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, 2014
or
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

[ ] 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 üNo __.

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 üNo __.

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~~October 31, 2014 was 21,344,741.

Table of Contents

INDEX

RES-CARE, INC. AND SUBSIDIARIES

		~~PAGE~~	PAGE
PART I.	FINANCIAL INFORMATION	~~NUMBER~~	NUMBER
Item 1.	~~Condensed~~Financial ~~Consolidated~~Statements ~~Balance Sheets – June 30, 2014 and December 31, 2013~~(Unaudited)	3
	Condensed Consolidated Statements of Comprehensive Income – Three Months Ended June 30, 2014 and 2013; Six Months Ended June 30, 2014 and 2013	4
	Condensed Consolidated Balance Sheets – September 30, 2014 and December 31, 2013		3
	Condensed Consolidated Statements of Shareholder’s Equity	5
	Condensed Consolidated Statements of Comprehensive Income – Three Months Ended September 30, 2014 and 2013; Nine Months Ended September 30, 2014 and 2013		4
	Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2014 and 2013	6
	Condensed Consolidated Statements of Shareholder’s Equity		5
	Notes to Condensed Consolidated Financial Statements – June 30, 2014	7
	Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2014 and 2013		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Notes to Condensed Consolidated Financial Statements – September 30, 2014		7
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 4.	Controls and Procedures	27
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		28
PART II.	OTHER INFORMATION
Item 4.	Controls and Procedures		28
Item 1.	Legal Proceedings	28
PART II.	OTHER INFORMATION
Item 1A.	Risk Factors	28
Item 1.	Legal Proceedings		29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 1A.	Risk Factors		29
Item 3.	Defaults upon Senior Securities	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		29
Item 4.	Mine Safety Disclosures	28
Item 3.	Defaults upon Senior Securities		29
Item 5.	Other Information	28
Item 4.	Mine Safety Disclosures		29
Item 6.	Exhibits	28
Item 5.	Other Information		29
SIGNATURES
Item 6.	Exhibits		30
EXHIBITS
SIGNATURES
EXHIBITS

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

(Unaudited)

	June 30			December 31
	September 30				December 31
	2014			~~2013~~	2013
ASSETS
Current assets:
Cash and cash equivalents	$	3625,~~868~~891			$	29,997
Accounts receivable, net of allowance for doubtful accounts of $16,194 in 2014 and $11,900 in 2013	251,191				241,873
Accounts receivable, net of allowance for doubtful accounts of $17,401 in 2014 and $11,900 in 2013	260,952				241,873
Refundable income taxes	~~926~~807				—
Deferred income taxes	2629,~~820~~076				19,811
Non-trade receivables	4,~~503~~128				6,852
Prepaid expenses and other current assets	1722,~~916~~187				19,578
Total current assets	~~338~~343,~~224~~041				318,111
Property and equipment, net	~~101~~104,~~621~~618				101,021
Goodwill	~~308~~313,~~927~~416				308,350
Other intangible assets, net	~~329~~336,~~680~~267				333,613
Other assets	2625,~~068~~536				25,182
Total assets	$	1,~~104~~122,~~520~~878			$	1,086,277
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities:
Trade accounts payable	$	3739,~~503~~305			$	34,089
Accrued expenses	~~133~~141,~~168~~328				120,803
Current portion of long-term debt	11,~~185~~109				14,291
Current portion of obligations under capital leases	6,~~515~~594				6,516
Accrued income taxes	35,~~218~~447				—
Total current liabilities	~~191~~203,~~589~~783				175,699
Long-term liabilities	43,~~631~~897				39,143
Long-term debt	~~450~~446,~~036~~872				345,506
Obligations under capital leases	14,~~485~~671				13,724
Deferred income taxes	~~119~~121,~~189~~291				116,084
Total liabilities	~~818~~830,~~930~~514				690,156
Shareholder’s equity:
Common stock, no par value, authorized 40,000,000 shares, issued and outstanding 21,344,741 in 2014 and 2013	—				—
Additional paid-in capital	248,~~036~~563				247,053
Retained earnings	3844,~~132~~642				149,617
Accumulated other comprehensive income (loss)	(~~578~~841		)		(549		)
Total shareholder’s equity	~~285~~292,~~590~~364				396,121
Total liabilities and shareholder’s equity	$	1,~~104~~122,~~520~~878			$	1,086,277

See accompanying notes to condensed consolidated financial statements.

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RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended						~~Six Months Ended~~		Nine Months Ended
	June 30						June 30
	September 30								September 30
	2014			~~2013~~	2013		~~2014~~		2014	~~2013~~			2013
Revenues	$	~~431~~437,~~434~~807		$	~~396,233~~$	409,934	$	~~852,917~~	$	$1,290,724	~~785,687~~		$	1,195,621
Cost of services	~~326~~333,~~834~~809			~~295,107~~	305,508		~~644,432~~		978,241	~~589,450~~			894,958
Gross profit	~~104~~103,~~600~~998			~~101,126~~	104,426		~~208,485~~		312,483	~~196,237~~			300,663
Operating expenses:
Operational general and administrative	5560,~~496~~498			~~57,343~~	55,222		~~115,206~~		175,704	~~112,379~~			167,601
Corporate general and administrative	2923,~~277~~898			~~20,011~~	24,280		~~57,237~~		81,135	~~38,888~~			63,168
Total operating expenses	84,~~773~~396			~~77,354~~	79,502		~~172,443~~		256,839	~~151,267~~			230,769
Operating income	19,~~827~~602			~~23,772~~	24,924		~~36,042~~		55,644	~~44,970~~			69,894
Interest expense, net	8,~~500~~571			~~7,665~~	8,140		~~16,574~~		25,145	~~16,202~~			24,342
Loss on extinguishment of debt	~~659~~—			—	—		~~659~~		659	—			—
Income before income taxes	1011,~~668~~031			~~16,107~~	16,784		~~18,809~~		29,840	~~28,768~~			45,552
Income tax expense	4,~~380~~521			~~5,868~~	5,450		~~7,846~~		12,367	~~7,233~~			12,683
Net income	6,~~288~~510			~~10,239~~	11,334		~~10,963~~		17,473	~~21,535~~			32,869
Net loss-noncontrolling interest	—			~~(40~~	(34	)	—)		—	~~(76~~		)	(110		)
Net income-Res-Care, Inc.	6,~~288~~510			~~10,279~~	11,368		~~10,963~~		17,473	~~21,611~~			32,979
Other comprehensive income:
Foreign currency translation adjustments	~~235~~(263		)	~~(223~~	56	)	~~(29~~		)(292	~~(414~~	)	)	(358		)
Comprehensive income attributable to Res-Care, Inc.	$	6,~~523~~247		$	~~10,056~~$	11,424	$	~~10,934~~	$	$17,181	~~21,197~~		$	32,621
Total comprehensive income	$	6,~~523~~247		$	~~10,016~~$	11,390	$	~~10,934~~	$	$17,181	~~21,121~~		$	32,511

See accompanying notes to condensed consolidated financial statements.

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RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY

(In thousands)

(Unaudited)

								Accumulated
			Additional					Other
	Common Stock		Paid-In		Retained			Comprehensive
	Shares	Amount	Capital		Earnings			Income/(Loss)			Total
Balance at December 31, 2013	21,345	—	$	247,053	$	149,617		$	(549)	)	$	396,121
Net income	—	—	—		1017,~~963~~473			—			1017,~~963~~473
Foreign currency translation adjustment arising during period	—	—	—		—			(29292)		)	(29292		)
Cash dividends declared	—	—	—		(122,448		)	—			(122,448		)
Cash dividends	—	—	—		(122,448		)	—			(122,448		)
Share-based compensation	—	—	~~983~~1,510		—			—			~~983~~1,510
Balance at June 30, 2014	21,345	—	$	248,036	$	38,132		$	(578	)	$	285,590
Balance at September 30, 2014	21,345	—	$	248,563	$	44,642		$	(841)		$	292,364

See accompanying notes to condensed consolidated financial statements.

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RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended
	Nine Months Ended
	June 30
	September 30
	2014			~~2013~~	2013
Cash flows from operating activities:
Net income	$	1017,~~963~~473		$	~~21,535~~$	32,869
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	1827,~~068~~489			~~16,726~~	25,535
Amortization of deferred debt issuance costs	1,~~182~~753			~~1,742~~	2,612
Share-based compensation	~~983~~1,510			~~1,552~~	2,376
Deferred income taxes, net	(34,~~904~~058		)	~~2,347~~	1,480
Provision for losses on accounts receivable	58,~~141~~214			~~3,343~~	4,430
Loss on extinguishment of debt	659			—	—
Loss on sale of assets	96207			~~100~~	81
Changes in operating assets and liabilities	117,~~552~~469			~~(13,279~~	(13,935	)	)
Cash provided by operating activities	4460,~~740~~716			~~34,066~~	55,448
Cash flows from investing activities:
Purchases of property and equipment	(917,~~976~~980		)	~~(8,212~~	(15,007	)	)
Acquisitions of businesses, net of cash acquired	(~~949~~15,057		)	~~(2,234~~	(19,995	)	)
Proceeds from sale of assets	~~203~~555			~~184~~	344
Cash used in investing activities	(1032,~~722~~482		)	~~(10,262~~	(34,658	)	)
Cash flows from financing activities:
Long-term debt repayments	(~~172~~176,~~600~~078		)	~~(9,280~~	(14,190	)	)
Long-term debt borrowings	275,000			—	—
Payments on obligations under capital leases	(35,~~692~~502		)	~~(3,499~~	(5,446	)	)
Dividend paid	(122,448		)	—	—
Debt issuance costs	(3,~~618~~631		)	(2	(2	)	)
Cash used in financing activities	(2732,~~358~~659		)	~~(12,781~~	(19,638	)	)
Effect of exchange rate changes on cash and cash equivalents	~~211~~319			~~(81~~	(96	)	)
Increase in cash and cash equivalents	6,871			10,942
(Decrease) increase in cash and cash equivalents	(4,106		)		1,056
Cash and cash equivalents at beginning of period	29,997			~~50,134~~	50,134
Cash and cash equivalents at end of period	$	3625,~~868~~891		$	~~61,076~~$	51,190
Supplemental schedule of non-cash investing and financing activities:
Notes issued in connection with acquisitions	$	98		$	336
Notes issued and contingent liabilities in connection with acquisitions	$	247			$	1,336
Capital lease obligations	$	46,~~452~~710		$	~~6,513~~$	8,409
Settlement of Seller obligations in connection with an acquisition	$	—		$	~~1,240~~$	1,240
Purchases of property and equipment in accounts payable	$	~~197~~27		$	—$	—

See accompanying notes to condensed consolidated financial statements.

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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.

