20. 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 fourth quarter of 2013, we made certain immaterial adjustments to our condensed consolidating statement of cash flows for the twelve month period ended December 31, 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 for the twelve months ended December 31, 2012 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 $156.0 million, b) increasing the guarantors’ net cash inflows from operating activities and increasing the guarantors’ net cash outflows from financing activities by $73.9 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 $82.1 million. The condensed consolidating statement of cash flows for the twelve month period ended December 31, 2011 did not require adjustment.

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

(In thousands)

	December 31, 2013
				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total

ASSETS
Current assets:
Cash and cash equivalents	$	26,335		$	2,860		$	802		$	—		$	29,997
Accounts receivable, net	25,953			215,864			56			—			241,873
Deferred income taxes	19,811			—			—			—			19,811
Non-trade receivables	4,592			2,237			23			—			6,852
Prepaid expenses and other current assets	10,793			8,765			20			—			19,578
Total current assets	87,484			229,726			901			—			318,111

Property and equipment, net	50,854			50,160			7			—			101,021
Goodwill	303,270			27			5,053			—			308,350
Other intangible assets, net	297,535			36,078			—			—			333,613
Intercompany	—			695,097			68,427			(763,524		)	—
Investment in subsidiaries	990,793			37,913			—			(1,028,706		)	—
Other assets	18,746			6,436			—			—			25,182
	$	1,748,682		$	1,055,437		$	74,388		$	(1,792,230	)	$	1,086,277

LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities:
Trade accounts payable	$	17,851		$	16,210		$	28		$	—		$	34,089
Accrued expenses	61,175			58,950			678			—			120,803
Current portion of long-term debt	13,125			1,166			—			—			14,291
Current portion of obligations under capital leases	—			6,516			—			—			6,516
Accrued income taxes	—			—			—			—			—
Total current liabilities	92,151			82,842			706			—			175,699

Intercompany	761,430			—			—			(761,430		)	—
Long-term liabilities	38,508			635			—			—			39,143
Long-term debt	344,388			1,118			—			—			345,506
Obligations under capital leases	—			13,724			—			—			13,724
Deferred income taxes	116,084			—			—			—			116,084
Total liabilities	1,352,561			98,319			706			(761,430		)	690,156

Common stock	—			—			—			—			—
Additional paid-in capital	247,053			478,422			121,814			(600,236		)	247,053
Retained earnings	149,617			478,714			(47,178		)	(431,536		)	149,617
Accumulated other comprehensive (loss) income	(549		)	(18		)	(954		)	972			(549		)
Total shareholder’s equity-Res-Care, Inc.	396,121			957,118			73,682			(1,030,800		)	396,121

Noncontrolling interest	—			—			—			—			—

Total shareholder’s equity	396,121			957,118			73,682			(1,030,800		)	396,121
	$	1,748,682		$	1,055,437		$	74,388		$	(1,792,230	)	$	1,086,277

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

(In thousands)

	December 31, 2012
			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
Deferred income taxes	17,589		—			—			—			17,589
Non-trade receivables	1,506		2,251			185			—			3,942
Prepaid expenses and other current assets	10,114		7,730			330			—			18,174
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	—		629,357			70,725			(700,082		)	—
Investment in subsidiaries	906,981		42,014			—			(948,995		)	—
Other assets	24,073		3,064			17			—			27,154
	$	1,652,856	$	967,984		$	80,195		$	(1,649,077	)	$	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	697,988		—			—			(697,988		)	—
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	1,308,747		96,289			2,622			(699,710		)	707,948

Common stock	—		—			—			—			—
Additional paid-in capital	244,345		476,811			125,104			(601,915		)	244,345
Retained earnings	99,734		394,902			(47,055		)	(347,847		)	99,734
Accumulated other comprehensive income (loss)	30		(18		)	(377		)	395			30
Total shareholder’s equity-Res-Care, Inc.	344,109		871,695			77,672			(949,367		)	344,109

Noncontrolling interest	—		—			(99		)	—			(99		)

Total shareholder’s equity	344,109		871,695			77,573			(949,367		)	344,010
	$	1,652,856	$	967,984		$	80,195		$	(1,649,077	)	$	1,051,958

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

(In thousands)

	Year Ended December 31, 2013
				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total

Revenues	$	241,840		$	1,372,058		$	2,735		$	—		$	1,616,633
Operating expenses	257,901			1,251,934			3,075			—			1,512,910
Operating (loss) income	(16,061		)	120,124			(340		)	—			103,723
Other (income) expenses:
Interest, net	31,686			1,190			(9		)	—			32,867
Loss on extinguishment of debt	—			—			—			—			—
Equity in earnings of subsidiaries	(83,428		)	(261		)				83,689			—
Total other (income) expenses	(51,742		)	929			(9		)	83,689			32,867

