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 September 30,
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, 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 November 3, 2008, 55,929,948 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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September 30,
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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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44,960
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$
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39,970
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Accounts receivable, less allowance for doubtful accounts
of $49,514 and $35,398 for 2008 and 2007, respectively
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261,531
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230,600
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Prepaids and other
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79,968
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68,235
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Total current assets
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386,459
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338,805
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Property and equipment, net of accumulated depreciation
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802,479
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692,135
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Cost in excess of net assets acquired
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1,202,646
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1,071,275
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Other assets
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65,740
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75,889
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Total assets
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$
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2,457,324
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$
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2,178,104
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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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36,044
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$
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30,996
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Salaries and benefits payable
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88,478
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82,101
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Other accrued liabilities
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67,495
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61,861
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Current portion of long-term debt
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6,008
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6,016
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Total current liabilities
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198,025
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180,974
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Long-term debt, less current portion
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1,312,438
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1,166,008
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Deferred tax liability
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57,503
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49,131
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Other liabilities
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22,010
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23,090
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Total liabilities
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1,589,976
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1,419,203
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Minority interest
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4,996
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4,159
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Stockholders equity:
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Common stock, $0.01 par value, 125,000 shares authorized;
55,895 and 55,107 issued and outstanding for 2008
and 2007, respectively
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559
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551
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Additional paid-in capital
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602,191
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574,943
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Accumulated other comprehensive loss
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(1,057
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)
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(479
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)
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Retained earnings
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260,659
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179,727
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Total stockholders equity
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862,352
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754,742
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Total liabilities and stockholders equity
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$
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2,457,324
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$
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2,178,104
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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
September 30,
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Nine
Months Ended
September 30,
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2008
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2007
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2008
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2007
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Revenue
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$
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448,015
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$
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396,419
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$
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1,320,114
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$
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1,062,565
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Salaries, wages and employee benefits (including share-based compensation of $4,935,
$4,423, $15,013
and $12,006 for the respective
three and nine month
periods in 2008 and 2007)
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245,578
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220,853
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725,775
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590,071
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Professional fees
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45,022
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39,868
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133,803
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104,530
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Supplies
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24,323
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21,317
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71,769
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58,185
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Rentals and leases
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5,708
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5,486
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17,653
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14,561
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Other operating expenses
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41,484
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38,062
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121,849
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103,627
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Provision for doubtful accounts
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10,254
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7,003
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25,976
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20,871
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Depreciation and amortization
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10,171
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8,472
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29,570
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21,888
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Interest expense
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19,337
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22,252
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59,440
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53,666
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Loss on refinancing long-term debt
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8,179
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401,877
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363,313
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1,185,835
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975,578
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Income from continuing operations before income taxes
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46,138
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33,106
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134,279
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86,987
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Provision for income taxes
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17,533
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12,537
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51,026
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32,783
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Income from continuing operations
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28,605
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20,569
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83,253
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54,204
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Loss from discontinued operations, net of income tax (benefit)
provision of $(8), $(27), $9 and
$(126) for the respective
three and nine month periods in
2008 and 2007
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(2,228
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)
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(244
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)
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(2,321
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)
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(1,147
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)
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Net income
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$
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26,377
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$
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20,325
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$
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80,932
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$
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53,057
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Basic earnings per share:
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Income from continuing operations
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$
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0.52
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$
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0.38
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$
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1.50
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$
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1.00
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Loss from discontinued
operations, net of taxes
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(0.04
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)
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(0.01
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)
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(0.04
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)
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(0.02
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)
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Net income
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$
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0.48
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$
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0.37
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$
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1.46
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$
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0.98
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Diluted earnings per share:
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Income from continuing operations
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$
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0.51
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$
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0.37
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$
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1.48
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$
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0.98
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Loss from discontinued
operations, net of taxes
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(0.04
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)
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(0.04
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)
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(0.02
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)
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Net income
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$
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0.47
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$
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0.37
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$
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1.44
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$
|
0.96
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Shares used in computing per share amounts:
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Basic
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55,529
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54,278
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55,318
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54,064
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Diluted
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56,604
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55,415
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56,213
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55,343
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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
|
|
|
55,107
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|
|
$
|
551
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$
|
574,943
|
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|
$
|
(479
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)
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$
|
179,727
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|
|
$
|
754,742
|
|
Comprehensive income:
|
|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
|
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Net income
|
|
|
|
|
|
|
|
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|
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|
|
|
|
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80,932
|
|
|
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80,932
|
|
Change in fair value of interest rate
swap, net of tax
benefit of $387
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
(578
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)
|
|
|
|
|
|
|
(578
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)
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|
|
|
|
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|
|
|
|
|
|
|
|
|
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|
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Total comprehensive income
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
80,354
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|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
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|
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|
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Common stock issued in acquisitions
|
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|
27
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|
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|
1,000
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|
|
|
|
|
|
1,000
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|
Share-based compensation
|
|
|
|
|
|
|
|
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|
|
15,013
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|
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|
|
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|
15,013
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|
Exercise of stock options and
grants of restricted stock, net
of issuance costs
|
|
|
761
|
|
|
|
8
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|
|
|
9,333
|
|
|
|
|
|
|
|
|
|
|
|
9,341
|
|
Income tax benefit of stock option
exercises
|
|
|
|
|
|
|
|
|
|
|
1,902
|
|
|
|
|
|
|
|
|
|
|
|
1,902
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2008
|
|
|
55,895
|
|
|
$
|
559
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|
|
$
|
602,191
|
|
|
$
|
(1,057
|
)
|
|
$
|
260,659
|
|
|
$
|
862,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
3
PSYCHIATRIC SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
80,932
|
|
|
$
|
53,057
|
|
Adjustments to reconcile net income to net cash provided by
continuing operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
29,570
|
|
|
|
21,888
|
|
Amortization of loan costs and bond premium
|
|
|
1,660
|
|
|
|
1,591
|
|
Share-based compensation
|
|
|
15,013
|
|
|
|
12,006
|
|
Loss on refinancing long-term debt
|
|
|
|
|
|
|
8,179
|
|
Change in income tax assets and liabilities
|
|
|
(1,611
|
)
|
|
|
8,219
|
|
Loss from discontinued operations, net of taxes
|
|
|
2,321
|
|
|
|
1,147
|
|
Changes in operating assets and liabilities,
net of effect of acquisitions:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(30,331
|
)
|
|
|
(20,803
|
)
|
Prepaids and other current assets
|
|
|
(1,017
|
)
|
|
|
1,966
|
|
Accounts payable
|
|
|
5,116
|
|
|
|
(6,913
|
)
|
Salaries and benefits payable
|
|
|
4,638
|
|
|
|
(457
|
)
|
Accrued liabilities and other liabilities
|
|
|
(16,183
|
)
|
|
|
353
|
|
|
|
|
|
|
|
|
Net cash provided by continuing operating activities
|
|
|
90,108
|
|
|
|
80,233
|
|
Net cash (used in) provided by discontinued operating activities
|
|
|
(2,186
|
)
|
|
|
504
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
87,922
|
|
|
|
80,737
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired
|
|
|
(163,238
|
)
|
|
|
(462,729
|
)
|
Capital purchases of property and equipment
|
|
|
(81,773
|
)
|
|
|
(48,361
|
)
|
Other assets
|
|
|
280
|
|
|
|
(750
|
)
|
|
|
|
|
|
|
|
Net cash used in continuing investing activities
|
|
|
(244,731
|
)
|
|
|
(511,840
|
)
|
Net cash provided by discontinued investing activities
|
|
|
5,244
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(239,487
|
)
|
|
|
(511,840
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Net increase (decrease) in revolving credit facility
|
|
|
149,333
|
|
|
|
(11,000
|
)
|
Borrowings on long-term debt
|
|
|
|
|
|
|
481,875
|
|
Principal payments on long-term debt
|
|
|
(3,963
|
)
|
|
|
(40,220
|
)
|
Payment of loan and issuance costs
|
|
|
(39
|
)
|
|
|
(6,603
|
)
|
Refinancing of long-term debt
|
|
|
|
|
|
|
(7,127
|
)
|
Excess tax benefits from share-based payment arrangements
|
|
|
1,902
|
|
|
|
4,072
|
|
Proceeds from exercises of common stock options
|
|
|
9,322
|
|
|
|
13,935
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
156,555
|
|
|
|
434,932
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
4,990
|
|
|
|
3,829
|
|
Cash and cash equivalents at beginning of the period
|
|
|
39,970
|
|
|
|
18,520
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the period
|
|
$
|
44,960
|
|
|
$
|
22,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Acquisitions:
|
|
|
|
|
|
|
|
|
Assets acquired, net of cash acquired
|
|
$
|
171,145
|
|
|
$
|
533,084
|
|
Liabilities assumed
|
|
|
(6,907
|
)
|
|
|
(52,653
|
)
|
Common stock issued
|
|
|
(1,000
|
)
|
|
|
(9,000
|
)
|
Long-term debt assumed
|
|
|
|
|
|
|
(8,702
|
)
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired
|
|
$
|
163,238
|
|
|
$
|
462,729
|
|
|
|
|
|
|
|
|
See accompanying notes.
4
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 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 approximately 400 beds. During the second quarter of 2008, we opened Lincoln Prairie
Behavioral Health Center, a 120-bed facility in Springfield, Illinois.
