-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C14T4XAvY7zCZ8UTI9IUk7+i2LquhjxI/gzrXg9uwRCmxPrNFQaioNyNl+njzZxL +xd6+l2hj6d0oQ+4OvK8Xg== 0000950152-00-004013.txt : 20000515 0000950152-00-004013.hdr.sgml : 20000515 ACCESSION NUMBER: 0000950152-00-004013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RES CARE INC /KY/ CENTRAL INDEX KEY: 0000776325 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-NURSING & PERSONAL CARE FACILITIES [8050] IRS NUMBER: 610875371 STATE OF INCORPORATION: KY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20372 FILM NUMBER: 629596 BUSINESS ADDRESS: STREET 1: 10140 LINN STATION RD CITY: LOUISVILLE STATE: KY ZIP: 40223 BUSINESS PHONE: 5023942100 MAIL ADDRESS: STREET 1: 10140 LINN STATION RD CITY: LOUISVILLE STATE: KY ZIP: 40223 10-Q 1 RES-CARE, INC. 10-Q 1 ================================================================================ 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 March 31, 2000 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) 10140 LINN STATION ROAD 40223-3813 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 X No . --- --- The number of shares outstanding of the registrant's common stock, no par value, as of April 30, 2000 was 24,315,452. ================================================================================ 2 INDEX
PAGE PART I. FINANCIAL INFORMATION NUMBER Item 1. Unaudited Financial Statements Condensed Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999.......................................................... 2 Condensed Consolidated Statements of Income for the three months ended March 31, 2000 and 1999........................................... 3 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999..................................... 4 Notes to Condensed Consolidated Financial Statements................................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................................. 7 Item 3. Quantitative and Qualitative Disclosure About Market Risk.............................. 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings...................................................................... 12 Item 6. Exhibits and Reports on Form 8-K....................................................... 14 Index to Exhibits...................................................................... 15 Signatures............................................................................. 16
1 3 PART I. FINANCIAL INFORMATION ITEM 1. UNAUDITED FINANCIAL STATEMENTS RES-CARE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED)
March 31 December 31 2000 1999 -------- ----------- ASSETS Current assets: Cash and cash equivalents $ 13,925 $ 7,057 Accounts and notes receivable, net 162,196 141,807 Deferred income taxes 14,964 14,406 Prepaid expenses and other current assets 6,781 7,286 -------- -------- Total current assets 197,866 170,556 -------- -------- Property and equipment, net 109,738 102,739 Excess of acquisition cost over net assets acquired, net 222,865 220,493 Other assets 29,934 29,343 -------- -------- $560,403 $523,131 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Trade accounts payable $ 16,493 $ 13,388 Accrued expenses 50,206 48,820 Accrued income taxes 6,937 1,145 Current portion of long-term debt 5,479 6,674 -------- -------- Total current liabilities 79,115 70,027 -------- -------- Long-term liabilities 4,240 4,572 Long-term debt 307,178 285,039 Deferred income taxes 109 109 -------- -------- Total liabilities 390,642 359,747 -------- -------- Commitments and contingencies Shareholders' equity: Preferred shares -- -- Common stock 50,770 50,770 Additional paid-in capital 28,861 28,413 Retained earnings 93,062 87,175 -------- -------- 172,693 166,358 Less cost of common shares in treasury (2,932) (2,974) -------- -------- Total shareholders' equity 169,761 163,384 -------- -------- $560,403 $523,131 ======== ========
See accompanying notes to unaudited condensed consolidated financial statements. 