UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2011
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-20372
RES-CARE, INC.
(Exact name of registrant as specified in its charter)
KENTUCKY |
| 61-0875371 |
(State or other jurisdiction of |
| (IRS Employer Identification No.) |
incorporation or organization) |
|
|
|
|
|
9901 Linn Station Road |
| 40223-3808 |
Louisville, Kentucky |
| (Zip Code) |
(Address of principal executive offices) |
|
|
Registrant’s telephone number, including area code: (502) 394-2100
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ü No .
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ü No .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12-b of the Act (Check one):
Large accelerated filer: Accelerated filer: Non-accelerated filer: ü Smaller reporting company:
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No ü.
The number of shares outstanding of the registrant’s common stock, no par value, as of July 31, 2011 was 21,344,741.
RES-CARE, INC. AND SUBSIDIARIES
RES-CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
|
| June 30 |
| December 31 |
| ||
|
| 2011 |
| 2010 |
| ||
ASSETS |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 11,531 |
| $ | 27,552 |
|
Accounts receivable, net of allowance for doubtful accounts of $4,315 in 2011 and $844 in 2010 |
| 222,179 |
| 215,941 |
| ||
Refundable income taxes |
| 4,021 |
| 1,199 |
| ||
Deferred income taxes |
| 19,224 |
| 14,306 |
| ||
Non-trade receivables |
| 2,149 |
| 7,347 |
| ||
Prepaid expenses and other current assets |
| 17,470 |
| 18,605 |
| ||
Total current assets |
| 276,574 |
| 284,950 |
| ||
Property and equipment, net |
| 94,723 |
| 96,997 |
| ||
Goodwill |
| 242,852 |
| 234,867 |
| ||
Other intangible assets, net |
| 321,070 |
| 322,586 |
| ||
Other assets |
| 27,897 |
| 30,108 |
| ||
Total assets |
| $ | 963,116 |
| $ | 969,508 |
|
LIABILITIES AND SHAREHOLDER’S EQUITY |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Trade accounts payable |
| $ | 47,723 |
| $ | 56,252 |
|
Accrued expenses |
| 142,410 |
| 127,049 |
| ||
Current portion of long-term debt |
| 9,488 |
| 39,195 |
| ||
Current portion of obligations under capital leases |
| 92 |
| 92 |
| ||
Accrued income taxes |
| — |
| 1,404 |
| ||
Total current liabilities |
| 199,713 |
| 223,992 |
| ||
Long-term liabilities |
| 32,445 |
| 33,712 |
| ||
Long-term debt |
| 365,832 |
| 366,884 |
| ||
Obligations under capital leases |
| 385 |
| 431 |
| ||
Deferred gains |
| 375 |
| — |
| ||
Deferred income taxes |
| 110,256 |
| 102,076 |
| ||
Total liabilities |
| 709,006 |
| 727,095 |
| ||
Shareholder’s equity: |
|
|
|
|
| ||
Preferred shares, authorized 1,000,000 shares, no par value, no shares issued and outstanding in 2011 and 2010 |
| — |
| — |
| ||
Common stock, no par value, authorized 40,000,000 shares, issued and outstanding 21,344,741 in 2011 and 2010 |
| — |
| — |
| ||
Additional paid-in capital |
| 238,126 |
| 236,726 |
| ||
Retained earnings |
| 16,124 |
| 5,448 |
| ||
Accumulated other comprehensive (loss) income |
| (54 | ) | 257 |
| ||
Total shareholder’s equity – Res-Care, Inc. |
| 254,196 |
| 242,431 |
| ||
Noncontrolling interest |
| (86 | ) | (18 | ) | ||
Total shareholder’s equity |
| 254,110 |
| 242,413 |
| ||
Total liabilities and shareholder’s equity |
| $ | 963,116 |
| $ | 969,508 |
|
See accompanying notes to condensed consolidated financial statements.
RES-CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
(Unaudited)
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| June 30 |
| June 30 |
| ||||||||
|
| SUCCESSOR |
| PREDECESSOR |
| SUCCESSOR |
| PREDECESSOR |
| ||||
|
| 2011 |
| 2010 |
| 2011 |
| 2010 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Revenues |
| $ | 399,092 |
| $ | 391,207 |
| $ | 785,176 |
| $ | 775,479 |
|
Cost of services |
| 300,723 |
| 295,432 |
| 594,776 |
| 587,316 |
| ||||
Gross profit |
| 98,369 |
| 95,775 |
| 190,400 |
| 188,163 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
| ||||
Operational general and administrative |
| 59,588 |
| 60,347 |
| 116,907 |
| 117,788 |
| ||||
Corporate general and administrative |
| 14,213 |
| 14,747 |
| 28,268 |
| 30,207 |
| ||||
Total operating expenses |
| 73,801 |
| 75,094 |
| 145,175 |
| 147,995 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating income |
| 24,568 |
| 20,681 |
| 45,225 |
| 40,168 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Interest expense, net |
| 10,597 |
| 4,865 |
| 21,363 |
| 9,650 |
| ||||
Income before incomes taxes |
| 13,971 |
| 15,816 |
| 23,862 |
| 30,518 |
| ||||
Income tax expense |
| 3,977 |
| 5,707 |
| 7,038 |
| 10,862 |
| ||||
Income from continuing operations |
| 9,994 |
| 10,109 |
| 16,824 |
| 19,656 |
| ||||
Loss from discontinued operations, net of tax |
| (3,060 | ) | (675 | ) | (6,216 | ) | (886 | ) | ||||
Net income-including noncontrolling interest |
| 6,934 |
| 9,434 |
| 10,608 |
| 18,770 |
| ||||
Net loss-noncontrolling interest |
| (36 | ) | (41 | ) | (68 | ) | (123 | ) | ||||
Net income-ResCare, Inc. |
| $ | 6,970 |
| $ | 9,475 |
| $ | 10,676 |
| $ | 18,893 |
|
See accompanying notes to condensed consolidated financial statements.
RES-CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
| Six Months Ended |
| ||||
|
| June 30 |
| ||||
|
| SUCCESSOR |
| PREDECESSOR |
| ||
|
| 2011 |
| 2010 |
| ||
Cash flows from operating activities: |
|
|
|
|
| ||
Net income-including noncontrolling interest |
| $ | 10,608 |
| $ | 18,770 |
|
Adjustments to reconcile net income, including noncontrolling interest, to cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
| 10,035 |
| 12,765 |
| ||
Amortization of discount and deferred debt issuance costs |
| 1,558 |
| 868 |
| ||
Share-based compensation |
| — |
| 1,690 |
| ||
Deferred income taxes, net |
| 2,597 |
| 10,672 |
| ||
Excess tax expense from share-based compensation |
| — |
| 185 |
| ||
Provision for losses on accounts receivable |
| 3,475 |
| 3,634 |
| ||
Write down of assets held for sale |
| 1,628 |
| — |
| ||
Loss (gain) on sale of assets |
| 175 |
| (2 | ) | ||
Changes in operating assets and liabilities |
| (1,927 | ) | (5,733 | ) | ||
Cash provided by operating activities |
| 28,149 |
| 42,849 |
| ||
|
|
|
|
|
| ||
Cash flows from investing activities: |
|
|
|
|
| ||
Purchases of property and equipment |
| (5,300 | ) | (4,719 | ) | ||
Acquisitions of businesses, net of cash acquired |
| (8,645 | ) | (14,422 | ) | ||
Proceeds from sale of assets |
| 322 |
| 210 |
| ||
Cash used in investing activities |
| (13,623 | ) | (18,931 | ) | ||
|
|
|
|
|
| ||
Cash flows from financing activities: |
|
|
|
|
| ||
Long-term debt (repayments) borrowings |
| (31,424 | ) | 536 |
| ||
Short-term borrowings (repayments)-three months or less, net |
| — |
| (24,000 | ) | ||
Payments on obligations under capital lease |
| (46 | ) | (48 | ) | ||
Funds contributed by co-investors |
| 1,400 |
| — |
| ||
Debt issuance costs |
| (558 | ) | (4,469 | ) | ||
Excess tax expense from share-based compensation |
| — |
| (185 | ) | ||
Employee withholding payments on share-based compensation |
| — |
| (879 | ) | ||
Cash used in financing activities |
| (30,628 | ) | (29,045 | ) | ||
|
|
|
|
|
| ||
Effect of exchange rate changes on cash and cash equivalents |
| 81 |
| (170 | ) | ||
|
|
|
|
|
| ||
Decrease in cash and cash equivalents |
| (16,021 | ) | (5,297 | ) | ||
|
|
|
|
|
| ||
Cash and cash equivalents at beginning of period |
| 27,552 |
| 20,672 |
| ||
|
|
|
|
|
| ||
Cash and cash equivalents at end of period |
| $ | 11,531 |
| $ | 15,375 |
|
|
|
|
|
|
| ||
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
| ||
Notes issued in connection with acquisitions |
| $ | 665 |
| $ | 1,962 |
|
Forgiveness of management fees and promissory note in connection with an acquisition |
| $ | 2,328 |
| $ | — |
|
See accompanying notes to condensed consolidated financial statements.
