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 March 31, 2008
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
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 is a large accelerated filer, an accelerated
filer or 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
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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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 April 30, 2008, 55,420,049 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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March 31,
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December 31,
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2008
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2007
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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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14,743
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$
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39,975
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Accounts receivable, less allowance for doubtful accounts
of $38,635 and $35,587 for 2008 and 2007,
respectively
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254,935
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233,945
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Prepaids and other
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71,237
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66,159
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Total current assets
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340,915
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340,079
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Property and equipment, net of accumulated depreciation
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742,200
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694,018
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Cost in excess of net assets acquired
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1,183,970
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1,073,583
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Other assets
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64,601
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71,843
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Total assets
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$
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2,331,686
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$
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2,179,523
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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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30,899
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$
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31,394
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Salaries and benefits payable
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79,159
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82,899
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Other accrued liabilities
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58,496
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61,939
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Current portion of long-term debt
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5,071
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6,016
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Total current liabilities
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173,625
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182,248
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Long-term debt, less current portion
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1,299,898
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1,166,008
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Deferred tax liability
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47,807
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49,131
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Other liabilities
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22,771
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23,235
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Total liabilities
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1,544,101
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1,420,622
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Minority Interest
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4,273
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4,159
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Stockholders equity:
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Common stock, $0.01 par value, 125,000 shares authorized;
55,419 and 55,107 issued and outstanding for 2008
and 2007, respectively
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554
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551
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Additional paid-in capital
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581,210
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574,943
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Accumulated other comprehensive loss
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(3,675
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)
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(479
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Retained earnings
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205,223
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179,727
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Total stockholders equity
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783,312
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754,742
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Total liabilities and stockholders equity
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$
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2,331,686
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$
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2,179,523
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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 March 31,
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2008
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2007
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Revenue
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$
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429,691
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$
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322,438
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Salaries, wages and employee benefits (including share-
based compensation of $5,560 and $3,673 for 2008
and 2007, respectively)
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238,651
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180,135
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Professional fees
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43,504
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30,900
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Supplies
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23,779
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18,344
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Rentals and leases
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6,230
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4,629
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Other operating expenses
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39,115
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31,547
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Provision for doubtful accounts
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7,159
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6,664
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Depreciation and amortization
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9,435
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6,256
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Interest expense
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20,376
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14,386
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388,249
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292,861
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Income from continuing operations before income taxes
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41,442
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29,577
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Provision for income taxes
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15,789
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11,328
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Income from continuing operations
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25,653
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18,249
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Loss from discontinued operations, net of
income tax benefit of $83 and $77
for 2008 and 2007, respectively
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(157
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(124
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Net income
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$
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25,496
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$
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18,125
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Basic earnings per share:
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Income from continuing operations
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$
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0.46
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$
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0.34
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Loss from discontinued operations, net of taxes
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Net income
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$
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0.46
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$
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0.34
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Diluted earnings per share:
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Income from continuing operations
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$
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0.46
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$
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0.33
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Loss from discontinued operations, net of taxes
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Net income
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$
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0.46
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$
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0.33
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Shares used in computing per share amounts:
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Basic
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55,143
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53,804
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Diluted
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55,799
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55,237
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See accompanying notes.
2
PSYCHIATRIC SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(Unaudited, in thousands)
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Accumulated
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Additional
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Other
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Common Stock
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Paid-In
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Comprehensive
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Retained
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Shares
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Amount
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Capital
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Loss
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Earnings
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Total
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Balance at December 31, 2007
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55,107
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$
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551
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$
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574,943
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$
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(479
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$
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179,727
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$
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754,742
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Comprehensive income:
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Net income
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25,496
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25,496
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Change in fair value of interest rate
swap, net of tax
benefit of $1,967
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(3,196
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(3,196
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Total comprehensive income
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$
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22,300
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Share-based compensation
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5,560
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5,560
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Exercise of stock options and
grants of restricted stock, net
of issuance costs
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312
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3
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707
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710
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Income tax benefit of stock option
exercises
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Balance at March 31, 2008
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55,419
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$
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554
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$
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581,210
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$
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(3,675
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$
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205,223
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$
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783,312
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See accompanying notes.
3
PSYCHIATRIC SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
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Three Months Ended March 31,
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2008
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2007
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Operating activities:
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Net income
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$
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25,496
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$
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18,125
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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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9,435
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6,256
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Amortization of loan costs and bond premium
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553
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517
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Share-based compensation
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5,560
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3,673
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Change in income tax assets and liabilities
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10,003
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(1,798
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)
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Loss from discontinued operations, net of taxes
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157
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124
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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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(19,888
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)
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(9,484
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)
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Prepaids and other current assets
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(64
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)
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(894
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)
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Accounts payable
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(523
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)
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(838
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)
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Salaries and benefits payable
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(4,511
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)
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(9,387
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)
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Accrued liabilities and other liabilities
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(14,802
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)
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(1,101
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)
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Net cash provided by continuing operating activities
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11,416
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5,193
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Net cash provided by (used in) discontinued operating activities
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136
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(62
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Net cash provided by operating activities
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11,552
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5,131
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Investing activities:
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Cash paid for acquisitions, net of cash acquired
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(141,248
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)
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(25,241
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)
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Capital purchases of property and equipment
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(22,932
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)
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(9,872
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)
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Other assets
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(1,205
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)
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233
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Net cash used in continuing investing activities
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(165,385
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)
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(34,880
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)
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Financing activities:
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Net increase in revolving credit facility
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130,000
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19,000
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Principal payments on long-term debt
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(2,057
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)
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(315
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)
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Payment of loan and issuance costs
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(12
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)
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(85
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)
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Excess tax benefit from share based payment arrangements
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|
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2,569
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Proceeds from exercises of common stock options
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|
670
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|
|
5,706
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|
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|
|
|
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Net cash provided by financing activities
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|
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128,601
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|
|
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26,875
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|
|
|
|
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Net decrease in cash
|
|
|
(25,232
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)
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|
|
(2,874
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)
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Cash and cash equivalents at beginning of the period
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39,975
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|
|
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18,572
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|
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Cash and cash equivalents at end of the period
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$
|
14,743
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|
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$
|
15,698
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|
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|
|
|
|
|
|
|
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Effect of Acquisitions:
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Assets acquired, net of cash acquired
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$
|
144,289
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$
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35,928
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Cash paid for prior year acquisitions
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2,081
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Liabilities assumed
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(3,041
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)
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(2,064
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)
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Common stock issued
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(9,000
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)
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Long-term debt assumed
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(1,704
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)
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Cash paid for acquisitions, net of cash acquired
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$
|
141,248
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|
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$
|
25,241
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See accompanying notes.
4
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2008
1. Recent Developments
Effective March 1, 2008, we completed the acquisition of five inpatient behavioral health care
facilities from United Medical Corporation (UMC), which are located in
Florida and Kentucky and include more than 400 beds.
2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles 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 U.S. generally accepted accounting
principles for audited financial statements. The condensed consolidated balance sheet at December
31, 2007 has been derived from the audited financial statements at that date, but does not include
all of the information and footnotes required by U.S. generally accepted accounting principles for
complete financial statements. Certain reclassifications have been made to the prior year to
conform to current year presentation. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation of our financial position
have been included. The majority of our expenses are cost of revenue items. General and
administrative expenses, excluding share-based compensation expense, were approximately 2.8% of net
revenue for the three months ended March 31, 2008. Operating results for the three months ended
March 31, 2008 are not necessarily indicative of the results that may be expected for the full
year. 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, 2007.