2 4 RES-CARE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Three Months Ended March 31 ------------------------ 2000 1999 -------- -------- Revenues $215,435 $200,839 Facility and program expenses 188,003 172,392 -------- -------- Facility and program contribution 27,432 28,447 Operating expenses: Corporate general and administrative 6,307 7,783 Depreciation and amortization 5,372 5,087 Other expense 283 5 -------- -------- Total operating expenses 11,962 12,875 -------- -------- Operating income 15,470 15,572 Interest, net 5,407 4,230 -------- -------- Income before income taxes and cumulative effect of accounting change 10,063 11,342 Income tax expense 4,176 4,728 -------- -------- Income before cumulative effect of accounting change 5,887 6,614 Cumulative effect of accounting change, net of tax -- (3,932) -------- -------- Net income $ 5,887 $ 2,682 ======== ======== Basic earnings per share before cumulative effect of accounting change $ 0.24 $ 0.27 Cumulative effect of accounting change, net of tax -- (0.16) -------- -------- Basic earnings per share $ 0.24 $ 0.11 ======== ======== Diluted earnings per share before cumulative effect of accounting change $ 0.23 $ 0.24 Cumulative effect of accounting change, net of tax -- (0.12) -------- -------- Diluted earnings per share $ 0.23 $ 0.12 ======== ======== Weighted average number of common shares: Basic 24,279 24,074 Diluted 31,126 31,829
See accompanying notes to unaudited condensed consolidated financial statements. 3 5 RES-CARE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Three Months Ended March 31 ------------------------- 2000 1999 -------- -------- Cash used in operating activities $ (4,054) $(12,718) Cash flows from investing activities: Purchase of property and equipment (11,393) (4,314) Acquisitions of businesses, net of cash acquired (881) (7,120) Proceeds from sale of asset 2,042 -- -------- -------- Cash used in investing activities (10,232) (11,434) -------- -------- Cash flows from financing activities: Net borrowings under notes payable to banks 23,191 23,935 Repayments of notes payable (2,526) (3,418) Proceeds received from exercise of stock options 489 295 -------- -------- Cash provided by financing activities 21,154 20,812 -------- -------- Increase (decrease) in cash and cash equivalents $ 6,868 $ (3,340) ======== ========
See accompanying notes to unaudited condensed consolidated financial statements. 4 6 RES-CARE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2000 (UNAUDITED) NOTE 1. BASIS OF PRESENTATION Res-Care, Inc. and its subsidiaries (ResCare or the Company) are primarily engaged in the delivery of residential, training, educational and support services to various populations with special needs, including persons with mental retardation and other developmental disabilities and at-risk and troubled youth. The accompanying unaudited condensed consolidated financial statements of the Company 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 generally accepted accounting principles for complete financial statements. In the opinion of management, 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 the period ended March 31, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For further information, refer to the consolidated financial statements and footnotes thereto in ResCare's annual report on Form 10-K for the year ended December 31, 1999. NOTE 2. LONG-TERM DEBT Long-term debt consists of the following:
March 31 December 31 2000 1999 -------- ----------- (In thousands) Revolving credit facilities with banks .............. $167,372 $144,181 6% convertible subordinated notes due 2004, net of unamortized discount of $2,475 and $2,298 in 2000 and 1999 .................................. 106,885 107,062 5.9% convertible subordinated notes due 2005 ........ 22,000 22,000 Obligations under capital leases .................... 8,999 9,129 Notes payable and other ............................. 7,401 9,341 -------- -------- 312,657 291,713 Less current portion ........................... 5,479 6,674 -------- -------- $307,178 $285,039 ======== ========
5 7 NOTE 3. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share before the cumulative effect of an accounting change:
Three Months Ended March 31 --------------------- 2000 1999 ------ ------ (In thousands) Income before cumulative effect of accounting change available to shareholders for basic earnings per share .......................................... $ 5,887 $ 6,614 Interest expense, net of income tax effect, on convertible subordinated notes .......................................... 1,230 1,230 ------- ------- Income before cumulative effect of accounting change available to shareholders after assumed conversion of convertible subordinated notes ........ $ 7,117 $ 7,844 ======= ======= Weighted average number of common shares used in basic earnings per share .......................................... 24,279 24,074 Effect of dilutive securities: Stock options ............................................... 181 1,089 Convertible subordinated notes .............................. 6,666 6,666 ------- ------- Weighted average number of common shares and dilutive potential common shares used in diluted earnings per share .. 31,126 31,829 ======= =======
NOTE 4. SEGMENT INFORMATION The following table sets forth information about reportable segment profit or loss.