RES-CARE, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
(Unaudited)
Note 1. Basis of Presentation
Res-Care, Inc. is a human service company that provides residential, therapeutic, job training and educational supports to people with developmental or other disabilities, youth with special needs, adults who are experiencing barriers to employment, and older people who need home care assistance. All references in this Quarterly Report on Form 10-Q to “ResCare”, “Company”, “our company”, “we”, “us”, or “our” mean Res-Care, Inc. and, unless the context otherwise requires, its consolidated subsidiaries.
On November 16, 2010, an affiliate of Onex Partners III LP (Purchaser) completed a tender offer to acquire the outstanding shares of ResCare common stock, as further described in Note 2. The acquisition resulted in a new basis of accounting under the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 805, Business Combinations (previously Statement of Financial Accounting Standards No. 141R). This change creates many differences between reporting for ResCare post-acquisition, as successor, and ResCare pre-acquisition, as predecessor. The accompanying condensed consolidated financial statements and the notes to condensed consolidated financial statements reflect separate reporting periods for successor and predecessor where applicable.
The accompanying condensed consolidated financial statements of ResCare have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and do not include all information and footnotes required by accounting principles generally accepted in the United States of America (U.S. GAAP) for comprehensive annual financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial condition and results of operations for the interim periods have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full year.
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts and related disclosures of commitments and contingencies. We rely on historical experience and on various other assumptions that we believe to be reasonable under the circumstances to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
For further information refer to the consolidated financial statements and footnotes thereto in our Form S-4 Registration Statement (File No. 333-173527) filed April 15, 2011.
Reclassification
During 2011, we ceased providing international services within the Workforce Services operating segment. In accordance with Accounting Standards Codification (ASC) 205-20, Discontinued Operations, the closure and sale of the international operations have been accounted for as discontinued operations. Accordingly, the results of our international Workforce Services operations, loss on sale of the business and all exit costs have been classified as discontinued operations, net of taxes, for all periods presented, in the accompanying condensed consolidated statements of income. Additional information regarding discontinued operations can be found in Note 3.
Certain prior year amounts have been reclassified to conform to the current year presentation due to the change in reporting units discussed in Note 9 and for the presentation of gross profit. We have changed the presentation in our condensed consolidated statements of income by reclassifying operational general and administrative expenses, previously classified as facility and program expenses, to Operating expenses. Costs related to the provision of services are now deducted from revenues to arrive at gross profit. This reclassification had no impact to the Operating income line item. All prior period amounts were reclassified to
conform to this new presentation. Such reclassifications had no material effect on the Company’s previously reported condensed consolidated financial position, results of operations or cash flows.
Segments
Effective January 1, 2011, we changed our reportable operating segments to: (i) Residential Services, (ii) ResCare HomeCare, (iii) Youth Services and (iv) Workforce Services. Residential Services primarily includes services for individuals with intellectual, cognitive or other developmental disabilities in our community home settings. ResCare HomeCare primarily includes periodic in-home care services to the elderly, as well as persons with disabilities. Youth Services consists of our Job Corps centers, a variety of youth programs including foster care, alternative education programs and charter schools. Workforce Services is comprised of job training and placement programs that assist welfare recipients and disadvantaged job seekers in finding employment and improving their career prospects. We have presented prior periods to reflect the change in our segments. Further information regarding our segments is included in Note 9.
Note 2. Onex Transaction
On September 6, 2010, Purchaser entered into a share exchange agreement with ResCare, pursuant to which it agreed to acquire all shares of ResCare common stock not already owned by Onex Corporation and its affiliates, including Onex Partners LP (collectively, the Onex Investors), for a purchase price of $13.25 per share on the terms and conditions set forth therein.
In accordance with the share exchange agreement, Purchaser commenced a tender offer to acquire all outstanding shares of ResCare common stock not already held by Purchaser and its affiliates (the Public Shares) on October 7, 2010. On November 16, 2010, the Onex Investors (including Onex Partners III LP) contributed $120.0 million to Purchaser in exchange for Purchaser’s common membership interests and $158.8 million for Purchaser’s preferred membership interests that accrue a preferred return at the rate of 4.8%. The tender offer was consummated on November 16, 2010 (the Stock Tender Offer). Purchaser purchased 21,044,765 Public Shares in the Stock Tender Offer, and, at that time, the Onex Investors beneficially owned 87.4% of the issued and outstanding shares of ResCare’s common stock on an as-converted basis. The change of control occurred on November 16, 2010, which is the acquisition date for accounting purposes.
On December 20, 2010, the ResCare shareholders approved the second-step share exchange transaction (the Share Exchange) in which all Public Shares not acquired in the Stock Tender Offer, excluding shares held by members of our management who agreed to roll-over their existing equity ownership into equity of Onex Rescare Holdings Corp. (Rollover Holders), were to be exchanged for $13.25 per share, without interest.
The following transactions occurred concurrently on December 22, 2010:
· ResCare entered into new senior secured credit facilities, comprised of a new $170 million term loan facility and an amended and restated $275 million revolving credit facility;
· ResCare issued $200 million of unsecured 10.75% Senior Notes due 2019 (Notes) in a private placement under the Securities Act of 1933;
· ResCare repurchased $120 million (approximately 80%) aggregate principal amount of its previously tendered 7.75% Senior Notes due 2013; the remaining $30 million of these Senior Notes that were not repurchased were satisfied and discharged by delivering to the trustee amounts sufficient to pay the applicable redemption price in January 2011;
· The Purchaser completed the previously announced acquisition of all of the publicly held common shares of ResCare through the second-step share exchange transaction, whereby each outstanding share of ResCare common stock not currently held by Onex Investors was exchanged for the right to receive $13.25 in cash ($56.9 million); and
· The Purchaser redeemed preferred membership interests held by certain of the Onex Investors for an amount equal to the contributions ($158.8 million) made by them in respect of the purchase of such interests plus the accrued preferred return ($0.8 million) on such interests through the redemption date.
Following the Share Exchange, the issuance of the Notes and receipt of required regulatory approvals, Onex Partners LP and the other Onex Investors holding shares of ResCare’s common and preferred stock prior to the commencement of the Stock Tender Offer contributed those shares to Onex Rescare Holdings Corp. (New Holdco) in exchange for shares of New Holdco’s nonvoting common stock. On December 22, 2010, an independent group of co-investors contributed $1.4 million to New Holdco in exchange for shares of New Holdco’s voting common stock. During the first quarter of 2011, New Holdco contributed the $1.4 million to ResCare. In addition, the Onex affiliates holding membership interests ($120.0 million) in Purchaser and the Rollover Holders contributed their interests in such entity to New Holdco in exchange for shares of New Holdco’s voting common stock. Following these contributions, Purchaser was merged into ResCare, with ResCare as the surviving entity. ResCare is now a wholly owned subsidiary of New Holdco, which in turn, is now owned by the Onex Investors, certain co-investors and members of our management team.
The total purchase price was $452.4 million based on 34.1 million outstanding ResCare shares (fully converted) at $13.25 per share.
The Company is currently in the process of finalizing the purchase price allocation with respect to the Onex transaction and must complete: (1) finalization of the third-party valuation report and (2) the allocation of the purchase price to the proper tax jurisdictions, which will allow the Company to complete the final calculation of the deferred income taxes. Therefore, accounts that are considered preliminary as of June 30, 2011, include deferred income taxes, goodwill, other intangible assets, other liabilities, noncontrolling interest and property, plant and equipment.
