10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

or

[  ]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: 0-20372

RES-CARE, INC.

(Exact name of registrant as specified in its charter)

KENTUCKY	61-0875371
(State or other jurisdiction of	(IRS Employer Identification No.)
incorporation or organization)
9901 Linn Station Road	40223-3808
Louisville, Kentucky	(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code:  (502) 394-2100

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 twelve 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. Yes   ü 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes    ü 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 definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12-b of the Act (Check one):

Large accelerated filer: __ Accelerated filer: __ Non-accelerated filer: ü Smaller reporting company: __

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes               No   ü.

The number of shares outstanding of the registrant’s common stock, no par value, as of April 30, 2013 was 21,344,741.

INDEX

RES-CARE, INC. AND SUBSIDIARIES

		PAGE
PART I.	FINANCIAL INFORMATION	NUMBER
Item 1.	Condensed Consolidated Balance Sheets – March 31, 2013 and and December 31, 2012	3
	Condensed Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2013 and 2012	4
	Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2013 and 2012	5
	Notes to Condensed Consolidated Financial Statements – March 31, 2013	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23
Item 4.	Controls and Procedures	23
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults upon Senior Securities	24
Item 4.	Mine Safety Disclosures	24
Item 5.	Other Information	25
Item 6.	Exhibits	27
SIGNATURES
EXHIBITS

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PART I.          FINANCIAL INFORMATION

Item 1.             Financial Statements

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

(Unaudited)

	March 31			December 31
	2013			2012
ASSETS
Current assets:
Cash and cash equivalents		$     46,703			$     50,134
Accounts receivable, net of allowance for doubtful accounts of $13,788 in 2013 and $11,997 in 2012		228,506			228,377
Refundable income taxes		1,251			—
Deferred income taxes		17,125			17,589
Prepaid expenses and other current assets		21,060			22,116
Total current assets		314,645			318,216
Property and equipment, net		94,959			97,030
Goodwill		288,140			288,265
Other intangible assets, net		319,564			321,293
Other assets		23,904			27,154
Total assets		$1,041,212			$1,051,958
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities:
Trade accounts payable		$     33,245			$     37,738
Accrued expenses		104,447			114,876
Current portion of long-term debt		10,009			14,695
Current portion of obligations under capital leases		5,834			6,052
Accrued income taxes		802			1,813
Total current liabilities		154,337			175,174
Long-term liabilities		56,368			56,469
Long-term debt		356,203			358,420
Obligations under capital leases		10,732			11,632
Deferred income taxes		107,753			106,253
Total liabilities		685,393			707,948
Shareholder’s equity:
Preferred shares, authorized 1,000,000 shares, no par value, except 48,095 shares designated as Series A with stated value of $1,050 per share, no shares issued and outstanding in 2013 and 2012		—			—
Common stock, no par value, authorized 40,000,000 shares, issued and outstanding 21,344,741 in 2013 and 2012		—			—
Additional paid-in capital		245,049			244,345
Retained earnings		111,066			99,734
Accumulated other comprehensive loss		(161	)		30
Total shareholder’s equity – Res-Care, Inc.		355,954			344,109
Noncontrolling interest		(135	)		(99	)
Total shareholder’s equity		355,819			344,010
Total liabilities and shareholder’s equity		$1,041,212			$1,051,958

See accompanying notes to condensed consolidated financial statements.

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RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended
	March 31
	2013			2012
Revenues	$	389,454		$	397,342
Cost of services	294,376			299,280
Gross profit	95,078			98,062
Operating expenses:
Operational general and administrative	58,770			60,349
Corporate general and administrative	15,110			17,667
Total operating expenses	73,880			78,016
Operating income	21,198			20,046
Interest expense, net	8,537			10,443
Income before income taxes	12,661			9,603
Income tax expense	1,365			3,868
Net income	11,296			5,735
Net loss-noncontrolling interest	(36		)	(30		)
Net income-Res-Care, Inc.	11,332			5,765
Other comprehensive income:
Foreign currency translation adjustments	(191		)	161
Comprehensive income attributable to Res-Care, Inc.	$	11,141		$	5,926
Total comprehensive income	$	11,105		$	5,896

See accompanying notes to condensed consolidated financial statements.

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RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended
	March 31
	2013			2012
Cash flows from operating activities:
Net income	$	11,296		$	5,735
Adjustments to reconcile net income to cash (used in) provided by operating activities:
Depreciation and amortization	8,195			8,807
Amortization of discount and deferred debt issuance costs	870			675
Share-based compensation	704			1,174
Deferred income taxes, net	1,964			1,100
Provision for losses on accounts receivable	1,818			1,549
Loss on sale of assets	102			35
Changes in operating assets and liabilities	(15,779		)	(20,122		)
Cash provided by (used in) operating activities	9,170			(1,047		)
Cash flows from investing activities:
Purchases of property and equipment	(4,103		)	(4,261		)
Acquisitions of businesses, net of cash acquired	(7		)	(4,550		)
Proceeds from sale of assets	81			10
Cash used in investing activities	(4,029		)	(8,801		)
Cash flows from financing activities:
Long-term debt repayments	(6,904		)	(1,188		)
Long-term debt borrowings	—			71
Payments on obligations under capital lease	(1,594		)	(1,497		)
Debt issuance costs	(8		)	—
Cash used in financing activities	(8,506		)	(2,614		)
Effect of exchange rate changes on cash and cash equivalents	(66		)	64
Decrease in cash and cash equivalents	(3,431		)	(12,398		)
Cash and cash equivalents at beginning of period	50,134			25,651
Cash and cash equivalents at end of period	$	46,703		$	13,253
Supplemental schedule of non-cash investing and financing activities:
Capital lease obligations	476			1,298

See accompanying notes to condensed consolidated financial statements.

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RES-CARE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands, except per share data)

(Unaudited)

Note 1.                   Basis of Presentation

Res-Care, Inc. is a human service company that provides residential, therapeutic, job training and educational supports to people with developmental or other disabilities, youth with special needs, adults who are experiencing barriers to employment, and older people who need home care assistance. All references in this Quarterly Report on Form 10-Q to “ResCare”, “Company”, “our company”, “we”, “us”, or “our” mean Res-Care, Inc. and, unless the context otherwise requires, its consolidated subsidiaries.

The accompanying condensed consolidated financial statements of ResCare have been prepared in accordance with Article 10 of Regulation S-X and do not include all information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for comprehensive annual financial statements. In our opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of financial condition and results of operations for the interim periods have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full year.

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts and related disclosures of commitments and contingencies. We rely on historical experience and on various other assumptions that we believe to be reasonable under the circumstances to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

For further information refer to the consolidated financial statements and footnotes thereto in our 2012 Annual Report on Form 10-K filed February 19, 2013.

Reclassification

Certain immaterial reclassifications have been made to 2012 amounts to conform to 2013 presentation.

Segments

Effective January 1, 2013, we began managing and operating our Pharmacy Services as a new reporting segment.  Pharmacy Services is a limited, closed-door pharmacy focused on serving individuals with cognitive, intellectual and developmental disabilities.  The pharmacy operations were previously included with our Residential Services segment.  As a result of this change, the results of our Residential Services segment has been retrospectively recast for all periods presented.  Further information regarding our segments is included in Note 6.

Note 2.                   Goodwill

Goodwill is tested for impairment on an annual basis and between annual tests if indicators of potential impairment exist. The date of our annual impairment test is October 1. A change in our reportable segments, more fully described herein in Note 6, resulted in a change in the composition of our reporting units, which is the unit of accounting for goodwill.  Accordingly, we reallocated goodwill between our Residential Services and Pharmacy Services’ reporting units using the relative fair value approach.  A summary of changes to goodwill during the three months ended March 31, 2013 is as follows:

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	Residential			ResCare		Youth		Workforce		Pharmacy
	Services			HomeCare		Services		Services		Services		Total
Balance at January 1, 2013
Goodwill	$	160,727		$	65,663	$	24,829	$	32,720	$	4,326	$	288,265
Goodwill added through acquisitions	7			—		—		—		—		7
Other (1)	(132		)	—		—		—		—		(132		)
Balance at March 31, 2013	$	160,602		$	65,663	$	24,829	$	32,720	$	4,326	$	288,140

(1)  Primarily relates to foreign currency translation adjustments.

Note 3.                   Debt

Long-term debt and obligations under capital leases consist of the following:

	March 31		December 31
	2013		2012
10.75% senior notes due 2019	$	200,000	$	200,000
Senior secured Term Loan A due 2017	164,076		170,625
Senior secured credit facility	—		—
Obligations under capital leases	16,566		17,683
Notes payable and other	2,136		2,491
	382,778		390,799
Less current portion	15,843		20,747
	$	366,935	$	370,052

On April 5, 2012, we entered into a new senior secured credit facility (the “Credit Agreement”) in an aggregate principal amount of $375 million, which replaced our 2010 senior secured revolving credit facility and the senior secured term loan (the “Term Loan B”). The new Credit Agreement consists of a new term loan (the “Term Loan A”) in an aggregate principal amount of $175 million and a new revolving credit facility (the “Revolving Facility”) in an aggregate principal amount of $200 million. The Term Loan A and the Revolving Facility each mature on April 5, 2017. The Term Loan A will amortize in an aggregate annual amount equal to a percentage of the original principal amount of the Term Loan A as follows: (i) 5% during each of the first two years after funding, (ii) 10% during the third year after funding and (iii) 15% during each of the final two years of the term. The balance of the Term Loan A is payable at maturity. Pricing for the Term Loan A will be variable, at the London Interbank Offer Rate (LIBOR) plus a spread, which is currently 275 basis points. LIBOR is defined as having no minimum rate. The spread varies between 225 and 300 basis points depending on our total leverage ratio.  The proceeds of the Term Loan A were used to repay the Company’s prior Term Loan B and pay certain related fees and expenses. The proceeds of the Revolving Facility may be used for working capital and for other general corporate purposes permitted under the Credit Agreement, including certain acquisitions and investments. The Credit Agreement also provides that, upon satisfaction of certain conditions, the Company may increase the aggregate principal amount of loans outstanding thereunder by up to $175 million, subject to receipt of additional lending commitments for such loans. The loans and other obligations under the Credit Agreement are (i) guaranteed by Onex Rescare Holdings Corp. (“Holdings”) and substantially all of its subsidiaries (subject to certain exceptions and limitations) and (ii) secured by substantially all of the assets of the Company, Holdings and substantially all of its subsidiaries (subject to certain exceptions and limitations). The Credit Agreement contains various financial covenants relating to capital expenditures and rentals, and requires us to maintain specific ratios with respect to interest coverage and leverage. The agreement continues to provide for the exclusion of charges incurred with the resolution of certain legal proceedings provided in Note 7 to Notes to the Condensed Consolidated Financial Statements, as well as any non-cash impairment charges, in the calculation of certain financial covenants.

Our obligations under capital leases are $16.6 million as of  March 31, 2013, due primarily to vehicle capital leases.  The current portion of these lease obligations was $5.8 million.

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Note 4.                   Income Taxes

The effective tax rate was 10.8% and 40.3% for the three months ended March 31, 2013 and 2012, respectively. The decrease in the effective tax rate relates primarily to the impact of jobs tax credits.  On January 2, 2013, legislation was enacted that reinstated the jobs credit provisions retroactive to January 1, 2012.  The three months ended March 31, 2013 includes the current quarter’s jobs tax credit impact and $3.3 million related to 2012 and prior periods’ jobs tax credit impact.

Note 5.                   Financial Instruments

At March 31, 2013 and December 31, 2012, the fair values of cash and cash equivalents, accounts receivable and accounts payable approximated carrying value because of the short-term nature of these instruments. The fair value of our other financial instruments subject to fair value disclosures are as follows:

	March 31, 2013				December 31, 2012
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Long-term debt:
10.75% senior notes	$	200,000	$	226,000	$	200,000	$	221,000
Senior secured Term Loan A	164,076		164,076		170,625		170,625
Notes payable and other	2,136		2,063		2,491		2,410

We estimated the fair value of the debt instruments using market quotes and calculations based on current market rates available to us (Level 2).

Note 6.                   Segment Information

Effective January 1, 2013, we began managing and operating our Pharmacy Services as a new reporting segment.  Pharmacy Services is a limited, closed-door pharmacy focused on serving individuals with cognitive, intellectual and developmental disabilities.  The pharmacy operations were previously included with our Residential Services segment.  As a result of this change, the results of our Residential Services segment has been retrospectively recast for all periods presented.

The following table sets forth information about our reportable segments:

	Residential		ResCare		Youth		Workforce		Pharmacy
	Services		HomeCare		Services		Services		Services		Corporate			Total
Three months ended March 31:
2013
Revenues	$	204,501	$	88,068	$	41,880	$	39,818	$	15,187	$	—		$	389,454
Operating income (loss) (1)	24,398		4,532		3,061		3,612		1,027		(15,432		)	21,198
Total assets	548,885		188,168		92,566		82,332		17,113		112,148			1,041,212
Capital expenditures	1,670		218		33		15		169		1,998			4,103
Depreciation and amortization	4,839		682		361		276		32		2,005			8,195
2012
Revenues	$	200,798	$	84,019	$	46,557	$	48,829	$	17,139	$	—		$	397,342
Operating income (loss) (1)	26,569		4,798		3,261		1,948		1,145		(17,675		)	20,046
Total assets	526,801		187,612		108,219		87,867		14,034		88,799			1,013,332
Capital expenditures	1,259		392		88		70		76		2,376			4,261
Depreciation and amortization	5,219		683		406		310		47		2,142			8,807

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(1) Under Corporate, the operating loss is comprised of our corporate general and administrative expenses, as well as other operating income and expenses related to the corporate office.

Note 7.                   Legal Proceedings

ResCare, or its affiliates, are parties to various legal and/or administrative proceedings arising out of the operation of our programs and arising in the ordinary course of business. Except for the matter discussed below, we do not believe the ultimate liability, if any, for these proceedings or claims, individually or in the aggregate, in excess of amounts already provided, will have a material adverse effect on our condensed consolidated financial condition, results of operations or cash flows.

We record accruals for such contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. No estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made at this time regarding the matters specifically described below because the inherently unpredictable nature of legal proceedings may be exacerbated by various factors, including: (i) the damages sought in the proceedings are unsubstantiated or indeterminate; (ii) discovery is not complete; (iii) the proceeding is in its early stages; (iv) the matters present legal uncertainties; (v) there are significant facts in dispute; (vi) there are a large number of parties (including where it is uncertain how liability, if any, will be shared among multiple defendants); or (vii) there is a wide range of potential outcomes. Nevertheless, it is reasonably possible that the outcome of these matters may have a material adverse effect on our financial condition, results of operations or cash flows or may affect our reputation.

In March 2007, a lawsuit was filed in Bernalillo County, New Mexico State Court styled Larry Selk, by and through his legal guardian, Rani Rubio v. Res-Care New Mexico, Inc., Res-Care, Inc., et al. The lawsuit sought compensatory and punitive damages for claims of negligence, negligence per se, violations of the Unfair Practices Act and violations of the Resident Abuse and Neglect Act. Settlement discussions were unsuccessful and a jury trial commenced on November 9, 2009 on the issue of negligence. The jury returned a verdict of approximately $53.9 million in damages against the Company, consisting of approximately $4.7 million in compensatory damages and $49.2 million in punitive damages, which was entered as a judgment in December 2009. On February 19, 2010, the New Mexico trial court judge ruled on post-trial motions reducing the jury award to $15.5 million, which consists of approximately $10.8 million in punitive damages and $4.7 million in compensatory damages. We believe the parent company is not liable for the actions of its subsidiary (Res-Care New Mexico, Inc.) or its employees and that both the compensatory and punitive amounts awarded are excessive and contrary to United States Supreme Court and New Mexico Supreme Court precedent which would warrant a new trial or, in the alternative, would reduce the judgment amount. We, as well as the plaintiffs, have appealed. Oral arguments before the Court of Appeals were held on November 15, 2011, and we anticipate a ruling from the Court of Appeals in the near future.  We will continue to defend this matter vigorously. Although we have made provisions in our condensed consolidated financial statements for this self-insured matter, the amount of our legal reserve is less than the original amount of the damages awarded, plus accrued interest. The ultimate outcome of this matter could have a material adverse effect on our financial condition, results of operations or cash flows.

Note 8.                   Noncontrolling Interest

As of March 31, 2013, ResCare held a 66.7% interest in Rest Assured LLC, a limited liability company comprised of public and private organizations providing remote monitoring services for persons with disabilities and the elderly. ASC 810, Noncontrolling Interests in Consolidated Financial Statements, (“ASC 810”) clarifies that noncontrolling interest be reported as a component separate from the parent’s equity and that changes in the parent’s ownership interest in a subsidiary be recorded as equity transactions if the parent retains its controlling interest in the subsidiary. The statement also requires consolidated net income to include amounts attributable to both the parent and the noncontrolling interest on the face of the income statement. In addition, ASC 810 requires a parent to recognize a gain or loss in net income on the date the parent deconsolidates a subsidiary, or ceases to have a controlling financial interest in a subsidiary. There is no foreign currency translation adjustment related to Rest Assured. Balances are as follows:

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Noncontrolling interest as of December 31, 2011	$	11
Net loss-noncontrolling interest	(110		)
Noncontrolling interest as of December 31, 2012	(99		)
Net loss-noncontrolling interest	(36		)
Noncontrolling interest as of March 31, 2013	$	(135	)

Note 9.                   Impact of Recently Issued Accounting Pronouncements

We do not believe there are any new accounting pronouncements that have been issued that might have a material impact on our condensed consolidated financial position or results of operations.

Note 10.                 Revision of Previously Reported Data

As discussed in the lease arrangements footnote (Note 13) on our 2012 Form 10-K, we recorded an out-of-period adjustment in the fourth quarter of 2012 to correct the accounting treatment for our leased vehicles.  Due to the immateriality of the amount, the 2011 and prior pre-tax impact of approximately $0.7 million ($0.4 million after tax) was corrected in our revised first quarter 2012 results as disclosed in the following table.  The table below also includes the correction of the 2012 impact of the adjustment in the revised first quarter of 2012.  These amounts were not considered material to the prior periods.

	As Reported			Adjustment			As Revised
2012 – Successor (First Quarter)
Three Months Ended March 31, 2012
Revenues	$	397,342		$	—		$	397,342
Gross profit	98,452			(390		)	98,062
Operating income	20,500			(454		)	20,046
Interest expense	10,208			235			10,443
Net income (loss):
Net income (loss)	6,155			(420		)	5,735
Net loss – noncontrolling interest	(30		)	—			(30		)
Net income (loss) – ResCare, Inc.	$	6,185		$	(420	)	$	5,765
As of March 31, 2012
Property and equipment, net	$	84,308		$	16,672		$	100,980
Current portion of Long-term debt, including capital leases	85			5,609			5,694
Obligations under capital leases	324			11,784			12,108
Three Months Ended March 31, 2012
Cash (used in) provided by operating activities	$	(2,521	)	$	1,474		$	(1,047	)
Cash used in financing activities	(1,140		)	(1,474		)	(2,614		)

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Note 11.                 Subsidiary Guarantors

The Senior Notes are jointly, severally, fully and unconditionally guaranteed, subject to certain automatic customary release provisions, by our 100% owned U.S. subsidiaries. There are no restrictions on our ability to obtain funds from our U.S. subsidiaries by dividends or other means. The following are condensed consolidating financial statements of our company, including the guarantors. This information is provided pursuant to Rule 3 – 10 of Regulation S-X in lieu of separate financial statements of each subsidiary guaranteeing the Senior Notes. The following condensed consolidating financial statements present the balance sheet, statement of comprehensive income and cash flows of (i) Res-Care, Inc. (in each case, reflecting investments in its consolidated subsidiaries under the equity method of accounting), (ii) the guarantor subsidiaries, (iii) the non-guarantor subsidiaries, and (iv) the eliminations necessary to arrive at the information for our company on a consolidated basis. The condensed consolidating financial statements should be read in conjunction with the accompanying condensed consolidated financial statements.

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RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

March 31, 2013

(In thousands)

				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
ASSETS
Current assets:
Cash and cash equivalents	$	40,339		$	3,708		$	2,656		$	—		$	46,703
Accounts receivable, net	20,315			207,843			348			—			228,506
Refundable income taxes	1,251			—			—			—			1,251
Deferred income taxes	17,125			—			—			—			17,125
Prepaid expenses and other current assets	9,089			11,474			497			—			21,060
Total current assets	88,119			223,025			3,501			—			314,645
Property and equipment, net	42,364			52,187			408			—			94,959
Goodwill	282,839			—			5,301			—			288,140
Other intangible assets, net	301,103			18,461			—			—			319,564
Intercompany	—			657,549			69,747			(727,296		)	—
Investment in subsidiaries	938,207			41,782			—			(979,989		)	—
Other assets	20,803			3,084			17			—			23,904
	$	1,673,435		$	996,088		$	78,974		$	(1,707,285	)	$	1,041,212
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities:
Trade accounts payable	$	16,036		$	17,171		$	38		$	—		$	33,245
Accrued expenses	46,833			56,782			832			—			104,447
Current portion of long-term debt	8,750			1,259			1,542			(1,542		)	10,009
Current portion of obligations under capital leases	—			5,834			—			—			5,834
Accrued income taxes	842			—			(40		)	—			802
Total current liabilities	72,461			81,046			2,372			(1,542		)	154,337
Intercompany	725,754			—			—			(725,754		)	—
Long-term liabilities	56,187			181			—			—			56,368
Long-term debt	355,326			877			—			—			356,203
Obligations under capital leases	—			10,732			—			—			10,732
Deferred income taxes	107,753			—			—			—			107,753
Total liabilities	1,317,481			92,836			2,372			(727,296		)	685,393
Preferred shares	—			—			—			—			—
Common stock	—			—			—			—			—
Additional paid-in capital	245,049			476,811			125,104			(601,915		)	245,049
Retained earnings	111,066			426,459			(47,542		)	(378,917		)	111,066
Accumulated other comprehensive (loss) income	(161		)	(18		)	(825		)	843			(161		)
Total shareholder’s equity-Res-Care, Inc.	355,954			903,252			76,737			(979,989		)	355,954
Noncontrolling interest	—			—			(135		)	—			(135		)
Total shareholder’s equity	355,954			903,252			76,602			(979,989		)	355,819
	$	1,673,435		$	996,088		$	78,974		$	(1,707,285	)	$	1,041,212

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RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2012

(In thousands)

			Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.		Subsidiaries			Subsidiaries			Eliminations			Total
ASSETS
Current assets:
Cash and cash equivalents	$	42,633	$	4,795		$	2,706		$	—		$	50,134
Accounts receivable, net	21,515		206,491			371			—			228,377
Refundable income taxes	—		—			—			—			—
Deferred income taxes	17,589		—			—			—			17,589
Prepaid expenses and other current assets	11,620		9,981			515			—			22,116
Total current assets	93,357		221,267			3,592			—			318,216
Property and equipment, net	43,320		53,282			428			—			97,030
Goodwill	282,832		—			5,433			—			288,265
Other intangible assets, net	302,293		19,000			—			—			321,293
Intercompany	—		622,481			70,335			(692,816		)	—
Investment in subsidiaries	900,087		41,782			—			(941,869		)	—
Other assets	24,073		3,064			17			—			27,154
	$	1,645,962	$	960,876		$	79,805		$	(1,634,685	)	$	1,051,958
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities:
Trade accounts payable	$	20,499	$	17,181		$	58		$	—		$	37,738
Accrued expenses	55,299		58,729			848			—			114,876
Current portion of long-term debt	13,098		1,573			1,746			(1,722		)	14,695
Current portion of obligations under capital leases	—		6,052			—			—			6,052
Accrued income taxes	1,843		—			(30		)	—			1,813
Total current liabilities	90,739		83,535			2,622			(1,722		)	175,174
Intercompany	691,094		—			—			(691,094		)	—
Long-term liabilities	56,240		229			—			—			56,469
Long-term debt	357,527		893			—			—			358,420
Obligations under capital leases	—		11,632			—			—			11,632
Deferred income taxes	106,253		—			—			—			106,253
Total liabilities	1,301,853		96,289			2,622			(692,816		)	707,948
Preferred shares	—		—			—			—			—
Common stock	—		—			—			—			—
Additional paid-in capital	244,345		476,811			125,104			(601,915		)	244,345
Retained earnings	99,734		387,794			(47,445		)	(340,349		)	99,734
Accumulated other comprehensive (loss) income	30		(18		)	(377		)	395			30
Total shareholder’s equity-Res-Care, Inc.	344,109		864,587			77,282			(941,869		)	344,109
Noncontrolling interest	—		—			(99		)	—			(99		)
Total shareholder’s equity	344,109		864,587			77,183			(941,869		)	344,010
	$	1,645,962	$	960,876		$	79,805		$	(1,634,685	)	$	1,051,958

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RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

Three Months Ended March 31, 2013

(In thousands)

				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Revenues	$	60,452		$	328,250		$	752		$	—		$	389,454
Operating expenses	65,177			302,247			832			—			368,256
Operating (loss) income	(4,725		)	26,003			(80		)	—			21,198
Other expenses (income):
Interest, net	8,295			185			57			—			8,537
Equity in earnings of subsidiaries	(16,215		)	(143		)	—			16,358			—
Total other (income) expenses	(7,920		)	42			57			16,358			8,537
(Loss) income before income taxes	3,195			25,961			(137		)	(16,358		)	12,661
Income tax (benefit) expense	(8,137		)	9,553			(51		)	—			1,365
Net income (loss)	11,332			16,408			(86		)	(16,358		)	11,296
Net loss-noncontrolling interest	—			—			(36		)	—			(36		)
Net income (loss)-Res-Care, Inc.	11,332			16,408			(50		)	(16,358		)	11,332
Other comprehensive income (loss):
Foreign currently translation adjustments	(191		)	—			(191		)	191			(191		)
Comprehensive income (loss) attributable to Res-Care, Inc.	$	11,141		$	16,408		$	(241	)	$	(16,167	)	$	11,141
Total comprehensive income	$	11,141		$	16,408		$	(277	)	$	(16,167	)	$	11,105

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RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

Three Months Ended March 31, 2012

(In thousands)

				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Revenues	$	64,842		$	331,763		$	737		$	—		$	397,342
Operating expenses	71,017			305,420			859			—			377,296
Operating (loss) income	(6,175		)	26,343			(122		)	—			20,046
Other expenses (income):
Interest, net	10,304			141			(2		)	—			10,443
Equity in earnings of subsidiaries	(15,619		)	(43		)	—			15,662			—
Total other (income) expenses	(5,315		)	98			(2		)	15,662			10,443
(Loss) income before income taxes	(860		)	26,245			(120		)	(15,662		)	9,603
Income tax (benefit) expense	(6,625		)	10,541			(48		)	—			3,868
Net income (loss)	5,765			15,704			(72		)	(15,662		)	5,735
Net loss-noncontrolling interest	—			—			(30		)	—			(30		)
Net income (loss)-Res-Care, Inc.	5,765			15,704			(42		)	(15,662		)	5,765
Other comprehensive income (loss):
Foreign currently translation adjustments	161			—			161			(161		)	161
Comprehensive income (loss) attributable to Res-Care, Inc.	$	5,926		$	15,704		$	119		$	(15,823	)	$	5,926
Total comprehensive income	$	5,926		$	15,704		$	89		$	(15,823	)	$	5,896

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RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Three Months Ended March 31, 2013

(In thousands)

				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Operating activities:
Net income (loss)	$	11,332		$	16,408		$	(86	)	$	(16,358	)	$	11,296
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	4,221			3,932			42			—			8,195
Amortization of discount and deferred debt issuance costs on notes	870			—			—			—			870
Share-based compensation	704			—			—			—			704
Deferred income taxes, net	1,964			—			—			—			1,964
Provision for losses on accounts receivable	259			1,559			—			—			1,818
Loss from sale of assets	—			102			—			—			102
Equity in earnings of subsidiaries	(16,215		)	(143		)	—			16,358			—
Changes in operating assets and liabilities	25,111			(41,605		)	715			—			(15,779		)
Cash provided by (used in) operating activities	28,246			(19,747		)	671			—			9,170
Investing activities:
Purchases of property and equipment	(2,075		)	(2,006		)	(22		)	—			(4,103		)
Acquisitions of businesses, net of cash acquired	—			(7		)	—			—			(7		)
Proceeds from sale of assets	—			81			—			—			81
Cash used in investing activities	(2,075		)	(1,932		)	(22		)	—			(4,029		)
Financing activities:
Long-term debt (repayments) borrowings	(6,550		)	(150		)	(204		)	—			(6,904		)
Payments on obligations under capital leases	—			(1,594		)	—			—			(1,594		)
Debt issuance costs	(8		)	—			—			—			(8		)
Net payments relating to intercompany financing	(21,907		)	22,402			(495		)	—			—
Cash (used in) provided by financing activities	(28,465		)	20,658			(699		)	—			(8,506		)
Effect of exchange rate changes on cash and cash equivalents	—			(66		)	—			—			(66		)
(Decrease) increase in cash and cash equivalents	(2,294		)	(1,087		)	(50		)	—			(3,431		)
Cash and cash equivalents at beginning of period	42,633			4,795			2,706			—			50,134
Cash and cash equivalents at end of period	$	40,339		$	3,708		$	2,656		$	—		$	46,703

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RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Three Months Ended March 31, 2012

(In thousands)

				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Operating activities:
Net income (loss)	$	5,765		$	15,704		$	(72	)	$	(15,662	)	$	5,735
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	4,547			4,256			4			—			8,807
Amortization of discount and deferred debt issuance costs on notes	675			—			—			—			675
Share-based compensation	1,174			—			—			—			1,174
Deferred income taxes, net	1,100			—			—			—			1,100
Provision for losses on accounts receivable	136			1,413			—			—			1,549
Loss from sale of assets	—			35			—			—			35
Equity in earnings of subsidiaries	(15,619		)	(43		)	—			15,662			—
Changes in operating assets and liabilities	58,503			3,756			(82,381		)	—			(20,122		)
Cash provided by (used in) operating activities	56,281			25,121			(82,449		)	—			(1,047		)
Investing activities:
Purchases of property and equipment	(3,059		)	(1,151		)	(51		)	—			(4,261		)
Acquisitions of businesses, net of cash acquired	—			(4,550		)	—			—			(4,550		)
Proceeds from sale of assets	—			10			—			—			10
Cash used in investing activities	(3,059		)	(5,691		)	(51		)	—			(8,801		)
Financing activities:
Long-term debt (repayments) borrowings	(283		)	(718		)	(116		)	—			(1,117		)
Payments on obligations under capital leases	—			(1,497		)	—			—			(1,497		)
Net payments relating to intercompany financing	(64,339		)	(18,310		)	82,649			—			—
Cash (used in) provided by financing activities	(64,622		)	(20,525		)	82,533			—			(2,614		)
Effect of exchange rate changes on cash and cash equivalents	—			64			—			—			64
(Decrease) increase in cash and cash equivalents	(11,400		)	(1,031		)	33			—			(12,398		)
Cash and cash equivalents at beginning of period	16,733			6,547			2,371			—			25,651
Cash and cash equivalents at end of period	$	5,333		$	5,516		$	2,404		$	—		$	13,253

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

Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand ResCare’s financial performance and condition. MD&A is provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and the accompanying notes. All references in MD&A to “ResCare”, “Company”, “our company”, “we”, “us”, or “our” mean Res-Care, Inc. and unless the context otherwise requires, its consolidated subsidiaries.

Preliminary Note Regarding Forward-Looking Statements

Statements in this report that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. In addition, we expect to make such forward-looking statements in future filings with the Securities and Exchange Commission, in press releases, and in oral and written statements made by us or with our approval. These forward-looking statements include, but are not limited to: (1) projections of revenues, income or loss, capital structure and other financial items; (2) statements of plans and objectives of ResCare or our management or Board of Directors; (3) statements of future actions or economic performance, including development activities; (4) statements of assumptions underlying such statements; and (5) statements about the limitations on the effectiveness of controls. Words such as “believes”, “anticipates”, “expects”, “intends”, “plans”, “targets”, and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Some of the events or circumstances that could cause actual results to differ from those discussed in the forward-looking statements are discussed in the “Risk Factors” section in Part I, Item 1A of our Annual Report on Form 10-K and in Part II, Item 1A of this Report. Such forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date on which such statement is made.

Overview of Our Business

We receive revenues primarily from the delivery of residential, training, educational and support services to various populations with special needs. Our programs include an array of services provided in both residential and non-residential settings for adults and youths with intellectual, cognitive or other developmental disabilities, and youths who have special educational or support needs, are from disadvantaged backgrounds, or have severe emotional disorders, including some who have entered the juvenile justice system. We also offer, through drop-in or live-in services, personal care, meal preparation, housekeeping, transportation and some skilled nursing care to the elderly in their own homes. Additionally, we provide services to transition welfare recipients, young people and people who have been laid off or have special barriers to employment into the workforce and become productive employees.

Beginning January 1, 2013, we have five reportable operating segments: (i) Residential Services, (ii) ResCare HomeCare, (iii) Youth Services,  (iv) Workforce Services and (v) Pharmacy Services. Residential Services primarily includes services for individuals with intellectual, cognitive or other developmental disabilities in our community home settings. ResCare HomeCare primarily includes periodic in-home care services to the elderly, as well as persons with disabilities. Youth Services consists of our Job Corps centers, a variety of youth programs including foster care, alternative education programs and charter schools. Workforce Services is comprised of our domestic job training and placement programs that assist welfare recipients and disadvantaged job seekers in finding employment and improving their career prospects.  Pharmacy Services is a limited, closed-door pharmacy focused on serving individuals with cognitive, intellectual and developmental disabilities.  All prior periods have been recast to reflect the new segments.

Revenues for our Residential Services operations are derived primarily from state Medicaid programs, other government agencies, commercial insurance companies and from management contracts with private operators, who are  generally not-for-profit providers that contract with state government agencies and are also reimbursed under the Medicaid program. Our services include social, functional and vocational skills training, supported employment and emotional and psychological counseling for individuals with intellectual or other disabilities. We also provide respite,

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therapeutic and other services to individuals with special needs and to older people in their homes. These services are provided on an as-needed basis or hourly basis through our periodic in-home services programs that are reimbursed on a unit-of-service basis.

Reimbursement varies by state and service type, and may be based on a variety of methods including flat-rate, cost-based reimbursement, per person per diem, or unit-of-service basis. Rates are periodically adjusted based upon state budgets or economic conditions and their impact on state budgets. At programs where we are the provider of record, we are directly reimbursed under state Medicaid programs for services we provide and such revenues are affected by occupancy levels. At most programs that we operate pursuant to management contracts, the management fee is negotiated with the provider of record. Through ResCare HomeCare, we also provide in-home services to seniors on a private pay basis. We are concentrating growth efforts in the home care private pay business to further diversify our revenue streams.

We operate vocational training centers under the federal Job Corps program administered by the Department of Labor (“DOL”) through our Youth Services operations. Under Job Corps contracts, we are reimbursed for direct costs of services related to Job Corps center operations, allowable indirect costs for general and administrative costs, plus a predetermined management fee. The management fee takes the form of a fixed contractual amount plus a computed amount based on certain performance criteria. All of such amounts are reflected as revenue, and all such direct costs are reflected as cost of services. Final determination of amounts due under Job Corps contracts is subject to audit and review by the DOL, and renewals and extension of Job Corps contracts are based in part on performance reviews.

We operate job training and placement programs that assist disadvantaged job seekers in finding employment and improving their career prospects through our Workforce Services operations. These programs are administered under contracts with local and state governments. We are typically reimbursed for direct costs of services related to the job training centers, allowable indirect costs plus a fee for profit. The fee can take the form of a fixed contractual amount (rate or price) or be computed based on certain performance criteria. The contracts are funded by federal agencies, including the DOL and Department of Health and Human Services.

Outlook

We provide a variety of vital human services and derive a significant portion of our revenue from state and federal government sources. Despite cost containment efforts, many states are dealing with budget deficits or shortfalls as a result of recent economic conditions, including their Medicaid budgets that fund a significant portion of the services we provide.  We will soon start to see some unfavorable sequestration impacts to our Youth Services and Workforce Services segments.  The Department of Labor (DOL) has announced slot reductions across all Job Corps centers effective July 1, 2013 and preliminary Workforce Investment Act (WIA) adult and youth related funding cuts.  These future impacts are discussed further in the Results of Operations section.

Application of Critical Accounting Policies

Our discussion and analysis of the financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts and related disclosures of commitments and contingencies. We rely on historical experience and on various other assumptions that we believe to be reasonable under the circumstances to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

We continually review our accounting policies and financial information disclosures. A summary of our more significant accounting policies that require the use of estimates and judgments in preparing the financial statements was provided in our 2012 Annual Report on Form 10-K filed February 19, 2013. Management has discussed the development, selection, and application of our critical accounting policies with our Audit Committee. During the first quarter of 2013, there were no material changes in the critical accounting policies and assumptions.

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Results of Operations

		Three Months Ended
		March 31
		2013			2012
		(Dollars in thousands)
Revenues:
Residential Services		$	204,501		$	200,798
ResCare HomeCare		88,068			84,019
Youth Services		41,880			46,557
Workforce Services		39,818			48,829
Pharmacy Services		15,187			17,139
Consolidated		$	389,454		$	397,342
Operating income:
Residential Services		$	24,398		$	26,569
ResCare HomeCare		4,532			4,798
Youth Services		3,061			3,261
Workforce Services		3,612			1,948
Pharmacy Services		1,027			1,145
Corporate (1)		(15,432)			(17,675		)
Consolidated		$	21,198		$	20,046
Operating margin:
Residential Services		11.9		%	13.2%
ResCare HomeCare		5.1		%	5.7%
Youth Services		7.3		%	7.0%
Workforce Services		9.1		%	4.0%
Pharmacy Services		6.8		%	6.7%
Corporate (1)		(4.0		%)	(4.4%		)
Consolidated		5.4		%	5.0%
(1)	Represents corporate general and administrative expenses, as well as other operating income and expenses related to the corporate office.

Consolidated

Consolidated revenues for the quarter ended March 31, 2013 decreased $7.9 million, or 2.0%, from the same period in 2012. Revenues are more fully described in the segment discussions.

Consolidated operating income, which includes corporate general and administrative expenses, for the quarter ended March 31, 2013, was $21.2 million compared to operating income of $20.0 million from the same period in 2012. Consolidated operating margins were 5.4% and 5.0% for the quarterly periods in 2013 and 2012, respectively.

Net interest expense decreased $1.9 million for the first quarter of 2013 compared to the same period in 2012. The decrease was due primarily to lower rates on our senior secured credit facility that closed during the second quarter of 2012.  Our effective income tax rate for the three months ended March 31, 2013 was 10.8% as compared to 40.3% over the same period in 2012. The 2013 rate was favorably impacted by the renewal of jobs tax credits.  Due to the retroactive application of the tax credit to January 1, 2012, our effective tax rate for the first quarter of 2013 reflects not only the first quarter impact, but also $3.3 million related to 2012 and prior periods.

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Residential Services

Residential Services revenues for the quarter ended March 31, 2013 increased $3.7 million, or 1.8%, over the same period in 2012. This increase was due primarily to acquisitions of $9.7 million and rate increases in certain states of $0.4 million, which were partially offset by decreased census of $4.1 million in certain states and $2.3 million related to one less operating day in February 2013. Operating margin was 11.9% for the quarter ended March 31, 2013 compared to 13.2% for the same period in 2012. The reduction in margin is attributable to costs  for wages, maintenance and repairs, rent and supplies, which were not reduced ratably with revenue change due to census decreases.

ResCare HomeCare

ResCare HomeCare revenues for the quarter ended March 31, 2013 increased $4.0 million, or 4.8%, over the same period in 2012. This increase was due primarily to acquisition and organic growth of $4.9 million and $0.5 million, respectively, which were partially offset by rate and service cuts of $0.3 million in certain states and $1.1 million related to one less operating day in February 2013. Operating margin decreased from 5.7% in 2012 to 5.1% in 2013, due to higher spending for wages, marketing and professional services.

Youth Services

Youth Services revenues for the quarter ended March 31, 2013 decreased $4.7 million, or 10.0%, from the same period of 2012, due primarily to spending reductions and enrollment limits in our Job Corps business of $2.6 million, as well as rate, census,and referral issues in certain states within our Residential Youth business for $1.7 million and our Education business for $0.4 million.  Operating margin was 7.3% in the first quarter of 2013 and 7.0% for the same period in 2012.

Effective July 1, 2013, the DOL’s Employment and Training Administration (ETA) will implement slot reductions across all Job Corps centers.  We estimate that this will result in a reduction of approximately 1,000 students or 21% of the total students we are currently contracted to serve.  For the fourteen centers operated by ResCare, this is estimated to result in approximately $8.0 million in reduced revenue to current contract value on an annualized basis.

Workforce Services

Workforce Services revenues for the quarter ended March 31, 2013 decreased $9.0 million, or 18.5%, from the same period in 2012, due primarily to the loss of certain contracts, including the previously reported WeCare contract. Operating margin increased from 4.0% in the first quarter of 2012 to 9.1% in the same period in 2013, due primarily to contract changes of $1.3 million and lower spending on wages, employee benefits and professional expenses.

The DOL has announced preliminary Workforce Investment Act (WIA) adult and youth related funding cuts that we estimate will impact our results starting in the third quarter of 2013.  At this time, the individual workforce boards are still determining how these cuts will be implemented and therefore, we are unable to quantify the financial impact to our Workforce Services’ results.

Pharmacy Services

Pharmacy Services revenues for the quarter ended March 31, 2013 decreased $2.0 million, or 11.4%, from the same period in 2012, due primarily to a change from name brand drugs to generic drugs, which are billed at lower rates. Operating margin increased from 6.7% in the first quarter of 2012 to 6.8% in the same period in 2013.

Corporate

Total corporate operating expenses represent corporate general and administrative expenses, as well as other operating income and expenses. Total expenses in the first quarter of 2013 decreased $2.2 million compared to first quarter of 2012 due primarily to a decrease in incentive compensation accruals and share-based compensation expense of $1.1 million and $0.5 million, respectively.

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Financial Condition, Liquidity and Capital Resources

Total assets decreased $10.7 million, or 1.0%, at March 31, 2013 over balances at December 31, 2012.

Cash and cash equivalents were $46.7 million at March 31, 2013, as compared to $50.1 million at December 31, 2012. Cash provided by operations for the three months ended March 31, 2013 was $9.2 million compared to cash used in operations of $1.0 million for the three months ended March 31, 2012. This improvement was primarily due to the decrease in trade accounts receivable at March 2012. Also, in March 2012, we accrued $5.6 million of debt issuance costs for the refinancing of our credit agreement discussed below, which was finalized on April 5, 2012.

Net accounts receivable at March 31, 2013 increased to $228.5 million, compared to $228.4 million at December 31, 2012. Days of revenue in net accounts receivable were 51 days at March 31, 2013, compared with 49 days at December 31, 2012. The increase in days of revenue is due primarily to temporary payment delays from several payors caused by a variety of reasons including transitioning from legacy payor systems and awaiting contract changes and signatures.

Our capital requirements relate primarily to our plans to expand through selective acquisitions and the development of new programs, and our need for sufficient working capital for general corporate purposes. Since most of our programs are operating at or near capacity, and budgetary pressures and other forces are expected to limit increases in reimbursement rates we receive, our ability to continue to grow at the current rate depends directly on our acquisition and development activity. We have historically satisfied our working capital requirements, capital expenditures and scheduled debt payments from our operating cash flows and borrowings under our revolving credit facility, and expect that this will continue for at least the next twelve months.

Cash used in investing activities at March 31, 2013 decreased $4.8 million over the same period in 2012 primarily due to there being no significant business acquisitions during the first three months of 2013 compared to $4.6 million during the same period of 2012.

Our financing activities included a net payment of debt and capital lease obligations of $8.5 million for the first three months of 2013. This compares to a net payment of debt and capital lease obligations of $2.6 million for the same period in 2012.  In addition to quarterly principal and seller note payments made in the three months ended March 31, 2013, we made an additional required $4.3 million principal payment resulting from the annual Excess Cash Flow calculation, which is part of our financial covenants discussed below.

On April 5, 2012, we entered into a new senior secured credit facility (the “Credit Agreement”) in an aggregate principal amount of $375 million, which replaced our 2010 senior secured revolving credit facility and the senior secured term loan (the “Term Loan B”). The new Credit Agreement consists of a new term loan (the “Term Loan A”) in an aggregate principal amount of $175 million and a new revolving credit facility (the “Revolving Facility”) in an aggregate principal amount of $200 million. The Term Loan A and the Revolving Facility each mature on April 5, 2017. The Term Loan A will amortize in an aggregate annual amount equal to a percentage of the original principal amount of the Term Loan A as follows: (i) 5% during each of the first two years after funding, (ii) 10% during the third year after funding and (iii) 15% during each of the final two years of the term. The balance of the Term Loan A is payable at maturity. Pricing for the Term Loan A will be variable, at the London Interbank Offer Rate (LIBOR) plus a spread, which is currently 275 basis points. LIBOR is defined as having no minimum rate. The spread varies between 225 and 300 basis points depending on our total leverage ratio.  The proceeds of the Term Loan A were used to repay the Company’s prior Term Loan B and pay certain related fees and expenses. The proceeds of the Revolving Facility may be used for working capital and for other general corporate purposes permitted under the Credit Agreement, including certain acquisitions and investments. The Credit Agreement also provides that, upon satisfaction of certain conditions, the Company may increase the aggregate principal amount of loans outstanding thereunder by up to $175 million, subject to receipt of additional lending commitments for such loans. The loans and other obligations under the Credit Agreement are (i) guaranteed by Onex Rescare Holdings Corp. (“Holdings”) and substantially all of its subsidiaries (subject to certain exceptions and limitations) and (ii) secured by substantially all of the assets of the Company, Holdings and substantially all of its subsidiaries (subject to certain exceptions and limitations). The Credit Agreement contains various financial quarterly covenants that require us to maintain specific ratios with respect to interest coverage and leverage. The Credit Agreement also contains covenants relating to capital expenditures and Excess Cash Flows which are to be completed annually.  The Excess Cash Flow calculation is defined in the Credit Agreement.  A cash flow recapture can be required based on the Company’s leverage ratio and ending cash balance at

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year end.  Any recaptured amount derived from the calculation is used to pre pay the Company’s Term Loan A. The new agreement continues to provide for the exclusion of charges incurred with the resolution of certain legal proceedings provided in Note 7 to Notes to the Condensed Consolidated Financial Statements, as well as any non-cash impairment charges, in the calculation of certain financial covenants.