3. Earnings Per Share
Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings per Share
, 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 reflects the potential dilution of securities that, upon exercise or
conversion, could share in our earnings. We have calculated earnings per share in accordance with
SFAS No. 128 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
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
25,653
|
|
|
$
|
18,249
|
|
Loss from discontinued operations, net of taxes
|
|
|
(157
|
)
|
|
|
(124
|
)
|
|
|
|
|
|
|
|
Net income
|
|
$
|
25,496
|
|
|
$
|
18,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for basic earnings per share
|
|
|
55,143
|
|
|
|
53,804
|
|
Effects of dilutive stock options and restriced stock outstanding
|
|
|
656
|
|
|
|
1,433
|
|
|
|
|
|
|
|
|
Shares used in computing diluted earnings per common share
|
|
|
55,799
|
|
|
|
55,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.46
|
|
|
$
|
0.34
|
|
Loss from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.46
|
|
|
$
|
0.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.46
|
|
|
$
|
0.33
|
|
Loss from discontinued operations, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.46
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
5
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2008
4. Share-Based Compensation
We recognized $5.6 million and $3.7 million in share-based compensation expense and approximately
$2.1 million and $1.4 million of related income tax benefit for the three months ended March 31,
2008 and 2007, 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 basic and diluted earnings per share was approximately $0.06 and $0.04 per share for the three
months ended March 31, 2008 and 2007, respectively. We classified $2.6 million in income tax
benefits in excess of share-based compensation expense on stock options exercised in 2007 as cash
flows from financing activities in our Condensed Consolidated Statement of Cash Flows for the three
months ended March 31, 2007. Income tax benefits in excess of share-based compensation expense on
stock options exercised and restricted stock vested during the three months ended March 31, 2008
were negligible.
Based on our stock option and restricted stock grants outstanding at March 31, 2008, we estimate
remaining unrecognized share-based compensation expense to be approximately $49.7 million with a
weighted average remaining life of 3.0 years.
The total intrinsic value, which represents the difference between the underlying stocks market
price and the options exercise price, of options exercised and restricted stock vested during the
three months ended March 31, 2008 and 2007 was $2.3 million and $8.7 million, respectively.
We granted 695,225 stock options to employees during the three months ended March 31, 2008. 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 $9.45.
We granted 283,000 shares of restricted stock to certain senior management during the three months
ended March 31, 2008. These shares of restricted stock vest 25% on each anniversary of the grant
date and had a weighted-average grant-date fair value of $29.00 per share.
5. Acquisitions
Acquiring free-standing psychiatric facilities is a key part of our business strategy. Our
financial statements for the periods presented are not comparable because of the numerous
acquisitions we have consummated.
Effective March 1, 2008, we completed the acquisition of five inpatient behavioral health care
facilities from UMC for $120 million. These facilities, located in Florida and Kentucky, include
more than 400 beds.
The balance of cost in excess of net assets acquired (goodwill) increased to $1.2 billion as of
March 31, 2008 from $1.1 billion as of December 31, 2007. This increase in goodwill is primarily
the result of the five facilities acquired from UMC and certain other employee assistance program
(EAP) businesses acquired during the first quarter of 2008. The purchase price allocation for
these 2008 acquisitions is preliminary as of March 31, 2008, pending final measurement of certain
assets and liabilities.
During 2007, we acquired 16 inpatient behavioral health care facilities with an aggregate of
approximately 1,600 beds, including the May 31, 2007 acquisition
of Horizon Health Corporation (Horizon Health), which operated
15 inpatient facilities.
6. Long-term debt
Long-term debt consists of the following (in thousands):
6
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2008
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Senior credit facility:
|
|
|
|
|
|
|
|
|
Revolving line of credit facility, expiring on December 21, 2009
and bearing interest of 4.5% and 6.4% at March 31, 2008
and December 31, 2007, respectively
|
|
$
|
210,000
|
|
|
$
|
80,000
|
|
Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 5.0% and 6.8% at March 31, 2008
and December 31, 2007, respectively
|
|
|
571,438
|
|
|
|
573,312
|
|
7 3/4% Notes
|
|
|
476,346
|
|
|
|
476,508
|
|
Mortgage loans on facilities, maturing in 2036, 2037 and 2038
bearing fixed interest rates of 5.7% to 7.6%
|
|
|
33,574
|
|
|
|
33,671
|
|
Other
|
|
|
13,611
|
|
|
|
8,533
|
|
|
|
|
|
|
|
|
|
|
|
1,304,969
|
|
|
|
1,172,024
|
|
Less current portion
|
|
|
5,071
|
|
|
|
6,016
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
1,299,898
|
|
|
$
|
1,166,008
|
|
|
|
|
|
|
|
|
Senior Credit Facility
Our Second Amended and Restated Credit Agreement, as amended (the Credit Agreement) includes a
$300 million revolving credit facility and $575 million senior secured term loan facility.
Quarterly principal payments of $0.9 million are due on our senior secured term loan facility with
the balance 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) and are due December 21, 2009 and July 1, 2012, respectively. The Base Rate and
Eurodollar Rate fluctuate based upon market rates and certain leverage ratios, as defined in the
Credit Agreement. As of March 31, 2008, we had $210.0 million in borrowings outstanding and $82.7
million available for future borrowings under the revolving credit facility. Until the maturity
date, we may borrow, repay and re-borrow an amount not to exceed $300 million on our revolving
credit facility. All repayments made under the senior secured term loan facility are permanent. We
pay a quarterly commitment fee on the unused portion of our revolving credit facility that
fluctuates, based upon certain leverage ratios, between 0.25% and 0.5% per annum. Commitment fees
were approximately $0.1 million for the three months ended March 31, 2008.
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) a financial
leverage covenant; and (3) cross-default covenants triggered by a default of any other indebtedness
of at least $5.0 million. As of March 31, 2008, 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.
7
3
/
4
% Notes
The 7
3
/
4
% Senior Subordinated Notes due 2015 (the
7
3
/
4
% Notes) are fully and unconditionally guaranteed on a senior
subordinated basis by substantially all of our existing operating subsidiaries. We received a
premium of 2.75% from the sale of $250 million of 7
3
/
4
% Notes on May 31,
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. Interest on these notes accrues at the rate of
7
3
/
4
% per annum and is payable semi-annually in arrears on January 15 and
July 15. The 7
3
/
4
% Notes mature on July 15, 2015.
Mortgage Loans
Our mortgage loans are insured by the U.S. Department of Housing and Urban Development (HUD) and
are secured by real estate
7
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2008
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. The carrying amount of assets held as
collateral approximated $37.5 million at March 31, 2008.
Interest Rate Swap Agreements
We periodically enter into interest rate swap agreements to manage our exposure to fluctuations in
interest rates. During the fourth quarter of 2007, we entered into an agreement with Merrill Lynch
Capital Securities, Inc. to exchange the interest payments associated with a notional amount of
$225 million of LIBOR indexed variable rate debt related to our senior secured term loan facility
for a fixed interest rate. The agreement matures on November 30, 2009. The interest payments
associated with this agreement are settled on a net basis. The fair value of our interest rate
swap at March 31, 2008 reflected a liability of $6.0 million, which represents the estimated amount
we would have paid if the agreement was canceled.
7. Income Taxes
The provision for income taxes for the three months ended March 31, 2008 and 2007 reflects an
effective tax rate of approximately 38.1% and 38.3%, respectively. The decrease in the effective
tax rate is primarily due to a decrease in our overall effective foreign income tax rate.
8. Discontinued Operations
SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets
, 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 the second quarter of 2007, we elected to
dispose of one facility. Accordingly, these operations, net of applicable income taxes, have been
presented as discontinued operations and prior period consolidated financial statements have been
reclassified.