The preliminary purchase price allocation is as follows:
|
| Fair Value |
| |
|
| at Nov. 16, |
| |
|
| 2010 |
| |
|
|
|
| |
Cash and cash equivalents |
| $ | 15,459 |
|
Accounts and notes receivable |
| 266,508 |
| |
Deferred income taxes |
| 14,896 |
| |
Prepaid expenses and other current assets |
| 25,985 |
| |
Property, plant and equipment |
| 96,388 |
| |
Goodwill |
| 229,931 |
| |
Other intangible assets |
| 321,249 |
| |
Other assets |
| 12,079 |
| |
Total assets acquired |
| 982,495 |
| |
Current liabilities |
| 191,007 |
| |
Long-term debt |
| 205,437 |
| |
Deferred income taxes |
| 100,223 |
| |
Other long-term liabilities |
| 33,384 |
| |
Total liabilities assumed |
| 530,051 |
| |
Net assets acquired |
| $ | 452,444 |
|
The fair values were estimated by the Company’s management based on independent appraisals, fair values of equivalent properties or analysis of expected future cash flows. The gross contractual amount of accounts and notes receivable at November 16, 2010 was $293.8 million. The Company estimates that $27.3 million of the receivable-related contractual cash flows as of November 16, 2010 are not expected to be collected.
The following table details the goodwill and identifiable intangible assets acquired in the Onex transaction and their estimated values and expected amortizable lives:
|
| Fair |
| Useful Life |
| |
|
| Value |
| (Years) |
| |
|
|
|
|
|
| |
Goodwill |
| $ | 229,931 |
| Indefinite |
|
Other Intangible assets: |
|
|
|
|
| |
Licenses |
| 227,440 |
| Indefinite |
| |
Trade names |
| 63,590 |
| 20 |
| |
Customer relationships |
| 28,160 |
| 20 |
| |
Covenants not to compete |
| 1,480 |
| 2 |
| |
Other |
| 579 |
| 5 |
| |
Total other intangible assets |
| 321,249 |
|
|
| |
Total intangible assets |
| $ | 551,180 |
|
|
|
There were no purchased research and development assets acquired and written-off in connection with the Onex transaction. Approximately $169 million of the goodwill is expected to be deductible for tax purposes.
Note 3. Discontinued Operations
In our Form 10-Q for the quarter ended March 31, 2011, filed May 9, 2011 with the Securities and Exchange Commission, we disclosed that we had incurred costs associated with the closure of our international operations in Germany and the Netherlands. We also disclosed that since we were not awarded any contracts under the Work Programme bidding process, we were considering various strategic alternatives for our international operation in the United Kingdom, which included its sale, liquidation or continuation.
On July 1, 2011, we sold our operation in the United Kingdom for one euro. We recorded a charge of $2.2 million in the second quarter of 2011 to adjust assets and liabilities to their net realizable value for this operation. Gross assets were $4.3 million and gross liabilities were $2.1 million prior to the charge taken.
In accordance with ASC 205-20, the closure and sale of these international operations have been accounted for as discontinued operations. Accordingly, the results of the international operations of our Workforce Services reportable segment for all periods reported, loss on sale and exit costs have been classified as discontinued operations, net of income taxes, in the accompanying condensed consolidated statements of income.
In connection with the closures of the Netherlands and Germany operations, we recorded charges of $1.5 million in the fourth quarter of 2010 and $1.4 million in the first quarter of 2011. These charges included exit costs for severance and lease obligations, as well as charges for vendor and customer claims. The following table describes the 2011 activity for only the exit cost liability, comprised of severance and lease obligations, as of June 30, 2011:
|
| Beginning |
|
|
|
|
| Ending |
| ||||
|
| Balance at |
| Accruals / |
| Payments / |
| Balance at |
| ||||
|
| January 1, 2011 |
| (Reversals) |
| Other |
| June 30, 2011 |
| ||||
Severance obligations |
| $ | 481 |
| $ | — |
| $ | (481 | ) | $ | — |
|
Lease terminations |
| — |
| 831 |
| (831 | ) | — |
| ||||
Total exit cost liability |
| $ | 481 |
| $ | 831 |
| $ | (1,312 | ) | $ | — |
|
We expect no additional charges related to the closure and sale activities noted above. As of June 30, 2011, a liability of $1.1 million remains for the vendor and customer claims associated with the Netherlands and Germany closures.
Summarized financial information for the discontinued operations is set forth below:
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| June 30 |
| June 30 |
| ||||||||
|
| 2011 |
| 2010 |
| 2011 |
| 2010 |
| ||||
Revenues |
| $ | 1,756 |
| $ | 4,935 |
| $ | 4,465 |
| $ | 10,524 |
|
Cost of services |
| 2,592 |
| 3,981 |
| 5,688 |
| 7,791 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Gross (loss) profit |
| (836 | ) | 954 |
| (1,223 | ) | 2,733 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operational general and administrative expense |
| (1,606 | ) | (1,655 | ) | (5,107 | ) | (3,473 | ) | ||||
Other (expense) income (1) |
| (2,210 | ) | 44 |
| (2,148 | ) | 91 |
| ||||
Interest expense, net |
| (51 | ) | (71 | ) | (117 | ) | (117 | ) | ||||
Loss from discontinued operations, before income taxes |
| (4,703 | ) | (728 | ) | (8,595 | ) | (766 | ) | ||||
Income tax benefit (expense) |
| 1,643 |
| 53 |
| 2,379 |
| (120 | ) | ||||
Loss from discontinued operations, net of tax |
| $ | (3,060 | ) | $ | (675 | ) | $ | (6,216 | ) | $ | (886 | ) |
(1) The quarter and six months ended June 30, 2011 includes a $2.2 million charge for adjusting assets and liabilities to their net realizable value due to the sale of the operations in the United Kingdom on July 1, 2011. The balance remaining for 2011 periods, as well as all of the 2010 periods, represents other miscellaneous income.
Note 4. Acquisitions
We completed three acquisitions within our Residential Services segment during the first six months of 2011. Aggregate consideration for these acquisitions was approximately $11.9 million, including $0.7 million of notes issued, cash received of $0.3 million and net forgiveness of management fees and promissory note of $2.3 million. These acquisitions are expected to generate annual revenues of approximately $15.0 million. The operating results of the acquisitions are included in the condensed consolidated financial statements from the date of acquisition.
The preliminary aggregate purchase price for these acquisitions was allocated as follows:
Cash |
| $ | 280 |
|
Accounts receivable |
| 1,642 |
| |
Property and equipment |
| 288 |
| |
Other intangible assets |
| 1,431 |
| |
Goodwill |
| 8,485 |
| |
Other assets |
| 34 |
| |
Liabilities |
| (242) |
| |
Aggregate purchase price |
| $ | 11,918 |
|
The other intangible assets consist primarily of customer relationships, trade names and covenants not to compete. All intangible assets will be amortized over five years. We expect all of the $8.5 million of goodwill will be deductible for tax purposes.
Note 5. Goodwill
Goodwill is tested for impairment on an annual basis and between annual tests if indicators of potential impairment exist. The date of our annual impairment test is October 1. A summary of changes to goodwill during the six months ended June 30, 2011 are as follows:
|
| Residential |
| ResCare |
| Youth |
| Workforce |
|
|
| |||||
|
| Services |
| HomeCare |
| Services |
| Services |
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance at December 31, 2010 |
| $ | 140,599 |
| $ | 36,842 |
| $ | 26,385 |
| $ | 31,041 |
| $ | 234,867 |
|
Goodwill added through acquisitions |
| 8,485 |
| — |
| — |
| — |
| 8,485 |
| |||||
Adjustments to previously recorded goodwill (1) |
| (539 | ) | (12 | ) | 4 |
| 47 |
| (500 | ) | |||||
Balance at June 30, 2011 |
| $ | 148,545 |
| $ | 36,830 |
| $ | 26,389 |
| $ | 31,088 |
| $ | 242,852 |
|
(1) Adjustments to previously recorded goodwill primarily relate to foreign currency translation and purchase price allocation adjustments.
