UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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þ
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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for the quarterly period ended June 30, 2010
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or
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o
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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for the transition period from
to
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Commission file number 0-20488
Psychiatric Solutions, Inc.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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23-2491707
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(State or Other Jurisdiction of Incorporation or
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(I.R.S. Employer Identification No.)
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Organization)
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6640 Carothers Parkway, Suite 500
Franklin, TN 37067
(Address of Principal Executive Offices, Including Zip Code)
(615) 312-5700
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ
Yes
o
No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
þ
Yes
o
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o
Yes
þ
No
As of August 2, 2010, 57,239,027 shares of the registrants common stock were outstanding.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PSYCHIATRIC SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
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June 30,
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December 31,
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2010
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2009
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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49,698
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$
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6,815
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Accounts receivable, less allowance for doubtful accounts of
$56,120 and $51,894, respectively
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254,412
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249,439
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Other current assets
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85,760
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105,166
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Total current assets
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389,870
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361,420
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Property and equipment, net of accumulated depreciation
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965,833
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931,730
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Cost in excess of net assets acquired
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1,153,111
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1,153,111
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Other assets
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58,959
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60,979
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Total assets
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$
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2,567,773
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$
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2,507,240
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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41,057
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$
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35,397
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Salaries and benefits payable
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100,101
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81,129
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Other accrued liabilities
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74,304
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62,036
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Current portion of long-term debt
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4,742
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4,940
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Total current liabilities
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220,204
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183,502
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Long-term debt, less current portion
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1,125,625
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1,182,139
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Deferred tax liability
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82,260
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81,137
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Other liabilities
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32,932
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25,790
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Total liabilities
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1,461,021
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1,472,568
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Redeemable noncontrolling interests
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4,336
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4,337
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Stockholders equity:
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Common stock, $0.01 par value, 125,000 shares authorized;
57,237 and 56,226 issued and outstanding, respectively
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572
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562
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Additional paid-in capital
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636,214
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627,476
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Retained earnings
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465,630
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402,297
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Total stockholders equity
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1,102,416
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1,030,335
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Total liabilities and stockholders equity
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$
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2,567,773
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$
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2,507,240
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See accompanying notes.
1
PSYCHIATRIC SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except for per share amounts)
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Three Months Ended June 30,
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Six Months Ended June 30,
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2010
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2009
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2010
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2009
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Revenue
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$
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502,694
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$
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455,287
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$
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978,650
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$
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889,217
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Salaries, wages and employee benefits (including share-based
compensation of $4,282, $4,457, $7,792 and $9,276 for the
respective three and six month periods in 2010 and 2009)
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263,298
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249,904
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522,773
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494,190
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Professional fees
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50,718
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42,362
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95,646
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82,292
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Supplies
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24,304
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23,492
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47,982
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46,412
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Rentals and leases
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4,843
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5,049
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9,678
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10,129
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Other operating expenses
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56,316
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40,821
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107,211
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82,087
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Provision for doubtful accounts
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10,104
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8,290
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21,937
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16,752
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Depreciation and amortization
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12,879
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10,915
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25,269
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21,468
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Interest expense
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16,553
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18,103
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33,051
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34,712
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439,015
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398,936
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863,547
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788,042
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Income from continuing operations before income taxes
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63,679
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56,351
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115,103
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101,175
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Provision for income taxes
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24,612
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21,565
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44,295
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38,729
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Income from continuing operations
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39,067
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34,786
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70,808
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62,446
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Loss from discontinued operations, net of income tax benefit
of $2,204, $155, $4,033 and $303 for the respective
three and six month periods of 2010 and 2009
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(3,929
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)
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(172
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(7,425
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(311
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Net income
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35,138
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34,614
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63,383
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62,135
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Less: Net income attributable to noncontrolling interests
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(18
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(206
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(50
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(345
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Net income attributable to PSI stockholders
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$
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35,120
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$
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34,408
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$
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63,333
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$
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61,790
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Basic earnings per share:
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Income from continuing operations attributable to PSI
stockholders
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$
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0.70
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$
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0.62
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$
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1.27
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$
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1.12
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Loss from discontinued operations, net of taxes
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(0.07
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)
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(0.14
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)
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(0.01
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)
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Net income attributable to PSI stockholders
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$
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0.63
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$
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0.62
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$
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1.13
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$
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1.11
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Diluted earnings per share:
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Income from continuing operations attributable to PSI
stockholders
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$
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0.69
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$
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0.62
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$
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1.25
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$
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1.11
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Loss from discontinued operations, net of taxes
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(0.07
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)
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(0.13
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)
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(0.01
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Net income attributable to PSI stockholders
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$
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0.62
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$
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0.62
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$
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1.12
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$
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1.10
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Shares used in computing per share amounts:
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Basic
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55,889
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55,559
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55,802
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55,531
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Diluted
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56,995
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55,921
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56,691
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55,948
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Amounts attributable to PSI stockholders:
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Income from continuing operations
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$
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39,049
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$
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34,580
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$
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70,758
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$
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62,101
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Loss from discontinued operations, net of taxes
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(3,929
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)
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(172
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)
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(7,425
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)
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(311
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)
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Net income
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$
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35,120
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$
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34,408
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$
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63,333
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$
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61,790
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See accompanying notes.
2
PSYCHIATRIC SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
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Six Months Ended June 30,
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2010
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2009
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Operating activities:
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Net income
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$
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63,383
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$
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62,135
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Adjustments to reconcile net income to
net cash provided by continuing
operating activities:
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Depreciation and amortization
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25,269
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21,468
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Amortization of loan costs and bond discount/premium
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3,136
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2,034
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Share-based compensation
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7,792
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9,276
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Change in income tax assets and liabilities
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15,849
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21,579
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Loss from discontinued operations, net of taxes
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7,425
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311
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Changes in operating assets and liabilities,
net of effect of acquisitions:
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Accounts receivable
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(4,973
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)
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(2,125
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Other current assets
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1,180
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|
547
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Accounts payable
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7,586
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(2,646
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)
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Salaries and benefits payable
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18,972
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2,848
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Accrued liabilities and other liabilities
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9,542
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2,681
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Net cash provided by continuing operating activities
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155,161
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118,108
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Net cash provided by discontinued operating activities
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1,656
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|
142
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Net cash provided by operating activities
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156,817
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118,250
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Investing activities:
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Cash paid for real estate acquisitions
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(18,996
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)
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Capital purchases of leasehold improvements,
equipment and software
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(57,605
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)
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(62,141
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)
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Other assets
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(112
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)
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430
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Net cash used in continuing investing activities
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(57,717
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)
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(80,707
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)
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Net cash used in discontinued investing activities
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(12
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)
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(499
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)
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Net cash used in investing activities
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(57,729
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)
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(81,206
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)
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Financing activities:
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Net decrease in revolving credit facility
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(169,333
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)
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Borrowings on long-term debt
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106,500
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Principal payments on long-term debt
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(57,999
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)
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(2,553
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)
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Payment of loan and issuance costs
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(22
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)
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(8,110
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)
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Distributions to noncontrolling interests
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(51
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)
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Repurchase of common stock upon restricted stock vesting
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(490
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)
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(953
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)
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Proceeds from exercises of common stock options
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2,357
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390
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Net cash used in financing activities
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(56,205
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)
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(74,059
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)
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Net increase (decrease) in cash
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42,883
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(37,015
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)
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Cash and cash equivalents at beginning of the period
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|
6,815
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|
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51,271
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|
|
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Cash and cash equivalents at end of the period
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|
$
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49,698
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$
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14,256
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|
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|
See accompanying notes.
3
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2010
1. Recent Developments
On May 16, 2010, we entered into an Agreement and Plan of Merger (the Merger Agreement) with
Universal Health Services, Inc., a Delaware corporation (UHS), and Olympus Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of UHS (Merger Sub). Under the terms of the
Merger Agreement, Merger Sub will be merged with and into us, with us continuing as the surviving
corporation and a wholly-owned subsidiary of UHS (the Merger).
At the effective time of the Merger, each outstanding share of our common stock (the Common
Stock), other than shares held in our treasury or owned by UHS or Merger Sub, or owned by any
stockholders who are entitled to and who properly exercise appraisal rights under Delaware law,
will be cancelled and converted into the right to receive $33.75 in cash, without interest (the
Merger Consideration), or an aggregate of approximately $2.0 billion. Including the assumption of
approximately $1.1 billion in net debt, the total transaction consideration is approximately $3.1
billion.
We made customary representations, warranties and covenants in the Merger Agreement. We are subject
to a no-shop restriction on our ability to solicit third-party proposals, provide information and
engage in discussions with third parties. The no-shop provision is subject to a fiduciary-out
provision that allows us to provide information and participate in discussions with respect to
third party proposals submitted after the date of the Merger Agreement if our Board of Directors
(acting through the special committee of the Board of Directors (the Special Committee) or
otherwise) determines in good faith (after consultation with its advisors) that such proposal is,
or could reasonably be expected to result in, a superior proposal, as defined in the Merger
Agreement, and that failure to take such actions would be inconsistent with our Board of Directors
fiduciary duties.
The Merger Agreement contains termination rights, including if our Board of Directors (or the
Special Committee) changes its recommendation to our stockholders if the failure to do so would be
inconsistent with its fiduciary duties under applicable law, and provides that, upon the
termination of the Merger Agreement, under specified circumstances, we will be required to
reimburse UHS for its transaction expenses and that, under specified circumstances, we will be
required to pay UHS a termination fee of $71.5 million.
The parties to the Merger Agreement are entitled to specific performance of the terms and
provisions of the Merger Agreement, in addition to any other remedy to which they are entitled,
including damages for any breach of the Merger Agreement by the other party. Consummation of the
Merger is not subject to a financing condition, but is subject to various other conditions,
including adoption of the Merger Agreement by our stockholders, expiration or termination of
applicable waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (HSR Act) and other
customary closing conditions.
On July 28, 2010, PSI and UHS each received a Request for Additional
Information (Second Request) from the Federal Trade
Commission (FTC) in connection with their filings under
the HSR Act. The Second Request has the effect of extending the
waiting period for an additional 30 calendar days from the date of
both the parties substantial compliance with the request,
unless the waiting period is terminated sooner by the FTC or
voluntarily extended by the parties.
The parties expect to close the transaction during the fourth quarter
of 2010. Where this Quarterly Report on Form 10-Q discusses our future plans, strategies or
activities, such discussion does not give effect to the proposed Merger.
On November 2, 2009, we completed the sale of our employee assistance program (EAP) business for
approximately $68.5 million in cash, net of fees and expenses.
On September 30, 2009, we completed the acquisition of a 90-bed inpatient behavioral health care
facility located in Panama City, Florida. On September 1, 2009, we completed the acquisition of a
131-bed inpatient behavioral health care facility located in Fargo, North Dakota.
2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles (GAAP) for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by GAAP for audited financial
statements. The condensed consolidated balance sheet at December 31, 2009 has been derived from the
audited financial statements as of that date, but does not include all of the information and
footnotes required by GAAP for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for fair presentation of
our financial position have been included. The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the amounts reported in
the condensed consolidated financial statements and accompanying notes. Actual results could differ from
those estimates. The majority of our expenses are cost of revenue items. Costs that could be
classified as general and administrative expenses at our corporate office, excluding share-based
compensation expense, were approximately 3.3% of net revenue for the six months ended June 30,
2010, which includes approximately $6.4 million in costs related to our agreement to be acquired by
UHS. Operating results for the three and six months ended June 30, 2010 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2010. For further
information, refer to the financial statements and footnotes thereto included in our Annual Report
on Form 10-K for the year ended December 31, 2009.
4
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2010
3. Earnings Per Share
GAAP requires dual presentation of basic and diluted earnings per share by entities with complex
capital structures. Basic earnings per share includes no dilution and is computed by dividing net
income available to common stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share also includes the potential dilution of securities that
could share in our earnings. We have calculated earnings per share accordingly for all periods
presented.
The following table sets forth the computation of basic and diluted earnings per share (in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to PSI stockholders
|
|
$
|
39,049
|
|
|
$
|
34,580
|
|
|
$
|
70,758
|
|
|
$
|
62,101
|
|
Loss from discontinued operations, net of taxes
|
|
|
(3,929
|
)
|
|
|
(172
|
)
|
|
|
(7,425
|
)
|
|
|
(311
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to PSI stockholders
|
|
$
|
35,120
|
|
|
$
|
34,408
|
|
|
$
|
63,333
|
|
|
$
|
61,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for basic earnings per share
|
|
|
55,889
|
|
|
|
55,559
|
|
|
|
55,802
|
|
|
|
55,531
|
|
Effects of dilutive stock options and restriced stock outstanding
|
|
|
1,106
|
|
|
|
362
|
|
|
|
889
|
|
|
|
417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted earnings per common share
|
|
|
56,995
|
|
|
|
55,921
|
|
|
|
56,691
|
|
|
|
55,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to PSI stockholders
|
|
$
|
0.70
|
|
|
$
|
0.62
|
|
|
$
|
1.27
|
|
|
$
|
1.12
|
|
Loss from discontinued operations, net of taxes
|
|
|
(0.07
|
)
|
|
|
|
|
|
|
(0.14
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to PSI stockholders
|
|
$
|
0.63
|
|
|
$
|
0.62
|
|
|
$
|
1.13
|
|
|
$
|
1.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to PSI stockholders
|
|
$
|
0.69
|
|
|
$
|
0.62
|
|
|
$
|
1.25
|
|
|
$
|
1.11
|
|
Loss from discontinued operations, net of taxes
|
|
|
(0.07
|
)
|
|
|
|
|
|
|
(0.13
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to PSI stockholders
|
|
$
|
0.62
|
|
|
$
|
0.62
|
|
|
$
|
1.12
|
|
|
$
|
1.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. Share-Based Compensation
We recognized $4.3 million and $4.5 million in share-based compensation expense for
the three months ended June 30, 2010 and 2009, respectively, and approximately $1.7 million of
related income tax benefit in each period. We recognized $7.8 million and $9.3
million in share-based compensation expense and approximately $3.0 million and $3.6 million of
related income tax benefit for the six months ended June 30, 2010 and 2009, respectively. The fair
value of our stock options was estimated using the Black-Scholes option pricing model. The impact
of share-based compensation expense, net of tax, on our earnings per share was approximately $0.05
per share for each of the three month periods ended June 30, 2010 and 2009. The impact of
share-based compensation expense, net of tax, on our earnings per share was approximately $0.08 and
$0.10 per share for the six months ended June 30, 2010 and 2009, respectively.
