UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ~~for the quarterly period ended March 31, 2010 or~~

~~o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~ for the ~~transition~~quarterly period ~~from~~ended toJune 30, 2010


o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


		for the transition period from to

Commission file number 0-20488

Psychiatric Solutions, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization) 23-2491707 (I.R.S. Employer Identification No.)


Delaware		23-2491707
(State or Other Jurisdiction of Incorporation or		(I.R.S. Employer Identification No.)
Organization)

6640 Carothers Parkway, Suite 500
Franklin, TN 37067
(Address of Principal Executive Offices, Including Zip Code)

(615) 312-5700
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). oþ 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):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller ~~Reporting~~reporting ~~Company~~company o (Do not check if a smaller reporting company)

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 ~~May~~ August 62, 2010, 57,~~169~~239,~~871~~027 shares of the registrant’s common stock were outstanding.

TABLE OF CONTENTS

	PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009 (Unaudited)		1
Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009 (Unaudited)		1
Condensed Consolidated Statements of Income for the three month periods ended March 31, 2010 and 2009 (Unaudited)		2
Condensed Consolidated Statements of Income for the three and six month periods ended June 30, 2010 and 2009 (Unaudited)		2
Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31, 2010 and 2009 (Unaudited)		3
Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 2010 and 2009 (Unaudited)		3
Notes to Condensed Consolidated Financial Statements (Unaudited)		4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1517
Item 3. Quantitative and Qualitative Disclosures About Market Risk		2125
Item 4. Controls and Procedures		2126
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		2126
Item 1A. Risk Factors		2227
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		22
Item 6. Exhibits		27
Item 6. Exhibits		23
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PSYCHIATRIC SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)

	March 31,		December 31,
	June 30,		December 31,
	2010		2009
ASSETS
Current assets:
Cash and cash equivalents	$	3249,~~645~~698	$	6,815
Accounts receivable, less allowance for doubtful accounts of $53,311 and $51,894, respectively		263,874		249,439
Accounts receivable, less allowance for doubtful accounts of $56,120 and $51,894, respectively		254,412		249,439
Other current assets		9285,~~495~~760		105,166
Total current assets		389,~~014~~870		361,420
Property and equipment, net of accumulated depreciation		~~948~~965,~~092~~833		931,730
Cost in excess of net assets acquired		1,153,111		1,153,111
Other assets		5958,~~967~~959		60,979
Total assets	$	2,~~550~~567,~~184~~773	$	2,507,240
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3341,~~272~~057	$	35,397
Salaries and benefits payable		94100,~~085~~101		81,129
Other accrued liabilities		5574,~~083~~304		62,036
Current portion of long-term debt		104,~~552~~742		4,940
Total current liabilities		~~192~~220,~~992~~204		183,502
Long-term debt, less current portion		1,~~175~~125,~~980~~625		1,182,139
Deferred tax liability		8482,~~074~~260		81,137
Other liabilities		3132,~~031~~932		25,790
Total liabilities		1,~~484~~461,~~077~~021		1,472,568
Redeemable noncontrolling interests		4,~~326~~336		4,337
Stockholders’ equity:
Common stock, $0.01 par value, 125,000 shares authorized; 57,169 and 56,226 issued and outstanding, respectively		572		562
Common stock, $0.01 par value, 125,000 shares authorized; 57,237 and 56,226 issued and outstanding, respectively		572		562
Additional paid-in capital		~~630~~636,~~699~~214		627,476
Retained earnings		~~430~~465,~~510~~630		402,297
Total stockholders’ equity		1,~~061~~102,~~781~~416		1,030,335
Total liabilities and stockholders’ equity	$	2,~~550~~567,~~184~~773	$	2,507,240

See accompanying notes.

PSYCHIATRIC SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except for per share amounts)

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Revenue	$	~~475~~502,~~956~~694		$	~~433~~455,~~930~~287		$	978,650		$	889,217
Salaries, wages and employee benefits (including share-based compensation of $3,510 and $4,819 for the three months ended March 31, 2010 and 2009, respectively)		259,475			244,286
Salaries, wages and employee benefits (including share-based compensation of $4,282, $4,457, $7,792 and $9,276 for the respective three and six month periods in 2010 and 2009)		263,298			249,904			522,773			494,190
Professional fees		4450,~~928~~718			3942,~~930~~362			95,646			82,292
Supplies		2324,~~678~~304			2223,~~920~~492			47,982			46,412
Rentals and leases		4,~~835~~843			5,~~080~~049			9,678			10,129
Other operating expenses		5056,~~895~~316			4140,~~266~~821			107,211			82,087
Provision for doubtful accounts		1110,~~833~~104			8,~~462~~290			21,937			16,752
Depreciation and amortization		12,~~390~~879			10,~~553~~915			25,269			21,468
Interest expense		16,~~498~~553			1618,~~609~~103			33,051			34,712
		424,532			389,106
		439,015			398,936			863,547			788,042
Income from continuing operations before income taxes		5163,~~424~~679			4456,~~824~~351			115,103			101,175
Provision for income taxes		1924,~~683~~612			1721,~~164~~565			44,295			38,729
Income from continuing operations		3139,~~741~~067			2734,~~660~~786			70,808			62,446
Loss from discontinued operations, net of benefit from income taxes of $1,829 and $148 for the three months ended March 31, 2010 and 2009, respectively		(3,496	)		(139	)
Loss from discontinued operations, net of income tax benefit of $2,204, $155, $4,033 and $303 for the respective three and six month periods of 2010 and 2009		(3,929	)		(172	)		(7,425	)		(311	)
Net income		2835,~~245~~138			2734,~~521~~614			63,383			62,135
Less: Net income attributable to noncontrolling interests		(3218	)		(~~139~~206	)		(50	)		(345	)
Net income attributable to PSI stockholders	$	2835,~~213~~120		$	2734,~~382~~408		$	63,333		$	61,790
Basic earnings per share:
Income from continuing operations attributable to PSI stockholders	$	0.5770		$	0.4962		$	1.27		$	1.12
Loss from discontinued operations, net of taxes		(0.0607	)		—			(0.14	)		(0.01	)
Net income attributable to PSI stockholders	$	0.5163		$	0.4962		$	1.13		$	1.11
Diluted earnings per share:
Income from continuing operations attributable to PSI stockholders	$	0.5669		$	0.4962		$	1.25		$	1.11
Loss from discontinued operations, net of taxes		(0.0607	)		—			(0.13	)		(0.01	)
Net income attributable to PSI stockholders	$	0.5062		$	0.4962		$	1.12		$	1.10
Shares used in computing per share amounts:
Basic		55,~~715~~889			55,~~495~~559			55,802			55,531
Diluted		56,~~386~~995			55,~~968~~921			56,691			55,948
Amounts attributable to PSI stockholders:
Income from continuing operations	$	3139,~~709~~049		$	2734,~~521~~580		$	70,758		$	62,101
Loss from discontinued operations, net of taxes		(3,~~496~~929	)		(~~139~~172	)		(7,425	)		(311	)
Net income	$	2835,~~213~~120		$	2734,~~382~~408		$	63,333		$	61,790

See accompanying notes.

PSYCHIATRIC SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

	Three Months Ended March 31,
	Six Months Ended June 30,
	2010			2009
Operating activities:
Net income	$	2863,~~245~~383		$	2762,~~521~~135
Adjustments to reconcile net income to net cash provided by continuing operating activities:
Depreciation and amortization		1225,~~390~~269			1021,~~553~~468
Amortization of loan costs and bond discount/premium		13,~~564~~136			~~715~~2,034
Share-based compensation		37,~~510~~792			49,~~819~~276
Change in income tax assets and liabilities		1015,~~824~~849			1521,~~908~~579
Loss from discontinued operations, net of taxes		37,~~496~~425			~~139~~311
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable		(144,~~435~~973	)		(92,~~776~~125	)
Other current assets		~~893~~1,180			~~2,296~~547
Accounts payable		~~(382~~7,586	)		(2,~~822~~646	)
Salaries and benefits payable		1218,~~956~~972			(32,~~391~~848	)
Accrued liabilities and other liabilities		(29,~~977~~542	)		(62,~~563~~681	)
Net cash provided by continuing operating activities		56155,~~084~~161			39118,~~399~~108
Net cash (used in) provided by discontinued operating activities		(89	)		781
Net cash provided by discontinued operating activities		1,656			142
Net cash provided by operating activities		55156,~~995~~817			40118,~~180~~250
Investing activities:
Capital purchases of leasehold improvements, equipment and software		(29,553	)		(24,368	)
Cash paid for real estate acquisitions		—			(18,996	)
Other assets		101			(158	)
Capital purchases of leasehold improvements, equipment and software		(57,605	)		(62,141	)
Net cash used in continuing investing activities		(29,452	)		(24,526	)
Other assets		(112	)		430
Net cash used in discontinued investing activities		(12	)		(321	)
Net cash used in continuing investing activities		(57,717	)		(80,707	)
Net cash used in investing activities		(29,464	)		(24,847	)
Net cash used in discontinued investing activities		(12	)		(499	)
Net cash used in investing activities		(57,729	)		(81,206	)
Financing activities:
Net decrease in revolving credit facility		—			(39169,333	)
Principal payments on long-term debt		(1,322	)		(1,272	)
Borrowings on long-term debt		—			106,500
Payment of loan and issuance costs		(6	)		(5,363	)
Principal payments on long-term debt		(57,999	)		(2,553	)
Distributions to noncontrolling interests		(43	)		—
Payment of loan and issuance costs		(22	)		(8,110	)
Distributions to noncontrolling interests		(51	)		—
Repurchase of common stock upon restricted stock vesting		(490	)		(953	)
Proceeds from exercises of common stock options		12,~~160~~357			~~342~~390
Net cash used in financing activities		(~~701~~56,205	)		(4674,~~579~~059	)
Net increase (decrease) in cash and cash equivalents		25,830			(31,246	)
Net increase (decrease) in cash		42,883			(37,015	)
Cash and cash equivalents at beginning of the period		6,815			51,271
Cash and cash equivalents at end of the period	$	3249,~~645~~698		$	2014,~~025~~256

See accompanying notes.

PSYCHIATRIC SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~MARCH~~JUNE 3130, 2010

1. Recent Developments

On May 16, 2010, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Universal Health Services, Inc., a Delaware corporation (“UHS”), and Olympus Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of UHS (“Merger Sub”). Under the terms of the Merger Agreement, Merger Sub will be merged with and into us, with us continuing as the surviving corporation and a wholly-owned subsidiary of UHS (the “Merger”).

At the effective time of the Merger, each outstanding share of our common stock (the “Common Stock”), other than shares held in our treasury or owned by UHS or Merger Sub, or owned by any stockholders who are entitled to and who properly exercise appraisal rights under Delaware law, will be cancelled and converted into the right to receive $33.75 in cash, without interest (the “Merger Consideration”), or an aggregate of approximately $2.0 billion. Including the assumption of approximately $1.1 billion in net debt, the total transaction consideration is approximately $3.1 billion.

We made customary representations, warranties and covenants in the Merger Agreement. We are subject to a “no-shop” restriction on our ability to solicit third-party proposals, provide information and engage in discussions with third parties. The no-shop provision is subject to a “fiduciary-out” provision that allows us to provide information and participate in discussions with respect to third party proposals submitted after the date of the Merger Agreement if our Board of Directors (acting through the special committee of the Board of Directors (the “Special Committee”) or otherwise) determines in good faith (after consultation with its advisors) that such proposal is, or could reasonably be expected to result in, a “superior proposal,” as defined in the Merger Agreement, and that failure to take such actions would be inconsistent with our Board of Director’s fiduciary duties.

The Merger Agreement contains termination rights, including if our Board of Directors (or the Special Committee) changes its recommendation to our stockholders if the failure to do so would be inconsistent with its fiduciary duties under applicable law, and provides that, upon the termination of the Merger Agreement, under specified circumstances, we will be required to reimburse UHS for its transaction expenses and that, under specified circumstances, we will be required to pay UHS a termination fee of $71.5 million.

The parties to the Merger Agreement are entitled to specific performance of the terms and provisions of the Merger Agreement, in addition to any other remedy to which they are entitled, including damages for any breach of the Merger Agreement by the other party. Consummation of the Merger is not subject to a financing condition, but is subject to various other conditions, including adoption of the Merger Agreement by our stockholders, expiration or termination of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”) and other customary closing conditions. On July 28, 2010, PSI and UHS each received a Request for Additional Information (“Second Request”) from the Federal Trade Commission (“FTC”) in connection with their filings under the HSR Act. The Second Request has the effect of extending the waiting period for an additional 30 calendar days from the date of both the parties’ substantial compliance with the request, unless the waiting period is terminated sooner by the FTC or voluntarily extended by the parties. The parties expect to close the transaction during the fourth quarter of 2010. Where this Quarterly Report on Form 10-Q discusses our future plans, strategies or activities, such discussion does not give effect to the proposed Merger.

On November 2, 2009, we completed the sale of our employee assistance program (“EAP”) business for approximately $68.5 million in cash, net of fees and expenses.

On September 30, 2009, we completed the acquisition of a 90-bed inpatient behavioral health care facility located in Panama City, Florida. On September 1, 2009, we completed the acquisition of a 131-bed inpatient behavioral health care facility located in Fargo, North Dakota.

In May 2009, we received $106.5 million upon the issuance of $120 million of our 7 3/4% Senior Subordinated Notes due 2015 (the “7 3/4% Notes”) and used the proceeds to repay a portion of the outstanding balance of our revolving credit facility. During 2009, our revolving credit facility was amended to extend the maturity until December 31, 2011.

2. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for audited financial statements. The condensed consolidated balance sheet at December 31, 2009 has been derived from the audited financial statements as of that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation of our financial position have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The majority of our expenses are “cost of revenue” items. Costs that could be classified as general and administrative expenses at our corporate office, excluding share-based compensation expense, were approximately 23.83% of net revenue for the ~~three~~six months ended ~~March~~June 3130, 2010, which includes approximately $6.4 million in costs related to our agreement to be acquired by UHS. Operating results for the three and six months ended ~~March~~June 3130, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. For further information, refer to the financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2009.

PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2010

3. Earnings Per Share

GAAP requires dual presentation of basic and diluted earnings per share by entities with complex capital structures. Basic earnings per share includes no dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share also includes the potential dilution of securities that could share in our earnings. We have calculated earnings per share accordingly for all periods presented.

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009
Numerator:
Basic and diluted earnings per share:
Income from continuing operations attributable to PSI stockholders	$	39,049		$	34,580		$	70,758		$	62,101
Loss from discontinued operations, net of taxes		(3,929	)		(172	)		(7,425	)		(311	)

Net income attributable to PSI stockholders	$	35,120		$	34,408		$	63,333		$	61,790


Denominator:
Weighted average shares outstanding for basic earnings per share		55,889			55,559			55,802			55,531
Effects of dilutive stock options and restriced stock outstanding		1,106			362			889			417

Shares used in computing diluted earnings per common share		56,995			55,921			56,691			55,948


Basic earnings per share:
Income from continuing operations attributable to PSI stockholders	$	0.70		$	0.62		$	1.27		$	1.12
Loss from discontinued operations, net of taxes		(0.07	)		—			(0.14	)		(0.01	)

Net income attributable to PSI stockholders	$	0.63		$	0.62		$	1.13		$	1.11


Diluted earnings per share:
Income from continuing operations attributable to PSI stockholders	$	0.69		$	0.62		$	1.25		$	1.11
Loss from discontinued operations, net of taxes		(0.07	)		—			(0.13	)		(0.01	)

Net income attributable to PSI stockholders	$	0.62		$	0.62		$	1.12		$	1.10

PSYCHIATRIC SOLUTIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 2010

	Three Months Ended
	March 31,
	2010			2009
Numerator:
Basic and diluted earnings per share:
Income from continuing operations attributable to PSI stockholders	$	31,709		$	27,521
Loss from discontinued operations, net of taxes		(3,496	)		(139	)
Net income attributable to PSI stockholders	$	28,213		$	27,382
Denominator:
Weighted average shares outstanding for basic earnings per share		55,715			55,495
Effects of dilutive stock options and restricted stock outstanding		671			473
Shares used in computing diluted earnings per common share		56,386			55,968
Basic earnings per share:
Income from continuing operations attributable to PSI stockholders	$	0.57		$	0.49
Loss from discontinued operations, net of taxes		(0.06	)		—
Net income attributable to PSI stockholders	$	0.51		$	0.49
Diluted earnings per share:
Income from continuing operations attributable to PSI stockholders	$	0.56		$	0.49
Loss from discontinued operations, net of taxes		(0.06	)		—
Net income attributable to PSI stockholders	$	0.50		$	0.49

4. Share-Based Compensation

We recognized ~~approximately~~ $34.53 million and $4.85 million in share-based compensation expense ~~and~~for the three months ended June 30, 2010 and 2009, respectively, and approximately $1.7 million of related income tax benefit in each period. We recognized $7.8 million and $9.3 million in share-based compensation expense and approximately $3.0 million and $13.86 million of related income tax benefit for the ~~three~~six months ended ~~March~~June 3130, 2010 and 2009, respectively. The fair value of our stock options was estimated using the Black-Scholes option pricing model. The impact of share-based compensation expense, net of tax, on our earnings per share was approximately $0.0405 per share for each of the three month periods ended June 30, 2010 and 2009. The impact of share-based compensation expense, net of tax, on our earnings per share was approximately $0.0508 and $0.10 per share for the ~~three~~six months ended ~~March~~June 3130, 2010 and 2009, respectively.

Based on our stock option and restricted stock grants outstanding at ~~March~~June 3130, 2010, we estimate remaining unrecognized share-based compensation expense to be approximately $5044.08 million with a weighted average remaining life of 2.87 years.