Note 6. Comprehensive Income
The following table sets forth the computation of comprehensive income:
|
| Three Months Ended June 30 |
| Six Months Ended June 30 |
| ||||||||
|
| SUCCESSOR |
| PREDECESSOR |
| SUCCESSOR |
| PREDECESSOR |
| ||||
|
| 2011 |
| 2010 |
| 2011 |
| 2010 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income-Res-Care, Inc. |
| $ | 6,970 |
| $ | 9,475 |
| $ | 10,676 |
| $ | 18,893 |
|
Foreign currency translation adjustments arising during the period |
| (405 | ) | (308 | ) | (311 | ) | (1,552 | ) | ||||
Comprehensive income |
| $ | 6,565 |
| $ | 9,167 |
| $ | 10,365 |
| $ | 17,341 |
|
Note 7. Debt
Long-term debt and obligations under capital leases consist of the following:
|
| June 30 |
| December 31 |
| ||
|
| 2011 |
| 2010 |
| ||
|
|
|
|
|
| ||
10.75% senior notes due 2019 |
| $ | 200,000 |
| $ | 200,000 |
|
Senior secured term loan due 2016, net of discount of $3.1 million at 2011 and $3.4 million at 2010 |
| 166,050 |
| 166,615 |
| ||
7.75% senior notes due 2013 |
| — |
| 30,535 |
| ||
Senior secured credit facility |
| — |
| — |
| ||
Obligations under capital leases |
| 477 |
| 523 |
| ||
Notes payable and other |
| 9,270 |
| 8,929 |
| ||
|
| 375,797 |
| 406,602 |
| ||
Less current portion |
| 9,580 |
| 39,287 |
| ||
|
| $ | 366,217 |
| $ | 367,315 |
|
Note 8. Financial Instruments
At June 30, 2011, the fair values of cash and cash equivalents, accounts receivable and accounts payable approximated carrying value because of the short-term nature of these instruments. The fair value of our other financial instruments subject to fair value disclosures are as follows:
|
| June 30, 2011 |
| December 31, 2010 |
| ||||||||
|
| Carrying |
| Fair |
| Carrying |
| Fair |
| ||||
|
| Amount |
| Value |
| Amount |
| Value |
| ||||
Long-term debt: |
|
|
|
|
|
|
|
|
| ||||
10.75% senior notes |
| $ | 200,000 |
| $ | 214,000 |
| $ | 200,000 |
| $ | 206,000 |
|
Senior secured term loan |
| 166,050 |
| 166,050 |
| 166,615 |
| 171,615 |
| ||||
7.75% Senior Notes |
| — |
| — |
| 30,535 |
| 31,451 |
| ||||
Senior secured credit facility |
| — |
| — |
| — |
| — |
| ||||
Notes payable and other |
| 9,270 |
| 9,228 |
| 8,929 |
| 8,639 |
| ||||
We estimated the fair value of the debt instruments using market quotes and calculations based on current market rates available to us.
Note 9. Segment Information
Effective January 1, 2011, we changed our reportable operating segments to: (i) Residential Services, (ii) ResCare HomeCare, (iii) Youth Services and (iv) Workforce Services. Residential Services primarily includes services for individuals with intellectual, cognitive or other developmental disabilities in our community home settings. ResCare HomeCare primarily includes periodic in-home care services to the elderly, as well as persons with disabilities. Youth Services consists of our Job Corps centers, a variety of youth programs including foster care, alternative education programs and charter schools. Workforce Services is comprised of job training and placement programs that assist welfare recipients and disadvantaged job seekers in finding employment and improving their career prospects. We believe the changes in our segments will allow us to serve our customers more efficiently and allow future growth and long-term sustainability. We have presented both periods below to reflect the change in our segments.
The following table sets forth information about our reportable segments:
|
| Residential |
| ResCare |
| Youth |
| Workforce |
|
|
| Consolidated |
| ||||||
|
| Services |
| HomeCare |
| Services |
| Services |
| Corporate |
| Totals |
| ||||||
Three months ended June 30: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
2011 (Successor) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Revenues(1) |
| $ | 212,510 |
| $ | 79,804 |
| $ | 46,863 |
| $ | 59,915 |
| $ | — |
| $ | 399,092 |
|
Operating income (loss) (1) (2) |
| 23,913 |
| 5,902 |
| 4,212 |
| 4,692 |
| (14,151 | ) | 24,568 |
| ||||||
Total assets |
| 380,837 |
| 296,260 |
| 102,717 |
| 99,783 |
| 83,519 |
| 963,116 |
| ||||||
Capital expenditures |
| 1,259 |
| 67 |
| 56 |
| 691 |
| 1,146 |
| 3,219 |
| ||||||
Depreciation and amortization (1) |
| 2,692 |
| 525 |
| 275 |
| 323 |
| 1,185 |
| 5,000 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
2010 (Predecessor) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Revenues (1) |
| $ | 206,668 |
| $ | 76,019 |
| $ | 46,286 |
| $ | 62,234 |
| $ | — |
| $ | 391,207 |
|
Operating income (loss) (1) (2) |
| 22,319 |
| 4,525 |
| 4,556 |
| 3,747 |
| (14,466 | ) | 20,681 |
| ||||||
Total assets |
| 354,101 |
| 245,831 |
| 86,388 |
| 115,274 |
| 56,296 |
| 857,890 |
| ||||||
Capital expenditures |
| 1,262 |
| 260 |
| 21 |
| 253 |
| 646 |
| 2,442 |
| ||||||
Depreciation and amortization (1) |
| 1,916 |
| 918 |
| 500 |
| 633 |
| 2,139 |
| 6,106 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Six months ended June 30: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
2011 (Successor) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Revenues (1) |
| $ | 418,856 |
| $ | 158,620 |
| $ | 92,459 |
| $ | 115,241 |
| $ | — |
| $ | 785,176 |
|
Operating income (loss) (1) (2) |
| 45,930 |
| 11,139 |
| 7,440 |
| 9,084 |
| (28,368 | ) | 45,225 |
| ||||||
Capital expenditures |
| 2,320 |
| 184 |
| 100 |
| 804 |
| 1,892 |
| 5,300 |
| ||||||
Depreciation and amortization (1) |
| 5,299 |
| 1,075 |
| 563 |
| 683 |
| 2,344 |
| 9,964 |
|
2010 (Predecessor) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Revenues (1) |
| $ | 410,629 |
| $ | 149,013 |
| $ | 92,812 |
| $ | 123,025 |
| $ | — |
| $ | 775,479 |
|
Operating income (loss) (1) (2) |
| 44,184 |
| 8,214 |
| 8,355 |
| 9,381 |
| (29,966 | ) | 40,168 |
| ||||||
Capital expenditures |
| 2,282 |
| 398 |
| 73 |
| 574 |
| 1,392 |
| 4,719 |
| ||||||
Depreciation and amortization (1) |
| 3,863 |
| 1,738 |
| 995 |
| 1,298 |
| 4,380 |
| 12,274 |
| ||||||
(1) Amounts for Workforce Services and Consolidated Totals have been restated to exclude the effects of the international operations, as the international operations have been discontinued as of June 30, 2011.
(2) Under Corporate, the operating loss is comprised of our corporate general and administrative expenses, as well as other operating income and (expenses) related to the corporate office.
Note 10. Share-Based Compensation
As described in Note 2, a change of control occurred with the Onex transaction on November 16, 2010. The outstanding stock options were forfeited and all outstanding restricted shares vested immediately and were acquired as part of the share exchange, which was finalized on December 22, 2010. All share-based compensation expense related to the prior share-based incentive plans was recorded in the predecessor period which ended November 15, 2010. There were no new share-based compensation plans initiated immediately after the change of control in the fourth quarter of 2010.
During the second quarter of 2011, executive officers signed new employment contracts that included equity-based incentive compensation which is in the form of options to purchase shares of the Class A common stock of Onex Rescare Holdings Corp., the entity that holds all of the outstanding shares of ResCare.
Under the option plan, initial stock option grants of 1,999 shares were awarded on April 1, 2011, at a $5,000 exercise price. These options have a ten year life. From the initial grant of 1,999 options, 1,666 have a service period of five years and 333 have no service period. Each option incorporated both market conditions to vesting and performance conditions to exercisability and is forfeited upon termination of employment if the relevant conditions have not been met.
