10-Q 1 a13-7024_110q.htm 10-Q

Table of Contents

 

 

 

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.

 

 

 



Table of Contents

 

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

 

 

- 2 -



Table of Contents

 

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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Table of Contents

 

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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Table of Contents

 

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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Table of Contents

 

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:

 

- 6 -



Table of Contents

 

 

 

 

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.

 

- 7 -


 


Table of Contents

 

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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Table of Contents

 

 

 

 

 

(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:

 

- 9 -



Table of Contents

 

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

)

 

- 10 -



Table of Contents

 

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.

 

- 11 -


 


Table of Contents

 

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

 

 

- 12 -



Table of Contents

 

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

 

 

- 13 -


 


Table of Contents

 

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

 

 

- 14 -



Table of Contents

 

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

 

 

- 15 -



Table of Contents

 

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

 

 

- 16 -



Table of Contents

 

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