The components of loss from discontinued operations, net of taxes, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2007
|
|
Revenue
|
|
$
|
|
|
|
$
|
1,280
|
|
|
Operating expenses
|
|
|
240
|
|
|
|
1,481
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations before income taxes
|
|
|
(240
|
)
|
|
|
(201
|
)
|
Benefit for income taxes
|
|
|
(83
|
)
|
|
|
(77
|
)
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of income taxes
|
|
$
|
(157
|
)
|
|
$
|
(124
|
)
|
|
|
|
|
|
|
|
9. Disclosures About Reportable Segments
In accordance with the criteria of SFAS No. 131,
Disclosures About Segments of an Enterprise and
Related Information
(SFAS 131), owned and leased facilities is our only reportable segment. Each
of our inpatient facilities qualifies as an operating segment
under SFAS 131; however, none is individually material. We have
aggregated our inpatient facilities into one
reportable segment based on the characteristics of the services provided. As of March 31, 2008, the
owned and leased facilities segment provides mental health and behavioral heath services to
patients in its 86 owned and 9 leased inpatient facilities in 31 states, Puerto Rico and the U.S.
Virgin 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, employee assistance programs and a managed care plan in Puerto
Rico. The operations included in the Other column do not qualify as reportable segments under
SFAS 131. Activities classified as Corporate in the following schedule relate primarily to
unallocated home office items and discontinued operations.
Adjusted EBITDA is a non-GAAP financial measure and is defined as net income (loss) before
discontinued operations, interest expense (net of interest income), income taxes, depreciation,
amortization, share-based compensation and other items included in the
8
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2008
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 U. S. generally accepted accounting principles.
Because adjusted EBITDA is not a measure of financial performance under U. S. generally accepted
accounting principles 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 March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned and
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities
|
|
|
Other
|
|
|
Corporate
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
388,308
|
|
|
$
|
41,383
|
|
|
$
|
|
|
|
$
|
429,691
|
|
|
Adjusted EBITDA
|
|
$
|
80,769
|
|
|
$
|
7,959
|
|
|
$
|
(11,915
|
)
|
|
$
|
76,813
|
|
Interest expense
|
|
|
7,114
|
|
|
|
214
|
|
|
|
13,048
|
|
|
|
20,376
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
15,789
|
|
|
|
15,789
|
|
Depreciation and amortization
|
|
|
7,890
|
|
|
|
1,184
|
|
|
|
361
|
|
|
|
9,435
|
|
Inter-segment expenses
|
|
|
15,951
|
|
|
|
1,952
|
|
|
|
(17,903
|
)
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
5,560
|
|
|
|
5,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
|
|
|
|
|
|
|
|
5,560
|
|
|
|
5,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
49,814
|
|
|
$
|
4,609
|
|
|
$
|
(28,770
|
)
|
|
$
|
25,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,030,544
|
|
|
$
|
224,812
|
|
|
$
|
76,330
|
|
|
$
|
2,331,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned and
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities
|
|
|
Other
|
|
|
Corporate
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
306,862
|
|
|
$
|
15,576
|
|
|
$
|
|
|
|
$
|
322,438
|
|
|
Adjusted EBITDA
|
|
$
|
61,237
|
|
|
$
|
2,181
|
|
|
$
|
(9,526
|
)
|
|
$
|
53,892
|
|
Interest expense
|
|
|
9,028
|
|
|
|
(5
|
)
|
|
|
5,363
|
|
|
|
14,386
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
11,328
|
|
|
|
11,328
|
|
Depreciation and amortization
|
|
|
5,730
|
|
|
|
182
|
|
|
|
344
|
|
|
|
6,256
|
|
Inter-segment expenses
|
|
|
11,369
|
|
|
|
721
|
|
|
|
(12,090
|
)
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
3,673
|
|
|
|
3,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
|
|
|
|
|
|
|
|
3,673
|
|
|
|
3,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
35,110
|
|
|
$
|
1,283
|
|
|
$
|
(18,144
|
)
|
|
$
|
18,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,499,188
|
|
|
$
|
47,577
|
|
|
$
|
76,459
|
|
|
$
|
1,623,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 us and our subsidiaries as of March 31, 2008 and December
31, 2007, and for the three months ended March 31, 2008 and 2007. 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.
9
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2008
Condensed Consolidating Balance Sheet
As of March 31, 2008
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Combined Non-
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Amounts
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
7,808
|
|
|
$
|
6,935
|
|
|
$
|
|
|
|
$
|
14,743
|
|
Accounts receivable, net
|
|
|
|
|
|
|
246,986
|
|
|
|
7,949
|
|
|
|
|
|
|
|
254,935
|
|
Prepaids and other
|
|
|
|
|
|
|
55,785
|
|
|
|
15,452
|
|
|
|
|
|
|
|
71,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
310,579
|
|
|
|
30,336
|
|
|
|
|
|
|
|
340,915
|
|
Property and equipment, net of accumulated depreciation
|
|
|
|
|
|
|
692,316
|
|
|
|
57,170
|
|
|
|
(7,286
|
)
|
|
|
742,200
|
|
Cost in excess of net assets acquired
|
|
|
|
|
|
|
1,183,970
|
|
|
|
|
|
|
|
|
|
|
|
1,183,970
|
|
Investment in subsidiaries
|
|
|
1,167,606
|
|
|
|
|
|
|
|
|
|
|
|
(1,167,606
|
)
|
|
|
|
|
Other assets
|
|
|
14,743
|
|
|
|
45,698
|
|
|
|
22,415
|
|
|
|
(18,255
|
)
|
|
|
64,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,182,349
|
|
|
$
|
2,232,563
|
|
|
$
|
109,921
|
|
|
$
|
(1,193,147
|
)
|
|
$
|
2,331,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
29,715
|
|
|
$
|
1,184
|
|
|
$
|
|
|
|
$
|
30,899
|
|
Salaries and benefits payable
|
|
|
|
|
|
|
77,859
|
|
|
|
1,300
|
|
|
|
|
|
|
|
79,159
|
|
Other accrued liabilities
|
|
|
13,550
|
|
|
|
44,310
|
|
|
|
636
|
|
|
|
|
|
|
|
58,496
|
|
Current portion of long-term debt
|
|
|
4,667
|
|
|
|
|
|
|
|
404
|
|
|
|
|
|
|
|
5,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
18,217
|
|
|
|
151,884
|
|
|
|
3,524
|
|
|
|
|
|
|
|
173,625
|
|
Long-term debt, less current portion
|
|
|
1,266,728
|
|
|
|
|
|
|
|
33,170
|
|
|
|
|
|
|
|
1,299,898
|
|
Deferred tax liability
|
|
|
|
|
|
|
47,807
|
|
|
|
|
|
|
|
|
|
|
|
47,807
|
|
Other liabilities
|
|
|
2,204
|
|
|
|
10,900
|
|
|
|
31,332
|
|
|
|
(21,665
|
)
|
|
|
22,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,287,149
|
|
|
|
210,591
|
|
|
|
68,026
|
|
|
|
(21,665
|
)
|
|
|
1,544,101
|
|
Minority Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,273
|
|
|
|
4,273
|
|
Total stockholders (deficit) equity
|
|
|
(104,800
