Subsidiary Guarantors

9 Months Ended

Sep. 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

September 30, 2011

(In thousands)

	SUCCESSOR
			Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.		Subsidiaries			Subsidiaries			Eliminations			Total
ASSETS
Current assets:
Cash and cash equivalents	$	1,565	$	7,888		$	2,211		$	—		$	11,664
Accounts receivable, net	23,072		198,995			120			—			222,187
Refundable income taxes	15,275		—			—			—			15,275
Deferred income taxes	19,969		—			—			—			19,969
Non-trade receivables	1,129		1,633			59			—			2,821
Prepaid expenses and other current assets	8,758		9,876			4			—			18,638
Total current assets	69,768		218,392			2,394			—			290,554
Property and equipment, net	46,840		38,758			24			—			85,622
Goodwill	241,926		21,725			—			—			263,651
Other intangible assets, net	309,011		5,244			—			—			314,255
Investment in subsidiaries	885,443		41,782			80,267			(1,007,492		)	—
Other assets	24,129		3,081			32			—			27,242
	$	1,577,117	$	328,982		$	82,717		$	(1,007,492	)	$	981,324
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities:
Trade accounts payable	$	21,016	$	16,119		$	(44	)	$	—		$	37,091
Accrued expenses	65,539		60,868			933			—			127,340
Current portion of long-term debt	1,700		3,138			4,585			—			9,423
Current portion of obligations under capital leases	1		92			—			—			93
Accrued income taxes	74		—			(74		)	—			—
Total current liabilities	88,330		80,217			5,400			—			173,947
Intercompany	682,607		(681,086		)	(1,521		)	—			—
Long-term liabilities	53,150		148			—			—			53,298
Long-term debt	364,068		692			—			—			364,760
Obligations under capital leases	—		362			—			—			362
Deferred gains	338		—			—			—			338
Deferred income taxes	104,398		—			(5		)	—			104,393
Total liabilities	1,292,891		(599,667		)	3,874			—			697,098
Total shareholder’s equity	284,226		928,649			78,843			(1,007,492		)	284,226
	$	1,577,117	$	328,982		$	82,717		$	(1,007,492	)	$	981,324

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	14,564		—			72			—			14,636
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	78,532		196,582			10,166			—			285,280
Property and equipment, net	21,231		64,895			757			—			86,883
Goodwill	239,066		8,239			—			—			247,305
Other intangible assets, net	313,106		2,270			—			—			315,376
Investment in subsidiaries	885,443		41,994			80,267			(1,007,704		)	—
Other assets	25,834		4,127			147			—			30,108
	$	1,563,212	$	318,107		$	91,337		$	(1,007,704	)	$	964,952
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	35,425		2,013			188			—			37,626
Long-term debt	364,798		2,086			—			—			366,884
Obligations under capital leases	—		431			—			—			431
Deferred income taxes	93,411		—			(5		)	—			93,406
Total liabilities	1,320,599		(597,994		)	(266		)	—			722,339
Total shareholder’s equity	242,613		916,101			91,603			(1,007,704		)	242,613
	$	1,563,212	$	318,107		$	91,337		$	(1,007,704	)	$	964,952

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Three Months Ended September 30, 2011

(In thousands)

	SUCCESSOR
				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Revenues	$	65,051		$	330,677		$	539		$	—		$	396,267
Operating expenses	70,603			294,063			213			—			364,879
Operating (loss) income	(5,552		)	36,614			326			—			31,388
Other (income) expenses:
Interest, net	10,421			(2		)	(25		)	—			10,394
Equity in earnings of subsidiaries	(21,205		)	—			—			21,205			—
Total other expenses (income)	(10,784		)	(2		)	(25		)	21,205			10,394
Income (loss) before income taxes	5,232			36,616			351			(21,205		)	20,994
Income tax (benefit) expense	(5,903		)	13,170			94			—			7,361
Income from continuing operations	11,135			23,446			257			(21,205		)	13,633
Income (loss) from discontinued operations, net of tax	19,155			—			(2,498		)	—			16,657
Net income (loss) – including noncontrolling interests	30,290			23,446			(2,241		)	(21,205		)	30,290
Net loss – noncontrolling interest	—			(57		)	—			—			(57		)
Net income (loss) – Res-Care, Inc.	$	30,290		$	23,503		$	(2,241	)	$	(21,205	)	$	30,347

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Nine Months Ended September 30, 2011