As of March 31, 2013, we had irrevocable standby letters of credit in the principal amount of $59.1 million issued primarily in connection with our insurance programs. As of March 31, 2013, we had $140.9 million available under the amended and restated revolving credit facility, with no outstanding balance. Outstanding balances bear interest at 2.75% over the LIBOR or other bank developed rates at our option. As of March 31, 2013, the weighted average interest rate was not applicable as there were no outstanding borrowings. Letters of credit had a borrowing rate of 2.88% as of March 31, 2013. The commitment fee on the unused balance was 0.50%. The margin over LIBOR and the commitment fee is determined quarterly based on our leverage ratio, as defined by the revolving credit facility.

We are in compliance with our debt covenants at March 31, 2013, and we believe we will continue to be in compliance with these covenants over the next twelve months. Our ability to achieve the thresholds provided for in the financial covenants largely depends upon continued profitability, reductions of amounts borrowed under the facility and continued cash collections.

Operating funding sources were approximately 67% through Medicaid reimbursement, 8% from the DOL and 25% from other payors. We believe our sources of funds through operations and available through the credit facility described above will be sufficient to meet our working capital, planned capital expenditure and scheduled debt repayment requirements for the next twelve months.

We had no significant off-balance sheet transactions or interests in 2013 or 2012.

Impact of Recently Issued Accounting Pronouncements

See Note 9 of the Notes to Condensed Consolidated Financial Statements.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

The market risk inherent in our financial instruments and positions represents the potential loss arising from adverse changes in interest rates. While we are exposed to changes in interest rates as a result of any outstanding variable rate debt, we do not currently utilize any derivative financial instruments related to our interest rate exposures. Our senior secured term loan and senior secured credit facility, which have interest rates based on margins over LIBOR or prime, tiered based upon leverage calculations, had no outstanding borrowings as of March 31, 2013 and December 31, 2012.

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

ResCare’s management, under the supervision and with the participation of the Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the CEO and CFO concluded that ResCare’s disclosure controls and procedures are effective in timely making known to them material information required to be disclosed in the reports filed or submitted under the Securities Exchange Act. There were no changes in ResCare’s internal control over financial reporting during the quarter ended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

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Limitations on the Effectiveness of Controls

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, with our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, that breakdowns can occur because of simple errors or mistakes, and that controls can be circumvented by the acts of individuals or groups. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II.OTHER INFORMATION

Item 1.Legal Proceedings

Information regarding the legal proceedings is provided in Note 7 to the condensed consolidated financial statements set forth in Part I of this report and incorporated by reference into this Part II, Item 1.

Item 1A.Risk Factors

There have been no material changes from the risk factors previously disclosed in our 2012 Annual Report on Form 10-K filed February 19, 2013.

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

None.

Item 3.Defaults upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not applicable.

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Item 5.Other Information

On April 15, 2013, Res-Care, Inc. announced that Steven S. Reed had been appointed as the Company’s Chief Legal Officer and Corporate Secretary effective April 15, 2013.  The material terms of Mr. Reed’s employment agreement in his new position are set forth below:

Term:	April 15, 2013 to December 31, 2015.
	Automatically renews for successive one-year terms unless earlier terminated as provided in the employment agreement.
Base Salary:	$250,000, which may be adjusted from time to time for changes in Mr. Reed’s duties or for market conditions
Cash incentive compensation:	Up to 170% of base salary paid annually, subject to both company and individual performance goals.
	Threshold necessary to earn any incentive compensation: 90% of budgeted EBITDA.
	Maximum percentage of base salary based on Company performance: 140% Company performance criterion: Budgeted EBITDA
	Maximum percentage of base salary based on individual performance criteria established by the Board of Directors: 30%
Benefits:	Mr. Reed will participate in all employee benefit plans provided by the Company for which he is eligible.

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Termination	If the employment agreement is terminated without cause by ResCare or if ResCare elects not to renew the employment agreement, Mr. Reed will continue to receive installments of his then current base salary for a period of 12 months following his date of termination.  He will also receive any earned but unpaid incentive bonus for any calendar year ending before or at termination.
	If Mr. Reed dies or elects not to renew the employment agreement at the end of its term, he would receive his salary through the date of termination or death and would be entitled to receive any earned but unpaid incentive bonus for a calendar year ending before or at termination.
	If Mr. Reed voluntarily terminates his employment, he would receive his salary through the date of termination and would not be entitled to receive any earned but unpaid incentive bonus for a calendar year ending before or at termination.
	If Mr. Reed becomes disabled during the term of the agreement, then after he has exhausted any paid time off, he will continue to receive his base salary until the earlier of the termination of the agreement due to disability as provided in the agreement, or the commencement of disability benefits under the Company’s benefit plan. In addition, if the disability benefits do not equal 100% of base salary, Mr. Reed would receive the difference between his base salary and the disability payment until the agreement terminates due to disability.  He would also receive any earned but unpaid incentive bonus for a calendar year ending before termination.
	“Cause” is defined as personal dishonesty, intentional misconduct, breach of fiduciary duty involving personal profit, conviction of, or plea of nolo contender to, any law, rule or regulation (other than traffic violations or similar offenses) or breach of any provision of the employment agreement.
Restrictive Covenants:	Mr. Reed agrees not to compete with ResCare during his employment and for 12 months after termination of his employment, and not to encourage employees to leave ResCare.  He also agrees to maintain confidentiality of Company information and not to disparage the Company or its employees.

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Item 6.Exhibits

	Exhibit	Description of Exhibit
*	10.1	Employment Agreement between Res-Care, Inc. and D. Ross Davison dated March 31, 2013.
*	10.2	Employment Agreement between Res-Care, Inc. and Steven S. Reed dated May 6, 2013.
*	31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended.
*	31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended.
*	32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*	101	The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial Statements.

* Filed herewith

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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.

			RES-CARE, INC.
			Registrant
Date:	May 6, 2013	By:	/s/ Ralph G. Gronefeld, Jr.
			Ralph G. Gronefeld, Jr.
			President and Chief Executive Officer
Date:	May 6, 2013	By:	/s/ D. Ross Davison
			D. Ross Davison
			Chief Financial Officer

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EX-10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Employment Agreement”) is made on the Execution Date (as defined below) and effective as of March 31, 2013, between RES-CARE, INC., a Kentucky corporation (the “Company”), and Donald R. Davison (the “Employee”).

RECITALS:

WHEREAS, the Company and Employee previously entered into an Employment Agreement effective January 1, 2011, (the “Prior Agreement”);

WHEREAS, the initial term of the Prior Agreement is scheduled to expire on December 31, 2013;

WHEREAS, the Company wishes to offer the Employee a new employment agreement which will supersede the Prior Agreement (except as it references the Grant of Stock Options granted on April 1, 2011); and

WHEREAS, the Company and Employee have reached agreement on the terms and conditions of such agreement.

AGREEMENT:

NOW, THEREFORE, in consideration of the premises and the mutual agreements set forth herein, the parties agree as follows:

1.         Employment and Term.  The Company hereby employs the Employee, and the Employee accepts such employment, upon the terms and conditions herein set forth for an initial term commencing effective March 31, 2013(the “Commencement Date”), and ending on December 31, 2015, subject to earlier termination only in accordance with the express provisions of this Employment Agreement (“Initial Term”).  This Employment Agreement shall be automatically extended for successive periods of one (1) year each (the “Additional Term(s)”) on the same terms and conditions unless not less than sixty (60) days prior to the last day of the Initial Term or the then effective Additional Term, as applicable, either the Company or Employee gives written notice to the other of such party’s intent to not so extend the Term.  The Initial Term and any effective Additional Terms shall be collectively referred to as the “Term.”  For purposes of this Employment Agreement, the term “Execution Date” shall mean the later of (i) the date this Employment Agreement is signed by the Employee and (ii) the date this Employment Agreement is signed on behalf of the Company.

2.         Duties.

(a)        Employment as Chief Financial Officer.  During the Term, the Employee shall serve as the Chief Financial Officer of the Company and its subsidiaries.  During the

Term, subject to the supervision and control of the President and Chief Executive Officer of the Company (the “President”), or his designee, the Employee shall have the responsibility for and oversight of the corporate financial functions of the Company and its subsidiaries, including the following: (i) treasury and cash management; (ii) corporate accounting and fixed asset management; (iii) reimbursement; (iv) tax; (v) external audit; (vi) financial reporting to the Securities and Exchange Commission; (vii) risk management; (vii) accounts payable and consolidation of financial statements; (ix) budgeting and assistance with strategic planning; and (x) investor relations.  The Employee shall perform such additional duties as may be prescribed from time to time by the President or his designee, including without limitation, serving as an officer or director of the Company, if elected to such positions, without and additional salary or compensation.  The Employee shall serve as a member of the Resource Center’s Leadership Team and a “named executive officer” for the purpose of the Company’s public filings under the securities laws.  As such, Employee acknowledges and accepts responsibility, with other “named executive officers” of the Company and other officers and employees of the Company, to ensure the Company’s public filings adequately satisfy all disclosure requirements.  In addition, Employee acknowledges that Employee’s biography, qualifications and compensation will be disclosed in such public filings.

(b)        Time and Effort.  The Employee shall devote Employee’s best efforts on a full time basis and all of Employee’s business time, energies and talents exclusively to the business of the Company and to no other business during the Term; provided, however, that subject to the restrictions in Section 7 hereof, the Employee may (i) invest Employee’s personal assets in such form or manner as will not require Employee’s services in the operation of the affairs of the entities in which such investments are made and (ii) subject to satisfactory performance of the duties described in Section 2(a) hereof, devote such time as may be reasonably required for Employee to continue to maintain Employee’s current level of participation in various civic and charitable activities.

(c)        Employee Certification of Eligibility.  Not less frequently than annually and upon the termination of the Employee’s employment hereunder for any reason other than Employee’s death, the Employee shall execute and deliver to the President and/or any other authorized officer designated by the Company a certificate (ResCare Annual Employment Re-Certification Eligibility Form) confirming, to the best of the Employee’s knowledge, that the Employee remains eligible for employment with the Company.  This same certificate will certify that the Employee has complied with applicable laws, regulations and Company policies regarding the provision of services to clients and billings to its paying agencies, Company policies on training, Drug and Alcohol-Free Program, Prohibition of Harassment, Affirmative Action Equal Employment Opportunity and Violence in the Workplace.  This statement shall state that the Employee is not aware of any such violation by other employees, independent contractors, vendors, or other individuals performing services for the Company and its subsidiaries that they did not report as appropriate.

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3.         Compensation and Benefits.

(a)        Base Salary.  The Company shall pay to the Employee during the Term an annual salary (the “Base Salary”), which initially shall be $300,000.  The Base Salary shall be due and payable in substantially equal semi-monthly installments or in such other installments as may be necessary to comport with the Company’s normal pay periods for all employees.  The Base Salary may be adjusted from time to time for changes in the Employee’s responsibilities or for market conditions.

(b)        Incentive Plan.  During the Term, the Employee shall be eligible for incentive compensation in accordance with the Res-Care, Inc. Non-Equity Incentive Plan (the “Incentive Plan”).  Shortly after the beginning of each calendar year, the Company’s Board of Directors will establish a target of earnings before taxes, interest, depreciation and amortization of the Company and its subsidiaries on a consolidated basis, determined in accordance with generally accepted accounting principles consistently applied (“EBITDA”), for such calendar year (the “Annual EBITDA Target”).  In no event shall Employee earn any amount under the Incentive Plan for any calendar year during the Term unless the actual Company EBITDA for such calendar year equals or exceeds ninety percent (90%) of the Annual EBITDA Target for such calendar year.  For all purposes of this Employment Agreement, in determining the actual EBITDA of the Company and its subsidiaries for each calendar year, the Talent Management Committee of the Board of Directors (the “Talent Management Committee”) may make such good faith adjustments to EBITDA as it determines in its sole discretion are appropriate to reflect non-recurring or unusual items, including, without limitation, to give effect on a pro forma basis to any acquisition of stock or assets of other persons by the Company or a subsidiary thereof. The target amount payable under the Incentive Plan to Employee for each full calendar year during the Term shall equal the Base Salary actually paid to the Employee for such calendar year multiplied by the sum of the Approved Professional Performance Percentage and the Approved Company Performance Percentage (as determined below) for such calendar year.

The maximum percentage of the Approved Professional Performance Percentage for Employee shall be thirty percent (30%). The Approved Company Performance Percentage shall be a target of seventy percent (70%) with a range of zero percent (0%) to two hundred percent (200%).  Thus making the overall range of payment zero percent (0%) to one hundred-seventy percent (170%) of Base Salary.

The Company portion is earned as follows:

·    Actual EBITDA 95%-99% of budget 10% for each point up to 50% of eligible incentive earned (example 95% budget = 10% incentive, 96%=20% etc.)

·    Actual EBITDA 100% of budget 100% of eligible incentive earned

·    Actual EBITDA over budget 5% incentive for each point up to a maximum 200% of eligible incentive award (example 101% of budget = 105% incentive, 102% = 110% etc., 120% of budget and above = 200% incentive)

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Not later than March 15 of each calendar year, the Talent Management Committee shall establish the professional performance criteria for Employee for such calendar year to be used in calculating the Approved Professional Performance Percentage.  The professional performance criteria for Employee for the calendar year 2013 are set forth on Exhibit A attached hereto.  The Approved Professional Performance Percentage for each calendar year during the Term shall be equal to (A) thirty percent (30%) multiplied by (B) the ratio of the number of professional performance criteria satisfied by Employee for the calendar year to the total number of professional performance criteria for the calendar year.  However, notwithstanding anything in this Employment Agreement to the contrary, the Approved Professional Performance Percentage shall be zero unless the actual Company EBITDA for the respective calendar year equals or exceeds ninety percent (90%) of the Annual EBITDA Target for such calendar year.

Any annual incentive earned by the Employee under the Incentive Plan for any calendar year during the Term shall be paid by the Company in cash to the Employee in the year following the year for which it is earned, and not later than the later of (x) seventy-four (74) days after the end of the applicable calendar year or (y) the date of delivery to the Company of the audited consolidated financial statements of the Company and its subsidiaries for such calendar year, provided that Employee remains employed through December 31 of the year for which the incentive bonus is earned.  Any amounts earned by the Employee under the Incentive Plan shall be hereinafter referred to as the “Incentive Bonus.”

(c)        Grant of Stock Options.

(i)         Primary Grant.  As an inducement for the execution of this Employment Agreement by the Employee, on the date of approval by the Talent Management Committee, which date shall not be more than sixty (60) days after the Execution Date (the “Grant Date”),in addition to Stock Options Granted on April 1, 2011 the Employee shall be granted options to purchase two hundred fourteen (214) shares of the Class A common stock, $0.01 par value per share, of Onex Rescare Holdings Corp., a Delaware corporation and the parent corporation of the Company (“Onex Rescare”).  Such stock options (the “Primary Options’) shall be granted pursuant to and, to the extent not expressly inconsistent herewith, governed by the Onex Rescare Holdings Corp. Stock Option Plan (the “Stock Plan”) and the Nonstatutory Stock Option Agreement in the form attached hereto as Exhibit B.  Provided the Employee shall continue to be employed hereunder, twenty percent (20%) of the Primary Options shall vest and be exercisable on each of the first five (5) anniversaries of the Grant Date (with such number of shares to be adjusted in accordance with the terms of the Stock Plan for stock splits, stock dividends, recapitalizations and the like).  Any Primary Options that shall not be vested at the effective date of termination of the Employee’s employment hereunder shall expire and any vested Primary Options shall expire in accordance

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with the terms of the Stock Plan.  The Primary Options shall have an exercise price equal to $6,630 per share.

(ii)        Extra Grant.  As a further inducement for the execution of this Employment Agreement by the Employee, on the Grant Date, the Employee shall be granted options to purchase seventy-one (71) shares of the Class A common stock, $0.01 par value per share, of Onex Rescare.  Such stock options (the “Extra Options”) shall be granted pursuant to and, to the extent not expressly inconsistent herewith, governed by the Stock Plan and the Nonstatutory Stock Option Agreement in the form attached hereto as Exhibit C (the “Extra Option Agreement”).  All of the Extra Options shall be fully vested on the Grant Date.  However, the Extra Options may only be exercised to the extent that the Equity Value Per Share (as defined in the Extra Option Agreement) at the time of exercise is at least three hundred percent (300%) of the Equity Value Per Share at the Closing Date (as defined in the Extra Option Agreement).  The number of Extra Option shares will be adjusted in accordance with the terms of the Stock Plan for stock splits, stock dividends, recapitalizations and the like.  Any Extra Options shall expire in accordance with the terms of the Stock Plan.  The Extra Options shall have an exercise price equal to $6,63

0 per share.

(d)       Participation in Benefit Plans.  During the Term, Employee shall be entitled to participate in all employee benefit plans and programs (including but not limited to paid time off policies, retirement and profit sharing plans, health insurance, etc.) provided by the Company under which the Employee is eligible in accordance with the terms of such plans and programs, subject to all applicable and customary waiting and vesting periods.  The Company reserves the right to amend, modify or terminate in their entirety any of such programs and plans.

(e)        Out-of-Pocket Expenses.  The Company shall promptly pay the ordinary, necessary and reasonable expenses incurred by the Employee in the performance of the Employee’s duties hereunder (or if such expenses are paid directly by the Employee shall promptly reimburse Employee for such payment), consistent with the reimbursement policies adopted by the Company from time to time and subject to the prior written approval by the President.  Any reimbursements made under this Section 3(e) will be paid no later than the last day of the Employee’s taxable year following the taxable year in which the expense is incurred.

(f)        Withholding of Taxes; Income Tax Treatment.  If, upon the payment of any compensation or benefit to the Employee under this Employment Agreement (including, without limitation, in connection with the grant of any stock options or payment of any bonus or benefit), the Company determines in its discretion that it is required to withhold or provide for the payment in any manner of taxes, including but not

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limited to, federal income or social security taxes, state income taxes or local income taxes, the Employee agrees that the Company may satisfy such requirement by:

(i)         withholding an amount necessary to satisfy such withholding requirement from the Employee’s compensation or benefit; or

(ii)        conditioning the payment or transfer of such compensation or benefit upon the Employee’s payment to the Company of an amount sufficient to satisfy such withholding requirement.

The Employee agrees that Employee will treat all of the amounts payable pursuant to this Employment Agreement as compensation for income tax purposes.

4.         Termination.  The Employee’s employment hereunder may be terminated under this Employment Agreement as follows, subject to the Employee’s rights pursuant to Section 5 hereof:

(a)        Death.  The Employee’s employment hereunder shall terminate upon Employee’s death.

(b)        Disability.  The Employee’s employment shall terminate hereunder at the earlier of (i) immediately upon the Company’s determination (conveyed by a Notice of Termination (as defined in paragraph (f) of this Section 4)) that the Employee is permanently disabled, and (ii) the Employee’s absence from Employee’s duties hereunder for 180 days.  “Permanent disability” for purposes of this Employment Agreement shall mean the onset of a physical or mental disability which prevents the Employee from performing the essential functions of the Employee’s duties hereunder, which is expected to continue for 180 days or more, subject to any reasonable accommodation required by state and/or federal disability anti-discrimination laws, including, but not limited to, the Americans With Disabilities Act of 1990, as amended.

(c)        Cause.  The Company may terminate the Employee’s employment hereunder for Cause.  For purposes of this Employment Agreement, the Company shall have “Cause” to terminate the Employee’s employment because of the Employee’s personal dishonesty, intentional misconduct, breach of fiduciary duty involving personal profit, failure to perform Employee’s duties hereunder, conviction of, or plea of nolo contendere to, any law, rule or regulation (other than traffic violations or similar offenses) or breach of any provision of this Employment Agreement.

(d)       Without Cause.  The Company may terminate the Employee’s employment under this Employment Agreement at any time without Cause (as defined in paragraph (c) of this Section 4) by delivery of a Notice of Termination specifying a date of termination at least thirty (30) days following delivery of such notice.

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(e)        Voluntary Termination.  By not less than thirty (30) days prior written notice to the President, Employee may voluntarily terminate Employee’s employment hereunder.

(f)        Notice of Termination.  Any termination of the Employee’s employment by the Company during the Term pursuant to paragraphs (b), (c) or (d) of this Section 4 shall be communicated by a Notice of Termination from the Company to the Employee.  Any termination of the Employee’s employment by the Employee during the Term pursuant to paragraph (e) of this Section 4 shall be communicated by a Notice of Termination from Employee to the Company.  For purposes of this Employment Agreement, a “Notice of Termination” shall mean a written notice which shall indicate the specific termination provision in this Employment Agreement relied upon and in the case of any termination for Cause shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee’s employment.

(g)        Date of Termination.  The “Date of Termination” shall, for purposes of this Employment Agreement, mean:  (i) if the Employee’s employment is terminated by Employee’s death, the date of Employee’s death; (ii) if the Employee’s employment is terminated on account of disability pursuant to Section 4(b) above, thirty (30) days after Notice of Termination is given (provided that the Employee shall not, during such 30-day period, have returned to the performance of Employee’s duties on a full-time basis), (iii) if the Employee’s employment is terminated by the Company for Cause pursuant to Section 4(c) above, the date specified in the Notice of Termination, (iv) if the Employee’s employment is terminated by the Company without Cause, pursuant to Section 4(d) above, the date specified in the Notice of Termination, (v) if the Employee’s employment is terminated voluntarily pursuant to Section 4(e) above, the date specified in the Notice of Termination, and (vi) if the Employee’s employment is terminated by reason of an election by either party not to extend the Term, the last day of the then effective Term.

Provided that, for purposes of the timing of payments triggered by the Date of Termination under Section 5, Date of Termination shall not be considered to have occurred until the date the Employee and the Company reasonably anticipate that (i) Employee will not perform any further services for the Company or any other entity considered a single employer with the Company under Section 414(b) or (c) of the Internal Revenue Code of 1986, as amended (“Code”) (but substituting fifty percent (50%) for eighty percent (80%) in the application thereof) (the “Employer Group”), or (ii) the level of bona fide services Employee will perform for the Employer Group after that date will permanently decrease to less than fifty percent (50%) of the average level of bona fide services performed over the previous thirty-six (36) months (or if shorter over the duration of service).   For this purpose, service performed as an employee or as an independent contractor is counted, except that service as a member of the board of directors of an Employer Group entity is not counted unless termination benefits under this Employment Agreement are aggregated for purposes of Section 409A of the Code with benefits under any other Employer Group plan or agreement in which Employee also participates as a director.  Employee will not be treated as having a termination of

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Employee’s employment while Employee is on military leave, sick leave or other bona fide leave of absence if the leave does not exceed six (6) months or, if longer, the period during which Employee has a reemployment right under statute or contract.  If a bona fide leave of absence extends beyond six (6) months, Employee’s employment will be considered to terminate on the first day after the end of such six (6) month period, or on the day after Employee’s statutory or contractual reemployment right lapses, if later.  The Company will determine when Employee’s Date of Termination occurs based on all relevant facts and circumstances, in accordance with Treasury Regulation Section 1.409A-1(h).

5.         Compensation upon Termination or During Disability.

(a)        Death.  If the Employee’s employment shall be terminated by reason of Employee’s death during the Term, the Employee shall continue to receive installments of Employee’s then current Base Salary until the date of Employee’s death, shall receive any earned but unpaid Incentive Bonus for any calendar year ending prior to the date of Employee’s death.

