• risks inherent to the health care industry, including the impact of unforeseen changes in regulation and the potential adverse impact of government investigations, liabilities and other claims asserted against us;

• economic downturn resulting in efforts by federal and state health care programs and managed care companies to reduce reimbursement rates for our services;

• potential competition that alters or impedes our acquisition strategy by decreasing our ability to acquire additional inpatient facilities on favorable terms;

• our ability to comply with applicable licensure and accreditation requirements;

• our ability to comply with extensive laws and government regulations related to billing, physician relationships, adequacy of medical care and licensure;

• our ability to retain key employees who are instrumental to our operations;

• our ability to successfully integrate and improve the operations of acquired inpatient facilities;

• our ability to maintain effective internal controls in accordance with
Section 404 of the Sarbanes-Oxley Act;

• 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;

• 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, 2008, 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 new and existing inpatient facilities and our other behavioral health care operations. From 2001 to 2004, we acquired 34 inpatient behavioral health care facilities. During 2005, we acquired 20 inpatient behavioral health care facilities in the acquisition of Ardent Health Services, Inc. and one other inpatient facility. During 2006, we acquired 19 inpatient behavioral health care facilities, including nine inpatient facilities with the acquisition of the capital stock of Alternative Behavioral Services, Inc. ("ABS") on December 1, 2006. During 2007, we acquired 16 inpatient behavioral health care facilities, including 15 inpatient facilities in the acquisition of Horizon Health Corporation ("Horizon Health"). During 2008, we acquired five inpatient behavioral health care facilities from UMC and opened Lincoln Prairie Behavioral Health Center, a 120-bed inpatient facility in Springfield, Illinois. In January 2009, we opened Rolling Hills Hospital, an 80-bed inpatient facility in Franklin, Tennessee.
We strive to improve the operating results of new and existing 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. Our same-facility revenue from owned and leased inpatient facilities increased 3.4% for the three months ended March 31, 2009 compared to the same period in 2008. Our same-facility growth was primarily the result of increases in patient days and revenue per patient day of 0.5% and 2.8%, respectively. Same-facility growth refers to the comparison of each inpatient facility owned during 2008 with the comparable period in 2009, adjusted for closures and combinations for comparability purposes.
Income from continuing operations before income taxes increased to $45.2 million, or 10.0% of revenue, for the three months ended March 31, 2009 as compared to $41.0 million, or 9.7% of revenue, during the same period of 2008. The $4.2 million increase in income from continuing operations before income taxes for the three months ended March 31, 2009 compared to the same period of 2008 was primarily the result of the following:
• operating results from the March 1, 2008 acquisition of five behavioral health care facilities from UMC;

• same-facility growth at our behavioral health care facilities in patient days of 0.5% and revenue per patient day of 2.8%;

• a reduction in interest expense as a percentage of revenue to 3.8% for the three months ended March 31, 2009 compared to 4.8% in the same period of 2008 due primarily to a decrease in interest rates on our variable rate debt; and

• a decrease in share-based compensation expense of $0.7 million.

Our operating results for the three months ended March 31, 2009 as compared to the same period of 2008 were negatively impacted by the following items:
• one of our behavioral health care hospitals in Chicago, Illinois experienced a decline in operating results primarily due to a hold on admissions placed on this facility by the Illinois Department of Children and Family Services that began in 2008 and costs of professional services related to a United States Department of Justice investigation; and

• an increase in our self-insured general and professional liability insurance expense as a percentage of revenue.

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 90.4% and 90.2% of our total revenue for the three months ended March 31, 2009 and 2008, respectively.
Other Revenue
Other behavioral health care services accounted for 9.6% and 9.8% of our revenue for the three months ended March 31, 2009 and 2008, respectively. This portion of our business primarily consists of our contract management and employee assistance program ("EAP") businesses. Our contract management business involves the development, organization and management of behavioral health care programs within medical/surgical hospitals. Our EAP business contracts with employers to assist employees and their dependents

with resolution of behavioral conditions or other personal concerns. Services provided are recorded as revenue at contractually determined rates in the period the services are rendered, provided that collectability of such amounts is reasonably assured.
Results of Operations
The following table illustrates our consolidated results of operations from continuing operations for the three months ended March 31, 2009 and 2008 (dollars in thousands):