Other Disabilities Job Youth All Consolidated Services Corps Services Other (1) Totals ------------ ------- -------- --------- ------------ (In thousands) Quarter ended March 31: - ----------------------- 2000 Revenues ................. $165,650 $34,525 $15,260 $ -- $215,435 Segment profit (loss) .... 17,987 3,272 1,429 (7,218) 15,470 1999 Revenues ................. $157,018 $31,074 $12,747 $ -- $200,839 Segment profit (loss) .... 19,246 3,157 1,259 (8,090) 15,572
(1) All Other is comprised of corporate general and administrative expenses and corporate depreciation and amortization. 6 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Res-Care, Inc. (ResCare or the Company) receives revenues primarily from the delivery of residential, training, education and support services to populations with special needs. The Company has three reportable operating segments: (i) disabilities services; (ii) Job Corps program; and (iii) other youth services programs. Management's discussion and analysis of each segment follows. RECENT DEVELOPMENTS In April 2000, ResCare announced the signing of an agreement with an investor group to acquire all of the outstanding shares of ResCare common stock. In the proposed transaction, a company formed by The Carlyle Group, Madison Dearborn Partners, Bear Stearns Merchant Banking and members of ResCare's senior management would merge into ResCare, and ResCare's shareholders would receive $15.75 per share in cash. The transaction is subject to various closing conditions, including approvals by ResCare's shareholders and by various regulatory entities. The transaction is also subject to the closing of a senior credit facility, which will finance a portion of the purchase price. There can be no assurance that any transaction will ultimately be consummated. MERGER On June 28, 1999, ResCare completed its merger with PeopleServe, Inc. (PeopleServe), which primarily operates facilities and programs for persons with mental retardation and other developmental disabilities. The merger has been accounted for as a pooling of interests. Accordingly, the Company's consolidated financial statements and all financial information included herein have been restated to include the combined financial results of ResCare and PeopleServe. In connection with the merger, ResCare recorded a pretax merger-related charge of $20.5 million during the second quarter of 1999. This consisted primarily of $7.3 million in severance and employee-related costs (principally related to the elimination of PeopleServe's corporate offices and various other administrative costs), $2.8 million in lease termination costs, $3.0 million in information system conversion and integration costs and $4.5 million in transaction costs, including investment banking, legal, accounting and other professional fees and transaction costs. Through March 31, 2000, approximately $19.0 million of the charge had been utilized through $14.3 million in cash payments (principally severance and transaction costs) and $4.7 million in asset write-downs (relating principally to the discontinued PeopleServe information systems). The Company believes the remaining balance of accrued merger-related cost of $1.5 million at March 31, 2000 represents its remaining cash obligations. 7 9 RESULTS OF OPERATIONS QUARTER ENDED MARCH 31, 2000 COMPARED TO QUARTER ENDED MARCH 31, 1999 Total revenues in 2000 increased 7%, or $14.6 million, to $215.4 million compared to $200.8 million in 1999. Income before the cumulative effect of an accounting change for the first quarter of 2000 was $5.9 million, compared to $6.6 million for the same period in 1999. The contribution each segment made is discussed below. Disabilities Services Disabilities services revenues increased 5%, or $8.6 million, to $165.6 million in the first quarter of 2000 compared to $157.0 million in 1999. Revenues increased primarily as a result of the effects of internal growth initiatives coupled with rate increases and census growth. As a percentage of revenues, disabilities services facility and program expenses increased from 85.0% in 1999 to 86.6% in 2000. Overall segment profit decreased 7%, or $1.3 million, over 1999 due principally to increased labor costs. Job Corps Program Job Corps revenues in 2000 increased 11%, or $3.5 million, to $34.5 million compared to $31.1 million in 1999. Segment profit increased 4% from 1999 to 2000. The increase in revenues resulted primarily from the addition of the contract to manage the Treasure Island Job Corps Center commencing in the second quarter of 1999, in addition to increased funding from the Department of Labor (DOL) for DOL-directed projects. Other Youth Services Programs Other youth services revenues in 2000 increased 20%, or $2.5 million, to $15.3 million compared to $12.7 million in 1999. Revenues increased primarily as a result of the effects of a full quarter of operating results from some programs started during 1999. Segment profit increased 13.5% in 2000 also as a result of the internal growth and the ongoing impact of operational improvements initiated in 1999. Corporate Expenses Corporate general and administrative expenses decreased 19%, or $1.5 million, in the first quarter of 2000 compared to 1999. Savings from efficiencies achieved in the PeopleServe merger represented the majority of the decrease. These savings included corporate and administrative personnel and office reductions in former PeopleServe operations. Corporate general and administrative expenses in 2000 decreased as a percentage of total revenues to 2.9% from 3.9% in 1999. Net interest expense in 2000 increased $1.2 million to $5.4 million compared to $4.2 million for 1999. The increase resulted primarily from borrowings under the Company's credit facilities to fund asset acquisitions and working capital needs. Income taxes decreased to $4.2 million in 2000 compared to $4.7 million in 1999, and reflect effective tax rates of 41.5% and 41.7%, respectively. 