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 2.7% of net
revenue for the nine months ended September 30, 2008. Operating results for the three and nine
months ended September 30, 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
(SFAS 128),
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 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
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
28,605
|
|
|
$
|
20,569
|
|
|
$
|
83,253
|
|
|
$
|
54,204
|
|
Loss from discontinued operations, net of taxes
|
|
|
(2,228
|
)
|
|
|
(244
|
)
|
|
|
(2,321
|
)
|
|
|
(1,147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
26,377
|
|
|
$
|
20,325
|
|
|
$
|
80,932
|
|
|
$
|
53,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for basic earnings per share
|
|
|
55,529
|
|
|
|
54,278
|
|
|
|
55,318
|
|
|
|
54,064
|
|
Effects of dilutive stock options and restriced stock outstanding
|
|
|
1,075
|
|
|
|
1,137
|
|
|
|
895
|
|
|
|
1,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing diluted earnings per common share
|
|
|
56,604
|
|
|
|
55,415
|
|
|
|
56,213
|
|
|
|
55,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.52
|
|
|
$
|
0.38
|
|
|
$
|
1.50
|
|
|
$
|
1.00
|
|
Loss from discontinued operations, net of taxes
|
|
|
(0.04
|
)
|
|
|
(0.01
|
)
|
|
|
(0.04
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.48
|
|
|
$
|
0.37
|
|
|
$
|
1.46
|
|
|
$
|
0.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.51
|
|
|
$
|
0.37
|
|
|
$
|
1.48
|
|
|
$
|
0.98
|
|
Loss from discontinued operations, net of taxes
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
(0.04
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.47
|
|
|
$
|
0.37
|
|
|
$
|
1.44
|
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008
4. Share-Based Compensation
We recognized $4.9 million and $4.4 million in share-based compensation expense and approximately
$1.9 million and $1.7 million of related income tax benefit for the three months ended September
30, 2008 and 2007, respectively. We recognized approximately $15.0 million and $12.0 million in
shared-based compensation expense and approximately $5.7 million and $4.6 million of related income
tax benefit for the nine months ended September 30, 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 $0.05 per share for the three months ended September 30, 2008 and 2007. The impact of
share-based compensation expense, net of tax, on our basic and diluted earnings per share was
approximately $0.17 and $0.14 per share for the nine months ended September 30, 2008 and 2007,
respectively. We classified approximately $1.9 million and $4.1 million in income tax benefits in
excess of share-based compensation expense on stock options exercised in 2008 and 2007 as cash
flows from financing activities in our Condensed Consolidated Statement of Cash Flows for the nine
months ended September 30, 2008 and 2007, respectively.
Based on our stock option and restricted stock grants outstanding at September 30, 2008, we
estimate remaining unrecognized share-based compensation expense to be approximately $45.5 million
with a weighted-average remaining life of 2.7 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
nine months ended September 30, 2008 and 2007 was $10.9 million and $15.1 million, respectively.
We granted 1.3 million stock options to employees and directors during the nine months ended
September 30, 2008. Employee options vest over four years in annual increments of 25% on each
anniversary of the grant date and director options vest 25% on the grant date and 25% on each of
the succeeding three anniversaries of the grant date. These options had a weighted-average
grant-date fair value of $11.21.
We granted 283,000 shares of restricted stock to certain senior management during the nine months
ended September 30, 2008. These shares of restricted stock vest over four years in annual
increments of 25% on each anniversary of the grant date and had a weighted-average grant-date fair
value of $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 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
approximately 400 beds.
The balance of cost in excess of net assets acquired (goodwill) increased to $1.2 billion as of
September 30, 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 2008. The purchase price allocation for these 2008
acquisitions is preliminary as of September 30, 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
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008
6. Long-term debt
Long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Senior credit facility:
|
|
|
|
|
|
|
|
|
Revolving credit facility, expiring on December 21, 2009 and
bearing interest of 4.3% and 6.4% at September 30,
2008
and December 31, 2007, respectively
|
|
$
|
229,333
|
|
|
$
|
80,000
|
|
Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 5.6% and 6.8% at September 30,
2008 and December 31, 2007, respectively
|
|
|
570,500
|
|
|
|
573,312
|
|
7 3/4% Notes
|
|
|
476,012
|
|
|
|
476,508
|
|
Mortgage loans on facilities, maturing in 2036, 2037 and 2038
bearing fixed interest rates of 5.7% to 7.6%
|
|
|
33,375
|
|
|
|
33,671
|
|
Other
|
|
|
9,226
|
|
|
|
8,533
|
|
|
|
|
|
|
|
|
|
|
|
1,318,446
|
|
|
|
1,172,024
|
|
Less current portion
|
|
|
6,008
|
|
|
|
6,016
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
1,312,438
|
|
|
$
|
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. All repayments made under the senior secured term
loan facility are permanent.
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 September 30, 2008, we had $229.3 million in borrowings outstanding and
$58.0 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. 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 $0.2 million for the nine months ended September 30,
2008.
Lehman Brothers Commercial Paper (Lehman) is a participant in our revolving credit facility.
Under the terms of our Credit Agreement, Lehman committed to $25.0 million of the $300.0 million
revolving credit facility. As a result of the bankruptcy filing of Lehman on September 15, 2008, we
have not been able to access any of Lehmans remaining unfunded commitment of approximately $5.9
million as of September 30, 2008. Until Lehmans commitment is assumed by another party, the
availability for future borrowings under our revolving credit facility may continue to be reduced
by Lehmans remaining unfunded commitment.
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 September 30, 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, the senior secured term loan facility and the majority of our other debt
arrangements could become immediately payable and additional borrowings could be restricted.
7
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008
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. On July 6, 2005, we
issued $220 million in 7
3
/
4
% Notes. We received a premium of 2.75% from the
sale of an additional $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 the 7
3
/
4
% 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 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 $36.2 million at September 30, 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 September 30, 2008 reflected a liability of $1.8 million, which represents the estimated amount
we would have paid if the agreement was canceled.
7. Income Taxes
The provision for income taxes from continuing operations for the nine months ended September 30,
2008 and 2007 reflects an effective tax rate of approximately 38.0% and 37.7%, respectively.
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 third quarter of 2008, we elected to
dispose of one leased facility, which we expect sell in the next twelve months. During the second
quarter of 2008, two contracts with a Puerto Rico juvenile justice agency to manage inpatient
facilities were terminated. 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):
8
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenue
|
|
$
|
2,261
|
|
|
$
|
5,778
|
|
|
$
|
12,579
|
|
|
$
|
18,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
3,015
|
|
|
|
6,049
|
|
|
|
13,030
|
|
|
|
18,835
|
|
Loss on disposal and assets held for sale
|
|
|
1,482
|
|
|
|
|
|
|
|
1,861
|
|
|
|
767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,497
|
|
|
|
6,049
|
|
|
|
14,891
|
|
|
|
19,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations before income taxes
|
|
|
(2,236
|
)
|
|
|
(271
|
)
|
|
|
(2,312
|
)
|
|
|
(1,273
|
)
|
(Benefit) provision for income taxes
|
|
|
(8
|
)
|
|
|
(27
|
)
|
|
|
9
|
|
|
|
(126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of income taxes
|
|
$
|
(2,228
|
)
|
|
$
|
(244
|
)
|
|
$
|
(2,321
|
)
|
|
$
|
(1,147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. Disclosures About Reportable Segments
In accordance with the criteria of SFAS No. 131,
Disclosures About Segments of an Enterprise and
Related Information
(SFAS 131), our owned and leased
behavioral health care facilities segment is our only reportable segment. Our
inpatient facilities are organized in a reporting structure comprised of ten divisions and two
markets. Each division/market qualifies as an operating segment under SFAS 131. However, we have
aggregated our inpatient facility divisions/markets into one reportable segment based on the
similarity of the economic characteristics of the divisions/markets. As of September 30, 2008, the
owned and leased facilities segment provides mental health and behavioral health services to
patients in its 87 owned and 8 leased inpatient facilities in 31 states, Puerto Rico and the U.S.
