Subsidiary Guarantors

6 Months Ended

Jun. 30, 2013

Subsidiary Guarantors

Subsidiary Guarantors

Note 12. 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.

In connection with the preparation of our condensed consolidated financial statements for the second quarter of 2013, we made certain immaterial adjustments to our condensed consolidating statement of cash flows for the six months ended June 30, 2012 to reflect the proper classification of cash flows related to intercompany transactions in which the parent company made direct payments and collected direct receipts on behalf of certain guarantor and non-guarantor subsidiaries. We will also make similar adjustments to our condensed consolidating statements of cash flows for comparative periods presented in future filings. This condensed consolidating financial information is provided in connection with outstanding senior notes that are fully and unconditionally guaranteed by a group of our subsidiaries. These adjustments did not affect the assets available to the group of subsidiaries guaranteeing our senior notes; did not change the net increase or decrease in cash and cash equivalents for the parent company, the issuer, the guarantor subsidiaries or the non-guarantor subsidiaries; and had no impact on consolidated amounts. The substantial majority of these adjustments had the effect of a) decreasing the parent company’s net cash inflows from operating activities and increasing the parent company’s net cash inflows from financing activities by $158.5 million, b) increasing the guarantors’ net cash inflows from operating activities and increasing the guarantors’ net cash outflows from financing activities by $78.9 million and c) decreasing the non-guarantors’ net cash outflows from operating activities and decreasing the non-guarantors’ net cash inflows from financing activities by $79.6 million.

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

June 30, 2013

(In thousands)

				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
ASSETS
Current assets:
Cash and cash equivalents	$	57,765		$	2,693		$	618		$	—		$	61,076
Accounts receivable, net	18,391			211,757			291			—			230,439
Refundable income taxes	3,767			—			—			—			3,767
Deferred income taxes	17,355			—			—			—			17,355
Prepaid expenses and other current assets	11,247			11,678			420			—			23,345
Total current assets	108,525			226,128			1,329			—			335,982
Property and equipment, net	47,543			50,281			378			—			98,202
Goodwill	284,556			—			5,130			—			289,686
Other intangible assets, net	299,913			19,371			3			—			319,287
Intercompany	—			697,700			69,392			(767,092		)	—
Investment in subsidiaries	973,477			41,782			—			(1,015,259		)	—
Other assets	20,103			3,852			17			—			23,972
	$	1,734,117		$	1,039,114		$	76,249		$	(1,782,351	)	$	1,067,129
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities:
Trade accounts payable	$	16,940		$	17,737		$	60		$	—		$	34,737
Accrued expenses	57,541			56,778			828			—			115,147
Current portion of long-term debt	8,751			1,245			1,382			(1,382		)	9,996
Current portion of obligations under capital leases	—			6,670			—			—			6,670
Accrued income taxes	272			—			(47		)	—			225
Total current liabilities	83,504			82,430			2,223			(1,382		)	166,775
Intercompany	765,710			—			—			(765,710		)	—
Long-term liabilities	56,541			198			—			—			56,739
Long-term debt	353,138			1,400			—			—			354,538
Obligations under capital leases	—			14,028			—			—			14,028
Deferred income taxes	108,366			—			—			—			108,366
Total liabilities	1,367,259			98,056			2,223			(767,092		)	700,446
Preferred shares	—			—			—			—			—
Common stock	—			—			—			—			—
Additional paid-in capital	245,897			477,447			122,951			(600,398		)	245,897
Retained earnings	121,345			463,629			(47,672		)	(415,957		)	121,345
Accumulated other comprehensive (loss) income	(384		)	(18		)	(1,078		)	1,096			(384		)
Total shareholder’s equity-Res-Care, Inc.	366,858			941,058			74,201			(1,015,259		)	366,858
Noncontrolling interest	—			—			(175		)	—			(175		)
Total shareholder’s equity	366,858			941,058			74,026			(1,015,259		)	366,683
	$	1,734,117		$	1,039,114		$	76,249		$	(1,782,351	)	$	1,067,129

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 June 30, 2013

(In thousands)