Income (loss) from continuing operations before income taxes	35,681			119,195			(331		)	(83,689		)	70,856
Income tax (benefit) expense	(14,202		)	35,383			(98		)	—			21,083

Net income (loss)	49,883			83,812			(233		)	(83,689		)	49,773
Net loss-noncontrolling interest	—			—			(110		)	—			(110		)
Net income (loss)-Res-Care, Inc.	$	49,883		$	83,812		$	(123	)	$	(83,689	)	$	49,883

Other comprehensive income (loss):
Foreign currency translation adjustments	(579		)	—			(579		)	579			(579		)
Comprehensive income (loss) attributable to Res-Care, Inc.	$	49,304		$	83,812		$	(702	)	$	(83,110	)	$	49,304

Total comprehensive income (loss)	$	49,304		$	83,812		$	(812	)	$	(83,110	)	$	49,194

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

(In thousands)

	Year Ended December 31, 2012
				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total

Revenues	$	252,422		$	1,343,482		$	3,205		$	—		$	1,599,109
Operating expenses	274,339			1,212,102			3,509			—			1,489,950
Operating (loss) income	(21,917		)	131,380			(304		)	—			109,159
Other (income) expenses:
Interest, net	34,329			939			(11		)	—			35,257
Loss on extinguishment of debt	7,129			—			—			—			7,129
Equity in earnings of subsidiaries	(79,689		)	(232		)				79,921			—
Total other (income) expenses	(38,231		)	707			(11		)	79,921			42,386

Income (loss) from continuing operations before income taxes	16,314			130,673			(293		)	(79,921		)	66,773
Income tax (benefit) expense	(24,809		)	50,683			(114		)	—			25,760

Net income (loss)	41,123			79,990			(179		)	(79,921		)	41,013
Net loss-noncontrolling interest	—			—			(110		)	—			(110		)
Net income (loss)-Res-Care, Inc.	$	41,123		$	79,990		$	(69	)	$	(79,921	)	$	41,123

Other comprehensive income:
Foreign currency translation adjustments	206			—			206			(206		)	206
Comprehensive income (loss) attributable to Res-Care, Inc.	$	41,329		$	79,990		$	137		$	(80,127	)	$	41,329

Total comprehensive income	$	41,329		$	79,990		$	27		$	(80,127	)	$	41,219

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

(In thousands)

	Year Ended December 31, 2011
				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total

Revenues	$	257,792		$	1,319,735		$	1,808		$	—		$	1,579,335
Operating expenses	275,681			1,197,406			2,348			—			1,475,435
Operating (loss) income	(17,889		)	122,329			(540		)	—			103,900
Other expenses (income):
Interest, net	42,124			(55		)	(10		)	—			42,059
Equity in earnings of subsidiaries	(74,002		)	—			—			74,002			—
Total other (income) expenses	(31,878		)	(55		)	(10		)	74,002			42,059

Income (loss) from continuing operations before income taxes	13,989			122,384			(530		)	(74,002		)	61,841
Income tax (benefit) expense	(19,414		)	39,590			(171		)	—			20,005

Income (loss) from continuing operations	33,403			82,794			(359		)	(74,002		)	41,836
Loss (income) from discontinued operations, net of tax	19,760			—			(8,604		)	—			11,156

Net income (loss)-including noncontrolling interest	53,163			82,794			(8,963		)	(74,002		)	52,992
Net loss-noncontrolling interest	—			—			(171		)	—			(171		)
Net income (loss)-Res-Care, Inc.	$	53,163		$	82,794		$	(8,792	)	$	(74,002	)	$	53,163

Other comprehensive income (loss):
Foreign currency translation adjustments	(433		)	—			(433		)	433			(433		)
Comprehensive income (loss) attributable to Res-Care, Inc.	$	52,730		$	82,794		$	(9,225	)	$	(73,569	)	$	52,730

Total comprehensive income (loss)	$	52,730		$	82,794		$	(9,396	)	$	(73,569	)	$	52,559

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(In thousands)

	Year Ended December 31, 2013
				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total