Employees and non-employee members of our Board of Directors exercised 76130,~~114~~320 stock options during the ~~three~~ six months ended ~~March 31~~June 30, 2010. Also during 2010, ~~184~~189,~~999~~799 shares of restricted stock vested and 22,399 of those shares were surrendered by our employees and cancelled in satisfaction of the employees’ related tax liabilities. The total intrinsic value, which represents the difference between the underlying stock’s market price and the ~~option~~share-based award’s exercise price, of options exercised and restricted stock vested during the ~~three~~ six months ended ~~March~~June 3130, 2010 and 2009 was approximately $45.85 million and $3.89 million, respectively.

We granted 842,750 stock options to employees during the ~~three~~six months ended ~~March~~June 3130, 2010. These options vest over four years in annual increments of 25% on each anniversary of the grant date and each had a grant-date fair value of $7.92.

We granted 896,000 shares of restricted stock to employees during the three months ended March 31, 2010. These shares of restricted stock vest over four years in annual increments of 25% on each anniversary of the grant date and had a weighted-average grant-date fair value of $21.00 per share.

As of March 31, 2010, we had 6,534,588 stock options outstanding with a weighted average exercise price of $26.87 and a weighted average remaining contractual term of 6.8 years and 1,305,827 shares of restricted stock outstanding. Also as of March 31, 2010, we had 503,817 shares available for issuance under the Psychiatric Solutions, Inc. Equity Incentive Plan and the Psychiatric Solutions, Inc. Outside Directors’ Stock Incentive Plan.

5. Acquisitions

Acquiring free-standing psychiatric facilities is a key part of our business strategy.

On September 1, 2009, we completed the acquisition of a 131-bed inpatient behavioral health care facility located in Fargo, North Dakota. On September 30, 2009, we completed the acquisition of a 90-bed inpatient behavioral health care facility located in Panama City, Florida.

The balance of cost in excess of net assets acquired (goodwill) was $1.2 billion as of March 31, 2010 and December 31, 2009.

PSYCHIATRIC SOLUTIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ~~MARCH~~JUNE 3130, 2010

We granted 915,200 shares of restricted stock to employees and non-employee members of our Board of Directors during the six months ended June 30, 2010. These shares of restricted stock vest over four years in annual increments of 25% on each anniversary of the grant date and had a weighted-average grant-date fair value of $21.24 per share.

5. Acquisitions

The balance of cost in excess of net assets acquired (goodwill) was approximately $1.2 billion as of June 30, 2010 and December 31, 2009.

6. Long-term debt

Long-term debt consists of the following (in thousands):

	March 31,		December 31,
	June 30,		December 31,
	2010		2009
Senior credit facility:
Senior secured term loan facility, expiring on July 1, 2012 and bearing interest of 2.1% and 2.0% at March 31, 2010 and December 31, 2009, respectively	$	563,938	$	564,875
Senior secured term loan facility, expiring on July 1, 2012 and bearing interest of 2.2% and 2.0% at June 30, 2010 and December 31, 2009, respectively	$	507,593	$	564,875
7 3/4% Notes		~~582~~583,~~899~~139		582,666
Mortgage loans on facilities, maturing in 2036, 2037 and 2038 bearing fixed interest rates of 5.7% to 7.6%		32,~~741~~629		32,850
Other		67,~~954~~006		6,688
		1,186,532		1,187,079
		1,130,367		1,187,079
Less current portion		104,~~552~~742		4,940
Long-term debt	$	1,~~175~~125,~~980~~625	$	1,182,139

Senior Credit Facility

Our Senior Credit Facility (the “Credit Agreement”) includes a $300 million revolving line of credit facility administered by Bank of America, N.A. and a $575 million senior secured term loan facility administered by Citicorp North America, Inc. During 2009, our revolving credit facility was amended to extend the maturity to December 31, 2011. Quarterly principal payments of $0.98 million are due on our senior secured term loan facility and the balance of our senior secured term loan facility is payable in full on July 1, 2012.

Our Credit Agreement is secured by substantially all of the personal property owned by us or our subsidiaries, substantially all real property owned by us or our subsidiaries that has a value in excess of $5.0 million and the stock of substantially all of our operating subsidiaries. In addition, the Credit Agreement is fully and unconditionally guaranteed by substantially all of our operating subsidiaries. The revolving credit facility and senior secured term loan facility accrue interest at our choice of the “Base Rate” or the “Eurodollar Rate” (as defined in the Credit Agreement). The “Base Rate” and “Eurodollar Rate” fluctuate based upon market rates and certain leverage ratios, as defined in the Credit Agreement. At ~~March~~June 3130, 2010, we had no borrowings outstanding and $295.7 million available for future borrowings under the revolving credit facility. Until December 31, 2011, we may borrow, repay and re-borrow an amount not to exceed $300 million on our revolving credit facility. AtOn ~~March~~June 3130, 2010, ~~our~~we ~~current~~made ~~maturities~~a ~~included~~ $550.50 million ofoptional repayment under ~~our~~the senior secured term loan facility ~~for an April 2010 principal payment related to excess cash flow, as required by our Credit Agreement~~. All repayments made under the senior secured term loan facility are a permanent reduction in the amount available for future borrowings. We pay a quarterly commitment fee on the unused portion of our revolving credit facility that fluctuates, based upon certain leverage ratios, between 0.75% and 1.0% per annum. Commitment fees were approximately $01.61 million for the ~~three~~six months ended ~~March~~June 3130, 2010.

Our Credit Agreement contains customary covenants that include: (1) a limitation on capital expenditures and investments, sales of assets, mergers, changes of ownership, new principal lines of business, indebtedness, transactions with affiliates, dividends and redemptions; (2) various financial covenants; and (3) cross-default covenants triggered by a default of any other indebtedness of at least $5.0 million. As of ~~March~~June 3130, 2010, we were in compliance with all debt covenant requirements. If we violate one or more of these covenants, amounts outstanding under the revolving credit facility, senior secured term loan facility and the majority of our other debt arrangements could become immediately payable and additional borrowings could be restricted.

73/4% Notes

The 73/4% Senior Subordinated Notes due 2015 (the “73/4% Notes”) mature on July 15, 2015 and are fully and unconditionally guaranteed on a senior subordinated basis by substantially all of our existing operating subsidiaries. In May 2009, we issued $120 million of the 73/4% Notes at a discount of 11.25%. This discount is being amortized over the remaining life of the 73/4% Notes using the effective interest rate method, which results in an effective interest rate of 10.2% per annum on the $120 million issuance. We received a premium of 2.75% plus accrued interest from the sale of $250 million of 73/4% Notes in 2007. This premium is being amortized over the remaining life of the 73/4% Notes using the effective interest method, which results in an effective interest rate of 7.3% on the $250 million issuance. We also issued $220 million of the 73/4% Notes in 2005. Interest on the 73/4% Notes is payable semi-annually in arrears on January 15 and July 15.

PSYCHIATRIC SOLUTIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ~~MARCH~~JUNE 3130, 2010

7³/₄% Notes

The 7³/₄% Senior Subordinated Notes due 2015 (the “7³/₄% Notes”) mature on July 15, 2015 and are fully and unconditionally guaranteed on a senior subordinated basis by substantially all of our existing operating subsidiaries. In May 2009, we issued $120 million of the 7³/₄% Notes at a discount of 11.25%. This discount is being amortized over the remaining life of the 7³/₄% Notes using the effective interest rate method, which results in an effective interest rate of 10.2% per annum on the $120 million issuance. We received a premium of 2.75% plus accrued interest from the sale of $250 million of 7³/₄% Notes in 2007. This premium is being amortized over the remaining life of the 7³/₄% Notes using the effective interest method, which results in an effective interest rate of 7.3% on the $250 million issuance. We also issued $220 million of the 7³/₄% Notes in 2005. Interest on the 7³/₄% Notes is payable semi-annually in arrears on January 15 and July 15.

Mortgage Loans

At ~~March~~June 3130, 2010, we had approximately $32.76 million debt outstanding under mortgage loan agreements insured by the U.S. Department of Housing and Urban Development (“HUD”). The mortgage loans insured by HUD are secured by real estate located at Holly Hill Hospital in Raleigh, North Carolina, West Oaks Hospital in Houston, Texas, Riveredge Hospital near Chicago, Illinois, Canyon Ridge Hospital in Chino, California and MeadowWood Behavioral Health in New Castle, Delaware. Interest accrues on the Holly Hill, West Oaks, Riveredge, Canyon Ridge and MeadowWood HUD loans at 6.0%, 5.9%, 5.7%, 7.6% and 7.0%, respectively, and principal and interest are payable in 420 monthly installments through December 2037, September 2038, December 2038, January 2036 and October 2036, respectively. The carrying amount of assets held as collateral for the HUD loans ~~approximated~~ approximated $59.43 million at ~~March~~June 3130, 2010.

7. Income Taxes

The provision for income taxes for continuing operations for the ~~three~~six months ended ~~March~~June 3130, 2010 ~~and~~ and 2009 reflects an effective tax rate of approximately 38.35% and 38.43%, respectively.

8. Discontinued Operations

GAAP requires that all components of an entity that have been disposed of (by sale, by abandonment or in a distribution to owners) or are held for sale and whose cash flows can be clearly distinguished from the rest of the entity be presented as discontinued operations. During 2009, we sold our EAP business, elected to close and sell Nashville Rehabilitation Hospital, The Oaks Treatment Center and Cumberland Hall of Chattanooga, and terminated one contract with a South Carolina juvenile justice agency. With the exception of our EAP business that was reported in our other segment, the results of these operations were reported in our owned and leased facilities segment prior to the decision to discontinue.

The components of loss from discontinued operations, net of taxes, are as follows (in thousands):

	Three Months Ended						Six Months Ended
	March 31,
	June 30,						June 30,
	2010			2009			2010			2009
Revenue	$	~~2,446~~—		$	18,~~432~~278		$	2,446		$	36,709
Operating expenses		52,~~118~~530			18,~~719~~605			7,663			37,323
Loss on disposal		23,~~653~~603			—			6,241			—
		7,771			18,719
		6,133			18,605			13,904			37,323
Loss from discontinued operations before income taxes		(56,~~325~~133	)		(~~287~~327	)		(11,458	)		(614	)
Benefit from income taxes		(1,829	)		(148	)
Income tax benefit		(2,204	)		(155	)		(4,033	)		(303	)
Loss from discontinued operations, net of income taxes	$	(3,~~496~~929	)	$	(~~139~~172	)	$	(7,425	)	$	(311	)

9. Disclosures About Reportable Segments

In accordance with GAAP, our owned and leased behavioral health care facilities segment is our only reportable segment. Our chief operating decision maker regularly reviews the operating results of our inpatient facilities on a combined basis, which represent more than 90% of our consolidated revenue. As of ~~March~~June 3130, 2010, the owned and leased facilities segment provides mental health and behavioral health services to patients in its 8685 owned and 8 leased inpatient facilities in 32 states, Puerto Rico and the U.S. Virgin ~~Islands. The column entitled “Other” in the schedules below~~ includes management contracts to provide inpatient psychiatric management and development services to inpatient behavioral health units in hospitals and clinics and a managed care plan in Puerto Rico. The operations included in the “Other” column do not qualify as reportable segments. Activities classified as “Corporate” in the following schedules relate primarily to unallocated home office expenses and discontinued operations.

Adjusted EBITDA is a non-GAAP financial measure and is defined as income from continuing operations before interest expense (net of interest income), income taxes, depreciation, amortization, stock compensation and other items included in the caption labeled “Other expenses.” These other expenses may occur in future periods, but the amounts recognized can vary significantly from period to period and do not directly relate to the ongoing operations of our health care facilities. Our management relies on adjusted EBITDA as the primary measure to review and assess the operating performance of our inpatient facilities and their management teams. We believe it is useful to investors to provide disclosures of our operating results on the same basis as that used by management.

PSYCHIATRIC SOLUTIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ~~MARCH~~JUNE 3130, 2010

~~Management~~Islands. ~~and~~The ~~investors~~column ~~also~~entitled ~~review~~“Other” ~~adjusted~~in ~~EBITDA~~the schedules below includes management contracts to ~~evaluate~~provide ~~our~~inpatient ~~overall~~psychiatric ~~performance~~management and todevelopment services ~~compare~~to ~~our~~inpatient ~~current~~behavioral ~~operating~~health ~~results~~units ~~with~~in ~~corresponding~~hospitals ~~periods~~and clinics and ~~with~~a ~~other~~managed ~~companies~~care plan in ~~the~~Puerto ~~health care industry~~Rico. ~~You~~The ~~should~~operations ~~not~~included ~~consider~~in ~~adjusted~~the ~~EBITDA~~“Other” incolumn ~~isolation~~do ornot qualify as areportable ~~substitute for~~segments. ~~net~~Activities ~~income,~~classified ~~operating~~as ~~cash~~“Corporate” ~~flows~~in orthe ~~other~~following ~~cash~~schedules ~~flow~~relate ~~statement~~primarily ~~data~~to ~~determined in accordance with~~unallocated ~~GAAP.~~home ~~Because~~office ~~adjusted~~expenses ~~EBITDA~~and isdiscontinued ~~not~~operations. aIn ~~measure~~the second quarter of ~~financial~~2010 ~~performance~~we ~~under~~recognized ~~GAAP~~approximately ~~and~~$12.1 ismillion in ~~susceptible~~revenue toreceived ~~varying~~by ~~calculations,~~our itMississippi ~~may~~facilities ~~not~~from bethe Medicare/Medicaid ~~comparable~~Upper toPayment ~~similarly~~Limits ~~titled~~Program ~~measures~~for ofthe ~~other~~twelve months ~~companies~~ended June 30, 2010. The ~~following~~additional isUPL aProgram ~~financial~~revenue ~~summary~~was partially offset by ~~reportable~~additional ~~segment~~taxes ~~for~~of ~~the~~approximately ~~periods~~$7.0 ~~indicated~~million paid under ~~(dollars~~the Mississippi Hospital Assessment Program in ~~thousands):~~the second quarter of 2010.

~~Three~~Adjusted ~~Months~~EBITDA ~~Ended~~is ~~March 31~~a non-GAAP financial measure and is defined as income from continuing operations before interest expense (net of interest income), ~~2010~~income taxes, depreciation, amortization, share-based compensation and other items included in the caption labeled “Other expenses.” These other expenses may occur in future periods, but the amounts recognized can vary significantly from period to period and do not directly relate to the ongoing operations of our health care facilities. Our management relies on adjusted EBITDA as the primary measure to review and assess the operating performance of our inpatient facilities and their management teams. We believe it is useful to investors to provide disclosures of our operating results on the same basis as that used by management. Management and investors also review adjusted EBITDA to evaluate our overall performance and to compare our current operating results with corresponding periods and with other companies in the health care industry. You should not consider adjusted EBITDA in isolation or as a substitute for net income, operating cash flows or other cash flow statement data determined in accordance with GAAP. Because adjusted EBITDA is not a measure of financial performance under GAAP and is susceptible to varying calculations, it may not be comparable to similarly titled measures of other companies. The following is a financial summary by reportable segment for the periods indicated (dollars in thousands):

	Owned and
	Leased
	Facilities			Other			Corporate			Consolidated
Revenue	$	442,769		$	33,187		$	—		$	475,956
Adjusted EBITDA	$	95,080		$	2,236		$	(13,494	)	$	83,822
Interest expense		7,208			79			9,211			16,498
Provision for income taxes		—			—			19,683			19,683
Depreciation and amortization		10,921			1,052			417			12,390
Inter-segment expenses		13,469			1,211			(14,680	)		—
Other expenses:
Share-based compensation		—			—			3,510			3,510
Total other expenses		—			—			3,510			3,510
Income (loss) from continuing operations		63,482			(106	)		(31,635	)		31,741
Less: Income attributable to noncontrolling interests		(32	)		—			—			(32	)
Income (loss) from continuing operations attributable to
PSI stockholders	$	63,450		$	(106	)	$	(31,635	)	$	31,709
Total assets	$	2,377,041		$	55,596		$	117,547		$	2,550,184

Three Months Ended June 30, 2010

Three Months Ended March 31, 2009


	Owned and
	Leased
	Facilities		Other		Corporate			Consolidated
Revenue	$	467,119	$	35,575	$	—		$	502,694

Adjusted EBITDA	$	112,015	$	4,048	$	(18,688	)	$	97,375
Interest expense		7,156		81		9,316			16,553
Provision for income taxes		—		—		24,612			24,612
Depreciation and amortization		11,417		1,036		426			12,879
Inter-segment expenses		13,512		1,172		(14,684	)		—
Other expenses:
Share-based compensation		—		—		4,282			4,282

Total other expenses		—		—		4,282			4,282

Income (loss) from continuing operations attributable to PSI stockholders	$	79,930	$	1,759	$	(42,640	)	$	39,049

Total assets	$	2,380,683	$	59,676	$	127,414		$	2,567,773

	Owned and
	Leased
	Facilities			Other			Corporate			Consolidated
Revenue	$	404,003		$	29,927		$	—		$	433,930
Adjusted EBITDA	$	84,202		$	5,033		$	(12,430	)	$	76,805
Interest expense		7,095			(448	)		9,962			16,609
Provision for income taxes		—			—			17,164			17,164
Depreciation and amortization		9,019			1,143			391			10,553
Inter-segment expenses		17,207			1,546			(18,753	)		—
Other expenses:
Share-based compensation		—			—			4,819			4,819
Total other expenses		—			—			4,819			4,819
Income (loss) from continuing operations		50,881			2,792			(26,013	)		27,660
Less: Income attributable to noncontrolling interests		(139	)		—			—			(139	)
Income (loss) from continuing operations attributable to
PSI stockholders	$	50,742		$	2,792		$	(26,013	)	$	27,521
Total assets	$	2,242,528		$	63,862		$	187,394		$	2,493,784

10. Financial Information for the Company and Its Subsidiaries

PSYCHIATRIC SOLUTIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ~~MARCH~~JUNE 3130, 2010

~~March 31,~~Three ~~2010~~Months ~~and~~Ended ~~2009. The information segregates the parent company (Psychiatric Solutions~~June 30, ~~Inc.),~~ ~~the combined wholly-owned subsidiary guarantors, the combined non-guarantors and~~2009 ~~eliminations. All of the subsidiary guarantees are both full and unconditional and joint and several.~~