Based on our stock option and restricted stock grants outstanding at June 30, 2010, we estimate
remaining unrecognized share-based compensation expense to be approximately $44.8 million with a
weighted average remaining life of 2.7 years.
Employees and non-employee members of our Board of Directors exercised 130,320 stock options during
the six months ended June 30, 2010. Also during 2010, 189,799 shares of restricted stock vested and
22,399 of those shares were surrendered by our employees and cancelled in satisfaction of the
employees related tax liabilities. The total intrinsic value, which represents the difference
between the underlying stocks market price and the share-based awards exercise price, of options
exercised and restricted stock vested during the six months ended June 30, 2010 and 2009 was
approximately $5.5 million and $3.9 million, respectively.
We granted 842,750 stock options to employees during the six months ended June 30, 2010. These
options vest over four years in
annual increments of 25% on each anniversary of the grant date and each had a grant-date fair value
of $7.92.
5
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2010
We granted 915,200 shares of restricted stock to employees and non-employee members of our Board of
Directors during the six months ended June 30, 2010. These shares of restricted stock vest over
four years in annual increments of 25% on each anniversary of the grant date and had a
weighted-average grant-date fair value of $21.24 per share.
5. Acquisitions
On September 1, 2009, we completed the acquisition of a 131-bed inpatient behavioral health care
facility located in Fargo, North Dakota. On September 30, 2009, we completed the acquisition of a
90-bed inpatient behavioral health care facility located in Panama City, Florida.
The balance of cost in excess of net assets acquired (goodwill) was approximately $1.2 billion as
of June 30, 2010 and December 31, 2009.
6. Long-term debt
Long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Senior credit facility:
|
|
|
|
|
|
|
|
|
Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 2.2% and 2.0% at June 30, 2010
and December 31, 2009, respectively
|
|
$
|
507,593
|
|
|
$
|
564,875
|
|
7 3/4% Notes
|
|
|
583,139
|
|
|
|
582,666
|
|
Mortgage loans on facilities, maturing in 2036, 2037 and 2038
bearing fixed interest rates of 5.7% to 7.6%
|
|
|
32,629
|
|
|
|
32,850
|
|
Other
|
|
|
7,006
|
|
|
|
6,688
|
|
|
|
|
|
|
|
|
|
|
|
1,130,367
|
|
|
|
1,187,079
|
|
Less current portion
|
|
|
4,742
|
|
|
|
4,940
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
1,125,625
|
|
|
$
|
1,182,139
|
|
|
|
|
|
|
|
|
Senior Credit Facility
Our Senior Credit Facility (the Credit Agreement) includes a $300 million revolving line of
credit facility administered by Bank of America, N.A. and a $575 million senior secured term loan
facility administered by Citicorp North America, Inc. During 2009, our revolving credit facility
was amended to extend the maturity to December 31, 2011. Quarterly principal payments of $0.8
million are due on our senior secured term loan facility and the balance of our senior secured term
loan facility is payable in full on July 1, 2012.
Our Credit Agreement is secured by substantially all of the personal property owned by us or our
subsidiaries, substantially all real property owned by us or our subsidiaries that has a value in
excess of $5.0 million and the stock of substantially all of our operating subsidiaries. In
addition, the Credit Agreement is fully and unconditionally guaranteed by substantially all of our
operating subsidiaries. The revolving credit facility and senior secured term loan facility accrue
interest at our choice of the Base Rate or the Eurodollar Rate (as defined in the Credit
Agreement). The Base Rate and Eurodollar Rate fluctuate based upon market rates and certain
leverage ratios, as defined in the Credit Agreement. At June 30, 2010, we had no borrowings
outstanding and $295.7 million available for future borrowings under the revolving credit facility.
Until December 31, 2011, we may borrow, repay and re-borrow an amount not to exceed $300 million on
our revolving credit facility. On June 30, 2010, we made a $50.0 million optional repayment under
the senior secured term loan facility. All repayments made under the senior secured term loan
facility are a permanent reduction in the amount available for future borrowings. We pay a
quarterly commitment fee on the unused portion of our revolving credit facility that fluctuates,
based upon certain leverage ratios, between 0.75% and 1.0% per annum. Commitment fees were
approximately $1.1 million for the six months ended June 30, 2010.
Our Credit Agreement contains customary covenants that include: (1) a limitation on capital
expenditures and investments, sales of assets, mergers, changes of ownership, new principal lines
of business, indebtedness, transactions with affiliates, dividends and
redemptions; (2) various financial covenants; and (3) cross-default covenants triggered by a
default of any other indebtedness of at least $5.0 million. As of June 30, 2010, we were in
compliance with all debt covenant requirements. If we violate one or more of these covenants,
amounts outstanding under the revolving credit facility, senior secured term loan facility and the
majority of our other debt arrangements could become immediately payable and additional borrowings
could be restricted.
6
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2010
7
3
/
4
% Notes
The 7
3
/
4
% Senior Subordinated Notes due 2015 (the
7
3
/
4
% Notes) mature on July 15, 2015 and are fully and unconditionally
guaranteed on a senior subordinated basis by substantially all of our existing operating
subsidiaries. In May 2009, we issued $120 million of the 7
3
/
4
% Notes at a
discount of 11.25%. This discount is being amortized over the remaining life of the
7
3
/
4
% Notes using the effective interest rate method, which results in an
effective interest rate of 10.2% per annum on the $120 million issuance. We received a premium of
2.75% plus accrued interest from the sale of $250 million of 7
3
/
4
% Notes in
2007. This premium is being amortized over the remaining life of the 7
3
/
4
%
Notes using the effective interest method, which results in an effective interest rate of 7.3% on
the $250 million issuance. We also issued $220 million of the 7
3
/
4
% Notes in
2005. Interest on the 7
3
/
4
% Notes is payable semi-annually in arrears on
January 15 and July 15.
Mortgage Loans
At June 30, 2010, we had approximately $32.6 million debt outstanding under mortgage loan
agreements insured by the U.S. Department of Housing and Urban Development (HUD). The mortgage
loans insured by HUD are secured by real estate located at Holly Hill Hospital in Raleigh, North
Carolina, West Oaks Hospital in Houston, Texas, Riveredge Hospital near Chicago, Illinois, Canyon
Ridge Hospital in Chino, California and MeadowWood Behavioral Health in New Castle, Delaware.
Interest accrues on the Holly Hill, West Oaks, Riveredge, Canyon Ridge and MeadowWood HUD loans at
6.0%, 5.9%, 5.7%, 7.6% and 7.0%, respectively, and principal and interest are payable in 420
monthly installments through December 2037, September 2038, December 2038, January 2036 and October
2036, respectively. The carrying amount of assets held as collateral for the HUD loans approximated
$59.3 million at June 30, 2010.
7. Income Taxes
The provision for income taxes for continuing operations for the six months ended June 30, 2010 and
2009 reflects an effective tax rate of approximately 38.5% and 38.3%, respectively.
8. Discontinued Operations
GAAP requires that all components of an entity that have been disposed of (by sale, by abandonment
or in a distribution to owners) or are held for sale and whose cash flows can be clearly
distinguished from the rest of the entity be presented as discontinued operations. During 2009, we
sold our EAP business, elected to close and sell Nashville Rehabilitation Hospital, The Oaks
Treatment Center and Cumberland Hall of Chattanooga, and terminated one contract with a South
Carolina juvenile justice agency. With the exception of our EAP business that was reported in our
other segment, the results of these operations were reported in our owned and leased facilities
segment prior to the decision to discontinue.
The components of loss from discontinued operations, net of taxes, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Revenue
|
|
$
|
|
|
|
$
|
18,278
|
|
|
$
|
2,446
|
|
|
$
|
36,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
2,530
|
|
|
|
18,605
|
|
|
|
7,663
|
|
|
|
37,323
|
|
Loss on disposal
|
|
|
3,603
|
|
|
|
|
|
|
|
6,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,133
|
|
|
|
18,605
|
|
|
|
13,904
|
|
|
|
37,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations before income taxes
|
|
|
(6,133
|
)
|
|
|
(327
|
)
|
|
|
(11,458
|
)
|
|
|
(614
|
)
|
Income tax
benefit
|
|
|
(2,204
|
)
|
|
|
(155
|
)
|
|
|
(4,033
|
)
|
|
|
(303
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of income taxes
|
|
$
|
(3,929
|
)
|
|
$
|
(172
|
)
|
|
$
|
(7,425
|
)
|
|
$
|
(311
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. Disclosures About Reportable Segments
In accordance with GAAP, our owned and leased behavioral health care facilities segment is our only
reportable segment. Our chief operating decision maker regularly reviews the operating results of
our inpatient facilities on a combined basis, which represent more than 90% of our consolidated
revenue. As of June 30, 2010, the owned and leased facilities segment provides mental health and
behavioral health services to patients in its 85 owned and 8 leased inpatient facilities in 32
states, Puerto Rico and the U.S. Virgin
7
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2010
Islands. The column entitled Other in the schedules below
includes management contracts to provide inpatient psychiatric management and development services
to inpatient behavioral health units in hospitals and clinics and a managed care plan in Puerto
Rico. The operations included in the Other column do not qualify as reportable segments.
Activities classified as Corporate in the following schedules relate primarily to unallocated
home office expenses and discontinued operations. In the
second quarter of 2010 we recognized approximately $12.1 million in
revenue received by our Mississippi facilities from the
Medicare/Medicaid Upper Payment Limits Program for the twelve months
ended June 30, 2010. The additional UPL Program revenue was partially
offset by additional taxes of approximately $7.0 million paid under
the Mississippi Hospital Assessment Program in the second quarter of
2010.
Adjusted EBITDA is a non-GAAP financial measure and is defined as income from continuing operations
before interest expense (net of interest income), income taxes,
depreciation, amortization, share-based
compensation and other items included in the caption labeled Other expenses. These other expenses
may occur in future periods, but the amounts recognized can vary significantly from period to
period and do not directly relate to the ongoing operations of our health care facilities. Our
management relies on adjusted EBITDA as the primary measure to review and assess the operating
performance of our inpatient facilities and their management teams. We believe it is useful to
investors to provide disclosures of our operating results on the same basis as that used by
management. Management and investors also review adjusted EBITDA to evaluate our overall
performance and to compare our current operating results with corresponding periods and with other
companies in the health care industry. You should not consider adjusted EBITDA in isolation or as a
substitute for net income, operating cash flows or other cash flow statement data determined in
accordance with GAAP. Because adjusted EBITDA is not a measure of financial performance under GAAP
and is susceptible to varying calculations, it may not be comparable to similarly titled measures
of other companies. The following is a financial summary by reportable segment for the periods
indicated (dollars in thousands):
Three Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned and
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities
|
|
|
Other
|
|
|
Corporate
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
467,119
|
|
|
$
|
35,575
|
|
|
$
|
|
|
|
$
|
502,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
112,015
|
|
|
$
|
4,048
|
|
|
$
|
(18,688
|
)
|
|
$
|
97,375
|
|
Interest expense
|
|
|
7,156
|
|
|
|
81
|
|
|
|
9,316
|
|
|
|
16,553
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
24,612
|
|
|
|
24,612
|
|
Depreciation and amortization
|
|
|
11,417
|
|
|
|
1,036
|
|
|
|
426
|
|
|
|
12,879
|
|
Inter-segment expenses
|
|
|
13,512
|
|
|
|
1,172
|
|
|
|
(14,684
|
)
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
4,282
|
|
|
|
4,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
|
|
|
|
|
|
|
|
4,282
|
|
|
|
4,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable
to
PSI stockholders
|
|
$
|
79,930
|
|
|
$
|
1,759
|
|
|
$
|
(42,640
|
)
|
|
$
|
39,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,380,683
|
|
|
$
|
59,676
|
|
|
$
|
127,414
|
|
|
$
|
2,567,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2010
Three Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned and
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities
|
|
|
Other
|
|
|
Corporate
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
423,889
|
|
|
$
|
31,398
|
|
|
$
|
|
|
|
$
|
455,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
97,211
|
|
|
$
|
4,007
|
|
|
$
|
(11,598
|
)
|
|
$
|
89,620
|
|
Interest expense
|
|
|
7,139
|
|
|
|
(496
|
)
|
|
|
11,460
|
|
|
|
18,103
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
21,565
|
|
|
|
21,565
|
|
Depreciation and amortization
|
|
|
9,410
|
|
|
|
1,103
|
|
|
|
402
|
|
|
|
10,915
|
|
Inter-segment expenses
|
|
|
14,454
|
|
|
|
1,265
|
|
|
|
(15,719
|
)
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
4,457
|
|
|
|
4,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
|
|
|
|
|
|
|
|
4,457
|
|
|
|
4,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable
to
PSI stockholders
|
|
$
|
66,208
|
|
|
$
|
2,135
|
|
|
$
|
(33,763
|
)
|
|
$
|
34,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,263,324
|
|
|
$
|
59,079
|
|
|
$
|
185,696
|
|
|
$
|
2,508,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned and
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities
|
|
|
Other
|
|
|
Corporate
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
909,888
|
|
|
$
|
68,762
|
|
|
$
|
|
|
|
$
|
978,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
207,064
|
|
|
$
|
6,283
|
|
|
$
|
(32,182
|
)
|
|
$
|
181,165
|
|
Interest expense
|
|
|
14,364
|
|
|
|
160
|
|
|
|
18,527
|
|
|
|
33,051
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
44,295
|
|
|
|
44,295
|
|
Depreciation and amortization
|
|
|
22,338
|
|
|
|
2,087
|
|
|
|
844
|
|
|
|
25,269
|
|
Inter-segment expenses
|
|
|
26,981
|
|
|
|
2,383
|
|
|
|
(29,364
|
)
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
7,792
|
|
|
|
7,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
|
|
|
|
|
|
|
|
7,792
|
|
|
|
7,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable
to
PSI stockholders
|
|
$
|
143,381
|
|
|
$
|
1,653
|
|
|
$
|
(74,276
|
)
|
|
$
|
70,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,380,683
|
|
|
$
|
59,676
|
|
|
$
|
127,414
|
|
|
$
|
2,567,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2010
Six Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned and
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities
|
|
|
Other
|
|
|
Corporate
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
827,892
|
|
|
$
|
61,325
|
|
|
$
|
|
|
|
$
|
889,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
181,274
|
|
|
$
|
9,043
|
|
|
$
|
(24,031
|
)
|
|
$
|
166,286
|
|
Interest expense
|
|
|
14,234
|
|
|
|
(944
|
)
|
|
|
21,422
|
|
|
|
34,712
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
38,729
|
|
|
|
38,729
|
|
Depreciation and amortization
|
|
|
18,429
|
|
|
|
2,246
|
|
|
|
793
|
|
|
|
21,468
|
|
Inter-segment expenses
|
|
|
31,661
|
|
|
|
2,811
|
|
|
|
(34,472
|
)
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
9,276
|
|
|
|
9,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
|
|
|
|
|
|
|
|
9,276
|
|
|
|
9,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable
to PSI stockholders
|
|
$
|
116,950
|
|
|
$
|
4,930
|
|
|
$
|
(59,779
|
)
|
|
$
|
62,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,263,324
|
|
|
$
|
59,079
|
|
|
$
|
185,696
|
|
|
$
|
2,508,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. Financial Information for the Company and Its Subsidiaries
We conduct substantially all of our business through our subsidiaries. Presented below is
consolidated financial information for Psychiatric Solutions, Inc. and its subsidiaries as of June
30, 2010 and December 31, 2009, and for the three and six months ended June 30, 2010 and 2009. The
information segregates the parent company (Psychiatric Solutions, Inc.), the combined wholly-owned
subsidiary guarantors, the combined non-guarantors and eliminations. All of the subsidiary
guarantees are both full and unconditional and joint and several.