|
)
|
|
|
2,021,972
|
|
|
|
41,895
|
|
|
|
(1,175,755
|
)
|
|
|
783,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders (deficit) equity
|
|
$
|
1,182,349
|
|
|
$
|
2,232,563
|
|
|
$
|
109,921
|
|
|
$
|
(1,193,147
|
)
|
|
$
|
2,331,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
As of December 31, 2007
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Combined Non-
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Amounts
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
19,159
|
|
|
$
|
20,816
|
|
|
$
|
|
|
|
$
|
39,975
|
|
Accounts receivable, net
|
|
|
|
|
|
|
226,501
|
|
|
|
7,444
|
|
|
|
|
|
|
|
233,945
|
|
Prepaids and other
|
|
|
|
|
|
|
64,604
|
|
|
|
1,555
|
|
|
|
|
|
|
|
66,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
310,264
|
|
|
|
29,815
|
|
|
|
|
|
|
|
340,079
|
|
Property and equipment, net of accumulated depreciation
|
|
|
|
|
|
|
643,838
|
|
|
|
57,526
|
|
|
|
(7,346
|
)
|
|
|
694,018
|
|
Cost in excess of net assets acquired
|
|
|
|
|
|
|
1,073,583
|
|
|
|
|
|
|
|
|
|
|
|
1,073,583
|
|
Investment in subsidiaries
|
|
|
1,058,235
|
|
|
|
|
|
|
|
|
|
|
|
(1,058,235
|
)
|
|
|
|
|
Other assets
|
|
|
15,441
|
|
|
|
52,298
|
|
|
|
22,359
|
|
|
|
(18,255
|
)
|
|
|
71,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,073,676
|
|
|
$
|
2,079,983
|
|
|
$
|
109,700
|
|
|
$
|
(1,083,836
|
)
|
|
$
|
2,179,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
30,335
|
|
|
$
|
1,059
|
|
|
$
|
|
|
|
$
|
31,394
|
|
Salaries and benefits payable
|
|
|
|
|
|
|
81,242
|
|
|
|
1,657
|
|
|
|
|
|
|
|
82,899
|
|
Other accrued liabilities
|
|
|
25,171
|
|
|
|
36,526
|
|
|
|
242
|
|
|
|
|
|
|
|
61,939
|
|
Current portion of long-term debt
|
|
|
5,619
|
|
|
|
|
|
|
|
397
|
|
|
|
|
|
|
|
6,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
30,790
|
|
|
|
148,103
|
|
|
|
3,355
|
|
|
|
|
|
|
|
182,248
|
|
Long-term debt, less current portion
|
|
|
1,132,735
|
|
|
|
|
|
|
|
33,273
|
|
|
|
|
|
|
|
1,166,008
|
|
Deferred tax liability
|
|
|
|
|
|
|
49,131
|
|
|
|
|
|
|
|
|
|
|
|
49,131
|
|
Other liabilities
|
|
|
2,659
|
|
|
|
10,912
|
|
|
|
31,096
|
|
|
|
(21,432
|
)
|
|
|
23,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,166,184
|
|
|
|
208,146
|
|
|
|
67,724
|
|
|
|
(21,432
|
)
|
|
|
1,420,622
|
|
Minority Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,159
|
|
|
|
4,159
|
|
Total stockholders (deficit) equity
|
|
|
(92,508
|
)
|
|
|
1,871,837
|
|
|
|
41,976
|
|
|
|
(1,066,563
|
)
|
|
|
754,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders (deficit) equity
|
|
$
|
1,073,676
|
|
|
$
|
2,079,983
|
|
|
$
|
109,700
|
|
|
$
|
(1,083,836
|
)
|
|
$
|
2,179,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2008
Condensed Consolidating Statement of Income
For the Three Months Ended March 31, 2008
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Combined Non-
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Amounts
|
|
Revenue
|
|
$
|
|
|
|
$
|
418,526
|
|
|
$
|
13,596
|
|
|
$
|
(2,431
|
)
|
|
$
|
429,691
|
|
Salaries, wages and employee benefits
|
|
|
|
|
|
|
231,451
|
|
|
|
7,200
|
|
|
|
|
|
|
|
238,651
|
|
Professional fees
|
|
|
|
|
|
|
41,654
|
|
|
|
1,850
|
|
|
|
|
|
|
|
43,504
|
|
Supplies
|
|
|
|
|
|
|
23,209
|
|
|
|
570
|
|
|
|
|
|
|
|
23,779
|
|
Rentals and leases
|
|
|
|
|
|
|
6,138
|
|
|
|
92
|
|
|
|
|
|
|
|
6,230
|
|
Other operating expenses
|
|
|
|
|
|
|
37,438
|
|
|
|
1,707
|
|
|
|
(30
|
)
|
|
|
39,115
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
6,890
|
|
|
|
269
|
|
|
|
|
|
|
|
7,159
|
|
Depreciation and amortization
|
|
|
|
|
|
|
8,881
|
|
|
|
615
|
|
|
|
(61
|
)
|
|
|
9,435
|
|
Interest expense
|
|
|
19,858
|
|
|
|
|
|
|
|
518
|
|
|
|
|
|
|
|
20,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,858
|
|
|
|
355,661
|
|
|
|
12,821
|
|
|
|
(91
|
)
|
|
|
388,249
|
|
(Loss) income from continuing operations before
income taxes
|
|
|
(19,858
|
)
|
|
|
62,865
|
|
|
|
775
|
|
|
|
(2,340
|
)
|
|
|
41,442
|
|
(Benefit from) provision for income taxes
|
|
|
(7,566
|
)
|
|
|
23,323
|
|
|
|
32
|
|
|
|
|
|
|
|
15,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(12,292
|
)
|
|
|
39,542
|
|
|
|
743
|
|
|
|
(2,340
|
)
|
|
|
25,653
|
|
Loss from discontinued operations, net of tax
|
|
|
|
|
|
|
(157
|
)
|
|
|
|
|
|
|
|
|
|
|
(157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(12,292
|
)
|
|
$
|
39,385
|
|
|
$
|
743
|
|
|
$
|
(2,340
|
)
|
|
$
|
25,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
For the Three Months Ended March 31, 2007
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Combined Non-
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Amounts
|
|
Revenue
|
|
$
|
|
|
|
$
|
322,438
|
|
|
$
|
4,534
|
|
|
$
|
(4,534
|
)
|
|
$
|
322,438
|
|
Salaries, wages and employee benefits
|
|
|
|
|
|
|
180,135
|
|
|
|
|
|
|
|
|
|
|
|
180,135
|
|
Professional fees
|
|
|
|
|
|
|
30,902
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
30,900
|
|
Supplies
|
|
|
|
|
|
|
18,344
|
|
|
|
|
|
|
|
|
|
|
|
18,344
|
|
Rentals and leases
|
|
|
|
|
|
|
4,629
|
|
|
|
|
|
|
|
|
|
|
|
4,629
|
|
Other operating expenses
|
|
|
|
|
|
|
31,153
|
|
|
|
3,749
|
|
|
|
(3,355
|
)
|
|
|
31,547
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
6,664
|
|
|
|
|
|
|
|
|
|
|
|
6,664
|
|
Depreciation and amortization
|
|
|
|
|
|
|
6,042
|
|
|
|
275
|
|
|
|
(61
|
)
|
|
|
6,256
|
|
Interest expense
|
|
|
14,158
|
|
|
|
|
|
|
|
228
|
|
|
|
|
|
|
|
14,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,158
|
|
|
|
277,869
|
|
|
|
4,250
|
|
|
|
(3,416
|
)
|
|
|
292,861
|
|
(Loss) income from continuing operations before
income taxes
|
|
|
(14,158
|
)
|
|
|
44,569
|
|
|
|
284
|
|
|
|
(1,118
|
)
|
|
|
29,577
|
|
(Benefit from) provision for income taxes
|
|
|
(5,423
|
)
|
|
|
16,751
|
|
|
|
|
|
|
|
|
|
|
|
11,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(8,735
|
)
|
|
|
27,818
|
|
|
|
284
|
|
|
|
(1,118
|
)
|
|
|
18,249
|
|
Loss from discontinued operations, net of taxes
|
|
|
|
|
|
|
(124
|
)
|
|
|
|
|
|
|
|
|
|
|
(124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(8,735
|
)
|
|
$
|
27,694
|
|
|
$
|
284
|
|
|
$
|
(1,118
|
)
|
|
$
|
18,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2008
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 2008
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Combined Non-
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Amounts
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(12,292
|
)
|
|
$
|
39,385
|
|
|
$
|
743
|
|
|
$
|
(2,340
|
)
|
|
$
|
25,496
|
|
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
8,881
|
|
|
|
615
|
|
|
|
(61
|
)
|
|
|
9,435
|
|
Amortization of loan costs and bond premium
|
|
|
542