(b)        Disability.  During any period of disability and prior to termination pursuant to Section 4(b) by reason of disability, Employee shall be compensated as provided in this paragraph (b).  During any waiting period prior to receiving short or long-term disability payments, Employee shall be required to use available Paid Time Off (“PTO”).  After available PTO is exhausted, Employee shall be required to use Emergency Leave Reserve (“ELR”) time.  Once Employee has exhausted any available ELR, Employee shall continue to be paid Employee’s then current Base Salary until short-term disability payments to Employee commence under any plan or program then provided and funded by the Company.  If the benefits payable under any such disability plan or program do not provide 100% replacement of the Employee’s installments of Base Salary during such period, Employee shall be paid at regular payroll intervals the difference between the periodic installments of Employee’s then current Base Salary that would have otherwise been payable and the disability benefit paid from such disability plan or program.  Upon termination pursuant to Section 4(b) hereof, the above provisions of this paragraph (b) shall no longer apply and Employee shall be entitled to any earned but unpaid Incentive Bonus for any calendar year ended prior to the date Employee’s period of disability commenced.

(c)        Cause.  If the Employee’s employment shall be terminated for Cause, the Employee shall continue to receive installments of Employee’s then current Base Salary only through the Date of Termination and the Employee shall not be entitled to receive any Incentive Bonus (other than any earned but unpaid Incentive Bonus for any prior calendar year), and shall not be eligible for any severance payment of any nature.

(d)       Without Cause.  If the Employee’s employment is terminated without Cause, the Employee shall continue to receive installments of Employee’s then current Base Salary until the Date of Termination and for twelve (12) months thereafter and the

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Employee shall also be entitled to receive any earned but unpaid Incentive Bonus for any calendar year ending prior to the Date of Termination.

(e)Expiration of Term.  If the Employee’s employment shall be terminated by reason of expiration of the Term (irrespective of which party elected not to extend the Term), the Employee shall continue to receive installments of Employee’s then current Base Salary until the Date of Termination and the Company shall pay the Employee any earned Incentive Bonus for the last calendar year of the Term.  If the Employee’s employment shall be terminated by reason of expiration of the Term by reason of the Company’s election not to extend the Term, the employee shall continue to receive installments of his then current Base Pay until the Date of Termination and for twelve (12) months thereafter and shall also be entitled to receive any earned but unpaid Incentive Bonus for last calendar year of the Term.

(f)Voluntary Termination.  If the Employee’s employment shall be terminated pursuant to Section 4(e) hereof, the Employee shall continue to receive installments of Employee’s then current Base Salary until the Date of Termination and the Employee shall not be entitled to receive any then unpaid Incentive Bonus (other than any earned but unpaid Incentive Bonus for any calendar year ending prior to the date Employee gives Notice of Termination), and shall not be entitled to any severance payment of any nature.

(g)Change of Control.  If a Change of Control (as defined below) has occurred with respect to the Company and within two (2) years after the occurrence of such Change of Control, the Employee’s employment shall be terminated by the Company without Cause, then Employee shall be entitled to receive a lump sum payment equal to the Employee’s then current Base Salary multiplied by two (2). The Employee shall also be entitled to receive any earned but unpaid Incentive Bonus for any calendar year ending prior to the Date of Termination and a pro-rated Incentive Bonus for the current calendar year for the period ending on the Date of Termination. For purposes of this paragraph (g), “Change of Control” means (i) an event or series of events which have the effect of any “person” as such term is used in Section 13(d) and 14(d) of the Exchange Act, other than (x) Onex Corporation, Onex Partners III LP or any of their respective affiliates (as defined in Rule 12b-2 under the Exchange Act) or any group including any of the foregoing and (y) any trustee or other fiduciary holding securities of the Company under any employee benefit plan of the Company, becoming the “beneficial owner” as defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company’s then outstanding capital stock; (ii) any merger, consolidation, share exchange, recapitalization or other transaction in which any person other than Onex Corporation, Onex Partners III LP or any of their respective affiliates becomes the beneficial owner of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company’s then outstanding capital stock; (iii) all or substantially all of the business of the Company is disposed of pursuant to a partial or complete liquidation, sale of assets, or otherwise. Such lump sum payment will be paid to the

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Employee not later than seventy-four (74) days after Employee’s Date of Termination, provided that if the Change in Control is not a “Change in Ownership,” “Change in Effective Control” or “Change in Asset Control” as each is defined in the final Treasury Regulations under Section 409A of the Code, the severance payment will not be paid in a lump sum and will instead be paid over regular pay periods for two (2) years after the Date of Termination..

(h)No Further Obligations after Payment.  After all payments, if any, have been made to the Employee pursuant to the applicable provisions of paragraphs (a) through (f) of this Section 5, the Company shall have no further obligations to the Employee under this Employment Agreement other than the provision of any employee benefits required to be continued under applicable law.

(i)Payment of Incentive Bonus.  If Employee will be paid an earned but unpaid Incentive Bonus for any calendar year ending prior to Employee’s Date of Termination under the above provisions of this Section 5, the Incentive Bonus for the prior calendar year will be paid at the normal time as paid to employees whose employment has not terminated. If Employee is due a pro-rated Incentive Bonus for the calendar year in which Employee’s Date of Termination occurs, the pro-rated bonus for the year of the Date of Termination shall be paid in the calendar year after year the Date of Termination occurs, and at the normal payment timing for Incentive Bonus payments, and such pro-rata bonus shall be based on whether the actual performance measures for such Incentive Bonus period were met at the normal time for measuring such performance measures..

6.Duties Upon Termination.  Upon the termination of Employee’s employment hereunder for any reason whatsoever (including but not limited to the failure of the parties hereto to agree to the extension of this Employment Agreement pursuant to Section 1 hereof), Employee shall promptly (a) comply with Employee’s obligation to deliver an executed exit interview document as provided in accordance with Company policy, and (b) return to the Company any property of the Company or its subsidiaries then in Employee’s possession or control, including without limitation, any Confidential Information (as defined in Section 7(d)(iii) hereof) and whether or not constituting Confidential Information, any technical data, performance information and reports, sales or marketing plans, documents or other records, and any manuals, drawings, tape recordings, computer programs, discs, and any other physical representations of any other information relating to the Company, its subsidiaries or affiliates or to the Business (as defined in Section 7(d)(iv) hereof) of the Company.  Employee hereby acknowledges that any and all of such documents, items, physical representations and information are and shall remain at all times the exclusive property of the Company.

7.Restrictive Covenants.

(a)Acknowledgments.  Employee acknowledges that (i) Employee’s services hereunder are of a special, unique and extraordinary character and that Employee’s position with the Company places Employee in a position of confidence and trust with the

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operations of the Company, its subsidiaries and affiliates (collectively, the “Res-Care Companies”) and allows Employee access to Confidential Information, (ii) the Company has provided Employee with a unique opportunity as Chief Financial Officer of the Company, (iii) the nature and periods of the restrictions imposed by the covenants contained in this Section 7 are fair, reasonable and necessary to protect and preserve for the Company the benefits of Employee’s employment hereunder, (iv) the Res-Care Companies would sustain great and irreparable loss and damage if Employee were to breach any of such covenants, (v) the Res-Care Companies conduct and are aggressively pursuing the conduct of their business actively in and throughout the entire Territory (as defined in paragraph (d)(ii) of this Section 7), and (vi) the Territory is reasonably sized because the current Business of the Res-Care Companies is conducted throughout such geographical area, the Res-Care Companies are aggressively pursuing expansion and new operations throughout such geographic area and the Res-Care Companies require the entire Territory for profitable operations.

(b)Confidentiality and Non-disparagement Covenants. Having acknowledged the foregoing, Employee covenants that without limitation as to time, (i) commencing on the Commencement Date, Employee will not directly or indirectly disclose or use or otherwise exploit for Employee’s own benefit, or the benefit of any other Person (as defined in paragraph (d)(v) of this Section 7), except as may be necessary in the performance of Employee’s duties hereunder, any Confidential Information, and (ii) commencing on the Date of Termination, Employee will not disparage or comment negatively about any of the Res-Care Companies, or their respective officers, directors, employees, policies or practices, and Employee will not discourage anyone from doing business with any of the Res-Care Companies and will not encourage anyone to withdraw their employment with any of the Res-Care Companies.

(c)Covenants.  Having acknowledged the statements in Section 7(a) hereof, Employee covenants and agrees with the Res-Care Companies that Employee will not, directly or indirectly, from the Commencement Date until the Date of Termination, and for a period of twelve (12) months thereafter, directly or indirectly (i) offer employment to, hire, solicit, divert or appropriate to Employee or any other Person, any business or services (similar in nature to the Business) of any Person who was an employee or an agent of any of the Res-Care Companies at any time during the last twelve (12) months of Employee’s employment hereunder; or (ii) own, manage, operate, join, control, assist, participate in or be connected with, directly or indirectly, as an officer, director, shareholder, partner, proprietor, employee, agent, consultant, independent contractor or otherwise, any Person which is, at the time, directly or indirectly, engaged in the Business of the Res-Care Companies within the Territory.  The Employee further agrees that from the Commencement Date until the Date of Termination, Employee will not undertake any planning for or organization of any business activity that would be competitive with the Business.  Notwithstanding the foregoing, Employee agrees that if this Employment Agreement shall be terminated by reason of expiration of the Term (irrespective of which party elected not to extend the Term), the covenants in this paragraph (c) shall survive the

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expiration thereof until twelve (12) months after the last day of employment of Employee by any Res-Care Company.

(d)Definitions.  For purposes of this Employment Agreement:

(i)For purposes of this Section 7, “termination of Employee’s employment” shall include any termination pursuant to paragraphs (b), (c), (d) and (e) of Section 4 hereof, the termination of such Employee’s employment by reason of the failure of the parties hereto to agree to the extension of this Agreement pursuant to Section 1 hereof or the voluntary termination of Employee’s employment hereunder.

(ii)The “Territory” shall mean the fifty (50) states of the United States, the United States Virgin Islands, Puerto Rico, and all of the Provinces of Canada.

(iii)“Confidential Information” shall mean any business information relating to the Res-Care Companies or to the Business (whether or not constituting a trade secret), which has been or is treated by any of the Res-Care Companies as proprietary and confidential and which is not generally known or ascertainable through proper means.  Without limiting the generality of the foregoing, so long as such information is not generally known or ascertainable by proper means and is treated by the Res-Care Companies as proprietary and confidential, Confidential Information shall include the following information regarding any of the Res-Care Companies:

(1)	any patent, patent application, copyright, trademark, trade name, service mark, service name, “know-how” or trade secrets;
(2)	customer lists and information relating to (i) any client of any of the Res-Care Companies or (ii) any client of the operations of any other Person for which operations any of the Res-Care Companies provides management services;
(3)	supplier lists, pricing policies, consulting contracts and competitive bid information;
(4)	records, compliance and/or operational methods and Company policies and procedures, including manuals and forms;
(5)	marketing data, plans and strategies;
(6)	business acquisition, development, expansion or capital investment plan or activities;

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(7)	software and any other confidential technical programs;
(8)	personnel information, employee payroll and benefits data;
(9)	accounts receivable and accounts payable;
(10)	other financial information, including financial statements, budgets, projections, earnings and any unpublished financial information; and
(11)	correspondence and communications with outside parties.

(iv)The “Business” of the Res-Care Companies shall mean the business of providing training or job placement services as provided in the Company’s Workforce Services and Youth Services Segments, youth treatment or services, home care or periodic services to the elderly, services to persons with mental retardation and other developmental disabilities, including but not limited to persons who have been dually diagnosed, services to persons with acquired brain injuries, or providing management and/or consulting services to third parties relating to any of the foregoing.

(v)The term “Person” shall mean an individual, a partnership, an association, a corporation, a trust, an unincorporated organization, or any other business entity or enterprise.

(e)Injunctive Relief, Invalidity of any Provision.  Employee acknowledges that Employee’s breach of any covenant contained in this Section 7 will result in irreparable injury to the Res-Care Companies and that the remedy at law of such parties for such a breach will be inadequate.  Accordingly, Employee agrees and consents that each of the Res-Care Companies in addition to all other remedies available to them at law and in equity, shall be entitled to seek both preliminary and permanent injunctions to prevent and/or halt a breach or threatened breach by Employee of any covenant contained in this Section 7.  If any provision of this Section 7 is invalid in part or in whole, it shall be deemed to have been amended, whether as to time, area covered, or otherwise, as and to the extent required for its validity under applicable law and, as so amended, shall be enforceable.  The parties further agree to execute all documents necessary to evidence such amendment.

(f)Advice to Future Employers.If Employee, in the future, seeks or is offered employment by any other Person, Employee shall provide a copy of this Section 7 to the prospective employer prior to accepting employment with that prospective employer.

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8.Entire Agreement; Modification; Waiver.  This Employment Agreement constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations, and understandings of the parties.  No supplement, modification, or amendment of this Employment Agreement shall be binding unless executed in writing by all parties hereto (other than as provided in the next to last sentence of Section 7(e) hereof).  No waiver of any of the provisions of this Employment Agreement will be deemed, or will constitute, a waiver of any other provision, whether or not similar, nor will any waiver constitute a continuing waiver.  No waiver will be binding unless executed in writing by the party making the waiver.

9.Successors and Assigns; Assignment.  This Employment Agreement shall be binding on, and inure to the benefit of, the parties hereto and their respective heirs, executors, legal representatives, successors and assigns; provided, however, that this Employment Agreement is intended to be personal to the Employee and the rights and obligations of the Employee hereunder may not be assigned or transferred by Employee.

10.Notices.  All notices, requests, demands and other communications required or permitted to be given or made under this Employment Agreement, or any other agreement executed in connection therewith, shall be in writing and shall be deemed to have been given on the date of delivery personally or upon deposit in the United States mail postage prepaid by registered or certified mail, return receipt requested, to the appropriate party or parties at the following addresses (or at such other address as shall hereafter be designated by any party to the other parties by notice given in accordance with this Section):

To the Company:

Res-Care, Inc.

9901 Linn Station Road

Louisville, Kentucky 40223

Attn:Ralph G. Gronefeld, Jr.

President and Chief Executive Officer

To the Employee:

Donald R. Davison

3052 East Lobo Ridge

New Albany, IN 47150

11.Execution in Counterparts.  This Employment Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document.

12.Further Assurances.  The parties each hereby agree to execute and deliver all of the agreements, documents and instruments required to be executed and delivered by them in this Employment Agreement and to execute and deliver such additional instruments and documents

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and to take such additional actions as may reasonably be required from time to time in order to effectuate the transactions contemplated by this Employment Agreement.

13.Severability of Provisions.  The invalidity or unenforceability of any particular provision of this Employment Agreement shall not affect the other provisions hereof and this Employment Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted.

14.Governing Law; Jurisdiction; Venue.  This Employment Agreement is executed and delivered in, and shall be governed by, enforced and interpreted in accordance with the laws of, the Commonwealth of Kentucky.  The parties hereto agree that the federal or state courts located in Kentucky shall have the exclusive jurisdiction with regard to any litigation relating to this Employment Agreement and that venue shall be proper only in Jefferson County, Kentucky, the location of the principal office of the Company.

15.Tense; Captions.  In construing this Employment Agreement, whenever appropriate, the singular tense shall also be deemed to mean the plural, and vice versa, and the captions contained in this Employment Agreement shall be ignored.

16.Survival.  The provisions of Sections 5, 6 and 7 hereof shall survive the termination, for any reason, of this Employment Agreement, in accordance with their terms.

17.Six Month Delay.  Notwithstanding anything herein to the contrary, if the Employee is a “specified employee” within the meaning of Treasury Regulation Section 1.409A-1(i) (or any successor thereto) on Employee’s Date of Termination, any severance payment that is in excess of the amount that qualifies as separation pay under Treasury Regulation Section 1.409A-1(b)(9), or that does not qualify as separation pay, shall not begin to be paid until six (6) months after Employee’s Date of Termination.  The Company shall determine, consistent with any guidance issued under Section 409A of the Code, the portion of severance payments that are required to be delayed, if any.

18.409A Compliance.  The Employee and the Company agree and confirm that this Employment Agreement is intended by both parties to provide for compensation that is exempt from Section 409A of the Code as separation pay (up to the Section 409A limit), and to be compliant with Section 409A of the Code with respect to additional severance compensation and bonus compensation.  This Employment Agreement shall be interpreted, construed, and administered in accordance with this agreed intent, provided that the Company does not promise or warrant any tax treatment of compensation hereunder.  Employee is responsible for obtaining advice regarding all questions to federal, state, or local income, estate, payroll, or other tax consequences arising from participation herein.  This Employment Agreement shall not be amended or terminated in a manner that would accelerate or delay payment of severance pay or bonus pay except as permitted under Treasury Regulations under Section 409A of the Code.

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IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the dates set forth below.

		RES-CARE, INC.
Date:	March 31, 2013	By:	/s/ Ralph G. Gronefeld, Jr.
			Ralph G. Gronefeld, Jr.
			President and Chief Executive Officer
Date:	March 31, 2013	/s/ D. Ross Davison
		Donald R. Davison

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EX-10.2

Exhibit 10.2

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Employment Agreement”) is made on the Execution Date (as defined below) and effective as of April 15, 2013, between RES-CARE, INC., a Kentucky corporation (the “Company”), and Steven S. Reed (the “Employee”).

RECITALS:

WHEREAS, the Employee has been on the Board of Directors for the Company for more than ten years, and the services of the Employee, his experience, and his knowledge of the affairs of the Company are of great value to the Company;

WHEREAS, the Employee possesses substantial knowledge of the business and affairs of the Company and has significant experience in connection with the management and oversight of the legal matters of the Company and its subsidiaries; and

WHEREAS, the Company and Employee have reached agreement on the terms and conditions under which Employee will perform services for the Company.

AGREEMENT:

NOW, THEREFORE, in consideration of the premises and the mutual agreements set forth herein, the parties agree as follows:

1.Employment and Term.  The Company hereby employs the Employee, and the Employee accepts such employment, upon the terms and conditions herein set forth for an initial term commencing effective April 15, 2013 (the “Commencement Date”), and ending on December 31, 2015, subject to earlier termination only in accordance with the express provisions of this Employment Agreement (“Initial Term”).  This Employment Agreement shall be automatically extended for successive periods of one (1) year each (the “Additional Term(s)”) on the same terms and conditions unless not less than sixty (60) days prior to the last day of the Initial Term or the then effective Additional Term, as applicable, either the Company or Employee gives written notice to the other of such party’s intent to not so extend the Term.  The Initial Term and any effective Additional Terms shall be collectively referred to as the “Term.”  For purposes of this Employment Agreement, the term “Execution Date” shall mean the later of (i) the date this Employment Agreement is signed by the Employee and (ii) the date this Employment Agreement is signed on behalf of the Company.

2.Duties.

(a)Employment as Chief Legal Officer & Corporate Secretary.  During the Term, the Employee shall serve as the Chief Legal Officer & Corporate Secretary of the Company and its subsidiaries.  During the Term, subject to the supervision and control of the President and Chief Executive Officer of the Company (the “President”), or his

designee, the Employee shall have the responsibility for and oversight of the corporate legal functions of the Company and its subsidiaries.  The Employee shall perform such additional duties as may be prescribed from time to time by the President or his designee, including without limitation, serving as an officer or director of the Company, if elected to such positions, without any additional salary or compensation.  The Employee shall serve as a member of the Resource Center’s Leadership Team and a “named executive officer” for the purpose of the Company’s public filings under the securities laws.  As such, Employee acknowledges and accepts responsibility, with other “named executive officers” of the Company and other officers and employees of the Company, to ensure the Company’s public filings adequately satisfy all disclosure requirements.  In addition, Employee acknowledges that Employee’s biography, qualifications and compensation will be disclosed in such public filings.

(b)Time and Effort.  The Employee shall devote Employee’s best efforts on a full time basis and all of Employee’s business time, energies and talents exclusively to the business of the Company and to no other business during the Term; provided, however, that subject to the restrictions in Section 7 hereof, the Employee may (i) invest Employee’s personal assets in such form or manner as will not require Employee’s services in the operation of the affairs of the entities in which such investments are made and (ii) subject to satisfactory performance of the duties described in Section 2(a) hereof, devote such time as may be reasonably required for Employee to continue to maintain Employee’s current level of participation in various civic and charitable activities.

(c)Employee Certification of Eligibility.  Not less frequently than annually and upon the termination of the Employee’s employment hereunder for any reason other than Employee’s death, the Employee shall execute and deliver to the President and/or any other authorized officer designated by the Company a certificate (ResCare Annual Employment Re-Certification Eligibility Form) confirming, to the best of the Employee’s knowledge, that the Employee remains eligible for employment with the Company.  This same certificate will certify that the Employee has complied with applicable laws, regulations and Company policies regarding the provision of services to clients and billings to its paying agencies, Company policies on training, Drug and Alcohol-Free Program, Prohibition of Harassment, Affirmative Action Equal Employment Opportunity and Violence in the Workplace.  This statement shall state that the Employee is not aware of any such violation by other employees, independent contractors, vendors, or other individuals performing services for the Company and its subsidiaries that they did not report as appropriate.

3.Compensation and Benefits.

(a)Base Salary.  The Company shall pay to the Employee during the Term an annual salary (the “Base Salary”), which initially shall be $250,000.  The Base Salary shall be due and payable in substantially equal semi-monthly installments or in such other installments as may be necessary to comport with the Company’s normal pay periods for

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all employees.  The Base Salary may be adjusted from time to time for changes in the Employee’s responsibilities or for market conditions.

(b)Incentive Plan.  During the Term, the Employee shall be eligible for incentive compensation in accordance with the Res-Care, Inc. Non-Equity Incentive Plan (the “Incentive Plan”).  Shortly after the beginning of each calendar year, the Company’s Board of Directors will establish a target of earnings before taxes, interest, depreciation and amortization of the Company and its subsidiaries on a consolidated basis, determined in accordance with generally accepted accounting principles consistently applied (“EBITDA”), for such calendar year (the “Annual EBITDA Target”).  In no event shall Employee earn any amount under the Incentive Plan for any calendar year during the Term unless the actual Company EBITDA for such calendar year equals or exceeds ninety percent (90%) of the Annual EBITDA Target for such calendar year.  For all purposes of this Employment Agreement, in determining the actual EBITDA of the Company and its subsidiaries for each calendar year, the Talent Management Committee of the Board of Directors (the “Talent Management Committee”) may make such good faith adjustments to EBITDA as it determines in its sole discretion are appropriate to reflect non-recurring or unusual items, including, without limitation, to give effect on a pro forma basis to any acquisition of stock or assets of other persons by the Company or a subsidiary thereof. The target amount payable under the Incentive Plan to Employee for each full calendar year during the Term shall equal the Base Salary actually paid to the Employee for such calendar year multiplied by the sum of the Approved Professional Performance Percentage and the Approved Company Performance Percentage (as determined below) for such calendar year.

The maximum percentage of the Approved Professional Performance Percentage for Employee shall be thirty percent (30%). The Approved Company Performance Percentage shall be a target of seventy percent (70%) with a range of zero percent (0%) to two hundred percent (200%).  Thus making the overall range of payment zero percent (0%) to one hundred-seventy percent (170%) of Base Salary.

The Company portion is earned as follows:

·Actual EBITDA 95%-99% of budget 10% for each point up to 50% of eligible incentive earned (example 95% budget = 10% incentive, 96%=20% etc.)