The accompanying condensed consolidated financial statements of ResCare have been prepared in accordance with 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 only of normal recurring adjustments)~~ considered necessary for a fair statement 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 2013 Annual Report on Form 10-K filed February 18, 2014.

~~Segments~~Out-of-Period Items

~~Effective~~During ~~July 1,~~the third quarter of 2013, we ~~made~~recorded ~~certain~~an ~~changes~~out-of-period ~~within~~adjustment which increased our ~~business~~costs ~~lines~~of toservices ~~meet~~by ~~our~~approximately ~~future~~$1 ~~growth~~million ~~objectives~~and decreased net income by approximately $0. ~~Some~~6 ofmillion. This item related to the ~~components~~second quarter of 2013 and ~~structure~~resulted ~~within~~from ~~certain~~a ~~reportable~~physical ~~segments~~inventory ~~changed~~adjustment ~~and~~in our ~~Youth~~Pharmacy ~~Services~~operation. ~~segment’s~~We ~~name~~also ~~changed~~identified and recorded another out-of-period adjustment during the third quarter of 2013 which decreased revenues by approximately $1.3 million, of which $0.5 million related to ~~Education~~2012 and ~~Training~~$0.8 ~~Services~~million related to the first half of 2013. The ~~majority~~net impact of ~~our~~these ~~Residential~~combined ~~Youth~~items ~~reporting~~decreased ~~unit~~pre-tax ~~moved~~income ~~from~~for the ~~Education~~third ~~and~~quarter ~~Training~~of ~~Services~~2013 ~~segment~~by toapproximately ~~the~~$2.3 ~~Residential~~million ~~Services~~before ~~segment~~tax ($1. 4 million after tax). We ~~also~~evaluated ~~moved~~the atotal ~~small~~out-of-period ~~operation~~adjustments ~~from~~impacting ~~our~~the ~~ResCare~~third ~~HomeCare~~quarter ~~segment~~and year-to-date ~~our~~2013, ~~Education~~both individually and ~~Training~~in ~~Services~~the ~~segment. Therefore~~aggregate, asin ofrelation ~~July 1,~~to the third quarter 2013, ~~our~~when ~~reportable~~they ~~segments~~were ~~are:~~corrected, ~~(i) Residential~~as ~~Services,~~well ~~(ii) ResCare~~as ~~HomeCare,~~the ~~(iii) Education~~periods in which they originated and ~~Training~~concluded ~~Services,~~that ~~(iv) Workforce~~these ~~Services~~adjustments ~~and~~are ~~(v) Pharmacy~~not ~~Services~~material to any financial statements for all impacted periods.

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. Education and Training Services consists of our Job Corps centers, alternative education programs, charter schools, training for professionals working with children, training for potential foster and adoptive parents and other individual and family counseling and instruction. Workforce Services is comprised of our domestic job training and placement programs that assist welfare recipients and disadvantaged job seekers in finding employment and improving their career prospects. Pharmacy Services is a limited, closed-door pharmacy business focused on serving individuals with intellectual and developmental disabilities. 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 prior periods to reflect the change in our segments. Further information regarding our segments is included in Note 7.

Reclassification

Certain shared services related expenses have been reclassified from operational general and administrative expense to corporate general and administrative expense effective January 1, 2014. These shared services include quality, human resources, government relations and certain accounting and finance oversight functions, as well as the business centers for our operations. Prior periods have been reclassified for comparability.

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~~resources,~~HomeCare ~~government~~Iowa ~~relations and certain accounting and finance oversight functions, as well as the business centers for our operations. Prior periods have been reclassified for comparability.~~operation

AIn ~~$2.4~~September 2014, ~~million~~ResCare ~~favorable~~provided ~~health~~the ~~insurance~~results ~~adjustment~~of ~~was~~a ~~recorded~~billing ascompliance aaudit ~~credit~~of toits ~~corporate~~Iowa ~~general~~home ~~and~~health ~~administrative~~agency ~~expenses~~as well as supporting documentation in ~~the~~response ~~three~~to ~~months~~an ~~ended~~investigation ~~March 31,~~by ~~2014~~the ~~due~~United toStates ~~favorable~~Attorney’s ~~health~~Office ~~claim~~in ~~trends~~Iowa. In ~~the~~The ~~three~~audit ~~months~~was ~~ended~~specifically ~~June 30,~~related ~~2014,~~to itthe ~~was~~home ~~determined~~health ~~that~~agency’s ~~this~~participation ~~favorable~~in ~~health~~the ~~insurance~~Medicaid ~~adjustment~~program ~~related~~and torevealed ~~our~~a ~~operating~~potential ~~segments,~~overpayment ~~therefore~~obligation. weWe ~~reclassified~~made ~~the~~provisions to lower our revenue by $23.4 million ~~from~~in ~~corporate~~the ~~general~~three and ~~administrative~~nine ~~expenses~~month toperiods ~~the~~ended ~~operating~~September 30, ~~segments~~2014, in our condensed consolidated financial statements based on our estimate of this potential obligation.

Note 2. Acquisitions

We completed ~~two~~four acquisitions within our Residential Services and ResCare HomeCare segments during the first ~~six~~nine months of 2014, two of which occurred in the third quarter. Aggregate consideration for these acquisitions was approximately $115.03 million, including $0.1 million of notes issued and $0.2 million of contingent liabilities. The operating results of the acquisitions are included in the condensed consolidated financial statements from the date of acquisition. Proforma results and other disclosure have not been included as the acquisitions are considered immaterial, individually and in the aggregate.

The preliminary aggregate purchase price for these acquisitions was allocated as follows:

Prepaid assets	$	164	9
Property and equipment	14441
Other intangible assets	~~574~~9,524
Goodwill		~~449~~5,175
Aggregate purchase price	$	15,304	~~1,046~~

The other intangible assets consist primarily of customer relationships and covenants not to compete. All intangible assets will be amortized over five to twenty years. We expect all of the $05.42 million of goodwill will be deductible for tax purposes.

Note 3. 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~~nine months ended ~~June~~September 30, 2014 is as follows:

							~~Education~~	Education
	Residential			~~ResCare~~	ResCare		~~& Training~~	& Training		~~Workforce~~	Workforce		~~Pharmacy~~	Pharmacy
	Services			~~HomeCare~~	HomeCare		~~Services~~	Services		~~Services~~	Services		~~Services~~	Services		~~Total~~	Total
Balance at January 1, 2014
Goodwill	$	182,446		$	~~73,547~~$	73,547	$	~~15,311~~$	15,311	$	~~32,720~~$	32,720	$	~~4,326~~$	4,326	$	~~308,350~~$	308,350
Goodwill added through acquisitions	~~263~~4,989			~~186~~	186		—	—		—	—		—	—		~~449~~	5,175
Other (1)	~~128~~(109		)	—	—		—	—		—	—		—	—		~~128~~	(109		)
Balance at June 30, 2014	$	182,837		$	73,733		$	15,311		$	32,720		$	4,326		$	308,927
Balance at September 30, 2014	$	187,326			$	73,733		$	15,311		$	32,720		$	4,326		$	313,416

(1) Primarily relates to foreign currency translation adjustments.

For our October 1, 2013 annual impairment test, all reporting units passed Step One. The ResCare HomeCare reporting unit passed Step One with a fair value that exceeded its carrying value by a 7 percent margin. Inability to meet projected results utilized in the annual impairment test could lead to a potential impairment in the future.

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Note 4. Debt

Long-term debt and obligations under capital leases consist of the following:

	June 30		December 31
	September 30		December 31
	2014		2013
10.75% senior notes due 2019	$	200,000	$	200,000
Senior secured Term Loan A due 2017	—		157,513
Senior secured Term Loan A due 2019	~~198~~196,~~925~~481		—
Senior secured Revolving Facility	60,000		—
Obligations under capital leases	21,~~000~~265		20,240
Notes payable and other	21,~~296~~500		2,284
	482,221		380,037
	479,246		380,037
Less current portion	17,~~700~~703		20,807
	$	~~464~~461,~~521~~543	$	359,230

On April 25, 2014, we entered into an amended and restated senior secured credit facility (the “2014 Credit Agreement”) in an aggregate principal amount of $650 million, which replaced our 2012 senior secured credit facility and the related term loan A. The 2014 Credit Agreement consists of a Term Loan A (the “Term Loan A”) in an aggregate principal amount of $200 million, a revolving credit facility (the “Revolving Facility”) in an aggregate principal amount of $250 million, and a Delayed-Draw Term Loan A (the “DDTL”) in an aggregate amount of $200 million. At closing, proceeds from the new Term Loan A and Revolving Facility were used to (i) refinance the prior revolver and term loan A, (ii) fund adistributions ~~distribution~~ to shareholders of approximately $130 million, ~~and~~ (iii) fund related transaction fees and expenses, and (iv) used for working capital and other general corporate purposes permitted under the 2014 Credit Agreement, including certain acquisitions and investments. The Term Loan A, the Revolving Facility and the DDTL (if drawn upon) each mature on April 25, 2019. The Term Loan A will amortize in an aggregate annual amount equal to a percentage of the original principal amount of the Term Loan A beginning September 30, 2014 as follows: (i) 5% during each of the first two years after funding, (ii) 7.5% during the third year after funding, (iii) 10% during the fourth year after funding and, (iv) 12.5% during the final year of the term. The balance of the Term Loan A is payable at maturity. Pricing for the Term Loan A, Revolving Facility and the DDTL (if drawn upon) will be variable, at the London Interbank Offer Rate (LIBOR) plus 225 basis points. LIBOR is defined as having no minimum rate. The DDTL may be drawn within 12 months from the closing date to call the 10.75% senior unsecured notes due 2019 (which are callable on January 15, 2015) and other uses allowed in the 2014 Credit Agreement. The 2014 Credit Agreement also provides that, upon satisfaction of certain conditions, the Company may increase the aggregate principal amount of loans outstanding thereunder by up to $175 million, subject to receipt of additional lending commitments for such loans. The loans and other obligations under the 2014 Credit Agreement are (i) guaranteed by Onex Rescare Holdings Corp. (“Holdings”) and substantially all of its subsidiaries (subject to certain exceptions and limitations) and (ii) secured by substantially all of the assets of the Company, Holdings and substantially all of its subsidiaries (subject to certain exceptions and limitations). The 2014 Credit Agreement contains financial covenants which require us to maintain specific ratios with respect to interest coverage and leverage. This agreement provides for the exclusion of charges incurred with the resolution of certain named legal proceedings, as well as any non-cash impairment charges, in the calculation of certain financial covenants.

Our obligations under capital leases are $21.03 million as of ~~June~~September 30, 2014, due primarily to vehicle capital leases. The current portion of these lease obligations was $6.56 million.