                                                         For the Three Months Ended March 31,
                                                         2009                             2008
                                                Amount              %            Amount             %
Revenue                                       $   450,380          100.0 %      $ 423,829          100.0 %
Salaries, wages, and employee benefits
(including share-based compensation of
$4,819 and $5,560 for 2009 and 2008,
respectively)                                     252,733           56.2 %        235,448           55.5 %
Professional fees                                  43,947            9.8 %         42,859           10.1 %
Supplies                                           23,451            5.2 %         23,175            5.5 %
Provision for doubtful accounts                     8,455            1.9 %          7,102            1.7 %
Other operating expenses                           48,329           10.7 %         44,568           10.5 %
Depreciation and amortization                      10,999            2.4 %          9,370            2.2 %
Interest expense, net                              17,277            3.8 %         20,338            4.8 %

Income from continuing operations before
income taxes                                       45,189           10.0 %         40,969            9.7 %
Provision for income taxes                         17,254            3.8 %         15,566            3.7 %

Income from continuing operations                  27,935            6.2 %         25,403            6.0 %
Less: Income attributable to
noncontrolling interest                              (139 )          0.0 %           (114 )          0.0 %

Income from continuing operations
attributable to stockholders                  $    27,796            6.2 %      $  25,289            6.0 %

Three Months Ended March 31, 2009 Compared To Three Months Ended March 31, 2008 The following table compares key total facility statistics and same-facility statistics for the three months ended March 31, 2009 and 2008 for our owned and leased inpatient facilities:

                                           Three Months Ended March 31,           %
                                             2009                 2008          Change
    Same-facility results:
    Revenue (in thousands)              $     395,339        $     382,446        3.4 %
    Admissions                                 41,824               40,480        3.3 %
    Patient days                              675,404              672,227        0.5 %
    Average length of stay (in days)             16.1                 16.6       -3.0 %
    Revenue per patient day             $         585        $         569        2.8 %

    Total facility results:
    Revenue (in thousands)              $     407,027        $     382,446        6.4 %
    Admissions                                 43,410               40,480        7.2 %
    Patient days                              696,171              672,227        3.6 %
    Average length of stay (in days)             16.0                 16.6       -3.6 %
    Revenue per patient day             $         585        $         569        2.8 %

Revenue. Revenue from continuing operations increased $26.6 million, or 6.3%, to $450.4 million for the three months ended March 31, 2009 compared to the three months ended March 31, 2008. Revenue from owned and leased inpatient facilities increased $24.6 million, or 6.4%, to $407.0 million in 2009 compared to 2008. The increase in revenue from owned and leased inpatient facilities relates primarily to the acquisition of five inpatient facilities from UMC in 2008 and to same-facility growth in patient days of 0.5% and revenue per patient day of 2.8%. Other revenue was $43.4 million in 2009 compared to $41.4 million in 2008, an increase of $2.0 million, resulting primarily from EAP operations acquired during 2008.