·Actual EBITDA 100% of budget 100% of eligible incentive earned

·Actual EBITDA over budget 5% incentive for each point up to a maximum 200% of eligible incentive award (example 101% of budget = 105% incentive, 102% = 110% etc., 120% of budget and above = 200% incentive)

Not later than March 15 of each calendar year, the Talent Management Committee shall establish the professional performance criteria for Employee for such calendar year to be used in calculating the Approved Professional Performance Percentage.  The professional performance criteria for Employee for the calendar year 2013 are set forth on Exhibit A attached hereto.  The Approved Professional Performance Percentage for each calendar

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year during the Term shall be equal to (A) thirty percent (30%) multiplied by (B) the ratio of the number of professional performance criteria satisfied by Employee for the calendar year to the total number of professional performance criteria for the calendar year.  However, notwithstanding anything in this Employment Agreement to the contrary, the Approved Professional Performance Percentage shall be zero unless the actual Company EBITDA for the respective calendar year equals or exceeds ninety percent (90%) of the Annual EBITDA Target for such calendar year.

Any annual incentive earned by the Employee under the Incentive Plan for any calendar year during the Term shall be paid by the Company in cash to the Employee in the year following the year for which it is earned, and not later than the later of (x) seventy-four (74) days after the end of the applicable calendar year or (y) the date of delivery to the Company of the audited consolidated financial statements of the Company and its subsidiaries for such calendar year, provided that Employee remains employed through December 31 of the year for which the incentive bonus is earned.  Any amounts earned by the Employee under the Incentive Plan shall be hereinafter referred to as the “Incentive Bonus.”

(c)Non-Equity Incentive Plan and/or Stock Option Plan.  At the discretion of the Company, the Employee may be eligible for participation in a non-equity incentive plan and/or a stock option plan while employed by the Company.  If eligible, the Employee will be notified by the Supervising Officer and participation in such plans will be governed not by this Agreement but by separate plan documents.

(d)Participation in Benefit Plans.  During the Term, Employee shall be entitled to participate in all employee benefit plans and programs (including but not limited to paid time off policies, retirement and profit sharing plans, health insurance, etc.) provided by the Company under which the Employee is eligible in accordance with the terms of such plans and programs, subject to all applicable and customary waiting and vesting periods.  As of the Commencement Date, Employee shall be credited with 160 hours of paid time off (PTO).  The Company reserves the right to amend, modify or terminate in their entirety any of such programs and plans.

(e)Out-of-Pocket Expenses.  The Company shall promptly pay the ordinary, necessary and reasonable expenses incurred by the Employee in the performance of the Employee’s duties hereunder (or if such expenses are paid directly by the Employee shall promptly reimburse Employee for such payment), consistent with the reimbursement policies adopted by the Company from time to time and subject to the prior written approval by the President.  Any reimbursements made under this Section 3(e) will be paid no later than the last day of the Employee’s taxable year following the taxable year in which the expense is incurred.

(f)Withholding of Taxes; Income Tax Treatment.  If, upon the payment of any compensation or benefit to the Employee under this Employment Agreement (including, without limitation, in connection with the grant of any stock options or

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payment of any bonus or benefit), the Company determines in its discretion that it is required to withhold or provide for the payment in any manner of taxes, including but not limited to, federal income or social security taxes, state income taxes or local income taxes, the Employee agrees that the Company may satisfy such requirement by:

(i)withholding an amount necessary to satisfy such withholding requirement from the Employee’s compensation or benefit; or

(ii)conditioning the payment or transfer of such compensation or benefit upon the Employee’s payment to the Company of an amount sufficient to satisfy such withholding requirement.

The Employee agrees that Employee will treat all of the amounts payable pursuant to this Employment Agreement as compensation for income tax purposes.

4.Termination.  The Employee’s employment hereunder may be terminated under this Employment Agreement as follows, subject to the Employee’s rights pursuant to Section 5 hereof:

(a)Death.  The Employee’s employment hereunder shall terminate upon Employee’s death.

(b)Disability.  The Employee’s employment shall terminate hereunder at the earlier of (i) immediately upon the Company’s determination (conveyed by a Notice of Termination (as defined in paragraph (f) of this Section 4)) that the Employee is permanently disabled, and (ii) the Employee’s absence from Employee’s duties hereunder for 180 days.  “Permanent disability” for purposes of this Employment Agreement shall mean the onset of a physical or mental disability which prevents the Employee from performing the essential functions of the Employee’s duties hereunder, which is expected to continue for 180 days or more, subject to any reasonable accommodation required by state and/or federal disability anti-discrimination laws, including, but not limited to, the Americans With Disabilities Act of 1990, as amended.

(c)Cause.  The Company may terminate the Employee’s employment hereunder for Cause.  For purposes of this Employment Agreement, the Company shall have “Cause” to terminate the Employee’s employment because of the Employee’s personal dishonesty, intentional misconduct, breach of fiduciary duty involving personal profit, failure to perform Employee’s duties hereunder, conviction of, or plea of nolo contendere to, any law, rule or regulation (other than traffic violations or similar offenses) or breach of any provision of this Employment Agreement.

(d)Without Cause.  The Company may terminate the Employee’s employment under this Employment Agreement at any time without Cause (as defined in paragraph (c) of this Section 4) by delivery of a Notice of Termination specifying a date of termination at least thirty (30) days following delivery of such notice.

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(e)Voluntary Termination.  By not less than thirty (30) days prior written notice to the President, Employee may voluntarily terminate Employee’s employment hereunder.

(f)Notice of Termination.  Any termination of the Employee’s employment by the Company during the Term pursuant to paragraphs (b), (c) or (d) of this Section 4 shall be communicated by a Notice of Termination from the Company to the Employee.  Any termination of the Employee’s employment by the Employee during the Term pursuant to paragraph (e) of this Section 4 shall be communicated by a Notice of Termination from Employee to the Company.  For purposes of this Employment Agreement, a “Notice of Termination” shall mean a written notice which shall indicate the specific termination provision in this Employment Agreement relied upon and in the case of any termination for Cause shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee’s employment.

(g)Date of Termination.  The “Date of Termination” shall, for purposes of this Employment Agreement, mean:  (i) if the Employee’s employment is terminated by Employee’s death, the date of Employee’s death; (ii) if the Employee’s employment is terminated on account of disability pursuant to Section 4(b) above, thirty (30) days after Notice of Termination is given (provided that the Employee shall not, during such 30-day period, have returned to the performance of Employee’s duties on a full-time basis), (iii) if the Employee’s employment is terminated by the Company for Cause pursuant to Section 4(c) above, the date specified in the Notice of Termination, (iv) if the Employee’s employment is terminated by the Company without Cause, pursuant to Section 4(d) above, the date specified in the Notice of Termination, (v) if the Employee’s employment is terminated voluntarily pursuant to Section 4(e) above, the date specified in the Notice of Termination, and (vi) if the Employee’s employment is terminated by reason of an election by either party not to extend the Term, the last day of the then effective Term.

Provided that, for purposes of the timing of payments triggered by the Date of Termination under Section 5, Date of Termination shall not be considered to have occurred until the date the Employee and the Company reasonably anticipate that (i) Employee will not perform any further services for the Company or any other entity considered a single employer with the Company under Section 414(b) or (c) of the Internal Revenue Code of 1986, as amended (“Code”) (but substituting fifty percent (50%) for eighty percent (80%) in the application thereof) (the “Employer Group”), or (ii) the level of bona fide services Employee will perform for the Employer Group after that date will permanently decrease to less than fifty percent (50%) of the average level of bona fide services performed over the previous thirty-six (36) months (or if shorter over the duration of service).   For this purpose, service performed as an employee or as an independent contractor is counted, except that service as a member of the board of directors of an Employer Group entity is not counted unless termination benefits under this Employment Agreement are aggregated for purposes of Section 409A of the Code with benefits under any other Employer Group plan or agreement in which Employee also

6

participates as a director.  Employee will not be treated as having a termination of Employee’s employment while Employee is on military leave, sick leave or other bona fide leave of absence if the leave does not exceed six (6) months or, if longer, the period during which Employee has a reemployment right under statute or contract.  If a bona fide leave of absence extends beyond six (6) months, Employee’s employment will be considered to terminate on the first day after the end of such six (6) month period, or on the day after Employee’s statutory or contractual reemployment right lapses, if later.  The Company will determine when Employee’s Date of Termination occurs based on all relevant facts and circumstances, in accordance with Treasury Regulation Section 1.409A-1(h).

5.Compensation Upon Termination or During Disability; Change of Control.

(a)Death.  If the Employee’s employment shall be terminated by reason of Employee’s death during the Term, the Employee shall continue to receive installments of Employee’s then current Base Salary until the date of Employee’s death, shall receive any earned but unpaid Incentive Bonus for any calendar year ending prior to the date of Employee’s death.

(b)Disability.  During any period of disability and prior to termination pursuant to Section 4(b) by reason of disability, Employee shall be compensated as provided in this paragraph (b).  During any waiting period prior to receiving short or long-term disability payments, Employee shall be required to use available Paid Time Off (“PTO”).  Once Employee has met the waiting period to receive short-term disability payments, Employee shall continue to be paid Employee’s then current Base Salary until short-term disability payments to Employee commence under any plan or program then provided and funded by the Company.  If the benefits payable under any such disability plan or program do not provide 100% replacement of the Employee’s installments of Base Salary during such period, Employee shall be paid at regular payroll intervals the difference between the periodic installments of Employee’s then current Base Salary that would have otherwise been payable and the disability benefit paid from such disability plan or program.  Upon termination pursuant to Section 4(b) hereof, the above provisions of this paragraph (b) shall no longer apply and Employee shall be entitled to any earned but unpaid Incentive Bonus for any calendar year ended prior to the date Employee’s period of disability commenced.

(c)Expiration of Term.   If the Employee’s employment shall be terminated by reason of expiration of the Term by reason of Employee’s election not to extend the Term, the Employee shall continue to receive installments of his then current Base Salary until the Date of Termination and shall also be entitled to receive any earned but unpaid Incentive Bonus for the last calendar year of the Term.  If the Employee’s employment shall be terminated by reason of expiration of the Term by reason of the Company’s election not to extend the Term, the Employee shall continue to receive installments of his then current Base Salary until the Date of Termination and for twelve (12) months

7

thereafter and shall also be entitled to receive any earned but unpaid Incentive Bonus for last calendar year of the Term.

(d)Without Cause.  If the Employee’s employment is terminated without Cause, the Employee shall continue to receive installments of Employee’s then current Base Salary until the Date of Termination and for twelve (12) months thereafter and the Employee shall also be entitled to receive any earned but unpaid Incentive Bonus for any calendar year ending prior to the Date of Termination.

(e)Voluntary Termination.  If the Employee’s employment shall be terminated pursuant to Section 4(e) hereof, the Employee shall continue to receive installments of Employee’s then current Base Salary until the Date of Termination and the Employee shall not be entitled to receive any then unpaid Incentive Bonus (other than any earned but unpaid Incentive Bonus for any calendar year ending prior to the date Employee gives Notice of Termination), and shall not be entitled to any severance payment of any nature.

(f)No Further Obligations after Payment.  After all payments, if any, have been made to the Employee pursuant to the applicable provisions of paragraphs (a) through (f) of this Section 5, the Company shall have no further obligations to the Employee under this Employment Agreement other than the provision of any employee benefits required to be continued under applicable law.

(g)Payment of Incentive Bonus.  If Employee will be paid an earned but unpaid Incentive Bonus for any calendar year ending prior to Employee’s Date of Termination under the above provisions of this Section 5, the Incentive Bonus for the prior calendar year will be paid at the normal time as paid to employees whose employment has not terminated. If Employee is due a pro-rated Incentive Bonus for the calendar year in which Employee’s Date of Termination occurs, the pro-rated bonus for the year of the Date of Termination shall be paid in the calendar year after year the Date of Termination occurs, and at the normal payment timing for Incentive Bonus payments, and such pro-rata bonus shall be based on whether the actual performance measures for such Incentive Bonus period were met at the normal time for measuring such performance measures.

6.Duties Upon Termination.  Upon the termination of Employee’s employment hereunder for any reason whatsoever (including but not limited to the failure of the parties hereto to agree to the extension of this Employment Agreement pursuant to Section 1 hereof), Employee shall promptly (a) comply with Employee’s obligation to deliver an executed exit interview document as provided in accordance with Company policy, and (b) return to the Company any property of the Company or its subsidiaries then in Employee’s possession or control, including without limitation, any Confidential Information (as defined in Section 7(d)(iii) hereof) and whether or not constituting Confidential Information, any technical data, performance information and reports, sales or marketing plans, documents or other records, and any manuals, drawings, tape recordings, computer programs, discs, and any other physical representations of

8

any other information relating to the Company, its subsidiaries or affiliates or to the Business (as defined in Section 7(d)(iv) hereof) of the Company.  Employee hereby acknowledges that any and all of such documents, items, physical representations and information are and shall remain at all times the exclusive property of the Company.

7.Restrictive Covenants.

(a)Acknowledgments.  Employee acknowledges that (i) Employee’s services hereunder are of a special, unique and extraordinary character and that Employee’s position with the Company places Employee in a position of confidence and trust with the operations of the Company, its subsidiaries and affiliates (collectively, the “Res-Care Companies”) and allows Employee access to Confidential Information, (ii) the Company has provided Employee with a unique opportunity as Chief Legal Officer & Corporate Secretary of the Company, (iii) the nature and periods of the restrictions imposed by the covenants contained in this Section 7 are fair, reasonable and necessary to protect and preserve for the Company the benefits of Employee’s employment hereunder, (iv) the Res-Care Companies would sustain great and irreparable loss and damage if Employee were to breach any of such covenants, (v) the Res-Care Companies conduct and are aggressively pursuing the conduct of their business actively in and throughout the entire Territory (as defined in paragraph (d)(ii) of this Section 7), and (vi) the Territory is reasonably sized because the current Business of the Res-Care Companies is conducted throughout such geographical area, the Res-Care Companies are aggressively pursuing expansion and new operations throughout such geographic area and the Res-Care Companies require the entire Territory for profitable operations.

(b)Confidentiality and Non-disparagement Covenants. Having acknowledged the foregoing, Employee covenants that without limitation as to time, (i) commencing on the Commencement Date, Employee will not directly or indirectly disclose or use or otherwise exploit for Employee’s own benefit, or the benefit of any other Person (as defined in paragraph (d)(v) of this Section 7), except as may be necessary in the performance of Employee’s duties hereunder, any Confidential Information, and (ii) commencing on the Date of Termination, Employee will not disparage or comment negatively about any of the Res-Care Companies, or their respective officers, directors, employees, policies or practices, and Employee will not discourage anyone from doing business with any of the Res-Care Companies and will not encourage anyone to withdraw their employment with any of the Res-Care Companies.

(c)Covenants.  Having acknowledged the statements in Section 7(a) hereof, Employee covenants and agrees with the Res-Care Companies that Employee will not, directly or indirectly, from the Commencement Date until the Date of Termination, and for a period of twelve (12) months thereafter, directly or indirectly (i) offer employment to, hire, solicit, divert or appropriate to Employee or any other Person, any business or services (similar in nature to the Business) of any Person who was an employee or an agent of any of the Res-Care Companies at any time during the last twelve (12) months of Employee’s employment hereunder; or (ii) own, manage, operate, join, control, assist,

9

participate in or be connected with, directly or indirectly, as an officer, director, shareholder, partner, proprietor, employee, agent, consultant, independent contractor or otherwise, any Person which is, at the time, directly or indirectly, engaged in the Business of the Res-Care Companies within the Territory.  The Employee further agrees that from the Commencement Date until the Date of Termination, Employee will not undertake any planning for or organization of any business activity that would be competitive with the Business.  Notwithstanding the foregoing, Employee agrees that if this Employment Agreement shall be terminated by reason of expiration of the Term (irrespective of which party elected not to extend the Term), the covenants in this paragraph (c) shall survive the expiration thereof until twelve (12) months after the last day of employment of Employee by any Res-Care Company.

(d)Definitions.  For purposes of this Employment Agreement:

(i)For purposes of this Section 7, “termination of Employee’s employment” shall include any termination pursuant to paragraphs (b), (c), (d) and (e) of Section 4 hereof, the termination of such Employee’s employment by reason of the failure of the parties hereto to agree to the extension of this Agreement pursuant to Section 1 hereof or the voluntary termination of Employee’s employment hereunder.

(ii)The “Territory” shall mean the fifty (50) states of the United States, the United States Virgin Islands, Puerto Rico, all of the Provinces of Canada, all of the countries of the European Union, Switzerland and Norway.

(iii)“Confidential Information” shall mean any business information relating to the Res-Care Companies or to the Business (whether or not constituting a trade secret), which has been or is treated by any of the Res-Care Companies as proprietary and confidential and which is not generally known or ascertainable through proper means.  Without limiting the generality of the foregoing, so long as such information is not generally known or ascertainable by proper means and is treated by the Res-Care Companies as proprietary and confidential, Confidential Information shall include the following information regarding any of the Res-Care Companies:

(1)any patent, patent application, copyright, trademark, trade name, service mark, service name, “know-how” or trade secrets;

(2)customer lists and information relating to (i) any client of any of the Res-Care Companies or (ii) any client of the operations of any other Person for which operations any of the Res-Care Companies provides management services;

10

(3)supplier lists, pricing policies, consulting contracts and competitive bid information;

(4)records, compliance and/or operational methods and Company policies and procedures, including manuals and forms;

(5)marketing data, plans and strategies;

(6)business acquisition, development, expansion or capital investment plan or activities;

(7)software and any other confidential technical programs;

(8)personnel information, employee payroll and benefits data;

(9)accounts receivable and accounts payable;

(10)other financial information, including financial statements, budgets, projections, earnings and any unpublished financial information; and

(11)correspondence and communications with outside parties.

(iv)The “Business” of the Res-Care Companies shall mean the business of providing training or job placement services as provided in the Company’s Workforce Services and Youth Services Segments, youth treatment or services, home care or periodic services to the elderly, services to persons with mental retardation and other developmental disabilities, including but not limited to persons who have been dually diagnosed, services to persons with acquired brain injuries, or providing management and/or consulting services to third parties relating to any of the foregoing.

(v)The term “Person” shall mean an individual, a partnership, an association, a corporation, a trust, an unincorporated organization, or any other business entity or enterprise.

(e)Injunctive Relief, Invalidity of any Provision.  Employee acknowledges that Employee’s breach of any covenant contained in this Section 7 will result in irreparable injury to the Res-Care Companies and that the remedy at law of such parties for such a breach will be inadequate.  Accordingly, Employee agrees and consents that each of the Res-Care Companies in addition to all other remedies available to them at law and in equity, shall be entitled to seek both preliminary and permanent injunctions to prevent and/or halt a breach or threatened breach by Employee of any covenant contained in this Section 7.  If any provision of this Section 7 is invalid in part or in whole, it shall be

11

deemed to have been amended, whether as to time, area covered, or otherwise, as and to the extent required for its validity under applicable law and, as so amended, shall be enforceable.  The parties further agree to execute all documents necessary to evidence such amendment.

(f)Advice to Future Employers.  If Employee, in the future, seeks or is offered employment by any other Person, Employee shall provide a copy of this Section 7 to the prospective employer prior to accepting employment with that prospective employer.

8.Entire Agreement; Modification; Waiver.  This Employment Agreement constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations, and understandings of the parties.  No supplement, modification, or amendment of this Employment Agreement shall be binding unless executed in writing by all parties hereto (other than as provided in the next to last sentence of Section 7(e) hereof).  No waiver of any of the provisions of this Employment Agreement will be deemed, or will constitute, a waiver of any other provision, whether or not similar, nor will any waiver constitute a continuing waiver.  No waiver will be binding unless executed in writing by the party making the waiver.

9.Successors and Assigns; Assignment.  This Employment Agreement shall be binding on, and inure to the benefit of, the parties hereto and their respective heirs, executors, legal representatives, successors and assigns; provided, however, that this Employment Agreement is intended to be personal to the Employee and the rights and obligations of the Employee hereunder may not be assigned or transferred by Employee.

10.Notices.  All notices, requests, demands and other communications required or permitted to be given or made under this Employment Agreement, or any other agreement executed in connection therewith, shall be in writing and shall be deemed to have been given on the date of delivery personally or upon deposit in the United States mail postage prepaid by registered or certified mail, return receipt requested, to the appropriate party or parties at the following addresses (or at such other address as shall hereafter be designated by any party to the other parties by notice given in accordance with this Section):

To the Company:

Res-Care, Inc.

9901 Linn Station Road

Louisville, Kentucky 40223

Attn:Ralph G. Gronefeld, Jr.
President and Chief Executive Officer

12

To the Employee:

Steven S. Reed

1512 Polo Fields Ct.

Louisville, KY 40245

11.Execution in Counterparts.  This Employment Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document.

12.Further Assurances.  The parties each hereby agree to execute and deliver all of the agreements, documents and instruments required to be executed and delivered by them in this Employment Agreement and to execute and deliver such additional instruments and documents and to take such additional actions as may reasonably be required from time to time in order to effectuate the transactions contemplated by this Employment Agreement.

13.Severability of Provisions.  The invalidity or unenforceability of any particular provision of this Employment Agreement shall not affect the other provisions hereof and this Employment Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted.

14.Governing Law; Jurisdiction; Venue.  This Employment Agreement is executed and delivered in, and shall be governed by, enforced and interpreted in accordance with the laws of, the Commonwealth of Kentucky.  The parties hereto agree that the federal or state courts located in Kentucky shall have the exclusive jurisdiction with regard to any litigation relating to this Employment Agreement and that venue shall be proper only in Jefferson County, Kentucky, the location of the principal office of the Company.

15.Tense; Captions.  In construing this Employment Agreement, whenever appropriate, the singular tense shall also be deemed to mean the plural, and vice versa, and the captions contained in this Employment Agreement shall be ignored.

16.Survival.  The provisions of Sections 5, 6 and 7 hereof shall survive the termination, for any reason, of this Employment Agreement, in accordance with their terms.

17.Six Month Delay.  Notwithstanding anything herein to the contrary, if the Employee is a “specified employee” within the meaning of Treasury Regulation Section 1.409A-1(i) (or any successor thereto) on Employee’s Date of Termination, any severance payment that is in excess of the amount that qualifies as separation pay under Treasury Regulation Section 1.409A-1(b)(9), or that does not qualify as separation pay, shall not begin to be paid until six (6) months after Employee’s Date of Termination.  The Company shall determine, consistent with any guidance issued under Section 409A of the Code, the portion of severance payments that are required to be delayed, if any.

13

18.409A Compliance.  The Employee and the Company agree and confirm that this Employment Agreement is intended by both parties to provide for compensation that is exempt from Section 409A of the Code as separation pay (up to the Section 409A limit), and to be compliant with Section 409A of the Code with respect to additional severance compensation and bonus compensation.  This Employment Agreement shall be interpreted, construed, and administered in accordance with this agreed intent, provided that the Company does not promise or warrant any tax treatment of compensation hereunder.  Employee is responsible for obtaining advice regarding all questions to federal, state, or local income, estate, payroll, or other tax consequences arising from participation herein.  This Employment Agreement shall not be amended or terminated in a manner that would accelerate or delay payment of severance pay or bonus pay except as permitted under Treasury Regulations under Section 409A of the Code.

[The remainder of this page is intentionally blank – signatures begin on next page.]

14

IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the dates set forth below.