10
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2010
Condensed Consolidating Balance Sheet
As of June 30, 2010
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Combined Non-
|
|
|
Consolidating
|
|
|
Total Consolidated
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Amounts
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
29,788
|
|
|
$
|
19,910
|
|
|
$
|
|
|
|
$
|
49,698
|
|
Accounts receivable, net
|
|
|
|
|
|
|
245,704
|
|
|
|
8,776
|
|
|
|
(68
|
)
|
|
|
254,412
|
|
Other current assets
|
|
|
|
|
|
|
84,844
|
|
|
|
7,933
|
|
|
|
(7,017
|
)
|
|
|
85,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
360,336
|
|
|
|
36,619
|
|
|
|
(7,085
|
)
|
|
|
389,870
|
|
Property and equipment, net of accumulated depreciation
|
|
|
|
|
|
|
912,987
|
|
|
|
61,905
|
|
|
|
(9,059
|
)
|
|
|
965,833
|
|
Cost in excess of net assets acquired
|
|
|
|
|
|
|
1,153,111
|
|
|
|
|
|
|
|
|
|
|
|
1,153,111
|
|
Investment in subsidiaries
|
|
|
1,422,039
|
|
|
|
(302,592
|
)
|
|
|
(15,829
|
)
|
|
|
(1,103,618
|
)
|
|
|
|
|
Other assets
|
|
|
14,901
|
|
|
|
38,286
|
|
|
|
25,423
|
|
|
|
(19,651
|
)
|
|
|
58,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,436,940
|
|
|
$
|
2,162,128
|
|
|
$
|
108,118
|
|
|
$
|
(1,139,413
|
)
|
|
$
|
2,567,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
39,868
|
|
|
$
|
1,257
|
|
|
$
|
(68
|
)
|
|
$
|
41,057
|
|
Salaries and benefits payable
|
|
|
|
|
|
|
98,122
|
|
|
|
1,979
|
|
|
|
|
|
|
|
100,101
|
|
Other accrued liabilities
|
|
|
29,368
|
|
|
|
43,637
|
|
|
|
8,764
|
|
|
|
(7,465
|
)
|
|
|
74,304
|
|
Current portion of long-term debt
|
|
|
4,278
|
|
|
|
|
|
|
|
464
|
|
|
|
|
|
|
|
4,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
33,646
|
|
|
|
181,627
|
|
|
|
12,464
|
|
|
|
(7,533
|
)
|
|
|
220,204
|
|
Long-term debt, less current portion
|
|
|
1,093,460
|
|
|
|
|
|
|
|
32,165
|
|
|
|
|
|
|
|
1,125,625
|
|
Deferred tax liability
|
|
|
|
|
|
|
82,260
|
|
|
|
|
|
|
|
|
|
|
|
82,260
|
|
Other liabilities
|
|
|
4,146
|
|
|
|
(771
|
)
|
|
|
37,333
|
|
|
|
(7,776
|
)
|
|
|
32,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,131,252
|
|
|
|
263,116
|
|
|
|
81,962
|
|
|
|
(15,309
|
)
|
|
|
1,461,021
|
|
Redeemable noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,336
|
|
|
|
4,336
|
|
Total stockholders equity
|
|
|
305,688
|
|
|
|
1,899,012
|
|
|
|
26,156
|
|
|
|
(1,128,440
|
)
|
|
|
1,102,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,436,940
|
|
|
$
|
2,162,128
|
|
|
$
|
108,118
|
|
|
$
|
(1,139,413
|
)
|
|
$
|
2,567,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
As of December 31, 2009
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Combined Non-
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Amounts
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
2,111
|
|
|
$
|
4,704
|
|
|
$
|
|
|
|
$
|
6,815
|
|
Accounts receivable, net
|
|
|
|
|
|
|
241,211
|
|
|
|
8,296
|
|
|
|
(68
|
)
|
|
|
249,439
|
|
Other current assets
|
|
|
|
|
|
|
90,259
|
|
|
|
16,284
|
|
|
|
(1,377
|
)
|
|
|
105,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
333,581
|
|
|
|
29,284
|
|
|
|
(1,445
|
)
|
|
|
361,420
|
|
Property and equipment, net of accumulated depreciation
|
|
|
|
|
|
|
879,453
|
|
|
|
61,491
|
|
|
|
(9,214
|
)
|
|
|
931,730
|
|
Cost in excess of net assets acquired
|
|
|
|
|
|
|
1,153,111
|
|
|
|
|
|
|
|
|
|
|
|
1,153,111
|
|
Investment in subsidiaries
|
|
|
1,486,852
|
|
|
|
(368,332
|
)
|
|
|
(16,964
|
)
|
|
|
(1,101,556
|
)
|
|
|
|
|
Other assets
|
|
|
17,536
|
|
|
|
37,420
|
|
|
|
25,372
|
|
|
|
(19,349
|
)
|
|
|
60,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,504,388
|
|
|
$
|
2,035,233
|
|
|
$
|
99,183
|
|
|
$
|
(1,131,564
|
)
|
|
$
|
2,507,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
34,467
|
|
|
$
|
998
|
|
|
$
|
(68
|
)
|
|
$
|
35,397
|
|
Salaries and benefits payable
|
|
|
|
|
|
|
80,255
|
|
|
|
874
|
|
|
|
|
|
|
|
81,129
|
|
Other accrued liabilities
|
|
|
28,901
|
|
|
|
32,783
|
|
|
|
1,610
|
|
|
|
(1,258
|
)
|
|
|
62,036
|
|
Current portion of long-term debt
|
|
|
4,490
|
|
|
|
|
|
|
|
450
|
|
|
|
|
|
|
|
4,940
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
33,391
|
|
|
|
147,505
|
|
|
|
3,932
|
|
|
|
(1,326
|
)
|
|
|
183,502
|
|
Long-term debt, less current portion
|
|
|
1,149,738
|
|
|
|
|
|
|
|
32,401
|
|
|
|
|
|
|
|
1,182,139
|
|
Deferred tax liability
|
|
|
|
|
|
|
81,137
|
|
|
|
|
|
|
|
|
|
|
|
81,137
|
|
Other liabilities
|
|
|
127
|
|
|
|
(6,324
|
)
|
|
|
36,069
|
|
|
|
(4,082
|
)
|
|
|
25,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,183,256
|
|
|
|
222,318
|
|
|
|
72,402
|
|
|
|
(5,408
|
)
|
|
|
1,472,568
|
|
Redeemable noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,337
|
|
|
|
4,337
|
|
Total stockholders equity
|
|
|
321,132
|
|
|
|
1,812,915
|
|
|
|
26,781
|
|
|
|
(1,130,493
|
)
|
|
|
1,030,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,504,388
|
|
|
$
|
2,035,233
|
|
|
$
|
99,183
|
|
|
$
|
(1,131,564
|
)
|
|
$
|
2,507,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2010
Condensed Consolidating Statement of Income
For the Three Months Ended June 30, 2010
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Combined Non-
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Amounts
|
|
Revenue
|
|
$
|
|
|
|
$
|
491,486
|
|
|
$
|
15,328
|
|
|
$
|
(4,120
|
)
|
|
$
|
502,694
|
|
Salaries, wages and employee benefits
|
|
|
|
|
|
|
256,559
|
|
|
|
6,739
|
|
|
|
|
|
|
|
263,298
|
|
Professional fees
|
|
|
|
|
|
|
49,371
|
|
|
|
1,737
|
|
|
|
(390
|
)
|
|
|
50,718
|
|
Supplies
|
|
|
|
|
|
|
23,666
|
|
|
|
638
|
|
|
|
|
|
|
|
24,304
|
|
Rentals and leases
|
|
|
|
|
|
|
5,855
|
|
|
|
148
|
|
|
|
(1,160
|
)
|
|
|
4,843
|
|
Other operating expenses
|
|
|
|
|
|
|
55,325
|
|
|
|
5,684
|
|
|
|
(4,693
|
)
|
|
|
56,316
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
9,856
|
|
|
|
248
|
|
|
|
|
|
|
|
10,104
|
|
Depreciation and amortization
|
|
|
|
|
|
|
12,288
|
|
|
|
668
|
|
|
|
(77
|
)
|
|
|
12,879
|
|
Interest expense
|
|
|
16,055
|
|
|
|
|
|
|
|
498
|
|
|
|
|
|
|
|
16,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,055
|
|
|
|
412,920
|
|
|
|
16,360
|
|
|
|
(6,320
|
)
|
|
|
439,015
|
|
(Loss) income from continuing operations before
income taxes
|
|
|
(16,055
|
)
|
|
|
78,566
|
|
|
|
(1,032
|
)
|
|
|
2,200
|
|
|
|
63,679
|
|
(Benefit from) provision for income taxes
|
|
|
(6,205
|
)
|
|
|
30,366
|
|
|
|
(399
|
)
|
|
|
850
|
|
|
|
24,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(9,850
|
)
|
|
|
48,200
|
|
|
|
(633
|
)
|
|
|
1,350
|
|
|
|
39,067
|
|
(Loss) income from discontinued operations, net of tax
|
|
|
|
|
|
|
(3,929
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,929
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(9,850
|
)
|
|
|
44,271
|
|
|
|
(633
|
)
|
|
|
1,350
|
|
|
|
35,138
|
|
Less: Net income attributable to noncontrolling
interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to PSI stockholders
|
|
$
|
(9,850
|
)
|
|
$
|
44,271
|
|
|
$
|
(633
|
)
|
|
$
|
1,332
|
|
|
$
|
35,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
For the Three Months Ended June 30, 2009
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Combined Non-
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Amounts
|
|
Revenue
|
|
$
|
|
|
|
$
|
444,807
|
|
|
$
|
13,417
|
|
|
$
|
(2,937
|
)
|
|
$
|
455,287
|
|
Salaries, wages and employee benefits
|
|
|
|
|
|
|
243,565
|
|
|
|
6,339
|
|
|
|
|
|
|
|
249,904
|
|
Professional fees
|
|
|
|
|
|
|
41,345
|
|
|
|
2,700
|
|
|
|
(1,683
|
)
|
|
|
42,362
|
|
Supplies
|
|
|
|
|
|
|
22,892
|
|
|
|
600
|
|
|
|
|
|
|
|
23,492
|
|
Rentals and leases
|
|
|
|
|
|
|
6,069
|
|
|
|
24
|
|
|
|
(1,044
|
)
|
|
|
5,049
|
|
Other operating expenses
|
|
|
|
|
|
|
39,936
|
|
|
|
2,460
|
|
|
|
(1,575
|
)
|
|
|
40,821
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
8,104
|
|
|
|
186
|
|
|
|
|
|
|
|
8,290
|
|
Depreciation and amortization
|
|
|
|
|
|
|
10,451
|
|
|
|
541
|
|
|
|
(77
|
)
|
|
|
10,915
|
|
Interest expense
|
|
|
17,672
|
|
|
|
|
|
|
|
432
|
|
|
|
(1
|
)
|
|
|
18,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,672
|
|
|
|
372,362
|
|
|
|
13,282
|
|
|
|
(4,380
|
)
|
|
|
398,936
|
|
(Loss) income from continuing operations before
income taxes
|
|
|
(17,672
|
)
|
|
|
72,445
|
|
|
|
135
|
|
|
|
1,443
|
|
|
|
56,351
|
|
(Benefit from) provision for income taxes
|
|
|
(6,763
|
)
|
|
|
27,724
|
|
|
|
52
|
|
|
|
552
|
|
|
|
21,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(10,909
|
)
|
|
|
44,721
|
|
|
|
83
|
|
|
|
891
|
|
|
|
34,786
|
|
(Loss) income from discontinued operations, net of tax
|
|
|
|
|
|
|
(407
|
)
|
|
|
235
|
|
|
|
|
|
|
|
(172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(10,909
|
)
|
|
|
44,314
|
|
|
|
318
|
|
|
|
891
|
|
|
|
34,614
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(206
|
)
|
|
|
(206
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to PSI stockholders
|
|
$
|
(10,909
|
)
|
|
$
|
44,314
|
|
|
$
|
318
|
|
|
$
|
685
|
|
|
$
|
34,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2010
Condensed Consolidating Statement of Income
For the Six Months Ended June 30, 2010
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Combined Non-
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Amounts
|
|
Revenue
|
|
$
|
|
|
|
$
|
956,341
|
|
|
$
|
27,871
|
|
|
$
|
(5,562
|
)
|
|
$
|
978,650
|
|
Salaries, wages and employee benefits
|
|
|
|
|
|
|
509,654
|
|
|
|
13,119
|
|
|
|
|
|
|
|
522,773
|
|
Professional fees
|
|
|
|
|
|
|
93,154
|
|
|
|
3,471
|
|
|
|
(979
|
)
|
|
|
95,646
|
|
Supplies
|
|
|
|
|
|
|
46,676
|
|
|
|
1,306
|
|
|
|
|
|
|
|
47,982
|
|
Rentals and leases
|
|
|
|
|
|
|
11,768
|
|
|
|
294
|
|
|
|
(2,384
|
)
|
|
|
9,678
|
|
Other operating expenses
|
|
|
|
|
|
|
104,998
|
|
|
|
7,676
|
|
|
|
(5,463
|
)
|
|
|
107,211
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
21,171
|
|
|
|
766
|
|
|
|
|
|
|
|
21,937
|
|
Depreciation and amortization
|
|
|
|
|
|
|
24,139
|
|
|
|
1,285
|
|
|
|
(155
|
)
|
|
|
25,269
|
|
Interest expense
|
|
|
32,081
|
|
|
|
|
|
|
|
970
|
|
|
|
|
|
|
|
33,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,081
|
|
|
|
811,560
|
|
|
|
28,887
|
|
|
|
(8,981
|
)
|
|
|
863,547
|
|
(Loss) income from continuing operations before
income taxes
|
|
|
(32,081
|
)
|
|
|
144,781
|
|
|
|
(1,016
|
)
|
|
|
3,419