				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Revenues	$	62,612		$	332,866		$	755		$	—		$	396,233
Operating expenses	67,277			304,324			860			—			372,461
Operating (loss) income	(4,665		)	28,542			(105		)	—			23,772
Other expenses (income):
Interest, net	7,935			(327		)	57			—			7,665
Equity in earnings of subsidiaries	(24,576		)	(304		)	—			24,880			—
Total other (income) expenses	(16,641		)	(631		)	57			24,880			7,665
Income (loss) before income taxes	11,976			29,173			(162		)	(24,880		)	16,107
Income tax (benefit) expense	1,697			4,195			(24		)	—			5,868
Net income (loss)	10,279			24,978			(138		)	(24,880		)	10,239
Net loss-noncontrolling interest	—			—			(40		)	—			(40		)
Net income (loss)-Res-Care, Inc.	10,279			24,978			(98		)	(24,880		)	10,279
Other comprehensive income (loss):
Foreign currently translation adjustments	(223		)	—			(223		)	223			(223		)
Comprehensive income (loss) attributable to Res-Care, Inc.	$	10,056		$	24,978		$	(321	)	$	(24,657	)	$	10,056
Total comprehensive income (loss)	$	10,056		$	24,978		$	(361	)	$	(24,657	)	$	10,016

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

Six Months Ended June 30, 2013

(In thousands)

				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Revenues	$	123,064		$	661,116		$	1,507		$	—		$	785,687
Operating expenses	132,454			606,571			1,692			—			740,717
Operating (loss) income	(9,390		)	54,545			(185		)	—			44,970
Other expenses (income):
Interest, net	16,230			(142		)	114			—			16,202
Equity in earnings of subsidiaries	(40,791		)	(447		)	—			41,238			—
Total other (income) expenses	(24,561		)	(589		)	114			41,238			16,202
Income (loss) before income taxes	15,171			55,134			(299		)	(41,238		)	28,768
Income tax (benefit) expense	(6,440		)	13,748			(75		)	—			7,233
Net income (loss)	21,611			41,386			(224		)	(41,238		)	21,535
Net loss-noncontrolling interest	—			—			(76		)	—			(76		)
Net income (loss)-Res-Care, Inc.	21,611			41,386			(148		)	(41,238		)	21,611
Other comprehensive income (loss):
Foreign currently translation adjustments	(414		)	—			(414		)	414			(414		)
Comprehensive income (loss) attributable to Res-Care, Inc.	$	21,197		$	41,386		$	(562	)	$	(40,824	)	$	21,197
Total comprehensive income (loss)	$	21,197		$	41,386		$	(638	)	$	(40,824	)	$	21,121

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

Three Months Ended June 30, 2012

(In thousands)

				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Revenues	$	62,473		$	336,609		$	820		$	—		$	399,902
Operating expenses	68,154			307,314			871			—			376,339
Operating (loss) income	(5,681		)	29,295			(51		)	—			23,563
Other expenses (income):
Interest, net	8,132			260			(3		)	—			8,389
Loss on extinguishment of debt	7,129			—			—			—			7,129
Equity in earnings of subsidiaries	(17,332		)	(40		)	—			17,372			—
Total other (income) expenses	(2,071		)	220			(3		)	17,372			15,518
(Loss) income before income taxes	(3,610		)	29,075			(48		)	(17,372		)	8,045
Income tax (benefit) expense	(8,440		)	11,706			(20		)	—			3,246
Net income (loss)	4,830			17,369			(28		)	(17,372		)	4,799
Net loss-noncontrolling interest	—			—			(31		)	—			(31		)
Net income (loss)-Res-Care, Inc.	4,830			17,369			3			(17,372		)	4,830
Other comprehensive income (loss):
Foreign currently translation adjustments	(132		)	—			(132		)	132			(132		)
Comprehensive income (loss) attributable to Res-Care, Inc.	$	4,698		$	17,369		$	(129	)	$	(17,240	)	$	4,698
Total comprehensive income (loss)	$	4,698		$	17,369		$	(160	)	$	(17,240	)	$	4,667

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

Six Months Ended June 30, 2012

(In thousands)

				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Revenues	$	127,315		$	668,372		$	1,557		$	—		$	797,244
Operating expenses	139,171			612,734			1,730			—			753,635
Operating (loss) income	(11,856		)	55,638			(173		)	—			43,609
Other expenses (income):
Interest, net	18,436			401			(5		)	—			18,832
Loss on extinguishment of debt	7,129			—			—			—			7,129
Equity in earnings of subsidiaries	(32,951		)	(84		)	—			33,035			—
Total other (income) expenses	(7,386		)	317			(5		)	33,035			25,961
(Loss) income before income taxes	(4,470		)	55,321			(168		)	(33,035		)	17,648
Income tax (benefit) expense	(15,065		)	22,247			(68		)	—			7,114
Net income (loss)	10,595			33,074			(100		)	(33,035		)	10,534
Net loss-noncontrolling interest	—			—			(61		)	—			(61		)
Net income (loss)-Res-Care, Inc.	10,595			33,074			(39		)	(33,035		)	10,595
Other comprehensive income (loss):
Foreign currently translation adjustments	29			—			29			(29		)	29
Comprehensive income (loss) attributable to Res-Care, Inc.	$	10,624		$	33,074		$	(10	)	$	(33,064	)	$	10,624
Total comprehensive income (loss)	$	10,624		$	33,074		$	(71	)	$	(33,064	)	$	10,563

