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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
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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.
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<TABLE>
INDEX
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
<S> <C>
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
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
<TABLE>
RES-CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
March 31 December 31
2000 1999
-------- -----------
<S> <C> <C>
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
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
2
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<TABLE>
RES-CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31
------------------------
2000 1999
-------- --------
<S> <C> <C>
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
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
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<TABLE>
RES-CARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31
-------------------------
2000 1999
-------- --------
<S> <C> <C>
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)
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
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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:
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
-------- -----------
(In thousands)
<S> <C> <C>
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
======== ========
</TABLE>
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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:
<TABLE>
<CAPTION>
Three Months Ended
March 31
---------------------
2000 1999
------ ------
(In thousands)
<S> <C> <C>
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
======= =======
</TABLE>
NOTE 4. SEGMENT INFORMATION
The following table sets forth information about reportable
segment profit or loss.
<TABLE>
<CAPTION>
Other
Disabilities Job Youth All Consolidated
Services Corps Services Other (1) Totals
------------ ------- -------- --------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
(1) All Other is comprised of corporate general and administrative expenses and
corporate depreciation and amortization.
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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.
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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.
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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
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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,
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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.
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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
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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.
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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
<PAGE> 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
<PAGE> 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
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