		RES-CARE, INC.
Date:	May 6, 2013	By:	/s/ Ralph G. Gronefeld, Jr.
		Ralph G. Gronefeld, Jr.
		President and Chief Executive Officer
Date:	May 6, 2013	/s/ Steven S. Reed
		Steven S. Reed

15

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT

I, Ralph G. Gronefeld, Jr., certify that:

1.             I have reviewed this report on Form 10-Q of Res-Care, Inc.;

2.             Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.             Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.             The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

(a)       Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)       Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)       Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of  the end of the period covered by this report based on such evaluation; and

(d)       Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.             The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a)       All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b)       Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	May 6, 2013	By:	/s/ Ralph G. Gronefeld, Jr.
			Ralph G. Gronefeld, Jr.
			President and Chief Executive Officer

- 27 -

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT

I, D. Ross Davison, certify that:

1.             I have reviewed this report on Form 10-Q of Res-Care, Inc.;

2.             Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.             Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.             The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

(a)       Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)       Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)       Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of  the end of the period covered by this report based on such evaluation; and

(d)       Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.             The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a)       All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b)       Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	May 6, 2013	By:	/s/ D. Ross Davison
			D. Ross Davison
			Chief Financial Officer

- 28 -

EX-32

EXHIBIT 32

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

(AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)

In connection with the Quarterly Report of Res-Care, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”),  the undersigned, the Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	May 6, 2013	By:	/s/ Ralph G. Gronefeld, Jr.
			Ralph G. Gronefeld, Jr.
			President and Chief Executive Officer
Date:	May 6, 2013	By:	/s/ D. Ross Davison
			D. Ross Davison
			Chief Financial Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

- 29 -

XML

Subsidiary Guarantors (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 46,703	$ 50,134	$ 13,253	$ 25,651
Accounts receivable, net	228,506	228,377
Refundable income taxes	1,251
Deferred income taxes	17,125	17,589
Prepaid expenses and other current assets	21,060	22,116
Total current assets	314,645	318,216
Property and equipment, net	94,959	97,030	100,980
Goodwill	288,140	288,265
Other intangible assets, net	319,564	321,293
Other assets	23,904	27,154
Total assets	1,041,212	1,051,958	1,013,332
Current liabilities:
Trade accounts payable	33,245	37,738
Accrued expenses	104,447	114,876
Current portion of long-term debt	10,009	14,695
Current portion of obligations under capital leases	5,834	6,052
Accrued income taxes	802	1,813
Total current liabilities	154,337	175,174
Long-term liabilities	56,368	56,469
Long-term debt	356,203	358,420
Obligations under capital leases	10,732	11,632	12,108
Deferred income taxes	107,753	106,253
Total liabilities	685,393	707,948
Additional paid-in capital	245,049	244,345
Retained earnings	111,066	99,734
Accumulated other comprehensive (loss) income	(161)	30
Total shareholder's equity - Res-Care, Inc.	355,954	344,109
Noncontrolling interest	(135)	(99)		11
Total shareholder's equity	355,819	344,010
Total liabilities and shareholder's equity	1,041,212	1,051,958
U.S. subsidiaries
CONDENSED CONSOLIDATING BALANCE SHEET
Percentage of ownership in subsidiaries which jointly, severally, fully and unconditionally guarantee the senior notes	100.00%
ResCare, Inc.
Current assets:
Cash and cash equivalents	40,339	42,633	5,333	16,733
Accounts receivable, net	20,315	21,515
Refundable income taxes	1,251
Deferred income taxes	17,125	17,589
Prepaid expenses and other current assets	9,089	11,620
Total current assets	88,119	93,357
Property and equipment, net	42,364	43,320
Goodwill	282,839	282,832
Other intangible assets, net	301,103	302,293
Investment in subsidiaries	938,207	900,087
Other assets	20,803	24,073
Total assets	1,673,435	1,645,962
Current liabilities:
Trade accounts payable	16,036	20,499
Accrued expenses	46,833	55,299
Current portion of long-term debt	8,750	13,098
Accrued income taxes	842	1,843
Total current liabilities	72,461	90,739
Intercompany	725,754	691,094
Long-term liabilities	56,187	56,240
Long-term debt	355,326	357,527
Deferred income taxes	107,753	106,253
Total liabilities	1,317,481	1,301,853
Additional paid-in capital	245,049	244,345
Retained earnings	111,066	99,734
Accumulated other comprehensive (loss) income	(161)	30
Total shareholder's equity - Res-Care, Inc.	355,954	344,109
Total shareholder's equity	355,954	344,109
Total liabilities and shareholder's equity	1,673,435	1,645,962
Guarantor Subsidiaries
Current assets:
Cash and cash equivalents	3,708	4,795	5,516	6,547
Accounts receivable, net	207,843	206,491
Prepaid expenses and other current assets	11,474	9,981
Total current assets	223,025	221,267
Property and equipment, net	52,187	53,282
Other intangible assets, net	18,461	19,000
Intercompany	657,549	622,481
Investment in subsidiaries	41,782	41,782
Other assets	3,084	3,064
Total assets	996,088	960,876
Current liabilities:
Trade accounts payable	17,171	17,181
Accrued expenses	56,782	58,729
Current portion of long-term debt	1,259	1,573
Current portion of obligations under capital leases	5,834	6,052
Total current liabilities	81,046	83,535
Long-term liabilities	181	229
Long-term debt	877	893
Obligations under capital leases	10,732	11,632
Total liabilities	92,836	96,289
Additional paid-in capital	476,811	476,811
Retained earnings	426,459	387,794
Accumulated other comprehensive (loss) income	(18)	(18)
Total shareholder's equity - Res-Care, Inc.	903,252	864,587
Total shareholder's equity	903,252	864,587
Total liabilities and shareholder's equity	996,088	960,876
Non-Guarantor Subsidiaries
Current assets:
Cash and cash equivalents	2,656	2,706	2,404	2,371
Accounts receivable, net	348	371
Prepaid expenses and other current assets	497	515
Total current assets	3,501	3,592
Property and equipment, net	408	428
Goodwill	5,301	5,433
Intercompany	69,747	70,335
Other assets	17	17
Total assets	78,974	79,805
Current liabilities:
Trade accounts payable	38	58
Accrued expenses	832	848
Current portion of long-term debt	1,542	1,746
Accrued income taxes	(40)	(30)
Total current liabilities	2,372	2,622
Total liabilities	2,372	2,622
Additional paid-in capital	125,104	125,104
Retained earnings	(47,542)	(47,445)
Accumulated other comprehensive (loss) income	(825)	(377)
Total shareholder's equity - Res-Care, Inc.	76,737	77,282
Noncontrolling interest	(135)	(99)
Total shareholder's equity	76,602	77,183
Total liabilities and shareholder's equity	78,974	79,805
Eliminations
Current assets:
Intercompany	(727,296)	(692,816)
Investment in subsidiaries	(979,989)	(941,869)
Total assets	(1,707,285)	(1,634,685)
Current liabilities:
Current portion of long-term debt	(1,542)	(1,722)
Total current liabilities	(1,542)	(1,722)
Intercompany	(725,754)	(691,094)
Total liabilities	(727,296)	(692,816)
Additional paid-in capital	(601,915)	(601,915)
Retained earnings	(378,917)	(340,349)
Accumulated other comprehensive (loss) income	843	395
Total shareholder's equity - Res-Care, Inc.	(979,989)	(941,869)
Total shareholder's equity	(979,989)	(941,869)
Total liabilities and shareholder's equity	$ (1,707,285)	$ (1,634,685)

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Goodwill (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2013 Residential Services	Mar. 31, 2013 ResCare HomeCare	Dec. 31, 2012 ResCare HomeCare	Mar. 31, 2013 Youth Services	Dec. 31, 2012 Youth Services	Mar. 31, 2013 Workforce Services	Dec. 31, 2012 Workforce Services	Mar. 31, 2013 Pharmacy Services	Dec. 31, 2012 Pharmacy Services
Summary of changes to goodwill
Goodwill, net at the beginning of the period	$ 288,265	$ 160,727	$ 65,663	$ 65,663	$ 24,829	$ 24,829	$ 32,720	$ 32,720	$ 4,326	$ 4,326
Goodwill added through acquisitions	7	7
Other	(132)	(132)
Goodwill, net at the end of the period	$ 288,140	$ 160,602	$ 65,663	$ 65,663	$ 24,829	$ 24,829	$ 32,720	$ 32,720	$ 4,326	$ 4,326

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Income Taxes

3 Months Ended

Mar. 31, 2013

Income Taxes

Income Taxes

Note 4.                   Income Taxes

The effective tax rate was 10.8% and 40.3% for the three months ended March 31, 2013 and 2012, respectively. The decrease in the effective tax rate relates primarily to the impact of jobs tax credits.  On January 2, 2013, legislation was enacted that reinstated the jobs credit provisions retroactive to January 1, 2012.  The three months ended March 31, 2013 includes the current quarter’s jobs tax credit impact and $3.3 million related to 2012 and prior periods’ jobs tax credit impact.

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Segment Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Segment Information
Revenues	$ 389,454	$ 397,342
Operating income (loss)	21,198	20,046
Total assets	1,041,212	1,013,332	1,051,958
Capital expenditures	4,103	4,261
Depreciation and amortization	8,195	8,807
Residential Services
Segment Information
Revenues	204,501	200,798
Operating income (loss)	24,398	26,569
Total assets	548,885	526,801
Capital expenditures	1,670	1,259
Depreciation and amortization	4,839	5,219
ResCare HomeCare
Segment Information
Revenues	88,068	84,019
Operating income (loss)	4,532	4,798
Total assets	188,168	187,612
Capital expenditures	218	392
Depreciation and amortization	682	683
Youth Services
Segment Information
Revenues	41,880	46,557
Operating income (loss)	3,061	3,261
Total assets	92,566	108,219
Capital expenditures	33	88
Depreciation and amortization	361	406
Workforce Services
Segment Information
Revenues	39,818	48,829
Operating income (loss)	3,612	1,948
Total assets	82,332	87,867
Capital expenditures	15	70
Depreciation and amortization	276	310
Pharmacy Services
Segment Information
Revenues	15,187	17,139
Operating income (loss)	1,027	1,145
Total assets	17,113	14,034
Capital expenditures	169	76
Depreciation and amortization	32	47
Corporate
Segment Information
Operating income (loss)	(15,432)	(17,675)
Total assets	112,148	88,799
Capital expenditures	1,998	2,376
Depreciation and amortization	$ 2,005	$ 2,142

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Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
10.75% senior notes
Fair value of other financial instruments
Interest rate (as a percent)	10.75%	10.75%
Carrying Amount | 10.75% senior notes
Fair value of other financial instruments
Long-term debt	200,000	200,000
Carrying Amount | Senior secured Term Loan A
Fair value of other financial instruments
Long-term debt	164,076	170,625
Carrying Amount | Notes payable and other
Fair value of other financial instruments
Long-term debt	2,136	2,491
Fair Value | 10.75% senior notes
Fair value of other financial instruments
Long-term debt	226,000	221,000
Fair Value | Senior secured Term Loan A
Fair value of other financial instruments
Long-term debt	164,076	170,625
Fair Value | Notes payable and other
Fair value of other financial instruments
Long-term debt	2,063	2,410

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Legal Proceedings (Details) (Larry Selk, by and through his legal guardian, Rani Rubio v. Res-Care New Mexico, Inc., Res-Care, Inc., et al., USD $) In Millions, unless otherwise specified	1 Months Ended
	Feb. 28, 2010	Dec. 31, 2009
Larry Selk, by and through his legal guardian, Rani Rubio v. Res-Care New Mexico, Inc., Res-Care, Inc., et al.
Legal Proceedings
Damages awarded	$ 15.5	$ 53.9
Compensatory damages	4.7	4.7
Punitive damages	$ 10.8	$ 49.2

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Noncontrolling Interest (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Noncontrolling Interest
Balance at the beginning of the period	$ (99)	$ 11	$ 11
Net loss-noncontrolling interest	(36)	(30)	(110)
Balance at the end of the period	$ (135)		$ (99)
Rest Assured LLC
Noncontrolling Interest
Ownership interest (as a percent)	66.70%

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Debt

3 Months Ended

Mar. 31, 2013

Debt

Debt

Note 3.                   Debt

Long-term debt and obligations under capital leases consist of the following:

	March 31		December 31
	2013		2012
10.75% senior notes due 2019	$	200,000	$	200,000
Senior secured Term Loan A due 2017	164,076		170,625
Senior secured credit facility	—		—
Obligations under capital leases	16,566		17,683
Notes payable and other	2,136		2,491
	382,778		390,799
Less current portion	15,843		20,747
	$	366,935	$	370,052

On April 5, 2012, we entered into a new senior secured credit facility (the “Credit Agreement”) in an aggregate principal amount of $375 million, which replaced our 2010 senior secured revolving credit facility and the senior secured term loan (the “Term Loan B”). The new Credit Agreement consists of a new term loan (the “Term Loan A”) in an aggregate principal amount of $175 million and a new revolving credit facility (the “Revolving Facility”) in an aggregate principal amount of $200 million. The Term Loan A and the Revolving Facility each mature on April 5, 2017. The Term Loan A will amortize in an aggregate annual amount equal to a percentage of the original principal amount of the Term Loan A as follows: (i) 5% during each of the first two years after funding, (ii) 10% during the third year after funding and (iii) 15% during each of the final two years of the term. The balance of the Term Loan A is payable at maturity. Pricing for the Term Loan A will be variable, at the London Interbank Offer Rate (LIBOR) plus a spread, which is currently 275 basis points. LIBOR is defined as having no minimum rate. The spread varies between 225 and 300 basis points depending on our total leverage ratio.  The proceeds of the Term Loan A were used to repay the Company’s prior Term Loan B and pay certain related fees and expenses. The proceeds of the Revolving Facility may be used for working capital and for other general corporate purposes permitted under the Credit Agreement, including certain acquisitions and investments. The Credit Agreement also provides that, upon satisfaction of certain conditions, the Company may increase the aggregate principal amount of loans outstanding thereunder by up to $175 million, subject to receipt of additional lending commitments for such loans. The loans and other obligations under the Credit Agreement are (i) guaranteed by Onex Rescare Holdings Corp. (“Holdings”) and substantially all of its subsidiaries (subject to certain exceptions and limitations) and (ii) secured by substantially all of the assets of the Company, Holdings and substantially all of its subsidiaries (subject to certain exceptions and limitations). The Credit Agreement contains various financial covenants relating to capital expenditures and rentals, and requires us to maintain specific ratios with respect to interest coverage and leverage. The agreement continues to provide for the exclusion of charges incurred with the resolution of certain legal proceedings provided in Note 7 to Notes to the Condensed Consolidated Financial Statements, as well as any non-cash impairment charges, in the calculation of certain financial covenants.

Our obligations under capital leases are $16.6 million as of  March 31, 2013, due primarily to vehicle capital leases.  The current portion of these lease obligations was $5.8 million.

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Revision of Previously Reported Data (Details) (USD $)	3 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Revision of Previously Reported Data
Decrease in income due to out-of-period adjustment relating to capital lease accounting, before tax		$ 700,000
Decrease in income due to out-of-period adjustment relating to capital lease accounting, after tax		400,000
Revision of Previously Reported Data
Revenues	389,454,000	397,342,000
Gross profit	95,078,000	98,062,000
Operating income	21,198,000	20,046,000
Interest expense	(8,537,000)	(10,443,000)
Net income (loss):
Net income (loss)	11,296,000	5,735,000
Net loss - noncontrolling interest	(36,000)	(30,000)	(110,000)
Net income-Res-Care, Inc.	11,332,000	5,765,000
Property and equipment, net	94,959,000	100,980,000	97,030,000
Current portion of Long-term debt, including capital leases	15,843,000	5,694,000	20,747,000
Obligations under capital leases	10,732,000	12,108,000	11,632,000
Cash (used in) provided by operating activities	9,170,000	(1,047,000)
Cash used in financing activities	(8,506,000)	(2,614,000)
As Reported
Revision of Previously Reported Data
Revenues		397,342,000
Gross profit		98,452,000
Operating income		20,500,000
Interest expense		10,208,000
Net income (loss):
Net income (loss)		6,155,000
Net loss - noncontrolling interest		(30,000)
Net income-Res-Care, Inc.		6,185,000
Property and equipment, net		84,308,000
Current portion of Long-term debt, including capital leases		85,000
Obligations under capital leases		324,000
Cash (used in) provided by operating activities		(2,521,000)
Cash used in financing activities		(1,140,000)
Adjustment
Revision of Previously Reported Data
Gross profit		(390,000)
Operating income		(454,000)
Interest expense		235,000
Net income (loss):
Net income (loss)		(420,000)
Net income-Res-Care, Inc.		(420,000)
Property and equipment, net		16,672,000
Current portion of Long-term debt, including capital leases		5,609,000
Obligations under capital leases		11,784,000
Cash (used in) provided by operating activities		1,474,000
Cash used in financing activities		$ (1,474,000)

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Current assets:
Cash and cash equivalents	$ 46,703	$ 50,134
Accounts receivable, net of allowance for doubtful accounts of $13,788 in 2013 and $11,997 in 2012	228,506	228,377
Refundable income taxes	1,251
Deferred income taxes	17,125	17,589
Prepaid expenses and other current assets	21,060	22,116
Total current assets	314,645	318,216
Property and equipment, net	94,959	97,030
Goodwill	288,140	288,265
Other intangible assets, net	319,564	321,293
Other assets	23,904	27,154
Total assets	1,041,212	1,051,958
Current liabilities:
Trade accounts payable	33,245	37,738
Accrued expenses	104,447	114,876
Current portion of long-term debt	10,009	14,695
Current portion of obligations under capital leases	5,834	6,052
Accrued income taxes	802	1,813
Total current liabilities	154,337	175,174
Long-term liabilities	56,368	56,469
Long-term debt	356,203	358,420
Obligations under capital leases	10,732	11,632
Deferred income taxes	107,753	106,253
Total liabilities	685,393	707,948
Shareholder's equity:
Preferred shares, authorized 1,000,000 shares, no par value, except 48,095 shares designated as Series A with stated value of $1,050 per share, no shares issued and outstanding in 2013 and 2012
Common stock, no par value, authorized 40,000,000 shares, issued and outstanding 21,344,741 in 2013 and 2012
Additional paid-in capital	245,049	244,345
Retained earnings	111,066	99,734
Accumulated other comprehensive loss	(161)	30
Total shareholder's equity - Res-Care, Inc.	355,954	344,109
Noncontrolling interest	(135)	(99)
Total shareholder's equity	355,819	344,010
Total liabilities and shareholder's equity	$ 1,041,212	$ 1,051,958

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Basis of Presentation

3 Months Ended

Mar. 31, 2013

Basis of Presentation

Basis of Presentation

Note 1.                   Basis of Presentation

Res-Care, Inc. is a human service company that provides residential, therapeutic, job training and educational supports to people with developmental or other disabilities, youth with special needs, adults who are experiencing barriers to employment, and older people who need home care assistance. All references in this Quarterly Report on Form 10-Q to “ResCare”, “Company”, “our company”, “we”, “us”, or “our” mean Res-Care, Inc. and, unless the context otherwise requires, its consolidated subsidiaries.

The accompanying condensed consolidated financial statements of ResCare have been prepared in accordance with Article 10 of Regulation S-X and do not include all information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for comprehensive annual financial statements. In our opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of financial condition and results of operations for the interim periods have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full year.

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts and related disclosures of commitments and contingencies. We rely on historical experience and on various other assumptions that we believe to be reasonable under the circumstances to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

For further information refer to the consolidated financial statements and footnotes thereto in our 2012 Annual Report on Form 10-K filed February 19, 2013.

Reclassification

Certain immaterial reclassifications have been made to 2012 amounts to conform to 2013 presentation.

Segments

Effective January 1, 2013, we began managing and operating our Pharmacy Services as a new reporting segment.  Pharmacy Services is a limited, closed-door pharmacy focused on serving individuals with cognitive, intellectual and developmental disabilities.  The pharmacy operations were previously included with our Residential Services segment.  As a result of this change, the results of our Residential Services segment has been retrospectively recast for all periods presented.  Further information regarding our segments is included in Note 6.

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Subsidiary Guarantors (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Operating activities:
Net income (loss)	$ 11,296	$ 5,735
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	8,195	8,807
Amortization of discount and deferred debt issuance costs on notes	870	675
Share-based compensation	704	1,174
Deferred income taxes, net	1,964	1,100
Provision for losses on accounts receivable	1,818	1,549
Loss on sale of assets	102	35
Changes in operating assets and liabilities	(15,779)	(20,122)
Cash provided by (used in) operating activities	9,170	(1,047)
Investing activities:
Purchases of property and equipment	(4,103)	(4,261)
Acquisitions of businesses, net of cash acquired	(7)	(4,550)
Proceeds from sale of assets	81	10
Cash used in investing activities	(4,029)	(8,801)
Financing activities:
Long-term debt (repayments) borrowings	(6,904)	(1,117)
Payments on obligations under capital lease	(1,594)	(1,497)
Debt issuance costs	(8)
Cash used in financing activities	(8,506)	(2,614)
Effect of exchange rate changes on cash and cash equivalents	(66)	64
Decrease in cash and cash equivalents	(3,431)	(12,398)
Cash and cash equivalents at beginning of period	50,134	25,651
Cash and cash equivalents at end of period	46,703	13,253
ResCare, Inc.
Operating activities:
Net income (loss)	11,332	5,765
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	4,221	4,547
Amortization of discount and deferred debt issuance costs on notes	870	675
Share-based compensation	704	1,174
Deferred income taxes, net	1,964	1,100
Provision for losses on accounts receivable	259	136
Equity in earnings of subsidiaries	(16,215)	(15,619)
Changes in operating assets and liabilities	25,111	58,503
Cash provided by (used in) operating activities	28,246	56,281
Investing activities:
Purchases of property and equipment	(2,075)	(3,059)
Cash used in investing activities	(2,075)	(3,059)
Financing activities:
Long-term debt (repayments) borrowings	(6,550)	(283)
Debt issuance costs	(8)
Net payments relating to intercompany financing	(21,907)	(64,339)
Cash used in financing activities	(28,465)	(64,622)
Decrease in cash and cash equivalents	(2,294)	(11,400)
Cash and cash equivalents at beginning of period	42,633	16,733
Cash and cash equivalents at end of period	40,339	5,333
Guarantor Subsidiaries
Operating activities:
Net income (loss)	16,408	15,704
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	3,932	4,256
Provision for losses on accounts receivable	1,559	1,413
Loss on sale of assets	102	35
Equity in earnings of subsidiaries	(143)	(43)
Changes in operating assets and liabilities	(41,605)	3,756
Cash provided by (used in) operating activities	(19,747)	25,121
Investing activities:
Purchases of property and equipment	(2,006)	(1,151)
Acquisitions of businesses, net of cash acquired	(7)	(4,550)
Proceeds from sale of assets	81	10
Cash used in investing activities	(1,932)	(5,691)
Financing activities:
Long-term debt (repayments) borrowings	(150)	(718)
Payments on obligations under capital lease	(1,594)	(1,497)
Net payments relating to intercompany financing	22,402	(18,310)
Cash used in financing activities	20,658	(20,525)
Effect of exchange rate changes on cash and cash equivalents	(66)	64
Decrease in cash and cash equivalents	(1,087)	(1,031)
Cash and cash equivalents at beginning of period	4,795	6,547
Cash and cash equivalents at end of period	3,708	5,516
Non-Guarantor Subsidiaries
Operating activities:
Net income (loss)	(86)	(72)
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	42	4
Changes in operating assets and liabilities	715	(82,381)
Cash provided by (used in) operating activities	671	(82,449)
Investing activities:
Purchases of property and equipment	(22)	(51)
Cash used in investing activities	(22)	(51)
Financing activities:
Long-term debt (repayments) borrowings	(204)	(116)
Net payments relating to intercompany financing	(495)	82,649
Cash used in financing activities	(699)	82,533
Decrease in cash and cash equivalents	(50)	33
Cash and cash equivalents at beginning of period	2,706	2,371
Cash and cash equivalents at end of period	2,656	2,404
Eliminations
Operating activities:
Net income (loss)	(16,358)	(15,662)
Adjustments to reconcile net income to cash provided by operating activities:
Equity in earnings of subsidiaries	$ 16,358	$ 15,662