Condensed Consolidating Balance Sheet As of March 31, 2010 (Dollars in thousands)


	Owned and
	Leased
	Facilities		Other			Corporate			Consolidated
Revenue	$	423,889	$	31,398		$	—		$	455,287

Adjusted EBITDA	$	97,211	$	4,007		$	(11,598	)	$	89,620
Interest expense		7,139		(496	)		11,460			18,103
Provision for income taxes		—		—			21,565			21,565
Depreciation and amortization		9,410		1,103			402			10,915
Inter-segment expenses		14,454		1,265			(15,719	)		—
Other expenses:
Share-based compensation		—		—			4,457			4,457

Total other expenses		—		—			4,457			4,457

Income (loss) from continuing operations attributable to PSI stockholders	$	66,208	$	2,135		$	(33,763	)	$	34,580

Total assets	$	2,263,324	$	59,079		$	185,696		$	2,508,099

			Combined
			Subsidiary			Combined Non-			Consolidating			Total Consolidated
	Parent		Guarantors			Guarantors			Adjustments			Amounts
Current assets:
Cash and cash equivalents	$	—	$	26,732		$	5,740		$	173		$	32,645
Accounts receivable, net		—		254,433			9,509			(68	)		263,874
Other current assets		—		77,496			12,768			2,231			92,495
Total current assets		—		358,661			28,017			2,336			389,014
Property and equipment, net of accumulated depreciation		—		896,081			61,148			(9,137	)		948,092
Cost in excess of net assets acquired		—		1,153,111			—			—			1,153,111
Investment in subsidiaries		1,471,171		(352,176	)		(16,266	)		(1,102,729	)		—
Other assets		16,222		38,216			24,718			(19,189	)		59,967
Total assets	$	1,487,393	$	2,093,893		$	97,617		$	(1,128,719	)	$	2,550,184
Current liabilities:
Accounts payable	$	—	$	31,963		$	1,377		$	(68	)	$	33,272
Salaries and benefits payable		—		92,666			1,419			—			94,085
Other accrued liabilities		17,539		37,208			(495	)		831			55,083
Current portion of long-term debt		10,095		—			457			—			10,552
Total current liabilities		27,634		161,837			2,758			763			192,992
Long-term debt, less current portion		1,143,696		—			32,284			—			1,175,980
Deferred tax liability		—		84,074			—			—			84,074
Other liabilities		5,099		(5,818	)		35,784			(4,034	)		31,031
Total liabilities		1,176,429		240,093			70,826			(3,271	)		1,484,077
Redeemable noncontrolling interest		—		—			—			4,326			4,326
Total stockholders’ equity		310,964		1,853,800			26,791			(1,129,774	)		1,061,781
Total liabilities and stockholders’ equity	$	1,487,393	$	2,093,893		$	97,617		$	(1,128,719	)	$	2,550,184

Six Months Ended June 30, 2010


	Owned and
	Leased
	Facilities		Other		Corporate			Consolidated
Revenue	$	909,888	$	68,762	$	—		$	978,650

Adjusted EBITDA	$	207,064	$	6,283	$	(32,182	)	$	181,165
Interest expense		14,364		160		18,527			33,051
Provision for income taxes		—		—		44,295			44,295
Depreciation and amortization		22,338		2,087		844			25,269
Inter-segment expenses		26,981		2,383		(29,364	)		—
Other expenses:
Share-based compensation		—		—		7,792			7,792

Total other expenses		—		—		7,792			7,792

Income (loss) from continuing operations attributable to PSI stockholders	$	143,381	$	1,653	$	(74,276	)	$	70,758

Total assets	$	2,380,683	$	59,676	$	127,414		$	2,567,773

PSYCHIATRIC SOLUTIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ~~MARCH~~JUNE 3130, 2010

~~Condensed~~Six ~~Consolidating~~Months ~~Balance~~Ended ~~Sheet As of December~~June 3130, 2009 ~~(Dollars in thousands)~~

				Combined
	Owned and
				Subsidiary			Combined Non-			Consolidating			Total Consolidated
	Leased
	Parent			Guarantors			Guarantors			Adjustments			Amounts
	Facilities			Other			Corporate			Consolidated
Current assets:
Revenue	$	827,892		$	61,325		$	—		$	889,217
Cash and cash equivalents	$	—		$	2,111		$	4,704		$	—		$	6,815
Adjusted EBITDA	$	181,274		$	9,043		$	(24,031	)	$	166,286
Accounts receivable, net		—			241,211			8,296			(68	)		249,439
Interest expense		14,234			(944	)		21,422			34,712
Other current assets		—			90,259			16,284			(1,377	)		105,166
Provision for income taxes		—			—			38,729			38,729
Total current assets		—			333,581			29,284			(1,445	)		361,420
Depreciation and amortization		18,429			2,246			793			21,468
Property and equipment, net of accumulated depreciation		—			879,453			61,491			(9,214	)		931,730
Inter-segment expenses		31,661			2,811			(34,472	)		—
Cost in excess of net assets acquired		—			1,153,111			—			—			1,153,111
Other expenses:
Investment in subsidiaries		1,486,852			(368,332	)		(16,964	)		(1,101,556	)		—
Share-based compensation		—			—			9,276			9,276
Other assets		17,536			37,420			25,372			(19,349	)		60,979
Total other expenses		—			—			9,276			9,276
Total assets	$	1,504,388		$	2,035,233		$	99,183		$	(1,131,564	)	$	2,507,240
Income (loss) from continuing operations attributable to PSI stockholders	$	116,950		$	4,930		$	(59,779	)	$	62,101
Current liabilities:
Total assets	$	2,263,324		$	59,079		$	185,696		$	2,508,099
Accounts payable	$	—		$	34,467		$	998		$	(68	)	$	35,397
Salaries and benefits payable		—			80,255			874			—			81,129
Other accrued liabilities		28,901			32,783			1,610			(1,258	)		62,036
Current portion of long-term debt		4,490			—			450			—			4,940
Total current liabilities		33,391			147,505			3,932			(1,326	)		183,502
Long-term debt, less current portion		1,149,738			—			32,401			—			1,182,139
Deferred tax liability		—			81,137			—			—			81,137
Other liabilities		127			(6,324	)		36,069			(4,082	)		25,790
Total liabilities		1,183,256			222,318			72,402			(5,408	)		1,472,568
Redeemable noncontrolling interests		—			—			—			4,337			4,337
Total stockholders’ equity		321,132			1,812,915			26,781			(1,130,493	)		1,030,335
Total liabilities and stockholders’ equity	$	1,504,388		$	2,035,233		$	99,183		$	(1,131,564	)	$	2,507,240
Condensed Consolidating Statement of Income For the Three Months Ended March 31, 2010 (Dollars in thousands)
				Combined
				Subsidiary			Combined Non-			Consolidating			Total Consolidated
	Parent			Guarantors			Guarantors			Adjustments			Amounts
Revenue	$	—		$	464,855		$	12,543		$	(1,442	)	$	475,956
Salaries, wages and employee benefits		—			253,095			6,380			—			259,475
Professional fees		—			43,784			1,733			(589	)		44,928
Supplies		—			23,010			668			—			23,678
Rentals and leases		—			5,914			145			(1,224	)		4,835
Other operating expenses		—			49,671			1,993			(769	)		50,895
Provision for doubtful accounts		—			11,315			518			—			11,833
Depreciation and amortization		—			11,850			617			(77	)		12,390
Interest expense		16,025			—			473			—			16,498
		16,025			398,639			12,527			(2,659	)		424,532
(Loss) income from continuing operations before income taxes		(16,025	)		66,216			16			1,217			51,424
(Benefit from) provision for income taxes		(6,134	)		25,345			6			466			19,683
(Loss) income from continuing operations		(9,891	)		40,871			10			751			31,741
(Loss) income from discontinued operations, net of tax		—			(3,496	)		—			—			(3,496	)
Net (loss) income		(9,891	)		37,375			10			751			28,245
Less: Net income attributable to noncontrolling interests		—			—			—			(32	)		(32	)
Net (loss) income attributable to PSI stockholders	$	(9,891	)	$	37,375		$	10		$	719		$	28,213

10. Financial Information for the Company and Its Subsidiaries

We conduct substantially all of our business through our subsidiaries. Presented below is consolidated financial information for Psychiatric Solutions, Inc. and its subsidiaries as of June 30, 2010 and December 31, 2009, and for the three and six months ended June 30, 2010 and 2009. The information segregates the parent company (Psychiatric Solutions, Inc.), the combined wholly-owned subsidiary guarantors, the combined non-guarantors and eliminations. All of the subsidiary guarantees are both full and unconditional and joint and several.

PSYCHIATRIC SOLUTIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ~~MARCH~~JUNE 3130, 2010

Condensed Consolidating ~~Statement~~Balance ~~of Income~~Sheet ~~For~~ As ~~the~~of ~~Three Months Ended March~~June 3130, ~~2009~~2010 (Dollars in thousands)

				Combined
				Subsidiary			Combined Non-			Consolidating			Total Consolidated
	Parent			Guarantors			Guarantors			Adjustments			Amounts
Revenue	$	—		$	423,585		$	11,639		$	(1,294	)	$	433,930
Current assets:
Salaries, wages and employee benefits		—			237,826			6,460			—			244,286
Cash and cash equivalents	$	—		$	29,788		$	19,910		$	—		$	49,698
Professional fees		—			39,124			2,086			(1,280	)		39,930
Accounts receivable, net		—			245,704			8,776			(68	)		254,412
Supplies		—			22,347			573			—			22,920
Other current assets		—			84,844			7,933			(7,017	)		85,760
Rentals and leases		—			6,129			24			(1,073	)		5,080
Total current assets		—			360,336			36,619			(7,085	)		389,870
Other operating expenses		—			40,233			1,620			(587	)		41,266
Property and equipment, net of accumulated depreciation		—			912,987			61,905			(9,059	)		965,833
Provision for doubtful accounts		—			8,200			262			—			8,462
Cost in excess of net assets acquired		—			1,153,111			—			—			1,153,111
Depreciation and amortization		—			10,090			540			(77	)		10,553
Investment in subsidiaries		1,422,039			(302,592	)		(15,829	)		(1,103,618	)		—
Interest expense		16,193			—			416			—			16,609
Other assets		14,901			38,286			25,423			(19,651	)		58,959
		16,193			363,949			11,981			(3,017	)		389,106
Total assets	$	1,436,940		$	2,162,128		$	108,118		$	(1,139,413	)	$	2,567,773
(Loss) income from continuing operations before income taxes		(16,193	)		59,636			(342	)		1,723			44,824
Current liabilities:
(Benefit from) provision for income taxes		(6,201	)		22,836			(131	)		660			17,164
Accounts payable	$	—		$	39,868		$	1,257		$	(68	)	$	41,057
(Loss) income from continuing operations		(9,992	)		36,800			(211	)		1,063			27,660
Salaries and benefits payable		—			98,122			1,979			—			100,101
(Loss) income from discontinued operations, net of tax		—			(460	)		321			—			(139	)
Other accrued liabilities		29,368			43,637			8,764			(7,465	)		74,304
Net (loss) income		(9,992	)		36,340			110			1,063			27,521
Current portion of long-term debt		4,278			—			464			—			4,742
Less: Net income attributable to noncontrolling interests		—			—			—			(139	)		(139	)
Total current liabilities		33,646			181,627			12,464			(7,533	)		220,204
Net (loss) income attributable to PSI stockholders	$	(9,992	)	$	36,340		$	110		$	924		$	27,382
Long-term debt, less current portion		1,093,460			—			32,165			—			1,125,625
Deferred tax liability		—			82,260			—			—			82,260
Other liabilities		4,146			(771	)		37,333			(7,776	)		32,932
Total liabilities		1,131,252			263,116			81,962			(15,309	)		1,461,021
Redeemable noncontrolling interests		—			—			—			4,336			4,336
Total stockholders’ equity		305,688			1,899,012			26,156			(1,128,440	)		1,102,416
Total liabilities and stockholders’ equity	$	1,436,940		$	2,162,128		$	108,118		$	(1,139,413	)	$	2,567,773

Condensed Consolidating Balance Sheet
As of December 31, 2009
(Dollars in thousands)


			Combined									Total
			Subsidiary			Combined Non-			Consolidating			Consolidated
	Parent		Guarantors			Guarantors			Adjustments			Amounts
Current assets:
Cash and cash equivalents	$	—	$	2,111		$	4,704		$	—		$	6,815
Accounts receivable, net		—		241,211			8,296			(68	)		249,439
Other current assets		—		90,259			16,284			(1,377	)		105,166

Total current assets		—		333,581			29,284			(1,445	)		361,420
Property and equipment, net of accumulated depreciation		—		879,453			61,491			(9,214	)		931,730
Cost in excess of net assets acquired		—		1,153,111			—			—			1,153,111
Investment in subsidiaries		1,486,852		(368,332	)		(16,964	)		(1,101,556	)		—
Other assets		17,536		37,420			25,372			(19,349	)		60,979

Total assets	$	1,504,388	$	2,035,233		$	99,183		$	(1,131,564	)	$	2,507,240


Current liabilities:
Accounts payable	$	—	$	34,467		$	998		$	(68	)	$	35,397
Salaries and benefits payable		—		80,255			874			—			81,129
Other accrued liabilities		28,901		32,783			1,610			(1,258	)		62,036
Current portion of long-term debt		4,490		—			450			—			4,940

Total current liabilities		33,391		147,505			3,932			(1,326	)		183,502
Long-term debt, less current portion		1,149,738		—			32,401			—			1,182,139
Deferred tax liability		—		81,137			—			—			81,137
Other liabilities		127		(6,324	)		36,069			(4,082	)		25,790

Total liabilities		1,183,256		222,318			72,402			(5,408	)		1,472,568
Redeemable noncontrolling interests		—		—			—			4,337			4,337
Total stockholders’ equity		321,132		1,812,915			26,781			(1,130,493	)		1,030,335

Total liabilities and stockholders’ equity	$	1,504,388	$	2,035,233		$	99,183		$	(1,131,564	)	$	2,507,240

PSYCHIATRIC SOLUTIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ~~MARCH~~JUNE 3130, 2010

Condensed Consolidating Statement of ~~Cash Flows~~Income For the Three Months Ended ~~March~~June 3130, 2010 (Dollars in thousands)

				Combined									Total
				Subsidiary			Combined Non-			Consolidating			~~Total~~ Consolidated
	Parent			Guarantors			Guarantors			Adjustments			Amounts
Operating activities:
Revenue	$	—		$	491,486		$	15,328		$	(4,120	)	$	502,694
Net (loss) income	$	(9,891	)	$	37,375		$	10		$	751		$	28,245
Salaries, wages and employee benefits		—			256,559			6,739			—			263,298
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Professional fees		—			49,371			1,737			(390	)		50,718
Depreciation and amortization		—			11,850			617			(77	)		12,390
Supplies		—			23,666			638			—			24,304
Amortization of loan costs and bond premium		1,553			—			11			—			1,564
Rentals and leases		—			5,855			148			(1,160	)		4,843
Share-based compensation		—			3,510			—			—			3,510
Other operating expenses		—			55,325			5,684			(4,693	)		56,316
Change in income tax assets and liabilities		—			10,824			—			—			10,824
Provision for doubtful accounts		—			9,856			248			—			10,104
Loss (income) from discontinued operations, net of taxes		—			3,496			—			—			3,496
Depreciation and amortization		—			12,288			668			(77	)		12,879
Changes in operating assets and liabilities, net of effect of acquisitions:
Interest expense		16,055			—			498			—			16,553
Accounts receivable		—			(13,222	)		(1,213	)		—			(14,435	)
		16,055			412,920			16,360			(6,320	)		439,015
Other current assets		—			(2,623	)		3,516			—			893
(Loss) income from continuing operations before income taxes		(16,055	)		78,566			(1,032	)		2,200			63,679
Accounts payable		—			(761	)		379			—			(382	)
(Benefit from) provision for income taxes		(6,205	)		30,366			(399	)		850			24,612
Salaries and benefits payable		—			12,411			545			—			12,956
(Loss) income from continuing operations		(9,850	)		48,200			(633	)		1,350			39,067
Accrued liabilities and other liabilities		—			(587	)		(2,390	)		—			(2,977	)
(Loss) income from discontinued operations, net of tax		—			(3,929	)		—			—			(3,929	)
Net cash (used in) provided by continuing operating activities		(8,338	)		62,273			1,475			674			56,084
Net (loss) income		(9,850	)		44,271			(633	)		1,350			35,138
Net cash used in discontinued operating activities		—			(89	)		—			—			(89	)
Less: Net income attributable to noncontrolling interests		—			—			—			(18	)		(18	)
Net cash (used in) provided by operating activities		(8,338	)		62,184			1,475			674			55,995
Net (loss) income attributable to PSI stockholders	$	(9,850	)	$	44,271		$	(633	)	$	1,332		$	35,120
Investing activities:
Capital purchases of leasehold improvements, equipment and software		—			(29,279	)		(274	)		—			(29,553	)
Other assets		—			156			(55	)		—			101
Net cash used in continuing investing activities		—			(29,123	)		(329	)		—			(29,452	)
Net cash used in discontinued investing activities		—			(12	)		—			—			(12	)
Net cash used in investing activities		—			(29,135	)		(329	)		—			(29,464	)
Financing activities:
Principal payments on long-term debt		(1,212	)		—			(110	)		—			(1,322	)
Payment of loan and issuance costs		(6	)		—			—			—			(6	)
Distributions to noncontrolling interests					—			(43	)		—			(43	)
Repurchase of common stock upon restricted stock vesting		(490	)		—			—			—			(490	)
Net transfers to and from members		8,886			(8,428	)		43			(501	)		—
Proceeds from exercises of common stock options		1,160			—			—			—			1,160
Net cash provided by (used in) financing activities		8,338			(8,428	)		(110	)		(501	)		(701	)
Net increase in cash and cash equivalents		—			24,621			1,036			173			25,830
Cash and cash equivalents at beginning of the period		—			2,111			4,704			—			6,815
Cash and cash equivalents at end of the period	$	—		$	26,732		$	5,740		$	173		$	32,645

