    
    
    
    
    
    
    
    
    
    12,089
    
    
    
    12,089Income (loss) from continuing operations
    
    $
    38,061
    
    
    $
    3,994
    
    
    $
    (26,865
    )
    
    $
    15,190Total assets
    
    $
    1,959,415
    
    
    $
    86,104
    
    
    $
    93,202
    
    
    $
    2,138,721
 Six Months Ended June 30, 2008
 Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    791,083
    
    
    $
    86,661
    
    
    $
    
    
    
    $
    877,744Adjusted EBITDA
    
    $
    165,258
    
    
    $
    17,121
    
    
    $
    (24,477
    )
    
    $
    157,902Interest expense
    
    
    14,203
    
    
    
    354
    
    
    
    25,546
    
    
    
    40,103Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    33,533
    
    
    
    33,533Depreciation and amortization
    
    
    16,161
    
    
    
    2,576
    
    
    
    741
    
    
    
    19,478Inter-segment expenses
    
    
    32,064
    
    
    
    3,827
    
    
    
    (35,891
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    10,077
    
    
    
    10,077Total other expenses
    
    
    
    
    
    
    
    
    
    
    10,077
    
    
    
    10,077Income (loss) from continuing operations
    
    $
    102,830
    
    
    $
    10,364
    
    
    $
    (58,483
    )
    
    $
    54,711Total assets
    
    $
    2,060,032
    
    
    $
    243,867
    
    
    $
    81,318
    
    
    $
    2,385,217
 10




---



##### Table of Contents



Six Months Ended June 30, 2007
 Owned andLeasedFacilities
    
    
    Other
    
    
    Corporate
    
    
    ConsolidatedRevenue
    
    $
    629,643
    
    
    $
    41,148
    
    
    $
    
    
    
    $
    670,791Adjusted EBITDA
    
    $
    125,279
    
    
    $
    7,594
    
    
    $
    (18,819
    )
    
    $
    114,054Interest expense
    
    
    15,590
    
    
    
    (12
    )
    
    
    15,836
    
    
    
    31,414Provision for income taxes
    
    
    2
    
    
    
    
    
    
    
    20,196
    
    
    
    20,198Depreciation and amortization
    
    
    12,315
    
    
    
    461
    
    
    
    708
    
    
    
    13,484Inter-segment expenses
    
    
    24,417
    
    
    
    1,868
    
    
    
    (26,285
    )
    
    
    Other expenses:Share-based compensation
    
    
    
    
    
    
    
    
    
    
    7,583
    
    
    
    7,583Loss on refinancing long-term debt
    
    
    
    
    
    
    
    
    
    
    8,179
    
    
    
    8,179Total other expenses
    
    
    
    
    
    
    
    
    
    
    15,762
    
    
    
    15,762Income (loss) from continuing operations
    
    $
    72,955
    
    
    $
    5,277
    
    
    $
    (45,036
    )
    
    $
    33,196Total assets
    
    $
    1,959,415
    
    
    $
    86,104
    
    
    $
    93,202
    
    
    $
    2,138,721
 10. Financial Information for the Company and Its Subsidiaries
  Condensed Consolidating Balance Sheet
As of June 30, 2008
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsCurrent Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    10,584
    
    
    $
    8,196
    
    
    $
    
    
    
    $
    18,780Accounts receivable, net
    
    
    
    
    
    
    255,869
    
    
    
    7,683
    
    
    
    
    
    
    
    263,552Prepaids and other
    
    
    
    
    
    
    56,530
    
    
    
    21,937
    
    
    
    
    
    
    
    78,467Total current assets
    
    
    
    
    
    
    322,983
    
    
    
    37,816
    
    
    
    
    
    
    
    360,799Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    709,997
    
    
    
    57,293
    
    
    
    (7,225
    )
    
    
    760,065Cost in excess of net assets acquired
    
    
    
    
    
    
    1,198,598
    
    
    
    
    
    
    
    
    
    
    
    1,198,598Investment in subsidiaries
    
    
    1,162,248
    
    
    
    
    
    
    
    
    
    
    
    (1,162,248
    )
    
    
    Other assets
    
    
    14,046
    
    
    
    47,509
    
    
    
    22,455
    
    
    
    (18,255
    )
    
    
    65,755Total assets
    
    $
    1,176,294
    
    
    $
    2,279,087
    
    
    $
    117,564
    
    
    $
    (1,187,728
    )
    
    $
    2,385,217Current Liabilities:Accounts payable
    
    $
    
    
    
    $
    28,650
    
    
    $
    1,006
    
    
    $
    
    
    
    $
    29,656Salaries and benefits payable
    
    
    