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
553
|
|
Share-based compensation
|
|
|
|
|
|
|
5,560
|
|
|
|
|
|
|
|
|
|
|
|
5,560
|
|
Change in income tax assets and liabilities
|
|
|
|
|
|
|
10,003
|
|
|
|
|
|
|
|
|
|
|
|
10,003
|
|
Loss from discontinued operations, net of taxes
|
|
|
|
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
157
|
|
Changes in operating assets and liabilities, net of
effect of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
(19,383
|
)
|
|
|
(505
|
)
|
|
|
|
|
|
|
(19,888
|
)
|
Prepaids and other current assets
|
|
|
|
|
|
|
13,833
|
|
|
|
(13,897
|
)
|
|
|
|
|
|
|
(64
|
)
|
Accounts payable
|
|
|
|
|
|
|
(648
|
)
|
|
|
125
|
|
|
|
|
|
|
|
(523
|
)
|
Salaries and benefits payable
|
|
|
|
|
|
|
(4,154
|
)
|
|
|
(357
|
)
|
|
|
|
|
|
|
(4,511
|
)
|
Accrued liabilities and other liabilities
|
|
|
(304
|
)
|
|
|
(15,128
|
)
|
|
|
630
|
|
|
|
|
|
|
|
(14,802
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by continuing operating activities
|
|
|
(12,054
|
)
|
|
|
38,506
|
|
|
|
(12,635
|
)
|
|
|
(2,401
|
)
|
|
|
11,416
|
|
Net cash provided by discontinued operating activities
|
|
|
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(12,054
|
)
|
|
|
38,642
|
|
|
|
(12,635
|
)
|
|
|
(2,401
|
)
|
|
|
11,552
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired
|
|
|
(141,248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(141,248
|
)
|
Capital purchases of property and equipment
|
|
|
|
|
|
|
(22,673
|
)
|
|
|
(259
|
)
|
|
|
|
|
|
|
(22,932
|
)
|
Other assets
|
|
|
|
|
|
|
(1,138
|
)
|
|
|
(67
|
)
|
|
|
|
|
|
|
(1,205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(141,248
|
)
|
|
|
(23,811
|
)
|
|
|
(326
|
)
|
|
|
|
|
|
|
(165,385
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in revolving credit facility
|
|
|
130,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,000
|
|
Principal payments on long-term debt
|
|
|
(1,961
|
)
|
|
|
|
|
|
|
(96
|
)
|
|
|
|
|
|
|
(2,057
|
)
|
Payment of loan and issuance costs
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
Net transfers to and from members
|
|
|
24,605
|
|
|
|
(26,182
|
)
|
|
|
(824
|
)
|
|
|
2,401
|
|
|
|
|
|
Proceeds from exercises of common stock options
|
|
|
670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
153,302
|
|
|
|
(26,182
|
)
|
|
|
(920
|
)
|
|
|
2,401
|
|
|
|
128,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
|
|
|
|
(11,351
|
)
|
|
|
(13,881
|
)
|
|
|
|
|
|
|
(25,232
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
19,159
|
|
|
|
20,816
|
|
|
|
|
|
|
|
39,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
7,808
|
|
|
$
|
6,935
|
|
|
$
|
|
|
|
$
|
14,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2008
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended March 31, 2007
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Combined Non-
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Amounts
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(8,735
|
)
|
|
$
|
27,694
|
|
|
$
|
284
|
|
|
$
|
(1,118
|
)
|
|
$
|
18,125
|
|
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
6,042
|
|
|
|
275
|
|
|
|
(61
|
)
|
|
|
6,256
|
|
Amortization of loan costs and bond premium
|
|
|
506
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
517
|
|
Share-based compensation
|
|
|
|
|
|
|
3,673
|
|
|
|
|
|
|
|
|
|
|
|
3,673
|
|
Loss on refinancing long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in income tax assets and liabilities
|
|
|
|
|
|
|
(1,798
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,798
|
)
|
Loss from discontinued operations, net of taxes
|
|
|
|
|
|
|
124
|
|
|
|
|
|
|
|
|
|
|
|
124
|
|
Changes in operating assets and liabilities, net of
effect of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
(9,484
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,484
|
)
|
Prepaids and other current assets
|
|
|
|
|
|
|
(15,538
|
)
|
|
|
14,644
|
|
|
|
|
|
|
|
(894
|
)
|
Accounts payable
|
|
|
|
|
|
|
(838
|
)
|
|
|
|
|
|
|
|
|
|
|
(838
|
)
|
Salaries and benefits payable
|
|
|
|
|
|
|
(9,387
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,387
|
)
|
Accrued liabilities and other liabilities
|
|
|
10,424
|
|
|
|
(25,664
|
)
|
|
|
14,139
|
|
|
|
|
|
|
|
(1,101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operating activities
|
|
|
2,195
|
|
|
|
(25,176
|
)
|
|
|
29,353
|
|
|
|
(1,179
|
)
|
|
|
5,193
|
|
Net cash used in discontinued operating activities
|
|
|
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
2,195
|
|
|
|
(25,238
|
)
|
|
|
29,353
|
|
|
|
(1,179
|
)
|
|
|
5,131
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired
|
|
|
(25,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,241
|
)
|
Capital purchases of property and equipment
|
|
|
|
|
|
|
(9,872
|
)
|
|
|
|
|
|
|
|
|
|
|
(9,872
|
)
|
Other assets
|
|
|
|
|
|
|
361
|
|
|
|
(128
|
)
|
|
|
|
|
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(25,241
|
)
|
|
|
(9,511
|
)
|
|
|
(128
|
)
|
|
|
|
|
|
|
(34,880
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in revolving credit facility
|
|
|
19,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,000
|
|
Principal payments on long-term debt
|
|
|
(241
|
)
|
|
|
|
|
|
|
(74
|
)
|
|
|
|
|
|
|
(315
|
)
|
Payment of loan and issuance costs
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(85
|
)
|
Excess tax benefits from share-based payment arrangements
|
|
|
2,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,569
|
|
Net transfers to and from members
|
|
|
(3,903
|
)
|
|
|
31,809
|
|
|
|
(29,085
|
)
|
|
|
1,179
|
|
|
|
|
|
Proceeds from exercises of common stock options
|
|
|
5,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
23,046
|
|
|
|
31,809
|
|
|
|
(29,159
|
)
|
|
|
1,179
|
|
|
|
26,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
|
|
|
|
|
|
|
(2,940
|
)
|
|
|
66
|
|
|
|
|
|
|
|
(2,874
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
1,149
|
|
|
|
17,423
|
|
|
|
|
|
|
|
18,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
(1,791
|
)
|
|
$
|
17,489
|
|
|
$
|
|
|
|
$
|
15,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
.
Fair Value Measurements.
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 157,
Fair Value Measurements
(SFAS 157). SFAS 157 defines
fair value, establishes a framework for measuring fair value in accordance with accounting
principles generally accepted in the United States, and expands disclosures about fair value
measurements. We have adopted the provisions of SFAS 157 as of January 1, 2008, for financial
instruments. The adoption of SFAS 157 did not materially impact our financial statements, but does
require us to provide additional disclosures.