We have engaged a valuation company to determine the fair value for each option. This valuation work is not complete as of this date. The fair value of each stock option will be estimated as of the date of grant using Monte Carlo simulation in a numerical option valuation model taking into account the market condition to vesting. The expected volatility of our stock price will be based on historical volatility of a group of our peers over the expected term, adjusted for our leverage. The expected term of the option will be based on expected exercise based on norms of exercise behavior, the vesting conditions of the respective award and the contractual term. Our stock price volatility and the expected option lives are based on management’s best estimates at the time of grant, both of which impact the fair value of the option calculated under the option valuation methodology. Ultimately, the expense that will be recognized will be based on the fair value of the options in conjunction with the achievement of the performance conditions for exercisability.
Based on the performance conditions that require a liquidity event as a condition for exercising the options, no share-based compensation expense will be recorded for these options until such liquidity event occurs. Therefore, no expense was recorded in the second quarter of 2011 for the 1,999 options granted on April 1, 2011.
Note 11. Legal Proceedings
ResCare, or its affiliates, are parties to various legal and/or administrative proceedings arising out of the operation of our programs and arising in the ordinary course of business. We do not believe the ultimate liability, if any, for these proceedings or claims, individually or in the aggregate, in excess of amounts already provided, will have a material adverse effect on our condensed consolidated financial condition, results of operations or cash flows.
In March 2007, a lawsuit was filed in Bernalillo County, New Mexico State Court styled Larry Selk, by and through his legal guardian, Rani Rubio v. Res-Care New Mexico, Inc., Res-Care, Inc., et al. The lawsuit
sought compensatory and punitive damages for negligence, negligence per se, violations of the Unfair Practices Act and violations of the Resident Abuse and Neglect Act. Settlement discussions were unsuccessful and a jury trial commenced on November 9, 2009 on the remaining issue of negligence. The jury returned a verdict of approximately $53.9 million in damages against the Company, consisting of approximately $4.7 million in compensatory damages and $49.2 million in punitive damages, which was entered as a judgment in December 2009. Ruling on various post trial motions, on February 19, 2010, the New Mexico trial court judge reduced the jury award to $15.5 million, consisting of approximately $10.8 million in punitive damages and $4.7 million in compensatory damages. We believe the parent company is not liable for the actions of its subsidiary or its employees and that both the compensatory and punitive amounts awarded are excessive and contradict various United States Supreme Court and New Mexico Supreme Court decisions which would warrant a new trial or, in the alternative, would limit the amount of damages awarded to a significantly lower amount. We, as well as the plaintiffs, have appealed and we will continue to defend this matter vigorously. Ruling on a motion by Plaintiff, on December 15, 2010, the trial court increased the amount of supersedeas bond we previously posted while our appeal is pending from $27.2 million to $72.2 million, an amount which represented the original judgment plus interest. We filed an appeal of the bond increase, and on March 31, 2011, the Court of Appeals ruled in our favor and reversed the trial court. Although we have made provisions in our condensed consolidated financial statements for this self-insured matter, the amount of our legal reserve is less than the amount of the damages awarded, plus accrued interest. If our appeal to obtain a new trial or reduce the amount of the damages does not succeed, it could have a material adverse effect on our financial condition, results of operations and cash flows.
Note 12. Noncontrolling Interest
As of June 30, 2011, ResCare held a 66.7% interest in Rest Assured LLC, a limited liability company comprised of public and private organizations providing remote monitoring services for persons with disabilities and the elderly. The value in the table below is preliminary for the successor period, as the Company is in the process of finalizing the purchase price allocation as described in Note 2. ASC 810, Noncontrolling Interests in Consolidated Financial Statements, (ASC 810) clarifies that noncontrolling interest be reported as a component separate from the parent’s equity and that changes in the parent’s ownership interest in a subsidiary be recorded as equity transactions if the parent retains its controlling interest in the subsidiary. The statement also requires consolidated net income to include amounts attributable to both the parent and the noncontrolling interest on the face of the income statement. In addition, ASC 810 requires a parent to recognize a gain or loss in net income on the date the parent deconsolidates a subsidiary, or ceases to have a controlling financial interest in a subsidiary. Balances are as follows:
Noncontrolling interest as of December 31, 2010 |
| $ | (18 | ) |
Net loss-noncontrolling interest |
| (68 | ) | |
Noncontrolling interest as of June 30, 2011 |
| $ | (86 | ) |
Note 13. Impact of Recently Issued Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (FASB) issued new guidance intended to improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with accounting principles generally accepted in the United States of America and those prepared in accordance with international financial reporting standards. While the new guidance is largely consistent with existing fair value measurement principles, it expands existing disclosure requirements for fair value measurements and makes other amendments which could change how existing fair value measurement guidance is applied. The new guidance will be effective for us beginning with the filing of our Form 10-Q for the three months ending March 31, 2012. We do not expect this new guidance will have a material impact on our financial position, results of operations or cash flows, as it expands existing disclosure requirements.
In June 2011, the FASB issued Accounting Standard Update (ASU) 2011-05 which provides new guidance on the presentation of comprehensive income. ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders’ equity and instead requires an entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with
early adoption permitted. We do not expect the adoption of this ASU will have a material impact on our financial position, results of operations or cash flows, as it only requires a change in the format of the current presentation.
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 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis (MD&A) is intended to help the reader understand ResCare’s financial performance and condition. MD&A complements, and should be read in conjunction with, our Condensed Consolidated Financial Statements and the accompanying notes. All references in MD&A to “ResCare”, “Company”, “our company”, “we”, “us”, or “our” mean Res-Care, Inc. and unless the context otherwise requires, its consolidated subsidiaries.
Preliminary Note Regarding Forward-Looking Statements
Statements in this report that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. In addition, we expect to make such forward-looking statements in future filings with the Securities and Exchange Commission, in press releases, and in oral and written statements made by us or with our approval. These forward-looking statements include, but are not limited to: (1) projections of revenues, income or loss, earnings or loss per share, capital structure and other financial items; (2) statements of plans and objectives of ResCare or our management or Board of Directors; (3) statements of future actions or economic performance, including development activities; (4) statements of assumptions underlying such statements; and (5) statements about the limitations on the effectiveness of controls. Words such as “believes”, “anticipates”, “expects”, “intends”, “plans”, “targets”, and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Some of the events or circumstances that could cause actual results to differ from those discussed in the forward-looking statements are discussed in the “Risk Factors” section in Part II, Item 1A of this Report. Such forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date on which such statement is made.
Onex Transaction
As more fully described in Note 2 of the Notes to Condensed Consolidated Financial Statements, on November 16, 2010, an affiliate of Onex Partners III LP (Purchaser) purchased 21,044,765 shares of ResCare common stock in a tender offer. Upon the completion of the tender offer, affiliates of Onex Corporation (the Onex Investors) beneficially owned 87.4% of the issued and outstanding shares of ResCare’s common stock on an as-converted basis.
This change of control resulted in a new basis of accounting under the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 805, Business Combinations (previously Statement of Financial Accounting Standards No. 141R). This change creates many differences between reporting for ResCare post-acquisition, as successor, and ResCare pre-acquisition, as predecessor. The accompanying Condensed Consolidated Financial Statements and the Notes to Condensed Consolidated Financial Statements reflect June 30, 2011 and December 31, 2010 as successor and June 30, 2010 as predecessor.
As a result of the following transactions on December 22, 2010, ResCare became a wholly owned subsidiary of Onex Rescare Holdings Corp. (New Holdco), which in turn, is owned by the Onex Investors, certain co-investors and members of our management team:
· ResCare entered into new senior secured credit facilities, comprised of a new $170 million term loan facility and an amended and restated $275 million revolving credit facility;
· ResCare issued $200 million of unsecured 10.75% Senior Notes due 2019 (the Notes) in a private placement under the Securities Act of 1933;
· ResCare repurchased $120 million (approximately 80%) aggregate principal amount of its 7.75% Senior Notes due 2013 in a tender offer, and the $30 million aggregate principal amount of 7.75% Senior Notes not tendered was satisfied and discharged by delivering to the trustee amounts sufficient to pay the applicable redemption price, plus accrued and unpaid interest up to the January 21, 2011 redemption date;
· Purchaser completed the acquisition of all of the publicly held common shares of ResCare through a second-step share exchange transaction, whereby each outstanding share of ResCare common stock not currently held by Onex Investors or by members of management was exchanged for the right to receive $13.25 in cash (a total of $56.9 million);
· Purchaser redeemed preferred membership interests held by certain of the Onex Investors for an amount equal to the contributions ($158.8 million) made by them in respect of the purchase of such interests plus the accrued preferred return ($0.8 million) on such interests through the redemption date; and
· The holders of equity interests in Purchaser and of ResCare stock contributed those holdings to New Holdco in exchange for New Holdco stock, and Purchaser was merged into ResCare, with ResCare as the surviving entity.