Condensed Consolidating Statement of Income
For the Three Months Ended June 30, 2009
(Dollars in thousands)


				Combined								Total
				Subsidiary			Combined Non-		Consolidating			Consolidated
	Parent			Guarantors			Guarantors		Adjustments			Amounts
Revenue	$	—		$	444,807		$	13,417	$	(2,937	)	$	455,287
Salaries, wages and employee benefits		—			243,565			6,339		—			249,904
Professional fees		—			41,345			2,700		(1,683	)		42,362
Supplies		—			22,892			600		—			23,492
Rentals and leases		—			6,069			24		(1,044	)		5,049
Other operating expenses		—			39,936			2,460		(1,575	)		40,821
Provision for doubtful accounts		—			8,104			186		—			8,290
Depreciation and amortization		—			10,451			541		(77	)		10,915
Interest expense		17,672			—			432		(1	)		18,103

		17,672			372,362			13,282		(4,380	)		398,936
(Loss) income from continuing operations before income taxes		(17,672	)		72,445			135		1,443			56,351
(Benefit from) provision for income taxes		(6,763	)		27,724			52		552			21,565

(Loss) income from continuing operations		(10,909	)		44,721			83		891			34,786
(Loss) income from discontinued operations, net of tax		—			(407	)		235		—			(172	)

Net (loss) income		(10,909	)		44,314			318		891			34,614
Less: Net income attributable to noncontrolling interests		—			—			—		(206	)		(206	)

Net (loss) income attributable to PSI stockholders	$	(10,909	)	$	44,314		$	318	$	685		$	34,408

PSYCHIATRIC SOLUTIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ~~MARCH~~JUNE 3130, 2010

Condensed Consolidating Statement of ~~Cash Flows~~Income For the ~~Three~~Six Months Ended ~~March~~June 3130, ~~2009~~2010 (Dollars in thousands)

				Combined									Total
				Subsidiary			Combined Non-			Consolidating			~~Total~~ Consolidated
	Parent			Guarantors			Guarantors			Adjustments			Amounts
Operating activities:
Revenue	$	—		$	956,341		$	27,871		$	(5,562	)	$	978,650
Net (loss) income	$	(9,992	)	$	36,340		$	110		$	1,063		$	27,521
Salaries, wages and employee benefits		—			509,654			13,119			—			522,773
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Professional fees		—			93,154			3,471			(979	)		95,646
Depreciation and amortization		—			10,090			540			(77	)		10,553
Supplies		—			46,676			1,306			—			47,982
Amortization of loan costs and bond premium		704			—			11			—			715
Rentals and leases		—			11,768			294			(2,384	)		9,678
Share-based compensation		—			4,819			—			—			4,819
Other operating expenses		—			104,998			7,676			(5,463	)		107,211
Change in income tax assets and liabilities		—			15,908			—			—			15,908
Provision for doubtful accounts		—			21,171			766			—			21,937
Loss (income) from discontinued operations, net of taxes		—			460			(321	)		—			139
Depreciation and amortization		—			24,139			1,285			(155	)		25,269
Changes in operating assets and liabilities, net of effect of acquisitions:
Interest expense		32,081			—			970			—			33,051
Accounts receivable		—			(9,016	)		(760	)		—			(9,776	)
		32,081			811,560			28,887			(8,981	)		863,547
Other current assets		—			2,319			(23	)		—			2,296
(Loss) income from continuing operations before income taxes		(32,081	)		144,781			(1,016	)		3,419			115,103
Accounts payable		—			(2,923	)		101			—			(2,822	)
(Benefit from) provision for income taxes		(12,346	)		55,716			(391	)		1,316			44,295
Salaries and benefits payable		—			(3,190	)		(201	)		—			(3,391	)
(Loss) income from continuing operations		(19,735	)		89,065			(625	)		2,103			70,808
Accrued liabilities and other liabilities		—			(5,551	)		(1,012	)		—			(6,563	)
(Loss) income from discontinued operations, net of tax		—			(7,425	)		—			—			(7,425	)
Net cash (used in) provided by continuing operating activities		(9,288	)		49,256			(1,555	)		986			39,399
Net (loss) income		(19,735	)		81,640			(625	)		2,103			63,383
Net cash provided by discontinued operating activities		—			54			727			—			781
Less: Net income attributable to noncontrolling interests		—			—			—			(50	)		(50	)
Net cash (used in) provided by operating activities		(9,288	)		49,310			(828	)		986			40,180
Net (loss) income attributable to PSI stockholders	$	(19,735	)	$	81,640		$	(625	)	$	2,053		$	63,333
Investing activities:
Capital purchases of leasehold improvements,
equipment and software		—			(24,368	)		—			—			(24,368	)
Other assets		—			2,370			(2,528	)		—			(158	)
Net cash used in continuing investing activities		—			(21,998	)		(2,528	)		—			(24,526	)
Net cash used in discontinued investing activities		—			(321	)		—			—			(321	)
Net cash used in investing activities		—			(22,319	)		(2,528	)		—			(24,847	)
Financing activities:
Net increase in revolving credit facility, less acquisitions		(39,333	)		—			—			—			(39,333	)
Principal payments on long-term debt		(1,169	)		—			(103	)		—			(1,272	)
Payment of loan and issuance costs		(5,363	)		—			—			—			(5,363	)
Repurchase of common stock upon restricted stock vesting		(953	)		—			—			—			(953	)
Net transfers to and from members		55,764			(54,372	)		(406	)		(986	)		—
Proceeds from exercises of common stock options		342			—			—			—			342
Net cash provided by (used in) financing activities		9,288			(54,372	)		(509	)		(986	)		(46,579	)
Net decrease in cash and cash equivalents		—			(27,381	)		(3,865	)		—			(31,246	)
Cash and cash equivalents at beginning of the period		—			39,881			11,390			—			51,271
Cash and cash equivalents at end of the period	$	—		$	12,500		$	7,525		$	—		$	20,025

~~11.~~Condensed ~~Recent~~Consolidating ~~Accounting~~Statement ~~Pronouncements~~of Income For the Six Months Ended June 30, 2009 (Dollars in thousands)

In February 2010, the Financial Accounting Standards Board amended guidance codified in Accounting Standards Codification 855, Subsequent Events, to remove the requirement for SEC filers to disclose the date through which an entity has evaluated subsequent events. We adopted this guidance in the quarter ended March 31, 2010.


				Combined									Total
				Subsidiary			Combined Non-			Consolidating			Consolidated
	Parent			Guarantors			Guarantors			Adjustments			Amounts
Revenue	$	—		$	868,392		$	25,056		$	(4,231	)	$	889,217
Salaries, wages and employee benefits		—			481,391			12,799			—			494,190
Professional fees		—			80,469			4,786			(2,963	)		82,292
Supplies		—			45,239			1,173			—			46,412
Rentals and leases		—			12,198			48			(2,117	)		10,129
Other operating expenses		—			80,171			4,078			(2,162	)		82,087
Provision for doubtful accounts		—			16,303			449			—			16,752
Depreciation and amortization		—			20,542			1,081			(155	)		21,468
Interest expense		33,864			—			849			(1	)		34,712

		33,864			736,313			25,263			(7,398	)		788,042
(Loss) income from continuing operations before income taxes		(33,864	)		132,079			(207	)		3,167			101,175
(Benefit from) provision for income taxes		(12,963	)		50,559			(79	)		1,212			38,729

(Loss) income from continuing operations		(20,901	)		81,520			(128	)		1,955			62,446
(Loss) income from discontinued operations, net of tax		—			(867	)		556			—			(311	)

Net (loss) income		(20,901	)		80,653			428			1,955			62,135
Less: Net income attributable to noncontrolling interests		—			—			—			(345	)		(345	)

Net (loss) income attributable to PSI stockholders	$	(20,901	)	$	80,653		$	428		$	1,610		$	61,790

12. Contingencies and Other

We are, from time to time, subject to various claims and legal actions that arise in the ordinary course of our business, including claims for damages for personal injuries, medical malpractice, breach of contract, business tort and employment related claims. In these actions, plaintiffs request a variety of damages, including, in some instances, punitive and other types of damages that may not be covered by insurance.

PSYCHIATRIC SOLUTIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ~~MARCH~~JUNE 3130, 2010

~~A stockholder~~Condensed ~~lawsuit~~Consolidating ~~and~~Statement ~~a stockholder derivative lawsuit alleging violations~~ of ~~federal~~Cash ~~securities laws were filed in 2009 against us and~~Flows ~~certain~~ For ~~of our executives. We believe that~~ the ~~lawsuits~~Six ~~are~~Months ~~without~~Ended ~~merit~~June 30, ~~and~~2010 (Dollars ~~are~~in ~~defending them vigorously.~~thousands)

During the first quarter of 2010, we received a subpoena from the United States Department of Justice (the “DOJ”) seeking various documents relating to compensation, stock sales, option awards and option exercises for certain senior level executives and a subpoena from the DOJ seeking various other stock related documents including, but not limited to, communications with investment firms and investors. We have been cooperating, and will continue to cooperate, with the DOJ in connection with these inquiries. The outcome of the DOJ’s inquiries is uncertain, and adverse developments or outcomes can result in adverse publicity, significant expenses, monetary damages, penalties or injunctive relief.


				Combined									Total
				Subsidiary			Combined Non-			Consolidating			Consolidated
	Parent			Guarantors			Guarantors			Adjustments			Amounts
Operating activities:
Net (loss) income	$	(19,735	)	$	81,640		$	(625	)	$	2,103		$	63,383
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization		—			24,139			1,285			(155	)		25,269
Amortization of loan costs and bond premium		3,114			—			22			—			3,136
Share-based compensation		—			7,792			—			—			7,792
Change in income tax assets and liabilities		—			15,849			—			—			15,849
Loss from discontinued operations, net of taxes		—			7,425			—			—			7,425
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable		—			(4,493	)		(480	)		—			(4,973	)
Other current assets		—			(7,171	)		8,351			—			1,180
Accounts payable		—			7,327			259			—			7,586
Salaries and benefits payable		—			17,867			1,105			—			18,972
Accrued liabilities and other liabilities		—			1,124			8,418			—			9,542

Net cash (used in) provided by continuing operating activities		(16,621	)		151,499			18,335			1,948			155,161
Net cash provided by discontinued operating activities		—			1,656			—			—			1,656

Net cash (used in) provided by operating activities		(16,621	)		153,155			18,335			1,948			156,817
Investing activities:
Capital purchases of leasehold improvements, equipment and software		—			(55,906	)		(1,699	)		—			(57,605	)
Other assets		—			2,024			(2,136	)		—			(112	)

Net cash used in continuing investing activities		—			(53,882	)		(3,835	)		—			(57,717	)
Net cash used in discontinued investing activities		—			(12	)		—			—			(12	)

Net cash used in investing activities		—			(53,894	)		(3,835	)		—			(57,729	)
Financing activities:
Principal payments on long-term debt		(57,777	)		—			(222	)		—			(57,999	)
Payment of loan and issuance costs		(22	)		—			—			—			(22	)
Distributions to noncontrolling interests		(51	)		—			—			—			(51	)
Repurchase of common stock upon restricted stock vesting		(490	)		—			—			—			(490	)
Net transfers to and from members		72,604			(71,584	)		928			(1,948	)		—
Proceeds from exercises of common stock options		2,357			—			—			—			2,357

Net cash provided by (used in) financing activities		16,621			(71,584	)		706			(1,948	)		(56,205	)

Net increase in cash and cash equivalents		—			27,677			15,206			—			42,883
Cash and cash equivalents at beginning of the period		—			2,111			4,704			—			6,815

Cash and cash equivalents at end of the period	$	—		$	29,788		$	19,910		$	—		$	49,698

In the opinion of management, we are not currently a party to any proceeding that would have a material adverse effect on our business, financial condition or results of operations.

As previously announced, a special committee of our Board of Directors was formed in response to approaches we received from third parties regarding a potential sale of Psychiatric Solutions, Inc. The special committee has retained Goldman, Sachs & Co. and Shearman & Sterling LLP as its financial and legal advisors and is considering possible responses. There can be no assurance that a sale of Psychiatric Solutions, Inc. will take place. We do not expect to make further public comments regarding these matters unless and until we enter into an agreement with respect to a sale or it is determined that a sale will not be pursued.

The reserve for professional and general liability was $24.0 million and 19.0 million as of March 31, 2010 and December 31, 2009, respectively, which is primarily due to new and existing claim developments in 2010.

PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2010

Condensed Consolidating Statement of Cash Flows
For the Six Months Ended June 30, 2009
(Dollars in thousands)


				Combined									Total
				Subsidiary			Combined Non-			Consolidating			Consolidated
	Parent			Guarantors			Guarantors			Adjustments			Amounts
Operating activities:
Net (loss) income	$	(20,901	)	$	80,653		$	428		$	1,955		$	62,135
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization		—			20,542			1,081			(155	)		21,468
Amortization of loan costs and bond premium		2,012			—			22			—			2,034
Share-based compensation		—			9,276			—			—			9,276
Change in income tax assets and liabilities		—			21,579			—			—			21,579
Loss (income) from discontinued operations, net of taxes		—			867			(556	)		—			311
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable		—			(1,703	)		(422	)		—			(2,125	)
Other current assets		—			2,865			(2,318	)		—			547
Accounts payable		—			(2,903	)		257			—			(2,646	)
Salaries and benefits payable		—			2,613			235			—			2,848
Accrued liabilities and other liabilities		—			(1,278	)		3,959			—			2,681

Net cash (used in) provided by continuing operating activities		(18,889	)		132,511			2,686			1,800			118,108
Net cash provided by discontinued operating activities		—			142			—			—			142

Net cash (used in) provided by operating activities		(18,889	)		132,653			2,686			1,800			118,250
Investing activities:
Cash paid for real estate acquisitions		—			(18,996	)		—			—			(18,996	)
Capital purchases of leasehold improvements, equipment and software		—			(62,428	)		287			—			(62,141	)
Other assets		—			4,189			(3,759	)		—			430

Net cash used in continuing investing activities		—			(77,235	)		(3,472	)		—			(80,707	)
Net cash used in discontinued investing activities		—			(499	)		—			—			(499	)

Net cash used in investing activities		—			(77,734	)		(3,472	)		—			(81,206	)
Financing activities:
Net increase in revolving credit facility, less acquisitions		(169,333	)		—			—			—			(169,333	)
Principal payments on long-term debt		106,708			—			(208	)		—			106,500
Payment of loan and issuance costs		(2,553	)		—			—			—			(2,553	)
Repurchase of common stock upon restricted stock vesting		(8,110	)		—			—			—			(8,110	)
Net transfers to and from members		91,787			(91,507	)		567			(1,800	)		(953	)
Proceeds from exercises of common stock options		390			—			—			—			390

Net cash provided by (used in) financing activities		18,889			(91,507	)		359			(1,800	)		(74,059	)

Net decrease in cash and cash equivalents		—			(36,588	)		(427	)		—			(37,015	)
Cash and cash equivalents at beginning of the period		—			39,881			11,390			—			51,271

Cash and cash equivalents at end of the period	$	—		$	3,293		$	10,963		$	—		$	14,256

11. Contingencies and Other

Litigation Related to the Merger

Seven putative class action complaints were filed on behalf of alleged public stockholders of the Company. Two of the lawsuits, Carpenters Pension Fund of West Virginia v. Psychiatric Solutions, Inc., et al., Case No. 38359, and Pedric v. Psychiatric Solutions, Inc., et al., Case No. 38391, were filed in the Chancery Court for Williamson County, Tennessee. One of the lawsuits, Smith v. Psychiatric Solutions, Inc., et al., Case No. 10-862-II, was filed in the Chancery Court for Davidson County, Tennessee. The Smith case was transferred to Williamson County. Another three lawsuits, Oklahoma Police Pension and Retirement System v. Jacobs, et al., Case No. CA 5514, City of Miami Police Relief and Pension Fund v. Jacobs, et al., Case No. 5515, and Plumbers & Pipefitters, Local 152 Pension Fund v. Psychiatric Solutions, Inc., et al., Case No. 5532, were filed in the Court of Chancery for the State of Delaware. A seventh lawsuit, Rosinek v. Psychiatric Solutions, Inc., et al., Case No. 3:10-cv-00534, was filed in the United States District Court for the Middle District of Tennessee. The defendants generally include us, members of our board of directors and, in certain of the

PSYCHIATRIC SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2010

cases, our officers. UHS and/or its affiliates are named as defendants in some of the lawsuits. The lawsuits allege, among other things, that our directors breached their fiduciary duties in connection with the proposed Merger by failing to maximize stockholder value. The lawsuits also allege that our directors have put their personal interests ahead of those of our stockholders, including by approving the Merger to extinguish any personal liability they could suffer from previously asserted derivative claims related to, among other things, violations of fiduciary duties and federal securities laws and also by negotiating a Merger Agreement that includes broad director and officer insurance and indemnification provisions protecting them against civil and criminal claims for six years from the date of the Merger Agreement. Certain of the lawsuits allege that various individual defendants will receive improper change of control payments and Merger Consideration in connection with equity awards that plaintiffs contend were improper. Certain of the lawsuits also allege that we and UHS aided and abetted the various breaches of fiduciary duty. Certain of the lawsuits also allege that various individual defendants caused us to issue a proxy statement containing materially false and misleading statements and omissions in connection with our 2010 annual stockholder meeting. Among other things, the lawsuits seek to enjoin us and our directors from consummating the Merger and also seek rescission of the allegedly improper equity awards. The three Delaware cases were consolidated and set for trial beginning on August 5, 2010. The three Tennessee state court cases were consolidated in Williamson County, and then stayed in favor of the consolidated Delaware action by agreed order of the Williamson County court

After substantially completing fact discovery in the consolidated Delaware action, without admitting liability on the part of any of the defendants, the parties to the consolidated Delaware action and the consolidated Tennessee state court action have agreed in principle to terms of settlement as follows: (1) requiring additional disclosures in the proxy statement to be delivered to stockholders in connection with the Special Meeting called to vote on the Merger regarding, among other things, the background of and negotiations relating to the Merger, the Executive Performance Incentive Plan, the amendment to our 2009 Long-Term Equity Compensation Plan and adoption of the 2010 Long-Term Equity Compensation Plan, the circumstances surrounding our compensation committee’s approval of equity and restricted stock grants in February 2010, and the financial disclosures relating to the transaction, including the discounted cash flow and other analyses performed by Goldman Sachs & Co.; (2) allowing our stockholders to revote on the proposal to amend the Psychiatric Solutions, Inc. Equity Incentive Plan (the “Equity Incentive Plan”) to increase the number of shares of Common Stock subject to grant under the Equity Incentive Plan by 900,000 and to restrict the repricing of options, which was approved by our stockholders at our annual meeting of stockholders in May 2010; (3) requiring the release by the class of stockholders entitled to vote on the Merger of any and all claims that have been or could have been made against any of the defendants relating to the Merger, the disclosures made by or on behalf of us through and including consummation of the Merger, and the compensation received by any defendant through and including the consummation of the Merger; and (4) requiring us to pay plaintiffs’ reasonable attorneys’ fees and expenses in the amounts ordered by the courts. The settlements in those actions are subject to court approval, which has not yet been obtained. The settlement will not affect the form or amount of the consideration to be received by our stockholders in the Merger. The defendants have denied and continue to deny any wrongdoing or liability with respect to all claims, events, and transactions complained of in the aforementioned lawsuits or that they have engaged in any wrongdoing. The defendants have entered into the settlement to eliminate the uncertainty, burden, risk, expense and distraction of further litigation.