We recorded a loss on extinguishment of debt of $0.7 million for the three and six month periods ended June 30, 2014 associated with termination of the 2012 senior secured revolving credit facility and the Term Loan A prepayment. Loss on extinguishment of debt consists principally of write-offs of deferred debt issuance costs. This transaction was primarily accounted for as a modification and was analyzed on a lender by lender basis.

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~~Subsequent~~We torecorded ~~receiving~~a ~~the~~loss ~~proceeds~~on ~~from~~extinguishment of debt of $0.7 million for the ~~2014~~three ~~Credit~~month ~~Agreement,~~period weended ~~declared~~June 30, 2014 and ~~paid~~for athe ~~dividend~~nine month period ended September 30, 2014 associated with termination of ~~$122.4~~the ~~million~~2012 tosenior ~~Onex~~secured ~~ResCare~~revolving ~~Holdings~~credit ~~Corp~~facility ~~shareholders. We~~and ~~also~~the ~~recorded~~Term aLoan ~~one-time~~A ~~pre-tax~~prepayment. Loss ~~charge~~on extinguishment of ~~$7.6~~debt ~~million~~consists ~~for~~principally ~~the~~of ~~accrual~~write-offs of ~~discretionary~~deferred ~~payments~~debt toissuance ~~stock~~costs. This ~~option~~transaction ~~holders,~~was ofprimarily ~~which~~accounted ~~$3.8~~for ~~million~~as a modification and was ~~paid~~analyzed ~~out~~on ~~prior~~a tolender ~~June 30,~~by ~~2014~~lender basis.

Subsequent to receiving the proceeds from the 2014 Credit Agreement, we declared and paid a dividend of $122.4 million to Onex ResCare Holdings Corp shareholders in April 2014. In the three month period ended June 30, 2014, we also recorded a one-time pre-tax charge of $7.6 million for the accrual of discretionary payments to stock option holders, of which $3.8 million was paid out as of September 30, 2014. The remaining accrued amount will be paid over the vesting period.

On November 5, 2014, the Company delivered notice for the full redemption of the $200 million outstanding 10.75% senior notes due January 15, 2019. The redemption date is December 29, 2014. The redemption amount is equal to the sum of the $200 million aggregate principal at a make-whole premium amount calculated within the terms of the related indenture estimated to be 105.82% plus accrued and unpaid interest through the date of redemption. We will finance the redemption with the DDTL and additional revolver borrowings.

Note 5. Income Taxes

The effective tax rate was 41.10% and 3632.45% for the three months ended ~~June~~September 30, 2014 and 2013, respectively, and 41.74% and 2527.18% for the ~~six~~nine months ended ~~June~~September 30, 2014 and 2013, respectively. The 2014 rate was negatively impacted by the expiration of jobs tax credits (not yet renewed for 2014), while the 2013 rate was favorably impacted by the renewal of jobs tax credits. On January 2, 2013, legislation was enacted that reinstated the jobs credit provisions retroactive to January 1, 2012. The ~~three~~first nine months ~~ended~~of ~~March 31,~~2013 reflects not only the 2013 ~~included~~year-to-date ~~that~~impact ~~quarter’s~~of jobs tax credit, ~~impact~~but ~~and~~also $3.34 million related to 2012 and prior periods’ jobs tax credit impact.

Note 6. Financial Instruments

At ~~June~~September 30, 2014 and December 31, 2013, 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, 2014				December 31, 2013
	September 30, 2014				December 31, 2013
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Long-term debt:
10.75% senior notes	$	200,000	$	~~218~~213,~~500~~000	$	200,000	$	223,500
Senior secured Term Loan A due 2017	—		—		157,513		157,513
Senior secured Term Loan A due 2019	~~198~~196,~~925~~481		~~198~~196,~~925~~481		—		—
Senior secured Revolving Facility	60,000		60,000		—		—
Notes payable and other	21,~~296~~500		21,~~247~~526		2,284		2,200

We estimated the fair value of the debt instruments using market quotes and calculations based on current market rates available to us (Level 2).

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Note 7. Segment Information

The following table sets forth information about our reportable segments:

Education

Residential

ResCare

& Training

Workforce

Pharmacy

Services

HomeCare

Services

Corporate

Total

Three months ended June 30:

Three months ended September 30:

2014

Revenues

~~237~~246,~~927~~209

9593,~~684~~523

3431,~~046~~995

4243,~~381~~699

2122,~~396~~381

—

~~431~~437,~~434~~807

Operating income (loss) (1)

3129,~~956~~047

85,~~683~~714

2,~~724~~598

4,~~883~~446

12,~~132~~014

(2924,~~551~~217)

)

19,~~827~~602

Total assets

~~628~~646,~~965~~116

~~187~~217,~~907~~180

5136,~~510~~261

8191,~~712~~412

2022,~~860~~196

~~133~~109,~~566~~713

1,~~104~~122,~~520~~878

Capital expenditures

3,~~031~~216

~~133~~89

1941

1516

~~108~~80

24,~~107~~562

58,~~413~~004

Depreciation and amortization

5,~~647~~964

~~831~~837

~~145~~141

~~384~~239

3841

2,~~068~~199

9,~~113~~421

2013

Revenues

~~215~~225,~~530~~407

8993,~~607~~061

3431,~~928~~074

3942,~~596~~257

1618,~~572~~135

—

~~396~~409,~~233~~934

Operating income (loss) (1)

2630,~~388~~670

89,~~316~~837

2,~~241~~949

45,~~258~~096

~~2,576~~844

(2024,~~007~~472)

)

2324,~~772~~924

Total assets

~~603~~616,~~034~~591

~~180~~181,~~074~~671

5150,~~292~~495

7883,~~321~~774

18,~~786~~609

~~135~~130,~~622~~660

1,~~067~~081,~~129~~800

Capital expenditures

13,~~913~~992

~~172~~193

337

~~109~~228

6471

12,~~848~~274

46,~~109~~795

Depreciation and amortization

5,~~356~~463

~~560~~643

~~129~~134

~~268~~287

3841

2,~~180~~241

8,~~531~~809

Six months ended June 30:

Nine months ended September 30:

2014

Revenues

~~471~~717,~~759~~968

~~189~~282,~~263~~786

68100,~~170~~165

82125,~~188~~887

4163,~~537~~918

—

~~852~~1,~~917~~290,724

Operating income (loss) (1)

6089,~~051~~098

1622,~~355~~069

58,~~545~~143

813,~~616~~062

24,~~880~~894

(5781,~~405~~622)

)

3655,~~042~~644

Capital expenditures

58,~~585~~801

~~322~~411

2465

~~135~~151

~~194~~274

38,~~716~~278

917,~~976~~980

Depreciation and amortization

1117,~~153~~117

12,~~634~~471

~~290~~431

~~762~~1,001

77118

46,~~152~~351

1827,~~068~~489

2013

Revenues

~~428~~653,~~057~~464

~~177~~270,~~039~~100

69100,~~418~~492

79121,~~414~~671

3149,~~759~~894

—

~~785~~1,~~687~~195,621

Operating income (loss) (1)

5283,~~600~~270

1524,~~021~~858

47,~~897~~846

813,~~054~~150

34,~~604~~448

(3963,~~206~~678)

)

4469,~~970~~894

Capital expenditures

37,~~632~~623

~~368~~560

1047

~~124~~353

~~233~~304

36,~~845~~120

815,~~212~~007

Depreciation and amortization

1015,~~449~~897

1,~~127~~777

~~259~~401

~~546~~833

70111

46,~~275~~516

1625,~~726~~535

(1) 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 8. 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 record accruals for such contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In June 2014, a settlement was reached on the wage/hour class-action lawsuit filed in 2009 in the Superior Court of the State of California styled Gloria Nelson, et al v. ResCare, Inc., et al, which results in no additional charge to our previously reserved amount. The pre-tax charges recorded in connection with legal matters, including settlements in 2014 of a communication practices and wage/hour class-action lawsuit, increased by $10.8 million during the six months ended June 30, 2014, compared to the same period in 2013. Court approval and payment of the settlements noted above are expected later in 2014.

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inNote the proceedings are unsubstantiated or indeterminate; (ii) discovery is not complete; (iii) the proceeding is in its early stages; (iv) the matters present legal uncertainties; (v) there are significant facts in dispute; (vi) there are a large number of parties (including where it is uncertain how liability, if any, will be shared among multiple defendants); or (vii) there is a wide range of potential outcomes8. ~~While~~ Legal 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 financial condition, results of operations or cash flows or may affect our reputation, it is reasonably possible they could.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 record accruals for such contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The pre-tax charges recorded in connection with legal and administrative matters, including settlements in 2014 of communication practices and wage/hour class-action lawsuits, as well as accrual of our best estimate of the anticipated settlement cost for the Iowa matter as discussed in Note 1, increased by $15.6 million during the nine months ended September 30, 2014, compared to the same period in 2013. Court approval and payment of certain settlements noted above are expected in late 2014 through early 2015.

No estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made at this time because the inherently unpredictable nature of legal proceedings may be exacerbated by various factors, including: (i) the damages sought in the proceedings are unsubstantiated or indeterminate; (ii) discovery is not complete; (iii) the proceeding is in its early stages; (iv) the matters present legal uncertainties; (v) there are significant facts in dispute; (vi) there are a large number of parties (including where it is uncertain how liability, if any, will be shared among multiple defendants); or (vii) there is a wide range of potential outcomes. While 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 financial condition, results of operations or cash flows or may affect our reputation, it is reasonably possible they could.

Note 9. Noncontrolling Interest

Effective October 1, 2013, ResCare acquired the 33.3% interest in Rest Assured LLC that was held by an unrelated party for no cash compensation. Prior to this transaction, 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. ASC 810, Noncontrolling Interests in Consolidated Financial Statements, (ASC 810) clarifies that a noncontrolling interest must be reported as a component separate from the parent’s equity and that changes in the parent’s ownership interest in a subsidiary must 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, 2012	$	(99	)
Net loss-noncontrolling interest	(110		)
Acquisition of remaining noncontrolling interest	209

Noncontrolling interest as of December 31, 2013	$	—

Note 10. Impact of Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 that introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This standard is effective for fiscal years beginning after December 15, 2016 (early adoption is not permitted), including interim periods within that reporting period. The guidance permits the use of either a retrospective or cumulative effect transition method. We have not yet selected a transition method and are currently evaluating the new guidance to determine the impact it will have on our consolidated financial statements.