|
|
|
|
115,103
|
|
(Benefit from) provision for income taxes
|
|
|
(12,346
|
)
|
|
|
55,716
|
|
|
|
(391
|
)
|
|
|
1,316
|
|
|
|
44,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(19,735
|
)
|
|
|
89,065
|
|
|
|
(625
|
)
|
|
|
2,103
|
|
|
|
70,808
|
|
(Loss) income from discontinued operations, net of tax
|
|
|
|
|
|
|
(7,425
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(19,735
|
)
|
|
|
81,640
|
|
|
|
(625
|
)
|
|
|
2,103
|
|
|
|
63,383
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50
|
)
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to PSI stockholders
|
|
$
|
(19,735
|
)
|
|
$
|
81,640
|
|
|
$
|
(625
|
)
|
|
$
|
2,053
|
|
|
$
|
63,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
For the Six Months Ended June 30, 2009
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Combined Non-
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Amounts
|
|
Revenue
|
|
$
|
|
|
|
$
|
868,392
|
|
|
$
|
25,056
|
|
|
$
|
(4,231
|
)
|
|
$
|
889,217
|
|
Salaries, wages and employee benefits
|
|
|
|
|
|
|
481,391
|
|
|
|
12,799
|
|
|
|
|
|
|
|
494,190
|
|
Professional fees
|
|
|
|
|
|
|
80,469
|
|
|
|
4,786
|
|
|
|
(2,963
|
)
|
|
|
82,292
|
|
Supplies
|
|
|
|
|
|
|
45,239
|
|
|
|
1,173
|
|
|
|
|
|
|
|
46,412
|
|
Rentals and leases
|
|
|
|
|
|
|
12,198
|
|
|
|
48
|
|
|
|
(2,117
|
)
|
|
|
10,129
|
|
Other operating expenses
|
|
|
|
|
|
|
80,171
|
|
|
|
4,078
|
|
|
|
(2,162
|
)
|
|
|
82,087
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
16,303
|
|
|
|
449
|
|
|
|
|
|
|
|
16,752
|
|
Depreciation and amortization
|
|
|
|
|
|
|
20,542
|
|
|
|
1,081
|
|
|
|
(155
|
)
|
|
|
21,468
|
|
Interest expense
|
|
|
33,864
|
|
|
|
|
|
|
|
849
|
|
|
|
(1
|
)
|
|
|
34,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,864
|
|
|
|
736,313
|
|
|
|
25,263
|
|
|
|
(7,398
|
)
|
|
|
788,042
|
|
(Loss) income from continuing operations before
income taxes
|
|
|
(33,864
|
)
|
|
|
132,079
|
|
|
|
(207
|
)
|
|
|
3,167
|
|
|
|
101,175
|
|
(Benefit from) provision for income taxes
|
|
|
(12,963
|
)
|
|
|
50,559
|
|
|
|
(79
|
)
|
|
|
1,212
|
|
|
|
38,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(20,901
|
)
|
|
|
81,520
|
|
|
|
(128
|
)
|
|
|
1,955
|
|
|
|
62,446
|
|
(Loss) income from discontinued operations, net of tax
|
|
|
|
|
|
|
(867
|
)
|
|
|
556
|
|
|
|
|
|
|
|
(311
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(20,901
|
)
|
|
|
80,653
|
|
|
|
428
|
|
|
|
1,955
|
|
|
|
62,135
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(345
|
)
|
|
|
(345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to PSI stockholders
|
|
$
|
(20,901
|
)
|
|
$
|
80,653
|
|
|
$
|
428
|
|
|
$
|
1,610
|
|
|
$
|
61,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2010
Condensed Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 2010
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Combined Non-
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Amounts
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(19,735
|
)
|
|
$
|
81,640
|
|
|
$
|
(625
|
)
|
|
$
|
2,103
|
|
|
$
|
63,383
|
|
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
24,139
|
|
|
|
1,285
|
|
|
|
(155
|
)
|
|
|
25,269
|
|
Amortization of loan costs and bond premium
|
|
|
3,114
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
3,136
|
|
Share-based compensation
|
|
|
|
|
|
|
7,792
|
|
|
|
|
|
|
|
|
|
|
|
7,792
|
|
Change in income tax assets and liabilities
|
|
|
|
|
|
|
15,849
|
|
|
|
|
|
|
|
|
|
|
|
15,849
|
|
Loss from discontinued operations, net of taxes
|
|
|
|
|
|
|
7,425
|
|
|
|
|
|
|
|
|
|
|
|
7,425
|
|
Changes in operating assets and liabilities, net of
effect of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
(4,493
|
)
|
|
|
(480
|
)
|
|
|
|
|
|
|
(4,973
|
)
|
Other current assets
|
|
|
|
|
|
|
(7,171
|
)
|
|
|
8,351
|
|
|
|
|
|
|
|
1,180
|
|
Accounts payable
|
|
|
|
|
|
|
7,327
|
|
|
|
259
|
|
|
|
|
|
|
|
7,586
|
|
Salaries and benefits payable
|
|
|
|
|
|
|
17,867
|
|
|
|
1,105
|
|
|
|
|
|
|
|
18,972
|
|
Accrued liabilities and other liabilities
|
|
|
|
|
|
|
1,124
|
|
|
|
8,418
|
|
|
|
|
|
|
|
9,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by continuing operating activities
|
|
|
(16,621
|
)
|
|
|
151,499
|
|
|
|
18,335
|
|
|
|
1,948
|
|
|
|
155,161
|
|
Net cash
provided by discontinued operating activities
|
|
|
|
|
|
|
1,656
|
|
|
|
|
|
|
|
|
|
|
|
1,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(16,621
|
)
|
|
|
153,155
|
|
|
|
18,335
|
|
|
|
1,948
|
|
|
|
156,817
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital purchases of leasehold improvements,
equipment and software
|
|
|
|
|
|
|
(55,906
|
)
|
|
|
(1,699
|
)
|
|
|
|
|
|
|
(57,605
|
)
|
Other assets
|
|
|
|
|
|
|
2,024
|
|
|
|
(2,136
|
)
|
|
|
|
|
|
|
(112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in continuing investing activities
|
|
|
|
|
|
|
(53,882
|
)
|
|
|
(3,835
|
)
|
|
|
|
|
|
|
(57,717
|
)
|
Net cash used in discontinued investing activities
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(53,894
|
)
|
|
|
(3,835
|
)
|
|
|
|
|
|
|
(57,729
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt
|
|
|
(57,777
|
)
|
|
|
|
|
|
|
(222
|
)
|
|
|
|
|
|
|
(57,999
|
)
|
Payment of loan and issuance costs
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22
|
)
|
Distributions to noncontrolling interests
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51
|
)
|
Repurchase of common stock upon restricted stock vesting
|
|
|
(490
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(490
|
)
|
Net transfers to and from members
|
|
|
72,604
|
|
|
|
(71,584
|
)
|
|
|
928
|
|
|
|
(1,948
|
)
|
|
|
|
|
Proceeds from exercises of common stock options
|
|
|
2,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
16,621
|
|
|
|
(71,584
|
)
|
|
|
706
|
|
|
|
(1,948
|
)
|
|
|
(56,205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
|
|
|
|
27,677
|
|
|
|
15,206
|
|
|
|
|
|
|
|
42,883
|
|
Cash and cash equivalents at beginning of the period
|
|
|
|
|
|
|
2,111
|
|
|
|
4,704
|
|
|
|
|
|
|
|
6,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the period
|
|
$
|
|
|
|
$
|
29,788
|
|
|
$
|
19,910
|
|
|
$
|
|
|
|
$
|
49,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2010
Condensed Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 2009
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Combined Non-
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Amounts
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(20,901
|
)
|
|
$
|
80,653
|
|
|
$
|
428
|
|
|
$
|
1,955
|
|
|
$
|
62,135
|
|
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
20,542
|
|
|
|
1,081
|
|
|
|
(155
|
)
|
|
|
21,468
|
|
Amortization of loan costs and bond premium
|
|
|
2,012
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
2,034
|
|
Share-based compensation
|
|
|
|
|
|
|
9,276
|
|
|
|
|
|
|
|
|
|
|
|
9,276
|
|
Change in income tax assets and liabilities
|
|
|
|
|
|
|
21,579
|
|
|
|
|
|
|
|
|
|
|
|
21,579
|
|
Loss (income) from discontinued operations, net of taxes
|
|
|
|
|
|
|
867
|
|
|
|
(556
|
)
|
|
|
|
|
|
|
311
|
|
Changes in operating assets and liabilities, net of
effect of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
(1,703
|
)
|
|
|
(422
|
)
|
|
|
|
|
|
|
(2,125
|
)
|
Other current assets
|
|
|
|
|
|
|
2,865
|
|
|
|
(2,318
|
)
|
|
|
|
|
|
|
547
|
|
Accounts payable
|
|
|
|
|
|
|
(2,903
|
)
|
|
|
257
|
|
|
|
|
|
|
|
(2,646
|
)
|
Salaries and benefits payable
|
|
|
|
|
|
|
2,613
|
|
|
|
235
|
|
|
|
|
|
|
|
2,848
|
|
Accrued liabilities and other liabilities
|
|
|
|
|
|
|
(1,278
|
)
|
|
|
3,959
|
|
|
|
|
|
|
|
2,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by continuing operating activities
|
|
|
(18,889
|
)
|
|
|
132,511
|
|
|
|
2,686
|
|
|
|
1,800
|
|
|
|
118,108
|
|
Net cash provided by discontinued operating activities
|
|
|
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(18,889
|
)
|
|
|
132,653
|
|
|
|
2,686
|
|
|
|
1,800
|
|
|
|
118,250
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for real estate acquisitions
|
|
|
|
|
|
|
(18,996
|
)
|
|
|
|
|
|
|
|
|
|
|
(18,996
|
)
|
Capital purchases of leasehold improvements,
equipment and software
|
|
|
|
|
|
|
(62,428
|
)
|
|
|
287
|
|
|
|
|
|
|
|
(62,141
|
)
|
Other assets
|
|
|
|
|
|
|
4,189
|
|
|
|
(3,759
|
)
|
|
|
|
|
|
|
430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in continuing investing activities
|
|
|
|
|
|
|
(77,235
|
)
|
|
|
(3,472
|
)
|
|
|
|
|
|
|
(80,707
|
)
|
Net cash used in discontinued investing activities
|
|
|
|
|
|
|
(499
|
)
|
|
|
|
|
|
|
|
|
|
|
(499
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
(77,734
|
)
|
|
|
(3,472
|
)
|
|
|
|
|
|
|
(81,206
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in revolving credit facility, less acquisitions
|
|
|
(169,333
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(169,333
|
)
|
Principal payments on long-term debt
|
|
|
106,708
|
|
|
|
|
|
|
|
(208
|
)
|
|
|
|
|
|
|
106,500
|
|
Payment of loan and issuance costs
|
|
|
(2,553
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,553
|
)
|
Repurchase of common stock upon restricted stock vesting
|
|
|
(8,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,110
|
)
|
Net transfers to and from members
|
|
|
91,787
|
|
|
|
(91,507
|
)
|
|
|
567
|
|
|
|
(1,800
|
)
|
|
|
(953
|
)
|
Proceeds from exercises of common stock options
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
18,889
|
|
|
|
(91,507
|
)
|
|
|
359
|
|
|
|
(1,800
|
)
|
|
|
(74,059
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
|
|
|
|
(36,588
|
)
|
|
|
(427
|
)
|
|
|
|
|
|
|
(37,015
|
)
|
Cash and cash equivalents at beginning of the period
|
|
|
|
|
|
|
39,881
|
|
|
|
11,390
|
|
|
|
|
|
|
|
51,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the period
|
|
$
|
|
|
|
$
|
3,293
|
|
|
$
|
10,963
|
|
|
$
|
|
|
|
$
|
14,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. Contingencies and Other
We are, from time to time, subject to various claims and legal actions that arise in the ordinary
course of our business, including claims for damages for personal injuries, medical malpractice,
breach of contract, business tort and employment related claims. In these actions, plaintiffs
request a variety of damages, including, in some instances, punitive and other types of damages
that may not be covered by insurance.