The Rosinek case remains pending in the United States District Court in Tennessee, but a motion has been filed asking the court to stay that proceeding in favor of the consolidated Delaware action. We believe that the claims asserted in the Rosinek case are without merit and intend to defend the suit vigorously.

Other Litigation

In the opinion of management, we are not currently a party to any proceeding that would have a material adverse effect on our business, financial condition or results of operations.

The reserve for professional and general liability was $25.7 million and $19.0 million as of June 30, 2010 and December 31, 2009, respectively, which is primarily due to new and existing claim developments in 2010.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

This Quarterly Report on Form 10-Q and other materials we have filed or may file with the Securities and Exchange Commission (the “SEC”), as well as information included in oral statements or other written statements made, or to be made, by our senior management, contain, or will contain, disclosures that are forward-looking statements. Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as “may,” “will,” “expect,” “believe,” “intend,” “plan,” “estimate,” “project,” “continue,” “should” and other comparable terms. These forward-looking statements are based on the current plans and expectations of management and are subject to a number of known and unknown risks, uncertainties and other factors, including those set forth below, which could significantly affect our current plans and expectations and future financial condition and results.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Stockholders and investors are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in our filings and reports.

While it is not possible to identify all these factors, we continue to face many risks and uncertainties that could cause actual results to differ from those forward-looking statements, including:

• ~~risks inherent to~~ the ~~health~~occurrence ~~care~~of ~~industry~~any event, ~~including~~change ~~the~~or ~~impact~~other ofcircumstances ~~unforeseen~~that ~~changes~~could ingive ~~regulation~~rise ~~and~~to the ~~potential~~termination ~~adverse impact~~ of ~~government~~the ~~investigations,~~Merger ~~liabilities~~Agreement; ~~and~~• ~~other~~the ~~claims~~outcome ~~asserted~~of ~~against~~any ~~us;~~legal •proceedings ~~uncertainty~~that ashave tobeen ~~changes~~or inmay ~~U.S.~~be ~~general~~instituted ~~economic~~against ~~activity~~us and ~~the~~others ~~impact~~relating ofto ~~these~~the ~~changes~~Merger onAgreement ~~our~~or ~~business~~other matters; • ~~economic~~the ~~downturn~~inability ~~resulting~~to incomplete ~~efforts~~the byMerger ~~federal~~due ~~and~~to ~~state~~the ~~health~~failure ~~care~~to ~~programs~~obtain ~~and~~stockholder ~~managed~~approval ~~care~~or ~~companies~~the failure to ~~reduce~~satisfy ~~reimbursement~~other ~~rates~~conditions ~~for~~to ~~our~~consummation ~~services;~~of •the ~~implementation~~merger, ~~and~~including ~~effect~~the expiration or termination of ~~newly-adopted~~any ~~federal~~waiting ~~health~~period ~~care~~applicable ~~legislation~~to ~~and~~the ~~potential~~consummation ~~state~~of ~~health~~the ~~care~~Merger ~~legislation;~~under •the ~~potential~~Hart-Scott-Rodino ~~competition~~Antitrust ~~that~~Improvements ~~alters~~Act orof ~~impedes~~1976, ~~our~~as ~~acquisition~~amended; ~~strategy~~• bythe ~~decreasing~~failure ~~our~~of ~~ability~~UHS to ~~acquire~~obtain ~~additional~~the ~~inpatient~~necessary ~~facilities~~debt onfinancing ~~favorable~~to ~~terms~~consummate the Merger; • ~~our~~the ~~ability~~failure toof ~~comply~~the ~~with~~Merger ~~applicable~~to ~~licensure~~close ~~and~~for ~~accreditation~~any ~~requirements~~other reason; • ~~our~~risks ~~ability~~that tothe ~~comply~~proposed ~~with~~Merger ~~extensive~~disrupts ~~laws~~current plans and ~~government~~operations ~~regulations~~and ~~related~~the topotential ~~billing,~~difficulties ~~physician~~in ~~relationships,~~employee ~~adequacy~~retention ofas ~~medical~~a ~~care~~result ~~and~~of ~~licensure~~the Merger; • ~~our~~the ~~ability~~effect toof ~~retain~~the ~~key~~pending ~~employees~~Merger ~~who~~on ~~are instrumental to~~ our ~~operations;~~physician •and ~~our~~patient ~~ability~~relationships, tooperating ~~successfully~~results ~~integrate~~ and ~~improve~~business generally; • the ~~operations~~amount of ~~acquired~~the ~~inpatient~~costs, ~~facilities;~~fees, •expenses ~~our~~and ~~ability~~charges related to ~~maintain~~the ~~effective~~Merger ~~internal~~and ~~controls~~the inactual ~~accordance~~terms ~~with Section 404~~ of the ~~Sarbanes-Oxley~~debt ~~Act;~~financing •that ~~our~~will ~~substantial~~be ~~indebtedness~~obtained ~~and~~for ~~adverse~~the ~~changes~~Merger; in• ~~credit~~the ~~markets~~Merger ~~impacting~~Agreement restricts our ability to ~~receive~~take ~~timely~~certain ~~additional~~actions ~~financing~~without onUHS’ ~~terms~~approval, ~~acceptable~~including tomaking usacquisitions, todispositions, ~~fund~~investments ~~our~~or ~~acquisition~~capital ~~strategy~~expenditures and ~~capital~~entering ~~expenditure~~into ~~needs~~or amending material contracts; • ~~our~~risks ~~ability~~inherent to ~~maintain~~the ~~favorable~~health ~~and~~care ~~continuing~~industry, ~~relationships~~including ~~with~~the ~~physicians~~impact ~~and~~of ~~other~~unforeseen ~~health~~changes ~~care~~in ~~professionals~~regulation ~~who~~and ~~use~~the ~~our~~potential ~~inpatient~~adverse ~~facilities;~~impact •of ~~our~~government ~~ability~~investigations, toliabilities ~~ensure~~and ~~confidential~~other ~~information~~claims isasserted ~~not~~against ~~inappropriately~~us; ~~disclosed~~• ~~and~~uncertainty ~~that~~as weto ~~are~~changes in ~~compliance~~U.S. ~~with~~general ~~federal~~economic activity and ~~state~~the ~~health~~impact ~~information~~of ~~privacy~~these ~~standards~~changes on our business; • ~~our~~economic ~~ability~~downturn toresulting ~~comply~~in ~~with~~efforts by federal and state ~~governmental regulation covering~~ health care~~-related~~ ~~products~~programs and ~~services~~managed ~~on-line,~~care ~~including~~companies ~~the~~to ~~regulation~~reduce ofreimbursement ~~medical~~rates ~~devices~~for ~~and~~our ~~the~~services; ~~practice~~• ofimplementation ~~medicine~~ and ~~pharmacology;~~effect •of ~~our~~newly-adopted ~~ability~~federal tohealth ~~obtain~~care ~~adequate~~legislation ~~levels~~and ofpotential ~~general~~state ~~and~~health ~~professional~~care ~~liability insurance~~legislation; • ~~future~~our ~~trends~~ability ~~for~~to ~~pricing,~~comply ~~margins,~~with ~~revenue~~applicable licensure and ~~profitability~~accreditation ~~that~~requirements; ~~remain~~• ~~difficult~~our ability to ~~predict~~comply inwith ~~the~~extensive ~~industries~~laws ~~that~~and wegovernment ~~serve;~~regulations •related ~~risks~~to ~~that~~billing, ~~speculation~~physician ~~about~~relationships, aadequacy ~~proposed~~of ~~transaction~~medical ~~disrupts~~care ~~current plans~~ and ~~operations~~licensure; ~~and~~• ~~the~~our ~~potential~~ability ~~difficulties~~to insuccessfully ~~employee~~integrate ~~retention~~and asimprove athe ~~result~~operations of ~~such~~acquired ~~speculation~~inpatient facilities; • ~~fluctuations in the market value of~~ our ~~common~~ability ~~stock,~~to ~~including~~maintain ~~fluctuations~~effective ~~resulting~~internal ~~from~~controls ~~announcements~~in byaccordance uswith orSection ~~our~~404 ~~competitors~~ of ~~significant~~the ~~contracts~~Sarbanes-Oxley ~~or acquisitions or other corporate events~~Act; • ~~negative~~potential ~~press~~competition ~~coverage~~that ofalters us or impedes our ~~industry~~acquisition ~~that~~strategy ~~may~~by ~~affect~~decreasing ~~public~~our ~~opinion;~~ability ~~and • those risks and uncertainties described from time~~ to ~~time~~acquire inadditional ~~our~~inpatient ~~filings~~facilities ~~with~~on ~~the~~favorable ~~SEC.~~terms;

1517

	•		our substantial indebtedness and adverse changes in credit markets impacting our ability to receive timely additional financing on terms acceptable to us to fund our acquisition strategy and capital expenditure needs;

	•		our ability to maintain favorable and continuing relationships with physicians and other health care professionals who use our inpatient facilities;

	•		our ability to ensure confidential information is not inappropriately disclosed and that we are in compliance with federal and state health information privacy standards;

	•		our ability to comply with federal and state governmental regulation covering health care-related products and services on-line, including the regulation of medical devices and the practice of medicine and pharmacology;

	•		our ability to obtain adequate levels of general and professional liability insurance;

	•		future trends for pricing, margins, revenue and profitability that remain difficult to predict in the industries that we serve;

	•		fluctuations in the market value of our common stock, including fluctuations resulting from announcements by us of significant corporate events;

	•		negative press coverage of us or our industry that may affect public opinion; and

	•		those risks and uncertainties described from time to time in our filings with the SEC.

We caution you that the factors listed above, as well as the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2009, may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time to time. We cannot predict such new risk factors nor can we assess the impact, if any, of such new risk factors on our businesses or the extent to which any factor or combination of factors may cause actual results to differ materially from those expressed or implied by any forward-looking statements.

Overview

Our business strategy is to acquire inpatient behavioral health care facilities and improve operating results within our inpatient facilities and our other behavioral health care operations. From 2001 to 2006, we acquired 74 inpatient behavioral health care facilities. During 2007, we acquired 16 inpatient behavioral health care facilities, including 15 inpatient facilities in the acquisition of Horizon Health Corporation. During 2008, we acquired five inpatient behavioral health care facilities from United Medical Corporation and opened Lincoln Prairie Behavioral Health Center, an 80-bed inpatient facility in Springfield, Illinois. During 2009, we opened Rolling Hills Hospital, an 80-bed inpatient facility in Franklin, Tennessee, acquired two inpatient behavioral health care facilities, and completed the sale of our EAP business.

We strive to improve the operating results of our inpatient behavioral health care operations by providing the highest quality service, expanding referral networks and marketing initiatives and meeting increased demand for behavioral health care services by expanding our services and developing new services. We also attempt to improve operating results by maintaining appropriate staffing ratios, controlling contract labor costs and reducing supply costs through group purchasing.

Income from continuing operations before income taxes increased to $5163.47 million and $115.1 million, or 1012.7% and 11.8% of revenue, for the three and six months ended ~~March~~June 3130, 2010, respectively, compared to $4456.84 million and $101.2 million, or 1012.3% and 11.3% of revenue, for the same ~~period~~periods of 2009, respectively, primarily as a result of a 10.2% and 9.69% increase in revenue from owned and leased inpatient facilities, respectively. Our same-facility revenue from owned and leased inpatient facilities increased 7.07% and 7.4% for the three and six months ended ~~March~~June 30, 312010, ~~2010~~respectively, compared to the same ~~period~~periods in 2009, primarily as a result of increases in patient days of 4.2% and 5.0% and revenue per patient day of 53.93% and 1 2.02%, respectively. The increase in revenue per patient day was positively impacted by approximately $12.1 million received by our Mississippi facilities in the second quarter of 2010 from the Medicare/Medicaid Upper Payment Limits (“UPL”) Program for the twelve months ended June 30, 2010. The additional UPL Program revenue was partially offset by additional taxes of approximately $7.0 million paid under the Mississippi Hospital Assessment Program in the second quarter of 2010. Same-facility operating margins improved for the three and six months ended June 30, 2010 compared to the same periods of 2009, primarily due to the increase in revenue and a decrease in salaries, wages and employee ~~benefits~~ benefits expense as a percent of revenue to 5250.7% and 51.7% from 5453.30% and 53.6%, ~~partially~~respectively, partially offset by $6.4 million of transaction fees incurred as a result of the proposed Merger and an increase in other operating expenses as a percent of revenue to 9.2% and 8.79% from 7.5% 8and 7.29%, respectively. Same-facility growth refers to the comparison of each inpatient facility owned during 2009 with the comparable period in 2010, adjusted for closures and combinations for comparability purposes.

Proposed Merger

On May 16, 2010, we entered into the Merger Agreement with UHS and Merger Sub, a Delaware corporation and a wholly-owned subsidiary of UHS. Under the terms of the Merger Agreement, Merger Sub will be merged with and into us, with us continuing as the surviving corporation and a wholly-owned subsidiary of UHS.

At the effective time of the Merger, each outstanding share of our Common Stock, other than shares held in our treasury or owned

by UHS or Merger Sub, or owned by any stockholders who are entitled to and who properly exercise appraisal rights under Delaware law, will be cancelled and converted into the right to receive $33.75 in cash, without interest, or an aggregate of approximately $2.0 billion. Including the assumption of approximately $1.1 billion in net debt, the total transaction consideration is approximately $3.1 billion.

We made customary representations, warranties and covenants in the Merger Agreement. We are subject to a “no-shop” restriction on our ability to solicit third-party proposals, provide information and engage in discussions with third parties. The no-shop provision is subject to a “fiduciary-out” provision that allows us to provide information and participate in discussions with respect to third party proposals submitted after the date of the Merger Agreement if our Board of Directors (acting through the Special Committee or otherwise) determines in good faith (after consultation with its advisors) that such proposal is, or could reasonably be expected to result in, a “superior proposal,” as defined in the Merger Agreement, and that failure to take such actions would be inconsistent with our Board of Director’s fiduciary duties.

We incurred transaction costs of approximately $6.4 million related to the proposed Merger in the second quarter of 2010.

Sources of Revenue

Patient Service Revenue

Patient service revenue is generated by our inpatient facilities for services provided to patients on an inpatient and outpatient basis within the inpatient behavioral health care facility setting. Patient service revenue is recorded at our established billing rates less contractual adjustments. Contractual adjustments are recorded to state our patient service revenue at the amount we expect to collect for the services provided based on amounts reimbursable by Medicare or Medicaid under provisions of cost or prospective reimbursement formulas or amounts due from other third-party payors at contractually determined rates. Patient service revenue comprised approximately 93.0% and 93.1% of our total revenue for the ~~three~~six months ended ~~March~~June 3130, 2010 and 2009, respectively.

Other Revenue

Other behavioral health care services accounted for 7.0% and 6.9% of our revenue for the ~~three~~six months ended ~~March~~June 3130, 2010 and 2009, respectively. This portion of our business primarily consists of our contract management business and a managed care plan in Puerto Rico. Our contract management business involves the development, organization and management of behavioral health and rehabilitation programs within medical/surgical hospitals. Services provided are recorded as revenue at contractually determined rates in the period the services are rendered, provided that collectability of such amounts is reasonably assured.