Note 11. Subsidiary Guarantors

The Senior Notes are jointly, severally, fully and unconditionally guaranteed, subject to certain automatic customary release provisions, by our 100% owned U.S. subsidiaries. There are no restrictions on our ability to obtain funds from our U.S. subsidiaries by dividends or other means. The following are condensed consolidating financial statements of our company, including the guarantors. This information is provided pursuant to Rule 3 – 10 of Regulation S-X in lieu of separate financial statements of each subsidiary guaranteeing the Senior Notes. The following condensed consolidating financial statements present the balance sheet, statement of comprehensive income and cash flows of (i) Res-Care, Inc. (in each case, reflecting investments in its consolidated subsidiaries under the equity method of accounting), (ii) the guarantor subsidiaries, (iii) the non-guarantor subsidiaries, and (iv) the eliminations necessary to arrive at the information for our company on a consolidated basis. The condensed consolidating financial statements should be read in conjunction with the accompanying condensed consolidated financial statements.

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~~RES-CARE~~entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This standard is effective for fiscal years beginning after December ~~INC~~15, 2016 (early adoption is not permitted), including interim periods within that reporting period. ~~AND~~The ~~SUBSIDIARIES~~guidance permits the use of either a retrospective or cumulative effect transition method. We have not yet selected a transition method and are currently evaluating the new guidance to determine the impact it will have on our consolidated financial statements.

~~CONDENSED~~Note ~~CONSOLIDATING~~11. Subsidiary ~~BALANCE SHEET~~Guarantors

~~June~~The Senior Notes are jointly, severally, fully and unconditionally guaranteed, subject to certain automatic customary release provisions, by our 100% owned U.S. subsidiaries. There are no restrictions on our ability to obtain funds from our U.S. subsidiaries by dividends or other means. The following are condensed consolidating financial statements of our company, including the guarantors. This information is provided pursuant to Rule 303 — 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, ~~2014~~statement of comprehensive income and cash flows of (i) Res-Care, Inc. (in each case, reflecting investments in its consolidated subsidiaries under the equity method of accounting), (ii) the guarantor subsidiaries, (iii) the non-guarantor subsidiaries, and (iv) the eliminations necessary to arrive at the information for our company on a consolidated basis. The condensed consolidating financial statements should be read in conjunction with the accompanying condensed consolidated financial statements.

(In thousands)

				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
ASSETS
Current assets:
Cash and cash equivalents	$	35,450		$	505		$	913		$	—		$	36,868
Accounts receivable, net	31,100			220,022			69			—			251,191
Refundable income taxes	926			—			—			—			926
Deferred income taxes	26,820			—			—			—			26,820
Non-trade receivables	3,409			1,071			23			—			4,503
Prepaid expenses and other current assets	8,386			9,516			14			—			17,916
Total current assets	106,091			231,114			1,019			—			338,224
Property and equipment, net	49,879			51,712			30			—			101,621
Goodwill	303,870			27			5,030			—			308,927
Other intangible assets, net	295,177			34,503			—			—			329,680
Intercompany	—			713,512			68,266			(781,778		)	—
Investment in subsidiaries	1,010,952			37,913			—			(1,048,865		)	—
Other assets	19,981			6,087			—			—			26,068
	$	1,785,950		$	1,074,868		$	74,345		$	(1,830,643	)	$	1,104,520
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities:
Trade accounts payable	$	22,739		$	14,741		$	23		$	—		$	37,503
Accrued expenses	73,629			58,943			596			—			133,168
Current portion of long-term debt	10,000			1,185			—			—			11,185
Current portion of obligations under capital leases	—			6,515			—			—			6,515
Accrued income taxes	3,218			—			—			—			3,218
Total current liabilities	109,586			81,384			619			—			191,589
Intercompany	779,684			—			—			(779,684		)	—
Long-term liabilities	42,976			655			—			—			43,631
Long-term debt	448,925			1,111			—			—			450,036
Obligations under capital leases	—			14,485			—			—			14,485
Deferred income taxes	119,189			—			—			—			119,189
Total liabilities	1,500,360			97,635			619			(779,684		)	818,930
Common stock	—			—			—			—			—
Additional paid-in capital	248,036			478,422			122,023			(600,445		)	248,036
Retained earnings	38,132			498,829			(47,134		)	(451,695		)	38,132
Accumulated other comprehensive (loss) income	(578		)	(18		)	(1,163		)	1,181			(578		)
Total shareholder’s equity	285,590			977,233			73,726			(1,050,959		)	285,590
	$	1,785,950		$	1,074,868		$	74,345		$	(1,830,643	)	$	1,104,520

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RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

~~December~~September 3130, ~~2013~~2014

(In thousands)

				~~Guarantor~~	Guarantor		~~Non-Guarantor~~		Non-Guarantor				~~Consolidated~~			Consolidated
	ResCare, Inc.			~~Subsidiaries~~	Subsidiaries		~~Subsidiaries~~		Subsidiaries	~~Eliminations~~			~~Total~~Eliminations			Total
ASSETS
Current assets:
Cash and cash equivalents	$	2622,~~335~~664		$	~~2,860~~$	2,288	$	~~802~~	$	$939	—		$	~~29,997~~—		$	25,891
Accounts receivable, net	2531,~~953~~130			~~215,864~~	229,746		56		76	—			~~241,873~~—			260,952
Refundable income taxes	—807			—	—		—		—	—			—			807
Deferred income taxes	1929,~~811~~076			—	—		—		—	—			~~19,811~~—			29,076
Non-trade receivables	43,~~592~~251			~~2,237~~	856		23		21	—			~~6,852~~—			4,128
Prepaid expenses and other current assets	1011,~~793~~958			~~8,765~~	10,213		20		16	—			~~19,578~~—			22,187
Total current assets	8798,~~484~~886			~~229,726~~	243,103		~~901~~		1,052	—			~~318,111~~—			343,041
Property and equipment, net	5055,~~854~~187			~~50,160~~	49,399		7		32	—			~~101,021~~—			104,618
Goodwill	~~303~~308,~~270~~595			27	27		~~5,053~~		4,794	—			~~308,350~~—			313,416
Other intangible assets, net	~~297~~293,~~535~~998			~~36,078~~	42,269		—		—	—			~~333,613~~—			336,267
Intercompany	—			~~695,097~~	714,365		~~68,427~~		69,034	~~(763,524~~		)	—(783,399		)	—
Investment in subsidiaries	~~990~~1,~~793~~025,337			~~37,913~~	37,913		—		—	~~(1,028,706~~		)	—(1,063,250		)	—
Other assets	1819,~~746~~419			~~6,436~~	6,117		—		—	—			~~25,182~~—			25,536
	$	1,~~748~~801,~~682~~422		$	~~1,055,437~~$	1,093,193	$	~~74,388~~	$	$74,912	~~(1,792,230~~	)	$	(1,~~086~~846,~~277~~649	)	$	1,122,878
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities:
Trade accounts payable	$	1723,~~851~~625		$	~~16,210~~$	15,645	$	28	$	$35	—		$	~~34,089~~—		$	39,305
Accrued expenses	6177,~~175~~780			~~58,950~~	62,392		~~678~~		1,156	—			~~120,803~~—			141,328
Current portion of long-term debt	1310,~~125~~000			~~1,166~~	1,109		—		—	—			~~14,291~~—			11,109
Current portion of obligations under capital leases	—			~~6,516~~	6,594		—		—	—			~~6,516~~—			6,594
Accrued income taxes	—5,447			—	—		—		—	—			—			5,447
Total current liabilities	92116,~~151~~852			~~82,842~~	85,740		~~706~~		1,191	—			~~175,699~~—			203,783
Intercompany	~~761~~781,~~430~~305			—	—		—		—	~~(761,430~~		)	—(781,305		)	—
Long-term liabilities	3843,~~508~~129			~~635~~	768		—		—	—			~~39,143~~—			43,897
Long-term debt	~~344~~446,~~388~~481			~~1,118~~	391		—		—	—			~~345,506~~—			446,872
Obligations under capital leases	—			~~13,724~~	14,671		—		—	—			~~13,724~~—			14,671
Deferred income taxes	~~116~~121,~~084~~291			—	—		—		—	—			~~116,084~~—			121,291
Total liabilities	1,~~352~~509,~~561~~058			~~98,319~~	101,570		~~706~~		1,191	~~(761,430~~		)	~~690~~(781,~~156~~305		)	830,514
Common stock	—			—	—		—		—	—			—			—
Additional paid-in capital	~~247~~248,~~053~~563			~~478,422~~	478,422		~~121,814~~		122,023	~~(600,236~~		)	~~247~~(600,~~053~~445		)	248,563
Retained earnings	~~149~~44,~~617~~642			~~478,714~~	513,219		~~(47,178~~		)(47,140	~~(431,536~~	)	)	~~149~~(466,~~617~~079		)	44,642
Accumulated other comprehensive (loss) income	(~~549~~841		)	~~(18~~	(18	)	~~(954~~)		)(1,162	~~972~~	)		~~(549~~1,180		)	(841		)
Total shareholder’s equity	~~396~~292,~~121~~364			~~957,118~~	991,623		~~73,682~~		73,721	~~(1,030,800~~		)	~~396~~(1,~~121~~065,344		)	292,364
	$	1,~~748~~801,~~682~~422		$	~~1,055,437~~$	1,093,193	$	~~74,388~~	$	$74,912	~~(1,792,230~~	)	$	(1,~~086~~846,~~277~~649	)	$	1,122,878

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RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING ~~STATEMENT~~BALANCE ~~OF COMPREHENSIVE INCOME~~SHEET

~~Three Months Ended June~~December 3031, ~~2014~~2013

(In thousands)