Litigation Related to the Merger
Seven putative class action complaints were filed on behalf of alleged public stockholders of the
Company. Two of the lawsuits,
Carpenters Pension Fund of West Virginia v. Psychiatric Solutions,
Inc., et al.
, Case No. 38359, and
Pedric v. Psychiatric Solutions, Inc., et al.
, Case No. 38391,
were filed in the Chancery Court for Williamson County, Tennessee. One of the lawsuits,
Smith v.
Psychiatric Solutions, Inc., et al.
, Case No. 10-862-II, was filed in the Chancery Court for
Davidson County, Tennessee. The
Smith
case was transferred to Williamson County. Another three
lawsuits,
Oklahoma Police Pension and Retirement System v. Jacobs, et al.
, Case No. CA 5514,
City
of Miami Police Relief and Pension Fund v. Jacobs, et al.
, Case No. 5515, and
Plumbers &
Pipefitters, Local 152 Pension Fund v. Psychiatric Solutions, Inc., et al.
, Case No. 5532, were
filed in the Court of Chancery for the State of Delaware. A seventh lawsuit,
Rosinek v. Psychiatric
Solutions, Inc., et al.
, Case No. 3:10-cv-00534, was filed in the United States District Court for
the Middle District of Tennessee. The defendants generally include us, members of our board of
directors and, in certain of the
15
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2010
cases, our officers. UHS and/or its affiliates are named as
defendants in some of the lawsuits. The lawsuits allege, among other things, that our directors
breached their fiduciary duties in connection with the proposed Merger by failing to maximize
stockholder value. The lawsuits also allege that our directors have put their personal interests
ahead of those of our stockholders, including by approving the Merger to extinguish any personal
liability they could suffer from previously asserted derivative claims related to, among other
things, violations of fiduciary duties and federal securities laws and also by negotiating a Merger
Agreement that includes broad director and officer insurance and indemnification provisions
protecting them against civil and criminal claims for six years from the date of the Merger
Agreement. Certain of the lawsuits allege that various individual defendants will receive improper
change of control payments and Merger Consideration in connection with equity awards that
plaintiffs contend were improper. Certain of the lawsuits also allege that we and UHS aided and
abetted the various breaches of fiduciary duty. Certain of the lawsuits also allege that various
individual defendants caused us to issue a proxy statement containing materially false and
misleading statements and omissions in connection with our 2010 annual stockholder meeting. Among
other things, the lawsuits seek to enjoin us and our directors from consummating the Merger and
also seek rescission of the allegedly improper equity awards. The three Delaware cases were
consolidated and set for trial beginning on August 5, 2010. The three Tennessee state court cases
were consolidated in Williamson County, and then stayed in favor of the consolidated Delaware
action by agreed order of the Williamson County court
After substantially completing fact discovery in the consolidated Delaware action, without
admitting liability on the part of any of the defendants, the parties to the consolidated Delaware
action and the consolidated Tennessee state court action have agreed in principle to terms of
settlement as follows: (1) requiring additional disclosures in the proxy statement to be delivered
to stockholders in connection with the Special Meeting called to vote on the Merger regarding,
among other things, the background of and negotiations relating to the Merger, the Executive
Performance Incentive Plan, the amendment to our 2009 Long-Term Equity Compensation Plan and
adoption of the 2010 Long-Term Equity Compensation Plan, the circumstances surrounding our
compensation committees approval of equity and restricted stock grants in February 2010, and the
financial disclosures relating to the transaction, including the discounted cash flow and other
analyses performed by Goldman Sachs & Co.; (2) allowing our stockholders to revote on the proposal
to amend the Psychiatric Solutions, Inc. Equity Incentive Plan (the Equity Incentive Plan) to
increase the number of shares of Common Stock subject to grant under the Equity Incentive Plan by
900,000 and to restrict the repricing of options, which was approved by our stockholders at our
annual meeting of stockholders in May 2010; (3) requiring the release by the class of stockholders
entitled to vote on the Merger of any and all claims that have been or could have been made against
any of the defendants relating to the Merger, the disclosures made by or on behalf of us through
and including consummation of the Merger, and the compensation received by any defendant through
and including the consummation of the Merger; and (4) requiring us to pay plaintiffs reasonable
attorneys fees and expenses in the amounts ordered by the courts. The settlements in those actions
are subject to court approval, which has not yet been obtained. The settlement will not affect the
form or amount of the consideration to be received by our stockholders in the Merger. The
defendants have denied and continue to deny any wrongdoing or liability with respect to all claims,
events, and transactions complained of in the aforementioned lawsuits or that they have engaged in
any wrongdoing. The defendants have entered into the settlement to eliminate the uncertainty,
burden, risk, expense and distraction of further litigation.
The
Rosinek
case remains pending in the United States District Court in Tennessee, but a motion has
been filed asking the court to stay that proceeding in favor of the consolidated Delaware action.
We believe that the claims asserted in the
Rosinek
case are without merit and intend to defend the
suit vigorously.
Other Litigation
In the opinion of management, we are not currently a party to any proceeding that would have a
material adverse effect on our business, financial condition or results of operations.
The
reserve for professional and general liability was $25.7 million and $19.0 million as of June
30, 2010 and December 31, 2009, respectively, which is primarily due to new and existing claim
developments in 2010.
16
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
This Quarterly Report on Form 10-Q and other materials we have filed or may file with the
Securities and Exchange Commission (the SEC), as well as information included in oral statements
or other written statements made, or to be made, by our senior management, contain, or will
contain, disclosures that are forward-looking statements. Forward-looking statements include all
statements that do not relate solely to historical or current facts and can be identified by the
use of words such as may, will, expect, believe, intend, plan, estimate, project,
continue, should and other comparable terms. These forward-looking statements are based on the
current plans and expectations of management and are subject to a number of known and unknown
risks, uncertainties and other factors, including those set forth below, which could significantly
affect our current plans and expectations and future financial condition and results.
We undertake no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. Stockholders and investors are
cautioned not to unduly rely on such forward-looking statements when evaluating the information
presented in our filings and reports.
While it is not possible to identify all these factors, we continue to face many risks and
uncertainties that could cause actual results to differ from those forward-looking statements,
including:
|
|
|
the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement;
|
|
|
|
|
the outcome of any legal proceedings that have been or may be instituted against us and others relating to the Merger
Agreement or other matters;
|
|
|
|
|
the inability to complete the Merger due to the failure to obtain stockholder approval or the failure to satisfy other
conditions to consummation of the merger, including the expiration or termination of any waiting period applicable to the
consummation of the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;
|
|
|
|
|
the failure of UHS to obtain the necessary debt financing to consummate the Merger;
|
|
|
|
|
the failure of the Merger to close for any other reason;
|
|
|
|
|
risks that the proposed Merger disrupts current plans and operations and the potential difficulties in employee retention as a
result of the Merger;
|
|
|
|
|
the effect of the pending Merger on our physician and patient relationships, operating results and business generally;
|
|
|
|
|
the amount of the costs, fees, expenses and charges related to the Merger and the actual terms of the debt financing that will
be obtained for the Merger;
|
|
|
|
|
the Merger Agreement restricts our ability to take certain actions without UHS approval, including making acquisitions,
dispositions, investments or capital expenditures and entering into or amending material contracts;
|
|
|
|
|
risks inherent to the health care industry, including the impact of unforeseen changes in regulation and the potential adverse
impact of government investigations, liabilities and other claims asserted against us;
|
|
|
|
|
uncertainty as to changes in U.S. general economic activity and the impact of these changes on our business;
|
|
|
|
|
economic downturn resulting in efforts by federal and state health care programs and managed care companies to reduce
reimbursement rates for our services;
|
|
|
|
|
implementation and effect of newly-adopted federal health care legislation and potential state health care legislation;
|
|
|
|
|
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 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;
|
|
|
|
|
potential competition that alters or impedes our acquisition strategy by decreasing our ability to acquire additional
inpatient facilities on favorable terms;
|
17
|
|
|
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, including fluctuations resulting from announcements by us of significant
corporate events;
|
|
|
|
|
negative press coverage of us or our industry that may affect public opinion; and
|
|
|
|
|
those risks and uncertainties described from time to time in our filings with the SEC.
|
We caution you that the factors listed above, as well as the risk factors included in our
Annual Report on Form 10-K for the year ended December 31, 2009, may not be exhaustive. We operate
in a continually changing business environment, and new risk factors emerge from time to time. We
cannot predict such new risk factors nor can we assess the impact, if any, of such new risk factors
on our businesses or the extent to which any factor or combination of factors may cause actual
results to differ materially from those expressed or implied by any forward-looking statements.
Overview
Our business strategy is to acquire inpatient behavioral health care facilities and improve
operating results within our inpatient facilities and our other behavioral health care operations.
From 2001 to 2006, we acquired 74 inpatient behavioral health care facilities. During 2007, we
acquired 16 inpatient behavioral health care facilities, including 15 inpatient facilities in the
acquisition of Horizon Health Corporation. During 2008, we acquired five inpatient behavioral
health care facilities from United Medical Corporation and opened Lincoln Prairie Behavioral Health
Center, an 80-bed inpatient facility in Springfield, Illinois. During 2009, we opened Rolling Hills
Hospital, an 80-bed inpatient facility in Franklin, Tennessee, acquired two inpatient behavioral
health care facilities, and completed the sale of our EAP business.
We strive to improve the operating results of our inpatient behavioral health care operations
by providing the highest quality service, expanding referral networks and marketing initiatives and
meeting increased demand for behavioral health care services by expanding our services and
developing new services. We also attempt to improve operating results by maintaining appropriate
staffing ratios, controlling contract labor costs and reducing supply costs through group
purchasing.
Income from continuing operations before income taxes increased to $63.7 million and $115.1
million, or 12.7% and 11.8% of revenue, for the three and six months ended June 30, 2010,
respectively, compared to $56.4 million and $101.2 million, or 12.3% and 11.3% of revenue, for the
same periods of 2009, respectively, primarily as a result of a 10.2% and 9.9% increase in revenue
from owned and leased inpatient facilities, respectively. Our same-facility revenue from owned and
leased inpatient facilities increased 7.7% and 7.4% for the three and six months ended June 30,
2010, respectively, compared to the same periods in 2009, primarily as a result of increases in
patient days of 4.2% and 5.0% and revenue per patient day of 3.3% and
2.2%, respectively. The increase in revenue per patient day was
positively impacted by approximately $12.1 million received by our
Mississippi facilities in the second quarter of 2010 from the
Medicare/Medicaid Upper Payment Limits (UPL) Program for
the twelve months ended June 30, 2010. The additional UPL Program
revenue was partially offset by additional taxes of approximately
$7.0 million paid under the Mississippi Hospital Assessment Program
in the second quarter of 2010.
Same-facility operating margins improved for the three and six months ended June 30, 2010 compared
to the same periods of 2009, primarily due to the increase in revenue
and a decrease in salaries, wages and employee benefits
expense as a percent of revenue to 50.7% and 51.7% from 53.0% and 53.6%, respectively, partially
offset by $6.4 million of transaction fees incurred as a result of
the proposed Merger and an increase in other operating expenses as a percent of revenue to 9.2% and 8.9% from
7.5% and 7.9%, respectively. Same-facility growth refers to the comparison of each inpatient
facility owned during 2009 with the comparable period in 2010, adjusted for closures and
combinations for comparability purposes.
Proposed Merger
On May 16, 2010, we entered into the Merger Agreement with UHS and Merger Sub, a Delaware
corporation and a wholly-owned subsidiary of UHS. Under the terms of the Merger Agreement, Merger
Sub will be merged with and into us, with us continuing as the surviving corporation and a
wholly-owned subsidiary of UHS.
At the effective time of the Merger, each outstanding share of our Common Stock, other than
shares held in our treasury or owned
18
by UHS or Merger Sub, or owned by any stockholders who are entitled to and who properly exercise
appraisal rights under Delaware law, will be cancelled and converted into the right to receive
$33.75 in cash, without interest, or an aggregate of approximately $2.0 billion. Including the
assumption of approximately $1.1 billion in net debt, the total transaction consideration is
approximately $3.1 billion.
We made customary representations, warranties and covenants in the Merger Agreement. We are
subject to a no-shop restriction on our ability to solicit third-party proposals, provide
information and engage in discussions with third parties. The no-shop provision is subject to a
fiduciary-out provision that allows us to provide information and participate in discussions with
respect to third party proposals submitted after the date of the Merger Agreement if our Board of
Directors (acting through the Special Committee or otherwise) determines in good faith (after
consultation with its advisors) that such proposal is, or could reasonably be expected to result
in, a superior proposal, as defined in the Merger Agreement, and that failure to take such
actions would be inconsistent with our Board of Directors fiduciary duties.
The Merger Agreement contains termination rights, including if our Board of Directors (or the
Special Committee) changes its recommendation to our stockholders if the failure to do so would be
inconsistent with its fiduciary duties under applicable law, and provides that, upon the
termination of the Merger Agreement, under specified circumstances, we will be required to
reimburse UHS for its transaction expenses and that, under specified circumstances, we will be
required to pay UHS a termination fee of $71.5 million.
The parties to the Merger Agreement are entitled to specific performance of the terms and
provisions of the Merger Agreement, in addition to any other remedy to which they are entitled,
including damages for any breach of the Merger Agreement by the other party. Consummation of the
Merger is not subject to a financing condition, but is subject to various other conditions,
including adoption of the Merger Agreement by our stockholders, expiration or termination of
applicable waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (HSR Act) and other
customary closing conditions.
On July 28, 2010, PSI and UHS each received a Request for Additional
Information (Second Request) from the Federal Trade
Commission (FTC) in connection with their filings under
the HSR Act. The Second Request has the effect of extending the
waiting period for an additional 30 calendar days from the date of
both the parties substantial compliance with the request,
unless the waiting period is terminated sooner by the FTC or
voluntarily extended by the parties.