    
    
    
    84,857
    
    
    
    1,831
    
    
    
    
    
    
    
    86,688Other accrued liabilities
    
    
    23,465
    
    
    
    28,695
    
    
    
    8,480
    
    
    
    
    
    
    
    60,640Current portion of long-term debt
    
    
    5,642
    
    
    
    
    
    
    
    410
    
    
    
    
    
    
    
    6,052Total current liabilities
    
    
    29,107
    
    
    
    142,202
    
    
    
    11,727
    
    
    
    
    
    
    
    183,036Long-term debt, less current portion
    
    
    1,261,844
    
    
    
    
    
    
    
    33,065
    
    
    
    
    
    
    
    1,294,909Deferred tax liability
    
    
    
    
    
    
    56,418
    
    
    
    
    
    
    
    
    
    
    
    56,418Other liabilities
    
    
    2,077
    
    
    
    9,068
    
    
    
    26,837
    
    
    
    (15,315
    )
    
    
    22,667Total liabilities
    
    
    1,293,028
    
    
    
    207,688
    
    
    
    71,629
    
    
    
    (15,315
    )
    
    
    1,557,030Minority Interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,606
    
    
    
    4,606Total stockholders (deficit) equity
    
    
    (116,734
    )
    
    
    2,071,399
    
    
    
    45,935
    
    
    
    (1,177,019
    )
    
    
    823,581Total liabilities and stockholders (deficit) equity
    
    $
    1,176,294
    
    
    $
    2,279,087
    
    
    $
    117,564
    
    
    $
    (1,187,728
    )
    
    $
    2,385,217
 11




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##### Table of Contents



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
    
    
    
    
    
    
    224,549
    
    
    
    7,444
    
    
    
    
    
    
    
    231,993Prepaids and other
    
    
    
    
    
    
    65,827
    
    
    
    1,555
    
    
    
    
    
    
    
    67,382Total current assets
    
    
    
    
    
    
    309,530
    
    
    
    29,815
    
    
    
    
    
    
    
    339,345Property and equipment, net of accumulated depreciation
    
    
    
    
    
    
    643,497
    
    
    
    57,526
    
    
    
    (7,346
    )
    
    
    693,677Cost in excess of net assets acquired
    
    
    
    
    
    
    1,073,583
    
    
    
    
    
    
    
    
    
    
    
    1,073,583Investment in subsidiaries
    
    
    1,058,235
    
    
    
    
    
    
    
    
    
    
    
    (1,058,235
    )
    
    
    Other assets
    
    
    15,441
    
    
    
    52,494
    
    
    
    22,359
    
    
    
    (18,255
    )
    
    
    72,039Total assets
    
    $
    1,073,676
    
    
    $
    2,079,104
    
    
    $
    109,700
    
    
    $
    (1,083,836
    )
    
    $
    2,178,644Current Liabilities:Accounts payable
    
    $
    
    
    
    $
    30,187
    
    
    $
    1,059
    
    
    $
    
    
    
    $
    31,246Salaries and benefits payable
    
    
    
    
    
    
    80,801
    
    
    
    1,657
    
    
    
    
    
    
    
    82,458Other accrued liabilities
    
    
    25,171
    
    
    
    36,381
    
    
    
    242
    
    
    
    
    
    
    
    61,794Current portion of long-term debt
    
    
    5,619
    
    
    
    
    
    
    
    397
    
    
    
    
    
    
    
    6,016Total current liabilities
    
    
    30,790
    
    
    
    147,369
    
    
    
    3,355
    
    
    
    
    
    
    
    181,514Long-term debt, less current portion
    
    
    1,132,735
    
    
    
    
    
    
    
    33,273
    
    
    
    
    
    
    
    1,166,008Deferred tax liability
    
    
    
    
    
    
    49,131
    
    
    
    
    
    
    
    
    
    
    
    49,131Other liabilities
    
    
    2,659
    
    
    
    10,767
    
    
    
    31,096
    
    
    
    (21,432
    )
    
    
    23,090Total liabilities
    
    
    1,166,184
    
    
    
    207,267
    
    
    
    67,724
    
    
    
    (21,432
    )
    
    
    1,419,743Minority Interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,159
    
    
    
    4,159Total stockholders (deficit) equity
    
    
    (92,508
    )
    
    
    1,871,837
    
    
    
    41,976
    
    
    
    (1,066,563
    )
    
    
    754,742Total liabilities and stockholders (deficit) equity
    
    $
    1,073,676
    
    
    $
    2,079,104
    
    
    $
    109,700
    
    
    $
    (1,083,836
    )
    