				~~Guarantor~~	Guarantor		~~Non-Guarantor~~		Non-Guarantor				~~Consolidated~~			Consolidated
	ResCare, Inc.			~~Subsidiaries~~	Subsidiaries		~~Subsidiaries~~		Subsidiaries	~~Eliminations~~			~~Total~~Eliminations			Total
Revenues	$	64,084		$	366,960		$	390		$	—		$	431,434
ASSETS
Operating expenses	61,388			349,908			311			—			411,607
Current assets:
Operating income	2,696			17,052			79			—			19,827
Cash and cash equivalents	$	26,335			$	2,860			$	802			$	—		$	29,997
Other expenses (income):
Accounts receivable, net	25,953				215,864				56				—			241,873
Interest, net	8,168			333			(1		)	—			8,500
Refundable income taxes	—				—				—				—			—
Loss on extinguishment of debt	659			—			—			—			659
Deferred income taxes	19,811				—				—				—			19,811
Equity in earnings of subsidiaries	(9,945		)	—			—			9,945			—
Non-trade receivables	4,592				2,237				23				—			6,852
Total other (income) expenses	(1,118		)	333			(1		)	9,945			9,159
Prepaid expenses and other current assets	10,793				8,765				20				—			19,578
Income (loss) before income taxes	3,814			16,719			80			(9,945		)	10,668
Total current assets	87,484				229,726				901				—			318,111
Income tax (benefit) expense	(2,474		)	6,820			34			—			4,380
Property and equipment, net	50,854				50,160				7				—			101,021
Net income (loss)	6,288			9,899			46			(9,945		)	6,288
Goodwill	303,270				27				5,053				—			308,350
Net loss-noncontrolling interest	—			—			—			—			—
Other intangible assets, net	297,535				36,078				—				—			333,613
Net income (loss)-Res-Care, Inc.	6,288			9,899			46			(9,945		)	6,288
Intercompany	—				695,097				68,427				(763,524		)	—
Other comprehensive income (loss):
Investment in subsidiaries	990,793				37,913				—				(1,028,706		)	—
Foreign currently translation adjustments	235			—			(235		)	235			235
Other assets	18,746				6,436				—				—			25,182
Comprehensive income (loss) attributable to Res-Care, Inc.	$	6,523		$	9,899		$	(189	)	$	(9,710	)	$	6,523
	$	1,748,682			$	1,055,437			$	74,388			$	(1,792,230	)	$	1,086,277
Total comprehensive income (loss)	$	6,523		$	9,899		$	(189	)	$	(9,710	)	$	6,523
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities:
Trade accounts payable	$	17,851			$	16,210			$	28			$	—		$	34,089
Accrued expenses	61,175				58,950				678				—			120,803
Current portion of long-term debt	13,125				1,166				—				—			14,291
Current portion of obligations under capital leases	—				6,516				—				—			6,516
Accrued income taxes	—				—				—				—			—
Total current liabilities	92,151				82,842				706				—			175,699
Intercompany	761,430				—				—				(761,430		)	—
Long-term liabilities	38,508				635				—				—			39,143
Long-term debt	344,388				1,118				—				—			345,506
Obligations under capital leases	—				13,724				—				—			13,724
Deferred income taxes	116,084				—				—				—			116,084
Total liabilities	1,352,561				98,319				706				(761,430		)	690,156
Common stock	—				—				—				—			—
Additional paid-in capital	247,053				478,422				121,814				(600,236		)	247,053
Retained earnings	149,617				478,714				(47,178		)		(431,536		)	149,617
Accumulated other comprehensive (loss) income	(549		)		(18		)		(954		)		972			(549		)
Total shareholder’s equity	396,121				957,118				73,682				(1,030,800		)	396,121
	$	1,748,682			$	1,055,437			$	74,388			$	(1,792,230	)	$	1,086,277

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RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

~~Six~~Three Months Ended ~~June~~September 30, 2014

(In thousands)

				~~Guarantor~~	Guarantor		~~Non-Guarantor~~	Non-Guarantor					~~Consolidated~~			Consolidated
	ResCare, Inc.			~~Subsidiaries~~	Subsidiaries		~~Subsidiaries~~	Subsidiaries		~~Eliminations~~		Eliminations	~~Total~~			Total
Revenues	$	~~126~~62,~~220~~630		$	~~725,910~~$	374,794	$	~~787~~$	383	$	—	$	$—	~~852,917~~		$	437,807
Operating expenses	~~125~~67,~~436~~785			~~690,726~~	350,025		~~713~~	395		—		—	~~816,875~~			418,205
Operating income	784			35,184			74			—			36,042
Operating (loss) income	(5,155		)		24,769			(12		)		—				19,602
Other expenses (income):
Interest, net	158,~~900~~227			~~676~~	345		(2	(1	)	—)		—	~~16,574~~			8,571
Loss on extinguishment of debt	~~659~~—			—	—		—	—		—		—	~~659~~			—
Equity in earnings of subsidiaries	(2014,~~159~~384		)	—	—		—	—		~~20,159~~		14,384	—			—
Total other (income) expenses	(36,~~600~~157		)	~~676~~	345		(2	(1	)	~~20,159~~)		14,384	~~17,233~~			8,571
Income (loss) before income taxes	41,~~384~~002			~~34,508~~	24,424		76	(11		~~(20,159~~)		)(14,384	~~18,809~~	)		11,031
Income tax (benefit) expense	(65,~~579~~508		)	~~14,393~~	10,034		32	(5		—)		—	~~7,846~~			4,521
Net income (loss)	106,~~963~~510			~~20,115~~	14,390		44	(6		~~(20,159~~)		)(14,384	~~10,963~~	)		6,510
Net loss-noncontrolling interest	—			—			—			—			—
Other comprehensive income (loss):
Net income (loss)-Res-Care, Inc.	10,963			20,115			44			(20,159		)	10,963
Foreign currently translation adjustments	(263		)		—			(263		)		263				(263		)
Other comprehensive income (loss):
Comprehensive income (loss) attributable to Res-Care, Inc.	$	6,247			$	14,390		$	(269	)		$	(14,121	)		$	6,247
Foreign currently translation adjustments	(29		)	—			(29		)	29			(29		)
Total comprehensive income (loss)	$	6,247			$	14,390		$	(269	)		$	(14,121	)		$	6,247
Comprehensive income (loss) attributable to Res-Care, Inc.	$	10,934		$	20,115		$	15		$	(20,130	)	$	10,934
Total comprehensive income (loss)	$	10,934		$	20,115		$	15		$	(20,130	)	$	10,934

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RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

~~Three~~Nine Months Ended ~~June~~September 30, ~~2013~~2014

(In thousands)

				~~Guarantor~~	Guarantor		~~Non-Guarantor~~	Non-Guarantor					~~Consolidated~~			Consolidated
	ResCare, Inc.			~~Subsidiaries~~	Subsidiaries		~~Subsidiaries~~	Subsidiaries		~~Eliminations~~		Eliminations	~~Total~~			Total
Revenues	$	62188,~~612~~850		$	~~332,866~~$	1,100,704	$	~~755~~$	1,170	$	—	$	$—	~~396,233~~		$	1,290,724
Operating expenses	67193,~~277~~221			~~304,324~~	1,040,751		~~860~~	1,108		—		—	~~372,461~~			1,235,080
Operating (loss) income	(4,~~665~~371		)	~~28,542~~	59,953		~~(105~~	62	)	—		—	~~23,772~~			55,644
Other expenses (income):
Interest, net	724,~~935~~127			~~(327~~	1,021	)	57	(3		—)		—	~~7,665~~			25,145
Loss on extinguishment of debt	—659			—	—		—	—		—		—	—			659
Equity in earnings of subsidiaries	(2434,~~576~~543		)	~~(304~~	—	)	—	—		~~24,880~~		34,543	—			—
Total other (income) expenses	(169,~~641~~757		)	~~(631~~	1,021	)	57	(3		~~24,880~~)		34,543	~~7,665~~			25,804
Income (loss) before income taxes	115,~~976~~386			~~29,173~~	58,932		~~(162~~	65	)	~~(24,880~~		)(34,543	~~16,107~~	)		29,840
Income tax (benefit) expense	1(12,~~697~~087		)	~~4,195~~	24,427		~~(24~~	27	)	—		—	~~5,868~~			12,367
Net income (loss)	1017,~~279~~473			~~24,978~~	34,505		~~(138~~	38	)	~~(24,880~~		)(34,543	~~10,239~~	)		17,473
Net loss-noncontrolling interest	—			—			(40		)	—			(40		)
Other comprehensive income (loss):
Net income (loss)-Res-Care, Inc.	10,279			24,978			(98		)	(24,880		)	10,279
Foreign currently translation adjustments	(292		)		—			(292		)		292				(292		)
Other comprehensive income (loss):
Comprehensive income (loss) attributable to Res-Care, Inc.	$	17,181			$	34,505		$	(254	)		$	(34,251	)		$	17,181
Foreign currently translation adjustments	(223		)	—			(223		)	223			(223		)
Total comprehensive income (loss)	$	17,181			$	34,505		$	(254	)		$	(34,251	)		$	17,181
Comprehensive income (loss) attributable to Res-Care, Inc.	$	10,056		$	24,978		$	(321	)	$	(24,657	)	$	10,056
Total comprehensive income (loss)	$	10,056		$	24,978		$	(361	)	$	(24,657	)	$	10,016

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RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

~~Six~~Three Months Ended ~~June~~September 30, 2013

(In thousands)

				~~Guarantor~~	Guarantor		~~Non-Guarantor~~		Non-Guarantor				~~Consolidated~~			Consolidated
	ResCare, Inc.			~~Subsidiaries~~	Subsidiaries		~~Subsidiaries~~		Subsidiaries	~~Eliminations~~			~~Total~~Eliminations			Total
Revenues	$	~~123~~59,~~064~~873		$	~~661,116~~$	349,309	$	~~1,507~~	$	$752	—		$	~~785,687~~—		$	409,934
Operating expenses	~~132~~62,~~454~~872			~~606,571~~	321,376		~~1,692~~		762	—			~~740,717~~—			385,010
Operating (loss) income	(92,~~390~~999		)	~~54,545~~	27,933		~~(185~~		)(10	—	)		~~44,970~~—			24,924
Other expenses (income):
Interest, net	168,~~230~~180			~~(142~~	(104	)	~~114~~)		64	—			~~16,202~~—			8,140
Loss on extinguishment of debt	—			—	—		—		—	—			—			—
Equity in earnings of subsidiaries	(4018,~~791~~744		)	~~(447~~	(311	)	—)		—	~~41,238~~			—19,055			—
Total other (income) expenses	(2410,~~561~~564		)	~~(589~~	(415	)	~~114~~)		64	~~41,238~~			1619,~~202~~055			8,140
Income (loss) before income taxes	157,~~171~~565			~~55,134~~	28,348		~~(299~~		)(74	~~(41,238~~	)	)	28(19,~~768~~055		)	16,784
Income tax (benefit) expense	(63,~~440~~803		)	~~13,748~~	9,282		~~(75~~		)(29	—	)		~~7,233~~—			5,450
Net income (loss)	2111,~~611~~368			~~41,386~~	19,066		~~(224~~		)(45	~~(41,238~~	)	)	21(19,~~535~~055		)	11,334
Net loss-noncontrolling interest	—			—	—		~~(76~~		)(34	—	)		~~(76~~—		)	(34		)
Net income (loss)-Res-Care, Inc.	2111,~~611~~368			~~41,386~~	19,066		~~(148~~		)(11	~~(41,238~~	)	)	21(19,~~611~~055		)	11,368
Other comprehensive income (loss):
Foreign currently translation adjustments	~~(414~~56		)	—	—		~~(414~~		)56	~~414~~			(~~414~~56		)	56
Comprehensive income (loss) attributable to Res-Care, Inc.	$	2111,~~197~~424		$	~~41,386~~$	19,066	$	~~(562~~	)$	$45	~~(40,824~~	)	$	21(19,~~197~~111	)	$	11,424
Total comprehensive income (loss)	$	2111,~~197~~424		$	~~41,386~~$	19,066	$	~~(638~~	)$	$11	~~(40,824~~	)	$	21(19,~~121~~111	)	$	11,390