Overview of Our Business
We receive revenues primarily from the delivery of residential, training, educational and support services to various populations with special needs. Our programs include an array of services provided in both residential and non-residential settings for adults and youths with intellectual, cognitive or other developmental disabilities, and youths who have special educational or support needs, are from disadvantaged backgrounds, or have severe emotional disorders, including some who have entered the juvenile justice system. We also offer, through drop-in or live-in services, personal care, meal preparation, housekeeping, transportation and some skilled nursing care to the elderly in their own homes. Additionally, we provide services to transition welfare recipients, young people and people who have been laid off or have special barriers to employment into the workforce and become productive employees.
Effective January 1, 2011, we changed our reportable operating segments to: (i) Residential Services, (ii) ResCare HomeCare, (iii) Youth Services and (iv) Workforce Services. Residential Services primarily includes services for individuals with intellectual, cognitive or other developmental disabilities in our community home settings. ResCare HomeCare primarily includes periodic in-home care services to the elderly, as well as persons with disabilities. Youth Services consists of our Job Corps centers, a variety of youth programs including foster care, alternative education programs and charter schools. Workforce Services is comprised of job training and placement programs that assist welfare recipients and disadvantaged job seekers in finding employment and improving their career prospects. We believe the changes in our segments will allow us to serve our customers more efficiently and allow future growth and long-term sustainability. Further information regarding our segments is included in Note 9 of the Notes to Condensed Consolidated Financial Statements.
Revenues for our Residential Services operations are derived primarily from state Medicaid programs, other government agencies, commercial insurance companies and from management contracts with private operators, generally not-for-profit providers, who contract with state government agencies and are also reimbursed under the Medicaid program. Our services include social, functional and vocational skills training, supported employment and emotional and psychological counseling for individuals with intellectual or other disabilities. We also provide respite, therapeutic and other services to individuals with special needs and to older people in their homes. These services are provided on an as-needed basis or hourly basis through our periodic in-home services programs that are reimbursed on a unit-of-service basis.
Reimbursement varies by state and service type, and may be based on a variety of methods including flat-rate, cost-based reimbursement, per person per diem, or unit-of-service basis. Rates are periodically adjusted based upon state budgets or economic conditions and their impact on state budgets. At programs
where we are the provider of record, we are directly reimbursed under state Medicaid programs for services we provide and such revenues are affected by occupancy levels. At most programs that we operate pursuant to management contracts, the management fee is negotiated with the provider of record. Through ResCare HomeCare, we also provide in-home services to seniors on a private pay basis. We are concentrating growth efforts in the home care private pay business to further diversify our revenue streams.
We operate vocational training centers under the federal Job Corps program administered by the Department of Labor (DOL) through our Youth Services operations. Under Job Corps contracts, we are reimbursed for direct costs of services related to Job Corps center operations, allowable indirect costs for general and administrative costs, plus a predetermined management fee. The management fee takes the form of a fixed contractual amount plus a computed amount based on certain performance criteria. All of such amounts are reflected as revenue, and all such direct costs are reflected as cost of services. Final determination of amounts due under Job Corps contracts is subject to audit and review by the DOL, and renewals and extension of Job Corps contracts are based in part on performance reviews.
We operate job training and placement programs that assist disadvantaged job seekers in finding employment and improving their career prospects through our Workforce Services operations. These programs are administered under contracts with local and state governments. We are typically reimbursed for direct costs of services related to the job training centers, allowable indirect costs plus a fee for profit. The fee can take the form of a fixed contractual amount (rate or price) or be computed based on certain performance criteria. The contracts are funded by federal agencies, including the DOL and Department of Health and Human Services.
Outlook
We provide a variety of vital human services and derive a significant portion of our revenue from state and federal government sources. Historically, strong demand for the services we provide continues during cyclical economic downturns such as the ongoing crisis in the financial markets and general recessionary environment. Many of our federal, state and local funding sources are dealing with budget deficits or shortfalls as a result of current economic conditions.
Application of Critical Accounting Policies
Our discussion and analysis of the financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts and related disclosures of commitments and contingencies. We rely on historical experience and on various other assumptions that we believe to be reasonable under the circumstances to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
We continually review our accounting policies and financial information disclosures. A summary of our more significant accounting policies that require the use of estimates and judgments in preparing the financial statements was provided in our Form S-4 registration statement filed on April 15, 2011. Management has discussed the development, selection, and application of our critical accounting policies with our Audit Committee. During the first six months of 2011, there were no material changes in the critical accounting policies and assumptions.
Results of Operations
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| Three Months Ended |
| Six Months Ended | |||||||||
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| June 30 |
| June 30 | |||||||||
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| SUCCESSOR |
| PREDECESSOR |
| SUCCESSOR |
| PREDECESSOR |
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| 2011 |
| 2010 |
| 2011 |
| 2010 |
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| (Dollars in thousands) |
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Revenues: |
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Residential Services |
| $ | 212,510 |
| $ | 206,668 |
| $ | 418,856 |
| 410,629 |
| |
ResCare HomeCare |
| 79,804 |
| 76,019 |
| 158,620 |
| 149,013 |
| ||||
Youth Services |
| 46,863 |
| 46,286 |
| 92,459 |
| 92,812 |
| ||||
Workforce Services (1) |
| 59,915 |
| 62,234 |
| 115,241 |
| 123,025 |
| ||||
Consolidated |
| $ | 399,092 |
| $ | 391,207 |
| $ | 785,176 |
| $ | 775,479 |
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Operating (loss) income: |
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|
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Residential Services |
| $ | 23,913 |
| $ | 22,319 |
| $ | 45,930 |
| $ | 44,184 |
|
ResCare HomeCare |
| 5,902 |
| 4,525 |
| 11,139 |
| 8,214 |
| ||||
Youth Services |
| 4,212 |
| 4,556 |
| 7,440 |
| 8,355 |
| ||||
Workforce Services (1) |
| 4,692 |
| 3,747 |
| 9,084 |
| 9,381 |
| ||||
Corporate (2) |
| (14,151 | ) | (14,466 | ) | (28,368 | ) | (29,966 | ) | ||||
Consolidated |
| $ | 24,568 |
| $ | 20,681 |
| $ | 45,225 |
| $ | 40,168 |
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Operating margin: |
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Residential Services |
| 11.3% |
| 10.8% |
| 11.0% |
| 10.8% |
| ||||
ResCare HomeCare |
| 7.4% |
| 6.0% |
| 7.0% |
| 5.5% |
| ||||
Youth Services |
| 9.0% |
| 9.8% |
| 8.0% |
| 9.0% |
| ||||
Workforce Services (1) |
| 7.8% |
| 6.0% |
| 7.9% |
| 7.6% |
| ||||
Corporate (2) |
| (3.5% | ) | (3.7% | ) | (3.6% | ) | (3.9% | ) | ||||
Consolidated |
| 6.2% |
| 5.3% |
| 5.8% |
| 5.2% |
|
(1) Excludes results for international operations, which were reclassified to discontinued operations for all periods presented.
(2) Represents corporate general and administrative expenses, as well as other operating income and (expenses) related to the corporate office.
Consolidated
Consolidated revenues for the quarter and six months ended June 30, 2011 increased $7.9 million and $9.7 million, or 2.0% and 1.2%, respectively, from the same periods in 2010. Revenues are more fully described in the segment discussions.
Consolidated operating income, which includes corporate general and administrative expenses, for the quarter ended June 30, 2011, was $24.6 million compared to $20.7 million for the same period in 2010. Consolidated operating margins were 6.2% and 5.3% for the quarterly periods in 2011 and 2010, respectively. The increase in operating income and margin is primarily due to growth in our ResCare HomeCare segment, improved performance in our Workforce Services segment and no share-based compensation expense for 2011.