    $
    2,178,644
 Condensed Consolidating Statement of Income
For the Three Months Ended June 30, 2008
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    439,964
    
    
    $
    15,657
    
    
    $
    (4,656
    )
    
    $
    450,965Salaries, wages and employee benefits
    
    
    
    
    
    
    239,095
    
    
    
    7,136
    
    
    
    
    
    
    
    246,231Professional fees
    
    
    
    
    
    
    44,333
    
    
    
    2,052
    
    
    
    
    
    
    
    46,385Supplies
    
    
    
    
    
    
    24,136
    
    
    
    637
    
    
    
    
    
    
    
    24,773Rentals and leases
    
    
    
    
    
    
    6,006
    
    
    
    106
    
    
    
    
    
    
    
    6,112Other operating expenses
    
    
    
    
    
    
    40,538
    
    
    
    2,539
    
    
    
    (1,244
    )
    
    
    41,833Provision for doubtful accounts
    
    
    
    
    
    
    8,452
    
    
    
    171
    
    
    
    
    
    
    
    8,623Depreciation and amortization
    
    
    
    
    
    
    9,510
    
    
    
    620
    
    
    
    (61
    )
    
    
    10,069Interest expense
    
    
    19,254
    
    
    
    
    
    
    
    511
    
    
    
    
    
    
    
    19,76519,254
    
    
    
    372,070
    
    
    
    13,772
    
    
    
    (1,305
    )
    
    
    403,791(Loss) income from continuing operations before
income taxes
    
    
    (19,254
    )
    
    
    67,894
    
    
    
    1,885
    
    
    
    (3,351
    )
    
    
    47,174(Benefit from) provision for income taxes
    
    
    (7,317
    )
    
    
    24,992
    
    
    
    169
    
    
    
    
    
    
    
    17,844(Loss) income from continuing operations
    
    
    (11,937
    )
    
    
    42,902
    
    
    
    1,716
    
    
    
    (3,351
    )
    
    
    29,330Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (271
    )
    
    
    
    
    
    
    
    
    
    
    (271
    )Net (loss) income
    
    $
    (11,937
    )
    
    $
    42,631
    
    
    $
    1,716
    
    
    $
    (3,351
    )
    
    $
    29,059
 12




---



##### Table of Contents



Condensed Consolidating Statement of Income
For the Three Months Ended June 30, 2007
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    351,223
    
    
    $
    8,521
    
    
    $
    (8,521
    )
    
    $
    351,223Salaries, wages and employee benefits
    
    
    
    
    
    
    191,259
    
    
    
    2,105
    
    
    
    
    
    
    
    193,364Professional fees
    
    
    
    
    
    
    34,452
    
    
    
    548
    
    
    
    
    
    
    
    35,000Supplies
    
    
    
    
    
    
    19,190
    
    
    
    208
    
    
    
    
    
    
    
    19,398Rentals and leases
    
    
    
    
    
    
    4,919
    
    
    
    32
    
    
    
    
    
    
    
    4,951Other operating expenses
    
    
    
    
    
    
    34,086
    
    
    
    3,840
    
    
    
    (3,295
    )
    
    
    34,631Provision for doubtful accounts
    
    
    
    
    
    
    6,989
    
    
    
    286
    
    
    
    
    
    
    
    7,275Depreciation and amortization
    
    
    
    
    
    
    6,925
    
    
    
    381
    
    
    
    (61
    )
    
    
    7,245Interest expense
    
    
    16,759
    
    
    
    
    
    
    
    270
    
    
    
    
    
    
    
    17,029Loss on refinancing long-term debt
    
    
    8,179
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,17924,938
    
    
    
    297,820
    
    
    
    7,670
    
    
    
    (3,356
    )
    
    
    327,072(Loss) income from continuing operations before
income taxes
    
    
    (24,938
    )
    
    
    53,403
    
    
    
    851
    
    
    
    (5,165
    )
    
    
    24,151(Benefit from) provision for income taxes
    
    
    (9,427
    )
    
    
    18,388
    
    
    
    
    
    
    
    
    
    
    
    8,961(Loss) income from continuing operations
    
    
    (15,511
    )
    
    
    35,015
    
    
    
    851
    
    
    
    (5,165
    )
    
    
    15,190Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (583
    )
    
    
    
    
    
    
    
    
    
    
    (583
    )Net (loss) income
    
    $
    (15,511
    )
    
    $
    34,432
    
    
    $
    851
    
    
    $
    (5,165
    )
    
    $
    14,607
 Condensed Consolidating Statement of Income
For the Six Months Ended June 30, 2008
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    855,578
    
    
    $
    29,253
    
    
    $
    (7,087
    )
    