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RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF ~~CASH~~COMPREHENSIVE ~~FLOWS~~INCOME

~~Six~~Nine Months Ended ~~June~~ September 30, ~~2014~~2013

(In thousands)

				~~Guarantor~~	Guarantor		~~Non-Guarantor~~		Non-Guarantor				~~Consolidated~~			Consolidated
	ResCare, Inc.			~~Subsidiaries~~	Subsidiaries		~~Subsidiaries~~		Subsidiaries	~~Eliminations~~			~~Total~~Eliminations			Total
Operating activities:
Revenues	$	182,937			$	1,010,425			$	2,259			$	—		$	1,195,621
Net income (loss)	$	10,963		$	20,115		$	44		$	(20,159	)	$	10,963
Operating expenses	195,326				927,947				2,454				—			1,125,727
Adjustments to reconcile net income, including
Operating (loss) income	(12,389		)		82,478				(195		)		—			69,894
noncontrolling interest, to cash provided by
Other expenses (income):
operating activities	6,165			7,728			(275		)	20,159			33,777
Interest, net	24,410				(246		)		178				—			24,342
Cash provided by (used in) operating activities	17,128			27,843			(231		)	—			44,740
Loss on extinguishment of debt	—				—				—				—			—
Investing activities:
Equity in earnings of subsidiaries	(59,535		)		(758		)		—				60,293			—
Purchases of property and equipment	(2,686		)	(7,260		)	(30		)	—			(9,976		)
Total other (income) expenses	(35,125		)		(1,004		)		178				60,293			24,342
Acquisitions of businesses, net of cash acquired	—			(949		)	—			—			(949		)
Income (loss) before income taxes	22,736				83,482				(373		)		(60,293		)	45,552
Proceeds from sale of assets	—			203			—			—			203
Income tax (benefit) expense	(10,243		)		23,030				(104		)		—			12,683
Cash used in investing activities	(2,686		)	(8,006		)	(30		)	—			(10,722		)
Net income (loss)	32,979				60,452				(269		)		(60,293		)	32,869
Financing activities:
Net loss-noncontrolling interest	—				—				(110		)		—			(110		)
Long-term debt repayments	(172,515		)	(85		)	—			—			(172,600		)
Net income (loss)-Res-Care, Inc.	32,979				60,452				(159		)		(60,293		)	32,979
Long-term debt borrowings	275,000			—			—			—			275,000
Other comprehensive income (loss):
Payments on obligations under capital leases	—			(3,692		)	—			—			(3,692		)
Foreign currently translation adjustments	(358		)		—				(358		)		358			(358		)
Debt issuance costs	(3,618		)	—			—			—			(3,618		)
Comprehensive income (loss) attributable to Res-Care, Inc.	$	32,621			$	60,452			$	(517	)		$	(59,935	)	$	32,621
Dividend paid.	(122,448		)	—			—			—			(122,448		)
Total comprehensive income (loss)	$	32,621			$	60,452			$	(627	)		$	(59,935	)	$	32,511
Net payments relating to intercompany financing	18,254			(18,415		)	161			—			—
Cash (used in) provided by financing activities	(5,327		)	(22,192		)	161			—			(27,358		)
Effect of exchange rate changes on cash and cash equivalents	—			—			211			—			211
Increase (decrease) in cash and cash equivalents	9,115			(2,355		)	111			—			6,871
Cash and cash equivalents at beginning of period	26,335			2,860			802			—			29,997
Cash and cash equivalents at end of period	$	35,450		$	505		$	913		$	—		$	36,868

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RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

~~Six~~Nine Months Ended ~~June~~ September 30, ~~2013~~2014

(In thousands)

				~~Guarantor~~	Guarantor		~~Non-Guarantor~~		Non-Guarantor				~~Consolidated~~			Consolidated
	ResCare, Inc.			~~Subsidiaries~~	Subsidiaries		~~Subsidiaries~~		Subsidiaries	~~Eliminations~~			~~Total~~Eliminations			Total
Operating activities:
Net income (loss)	$	2117,~~611~~473		$	~~41,386~~$	34,505	$	~~(224~~	)$	$38	~~(41,238~~	)	$	21(34,~~535~~543	)	$	17,473
Adjustments to reconcile net income, including noncontrolling interest, to cash provided by operating activities	(355,~~175~~506		)	~~5,948~~	13,786		~~520~~		420	~~41,238~~			1234,~~531~~543			43,243
Cash (used in) provided by operating activities	(13,564		)	47,334			296			—			34,066
Cash provided by (used in) operating activities	11,967				48,291				458				—			60,716
Investing activities:
Purchases of property and equipment	(49,~~242~~421		)	~~(3,940~~	(8,526	)	~~(30~~)		)(33	—	)		~~(8,212~~—		)	(17,980		)
Acquisitions of businesses, net of cash acquired	—			~~(2,234~~	(15,057	)	—)		—	—			~~(2,234~~—		)	(15,057		)
Proceeds from sale of assets	—			~~184~~	555		—		—	—			~~184~~—			555
Cash used in investing activities	(49,~~242~~421		)	~~(5,990~~	(23,028	)	~~(30~~)		)(33	—	)		~~(10,262~~—		)	(32,482		)
Financing activities:
Long-term debt repayments	(8175,~~737~~013		)	~~(179~~	(1,065	)	~~(364~~)		)—	—			~~(9,280~~—		)	(176,078		)
Long-term debt borrowings	—275,000			—	—		—		—	—			—			275,000
Debt issuance costs	(2		)	—			—			—			(2		)
Payments on obligations under capital leases	—				(5,502		)		—				—			(5,502		)
Payments on obligations under capital leases	—			(3,499		)	—			—			(3,499		)
Debt issuance costs	(3,631		)		—				—				—			(3,631		)
Net payments relating to intercompany financing	41,677			(39,687		)	(1,990		)	—			—
Dividend paid.	(122,448		)		—				—				—			(122,448		)
Cash provided by (used in) financing activities	32,938			(43,365		)	(2,354		)	—			(12,781		)
Net payments relating to intercompany financing	19,875				(19,268		)		(607		)		—			—
Effect of exchange rate changes on cash and cash equivalents	—			(81		)	—			—			(81		)
Cash (used in) provided by financing activities	(6,217		)		(25,835		)		(607		)		—			(32,659		)
Increase (decrease) in cash and cash equivalents	15,132			(2,102		)	(2,088		)	—			10,942
Effect of exchange rate changes on cash and cash equivalents	—				—				319				—			319
Cash and cash equivalents at beginning of period	42,633			4,795			2,706			—			50,134
Increase (decrease) in cash and cash equivalents	(3,671		)		(572		)		137				—			(4,106		)
Cash and cash equivalents at end of period	$	57,765		$	2,693		$	618		$	—		$	61,076
Cash and cash equivalents at beginning of period	26,335				2,860				802				—			29,997
Cash and cash equivalents at end of period	$	22,664			$	2,288			$	939			$	—		$	25,891

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RES-CARE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Nine Months Ended September 30, 2013

(In thousands)


				Guarantor			Non-Guarantor						Consolidated
	ResCare, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total

Operating activities:
Net income (loss)	$	32,979		$	60,452		$	(269	)	$	(60,293	)	$	32,869
Adjustments to reconcile net income, including noncontrolling interest, to cash provided by operating activities	(71,961		)	33,662			585			60,293			22,579
Cash (used in) provided by operating activities	(38,982		)	94,114			316			—			55,448
Investing activities:
Purchases of property and equipment	(8,602		)	(6,362		)	(43		)	—			(15,007		)
Acquisitions of businesses, net of cash acquired	—			(19,995		)	—			—			(19,995		)
Proceeds from sale of assets	—			344			—			—			344
Cash used in investing activities	(8,602		)	(26,013		)	(43		)	—			(34,658		)
Financing activities:
Long-term debt repayments	(10,929		)	(2,682		)	(579		)	—			(14,190		)
Long-term debt borrowings	—			—			—			—			—
Debt issuance costs	(2		)	—			—			—			(2		)
Payments on obligations under capital leases	—			(5,446		)	—			—			(5,446		)
Net payments relating to intercompany financing	62,646			(61,109		)	(1,537		)	—			—
Cash provided by (used in) financing activities	51,715			(69,237		)	(2,116		)	—			(19,638		)
Effect of exchange rate changes on cash and cash equivalents	—			—			(96		)	—			(96		)
Increase (decrease) in cash and cash equivalents	4,131			(1,136		)	(1,939		)	—			1,056
Cash and cash equivalents at beginning of period	42,633			4,795			2,706			—			50,134
Cash and cash equivalents at end of period	$	46,764		$	3,659		$	767		$	—		$	51,190

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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 is provided as a supplement to, 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, 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 I, Item 1A of our Annual Report on Form 10-K and 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.

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.

Our reportable segments are: (i) Residential Services, (ii) ResCare HomeCare, (iii) Education and Training Services, (iv) Workforce Services and (v) Pharmacy 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. Education and Training Services consists of our Job Corps centers, alternative education programs, charter schools, training for professionals working with children, training for potential foster and adoptive parents and other individual and family counseling and instruction. Workforce Services is comprised of our domestic job training and placement programs that assist welfare recipients and disadvantaged job seekers in finding employment and improving their career prospects. Pharmacy Services is a limited, closed-door pharmacy business focused on serving individuals with cognitive, intellectual and developmental disabilities.

We evaluate performance based on profit or loss from operations before corporate expenses and other income, interest and income taxes. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment revenues and transfers are not significant. Further information regarding our segments is included in Notes 1 and 7 of the Notes to Consolidated Financial Statements.

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Revenues for our Residential Services operations are derived primarily from state Medicaid programs and other government agencies and from management contracts with private operators, generally not for profit providers, who contract with state government agencies and are reimbursed under the Medicaid programs. Our services include social, functional and vocational skills training, supported employment and emotional and psychological counseling for individuals with intellectual or other disabilities. 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 based on published fee schedules. 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. For programs where we operate pursuant to management contracts, the management fee is negotiated with the provider of record.

Revenues for our HomeCare services are derived primarily from state Medicaid programs, Medicare, other governmental programs, commercial insurance programs and private pay agreements. We provide a range of services, both skilled and non-skilled, primarily for older people in their homes. These services are provided on an as needed basis and are reimbursed on a unit of service basis. We also provide these 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 Education and Training 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.

Revenues for our Pharmacy Services operations are derived primarily from the Federal Medicare Part D plan, State Medicaid programs and other third-party payors. Revenue is recognized in the period pharmaceutical medications are shipped or at the time consultant pharmacist services are rendered.