Consolidated operating income for the six months ended June 30, 2011 was $45.2 million compared to $40.2 million for the same period in 2010. Consolidated operating margins were 5.8% and 5.2% for the six month periods in 2011 and 2010, respectively.
Net interest expense increased $5.7 million for the second quarter of 2011 and $11.7 million for the six months ended June 30, 2011, compared to the same periods in 2010. The increases were primarily attributable to the increase in long-term debt of $199 million, along with the increase in interest rates arising from the refinancing of debt in December 2010 in which the annual interest rate payable on our outstanding unsecured senior notes increased from 7.75% to 10.75%. Our effective income tax rate for the six months ended June 30, 2011 was 29.5% as compared to 35.6% over the same period in 2010. The 2011 rate was
favorably impacted by the change in treatment of going private related transaction costs based on an evaluation of the costs completed during the second quarter of 2011.
Residential Services
Residential Services revenues for the quarter and six months ended June 30, 2011 increased $5.8 million and $8.2 million, or 2.8% and 2.0%, respectively, over the same periods in 2010. This increase in revenue is due primarily to a $3.5 million and a $6.8 million increase in our pharmacy business revenue for the quarter and six months ended June 30, 2011, respectively. Operating margin increased from 10.8% in both periods in 2010 to 11.3% and 11.0%, respectively, in 2011. The increase is primarily attributable to savings and efficiencies from our reorganizational efforts, as well as no share-based compensation expense in the first six months of 2011 compared to approximately $0.5 million in the same period in 2010.
ResCare HomeCare
ResCare HomeCare revenues for the quarter and six months ended June 30, 2011 increased $3.8 million and $9.6 million, or 5.0% and 6.4%, respectively, over the same periods in 2010. This increase was due primarily to acquisition growth of $6.5 million and $17.5 million, respectively, which was partially offset by rate and service cuts in certain states of $2.6 million and $8.1 million, respectively. Operating margin increased from 6.0% and 5.5%, respectively, in 2010 to 7.4% and 7.0%, respectively, in 2011, due primarily to growth and no share-based compensation expense in the first six months of 2011 compared to approximately $0.3 million in the same period in 2010.
Youth Services
Youth Services revenues for the quarter ended June 30, 2011 increased $0.6 million, or 1.2%, from the same period of 2010, due primarily to the Job Corps business. Revenues for the six months ended June 30, 2011 decreased $0.4 million due primarily to a reduction in our Residential Youth reporting unit revenues driven by lower census. Operating margin decreased from 9.8% in the second quarter of 2010 to 9.0% in the same period in 2011, and from 9.0% to 8.0% for the six months ended June 30, 2010 and 2011, respectively, due primarily to an inability to reduce costs commensurate with the revenue declines in Residential Youth.
Workforce Services
Workforce Services revenues for the quarter and six months ended June 30, 2011 decreased $2.3 million and $7.8 million, or 3.7% and 6.3%, respectively, from the same periods in 2010, due primarily to the expiration of certain contracts in Texas in the fourth quarter of 2010 and the absence of the American Recovery and Investment Act (ARRA) funding in 2011. Operating margin increased from 6.0% in the second quarter of 2010 to 7.8% in the same period in 2011 and from 7.6% to 7.9% for the six months ended June 30, 2010 and 2011, respectively, due primarily to the absence of lower margin services funded under the federal stimulus program.
Corporate
Total corporate operating expenses represent corporate general and administrative expenses, as well as other operating income and expenses. Total operating expenses for the second quarter and six months ended June 30, 2011 decreased $0.3 million and $1.6 million, respectively, from the same periods in 2010. The decrease for the six months ended June 30, 2011 is due to decreases in depreciation of $2.0 million, labor costs of $1.1 million and share-based compensation expense of $0.7 million, with an offset of $2.2 million for professional and other services. The decrease in depreciation is due to the valuation of fixed assets as required through purchase price accounting for the Onex transaction described in Note 2 of the Notes to Condensed Consolidated Financial Statements.
Discontinued Operations
The discontinued operations relate to the international Workforce Services segment’s closure of the operations in Germany and the Netherlands in the first quarter of 2011 and the sale of the United Kingdom
operations on July 1, 2011. Total exit costs of $0.8 million were recorded in the first quarter of 2011. For the sale of the operations in the United Kingdom, we recorded a charge in other expense of $2.2 million in the second quarter of 2011 to adjust assets and liabilities to their net realizable value.
Net loss from discontinued operations was $3.1 million in the second quarter of 2011 and $6.2 million for the six months ended June 30, 2011, compared to $0.7 million and $0.9 million for the same periods of 2010. The net loss from discontinued operations for the six months ended June 30, 2011 includes pretax operational losses of $8.6 million, offset by a tax benefit of $2.4 million.
The net loss from discontinued operations for the six months ended June 30, 2010, includes pretax operational losses of $0.8 million and tax expense of $0.1 million.
Financial Condition, Liquidity and Capital Resources
Total assets decreased $6.4 million, or 1.0%, at June 30, 2011 over balances at December 31, 2010. This was primarily due to a decrease in cash.
Cash and cash equivalents were $11.5 million at June 30, 2011, as compared to $27.6 million at December 31, 2010. Cash provided from operations for the six months ended June 30, 2011 was $28.1 million compared to $42.8 million for the six months ended June 30, 2010.
Net accounts receivable at June 30, 2011 increased to $222.2 million, compared to $215.9 million at December 31, 2010. Days of revenue in net accounts receivable were 47.2 days at June 30, 2011, compared with 49.4 days at December 31, 2010. The improvement in days of revenue is due to increased cash collections of older receivables.
Our capital requirements relate primarily to our plans to expand through selective acquisitions and the development of new programs, and our need for sufficient working capital for general corporate purposes. Since most of our programs are operating at or near capacity, and budgetary pressures and other forces are expected to limit increases in reimbursement rates we receive, our ability to continue to grow at the current rate depends directly on our acquisition and development activity. We have historically satisfied our working capital requirements, capital expenditures and scheduled debt payments from our operating cash flows and borrowings under our revolving credit facility.
Cash used in our investing activities at June 30, 2011 decreased $5.3 million over the same period in 2010 primarily due to investment in acquisitions. We used $14.4 million on business acquisitions during the first six months of 2010 compared to $8.6 million during the same period of 2011.
Our financing activities included a net payment of debt and capital lease obligations of $31.5 million for the first six months of 2011. This compares to a net payment of debt and capital lease obligations of $23.5 million for the same period in 2010. In January 2011 we paid the remainder due of $30.5 million on the 7.75% Senior Notes. In January 2010 we paid $4.4 million in debt issuance costs due to the amendment of our credit facility. During the first quarter of 2011, we received funds of $1.4 million from co-investors through the Onex transaction.
On December 22, 2010, we issued $200 million of 10.75% Senior Notes due January 15, 2019 in a private placement to qualified institutional buyers under the Securities Act of 1933. The 10.75% Senior Notes, which had an issue price of 100% of the principal amount, are unsecured obligations ranking equal to existing and future debt and are subordinate to existing and future secured debt. The effective interest rate for these notes is approximately 10.75%. Proceeds were used to fund $120 million of our tendered 7.75% Senior Notes due October 2013. The remaining $30 million of these Senior Notes that were not repurchased were satisfied and discharged by delivering to the trustee amounts sufficient to pay the applicable redemption price in January 2011. The 7.75% Senior Notes were originally issued on October 3, 2005 for $150 million under a private placement arrangement at an issue price of 99.261%. These securities were unsecured obligations. In addition, proceeds from the $200 million issuance of 10.75% Senior Notes were used to purchase outstanding shares of common stock tendered by our shareholders and for general corporate
purposes. The 10.75% Senior Notes are jointly, severally, fully and unconditionally guaranteed by our domestic subsidiaries.