    $
    877,744Salaries, wages and employee benefits
    
    
    
    
    
    
    468,782
    
    
    
    14,336
    
    
    
    
    
    
    
    483,118Professional fees
    
    
    
    
    
    
    85,822
    
    
    
    3,902
    
    
    
    
    
    
    
    89,724Supplies
    
    
    
    
    
    
    47,151
    
    
    
    1,207
    
    
    
    
    
    
    
    48,358Rentals and leases
    
    
    
    
    
    
    12,098
    
    
    
    198
    
    
    
    
    
    
    
    12,296Other operating expenses
    
    
    
    
    
    
    77,644
    
    
    
    4,245
    
    
    
    (1,248
    )
    
    
    80,641Provision for doubtful accounts
    
    
    
    
    
    
    15,341
    
    
    
    441
    
    
    
    
    
    
    
    15,782Depreciation and amortization
    
    
    
    
    
    
    18,365
    
    
    
    1,235
    
    
    
    (122
    )
    
    
    19,478Interest expense
    
    
    39,074
    
    
    
    
    
    
    
    1,029
    
    
    
    
    
    
    
    40,10339,074
    
    
    
    725,203
    
    
    
    26,593
    
    
    
    (1,370
    )
    
    
    789,500(Loss) income from continuing operations before
income taxes
    
    
    (39,074
    )
    
    
    130,375
    
    
    
    2,660
    
    
    
    (5,717
    )
    
    
    88,244(Benefit from) provision for income taxes
    
    
    (14,848
    )
    
    
    48,180
    
    
    
    201
    
    
    
    
    
    
    
    33,533(Loss) income from continuing operations
    
    
    (24,226
    )
    
    
    82,195
    
    
    
    2,459
    
    
    
    (5,717
    )
    
    
    54,711Loss from discontinued operations, net of tax
    
    
    
    
    
    
    (156
    )
    
    
    
    
    
    
    
    
    
    
    (156
    )Net (loss) income
    
    $
    (24,226
    )
    
    $
    82,039
    
    
    $
    2,459
    
    
    $
    (5,717
    )
    
    $
    54,555
 13




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##### Table of Contents



Condensed Consolidating Statement of Income
For the Six Months Ended June 30, 2007
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsRevenue
    
    $
    
    
    
    $
    670,791
    
    
    $
    13,055
    
    
    $
    (13,055
    )
    
    $
    670,791Salaries, wages and employee benefits
    
    
    
    
    
    
    369,692
    
    
    
    2,105
    
    
    
    
    
    
    
    371,797Professional fees
    
    
    
    
    
    
    65,097
    
    
    
    546
    
    
    
    
    
    
    
    65,643Supplies
    
    
    
    
    
    
    37,363
    
    
    
    208
    
    
    
    
    
    
    
    37,571Rentals and leases
    
    
    
    
    
    
    9,499
    
    
    
    32
    
    
    
    
    
    
    
    9,531Other operating expenses
    
    
    
    
    
    
    64,901
    
    
    
    7,588
    
    
    
    (6,650
    )
    
    
    65,839Provision for doubtful accounts
    
    
    
    
    
    
    13,653
    
    
    
    286
    
    
    
    
    
    
    
    13,939Depreciation and amortization
    
    
    
    
    
    
    12,950
    
    
    
    656
    
    
    
    (122
    )
    
    
    13,484Interest expense
    
    
    30,915
    
    
    
    
    
    
    
    499
    
    
    
    
    
    
    
    31,414Loss on refinancing long-term debt
    
    
    8,179
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,17939,094
    
    
    
    573,155
    
    
    
    11,920
    
    
    
    (6,772
    )
    
    
    617,397(Loss) income from continuing operations before
income taxes
    
    
    (39,094
    )
    
    
    97,636
    
    
    
    1,135
    
    
    
    (6,283
    )
    
    
    53,394(Benefit from) provision for income taxes
    
    
    (14,973
    )
    
    
    35,171
    
    
    
    
    
    
    
    
    
    
    
    20,198(Loss) income from continuing operations
    
    
    (24,121
    )
    
    
    62,465
    
    
    
    1,135
    
    
    
    (6,283
    )
    
    
    33,196Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    (464
    )
    
    
    
    
    
    
    
    
    
    
    (464
    )Net (loss) income
    
    $
    (24,121
    )
    
    $
    62,001
    
    
    $
    1,135
    
    
    $
    (6,283
    )
    
    $
    32,732
 14




---



##### Table of Contents



Condensed Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 2008
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating activities:Net (loss) income
    
    $
    (24,226
    )
    
    $
    82,039
    
    
    $
    2,459
    
    
    $
    (5,717
    )
    