Outlook

We provide a variety of vital human services and derive a significant portion of our revenue from state and federal government sources. Despite cost containment efforts, many states are dealing with budget deficits or shortfalls as a result of recent economic conditions, including their Medicaid budgets that fund a significant portion of the services we provide.

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

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2013 Annual Report on Form 10-K filed February 18, 2014. Management has discussed the development, selection, and application of our critical accounting policies with our Audit Committee. During the first ~~six~~nine months of 2014, there were no material changes in the critical accounting policies and assumptions.

Results of Operations

	Three Months Ended						~~Six Months Ended~~		Nine Months Ended
	June 30						June 30
	September 30								September 30
	2014			~~2013~~	2013		~~2014~~		2014	~~2013~~			2013
	(Dollars in thousands)
Revenues:
Residential Services	$	~~237~~246,~~927~~209		$	~~215,530~~$	225,407	$	~~471,759~~	$	$717,968	~~428,057~~		$	653,464
ResCare HomeCare	9593,~~684~~523			~~89,607~~	93,061		~~189,263~~		282,786	~~177,039~~			270,100
Education & Training Services	3431,~~046~~995			~~34,928~~	31,074		~~68,170~~		100,165	~~69,418~~			100,492
Workforce Services	4243,~~381~~699			~~39,596~~	42,257		~~82,188~~		125,887	~~79,414~~			121,671
Pharmacy Services	2122,~~396~~381			~~16,572~~	18,135		~~41,537~~		63,918	~~31,759~~			49,894
Consolidated	$	~~431~~437,~~434~~807		$	~~396,233~~$	409,934	$	~~852,917~~	$	$1,290,724	~~785,687~~		$	1,195,621
Operating income:
Residential Services	$	3129,~~956~~047		$	~~26,388~~$	30,670	$	~~60,051~~	$	$89,098	~~52,600~~		$	83,270
ResCare HomeCare	85,~~683~~714			~~8,316~~	9,837		~~16,355~~		22,069	~~15,021~~			24,858
Education & Training Services	2,~~724~~598			~~2,241~~	2,949		~~5,545~~		8,143	~~4,897~~			7,846
Workforce Services	4,~~883~~446			~~4,258~~	5,096		~~8,616~~		13,062	~~8,054~~			13,150
Pharmacy Services	12,~~132~~014			~~2,576~~	844		~~2,880~~		4,894	~~3,604~~			4,448
Corporate (1)	(2924,~~551~~217		)	~~(20,007~~	(24,472	)	~~(57,405~~)		)(81,622	~~(39,206~~	)	)	(63,678		)
Consolidated	$	19,~~827~~602		$	~~23,772~~$	24,924	$	~~36,042~~	$	$55,644	~~44,970~~		$	69,894
Operating margin:
Residential Services	1311.48%			~~12.2%~~	13.6%		~~12.7%~~		12.4%	~~12.3%~~			12.7%
ResCare HomeCare	96.1%			~~9.3%~~	10.6%		~~8.6%~~		7.8%	~~8.5%~~			9.2%
Education & Training Services	8.01%			~~6.4%~~	9.5%		~~8.1%~~		8.1%	~~7.1%~~			7.8%
Workforce Services	1110.52%			~~10.8%~~	12.1%		~~10.5%~~		10.4%	~~10.1%~~			10.8%
Pharmacy Services	59.30%			~~15.5%~~	4.7%		~~6.9%~~		7.7%	~~11.3%~~			8.9%
Corporate (1)	(65.85%		)	~~(5.0%~~	(6.0%	)	~~(6.7%~~)		)(6.3%	~~(5.0%~~	)	)	(5.3%		)
Consolidated	4.65%			~~6.0%~~	6.1%		~~4.2%~~		4.3%	~~5.7%~~			5.8%

________

(1) 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~~nine months ended ~~June~~September 30, 2014 increased $3527.29 million and $6795.21 million, or 86.98% and 8.60%, respectively, from the same periods in 2013. Organic growth for the three months and ~~six~~nine months ended ~~June~~September 30, 2014 was 32.87% and 3.2.4%, respectively. Revenues are more fully described in the segment discussions.

Consolidated operating income, which includes corporate general and administrative expenses, for the quarter ended ~~June~~September 30, 2014, was $19.86 million compared to operating income of $2324.89 million from the same period in 2013. Consolidated operating margins were 4.65% and 6.01% for the quarterly periods in 2014 and 2013, respectively. The decrease in operating income and margin primarily resulted from ~~higher~~lower ~~corporate~~operating ~~general~~income ~~and~~in ~~administrative~~our ~~expenses~~Residential ~~for~~Services, ~~incentive~~ResCare ~~compensation~~HomeCare ~~for stock option holders~~ and ~~insurance~~Workforce ~~costs~~Services operations, which were partially offset by ~~improved~~higher ~~results~~operating ~~and~~income ~~margins~~ in our ~~Residential~~Pharmacy Services ~~segment~~operation.

Consolidated operating income for the ~~six~~nine months ended ~~June~~September 30, 2014 was $3655.06 million compared to $4569.09 million for the same period in 2013. Consolidated operating margins were 4.23% and 5.78% for the ~~six~~nine month periods in 2014 and 2013, respectively. The decrease in operating income and margin primarily resulted from higher corporate general and

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administrative expenses for legal costs and incentive compensation for stock option holders, lower operating income from our ResCare HomeCare, which were partially offset by ~~improved~~higher ~~results~~operating ~~and~~income ~~margins~~ in ~~all~~our ~~business~~Residential ~~segments except Pharmacy~~ Services operation.

Net interest expense increased $0.84 million for the ~~second~~third quarter of 2014 and $0.48 million for the ~~six~~nine months ended ~~June~~September 30, 2014, compared to the same periods in 2013. The increases for the three and ~~six~~nine month periods were due primarily to higher borrowing levels. The 2014 ~~second~~nine ~~quarter and six~~ month ~~periods~~period also ~~include~~included $0.7 million related to a loss on extinguishment of debt from the refinancing that is further described in Note 4 to the Notes to the Condensed Consolidated Financial Statements. Our effective income tax rate for the ~~six~~nine months ended ~~June~~September 30, 2014 was 41.74% as compared to 2527.18% over the same period in 2013. The 2014 rate was negatively impacted by the expiration of jobs tax credits (not renewed for 2014), while the 2013 rate was favorably impacted by the renewal of jobs tax credits. ~~Due~~The ~~to the retroactive application of the tax credit to January 1, 2012, our effective tax rate for the~~ first ~~six~~nine months of 2013 reflects not only the ~~first~~2013 ~~six~~year-to-date ~~months~~ impact of jobs tax credit, but also $3.34 million related to 2012 and prior periods’ jobs tax credit impact.

Residential Services

Residential Services revenues for the quarter ended ~~June~~September 30, 2014 increased $2220.48 million, or 109.42%, over the same period in 2013. This increase was due primarily to acquisitions of $1619.03 million, and net organic growth of $51.74 million ~~and rate increases of $0~~.7 ~~million in certain states.~~ Operating margin was 1311.48% for the quarter ended ~~June~~September 30, 2014 compared to 1213.26% for the same period in 2013. The ~~increase~~decrease in margin is primarily attributable to ~~lower~~weak ~~health~~operating ~~insurance~~performance in our Kentucky and Texas operations, as well as higher bad debt and medical costs.

Residential Services revenues for the ~~six~~nine months ended ~~June~~September 30, 2014 increased $4364.75 million, or 109.29%, over the same period in 2013. This increase was due primarily to acquisition of $3361.~~0 million, organic growth of $~~8.1 million and ~~rate~~net ~~increases~~organic ingrowth ~~certain states~~ of $2.67 million.. Operating margin was 12.74% for the ~~six~~nine months ended ~~June~~September 30, 2014 compared to 12.37% for the same period in 2013. The ~~increase~~decrease in margin is primarily attributable to ~~cost~~weak ~~efficiencies~~operating performance in our Kentucky and ~~lower~~Texas ~~health~~operations, ~~insurance~~as well as higher bad debt, which were partially offset by lower medical costs.

ResCare HomeCare

ResCare HomeCare revenues for the quarter ended ~~June~~September 30, 2014 increased $60.15 million, or 60.85%, over the same period in 2013. This increase was due primarily to acquisition growth of $42.37 million, net organic growth of $10.47 million and rate/system changes of $0.45 million in certain states, which were partially offset by $3.4 million of unfavorable revenue reversals incurred in our Iowa operation due to a billing compliance audit matter discussed in Note 1. Operating margin ~~decreased~~was ~~from~~6.1% 9for the quarter ended September 30, 2014 compared to 10.36% for the same period in 2013. The decrease in margin is primarily attributable to 9the $3.1%4 million of unfavorable revenue reversals incurred in ~~2014~~our Iowa operation.

ResCare HomeCare revenues for the ~~six~~nine months ended ~~June~~September 30, 2014 increased $12.27 million, or 64.97%, over the same period in 2013. This increase was due primarily to acquisition of $811.85 million, net organic growth of $2.19 million and rate/system changes of $1.47 million in certain states, which were partially offset by $3.4 million of unfavorable revenue reversals incurred in our Iowa operation. Operating margin ~~increased~~was ~~from~~ 7.8% for the nine months ended September 30, 2014 compared to 9.52% for the same period in 2013. The decrease in margin is primarily attributable to 8the $3.6%4 million of unfavorable revenue reversals incurred in ~~2014~~our Iowa operation.

Education & Training Services

Education & Training Services revenues for the quarter ended ~~June~~September 30, 2014 ~~decreased~~increased $0.9 million, or 23.50%, from the same period of 2013, due primarily to ~~slot~~organic ~~reduction across all Job Corps centers effective July 1, 2013~~growth. Operating margin was 8.01% infor the ~~second~~ quarter ofended September 30, 2014 ~~and~~compared 6to 9.45% for the same period in 2013. The ~~increase~~decrease in margin is primarily attributable to ~~improved~~higher ~~census~~general inand ~~certain~~administrative ~~education related operations~~expenses.

Education & Training Services revenues for the ~~six~~nine months ended ~~June~~September 30, 2014 decreased $10.23 million, or 10.83%, from the same period of 2013~~, due primarily to slot reduction across all Job Corps centers effective July 1, 2013~~. Operating margin was 8.1% infor the ~~first~~nine ~~six~~ months ofended September 30, 2014 ~~and~~compared to 7.18% for the same period in 2013. The improvement in margin is primarily attributable to improved census in certain education related operations.

~~Workforce~~- ~~Services~~25 -

Workforce Services revenues for the quarter ended June 30, 2014 increased $2.8 million, or 7.0%, from the same period in 2013, due primarily to net contract wins/changes of $1.5 million and organic growth of $1.3 milion. Operating margin increased from 10.8% in the second quarter of 2013 to 11.5% in the same period in 2014, due primarily to lower health insurance costs.