The parties expect to close the transaction during the fourth quarter
of 2010. Where this Quarterly Report on Form 10-Q discusses our future plans, strategies or
activities, such discussion does not give effect to the proposed Merger.
We incurred transaction costs of approximately $6.4 million
related to the proposed Merger in the second quarter of 2010.
Sources of Revenue
Patient Service Revenue
Patient service revenue is generated by our inpatient facilities for services provided to
patients on an inpatient and outpatient basis within the inpatient behavioral health care facility
setting. Patient service revenue is recorded at our established billing rates less contractual
adjustments. Contractual adjustments are recorded to state our patient service revenue at the
amount we expect to collect for the services provided based on amounts reimbursable by Medicare or
Medicaid under provisions of cost or prospective reimbursement formulas or amounts due from other
third-party payors at contractually determined rates. Patient service revenue comprised
approximately 93.0% and 93.1% of our total revenue for the six months ended June 30, 2010 and 2009,
respectively.
Other Revenue
Other behavioral health care services accounted for 7.0% and 6.9% of our revenue for the six
months ended June 30, 2010 and 2009, respectively. This portion of our business primarily consists
of our contract management business and a managed care plan in Puerto Rico. Our contract management
business involves the development, organization and management of behavioral health and
rehabilitation programs within medical/surgical hospitals. Services provided are recorded as
revenue at contractually determined rates in the period the services are rendered, provided that
collectability of such amounts is reasonably assured.
Results of Operations
The following table illustrates our consolidated results of operations from continuing
operations for the three and six months ended June 30, 2010 and 2009 (dollars in thousands):
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Revenue
|
|
$
|
502,694
|
|
|
|
100.0
|
%
|
|
$
|
455,287
|
|
|
|
100.0
|
%
|
|
$
|
978,650
|
|
|
|
100.0
|
%
|
|
$
|
889,217
|
|
|
|
100.0
|
%
|
Salaries, wages, and employee benefits (including share-
based compensation of $4,282, $4,457, $7,792, and
$9,276 for the respective three and six month
periods
in 2010 and 2009)
|
|
|
263,298
|
|
|
|
52.4
|
%
|
|
|
249,904
|
|
|
|
54.9
|
%
|
|
|
522,773
|
|
|
|
53.4
|
%
|
|
|
494,190
|
|
|
|
55.6
|
%
|
Professional fees
|
|
|
50,718
|
|
|
|
10.1
|
%
|
|
|
42,362
|
|
|
|
9.3
|
%
|
|
|
95,646
|
|
|
|
9.8
|
%
|
|
|
82,292
|
|
|
|
9.2
|
%
|
Supplies
|
|
|
24,304
|
|
|
|
4.8
|
%
|
|
|
23,492
|
|
|
|
5.1
|
%
|
|
|
47,982
|
|
|
|
4.9
|
%
|
|
|
46,412
|
|
|
|
5.2
|
%
|
Provision for doubtful accounts
|
|
|
10,104
|
|
|
|
2.0
|
%
|
|
|
8,290
|
|
|
|
1.8
|
%
|
|
|
21,937
|
|
|
|
2.2
|
%
|
|
|
16,752
|
|
|
|
1.9
|
%
|
Other operating expenses
|
|
|
61,159
|
|
|
|
12.2
|
%
|
|
|
45,870
|
|
|
|
10.1
|
%
|
|
|
116,889
|
|
|
|
11.9
|
%
|
|
|
92,216
|
|
|
|
10.4
|
%
|
Depreciation and amortization
|
|
|
12,879
|
|
|
|
2.5
|
%
|
|
|
10,915
|
|
|
|
2.4
|
%
|
|
|
25,269
|
|
|
|
2.6
|
%
|
|
|
21,468
|
|
|
|
2.4
|
%
|
Interest expense, net
|
|
|
16,553
|
|
|
|
3.3
|
%
|
|
|
18,103
|
|
|
|
4.0
|
%
|
|
|
33,051
|
|
|
|
3.4
|
%
|
|
|
34,712
|
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes
|
|
|
63,679
|
|
|
|
12.7
|
%
|
|
|
56,351
|
|
|
|
12.4
|
%
|
|
|
115,103
|
|
|
|
11.8
|
%
|
|
|
101,175
|
|
|
|
11.4
|
%
|
Provision for income taxes
|
|
|
24,612
|
|
|
|
4.9
|
%
|
|
|
21,565
|
|
|
|
4.8
|
%
|
|
|
44,295
|
|
|
|
4.6
|
%
|
|
|
38,729
|
|
|
|
4.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
39,067
|
|
|
|
7.8
|
%
|
|
|
34,786
|
|
|
|
7.6
|
%
|
|
|
70,808
|
|
|
|
7.2
|
%
|
|
|
62,446
|
|
|
|
7.0
|
%
|
Less: Net income attributable to noncontrolling
interest
|
|
|
(18
|
)
|
|
|
0.0
|
%
|
|
|
(206
|
)
|
|
|
0.0
|
%
|
|
|
(50
|
)
|
|
|
0.0
|
%
|
|
|
(345
|
)
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to
PSI stockholders
|
|
$
|
39,049
|
|
|
|
7.8
|
%
|
|
$
|
34,580
|
|
|
|
7.6
|
%
|
|
$
|
70,758
|
|
|
|
7.2
|
%
|
|
$
|
62,101
|
|
|
|
7.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2010 Compared To Three Months Ended June 30, 2009
The following table compares key same-facility statistics and total facility statistics for
the three months ended June 30, 2010 and 2009 for our owned and leased inpatient facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
%
|
|
|
2010
|
|
2009
|
|
Change
|
Same-facility results:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (in thousands)
|
|
$
|
456,653
|
|
|
$
|
423,889
|
|
|
|
7.7
|
%
|
Admissions
|
|
|
48,504
|
|
|
|
44,821
|
|
|
|
8.2
|
%
|
Patient days
|
|
|
760,508
|
|
|
|
729,539
|
|
|
|
4.2
|
%
|
Average length of stay (in days)
|
|
|
15.7
|
|
|
|
16.3
|
|
|
|
-3.7
|
%
|
Revenue per patient day
|
|
$
|
600
|
|
|
$
|
581
|
|
|
|
3.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total facility results:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (in thousands)
|
|
$
|
467,119
|
|
|
$
|
423,889
|
|
|
|
10.2
|
%
|
Admissions
|
|
|
49,870
|
|
|
|
44,821
|
|
|
|
11.3
|
%
|
Patient days
|
|
|
773,205
|
|
|
|
729,539
|
|
|
|
6.0
|
%
|
Average length of stay (in days)
|
|
|
15.5
|
|
|
|
16.3
|
|
|
|
-4.9
|
%
|
Revenue per patient day
|
|
$
|
604
|
|
|
$
|
581
|
|
|
|
4.0
|
%
|
Revenue
. Revenue from continuing operations increased $47.4 million, or 10.4%, to
$502.7 million for the three months ended June 30, 2010 compared to the three months ended June 30,
2009. Revenue from owned and leased inpatient facilities increased $43.2 million, or 10.2%, to
$467.1 million in 2010 compared to 2009. The increase in revenue from owned and leased inpatient
facilities relates primarily to same-facility growth in patient days of 4.2% and revenue per
patient day of 3.3%, payments received by our Mississippi facilities
from the UPL Program and revenue from two facilities acquired in 2009. Other revenue
increased $4.2 million to $35.6 million in 2010 compared to $31.4 million in 2009, primarily as a
result of an increase in covered lives in our managed care plan in Puerto Rico.
Salaries, wages, and employee benefits
. Salaries, wages and employee benefits (SWB) expense
was $263.3 million for the three months ended June 30, 2010 compared to $249.9 million for the
three months ended June 30, 2009, an increase of $13.4 million, or 5.4%. SWB expense includes $4.3
million and $4.5 million of shared-based compensation expense for the quarters ended June 30,
2010 and 2009, respectively. Based on our stock option and restricted stock grants outstanding at
June 30, 2010, we estimate remaining unrecognized share-based compensation expense to be
approximately $44.8 million with a weighted-average remaining amortization period of 2.7 years.
Excluding share-based compensation expense, SWB expense was $259.0 million, or 51.5% of total
revenue, for the three months ended June 30, 2010 compared to $245.4 million, or 53.9% of total
revenue, for the three months ended June 30, 2009. SWB expense for owned and leased inpatient
facilities was $237.6 million in 2010, or 50.9% of revenue. Same-facility SWB expense for owned and
leased inpatient facilities was $231.6 million in 2010, or 50.7% of revenue, compared to $224.5
million in 2009, or 53.0% of revenue. This decrease in same-facility SWB expense as a percent of
revenue is primarily the result of an increase in revenue and an increase in same-facility patient days of 4.2% while staffing
remained relatively stable. SWB expense for other operations was $12.5 million in 2010 compared to
$12.3 million in 2009. SWB expense for our corporate office was $13.2 million, including $4.3
million in share-based compensation, for 2010 compared to $13.1 million, including $4.5 million in
shared-based compensation, for 2009.
20
Professional fees
. Professional fees were $50.7 million for the three months ended June 30,
2010, or 10.1% of total revenue, compared to $42.4 million for the three months ended June 30,
2009, or 9.3% of total revenue. Professional fees for owned and leased inpatient facilities were
$40.1 million in 2010, or 8.6% of revenue. Same-facility professional fees for owned and leased
inpatient facilities were $39.5 million in 2010, or 8.7% of revenue, compared to $38.4 million in
2009, or 9.1% of revenue. Professional fees for other operations and our corporate office increased
to $10.6 million in 2010 compared to $3.9 million in 2009 primarily as a result of approximately
$6.4 million of transaction fees incurred as a result of the proposed Merger.
Supplies.
Supplies expense was $24.3 million for the three months ended June 30, 2010, or 4.8%
of total revenue, compared to $23.5 million for the three months
ended June 30, 2009, or 5.1% of
total revenue. Supplies expense for owned and leased inpatient facilities was $24.2 million in
2010, or 5.2% of revenue. Same-facility supplies expense for owned and leased inpatient facilities
was $23.7 million in 2010, or 5.2% of revenue, compared to $23.3 million in 2009, or 5.5% of
revenue.
Provision for doubtful accounts
. The provision for doubtful accounts was $10.1 million for the
three months ended June 30, 2010, or 2.0% of total revenue, compared to $8.3 million for the three
months ended June 30, 2009, or 1.8% of total revenue. The provision for doubtful accounts at owned
and leased inpatient facilities comprised substantially all of our provision for doubtful accounts.
Other operating expenses
. Other operating expenses consist primarily of rent, utilities,
insurance, travel and repairs and maintenance expenses. Other operating expenses were $61.2 million
for the three months ended June 30, 2010, or 12.2% of total revenue, compared to $45.9 million for
the three months ended June 30, 2009, or 10.1% of total revenue. Other operating expenses for owned
and leased inpatient facilities were $43.2 million in 2010, or 9.2% of revenue. Same-facility other
operating expenses for owned and leased inpatient facilities were $42.0 million in 2010, or 9.2% of
revenue, compared to $31.9 million in 2009, or 7.5% of revenue. This increase in other operating
expenses as a percent of revenue is primarily a result of a provider tax assessed by the State of
Mississippis Medicaid program. Other operating expenses for other operations and our corporate
office increased to $18.0 million in 2010 compared to $14.0 million in 2009 primarily as a result
of additional expenses associated with an increase in covered lives in our managed care plan in
Puerto Rico.
Depreciation and amortization
. Depreciation and amortization expense increased to $12.9
million for the three months ended June 30, 2010 compared to $10.9 million for the three months
ended June 30, 2009, primarily as a result of depreciation on expansion projects at our inpatient
facilities and the acquisition of two facilities in 2009.
Interest expense, net
. Interest expense, net of interest income, decreased to $16.6 million
for the three months ended June 30, 2010 compared to $18.1 million for the three months ended June
30, 2009. This decrease in interest expense was primarily the result of a decrease in our
long-term debt outstanding during the twelve months ended June 30, 2010.
Income attributable to noncontrolling interest
. We own controlling interests in two joint
ventures that each own one of our inpatient behavioral health care facilities. Income attributable
to noncontrolling interests represents the pro rata portion of the joint ventures net profit
belonging to the noncontrolling partners.
Loss from discontinued operations, net of taxes
. The loss from discontinued operations, net of
income tax effect, was $3.9 million for the three months ended June 30, 2010 compared to $0.2
million for the three months ended June 30, 2009. The $3.9 million loss in 2010 includes $3.6
million in losses recognized to decrease the carrying values of discontinued operations that are
held for sale. During 2009, we completed the sale of our EAP business, elected to close and make
The Oaks Treatment Center and Cumberland Hall of Chattanooga available for sale, and terminated one
contract with a South Carolina juvenile justice agency. We also elected to close and make
Nashville Rehabilitation Hospital available for sale and transferred its behavioral health services
to Rolling Hills Hospital in the first quarter of 2009.
Six Months Ended June 30, 2010 Compared To Six Months Ended June 30, 2009
The following table compares key same-facility statistics and total facility statistics for
the six months ended June 30, 2010 and 2009 for our owned and leased inpatient facilities:
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
%
|
|
|
2010
|
|
2009
|
|
Change
|
Same-facility results:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (in thousands)
|
|
$
|
889,098
|
|
|
$
|
827,892
|
|
|
|
7.4
|
%
|
Admissions
|
|
|
95,991
|
|
|
|
88,082
|
|
|
|
9.0
|
%
|
Patient days
|
|
|
1,500,653
|
|
|
|
1,428,772
|
|
|
|
5.0
|
%
|
Average length of stay (in days)
|
|
|
15.6
|
|
|
|
16.2
|
|
|
|
-3.7
|
%
|
Revenue per patient day
|
|
$
|
592
|
|
|
$
|
579
|
|
|
|
2.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total facility results:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (in thousands)
|
|
$
|
909,888
|
|
|
$
|
827,892
|
|
|
|
9.9
|
%
|
Admissions
|
|
|
98,675
|
|
|
|
88,082
|
|
|
|
12.0
|
%
|
Patient days
|
|
|
1,525,445
|
|
|
|
1,428,772
|
|
|
|
6.8
|
%
|
Average length of stay (in days)
|
|
|
15.5
|
|
|
|
16.2
|
|
|
|
-4.3
|
%
|
Revenue per patient day
|
|
$
|
596
|
|
|
$
|
579
|
|
|
|
2.9
|
%
|
Revenue
. Revenue from continuing operations increased $89.4 million, or 10.1%, to
$978.7 million for the six months ended June 30, 2010 compared to the six months ended June 30,
2009. Revenue from owned and leased inpatient facilities increased $82.0 million, or 9.9%, to
$909.9 million in 2010 compared to 2009. The increase in revenue from owned and leased inpatient
facilities relates primarily to same-facility growth in patient days of 5.0% and revenue per
patient day of 2.2%, payments received by our Mississippi facilities
from the UPL Program and revenue from two facilities acquired in 2009. Other revenue
increased $7.5 million to $68.8 million in 2010 compared to $61.3 million in 2009, primarily as a
result of an increase in covered lives in our managed care plan in Puerto Rico.