SFAS 157
prioritizes the inputs to valuation techniques used to
measure fair value into three broad levels. Level 1 is quoted
prices in active markets for identical assets and liabilities. Level
2 is significant inputs other than quoted prices in active markets
that are either directly or indirectly observable. Level 3 is
unobservable inputs for
which little or no market data exists.
Our interest rate swap is required to be measured at fair value on
a recurring basis. Our
interest rate swap agreement is with a private-party and is not traded on a public exchange.
The fair value of our swap agreement is determined based on
inputs that are readily available in public markets or can be derived from information available in
publicly quoted markets. Therefore, we have categorized the inputs to
value our swap agreement as Level 2, which are consistently applied.
13
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2008
12. Recently Issued Accounting Pronouncements
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of SFAS 115 (SFAS 159), which permits, but does
not require, the measurement of financial instruments and certain other items at fair value.
Unrealized gains and losses on items for which the fair value option is elected would be reported
in earnings. Upon the effective date of SFAS 159, January 1, 2008, we did not elect the fair value
option for any of our financial instruments.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
(SFAS 141(R)), to
replace SFAS No. 141,
Business Combinations
. SFAS 141(R) requires use of the acquisition method of
accounting, defines the acquirer, establishes the acquisition date, requires acquisition-related
costs to be expensed as incurred and broadens the scope of a business combination to include
transactions and other events in which one entity obtains control over one or more other
businesses. This statement is effective for financial statements issued for fiscal years beginning
on or after December 15, 2008, with earlier adoption prohibited. We are currently evaluating the
impact of SFAS 141(R) on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statementsan Amendment of ARB No. 51
(SFAS 160). SFAS 160 establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the retained interest and gain or
loss when a subsidiary is deconsolidated. This statement is effective for financial statements
issued for fiscal years beginning on or after December 15, 2008 with earlier adoption prohibited.
We are currently evaluating the impact of SFAS 160 on our consolidated financial statements.
14
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 risks and
uncertainties, 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:
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our ability to successfully integrate and improve the operations of acquired inpatient facilities;
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|
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potential competition that alters or impedes our acquisition strategy by decreasing our ability to acquire additional
inpatient facilities on favorable terms;
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our ability to maintain favorable and continuing relationships with physicians who use our inpatient facilities;
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our substantial indebtedness and our ability to receive timely additional financing on terms acceptable to us to fund our
acquisition strategy and capital expenditure needs;
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risks inherent to the health care industry, including the impact of unforeseen changes in regulation and exposure to
claims and legal actions by patients and others;
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efforts by federal and state health care programs and managed care companies to reduce reimbursement rates for our
services;
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our ability to comply with applicable licensure and accreditation requirements;
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our ability to comply with extensive laws and government regulations related to billing, physician relationships,
adequacy of medical care and licensure;
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our ability to retain key employees who are instrumental to our successful operations;
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our ability to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act;
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our ability to ensure confidential information is not inappropriately disclosed and that we are in compliance with
federal and state health information privacy standards;
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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;
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our ability to obtain adequate levels of general and professional liability insurance;
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those risks and uncertainties described from time to time in our filings with the SEC; and
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future trends for pricing, margins, revenue and profitability remain difficult to predict in the industries that we serve.
|
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, 2007, 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
the operating results of our inpatient
facilities and managed inpatient behavioral health care operations.
15
Effective March 1, 2008, we completed the acquisition of five inpatient behavioral health care
facilities from United Medical Corporation (UMC) for $120 million. These facilities, located in
Florida and Kentucky, include more than 400 beds.
During 2007, we acquired 16 inpatient behavioral health care facilities with an aggregate of
approximately 1,600 beds, including the May 31, 2007 acquisition of Horizon Health Corporation
(Horizon Health), which operated 15 inpatient facilities.
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 our services by expanding our services and developing new services. We
also attempt to improve operating results by optimizing staffing ratios, controlling contract labor
costs and reducing supply costs through group purchasing. During the quarter ended March 31, 2008,
our same-facility revenue from owned and leased inpatient facilities increased by 7.7% compared to
the same period in 2007. Same-facility revenue growth was driven by increases in patient days and
revenue per patient day. Patient days increased 2.4% during the quarter ended March 31, 2008
compared to the same period in 2007. Revenue per patient day increased 5.1% for the quarter ended
March 31, 2008 compared to the same period in 2007. Same-facility growth refers to the comparison
of each inpatient facility owned and leased during 2007 with the results for the comparable period
in 2008, adjusted for closures and combinations for comparability purposes.
Sources of Revenue
Patient Service Revenue
Patient service revenue is generated by our inpatient facilities as a result of 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. Generally, collection in full is not expected at our established billing
rates. 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 90.4% and 95.2% of our total revenue for the three months ended March 31, 2008 and
2007, respectively.
Other Revenue
Other revenue accounted for approximately 9.6% and 4.8% of our total revenue for the three
months ended March 31, 2008 and 2007, respectively. This portion of our business primarily consists
of our contract management and employee assistance program (EAP) businesses. Our contract
management business involves the development, organization and management of behavioral health care
programs within medical/surgical hospitals. Our EAP business contracts with employers to assist
employees and their dependents with resolution of behavioral conditions or other personal concerns.
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 for the three months
ended March 31, 2008 and 2007 (dollars in thousands):
16
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|
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For the Three Months Ended March 31,
|
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|
|
2008
|
|
|
2007
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Revenue
|
|
$
|
429,691
|
|
|
|
100.0
|
%
|
|
$
|
322,438
|
|
|
|
100.0
|
%
|
Salaries, wages, and employee benefits (including
share-based compensation
of $5,560 and $3,673 for 2008 and 2007,
respectively)
|
|
|
238,651
|
|
|
|
55.6
|
%
|
|
|
180,135
|
|
|
|
55.9
|
%
|
Professional fees
|
|
|
43,504
|
|
|
|
10.1
|
%
|
|
|
30,900
|
|
|
|
9.6
|
%
|
Supplies
|
|
|
23,779
|
|
|
|
5.5
|
%
|
|
|
18,344
|
|
|
|
5.7
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%
|
Provision for doubtful accounts
|
|
|
7,159
|
|
|
|
1.7
|
%
|
|
|
6,664
|
|
|
|
2.0
|
%
|
Other operating expenses
|
|
|
45,345
|
|
|
|
10.6
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%
|
|
|
36,176
|
|
|
|
11.2
|
%
|
Depreciation and amortization
|
|
|
9,435
|
|
|
|
2.2
|
%
|
|
|
6,256
|
|
|
|
1.9
|
%
|
Interest expense, net
|
|
|
20,376
|
|
|
|
4.7
|
%
|
|
|
14,386
|
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes
|
|
|
41,442
|
|
|
|
9.6
|
%
|
|
|
29,577
|
|
|
|
9.2
|
%
|
Provision for income taxes
|
|
|
15,789
|
|
|
|
3.6
|
%
|
|
|
11,328
|
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
25,653
|
|
|
|
6.0
|
%
|
|
$
|
18,249
|
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008 Compared To Three Months Ended March 31, 2007
The following table compares key total facility and same-facility statistics for the quarters
ended March 31, 2008 and 2007 (revenue in thousands).