Salaries, wages, and employee benefits. Salaries, wages and employee benefits ("SWB") expense was $252.7 million for the three months ended March 31, 2009 compared to $235.4 million for the three months ended March 31, 2008, an increase of $17.3 million, or 7.3%. SWB expense includes $4.8 million and $5.6 million of shared-based compensation expense for the quarters ended March 31, 2009 and 2008, respectively. Based on our stock option and restricted stock grants outstanding at March 31, 2009, we estimate remaining unrecognized share-based compensation expense to be approximately $44.7 million with a weighted-average remaining amortization period of 2.6 years. Excluding share-based compensation expense, SWB expense was $247.9 million, or 55.0% of total revenue, for the three months ended March 31, 2009 compared to $229.9 million, or 54.2% of total revenue, for the three months ended March 31, 2008. SWB expense for owned and leased inpatient facilities was $222.4 million in 2009, or 54.6% of revenue. Same-facility SWB expense for owned and leased inpatient facilities was $216.3 million in 2009, or 54.7% of revenue, compared to $206.1 million in 2008, or 53.9% of revenue. This increase in same-facility SWB expense as a percent of revenue is primarily the result of utilization of employees to provide services to our patients as opposed to contract labor included in professional fees as well as the transition to our new Rolling Hills facility, which replaced the Nashville Rehab facility. SWB expense for other operations was $16.4 million in 2009 compared to $15.5 million in 2008. This increase in SWB expense for other operations is primarily the result of EAP businesses acquired during 2008. SWB expense for our corporate office was $14.0 million, including $4.8 million in share-based compensation, for 2009 compared to $13.6 million, including $5.6 million in shared-based compensation, for 2008.
Professional fees. Professional fees were $43.9 million for the three months ended March 31, 2009, or 9.8% of total revenue, compared to $42.9 million for the three months ended March 31, 2008, or 10.1% of total revenue. Professional fees for owned and leased inpatient facilities were $37.0 million in 2009, or 9.1% of revenue. Same-facility professional fees for owned and leased inpatient facilities were $35.8 million in 2009, or 9.1% of revenue, compared to $35.6 million in 2008, or 9.3% of revenue. Professional fees for other operations and our corporate office decreased to $6.9 million in 2009 compared to $7.2 million in 2008.
Supplies. Supplies expense was $23.5 million for the three months ended March 31, 2009, or 5.2% of total revenue, compared to $23.2 million for the three months ended March 31, 2008, or 5.5% of total revenue. Supplies expense for owned and leased inpatient facilities was $23.0 million in 2009, or 5.7% of revenue. Same-facility supplies expense for owned and leased inpatient facilities was $22.2 million in 2009, or 5.6% of revenue, compared to $22.8 million in 2008, or 6.0% of revenue. Supplies expense for other operations as well as our corporate office is negligible to our supplies expense overall.
Provision for doubtful accounts. The provision for doubtful accounts was $8.5 million for the three months ended March 31, 2009, or 1.9% of total revenue, compared to $7.1 million for the three months ended March 31, 2008, or 1.7% 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 $48.3 million for the three months ended March 31, 2009, or 10.7% of total revenue, compared to $44.6 million for the three months ended March 31, 2008, or 10.5% of total revenue. Other operating expenses for owned and leased inpatient facilities were $33.7 million in 2009, or 8.3% of revenue. Same-facility other operating expenses for owned and leased inpatient facilities were $32.7 million in 2009, or 8.3% of revenue, compared to $30.2 million in 2008, or 7.9% of revenue. The increase in same-facility other operating expenses for owned and leased inpatient facilities was primarily the result of an increase in our self-insured general and professional liability insurance expense as a percent of revenue. Other operating expenses for other operations and our corporate office increased to $14.7 million in 2009 compared to $14.2 million in 2008.
Depreciation and amortization. Depreciation and amortization expense increased to $11.0 million for the three months ended March 31, 2009 compared to $9.4 million for the three months ended March 31, 2008, primarily as a result of the acquisitions of inpatient facilities and expansion capital expenditures during 2008 and 2009.
Interest expense, net. Interest expense, net of interest income, decreased to $17.3 million for the three months ended March 31, 2009 compared to $20.3 million for the three months ended March 31, 2008 primarily as a result of a reduction in interest rates on our variable rate debt. In February 2009, as part of an amendment to our revolving credit facility, the interest rate margins on borrowings based on LIBOR were increased to a range of 5.0% to 5.75% from 1.25% to 2.25% depending upon a certain leverage ratio.
Income attributable to noncontrolling interest. We own a controlling interest in a joint venture that owns one of our inpatient behavioral health care facilities. Income attributable to noncontrolling interest represents the pro rata portion of this joint venture's net profit belonging to the noncontrolling partner.
(Loss) Income from discontinued operations, net of taxes. The loss from discontinued operations, net of income tax effect, was $0.4 million for the three months ended March 31, 2009. The income from discontinued operations, net of income tax effect, was $0.2 million for the three months ended March 31, 2008. During the year ended December 31, 2008, we elected to dispose of a leased inpatient facility. Additionally, two contracts with a Puerto Rican juvenile justice agency to manage inpatient facilities were terminated in 2008. Accordingly, these operations are included in discontinued operations.