On December 22, 2010, we amended our existing senior secured revolving credit facility that originally had been scheduled to mature on July 28, 2013. The aggregate amount available under the revolving credit facility is $275 million until July 28, 2013, after which the revolving credit facility will be extended until December 22, 2015 for the extending revolving credit lenders. The aggregate amount available under the extended revolving credit facility will be $240 million. In addition, $175 million of additional borrowing capacity will be available for use to increase the revolving credit facility, or to increase other certain senior secured indebtedness, subject to certain limitations and conditions in our other debt agreements. The facility will be used primarily for working capital purposes, letters of credit required under our insurance programs and for acquisitions. The amended and restated senior credit facility contains various financial covenants relating to capital expenditures and rentals, and requires us to maintain specified ratios with respect to interest coverage and leverage. The amendment continues to provide for the exclusion of charges incurred in connection with the resolution of the matter described in Note 11 of the Notes to Condensed Consolidated Financial Statements, as well as any non-cash impairment charges, in the calculation of certain financial covenants. The amended and restated senior credit facility is secured by a lien on all of our assets and, through secured guarantees, on all of our domestic subsidiaries’ assets.
On December 22, 2010, we issued a $170 million senior secured term loan (the Term Loan) due December 22, 2016, at a discounted price of 98% with realized net proceeds of $166.6 million. Additional capacity of $175 million will be available for use to increase the Term Loan, or to increase the revolving credit facility, subject to certain limitations and conditions in our other debt agreements. The Term Loan was used primarily to repay the $159.6 million of preferred equity plus accrued dividends from Purchaser, to various Onex affiliates related to its acquisition and funding of tendered Company shares on November 16, 2010. The Term Loan contains various financial covenants similar with respect to the amended and restated revolving credit facility. The Term Loan will be an amortizing obligation, with principal payments of 1% of the outstanding Term Loan balance due annually. Pricing for the Term Loan will be variable, at the London Interbank Offer Rate (LIBOR) plus 550 basis points. LIBOR is defined as having a minimum rate of 1.75%. The Term Loan is secured by a lien on all of our assets and, through secured guarantees, on all of our domestic subsidiaries’ assets.
As of June 30, 2011, we had irrevocable standby letters of credit in the principal amount of $68.0 million issued primarily in connection with our insurance programs. As of June 30, 2011, we had $207.0 million available under the amended and restated revolving credit facility. Outstanding balances bear interest at 4.50% over the LIBOR or other bank developed rates at our option. As of June 30, 2011, the weighted average interest rate was 4.75%. Letters of credit had a borrowing rate of 4.625% as of June 30, 2011. The commitment fee on the unused balance was 0.50%. The margin over LIBOR and the commitment fee is determined quarterly based on our leverage ratio, as defined by the revolving credit facility.
We are in compliance with our debt covenants at June 30, 2011, and we believe we will continue to be in compliance with our bank covenants over the next twelve months. Our ability to achieve the thresholds provided for in the financial covenants largely depends upon continued profitability, reductions of amounts borrowed under the facility and continued cash collections.
Operating funding sources were approximately 64% through Medicaid reimbursement, 8% from the DOL and 28% from other payors. We believe our sources of funds through operations and available through the credit facility described above will be sufficient to meet our working capital, planned capital expenditure and scheduled debt repayment requirements for the next twelve months.
We had no significant off-balance sheet transactions or interests in 2011 or 2010.
Impact of Recently Issued Accounting Pronouncements
See Note 13 of the Notes to Condensed Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The market risk inherent in our financial instruments and positions represents the potential loss arising from adverse changes in interest rates.
Interest Rates
While we are exposed to changes in interest rates as a result of any outstanding variable rate debt, we do not currently utilize any derivative financial instruments related to our interest rate exposures. Our senior secured term loan and senior secured credit facility, which have interest rates based on margins over LIBOR or prime, tiered based upon leverage calculations, had outstanding borrowings totaling $166.6 million at December 31, 2010 and $166.1 million at June 30, 2011. A 100 basis point movement in the interest rate would not result in an increase in interest expense due to the LIBOR floor.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
ResCare’s management, under the supervision and with the participation of the Chief Executive Officer (the CEO) and Chief Financial Officer (the CFO), evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the CEO and CFO concluded that ResCare’s disclosure controls and procedures are effective in timely making known to them material information required to be disclosed in the reports filed or submitted under the Securities Exchange Act. There were no changes in ResCare’s internal control over financial reporting during the quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
Limitations on the Effectiveness of Controls
A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, with our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, that breakdowns can occur because of simple errors or mistakes, and that controls can be circumvented by the acts of individuals or groups. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Information regarding the legal proceedings is described in Note 11 to the condensed consolidated financial statements set forth in Part I of this report and incorporated by reference into this Part II, Item 1.
The following sets forth changes from the risk factors previously disclosed in our Form S-4 Registration Statement filed April 15, 2011 and our first quarter 2011 Form 10-Q.
Federal, state and local budgetary shortfalls or changes in reimbursement policies could adversely affect our revenues and profitability and collectability of receivables.
We derive a substantial amount of our revenues from federal, state and local government agencies, including state Medicaid programs and employment training programs. Our revenues therefore depend to a large degree on the size of the governmental appropriations for the services we provide. Budgetary pressures, issues with the federal government’s debt ceiling, as well as economic, industry, political and other factors, could influence governments to significantly decrease or eliminate appropriations for these services, which could reduce our revenues materially. The majority of states have forecasted budget shortfalls as a result of the current economic environment. Many state governments also continue to experience shortfalls in their Medicaid budgets despite cost containment efforts. The recent health reform legislation places further demands on Medicaid budgets by mandating that states expand Medicaid eligibility. Future federal or state initiatives could institute managed care programs for individuals we serve, eliminate programs or otherwise make material changes to the Medicaid program as it now exists. Future revenues may be affected by changes in rate-setting structures, methodologies or interpretations that may be proposed or are under consideration in states where we operate.
Our ability to collect accounts receivable is also subject to developments at state payor agencies, state budget pressures, economic conditions and other factors outside our control that may cause us to record higher provisions for allowances for doubtful accounts or incur bad debt write-offs, both of which could have a material adverse effect on our business, financial position, results of operations and liquidity. Changes in reimbursement procedures by the states, including engaging new agents to manage the reimbursement function, may delay reimbursement payments and create backlogs. Paying aged receivables may be a lower priority for states experiencing budgetary pressures despite our meeting applicable billing requirements. This may increase the need to pursue more aggressive collection activities, including litigation, against government agencies and other payors. Events that delay or prevent our collection of accounts receivable could have a material adverse effect on our financial condition.
Furthermore, federal, state and local government agencies generally condition their contracts with us upon a sufficient budgetary appropriation. If a government agency does not receive an appropriation sufficient to cover its contractual obligations with us, it may terminate a contract or defer or reduce our reimbursement. Previously appropriated funds could also be reduced or eliminated through subsequent legislation. The loss or reduction of reimbursement under our contracts could have a material adverse effect on our business, financial condition and operating results.
We expect the federal and state governments to continue their efforts to contain growth in Medicaid expenditures, which could adversely affect our revenues and profitability.
We derive a substantial portion of our consolidated revenues from Medicaid reimbursement, primarily through our Residential and HomeCare businesses. Medicaid programs are administered by the applicable states and financed by both state and federal funds. Medicaid spending has increased rapidly in recent years, becoming an increasingly significant component of state budgets. This, combined with slower state revenue growth and other state budget demands, has led both the federal government and many states in which we operate, to institute measures aimed at controlling the growth of Medicaid spending (and in some instances reducing it).
Historically, adjustments to reimbursement under Medicaid have had a significant effect on our revenues and results of operations. Recently enacted, pending and proposed legislation and administrative rulemaking at the federal and state levels could have similar effects on our business. Efforts to impose reduced reimbursement rates, reduced authorized services and more stringent cost controls by government and other payors are expected to continue for the foreseeable future and could adversely affect our business, financial condition and results of operations. Additionally, any delay or default by the federal or state governments in making Medicaid reimbursement payments, due to a failure to maintain credit ratings or otherwise, could have a material adverse effect on our business, financial condition and operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. [Removed and Reserved]
None.
| Exhibit |
| Description of Exhibit |
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* | 31.2 |
| Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended. |
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* | 32 |
| Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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| 101 |
| The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial Statements. |
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| Filed herewith |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| RES-CARE, INC. |
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| Registrant |
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Date: | August 4, 2011 |
| By: | /s/ Ralph G. Gronefeld, Jr. |
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| Ralph G. Gronefeld, Jr. |
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| President and Chief Executive Officer |
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Date: | August 4, 2011 |
| By: | /s/ David W. Miles |
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| David W. Miles |
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| Executive Vice President and Chief Financial Officer |