8 10 LIQUIDITY AND CAPITAL RESOURCES For the first three months of 2000, cash used in operating activities was $4.1 million compared to $12.7 million in the same period of 1999, a decrease of $8.6 million, due primarily to lower growth in accounts receivable in 2000 compared to 1999. This increase in accounts receivable is primarily related to delays in payment from certain state Medicaid programs as well as the Department of Labor. For the first three months of 2000, cash used in investing activities was $10.2 million compared to $11.4 million in the same period of 1999, a decrease of $1.2 million. The decrease was due primarily to a reduction in cash financed acquisitions offset by an $8.5 million acquisition of formerly-leased homes in the first quarter of 2000. For the first three months of 2000, cash provided by financing activities was $21.2 million compared to $20.8 million in the same period of 1999, an increase of $400,000, due primarily to the borrowings necessary in 2000 to fund working capital needs. At March 31, 2000, the Company had $18.1 million available on its line-of-credit and $13.9 million in cash and cash equivalents. Outstanding at that date were irrevocable standby letters of credit in the principal amount of $17.9 million issued in connection with workers' compensation insurance and certain facility leases. Days revenue in accounts receivable was 69 days at March 31, 2000, compared to 62 days at December 31, 1999. The increase is primarily related to delays in payment from certain state Medicaid programs as well as the Department of Labor. The Company has historically satisfied its working capital requirements, capital expenditures and scheduled debt payments from its operating cash flow and utilization of its credit facility. Cash requirements for the acquisition of new business operations have generally been funded through a combination of these sources, as well as the issuance of long-term obligations and common stock. Current conditions in the capital markets, especially for companies identified as health-care related, have limited the Company's ability to raise significant amounts of expansion capital. As a result, the Company's growth rate going forward, with emphasis on internally-generated growth, will be lower than in recent years when acquisitions produced higher growth rates. The Company is exploring other sources of capital, including a sale-leaseback of its owned real properties, and believes such sources, in addition to cash generated from operations and amounts remaining available under its credit facility, will continue to be sufficient to meet its working capital, planned capital expenditure and scheduled debt repayment requirements for at least the next twelve months under a reduced growth rate. CERTAIN RISK FACTORS The Company's historical growth in revenues and earnings per share has been directly related to significant increases in the number of individuals served in each of its operating segments. This growth has been largely dependent upon development-driven activities, including the acquisitions of other businesses or facilities, the acquisition of management contract rights to operate facilities, the award of contracts to open new facilities or start new operations or to assume management of facilities previously operated by governmental agencies or other organizations, and the extension or renewal of contracts previously awarded to the Company. As discussed above, the Company's ability to raise additional capital to support development-driven activities, particularly acquisitions, is currently limited. For this reason and as a result of the 9 11 Company's emphasis on internal growth as discussed above, the Company's growth over the next twelve months will be lower than the rates achieved in recent years. The Company's future revenues will depend significantly upon the Company's ability to obtain additional contracts to provide services to the special needs populations it serves whether through selected acquisitions, awards in response to requests for proposals for new programs, or in connection with facilities being privatized by governmental agencies, none of which require significant outlays of capital. Future revenues also depend on the Company's ability to maintain and renew its existing services contracts and its existing leases. Changes in the market for acquisitions and contracts, including increasing competition, transition costs associated with acquisitions or costs to implement awarded contracts, could also adversely affect the timing and/or viability of future development activities. Additionally, many of the Company's contracts are subject to state or federal government procurement rules and procedures; changes in procurement policies that may be adopted by one or more of these agencies could adversely affect the Company's abilities to obtain and retain these contracts. Revenues of the Company's disabilities services segment are highly dependent on reimbursement under federal and state Medicaid programs. Generally, each state has its own Medicaid reimbursement regulations and formula. The Company's revenues and operating profitability are dependent upon the Company's ability to maintain its existing reimbursement levels and to obtain periodic increases in reimbursement rates. Changes in the manner in which Medicaid reimbursement rates are established in one or more of the states in which the Company conducts its operations could adversely affect revenues and profitability. Other changes in the manner in which federal and state reimbursement programs are operated and in the manner in which billings/costs are reviewed and audited could also affect revenues and operating