(In thousands)

	SUCCESSOR
				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Revenues	$	192,966		$	987,163		$	1,314		$	—		$	1,181,443
Operating expenses	206,911			896,174			1,745			—			1,104,830
Operating (loss) income	(13,945		)	90,989			(431		)	—			76,613
Other (income) expenses:
Interest, net	31,846			(58		)	(31		)	—			31,757
Equity in earnings of subsidiaries	(52,835		)	—			—			52,835			—
Total other expenses (income)	(20,989		)	(58		)	(31		)	52,835			31,757
Income (loss) before income taxes	7,044			91,047			(400		)	(52,835		)	44,856
Income tax (benefit) expense	(14,699		)	29,226			(128		)	—			14,399
Income (loss) from continuing operations	21,743			61,821			(272		)	(52,835		)	30,457
Income (loss) from discontinued operations, net of tax	19,155			—			(8,714		)	—			10,441
Net income (loss) – including noncontrolling interests	40,898			61,821			(8,986		)	(52,835		)	40,898
Net loss – noncontrolling interest	—			(125		)	—			—			(125		)
Net income (loss) – Res-Care, Inc.	$	40,898		$	61,946		$	(8,986	)	$	(52,835	)	$	41,023

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Three Months Ended September 30, 2010

(In thousands)

	PREDECESSOR
				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Revenues	$	61,569		$	336,775		$	481		$	—		$	398,825
Operating expenses	118,428			312,079			222			—			430,729
Operating (loss) income	(56,859		)	24,696			259			—			(31,904		)
Other expenses (income):
Interest, net	4,792			(13		)	(2		)	—			4,777
Equity in earnings of subsidiaries	(29,623		)	—			—			29,623			—
Total other expenses (income)	(24,831		)	(13		)	(2		)	29,623			4,777
(Loss) income before income taxes	(32,028		)	24,709			261			(29,623		)	(36,681		)
Income tax expense (benefit)	9,939			(20,905		)	1,000			—			(9,966		)
(Loss) income from continuing operations	(41,967		)	45,614			(739		)	(29,623		)	(26,715		)
Loss from discontinued operations, net of tax	—			—			(15,252		)	—			(15,252		)
Net (loss) income – including noncontrolling interests	(41,967		)	45,614			(15,991		)	(29,623		)	(41,967		)
Net loss – noncontrolling interest	—			(33		)	—			—			(33		)
Net (loss) income – Res-Care, Inc.	$	(41,967	)	$	45,647		$	(15,991	)	$	(29,623	)	$	(41,934	)

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF INCOME

Nine Months Ended September 30, 2010

(In thousands)

	PREDECESSOR
				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Revenues	$	192,136		$	980,723		$	1,445		$	—		$	1,174,304
Operating expenses	259,956			905,194			890			—			1,166,040
Operating (loss) income	(67,820		)	75,529			555			—			8,264
Other expenses (income):
Interest, net	14,474			(44		)	(3		)	—			14,427
Equity in earnings of subsidiaries	(61,417		)	—			—			61,417			—
Total other expenses (income)	(46,943		)	(44		)	(3		)	61,417			14,427
(Loss) income before income taxes	(20,877		)	75,573			558			(61,417		)	(6,163		)
Income tax expense (benefit)	2,320			(2,131		)	707			—			896
(Loss) income from continuing operations	(23,197		)	77,704			(149		)	(61,417		)	(7,059		)
Loss from discontinued operations, net of tax	—			—			(16,138		)	—			(16,138		)
Net (loss) income – including noncontrolling interests	(23,197		)	77,704			(16,287		)	(61,417		)	(23,197		)
Net loss – noncontrolling interest	—			(114		)	(42		)	—			(156		)
Net (loss) income – Res-Care, Inc.	$	(23,197	)	$	77,818		$	(16,245	)	$	(61,417	)	$	(23,041	)

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Nine Months Ended September 30, 2011

(In thousands)