Results of Operations

The following table illustrates our consolidated results of operations from continuing operations for the three and six months ended ~~March~~June 3130, 2010 and 2009 (dollars in thousands):

1619

	For the Three Months Ended March 31,
	For the Three Months Ended June 30,												For the Six Months Ended June 30,
	2010						2009						2010						2009
	Amount			%			Amount			%			Amount			%			Amount			%
Revenue	$	~~475~~502,~~956~~694			100.0	%	$	~~433~~455,~~930~~287			100.0	%	$	978,650			100.0	%	$	889,217			100.0	%
Salaries, wages, and employee benefits (including share-based compensation of $3,510 and $4,819 in 2010 and 2009, respectively)		259,475			54.5	%		244,286			56.3	%
Salaries, wages, and employee benefits (including share- based compensation of $4,282, $4,457, $7,792, and $9,276 for the respective three and six month periods in 2010 and 2009)		263,298			52.4	%		249,904			54.9	%		522,773			53.4	%		494,190			55.6	%
Professional fees		4450,~~928~~718			910.41	%		3942,~~930~~362			9.23	%		95,646			9.8	%		82,292			9.2	%
Supplies		2324,~~678~~304			54.08	%		2223,~~920~~492			5.31	%		47,982			4.9	%		46,412			5.2	%
Provision for doubtful accounts		1110,~~833~~104			2.50	%		8,~~462~~290			21.08	%		21,937			2.2	%		16,752			1.9	%
Other operating expenses		5561,~~730~~159			1112.72	%		4645,~~346~~870			10.71	%		116,889			11.9	%		92,216			10.4	%
Depreciation and amortization		12,~~390~~879			2.65	%		10,~~553~~915			2.4	%		25,269			2.6	%		21,468			2.4	%
Interest expense, net		16,~~498~~553			3.53	%		1618,~~609~~103			34.80	%		33,051			3.4	%		34,712			3.9	%
Income from continuing operations before income taxes		5163,~~424~~679			1012.87	%		4456,~~824~~351			1012.34	%		115,103			11.8	%		101,175			11.4	%
Provision for income taxes		1924,~~683~~612			4.19	%		1721,~~164~~565			34.98	%		44,295			4.6	%		38,729			4.4	%
Income from continuing operations		3139,~~741~~067			6.7.8	%		2734,~~660~~786			67.46	%		70,808			7.2	%		62,446			7.0	%
Less: Net income attributable to noncontrolling interest		(3218	)		0.0	%		(~~139~~206	)		-0.10	%		(50	)		0.0	%		(345	)		0.0	%
Income from continuing operations attributable to PSI stockholders	$	3139,~~709~~049			6.7.8	%	$	2734,~~521~~580			67.36	%	$	70,758			7.2	%	$	62,101			7.0	%

Three Months Ended ~~March~~June 3130, 2010 Compared To Three Months Ended ~~March~~June 3130, 2009

The following table compares key ~~total~~ same-facility statistics and ~~same-~~total facility statistics for the three months ended ~~March~~June 3130, 2010 and 2009 for our owned and leased inpatient facilities:

	For the Three Months Ended March 31,				%
	For the Three Months Ended June 30,				%
	2010		2009		Change
Same-facility results:
Revenue (in thousands)	$	~~432~~456,~~445~~653	$	~~404~~423,~~003~~889		7.07	%
Admissions		4748,~~487~~504		4344,~~261~~821		9.8.2	%
Patient days		~~740~~760,~~145~~508		~~699~~729,~~233~~539		54.92	%
Average length of stay (in days)		15.67		16.23		-3.7	%
Revenue per patient day	$	~~584~~600	$	~~578~~581		13.03	%
Total facility results:
Revenue (in thousands)	$	~~442~~467,~~769~~119	$	~~404~~423,~~003~~889		910.62	%
Admissions		4849,~~805~~870		4344,~~261~~821		1211.83	%
Patient days		~~752~~773,~~240~~205		~~699~~729,~~233~~539		7.6.0	%
Average length of stay (in days)		15.45		16.23		-4.9	%
Revenue per patient day	$	~~589~~604	$	~~578~~581		14.90	%

Revenue. Revenue from continuing operations increased $4247.04 million, or 910.74%, to $~~476~~502.0 7 million for the three months ended ~~March~~June 3130, 2010 compared to the three months ended ~~March~~June 3130, 2009. Revenue from owned and leased inpatient facilities increased $3843.82 million, or 910.62%, to $~~442~~467.81 million in 2010 compared to 2009. The increase in revenue from owned and leased inpatient facilities relates primarily to same-facility growth in patient days of 54.92% and revenue per patient day of 13.03%, aspayments ~~well~~received asby our Mississippi facilities from the UPL Program and revenue from two facilities acquired in 2009. Other revenue increased $34.32 million to $3335.26 million in 2010 compared to $2931.94 million in 2009, primarily as a result of an increase in covered lives in our managed care plan in Puerto Rico.

Salaries, wages, and employee benefits. Salaries, wages and employee benefits (“SWB”) expense was $~~259~~263.53 million for the three months ended ~~March~~June 3130, 2010 compared to $~~244~~249.39 million for the three months ended ~~March~~June 3130, 2009, an increase of $1513.24 million, or 65.24%. SWB expense includes $34.53 million and $4.85 million of shared-based compensation expense for the quarters ended ~~March~~June 3130, ~~2010~~ 2010 and 2009, respectively. ~~The $1.3 million decrease in share-based compensation expense is primarily due to actual forfeitures in excess of estimated forfeitures.~~ Based on our stock option and restricted stock grants outstanding at ~~March~~ June 3130, 2010, we estimate remaining unrecognized share-based compensation expense to be approximately $5044.08 million with a weighted-average remaining amortization period of 2.8 7 years. Excluding share-based compensation expense, SWB expense was $~~256~~259.0 million, or 5351.85% of ~~total~~ total revenue, for the three months ended ~~March~~June 3130, 2010 compared to $~~239~~245.54 million, or 5553.29% of ~~total~~ total revenue, for the three months ended June 30, 2009. SWB expense for owned and leased inpatient facilities was $237.6 million in 2010, or 50.9% of revenue. Same-facility SWB expense for owned and leased inpatient facilities was $231.6 million in 2010, or 50.7% of revenue, compared to $224.5 million in 2009, or 53.0% of revenue. This decrease in same-facility SWB expense as a percent of revenue is primarily the result of an increase in revenue and an increase in same-facility patient days of 4.2% while staffing remained relatively stable. SWB expense for other operations was $12.5 million in 2010 compared to $12.3 million in 2009. SWB expense for our corporate office was $13.2 million, including $4.3 million in share-based compensation, for 2010 compared to $13.1 million, including $4.5 million in shared-based compensation, for 2009.

1720

Professional fees. Professional fees were $50.7 million for the three months ended ~~March~~June 3130, 2010, or 10.1% of total revenue, compared to $42.4 million for the three months ended June 30, 2009, or 9.3% ~~SWB~~of ~~expense~~total revenue. Professional fees for owned and leased inpatient facilities ~~was~~ were $~~233~~40.81 million in 2010, or ~~52.~~8.6% of revenue. Same-facility ~~SWB~~professional ~~expense~~fees for owned and leased inpatient facilities ~~was~~were $~~227~~39.95 million in 2010, or 528.7% of revenue, compared to $~~219~~38.34 million in 2009, or 549.31% of revenue. ~~This~~Professional ~~decrease~~fees infor ~~same-facility~~other ~~SWB~~operations ~~expense~~and asour ~~a percent~~corporate ofoffice ~~revenue is primarily the result of an increase in same-facility patient days of 5.9%~~increased ~~while~~to ~~staffing remained relatively stable. SWB expense for other operations was~~ $1210.6 million in 2010 compared to $~~11.~~3.9 million in 2009. ~~SWB~~primarily ~~expense~~as ~~for~~a ~~our~~result ~~corporate~~of ~~office was $13.1 million,~~approximately ~~including~~ $36.54 million inof ~~share-based~~transaction ~~compensation,~~fees ~~for~~incurred ~~2010~~as ~~compared~~a toresult ~~$14.0 million,~~of ~~including $4.8 million~~the inproposed ~~shared-based compensation, for 2009~~Merger.

~~Professional fees~~Supplies. ~~Professional~~Supplies ~~fees~~expense ~~were~~was $4424.93 million for the three months ended ~~March~~June 3130, 2010, or 9.4.8% of total revenue, compared to $3923.95 million for the three months ended ~~March~~June 3130, 2009, or 95.21% of total revenue. ~~Professional~~Supplies ~~fees~~expense for owned and leased inpatient facilities ~~were~~ was $4024.32 million in 2010, or 95.12% of revenue. Same-facility ~~professional~~supplies ~~fees~~expense for owned and leased inpatient facilities was ~~were~~ $3923.7 million in 2010, or 95.2% of revenue, compared to $3623.43 million in 2009, or 95.05% of revenue. ~~Professional fees for other operations and our corporate office increased~~ ~~to $4.7 million in 2010 compared to $3.5 million in 2009.~~

~~Supplies~~Provision for doubtful accounts. ~~Supplies~~The ~~expense~~provision for doubtful accounts was $2310.71 million for the three months ended ~~March~~June 3130, 2010, or 5 2.0% of total revenue, compared to $228.93 million for the three months ended ~~March~~June 3130, 2009, or 51.38% of total revenue. ~~Supplies~~The ~~expense~~provision for ~~owned~~doubtful ~~and~~accounts ~~leased~~at ~~inpatient facilities was $23.5 million in 2010, or 5.3% of revenue. Same-facility supplies expense for~~ owned and leased inpatient facilities ~~was~~ ~~$23.1 million~~comprised insubstantially ~~2010,~~all ~~or 5.3%~~ of ~~revenue,~~our ~~compared~~provision tofor ~~$22.7 million~~doubtful ~~in 2009, or 5~~accounts.~~6% of~~ ~~revenue.~~

~~Provision~~Other ~~for~~operating ~~doubtful accounts~~expenses. ~~The~~Other ~~provision~~operating ~~for~~expenses ~~doubtful~~consist ~~accounts~~primarily ~~was~~of rent, utilities, insurance, travel and repairs and maintenance expenses. Other operating expenses were $1161.82 million for the three months ended ~~March~~June 3130, 2010, or 212.52% of total revenue, compared to $845.59 million for the three months ended ~~March~~June 3130, 2009, or 210.01% of total revenue. ~~The~~Other ~~provision~~operating expenses for ~~doubtful~~owned and ~~accounts~~leased atinpatient ~~owned~~facilities were $43.2 million in 2010, or 9.2% of revenue. Same-facility other operating expenses for owned and leased inpatient facilities ~~comprised~~were ~~substantially~~$42.0 million ~~all~~in 2010, or 9.2% of revenue, ~~our~~compared ~~provision~~to $31.9 million in 2009, or 7.5% of revenue. This increase in other operating expenses as a percent of revenue is primarily a result of a provider tax assessed by the State of Mississippi’s Medicaid program. Other operating expenses for ~~doubtful~~other ~~accounts~~operations and our corporate office increased to $18.0 million in 2010 compared to $14.0 million in 2009 primarily as a result of additional expenses associated with an increase in covered lives in our managed care plan in Puerto Rico.

~~Other~~Depreciation ~~operating~~and ~~expenses~~amortization. ~~Other~~Depreciation ~~operating expenses consist primarily of rent, utilities, insurance, travel~~ and ~~repairs~~amortization ~~and~~expense ~~maintenance~~increased ~~expenses.~~to ~~Other operating expenses were~~ $5512.~~7 million~~9 million for the three months ended ~~March~~June 3130, 2010, ~~or 11.7% of total revenue,~~ compared to $4610.39 million for the three months ended ~~March~~June 3130, 2009, orprimarily 10.7% of total revenue. Other operating expenses for owned and leased inpatient facilities were $38.2 million in 2010, or 8.6% of revenue. Same-facility other operating expenses for owned and leased inpatient facilities were $37.4 million in 2010, or 8.7% of revenue, compared to $33.2 million in 2009, or 8.2% of revenue. This increase in other operating expenses as a ~~percent~~result of ~~revenue~~depreciation ison ~~primarily~~expansion aprojects ~~result~~at ~~of an increase in~~ our ~~self-insured~~inpatient ~~professional~~facilities and ~~general~~the ~~liability~~acquisition ~~insurance expense as a percent~~ of ~~revenue~~two ~~compared~~facilities ~~with 2009. Other operating expenses for other operations and our corporate office increased to $17.5 million~~ in ~~2010 compared to $13.2 million in~~ 2009 ~~primarily as a result of additional expenses associated with an increase in covered lives in our managed care plan in Puerto Rico~~.

~~Depreciation~~Interest ~~and~~expense, ~~amortization~~net. ~~Depreciation~~Interest ~~and~~expense, ~~amortization~~net ~~expense~~of ~~increased~~interest income, decreased to $1216.4 6 million for the three months ended ~~March~~June 3130, 2010 compared to $1018.61 million for the three months ended ~~March 31~~June 30, 2009,. ~~primarily~~This asdecrease ain ~~result~~interest ofexpense ~~depreciation~~was onprimarily ~~expansion~~the ~~projects~~result atof ~~existing~~a decrease in our ~~inpatient~~long-term ~~facilities~~debt ~~and~~outstanding during the ~~acquisition~~twelve ofmonths ~~two~~ended ~~facilities~~June 30, ~~in 2009~~2010.

~~Interest~~Income ~~expense,~~attributable ~~net~~to noncontrolling interest. ~~Interest~~We ~~expense,~~own ~~net~~controlling interests in two joint ventures that each own one of ~~interest~~our ~~income,~~inpatient ~~decreased~~behavioral tohealth ~~$16~~care facilities.~~5 million for~~ ~~the~~Income ~~three~~attributable to ~~months~~noncontrolling ~~ended~~interests ~~March 31,~~represents ~~2010~~the ~~compared~~pro torata ~~$16.6 million~~portion ~~for~~of the ~~three~~joint ~~months~~venture’s ~~ended~~net profit ~~March 31,~~belonging ~~2009~~to the noncontrolling partners.

~~Income~~Loss ~~attributable~~from todiscontinued ~~noncontrolling~~operations, ~~interest~~net of taxes. WeThe ~~own~~loss ~~controlling~~from ~~interests~~discontinued operations, net of income tax effect, was $3.9 million for the three months ended June 30, 2010 compared to $0.2 million for the three months ended June 30, 2009. The $3.9 million loss in ~~two~~2010 ~~joint~~includes $3.6 ~~ventures~~million ~~that~~in ~~own~~losses ~~two~~recognized to decrease the carrying values of ~~our~~discontinued ~~inpatient~~operations ~~behavioral~~that ~~health~~are held ~~care~~for ~~facilities~~sale. ~~Income~~During ~~attributable~~2009, we completed the sale of our EAP business, elected to close and make ~~noncontrolling~~The ~~interests~~Oaks ~~represents~~Treatment ~~the~~Center ~~pro~~and ~~rata~~Cumberland ~~portion~~Hall of ~~the~~Chattanooga ~~joint~~available ~~venture’s~~for ~~net~~sale, ~~profit~~and terminated one ~~belonging~~contract with a South Carolina juvenile justice agency. We also elected to close and make Nashville Rehabilitation Hospital available for sale and transferred its behavioral health services to Rolling Hills Hospital in the ~~noncontrolling~~first ~~partners~~quarter of 2009.

~~Loss~~Six ~~from~~Months ~~discontinued~~Ended ~~operations, net of taxes. The loss from discontinued operations, net of income tax effect, was $3.5~~June ~~million for the three months ended March 31~~30, 2010 ~~compared~~Compared toTo ~~$0.1 million~~Six ~~for~~Months ~~the~~Ended ~~three months ended March~~June 3130, 2009~~. The $3.5 million loss in 2010 includes $2.7~~ million for the loss on the closure of one leased facility that was previously held for sale. During 2009, we completed the sale of our EAP business, elected to close and make The Oaks Treatment Center and Cumberland Hall of Chattanooga available for sale, and terminated one contract with a South Carolina juvenile justice agency. We also elected to close and make Nashville Rehabilitation Hospital available for sale and transferred its behavioral health services to Rolling Hills Hospital in the first quarter of 2009.

The following table compares key same-facility statistics and total facility statistics for the six months ended June 30, 2010 and 2009 for our owned and leased inpatient facilities:


	For the Six Months Ended June 30,				%
	2010		2009		Change
Same-facility results:
Revenue (in thousands)	$	889,098	$	827,892		7.4	%
Admissions		95,991		88,082		9.0	%
Patient days		1,500,653		1,428,772		5.0	%
Average length of stay (in days)		15.6		16.2		-3.7	%
Revenue per patient day	$	592	$	579		2.2	%

Total facility results:
Revenue (in thousands)	$	909,888	$	827,892		9.9	%
Admissions		98,675		88,082		12.0	%
Patient days		1,525,445		1,428,772		6.8	%
Average length of stay (in days)		15.5		16.2		-4.3	%
Revenue per patient day	$	596	$	579		2.9	%

Revenue. Revenue from continuing operations increased $89.4 million, or 10.1%, to $978.7 million for the six months ended June 30, 2010 compared to the six months ended June 30, 2009. Revenue from owned and leased inpatient facilities increased $82.0 million, or 9.9%, to $909.9 million in 2010 compared to 2009. The increase in revenue from owned and leased inpatient facilities relates primarily to same-facility growth in patient days of 5.0% and revenue per patient day of 2.2%, payments received by our Mississippi facilities from the UPL Program and revenue from two facilities acquired in 2009. Other revenue increased $7.5 million to $68.8 million in 2010 compared to $61.3 million in 2009, primarily as a result of an increase in covered lives in our managed care plan in Puerto Rico.

Salaries, wages, and employee benefits. SWB expense was $522.8 million for the six months ended June 30, 2010 compared to $494.2 million for the six months ended June 30, 2009, an increase of $28.6 million, or 5.8%. SWB expense includes $7.8 million and $9.3 million of shared-based compensation expense for the quarters ended June 30, 2010 and 2009, respectively. The $1.5 million decrease in share-based compensation expense is primarily due to actual forfeitures of stock options in excess of estimated forfeitures. Excluding share-based compensation expense, SWB expense was $515.0 million, or 52.6% of total revenue, for the six months ended June 30, 2010 compared to $484.9 million, or 54.5% of total revenue, for the six months ended June 30, 2009. SWB expense for owned and leased inpatient facilities was $471.4 million in 2010, or 51.8% of revenue. Same-facility SWB expense for owned and leased inpatient facilities was $459.5 million in 2010, or 51.7% of revenue, compared to $443.6 million in 2009, or 53.6% of revenue. This decrease in same-facility SWB expense as a percent of revenue is primarily the result of an increase in revenue and an increase in same-facility patient days of 5.0% while staffing remained relatively stable. SWB expense for other operations was $25.1 million in 2010 compared to $23.6 million in 2009. SWB expense for our corporate office was $26.3 million, including $7.8 million in share-based compensation, for 2010 compared to $27.0 million, including $9.3 million in shared-based compensation, for 2009.