Salaries, wages, and employee benefits
. SWB expense was $522.8 million for the six months
ended June 30, 2010 compared to $494.2 million for the six months ended June 30, 2009, an increase
of $28.6 million, or 5.8%. SWB expense includes $7.8 million and $9.3 million of shared-based
compensation expense for the quarters ended June 30, 2010 and 2009, respectively. The $1.5 million
decrease in share-based compensation expense is primarily due to actual forfeitures of stock
options in excess of estimated forfeitures. Excluding share-based compensation expense, SWB expense
was $515.0 million, or 52.6% of total revenue, for the six months ended June 30, 2010 compared to
$484.9 million, or 54.5% of total revenue, for the six months ended June 30, 2009. SWB expense for
owned and leased inpatient facilities was $471.4 million in 2010, or 51.8% of revenue.
Same-facility SWB expense for owned and leased inpatient facilities was $459.5 million in 2010, or
51.7% of revenue, compared to $443.6 million in 2009, or 53.6% of revenue. This decrease in
same-facility SWB expense as a percent of revenue is primarily the
result of an increase in revenue and an increase in
same-facility patient days of 5.0% while staffing remained relatively stable. SWB expense for other
operations was $25.1 million in 2010 compared to $23.6 million in 2009. SWB expense for our
corporate office was $26.3 million, including $7.8 million in share-based compensation, for 2010
compared to $27.0 million, including $9.3 million in shared-based compensation, for 2009.
Professional fees
. Professional fees were $95.6 million for the six months ended June 30,
2010, or 9.8% of total revenue, compared to $82.3 million for the six months ended June 30, 2009,
or 9.2% of total revenue. Professional fees for owned and leased inpatient facilities were $80.4
million in 2010, or 8.8% of revenue. Same-facility professional fees for owned and leased inpatient
facilities were $79.2 million in 2010, or 8.9% of revenue, compared to $74.9 million in 2009, or
9.0% of revenue. Professional fees for other operations and our corporate office increased to $15.3
million in 2010 compared to $7.4 million in 2009 primarily as a result of approximately $6.4
million of transaction fees incurred as a result of the proposed Merger.
Supplies.
Supplies expense was $48.0 million for the six months ended June 30, 2010, or 4.9%
of total revenue, compared to $46.4 million for the six months ended June 30, 2009, or 5.2% of
total revenue. Supplies expense for owned and leased inpatient facilities was $47.7 million in
2010, or 5.2% of revenue. Same-facility supplies expense for owned and leased inpatient facilities
was $46.7 million in 2010, or 5.3% of revenue, compared to $46.1 million in 2009, or 5.6% of
revenue.
Provision for doubtful accounts
. The provision for doubtful accounts was $21.9 million for the
six months ended June 30, 2010, or 2.2% of total revenue, compared to $16.8 million for the six
months ended June 30, 2009, or 1.9% of total revenue. The provision for doubtful accounts at owned
and leased inpatient facilities comprised substantially all of our provision for doubtful accounts.
Other operating expenses
. Other operating expenses consist primarily of rent, utilities,
insurance, travel and repairs and maintenance expenses. Other operating expenses were $116.9
million for the six months ended June 30, 2010, or 11.9% of total revenue, compared to $92.2
million for the six months ended June 30, 2009, or 10.4% of total revenue. Other operating expenses
for owned and leased inpatient facilities were $81.4 million in 2010, or 8.9% of revenue.
Same-facility other operating expenses for owned and leased inpatient
facilities were $79.4 million
in 2010, or 8.9% of revenue, compared to $65.0 million in 2009, or 7.9% of revenue. This increase
in other operating expenses as a percent of revenue is primarily a result of an increase in our
self-insured
professional and general liability insurance expense as a percent of revenue compared with 2009 and
a provider tax assessed by the State of Mississippis Medicaid
program. Other operating expenses for other
operations and our corporate office increased to $35.5 million in
22
2010 compared to $27.2 million in
2009 primarily as a result of additional expenses associated with an increase in covered lives in
our managed care plan in Puerto Rico.
Depreciation and amortization
. Depreciation and amortization expense increased to $25.3
million for the six months ended June 30, 2010 compared to $21.5 million for the six months ended
June 30, 2009, primarily as a result of depreciation on expansion projects at our inpatient
facilities and the acquisition of two facilities in 2009.
Interest expense, net
. Interest expense, net of interest income, decreased to $33.1 million
for the six months ended June 30, 2010 compared to $34.7 million for the six months ended June 30,
2009. This decrease in interest expense was primarily the result of a decrease in our long-term
debt outstanding during the twelve months ended June 30, 2010.
Income attributable to noncontrolling interest
. We own controlling interests in two joint
ventures that each own one of our inpatient behavioral health care facilities. Income attributable to
noncontrolling interests represents the pro rata portion of the joint ventures net profit
belonging to the noncontrolling partners.
Loss from discontinued operations, net of taxes
. The loss from discontinued operations, net of
income tax effect, was $7.4 million for the six months ended June 30, 2010 compared to $0.3 million
for the six months ended June 30, 2009. The $7.4 million loss in 2010 includes $6.2 million in
losses recognized to decrease the carrying values of discontinued operations that are held for
sale. During 2009, we completed the sale of our EAP business, elected to close and make The Oaks
Treatment Center and Cumberland Hall of Chattanooga available for sale, and terminated one contract
with a South Carolina juvenile justice agency. We also elected to close and make Nashville
Rehabilitation Hospital available for sale and transferred its behavioral health services to
Rolling Hills Hospital in the first quarter of 2009.
Liquidity and Capital Resources
We currently have $295.7 million available for borrowings under our $300 million revolving
credit facility. Additionally, our cash flow from continuing operating activities was $155.2
million for the six months ended June 30, 2010 and we had $169.7 million of working capital at June
30, 2010. We believe that our cash flow from operations, availability under our revolving credit
facility and working capital are sufficient to fund our known future cash requirements for
operations and capital expenditures. We historically spend approximately 2% to 3% of our revenue on
routine capital expenditures and currently have plans for construction projects with expected costs
of approximately $46.1 million over the next twelve months, which will add approximately 150 beds
to our inpatient facilities.
Working capital at June 30, 2010 was $169.7 million, including cash and cash equivalents of
$49.7 million, compared to working capital of $177.9 million, including cash and cash equivalents
of $6.8 million, at December 31, 2009. This decrease in working capital is primarily attributable
to an increase in accounts payable and other current liabilities of
$12.8
million, an increase in income taxes payable of $15.6 million and an increase in accrued salaries
and benefits payable of $19.0 million, offset by
increases in cash of $42.9 million and accounts
receivable of $5.0 million.
The $42.9 increase in cash and cash equivalents is primarily
a result of cash provided by continuing operations of $155.2 million offset by cash used for
capital expenditures of $57.6 million and principal payments on long-term debt of $58.0 million.
The increase in accounts receivable is primarily due to a 7.4% increase in same-facility revenue.
Our consolidated days sales outstanding were 46 and 49 at June 30, 2010 and December 31, 2009,
respectively. The increase in accrued salaries and benefits payable is primarily the result of six
additional days of accrued salaries at June 30, 2010 compared to December 31, 2009 due to the
timing of the pay dates.
Cash provided by continuing operating activities was $155.2 million for the six months ended
June 30, 2010 compared to $118.1 million for the six months ended June 30, 2009. The increase in
cash flows from continuing operating activities was primarily the result of cash provided by
improved operating results and the timing of payment dates for payroll.
Cash used by continuing investing activities was $57.7 million for the six months ended June
30, 2010 compared to $80.7 million for the six months ended June 30, 2009. Cash used in investing
activities for the six months ended June 30, 2010 primarily consisted of $57.6 million paid for
purchases of fixed assets. Cash used for routine and expansion capital expenditures was
approximately $21.3 million and $36.3 million, respectively, for the six months ended June 30,
2010. Planned capital expansion projects and the construction of new facilities are expected to add
approximately 150 new beds to our inpatient facilities over the next twelve months. We define
expansion capital expenditures as those that increase the capacity of our facilities or otherwise
enhance revenue. Routine or maintenance capital expenditures were 2.2% of our revenue for the six
months ended June 30, 2010. Cash used in investing activities for the six months ended June 30,
2009 consisted primarily of $62.1 million in cash paid for purchases of fixed assets.
Cash used in financing activities was $56.2 million for the six months ended June 30, 2010
compared to $74.1 million for the six months ended June 30, 2009. Cash used in financing activities
for the six months ended June 30, 2010 consisted primarily of
$58.0 million of principal payments on our long-term debt, primarily
consisting of a $50.0 million voluntary pre-payment on our senior secured term loan facility. Cash used in financing activities for the six months ended
June
30, 2009 consisted primarily of $169.3 million of net payments on the balance due under our
revolving credit facility, $8.1 million paid for loan and issuance costs and $2.6 million principal
payments on long-term debt, offset by $106.5 million received from the issuance of $120 million of
our 73/4% Notes at a discount of 11.25%.
23
We have filed a universal shelf registration statement on Form S-3 and an acquisition shelf
registration statement on Form S-4. The universal shelf registration statement permits us to sell,
in one or more public offerings, an indeterminate amount of our common stock, common stock
warrants, preferred stock and debt securities, or any combination of such securities, at prices and
on terms satisfactory to us. The acquisition shelf registration statement enables us to issue up to
5 million shares of our common stock in one or more business combination transactions, including
acquisitions by us of other businesses, assets, properties or securities. To date, no securities
have been issued pursuant to either registration statement. Pursuant to the Merger Agreement, our
ability to issue securities without UHS prior written consent is restricted.
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period (in thousands)
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
|
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
5 years
|
|
Long-term debt (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Credit Facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 2.2% at June 30, 2010
|
|
$
|
507,593
|
|
|
$
|
3,381
|
|
|
$
|
504,212
|
|
|
$
|
|
|
|
$
|
|
|
7 3/4% Senior Subordinated Notes due July 15, 2015
|
|
|
583,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
583,139
|
|
Mortgage loans on facilities, maturing in 2036, 2037 and 2038
bearing fixed interest rates of 5.7% to 7.6%
|
|
|
32,629
|
|
|
|
464
|
|
|
|
1,019
|
|
|
|
1,153
|
|
|
|
29,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,123,361
|
|
|
|
3,845
|
|
|
|
505,231
|
|
|
|
1,153
|
|
|
|
613,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease and other obligations
|
|
|
76,562
|
|
|
|
13,266
|
|
|
|
17,692
|
|
|
|
12,153
|
|
|
|
33,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
1,199,923
|
|
|
$
|
17,111
|
|
|
$
|
522,923
|
|
|
$
|
13,306
|
|
|
$
|
646,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Excludes capital lease obligations and other obligations of $7.1 million, which are included in lease and other obligations.
|
The fair value of our 7
3
/
4
% Notes was approximately $605.5 million and
$565.2 million as of June 30, 2010 and December 31, 2009, respectively. The fair value of our
senior secured term loan facility was approximately $500.0 million and $536.6 million as of June
30, 2010 and December 31, 2009, respectively. The carrying value of our other long-term debt,
including current maturities, of $39.6 million and $39.5 million at June 30, 2010 and December 31,
2009, respectively, approximated fair value. We had $507.6 million of variable rate debt
outstanding under our senior secured term loan facility as of June 30, 2010. At our June 30, 2010
borrowing level, a hypothetical 10% increase in interest rates would decrease our annual net income
and cash flows by approximately $0.7 million.
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with GAAP. In preparing
our financial statements, we are required to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, and expenses included in the financial
statements. Estimates are based on historical experience and other information currently available,
the results of which form the basis of such estimates. While we believe our estimation processes
are reasonable, actual results could differ from our estimates. The following represent the
estimates considered most critical to our operating performance and involve the most subjective and
complex assumptions and assessments.
Allowance for Doubtful Accounts
Our ability to collect outstanding patient receivables from third-party payors is critical to
our operating performance and cash flows.
The primary collection risk with regard to patient receivables lies with uninsured patient
accounts or patient accounts for which primary insurance has paid, but the portion owed by the
patient remains outstanding. We estimate the allowance for doubtful accounts primarily based upon
the age of the accounts since the patient discharge date. We continually monitor our accounts
receivable balances and utilize cash collection data to support our estimates of the provision for
doubtful accounts. Significant changes in payor mix or business office operations could have a
significant impact on our results of operations and cash flows.
The primary collection risk with regard to receivables due under our inpatient management
contracts is attributable to contractual disputes. We estimate the allowance for doubtful accounts
for these receivables based primarily upon the specific identification of potential collection
issues. As with our patient receivables, we continually monitor our accounts receivable balances
and utilize cash collection data to support our estimates of the provision for doubtful accounts.