Virgin Islands. The column entitled Other in the tables 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 income (loss) from continuing
operations before interest expense (net of interest income), income taxes, depreciation,
amortization, share-based compensation and other items included in the caption labeled Other
expenses. These other expenses may occur in future periods, but the amounts recognized can vary
significantly from period to period and do not directly relate to the ongoing operations of our
health care facilities. Our management relies on adjusted EBITDA as the primary measure to review
and assess the operating performance of our inpatient facilities and their management teams. We
believe it is useful to provide investors 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):
9
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30, 2008
|
|
|
Owned and
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities
|
|
|
Other
|
|
|
Corporate
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
403,936
|
|
|
$
|
44,079
|
|
|
$
|
|
|
|
$
|
448,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
82,852
|
|
|
$
|
9,130
|
|
|
$
|
(11,401
|
)
|
|
$
|
80,581
|
|
Interest expense
|
|
|
7,178
|
|
|
|
136
|
|
|
|
12,023
|
|
|
|
19,337
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
17,533
|
|
|
|
17,533
|
|
Depreciation and amortization
|
|
|
8,349
|
|
|
|
1,430
|
|
|
|
392
|
|
|
|
10,171
|
|
Inter-segment expenses
|
|
|
15,977
|
|
|
|
1,926
|
|
|
|
(17,903
|
)
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
4,935
|
|
|
|
4,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
|
|
|
|
|
|
|
|
4,935
|
|
|
|
4,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
51,348
|
|
|
$
|
5,638
|
|
|
$
|
(28,381
|
)
|
|
$
|
28,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,221,853
|
|
|
$
|
134,206
|
|
|
$
|
101,265
|
|
|
$
|
2,457,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2007
|
|
|
Owned and
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities
|
|
|
Other
|
|
|
Corporate
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
355,425
|
|
|
$
|
40,994
|
|
|
$
|
|
|
|
$
|
396,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
70,811
|
|
|
$
|
7,008
|
|
|
$
|
(9,566
|
)
|
|
$
|
68,253
|
|
Interest expense
|
|
|
7,629
|
|
|
|
(7
|
)
|
|
|
14,630
|
|
|
|
22,252
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
12,537
|
|
|
|
12,537
|
|
Depreciation and amortization
|
|
|
7,217
|
|
|
|
890
|
|
|
|
365
|
|
|
|
8,472
|
|
Inter-segment expenses
|
|
|
14,585
|
|
|
|
2,457
|
|
|
|
(17,042
|
)
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
4,423
|
|
|
|
4,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
|
|
|
|
|
|
|
|
4,423
|
|
|
|
4,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
41,380
|
|
|
$
|
3,668
|
|
|
$
|
(24,479
|
)
|
|
$
|
20,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,985,666
|
|
|
$
|
83,438
|
|
|
$
|
98,842
|
|
|
$
|
2,167,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2008
|
|
|
Owned and
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities
|
|
|
Other
|
|
|
Corporate
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
1,189,374
|
|
|
$
|
130,740
|
|
|
$
|
|
|
|
$
|
1,320,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
247,927
|
|
|
$
|
26,252
|
|
|
$
|
(35,877
|
)
|
|
$
|
238,302
|
|
Interest expense
|
|
|
21,381
|
|
|
|
490
|
|
|
|
37,569
|
|
|
|
59,440
|
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
51,026
|
|
|
|
51,026
|
|
Depreciation and amortization
|
|
|
24,431
|
|
|
|
4,006
|
|
|
|
1,133
|
|
|
|
29,570
|
|
Inter-segment expenses
|
|
|
47,809
|
|
|
|
5,754
|
|
|
|
(53,563
|
)
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
15,013
|
|
|
|
15,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
|
|
|
|
|
|
|
|
15,013
|
|
|
|
15,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
154,306
|
|
|
$
|
16,002
|
|
|
$
|
(87,055
|
)
|
|
$
|
83,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,221,853
|
|
|
$
|
134,206
|
|
|
$
|
101,265
|
|
|
$
|
2,457,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2007
|
|
|
Owned and
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities
|
|
|
Other
|
|
|
Corporate
|
|
|
Consolidated
|
|
Revenue
|
|
$
|
980,423
|
|
|
$
|
82,142
|
|
|
$
|
|
|
|
$
|
1,062,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
196,509
|
|
|
$
|
14,603
|
|
|
$
|
(28,386
|
)
|
|
$
|
182,726
|
|
Interest expense
|
|
|
23,220
|
|
|
|
(20
|
)
|
|
|
30,466
|
|
|
|
53,666
|
|
Provision for income taxes
|
|
|
2
|
|
|
|
|
|
|
|
32,781
|
|
|
|
32,783
|
|
Depreciation and amortization
|
|
|
19,464
|
|
|
|
1,351
|
|
|
|
1,073
|
|
|
|
21,888
|
|
Inter-segment expenses
|
|
|
38,759
|
|
|
|
4,325
|
|
|
|
(43,084
|
)
|
|
|
|
|
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
12,006
|
|
|
|
12,006
|
|
Loss on refinancing long-term debt
|
|
|
|
|
|
|
|
|
|
|
8,179
|
|
|
|
8,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
|
|
|
|
|
|
|
|
20,185
|
|
|
|
20,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
115,064
|
|
|
$
|
8,947
|
|
|
$
|
(69,807
|
)
|
|
$
|
54,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,985,666
|
|
|
$
|
83,438
|
|
|
$
|
98,842
|
|
|
$
|
2,167,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2008 and
December 31, 2007, and for the three and nine months ended September 30, 2008 and 2007. The
information segregates the parent company (Psychiatric Solutions, Inc.), the combined wholly-owned
subsidiary guarantors, the combined non-guarantors, and consolidating adjustments. The subsidiary
guarantees are both full and unconditional and joint and several.
11
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008
Condensed Consolidating Balance Sheet
As of September 30, 2008
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Combined Non-
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Amounts
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
35,412
|
|
|
$
|
9,548
|
|
|
$
|
|
|
|
$
|
44,960
|
|
Accounts receivable, net
|
|
|
|
|
|
|
253,400
|
|
|
|
8,244
|
|
|
|
(113
|
)
|
|
|
261,531
|
|
Prepaids and other
|
|
|
|
|
|
|
64,678
|
|
|
|
17,966
|
|
|
|
(2,676
|
)
|
|
|
79,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
353,490
|
|
|
|
35,758
|
|
|
|
(2,789
|
)
|
|
|
386,459
|
|
Property and equipment, net of accumulated depreciation
|
|
|
|
|
|
|
754,777
|
|
|
|
57,303
|
|
|
|
(9,601
|
)
|
|
|
802,479
|
|
Cost in excess of net assets acquired
|
|
|
|
|
|
|
1,202,646
|
|
|
|
|
|
|
|
|
|
|
|
1,202,646
|
|
Investment in subsidiaries
|
|
|
1,161,063
|
|
|
|
|
|
|
|
|
|
|
|
(1,161,063
|
)
|
|
|
|
|
Other assets
|
|
|
13,333
|
|
|
|
45,686
|
|
|
|
22,772
|
|
|
|
(16,051
|
)
|
|
|
65,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,174,396
|
|
|
$
|
2,356,599
|
|
|
$
|
115,833
|
|
|
$
|
(1,189,504
|
)
|
|
$
|
2,457,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
35,234
|
|
|
$
|
879
|
|
|
$
|
(69
|
)
|
|
$
|
36,044
|
|
Salaries and benefits payable
|
|
|
|
|
|
|
86,963
|
|
|
|
1,495
|
|
|
|
20
|
|
|
|
88,478
|
|
Other accrued liabilities
|
|
|
13,849
|
|
|
|
53,402
|
|
|
|
4,939
|
|
|
|
(4,695
|
)
|
|
|
67,495
|
|
Current portion of long-term debt
|
|
|
5,592
|
|
|
|
|
|
|
|
416
|
|
|
|
|
|
|
|
6,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
19,441
|
|
|
|
175,599
|
|
|
|
7,729
|
|
|
|
(4,744
|
)
|
|
|
198,025
|
|
Long-term debt, less current portion
|
|
|
1,279,479
|
|
|
|
|
|
|
|
32,959
|
|
|
|
|
|
|
|
1,312,438
|
|
Deferred tax liability
|
|
|
|
|
|
|
57,503
|
|
|
|
|
|
|
|
|
|
|
|
57,503
|
|
Other liabilities
|
|
|
4,268
|
|
|
|
(15,457
|
)
|
|
|
25,625
|
|
|
|
7,574
|
|
|
|
22,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,303,188
|
|
|
|
217,645
|
|
|
|
66,313
|
|
|
|
2,830
|
|
|
|
1,589,976
|
|
Minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,996
|
|
|
|
4,996
|
|
Total stockholders (deficit) equity
|
|
|
(128,792
|
)
|
|
|
2,138,954
|
|
|
|
49,520
|
|
|
|
(1,197,330
|
)
|
|
|
862,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders (deficit) equity
|
|
$
|
1,174,396
|
|
|
$
|
2,356,599
|
|
|
$
|
115,833
|
|
|
$
|
(1,189,504
|
)
|
|
$
|
2,457,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet
As of December 31, 2007
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Combined Non-
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Amounts