    $
    54,555Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:Depreciation and amortization
    
    
    
    
    
    
    18,365
    
    
    
    1,235
    
    
    
    (122
    )
    
    
    19,478Amortization of loan costs and bond premium
    
    
    1,082
    
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    1,105Share-based compensation
    
    
    
    
    
    
    10,077
    
    
    
    
    
    
    
    
    
    
    
    10,077Change in income tax assets and liabilities
    
    
    
    
    
    
    432
    
    
    
    
    
    
    
    
    
    
    
    432Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    156
    
    
    
    
    
    
    
    
    
    
    
    156Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (30,290
    )
    
    
    (239
    )
    
    
    
    
    
    
    (30,529
    )Prepaids and other current assets
    
    
    
    
    
    
    20,761
    
    
    
    (20,382
    )
    
    
    
    
    
    
    379Accounts payable
    
    
    
    
    
    
    (1,400
    )
    
    
    (53
    )
    
    
    
    
    
    
    (1,453
    )Salaries and benefits payable
    
    
    
    
    
    
    2,430
    
    
    
    174
    
    
    
    
    
    
    
    2,604Accrued liabilities and other liabilities
    
    
    (8,480
    )
    
    
    1,368
    
    
    
    3,979
    
    
    
    
    
    
    
    (3,133
    )Net cash (used in) provided by continuing operating activities
    
    
    (31,624
    )
    
    
    103,938
    
    
    
    (12,804
    )
    
    
    (5,839
    )
    
    
    53,671Net cash used in discontinued operating activities
    
    
    
    
    
    
    (1,468
    )
    
    
    
    
    
    
    
    
    
    
    (1,468
    )Net cash (used in) provided by operating activities
    
    
    (31,624
    )
    
    
    102,470
    
    
    
    (12,804
    )
    
    
    (5,839
    )
    
    
    52,203Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (157,953
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (157,953
    )Capital purchases of property and equipment
    
    
    
    
    
    
    (47,767
    )
    
    
    (1,002
    )
    
    
    
    
    
    
    (48,769
    )Other assets
    
    
    
    
    
    
    (362
    )
    
    
    (119
    )
    
    
    
    
    
    
    (481
    )Net cash used in continuing investing activities
    
    
    (157,953
    )
    
    
    (48,129
    )
    
    
    (1,121
    )
    
    
    
    
    
    
    (207,203
    )Net cash provided by discontinued investing activities
    
    
    
    
    
    
    1,276
    
    
    
    
    
    
    
    
    
    
    
    1,276Net cash used in investing activities
    
    
    (157,953
    )
    
    
    (46,853
    )
    
    
    (1,121
    )
    
    
    
    
    
    
    (205,927
    )Financing activities:Net increase in revolving credit facility
    
    
    130,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    130,000Principal payments on long-term debt
    
    
    (2,292
    )
    
    
    
    
    
    
    (195
    )
    
    
    
    
    
    
    (2,487
    )Payment of loan and issuance costs
    
    
    (30
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30
    )Excess tax benefits from share-based payment arrangements
    
    
    815
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    815Net transfers to and from members
    
    
    56,848
    
    
    
    (64,187
    )
    
    
    1,500
    
    
    
    5,839
    
    
    
    Proceeds from exercises of common stock options
    
    
    4,236
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,236Net cash provided by (used in) financing activities
    
    
    189,577
    
    
    
    (64,187
    )
    
    
    1,305
    
    
    
    5,839
    
    
    
    132,534Net decrease in cash
    
    
    
    
    
    
    (8,570
    )
    
    
    (12,620
    )
    
    
    
    
    
    
    (21,190
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    19,154
    
    
    
    20,816
    
    
    
    
    
    
    
    39,970Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    10,584
    
    
    $
    8,196
    
    
    $
    
    
    
    $
    18,780
 15




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##### Table of Contents



Condensed Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 2007
(Dollars in thousands)
 Combined
    
    
    
    
    
    
    
    
    
    
    TotalSubsidiary
    
    
    Combined Non-
    
    
    Consolidating
    
    
    ConsolidatedParent
    
    
    Guarantors
    
    
    Guarantors
    
    
    Adjustments
    
    
    AmountsOperating activities:Net (loss) income
    
    $
    (24,121
    )
    
    $
    62,001
    
    
    $
    1,135
    
    
    $
    (6,283
    )
    
    $
    32,732Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    
    
    
    
    12,950
    
    
    
    656
    
    
    
    (122
    )
    
    
    13,484Amortization of loan costs and bond premium
    
    
    1,016
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    1,038Share-based compensation
    
    
    
    
    