	SUCCESSOR
				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Operating activities:
Net income – including noncontrolling interest	$	40,898		$	61,821		$	(8,986	)	$	(52,835	)	$	40,898
Adjustments to reconcile net income, including noncontrolling interest, to cash provided by operating activities:
Depreciation and amortization	8,253			5,862			104			—			14,219
Amortization of discount and deferred debt issuance costs on notes	2,256			—			—			—			2,256
Deferred income taxes, net	4,280			—			(8		)	—			4,272
Provision for losses on accounts receivable	3,781			1,161			20			—			4,962
Write down of assets held for sale	2,808			—			(1,166		)	—			1,642
Loss on sale of assets	—			378			—			—			378
Equity in earnings of subsidiaries	(52,835		)	—			—			52,835			—
Changes in operating assets and liabilities	(19,275		)	(12,274		)	6,297			—			(25,252		)
Cash (used in) provided by operating activities	(9,834		)	56,948			(3,739		)	—			43,375
Investing activities:
Purchases of property and equipment	(19,452		)	10,085			234			—			(9,133		)
Acquisitions of businesses, net of cash acquired	—			(17,803		)	—			—			(17,803		)
Proceeds from sale of assets	—			217			—			—			217
Cash (used in) provided by investing activities	(19,452		)	(7,501		)	234			—			(26,719		)
Financing activities:
Long-term (repayments) debt borrowings	(35,095		)	1,282			637			—			(33,176		)
Payments on obligations under capital leases, net	—			(70		)	—			—			(70		)
Funds contributed by co-investors	1,400			—			—			—			1,400
Debt issuance costs	(561		)	—			—			—			(561		)
Net payments relating to intercompany financing	54,023			(52,458		)	(1,565		)	—			—
Cash provided by (used in) financing activities	19,767			(51,246		)	(928		)	—			(32,407		)
Effect of exchange rate changes on cash and cash equivalents	—			(138		)	1			—			(137		)
(Decrease) increase in cash and cash equivalents	(9,519		)	(1,937		)	(4,432		)	—			(15,888		)
Cash and cash equivalents at beginning of period	11,084			9,825			6,643			—			27,552
Cash and cash equivalents at end of period	$	1,565		$	7,888		$	2,211		$	—		$	11,664

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Nine Months Ended September 30, 2010

(In thousands)

	PREDECESSOR
				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Operating activities:
Net income (loss) – including noncontrolling interests	$	(23,197	)	$	77,704		$	(16,287	)	$	(61,417	)	$	(23,197	)
Adjustments to reconcile net income (loss), including noncontrolling interests, to cash provided by operating activities:
Depreciation and amortization	8,158			10,373			740			—			19,271
Goodwill impairment charge	51,734			—			13,843			—			65,577
Amortization of discount and deferred debt issuance costs on notes	1,340			—			—			—			1,340
Share-based compensation	2,224			—			—			—			2,224
Deferred income taxes, net	(3,549		)	—			1			—			(3,548		)
Excess tax expense from exercise of stock options	583			—			—			—			583
Provision for losses on accounts receivable	—			5,402			—			—			5,402
Loss on sale of assets	—			12			—			—			12
Equity in earnings of subsidiaries	(61,417		)	—			—			61,417			—
Changes in operating assets and liabilities	149,960			(143,417		)	(7,573		)	—			(1,030		)
Cash provided by (used in) operating activities	125,836			(49,926		)	(9,276		)	—			66,634
Investing activities:
Purchases of property and equipment	(3,084		)	(3,784		)	(69		)	—			(6,937		)
Acquisitions of businesses	—			(21,213		)	—			—			(21,213		)
Proceeds from sale of assets	—			306			—			—			306
Cash (used in) provided by investing activities	(3,084		)	(24,691		)	(69		)	—			(27,844		)
Financing activities:
Long-term debt (repayments) borrowings	(2,391		)	3,477			—			—			1,086
Short-term repayments—three months or less, net	(41,517		)	(4,932		)	2,449			—			(44,000		)
Payments on obligations under capital leases	—			(73		)	—			—			(73		)
Debt issuance costs	(4,519		)	—			—			—			(4,519		)
Net payments relating to intercompany financing	(84,068		)	84,040			28			—			—
Excess tax expense from share-based compensation	(583		)	—			—			—			(583		)
Employee withholding payments on share-based compensation	(881		)	—			—			—			(881		)
Cash (used in) provided by financing activities	(133,959		)	82,512			2,477			—			(48,970		)
Effect of exchange rate changes on cash and cash equivalents	—			21			(33		)	—			(12		)
(Decrease) increase in cash and cash equivalents	(11,207		)	7,916			(6,901		)	—			(10,192		)
Cash and cash equivalents at beginning of period	6,763			4,655			9,254			—			20,672
Cash and cash equivalents at end of period	$	(4,444	)	$	12,571		$	2,353		$	—		$	10,480