Operating activities:
Net income (loss)	$	49,883		$	83,812		$	(233	)	$	(83,689	)	$	49,773
Adjustments to reconcile net income, including noncontrolling interest, to cash provided by operating activities	(105,637		)	36,695			(3,218		)	83,689			11,529
Cash (used in) provided by operating activities	(55,754		)	120,507			(3,451		)	—			61,302
Investing activities:
Purchases of property and equipment	(11,422		)	(9,145		)	(43		)	—			(20,610		)
Acquisitions of businesses, net of cash acquired	—			(39,318		)	—			—			(39,318		)
Proceeds from sale of assets	—			535			—			—			535
Cash used in investing activities	(11,422		)	(47,928		)	(43		)	—			(59,393		)
Financing activities:
Long-term repayments	(12,562		)	(1,568		)	(579		)	—			(14,709		)
Payments on obligations under capital leases, net	—			(7,206		)	—			—			(7,206		)
Debt issuance costs	(2		)	—			—			—			(2		)
Net activity relating to intercompany financing	63,442			(65,740		)	2,298			—			—
Cash provided by (used in) financing activities	50,878			(74,514		)	1,719			—			(21,917		)
Effect of exchange rate changes on cash and cash equivalents	—			—			(129		)	—			(129		)
Decrease in cash and cash equivalents	(16,298		)	(1,935		)	(1,904		)	—			(20,137		)
Cash and cash equivalents at beginning of period	42,633			4,795			2,706			—			50,134
Cash and cash equivalents at end of period	$	26,335		$	2,860		$	802		$	—		$	29,997

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(In thousands)

	Year Ended December 31, 2012
				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total

Operating activities:
Net income (loss)	$	41,123		$	79,990		$	(179	)	$	(79,921	)	$	41,013
Adjustments to reconcile net income, including noncontrolling interest, to cash provided by operating activities	(95,532		)	54,832			87			79,921			39,308
Cash (used in) provided by operating activities	(54,409		)	134,822			(92		)	—			80,321
Investing activities:
Purchases of property and equipment	(9,979		)	(5,337		)	(169		)	—			(15,485		)
Acquisitions of businesses, net of cash acquired	—			(30,690		)	—			—			(30,690		)
Proceeds from sale of assets	—			166			—			—			166
Cash used in investing activities	(9,979		)	(35,861		)	(169		)	—			(46,009		)
Financing activities:
Long-term repayments	(171,828		)	(2,493		)	(397		)	—			(174,718		)
Long-term debt borrowings	175,000			—			—			—			175,000
Payments on obligations under capital leases, net	—			(6,034		)	—			—			(6,034		)
Debt issuance costs	(4,008		)	—			—			—			(4,008		)
Net activity relating to intercompany financing	91,124			(92,117		)	993			—			—
Cash provided by (used in) financing activities	90,288			(100,644		)	596			—			(9,760		)
Effect of exchange rate changes on cash and cash equivalents	—			(69		)	—			—			(69		)
Increase (decrease) in cash and cash equivalents	25,900			(1,752		)	335			—			24,483
Cash and cash equivalents at beginning of period	16,733			6,547			2,371			—			25,651
Cash and cash equivalents at end of period	$	42,633		$	4,795		$	2,706		$	—		$	50,134

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

(In thousands)

	Year Ended December 31, 2011
				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total

Operating activities:
Net income (loss)	$	53,163		$	82,794		$	(8,963	)	$	(74,002	)	$	52,992
Adjustments to reconcile net income, including noncontrolling interest, to cash provided by operating activities	(196,342		)	130,768			11,192			74,002			19,620
Cash (used in) provided by operating activities	(143,179		)	213,562			2,229			—			72,612
Investing activities:
Purchases of property and equipment	(21,566		)	7,826			233			—			(13,507		)
Acquisitions of businesses, net of cash acquired	—			(23,106		)	—			—			(23,106		)
Proceeds from sale of assets	—			221			—			—			221
Cash (used in) provided by investing activities	(21,566		)	(15,059		)	233			—			(36,392		)
Financing activities:
Long-term debt repayments	(37,134		)	2,142			(3,832		)	—			(38,824		)
Payments on obligations under capital leases, net	—			(92		)	—			—			(92		)
Debt issuance costs	(561		)	—			—			—			(561		)
Funds contributed by co-investors	1,400			—			—			—			1,400
Net activity relating to intercompany financing	206,689			(203,768		)	(2,921		)	—			—
Cash provided by (used in) financing activities	170,394			(201,718		)	(6,753		)	—			(38,077		)
Effect of exchange rate changes on cash and cash equivalents	—			(63		)	19			—			(44		)
Increase (decrease) in cash and cash equivalents	5,649			(3,278		)	(4,272		)	—			(1,901		)
Cash and cash equivalents at beginning of period	11,084			9,825			6,643			—			27,552
Cash and cash equivalents at end of period	$	16,733		$	6,547		$	2,371		$	—		$	25,651