    
    7,583
    
    
    
    
    
    
    
    
    
    
    
    7,583Loss on refinancing long-term debt
    
    
    8,179
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,179Change in income tax assets and liabilities
    
    
    
    
    
    
    (716
    )
    
    
    
    
    
    
    
    
    
    
    (716
    )Loss from discontinued operations, net of taxes
    
    
    
    
    
    
    464
    
    
    
    
    
    
    
    
    
    
    
    464Changes in operating assets and liabilities, net of
effect of acquisitions:Accounts receivable
    
    
    
    
    
    
    (15,661
    )
    
    
    (704
    )
    
    
    
    
    
    
    (16,365
    )Prepaids and other current assets
    
    
    
    
    
    
    6,130
    
    
    
    (14,683
    )
    
    
    7,300
    
    
    
    (1,253
    )Accounts payable
    
    
    
    
    
    
    (5,290
    )
    
    
    (147
    )
    
    
    
    
    
    
    (5,437
    )Salaries and benefits payable
    
    
    
    
    
    
    (4,832
    )
    
    
    139
    
    
    
    
    
    
    
    (4,693
    )Accrued liabilities and other liabilities
    
    
    10,916
    
    
    
    (11,813
    )
    
    
    14,508
    
    
    
    (7,300
    )
    
    
    6,311Net cash provided by (used in) continuing operating activities
    
    
    (4,010
    )
    
    
    50,816
    
    
    
    926
    
    
    
    (6,405
    )
    
    
    41,327Net cash used in discontinued operating activities
    
    
    
    
    
    
    824
    
    
    
    
    
    
    
    
    
    
    
    824Net cash provided by (used in) operating activities
    
    
    (4,010
    )
    
    
    51,640
    
    
    
    926
    
    
    
    (6,405
    )
    
    
    42,151Investing activities:Cash paid for acquisitions, net of cash acquired
    
    
    (452,361
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (452,361
    )Capital purchases of property and equipment
    
    
    
    
    
    
    (28,769
    )
    
    
    (160
    )
    
    
    
    
    
    
    (28,929
    )Other assets
    
    
    
    
    
    
    (707
    )
    
    
    (37
    )
    
    
    
    
    
    
    (744
    )Net cash used in investing activities
    
    
    (452,361
    )
    
    
    (29,476
    )
    
    
    (197
    )
    
    
    
    
    
    
    (482,034
    )Financing activities:Net increase in revolving credit facility
    
    
    9,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,000Borrowings on long-term debt
    
    
    481,875
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    481,875Principal payments on long-term debt
    
    
    (39,763
    )
    
    
    
    
    
    
    (155
    )
    
    
    
    
    
    
    (39,918
    )Payment of loan and issuance costs
    
    
    (6,173
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,173
    )Refinancing of long-term debt
    
    
    (7,127
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,127
    )Excess tax benefits from share-based payment arrangements
    
    
    3,566
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,566Net transfers to and from members
    
    
    7,143
    
    
    
    (14,837
    )
    
    
    1,289
    
    
    
    6,405
    
    
    
    Proceeds from exercises of common stock options
    
    
    7,850
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,850Net cash provided by (used in) financing activities
    
    
    456,371
    
    
    
    (14,837
    )
    
    
    1,134
    
    
    
    6,405
    
    
    
    449,073Net (decrease) increase in cash
    
    
    
    
    
    
    7,327
    
    
    
    1,863
    
    
    
    
    
    
    
    9,190Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    1,097
    
    
    
    17,423
    
    
    
    
    
    
    
    18,520Cash and cash equivalents at end of period
    
    $
    
    
    
    $
    8,424
    
    
    $
    19,286
    
    
    $
    
    
    
    $
    27,710
 11 Fair Value Measurements
 Fair
Value Measurements
   16




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##### 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. Subsequent Event
  17




---



##### 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 ability to maintain favorable and continuing relationships with physicians who use our inpatient facilities;
    
    our substantial indebtedness and our ability to receive timely additional financing on terms acceptable to us to fund our
acquisition strategy and capital expenditure needs;
    
    risks inherent to the health care industry, including the impact of unforeseen changes in regulation and 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;
    
    our ability to retain key employees who are instrumental to our successful operations;
    
    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 the Company or our industry that may affect public opinion; and
    
    those risks and uncertainties described from time to time in our filings with the SEC.
  Overview
  18




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##### Table of Contents



Sources of Revenue
 Patient Service Revenue
  Other Revenue
  Results of Operations
  19




---



##### Table of Contents



For the Three Months Ended June 30,
    
    
    For the Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Revenue
    
    $
    450,965
    
    
    
