Subsidiary Guarantors

6 Months Ended

Jun. 30, 2011

Subsidiary Guarantors

Subsidiary Guarantors

Note 14.           Subsidiary Guarantors

The Senior Notes are jointly, severally, fully and unconditionally guaranteed 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 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

June 30, 2011

(In thousands)

	SUCCESSOR
			Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.		Subsidiaries			Subsidiaries			Eliminations			Total
ASSETS
Current assets:
Cash and cash equivalents	$	3,504	$	5,804		$	2,223		$	—		$	11,531
Accounts receivable, net	20,508		201,435			236			—			222,179
Refundable income taxes	4,021		—			—			—			4,021
Deferred income taxes	19,224		—			—			—			19,224
Non-trade receivables	819		1,280			50			—			2,149
Prepaid expenses and other current assets	7,585		9,868			17			—			17,470
Total current assets	55,661		218,387			2,526			—			276,574
Property and equipment, net	55,126		39,566			31			—			94,723
Goodwill	229,474		13,378			—			—			242,852
Other intangible assets, net	317,483		3,587			—			—			321,070
Investment in subsidiaries	885,443		41,782			80,267			(1,007,492		)	—
Other assets	24,296		3,567			34			—			27,897
	$	1,567,483	$	320,267		$	82,858		$	(1,007,492	)	$	963,116
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities:
Trade accounts payable	$	20,655	$	26,775		$	293		$	—		$	47,723
Accrued expenses	81,851		59,438			1,121			—			142,410
Current portion of long-term debt	1,700		3,050			4,738			—			9,488
Current portion of obligations under capital leases	2		90			—			—			92
Accrued income taxes	78		—			(78		)	—			—
Total current liabilities	104,286		89,353			6,074			—			199,713
Intercompany	702,195		(696,992		)	(5,203		)	—			—
Long-term liabilities	32,411		34			—			—			32,445
Long-term debt	363,850		1,982			—			—			365,832
Obligations under capital leases	—		385			—			—			385
Deferred gains	375		—			—			—			375
Deferred income taxes	110,256		—			—			—			110,256
Total liabilities	1,313,373		(605,238		)	871			—			709,006
Total shareholder’s equity	254,110		925,505			81,987			(1,007,492		)	254,110
	$	1,567,483	$	320,267		$	82,858		$	(1,007,492	)	$	963,116

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2010

(In thousands)

	PREDECESSOR
			Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.		Subsidiaries			Subsidiaries			Eliminations			Total
ASSETS
Current assets:
Cash and cash equivalents	$	11,084	$	9,825		$	6,643		$	—		$	27,552
Accounts receivable, net	37,902		175,721			2,318			—			215,941
Refundable income taxes	1,297		—			(98		)	—			1,199
Deferred income taxes	14,234		—			72			—			14,306
Non-trade receivables	5,300		1,541			506			—			7,347
Prepaid expenses and other current assets	8,385		9,495			725			—			18,605
Total current assets	78,202		196,582			10,166			—			284,950
Property and equipment, net	31,345		64,895			757			—			96,997
Goodwill	226,628		8,239			—			—			234,867
Other intangible assets, net	320,316		2,270			—			—			322,586
Investment in subsidiaries	885,443		41,794			80,267			(1,007,504		)	—
Other assets	25,834		4,127			147			—			30,108
	$	1,567,768	$	317,907		$	91,337		$	(1,007,504	)	$	969,508
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities:
Trade accounts payable	$	29,343	$	24,832		$	2,077		$	—		$	56,252
Accrued expenses	68,291		57,649			1,109			—			127,049
Current portion of long-term debt	32,232		3,015			3,948			—			39,195
Current portion of obligations under capital leases	6		86			—			—			92
Accrued income taxes	1,480		—			(76		)	—			1,404
Total current liabilities	131,352		85,582			7,058			—			223,992
Intercompany	695,613		(688,106		)	(7,507		)	—			—
Long-term liabilities	31,511		2,013			188			—			33,712
Long-term debt	364,798		2,086			—			—			366,884
Obligations under capital leases	—		431			—			—			431
Deferred income taxes	102,081		—			(5		)	—			102,076
Total liabilities	1,325,355		(597,994		)	(266		)	—			727,095
Total shareholder’s equity	242,413		915,901			91,603			(1,007,504		)	242,413
	$	1,567,768	$	317,907		$	91,337		$	(1,007,504	)	$	969,508

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Three Months Ended June 30, 2011

(In thousands)