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Six Months Ended June 30, 2013

(In thousands)

				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Operating activities:
Net income (loss)	$	21,611		$	41,386		$	(224	)	$	(41,238	)	$	21,535
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	8,826			7,820			80			—			16,726
Amortization of discount and deferred debt issuance costs on notes	1,742			—			—			—			1,742
Share-based compensation	1,552			—			—			—			1,552
Deferred income taxes, net	2,347			—			—			—			2,347
Provision for losses on accounts receivable	505			2,838			—			—			3,343
Loss from sale of assets	—			100			—			—			100
Equity in earnings of subsidiaries	(40,791		)	(447		)	—			41,238			—
Changes in operating assets and liabilities	(9,356		)	(4,363		)	440			—			(13,279		)
Cash provided by (used in) operating activities	(13,564		)	47,334			296			—			34,066
Investing activities:
Purchases of property and equipment	(4,242		)	(3,940		)	(30		)	—			(8,212		)
Acquisitions of businesses, net of cash acquired	—			(2,234		)	—			—			(2,234		)
Proceeds from sale of assets	—			184			—			—			184
Cash used in investing activities	(4,242		)	(5,990		)	(30		)	—			(10,262		)
Financing activities:
Long-term debt (repayments) borrowings	(8,737		)	(179		)	(364		)	—			(9,280		)
Payments on obligations under capital leases	—			(3,499		)	—			—			(3,499		)
Debt issuance costs	(2		)	—			—			—			(2		)
Net payments relating to intercompany financing	41,677			(39,687		)	(1,990		)	—			—
Cash (used in) provided by financing activities	32,938			(43,365		)	(2,354		)	—			(12,781		)
Effect of exchange rate changes on cash and cash equivalents	—			(81		)	—			—			(81		)
(Decrease) increase in cash and cash equivalents	15,132			(2,102		)	(2,088		)	—			10,942
Cash and cash equivalents at beginning of period	42,633			4,795			2,706			—			50,134
Cash and cash equivalents at end of period	$	57,765		$	2,693		$	618		$	—		$	61,076

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Six Months Ended June 30, 2012

(In thousands)

				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
Operating activities:
Net income (loss)	$	10,595		$	33,074		$	(100	)	$	(33,035	)	$	10,534
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	9,107			7,813			89			—			17,009
Amortization of discount and deferred debt issuance costs on notes	1,267			—			—			—			1,267
Share-based compensation	2,025			—			—			—			2,025
Deferred income taxes, net	624			—			—			—			624
Provision for losses on accounts receivable	417			2,468			—			—			2,885
Loss on extinguishment of debt, net of original issue discount paid	6,400			—			—			—			6,400
Loss from sale of assets	—			95			—			—			95
Equity in earnings of subsidiaries	(32,951		)	(84		)	—			33,035			—
Changes in operating assets and liabilities	(21,132		)	7,915			(3,103		)	—			(16,320		)
Cash provided by (used in) operating activities	(23,648		)	51,281			(3,114		)	—			24,519
Investing activities:
Purchases of property and equipment	(4,942		)	(2,340		)	(133		)	—			(7,415		)
Acquisitions of businesses, net of cash acquired	—			(8,662		)	—			—			(8,662		)
Proceeds from sale of assets	—			43			—			—			43
Cash used in investing activities	(4,942		)	(10,959		)	(133		)	—			(16,034		)
Financing activities:
Long-term debt repayments	(167,447		)	(1,294		)	(125		)	—			(168,866		)
Long-term debt borrowings	175,000			—			—			—			175,000
Debt issuance costs	(3,978		)	—			—			—			(3,978		)
Payments on obligations under capital leases	—			(3,003		)	—			—			(3,003		)
Net payments relating to intercompany financing	35,617			(39,055		)	3,438			—			—
Cash (used in) provided by financing activities	39,192			(43,352		)	3,313			—			(847		)
Effect of exchange rate changes on cash and cash equivalents	—			9			—			—			9
Increase (decrease) in cash and cash equivalents	10,602			(3,021		)	66			—			7,647
Cash and cash equivalents at beginning of period	16,733			6,547			2,371			—			25,651
Cash and cash equivalents at end of period	$	27,335		$	3,526		$	2,437		$	—		$	33,298