Liquidity and Capital Resources
Working capital at March 31, 2009 was $167.5 million, including cash and cash equivalents of $20.0 million, compared to working capital of $168.7 million, including cash and cash equivalents of $51.3 million, at December 31, 2008. The decrease in cash and cash equivalents in 2009 was largely the result of using excess cash to reduce the outstanding debt balance on our revolving credit facility, $29.3 million of which was classified as a current liability at December 31, 2008. Other significant changes in working capital in 2009 included an increase in accounts receivable of $8.8 million, a decrease in accrued interest expense of $8.5 million and a decrease in income tax receivables of $14.5 million. The increase in accounts receivable is primarily the result of increases in same-facility revenue and receivables generated from businesses acquired in 2008. Our consolidated day's sales outstanding were 52 and 51 at March 31, 2009 and December 31, 2008, respectively.
Cash provided by continuing operating activities was $40.3 million for the three months ended March 31, 2009 compared to $12.3 million for the three months ended March 31, 2008. The increase in cash flows from continuing operating activities was primarily cash provided by the facilities acquired from UMC and changes in working capital, including a reduction in payments for income taxes and interest.
Cash used in investing activities was $24.8 million for the three months ended March 31, 2009 compared to $165.4 million for the three months ended March 31, 2008. Cash used in investing activities for the three months ended March 31, 2009 was primarily the result of $24.7 million paid for purchases of fixed assets. Cash used for routine and expansion capital expenditures was approximately $10.3 million and $14.1 million, respectively, for the three months ended March 31, 2009. We expect expansion expenditures to continue during 2009 as a result of planned capital expansion projects, which are expected to add approximately 400 new beds to our inpatient facilities. We define expansion capital expenditures as those that increase the capacity of our facilities or otherwise enhance revenue. We expect to pay $18.5 million in the second quarter of 2009 to purchase a previously leased facility. Cash used in investing activities for the three months ended March 31, 2008 consisted primarily of $141.2 million in cash paid for acquisitions and $22.9 million paid for purchases of fixed assets. Acquisitions in 2008 consisted primarily of five inpatient behavioral health care facilities acquired from UMC and EAP acquisitions.
Cash used in financing activities was $46.6 million for the three months ended March 31, 2009 compared to cash provided by financing activities of $128.6 million for the three months ended March 31, 2008. 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. Cash used in financing activities for the three months ended March 31, 2009 also included $5.4 million paid to lenders in connection with the amendment of our revolving credit facility during February 2009. Cash provided by financing activities for the three months ended March 31, 2008 primarily resulted from $130.0 million borrowed under our revolving credit facility that was used to finance the acquisition of five inpatient behavioral health care facilities from UMC and certain EAP acquisitions, capital expenditures and other general corporate purposes.
We have a universal shelf registration statement on Form S-3 under which we may sell an indeterminate amount of our common stock, common stock warrants, preferred stock and debt securities. We may from time to time offer these securities in one or more series, in amounts, at prices and on terms satisfactory to us. The universal shelf registration statement will expire on November 30, 2009. We plan to file a new universal shelf registration statement to register an indeterminate amount of our securities prior to the expiration of our current universal shelf registration statement.
During the fourth quarter of 2007, we entered into an interest rate swap agreement with Merrill Lynch Capital Services, Inc. to manage our exposure to fluctuations in interest rates. Pursuant to this interest rate swap agreement, we exchange the interest payments associated with a face value amount of $225 million of LIBOR-indexed variable rate debt related to our senior secured term loan facility for a fixed interest rate. This interest rate swap agreement matures on November 30, 2009. The fair value of our interest rate swap agreement at March 31, 2009 is reflected as an other current liability of $4.8 million.
We are actively seeking acquisitions that fit our corporate growth strategy and may acquire additional inpatient psychiatric facilities and other operations, and we will incur continued expenditures on expansion projects. Management continually assesses our capital needs, and, should the need arise, we will seek additional financing, including debt or equity, to fund potential acquisitions, for facility expansions, for payment of indebtedness or for other corporate purposes. In negotiating such financing, there can be no assurance that we will be able to raise additional capital on terms satisfactory to us. Failure to obtain additional financing on reasonable terms could have a negative effect on our plans to acquire additional inpatient psychiatric facilities or make capital expenditures.

Contractual Obligations

                                                            Payments Due by Period (in thousands)
                                                         Less than                                             More than
                                        Total             1 year           1-3 years         3-5 years          5 years
Long-term debt (1):
Senior Credit Facility:
Revolving line of credit
facility, expiring on
December 31, 2011 and bearing
interest of 5.9% at March 31,
2009                                 $   190,000        $         -        $  190,000        $        -        $        -
Senior secured term loan
facility, expiring on July 1,
2012 and bearing interest of
2.3% at March 31, 2009                   567,688              3,750             7,500           556,438                 -
73/4% Senior Subordinated Notes
due July 15, 2015                        475,666                  -                 -                 -           475,666
Mortgage loans on facilities,
maturing in 2036, 2037 and 2038
bearing fixed interest rates of
5.7% to 7.6%                              33,170                430               943             1,067            30,730

                                       1,266,524              4,180           198,443           557,505           506,396

Lease and other obligations              111,444             38,732            19,505            12,199            41,008

Total contractual obligations        $ 1,377,968        $    42,912        $  217,948        $  569,704        $  547,404

(1) Excludes capital lease obligations and other obligations of $7.1 million, which are included in lease and other obligations.

The fair value of our $470.0 million in principal amount of 73/4% Notes was . . .