    100.0
    %
    
    $
    351,223
    
    
    
    100.0
    %
    
    
    877,744
    
    
    
    100.0
    %
    
    
    670,791
    
    
    
    100.0
    %Salaries, wages, and employee benefits (including
share-based compensation of $4,517, $3,910,
$10,077 and $7,583 for 2008 and 2007, respectively)
    
    
    246,231
    
    
    
    54.6
    %
    
    
    193,364
    
    
    
    55.1
    %
    
    
    483,118
    
    
    
    55.0
    %
    
    
    371,797
    
    
    
    55.4
    %Professional fees
    
    
    46,385
    
    
    
    10.3
    %
    
    
    35,000
    
    
    
    10.0
    %
    
    
    89,724
    
    
    
    10.2
    %
    
    
    65,643
    
    
    
    9.8
    %Supplies
    
    
    24,773
    
    
    
    5.5
    %
    
    
    19,398
    
    
    
    5.5
    %
    
    
    48,358
    
    
    
    5.5
    %
    
    
    37,571
    
    
    
    5.6
    %Provision for doubtful accounts
    
    
    8,623
    
    
    
    1.9
    %
    
    
    7,275
    
    
    
    2.0
    %
    
    
    15,782
    
    
    
    1.8
    %
    
    
    13,939
    
    
    
    2.1
    %Other operating expenses
    
    
    47,945
    
    
    
    10.6
    %
    
    
    39,582
    
    
    
    11.3
    %
    
    
    92,937
    
    
    
    10.6
    %
    
    
    75,370
    
    
    
    11.2
    %Depreciation and amortization
    
    
    10,069
    
    
    
    2.2
    %
    
    
    7,245
    
    
    
    2.1
    %
    
    
    19,478
    
    
    
    2.2
    %
    
    
    13,484
    
    
    
    2.0
    %Interest expense, net
    
    
    19,765
    
    
    
    4.4
    %
    
    
    17,029
    
    
    
    4.8
    %
    
    
    40,103
    
    
    
    4.6
    %
    
    
    31,414
    
    
    
    4.7
    %Loss on refinancing long-term debt
    
    
    
    
    
    
    0.0
    %
    
    
    8,179
    
    
    
    2.3
    %
    
    
    
    
    
    
    0.0
    %
    
    
    8,179
    
    
    
    1.2
    %Income from continuing operations before
income taxes
    
    
    47,174
    
    
    
    10.5
    %
    
    
    24,151
    
    
    
    6.9
    %
    
    
    88,244
    
    
    
    10.1
    %
    
    
    53,394
    
    
    
    8.0
    %Provision for income taxes
    
    
    17,844
    
    
    
    4.0
    %
    
    
    8,961
    
    
    
    2.6
    %
    
    
    33,533
    
    
    
    3.9
    %
    
    
    20,198
    
    
    
    3.1
    %Income from continuing operations
    
    $
    29,330
    
    
    
    6.5
    %
    
    $
    15,190
    
    
    
    4.3
    %
    
    $
    54,711
    
    
    
    6.2
    %
    
    $
    33,196
    
    
    
    4.9
    %
 Three Months Ended June 30, 2008 Compared To Three Months Ended June 30, 2007
  Three Months Ended June 30,
    
    %2008
    
    2007
    
    ChangeSame-facility results:Revenue (in thousands)
    
    $
    349,169
    
    
    $
    323,812
    
    
    
    7.8
    %Admissions
    
    
    35,568
    
    
    
    34,121
    
    
    
    4.2
    %Patient days
    
    
    601,436
    
    
    
    585,344
    
    
    
    2.7
    %Average length of stay (in days)
    
    
    16.9
    
    
    
    17.2
    
    
    
    -1.7
    %Revenue per patient day
    
    $
    581
    
    
    $
    553
    
    
    
    5.1
    %Total facility results:Revenue (in thousands)
    
    $
    405,687
    
    
    $
    325,651
    
    
    
    24.6
    %Admissions
    
    
    42,633
    
    
    
    34,394
    
    
    
    24.0
    %Patient days
    
    
    707,076
    
    
    
    588,880
    
    
    
    20.1
    %Average length of stay (in days)
    
    
    16.6
    
    
    
    17.1
    
    
    
    -2.9
    %Revenue per patient day
    
    $
    574
    
    
    $
    553
    
    
    
    3.8
    %
 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
 Six Months Ended June 30, 2008 Compared To Six Months Ended June 30, 2007
  21




---



##### Table of Contents



Six Months Ended June 30,
    
    %2008
    
    2007
    
    ChangeSame-facility results:Revenue (in thousands)
    
    $
    672,835
    
    
    $
    624,230
    
    
    