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
19,154
|
|
|
$
|
20,816
|
|
|
$
|
|
|
|
$
|
39,970
|
|
Accounts receivable, net
|
|
|
|
|
|
|
223,527
|
|
|
|
7,444
|
|
|
|
(371
|
)
|
|
|
230,600
|
|
Prepaids and other
|
|
|
|
|
|
|
77,360
|
|
|
|
1,555
|
|
|
|
(10,680
|
)
|
|
|
68,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
320,041
|
|
|
|
29,815
|
|
|
|
(11,051
|
)
|
|
|
338,805
|
|
Property and equipment, net of accumulated depreciation
|
|
|
|
|
|
|
642,016
|
|
|
|
57,526
|
|
|
|
(7,407
|
)
|
|
|
692,135
|
|
Cost in excess of net assets acquired
|
|
|
|
|
|
|
1,071,275
|
|
|
|
|
|
|
|
|
|
|
|
1,071,275
|
|
Investment in subsidiaries
|
|
|
1,058,235
|
|
|
|
|
|
|
|
|
|
|
|
(1,058,235
|
)
|
|
|
|
|
Other assets
|
|
|
15,441
|
|
|
|
56,761
|
|
|
|
22,359
|
|
|
|
(18,672
|
)
|
|
|
75,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,073,676
|
|
|
$
|
2,090,093
|
|
|
$
|
109,700
|
|
|
$
|
(1,095,365
|
)
|
|
$
|
2,178,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
|
|
|
$
|
30,264
|
|
|
$
|
1,059
|
|
|
$
|
(327
|
)
|
|
$
|
30,996
|
|
Salaries and benefits payable
|
|
|
|
|
|
|
80,424
|
|
|
|
1,657
|
|
|
|
20
|
|
|
|
82,101
|
|
Other accrued liabilities
|
|
|
25,171
|
|
|
|
41,336
|
|
|
|
242
|
|
|
|
(4,888
|
)
|
|
|
61,861
|
|
Current portion of long-term debt
|
|
|
5,619
|
|
|
|
|
|
|
|
397
|
|
|
|
|
|
|
|
6,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
30,790
|
|
|
|
152,024
|
|
|
|
3,355
|
|
|
|
(5,195
|
)
|
|
|
180,974
|
|
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
|
|
|
|
(17,089
|
)
|
|
|
31,096
|
|
|
|
6,424
|
|
|
|
23,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,166,184
|
|
|
|
184,066
|
|
|
|
67,724
|
|
|
|
1,229
|
|
|
|
1,419,203
|
|
Minority interest
|
|
|
|
|
|
|
(274
|
)
|
|
|
|
|
|
|
4,433
|
|
|
|
4,159
|
|
Total stockholders (deficit) equity
|
|
|
(92,508
|
)
|
|
|
1,906,301
|
|
|
|
41,976
|
|
|
|
(1,101,027
|
)
|
|
|
754,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders (deficit) equity
|
|
$
|
1,073,676
|
|
|
$
|
2,090,093
|
|
|
$
|
109,700
|
|
|
$
|
(1,095,365
|
)
|
|
$
|
2,178,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008
Condensed Consolidating Statement of Income
For the Three Months Ended September 30, 2008
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Combined Non-
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Amounts
|
|
Revenue
|
|
$
|
|
|
|
$
|
433,965
|
|
|
$
|
16,987
|
|
|
$
|
(2,937
|
)
|
|
$
|
448,015
|
|
Salaries, wages and employee benefits
|
|
|
|
|
|
|
238,464
|
|
|
|
7,114
|
|
|
|
|
|
|
|
245,578
|
|
Professional fees
|
|
|
|
|
|
|
43,209
|
|
|
|
1,839
|
|
|
|
(26
|
)
|
|
|
45,022
|
|
Supplies
|
|
|
|
|
|
|
23,695
|
|
|
|
628
|
|
|
|
|
|
|
|
24,323
|
|
Rentals and leases
|
|
|
|
|
|
|
6,652
|
|
|
|
100
|
|
|
|
(1,044
|
)
|
|
|
5,708
|
|
Other operating expenses
|
|
|
|
|
|
|
39,912
|
|
|
|
2,686
|
|
|
|
(1,114
|
)
|
|
|
41,484
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
9,898
|
|
|
|
356
|
|
|
|
|
|
|
|
10,254
|
|
Depreciation and amortization
|
|
|
|
|
|
|
9,737
|
|
|
|
511
|
|
|
|
(77
|
)
|
|
|
10,171
|
|
Interest expense
|
|
|
19,449
|
|
|
|
|
|
|
|
(112
|
)
|
|
|
|
|
|
|
19,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,449
|
|
|
|
371,567
|
|
|
|
13,122
|
|
|
|
(2,261
|
)
|
|
|
401,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
before
income taxes
|
|
|
(19,449
|
)
|
|
|
62,398
|
|
|
|
3,865
|
|
|
|
(676
|
)
|
|
|
46,138
|
|
(Benefit from) provision for income taxes
|
|
|
(7,391
|
)
|
|
|
23,712
|
|
|
|
1,469
|
|
|
|
(257
|
)
|
|
|
17,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(12,058
|
)
|
|
|
38,686
|
|
|
|
2,396
|
|
|
|
(419
|
)
|
|
|
28,605
|
|
Loss from discontinued operations, net of tax
|
|
|
|
|
|
|
(2,228
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(12,058
|
)
|
|
$
|
36,458
|
|
|
$
|
2,396
|
|
|
$
|
(419
|
)
|
|
$
|
26,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
For the Three Months Ended September 30, 2007
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Combined Non-
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Amounts
|
|
Revenue
|
|
$
|
|
|
|
$
|
384,116
|
|
|
$
|
12,588
|
|
|
$
|
(285
|
)
|
|
$
|
396,419
|
|
Salaries, wages and employee benefits
|
|
|
|
|
|
|
214,254
|
|
|
|
6,599
|
|
|
|
|
|
|
|
220,853
|
|
Professional fees
|
|
|
|
|
|
|
38,208
|
|
|
|
1,735
|
|
|
|
(75
|
)
|
|
|
39,868
|
|
Supplies
|
|
|
|
|
|
|
20,780
|
|
|
|
525
|
|
|
|
12
|
|
|
|
21,317
|
|
Rentals and leases
|
|
|
|
|
|
|
6,367
|
|
|
|
212
|
|
|
|
(1,093
|
)
|
|
|
5,486
|
|
Other operating expenses
|
|
|
|
|
|
|
36,317
|
|
|
|
(1,677
|
)
|
|
|
3,422
|
|
|
|
38,062
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
6,753
|
|
|
|
250
|
|
|
|
|
|
|
|
7,003
|
|
Depreciation and amortization
|
|
|
|
|
|
|
7,903
|
|
|
|
630
|
|
|
|
(61
|
)
|
|
|
8,472
|
|
Interest expense
|
|
|
21,909
|
|
|
|
|
|
|
|
343
|
|
|
|
|
|
|
|
22,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,909
|
|
|
|
330,582
|
|
|
|
8,617
|
|
|
|
2,205
|
|
|
|
363,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before
income taxes
|
|
|
(21,909
|
)
|
|
|
53,534
|
|
|
|
3,971
|
|
|
|
(2,490
|
)
|
|
|
33,106
|
|
(Benefit from) provision for income taxes
|
|
|
(8,297
|
)
|
|
|
20,273
|
|
|
|
1,504
|
|
|
|
(943
|
)
|
|
|
12,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(13,612
|
)
|
|
|
33,261
|
|
|
|
2,467
|
|
|
|
(1,547
|
)
|
|
|
20,569
|
|
Loss from discontinued operations, net of taxes
|
|
|
|
|
|
|
(244
|
)
|
|
|
|
|
|
|
|
|
|
|
(244
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(13,612
|
)
|
|
$
|
33,017
|
|
|
$
|
2,467
|
|
|
$
|
(1,547
|
)
|
|
$
|
20,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008
Condensed Consolidating Statement of Income
For the Nine Months Ended September 30, 2008
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Combined Non-
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Amounts
|
|
Revenue
|
|
$
|
|
|
|
$
|
1,281,145
|
|
|
$
|
46,240
|
|
|
$
|
(7,271
|
)
|
|
$
|
1,320,114
|
|
Salaries, wages and employee benefits
|
|
|
|
|
|
|
704,325
|
|
|
|
21,450
|
|
|
|
|
|
|
|
725,775
|
|
Professional fees
|
|
|
|
|
|
|
128,118
|
|
|
|
5,741
|
|
|
|
(56
|
)
|
|
|
133,803
|
|
Supplies
|
|
|
|
|
|
|
69,934
|
|
|
|
1,835
|
|
|
|
|
|
|
|
71,769
|
|
Rentals and leases
|
|
|
|
|
|
|
20,540
|
|
|
|
298
|
|
|
|
(3,185
|
)
|
|
|
17,653
|
|
Other operating expenses
|
|
|
|
|
|
|
117,732
|
|
|
|
6,932
|
|
|
|
(2,815
|
)
|
|
|
121,849
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
25,179
|
|
|
|
797
|
|
|
|
|
|
|
|
25,976
|
|
Depreciation and amortization
|
|
|
|
|
|
|
28,055
|
|
|
|
1,745
|
|
|
|
(230
|
)
|
|
|
29,570
|
|
Interest expense
|
|
|
58,523
|
|
|
|
|
|
|
|
917
|
|
|
|
|
|
|
|
59,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,523
|
|
|
|
1,093,883
|
|
|
|
39,715
|
|
|
|
(6,286
|
)
|
|
|
1,185,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
before
income taxes
|
|
|
(58,523
|
)
|
|
|
187,262
|
|
|
|
6,525
|
|
|
|
(985
|
)
|
|
|
134,279
|
|
(Benefit from) provision for income taxes
|
|
|
(22,239
|
)
|
|
|
71,160
|
|
|
|
2,479
|
|
|
|
(374
|
)
|
|
|
51,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(36,284
|
)
|
|
|
116,102
|
|
|
|
4,046
|
|
|
|
(611
|
)
|
|
|
83,253
|
|
Loss from discontinued operations, net of tax
|
|
|
|
|
|
|
(2,321
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,321
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(36,284
|
)
|
|
$
|
113,781
|
|
|
$
|
4,046
|
|
|
$
|
(611
|
)
|
|
$
|
80,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income
For the Nine Months Ended September 30, 2007
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Combined Non-
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Amounts
|
|
Revenue
|
|
$
|
|
|
|
$
|
1,046,322
|
|
|
$
|
25,587
|
|
|
$
|
(9,344
|
)
|
|
$
|
1,062,565
|
|
Salaries, wages and employee benefits
|
|
|
|
|
|
|
581,401
|
|
|
|
8,671
|
|
|
|
(1
|
)
|
|
|
590,071
|
|
Professional fees
|
|
|
|
|
|
|
102,380
|
|
|
|
2,281
|
|
|
|
(131
|
)
|
|
|
104,530
|
|
Supplies
|
|
|
|
|
|
|
57,469
|
|
|
|
733
|
|
|
|
(17
|
)
|
|
|
58,185
|
|
Rentals and leases
|
|
|
|
|
|
|
17,245
|
|
|
|
244
|
|
|
|
(2,928
|
)
|
|
|
14,561
|
|
Other operating expenses
|
|
|
|
|
|
|
101,420
|
|
|
|
5,910
|
|
|
|
(3,703
|
)
|
|
|
103,627
|
|
Provision for doubtful accounts
|
|
|
|
|
|
|
20,336
|
|
