RESCARE SECOND QUARTER 2011 RESULTS
Second Quarter 2011 Financial Results
Revenues for the second quarter of 2011 were $399.1 million, a 2% increase over the prior year period revenues of $391.2 million. Increased revenues from acquisitions in our Residential and HomeCare segments since the second quarter of 2010 were partially offset by the loss of certain Workforce Services contracts and rate and service level reductions in certain states.
Income from continuing operations was $10.0 million for the second quarter of 2011, compared with $10.1 million in the same period of 2010. Acquisition growth and leverage of general and administrative expenses offset the higher interest expense and the contract losses in our Workforce Services segment. Adjusted EBITDA for the second quarter of 2011 was $31.3 million versus $27.8 million in the prior year quarter, driven primarily by operating improvements, acquisition growth and general and administrative cost savings.
The Company ceased providing international workforce services in Europe during the second quarter of 2011. The closure and disposal of these operations have been accounted for as discontinued operations. Accordingly, the results of these operations, net of income taxes, have been classified as discontinued operations for all periods presented. Net losses from discontinued operations for the second quarter of 2011 and 2010 were $3.1 million and $0.7 million, respectively.
On November 16, 2010, an affiliate of Onex Corporation purchased 21,044,765 shares of ResCare common stock, increasing the beneficial ownership of the Onex affiliates from 24.9% to 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. This change creates many differences between reporting for ResCare post-acquisition, as successor, and ResCare pre-acquisition, as predecessor. The accompanying unaudited financial highlights reflect the combination of separate reporting periods. The 2010 reporting periods prior to November 15, 2010 are predecessor and 2011 periods are successor.
RESCARE, INC.
Unaudited Financial Highlights
(In thousands)
| Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
| Successor | Predecessor | Successor | Predecessor | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
| Income Statement Data: | ||||||||||||||||
| 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 income 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 | ||||||||
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RESCARE, INC.
Unaudited Financial Highlights (continued)
(In thousands)
| Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
| Successor | Predecessor | Successor | Predecessor | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
| Income from Continuing Operations to EBITDA and Adjusted EBITDA: | ||||||||||||||||
| Income from continuing operations | $ | 9,994 | $ | 10,109 | $ | 16,824 | $ | 19,656 | ||||||||
| Add: Interest, net | 10,597 | 4,865 | 21,363 | 9,650 | ||||||||||||
| Depreciation and amortization | 5,000 | 6,106 | 9,964 | 12,274 | ||||||||||||
| Income tax expense | 3,977 | 5,707 | 7,038 | 10,862 | ||||||||||||
EBITDA (1) | 29,568 | 26,787 | 55,189 | 52,442 | ||||||||||||
| Add: Onex transaction costs | 1,737 | — | 1,737 | — | ||||||||||||
| Share-based compensation | — | 844 | — | 1,689 | ||||||||||||
| Acquisition costs | 40 | 188 | 340 | 329 | ||||||||||||
Adjusted EBITDA (1) | $ | 31,345 | $ | 27,819 | $ | 57,266 | $ | 54,460 | ||||||||
June 30, 2011 | Dec. 31, 2010 | |||||||
| Balance Sheet Data: | ||||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | 11,531 | $ | 27,552 | ||||
| Accounts receivable, net | 222,179 | 215,941 | ||||||
| Other current assets | 42,864 | 41,457 | ||||||
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, net | 27,897 | 30,108 | ||||||
| $ | 963,116 | $ | 969,508 | |||||
| LIABILITIES AND SHAREHOLDER’S EQUITY | ||||||||
| Current liabilities | $ | 199,713 | $ | 223,992 | ||||
| Other long-term liabilities | 143,076 | 135,788 | ||||||
| Long-term debt | 366,217 | 367,315 | ||||||
| Shareholder’s equity | 254,110 | 242,413 | ||||||
| $ | 963,116 | $ | 969,508 | |||||
| (1) | EBITDA is defined as income from continuing operations before depreciation and amortization, net interest expense and income taxes. Adjusted EBITDA is defined as EBITDA before Onex transaction costs, share-based compensation and acquisition costs. EBITDA and Adjusted EBITDA should not be considered as measures of financial performance under accounting principles generally accepted in the United States of America. The items excluded from EBITDA and Adjusted EBITDA are significant components in understanding and assessing financial performance. Management routinely calculates and presents EBITDA and Adjusted EBITDA because it believes that EBITDA and Adjusted EBITDA are useful to investors and are used as analytical indicators within the industry to evaluate performance, measure leverage capacity and debt service ability, and to estimate current or prospective enterprise value. EBITDA is also used in measurements under certain covenants contained in the Company’s credit agreement. |
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RESCARE, INC.