Professional fees. Professional fees were $95.6 million for the six months ended June 30, 2010, or 9.8% of total revenue, compared to $82.3 million for the six months ended June 30, 2009, or 9.2% of total revenue. Professional fees for owned and leased inpatient facilities were $80.4 million in 2010, or 8.8% of revenue. Same-facility professional fees for owned and leased inpatient facilities were $79.2 million in 2010, or 8.9% of revenue, compared to $74.9 million in 2009, or 9.0% of revenue. Professional fees for other operations and our corporate office increased to $15.3 million in 2010 compared to $7.4 million in 2009 primarily as a result of approximately $6.4 million of transaction fees incurred as a result of the proposed Merger.

Supplies. Supplies expense was $48.0 million for the six months ended June 30, 2010, or 4.9% of total revenue, compared to $46.4 million for the six months ended June 30, 2009, or 5.2% of total revenue. Supplies expense for owned and leased inpatient facilities was $47.7 million in 2010, or 5.2% of revenue. Same-facility supplies expense for owned and leased inpatient facilities was $46.7 million in 2010, or 5.3% of revenue, compared to $46.1 million in 2009, or 5.6% of revenue.

Provision for doubtful accounts. The provision for doubtful accounts was $21.9 million for the six months ended June 30, 2010, or 2.2% of total revenue, compared to $16.8 million for the six months ended June 30, 2009, or 1.9% of total revenue. The provision for doubtful accounts at owned and leased inpatient facilities comprised substantially all of our provision for doubtful accounts.

Other operating expenses. Other operating expenses consist primarily of rent, utilities, insurance, travel and repairs and maintenance expenses. Other operating expenses were $116.9 million for the six months ended June 30, 2010, or 11.9% of total revenue, compared to $92.2 million for the six months ended June 30, 2009, or 10.4% of total revenue. Other operating expenses for owned and leased inpatient facilities were $81.4 million in 2010, or 8.9% of revenue. Same-facility other operating expenses for owned and leased inpatient facilities were $79.4 million in 2010, or 8.9% of revenue, compared to $65.0 million in 2009, or 7.9% of revenue. This increase in other operating expenses as a percent of revenue is primarily a result of an increase in our self-insured professional and general liability insurance expense as a percent of revenue compared with 2009 and a provider tax assessed by the State of Mississippi’s Medicaid program. Other operating expenses for other operations and our corporate office increased to $35.5 million in

2010 compared to $27.2 million in 2009 primarily as a result of additional expenses associated with an increase in covered lives in our managed care plan in Puerto Rico.

Depreciation and amortization. Depreciation and amortization expense increased to $25.3 million for the six months ended June 30, 2010 compared to $21.5 million for the six months ended June 30, 2009, primarily as a result of depreciation on expansion projects at our inpatient facilities and the acquisition of two facilities in 2009.

Interest expense, net. Interest expense, net of interest income, decreased to $33.1 million for the six months ended June 30, 2010 compared to $34.7 million for the six months ended June 30, 2009. This decrease in interest expense was primarily the result of a decrease in our long-term debt outstanding during the twelve months ended June 30, 2010.

Income attributable to noncontrolling interest. We own controlling interests in two joint ventures that each own one of our inpatient behavioral health care facilities. Income attributable to noncontrolling interests represents the pro rata portion of the joint venture’s net profit belonging to the noncontrolling partners.

Loss from discontinued operations, net of taxes. The loss from discontinued operations, net of income tax effect, was $7.4 million for the six months ended June 30, 2010 compared to $0.3 million for the six months ended June 30, 2009. The $7.4 million loss in 2010 includes $6.2 million in losses recognized to decrease the carrying values of discontinued operations that are held for sale. During 2009, we completed the sale of our EAP business, elected to close and make The Oaks Treatment Center and Cumberland Hall of Chattanooga available for sale, and terminated one contract with a South Carolina juvenile justice agency. We also elected to close and make Nashville Rehabilitation Hospital available for sale and transferred its behavioral health services to Rolling Hills Hospital in the first quarter of 2009.

Liquidity and Capital Resources

We currently have $295.7 million available for borrowings under our $300 million revolving credit facility. Additionally, our cash flow from continuing operating activities was $56155.~~1 million~~2 million for the ~~three~~six months ended ~~March~~June 3130, 2010 and we had $~~196~~169.07 million of working capital at ~~March 31,~~June 30, 2010. We believe that our cash flow from operations, availability under our revolving credit facility ~~availability~~ and working capital are sufficient to fund our known future cash requirements for operations and capital expenditures. We historically spend approximately 2% to 3% of our revenue on routine capital expenditures and currently have plans for construction projects with expected costs of approximately $5446.01 million over the next twelve months, which will add approximately ~~300~~150 ~~new~~ beds to our inpatient facilities ~~as well as replace an existing 64-bed inpatient facility~~.

18 Working capital at June 30, 2010 was $169.7 million, including cash and cash equivalents of $49.7 million, compared to working capital of $177.9 million, including cash and cash equivalents of $6.8 million, at December 31, 2009. This decrease in working capital is primarily attributable to an increase in accounts payable and other current liabilities of $12.8 million, an increase in income taxes payable of $15.6 million and an increase in accrued salaries and benefits payable of $19.0 million, offset by increases in cash of $42.9 million and accounts receivable of $5.0 million. The $42.9 increase in cash and cash equivalents is primarily a result of cash provided by continuing operations of $155.2 million offset by cash used for capital expenditures of $57.6 million and principal payments on long-term debt of $58.0 million. The increase in accounts receivable is primarily due to a 7.4% increase in same-facility revenue. Our consolidated day’s sales outstanding were 46 and 49 at June 30, 2010 and December 31, 2009, respectively. The increase in accrued salaries and benefits payable is primarily the result of six additional days of accrued salaries at June 30, 2010 compared to December 31, 2009 due to the timing of the pay dates.

Cash provided by continuing operating activities was $155.2 million for the six months ended June 30, 2010 compared to $118.1 million for the six months ended June 30, 2009. The increase in cash flows from continuing operating activities was primarily the result of cash provided by improved operating results and the timing of payment dates for payroll.

Cash used by continuing investing activities was $57.7 million for the six months ended June 30, 2010 compared to $80.7 million for the six months ended June 30, 2009. Cash used in investing activities for the six months ended June 30, 2010 primarily consisted of $57.6 million paid for purchases of fixed assets. Cash used for routine and expansion capital expenditures was approximately $21.3 million and $36.3 million, respectively, for the six months ended June 30, 2010. Planned capital expansion projects and the construction of new facilities are expected to add approximately 150 new beds to our inpatient facilities over the next twelve months. We define expansion capital expenditures as those that increase the capacity of our facilities or otherwise enhance revenue. Routine or maintenance capital expenditures were 2.2% of our revenue for the six months ended June 30, 2010. Cash used in investing activities for the six months ended June 30, 2009 consisted primarily of $62.1 million in cash paid for purchases of fixed assets.

Cash used in financing activities was $56.2 million for the six months ended June 30, 2010 compared to $74.1 million for the six months ended June 30, 2009. Cash used in financing activities for the six months ended June 30, 2010 consisted primarily of $58.0 million of principal payments on our long-term debt, primarily consisting of a $50.0 million voluntary pre-payment on our senior secured term loan facility. Cash used in financing activities for the six months ended June 30, 2009 consisted primarily of $169.3 million of net payments on the balance due under our revolving credit facility, $8.1 million paid for loan and issuance costs and $2.6 million principal payments on long-term debt, offset by $106.5 million received from the issuance of $120 million of our 73/4% Notes at a discount of 11.25%.

AsWe ~~part~~have offiled ~~our~~a ~~long-term~~universal ~~growth~~shelf ~~strategy~~registration westatement ~~are~~on ~~actively~~Form ~~seeking~~S-3 ~~acquisitions~~and ~~that~~an ~~fit~~acquisition ~~our~~shelf ~~corporate~~registration ~~growth~~statement ~~strategy~~on ~~and~~Form ~~may~~S-4. ~~acquire~~The ~~additional~~universal ~~inpatient~~shelf ~~behavioral~~registration ~~health~~statement ~~care~~permits ~~facilities and~~us ~~other~~to ~~operations~~sell, in asone ~~well~~or asmore ~~incur~~public ~~expenditures~~offerings, ~~for~~an ~~the~~indeterminate ~~expansion~~amount of our ~~inpatient~~common ~~facilities. Management~~stock, ~~continually~~common ~~assesses~~stock warrants, ~~our~~preferred ~~capital~~stock ~~needs~~ and, ~~should~~debt ~~the~~securities, ~~need~~or ~~arise,~~any wecombination ~~will~~of ~~seek additional~~such ~~financing~~securities, ~~including~~at ~~debt~~prices orand on ~~equity,~~terms satisfactory to ~~fund~~us. ~~potential~~The ~~acquisitions,~~acquisition ~~facility expansions,~~shelf ~~repayment~~registration ofstatement ~~indebtedness~~enables orus ~~for~~to ~~other~~issue ~~corporate~~up ~~purposes.~~to 5 million Inshares ~~negotiating~~of ~~such financing,~~our ~~there~~common ~~can~~stock bein noone ~~assurance~~or ~~that~~more webusiness ~~will~~combination betransactions, ~~able~~including acquisitions toby ~~raise~~us ~~additional~~of ~~capital~~other onbusinesses, ~~terms satisfactory~~assets, toproperties usor securities. ~~Failure~~To todate, ~~obtain~~no ~~additional~~securities have ~~financing~~been onissued ~~reasonable~~pursuant ~~terms~~to ~~could~~either ~~have~~registration ~~a negative~~statement. ~~effect~~Pursuant onto ~~our~~the ~~plans~~Merger Agreement, our ability to ~~acquire~~issue ~~additional~~securities ~~inpatient~~without ~~psychiatric~~UHS’ ~~facilities~~prior orwritten ~~expand~~consent ~~our facilities~~is restricted.

Working capital at March 31, 2010 was $196.0 million, including cash and cash equivalents of $32.6 million, compared to working capital of $177.9 million, including cash and cash equivalents of $6.8 million, at December 31, 2009. This increase in working capital is primarily attributable to increases in cash of $25.8 million and accounts receivable of $14.4 million and a decrease in accrued interest expense of $11.4 million, offset by a decrease in income tax receivable of $8.8 million, an increase in the current portion of long-term debt of $5.6 million, and an increase in accrued salaries and benefits payable of $13.0 million. The $25.8 increase in cash and cash equivalents is primarily a result of cash provided by continuing operations of $56.1 million offset by cash used for capital expenditures of $29.6 million. The increase in accounts receivable is primarily due to a 7.0% increase in same-facility revenue. Our consolidated day’s sales outstanding were 50 and 49 at March 31, 2010 and December 31, 2009, respectively. The increase in accrued salaries and benefits payable is primarily the result of six additional days of accrued salaries at March 31, 2010 compared to December 31, 2009 due to the timing of the pay dates.

Cash provided by continuing operating activities was $56.1 million for the three months ended March 31, 2010 compared to $39.4 million for the three months ended March 31, 2009. The increase in cash flows from continuing operating activities was primarily the result of cash provided by improved operating results and the timing of payment dates for payroll.

Cash used by continuing investing activities was $29.5 million for the three months ended March 31, 2010 compared to $24.5 million for the three months ended March 31, 2009. Cash used in investing activities for the three months ended March 31, 2010 primarily consisted of $29.6 million paid for purchases of fixed assets. Cash used for routine and expansion capital expenditures was approximately $10.8 million and $18.8 million, respectively, for the three months ended March 31, 2010. Planned capital expansion projects and the construction of new facilities are expected to add approximately 300 new beds to our inpatient facilities over the next twelve months. We define expansion capital expenditures as those that increase the capacity of our facilities or otherwise enhance revenue. Routine or maintenance capital expenditures were 2.3% of our net revenue for the three months ended March 31, 2010. Cash used in investing activities for the three months ended March 31, 2009 consisted primarily of $24.4 million in cash paid for purchases of fixed assets.

Cash used in financing activities was $0.7 million for the three months ended March 31, 2010 compared to $46.6 million for the three months ended March 31, 2009. Cash used in financing activities for the three months ended March 31, 2009 consisted primarily of $39.3 million of payments on the balance due under our revolving credit facility and $5.4 million paid to lenders in connection with the amendment of our revolving credit facility during February 2009.

We have filed a universal shelf registration statement on Form S-3 and an acquisition shelf registration statement on Form S-4. The universal shelf registration statement permits us to sell, in one or more public offerings, an indeterminate amount of our common stock, common stock warrants, preferred stock and debt securities, or any combination of such securities, at prices and on terms satisfactory to us. The acquisition shelf registration statement enables us to issue up to 5 million shares of our common stock in one or more business combination transactions, including acquisitions by us of other businesses, assets, properties or securities. To date, no securities have been issued pursuant to either registration statement.

Contractual Obligations

	Payments Due by Period (in thousands)
			Less than						More than
	Total		1 year		1-3 years		3-5 years		5 years
Long-term debt (1):
Senior Credit Facility:
Senior secured term loan facility, expiring on July 1, 2012 and bearing interest of 2.1% at March 31, 2010	$	563,938	$	9,250	$	554,688	$	—	$	—
Senior secured term loan facility, expiring on July 1, 2012 and bearing interest of 2.2% at June 30, 2010	$	507,593	$	3,381	$	504,212	$	—	$	—
7 3/4% Senior Subordinated Notes due July 15, 2015		~~582~~583,~~899~~139		—		—		—		~~582~~583,~~899~~139
Mortgage loans on facilities, maturing in 2036, 2037 and 2038 bearing fixed interest rates of 5.7% to 7.6%		32,~~741~~629		~~457~~464		1,~~003~~019		1,~~136~~153		3029,~~145~~993
		1,179,578		9,707		555,691		1,136		613,044
		1,123,361		3,845		505,231		1,153		613,132
Lease and other obligations		7976,~~381~~562		13,~~639~~266		1817,~~607~~692		12,~~114~~153		3533,~~021~~451
Total contractual obligations	$	1,~~258~~199,~~959~~923	$	2317,~~346~~111	$	~~574~~522,~~298~~923	$	13,~~250~~306	$	~~648~~646,~~065~~583

(1) Excludes capital lease obligations and other obligations of $7.01 million, which are included in lease and other obligations.

19 The fair value of our 73/4% Notes was approximately $605.5 million and $565.2 million as of June 30, 2010 and December 31, 2009, respectively. The fair value of our senior secured term loan facility was approximately $500.0 million and $536.6 million as of June 30, 2010 and December 31, 2009, respectively. The carrying value of our other long-term debt, including current maturities, of $39.6 million and $39.5 million at June 30, 2010 and December 31, 2009, respectively, approximated fair value. We had $507.6 million of variable rate debt outstanding under our senior secured term loan facility as of June 30, 2010. At our June 30, 2010 borrowing level, a hypothetical 10% increase in interest rates would decrease our annual net income and cash flows by approximately $0.7 million.

The fair value of our 73/4% Notes was approximately $599.2 million and $565.2 million as of March 31, 2010 and December 31, 2009, respectively. The fair value of our senior secured term loan facility was approximately $558.3 million and $536.6 million as of March 31, 2010 and December 31, 2009, respectively. The carrying value of our other long-term debt, including current maturities, of $39.7 million and $39.5 million at March 31, 2010 and December 31, 2009, respectively, approximated fair value. We had $563.9 million of variable rate debt outstanding under our senior secured term loan facility as of March 31, 2010. At our March 31, 2010 borrowing level, a hypothetical 10% increase in interest rates would decrease our annual net income and cash flows by approximately $0.7 million.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with GAAP. In preparing our financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses included in the financial statements. Estimates are based on historical experience and other information currently available, the results of which form the basis of such estimates. While we believe our estimation processes are reasonable, actual results could differ from our estimates. The following represent the estimates considered most critical to our operating performance and involve the most subjective and complex assumptions and assessments.

Allowance for Doubtful Accounts

Our ability to collect outstanding patient receivables from third-party payors is critical to our operating performance and cash flows.

The primary collection risk with regard to patient receivables lies with uninsured patient accounts or patient accounts for which primary insurance has paid, but the portion owed by the patient remains outstanding. We estimate the allowance for doubtful accounts primarily based upon the age of the accounts since the patient discharge date. We continually monitor our accounts receivable balances and utilize cash collection data to support our estimates of the provision for doubtful accounts. Significant changes in payor mix or business office operations could have a significant impact on our results of operations and cash flows.

The primary collection risk with regard to receivables due under our inpatient management contracts is attributable to contractual disputes. We estimate the allowance for doubtful accounts for these receivables based primarily upon the specific identification of potential collection issues. As with our patient receivables, we continually monitor our accounts receivable balances and utilize cash collection data to support our estimates of the provision for doubtful accounts.

Allowances for Contractual Discounts

The Medicare and Medicaid regulations are complex and various managed care contracts may include multiple reimbursement mechanisms for different types of services provided in our inpatient facilities and cost settlement provisions requiring complex calculations and assumptions subject to interpretation. We estimate the allowance for contractual discounts on a payor-specific basis by comparing our established billing rates with the amount we determine to be reimbursable given our interpretation of the applicable regulations or contract terms. Most payments are determined based on negotiated per-diem rates. While the services authorized and provided and related reimbursement are often subject to interpretation that could result in payments that differ from our estimates, these differences are deemed immaterial. Additionally, updated regulations and contract renegotiations occur frequently necessitating continual review and assessment of the estimation process by our management. We periodically compare the contractual rates on our patient accounting systems with the Medicare and Medicaid reimbursement rates or the third-party payor contract for accuracy. We also monitor the adequacy of our contractual adjustments using financial measures such as comparing cash receipts to net patient revenue adjusted for bad debt expense.