|
|
535
|
|
|
|
|
|
|
|
20,871
|
|
Depreciation and amortization
|
|
|
|
|
|
|
20,784
|
|
|
|
1,286
|
|
|
|
(182
|
)
|
|
|
21,888
|
|
Interest expense
|
|
|
52,824
|
|
|
|
|
|
|
|
842
|
|
|
|
|
|
|
|
53,666
|
|
Loss on refinancing long-term debt
|
|
|
8,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,003
|
|
|
|
901,035
|
|
|
|
20,502
|
|
|
|
(6,962
|
)
|
|
|
975,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
before
income taxes
|
|
|
(61,003
|
)
|
|
|
145,287
|
|
|
|
5,085
|
|
|
|
(2,382
|
)
|
|
|
86,987
|
|
(Benefit from) provision for income taxes
|
|
|
(22,990
|
)
|
|
|
54,755
|
|
|
|
1,916
|
|
|
|
(898
|
)
|
|
|
32,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(38,013
|
)
|
|
|
90,532
|
|
|
|
3,169
|
|
|
|
(1,484
|
)
|
|
|
54,204
|
|
Loss from discontinued operations, net
of taxes
|
|
|
|
|
|
|
(1,147
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(38,013
|
)
|
|
$
|
89,385
|
|
|
$
|
3,169
|
|
|
$
|
(1,484
|
)
|
|
$
|
53,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2008
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Combined Non-
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Amounts
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(36,284
|
)
|
|
$
|
113,781
|
|
|
$
|
4,046
|
|
|
$
|
(611
|
)
|
|
$
|
80,932
|
|
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
28,055
|
|
|
|
1,745
|
|
|
|
(230
|
)
|
|
|
29,570
|
|
Amortization of loan costs and bond premium
|
|
|
1,626
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
1,660
|
|
Share-based compensation
|
|
|
|
|
|
|
15,013
|
|
|
|
|
|
|
|
|
|
|
|
15,013
|
|
Change in income tax assets and liabilities
|
|
|
|
|
|
|
(1,611
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,611
|
)
|
Loss from discontinued operations, net of taxes
|
|
|
|
|
|
|
2,321
|
|
|
|
|
|
|
|
|
|
|
|
2,321
|
|
Changes in operating assets and liabilities, net of
effect of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
(29,531
|
)
|
|
|
(800
|
)
|
|
|
|
|
|
|
(30,331
|
)
|
Prepaids and other current assets
|
|
|
|
|
|
|
15,394
|
|
|
|
(16,411
|
)
|
|
|
|
|
|
|
(1,017
|
)
|
Accounts payable
|
|
|
|
|
|
|
5,296
|
|
|
|
(180
|
)
|
|
|
|
|
|
|
5,116
|
|
Salaries and benefits payable
|
|
|
|
|
|
|
4,800
|
|
|
|
(162
|
)
|
|
|
|
|
|
|
4,638
|
|
Accrued liabilities and other liabilities
|
|
|
2,589
|
|
|
|
(17,998
|
)
|
|
|
(774
|
)
|
|
|
|
|
|
|
(16,183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by continuing operating activities
|
|
|
(32,069
|
)
|
|
|
135,520
|
|
|
|
(12,502
|
)
|
|
|
(841
|
)
|
|
|
90,108
|
|
Net cash used in discontinued operating activities
|
|
|
|
|
|
|
(2,186
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(32,069
|
)
|
|
|
133,334
|
|
|
|
(12,502
|
)
|
|
|
(841
|
)
|
|
|
87,922
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired
|
|
|
(163,238
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(163,238
|
)
|
Capital purchases of property and equipment
|
|
|
|
|
|
|
(80,251
|
)
|
|
|
(1,522
|
)
|
|
|
|
|
|
|
(81,773
|
)
|
Other assets
|
|
|
|
|
|
|
727
|
|
|
|
(447
|
)
|
|
|
|
|
|
|
280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in continuing investing activities
|
|
|
(163,238
|
)
|
|
|
(79,524
|
)
|
|
|
(1,969
|
)
|
|
|
|
|
|
|
(244,731
|
)
|
Net cash provided by discontinued investing activities
|
|
|
|
|
|
|
5,244
|
|
|
|
|
|
|
|
|
|
|
|
5,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(163,238
|
)
|
|
|
(74,280
|
)
|
|
|
(1,969
|
)
|
|
|
|
|
|
|
(239,487
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in revolving credit facility
|
|
|
149,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149,333
|
|
Principal payments on long-term debt
|
|
|
(3,668
|
)
|
|
|
|
|
|
|
(295
|
)
|
|
|
|
|
|
|
(3,963
|
)
|
Payment of loan and issuance costs
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39
|
)
|
Excess tax benefits from share-based payment arrangements
|
|
|
1,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,902
|
|
Net transfers to and from members
|
|
|
38,457
|
|
|
|
(42,796
|
)
|
|
|
3,498
|
|
|
|
841
|
|
|
|
|
|
Proceeds from exercises of common stock options
|
|
|
9,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
195,307
|
|
|
|
(42,796
|
)
|
|
|
3,203
|
|
|
|
841
|
|
|
|
156,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
|
|
|
|
16,258
|
|
|
|
(11,268
|
)
|
|
|
|
|
|
|
4,990
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
19,154
|
|
|
|
20,816
|
|
|
|
|
|
|
|
39,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
35,412
|
|
|
$
|
9,548
|
|
|
$
|
|
|
|
$
|
44,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2008
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2007
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
Subsidiary
|
|
|
Combined Non-
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Parent
|
|
|
Guarantors
|
|
|
Guarantors
|
|
|
Adjustments
|
|
|
Amounts
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(38,013
|
)
|
|
$
|
89,385
|
|
|
$
|
3,169
|
|
|
$
|
(1,484
|
)
|
|
$
|
53,057
|
|
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
20,784
|
|
|
|
1,286
|
|
|
|
(182
|
)
|
|
|
21,888
|
|
Amortization of loan costs and bond premium
|
|
|
1,557
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
1,591
|
|
Share-based compensation
|
|
|
|
|
|
|
12,006
|
|
|
|
|
|
|
|
|
|
|
|
12,006
|
|
Loss on refinancing long-term debt
|
|
|
8,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,179
|
|
Change in income tax assets and liabilities
|
|
|
|
|
|
|
8,219
|
|
|
|
|
|
|
|
|
|
|
|
8,219
|
|
Loss from discontinued operations, net of taxes
|
|
|
|
|
|
|
1,147
|
|
|
|
|
|
|
|
|
|
|
|
1,147
|
|
Changes in operating assets and liabilities, net of
effect of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
(20,862
|
)
|
|
|
59
|
|
|
|
|
|
|
|
(20,803
|
)
|
Prepaids and other current assets
|
|
|
|
|
|
|
9,500
|
|
|
|
(10,028
|
)
|
|
|
2,494
|
|
|
|
1,966
|
|
Accounts payable
|
|
|
|
|
|
|
(6,812
|
)
|
|
|
(101
|
)
|
|
|
|
|
|
|
(6,913
|
)
|
Salaries and benefits payable
|
|
|
|
|
|
|
(243
|
)
|
|
|
(214
|
)
|
|
|
|
|
|
|
(457
|
)
|
Accrued liabilities and other liabilities
|
|
|
7,860
|
|
|
|
(11,533
|
)
|
|
|
6,520
|
|
|
|
(2,494
|
)
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operating activities
|
|
|
(20,417
|
)
|
|
|
101,591
|
|
|
|
725
|
|
|
|
(1,666
|
)
|
|
|
80,233
|
|
Net cash used in discontinued operating activities
|
|
|
|
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(20,417
|
)
|
|
|
102,095
|
|
|
|
725
|
|
|
|
(1,666
|
)
|
|
|
80,737
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions, net of cash acquired
|
|
|
(462,729
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(462,729
|
)
|
Capital purchases of property and equipment
|
|
|
|
|
|
|
(48,030
|
)
|
|
|
(331
|
)
|
|
|
|
|
|
|
(48,361
|
)
|
Other assets
|
|
|
|
|
|
|
(1,016
|
)
|
|
|
266
|
|
|
|
|
|
|
|
(750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(462,729
|
)
|
|
|
(49,046
|
)
|
|
|
(65
|
)
|
|
|
|
|
|
|
(511,840
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in revolving credit facility
|
|
|
(11,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,000
|
)
|
Borrowings on long-term debt
|
|
|
481,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
481,875
|
|
Principal payments on long-term debt
|
|
|
(39,971
|
)
|
|
|
|
|
|
|
(249
|
)
|
|
|
|
|
|
|
(40,220
|
)
|
Payment of loan and issuance costs
|
|
|
(6,603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,603
|
)
|
Refinancing of long-term debt
|
|
|
(7,127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,127
|
)
|
Excess tax benefits from share-based payment arrangements
|
|
|
4,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,072
|
|
Net transfers to and from members
|
|
|
47,965
|
|
|
|
(52,210
|
)
|
|
|
2,579
|
|
|
|
1,666
|
|
|
|
|
|
Proceeds from exercises of common stock options
|
|
|
13,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
483,146
|
|
|
|
(52,210
|
)
|
|
|
2,330
|
|
|
|
1,666
|
|
|
|
434,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
|
|
|
|
|
|
|
839
|
|
|
|
2,990
|
|
|
|
|
|
|
|
3,829
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
1,097
|
|
|
|
17,423
|
|
|
|
|
|
|
|
18,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
1,936
|
|
|
$
|
20,413
|
|
|
$
|
|
|
|
$
|
22,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
.