    7.8
    %Admissions
    
    
    68,490
    
    
    
    66,189
    
    
    
    3.5
    %Patient days
    
    
    1,158,367
    
    
    
    1,128,354
    
    
    
    2.7
    %Average length of stay (in days)
    
    
    16.9
    
    
    
    17.0
    
    
    
    -0.6
    %Revenue per patient day
    
    $
    581
    
    
    $
    553
    
    
    
    5.1
    %Total facility results:Revenue (in thousands)
    
    $
    791,083
    
    
    $
    629,643
    
    
    
    25.6
    %Admissions
    
    
    83,234
    
    
    
    66,839
    
    
    
    24.5
    %Patient days
    
    
    1,381,918
    
    
    
    1,138,975
    
    
    
    21.3
    %Average length of stay (in days)
    
    
    16.6
    
    
    
    17.0
    
    
    
    -2.4
    %Revenue per patient day
    
    $
    572
    
    
    $
    553
    
    
    
    3.4
    %
 Revenue
 Salaries, wages and employee benefits
 Professional fees
 Supplies.
 Provision for doubtful accounts
 Other operating expenses
 22




---



##### Table of Contents



Depreciation and amortization
 Interest expense, net
 Loss from discontinued operations, net of taxes
 Liquidity and Capital Resources
      23




---



##### 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 21, 2009
and bearing interest of 4.3% and 6.4% at June 30, 2008
and December 31, 2007, respectively
    
    $
    210,000
    
    
    $
    
    
    
    $
    210,000
    
    
    $
    
    
    
    $
    Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 4.3% and 6.8% at June 30, 2008
and December 31, 2007, respectively
    
    
    571,438
    
    
    
    4,688
    
    
    
    7,500
    
    
    
    559,250
    
    
    
    7 3/4% Notes
    
    
    476,180
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    476,180Mortgage loans on facilities, maturing in 2036, 2037 and 2038
bearing fixed interest rates of 5.7% to 7.6%
    
    
    33,475
    
    
    
    410
    
    
    
    900
    
    
    
    1,019
    
    
    
    31,1461,291,093
    
    
    
    5,098
    
    
    
    218,400
    
    
    
    560,269
    
    
    
    507,326Lease and other obligations
    
    
    89,705
    
    
    
    16,619
    
    
    
    23,331
    
    
    
    12,633
    
    
    
    37,122Total contractual obligations
    
    $
    1,380,798
    
    
    $
    21,717
    
    
    $
    241,731
    
    
    $
    572,902
    
    
    $
    544,448
 
 (1)
    
    Excludes capital lease obligations, fair value of interest rate swap,
and other obligations totaling $9.9 million, which are included in
lease and other obligations. 3 4
 Critical Accounting Policies
  Allowance for Doubtful Accounts
  24




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##### Table of Contents



Allowances for Contractual Discounts
  Professional and General Liability
  Income Taxes
  Accounting for Uncertainty in Income Taxes An Interpretation of FASB Statement No. 109,
 Share-Based Compensation
 Share Based Payment
 25




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  (1)
    
    The stockholders elected Joey A. Jacobs, Edward K. Wissing and William M. Petrie, M.D. as
Class III directors of the Company. The votes were as follows:
 Joey A. JacobsVotes cast for
    
    
    47,441,621Votes withheld
    
    
    2,493,332Edward K. WissingVotes cast for
    
    
    47,436,601Votes withheld
    
    
    2,498,352William M. Petrie, M.D.Votes cast for
    
    
    47,357,621Votes withheld
    
    
    2,577,332
 (2)
    
    The stockholders approved an amendment to increase the number of shares of common stock
subject to grant under the
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##### Table of Contents



Psychiatric Solutions, Inc. Equity Incentive Plan by 2,000,000.
The votes were as follows:
 Votes cast for
    
    
    35,892,080Votes cast against
    
    
    9,999,207Abstentions
    
    
    25,395
 (3)
    
    The stockholders ratified the appointment of Ernst & Young LLP as our independent
registered public accounting firm for the fiscal year ending December 31, 2008. The votes
were as follows:
 Votes cast for
    
    
    49,903,373Votes cast against
    
    
    29,968Abstentions
    
    
    1,612
 
 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).10.1
    
    Fourth Amendment to the Psychiatric Solutions, Inc. Equity Incentive
Plan (incorporated by reference to Appendix A to the Companys
Definitive Proxy Statement, filed on April 10, 2008).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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SIGNATURES
  Psychiatric Solutions, Inc.By:
    /s/ Jack E. PolsonJack E. PolsonExecutive Vice President, Chief Accounting Officer