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Noncontrolling Interest (Tables)

3 Months Ended

Mar. 31, 2013

Noncontrolling Interest

Schedule of noncontrolling interests

Noncontrolling interest as of December 31, 2011	$	11
Net loss-noncontrolling interest	(110		)
Noncontrolling interest as of December 31, 2012	(99		)
Net loss-noncontrolling interest	(36		)
Noncontrolling interest as of March 31, 2013	$	(135	)

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Subsidiary Guarantors (Tables)

3 Months Ended

Mar. 31, 2013

Subsidiary Guarantors

Schedule of condensed consolidating balance sheet

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

March 31, 2013

(In thousands)

				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
ASSETS
Current assets:
Cash and cash equivalents	$	40,339		$	3,708		$	2,656		$	—		$	46,703
Accounts receivable, net	20,315			207,843			348			—			228,506
Refundable income taxes	1,251			—			—			—			1,251
Deferred income taxes	17,125			—			—			—			17,125
Prepaid expenses and other current assets	9,089			11,474			497			—			21,060
Total current assets	88,119			223,025			3,501			—			314,645
Property and equipment, net	42,364			52,187			408			—			94,959
Goodwill	282,839			—			5,301			—			288,140
Other intangible assets, net	301,103			18,461			—			—			319,564
Intercompany	—			657,549			69,747			(727,296		)	—
Investment in subsidiaries	938,207			41,782			—			(979,989		)	—
Other assets	20,803			3,084			17			—			23,904
	$	1,673,435		$	996,088		$	78,974		$	(1,707,285	)	$	1,041,212
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities:
Trade accounts payable	$	16,036		$	17,171		$	38		$	—		$	33,245
Accrued expenses	46,833			56,782			832			—			104,447
Current portion of long-term debt	8,750			1,259			1,542			(1,542		)	10,009
Current portion of obligations under capital leases	—			5,834			—			—			5,834
Accrued income taxes	842			—			(40		)	—			802
Total current liabilities	72,461			81,046			2,372			(1,542		)	154,337
Intercompany	725,754			—			—			(725,754		)	—
Long-term liabilities	56,187			181			—			—			56,368
Long-term debt	355,326			877			—			—			356,203
Obligations under capital leases	—			10,732			—			—			10,732
Deferred income taxes	107,753			—			—			—			107,753
Total liabilities	1,317,481			92,836			2,372			(727,296		)	685,393
Preferred shares	—			—			—			—			—
Common stock	—			—			—			—			—
Additional paid-in capital	245,049			476,811			125,104			(601,915		)	245,049
Retained earnings	111,066			426,459			(47,542		)	(378,917		)	111,066
Accumulated other comprehensive (loss) income	(161		)	(18		)	(825		)	843			(161		)
Total shareholder’s equity-Res-Care, Inc.	355,954			903,252			76,737			(979,989		)	355,954
Noncontrolling interest	—			—			(135		)	—			(135		)
Total shareholder’s equity	355,954			903,252			76,602			(979,989		)	355,819
	$	1,673,435		$	996,088		$	78,974		$	(1,707,285	)	$	1,041,212

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2012

(In thousands)

			Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.		Subsidiaries			Subsidiaries			Eliminations			Total
ASSETS
Current assets:
Cash and cash equivalents	$	42,633	$	4,795		$	2,706		$	—		$	50,134
Accounts receivable, net	21,515		206,491			371			—			228,377
Refundable income taxes	—		—			—			—			—
Deferred income taxes	17,589		—			—			—			17,589
Prepaid expenses and other current assets	11,620		9,981			515			—			22,116
Total current assets	93,357		221,267			3,592			—			318,216
Property and equipment, net	43,320		53,282			428			—			97,030
Goodwill	282,832		—			5,433			—			288,265
Other intangible assets, net	302,293		19,000			—			—			321,293
Intercompany	—		622,481			70,335			(692,816		)	—
Investment in subsidiaries	900,087		41,782			—			(941,869		)	—
Other assets	24,073		3,064			17			—			27,154
	$	1,645,962	$	960,876		$	79,805		$	(1,634,685	)	$	1,051,958
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities:
Trade accounts payable	$	20,499	$	17,181		$	58		$	—		$	37,738
Accrued expenses	55,299		58,729			848			—			114,876
Current portion of long-term debt	13,098		1,573			1,746			(1,722		)	14,695
Current portion of obligations under capital leases	—		6,052			—			—			6,052
Accrued income taxes	1,843		—			(30		)	—			1,813
Total current liabilities	90,739		83,535			2,622			(1,722		)	175,174
Intercompany	691,094		—			—			(691,094		)	—
Long-term liabilities	56,240		229			—			—			56,469
Long-term debt	357,527		893			—			—			358,420
Obligations under capital leases	—		11,632			—			—			11,632
Deferred income taxes	106,253		—			—			—			106,253
Total liabilities	1,301,853		96,289			2,622			(692,816		)	707,948
Preferred shares	—		—			—			—			—
Common stock	—		—			—			—			—
Additional paid-in capital	244,345		476,811			125,104			(601,915		)	244,345
Retained earnings	99,734		387,794			(47,445		)	(340,349		)	99,734
Accumulated other comprehensive (loss) income	30		(18		)	(377		)	395			30
Total shareholder’s equity-Res-Care, Inc.	344,109		864,587			77,282			(941,869		)	344,109
Noncontrolling interest	—		—			(99		)	—			(99		)
Total shareholder’s equity	344,109		864,587			77,183			(941,869		)	344,010
	$	1,645,962	$	960,876		$	79,805		$	(1,634,685	)	$	1,051,958

Schedule of condensed consolidating statement of comprehensive income

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

Three Months Ended March 31, 2013

(In thousands)

				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Revenues	$	60,452		$	328,250		$	752		$	—		$	389,454
Operating expenses	65,177			302,247			832			—			368,256
Operating (loss) income	(4,725		)	26,003			(80		)	—			21,198
Other expenses (income):
Interest, net	8,295			185			57			—			8,537
Equity in earnings of subsidiaries	(16,215		)	(143		)	—			16,358			—
Total other (income) expenses	(7,920		)	42			57			16,358			8,537
(Loss) income before income taxes	3,195			25,961			(137		)	(16,358		)	12,661
Income tax (benefit) expense	(8,137		)	9,553			(51		)	—			1,365
Net income (loss)	11,332			16,408			(86		)	(16,358		)	11,296
Net loss-noncontrolling interest	—			—			(36		)	—			(36		)
Net income (loss)-Res-Care, Inc.	11,332			16,408			(50		)	(16,358		)	11,332
Other comprehensive income (loss):
Foreign currently translation adjustments	(191		)	—			(191		)	191			(191		)
Comprehensive income (loss) attributable to Res-Care, Inc.	$	11,141		$	16,408		$	(241	)	$	(16,167	)	$	11,141
Total comprehensive income	$	11,141		$	16,408		$	(277	)	$	(16,167	)	$	11,105

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

Three Months Ended March 31, 2012

(In thousands)

				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Revenues	$	64,842		$	331,763		$	737		$	—		$	397,342
Operating expenses	71,017			305,420			859			—			377,296
Operating (loss) income	(6,175		)	26,343			(122		)	—			20,046
Other expenses (income):
Interest, net	10,304			141			(2		)	—			10,443
Equity in earnings of subsidiaries	(15,619		)	(43		)	—			15,662			—
Total other (income) expenses	(5,315		)	98			(2		)	15,662			10,443
(Loss) income before income taxes	(860		)	26,245			(120		)	(15,662		)	9,603
Income tax (benefit) expense	(6,625		)	10,541			(48		)	—			3,868
Net income (loss)	5,765			15,704			(72		)	(15,662		)	5,735
Net loss-noncontrolling interest	—			—			(30		)	—			(30		)
Net income (loss)-Res-Care, Inc.	5,765			15,704			(42		)	(15,662		)	5,765
Other comprehensive income (loss):
Foreign currently translation adjustments	161			—			161			(161		)	161
Comprehensive income (loss) attributable to Res-Care, Inc.	$	5,926		$	15,704		$	119		$	(15,823	)	$	5,926
Total comprehensive income	$	5,926		$	15,704		$	89		$	(15,823	)	$	5,896

Schedule of condensed consolidating statement of cash flows

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Three Months Ended March 31, 2013

(In thousands)

				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Operating activities:
Net income (loss)	$	11,332		$	16,408		$	(86	)	$	(16,358	)	$	11,296
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	4,221			3,932			42			—			8,195
Amortization of discount and deferred debt issuance costs on notes	870			—			—			—			870
Share-based compensation	704			—			—			—			704
Deferred income taxes, net	1,964			—			—			—			1,964
Provision for losses on accounts receivable	259			1,559			—			—			1,818
Loss from sale of assets	—			102			—			—			102
Equity in earnings of subsidiaries	(16,215		)	(143		)	—			16,358			—
Changes in operating assets and liabilities	25,111			(41,605		)	715			—			(15,779		)
Cash provided by (used in) operating activities	28,246			(19,747		)	671			—			9,170
Investing activities:
Purchases of property and equipment	(2,075		)	(2,006		)	(22		)	—			(4,103		)
Acquisitions of businesses, net of cash acquired	—			(7		)	—			—			(7		)
Proceeds from sale of assets	—			81			—			—			81
Cash used in investing activities	(2,075		)	(1,932		)	(22		)	—			(4,029		)
Financing activities:
Long-term debt (repayments) borrowings	(6,550		)	(150		)	(204		)	—			(6,904		)
Payments on obligations under capital leases	—			(1,594		)	—			—			(1,594		)
Debt issuance costs	(8		)	—			—			—			(8		)
Net payments relating to intercompany financing	(21,907		)	22,402			(495		)	—			—
Cash (used in) provided by financing activities	(28,465		)	20,658			(699		)	—			(8,506		)
Effect of exchange rate changes on cash and cash equivalents	—			(66		)	—			—			(66		)
(Decrease) increase in cash and cash equivalents	(2,294		)	(1,087		)	(50		)	—			(3,431		)
Cash and cash equivalents at beginning of period	42,633			4,795			2,706			—			50,134
Cash and cash equivalents at end of period	$	40,339		$	3,708		$	2,656		$	—		$	46,703

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Three Months Ended March 31, 2012

(In thousands)

				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Operating activities:
Net income (loss)	$	5,765		$	15,704		$	(72	)	$	(15,662	)	$	5,735
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	4,547			4,256			4			—			8,807
Amortization of discount and deferred debt issuance costs on notes	675			—			—			—			675
Share-based compensation	1,174			—			—			—			1,174
Deferred income taxes, net	1,100			—			—			—			1,100
Provision for losses on accounts receivable	136			1,413			—			—			1,549
Loss from sale of assets	—			35			—			—			35
Equity in earnings of subsidiaries	(15,619		)	(43		)	—			15,662			—
Changes in operating assets and liabilities	58,503			3,756			(82,381		)	—			(20,122		)
Cash provided by (used in) operating activities	56,281			25,121			(82,449		)	—			(1,047		)
Investing activities:
Purchases of property and equipment	(3,059		)	(1,151		)	(51		)	—			(4,261		)
Acquisitions of businesses, net of cash acquired	—			(4,550		)	—			—			(4,550		)
Proceeds from sale of assets	—			10			—			—			10
Cash used in investing activities	(3,059		)	(5,691		)	(51		)	—			(8,801		)
Financing activities:
Long-term debt (repayments) borrowings	(283		)	(718		)	(116		)	—			(1,117		)
Payments on obligations under capital leases	—			(1,497		)	—			—			(1,497		)
Net payments relating to intercompany financing	(64,339		)	(18,310		)	82,649			—			—
Cash (used in) provided by financing activities	(64,622		)	(20,525		)	82,533			—			(2,614		)
Effect of exchange rate changes on cash and cash equivalents	—			64			—			—			64
(Decrease) increase in cash and cash equivalents	(11,400		)	(1,031		)	33			—			(12,398		)
Cash and cash equivalents at beginning of period	16,733			6,547			2,371			—			25,651
Cash and cash equivalents at end of period	$	5,333		$	5,516		$	2,404		$	—		$	13,253

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Goodwill

3 Months Ended

Mar. 31, 2013

Goodwill

Goodwill

Note 2.                   Goodwill

Goodwill is tested for impairment on an annual basis and between annual tests if indicators of potential impairment exist. The date of our annual impairment test is October 1. A change in our reportable segments, more fully described herein in Note 6, resulted in a change in the composition of our reporting units, which is the unit of accounting for goodwill.  Accordingly, we reallocated goodwill between our Residential Services and Pharmacy Services’ reporting units using the relative fair value approach.  A summary of changes to goodwill during the three months ended March 31, 2013 is as follows:

	Residential			ResCare		Youth		Workforce		Pharmacy
	Services			HomeCare		Services		Services		Services		Total
Balance at January 1, 2013
Goodwill	$	160,727		$	65,663	$	24,829	$	32,720	$	4,326	$	288,265
Goodwill added through acquisitions	7			—		—		—		—		7
Other (1)	(132		)	—		—		—		—		(132		)
Balance at March 31, 2013	$	160,602		$	65,663	$	24,829	$	32,720	$	4,326	$	288,140

(1)  Primarily relates to foreign currency translation adjustments.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Accounts receivable, allowance for doubtful accounts (in dollars)	$ 13,788	$ 11,997
Preferred shares, authorized shares	1,000,000	1,000,000
Preferred shares, par or stated value per share (in dollars per share)	$ 0	$ 0
Preferred shares, issued shares	0	0
Preferred shares, outstanding shares	0	0
Common stock, par value	$ 0	$ 0
Common stock, authorized shares	40,000,000	40,000,000
Common stock, issued shares	21,344,741	21,344,741
Common stock, outstanding shares	21,344,741	21,344,741
Preferred Stock Designated as Series A
Preferred shares designated as Series A	48,095	48,095
Preferred shares, par or stated value per share (in dollars per share)	$ 1,050	$ 1,050

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Basis of Presentation (Policies)

3 Months Ended

Mar. 31, 2013

Basis of Presentation

Reclassification

Reclassification

Certain immaterial reclassifications have been made to 2012 amounts to conform to 2013 presentation.

Segments

Segments

Effective January 1, 2013, we began managing and operating our Pharmacy Services as a new reporting segment.  Pharmacy Services is a limited, closed-door pharmacy focused on serving individuals with cognitive, intellectual and developmental disabilities.  The pharmacy operations were previously included with our Residential Services segment.  As a result of this change, the results of our Residential Services segment has been retrospectively recast for all periods presented.  Further information regarding our segments is included in Note 6.

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2013	Apr. 30, 2013
Document and Entity Information
Entity Registrant Name	RES CARE INC /KY/
Entity Central Index Key	0000776325
Document Type	10-Q
Document Period End Date	Mar. 31, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		21,344,741
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1

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Goodwill (Tables)

3 Months Ended

Mar. 31, 2013

Goodwill

Summary of changes to goodwill

	Residential			ResCare		Youth		Workforce		Pharmacy
	Services			HomeCare		Services		Services		Services		Total
Balance at January 1, 2013
Goodwill	$	160,727		$	65,663	$	24,829	$	32,720	$	4,326	$	288,265
Goodwill added through acquisitions	7			—		—		—		—		7
Other (1)	(132		)	—		—		—		—		(132		)
Balance at March 31, 2013	$	160,602		$	65,663	$	24,829	$	32,720	$	4,326	$	288,140

(1)  Primarily relates to foreign currency translation adjustments.

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Revenues	$ 389,454	$ 397,342
Cost of services	294,376	299,280
Gross profit	95,078	98,062
Operating expenses:
Operational general and administrative	58,770	60,349
Corporate general and administrative	15,110	17,667
Total operating expenses	73,880	78,016
Operating income	21,198	20,046
Interest expense, net	8,537	10,443
Income before income taxes	12,661	9,603
Income tax expense	1,365	3,868
Net income	11,296	5,735
Net loss-noncontrolling interest	(36)	(30)
Net income-Res-Care, Inc.	11,332	5,765
Other comprehensive income:
Foreign currency translation adjustments	(191)	161
Comprehensive income attributable to Res-Care, Inc.	11,141	5,926
Total comprehensive income	$ 11,105	$ 5,896

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Legal Proceedings

3 Months Ended

Mar. 31, 2013

Legal Proceedings

Legal Proceedings

Note 7.                   Legal Proceedings

ResCare, or its affiliates, are parties to various legal and/or administrative proceedings arising out of the operation of our programs and arising in the ordinary course of business. Except for the matter discussed below, we do not believe the ultimate liability, if any, for these proceedings or claims, individually or in the aggregate, in excess of amounts already provided, will have a material adverse effect on our condensed consolidated financial condition, results of operations or cash flows.

We record accruals for such contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. No estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made at this time regarding the matters specifically described below because the inherently unpredictable nature of legal proceedings may be exacerbated by various factors, including: (i) the damages sought in the proceedings are unsubstantiated or indeterminate; (ii) discovery is not complete; (iii) the proceeding is in its early stages; (iv) the matters present legal uncertainties; (v) there are significant facts in dispute; (vi) there are a large number of parties (including where it is uncertain how liability, if any, will be shared among multiple defendants); or (vii) there is a wide range of potential outcomes. Nevertheless, it is reasonably possible that the outcome of these matters may have a material adverse effect on our financial condition, results of operations or cash flows or may affect our reputation.

In March 2007, a lawsuit was filed in Bernalillo County, New Mexico State Court styled Larry Selk, by and through his legal guardian, Rani Rubio v. Res-Care New Mexico, Inc., Res-Care, Inc., et al. The lawsuit sought compensatory and punitive damages for claims of negligence, negligence per se, violations of the Unfair Practices Act and violations of the Resident Abuse and Neglect Act. Settlement discussions were unsuccessful and a jury trial commenced on November 9, 2009 on the issue of negligence. The jury returned a verdict of approximately $53.9 million in damages against the Company, consisting of approximately $4.7 million in compensatory damages and $49.2 million in punitive damages, which was entered as a judgment in December 2009. On February 19, 2010, the New Mexico trial court judge ruled on post-trial motions reducing the jury award to $15.5 million, which consists of approximately $10.8 million in punitive damages and $4.7 million in compensatory damages. We believe the parent company is not liable for the actions of its subsidiary (Res-Care New Mexico, Inc.) or its employees and that both the compensatory and punitive amounts awarded are excessive and contrary to United States Supreme Court and New Mexico Supreme Court precedent which would warrant a new trial or, in the alternative, would reduce the judgment amount. We, as well as the plaintiffs, have appealed. Oral arguments before the Court of Appeals were held on November 15, 2011, and we anticipate a ruling from the Court of Appeals in the near future.  We will continue to defend this matter vigorously. Although we have made provisions in our condensed consolidated financial statements for this self-insured matter, the amount of our legal reserve is less than the original amount of the damages awarded, plus accrued interest. The ultimate outcome of this matter could have a material adverse effect on our financial condition, results of operations or cash flows.

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Segment Information

3 Months Ended

Mar. 31, 2013

Segment Information

Segment Information

Note 6.                   Segment Information

Effective January 1, 2013, we began managing and operating our Pharmacy Services as a new reporting segment.  Pharmacy Services is a limited, closed-door pharmacy focused on serving individuals with cognitive, intellectual and developmental disabilities.  The pharmacy operations were previously included with our Residential Services segment.  As a result of this change, the results of our Residential Services segment has been retrospectively recast for all periods presented.

The following table sets forth information about our reportable segments:

	Residential		ResCare		Youth		Workforce		Pharmacy
	Services		HomeCare		Services		Services		Services		Corporate			Total
Three months ended March 31:
2013
Revenues	$	204,501	$	88,068	$	41,880	$	39,818	$	15,187	$	—		$	389,454
Operating income (loss) (1)	24,398		4,532		3,061		3,612		1,027		(15,432		)	21,198
Total assets	548,885		188,168		92,566		82,332		17,113		112,148			1,041,212
Capital expenditures	1,670		218		33		15		169		1,998			4,103
Depreciation and amortization	4,839		682		361		276		32		2,005			8,195
2012
Revenues	$	200,798	$	84,019	$	46,557	$	48,829	$	17,139	$	—		$	397,342
Operating income (loss) (1)	26,569		4,798		3,261		1,948		1,145		(17,675		)	20,046
Total assets	526,801		187,612		108,219		87,867		14,034		88,799			1,013,332
Capital expenditures	1,259		392		88		70		76		2,376			4,261
Depreciation and amortization	5,219		683		406		310		47		2,142			8,807

(1) Under Corporate, the operating loss is comprised of our corporate general and administrative expenses, as well as other operating income and expenses related to the corporate office.

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Revision of Previously Reported Data (Tables)

3 Months Ended

Mar. 31, 2013

Revision of Previously Reported Data

Schedule of correction of the 2012 impact of the adjustment in the revised first quarter of 2012

	As Reported			Adjustment			As Revised
2012 – Successor (First Quarter)
Three Months Ended March 31, 2012
Revenues	$	397,342		$	—		$	397,342
Gross profit	98,452			(390		)	98,062
Operating income	20,500			(454		)	20,046
Interest expense	10,208			235			10,443
Net income (loss):
Net income (loss)	6,155			(420		)	5,735
Net loss – noncontrolling interest	(30		)	—			(30		)
Net income (loss) – ResCare, Inc.	$	6,185		$	(420	)	$	5,765
As of March 31, 2012
Property and equipment, net	$	84,308		$	16,672		$	100,980
Current portion of Long-term debt, including capital leases	85			5,609			5,694
Obligations under capital leases	324			11,784			12,108
Three Months Ended March 31, 2012
Cash (used in) provided by operating activities	$	(2,521	)	$	1,474		$	(1,047	)
Cash used in financing activities	(1,140		)	(1,474		)	(2,614		)

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Debt (Tables)

3 Months Ended

Mar. 31, 2013

Debt

Schedule of long-term debt and obligations under capital leases

	March 31		December 31
	2013		2012
10.75% senior notes due 2019	$	200,000	$	200,000
Senior secured Term Loan A due 2017	164,076		170,625
Senior secured credit facility	—		—
Obligations under capital leases	16,566		17,683
Notes payable and other	2,136		2,491
	382,778		390,799
Less current portion	15,843		20,747
	$	366,935	$	370,052

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Revision of Previously Reported Data

3 Months Ended

Mar. 31, 2013

Revision of Previously Reported Data

Revision of Previously Reported Data

Note 10.                 Revision of Previously Reported Data

As discussed in the lease arrangements footnote (Note 13) on our 2012 Form 10-K, we recorded an out-of-period adjustment in the fourth quarter of 2012 to correct the accounting treatment for our leased vehicles.  Due to the immateriality of the amount, the 2011 and prior pre-tax impact of approximately $0.7 million ($0.4 million after tax) was corrected in our revised first quarter 2012 results as disclosed in the following table.  The table below also includes the correction of the 2012 impact of the adjustment in the revised first quarter of 2012.  These amounts were not considered material to the prior periods.