Fair Value Measurements
In September 2006, the Financial Accounting Standards Board (FASB) issued 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 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 interest rate 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 interest rate swap agreement as Level 2, which are
consistently applied.
16
PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 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, which was 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.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities An Amendment of FASB Statement 133
(SFAS 161). SFAS 161 requires enhanced
disclosures about derivative and hedging activities. SFAS 161 is effective for fiscal years and
interim periods beginning after November 15, 2008. We will adopt the provisions of SFAS 161 on
January 1, 2009. We are currently assessing the impact, if any, of the adoption of SFAS 161 on our
consolidated financial statement disclosures.
13. Riveredge Investigation
In July 2008, we received subpoenas from the U.S. Department of Justice requesting certain
information regarding Riveredge Hospital, one of our inpatient psychiatric facilities near Chicago,
Illinois. We have provided, and will continue to provide, the requested information to the
Department of Justice.
17
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 SEC 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:
|
|
our ability to successfully integrate and improve the operations of acquired inpatient facilities;
|
|
|
|
potential competition that alters or impedes our acquisition strategy by decreasing our ability to acquire additional
inpatient facilities on favorable terms;
|
|
|
|
our substantial indebtedness and our ability to receive timely additional financing and refinance our revolving credit
facility on terms acceptable to us to fund our acquisition strategy and capital expenditure needs;
|
|
|
|
risks inherent to the health care industry, including the impact of unforeseen changes in regulation and exposure to
claims and legal actions by patients and others;
|
|
|
|
efforts by federal and state health care programs and managed care companies to reduce reimbursement rates for our
services;
|
|
|
|
our ability to comply with applicable licensure and accreditation requirements;
|
|
|
|
our ability to comply with extensive laws and government regulations related to billing, physician relationships,
adequacy of medical care and licensure;
|
|
|
|
the potential adverse impact of government investigations and liabilities and other claims asserted against us;
|
|
|
|
our ability to retain key employees who are instrumental to our successful operations;
|
|
|
|
our ability to maintain favorable and continuing relationships with physicians who use our inpatient facilities;
|
|
|
|
our ability to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act;
|
|
|
|
our ability to ensure confidential information is not inappropriately disclosed and that we are in compliance with
federal and state health information privacy standards;
|
|
|
|
our ability to comply with federal and state governmental regulation covering health care-related products and services
on-line, including the regulation of medical devices and the practice of medicine and pharmacology;
|
|
|
|
our ability to obtain adequate levels of general and professional liability insurance;
|
|
|
|
future trends for pricing, margins, revenue and profitability remain difficult to predict in the industries that we serve;
|
|
|
|
negative press coverage of us or our industry that may affect public opinion; and
|
|
|
|
those risks and uncertainties described from time to time in our filings with the SEC.
|
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.
18
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.
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 approximately 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 and expanding referral networks and marketing initiatives.
In order to meet the increased demand for our services, we are actively exploring ways to expand
our services and develop new services. We have added beds to several of our inpatient facilities
and have expansion projects planned for the future. In addition, during the second quarter of 2008
we opened Lincoln Prairie Behavioral Health Center, a 120 bed facility in Springfield, Illinois. We
also attempt to improve operating results by optimizing staffing ratios, controlling contract labor
costs and reducing supply costs through group purchasing. During the three and nine months ended
September 30, 2008, our same-facility revenue from owned and leased inpatient facilities increased
by 8.7% and 8.1%, respectively, compared to the same period in 2007. Same-facility revenue growth
was driven primarily by increases in patient days and revenue per patient day. Same-facility
patient days increased 3.7% and 3.0% during the three and nine months ended September 30, 2008,
respectively, compared to the same periods in 2007. Same-facility revenue per patient day increased
4.8% and 4.9% for the three and nine months ended September 30, 2008, respectively, compared to the
same periods 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 90.1% and 92.3% of our total revenue for the nine months ended September 30, 2008 and
2007, respectively.
Other Revenue
Other revenue accounted for approximately 9.9% and 7.7% of our total revenue for the nine
months ended September 30, 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.
19
Results of Operations
The following table illustrates our consolidated results of operations for the three and nine
months ended September 30, 2008 and 2007 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended September 30,
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Revenue
|
|
$
|
448,015
|
|
|
|
100.0
|
%
|
|
$
|
396,419
|
|
|
|
100.0
|
%
|
|
$
|
1,320,114
|
|
|
|
100.0
|
%
|
|
$
|
1,062,565
|
|
|
|
100.0
|
%
|
Salaries, wages, and employee benefits
(including share-based
compensation of
$4,935, $4,423, $15,013 and $12,006
for 2008 and 2007, respectively)
|
|
|
245,578
|
|
|
|
54.8
|
%
|
|
|
220,853
|
|
|
|
55.7
|
%
|
|
|
725,775
|
|
|
|
55.0
|
%
|
|
|
590,071
|
|
|
|
55.5
|
%
|
Professional fees
|
|
|
45,022
|
|
|
|
10.1
|
%
|
|
|
39,868
|
|
|
|
10.0
|
%
|
|
|
133,803
|
|
|
|
10.1
|
%
|
|
|
104,530
|
|
|
|
9.8
|
%
|
Supplies
|
|
|
24,323
|
|
|
|
5.4
|
%
|
|
|
21,317
|
|
|
|
5.4
|
%
|
|
|
71,769
|
|
|
|
5.4
|
%
|
|
|
58,185
|
|
|
|
5.5
|
%
|
Provision for doubtful accounts
|
|
|
10,254
|
|
|
|
2.3
|
%
|
|
|
7,003
|
|
|
|
1.8
|
%
|
|
|
25,976
|
|
|
|
2.0
|
%
|
|
|
20,871
|
|
|
|
2.0
|
%
|
Other operating expenses
|
|
|
47,192
|
|
|
|
10.5
|
%
|
|
|
43,548
|
|
|
|
11.0
|
%
|
|
|
139,502
|
|
|
|
10.6
|
%
|
|
|
118,188
|
|
|
|
11.1
|
%
|
Depreciation and amortization
|
|
|
10,171
|
|
|
|
2.3
|
%
|
|
|
8,472
|
|
|
|
2.1
|
%
|
|
|
29,570
|
|
|
|
2.2
|
%
|
|
|
21,888
|
|
|
|
2.1
|
%
|
Interest expense, net
|
|
|
19,337
|
|
|
|
4.3
|
%
|
|
|
22,252
|
|
|
|
5.6
|
%
|
|
|
59,440
|
|
|
|
4.5
|
%
|
|
|
53,666
|
|
|
|
5.0
|
%
|
Loss on refinancing long-term debt
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
8,179
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes
|
|
|
46,138
|
|
|
|
10.3
|
%
|
|
|
33,106
|
|
|
|
8.4
|
%
|
|
|
134,279
|
|
|
|
10.2
|
%
|
|
|
86,987
|
|
|
|
8.2
|
%
|
Provision for income taxes
|
|
|
17,533
|
|
|
|
3.9
|
%
|
|
|
12,537
|
|
|
|
3.2
|
%
|
|
|
51,026
|
|
|
|
3.9
|
%
|
|
|
32,783
|
|
|
|
3.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
28,605
|
|
|
|
6.4
|
%
|
|
$
|
20,569
|
|
|
|
5.2
|
%
|
|
$
|
83,253
|
|
|
|
6.3
|
%
|
|
$
|
54,204
|
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2008 Compared To Three Months Ended September 30, 2007
The following table compares key same-facility and total facility statistics for the quarters
ended September 30, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
%
|
|
|
2008
|
|
2007
|
|
Change
|
Same-facility results:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (in thousands)
|
|
$
|
386,443
|
|
|
$
|
355,425
|
|
|
|
8.7
|
%
|
Admissions
|
|
|
39,555
|
|
|
|
36,634
|
|
|
|
8.0
|
%
|
Patient days
|
|
|
660,703
|
|
|
|
637,318
|
|
|
|
3.7
|
%
|
Average length of stay
(in days)
|
|
|
16.7
|
|
|
|
17.4
|
|
|
|
-4.0
|
%
|
Revenue per patient day
|
|
$
|
585
|
|
|
$
|
558
|
|
|
|
4.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total facility results:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (in thousands)
|
|
$
|
403,936
|
|
|
$
|
355,425
|
|
|
|
13.6
|
%
|
Admissions
|
|
|
41,816
|
|
|
|
36,634
|
|
|
|
14.1
|
%
|
Patient days
|
|
|
691,147
|
|
|
|
637,318
|
|
|
|
8.4
|
%
|
Average length of stay
(in days)
|
|
|
16.5
|
|
|
|
17.4
|
|
|
|
-5.2
|
%
|
Revenue per patient day
|
|
$
|
584
|
|
|
$
|
558
|
|
|
|
4.7
|
%
|
Revenue
. Revenue from continuing operations was $448.0 million for the quarter ended September
30, 2008 compared to $396.4 million for the quarter ended September 30, 2007, an increase of $51.6
million, or 13.0%. Revenue from owned and leased inpatient facilities accounted for $403.9 million
in 2008 compared to $355.4 million in 2007, an increase of $48.5 million, or 13.6%. The increase in
revenue from owned and leased inpatient facilities relates primarily to acquisitions of behavioral
health care facilities and same-facility growth in patient days and revenue per patient day of
3.7% and 4.8%, respectively. Other revenue was $44.1 million in 2008 compared to $41.0 million in
2007. The increase in other revenue is primarily the result of other operations acquired in the
last twelve months.