|
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|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
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%
|
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2008
|
|
2007
|
|
Change
|
Same-facility results:
|
|
|
|
|
|
|
|
|
|
|
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|
Revenue (in thousands)
|
|
$
|
326,579
|
|
|
$
|
303,288
|
|
|
|
7.7
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%
|
Admissions
|
|
|
33,181
|
|
|
|
32,371
|
|
|
|
2.5
|
%
|
Patient days
|
|
|
568,439
|
|
|
|
554,941
|
|
|
|
2.4
|
%
|
Average length of stay (in days)
|
|
|
17.1
|
|
|
|
17.1
|
|
|
|
0.0
|
%
|
Revenue per patient day
|
|
$
|
575
|
|
|
$
|
547
|
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total facility results:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (in thousands)
|
|
$
|
388,308
|
|
|
$
|
306,862
|
|
|
|
26.5
|
%
|
Admissions
|
|
|
40,860
|
|
|
|
32,748
|
|
|
|
24.8
|
%
|
Patient days
|
|
|
686,350
|
|
|
|
562,026
|
|
|
|
22.1
|
%
|
Average length of stay (in days)
|
|
|
16.8
|
|
|
|
17.2
|
|
|
|
-2.3
|
%
|
Revenue per patient day
|
|
$
|
566
|
|
|
$
|
546
|
|
|
|
3.7
|
%
|
Revenue
. Revenue from continuing operations was $429.7 million for the quarter ended March 31,
2008 compared to $322.4 million for the quarter ended March 31, 2007, an increase of $107.3
million, or 33.3%. Revenue from owned and leased inpatient facilities accounted for $388.3 million
in 2008 compared to $306.9 million in 2007, an increase of $81.4 million, or 26.5%. The increase in
revenue from owned and leased inpatient facilities relates primarily to acquisitions of behavioral
health care facilities. The remainder of the increase in revenue from owned and leased inpatient
facilities is attributable to same-facility growth in patient days and revenue per patient day of
2.4% and 5.1%, respectively. Other revenue was $41.4 million in 2008 compared to $15.6 million in
2007. The increase in other revenue is primarily the result of other operations acquired in the
Horizon Health acquisition, including an EAP business and numerous management contracts.
Salaries, wages and employee benefits
. Salaries, wages and employee benefits (SWB) expense
was $238.7 million for the quarter ended March 31, 2008 compared to $180.1 million for the quarter
ended March 31, 2007. SWB expense includes $5.6 million and $3.7 million of share-based
compensation expense for the quarters ended March 31, 2008 and 2007, respectively. Excluding
share-based compensation expense, SWB expense was $233.1 million, or 54.2% of total revenue, in the
quarter ended March 31, 2008 compared to $176.5 million, or 54.7% of total revenue, for the quarter
ended March 31, 2007. SWB expense for owned and leased inpatient facilities was $209.6 million, or
54.0% of revenue, in 2008. Same-facility SWB expense for owned and leased inpatient facilities was
$174.0 million, or 53.3% of revenue, in 2008 compared to $163.6 million, or 53.9% of revenue, in
2007. SWB expense
17
for other
operations increased to $15.5 million in 2008 from
$4.5 million in 2007 primarily due to the other
operations acquired in the Horizon Health acquisition. SWB expense for our corporate office was
$13.6 million, including $5.6 million in share-based compensation, for 2008 compared to $10.0
million, including $3.7 million in share-based compensation, for 2007. Excluding share-based
compensation, SWB expense for our corporate office increased approximately $1.7 million primarily
as a result of hiring additional staff necessary to manage the inpatient facilities acquired during
2007.
Professional fees
. Professional fees were $43.5 million for the quarter ended March 31, 2008,
or 10.1% of total revenue, compared to $30.9 million for the quarter ended March 31, 2007, or 9.6%
of total revenue. Professional fees for owned and leased inpatient facilities were $36.3 million in
2008, or 9.4% of revenue. Same-facility professional fees for owned and leased inpatient facilities
were $30.5 million in 2008, or 9.3% of revenue, compared to $28.2 million in 2007, or 9.3% of
revenue. Professional fees for other operations as well as our corporate office increased to $7.2
million in 2008 from $2.2 million in 2007 due to the other operations acquired in the Horizon
Health acquisition.
Supplies.
Supplies expense was $23.8 million for the quarter ended March 31, 2008, or 5.5% of
total revenue, compared to $18.3 million for the quarter ended March 31, 2007, or 5.7% of total
revenue. Supplies expense for owned and leased inpatient facilities was $23.4 million in 2008, or
6.0% of revenue. Same-facility supplies expense for owned and leased inpatient facilities was $19.2
million in 2008, or 5.9% of revenue, compared to $17.8 million in 2007, or 5.9% of revenue.
Supplies expense for other operations as well as our corporate office consisted primarily of office
supplies and is negligible to our supplies expense overall.
Provision for doubtful accounts
. The provision for doubtful accounts was $7.2 million for the
quarter ended March 31, 2008, or 1.7% of total revenue, compared to $6.7 million for the quarter
ended March 31, 2007, or 2.0% of total revenue. The provision for doubtful accounts at our 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
approximately $45.3 million for the quarter ended March 31, 2008, or 10.6% of total revenue,
compared to $36.2 million for the quarter ended March 31, 2007, or 11.2% of total revenue. Other
operating expenses for owned and leased inpatient facilities were $31.2 million in 2008, or 8.0% of
revenue. Same-facility other operating expenses for owned and leased inpatient facilities were
$25.6 million in 2008, or 7.8% of revenue, compared to $26.1 million in 2007, or 8.6% of revenue.
The decrease in same-facility other operating expenses for owned and leased inpatient facilities as
a percentage of revenue is primarily the result of reductions in risk management costs as a percent
of revenue. Other operating expenses for other operations were $12.2 million in 2008 compared to
$7.9 million in 2007. The increase in other operating expenses for other operations was primarily
due to new operations acquired in the Horizon Health acquisition. Other operating expenses at our
corporate office were $2.0 million in 2008 compared to $1.8 million in 2007.
Depreciation and amortization
. Depreciation and amortization expense was $9.4 million for the
quarter ended March 31, 2008 compared to $6.3 million for the quarter ended March 31, 2007. This
increase in depreciation and amortization expense was primarily the result of the acquisitions of
inpatient facilities during 2007 and 2008.
Interest expense, net
. Interest expense, net of interest income, was $20.4 million for the
quarter ended March 31, 2008 compared to $14.4 million for the quarter ended March 31, 2007, an
increase of $6.0 million. This increase in interest expense is primarily the result of a $541.3
million increase in our long-term debt during the past twelve months offset by a reduction in our
overall effective interest rate. We borrowed $443.2 million in May 2007 to finance the Horizon
Health acquisition and borrowed $130.0 million in the first quarter of 2008 principally to finance
the acquisition of five inpatient behavioral health care facilities
from UMC, other
acquisitions, capital expenditures and other general corporate purposes.
Loss from discontinued operations, net of taxes
. The loss from discontinued operations (net of
income tax effect) was $0.2 million for the quarter ended March 31, 2008 compared to $0.1 million
for the quarter ended March 31, 2007. We did not have any operations that were discontinued during
the quarter ended March 31, 2008.
Liquidity and Capital Resources
Working capital at March 31, 2008 was $167.3 million, including cash and cash equivalents of
$14.7 million, compared to working capital of $157.8 million, including cash and cash equivalents
of $40.0 million, at December 31, 2007. The increase in working capital is primarily the result of
a $21.0 million increase in accounts receivable, a $5.1 million increase in prepaids and other
current assets and a $3.7 million decrease in salaries and benefits payable at March 31, 2008
compared to December 31, 2007. The increase in accounts receivable was primarily the result of
increases in same-facility revenue and receivables generated from businesses acquired in 2008. Our consolidated
days sales outstanding were 52 and 53 for March 31, 2008 and December 31, 2007, respectively. The
increase in prepaids and other current assets is primarily the result of the reclassification of an
asset held for sale that is now expected to be sold within the next twelve months. The decrease in
salaries and benefits payable was primarily the result of payments of incentive compensation for
the year ended December 31, 2007 that were accrued at the end of 2007 and paid during the quarter
ended
March 31, 2008.