Unaudited Financial Highlights (continued)
(In thousands)
Six Months Ended June 30, | ||||||||
| Successor | Predecessor | |||||||
2011 | 2010 | |||||||
| Cash Flow Data: | ||||||||
| 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: | ||||||||
| Debt repayments, net | (31,470 | ) | (23,512 | ) | ||||
| Debt issuance costs | (558 | ) | (4,469 | ) | ||||
| Excess tax expense from share-based compensation | – | (185 | ) | |||||
| Funds contributed by co-investors | 1,400 | – | ||||||
| Employee withholding payments on share-based compensation | – | (879 | ) | |||||
| Cash used in financing activities | (30,628 | ) | (29,045 | ) | ||||
| Effect of exchange rate on cash and cash equivalents | 81 | (170 | ) | |||||
| Decrease in cash and cash equivalents | $ | (16,021 | ) | $ | (5,297 | ) | ||
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RESCARE, INC.
Unaudited Financial Highlights (continued)
(Dollars in thousands)
| Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
| Successor | Predecessor | Successor | Predecessor | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
| Segment Data: | ||||||||||||||||
| Revenues: | ||||||||||||||||
Residential Services | $ | 212,510 | $ | 206,668 | $ | 418,856 | $ | 410,629 | ||||||||
HomeCare Services | 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 | ||||||||
| Operating Income (Loss): | ||||||||||||||||
Residential Services | $ | 23,913 | $ | 22,319 | $ | 45,930 | $ | 44,184 | ||||||||
HomeCare Services | 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 | ||||||||
| Operating Margin: | ||||||||||||||||
Residential Services | 11.3 | % | 10.8 | % | 11.0 | % | 10.8 | % | ||||||||
HomeCare Services | 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 from 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. |
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| RESCARE, INC. |
| 2010 Restatement for Discontinued Operations and New Segments and Income Statement Format |
| (Dollars in thousands) |
Three Months Ended | Nine Months Ended | Twelve Months Ended | ||||||||||||||||||||||
Predecessor March 31, 2010 | Predecessor June 30, 2010 | Predecessor September 30, 2010 | Combined December 31, 2010 | Predecessor September 30, 2010 | Combined December 31, 2010 | |||||||||||||||||||
| Revenues | $ | 384,272 | $ | 391,207 | $ | 398,825 | $ | 388,373 | $ | 1,174,304 | $ | 1,562,677 | ||||||||||||
| Cost of services | 291,884 | 295,432 | 303,597 | 297,395 | 890,913 | 1,188,308 | ||||||||||||||||||
| Gross profit | 92,388 | 95,775 | 95,228 | 90,978 | 283,391 | 374,369 | ||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Operational general and administrative | 57,441 | 60,347 | 57,659 | 55,655 | 175,447 | 231,102 | ||||||||||||||||||
| Asset impairment charge | – | – | 51,734 | 198,447 | 51,734 | 250,181 | ||||||||||||||||||
| Corporate general and administrative | 15,460 | 14,747 | 17,739 | 23,645 | 47,946 | 71,591 | ||||||||||||||||||
Total operating expenses | 72,901 | 75,094 | 127,132 | 277,747 | 275,127 | 552,874 | ||||||||||||||||||
| Operating income (loss) | 19,487 | 20,681 | (31,904 | ) | (186,769 | ) | 8,264 | (178,505 | ) | |||||||||||||||
| Interest expense, net | 4,785 | 4,865 | 4,777 | 4,844 | 14,427 | 19,271 | ||||||||||||||||||
| Income (loss) before income taxes | 14,702 | 15,816 | (36,681 | ) | (191,613 | ) | (6,163 | ) | (197,776 | ) | ||||||||||||||
| Income tax expense (benefit) | 5,155 | 5,707 | (9,966 | ) | (46,609 | ) | 896 | (45,713 | ) | |||||||||||||||
| Income (loss) from continuing operations | 9,547 | 10,109 | (26,715 | ) | (145,004 | ) | (7,059 | ) | (152,063 | ) | ||||||||||||||
| Loss from discontinued operations, net of tax | (211 | ) | (675 | ) | (15,252 | ) | (1,965 | ) | (16,138 | ) | (18,103 | ) | ||||||||||||
| Net income (loss) - incl noncontrolling interest | 9,336 | 9,434 | (41,967 | ) | (146,969 | ) | (23,197 | ) | (170,166 | ) | ||||||||||||||
| Net loss - noncontrolling interest | (82 | ) | (41 | ) | (33 | ) | (34 | ) | (156 | ) | (190 | ) | ||||||||||||
| Net income (loss) – ResCare, Inc. | $ | 9,418 | $ | 9,475 | $ | (41,934 | ) | $ | (146,935 | ) | $ | (23,041 | ) | $ | (169,976 | ) | ||||||||
| Depreciation & amortization | $ | 6,168 | $ | 6,106 | $ | 6,261 | $ | 5,242 | $ | 18,535 | $ | 23,777 | ||||||||||||
| -END- |
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