Salaries, wages and employee benefits
. Salaries, wages and employee benefits (SWB) expense
was $245.6 million for the quarter ended September 30, 2008, or 54.8% of total revenue, compared to
$220.9 million for the quarter ended September 30, 2007, or 55.7% of total revenue. SWB expense
includes $4.9 million and $4.4 million of share-based compensation expense for the quarters ended
September 30, 2008 and 2007, respectively. Excluding share-based compensation expense, SWB expense
was $240.6 million, or 53.7% of total revenue, in the quarter ended September 30, 2008 compared to
$216.4 million, or 54.6% of total revenue, for the quarter ended September 30, 2007. SWB expense
for owned and leased inpatient facilities was $216.6 million, or 53.6% of revenue, in 2008.
Same-facility SWB expense for owned and leased inpatient facilities was $207.4 million, or 53.7% of
revenue, in 2008
20
compared to $193.7 million, or 54.5% of revenue, in 2007. SWB expense for other
operations increased to $17.1 million in 2008 from $16.2 million in 2007 primarily due to the
operations acquired in the last twelve months. SWB expense for our corporate office was $11.9
million, including $4.9 million in share-based compensation, for 2008 compared to $10.7 million,
including $4.4 million in share-based compensation, for 2007. Excluding share-based compensation,
SWB expense for our corporate office increased approximately $0.6 million primarily as a result of
hiring additional staff necessary to manage and support the inpatient facilities acquired during
2007 and 2008.
Professional fees
. Professional fees were $45.0 million for the quarter ended September 30,
2008, or 10.1% of total revenue, compared to $39.9 million for the quarter ended September 30,
2007, or 10.0% of total revenue. Professional fees for owned and leased inpatient facilities were
$36.8 million in 2008, or 9.1% of revenue. Same-facility professional fees for owned and leased
inpatient facilities were $35.1 million in 2008, or 9.1% of revenue, compared to $33.0 million in
2007, or 9.3% of revenue. Professional fees for other operations as well as our corporate office
increased to $8.2 million in 2008 from $6.8 million in 2007. This increase is primarily the result
of support services necessary to comply with subpoenas from the U.S. Department of Justice
requesting certain information regarding Riveredge Hospital, one of our inpatient psychiatric
facilities near Chicago, Illinois (the Riveredge investigation). Future expenditures relating to
the Riveredge investigation may be necessary.
Supplies.
Supplies expense was $24.3 million for the quarter ended September 30, 2008, or 5.4%
of total revenue, compared to $21.3 million for the quarter ended September 30, 2007, or 5.4% of
total revenue. Supplies expense for owned and leased inpatient facilities was $23.8 million in
2008, or 5.9% of revenue. Same-facility supplies expense for owned and leased inpatient facilities
was $22.6 million in 2008, or 5.9% of revenue, compared to $20.9 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 $10.3 million for the
quarter ended September 30, 2008, or 2.3% of total revenue, compared to $7.0 million for the
quarter ended September 30, 2007, or 1.8% of total revenue. The provision for doubtful accounts at
our owned and leased inpatient facilities comprised substantially all of our provision for doubtful
accounts. This increase in provision for doubtful accounts as a percent of revenue was primarily
the result of the inability to collect Medicare claims for patient
care provided during the
Medicare certification process at two new facilities in 2008 as well as recoveries in 2007 of accounts
previously written off.
Other operating expenses
. Other operating expenses consist primarily of rent, utilities,
insurance, travel, and repairs and maintenance expenses. Other operating expenses were
approximately $47.2 million for the quarter ended September 30, 2008, or 10.5% of total revenue,
compared to $43.5 million for the quarter ended September 30, 2007, or 11.0% of total revenue.
Other operating expenses for owned and leased inpatient facilities were $33.6 million in 2008, or
8.3% of revenue. Same-facility other operating expenses for owned and leased inpatient facilities
were $32.1 million in 2008, or 8.3% of revenue, compared to $29.8 million in 2007, or 8.4% of
revenue. Other operating expenses for other operations and our corporate office were $13.6 million
in 2008 compared to $13.7 million in 2007.
Depreciation and amortization
. Depreciation and amortization expense was $10.2 million for the
quarter ended September 30, 2008 compared to $8.5 million for the quarter ended September 30, 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 $19.3 million for the
quarter ended September 30, 2008 compared to $22.3 million for the quarter ended September 30,
2007, a decrease of $2.9 million. This decrease in interest expense is primarily the result of a
decrease in interest rates on our variable rate debt, partially offset by an increase in our
long-term debt.
Loss from discontinued operations, net of taxes
. The loss from discontinued operations (net of
income tax effect) was $2.2 million for the quarter ended September 30, 2008 compared to $0.2
million for the quarter ended September 30, 2007. We made plans to dispose of a leased inpatient
facility during the quarter ended September 30, 2008 and recorded a $1.5 million write-down to fair
value of the assets held-for-sale for this facility.
21
Nine Months Ended September 30, 2008 Compared To Nine Months Ended September 30, 2007
The following table compares key same-facility and total facility statistics for the nine months
ended September 30, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
%
|
|
|
2008
|
|
2007
|
|
Change
|
Same-facility results:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (in thousands)
|
|
$
|
1,053,632
|
|
|
$
|
975,010
|
|
|
|
8.1
|
%
|
Admissions
|
|
|
107,832
|
|
|
|
102,606
|
|
|
|
5.1
|
%
|
Patient days
|
|
|
1,814,171
|
|
|
|
1,760,748
|
|
|
|
3.0
|
%
|
Average length of stay
(in days)
|
|
|
16.8
|
|
|
|
17.2
|
|
|
|
-2.3
|
%
|
Revenue per patient day
|
|
$
|
581
|
|
|
$
|
554
|
|
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total facility results:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (in thousands)
|
|
$
|
1,189,374
|
|
|
$
|
980,423
|
|
|
|
21.3
|
%
|
Admissions
|
|
|
124,837
|
|
|
|
103,256
|
|
|
|
20.9
|
%
|
Patient days
|
|
|
2,068,166
|
|
|
|
1,771,369
|
|
|
|
16.8
|
%
|
Average length of stay
(in days)
|
|
|
16.6
|
|
|
|
17.2
|
|
|
|
-3.5
|
%
|
Revenue per patient day
|
|
$
|
575
|
|
|
$
|
553
|
|
|
|
4.0
|
%
|
Revenue
. Revenue from continuing operations was $1,320.1 million for the nine months ended
September 30, 2008 compared to $1,062.6 million for the nine months ended September 30, 2007, an
increase of $257.5 million, or 24.2%. Revenue from owned and leased inpatient facilities accounted
for $1,189.4 million in 2008 compared to $980.4 million in 2007, an increase of $209.0 million, or
21.3%. The increase in revenue from owned and leased inpatient facilities relates primarily to
acquisitions of behavioral health care facilities in 2007 and 2008. 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 3.0% and 4.9%, respectively. Other revenue was $130.7
million in 2008 compared to $82.1 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
. SWB expense was $725.8 million for the nine months
ended September 30, 2008, or 55.0% of total revenue, compared to $590.1 million for the nine months
ended September 30, 2007, or 55.5% of total revenue. SWB expense includes $15.0 million and $12.0
million of share-based compensation expense for the nine months ended September 30, 2008 and 2007,
respectively. Excluding share-based compensation expense, SWB expense was $710.8 million, or 53.8%
of total revenue, in the nine months ended September 30, 2008 compared to $578.1 million, or 54.4%
of total revenue, for the nine months ended September 30, 2007. SWB expense for owned and leased
inpatient facilities was $638.8 million, or 53.7% of revenue, in 2008. Same-facility SWB expense
for owned and leased inpatient facilities was $562.7 million, or 53.4% of revenue, in 2008 compared
to $526.8 million, or 54.0% of revenue, in 2007. SWB expense for other operations increased to
$49.7 million in 2008 from $28.7 million in 2007 primarily due to the management contract and EAP
businesses acquired in the Horizon Health acquisition. SWB expense for our corporate office was
$37.3 million, including $15.0 million in share-based compensation, for 2008 compared to $30.8
million, including $12.0 million in share-based compensation, for 2007. Excluding share-based
compensation, SWB expense for our corporate office increased approximately $3.5 million primarily
as a result of hiring additional staff necessary to manage and support the inpatient facilities
acquired during 2007 and 2008.
Professional fees
. Professional fees were $133.8 million for the nine months ended September
30, 2008, or 10.1% of total revenue, compared to $104.5 million for the nine months ended September
30, 2007, or 9.8% of total revenue. Professional fees for owned and leased inpatient facilities
were $110.2 million in 2008, or 9.3% of revenue. Same-facility professional fees for owned and
leased inpatient facilities were $97.0 million in 2008, or 9.2% of revenue, compared to $90.8
million in 2007, or 9.3% of revenue. Professional fees for other operations and our corporate
office increased to $23.6 million in 2008 from $12.8 million in 2007 primarily due to the other
operations acquired in the Horizon Health acquisition.
Supplies.