18
Cash provided by continuing operating activities was $11.4 million for the three months ended
March 31, 2008 compared to $5.2 million for the three months ended March 31, 2007. This $6.2
million increase in cash flows from continuing operating activities was primarily attributable to
the results of operations of Horizon Health acquired on May 31, 2007 and improved operating margins
on a same-facility basis, offset by increased interest payments and incentive compensation payments
made during the first quarter of 2008.
Cash used in continuing investing activities was $165.4 million for the three months ended
March 31, 2008 compared to $34.9 million for the three months ended March 31, 2007. Cash used in
continuing investing activities for 2008 consisted primarily of $141.2 million paid for
acquisitions and $22.9 million for purchases of fixed assets. Cash used for routine and expansion
capital expenditures was approximately $9.1 million and $13.8 million, respectively, for the three
months ended March 31, 2008. Our expansion expenditures will continue to increase in 2008 as a
result of planned capital expansion projects and the construction of new facilities, which are
expected to add approximately 600 new beds to our operations. We define expansion capital
expenditures as those that increase the capacity of our facilities or otherwise enhance revenue.
Routine or maintenance capital expenditures were 2.1% of our revenue for the three months ended
March 31, 2008. Cash used in investing activities for the three
months ended March 31, 2007 consisted
primarily of cash paid for acquisitions of $25.2 million and capital expenditures of
$9.9 million.
Cash provided by financing activities was $128.6 million for the three months ended March 31,
2008 compared to $26.9 million for the three months ended March 31, 2007. Cash provided by
financing activities for 2008 consisted primarily of $130.0 million in net borrowings under our
revolving credit facility, which were used to finance the acquisition of five inpatient behavioral
health care facilities from UMC and certain EAP acquisitions, capital expenditures and other general
corporate purposes. Cash provided by financing activities for the three months ended March 31,
2007 consisted primarily of $19.0 million in net borrowings under our revolving credit facility and
$5.7 million in proceeds from the exercise of stock options.
We have a universal shelf registration statement on Form S-3 under which we may sell an
indeterminate amount of our common stock, common stock warrants, preferred stock and debt
securities. We may from time to time offer these securities in one or more series, in amounts, at
prices and on terms satisfactory to us.
During
the fourth quarter of 2007, we entered into an interest rate swap
agreement with
Merrill Lynch Capital Services, Inc. to manage our exposure to fluctuations in interest rates. With
this interest rate swap agreement we exchange the interest payments associated with a notional
amount of $225 million of LIBOR indexed variable rate debt related to our senior secured term loan
facility for a fixed interest rate. This interest rate swap agreement matures on November 30,
2009.
We are actively seeking acquisitions that fit our corporate growth strategy and may acquire
additional inpatient psychiatric facilities and other operations, including EAP businesses.
Management continually assesses our capital needs and, should the need arise, we will seek
additional financing, including debt or equity, to fund potential acquisitions or for other
corporate purposes. In negotiating such financing, there can be no assurance that we will be able
to raise additional capital on terms satisfactory to us. Failure to obtain additional financing on
reasonable terms could have a negative effect on our plans to acquire additional inpatient
psychiatric facilities.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving line of credit facility, expiring on December 21, 2009
and bearing interest of 4.5% and
6.4% at March 31, 2008
and December 31, 2007, respectively
|
|
$
|
210,000
|
|
|
$
|
|
|
|
$
|
210,000
|
|
|
$
|
|
|
|
$
|
|
|
Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 5.0%
and 6.8% at March 31, 2008
and December 31, 2007, respectively
|
|
|
571,438
|
|
|
|
3,750
|
|
|
|
7,500
|
|
|
|
560,188
|
|
|
|
|
|
7 3/4% Notes
|
|
|
476,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
476,346
|
|
Mortgage loans on facilities, maturing in 2036, 2037 and 2038
bearing fixed interest rates of 5.7% to 7.6%
|
|
|
33,574
|
|
|
|
404
|
|
|
|
886
|
|
|
|
1,003
|
|
|
|
31,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,291,358
|
|
|
|
4,154
|
|
|
|
218,386
|
|
|
|
561,191
|
|
|
|
507,627
|
|
Lease and other obligations
|
|
|
96,431
|
|
|
|
16,413
|
|
|
|
29,459
|
|
|
|
12,904
|
|
|
|
37,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
1,387,789
|
|
|
$
|
20,567
|
|
|
$
|
247,845
|
|
|
$
|
574,095
|
|
|
$
|
545,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Excludes capital lease obligations, fair value of interest rate swap,
and other obligations totaling $13.6 million, which are included in
lease and other obligations.
|
19
The fair value of our $470.0 million 7
3
/
4
% Notes was approximately
$468.2 million as of March 31, 2008. The fair value of our $470.0 million
7
3
/
4
% Notes was approximately $467.1 million as of December 31, 2007. The
carrying value of our other long-term debt, including current maturities, of $828.6 million and
$695.5 million at March 31, 2008 and December 31, 2007, respectively, approximated fair value. We
had $571.4 million and $210.0 million of variable rate debt outstanding under our senior secured
term loan facility and revolving credit facility, respectively, as of March 31, 2008. As a result
of our interest rate swap arrangement to exchange interest rate payments associated with a notional
amount of $225 million of LIBOR indexed variable rate debt for a fixed rate, the variable rate debt
outstanding under our senior secured term loan facility was effectively $346.4 million as of March
31, 2008. At our March 31, 2008 borrowing level, a hypothetical 10% increase in interest rates
would decrease our annual net income and cash flows by approximately $1.7 million.
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with U.S. generally
accepted accounting principles. In preparing our financial statements, we are required to make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, 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 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.
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 frequently occur 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 contracts 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. At March 31, 2008, all of our operations have professional and general liability insurance
in umbrella form for claims in excess of $3.0 million with an insured limit of $50.0 million. The
self-insured reserves for professional and general liability risks are calculated based on
historical claims, demographic factors, industry trends, severity factors and other actuarial
assumptions calculated by an independent third-party actuary. This self-insurance reserve is
discounted to its present value using a 5.0% discount rate. 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 hamper timely adjustments to the assumptions used in these estimates.
20
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 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 purchase price.
We adopted FASB Interpretation No. 48 (FIN 48),
Accounting for Uncertainty in Income Taxes
-
An Interpretation of FASB Statement No. 109,
on January 1, 2007. Applying the provisions of FIN 48
requires 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 adopted SFAS No. 123R under the modified-prospective transition method on January 1, 2006,
which requires us to measure and recognize 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 or our stock price and the expected term of our stock options. Additionally,
SFAS No. 123R requires us to use judgment in the estimation of forfeitures over the vesting period
of share-based awards.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Information required by this item is provided 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.
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 Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the
Exchange Act). Based upon that evaluation, the 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 Exchange Act 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 March 31, 2008 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 subject to various claims and legal actions that arise in the ordinary course of our
business. In the opinion of management, we are not currently a party to any proceeding that would
have a material adverse effect on our financial condition or results of operations.
21
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, 2007.
Item 6. Exhibits.
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
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).
|
|
|
|
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 of 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.
|
|
|
|
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
|
|
Psychiatric Solutions, Inc. 2008 Long-Term Equity Compensation Plan
(incorporated by reference to Exhibit 10.2 to the Companys Current
Report on Form 8-K, filed on February 27, 2008).
|
|
|
|
10.2
|
|
Psychiatric Solutions, Inc. 2008 Cash Bonus Plans (incorporated by
reference to Exhibit 10.1 to the Companys Current Report on Form
8-K, filed on February 27, 2008).
|
|
|
|
10.3*
|
|
ISDA Master Agreement, dated as of
November 29, 2007, between
Merrill Lynch Capital Services, Inc. and Psychiatric Solutions, Inc.
|
|
|
|
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.
|
22
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:
May 5, 2008
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