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