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Workforce Services revenues for the six months ended June 30, 2014 increased $2.8 million, or 3.5%, from the same period in 2013, due primarily to organic growth opportunities. Operating margin increased from 10.1% in the first six months of 2013 to 10.5% in the same period in 2014, due primarily to higher margins on our organic growth opportunities.

Workforce Services revenues for the quarter ended September 30, 2014 increased $1.4 million, or 3.4%, from the same period in 2013, due primarily to net contract wins/changes of $1.4 million. Operating margin was 10.2% for the quarter ended September 30, 2014 compared to 12.1% for the same period in 2013. The decrease was due primarily to lower operating performance and higher bad debt expense in certain TANF contracts.

Workforce Services revenues for the nine months ended September 30, 2014 increased $4.2 million, or 3.5%, from the same period in 2013, due primarily to net contract wins/changes of $3.9 million and net organic growth of $0.3 million. Operating margin was 10.4% for the nine months ended September 30, 2014 compared to 10.8% for the same period in 2013. The decrease was due primarily to lower operating performance and higher bad debt expense in certain TANF contracts.

Pharmacy Services

Pharmacy Services revenues for the quarter ended ~~June~~September 30, 2014 increased $4.82 million, or 2923.14%, from the same period in 2013. This increase was due primarily to organic growth ~~in all the states we have pharmacy services, as well as new services in Kansas~~. Operating margin ~~decreased~~was ~~from 15~~9.50% infor the ~~second~~ quarter ofended ~~2013~~September 30, 2014 compared to 54.37% infor the same period in ~~2014~~2013. The ~~reduction~~improvement in margin is primarily attributable to a favorable physical inventory valuation error that occurred in the second quarter of 2013 and was then reversed in the third quarter of 2013.

Pharmacy Services revenues for the ~~six~~nine months ended ~~June~~September 30, 2014 ~~decreased~~increased $914.80 million, or 3028.81%, from the same period in 2013, due primarily to organic growth ~~in all the states we have pharmacy services, as well as new services in Kansas~~. Operating margin ~~decreased~~was ~~from 11~~7.37% infor the ~~first~~nine ~~six~~ months ofended ~~2013~~September 30, 2014 compared to 68.9% infor the same period in ~~2014~~2013. The reduction in margin is primarily attributable to ahigher ~~favorable~~product ~~physical inventory valuation error that occurred in the second quarter of 2013 and was then reversed in the third quarter of 2013~~cost.

Corporate

Total corporate operating expenses represent corporate general and administrative expenses, as well as other operating income and expenses. Total expenses in the third quarter ended ~~June~~September 30, 2014 ~~increased~~decreased $90.53 million compared to same period in 2013 due primarily to lower insurance costs of $74.63 million ofand ~~incentive~~lower compensation ~~expense~~costs ~~for~~of ~~stock option holders and~~ $10.7 million, ofwhich ~~higher~~were ~~insurance~~partially ~~related~~offset by higher legal costs of $5.0 million. Total expenses in the first ~~six~~nine months of 2014 increased $1817.29 million compared to first ~~six~~nine months of 2013 due primarily to $1015.86 million of higher legal costs ~~in our first quarter~~ and ~~the~~ $7.6 million of incentive compensation, ~~mentioned~~which ~~above~~were partially offset by $5.1 million of lower insurance related costs.

Financial Condition, Liquidity and Capital Resources

Total assets increased $1836.26 million, or 13.74%, at ~~June~~September 30, 2014 over balances at December 31, 2013.

Cash and cash equivalents were $3625.9 million at ~~June~~September 30, 2014, as compared to $30.0 million at December 31, 2013. Cash provided by operations for the ~~six~~nine months ended ~~June~~September 30, 2014 was $4460.7 million compared to $3455.14 million for the ~~six~~nine months ended ~~June~~September 30, 2013.

Net accounts receivable at ~~June~~September 30, 2014 increased to $~~251~~261.20 million, compared to $241.9 million at December 31, 2013. Days of revenue in net accounts receivable were 5150 days at ~~June~~September 30, 2014, ~~compared~~and ~~with 50 days at~~ December 31, 2013.

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, and expect that this will continue for at least the next twelve months.

Cash used in investing activities at ~~June~~September 30, 2014 ~~increased~~decreased $02.52 million ~~over~~compared to the same period in 2013 primarily due to ~~higher~~lower ~~purchases~~amounts ofspent ~~property~~on ~~and~~acquisitions ~~equipment~~ in 2014, which were partially offset by ~~lower~~higher ~~amounts~~purchases ~~spent~~of onproperty ~~acquisitions~~and equipment in 2014.

~~Our~~- ~~financing~~26 activities included a net proceeds of debt and capital lease obligations of $98.7 million for the first six months of 2014, which includes proceeds of $275 million related to the debt refinancing which is discussed below. This compares to a net payment of debt and capital lease obligations of $12.8 million for the same period in 2013. During 2014, we paid a dividend to our shareholders of $122.4 million and paid $3.6 million in debt issuance costs due to the debt refinancing. In addition to quarterly principal and seller note payments made in the six months ended June 30, 2013, we made an additional-

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Our financing activities included net proceeds of debt and capital lease obligations of $93.4 million for the first nine months of 2014, which includes proceeds of $275 million related to the debt refinancing which is discussed below. This compares to a net payment of debt and capital lease obligations of $19.6 million for the same period in 2013. During 2014, we paid a dividend to our shareholders of $122.4 million and paid $3.6 million in debt issuance costs due to the debt refinancing. In addition to quarterly principal and seller note payments made in the nine months ended September 30, 2013, we made an additional required $4.3 million principal payment resulting from the annual Excess Cash Flow calculation, which was part of our financial covenants under the previous agreement.

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 10.75% senior notes are jointly, severally, fully and unconditionally guaranteed by our domestic subsidiaries.

Subsequent to receiving the proceeds from the 2014 Credit Agreement, we declared and paid a dividend of $122.4 million to Onex ResCare Holdings Corp shareholders. We also recorded a one-time pre-tax charge of $7.6 million for the accrual of discretionary payments to stock option holders, of which $3.8 million was paid out ~~prior~~as toof ~~June~~September 30, 2014. The remaining accrued amount will be paid over the vesting period.

~~Our~~On ~~obligations~~November 5, ~~under~~2014, ~~capital~~the ~~leases~~Company ~~are~~delivered notice for the full redemption of the $~~21.0~~200 million ~~and~~outstanding ~~$20~~10.275% ~~million~~senior asnotes ~~of June~~due January 3015, ~~2014~~2019. The ~~and~~redemption date is December 3129,~~2013,~~ ~~respectively~~2014. ~~These~~The ~~primarily~~redemption ~~relate~~amount is equal to ~~vehicle~~the ~~capital~~sum ~~leases. The~~of ~~current~~the ~~portion~~$200 million aggregate principal at a make-whole premium amount calculated within the terms of ~~these~~the ~~lease~~related ~~obligations~~indenture ~~was~~estimated $6to be 105.582% ~~million~~plus asaccrued and unpaid interest through the date of ~~June 30,~~redemption. We ~~2014~~will finance the redemption with the DDTL and ~~December 31,~~additional ~~2013~~indebtedness.

As- of27 June 30, 2014, we had irrevocable standby letters of credit in the principal amount of $42 million issued primarily in connection with our insurance programs. As of June 30, 2014, we had $148 million available under the amended and restated revolving credit facility, with an outstanding balance of $60 million. Outstanding balances bear interest at 2.25% over the LIBOR or other bank developed rates at our option. As of June 30, 2014, the weighted average interest rate was 4.0%. Letters of credit had a borrowing rate of 2.38% as of June 30, 2014. The commitment fee on the unused balance was .40%. 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, 2014, and we believe we will continue to be in compliance with these covenants over the next twelve months. Our ability to achieve the thresholds provided for in the financial covenants

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~~largely~~Our ~~depends~~obligations ~~upon~~under ~~continued~~capital ~~profitability~~leases are $21.3 million and $20.2 million as of September 30, ~~reductions~~2014 and December 31, 2013, respectively. These primarily relate to vehicle capital leases. The current portion of ~~amounts~~these ~~borrowed~~lease ~~under~~obligations ~~the~~was ~~facility~~$6.6 million as of September 30, 2014 and ~~continued~~$6.5 ~~cash~~million ~~collections~~as of December 31, 2013.

As of September 30, 2014, we had irrevocable standby letters of credit in the principal amount of $46.2 million issued primarily in connection with our insurance programs. As of September 30, 2014, we had $143.8 million available under the amended and restated revolving credit facility, with an outstanding balance of $60.0 million. Outstanding balances bear interest at 2.00% over the LIBOR or other bank developed rates at our option. As of September 30, 2014, the weighted average interest rate was 4%. Letters of credit had a borrowing rate of 2.38% as of September 30, 2014. The commitment fee on the unused balance was 0.35%. 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 September 30, 2014, and we believe we will continue to be in compliance with these 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 68% through Medicaid reimbursement, 7% from the DOL and 25% 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 2014 or 2013.

Impact of Recently Issued Accounting Pronouncements

See Note 10 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. 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, and tiered based upon leverage calculations, had an outstanding balance of $~~260~~256.5 million as of ~~June~~September 30, 2014 and $157.5 million as of December 31, 2013. A 100 basis point movement in the interest rate sustained for one year would result in an approximate $2.6 million annualized effect on interest expense and cash flows.

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~~September 30, 2014 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

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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.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Information regarding the legal proceedings is provided in Note 8 to the condensed consolidated financial statements set forth in Part I of this report and incorporated by reference into this Part II, Item 1.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in our 2013 Annual Report on Form 10-K filed February 18, 2014.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit			~~Description of Exhibit~~	Description of Exhibit
*	31.1	~~31.1~~	~~Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended.~~	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended.
*	31.2	~~31.2~~	~~Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended.~~	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended.
*	32	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.~~	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.
*	101	~~101~~	The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial Statements.	The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to Condensed Consolidated Financial Statements.
		*	Filed herewith

-* 28Filed -herewith

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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.~~	RES-CARE, INC.
			~~Registrant~~	Registrant
Date:	~~August~~November 410, 2014	~~By:~~	~~/s/ Ralph G. Gronefeld, Jr.~~By:	/s/ Ralph G. Gronefeld, Jr.
			~~Ralph G. Gronefeld, Jr.~~	Ralph G. Gronefeld, Jr.
			~~President and Chief Executive Officer~~	President and Chief Executive Officer
Date:	~~August~~November 410, 2014	~~By:~~	~~/s/ D. Ross Davison~~By:	/s/ D. Ross Davison
			~~D. Ross Davison~~	D. Ross Davison
			~~Chief Financial Officer~~	Chief Financial Officer

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