profitability. The Company's cost structure and ultimate operating profitability are significantly dependent on its labor costs, the availability of qualified personnel in each geographic area and the effective utilization of its labor force, and may be adversely affected by a variety of factors, including local competitive forces, changes in minimum wages or other direct personnel costs, strikes or work stoppages by certain of its employees represented by labor unions, the Company's future effectiveness in managing its direct service staff, and changes in consumer services models, such as the trends toward supported living and managed care. The difficulty experienced in hiring direct service staff in certain markets has resulted in higher labor costs in certain operating units of the Company. Additionally, the Company's continued maintenance and expansion of its operations are dependent upon the continuation of trends toward downsizing, privatization and consolidation and the Company's ability to tailor its services to meet the specific needs of the populations it serves. The success of operating in a changing environment is subject to a variety of political, economic, social and legal pressures, including desires of governmental agencies to reduce costs and increase levels of services, federal, state and local budgetary constraints and actions brought by advocacy groups and the courts to change existing service delivery systems. Material changes resulting from these trends and pressures could adversely affect the demand for and reimbursement of the Company's services and its operating flexibility, and ultimately its revenues and profitability. Recent media coverage of the health care industry, including operators of facilities and programs for persons with mental retardation and other developmental disabilities, has included reports critical of the current trend toward privatization and of the operation of certain of these facilities and programs, including some operated by the Company. Adverse media coverage about for-profit providers of these services in general and the Company in particular could, among other things, adversely affect the Company's ability to obtain or retain contracts, 10 12 discourage government agencies from privatizing facilities and programs, increase regulation and resulting compliance costs, discourage clients from using the Company's services, or otherwise adversely affect the Company's revenues and profitability. FORWARD-LOOKING STATEMENTS Certain statements contained in this Quarterly Report on Form 10-Q which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act (the Act). In addition, certain statements in future filings by the Company with the Securities and Exchange Commission, in press releases, and in oral and written statements made by or with the approval of the Company which are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of 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 the Company or its management or Board of Directors; (3) statements of future actions or economic performance; and (4) statements of assumptions underlying such statements. Words such as "believes," "anticipates," "expects," "intends," "plans," "targeted," 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 which 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 "Certain Risk Factors" section above. Such forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK While the Company is exposed to changes in interest rates as a result of its outstanding variable rate debt, the Company does not currently utilize any derivative financial instruments related to its interest rate exposure. The Company believes that its exposure to market risk will not result in a material adverse effect on the Company's consolidated financial condition, results of operations or liquidity. 11 13 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time, the Company (or a provider with whom the Company has a management agreement), becomes a party to legal and/or administrative proceedings involving state program administrators and others that, in the event of unfavorable outcomes, may adversely affect revenues and period to period comparisons. Two class action lawsuits, styled Joyce Opper v. Res-Care, Inc., et. al., and Phronesis Partners, L.P. v. James R. Fornear, et. al., were filed in the Jefferson County, Kentucky Circuit Court in March 2000. The plaintiffs, who claim to be stockholders of the Company, allege that the Company and four of its directors breached fiduciary duties in connection with a buyout proposal by a management-led group which the Company described in its February 24, 2000 press release (and filed on February 28, 2000 under a Current Report on Form 8-K). The group, which included members of the Company's management and three equity investment funds, proposed to purchase all of the Company's common stock for $18 per share. The group subsequently withdrew its proposal before the execution of definitive transaction agreements when the lead equity investment fund decided not to proceed with the transaction because of its concern about the availability of debt financing at acceptable rates in light of current conditions in the credit markets. After a new investment fund replaced the withdrawing fund, negotiations continued between the investor group and a special committee of the Company's board of directors. On April 12, 2000, the investor group entered into an agreement with the Company to acquire all outstanding Company shares in a transaction in which the Company's public stockholders would receive $15.75 per share in cash. The lawsuits seek to enjoin the named defendants from carrying out the buyout proposal and from breaching fiduciary duties in connection with any sale or acquisition of the Company and seek compensatory damages. The Company