	As Reported			Adjustment			As Revised
2012 – Successor (First Quarter)
Three Months Ended March 31, 2012
Revenues	$	397,342		$	—		$	397,342
Gross profit	98,452			(390		)	98,062
Operating income	20,500			(454		)	20,046
Interest expense	10,208			235			10,443
Net income (loss):
Net income (loss)	6,155			(420		)	5,735
Net loss – noncontrolling interest	(30		)	—			(30		)
Net income (loss) – ResCare, Inc.	$	6,185		$	(420	)	$	5,765
As of March 31, 2012
Property and equipment, net	$	84,308		$	16,672		$	100,980
Current portion of Long-term debt, including capital leases	85			5,609			5,694
Obligations under capital leases	324			11,784			12,108
Three Months Ended March 31, 2012
Cash (used in) provided by operating activities	$	(2,521	)	$	1,474		$	(1,047	)
Cash used in financing activities	(1,140		)	(1,474		)	(2,614		)

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Noncontrolling Interest

3 Months Ended

Mar. 31, 2013

Noncontrolling Interest

Noncontrolling Interest

Note 8.                   Noncontrolling Interest

As of March 31, 2013, ResCare held a 66.7% interest in Rest Assured LLC, a limited liability company comprised of public and private organizations providing remote monitoring services for persons with disabilities and the elderly. ASC 810, Noncontrolling Interests in Consolidated Financial Statements, (“ASC 810”) clarifies that noncontrolling interest be reported as a component separate from the parent’s equity and that changes in the parent’s ownership interest in a subsidiary be recorded as equity transactions if the parent retains its controlling interest in the subsidiary. The statement also requires consolidated net income to include amounts attributable to both the parent and the noncontrolling interest on the face of the income statement. In addition, ASC 810 requires a parent to recognize a gain or loss in net income on the date the parent deconsolidates a subsidiary, or ceases to have a controlling financial interest in a subsidiary. There is no foreign currency translation adjustment related to Rest Assured. Balances are as follows:

Noncontrolling interest as of December 31, 2011	$	11
Net loss-noncontrolling interest	(110		)
Noncontrolling interest as of December 31, 2012	(99		)
Net loss-noncontrolling interest	(36		)
Noncontrolling interest as of March 31, 2013	$	(135	)

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Impact of Recently Issued Accounting Pronouncements

3 Months Ended

Mar. 31, 2013

Impact of Recently Issued Accounting Pronouncements

Impact of Recently Issued Accounting Pronouncements

Note 9.                   Impact of Recently Issued Accounting Pronouncements

We do not believe there are any new accounting pronouncements that have been issued that might have a material impact on our condensed consolidated financial position or results of operations.

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Subsidiary Guarantors

3 Months Ended

Mar. 31, 2013

Subsidiary Guarantors

Subsidiary Guarantors

Note 11.                 Subsidiary Guarantors

The Senior Notes are jointly, severally, fully and unconditionally guaranteed, subject to certain automatic customary release provisions, by our 100% owned U.S. subsidiaries. There are no restrictions on our ability to obtain funds from our U.S. subsidiaries by dividends or other means. The following are condensed consolidating financial statements of our company, including the guarantors. This information is provided pursuant to Rule 3 – 10 of Regulation S-X in lieu of separate financial statements of each subsidiary guaranteeing the Senior Notes. The following condensed consolidating financial statements present the balance sheet, statement of comprehensive income and cash flows of (i) Res-Care, Inc. (in each case, reflecting investments in its consolidated subsidiaries under the equity method of accounting), (ii) the guarantor subsidiaries, (iii) the non-guarantor subsidiaries, and (iv) the eliminations necessary to arrive at the information for our company on a consolidated basis. The condensed consolidating financial statements should be read in conjunction with the accompanying condensed consolidated financial statements.

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

March 31, 2013

(In thousands)

				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
ASSETS
Current assets:
Cash and cash equivalents	$	40,339		$	3,708		$	2,656		$	—		$	46,703
Accounts receivable, net	20,315			207,843			348			—			228,506
Refundable income taxes	1,251			—			—			—			1,251
Deferred income taxes	17,125			—			—			—			17,125
Prepaid expenses and other current assets	9,089			11,474			497			—			21,060
Total current assets	88,119			223,025			3,501			—			314,645
Property and equipment, net	42,364			52,187			408			—			94,959
Goodwill	282,839			—			5,301			—			288,140
Other intangible assets, net	301,103			18,461			—			—			319,564
Intercompany	—			657,549			69,747			(727,296		)	—
Investment in subsidiaries	938,207			41,782			—			(979,989		)	—
Other assets	20,803			3,084			17			—			23,904
	$	1,673,435		$	996,088		$	78,974		$	(1,707,285	)	$	1,041,212
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities:
Trade accounts payable	$	16,036		$	17,171		$	38		$	—		$	33,245
Accrued expenses	46,833			56,782			832			—			104,447
Current portion of long-term debt	8,750			1,259			1,542			(1,542		)	10,009
Current portion of obligations under capital leases	—			5,834			—			—			5,834
Accrued income taxes	842			—			(40		)	—			802
Total current liabilities	72,461			81,046			2,372			(1,542		)	154,337
Intercompany	725,754			—			—			(725,754		)	—
Long-term liabilities	56,187			181			—			—			56,368
Long-term debt	355,326			877			—			—			356,203
Obligations under capital leases	—			10,732			—			—			10,732
Deferred income taxes	107,753			—			—			—			107,753
Total liabilities	1,317,481			92,836			2,372			(727,296		)	685,393
Preferred shares	—			—			—			—			—
Common stock	—			—			—			—			—
Additional paid-in capital	245,049			476,811			125,104			(601,915		)	245,049
Retained earnings	111,066			426,459			(47,542		)	(378,917		)	111,066
Accumulated other comprehensive (loss) income	(161		)	(18		)	(825		)	843			(161		)
Total shareholder’s equity-Res-Care, Inc.	355,954			903,252			76,737			(979,989		)	355,954
Noncontrolling interest	—			—			(135		)	—			(135		)
Total shareholder’s equity	355,954			903,252			76,602			(979,989		)	355,819
	$	1,673,435		$	996,088		$	78,974		$	(1,707,285	)	$	1,041,212

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2012

(In thousands)

			Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.		Subsidiaries			Subsidiaries			Eliminations			Total
ASSETS
Current assets:
Cash and cash equivalents	$	42,633	$	4,795		$	2,706		$	—		$	50,134
Accounts receivable, net	21,515		206,491			371			—			228,377
Refundable income taxes	—		—			—			—			—
Deferred income taxes	17,589		—			—			—			17,589
Prepaid expenses and other current assets	11,620		9,981			515			—			22,116
Total current assets	93,357		221,267			3,592			—			318,216
Property and equipment, net	43,320		53,282			428			—			97,030
Goodwill	282,832		—			5,433			—			288,265
Other intangible assets, net	302,293		19,000			—			—			321,293
Intercompany	—		622,481			70,335			(692,816		)	—
Investment in subsidiaries	900,087		41,782			—			(941,869		)	—
Other assets	24,073		3,064			17			—			27,154
	$	1,645,962	$	960,876		$	79,805		$	(1,634,685	)	$	1,051,958
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities:
Trade accounts payable	$	20,499	$	17,181		$	58		$	—		$	37,738
Accrued expenses	55,299		58,729			848			—			114,876
Current portion of long-term debt	13,098		1,573			1,746			(1,722		)	14,695
Current portion of obligations under capital leases	—		6,052			—			—			6,052
Accrued income taxes	1,843		—			(30		)	—			1,813
Total current liabilities	90,739		83,535			2,622			(1,722		)	175,174
Intercompany	691,094		—			—			(691,094		)	—
Long-term liabilities	56,240		229			—			—			56,469
Long-term debt	357,527		893			—			—			358,420
Obligations under capital leases	—		11,632			—			—			11,632
Deferred income taxes	106,253		—			—			—			106,253
Total liabilities	1,301,853		96,289			2,622			(692,816		)	707,948
Preferred shares	—		—			—			—			—
Common stock	—		—			—			—			—
Additional paid-in capital	244,345		476,811			125,104			(601,915		)	244,345
Retained earnings	99,734		387,794			(47,445		)	(340,349		)	99,734
Accumulated other comprehensive (loss) income	30		(18		)	(377		)	395			30
Total shareholder’s equity-Res-Care, Inc.	344,109		864,587			77,282			(941,869		)	344,109
Noncontrolling interest	—		—			(99		)	—			(99		)
Total shareholder’s equity	344,109		864,587			77,183			(941,869		)	344,010
	$	1,645,962	$	960,876		$	79,805		$	(1,634,685	)	$	1,051,958

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

Three Months Ended March 31, 2013

(In thousands)

				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Revenues	$	60,452		$	328,250		$	752		$	—		$	389,454
Operating expenses	65,177			302,247			832			—			368,256
Operating (loss) income	(4,725		)	26,003			(80		)	—			21,198
Other expenses (income):
Interest, net	8,295			185			57			—			8,537
Equity in earnings of subsidiaries	(16,215		)	(143		)	—			16,358			—
Total other (income) expenses	(7,920		)	42			57			16,358			8,537
(Loss) income before income taxes	3,195			25,961			(137		)	(16,358		)	12,661
Income tax (benefit) expense	(8,137		)	9,553			(51		)	—			1,365
Net income (loss)	11,332			16,408			(86		)	(16,358		)	11,296
Net loss-noncontrolling interest	—			—			(36		)	—			(36		)
Net income (loss)-Res-Care, Inc.	11,332			16,408			(50		)	(16,358		)	11,332
Other comprehensive income (loss):
Foreign currently translation adjustments	(191		)	—			(191		)	191			(191		)
Comprehensive income (loss) attributable to Res-Care, Inc.	$	11,141		$	16,408		$	(241	)	$	(16,167	)	$	11,141
Total comprehensive income	$	11,141		$	16,408		$	(277	)	$	(16,167	)	$	11,105

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

Three Months Ended March 31, 2012

(In thousands)

				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Revenues	$	64,842		$	331,763		$	737		$	—		$	397,342
Operating expenses	71,017			305,420			859			—			377,296
Operating (loss) income	(6,175		)	26,343			(122		)	—			20,046
Other expenses (income):
Interest, net	10,304			141			(2		)	—			10,443
Equity in earnings of subsidiaries	(15,619		)	(43		)	—			15,662			—
Total other (income) expenses	(5,315		)	98			(2		)	15,662			10,443
(Loss) income before income taxes	(860		)	26,245			(120		)	(15,662		)	9,603
Income tax (benefit) expense	(6,625		)	10,541			(48		)	—			3,868
Net income (loss)	5,765			15,704			(72		)	(15,662		)	5,735
Net loss-noncontrolling interest	—			—			(30		)	—			(30		)
Net income (loss)-Res-Care, Inc.	5,765			15,704			(42		)	(15,662		)	5,765
Other comprehensive income (loss):
Foreign currently translation adjustments	161			—			161			(161		)	161
Comprehensive income (loss) attributable to Res-Care, Inc.	$	5,926		$	15,704		$	119		$	(15,823	)	$	5,926
Total comprehensive income	$	5,926		$	15,704		$	89		$	(15,823	)	$	5,896

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Three Months Ended March 31, 2013

(In thousands)

				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Operating activities:
Net income (loss)	$	11,332		$	16,408		$	(86	)	$	(16,358	)	$	11,296
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	4,221			3,932			42			—			8,195
Amortization of discount and deferred debt issuance costs on notes	870			—			—			—			870
Share-based compensation	704			—			—			—			704
Deferred income taxes, net	1,964			—			—			—			1,964
Provision for losses on accounts receivable	259			1,559			—			—			1,818
Loss from sale of assets	—			102			—			—			102
Equity in earnings of subsidiaries	(16,215		)	(143		)	—			16,358			—
Changes in operating assets and liabilities	25,111			(41,605		)	715			—			(15,779		)
Cash provided by (used in) operating activities	28,246			(19,747		)	671			—			9,170
Investing activities:
Purchases of property and equipment	(2,075		)	(2,006		)	(22		)	—			(4,103		)
Acquisitions of businesses, net of cash acquired	—			(7		)	—			—			(7		)
Proceeds from sale of assets	—			81			—			—			81
Cash used in investing activities	(2,075		)	(1,932		)	(22		)	—			(4,029		)
Financing activities:
Long-term debt (repayments) borrowings	(6,550		)	(150		)	(204		)	—			(6,904		)
Payments on obligations under capital leases	—			(1,594		)	—			—			(1,594		)
Debt issuance costs	(8		)	—			—			—			(8		)
Net payments relating to intercompany financing	(21,907		)	22,402			(495		)	—			—
Cash (used in) provided by financing activities	(28,465		)	20,658			(699		)	—			(8,506		)
Effect of exchange rate changes on cash and cash equivalents	—			(66		)	—			—			(66		)
(Decrease) increase in cash and cash equivalents	(2,294		)	(1,087		)	(50		)	—			(3,431		)
Cash and cash equivalents at beginning of period	42,633			4,795			2,706			—			50,134
Cash and cash equivalents at end of period	$	40,339		$	3,708		$	2,656		$	—		$	46,703

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Three Months Ended March 31, 2012

(In thousands)

				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Operating activities:
Net income (loss)	$	5,765		$	15,704		$	(72	)	$	(15,662	)	$	5,735
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	4,547			4,256			4			—			8,807
Amortization of discount and deferred debt issuance costs on notes	675			—			—			—			675
Share-based compensation	1,174			—			—			—			1,174
Deferred income taxes, net	1,100			—			—			—			1,100
Provision for losses on accounts receivable	136			1,413			—			—			1,549
Loss from sale of assets	—			35			—			—			35
Equity in earnings of subsidiaries	(15,619		)	(43		)	—			15,662			—
Changes in operating assets and liabilities	58,503			3,756			(82,381		)	—			(20,122		)
Cash provided by (used in) operating activities	56,281			25,121			(82,449		)	—			(1,047		)
Investing activities:
Purchases of property and equipment	(3,059		)	(1,151		)	(51		)	—			(4,261		)
Acquisitions of businesses, net of cash acquired	—			(4,550		)	—			—			(4,550		)
Proceeds from sale of assets	—			10			—			—			10
Cash used in investing activities	(3,059		)	(5,691		)	(51		)	—			(8,801		)
Financing activities:
Long-term debt (repayments) borrowings	(283		)	(718		)	(116		)	—			(1,117		)
Payments on obligations under capital leases	—			(1,497		)	—			—			(1,497		)
Net payments relating to intercompany financing	(64,339		)	(18,310		)	82,649			—			—
Cash (used in) provided by financing activities	(64,622		)	(20,525		)	82,533			—			(2,614		)
Effect of exchange rate changes on cash and cash equivalents	—			64			—			—			64
(Decrease) increase in cash and cash equivalents	(11,400		)	(1,031		)	33			—			(12,398		)
Cash and cash equivalents at beginning of period	16,733			6,547			2,371			—			25,651
Cash and cash equivalents at end of period	$	5,333		$	5,516		$	2,404		$	—		$	13,253

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Subsidiary Guarantors (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
Revenues	$ 389,454	$ 397,342
Operating expenses	368,256	377,296
Operating income	21,198	20,046
Other expenses (income):
Interest, net	8,537	10,443
Total other (income) expenses	8,537	10,443
(Loss) income before income taxes	12,661	9,603
Income tax (benefit) expense	1,365	3,868
Net income	11,296	5,735
Net loss-noncontrolling interest	(36)	(30)	(110)
Net income-Res-Care, Inc.	11,332	5,765
Other comprehensive income (loss):
Foreign currency translation adjustments	(191)	161
Comprehensive income attributable to Res-Care, Inc.	11,141	5,926
Total comprehensive income	11,105	5,896
ResCare, Inc.
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
Revenues	60,452	64,842
Operating expenses	65,177	71,017
Operating income	(4,725)	(6,175)
Other expenses (income):
Interest, net	8,295	10,304
Equity in earnings of subsidiaries	(16,215)	(15,619)
Total other (income) expenses	(7,920)	(5,315)
(Loss) income before income taxes	3,195	(860)
Income tax (benefit) expense	(8,137)	(6,625)
Net income	11,332	5,765
Net income-Res-Care, Inc.	11,332	5,765
Other comprehensive income (loss):
Foreign currency translation adjustments	(191)	161
Comprehensive income attributable to Res-Care, Inc.	11,141	5,926
Total comprehensive income	11,141	5,926
Guarantor Subsidiaries
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
Revenues	328,250	331,763
Operating expenses	302,247	305,420
Operating income	26,003	26,343
Other expenses (income):
Interest, net	185	141
Equity in earnings of subsidiaries	(143)	(43)
Total other (income) expenses	42	98
(Loss) income before income taxes	25,961	26,245
Income tax (benefit) expense	9,553	10,541
Net income	16,408	15,704
Net income-Res-Care, Inc.	16,408	15,704
Other comprehensive income (loss):
Comprehensive income attributable to Res-Care, Inc.	16,408	15,704
Total comprehensive income	16,408	15,704
Non-Guarantor Subsidiaries
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
Revenues	752	737
Operating expenses	832	859
Operating income	(80)	(122)
Other expenses (income):
Interest, net	57	(2)
Total other (income) expenses	57	(2)
(Loss) income before income taxes	(137)	(120)
Income tax (benefit) expense	(51)	(48)
Net income	(86)	(72)
Net loss-noncontrolling interest	(36)	(30)
Net income-Res-Care, Inc.	(50)	(42)
Other comprehensive income (loss):
Foreign currency translation adjustments	(191)	161
Comprehensive income attributable to Res-Care, Inc.	(241)	119
Total comprehensive income	(277)	89
Eliminations
Other expenses (income):
Equity in earnings of subsidiaries	16,358	15,662
Total other (income) expenses	16,358	15,662
(Loss) income before income taxes	(16,358)	(15,662)
Net income	(16,358)	(15,662)
Net income-Res-Care, Inc.	(16,358)	(15,662)
Other comprehensive income (loss):
Foreign currency translation adjustments	191	(161)
Comprehensive income attributable to Res-Care, Inc.	(16,167)	(15,823)
Total comprehensive income	$ (16,167)	$ (15,823)

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Segment Information (Tables)

3 Months Ended

Mar. 31, 2013

Segment Information

Schedule of information regarding reportable segments

	Residential		ResCare		Youth		Workforce		Pharmacy
	Services		HomeCare		Services		Services		Services		Corporate			Total
Three months ended March 31:
2013
Revenues	$	204,501	$	88,068	$	41,880	$	39,818	$	15,187	$	—		$	389,454
Operating income (loss) (1)	24,398		4,532		3,061		3,612		1,027		(15,432		)	21,198
Total assets	548,885		188,168		92,566		82,332		17,113		112,148			1,041,212
Capital expenditures	1,670		218		33		15		169		1,998			4,103
Depreciation and amortization	4,839		682		361		276		32		2,005			8,195
2012
Revenues	$	200,798	$	84,019	$	46,557	$	48,829	$	17,139	$	—		$	397,342
Operating income (loss) (1)	26,569		4,798		3,261		1,948		1,145		(17,675		)	20,046
Total assets	526,801		187,612		108,219		87,867		14,034		88,799			1,013,332
Capital expenditures	1,259		392		88		70		76		2,376			4,261
Depreciation and amortization	5,219		683		406		310		47		2,142			8,807

(1) Under Corporate, the operating loss is comprised of our corporate general and administrative expenses, as well as other operating income and expenses related to the corporate office.

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Debt (Details) (USD $)								0 Months Ended	3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2012	Mar. 31, 2013 10.75% senior notes due 2019	Dec. 31, 2012 10.75% senior notes due 2019	Apr. 05, 2012 Credit Agreement	Dec. 31, 2012 Credit Agreement Maximum	Apr. 05, 2012 Senior secured Term Loan A due 2017	Mar. 31, 2013 Senior secured Term Loan A due 2017	Dec. 31, 2012 Senior secured Term Loan A due 2017	Mar. 31, 2013 Senior secured Term Loan A due 2017 Minimum	Mar. 31, 2013 Senior secured Term Loan A due 2017 Maximum	Apr. 05, 2012 Senior secured credit facility	Mar. 31, 2013 Obligations under capital leases	Dec. 31, 2012 Obligations under capital leases	Mar. 31, 2013 Notes payable and other	Dec. 31, 2012 Notes payable and other
Long-term debt and obligations under capital leases
Long-term debt and capital lease obligation	$ 382,778,000	$ 390,799,000		$ 200,000,000	$ 200,000,000				$ 164,076,000	$ 170,625,000				$ 16,566,000	$ 17,683,000	$ 2,136,000	$ 2,491,000
Less current portion	15,843,000	20,747,000	5,694,000											5,800,000
Long-term debt and obligations under capital leases	366,935,000	370,052,000
Interest rate (as a percent)				10.75%	10.75%
Aggregate amount available						375,000,000		175,000,000					200,000,000
Percentage of original principal amount to be amortized during each of the first two years after funding								5.00%
Number of years after funding during which five percent of original principal amount will be amortized								2 years
Percentage of original principal amount to be amortized during the third year after funding								10.00%
Percentage of original principal amount to be amortized during the final two years of the term								15.00%
Number of final years of the term of loan during which 15 percent of original principal amount will be amortized								2 years
Variable rate basis									LIBOR
Interest rate margin (as a percent)									2.75%		2.25%	3.00%
Option to increase the available additional borrowing capacity							$ 175,000,000

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Cash flows from operating activities:
Net income	$ 11,296	$ 5,735
Adjustments to reconcile net income to cash (used in) provided by operating activities:
Depreciation and amortization	8,195	8,807
Amortization of discount and deferred debt issuance costs	870	675
Share-based compensation	704	1,174
Deferred income taxes, net	1,964	1,100
Provision for losses on accounts receivable	1,818	1,549
Loss on sale of assets	102	35
Changes in operating assets and liabilities	(15,779)	(20,122)
Cash provided by (used in) operating activities	9,170	(1,047)
Cash flows from investing activities:
Purchases of property and equipment	(4,103)	(4,261)
Acquisitions of businesses, net of cash acquired	(7)	(4,550)
Proceeds from sale of assets	81	10
Cash used in investing activities	(4,029)	(8,801)
Cash flows from financing activities:
Long-term debt repayments	(6,904)	(1,188)
Long-term debt borrowings		71
Payments on obligations under capital lease	(1,594)	(1,497)
Debt issuance costs	(8)
Cash used in financing activities	(8,506)	(2,614)
Effect of exchange rate changes on cash and cash equivalents	(66)	64
Decrease in cash and cash equivalents	(3,431)	(12,398)
Cash and cash equivalents at beginning of period	50,134	25,651
Cash and cash equivalents at end of period	46,703	13,253
Supplemental schedule of non-cash investing and financing activities:
Capital lease obligations	$ 476	$ 1,298

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Financial Instruments

3 Months Ended

Mar. 31, 2013

Financial Instruments

Financial Instruments

Note 5.                   Financial Instruments

At March 31, 2013 and December 31, 2012, the fair values of cash and cash equivalents, accounts receivable and accounts payable approximated carrying value because of the short-term nature of these instruments. The fair value of our other financial instruments subject to fair value disclosures are as follows:

	March 31, 2013				December 31, 2012
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Long-term debt:
10.75% senior notes	$	200,000	$	226,000	$	200,000	$	221,000
Senior secured Term Loan A	164,076		164,076		170,625		170,625
Notes payable and other	2,136		2,063		2,491		2,410

We estimated the fair value of the debt instruments using market quotes and calculations based on current market rates available to us (Level 2).

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Income Taxes (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Income Taxes
Effective tax rate (as a percent)	10.80%	40.30%
Jobs tax credit impact related to 2012 and prior periods	$ 3.3

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Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2013

Financial Instruments

Schedule of fair value of other financial instruments subject to fair value disclosures

	March 31, 2013				December 31, 2012
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Long-term debt:
10.75% senior notes	$	200,000	$	226,000	$	200,000	$	221,000
Senior secured Term Loan A	164,076		164,076		170,625		170,625
Notes payable and other	2,136		2,063		2,491		2,410