	SUCCESSOR
				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Revenues	$	64,658		$	334,042		$	392		$	—		$	399,092
Operating expenses	69,306			303,675			1,543			—			374,524
Operating (loss) income	(4,648		)	30,367			(1,151		)	—			24,568
Other (income) expenses:
Interest, net	10,607			(6		)	(4		)	—			10,597
Equity in earnings of subsidiaries	(19,035		)	—			—			19,035			—
Total other expenses (income)	(8,428		)	(6		)	(4		)	19,035			10,597
(Loss) income before income taxes	3,780			30,373			(1,147		)	(19,035		)	13,971
Income tax (benefit) expense	(3,154		)	6,734			397			—			3,977
Income from continuing operations	6,934			23,639			(1,544		)	(19,035		)	9,994
Loss from discontinued operations, net of tax	—			—			(3,060		)	—			(3,060		)
Net income (loss) – including noncontrolling interests	6,934			23,639			(4,604		)	(19,035		)	6,934
Net loss – noncontrolling interest	—			(36		)	—			—			(36		)
Net income (loss) – Res-Care, Inc.	$	6,934		$	23,675		$	(4,604	)	$	(19,035	)	$	6,970

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Six Months Ended June 30, 2011

(In thousands)

	SUCCESSOR
				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Revenues	$	127,915		$	656,486		$	775		$	—		$	785,176
Operating expenses	136,308			602,111			1,532			—			739,951
Operating (loss) income	(8,393		)	54,375			(757		)	—			45,225
Other (income) expenses:
Interest, net	21,425			(56		)	(6		)	—			21,363
Equity in earnings of subsidiaries	(31,630		)	—			—			31,630			—
Total other expenses (income)	(10,205		)	(56		)	(6		)	31,630			21,363
Income (loss) before income taxes	1,812			54,431			(751		)	(31,630		)	23,862
Income tax (benefit) expense	(8,796		)	16,056			(222		)	—			7,038
Income (loss) from continuing operations	10,608			38,375			(529		)	(31,630		)	16,824
Loss from discontinued operations, net of tax	—			—			(6,216		)	—			(6,216		)
Net income (loss) – including noncontrolling interests	10,608			38,375			(6,745		)	(31,630		)	10,608
Net loss – noncontrolling interest	—			(68		)	—			—			(68		)
Net income (loss) – Res-Care, Inc.	$	10,608		$	38,443		$	(6,745	)	$	(31,630	)	$	10,676

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Three Months Ended June 30, 2010

(In thousands)

	PREDECESSOR
				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Revenues	$	64,376		$	326,323		$	508		$	—		$	391,207
Operating expenses	71,373			298,882			271			—			370,526
Operating (loss) income	(6,997		)	27,441			237			—			20,681
Other (income) expenses:
Interest, net	4,874			(9		)	—			—			4,865
Equity in earnings of subsidiaries	(16,872		)	—			—			16,872			—
Total other expenses (income)	(11,998		)	(9		)	—			16,872			4,865
Income before income taxes	5,001			27,450			237			(16,872		)	15,816
Income tax (benefit) expense	(4,433		)	10,268			(128		)	—			5,707
Income from continuing operations	9,434			17,182			365			(16,872		)	10,109
Loss from discontinued operations, net of tax	—			—			(675		)	—			(675		)
Net income (loss) – including noncontrolling interests	9,434			17,182			(310		)	(16,872		)	9,434
Net loss – noncontrolling interest	—			(41		)	—			—			(41		)
Net income (loss) – Res-Care, Inc.	$	9,434		$	17,223		$	(310	)	$	(16,872	)	$	9,475

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Six Months Ended June 30, 2010

(In thousands)

	PREDECESSOR
				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Revenues	$	130,567		$	643,948		$	964		$	—		$	775,479
Operating expenses	141,528			593,115			668			—			735,311
Operating (loss) income	(10,961		)	50,833			296			—			40,168
Other (income) expenses:
Interest, net	9,682			(31		)	(1		)	—			9,650
Equity in earnings of subsidiaries	(31,794		)	—			—			31,794			—
Total other expenses (income)	(22,112		)	(31		)	(1		)	31,794			9,650
Income before income taxes	11,151			50,864			297			(31,794		)	30,518
Income tax (benefit) expense	(7,619		)	18,774			(293		)	—			10,862
Income from continuing operations	18,770			32,090			590			(31,794		)	19,656
Loss from discontinued operations, net of tax	—			—			(886		)	—			(886		)
Net income (loss) – including noncontrolling interests	18,770			32,090			(296		)	(31,794		)	18,770
Net loss – noncontrolling interest	—			(81		)	(42		)	—			(123		)
Net income (loss) – Res-Care, Inc.	$	18,770		$	32,171		$	(254	)	$	(31,794	)	$	18,893

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Six Months Ended June 30, 2011

(In thousands)