believes the lawsuits are without merit and is defending these actions vigorously. The Company does not believe the ultimate resolution of these actions will have a material adverse effect on its consolidated financial condition, results of operations or liquidity. In September 1997, a lawsuit was filed against a Texas facility being operated by the former owners of Normal Life, Inc. and Normal Life of North Texas, Inc., subsidiaries of the Company, asserting causes of action for negligence, intentional infliction of emotional distress and retaliation regarding the discharge of residents of the facility. In April 2000, a jury found in favor of the plaintiffs and awarded the plaintiffs $1.5 million in compensatory damages, $600,000 attorneys' fees, and $3.0 million in punitive damages. Based on the advice of counsel, the Company believes that significant grounds exist to reverse the judgment on appeal and expects that a new trial will ultimately be granted. Further, the Company believes that damages, if any, will ultimately be covered by insurance and through indemnification agreements with the former owners. The Company does not believe that the ultimate resolution of the matter is likely to have a material adverse effect on its consolidated financial condition, results of operations or liquidity. In August 1998, with the approval of the State of Indiana, the Company relocated approximately 100 individuals from three of its larger facilities to community-based settings. In June 1999, in a lawsuit styled Omega Healthcare Investors, Inc. v. Res-Care Health Services, Inc., the owner of these facilities filed suit against the Company in U.S. District Court, Southern District of Indiana, alleging in connection therewith breach of contract, conversion and fraudulent concealment. The Company, on the advice of counsel, believes that the amount of damages being sought by the plaintiffs is approximately $21 million. It appears the claims for 12 14 compensatory damages may be duplicative. Management believes that this lawsuit is without merit and will defend it vigorously. The Company does not believe the ultimate resolution of this matter is likely to have a material adverse effect on its consolidated financial condition, results of operations or liquidity. The Texas Attorney General, on behalf of the Texas Department of Human Services, filed suit in the District Court of Harris County, Texas initially seeking civil penalties of approximately $2.7 million in connection with the operation of one group home in Texas. The complaint alleges that the Company failed to ensure that the needs of the individuals residing in this home were being adequately assessed and provided for, including appropriate medical care. The Company and the Attorney General are currently engaged in settlement discussions. While the Company cannot predict whether these discussions will resolve the matter or the terms of any resolution, the Company does not believe that the ultimate resolution of the matter with the State is likely to have a material adverse effect on its consolidated financial condition, results of operations or liquidity. In addition, the Company is a party to various other legal proceedings arising out of the operation of its facilities and programs and arising in the ordinary course of business. The Company believes that most of these claims are without merit. Further, many of such claims may be covered by insurance. The Company does not believe the results of these proceedings or claims, individually or in the aggregate, are likely to have a material adverse effect on its consolidated financial condition, results of operations or liquidity. 13 15 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 2 Agreement and Plan of Merger dated as of April 12, 2000, by and among Res-Care, Inc., Redwood Acquisition, Inc. and RWD Holdings, Inc. is incorporated by reference to Exhibit 2.1 to the Company's Form 8-K dated April 12, 2000. 27.1 Financial Data Schedule - March 31, 2000 27.2 Financial Data Schedule - March 31, 1999 (Restated) (b) Reports on Form 8-K: On April 17, 2000, the Company filed a Current Report on Form 8-K announcing the signing of an agreement with an investor group to acquire all of the outstanding shares of ResCare common stock. On April 27, 2000, the Company filed a Current Report on Form 8-K announcing its financial results for the first quarter of 2000. 14 16 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------ ----------------------- 2 Agreement and Plan of Merger dated as of April 12, 2000, by and among Res-Care, Inc., Redwood Acquisition, Inc. and RWD Holdings, Inc. is incorporated by reference to Exhibit 2.1 to the Company's Form 8-K dated April 12, 2000 27.1 Financial Data Schedule - March 31, 2000 27.2 Financial Data Schedule - March 31, 1999 (Restated) 15 17 SIGNATURES 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. RES-CARE, INC. Registrant Date: May 12, 2000 By: /s/ Ronald G. Geary -------------- ----------------------------------------------- Ronald G. Geary Chairman, President and Chief Executive Officer Date: May 12, 2000 By: /s/ Ralph G. Gronefeld, Jr. -------------- ----------------------------------------------- Ralph G. Gronefeld, Jr. Executive Vice President of Finance & Administration and Chief Financial Officer 16 EX-27.1 2 EXHIBIT 27.1
5 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 13,925 0 162,196 0 0 197,866 151,917 42,179 560,043 79,115 0 0 0 50,770 118,991 560,043 0 215,435 0 188,003 0 0 5,407 10,063 4,176 5,887 0 0 0 5,887 .24 .23
EX-27.2 3 EXHIBIT 27.2
5 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 16,616 0 157,167 0 0 193,272 126,970 35,701 532,877 91,718 0 0 0 50,770 0 532,877 0 200,839 0 172,392 0 0 4,230 11,342 4,728 6,614 0 0 (3,932) 2,682 .11 .12
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