Supplies expense was $71.8 million for the nine months ended September 30, 2008, or
5.4% of total revenue, compared to $58.2 million for the nine months ended September 30, 2007, or
5.5% of total revenue. Supplies expense for owned and leased inpatient facilities was $70.5 million
in 2008, or 5.9% of revenue. Same-facility supplies expense for owned and leased inpatient
facilities was $61.1 million in 2008, or 5.8% of revenue, compared to $56.8 million in 2007, or
5.8% 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 $26.0 million for the
nine months ended September 30, 2008, or 2.0% of total revenue, compared to $20.9 million for the
nine months ended September 30, 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
22
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 $139.5 million for the nine months ended September 30, 2008, or 10.6% of total
revenue, compared to $118.2 million for the nine months ended September 30, 2007, or 11.1% of total
revenue. Other operating expenses for owned and leased inpatient facilities were $96.1 million in
2008, or 8.1% of revenue. Same-facility other operating expenses for owned and leased inpatient
facilities were $84.0 million in 2008, or 8.0% of revenue, compared to $82.7 million in 2007, or
8.5% 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 and our
corporate office were $43.4 million in 2008 compared to $34.6 million in 2007. The increase in
other operating expenses for other operations was primarily due to the management contract and EAP
businesses acquired in the Horizon Health acquisition.
Depreciation and amortization
. Depreciation and amortization expense was $29.6 million for the
nine months ended September 30, 2008 compared to $21.9 million for the nine months ended September
30, 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 $59.4 million for the
nine months ended September 30, 2008 compared to $53.7 million for the nine months ended September
30, 2007, an increase of $5.8 million. This increase in interest expense is primarily the result of
an increase in our long-term debt 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, acquisitions of EAP businesses, 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 $2.3 million for the nine months ended September 30, 2008 compared to $1.1
million for the nine months ended September 30, 2007. We made plans to dispose of an inpatient
facility during the quarter ended September 30, 2008 and recorded a $1.5 million write-down to fair
value of the assets held-for-sale for this facility.
Liquidity and Capital Resources
Working capital at September 30, 2008 was $188.4 million, including cash and cash equivalents
of $45.0 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 $30.9 million increase in accounts receivable due primarily to increases in
same-facility revenue and receivables generated from businesses acquired in 2008. Our consolidated
days sales outstanding were 54 and 53 at September 30, 2008 and December 31, 2007, respectively.
Cash provided by continuing operating activities was $90.1 million for the nine months ended
September 30, 2008 compared to $80.2 million for the nine months ended September 30, 2007. The
increase in cash flows from continuing operating activities was primarily attributable to the
results of operations of facilities acquired from Horizon Health and UMC and improved operating
margins on a same-facility basis, offset by increased interest payments and income tax payments.
Cash used in continuing investing activities was $244.7 million for the nine months ended
September 30, 2008 compared to $511.8 million for the nine months ended September 30, 2007. Cash
used in continuing investing activities for 2008 consisted primarily of $163.2 million paid for
acquisitions and $81.8 million for purchases of fixed assets. For the nine months ended September
30, 2008, cash used for routine capital expenditures was approximately $31.3 million and cash used
for expansion capital expenditures was approximately $50.5 million. We expect expansion
expenditures to continue during 2008 and 2009 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
inpatient facilities. We define expansion capital expenditures as those that increase the capacity
of our facilities or otherwise enhance revenue. Routine or maintenance capital expenditures were
2.4% of our revenue for the nine months ended September 30, 2008. Also during the nine months ended
September 30, 2008, we sold two facilities reported as discontinued operations for $5.2 million.
Cash used in
continuing investing activities for the nine months ended September 30, 2007 consisted primarily of
cash paid for acquisitions of $462.7 million and capital expenditures of $48.4 million. Cash paid
for acquisitions during 2007 related primarily to the acquisition of Horizon Health.
Cash provided by financing activities was $156.6 million for the nine months ended September
30, 2008 compared to $434.9 million for the nine months ended September 30, 2007. Cash provided by
financing activities for 2008 consisted primarily of $149.3 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 2008 also included $9.3
million in proceeds from the exercise of stock options and $1.9 million in
23
income tax benefits in
excess of share-based compensation expense on stock options exercised in 2008. Cash provided by
financing activities for the nine months ended September 30, 2007 consisted primarily of additional
borrowings of $481.9 million, which were used primarily to finance acquisitions and to retire
approximately $38.6 million of other long-term debt. We borrowed $443.2 million in May 2007 to
finance the Horizon Health acquisition. Additionally, during the nine months ended September 30,
2007, we received $13.9 million in proceeds from the exercise of stock options and $4.1 million in
income tax benefits in excess of share-based compensation expense on stock options exercised in
2007.
Lehman Brothers Commercial Paper (Lehman) is a participant in our revolving credit facility.
Under the terms of our Second Amended and Restated Credit Agreement, as amended, Lehman committed
to $25.0 million of the $300.0 million revolving credit facility. As a result of the bankruptcy
filing of Lehman on September 15, 2008, we have not been able to access any of Lehmans remaining
unfunded commitment of approximately $5.9 million as of September 30, 2008. Until Lehmans
commitment is assumed by another party, the availability for future borrowings under our revolving
credit facility may continue to be reduced by Lehmans remaining unfunded commitment.
Our $300 million revolving credit facility expires on December 21, 2009. We anticipate
refinancing this debt with another revolving credit facility or another form of long-term debt
before this expiration date.
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.
The fair value of our interest rate swap at September 30, 2008 reflected a liability of $1.8
million, which represents the estimated amount we would have paid if the agreement was canceled.
We are actively seeking acquisitions that fit our corporate growth strategy and may acquire
additional inpatient psychiatric facilities and other operations and will incur continued
expenditures on expansion projects. 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 credit facility, expiring on December 21, 2009 and
bearing interest of 4.3% and 6.4% at September 30, 2008
and December 31, 2007, respectively
|
|
$
|
229,333
|
|
|
$
|
|
|
|
$
|
229,333
|
|
|
$
|
|
|
|
$
|
|
|
Senior secured term loan facility, expiring on July 1, 2012
and bearing interest of 5.6% and 6.8% at September 30,
2008
and December 31, 2007, respectively
|
|
|
570,500
|
|
|
|
4,687
|
|
|
|
7,500
|
|
|
|
558,313
|
|
|
|
|
|
7 3/4% Notes
|
|
|
476,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
476,012
|
|
Mortgage loans on facilities, maturing in 2036, 2037 and 2038
bearing fixed interest rates of 5.7% to 7.6%
|
|
|
33,375
|
|
|
|
416
|
|
|
|
914
|
|
|
|
1,035
|
|
|
|
31,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,309,220
|
|
|
|
5,103
|
|
|
|
237,747
|
|
|
|
559,348
|
|
|
|
507,022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease and other obligations
|
|
|
104,649
|
|
|
|
34,407
|
|
|
|
23,071
|
|
|
|
12,263
|
|
|
|
34,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
1,413,869
|
|
|
$
|
39,510
|
|
|
$
|
260,818
|
|
|
$
|
571,611
|
|
|
$
|
541,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Excludes capital lease obligations, fair value of interest rate swap,
and other obligations totaling $9.2 million, which are included in
lease and other obligations.
|
The fair value of our $470.0 million in principal amount of 7
3
/
4
% Notes
was approximately $441.8 million and $467.1 million as of September 30, 2008 and December 31, 2007,
respectively. The fair values of our revolving credit facility and senior secured term loan
facility were approximately $195.5 million and $519.2 million, respectively, as of September 30,
2008. The carrying value of our
24
revolving credit facility and senior secured term loan facility
approximated fair value at December 31, 2007. The carrying value of our other long-term debt,
including current maturities, of $42.6 million and $42.2 million at September 30, 2008 and December
31, 2007, respectively, approximated fair value. We had $570.5 million and $229.3 million of
variable rate debt outstanding under our senior secured term loan facility and revolving credit
facility, respectively, as of September 30, 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 $345.5 million as of September 30, 2008. At our
September 30, 2008 borrowing level, a hypothetical 10% increase in interest rates would decrease
our annual net income and cash flows by approximately $1.8 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 September 30, 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.
25
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,
Accounting for
Uncertainty in Income Taxes
An
Interpretation of FASB Statement No. 109
(FIN 48)
,
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. 123 (Revised 2004),
Share Based Payment
(SFAS 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 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 Contractual Obligations.
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 September 30, 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.
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
26
ended December 31, 2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On July 1, 2008, as part of the consideration for the purchase of an EAP business, we issued
to one individual 26,896 shares of our common stock that were not registered under the Securities
Act of 1933, as amended (the Securities Act). The private placement was conducted in reliance
upon the exemptions from registration provided in Section 4(2) of the Securities Act. The issuance
was made without the use of an underwriter, and the certificate and other documentation evidencing
the securities issued in connection with this transaction bears a restrictive legend permitting
transfer of the securities only upon registration under the Securities Act or pursuant to an
exemption from registration.
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 to the Companys Definitive Proxy
Statement, filed on January 22, 2003).
|
|
|
|
3.4
|
|
Certificate of Amendment to Amended and Restated Certificate of
Incorporation of Psychiatric Solutions, Inc., filed with the
Delaware Secretary of State on December 15, 2005.
|
|
3.5
|
|
By-laws (incorporated by reference to Exhibit 3 to the Companys
Current Report on Form 8-K filed on November 6, 2007).
|
|
|
|
31.1*
|
|
Certification of the Chief Executive Officer of Psychiatric
Solutions, Inc. Pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2*
|
|
Certification of the Chief Accounting Officer of Psychiatric
Solutions, Inc. Pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1*
|
|
Certifications of the Chief Executive Officer and Chief Accounting
Officer of Psychiatric Solutions, Inc. Pursuant to Rule 13a-14(b) of
the Securities Exchange Act of 1934, as amended, and 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
*
|
|
Filed or furnished herewith
|
27
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:
November 5, 2008
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