24
Allowances for Contractual Discounts
The Medicare and Medicaid regulations are complex and various managed care contracts may
include multiple reimbursement mechanisms for different types of services provided in our inpatient
facilities and cost settlement provisions requiring complex calculations and assumptions subject to
interpretation. We estimate the allowance for contractual discounts on a payor-specific basis by
comparing our established billing rates with the amount we determine to be reimbursable given our
interpretation of the applicable regulations or contract terms. Most payments are determined based
on negotiated per-diem rates. While the services authorized and provided and related reimbursement
are often subject to interpretation that could result in payments that differ from our estimates,
these differences are deemed immaterial. Additionally, updated regulations and contract
renegotiations occur frequently necessitating continual review and assessment of the estimation
process by our management. We periodically compare the contractual rates on our patient accounting
systems with the Medicare and Medicaid reimbursement rates or the third-party payor contract for
accuracy. We also monitor the adequacy of our contractual adjustments using financial measures such
as comparing cash receipts to net patient revenue adjusted for bad debt expense.
Professional and General Liability
We are subject to medical malpractice and other lawsuits due to the nature of the services we
provide. Our operations have professional and general liability insurance in umbrella form for
claims in excess of $3.0 million with an insured excess limit of $75.0 million. The self-insured
reserves for professional and general liability risks are estimated based on historical claims,
demographic factors, industry trends, severity factors, and other actuarial assumptions calculated
by an independent third-party actuary. This estimated accrual for professional and general
liabilities could be significantly affected should current and future occurrences differ from
historical claim trends and expectations. We have utilized our captive insurance company to manage
the self-insured retention. While claims are monitored closely when estimating professional and
general liability accruals, the complexity of the claims and wide range of potential outcomes often
limits timely adjustments to the assumptions used in these estimates.
Income Taxes
As part of our process for preparing our consolidated financial statements, our management is
required to compute income taxes in each of the jurisdictions in which we operate. This process
involves estimating the current tax benefit or expense of future deductible and taxable temporary
differences. The tax effects of future deductible and taxable temporary differences are recorded as
deferred tax assets and liabilities which are components of our balance sheet. Management then
assesses our ability to realize the deferred tax assets based on reversals of deferred tax
liabilities and, if necessary, estimates of future taxable income. A valuation allowance for
deferred tax assets is established when we believe that it is more likely than not that the
deferred tax asset will not be realized. Management must also assess the impact of our acquisitions
on the realization of deferred tax assets subject to a valuation allowance to determine if all or a
portion of the valuation allowance will be offset by reversing taxable differences or future
taxable income of the acquired entity. To the extent the valuation allowance can be reversed due to
the estimated future taxable income of an acquired entity, then our valuation allowance is reduced
accordingly as an adjustment to income tax expense.
GAAP requires us to make significant judgments regarding the recognition and measurement of
each tax position. Changes in these judgments may materially affect the estimate of our effective
tax rate and our operating results.
Share-Based Compensation
We record share-based compensation expense for the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value of such awards. We
utilize the Black-Scholes option pricing model to estimate the grant-date fair value of our stock
options. The Black-Scholes model includes certain variables and assumptions that require judgment,
such as the expected volatility of our stock price and the expected term of our stock options.
Additionally, we use judgment in the estimation of forfeitures over the vesting period of
share-based awards.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Our interest expense is sensitive to changes in the general level of interest rates. With
respect to our interest-bearing liabilities, approximately $615.8 million of our long-term debt
outstanding at June 30, 2010 was subject to a weighted-average fixed interest rate of 8.0%. Our
variable rate debt is comprised of our senior secured term loan facility, which had $507.6 million
outstanding at June 30, 2010 and on which interest is generally payable at LIBOR plus 1.75%.
A hypothetical 10% increase in interest rates would decrease our net income and cash flows by
approximately $0.7 million on an
annual basis based upon our borrowing level at June 30, 2010. In the event we draw on our revolving
credit facility and/or interest rates change significantly, we anticipate that we would take
actions intended to further mitigate our exposure to such change by targeting a portion of our debt
portfolio to be maintained at fixed rates and periodically entering into interest rate swap
agreements. Information on quantitative and qualitative disclosure about market risk is included in
Part I, Item 2 of this Quarterly Report on Form 10-Q under the caption Managements Discussion and
Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources.
25
Item 4. Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Accounting Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of the period covered
by this report pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, our
Chief Executive Officer and Chief Accounting Officer concluded that our disclosure controls and
procedures were effective in ensuring that information required to be disclosed by us (including
our consolidated subsidiaries) in reports that we file or submit under the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and reported on a timely basis.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter
ended June 30, 2010 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
.
We are, from time to time, subject to various claims and legal actions that arise in the
ordinary course of our business, including claims for damages for personal injuries, medical
malpractice, breach of contract, business tort and employment related claims. In these actions,
plaintiffs request a variety of damages, including, in some instances, punitive and other types of
damages that may not be covered by insurance.
In the opinion of management, we are not currently a party to any proceeding that would have a
material adverse effect on our business, financial condition or results of operations.
Litigation Related to the Merger
Seven putative class action complaints were filed on behalf of alleged public stockholders of
the Company. Two of the lawsuits,
Carpenters Pension Fund of West Virginia v. Psychiatric
Solutions, Inc., et al.
, Case No. 38359, and
Pedric v. Psychiatric Solutions, Inc., et al.
, Case
No. 38391, were filed in the Chancery Court for Williamson County, Tennessee. One of the lawsuits,
Smith v. Psychiatric Solutions, Inc., et al.
, Case No. 10-862-II, was filed in the Chancery Court
for Davidson County, Tennessee. The
Smith
case was transferred to Williamson County. Another three
lawsuits,
Oklahoma Police Pension and Retirement System v. Jacobs, et al.
, Case No. CA 5514,
City
of Miami Police Relief and Pension Fund v. Jacobs, et al.
, Case No. 5515, and
Plumbers &
Pipefitters, Local 152 Pension Fund v. Psychiatric Solutions, Inc., et al.
, Case No. 5532, were
filed in the Court of Chancery for the State of Delaware. A seventh lawsuit,
Rosinek v. Psychiatric
Solutions, Inc., et al.
, Case No. 3:10-cv-00534, was filed in the United States District Court for
the Middle District of Tennessee. The defendants generally include us, members of our board of
directors and, in certain of the cases, our officers. UHS and/or its affiliates are named as
defendants in some of the lawsuits. The lawsuits allege, among other things, that our directors
breached their fiduciary duties in connection with the proposed Merger by failing to maximize
stockholder value. The lawsuits also allege that our directors have put their personal interests
ahead of those of our stockholders, including by approving the Merger to extinguish any personal
liability they could suffer from previously asserted derivative claims related to, among other
things, violations of fiduciary duties and federal securities laws and also by negotiating a Merger
Agreement that includes broad director and officer insurance and indemnification provisions
protecting them against civil and criminal claims for six years from the date of the Merger
Agreement. Certain of the lawsuits allege that various individual defendants will receive improper
change of control payments and Merger Consideration in connection with equity awards that
plaintiffs contend were improper. Certain of the lawsuits also allege that we and UHS aided and
abetted the various breaches of fiduciary duty. Certain of the lawsuits also allege that various
individual defendants caused us to issue a proxy statement containing materially false and
misleading statements and omissions in connection with our 2010 annual stockholder meeting. Among
other things, the lawsuits seek to enjoin us and our directors from consummating the Merger and
also seek rescission of the allegedly improper equity awards. The three Delaware cases were
consolidated and set for trial beginning on August 5, 2010. The three Tennessee state court cases
were consolidated in Williamson County, and then stayed in favor of the consolidated Delaware
action by agreed order of the Williamson County court.
After substantially completing fact discovery in the consolidated Delaware action, without
admitting liability on the part of any of the defendants, the parties to the consolidated Delaware
action and the consolidated Tennessee state court action have agreed in
principle to terms of settlement as follows: (1) requiring additional disclosures in the proxy
statement to be delivered to stockholders in connection with the Special Meeting called to vote on
the Merger regarding, among other things, the background of and negotiations relating to the
Merger, the Executive Performance Incentive Plan, the amendment to our 2009 Long-Term Equity
Compensation Plan and adoption of the 2010 Long-Term Equity Compensation Plan, the circumstances
surrounding our compensation committees approval of equity and restricted stock grants in February
2010, and the financial disclosures relating to the transaction,
26
including the discounted cash flow
and other analyses performed by Goldman Sachs & Co.; (2) allowing our stockholders to revote on the
proposal to amend the Equity Incentive Plan to increase the number of shares of Common Stock
subject to grant under the Equity Incentive Plan by 900,000 and to restrict the repricing of
options, which was approved by our stockholders at our annual meeting of stockholders in May 2010;
(3) requiring the release by the class of stockholders entitled to vote on the Merger of any and
all claims that have been or could have been made against any of the defendants relating to the
Merger, the disclosures made by or on behalf of us through and including consummation of the
Merger, and the compensation received by any defendant through and including the consummation of
the Merger; and (4) requiring us to pay plaintiffs reasonable attorneys fees and expenses in the
amounts ordered by the courts. The settlements in those actions are subject to court approval,
which has not yet been obtained. The settlement will not affect the form or amount of the
consideration to be received by our stockholders in the Merger. The defendants have denied and
continue to deny any wrongdoing or liability with respect to all claims, events, and transactions
complained of in the aforementioned lawsuits or that they have engaged in any wrongdoing. The
defendants have entered into the settlement to eliminate the uncertainty, burden, risk, expense and
distraction of further litigation.
The
Rosinek
case remains pending in the United States District Court in Tennessee, but a
motion has been filed asking the court to stay that proceeding in favor of the consolidated
Delaware action. We believe that the claims asserted in the
Rosinek
case are without merit and
intend to defend the suit vigorously.
Item 1A. Risk Factors.
There have been no material changes to the risk factors previously disclosed in our Annual
Report on Form 10-K for the year ended December 31, 2009 and Quarterly Report on Form 10-Q for the
quarter ended March 31, 2010, except for the following risk factors:
While the proposed Merger is pending, we may experience business uncertainties and are subject to
restrictions on the conduct of our business.
Uncertainty about the effect of the proposed Merger on employees, physicians and patients may
have an adverse effect on us. These uncertainties may impair our ability to attract, retain and
motivate key personnel until the proposed Merger is consummated, and could cause third parties,
including physicians, to seek to change existing business relationships with us. In addition, the
Merger Agreement restricts us from taking specified actions without UHSs approval including, among
other things, making certain acquisitions, dispositions or investments, making certain capital
expenditures, and entering into, terminating or amending material contracts. Our management may
also be required to devote substantial time to Merger-related activities, which could otherwise be
devoted to our day-to-day business operations or pursuing other beneficial business opportunities.
Failure to complete the proposed Merger could negatively impact our stock price and financial
results.
Consummation of the proposed Merger is subject to various conditions, including, among others,
adoption of the Merger Agreement by our stockholders and expiration or termination of applicable
waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. There
can be no assurance that the Merger will be completed in a timely manner or at all. If the Merger
is not completed, we will be subject to several risks, including the following:
we may be required to pay UHS a termination fee of $71.5 million and/or reimburse UHS for all
of its expenses incurred in connection with the transactions contemplated by the Merger Agreement
(which would be credited against the termination fee to the extent it subsequently becomes due);
the current market price of our common stock may reflect a market assumption that the Merger
will occur, and a failure to complete the Merger could result in a negative perception by the stock
market of us generally and a decline in the market price of our common stock; and
certain costs relating to the Merger, such as legal, accounting and financial advisory fees,
are payable by us whether or not the Merger is completed.
Item 6. Exhibits.
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
2.1
|
|
Agreement and Plan of Merger, dated May 16, 2010, by and among
Psychiatric Solutions, Inc., Universal Health Services, Inc. and
Olympus Acquisition Corp. (incorporated by reference to Exhibit 2
to the Companys Current Report on Form 8-K, filed on May 17,
2010).
|
|
|
|
3.1
|
|
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 Companys
Annual Report on Form 10-K for the fiscal year ended April 30,
1998).
|
27
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
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 Companys 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 Companys 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 Companys 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 Companys
Current Report on Form 8-K, filed on November 6, 2007).
|
|
|
|
10.1
|
|
Amendment to Employment Agreement, dated April 15,
2010, by and between Joey A. Jacobs and
Psychiatric Solutions, Inc. (incorporated by
reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K, filed on April 20, 2010).
|
|
|
|
10.2
|
|
Form of Change in Control Severance Agreement,
dated April 15, 2010, by and between certain of
the Companys officers and Psychiatric Solutions,
Inc. (incorporated by reference to Exhibit 10.2 to
the Companys Current Report on Form 8-K, filed on
April 20, 2010).
|
|
|
|
10.3
|
|
Fifth Amendment to the Psychiatric Solutions, Inc.
Equity Incentive Plan (incorporated by reference
to Appendix A to the Companys Definitive Proxy
Statement, filed on April 8, 2010).
|
|
|
|
31.1*
|
|
Certification of the Chief Executive Officer of
Psychiatric Solutions, Inc. pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934,
as amended, as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2*
|
|
Certification of the Chief Accounting Officer of
Psychiatric Solutions, Inc. pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934,
as amended, as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1*
|
|
Certifications of the Chief Executive Officer and
Chief Accounting Officer of Psychiatric Solutions,
Inc. pursuant to Rule 13a-14(b) of the Securities
Exchange Act of 1934, as amended, and 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
|
|
|
101.INS**
|
|
XBRL Instance Document.
|
|
|
|
101.SCH**
|
|
XBRL Taxonomy Extension Schema
Document.
|
|
|
|
101.CAL**
|
|
XBRL Taxonomy Calculation Linkbase
Document.
|
|
|
|
101.LAB**
|
|
XBRL Taxonomy Labels Linkbase
Document.
|
|
|
|
101.PRE**
|
|
XBRL Taxonomy Presentation Linkbase
Document.
|
|
|
|
*
|
|
Filed or furnished herewith
|
|
**
|
|
Furnished electronically herewith
|
28
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
Psychiatric Solutions, Inc.
|
|
|
By:
|
/s/ Jack E. Polson
|
|
|
|
Jack E. Polson
|
|
|
|
Executive Vice President, Chief Accounting Officer
|
|
|
Dated: August 4, 2010
Psychiatric Solutions, Inc. (MM) (NASDAQ:PSYS)
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