	SUCCESSOR
				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Operating activities:
Net income – including noncontrolling interest	$	10,608		$	38,375		$	(6,745	)	$	(31,630	)	$	10,608
Adjustments to reconcile net income, including noncontrolling interest, to cash provided by operating activities:
Depreciation and amortization	6,040			3,895			100			—			10,035
Amortization of discount and deferred debt issuance costs on notes	1,558			—			—			—			1,558
Deferred income taxes, net	2,600			—			(3		)	—			2,597
Provision for losses on accounts receivable	3,625			(170		)	20			—			3,475
Write down of assets held for sale	2,808			—			(1,180		)	—			1,628
Loss on sale of assets	—			175			—			—			175
Equity in earnings of subsidiaries	(31,630		)	—			—			31,630			—
Changes in operating assets and liabilities	25,245			(30,193		)	3,021			—			(1,927		)
Cash provided by (used in) operating activities	20,854			12,082			(4,787		)	—			28,149
Investing activities:
Purchases of property and equipment	(26,786		)	21,255			231			—			(5,300		)
Acquisitions of businesses, net of cash acquired	—			(8,645		)	—			—			(8,645		)
Net cash change on sale of business	—			—			(610		)	—			(610		)
Proceeds from sale of assets	—			322			—			—			322
Cash (used in) provided by investing activities	(26,786		)	12,932			231			—			(13,623		)
Financing activities:
Long-term debt (repayments) borrowings	(33,633		)	2,173			36			—			(31,424		)
Short-term borrowings (repayments)–three months or less, net	987			(987		)	—			—			—
Debt issuance costs	(558		)	—			—			—			(558		)
Payments on obligations under capital leases	—			(46		)	—			—			(46		)
Funds contributed by co-investors	1,400			—			—			—			1,400
Net payments relating to intercompany financing	30,156			(30,243		)	87			—			—
Cash provided by (used in) financing activities	(1,648		)	(29,103		)	123			—			(30,628		)
Effect of exchange rate changes on cash and cash equivalents	—			68			13			—			81
(Decrease) increase in cash and cash equivalents	(7,580		)	(4,021		)	(4,420		)	—			(16,021		)
Cash and cash equivalents at beginning of period	11,084			9,825			6,643			—			27,552
Cash and cash equivalents at end of period	$	3,504		$	5,804		$	2,223		$	—		$	11,531

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Six Months Ended June 30, 2010

(In thousands)

	PREDECESSOR
				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Operating activities:
Net income (loss) – including noncontrolling interests	$	18,770		$	32,090		$	(296	)	$	(31,794	)	$	18,770
Adjustments to reconcile net income (loss), including noncontrolling interests, to cash provided by operating activities:
Depreciation and amortization	5,496			6,776			493			—			12,765
Amortization of discount and deferred debt issuance costs on notes	868			—			—			—			868
Share-based compensation	1,690			—			—			—			1,690
Deferred income taxes, net	10,670			—			2			—			10,672
Excess tax expense from exercise of stock options	185			—			—			—			185
Provision for losses on accounts receivable	—			3,634			—			—			3,634
Gain on sale of assets	—			(2		)	—			—			(2		)
Equity in earnings of subsidiaries	(31,794		)	—			—			31,794			—
Changes in operating assets and liabilities	110,804			(110,318		)	(6,219		)	—			(5,733		)
Cash provided by (used in) operating activities	116,689			(67,820		)	(6,020		)	—			42,849
Investing activities:
Purchases of property and equipment	(2,210		)	(2,562		)	53			—			(4,719		)
Acquisitions of businesses	—			(14,422		)	—			—			(14,422		)
Proceeds from sale of assets	—			210			—			—			210
Cash (used in) provided by investing activities	(2,210		)	(16,774		)	53			—			(18,931		)
Financing activities:
Long-term debt (repayments) borrowings	(1,426		)	1,962			—			—			536
Short-term repayments–three months or less, net	(22,513		)	(3,152		)	1,665			—			(24,000		)
Payments on obligations under capital leases	—			(48		)	—			—			(48		)
Debt issuance costs	(4,469		)	—			—			—			(4,469		)
Net payments relating to intercompany financing	(86,777		)	87,405			(628		)	—			—
Excess tax expense from share-based compensation	(185		)	—			—			—			(185		)
Employee withholding payments on share-based compensation	(879		)	—			—			—			(879		)
Cash (used in) provided by financing activities	(116,249		)	86,167			1,037			—			(29,045		)
Effect of exchange rate changes on cash and cash equivalents	—			9			(179		)	—			(170		)
(Decrease) increase in cash and cash equivalents	(1,770		)	1,582			(5,109		)	—			(5,297		)
Cash and cash equivalents at beginning of period	6,763			4,655			9,254			—			20,672
Cash and cash equivalents at end of period	$	4,993		$	6,237		$	4,145		$	—		$	15,375