Professional and General Liability

We are subject to medical malpractice and other lawsuits due to the nature of the services we provide. Our operations have professional and general liability insurance in umbrella form for claims in excess of $3.0 million with an insured excess limit of $75.0 million. The self-insured reserves for professional and general liability risks are estimated based on historical claims, demographic factors, industry trends, severity factors, and other actuarial assumptions calculated by an independent third-party actuary. This estimated accrual for professional and general liabilities could be significantly affected should current and future occurrences differ from historical claim trends and expectations. We have utilized our captive insurance company to manage the self-insured retention. While claims are monitored closely when estimating professional and general liability accruals, the complexity of the claims and wide range of potential outcomes often limits timely adjustments to the assumptions used in these estimates.

20 Income Taxes

~~Table~~ As part of ~~Contents~~our process for preparing our consolidated financial statements, our management is required to compute income taxes in each of the jurisdictions in which we operate. This process involves estimating the current tax benefit or expense of future deductible and taxable temporary differences. The tax effects of future deductible and taxable temporary differences are recorded as deferred tax assets and liabilities which are components of our balance sheet. Management then assesses our ability to realize the deferred tax assets based on reversals of deferred tax liabilities and, if necessary, estimates of future taxable income. A valuation allowance for deferred tax assets is established when we believe that it is more likely than not that the deferred tax asset will not be realized. Management must also assess the impact of our acquisitions on the realization of deferred tax assets subject to a valuation allowance to determine if all or a portion of the valuation allowance will be offset by reversing taxable differences or future taxable income of the acquired entity. To the extent the valuation allowance can be reversed due to the estimated future taxable income of an acquired entity, then our valuation allowance is reduced accordingly as an adjustment to income tax expense.

Income Taxes As part of our process for preparing our consolidated financial statements, our management is required to compute income taxes in each of the jurisdictions in which we operate. This process involves estimating the current tax benefit or expense of future deductible and taxable temporary differences. The tax effects of future deductible and taxable temporary differences are recorded as deferred tax assets and liabilities which are components of our balance sheet. Management then assesses our ability to realize the deferred tax assets based on reversals of deferred tax liabilities and, if necessary, estimates of future taxable income. A valuation allowance for deferred tax assets is established when we believe that it is more likely than not that the deferred tax asset will not be realized. Management must also assess the impact of our acquisitions on the realization of deferred tax assets subject to a valuation allowance to determine if all or a portion of the valuation allowance will be offset by reversing taxable differences or future taxable income of the acquired entity. To the extent the valuation allowance can be reversed due to the estimated future taxable income of an acquired entity, then our valuation allowance is reduced accordingly as an adjustment to income tax expense. GAAP requires us to make significant judgments regarding the recognition and measurement of each tax position. Changes in these judgments may materially affect the estimate of our effective tax rate and our operating results. Share-Based Compensation We record share-based compensation expense for the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of such awards. We utilize the Black-Scholes option pricing model to estimate the grant-date fair value of our stock options. The Black-Scholes model includes certain variables and assumptions that require judgment, such as the expected volatility of our stock price and the expected term of our stock options. Additionally, we use judgment in the estimation of forfeitures over the vesting period of share-based awards.

Share-Based Compensation

We record share-based compensation expense for the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of such awards. We utilize the Black-Scholes option pricing model to estimate the grant-date fair value of our stock options. The Black-Scholes model includes certain variables and assumptions that require judgment, such as the expected volatility of our stock price and the expected term of our stock options. Additionally, we use judgment in the estimation of forfeitures over the vesting period of share-based awards.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Our interest expense is sensitive to changes in the general level of interest rates. With respect to our interest-bearing liabilities, approximately $615.68 million of our long-term debt outstanding at ~~March~~June 3130, 2010 was subject to a weighted-average fixed interest rate of 8.0%. Our variable rate debt is comprised of our senior secured term loan facility, which had $~~563~~507.96 million outstanding at ~~March~~June 3130, 2010 and on which interest is generally payable at LIBOR plus 1.75%.

A hypothetical 10% increase in interest rates would decrease our net income and cash flows by approximately $0.7 million on an annual basis based upon our borrowing level at ~~March~~June 3130, 2010. In the event we draw on our revolving credit facility and/or interest rates change significantly, we anticipate that we would take actions intended to further mitigate our exposure to such change by targeting a portion of our debt portfolio to be maintained at fixed rates and periodically entering into interest rate swap agreements. Information on quantitative and qualitative disclosure about market risk is included in Part I, Item 2 of this Quarterly Report on Form 10-Q under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

Item 4. Controls and Procedures.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, our Chief Executive Officer and Chief Accounting Officer concluded that our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us (including our consolidated subsidiaries) in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported on a timely basis.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the ~~first~~ quarter ended ~~March~~June 3130, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

A stockholder lawsuit and a stockholder derivative lawsuit alleging violations of federal securities laws were filed in 2009 against us and certain of our executives. We believe that the lawsuits are without merit and are defending them vigorously.

In the opinion of management, we are not currently a party to any proceeding that would have a material adverse effect on our business, financial condition or results of operations.

~~Item~~Litigation ~~1A.~~Related ~~Risk~~to ~~Factors.~~the Merger

~~There~~Seven ~~have~~putative ~~been~~class noaction ~~material~~complaints ~~changes~~were tofiled on behalf of alleged public stockholders of the ~~risk~~Company. ~~factors~~Two ~~previously~~of ~~disclosed~~the lawsuits, Carpenters Pension Fund of West Virginia v. Psychiatric Solutions, Inc., et al., Case No. 38359, and Pedric v. Psychiatric Solutions, Inc., et al., Case No. 38391, were filed in ~~our~~the ~~Annual~~Chancery Court for Williamson County, Tennessee. One of the lawsuits, ~~Report~~Smith onv. ~~Form~~Psychiatric Solutions, Inc., et al., Case No. 10-K862-II, ~~for~~was filed in the ~~year~~Chancery ~~ended~~Court for ~~December~~Davidson County, Tennessee. The Smith case was transferred to Williamson County. Another three lawsuits, Oklahoma Police Pension and Retirement System v. Jacobs, et al., Case No. 31CA 5514, ~~2009~~City of Miami Police Relief and Pension Fund v. Jacobs, ~~except~~et al., Case No. 5515, and Plumbers & Pipefitters, Local 152 Pension Fund v. Psychiatric Solutions, Inc., et al., Case No. 5532, were filed in the Court of Chancery for the ~~following~~State ~~risk~~of ~~factor~~Delaware. A seventh lawsuit, Rosinek v. Psychiatric Solutions, Inc., et al., Case No. 3:10-cv-00534, was filed in the United States District Court for the Middle District of Tennessee. The defendants generally include us, members of our board of directors and, in certain of the cases, our officers. UHS and/or its affiliates are named as defendants in some of the lawsuits. The lawsuits allege, among other things, that our directors breached their fiduciary duties in connection with the proposed Merger by failing to maximize stockholder value. The lawsuits also allege that our directors have put their personal interests ahead of those of our stockholders, including by approving the Merger to extinguish any personal liability they could suffer from previously asserted derivative claims related to, among other things, violations of fiduciary duties and federal securities laws and also by negotiating a Merger Agreement that includes broad director and officer insurance and indemnification provisions protecting them against civil and criminal claims for six years from the date of the Merger Agreement. Certain of the lawsuits allege that various individual defendants will receive improper change of control payments and Merger Consideration in connection with equity awards that plaintiffs contend were improper. Certain of the lawsuits also allege that we and UHS aided and abetted the various breaches of fiduciary duty. Certain of the lawsuits also allege that various individual defendants caused us to issue a proxy statement containing materially false and misleading statements and omissions in connection with our 2010 annual stockholder meeting. Among other things, the lawsuits seek to enjoin us and our directors from consummating the Merger and also seek rescission of the allegedly improper equity awards. The three Delaware cases were consolidated and set for trial beginning on August 5, 2010. The three Tennessee state court cases were consolidated in Williamson County, and then stayed in favor of the consolidated Delaware action by agreed order of the Williamson County court.

We After ~~cannot~~substantially ~~predict~~completing fact discovery in the ~~effect~~consolidated ~~that~~Delaware ~~health~~action, ~~care~~without admitting ~~reform~~liability on the part of any of the defendants, the parties to the consolidated Delaware action and ~~other~~the ~~changes~~consolidated Tennessee state court action have agreed in principle ~~government~~to ~~programs~~terms ~~may~~of settlement as follows: (1) requiring additional disclosures in the proxy ~~have~~statement to be delivered to stockholders in connection with the Special Meeting called to vote on the Merger regarding, among other things, the background of and negotiations relating to the Merger, the Executive Performance Incentive Plan, the amendment to our ~~business~~2009 Long-Term Equity Compensation Plan and adoption of the 2010 Long-Term Equity Compensation Plan, ~~financial~~the ~~condition~~circumstances surrounding orour ~~results~~compensation committee’s approval of ~~operations.~~equity and restricted stock grants in February 2010, and the financial disclosures relating to the transaction,

~~In March 2010, the Patient Protection and Affordable Care Act and the Health Care and~~26 Education Reconciliation Act of 2010 (collectively, the “Affordable Care Act”) were signed into law by President Obama. The Affordable Care Act is intended to increase the number of insured U.S. citizens through a combination of private sector health insurance reforms and the expansion of public programs. Substantially all of the funding for the expanded coverage is intended to be derived through provisions in the law that are designated to lower health care costs, including, among other things, reducing Medicare and Medicaid payments to health care facilities and other providers, implementing the use of value and quality-based purchasing programs by the Medicare program, and expanding the use of recovery audit contractors to the Medicaid program. The Affordable Care Act also contains substantial revisions to federal health care fraud and abuse laws that both expand the scope of activities a provider may potentially face sanction for and lower the government’s burden of proof to impose such sanctions. Because of the complexity of the Affordable Care Act and the fact that a number of its provisions do not take effect until 2013 or later, it is difficult to predict the impact that the Affordable Care Act will have on our facilities. However, depending on how the Affordable Care Act is ultimately implemented by regulation and interpreted by the courts, the Affordable Care Act could have a material adverse effect on our business, financial condition and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

The following table provides information relating to our purchase of common stock during the first quarter of 2010:

Total Number of

Maximum Number

Shares Purchased

of Shares that May

as Part of Publicly

Yet Be Purchased

Total Number of

Average Price

Announced Plans or

Under the Plans or

Period

Shares Purchased (1)

Paid Per Share

Programs

January 1, 2010 through January 31, 2010

—

N/A

February 1, 2010 through February 28, 2010

22,399

21.86

N/A

March 1, 2010 through March 31, 2010

—

N/A

Total

22,399

21.86

N/A

including the discounted cash flow and other analyses performed by Goldman Sachs & Co.; (2) allowing our stockholders to revote on the proposal to amend the Equity Incentive Plan to increase the number of shares of Common Stock subject to grant under the Equity Incentive Plan by 900,000 and to restrict the repricing of options, which was approved by our stockholders at our annual meeting of stockholders in May 2010; (3) requiring the release by the class of stockholders entitled to vote on the Merger of any and all claims that have been or could have been made against any of the defendants relating to the Merger, the disclosures made by or on behalf of us through and including consummation of the Merger, and the compensation received by any defendant through and including the consummation of the Merger; and (4) requiring us to pay plaintiffs’ reasonable attorneys’ fees and expenses in the amounts ordered by the courts. The settlements in those actions are subject to court approval, which has not yet been obtained. The settlement will not affect the form or amount of the consideration to be received by our stockholders in the Merger. The defendants have denied and continue to deny any wrongdoing or liability with respect to all claims, events, and transactions complained of in the aforementioned lawsuits or that they have engaged in any wrongdoing. The defendants have entered into the settlement to eliminate the uncertainty, burden, risk, expense and distraction of further litigation.

~~(1)~~ The ~~All~~Rosinek ofcase ~~the~~remains ~~shares~~pending ~~were surrendered by our employees~~ in ~~satisfaction of~~ the ~~employees’~~United ~~tax~~States ~~liabilities~~District ~~related~~Court toin ~~the~~Tennessee, ~~vesting~~but ofa motion ~~restricted~~has ~~stock.~~been ~~The~~filed ~~surrender~~asking ofthe ~~shares~~court byto ~~our~~stay ~~employees~~that ~~was~~proceeding ~~made~~ in ~~accordance~~favor ~~with~~of the ~~terms~~consolidated Delaware ofaction. ~~restricted~~We ~~stock~~believe ~~agreements~~that ~~between~~ the ~~employees~~claims ~~and~~asserted usin ~~and~~the ~~did~~Rosinek ~~not~~case ~~involve~~are ~~any~~without ~~payments~~merit byand intend ~~us.~~to Wedefend ~~currently~~the dosuit ~~not have a stock repurchase program~~vigorously.

Item 1A. Risk Factors.

There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, except for the following risk factors:

While the proposed Merger is pending, we may experience business uncertainties and are subject to restrictions on the conduct of our business.

Uncertainty about the effect of the proposed Merger on employees, physicians and patients may have an adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel until the proposed Merger is consummated, and could cause third parties, including physicians, to seek to change existing business relationships with us. In addition, the Merger Agreement restricts us from taking specified actions without UHS’s approval including, among other things, making certain acquisitions, dispositions or investments, making certain capital expenditures, and entering into, terminating or amending material contracts. Our management may also be required to devote substantial time to Merger-related activities, which could otherwise be devoted to our day-to-day business operations or pursuing other beneficial business opportunities.

Failure to complete the proposed Merger could negatively impact our stock price and financial results.

Consummation of the proposed Merger is subject to various conditions, including, among others, adoption of the Merger Agreement by our stockholders and expiration or termination of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. There can be no assurance that the Merger will be completed in a timely manner or at all. If the Merger is not completed, we will be subject to several risks, including the following:

• we may be required to pay UHS a termination fee of $71.5 million and/or reimburse UHS for all of its expenses incurred in connection with the transactions contemplated by the Merger Agreement (which would be credited against the termination fee to the extent it subsequently becomes due);

• the current market price of our common stock may reflect a market assumption that the Merger will occur, and a failure to complete the Merger could result in a negative perception by the stock market of us generally and a decline in the market price of our common stock; and

• certain costs relating to the Merger, such as legal, accounting and financial advisory fees, are payable by us whether or not the Merger is completed.

Item 6. Exhibits.

Exhibit
Number		Description
2.1		Agreement and Plan of Merger, dated May 16, 2010, by and among Psychiatric Solutions, Inc., Universal Health Services, Inc. and Olympus Acquisition Corp. (incorporated by reference to Exhibit 2 to the Company’s Current Report on Form 8-K, filed on May 17, 2010).
3.1		Amended and Restated Certificate of Incorporation of PMR Corporation, filed with the Delaware Secretary of State on March 9, 1998 (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 1998).
3.2		Certificate of Amendment to Amended and Restated Certificate of Incorporation of PMR Corporation, filed with the Delaware Secretary of State on August 5, 2002 (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2002).
3.3		Certificate of Amendment to Amended and Restated Certificate of Incorporation of Psychiatric Solutions, Inc., filed with the Delaware Secretary of State on March 21, 2003 (incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement, filed on January 22, 2003).
3.4		Certificate of Amendment to Amended and Restated Certificate of Incorporation of Psychiatric Solutions, Inc., filed with the Delaware Secretary of State on December 15, 2005 (incorporated by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005).
3.5		By-laws (incorporated by reference to Exhibit 3 to the Company’s Current Report on Form 8-K filed on November 6, 2007).
10.1		Amendment to Employment Agreement, dated April 15, 2010, by and between Joey A. Jacobs and Psychiatric Solutions, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed April 20, 2010).
10.2		Form of Change in Control Severance Agreement, dated April 15, 2010, by and between certain of the Company’s officers and Psychiatric Solutions, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on April 20, 2010).
10.3		Psychiatric Solutions, Inc. 2010 Cash Bonus Plans (incorporated by reference to Exhibit 10 to the Company’s Current Report on Form 8-K, filed on April 1, 2010).
31.1*		Certification of the Chief Executive Officer of Psychiatric Solutions, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of the Chief Accounting Officer of Psychiatric Solutions, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certifications of the Chief Executive Officer and Chief Accounting Officer of Psychiatric Solutions, Inc. pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed or furnished herewith27


Exhibit
Number		Description
3.2		Certificate of Amendment to Amended and Restated Certificate of Incorporation of PMR Corporation, filed with the Delaware Secretary of State on August 5, 2002 (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2002).

3.3		Certificate of Amendment to Amended and Restated Certificate of Incorporation of Psychiatric Solutions, Inc., filed with the Delaware Secretary of State on March 21, 2003 (incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement, filed on January 22, 2003).

3.4		Certificate of Amendment to Amended and Restated Certificate of Incorporation of Psychiatric Solutions, Inc., filed with the Delaware Secretary of State on December 15, 2005 (incorporated by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005).

3.5		By-laws (incorporated by reference to Exhibit 3 to the Company’s Current Report on Form 8-K, filed on November 6, 2007).

10.1		Amendment to Employment Agreement, dated April 15, 2010, by and between Joey A. Jacobs and Psychiatric Solutions, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on April 20, 2010).

10.2		Form of Change in Control Severance Agreement, dated April 15, 2010, by and between certain of the Company’s officers and Psychiatric Solutions, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on April 20, 2010).

10.3		Fifth Amendment to the Psychiatric Solutions, Inc. Equity Incentive Plan (incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement, filed on April 8, 2010).

31.1*		Certification of the Chief Executive Officer of Psychiatric Solutions, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of the Chief Accounting Officer of Psychiatric Solutions, Inc. pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certifications of the Chief Executive Officer and Chief Accounting Officer of Psychiatric Solutions, Inc. pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**		XBRL Instance Document.

101.SCH**		XBRL Taxonomy Extension Schema Document.

101.CAL**		XBRL Taxonomy Calculation Linkbase Document.

101.LAB**		XBRL Taxonomy Labels Linkbase Document.

101.PRE**		XBRL Taxonomy Presentation Linkbase Document.


*		Filed or furnished herewith

**		Furnished electronically herewith

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Psychiatric Solutions, Inc.
	By:	/s/ Jack E. Polson
		Jack E. Polson
		Executive Vice President, Chief Accounting Officer

Dated: ~~May~~August 104, 2010

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Filing Compare · PSYCHIATRIC SOLUTIONS INC